ITEM 1. BUSINESS
a. General Development of Business
The First Republic Corporation of America (the "Company") was incorporated in the State of Delaware in February 1961, and is presently engaged, either directly or through its subsidiaries, in the real estate, hotel, seafood, and textile businesses. See Item 1(c) for a description of the businesses in which the Company and its subsidiaries are engaged.
The Company borrowed $3,355,000 in the form of a construction loan from a bank for the purposes of converting the Company's property at 260 Merrimac Street in Newburyport, Massachusetts, formerly occupied by Towle Manufacturing Company, into commercial space suitable for rental. Construction was completed in 2001 and the construction loan was originally scheduled to mature in August 2000. The maturity date has been extended to August 31, 2005. Interest on the extended loan will be based upon the five year United States Treasury Bond Rate plus 1.75%.
On October 4, 2000, the Company sold its office building on West 39th Street in New York City for $20,800,000. There was no existing mortgage debt on this property. After expenses and adjustments of approximately $750,000, the Company received net proceeds of approximately $20,050,000. The Company recognized a gain of approximately $18,630,000.
On March 17, 2000 the Company entered into an agreement for the sale of its vacant land in Melbourne, Florida for approximately $1,775,000 contingent upon the buyer obtaining certain permits and financing. The contingencies have since been satisfied and a closing is scheduled to take place on November 1, 2001. There is no existing mortgage debt on this property. After expenses and adjustments, the company expects to receive net proceeds of approximately $1,600,000 and recognize a gain of approximately $157,000.
b. Financial Information about Industry Segments
The sales and operating profit from operations and the identifiable assets attributable to each industry segment for the three years ended June 30, 2001 are set forth in Note 2 (Industry Segments and Foreign Operations) of the Notes to Consolidated Financial Statements, which are incorporated herein by reference to Item 8. hereof.
c. Narrative Description of Business
Real Estate
The Company owns various loft buildings, office buildings, industrial buildings, shopping centers, and residential and other properties, situated along the East Coast of
the United States in Massachusetts, Rhode Island, New York, New Jersey, Pennsylvania, Virginia, North Carolina and Florida. A general description of these properties is provided in Item 2.
ITEM 2. PROPERTIES
Location General Character (1) -------------------------------------------------------------------------------- Real Estate Segment
First Republic Office Park Two, two-story office buildings with Thruway and Electronics Parkway 49,000 and 35,000 rentable square feet; Liverpool, New York Approximately 14 acres of land; 98% rented
Waltham Engineering Center 17 multi-story industrial buildings; Waltham, Massachusetts in excess of 380,000 rentable square feet; parking facilities; 100% rented.
East Newark Industrial Center 30 multi-story industrial buildings; in East Newark, New Jersey excess of 1,000,000 rentable square feet; parking facilities; 90% rented.
Nyanza Building Four-story and basement industrial Woonsocket, Rhode Island building; 300,000 rentable square feet; used by the Company as spinning plant (100,000 sq. ft.) and balance rented to others; 96% rented.
Greensboro North Shopping Center Approximately 13.5 acres of land and Greensboro, North Carolina 140,000 square feet of space in buildings located thereon; 100% rented.
Greensboro South Shopping Center Approximately 12 acres of land and Greensboro, North Carolina 134,250 square feet of space in buildings located thereon; 100% rented.
Shopping Center Approximately 13.5 acres of land and Richmond, Virginia 130,000 square feet of space in buildings located thereon; 100% rented.
Location General Character (1) -------------------------------------------------------------------------------- London Bridge Shopping Center Approximately 10.2 acres of land and Virginia Beach, Virginia 100,000 square feet of space in buildings located thereon; 97% rented.
Shipps Corner Shopping Center Approximately 5.5 acres of land and Virginia Beach, Virginia 63,000 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; 97% rented. (Company owns 50% of Sunscape Associates, a partnership which owns the apartments).
Shopping Center Approximately 22.7 acres of land and Brookhaven, Pennsylvania 196,000 square feet of space in buildings located thereon; 100% rented.
Newburyport, Massachusetts Four-story building; 100,000 rentable square feet of space; 84% rented.
Three-story building, 13,800 rentable square feet of space; 100% rented.
Two-story building and warehouse; 5,000 square feet, presently vacant.
Hotel Segment
Hotel--Syracuse 288-room motor hotel and convention Thruway and Electronics Parkway center; indoor pool; operated under a Liverpool, New York Holiday Inn franchise agreement.
Location General Character (1) -------------------------------------------------------------------------------- Seafood Segment (2)
West Sayville, New York Approximately 13,000 acres of underwater land in the Great South Bay of Long Island; approximately 5 acres of upland and 22,500 square feet of space in two buildings located thereon; used for unloading product, storage, inspection, shipping, shop maintenance, hatchery and administration.
Mattituck, New York Approximately one acre of land on Long Island; used as a grow out pond for the clam hatchery.
Englishman Island Approximately 600 acres of land including Guayaquil County, Ecuador approximately 288 acres owned and the balance held under a 10-year concession, expiring April 2004, containing shrimp ponds and drainage canals.
Vacant Land Bluepoints has a 62.5% interest in a Guayaquil, Ecuador company that owns approximately 100,000 square feet of riverfront land.
Ayangue Bluepoints has a 62.5% interest in a Guayas Province, Ecuador company that owns approximately 56 acres of land used for a shrimp hatchery.
Cape Canaveral, Florida Various leaseholds (approximately 11 acres) used by scallop operation for offloading, processing, packaging, warehouse and office. (Company owns 100% of Bluepoints International Fisheries Inc. 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.
Location General Character (1) -------------------------------------------------------------------------------- Pageland, South Carolina Approximately 10 acres of land and 36,125 square foot building located thereon; previously used as bulking and twisting plant, warehouse and office, presently being rented.
Lake City, South Carolina Approximately 21.5 acres of land and 95,000 square feet in two buildings located thereon; used for a yarn spinning plant and warehouse.
Sumter, South Carolina Approximately 10.5 acres of land and 61,000 square foot building located thereon; used as yarn dyeing plant, warehouse and office.
Corporate Office
302 Fifth Avenue 5,400 square feet of executive offices; New York, New York month-to-month tenant at a rent of $9,100 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 at prices ranging from a low of $42 per share in October 1999 to a high of $50 in June 2001.
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 13, 2001, there were 703 holders of record of the Company's common stock.
c. No dividends have been paid during the two years ended June 30, 2001. 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, 2001 increased by approximately $12,501,000 to $19,280,000.
Net cash used in operating activities was approximately $3,396,000 during the 2001 fiscal year. Net cash used in financing activities was approximately $8,811,000. Net cash of approximately $15,074,000 was provided by investing activities. The Company has a $9,000,000 term loan with its principal lender bearing interest at 7.5% and a $3,000,000 revolving line of credit with an interest rate equal to either (a) LIBOR plus 2% or (b) the Alternate Base Rate (as defined) plus 0.50%. These loans are collateralized by a mortgage on the East Newark Industrial Center. The term loan requires amortization payments of approximately $359,000 per annum. The term loan matures on October 21, 2002 and the revolving line of credit which was to expire October 2001 is in the process of being extended to October 2002. At June 30, 2001 the term loan balance was $7,714,000 and nothing was outstanding on the revolving line of credit. On October 4, 2000 the Company sold the Junior Coat Building on West 39th Street in New York City for approximately $20,800,000 and recognized a gain of approximately $18,630,000. The net proceeds to the Company after expenses was approximately $20,050,000.
In September 2001, the Company discontinued operations at its Hanora South spinning plant. The operations performed at Hanora South will in the future be performed at Hanora. The Company does not believe that the discontinued operations will have a material impact on the Company's textile operations.
During the three years ended June 30, 2001, the Company incurred capital expenditures of approximately $17,589,000. In addition, approximately $2,194,000 was expended for tenant improvements during this three year period. At June 30, 2001 the Company had no significant commitments for capital expenditures and believes that its current cash position and borrowing capacity are adequate to meet cash needs for the next twelve months.
The Company's equity share of losses from Ecuadorian shrimp operations was approximately $717,000 in fiscal 2001 as compared to $1,300,000 in fiscal 2000. Efforts are being made to increase shrimp production through the use of the Company's patented Mariculture System, the development of a product, Tolerine, designed to mitigate White Spot Syndrome virus that is decimating Ecuador's shrimp production, the micro-screening of the water supply to the ponds and other improved farming techniques. Although there can be no assurance that the shrimp production will improve, the Company believes that operations will improve in the second half of fiscal 2002 as a result of cost reductions, the efforts to increase production as discussed above, and the marketing of its Mariculture System and Tolerine product to other shrimp farmers.
Results of Operations
Real Estate
In fiscal 2001 the Company's real estate operating profits decreased $263,000 and revenues decreased $1,225,000. The decrease in revenues was due to the sale of the Company's office building on West 39th Street in New York City on October 4, 2000 and its Miami Beach property on May 1, 2000, offset by revenue increases at substantially all the Company's other properties. The decrease in operating profits was due to the reduced revenue offset by reduced repairs and maintenance of $726,000 at our Waltham and Nyanza properties and reduced mortgage interest of $213,000.
In fiscal 2000 operating profits decreased $1,582,000 and revenues increased $876,000. The decrease in operating profits was due to $1,251,000 of costs incurred at our Nyanza Building to clean up an oil spill caused by a small break in an oil return line that had been leaking oil over an extended period of time; increased energy costs of $265,000 due to a substantial increase in fuel costs; increased repairs and maintenance of $555,000 at our East Newark and Waltham properties; increased mortgage interest of $85,000 and a $169,000 insurance recovery in fiscal 1999 at our Richmond Virginia Shopping Center. The decrease in operating profits mentioned above were offset by increased revenues and operating profits at substantially all our other properties. The revenue increases came principally from our recently renovated Newburyport property ($553,000) and the Shipps Corner Shopping Center which the Company purchased in November 1998 ($231,000).
In fiscal 1999 operating profits decreased $157,000 and revenues decreased $1,272,000 compared to the prior fiscal year. This was due primarily to the sale of the Video Film Center in fiscal 1998, which had revenues of $2,864,000 and operating profit of $549,000. Revenues at the Shipps Corner Shopping Center purchased November 17, 1998 were $294,000 and operating profit was $177,000. Revenues at the Newburyport property, which the Company renovated, increased $364,000 and operating profit decreased $310,000. Revenues and operating income increased at substantially all the other properties. Mortgage interest was reduced by $177,000 and proceeds of $169,000 was received at the Richmond Virginia Shopping Center in the settlement of a lawsuit.
Hotel
In fiscal 2001 revenues decreased $95,000 and profits decreased $466,000 as a result of the lower revenues, increased fuel and utility costs of $140,000, higher repairs and maintenance of $53,000, increased depreciation expense of $67,000 and higher operating costs.
In fiscal 2000 revenues increased $1,256,000 and profits increased $529,000 as a result of the completion, in January 1999, of a $4,000,000 renovation project which allowed the hotel to operate as a Holiday Inn franchise. Depreciation expense increased $307,000 as a result of the renovation.
In fiscal 1999 revenues decreased $287,000 and profits decreased $547,000 as a result of
renovations being conducted at the hotel. Depreciation expense increased $282,000 as result of the renovation.
Seafood
In fiscal 2001 overall revenues for the seafood division increased $5,198,000 as compared to the prior year. Losses from operations (including equity share of losses in affiliated entity and excluding minority interests' share of loss of subsidiaries) in fiscal 2001 were $4,653,000 as compared to losses of $2,501,000 in fiscal 2000. Losses from the Ecuadorian shrimp operations were $2,005,000 and revenues decreased $710,000 due to continued poor shrimp yields caused by the devastating outbreak two years ago of White Spot Virus that is decimating the Ecuadorian shrimp industry. The Company is continuing its efforts started last year to combat the virus and has started to import larvae from Panama and micro-screen the water going into its ponds. The Company believes that with the implementation of these two new procedures added to procedures introduced last year and the continued use of its patented ozone system the shrimp operations will improve in the latter part of fiscal 2002. However, there can be no assurance that these treatments will be successful. The Company's Florida operations incurred a loss of $2,583,000 in fiscal 2001 as compared to a loss of $798,000 in fiscal 2000 on a $4,563,000 increase in revenues. Bluepoints Long Island operations had a loss of $65,000 as compared to a profit of $497,000 in the prior year and revenues increased $1,345,000. The domestic seafood industry experienced a severe drop in profitability from September of 2000 through the summer of 2001 due to the slowing economy and reduced consumer confidence. Seafood operations were adversely affected by losses incurred on imported scallops caused by a precipitous drop in domestic scallop prices and lower than anticipated margins on many of our seafood products
In fiscal 2000 revenues for the seafood division increased $12,287,000 as compared to the prior year. Losses from operations (including equity share of losses in affiliated entity and excluding minority interests' share of loss of subsidiaries) in fiscal 2000 were $2,501,000 as compared to a loss of $2,428,000 in fiscal 1999. Losses from the Ecuadorian shrimp operations were $2,199,000 and revenues decreased $1,389,000 due to continued poor shrimp yields caused by the devastating outbreak last year of White Spot Virus. The Company attempted to combat the virus by constructing grow-out ponds so that juvenile shrimp could mature to a larger size before they were placed into the shrimp ponds thereby making them less susceptible to the virus. The Company was also developing a new product, Tolerine, to help the shrimp fight off the White Spot Virus. The Company's scallop operation incurred a loss of $798,000 in fiscal 2000 as compared to a loss of $547,000 in fiscal 1999 on a $343,000 decrease in revenues. Bluepoints Long Island operations had a profit of $497,000 as compared to a profit of $66,000 in the prior year. Revenues increased $14,019,000 principally due to the sale of lobster tails, a new product introduced last year, and other seafood products.
In fiscal 1999 revenues for the seafood division increased $7,078,000 as compared to the prior year. Losses from operations (including equity share of losses in affiliated entity and excluding minority interests' share of loss of subsidiaries) in fiscal 1999 were $2,428,000 as compared to a loss of $3,576,000 in fiscal 1998. Losses from the Ecuadorian shrimp
operations were $1,947,000 and revenues decreased $2,826,000 due to problems at the shrimp hatchery earlier in the year caused by colder water temperatures, the transition from the weather phenomenon known as "El Nino" and the discontinuation of sales of shrimp purchased from third parties. Shrimp yields in the latter part of the year were adversely affected by the outbreak of White Spot Virus that reduced pounds harvested. The Company's scallop operation incurred a loss of $547,000 in fiscal 1999 as compared to a loss of $1,163,000 in fiscal 1998 on a $3,608,000 increase in revenues. Bluepoints' Long Island operations had a profit of $66,000 as compared to a loss of $1,054,000 in the prior year. Revenues increased $6,296,000 principally due to the sale of imported lobster tails.
Textile
Fiscal 2001 revenues for the textile division increased $1,735,000 over the prior year and operating loss decreased $251,000. Hanora Spinning's operating profit increased $114,000, to $420,000 and revenues increased $1,924,000. Hanora South and J&M Dyers ("J&M") incurred a combined loss of $319,000, as compared to the prior years' loss of $416,000 and revenues decreased $189,000. Losses decreased principally due to the higher revenues and lower depreciation at Hanora South and J&M of $136,000. Whitlock Combing Co. Inc. ("Whitlock"), which owned a wool combing plant in South Carolina and which discontinued operations in 1992, incurred a loss of $143,000 relating to its property in South Carolina that is being offered for sale compared to a loss of $183,000 last year. During the three years ended June 30, 2001 the Company purchased approximately $2,009,000 of machinery and equipment for the textile operations.
In fiscal 2000 revenues for the textile division decreased $1,111,000 and operating loss decreased $383,000. Hanora Spinning's operating profit decreased $77,000, to $306,000 and revenues decreased $661,000. Hanora South and J&M Dyers incurred a combined loss of $416,000, as compared to the prior years' loss of $593,000 and revenues decreased $450,000. The decrease in revenues was due to the continuing downturn in the textile industry caused by increased competition from foreign companies. Earnings increased principally due to lower depreciation at Hanora South and J&M of $167,000 and the write off in fiscal 1999 of $300,000 relating to Whitlock. Whitlock incurred a loss of $183,000 compared to a loss of $466,000 (including a write-down of its building by $300,000) in fiscal 1999.
In fiscal 1999 revenues for the textile division decreased $4,458,000 over the prior year and operating profit decreased $998,000. Hanora Spinning's operating profit decreased $493,000 to $383,000 and revenues decreased $3,372,000. Hanora South and J&M incurred a combined loss of $593,000 as compared to the prior year's loss of $167,000 and revenues decreased $1,086,000. The decrease in earnings in the textile division was due to lower revenues caused by a downturn in the textile industry, lower wool prices and increased competition from foreign companies. Whitlock incurred losses of $466,000 (including a write-down of its building by $300,000) compared to a loss of $387,000 (including an additional write-down of its building by $250,000) in the prior year.
Corporate/Other
Corporate interest and expenses for the last three years was $4,492,000, $4,175,000 and $4,367,000, respectively. Corporate and other revenues for the last three years was
$387,000, $864,000 and $692,000, respectively. Corporate expenses includes the operations of the Merrimac division other than those related to the ownership of currently leased real estate which are included in the real estate operations. Corporate interest and expenses in fiscal 2001 increased due to an increase in salaries of $118,000, and increased professional fees of $171,000, offset by a reduction in interest expense of $98,000.
Corporate expenses in fiscal 2000 decreased due to a reduction of $280,000 in professional fees, offset by an increase in salaries of $53,000.
Corporate expenses in fiscal 1999 increased due to increased professional fees of $150,000 and increased salaries of $136,000. The professional fees relate to the patent obtained on the Company's Mariculture System in Ecuador.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("Statement") No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets.
Statement No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is no longer permitted. Statement No. 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination that is completed after June 30, 2001.
Statement No. 142 no longer permits the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The amortization of goodwill included in our other expenses will also no longer be recorded upon adoption of the new rules.
Intangible assets that do not have indefinite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with Statement No. 121. The management does not believe that the adoption of Statement No. 142 will have a significant effect on results of operations or the financial position of the Company.
Forward-looking Statements
Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21B of the Securities Act of 1934, as amended. Such forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: the ability of the Company to increase production at its Ecuadorian shrimp farms, and to address the virus problem that is affecting shrimp production in Ecuador, the clam inventory in the Great South Bay, the availability of scallops in the area covered by the Company's Cape Canaveral, Florida operations, the success of the Company's Mariculture System, Tolerine product and micro-screening efforts, demand for the Company's textile services, general economic and business conditions, which will, among other things, affect the demand for space and rooms at the Company's real estate and hotel properties, the availability and creditworthiness of prospective tenants, lease rents and the terms and availability of financing, and adverse changes in the real estate markets, including, among other things, competition with other companies, risks of real estate development and acquisition, governmental actions and initiatives and environmental safety requirements. In addition, the recent catastrophe involving the World Trade Center may adversely impact the operations of the Company's seafood, textile and hotel operations.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company has assessed its exposure to market risk for its variable rate debt and believes that a 1% change in interest rates would have a $34,000 effect on income before taxes.
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, 2001 and 2000, and the related consolidated statements of operations and comprehensive income (loss), retained earnings, and cash flows for each of three years in the period ended June 30, 2001. Our audits also included the financial statement schedules listed in the accompanying index to financial statements (Item 14.a.2). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We did not audit the financial statements of (a) Marchelot S.A. and its subsidiaries, Bluepoints International Fisheries, Inc. and subsidiaries and the hotel division, which statements reflect total assets constituting 24% in 2001, 23% in 2000 and 25% in 1999, and total revenues constituting 23% in 2001, 20% in 2000, and 27% in 1999, of the related consolidated totals, and (b) Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies (the "Mondragon Companies", a corporation in which the Company has a 38% interest), accounted for on the equity method. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The First Republic Corporation of America and subsidiaries at June 30, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
New York, New York September 21, 2001
[LETTERHEAD OF BDO]
Independent Auditor's Report
To the Board of Directors Marchelot S.A. and Subsidiaries New York, U.S.A.
1. We have audited the 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, 2001 and 2000, and the related consolidated statements of operations and deficit, and of cash flows, for each of the years ended June 30, 2001, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
2. We conducted our audits in accordance with generally accepted auditing standards prevailing in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements' presentation. We believe that our audits provide a reasonable basis for our opinion.
3. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Marchelot S.A. and Subsidiaries to June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the years ended June 30, 2001, 2000 and 1999, in conformity with generally accepted accounting principles prevailing in the United States of America.
[LOGO]
4. The economic conditions prevailing in the country during 2000 have been strongly influenced in past years by a progressive deterioration process, characterized among others by high inflation rates and the Sucre devaluation, general bank and financial system crisis, restricted assets to international credits and a strong reduction in the economy activity of the country. In March 13, 2000 the National Congress approved the Ecuadorian Economic Transformation Law, which established the exchange of circulation Sucres for US Dollar at S/.25.000 per US$1. As explained in the significant accounting policies, the authorities established a translation process of the financial statement to April 30, 2000 from Sucres to US Dollars. Subsequent to the monetary unit exchange, the prices of local goods and services continued in a progressive adjustment process, determining a 28% increase in the general consumer price index from May 1 to December 31, 2000. Authorities estimate that the price adjustment and inflation rates will gradually decrease in the following months when relatives prices are accompanied by strengthening of the local financial system. Because of the situations, it is not possible to integrally establish the effects of these conditions over the future evolution of the national economy and its consequences, if any, on the economy and financial position of the Company and the results of its future operations. The accompanying financial statements should be read the light of these uncertain circumstances.
/s/ BDO Stern
August 3, 2001 Guayaquil, Ecuador
[LETTERHEAD OF HOYMAN, DOBSON & COMPANY, P.A.]
INDEPENDENT AUDITOR'S REPORT
Board of Directors Bluepoints International Fisheries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Bluepoints International Fisheries, Inc. (a Florida corporation) and Subsidiaries as of June 30, 2001, and the related consolidated statements of operations and accumulated deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The Company's financial statements do not disclose deferred taxes. In our opinion, disclosure of that information is required to conform with accounting principles generally accepted in the United States of America.
In our opinion, except for the omission of the information discussed in the preceding paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bluepoints International Fisheries, Inc. and Subsidiaries as of June 30, 2001 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Hoyman, Dobson & Company, P.A. Hoyman Dobson & Company, PA. August 7, 2001
[LETTERHEAD OF DERMODY, BURKE & BROWN]
INDEPENDENT AUDITORS' REPORT ================================================================================
BOARD OF DIRECTORS FIRST REPUBLIC CORPORATION OF AMERICA, HOLIDAY INN
We have audited the accompanying balance sheets of FIRST REPUBLIC CORPORATION OF AMERICA, HOLIDAY INN as of June 30, 2001 and 2000, and the related statements of income and division control and cash flows for the years ended June 30, 2001, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The Holiday Inn is owned and operated by First Republic Corporation of America and its affiliated company, First Republic Building Corporation. The accounting records maintained in Syracuse relate only to the transactions incurred in the daily operation of the Hotel. Transactions involving debt financing, tax escrow payments, corporate income taxes and property accounts are not reflected on the Hotel's books but are the accounting responsibility of First Republic and its affiliate. These financial statements are issued for inclusion in the financial statements of First Republic Corporation of America and should not be considered separately in determining the financial position and results of operations of the Holiday Inn.
--------------------------------------------------------------------------------
================================================================================
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the operations of First Republic Corporation of America, Holiday Inn at June 30, 2001 and 2000 and the results of its operations and its cash flows for the years ended June 30, 2001, 2000 and 1999 in conformity with accounting principles generally accepted in the United States of America.
/s/ Dermody, Burke and Brown DERMODY, BURKE AND BROWN Certified Public Accountants, P. C.
Syracuse, NY
August 2, 2001
--------------------------------------------------------------------------------
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 and Comprehensive Income (Loss)
See notes to consolidated financial statements.
The First Republic Corporation of America and Subsidiaries
Consolidated Statements of Retained Earnings
Year ended June 30, 2001 2000 1999 ----------------------------------------------
Balance, beginning of year $43,070,958 $ 43,347,294 $ 43,471,684
Net income (loss) for the year 14,707,815 (276,336) (124,390) ----------------------------------------------
Balance, end of year $57,778,773 $ 43,070,958 $ 43,347,294 ==============================================
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, 2001
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of The First Republic Corporation of America and all majority owned or controlled subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company records its investment in partnerships and corporations in which it owns or owned interests ranging from 38% to 50% in accordance with the equity method.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market with cost being determined by specific identification.
Inventories are summarized as follows:
June 30, 2001 2000 ----------------------------- Work-in-process and raw materials $ 1,938,535 $1,511,915 Finished goods 8,667,621 7,803,809 ----------------------------- $10,606,156 $9,315,724 =============================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Depreciation and Amortization
Depreciation and amortization are provided by the straight-line method over the following estimated useful lives:
Estimated Classification Useful Life -------------------------------------------------------------------------------- Buildings and improvements 15 to 40 years Leaseholds and improvements 3 to 31.5 years Machinery, equipment, parts and vehicles 5 to 10 years Furniture and furnishings 5 years
Tenant improvements and leasing commissions are amortized over the term of the respective tenants' leases.
Financing costs are amortized over the term of the related debt.
Revenues
Sales of textiles and seafood are recognized when shipments are made to customers. Returns of textiles and seafood are not significant, therefore no provision has been recorded. Rental revenue is recognized on an accrual basis in accordance with the terms of the lease except that leases with scheduled rent increases are required to be recognized on a straight-line basis over the life of the lease. Hotel revenues are recognized when the related services are rendered.
Gain from sales of properties is recognized when the buyer has demonstrated a commitment to pay through adequate payments and no significant contingencies remain.
Accounting for Income Taxes
The liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
Financial Accounting Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of ("Statement No. 121"), requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets to be disposed of. A write-down of $300,000 was recorded for Whitlock Combing Company Inc. ("Whitlock") for the year ended June 30, 1999, (see Note 10). No write-down was recorded for the years ended June 30, 2001 and 2000.
Earnings Per Share
Basic and diluted per share amounts are based on 669,195 (2001), 669,922 (2000) and 670,126 (1999) weighted average shares of common stock outstanding.
Derivative Instruments and Hedging Activities
The Financial Accounting Standards Board ("FASB") issued Statement No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133. Statement No. 137 deferred, for one year, the effective date of Statement No. 133, Accounting for Derivatives Instruments and Hedging Activities. The rule applies to fiscal years beginning after June 15, 2000. The impact of the adoption of Statements No. 133 and 137 for the year ended June 30, 2001 did not have a significant impact on the Company's earnings or financial position.
Foreign Operations
A subsidiary, together with certain entities in which the subsidiary owns a 38% interest, is engaged in shrimp farming operations in Ecuador. Financial statements of such foreign entities are translated using the U.S. dollar as the functional currency since Ecuador has a hyperinflationary currency. Operations include exchange gains (included in selling, general and administrative expenses) of $0 (2001), $612,965 (2000) and $985,032 (1999) 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)
Business Combinations
In June 2001, the FASB issued Statement No. 141, Business Combinations. Statement No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is no longer permitted. Statement No. 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination that is completed after June 30, 2001. Management does not anticipate that the adoption of this statement will have a significant effect on results of operations or the financial position of the Company.
Goodwill and Other Intangible Assets
In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 142 no longer permits the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The amortization of goodwill included in other expenses will also no longer be recorded upon adoption of the new rules. Intangible assets that do no have indefinite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with Statement No. 121. The Company is required to adopt Statement No. 142 no later than November 1, 2002. Management does not anticipate that the adoption of this statement will have a significant effect on results of operations or the financial position of the Company.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations
The Company's operations in the industry segments detailed below consist of:
Real Estate: Ownership of loft, office and industrial buildings, shopping centers, residential property and vacant land located principally in the states of New York, New Jersey, Florida, North Carolina, Massachusetts, Rhode Island, Virginia and Pennsylvania.
Hotel: Ownership and operation of a hotel and convention center in Liverpool, New York.
Seafood: Harvesting and sale of hard-shell clams on property owned by the Company located underwater off Long Island's South Shore in New York State, harvesting and sale of scallops on property leased by the Company in Cape Canaveral, Florida, sales of shrimp from Ecuador (grown in Company leased ponds or purchased from a 38% owned entity and other third-parties) and sales of lobster tails, shrimp and other products purchased locally or imported from various other countries.
Textile: Operations of two yarn spinning plants and a dye house located in South Carolina and Rhode Island.
The Company operates in four segments, as noted above. These segments are managed and reported separately because of the differences in products they produce and markets they serve. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating income, i.e., results of operations before certain corporate items and income taxes. There are no intersegment sales.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
Following is information about the Company's industry segments for each of the three years ended June 30:
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Industry Segments and Foreign Operations (continued)
2001 2000 1999 -------------------------------------------- Identifiable assets: Real estate $ 33,944,580 $35,646,289 $41,004,974 Hotel 5,161,505 5,915,137 6,405,362 Seafood 31,496,637 28,352,641 21,050,906 Textile 9,591,173 9,501,781 10,025,734 Corporate and other (d) 24,438,132 20,312,671 18,069,105 -------------------------------------------- $104,632,127 $99,728,519 $96,556,081 ============================================
Depreciation and amortization: Real estate $ 2,148,485 $ 2,286,744 $ 2,055,065 Hotel 899,677 832,232 524,928 Seafood 804,055 951,377 900,858 Textile 639,448 769,115 926,431 Corporate and other 59,996 52,394 40,347 -------------------------------------------- $ 4,551,661 $ 4,891,862 $ 4,447,629 ============================================
Capital expenditures--net: Real estate $ 1,921,714 $ 2,308,232 $ 6,803,555 Hotel 201,513 422,856 3,624,526 Seafood 664,388 543,748 982,469 Textile 347,759 430,167 1,231,342 Corporate and other 157,938 23,857 119,000 -------------------------------------------- $ 3,293,312 $ 3,728,860 $12,760,892 ============================================
Geographic information: Revenues United States $ 69,466,474 $63,594,010 $48,725,498 Ecuador 639,689 1,374,661 2,763,050 -------------------------------------------- $ 70,106,163 $64,968,671 $51,488,548 ============================================
Identifiable assets: United States $ 78,937,127 $75,496,519 $71,922,081 Ecuador 25,695,000 24,232,000 24,634,000 -------------------------------------------- $104,632,127 $99,728,519 $96,556,081 ============================================
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 $1,268,079 (2001), $1,481,190 (2000), and $1,395,541 (1999). (b) Includes losses from Whitlock (see Note 10). (c) See Note 3. (d) Consists principally of investments in and advances to affiliated entities. (e) Includes interest income of $237,000 (2001), $117,000 (2000) and $275,000 (1999). (f) Includes interest income of $1,035,000 (2001), $927,000 (2000) and $549,000 (1999).
3. Affiliated Entities
The following table summarizes information with respect to the Company's affiliated entities:
(1)-- Advances to Mondragon from the Company were approximately $14,382,000 and $13,113,000 at June 30, 2001 and 2000, respectively (see Note 9).
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Affiliated Entities (continued)
Real Estate
Sunscape Associates ("Sunscape") owns a 167 unit garden apartment complex located in Orlando, Florida. The other 50% interest in Sunscape is owned by corporate entities which in turn are owned by officers and directors of the Company.
Seafood
Bluepoints 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.
Condensed combined financial information of the Mondragon Companies is as follows:
June 30, 2001 2000 ------------------------------ Assets Current assets $ 945,000 $ 2,254,000 Property and equipment--net of accumulated depreciation 13,018,000 11,157,000 Other assets 3,000 3,000 ------------------------------ Total assets $ 13,966,000 $ 13,414,000 ==============================
Liabilities Due to Bluepoints and other affiliates $ 6,580,000 $ 5,017,000 Other current liabilities 176,000 375,000 ------------------------------ Total current liabilities 6,756,000 5,392,000
Long-term debt--Bluepoints 8,928,000 8,928,000 ------------------------------ Total liabilities 15,684,000 14,320,000
Stockholders' equity (1,718,000) (906,000) ------------------------------ Total liabilities and equity $ 13,966,000 $ 13,414,000 ==============================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Affiliated Entities (continued)
Seafood (continued)
Year ended June 30, 2001 2000 1999 -----------------------------------------------
Revenues $ 285,000 $ 1,575,000 $ 3,027,000 Costs and expenses 2,171,000 4,995,000 5,973,000 ----------------------------------------------- Net loss $(1,886,000) $(3,420,000) $(2,946,000) ===============================================
4. 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 $18,800,000 and $18,600,000 at June 30, 2001 and 2000, respectively.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Long-Term Debt and Credit Facilities (continued)
(2)--In fiscal 1998, the Company refinanced a mortgage, collateralized by the Brookhaven Shopping Center in Brookhaven Pennsylvania, which had an outstanding balance of approximately $1,500,000 for $2,500,000. The new loan bears interest at 7.8% per annum and provides for monthly payments of $20,601 including principal and interest commencing February 1, 1998 through December 31, 2007 when the remaining unpaid balance of $1,722,000 will become due. The balance was $2,306,596 and $2,368,628 at June 30, 2001 and 2000, respectively.
(3)--The Company has a $9,000,000 term loan with interest at 7.5% and a $3,000,000 revolving line of credit with an interest rate equal to either (a) LIBOR plus 2.0% or, (b) the Alternate Base Rate (as defined) plus 0.50%.The term loan requires amortization payments of $358,800 per annum. The term loan matures on October 21, 2002 and the revolving line of credit, which was scheduled to expire October 2001, is being extended to October 2002. At June 30, 2001 and 2000, the term loan balance was $7,714,300 and $8,073,100, respectively, with a fixed rate of interest of 7.5% and there was $0 and $2,000,000, respectively, outstanding under the revolving line of credit with an interest rate of 8.7% at June 30, 2000.
(4)--On August 31, 1998, the Company obtained a $3,355,000 construction loan from a bank for its property at 260 Merrimac Street in Newburyport, Massachusetts. The loan was obtained for the purpose of converting the vacant property, formerly occupied by Towle Manufacturing Company, into commercial space suitable for rental. The construction loan, which matured on August 31, 2000 was extended to August 31, 2005. Interest on the construction loan was at the bank's prime rate from time to time, or at LIBOR plus 1.75% for one to twelve month periods, as elected by the Company. Interest on the extended loan will be based upon the five year United States Treasury Bond Rate plus 1.75%.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Long-Term Debt and Credit Facilities (continued)
(5)--On September 3, 1998, the Company refinanced a mortgage on its London Bridge Shopping Center in Virginia Beach, Virginia with a new lender and paid off the old mortgage of approximately $2,520,000. The new $3,000,000 mortgage calls for monthly payments of $23,711 including principal and interest, bears interest at 7.25% and matures on September 1, 2018. In fiscal 1999, the Company incurred a pre-payment penalty of $100,794 which was included in selling general and administrative expenses in the accompanying consolidated statements of operations. The balance was $2,803,442 and $2,881,623 at June 30, 2001 and 2000, respectively.
(6)--On December 18, 1998, the Company closed a loan with the Overseas Private Investment Corporation for $5,050,000. The loan is collateralized by a mortgage on the Waltham Engineering Center, bears interest at 7.3% per annum and provides for 15 semi-annual payments of principal and interest. The balance was $3,366,667 and $4,040,000 at June 30, 2001 and 2000, respectively.
(7)--On March 30, 1999, the Company refinanced the $2,000,000 balance of a mortgage loan on the Colonial Bank (formerly known as Jefferson National Bank) Building in Miami Beach, Florida. The new loan bore interest at 7.65% per annum, payable monthly, and provided for monthly principal payments of $29,167 commencing May 1, 1999 through December 1, 2004. The balance was $1,925,000 at June 30, 1999. On May 1, 2000 this building was sold and the loan was repaid.
(8)--On May 20, 1999, the Company obtained a $2,500,000 loan, from a bank, secured by a mortgage on the Shipps Corner Shopping Center, in Virginia Beach, Virginia, which the Company acquired in November 1998. The self liquidating loan calls for monthly payments of $19,000, including principal and interest, bears interest at 7% per annum, and matures in June 2019. The balance was $2,376,753 and $2,440,526 at June 30, 2001 and 2000, respectively.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Long-Term Debt and Credit Facilities (continued)
(9)--On July 26, 1996, the Company obtained a $4,000,000 loan, from a bank, secured by Greensboro North Shopping Center located in Greensboro, North Carolina. The loan calls for monthly payments of $35,850, including principal and interest, bears interest at 8.35% per annum, and matures on August 1, 2006 when the remaining unpaid balance of $2,521,772 plus interest will become due. The balance was $3,429,591 and $3,567,124 on June 30, 2001 and 2000, respectively.
(10)--On February 4, 1994, the Company obtained a $3,000,000 loan, from a bank, secured by Greensboro South Shopping Center located in Greensboro, North Carolina. The loan calls for monthly payments of $29,543, including principal and interest, bears interest at 8.5% per annum, and matures on March 1, 2009. The balance was $2,007,238 and $2,182,945 on June 30, 2001 and 2000, respectively.
(11)--On July 7, 2000, the Company obtained a $10,500 loan from a credit corporation, to purchase a forklift. The loan calls for monthly payments of $274, bears interest at 11.5%, and matures on June 7, 2004. The balance was $8,197 on June 30, 2001.
Aggregate principal payments on debt outstanding as of June 30, 2001 are as follows:
Amount ----------- Year ending June 30: 2002 $ 1,647,041 2003 8,694,779 2004 1,394,418 2005 1,451,003 2006 1,515,501 Thereafter 12,665,042 ----------- $27,367,784 ===========
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Disclosures About Fair Value of Financial Instruments
Statement No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosures about fair value for all financial instruments, whether recognized or not recognized in the balance sheets, for which it is practicable to estimate that value.
The following methods and assumptions were used by the Company in estimating fair values for financial instruments at June 30, 2001:
Cash and Cash Equivalents, Accounts and Rents Receivable, Other Receivables, Restricted Cash, Cash and Securities in Trust for Tenants Security Deposits, Mortgage Escrow Funds and Security Deposits, Due from Related Parties, Accounts Payable, Accrued Expenses and Taxes Payable, Due to Related Parties and Other Liabilities: The carrying amounts of these assets and liabilities approximate fair value due to their short term nature.
Notes Payable and Long-Term Debt: The carrying amount of notes payable and long-term debt with variable interest rates approximates fair value. For fixed rate notes payable, fair value is estimated using discounted cash flow analysis based on the Company's current incremental borrowing rate for similar types of borrowing arrangements. The fair value of the Company's notes payable and long-term debt is approximately $28,280,000.
6. Income Taxes
At June 30, 2001, the Company has a net operating loss carryforward of approximately $32,500,000 for income tax purposes that expires in 2002. This carryforward, which resulted from the merger of Merrimac Corporation ("Merrimac") into the Company on June 30, 1993, is available to reduce future taxable income, if any, of The First Republic Corporation of America but not the taxable income of any other member of the Company's group. Deferred tax assets and liabilities reflected the net tax effects of the net operating loss carryforward and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
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:
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
June 30, 2001 2000 ----------------------------- Deferred tax assets: Net operating loss carryforwards $11,100,000 $16,300,000 Book basis provisions 1,743,000 1,306,000 ----------------------------- Total deferred tax assets 12,843,000 17,606,000 Valuation allowance 11,100,000 16,300,000 ----------------------------- Net deferred tax asset $ 1,743,000 $ 1,306,000 =============================
The components of income (loss) before income taxes are as follow:
For the year ended June 30, 2001 2000 1999 ----------------------------------------------------
Domestic $ 16,722,010 $ 1,800,608 $ 1,514,201 Foreign (1,307,195) (1,933,944) (1,588,591) ---------------------------------------------------- $ 15,414,815 $ (133,336) $ (74,390) ====================================================
Significant components of the income tax expense (benefit) are as follows:
For the year ended June 30, 2001 2000 1999 ----------------------------------------------- Current: Federal $ 330,000 $ 40,000 $ 20,000 State 804,000 448,000 330,000 ----------------------------------------------- Total current 1,134,000 488,000 350,000 ----------------------------------------------- Deferred: Federal (377,000) (305,000) (267,000) State (50,000) (40,000) (33,000) ----------------------------------------------- Total deferred (427,000) (345,000) (300,000) ----------------------------------------------- $ 707,000 $ 143,000 $ 50,000 ===============================================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
The reconciliation of income tax expense computed at the U.S. Federal statutory tax rates to income tax expense follows:
7. Benefit Plans
The Company and certain subsidiaries have profit-sharing plans covering substantially all nonunion employees. Contributions to one of the plans is discretionary. Total plan costs were approximately $215,000 and are included in selling, general and administrative expenses on the accompanying consolidated statements of operations and comprehensive income (loss) for each of the years ended June 30, 2001, 2000 and 1999.
A former subsidiary, which has been merged into the Company, had noncontributory pension plans covering certain employees. All covered employees participated in the basic pension plan with benefits based upon years of service. In addition, this subsidiary maintained a supplementary plan for salaried employees covered by the basic pension plan. This supplementary plan provided benefits based upon salary and years of credited service, with deductions for employees' primary social security benefits and benefits received under the basic plan. The funding policy is to contribute at least the minimum amounts required by the Employee Retirement Income Security Act of 1974 or additional amounts to assure that plan assets will be adequate to provide retirement benefits.
Since a significant part of this subsidiary's operations have been discontinued, substantially all employees included in the plan have been terminated and no additional service benefits will accrue to such employees.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Benefit Plans (continued)
Net periodic pension cost included the following components:
2001 2000 1999 ---------------------------------------
Interest cost on projected benefit obligation $ 345,000 $ 339,000 $ 332,000 Expected return on plan assets (306,000) (315,000) (331,000) Recognized net actuarial gain (loss) 18,000 12,000 5,000 --------------------------------------- Total pension expense $ 57,000 $ 36,000 $ 6,000 =======================================
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Benefit Plans (continued)
The discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% at June 30, 2001 and 8.0% at June 30, 2000. The expected long-term rate of return on plan assets was 8.0% in all three years.
8. Leases
The Company is the lessee under a noncancellable operating ground lease which expires in 2065. The lease provides for rentals of $11,404 per year and requires future minimum rental payments aggregating $718,000 at June 30, 2001. Rent expense includes real estate taxes, and in certain instances utilities and maintenance costs, and rent for the corporate home office under a month-to-month lease from a related party (see Note 9). Total rent expense for all operating leases amounted to approximately $121,000, $119,000 and $126,000 and are included in selling, general and administrative expenses on the accompanying consolidated statements of operations and comprehensive income (loss) for the years ended June 30, 2001, 2000 and 1999, respectively.
The Company owns various office buildings, industrial buildings and shopping centers from which it earns rental income under leases with various tenants. Generally leases provide for tenants to pay additional amounts based on real estate taxes and operating expenses incurred to maintain and operate these properties in excess of base year amounts. Lease terms for these properties range from 1 to 20 years.
Future minimum rentals (excluding operating expenses and other items billable to tenants which aggregated approximately $2,400,000, $2,200,000 and $2,100,000 and are included in rents and other revenues--real estate and hotel operations on the accompanying consolidated statements of operations and comprehensive income (loss) in the years ended June 30, 2001, 2000 and 1999, 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: 2002 $12,000,000 2003 10,300,000 2004 7,500,000 2005 6,000,000 2006 4,800,000 Thereafter 16,900,000 ----------- $57,500,000 ===========
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Related Party Transactions
Certain stockholders, directors, officers or their relatives ("related parties") own interests in certain investments of the Company as follows:
Percent Ownership by Investment The Company Related Party --------------------------------------------------------------------------------
Bluepoints Company Inc. ("Bluepoints") 80.2% 19.8%(1) Sunscape Associates 50.0 50.0 The Mondragon Companies 38.0 50.0(2) Larfico Larvas Del Pacifico S.A. 62.5 25.0 Comercorp S.A. 62.5 25.0
(1)--At June 30, 2001 and 2000, the minority share of stockholders' deficiency of Bluepoints amounted to $7,094,090 and $5,991,065, respectively. Such deficiency results from losses which were funded by loans from the Company on behalf of the minority shareholders. Repayment of the minority interest deficiency has been jointly guaranteed by a major stockholder and the Estate of A.A. Rosen. Accordingly, the minority interest share in the deficiency of the subsidiary is shown as a receivable due from related parties in the consolidated balance sheets.
(2)--Included in the investment balance of $14,382,000 and $13,113,000 are advances the Company has made to the Mondragon Companies amounting to $14,382,000 and $13,113,000 at June 30, 2001 and 2000, respectively (see Note 3). Repayment of 56.8% of any advances to the Mondragon Companies has been guaranteed by the Estate of A.A. Rosen which owns 50% of the Mondragon Companies.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Related Party Transactions (continued)
Certain transactions were entered into with the above-mentioned related parties and companies in which they have an ownership interest as follows:
See Note 4 for other related party information.
During fiscal 2000 the Company had borrowed funds from a group of entities (the "Tranel Group"), either owned or controlled by a major stockholder, to finance Bluepoints expanded importation and sale of lobster tails. The loans bore interest at 8% per annum and had no fixed repayment terms or maturity dates. The loans were repaid in October 2000.
10. Other Matters
The Company is not presently involved in any material litigation nor, to its knowledge, is any material litigation threatened against the Company or its properties, other than routine litigation arising in the ordinary course of business. Management believes the costs, if any, incurred by the Company related to any of this litigation will not materially affect the financial position, operating results or liquidity of the Company.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Other Matters (continued)
In June 1992, Whitlock, which was in the wool-combining business, sold substantially all of its assets and substantially terminated all its remaining operations. The remaining assets (included in the textile segment) of Whitlock, consisting of land and building are being held for sale and recorded at their estimated net realizable value of $500,000 at June 30, 2001. A write-down of $300,000 was taken in 1999. No write-down was taken in 2001 or 2000. Losses incurred to maintain the property such as real estate taxes and insurance amounted to approximately $143,000, $183,000 and $161,000 in 2001, 2000 and 1999, respectively.
Financial instruments which potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts and rents receivable. The Company maintains operating cash accounts at financial institutions in many states along the Eastern seaboard and, for its foreign subsidiaries, in Ecuador. Such accounts are subject to risk to the extent that the balances exceed the institutions' insurable limits. The Company's policy is designed to limit exposure to any one institution. Concentrations of credit risk with regard to accounts and rents receivable are limited due to the large number of entities comprising the Company's customer base and such base being dispersed over the industries in which the Company operates.
Based on an analysis of the financial instruments which potentially subject the Company to significant concentrations of credit risk, the Company's management believes that there are no significant concentrations of credit risk at June 30, 2001.
During the years ended June 30, 2001, 2000 and 1999, there were 935, 480 and 234 shares of stock purchased for treasury at a cost of $46,285, $20,160 and $9,360, respectively.
The First Republic Corporation of America and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Selected Quarterly Financial Data (unaudited)
Summarized consolidated quarterly financial information for the years ended June 30, 2001 and 2000 is as follows:
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 87 Director April 1983
Harry Bergman 59 Director October 1991 Treasurer June 1988 Secretary June 1988 President July 2001
Norman A. Halper 82 Director October 1969 President April 1983 Vice President July 2001
Miriam N. Rosen 81 Director December 1995
Jonathan P. Rosen 57 Director February 1972 Vice President September 1978 Chairman of the Board December 1995
William M. Silverman 59 Director December 1981
Robert Nimkoff 40 Director April 1991 Vice President June 1988
Jane G. Weiman 57 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 2001, upon the election and qualification of their successors.
c. Not applicable.
d. Family Relationships
Jonathan P. Rosen is the son of Miriam N. Rosen.
Robert Nimkoff is a cousin of Jonathan P. Rosen.
Jane G. Weiman is the sister-in-law of William M. Silverman and a cousin of Jonathan P. Rosen.
e. Business Experience
Irving S. Bobrow is a member of the New York Bar. For more than the past five years, Mr. Bobrow has been a member of the law firm of Bobrow & Rosen in New York City and has engaged in real estate investments for his own account.
Miriam N. Rosen is a member of the New York Bar. For more than the past five years, Mrs. Rosen has been counsel to the law firm of Bobrow & Rosen in New York City and has engaged in real estate investments for her own account. Mrs. Rosen became a director of the Company in December 1995.
William M. Silverman is a member of the New York Bar. For more than the past five years, Mr. Silverman has been a member of the law firm of Otterbourg, Steindler, Houston and Rosen P.C. in New York City.
Jane G. Weiman has been a private investor for more than the past five years. For the past several years, Mrs. Weiman has also been a member of the Board of the Washington, D.C. Urban League.
All directors and executive officers have served as such for more than the past five years.
f. Not applicable.
g. Not applicable.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes, based on written representations received by it, that for the year ended June 30, 2001, 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.
(2) As of July 1, 2001, Norman Halper resigned as President and became a Vice President and Harry Bergman became President
Compensation of Directors
Each director who is not an officer of the Company is paid $3,000 per quarter.
The following performance graph is a line graph comparing the yearly change in the cumulative stockholder return on the Company's Common Stock against the cumulative return of the Dow Jones Equity Market Index and the Dow Jones Conglomerates Index for the five fiscal years ended June 30, 2001. 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. Prior to last year the Company had compared the performance of the Company's Common Stock with the Dow Jones Conglomerate Index. That index is no longer prepared and the Company does not believe it can reasonably identify a published industry or line of business index with respect to comparable companies. Accordingly, the Company has substituted for the Dow Jones Conglomerate Index the S&P SmallCap 600 Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN Among The First Republic Corporation of America, Dow Jones US Total Market Index and Standard & Poor's Small Cap 600 Index Fiscal Year Ending June 30
[LINE GRAPH OMITTED]
-------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 -------------------------------------------------------------------------------- The First Republic Corporation of America 100 94 119 127 131 122 -------------------------------------------------------------------------------- Dow Jones US Total Market Index 100 131 169 204 223 189 -------------------------------------------------------------------------------- S&P's Small Cap 600 Index 100 122 145 142 162 180 --------------------------------------------------------------------------------
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 13, 2001:
Amount and Nature Title of Name and Address of Beneficial Percent Class of Beneficial Owner Ownership (1) of Class -------------------------------------------------------------------------------- Common Mary Nimkoff 93,243(2) 13.95% 26 Buttonball Lane Weston, Connecticut
Common Jonathan P. Rosen 227,726(3) 34.06 40 East 69th St. New York, New York
Common Lynn M. Silverman 113,350 16.95 911 Park Avenue New York, New York
Common Jane G. Weiman 113,290 16.95 5630 Wisconsin Avenue Chevy Chase, Maryland
(1)--Except as noted below in Notes (2) and (3), all shares are owned directly by the parties listed in the table.
(2)--Includes 5,756 shares representing her proportionate interest in 19,188 shares owned by Tranel, Inc. Tranel, Inc. is a corporation of which 30%, 15.2%, 34.8%, 10% and 10% of the shares of which are owned by Mary Nimkoff, Jonathan P. Rosen, Miriam N. Rosen, Louis H. Nimkoff and Robert Nimkoff, respectively.
(3)--Includes 2,917 shares representing his proportionate interest in 19,188 shares owned by Tranel, Inc.
b. Security Ownership of Management
The following table sets forth, as of September 13, 2001, 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, chairman of the board and principal stockholder of the Company, and Miriam N. Rosen, a director of the Company, own in the aggregate 19.8% of the outstanding shares of Bluepoints. The remainder of the shares of Bluepoints is owned by the Company. Lynn M. Silverman is the wife of William M. Silverman, a director of the Company.
The Company's corporate office is located in a building owned by 302 Fifth Ave. Associates, a partnership owned 100% by The Estate of A.A. Rosen, Miriam Rosen and Jonathan Rosen. The Company is a month-to-month tenant, paying rent of $9,100 per month as of June 30, 2001, which the Company believes is comparable to other rentals in the areas. Jonathan P. Rosen is the executor of the Estate of A.A. Rosen and Miriam Rosen is the primary beneficiary of the Estate of A.A. Rosen.
The Estate of A.A. Rosen owns 50% of Isca C.A. and Langomorro CIA, Ltda. (collectively referred to as "Mondragon"), two Ecuadorian corporations engaged in shrimp farming operations. The Estate of A.A. Rosen also holds a $640,000 note payable by Bluepoints which note was originally issued in May 1991 in connection with the acquisition by Bluepoints of a 38% interest in Mondragon and an additional 12-1/2% interest in Larfico Larvas Del Pacifico S.A., an Ecuadorian corporation which owns and operates a shrimp hatchery and Comercorp S.A. which owns certain real property in Ecuador. The note is a demand note and bears interest at 1% above the prime rate in effect at the Bank of New York.
The Company had borrowed funds from Tranel Inc. (see Note 9) to finance its lobster tail operations. The indebtedness of $9,550,000 and interest of $138,000 was paid on October 4, 2000.
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, 2001, 2000 and 1999, total premiums incurred by the Company and its subsidiaries under this arrangement amounted to approximately $526,000, $548,000, and $292,000, respectively. The Company received fees of $100,000 in fiscal 2001, and $75,000 in fiscal 2000 and 1999, representing charges to the group for administrative services performed by Company personnel in connection with the foregoing. At June 30, 2001, approximately $526,000 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, 2001, Larfico was indebted to Bluepoints for $196,667 of loans made by Bluepoints to Larfico at various dates between November 8, 1985 and August 5, 1989 (the "Larfico Indebtedness.") Such loans bear interest at 1% over the prime rate in effect at The Bank of New York and are due August 2002. Since July 1, 2000, the largest aggregate amount of outstanding indebtedness from Larfico to Bluepoints was $196,667.
In addition, as of June 30, 2001, Mondragon was indebted to the Company for $14,381,559 of loans made by the Company to Mondragon on various dates between August 28, 1991 and June 25, 2001 (the "Mondragon Indebtedness"). Such loans bear interest at 1% over the prime rate in effect at the Bank of New York and have no fixed maturity. Since July 1, 2000, the largest aggregate amount of outstanding indebtedness from Mondragon to the Company was $14,381,559. 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, 2000, the largest amount of outstanding indebtedness from Emporsa and Larfico to Mondragon was $290,000. The balance at June 30, 2001 was $207,000. Such loans bear no interest and have no fixed maturity. Since July 1, 2000, the largest amount of outstanding indebtedness from Mondragon to Larfico and Emporsa was $4,213,000, which was the balance at June 30, 2001. Said indebtedness has no fixed maturity and bears interest at 7.3%.
As of August 31, 2001, Bluepoints was indebted to the Company for $44,543,000 of loans made by the Company to Bluepoints at various dates between November 8, 1985 and August 31, 2001. Such loans bear interest at the rate of 1% over the prime rate in effect at the Bank of New York and are due on demand. Since July 1, 2000, the largest aggregate amount of outstanding indebtedness from Bluepoints to the Company was $44,543,000. 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, 2001, the amount of the guarantee was $7,094,090.
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.....................................20 Consolidated Balance Sheets--June 30, 2001 and 2000 Consolidated Statements of Operations and Comprehensive (Loss) Income--Years Ended June 30, 2001, 2000 and 1999 Consolidated Statements of Retained Earnings--Years Ended June 30, 2001, 2000 and 1999 Consolidated Statements of Cash Flows--Years Ended June 30, 2001, 2000 and 1999 Notes to Consolidated Financial Statements
a. 2. Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts......................61 Schedule III--Real Estate and Accumulated Depreciation..............62
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...........................................66
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, 2001
The First Republic Corporation of America and Subsidiaries
Schedule III--Real Estate and Accumulated Depreciation (continued)
(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) Excludes $8,197 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)
Note: Includes assets used in the real estate and hotel operations.
LANGOMORRO, LANGOSTINERA EL MORRO CIA. LTDA. AND AFFILIATED COMPANIES
================================================================================
Audit Report of the Consolidated and Combined Financial Statements For the years ended June 30, 2001 and 2000
[LOGO] BDO
[Letterhead of BDO Stern Cia, Ltda.]
Independent Auditor's Report
To the Board of Directors Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies New York, U.S.A.
1. We have audited the consolidated and combined balance sheet of Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies as of June 30, 2001 and 2000, and the related consolidated and combined statements of operations and deficit, and of cash flows, for each of the years ended June 30, 2001, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
2. We conducted our audits in accordance with generally accepted auditing standards prevailing in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements' presentation. We believe that our audits provide a reasonable basis for our opinion.
3. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies to June 30, 2001 and 2000, and the results of their operations and their cash flows for the each of the years ended June 30, 2001, 2000 and 1999, in conformity with generally accepted accounting principles prevailing in the United States of America.
[LOGO] BDO
4. The economic conditions prevailing in the country during 2000 have been strongly influenced in past years by a progressive deterioration process, characterized among others by high inflation rates and the Sucre devaluation, general bank and financial system crisis, restricted assets to international credits and a strong reduction in the economy activity of the country. In March 13, 2000 the National Congress approved the Ecuadorian Economic Transformation Law, which established the exchange of circulation Sucres for US Dollar at S/.25.000 per US$1. As explained in the significant accounting policies, the authorities established a translation process of the financial statement to April 30, 2000 from Sucres to US Dollars. Subsequent to the monetary unit exchange, the prices of local goods and services continued in a progressive adjustment process, determining a 28% increase in the general consumer price index from May 1 to December 31, 2000. Authorities estimate that the price adjustment and inflation rates will gradually decrease in the following months when relatives prices are accompanied by strengthening of the local financial system. Because of the situations, it is not possible to integrally establish the effects of these conditions over the future evolution of the national economy and its consequences, if any, on the economy and financial position of the Company and the results of its future operations. The accompanying financial statements should be read the light of these uncertain circumstances.
/s/ BDO Stern
August 3, 2001 Guayaquil, Ecuador
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Consolidated and Combined Balance Sheets
================================================================================
See summary of significant accounting practices and notes to consolidated financial statements.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Consolidated and Combined Statements of Operations and Deficit
================================================================================
See summary of significant accounting practices and notes to consolidated financial statements.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Statement of Cash Flows - Direct Method
================================================================================
See summary of significant accounting practices and notes to consolidated financial statements.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Reconciliation of Net Loss to Net Cash Used in Operating Activities
================================================================================
See summary of significant accounting practices and notes to consolidated financial statements.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Summary of Significant Accounting Practices
================================================================================
Business description Langomorro, Langostinera El Morro Cia. Ltda. was founded on November 11, 1981 in Guayaquil, Ecuador, for the purpose of carrying out fishing activities. The Company purchased 99.98% of the capital stock of Camazul Cia. Ltda. and both maintain production relationships with Isca, Isla Camaronera C.A. The affiliated companies' activities, taken as a whole (the Company), are the nursery and grow-out, harvest and export of shrimp.
On May 23, 1991, 38% of the total shares issued by Langomorro and Camazul was acquired by Marchelot S.A., a wholly-owned Subsidiary of Bluepoints of Bermuda.
Operations Since the beginning of operations in 1981 and until June 30, 2001, the Company has had recurring losses totaling US$16,896,288. The origins of these recurrent losses are principally the deficiencies in the effective exploitation and productivity in prior years of the 542 hectares of land available in the ponds and grow-out pools.
Principles of The consolidated and combined financial statements consolidation and include the accounts of Camazul Cia. Ltda., and Isca, combination Isla Camaronera C.A. in conformity with accounting principles generally accepted in the United States of America (USA-GAAP). Investments and all transactions and balances between consolidated parties have been eliminated.
Accounting principles The Company maintains its accounting records in Dollars, translated under the dollarization scheme stated in the Accounting Ecuadorian Standards (NEC 17) prevailing in Ecuador since March 31 (date of transition), this effect was reversed to realize financial statements are translated using the U.S. Dollars as the functional currency, in accordance with generally accepted accounting principles prevailing in the United States of America.
Inventories Finished goods and products in process (shrimp) are stated at the lower of cost or market, and include the value of larvae purchases plus transport, feed, fertilizer, fringe benefits, and depreciation.
Permanent investments Are stated at cost, adjusted for the equity method.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Summary of Significant Accounting Practices
================================================================================
Property, machinery Are recorded at cost. Expenditures for maintenance and and equipment repairs are charged to expense as incurred, whereas major improvements are capitalized. The depreciation was calculated using the straight -line method, based on the following estimated useful lives of the related assets: 40 years for pools and structures, machinery and equipment, 20 years for boats, 10 years for furniture, laboratory equipment, various; and 5 years for vehicles.
Changes in the The Sucre financial statements have been prepared using purchasing power the traditional historical cost basis, in accordance of the local currency with generally accepted accounting principles and, accordingly, do not attempt to reflect changes in the purchasing power of the Sucre.
The loss in the purchasing power of the Sucre may have a significant effect on the comparability of the financial statements of different periods and the results of any period.
The purchasing power of the local currency measured by the Consumer Price Index, calculated by the National Institute of Statistics and Census, is as follows:
Year ended December 31 Annual inflation -------------------------------------------------------- 1996 26% 1997 31% 1998 43.4% 1999 53% 2000 91% 2001 June 30, 33.2%
Translation of foreign The financial position, the results of operations and currency and exchange the cash flows of the Company are expressed in rates Ecuadorian Sucres and translated into U.S. Dollars as follows:
o Current assets and current liabilities are translated at the free market exchange rate in effect at the close of the period, except for: inventories and prepaid expenses, which are translated at the exchange rates in effect when acquired or originally recorded.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Summary of Significant Accounting Practices
================================================================================
o Property, machinery and equipment (and their related accumulated depreciation), investments, other assets (genetic project and red fish), and stockholders' equity accounts, are translated at the exchange rates in effect when acquired or originally recorded.
o Revenue and expense accounts are translated at the average monthly free exchange rate in effect during the period, except for depreciation of fixed assets referred to above.
The translation into U.S. Dollars should not be assumed as representation that Sucres have been, could have been, or could in the future be converted into U.S. Dollars at these or any other exchange rates.
--------------------------------------------------------------------------------
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
A. Accounts A summary of this account follows: receivable
(1) Corresponds to shrimp delivery not liquidated by Emporsa, Isca, Camazul with Promariscos.
B. Due from related A summary of this account follows: parties
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.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
C. Inventories A summary of this account follows:
D. Property, A summary of this account follows: machinery and equipment
(1) This account was incorporated in June 1996 and started its depreciation on July 1996
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
E. Permanent A summary of this account follows: investments
F. Other assets A summary of this account follows:
This account was amortized in five years, starting on January 1995.
G. Notes and accounts A summary of this account follows: payable
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
(1) Starting January 1997, the Company changed the shrimp commercialization. It no longer exports but sells locally to Empacadora Promariscos and the reflected balance corresponds to an advance received, that will be settled against shrimp delivery.
H. Due to related A summary of this account follows: parties
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, 2001 and 2000, Bluepoints Co. Inc. includes US$295,814 and US$ 295,814 respectively, for advances on future export-loans, recorded at the free market rate of exchange.
(1) Includes the proportional part of the loan received from OPIC, which was partially delivered to the Langomorro Companies Group.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
I. Long-term debt A summary of this account follows:
The obligation with Bluepoints Co. Inc. was generated in June, 1998 with a 9,25% prime interest rate.
J. Common stock A summary of this account follows:
To July 1, 1997 the common stock was constituted by: Langomorro, Langostinera El Morro Cia. Ltda. with US$171,573 and Isca, Isla Camaronera C.A. with US$869,972 corresponding to 10,000 and 73,118 ordinary and nominative shares, respectively.
On August 31, 1997 was recorded a capital increase for US$5,159,005 corresponding to US$4,716,307 and US$442,698 in Langomorro Langostinera El Morro Cia. Ltda. and Isca, Isla Camaronera C.A., respectively, through the appropriation of contributions for future capital increases, leaving the common stock to June 30, 1998 with the balance of US$6,200,500.
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
According to control entities dispositions, the Company is in process of replacing share in Sucres by US Dollar denominated shares.
K. Additional paid-in A summary of this account follows: capital
L. Accumulated As of June 30, 2001 and 2000 the Company maintained an deficit accumulated deficit of US$16,896,288 and US$15,009,908 respectively, the current liabilities exceeded total current assets by US$5,811,366 in 2001 and US$3,138,755 in 2000. 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.
"The Company intend to continue to fund the operations and capital improvements of both operations including the importation of larve from Panama, screening our ponds and our method of growing out larger juvenile animals that has proven to be a successful method of combating white spot syndrome virus. The implementation of these procedures along with our tolerine product and our patented ozone operation will give us what we believe to be not only a very profitable shrimp farming operation, but also a system and product that we can successfully market to other shrimp producers".
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.
M. Net sales The volumes of shrimp sold by the individual companies were as follows:
In 2001 and 2000 the 46.733 and 343.681 pounds of shrimp sold by Langomorro Cia. Ltda. were produced utilizing 393 hectares, resulting in a productivity of 119 and 875 pounds per hectare respectively in these years. The 19.800 and 187.411 pounds of shrimp sold by Isca C.A. were produced utilizing 149 hectares, resulting in a productivity of 133 and 1.258 pounds per hectare respectively in these years.
N. Exchange rates The free market exchange rate in effect on June 30, 2001 and 2000 was S/. 25.000 and S/. 25.000 to US$1.00 respectively (S/.25.000 to US$ 1.00 on July 31, 2001 and US$ 1.00 of S/.25.000 on August 9, 2000).
Langomorro, Langostinera El Morro Cia. Ltda. and Affiliated Companies
Notes to Consolidated and Combined Financial Statements
================================================================================
0. Income tax return The income tax returns of the Companies have been reviewed up to the same period, without important observations from the tax authorities, as shown below:
P. Subsequent events Between June 30, 2001 and August 3, 2001, 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.
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE FIRST REPUBLIC CORPORATION OF AMERICA
By /s/ Norman A. Halper ------------------------------------- Norman A. Halper, Chief Executive and Chief Operating Officer
By /s/ Harry Bergman ------------------------------------- Harry Bergman, Chief Financial and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Harry Bergman Date October 15, 2001 ------------------------------------ -------------------------- Harry Bergman, Director
/s/ Irving S. Bobrow Date October 15, 2001 ------------------------------------ -------------------------- Irving S. Bobrow, Director
/s/ Norman A. Halper Date October 15, 2001 ------------------------------------ -------------------------- Norman A. Halper, Director
/s/ Robert Nimkoff Date October 15, 2001 ------------------------------------ -------------------------- Robert Nimkoff, Director
/s/ Miriam N. Rosen Date October 15, 2001 ------------------------------------ -------------------------- Miriam N. Rosen, Director
/s/ Jonathan P. Rosen Date October 15, 2001 ------------------------------------ -------------------------- Jonathan P. Rosen, Director