U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to _____________
Commission File No. 0-17069
Excal Enterprises, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 59-2855398
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 North Tampa Street, Suite 3575 Tampa, Florida 33602
(Address of principal executive offices)
(813) 224-0228
Registrant's telephone number, including area code
(Former Name, former address and former fiscal year, if changed since last
year)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
As of January 31, 1996, there were 4,666,866 shares of the issuer's common
stock, par value $0.001, outstanding.
Transitional Small Business Disclosure Format (Check One): _____ Yes
___X__ No
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial Statements
Consolidated Balance Sheet as of December 31, 1995 3
Consolidated Statements of Operations for the three-month and
six-month periods ended December 31, 1995 and 1994 4
Consolidated Statements of Cash Flows for the six-month
periods ended December 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 9
ITEM 6. Exhibits and Reports on Form 8-K 10
Items not shown have been omitted because the are not applicable.
Item 1. Financial Statements.
EXCAL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Current Assets:
Cash and cash equivalents $ 1,481,273
Marketable securities 597,828
Accounts receivable - trade, less allowance
for doubtful accounts of $20,579 305,512
Accounts receivable - related parties, less
allowance for doubtful accounts of $9,782 34,801
Income tax receivable 531,143
Prepaid expenses and deposits 123,683
Deferred tax asset 187,000
----------
Total current assets 3,261,240
----------
Property, plant and equipment:
Land 1,740,000
Buildings and improvements 6,002,150
Licensed dealer programs 2,130,215
Furniture, fixtures, vehicles and equipment 724,016
----------
10,596,381
Less accumulated depreciation and amortization 1,717,892
----------
8,878,489
Licensed dealer programs in process 745,249
----------
Total property, plant and equipment 9,623,738
----------
Manufacturing technology, less accumulated
amortization of $67,656 160,301
Capitalized Clearing Costs, less accumulated
amortization of $28,959 395,359
Commission Costs, less accumulated
amortization of $73,701 187,106
Other intangible assets, less accumulated
amortization of $248,704 6,697
----------
Total Assets $13,634,441
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 635,224
Reserve for litigation 771,480
Current portion of long-term debt and
obligations under capital leases 65,275
----------
Total current liabilities 1,471,979
Long-term debt and obligations under capital leases 76,528
Deferred tax liability 2,260,000
----------
Total Liabilities 3,808,507
Stockholders' equity:
Preferred stock --
Common stock 4,713
Additional paid-in capital 5,820,533
Retained earnings 4,206,812
Less 47,000 shares of common stock
held in treasury at cost ( 206,124)
----------
Total stockholders' equity 9,825,934
----------
Total Liabilities and Stockholders' Equity $13,634,441
==========
The accompanying notes are an integral part of the consolidated financial
statements
<TABLE>
<CAPTION>
EXCAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31 Six Months Ended December 31
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue
Licensed dealer program $ 230,135 $ 275,809 $ 462,138 $ 557,511
Commercial real estate rental 712,285 139,558 1,394,236 139,558
--------- --------- --------- ---------
Net revenue 942,420 415,367 1,856,374 697,069
--------- --------- --------- ---------
Operating costs
Licensed dealer program 301,177 300,975 473,160 519,581
Commercial real estate rental 163,828 109,110 362,506 264,824
General and administrative 233,773 374,821 487,208 953,869
Depreciation and amortization 200,540 192,246 400,967 376,103
--------- --------- --------- ---------
Total operating costs 899,318 977,152 1,723,841 2,114,377
--------- --------- --------- ---------
Net operating profit (loss) 43,102 ( 561,785) 132,533 (1,417,308)
--------- --------- --------- ---------
Other income (expense)
Professional fees related to litigation ( 92,581) ( 186,701) ( 147,989) ( 401,740)
Dividend and interest income 32,098 37,986 65,886 93,162
Realized gain from
sale of trading securities -- -- -- 250,597
Interest expense ( 3,615) ( 5,887) ( 7,750) ( 6,614)
Loss on disposals of assets ( 7,276) ( 5,425) ( 11,308) ( 13,692)
Miscellaneous income 3,719 759 35,757 1,555
--------- --------- --------- ---------
Net other income (expense) ( 67,655) ( 159,268) ( 65,404) ( 76,732)
--------- --------- --------- ---------
Income (loss) before
income tax provision (benefit) ( 24,553) ( 721,053) 67,129 (1,494,040)
Income tax provision (benefit) ( 9,000) -- 29,000 --
--------- --------- --------- ---------
Net income (loss) $( 15,553) $( 721,053) $ 38,129 $(1,494,040)
========= ========= ========= =========
Earnings (loss) per common share $ nil $( .15) $ .01 $( .32)
========= ========= ========= =========
Weighted average common and
equivalent shares outstanding 4,666,866 4,666,866 4,907,296 4,666,866
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
EXCAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months Ended December 31
1995 1994
--------- ---------
Cash provided (used) by operating activities $( 160,489) $ 4,502,596
--------- ----------
Cash flows from investing activities
Purchase of held-to-maturity securities ( 590,181) (3,917,996)
Maturity of held-to-maturity securities 1,237,395 --
Proceeds from sale of assets 5,200 --
Property and equipment additions ( 93,494) ( 997,010)
--------- ---------
Net cash provided (used)
by investing activities 558,920 (4,915,006)
Cash flows from financing activities
Net proceeds from long-term debt 47,000 84,836
Principal repayments of long-term
debt and capital leases ( 37,852) ( 17,596)
--------- ---------
Net cash provided by financing activities 9,148 67,240
--------- ---------
Increase (decrease) in
cash and cash equivalents 407,579 ( 345,170)
Cash and cash equivalents at beginning of period 1,073,694 424,908
--------- ---------
Cash and cash equivalents at end of period $1,481,273 $ 79,738
========= =========
The accompanying notes are an integral part of the consolidated financial
statements
EXCAL ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
NOTE 1 - FINANCIAL STATEMENTS
In the opinion of management, all adjustments, consisting only of
normal recurring adjustments necessary for a fair statement of (a) the
results of operations for the three-month and six-month periods ended
December 31, 1995 and 1994, (b) the financial position at December 31, 1995,
and (c) cash flows for the six-month periods ended December 31, 1995 and
1994, have been made.
The unaudited consolidated financial statements and notes are presented
as permitted by Form 10-QSB. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The
accompanying consolidated financial statements and notes should be read in
conjunction with the audited financial statements and notes of the Company
for the fiscal year ended June 30, 1995. The results of operations for the
three-month and six-month periods ended December 31, 1995 are not necessarily
indicative of those to be expected for the entire year.
NOTE 2 - LICENSED DEALER PROGRAMS IN PROCESS
Licensed dealer programs in process at December 31, 1995 consisted of
the following:
Raw materials $226,849
Work in process 240,000
Completed programs being installed,
in transit, or not in service 278,400
-------
$745,249
=======
NOTE 3 - EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is based upon the weighted average
number of common shares outstanding (4,666,866 for all periods) and the
dilutive effect of common stock equivalents consisting of stock options and
purchase warrants. Fully diluted earnings per share are not presented
because it approximates earnings per common share.
=============================================================================
Item 2. Management's Discussion and Analysis.
The following discussion should be read in conjunction with the
information contained in the financial statements of the Company and the
notes thereto appearing elsewhere herein and in conjunction with Management's
Discussion and Analysis set forth in the Company's Form 10-KSB for the
fiscal year ended June 30, 1995.
Results of Operations
The Company's operational revenue and costs are grouped into three
categories: (i) licensed dealer program, (ii) commercial real estate, and
(iii) general and administrative. Licensed dealer program revenue and costs
relate to the Company's automotive services operations. Commercial real
estate rental revenue and costs relate to the lease and management of
property located in Jacksonville, Florida (Imeson Center). General and
administrative costs represent salaries of administrative personnel and
executive management, legal and accounting fees not related to litigation,
and other general expenses not specifically incurred by the two operating
divisions. The following discussion compares the results of operations for
the three-month period ended December 31, 1995 (Second Quarter 1996) with the
three-month period ended December 31, 1994 (Second Quarter 1995) and the
six-month period ended December 31, 1995 (1996 YTD) with the six-month period
ended December 31, 1994 (1995 YTD).
Licensed Dealer Program
Revenue from licensed dealer programs for Second Quarter 1996 and 1996
YTD decreased $45,674 and $95,373 from Second Quarter 1995 and 1995 YTD,
respectively. Big 10 Tires terminated its licensed dealer program with the
Company effective June 30, 1995. Big 10 Tires accounted for $68,540 of the
Second Quarter 1995 revenue and $138,513 of the 1995 YTD revenue. Excluding
Big 10 Tires, revenue from other licensed dealers increased 11% in Second
Quarter 1996, as compared to Second Quarter 1995, and 10% in 1996 YTD, as
compared to 1995 YTD. New licensed dealer agents accounted for 65% of the
increase in Second Quarter 1996 and 75% of the increase for 1996 YTD. As of
December 31, 1995, the Company had 137 licensed dealer programs in
operation. As of December 31, 1994, the Company had 166 licensed dealer
programs in operation, 46 at Big 10 Tires stores and 120 at other licensed
dealers. The Company is continuing to look for new opportunities to
increase the number of participating licensed dealer agents.
Licensed dealer program operating costs for the Second Quarter 1996
were relatively unchanged as compared to the Second Quarter 1995 and
decreased by 9% in 1996 YTD, as compared to 1995 YTD. Cost savings were
achieved as a result of personnel reductions in the last six months of 1994
and in November 1995. These cost savings were offset by the fact that
manufacturing costs were expensed during Second Quarter 1996, rather than
capitalized, and $80,951 of manufacturing costs capitalized during the three
months ended September 30, 1995 were written off during the Second Quarter
1996 to reduce the value of work in process. As of December 31, 1995, the
Company had 29 licensed dealer programs available for installation and 50
licensed dealer programs in the process of being refurbished.
The Company's licensed dealer program operations generated an operating
loss of $176,782 for the Second Quarter 1996. This operating loss included
the deduction of $105,740 in depreciation and amortization and the write-off
of $80,951 of previously incurred manufacturing costs. Therefore, automotive
operations generated $9,909 of cash flow in Second Quarter 1996. The
Company's licensed dealer program operations have generated a $224,831
operating loss and used $15,913 in cash flow during 1996 YTD.
Commercial Real Estate Rental
The commercial real estate rental operation generated revenue of
$712,285 in Second Quarter 1996 and $1,394,236 for 1996 YTD, as compared to
revenue of $139,558 for both Second Quarter 1995 and 1995 YTD. The two
primary tenants, Laney & Duke Terminal Warehouse Company (Laney & Duke) and
America Online (AOL), occupy 87% of the available warehouse space and 50% of
the available office space, respectively. During Second Quarter 1996, the
Company finalized a lease extension with Laney & Duke. The lease extension
was for a period of two years, with an option to renew for an additional
three-year period. In addition to the space currently leased, Laney & Duke
has an option to expand into the 13% of available warehouse space for
calendar year 1996. The operating costs increased as a result of having
tenants utilizing the building during Second Quarter 1996 and 1996 YTD.
Most of the costs incurred in Second Quarter 1995 and 1995 YTD were
primarily due to expenses related to finding tenants and evaluating the
Company's options for use of the building.
General and Administrative Costs
General and administrative costs decreased 38% in Second Quarter 1996
and 49% in 1996 YTD, as compared to Second Quarter 1995 and 1995 YTD,
respectively. These cost reductions were primarily related to a reduction in
salary costs and professional fees. Professional fees decreased from
$74,458 in Second Quarter 1995 to $43,313 in Second Quarter 1996 and from
$266,211 in 1995 YTD to $95,757 in 1996 YTD. Reductions were achieved in
both legal fees and accounting fees. Salaries and benefits decreased from
$172,497 in Second Quarter 1995 to $132,946 in Second Quarter 1996 and from
$441,427 in 1995 YTD to $278,010 in 1996 YTD. These savings were the result
of personnel reductions made during the first seven months of fiscal 1995.
Consolidated Operating Results
Net revenue of the Company increased by 127% in Second Quarter 1996 and
166% in 1996 YTD, as compared to Second Quarter 1995 and 1995 YTD,
respectively. The decline in licensed dealer program revenue, as a result
of the loss of Big 10 Tires, was more than offset by the increased revenue
from the commercial real estate rental operation. Total operating costs
declined from $977,152 in Second Quarter 1995 to $ 899,318 in Second Quarter
1996 and from $2,114,377 in 1995 YTD to $1,723,841 in 1996 YTD. The
increases in the operating cost of the commercial real estate rental
operation and depreciation and amortization were more than offset by
reductions in licensed dealer program and general and administrative
operating costs. These items resulted in the Company posting an operating
profit of $43,102 for Second Quarter 1996 and $132,533 for 1996 YTD, as
compared to an operating loss of $561,785 in Second Quarter 1995 and
$1,417,308 in 1995 YTD.
Professional fees related to litigation were significantly reduced from
$186,701 in Second Quarter 1995 to $92,581 in Second Quarter 1996 and from
$401,740 in 1995 YTD to $147,989 in 1996 YTD. These reductions have been
achieved in part by management's consolidation of its litigation efforts
with one law firm. However, the Company expects to continue to incur
significant costs related to litigation.
Income from dividends and interest declined as a result of a decline in
cash and marketable securities. The realized gain from sale of trading
securities in 1995 YTD is the result of the sale of all equity securities in
which the Company had invested. At that time, the Company changed its
investment policy to only invest in short-term debt securities issued by the
United States Government or its agencies to avoid the risk of principal loss.
Liquidity and Capital Resources
The working capital position of the Company was $1,789,266 at December
31, 1995, compared to $1,672,634 at June 30, 1995. The Company's working
capital position and cash flows from operations are its only sources of funds
currently available. The Company believes that these sources of funds are
sufficient to meet its cash requirements for normal recurring operating
activities.
Cash used by operating activities was $160,489 in 1996 YTD, compared to
cash provided by operating activities of $4,502,596 in 1995 YTD. During
fiscal 1994 and 1995, the Company invested excess cash in marketable equity
securities. Cash invested in these securities and receipts from the sale of
these securities were recorded as operating cash flows. In 1995 YTD,
proceeds from the sale of equity securities exceeded investment in equity
securities by $6,993,418. Excluding the net receipts from the sale of
marketable equity securities, operating activities used $2,490,822 of cash in
1995 YTD. Working capital provided by operating activities was $330,336 in
1996 YTD, as compared to working capital used by operations of $1,812,601 in
1995 YTD.
During 1996 YTD, $1,237,395 of debt securities that the Company
invested in matured. Purchases of $590,181 in debt securities were made in
1996 YTD. In 1995 YTD, the Company invested $3,917,996 of the proceeds from
the sale of marketable equity securities in U.S. government debt securities.
Property and equipment additions in 1996 YTD were primarily for equipment
used at Imeson Center. Property and equipment additions in 1995 YTD included
$118,323 used by Imeson Center to purchase equipment, $450,000 to purchase
land and a building currently housing the automotive division's
manufacturing operation, and $291,569 for licensed dealer programs in
process. The balance of $137,118 related to improvements of the land and
building acquired and acquisition of other miscellaneous personal property.
All of the net proceeds from long-term debt in 1996 YTD and the majority of
the net proceeds from long-term debt in 1995 YTD represent post-acquisition
financing of equipment acquired by Imeson Center.
As of December 31, 1995, the Company did not have any material
commitments for capital expenditures other than for ordinary expenses
incurred during the usual course of business. The Company is looking for
additional tenants for Imeson Center. It is possible that any new tenant
will require the Company to incur cost related to renovation of the property
to meet the tenant's needs. The Company is in the process of clearing out
the last 199,000 square feet of warehouse space. During 1996 YTD, $127,587
of net costs were incurred in this endeavor. Additional costs required to
complete the clearing process are estimated to be less than $50,000. The
automotive division is actively seeking new licensed dealers for its
AccuBalance service using the Combi-Matcher technology. As of December 31,
1995, the Company had 29 licensed dealer programs available for
installation. The Company may incur liabilities related to litigation in
excess of amounts reserved (see Note 15 of the financial statements included
in the Company's Annual Report on Form 10-KSB for the year ended June 30,
1995). Any of the above mentioned items could require significant capital
resources in excess of the Company's current liquidity position, requiring
it to borrow funds or raise additional capital through public or private debt
or equity financing. The availability of these capital resources will
depend upon prevailing market conditions, interest rates, and the then
existing financial position and results of operations of the Company.
Therefore, no assurances can be made by the Company that such additional
capital will be available, if required.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
No material events, other than those described below, have occurred in
the Company's ongoing litigation matters. For the history of such
litigation, please refer to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1995.
Securities and Exchange Commission Proceeding
During Second Quarter 1996, Charles A. Ross, Douglas S. Gardner, George
Crook, and J. Theodore Biesanz entered into settlement agreements with the
Securities and Exchange Commission (SEC). These settlement agreements,
excluding J. Theodore Biesanz, required payment of $105,000 in penalties.
The Company, in accordance with its indemnity agreements, reimbursed the
former officers and/or directors for these penalties. On November 3, 1995,
a case management conference was held regarding the remaining defendants.
At the case management conference, the Company agreed to complete discovery
by May 31, 1996 and be ready for trial by September 16, 1996. The SEC
agreed to complete discovery by November 27, 1996 and be ready for trial by
March 28, 1997. No discovery cutoff date or trial date has been set by the
Court.
Kerry F. Marler
On February 12, 1996, the Court dismissed with prejudice Mr. Marler's claim
against the Company for defamation. At the same time, the Court denied the
Company's motion to dismiss the other counts of Mr. Marler's amended
counterclaim. No trial date has been set in this action.
Harvey Moore
This case was scheduled for trial on December 11, 1995. The Company's
motion to continue the trial was granted. No trial date has been set.
NationsBank
A final hearing was held on November 7, 1995 regarding this matter. A
final judgment was entered in favor of the Company on November 20, 1995. On
December 19, 1995, NationsBank filed a notice of appeal.
Item 6. - Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
On December 22, 1995, the Company filed a Current Report on Form 8-K
regarding the lease renewal with Laney & Duke.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EXCAL ENTERPRISES, INC.
Registrant
Dated: February 13, 1996 /s/ W. CAREY WEBB
W. Carey Webb
President and
Chief Executive Officer
Dated: February 13, 1996 /s/ TIMOTHY R. BARNES
Timothy R. Barnes
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-QSB
FOR THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 1,481,273
<SECURITIES> 597,828
<RECEIVABLES> 901,817
<ALLOWANCES> ( 10,797)
<INVENTORY> 0
<CURRENT-ASSETS> 3,261,240
<PP&E> 11,341,630
<DEPRECIATION> (1,717,892)
<TOTAL-ASSETS> 13,634,441
<CURRENT-LIABILITIES> 1,471,979
<BONDS> 76,528
0
0
<COMMON> 4,713
<OTHER-SE> 9,821,221
<TOTAL-LIABILITY-AND-EQUITY> 13,634,441
<SALES> 0
<TOTAL-REVENUES> 1,856,374
<CGS> 0
<TOTAL-COSTS> 1,723,841
<OTHER-EXPENSES> 57,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,750
<INCOME-PRETAX> 67,129
<INCOME-TAX> 29,000
<INCOME-CONTINUING> 38,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,129
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
