EXCAL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ANNUAL REPORT FOR SMALL BUSINESS ISSUERS
SUBJECT TO THE 1934 ACT REPORTING REQUIREMENTS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1998
Commission File No. 0-17069
EXCAL ENTERPRISES, INC.
----------------------------------------------------------
(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 N. Tampa Street, Suite 3575, Tampa, Florida 33602
-----------------------------------------------------------
(Address of principal executive offices, including zip code)
(813) 224-0228
--------------------------
(Issuer's telephone number)
Securities registered under Section 12(g) of the Act:
Title of Each Class
-----------------------------
Common Stock, $.001 par value
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 __
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment of this Form 10-KSB. [ ]
Revenue for the fiscal year ended June 30, 1998 was $4,581,058.
The aggregate market value of the voting stock held by non-affiliates
(1,714,319 shares), based on the average of the closing bid and asked prices
of the Registrant's common stock in the over the counter market as reported by
the National Quotation Bureau, Inc. on August 28, 1998 of $5.02 was
approximately $8,606,000. Shares of voting stock held by each officer,
director and person who owns 5% or more of the outstanding voting stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive.
As of August 31, 1998, there were 3,936,031 shares of the Registrant's
common stock, par value $.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for its 1998 annual meeting,
(the "Proxy Statement") is incorporated by reference in Part III of this Form
10-K to the extent stated herein. Except with respect to information
specifically incorporated by reference in this Form 10-K, the Proxy Statement
is not deemed to be filed as a part hereof.
ITEM 1. DESCRIPTION OF BUSINESS.
General
Excal Enterprises, Inc., a Delaware corporation (the "Company"), was formed
in July 1986. In June 1995, the Company changed its name from Assix
International, Inc. The Company was engaged in two distinct business
operations. The Company owns, leases, and manages a two story warehouse and
office facility containing approximately 1,666,000 square feet of rentable
space located on approximately 74 acres in an industrial park in Duval County,
Florida. This property was acquired from Sears as part of the settlement
agreement regarding termination of the licensed agent agreement between the
Company and Sears in February 1994. The commercial real estate operation was
conducted by and through Imeson Center, Inc., a wholly owned subsidiary. On
September 30, 1997, the Company closed on a $13,500,000 mortgage loan secured
by the Imeson Center property. As part of the mortgage transaction, all of
the assets of Imeson Center, Inc. were transferred to a new single-purpose,
wholly owned subsidiary, Jacksonville Holdings, Inc.
The Company's automotive services division marketed ride-related automotive
services through retail tire dealer service outlets licensed as agents of the
Company. During the fourth quarter of fiscal 1996, the Company received
termination notices from its two largest licensed agents, who together
accounted for two-thirds of the Company's automotive services revenue. As a
result, the Company decided to terminate the agency agreements with the
remaining licensed agents effective June 30, 1997. The company completed its
liquidation and dissolved Assix Automotive in December 1997. The automotive
services division is reported as discontinued operations.
The Company plans to use the proceeds from the liquidation of its
automotive division and proceeds from leveraging its Imeson Center property
to, among other things, acquire a new core business. The Company's objective
is to identify and acquire a company that will be used as a springboard to
future growth. Management believes this will be best accomplished by
acquiring a company that is a leader in a niche segment of a large market or
in an industry that will lend itself to a consolidation strategy.
Imeson Center Real Estate Operations
The Company's real estate operations consist of the management of the
property owned by its wholly owned subsidiary, Jacksonville Holdings, Inc.
The officers and directors of Jacksonville Holdings, Inc. are also officers
and/or directors of the Company. The building itself is a two-story facility
with eight bays on each floor. Seven of the bays on the first floor and eight
bays on the second floor, each containing 99,446 square feet of rentable
space, were originally designed as warehouse space. The other remaining first
floor bay is divided into two floors of office space containing a total of
approximately 184,000 square feet of rentable space. During the end of fiscal
1997 the second floor bay located above the existing office space was
converted to office space with approximately 90,000 square feet of rentable
space. As of June 30, 1998, all 14 of the warehouse bays and all but 41,000
square feet of the office space were leased (See "Dependence on Major
Customers").
The Property includes approximately 74 acres of real estate. Based on
preliminary investigations, the Company believes that it could develop the
outparcels, subject to the availability of suitable lessees and compliance
with environmental and other applicable laws. Any such development will
require significant capital expenditures by the Company.
Market for the Company's Products and Services
The Company's Imeson Center facility is unique in that it is a two-story
facility containing 1,392,000 rentable square feet of warehouse space (696,000
square feet on the first floor and 696,000 square feet on the second floor)
and approximately 274,000 rentable square feet of office space. The Company
currently has a single tenant utilizing the warehouse space. If the Company
leased the warehouse space to multiple tenants the usefulness of the second
story warehouse space would be limited further and require the Company to
incur significant costs related to demising the property and meeting current
fire and safety code requirements, including the requirements of the Americans
with Disabilities Act. Jacksonville, Florida is a major shipping port and the
Imeson Center is located near the port and interstate highways. There is a
significant number of warehouse facilities that compete with Imeson Center for
tenants. The Company has two primary tenants utilizing 232,000 square feet of
the 274,000 square feet of office space. Most of the office space in the
Jacksonville area is located in the southern and central areas of
Jacksonville. Imeson Center is located in the northern area of Jacksonville.
The Company has marketed the office space for use as a telecommunications or
service-oriented business. The facility has over 2,200 parking spaces, most
of which are allocated to the office area. This results in over six parking
spaces per 1,000 square feet of office space, providing the Company with a
competitive advantage over many other office facilities.
Dependence on Major Customers
The Company had leases with four tenants for its Imeson Center facility as
of June 30, 1998. All of the leases require the tenants to reimburse the
Company for their pro-rata share of operating expenses (including common area
maintenance, property taxes, and insurance) and to pay for their own
utilities. The first lease, with Laney & Duke Terminal Warehouse Company,
Inc. (Laney & Duke), is for 1,392,244 square feet of warehouse space and
expires on December 31, 2000. Laney & Duke accounted for $2,409,945 of
revenue in fiscal 1998, resulting in an effective annual lease rate of $1.73
per square foot, including operating expenses. The second lease, with America
Online, is for 92,340 square feet of office space beginning June 16, 1995 and
terminating on June 15, 2002. America Online expanded into an additional
1,200 square feet of space during fiscal 1996. This lease accounted for
$914,806 of revenue in fiscal 1998 at an effective annual lease rate of $9.78,
including operating expenses. The third lease is with the Prudential
Insurance Company (Prudential) for 138,998 square feet of office space,
beginning June 16, 1997 and terminating June 15, 2003. This lease accounted
for $1,237,679 of revenue in fiscal 1998, resulting in an effective annual
lease rate of $8.90 per square foot, including operating expenses. The lease
was originally scheduled to terminate on June 15, 1999. However, in August
1998, Prudential exercised its option to extend the lease for an additional
four years. These leases accounted for substantially all of the Company's
revenue in fiscal 1998 and fiscal 1997. The loss of any of these lessees
would have a significant impact on the Company. The fourth lease is for a
food service operation located in the lobby area of the office space. The
Company currently has 41,000 square feet of office space that is available for
lease. Significant renovations will need to be made to the available space
before it can be leased.
Competition
With respect to the Company's real estate subsidiary, the commercial real
estate market is subject to numerous competitive factors, including the
location of the real property, the physical condition of the real property,
the owner or lessor's willingness to make capital improvements, the duration
and terms of any leasing arrangements, the availability of financing for
capital improvements and purchase obligations, and fluctuations in real
property values.
Employees
On August 31, 1998, the Company employed 11 full time employees. Of that
number, 5 were employed in the corporate offices, and 6 were employed by the
real estate subsidiary. The Company's employees are not covered by collective
bargaining agreements. The Company believes the relations with its employees
to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 3,500 square feet of office space for its
executive offices at 100 North Tampa Street, Suite 3575, Tampa, Florida 33602.
The lease on this downtown Tampa office space commenced October 15, 1994 and
terminates on October 15, 2000. The Company believes that its present
facility is adequate for expected operations.
The Company's commercial rental property consists of a single two-story
structure located on 74 acres at One Imeson Park Boulevard in Jacksonville,
Florida. The property contains approximately 1,392,000 square feet of
warehouse space and 274,000 square feet of office space. The building is
primarily built of concrete and steel with a membrane roof. On September 30,
1997, the Company closed on a $13,500,000 mortgage secured by the Imeson
Center property. The Company is currently in the process of renovating the
space leased to the food service operation. In accordance with the terms of
the lease, the company deposited its contribution to the renovation with the
escrow agent prior to year-end. The company has no other definitive plans or
commitments for renovation or expansion of the property. However, the Company
is marketing the available 41,000 square feet of office space and management
expects to incur significant renovation costs in order to lease the space. In
addition, the Company may build additional facilities on the available
outparcels upon request of a lessee. Any of these improvements would require
the Company to use a significant amount of cash to fund the cost of building
or renovation. See "Market for the Company's Products and Services" and
"Competition" under "Item 1. Business" for a discussion of the general
competitive conditions to which the property is subject. Information
regarding the leases on the property is contained under "Item 1. Business -
Dependence on Major Customers." Management believes the property is
adequately covered by insurance. The basis of the property for both financial
and tax purposes is $1,600,000 for the land and $6,698,961 for the building as
of June 30, 1998. In addition, various furniture, fixtures and equipment with
a basis of $309,404 as of June 30, 1998 are used in operating the property.
For federal tax purposes, the building is depreciated using the straight-line
method over 39 years and the other assets are depreciated using the modified
accelerated cost recovery system over lives of five to seven years. The
property taxes on the land and building for 1997 were $244,896, based on a
millage rate of $21.4228 per $1,000 of assessed value.
ITEM 3. LEGAL PROCEEDINGS.
Other than the litigation described in Notes 9 and 13 of the accompanying
financial statements, which is incorporated herein by reference, the Company
is aware of no other material legal proceedings, pending or threatened, to
which any director, officer or affiliate of the Company, or any beneficial
owner of more than 5% of the Company's common stock is a party adverse to the
Company or has a material interest adverse to the Company or to which the
Company is a party or its property subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The principal market for the Company's common stock is the over-the-counter
market. Quotations are available through the Electronic Bulletin Board
operated by the National Association of Securities Dealers, Inc. under the
symbol EXCL. The following table sets forth the range of high and low closing
bid prices in dollars per share of common stock for each full quarterly period
within the two most recent fiscal years. Prices represent inter-dealer
quotations, without adjustment for retail markup, markdown or commissions, and
may not represent actual transactions.
Fiscal Year Ended June 30, 1997 High Low
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Quarter ended September 30, 1996 $2.47 $1.77
Quarter ended December 31, 1996 2.50 1.78
Quarter ended March 31, 1997 2.88 2.09
Quarter ended June 30, 1997 3.88 2.44
Fiscal Year Ended June 30, 1998
--------------------------------- ----- -----
Quarter ended September 30, 1997 $5.78 $3.19
Quarter ended December 31, 1997 5.56 3.56
Quarter ended March 31, 1998 5.63 4.25
Quarter ended June 30, 1998 5.69 5.38
As of August 31, 1998, there were approximately 345 shareholders of record.
In addition, as of the same date, there were 282 beneficial holders based on
non-objecting beneficial owner reports provided by ADP.
The Company since its inception with respect to shares of the Company's
common stock has paid no cash dividends or other distributions. It is the
present policy, and the expected future policy, of the Company not to pay cash
dividends and to retain future earnings to support the Company's growth.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-KSB are forward-looking statements
that involve risks and uncertainties. Forward-looking statements in this
report, including without limitation, statements relating to the Company's
plans, strategies, objectives, expectations, intentions and adequacy of
resources, are made pursuant to the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements involve risks and uncertainties including without
limitation the following: (i) the company's plans, strategies, objectives,
expectations and intentions are subject to change at any time at the
discretion of the company, (ii) the company's plans and results of operations
will be affected by economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices; and (iii) other risks and uncertainties as indicated from time to time
in the company's filings with the Securities and Exchange Commission.
The following discussion should be read in conjunction with the information
contained in the financial statements of the Company and the notes thereto
appearing in Appendix F hereto.
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "year 2000 issue". The "year 2000
issue" is the result of computer programs being written using two digits
rather than four to define the applicable year. Programs with this problem
may recognize a date using "00" as the year 1900 rather than the year 2000,
resulting in system failures or miscalculations. Although no assurance can be
given, the Company presently believes that existing software is year 2000
compliant and will not pose significant operational problems for the Company's
computer systems.
Results of Continuing Operations
Net revenue of the Company consists of commercial real estate rental
revenue from the lease and management of property located in Jacksonville,
Florida (Imeson Center). The property consists of approximately 1,392,000
rentable square feet of warehouse space and 274,000 rentable square feet of
office space (See "Item 2. Description of Properties"). The Company's lease
agreements are structured to include a base minimum rental fee, a contingent
rental fee to reimburse the Company for operating expenses, common area
maintenance costs, insurance and property taxes, and a requirement that the
tenant pay for its own utilities.
As of June 30, 1998, the Company had leases with four tenants at Imeson
Center. The lease of warehouse space to Laney & Duke began December 1, 1995
and included a total of 796,000 square feet. Laney & Duke has gradually
increased the square footage leased and currently occupies all 1,392,000
square feet of warehouse space. This lease terminates December 31, 2000. The
leases with Laney & Duke accounted for 53% and 71% of the revenue in fiscal
1998 and fiscal 1997, respectively. The second tenant is America Online,
whose lease is for 93,000 square feet of office space beginning June 16, 1995
and terminating on June 15, 2002. This lease with America Online accounted
for 20% and 26% of the revenue in fiscal 1998 and 1997, respectively. The
third lease is with the Prudential for 139,000 square feet of office space,
beginning June 16, 1997. The lease was originally scheduled to terminate on
June 15, 1999. However, in August 1998 Prudential exercised option to extend
the lease for an additional four years. This lease with Prudential accounted
for 27% and 3% of the revenue in fiscal 1998 and 1997, respectively. The
fourth lease is with the Compass Group for a food service operation located in
the lobby of the office space. The lease began on September 15, 1995 and will
terminate five years after the current renovations are completed, which is
expected to be in September 1998.
Revenue increased by 37% to $4,581,058 in fiscal 1998 from $3,344,700 in
fiscal 1997 as a result of the lease of office space to Prudential and an
increase in the base rental rate of the other leases. During fiscal 1998 and
fiscal 1997, rental revenue included $836,292 and $639,294 of contingent
rentals and $3,744,766 and $2,705,406 of base rent, respectively. The future
minimum base rentals under non-cancelable leases as of June 30, 1998 was
$3,827,291 for fiscal 1999, $3,975,686 for fiscal 2000, $3,035,791 for fiscal
2001, $2,030,419 for fiscal 2002, $ 1,194,881 for fiscal 2003 and $25,000
thereafter.
Operating costs increased by 9% in fiscal 1998 to $2,497,050 from
$2,293,659 in fiscal 1997. The $203,391 increase in operating expenses is
primarily related to an increase in repair and maintenance expense of
$150,240. The remaining portion of the increase was primarily related to an
increase in salary and benefit costs. These increases were the result of
operating the increased amount of office space.
Depreciation and amortization increased by $190,868 in fiscal 1998, as
compared to fiscal 1997 due to an increase in leasing commissions and the
amortization of the mortgage loan closing costs.
Professional fees related to litigation were $481,807 in fiscal 1998
compared to $781,262 in fiscal 1997. The significant decrease in professional
fees was the result of the settlement of most of the company's litigation in
fiscal 1997 and fiscal 1998. The only remaining active litigation is with the
Securities and Exchange Commission. The hearing for approval of the
settlement of the litigation with Channel Partnership is scheduled for October
15, 1998. The only other outstanding matter is a potential award of legal
fees in the Harvey Moore litigation. See Notes 9 and 13 of the accompanying
financial statements for a complete discussion of all outstanding and resolved
material litigation.
Results of Discontinued Operations
Until fiscal 1995, the Company derived substantially all of its revenue
from the automotive services operations. More particularly, the Company's
revenue was derived from agreements entered into with licensed agents that
marketed and sold the Company's ride-related services. The typical licensed
agent agreement included a flat monthly fee for rental of equipment plus a fee
per usage. The Company's automotive services revenue significantly declined
in fiscal 1995 and fiscal 1996. During the fourth quarter of fiscal 1996, the
Company received termination notices from its largest two licensed agents who
together accounted for two-thirds of the Company's automotive services
revenue. As a result, the Company decided to terminate the agency agreements
with the remaining licensed agents effective June 30, 1997 and the automotive
services division was reported as discontinued operations.
There was no revenue from the automotive service division in fiscal 1998,
compared to revenue of $245,220 in fiscal 1997. Automotive service operating
costs, excluding depreciation, decreased 87% to $46,605 in fiscal 1998 from
$362,188 in fiscal 1997. The declines in revenue and operating costs were
related to the cessation of operations effective June 30, 1997. Depreciation
and amortization costs decreased from $111,832 in fiscal 1997 to $3,456 in
fiscal 1998 as a result of the sale of assets of the automotive service
division during fiscal 1997. During fiscal 1997, management reduced the
reserve for discontinued operations by $256,000 ($155,000) after tax. In
final liquidation of the automotive service operations, the Company has
recorded aggregate proceeds of $609,670 from the disposal of assets, resulting
in a loss of $1,048,889 and an aggregate loss from operations of $277,754,
including depreciation of $115,288.
Liquidity and Capital Resources
The cash provided by operating activities was $462,620 in fiscal 1998
compared to $377,986 in fiscal 1997. In fiscal 1998 the Company's operations
generated $972,564 in working capital compared to $290,432 in working capital
generated in fiscal 1997. The Company expended $114,297 in fiscal 1998 and
$175,510 in fiscal 1997 on broker commissions for the leases that were
obtained for Imeson Center. In addition, $227,975 was expended in fiscal 1997
on operating costs that were capitalized related to preparing the Imeson
center facility for rent. These costs will be amortized over the period of
the expected benefit. The accounts payable and accrued liabilities decreased
by $704,565 from the end of fiscal 1997 to the end of fiscal 1998. The
accounts payable and accrued expenses were unusually high at June 30, 1997
because they included amounts owed under the Moore settlement, higher than
normal legal fees, construction costs for renovations to the lobby of the
Imeson Center and broker commissions related to the Prudential lease.
The proceeds from the sale of assets in fiscal 1997 represent proceeds from
the liquidation of the Company's automotive services operations. The
construction escrow deposit represents the Company's contribution toward the
renovation and expansion of the food service operation at the Imeson Center
building. These renovations are expected to be completed in September 1998.
Property and equipment additions in fiscal 1998 are primarily from the sale of
the land and building previously used by the automotive operations and in
fiscal 1998 and 1997 primarily consisted of purchases of equipment for
operations at Imeson Center and renovations to the building related to the
conversion of warehouse space to office space.
Cash of $11,030,149 was provided by financing activities in fiscal 1998, as
compared to cash used by financing activities of $2,290,068 in fiscal 1997.
The Company closed on a mortgage loan in the amount of $13,500,000 on
September 30, 1997. Loan costs associated with the mortgage loan were
$832,984, of which $33,160 were incurred in the fourth quarter of fiscal 1997.
As a requirement of the loan, $950,000 was placed into a reserve for future
tenant improvements and leasing commissions. The net proceeds of the mortgage
are expected to be used primarily for the acquisition of new businesses, but
will also be used for the continued development of the Imeson Center property
and funding of the Company's stock repurchase program. The purchase of
treasury stock in fiscal 1998 included 5,000 shares with a value of $18,125
received as part of a settlement of the lawsuit with Mr. Kerry Marler and
49,163 shares purchased at a cost of $233,524 as part of a settlement of the
lawsuit with John Sanford et al. The purchase of treasury stock in fiscal
1997 included 641,272 shares at a cost of $2,116,198 as part of a settlement
of litigation with the Smith Group. The Company paid $220,000 for three
warrants to purchase a total of 285,000 shares of common stock. Future
payments of $120,500 and $95,000 are due upon termination of each of the
warrants but not later than January 15, 1999 and 2000, respectively. On
September 30, 1997, options for the purchase of 25,000 shares of common stock
at $1 per share were exercised.
The Company did not have any material commitments for capital expenditures
as of June 30, 1998 other than for ordinary expenses incurred during the usual
course of business. The Company is looking for additional tenants for Imeson
Center for the remaining 41,000 square feet of office space. It is expected
that any new tenant will require the Company to incur significant costs
related to renovation of the property to meet the tenants needs.
Additionally, the Company is considering opportunities to develop the
outparcels of the Imeson Center. Although the Company has not identified any
specific acquisition opportunities, management is spending resources to locate
potential opportunities to expand the Company's business operations into other
areas. Any new business operation will likely involve a substantial
commitment of Company resources and a significant degree of risk. The Company
also has potential liability related to litigation (See Note 13 of the
accompanying financial statements). While the Company has a significant
current liquidity position, any of the above mentioned items could require
significant capital resources in excess of the Company's current liquidity
position, requiring it to raise additional capital through public or private
debt or equity financing. The availability of these capital sources will
depend upon prevailing market conditions, interest rates, and the then
existing financial position and results of operations of the Company.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements of the Company as of June 30, 1998 and the Report
of the Independent Certified Public Accountants thereon are included in
Appendix F to this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.
Information regarding directors and executive officers of the Company is
included under the caption "Classification of Directors" of the registrant's
definitive Proxy Statement for its 1998 annual meeting.
ITEM 10. EXECUTIVE COMPENSATION.
Information regarding executive compensation is included under the caption
"Executive Compensation" of the registrant's definitive Proxy Statement for
its 1998 annual meeting.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding beneficial ownership of the registrant's voting
securities by each director and all officers and directors as group, and by
any person known to beneficially own more than 5% of any class of voting
security of the registrant is included under the caption "Voting Securities"
of the registrant's definitive Proxy Statement for its 1998 annual meeting.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is
included under the caption "Indemnification of Company Officers and Directors"
of the registrant's definitive Proxy Statement for its 1998 annual meeting.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
A.Exhibits
Method
Exhibit of
Number Description Filing
- ------- --------------------------------------------------- ------
3.1 Amended and Restated Certificate of Incorporation 7
3.2 Series A Participating Preferred Stock
Certificate of Designations 6
3.3 Series B Participating Preferred Stock
Certificate of Designations 9
3.4 Second Amended and Restated By-laws 7
4.1 Rights Agreement by and between the Company and
Registrar & Transfer Company dated April 18, 1994 2
4.2 Mortgage Promissory Note 9
4.3 Mortgage Security Agreement and Fixture Filing 9
10.1 1988 Stock Option Plan 1
10.2 Form of Indemnity Agreement with
Officers and Directors 3
10.3 Lease for 100 North Tampa offices 3
10.4 Webb Employment Agreement 3
10.5 Amendment to Webb Employment Agreement 6
10.6 Newton Employment Agreement 3
10.7 Amendment to Newton Employment Agreement 6
10.8 Barnes Employment Agreement 6
10.9 Warehouse Lease Agreements with Laney & Duke
Terminal Warehouse Company, Inc. 4
10.10 Renewal and Modification of Laney & Duke Leases 5
10.11 Amendment to Laney & Duke Leases dated 1/1/97 8
10.12 Amendment to Laney & Duke Leases dated 3/1/97 8
10.13 Office Lease with America Online, Inc. 4
10.14 Office Lease with Prudential Insurance
Company of America 8
10.15 Letter from Prudential Insurance Company
of America exercising extension rights *
10.16 Form of Stock Purchase Agreement for the
repurchase of 641,272 shares 6
21 List of Subsidiaries of Registrant *
23 Consents of experts and counsel *
27 Financial Data Schedule *
* Filed herewith.
1 Incorporated by reference to the Company's registration statement on Form
S-18 file #33-21786 filed in Atlanta, Georgia.
2 Incorporated by reference to the Company's Current Report on Form 8-K
dated April 18, 1994.
3 Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended June 30, 1994.
4 Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended June 30, 1995.
5 Incorporated by reference to the Company's Current Report on Form 8-K
dated December 22, 1996.
6 Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended June 30 1996.
7 Incorporated by reference to the Company's Quarterly Report or Form 10-QSB
for the quarter ended December 31, 1996.
8 Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended June 30,1997.
9 Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended December 31, 1997.
B. Reports on Form 8-K
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, this 23rd day of
September 1998.
EXCAL ENTERPRISES, INC.
/S/ W. CAREY WEBB
W. Carey Webb
President and Chief Executive Officer
In accordance with the Exchange Act of 1934, as amended, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Dated: September 23, 1998 /S/ R. PARK NEWTON, III
R. Park Newton, III
Chairman of the Board and Board Member
Dated: September 23, 1998 /S/ W. CAREY WEBB
W. Carey Webb
President and Chief Executive Officer
Dated: September 23, 1998 /S/ TIMOTHY R. BARNES
Timothy R. Barnes
Vice-President, Chief Financial Officer,
and Principal Accounting Officer
Dated: September 23, 1998 /S/ W. ARIS NEWTON
W. Aris Newton
Vice-President and Board Member
Dated: September 23, 1998 /S/ JOHN L. CASKEY
John L. Caskey
Board Member
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED BALANCE SHEET F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENTS OF CASH FLOWS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Excal Enterprises, Inc. and Subsidiaries
Tampa, Florida
We have audited the accompanying consolidated balance sheet of Excal
Enterprises, Inc. and Subsidiaries as of June 30, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Excal Enterprises, Inc. and Subsidiaries as of June 30, 1998, and the
consolidated results of its operations and cash flows for the two years then
ended, in conformity with generally accepted accounting principles.
PENDER NEWKIRK & COMPANY
Certified Public Accountants
Tampa, Florida
August 7, 1998
EXCAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
Current assets
Cash and cash equivalents $ 12,910,401
Accounts receivable - trade (less allowance
for doubtful accounts of $1,643) 246,111
Income tax receivable 1,691
Prepaid expenses and deposits 305,126
Deferred tax asset 313,000
----------
Total current assets 13,776,329
----------
Property, plant and equipment
Land 1,600,000
Building 6,698,961
Furniture, fixtures, vehicles and equipment 451,667
----------
8,750,628
Less accumulated depreciation and amortization ( 993,334)
----------
Net property, plant and equipment 7,757,294
----------
Construction escrow deposits 100,000
Restricted cash reserves 892,699
Loan costs, less accumulated amortization of $124,948 708,036
Commission costs, less accumulated amortization of $270,339 292,706
----------
Total Assets $ 23,527,064
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 248,401
Accrued liabilities 450,707
Deferred revenue 190,307
Income taxes payable 25,000
Reserve for litigation 350,000
Other current liabilities 215,500
Current portion long term debt 147,104
----------
Total current liabilities 1,627,019
Long term liabilities 13,241,214
Deferred tax liability 1,870,000
----------
Total liabilities 16,738,233
----------
Stockholders' equity:
Preferred stock, $.01 par value, 7,500,000 shares authorized,
5,000,000 shares issued, and no shares outstanding --
Common stock, $.001 par value, 20,000,000 shares authorized,
4,738,866 shares issued, 3,936,031 shares outstanding 4,738
Additional paid-in capital 5,437,897
Retained earnings 4,125,458
Less 802,835 shares of common stock held in treasury at cost ( 2,779,262)
----------
Total stockholders' equity 6,788,831
----------
Total Liabilities and Stockholders' Equity $ 23,527,064
==========
The accompanying notes are an integral part of the consolidated financial
statements. Read independent auditor's report.
EXCAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30
----------------------------
1998 1997
--------- ---------
Net revenue $ 4,581,058 $ 3,344,700
--------- ---------
Operating costs 2,497,050 2,293,659
Depreciation and amortization 588,565 367,697
--------- ---------
Total operating costs 3,085,615 2,661,356
--------- ---------
Net operating profit 1,495,443 683,344
--------- ---------
Other expense (income)
Interest expense 915,312 42,400
Professional fees related to litigation 481,807 781,262
Litigation settlement 45,395 200,306
Loss (gain) on sale of assets ( 61,948) 13,068
Interest income ( 530,679) ( 91,288)
Other income ( 108,814) ( 61,225)
--------- ---------
Net other expense 741,073 884,523
--------- ---------
Income (loss) before income taxes
and discontinued operations 754,370 ( 201,179)
Income tax provision (benefit) 312,000 ( 266,000)
--------- ---------
Income from continuing operations 442,370 64,821
Income from discontinued operations (less
income tax expense of $101,000) -- 155,000
--------- ---------
Net income $ 442,370 $ 219,821
========= =========
Earnings per share - basic
Continuing operations $ .11 $ .02
Discontinued operations -- .03
--------- ---------
Earnings per share - basic $ .11 $ .05
========= =========
Earnings per share - diluted
Continuing operations $ .10 $ .02
Discontinued operations -- .03
--------- ---------
Earnings per share - diluted $ .10 $ .05
========= =========
Weighted average shares outstanding
Common 3,975,165 4,138,282
Common and equivalent 4,461,757 4,447,948
The accompanying notes are an integral part of the consolidated financial
statements. Read independent auditor's report.
EXCAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30
------------------------------
1998 1997
---------- ----------
Cash flows from operating activities:
Net income $ 442,370 $ 219,821
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 592,023 479,528
Provision for uncollectable
accounts receivable ( 7,831) ( 12,662)
Reserve for gain on disposal of division ( 113,396) ( 256,000)
Loss (gain) on disposals of assets 1,398 ( 212,255)
Provision for deferred income taxes 58,000 72,000
Decrease (increase) in operating assets:
Accounts receivable - trade 114,879 ( 4,796)
Accounts receivable - related parties 6,861 18,899
Income tax receivable 183,581 ( 175,556)
Prepaid expenses and deposits ( 80,531) ( 40,460)
Other assets ( 56,996) ( 436,645)
Increase (decrease) in
operating liabilities:
Accounts payable and accrued liabilities ( 704,565) 924,849
Deferred revenue 190,307 --
Income taxes payable 73,000 ( 18,737)
Reserve for litigation ( 236,480) ( 180,000)
---------- ----------
Net cash provided by operating activities 462,620 377,986
---------- ----------
Cash flows from investing activities:
Proceeds from sale of assets 597,946 530,559
Construction escrow deposit ( 100,000) --
Property and equipment additions ( 127,480) ( 321,889)
---------- ----------
Net cash provided by investing activities 370,466 208,670
---------- ----------
Cash flows from financing activities:
Net borrowing (payments) on line of credit ( 10,952) 10,952
Borrowing of long-term debt 13,500,000 ---
Principal repayments of long-term
debt and capital leases ( 111,682) ( 130,275)
Loan costs ( 799,824) ---
Restricted cash reserves ( 950,000) ---
Issuance of common stock 25,000 ---
Repurchase warrants ( 220,000) ---
Purchase treasury stock ( 402,393) ( 2,170,745)
---------- ----------
Net cash provided (used)
by financing activities 11,030,149 ( 2,290,068)
---------- ----------
Increase (decrease) in cash 11,863,235 ( 1,703,412)
Cash and cash equivalents, beginning of year 1,047,166 2,750,578
---------- ----------
Cash and cash equivalents, end of year $ 12,910,401 $ 1,047,166
========== ==========
Supplemental disclosure of cash flow information
Interest paid $ 915,312 $ 45,007
Income taxes received $ 2,581 $ 42,811
The accompanying notes are an integral part of the consolidated financial
statements. Read independent auditor's report.
EXCAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Additional Treasury stock
----------------- Paid-in Retained --------------------
Shares Amount Capital Earnings Shares Amount
--------- ------ ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1996 4,713,866 $4,713 $5,800,422 $3,463,267 47,000 $ 206,124
Net income -- -- -- 219,821 -- --
Purchase Smith Group shares -- -- -- -- 641,272 2,116,198
Open market purchases -- -- -- -- 15,000 54,547
--------- ----- --------- --------- ------- ---------
Balance June 30, 1997 4,713,866 4,713 5,800,422 3,683,088 703,272 2,376,869
Net income -- -- -- 442,370 -- --
Exercise of stock options 25,000 25 24,975 -- 8,000 46,480
Tax benefit from exercise
of stock options -- -- 48,000 -- -- --
Repurchase warrants -- -- ( 435,500) -- -- --
Marler settlement -- -- -- -- 5,000 18,125
Purchase Sanford Group shares -- -- -- -- 49,163 233,524
Exercise option to
purchase shares -- -- -- -- 11,400 2,234
Open market purchases 102,030
-- -- -- -- 26,000
--------- ----- --------- --------- ------- ---------
Balance June 30, 1998 4,738,866 $4,738 $5,437,897 $4,125,458 802,835 $2,779,262
========= ===== ========= ========= ======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements. Read independent auditor's report.
EXCAL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS
Excal Enterprises, Inc. and subsidiaries (the "Company"), headquartered in
Tampa, Florida, was engaged in two distinct business operations. The
Company's commercial real estate venture was conducted by and through Imeson
Center, Inc., a wholly owned subsidiary. On September 30, 1997, the Company
closed on a $13,500,000 mortgage secured by the Imeson Center property located
in Jacksonville, Florida. As part of the mortgage transaction, all of the
assets of Imeson Center, Inc. were transferred to a new, single-purpose,
wholly owned subsidiary, Jacksonville Holdings, Inc. Jacksonville Holdings,
Inc. now owns, manages and leases the two-story warehouse and office facility
containing 1,666,000 square feet of rentable space located on approximately 74
acres in an industrial park in Duval County, Florida. The Company's
automotive services operations were conducted by and through Assix Automotive,
Inc., a wholly owned subsidiary. In June 1996, the Board of Directors
approved a plan to discontinue the automotive services operations. Assix
Automotive, Inc. ceased operations in June 1997 and completed its liquidation
in December 1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements are as
follows:
Principles of Consolidation. The consolidated financial statements include
the accounts of Excal Enterprises, Inc. and three wholly owned subsidiaries,
Jacksonville Holdings, Inc., Imeson Center, Inc., and Assix Automotive, Inc.
Imeson Center, Inc. was dissolved in 1998 after its operations were
transferred to Jacksonville Holdings, Inc. The operations of Assix Automotive
were discontinued and the company was dissolved during 1998.
Estimates and Assumptions. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statement and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents. Cash and cash equivalents include all cash
balances and highly liquid investments with an original maturity of three
months or less.
Property, Plant and Equipment. Property, plant and equipment are recorded
at cost or appraised value at the date of acquisition. Depreciation and
amortization are calculated by using the straight-line method over the
estimated useful lives of the assets, ranging generally from five to ten years
for tangible personal property and 40 years for real property and
improvements. Expenditures for maintenance and repairs are charged to expense
as incurred, and renewals and betterments are capitalized. Gains or losses on
disposals are credited or charged to operations. For income tax purposes, the
Company uses accelerated methods of depreciation for certain assets.
Intangible Assets. Costs incurred in closing the mortgage loan were
capitalized and are being amortized over the five-year life of the loan.
Commission costs represent the broker fees incurred related to the leases
obtained for Imeson Center. These costs are amortized over the life of the
leases.
Revenue Recognition. Commercial real estate rental revenue consists of
base rent, reimbursement of operational expenses and common area maintenance
charges. The Company recognizes revenue when it is earned.
Income taxes. Deferred tax assets and liabilities are recognized for the
estimated future consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective income tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
Stock based compensation. The Financial Accounting Standards Board issued
Statement 123, Accounting for Stock-Based Compensation, effective for fiscal
years beginning after December 15, 1995. Statement 123 provides that expense
equal to the fair value of all stock-based awards on the date of the grant be
recognized over the vesting period. Alternatively, Statement 123 allows
entities to continue to apply the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation
expense is recorded on the date the options are granted equal to the excess of
the market price of the underlying stock over the exercise price. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma disclosure of the provisions of Statement 123.
Earnings per Share. In March of 1997, the Financial Accounting Standards
Board issued SFAS No. 128 - Earnings Per Share. SFAS No. 128 establishes the
standards for computing and presenting earnings per share, effective for
financial statements ending after December 15, 1997. Therefore, the Company's
calculation and presentation of earnings per share has been modified for the
current period and restated for prior periods to conform to SFAS No. 128.
Basic earnings per common share are based upon the weighted average number of
common shares outstanding. Diluted earnings per common share are based upon
the weighted average number of common shares outstanding plus the dilutive
effect of common stock equivalents consisting of stock options and purchase
warrants.
Reclassifications. Certain reclassifications have been made to the
financial statements in 1997 in order to conform to the 1998 presentation.
None of the reclassifications affected the financial position or results of
operations.
NOTE 3 - DEPENDENCE ON MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. The Company maintains its cash and cash equivalents
at several financial institutions that it believes are of high credit quality
and attempts to limit its exposure in any one particular instrument. There
are times when balances maintained at certain financial institutions are in
excess of insured limits.
Net revenue of the Company consists of commercial real estate revenue from
the lease and management of property located in Jacksonville, Florida. Three
leases accounted for substantially all of the Company's revenue in fiscal 1998
and fiscal 1997 as follows:
Year Ended June 30, 1998 Year Ended June 30, 1997
------------------------- -------------------------
Lessee Amount % to Total Amount % to Total
- -------------------- ---------- ---------- ---------- ----------
Laney & Duke $2,409,945 53% $2,365,314 71%
America Online 914,806 20% 864,086 26%
Prudential Insurance 1,237,679 27% 109,606 3%
The Laney & Duke lease expires on December 31, 2000. The America Online
lease expires on June 15, 2002. The Prudential Insurance Company lease
expires June 15, 1999. The loss of any of these leases would have a
significant impact on the Company (See Note 8).
NOTE 4 - DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 1996, the Company decided to terminate
the agency agreements with its licensed agents effective June 30, 1997 and
report the automotive service division as discontinued operations. During
fiscal 1997, management reduced the reserve for discontinued operations by
$256,000 ($155,000 after tax). In final liquidation of the automotive service
operations, the Company has recorded aggregate proceeds of $609,670 from the
disposal of assets, resulting in a loss of $1,048,889 and an aggregate loss
from operations of $277,754, including depreciation of $115,288. There was no
revenue from the automotive service division in fiscal 1998 and revenue of
$245,220 in fiscal 1997.
NOTE 5 - LONG-TERM DEBT
On September 30, 1997, the Company closed on a $13,500,000 mortgage secured
by the Imeson Center property located in Jacksonville, Florida. The mortgage
bears a 9% interest rate with a monthly payment of $113,292 based on a twenty-
five year amortization. The mortgage matures on October 1, 2002. The
mortgage is secured by the land and building located in Jacksonville, Florida,
that had a net carrying value of $7,517,292 as of June 30, 1998. The mortgage
does not allow early repayment during the first two years of the loan term and
provides for an early repayment penalty of 3%, 2% and 1% of the outstanding
loan amount during the third year, fourth year, and first six months of the
fifth year of the loan term, respectively.
As a requirement of the mortgage, $950,000 was placed in an interest
bearing reserve for future tenant improvements and leasing commissions. In
addition, $1,372 per month is required to be placed in an interest bearing
reserve for certain future maintenance items. Both of these reserves must be
maintained over the term of the loan and any disbursements require monthly
repayments. In January 1998, $121,125 was disbursed from the reserve to pay
leasing commission on the renewal of certain leases. Beginning with the
February 1998 payment, the Company is required to deposit $8,350 per month
into the reserve until the disbursement is repaid. Annual maturities of long-
term debt are as follows: 1999 - $147,104; 2000 - $174,886; 2001 - $191,292;
2002 - $209,236; 2003 - $12,665,800.
NOTE 6 - COMMITMENTS
The Company incurred rent expense of $88,145 and $72,981 for the years
ended June 30, 1998 and 1997, respectively. Future minimum lease payments
under the non-cancelable operating lease for the corporate office space as of
June 30, 1998 are as follows: 1999 - $63,613; 2000 - $73,400; 2001 - $25,690.
The Company entered into an employment agreement in March 1994 with its
then President, who is now Chairman of the Board, that obligates the Company
to pay him $180,000 a year for five years, unless his employment is terminated
for due cause. The agreement also provides for a lump sum severance payment
of up to 2.9 times his base salary upon the occurrence of a change in control.
The Company entered into an employment agreement with its current President
and Chief Executive Officer effective August 15, 1994. The agreement
obligates the Company to pay him $180,000 a year for five years, unless his
employment is terminated for due cause. The agreement also provides for a
lump sum severance payment of up to 2.9 times his base salary upon the
occurrence of certain events after a change in control. The agreement
provides for a $100,000 moving allowance, which includes reimbursement for the
sale of his house below its appraised market value.
The Company entered into an employment agreement with its current Vice
President and Chief Financial Officer effective August 7, 1995. The agreement
obligates the Company to pay him $75,000 a year, unless his employment is
terminated for due cause. The agreement also provides for a lump sum
severance payment of up to 2.9 times his base salary upon the occurrence of a
change in control.
NOTE 7 - STOCKHOLDERS' EQUITY
Preferred Stock
On April 18, 1994, the Company's Board of Directors declared a dividend
distribution of one "Right" for each share of common stock, par value $0.001
per share, of the Company (the "Common Stock") outstanding as of April 29,
1994. Distribution of the Rights was not taxable to shareholders and the
Rights expire after ten years. Each Right entitles the registered holder to
purchase from the Company one-hundredth (1/100) of a share of Series A
Participating Preferred Stock at a Purchase Price of $10.00, subject to
certain anti-dilution adjustments (the "Exercise Price"). The terms and
conditions of the Rights are contained in a Rights Agreement, dated April 18,
1994, between the Company and Registrar and Transfer Company, a corporation
acting in the capacity of Rights Agent (and which also serves as the Company's
transfer agent). The plan under which the Company's Board of Directors has
declared a distribution of the Rights, including the definitive terms of the
Rights and the Rights Agreement, are referred to hereinafter as the "Rights
Plan."
The Rights are not presently exercisable and are evidenced only by the
certificates representing shares of Common Stock and are transferable only
with the Common Stock. The Rights become exercisable and separately
transferable on the earlier of (i) the tenth calendar day after the first
public disclosure that a person or group (including any affiliate or associate
of such person or group) has acquired beneficial ownership of 15% or more of
the outstanding Common Stock, or, in the case of a person or group
beneficially owning 15% or more of the outstanding Common Stock on April 18,
1994, the date that such person or group acquires any additional shares of
Common Stock (other than pursuant to a dividend or distribution paid or made
pro rata to all holders of Common Stock or upon exercise of employee stock
options pursuant to any employee benefit plan approved by the Board of
Directors) (such a person or group being called an "Acquiring Person") or (ii)
the tenth calendar day after the commencement of, or first public disclosure
of the intent of any person or group to commence, a tender or exchange offer
for 15% or more of the outstanding Common Stock (the date on which the rights
become exercisable being called the "Distribution Date"). After the
Distribution Date, a holder of a Right (other than the Acquiring Person, whose
Rights become void) will have the right to purchase, upon payment of the
Exercise Price, 1/100th of a share of Series A Preferred Stock, subject to
certain adjustments.
Additionally, after a person becomes an Acquiring Person, each Right will
entitle its holder to purchase, at the Right's Exercise Price, a number of
shares of the Company's Common Stock having a market value at that time of
twice the Right's Exercise Price. Rights held by the Acquiring Person will
become void and will not be exercisable to purchase shares at the bargain
purchase price. If the Company is acquired in a merger or other business
combination transaction after a person becomes an Acquiring Person, each Right
will entitle its holder to purchase, at the Right's then current Exercise
Price, a number of the Acquiring Person's common shares having a market value
at that time of twice the Right's exercise price.
The terms of the Preferred Stock purchasable upon exercise of the Rights
have been designed so that each 1/100th share of Preferred Stock has economic
rights substantially equivalent to those of a share of Common Stock. Thus,
each share of Series A Preferred Stock will be entitled to receive, when and
as declared, a quarterly dividend at an annual rate equal to the greater of
$1.00 per share or one-hundredth times the cash dividend declared on the
Common Stock during the period from January 1 through December 31 of the
immediately preceding year. In addition, the Series A Preferred Stock is
entitled to one hundred times any non-cash dividends (other than dividends
payable in Common Stock) declared on the Common Stock, in like kind. In the
event of the liquidation, dissolution or winding up of the Company, the
holders of Series A Preferred Stock will be entitled to receive a liquidation
payment in an amount equal to the greater of $1.00 per share or one hundred
times the liquidation payment made per share of Common Stock. Each share of
Series A Preferred Stock will have one hundred votes, voting together with the
Common Stock.
Upon exercise of the Rights, the Series A Participating Preferred Stock
will be distributed to holders of the Rights upon exercise thereof and payment
of the Exercise Price (as defined in the Rights Agreement). Absent an
available exemption, registration of the Series A Participating Preferred
Stock will be required under the Securities Act of 1933, as amended, and
applicable state "blue sky" laws prior to such distribution.
As part of the restructuring in connection with the mortgage loan,
Jacksonville Holdings, Inc. acquired 5,000,000 shares of Excal Enterprises
Series B Participating Preferred Stock. These shares are shown as issued but
not outstanding and all transactions related to their issuance have been
eliminated in consolidation. The Series B Participating Preferred Stock, par
value $0.001 entitles the holder to non-cumulative dividends at a rate equal
to 6% of the liquidation value ($2.00 per share). The Series B Preferred
Stock does not contain voting rights and is not redeemable.
Common Stock
During the fiscal year ended June 30, 1998, the Company repurchased 26,000
shares of its common stock through open-market purchases at a cost of $102,030
and received 8,000 shares with a value of $46,480 as payment for withholding
taxes due on the exercise of options. The Company received 5,000 shares of
its common stock, with a value of $18,125, as part of the settlement of the
lawsuit with Mr. Kerry Marler. As part of the settlement of the lawsuit with
John Sanford, et. al., the Company purchased 49,163 shares of common stock at
a cost of $233,524. The Company exercised its option to acquire 11,400 shares
of common stock at a cost of $2,234 from a shareholder. The Company paid
$220,000 for the right to repurchase three options to purchase a total of
285,000 shares of common stock. Future payments of $120,500 and $95,000 are
due upon termination of each of the options but not later than January 15,
1999 and January 15, 2000, respectively. On September 30, 1997, options for
the purchase of 25,000 shares of common stock were exercised. The exercise
generated $25,000 in proceeds and $48,000 in tax savings for the Company.
During the fiscal year ended June 30, 1997, the Company purchased 641,272
shares of its common stock for an aggregate cash purchase price of $2,116,198.
In addition, the Company acquired 15,000 shares at a cost of $54,547 in open
market purchases during fiscal 1997.
Options and Warrants
The Company has a stock option plan providing for the issuance of up to
500,000 shares of the Company's common stock to employees and directors,
pursuant to options granted under the Option Plan. The Company has also
issued additional options and warrants to officers, directors, and
unaffiliated third parties outside of the Option Plan. The Company applies
APB Opinion 25 and related Interpretations in accounting for its grants of
options and warrants. The Company has not recorded compensation expense
relating to any issuance of options or warrants since, in all instances, the
exercise price was greater than or equal to the market value of the underlying
shares of the Company's common stock on the dates of grant. Had compensation
cost for the options and warrants granted been determined based on the fair
value at the grant dates under the methods proscribed by FASB Statement 123,
the Company's net income and earnings per share would have been reduced to the
proforma amounts indicated below:
1998 1997
------- -------
Net income (loss) As reported $ 442,370 $ 219,821
Pro forma $ 396,022 $ 183,591
Earnings per share - basic As reported $ .11 $ .05
Pro forma $ .10 $ .04
Earnings per share - diluted As reported $ .10 $ .05
Pro forma $ .09 $ .04
For purposes of the proforma presentation above, the fair value of each
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions: expected volatility of
30 percent and expected lives of 3 years for both years and risk free interest
rates of 5.81% and 6.4% in 1998 and 1997, respectively.
A summary of the status of the options issued pursuant to the Plan and the
options and warrants issued outside the Plan is as follows:
Issued Pursuant Issued outside
to Option Plan of Option Plan
-------------------- --------------------
Exercise Exercise
Shares Price(1) Shares(2) Price(1)
--------- -------- --------- --------
Outstanding at June 30, 1996 130,000 $1.43 1,142,650 $2.20
Granted in fiscal 1997 -- -- 125,000 $2.34
Outstanding at June 30, 1997 130,000 $1.43 1,267,650 $2.21
Granted in fiscal 1998 -- -- 65,000 $4.83
Forfeited in fiscal 1998 25,000 $1.00 -- --
Exercised in fiscal 1998 25,000 $1.00 -- --
Outstanding at June 30, 1998 80,000 $1.71 1,332,650 $2.34
(1) Weighted average exercise price.
(2) Does not include options to acquire 300,000 shares at an exercise price
of $1.00 per share that were awarded to Park Newton in 1994 but have not
been issued because of a requirement that the Board of Directors take
certain actions prior to granting such options.
The following table summarizes information about the options and warrants
outstanding at June 30, 1998, stratified by exercise price:
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise At June 30, Contractual Exercise at June 30, Exercise
Prices 1998 Life Price 1998 Price
- ------------- ----------- ---------- --------- ----------- ---------
Issued Pursuant to Option plan
- ------------------------------
$1.44 75,000 7.1 years $1.44 75,000 $1.44
$5.74 5,000 0.9 years $5.74 5,000 $5.74
Issued outside of Option Plan(1)
- --------------------------------
$0.53 to $1.13 645,000 5.9 years $1.01 545,000 $1.06
$1.70 to $2.34 427,650 4.5 years $1.97 242,650 $2.17
$4.69 to $4.95 65,000 6.7 years $4.83 65,000 $4.83
$5.63 to $7.43 195,000 1.4 years $6.71 195,000 $6.71
1 Does not include options to acquire 300,000 shares at an exercise price of
$1.00 per share that were awarded to Park Newton in 1994 but have not been
issued because of a requirement that the Board of Directors take certain
actions prior to granting such options.
NOTE 8 - COMMERCIAL REAL ESTATE RENTAL REVENUE
The Company, through its wholly owned subsidiary Jacksonville Holdings,
Inc., leases improved real property located in Jacksonville, Florida. The
leases include a base rental fee, a contingent rental fee to reimburse the
Company for operating costs and common area maintenance costs, and a
requirement that the tenants pay for their own utilities. The land and
building had a carrying cost of $8,298,961 and accumulated depreciation of
$781,669 as of June 30, 1998. In August 1998, Prudential Insurance Company
exercised its right to extend its lease for an additional four years. Minimum
future rentals under non-cancelable leases are as follows: 1999 - $3,827,291;
2000 - $3,975,686; 2001 - $3,035,791; 2002 - $2,030,419; 2003 - $1,194,881;
2004 - $20,000; and, 2005 - $5,000. During fiscal 1998 and 1997, rental
revenue included $836,293 and $639,294 of contingent rentals, respectively.
NOTE 9 - LITIGATION SETTLEMENT
In litigation over compensation, the Court awarded Harvey Moore
compensation of $294,861 and pre-judgment interest of $85,445. These amounts
were in excess of the $180,000 the Company had reserved. Harvey Moore and the
Company agreed to pay the award in four monthly payments, including interest
at 10% per annum, beginning June 6, 1997. This amount was paid in full by
September 7, 1997.
The Company and Mr. Marler reached a settlement agreement on November 17,
1997 during jury selection. The Company paid Mr. Marler $300,000, of which
$236,480 was reserved at June 30, 1997 and Mr. Marler transferred 5,000 shares
of Excal Enterprises common stock with a value of $18,125 to the Company in
settlement of all outstanding claims.
On October 30, 1997, the United States District Court granted the Company's
motion to dismiss with prejudice as to plaintiff ASX Investment Corporation,
but denied the motion as to plaintiff Steve Rosner. Subsequently, Plaintiff
Steve Rosner voluntarily dismissed his claim and ASX Investment Corporation
filed an appeal. In addition, the Court granted the Company's motion for
summary judgment in the separate class-action suit filed by Rosner.
The Company agreed to settle its litigation with John Sanford, Walter
Carucci, Paul Koether and Nelson Obus. The Company agreed to purchase 49,163
shares of Excal Enterprises common stock held by two of the defendants at
market value ($4.75 at the time of the agreement) and all parties dismissed
all claims.
NOTE 10 - INCOME TAXES
The sources of significant temporary differences which gave rise to
deferred tax assets and liabilities as of June 30, 1998 are as follows:
Deferred tax assets:
Accrued salaries, bonuses and expenses $ 313,000
Tax basis of property, plant and equipment in excess of book 33,000
Tax basis of intangible assets in excess of book 1,000
Net operating loss carryforward 48,000
---------
395,000
Less valuation allowance for loss carryforward 15,000
---------
380,000
---------
Deferred tax liabilities:
Book basis of investment in subsidiaries in excess of tax 1,937,000
---------
1,937,000
---------
Net deferred tax liabilities $ 1,557,000
=========
The valuation allowance decreased by $2,000 in 1998 and increased by
$15,000 in 1997. The components giving rise to the net deferred tax
liabilities described above have been included in the accompanying balance
sheet as follows:
Current assets $ 313,000
Non-current liabilities 1,870,000
$ 1,557,000
The components of the provision (benefit) for income taxes for the years
ended June 30, 1998 and 1997 were as follows:
1998 1997
------- -------
Current tax expense (benefit) $ 297,000 $( 82,000)
Deferred tax expense (benefit) 15,000 (184,000)
------- -------
$ 312,000 $(266,000)
======= =======
In 1998, current tax benefit of $50,000 ($155,000 in 1997) and deferred tax
expense of $50,000 ($256,000 in 1997) were allocated to discontinued
operations. The difference between the provision (benefit) for income taxes
and the amounts obtained by applying the statutory US Federal Income Tax rate
to the income before taxes is as follows:
1998 1997
------- -------
Tax expense (benefit) at statutory rate $ 257,000 $( 68,000)
Increase (decreases) in taxes
resulting from tax effects of:
State income taxes, net of federal tax benefit 44,000 ( 56,000)
Non-deductible expenses 13,000 11,000
Utilization of capital loss carryforward ( 2,000) --
Tax planning strategies -- (153,000)
------- -------
$ 312,000 $(266,000)
======= =======
As of June 30, 1998, the Company had approximately $872,000 in net
operating loss carryforwards for state tax purposes. The net operating loss
carryforwards expire in the years 2010 and 2012.
NOTE 11 - 401(K) RETIREMENT PLAN
The Company established a 401(k) retirement plan effective March 1, 1997.
The Plan covers substantially all of its employees. Contributions are at the
employees' discretion and are matched by the Company up to certain limits.
The Company contributed $14,818 and $3,910 to the Plan for the years ended
June 30, 1998 and June 30, 1997, respectively.
NOTE 12 - RELATED PARTIES
The Company has entered into Indemnity Agreements with its officers and
directors under which the Company agrees to indemnify and hold harmless such
individuals against all expense, judgments, fines, penalties, etc. reasonably
incurred by each in connection with their services to the Company. However,
such indemnification only applies following a specific determination that such
individuals acted in good faith and in a manner that each reasonably believed
to be in the best interests of the Company. The Board of Directors previously
authorized the advance of costs and expenses incurred by certain of its
officers, directors, employees and agents in connection with the Securities
and Exchange Commission ("Commission") investigation. Such advances were
conditioned on repayment if it was ultimately determined that the person on
whose behalf the advance was made did not meet the statutory standards of
conduct required for indemnification. Under Delaware law, a person may only
be indemnified to the extent that they are determined to have acted in good
faith and in a manner reasonably believed by them to be in the best interest
of the Company. In connection with the Commission's investigation, the
Company's Board of Directors engaged counsel to conduct an internal
investigation of the matters underlying the Commission's investigation. Based
upon such report and on the matters raised by the Commission's investigation,
the Board of Directors discovered no evidence that such officers, directors,
employees and agents acted other than in good faith and in a manner which they
reasonably believed to have been in the best interests of the Company in
discharging their duties. Accordingly, the Board of Directors has determined
that such individuals are entitled to indemnification for costs and expenses
incurred in connection with the Commission investigation referenced above.
The Company has $350,000 accrued for judgments and fines as of June 30, 1998.
NOTE 13 - LEGAL PROCEEDINGS
A. Securities and Exchange Commission
On May 28, 1993, the United States Securities and Exchange Commission ("the
Commission") entered an Order Directing Private Investigation and Designating
Officers to Take Testimony in the Matter of Assix International, Inc. ("the
Order"). The Order was based upon reports from Commission staff personnel
prepared as a result of an informal preliminary investigation, apparently
initiated in June 1992, regarding certain of the Company's prior activities.
The reports alleged that the Company may have violated various provisions of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and rules
promulgated thereunder by, among other reasons, failing to report the loss of
its principal customers in a timely and accurate fashion and falsely reporting
a material amount of nonexistent revenue from one of those lost customers.
The reports also alleged that certain individuals, including the Company's
officers and directors, may have participated in such violations or aided and
abetted the suspected Company violations. Additionally, it was alleged that
Mr. R. Park Newton, III traded Company securities before the foregoing
information had been disclosed, thereby violating the insider trading
provisions of the Securities Act of 1933 (the "Securities Act") and the
Exchange Act.
The Company's Board of Directors engaged independent counsel to conduct an
internal investigation into the matters underlying the Commission's reports.
Based upon the results of this investigation and its knowledge of the
Commission's reports, the Board of Directors discovered no evidence that the
officers and directors of the Company acted other than in good faith and in a
manner in which they believed to be in the best interests of the Company in
discharging their duties. The Company and the Commission tentatively reached
a settlement agreement pursuant to which the Company, while neither admitting
nor denying violations of the federal securities laws, would have consented to
the entry of a permanent injunction enjoining the Company from future
violations of the federal securities laws, but no monetary penalty would have
been assessed against the Company. However, in September 1994, the Commission
withdrew the referenced consent decree and commenced to investigate possible
additional violations of the federal securities laws involving the valuation
of real property received by the Company in its contractual settlement with
Sears, Roebuck & Co. ("Sears").
On September 26, 1995, the Commission filed suit in the Federal District
Court for the Middle District of Florida (Civ. No. 95-1583-CIV-T-23-B) against
the Company, R. Park Newton, III (former President and Chief Executive
Officer), Frederic S. Schadt, and Richard I. Brewer (former Controller). The
complaint alleges that the Company and in various instances the above named
individuals: (i) during the fiscal years 1991 through 1993 concealed the loss
of the Company's principal customers as licensed dealers and filed false
periodic reports under the Exchange Act with respect thereto; (ii) falsified
the Company's books and records in order to conceal the loss of its principal
customers, including using allegedly fictitious invoices to deceive the
Company's auditors; and, (iii) understated the value of commercial real estate
received by the Company in a contractual settlement with Sears in order to
reduce the Company's income tax liability, despite the fact that the value was
derived from an independent MAI appraisal.
The Commission alleges that such appraisal is unreasonably low and was not
an objective independent appraisal and that the Company and Mr. Newton failed
to inform the auditors of other allegedly material information bearing on the
value of the real estate. The Company is aware that other parties have
subsequently prepared appraisals and valuations of the real estate in
connection with various litigation. Some of these appraisals and valuations
have placed the value of this property substantially higher than the Company's
original valuation. The Company believes that the original appraisal continues
to be the proper valuation as of the date of acquisition.
The complaint also alleges that Mr. Newton and Mr. Schadt violated certain
provisions of the Securities Act, the Exchange Act and the rules thereunder by
engaging in illegal insider trading in the Company's common stock. The
Commission contends that (i) Mr. Newton sold Company stock while the Company
was concealing the loss of its principal customers; and (ii) Mr. Newton
improperly disclosed to Mr. Schadt material non-public information concerning
settlement negotiations between the Company and Sears, and Mr. Schadt acquired
Company common stock in reliance on such non-public information. The
complaint also alleges that Mr. Newton failed to timely file with the
Commission required reports of his trading.
The Commission seeks (i) a permanent injunction against the Company and the
individual defendants enjoining them from violating certain provisions of the
federal securities laws; (ii) an order permanently prohibiting Mr. Newton from
serving as an officer or director of a company whose securities are publicly
held and regulated by the Commission; (iii) disgorgement by Messrs. Newton and
Schadt of profits resulting from the allegedly improper stock transactions;
(iv) an order requiring the Company to obtain a new appraisal for Imeson
Center and to restate its financial statements to reflect the new appraisal;
and (v) an order requiring the Company and Messrs. Newton, Brewer, and Schadt
to pay civil penalties under the Securities Enforcement Remedies and Penny
Stock Performance Act of 1990.
The case is currently in discovery through October 1, 1998 and trial is to
be scheduled for December 1998.
B. Channel Partnership II, GP
On November 8, 1996, Channel Partnership II, GP, filed a complaint in the
Delaware Court of Chancery in and for New Castle county, C.A. No. 15311-NC,
against the directors of the Company and the Company as a nominal defendant.
The complaint alleges that the directors of the Company breached their
fiduciary duty by authorizing the purchase of 641,272 shares of its common
stock from the Smith Group (the "Smith Group Transaction") and that the proxy
statement issued in connection with the consent solicitation is false and
misleading because it omits material information. The relief sought includes:
(i) a declaration that the proxy the Company received in connection with the
Smith Group Transaction is void and invalid; (ii) a declaration that the Smith
Group Transaction is void and invalid; (iii) an award to the Company of
damages resulting from the Smith Group Transaction and the consent
solicitation; (iv) a declaration voiding and rescinding any amendments to the
Company's Certificate of Incorporation as a result of the consent
solicitation; and, (v) an award to the plaintiff of costs and expenses.
The Company and Channel Partnership have agreed to a tentative settlement.
The settlement is based upon actions taken by the Company to increase
shareholder value and an agreement that the Company will not oppose Channel
Partnership's request for reimbursement of fees and costs not to exceed
$134,500. The Court must approve the settlement before it becomes effective.
If the Court approves the settlement, the Court will then determine the amount
to award for fees and costs, if any. The hearing is currently scheduled for
October 15, 1998.
C. Harvey Moore
This lawsuit was finalized in February 1997. Harvey Moore has petitioned
the Court for an award of fees and costs of $362,766, plus statutory interest.
The hearing was held in April 1998. The judge asked each party to submit a
written brief. To date, no ruling has been made.
General
The Company recorded various reserves in previous years for the above
referenced litigation matters. As of June 30, 1998, there were no reserves
outstanding, except the $350,000 reserve referenced in Note 12. It is
reasonably possible that a change in estimate, which is not determinable at
this time, will occur in the near term.
[PRUDENTIAL LETTERHEAD]
VIA FACSIMILE AND AIRBORNE
August 20, 1998
Mr. Timothy R. Barnes
Secretary/Treasurer
Jacksonville Holdings, Inc.
100 N. Tampa Street, Suite 3575
Tampa, Florida 33602
Re: Office Lease, dated May 15, 1997, between Jacksonville Holdings, Inc.
formerly known as Imeson Center, Inc., a Landlord and The Prudential
Insurance Company of America as Tenant ("Lease")
Dear Tim:
In accordance with paragraph 1.(b) of the Lease and your letter dated August
18, 1998, this is to provide notice to Landlord of Tenant's exercise of
Tenant's Option to Extend the Lease. Through this notice, Tenant is exercising
its four (4) year renewal option as defined in the Lease.
Sincerely,
/S/ MICHAEL H. BAUMANN
LIST OF SUBSIDIARIES
JACKSONVILLE HOLDINGS, INC.
[PENDER NEWKIRK & COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated
August 7, 1998, which appears on page F-1 of the Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1998 of Excal Enterprises, Inc. in Form
S-8, Nonqualified Stock Options Issuable Pursuant to Various Agreements
Between Excal Enterprises, Inc. and W. Carey Webb, W. Aris Newton, and John
L. Caskey which was dated March 27, 1998 and in Form S-8, 1988 Stock Option
Plan which was dated December 26, 1989.
/S/ PENDER NEWKIRK & COMPANY
Certified Public Accountants
Tampa, Florida
September 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,910,401
<SECURITIES> 0
<RECEIVABLES> 247,754
<ALLOWANCES> 1,643
<INVENTORY> 0
<CURRENT-ASSETS> 13,776,329
<PP&E> 8,750,628
<DEPRECIATION> 993,334
<TOTAL-ASSETS> 23,527,064
<CURRENT-LIABILITIES> 1,627,019
<BONDS> 13,241,214
0
0
<COMMON> 4,738
<OTHER-SE> 6,784,093
<TOTAL-LIABILITY-AND-EQUITY> 23,527,064
<SALES> 4,581,058
<TOTAL-REVENUES> 4,581,058
<CGS> 0
<TOTAL-COSTS> 3,085,615
<OTHER-EXPENSES> (174,239)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 915,312
<INCOME-PRETAX> 754,370
<INCOME-TAX> 312,000
<INCOME-CONTINUING> 442,370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 442,370
<EPS-PRIMARY> .11
<EPS-DILUTED> .10
</TABLE>
