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 September 30, 1998
[ ] 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
--------------------------
Issuer's telephone number
---------------------------------------------------
(Former Name, former address and former fiscal year,
if changed since last report)
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 October 31, 1998, there were 4,337,013 shares of the issuer's common
stock, par value $0.001, outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
EXCAL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 12,418,260
Accounts receivable, less allowance
for doubtful accounts of $1,654 345,625
Notes receivable 304,942
Prepaid expenses and deposits 408,996
Deferred tax asset 261,000
----------
Total current assets 13,738,823
----------
Property, plant and equipment
Land 1,600,000
Buildings and improvements 6,798,961
Furniture, fixtures, vehicles and equipment 460,102
----------
8,859,063
Less accumulated depreciation and amortization 1,070,717
----------
Net property, plant and equipment 7,788,346
----------
Loan reserves 921,866
Commission costs, less accumulated amortization of $308,755 254,290
Loan costs, less accumulated amortization of $166,597 666,387
----------
Total Assets $ 23,369,712
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 427,076
Accrued liabilities 1,495,297
Reserve for litigation 566,745
Income tax payable 25,000
Current portion of long-term debt 150,439
----------
Total current liabilities 2,664,557
Long-term debt 13,198,951
Deferred tax liability 945,000
----------
Total liabilities 16,808,508
----------
Stockholders' equity
Preferred stock, $.01 par value, 7,500,000 shares authorized,
5,000,000 shares issued, no shares outstanding -
Common stock, $.001 par value, 20,000,000 shares authorized,
4,738,866 shares issued, 4,337,013 shares outstanding 4,738
Additional paid-in capital 4,800,983
Retained earnings 4,063,425
Less 401,853 shares of common stock held in treasury at cost ( 1,728,917)
----------
7,140,229
Less notes receivable from stockholders 579,025
----------
Total stockholders' equity 6,561,204
----------
Total Liabilities and Stockholders' Equity $ 23,369,712
==========
The accompanying notes are an integral part of the consolidated financial
statements
EXCAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended September 30
--------------------------
1998 1997
--------- ---------
Net revenue $ 1,170,829 $ 1,167,949
--------- ---------
Operating costs 664,232 598,688
Depreciation and amortization 157,448 115,767
--------- ---------
Total operating costs 821,680 714,455
--------- ---------
Net operating profit 349,149 453,494
--------- ---------
Other expense (income)
Interest expense 310,897 3,635
Litigation settlement 217,273 -
Professional fees related to litigation 158,091 129,000
Interest income ( 184,836) ( 12,088)
Miscellaneous income ( 53,243) ( 22,677)
--------- ---------
Net other expense 448,182 97,870
--------- ---------
Income (loss) before income taxes ( 99,033) 355,624
Income tax provision (benefit) ( 37,000) 145,000
--------- ---------
Net income (loss) $( 62,033) $ 210,624
========= =========
Earnings (loss) per share - basic $( .02) $ .05
========= =========
Earnings (loss) per share - diluted $( .02) $ .05
========= =========
Weighted average shares outstanding
Common 3,944,748 3,994,920
Common and equivalent 3,944,748 4,461,853
The accompanying notes are an integral part of the consolidated financial
statements
EXCAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Quarter Ended September 30
--------------------------
1998 1997
---------- ----------
Cash flows from operating activities
Net income (loss) $( 62,033) $ 210,624
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 157,448 118,882
Other adjustments ( 34,989) ( 48,299)
Increase in net operating assets: ( 205,204) ( 442,768)
---------- ----------
Net cash used by operating activities ( 144,778) ( 161,561)
---------- ----------
Cash flows from investing activities
Proceeds from sale of assets - 37,161
Property and equipment additions ( 8,435) ( 28,393)
Loans to unrelated privately held company ( 300,000) -
---------- ----------
Net cash provided (used)
by investing activities ( 308,435) 8,768
---------- ----------
Cash flows from financing activities
Net borrowing of long-term debt - 13,500,048
Principal repayments of long-term debt ( 38,928) -
Loan costs - ( 659,544)
Restricted cash reserves - ( 950,000)
Issuance of common stock - 25,000
Repurchase warrants - ( 110,000)
Purchase of treasury stock - ( 148,510)
---------- ----------
Net cash provided (used)
by financing activities ( 38,928) 11,656,994
---------- ----------
Increase (decrease) in cash ( 492,141) 11,504,201
Cash and cash equivalents
at beginning of period 12,910,401 1,047,166
---------- ----------
Cash and cash equivalents at end of period $ 12,418,260 $ 12,551,367
========== ==========
See Note 2 for discussion of non-cash transactions.
The accompanying notes are an integral part of the consolidated financial
statements
EXCAL ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 periods ended September 30, 1998 and 1997, (b)
the financial position at September 30, 1998, and (c) cash flows for the three-
month periods ended September 30, 1998 and 1997, 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, 1998. The results of operations for the three-
month period ended September 30, 1998 are not necessarily indicative of those
to be expected for the entire year.
NOTE 2 - STOCKHOLDERS' EQUITY
On September 28, 1998, the officers and directors of the Company exercised
options to purchase 640,000 shares of common stock. The 640,000 shares were
issued from treasury stock with a cost basis of $2,215,558. One director paid
the exercise price with 41,026 shares of previously issued shares of common
stock with a value of $200,000. The exercise prices for the remaining shares
were paid with recourse notes to the Company in the aggregate amount of
$579,025. The notes require annual interest payments at a rate of 5.57% with
the principal due on September 28, 2003. In addition to the aggregate
exercise price of $779,025, the Company received a tax benefit of $838,000 as
a result of the exercise of the options. The officers and directors used
197,992 shares with a value of $965,213 to pay the withholding taxes due upon
the exercise of the options. As of September 30, 1998, the Company had a
payroll tax liability of $1,003,594, representing the payroll taxes withheld
plus $38,381 in payroll taxes due from the Company as a result of the exercise
of the options. This liability was paid immediately after the end of the
quarter.
Item 2. Management's Discussion and Analysis.
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 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 its software and that of its major
vendors are year 2000 compliant and will not pose significant operational
problems for the Company's computer systems.
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, 1998.
The following discussion compares the results of operations for the three-
month period ended September 30, 1998 (First Quarter 1999) with the three-
month period ended September 30, 1997 (First Quarter 1998).
Results of 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. 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.
Net revenue increased slightly to $1,170,829 in First Quarter 1999 from
$1,167,949 in First Quarter 1998. The base minimum rental fee increased by
$38,860 (4%) as a result of increases in the base minimum rent per square
foot. The contingent rental fee decreased by $35,981 (15%) as a result of
reductions in reimbursable operating costs.
Operating costs increased by 11% to $664,232 in First Quarter 1999 from
$598,688 in First Quarter 1998. Professional fees and travel costs increased
by $104,296 in First Quarter 1999 over First Quarter 1998. These increases
were primarily related to acquisition efforts. The increased costs were
partially offset by a decrease in salaries and the reduction in reimbursable
operating costs of Imeson Center. Depreciation and amortization increased
primarily as a result of the amortization of loan costs.
The increase in interest expense was related to the mortgage loan obtained
at the end of First Quarter 1998. Fees related to the settlement of
litigation totaled $217,273 in First Quarter 1999. The Court awarded legal
fees to Harvey Moore in the amount of $82,246. The Court may award a small
amount of additional costs pending receipt of adequate documentation. This is
significantly less than the $362,766 requested by Harvey Moore. The Court
approved the settlement agreement with Channel Partnership, LLP at the hearing
held on October 15, 1998. The Court also awarded Channel Partnership
reimbursement of fees and costs in the amount of $134,500. Professional fees
related to litigation were $158,091 in First Quarter 1999 compared to $129,000
in First Quarter 1998. The savings from the litigation that was settled prior
to First Quarter 1999 were offset by the costs of discovery and preparation
for trial in the Securities and Exchange Commission litigation.
Liquidity and Capital Resources
The cash used by operating activities was $144,778 in First Quarter 1999
compared to cash used of $161,561 in First Quarter 1998. In First Quarter
1999 the Company's operations provided $60,426 in working capital compared to
$281,207 of working capital in First Quarter 1998. The increase in net
operating assets in First Quarter 1999 was primarily related to the accrual of
the litigation settlements. The increase in net operating assets in First
Quarter 1998 was the result of paying off liabilities, incurred prior to June
30, 1997, related to the lease of office space to Prudential Insurance Company
and placing $299,216 in reserves with the mortgage lender for taxes,
insurance, and repairs.
Property and equipment additions in both First Quarter 1999 and First
Quarter 1998 were for equipment used at Imeson Center.
Cash of $38,928 was used by financing activities in First Quarter 1999, as
compared to cash provided by financing activities of $11,656,994 in the First
Quarter 1998. The Company closed on a mortgage loan in the amount of
$13,500,000 on September 30, 1997. Loan costs associated with the loan
through September 30, 1997 were $692,704, of which $33,160 were incurred in
the prior fiscal year. As a requirement of the mortgage 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. In First Quarter 1998, the Company
purchased three warrants to purchase a total of 285,000 shares of common stock
for $435,500. Total payments of $215,500 and $325,500 were still owed as of
September 30, 1998 and 1997, respectively. On September 28, 1998, options
were exercised for the purchase of 640,000 shares of common stock with an
aggregate exercise price of $779,025, generating $838,000 in tax savings for
the Company. The exercise price was paid with existing shares of common stock
and recourse notes. Of the 640,000 shares, 197,992 shares were turned in to
the Company as payment for withholding taxes due on exercise. Immediately
after the end of the quarter, the Company paid the $1,003,594 in payroll and
withholding taxes due on the exercise.
The Company did not have any material commitments for capital expenditures
as of September 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 tenant's needs.
Additionally, the Company is considering opportunities to develop outparcels
at the Imeson Center. The Company is expending resources to identify,
evaluate, and negotiate with potential acquisition candidates in order 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. The Company believes the proceeds from the mortgage
obtained on its Imeson Center property will be sufficient to meet its needs
for at least the next year. However, 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.
Therefore, no assurances can be made by the Company that such additional
capital will be available.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
No material events have occurred in the Company's ongoing litigation
matters other than those described below. 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, 1998.
Securities and Exchange Commission
The trial has not been scheduled for December and is expected to be
delayed until the first quarter of 1999.
Channel Partnership II, GP
The Court approved the settlement agreement at the hearing held on October
15, 1998. The settlement agreement requires, among other things, that the
Company purchase shares of its common stock in accordance with SEC Rule 10b-18
in the event the closing bid price falls below $3.30 for twenty consecutive
days. The purchase commitment will continue until such time as the Company
has purchased an aggregate of 600,000 shares, or the stock price closes at or
above $3.30 per share, or October 15, 1999. The Court also awarded Channel
Partnership fees and costs of $134,500.
Harvey Moore
The Court awarded Harvey Moore fees and costs of $82,246. The Court may
award a small amount of additional costs pending receipt of adequate
documentation.
Item 2. - Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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: November 13, 1998 /s/ W. CAREY WEBB
W. Carey Webb
President and
Chief Executive Officer
Dated: November 13, 1998 /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 CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 12,418,260
<SECURITIES> 0
<RECEIVABLES> 652,221
<ALLOWANCES> 1,654
<INVENTORY> 0
<CURRENT-ASSETS> 13,738,823
<PP&E> 8,859,063
<DEPRECIATION> 1,070,717
<TOTAL-ASSETS> 23,369,712
<CURRENT-LIABILITIES> 2,514,118
<BONDS> 13,349,390
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<COMMON> 4,738
<OTHER-SE> 6,556,466
<TOTAL-LIABILITY-AND-EQUITY> 23,369,712
<SALES> 1,170,829
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<CGS> 0
<TOTAL-COSTS> 821,680
<OTHER-EXPENSES> 137,285
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<INTEREST-EXPENSE> 310,897
<INCOME-PRETAX> (99,033)
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<INCOME-CONTINUING> (62,033)
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