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 June 30, 1999
[ ] 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 July 31, 1999, there were 4,238,972 shares of the issuer's common
stock, par value $0.001, outstanding.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
EXCAL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
ASSETS (unaudited)
Current Assets
Cash and cash equivalents $ 9,099,338
Accounts receivable, less allowance of $144,106 474,885
Notes receivable 299,745
Income tax receivable 324,000
Inventory 607,375
Prepaid expenses and deposits 415,506
Deferred tax asset 239,000
----------
Total current assets 11,459,849
----------
Property, plant and equipment
Land 1,600,000
Buildings and improvements 6,933,101
Furniture, fixtures, vehicles and equipment 2,283,699
----------
10,816,800
Less accumulated depreciation and amortization 1,857,321
----------
Net property, plant and equipment 8,959,479
----------
Restricted cash reserves 783,040
Commission costs, less accumulated
amortization of $348,628 265,963
Loan costs, less accumulated amortization of $291,544 541,440
----------
Total Assets $ 22,009,771
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 515,854
Accrued liabilities 284,286
Reserve for litigation 432,246
Notes payable 733,121
Current portion of long-term debt 174,812
----------
Total current liabilities 2,140,319
Long-term debt 13,215,790
Deferred tax liability 1,078,000
----------
Total Liabilities 16,434,109
----------
Minority interest equity 1,041
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,
4,242,240 shares outstanding 4,738
Additional paid-in capital 4,036,475
Retained earnings 3,746,848
Less 496,626 shares of common stock
held in treasury at cost ( 1,634,415)
----------
6,153,646
Less notes receivable from stockholders ( 579,025)
----------
Total stockholders' equity 5,574,621
----------
Total Liabilities and Stockholders' Equity $ 22,009,771
==========
The accompanying notes are an integral part of the consolidated financial
statements.
EXCAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30
--------------------------
1999 1998
--------- ---------
Rental revenue $ 1,198,833 $ 1,148,876
Sports licensing sales 304,102 --
--------- ---------
Total net revenue 1,502,935 1,148,876
Cost of sports licensing sales 270,470 --
--------- ---------
Gross margin 1,232,465 1,148,876
--------- ---------
Rental operating costs 545,992 774,507
Sports licensing operating costs 351,194 --
Depreciation and amortization 193,130 160,900
--------- ---------
Total operating costs 1,090,316 935,407
--------- ---------
Net operating profit 142,149 213,469
--------- ---------
Other expense (income)
Interest expense 322,802 301,888
Professional fees related
to litigation 48,499 101,846
Loss (gain) on disposals of assets -- ( 3,807)
Interest income ( 141,673) ( 175,305)
Miscellaneous income ( 20,885) ( 30,485)
--------- ---------
Net other expense 208,743 194,137
--------- ---------
Income (loss) before income taxes ( 66,594) 19,332
Income tax provision (benefit) ( 26,000) 11,000
--------- ---------
Net income (loss) $( 40,594) $ 8,332
========= =========
Earnings (loss) per share
Basic $( .01) $ .00
========= =========
Diluted $( .01) $ .00
========= =========
Weighted average shares outstanding
Common 4,262,349 3,940,040
Common and equivalent 4,262,349 4,464,133
The accompanying notes are an integral part of the consolidated financial
statements.
EXCAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended June 30
---------------------------
1999 1998
--------- ----------
Cash provided by operating activities
Net income (loss) $( 40,594) $ 8,332
Adjustments to reconcile net
income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 193,130 160,900
Other adjustments ( 42,410) ( 172,081)
Decrease (increase) in
net operating assets ( 475,955) 421,863
--------- ----------
Net cash provided (used) by
operating activities ( 365,829) 419,014
--------- ----------
Cash flows from investing activities
Construction escrow deposit -- ( 100,000)
Proceeds from sale of assets -- 62,940
Property and equipment additions ( 8,763) ( 53,933)
--------- ----------
Net cash used by investing activities ( 8,763) ( 90,993)
--------- ----------
Cash flows from financing activities
Net proceeds from notes payable 12,792 --
Principal repayments of notes payable ( 2,758)
Principal repayments of long-term debt ( 43,094) ( 38,065)
Purchase of treasury stock ( 148,983) ( 2,234)
--------- ----------
Net cash provided (used) by
financing activities ( 182,043) ( 40,299)
--------- ----------
Increase (decrease) in cash ( 556,635) 287,722
Cash and cash equivalents
at beginning of period 9,655,973 12,622,679
--------- ----------
Cash and cash equivalents at end of period $ 9,099,338 $ 12,910,401
========= ==========
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 June 30, 1999 and 1998, (b) the
financial position at June 30, 1999, and (c) cash flows for the three-month
periods ended June 30, 1999 and 1998, 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 March 31, 1999. The results of operations for the
three-month period ended June 30, 2000 are not necessarily indicative of
those to be expected for the entire year.
NOTE 2 - NOTES PAYABLE
The Company's $725,000 line of credit with European American Bank renewed
in July. The loan was renewed with $375,000 as a revolving line of credit
and $350,000 as a term loan. The term loan bear interest at the rate of
9.42% and is payable interest only through December 1999. Monthly principal
payments of $6,500 plus interest are payable beginning in January 2000 and
continuing through June 2004 when the remaining balance is due. The
revolving line of credit bears interest at 1.5% over the bank's prime rate,
matures on June 30, 2000 and must be paid off for 30 days during the term.
NOTE 3 - STOCKHOLDERS' EQUITY
During the three months ended June 30, 1999, the Company purchased 48,560
shares of its common stock in market transactions at an aggregate cost of
$148,983.
NOTE 4 - SEGMENT INFORMATION
The Company has two reportable business segments. These segments have
been determined by product line and consist of the rental of commercial real
estate and the manufacture and distribution of sports licensing products.
The revenue shown on the face of the financial statements was from external
sources. The segment information disclosures not included on the face of the
financial statements are detailed in the tables below. The "Other" category
includes corporate related items and income and expense items not allocated
to reportable segments.
Three Months Ended June 30
----------------------------
1999 1998
---------- ----------
Segment income (loss) before income taxes
Real estate operations $ 267,620 $ 293,401
Sports licensing operations ( 380,822) --
Other 46,608 ( 274,069)
---------- ----------
Total income (loss) before income taxes $( 66,594) $ 19,332
========== ==========
As of June 30
----------------------------
1999 1998
---------- ----------
Identifiable assets
Real estate operations $ 13,323,226 $ 12,882,399
Sports licensing operations 2,500,103 --
Other 6,186,442 10,644,665
---------- ----------
Total identifiable assets $ 22,009,771 $ 23,527,064
========== ==========
Item 2. Management's Discussion and Analysis.
Except for historical matters, the matters discussed in this Form 10-QSB
are forward-looking statements based on current expectations. Forward-
looking statements, 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, except for the financial
software used at Roxbury, its existing software and the software of its major
vendors and customers are year 2000 compliant and will not pose significant
operational problems for the Company's computer systems. Roxbury has
purchased the latest version of its financial software, which is year 2000
compliant, and is in the process of completing the upgrade. The cost of
upgrading is immaterial.
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 March 31, 1999.
The following discussion compares the results of operations for the three-
month period ended June 30, 1999 (First Quarter 2000) with the three-month
period ended June 30, 1998 (First Quarter 1999).
Results of Continuing Operations
The Company's operations fall into two distinct businesses: the
manufacture and distribution of sports licensing products and the rental of
commercial real estate. In December 1998, the Company acquired Roxbury
Industries Corp ("Roxbury"), which produces and distributes knit products
licensed by most professional and major college teams. 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.
Sports Licensing Products
Roxbury manufactures and distributes logo/personalized knit scarves, knit
headwear and bears with sweaters. The logos include team names of the
National Football League, Major League Baseball, the National Hockey League,
and most major colleges. In addition, Roxbury has produced logo products for
high schools throughout the United States. Roxbury's logo products have been
primarily sold through bookstores, arena concessions and sporting goods
outlets. These products are marketed under the "4.0"r (4 point 0r)
trademark. The Company's expanded marketing efforts for its 4.0 product line
is primarily focused in the mass merchandise markets.
The personalized products that Roxbury manufactures are marketed under
the tradename "1 800 I-LOVE-IT"T. The products are personalized knit gifts
that evoke lasting memories of special occasions passed. The leading
products are the "Birth Bear"r and "Birth Blanket"T. These bears and
blankets are personalized with the baby's name, date of birth, weight and
length knitted into the fabric of the product. Other products include bears
with sweaters celebrating special occasions sold under the trademark
"Ultimate Greeting Card"T. These products are distributed through gift shops
and directly to consumers through catalog sales. The Company has implemented
several new marketing programs for its personalized products to open new
distribution channels.
The revenue and expenses of the sports licensing division are only
included for the three-month period ending June 1999. Roxbury's revenue has
been very seasonal with the majority of its sales in the months of July
through November. The cost of goods sold for First Quarter 2000 is higher
than is to be expected on an annual basis because the manufacturing overhead
is allocated over less goods during the slower months of the Company's
seasonal business. The operating costs of Roxbury have increased for several
reasons. Roxbury hired a vice president of sales and marketing with
extensive experience in Roxbury's industry. In addition, the Company has
invested in new marketing programs geared toward increasing future sales.
The sports licensing division accounted for $40,264 of the total depreciation
and amortization expenses for the First Quarter 2000. The net operating loss
of the sports licensing division was $357,826 for the First Quarter 1999.
Commercial Real Estate
The commercial real estate operations consist of the lease and management
of property located in Jacksonville, Florida (Imeson Center). The property
consists of approximately 1,392,000 square feet of warehouse space and
274,000 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 4% to $1,198,833 in First Quarter 2000 from
$1,148,876 in First Quarter 1999. The base minimum rental fee increased by
$38,524 (4%) in First Quarter 2000 as a result of increases in the base
minimum rent per square foot. The contingent rental fee increased by $15,432
(8%) in the three-month period as a result of an increase in reimbursable
operating costs.
Operating costs decreased $228,515 (29%) to $545,992 in First Quarter
2000 from $774,507 in First Quarter 1999. The primary reasons for the
decline was the allocation of corporate costs to Roxbury and a reduction in
salary expense. Annual bonuses were awarded in First Quarter 1999, prior to
the Company changing its year-end from June 30 to March 31. This decline in
salary expense was offset by a $22,531 increase in reimbursable operating
costs for First Quarter 2000, as compared to the same period of the prior
year.
Depreciation and amortization decreased by $8,034 in First Quarter 2000
to $152,866, as compared to First Quarter 1999. The net operating profit of
the commercial real estate division increased from $213,469 in First Quarter
1999 to $499,975 in First Quarter 2000.
Other Expense (Income)
The increase in interest expense for First Quarter 2000, as compared to
First Quarter 1999, was related to the line of credit and New York Job
Development Authority loan assumed in the acquisition of Roxbury.
Professional fees related to litigation decreased significantly in First
Quarter 2000 as compared to First Quarter 1999 as a result of the settlement
of all but one lawsuit. The decrease in interest income in First Quarter
2000 as compared to First Quarter 1999 related to the decreased cash balances
from the purchase of treasury stock and the acquisition of Roxbury
Industries, Corp.
Liquidity and Capital Resources
The cash used by operating activities was $365,829 in First Quarter 2000
compared to cash provided of $419,014 in First Quarter 1999. The Company's
operations provided $110,126 in working capital in First Quarter 2000
compared to $2,849 of working capital used in First Quarter 1999. The
increase in net operating assets in First Quarter 2000 was from an increase
in accounts receivable in the real estate operations, an increase in
Roxbury's inventory and a reduction in corporate accrued expenses. The
decrease in net operating assets in First Quarter 1999 was primarily an
increase in accrued corporate expenses.
Property and equipment additions in First Quarter 2000 were primarily for
equipment used at Roxbury and in First Quarter 1999 were for equipment used
at Imeson Center.
Cash of $182,043 was used by financing activities in First Quarter 2000,
as compared to cash used by financing activities of $40,299 in First Quarter
1999. The increase in cash used by financing activities was related to the
Company purchasing 48,560 shares of its common stock at an aggregate cost of
$148,983 in First Quarter 2000.
The Company's $725,000 line of credit with European American Bank renewed
in July. The loan was renewed with $375,000 as a revolving line of credit
and $350,000 as a term loan. The term loan bear interest at the rate of
9.42% and is payable interest only through December 1999. Monthly principal
payments of $6,500 plus interest are payable beginning in January 2000 and
continuing through June 2004 when the remaining balance is due. The
revolving line of credit bears interest at 1.5% over the bank's prime rate,
matures on June 30, 1999 and must be paid off for 30 days during the term.
The Company did not have any material commitments for capital
expenditures as of June 30, 1999 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. Roxbury is incurring additional marketing
expenses to expand its revenue base and distribution channels. 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. In addition,
the Company has been and expects to continue repurchasing shares of its
stock. The Company believes its current liquidity position 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 liquidity, 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 March 31, 1999.
Securities and Exchange Commission
The oral hearing on the Company's motion for summary judgment was held on
July 16, 1999. No decision has been issued. The trial has not been
scheduled.
Harvey Moore
The Court awarded Harvey Moore fees and costs of $82,246 in October 1998.
The Company and Harvey Moore agreed to an additional $2,000 award for certain
costs that the Court had not ruled upon. Harvey Moore has appealed the
Court's decision.
Item 2. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
(c) Sales of Unregistered Securities.
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: August 10, 1999 /s/ W. CAREY WEBB
-------------------------------------
W. Carey Webb
President and Chief Executive Officer
Dated: August 10, 1999 /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 JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 9,009,338
<SECURITIES> 0
<RECEIVABLES> 1,242,736
<ALLOWANCES> 144,106
<INVENTORY> 607,375
<CURRENT-ASSETS> 11,459,849
<PP&E> 10,816,800
<DEPRECIATION> 1,857,321
<TOTAL-ASSETS> 22,009,771
<CURRENT-LIABILITIES> 2,140,319
<BONDS> 13,215,790
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<COMMON> 4,738
<OTHER-SE> 5,569,883
<TOTAL-LIABILITY-AND-EQUITY> 5,574,621
<SALES> 1,502,935
<TOTAL-REVENUES> 1,502,935
<CGS> 270,470
<TOTAL-COSTS> 1,090,130
<OTHER-EXPENSES> (114,059)
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<INTEREST-EXPENSE> 322,802
<INCOME-PRETAX> (66,594)
<INCOME-TAX> (26,000)
<INCOME-CONTINUING> (40,594)
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