SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from July 1, 1998 to March 31, 1999
Commission File No. 0-17069
EXCAL ENTERPRISES, INC.
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(Name of small business issuer as specified in its charter)
Delaware 59-2855398
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 N. Tampa Street, Suite 3575, Tampa, Florida 33602
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(Address of principal executive offices, including zip code)
(813) 224-0228
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(Issuer's telephone number)
Securities registered under Section 12(g) of the Act:
Title of Each Class
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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. [X]
Revenue for the transition period ended March 31, 1998 was $3,926,586.
The aggregate market value of the voting stock held by non-affiliates
(1,566,901 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 May 31, 1999 of $3.09375 was
approximately $4,847,600. 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 May 31, 1999, there were 4,256,240 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 1999 annual meeting,
(the "Proxy Statement") is incorporated by reference in Part III of this
Form 10-KSB to the extent stated herein. Except with respect to information
specifically incorporated by reference in this Form 10-KSB, the Proxy
Statement is not deemed to be filed as a part hereof.
Transitional Small Business Disclosure Format (Check One): [ ] Yes
[X] No
ITEM 1. DESCRIPTION OF BUSINESS.
General
Excal Enterprises, Inc., a Delaware corporation (the "Company"), was
formed in July 1986. The Company elected to change the date of its fiscal
year-end to March 31, beginning in 1999. Prior to this year, the Company's
fiscal year ended on June 30. The Company has been engaged in several
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. and Imeson Center, Inc. was dissolved.
Excal Sports Group, Inc., a wholly owned subsidiary of Excal Enterprises,
Inc, acquired Roxbury Industries Corp ("Roxbury"), which produces and
distributes knit products licensed by most professional and major college
teams, in December 1998. The Company invested $1.5 million in Roxbury and
received 1,000,000 shares of Roxbury's common stock, par value $0.001,
representing all of the outstanding shares of common stock of Roxbury. The
former common stockholders of Roxbury exchanged their common stock for
1,040,816 shares of Roxbury convertible preferred stock, par value $0.001.
The preferred stock does not contain preferential rights to distributions,
does not have voting rights and is convertible into Roxbury common stock
beginning on July 15, 2002. The number of shares that the preferred stock
will convert into varies based on the performance of Roxbury.
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 Company plans to use the remaining proceeds from leveraging its
Imeson Center property to acquire additional new core businesses, among
other things. 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.
Most of 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 seven bays on the second floor, each containing 99,446
square feet of rentable space, are leased 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
and the second floor bay located above the existing office space consists of
approximately 90,000 square feet of rentable office space. As of March 31,
1999, 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.
Sports Licensing Products
Roxbury (acquired in December 1998) 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 are primarily sold through bookstores,
arena concessions and sporting goods outlets. These products are marketed
under the 4.0r (4 point 0r) trademark.
Roxbury markets the personalized products it manufactures under the
trademarks i-love-itT and 1-800 i-love-itT. The products are personalized
knit gifts that evoke lasting memories of special occasions passed. The
leading products are the Birth Bearr and Birth BlanketT. 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 CardT. These products are distributed through gift shops
and directly to consumers through catalog sales.
Roxbury also manufactures private label and custom knit products.
Roxbury utilizes several different groups of manufacturing representatives,
as well as in-house personnel, to sell its products. Each group of
manufacturer representatives is selected based on their relationship with
the target market for distribution, such as retail outlets, concessionaires,
and bookstores.
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.
Roxbury's 4.0r product line is primarily marketed to college bookstores,
arena concessions and retail sporting goods stores. The market for college
team products is primarily local or regional to the college. There are some
college team products, such as Notre Dame, that do sell on a national basis.
Professional team products sell on a wider basis. Products for some
professional teams sell on a national basis. However, the sales are
primarily concentrated in the regional area.
Roxbury's i-love-itT line of special occasion teddy bears is marketed
through direct mailing, catalogs and the Internet. The Birth Bearr and
Birth BlanketT are marketed to expectant and new mothers through the
inclusion of flyers in newborn give-away packages distributed by hospitals
and birthing centers and included in baby shower registries of retail
outlets. The Birth Bearr is also sold to hospital gift shops.
The Company believes that its ability to mass-produce personalized
products gives it a competitive advantage. In addition, the Company
believes its ability to knit logos, designs, etc. directly into the product
rather than use an applique or embroidery provides a better quality product.
The Company's proprietary software for its computerized knitting machines
allows the Company to produce small lots in a cost-effective manner. The
Company believes these production advantages combined with the licensing
agreements put the Company in a unique position.
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.
The Company has many competitors to its sports licensing products. The
Company believes that its products are unique in their design and
manufacture and provide the Company with a competitive advantage. The
primary competition to the Company's 4.0r product offerings are alternative
gifts and memorabilia or similar products manufactured using appliques or
embroidery. The Company's i-love-itT line of products compete with a number
of sellers of flowers, balloons, candy, cakes, and other gift items, in
addition to companies that sell teddy bears in the United States, including,
but not limited to, Vermont Teddy Bear, Steiff of Germany, Dakin, North
American Bear, and Gund. Many of these competitors have greater financial,
sales, and marketing resources than the Company.
Dependence on Major Customers
The Company has leases with three tenants for its Imeson Center facility
that accounted for more than 10% of revenue. 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 beginning on December 1, 1994 and expiring on
December 31, 2000. Laney & Duke accounted for $1,839,671 of revenue (51%)
for the transition period ended March 31, 1999, resulting in an effective
annual lease rate of $1.76 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 $701,199 of revenue (19%) for the transition
period ended March 31, 1999 at an effective annual lease rate of $9.99,
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 $954,916 of revenue (26%) for the transition period ended March 31,
1999, resulting in an effective annual lease rate of $9.16 per square foot,
including operating expenses. These three leases accounted for
substantially all of the Company's revenue in the transition period ended
March 31, 1999 and in fiscal 1998. The loss of any of these lessees would
have a significant impact on the Company. The Company does not have any
customers in its sports licensing products segment that accounted for more
than 10% of revenue.
Suppliers
The raw materials for the Company's Sports Licensing products consist
primarily of yarn and the teddy bears. The Company uses several suppliers
for its yarn. A single supplier manufactures the teddy bears to the
Company's specifications. The Company believes that alternative suppliers
can be contracted at competitive prices, if required.
Patents, Trademarks and Licenses
The Company has several registered trademarks, including Birth Bearr, 4
point 0r, and 4.0r. In addition, the Company has applied for trademark
registration of 1-800 i-love-itT, i-love-itT, Ultimate Greeting CardT, Birth
BlanketT, and All Our KidsT. The Company has copyrighted several of its
proprietary software programs used to control its computerized knitting
machines.
Seasonal Fluctuations
The Company's real estate operation is not seasonal. The Sports
Licensing division is very seasonal. During 1996 through 1998, 75% of the
annual sales were earned in the period July through December and over 55% of
the annual sales were earned in the period August through November.
Employees
On May 31, 1999, the Company employed 33 employees. Of that number, 23
were employed in the sports licensing division, 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 has no 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 $6,933,101 for the
building as of March 31, 1999. In addition, various furniture, fixtures and
equipment with a basis of $333,758 as of March 31, 1999 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 1999 were $244,068, based on a millage rate of $21.3008 per
$1,000 of assessed value.
The Company leases the Roxbury Industries manufacturing facility from a
corporation controlled by the officers of Roxbury Industries under an
operating lease that runs through December 2007. The facility consists of a
two-story building containing approximately 20,000 square feet of space and
is located in Rockaway Park, New York. The Company has the option to
purchase the property for $700,000 at any time and also has the right of
first refusal.
ITEM 3. LEGAL PROCEEDINGS.
Other than the litigation described in Notes 11 and 17 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, 1998 High Low
- ----------------------------------- ----- -----
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
Transition Year Ended March 31, 1999
- ------------------------------------
Quarter ended September 30, 1998 $5.50 $4.31
Quarter ended December 31, 1998 4.56 2.69
Quarter ended March 31, 1999 3.00 2.88
As of May 31, 1999, there were approximately 340 shareholders of record.
In addition, as of the same date, there were 247 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.
On January 26, 1999, R. Park Newton, III & Francine H. Newton exercised
options to purchase 300,000 shares of common stock. The exercise price was
paid for with 102,128 shares of previously owned shares of common stock with
a value of $300,000.
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, 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.
Results of Operations
Net revenue and operating costs of the Company fall into two segments.
The first segment is rental revenue and operating costs from the lease and
management of commercial property located in Jacksonville, Florida (Imeson
Center). The second segment is sports licensing sales and costs from the
manufacture and distribution of knit products. In March 1999, the Company
decided to change its fiscal year end from June 30 to March 31.
Consequently, the fiscal year ended March 31, 1999 contains only nine
months. For comparative purposes, the following discussion compares the
nine months in the fiscal year ended March 31, 1999 with the nine-month
period ended March 31, 1998.
Commercial Rental
The Imeson Center 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. The Company has leases with four tenants
at Imeson Center, of which, three accounted for more than 10% of revenue
(See "Item 1. Description of Business - Dependence on Major Customers).
Revenue increased by 6% to $3,495,786 for the nine months ended March 31,
1999 from $3,432,182 for the nine months ended March 31, 1998 as a result of
an increase in the base rental rate of the property leases, offset by a
decline in contingent rental fees. Rental revenue included base rent of
$2,905,255 and $2,796,970 and contingent rentals of $590,531 and $635,212
during the nine months ending March 31, 1999 and 1998, respectively. The
future minimum base rentals under non-cancelable leases as of March 31, 1999
was $3,938,345 for fiscal 2000, $3,542,807 for fiscal 2001, $2,041,591 for
fiscal 2002, $ 1,372,606 for fiscal 2003 and $265,409 for fiscal 2004.
Operating costs increased by 11% to $1,919,888 for the nine months ending
March 31, 1999 as compared to the $1,722,543 of operating costs for the same
period of fiscal 1998. The $197,345 increase in operating expenses is
primarily related to an increase in salaries, professional fees and travel
expenses. The increase in salaries is primarily the result of the short
year for fiscal 1999. The annual bonuses were not awarded until the fourth
quarter of fiscal 1998 and therefore are not reflected in the comparative
period.
Depreciation and amortization was $472,475 for the nine months ending
March 31, 1999, as compared to $427,665 for the same period in fiscal 1998.
The increase in depreciation and amortization was due to an increase in
amortization leasing commissions.
Sports Licensing
The sports licensing segment was acquired in December 1998. The revenue,
operating costs and depreciation in fiscal 1999 represent only four months
of operations. This segment has experienced extremely seasonal operations.
Historically, less than 24% of annual sales have come from this four-month
period. In addition, because of the warm winter, the sales during this four-
month period fell below prior year's sales. The majority of the sales have
come in the late summer and early fall time period. The cost of sales is
slightly higher than anticipated because of the increased absorption of
factory overhead on a per unit basis during this period of below average
sales. In addition, the Company has launched several marketing programs
designed to increase future revenue that have increased current operating
costs. Because of the increased marketing expenses and the seasonal nature
of the current revenue stream, this segment is not expected to be profitable
in the first quarter of fiscal 2000. However, the annual results of
operations for fiscal 2000 are expected to be profitable even though the
current objective is revenue growth.
Consolidated Operating Results
Revenue increased by 14% to $3,926,586 for the nine months ended March
31, 1999 from $3,432,182 for the nine months ended March 31, 1998 as a
result of the increase in rental revenue under of the property leases and
the addition of revenue from the sports licensing segment. Operating costs
increased by 46% for the nine months ending March 31, 1999 to $2,512,328
from $1,722,543 for the same period in fiscal 1998. The $789,785 increase
in operating expenses is primarily related to the acquisition of the sports
licensing segment. The remaining portion of the increase was primarily
related to the increase in salary and benefit costs as a result of the
timing of annual bonuses. Depreciation and amortization increased by
$98,336 for the nine months ending March 31, 1999, as compared to the same
period in fiscal 1998. The sports licensing segment accounted for $53,526
of the increase with the balance a result of increased leasing commission
amortization.
Interest expense was $943,888 and $613,424 for the nine months ended
March 31, 1999 and 1998, respectively. The increase in interest expense was
the result of the closing of the mortgage on Imeson Center on September 30,
1997. Therefore, there is only six months of interest expense included in
the nine-month period ended March 31, 1998. Professional fees related to
litigation were $524,092 for the nine months ending March 31, 1999 compared
to $379,961 for the same period in fiscal 1998. The significant increase in
professional fees was the result of the settlements with Harvey Moore and
Channel Partnership and the increased activity related to discovery and pre-
trial motions in the litigation with the Securities and Exchange Commission.
See Notes 11 and 17 of the accompanying financial statements for a complete
discussion of all outstanding and resolved material litigation. Interest
income increased from $355,374 in the nine months ended March 31, 1998 to
$492,989 in the nine months ended March 31, 1999. The increase resulted
from higher cash balances created by the proceeds of the mortgage on Imeson
Center.
Liquidity and Capital Resources
The cash used by operating activities was $512,698 for the nine months
ending March 31, 1999 compared to $4,394 for the same period in fiscal 1998.
For the nine months ending March 31, 1999 the Company's operations generated
$406,474 in working capital compared to $975,413 in working capital
generated for the same period in fiscal 1998. The $919,172 increase in net
operating assets for the nine months ending March 31, 1999 was primarily
created by the change in income tax receivable versus liability of $347,309,
an increase in Roxbury Industries net assets of $274,939 and a reduction in
accounts payable and accrued expenses, excluding Roxbury Industries, of
$223,345. The reduction in the net assets of Roxbury Industries was the
result of increased inventory levels and a reduction of past due accounts
payable made possible by the Company's investment. These increases in the
net assets of Roxbury Industries were offset by the decline in accounts
receivable related to the seasonal nature of Roxbury's sales.
The proceeds from the sale of assets in fiscal 1998 are primarily from
the sale of the land and building previously used by the automotive
operations. Property and equipment additions for the nine months ending
March 31, 1999 included $234,141 in renovations to the Imeson Center
building. Of this amount, $100,000 was advanced to the construction escrow
in fiscal 1998 and $100,000 was paid for from the restricted cash reserves.
These renovations including remodeling the entrance and lobby of the office
portion of the building and renovation of the food service area located in
the lobby of the office space.
Cash of $2,420,185 was used by financing activities for the nine months
ending March 31, 1999 as compared to cash provided of $11,030,149 for fiscal
1998. In December 1998, the Company closed on the acquisition of Roxbury
Industries Corp. The Company invested $1,500,000 and received 1,000,000
shares of Roxbury's common stock, par value $0.001, representing all of the
outstanding shares of common stock of Roxbury. As part of the closing on
the acquisition, $430,000 of notes from investors were paid off. The
Company closed on a mortgage loan in the amount of $13,500,000 on September
30, 1997. Loan costs associated with the loan were $832,984, of which
$33,160 was incurred in fiscal 1997. 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 the first
quarter of fiscal 1998, the Company acquired three warrants to purchase a
total of 285,000 shares of common stock for $435,500. Payments of $220,000
and $120,500 were made in fiscal 1999 and 1998, respectively. The balance
of $95,000 is due no later than January 2000. During fiscal 1999, the
Company purchased 162,858 shares of its common stock through open market
purchases and received 279,219 shares from officers and directors as payment
for withholding taxes due upon the exercise of stock options at an aggregate
cost of $1,732,617. During fiscal 1998, the Company acquired 26,000 shares
in the open market, 54,163 shares in the settlement of lawsuits and 19,400
shares in other transactions, with an aggregate cost of $402,393.
The Company did not have any material commitments for capital
expenditures as of March 31, 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
the outparcels of the Imeson Center. The expanded marketing activities of
Roxbury Industries may not generate the revenue projected and result in
future losses. Although the Company has not identified any additional
specific acquisition opportunities at this time, 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 17 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 March 31, 1999 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 "Election of Directors" of the registrant's
definitive Proxy Statement for its 1999 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 1999 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 1999 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 1999
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 Composite By-laws, as amended 12
4.1 Rights Agreement by and between the Company and
Registrar and Transfer Company dated April 18, 1994 2
4.2 Amendment to Rights Agreement dated April 18, 1994 12
4.3 Mortgage Promissory Note 9
4.4 Mortgage Security Agreement and Fixture Filing 9
10.1 1988 Stock Option Plan 1
10.2 Stock Option Agreement with Timothy R. Barnes
dated 9/28/98 12
10.3 Stock Option Agreement with John L. Caskey dated 2/18/98 10
10.4 Stock Option Agreement with John L. Caskey dated 2/18/98 10
10.5 Stock Option Agreement with John L. Caskey dated 9/28/98 12
10.6 Stock Option Agreement with John L. Caskey dated 9/28/98 12
10.7 Stock Option Agreement with W. Aris Newton dated 2/18/98 10
10.8 Stock Option Agreement with W. Aris Newton dated 2/18/98 10
10.9 Stock Option Agreement with W. Aris Newton dated 9/28/98 12
10.10 Stock Option Agreement with W. Aris Newton dated 9/28/98 12
10.11 Stock Option Agreement with R. Park &
Francine H. Newton dated 5/1/98 12
10.12 Stock Option Agreement with R. Park &
Francine H. Newton dated 5/1/98 12
10.13 Stock Option Agreement with R. Park &
Francine H. Newton dated 9/28/98 12
10.14 Stock Option Agreement with R. Park &
Francine H. Newton dated 1/26/99 12
10.15 Stock Option Agreement with R. Park &
Francine H. Newton dated 1/26/99 12
10.16 Stock Option Agreement with W. Carey Webb dated 2/18/98 10
10.17 Stock Option Agreement with W. Carey Webb dated 9/28/98 12
10.18 Form of Indemnity Agreement with Officers and Directors 3
10.19 Webb Employment Agreement 3
10.20 Amendment to Webb Employment Agreement 6
10.21 Second amendment to Webb employment agreement 12
10.22 Newton Employment Agreement 3
10.23 Amendment to Newton Employment Agreement 6
10.24 Third amendment to Newton employment agreement 12
10.25 Barnes Employment Agreement 6
10.26 Warehouse Lease Agreements with Laney & Duke
Terminal Warehouse Company, Inc. 4
10.27 Renewal and Modification of Laney & Duke Leases 5
10.28 Amendment to Laney & Duke Leases dated 1/1/97 8
10.29 Amendment to Laney & Duke Leases dated 3/1/97 8
10.30 Office Lease with America Online, Inc. 4
10.31 Office Lease with Prudential Insurance Company of America 8
10.32 Letter from Prudential Insurance Company of America
exercising extension rights 11
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 on 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.
10 Incorporated by reference to the Company's registration statement on Form
S-8 filed on April 29, 1998.
11 Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended June 30,1998.
12 Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the quarter ended December 31, 1998.
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 22nd day of
June 1999.
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: June 22, 1999 /S/ R. PARK NEWTON, III
R. Park Newton, III
Chairman of the Board and Board Member
Dated: June 22, 1999 /S/ W. CAREY WEBB
W. Carey Webb
President and Chief Executive Officer
Dated: June 22, 1999 /S/ TIMOTHY R. BARNES
Timothy R. Barnes
Vice-President, Chief Financial Officer,
and Principal Accounting Officer
Dated: June 22, 1999 /S/ W. ARIS NEWTON
W. Aris Newton
Vice-President and Board Member
Dated: June 22, 1999 /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 March 31, 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows
for the nine months ended March 31, 1999 and the year ended June 30, 1998.
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 March 31, 1999,
and the consolidated results of its operations and cash flows for the nine
months ended March 31, 1999 and the year ended June 30, 1998, in conformity
with generally accepted accounting principles.
PENDER NEWKIRK & COMPANY
Certified Public Accountants
Tampa, Florida
May 17, 1999
EXCAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
ASSETS
Current assets:
Cash and cash equivalents $ 9,655,973
Accounts receivable (less allowance
for doubtful accounts of $160,516) 303,599
Income tax receivable 324,000
Notes receivable 293,119
Inventory 579,242
Prepaid expenses and deposits 345,919
Deferred tax asset 339,000
----------
Total current assets 11,840,852
----------
Property, plant and equipment:
Land 1,600,000
Building 6,933,101
Furniture, fixtures, vehicles and equipment 2,274,936
----------
10,808,037
Less accumulated depreciation and amortization 1,739,488
----------
Net property, plant and equipment 9,068,549
----------
Restricted cash reserves 769,548
Loan costs, less accumulated amortization of $249,895 583,089
Commission costs, less accumulated amortization of $314,980 299,611
----------
Total Assets $ 22,561,649
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 568,042
Accrued liabilities 340,339
Reserve for litigation 432,246
Other current liabilities 95,000
Revolving line of credit 723,087
Current portion long term debt 172,234
----------
Total current liabilities 2,330,948
Long term liabilities:
Long term debt 13,261,462
Deferred tax liability 1,204,000
----------
Total liabilities 16,796,410
Minority interest equity 1,041
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, 4,290,800 shares outstanding 4,738
Additional paid-in capital 4,036,475
Retained earnings 3,787,442
Less 448,066 shares of common stock held in treasury at cost 1,485,432
----------
6,343,223
Less notes receivable from stockholders 579,025
----------
Total stockholders' equity 5,764,198
----------
Total Liabilities and Stockholders' Equity $ 22,561,649
==========
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
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
------------- -------------
Rental revenue $ 3,495,786 $ 4,581,058
Sports licensing sales 430,800 --
--------- ---------
Total net revenue 3,926,586 4,581,058
Cost of sports licensing sales 303,019 --
--------- ---------
Gross margin 3,623,567 4,581,058
--------- ---------
Rental operating costs 1,919,888 2,497,050
Sports licensing operating costs 592,440 --
Depreciation and amortization 526,001 588,565
--------- ---------
Total operating costs 3,038,329 3,085,615
--------- ---------
Net operating profit 585,238 1,495,443
--------- ---------
Other expense (income)
Interest expense 943,888 915,312
Professional fees related to litigation 524,092 481,807
Litigation settlement 217,273 45,395
Loss (gain) on sale of assets 170 ( 61,948)
Interest income ( 492,989) ( 530,679)
Other income ( 72,180) ( 108,814)
--------- ---------
Net other expense 1,120,254 741,073
--------- ---------
Income (loss) before income taxes ( 535,016) 754,370
Income tax provision (benefit) ( 197,000) 312,000
--------- ---------
Net income (loss) $( 338,016) $ 442,370
========= =========
Earnings (loss) per share - basic $( .08) $ .11
========= =========
Earnings (loss) per share - diluted $( .08) $ .10
========= =========
Weighted average shares outstanding
Common 4,198,346 3,975,165
Common and equivalent 4,198,346 4,461,757
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
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
------------- -------------
Cash flows from operating activities:
Net income (loss) $( 338,016) $ 442,370
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 526,001 592,023
Provision for uncollectable
accounts receivable 64,319 ( 7,831)
Reserve for gain on disposal of -- ( 113,396)
division
Loss on disposals of assets 170 1,398
Provision for deferred income taxes 154,000 58,000
Decrease (increase) in operating assets:
Accounts and notes receivable 412,278 121,740
Income tax receivable ( 322,309) 183,581
Inventory ( 221,026) --
Prepaid expenses and deposits ( 2,942) ( 80,531)
Other assets ( 99,002) ( 56,996)
Increase (decrease) in
operating liabilities:
Accounts payable and accrued ( 553,110) ( 704,565)
liabilities
Deferred revenue ( 190,307) 190,307
Income taxes payable ( 25,000) 73,000
Reserve for litigation 82,246 ( 236,480)
---------- ----------
Net cash provided (used)
by operating activities ( 512,698) 462,620
---------- ----------
Cash flows from investing activities:
Cash acquired - Roxbury acquisition 57,220 --
Proceeds from sale of assets -- 597,946
Construction escrow deposit 100,000 ( 100,000)
Property and equipment additions ( 178,765) ( 127,480)
Loans to unrelated privately held company ( 300,000) --
---------- ----------
Net cash provided (used)
by investing activities ( 321,545) 370,466
---------- ----------
Cash flows from financing activities:
Net payments on line of credit -- ( 10,952)
Repayment of notes payable ( 430,000) --
Borrowing of long-term debt -- 13,500,000
Principal repayments of long-term ( 137,068) ( 111,682)
debt
Loan costs -- ( 799,824)
Restricted cash reserves -- ( 950,000)
Issuance of common stock -- 25,000
Repurchase warrants ( 120,500) ( 220,000)
Purchase treasury stock ( 1,732,617) ( 402,393)
---------- ----------
Net cash provided (used)
by financing activities ( 2,420,185) 11,030,149
---------- ----------
Increase (decrease) in cash ( 3,254,428) 11,863,235
Cash and cash equivalents, beginning of year 12,910,401 1,047,166
---------- ----------
Cash and cash equivalents, end of year 9,655,973 $ 12,910,401
========== ==========
Supplemental disclosure of cash flow information
Interest paid $ 976,755 $ 915,312
Income taxes received $ 3,300 $ 2,581
See Note 10 "Stockholders' Equity - common stock" for discussion of non-
cash transactions.
The accompanying notes are an integral part of the consolidated financial
statements. Read independent auditor's report.
<TABLE>
EXCAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<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, 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 -- -- -- -- 26,000 102,030
--------- ----- --------- --------- ------- ---------
Balance June 30, 1998 4,738,866 4,738 5,437,897 4,125,458 802,835 2,779,262
Net loss -- -- -- (338,016) -- --
Exercise of stock options -- -- (2,447,422) -- (517,627) (1,775,820)
Tax benefit from exercise
of stock options -- -- 1,046,000 -- -- --
Open market purchases -- -- -- -- 162,858 481,990
--------- ----- --------- --------- ------- ---------
Balance March 31, 1999 4,738,866 $4,738 $4,036,475 $3,787,442 448,066 $1,485,432
========= ===== ========= ========= ======= =========
</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, has been engaged in several distinct business operations.
The Company's commercial real estate venture began in April 1994 and 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. The Company's
sports licensing operations are conducted by and through Roxbury Industries
Corp., a wholly owned subsidiary operating out of Rockaway Park, New York.
Excal Sports Group, Inc., a wholly owned subsidiary acquired Roxbury
Industries Corp. in December 1998. 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, Major Soccer League and most major colleges.
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 the wholly owned
subsidiaries, Jacksonville Holdings, Inc., Excal Sports Group, Inc., Roxbury
Industries Corp., Imeson Center, Inc., and Assix Automotive, Inc. Imeson
Center, Inc. was dissolved in fiscal 1998 after its operations were
transferred to Jacksonville Holdings, Inc. The operations of Assix
Automotive were discontinued and the company was dissolved during fiscal
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.
Inventory. Inventory consists of raw materials, work in process, and
finished goods. The inventory is carried at the lower of cost or market
using the first-in first-out method.
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, 40 years for real property
and improvements and the term of the lease for leasehold 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. Sports licensing revenue consists of sales of logo/personalized
knit scarves, knit headwear, and bears with sweaters. 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. 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.
Fiscal Year. The Company elected to change the date of its fiscal year-
end to March 31. Consequently, the consolidated Balance Sheet has been
prepared at March 31. The Statements of Income and Cash Flows present
information for the nine months ended March 31, 1999 and the year ended June
30, 1998.
Reclassifications. Certain reclassifications have been made to the
financial statements in 1998 in order to conform to the 1999 presentation.
None of the reclassifications affected the financial position or results of
operations.
NOTE 3 - ACQUISITION
In December 1998, the Company, through its wholly owned subsidiary Excal
Sports Group, Inc., closed on the acquisition of Roxbury Industries Corp.
("Roxbury"). Excal invested $1,500,000 in Roxbury and received 1,000,000
shares of Roxbury's common stock, par value $0.001, representing all of the
outstanding shares of common stock of Roxbury. The former common
stockholders of Roxbury exchanged their common stock for 1,040,816 shares of
convertible preferred stock of Roxbury, par value $0.001. The preferred
stock does not contain preferential rights to distributions, does not have
voting rights, and is convertible into common stock of Roxbury beginning on
July 15, 2002. The number of shares that the preferred stock will convert
into varies based on the financial performance of Roxbury. The acquisition
was accounted for under the purchase method. No goodwill was generated by
the acquisition and the results of operations of Roxbury for the four months
ended March 31, 1999 are included in the consolidated financial statements.
The pro forma results of operations of the Company for the nine months ended
March 31, 1999 and the year ended June 30,1998 as if the acquisition took
place on July 1, 1997 is as follows:
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
-------------- -------------
(unaudited) (unaudited)
Net revenue $ 5,582,19 $ 7,045,92
2 7
Net income (loss) ( 382,299) 264,432
Earnings (loss) per share - basic $( .09) $ .07
Earnings (loss) per share - diluted $( .09) $ .06
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which would have actually resulted had the combination occurred
on July 1, 1997, or of future results of the consolidated entities.
NOTE 4 - 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.
Three lessees in the Company's commercial real estate division accounted
for over 10% of the Company's revenue for the nine months ended March 31,
1999 and fiscal 1998 as follows:
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
--------------------- ---------------------
Lessee Amount % to Total Amount % to Total
-------------------- ---------- ---------- ---------- ----------
Laney & Duke $1,839,671 51% $2,409,945 53%
Prudential Insurance 954,916 26% 1,237,679 27%
America Online 701,199 19% 914,806 20%
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, 2003. The loss of any of these leases would have a
significant impact on the Company (See Note 11).
NOTE 5 - NOTES RECEIVABLE
During fiscal 1999, the Company loaned $300,000 to an unrelated privately
held company. Interest on the notes accrues at 1% over the prime rate (9%
at March 31, 1999). The notes are unsecured but are guaranteed by the
principals of the privately held company. As of March 31, 1999, the balance
owed included $278,460 in principal and $14,659 in accrued interest.
Principal and accrued interest is due on July 20, 1999.
NOTE 6 - INVENTORY
At March 31, 1999, the inventory consisted of the following:
Raw materials $435,984
Work in process 57,334
Finished goods 85,924
-------
$579,242
=======
NOTE 7 - NOTES PAYABLE
The Company is obligated on a note payable under a revolving line of
credit expiring on June 30, 1999, in the maximum amount of $725,000, subject
to the bank's borrowing base formula. The loan is collateralized by a
security interest in the assets of Roxbury and is personally guaranteed by
an officer of Roxbury. The balance outstanding at March 31, 1999 was
$723,087. Interest is payable monthly at the rate of 1.5% over the bank's
prime rate (9.25% at March 31, 1999).
NOTE 8 - 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 had an outstanding balance
of $13,268,867 as of March 31, 1999 and 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 $7,575,721 as of March 31, 1999.
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 deposited into 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. During fiscal 1998, $121,125 was disbursed from
the reserve to pay leasing commissions on the renewal of certain leases.
Beginning with the February 1998 payment, the Company was required to
deposit $8,350 per month into the reserve until the disbursement was repaid
in April 1999. During fiscal 1999, $222,153 was disbursed from the reserve
to pay leasing commission on the renewal of certain leases and for
renovations to the food service area. Beginning with the November 1998
payment, the Company is required to deposit $3,125 per month into the
reserve until the disbursement is repaid.
Roxbury has a renovation loan with an outstanding balance of $164,829 as
of March 31, 1999. The loan bears interest at 8.25% per annum and is
repayable in monthly payments of principal and interest of $2,328 through
March 31, 2007. The original amount of the loan was $240,000. The loan is
secured by the manufacturing facility of Roxbury, which is leased from a
corporation owned by two officers of Roxbury .
Annual maturities of long-term debt as of March 31, 1999 are as follows:
2000 - $172,234; 2001 - $203,224; 2002 - $222,157; 2003 - $12,738,945; 2004
- - $20,697; thereafter - $76,439.
NOTE 9 - COMMITMENTS
The Company leases its corporate headquarters under an operating lease
that runs through October 2000. The Company has an option to renew the
lease for an additional three years. The Company leases the Roxbury
manufacturing facility from a corporation owned by two officers of Roxbury
under an operating lease that runs through December 2007. The Company has
the option to purchase the property for $700,000 at any time and also has
the right of first refusal. The Company incurred rent expense of $105,227
and $88,145 for the nine months ended March 31, 1999 and the year ended June
30, 1998, respectively. Future minimum lease payments under the non-
cancelable operating leases as of March 31, 1999 are as follows: 2000 -
$174,606; 2001 - $147,054; 2002 - 96,953; 2003 - 86,982; 2004 - 86,400;
thereafter - $324,000.
The Company entered into employment agreements with its Chairman of the
Board, President, and Chief Financial Officer that obligate the Company to
pay them $192,600, $205,440, and $85,600 a year, respectively. The
employment agreements expire in March 2004, August 2004, and August 1999,
respectively, unless their employment is terminated for due cause. The
employment agreements also provide for a lump sum severance payment of up to
2.9 times their base salary upon the occurrence of a change in control.
The Company entered into employment agreements with the President and
Chief Operating Officer of Roxbury . The agreements obligate the Company to
pay them $75,000 and $63,000 per year through December 1, 2002, unless their
employment is terminated for due cause.
The Company entered into retail licensing agreements with several
entities. The agreements call for minimum advance royalty payments that are
applied to monthly royalty payments ranging from 9% to 11% of net retail
sales. The future minimum guaranteed payments under the agreements as of
March 31, 1999 aggregated to $93,750.
NOTE 10 - 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.
The Series A Participating Preferred Stock will be distributed to holders
of the Rights upon exercise of the Rights 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 nine months ended March 31, 1999, the Company repurchased
162,858 shares of its common stock through open-market purchases at an
aggregate cost of $481,990. In addition, officers and directors of the
Company exercised options to purchase an aggregate of 940,000 shares of
common stock. The 940,000 shares were issued from treasury stock with a
cost basis of $3,479,638. One director paid the exercise price for 500,000
shares with 143,154 shares of previously owned shares of common stock with a
value of $500,000. 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
$1,079,025, the Company received an income tax benefit of $1,046,000 and
incurred payroll tax costs of $46,809 as a result of the exercise of the
options. The officers and directors used 279,219 shares otherwise issuable
under the options, with a value of $1,203,818, to pay the withholding taxes
due upon the exercise of the options.
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 agreed to pay $485,500 for the right to repurchase
three options to purchase a total of 285,000 shares of common stock.
Payments of $220,000 and $120,500 were made in January of 1998 and 1999,
respectively. The final payment of $95,000 is due upon termination of the
options but not later than January 15, 2000. 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.
Options and Warrants
The Company had a stock option plan that expired in April 1998 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:
1999 1998
------- -------
Net income (loss) As reported $(338,016) $ 442,370
Pro forma $(606,934) $ 396,022
Earnings per share - basic As reported $( .08) $ .11
Pro forma $( .14) $ .10
Earnings per share - diluted As reported $( .08) $ .10
Pro forma $( .14) $ .09
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 4.5% and 5.81% in 1999 and 1998, 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, 1997 130,000 $1.43 1,267,650 $2.21
Granted in fiscal 1998 -- -- 55,000 $4.85
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 1,322,650 $2.32
Granted in fiscal 1999 -- -- 722,373(2) $2.77
Forfeited in fiscal 1999 -- -- ( 285,000) $1.37
Exercised in fiscal 1999 ( 75,000) $1.44 ( 865,000) $1.12
------- ---------
Outstanding at March 31, 1999 5,000 $5.74 895,023 $4.15
======= =========
1 Weighted average exercise price.
2 Includes options to acquire 300,000 shares at an exercise price of
$1.00 per share that were awarded to R. Park Newton, III in October
1994 but were not issued until January 1999 because of a requirement
that the Board of Directors take certain actions prior to issuing such
options.
The following table summarizes information about the options and
warrants outstanding at March 31, 1999, stratified by exercise price:
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- -------------- ----------- ---------- ---------- ----------- --------
Issued pursuant to Option Plan
- ------------------------------
$5.74 5,000 0.1 years $5.74 5,000 $5.74
Issued outside of Option Plan
- -----------------------------
$2.00 to $2.94 426,005 7.0 years $2.50 426,005 $2.50
$4.69 to $4.95 274,018 5.2 years $4.88 274,018 $4.88
$5.63 to $7.43 195,000 0.7 years $6.71 195,000 $6.71
NOTE 11 - 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 $8,533,101 and accumulated depreciation of
$957,380 as of March 31, 1999. Minimum future rentals under non-cancelable
leases are as follows: 2000 - $3,938,345; 2001 - $3,542,807; 2002 -
$2,041,591; 2003 - $1,372,606; and, 2004 - $265,409. During nine months
ended March 31, 1999 and fiscal 1998, rental revenue included $590,531 and
$836,293 of contingent rentals, respectively.
NOTE 12 - LITIGATION SETTLEMENT
The Company and Harvey Moore settled litigation over compensation in
fiscal 1997. In fiscal 1999, the Court awarded Harvey Moore legal fees and
costs of $82,246. The Court may award a small amount of additional costs
pending receipt of adequate documentation. Harvey Moore appealed the
Court's decision and the appeal is still outstanding.
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, which is still outstanding.
The Court approved the settlement agreement with Channel Partnership at
the hearing held on October 15, 1998. The settlement agreement required,
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: (i) the Company has purchased an aggregate of
600,000 shares or (ii) the stock price closes at or above $3.30 per share,
or (iii) October 15, 1999. The Court also awarded Channel Partnership fees
and costs of $134,500.
NOTE 13 - INCOME TAXES
The components of the provision (benefit) for income taxes for the nine
months ended March 31, 1999 and the year ended June 30, 1998 were as
follows:
1999 1998
-------- --------
Current tax expense (benefit) $(351,000) $ 297,000
Deferred tax expense 154,000 15,000
------- -------
$(197,000) $ 312,000
======= =======
In 1998, current tax benefit of $50,000 and deferred tax expense of
$50,000 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:
1999 1998
-------- --------
Tax expense (benefit) at statutory rate $( 182,000) $ 257,000
Increase (decrease) in taxes
resulting from tax effects of:
State income taxes, net
of federal tax benefit ( 34,000) 44,000
Non-deductible expenses 18,000 13,000
Other 1,000 ( 2,000)
------- -------
$( 197,000) $ 312,000
======= =======
As of March 31, 1999, the Company had approximately $2,072,000 and
$3,970,000 in net operating loss carryforwards for federal and state tax
purposes, respectively. The net operating loss carryforwards expire in the
years 2010 through 2019.
The sources of significant temporary differences which gave rise to
deferred tax assets and liabilities as of March 31, 1999 are as follows:
Deferred tax assets:
Allowance for doubtful accounts $ 66,000
Accrued salaries, bonuses and expenses 273,000
Tax basis of intangible assets in excess of book 1,000
Net operating loss carryforward 931,000
---------
1,271,000
Less valuation allowance for loss carryforward 17,000
---------
1,254,000
---------
Deferred tax liabilities:
Book basis of property, plant and equipment in excess of tax 182,000
Book basis of investment in subsidiaries in excess of tax 1,937,000
---------
2,119,000
---------
Net deferred tax liabilities $ 865,000
=========
The valuation allowance increased by $2,000 in 1999 and decreased by
$2,000 in 1998.
The components giving rise to the net deferred tax liabilities
described above have been included in the accompanying balance sheet as
follows:
Current assets $ 339,000
Non-current liabilities 1,204,000
---------
$ 865,000
=========
NOTE 14 - 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 $13,117 and $14,818 to the Plan for the
nine months ended March 31, 1999 and the year ended June 30, 1998,
respectively.
NOTE 15 - SEGMENT INFORMATION
With the acquisition of Roxbury, 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.
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
-------------- -------------
Segment income (loss) before income taxes
Real estate operations $ 370,143 $ 794,449
Sports licensing operations ( 547,982) --
Other ( 357,177) ( 40,079)
---------- ----------
Total income (loss) before income taxes $( 535,016) $ 754,370
========== ==========
As of As of
March 31, 1999 June 30, 1998
-------------- -------------
Identifiable assets
Real estate operations $13,119,408 $12,882,399
Sports licensing operations 2,656,251 --
Other 6,785,990 10,644,665
---------- ----------
Total identifiable assets $22,561,649 $23,527,064
========== ==========
NOTE 16 - 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 March 31, 1999.
The Company leases the Roxbury manufacturing facility from a
corporation owned by two officers of Roxbury under an operating lease that
runs through December 2007. The Company has the option to purchase the
property for $700,000 at any time and also has the right of first refusal.
NOTE 17 - COMPARATIVE FINANCIAL INFORMATION
The Company elected to change the date of its fiscal year-end to March
31. As a result, the transition period for the nine months ended March 31,
1999 and the unaudited period for the nine months ended March 31, 1998 are
presented herein.
March 31, 1999 March 31, 1998
-------------- --------------
(unaudited)
Net revenue $(3,926,586 $ 3,432,182
Net operating profit 585,238 1,281,974
Income (loss) before income taxes ( 535,016) 735,038
Income tax provision (benefit) ( 197,000) 301,000
Net income (loss) ( 338,016) 434,038
Earnings (loss) per share - basic $( .08) $ .11
========= =========
Earnings (loss) per share - diluted $ .08) $ .10
========= =========
NOTE 18 - LEGAL PROCEEDINGS
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.
Motions for summary judgment have been filed by the Commission and the
Company. An oral hearing on the motions for summary judgment is scheduled
for July 16, 1999. The trial has not been scheduled and is not expected to
begin until the motions for summary judgment have been ruled upon.
EXHIBIT 21
LIST OF SUBSIDIARIES OF REGISTRANT
JACKSONVILLE HOLDINGS, INC.
EXCAL SPORTS GROUP, INC.
ROXBURY INDUSTRIES CORP.
Pender Newkirk & Company - Certified Public Accountants - Letterhead
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference of our report
dated May 17, 1999 which appears on page F-1 of the Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1999 of Excal
Enterprises, Inc. in Form S-8, Nonqualified Stock Options Issuable
Under Various Agreements Bewtween Excal Enterprises, Inc. and R. Park
Newton, III and Timothy R. Banres, which was dated June 28, 1999; and
Nonqualified Stock Options Issuable Pursuant to Varios Agreements
Between Excal Enterprises, Inc. and W. Carey Webb, W. Aris Newton, and
John L. Caskey, which was dated March 27. 1998.
/s/PENDER NEWKIRK & COMPANY
Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
June 29, 1999
<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 NINE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,655,973
<SECURITIES> 0
<RECEIVABLES> 920,718
<ALLOWANCES> 160,516
<INVENTORY> 579,242
<CURRENT-ASSETS> 11,840,852
<PP&E> 10,808,037
<DEPRECIATION> 1,739,488
<TOTAL-ASSETS> 22,561,649
<CURRENT-LIABILITIES> 2,330,948
<BONDS> 13,261,462
0
0
<COMMON> 4,738
<OTHER-SE> 5,759,460
<TOTAL-LIABILITY-AND-EQUITY> 22,561,649
<SALES> 3,926,586
<TOTAL-REVENUES> 3,926,586
<CGS> 303,019
<TOTAL-COSTS> 3,038,329
<OTHER-EXPENSES> 176,366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 943,888
<INCOME-PRETAX> (535,016)
<INCOME-TAX> (197,000)
<INCOME-CONTINUING> (338,016)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (338,016)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
