U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to ______________
Commission File No. 0-17069
Excal Enterprises, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 59-2855398
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 North Tampa Street, Suite 3575, Tampa, Florida 33602
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(Address of principal executive offices)
(813) 224-0228
-------------------------
Issuer's telephone number
----------------------------------------------------
(Former Name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
As of October 31, 2000, there were 3,871,377 shares of the issuer's common
stock, par value $0.001, outstanding.
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
EXCAL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
ASSETS (unaudited)
Current Assets
Cash and cash equivalents $ 5,716,968
Marketable securities 73,438
Accounts receivable, less allowance of $149,854 1,114,961
Notes receivable 306,736
Income tax receivable 181,000
Inventory 809,295
Prepaid expenses and deposits 808,087
Deferred tax asset 332,000
----------
Total current assets 9,342,485
----------
Property, plant and equipment
Land 1,600,000
Buildings and improvements 7,309,085
Furniture, fixtures, vehicles and equipment 2,174,105
----------
11,083,190
Less accumulated depreciation and amortization 2,382,185
----------
Net property, plant and equipment 8,701,005
----------
Note receivable - related parties 282,572
Restricted cash reserves 635,449
Commission costs, less accumulated amortization of $374,957 281,508
Loan costs, less accumulated amortization of $499,790 333,194
----------
Total Assets $ 19,576,213
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 693,344
Accrued liabilities 555,010
Reserve for litigation 434,246
Revolving line of credit 373,087
Current portion of long-term debt 274,436
----------
Total current liabilities 2,330,123
Long-term debt 13,183,882
Deferred tax liability 1,333,000
----------
Total liabilities 16,847,005
----------
Minority interest equity 1,041
Stockholders' equity
Preferred stock, $.01 par value, 7,500,000 shares
authorized, 5,000,000 shares issued, no shares outstanding --
Common stock, $.001 par value, 20,000,000 shares
authorized, 4,738,866 shares issued,
3,871,377 shares outstanding 4,738
Additional paid-in capital 3,985,842
Retained earnings 2,606,727
Less 867,489 shares of common stock
held in treasury at cost ( 2,751,510)
----------
3,845,797
Less notes receivable from stockholders ( 1,117,630)
----------
Total stockholders' equity 2,728,167
----------
Total Liabilities and Stockholders' Equity $ 19,576,213
==========
The accompanying notes are an integral part
of the consolidated financial statements.
<TABLE>
EXCAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three months ended Six months ended
September 30 September 30
------------------------ -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C>
<C>
Rental revenue $ 1,263,324 $ 1,364,486 $ 2,554,962 $ 2,563,319
Sports licensing sales 923,531 794,315 1,333,272 1,098,417
--------- --------- --------- ---------
Total net revenue 2,186,855 2,158,801 3,888,234 3,661,736
Cost of sports licensing sales 688,151 535,033 1,077,369 860,876
--------- --------- --------- ---------
Gross margin 1,498,704 1,623,768 2,810,865 2,800,860
--------- --------- --------- ---------
Rental operating costs 531,757 702,092 1,128,872 1,248,084
Sports licensing operating costs 559,776 425,362 1,010,157 754,173
Depreciation and amortization 155,712 166,646 309,825 326,786
--------- --------- --------- ---------
Total operating costs 1,247,245 1,294,100 2,448,854 2,329,043
--------- --------- --------- ---------
Net operating profit 251,459 329,668 362,011 471,817
--------- --------- --------- ---------
Other expense (income)
Interest expense 314,725 319,705 634,245 642,507
Professional fees related to litigation 23,165 70,672 82,537 119,171
Net realized and unrealized loss
on marketable securities 133,416 -- 321,873 --
Gain on disposals of assets -- -- ( 1,741) --
Interest income ( 133,751) ( 141,250) ( 275,214) ( 282,923)
Miscellaneous income ( 13,586) ( 11,658) ( 25,160) ( 32,543)
--------- --------- --------- ---------
Net other expense 323,969 237,469 736,540 446,212
--------- --------- --------- ---------
Income (loss) before income taxes ( 72,510) 92,199 ( 374,529) 25,605
Income tax provision 38,000 181,000 53,000 155,000
--------- --------- --------- ---------
Net loss $( 110,510) $( 88,801) $( 427,529) $( 129,395)
========= ========= ========= =========
Loss per share
Basic $( .03) $( .02) $( .11) $( .03)
========= ========= ========= =========
Diluted $( .03) $( .02) $( .11) $( .03)
========= ========= ========= =========
Weighted average shares outstanding
Common 3,871,377 4,301,639 3,874,054 4,281,994
Common and equivalent 3,871,377 4,301,639 3,874,054 4,281,994
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
EXCAL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended
September 30
-------------------------
2000 1999
--------- ---------
Cash provided by operating activities
Net loss $( 427,529) $(129,395)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 368,171 392,644
Other adjustments 86,343 102,379
Decrease (increase) in net operating assets (1,212,296) (294,997)
--------- ---------
Net cash provided (used)
by operating activities (1,185,311) 70,631
--------- ---------
Cash flows from investing activities
Proceeds from sale of assets 5,000 --
Property and equipment additions ( 423,600) ( 25,568)
--------- ---------
Net cash used by investing activities ( 418,600) ( 25,568)
--------- ---------
Cash flows from financing activities
Loan to related party -- ( 261,394)
Principal repayments of long-term debt ( 118,326) ( 85,829)
Purchase of treasury stock ( 45,422) (1,661,242)
--------- ---------
Net cash used by financing activities ( 163,748) (2,008,465)
--------- ---------
Decrease in cash (1,767,659) (1,963,402)
Cash and cash equivalents at
beginning of period 7,484,627 9,655,973
--------- ---------
Cash and cash equivalents at end of period $ 5,716,968 $ 7,692,571
========= =========
The accompanying notes are an integral part
of the consolidated financial statements.
EXCAL ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - FINANCIAL STATEMENTS
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three-month and six-month periods ended September 30, 2000
and 1999, (b) the financial position at September 30, 2000, and (c) cash
flows for the six-month periods ended September 30, 2000 and 1999, have been
made. Certain reclassifications have been made to the financial statements
for the three-month and six-month periods ended September 30, 1999 to conform
to the September 30, 2000 presentation. None of the reclassifications
affected the financial position or results of operations.
The unaudited consolidated financial statements and notes are presented
as permitted by Form 10-QSB. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The
accompanying consolidated financial statements and notes should be read in
conjunction with the audited financial statements and notes of the Company
for the fiscal year ended March 31, 2000. The revenue of the sports
licensing division has been very seasonal with the majority of its revenue in
the months of July through November. The results of operations for the three-
month and six-month periods ended September 30, 2000 are not necessarily
indicative of those to be expected for the entire year.
NOTE 2 - INVENTORY
The gross profit method was used to estimate inventories at September 30,
2000.
NOTE 3 - NOTES PAYABLE
The Company's $375,000 line of credit with European American Bank expired
in July 2000. The line of credit was subsequently extended through December
29, 2000. Roxbury was in violation of the financial loan covenants regarding
the level of equity and debt-to-equity ratio at September 30, 2000. The Bank
has waived the loan covenant violations as of September 30, 2000. The
Company is currently negotiating with EAB to develop a long-term extension of
the line of credit.
NOTE 4 - STOCKHOLDERS' EQUITY
During the six months ended September 30, 2000, the Company purchased
20,300 shares of its common stock at an aggregate cost of $45,422.
NOTE 5 - SEGMENT INFORMATION
The Company has two reportable business segments. These segments have
been determined by product line and consist of the rental of commercial real
estate and the manufacture and distribution of sports licensing products.
The revenue shown on the face of the financial statements was from external
sources. The segment information disclosures not included on the face of the
financial statements are detailed in the tables below. The "Other" category
includes corporate related items and income and expense items not allocated
to reportable segments.
Three months ended Six months ended
September 30 September 30
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
Segment income (loss)
before income taxes
Real estate operations $ 394,262 $ 275,095 $ 746,540 $ 542,715
Sports licensing
Operations (384,992) (196,285) (860,589) (577,107)
Other ( 81,780) 13,389 (260,480) 59,997
------- ------- ------- -------
Total income (loss)
before income taxes $( 72,510) $ 92,199 $(374,529) $ 25,605
======= ======= ======= =======
As of September 30
--------------------------
2000 1999
---------- ----------
Identifiable assets
Real estate operations $ 14,691,071 $ 13,746,456
Sports licensing operations 2,514,769 2,307,175
Other 2,370,373 4,965,110
---------- ----------
Total identifiable assets $ 19,576,213 $ 21,018,741
========== ==========
Item 2. Management's Discussion and Analysis.
Except for historical matters, the matters discussed in this Form 10-QSB
are forward-looking statements based on current expectations. Forward-
looking statements, including without limitation, statements relating to the
Company's plans, strategies, objectives, expectations, intentions and
adequacy of resources, are made pursuant to the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned
that such forward-looking statements involve risks and uncertainties
including without limitation the following: (i) the Company's plans,
strategies, objectives, expectations and intentions are subject to change at
any time at the discretion of the Company, (ii) the Company's plans and
results of operations will be affected by economic, competitive, governmental
and technological factors affecting the Company's operations, markets,
products, services, and prices; and (iii) other risks and uncertainties as
indicated from time to time in the Company's filings with the Securities and
Exchange Commission.
The following discussion should be read in conjunction with the
information contained in the financial statements of the Company and the
notes thereto appearing elsewhere herein and in conjunction with Management's
Discussion and Analysis set forth in the Company's Form 10-KSB for the fiscal
year ended March 31, 2000.
The following discussion compares the results of operations for the three-
month period ended September 30, 2000 (Second Quarter 2001) with the three-
month period ended September 30, 1999 (Second Quarter 2000) and for the six-
month period ended September 30, 2000 (2001 YTD) with the six-month period
ended September 30, 1999 (2000 YTD).
Results of Continuing Operations
The Company's operations fall into two distinct businesses: the
manufacture and distribution of sports licensing products and the rental of
commercial real estate. In December 1998, the Company acquired Roxbury
Industries Corp ("Roxbury"), which produces and distributes knit products
licensed by most professional and major college teams. The Company owns,
leases, and manages a two-story warehouse and office facility containing
approximately 1,666,000 square feet of rentable space located on
approximately 74 acres in an industrial park in Duval County, Florida.
Sports Licensing Products
Roxbury's revenue has been very seasonal with the majority of its sales
in the months of July through November. Revenue increased by 16% in Second
Quarter 2001 and 21% for 2001 YTD as compared to the same periods of the
prior year. The majority of the revenue increase was in the 4.0T product
line which increased by 65% in Second Quarter 2001 and 51% for 2001 YTD.
Private label revenue increased by 15% in Second Quarter 2001 and 32% for
2001 YTD. These two product lines accounted for 89% of total revenue in 2001
YTD as compared to 77% in 2000 YTD. The sales orders booked in Second
Quarter 2001 were 16% over Second Quarter 2000 and 43% higher in 2001 YTD as
compared to 2000 YTD. These increases were the result of an 84% and 94%
increase in 4.0T sales orders for Second Quarter 2001 and 2001 YTD,
respectively. Increased sales in the 4.0T product line has been the major
focus of the Company's marketing efforts this season, especially with the
addition of the NFL license for headwear. Sales orders for private label
were up 27% for 2001 YTD as compared to 2000 YTD. As of September 30, 2000
the Company had over $888,000 in open orders. After evaluating operating
costs and gross margins, the Company decided to sell its screen printing
operation. The operation closed in June 2000 and the equipment was sold.
Screen printing operations only accounted for $160,000 in revenue in the last
fiscal year and $44,000 in revenue for 2001 YTD.
The cost of goods sold increased in Second Quarter 2001 and 2001 YTD as a
result of the increased revenue. The cost of goods sold, as a percentage of
revenue, is higher for Second Quarter 2001 (75%) and 2001 YTD (81%) than for
Second Quarter 2000 (67%) and 2000 YTD (78%). The increase is due to costs
associated with changes in the manufacturing processes that were implemented
in Second Quarter 2001 that resulted in increased labor costs. It is
anticipated that these changes will reduce future manufacturing labor costs,
as a percentage revenue, and increase production capacity. The cost of goods
sold, as a percentage of revenue, is higher than is to be expected on an
annual basis because the manufacturing overhead is allocated over fewer goods
during the slower months of the Company's seasonal business. As revenue is
expected to increase in the next quarter, the overhead, as a percentage of
revenue, is expected to decrease. Also, as licensed product revenue (4.0T)
becomes a larger percentage of total revenue, the gross margin is expected to
increase. The operating costs of Roxbury increased by 32% in the Second
Quarter 2001 as compared to Second Quarter 2000 and by 34% for 2001 YTD as
compared to 2000 YTD. This increase is due to increased expenditures on
market research and various marketing programs and the addition of personnel
in sales, sales support, operations, customer service and design.
Depreciation and amortization included in operating costs and cost of
goods sold decreased slightly in Second Quarter 2001 and 2001 YTD as compared
to Second Quarter 2000 and 2000 YTD. The net operating loss of the sports
licensing division increased from $174,570 in Second Quarter 2000 to $331,731
in Second Quarter 2001 and from $532,396 in 2000 YTD to $767,802 in 2001 YTD.
The increased loss was the result of the increased operating costs.
Commercial Real Estate
The commercial real estate operations consist of the lease and management
of property located in Jacksonville, Florida (Imeson Center). The property
consists of approximately 1,392,000 square feet of warehouse space and
274,000 square feet of office space. The Company's lease agreements are
structured to include a base minimum rental fee, a contingent rental fee to
reimburse the Company for operating expenses, common area maintenance costs,
insurance and property taxes, and a requirement that the tenant pay for its
own utilities.
The Company received notification from Laney & Duke that they would not
be renewing their leases for 1,392,000 square feet of warehouse space. The
lease of warehouse space to Laney & Duke expires on December 31, 2000.
However, Laney & Duke has requested a short-term extension of the lease. In
addition, the Company is marketing the space currently leased by Laney &
Duke.
Net revenue decreased by 7% to $1,263,324 in Second Quarter 2001 from
$1,364,486 in Second Quarter 2000 and decreased to $2,554,962 in 2001 YTD
from $2,563,319 in 2000 YTD. The base minimum rental fee increased by
$39,048 (4%) in Second Quarter 2001 and by $77,482 (4%) in 2001 YTD as a
result of increases in the base minimum rent per square foot. The contingent
rental fee decreased by $140,210 (38%) in Second Quarter 2001 and by $85,839
(15%) in 2001 YTD as a result of decreases in reimbursable operating costs.
Operating costs decreased by $170,335 (24%) to $531,757 in Second Quarter
2001 from $702,092 in Second Quarter 2000. Operating costs decreased by
$119,212 (10%) in 2001 YTD as compared to 2000 YTD. These decreases were
primarily the result of decreases in repair and maintenance expense and
property tax expense and reductions in the allocation of corporate costs.
Depreciation and amortization decreased by 6% in Second Quarter 2001 to
$148,377, as compared to Second Quarter 2000 and decreased by $14,776 in 2001
YTD to $296,246 as compared to the same period of the prior year. The net
operating profit of the commercial real estate division increased from
$504,238 in Second Quarter 2000 to $583,190 in Second Quarter 2001. The net
operating profit for 2001 YTD was $1,129,844, compared to $1,004,213 for 2000
YTD.
Consolidated Operating Results
Revenue increased slightly to $2,186,555 for Second Quarter 2001 and
increased 6% to $3,888,234 in 2001 YTD as compared to the same periods of the
last fiscal year. The increase was primarily due to increased revenues in
the sports licensing division. The cost of goods sold increased as a result
of the sports licensing division revenue increases.
Operating costs decreased by 4% to $1,247,245 in Second Quarter 2001 from
$1,294,100 in Second Quarter 2000. The decrease was related to the decrease
in reimbursable expenses of the commercial real estate division offset by
additional sales and marketing expenditures in the sports licensing division.
Operating costs increased to $2,448,854 in 2001 YTD as compared to $2,329,043
in 2000 YTD. The decrease in commercial real estate operating costs was not
enough to offset the increase in sports licensing operating costs on a year-
to-date basis. The net operating profit declined $78,209 in Second Quarter
2001 to $251,459, as compared to $329,668 in Second Quarter 2000. The net
operating profit for 2001 YTD declined $109,806 to $362,011 as compared to
$471,817 for 2000 YTD.
Beginning in the fourth quarter of fiscal 2000, the Company invested
excess reserves in publicly traded equity securities. The Company incurred a
loss of $133,416 in Second Quarter 2001 and $321,873 in 2001 YTD from these
investments. An income tax provision was recorded in Second Quarter 2001 and
2001 YTD despite having a consolidated loss before income taxes. Also, the
income tax provision for Second Quarter 2000 and 2000 YTD were in excess of
income before taxes. These anomalies occurred because Roxbury files separate
income tax returns and the tax benefits from its losses were not recognized.
The benefit from these losses will be recognized when Roxbury generates
pretax income.
Liquidity and Capital Resources
The cash used by operating activities was $1,185,311 in 2001 YTD compared
to cash provided of $70,631 in 2000 YTD. The Company's operations provided
$26,985 in working capital in 2001 YTD compared to $365,268 of working
capital provided in 2000 YTD. The increase in net operating assets for 2001
YTD was primarily from an increase in the accounts receivable and inventory
in the sports licensing division and an increase in accounts receivable and
prepaid property taxes in the real estate division. The increase in net
operating assets for 2000 YTD was the result of an increase in sports
licensing accounts receivable and commercial real estate prepaid expenses,
offset by an increase in accounts payable and accrued expenses.
Property and equipment additions consisted primarily of real estate
investment in the commercial real estate division in 2001 YTD and equipment
used in the sports licensing division in 2000 YTD.
Cash of $163,748 was used by financing activities in 2001 YTD, as
compared to cash used by financing activities of $2,008,465 in 2000 YTD. The
decrease in cash used by financing activities was related to a reduction in
the number of shares of its common stock the Company purchased in 2001 YTD as
compared to 2000 YTD. The company loaned a director $800,000 primarily to
pay the exercise price and withholding taxes due upon the exercise of stock
options. The amount shown as a loan to related party represents the amount
of the loan in excess of the exercise price.
The Company did not have any material commitments for capital
expenditures as of September 30, 2000 other than for ordinary expenses
incurred during the usual course of business. Laney & Duke informed the
Company that it would not renew its lease of the warehouse space at Imeson
Center that expires on December 31, 2000. This lessee accounted for the
majority of the commercial rental revenue and non-renewal will have a
significant impact on the Company's operating results and liquidity. The
Company is looking for additional tenants for Imeson Center for the remaining
41,000 square feet of office space, the warehouse space currently occupied by
Laney & Duke and the office space occupied by America Online. It is expected
that any new tenant will require the Company to incur significant costs
related to renovation of the property to meet the tenant's needs.
Additionally, the Company is considering opportunities to develop outparcels
at the Imeson Center. Roxbury is incurring additional marketing expenses to
expand its revenue base and distribution channels. These expanded marketing
activities may not generate the revenue projected and result in future
losses. Although, the Company has not identified any specific opportunities
at this time, the Company is expending resources to identify 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. In addition, the Company has been
and expects to continue repurchasing shares of its stock. 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. Therefore, no assurances can be made by the Company that such
additional capital will be available.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
No material events have occurred in the Company's ongoing litigation
matters other than those described below. For the history of such
litigation, please refer to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 2000.
Eisenberg Group
The motions for dismissal and change of venue filed by the members of the
Eisenberg Group were denied.
ASX Investment Corporation
On August 22, 2000, the United States District Court granted the
Company's motion to dismiss Count I to the extent that ASX Investment
Corporation is barred from asserting claims against the Company based on
alleged violations of section 10(b) and Rule 10b-5 that ASX Investment
Corporation discovered in April 1994. The Court denied the Company's motion
to dismiss Counts II, III, and IV. The Company answered the amended
complaint on September 6, 2000 denying the claims of ASX Investment
Corporation.
Harvey Moore
The appellate court has upheld the majority of the District Court's
ruling on reimbursement of legal fees. However, there were a few issues that
the appellate court remanded back to the district court.
Item 2. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
On August 29, 2000, the Company filed an 8-K announcing that Laney & Duke
had notified the Company of its intent not to renew its lease of 1,392,000
square feet of warehouse space at Imeson Center.
(c) Sales of Unregistered Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual shareholder meeting on August 5, 2000 to
elect one Class II director and ratify the election of Pender Newkirk &
Company as independent auditors for the fiscal year ended March 31, 2001.
The terms of office as director for John L. Caskey and R. Park Newton
continued after the meeting. The voting results were as follows:
Issue For Withheld
------------------------------------------ --------- --------
Election of W. Aris Newton as
Class II Director: 2,916,661 776,768
--------- -------- --------
For Against Abstain
--------- -------- --------
Ratify selection of Pender Newkirk &
Company as auditors for fiscal 2001 2,957,827 619,750 115,852
W. Aris Newton was elected as the Class II director. The selection of
Pender Newkirk & Company as auditors for fiscal 2001 was ratified.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EXCAL ENTERPRISES, INC.
Registrant
Dated: November 10, 2000 /s/ W. CAREY WEBB
W. Carey Webb
President and Chief Executive Officer
Dated: November 10, 2000 /s/ TIMOTHY R. BARNES
Timothy R. Barnes
Vice President and Chief Financial Officer
