SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 2000
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 fiscal year ended March 31, 2000 was $7,587,773.
The aggregate market value of the voting stock held by non-affiliates
(1,004,037 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 April 30, 2000 of $2.225 was
approximately $2,234,000. Shares of voting stock held by each officer,
director and person who owns 5% or more of the outstanding voting stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive.
As of April 30, 2000, there were 3,876,731 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 2000 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 that, 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 the termination of an 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.
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, 2000, 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 plush animals with
sweaters. The logos include team names of the National Football League,
Major League Baseball, Major League Soccer 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 teddy
bears and other plush animals 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 plush animals is marketed
through direct mailing, catalogs and the Internet. The Birth Bearr and Birth
BlanketT are marketed through hospital and other gift shops and also through
the same distribution channels as the i-love-itT product line.
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 competes 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 each accounted for more than 10% of total 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 $2,716,596 of revenue (36%)
for the fiscal year ended March 31, 2000, resulting in an effective annual
lease rate of $1.95 per square foot, including operating expenses. The
Company is currently in negotiations with Laney & Duke to renew the lease.
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 with an option
to extend for a three-year period. America Online expanded into an
additional 1,200 square feet of space during fiscal 1996. This lease
accounted for $1,021,998 of revenue (13%) for the fiscal year ended March 31,
2000 at an effective annual lease rate of $10.92, including operating
expenses. On November 10, 1999, America Online announced their intention to
construct their own building on the southside of Jacksonville, Florida. The
Company is marketing the space currently leased by America Online. The third
lease is with Aetna (formerly Prudential Insurance Company) for 138,998
square feet of office space, beginning June 16, 1997 and terminating June 15,
2003. This lease accounted for $1,316,659 of revenue (17%) for the fiscal
year ended March 31, 2000, resulting in an effective annual lease rate of
$9.47 per square foot, including operating expenses. These three leases
accounted for substantially all of the Company's real estate revenue and two-
thirds of the Company's total revenue in the fiscal year ended March 31,
2000. The loss of any of these lessees would have a significant impact on
the Company. The Company had one customer in its sports licensing products
segment that accounted for 10% of that division's revenue, but only 3% of
total revenue.
Suppliers
The raw materials for the Company's Sports Licensing products consist
primarily of yarn and plush animals. The Company uses several suppliers for
its yarn. A single supplier manufactures the plush animals 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 fiscal 2000, 75% of the annual
sales were earned in the period July through December and 57% of the annual
sales were earned in the four-month period September through December.
Employees
On May 31, 2000, the Company employed 48 employees. Of that number, 38
were employed in the sports licensing division, 5 were employed in the
corporate offices and 5 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, terminates on November 30, 2000 and contains an option to renew for an
additional six years. The Company believes that its present facility is
adequate for expected operations and is currently negotiating renewal terms.
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 the space currently
leased by America Online and may 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 $6,946,051 for
the building as of March 31, 2000. In addition, various furniture, fixtures
and equipment with a basis of $344,800 as of March 31, 2000 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 calendar 1999 were $508,437, based on a millage rate of $20.6781 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 are 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 quarterly
period within the two most recent years. Prices represent inter-dealer
quotations, without adjustment for retail markup, markdown or commissions,
and may not represent actual transactions.
Quarter Ended High Low
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June 30, 1998 $5.69 $5.38
September 30, 1998 5.50 4.31
December 31, 1998 4.56 2.69
March 31, 1999 3.00 2.88
June 30, 1999 3.06 3.00
September 31, 1999 3.31 3.00
December 31,1999 3.19 1.41
March 31, 2000 2.19 2.19
As of April 30, 2000, there were approximately 316 shareholders of
record. In addition, as of the same date, there were 210 beneficial holders
based on non-objecting beneficial owner reports provided by ADP Proxy
Services.
Since its inception, the Company has not paid any cash dividends or made
other distributions to its shareholders. It is the present and expected
future policy of the Company not to pay cash dividends and to retain future
earnings to support the Company's growth.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-KSB are forward-looking statements
that involve risks and uncertainties. Forward-looking statements in this
report, including without limitation, statements relating to the Company's
plans, strategies, objectives, expectations, intentions and adequacy of
resources, are made pursuant to the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements involve risks and uncertainties including without
limitation the following: (i) the Company's plans, strategies, objectives,
expectations and intentions are subject to change at any time at the
discretion of the Company, (ii) the Company's plans and results of operations
will be affected by economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices; and (iii) other risks and uncertainties as indicated from time to
time in the Company's filings with the Securities and Exchange Commission.
The following discussion should be read in conjunction with the
information contained in the financial statements of the Company and the
notes thereto appearing in Appendix F hereto.
The Company 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. The Company experienced no
significant operational problems with its computer systems or with those of
its major vendors and customers due to the "year 2000 issue".
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.
The following discussion compares the twelve months in the fiscal year ended
March 31, 2000 with the twelve-month period ended March 31, 1999. For
comparative purposes, certain reclassifications have been made to the
financial results for the twelve months ended March 31, 1999. None of the
reclassifications affected the financial position or results of operations.
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, three of which each accounted for more than 10% of revenue
(See "Item 1. Description of Business - Dependence on Major Customers).
Revenue increased by 9% to $5,066,634 for the twelve months ended March
31, 2000 from $4,644,662 for the twelve months ended March 31, 1999 as a
result of an increase in the base rental rate of the property leases and an
increase in contingent rental fees. Rental revenue included base rent of
$3,995,071 and $3,853,050 and contingent rentals of $1,071,563 and $791,612
during the twelve months ending March 31, 2000 and 1999, respectively. The
future minimum base rentals under non-cancelable leases as of March 31, 2000
was $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 decreased by 7% to $2,493,309 for the twelve months
ending March 31, 2000 as compared to the $2,694,396 of operating costs for
the same period of fiscal 1999. The $201,087 decrease in operating expenses
is the result of a decrease in the allocation of corporate operating expenses
offset in part by a $313,000 increase in property tax expense. In September
1999, the Duval County property appraiser notified the Company of its
intention to increase the assessed valuation of the property by over 175%.
The Company filed for a hearing on the valuation. The Company and the Duval
County property appraiser settled the valuation issue on the eve of the
hearing. The result of the settlement is that the calendar year 1999
property tax bill was $508,437 as compared to the $244,068 property tax bill
for calendar year 1998.
Depreciation and amortization was $613,906 for the twelve months ending
March 31, 2000, as compared to $633,375 for the same period in 1999. The net
operating profit of the real estate operation was $1,959,419 and $1,316,892
for the twelve-month periods ended March 31, 2000 and 1999, respectively.
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. The majority of the sales have come in the late summer
and early fall time period. Revenue for the twelve months ended March 31,
2000 was 6% higher than for the twelve months ended March 31, 1999.
The increase in sales occurred beginning in December 1999. The
marketing and sales programs instituted by the Company are beginning to show
in the sales results. Sales for the period December 1999 through March 2000
were $709,816 compared to $430,800 for the same four months of the prior
year. Cost of goods sold was 79.9% of sales for fiscal 2000. The Company
has implemented several programs to reduce the cost of goods sold for its
products. Therefore, the cost of goods sold as a percentage of revenue is
expected to decrease, all other things being equal. However, certain pricing
strategies and changes in the product mix may also affect the cost of goods
sold as a percentage of revenue.
Operating costs are expected to increase in fiscal 2001 as additional
sales, sales support, and operational personnel are brought on board. The
Company recently hired a new sales manager for its 4.0 product line.
Additional customer service and design personnel were also hired. The net
operating loss of the sports licensing division was $1,318,531 for the twelve
months ended March 31, 2000 and $518,185 for the four months of operation
ended March 31, 1999.
Consolidated Operating Results
Revenue increased by 49% to $7,587,773 for the fiscal year ended March
31, 2000 from $5,075,462 for the twelve months ended March 31, 1999 as a
result of the increase in rental revenue under the property leases and the
increase in revenue from the sports licensing segment, which is included for
only four months of the period ended March 31, 1999. Operating costs
increased by 24% for the twelve months ending March 31, 2000 to $4,932,663
from $3,973,737 for the twelve months ended March 31, 1999. The $1,003,058
increase in operating expenses is primarily related to the inclusion of the
operations of the sports licensing segment for the full twelve months and an
increase in property taxes in the real estate operation. Depreciation and
amortization decreased by $44,132 for the twelve months ending March 31,
2000, as compared to the same period ended March 31, 1999.
Interest expense was $1,276,854 and $1,245,776 for the twelve months
ended March 31, 2000 and 1999, respectively. The increase in interest
expense was the result of the inclusion of interest expense of the sports
licensing segment for the full twelve months in fiscal 2000. Professional
fees related to litigation were $257,684 for the twelve months ending March
31, 2000 compared to $625,938 for the same period in fiscal 1999. The
significant decrease in professional fees was the result of the settlements
with Harvey Moore and Channel Partnership in fiscal 1999. See Notes 11 and
17 of the accompanying financial statements for a complete discussion of all
outstanding and resolved material litigation. Interest income decreased from
$668,294 in the twelve months ended March 31, 1999 to $562,952 in the twelve
months ended March 31, 2000. The decrease resulted from lower cash balances
created primarily by the purchase of treasury stock and increased marketing
and operational expenses of the sports licensing segment. An income tax
provision of $440,000 was recorded in fiscal 2000 despite having a
consolidated loss before income taxes. This occurred because Roxbury files
separate income tax returns and $554,000 of the benefit from its losses were
not recognized in the current year. The benefit from these losses will be
recorded when Roxbury generates pre-tax income.
Liquidity and Capital Resources
The cash provided by operating activities was $275,528 for the twelve
months ending March 31, 2000 compared to cash used of $93,684 for the twelve
months ended March 31, 1999. For the twelve months ending March 31, 2000 the
Company's operations generated $462,118 in working capital compared to
$403,625 in working capital generated for the twelve months ended March 31,
1999.
Cash of $59,533 was used by investing activities in fiscal 2000 as
compared to cash used by investing activities of $412,538 for the twelve
months ended March 31, 1999. Property and equipment additions accounted for
all of the cash used by investing activities for the twelve months ending
March 31, 2000 and consisted of machinery and equipment purchases that were
equally split between Imeson Center and Roxbury Industries Corp. Property
and equipment additions of $332,698 for the twelve months ending March 31,
1999 included $234,141 in renovations to the Imeson Center building. Of this
amount, $100,000 was paid from the restricted cash reserves. These
renovations included 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. The proceeds from the sale of assets of $62,940 for the
twelve months ended March 31, 1999 are primarily from the final liquidation
of the machinery and equipment previously used by the automotive operations.
Cash of $2,387,341 was used by financing activities for the twelve
months ending March 31, 2000 as compared to $2,460,484 for the twelve months
ended March 31, 1999. During fiscal 2000, the Company acquired 207,674
shares of its common stock in the open market and 374,804 shares of its
common stock in the settlement of lawsuits for an aggregate cost of
$1,823,894. In addition, a director of the Company exercised options to
purchase 183,355 shares of common stock for an aggregate exercise price of
$538,605. The 183,355 shares were issued from treasury stock with a cost
basis of $603,238. The exercise price and withholding taxes were paid with a
recourse note to the Company in the aggregate amount of $800,000. 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 $95,000
and $120,500 were made in the twelve months ended March 31, 2000 and March
31, 1999, respectively. During the twelve months ended March 31, 1999, the
Company purchased 174,258 shares of its common stock through open market
purchases and received 422,373 shares of its common stock from officers and
directors as payment for the exercise price and withholding taxes due upon
the exercise of stock options at an aggregate cost of $1,734,851. 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. Roxbury had
cash balances of $57,220 at the time of the acquisition.
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 seeking additional
tenants for Imeson Center for the remaining 41,000 square feet of office
space and to replace America Online when their lease expires in June 2002.
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, 2000 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 2000 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 2000 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 2000 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" and "Indebtedness of Management" of the registrant's definitive
Proxy Statement for its 2000 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 6
3.2 Series A Participating Preferred
Stock Certificate of Designations 5
3.3 Series B Participating Preferred
Stock Certificate of Designations 8
3.4 Composite By-laws, as amended 11
4.1 Rights Agreement by and between the Company and
Registrar and Transfer Company dated April 18, 1994 1
4.2 Amendment to Rights Agreement dated April 18, 1994 11
4.3 Mortgage Promissory Note 8
4.4 Mortgage Security Agreement and Fixture Filing 8
10.1 Stock Option Agreement with Timothy R. Barnes dated 5/22/91 *
10.2 Stock Option Agreement with Timothy R. Barnes dated 9/28/98 11
10.3 Stock Option Agreement with Timothy R. Barnes
dated 11/12/99 *
10.4 Stock Option Agreement with John L. Caskey dated 2/18/98 9
10.5 Stock Option Agreement with John L. Caskey dated 2/18/98 9
10.6 Stock Option Agreement with John L. Caskey dated 9/28/98 11
10.7 Stock Option Agreement with John L. Caskey dated 9/28/98 11
10.8 Stock Option Agreement with John L. Caskey dated 11/12/99 *
10.9 Stock Option Agreement with W. Aris Newton dated 5/22/91 *
10.10 Stock Option Agreement with W. Aris Newton dated 2/18/98 9
10.11 Stock Option Agreement with W. Aris Newton dated 2/18/98 9
10.12 Stock Option Agreement with W. Aris Newton dated 9/28/98 11
10.13 Stock Option Agreement with W. Aris Newton dated 9/28/98 11
10.14 Stock Option Agreement with W. Aris Newton dated 11/12/99 *
10.15 Stock Option Agreement with R. Park &
Francine H. Newton dated 5/1/98 11
10.16 Stock Option Agreement with R. Park &
Francine H. Newton dated 5/1/98 11
10.17 Stock Option Agreement with R. Park &
Francine H. Newton dated 9/28/98 11
10.18 Stock Option Agreement with R. Park &
Francine H. Newton dated 1/26/99 11
10.19 Stock Option Agreement with R. Park &
Francine H. Newton dated 1/26/99 11
10.20 Stock Option Agreement with R. Park &
Francine Newton dated 11/12/99 *
10.21 Stock Option Agreement with W. Carey Webb dated 5/22/91 *
10.22 Stock Option Agreement with W. Carey Webb dated 2/18/98 9
10.23 Stock Option Agreement with W. Carey Webb dated 9/28/98 11
10.24 Stock Option Agreement with W. Carey Webb dated 11/12/99 *
10.25 Form of Indemnity Agreement with Officers and Directors 2
10.26 Webb Employment Agreement 2
10.27 Amendment to Webb Employment Agreement 5
10.28 Second amendment to Webb employment agreement 11
10.29 Newton Employment Agreement 2
10.30 Amendment to Newton Employment Agreement 5
10.31 Third amendment to Newton employment agreement 11
10.32 Barnes Employment Agreement 5
10.33 Warehouse Lease Agreements with Laney & Duke
Terminal Warehouse Company, Inc. 3
10.34 Renewal and Modification of Laney & Duke Leases 4
10.35 Amendment to Laney & Duke Leases dated 1/1/97 7
10.36 Amendment to Laney & Duke Leases dated 3/1/97 7
10.37 Office Lease with America Online, Inc. 3
10.38 Office Lease with Prudential Insurance Company of America 7
10.39 Letter from Prudential Insurance Company of America
exercising extension rights 10
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 Current Report on Form 8-K
dated April 18, 1994.
2 Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended June 30, 1994.
3 Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended June 30, 1995.
4 Incorporated by reference to the Company's Current Report on Form 8-K
dated December 22, 1996.
5 Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended June 30 1996.
6 Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the quarter ended December 31, 1996.
7 Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended June 30,1997.
8 Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the quarter ended December 31, 1997.
9 Incorporated by reference to the Company's registration statement on
Form S-8 filed on April 29, 1998.
10 Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended June 30,1998.
11 Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the quarter ended December 31, 1998.
Items 10.1 through 10.32 constitute management compensation agreements.
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 27th day of
June 2000.
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 27, 2000 /S/ R. PARK NEWTON, III
--------------------------------------
R. Park Newton, III
Chairman of the Board and Board Member
Dated: June 27, 2000 /S/ W. CAREY WEBB
-------------------------------------
W. Carey Webb
President and Chief Executive Officer
Dated: June 27, 2000 /S/ TIMOTHY R. BARNES
----------------------------------------
Timothy R. Barnes
Vice-President, Chief Financial Officer,
and Principal Accounting Officer
Dated: June 27, 2000 /S/ W. ARIS NEWTON
-------------------------------
W. Aris Newton
Vice-President and Board Member
Dated: June 27, 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, 2000 and the related
consolidated statements of operations, stockholders' equity and cash flows
for the year ended March 31, 2000 and the nine months ended March 31, 1999.
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, 2000, and the
consolidated results of its operations and cash flows for the year ended
March 31, 2000 and the nine months ended March 31, 1999, in conformity with
generally accepted accounting principles.
PENDER NEWKIRK & COMPANY
Certified Public Accountants
Tampa, Florida
May 11, 2000
EXCAL ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
ASSETS
Current assets:
Cash and cash equivalents $ 7,484,627
Marketable securities 182,276
Accounts receivable (less allowance
for doubtful accounts of $114,770) 465,821
Income tax receivable 181,000
Notes receivable 306,736
Inventory 492,070
Prepaid expenses and deposits 421,938
Deferred tax asset 347,000
----------
Total current assets 9,881,468
----------
Property, plant and equipment:
Land 1,600,000
Building 6,946,051
Furniture, fixtures, vehicles and equipment 2,121,519
----------
10,667,570
Less accumulated depreciation and amortization 2,178,283
----------
Net property, plant and equipment 8,489,287
----------
Notes receivable - related parties 261,395
Restricted cash reserves 612,961
Loan costs, less accumulated amortization of $416,492 416,492
Commission costs, less accumulated amortization of $298,707 357,758
----------
Total Assets $20,019,361
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 728,944
Accrued liabilities 409,281
Reserve for litigation 434,246
Revolving line of credit 373,087
Current portion of long-term debt 517,398
----------
Total current liabilities 2,462,956
Long-term liabilities:
Long-term debt 13,059,246
Deferred tax liability 1,295,000
----------
Total liabilities 16,817,202
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, 3,891,677 shares outstanding 4,738
Additional paid-in capital 3,985,842
Retained earnings 3,034,256
Less 847,189 shares of common stock held in treasury at cost ( 2,706,088)
----------
4,318,748
Less notes receivable from stockholders ( 1,117,630)
----------
Total stockholders' equity 3,201,118
----------
Total Liabilities and Stockholders' Equity $20,019,361
==========
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
Year Ended Ended
March 31, 2000 March 31, 1999
-------------- -------------
Rental revenue $5,066,634 $3,495,786
Sports licensing sales 2,521,139 430,800
--------- ---------
Total net revenue 7,587,773 3,926,586
Cost of sports licensing sales 2,014,222 303,019
--------- ---------
Gross margin 5,573,551 3,623,567
--------- ---------
Rental operating costs 2,493,309 1,919,888
Sports licensing operating costs 1,796,585 592,440
Depreciation and amortization 642,769 526,001
--------- ---------
Total operating costs 4,932,663 3,038,329
Net operating profit 640,888 585,238
--------- ---------
Other expense (income)
Interest expense 1,276,854 943,888
Professional fees related to litigation 257,684 524,092
Litigation settlement 2,000 217,273
Unrealized loss on marketable securities 63,249 --
Gain on sale of assets -- 170
Interest income ( 562,952) ( 492,989)
Other income ( 82,761) ( 72,180)
--------- ---------
Net other expense 954,074 1,120,254
--------- ---------
Income (loss) before income taxes ( 313,186) ( 535,016)
Income tax provision (benefit) 440,000 ( 197,000)
--------- ---------
Net income (loss) $( 753,186) $( 338,016)
========= =========
Earnings (loss) per share - basic $( .18) $( .08)
========= =========
Earnings (loss) per share - diluted $( .18) $( .08)
========= =========
Weighted average shares outstanding
Common 4,105,205 4,198,346
Common and equivalent 4,105,205 4,198,346
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
Year Ended Ended
March 31, 2000 March 31, 1999
-------------- -------------
Cash flows from operating activities:
Net income (loss) $( 753,186) $( 338,016)
Adjustments to reconcile net income
(loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 757,801 526,001
Provision for uncollectable
accounts receivable ( 45,746) 64,319
Unrealized loss on marketable securities 63,249 --
Loss on disposals of assets -- 170
Provision for deferred income taxes 440,000 154,000
Decrease (increase) in operating assets:
Accounts and notes receivable ( 130,093) 412,278
Marketable securities ( 245,525) --
Income tax receivable -- ( 322,309)
Inventory 87,172 ( 221,026)
Prepaid expenses and deposits ( 76,019) ( 2,942)
Other assets ( 53,969) ( 99,002)
Increase (decrease) in
operating liabilities:
Accounts payable and accrued liabilities 229,844 ( 553,110)
Deferred revenue -- ( 190,307)
Income taxes payable -- ( 25,000)
Reserve for litigation 2,000 82,246
--------- ----------
Net cash provided (used)
by operating activities 275,528 ( 512,698)
--------- ----------
Cash flows from investing activities:
Cash acquired - Roxbury acquisition -- 57,220
Construction escrow -- 100,000
Property and equipment additions ( 59,533) ( 178,765)
Loans to unrelated privately held company -- ( 300,000)
--------- ----------
Net cash provided (used)
by investing activities ( 59,533) ( 321,545)
--------- ----------
Cash flows from financing activities:
Loan - related parties ( 261,395) --
Repayment of notes payable -- ( 430,000)
Principal repayments of long-term debt ( 207,052) ( 137,068)
Repurchase warrants ( 95,000) ( 120,500)
Purchase treasury stock (1,823,894) ( 1,732,617)
--------- ----------
Net cash provided (used)
by financing activities (2,387,341) ( 2,420,185)
--------- ----------
Increase (decrease) in cash (2,171,346) ( 3,254,428)
Cash and cash equivalents, beginning of year 9,655,973 12,910,401
--------- ----------
Cash and cash equivalents, end of year $7,484,627 $ 9,655,973
========= ==========
Supplemental disclosure of cash flow information
Interest paid $1,279,166 $ 976,755
Income taxes received $ -- $ 3,300
See Note 9 "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, 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
Net loss -- -- -- (753,186) -- --
Exercise of stock options -- -- (64,633) -- (183,355) (603,238)
Tax benefit from exercise
of stock options -- -- 14,000 -- -- --
Purchase GEM Value shares -- -- -- -- 178,200 584,719
Purchase Waveland
Int'l shares -- -- -- -- 196,604 645,107
Open market purchases -- -- -- -- 207,674 594,068
--------- ----- --------- --------- ------- ---------
Balance March 31, 2000 4,738,866 $ 4,738 $ 3,985,842 $ 3,034,256 847,189 $ 2,706,088
========= ===== ========= ========= ======= =========
</TABLE>
EXCAL ENTERPRISES, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS
Excal Enterprises, Inc. and subsidiaries (the "Company"), headquartered
in Tampa, Florida, are 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 sports licensing operations are
conducted by and through Roxbury Industries Corp., a wholly owned subsidiary
operating out of Rockaway Park, New York. Roxbury Industries Corp. was
acquired in December 1998 by Excal Sports Group, Inc., a wholly owned
subsidiary of Excal Enterprises, Inc. 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., Excal
Development Corp., and Roxbury Industries Corp.
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.
Marketable Securities. The Company accounts for marketable securities
in accordance with Financial Accounting Standards Board (FASB) Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification on its investments in
marketable securities at the time of purchase and reevaluates such
determination at each balance sheet date. Management has classified its
marketable securities as "trading securities." Trading securities are bought
and held principally for the purpose of selling them in the near term.
Unrealized holding gains and losses are deemed temporary and are included in
earnings. The cost of the marketable securities is based on the specific
identification method. Interest and dividends on equity securities are
included in investment income. The Company had marketable securities with a
fair market value of $182,276 as of March 31, 2000.
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 the products are shipped.
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 in 1999. The Statements of Income and Cash Flows present
information for the twelve months ended March 31, 2000 and the nine months
ended March 31, 1999.
Reclassifications. Certain reclassifications have been made to the
financial statements in 1999 in order to conform to the 2000 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 as if the acquisition took place on July 1, 1998 is as
follows:
Nine Months Ended
March 31, 1999
--------------
(unaudited)
Net revenue $ 5,582,192
Net income (loss) $( 382,299)
Earnings (loss) per share - basic $( .09)
Earnings (loss) per share - diluted $( .09)
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, 1998, 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,
marketable securities, 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 total revenue for the years ended March 31,
2000 and 1999 as follows:
Year Ended Nine Months Ended
March 31, 2000 March 31, 1999
---------------------- ----------------------
Lessee Amount % to Total Amount % to Total
-------------- ---------- ---------- ---------- ----------
Laney & Duke $2,716,596 36% $1,839,671 47%
Aetna 1,316,659 17% 954,916 24%
America Online 1,021,998 13% 701,199 18%
The Laney & Duke lease expires on December 31, 2000. The Company is
currently in negotiations with Laney & Duke to renew the lease. The America
Online lease expires on June 15, 2002 with an option to extend for a three-
year period. However, on November 10, 1999, America Online announced their
intention to construct their own building on the south side of Jacksonville,
Florida. The Company is marketing the space currently leased by America
Online. The Aetna (formerly 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 10).
NOTE 5 - NOTES RECEIVABLE
During fiscal 1999, the Company loaned $300,000 to an unrelated
privately held company. The notes are unsecured but are guaranteed by the
principals of the privately held company. As of March 31, 2000, the balance
owed included $278,460 in principal and $28,276 in accrued interest.
Principal and accrued interest was due on July 20, 1999. Negotiations to
restructure the note receivable were unsuccessful. In October 1999 the
Company commenced legal proceedings for collection of the notes. The Company
believes the notes are fully collectible.
NOTE 6 - INVENTORY
At March 31, 2000, the inventory consisted of the following:
Raw materials $ 350,247
Work in process 43,999
Finished goods 97,824
-------
$ 492,070
=======
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
The Company was 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 Company renewed its $725,000 line
of credit with European American Bank in July 1999. The loan was renewed
with $375,000 as a revolving line of credit and $350,000 as a term loan. The
notes are secured by the assets of Roxbury Industries, Corp. and are
personally guaranteed by certain officers of Roxbury Industries, Corp. The
term loan bears interest at the rate of 9.42% and was payable interest only
through December 1999. Monthly principal payments of $6,500 plus interest
began January 2000 and will continue through June 2004. The outstanding
balance of the term loan was $330,500 at March 31, 2000. The revolving line
of credit bears interest at 1.5% over the bank's prime rate (10.5% at March
31, 2000), matures on June 30, 2000 and must be paid off for 30 days during
the term. The outstanding balance of the line of credit was $373,087 at
March 31, 2000. Roxbury was in violation of the financial loan covenants
regarding the level of equity and debt-to-equity ratio at March 31, 2000.
Therefore, the entire balance of the term loan is included in current portion
of long-term debt at March 31, 2000.
The Company has a mortgage secured by the Imeson Center property located
in Jacksonville, Florida. The mortgage bears interest at 9% per annum with a
monthly payment of $113,292 based on a twenty-five year amortization. The
mortgage had an outstanding balance of $13,096,574 as of March 31, 2000 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 $7,351,525
as of March 31, 2000. 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 2000 and fiscal 1999, $210,556 and
$222,153 was disbursed from the reserve to pay leasing commissions on the
renewal of certain leases and for renovations to the food service area. The
Company is required to deposit $3,125 per month into the reserve until the
disbursements are repaid.
Roxbury has a renovation loan with an outstanding balance of $149,570 as
of March 31, 2000. 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, 2000 are as follows:
2001 - $517,398; 2002 - $222,071; 2003 - $12,738,850; 2004 - $20,596; 2005 -
$22,360 thereafter - $55,369.
NOTE 8 - COMMITMENTS
The Company leases its corporate headquarters under an operating lease
that runs through November 2000. The Company has an option to renew the
lease for an additional six 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 $208,183 and
$105,227 for the year ended March 31, 2000 and the nine months ended March
31, 1999, respectively. Future minimum lease payments under the non-
cancelable operating leases as of March 31, 2000 are as follows: 2001 -
$147,250; 2002 - $94,862; 2003 - $87,978; 2004 - $86,400; 2005 - $86,400;
thereafter - $237,600.
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 2001,
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 an employment agreement with the President of
Roxbury. The agreement obligates the Company to pay her $75,000 per year
through December 1, 2002, unless her 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, 2000 aggregated to $118,250.
NOTE 9 - 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 hundred 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 fiscal year ended March 31, 2000, the Company purchased
207,674 shares of its common stock through open market purchases at an
aggregate cost of $594,068. The Company also purchased 374,804 shares of its
common stock with a value of $1,229,826, as part of a settlement with Gem
Value Fund LP and Waveland Partners, co-defendants in the suit against the
Eisenberg Group. In addition, a director of the Company exercised options to
purchase 183,355 shares of common stock for an aggregate exercise price of
$538,605. The 183,355 shares were issued from treasury stock with a cost
basis of $603,238. The exercise price and withholding taxes due upon
exercise were paid with a recourse note to the Company in the aggregate
amount of $800,000. The Company recorded a tax benefit of $14,000 as a result
of the exercise of options.
During the nine months ended March 31, 1999, the Company purchased
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. 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.
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:
2000 1999
--------- -------
Net income (loss) As reported $( 753,186) $( 338,016)
Pro forma $( 829,298) $( 606,934)
Earnings per share - basic As reported $( .18) $( .08)
Pro forma $( .20) $( .14)
Earnings per share - diluted As reported $( .18) $( .08)
Pro forma $( .20) $( .14)
For purposes of the proforma presentation above, the fair value of each
grant is estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted average assumptions: expected
volatility of 30 percent and expected lives of 3 years for both years and
risk free interest rates of 5.9% and 4.5% in 2000 and 1999, 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 price(1)
------ -------- --------- --------
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
Granted in fiscal 2000 -- -- 317,500 $1.42
Forfeited in fiscal 2000 (5,000) $5.74 ( 195,000) $6.71
Exercised in fiscal 2000 -- -- ( 183,355) $2.94
------ ---------
Outstanding at March 31, 2000 -- -- 834,168 $2.78
====== =========
(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, 2000, stratified by exercise price:
Options Outstanding Options Exercisable
--------------------------------- ----------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of at March Contractual Exercise at March Exercise
Exercise Prices 31, 2000 Life Price 31, 2000 Price
--------------- ---------- ----------- --------- ---------- --------
$1.41 312,500 9.6 years $1.41 312,500 $1.41
$2.00 to $2.34 247,650 3.9 years $2.17 247,650 $2.17
$4.88 to $4.95 274,018 4.2 years $4.88 274,018 $4.88
NOTE 10 - 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 $8,546,051 and accumulated depreciation of
$1,194,526 as of March 31, 2000. Minimum future rentals under non-cancelable
leases are as follows: 2001 - $3,542,807; 2002 - $2,041,591; 2003 -
$1,372,606; and, 2004 - $265,409. During year ended March 31, 2000 and the
nine months ended 1999, rental revenue included $1,071,563 and $590,531 of
contingent rentals, respectively.
NOTE 11 - 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 Company and Harvey Moore agreed to an additional
$2,000 award for certain costs that the Court had not ruled upon. Harvey
Moore has appealed the Court's decision regarding fees and costs. In fiscal
1999, the Company paid $134,500 in fees and costs as part of the settlement
of litigation with Channel Partnership.
NOTE 12 - INCOME TAXES
The components of the provision (benefit) for income taxes for the year
ended March 31, 2000 and the nine months ended March 31, 1999 are as follows:
2000 1999
------- -------
Current tax expense (benefit) $ -- $(351,000)
Deferred tax expense 440,000 154,000
------- -------
$ 440,000 $(197,000)
======= =======
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:
2000 1999
------- -------
Tax benefit at statutory rate $(106,000) $(182,000)
Increase (decrease) in taxes
Resulting from tax effects of:
State income taxes, net of federal tax benefit 68,000 ( 34,000)
Non-deductible expenses 20,000 18,000
Increase in valuation allowance 458,000 1,000
------- -------
$440,000 $(197,000)
======= =======
As of March 31, 2000, the Company had approximately $2,799,000 and
$4,278,000 in net operating loss carryforwards for federal and state tax
purposes, respectively. The net operating loss carryforwards expire in the
years 2010 through 2020. The valuation allowance for both federal and state
income taxes combined increased by $554,000 in 2000 and increased by $2,000
in 1999.
The sources of significant temporary differences which gave rise to
deferred tax assets and liabilities as of March 31, 2000 are as follows:
Deferred tax assets:
Marketable securities $ 25,000
Allowance for doubtful accounts 47,000
Accrued salaries, bonuses and expenses 275,000
Tax basis of intangible assets in excess of book 1,000
Net operating loss carryforward 1,212,000
---------
1,560,000
Less valuation allowance for loss carryforward 571,000
---------
989,000
---------
Deferred tax liabilities:
Book basis of investment in subsidiaries in excess of tax 1,937,000
---------
1,937,000
---------
Net deferred tax liabilities $ 948,000
=========
The components giving rise to the net deferred tax liabilities described
above have been included in the accompanying balance sheet as follows:
Current assets $ 347,000
Non-current liabilities 1,295,000
---------
$ 948,000
=========
NOTE 13 - 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 $13,507 and $13,117 to the Plan for the year
ended March 31, 2000 and the nine months ended March 31, 1999, respectively.
NOTE 14 - 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
Year Ended Ended
March 31, 2000 March 31, 1999
Segment income (loss) before income taxes
Real estate operations $ 1,097,888 $ 370,143
Sports licensing operations ( 1,406,526) ( 547,982)
Other ( 4,548) ( 357,177)
--------- -------
Total income (loss) before income taxes $( 313,186) $( 535,016)
========= =======
As of As of
March 31, 2000 March 31, 1999
-------------- --------------
Identifiable assets
Real estate operations $ 14,095,416 $ 13,119,408
Sports licensing operations 1,876,637 2,656,251
Other 4,047,308 6,785,990
---------- ----------
Total identifiable assets $ 20,019,361 $ 22,561,649
========== ==========
NOTE 15 - 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 accrued $350,000
for judgments and fines as of March 31, 2000.
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 loaned $1,379,025 to its officers and directors to exercise
options to purchase stock in the Company and pay withholding taxes thereon.
The amount of the loans representing the exercise price ($1,117,630) is shown
as a reduction to stockholder's equity. The remaining balance of the loans
($261,395) is shown as notes receivable from related parties. The note with
one director in the amount of $800,000 requires annual interest payments at a
rate of 6.56% per annum with the principal due on July 31, 2004 and is
collateralized by shares of the Company's stock. The remaining notes with
the other officers and directors totaling $579,025 require annual interest
payments at a rate of 5.57% with the principal due on September 28, 2003. As
of March 31, 2000, the accrued interest receivable on the notes was $83,106.
The above amounts are not necessarily indicative of the amount that
would have been incurred had comparable transactions been entered into with
independent parties.
NOTE 16 - COMPARATIVE FINANCIAL INFORMATION
The Company elected to change the date of its fiscal year-end to March
31 in 1999. The results of operations for the year ended March 31, 2000 and
the unaudited period for the twelve months ended March 31, 1999 are presented
herein.
March 31, 2000 March 31, 1999
-------------- --------------
(unaudited)
Net revenue $ 7,587,773 $ 5,075,462
Net operating profit 640,888 798,706
Income (loss) before income taxes ( 313,186) ( 515,685)
Income tax provision (benefit) 440,000 ( 186,000)
Net income (loss) ( 753,186) ( 329,684)
Earnings (loss) per share - basic and diluted $( .18) $( .08)
========= =========
NOTE 17 - LEGAL PROCEEDINGS
Eisenberg Group
On August 11, 1999, the Company filed suit in the United States District
Court for the Middle District of Florida, Tampa Division, Case No. 99-1776-
CIV-T-25F, against EP Opportunity Fund LLC, Eisenberg Partners LLC, Jeffrey
Eisenberg, Waveland Partners, David Richter, Michael Blechman, and John Doe
Defendant later determined to be Gem Value Fund LP ("the Eisenberg Group").
In the suit, the Company alleges that the Eisenberg Group violated the
Company's Shareholders Rights Plan and failed to file an accurate Schedule 13-
D stating that they were operating as a group under the Securities and
Exchange Act of 1934. The relief sought by the Company includes requiring
the members of the Eisenberg Group to file a Schedule 13-D that accurately
reflects that they are operating as a group and a declaratory judgment that
the Eisenberg Group has triggered the terms of the Shareholders' Rights
Agreement. In September 1999, a settlement was reached with Waveland
Partners, David Richter, and Gem Value Fund LP and these parties were
dismissed from the suit. As a part of the settlement, the Company purchased
the 374,804 shares of its stock owned by these parties for an aggregate cost
of $1,229,826. The suit is still pending against EP Opportunity Fund LLC,
Eisenberg Partners LLC, Jeffrey Eisenberg, and Michael Blechman. The
remaining defendants have filed motions for dismissal and change of venue.
ASX Investment Corporation
On February 27, 1996, ASX Investment Corporation and Mr. Steve Rosner
(ASX) filed a Complaint in the United States District Court for the Middle
District of Florida, Civil Action No. 96-348-CIV-T-21E alleging that the
Company's 1994 and 1995 Proxy Statements contained numerous
misrepresentations, breach of fiduciary duty, fraud, mismanagement and waste
of corporate assets. On March 18, 1996, the Company filed a motion to
dismiss the Complaint with prejudice on the grounds that ASX had voluntarily
dismissed two previous Complaints containing the same allegations.
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. On August 11, 1999, the United
States Court of Appeals for the Eleventh Circuit reversed the District
Court's granting of the Company's motion for dismissal with prejudice under
the two dismissal rule. The Company has filed for dismissal on other
grounds.
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 Excal Enterprises,
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 other former officers of the
Company whom have since settled with the Commission. 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 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 was held on
July 16, 1999. The Court still has not issued any rulings on the motions for
summary judgment. The trial has not been scheduled and is not expected to
begin until several months after the motions for summary judgment have been
ruled upon.
