10QSB 1 0001.txt U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _______________ to ______________ Commission File No. 0-17069 Excal Enterprises, Inc. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 59-2855398 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 100 North Tampa Street, Suite 3575, Tampa, Florida 33602 -------------------------------------------------------- (Address of principal executive offices) (813) 224-0228 ------------------------- Issuer's telephone number ---------------------------------------------------- (Former Name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of October 31, 2000, there were 3,871,377 shares of the issuer's common stock, par value $0.001, outstanding. Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No PART I - FINANCIAL INFORMATION Item 1. Financial Statements. EXCAL ENTERPRISES, INC. CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 2000 ASSETS (unaudited) Current Assets Cash and cash equivalents $ 5,716,968 Marketable securities 73,438 Accounts receivable, less allowance of $149,854 1,114,961 Notes receivable 306,736 Income tax receivable 181,000 Inventory 809,295 Prepaid expenses and deposits 808,087 Deferred tax asset 332,000 ---------- Total current assets 9,342,485 ---------- Property, plant and equipment Land 1,600,000 Buildings and improvements 7,309,085 Furniture, fixtures, vehicles and equipment 2,174,105 ---------- 11,083,190 Less accumulated depreciation and amortization 2,382,185 ---------- Net property, plant and equipment 8,701,005 ---------- Note receivable - related parties 282,572 Restricted cash reserves 635,449 Commission costs, less accumulated amortization of $374,957 281,508 Loan costs, less accumulated amortization of $499,790 333,194 ---------- Total Assets $ 19,576,213 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 693,344 Accrued liabilities 555,010 Reserve for litigation 434,246 Revolving line of credit 373,087 Current portion of long-term debt 274,436 ---------- Total current liabilities 2,330,123 Long-term debt 13,183,882 Deferred tax liability 1,333,000 ---------- Total liabilities 16,847,005 ---------- Minority interest equity 1,041 Stockholders' equity Preferred stock, $.01 par value, 7,500,000 shares authorized, 5,000,000 shares issued, no shares outstanding -- Common stock, $.001 par value, 20,000,000 shares authorized, 4,738,866 shares issued, 3,871,377 shares outstanding 4,738 Additional paid-in capital 3,985,842 Retained earnings 2,606,727 Less 867,489 shares of common stock held in treasury at cost ( 2,751,510) ---------- 3,845,797 Less notes receivable from stockholders ( 1,117,630) ---------- Total stockholders' equity 2,728,167 ---------- Total Liabilities and Stockholders' Equity $ 19,576,213 ========== The accompanying notes are an integral part of the consolidated financial statements. EXCAL ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended Six months ended September 30 September 30 ------------------------ ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Rental revenue $ 1,263,324 $ 1,364,486 $ 2,554,962 $ 2,563,319 Sports licensing sales 923,531 794,315 1,333,272 1,098,417 --------- --------- --------- --------- Total net revenue 2,186,855 2,158,801 3,888,234 3,661,736 Cost of sports licensing sales 688,151 535,033 1,077,369 860,876 --------- --------- --------- --------- Gross margin 1,498,704 1,623,768 2,810,865 2,800,860 --------- --------- --------- --------- Rental operating costs 531,757 702,092 1,128,872 1,248,084 Sports licensing operating costs 559,776 425,362 1,010,157 754,173 Depreciation and amortization 155,712 166,646 309,825 326,786 --------- --------- --------- --------- Total operating costs 1,247,245 1,294,100 2,448,854 2,329,043 --------- --------- --------- --------- Net operating profit 251,459 329,668 362,011 471,817 --------- --------- --------- --------- Other expense (income) Interest expense 314,725 319,705 634,245 642,507 Professional fees related to litigation 23,165 70,672 82,537 119,171 Net realized and unrealized loss on marketable securities 133,416 -- 321,873 -- Gain on disposals of assets -- -- ( 1,741) -- Interest income ( 133,751) ( 141,250) ( 275,214) ( 282,923) Miscellaneous income ( 13,586) ( 11,658) ( 25,160) ( 32,543) --------- --------- --------- --------- Net other expense 323,969 237,469 736,540 446,212 --------- --------- --------- --------- Income (loss) before income taxes ( 72,510) 92,199 ( 374,529) 25,605 Income tax provision 38,000 181,000 53,000 155,000 --------- --------- --------- --------- Net loss $( 110,510) $( 88,801) $( 427,529) $( 129,395) ========= ========= ========= ========= Loss per share Basic $( .03) $( .02) $( .11) $( .03) ========= ========= ========= ========= Diluted $( .03) $( .02) $( .11) $( .03) ========= ========= ========= ========= Weighted average shares outstanding Common 3,871,377 4,301,639 3,874,054 4,281,994 Common and equivalent 3,871,377 4,301,639 3,874,054 4,281,994 The accompanying notes are an integral part of the consolidated financial statements.
EXCAL ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six months ended September 30 ------------------------- 2000 1999 --------- --------- Cash provided by operating activities Net loss $( 427,529) $(129,395) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 368,171 392,644 Other adjustments 86,343 102,379 Decrease (increase) in net operating assets (1,212,296) (294,997) --------- --------- Net cash provided (used) by operating activities (1,185,311) 70,631 --------- --------- Cash flows from investing activities Proceeds from sale of assets 5,000 -- Property and equipment additions ( 423,600) ( 25,568) --------- --------- Net cash used by investing activities ( 418,600) ( 25,568) --------- --------- Cash flows from financing activities Loan to related party -- ( 261,394) Principal repayments of long-term debt ( 118,326) ( 85,829) Purchase of treasury stock ( 45,422) (1,661,242) --------- --------- Net cash used by financing activities ( 163,748) (2,008,465) --------- --------- Decrease in cash (1,767,659) (1,963,402) Cash and cash equivalents at beginning of period 7,484,627 9,655,973 --------- --------- Cash and cash equivalents at end of period $ 5,716,968 $ 7,692,571 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. EXCAL ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - FINANCIAL STATEMENTS In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three-month and six-month periods ended September 30, 2000 and 1999, (b) the financial position at September 30, 2000, and (c) cash flows for the six-month periods ended September 30, 2000 and 1999, have been made. Certain reclassifications have been made to the financial statements for the three-month and six-month periods ended September 30, 1999 to conform to the September 30, 2000 presentation. None of the reclassifications affected the financial position or results of operations. The unaudited consolidated financial statements and notes are presented as permitted by Form 10-QSB. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The accompanying consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes of the Company for the fiscal year ended March 31, 2000. The revenue of the sports licensing division has been very seasonal with the majority of its revenue in the months of July through November. The results of operations for the three- month and six-month periods ended September 30, 2000 are not necessarily indicative of those to be expected for the entire year. NOTE 2 - INVENTORY The gross profit method was used to estimate inventories at September 30, 2000. NOTE 3 - NOTES PAYABLE The Company's $375,000 line of credit with European American Bank expired in July 2000. The line of credit was subsequently extended through December 29, 2000. Roxbury was in violation of the financial loan covenants regarding the level of equity and debt-to-equity ratio at September 30, 2000. The Bank has waived the loan covenant violations as of September 30, 2000. The Company is currently negotiating with EAB to develop a long-term extension of the line of credit. NOTE 4 - STOCKHOLDERS' EQUITY During the six months ended September 30, 2000, the Company purchased 20,300 shares of its common stock at an aggregate cost of $45,422. NOTE 5 - SEGMENT INFORMATION The Company has two reportable business segments. These segments have been determined by product line and consist of the rental of commercial real estate and the manufacture and distribution of sports licensing products. The revenue shown on the face of the financial statements was from external sources. The segment information disclosures not included on the face of the financial statements are detailed in the tables below. The "Other" category includes corporate related items and income and expense items not allocated to reportable segments. Three months ended Six months ended September 30 September 30 -------------------- -------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Segment income (loss) before income taxes Real estate operations $ 394,262 $ 275,095 $ 746,540 $ 542,715 Sports licensing Operations (384,992) (196,285) (860,589) (577,107) Other ( 81,780) 13,389 (260,480) 59,997 ------- ------- ------- ------- Total income (loss) before income taxes $( 72,510) $ 92,199 $(374,529) $ 25,605 ======= ======= ======= ======= As of September 30 -------------------------- 2000 1999 ---------- ---------- Identifiable assets Real estate operations $ 14,691,071 $ 13,746,456 Sports licensing operations 2,514,769 2,307,175 Other 2,370,373 4,965,110 ---------- ---------- Total identifiable assets $ 19,576,213 $ 21,018,741 ========== ========== Item 2. Management's Discussion and Analysis. Except for historical matters, the matters discussed in this Form 10-QSB are forward-looking statements based on current expectations. Forward- looking statements, including without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) the Company's plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company, (ii) the Company's plans and results of operations will be affected by economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services, and prices; and (iii) other risks and uncertainties as indicated from time to time in the Company's filings with the Securities and Exchange Commission. The following discussion should be read in conjunction with the information contained in the financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with Management's Discussion and Analysis set forth in the Company's Form 10-KSB for the fiscal year ended March 31, 2000. The following discussion compares the results of operations for the three- month period ended September 30, 2000 (Second Quarter 2001) with the three- month period ended September 30, 1999 (Second Quarter 2000) and for the six- month period ended September 30, 2000 (2001 YTD) with the six-month period ended September 30, 1999 (2000 YTD). Results of Continuing Operations The Company's operations fall into two distinct businesses: the manufacture and distribution of sports licensing products and the rental of commercial real estate. In December 1998, the Company acquired Roxbury Industries Corp ("Roxbury"), which produces and distributes knit products licensed by most professional and major college teams. The Company owns, leases, and manages a two-story warehouse and office facility containing approximately 1,666,000 square feet of rentable space located on approximately 74 acres in an industrial park in Duval County, Florida. Sports Licensing Products Roxbury's revenue has been very seasonal with the majority of its sales in the months of July through November. Revenue increased by 16% in Second Quarter 2001 and 21% for 2001 YTD as compared to the same periods of the prior year. The majority of the revenue increase was in the 4.0T product line which increased by 65% in Second Quarter 2001 and 51% for 2001 YTD. Private label revenue increased by 15% in Second Quarter 2001 and 32% for 2001 YTD. These two product lines accounted for 89% of total revenue in 2001 YTD as compared to 77% in 2000 YTD. The sales orders booked in Second Quarter 2001 were 16% over Second Quarter 2000 and 43% higher in 2001 YTD as compared to 2000 YTD. These increases were the result of an 84% and 94% increase in 4.0T sales orders for Second Quarter 2001 and 2001 YTD, respectively. Increased sales in the 4.0T product line has been the major focus of the Company's marketing efforts this season, especially with the addition of the NFL license for headwear. Sales orders for private label were up 27% for 2001 YTD as compared to 2000 YTD. As of September 30, 2000 the Company had over $888,000 in open orders. After evaluating operating costs and gross margins, the Company decided to sell its screen printing operation. The operation closed in June 2000 and the equipment was sold. Screen printing operations only accounted for $160,000 in revenue in the last fiscal year and $44,000 in revenue for 2001 YTD. The cost of goods sold increased in Second Quarter 2001 and 2001 YTD as a result of the increased revenue. The cost of goods sold, as a percentage of revenue, is higher for Second Quarter 2001 (75%) and 2001 YTD (81%) than for Second Quarter 2000 (67%) and 2000 YTD (78%). The increase is due to costs associated with changes in the manufacturing processes that were implemented in Second Quarter 2001 that resulted in increased labor costs. It is anticipated that these changes will reduce future manufacturing labor costs, as a percentage revenue, and increase production capacity. The cost of goods sold, as a percentage of revenue, is higher than is to be expected on an annual basis because the manufacturing overhead is allocated over fewer goods during the slower months of the Company's seasonal business. As revenue is expected to increase in the next quarter, the overhead, as a percentage of revenue, is expected to decrease. Also, as licensed product revenue (4.0T) becomes a larger percentage of total revenue, the gross margin is expected to increase. The operating costs of Roxbury increased by 32% in the Second Quarter 2001 as compared to Second Quarter 2000 and by 34% for 2001 YTD as compared to 2000 YTD. This increase is due to increased expenditures on market research and various marketing programs and the addition of personnel in sales, sales support, operations, customer service and design. Depreciation and amortization included in operating costs and cost of goods sold decreased slightly in Second Quarter 2001 and 2001 YTD as compared to Second Quarter 2000 and 2000 YTD. The net operating loss of the sports licensing division increased from $174,570 in Second Quarter 2000 to $331,731 in Second Quarter 2001 and from $532,396 in 2000 YTD to $767,802 in 2001 YTD. The increased loss was the result of the increased operating costs. Commercial Real Estate The commercial real estate operations consist of the lease and management of property located in Jacksonville, Florida (Imeson Center). The property consists of approximately 1,392,000 square feet of warehouse space and 274,000 square feet of office space. The Company's lease agreements are structured to include a base minimum rental fee, a contingent rental fee to reimburse the Company for operating expenses, common area maintenance costs, insurance and property taxes, and a requirement that the tenant pay for its own utilities. The Company received notification from Laney & Duke that they would not be renewing their leases for 1,392,000 square feet of warehouse space. The lease of warehouse space to Laney & Duke expires on December 31, 2000. However, Laney & Duke has requested a short-term extension of the lease. In addition, the Company is marketing the space currently leased by Laney & Duke. Net revenue decreased by 7% to $1,263,324 in Second Quarter 2001 from $1,364,486 in Second Quarter 2000 and decreased to $2,554,962 in 2001 YTD from $2,563,319 in 2000 YTD. The base minimum rental fee increased by $39,048 (4%) in Second Quarter 2001 and by $77,482 (4%) in 2001 YTD as a result of increases in the base minimum rent per square foot. The contingent rental fee decreased by $140,210 (38%) in Second Quarter 2001 and by $85,839 (15%) in 2001 YTD as a result of decreases in reimbursable operating costs. Operating costs decreased by $170,335 (24%) to $531,757 in Second Quarter 2001 from $702,092 in Second Quarter 2000. Operating costs decreased by $119,212 (10%) in 2001 YTD as compared to 2000 YTD. These decreases were primarily the result of decreases in repair and maintenance expense and property tax expense and reductions in the allocation of corporate costs. Depreciation and amortization decreased by 6% in Second Quarter 2001 to $148,377, as compared to Second Quarter 2000 and decreased by $14,776 in 2001 YTD to $296,246 as compared to the same period of the prior year. The net operating profit of the commercial real estate division increased from $504,238 in Second Quarter 2000 to $583,190 in Second Quarter 2001. The net operating profit for 2001 YTD was $1,129,844, compared to $1,004,213 for 2000 YTD. Consolidated Operating Results Revenue increased slightly to $2,186,555 for Second Quarter 2001 and increased 6% to $3,888,234 in 2001 YTD as compared to the same periods of the last fiscal year. The increase was primarily due to increased revenues in the sports licensing division. The cost of goods sold increased as a result of the sports licensing division revenue increases. Operating costs decreased by 4% to $1,247,245 in Second Quarter 2001 from $1,294,100 in Second Quarter 2000. The decrease was related to the decrease in reimbursable expenses of the commercial real estate division offset by additional sales and marketing expenditures in the sports licensing division. Operating costs increased to $2,448,854 in 2001 YTD as compared to $2,329,043 in 2000 YTD. The decrease in commercial real estate operating costs was not enough to offset the increase in sports licensing operating costs on a year- to-date basis. The net operating profit declined $78,209 in Second Quarter 2001 to $251,459, as compared to $329,668 in Second Quarter 2000. The net operating profit for 2001 YTD declined $109,806 to $362,011 as compared to $471,817 for 2000 YTD. Beginning in the fourth quarter of fiscal 2000, the Company invested excess reserves in publicly traded equity securities. The Company incurred a loss of $133,416 in Second Quarter 2001 and $321,873 in 2001 YTD from these investments. An income tax provision was recorded in Second Quarter 2001 and 2001 YTD despite having a consolidated loss before income taxes. Also, the income tax provision for Second Quarter 2000 and 2000 YTD were in excess of income before taxes. These anomalies occurred because Roxbury files separate income tax returns and the tax benefits from its losses were not recognized. The benefit from these losses will be recognized when Roxbury generates pretax income. Liquidity and Capital Resources The cash used by operating activities was $1,185,311 in 2001 YTD compared to cash provided of $70,631 in 2000 YTD. The Company's operations provided $26,985 in working capital in 2001 YTD compared to $365,268 of working capital provided in 2000 YTD. The increase in net operating assets for 2001 YTD was primarily from an increase in the accounts receivable and inventory in the sports licensing division and an increase in accounts receivable and prepaid property taxes in the real estate division. The increase in net operating assets for 2000 YTD was the result of an increase in sports licensing accounts receivable and commercial real estate prepaid expenses, offset by an increase in accounts payable and accrued expenses. Property and equipment additions consisted primarily of real estate investment in the commercial real estate division in 2001 YTD and equipment used in the sports licensing division in 2000 YTD. Cash of $163,748 was used by financing activities in 2001 YTD, as compared to cash used by financing activities of $2,008,465 in 2000 YTD. The decrease in cash used by financing activities was related to a reduction in the number of shares of its common stock the Company purchased in 2001 YTD as compared to 2000 YTD. The company loaned a director $800,000 primarily to pay the exercise price and withholding taxes due upon the exercise of stock options. The amount shown as a loan to related party represents the amount of the loan in excess of the exercise price. The Company did not have any material commitments for capital expenditures as of September 30, 2000 other than for ordinary expenses incurred during the usual course of business. Laney & Duke informed the Company that it would not renew its lease of the warehouse space at Imeson Center that expires on December 31, 2000. This lessee accounted for the majority of the commercial rental revenue and non-renewal will have a significant impact on the Company's operating results and liquidity. The Company is looking for additional tenants for Imeson Center for the remaining 41,000 square feet of office space, the warehouse space currently occupied by Laney & Duke and the office space occupied by America Online. It is expected that any new tenant will require the Company to incur significant costs related to renovation of the property to meet the tenant's needs. Additionally, the Company is considering opportunities to develop outparcels at the Imeson Center. Roxbury is incurring additional marketing expenses to expand its revenue base and distribution channels. These expanded marketing activities may not generate the revenue projected and result in future losses. Although, the Company has not identified any specific opportunities at this time, the Company is expending resources to identify potential opportunities to expand the Company's business operations into other areas. Any new business operation will likely involve a substantial commitment of Company resources and a significant degree of risk. The Company also has potential liability related to litigation. In addition, the Company has been and expects to continue repurchasing shares of its stock. While the Company has a significant current liquidity position, any of the above mentioned items could require significant capital resources in excess of the Company's current liquidity position, requiring it to raise additional capital through public or private debt or equity financing. The availability of these capital sources will depend upon prevailing market conditions, interest rates, and the then existing financial position and results of operations of the Company. Therefore, no assurances can be made by the Company that such additional capital will be available. PART II - OTHER INFORMATION Item 1. - Legal Proceedings No material events have occurred in the Company's ongoing litigation matters other than those described below. For the history of such litigation, please refer to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 2000. Eisenberg Group The motions for dismissal and change of venue filed by the members of the Eisenberg Group were denied. ASX Investment Corporation On August 22, 2000, the United States District Court granted the Company's motion to dismiss Count I to the extent that ASX Investment Corporation is barred from asserting claims against the Company based on alleged violations of section 10(b) and Rule 10b-5 that ASX Investment Corporation discovered in April 1994. The Court denied the Company's motion to dismiss Counts II, III, and IV. The Company answered the amended complaint on September 6, 2000 denying the claims of ASX Investment Corporation. Harvey Moore The appellate court has upheld the majority of the District Court's ruling on reimbursement of legal fees. However, there were a few issues that the appellate court remanded back to the district court. Item 2. Exhibits and Reports on Form 8-K. (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K. On August 29, 2000, the Company filed an 8-K announcing that Laney & Duke had notified the Company of its intent not to renew its lease of 1,392,000 square feet of warehouse space at Imeson Center. (c) Sales of Unregistered Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. The Company held its annual shareholder meeting on August 5, 2000 to elect one Class II director and ratify the election of Pender Newkirk & Company as independent auditors for the fiscal year ended March 31, 2001. The terms of office as director for John L. Caskey and R. Park Newton continued after the meeting. The voting results were as follows: Issue For Withheld ------------------------------------------ --------- -------- Election of W. Aris Newton as Class II Director: 2,916,661 776,768 --------- -------- -------- For Against Abstain --------- -------- -------- Ratify selection of Pender Newkirk & Company as auditors for fiscal 2001 2,957,827 619,750 115,852 W. Aris Newton was elected as the Class II director. The selection of Pender Newkirk & Company as auditors for fiscal 2001 was ratified. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EXCAL ENTERPRISES, INC. Registrant Dated: November 10, 2000 /s/ W. CAREY WEBB W. Carey Webb President and Chief Executive Officer Dated: November 10, 2000 /s/ TIMOTHY R. BARNES Timothy R. Barnes Vice President and Chief Financial Officer