10KSB40 1 ksb_01-0331edg.txt 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, 2001 Commission File No. 0-17069 EXCAL ENTERPRISES, INC. ---------------------------------------------------------- (Name of small business issuer as specified in its charter) Delaware 59-2855398 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 100 N. Tampa Street, Suite 3575, Tampa, Florida 33602 ---------------------------------------------------------- (Address of principal executive offices, including zip code) (813) 224-0228 -------------------------- (Issuer's telephone number) Securities registered under Section 12(g) of the Act: Title of Each Class 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, 2001 was $8,538,446. The aggregate market value of the voting stock held by non-affiliates (993,683 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, 2001 of $1.21 was approximately $1,202,356. 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, 2001, there were 3,285,877 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 2001 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. 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. Excal Enterprises, Inc. formed two new corporations in fiscal 2001 that comprise its sporting goods division. Noram Divide, Inc. ("Noram"), produces hunting and fishing apparel and accessories. Wild Hare Holdings, Inc. ("Wild Hare"), distributes hunting and fishing apparel and accessories produced by Noram and other manufacturers. 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, 2001, 10 of the 14 warehouse bays and all but 42,000 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. Sporting Goods Division Noram (formed in fiscal 2001) manufactures hunting and fishing apparel and accessories for distribution primarily by Wild Hare. The products are primarily sold through catalogs, the Internet, and various hunting and fishing events. The products are marketed under the Wild Hare InternationalT trademark. 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 majority of the warehouse space. This tenant's lease expires December 31, 2001. If the Company leases 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 . The Company believes these production advantages combined with the licensing agreements put the Company in a unique position. The Company's sporting goods division is marketed through catalogs, the Internet, and various trade shows, as well as publications and organizations within the sporting goods industry. The target markets that the Company believes will best identify with the product line are those consumers highly involved in hunting and fishing sports recreation. The product line distributed by Wild Hare consists primarily of hunting and fishing apparel, accessories, supplies, and instruction. 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. The Company's sporting goods division is currently in the introductory and growth cycle of its development. The sporting goods industry has grown rapidly over the last several years and the Company has many competitors. The Company believes its product line to be of high quality and design. The Company's sporting goods product line competes with a number of sellers including, but not limited to, Cabela's Inc., Big Game Pro Shop, Adirondack Outdoor Company, and Back Country, Inc. 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), was for 1,392,244 square feet of warehouse space through December 31, 2000. At that time, Laney & Duke signed a one-year extension of the lease covering 1,003,660 square feet of warehouse space. Laney & Duke is not expected to renew its lease beyond the current December 31, 2001 termination date. Laney & Duke accounted for $2,724,841 of revenue (32%) for the fiscal year ended March 31, 2001, resulting in an effective annual lease rate of $2.10 per square foot, including operating expenses. The second lease, with America Online, is for 92,340 square feet of office space beginning June 16, 1995 and terminating on June 15, 2002 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 $1,033,753 of revenue (12%) for the fiscal year ended March 31, 2001 at an effective annual lease rate of $11.05, 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 and Laney & Duke. 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 $1,372,258 of revenue (16%) for the fiscal year ended March 31, 2001, resulting in an effective annual lease rate of $9.87 per square foot, including operating expenses. These three leases accounted for substantially all of the Company's real estate revenue and 60% of the Company's total revenue in the fiscal year ended March 31, 2001. 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 11% of that division's revenue, but only 4% of total revenue. The Company terminated its relationship with this customer at the end of fiscal 2001. 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 primarily manufactures the plush animals to the Company's specifications. The Company believes that alternative suppliers can be contracted at competitive prices, if required. The raw material for the Company's sporting goods product line consists primarily of leather and nylon. The Company uses several suppliers for its materials and believes that alternative suppliers can be contracted 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. The Company markets its sporting goods product line under the Wild Hare InternationalT trademark with the permission of Wild Hare International, Inc. The Company is currently negotiating with the shareholders of Wild Hare International, Inc. for the purchase of the trademark. Seasonal Fluctuations The Company's real estate operation is not seasonal. The Sports Licensing division is very seasonal. During fiscal 2001, 75% of the annual sales were generated in the period July through December and 56% of the annual sales were generated in the four-month period September through December. The sporting goods division is expected to be very seasonal with an estimation of higher sales in the months of August through December. Employees On May 31, 2001, the Company employed 52 employees. Of that number, 38 were employed in the sports licensing division, 5 were employed in the corporate offices, 5 were employed by the real estate subsidiary and 4 were employed in the sporting goods division. The Company's employees are not covered by collective bargaining agreements. The Company believes the relations with its employees to be satisfactory. ITEM 2. DESCRIPTION OF PROPERTY. The Company leases approximately 3,500 square feet of office space for its executive offices at 100 North Tampa Street, Suite 3575, Tampa, Florida 33602. The lease on this downtown Tampa office space commenced October 15, 1994 and terminated on November 30, 2000. The Company renewed its lease for an additional six years during fiscal 2001. The Company believes that its present facility is adequate for expected operations. The Company's commercial rental property consists of a single two-story structure located on 74 acres at One Imeson Park Boulevard in Jacksonville, Florida. The property contains approximately 1,392,000 square feet of warehouse space and 274,000 square feet of office space. The building is primarily built of concrete and steel with a membrane roof. On September 30, 1997, the Company closed on a $13,500,000 mortgage secured by the Imeson Center property. The company has no definitive plans or commitments for renovation or expansion of the property. However, the Company is marketing the available 41,000 square feet of office space and the space currently leased by Laney & Duke and 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 $7,444,222 for the building as of March 31, 2001. In addition, various furniture, fixtures and equipment with a basis of $367,959 as of March 31, 2001 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 2000 were $504,204, based on a millage rate of $20.3433 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 settlement of litigation described in Note 10 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 -------------------- ----- ----- June 30, 1999 $3.06 $3.00 September 30, 1999 3.31 3.00 December 31, 1999 3.19 1.41 March 31, 2000 2.19 2.19 June 30, 2000 2.20 1.88 September 31, 2000 1.88 1.06 December 31, 2000 1.25 0.88 March 31, 2001 1.16 1.06 As of April 30, 2001, there were approximately 314 shareholders of record. In addition, as of the same date, there were 168 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. Results of Operations Net revenue and operating costs of the Company fall into three 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. The third segment is sporting goods sales and costs from the manufacture and distribution of hunting apparel and accessories. The following discussion compares the year ended March 31, 2001 (Fiscal 2001) with the year ended March 31, 2000 (Fiscal 2000). For comparative purposes, certain reclassifications have been made to the financial results for Fiscal 2000. 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 slightly (2%) to $5,150,852 for Fiscal 2001 from $5,066,634 for Fiscal 2000. The increase was a result of an increase in the base rental rate of the property leases offset by a decrease in contingent rental fees. Rental revenue included base rent of $4,184,329 and $3,995,071 and contingent rentals of $966,524 and $1,071,563 during Fiscal 2001 and 2000, respectively. The future minimum base rentals under non-cancelable leases as of March 31, 2001 was $3,809,293 for fiscal 2002, $1,421,255 for fiscal 2003, and $265,409 for fiscal 2004. Operating costs decreased by 2% to $2,442,006 for Fiscal 2001 as compared to the $2,493,309 of operating costs for Fiscal 2000. The $51,303 decrease in operating expenses is the result of a decrease in the allocation of corporate operating expenses. Depreciation and amortization was $592,162 for Fiscal 2001, as compared to $613,906 for Fiscal 2000. The net operating profit of the real estate operation was $2,116,684 and $1,959,419 for Fiscal 2001 and 2000, respectively. Sports Licensing The sports licensing segment has experienced extremely seasonal operations. Historically, the majority of the sales have come in the late summer and early fall time period. Revenue for the twelve months ended March 31, 2001 increased 31% to $3,294,176 from $2,521,139 for the twelve months ended March 31, 2000. The increase in sales is due primarily to the marketing and sales programs instituted by the Company in the prior year. Cost of goods sold was 87.5% of sales for Fiscal 2001 as compared to 79.9% of sales for Fiscal 2000. There were several production problems during the busy season that caused the increase in cost of goods. These productions problems were exacerbated by the increase in sales. The Company has implemented several changes to reduce the cost of goods sold as a percentage of sales. Some product lines with low margins have been eliminated. The pricing structure has been modified on the remaining lines and new cost control measures have been implemented. Therefore, the Company expects the cost of goods sold as a percentage of revenue to decrease. 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 increased in Fiscal 2001 as additional sales, sales support, and operational personnel were brought on board. During the latter part of Fiscal 2000, the Company 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 $1,996,053 for the twelve months ended March 31, 2001 as compared to $1,318,531 for the twelve months ended March 31, 2000. Sporting Goods The sporting goods segment was formed in Fiscal 2001. The revenue, operating costs and depreciation in Fiscal 2001 represent only three months of operations. This segment is expected to be very seasonal with higher sales in the months of August through December. Sales for the last quarter of Fiscal 2001 were $93,418. Cost of goods sold was 54.4% of sales for Fiscal 2001. Cost of goods sold for Fiscal 2001 was higher than is expected in the future as production staff were being trained and production quotas were lower. Operating costs were $330,033 in Fiscal 2001 and are expected to increase as additional sales and support personnel are hired. The net operating loss of the sporting goods division was $290,034 in Fiscal 2001. Consolidated Operating Results Revenue increased by 13% to $8,538,446 for the fiscal year ended March 31, 2001 from $7,587,773 for Fiscal 2000 as a result of the increase in rental revenue under the property leases, an increase in revenue from the sports licensing segment and the addition of the sporting goods segment. Operating costs increased by 18% for the twelve months ending March 31, 2001 to $5,770,910 from $4,873,142 for the twelve months ended March 31, 2000. The $897,768 increase in operating expenses is primarily related to the inclusion of the operations of the new sporting goods segment and an increase in the operating costs of sports licensing segment. Depreciation and amortization decreased by $18,578 for the twelve months ending March 31, 2001, as compared to the same period ended March 31, 2000. Interest expense was $1,257,773 and $1,276,854 for the twelve months ended March 31, 2001 and 2000, respectively. Professional fees related to litigation were $242,450 for the twelve months ending March 31, 2001 compared to $257,684 for the same period in fiscal 2000. As a result of settlements with ASX Investment Corp and the Securities and Exchange Commission, these costs are expected to be significantly less in the future. See Note 10 of the accompanying financial statements for a complete discussion of all resolved material litigation. Interest income decreased from $562,952 in the twelve months ended March 31, 2000 to $484,383 in the twelve months ended March 31, 2001. 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 and sporting goods segments. An income tax provision of $32,000 was recorded in fiscal 2001 despite having a consolidated loss before income taxes. This occurred because Roxbury files separate income tax returns and $913,000 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 used by operating activities was $2,046,843 for the twelve months ending March 31, 2001 compared to cash provided of $275,528 for the twelve months ended March 31, 2000. For the twelve months ending March 31, 2001 the Company's operations consumed $555,251 in working capital as compared to $462,118 in working capital generated for the twelve months ended March 31, 2000. Cash of $674,705 was used by investing activities in fiscal 2001 as compared to cash used by investing activities of $59,533 for the twelve months ended March 31, 2000. Property and equipment additions accounted for all of the cash used by investing activities for Fiscal 2001 and Fiscal 2000. The Fiscal 2001 purchases included $498,171 for the purchase of real property and renovations to the Imeson Center building. The balance of the expenditures consists of machinery and equipment purchases for the Imeson Center, Roxbury Industries Corp and the new sporting goods segment. Cash of $2,133,315 was used by financing activities for the twelve months ending March 31, 2001 as compared to $2,387,341 for the twelve months ended March 31, 2001. During fiscal 2001, the Company acquired 25,300 shares of its common stock in the open market and 580,500 shares of its common stock from Gotham Partners for an aggregate cost of $1,067,231. In addition, the Company loaned a director of the Company $805,000. The loan consisted of $155,000 to pay the balance of penalties, disgorgement of profits, and prejudgment interest as a result of the settlement with the Securities and Exchange Commission. The balance of the loan of $650,000 was used primarily to pay income taxes, penalty, and interest. During the fiscal year ended March 31, 2000, the Company purchased 207,674 shares of common stock through open market transactions at an aggregate exercise price of $538,605. 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 Eisenberg Group. In addition, a director exercised options to purchase 183,355 shares of common stock for an aggregate 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. The final payment of $95,000 was made in Fiscal 2000. The Company did not have any material commitments for capital expenditures as of March 31, 2001 other than for ordinary expenses incurred during the usual course of business and the outstanding letters of credit for normal inventory purchases. The Company is seeking additional tenants for Imeson Center for the remaining 41,000 square feet of office space and to replace America Online and Laney & Duke when their lease expires in June 2002 and December 2001, respectively. 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. Roxbury Industries' programs designed to reduce cost of goods sold may not generate the savings anticipated and result in future losses. European American Bank (EAB) had demanded payment in full of the term loan and line of credit to Roxbury Industries. These loans total approximately $625,000. 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, 2001 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 2001 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 2001 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 2001 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 2001 annual meeting. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. A. Exhibits Exhibit Method Number Description of 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 Mortgage Security Agreement and Fixture Filing 8 4.4 10.1 Stock Option Agreement-Timothy R. Barnes dated 5/22/91 12 10.2 Stock Option Agreement-Timothy R. Barnes dated 9/28/98 11 10.3 Stock Option Agreement-Timothy R. Barnes dated 11/12/99 12 10.4 Stock Option Agreement-John L. Caskey dated 2/18/98 9 10.5 Stock Option Agreement-John L. Caskey dated 2/18/98 9 10.6 Stock Option Agreement-John L. Caskey dated 9/28/98 11 10.7 Stock Option Agreement-John L. Caskey dated 9/28/98 11 10.8 Stock Option Agreement-John L. Caskey dated 11/12/99 12 10.9 Stock Option Agreement-W. Aris Newton dated 5/22/91 12 10.10 Stock Option Agreement-W. Aris Newton dated 2/18/98 9 10.11 Stock Option Agreement-W. Aris Newton dated 2/18/98 9 10.12 Stock Option Agreement-W. Aris Newton dated 9/28/98 11 10.13 Stock Option Agreement-W. Aris Newton dated 9/28/98 11 10.14 Stock Option Agreement-W. Aris Newton dated 11/12/99 12 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 12 10.21 Stock Option Agreement with W. Carey Webb dated 5/22/91 12 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-W. Carey Webb dated 11/12/99 12 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 Amendment to Laney & Duke Leases dated 1/26/01 13 10.38 Office Lease with America Online, Inc. 3 10.39 Office Lease with Prudential Insurance Company of America 7 10.40 Letter from Prudential Insurance Company of America exercising extension rights 10 21 List of Subsidiaries of Registrant * 23 Consents of experts and counsel * * 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. 12 Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended March 31, 2000. 13 Incorporated by reference to the Company's Current Report on Form 8-K dated January 26, 2001. 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 2001. 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, 2001 /S/ R. PARK NEWTON, III R. Park Newton, III Chairman of the Board and Board Member Dated: June 27, 2001 /S/ W. CAREY WEBB W. Carey Webb President and Chief Executive Officer Dated: June 27, 2001 /S/ TIMOTHY R. BARNES Timothy R. Barnes Vice-President, Chief Financial Officer, and Principal Accounting Officer Dated: June 27, 2001 /S/ W. ARIS NEWTON W. Aris Newton Vice-President and Board Member Dated: June 27, 2001 /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 Independent Auditors' Report 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, 2001 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years ended March 31, 2001 and 2000. These consolidated financial statements are the responsibility of the management of Excal Enterprises, Inc. and Subsidiaries. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 financial position of Excal Enterprises, Inc. and Subsidiaries as of March 31, 2001 and the consolidated results of its operations and its cash flows for the years ended March 31, 2001 and 2000 in conformity with accounting principles generally accepted in the United States of America. Pender Newkirk & Company Certified Public Accountants Tampa, Florida May 11, 2001 EXCAL ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET MARCH 31, 2001 ASSETS Current assets: Cash and cash equivalents $ 2,629,764 Marketable securities 65,377 Accounts and notes receivable (less allowance for doubtful accounts of $215,100) 992,651 Income tax receivable 181,000 Inventory 884,490 Prepaid expenses and deposits 577,142 Deferred tax asset 136,000 ---------- Total current assets 5,466,424 ---------- Property, plant and equipment: Land 1,600,000 Building 7,444,222 Furniture, fixtures, vehicles and equipment 2,263,165 ---------- 11,307,387 Less accumulated depreciation and amortization 2,574,113 ---------- Net property, plant and equipment 8,733,274 ---------- Notes receivable - related parties 1,066,395 Restricted cash reserves 662,433 Loan costs, less accumulated amortization of $583,089 249,895 Commission costs, less accumulated amortization of $325,879 233,030 Other assets less reserve for note receivable of $284,588 28,115 ---------- 2,239,868 ---------- Total Assets $ 16,439,566 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 609,158 Accrued liabilities 527,795 Reserve for litigation 84,246 Revolving line of credit 373,087 Current portion of long-term debt 474,537 ---------- Total current liabilities 2,068,823 Long-term liabilities: Long-term debt 12,837,596 Deferred tax liability 1,116,000 ---------- Total liabilities 16,022,419 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, 3,285,877 shares outstanding 4,738 Additional paid-in capital 3,985,842 Retained earnings 1,316,475 Less 1,452,989 shares of common stock held in treasury at cost ( 3,773,319) ---------- 1,533,736 Less notes receivable from stockholders ( 1,117,630) ---------- Total stockholders' equity 416,106 ---------- Total Liabilities and Stockholders' Equity $16,439,566 ========== The accompanying notes are an integral part of the consolidated financial statements. EXCAL ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended Year Ended March 31, 2001 March 31, 2000 -------------- -------------- Rental revenue $ 5,150,852 $ 5,066,634 Sports licensing sales 3,294,176 2,521,139 Sporting goods 93,418 -- --------- --------- Total net revenue 8,538,446 7,587,773 Cost of sports licensing sales 2,885,662 2,074,087 Cost of sporting good sales 50,853 -- --------- --------- Total cost of goods 2,936,515 2,074,087 Gross margin 5,601,931 5,513,686 --------- --------- Rental operating costs 2,442,006 2,493,309 Sports licensing operating costs 2,374,680 1,737,064 Sporting goods operating costs 330,033 -- Depreciation and amortization 624,191 642,769 Total operating costs 5,770,910 4,873,142 --------- --------- Net operating income (loss) ( 168,979) 640,544 --------- --------- Other expense (income) Interest expense 1,257,773 1,276,510 Reserve on note receivable 284,588 -- Professional fees related to litigation 242,450 257,684 Loss on marketable securities 329,933 63,249 Litigation settlement ( 60,000) 2,000 Interest income ( 484,383) ( 562,952) Other income ( 53,559) ( 82,761) --------- --------- Net other expense 1,516,802 953,730 --------- --------- Loss before income taxes ( 1,685,781) ( 313,186) Income tax provision 32,000 440,000 --------- --------- Net Loss $( 1,717,781) $( 753,186) ========= ========= Loss per share - basic $( .46) $( .18) ========= ========= Earnings (loss) per share - diluted $( .46) $( .18) ========= ========= Weighted average shares outstanding Common 3,717,025 4,105,205 Common and equivalent 3,717,025 4,105,205 The accompanying notes are an integral part of the consolidated financial statements. EXCAL ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended Year Ended March 31, 2001 March 31, 2000 -------------- -------------- Cash flows from operating activities: Net loss $( 1,717,781) $( 753,186) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 743,374 757,801 Provision for uncollectable accounts receivable 100,330 ( 45,746) Loss on marketable securities 329,933 63,249 Loss on disposals of assets 2,238 -- Provision for deferred income taxes 32,000 440,000 Provision for note receivable 284,588 -- Decrease (increase) in operating assets: Accounts and notes receivable ( 605,012) ( 130,093) Marketable securities ( 213,034) ( 245,525) Inventory ( 392,420) 87,172 Prepaid expenses and deposits ( 183,319) ( 76,019) Other assets ( 73,041) ( 53,969) Increase (decrease) in operating liabilities: Accounts payable and accrued liabilities ( 4,699) 229,844 Reserve for litigation ( 350,000) 2,000 --------- --------- Net cash provided (used) by operating activities ( 2,046,843) 275,528 --------- --------- Cash flows from investing activities: Property and equipment additions ( 674,705) ( 59,533) --------- --------- Net cash provided (used) by investing activities ( 674,705) ( 59,533) --------- --------- Cash flows from financing activities: Loan - related parties ( 805,000) ( 261,395) Notes payable 3,427 -- Principal repayments of long-term debt ( 264,511) ( 207,052) Repurchase warrants -- ( 95,000) Purchase treasury stock ( 1,067,231) ( 1,823,894) --------- --------- Net cash provided (used) by financing activities ( 2,133,315) ( 2,387,341) --------- --------- Increase (decrease) in cash ( 4,854,863) ( 2,171,346) Cash and cash equivalents, beginning of year 7,484,627 9,655,973 --------- --------- Cash and cash equivalents, end of year $ 2,629,764 $ 7,484,627 ========= ========= Supplemental disclosure of cash flow information Interest paid $ 1,160,872 $ 1,279,166 Income taxes $ -- $ -- 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. EXCAL ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common stock Additional Treasury stock ----------------- Paid-in Retained - --------------------- Shares Amount Capital Earnings Shares Amount --------- ------- ----------- ----------- - -------- ----------- < C> 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 Net loss -- -- -- (1,717,781) -- -- Purchase Gotham Partners shares -- -- -- -- 580,500 1,015,875 Open market purchases -- -- -- -- 25,300 51,356 --------- ------- ----------- ----------- --------- ----------- Balance March 31, 2001 4,738,866 $ 4,738 $ 3,985,842 $ 1,316,475 1,452,989 $ 3,773,319 ========= ======= =========== =========== ========= =========== The accompanying notes are an integral part of the consolidated financial statements.
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. The Company's sporting goods division is conducted by Wild Hare Holdings, Inc. and Noram Divide, Inc., wholly owned subsidiaries operating out of Jacksonville, Florida. Noram Divide, Inc. manufactures hunting apparel and accessories for distribution by Wild Hare Holdings, Inc. to those consumers highly involved in hunting and fishing sports recreation. 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., Roxbury Industries Corp., Wild Hare Holdings, Inc. and Noram Divide, Inc. 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 $65,377 as of March 31, 2001. Accounts Receivable. The Company extends credit to its various customers based on the customer's ability to pay. Based on management's review of accounts receivable an allowance for doubtful accounts $215,100 is considered necessary. 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. Sporting goods revenue consists of sales of hunting apparel and accessories. 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. Reclassifications. Certain reclassifications have been made to the financial statements in 2000 in order to conform to the 2001 presentation. None of the reclassifications affected the financial position or results of operations. NOTE 3 - 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, 2001 and 2000 as follows: Year Ended Year Ended March 31, 2001 March 31, 2000 ---------------------- ---------------------- Lessee Amount % to Total Amount % to Total ----------------- ---------- ---------- ---------- ---------- Laney & Duke $2,724,841 32% $2,716,596 36% Aetna 1,372,258 16% 1,316,659 17% America Online 1,033,753 12% 1,021,998 13% The Laney & Duke lease expires on December 31, 2001. 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 and Laney & Duke. The Aetna lease expires June 15, 2003. The loss of any of these leases would have a significant impact on the Company (See Note 9). NOTE 4 - 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, 2001, the balance owed included $291,736 in principal and $7,852 in accrued interest. The note was restructured in December 2000 requiring quarterly payments of $15,000 through October 1, 2001, $20,000 through October 1, 2002, and $25,000 through April 1, 2005. On May 25, 2001, the privately held company filed for bankruptcy. The Company collected $15,000 on the note April 2, 2001. The Company has fully reserved the remaining balance of the note at March 31, 2001. NOTE 5 - INVENTORY At March 31, 2001, the inventory consisted of the following: Raw materials $ 538,803 Work in process 121,775 Finished goods 223,912 ------- $ 884,490 ======= NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT The Company was obligated on a note payable under a revolving line of credit that expired on December 31, 2000, in the maximum amount of $375,000 and a $350,000 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 is payable in monthly principal payments of $6,500 plus interest through June 2004. The outstanding balance of the term loan was $252,500 at March 31, 2001. The revolving line of credit bears interest at 1.5% over the bank's prime rate (10% at March 31, 2001), matured on December 29, 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, 2001. Roxbury was in violation of the financial loan covenants regarding the level of equity and debt-to-equity ratio at March 31, 2001. Roxbury had negotiated renewal terms for the line of credit. Prior to completion, the bank demanded payment in full. Therefore, the entire balance of the term loan is included in current portion of long- term debt at March 31, 2001. 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 $12,924,478 as of March 31, 2001 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 $7,257,265 as of March 31, 2001. 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 2001 and fiscal 2000, $23,569 and $210,556 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 $135,155 as of March 31, 2001. 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, 2001 are as follows: 2002 - $474,537; 2003 - $12,738,814; 2004 - $20,556; 2005 - $22,318; 2006 - $24,230; thereafter - $31,678. NOTE 7 - COMMITMENTS The Company leases its corporate headquarters under an operating lease that runs through November 2006. 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 $227,029 and $208,183 for the years ended March 31, 2001 and March 31, 2000, respectively. Future minimum lease payments under the non-cancelable operating leases as of March 31, 2001 are as follows: 2002 - $170,674; 2003 - $166,845; 2004 - $167,634; 2005 - $170,067; thereafter - $172,573. 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 $107,000 a year, respectively. The employment agreements expire in March 2004, August 2004, and August 2002, 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 November 30, 2001, unless her employment is terminated for due cause. The Company entered into employment agreements with the Vice President of Wild Hare and the Vice President of Noram Divide that obligate the Company to pay them $150,000 and $60,000 a year, respectively. The employment agreements automatically renew each year unless their employment is terminated for due cause. The Company entered into retail licensing agreements with several entities. The agreements call for minimum advance royalty payments that are applied to monthly royalty payments ranging from 9% to 11% of net retail sales. The future minimum guaranteed payments under the agreements as of March 31, 2001 aggregated to $99,194. The Company had letters of credit outstanding at March 31, 2001 in the amount of $126,248 for merchandise to be shipped from overseas. NOTE 8 - 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, 2001, the Company purchased 25,300 shares of its common stock through open market purchases at an aggregate cost of $51,355. The Company also purchased 580,500 shares of its common stock with a value of $1,015,875 from Gotham Partners. 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. 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: 2001 2000 ------------ ----------- Net income (loss) As reported $(1,717,781) $( 753,186) Pro forma $(1,717,781) $( 829,298) Earnings per share - basic As reported $ (.46) $ (.18) Pro forma $ (.46) $ (.20) Earnings per share - diluted As reported $ (.46) $ (.18) Pro forma $ (.46) $ (.20) 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, expected lives of 3 years, and risk free interest rate of 5.9% for options granted in 2000. No options were granted in 2001. 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 to Issued outside of Option Plan Option Plan ------------------ ------------------ Exercise Exercise Shares Price(1) Shares Price(1) ------- -------- ------- -------- 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 and March 31, 2001 -- -- 834,168 $2.78 ======= ======= ======= ======= (1) Weighted average exercise price. The following table summarizes information about the options and warrants outstanding at March 31, 2001, stratified by exercise price: Options Outstanding Options Exercisable ----------------------------------- --------------------- Outstanding Average Weighted Exercisable Weighted Range of at Remaining Average at Average Exercise March 31, Contractual Exercise March 31, Exercise Prices 2001 Life Price 2001 Price -------------- ----------- ---------- ---------- ----------- -------- $1.41 312,500 8.6 years $1.41 312,500 $1.41 $2.00 to $2.34 247,650 2.9 years $2.17 247,650 $2.17 $4.88 to $4.95 274,018 3.2 years $4.88 274,018 $4.88 During the year ended March 31,2001, the Company issued options for the common stock of two of its subsidiaries. These options are not exercisable until January 1, 2004, at the earliest. If these options are exercised the Company's ownership in the subsidiaries could materially change. NOTE 9 - 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 $8,689,813 and accumulated depreciation of $1,432,548 as of March 31, 2001. Minimum future rentals under non-cancelable leases are as follows: 2002 - $3,809,293; 2003 - $1,421,255; and, 2004 - $265,409. During the years ended March 31, 2001 and 2000, rental revenue included $966,524 and $1,071,563 of contingent rentals, respectively. NOTE 10 - LITIGATION SETTLEMENT The Company settled its dispute with the Securities and Exchange Commission with no fines or penalties. The Company, without admitting or denying any wrongdoing, consented to a final judgment enjoining it from future violations of various sections of the federal securities laws. The Company chairman and former CEO also signed a consent decree neither admitting nor denying any wrongdoing, and agreed to pay $405,000 in penalties, disgorgement of profits, and prejudgment interest. The Company voluntarily dismissed its lawsuit against the Eisenberg Group and ASX Investment Corporation voluntarily dismissed its suit against the Company with both parties waiving all claims and bearing their own costs. NOTE 11 - INCOME TAXES The components of the provision (benefit) for income taxes for the years ended March 31, 2001 and March 31, 2000 are as follows: 2001 2000 ------ ------- Current tax expense (benefit) $ -- $ -- Deferred tax expense 32,000 440,000 ------ ------- $ 32,000 $ 440,000 ====== ======= 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: 2001 2000 ------- ------- Tax benefit at statutory rate $( 573,000) $( 106,000) Increase (decrease) in taxes resulting from tax effects of: State income taxes, net of federal tax benefit 4,000 68,000 Non-deductible expenses 25,000 20,000 Increase in valuation allowance 576,000 458,000 ------- ------- $ 32,000 $ 440,000 ======= ======= As of March 31, 2001, the Company had approximately $4,315,000 and $5,795,000 in net operating loss carryforwards for federal and state tax purposes, respectively. The net operating loss carryforwards expire in the years 2010 through 2021. The valuation allowance for both federal and state income taxes combined increased by $690,000 in 2001 and $554,000 in 2000. The sources of significant temporary differences which gave rise to deferred tax assets and liabilities as of March 31, 2001 are as follows: Deferred tax assets: Allowance for doubtful accounts $ 201,000 Accrued salaries, bonuses and expenses 48,000 Net operating loss carryforward 1,990,000 --------- 2,239,000 Less valuation allowance for loss carryforward 1,261,000 --------- 978,000 --------- Deferred tax liabilities: Book basis of property, plant, and equipment in excess of tax 21,000 Book basis of investment in subsidiaries in excess of tax 1,937,000 --------- 1,958,000 --------- Net deferred tax liabilities $ 980,000 ========= The components giving rise to the net deferred tax liabilities described above have been included in the accompanying balance sheet as follows: Current assets $ 136,000 Non-current liabilities 1,116,000 --------- $ 980,000 ========= NOTE 12 - 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 $15,386 and $13,507 to the Plan for the years ended March 31, 2001 and March 31, 2000, respectively. NOTE 13 - SEGMENT INFORMATION With the acquisition of Roxbury and the formation of Wild Hare and Noram Divide, the Company has three reportable business segments. These segments have been determined by product line and consist of the rental of commercial real estate, the manufacture and distribution of sports licensing products and the manufacture and distribution of sporting good 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. Year Ended Year Ended March 31, 2001 March 31, 2000 -------------- -------------- Segment income (loss) before income taxes Real estate operations $ 1,300,202 $ 1,097,888 Sports licensing operations ( 2,227,447) ( 1,406,526) Sporting goods operation ( 290,734) -- Other ( 467,802) ( 4,548) ---------- ---------- Total loss before income taxes $( 1,685,781) $( 313,186) ========== ========== As of As of March 31, 2001 March 31, 2000 -------------- -------------- Identifiable assets Real estate operations $ 11,940,410 $ 14,095,416 Sports licensing operations 2,090,740 1,876,637 Sporting goods operation 486,207 -- Other 1,922,209 4,047,308 ---------- ---------- Total identifiable assets $ 16,439,566 $ 20,019,361 ========== ========== NOTE 14 - 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 accrued $350,000 for judgments and fines as of March 31, 2000. The Company has since settled its dispute with the Securities and Exchange Commission with no fines or penalties. The Company chairman and former CEO signed a consent decree neither admitting nor denying any wrongdoing, and agreed to pay $405,000 in penalties, disgorgement of profits, and prejudgment interest. The Company reimbursed the Chairman for $250,000 in penalties and loaned him $155,000 to pay the balance. The loan bears interest at 5.07% due annually with the principal due on February 9, 2006. The amount is shown as a loan to a related party. 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. During Fiscal 2001, the Company loaned a director $650,000 primarily to pay income taxes, penalty, and interest. The loan bears interest at 6.01% due annually with the principal due on November 13, 2005. The amount is shown as a loan to a related party. As of March 31, 2001, the accrued interest receivable on the notes was $183,684. The above amounts are not necessarily indicative of the amount that would have been incurred had comparable transactions been entered into with independent parties.