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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
__________
FORM 10-K/A
Amendment No. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to ____________
Commission file number 0-11877
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ELXSI CORPORATION
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(Exact name of registrant as specified
in its charter)
Delaware 7-0151523
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4209 Vineland Road, Suite J-1, Orlando FL 32811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (407) 849-1090
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Securities registered pursuant to Section
12(b) of the Act:
Title of each class Name of each
------------------------------------ exchange on which
registered
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None Not Applicable
Securities registered pursuant to Section
12(g) of the Act:
Common Stock, par value $0.001
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of regulation S-K is not contained herein,
and will not 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-K. [ ]
The approximate aggregate market value of the voting stock held
by non-affiliates of the Registrant, based upon the closing price
of the Common Stock on March 15, 1995, as reported by NASDAQ,,
was $21,958,000. On March 15, 1995, the Registrant had
outstanding 4,792,334 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held May 18, 1995 are incorporated by
reference into Part III.
PAGE
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ELXSI CORPORATION (THE "COMPANY") HEREBY AMENDS ITS ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 (THE
"ORIGINAL FORM 10-K") AS FOLLOWS:
1. Part I, Item 1 (Business): The "Restaurant Expansion and
Renovation" section of the "Restaurant Division" discussion
is amended by adding a new sentence thereto.
2. Part II, Item 7 (Management's Discussion and Analysis of
Financial Condition and Results of Operations): The section
under the heading "Results of Operations" is amended by
adding a new sentence thereto.
3. Part II, Item 8 (Financial Statements and Supplementary
Data): The "Phantom Option Plan" section of Note 12 to the
Financial Statements is amended by adding two new sentences
thereto.
IN ACCORDANCE WITH RULE 12B-15 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, THE COMPLETE TEXT OF PART I, ITEM 1; PART II, ITEM 7;
AND PART II, ITEM 8 OF THE ORIGINAL FORM 10-K, AS AMENDED UNDER
THIS FORM 10-K/A AMENDMENT NO. 2, ARE SET FROTH BELOW. THE
CHANGES IN SUCH ITEMS AS COMPARED TO THE CORRESPONDING ITEMS OF
THE ORIGINAL FORM 10-K ARE MARKED.
PAGE
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PART I
ITEM 1. BUSINESS
GENERAL
ELXSI Corporation (the "Company") is a Delaware corporation that
was formed in September 1980 as Trilogy Limited, a Bermuda
corporation. The Company changed its name to ELXSI Ltd. in
January 1987, and changed its incorporation from Bermuda to
Delaware and became known as ELXSI Corporation in August 1987. A
public company since November 1983, the Company acquired ELXSI
("ELXSI"), a California corporation, in October 1985. In
December 1987, the Company's other California subsidiary, Trilogy
Systems Corporation ("Trilogy Systems") was merged into ELXSI.
In September 1989 and January 1990, the Company entered into
Stock and Note Purchase Agreements (the "Stock Purchase
Agreement") with and among, The Airlie Group L.P. ("Airlie"),
Continental Illinois Equity Corporation ("CIEC") and Milley &
Company ("M&C"), (hereinafter referred to collectively as the
"Buyers") whereby the Buyers acquired 960,000 shares (all common
share information has been adjusted to reflect the reverse split
of the Company's Common Stock, par value $.001 per share ("Common
Stock") described in Note 11 to the financial statements),
$2,000,000 aggregate principal amount of the Company's notes and
warrants to purchase 1,204,000 shares of the Company's Common
Stock. The Buyers also agreed to purchase from the Company up to
an additional $5,000,000 principal amount of senior subordinated
promissory notes upon request of the Company's Board of
Directors, subject to certain conditions. Subsequent to these
transactions, the Company announced its intention of pursuing an
active program of identifying, acquiring and managing
middle-market companies. The Company is not limiting its
opportunities to any single industry.
Concurrent with the redirection of the Company, management
undertook a program of converting the assets and outstanding
liabilities of its discontinued operation into cash. Management
completed the restructuring during the second quarter of 1990.
On July 1, 1991, ELXSI acquired 30 restaurants operating under
the Bickford's or Bickford's Family Fare names ("Bickford's") and
12 Howard Johnson's restaurants operating under the Howard
Johnson's name (collectively the "Restaurants"), which were
located in Massachusetts, Vermont, New Hampshire, Rhode Island
and Connecticut, from Marriott Family Restaurants, Inc.
("Marriott") for a purchase price of approximately $23,867,000,
including fees.
During 1992, ELXSI sold six of its Howard Johnson's restaurants,
converted four others into Bickford's and opened one new
Bickford's restaurant. During 1993, ELXSI opened three new
Bickford's restaurants. During 1994, ELXSI converted one of its
two remaining Howard Johnson's into a Bickford's restaurant and
opened two additional Bickford's restaurants. Currently, ELXSI
operates forty-one Bickford's restaurants and one Howard
Johnson's Restaurant, in its Bickford's Family Restaurant
division (the "Bickford's Division" or "Restaurant Division").
As used herein the term "Restaurants" refers to Bickford's and/or
Howard Johnson's restaurants owned and operated in the Restaurant
Division.
On October 30, 1992, ELXSI acquired Cues, Inc., of Orlando,
Florida and it's two wholly-owned subsidiaries, Knopafex, Ltd.,
of Toronto, Canada, and Cues B.V., of Maastricht, The
Netherlands. The Cues business in the United States is owned and
operated as a division of ELXSI, and such division, Knopafex Ltd.
and Cues B.V. are hereinafter collectively referred to as ("Cues"
or the "Cues Division").
Cues is principally engaged in the manufacture and servicing of
video inspection and repair equipment for wastewater and drainage
systems primarily for governmental municipalities, service
contractors and industrial users.
Financial Information about industry segments
Reference is made to the information set forth in Note 13
(Segment Reporting) to the Consolidated Financial Statements
included herein, which information is hereby incorporated by
reference herein.
Restaurant Division
The Restaurants are family-oriented and offer full service and
relatively inexpensive meals. Featuring a breakfast menu
available throughout the day, the restaurants appeal to customers
who are interested in a casual, low-to moderately-priced meal.
The Company has been successful at marketing the breakfast menu
concept to customers regardless of the time of day, and has
expanded lunch and dinner patronage by also offering improved
traditional lunch and dinner items. Most menu items are priced
between $2.65 and $6.95, with the average customer check being
approximately $4.96, $4.74 and $4.65 in 1994, 1993 and 1992,
respectively. Major categories of menu items are pancakes,
waffles and french toast, eggs and omelettes, "country" dinners,
soups and side orders, salads, hamburgers and sandwiches, and
desserts. Breakfast items and coffee account for approximately
75% of food sales.
Each Restaurant is open seven days a week, with most generally
open from 7:00 a.m. to 11:00 p.m. during the week and later on
weekends and with some open twenty-four hours on the weekends.
Some Restaurants are open twenty-four hours everyday.
Approximately 60% of weekly sales volume is generated Friday
through Sunday.
While the Company believes that the Restaurants appeal to a wide
variety of customers, they primarily cater to senior citizens and
families which are attracted to the high-quality,
moderately-priced meals. Each Restaurant generally draws its
customers from within a five mile radius and, consequently,
repeat business is extremely important to the restaurant
division's success. Repeat traffic accounts for a majority of
the Restaurant's sales.
Each of the original thirty Bickford's consists of a free
standing building that covers approximately 2,700 to 7,000 square
feet and are typically located adjacent to major roads and
highways and shopping malls. Nearly all contain two dining
areas, smoking and non-smoking. Twelve of the Bickford's
Restaurant buildings are owned, while the remaining twenty-nine
are a combination of leased or owned buildings on leased land.
The Howard Johnson's restaurant is a leased property.
Each Restaurant has a kitchen equipped with grill space and ovens
for service of baked foods. Seating capacity ranges from 100 to
200 people. Five of the Bickford's provide counter service.
Restaurant Expansion and Renovation
Prior to their acquisition by ELXSI, the Restaurants had to fund
their expansion exclusively from operations. The owner of the
restaurants prior to Marriott had been adding an average of two
new units per year until 1988, when Marriott purchased the chain;
however no units were added during the Marriott ownership period.
The average capital expenditure for the last two full years
during the Marriott ownership of Bickford's was $428,000. The
acquisition by ELXSI afforded an opportunity to renovate the
Bickford's Restaurants. Capital expenditures during the years
ended December 31, 1994, 1993 and 1992 were as follows:
1994 1993 1992
Expansion $ 485,000 $ 914,000 $ 336,000
Conversion 86,000 -- 286,000
Purchase Leased
Property 346,000 -- --
Renovation 95,000 289,000 184,000
Refurbishment &
Equipment 1,003,000 463,000 491,000
$2,015,000 $1,666,000 $1,297,000
The Company currently plans to spend $1,050,000 for renovations,
refurbishments and equipment replacements and $900,000 for
expansion at Restaurants during 1995. Management believes that
earnings from operations will be sufficient to fund this planned
expansion and renovation program.
The Company believes that increased profitability of the
Restaurants will come mainly from gaining market share by
continuing its programs to improve food products and service, and
through its programs of remodeling existing units, opening new
units and to a lesser extent, from price increases. The Company
believes that it is partially due to the foregoing that sales at
the original thirty Bickford's Restaurants have increased 6.1% in
1994 (including a 53rd week), 5.8% in 1993 and 7.4% in 1992, in
each case, over the prior year's sales: customer counts at the
original thirty Bickford's Restaurants have increased 1.5% in
1994 (including a 53rd week), 3.9% in 1993 and 1.1% in 1992, in
each case, over the prior year's counts: sales at same
Restaurants, including the five converted and one remaining
Howard Johnson's units, increased by 5.8% in 1994 (including a
53rd week) and 5.9% in 1993, in both cases, over the prior year's
sales, and customer counts at same Restaurants increased 1.2% in
1994 (including a 53rd week) and 4.3% in 1993, in both cases,
over the prior year's counts.
The Company takes an opportunistic approach to expansion.
Management evaluates both purchase and lease opportunities, and,
in most instances, new Restaurants will be opened utilizing
leased properties. The Company will open a new Restaurant only
if it can reasonably be expected to meet the Company's return on
investment criteria.
Restaurant Management and Supervision
Each Restaurant has a manager and one to three assistant
managers, at least one of whom must be on duty at all times
during restaurant hours. The managers are responsible for hiring
all personnel at the Restaurant level, managing the payroll and
employee hours and ordering necessary food and supplies. During
most of 1994, the Bickford's Division also had five area district
managers who, between them, cover all the Restaurants. The
district managers are responsible for the complete operation of
the Restaurants located in assigned geographical areas, including
responsibility for sales, profits and all operational policies
and procedures. The district managers, managers and assistant
managers are all salaried personnel, but are also compensated
with performance incentives which can provide 10% to 25% of their
total compensation. Bonuses paid under the program are based
principally upon monthly sales volume and store profitability.
Sources and Availability of Materials
Food supplies are distributed by various Company-approved
wholesalers and purveyors, which deliver directly to the
Restaurant locations. Essential supplies and raw materials are
available from several sources, and the Company is not dependent
upon any one supplier for its food supplies. The Company does
not maintain or engage in any warehousing or commissary
operations.
Seasonality
The Restaurants experience slightly higher revenues in the summer
months.
Customers
The Restaurants are not dependent upon a single customer or group
of customers, although a large portion of each Restaurant's
customers live within a five mile radius thereof and,
accordingly, repeat customers are important to the Bickford's
Division's success.
Competition
The Restaurants are in direct competition with many local
restaurants providing family oriented-meals, some of which are
owned, operated and/or franchised by national and regional
chains. The restaurant business is highly competitive with
respect to price, service, location and food quality. The
Company believes that its attention to quality and service, along
with low-to moderately-priced menu items, will continue to
attract customers.
Employees
As of December 31, 1994, the Restaurant Division employed
approximately 1,750 persons, of whom approximately 1,400 were
part-time hourly employees, approximately 180 were full-time
hourly employees and approximately 170 were salaried personnel.
This represents an increase of 150, mainly part time employees,
since December 31, 1993. None of the employees is represented by
unions.
Environmental Matters
The Restaurant Division is subject to various federal, state and
local laws, rules and regulations relating to the protection of
the environment that are typical for companies in its industry.
Management believes that compliance therewith will have no
material effect on its capital expenditures, earnings or
competitive position.
Cues Division
Cues manufactures systems which utilize remote control television
and sealing equipment to inspect and repair leaking joints and
small fractures in underground sewer lines. The infiltration of
groundwater into sewer pipelines through leaking joints and pipe
fractures burdens the capacity of sewage treatment plants by
increasing the volume of fluids being treated. Leaking joints
and pipe fractures can also contribute over a period of time to
sewer line damage which can be repaired, in severe cases, only by
costly excavation. Cues installs its systems in specially
designed trucks and vans which are sold as mobile units. Cues
also provides product servicing and replacement parts for its
customers and distributes chemical grout sealants used in
connection with its sealing equipment. The principal customers
of Cues are municipalities and contractors engaged in sewer
inspection and repair. Cues is not engaged in the service
business of maintaining and repairing sewer lines.
Inspection and Sealing Equipment
Cues's inspection and sealing equipment constitutes an integrated
system that combines the capability of inspecting underground
sewer lines with remote control television cameras creating a
permanent maintenance record of the condition of the sewer lines;
pressure testing sewer line joints; and applying chemical
sealants to repair leaking joints and small pipe fractures.
Cues's inspection and sealing systems are placed in sewer lines
through manholes. The module and the television camera, which is
a part of the module, relays a television picture of the interior
of that sewer line via cable to a monitoring station in a mobile
unit above ground. The television inspection system employs a
three inch diameter color camera that can be remotely adjusted
for close-up viewing of problem areas. By recording the position
of the camera as it moves through the sewer lines, the Cues'
inspection and sealing equipment gives the customer a permanent
record of the condition of its sewer lines. If the television
camera inspection of the sewer lines discloses a leaking joint or
pipe fracture, the sealing portion of the module may immediately
be positioned through use of the camera to make the repair. Once
the module is positioned, inflatable packers seal off the line at
either end of the damaged area and apply a chemical sealant which
penetrates the leak or fractures as well as the earth surrounding
the pipe, hardening to seal the line. The sealing module may
also be used to determine the structural integrity of the joint
by applying air or water pressure against the walls of the joint.
This pressure test enables the customer to detect leaking joints
that may not be easily detected visually.
The sealing module manufactured by Cues is used to repair sewer
lines where infiltration or inflow of water occurs through
leaking joints and pipe fractures. Repairs can last 20 years or
more, depending upon the structural soundness of the sewer line
or repaired joints. Cues's sealing equipment is not designed to
repair a severely damaged or collapsed pipe, which must be
excavated and replaced in the traditional manner or repaired by
the use of other sewer line repair technology. However, Cues's
television inspection system is often used to inspect and
identify structurally deficient or collapsed sewer lines in
conjunction with the use of other sewer line repair technology.
Cues has also adapted its sewer line inspection equipment for use
in the inspection, but not the repair of underground water wells,
as well as large pipe storm drains.
Cues also manufactures and sells a line of portable T.V.
inspection equipment used primarily for lateral inspection of
pipes ranging in size from 2 inches to 6 inches.
Product Servicing, Replacement Parts and Chemicals
Cues provides product servicing and repair at its facilities in
Orlando, Florida, Sacramento, California, Toronto, Canada and
Maastricht, The Netherlands. In Orlando, Cues also maintains an
inventory of replacement parts for distribution and sale to
customers. Cues recorded warranty expense of approximately
$196,000, $139,000 and $20,000, during the years 1994, 1993 and
the two months of 1992 after its acquisition by ELXSI,
respectively.
Product Development
Cues has an ongoing program to improve its existing products and
to develop new products. During the twelve months ended December
31, 1994, 1993 and 1992, approximately $287,000, $290,000 and
$125,000, respectively, was expended by Cues for product
development. Although Cues holds United States patents for
components of its products, management believes the expiration or
invalidity of any or all of such patents will not have a material
adverse effect on the business. For 1995, Cues plans to spend
approximately $350,000 for product development activities.
Source and Availability of Raw Materials
Cues manufactures certain components of its system and purchases
television cameras, monitors, vehicles, etc., which are readily
available from a number of sources.
Cues has an agreement with an Orlando, Florida truck dealer to
deliver truck bodies that are used in the manufacture of certain
of Cues's systems. Under this agreement, Cues reimburses the
dealer's floor plan financing costs for those vehicles held by
the dealer until delivery.
Marketing
Cues markets its products and services in the United States
though thirteen salesmen. In addition, technical service
representatives are located in Orlando, Sacramento, Toronto and
Maastricht. A major portion of the Cues's customer base is
municipalities. Other major customers include contractors
engaged in sewer line inspection and repair as well as
privately-owned sewer systems. No customer accounted for more
the 5% of Cues's 1994 sales. Cues participates in trade shows
and uses trade magazine advertising in the marketing of its
products and services. The Cues name is well established,
affording it and its products wide recognition within
its industry.
Outside North America, Cues markets its products in five
continents, either directly or through distributors, agents or
dealers. During 1994 and 1993, export sales to foreign countries
represented approximately 16% of total Cues sales. Sales by Cues
B.V. and Knopafex, Ltd. to foreign countries represent
approximately 66% and 57% of total foreign sales in 1994 and
1993, respectively.
At December 31, 1994 and 1993, Cues had backlog orders, which it
believed to be firm in an amount totaling approximately $1.9
million and $1.6 million, respectively.
Competition
Competition for products of the type produced by Cues is on the
basis of price, service and reliability, and management believes
that it competes effectively in these respects. Management also
believes that there are six companies which produce and sell
products which are competitive with those produced by Cues. The
majority of sales are generated through a bidding process
initiated by municipalities. This process has become extremely
price sensitive requiring Cues to meet or beat competitors' bids
in order to secure sales.
Employees
At December 31, 1994, Cues had 131 full and part-time employees,
none of whom was represented by a union. This includes 13
employees at Knopafex, Ltd. and 4 employees at Cues B.V.
Environmental
The Cues Division is subject to various federal, state and local
laws, rules and regulations relating to the protection of the
environment that are typical for companies in its industry.
Management believes that compliance therewith will have no
material effect on its capital expenditures, earnings or
competitive position.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
See Note 1 to the Consolidated Financial Statements for
background on the Company. In July 1989, the Company announced a
major restructuring of its operations and the termination of
ELXSI's development of large scale multiprocessor computer
systems and cessation of manufacturing operations at its facility
in San Jose, California.
The Company sold stock, notes and warrants to a group of
investors in connection with its restructuring efforts. See
"Restructuring" below for a more detailed discussion of this
sale. Following the sale, the Company withdrew from the computer
business and now intends to continue an active program of
identifying, acquiring and managing middle market companies.
Both the Company's corporate functions and Cues Division have
fiscal years consisting of four calendar quarters ending on
December 31. The Restaurant Division's fiscal years consist of
four 13-week quarters (and, accordingly, one 52-week period)
ending on the last Saturday in December closest to the 31;
however, this requires that every six or seven years the
Restaurant Division add an extra week at the end of the fourth
quarter and fiscal year.
With respect to recently issued accounting standards, including
SFAS 121, management does not anticipate that such standards will
have any material effect on the Company.
Year ended December 31, 1994
The Company's 1994 revenues and expenses resulted from the
operation of ELXSI's Restaurant, and Cues Divisions and the
Company's corporate expenses ("Corporate"). For the year ended
December 31, 1994, the Company's sales of $62,423,000, cost of
goods sold of $47,440,000, selling, general and administrative
expenses of $6,630,000, and depreciation and amortization of
$1,794,000, yielded an operating profit of $6,559,000. The
operating profit of $6,559,000 was increased by interest income
of $8,000 and reduced by interest expense of $1,426,000, other
expense of $41,000 and income taxes of $366,000 resulting in net
income from continuing operations of $4,734,000.
Restaurant Division The Restaurants had sales of $43,391,000,
cost of sales of $34,234,000, selling, general and administrative
expense of $1,293,000 and depreciation and amortization expense
of $1,460,000, which resulted in $6,404,000 of operating income.
In addition, the Restaurants had $266,000 of interest expense
related to the amortization of deferred financing fees and
capital leases, resulting in income before taxes of $6,138,000.
Included in the 1994 results, the fifty-third week added
approximately $810,000 in sales and, management estimates,
approximately $200,000 in operating income.
Cues Division Cues had sales of $19,032,000, cost of sales of
$13,206,000, selling, general and administrative expenses of
$4,146,000 and depreciation and amortization expense of $334,000,
which resulted in $1,346,000 of operating income. In addition,
Cues had $32,000 of interest expense, $27,000 of other expense
and $5,000 of tax adjustments resulting in income before taxes of
$1,282,000.
Corporate Corporate general and administrative expenses were
$1,191,000 in 1994. The major components of general and
administrative expense include the management fee paid to Milley
Management Incorporated ("MMI") (see the Company's 1993 proxy
statement for further information), the compensation accrual
related to the Bickford's Phantom Stock Option Plan (see the
Company's 1993 proxy statement for further information), legal
expense, corporate and Bickford's audit expense and shareholder
services and financial reporting expense. Interest expense was
$1,128,000, consisting of senior bank debt interest of $418,000
and subordinated note interest of $710,000. In addition, the
Company recorded interest income of $8,000, other expense of
$14,000 and a consolidated tax provision of $361,000 at the
corporate level.
Earnings Per Share Earnings per share and the weighted average
number of shares outstanding for the year ended December 31, 1994
were $0.79 and 6,014,000, respectively, both on a primary and
fully diluted share basis. This compares to $.72 per share
($0.69 fully diluted) for 1993, when there were 5,947,000
(6,234,000 fully diluted) shares outstanding. The average stock
price during 1994 and 1993 was $5.42 and $6.45, respectively.
The market price at December 31, 1994 and 1993 was $5.25 and
$8.13, respectively. The fully diluted earnings per share in
1993 were negatively impacted by the increase in the stock price
on December 31, 1993 to $8.13, as compared to an average price of
$6.45 per share for 1993. Due to the outstanding warrants and
options, which are considered common stock equivalents, a higher
stock price results in a greater number of outstanding shares for
the earnings per share calculation.
Year ended December 31, 1993
The Company's 1993 revenues and expenses resulted from the
operation of ELXSI's Restaurant, and Cues Division and from
"Corporate". For the year ended December 31, 1993, the Company's
sales of $55,682,000, cost of goods sold of $41,338,000, selling,
general and administrative expenses of $6,406,000, and
depreciation and amortization of $1,589,000, yielded an operating
profit of $6,349,000. The operating profit of $6,349,000 was
reduced by interest expense of $1,653,000, other expense of
$80,000 and income taxes of $348,000 resulting in net income from
continuing operations of $4,268,000.
Restaurant Division The Restaurants had sales of $38,903,000,
cost of sales of $30,152,000, selling, general and administrative
expense of $1,248,000 and depreciation and amortization expense
of $1,288,000, which resulted in $6,215,000 of operating income.
In addition, the Restaurants had $293,000 of interest expense
primarily related to the amortization of deferred financing fees
resulting in income before taxes of $5,922,000.
Cues Division Cues had sales of $16,779,000, cost of sales of
$11,186,000, selling, general and administrative expenses of
$4,082,000 and depreciation and amortization expense of $301,000,
which resulted in $1,210,000 of operating income. In addition,
Cues had $26,000 of interest expense, $75,000 other expense and
$3,000 of tax adjustments resulting in income before taxes of
$1,106,000.
Corporate Corporate general and administrative expenses were
$1,076,000 in 1993. The major components of general and
administrative expense include the management fee paid to MMI,
the compensation accrual related to the Bickford's Phantom Stock
Option Plan, legal expense, corporate and Bickford's audit
expense and shareholder services and financial reporting expense.
Interest expense was $1,334,000, consisting of senior bank debt
interest of $594,000 and senior subordinated note interest of
$740,000. In addition, the Company recorded other expense of
$5,000 and a consolidated tax provision of $345,000 at the
corporate level.
Earnings Per Share Earnings per share for the year ended
December 31, 1993 were $0.72 ($0.69 per share fully diluted).
The weighted average number of shares outstanding for 1993 was
5,947,000 (6,234,000 shares fully diluted). This compares to
$.68 per share for the corresponding period in 1992, when there
were 5,212,000 and 5,211,000 shares outstanding for primary and
fully diluted basis, respectively.
Year ended December 31, 1992
The Company's 1992 revenues and expenses primarily result from
the operation of the Restaurant Division and "Corporate", and two
months of the operation of Cues, which was acquired by ELXSI
October 30, 1992. For the year ended December 31, 1992 the
Company's sales of $38,139,000, cost of goods sold of
$29,168,000, selling, general and administrative expenses of
$2,761,000, and depreciation and amortization of $1,138,000,
yielded an operating profit of $5,072,000. The operating profit
of $5,072,000 was reduced by interest expense of $1,496,000,
income taxes of $260,000 and increased by other income of
$222,000 resulting in net income of $3,538,000.
Restaurant Division The Restaurants had sales of $36,100,000,
cost of sales of $27,877,000, selling, general and administrative
expense of $1,179,000 and depreciation and amortization expense
of $1,086,000, which resulted in $5,958,000 of operating income.
In addition, the Restaurants had $199,000 of interest expense
primarily related to the amortization of deferred financing fees
resulting in income before taxes of $5,759,000.
Cues Division From the acquisition date to December 31, 1992,
Cues had sales of $2,039,000, cost of sales of $1,291,000,
selling, general and administrative expenses of $597,000 and
depreciation and amortization expense of $52,000, which resulted
in $99,000 of operating income. In addition, Cues had $26,000 of
other income and $3,000 of tax expense resulting in income before
taxes of $122,000.
Corporate Corporate general and administrative expense were
$985,000 in 1992. The major components of general and
administrative expense include the management fee paid to MMI,
the compensation accrual related to the Bickford's Phantom Stock
Option Plan, legal expense, corporate and Bickford's audit
expense and shareholder services and financial reporting expense.
Interest expense was $1,296,000, consisting of senior bank debt
interest of $554,000 and senior subordinated note interest of
$742,000. In addition, the Company received $195,000 in
consulting income and recorded a consolidated income tax
provision of $257,000 at the corporate level.
Earnings Per Share Earnings per share for the year ended
December 31, 1992 were $0.68 and the weighted average number of
shares outstanding for 1992 was 5,212,000 (5,211,000 fully
diluted). This includes the effect of issuing 751,000 shares on
October 30, 1992 in connection with the acquisition of Cues.
Comparison of 1994 results to 1993 results
The 1994 sales increased $6,741,000, or 12.1%, gross profit
increased $639,000, or 4.5%, selling, general and administrative
expense increased $224,000, or 3.5% and depreciation and
amortization increased $205,000 or 12.9% resulting in an
operating income increase of $210,000 or 3.3% in each case as
compared to the corresponding period in 1993. Interest expense
decreased by $227,000, or 13.7%, interest income increased by
$8,000, or 100%, other expense decreased by $39,000, or 48.8% and
income taxes increased by $18,000, or 5.2% resulting in an
increase in net income of $466,000, or 10.9%.
Restaurant Division Restaurant sales increased by $4,488,000,
or 11.5%, in 1994, which, included a 53rd week. Including the
53rd week in 1994, the original thirty Bickford's Restaurants
acquired in 1991 had a sales increase of $1,791,000, or 6.1%, and
the five converted Howard Johnson's had a sales increase of
$399,000, or 6.6%, while the one remaining Howard Johnson's unit
had a sales decline of $51,000, or 3.2%. New Restaurants
accounted for the remaining portion of the sales increase,
totalling $2,349,000. The sales increase is mainly attributable
to an increase in the average guest check ($1,694,000), the
addition of new restaurants ($2,375,000) and the inclusion of a
53rd week in 1994 ($810,000), partially offset by a customer
count decline ($391,000). Including the 53rd week, the original
thirty Bickford's Restaurants had a 1.5% increase in customer
counts, the five converted Howard Johnson's Restaurants had a
1.8% increase in customer counts, while the one Howard Johnson's
Restaurant had a 7.1% decline in customer counts. The last
Howard Johnson's Restaurant is located near one of the three
Bickford's Restaurants licensed to an unrelated third party and
may not be converted into a Bickford's. Management is continuing
to focus on improving sales at all Restaurants through attention
to customer service, food quality, new menu items and Restaurant
refurbishments.
Restaurant gross profit increased by $406,000, but declined as a
percentage of sales from 22.5% in 1993 to 21.1% in the 53 weeks
ended December 31, 1994. The main factor in the 1.4% decline in
the gross profit percentage was a .8% increase in food costs as
a percentage of sales, which was primarily attributable to the
sale of higher-cost dinner items and an increase in coffee prices
during 1994. Management does not anticipate any significant
increases in food costs during 1995 but is prepared to
selectively increase prices to counter rising food costs as
needed. Other factors that contributed to the decrease in the
gross margin were a .4% increase in labor costs due to increases
in taxes , medical insurance and workers compensation insurance
premiums and a .4% increase in fixed costs consisting mainly of
increases in real estate taxes as a result of receiving and
recording in 1993 tax abatements for 1993 and prior years.
Restaurant selling, general and administrative expense increased
by $45,000 during 1994 over 1993. No individual items
represented a major portion of the increase.
Restaurant depreciation and amortization increased by $172,000
during 1994 compared to 1993. Restaurant depreciation and
amortization will continue to increase each year with the
addition of new Restaurants or until such time as assets valued
and recorded at the date of the restaurant acquisition in July
1991 become fully depreciated. The equipment acquired in that
acquisition has a seven year useful life, and will become fully
depreciated in 1998.
As a result of the above, Restaurant operating income increased
by $189,000 in the 53 weeks ended December 31, 1994 compared to
1993. Management estimates that the inclusion of a 53rd week in
1994 added approximately $200,000 to operating income that year.
Cues Division Cues sales increased by $2,253,000, or 13.4%, in
1994 compared to 1993. As a percentage of sales, Cues gross
profit declined by 2.7% in 1994 compared to 1993. Despite the
decline in the gross profit percentage, Cues gross profit
increased by $233,000. This was partially offset by a $64,000
increase in selling, general and administrative expense and a
$33,000 increase in depreciation and amortization expense. As a
result of the above, operating profit increased by $136,000 in
1994 compared to 1993. Management anticipates that gross and
operating margins will continue to experience pressure in 1995
due to the fact that Cues's customers continue to stress pricing
factors in awarding contracts through the bidding process.
Corporate Corporate general and administrative expenses
increased by $115,000 during 1994 as compared to 1993, mainly due
to an increase in the Bickford's management compensation accrual
related its Phantom Stock Option Plan, an increase in
professional fees and corporate move-related costs. Interest
expense decreased by $206,000 in 1994 as compared to 1993, due to
lower debt balances partially offset by a higher average bank
interest borrowing rate in 1994. The borrowing rate remained at
prime plus 1.5% during 1994, however the prime rate increased by
2.5% from 6% at January 1, 1994 to 8.5% at December 31, 1994.
Comparison of Fourth Quarter 1994 Results to Fourth Quarter 1993
Results
The 1994 fourth quarter sales increased $1,573,000, or 11.1%,
gross profit increased $252,000, or 6.9%, selling, general and
administrative expense increased $35,000, or 2.1% and
depreciation and amortization increased $51,000 or 13.7%
resulting in an operating income increase of $166,000 or 10.1% in
each case as compared to the corresponding 1993 period. Interest
expense decreased by $63,000, or 15.4%, interest income increased
by $8,000, or 100% and income taxes increased by $63,000, or 485%
resulting in an increase in net income of $174,000, or 14.5%.
Restaurant Division The restaurants experienced a $324,000, or
14.5% increase in gross profit, on increased sales of
$1,951,000, or 19.8% in the 14 weeks ended December 31, 1994
compared to the 13-week 1993 fourth quarter. Operating income
increased $259,000, or 16.0% after deducting increases in
selling, general and administrative expense of $38,000 and an
increase in depreciation and amortization of $27,000. The sales
increase (including a 14th week in the 1994 fourth quarter) was
attributable to the original thirty Bickford's Restaurants
($892,000, or 12.1%), the five converted Howard Johnson's
($170,000, or 11.5%), the one remaining Howard Johnson's ($16,000
or 4.1%) and two new units ($873,000). The fourth quarter sales
increase (including a 14th week) was the result of an increase in
the average guest check ($484,000), new Restaurants ($799,000),
the inclusion of the 14th week in 1994 ($810,000), partially
offset by a customer count decline of $142,000. Including the
14th week, the original thirty Bickford's Restaurants had a 6.9%
increase in customer counts, the converted Howard Johnson's had a
5.6% increase in customer counts, while the Howard Johnson's had
a 2.9% decline in customer counts during the fourth quarter of
1994. The gross profit increased by $324,000 despite a 1%
decline in the gross profit percentage. The gross profit
percentage declined due to a 1.1% increase in food costs as a
result of higher coffee prices and the sale of higher cost menu
items, a .7% increase in labor consisting of half salaries and
half benefits, including payroll taxes, a .5% increase in fixed
costs as a result of recording real estate tax abatements in the
fourth quarter of 1993 and not in 1994. These cost increases
were partially offset by a 1.3% decline in variable costs as a
percentage of sales as a result of increased sales due to the
53rd week in 1994. The consolidated increase in interest expense
includes additional interest of $33,000 associated with capital
leases obligations at the Restaurant division.
Cues Cues sales decreased by $378,000, or 8.8% in the fourth
quarter of 1994 compared to 1993, however the gross margin only
decreased by $72,000, or 5.0% due to a 1.4% increase in the
fourth quarter 1994 gross margin percentage. The decrease in
sales was the result of a lower volume of major units being
shipped in the 1994 fourth quarter as compared to the fourth
quarter of 1993, while the improved gross margin percentage was
the result of a larger portion of the fourth quarter sales
consisting of higher-margin "after market" sales. Fourth quarter
1994 selling, general and administrative expenses decreased by
$29,000 and depreciation and amortization expense increased by
$24,000 resulting in a decrease in operating income of $67,000
compared to the same period in 1993.
Corporate Corporate selling, general and administrative expenses
increased by $26,000 in the fourth quarter of 1994 compared to
the same period in 1993. Interest expense declined $32,000,
interest income increased by $8,000 and other income decreased
$4,000 in the fourth quarter of 1994 compared to the same period
of 1993. The provision for income taxes increased by $65,000 in
the fourth quarter of 1994 compared to the same period in 1993.
Comparison of 1993 results to 1992 results
The primary difference between 1993 and 1992 is the inclusion of
Cues operating results for twelve months in 1993 compared to two
months in 1992.
Restaurant Division Restaurant sales increased by $2,803,000, or
7.8% in 1993 compared to 1992. The original thirty Bickford's
Restaurants acquired in 1991 had a sales increase of $1,609,000,
or 5.8%, the four converted Howard Johnson's sales increased by
$620,000 or 18.4%, while the two remaining Howard Johnson's units
had a sales decline of $188,000, or 4.9% in 1993, in each case
compared to 1992. New Restaurants accounted for an additional
$1,980,000 sales increase, while the six Howard Johnson's
restaurants sold in 1992 had sales of $1,218,000 in 1992
(compared to zero in 1993). The sales increase is primarily
attributable to an increase in customer counts. The original
thirty Bickford's Restaurants had a 3.9% increase in customer
counts, the converted Howard Johnson's had a 17.1% customer count
increase, while the Howard Johnson's had a 4.6% decline in
customer counts.
Restaurant gross profit increased by $528,000 in 1993 versus
1992, or 6.4%, but declined as a percentage of sales from 22.8%
in 1992 to 22.5% in 1993. The main factor in the decline of the
gross profit percentage was a .6% increase in food costs as a
percentage of sales, which was primarily attributable to an
increase in sales of higher-cost dinner items.
Restaurant selling, general and administrative expense increased
by $69,000 during 1993. No individual items represented a major
portion of the increase.
As a result of capital spending, Restaurant depreciation and
amortization increased during 1993 by $202,000, or 18.6%,
compared to 1992 .
As a result of the above, Restaurant operating income increased
by $257,000 or 4.3%, in 1993 versus 1992.
Cues Division ELXSI acquired Cues on October 30, 1992 and,
consequently only two months of its results are included in 1992.
As a percentage of sales, Cues gross profit declined by 3.4% in
1993 compared to the two month period in 1992. This was offset
by a 5.0% decrease in selling, general and administrative expense
as a percentage of sales. As a result of the above and a .7%
decline in depreciation and amortization expense, operating
profit as a percentage of sales increased by 2.3% in 1993
compared to the two month period in 1992.
Corporate Corporate general and administrative expenses
increased by $91,000 during 1993 mainly due to an increase in the
Bickford's management compensation accrual related to the its
Phantom Stock Option Plan, and an increase in shareholder
services expense partially offset by a decrease in its
restructuring liability. Interest expense increased by $38,000
due to a higher average debt balance in 1993 compared to 1992, as
a result of the Cues acquisition in October 1992, partially
offset by a lower average bank interest borrowing rate during
1993. The borrowing rate was decreased from prime plus 2% to
prime plus 1.5% on October 30, 1992.
Restructuring
In connection with the restructuring of operations, the Company,
on September 25, 1989, pursuant to the Stock Purchase Agreement
sold for an aggregate purchase price of $5,000,000 (i) to Airlie
960,000 shares of Common Stock, seven-year Series A Warrants to
purchase an additional 1,053,500 shares of Common Stock at an
exercise price of $3.125 per share and $1,750,000 principal
amount of the Company's 15% senior subordinated ten-year notes
(the "15% Notes") and (ii) to M & C, seven-year Series A Warrants
to purchase 150,500 shares of Common Stock at an exercise price
of $3.125 per share and $250,000 principal amount of the 15%
Notes. In addition, Airlie and CIEC granted to ELX Limited
Partnership ("ELX"), of which Alexander M. Milley is the sole
general partner, a seven-year option to purchase up to 480,000 of
Airlie's 960,000 shares of the Common Stock, at an exercise price
of $3.125 per share.
In January 1990, Continental Illinois Equity Corporation ("CIEC"
and, together with Airlie and M&C, the "Buyers") purchased from
Airlie 220,400 shares (adjusted for the reverse split) of the
Company's Common Stock as well as $401,765 principal amount of
the 15% Notes. In addition, the Company and Airlie agreed that
the Series A Warrants to purchase 1,053,500 shares of the
Company's Common Stock previously acquired by Airlie, would be
exchanged for two warrants, one exercisable for 811,638 shares of
Common Stock and one Series B Warrant exercisable for 604,656
shares of the Company's Series A Non-Voting Convertible Preferred
Stock, which is convertible, under certain conditions, into
241,862 shares of the Common Stock. The Series A Non-Voting
Convertible Preferred Stock pays no fixed dividends and generally
does not vote. Following the issuance of these two warrants, the
Series B Warrant was sold by Airlie to CIEC. In addition, in
connection with such purchases, the option previously granted by
Airlie to ELX was amended to be exercisable for 369,800 shares of
Common Stock from Airlie, and 110,200 shares of Common Stock from
CIEC.
As a result of the Stock Purchase Agreement, the Buyers acquired,
as a group, on a fully diluted basis, approximately 38% of the
Common Stock of the Company.
On June 27, 1991 in connection with the Restaurant acquisition,
the Company sold $2,500,000 of ten year senior subordinated notes
bearing interest of 14.5% per annum (the "14.5% Notes") to the
Buyers, as follows; Airlie $1,685,294, CIEC $502,206 and MMI
$312,500.
In November 1993, Airlie sold $500,000 of it's 14.5% Notes.
Cadmus Corporation ("Cadmus"), of which MMI is a controlling
stockholder and Mr. Milley is Chairman and President, purchased
$125,000 of the 14.5% Notes and three unrelated entities
purchased the remaining $375,000 of the 14.5% Notes from Airlie.
In May 1994, the Company prepaid, without penalty, the 14.5% Note
and 15% Note totalling $563,000, held MMI, of which Mr. Milley is
the President and majority stockholder. MMI having obtained the
15% Note when M&C was merged into MMI in 1990.
In December 1994, the Company purchased from Airlie its remaining
investments in the Company: (i) 354,638 shares of Common Stock at
a price of $5.25 per share, (ii) 761,638 Series A Warrants at a
price of $2.125 per share (being the difference between $5.25 and
the exercise price per share of such Warrants), and (iii) 15%
Notes and 14.5% Notes having a combined principal amount of
approximately $2,534,000. In connection with and at the time of
this transaction, ELX exercised its existing option to purchase
369,800 shares of Common Stock from Airlie. Financing of the
exercise price, $1,156,000, was provided by a three-year loan
made by the Company at an interest rate equal to the cost of such
funds to the Company plus .5%. As of the date hereof the entire
principal amount of such loan plus accrued interest is
outstanding. Also in connection with and at the time of the
Airlie transaction, Cadmus purchased from Airlie 50,000 shares of
Company Common stock at a price of $5.25 per share. Funds for
this purchase were partially provided through a prepayment by the
Company of the 14.5% Note acquired by Cadmus as described above.
In January 1995, the Company purchased from Morgens Waterfall
Vintiadis & Co. (and/or one or more entities affiliated or
investing therewith) ("Morgens Waterfall") 240,000 shares of
Company Common Stock at a price of $5.10 per share. During 1994,
Morgens Waterfall held over 5% of the outstanding Common Stock.
Also in connection with the Stock Purchase Agreement, the
Company, entered into a Management Agreement on September 25,
1989. Such Management Agreement, as subsequently assigned,
provides for Cadmus to receive, for management services rendered,
compensation of $500,000 per year commencing with the first
fiscal quarter in which the Company has operating income (as
defined), of $1,250,000 (achieved in the quarter of September
1991), plus reimbursement for reasonable expenses. The services
rendered include participating actively in the management of the
Company and of its Subsidiary; it is through the management
agreement that the Company is provided the services of many of
its officers and that they get compensated as such. Specific
examples of management services provided include the ongoing
evaluation of management, preparing and reviewing division
operating budgets and plans, evaluating new restaurant
locations, divesting under performing assets, negotiating
environmental matters, negotiating with lenders, evaluating
financing options, complying with public reporting requirements,
communicating with shareholders, negotiating and arranging
insurance programs, monitoring tax compliance, evaluating and
approving capital spending, preparing market research, developing
and improving management reporting systems, surfacing and
evaluating acquisitions, etc. The compensation shall be
discontinued following a year in which the Company has operating
income (as defined) of less than $4,000,000 but must be
reinstated in the month following a quarter in which the Company
has operating income (as defined) of $1,250,000. During each of
1994, 1993 and 1992, ELXSI was charged $500,000 under the
agreement. MMI also provides the Company with general and
administrative services. During 1994, 1993 and 1992, the Company
was charged $41,000, $42,000 and $42,000, respectively, for such
items. At December 31, 1994 and 1993, accrued expenses includes
$20,000 and $49,000, respectively due to MMI under such
agreement.
Acquisitions
ELXSI purchased Cues on October 30, 1992. In connection with the
acquisition, the Company issued 751,000 shares of it's Common
Stock valued at $4.25 per share and a Series C Warrants to
purchase an additional 68,762 common shares at $4.36 per share to
the former parent of Cues. In addition, ELXSI borrowed
$4,211,000 on its amended bank line of credit to pay the
outstanding debt of Cues to its former parent. The acquisition
was accounted for as a purchase and the results of Cues are
included in the consolidated statement of operations from the
date of acquisition. The excess of the cost over the fair value
of net assets acquired of $3,690,000 is being amortized on a
straight line basis over 35 years. The acquisition included all
of the assets and liabilities of Cues, and its subsidiaries. The
shares and warrants issued in this acquisition were subsequently
distributed by Cues's former parent to is stockholders, including
MMI.
On July 1, 1991, ELXSI acquired the Restaurants, which are
located in Massachusetts, Vermont, New Hampshire, Rhode Island
and Connecticut, from Marriott for a purchase price of
approximately $23,867,000, including fees. The Bickford's and
Howard Johnson's are family oriented restaurants with a wide
ranging, moderately priced menu, with a focus on breakfast fare.
Income Taxes and Inflation
In 1994, the Company recorded a provision for federal alternative
minimum taxes of $88,000 (after the benefit of federal net
operating loss carryforwards of $1,526,000), and a state income
tax provision of $278,000 (after the benefit of state net
operating loss carryforwards). In 1993, the Company recorded a
provision for federal alternative minimum taxes of $116,000
(after the benefit of federal net operating loss carryforwards of
$1,615,000), and a state income tax provision of $232,000 (after
the benefit of state net operating loss carryforwards).
Approximately one-third of ELXSI's consolidated taxable income is
apportioned to Massachusetts. The final year that the net
operating loss is available to ELXSI to offset Massachusetts
taxable income is 1994 because the five year Massachusetts
carryforward period expired in 1995. During 1994 and 1993, ELXSI
would have recorded a provision for additional state income taxes
of $190,000 and $230,000, respectively, had the Massachusetts net
operating loss carryforwards not been available. At December 31,
1994, the Company had approximately $226,000,000 in federal net
operating loss carryforwards, which begin to expire in 1997 if
not used. In addition, the Company had $6,500,000 in investment
tax credit and research and development credit carryforwards
available to reduce future federal income taxes.
In 1992, the Company recorded a provision for federal alternative
minimum taxes of $81,000 (after the benefit of federal net
operating loss carryforwards of $1,120,000) and a state income
tax provision of $179,000 (after the benefit of state net
operating loss carryforwards).
Inflation and changing prices have not had a material impact on
the Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Available Resources. The Company's consolidated unrestricted
cash positions at December 31, 1994 and 1993 were $0. See Note 2
to the Consolidated Financial Statements herein.
During 1994, the Company had cash flow from operations before
working capital and other changes of $6,730,000. Working capital
changes and other assets and liabilities increased cash flow from
operations to $6,871,000, which along with a net borrowing of
$225,000 in long term debt funded the acquisition of property,
plant and equipment totalling $2,363,000 (including the two new
Restaurants opened in 1994), a loan to ELX Partners Limited of
$1,156,000, the repurchase of Common Stock and Series A Warrants
of $3,499,000 and the payment of bank fees of $109,000. The
$225,000 net borrowing of long-term debt consists of borrowing of
bank debt of $3,427,000, borrowing of other Cues debt of $19,000
and repayment of long-term 14.5% Notes and 15% Notes of
$3,221,000. During 1994, current assets increased by $286,000
primarily due to an increase in Cues's inventory partially offset
by a decline in Cues's accounts receivable and a decrease in
Bickford's Division prepaid expenses. Inventory increased due to
increased monthly production volume caused by increased sales
orders at Cues and the introduction and development of new
products. The increase in current assets was partially offset by
an increase in current liabilities of $136,000 (excluding the
current portion of the long-term debt and current portion of
long-term capital leases).
During 1993, the Company had cash flow from operations before
working capital and other changes of $6,032,000. Working capital
changes and other assets and liabilities reduced cash flow from
operations to $4,023,000, which funded the acquisition of
property, plant and equipment totalling $1,856,000 (including the
three new Restaurants opened in 1993), the payment of long-term
bank debt of $1,946,000, the payment of other Cues debt of
$189,000 and the payment of capital leases obligations of
$32,000. During 1993, current assets increased by $2,675,000
primarily due to an increase in Cues's accounts receivable and
inventory. The increase in accounts receivable was mainly
attributable to current accounts receivable (i.e., those accounts
less than 30 days old), which increased by $571,000 at December
31, 1993 as compared to December 31, 1992. The percentage of
accounts greater than sixty days old decreased from 26% at
December 31, 1992 to 24% at December 31, 1993. Cues's inventory
increased due to increased monthly production volume caused by
increased sales orders and the introduction and development of
new products. The increase in current assets was partially
offset by an increase in current liabilities of $813,000.
During 1992, the Company had cash flow from operations before
working capital and other changes of $4,855,000. Working capital
and other changes added $259,000 to cash flow from operations
resulting in cash flow provided from operating activities of
$5,114,000. The cash flow from operations funded the acquisition
of property, plant and equipment totalling $1,342,000, the
payment of long-term bank debt of $4,628,000, the payment of
other Cues debt of $85,000 and the payment of capital leases
obligations of $18,000. In connection with the acquisition of
Cues, the Company borrowed $4,211,000 of bank debt on October 30,
1992 to pay the outstanding debt obligation of Cues to its former
parent. A further source of cash during 1992 was the net
proceeds of $959,000 from the sale of the six Howard Johnson's
restaurants.
The Company has instituted a cash management system whereby the
net cash generated by operations is immediately used to reduce
bank debt. The immediate reduction of outstanding debt provides
the Company with a reduction in interest expense greater than the
interest income that the cash could earn from alternative
investments. Working capital needs, when they arise, are met by
daily borrowings.
Future Needs For and Sources of Capital. Management believes
that cash generated by operations is sufficient to fund current
operations including the interest payments on the senior bank
debt and interest payments on the remaining $1,251,000 of 14.5%
Notes and 15% Notes. With bank approval, excess funds are
available under the Company's loan Agreement to finance
additional acquisitions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements of the Company for each of
the fiscal years in the three-year period ended December 31,
1994, together with the report thereon of Price Waterhouse LLP
dated March 24, 1995, are filed as part of this report commencing
on page F-1.
PAGE
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ELXSI CORPORATION
By: /s/ Alexander M. Milley
-----------------------
Alexander M. Milley
Chairman of the Board,
President and
Chief Executive Officer
Dated: September 13, 1995
<PAGE>
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders of
ELXSI Corporation
In our opinion, the consolidated financial statements listed in
the index appearing under Item 14(a)(1) and (2) on page 24,
present fairly, in all material respects, the financial position
of ELXSI Corporation and its subsidiary at December 31, 1994 and
1993, and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Orlando, Florida
March 24, 1995
PAGE
<PAGE>
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
A S S E T S
December 31, December 31,
1994 1993
------------ ------------
Current assets:
Accounts receivable, less
allowance for doubtful
accounts of $35 and $77
in 1994 and 1993,
respectively $ 2,278 $ 2,579
Inventories 6,208 5,414
Prepaid expenses and
other current assets 205 412
---------- ----------
Total current assets 8,691 8,405
Property, buildings and equipment,
net 24,275 23,533
Intangible assets, net 5,891 6,071
Deferred debt costs, net 322 392
Note receivable - related party 1,156 --
Other 181 119
---------- ----------
Total assets $ 40,516 $ 38,520
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE
<PAGE>
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
1994 1993
----------- -----------
Current liabilities:
Accounts payable and drafts
payable $ 4,016 $ 3,711
Accrued expenses 4,002 3,721
Capital lease obligations -
current 33 36
Current portion of long-term
debt 1,063 16
Other current liabilities -- 450
------------ ---------
Total current liabilities 9,114 7,934
Capital lease obligations -
non current 1,569 1,593
Long-term debt, net of discount 9,639 10,371
Other liabilities 796 496
------------ ----------
Total liabilities 21,118 20,394
Commitments and contingencies
(Note 8)
Stockholders' equity:
Preferred stock, Series A Non-voting
Convertible, par value $0.002 per
share
Authorized--5,000,000 shares
Issued and outstanding--none -- --
Common stock, par value $0.001 per
share
Authorized--160,000,000 shares
Issued and outstanding--5,032,333
at December 31, 1994 and 5,368,870
at December 31, 1993 5 5
Additional paid-in capital 230,890 234,331
Accumulated deficit (211,441) (216,175)
Cumulative foreign currency
translation adjustment (56) (35)
------------- ----------
Total stockholders' equity 19,398 18,126
------------- ---------
Total liabilities and
stockholders' equity $ 40,516 $ 38,520
============ =========
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE
<PAGE>
ELXSI CORPORATION
CONSOLIDATED INCOME STATEMENT
(Amounts in Thousands, Except Per Share Data)
Year Ended December 31,
-----------------------------
1994 1993 1992
------- ------- -------
Net sales $62,423 $55,682 $38,139
Costs and expenses:
Cost of sales 47,440 41,338 29,168
General and administrative 6,630 6,406 2,761
Depreciation and amortization 1,794 1,589 1,138
------- ------- -------
Operating income 6,559 6,349 5,072
Other income (expense):
Interest income 8 -- --
Interest expense (1,426) (1,653) (1,496)
Other (expense) income (41) (80) 222
------- ------- -------
Income before income taxes 5,100 4,616 3,798
Provision for income taxes 366 348 260
------- ------- -------
Net income $ 4,734 $ 4,268 $ 3,538
======= ======= =======
Primary net income per
common share $ 0.79 $ 0.72 $ 0.68
======= ======= =======
Fully diluted net income
per common share $ 0.79 $ 0.69 $ 0.68
======= ======= =======
Weighted average number of common
and common equivalent shares
Primary 6,014 5,947 5,212
======= ======= =======
Fully Diluted 6,014 6,234 5,211
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
Cumulative
Foreign
Additional Accum- Currency
Common Paid-In ulated Translation
Stock Capital Deficit Adjustment
------ ---------- ------- ----------
Balance at December
31, 1991 $ 113 $231,031 $(223,981) $ --
One for twenty-five
reverse stock split (108) 108 -- --
Issuance of 751,000
shares -- 3,192 -- --
Foreign currency
translation
adjustment -- -- -- (8)
Net income -- -- 3,538
----- -------- --------- ------
Balance at December
31, 1992 5 234,331 (220,443) (8)
Foreign currency
translation
adjustment -- -- -- (27)
Net income -- -- 4,268 --
Balance at December
31, 1993 5 234,331 (216,175) (35)
Foreign currency
translation
adjustment -- -- -- (21)
Purchase of 354,963
shares of Common
Stock and warrants
to purchase
761,638 shares of
Common Stock -- (3,499) -- --
Exercise of Common
Stock options
to purchase
18,400 shares -- 58 -- --
Net income -- -- 4,734 --
----- -------- --------- ------
Balance at December
31, 1994 $ 5 $230,890 $(211,441) $ (56)
===== ======== ========= ======
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
Year Ended December 31,
-------------------------------
1994 1993 1992
-------- -------- ---------
Cash flows from operating
activities:
Net income $ 4,734 $ 4,268 $ 3,538
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,794 1,589 1,138
Amortization of deferred
debt costs 126 157 144
Amortization of debt discount 90 43 43
Loss on disposal of equipment 7 2 --
Change in cumulative foreign
currency translation
adjustment (21) (27) (8)
(Increase) decrease in assets:
Accounts receivable 301 (996) 803
Inventories (794) (1,709) (125)
Prepaid expenses and
other current assets 207 30 34
Other (9) (110) 5
Increase (decrease) in liabilities:
Accounts payable and
drafts payable 305 1,197 (298)
Accrued expenses 281 (671) (406)
Other current liabilities (450) -- --
Other liabilities 300 250 246
---------- ---------- ---------
Net cash provided by
operating activities 6,871 4,023 5,114
---------- ---------- ---------
Cash flows from investing
activities:
Acquisition of Cues, Inc. -- -- (4,211)
Purchase of property, building
and equipment (2,363) (1,856) (1,342)
Note receivable (1,156) -- --
Proceeds of sales of
restaurants -- -- 959
---------- ---------- ---------
Net cash used in
investing activities $ (3,519) $ (1,856) $ (4,594)
---------- ---------- ---------
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Dollars in Thousands)
Year Ended December 31,
-----------------------------
1994 1993 1992
------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt $ -- $ -- $ 4,211
Net borrowing (payment) of
line of credit 3,446 (2,135) (4,713)
Payments of long-term
senior subordinated debt (3,221) -- --
Purchase of Common Stock
and warrants to
purchase Common Stock (3,499) -- --
Proceeds from exercise of
common stock
options 58 -- --
Payment of deferred bank fee (109) -- --
Principal payments on
capital lease (27) (32) (18)
------- -------- --------
Net cash used in financing
activities (3,352) (2,167) (520)
------- -------- --------
Decrease in cash and
cash equivalents -- -- --
Cash and cash equivalents,
beginning of period -- -- --
------- -------- --------
Cash and cash equivalents,
end of period $ -- $ -- $ --
======= ======== ========
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the year for:
Interest $1,324 $1,482 $1,341
Taxes 455 223 338
Supplemental Disclosure of Noncash Investing and Financing
Activities:
In September 1989, the Company recorded a $301,000 warrant
discount upon issuance of $2,000,000 in senior subordinated
notes. Interest expense on the Income Statement for each of the
years ended December 31, 1994, 1993 and 1992 includes $43,000,
respectively of amortization of this debt discount. During 1994,
the Company prepaid a portion of the senior subordinated notes
and wrote off an additional $47,000 of the debt discount, which
is included in interest expense during 1994.
In connection with the acquisition of Cues, Inc. (see Note 3) the
Company issued 751,000 shares of Common Stock to the former
parent of Cues, Inc.
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE
<PAGE>
ELXSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
NOTE 1. The Company
General Prior to 1990, ELXSI Corporation (together with its
subsidiary, the "Company") operated principally through its
wholly-owned California subsidiary, ELXSI. During that period,
the principal business of ELXSI was the design, manufacture, sale
and support of minisupercomputers. In July 1989, the Company
announced a major restructuring of its computer operations. In
September 1989, the Company discontinued all computer operations.
In September 1989 and January 1990, the Company entered into
agreements with, and between, The Airlie Group L.P. ("Airlie"),
Continental Illinois Equity Corporation ("CIEC") and Milley &
Company ("M&C"), (hereinafter referred to collectively as the
"Buyers") whereby the Buyers acquired 960,000 shares (adjusted
for the one-for-twenty-five reverse split discussed in Note 11)
of the Company's Common Stock for $3,000,000 in cash. In
addition the Buyers loaned the Company $2,000,000 (see Note 6 for
a more detailed discussion of this transaction). Subsequent to
these transactions, the Company announced its intention of
pursuing an active program of identifying, acquiring and managing
middle market companies.
On July 1, 1991, ELXSI acquired thirty Bickford's and twelve
Howard Johnson's Restaurants (the "Restaurants"), which are
located in Massachusetts, Vermont, New Hampshire, Rhode Island
and Connecticut, from Marriott Family Restaurants, Inc. (see
Note 3).
During 1992, ELXSI sold six of its Howard Johnson's Restaurants,
converted four others into Bickford's Restaurants and opened one
new Bickford's Restaurant. During 1993, ELXSI opened three new
Bickford's Restaurants. During 1994, ELXSI opened two new
Bickford's Restaurants and converted one of its two remaining
Howard Johnson's Restaurant into a Bickford's Restaurant. As of
December 31, 1994, ELXSI operated forty-one Bickford's and one
Howard Johnson's Restaurant.
On October 30, 1992, ELXSI acquired Cues, Inc. of Orlando,
Florida and its two wholly owned subsidiaries Knopafex, Ltd., a
Canadian company, and Cues B.V., a Dutch company, together
referred to as ("Cues"), (see Note 3).
Cues is engaged in the manufacture and servicing of video
inspection and repair equipment for wastewater and drainage
systems primarily for governmental municipalities, service
contractors and industrial users.
NOTE 2. Summary of Significant Accounting Policies
Principles of Consolidation The consolidated financial
statements include the accounts of ELXSI Corporation and its
wholly-owned subsidiary. All material intercompany accounts and
transactions have been eliminated.
Both the Company's corporate functions and Cues Division have
fiscal years consisting of four calendar quarters ending on
December 31. The Restaurant Division's fiscal years consist of
four 13-week quarters (and, accordingly, one 52-week period)
ending on the last Saturday in December closest to the 31;
however, this requires that every six or seven years the
Restaurant Division add an extra week at the end of the fourth
quarter and fiscal year.
Cash and Cash Equivalents The Company has instituted a cash
management system whereby cash generated by operations is
immediately used to reduce debt. Accordingly the Company
maintains no cash or cash equivalents.
Inventories Inventories are stated at the lower of cost or
market determined by the first-in, first-out method.
Property, Buildings and Equipment Property, buildings and
equipment, including buildings under capital leases, are stated
at cost less accumulated depreciation and amortization.
Depreciation and amortization are provided using the
straight-line method for book and tax purposes. Buildings held
pursuant to capital leases are amortized over the shorter of the
term of the respective lease including options or the estimated
useful life. The estimated lives used are:
Buildings and improvements 30 years
Equipment, furniture and fixtures 7 years
Depreciation and amortization expense for 1994, 1993 and 1992 was
$1,614,000, $1,409,000 and $1,053,000, respectively.
Intangibles The excess of cost over fair value of net assets
acquired is being amortized over 35 years using the straight line
method. Amortization expense for 1994, 1993 and 1992 was
$151,000, $151,000 and $56,000, respectively. Management
periodically reviews the potential impairment of intangible
assets in order to determine the proper carrying value of such
intangibles assets as of each balance sheet presented.
Trademarks are being amortized over 35 years using the straight
line method. Amortization expense for 1994, 1993 and 1992 was
$29,000, $29,000 and $29,000, respectively.
Deferred Debt Costs Deferred debt costs are amortized over the
term of the loan to interest expense using the effective interest
method. As of December 31, 1994 and 1993, $322,000 and $392,000,
respectively remains to be amortized over future periods.
Amortization expense in 1994, 1993 and 1992 was $126,000,
$157,000 and $144,000, respectively.
Foreign Currency Translation The assets and liabilities of the
Canadian and Dutch subsidiaries of Cues are translated into U.S.
dollars at year end exchange rates, and revenue and expense items
are translated at average rates of exchange prevailing during the
year. Resulting translation adjustments are accumulated in a
separate component of stockholders' equity.
Income Taxes The Company follows Statement of Financial
Accounting Standards Number 109 "Accounting For Income Taxes".
This Statement provides for accounting for taxes under an asset
and liability approach. This approach requires the recognition
of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the carrying
amounts and the tax basis of other assets and liabilities.
Temporary differences giving rise to deferred tax assets and
liabilities include certain accrued liabilities and net operating
loss carryforwards. The provision for income taxes includes the
amount of income taxes payable for the year as determined by
applying the provisions of the current tax law to the taxable
income for the year and the net change during the year in the
Company's deferred tax assets and liabilities (see Note 5).
Net Income Per Common Share Net income per common share is
computed using the weighted average number of common and, when
dilutive, common equivalent shares outstanding during the
respective periods. All applicable share and per share data have
been adjusted to reflect the reverse split (see Note 11).
NOTE 3. Acquisitions
ELXSI acquired Cues, a manufacturer of video inspection and
repair equipment serving the waste water and environmental
industries on October 30, 1992. In connection with the
acquisition, the Company issued 751,000 shares of its Common
Stock valued at $4.25 per share and warrants to purchase an
additional 68,762 common shares to the former parent of Cues. In
addition, ELXSI borrowed $4,211,000 on its amended bank line of
credit to pay the outstanding debt of Cues to its former parent.
The acquisition was accounted for as a purchase and the results
of Cues are included in the consolidated statement of operations
from the date of acquisition. The excess of the cost over the
fair value of net assets acquired of $3,690,000 is being
amortized on a straight line basis over 35 years.
The acquisition included all of the assets and liabilities of
Cues and its subsidiaries, including a 26,000 square foot office
and manufacturing facility located in Orlando, Florida, equipment
and inventory.
The following unaudited pro forma consolidated results of
operations assume that the acquisition occurred at January 1,
1992.
Year Ended
December 31, 1992
-----------------
Net sales $50,250,000
Income before discontinued operations 4,424,000
Net income 4,424,000
Earnings per share .75
ELXSI purchased the Restaurants on July 1, 1991 for $23,867,000,
including fees. The acquisition has been accounted for as a
purchase and the results of the Restaurants have been included in
the accompanying statements of operations since the acquisition
date. The excess of the cost over the fair value of net assets
acquired of $1,559,000, as adjusted, is being amortized on a
straight line basis over 35 years.
NOTE 4. Composition of Certain Financial Statement Components
Year Ended December 31,
----------------------------
1994 1993
------------ -----------
Inventory:
Raw materials and finished goods $ 4,191,000 $ 3,756,000
Work in process 2,017,000 1,658,000
------------ -----------
$ 6,208,000 $ 5,414,000
============ ===========
Property, buildings and equipment
consist of:
Land $ 7,298,000 $ 7,123,000
Buildings and improvements 12,865,000 12,425,000
Buildings held pursuant
to capital leases 1,671,000 1,671,000
Equipment, furniture and
fixtures 6,855,000 5,161,000
------------ -----------
28,689,000 26,380,000
Accumulated depreciation
and amortization (4,414,000) (2,847,000)
------------ -----------
$ 24,275,000 $23,533,000
============ ===========
Intangible assets consist of:
Excess of cost over fair
value of net assets acquired $ 5,249,000 $ 5,249,000
Trademarks 1,030,000 1,030,000
Liquor licences 85,000 85,000
------------ -----------
6,364,000 6,364,000
Accumulated amortization (473,000) (293,000)
------------ -----------
$ 5,891,000 $ 6,071,000
============ ===========
The excess of cost over fair value of net assets acquired,
trademarks and liquor licenses balances represent the value
assigned to these intangible assets upon the acquisition of the
Restaurants and Cues by ELXSI.
Year Ended December 31,
----------------------------
1994 1993
----------- -----------
Accrued expenses consist of:
Accrued salaries, benefits and
vacation $ 1,092,000 $ 1,017,000
Other reserves 683,000 881,000
Other taxes 463,000 342,000
Accrued rents 257,000 203,000
Accrued utilities 221,000 203,000
Accrued professional 213,000 180,000
Accrued insurance 167,000 --
Warranty accrual 150,000 124,000
Accrued interest and bank fees 240,000 126,000
Accrued acquisition costs 84,000 93,000
Accrued management fees - related
party 20,000 49,000
State and federal income taxes 17,000 164,000
Other accrued expense 395,000 339,000
----------- -----------
$ 4,002,000 $ 3,721,000
=========== ===========
NOTE 5. Income Taxes
Effective January 1, 1993, the Company adopted the provisions of
SFAS 109. As a result of the adoption of SFAS 109, the Company
recorded a deferred tax asset of $88,698,000 which was fully
offset by a valuation allowance in accordance with the provisions
of SFAS 109 at January 1, 1993.
Pre-tax income for the years ended December 31, 1994 and 1993 was
as follows:
1994 1993
------------ -----------
Domestic $ 4,911,000 $ 4,575,000
Foreign 189,000 41,000
------------ -----------
Total $ 5,100,000 $ 4,616,000
============ ===========
Income tax expense for the years ended December 31, 1994, 1993
and 1992 is as follows:
Year Ended December 31,
-----------------------------
1994 1993 1992
-------- -------- --------
Current tax expense
Federal $ 88,000 $116,000 $ 81,000
State and local 278,000 232,000 179,000
-------- -------- --------
Total current $366,000 $348,000 $260,000
======== ======== ========
Deferred tax (liabilities) assets are comprised of the following
at
December 31, 1994 and 1993:
1994 1993
------------- -----------
Accrued expenses and other $ (1,174,000) $ (868,000)
------------- -----------
Gross deferred tax liabilities (1,174,000) (868,000)
------------- -----------
Syndication costs 1,662,000 1,662,000
Acquisition costs 421,000 421,000
Accrued expenses and other 1,031,000 939,000
Loss carryforwards 76,854,000 78,370,000
Credit carryforwards 6,730,000 6,730,000
------------- -----------
Gross deferred tax assets 86,698,000 88,122,000
------------- -----------
Deferred tax asset valuation
allowance (85,524,000) (87,254,000)
Net deferred taxes $ -- $ --
============= ===========
The Company has net operating loss carryforwards for federal
income tax purposes of approximately $226 million at December 31,
1994. The net operating loss carryforwards expire between 1997
and 2005. The Company also has investment tax credit
carryforwards of approximately $3.2 million, research and
development tax credit carryforwards of approximately $3.3
million and minimum tax credit carryforwards of approximately
$230,000. The investment tax credit and research and development
tax credit carryforwards expire between 1997 and 2003 and the
minimum tax credit carryforwards have an unlimited carryforward
period.
A reconciliation of the statutory federal tax rate and the
Company's effective income tax rate for the years ended December
31, 1994, 1993 and 1992 is as follows:
Year Ended December 31,
---------------------------
1994 1993 1992
----- ----- -----
Federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of
federal benefit 5.3 4.9 4.6
Other (.1) .6 .3
Recognition of net
operating loss (32.0) (32.0) (32.0)
----- ----- -----
Effective income tax rate 7.2% 7.5% 6.9%
===== ===== =====
The utilization of the Company's net operating loss and tax
credit carryforwards may be impaired or reduced under certain
circumstances. Events which may affect these carryforwards
include, but are not limited to, cumulative stock ownership
changes of 50% or more over a three-year period, as defined, and
the timing of the utilization of the tax benefit carryforwards.
NOTE 6. Notes Payable and Related Party Transactions
On September 25, 1989, the Company consummated a Stock and Note
Purchase Agreement ("Agreement") with Airlie and M&C, whereby
Airlie and M&C loaned the Company $1,750,000 and $250,000,
respectively, for 15% senior subordinated ten-year notes, and
warrants to purchase 1,053,500 and 150,500 shares, respectively,
of the Company's Common Stock. The Company recorded as paid-in-
capital (relating to the warrants) a discount of $301,000 to
reflect a valuation of $0.25 per warrant which was determined by
the Company to represent the fair market value of the warrants at
the inception of the Agreement. The warrants have an exercise
price of $3.125 per share, are immediately exercisable, and
expire on September 25, 1996. The notes bear interest at 15%
payable quarterly, commencing on November 15, 1989. Principal is
to be repaid in five annual $400,000 installments commencing on
September 25, 1995. In addition, Airlie purchased 960,000 shares
of the Company's Common Stock for $3,000,000 in cash and granted
to ELX Limited Partnership ("ELX"), of which the President of the
Company is the sole general partner and other officers of the
Company are limited partners, a currently exercisable seven-year
option to purchase up to 480,000 of the 960,000 shares of the
Common Stock, at an exercise price of $3.125 per share.
In January 1990, CIEC purchased from Airlie 220,400 shares of the
Company's Common Stock as well as $402,000 principal amount of
notes. In addition, the Company and Airlie modified the
warrants, described above, for the purchase of 1,053,500 shares
of the Common Stock of the Company, in that such warrants were
exchanged for two warrants, one exercisable for 811,638 shares of
Common Stock and the second exercisable for 24,186 shares of the
Company's Series A Non-Voting Convertible Preferred Stock, which
is convertible, under certain specified conditions, into 241,862
shares of the Common Stock. The Series A Non-Voting Convertible
Preferred Stock carries a liquidation preference of $0.002 per
share and does not vote, but otherwise has substantially the same
rights as the Common Stock. Following the issuance of the two
warrants, the second warrant was sold by Airlie to CIEC. In
addition, in connection with such purchases, the option
previously granted by Airlie to ELX was amended to be exercisable
for 369,800 shares of Common Stock, and an option to purchase
110,200 shares of Common Stock at a price of $3.125 per share was
granted by CIEC to ELX.
On June 27, 1991, in connection with the Restaurant purchase,
Airlie, CIEC and M&C purchased an additional, $1,685,000,
$502,000 and $313,000, respectively, of the Company's senior
subordinated notes. The notes bear interest at 14.5% and are
payable in five annual installments of $500,000 commencing on
June 27, 1997.
On November 15, 1993, Airlie sold $500,000 of its 14.5% senior
subordinated notes. In connection with the sale, Milley
Management, Inc., a management consulting firm, of which the
President of the Company is the President and majority
stockholder, acquired 50,000 of the outstanding warrants
previously issued by the Company to Airlie and Cadmus
Corporation, whose President and principal owner is Alexander M.
Milley, purchased $125,000 of the senior subordinated notes from
Airlie. The remaining $375,000 was purchased by three unrelated
entities.
On May 19, 1994, the Company purchased all of the 15.0% and 14.5%
notes held by Milley Management, Inc. at their face value of
approximately $250,000 and $313,000, respectively. Milley
Management, Inc. waived the prepayment penalties.
On December 8, 1994, in connection with a complete divestiture of
Airlie's holdings in the Company, the Company purchased all of
the 15.0% and 14.5% notes held by Airlie at their face value of
approximately $1,348,000 and $1,185,000, respectively. Airlie
waived the prepayment penalties and the Company agreed to cancel
the remaining debt commitment due from Airlie. In addition to
the two notes, the Company purchased and retired 354,963 shares
of the Company's Common Stock at $5.25 per share and 761,638
warrants to purchase the Company's common stock for $2.125 per
share.
In conjunction with the above transaction, the Company loaned ELX
approximately $1,156,000 on December 8, 1994. ELX used the
proceeds to exercise its option to purchase 369,800 shares held
by airlie under an existing option, which expired on September
25, 1996. The note bears interest at 1/2% above the Company's
senior debt borrowing rate, and the principal and interest are
due on December 8, 1997.
Also on December 8, 1994, Cadmus purchased 50,000 shares of the
Company Common Stock held by Airlie for $5.25 per share. The
above December 8, 1994 transactions represented a complete
divestiture of the Company's securities held by Airlie. The
source of the funds was the bank line of credit.
Transactions with Milley Management, Inc. In connection with
the Agreements described above, ELXSI (as assignee of ELXSI
Corporation) entered into a management agreement on September 25,
1989 with Cadmus. The management agreement which was scheduled
to expire in September 1992 was extended for an additional three
years. Certain of the Company's officers and directors are
affiliated with Cadmus. Such management agreement provides for
Cadmus to receive for management services rendered, compensation
of $500,000 per year commencing as soon as the Company has
operating income, as defined, of $1,250,000 for a fiscal quarter,
plus reimbursement for reasonable expenses. The fee shall be
discontinued immediately following a year in which the Company
has operating income, as defined, of less than $4,000,000 and
shall be reinstated in the month following a quarter in which the
Company has operating income, as defined, of $1,250,000. During
1994, 1993 and 1992, the Company was charged management fees of
$500,000 each year. Milley Management, Inc. also provides the
Company with general and administrative services. During 1994,
1993 and 1992, the Company was charged $41,000, $42,000 and
$42,000, respectively, for such items. At December 31, 1994 and
1993, accrued expenses includes $20,000 and $49,000,
respectively, due to Milley Management, Inc. under such
agreement.
NOTE 7. Long-Term Debt Long-term debt consists of the
following:
December 31,
1994 1993
----------- -----------
1. ELXSI
Note payable to bank; $11,080,000
amended line of credit, interest
due monthly at prime plus 1.5%
(10.0% at December 31, 1994),
maturing on June 28, 1996. The
line of credit provides for
minimum monthly reductions in
available credit of $220,000
beginning December 31, 1994.
The line is secured by assets of
the Company, including real estate
and the outstanding stock of ELXSI.
The note provides for interest of
1/2% on the unused portion of the
line of credit. In addition, the
agreement restricts the payment of
cash dividends on Common Stock to an
amount not to exceed 50% of the
excess cash flow as defined in the
agreement. $ 9,280,000 $ 5,853,000
2. ELXSI Corporation
Unsecured senior subordinated
note payable with interest at
15% payable quarterly in
arrears, commencing November
15, 1989. The principal is
payable in five equal annual
installments of approximately
$80,000 commencing September 25, 1995.
At issuance, ELXSI Corporation
recorded the note at a discount,
which is being amortized to interest
expense on a straight line basis
over the life of the note. 374,000 1,882,000
3. ELXSI Corporation
Unsecured senior subordinated
notes payable with interest at
14.5% payable quarterly in
arrears, commencing August 15,
1991. The principal is payable
in five equal annual installments
of approximately $175,000 commencing
June 27, 1997. 877,000 2,500,000
4. Cues
Mortgage payable at 8.25% on the
land and building owned by Cues B.V. 141,000 130,000
Other 30,000 22,000
----------- -----------
$10,702,000 $10,387,000
Less current portion 1,063,000 16,000
----------- -----------
$ 9,639,000 $10,371,000
=========== ===========
The above debt, contains, among other provisions, financial
covenants related to the maintenance of minimum net worth,
restrictions on capital expenditures and compliance with certain
ratios including liabilities to net worth and interest coverage.
Aggregate maturities of long-term debt for the five years ending
December 31, 1999 and thereafter are as follows:
1995 $ 1,063,000
1996 8,423,000
1997 269,000
1998 265,000
1999 265,000
Thereafter 417,000
-----------
$10,702,000
===========
NOTE 8. Commitments and Contingencies ELXSI conducts a
substantial portion of its operations utilizing leased
facilities. ELXSI leases land and/or buildings at thirty of its
forty-two restaurants under terms of numerous lease agreements
expiring on various dates including options through 2032. The
majority of the leases provide that ELXSI pay taxes, maintenance,
insurance, and other occupancy expenses related to leased
premises. The rental payments for a majority of the restaurant
locations are based on a minimum annual rental plus a percentage
of sales, as defined in the related agreements. Generally, the
leases provide for renewal options and in most cases, management
expects that in the normal course of business, lease agreements
will be renewed or replaced by other leases.
Cues has several noncancelable operating leases, primarily for
certain office and transportation equipment, that expire over the
next three years and generally provide for purchases or renewal
options.
The following is a schedule of future minimum lease commitments
as of December 31, 1994:
Capital Leases Operating Leases
-------------- ----------------
Year ended December 31, 1995 $ 175,000 $ 1,360,000
Year ended December 31, 1996 175,000 1,262,000
Year ended December 31, 1997 175,000 1,167,000
Year ended December 31, 1998 175,000 955,000
Year ended December 31, 1999 175,000 905,000
Thereafter 2,891,000 4,179,000
---------- ----------
Total minimum lease payments 3,766,000 $9,828,000
==========
Less - Amount representing
interest 2,164,000
Present value of net minimum
capital lease payments 1,602,000
Less - current portion 33,000
----------
Long-term capital lease
obligation $1,569,000
==========
Included in the above schedule of future minimum lease
commitments are sublease rental income of $79,000 and $12,000 for
1995 and 1996, respectively. Rent expense charged to operations,
amounted to $1,701,000, $1,516,000 and $1,322,000 during 1994,
1993, and 1992, respectively.
Cues has an agreement with a truck dealer to deliver truck bodies
which are used in the manufacture of certain Cues products.
Under this agreement, Cues reimburses the dealer's floor-plan
financing costs for those vehicles held by the dealer until
delivery to Cues. The amount of this reimbursement for 1994,
1993 and the period from acquisition to December 31, 1992 was
$57,000, $25,000 and $3,000, respectively. At December 31, 1994
and 1993, truck bodies held by the dealer under this agreement
were valued at $719,000 and $383,000, respectively.
NOTE 9. Thrift and Profit Sharing Plan In 1986, Cues
established a contributory trusteed thrift and profit sharing
plan covering all of its employees who have completed one year of
eligible service as of the plan's December 1, 1986 effective
date. The plan's enrollment dates are January 1, April 1, July
1, and October 1, of each year. Participants have the option of
making after-tax or deferred cash contributions, not to exceed 6%
of their annual compensation, which are supplemented by employer
matching contributions in the amount of 50% of the participant's
contribution. The participants may make additional voluntary
contributions to the plan which are not supplemented by employer
contributions. Participants partially vest in the employer's
contributions after the second year of service and are fully
vested after the sixth year of service. Thrift and profit
sharing expense for 1994, 1993 and the period from acquisition to
December 31, 1992 was $40,000, $48,000 and $8,000, respectively..
NOTE 10. Non Compete Agreement In connection with the
acquisition of Cues by its former owner, Cues entered into a four
year non compete agreement commencing March 3, 1989. Cues had
paid $258,000 of this obligation prior to the Company's
acquisition. The remaining obligation of $86,000 was paid in
1993.
NOTE 11. Common Stock At the Company's annual meeting held on
May 27, 1992, stockholders approved a one-for-twenty-five reverse
split of the Company's outstanding shares of Common Stock, which
became effective the same date. The par value of the Common
Stock and the total authorized shares remains $.001 per share and
160,000,000 shares, respectively. In lieu of any fractional
share held by a stockholder after adjusting for the reverse
split, he or she is entitled to one full post-reverse split
share. All applicable share and per share data have been
adjusted to reflect the reverse split.
Activity in common stock shares for the years ended December 31,
1994, 1993 and 1992 was as follows:
1994 1993 1992
--------- --------- -----------
Common Stock Issued:
Balance at beginning
of year 5,368,870 5,282,359 113,256,712
One-for-twenty-five
reverse stock split -- -- (108,726,444)
Issuance of fractional
shares 26 357 1,091
Options exercised 18,400 -- --
Warrants exercised -- 86,154 --
Shares repurchased and
cancelled (354,963) -- --
Issuance of 751,000
shares -- -- 751,000
--------- --------- -----------
Balance at end of year 5,032,333 5,368,870 5,282,359
========= ========= ===========
NOTE 12. Common Stock Options and Warrants
Common Stock Options At December 31, 1994, the Company had a
total of 520,187 common shares reserved for issuance under its
stock option plans. Options under the Company's plans are
granted at prices determined by the Board of Directors, but not
less than the fair market value of the Common Stock on the date
of grant. Options generally become exercisable in cumulative
annual installments beginning one year after the date of grant,
are fully exercisable after five years, and expire after 10
years. During 1993, stockholders approved the 1993 Incentive
Stock Option Plan (the "Plan") consisting of 300,000 shares.
Under the Plan 140,000 and 100,400 shares were granted at
exercises price of $5.75 and $5.375 per share in 1994 an 1993,
respectively. The shares become exercisable on November 19, 1994
and March 8, 1994, respectively. During the year ended December
31, 1992, the Company granted stock options for the purchase of
100,000 shares at an exercise price of $5.00 per share. The
grant became fully exercisable when ratified by the Company's
Stockholders at its annual meeting dated May 27, 1993.
Activity in the Company's Common Stock option plans, adjusted for
the one-for-twenty-five reverse stock split, are summarized
below:
Shares Option Prices
-------- ------------------
Outstanding at December 31, 1992 21,398 $3.125 - $26.50
Granted 200,400 $5.00 - $ 5.375
Exercised --
Cancelled (1,198) $7.75 - $25.00
-------
Outstanding at December 31, 1993 220,600 $3.125 - $26.50
Granted 140,000 $5.75
Exercised (18,400)
Cancelled -- -
-------
Outstanding at December 31, 1994 342,200 $3.125 - $26.50
=======
Options available for grant under all of the these plans total
177,987 shares and 299,587 shares at December 31, 1994 and 1993,
respectively.
Warrants At December 31, 1994, the Company had a total of
511,124 common shares reserved for issuance pursuant to the
warrants as follows:
In connection with the acquisition of Cues (see Note 3), the
Company issued a warrant to purchase 68,762 shares of the
Company's Common Stock to the former parent of Cues. The
warrants remain unexercised at December 31, 1993 and, have an
exercise price of $4.36 per share, are currently exercisable and
expire on January 31, 1997.
In connection with the Stock and Note Purchase Agreement (see
Note 6), the Company issued warrants to acquire up to an
aggregate of 1,204,000 shares of the Company's Common Stock to
private investors in 1989. On December 8, 1994, the Company
repurchased the warrant for 761,638 shares from Airlie for $2.125
per share. The remaining 442,362 warrants remain unexercised at
December 31, 1994, are currently exercisable, expire on September
25, 1996 and have an exercise price of $3.125 per share.
In connection with a 1987 private placement of Common Stock, the
Company issued fully paid warrants to acquire up to an aggregate
of 86,154 shares of the Company's Common Stock. These warrants
were exercised during 1993.
Phantom Option Plan The phantom stock option plan was
implemented in 1992 as a long term incentive plan for four key
Bickford's employees. At the inception of the plan, the group
paid an initial investment totalling approximately $116,000.
Each participant is entitled to receive, upon exercise, a cash
payment equal to his individual vested percentage of the
appraised value of Bickford's, as defined, less the balance of
his exercise price payable upon exercise. All of the phantom
stock options were granted in 1992 and vested or will vest on
each July 1 as follows: 2.8% in 1991; 3.4% in 1992; 3.4% in 1993;
3.4% in 1995; and .9% in 1996. When full vesting occurs on July
1, 1996, the group, as a whole, will have phantom stock option
rights with respect to 13.9% of the appraised value of
Bickford's, as defined. For each one percent of vested rights
exercised the participant is required to pay an exercise price of
$74,000 (less his initial investment). The phantom stock options
may be exercised on the earliest of July 1, 2001, the termination
of the employees' employment or the sale of the Restaurant
division. During 1994, 1993 and 1992, the Company recorded
compensation expense related to the phantom stock option
plan of $300,000, $250,000 and $130,000, respectively.
NOTE 13. Segment Reporting
Since November 1, 1992 the Company has operated in two segments,
restaurant management and equipment manufacturing. From July 1,
1991 to October 31, 1992, the Company had operated in one
segment, restaurant management. Summarized financial information
by business segment for the years ended December 31, 1994, 1993
and 1992 is as follows:
1994 1993 1992
----------- ----------- -----------
Net Sales:
Restaurants $43,391,000 $38,903,000 $36,100,000
Equipment 19,032,000 16,779,000 2,039,000
----------- ----------- -----------
$62,423,000 $55,682,000 $38,139,000
=========== =========== ===========
Operating Income:
Restaurants $ 6,404,000 $ 6,215,000 $ 5,958,000
Equipment 1,346,000 1,210,000 99,000
Corporate (1,191,000) (1,076,000) (985,000)
----------- ----------- -----------
$ 6,559,000 $ 6,349,000 $5,072,000
=========== =========== ===========
Total Assets:
Restaurants $25,989,000 $25,828,000 $25,017,000
Equipment 13,182,000 12,688,000 10,180,000
Corporate 1,345,000 4,000 5,000
----------- ----------- -----------
$40,516,000 $38,520,000 $35,202,000
=========== =========== ===========
Depreciation and Amortization:
Restaurants $1,460,000 $1,288,000 $1,086,000
Equipment 334,000 301,000 52,000
----------- ----------- -----------
$1,794,000 $1,589,000 $1,138,000
=========== =========== ===========
Capital Expenditures:
Restaurants $2,015,000 $1,666,000 $1,297,000
Equipment 348,000 190,000 45,000
----------- ----------- -----------
$2,363,000 $1,856,000 $1,342,000
=========== =========== ===========
There were no intersegment sales or transfers during 1994, 1993,
and 1992. Operating income by business segment excludes interest
income, interest expense, and unallocated corporate expenses.
Corporate assets consist principally of prepaid expenses and the
related party note receivable.
Foreign assets, revenues, and export sales each represents less
than ten percent of the Company's totals. No material amount of
the Company's sales are dependent upon a single customer.
NOTE 15. Subsequent Event In January 1995, the Company
purchased and retired 240,000 shares of it's Common Stock for
approximately $1,224,000. The bank loan agreement was amended to
provide additional availability of $1,500,000 to fund the
purchase.
NOTE 16. Quarterly Financial Data - (Unaudited) The following
summarizes quarterly financial data for 1994 and 1993 (in
thousands, except per share data):
1994
-----------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
-------- -------- -------- --------
Net sales 14,228 15,631 16,844 15,720
Gross profit 3,000 3,864 4,190 3,929
Income before income
taxes 535 1,345 1,769 1,451
Net income 489 1,239 1,631 1,375
Earnings per share:
Primary .08 .20 .27 .24
Fully diluted .08 .20 .27 .24
1993
-----------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
-------- -------- -------- --------
Net sales 11,871 14,165 15,499 14,147
Gross profit 2,908 3,638 4,121 3,677
Income before income
taxes 565 1,139 1,698 1,214
Net income 515 1,017 1,535 1,201
Earnings per share:
Primary .09 .17 .26 .20
Fully diluted .09 .17 .26 .19
PAGE
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ELXSI CORPORATION AND SUBSIDIARIES
(Dollars in Thousands)
Additions
--------------------
Charged to
Balance at Charged Other
Beginning of Costs and Accounts-
Period Expenses describe
------------ --------- ---------
Year ended December 31, 1994
Account deducted from
assets:
Reserve for doubtful
accounts receivable $ 77 $ 3 $ --
==== === ====
Inventory reserve $262 $53 $ --
==== === ====
Year ended December 31, 1993
Account deducted from
assets:
Reserve for doubtful
accounts receivable $ 38 $35 $ 6 (D)
==== === ====
Inventory reserve $339 $29 $ --
==== === ====
Year ended December 31, 1992
Account deducted from
assets:
Reserve for doubtful
accounts receivable $-- $-- $ 44 (A)
==== === ====
Inventory reserve $-- $ $473 (A)
==== === ====
(A) Acquired in connection with Cues acquisition on October 30,
1992.
(B) Uncollectible accounts written off during 1994, 1993 and the
two months from acquisition on October 30, 1992 to December
31, 1992.
(C) Obsolete inventory written off during 1993, 1993 and the two
months from acquisition on October 30, 1992 to December 31,
1992.
(D) Bad debt recoveries.
PAGE
<PAGE>
(continuation)
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ELXSI CORPORATION AND SUBSIDIARIES
(Dollars in Thousands)
Balance
Deductions at End
Describe of Period
---------- ---------
Year ended December 31, 1994
Account deducted
from assets:
Reserve for
doubtful accounts
receivable (45) (B) $ 35
== ====
Inventory reserve (215) (C) $100
=== ====
Year ended December 31, 1993
Account deducted
from assets:
Reserve for
doubtful accounts
receivable (2) (B) $ 77
= ====
Inventory reserve (106) (C) $262
=== ====
Year ended December 31, 1992
Account deducted from assets:
Reserve for
doubtful accounts
receivable $ (6) (B) $ 38
===== ====
Inventory reserve $(134) (C) $339
===== ====
(A) Acquired in connection with Cues acquisition on October 30,
1992.
(B) Uncollectible accounts written off during 1994, 1993 and the
two months from acquisition on October 30, 1992 to December
31, 1992.
(C) Obsolete inventory written off during 1993, 1993 and the two
months from acquisition on October 30, 1992 to December 31,
1992.
(D) Bad debt recoveries.
