SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------------------------------------
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________________
Commission file number 0-11877
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ELXSI CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 77-0151523
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
4209 Vineland Road, Suite J-1, Orlando, Florida 32811
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip code)
Registrant's telephone number, including area code: (407) 849-1090
--------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
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. Yes X No
----- -------
On April 24, 1996, the registrant had outstanding 4,792,357 shares of Common
Stock, par value $0.001 per share.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
A S S E T S
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Current assets:
Accounts receivable, net $ 3,236 $ 2,776
Inventories, net 9,152 8,477
Prepaid expenses and other current assets 273 397
Assets held for sale -- 1,075
-------------- -------------
Total current assets 12,661 12,725
Property, buildings and equipment, net 27,303 27,458
Intangible assets, net 5,660 5,703
Deferred debt costs, net 152 212
Note receivable - related party 1,156 1,156
Other 465 445
-------------- -------------
Total assets $ 47,397 $ 47,699
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
2
<PAGE>
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Current liabilities
Accounts payable and drafts payable $ 3,173 $ 4,269
Accrued expenses 3,905 4,396
Capital lease obligations - current 137 137
Current portion of long-term debt 2,243 1,485
-------------- -------------
Total current liabilities 9,458 10,287
Capital lease obligations - non current 1,696 1,732
Long-term debt, net of discount 11,567 11,570
Other liabilities 1,521 1,396
-------------- -------------
Total liabilities 24,242 24,985
Commitments and contingencies -- --
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--4,792,356
at March 31, 1996 and 4,792,353
at December 31, 1995 5 5
Additional paid-in capital 229,666 229,666
Accumulated deficit (206,465) (206,895)
Cumulative foreign currency translation adjustment (51) (62)
-------------- -------------
Total stockholders' equity 23,155 22,714
-------------- -------------
Total liabilities and stockholders' equity $ 47,397 $ 47,699
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
3
<PAGE>
ELXSI CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1996 1995
---- ----
<S> <C> <C>
Net sales $ 19,820 $ 15,614
Costs and expenses:
Cost of sales 16,464 12,204
General and administrative 1,748 1,677
Depreciation and amortization 678 514
-------------- -------------
Operating income 930 1,219
Other income (expense):
Interest income 28 31
Interest expense (429) (426)
Other (expense) income (10) 9
-------------- -------------
Income before income taxes 519 833
Provision for income taxes 89 88
-------------- -------------
Net income $ 430 $ 745
============== =============
Net income per common share $ .09 $ .15
============== =============
Weighted average number of common
and common equivalent shares 5,084 5,125
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Stock Additional Accum- Foreign
----------------------- Paid-In ulated Translation
Shares Dollars Capital Deficit Adjustment
------ ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,792 $ 5 $ 229,666 $ (206,895) $ (62)
Net income -- -- -- 430 --
Foreign currency translation
adjustment -- -- -- -- 11
---------- ---------- ---------- ----------- -------
Balance at March 31, 1996 $ 4,792 $ 5 $ 229,666 $ (206,465) $ (51)
========== ========== ========== =========== =======
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
5
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows (used in) provided by operating activities:
Net income $ 430 $ 745
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 678 514
Amortization of deferred debt costs 60 57
Amortization of debt discount 4 4
Change in cumulative foreign currency
translation adjustment 11 13
(Increase) decrease in assets:
Accounts receivable (460) (231)
Inventories (675) 230
Prepaid expenses and other current assets 124 30
Asset held for sale 1,075 --
Other (26) (107)
Increase (decrease) in liabilities:
Accounts payable and drafts payable (1,096) (767)
Accrued expenses (491) (336)
Other liabilities 125 87
--------- --------
Net cash (used in) provided by operating activities (241) 239
---------- --------
Cash flows used in investing activities:
Purchase of property, building and equipment (474) (346)
--------- --------
Net cash used in investing activities (474) (346)
--------- --------
Cash flows provided by financing activities:
Net borrowing of long-term debt 751 1,365
Purchase of Common Stock -- (1,224)
Payment of deferred bank fee -- (25)
Principal payments of capital lease (36) (9)
--------- --------
Net cash provided by financing activities $ 715 $ 107
--------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
6
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1996 1995
---- ----
<S> <C> <C>
Increase (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 period for
Income taxes $ 195 $ 111
Interest 372 344
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
7
<PAGE>
ELXSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
Note 1. The Company
General The information contained in this report is unaudited but, in
management's opinion, all adjustments necessary for a fair presentation have
been included and were of a normal and recurring nature. The results for the
three months ended March 31, 1996 are not necessarily indicative of results to
be expected for the entire year. These financial statements and notes should be
read in conjunction with ELXSI Corporation's Annual Report on Form 10-K for the
year ended December 31, 1995.
Prior to 1990, ELXSI Corporation (together with its subsidiaries, 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.
On July 1, 1991, ELXSI acquired thirty Bickford's and twelve Howard Johnson's
Restaurants, which are located in Massachusetts, Vermont, New Hampshire, Rhode
Island and Connecticut, from Marriott Family Restaurants, Inc.
Between July 1, 1991 and December 31, 1994, ELXSI sold six of its Howard
Johnson's Restaurants, converted five others into Bickford's Restaurants and
opened seven new Bickford's Restaurants. During 1995, ELXSI acquired sixteen
Abdow's Family Restaurants ("Abdow's") and converted two into Bickford's
Restaurants. In the first quarter of 1996, ELXSI sold one Abdow's and converted
two additional Abdow's into Bickford's Restaurants. As of March 31, 1996, ELXSI
owned forty-six Bickford's, eleven Abdow's and one Howard Johnson's Restaurants
(the "Restaurants"). During April 1996, ELXSI converted a fifth Abdow's into a
Bickford'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").
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.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's 1996 and 1995 first quarter revenues and expenses result from
the operation of both the Restaurants and Cues.
QUARTER ENDED MARCH 31, 1996
During the first three months of 1996, the Company had net sales of $19,820,000,
cost of sales of $16,464,000, selling, general and administrative expenses of
$1,748,000 and depreciation and amortization expense of $678,000, resulting in
operating income of $930,000. The operating income of $930,000 was reduced by
interest expense of $429,000, increased by interest income of $28,000, reduced
by other expense of $10,000 and reduced by income taxes of $89,000 resulting in
net income of $430,000.
Earnings Per Share Earnings per share for the quarter ended March 31, 1996 was
$0.09 per share and the weighted average number of shares outstanding was
5,084,000. This compares to $0.15 per share for the corresponding period in 1995
when there were 5,125,000 weighted average shares outstanding. The reduction in
the weighted average shares outstanding in the first quarter of 1996 compared to
the first quarter of 1995 resulted mainly from the repurchase of Common Stock in
the first quarter of 1995. The average stock market price for the first quarter
of 1996 was $6.21 compared to an average of $6.03 in the corresponding period of
1995. An increase in the stock price results in a greater number of shares
outstanding for purposes of determining the weighted average shares outstanding
used in the earnings per share calculation.
QUARTER ENDED MARCH 31, 1995
During the first three months of 1995, the Company had net sales of $15,614,000,
cost of sales of $12,204,000, selling, general and administrative expenses of
$1,677,000 and depreciation and amortization expense of $514,000, resulting in
operating income of $1,219,000. The operating income of $1,219,000 was reduced
by interest expense of $426,000, increased by interest and other income of
$40,000 and reduced by income taxes of $88,000 resulting in net income of
$745,000.
Earnings Per Share Earnings per share for the quarter ended March 31, 1995 was
$0.15 per share and the weighted average number of shares outstanding was
5,125,000.
COMPARISON OF FIRST QUARTER 1996 RESULTS TO 1995 RESULTS
The first quarter sales increased $4,206,000, gross profit decreased $54,000,
selling, general and administrative expense increased $71,000 and depreciation
and amortization increased $164,000 resulting in an operating income decrease of
$289,000. Interest expense increased by $3,000, interest income and other income
decreased by $22,000 and income taxes increased by $1,000 resulting in a
decrease in net income of $315,000.
9
<PAGE>
Restaurant Division Restaurant sales increased by $3,988,000 or 38.3% and gross
profit decreased by $97,000 or 4.9% in the first quarter of 1996 compared to the
same period in the prior year. Operating income decreased $308,000 or 25.3%
after deducting an increase in selling general and administrative expense of
$73,000 and an increase in depreciation and amortization of $138,000. The sales
increase was due to the acquisition of the Abdow's and the opening of one new
Restaurant in 1995 partially offset by decreased sales of $89,000 or .9% at
restaurants operated in both periods. Customer counts at Restaurants operated in
both periods decreased by 3.4%. Severe weather in New England, including record
snow falls, resulted in customer count decreases compared to the first quarter
of 1995, which had mild weather in comparison.
Despite the sales increase, Restaurant gross profit decreased by $89,000 in the
first quarter of 1996 compared to the same period in 1995 due to a 6.0% decrease
in the gross profit percentage. The decrease in the gross profit percentage was
the result of an increase in food, labor and variable cost attributable to the
severe weather in the first quarter of 1996 and the acquisition of the Abdow's
Restaurants in 1995.
Management expected the gross profit percentage to decline as a result of the
acquisition of the Abdow's Restaurants, which have a higher percentage of food,
labor and rent costs compared to the Bickford's Restaurants. It is anticipated
that upon conversion of the Abdow's Restaurants into Bickford's Restaurants the
food cost as a percentage of sales will decline to the average Bickford's level,
thereby increasing the gross profit percentage. Management does not intend to
reduce the labor costs immediately upon conversion and will evaluate the
benefits of additional labor as evidenced by the excellent service reputation
historically enjoyed by the Abdow's Restaurants. However, as management intends
to keep up to six of the acquired restaurants operating as lower margin Abdow's
restaurants, the overall margins will continue to be lower than if all
restaurants were operated as Bickford's Restaurants.
Restaurant selling, general and administrative expense increased by $73,000
during the first quarter of 1996 mainly as a result of adding additional support
personnel in connection with the acquisition of the Abdow's Restaurants.
Restaurant depreciation and amortization increased by $138,000 during the first
quarter 1996. 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 on July 1, 1991 (the date of the restaurant acquisition)
become fully depreciated. The equipment acquired at the acquisition has a seven
year useful life, and will become fully depreciated in 1998.
As a result of the above items, operating income decreased by $308,000 or 25.3%
in the first quarter of 1996.
Cues Division Cues's sales increased by $218,000 or 4.2% in the first quarter of
1996 compared to the same period in the prior year. Gross profit increased by
$43,000 or 3.0%, while operating income increased by $46,000 or 15.0%. Included
in the increase in operating income is the effect of a decrease in selling,
general and administrative expense of $29,000 and an increase in depreciation
and amortization expense of $26,000. Management anticipates that gross and
operating margins will continue to experience pressure in 1996 due to the fact
that Cues's
10
<PAGE>
customers continue to stress pricing factors in awarding contracts through the
competitive bidding process.
Corporate Corporate general and administrative expenses increased by $27,000
during the first quarter of 1996 mainly as a result of an increase in the
phantom stock option plan accrual for Bickford's management. Interest expense
decreased by $7,000 due to a higher average debt balance in 1996 offset by a
decrease in the Company's senior debt borrowing rate from 10.5% at March 31,
1995 to 8.75% at March 31, 1996 . The rate decrease was comprised of a decrease
in the prime rate from 9.0% at March 31, 1995 to 8.25% at March 31, 1996 and a
decrease in the interest spread charged by the bank from prime plus 1.5% at
March 31, 1995 to prime plus .5% at March 31, 1996. During the first quarter of
1996 and 1995, the Company recorded interest income of $28,000 and $31,000,
respectively in connection with a note receivable due from a related party.
Liquidity and Capital Resources
Available Resources The Company's unrestricted consolidated cash positions at
March 31, 1996 and December 31, 1995 was $0.
During the first quarter of 1996, the Company had cash flow from operations
before working capital and other changes of $1,183,000. Working capital changes
and other assets and liabilities reduced cash flow to a negative $241,000 from
operations. Borrowings on long-term debt of $751,000 funded the use of cash in
operations, the acquisition of property, plant and equipment totalling $474,000
and the repayment of capital leases obligations of $36,000. During the first
quarter of 1996, current assets decreased by $64,000 primarily due to the sale
of the Vernon, Connecticut Abdow's Restaurants, which was classified as an asset
held for sale at December 31, 1995. The collection of the Vernon, Connecticut
proceeds was offset by an increase in Cues's accounts receivable and inventory.
In addition, current liabilities (excluding the current portion of long-term
debt and capital leases) decreased $1,587,000 mainly due to the timing of
payments related to Bickford's accounts payable and accrued expenses.
During the first quarter of 1995, the Company had cash flow from operations
before working capital and other changes of $1,333,000. Working capital changes
and other assets and liabilities reduced cash flow from operations to $239,000,
which along with borrowings on long-term debt of $1,365,000 funded the
acquisition of property, plant and equipment totalling $346,000, the purchase of
Common Stock of $1,224,000, the repayment of capital leases obligations of
$9,000 and the payment of the bank fees of $25,000, respectively. During the
first quarter of 1995, current assets decreased by $29,000 primarily due to an
increase in Cues's accounts receivable offset by a decrease in Cues's inventory.
The decrease in current assets was offset by a decrease in current liabilities
(excluding the current portion of long-term debt and capital leases) of
$1,103,000. Accounts payable and drafts payable at Bickford's and Cues decreased
by $438,000 and $329,000, respectively, while accrued expenses decreased by
$336,000 during the first quarter of 1995.
The Company 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 cash could
11
<PAGE>
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.
Impact of Inflation Inflationary factors such as increases in food and labor
costs directly affect the Company's operation. Many of the Restaurant employees
are paid hourly rates related to the federal minimum wage, and accordingly,
increases in the minimum wage will result in increases in the Company's labor
costs. Currently, there are no further mandated increases in the federal minimum
wage, however in Massachusetts legislation has recently passed that did or will
increase the minimum wage by $.50 per hour on both January 1, 1996 and 1997 from
the current minimum wage of $4.25 per hour. In addition, the cost of food
commodities utilized by the Company are subject to market supply and demand
pressures. Shifts in these costs may have a significant impact on the Company's
food cost. The Company anticipates that food cost increases can be offset
through selective price increases, although no assurances can be given that the
Company will be successful in this regard.
Increases in interest rates could negatively affect the Company's operations.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company's annual meeting will take place on May 23, 1996. In connection
therewith the Company submitted the following proposals to stockholders in the
annual proxy statement dated April 9, 1996.
Nomination of the following current directors for re-election: Farrokh K.
Kavarana, Kevin P. Lynch, Alexander M. Milley and Robert C. Shaw. Nomination of
Denis M. O'Donnell to fill the vacancy to be created upon the resignation of
current director: John C. Savage.
Approval of the ELXSI Corporation 1996 Incentive Stock Option Plan.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELXSI CORPORATION
-----------------------------------------
(Registrant)
Date: May 13, 1996 /s/ Alexander M. Milley
-----------------------------------------
Alexander M. Milley, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1996 /s/ Thomas R. Druggish
------------------------------------------
Thomas R. Druggish, Vice President,
Treasurer and Secretary (Chief Accounting
Officer and Principal Financial Officer)
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,294,000
<ALLOWANCES> 58,000
<INVENTORY> 9,152,000
<CURRENT-ASSETS> 12,661,000
<PP&E> 27,303,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 47,397,000
<CURRENT-LIABILITIES> 9,458,000
<BONDS> 0
0
0
<COMMON> 5,000
<OTHER-SE> 23,150,000
<TOTAL-LIABILITY-AND-EQUITY> 47,397,000
<SALES> 19,820,000
<TOTAL-REVENUES> 19,820,000
<CGS> 16,464,000
<TOTAL-COSTS> 18,890,000
<OTHER-EXPENSES> (10,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 429,000
<INCOME-PRETAX> 519,000
<INCOME-TAX> 89,000
<INCOME-CONTINUING> 430,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 430,000
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
