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 June 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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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 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
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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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(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 August 10, 1997, the registrant had outstanding 4,660,871 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
June 30, December 31,
1997 1996
--------- ----------
Unaudited
Current assets:
Accounts receivable, net $ 3,021 $ 3,425
Inventories, net 10,528 11,017
Prepaid expenses and other current assets 394 234
Note receivable - related party 1,156 1,156
Deferred tax asset 1,283 1,142
--------- ---------
Total current assets 16,382 16,974
Property, buildings and equipment, net 27,920 27,677
Intangible assets, net 5,435 5,525
Deferred debt costs, net 30 76
Notes receivable - related party 2,909 6,759
Deferred tax asset - noncurrent 1,517 1,739
Other 718 728
-------- --------
Total assets $ 54,911 $ 59,478
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1997 1996
--------- -----------
Unaudited
Current liabilities
Accounts payable $ 2,109 $ 3,266
Accrued expenses 5,430 4,649
Capital lease obligations - current 142 142
Current portion of long-term debt 18 268
-------- --------
Total current liabilities 7,699 8,325
Capital lease obligations - non current 1,519 1,588
Long-term debt 11,806 18,706
Other liabilities 2,321 1,946
-------- --------
Total liabilities 23,345 30,565
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--4,660,869 at
June 30, 1997 and December 31, 1996 5 5
Additional paid-in capital 228,520 228,520
Accumulated deficit (196,789) (199,512)
Cumulative foreign currency
translation adjustment (170) (100)
-------- --------
Total stockholders' equity 31,566 28,913
-------- --------
Total liabilities and stockholders' equity $ 54,911 $ 59,478
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 21,564 $ 21,665 $ 41,643 $ 41,485
Costs and expenses:
Cost of sales 16,835 17,463 32,976 33,927
Selling, general and administrative 1,909 1,884 3,823 3,632
Depreciation and amortization 787 677 1,574 1,355
Operating income 2,033 1,641 3,270 2,571
Other income (expense):
Interest expense (381) (401) (804) (830)
Interest income 624 27 999 55
Other expense (18) (4) (18) (14)
Income before income taxes 2,258 1,263 3,447 1,782
Provision for income taxes 475 140 724 229
-------- -------- -------- -------
Net income $ 1,783 $ 1,123 $ 2,723 $ 1,553
======== ======== ======== =======
Net income per common share $ 0.37 $ 0.21 $ 0.56 $ 0.30
======== ======== ======== =======
Weighted average number of common
and common equivalent shares 4,859 5,119 4,857 5,106
======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Stock Additional Foreign
----------------- Paid-In Accumulated Translation
Shares Dollars Capital Deficit Adjustment
-------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 4,661 $ 5 $ 228,520 $(199,512) $(100)
Net income -- -- -- 2,723 --
Foreign currency translation
adjustment -- -- -- -- (70)
------- ----- --------- ---------- -----
Balance at June 30, 1997 $ 4,661 $ 5 $ 228,520 $(196,789) $(170)
======= ===== ========= ========== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
---------------------
1997 1996
------- -------
Cash flows provided by operating activities:
Net income $ 2,723 $ 1,553
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,574 1,355
Amortization of deferred debt costs 46 121
Amortization of debt discount -- 7
Amortization of note receivable discount (725) --
Other (70) (32)
(Increase) decrease in assets:
Accounts receivable 404 (296)
Inventories 489 (1,265)
Prepaid expenses and other current assets (160) 137
Deferred tax asset 81 --
Other 10 (224)
Increase (decrease) in liabilities:
Accounts payable (1,157) 61
Accrued expenses 781 (517)
Other liabilities 375 250
------- ------
Net cash provided by operating activities 4,371 1,150
------- ------
Cash flows provided by (used in) investing activities:
Proceeds from sale of Abdow's Restaurant -- 1,075
Purchase of property, building and equipment (1,727) (1,439)
Issuance of note receivable - related party (2,000) --
Proceeds from note receivable - related party 6,575 --
------- ------
Net cash provided by (used in) investing activities 2,848 (364)
------- ------
Cash flows used in financing activities:
Net repayment of long-term debt (7,150) (660)
Payment of deferred bank fee -- (30)
Principal payments of capital lease (69) (96)
------- ------
Net cash used in financing activities $(7,219) $ (786)
------- ------
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1997 1996
-------- --------
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 $ 179 $ 358
Interest 690 719
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
ELXSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(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 and six months ended June 30, 1997 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, 1996.
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 30 Bickford's and 12 Howard Johnson's
restaurants, located in Massachusetts, Vermont, New Hampshire, Rhode Island and
Connecticut, from Marriott Family Restaurants, Inc.
Between 1992 and 1996, ELXSI sold six of its Howard Johnson's restaurants,
converted five others into Bickford's Restaurants, opened eight new Bickford's
restaurants, acquired 16 Abdow's Family Restaurants ("Abdow's"), converted nine
of the Abdow's into Bickford's restaurants, sold one Abdow's restaurant and
closed one Abdow's restaurant. During the first half of 1997, ELXSI opened two
new Bickford's restaurants. As of June 30, 1997, ELXSI owned 54 Bickford's, five
Abdow's and one Howard Johnson's Restaurants (the "Restaurants").
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 rehabilitation equipment for wastewater and drainage systems primarily for
governmental municipalities, service contractors and industrial users.
Note 2. Related Party Transactions
Transactions with Azimuth Corporation and Subsidiaries. On December 30, 1996,
ELXSI entered into a Recapitalization Agreement (the "Recapitalization
Agreement") with Azimuth Corporation ("Azimuth") and its three wholly-owned
subsidiaries: Contempo Design, Inc., Contempo Design West, Inc., and Delaware
Electro Industries, Inc. (collectively referred to as the "Azimuth
Subsidiaries"). Certain of the officers, directors and stockholders of Azimuth
and certain of the officers and directors of the Azimuth Subsidiaries' are
officers and directors of the
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<PAGE>
Company. Under the Recapitalization Agreement, ELXSI purchased from Bank of
America Illinois ("BAI"), its lending bank, three Azimuth Subsidiary revolving
notes (the "Azimuth Subsidiary Notes" or "Notes") which were scheduled to mature
on December 31, 1996. The Notes had a combined face value of $6,650,000 and were
purchased by ELXSI at an $800,000 discount. Under the Recapitalization
Agreement, ELXSI received all contract rights and obligations held by BAI in
relation to the Notes and, as a result, became the provider of a working capital
line of credit for the Azimuth Subsidiaries, which ELXSI increased to $9,650,000
and extended through June 30, 1998. The line of credit was secured by an Azimuth
guaranty and substantially all of the assets of Azimuth and the Azimuth
Subsidiaries.
On June 16, 1997, the Azimuth Subsidiaries prepaid all of the outstanding face
amount of the Notes due to ELXSI by utilizing the proceeds of a new line of
credit negotiated with a third party lender. The working capital line of credit
extended by ELXSI to the Azimuth Subsidiaries was terminated upon such
prepayment.
Transactions with Cadmus Corporation. On June 30, 1997, ELXSI loaned $2,000,000
to Cadmus Corporation ("Cadmus"). The loan, which is fully collateralized,
matures on June 30, 1999 and bears interest at 15%, payable quarterly in
arrears. ELXSI earned a 5%, or $100,000, closing fee, which will be amortized to
interest income utilizing the effective interest method over the life of the
loan. Cadmus will reimburse ELXSI for all costs incurred by ELXSI in making the
loan. Certain officers, directors and or shareholders of Cadmus are officers
and/or directors of the Company and/or ELXSI.
Effective June 30, 1997, the management agreement between Cadmus and ELXSI was
extended to at least June 30, 2005. Effective April 1, 1997 the management fee
was increased from $500,000 to $600,000 annually, with a provision that the fee
shall increase 5% on each anniversary of April 1, 1997.
Note 3. Long-Term Debt
The maturity date of ELXSI's line of credit with Bank of America Illinois was
extended from June 30, 1998 to September 30, 1998.
Note 4. Subsequent Event
In July 1997, ELXSI completed negotiations to purchase a 32,000 square foot
facility on five acres of land in Orlando, Florida for approximately $1,240,000.
The facility, which is adjacent to Cues's existing property, will be utilized by
Cues for all manufacturing and administrative functions. Closing is scheduled
for October 1, 1997. It is anticipated that industrial revenue bonds issued by
the Orange County Florida Industrial Development Authority in the amount of
$2,500,000 will finance the purchase price, all necessary improvements to the
facility and a portion of the related transaction expenses. The bonds will
mature over fifteen years with equal monthly principal payments and monthly
interest payments equal to the tax exempt equivalent of either the prime rate or
"IBOR" plus 1.5%.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The Company's 1997 and 1996 six-month and second quarter revenues and expenses
result from the operation of ELXSI's Restaurant and Cues Divisions and the
Company's corporate ("Corporate") expenses.
Comparison of First Half 1997 results to first half 1996 results
Six-month sales increased $158,000, gross profit increased $1,109,000, selling,
general and administrative expense increased $191,000 and depreciation and
amortization expense increased $219,000, resulting in an operating income
increase of $699,000. Interest expense decreased by $26,000, interest income
increased by $944,000, other expense increased by $4,000 and income taxes
increased by $495,000, resulting in a increase in net income of $1,170,000.
Restaurant Division. In the first half of 1997, Restaurant sales increased by
$1,281,000, or 4.3%, and gross profit increased $986,000, or 21.7%, compared to
the same period in the prior year. The gross profit increase was partially
offset by an increase in selling, general and administrative expense of $20,000
and an increase in depreciation and amortization expense of $210,000, resulting
in an operating income increase of $756,000, or 30.2%. The sales increase was
mainly due to an increase in same store sales of $644,000, or 3%, sales from the
opening of two new Bickford's Restaurants of $898,000, partially offset by a
decrease in sales resulting from the sale and closing of two Abdow's Restaurants
totalling $325,000. All of the sales increase at same store Restaurants resulted
from an increase in the average guest check. Customer counts at Restaurants
operated in both periods decreased 2.2% despite the fairer weather in New
England during the first quarter of 1997 as compared to the record snow falls in
1996. Customer counts at the nine converted and five remaining Abdow's
Restaurants decreased by 3.1% and 6.4%, respectively, compared to 1996.
As a result of the sales increase and a 2.5% improvement in the gross profit
percentage from 15.3% to 17.8%, Restaurant gross profit increased by $986,000,
or 21.7%, in the first half of 1997 compared to the same period in 1996. The
increase in the gross profit percentage was mainly the result of a decrease in
food cost of 1.0% attributable to the conversion of the Abdow's Restaurants into
Bickford's in the latter half of 1996 and an increase in the average guest check
during the quarter. Additionally, variable costs as a percentage of sales
decreased by 0.9%, attributable to the milder weather in the first quarter of
1997 as compared to the severe weather in the same period in 1996.
Management expected the Restaurant gross profit percentage to decline initially
as a result of the 1995 acquisition of the 16 Abdow's Restaurants, which have a
higher percentage of food, labor and rent costs compared to the Bickford's
Restaurants. It was anticipated that upon conversion of the Abdow's Restaurants
into Bickford's Restaurants the food costs as a percentage of sales would
decline to the average Bickford's level, thereby increasing the gross profit
percentage.
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<PAGE>
Management intends to keep up to five of the acquired Restaurants operating as
lower margin Abdow's Restaurants, and 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 $20,000
during the first half of 1997.
Restaurant Division depreciation and amortization expense increased by $210,000
during the first half of 1997. Restaurant Division depreciation and amortization
expense 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
Restaurants acquisition in 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 items, operating income increased by $756,000, or
30.2%, in the first half of 1997. Restaurant Division interest expense related
to the amortization of deferred bank fees and to capital lease obligations
decreased by $72,000 as the fees became fully amortized.
Cues Division. Cues's sales decreased by $1,123,000, or 9.7%, in the first half
of 1997 compared to the same period in the prior year. The sales decline was
primarily the result of a decrease in shipments of truck-based systems due to a
combination of timing and model year preferences. Gross profit increased by
$123,000, or 4.1%, while operating income increased by $167,000, or 23.2%.
Cues's gross profit margins showed signs of improvement in the second quarter of
1997 despite a continued competitive environment as production efficiencies and
product mix combined for a favorable outcome. Included in the increase in
operating income is the effect of a decrease in selling, general and
administrative expense of $53,000 and an increase in depreciation and
amortization expense of $9,000. Management anticipates that gross and operating
margins will continue to experience pressure in 1997 due to the fact that Cues's
customers continue to stress pricing factors in awarding contracts through the
competitive bidding process.
Corporate. Corporate general and administrative expenses increased by $224,000
during the first six months of 1997 mainly as a result of an increase in the
phantom stock option plan accrual for Bickford's management. Interest expense
increased by $40,000 due to a higher average debt balance in 1997 partially
offset by a decrease in the Company's senior debt borrowing rate. During the
first half of 1997 and 1996, the Company recorded interest income of $993,000
and $55,000, respectively, in connection with notes receivable due from a
related parties.
On December 30, 1996, ELXSI purchased three Azimuth Corporation subsidiary notes
(the "Notes") with a face value of $6,650,000 from Bank of America Illinois
("BAI") for $5,850,000. The Company recorded the $800,000 discount as a
reduction in the face amount of the Notes on the balance sheet. The face value
of the Notes, payable by the Azimuth Corporation subsidiaries, bore interest at
15% per annum payable in arrears on the 1st and 16th of each month. Two of the
Azimuth Corporation subsidiaries design and manufacture trade show booth
displays; the other is a distributor of electrical fuses and fasteners. Certain
of the officers and directors and stockholders of Azimuth Corporation are
officers and directors of the Company and/or ELXSI. As a result of the
transactions described in this paragraph, ELXSI was the senior revolving credit
lender to the Azimuth Corporation subsidiaries. Funding for ELXSI's purchase of
the Notes was provided by BAI under an amendment and restatement of its existing
credit agreement with ELXSI. The Company's return on investment from the
foregoing transactions was in the form of
11
<PAGE>
net interest (i.e., the difference between the Azimuth's Corporation
subsidiaries' 15% interest rate and the Company's cost of borrowing) and the
discount earned by the Company.
The purpose of the transactions described above was to prudently utilize the
Company's debt capacity to earn a return not generally available in the
marketplace for the commensurate risk. The knowledge of the Azimuth Corporation
credit and the short time frame required to respond to BAI made ELXSI unique in
its ability to capture such an attractive opportunity.
On June 16, 1997, the Azimuth Corporation subsidiaries prepaid all of the
remaining outstanding principal of the Notes due to ELXSI by utilizing the
proceeds of a new line of credit obtained from a third party lender.
The $938,000 increase in interest income during the first half of 1997 compared
to the same period in 1996, primarily resulted from recording $902,000 of
interest related to the Notes described above. The $902,000 recorded during the
first half of 1997 consisted of the 15% interest on the face amount of the Notes
and amortization of the discount. Included in interest expense is interest paid
to BAI of approximately $193,000 directly attributable to ELXSI's purchase of
the Notes. As a result of the Notes, the Company recorded net interest income of
approximately $709,000 during the first half of 1997 and $934,000 in total
during the period the Notes were outstanding.
Income taxes increased from $229,000 in the first half of 1996 to $724,000 in
the first half of 1997. The $495,000 tax increase resulted from calculating the
projected 1997 effective tax rate, assuming a change of control in accordance
with the Section 382 of the Internal Revenue Code occurs in 1997, and applying
the effective rate to the first six months' estimated taxable income. If a
change of control does not occur, the effective tax rate will decrease during
the fourth quarter of 1997. Management does not believe a change of control
occurred in the first six months of 1997.
Earnings Per Share. Earnings per share for the six months ended June 30, 1997
was $0.56 per share and the weighted average number of shares outstanding was
4,857,000. This compares to $0.30 per share for the corresponding period in 1996
when there were 5,106,000 weighted average shares outstanding. The reduction in
the weighted average shares outstanding in the first half of 1997 compared to
the first half of 1996 resulted mainly from the repurchase and retirement of
Common Stock in the second half of 1996 and the repurchase and retirement of a
warrant held by an affiliate of BAI on December 30, 1996. The average stock
market price for the first half of 1997 was $6.48 compared to an average of
$6.31 in the corresponding period of 1996. An increase in the stock price
results in a slightly greater number of shares outstanding for purposes of
determining the weighted average shares outstanding used in the earnings per
share calculation.
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<PAGE>
Comparison of Second quarter 1997 results to 1996 results
The second quarter sales decreased $101,000, gross profit increased $527,000,
selling, general and administrative expense increased $25,000 and depreciation
and amortization increased $110,000, resulting in an operating income increase
of $392,000. Interest expense decreased by $20,000, interest income increased by
$597,000, other expense increased by $14,000 and income taxes increased by
$335,000, resulting in an increase in net income of $660,000.
Restaurant Division. Restaurant sales increased by $879,000, or 5.7%, and gross
profit increased by $490,000, or 18.5%, in the second quarter of 1997 compared
to the same period in the prior year. Operating income increased $402,000, or
25.3%, after the effect of a decrease in selling general and administrative
expense of $20,000 and an increase in depreciation and amortization of $108,000.
The sales increase was mainly due to an increase in same store sales of
$238,000, or 2.1%, sales from the opening of two new Bickford's Restaurants of
$575,000, a sales increase from the nine converted and five remaining Abdow's
Restaurants of $99,000, partially offset by a decrease in sales resulting from
the sale and closing of two Abdow's Restaurants totalling $132,000. All of the
sales increase resulted from an increase in the average guest check. Customer
counts at Restaurants operated in both periods decreased by 3.9%. Customer
counts at the nine converted and five remaining Abdow's Restaurants decreased by
0.1% and 7.8%, respectively, in the second quarter of 1997 as compared to 1996.
As a result of the sales increase and a 2.1% improvement in the gross profit
percentage from 17.1% to 19.2%, restaurant gross profit increased by $490,000,
or 18.5%, in the second quarter of 1997 compared to the same period in 1996. The
increase in the gross profit percentage was mainly the result of a decrease in
food costs attributable to the conversion of the Abdow's Restaurants into
Bickford's in the latter half of 1996 and an increase in the average guest check
during the quarter.
Restaurant selling, general and administrative expense decreased by $20,000 and
restaurant depreciation and amortization increased by $108,000 during the second
quarter of 1997.
As a result of the above items, operating income increased by $402,000, or
25.3%, in the second quarter of 1997.
Cues Division. Cues's sales decreased by $980,000, or 15.9%, in the second
quarter of 1997 compared to the same period in the prior year. The sales decline
was primarily the result of a decrease in shipments of truck-based systems due
to a combination of timing and model year preferences. Despite the sales
decrease, gross profit increased by $37,000, or 2.4%, due to a 5.4% increase in
the gross profit percentage from 25.1% in the second quarter of 1996 to 30.5% in
the second quarter of 1997. Cues's gross profit margins showed signs of
improvement in this quarter despite a continued competitive environment as
production efficiencies and product mix combined for a favorable outcome.
Operating income increased by $112,000, or 30.5%. Included in the increase in
operating income is the effect of an decrease in selling, general and
administrative expense of $77,000 and an increase in depreciation and
amortization expense of $2,000. Management anticipates that gross and operating
margins will continue to experience pressure in 1997 due to the fact that Cues's
customers continue to stress pricing factors in awarding contracts through the
competitive bidding process.
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<PAGE>
Corporate. Corporate general and administrative expenses increased by $122,000
during the second quarter of 1997 mainly as a result of an increase in the
phantom stock option plan accrual for Bickford's management. Interest expense
increased by $9,000 due to a higher average debt balance in 1997, partially
offset by a decrease in the Company's senior debt borrowing rate. During the
second quarter of 1997, the Company recorded interest income of $621,000
compared to $28,000 in the same period of 1996.
The increase in interest income primarily resulted from recording $575,000 of
interest income during the second quarter of 1997 related to the Notes and
amortization of the $800,000 discount described above. Included in interest
expense is interest paid to BAI of approximately $84,000 directly attributable
to ELXSI's purchase of the Notes. As a result of the Notes, the Company recorded
net interest income of approximately $491,000 during the second quarter of 1997.
Income taxes increased from $140,000 in the second quarter of 1996 to $475,000
in the second quarter of 1997. The $335,000 tax increase resulted from
calculating the projected 1997 effective tax rate, assuming a change of control
in accordance with the Section 382 of the Internal Revenue Code occurs in 1997,
and applying the effective rate to the first quarters estimated taxable income.
If a change of control does not occur, the effective tax rate will decrease
during the fourth quarter of 1997.
Earnings Per Share. Earnings per share for the quarter ended June 30, 1997 was
$0.37 per share and the weighted average number of shares outstanding was
4,859,000. This compares to $0.21 per share for the corresponding period in 1996
when there were 5,119000 weighted average shares outstanding. The reduction in
the weighted average shares outstanding in the second quarter of 1997 compared
to the second quarter of 1996 resulted mainly from the repurchase and retirement
of Common Stock in the second half of 1996 and the repurchase and retirement of
a Warrant held by an affiliate of BAI on December 30, 1996. The average stock
market price for the second quarter of 1997 was $6.50 compared to an average of
$6.42 in the corresponding period of 1996.
Liquidity and Capital Resources
Available Resources. The Company's unrestricted consolidated cash positions at
June 30, 1997 and December 31, 1996 was $0.
During the first half of 1997, the Company had cash flow from operations of
$4,371,000. The cash from operations and the proceeds from the Azimuth
Corporation subsidiary notes receivable of $6,575,000 funded the acquisition of
property, plant and equipment totalling $1,727,000, a related party loan to
Cadmus Corporation in the amount of $2,000,000, the repayment of long-term debt
of $7,150,000 and the repayment of capital leases obligations of $69,000. During
the first half of 1997, current assets decreased by $592,000 primarily due to a
$540,000 decrease in Cues's inventory and the collection of the $225,000 Notes
purchase closing fee, which was classified as a receivable at December 31, 1996,
partially offset by an increase in Cues's accounts receivable of $134,000.
Partially offsetting the decrease in current assets, current liabilities
(excluding the current portion of long-term debt and capital leases) decreased
$376,000 mainly due to a reduction in Cues's accounts payable.
14
<PAGE>
During the first half of 1996, the Company had cash flow from operations of
$1,150,000. The cash from operations and the proceeds from the sale of the
Vernon, Connecticut Abdow's Restaurant of $1,075,000 funded the acquisition of
property, plant and equipment totalling $1,439,000, the repayment of long-term
debt of $660,000, the payment of a deferred bank fee of $30,000 and the
repayment of capital lease obligations of $96,000. During the first half of
1996, accounts receivable and inventory primarily related to Cues increased by
$296,000 and $1,265,000, respectively. In addition, current liabilities
(excluding the current portion of long-term debt and capital leases) decreased
$456,000 mainly due to the timing of payments related to Bickford's accounts
payable and accrued expenses.
The Company has 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. With bank approval, excess funds available
under ELXSI's bank loan agreement may be used to finance additional
acquisitions.
Impact of Inflation. Inflationary factors such as increases in food and labor
costs directly affect the Company's operations. 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. 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 an
impact on the Company's food costs. 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.
15
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company's 1997 Annual Meeting of Stockholders was held on May 22, 1997. In
connection therewith the Company submitted three proposals to stockholders in
its Notice of Annual Meeting of Stockholders and Proxy Statement dated April 14,
1997.
All of the directors of the Company were re-elected at the 1997 Annual Meeting
of Stockholders, having received votes as follows:
Against/ Broker
Nominee For Withheld Abstentions Non Votes
------- --------- -------- ----------- ---------
Farrokh H. Kavarana 3,273,847 131,229 -- --
Kevin P. Lynch 3,273,903 131,173 -- --
Alexander M. Milley 3,273,749 131,327 -- --
Denis M. O'Donnell 3,274,357 130,719 -- --
Robert C. Shaw 3,273,613 131,463 -- --
A majority of the stockholders approved the Company's 1997 Incentive Stock
Option Plan, voting as follows:
Against/ Broker
For Withheld Abstentions Non Votes
--------- -------- ----------- ---------
Number of votes 3,027,297 281,731 11,532 84,516
A majority of the stockholders approved amendments to the Company's Bylaws to
impose certain tax-related transfer restrictions on Common Stock and other
equity securities of the Company.
Against/ Broker
For Withheld Abstentions Non Votes
--------- -------- ----------- ---------
Number of votes 2,186,576 163,153 20,099 1,035,248
A majority of the stockholders approved the appointment of Price Waterhouse LLP
as the Company's independent accountants for the fiscal year ending December 31,
1997, voting as follows:
Against/ Broker
For Withheld Abstentions Non Votes
--------- -------- ----------- ---------
Number of votes 3,391,012 6,523 7,541 --
16
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
3.3 Bylaws of the Company (incorporated herein by reference to Exhibit
3.3 to the Company's Form 8-K Current Report dated June 24, 1997
filed on June 26, 1997 (File No. 0-11877)).
4.17 Rights Agreement, dated as of June 4, 1997, between the Company and
Continental Stock Transfer & Trust Company, as Rights Agent
(incorporated herein by reference to Exhibit 4.17 to the Company's
Form 8-A Registration Statement filed June 10, 1997 (file no. 0-
11877)).
10.33 Form of Extension No. 2 to Management Agreement, dated as of June
30, 1997, between ELXSI and Cadmus (incorporated herein by reference
to Exhibit 10.33 to the Company's Form 8-K Current Report dated July
9, 1997 filed on July 9, 1997 (File No. 0-11877)).
10.34 Form of Employment Agreement, dated as of June 30, 1997, between
ELXSI and Alexander M. Milley (incorporated herein by reference to
Exhibit 10.34 to the Company's Form 8-K Current Report dated July 9,
1997 filed on July 9, 1997 (File No. 0-11877)).
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
During the fiscal quarter ended June 30, 1997, the Company filed with the
Securities and Exchange Commission, on June 26, 1997, a Form 8-K Current Report
dated June 24, 1997, under which it made Item 5 (Other Events) disclosures; no
financial statements were included in such Form 8-K.
17
<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: August 12, 1997 /s/ Alexander M. Milley
--------------------------------------------------
Alexander M. Milley, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 1997 /s/ Thomas R. Druggish
--------------------------------------------------
Thomas R. Druggish, Vice President,
Treasurer and Secretary (Chief Accounting
Officer and Principal Financial Officer)
18
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,097,000
<ALLOWANCES> 76,000
<INVENTORY> 10,528,000
<CURRENT-ASSETS> 16,382,000
<PP&E> 27,920,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,911,000
<CURRENT-LIABILITIES> 7,699,000
<BONDS> 0
<COMMON> 5,000
0
0
<OTHER-SE> 31,566,000
<TOTAL-LIABILITY-AND-EQUITY> 54,911,000
<SALES> 41,643,000
<TOTAL-REVENUES> 41,643,000
<CGS> 32,976,000
<TOTAL-COSTS> 38,373,000
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<INTEREST-EXPENSE> 804,000
<INCOME-PRETAX> 3,447,000
<INCOME-TAX> 724,000
<INCOME-CONTINUING> 2,723,000
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<EXTRAORDINARY> 0
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