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, 1997
--------------------------------------------
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
----------------
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 May 6, 1997, the registrant had outstanding 4,660,869 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
March 31, December 31,
1997 1996
---- ----
Current assets:
Accounts receivable, net $ 3,259 $ 3,425
Inventories, net 10,485 11,017
Prepaid expenses and other current assets 266 234
Note receivable - related party 1,156 1,156
Deferred tax asset 1,204 1,142
-------- --------
Total current assets 16,370 16,974
Property, buildings and equipment, net 27,886 27,677
Intangible assets, net 5,504 5,525
Deferred debt costs, net 53 76
Notes receivable - related party 6,055 6,759
Deferred tax asset - noncurrent 1,701 1,739
Other 661 728
-------- --------
Total assets $ 58,230 $ 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
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ---------
<S> <C> <C>
Current liabilities
Accounts payable $ 1,729 $ 3,266
Accrued expenses 4,763 4,649
Capital lease obligations - current 142 142
Current portion of long-term debt 403 268
---------- ---------
Total current liabilities 7,037 8,325
Capital lease obligations - non current 1,560 1,588
Long-term debt, net of discount 17,650 18,706
Other liabilities 2,133 1,946
---------- ---------
Total liabilities 28,380 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
March 31, 1997 and December 31, 1996 5 5
Additional paid-in capital 228,520 228,520
Accumulated deficit (198,572) (199,512)
Cumulative foreign currency translation adjustment (103) (100)
---------- ---------
Total stockholders' equity 29,850 28,913
---------- ---------
Total liabilities and stockholders' equity $ 58,230 $ 59,478
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ELXSI CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
--------- --------
Net sales $ 20,079 $ 19,820
Costs and expenses:
Cost of sales 16,141 16,464
General and administrative 1,914 1,748
Depreciation and amortization 787 678
--------- --------
Operating income 1,237 930
Other income (expense):
Interest income 375 28
Interest expense (423) (429)
Other expense -- (10)
--------- --------
Income before income taxes 1,189 519
Provision for income taxes (249) (89)
--------- --------
Net income $ 940 $ 430
========= ========
Net income per common share $ .19 $ .09
========= ========
Weighted average number of common
and common equivalent shares 4,855 5,084
========= ========
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 Accum- Foreign
----------------- Paid-In ulated 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 -- -- -- 940 --
Foreign currency translation
adjustment -- -- -- -- (3)
-------- -------- -------- --------- ---------
Balance at March 31, 1997 $ 4,661 $ 5 $228,520 $(198,572) $ (103)
======== ======== ======== ========= =========
</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)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
-------- --------
Cash flows provided by (used in) operating activities:
<S> <C> <C>
Net income $ 940 $ 430
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 787 678
Amortization of deferred debt costs 23 60
Amortization of debt discount -- 4
Amortization of note receivable discount (96) --
Change in cumulative foreign currency
translation adjustment (3) 11
(Increase) decrease in assets:
Accounts receivable 166 (460)
Inventories 532 (675)
Prepaid expenses and other current assets (32) 124
Deferred tax asset (24) --
Other 42 (26)
Increase (decrease) in liabilities:
Accounts payable (1,537) (1,096)
Accrued expenses 114 (491)
Other liabilities 187 125
-------- --------
Net cash provided by (used in) operating activities 1,099 (1,316)
-------- --------
Cash flows (used in) provided by investing activities:
Proceeds from sale of Abdow's Restaurant -- 1,075
Purchase of property, building and equipment (950) (474)
Proceeds from note receivable - related party 800 --
-------- --------
Net cash (used in) provided by investing activities (150) 601
-------- --------
Cash flows (used in) provided by financing activities:
Net (borrowing) repayment of long-term debt (921) 751
Purchase of Common Stock -- --
Payment of deferred bank fee -- --
Principal payments of capital lease (28) (36)
-------- --------
Net cash (used in) provided by financing activities $ (949) $ 715
======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
-------- -------
<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 $ 105 $ 195
Interest 314 372
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
ELXSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 months ended March 31, 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 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 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 and closed one
Abdow's. As of March 31, 1997, ELXSI owned 52 Bickford's, 5 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 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 1997 and 1996 first quarter revenues and expenses result from the
operation of the ELXSI's Restaurant and Cues Divisions and the Company's
corporate expenses ("Corporate").
COMPARISON OF FIRST QUARTER 1997 RESULTS TO 1996 RESULTS
The first quarter sales increased $259,000, gross profit increased $582,000,
selling, general and administrative expense increased $166,000 and depreciation
and amortization increased $109,000 resulting in an operating income increase of
$307,000. Interest expense decreased by $6,000, interest income increased by
$347,000, other expense decreased by $10,000 and income taxes increased by
$160,000 resulting in an increase in net income of $510,000.
Restaurant Division Restaurant sales increased by $402,000 or 2.8% and gross
profit increased by $496,000 or 26.2% in the first quarter of 1997 compared to
the same period in the prior year. Operating income increased $354,000 or 38.9%
after deducting an increase in selling general and administrative expense of
$40,000 and an increase in depreciation and amortization of $102,000. The sales
increase was mainly due to an increase in same store sales of $408,000, or 4%,
sales from the opening of one new Bickford's of $324,000, partially offset by a
decrease in sales resulting from the sale and closing of two Abdow's totalling
$192,000 and a decrease resulting from fire damage at the Bickford's Restaurant
in Brockton, Massachusetts in 1996. All of the sales increase resulted from an
increase in the average guest check. Customer counts at Restaurants operated in
both periods were approximately flat despite the fairer weather in New England
during the first quarter of 1997 compared to the record snow falls in 1996.
Customer counts at the nine converted and five remaining Abdow's Restaurants
decreased by 5.5% in the first quarter of 1997 compared to 1996.
As a result of the sales increase and a 3.0% improvement in the gross profit
percentage from 13.2% to 16.2%, restaurant gross profit increased by $496,000,
or 26.2% in the first 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 cost of 1.3% attributable to the conversion of the Abdow's 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 1.3%
attributable to the milder weather in the first quarter of 1997 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 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 cost as a percentage of sales would decline
to the average Bickford's level, thereby increasing the gross profit percentage.
Management intends to keep up to five of the acquired restaurants operating as
lower margin
9
<PAGE>
Abdow's restaurants, and 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 $40,000
during the first quarter of 1997.
Restaurant depreciation and amortization increased by $102,000 during the first
quarter 1997. 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 increased by $354,000 or 38.9%
in the first quarter of 1997.
Cues Division Cues's sales decreased by $143,000 or 2.6% in the first quarter of
1997 compared to the same period in the prior year. Despite the sales decrease,
gross profit increased by $86,000 or 5.9% due to a 2.4% increase in the gross
profit percentage from 26.9% in the first quarter of 1996 to 29.3% in the first
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
$55,000 or 15.6%. Included in the increase in operating income is the effect of
an increase in selling, general and administrative expense of $24,000 and an
increase in depreciation and amortization expense of $7,000. 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 $102,000
during the first 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 $32,000 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 quarter of 1997, the Company recorded interest income of $372,000 compared
to $28,000 in the same period of 1996.
On December 30, 1996, ELXSI purchased three revolving notes with a face value of
$6,650,000 from Bank of America Illinois, its lending bank, for $5,850,000. The
Company recorded this $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 three wholly
owned subsidiaries of Azimuth Corporation; (collectively, the "Azimuth
Subsidiaries"), bear interest at 15% per annum payable in arrears on the 1st and
16th of each month and mature on June 30, 1998. The notes are fully
collateralized by all of the assets of Azimuth Corporation and the Azimuth
Subsidiaries, including accounts receivable and inventory. Two of the Azimuth
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 became the senior revolving credit lender to the Azimuth
Subsidiaries. Funding for ELXSI's purchase of the Azimuth Subsidiary notes, as
well, as for any further revolving credit loans that may be made by ELXSI to the
Azimuth Subsidiaries, was provided by Bank of America Illinois ("BAI") under an
10
<PAGE>
amendment and restatement of its existing credit agreement with ELXSI. The
Company's return on investment from the foregoing transactions is in the form of
net interest (i.e., the difference between the Azimuth's Subsidiaries' 15%
interest rate and the Company's cost of borrowing) and the discount earned by
the Company described below. As of March 31, 1997 the balance payable by the
Azimuth Subsidiaries to ELXSI was $5,050,000.
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 Bank of America Illinois
made ELXSI unique in its ability to capture such an attractive opportunity.
The increase in interest income resulted from recording $327,000 of interest
income during the first quarter of 1997 consisting of interest on the Azimuth
Subsidiary Notes and amortization of the $800,000 discount describe herein.
Included in interest expense is interest payable to the Bank of approximately
$109,000 directly attributable to the purchase of the Azimuth Subsidiary notes.
As a result of the Azimuth Subsidiary Notes, the Company recorded net interest
income of approximately $218,000 during the first quarter of 1997.
The Azimuth Subsidiaries have the right to prepay in full their revolving notes
held by ELXSI at a price (or for a payment) equal to (i) the combined principal
amount outstanding on the date of prepayment plus (ii) all accrued but unpaid
interest thereon less (iii) if purchased in May or June 1997 a discount of
$175,000 and $75,000, respectively. Therefore, if the Azimuth Subsidiary notes
are not satisfied before July 1, 1997, ELXSI will have fully earned the $800,000
discount applied to the purchase.
Income taxes increased from $89,000 in the first quarter of 1996 to $249,000 in
the first quarter of 1997. The $160,000 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 balance of 1997. Management does not believe a change of control occurred in
the first quarter of 1997.
Earnings Per Share Earnings per share for the quarter ended March 31, 1997 was
$0.19 per share and the weighted average number of shares outstanding was
4,855,000. This compares to $0.09 per share for the corresponding period in 1996
when there were 5,084,000 weighted average shares outstanding. The reduction in
the weighted average shares outstanding in the first quarter of 1997 compared to
the first 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
common stock warrant on December 30, 1996. The average stock market price for
the first quarter of 1997 was $6.45 compared to an average of $6.21 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.
11
<PAGE>
Liquidity and Capital Resources
Available Resources The Company's unrestricted consolidated cash positions at
March 31, 1997 and December 31, 1996 was $0. The Company has a cash management
system whereby 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
safely earn from alternative investments.
Working capital needs, when they arise, are met by daily borrowings.
During the first quarter of 1997, the Company had cash flow from operations of
$1,099,000. The cash from operations and the proceeds from the Azimuth
Subsidiary notes receivable of $800,000 funded the acquisition of property,
plant and equipment totalling $950,000, the payment of long-term debt of
$921,000 and the repayment of capital leases obligations of $28,000. During the
first quarter of 1997, current assets decreased by $666,000 primarily due to a
$540,000 decrease in Cues's inventory and the collection of the $225,000 Azimuth
Subsidiaries closing fee, which was classified as a receivable at December 31,
1996. Offsetting the decrease in current assets, current liabilities (excluding
the current portion of long-term debt and capital leases) decreased $1,423,000
mainly due to a reduction in Cues's accounts payable.
During the first quarter of 1996, the Company had negative cash flow from
operations of $1,316,000. Long-term debt borrowings of $751,000 and proceeds
from the sale of the Vernon, Connecticut Abdow's Restaurant of $1,075,000 funded
the use of cash in operations, the acquisition of property, plant and equipment
totalling $474,000 and the repayment of capital lease obligations of $36,000.
During the first quarter of 1996, accounts receivable and inventory primarily
related to Cues increased $460,000 and $675,000, respectively. 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.
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 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. 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 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.
12
<PAGE>
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 22, 1997. In connection
therewith the Company submitted the following proposals to stockholders in the
annual proxy statement dated May 22, 1997.
Nomination of the following current directors for re-election: Farrokh K.
Kavarana, Denis M. O'Donnell, Kevin P. Lynch, Alexander M. Milley and Robert C.
Shaw.
Approval of the ELXSI Corporation 1997 Incentive Stock Option Plan.
Adoption of amendments to the Company's Bylaws to impose certain tax-related
transfer restrictions on Common Stock and other equity securities of the
Company.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
13
<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 12, 1997 /s/ Alexander M. Milley
-------------------------
Alexander M. Milley, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 1997 /s/ Thomas R. Druggish
--------------------------------------
Thomas R. Druggish, Vice President,
Treasurer and Secretary (Chief Accounting
Officer and Principal Financial Officer)
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,323,000
<ALLOWANCES> 64,000
<INVENTORY> 10,485,000
<CURRENT-ASSETS> 16,370,000
<PP&E> 27,886,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,230,000
<CURRENT-LIABILITIES> 7,037,000
<BONDS> 0
<COMMON> 5,000
0
0
<OTHER-SE> 29,850,000
<TOTAL-LIABILITY-AND-EQUITY> 58,230,000
<SALES> 20,079,000
<TOTAL-REVENUES> 20,079,000
<CGS> 16,141,000
<TOTAL-COSTS> 17,842,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 423,000
<INCOME-PRETAX> 1,189,000
<INCOME-TAX> 249,000
<INCOME-CONTINUING> 940,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 940,000
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
