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, 1999
-------------------------------------------------
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
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(Exact name of registrant as specified in its charter)
Delaware 77-0151523
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3600 Rio Vista Avenue, Suite A, Orlando, Florida 32805
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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 May 12, 1999, the registrant had outstanding 4,453,500 shares of Common
Stock, par value $0.001 per share.
<PAGE>
THIS QUARTERLY REPORT ON FORM 10-Q (THIS "10-Q") INCLUDES FORWARD-LOOKING
STATEMENTS, PARTICULARLY IN THE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" SECTION (ITEM 2 HEREIN).
ADDITIONAL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS MAY BE MADE BY OR ON
BEHALF OF THE COMPANY FROM TIME TO TIME, IN FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, IN PRESS RELEASES AND OTHER PUBLIC ANNOUNCEMENTS OR
OTHERWISE. ALL SUCH FORWARD-LOOKING STATEMENTS ARE WITHIN THE MEANING OF THAT
TERM IN SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INCLUDE,
BUT NOT BE LIMITED TO PROJECTIONS OF REVENUE, INCOME, LOSSES AND CASH FLOWS,
PLANS FOR FUTURE CAPITAL AND OTHER EXPENDITURES, PLANS FOR FUTURE OPERATIONS,
FINANCING NEEDS OR PLANS, PLANS RELATING TO PRODUCTS OR SERVICES, ESTIMATES
CONCERNING THE EFFECTS OF LITIGATION OR OTHER DISPUTES, AS WELL AS EXPECTATIONS
AND ASSUMPTIONS RELATING TO ANY OR ALL OF THE FOREGOING, RELATING TO THE
COMPANY, ITS SUBSIDIARIES AND/OR DIVISIONS.
ALTHOUGH THE COMPANY BELIEVES THAT ITS FORWARD-LOOKING STATEMENTS ARE BASED ON
EXPECTATIONS AND ASSUMPTIONS THAT ARE REASONABLE, FORWARD-LOOKING STATEMENT ARE
INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, SOME OF WHICH CAN NOT BE
PREDICTED. ACCORDINGLY, NO ASSURANCE CAN BE GIVEN THAT SUCH EXPECTATIONS OR
ASSUMPTIONS WILL PROVE TO HAVE BEEN CORRECT, AND FUTURE EVENTS AND ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DESCRIBED IN OR UNDERLYING THE
FORWARD-LOOKING STATEMENTS. AMONG THE FACTORS THAT COULD CAUSE FUTURE EVENTS AND
ACTUAL RESULTS TO DIFFER MATERIALLY ARE: THE DEMAND FOR THE COMPANY'S PRODUCTS
AND SERVICES AND OTHER MARKET ACCEPTANCE RISKS; THE PRESENCE IN THE COMPANY'S
MARKETS OF COMPETITORS WITH GREATER FINANCIAL RESOURCES, AND THE IMPACT OF
COMPETITIVE PRODUCTS AND SERVICES AND PRICING; THE LOSS OF ANY SIGNIFICANT
CUSTOMERS OR GROUP OF CUSTOMERS; GENERAL ECONOMIC AND MARKET CONDITIONS
NATIONALLY AND (IN THE CASE OF BICKFORD'S) IN NEW ENGLAND; THE ABILITY OF CUES
TO DEVELOP NEW PRODUCTS; CAPACITY AND SUPPLY CONSTRAINTS OR DIFFICULTIES; THE
RESULTS OF THE COMPANY'S FINANCING EFFORTS; THE EMERGENCE OF FUTURE
OPPORTUNITIES; AND THE EFFECT OF THE COMPANY'S ACCOUNTING POLICIES.
MORE DETAIL REGARDING THESE AND OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS, ASSUMPTIONS AND
FORWARD-LOOKING STATEMENTS ("CAUTIONARY STATEMENTS") MAY BE DISCLOSED IN THIS
10-K, OTHER SECURITIES AND EXCHANGE COMMISSIONS FILING AND PUBLIC ANNOUNCEMENTS
OF THE COMPANY. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY, ITS SUBSIDIARIES OR DIVISIONS OR PERSONS ACTING ON
THEIR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ITS FORWARD-LOOKING STATEMENTS OR
ADVISE OF CHANGES IN THE EXPECTATIONS, ASSUMPTIONS AND FACTORS ON WHICH THEY ARE
BASED.
2
<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,
1999 1998
-------------- -------------
Unaudited
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,856 $ 1,587
Accounts receivable, net 3,489 3,493
Inventories, net 11,376 10,114
Prepaid expenses and other current assets 202 292
Deferred tax asset 5,484 5,484
-------------- -------------
Total current assets 22,407 20,970
Property, buildings and equipment, net 31,891 31,888
Intangible assets, net 5,118 5,163
Deferred debt costs, net 98 105
Notes receivable - related party 4,200 4,200
Deferred tax asset - noncurrent 3,177 3,532
Other 844 778
-------------- -------------
Total assets $ 67,735 $ 66,636
============== =============
</TABLE>
3
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1999 1998
------------ ------------
Unaudited
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,521 $ 3,526
Accrued expenses 4,686 5,289
Capital lease obligations - current 47 52
Current portion of long-term debt 1,059 887
------------ ------------
Total current liabilities 10,313 9,754
Capital lease obligations - non current 1,029 1,037
Long-term debt 6,265 6,689
Other non-current liabilities 3,846 3,596
------------ ------------
Total liabilities 21,453 21,076
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--4,453,466 and
4,453,460 at March 31, 1999 and
December 31, 1998, respectively 5 5
Additional paid-in capital 226,103 226,103
Accumulated deficit (179,596) (180,343)
Accumulated other comprehensive income (230) (205)
------------ ------------
Total stockholders' equity 46,282 45,560
------------ ------------
Total liabilities and stockholders' equity $ 67,735 $ 66,636
============ ============
</TABLE>
4
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ELXSI CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended March 31,
------------ ------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 23,512 $ 23,421
Costs and expenses:
Cost of sales 18,909 18,765
Selling, general and administrative 2,366 2,119
Depreciation and amortization 942 857
------------ ------------
Operating income 1,295 1,680
Other income (expense):
Interest income 148 151
Interest expense (176) (258)
Other expense (8) (9)
------------ ------------
Income before income taxes 1,259 1,564
Provision for income taxes (512) (626)
------------ ------------
Net income 747 938
Other comprehensive income net of tax:
Foreign currency translation adjustment (25) (40)
------------ ------------
Comprehensive income $ 722 $ 898
============ ============
Net income per common share:
Basic $ .17 $ .20
============ ============
Diluted $ .15 $ .18
============ ============
Weighted average number of common and common equivalent shares:
Basic 4,453 4,654
============ ============
Diluted 4,906 5,225
============ ============
</TABLE>
5
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ELXSI CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts in Thousands)
(Unaudited)
Additional Accumulated
Common Stock Additional Accum- Other
----------------------------- Paid-In ulated Comprehensive
Shares Dollars Capital Deficit Income
------------- -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 4,453,460 $ 5 $ 226,103 $ (180,343) $ (205)
Foreign currency translation
Adjustment, net of tax -- -- -- -- (25)
Issuance of fractional shares 6 -- -- -- --
Net income -- -- -- 747 --
------------- -------------- ------------- ------------- -----------
Balance at March 31, 1999 4,453,466 $ 5 $ 226,103 $ (179,596) $ (230)
============= ============== ============= ============= ===========
6
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended March 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income $ 747 $ 938
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 942 857
Amortization of deferred debt costs 6 19
(Increase) decrease in assets:
Accounts receivable 4 (145)
Inventories (1,262) 733
Prepaid expenses and other current assets 90 (48)
Deferred tax asset 355 464
Other (91) (106)
Increase (decrease) in liabilities:
Accounts payable 995 (458)
Accrued expenses (603) 67
Other non-current liabilities 250 225
------------ ------------
Net cash provided by operating activities 1,433 2,546
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, building and equipment (899) (738)
Investment in notes receivable - related party -- (135)
------------ ------------
Net cash used in investing activities (899) (873)
------------ ------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Net payments of long-term debt (252) (100)
Purchase of Common Stock -- (1,248)
Principal payments of capital lease (13) (39)
------------ ------------
Net cash used in financing activities $ (265) $ (1,387)
------------ ------------
</TABLE>
7
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in Thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Increase in cash and cash equivalents $ 269 $ 286
Cash and cash equivalents, beginning of period 1,587 2,287
-------------- -------------
Cash and cash equivalents, end of period $ 1,856 $ 2,573
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 418 $ 261
Interest 140 264
</TABLE>
8
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
ELXSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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, 1999 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, 1998.
ELXSI Corporation (together with its subsidiary, the "Company") operated
principally through its wholly-owned California subsidiary, ELXSI. Prior to
1990, 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, which are located in Massachusetts, Vermont, New Hampshire, Rhode
Island and Connecticut, from Marriott Family Restaurants, Inc.
Between 1991 and 1998 ELXSI sold six of its Howard Johnson's Restaurants,
converted five others into Bickford's Restaurants, opened 14 new Bickford's
Restaurants, acquired 16 Abdow's Family Restaurants ("Abdow's"), sold one of
these Abdow's, closed two Abdow's and converted nine of the remaining Abdow's
into Bickford's Restaurants. During the first quarter ended March 31, 1999 the
Howard Johnson's lease expired and the restaurant was closed and one new
Bickford's was opened in Somerville, Massachusetts. As of March 31, 1999, ELXSI
owned 59 Bickford's and 4 Abdow's Restaurants (the "Restaurants" or Restaurant
Division).
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.
NOTE 2. RECLASSIFICATION. The company has recorded certain reclassifications in
prior years to be consistent with the current year's presentation. These
reclassifications had no effect on net income or stockholder's equity.
9
<PAGE>
NOTE 3. SEGMENT REPORTING.
The Company has two reportable segments, restaurant operations and equipment
manufacturing. The Company is primarily organized into two strategic business
units, which have separate management teams and infrastructures that offer
different products and services. Each business requires different employee
skills, technology and marketing strategies. The restaurant operations segment
includes 63 stores located in the New England States operating under the
Bickford's and Abdow's brand names. The equipment manufacturing segment produces
sewer inspection equipment for sale to municipalities, contractors, and foreign
governments.
The Company evaluates the performance of each segment based upon profit or loss
from operations before income taxes not including non-recurring gains and losses
and foreign exchange gains and losses.
There has been no significant difference in the basis of segmentation or in the
measurement of segment profit since the Company's last annual report on Form
10-K for the year ended December 31, 1998. The "Other" lines include corporate
related items, results of insignificant operations and, as they relate to profit
and losses, income and expense not allocated to reportable segments.
Summarized financial information by business segment for the quarters ended
March 31, 1999 and 1998 is summarized in the following table.
1999 1998
---------------- ----------------
Revenues From External Customers:
Restaurants $ 17,079,000 $ 16,636,000
Equipment 6,433,000 6,785,000
---------------- ----------------
$ 23,512,000 $ 23,421,000
================ ================
Segment Profit:
Restaurants $ 1,249,000 $ 1,393,000
Equipment 583,000 784,000
Other (537,000) (497,000)
---------------- ----------------
$ 1,295,000 $ 1,680,000
================ ================
Segment Assets:
Restaurants $ 31,975,000 $ 30,170,000
Equipment 22,249,000 20,234,000
Other 13,511,000 15,123,000
---------------- ----------------
$ 67,735,000 $ 65,527,000
================ ================
There were no inter-segment sales or transfers during the first quarter of 1999
or 1998. Operating income by business segment excludes interest income, interest
expense, and other income and expenses.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's 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 1999 RESULTS TO 1998 RESULTS
The first quarter sales increased $91,000, gross profit decreased $53,000,
selling, general and administrative expense increased $247,000 and depreciation
and amortization increased $85,000 resulting in an operating income decrease of
$385,000. Interest expense decreased by $82,000, interest income decreased by
$3,000, other expense decreased by $1,000 and income taxes decreased by $114,000
resulting in a decrease in net income of $191,000.
RESTAURANT DIVISION. Restaurant sales increased by $443,000, or 2.7% and gross
profit decreased by $87,000, or 3.3% in the first quarter of 1999 compared to
the same period in the prior year. Operating income decreased $144,000, or 10.3%
after deducting an increase in selling general and administrative expense of
$11,000 and an increase in depreciation and amortization of $46,000. The sales
increase was mainly due to an increase in same store sales of $426,000, or 3.2%,
sales from the opening of new Bickford's Restaurants of $675,000 partially
offset by a decrease in sales due to closed Restaurants of $472,000. The Company
was unable to renew the expiring Howard Johnson Restaurant lease and as a result
first quarter sales and operating income were negatively impacted by $343,000
and $49,000, respectively compared to the same period in the prior year.
Customer counts at Restaurants operated in both periods decreased 0.3%.
As a result of the sales increase, partially offset by a 0.9% decrease in the
gross profit percentage from 15.8% to 14.9%, restaurant gross profit decreased
by $87,000, or 3.3% in the first quarter of 1999 compared to the same period in
1998. The decrease in the gross profit percentage was mainly the result of an
increase in labor cost of 0.8% attributable to higher average hourly rates
caused by a competitive labor market and inefficiencies due to the poorer
weather in 1999 compared to 1998. In addition, variable costs increased 0.5% due
to snow plowing and maintenance costs related to the more severe winter weather
in 1999. A decrease in food costs of 0.4% attributable to the lower cost of eggs
and coffee compared to the first quarter of 1998 partially offset the higher
labor and variable costs.
Restaurant selling, general and administrative expense increased by $11,000, or
2.1% during the first quarter of 1999.
Restaurant depreciation and amortization increased by $46,000, or 6.4% during
the first quarter of 1999. Restaurant depreciation and amortization will
continue to increase each year with the addition of new restaurants.
As a result of the above items, operating income decreased by $144,000 or 10.3%
in the first quarter of 1999.
11
<PAGE>
CUES DIVISION. Cues's sales decreased by $352,000 or 5.2% in the first quarter
of 1999 compared to the same period in the prior year. The primary reason for
the decrease resulted from a reduction in sales of truck mounted systems. Sales
in the first quarter of 1998 were 28.6% higher than the first quarter of 1997
and presented a difficult target to exceed in the first quarter of 1999. Despite
the comparison with the first quarter of 1998, sales in the first quarter of
1999 were lower than the previous four quarters. However, based on the current
volume of orders management believes that the sale of truck mounted systems
during 1999 will recover as customers continued to recognized the benefits of
Cues's equipment. As a result of the sales decrease and a 2.2% increase in the
gross profit percentage from 29.8% in the first quarter of 1998 to 32.0% in the
first quarter of 1999, gross profit increased by $34,000, or 1.6% in the first
quarter of 1999. Operating income decreased by $201,000, or 25.6%. Included in
the decrease in operating income is the effect of an increase in selling,
general and administrative expense of $196,000, or 17.7% and an increase in
depreciation and amortization expense of $39,000, or 29.1%. Selling, general and
administrative expense was approximately flat with the second, third and fourth
quarters of 1999. The increase in expenses in the first quarter of 1999 compared
to the corresponding period in the prior year is primarily attributable to
increases in wages resulting from both rate and headcount increases, an increase
in west coast sales efforts, where a satellite service and sales office was
established and facility costs increases.
CORPORATE. Corporate general and administrative expenses increased by $40,000
during the first quarter of 1999. Interest expense decreased by $83,000 due to a
lower average debt balance in 1999. Interest income increased by $8,000 in the
first quarter of 1999 compared to the same period in 1998.
Income tax expense decreased from $626,000 in the first quarter of 1998 to
$512,000 in the first quarter of 1999. The decrease in tax expense resulted from
a decrease in pre-tax income. Both periods include non-cash expense resulting
from calculating the deferred tax provision in accordance with Financial
Accounting Standards Board Statement No. 109 "Accounting For Income Taxes". The
first quarters of 1999 and 1998 included deferred tax expense of $355,000 and
$464,000, respectively. The Company will continue to pay taxes at the rate of
approximately 11%, but will recognize a 40% tax expense on future quarterly and
annual income statements.
EARNINGS PER SHARE. Basic and diluted earnings per share for the quarter ended
March 31, 1999 were $0.17 and $0.15 respectively. The basic and diluted weighted
average number of shares outstanding for the quarter ended March 31, 1999 were
4,453,000 and 4,906,000, respectively. This compares to basic and diluted
earnings per share of $0.20 and $0.18 per share, respectively for the
corresponding period in 1998 when there were basic and diluted weighted average
shares outstanding of 4,654,000 and 5,225,000, respectively. The decrease in the
diluted weighted average shares outstanding in the first quarter of 1999
compared to the first quarter of 1998 resulted mainly from the repurchase of
Common Stock during 1998 and to a lesser extent a decrease in the average stock
market price during the first quarter of 1999 compared to the corresponding
period in 1998. The average stock market price for the first quarter of 1999 was
$10.42 compared to an average of $12.43 in the corresponding period of 1998. A
decrease in the stock price results in a slightly lesser number of shares
outstanding for purposes of determining the weighted average shares outstanding
used in the earnings per share calculation.
12
<PAGE>
YEAR 2000 COMPLIANCE
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result these
programs may not properly recognize the year 2000 (and subsequent dates) and
errors may result. The company has instituted a program to identify these
computer programs and modify or replace its systems so that they will function
properly in the year 2000 as well as any non-information technology systems in
place.
During 1998, the Restaurant division installed new accounting systems that are
fully operational and are year 2000 compliant. Individual restaurant locations
do not currently utilize point of sale registers and therefore computer
programming changes are not required. Peripheral hardware and software and
equipment at each restaurant location and the Restaurant head office are being
evaluated for year 2000 compliance.
Cues is currently in the testing phase of its manufacturing and accounting
software, which is the critical component for the planning, purchasing,
manufacturing and sale of its products. All known functions within the software
have been rewritten to be year 2000 compliant. Within various departments, Cues
also utilizes computer hardware and peripheral programs that are separate and
distinct from the accounting and manufacturing software. Examples include
programs related to engineering design, spreadsheets, word processing, sales
database tracking, etc. While not as critical to the ongoing nature of the
business, Cues is currently assessing the effect of year 2000 on each hardware
and software component. Cues does not utilize any computer aided machinery in
its production process.
The Company is in the process of assessing formal communications with all of its
significant suppliers to determine the extent to which the Company is vulnerable
to potential third parties' failures to remediate their own year 2000 issues. It
is in the interest of the Company to use this information to mitigate these
risks. However, because of the complexity of this issue, the Company can give no
assurances that the systems of other companies on which the Company relies will
be remedied for the year 2000 issue on time or that a failure to remedy the
problem by another company would not have a material adverse effect on the
Company. Plans are therefore under development in order to attempt to mitigate
the extent of such potential adverse effects.
The Company is expensing the costs to modify or replace computer applications as
incurred, the majority of which are being handled internally utilizing its
normal information technology budget and personnel. The Company does not
anticipate any significant increases in costs due to year 2000 conversions nor
does it anticipate any decrease in the information technology budget upon
completion of the conversion efforts. The Company will continue to incur salary
expense, while the efforts of personnel will be directed towards other ongoing
information technology projects in 2000. Based on the above, management does not
anticipate that the cost of achieving year 2000 compliance will exceed $50,000,
and therefore will not have a material impact on the Company's operation,
financial condition or liquidity.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
AVAILABLE RESOURCES. The Company's consolidated cash positions at March 31, 1999
and December 31, 1998 was $1,856,000 and $1,587,000. 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 1999, the Company had cash flow from operations of
$1,433,000. The cash from operations funded the acquisition of property, plant
and equipment totaling $899,000, the payment of long-term debt of $252,000 and
the repayment of capital leases obligations of $13,000. During the first quarter
of 1999, current assets increased by $1,437,000 primarily due to an increase in
Cues's inventory. The inventory increase resulted from an increase in work in
process and inventory used for sales and product demonstrations. Partially
offsetting the increase in current assets, current liabilities increased
$559,000 mainly due to an increase in accounts payable.
During the first quarter of 1998, the Company had cash flow from operations of
$2,275,000. The cash from operations funded the acquisition of property, plant
and equipment totaling $738,000, the investment in a related party note
receivable of $135,000, the payment of long-term debt of $100,000, the
repurchase of Common Stock for $1,248,000 and the repayment of capital leases
obligations of $39,000. During the first quarter of 1998, current assets
decreased by $989,000 primarily due to a $704,000 decrease in Cues's inventory
and a reduction in the deferred tax asset of $464,000 partially offset by an
increase in accounts receivable of $145,000. Partially offsetting the decrease
in current assets, current liabilities decreased $432,000 mainly due to a
reduction in Bickford's accounts payable due to the timing of certain payments.
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 long-term 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 is
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.
14
<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 27, 1999. In connection
therewith the Company submitted the following proposals to stockholders in the
annual proxy statement.
o Nomination of the following current directors for re-election: Farrokh K.
Kavarana, Kevin P. Lynch, Alexander M. Milley, Denis M. O'Donnell and
Robert C. Shaw.
o Approval of the ELXSI Corporation 1999 Incentive Stock Option Plan.
o Approval of an amendment to the Company's charter in order to effect: (i) a
1-for-100 reverse stock split of the outstanding shares of Common Stock in
order to cash-out stockholders holding less than 100 shares, and (ii)
immediately thereafter, a 100-for-1 forward stock split resulting in the
stock ownership of all non-cash out stockholders being restored to
pre-existing levels.
ITEM 5. OTHER INFORMATION - none
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended March 31, 1999, the Company filed with the Securities
and Exchange Commission, on March 19, 1999, a Form 8-K Current Report dated
March 19, 1999, under which it made Item 5 (Other Events) disclosure; no
financial statements were included in the Form 8-K.
15
<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 11, 1999 /s/ Alexander M. Milley
---------------------------------------------
Alexander M. Milley, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 11, 1999 /s/ Thomas R. Druggish
---------------------------------------------
Thomas R. Druggish, Vice President,
Treasurer and Secretary (Chief Accounting
Officer and Principal Financial Officer)
16
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