SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000
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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)
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 July 28, 2000, the registrant had outstanding 4,288,438 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 statements 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-Q, 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
June 30, December 31,
2000 1999
--------- --------
Unaudited
Current assets:
Cash and cash equivalents $ 1,318 $ 1,366
Accounts receivable, net 4,507 4,109
Accounts receivable - related party -- 7,487
Inventories, net 12,708 12,206
Prepaid expenses and other current assets 451 280
Deferred tax asset 5,832 5,832
--------- ---------
Total current assets 24,816 31,280
Property, buildings and equipment, net 33,557 32,444
Intangible assets, net 5,388 5,507
Accounts receivable - related party 9,776 --
Notes receivable - related party 4,307 4,442
Deferred tax asset - noncurrent 14,470 15,338
Other 937 840
--------- ---------
Total assets $ 93,251 $ 89,851
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2000 1999
--------- --------
Unaudited
Current liabilities:
Accounts payable $ 3,641 $ 3,267
Accrued expenses 5,131 5,988
Capital lease obligations - current 50 51
Current portion of long-term debt 11,180 1,637
--------- ---------
Total current liabilities 20,002 10,943
Capital lease obligations - non current 989 1,014
Long-term debt 2,746 10,201
Other non-current liabilities 3,816 3,816
--------- ---------
Total liabilities 27,553 25,974
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--60,000,000 shares
Issued and outstanding--4,288,438 and
4,275,477 at June 30, 2000 and
December 31, 1999, respectively 4 4
Additional paid-in capital 224,161 224,118
Accumulated deficit (158,182) (159,993)
Accumulated other comprehensive income (285) (252)
--------- ---------
Total stockholders' equity 65,698 63,877
--------- ---------
Total liabilities and stockholders' $ 93,251 $ 89,851
equity ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<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,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 25,832 $ 26,517 $ 50,382 $ 50,029
Costs and expenses:
Cost of sales 20,755 20,770 40,376 39,679
Selling, general and administrative 2,323 2,510 4,795 4,876
Depreciation and amortization 1,058 944 2,090 1,886
-------- -------- -------- --------
Operating income 1,696 2,293 3,121 3,588
Other income (expense):
Interest income 378 146 688 294
Interest expense (321) (187) (646) (363)
Other 12 6 (88) (2)
-------- -------- -------- --------
Income before income taxes 1,765 2,258 3,075 3,517
Provision for income taxes 735 925 1,264 1,437
-------- -------- -------- --------
Net income 1,030 1,333 1,811 2,080
Other comprehensive income net of tax:
Foreign currency translation adjustment (17) (32) (33) (57)
-------- -------- -------- --------
Comprehensive income $ 1,013 $ 1,301 $ 1,778 $ 2,023
======== ======== ======== ========
Net income per common share:
Basic $ 0.24 $ 0.31 $ 0.42 $ 0.48
======== ======== ======== ========
Diluted $ 0.21 $ 0.28 $ 0.37 $ 0.44
======== ======== ======== ========
Weighted average number of common
and common equivalent shares:
Basic 4,288 4,274 4,286 4,288
======== ======== ======== ========
Diluted 4,835 4,743 4,865 4,743
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
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, 1999 4,275,477 $ 4 $ 224,118 $ (159,993) $ (252)
Foreign currency translation
adjustment, net of tax -- -- -- -- (33)
Purchase and retirement of
Common Stock (6,200) -- (76) -- --
Exercise of Common Stock options
to purchase Common Stock 19,161 -- 119 -- --
Net income -- -- -- 1,811 --
---------- ---------- ---------- ---------- ----------
Balance at June 30, 2000 4,288,438 $ 4 $ 224,161 $ (158,182) $ (285)
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended June 30,
2000 1999
------- -------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 1,811 $ 2,080
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,090 1,886
Amortization of deferred debt costs 13 14
Gain on sale of land (75) --
Net realized loss on sale of trading securities 165 --
(Increase) decrease in assets:
Accounts receivable (398) (2,205)
Inventories (502) (1,537)
Prepaid expenses and other current assets (171) (54)
Deferred tax asset 868 992
Other (144) (184)
Increase (decrease) in liabilities:
Accounts payable 374 1,788
Accrued expenses (857) 1,339
Other non-current liabilities -- 500
------- -------
Net cash provided by operating activities 3,174 4,619
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, buildings and equipment (3,108) (2,223)
Accounts receivable - related party (108) --
Collection of notes receivable - related party 135 --
Proceeds from sale of land 100 --
Net purchase of trading securities (2,346) --
Business acquisition -- (778)
------- -------
Net cash used in investing activities (5,327) (3,001)
------- -------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net borrowings of long-term debt 2,088 697
Purchase of Common Stock (76) (1,914)
Proceeds from exercise of Common Stock
options 119 --
Principal payments of capital lease obligations (26) (34)
------- -------
Net cash provided by (used in) financing activities $ 2,105 $(1,251)
------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in Thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
2000 1999
------- -------
(Decrease) Increase in cash and cash equivalents $ (48) $ 367
Cash and cash equivalents, beginning of period 1,366 1,587
------- -------
Cash and cash equivalents, end of period $ 1,318 $ 1,954
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 678 $ 556
Interest 678 333
During the current year the Company sold investments with a net market value of
$2,181 to a related party.
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
ELXSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(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, 2000 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, 1999.
ELXSI Corporation (together with its subsidiary, the "Company") has historically
operated principally through its wholly-owned California subsidiary, ELXSI.
ELXSI's operating businesses consist of a Restaurant division in New England and
an equipment manufacturer in Orlando, Florida.
RESTAURANT DIVISION. On July 1, 1991, ELXSI acquired 30 Bickford's Restaurants
and 12 Howard Johnson's Restaurants from Marriott Family Restaurants, Inc. These
Restaurants were located in Massachusetts, Vermont, New Hampshire, Rhode Island
and Connecticut.
Between 1991 and 1999, ELXSI sold six of its Howard Johnson's Restaurants,
converted five into Bickford's Family Restaurants, and closed one when the lease
expired. During the same period, ELXSI opened 16 new Bickford's and acquired 16
Abdow's Family Restaurants ("Abdow's"). ELXSI subsequently converted 10 Abdow's
into Bickford's, sold two Abdow's, and closed another. During 2000, two
additional Abdow's were converted to Bickford's, one was closed when the lease
expired, two new Bickford's were opened, and one Bickford's was closed and is
being held for subleasing. As of June 30, 2000 ELXSI operates 64 Bickford's (the
"Restaurants" or "Restaurant Division").
EQUIPMENT MANUFACTURER. 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, collectively referred to
herein as "Cues" or "Cues Division".
Cues is engaged in the manufacturing and servicing of video inspection and
repair equipment for wastewater and drainage systems primarily for governmental
municipalities, service contractors and industrial users.
NOTE 2. ACCOUNTS RECEIVABLE - RELATED PARTY
As of June 30, 2000 the Company has outstanding approximately $14,083,000 in
notes and advances to related parties. Of this, approximately $2,307,000
consists of notes receivable from ELX Limited Partnership (ELX), the proceeds of
which were used to purchase ELXSI common stock. The remaining $11,776,000
million consists of a $2,000,000 note and $9,776,000 in advances to Cadmus
Corporation (Cadmus). Cadmus has used the proceeds to purchase an investment
portfolio comprised primarily of technology-based public equity securities. This
9
<PAGE>
portfolio, in combination with the personal guarantee of Alexander Milley,
President and Chief Executive Officer of the Company, secures the note and
advances due from Cadmus. Alexander Milley maintains a controlling interest over
both ELX and Cadmus. In addition, certain other officers, directors and/or
shareholders of ELX and Cadmus are officers and/or directors of the Company.
During the first half of 2000, the Company earned interest on notes and advances
to related parties at various rates and recorded $678,000 of interest income in
the six months ended June 30, 2000 compared to $280,000 in the same period in
1999.
NOTE 3. COMPOSITION OF INVENTORY
Inventory is summarized in the following table.
June 30, December 31,
2000 1999
------------ ------------
Inventories:
Raw materials and finished goods $ 7,986,000 $ 7,960,000
Work in process 4,722,000 4,246,000
------------ ------------
$ 12,708,000 $ 12,206,000
============ ============
NOTE 4. LONG TERM DEBT
In connection with the Bank of America (Bank) line of credit, supplemental line
of credit, and Orange County Industrial Development Authority Bonds, ELXSI had
covenant violations resulting from investments and advances to related parties
during 1999 and the first half of 2000. The Company has obtained a waiver of
these violations, which expires December 31, 2000. In addition, during 1999
ELXSI exceeded the capital expenditures limit included in the Orange County
Industrial Development Authority Bond agreement and obtained waivers from the
bank for the violation. The Bank line of credit expires on June 30, 2001.
NOTE 5. INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax basis of other assets and liabilities. Temporary differences giving
rise to deferred tax assets and liabilities include certain accrued liabilities
and net operating loss carryforwards. The provision for income taxes includes
the amount of income taxes payable for the year that would be paid by the
Company (without their carryforwards) as determined by applying the provisions
of the current tax law to the taxable income for the year and the net change
during the year in the Company's deferred tax assets and liabilities. In
determining the amount of any valuation allowance required to offset deferred
tax assets, an assessment is made that includes anticipating future income in
determining the likelihood of realizing deferred tax assets.
On an ongoing basis, the Company reviews the adequacy of the valuation allowance
and is recognizing deferred tax asset benefits only as reassessment indicates
that it is more likely than not that the benefits will be realized.
10
<PAGE>
The utilization of the Company's net operating loss and tax credit carryforwards
may be impaired or reduced under certain circumstances. Events which may affect
the Company's ability to utilize these carryforwards include, but are not
limited to, cumulative stock ownership changes of 50% or more over a three-year
period, as defined by Section 382 of the Internal Revenue Code (IRC), and the
timing of the utilization of the tax benefit carryforwards. Such changes in
ownership would significantly restrict the Company's ability to utilize loss and
credit carryforwards in accordance with Sections 382 and 383 of the IRC.
NOTE 6. 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. Each segment
requires different employee skills, technology, and marketing strategies. The
restaurant operations segment includes 64 Restaurants located in New England,
operating primarily under the Bickford's brand name. 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, 1999. 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 six months ended
June 30, 2000 and 1999 is summarized in the following table.
2000 1999
----------- -----------
Revenues From External Customers:
Restaurants $36,888,000 $35,554,000
Equipment 13,494,000 14,475,000
----------- -----------
$50,382,000 $50,029,000
Segment Profit:
Restaurants $ 2,860,000 $3,172,000
Equipment 864,000 1,487,000
Other (603,000) (1,071,000)
----------- -----------
$ 3,121,000 $ 3,588,000
=========== ===========
2000 1999
----------- -----------
Segment Assets:
Restaurants $33,394,000 $32,381,000
Equipment 25,022,000 24,340,000
Other 34,835,000 14,314,000
----------- -----------
$93,251,000 $71,035,000
=========== ===========
11
<PAGE>
There were no inter-segment sales or transfers during the first six months of
2000 or 1999. Operating income by business segment excludes interest income,
interest expense, and other income and expenses.
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 Restaurant
and Cues Divisions and the Company's corporate expenses ("Corporate").
COMPARISON OF FIRST HALF 2000 RESULTS TO 1999 RESULTS
Six month sales increased $353,000, gross profit decreased $344,000, selling,
general and administrative expense decreased $81,000 and depreciation and
amortization increased $204,000 resulting in an operating income decrease of
$467,000. Interest expense increased by $283,000, interest income increased by
$394,000, other expense increased by $86,000 and income taxes decreased by
$173,000 resulting in a decrease in net income of $269,000.
RESTAURANT DIVISION. Restaurant sales increased by $1,334,000, or 3.8% and gross
profit decreased by $20,000, or 0.3% in the first half of 2000 compared to the
same period in the prior year. Operating income decreased $312,000, or 9.8%
after deducting an increase in selling general and administrative expense of
$135,000, or 12.6% and an increase in depreciation and amortization of $157,000,
or 10.2%. The sales increase was mainly due to an increase in same store sales
of $681,000, or 2.2%, sales from the opening of new Bickford's Restaurants of
$890,000, sales from converted Abdow's of $22,000, partially offset by a
decrease in sales due to closed Restaurants of $259,000. Customer counts at
Restaurants operated in both periods decreased 3.3% due primarily to the severe
winter weather in February 2000 and increased competition in certain market
areas. In addition, the implementation by certain local communities of
non-smoking regulations also reduced customer counts.
In addition to the sales increase, there was a 0.7% decrease in the gross profit
percentage from 16.3% to 15.6%, and restaurant gross profit decreased by
$20,000, or 0.3%, in the first half of 2000 compared to the same period in 1999.
The decrease in the gross profit percentage was mainly the result of an increase
in labor costs partially offset by a decrease in food costs.
Restaurant selling, general and administrative expense increased by $135,000, or
12.6%, during the first half of 2000.
Restaurant depreciation and amortization increased by $157,000, or 10.2%, during
the first half of 2000. 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 $312,000 or 9.8%
in the first half of 2000.
12
<PAGE>
CUES DIVISION. Cues's sales decreased by $981,000 or 6.8% in the first half of
2000 compared to the same period in the prior year. The primary reason for the
sales decrease was a decrease in sales of after market parts and a decrease in
sales by one of its foreign subsidiaries. As a result of the sales decrease and
a 0.1% decrease in the gross profit percentage from 31.5% in the first half of
1999 to 31.4% in the first half of 2000, gross profit decreased by $324,000, or
7.1% in the first half of 2000. Operating income decreased by $623,000, or
41.9%. Included in the decrease in operating income is the effect of an increase
in selling, general and administrative expense of $252,000, or 9.2% and an
increase in depreciation and amortization expense of $47,000, or 13.7%. The
increase in expenses in the first half of 2000 compared to the corresponding
period in the prior year is primarily attributable to increases in selling
expense including: wages resulting from both rate and headcount increases, sales
and marketing expenses including an increase in west coast sales efforts, where
a satellite service and sales office was established.
CORPORATE. Corporate general and administrative expenses decreased by $468,000
during the first half of 2000 primarily due to a decrease in phantom option
expense of $500,000 compared with fiscal 1999. Interest expense increased by
$283,000 due to a higher average debt balance in 2000. Interest income and other
expense increased by $405,000 and $182,000, respectively in the first half of
2000 compared to the same period in 1999.
INCOME TAXES. Consolidated income tax expense decreased from $1,437,000 in the
first half of 1999 to $1,264,000 in the first half of 2000. 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 half of 2000 and 1999 included deferred
tax expense of $868,000 and $992,000, respectively. The Company will continue to
pay taxes at the rate of approximately 12%, but will recognize tax expense at a
rate of approximately 40% on future quarterly and annual income statements.
EARNINGS PER SHARE. Basic and diluted earnings per share for the six months
ended June 30, 2000 were $0.42 and $0.37 respectively. The basic and diluted
weighted average number of shares outstanding for the six months ended June 30,
2000 were 4,286,000 and 4,865,000, respectively. This compares to basic and
diluted earnings per share of $0.48 and $0.44 per share, respectively for the
corresponding period in 1999 when there were basic and diluted weighted average
shares outstanding of 4,288,000 and 4,743,000, respectively. The increase in the
diluted weighted average shares outstanding in the first half of 2000 compared
to the first half of 1999 resulted mainly from the exercise of stock options
and, to a lesser extent, an increase in the average stock market price during
the first half of 2000 compared to the corresponding period in 1999. The average
stock market price for the first half of 2000 was $12.70 compared to an average
of $10.55 in the corresponding period of 1999. An increase in the stock price
results in a slight increase in the number of shares outstanding for purposes of
determining the weighted average shares outstanding used in the earnings per
share calculation.
COMPARISON OF SECOND QUARTER 2000 RESULTS TO 1999 RESULTS
Three month sales decreased $685,000, gross profit decreased $670,000, selling,
general and administrative expense decreased $187,000 and depreciation and
amortization increased $114,000 resulting in an operating income decrease of
$597,000. Interest expense increased by $134,000, interest income increased by
$232,000, other income increased by $6,000 and income taxes decreased by
$190,000 resulting in a decrease in net income of $303,000.
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<PAGE>
RESTAURANT DIVISION. Restaurant sales increased by $573,000, or 3.1% and gross
profit decreased by $246,000, or 7.6% in the second quarter of 2000 compared to
the same period in the prior year. Operating income decreased $370,000, or 19.2%
after deducting an increase in selling general and administrative expense of
$38,000, or 7.0% and an increase in depreciation and amortization of $86,000, or
11.1%. The sales increase was mainly due to an increase in same store sales of
$269,000, or 1.7%, sales from the opening of new Bickford's Restaurants of
$488,000, and sales from the conversion of Abdow's of $15,000, partially offset
by a decrease in sales due to closed Restaurants of $199,000. Customer counts at
Restaurants operated in both periods decreased 2.9% due primarily to increased
competition in certain market areas and the implementation by certain local
communities of non-smoking regulations.
As a result of the sales increase, partially offset by a 1.8% decrease in the
gross profit percentage from 17.5% to 15.7%, restaurant gross profit decreased
by $246,000, or 7.6% in the second quarter of 2000 compared to the same period
in 1999. The decrease in the gross profit percentage was mainly the result of an
increase in labor cost attributable to higher average hourly rates caused by a
continued competitive labor market and higher variable costs.
Restaurant selling, general and administrative expense increased by $38,000, or
7.0% during the second quarter of 2000.
Restaurant depreciation and amortization increased by $86,000, or 11.1% during
the second quarter of 2000. 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 $370,000 or 19.2%
in the second quarter of 2000.
CUES DIVISION. Cues's sales decreased by $1,258,000 or 15.6% in the second
quarter of 2000 compared to the same period in the prior year. The primary
reason for the sales decrease was a decrease in sales of truck-mounted systems
during the month of June 2000 compared to June 1999. Total sales during June
decreased $1,060,000 compared to the same period in the prior year when Cues
shipped an unusually large number of orders. While Cues has not benefited from a
large sales month in 2000, management does not believe this is a sign of market
weakness or decreasing market share. As a result of the sales decrease and a
0.5% decrease in the gross profit percentage from 31.1% in the second quarter of
1999 to 30.7% in the second quarter of 2000, gross profit decreased by $424,000,
or 16.9% in the second quarter of 2000. Operating income decreased by $534,000,
or 59.1%, including the effect of an increase in selling, general and
administrative expense of $82,000, or 5.7% and an increase in depreciation and
amortization expense of $28,000, or 16.6%. Selling, general, and administrative
expenses increase primarily as a result of adding additional sales personnel and
expanded market coverage.
CORPORATE. Corporate general and administrative expenses decreased by $307,000
during the second quarter of 2000 due primarily to a decrease in phantom option
expense. Interest expense increased by $133,000 due to a higher average debt
balance in 2000. Interest income increased by $237,000 due to the related party
loan and other income decreased by $6,000, respectively in the second quarter of
2000 compared to the same period in 1999.
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<PAGE>
INCOME TAXES. Consolidated income tax expense decreased from $925,000 in the
second quarter of 1999 to $735,000 in the corresponding period in 2000. 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 second quarter of 2000 and 1999 included
deferred tax expense of $499,000 and $637,000, respectively
EARNINGS PER SHARE. Basic and diluted earnings per share for the second quarter
ended June 30, 2000 were $0.24 and $0.21 respectively. The basic and diluted
weighted average number of shares outstanding for the three months ended June
30, 2000 were 4,288,000 and 4,835,000, respectively. This compares to basic and
diluted earnings per share of $0.31 and $0.28 per share, respectively for the
corresponding period in 1999 when there were basic and diluted weighted average
shares outstanding of 4,274,000 and 4,743,000, respectively. The increase in the
diluted weighted average shares outstanding in the second quarter of 2000
compared to the second quarter of 1999 resulted mainly from the exercise of
stock options and to a lesser extent an increase in the average stock market
price during the second quarter of 2000 compared to the corresponding period in
1999. The average stock market price for the second quarter of 2000 was $12.08
compared to an average of $10.68 in the corresponding period of 1999. An
increase in the stock price results in a slight increase in the number of shares
outstanding for purposes of determining the weighted average shares outstanding
used in the earnings per share calculation.
LIQUIDITY AND CAPITAL RESOURCES
AVAILABLE RESOURCES. The Company's consolidated cash positions at June 30, 2000
and December 31, 1999 was $1,318,000 and $1,366,000, respectively. 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 half of 2000, the Company had cash flow from operations of
$3,174,000. The cash from operations of $3,174,000, borrowings of $2,088,000 of
long term debt, collection of a related party note of $135,000, proceeds from
the sale of land of $100,000, and proceeds from the exercise of common stock
options totaling $119,000 funded additional advances to a related party of
$2,289,000 (including the effect of a non-cash sale of trading securities of
$2,181,000), net purchase of trading securities of $2,346,000, acquisition of
property, plant and equipment totaling $3,108,000, the purchase of common stock
of $76,000, and payment of capital lease obligations of $26,000. During the
first half of 2000, current assets decreased by $6,464,000 primarily due to a
reclass to long term assets of Corporate advances to a related party (see Note
2), partially offset by an increase in Cues's accounts receivable and inventory.
Current liabilities increased $9,059,000 mainly due to an increase in long-term
debt and accounts payable, partially offset by a decrease in accrued expenses.
Current liabilities at June 30, 2000 and December 31, 1999 include $561,000 of
the remaining payable to stockholders related to the Company's June 28, 1999
reverse stock split, which resulted in the repurchase and retirement of 157,000
shares of Common Stock, in 1999.
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During the first half of 1999, the Company had cash flow from operations of
$4,619,000. The cash from operations and borrowings of $697,000 of long-term
debt funded the acquisition of property, plant and equipment totaling
$2,223,000, a business acquisition totaling $778,000, the purchase of Common
Stock totaling $1,914,000 and the repayment of capital lease obligations of
$34,000. During the first half of 1999, current assets increased by $4,301,000
primarily due to an increase in Cues's inventory and Cues's accounts receivable
and Corporate advances to a related party. The Cues inventory increase of
$1,724,000 resulted from an increase in work in process inventory to support an
increase in production of truck-mounted systems and trucks used for sales and
product demonstrations. The increase in Cues accounts receivable of $1,052,000
resulted mainly from the large sales volume in the month of June 1999. Also
included in accounts receivable at June 30, 1999 are advances to a related party
of $1,463,000. Current liabilities increased $3,151,000 mainly due to an
increase in accounts payable and accrued expenses. Current liabilities contains
$1,704,000 payable to stockholders related to the Company's June 28, 1999
reverse stock split, which resulted in the repurchase and retirement of 157,000
shares of Common Stock.
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. The
Company's Revolving Loan Agreement will expire on June 30, 2001, management
plans to renew the agreement.
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.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company's annual meeting was held on May 26, 2000. In connection therewith
the Company submitted the following proposals to stockholders in its notice of
Annual meeting of Stockholders and Proxy Statement dated April 21, 2000.
All of the directors of the Company were re-elected at the 2000 Annual Meeting
of Stockholders, having received votes as follows:
Against/ Broker
Nominee For Withheld Abstentions Non Votes
------- --------- -------- ----------- ---------
Farrokh H. Kavarana 3,773,104 56,682 -- --
Kevin P. Lynch 3,774,104 55,682 -- --
Alexander M. Milley 3,774,104 55,682 -- --
Denis M. O'Donnell 3,774,104 55,682 -- --
Robert C. Shaw 3,774,104 55,682 -- --
A majority of the stockholders approved the Company's 2000 Incentive Stock
Option Plan, voting as follows:
Against/ Broker
For Withheld Abstentions Non Votes
--------- -------- ----------- ---------
Number of votes 3,663,232 159,819 6,735 --
A majority of the stockholders approved the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
fiscal year ending December 31, 2000, voting as follows:
Against/ Broker
For Withheld Abstentions Non Votes
--------- -------- ----------- ---------
Number of votes 3,772,586 51,926 5,274 --
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
None
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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 9, 2000 /s/ ALEXANDER M. MILLEY
-------------------------------------
Alexander M. Milley, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 9, 2000 /s/ DAVID M. DOOLITTLE
-------------------------------------
David M. Doolittle, Vice President,
Treasurer and Secretary (Chief Accounting
Officer and Principal Financial Officer)
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