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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-11877
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 FL 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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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001, and associated Common Stock Purchase Rights
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(Title of class)
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ ]
The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant, based upon the closing price of the Common
Stock on February 16, 2001, as reported by The Nasdaq Stock Market was
$27,707,000. On February 16, 2001, the Registrant had outstanding 4,272,216
shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held in May 2001 are incorporated by reference into Part III.
This Annual Report on form 10-K (this "10-K") includes forward-looking
statements, particularly in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section (Item 7 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-K, other Securities and Exchange Commission filings 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
PART I
ITEM 1. BUSINESS
GENERAL
ELXSI Corporation (the "Company") is a Delaware corporation with one direct,
wholly-owned subsidiary, ELXSI, a California corporation ("ELXSI"). ELXSI's
operations consist of two business segments: restaurant operations and equipment
manufacturing.
On July 1, 1991, ELXSI acquired 30 restaurants operating under the Bickford's or
Bickford's Family Fare names and 12 restaurants operating under the Howard
Johnson's name, located in Massachusetts, Vermont, New Hampshire, Rhode Island
and Connecticut, from Marriott Family Restaurants, Inc. ("Marriott") for a
purchase price of approximately $23,867,000 (including transaction fees and
costs).
Between 1991 and 1999, ELXSI sold six of its Howard Johnson's restaurants,
closed one and converted five of the remaining six Howard Johnson's into
Bickford's Family Restaurants. During the same period, ELXSI opened 16 new
Bickford's Family Restaurants ("Bickford's Restaurant") and acquired 16 Abdow's
Family Restaurants ("Abdow's"). ELXSI subsequently converted ten Abdow's into
Bickford's Restaurant, sold two Abdow's and closed another Abdow's.
During 2000, five new Bickford's Restaurants were opened, in New Bedford,
Stoneham and Haverhill, Massachusetts; and Keene and Dover, New Hampshire. In
addition, one Bickford's Restaurant and one Abdow's were closed while the
remaining two Abdow's were converted to Bickford's Restaurants. On December 30,
2000, EXLSI contributed and transferred to a newly-formed, wholly owned
subsidiary, Bickford's Holdings Company, Inc. ("BHC"), the Bickford's
Restaurants and substantially all of its related operations, assets and
liabilities. Immediately thereafter, these Restaurants, operations, assets and
liabilities were contributed and transferred by BHC to another newly-formed,
wholly-owned subsidiary, Bickford's Family Restaurants, Inc. ("BFFI"). As of
December 31, 2000, the Company had 67 Bickford's Restaurants owned and operated
by BFFI (the "Restaurants" or "Restaurant Division").
On October 30, 1992, ELXSI acquired Cues, Inc., of Orlando, Florida and its two
wholly-owned subsidiaries, Knopafex, Ltd., of Toronto, Canada, and Cues B.V., of
Maastricht, The Netherlands. The Cues business in the United States is owned and
operated as a division of ELXSI. Cues, Knopafex Ltd. and Cues B.V. are
hereinafter collectively referred to as "Cues" or the "Cues Division". Cues is
principally engaged in the manufacturing and servicing of video inspection and
rehabilitation equipment for wastewater and drainage systems primarily for
municipalities, service contractors and industrial users.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Reference is made to the information set forth in Note 11 (Segment Reporting) to
the Consolidated Financial Statements included herein, which information is
hereby incorporated by reference herein.
RESTAURANT DIVISION
Restaurant Division sales were $76,284,000, $73,916,000 and $71,517,000 in 2000,
1999 and 1998, respectively, representing 73.6%, 71.0% and 72.6% of the total
sales of the Company during 2000, 1999 and 1998, respectively.
The Restaurants are family-oriented facilities that offer full-service and
relatively inexpensive meals. Featuring a breakfast menu available throughout
the day, the Restaurants appeal to customers who are interested in a casual,
low- to moderately-priced meal. The Company has been successful in marketing the
breakfast menu concept to customers regardless of the time of day, and has
expanded lunch and dinner patronage by also offering improved traditional lunch
and dinner items. Most menu items are priced between $2.49 and $8.99, with the
average customer check being approximately $6.26, $5.93, and $5.68 in 2000, 1999
and 1998, respectively. Major categories of menu items are pancakes, waffles,
french toast, eggs and omeletts, "country" dinners, soups and side orders,
salads, hamburgers, sandwiches, and desserts. Breakfast items and coffee have
accounted for approximately 70% of all food sales in each of the past three
fiscal years.
Each Restaurant is open seven days a week. Most Restaurants are open from 7:00
a.m. to 11:00 p.m. during the week and later on weekends, with some open 24
hours on the weekends and others open 24 hours every day. Approximately 60% of
weekly sales volume has been generated Friday through Sunday in each of the past
three fiscal years.
While the Company believes that the Restaurants appeal to a wide variety of
customers, they primarily cater to families, and to a lesser extent senior
citizens, who tend to be attracted to the high-quality, low- to
moderately-priced meals. Each Restaurant generally draws its customers from
within a five-mile radius and, consequently, repeat business is extremely
important to the Restaurant Division's success. The Company believes that repeat
business accounts for a majority of Restaurant sales.
Each of the Bickford's Restaurants generally consists of a free-standing
building that covers approximately 2,700 to 7,400 square feet, and are typically
located adjacent to major roads and highways and/or shopping malls. Nearly all
of the Restaurants contain two dining areas designated as smoking or non-smoking
when the local community allows smoking. At December 31, 2000, 16 of the
Restaurant buildings were owned, while the remaining 52 Restaurants were either
leased or owned buildings on leased land.
Each Restaurant has a kitchen equipped with grill space and ovens for service of
baked foods. Seating capacity ranges from 90 to 257 people. Eight of the
Bickford's Restaurants provide counter service.
4
RESTAURANT EXPANSION AND RENOVATION
Capital expenditures during the years ended December 31, 2000, 1999 and 1998
were as follows:
2000 1999 1998
---------- ---------- ----------
Expansion $3,392,000 $1,327,000 $ 942,000
Conversions 316,000 148,000 --
Purchase leased property 240,000 -- 641,000
Renovation -- -- 279,000
Refurbishment & equipment
replacements 2,234,000 2,289,000 1,887,000
---------- ---------- ----------
$6,182,000 $3,764,000 $3,749,000
========== ========== ==========
Earnings from operations funded the majority of the above capital expenditures.
The purchase of the leased properties in 1998 was primarily made with the
proceeds of mortgage financing.
The Company currently plans to spend approximately $2,675,000 for renovations,
refurbishments and equipment replacements and approximately $825,000 for
Restaurant expansion and additions during 2001. Management believes that
earnings from operations will be sufficient to fund this planned program in
addition to other funding requirements.
The Company believes that increased profitability of the Restaurants will come
mainly from gaining market share by continuing its programs to improve food
products and service, and through its programs of refurbishing existing units,
opening new units, and, to a lesser extent, from price increases. The Company
believes that these programs contribute to same store sales increases.
Sales at same Bickford's Restaurants increased 2.1% in 2000 (56 Restaurants),
increased 3.1% in 1999 (51 Restaurants), and increased 6.2% in 1998 (48
Restaurants) over the prior year's sales. Customer counts at these same
Restaurants decreased 3.1% in 2000, decreased 0.9% in 1999 and increased 3.2% in
1998 as compared to the prior year's counts.
The Company takes an opportunistic approach to Restaurant Division expansion.
Management evaluates both purchase and lease opportunities, and, in most
instances, the Company favors opening new Restaurants utilizing leased
properties. The Company will generally open a new Restaurant only if it can
reasonably be expected to meet the Company's return on investment criteria,
which is generally an annual return on the investment of approximately 25% to
30%.
RESTAURANT MANAGEMENT AND SUPERVISION
Each Restaurant has a manager and one to three assistant managers, at least one
of whom must be on duty at all times during Restaurant hours. The managers are
responsible for hiring all personnel at the Restaurant level, managing the
payroll and employee hours and ordering necessary food and supplies. The
Bickford's Division has nine district managers who, between them, cover all the
Restaurants. The district managers are responsible for the complete operation of
the Restaurants located in assigned geographical areas, including responsibility
for sales, profits and compliance with all operational policies and procedures.
5
The district managers, managers and assistant managers are all salaried
personnel, but are also compensated with performance incentives, which can
provide a significant portion of their total compensation. Bonuses paid under
the program are based principally upon monthly sales volume, attainment of
certain cost targets and restaurant profitability.
SOURCES AND AVAILABILITY OF MATERIALS
Food supplies are distributed by various Company-approved wholesalers and
purveyors, who deliver directly to each Restaurant based on the quoted cost of
individual food items. Essential supplies and raw materials are available from
several sources, and the Company is not dependent upon any one supplier for its
food supplies. These purchases from suppliers are generally done on a verbal
purchase order basis and without any long-term commitments or contracts. The
Company does not maintain or engage in any warehousing or commissary operations.
SEASONALITY
The Restaurants generally experience slightly higher revenues in the summer
months.
CUSTOMERS
The Restaurants are not dependent upon a single customer or group of customers,
although a large portion of each Restaurant's customers live within a five mile
radius thereof and, accordingly, repeat customers are important to the
Bickford's Division's success. See the fourth paragraph of this "Restaurant
Division" section above.
COMPETITION
The Restaurants are in direct competition with many local restaurants providing
family-oriented meals, some of which are owned, operated and/or franchised by
national and regional chains, many of whom are larger and have greater financial
resources than the Company. The restaurant business is highly competitive with
respect to price, service, location and food quality. The Company believes that
its attention to quality and service, along with its low- to moderately-priced
menu items, will continue to attract customers. In recent years there has been
an increase in the number of restaurants offering buffet-style dining in New
England. In addition, the Restaurants have faced increased competition in recent
years from the expansion of upscale casual dining chains. The Company believes
that the freshness of its food and its reasonable pricing compare favorably to
these buffet concepts.
EMPLOYEES
At December 31, 2000, the Restaurant Division employed 2,859 persons, of which
2,268 were part-time hourly employees, 341 were full-time hourly employees and
250 were salaried personnel. This was approximately the same number of employees
employed as of December 31, 1999. None of the Restaurant Division's employees
are represented by a union.
6
ENVIRONMENTAL MATTERS
The Restaurant Division is subject to various federal, state and local laws,
rules and regulations relating to the protection of the environment, which are
considered by management to be typical for companies operating in the restaurant
industry. Management believes that compliance therewith will have no material
effect on its capital expenditures, earnings or competitive position.
CUES DIVISION
The Cues Division sales were $27,426,000, $30,227,000 and $27,049,000 in 2000,
1999 and 1998, respectively, representing 26.4%, 29.0%, and 27.4% of the total
sales of the Company during 2000, 1999 and 1998, respectively.
Cues manufactures systems, utilizing closed circuit television and highly
specialized rehabilitation equipment to inspect and repair underground sewer
lines. The infiltration of groundwater into sewer pipelines through leaking
joints and pipe fractures unnecessarily burdens the capacity of sewage treatment
plants by increasing the volume of fluids being treated. Without a tightly
maintained pipe network the treatment plant may become overwhelmed, resulting in
raw sewage flowing into rivers, harbors, lakes or other bodies of water. The
Environmental Protection Agency through the Clean Water Act imposes severe fines
and penalties for such pollution. Leaking joints and pipe fractures can also
contribute to sewer line damage that can be repaired, in severe cases, only by
costly excavation. Cues mounts its systems in specially designed trucks and
vans, which are sold as mobile units. Cues also designs and sells a range of
portable systems that may be hand carried or mounted on a wheeled dolly for ease
of transport to difficult access locations. In addition, Cues provides product
servicing and replacement parts for its customers. The principal customers of
Cues are municipalities and contractors engaged in sewer inspection and repair.
Cues is not directly engaged in the service business of maintaining and
repairing sewer lines but primarily focuses on designing and manufacturing
equipment for these uses.
INSPECTION AND REHABILITATION EQUIPMENT
Cues's inspection and sealing equipment are integrated systems that provide the
capability of inspecting underground sewer lines via remote control television
cameras. The systems have the capability of creating a permanent record on
videotape of pipe conditions recording distance, slope, defect severity and
location using various sensing instrumentation. In addition, the Company
manufactures a line of grout application equipment for detecting leaking joints
through an air pressure testing device and applying chemical sealant to repair
small pipe fractures and leaking joints.
Cues also manufactures and sells a line of remotely-operated robotic cutting
devices. These cutting devices reinstate or open lateral sewer lines, which are
smaller-diameter pipes leading from residences or businesses into the main sewer
pipes. The laterals become blocked during the insite process of relining the
walls of mainline pipes with various resin based cured in place materials.
7
Cues's inspection, cutting and sealing systems are placed in sewer lines through
manholes. The television camera, positioned using either a motorized transporter
or pulled on a skid assembly, relays a television picture of the interior of the
sewer line via cable to a monitoring station in a mobile unit above ground. The
television inspection system employs a three-inch-diameter color camera that can
be remotely adjusted for close-up viewing of problem areas. By recording the
position of the camera as it moves through the sewer lines, Cues inspection and
sealing equipment gives customers a permanent record of the condition of their
sewer lines. If the television camera inspection of a sewer line reveals a
leaking joint or pipe fracture, sealing equipment can be introduced and
positioned through use of the camera to make the repair. Once the sealing module
is positioned, inflatable packers seal off the line at either end of the damaged
area and a chemical sealant is applied that penetrates the leak or fracture as
well as the earth surrounding the pipe, hardening to seal the line. The sealing
module may also be used to determine the structural integrity of the joint by
applying air or water pressure against the walls of the joint. This pressure
test enables the customers to detect leaking joints that may not be easily
detected visually.
The sealing module manufactured by Cues is used to repair sewer lines where
infiltration or inflow of water occurs through leaking joints and pipe
fractures. Repairs can last 20 years or more, depending upon the structural
soundness of the sewer line or repaired joints. Cues's sealing equipment is not
designed to repair a severely damaged or collapsed pipe, which must be excavated
and replaced in the traditional manner or repaired by the use of other sewer
line repair technologies such as relining. However, Cues's Kangaroo (TM) cutting
system is used integrally in the structural, in-line methods of repairing
collapsed sewer lines. Cues has also developed a line of equipment for use in
the inspection, but not the repair, of underground water wells, dams, industrial
pipe, potable water lines and large-pipe storm drains.
Cues designed and wrote DataCap 3.0(TM) software, a data collection program,
which offers the ability to electronically grab still frame picture images and
capture video clips of pipe conditions. The images along with other inspection
data such as site address, manhole information, defect severity, slope
inclination or gradient, distance and chemical sealing information is stored in
a database format and may be transmitted via internet or facsimile for remote
review. The data can also be sorted, searched and printed on reports that
include pictures, graphs and text. The advantage of a computer program over the
traditional videotape is primarily time savings for the city engineers who are
required to review inspection reports and catalog pipe conditions. The DataCap
is designed to operate on Windows95(TM), Windows98(TM), WindowsNT(TM) and
Windows2000(TM). By hiring in-house software engineers to design and write the
computer code, management believes Cues has an advantage over competing products
by allowing Cues to be more responsive to customer requests for customized
reports and features. The DataCap software is installed on shock mounted
computer hardware designed and built by Cues to be rugged for the truck
environment. During 1999, Cues signed a mutually exclusive agreement with Hansen
Information Technologies, Inc., a leading provider of asset management software
to municipalities. The agreement allows the interchange of data between the
DataCap and Hansen Infrastructure Management Solution software's and will assure
users the ability to easily import and export files between the two database
programs.
8
PRODUCT SERVICING, REPLACEMENT PARTS AND CHEMICALS
Cues provides product servicing and repairs at its facilities in Orlando,
Florida; Montclair, California; Milpitas, California; Toronto, Canada; and
Maastricht, The Netherlands. In Orlando, Cues also maintains an extensive
inventory of replacement parts for distribution and sale to customers. Cues
generally warrants that all parts, components and equipment that it manufactures
will be free from defects in material and workmanship under normal and intended
use for a period of twelve months from the date of shipment to the customer.
Major items of equipment such as vehicles, generators furnished to, but not
manufactured by, Cues, are covered under the warranty of the third-party
manufacturer of such equipment. Cues recorded warranty expense of approximately
$320,000, $547,000 and $185,000, during the years 2000, 1999 and 1998,
respectively. The increase in warranty expense during 1999 was related to a
specific product, which continued to have a lesser effect in 2000.
PRODUCT DEVELOPMENT
Cues has an ongoing program to improve its existing products and develop new
products. During the 12 months ended December 31, 2000, 1999 and 1998,
approximately $282,000, $264,000 and $360,000, respectively, was expended by
Cues for product development, (excluding, in each case, the compensation and
benefits expense of engineering department personnel, which comprises a
significant portion of research and development efforts). Although Cues holds
United States patents for components of its products, management believes the
expiration or invalidity of any or all of such patents will not have a material
adverse effect on its business. For 2001, Cues currently plans to spend
approximately $300,000 (exclusive of such personnel expenses) for product
development activities.
SOURCE AND AVAILABILITY OF RAW MATERIALS
Cues manufactures certain components of its system and purchases others.
Purchased components include television camera modules, monitors, video
recorders, computer components, generators and vehicles, all of which are
available from a number of sources. These purchases from suppliers are done on a
purchase order basis and without any long-term commitments or contracts.
Cues has agreements with Orlando area truck dealers to deliver truck bodies that
are used in the manufacture of its mobile units. Under these agreements, Cues
reimburses the dealers' floor plan financing costs for those vehicles held by
the dealer until delivery. Cues does not have any other commitments or contracts
with its truck dealers. Management believes that alternative sources for truck
chassis are available and that the loss of any of its current dealers would not
have a material adverse effect on Cues.
MARKETING
Cues markets its products and services in the United States though 14 direct
salesmen. In certain geographic areas of the country, Cues markets it products
and services through independent representatives which are non-exclusive (to
Cues), none of whom accounted for more than 5% of the Cues Division's revenues
in any of the last three years. The Company believes that the loss of any of
9
these salesman or representatives would not have a material adverse effect on
the Cues Division. Cues also employs technical service representatives located
in Orlando, Toronto and Maastricht.
Within North America, Cues's customers include municipalities and contractors
engaged in sewer line inspection and repair as well as privately-owned sewer
systems. No customer accounted for more than 5% of Cues's 2000, 1999 or 1998
sales. Cues participates in trade shows and uses trade magazine advertising in
the marketing of its products and services to North American customers. The Cues
name is well established within its industry, affording it and its products wide
recognition.
Outside North America, Cues markets its products on five continents, either
directly or through non-exclusive (to Cues) independent distributors, agents or
dealers, none of whom accounted for more than 5% of the Cues Division's revenue
in any of the last three years. During 2000, 1999 and 1998, export sales to
foreign countries represented approximately 14%, 14% and 13% of total Cues
sales, respectively. The vast majority of equipment sales to customers in
foreign countries are arranged under U.S. dollar-denominated letter of credit
arrangements and, therefore, the currency and payment risk are minimized.
The Cues Division historically has not experienced any material problems or
risks in distributing and selling products outside the United States, other than
those normally associated with such efforts (e.g., language barriers, time
differences, customs regulations and complications relative to the conforming of
equipment to local electronic, video, vehicle and other standards).
COMPETITION
Competition for the types of product sold by Cues is based mostly on price,
features, service and reliability. Management believes that it competes
effectively in each of these respects. Management also believes that there are
five companies which produce and sell products that are competitive with those
produced by Cues. A significant portion of sales are generated through a bidding
process initiated by municipalities. This process is extremely price sensitive,
requiring Cues to meet or beat competitors' bids in order to secure sales.
ACQUISITION
During June 1999, Cues acquired the inventory and other assets associated with a
competitor's product line for $778,000 in cash. The other assets include
tangible and intangible assets including trade names, patents, customer and
vendor lists, product literature and engineering drawings. The intangible assets
are being amortized over ten years in the Company's financial statements.
EMPLOYEES
At December 31, 2000 Cues had 181 full- and part-time employees. This includes
four employees of Knopafex, Ltd. and four employees of Cues B.V. None of the
Cues Division employees are represented by a union.
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ENVIRONMENTAL
The Cues Division is subject to various federal, state and local laws, rules and
regulations relating to the protection of the environment, which are considered
by management to be typical for companies operating in the underground pipe
inspection industry. Management believes that compliance therewith will have no
material effect on its capital expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
Bickford's Family Restaurants leases land and/or buildings at 52 of its 68
restaurants, under lease agreements expiring (including extension options) on
various dates through 2032. The majority of these leases are "triple net",
requiring Bickford's Family Restaurants to pay taxes, maintenance, insurance and
other occupancy expenses related to the leased premises. The rental payments for
a majority of the Restaurant locations are based upon minimum annual rental
payments plus a percentage of their respective sales.
Below is a summary of the Restaurant properties as of December 31, 2000:
Owned Leased Total
----------- ----------- -----------
Massachusetts 11 31 42
Connecticut 2 8 10
Rhode Island 1 5 6
New Hampshire 2 7 9
Vermont -- 1 1
----------- ----------- -----------
Total 16 52 68
----------- ----------- -----------
Bickford's Family Restaurants also owns a 4,000 square foot building in Boston,
Massachusetts, which is used for the Restaurant Division management and
administrative headquarters. ELXSI owns a 48,000 square foot office and
manufacturing facility in Orlando, Florida, of which 36,000 square feet are
currently being utilized by its Cues Division for manufacturing, while the
remaining 12,000 square feet are being utilized for Cues and Corporate selling,
general, and administrative functions. The old Cues Division facility consisting
of 26,000 square feet is being partially used for manufacturing and storage,
while approximately 2,000 square feet are being rented to a third party. In
addition, Cues rents a 3,000 square foot facility in Montclair, California for
service and sales, Cues B.V. owns an office and manufacturing facility in
Maastricht, The Netherlands and Knopafex, Ltd. rents office and manufacturing
space in Toronto, Canada.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings (other than ordinary routine
litigation incidental to the business) to which the Company or any of its
subsidiaries is a party or of which any of their respective properties is the
subject, nor are there any proceedings known by the Company to be contemplated
by governmental authorities against the Company or any of its subsidiaries.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to vote of stockholders during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded in the National Market System of The Nasdaq
Stock Market ("Nasdaq"), under the symbol ELXS. The following table sets forth
high and low closing sales prices for the fiscal quarters indicated, as reported
by Nasdaq.
2000 1999
------------------------------ --------------------------------
High Low High Low
-------------- ------------ -------------- --------------
First Quarter $ 15.000 $ 11.125 $ 13.000 $ 9.750
Second Quarter 14.000 8.000 11.625 9.750
Third Quarter 12.125 9.063 14.750 8.531
Fourth Quarter 11.750 9.000 14.750 9.563
On March 14, 2001, the reported last sale price for the Company's Common Stock
was $10.438 per share. The above quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
HOLDERS
As of February 16, 2001 there were 298 holders of record of the Company's Common
Stock.
DIVIDEND HISTORY
The Company has never paid a cash dividend. Management will consider paying
dividends depending on future earnings and cash flows of the Company and other
relevant considerations.
STOCK TRANSFER AGENT
The Company's stock transfer agent is Continental Stock Transfer & Trust Co., 2
Broadway, New York, New York 10004, (212) 509-4000.
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ITEM 6. SELECTED FINANCIAL DATA
(Amounts in Thousands, Except Per Share Data)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
NET SALES $ 103,710 $ 104,143 $ 98,566 $ 86,945 $ 82,743
COSTS AND EXPENSES:
Cost of sales (83,594) (81,703) (77,327) (68,406) (66,603)
General and administrative (9,544) (9,014) (9,269) (7,924) (7,362)
Depreciation and amortization (4,318) (3,870) (3,529) (3,176) (2,775)
Interest income 1,500 801 583 1,287 111
Interest expense (1,303) (832) (807) (1,420) (1,495)
Other (expense) income (272) (293) (193) (239) 432
Benefit (provision) for income taxes 6,890 11,118 (3,234) 7,312 2,332
--------- --------- --------- --------- ---------
Net income $ 13,069 $ 20,350 $ 4,790 $ 14,379 $ 7,383
========= ========= ========= ========= =========
Net income per common share
Basic $ 3.08 $ 4.75 $ 1.09 $ 3.19 $ 1.60
========= ========= ========= ========= =========
Diluted $ 2.75 $ 4.25 $ .98 $ 2.98 $ 1.56
========= ========= ========= ========= =========
Weighted average number of common and
common equivalent shares
Basic 4,246 4,283 4,400 4,504 4,606
Assumed conversion of options and warrants 512 508 486 328 139
--------- --------- --------- --------- ---------
Diluted 4,758 4,791 4,886 4,832 4,745
========= ========= ========= ========= =========
Dividends 0 0 0 0 0
========= ========= ========= ========= =========
OTHER DATA:
Working capital $ 6,863 $ 20,733 $ 11,574 $ 12,403 $ 9,090
Total assets 102,522 89,851 66,636 67,661 61,143
Capitalized leases and long term debt 13,253 12,903 8,665 12,354 20,704
Stockholders' equity 75,179 63,877 45,560 43,172 28,913
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
See Note 1 to the Consolidated Financial Statements for background on the
Company.
Both the Company's corporate functions and Cues Division have fiscal years
consisting of four calendar quarters ending on December 31. The Restaurant
Division's fiscal years consist of four 13-week quarters (and, accordingly, one
52-week period) ending on the last Saturday in December; this requires that
every six or seven years the Restaurant Division add an extra week at the end of
the fourth quarter and fiscal year. The Restaurant Division's 2000 fiscal year
included a 53rd week.
The Company's revenues and expenses result from the operation of the Restaurant
and Cues Divisions and the Company's corporate expenses ("Corporate").
YEAR ENDED DECEMBER 31, 2000
RESTAURANT DIVISION. The Restaurants had sales of $76,284,000, cost of sales of
$64,008,000, selling, general and administrative expenses of $2,469,000 and
depreciation and amortization expense of $3,550,000, which yielded operating
income of $6,257,000. In addition, the Restaurants had $158,000 of interest
expense, related primarily to mortgage loans and capital leases, and other
expense of $172,000, related to the write off and reserve for disposals of fixed
assets, resulting in income before taxes of $5,927,000.
CUES DIVISION. Cues had sales of $27,426,000, cost of sales of $19,586,000,
selling, general and administrative expenses of $6,023,000 and depreciation and
amortization expense of $768,000, which yielded operating income of $1,049,000.
In addition, Cues had $164,000 of interest expense, $9,000 of interest income
and $76,000 of other income, resulting in income before taxes of $970,000.
CORPORATE. Corporate general and administrative expenses were $1,052,000. The
major components of these expenses were $690,000 in management fees paid to
Cadmus Corporation ("Cadmus") under a management agreement (see Note 6 to the
Consolidated Financial Statements), legal expenses, audit expenses, and
stockholder services and financial reporting expenses.
Under the terms of the Cadmus management agreement, Cadmus provides ELXSI with
advice and services with respect to its business and financial management and
long-range planning. Specific examples of services historically rendered to the
Company under this management agreement include: (a) furnishing the services of
certain executive officers and other employees of Cadmus; (b) ongoing evaluation
of division management; (c) preparing and reviewing division operating budgets
and plans; (d) evaluating new restaurant locations and menu changes; (e)
identifying, and assisting in the divestiture of, under-performing assets; (f)
14
evaluating financing options and negotiating with lenders; (g) assisting in the
compliance with securities laws and other public reporting requirements; (h)
communicating with stockholders; (i) negotiating and arranging insurance
programs; (j) monitoring tax compliance; (k) evaluating and approving capital
spending; (l) cash management services; (m) preparing market research; (n)
developing and improving management reporting systems; and (o) identifying and
evaluating acquisition candidates and investment opportunities. It is through
the Cadmus management agreement that the Company is provided the non-director
services of: Mr. Milley (except in his capacity as President of Cues, for which
he is directly compensated by ELXSI), the Company's Chairman of the Board,
President and Chief Executive Officer; and Kevin P. Lynch, a Vice President and
Director of the Company.
Corporate interest income was $1,491,000, consisting primarily of interest on
loans to related parties (see Note 6 to the Consolidated Financial Statements).
Corporate interest expense was $981,000, consisting primarily of the interest
charges on senior bank debt. The Company's senior bank debt lender is Bank of
America, N.A. ("BofA"); Note 7 to Consolidated Financial Statements of the
Company includes information regarding the terms of the senior bank debt.
During 2000, the Company recorded a consolidated tax benefit of $6,890,000,
consisting of a current tax provision on pre-tax earnings, offset by a net tax
benefit generated by an intercompany transfer of assets and utilization of net
operating loss carryforwards.
In December 2000 ELXSI transferred the assets of the Restaurant Division, in a
taxable transaction, to a newly formed, wholly owned subsidiary. The transfer of
the Restaurant Division was structured to put in place a more efficient
corporate structure, allowing the Company to more easily raise capital, thereby
reducing interest carrying charges, and potentially increase the overall
valuation of the ELXSI assets. Because the newly formed subsidiary has an
ultimate ownership structure identical to that of the Restaurant Division prior
to the transfer and the transfer occurred between entities under common control,
there is no impact on the consolidated financial statements other than the
tax-related impacts discussed herein. For tax purposes, the gain on the transfer
of these assets created a current state tax liability of $2,360,000 and a
federal alternative minimum tax liability of $592,000, which are reflected in
the current tax provision. For federal income tax purposes, the gain was offset
with net operating loss carryforwards, creating a deferred tax benefit of
$10,057,000. In accordance with FAX 109, $12,417,000 has been reflected as a
prepaid asset to reflect the federal and state tax impacts of inter-company
profits related to this transaction.
Management evaluates the likelihood of future earnings during the remaining life
of its net operating loss and tax credit carryforwards and the anticipated
realization of these tax loss carryforwards in determining the amount of the
deferred tax asset to record. Taking into account reasonable and prudent tax
planning strategies and future income projections, the net deferred tax asset of
$19,459,000 represents the amount of net operating loss and tax credit
carryforwards that management believes more likely than not will be realized
over their remaining lives. The remaining valuation allowance is necessary due
to the magnitude of the net operating loss carryforwards and the uncertainty of
future income estimates. Failure to achieve forecasted taxable income would
affect the ultimate realization of the net deferred tax assets.
15
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
these carryforwards include, but are not limited to, cumulative stock ownership
changes of 50% or more over a three-year period, as defined, the ability of the
Company to realize budgeted future taxable income, 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 under sections 382 and 383 of the Internal Revenue Code (IRC).
Management recognizes that it is limited in its ability to prevent such
cumulative changes in ownership from occurring. If a change of ownership were to
occur - and no assurance can be given that one will not occur - factors such as
the number of common shares issued and outstanding, the market price of such
shares, and short term treasury rates would be used under the current tax laws
to determine the amount of the tax loss and credit carryforwards that can be
utilized each year.
Recording the net tax benefit in 2000 resulted in an increase in net income and
basic earnings per share of $7,753,000 and $1.83 ($1.63 diluted earnings per
share), respectively.
EARNINGS PER SHARE. The 2000 basic and diluted earnings per share were $3.08 and
$2.75, respectively. The 2000 weighted average number of shares outstanding for
the basic and diluted earnings per share were 4,246,000 and 4,758,000,
respectively. The average stock price during 2000 was $11.83 and the market
price at December 31, 2000 was $9.25.
YEAR ENDED DECEMBER 31, 1999
RESTAURANT DIVISION. The Restaurants had sales of $73,916,000, cost of sales of
$60,648,000, selling, general and administrative expenses of $2,117,000 and
depreciation and amortization expense of $3,146,000, which yielded operating
income of $8,005,000. In addition, the Restaurants had $169,000 of interest
expense related primarily to mortgage loans and capital leases, and other
expense of $97,000 related to the write off and reserve for disposals of fixed
assets, resulting in income before taxes of $7,739,000.
CUES DIVISION. Cues had sales of $30,227,000, cost of sales of $21,055,000,
selling, general and administrative expenses of $5,563,000 and depreciation and
amortization expense of $724,000, which yielded operating income of $2,885,000.
In addition, Cues had $155,000 of interest expense, $24,000 of interest income
and $8,000 of other expense, resulting in income before taxes of $2,746,000.
CORPORATE. Corporate general and administrative expenses were $1,334,000. The
major components of these expenses were $650,000 in management fees paid to
Cadmus under a management agreement (see Note 6 to the Consolidated Financial
Statements), a $220,000 compensation accrual related to the Bickford's Phantom
Stock Option Plan (see Note 10 of the Consolidated Financial Statements and the
Company's proxy statement for further information), legal expenses, audit
expenses, and stockholder services and financial reporting expenses.
Corporate interest income was $777,000, consisting primarily of interest on
loans to related parties (see Note 6 to the Consolidated Financial Statements).
Corporate interest expense was $508,000, consisting primarily of the interest
charges on senior bank debt.
16
During 1999, the Company recorded a current consolidated tax provision of
$1,036,000 and a deferred tax benefit of $12,154,000, resulting in a net income
tax benefit of $11,118,000. The Company's 1999 review of its deferred tax asset
valuation allowance indicated that it is more likely than not that additional
carryforward tax benefits will be realized, due to the Company's historical,
continued and increasing profitability and the significantly reduced possibility
of an ownership change brought about as a result of a negotiated standstill
agreement entered into in 1999 with a significant stockholder (see the Company's
most recent Proxy Statement for further information). Accordingly, and taking
into account reasonable and prudent tax planning strategies and future income
projections, the Company reduced the valuation allowance by $12,154,000 during
1999. The resulting net deferred tax asset of $21,170,000 represented the amount
of net operating loss and tax credit carryforwards that management believed more
likely than not would be realized over their remaining lives. The remaining
valuation allowance was necessary due to the magnitude of the net operating loss
carryforwards and the uncertainty of future income estimates.
Recording the deferred tax benefit in 1999 resulted in an increase in net income
and basic earnings per share of $12,154,000 and $2.84 ($2.54 diluted earnings
per share), respectively.
EARNINGS PER SHARE. The 1999 basic and diluted earnings per share were $4.75 and
$4.25, respectively. The 1999 weighted average number of shares outstanding for
the basic and diluted earnings per share were 4,283,000 and 4,791,000,
respectively. The average stock price during 1999 was $11.36 and the market
price at December 31, 1999 was $12.88.
YEAR ENDED DECEMBER 31, 1998
RESTAURANT DIVISION. The Restaurants had sales of $71,517,000, cost of sales of
$58,614,000, selling, general and administrative expenses of $2,134,000 and
depreciation and amortization expense of $2,972,000, which yielded operating
income of $7,797,000. In addition, the Restaurants had $148,000 of interest
expense related primarily to mortgage loans and capital leases, and other
expense of $140,000 related to the write off and reserve for disposals of fixed
assets, resulting in income before taxes of $7,509,000.
CUES DIVISION. Cues had sales of $27,049,000, cost of sales of $18,713,000,
selling, general and administrative expenses of $5,137,000 and depreciation and
amortization expense of $557,000, which yielded operating income of $2,642,000.
In addition, Cues had $63,000 of interest expense, $20,000 of interest income
and $72,000 of other expense, resulting in income before taxes of $2,527,000.
CORPORATE. Corporate general and administrative expenses were $1,998,000. The
major components of these expenses were a $900,000 compensation accrual related
to the Bickford's Phantom Stock Option Plan (see Note 10 to the Consolidated
Financial Statements and the Company's most recent Proxy Statement for further
information), $623,000 in management fees paid to Cadmus under a management
agreement (see Note 6 to the Consolidated Financial Statements), legal expenses,
audit expenses, and stockholder services and financial reporting expenses.
17
Corporate interest expense was $596,000, consisting primarily of the interest
charges on senior bank debt with BofA.
During 1998, the Company recorded a current consolidated tax provision of
$1,207,000 and deferred tax expense of $2,027,000, resulting in income tax
expense of $3,234,000. At December 31, 1998, management continued to believe the
possibility of a change of ownership occurring in 1999 was less likely due to
bylaw provisions approved by the stockholders in May 1997 to help limit such
changes as well as the passage of time in the three-year window of ownership
change calculation.
Recording the deferred tax expense in 1998 resulted in a decrease in net income
and basic earnings per share of $2,027,000 and $0.46 ($0.41 diluted earnings per
share), respectively.
EARNINGS PER SHARE. The 1998 basic and diluted earnings per share were $1.09 and
$.98, respectively. The 1998 weighted average number of shares outstanding for
the basic and diluted earnings per share were 4,400,000 and 4,886,000,
respectively. The average stock price during 1998 was $11.44 and the market
price at December 31, 1998 was $12.63.
COMPARISON OF 2000 RESULTS TO 1999 RESULTS
Sales during 2000 decreased by $433,000, or 0.4%, gross profit decreased by
$2,324,000, or 10.4%, selling, general and administrative expense increased by
$530,000, or 5.9%, and depreciation and amortization increased by $448,000, or
11.6%, resulting in a decrease in operating income of $3,302,000, or 34.5%, in
each case as compared to 1999. Interest expense increased by $471,000, or 56.6%,
interest income increased by $699,000, or 87.3%, and other expense decreased by
$21,000, or 7.2%. In 2000, the Company recorded an income tax benefit of
$6,890,000 compared to an income tax benefit of $11,118,000 in 1999. The above
changes resulted in a decrease in net income of $7,281,000, or 35.8%, in 2000
compared to 1999.
RESTAURANT DIVISION. Restaurant sales increased by $2,368,000, or 3.2%, in 2000.
Approximately $1,245,000 of the sales increase was the result of the 53rd week
in 2000 compared to 1999, which comprised 52 weeks. Same store sales, including
the 53rd week, increased $1,375,000, or 2.1% in 2000. Also contributing to the
2000 sales increase were sales at new Restaurants totaling $2,115,000 and sales
increases at converted restaurants totaling $171,000, partially offset by lost
sales due to closed Restaurants and a decrease in customer counts for all stores
combined of approximately 2.1%. The same store Restaurant sales increase was
mainly a result of a menu price increase and the effect of the 53rd week,
partially offset by a decrease in customer counts of 3.1%. The decrease in
customer counts was primarily due to the impact of adverse weather, new
competition in certain market areas, the negative effect of the implementation
of local non-smoking regulations, shopping center closings and construction on a
number of restaurants. Management is continuing to focus on improving sales at
all Restaurants through attention to customer service, food quality, new menu
items and Restaurant refurbishments.
18
Restaurant gross profit decreased by $992,000, or 7.5%, and gross profit as a
percentage of sales decreased 1.9% in the 53 weeks ended December 31, 2000
compared to the 52 weeks ended 1999. Labor costs as a percentage of sales
increased by 1.4%, from 36.4% in 1999 to 37.8% in 2000, due to competitive
economic pressures causing higher average rates of pay, increased staffing
during peak business periods in order to enhance customer service and
inefficiencies caused by the customer declines. Variable costs including
advertising increased by 0.4%, while fixed costs were flat and food costs
decreased by 0.2% as a percentage of sales in 2000 compared to 1999.
Restaurant selling, general and administrative expense increased by $352,000, or
16.6%, during 2000 compared to 1999 as a result of headcount and salary
increases.
Restaurant depreciation and amortization expense increased by $404,000, or
12.8%, during 2000 as compared to 1999. Restaurant depreciation and amortization
expense is anticipated to increase each year with the addition of new
restaurants.
As a result of the above, Restaurant Division operating income decreased by
$1,748,000, or 21.8%, in 2000 compared to 1999.
CUES DIVISION. Cues's sales decreased by $2,801,000, or 9.3%, in 2000 compared
to 1999. As a result of this decrease and a 1.7% decrease in Cues's gross profit
percentage in 2000 compared to 1999, gross profit decreased by $1,332,000, or
14.5%. Management does not believe the decrease in sales is related to a loss of
market share, rather management believes the decrease was the result of
temporary softness in the market for inspection and rehabilitation equipment.
The decrease in the gross profit margin was the result of an increase in the
reserve for slow moving inventory, increases in salaries and benefits resulting
from rate and head count increases and, to a lesser extent, reductions in
selling prices as a result of competitive pricing pressures. Selling, general
and administrative expenses increased by $460,000, or 8.3%, and depreciation and
amortization expense increased by $44,000, or 6.1%. The increase in selling,
general and administrative expenses was primarily related to an increase in
selling expense due to an increase in headcount, facility and support
infrastrucure in anticipation of generating higher sales volumes partially
offset by a decrease in warranty expense. The net result of the above produced a
decrease in operating income of $1,836,000, or 63.6%, in 2000 compared to 1999.
CORPORATE. Corporate's general and administrative expenses decreased by
$282,000, or 21.1%, during 2000 compared to 1999, mainly due to a decrease in
the Bickford's management compensation accrual related to its Phantom Stock
Option Plan, offset in part by a marginal increase in management fee expense.
Phantom option expense decreased from $220,000 in 1999 to $0 in 2000. Interest
expense increased by $473,000, or 93.1%, in 2000 compared to 1999, and interest
income increased by $714,000, or 91.9% in 2000 compared to 1999, mainly due to
the related party loans to Cadmus.
COMPARISON OF 1999 RESULTS TO 1998 RESULTS
Sales during 1999 increased by $5,577,000, or 5.7%, gross profit increased by
$1,201,000, or 5.7%, selling, general and administrative expense decreased by
$255,000, or 2.8%, and depreciation and amortization increased by $341,000, or
19
9.7%, resulting in an increase in operating income of $1,115,000, or 13.2%, in
each case as compared to 1998. Interest expense increased by $25,000, or 3.1%,
interest income increased by $218,000, or 37.4%, and other expense increased by
$100,000, or 51.8%. In 1999, the Company recorded an income tax benefit of
$11,118,000 compared to an income tax expense of $3,234,000 in 1998. The above
changes resulted in a increase in net income of $15,560,000, or 324.8%, in 1999
compared to 1998.
RESTAURANT DIVISION. Restaurant sales increased by $2,399,000, or 3.4%, in 1999.
The sales increase is primarily attributable to an increase in the same store
sales of $1,766,000 and sales at new Restaurants of $2,495,000, partially offset
by lost sales due to closed Restaurants and a decrease in customer counts for
all stores combined of approximately 1.1%. Same store Restaurant sales increased
by $1,766,000, or 3.1%, mainly as a result of a menu price increase, partially
offset by a decrease in customer counts of 0.9%.
Restaurant gross profit increased by $365,000, or 2.8%, and gross profit as a
percentage of sales remained relatively flat between years. Labor costs as a
percentage of sales increased by 0.8%, from 35.6% in 1998 to 36.4% in 1999, due
to minimum wage increases, competitive economic pressures causing higher average
rates of pay, and increased staffing during peak business periods in order to
enhance customer service. Variable costs including advertising increased by
0.1%, while fixed costs decreased by 0.1% and food costs decreased by 0.7% as a
percentage of sales in 1999 compared to 1998.
Restaurant selling, general and administrative expense decreased by $17,000, or
0.8%, during 1999 compared to 1998.
Restaurant depreciation and amortization expense increased by $174,000, or 5.9%,
during 1999 as compared to 1998. Restaurant depreciation and amortization
expense is anticipated to increase each year with the addition of new
restaurants.
As a result of the above, Restaurant Division operating income increased by
$208,000, or 2.7%, in 1999 compared to 1998.
CUES DIVISION. Cues's sales increased by $3,178,000, or 11.7%, in 1999 compared
to 1998. As a result of this increase and a 0.5% decrease in Cues's gross profit
percentage in 1999 compared to 1998, gross profit increased by $836,000, or
10.0%. Cues was able to increase sales volume in 1999 in the face of continuing
competitive pressures. Customers appeared to recognize the benefits of Cues's
equipment, thereby permitting the Company to be more selective in its pricing
during the competitive bidding process. Selling, general and administrative
expenses increased by $426,000, or 8.3%, and depreciation and amortization
expense increased by $167,000, or 30.0%. Approximately 42% of the increase in
selling, general and administrative expenses was related to selling expenses
with the remaining 58% related to general and administrative expense. The
increase in selling expenses was primarily attributable to increases in wages
resulting from both rate and headcount increases, sales volume-related
commissions and an increase in West Coast sales efforts. The general and
administrative expense increase was primarily attributable to increases in wages
resulting from rate and headcount increases, new facility costs, repairs and
maintenance of computer hardware, and telephone expense. The net result of the
above produced an increase in operating income of $243,000, or 9.2%, in 1999
compared to 1998.
20
CORPORATE. Corporate's general and administrative expenses decreased by
$664,000, or 33.2%, during 1999 compared to 1998, mainly due to a decrease in
the Bickford's management compensation accrual related to its Phantom Stock
Option Plan, offset in part by a marginal increase in management fee expense.
Phantom option expense was reduced in the fourth quarter as a result of revised
estimates. The expense decreased from $900,000 in 1998 to $220,000 in 1999.
Interest expense decreased by $88,000, or 14.8%, in 1999 compared to 1998.
Interest income increased by $214,000, or 38.0% in 1999 compared to 1998, mainly
due to interest due from the related party loan to Cadmus.
INFLATION
Inflation and changing prices have not had a material impact on the Company's
results of operations during the last three fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
AVAILABLE RESOURCES. The Company's consolidated unrestricted cash positions at
December 31, 2000 and 1999 were $379,000 and $1,366,000, respectively. The
Company has a cash management system whereby cash generated by operations is
immediately used to reduce debt. The immediate reduction of outstanding debt
provides the Company with a reduction in interest expense greater than the
interest income that the cash could safely earn from alternative investments.
Working capital needs, when they arise, are met by borrowings.
During 2000, the Company had cash flow from operations of $6,786,000 which,
along with the net borrowings under the line of credit of $648,000, proceeds
from the exercise of stock options of $138,000, proceeds from the sale of
tangible and intangible assets of $205,000, the collection of related party
notes receivable of $135,000, the net reduction in related party accounts
receivable of $2,936,000, funded the purchase of property, plant and equipment
totaling $6,461,000, the purchase of trading securities of $2,346,000, the
investment in related party notes receivable of $316,000, the purchase of an
equity investment of $210,000, principal payments of other long-term debt
totaling $246,000, the purchases of Common Stock for $1,849,000, the payments of
deferred financing fees of $355,000 and the principal payments on capital leases
of $52,000. During 2000, current assets decreased by $9,429,000, primarily due
to a decrease in cash and cash equivalents, a reclassification of the accounts
receivable from Cadmus to a long-term asset, and a decrease in the current
deferred tax asset. Current liabilities increased $4,441,000 in 2000 compared to
1999 primarily as a result of reclassifying the phantom option plan accrual from
other non-current liabilities at December 31, 1999 to other current liabilities
at December 31, 2000 because it become exercisable on July 1, 2001.
FUTURE NEEDS FOR AND SOURCES OF CAPITAL. Management believes that cash generated
by operations is sufficient to fund future operations, including the interest
payments on bank debt. With bank approval, excess funds are available under the
Company's loan agreement to finance additional acquisitions.
21
ITEM 7A. MARKET RISKS.
The Company is exposed to market risk from changes in interest rates on borrowed
funds, which could affect its results of operations and financial condition. At
December 31, 2000, the Company has approximately $11.4 million in variable,
market-rate based debt outstanding. As such the market risk is considered
minimal (based upon a 10% increase or decrease in interest rates from their
December 31, 2000 levels). The Company has elected to manage this risk by
obtaining debt financing which allow it to select the most advantageous interest
rate between either the prime rate or the Eurodollar rate plus 2%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company for each of the fiscal
years in the three-year period ended December 31, 2000, together with the report
thereon of PricewaterhouseCoopers LLP dated March 6, 2001, are included in this
report commencing on page F-1 and are listed under Part IV, Item 14 in this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Since the beginning of 1999: (i) no independent accountant who was previously
engaged as the principal accountant to audit its financial statements, nor an
independent accountant who was previously engaged to audit a significant
subsidiary and on whom the principal accountant expressed reliance in its report
has resigned (or indicated it has declined to stand for re-election after the
completion of the current audit) or been dismissed, and (ii) no new independent
accountant has been engaged as either the principal accountant to audit the
Company's financial statements or as an independent accountant to audit a
significant subsidiary of the Company.
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this item is incorporated herein by reference to
the Company's Proxy Statement to be filed within 120 days after December 31,
2000 for the annual Meeting of Stockholders to be held in May 2001.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference to
the Company's Proxy Statement to be filed within 120 days after December 31,
2000 for the annual Meeting of Stockholders to be held in May 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by reference to
the Company's Proxy Statement to be filed within 120 days after December 31,
2000 for the annual Meeting of Stockholders to be held in May 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by reference to
the Company's Proxy Statement to be filed within 120 days after December 31,
2000 for the annual Meeting of Stockholders to be held in May 2001.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
1. FINANCIAL STATEMENTS Number(s)
---------
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets at December 31, 2000 and 1999 F-2 to F-3
Consolidated Statements of Income and Comprehensive
Income for the three years ended December 31, 2000 F-4
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 2000 F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 2000 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-27
2. FINANCIAL STATEMENT SCHEDULES
Schedule
Number Description Page
------ ----------- ----
II Valuation and Qualifying
Accounts and Reserves S-1
All other schedules are omitted because they are not applicable or not required,
or because the required information is included in the Consolidated Financial
Statements or Notes thereto.
3. EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger by and among ELXSI Corporation,
ELXSI, Cadmus Corporation ("CADMUS") and Holdingcues, Inc.
dated as of October 16, 1992, including form of Series C
Warrant. (Incorporated herein by reference to Exhibit 2.7 of
the Company's Current Report on Form 8-K filed November 13,
1992 (File No 0-11877)).
2.2 Family Restaurant Sale and Purchase Agreement, between
Marriott Family Restaurants, Inc. ("Marriott") and the Company
dated February 28, 1991. (Incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K, dated
July 16, 1991 (File No. 0-11877)).
2.3 Side Letter to the Family Restaurant Sale and Purchase
Agreement between Marriott and the Company dated February 28,
1991. (Incorporated herein by reference to Exhibit 2.2 of the
Company's Current Report on Form 8-K, dated July 16, 1991
(File No. 0-11877)).
24
2.4 Assignment and Guaranty of Family Restaurants Sale and
Purchase Agreement and Side Letter, between the Company,
Marriott and ELXSI dated June 29, 1991. (Incorporated herein
by reference to Exhibit 2.3 of the Company's Current Report on
Form 8-K, dated July 16, 1991 (File No. 0-11877)).
2.5 Closing Side Letter Agreement Regarding Family Restaurants
Sale and Purchase Agreement between ELXSI and Marriott dated
July 1, 1991. (Incorporated herein by reference to Exhibit 2.4
of the Company's Current Report on Form 8-K, dated July 16,
1991 (File No. 0-11877)).
2.6 Real Estate Closing Side Letter Agreement Regarding Family
Restaurants Sale and Purchase Agreement between ELXSI and
Marriott dated July 1, 1991. (Incorporated herein by reference
to Exhibit 2.5 of the Company's Current Report on Form 8-K,
dated July 16, 1991 (File No. 0-11877)).
2.7 Agreement Concerning Massachusetts and Connecticut Liquor
Licenses between ELXSI and Marriott dated July 1, 1991.
(Incorporated herein by reference to Exhibit 2.6 of the
Company's Current Report on Form 8-K, dated July 16, 1991
(File No. 0-11877)).
2.8 Contribution Agreement, dated as of December 29, 2000, by and
among ELXSI, Bickford's Holdings Company, Inc. and Bickford's
Family Restaurants, Inc., including forms of intercompany
notes issued to ELXSI and Certificate of Designations for
preferred stock issued to ELXSI.
3.1 Restated Certificate of Incorporation of the Company, as
amended. (Incorporated herein by reference to Exhibit 3.1 of
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989 (File No. 0-11877)).
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of the Company dated May 27, 1992. (Incorporated
herein by reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 (File No. 0-11877)).
3.3 Certificate of Amendment of Restated Certificate of
Incorporation of the Company dated May 19, 1998. (Incorporated
herein by reference to Exhibit 3.3 to the Company's Current
Report on form 8-k, dated March 19, 1999 (File no. 0-11877)).
3.4 Certificate of Amendment of Restated Certificate of
Incorporation of the Company dated June 9, 1999. (Incorporated
herein by reference to the Company's Form S-8 Requested Status
filed March 27, 2000 Registration No. 333-33300).
3.5 Bylaws of the Company. (Incorporated herein by reference to
Exhibit 3.3 to the Company's Current Report on Form 8-K dated
June 24, 1997 and filed on June 26, 1997 (File No. 0-11877)).
4.1 Series A Warrant No. A-7 to purchase 50,000 shares of Common
Stock issued to Eliot Kirkland L.L.C. ("EKLLC"). (Incorporated
herein by reference to Exhibit 4.1 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996 (File No. 0-11877)).
4.2 Form of Second Allonge and Amendment to Series A Warrants of
ELXSI Corporation, with respect to the foregoing Warrant.
(Incorporated herein by reference to Exhibit 4.2 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (File No. 0-11877)).
4.3 Form of Third Allonge and Amendment to Series A Warrants of
ELXSI Corporation, with respect to the foregoing Warrant.
25
4.4 Series A Warrant No. A-6 to purchase 150,500 shares of Common
Stock issued to the Alexander M. Milley Irrevocable Trust I
U/A dated May 9, 1994. (Incorporated herein by reference to
Exhibit 4.2 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 (File No. 0-11877)).
4.5 Form of Second Allonge and Amendment to Series A Warrants of
ELXSI Corporation, with respect to the foregoing Warrant.
(Incorporated herein by reference to Exhibit 4.4 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (File No. 0-11877)).
4.6 Form of Third Allonge and Amendment to Series A Warrants of
ELXSI Corporation, with respect to the foregoing Warrant.
4.7 Series C Warrant No. C-3 to purchase 68,762 shares of Common
Stock issued to EKLLC. (Incorporated herein by reference to
Exhibit 4.6 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (File No. 0-11877)).
4.8 Form of Second Allonge and Amendment to Series C Warrants of
ELXSI Corporation, with respect to the foregoing Warrant.
(Incorporated herein by reference to Exhibit 4.6 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (File No. 0-11877)).
4.9 Form of Third Allonge and Amendment to Series C Warrants of
ELXSI Corporation, with respect to the foregoing Warrant.
4.10 Amended and Restated Registration Rights Agreement dated as of
January 23, 1990 among the Company, Milley & Company ("M&C")
and CIEC. (Incorporated herein by reference to Exhibit 4.7 of
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989 (File No. 0-11877)).
4.11 Exercise of Option and Assignment of Registration Rights
executed by ELX Limited Partnership ("ELX") and The Airlie
Group, L.P. ("Airlie") dated November 30, 1994. (Incorporated
herein by reference to Exhibit 4.6 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 (File No. 0-11877)).
4.12 Amended and Restated Loan and Security Agreement, dated as of
December 30, 1996, between ELXSI and Bank of America Illinois
("BofA"). (Incorporated herein by reference to Exhibit 4.12 of
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (File No. 0-11877)).
4.13 Second Amendment to Amended and Restated Loan and Security
Agreement, dated as of September 24, 1997, between ELXSI and
Bank of America National Trust and Savings Association.
(Incorporated herein by reference to Exhibit 4.18 of the
Company's Quarterly report on Form 10-Q for the quarter ended
September 30, 1997 (File No. 0-11877)).
4.14 Fifth Amendment to Amended and Restated Loan and Security
Agreement dated as of December 29, 2000, between ELXSI and
Bank of America, N.A.
4.15 Trust Indenture, dated as of September 24, 1997, between the
Orange County Industrial Development Authority and Sun Trust
Bank, Central Florida, National Association, as Trustee.
(Incorporated herein by reference to Exhibit 4.19 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (File No. 0-11877)).
4.16 Loan Agreement, dated as of September 24, 1997, between ELXSI
and the Orange County Industrial Development Authority.
(Incorporated herein by reference to Exhibit 4.20 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (File No. 0-11877)).
26
4.17 Mortgage and Security Agreement, dated as of September 24,
1997 between ELXSI and the Orange County Industrial
Development Authority. (Incorporated herein by reference to
Exhibit 4.21 of the Company's Quarterly Report on Form 10-Q
for quarter ended September 30, 1997 (File No. 0-11877)).
4.18 Bond Purchase Agreement, dated as of September 24, 1997, by
and among the Orange County Industrial Development Authority,
ELXSI and Bank of America National Trust and Savings
Association. (Incorporated herein by reference to Exhibit 4.22
of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 (File No. 0-11877)).
4.19 Guaranty Agreement, dated as of September 24, 1997, by and
between ELXSI Corporation and Bank of America National Trust
and Savings Association. (Incorporated herein by reference to
Exhibit 4.23 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 (File No. 0-11877)).
4.20 Security Agreement, dated as of September 24, 1997, between
ELXSI and the Orange County Industrial Development Authority.
(Incorporated herein by reference to Exhibit 4.24 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (File No. 0-11877)).
4.21 Rights Agreement, dated as of June 4, 1997, between the
Company and Continental Stock Transfer & Trust Company, as
Rights Agent. (Incorporated herein by reference to Exhibit
4.17 to the Company's Form 8-A Registration Statement, dated
June 10, 1997 (File No. 0-11877)).
4.22 Rights Agreement Amendment, dated as of March 16, 1999,
between the Company and Continental Stock Transfer & Trust
Company, as Rights Agent. (Incorporated herein by reference to
Exhibit 2 to the Registrant's Form 8-A/A Registration
Statement (Post-Effective Amendment No. 1) dated March 19,
1999 (File No. 0-11877)).
4.23 Standstill Agreement, dated as of March 16, 1999, among the
Company, Alexander M. Milley and the "Kellogg Person" party
thereto. (Incorporated herein by reference to Exhibit 3 of the
Registrant's Form 8-A/A Registration Statement (Post-effective
Amendment No. 1) dated March 19, 1999 (File No. 0-11877)).
10.1 The Company's 1987 Incentive Stock Option Plan as amended.
(Incorporated by reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1987 (File No. 0-11877)).
10.2 The Company's 1987 Supplemental Stock Option Plan as amended.
(Incorporated by reference to Exhibit 10.2 of the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1987 (File No. 0-11877)).
10.3 The Company's 1993 Incentive Stock Option Plan. (Incorporated
herein by reference to Exhibit 10.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 (File No. 0-11877)).
10.4 The Company's 1995 Incentive Stock Option Plan. (Incorporated
herein by reference to Exhibit 4.1 to the Company's Form S-8
Registration Statement filed November 14, 1995 (Registration
No. 033-64205)).
10.5 The Company's 1996 Incentive Stock Option Plan. (Incorporated
herein by reference to Exhibit 4.1 to the Company's Form S-8
Registration Statement filed December 2, 1996 (Registration
No. 333-17131)).
27
10.7 The Company's 1997 Incentive Stock Option Plan. (Incorporated
herein by reference to Exhibit 4.1 to the Company's Form S-8
Registration Statements filed January 30, 1998 (Registration
No. 333-45381)).
10.8 The Company's 1998 Incentive Stock Option Plan. (Incorporated
herein by reference to the Annex A to the Company's Proxy
Statement included in its Schedule 14A filed on April 17, 1998
(File No. 0-11877)).
10.9 The Company's 1999 Incentive Stock Option Plan. (Incorporated
herein by reference to the Annex A to the Company's Proxy
Statement included in its Schedule 14A filed on April 23, 1999
(File No. 0-11877)).
10.10 The Company's 1999 Incentive Stock Option Plan. (Incorporated
herein by reference to the Company's Form S-8 Registration
Statement filed March 27, 2000 Registration No. 333-33300).
10.11 The Company's 2000 Incentive Stock Option Plan. (Incorporated
herein by reference to the Company's Form S-8 Registration
Statement filed January 21, 2001 Registration No. 333-54480).
10.12 The ELXSI 1991 Phantom Stock Option Plan for the management of
the Bickford's Division. (Incorporated herein by reference to
Exhibit 10.4 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 (File No. 0-11877)).
10.12 Amendment No. 1 to the ELXSI 1991 Phantom Stock Option Plan
for the management of the Bickford's Division. (Incorporated
herein by reference to Exhibit 10.5 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 (File No. 0-11877)).
10.13 Non-Qualified Stock Option Agreement issued to Robert C. Shaw
for the purchase of 12,500 shares of Common Stock, dated
October 30, 1992. (Incorporated herein by reference to Exhibit
10.7 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 0-11877)).
10.14 Non-Qualified Stock Option Agreement issued to Farrokh K.
Kavarana for the purchase of 10,000 shares of Common Stock,
dated October 30, 1992. (Incorporated herein by reference to
Exhibit 10.9 of the Company's Annual Report on Form 10-K for
the Fiscal year ended December 31, 1994 (File No. 0-11877)).
10.15 Non-Qualified Stock Option Agreement issued to Kevin P. Lynch
for the purchase of 20,000 shares of Common Stock, dated
October 30, 1992. (Incorporated herein by reference to Exhibit
10.10 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 0-11877)).
10.16 Non-Qualified Stock Option Agreement issued to Alexander M.
Milley for the purchase of 30,000 shares of Common Stock,
dated October 30, 1992. (Incorporated herein by reference to
Exhibit 10.11 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 (File No. 0-11877)).
10.17 Management Agreement between Winchester National, Inc. (d/b/a
M&C) and the Company dated September 25, 1989. (Incorporated
herein by reference to Exhibit 10.21 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1991 (File No. 0-11877)).
10.18 Assignment of Management Agreement dated June 28, 1991 among
the Company, Winchester National, Inc., ELXSI and Milley
Management Incorporated ("MMI"). (Incorporated herein by
reference to Exhibit 10.16 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 (File
No. 0-11877)).
28
10.19 Management Agreement Extension dated September 25, 1992
between ELXSI and MMI. (Incorporated herein by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 (File No. 0-11877)).
10.20 Assignment to Cadmus ("Cadmus"), dated January 1, 1994, of
MMI's rights under the extended Management Agreement dated
September 25, 1992, as amended, between ELXSI and MMI.
(Incorporated herein by reference to Exhibit 10.18 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-11877)).
10.21 Form of Extension No. 2 to Management Agreement, dated as of
June 30, 1997, between ELXSI and Cadmus. (Incorporated herein
by reference to Exhibit 10.33 to the Company's Current Report
on Form 8-K dated and filed July 9, 1997 (File No. 0-11877)).
10.22 Promissory Note of ELX payable to the Company dated December
8, 1994 in the amount of $1,155,625.00 due December 8, 1997.
(Incorporated herein by reference to Exhibit 10.6 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-11877)).
10.23 Letter Agreement dated December 8, 1997, from the Company to
ELX extending the term of the foregoing. (Incorporated herein
by reference to Exhibit 10.24 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998 (File
No. 0-11877)).
10.24 Letter Agreement dated December 8, 2000, from the Company to
ELX further extending the term of the foregoing to December 8,
2003 and increasing the amount to $1,472,074.
10.25 Form of Promissory Note of ELX payable to the Company, dated
December 30, 1996, in the amount of $909,150 due on December
30, 1999. (Incorporated herein by reference to Exhibit E to
the Amendment No. 10 to the Schedule 13D of Alexander M.
Milley, MMI, ELX, Cadmus and EKLLC, dated January 7, 1997,
filed in respect of the Company's Common Stock).
10.26 Letter Agreement dated December 30, 1999, from the Company to
ELX extending the term of the foregoing to December 31, 2002
and increasing the amount to $1,150,959. (Incorporated herein
by reference to Exhibit 10.26 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 (File
No. 0-11877)).
10.27 Form of Employment Agreement, dated as of June 30, 1997,
between ELXSI and Alexander M. Milley. (Incorporated herein by
reference to Exhibit 10.34 to the Company's Form 8-K Current
Report dated July 9, 1997 filed on July 9, 1997 (File No.
0-11877)).
10.28 Amendment No. 1 to the above Employment Agreement, dated as of
May 27, 1999.
10.29 Form of Employment Agreement, dated as of June 30, 1997,
between ELXSI and David M. Doolittle. (Incorporated herein by
reference to Exhibit 10.39 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 (File
No. 0-11877)).
10.30 Amendment No. 1 to the above Employment Agreement, dated as of
May 27, 1999.
10.31 Form of $2,000,000 Secured Promissory Note of Cadmus payable
to ELXSI, dated June 27, 1997.
10.32 Letter agreement dated June 25, 1999 from ELXSI to Cadmus
extending the term of the foregoing note.
29
10.33 Form of Promissory Note of Cadmus payable to ELXSI, dated
December 28, 2000, in a maximum principal amount of
$10,000,000.
10.34 Form of guaranty instrument executed by Alexander M. Milley in
relation to the above two notes.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
BY: /s/ ALEXANDER M. MILLEY
----------------------------------
Alexander M. Milley
Chairman of the Board, President and
Chief Executive Officer
Dated: March 17, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ ALEXANDER M. MILLEY Chairman of the Board, March 17, 2001
- ----------------------------- President and Chief Executive
Alexander M. Milley Officer (Principal Executive Officer)
/s/ ROBERT C. SHAW Director and Vice President March 17, 2001
- -----------------------------
Robert C. Shaw
/s/ DAVID M. DOOLITTLE Vice President, Treasurer March 17, 2001
- ----------------------------- and Secretary (Chief
David M. Doolittle Accounting Officer and
Principal Financial Officer)
/s/ KEVIN P. LYNCH Director and Vice President March 17, 2001
- -----------------------------
Kevin P. Lynch
/s/ FARROKH K. KAVARANA Director March 17, 2001
- -----------------------------
Farrokh K. Kavarana
/s/ DENIS M. O'DONNELL Director March 17, 2001
- -----------------------------
Denis M. O'Donnell
31
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
ELXSI Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and comprehensive income, of stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of ELXSI Corporation and its subsidiaries ("the Company") at December
31, 2000 and December 31, 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
- -------------------------------------
PricewaterhouseCoopers LLP
March 6, 2001
Tampa, Florida
F-1
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
A S S E T S
December 31, December 31,
2000 1999
---------- ----------
Current assets:
Cash and cash equivalents $ 379 $ 1,366
Accounts receivable, less allowance for
doubtful accounts of $170 and $214 in 2000
and 1999, respectively 4,844 4,109
Accounts receivable - related party -- 7,487
Inventories 12,944 12,602
Prepaid expenses and other current assets 329 280
Deferred tax asset 3,751 5,832
---------- ----------
Total current assets 22,247 31,676
Property, buildings and equipment, net 34,689 32,444
Intangible assets, net 5,228 5,507
Notes receivable - related parties 11,355 4,442
Deferred tax asset - noncurrent 15,708 15,338
Other prepaid asset 12,417 --
Other 878 444
---------- ----------
Total assets $ 102,522 $ 89,851
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
2000 1999
----------- -----------
Current liabilities:
Accounts payable $ 3,461 $ 3,267
Accrued expenses 6,813 5,988
Capital lease obligations - current 51 51
Current portion of long-term debt 1,243 1,637
Other current liabilities 3,816 --
----------- -----------
Total current liabilities 15,384 10,943
Capital lease obligations - non current 962 1,014
Long-term debt 10,997 10,201
Other non current liabilities -- 3,816
----------- -----------
Total liabilities 27,343 25,974
----------- -----------
Commitments and contingencies (Note 8)
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--4,134,375
at December 31, 2000 and 4,275,477
at December 31, 1999 4 4
Additional paid-in-capital 222,407 224,118
Accumulated deficit (146,924) (159,993)
Accumulated other comprehensive income (308) (252)
----------- -----------
Total stockholders' equity 75,179 63,877
----------- -----------
Total liabilities and stockholders' equity $ 102,522 $ 89,851
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Amounts in Thousands, Except Per Share Data)
Year Ended December 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
Net sales $ 103,710 $ 104,143 $ 98,566
Costs and expenses:
Cost of sales 83,594 81,703 77,327
Selling, general and administrative 9,544 9,014 9,269
Depreciation and amortization 4,318 3,870 3,529
--------- --------- ---------
Operating income 6,254 9,556 8,441
Other income (expense):
Interest income 1,500 801 583
Interest expense (1,303) (832) (807)
Other expense (272) (293) (193)
--------- --------- ---------
Income before income taxes 6,179 9,232 8,024
Benefit (provision) for income taxes 6,890 11,118 (3,234)
--------- --------- ---------
Net income 13,069 20,350 4,790
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment (56) (47) 4
--------- --------- ---------
Comprehensive income $ 13,013 $ 20,303 $ 4,794
========= ========= =========
Net income per common share:
Basic $ 3.08 $ 4.75 $ 1.09
========= ========= =========
Diluted $ 2.75 $ 4.25 $ .98
========= ========= =========
Weighted average number of common and common equivalent shares:
Basic 4,246 4,283 4,400
========= ========= =========
Diluted (Note 10) 4,758 4,791 4,886
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
Accumulated
Common Stock Additional Accum- Other
------------------------ Paid-In- ulated Comprehensive
Shares Dollars Capital Deficit Income (Loss)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 4,660,980 $ 5 $ 228,509 $ (185,133) $ (209)
Foreign currency translation
adjustment, net of tax -- -- -- -- 4
Purchase and retirement of
Common Stock (212,000) -- (2,432) -- --
Exercise of Common Stock options
to purchase Common Stock 4,465 -- 26 -- --
Issuance of fractional shares 15 -- -- -- --
Net income -- -- -- 4,790 --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 4,453,460 5 226,103 (180,343) (205)
Foreign currency translation
adjustment, net of tax -- -- -- -- (47)
Purchase and retirement of
Common Stock (189,288) (1) (2,045) -- --
Exercise of Common Stock options
to purchase Common Stock 11,242 -- 60 -- --
Issuance of fractional shares 63 -- -- -- --
Net income -- -- -- 20,350 --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 4,275,477 4 224,118 (159,993) (252)
Foreign currency translation
adjustment, net of tax -- -- -- -- (56)
Purchase and retirement of
Common Stock (162,900) -- (1,849) -- --
Exercise of Common Stock options
to purchase Common Stock 21,798 -- 138 -- --
Net income -- -- -- 13,069 --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 2000 4,134,375 $ 4 $ 222,407 $ (146,924) $ (308)
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Year Ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 13,069 $ 20,350 $ 4,790
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,318 3,870 3,529
Amortization of deferred debt costs 25 25 50
Loss on disposal of equipment 32 79 195
Gain on sale of intangible (60) (100) --
Net realized loss on sale of trading securities 165 -- --
(Increase) decrease in assets:
Accounts receivable (735) (616) 494
Inventories (342) (1,992) 214
Prepaid expenses and other current assets (49) 12 (89)
Deferred tax asset 1,711 (12,154) 2,027
Other prepaid asset (12,417) -- --
Other 50 (233) (206)
Increase (decrease) in liabilities:
Accounts payable 194 (259) (908)
Accrued expenses 825 699 284
Other current and non current liabilities -- 220 900
-------- -------- --------
Net cash provided by operating activities 6,786 9,901 11,280
-------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, buildings and equipment (6,461) (4,254) (5,750)
Business Acquisition -- (778) --
Net repayments from (loans to) related party 2,936 (7,487) --
Proceeds from sale of property, building
& equipment 100 -- --
Net purchase of trading securities (2,346) -- --
Proceeds from sale of intangible asset 105 145 --
Collection of notes receivable - related party 135 -- --
Purchase of equity investment (210) -- --
Investment in notes receivable - related party (316) -- (135)
-------- -------- --------
Net cash used in investing activities (6,057) (12,374) (5,885)
-------- -------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in Thousands)
Year Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit 648 4,532 (3,862)
Borrowings of long-term debt -- -- 500
Payments of long-term debt (246) (270) (217)
Purchase of Common Stock (1,849) (2,046) (2,432)
Proceeds from exercise of Common Stock
options 138 60 26
Payment of deferred bank fee (355) -- --
Principal payments on capital lease obligations (52) (24) (110)
-------- -------- --------
Net cash (used in) provided by financing activities (1,716) 2,252 (6,095)
-------- -------- --------
(Decrease) in cash and cash equivalents (987) (221) (700)
Cash and cash equivalents, beginning of period 1,366 1,587 2,287
-------- -------- --------
Cash and cash equivalents, end of period $ 379 $ 1,366 $ 1,587
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,356 $ 725 $ 894
Taxes 2,317 1,106 1,278
NON CASH INVESTING ACTIVITIES:
During 2000, the Company converted approximately $316,000 of interest due from
related parties to a note receivable.
During 1999, the Company converted approximately $242,000 of interest due from
related parties to a note receivable.
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
ELXSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1. THE COMPANY
GENERAL. ELXSI Corporation (together with its subsidiaries, 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 headquartered in Orlando, Florida.
In December 2000, the Restaurant division was transferred to a newly-formed,
wholly-owned subsidiary of ELXSI.
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 others into Bickford's Restaurants, closed one, opened 16 new
Bickford's Restaurants, acquired 16 Abdow's Family Restaurants ("Abdow's"), sold
one of these Abdow's, closed two of these Abdow's and converted ten of the
remaining Abdow's into Bickford's Restaurants. During 2000 five new Bickford's
Restaurants were opened, in New Bedford, Stoneham and Haverhill, Massachusetts;
and Keene and Dover, New Hampshire. In addition, one Bickford's and one Abdow's
were closed, while the remaining two Abdow's were converted to Bickford's
restaurants. As of December 31, 2000, the Company owned 68 Bickford's
Restaurants (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
municipalities, service contractors and industrial users.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of ELXSI Corporation and its subsidiaries, all of which are
wholly-owned. All material intercompany accounts and transactions have been
eliminated.
Both the Company's corporate functions and Cues Division have fiscal years
consisting of four calendar quarters ending on December 31. The Restaurant
Division's fiscal year consists of four 13-week quarters (one 52-week period)
ending on the last Saturday in December; this requires that every six or seven
years the Restaurant Division add an extra week at the end of the fourth quarter
and fiscal year. The Restaurants 2000 fiscal year included a 53rd week.
F-8
CASH AND CASH EQUIVALENTS. The Company has a cash management system whereby
substantially all cash generated by operations is immediately used to reduce
debt. Cash and cash equivalents include bank deposits with original maturities
of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amount of cash and cash
equivalents, accounts and notes receivable, accounts payable, accrued expenses
and long-term debt approximates fair value primarily due to the short-term
maturity of those instruments and the variable, market-rate based nature of the
interest rates associated with the debt.
INVENTORIES. Inventories are stated at the lower of cost or market determined by
the first-in, first-out method.
PROPERTY, BUILDINGS AND EQUIPMENT. Property, buildings and equipment, including
buildings under capital leases, are stated at cost less accumulated
depreciation. Depreciation is provided using the straight-line method over the
estimated useful lives of individual assets or classes of assets. Buildings held
pursuant to capital leases and improvements to leased properties or fixtures are
amortized over the shorter of the remaining term of the applicable lease or the
estimated useful life. Estimated useful lives are:
Buildings 30 years
Building improvements 20 years
Equipment, furniture and fixtures 3-7 years
Depreciation expense for 2000, 1999 and 1998 was $4,079,000, $3,659,000 and
$3,348,000, respectively.
Normal repairs and maintenance are expensed as incurred. Expenditures that
materially increase values, change capacities or extend useful lives are
capitalized. The property, building and equipment accounts are relieved of the
cost of the items being replaced and the accumulated depreciation of disposed
assets is eliminated with any resulting gain or loss on disposal being recorded
in other income or expense.
RESTAURANT OPENING COSTS. Non-capital expenditures incurred in opening a new
restaurant are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS. In the event that facts and circumstances
indicate that the carrying value of a long-lived asset, including associated
intangibles, may be impaired, an evaluation of recoverability is performed by
comparing the estimated future undiscounted cash flows with the asset's carrying
amount in order to determine if a write-down to market value or discounted cash
flow is required.
INTANGIBLE ASSETS. The excess of cost over fair value of net assets acquired is
amortized over a range of 10-35 years using the straight-line method.
Amortization expense for 2000, 1999 and 1998 was $210,000, $181,000, and
$150,000, respectively. Accumulated amortization at December 31, 2000 and 1999
was $1,366,000 and $1,156,000, respectively. Management periodically reviews the
potential impairment of intangible assets in order to determine the proper
carrying values as of each consolidated balance sheet date.
F-9
Trademarks are amortized over 35 years using the straight-line method. Trademark
amortization expense for 2000, 1999 and 1998 was $29,000, $30,000 and $31,000,
respectively. Accumulated amortization at December 31, 2000 and 1999 was
$286,000 and $257,000, respectively.
DEFERRED DEBT COSTS. Deferred debt costs are amortized over the term of the loan
to interest expense using the effective interest method. As of December 31, 2000
and 1999, $412,000 and $79,000, respectively, remained to be amortized over
future periods. Amortization expense in 2000, 1999 and 1998 was $25,000, $25,000
and $50,000, respectively.
USE OF ESTIMATES. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK. Financial instruments which potentially subject
the Company to concentrations of credit risk are primarily accounts receivable
and notes receivable. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. The allowance for non-collection of accounts receivable is based upon
the expected collectability of all accounts receivable.
The Company does not rely on any one vendor or supplier for its raw material,
and management believes that other suppliers could provide for the Company's
needs on comparable terms.
FOREIGN CURRENCY TRANSLATION. The assets and liabilities of the Canadian and
Dutch subsidiaries of Cues are translated into U.S. dollars at year-end exchange
rates, and revenue and expense items are translated at average rates of exchange
prevailing during the year. Resulting translation adjustments are accumulated in
a separate component of stockholders' equity.
INCOME TAXES. The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amount and the tax bases 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 for the year that would be
paid by the Company (without its net operating loss 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
(see Note 5).
ADVERTISING. Advertising costs are expensed as incurred and totaled $981,000,
$1,047,000 and $973,000 in 2000, 1999 and 1998, respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company measures compensation
expense for employee and director stock options as the aggregate difference
between the market and exercise prices of the options on the date that both the
number of shares the grantee is entitled to receive and the exercise price are
known. Compensation expense associated with option grants is equal to the market
value of the shares on the date of grant and is recorded pro rata over the
F-10
required holding period. Pro forma information relating to the fair value of
stock-based compensation is presented in Note 10.
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 stockholders' equity.
EARNINGS PER SHARE. The Company presents "basic" earnings per share, which is
net income divided by weighted average shares outstanding during the period, and
"diluted" earnings per share, which considers the impact of common stock
equivalents. The Company's common stock equivalents consist of employee and
director stock options and warrants to purchase common stock.
NOTE 3. ACQUISITION
During June 1999, Cues acquired the inventory and other assets associated with a
competitor's product line for $778,000. These other assets include tangible and
intangible assets including the trade names, patents, customer and vendor lists,
product literature and engineering drawings. The intangible assets are being
amortized over ten years.
NOTE 4. COMPOSITION OF CERTAIN FINANCIAL STATEMENT COMPONENTS
December 31,
----------------------------
2000 1999
------------ ------------
Inventories:
Raw materials and finished goods $ 7,954,000 $ 8,356,000
Work in process 4,990,000 4,246,000
------------ ------------
$ 12,944,000 $ 12,602,000
============ ============
Property, buildings and equipment:
Land $ 8,777,000 $ 8,505,000
Buildings and improvements 20,988,000 19,591,000
Buildings held pursuant to capital leases 1,234,000 1,234,000
Equipment, furniture and fixtures 24,636,000 20,668,000
------------ ------------
55,635,000 49,998,000
Accumulated depreciation (20,946,000) (17,554,000)
------------ ------------
$ 34,689,000 $ 32,444,000
============ ============
Intangible assets:
Excess of cost over fair value of
net assets acquired $ 5,849,000 $ 5,849,000
Trademarks 1,030,000 1,030,000
Liquor licenses -- 40,000
------------ ------------
6,879,000 6,919,000
Accumulated amortization (1,651,000) (1,412,000)
------------ ------------
$ 5,228,000 $ 5,507,000
============ ============
The excess of cost over fair value of net assets acquired, trademarks, and
liquor licenses represent the value assigned to these intangible assets upon
their acquisition.
F-11
December 31,
-------------------------
2000 1999
---------- ----------
Accrued expenses:
Salaries, benefits and vacation $1,732,000 $2,091,000
State and federal income taxes 1,303,000 --
Other taxes 685,000 907,000
Insurance 571,000 431,000
Common Stock reverse split payable 560,000 560,000
Utilities 339,000 286,000
Professional fees 333,000 197,000
Warranty 310,000 425,000
Rents 226,000 254,000
Interest and bank fees 57,000 110,000
Royalty -- 313,000
Other accruals 697,000 414,000
---------- ----------
$6,813,000 $5,988,000
========== ==========
NOTE 5. INCOME TAXES
Pre-tax income for the years ended December 31, 2000, 1999 and 1998 is as
follows:
2000 1999 1998
---------- ---------- ----------
Domestic $6,159,000 $9,064,000 $7,923,000
Foreign 20,000 168,000 101,000
---------- ---------- ----------
Total $6,179,000 $9,232,000 $8,024,000
========== ========== ==========
The components of income tax benefit (expense) related to earnings for the years
ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
------------ ------------ ------------
Current:
Federal $ (790,000) $ (185,000) $ (207,000)
State and local (3,028,000) (818,000) (965,000)
Foreign 3,000 (33,000) (35,000)
------------ ------------ ------------
(3,815,000) (1,036,000) (1,207,000)
------------ ------------ ------------
Deferred:
Federal 8,345,000 12,154,000 (2,027,000)
State and local 2,360,000 -- --
------------ ------------ ------------
10,705,000 12,154,000 (2,027,000)
------------ ------------ ------------
Total $ 6,890,000 $ 11,118,000 $ (3,234,000)
============ ============ ============
Deferred income taxes are provided for temporary differences between income tax
and financial statement recognition of revenues and expenses. Significant
components of the deferred tax (liabilities) assets are comprised of the
following at December 31, 2000 and 1999:
F-12
2000 1999
------------ ------------
Fixed asset and other $ (730,000) $ (1,077,000)
------------ ------------
Gross deferred tax liabilities (730,000) (1,077,000)
------------ ------------
Accrued expenses and other 2,603,000 2,558,000
Loss carryforwards 25,624,000 47,460,000
Credit carryforwards 3,547,000 2,680,000
------------ ------------
Gross deferred tax assets 31,774,000 52,698,000
------------ ------------
Deferred tax asset valuation allowance (11,585,000) (30,451,000)
------------ ------------
Net deferred taxes $ 19,459,000 $ 21,170,000
============ ============
At December 31, 2000 and 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $73 million and $140 million,
respectively. The decrease in the net operating loss carryforwards primarily
resulted from the use and expiration of net operating loss carryforwards to
offset 2000 estimated federal taxable income. As of December 31, 2000, the
Company has tax credit carryforwards of approximately $1,745,000. These net
operating loss and tax credit carryforwards expire as follows:
Net Operating Loss Tax Credit
Carryforwards Carryforwards
------------- -------------
2001 33,916,000 6,000
2002 5,836,000 --
2003 14,118,000 --
2004 18,941,000 --
2005 260,000 --
2006 through 2015 141,000 1,739,000
------------- -------------
$ 73,212,000 $ 1,745,000
============= =============
The Company also has alternative minimum tax credit carryforwards of
approximately $1,801,000, which have an unlimited carryforward period.
The Company continually 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.
During 1998, the Company amortized the deferred tax asset to income tax expense
in the amount of $2,027,000. This reduced the net deferred tax asset to
$9,016,000.
During 1999, the Company reduced its deferred tax asset valuation allowance when
it appeared more likely than not that additional carryforward tax benefits would
be realized, due to the Company's historical, continued and increasing
profitability and the significantly reduced possibility of an ownership change
as a result of a negotiated standstill agreement entered into in 1999 with a
significant stockholder. Accordingly, and taking into account reasonable and
prudent tax planning strategies and future income projections, the Company
recorded an additional deferred tax asset of $14,591,000. The Company amortized
the deferred tax asset to income tax expense in the amount of $2,437,000. The
resulting net deferred tax asset of $21,170,000 for 1999 represents the amount
of net operating loss and tax credit carryforwards that management believed more
likely than not would be realized over their remaining lives. The remaining
F-13
valuation allowance was necessary due to the magnitude of the net operating loss
carryforwards and the uncertainty of future income estimates.
During 2000, the Company recorded a consolidated tax benefit of $6,890,000,
consisting of a current tax provision on pre-tax earnings, offset by a net tax
benefit generated by an intercompany transfer of assets and utilization of net
operating loss carryforwards.
In December 2000 ELXSI transferred the assets of the Restaurant Division, in a
taxable transaction, to a newly formed, wholly owned subsidiary. The transfer of
the Restaurant Division was structured to put in place a more efficient
corporate structure, allowing the Company to more easily raise capital, thereby
reducing interest carrying charges, and potentially increase the overall
valuation of the ELXSI assets. Because the newly formed subsidiary has an
ultimate ownership structure identical to that of the Restaurant Division prior
to the transfer and the transfer occurred between entities under common control,
there is no impact on the consolidated financial statements other than the
tax-related impacts discussed herein. For tax purposes, the gain on the transfer
of these assets created a current state tax liability of $2,360,000 and a
federal alternative minimum tax liability of $592,000, which are reflected in
the current tax provision. For federal income tax purposes, the gain was offset
with net operating loss carryforwards, creating a deferred tax benefit of
$10,057,000. In accordance with FAX 109, $12,417,000 has been reflected as a
prepaid asset to reflect the federal and state tax impacts of inter-company
profits related to this transaction.
The Company's net deferred tax assets include substantial amounts of net
operating loss and credit carryforwards. Failure to achieve forecasted taxable
income would affect the ultimate realization of the net deferred tax assets.
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.
A reconciliation of the statutory federal tax rate and the Company's effective
income tax rate for the years ended December 31, 2000, 1999 and 1998 is as
follows:
2000 1999 1998
--------------- --------------- ---------------
Federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 7.1 8.9 5.5
Changes in valuation allowance for deferred
tax assets (150.2) (158.0) --
Other (2.4) (5.3) 0.8
--------------- --------------- ---------------
Effective income tax rate (111.5)% (120.4)% 40.3%
=============== =============== ===============
F-14
NOTE 6. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH ELX LIMITED PARTNERSHIP. On December 8, 1994, the Company
loaned ELX Limited Partnership ("ELX"), of which Alexander M. Milley, the
President and Chief Executive Officer of the Company is the sole general partner
and other officers of the Company are limited partners, approximately $1,156,000
under an unsecured note. ELX used the proceeds to exercise its option to
purchase 369,800 shares of the Company's Common Stock held by The Airlie Group
L.P. ("Airlie") under an existing option granted to ELX at $3.125 per share on
September 25, 1989. On December 8, 1997, the due date of the loan was extended
for an additional three years. Interest from December 8, 1994 to December 8,
1997 was paid current in December 1997. On December 8, 2000, the extended due
date of the loan, the loan principal and the accrued interest from December 8,
1997 to December 8, 2000, in the amount of $316,000, were consolidated and the
due date was further extended for an additional three years. The current
principal of $1,472,000 and accrued interest from December 8, 2000 are due on
December 8, 2003. The loan bears interest at 1/2% above the Company's senior
debt borrowing rate (see Note 7).
On December 30, 1996, the Company loaned ELX approximately $909,000 under an
unsecured note. The proceeds of this loan were used to exercise its option to
purchase 110,200 shares of the Company's Common Stock held by Bank America
Capital Corporation ("BACC") under an existing option and to purchase the
remaining 110,200 shares of the Company's Common Stock held by BACC for $5.125
per share. This note also bears interest at 1/2% above the Company's senior debt
borrowing rate. On December 30, 1999, the due date of the loan, the loan
principle and the accrued interest from December 30, 1996 to December 30, 1999,
in the amount of $242,000, were consolidated and the due date was extended for
an additional three years. The current principal of $1,151,000 and accrued
interest from December 31, 1999 are due on December 30, 2002. The source of the
loan funds was ELXSI's line of credit.
TRANSACTIONS WITH CADMUS CORPORATION. As of December 31, 2000, the Company had
advanced Cadmus Corporation ("Cadmus") a total of approximately $6,732,000. The
advances are partially secured by a portfolio of private and public company
equities purchased with the proceeds of the advances. During 2000 Mr. Milley
formalized this receivable in the form of a note, bearing interest at ELXSI's
cost of funds plus 2% (11.75% at December 31, 2000), due in January 2002. As
such, this receivable is reflected as a long-term asset. In addition, Mr.
Milley, has personally guaranteed the amounts due from Cadmus. During 2000 and
1999, the Company recorded interest income of $947,000 and $243,000,
respectively. Mr. Milley is the controlling shareholder of Cadmus, and other
certain officers, directors, and/or shareholders of Cadmus are officers and/or
directors of the Company.
On June 30, 1997, ELXSI loaned $2,000,000 to Cadmus under a two year note. On
June 30, 1999, the loan was extended for an additional two years and currently
matures on June 30, 2001 at which time the Company anticipates further extending
the due date. The loan bears interest at 15%, payable quarterly in arrears and
is collateralized by an investment owned by Cadmus. ELXSI earned a 5%, or
$100,000, closing fee, which was amortized to interest income utilizing the
effective interest method over the original life of the loan. Cadmus reimbursed
ELXSI for the costs incurred by ELXSI in making the loan. During 2000 and 1999,
the Company recorded interest income of $300,000 each year.
F-15
ELXSI is party to a management agreement dated September 25, 1989 with Cadmus.
Effective June 30, 1997, the management agreement was extended to at least June
30, 2005, and during 1998 the Board of Directors extended the agreement for an
additional two years ending on June 30, 2007. Effective April 1, 1997, the
management fee was increased from $500,000 to $600,000 annually, with a
provision that the fee shall increase 5% on each anniversary date thereof. The
management fee may be discontinued following a year in which the Company's
operating income is less than $4,000,000, but will be reinstated following the
first fiscal quarter in which the Company again attains quarterly operating
income of at least $1,250,000. During 2000, 1999 and 1998, the Company was
charged management fees of $690,000, $650,000 and $623,000, respectively. At
December 31, 2000 and 1999, ELXSI did not owe any amount to Cadmus under such
management agreement.
TRANSACTIONS WITH AZIMUTH CORPORATION AND SUBSIDIARIES. On March 24, 1998, ELXSI
borrowed $135,000 on it's supplemental line of credit with Bank of America, N.A.
("BofA") and loaned the proceeds at 15% per annum to Azimuth Corporation
(Azimuth), who purchased 10,000 shares of ELXSI Corporation's Common Stock from
a third party. Certain of the officers, directors and stockholders of Azimuth
are officers and directors of the Company. The loan matured on March 24, 2000
and was repaid with accrued interest on that date.
NOTE 7. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
---------------------------
2000 1999
----------- -----------
Bank Line of Credit with BofA, as amended, $15,000,000 available, interest
due monthly at prime plus 0.25% (9.75% at December 31, 2000) or 2% above
Eurodollar rate, maturing on December 31, 2003. The line of credit does not
require minimum reductions in available credit. The line is collateralized
by assets of ELXSI, including real estate, and the outstanding stock of
ELXSI and certain of its subsidiaries. The agreement provides for commitment
fees of 0.25% on the unused portion of the line of credit. In addition, the
agreement restricts the payment of cash dividends by ELXSI to an amount not
to exceed 50% of the excess cash flow (as defined). $4,373,000 $5,201,000
Term loan with BofA, $5,000,000 available, interest due monthly at prime
plus 0.50% (10% at December 31, 2000) or 2.25% above Eurodollar rate
maturing on December 31, 2003. The term loan requires quarterly principal
reductions of $250,000. The term loan is collateralized by assets of ELXSI,
including real estate, and the outstanding stock of ELXSI and certain of its
subsidiaries. The agreement provides for commitment fees
of 0.25% on the unused portion of the line of credit. 5,000,000 --
F-16
December 31,
---------------------------
2000 1999
----------- -----------
Supplemental Bank Line of Credit with BofA, $4,970,000, available at
December 31, 1999, interest due monthly at prime (8.5% at December 31, 1999)
or 2% above Eurodollar rate (8.14% at December 31, 1999), maturing on June
30, 2001. The line of credit required minimum reductions in available
credit. The line was utilized to repurchase securities of the Company,
including
stock, warrants and notes and is collateralized by assets of ELXSI,
including real estate, and the outstanding stock of ELXSI and certain of its
subsidiaries. The agreement provided for commitment fees of 0.3% on the
unused portion of the line of credit. This supplemental line of credit was
paid with the proceeds of the $5.0 million term loan on
December 31, 2000. -- 3,525,000
5 year mortgage payable on land and building located in Marlboro,
Massachusetts with monthly installments of approximately $3,000 plus
interest at 8.01% per annum. The balance of $347,000 is due on October 1,
2002. 408,000 446,000
5 year mortgage payable on land and building located in Kingston,
Massachusetts with monthly installments of approximately $2,800 plus
interest at 8.25% per annum. The balance of $330,000 is due on August 25,
2003. 421,000 452,000
15 year Orange County Industrial Development Authority bonds with monthly
principal payments of approximately $14,000 plus interest at the tax exempt
equivalent of the Eurodollar rate plus 1.5% payable monthly in
arrears (6.00% at December 31, 2000). 1,972,000 2,139,000
Mortgage payable at 8.25% on the land and building owned by Cues B.V. 66,000 75,000
----------- -----------
12,240,000 11,838,000
Less current portion (1,243,000) (1,637,000)
----------- -----------
Long-term debt $10,997,000 $10,201,000
=========== ===========
The above bank debt agreements contain, among other provisions, financial
covenants related to the maintenance of certain ratios including funded debt to
earnings before interest, taxes, depreciation and amortization, compliance with
a fixed charge coverage ratio and restrictions on capital expenditures. In
accordance with the bank agreement the Company is required to enter into an
interest rate swap agreement by March 31, 2001. On March 28, 2001, the Company
F-17
entered into a interest rate swap agreement providing for a fixed interest rate
of approximately 7.5% on a portion of the debt for the next two years.
Accordingly, the Company will adopt Statement of Financial Accounting Standards
133 - Accounting for Derivative Instruments and Hedging Activities.
Aggregate maturities of long-term debt for each of the years in the five-year
period ending December 31, 2005, and thereafter are as follows:
2001 $ 1,243,000
2002 1,582,000
2003 7,899,000
2004 174,000
2005 174,000
Thereafter 1,168,000
----------------
$ 12,240,000
Industrial Development bond proceeds were used to finance the Orlando building
and land acquisition along with subsequent expansion and renovation of the
facility. During the construction phase, proceeds were held by a commercial
bank, as trustee, who invested the funds in a money market mutual fund. During
1998, the expansion and renovation was completed and the funds were disbursed.
Capitalized interest expense and interest income on borrowed funds held by the
trustee related to the Orange County Industrial Development Bonds were $133,000
and $48,000, respectively, during 1998.
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company conducts a substantial portion of its operations utilizing leased
facilities. The Company leases land and/or buildings at 52 of its 68 Restaurants
under lease agreements with terms expiring on various dates (including extension
options) through 2032. The majority of the leases require that the Company pay
all taxes, maintenance, insurance, and other occupancy expenses related to
leased premises. The rental payments for a majority of the Restaurant locations
are based on a minimum annual rental plus a percentage of sales, as defined in
the relevant agreements. Generally, the leases provide for renewal options, and
in most cases management expects that in the normal course of business lease
agreements will be renewed or replaced by other leases.
Additionally, the Company has several non-cancelable operating leases, primarily
for certain office and transportation equipment, that expire over the next three
years and generally provide for purchases or renewal options.
The following is a schedule of future minimum lease commitments for each of the
years in the five-year period ending December 31, 2005, and thereafter:
F-18
Capital Leases Operating Leases
------------- -------------
2001 $ 136,000 $ 3,344,000
2002 138,000 3,278,000
2003 105,000 2,856,000
2004 109,000 2,409,000
2005 111,000 2,302,000
Thereafter 1,223,000 15,041,000
------------- -------------
Total minimum lease payments 1,822,000 $ 29,230,000
=============
Less - Amount representing interest (809,000)
--------------
Present value of net minimum capital lease payments 1,013,000
Less - current portion (51,000)
-------------
Capital lease obligation - non current $ 962,000
=============
Rent expense charged to operations amounted to $3,686,000, $3,377,000 and
$3,424,000 during 2000, 1999, and 1998, respectively.
Cues has arrangements with truck dealers to deliver truck bodies that are used
in the manufacturing of certain products. Under these arrangements, Cues
reimburses the dealers' floor-plan financing costs for those vehicles held by
the dealers until delivery to Cues. The amount of this reimbursement for 2000,
1999 and 1998 was $70,000, $53,000 and $51,000, respectively. At December 31,
2000 and 1999, truck bodies held by the dealers under these arrangements were
valued at $606,000 and $1,046,000, respectively.
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, the resolution of these matters will not
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
NOTE 9. THRIFT AND PROFIT SHARING PLAN
In 1986, Cues established a contributory trustee administered thrift and profit
sharing plan covering all of its employees who have completed one year of
eligible service. The plan's enrollment dates are January 1, April 1, July 1,
and October 1 of each year. Participants can make deferred cash contributions,
not to exceed 16% of their annual compensation, which are supplemented by
employer matching contributions in the amount of 50% of the participant's
contribution up to a maximum employer contribution of 3%. Participants partially
vest in the employer's contributions after the second year of service and are
fully vested after the sixth year of service. Thrift and profit sharing expense
for 2000, 1999 and 1998 was $89,000, $94,000 and $70,000, respectively.
During 1995, the Restaurant Division established a non-contributory trustee
administered thrift and profit sharing plan covering all of its employees who
are over the age of 21 and have completed one year of eligible service.
NOTE 10. STOCKHOLDERS' EQUITY
COMMON STOCK. Effective June 28, 1999, the Company completed the 1-for-100
reverse split voted on and approved by the Company's stockholders during its
annual meeting on May 27, 1999. As a result, those stockholders who held less
than 100 shares immediately prior to the reverse split were effectively
cashed-out at the average trading price of the Company's Common Stock during the
F-19
immediately preceding 20 trading days; all other stockholders were restored to
their prior positions. This resulted in the retirement of approximately 157,000
shares at $10.83 per share or a total of approximately $1,704,000. As of
December 31, 2000 approximately $560,000, which is reflected in accrued expenses
on the accompanying balance sheet, remained to be paid to stockholders under
this reverse split.
COMMON STOCK OPTIONS. At December 31, 2000 and 1999, the Company had a total of
974,947 and 961,745 common shares reserved for issuance under its stock option
plans, respectively. Options under the Company's plans are granted at exercise
prices determined by the Board of Directors, at generally not less than the fair
market value of the Common Stock on the date of grant. Options generally vest
over four years and become exercisable six months after the date of the grant
and expire ten years after the date of the grant.
During 2000, stockholders approved the ELXSI Corporation 2000 Incentive Stock
Option Plan (the "2000 Plan"), under which up to 35,000 shares may be issued.
Under the 2000 Plan options to purchase 26,000 shares were granted and
outstanding at an exercise price of $11.063 per share. A portion of these
options became exercisable on December 30, 2000.
During 1999, stockholders approved the ELXSI Corporation 1999 Incentive Stock
Option Plan (the "1999 Plan"), under which up to 75,000 shares may be issued.
Under the 1999 Plan options to purchase 75,000 shares were granted and
outstanding at an exercise price of $10.188 per share. A portion of these
options became exercisable on December 15, 1999. Also during 1999, the Board of
ELXSI Corporation approved the grant of 50,000 non-qualified stock options at
$10.00 per share. These options became exercisable on March 5, 1999.
During 1998, stockholders approved the ELXSI Corporation 1998 Incentive Stock
Option Plan (the "1998 Plan"), under which up to 75,000 shares may be issued.
Under the 1998 Plan options to purchase 75,000 shares were granted and
outstanding at an exercise price of $8.125 and $9.75 per share. As of December
31, 1999, unexercised options to purchase 75,000 shares were outstanding. A
portion of the $8.125 options became exercisable on April 8, 1999 and a portion
of the $9.75 options became exercisable on August 12, 1999.
Weighted-
Number Average
of Shares Exercise Price
--------- --------------
Granted during 1998 77,500 $ 8.15
Exercised during 1998 (4,465) 5.59
Canceled during 1998 (55,725) 6.84
--------
Outstanding at December 31, 1998 784,470 6.28
Exercisable at December 31, 1998 655,921 6.10
Available for grant at December 31, 1998 65,165
Granted during 1999 164,700 $ 10.03
Exercised during 1999 (11,690) 5.48
Canceled during 1999 (8,700) 10.66
--------
Outstanding at December 31, 1999 928,780 6.94
Exercisable at December 31, 1999 768,841 6.58
Available for grant at December 31, 1999 32,965
F-20
Weighted-
Number Average
of Shares Exercise Price
--------- --------------
Granted during 2000 26,000 $ 11.063
Exercised during 2000 (21,798) 6.40
Canceled during 2000 (1,500) 10.188
---------
Outstanding at December 31, 2000 931,482 7.060
Exercisable at December 31, 2000 827,082 6.791
Available for grant at December 31, 2000 43,965
The following table summarizes the stock options outstanding and exercisable at
December 31, 2000:
Outstanding Exercisable
------------------------------------------ ----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number of Contractual Exercise Number of Exercise
Exercise Prices Options Life Price Options Price
---------------- ------------- ----------- -------- --------- --------
$5.00 - $6.50 602,400 4.25 $ 5.73 589,275 $ 5.73
$8.125 - $10.188 303,082 8.20 9.35 225,307 9.33
$11.063 26,000 11.06 11.06 12,500 11.06
Had compensation costs for the stock option plans been determined based on the
fair value at the date of grant for awards in 2000, 1999 and 1998, the Company's
net income and earnings per share would approximate the following pro forma
amounts:
2000 1999 1998
--------------- -------------- -------------
Net income - as reported $ 13,069,000 $ 20,350,000 $ 4,790,000
Net income - pro forma 12,934,000 20,078,000 4,639,000
Basic EPS - as reported $ 3.08 $ 4.75 $ 1.09
Basic EPS - pro forma 3.05 4.69 1.05
Diluted EPS - as reported $ 2.75 $ 4.25 $ .98
Diluted EPS - pro forma 2.72 4.19 .95
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model. The fair value of options granted during
2000, 1999 and 1998 were calculated utilizing the following weighted-average
assumptions: no dividend yield; expected volatility of 11.3%, 11.7% and 11.8%,
respectively; risk free interest rate of 6.30%, 5.48% and 5.91%, respectively;
and expected lives of 7 years. The weighted-average fair value of options
granted during fiscal 2000, 1999 and 1998 are as follows:
F-21
Weighted- Weighted-
Average Average
Number Exercise Fair
of Options Prices Values
--------------------------------------------
Fiscal 2000:
Exercise price = market price at date of grant 26,000 $ 11.063 $ 4.03
Fiscal 1999:
Exercise price = market price at date of grant 164,700 $ 5.48 $ 3.32
Fiscal 1998:
Exercise price = market price at date of grant 77,500 8.15 2.85
WARRANTS. At December 31, 2000 and 1999, the Company had a total of 269,262
common shares reserved for issuance pursuant to warrants as follows:
In September 1989, the Company issued warrants to acquire up to an aggregate of
1,204,000 shares of the Company's Common Stock. On December 8, 1994, the Company
repurchased 761,638 of these warrants from Airlie for $1,635,000, or $2.125 per
warrant. On December 30, 1996, the Company repurchased all of these warrants
that were for convertible preferred stock (convertible into 241,862 shares of
Common Stock) from BACC for $478,000, or $1.975 per underlying common share. Of
the remaining 200,500 Series A warrants to purchase shares of the Company's
Common Stock, warrants to acquire 50,000 share are held by Eliot Kirkland L.L.C.
("Eliot"), of which Alexander M. Milley, is the sole manager and significant
equity holder and warrants to acquire 150,500 shares of the Company's Common
Stock are held by the Alexander M. Milley Irrevocable Trust I U/A, a trust for
the benefit of members of Mr. Milley's immediate family and of which Mr.
Milley's wife is a trustee. The remaining 200,500 warrants, designated as Series
A, were outstanding and unexercised at December 31, 1999 and 2000, and
originally had an exercise price of $3.125 and expiration date of September 25,
1996. During 1996, these warrants' expiration date was extended until September
30, 1998 and the exercise price was increased to $3.75 per share. During 1998
their expiration date was further extended until September 30, 2000 and their
exercise price was further increased to $4.50 per share. During 2000 their
expiration date was further extended until September 30, 2002 and their exercise
price was further increased to $5.40 per share. The estimated fair value of the
modified Series A warrants at September 30, 2000 and September 30, 1998 was
$6.73 per share and $5.39 per share, respectively, using the Black-Scholes
option pricing model and assumptions similar to those used for valuing the
Company's stock options as described above.
In connection with the 1992 acquisition of Cues, the Company issued Series C
warrants to purchase 68,762 shares of the Company's Common Stock. These
warrants, currently held by Eliot, remained unexercised at December 31, 2000 and
originally had an exercise price and expiration date of $4.36 per share and
January 31, 1997, respectively. During 1997, these warrants' expiration date was
extended until January 31, 1999 and the exercise price was increased to $5.23
per share. During 1998, their expiration date was further extended until January
31, 2001 and their exercise price was further increased to $6.278 per share.
During 2000, their expiration date was further extended until September 30, 2003
and their exercise price was further increased to $7.534 per share. The
F-22
estimated fair value of the modified Series C warrants at September 30, 2000 and
December 17, 1998 was $4.85 per share and $4.55 per share, respectively using a
Black-Scholes option pricing model and assumptions similar to those used for
valuing the Company's stock options as descried above.
PHANTOM STOCK OPTION PLAN. The ELXSI phantom stock option plan was implemented
in 1992 as a long-term incentive plan for four key executives of the Restaurants
Division (the "Group"). At the inception of the plan, the Group paid an initial
investment totaling approximately $116,000. In October 1997, the Company
returned the Group's initial investment and simultaneously received notes for
the same amount from each Group member. These notes bear interest at 9% annually
and are due June 30, 2001. Each Group member is entitled to receive, upon
exercise, a cash payment equal to his individual vested percentage of the
appraised value of the Restaurants, as defined, less the balance of his exercise
price payable upon exercise. Full vesting occurred on July 1, 1996, at which
time the Group, as a whole, was entitled to 13.9% of such appraised value, as
defined. Each Group member's phantom stock options may be exercised at the
earliest of July 1, 2001, the termination of employment, death or the sale of
the Restaurants Division.
The assumptions used in calculating the annual expense attributable to this plan
include the use of a multiple of the Restaurant's operating income, less certain
Bickford's-related liabilities, a non-liquidity discount, estimated taxes
related to a gain on divestiture of the Restaurants, sale transaction costs and
the exercise price. During 2000, 1999 and 1998, the Company recorded
compensation expense related to the phantom stock option plan of $0, $220,000
and $900,000, respectively. As of December 31, 2000, $3,700,000 was recorded in
other current liabilities, which represents 13.9% of the estimated appraised
value of Bickford's Restaurants after subtracting the Group's recorded exercise
price, as defined, on those dates.
STOCK PURCHASE RIGHTS. On June 4, 1997, the Board of Directors declared a
dividend distribution of one Common Stock purchase right (a "Right") for each
share of the Company's Common Stock outstanding on June 16, 1997 issued under a
rights agreement (the "Rights Agreement") with Continental Stock Transfer &
Trust Company. Each Right would entitle stockholders to purchase the Company's
Common Stock at an exercise price of $25.00 per full common share, subject to
adjustment. The Rights are not currently exercisable, but would become
exercisable if a person or group, together with his affiliates and associates,
becomes an "Acquiring Person" (as defined in the Rights Agreement) by becoming a
beneficial holder of 15% or more of the outstanding shares of Common Stock (35%
or more for The Milley Group Members (as defined in the Rights Agreement). Upon
such an event (or certain other events described in the Rights Agreement), each
Right will entitle the holder thereof (other than the Acquiring Person and his
affiliates and associates) to receive, upon exercise and payment of the exercise
price, shares of Common Stock having a market value equal to two times that
exercise price.
In the event that the Company is acquired in a merger or other business
combination, under various circumstances the holders of the Rights will be
entitled to receive, upon exercise, Common Stock of the Company or the acquiring
company, and/or cash and other property, equal to two times the exercise price
of the Rights.
The Company may redeem the Rights at a price of $0.001 per Right, subject to
certain limitations. The Rights will expire at the close of business on June 15,
2007, unless extended through provisions in the Rights Agreement or early
redemption or exchange by the Company.
F-23
In March 1999, in connection with and under the terms of a Standstill Agreement
entered into by the Company with Peter R. Kellogg and certain persons and
entities controlled by or related to him who had purchased Common Stock
("Kellogg Persons"), the Company and Rights Agent entered into an amendment to
the Rights Agreement which, provided that under certain circumstances such
Kellogg Persons could acquire in excess of 15% of the outstanding Common Stock
without becoming "Acquiring Persons" under the Rights Agreement. Under the
Standstill Agreement, Mr. Milley was granted irrevocable proxies to vote the
Kellogg Persons' shares and obtained certain rights of first refusal over such
shares.
RECONCILIATION OF EARNINGS PER SHARE. The following is a reconciliation of the
numerators and denominators of the basic and diluted earnings per share
computations for the years ended December 31:
2000 1999 1998
----------- ----------- -----------
Basic earnings per share
Numerator $13,069,000 $20,350,000 $ 4,790,000
----------- ----------- -----------
Denominator:
Common shares outstanding 4,246,000 4,283,000 4,400,000
----------- ----------- -----------
Basic earnings per share $ 3.08 $ 4.75 $ 1.09
=========== =========== ===========
Diluted earnings per share
Numerator $13,069,000 $20,350,000 $ 4,790,000
----------- ----------- -----------
Denominator:
Common shares outstanding 4,246,000 4,283,000 4,400,000
Assumed conversion of options and
warrants 512,000 508,000 486,000
----------- ----------- -----------
Total shares 4,758,000 4,791 ,000 4,886,000
----------- ----------- -----------
Diluted earnings per share $ 2.75 $ 4.25 $ .98
=========== =========== ===========
NOTE 11. 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 68 Restaurants located in the New England States operating under the
Bickford's brand name. The equipment manufacturing segment produces sewer
inspection equipment for sale to municipalities, contractors, and foreign
governments.
Accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies. The Company evaluates the
performance of each segment based upon profit or loss from operations before
income taxes "before" non-recurring gains and losses and foreign exchange gains
and losses.
Summarized financial information by business segment for the years ended
December 31, 2000, 1999 and 1998 is summarized in the following table. 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:
F-24
2000 1999 1998
------------- ------------- -------------
Revenues From External Customers:
Restaurants $ 76,284,000 $ 73,916,000 $ 71,517,000
Equipment 27,426,000 30,227,000 27,049,000
------------- ------------- -------------
$ 103,710,000 $ 104,143,000 $ 98,566,000
============= ============= =============
Depreciation and Amortization:
Restaurants $ 3,550,000 $ 3,146,000 $ 2,972,000
Equipment 768,000 724,000 557,000
------------- ------------- -------------
$ 4,318,000 $ 3,870,000 $ 3,529,000
============= ============= =============
Segment Profit:
Restaurants $ 6,257,000 $ 8,005,000 $ 7,797,000
Equipment 1,049,000 2,885,000 2,642,000
Other (1,052,000) (1,334,000) (1,998,000)
------------- ------------- -------------
$ 6,254,000 $ 9,556,000 $ 8,441,000
============= ============= =============
Interest Revenue:
Restaurants $ -- $ -- $ --
Equipment 9,000 24,000 20,000
Other 1,491,000 777,000 563,000
------------- ------------- -------------
$ 1,500,000 $ 801,000 $ 583,000
============= ============= =============
Interest Expense:
Restaurants $ 158,000 $ 169,000 $ 148,000
Equipment 164,000 155,000 63,000
Other 981,000 508,000 596,000
------------- ------------- -------------
$ 1,303,000 $ 832,000 $ 807,000
============= ============= =============
Segment Assets:
Restaurants $ 33,668,000 $ 31,724,000 $ 31,415,000
Equipment 24,751,000 24,555,000 21,474,000
Other 44,103,000 33,572,000 13,747,000
------------- ------------- -------------
$ 102,522,000 $ 89,851,000 $ 66,636,000
============= ============= =============
Capital Expenditures for Segment Assets:
Restaurants $ 6,182,000 $ 3,764,000 $ 3,749,000
Equipment 279,000 490,000 2,001,000
------------- ------------- -------------
$ 6,461,000 $ 4,254,000 $ 5,750,000
============= ============= =============
Capital expenditures exclude amounts expended in connection with acquisitions
and divestitures.
There were no inter-segment sales or transfers during 2000, 1999, and 1998.
Operating income by business segment excludes interest income, interest expense,
and other income and expenses. "Other assets" consists principally of the
accounts and notes receivable from related parties, interest receivable, and the
deferred tax asset.
Foreign assets, revenues, and export sales each represent less than 10% of the
Company's totals. No material amounts of the Company's sales are dependent upon
a single customer.
F-25
NOTE 12. QUARTERLY FINANCIAL DATA - (UNAUDITED)
The following summarizes quarterly financial data for 2000 and 1999 (in
thousands, except per share data):
2000
---------------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
--------- --------- --------- ---------
Net sales $ 24,550 $ 25,832 $ 26,593 $ 26,735
Gross profit 4,929 5,077 5,082 5,028
Income before income taxes 1,310 1,765 1,640 1,464
Net income $ 781 $ 1,030 $ 979 $ 10,279
Earnings per common share:
Basic $ .18 $ .24 $ .23 $ 2.43
Diluted $ .16 $ .21 $ .21 $ 2.17
Reconciliation of earnings per share:
Basic earnings per share:
Numerator $ 781 $ 1,030 $ 979 $ 10,279
========= ========= ========= =========
Denominator:
Common shares outstanding 4,283 4,288 4,257 4,246
========= ========= ========= =========
Basic earnings per share reported $ .18 $ .24 $ .23 $ 2.43
========= ========= ========= =========
Diluted earnings per share:
Numerator $ 781 $ 1,030 $ 979 $ 10,279
========= ========= ========= =========
Denominator:
Common shares outstanding 4,283 4,288 4,257 4,246
Assumed conversion of options
and warrants 610 547 472 512
--------- --------- --------- ---------
Common shares reported 4,893 4,835 4,729 4,758
========= ========= ========= =========
Diluted earnings per share reported $ .16 $ .21 $ .21 $ 2.17
========= ========= ========= =========
1999
---------------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
--------- --------- --------- ---------
Net sales $ 23,512 $ 26,517 $ 28,719 $ 25,395
Gross profit 4,603 5,747 6,449 5,641
Income before income taxes 1,259 2,258 2,970 2,745
Net income $ 747 $ 1,333 $ 15,698 $ 2,572
Earnings per common share:
Basic $ .17 $ .31 $ 3.67 $ .60
Diluted $ .16 $ .28 $ 3.28 $ .53
F-26
1999
---------------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
--------- --------- --------- ---------
Reconciliation of earnings per share:
Basic earnings per share:
Numerator $ 747 $ 1,333 $ 15,698 $ 2,572
========= ========= ========= =========
Denominator:
Common shares outstanding 4,453 4,431 4,385 4,275
Impact of reverse split (157) (157) (104) --
--------- --------- --------- ---------
Common shares adjusted 4,296 4,274 4,281 4,275
========= ========= ========= =========
Basic earnings per share reported $ .17 $ .30 $ 3.58 $ .60
========= ========= ========= =========
Basic earnings per share adjusted $ .17 $ .31 3.67 $ .60
========= ========= ========= =========
Diluted earnings per share:
Numerator $ 747 $ 1,333 $ 15,698 $ 2,572
========= ========= ========= =========
Denominator:
Common shares outstanding 4,453 4,431 4,385 4,275
Assumed conversion of options
and warrants 453 469 469 548
--------- --------- --------- ---------
Total shares as reported 4,906 4,900 4,854 4,823
Impact of reverse split (157) (157) (104) --
--------- --------- --------- ---------
Common shares adjusted 4,749 4,743 4,792 4,823
========= ========= ========= =========
Diluted earnings per share reported $ .15 $ .27 $ 3.22 $ .53
========= ========= ========= =========
Diluted earnings per share adjusted $ .16 $ .28 $ 3.28 $ .53
========= ========= ========= =========
During 1999, the Company effected a reverse split and, as a result, shares
outstanding have been retroactively adjusted for all periods presented.
F-27
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ELXSI CORPORATION AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
Balance at Charged Charged to Balance
Beginning Costs and Other Deductions- at End
of Period Expenses Accounts-describe Describe of Period
---------- ---------- ---------- ---------- ----------
Year ended December 31, 2000
Account deducted from assets:
Reserve for doubtful accounts
receivable $ 214 $ 28 $ -- $ 72 (A) $ 170
========== ========== ========== ========== ==========
Inventory reserve $ 581 $ 475 $ 134 (E) $ -- $ 1,990
========== ========== ========== ========== ==========
Deferred tax asset valuation allowance $ 30,451 $ -- $ -- $ 18,866 (D) $ 11,585
========== ========== ========== ========== ==========
Year ended December 31, 1999
Account deducted from assets:
Reserve for doubtful accounts
receivable $ 181 $ 30 $ 32 (C) $ 29 (A) $ 214
========== ========== ========== ========== ==========
Inventory reserve $ 1,295 $ 218 $ (449)(E) $ 483 (B) $ 581
========== ========== ========== ========== ==========
Deferred tax asset valuation allowance $ 60,046 $ -- $ -- $ 29,595 (D) $ 30,451
========== ========== ========== ========== ==========
Year ended December 31, 1998
Account deducted from assets:
Reserve for doubtful accounts
receivable $ 117 $ 30 $ 83 (C) $ 49 (A) $ 181
========== ========== ========== ========== ==========
Inventory reserve $ 1,227 $ 500 $ -- $ 432 (B) $ 1,295
========== ========== ========== ========== ==========
Deferred tax asset valuation allowance $ 62,759 $ -- $ -- $ 2,713 (D) $ 60,046
========== ========== ========== ========== ==========
(A) Uncollectible accounts written off during 1999, 1998 and 1997.
(B) Obsolete inventory written off during 1999, 1998 and 1997.
(C) Bad debt recoveries.
(D) Change in estimate related to future net operating loss and tax credit usage
and various changes in timing differences associated with tax to book
benefits.
(E) Adjustment for system over-allocation of burden on inventory.
S-1
ELXSI CORPORATION
EXHIBITS INDEX
2000 - FORM 10-K
Exhibit
Number Description
2.1 Agreement and Plan of Merger by and among ELXSI Corporation, ELXSI,
Cadmus Corporation ("CADMUS") and Holdingcues, Inc. dated as of
October 16, 1992, including form of Series C Warrant. (Incorporated
herein by reference to Exhibit 2.7 of the Company's Current Report
on Form 8-K filed November 13, 1992 (File No 0-11877)).
2.2 Family Restaurant Sale and Purchase Agreement, between Marriott
Family Restaurants, Inc. ("Marriott") and the Company dated February
28, 1991. (Incorporated herein by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K, dated July 16, 1991 (File No.
0-11877)).
2.3 Side Letter to the Family Restaurant Sale and Purchase Agreement
between Marriott and the Company dated February 28, 1991.
(Incorporated herein by reference to Exhibit 2.2 of the Company's
Current Report on Form 8-K, dated July 16, 1991 (File No. 0-11877)).
2.4 Assignment and Guaranty of Family Restaurants Sale and Purchase
Agreement and Side Letter, between the Company, Marriott and ELXSI
dated June 29, 1991. (Incorporated herein by reference to Exhibit
2.3 of the Company's Current Report on Form 8-K, dated July 16, 1991
(File No. 0-11877)).
2.5 Closing Side Letter Agreement Regarding Family Restaurants Sale and
Purchase Agreement between ELXSI and Marriott dated July 1, 1991.
(Incorporated herein by reference to Exhibit 2.4 of the Company's
Current Report on Form 8-K, dated July 16, 1991 (File No. 0-11877)).
2.6 Real Estate Closing Side Letter Agreement Regarding Family
Restaurants Sale and Purchase Agreement between ELXSI and Marriott
dated July 1, 1991. (Incorporated herein by reference to Exhibit 2.5
of the Company's Current Report on Form 8-K, dated July 16, 1991
(File No. 0-11877)).
2.7 Agreement Concerning Massachusetts and Connecticut Liquor Licenses
between ELXSI and Marriott dated July 1, 1991. (Incorporated herein
by reference to Exhibit 2.6 of the Company's Current Report on Form
8-K, dated July 16, 1991 (File No. 0-11877)).
2.8 Contribution Agreement, dated as of December 29, 2000, by and among
ELXSI, Bickford's Holdings Company, Inc. and Bickford's Family
Restaurants, Inc., including forms of intercompany notes issued to
ELXSI and Certificate of Designations for preferred stock issued to
ELXSI.
3.1 Restated Certificate of Incorporation of the Company, as amended.
(Incorporated herein by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1989 (File No. 0-11877)).
3.2 Certificate of Amendment of Restated Certificate of Incorporation of
the Company dated May 27, 1992. (Incorporated herein by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 0-11877)).
3.3 Certificate of Amendment of Restated Certificate of Incorporation of
the Company dated May 19, 1998. (Incorporated herein by reference to
Exhibit 3.3 to the Company's Current Report on form 8-k, dated March
19, 1999 (File no. 0-11877)).
3.4 Certificate of Amendment of Restated Certificate of Incorporation of
the Company dated June 9, 1999. (Incorporated herein by reference to
the Company's Form S-8 Requested Status filed March 27, 2000
Registration No. 333-33300).
3.5 Bylaws of the Company. (Incorporated herein by reference to Exhibit
3.3 to the Company's Current Report on Form 8-K dated June 24, 1997
and filed on June 26, 1997 (File No. 0-11877)).
4.1 Series A Warrant No. A-7 to purchase 50,000 shares of Common Stock
issued to Eliot Kirkland L.L.C. ("EKLLC"). (Incorporated herein by
reference to Exhibit 4.1 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (File No. 0-11877)).
4.2 Form of Second Allonge and Amendment to Series A Warrants of ELXSI
Corporation, with respect to the foregoing Warrant. (Incorporated
herein by reference to Exhibit 4.2 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 (File No.
0-11877)).
4.3 Form of Third Allonge and Amendment to Series A Warrants of ELXSI
Corporation, with respect to the foregoing Warrant.
4.4 Series A Warrant No. A-6 to purchase 150,500 shares of Common Stock
issued to the Alexander M. Milley Irrevocable Trust I U/A dated May
9, 1994. (Incorporated herein by reference to Exhibit 4.2 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-11877)).
4.5 Form of Second Allonge and Amendment to Series A Warrants of ELXSI
Corporation, with respect to the foregoing Warrant. (Incorporated
herein by reference to Exhibit 4.4 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 (File No.
0-11877)).
4.6 Form of Third Allonge and Amendment to Series A Warrants of ELXSI
Corporation, with respect to the foregoing Warrant.
4.7 Series C Warrant No. C-3 to purchase 68,762 shares of Common Stock
issued to EKLLC. (Incorporated herein by reference to Exhibit 4.6 of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-11877)).
4.8 Form of Second Allonge and Amendment to Series C Warrants of ELXSI
Corporation, with respect to the foregoing Warrant. (Incorporated
herein by reference to Exhibit 4.6 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 (File No.
0-11877)).
4.9 Form of Third Allonge and Amendment to Series C Warrants of ELXSI
Corporation, with respect to the foregoing Warrant.
4.10 Amended and Restated Registration Rights Agreement dated as of
January 23, 1990 among the Company, Milley & Company ("M&C") and
CIEC. (Incorporated herein by reference to Exhibit 4.7 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-11877)).
4.11 Exercise of Option and Assignment of Registration Rights executed by
ELX Limited Partnership ("ELX") and The Airlie Group, L.P.
("Airlie") dated November 30, 1994. (Incorporated herein by
reference to Exhibit 4.6 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 (File No. 0-11877)).
4.12 Amended and Restated Loan and Security Agreement, dated as of
December 30, 1996, between ELXSI and Bank of America Illinois
("BofA"). (Incorporated herein by reference to Exhibit 4.12 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-11877)).
4.13 Second Amendment to Amended and Restated Loan and Security
Agreement, dated as of September 24, 1997, between ELXSI and Bank of
America National Trust and Savings Association. (Incorporated herein
by reference to Exhibit 4.18 of the Company's Quarterly report on
Form 10-Q for the quarter ended September 30, 1997 (File No.
0-11877)).
4.14 Fifth Amendment to Amended and Restated Loan and Security Agreement
dated as of December 29, 2000, between ELXSI and Bank of America,
N.A.
4.15 Trust Indenture, dated as of September 24, 1997, between the Orange
County Industrial Development Authority and Sun Trust Bank, Central
Florida, National Association, as Trustee. (Incorporated herein by
reference to Exhibit 4.19 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 (File No. 0-11877)).
4.16 Loan Agreement, dated as of September 24, 1997, between ELXSI and
the Orange County Industrial Development Authority. (Incorporated
herein by reference to Exhibit 4.20 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 (File
No. 0-11877)).
4.17 Mortgage and Security Agreement, dated as of September 24, 1997
between ELXSI and the Orange County Industrial Development
Authority. (Incorporated herein by reference to Exhibit 4.21 of the
Company's Quarterly Report on Form 10-Q for quarter ended September
30, 1997 (File No. 0-11877)).
4.18 Bond Purchase Agreement, dated as of September 24, 1997, by and
among the Orange County Industrial Development Authority, ELXSI and
Bank of America National Trust and Savings Association.
(Incorporated herein by reference to Exhibit 4.22 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997 (File No. 0-11877)).
4.19 Guaranty Agreement, dated as of September 24, 1997, by and between
ELXSI Corporation and Bank of America National Trust and Savings
Association. (Incorporated herein by reference to Exhibit 4.23 of
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (File No. 0-11877)).
4.20 Security Agreement, dated as of September 24, 1997, between ELXSI
and the Orange County Industrial Development Authority.
(Incorporated herein by reference to Exhibit 4.24 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997 (File No. 0-11877)).
4.21 Rights Agreement, dated as of June 4, 1997, between the Company and
Continental Stock Transfer & Trust Company, as Rights Agent.
(Incorporated herein by reference to Exhibit 4.17 to the Company's
Form 8-A Registration Statement, dated June 10, 1997 (File No.
0-11877)).
4.22 Rights Agreement Amendment, dated as of March 16, 1999, between the
Company and Continental Stock Transfer & Trust Company, as Rights
Agent. (Incorporated herein by reference to Exhibit 2 to the
Registrant's Form 8-A/A Registration Statement (Post-Effective
Amendment No. 1) dated March 19, 1999 (File No. 0-11877)).
4.23 Standstill Agreement, dated as of March 16, 1999, among the Company,
Alexander M. Milley and the "Kellogg Person" party thereto.
(Incorporated herein by reference to Exhibit 3 of the Registrant's
Form 8-A/A Registration Statement (Post-effective Amendment No. 1)
dated March 19, 1999 (File No. 0-11877)).
10.1 The Company's 1987 Incentive Stock Option Plan as amended.
(Incorporated by reference to Exhibit 10.1 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987
(File No. 0-11877)).
10.2 The Company's 1987 Supplemental Stock Option Plan as amended.
(Incorporated by reference to Exhibit 10.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987
(File No. 0-11877)).
10.3 The Company's 1993 Incentive Stock Option Plan. (Incorporated herein
by reference to Exhibit 10.3 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 (File No.
0-11877)).
10.4 The Company's 1995 Incentive Stock Option Plan. (Incorporated herein
by reference to Exhibit 4.1 to the Company's Form S-8 Registration
Statement filed November 14, 1995 (Registration No. 033-64205)).
10.5 The Company's 1996 Incentive Stock Option Plan. (Incorporated herein
by reference to Exhibit 4.1 to the Company's Form S-8 Registration
Statement filed December 2, 1996 (Registration No. 333-17131)).
10.6 The Company's 1997 Incentive Stock Option Plan. (Incorporated herein
by reference to Exhibit 4.1 to the Company's Form S-8 Registration
Statements filed January 30, 1998 (Registration No. 333-45381)).
10.7 The Company's 1998 Incentive Stock Option Plan. (Incorporated herein
by reference to the Annex A to the Company's Proxy Statement
included in its Schedule 14A filed on April 17, 1998 (File No.
0-11877)).
10.8 The Company's 1999 Incentive Stock Option Plan. (Incorporated herein
by reference to the Annex A to the Company's Proxy Statement
included in its Schedule 14A filed on April 23, 1999 (File No.
0-11877)).
10.9 The Company's 1999 Incentive Stock Option Plan. (Incorporated herein
by reference to the Company's Form S-8 Registration Statement filed
March 27, 2000 Registration No. 333-33300).
10.10 The Company's 2000 Incentive Stock Option Plan. (Incorporated herein
by reference to the Company's Form S-8 Registration Statement filed
January 21, 2001 Registration No. 333-54480).
10.11 The ELXSI 1991 Phantom Stock Option Plan for the management of the
Bickford's Division. (Incorporated herein by reference to Exhibit
10.4 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (File No. 0-11877)).
10.12 Amendment No. 1 to the ELXSI 1991 Phantom Stock Option Plan for the
management of the Bickford's Division. (Incorporated herein by
reference to Exhibit 10.5 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 (File No.
0-11877)).
10.13 Non-Qualified Stock Option Agreement issued to Robert C. Shaw for
the purchase of 12,500 shares of Common Stock, dated October 30,
1992. (Incorporated herein by reference to Exhibit 10.7 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-11877)).
10.14 Non-Qualified Stock Option Agreement issued to Farrokh K. Kavarana
for the purchase of 10,000 shares of Common Stock, dated October 30,
1992. (Incorporated herein by reference to Exhibit 10.9 of the
Company's Annual Report on Form 10-K for the Fiscal year ended
December 31, 1994 (File No. 0-11877)).
10.15 Non-Qualified Stock Option Agreement issued to Kevin P. Lynch for
the purchase of 20,000 shares of Common Stock, dated October 30,
1992. (Incorporated herein by reference to Exhibit 10.10 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-11877)).
10.16 Non-Qualified Stock Option Agreement issued to Alexander M. Milley
for the purchase of 30,000 shares of Common Stock, dated October 30,
1992. (Incorporated herein by reference to Exhibit 10.11 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-11877)).
10.17 Management Agreement between Winchester National, Inc. (d/b/a M&C)
and the Company dated September 25, 1989. (Incorporated herein by
reference to Exhibit 10.21 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 (File No.
0-11877)).
10.18 Assignment of Management Agreement dated June 28, 1991 among the
Company, Winchester National, Inc., ELXSI and Milley Management
Incorporated ("MMI"). (Incorporated herein by reference to Exhibit
10.16 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 (File No. 0-11877)).
10.19 Management Agreement Extension dated September 25, 1992 between
ELXSI and MMI. (Incorporated herein by reference to Exhibit 10.17 of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-11877)).
10.20 Assignment to Cadmus ("Cadmus"), dated January 1, 1994, of MMI's
rights under the extended Management Agreement dated September 25,
1992, as amended, between ELXSI and MMI. (Incorporated herein by
reference to Exhibit 10.18 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 (File No.
0-11877)).
10.21 Form of Extension No. 2 to Management Agreement, dated as of June
30, 1997, between ELXSI and Cadmus. (Incorporated herein by
reference to Exhibit 10.33 to the Company's Current Report on Form
8-K dated and filed July 9, 1997 (File No. 0-11877)).
10.22 Promissory Note of ELX payable to the Company dated December 8, 1994
in the amount of $1,155,625.00 due December 8, 1997. (Incorporated
herein by reference to Exhibit 10.6 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 (File No.
0-11877)).
10.23 Letter Agreement dated December 8, 1997, from the Company to ELX
extending the term of the foregoing. (Incorporated herein by
reference to Exhibit 10.24 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 (File No.
0-11877)).
10.24 Letter Agreement dated December 8, 2000, from the Company to ELX
further extending the term of the foregoing to December 8, 2003 and
increasing the amount to $1,472,074.
10.25 Form of Promissory Note of ELX payable to the Company, dated
December 30, 1996, in the amount of $909,150 due on December 30,
1999. (Incorporated herein by reference to Exhibit E to the
Amendment No. 10 to the Schedule 13D of Alexander M. Milley, MMI,
ELX, Cadmus and EKLLC, dated January 7, 1997, filed in respect of
the Company's Common Stock).
10.26 Letter Agreement dated December 30, 1999, from the Company to ELX
extending the term of the foregoing to December 31, 2002 and
increasing the amount to $1,150,959. (Incorporated herein by
reference to Exhibit 10.26 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 (File No.
0-11877)).
10.27 Form of Employment Agreement, dated as of June 30, 1997, between
ELXSI and Alexander M. Milley. (Incorporated herein by reference to
Exhibit 10.34 to the Company's Form 8-K Current Report dated July 9,
1997 filed on July 9, 1997 (File No. 0-11877)).
10.28 Amendment No. 1 to the above Employment Agreement, dated as of May
27, 1999.
10.29 Form of Employment Agreement, dated as of June 30, 1997, between
ELXSI and David M. Doolittle. (Incorporated herein by reference to
Exhibit 10.39 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 (File No. 0-11877)).
10.30 Amendment No. 1 to the above Employment Agreement, dated as of May
27, 1999.
10.31 Form of $2,000,000 Secured Promissory Note of Cadmus payable to
ELXSI, dated June 27, 1997.
10.32 Letter agreement dated June 25, 1999 from ELXSI to Cadmus extending
the term of the foregoing note.
10.33 Form of Promissory Note of Cadmus payable to ELXSI, dated December
28, 2000, in a maximum principal amount of $10,000,000.
10.34 Form of guaranty instrument executed by Alexander M. Milley in
relation to the above two notes.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP