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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 0-11877
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ELXSI CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 77-0151523
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3600 Rio Vista Avenue, Suite A, Orlando, Florida 32805
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (407) 849-1090
--------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
On November 1, 2002, the registrant had outstanding 4,027,997 shares of Common
Stock, par value $0.001 per share.
This Quarterly Report on form 10-Q (this "10-Q") includes forward-looking
statements, particularly in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section (Item 2 herein).
Additional written or oral forward-looking statements may be made by or on
behalf of the Company from time to time, in filings with the Securities and
Exchange Commission, in press releases and other public announcements, or
otherwise. All such forward-looking statements are within the meaning of that
term in Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. Such statements may include,
but not be limited to, projections of revenue, income, losses and cash flows,
plans for future capital and other expenditures, plans for future operations,
financing needs or plans, plans relating to products or services, estimates
concerning the effects of litigation or other disputes, as well as expectations
and assumptions relating to any or all of the foregoing, relating to the
Company, its subsidiaries and/or divisions.
Although the Company believes that its forward-looking statements are based on
expectations and assumptions that are reasonable, forward-looking statements are
inherently subject to risks and uncertainties, some of which can not be
predicted. Accordingly, no assurance can be given that such expectations or
assumptions will prove to have been correct, and future events and actual
results could differ materially from those described in or underlying the
forward-looking statements. Among the factors that could cause future events and
actual results to differ materially are: the demand for the Company's products
and services and other market acceptance risks; the presence in the Company's
markets of competitors with greater financial resources, and the impact of
competitive products and services and pricing; the loss of any significant
customers or group of customers; general economic and market conditions
nationally and (in the case of Bickford's) in New England; the ability of Cues
to develop new products; capacity and supply constraints or difficulties; the
emergence of future opportunities; the Company's ability to collect certain
related party notes receivable; changes in the value of certain investments
pledged to secure related party receivables; the Company's ability to obtain new
financing necessary to replace outstanding borrowings before they mature in less
than one year; the Company's ability to meet certain covenant requirements under
its borrowing agreements; the ability of the Company to utilize its deferred tax
assets; the Company's ability to collect outstanding accounts receivable; the
effects of the Company's accounting policies; and the impact of new accounting
pronouncements.
More detail regarding these and other important factors that could cause actual
results to differ materially from such expectations, assumptions and
forward-looking statements ("Cautionary Statements") may be disclosed in this
10-Q, other Securities and Exchange Commission filings and other public
announcements of the Company. All subsequent written and oral forward-looking
statements attributable to the Company, its subsidiaries and / 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. FINANCIAL INFORMATION
Item 1. Financial Statements
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
A S S E T S
September 30, December 31,
2002 2001
---------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 674 $ 1,194
Accounts receivable, less allowance for
doubtful accounts of $204 and $193 in
2002 and 2001, respectively 3,968 6,116
Income taxes receivable 377 1,630
Inventories 15,098 14,734
Prepaid expenses and other current assets 551 450
Deferred tax asset 3,879 3,879
---------- ----------
Total current assets 24,547 28,003
Property, buildings and equipment, net 33,140 34,588
Intangible assets, net 1,793 4,989
Deferred tax asset - noncurrent 11,478 10,140
Deferred charge 8,721 9,913
Other 544 821
---------- ----------
Total assets $ 80,223 $ 88,454
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
3
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2002 2001
---------- ----------
(Unaudited)
Current liabilities:
Accounts payable $ 2,678 $ 2,585
Accrued expenses 6,321 6,399
Capital lease obligations - current 73 105
Current portion of long-term debt 12,735 18,953
Other current liabilities 3,638 2,728
---------- ----------
Total current liabilities 25,445 30,770
Capital lease obligations - non current 973 1,011
Long-term debt 377 404
Other non current liabilities -- 910
---------- ----------
Total liabilities 26,795 33,095
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, Series A Non-voting
Convertible, par value $0.002 per share
Authorized--5,000,000 shares
Issued and outstanding--none -- --
Common stock, par value $0.001 per share
Authorized--60,000,000 shares
Issued and outstanding -- 4,027,997
at September 30, 2002 and
December 31, 2001 4 4
Additional paid-in capital 221,246 221,246
Notes receivable - related parties (11,972) (11,972)
Accumulated deficit (155,515) (153,414)
Accumulated other comprehensive income (335) (505)
---------- ----------
Total stockholders' equity 53,428 55,359
---------- ----------
Total liabilities and stockholders' equity $ 80,223 $ 88,454
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
4
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net sales $ 24,660 $ 28,031 $ 75,074 $ 79,101
Costs and expenses:
Cost of sales 20,062 22,832 61,991 65,673
Selling, general and administrative 2,376 2,832 7,658 8,449
Depreciation and amortization 1,083 1,187 3,292 3,530
-------- -------- -------- --------
Operating income 1,139 1,180 2,133 1,449
Other income (expense):
Interest income 8 322 23 972
Interest expense (358) (478) (1,206) (1,287)
Other 18 34 (12) 14
-------- -------- -------- --------
Income before income taxes 807 1,058 938 1,148
(Provision) benefit for income taxes 9 (2,710) 133 (2,745)
-------- -------- -------- --------
Net income before cumulative effect
of accounting change 816 (1,652) 1,071 (1,597)
Cumulative effect of accounting change
for SFAS No. 142 -- -- (3,172) --
-------- -------- -------- --------
Net income (loss) 816 (1,652) (2,101) (1,597)
Other comprehensive income (expense) net of tax:
Foreign currency translation adjustment (21) (17) 75 (108)
Adjustment for cash flow hedge -- (64) 95 (110)
-------- -------- -------- --------
Comprehensive income (loss) $ 795 $ (1,733) $ (1,931) $ (1,815)
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
5
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Continued)
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
Basic net income (loss) per common share:
Before accounting change $ 0.20 $ (.40) $ .27 $ (.39)
Cumulative effect of accounting change -- -- (.79) --
-------- -------- -------- --------
$ 0.20 $ (.40) $ (.52) $ (.39)
======== ======== ======== ========
Diluted net income (loss) per common share:
Before accounting change $ 0.20 $ (.40) $ .27 $ (.39)
Cumulative effect of accounting change -- -- (.79) --
-------- -------- -------- --------
$ 0.20 $ (.40) $ (.52) $ (.39)
======== ======== ======== ========
Weighted average number of common
and common equivalent shares:
Basic 4,028 4,028 4,028 4,048
======== ======== ======== ========
Diluted 4,028 4,028 4,028 4,048
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
6
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands, Except Common Shares)
(Unaudited)
Accumulated
Common Stock Additional Related Accum- Other
----------------------- Paid-In- Party ulated Comprehensive
Shares Dollars Capital Notes Deficit Income (Loss)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2001 4,027,997 $ 4 $ 221,246 $ (11,972) $ (153,414) $ (505)
Foreign currency translation
adjustment, net of tax -- -- -- -- -- 75
Adjustment to recognize fair value
of cash flow hedge, net of tax -- -- -- -- -- 95
Net loss -- -- -- -- (2,101) --
---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 2002 4,027,997 $ 4 $ 221,246 $ (11,972) $ (155,515) $ (335)
========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
7
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2002 2001
-------- --------
Cash flows provided by (used in) operating activities:
Net loss $ (2,101) $ (1,597)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,292 3,530
Cumulative effect of accounting change 3,172 --
Amortization of deferred debt costs 219 154
Loss on disposal of equipment 107 46
Deferred tax asset (1,338) 3,044
Deferred charge 1,192 --
(Increase) decrease in assets:
Accounts receivable 2,148 (1,034)
Income tax receivable 1,253 --
Inventories (364) (2,291)
Prepaid expenses and other current assets (101) (382)
Other 216 (429)
(Decrease) increase in liabilities:
Accounts payable 93 (53)
Accrued expenses (78) (2,717)
-------- --------
Net cash provided by (used in) operating activities 7,710 (1,729)
-------- --------
Cash flows used in investing activities:
Purchase of property, building and equipment (2,297) (3,231)
Investment in notes receivable - related party -- (733)
Proceeds from sale of property, buildings and
Equipment 368 --
Collection of note receivable 40 --
-------- --------
Net cash used in investing activities (1,889) (3,964)
-------- --------
Cash flows (used in) provided by financing activities:
Net borrowings (payments) on line of credit (6,068) 7,747
Payments of long-term debt (177) (158)
Purchase of Common Stock -- (1,183)
Proceeds from exercise of Common Stock
options -- 22
Payment of deferred debt costs (26) (281)
Principal payments on capital lease obligations (70) (39)
-------- --------
Net cash (used in) provided by financing activities (6,341) 6,108
-------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
8
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2002 2001
-------- --------
(Decrease) increase in cash and cash equivalents (520) 415
Cash and cash equivalents, beginning of period 1,194 379
-------- --------
Cash and cash equivalents, end of period $ 674 $ 794
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes $ 312 $ 2,125
Interest 1,051 1,144
The accompanying notes are an integral part of these
consolidated financial statements.
9
ELXSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)
Note 1. The Company
General. ELXSI Corporation (together with its subsidiaries, the "Company")
operates principally through its wholly-owned subsidiary, ELXSI, a California
corporation ("ELXSI"), and ELXSI's wholly-owned subsidiary, Bickford's Family
Restaurants, Inc., a Delaware corporation ("BFRI"). Operations consist of a
restaurant chain in New England and an equipment manufacturer in Orlando,
Florida.
Restaurant Operations. On July 1, 1991, ELXSI acquired 30 Bickford's Restaurants
and 12 Howard Johnson's Restaurants located throughout Massachusetts, Vermont,
New Hampshire, Rhode Island and Connecticut. All of the Howard Johnson
Restaurants were subsequently sold or converted into 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
Restaurants and substantially all of their 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, BFRI.
During the third quarter of 2002, three leased locations (Falmouth, MA,
Chicopee, MA and Cromwell, CT) were sold or subleased. As of September 30, 2002,
ELXSI operates 64 Bickford's Restaurants (the "Restaurants" or "Restaurant
Operations").
Equipment Manufacturer. On October 30, 1992, ELXSI acquired Cues, Inc. of
Orlando, Florida and its two wholly-owned subsidiaries Knopafex, Ltd., a
Canadian company, and Cues B.V., a Dutch company, collectively referred to
herein as "Cues" or "Cues Division".
Cues is engaged in the manufacturing and servicing of video inspection and
repair equipment for wastewater and drainage systems primarily for governmental
municipalities, service contractors and industrial users.
Recent Accounting Pronouncements
FAS No. 141, "Business Combinations" and FAS No. 142, "Goodwill and Other
Intangible Assets", were issued in July 2001. FAS 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. FAS 141 also specifies the criteria which must be
met in order for certain acquired intangible assets to be recorded separately
from goodwill. FAS 142 became effective for the Company beginning with the first
quarter of 2002. Under FAS 142, goodwill is no longer amortized but rather will
be tested for impairment annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. This new approach
requires the use of valuation techniques and methodologies significantly
different than the prior, undiscounted cash flow policy utilized by the Company.
In connection with the adoption of FAS 142, the Company tested goodwill
10
impairment separately for each business segment. As a result of a decline in
2002 operating profits of the Cues Division, goodwill was estimated to be
impaired due to the carrying value of the net assets of Cues exceeding their
estimated fair value. As a result, in compliance with FAS 142, the Company
recorded a loss for the cumulative effect of an accounting change related to the
goodwill impairment in the amount of $3,172,000. This loss was recorded
retroactively in the first quarter ended March 31, 2002. The Restaurant segment
had no impairment in connection with it's unamortized goodwill and trademarks
totaling $1,793,000 as of September 30, 2002. Future impairment tests will be
performed on the Restaurant goodwill, and as a result, the Company's earnings
may be subject to volatility if additional goodwill impairment occurs at a
future date.
A summary of changes in the Company's excess of cost over fair value of net
assets acquired, including goodwill and trademarks, during the nine months ended
September 30, 2002 is as follows:
Balance at December 31, 2001 $ 4,989,000
Impairments of excess cost over fair value of net assets acquired:
Cues Division goodwill (3,172,000)
Amortization of trademarks (24,000)
------------
Balance at September 30, 2002 $ 1,793,000
============
FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
was issued in August 2001. FAS 144, which became effective beginning with the
Company's first quarter of fiscal 2002, establishes a single accounting model
for long-lived assets to be disposed of by sales and also broadens the
presentation of discontinued operations to include more disposal transactions.
The adoption of FAS 144 had no impact on the consolidated financial statements.
In April 2002, the Financial Accounting Standards Board issued FAS 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections". FAS 145 eliminates the requirement that gains
and losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect and
eliminates an inconsistency between the accounting for sale-leaseback
transactions and certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. Generally, FAS 145 is effective for
transactions occurring after May 15, 2002. The adoption of FAS 145 is expected
to have no impact to the Company.
Note 2. Basis of Presentation
The unaudited consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and in accordance with accounting
principles generally accepted in the United States of America for interim
financial reporting. Certain information and note disclosure normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted pursuant to
such rules and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual report
on Form 10-K for the year ended December 31, 2001. In the opinion of the
11
Company, all adjustments (solely of a normal recurring nature) necessary to
present fairly the consolidated financial position of ELXSI Corporation and its
subsidiaries as of September 30, 2002, and the results of their operations and
cash flows for the three and nine months ended September 30, 2002 and 2001, have
been included. The results of operations for such interim periods are not
necessarily indicative of the results for the entire year.
Certain amounts in our prior period financial statements have been reclassified
to conform to the current period presentation.
Note 3. Earnings (Loss) Per Share. Basic earnings (loss) per share is
calculated by dividing net income (loss) by the weighted-average number of
common shares outstanding during the reporting period. Diluted earnings per
share is computed in a manner consistent with that of basic earnings per share
while giving effect to the potential dilution that could occur if options or
warrants to issue common stock were exercised. The weighted-average number of
shares used in calculating diluted earnings (loss) per share were 4,028,000 for
the three months ended September 30, 2002 and 2001. For the nine months ended
September 30, 2002 and 2001, the weighted-average number of shares used in
calculating diluted earnings (loss) per share were 4,028,000 and 4,048,000,
respectively. Options and warrants to purchase an aggregate 1,196,000 share of
Common Stock at September 30, 2002 and 2001 were not included in the diluted
loss per share calculations for the three and nine months then ended, since the
effect would be antidilutive.
Note 4. Accounts Receivable - Related Party
As of December 31, 2001, the Company restructured the notes receivable from two
related parties, ELX Limited Partnership ("ELX") and Cadmus Corporation
("Cadmus"). The due dates of the notes were extended to April 1, 2005 in
exchange for collateralization of the notes receivable under pledge and security
agreements. In addition, Alexander M. Milley, the Company's Chairman, President
and Chief Executive Officer and most significant stockholder, and certain other
entities that he controls, personally guaranteed the Cadmus and ELX notes
receivable. Under the new, restructured notes receivable, approximately 821,705
of issued and outstanding shares of Common Stock of the Company, held by these
companies under Mr. Milley's control serve as the primary collateral. The
collateral also includes shares of other publicly traded companies and other
assets held by Mr. Milley and these related companies. All interest and
principal payable under these notes receivable is due on the maturity date at
rates previously in existence. As a result of these extensions and revisions in
the underlying collateral, the aggregate balance of these notes receivable at
September 30, 2002 and December 31, 2001 has been reflected in the equity
section of the consolidated balance sheets as a contra-equity. Interest will be
recorded as income when actually received, as the underlying collateral included
in the pledge and security agreements will not support an increase to the
related party notes receivable balance.
12
Note 5. Composition of Inventory. Inventory is summarized in the following
table.
September 30, December 31,
2002 2001
------------- -------------
Inventories:
Raw materials and finished goods $ 9,743,000 $ 8,506,000
Work in process 5,355,000 6,228,000
------------- -------------
$ 15,098,000 $ 14,734,000
============= =============
Note 6. Segment Reporting.
The Company has two reportable segments, restaurant operations and equipment
manufacturing. The Company is primarily organized into two strategic business
units, which have separate management teams and infrastructures and that offer
different products and services. Each business requires different employee
skills, technology, and marketing strategies. As of September 30, 2002, the
restaurant operations segment includes 64 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.
The Company evaluates the performance of each segment based upon profit or loss
from operations before income taxes, interest, non-recurring gains and losses
and foreign exchange gains and losses.
There has been no significant difference in the basis of segmentation or in the
measurement of segment profit since the Company's last annual report on Form
10-K for the year ended December 31, 2001. The "Other" lines include corporate
related items; results of insignificant operations and, as they relate to profit
and losses, income and expense not allocated to reportable segments.
Summarized financial information by business segment for the nine months ended
September 30, 2002 and 2001 is summarized in the following table.
2002 2001
------------- -------------
Revenues from external customers:
Restaurants $ 52,399,000 $ 55,429,000
Equipment 22,675,000 23,672,000
------------- -------------
$ 75,074,000 $ 79,101,000
============= =============
Segment (loss) profit:
Restaurants $ 2,025,000 $ 1,555,000
Equipment 811,000 801,000
Other (703,000) (907,000)
------------- -------------
$ 2,133,000 $ 1,449,000
============= =============
Segment assets:
Restaurants $ 34,918,000 $ 33,769,000
Equipment 22,734,000 28,295,000
Other 22,571,000 42,262,000
------------- -------------
$ 80,223,000 $ 104,326,000
============= =============
13
Summarized financial information by business segment for the three months ended
September 30, 2002 and 2001 is summarized in the following table.
2002 2001
------------- -------------
Revenues from external customers:
Restaurants $ 17,623,000 $ 19,194,000
Equipment 7,037,000 8,837,000
------------- -------------
$ 24,660,000 $ 28,031,000
============= =============
Segment (loss) profit:
Restaurants $ 806,000 $ 1,179,000
Equipment 570,000 288,000
Other (237,000) (287,000)
------------- -------------
$ 1,139,000 $ 1,180,000
============= =============
There were no inter-segment sales or transfers during the three or nine months
ended September 30, 2002 or 2001. Operating income by business segment excludes
interest income, interest expense, and other income and expenses. "Other" assets
consists principally of the deferred tax asset and the deferred charge.
Note 7. Long-Term Debt.
Under the terms of its line of credit and term loan agreement (the "Credit
Agreement") with Bank of America ("BofA"), the Company is required to meet
certain financial and other qualitative covenants, including the ratio of funded
debt to earnings before interest, taxes, depreciation and amortization
("EBITDA"), a fixed charge coverage ratio and restrictions on capital
expenditures. At December 31, 2001, the Company was in violation of the funded
debt to EBITDA covenant and other non-financial covenants, and therefore was in
default under the provisions of the Credit Agreement. On April 22, 2002, the
Company obtained a waiver from BofA for the covenant violations under an Amended
and Restated Loan and Security Agreement (the "New Credit Agreement") with BofA.
The New Credit Agreement includes the following terms, which represent changes
from the prior Credit Agreement: (1) an additional $1,000,000 term loan
principal payment on or before August 31, 2002; (2) interest at BofA's prime
rate plus 2%; (3) acceleration of the maturity date from December 31, 2003 to
January 1, 2003; (4) the requirement to terminate the Company's interest rate
swap with BofA; and (5) acceleration of the maturity date of the Company's
industrial development bonds ("IDB") from September 2012 to January 1, 2003.
The Company was in compliance with the revised terms and covenants of the New
Credit Agreement as of September 30, 2002; however, the New Credit Agreement
contains provisions which allow BofA to accelerate payment of the amounts due
under the New Credit Agreement if they determine that a material adverse change
has occurred in the Company. The Company's consolidated financial statements at
December 31, 2001 included a report of independent certified public accountants,
which indicated that these provisions raise substantial doubt as to the
Company's ability to continue as a going concern. Management believes it will be
successful in obtaining financing to replace the amounts due under the New
Credit Agreement and IDB bonds prior to January 1, 2003.
14
Note 8. Warrants. At September 30, 2002 and December 31, 2001, the Company had
a total of 269,262 common shares reserved for issuance pursuant to warrants.
The Series A warrants to purchase 200,500 shares of the Company's Common Stock
were extended an additional two years from their due date of September 30, 2002
to September 30, 2004 and their exercise price was increased from $5.40 per
share to $6.48 per share.
The Series C warrant to purchase 68,762 shares of the Company's Common Stock was
extended an additional two years from their due date of January 31, 2003 to
January 31, 2005 and their exercise price was further increased from $7.534 per
share to $9.041 per share.
Note 9. Derivative Instrument. The Company used a derivative instrument to
manage a portion of its exposure to variable interest rates on outstanding bank
debt. This interest rate swap agreement provided for a 7.5% fixed rate of
interest on $7 million of variable interest rate loans under ELXSI's bank line
of credit through March 2002 and $4.0 million for the subsequent 12 months. This
interest rate swap agreement was utilized to provide an exchange of interest
payments computed on notional principal amounts to offset any undesirable
changes in cash flows or fair values resulting from market rate changes on
designated hedged bank borrowings. The credit risk of the interest rate swap
agreement had been limited by the fact that ELXSI's counterparty thereunder is a
major financial institution. The Company terminated the interest rate swap
agreement in April 2002 in conjunction with the execution of the New Credit
Agreement, resulting in a termination payment of approximately $112,000. The
impact of the termination has been included in the consolidated statements of
income (loss) as of September 30, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's revenues and expenses result from the operation of the Restaurant
Operations and Cues Division and the Company's corporate expenses ("Corporate").
COMPARISON OF FIRST NINE MONTHS 2002 RESULTS TO FIRST NINE MONTHS 2001 RESULTS
Nine-month sales decreased $4,027,000, while gross profit decreased $345,000.
Selling, general and administrative expense decreased $791,000 and depreciation
and amortization decreased $238,000, resulting in an operating income increase
of $684,000. Interest expense decreased $81,000, interest income decreased
$949,000, other expense increased $26,000 and income taxes decreased from
expense of $2,745,000 in 2001 to a benefit of $133,000 in 2002, resulting in an
increase in net income before the cumulative effect of an accounting change of
$2,668,000. During the nine months ended September 30, 2002, the Company
recorded a cumulative expense from an accounting change related to the
impairment of goodwill in the amount of $3,172,000 (see Note 1). As a result,
the net loss for the nine months ended September 30, 2002 was $2,101,000
compared to a net loss of $1,597,000 for the corresponding period in the
previous year.
15
Restaurant Division. Restaurant sales decreased by $3,030,000, or 5.5% in the
first nine months of 2002 compared to the same period in the prior year. The
sales decrease was mainly due to a decrease in same store sales of $2,424,000,
or 4.8%, a decrease in sales due to closed Restaurants of $839,000, a decrease
in sales from new Restaurants of $257,000, partially offset by an increase in
sales from the non-comparable Bickford's restaurants of $490,000. Customer
counts at Restaurants operated in both periods decreased 10.0%.
Offsetting the sales decrease, was a 1.3% increase in the gross profit
percentage from 11.6% to 12.9%, which caused restaurant gross profit to
increased by $311,000, or 4.8%, in the first nine months of 2002 compared to the
same period in 2001. The increase in the gross profit percentage was mainly the
result of a decrease in food and variable costs as a percentage of sales. Food
costs as a percentage of sales decreased primarily as a result of selectively
changing certain food products and vendors, resulting in lower costs while
maintaining quality. The decrease in variable costs resulted mainly from lower
utility and snow removal costs related to the milder winter in 2002 compared to
2001.
Selling, general and administrative expense increased $27,000.
Restaurant depreciation and amortization expense decreased by $132,000 during
the first nine months of 2002 compared to the same period in the prior year.
This included a reduction in goodwill amortization of approximately $56,000 as a
result of a new accounting pronouncement that required the discontinuance of
goodwill amortization in 2002.
As a result of the above items, Restaurant operating income increased $470,000,
or 30.2% during the nine months ended September 30, 2002 compared to the same
period in the prior year.
While management believes a slowing economy, increased competition and the
effect of September 11th all negatively effected customer counts to some degree,
a renewed focus on all aspects of the Restaurant operations is being undertaken.
Operationally we have chosen to focus attention on improving the customer's
experience in order to reverse the continued negative customer count trend. A
combination of food, service and facility improvements is being heavily
emphasized throughout the chain. These improvements are not requiring
significant capital expenditures. Recently, we introduced a selection of
exciting new top quality dinner products. When fully implemented, we will be
serving the highest quality fresh (never frozen) seafood, including broiled or
fried haddock and scallop dinners, jumbo shrimp cocktail, fresh clam strips,
lobster rolls and lobster casserole dinners along with a unique homemade fresh
clam chowder. Breakfast items are now featuring an already popular lobster
omelet and lobster benedict dish. Complementing these items will be the highest
quality choice 12-ounce sirloin strip steaks and a totally fresh approach on all
vegetables served. Our goal is to make Bickford's the best value, high quality
lunch and dinner destination available in the New England market. Essentially,
by dramatically repositioning our lunch and dinner offerings and generally
improving our execution during these day parts, we expect to attract a new level
of customer. Although it will take some time to implement and see results, we
are confident this strategy will have a positive impact on customer counts and
profits going forward.
On August 27, 2002, Dan Bloodwell, who served as president of Bickford's since
ELXSI's 1991 acquisition of the Restaurant chain, resigned to pursue other
interests. Alexander M. Milley assumed the role of Bickford's president.
16
Cues Division. Cues's sales decreased by $997,000, or 4.2%, in the first nine
months of 2002 compared to the same period in the prior year mainly due to a
decrease in sales of truck-mounted systems. In addition to the sales decrease,
the gross profit percentage decreased 1.6%, which caused gross profit to
decrease $656,000, or 9.4%, in the first nine months of 2002 compared to the
same period in the prior year. The decrease in the gross profit percentage was
the result of competitive pricing pressures. Selling, general and administrative
expense decreased $560,000, or 9.8% in the first nine months of 2002, compared
to the corresponding period in the prior year primarily due to a decrease in
domestic and international selling expense. Depreciation and amortization
expense decreased $106,000, or 21.4% mainly from the discontinuance of goodwill
amortization in 2002 as a result of a new accounting pronouncement. As a result
of the above items, operating income increased by $10,000, or 1.2% in the first
nine months of 2002 compared to the same period in 2001.
During 2002, the Company recorded a cumulative effect of an accounting change
related to the impairment of goodwill at the Cues Division in compliance with
FAS 142 (see Note 1). Goodwill was determined to be impaired due to the carrying
value of the net assets of the Cues Division exceeding their estimated fair
value. As a result, a cumulative impairment loss of $3,172,000 was recorded
retroactively in the quarter ended March 31, 2002.
A prime competitor of Cues has intensified efforts to require users of closed
circuit television inspection systems to purchase electrically operated sewer
inspection equipment that is labeled and listed for use in Class I, Division I
hazardous locations by a nationally recognized testing laboratory ("NRTL").
Until recently, the discussions mainly centered around California OSHA, who
after a protracted period of discussions and deliberations issued an enforcement
policy on October 15, 2001 that allows the use of non-labeled and listed
products under specified conditions.
Following the California OSHA enforcement policy, a complaint inspired by the
aforementioned competitor was filed with Federal OSHA requesting a review of
California's decision, using the argument that the California's standard does
not meet the minimum requirements of Federal OSHA. Currently Cues's electrically
operated products have been declared suitable by a NRTL for use in wet
locations, deemed safe for their intended use, and for use with conditional fire
safety approval. Cues's products do not meet the labeled and listed standards
for use in Class I, Division I hazardous areas that the competitor is seeking.
Management does not believe the labeled and listed approval for Class I,
Division I hazardous areas provides any significant benefits for the end user
and would increase the cost of inspecting sewer pipes. If it does become
required, certain Cues products would require significant redesign and testing.
On September 25, 2002, Federal OSHA issued a memorandum to all regional OSHA
offices that provided when no explosive hazards are present the sewer section
may be classified as an ordinary work location. Moreover, when an employer
operates the cameras remotely and no employees are exposed to a potential
hazard, the provisions covering Class I, Division I hazardous locations do not
apply. As a result, non-labeled and listed products can continue to be used when
testing and monitoring of the sewer gases indicate no explosive level is present
and general safety procedures are followed.
17
Corporate. Corporate general and administrative expenses decreased by $204,000,
or 22.5%, during the first nine months of 2002 compared with the same period in
2001 primarily due to the discontinuation of the Cadmus management fee partially
offset by an increase in professional accounting and legal fees. The Cadmus
management fee was discontinued in 2002 due to the Company's failure to achieve
$4.0 million in operating income during 2001. The management fee can be
reinstated following the first fiscal quarter in which the Company again attains
quarterly operating income of at least $1,250,000.
Consolidated interest expense decreased by $81,000, or 6.3% in the first nine
months of 2002 compared to the same period in 2001. Consolidated interest income
decreased $949,000, or 97.6% in the first nine months of 2002 compared to the
same period in 2001 due to discontinuing the recording of interest receivable on
the related party notes receivable due from Cadmus and ELX. The principal and
interest on the related party notes receivable are due in April 2005. Interest
will be recorded as income when actually received, as the underlying collateral
included in the pledge and security agreements will not support an increase to
the related party notes receivable balance.
Income Taxes. Consolidated income tax expense decreased from an expense of
$2,745,000 in the first nine months of 2001 to a benefit of $133,000 in the
first nine months of 2002. The expense in 2001 resulted from a reduction in the
deferred tax asset at September 30, 2001.
Earnings (Loss) Per Share. Including the cumulative effect of the accounting
change, basic and diluted loss per share for the nine months ended September 30,
2002 were $.52 per share. Excluding the cumulative effect of the accounting
change, the basic and diluted earnings per share for the nine months ended
September 30, 2002 were $.27 per share. The basic and diluted weighted average
number of shares outstanding for the nine months ended September 30, 2002 were
4,028,000. This compares to basic and diluted loss per share of $0.39 per share,
for the corresponding period in 2001 when there were basic and diluted weighted
average shares outstanding of 4,048,000. The average market price for the first
nine months of 2002 was $6.81 compared to an average of $8.92 in the
corresponding period of 2001. A decrease in the stock price results in a
decrease in the number of shares outstanding for purposes of determining the
weighted average shares outstanding used in the diluted earnings per share
calculations.
COMPARISON OF THIRD QUARTER 2002 RESULTS TO THIRD QUARTER 2001 RESULTS
The third quarter sales decreased $3,371,000, while gross profit decreased
$601,000. Selling, general and administrative expense decreased $456,000 and
depreciation and amortization decreased $104,000, resulting in an operating
income decrease of $41,000. Interest expense decreased by $120,000, interest
income decreased by $314,000, other income decreased by $16,000 and income tax
expense decreased from an expense of $2,710,000 to a benefit of $9,000,
resulting in an increase in net income of $2,468,000.
Restaurant Operations. Restaurant sales decreased by $1,571,000, or 8.2% in the
third quarter of 2002 compared to the same period in the prior year. The sales
decrease was mainly due to a decrease in same store sales of $1,120,000, or
6.4%, a decrease in sales due to closed Restaurants of $600,000 partially offset
by an increase in sales at new and non-comparable Restaurants of $149,000.
Customer counts at Restaurants operated in both periods decreased 10.3%
primarily
18
due to new competition and the continuing effect of the New England economy
during the third quarter of 2002.
The gross profit percentage decreased 1.4% from 14.6% in the third quarter of
2002 to 13.2% in the corresponding period in 2001. The decrease in the gross
profit percentage was mainly the result of increases in labor, medical benefits,
variable costs and fixed costs partially offset by declines in food costs as
percentages of sales. These declines were directly related to the decline in
customers in the third quarter of 2002 compared to the same period in 2001. As a
result of the sales and the gross profit percentage decreases restaurant gross
profit decreased by $466,000, or 16.6%. in the third quarter of 2002 compared to
the same period in 2001.
Restaurant selling, general and administrative expense decreased by $28,000, or
4.7%, during the third quarter of 2002 compared to the same period in the prior
year. This decrease was primarily due to a reduction in administrative personnel
costs during the quarter.
Restaurant depreciation and amortization decreased by $65,000, or 6.3%, during
the third quarter of 2002 compared to the same period in the prior year. This
included a reduction in goodwill amortization as a result of a new accounting
pronouncement that required the discontinuance of goodwill amortization in 2002.
As a result of the above items, Restaurant operating income decreased $373,000,
or 31.6% in the third quarter of 2002 compared to the third quarter of 2001.
Cues Division. Cues's sales decreased by $1,800,000, or 20.4%, in the third
quarter of 2002 compared to the same period in the prior year. The sales
decrease resulted mainly from a decrease in sales of truck-mounted systems. The
sales decrease was partially attributable to a reduction in the volume of
municipal bid requests for Cues equipment during the nine month period ended
September 30, 2002 compared to the previous year. Management believes that some
of the decrease in bid volume is related to diversion of funds allocated for
equipment purchases to water security measures. Partially offsetting the sales
decrease was an increase in the gross profit percentage due to the mix of
products sold. As a result gross profit decreased $135,000, or 5.6% compared to
the same period in the prior year. Despite the improvement in the gross profit
percentage during the third quarter, the company still faces stiff competitive
pricing pressures on most major equipment sales.
Operating income increased by $282,000, or 97.9% to $570,000 in the third
quarter of 2002 compared to the same period in the prior year. Included in the
increase in operating income were the effects of a decrease in selling, general
and administrative expense of $378,000, or 19.4%, and a decrease in depreciation
and amortization expense of $39,000, or 23.9%. The decrease in selling, general
and administrative expenses in the third quarter of 2002 compared to the
corresponding period in the prior year is primarily attributable to a reduction
in international and domestic sales and support expense.
Corporate. Corporate general and administrative expenses decreased by $50,000,
or 17.4%, during the third quarter of 2002, primarily due to the discontinuation
of the Cadmus management fee due to the failure to achieve $4.0 million in
operating income during 2001 partially offset by an increase in professional
accounting and legal fees. The management fee can be reinstated
19
following the first fiscal quarter in which the Company again attains quarterly
operating income of at least $1,250,000.
Consolidated interest expense decreased by $120,000, or 25.1%, due primarily to
a lower average debt balance. Consolidated interest income decreased by $314,000
in the third quarter of 2002 compared to the same period in 2001 due to
discontinuing the recording of interest receivable on the related party notes
receivable due from Cadmus and ELX. The principal and interest on the related
party notes receivable are due in April 2005. Interest will be recorded as
income when actually received, as the underlying collateral included in the
pledge and security agreements will not support an increase to the related party
notes receivable balance.
Income tax expense decreased from $2,710,000 in the third quarter of 2001 to a
benefit of $9,000 in the third quarter of 2002. The expense in 2001 resulted
from a reduction in the deferred tax asset at September 30, 2001.
Earnings (Loss) Per Share. The net earnings per share for the third quarter
ended September 30, 2002 was $.20 compared to a loss of $.40 per share in the
corresponding period in the prior year. The diluted weighted average number of
shares outstanding for the quarter ended September 30, 2002 and 2001 was
4,028,000, respectively. The average stock market price for the third quarter of
2002 was $4.56 compared to an average of $7.80 in the corresponding period of
2001.
Liquidity and Capital Resources
Available Resources. The Company's consolidated cash positions at September 30,
2002 and December 31, 2001 were $674,000 and $1,194,000, respectively. The
Company has a cash management system whereby cash generated by operations is
used to reduce bank debt. The reduction of outstanding debt provides the Company
with a reduction in interest expense greater than the interest income that cash
could safely earn from alternative investments. Working capital needs, when they
arise, are met by daily borrowings.
On April 22, 2002, the Company entered into an Amended and Restated Loan and
Security Agreement (the "New Credit Agreement") with its lender, Bank of
America, N.A. ("BofA") which contains language regarding potential "material
adverse changes", which is similar to language in prior credit agreements. Due
to the subjective nature of these clauses, the lender can declare the Company's
primary bank credit facility to be in default and accelerate the maturity date
thereof. In the event of acceleration, the Company would be required to repay
principally all of its debt. As a result, PricewaterhouseCoopers LLP has
indicated in their audit report for the year ended December 31, 2001, that, in
the event of acceleration, it would raise substantial doubt about the Company's
ability to continue as a going concern. The Company expected and has been
profitable and generated cash during 2002, which has been used to reduce its
long-term debt. In July 2002, the Company requested and BofA amended an existing
letter of credit by increasing the amount by an additional $1,050,000 in support
of the renewal of the Bickford's self-funded liability and workers compensation
insurance program. This letter of credit amendment reduced availability under
the line of credit in August 2002. As of September 30, 2002, the Company had
availability under its $15.0 million line of credit of approximately $3,595,000,
after the effect of issuing the July 2002 letter of credit. In addition, the
Company repaid $2,363,000 of its term loan with BofA, during the nine months
ended September 30, 2002.
20
Management believes that it will be successful in obtaining refinancing of all
of its BofA debt prior to its maturity in January 2003.
During the first nine months of 2002, the Company had cash flow from operations
of $7,710,000. This cash flow was generated primarily from collection of tax
refunds and accounts receivable. The cash flow from operations plus proceeds
from the sale of property, building and equipment of $368,000 and the partial
collection of a note receivable of $40,000 were used to repay the Company's bank
line of credit and term loan by $6,068,000, purchase property, buildings and
equipment of $2,297,000, reduce long-term debt by $177,000, pay deferred debt
costs of $26,000 and repay capital leases obligations of $70,000. During June
2002, Triton Insitutech Corp. repaid $40,000 of the $210,000 loaned under a
promissory note during 2000. During the first nine months of 2002, current
assets decreased by $3,456,000, primarily due to a decrease in accounts
receivable and the collection of tax refunds receivable. Current liabilities
decreased $5,325,000 mainly due to a decrease in bank debt.
During the first nine months of 2001, the Company borrowed $7,747,000 under its
line of credit. These borrowings along with proceeds from stock option exercises
of $22,000 funded the cash used in operations of $1,729,000, the acquisitions of
property, buildings and equipment totaling $3,231,000, an increase in the
accounts receivable from related parties of $733,000, the payment of long-term
debt of $158,000, the purchase of Common Stock of $1,183,000, payment of
deferred debt costs of $281,000, payment of capital leases obligations of
$39,000 and an increase in cash of $415,000. During the first nine months of
2001, current assets increased by $5,007,000, primarily due to an increase in
Cues inventory and accounts receivable and the current portion of the Company's
deferred tax asset. Cues's inventory increased as a result of greater production
volumes and the resulting increase in work in process inventory. Cues's accounts
receivable increased as result of the higher sales volume and increased
financing of certain sales. Current liabilities increased by $15,055,000 during
the first nine months of 2001, mainly due to the reclassification of bank debt
as a current liability, partially offset by a decrease in accrued expenses.
Current liabilities at September 30, 2001 and December 31, 2000 include
$561,000, representing the remaining amount payable to stockholders, who have
not surrendered their cancelled certificates in connection with the Company's
June 28, 1999 reverse stock split, which resulted in the retirement of 157,000
shares of Common Stock.
Future Needs For and Sources of Capital. Management believes that cash generated
by operations plus cash available under the New Credit Agreement will be
sufficient to fund operations through January 1, 2003, including interest and
principal payments on bank debt. Management believes that the bank line of
credit and term loan with BofA under the New Credit Agreement will be refinanced
prior to its maturity date of January 1, 2003.
Impact of Inflation. Inflationary factors such as increases in food and labor
costs directly affect the Company's operation. Many of the Restaurants'
employees are paid hourly rates related to the federal minimum wage, and,
accordingly, increases in the minimum wage will result in increases in the
Company's labor costs. In addition, the cost of food commodities utilized by the
Company is subject to market supply and demand pressures. Shifts in these costs
may have an impact on the Company's cost of sales. The Company anticipates that
food cost increases can be offset through selective price increases, although no
assurances can be given that the Company will be successful in this regard.
21
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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
September 30, 2002, the Company has approximately $13.1 million in variable,
market-rate based debt outstanding. A 10% increase in interest rates would
result in approximately $100,000 of additional interest expense annually based
on the current borrowing levels.
Item 4. Controls and Procedures
Within the 90-day period prior to the date of this report, our Chief Executive
Officer and Chief Financial Officer performed an evaluation of the effectiveness
of the Company's disclosure controls and procedures (as defined in SEC Rule
13a-14), which have been designed to ensure that material information related to
the Company is timely disclosed. Based upon that evaluation, they concluded that
the disclosure controls and procedures were effective.
Since the last evaluation of the Company's internal controls and procedures for
financial reporting, the Company has made no significant changes in those
internal controls and procedures or in other factors that could significantly
affect the Company's internal controls and procedures for financial reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K.
The Company filed a Form 8-K dated July 24, 2002 in conjunction
with changes in the Registrant's Certifying Accountant.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELXSI CORPORATION
-------------------------------------------
(Registrant)
Date: November 12, 2002 /s/ ALEXANDER M. MILLEY
-------------------------------------------
Alexander M. Milley, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 2002 /s/ DAVID M. DOOLITTLE
-------------------------------------------
David M. Doolittle, Vice President,
Treasurer, Secretary and Chief Financial
Officer (Chief Accounting Officer and
Principal Financial Officer)
23
CERTIFICATIONS
I, Alexander M. Milley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ELXSI Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date November 12, 2002
------------------------------------------------------------
By /s/ Alexander M. Milley
------------------------------------------------------------
Chairman of the Board, President and Chief Executive Officer
------------------------------------------------------------
(Signature and Title)
24
CERTIFICATIONS
I, David M. Doolittle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ELXSI Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
b. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date November 12, 2002
------------------------------------------------------------
By /s/ David M. Doolittle
------------------------------------------------------------
Treasurer, Secretary and Chief Financial Officer
------------------------------------------------------------
(Signature and Title)
25