UNITED STATES
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
For the fiscal year ended December 31, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 0-11877
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ELXSI CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 77-0151523
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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. [ ] Yes [X] 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 or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). [ ] Yes [X] No
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 March 10, 2003, as reported by The Nasdaq Stock Market was
approximately $6,050,000. On March 10, 2003, the Registrant had outstanding
4,012,197 shares of Common Stock.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed on or before
April 30, 2003 in connection with the registrant's Annual Meeting of
Stockholders scheduled to be held in June 2003 are incorporated by reference
into Part III of this report.
1
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
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; and
the effects 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 other 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 (together with its subsidiaries, the "Company") is a Delaware
corporation that operates principally through its two wholly-owned subsidiaries,
ELXSI, a California corporation ("ELXSI"), and Bickford's Family Restaurants,
Inc., a Delaware corporation ("BFRI"). 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 ("Bickford's Restaurants") names and 12 restaurants
operating under the Howard Johnson's name from Marriott Family Restaurants, Inc.
These Bickford's restaurants were located in Massachusetts, Vermont, New
Hampshire, Rhode Island and Connecticut.
On December 30, 2000, EXLSI contributed and transferred to a newly-formed,
wholly owned subsidiary, Bickford's Holding Company, Inc. ("BHC"), the
Bickford's Restaurants and substantially all of their related operations, assets
and liabilities. Immediately thereafter, the existing Bickford's Restaurants,
operations, assets and liabilities were contributed and transferred by BHC to
another newly-formed, wholly-owned subsidiary, BFRI.
During 2002, we reopened one Bickford's Restaurant in Worcester, MA, we closed
three Bickford's Restaurants and we subleased one Bickford's Restaurant to
another restaurant chain. As of December 31, 2002, the Company had 63 Bickford's
Restaurants owned and operated by BFRI (the "Restaurants" or "Restaurant
Operations").
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 US"). Cues US, 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
which we sell primarily to municipalities, service contractors and industrial
users.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Reference is made to the information set forth in Note 13 (Segment Reporting) to
the Consolidated Financial Statements included herein, which information is
hereby incorporated by reference herein.
3
RESTAURANT OPERATIONS
Restaurant Operation sales were $68,928,000, $73,159,000 and $76,284,000 in
2002, 2001 and 2000, respectively, representing 69.7%, 69.4% and 73.6% of the
total net sales of the Company during 2002, 2001 and 2000, respectively.
The Restaurants, which are all located in New England, are family-oriented
facilities that offer full-service meals. Featuring a breakfast-anytime menu
that is available all day long as well as lunch and dinner items, Bickford's
appeals to customers who are interested in a high quality, 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 $2.99 and $12.99. The
average guest check in 2002 was $7.01 compared to $6.60 and $6.26 in 2001 and
2000, respectively. With the recent introduction of a new lunch and dinner menu,
we intend to alter the consumer's perception of our Restaurants as primarily a
breakfast chain, so that they begin to recognize our Restaurants as serving
traditional lunch and dinner fare in addition to breakfasts. Breakfast items and
coffee have historically accounted for approximately 70% of food sales in each
of the past three fiscal years. Coffee alone has accounted for approximately 10%
of sales.
The Bickford's Restaurants have "specials" for senior citizens that provide a
discount on the entire menu during the period of 2 p.m. to 6 p.m. every day.
Consequently seniors have proven to be a loyal part of our repeat customer base.
Additionally, our Restaurants offer 2 for 1 pancake nights on Tuesday nights and
2 for 1 Omelet nights on Thursdays. These discounts apply to every pancake,
waffle, French toast and omelet item on the menu during these periods.
During the fourth quarter of 2002 and continuing into 2003, we enhanced our
Restaurant's dinner offerings to include a selection of exciting top quality
dinner products including high quality fresh (never frozen) seafood. Our seafood
offerings now include broiled and fried haddock and scallop dinners, jumbo
shrimp cocktail, fresh clam strips, lobster rolls and lobster casserole dinners
along with a homemade fresh clam chowder. Our breakfast menu is now featuring
already popular new lobster omelet and lobster benedict dishes. Complementing
these items are high quality choice 12-ounce sirloin strip steaks and a totally
fresh approach on all vegetables served. In addition, we are undertaking a
renewed focus on all aspects of the Restaurant Operations. 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. Our goal is to make the Bickford's Restaurants the best value, high
quality lunch and dinner destinations available in the New England market. By
dramatically repositioning our lunch and dinner offerings and generally
improving our execution during the daytime hours, we expect to attract a new
level of customers. Although it will take some time to implement and see
results, we expect that this strategy will have a positive impact on customer
counts and profits going forward.
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.
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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, moderately-priced meals.
Each Restaurant generally draws its customers from within a five-mile radius
and, consequently, repeat business is extremely important to the Restaurants'
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. They are
typically located adjacent to major roads, highways and/or shopping malls and a
few are adjacent to or connected to hotels. Nearly all of the Restaurants
located in communities that permit smoking contain dining areas designated as
smoking and non-smoking. At December 31, 2002, 16 of the Restaurant buildings
were owned, while the remaining 47 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 limited counter service.
Restaurant Expansion and Renovation
Capital expenditures during the years ended December 31, 2002, 2001 and 2000
were as follows:
2002 2001 2000
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Expansion $ 316,000 $ 629,000 $3,392,000
Conversions -- -- 316,000
Purchase leased property -- -- 240,000
Renovation 291,000 554,000 --
Refurbishment & equipment
replacements 2,840,000 2,677,000 2,234,000
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$3,447,000 $3,860,000 $6,182,000
========== ========== ==========
Earnings from operations funded the majority of the above capital expenditures.
The Company currently plans to spend approximately $3,075,000 for renovations,
refurbishments and equipment replacements and approximately $425,000 for
Restaurant expansion during 2003. Management believes that earnings from
operations will be sufficient to fund this planned program in addition to other
funding requirements.
In addition, the Company expects 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.
Sales at the same Bickford's Restaurants for comparable weeks decreased 4.8% in
2002 (57 restaurants), decreased 4.4% in 2001 (54 Restaurants), and increased
2.1% in 2000 (56 Restaurants) over the prior year's sales. Customer counts at
these same Restaurants decreased 10.3% in 2002, decreased 9.3% in 2001 and
decreased 3.1% in 2000 as compared to the prior year's counts.
5
The Company takes an opportunistic approach to the expansion of the Restaurant
Operations. 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. Bickford's
has eight 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. 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; however
in 2002, the Company did enter a long-term arrangement with its juice and soda
supplier. 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 Bickford's
success.
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, and many of which 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 the Restaurants have faced
6
increased competition 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 concepts.
Employees
At December 31, 2002, the Restaurants employed 2,550 persons, of which 2,000
were part-time hourly employees, 320 were full-time hourly employees and 230
were salaried personnel. This represents a decline from 2,650 persons employed
as of December 31, 2001. None of the Restaurant's employees are represented by a
union.
Trademarks and Service Marks
The Company has registered certain trademarks in the United States Patent and
Trademark office including "Bickford's"(R) and "Breakfast Anytime"(R) . The
Company believes that these and other related marks are of material importance
to the Restaurants's business. Our trademarks and service marks expire at
various times from 2004 to 2008 and we generally intend to renew trademarks and
service marks which expire.
Environmental Matters
The Restaurants are 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 $29,900,000, $32,239,000 and $27,426,000 in 2002,
2001 and 2000, respectively, representing 30.3%, 30.6%, and 26.4% of the total
net sales of the Company during 2002, 2001 and 2000, 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 burdens the capacity of sewage treatment plants by
increasing the volume of fluids being treated. Without a tightly maintained pipe
network a treatment plant may become overwhelmed, resulting in raw sewage
flowing into rivers, harbors, lakes or other bodies of water. The U.S.
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 for use in difficult to access locations. In addition, Cues
provides product servicing and replacement parts for its customers. Cues's
principal customers 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 rather, primarily focuses on
designing and manufacturing equipment for these uses.
7
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 integrated 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 in site process of relining the
walls of mainline pipes with various resin-based cured-in-place materials.
Cues's inspection, cutting and sealing systems are placed in sewer lines through
manholes. A 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 wire 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's 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 has designed and written DataCap 4.0(TM) software, a data collection
program, which offers the ability to capture full-length compressed video
inspections in electronic storage media along with the ability to electronically
capture still frame picture images 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, are stored in a database format and may be transmitted via internet
or facsimile for remote review. The data can
8
also be sorted, searched and printed in 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, contractors and other users who
are required to review inspection reports and catalog pipe conditions. The
DataCap(TM) software is designed to operate in Windows95, Windows98, WindowsNT
and Windows2000 operating system. By having in-house software engineers able to
design and write computer code, management believes that Cues has an advantage
over competitors due to the resulting ability of Cues to be more responsive to
customer requests for customized reports and features. The DataCap(TM) software
is installed on shock mounted computer hardware designed and built by Cues to be
rugged for the mobile-unit 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(TM) and Hansen Infrastructure
Management Solution's software and will assure users the ability to easily
import and export files between the two database programs.
Product Servicing, Replacement Parts and Chemicals
Cues provides product servicing and repairs at its facilities in Orlando,
Florida; Montclair, California; Toronto, Canada; and Maastricht, the
Netherlands. In Orlando and Montclair, 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 and 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
$144,000, $346,000 and $320,000, during the years 2002, 2001 and 2000,
respectively. The decrease in warranty expense during 2002 resulted from a
settlement of approximately $168,000 received from a vendor related to a
specific product that caused excessive warranty in 1999.
Product Development
Cues has an ongoing program to improve its existing products and develop new
products. During the years ended December 31, 2002, 2001 and 2000, Cues expended
approximately $387,000, $266,000 and $282,000, respectively, 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 that the expiration or
invalidity of any or all of such patents will not have a material adverse effect
on its business. For 2003, Cues currently plans to spend approximately $400,000
(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.
9
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
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 2002, 2001 or 2000
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 2002, 2001 and 2000, export sales to
foreign countries represented approximately 10%, 10% and 14% 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, currency and payment risks are minimized.
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.
Employees
At December 31, 2002, Cues had 169 full and part-time employees. This includes
five employees of Knopafex, Ltd. and four employees of Cues B.V. None of the
Cues Division employees are represented by a union.
10
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 Restaurants leases land and/or buildings at 47 of its 63 locations,
under lease agreements expiring on various dates (including extension options)
through 2036. The majority of these leases are "triple net", requiring BFRI 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, 2002:
Owned Leased Total
-------- -------- --------
Massachusetts 11 27 38
Connecticut 2 6 8
Rhode Island 1 6 7
New Hampshire 2 7 9
Vermont -- 1 1
-------- -------- --------
Total 16 47 63
-------- -------- --------
BFRI also owns a 4,000 square foot building in Boston, Massachusetts, which is
used for the Restaurant Operations management and administrative headquarters.
In addition, BFRI subleases one of its former restaurant locations in
Massachusetts. 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 Cues Division's old facility, consisting of 26,000 square feet
also located in Orlando, Florida, is being partially used by Cues 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.
In order to secure the Company's obligations under its senior bank credit
facility with Bank of America, N.A. ("BofA"), substantially all of the Company's
properties and assets have been pledged as collateral to BofA. In addition, a
different bank holds first mortgages on two Restaurants as to which it provided
certain financing.
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ITEM 3. LEGAL PROCEEDINGS
On November 25, 2002, James P. Shine ("Shine"), a former officer of the
Restaurant Operations, filed a lawsuit in the Superior Court of the Commonwealth
of Massachusetts, Middlesex County (the "Court") against ELXSI and BFRI (the
"Shine Litigation") seeking certain payments under a letter agreement with ELXSI
dated December 11, 2001 entered into in connection with his exercise of phantom
stock option rights granted to him in 1991. Shine has requested relief in the
form of damages, interest and costs and obtained a $580,000 prejudgement
attachment on three Restaurant properties owned by ELXSI in Middlesex County,
Massachusetts.
In March 2003, the Company reached an agreement-in-principal with Shine, who is
owed approximately $785,000 of which $589,000 was due on or before October 1,
2002. The agreement provides for the option holder to receive a second position
lien on the Kingston, MA restaurant and restructures the principal payments to
be due in 2007.
Other than the Shine Litigation, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ELXSI Corporation held its Annual Meeting of Stockholders on November 8, 2002.
At the meeting, the stockholders:
o approved the re-election of the Board of Directors of ELXSI Corporation;
o approved the Company's 2002 Incentive Stock Option Plan; and
o ratified the appointment of Tedder, James, Worden and Associates, P.A., as
the Company's independent accountants for fiscal year 2002.
With regard to the re-election of the Board of Directors, the voting was as
follows:
Abstentions
Against/ and Broker
Nominee For Withheld Non Votes
------- ------------- ------------- -------------
Farrokh H. Kavarana 2,372,266 211,089 1,444,682
Kevin P. Lynch 2,372,226 215,889 1,439,882
Alexander M. Milley 2,372,226 215,889 1,439,882
Denis M. O'Donnell 2,372,266 211,089 1,444,682
Robert C. Shaw 2,372,226 211,089 1,444,682
With regard to the resolution to approve the Company's 2002 Incentive Stock
Option Plan, holders of 2,370,436 shares of the Company's common stock voted for
the resolution to approve such Plan, while holders of 239,857 shares of common
stock voted against the resolution and holders of 750 shares of common stock
abstained from the vote.
12
Concerning the resolution to ratify the appointment of Tedder, James, Worden and
Associates, P.A. as the Company's independent accountants for fiscal year 2002,
holders of 2,371,279 shares of the Company's common stock voted to ratify such
appointment, while holders of 5,203 shares of common stock voted against the
resolution and holders of 2,506 shares of common stock abstained from the vote.
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.
2002 2001
--------------------------- ---------------------------
High Low High Low
------------ ------------ ------------ ------------
First Quarter $ 10.000 $ 6.560 $ 12.000 $ 9.250
Second Quarter 10.250 5.150 10.500 7.700
Third Quarter 6.600 3.500 11.500 6.020
Fourth Quarter 4.050 1.570 8.379 5.700
On March 10, 2003, the reported last sale price for the Company's Common Stock
was $2.51 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 January 31, 2003, there were 275 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.
13
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in Thousands, Except Per Share Data)
Year Ended December 31,
-------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Net Sales $ 98,828 $ 105,398 $ 103,710 $ 104,143 $ 98,566
Costs and Expenses:
Cost of sales (82,099) (87,437) (83,594) (81,703) (77,327)
General and administrative (10,125) (11,874) (9,544) (9,014) (9,269)
Depreciation and amortization (4,235) (4,579) (4,318) (3,870) (3,529)
Interest income 22 1,272 1,500 801 583
Interest expense (1,550) (1,844) (1,303) (832) (807)
Other income (expense) (88) 81 (272) (293) (193)
(Provision) benefit for income taxes (1,149) (7,507) 6,890 11,118 (3,234)
Cumulative effect of accounting change (3,172) -- -- -- --
--------- --------- --------- --------- ---------
Net (loss) income $ (3,568) $ (6,490) $ 13,069 $ 20,350 $ 4,790
========= ========= ========= ========= =========
Net (loss) income per common share
Basic $ (.89) $ (1.61) $ 3.08 $ 4.75 $ 1.09
========= ========= ========= ========= =========
Diluted $ (.89) $ (1.61) $ 2.75 $ 4.25 $ .98
========= ========= ========= ========= =========
Weighted average number of common and
common equivalent shares
Basic 4,027 4,043 4,246 4,283 4,400
Assumed conversion of options and warrants -- -- 512 508 486
--------- --------- --------- --------- ---------
Diluted 4,027 4,043 4,758 4,791 4,886
========= ========= ========= ========= =========
Dividends 0 0 0 0 0
========= ========= ========= ========= =========
Other Data:
Working capital $ 2,808 $ (2,767) $ 6,863 $ 20,733 $ 11,574
Total assets 78,699 88,454 102,522 89,851 66,636
Capitalized leases and long term debt 13,877 20,473 13,253 12,903 8,665
Stockholders' equity 51,958 55,359 75,179 63,877 45,560
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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'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's add an extra week at the end of the fourth quarter
and fiscal year. The Restaurant's 2000 fiscal year included a 53rd week.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
The Company's revenues and expenses resulted from the operation of the
Restaurant Operations and Cues Division and the Company's corporate expenses
("Corporate").
Restaurant Operations. The Restaurants had sales of $68,928,000, cost of sales
of $60,301,000, selling, general and administrative expenses of $2,467,000 and
depreciation and amortization expense of $3,723,000, which yielded operating
income of $2,437,000. In addition, the Restaurants had $139,000 of interest
expense, related primarily to mortgage loans and capital leases, and other
expense of $124,000, resulting in income before taxes of $2,174,000.
Cues Division. Cues had sales of $29,900,000, cost of sales of $21,798,000,
selling, general and administrative expenses of $6,710,000 and depreciation and
amortization expense of $512,000, which yielded an operating income of $880,000.
In addition, Cues had $79,000 of interest expense, $12,000 of interest income
and $5,000 of other income, resulting in income before taxes of $818,000.
Corporate. Corporate general and administrative expenses were $948,000. The
major components of these expenses were legal expenses, audit and tax compliance
expenses, shareholder services and bank fees. During 2002, the Company did not
record any expense or pay any fees to Cadmus Corporation ("Cadmus") under a
management agreement (see Note 6 to the Consolidated Financial Statements).
During 2002, the Company did not make any payments of principal to certain
persons currently or formerly employed by the Restaurant Operations in
connection with their phantom stock options, which they had exercised in full on
July 2, 2001 (see Note 12 to the Consolidated Financial Statements). Under an
agreed upon deferred payment schedule, these persons were to receive $3,638,000
in the aggregate of which not less than three-quarters of the balance was due to
be paid by October 1, 2002 and the balance on October 1, 2003. As a result of a
decrease in earnings and lack of borrowing availability, we did not make any
principal payments during 2002 under the deferred payment schedule. The unpaid
balance bears interest at 7% per annum.
15
During 2002, the Company recorded interest expense of $258,000. One of these
former employees initiated a lawsuit against ELXSI and BRFI in connection with
its non-payment of principal. See Item 3, "Legal Proceeding" above.
Corporate interest income was $10,000, which excludes all interest accrued
during 2002 on loans to related parties (see Note 7 to the Consolidated
Financial Statements). Interest accrued on these loans during 2002 was
$1,158,000, but the Company received no payments thereon and suffered a
deterioration in the value of the securities pledged as security thereof.
Corporate interest expense was $1,332,000, consisting primarily of the interest
charges on senior bank debt. The Company's senior bank debt lender is Bank of
America ("BofA"); Note 8 to Consolidated Financial Statements of the Company
includes information regarding the terms of the senior bank debt.
During 2002, the Company recorded a consolidated tax expense of $1,149,000,
consisting of a current tax expense of $253,000 and deferred tax expense of
$896,000.
Management periodically evaluates its future earnings likely to be realized
during the remaining life of its net operating loss and tax credit carryforwards
and the resulting anticipated level of 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 $14,903,000 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 these 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.
The Company's ability to utilize its net operating loss and tax credit
carryforwards may be impaired or reduced under certain other circumstances.
Events which may affect these carryforwards include, but are not limited to,
cumulative stock ownership changes of 50% or more over any three-year period, as
defined under 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 for tax purposes 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 to determine the amount of the tax loss and
credit carryforwards that can be utilized each year under current tax laws.
Earnings Per Share. The 2002 basic and diluted loss per share was $0.89. The
2002 weighted average number of shares outstanding for the basic and diluted
earnings per share was 4,027,000. The average stock price during 2002 was $5.87
and the market price at December 31, 2002 was $2.55.
16
YEAR ENDED DECEMBER 31, 2001
The Company's revenues and expenses resulted from the operation of the
Restaurant Operations and Cues Division and the Company's corporate expenses
("Corporate").
Restaurant Operations. The Restaurants had sales of $73,159,000, cost of sales
of $63,818,000, selling, general and administrative expenses of $2,499,000 and
depreciation and amortization expense of $3,920,000, which yielded operating
income of $2,922,000. In addition, the Restaurants had $177,000 of interest
expense, related primarily to mortgage loans and capital leases, and other
income of $9,000, resulting in income before taxes of $2,754,000.
Cues Division. Cues had sales of $32,239,000, cost of sales of $23,619,000,
selling, general and administrative expenses of $8,056,000 and depreciation and
amortization expense of $659,000, which yielded an operating loss of $95,000. In
addition, Cues had $121,000 of interest expense, $71,000 of interest income and
$72,000 of other income, resulting in a loss before taxes of $73,000.
Corporate. Corporate general and administrative expenses were $1,319,000. The
major components of these expenses were $721,000 in management fees paid to
Cadmus under a management agreement (see Note 7 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)
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.
During 2001, the Company reached an agreement with certain persons currently and
formerly employed by the Restaurant Operations on the valuation of their phantom
stock options, which they had exercised in full on July 2, 2001 (see Note 12 to
the Consolidated Financial Statements). Under this agreement, the management
group was to receive $3,638,000 in the aggregate. A deferred payment schedule
was negotiated to provide for not less than three-quarters of the balance due to
be paid by October 1, 2002 and the balance on October 1, 2003. The unpaid
17
balance bears interest at 7% per annum. During 2001, the Company recorded
interest expense of $66,000 for the period October 1 to December 31, 2001.
Corporate interest income was $1,201,000, consisting primarily of interest on
loans to related parties (see Note 7 to the Consolidated Financial Statements).
Corporate interest expense was $1,546,000, consisting primarily of the interest
charges on senior bank debt. The Company's senior bank debt lender is BofA; Note
8 to Consolidated Financial Statements of the Company includes information
regarding the terms of the senior bank debt.
During 2001, the Company recorded a consolidated tax expense of $7,507,000,
consisting of a current tax benefit of $497,000 and deferred tax expense of
$8,004,000.
Earnings Per Share. The 2001 basic and diluted loss per share was $1.61. The
2001 weighted average number of shares outstanding for the basic and diluted
earnings per share was 4,043,000. The average stock price during 2001 was $8.44
and the market price at December 31, 2001 was $7.62.
YEAR ENDED DECEMBER 31, 2000
Restaurant Operations. 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 under a management agreement (see Note 7 to the Consolidated Financial
Statements), legal expenses, audit expenses, and stockholder services and
financial reporting expenses.
Corporate interest income was $1,491,000, consisting primarily of interest on
loans to related parties (see Note 7 to the Consolidated Financial Statements).
Corporate interest expense was $981,000, consisting primarily of the interest
charges on 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 the
18
intercompany transfer of assets and utilization of net operating loss
carryforwards described in the following paragraph.
In December 2000, ELXSI transferred its Restaurants assets, liabilities and
operations in a taxable transaction, to a newly formed, wholly owned subsidiary.
The transfer of the Restaurants was structured to put in place a more efficient
corporate structure. 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 was reflected in the
current tax provision at December 31, 2000. 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 FAS 109, $12,417,000 was recorded as
a deferred charge to reflect the federal and state tax impacts of inter-company
profits related to this transaction.
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.
COMPARISON OF 2002 RESULTS TO 2001 RESULTS
Sales during 2002 decreased $6,570,000, or 6.2%, gross profit decreased by
$1,232,000, or 6.9%, selling, general and administrative expense decreased by
$1,749,000, or 14.7%, and depreciation and amortization decreased by $344,000,
or 7.5%, resulting in an increase in operating income of $861,000, or 57.1%, in
each case as compared to 2001. Interest expense decreased by $294,000, or 15.9%,
interest income decreased by $1,250,000, or 98.3%, and other expense increased
by $169,000, or 208.6%. As a result, pre-tax income decreased $264,000, or 26.0%
in 2002 compared to 2001. In 2002, the Company recorded income tax expense of
$1,149,000 compared to income tax expense of $7,507,000 in 2001. The result of
these changes was a decrease in the net loss before the cumulative effect of an
accounting change of $6,094,000 in 2002 compared to 2001.
Restaurants Operations. Restaurants sales decreased by $4,231,000, or 5.8%, in
2002 compared to 2001. Same store sales decreased $3,206,000, or 4.8%, in 2002
compared to 2001. Also contributing to the 2002 sales decrease were lost sales
of $1,313,000 due to four closed Restaurants partially offset by an increase in
sales at new and non-comparable Restaurants of $288,000. The same store
Restaurant sales decrease was mainly the result of a decrease in customer counts
of 10.3%, which was partially offset by menu price increases. The decrease in
customer counts was primarily due to new competition and the continuing effect
of the depressed
19
New England economy. Management is continuing to focus on improving sales at all
Restaurants through attention to customer service, food quality, new menu items
and Restaurant refurbishments.
Restaurants gross profit decreased by $714,000, or 7.6%, and gross profit as a
percentage of sales decreased .3% in 2002 compared to 2001. Food costs decreased
1.3% from 23.8% of sales in 2001 to 22.5% of sales in 2002 primarily as a result
of selectively changing food products and vendors resulting in lower costs while
maintaining quality. Labor costs as a percentage of sales increased by 0.5%,
from 40.1% in 2001 to 40.6% in 2002, due to competitive economic pressures
causing higher average rates of pay for employees, increased staffing during
peak business periods in order to enhance customer service, inefficiencies
caused by the customer declines and higher worker's compensation insurance
costs. Variable costs were approximately flat as a percentage of sales, while
fixed costs increased 1.2% as a percentage of sales due primarily to higher
liability and property insurance costs and the effect of the decline in
customers.
Restaurants selling, general and administrative expense decreased by $32,000, or
1.3%, during 2002 compared to 2001.
Restaurants depreciation and amortization expense decreased by $197,000, or
5.0%, during 2002 as compared to 2001.
As a result of the above, Restaurant operating income decreased by $485,000, or
16.6%, in 2002 compared to 2001.
Cues Division. Cues's sales decreased by $2,339,000, or 7.3%, in 2002 compared
to 2001. As a result of this sales decrease partially offset by a 0.4% increase
in Cues's gross profit percentage in 2002 compared to 2001, gross profit
decreased by $518,000, or 6.0%. The increase in the gross profit percentage was
primarily the result of reductions in health insurance expense in 2002 and the
inclusion in 2001 of a $514,000 charge to reduce the inventory carrying value to
its estimated market value as a result of closing the Moscow Russia office.
Despite the gross profit improvement as a result of the above items, reduction
in selling prices as a result of competitive pricing pressures continued in
2002.
Selling, general and administrative expenses decreased by $1,346,000, or 16.7%,
and depreciation and amortization expense decreased by $147,000, or 22.3%. The
decrease in selling, general and administrative expenses was primarily related
to a decrease in international selling expense of $997,000 as a result of the
decision in December 2001 to close the Russian operations, which was opened in
April 2001. In addition, selling expense decreased in 2002 compared to 2001 due
to variable expense related to sales volume and a reduction in salaries and
health insurance expenses. Warranty expense decreased as a result of receiving a
final settlement from a vendor related to product sold and warranted in previous
years. As a result of the above, operating income increased $975,000, or 1026%,
in 2002 compared to 2001.
20
Corporate. Corporate's general and administrative expenses decreased by
$371,000, or 28.1%, during 2002 compared to 2001, mainly due to the
discontinuance of the Cadmus management fee in 2002. This decrease, however, was
partially offset by an increase in professional fees and bank fees. Interest
expense decreased by $214,000, or 13.8%, in 2002 compared to 2001 as a result of
a lower average debt balance partially offset by higher borrowing rates.
Interest income decreased by $1,191,000, or 99.2%, in 2002 compared to 2001,
mainly due to a decrease in the amount of related party note receivable interest
income recorded in 2002.
COMPARISON OF 2001 RESULTS TO 2000 RESULTS
Sales during 2001 increased by $1,688,000, or 1.6%, gross profit decreased by
$2,155,000, or 10.7%, selling, general and administrative expense increased by
$2,330,000, or 24.4%, and depreciation and amortization increased by $261,000,
or 6.0%, resulting in a decrease in operating income of $4,746,000, or 75.9%, in
each case as compared to 2000. Interest expense increased by $541,000, or 41.5%,
interest income decreased by $228,000, or 15.2%, and other expense decreased by
$353,000, or 129.8%. In 2001, the Company recorded an income tax expense of
$7,507,000 compared to an income tax benefit of $6,890,000 in 2000. The above
changes resulted in a decrease in net income of $19,559,000 in 2001 compared to
2000.
Restaurants Operations. Restaurants sales decreased by $3,125,000, or 4.1%, in
2001, which had 52 weeks compared to 53 weeks in 2000. Excluding the effect of
the 53rd week in 2000, the sales decrease was $1,880,000, or 2.5%. Same store
sales decreased $2,876,000, or 4.4%, in 2001 compared to 2000, which included
the extra week. Also contributing to the 2001 sales decrease were lost sales of
$1,672,000 due to three closed Restaurants, a decrease in sales at
non-comparable Restaurants of $1,356,000 (including one restaurant closed as a
result of a fire and one closed for construction of a replacement facility) and
a decrease in sales of converted restaurants of $236,000. These decreases were
partially offset by sales at new Restaurants totaling $3,015,000. The same store
Restaurant sales decrease was mainly the result of a decrease in customer counts
of 9.3% partially offset by menu price increases. The 53rd week in 2000 added
approximately $1,245,000 in sales and 192,000 in customers. Excluding the 53rd
week in 2000, the 2001 same store sales and customer counts would have decreased
2.5% and 7.5%, respectively, compared to 2000. The decrease in customer counts
was primarily due to the worsening economy especially after the September 11,
2001 terrorist attack, new competition in certain market areas, the impact of
adverse weather, the negative effect of the implementation of local non-smoking
regulations and local shopping center closings.
Restaurants gross profit decreased by $2,935,000, or 23.9%, and gross profit as
a percentage of sales decreased 3.3% in the 52 weeks ended December 31, 2001
compared to the 53 weeks ended 2000. Labor costs as a percentage of sales
increased by 2.3%, from 37.8% in 2000 to 40.1% in 2001, due to competitive
economic pressures causing higher average rates of pay, increased staffing
during peak business periods in order to enhance customer service,
inefficiencies caused by the customer declines and higher worker's compensation
and medical insurance rates. Variable costs increased by 0.7% due mainly to
higher utility costs, while fixed costs increased
21
1.2% due to higher liability insurance costs and the effect of the decline in
customers. Food costs decreased by 0.5% as a percentage of sales in 2001
compared to 2000.
Restaurants selling, general and administrative expense increased by $30,000, or
1.2%, during 2001 compared to 2000.
Restaurants depreciation and amortization expense increased by $370,000, or
10.4%, during 2001 as compared to 2000.
As a result of the above, Restaurant operating income decreased by $3,335,000,
or 53.3%, in 2001 compared to 2000.
Cues Division. Cues's sales increased by $4,813,000, or 17.5%, in 2001 compared
to 2000. As a result of this increase and a 1.8% decrease in Cues's gross profit
percentage in 2001 compared to 2000, gross profit increased by $780,000, or
9.9%. In April 2001, Cues opened an office in Moscow, Russia to market and
demonstrate the Company's equipment. In December 2001, the Company decided to
close its Moscow operation. Included in cost of sales for 2001 is a $514,000
charge to reduce the inventory carrying value to its estimated market value as a
result of closing the Moscow office. Excluding this inventory charge, gross
profit would have increased $1,294,000, or 16.5%. The decrease in the gross
profit percentage was primarily the result of reductions in selling prices as a
result of competitive pricing pressures, the Russian inventory charge and, to a
lesser extent, increases in salaries and benefits resulting from rate and head
count increases.
Selling, general and administrative expenses increased by $2,033,000, or 33.8%,
and depreciation and amortization expense decreased by $109,000, or 14.2%. The
increase in selling, general and administrative expenses was primarily related
to an increase in international selling expense of $1,021,000. In December 2001,
in addition to the inventory charge discussed above, the Company recorded
charges for severance and other closing-related costs of approximately $356,000
related to the closing of the Moscow office. Prior to the closing decision,
approximately $665,000 was incurred in the sales and marketing effort in Russia.
The remaining increase in selling, general and administrative costs of
$1,012,000, was primarily due to an increase in domestic field sales and support
staff including headcount and benefits increases. As a result of the above,
operating income decreased $1,144,000, or 109.1%, in 2001 compared to 2000.
Corporate. Corporate's general and administrative expenses increased by
$267,000, or 25.4%, during 2001 compared to 2000, mainly due to an increase in
professional fees, bank fees and a slight increase in management fee expense.
Interest expense increased by $565,000, or 57.6%, in 2001 compared to 2000.
Included in the increase in interest expense is an increase in the amortization
of deferred debt costs of $272,000. The remaining increase in interest expense
is the result of a higher average debt balance during 2001 compared to 2000
partially offset by lower interest rates in 2001. Interest income decreased by
$290,000, or 19.5% in 2001 compared to 2000, mainly due to a decrease in the
average outstanding related party receivable from Cadmus.
22
INFLATION
Inflation and changing prices have not had a material impact on the Company's
results of operations during any of the last three fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
Available Resources. The Company's consolidated unrestricted cash positions at
December 31, 2002 and 2001 was $777,000 and $1,194,000, respectively. The
Company's borrowing availability under its bank line of credit at December 31,
2002 and 2001 was $2,533,000 and $939,000, respectively. The Company has a cash
management system whereby cash generated by operations is used to immediately
reduce bank debt. The 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 2002, the Company had cash flow from operations of $8,369,000. The cash
flow from operations, the proceeds from the sale of property, building and
equipment of $1,452,000 and the collection of notes receivable of $70,000 funded
the purchase of property, plant and equipment of $3,634,000, the payment of net
borrowings under the Bank line of credit and term loan of $5,873,000, principal
payments of other debt totaling $239,000, the purchases of common stock for
$52,000, the payments of deferred financing fees of $26,000 and the payment of
capital lease obligations of $484,000. During 2002, current assets decreased by
$2,713,000, primarily due to a decrease in cash and cash equivalents, a decrease
in Cues accounts receivable and a decrease in corporate taxes receivable which
was partially offset by an increase in prepaid expense and other current assets
and deferred tax assets. Current liabilities decreased $8,288,000 in 2002
compared to 2001 primarily as a result of reducing bank debt and reclassifying
the phantom option liability to a long-term liability at December 31, 2002.
Under the terms of its line of credit and term loan agreement with BofA, the
Company is required to meet certain covenants, including financial covenants
relating to the ratio of funded debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA"), fixed charge coverage ratio and
restrictions on capital expenditures. On April 22, 2002, the Company entered
into an Amended and Restated Loan and Security Agreement ("the New Credit
Agreement") with BofA. On December 30, 2002 and January 31, 2003, under
amendments to the New Credit Agreement, the Company converted its outstanding
Orange County Industrial Development Authority, Industrial Development Revenue
Bonds (ELXSI Project), Series 1997 (the "IDB Bonds"), into a second term loan
with BofA due June 30, 2003. At December 31, 2002, 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 New Credit Agreement. On
January 31, 2003, the Company entered into an amendment to the New Credit
Agreement that included a waiver by BofA of all 2002 covenant violations. This
amendment also included the following terms, which represent changes from the
New Credit Agreement: (1) an extension of the maturity date of all BofA debt to
June 30, 2003 with the payment of a $50,000 extension fee;
23
(2) at the Company's option, a further extension of the maturity date of all
BofA debt until January 31, 2004 with the payment of an additional fee of
$50,000 in June 2003; (2) interest on all BofA debt at BofA's prime rate plus
3.5% (which interest rate will increase to BofA's prime rate plus 5% if the
Company exercises its option to extend the maturity date of all BofA debt until
January 31, 2004); (3) an increase in the interest rate on April 30, 2003 to
BofA's prime rate plus 5% and the requirement to pay a non-refundable $250,000
fee unless the Company has obtained by that date an acceptable loan commitment
letter from another lender or has hired an investment banker to sell either its
Cues Division or Restaurant Operations; and (4) the establishment of revised
covenants for 2003, including an EBITDA, net worth and capital expenditure
covenant.
The Company expects to be in compliance with the revised terms and covenants of
the New Credit Agreement as amended; 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 consolidated financial statements include an
independent auditor's report which indicates 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 prior to its maturity on January 31,
2004. In the event that sufficient additional financing cannot be obtained prior
to the maturity date to repay amounts due under the Agreement, the Company
believes several options are available to generate additional liquidity.
Future Needs for and Sources of Capital. Management believes that cash generated
by operations plus cash available under the New Credit Agreement, as amended,
will be sufficient to fund future operations, including interest payments on
bank debt and payments due under the phantom stock option plan. Management
believes that the bank line of credit and term loans with BofA will be
refinanced prior to their maturity date of June 30, 2003 or extended maturity
date of January 31, 2004.
Critical Accounting Policies. The Company's significant accounting policies are
more fully described in Note 1 to the Consolidated Financial Statements. Certain
of the Company's accounting policies require the application of significant
judgment by management in selecting the appropriate assumptions for calculating
financial estimates. As with all judgments, they are subject to an inherent
degree of uncertainty. These judgments are based on our historical experience,
current economic trends in the industry, information provided by customers and
vendors and information available from other outside sources, as appropriate.
The Company's significant accounting policies include:
Allowance for Doubtful Accounts. The Company evaluates the collectibility of
accounts receivable based on numerous factors, including past transaction
history with particular customers and their creditworthiness. Initially, the
Company estimates an allowance for doubtful accounts as a percentage of net
sales based on historical bad debt experience. This estimate is adjusted when
the Company becomes aware of a specific customer's inability to meet its
financial obligations, or as a result of changes in the overall aging of
accounts receivable. While the Company has a large customer base that is
geographically dispersed, a slowdown in the
24
markets in which the Company operates may result in higher than expected
uncollectible accounts, and therefore the need to revise the estimate for bad
debts. Generally, Cues has experienced relatively low bad debt expense partially
because customers depend on the Company to provide parts and labor to repair and
service equipment, which gives them a strong incentive to pay past due balances.
During 2002, the Company increased its allowance for doubtful accounts as a
result of a bankruptcy filing by a contractor-customer of Cues. The allowance
for doubtful accounts totaled $374,000 and $193,000 at December 31, 2002 and
2001, respectively.
Inventories. The Company evaluates its inventory balances at the end of each
quarter to ensure that they are carried at the lower of cost or market. This
evaluation includes a review for obsolete inventory and an analysis of slow
moving and potential excess inventory items. Events which could affect the
amount of reserves for obsolete or slow moving inventory include a decrease in
demand for Cues's products due to economic conditions, innovations or new
technologies introduced by Cues or its competitors, price decreases by
competitors on specific products or systems, and any discontinuance by a vendor
of a component part required in production requiring a re-design of a Cues
product. At December 31, 2002 and 2001, the reserve for obsolete and slow moving
inventory was $1,893,000 and $1,886,000, respectively.
Deferred Tax Assets. The Company's net deferred tax assets include substantial
amounts of net operating loss and tax credit carryforwards, totaling $12,634,000
and $11,394,000 at December 31, 2002 and 2001, respectively. The carrying value
of the Company's net deferred tax assets assumes that the Company will be able
to generate sufficient future taxable income based on estimates and assumptions.
If these estimates and assumptions change in the future, the Company may be
required to record additional valuation allowances against its deferred tax
assets, which would result in increased income tax expense. The Company
continually reviews the adequacy of the valuation allowance and recognizes
deferred tax asset benefits only as reassessment indicates that it is more
likely than not that the benefits will be realized. 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, future profitability, cumulative stock ownership changes of 50% or
more over a given three-year period, as defined by 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 the IRC.
Related Party Notes Receivable. The Company is owed substantial amounts under
related party promissory notes receivable (see Note 7 to the Consolidated
Financial Statements). These notes have been reflected in the equity section of
the balance sheet as a contra-equity account at December 31, 2002 and 2001.
Alexander M. Milley and certain companies he controls have guaranteed payment of
these notes. In addition, Mr. Milley and these companies have pledged certain
assets, including shares of Company Common Stock, under pledge and security
agreements. A permanent decline in the value of the Company's stock or other
assets pledged as
25
collateral or a default in the payment of the principal and interest by these
related parties would have a negative effect on the Company's operating results
and potentially its ability to repay its outstanding debt.
Impairment of Long-Lived Assets. The Company's long lived-assets include
$1,785,000 and $4,989,000 of goodwill and trademarks at December 31, 2002 and
2001, respectively. In assessing the recoverability of the Company's intangible
assets, the Company must make assumptions regarding estimated future cash flows
and other factors to determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, the Company may be
required to record impairment charges for these assets not previously recorded.
The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," ("FAS 142") in 2002. As a result of the
adoption of FAS 142 during the year ended December 31, 2002, the Company
recorded a loss for the cumulative effect of an accounting change related to the
goodwill impairment at the Cues Division in the amount of $3,172,000. The
Company did not record any impairment losses related to goodwill and or
trademarks in the Restaurant Operations Division during 2002.
Product Warranties. Our warranty reserve is established based on our best
estimate of the amounts necessary to settle future and existing claims on
products sold as of the balance sheet date. While we believe that our warranty
reserve is adequate and that the judgment applied is appropriate, such amounts
estimated to be due and payable could differ materially from what will actually
transpire in the future.
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
Company's 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 previous undiscounted cash flow policy utilized
by the Company. During the year ended December 31, 2002, the Company recorded a
loss for the cumulative effect of an accounting change related to the goodwill
impairment at the Cues Division in the amount of $3,172,000. The Company did not
record any impairment losses related to goodwill and or trademarks in the
Restaurant Division during 2002. The new approach may result in impairment
charges and reductions in the carrying amount of the remaining goodwill on the
Company's Consolidated Balance Sheets and as a result, the Company may be
subject to earnings volatility if additional goodwill impairment occurs at a
future date.
FAS No. 143, "Accounting for Asset Retirement Obligations" was issued in June
2001. FAS 143, which became effective for the Company beginning in 2003,
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and
26
associated asset retirement costs. The Company does not expect the adoption of
FAS 143 to have a material impact its Consolidated Financial Statements.
FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
was issued in August 2001. FAS 144, which became effective for the Company
beginning with it's first quarter of 2002, establishes a single accounting model
for long-lived assets to be disposed of by sale, and also broadens the
presentation of discontinued operations to include more disposal transactions.
The adoption of FAS 144 did not have a material impact on the Company's
Consolidated Financial Statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
which rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt" and an amendment of that Statement, and SFAS No. 64, "Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements." SFAS No. 145 also rescinds SFAS
No. 44, "Accounting for Intangible Assets for Motor Carriers." SFAS No. 145
amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. SFAS No. 145
is effective for fiscal years beginning after May 15, 2002. The Company does not
expect the adoption of SFAS No. 145 will have a material impact on its results
of operations or financial position.
In June 2002, the FASB issues SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses significant issues regarding
the recognition, measurement, and reporting of costs associated with exit and
disposal activities, including restructuring activities. SFAS No. 146 requires
that costs associated with exit or disposal activities be recognized when they
are incurred rather than at the date of a commitment to an exit or disposal
plan. SFAS No. 146 is effective for all exit or disposal activities initiated
after December 31, 2002. The Company does not expect the adoption of SFAS No.
146 to have a material impact on our results of operations or financial
position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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, 2002, the Company had approximately $12.6 million in variable,
market-rate based debt outstanding. The market risk is considered minimal (based
upon a 10% increase or decrease in interest rates from their December 31, 2002
levels).
27
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, 2002, together with the report
thereon of Tedder, James, Worden & Associates, P.A. dated March 6, 2003 (except
for Notes 8 and 12 for which the date is March 31, 2003), are included in this
report commencing on page F-1 and are listed under Part IV, Item 15 in this
Report.
The Consolidated Financial Statements of the Company for each of the fiscal
years in the two-year period ended December 31, 2001, together with the report
thereon of PricewatehouseCoopers LLP dated April 23, 2002, are included in this
report commencing on page F-2 and are listed under Part IV, Item 15 in this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On July 24, 2002, the Company changed its independent accountant to Tedder,
James, Worden and Associates, P.A. The Company's Form 8-K dated July 24, 2002
and filed with the Commission on July 30, 2002 discusses this action.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this item will be filed within 120 days after
December 31, 2002.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item will be filed within 120 days after
December 31, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item will be filed within 120 days after
December 31, 2002.
Equity Compensation Plan Information.
We maintain a number of equity compensation plans for employees, officers,
directors and others whose efforts contribute to our success. The table below
sets forth certain information as our fiscal year ended December 31, 2002
regarding the shares of our common stock available for grant or granted under
stock option plans that (i) were approved by our stockholders, and (ii) were not
approved by our stockholders.
28
Number of securities Weighted-average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding future issuance under
Plan outstanding options options, warrants equity compensation
Category warrants and rights and rights plans
--------------- ----------------------- -------------------- -----------------------
Equity compensation
plans approved by
security holders 854,282 7.20 153,178
Equity compensation
plans not approved by
security holders 0 0 0
----------------------- -------------------- -----------------------
Total 854,282 7.20 153,178
======================= ==================== =======================
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item will be filed within 120 days after
December 31, 2002.
ITEM 14. 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 our 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 our internal controls and procedures for financial reporting.
29
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) Documents filed as part of this report:
Index to Consolidated Financial Statements
- ------------------------------------------
Page
Number(s)
---------
1. Financial Statements
Independent Auditors' Report for the year ended
December 31, 2002 F-1
Report of Independent Certified Public Accountants for the
years ended December 31, 2001 and 2000 F-2
Consolidated Balance Sheets at December 31, 2002 and 2001 F-3 to F-4
Consolidated Statements of Income and Comprehensive
Income for the three years ended December 31, 2002 F-5
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 2002 F-6
Consolidated Statements of Cash Flows for the three years
ended December 31, 2002 F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-33
Page
----
2. Financial Statement Schedules
Independent Auditors' Report on Financial Statement
Schedules for year ended December 31, 2002. S-1
Independent Auditors' Report on Financial Statement
Schedules for years ended December 31, 2001 and 2000. S-2
Schedule
Number Description Page
------ ----------- ----
II Valuation and Qualifying Accounts and Reserves S-3
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.
30
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 to the Company's Current Report on
Form 8-K filed November 13, 1992 (File No 000-11877)).
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 to the
Company's Current Report on Form 8-K, dated July 16, 1991 (File No.
000-11877)).
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 to the Company's
Current Report on Form 8-K, dated July 16, 1991 (File No.
000-11877)).
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
to the Company's Current Report on Form 8-K, dated July 16, 1991
(File No. 000-11877)).
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 to the Company's
Current Report on Form 8-K, dated July 16, 1991 (File No.
000-11877)).
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
to the Company's Current Report on Form 8-K, dated July 16, 1991
(File No. 000-11877)).
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 to the Company's Current Report on Form
8-K, dated July 16, 1991 (File No. 000-11877)).
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. (Incorporated herein by reference to Exhibit 2.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 (File No. 000-11877)).
3.1 Restated Certificate of Incorporation of the Company, as amended.
(Incorporated herein by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1989 (File No. 000-11877)).
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 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 000-11877)).
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. 000-11877)).
31
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 Registration Statement 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. 000-11877)).
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 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (File No. 000-11877)).
4.2 Form of Third Allonge and Amendment to Series A Warrants of ELXSI
Corporation, with respect to the foregoing Warrant. (Incorporated
herein by reference to Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 (File No.
000-11877)).
4.3 Form of Fourth Allonge and Amendment to Series A Warrants of ELXSI
Corporation, with respect to the foregoing Warrant (Filed herewith).
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 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 000-11877)).
4.5 Form of Third Allonge and Amendment to Series A Warrants of ELXSI
Corporation, with respect to the foregoing Warrant. (Incorporated
herein by reference to Exhibit 4.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 (File No.
000-11877)).
4.6 Form of Fourth Allonge and Amendment to Series A Warrants of ELXSI
Corporation, with respect to the foregoing Warrant (Filed herewith).
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 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 000-11877)).
4.8 Form of Third Allonge and Amendment to Series C Warrants of ELXSI
Corporation, with respect to the foregoing Warrant. (Incorporated
herein by reference to Exhibit 4.9 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 (File No.
000-11877)).
4.9 Form of Fourth Allonge and Amendment to Series C Warrants of ELXSI
Corporation, with respect to the foregoing Warrant. (Filed herewith).
4.10 Amended and Restated Registration Rights Agreement dated as of
January 23, 1990 among the Company, Milley & Company ("M&C") and
Continental Illinois Equity Corporation. (Incorporated herein by
reference to Exhibit 4.7 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 (File No. 000-11877)).
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 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (File No. 000-11877)).
4.12 Amended and Restated Loan and Security Agreement, dated as of April
22, 2002 between ELXSI, Bickford's Holding Company, Inc., Bickford's
Family Restaurants, Inc. and Bank of America, N.A. (Incorporated
herein by reference to Exhibit 4.14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2001 (File No. 000-11877)).
32
4.13 First Amendment to Amended and Restated Loan And Security Agreement
dated as of August 5, 2002 between ELXSI, Bickford's Holding Company,
Inc., Bickford's Family Restaurants, Inc. and Bank of America, N.A.
(Filed herewith).
4.14 Second Amendment to Amended and Restated Loan And Security Agreement
dated as of December 30, 2002 between ELXSI, Bickford's Holding
Company, Inc., Bickford's Family Restaurants, Inc. and Bank of
America, N.A. (Filed herewith).
4.15 Third Amendment to Amended and Restated Loan And Security Agreement
dated as of January 31, 2003 between ELXSI, Bickford's Holding
Company, Inc., Bickford's Family Restaurants, Inc. and Bank of
America, N.A. (Filed herewith).
4.16 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 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 (File No. 000-11877)).
4.17 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 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997 (File No.
000-11877)).
4.18 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 to the Company's
Quarterly Report on Form 10-Q for quarter ended September 30, 1997
(File No. 000-11877)).
4.19 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 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997 (File No.
000-11877)).
4.20 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 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (File No. 000-11877)).
4.21 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 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997 (File No.
000-11877)).
4.22 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.
000-11877)).
4.23 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. 000-11877)).
4.24 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. 000-11877)).
33
10.1 The Company's 1987 Incentive Stock Option Plan as amended.
(Incorporated by reference to Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987 (File
No. 000-11877)).
10.2 The Company's 1987 Supplemental Stock Option Plan as amended.
(Incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987 (File
No. 000-11877)).
10.3 The Company's 1993 Incentive Stock Option Plan. (Incorporated herein
by reference to Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 (File No.
000-11877)).
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. 333-64205)).
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. 000-11877)).
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. 000-11877)).
10.9 The Company's 2000 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 2001 Incentive Stock Option Plan. (Incorporated herein
by reference to the Annex B to the Company's Proxy Statement included
in its Schedule 14A filed with the Commission on April 17, 2001 (File
No. 000-11877)).
10.11 The Company's 2002 Incentive Stock Option Plan. (Incorporated herein
by reference to the Annex A to the Company's Proxy Statement included
in its Schedule 14A filed with the Commission on October 21, 2002
(File No. 000-11877)).
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 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (File No. 000-11877)).
10.13 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 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 (File No. 000-11877)).
10.14 Letter agreement dated December 11, 2001 between ELXSI and the
management of the Bickford's Division holding rights under the ELXSI
1991 Phantom Stock Option Plan setting forth the amounts and timing
of payments thereunder as a result of the exercise of rights
thereunder. (Incorporated
34
herein by reference to Exhibit 10.13 of the Company's Annual Report
on Form 10-K to the fiscal year ended December 31, 2001 (File No.
000-11877)).
10.15 Letter Agreement by and between ELXSI and Robert Germaine dated March
28, 2003.
10.16 Letter Agreement by and between ELXSI and Lawrence Pszenny dated
March 28, 2003.
10.17 Letter Agreement by and between ELXSI and Daniel Bloodwell dated
March 28, 2003.
10.18 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 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 (File No.
000-11877)).
10.19 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 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (File No. 000-11877)).
10.20 Management Agreement Extension dated September 25, 1992 between ELXSI
and MMI. (Incorporated herein by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 000-11877)).
10.21 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 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 (File No.
000-11877)).
10.22 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. 000-11877)).
10.23 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 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 (File No.
000-11877)).
10.24 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 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 (File No.
000-11877)).
10.25 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 (Incorporated herein by reference
to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 (File No. 000-11877)).
10.26 Amended and Restated Promissory Note of ELX payable to the Company
dated as of December 31, 2001 in the amount of $1,606,278, amending
and restating the foregoing Promissory Note (as so amended) of ELX.
(Incorporated herein by reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K to the fiscal year ended December 31, 2001
(File No. 000-11877)).
10.27 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 to the Company's
Common Stock).
35
10.28 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 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 (File No.
0000-11877)).
10.29 Amended and Restated Promissory Note of ELX payable to the Company
dated as of December 31, 2001 in the amount of $1,362,489, amending
and restating the foregoing Promissory Note (as so amended) of ELX.
(Incorporated herein by reference to Exhibit 10.29 of the Company's
Annual Report on Form 10-K to the fiscal year ended December 31, 2001
(File No. 000-11877)).
10.30 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. 000-11877)).
10.31 Amendment No. 1 to the above Employment Agreement, dated as of May
27, 1999. (Incorporated herein by reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (File No. 000-11877)).
10.32 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. 000-11877)).
10.33 Amendment No. 1 to the above Employment Agreement, dated as of May
27, 1999. (Incorporated herein by reference to Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (File No. 000-11877)).
10.34 Form of $2,000,000 Secured Promissory Note of Cadmus payable to
ELXSI, dated June 27, 1997. (Incorporated herein by reference to
Exhibit 10.31 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 (File No. 000-11877)).
10.35 Letter agreement dated June 25, 1999 from ELXSI to Cadmus extending
the term of the foregoing Secured Promissory Note. (Incorporated
herein by reference to Exhibit 10.32 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000 (File No.
000-11877)).
10.36 Amended and Restated Secured Promissory Note of Cadmus payable to
ELXSI dated as of December 31, 2001 in the amount of $2,000,000,
amending and restating the foregoing Secured Promissory Note (as so
amended) of Cadmus. (Incorporated herein by reference to Exhibit
10.36 to the Company's Annual Report on Form 10-K to the fiscal year
ended December 31, 2001 (File No. 000-11877)).
10.37 Form of Promissory Note of Cadmus payable to ELXSI, dated December
28, 2000, in a maximum amount of $10,000,000 Note. (Incorporated
herein by reference to Exhibit 10.33 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000 (File No.
000-11877)).
10.38 Amended and Restated Promissory Note of Cadmus payable to ELXSI dated
as of December 31, 2001 in the amount of $7,003,364, amending and
restating the foregoing Promissory Note of Cadmus (as so amended).
(Incorporated herein by reference to Exhibit 10.38 to the Company's
Annual Report on Form 10-K to the fiscal year ended December 31, 2001
(File No. 000-11877)).
10.39 From of guaranty instrument executed by Alexander M. Milley in
relation to the above two notes. (Incorporated herein by reference to
Exhibit 10.34 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 (file No. 000-11877)).
36
10.40 Form of Pledge and Security Agreement, dated as of December 31, 2001,
executed by ELX to secure the above-referenced amended and restated
promissory notes of ELX and Cadmus. (Incorporated herein by reference
to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001 (File No. 000-11877)).
10.41 Form of Pledge and Security Agreement, dated as of December 31, 2001,
executed by Cadmus to secure th