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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K/A
Amendment No. 1
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998 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 0-14837
ELMER'S RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
---------------
Oregon 93-0836824
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11802 SE Stark
Portland, Oregon 97216 (503) 252-1485
(Address of principal (Zip Code) (Registrant's telephone
executive offices) number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
---------------
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 statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at June 10, 1998: $1,837,268. For purposes of this calculation,
officers and directors are considered affiliates.
Number of shares of Common Stock outstanding at June 10, 1998: 1,311,109.
Documents Incorporated by Reference
Part of Form 10-K into
Document which incorporated
-------- ----------------------
Proxy Statement for 1998
Annual Meeting of Shareholders Part III
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<PAGE>
TABLE OF CONTENTS
Item of Form 10-K Page
- ----------------- ----
PART IV .....................................................................1
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K..............................................1
SIGNATURES....................................................................4
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ------- ---------------------------------------------------------------
Page in
(a)(1) Financial Statements and Schedules this Report
---------------------------------- -----------
Report of Independent Accountants........................................ F-1
Consolidated Balance Sheets at
March 31, 1998 and 1997................................................ F-2
Consolidated Statements of Income
for the years ended March 31, 1998, 1997
and 1996............................................................... F-3
Consolidated Statements of Changes in Shareholders'
Equity for the years ended March 31, 1998,
1997 and 1996.......................................................... F-4
Consolidated Statements of Cash Flows
for the years ended March 31, 1998,
1997 and 1996.......................................................... F-5
Notes to Consolidated Financial Statements............................... F-6
No other schedules are included because the required information is
inapplicable or is presented in the financial statements or related notes
thereto.
(a)(2) Exhibits
--------
3.1 Restated Articles of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1988 (the "1988 Form 10-K").
3.2 Bylaws of the Company, as amended. Incorporated by reference to Exhibit
3.2 of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1990.
10.1 Area Franchisee - Unit Franchisee Agreement dated July 10, 1978 by and
between Elmer's Colonial Pancake & Steak House, Inc. and Paul H. and
Jacqueline M. Welch, Dale M. and Sandra Lee Elmer. Incorporated by
reference to Exhibit 10.30 of the Company's Registration Statement on
Form S-18, Registration No. 2-98298-S (the "Form S-18 Registration").
1
<PAGE>
10.2 Lease Agreement dated June 18, 1987 by and between Dale M. Elmer and
Sandra Lee Elmer and Elmer's Pancake & Steak House, Inc., and addenda
thereto. Incorporated by reference to Exhibit 10.5 of the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1989
(the "1989 Form 10-K") and Exhibit 10.3 of the December 31, 1991 Form
10-Q.
10.3 Franchise Agreement between the Company and Paul H. Welch and
Jacqueline M. Welch dated March 23, 1993. Incorporated by reference to
Exhibit 10.9 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1993 (the "1993 Form 10-K").
10.4 Franchise Development Option Agreement between the Company and Paul H.
Welch and Jacqueline M. Welch dated May 3, 1993. Incorporated by
reference to Exhibit 10.10 of the 1993 Form 10-K.
10.5 Commercial Loan Note, dated May 18, 1995, issued by the Company to The
Bank of California, N.A. and addendum thereto. Incorporated by
reference to Exhibit 10.9 of the Form 10-K for the fiscal year ended
March 31, 1995.
10.6 Loan Agreement, dated December 21, 1995, between the Company and Wells
Fargo Bank, N.A., successor-by-merger to First Interstate Bank of
Oregon, N.A. and the First Amendment thereto, dated as of March 18,
1997, Promissory Note dated December 21, 1995 issued by the Company to
Wells Fargo Bank, N.A., successor-by-merger to First Interstate Bank of
Oregon, N.A. in connection with the Loan Agreement, and Deeds of Trust
given by the Company to Ticor Title Insurance Company, Trustee, for
benefit of Wells Fargo Bank, N.A., successor-by-merger to First
Interstate Bank of Oregon, N.A. in connection with the Loan Agreement.
Incorporated by reference to Exhibit 10.6 of the Form 10-K for the
fiscal year ended March 31, 1997 ("1997 Form 10-K").
10.7 Credit Agreement, dated as of March 18, 1997, between the Company and
Wells Fargo Bank, N.A. and Promissory Note dated March 18, 1997, issued
by the Company to Wells Fargo Bank, N.A. in connection with the Credit
Agreement and Promissory Note dated May 17, 1995, issued by the Company
to Wells Fargo Bank, N.A., successor-by-merger to First Interstate Bank
of Oregon, N.A., which is governed by the Credit Agreement.
Incorporated by reference from Exhibit 10.7 of the 1997 Form 10-K.
10.8 Promissory Notes, dated March 31, 1997, issued by Paul H. Welch and
Jacqueline M. Welch to the Company. Incorporated by reference from
Exhibit 10.8 of the 1997 Form 10-K.
10.9 Stock Purchase Agreement, dated as of February 13, 1997, between the
Company and Dale Elmer. Incorporated by reference from Exhibit 10.9 of
the 1997 Form 10-K.
2
<PAGE>
10.10 Letter Agreement dated March 23, 1998, between the Company and Wells
Fargo Bank, N.A., Promissory Note dated March 30, 1998, issued by the
Company to Wells Fargo Bank, N.A., and Deed of Trust and Assignment of
Rents and Leases dated as of March 23, 1998, given by the Company to
Wells Fargo Bank (Arizona), N. A., Trustee, for the benefit of Wells
Fargo Bank. N.A.
22.1 List of Subsidiaries.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K No reports on Form 8-K were filed by the Company
during the last quarter of the fiscal year ended March 31, 1998.
3
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
Elmer's Restaurants, Inc.
We have audited the accompanying consolidated balance sheets of Elmer's
Restaurants, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended March 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Elmer's
Restaurants, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1998 in conformity with generally
accepted accounting principles.
Portland, Oregon
May 15, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1998 and 1997
ASSETS 1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 6) $ 1,875,136 $ 1,678,876
Accounts receivable, less allowance for doubtful accounts of
$5,000 in 1998 and 1997 140,717 159,904
Notes receivable, current portion (Note 2) 81,033 69,880
Inventories 216,537 203,115
Prepaid expenses 101,425 126,099
------------- -------------
Total current assets 2,414,848 2,237,874
Property, buildings and equipment, net (Notes 3 and 6) 4,696,507 4,738,012
Intangible assets, net (Notes 4 and 6) 973,643 1,062,419
Note receivable, long-term portion 16,709
Other assets 78,903 70,660
------------- -------------
Total assets $ 8,180,610 $ 8,108,965
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable - current portion (Note 6) $ 405,266 $ 495,581
Accounts payable 612,107 631,639
Accrued payroll and related taxes 311,782 192,867
Accrued expenses 47,447 33,754
Accrued income taxes (Note 5) 195,387 96,459
------------- -------------
Total current liabilities 1,571,989 1,450,300
Notes payable - long-term portion (Note 6) 3,061,284 3,338,255
Deferred income taxes (Note 5) 40,000 111,000
------------- -------------
Total liabilities 4,673,273 4,899,555
------------- -------------
Commitments and contingencies (Notes 7 and 9)
Shareholders' equity:
Preferred stock, no par value; 500,000 shares authorized;
none issued
Common stock, no par value; 10,000,000 shares authorized;
1,311,109 shares and 1,404,686 shares issued and
outstanding in 1998 and 1997, respectively 1,417,034 1,518,098
Retained earnings 2,090,303 1,691,312
------------- -------------
Total shareholders' equity 3,507,337 3,209,410
------------- -------------
Total liabilities and shareholders' equity $ 8,180,610 $ 8,108,965
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Statements of Income
for the years ended March 31, 1998, 1997 and 1996
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Restaurant sales $ 15,757,151 $ 15,416,311 $ 15,031,429
Franchise operations 660,074 654,637 680,604
Lottery 179,172 41,407
-------------- -------------- --------------
16,596,397 16,112,355 15,712,033
-------------- -------------- --------------
Costs and expenses:
Cost of restaurant sales:
Food and beverage 4,263,703 4,270,067 4,191,161
Labor and related 5,490,690 5,252,469 5,102,414
Occupancy costs 998,782 993,007 934,518
Depreciation and amortization 679,455 699,013 719,711
General and administrative expenses 4,107,003 3,923,250 3,911,387
-------------- -------------- --------------
15,539,633 15,137,806 14,859,191
-------------- -------------- --------------
Income from operations 1,056,764 974,549 852,842
Other income (expense):
Interest income 66,225 60,947 60,780
Interest expense (Note 6) (324,578) (351,831) (387,033)
Gain on disposition of assets 368 550 3,533
-------------- -------------- --------------
Food and beverage 4,263,703 4,270,067 4,191,161
Labor and related 5,490,690 5,252,469 5,102,414
Occupancy costs 998,782 993,007 934,518
Depreciation and amortization 679,455 699,013 719,711
General and administrative expenses 4,107,003 3,923,250 3,911,387
-------------- -------------- --------------
15,539,633 15,137,806 14,859,191
-------------- -------------- --------------
Income from operations 1,056,764 974,549 852,842
Other income (expense):
Interest income 66,225 60,947 60,780
Income before provision for income taxes 798,779 684,215 530,122
Provision for income taxes (Note 5) (269,000) (232,000) (179,500)
-------------- -------------- --------------
Net income $ 529,779 $ 452,215 $ 350,622
============== ============== ==============
Net income per share $ 0 $ 0 $ 0
============== ============== ==============
Weighted average number of shares outstanding 1,385,676 1,477,812 1,538,253
============== ============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1998, 1997 and 1996
Common Stock
------------------------------- Retained
Shares Amount Earnings
------------- ------------- -------------
<S> <C> <C> <C>
Balance, March 31, 1995 1,727,445 $ 1,866,676 $ 1,090,320
Repurchase and retirement of common stock (228,182) (246,436) (132,350)
Net income 350,622
------------- ------------- -------------
Balance, March 31, 1996 1,499,263 1,620,240 1,308,592
Repurchase and retirement of common stock (94,577) (102,142) (69,495)
Net income 452,215
------------- ------------- -------------
Balance, March 31, 1997 1,404,686 1,518,098 1,691,312
Repurchase and retirement of common stock (93,577) (101,064) (130,788)
Net income 529,779
------------- ------------- -------------
Balance, March 31, 1998 1,311,109 $ 1,417,034 $ 2,090,303
============= ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended March 31, 1998, 1997 and 1996
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 529,779 $ 452,215 $ 350,622
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 590,679 601,899 609,912
Amortization 88,776 97,114 109,799
Deferred income taxes (71,000) 6,000 21,500
Gain on disposition of assets (368) (550) (3,533)
Changes in assets and liabilities:
Receivables (8,675) (113,927) (7,456)
Inventories (13,422) (11,087) 20,009
Prepaid expenses 24,674 23,474 (35,887)
Other assets 9,162 33,081 (2,330)
Accounts payable and accrued expenses 113,076 (35,790) 88,081
Accrued income taxes 98,928 96,459 (20,575)
-------------- -------------- --------------
Net cash provided by operating activities 1,361,609 1,148,888 1,130,142
-------------- -------------- --------------
Amortization 88,776 97,114 109,799
Deferred income taxes (71,000) 6,000 21,500
Gain on disposition of assets (368) (550) (3,533)
Changes in assets and liabilities:
Receivables (8,675) (113,927) (7,456)
Inventories (13,422) (11,087) 20,009
Prepaid expenses 24,674 23,474 (35,887)
-------------- -------------- --------------
Cash flows from investing activities:
Additions to property, buildings and equipment (550,006) (398,501) (450,047)
Proceeds from sale of assets 1,200 550 3,937
-------------- -------------- --------------
Net cash used in investing activities (548,806) (397,951) (446,110)
-------------- -------------- --------------
Cash flows from financing activities:
Net change in other non-current assets (17,405) (4,450) (34,355)
Proceeds from notes payable 630,000 230,000 2,670,000
Payments on notes payable (997,286) (496,803) (2,839,329)
Repurchase of common stock (231,852) (171,637) (378,786)
-------------- -------------- --------------
Net cash used in financing activities (616,543) (442,890) (582,470)
-------------- -------------- --------------
Net increase in cash and cash equivalents 196,260 308,047 101,562
Cash and cash equivalents, beginning of year 1,678,876 1,370,829 1,269,267
-------------- -------------- --------------
Cash and cash equivalents, end of year $ 1,875,136 $ 1,678,876 $ 1,370,829
============== ============== ==============
Supplemental disclosures of cash flow information:
Cash paid for:
Amortization 88,776 97,114 109,799
Deferred income taxes (71,000) 6,000 21,500
Gain on disposition of assets (368) (550) (3,533)
Changes in assets and liabilities:
Receivables (8,675) (113,927) (7,456)
Inventories (13,422) (11,087) 20,009
Prepaid expenses 24,674 23,474 (35,887)
Interest $ 325,206 $ 351,203 $ 387,033
============== ============== ==============
Income taxes $ 247,711 $ 119,350 $ 188,766
============== ============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-5
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. The Company and Summary of Significant Accounting Policies:
The Company
Elmer's Restaurants, Inc. (the Company), an Oregon corporation, owns and
operates eleven Elmer's Pancake & Steak House restaurants and sells
franchises that give franchisees the right to operate under the name
Elmer's Pancake & Steak House for a specific restaurant or region.
Franchises and Company owned stores are located throughout the western
United States.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Disclosure of Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents and accounts receivable approximated fair value as of March 31,
1998 and 1997 because of the relatively short maturity of these
instruments. The carrying value of notes payable approximated fair value as
of March 31, 1998 and 1997, based upon interest rates and terms available
for the same or similar loans.
Cash and Cash Equivalents
The Company considers all short-term, highly-liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
The Company invests its excess cash in interest bearing deposits with major
banks and in U.S. Treasury securities. These investments generally mature
within 90 days and are therefore subject to minimal risk. Management
routinely reviews these investments in order to limit the amount of credit
exposure to any one financial institution.
Inventories
Inventories of food, beverages and restaurant supplies are stated at the
lower of first-in, first-out cost or market.
F-6
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. The Company and Summary of Significant Accounting Policies, Continued:
Property, Buildings and Equipment
Property, buildings and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the related assets. Lives used for calculating depreciation and
amortization rates for the principal asset classifications are as follows:
buildings - 35 years; automobiles, furniture, fixtures and equipment - 3 to
7 years; leasehold improvements - life of lease or applicable shorter
period. Maintenance and repairs are expensed as incurred; renewals and
improvements are capitalized. Upon disposal of assets subject to
depreciation, the related costs and accumulated depreciation are removed
and resulting gains and losses are reflected in the consolidated statements
of income.
Intangible Assets
The cost over fair value of net tangible assets of acquired companies
(goodwill) is amortized on a straight-line basis over periods not exceeding
25 years. Other intangible assets are stated at cost and amortized using
the straight-line method over the shorter of the actual life or the period
estimated to be benefited of 3 to 40 years.
Management of the Company reviews the carrying value of capitalized
tangible and intangible assets on a regular basis to reach a judgment
concerning possible permanent impairment of value. These reviews consider,
among other factors: (1) the net realizable value of each major
classification of assets, (2) the cash flow associated with the assets, and
(3) significant changes in the extent or manner in which major assets are
used. Management believes the carrying value of assets is less than the
estimated fair value.
Franchise Operations
Initial license fees from individual and area franchise sales are
recognized as revenue when substantially all of the terms and conditions of
the franchise agreement are met. The Company has sold area franchises to
several restaurant operators in various western states. The terms of the
agreements entered into with each franchisee protect the territory for the
operator and provide standard building blueprints, recipes, formulas and
methods of food preparation. The term of the franchise is 25 years.
Continuing franchise fees (based on a percentage of sales) are recognized
as income when earned.
Lottery
The Company offers video poker to its patrons in certain restaurants. The
net revenue earned from video poker is recorded in the Company's financial
statements as Lottery revenue when received.
F-7
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. The Company and Summary of Significant Accounting Policies, Continued:
Income Taxes
Deferred income taxes are recorded for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to
affect taxable income. Income tax expense is the tax payable for the year
and the change during the year in deferred tax assets and liabilities.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, Earnings Per
Share, effective for fiscal periods ending after December 15, 1997. This
Statement simplifies the standards for computing earnings per share (EPS)
previously found in APB Opinion No. 15, Earnings Per Share, and makes them
comparable with international EPS standards. This statement requires
restatement of all prior period data presented. The primary differences
between the provisions of SFAS No. 128 and previous authoritative
pronouncements are exclusion of common stock equivalents in the
determination of basic EPS and the market price at which common stock
equivalents are calculated in the determination of diluted EPS. Basic EPS
is computed using the weighted average number of shares of common stock
outstanding for the period. Diluted EPS is computed using the weighted
average number of shares of common stock and dilutive common stock
equivalents outstanding during the period. The adoption of this statement
did not have any impact on previously reported EPS.
Impact of Recently Issued Accounting Standards
In June 1997, FASB issued SFAS No. 130, Comprehensive Income. SFAS No. 130
becomes effective in 1998 and requires reclassification of previously
issued financial statements for comparative purposes. SFAS No. 130 requires
that changes in the amounts of certain items, including foreign currency
translation adjustments and gains and losses on certain securities be shown
in a statement of comprehensive income. Management does not expect the
adoption to have a material effect on the consolidated financial
statements.
Also in June 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. This statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires selected segment information
in quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and its
major customers. The statement is effective for fiscal years beginning
after December 15, 1997 and may modify the disclosure of certain segment
information for the Company.
F-8
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. The Company and Summary of Significant Accounting Policies, Continued:
Impact of Recently Issued Accounting Standards, Continued
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
About Pensions and Other Postretirement Benefits. This statement revises
employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
The statement suggests combined formats for presentation of pension and
other postretirement benefit disclosures. The statement also permits
reduced disclosures for nonpublic entities. This statement is effective for
fiscal years beginning after December 15, 1997. Management does not expect
the adoption to have any effect on the consolidated financial statements.
2. Notes Receivable:
Notes receivable from a franchisee and officer/director
of the Company, due on demand, interest at 7%, without
collateral $ 69,880
Note receivable from a franchisee, monthly payments of
$1,120, including interest at 10%, without collateral 27,862
------------
97,742
Current portion 81,033
------------
Long-term portion $ 16,709
------------
3. Property, Buildings and Equipment:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 1,258,439 $ 1,258,439
Buildings 2,448,527 2,425,055
Furniture, fixtures and equipment 6,886,948 6,455,031
Automobiles 81,580 81,580
Leasehold improvements 1,332,385 1,247,473
-------------- --------------
12,007,879 11,467,578
Less accumulated depreciation (7,311,372) (6,729,566)
-------------- --------------
$ 4,696,507 $ 4,738,012
-------------- --------------
</TABLE>
F-9
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
4. Intangible Assets:
Intangible assets, net of accumulated amortization of $1,245,504 and
$1,156,728 at March 31, 1998 and 1997, respectively, are comprised of:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Trademark and franchise registrations and agreements $ 630,151 $ 680,298
Cost over fair value of net tangible assets acquired 312,515 347,506
Other 30,977 34,615
-------------- -------------
$ 973,643 $ 1,062,419
-------------- -------------
</TABLE>
5. Income Taxes:
The Company's provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Currently payable:
Federal $ 297,000 $ 172,000 $ 120,000
State 43,000 54,000 38,000
------------ ------------ ------------
340,000 226,000 158,000
Deferred income taxes (71,000) 6,000 21,500
------------ ------------ ------------
$ 269,000 $ 232,000 $ 179,500
------------ ------------ ------------
</TABLE>
F-10
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
5. Income Taxes, Continued:
Deferred income tax assets and liabilities are recorded for both the
expected future tax impact of differences between the financial statement
and income tax basis of assets and liabilities, and for the expected future
tax benefit to be derived from tax loss and tax credit carryforwards. A
valuation allowance is established, when necessary, to reflect the
likelihood of realization of deferred income tax assets. No valuation
allowance was deemed necessary as a result of management's evaluation of
the likelihood that all of the deferred income tax assets will be realized.
The Company has recorded a net deferred tax liability of $40,000 and
$111,000 at March 31, 1998 and 1997, respectively, which is comprised of
the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Excess of financial statement fixed assets over tax basis $ (81,000) $ (144,000)
Expenses not currently deductible for tax 41,000
Federal alternative minimum tax credit carryforwards 33,000
------------ -------------
$ (40,000) $ (111,000)
------------ -------------
</TABLE>
Income taxes are provided at a rate different from the
expected federal tax rate on income before provision
for income taxes as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Expected tax $ 272,000 $ 233,000 $ 180,000
Amortization not deductible for income taxes 12,000 12,000 12,000
State taxes, net of federal tax benefits 28,000 35,000 25,000
Tax credits utilized (50,000) (48,000) (42,500)
Other 7,000 5,000
------------ ------------ ------------
$ 269,000 $ 232,000 $ 179,500
------------ ------------ ------------
</TABLE>
F-11
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
6. Notes Payable:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Notes payable to financial institutions, collateralized by
all assets excluding real estate, due at various dates
through June 2000, monthly principal installments total
approximately $34,000 plus interest at rates as follows:
Prime rate plus 0.5% - 0.75% (prime was 8.50% at
March 31, 1998) $ 1,457,995 $ 1,892,935
Notes payable to financial institutions,
collateralized by real estate, due at various dates
through February 2008, monthly installments total
$16,204 including interest at rates as follows:
513,332
Average 2 year U.S. Treasury note rate plus
1.75% and 2%
Fixed rate of 8.18% 1,306,533 1,338,206
Fixed rate of 8.25% 630,000
Note payable to others, collateralized by stock of
a subsidiary, due August 2001, interest at 10%
72,022 89,363
------------- -------------
3,466,550 3,833,836
Less current portion (405,266) (495,581)
------------- -------------
Long-term portion $ 3,061,284 $ 3,338,255
------------- -------------
</TABLE>
F-12
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
Certain notes payable contain restrictive covenants pertaining to financial
ratios and minimum cash flow coverage. The most restrictive covenants
require the Company to maintain a ratio of cash generation (defined as net
income before taxes, interest expense, depreciation and amortization) to
total interest expense plus the prior period current maturities of
long-term debt of at least 1.3 to 1.0 and a maximum of total liabilities to
tangible net worth of 3.25 to 1.0. The Company was in compliance with these
covenants at March 31, 1998. Future maturities of notes payable for years
ending March 31 are as follows:
1999 $ 405,266
2000 402,694
2001 902,803
2002 81,516
2003 79,430
Thereafter 1,594,881
-----------
$ 3,466,590
-----------
All interest costs incurred during the years ended March 31, 1998, 1997 and
1996 have been expensed during the respective periods.
7. Leases:
Minimum fiscal year rental commitments for the years ending March 31 under
operating leases with noncancelable terms of more than one year, are as
follows:
1999 $ 492,518
2000 481,307
2001 458,882
2002 450,882
2003 413,435
Thereafter 1,173,040
-----------
$ 3,470,064
-----------
The leases generally provide for additional rentals based upon a specified
percentage of sales and require the Company to pay certain other costs.
Rental expense on operating leases amounted to $674,552 (including $182,034
of additional rentals) for the year ended March 31, 1998, $661,419
(including $168,803 of additional rentals) for the year ended March 31,
1997, and $642,166 (including $149,648 of additional rentals) for the year
ended March 31, 1996.
Total lease payments for the lease of the corporate offices from a
stockholder of the Company were $33,636 for the years ended March 31, 1998,
1997 and 1996.
F-13
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
8. Restaurant and Franchise Operations:
Summary results of operations and other selected financial information from
restaurant operations and franchise operations are presented after
elimination of intercompany transactions:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Restaurant operations $ 15,936,323 $ 15,457,718 $ 15,031,429
Franchise operations 1,393,275 1,358,776 1,360,729
Intercompany eliminations (733,201) (704,139) (680,125)
------------- ------------- -------------
Consolidated $ 16,596,397 $ 16,112,355 $ 15,712,033
============= ============= =============
Income from operations :
Restaurant operations $ 612,723 $ 586,968 $ 424,480
Franchise operation s 444,041 387,581 428,362
------------- ------------- -------------
Consolidated $ 1,056,764 $ 974,549 $ 852,842
------------- ------------- -------------
Capital and intangible expenditures:
Restaurant operations $ 521,913 $ 360,961 $ 361,545
Franchise operations 28,093 37,540 88,502
------------- ------------- -------------
Consolidated $ 550,006 $ 398,501 $ 450,047
------------- ------------- -------------
Depreciation and amortization:
Restaurant operations $ 587,248 $ 606,533 $ 642,031
Franchise operations 28,093 37,540 88,502
------------- ------------- -------------
Franchise operations 92,207 92,480 77,680
------------- ------------- -------------
Consolidated $ 679,455 $ 699,013 $ 719,711
============= ============= =============
</TABLE>
F-14
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
8. Restaurant and Franchise Operations, Continued:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets:
Restaurant operations $ 7,307,145 $ 7,117,727
Franchise operations 873,465 991,238
------------- -------------
Consolidated $ 8,180,610 $ 8,108,965
============= =============
</TABLE>
The number of Company owned stores and operating franchises at March 31 is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Company owned stores 11 11 11
Operating franchises 18 18 18
</TABLE>
9. Commitments and Contingencies:
The Company entered into employment agreements with its late Chief
Executive Officer and the founders of the original Elmer's Pancake & Steak
House. The agreements provide the following minimum compensation
commitments: Chief Executive Officer - $120,000 per year expiring May 1999;
Founders - $15,000 per year for life. In accordance with the terms of the
agreement with the late Chief Executive Officer, the Company will continue
to provide this minimum compensation to the successor Chief Executive
Officer for a period of two years after his death. This agreement will
expire on May 26, 1998.
The Company has authorized incentive compensation for the Chief Executive
Officer equal to 10% of the Company's annual earnings (before income taxes
and the incentive payment) in excess of $200,000 for each fiscal year.
Incentive compensation expense for the years ended March 31, 1998 and 1996
was $66,531 and $36,680, respectively. This agreement was not in effect
during the year ended March 31, 1997.
F-15
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
From time to time, the Company is involved in litigation relating to claims
arising in the normal course of its business. The Company maintains
insurance coverage against potential claims in amounts which it believes to
be adequate. Management believes that it is not presently a party to any
litigation, the outcome of which would have a material adverse effect on
the Company's business or operations.
F-16
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ELMER'S RESTAURANTS, INC.
Date: June 18, 1998 By ANITA GOLDBERG
--------------------------------------
Anita Goldberg, President
4
