SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 S.E. Stark St.
P.O. Box 16938
Portland, Oregon 97292-0938
(Address of principal executive offices) (Zip Code)
(503) 252-1485
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock outstanding at August 4, 1998: 1,311,109
<PAGE>
ELMER'S RESTAURANTS, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, 1
June 30, 1998 (Unaudited) and
March 31, 1998
Condensed Consolidated Statements of Income, 2
three months ended June 30, 1998, and 1997
(Unaudited)
Condensed Consolidated Statements of Cash Flows, 3
three months ended June 30, 1998 and 1997
(Unaudited)
Notes to Condensed Consolidated Financial 4-5
Statements (Unaudited)
Item 2. Management's Discussion and Analysis of 6-8
Financial Condition and Results of Operations
PART II. OTHER INFORMATION AND SIGNATURES
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
<TABLE>
<CAPTION>
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1998 March 31, 1998
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,581,413 $ 1,875,136
Accounts receivable 177,634 140,717
Note receivable-current portion 81,033 81,033
Inventories 227,498 216,537
Prepaid expenses and deposits 148,372 101,425
----------- -----------
Total current assets 2,215,950 2,414,848
Property, buildings and equipment - net 4,807,955 4,696,507
Intangible assets - net 957,797 973,643
Note receivable-long-term portion 14,024 16,709
Other assets 88,325 78,903
----------- -----------
Total assets $ 8,084,051 $ 8,180,610
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable - current portion $ 392,766 $ 405,266
Accounts payable 617,247 612,107
Accrued expenses 322,877 359,229
Accrued income taxes 115,887 195,387
----------- -----------
Total current liabilities 1,448,777 1,571,989
Long-term liabilities 2,990,809 3,101,284
----------- -----------
Total liabilities 4,439,586 4,673,273
----------- -----------
Common stock 1,417,034 1,417,034
Retained earnings 2,227,431 2,090,303
----------- -----------
Total shareholders' equity 3,644,465 3,507,337
----------- -----------
Total liabilities and shareholders' equity $ 8,084,051 $ 8,180,610
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
(1)
<PAGE>
<TABLE>
<CAPTION>
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
June 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Restaurant sales $ 3,970,948 $ 3,918,382
Franchise operations 158,945 153,327
Video poker - Net revenues 58,112 31,698
----------- -----------
4,188,005 4,103,407
----------- -----------
COSTS AND EXPENSES:
Cost of restaurant sales
Food and beverage 1,063,428 1,061,929
Labor and related 1,371,582 1,354,295
Occupancy costs 245,233 244,792
Depreciation and amortization 177,503 163,569
General and administrative expenses 1,065,070 961,894
----------- -----------
3,922,816 3,786,479
----------- -----------
INCOME FROM OPERATIONS
BEFORE OTHER INCOME (EXPENSE) 265,189 316,928
OTHER INCOME (EXPENSE):
Other income 17,981 15,760
Interest expense (75,542) (85,199)
----------- -----------
Income before income taxes 207,628 247,489
Provision for income taxes (70,500) (84,145)
----------- -----------
NET INCOME $ 137,128 $ 163,344
=========== ===========
PER SHARE DATA:
Net income $ .10 $ .12
=========== ===========
Weighted average number of
common shares outstanding 1,311,109 1,404,686
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
(2)
<PAGE>
<TABLE>
<CAPTION>
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
June 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 137,128 $ 163,344
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 157,350 141,375
Amortization 20,153 22,194
Changes in assets and liabilities:
Receivables (36,917) (43,607)
Inventories (10,961) 4,488
Prepaid expenses (46,947) (17,754)
Accounts payable and accrued expenses (31,212) (103,200)
Accrued income taxes (79,500) 32,395
----------- -----------
Net cash provided by operating activities 109,094 405,635
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment (268,798) (108,344)
----------- -----------
Net cash used by investing activities (268,798) (108,344)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in other non-current assets (11,044) (3,680)
Payments on notes payable (122,975) (140,674)
----------- -----------
Net cash used in financing activities (134,019) (144,354)
----------- -----------
Net increase (decrease) in cash and cash equivalents (293,723) 152,937
Cash and cash equivalents, beginning of period 1,875,136 1,678,876
----------- -----------
Cash and cash equivalents, end of period $ 1,581,413 $ 1,831,813
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 75,542 $ 85,199
=========== ===========
Income taxes $ 150,000 $ 67,500
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
(3)
<PAGE>
ELMER'S RESTAURANTS, INC.
-------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared by
Elmer's Restaurants, Inc, ("The Company") in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in accordance with such rules and regulations. The March 31, 1998,
balance sheet was derived from audited financial statement, but does not include
all of the disclosures required by generally accepted accounting principles. In
the opinion of management, the accompanying unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company, and its
results of operations and cash flows. These financial statements should be read
in conjunction with the audited financial statements and notes thereto for the
years ended March 31, 1998, 1997 and 1996, included in the Company's Annual
Report on Form 10-K for the year ended March 31, 1998.
The results of operations for the three months ended June 30, 1998, are not
necessarily indicative of the results that may be expected for the year ending
March 31 1999, or any other future interim report.
2. Impact of Recently Issued Accounting Standards
Recent Accounting Pronouncements. On January 1, 1998, the Company adopted
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes requirements for disclosure of comprehensive income. The objective
of SFAS 130 is to report a measure of all changes in equity that result from
transactions and economic events other than transactions with owners.
Comprehensive income is the total of net income and all other non-owner changes
in equity. Comprehensive income did not differ from reported net income in the
periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). This statement will change
the way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their 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 earns revenues and its major
customers. This statement is effective for fiscal years beginning after December
15, 1997, but is not required to be presented in interim financial information
in the year of adoption.
(4)
<PAGE>
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS 132"). This statement
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plants. The
statement suggests combined formats for presentation of pension and other
postretirement benefit disclosures. This statement is effective for fiscal years
beginning after December 15, 1997, but is not required to be presented in
interim financial information in the year of the adoption.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 also requires that changes in the derivative
instrument's fair value be recognized currently in results of operations unless
specific hedge accounting criteria are met. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999.
The Company's management has studied the implications of SFAS 131 and SFAS
132, and based on the initial evaluation, expects the adoption to have no impact
on the Company's financial condition or results of operations, but will require
revised disclosures when the respective statements become effective. The
Company's management has studied the implications of SFAS 133 and based on the
initial evaluation, expects the adoption to have no impact on the Company's
financial condition or results of operations.
(5)
<PAGE>
ELMER'S RESTAURANTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
FINANCIAL CONDITION
The Company's working capital at June 30, 1998 totaled $767,173, which is a
decrease of $75,686 from working capital of $842,859 at March 31, 1998. The
decrease was due primarily to the acquisition of equipment for and the
refurbishment of existing Company owned restaurants.
Cash provided by operations totaled $109,094 for the three months ended
June 30, 1998, compared to $405,635 for the three months ended June 30, 1997.
The decrease in cash provided from operations in the three months ended June 30,
1998 was primarily the result of increased receivables, inventories, prepaid
expense, and decreased accrued liabilities and income taxes, compared to the
same period in the prior year. Cash used to repay indebtedness was $122,975 for
the three months ended June 30, 1998. Cash used to acquire assets was $268,798
for the three months ended June 30, 1998, primarily for the acquisition of
equipment for and improvements to the Company's existing restaurants.
The Company believes that the cash and cash equivalents on hand at June 30,
1998, together with funds provided by operations, will be sufficient to fund the
Company's continuing operations.
RESULTS OF OPERATIONS
Revenues
Revenues increased $84,598 (2.1%) for the three months ended June 30, 1998
(the first quarter of the Company's fiscal year), compared to the corresponding
period for the prior year. This increase resulted from a $52,566 (1.3%) increase
in revenues from restaurant sales and a $26,414 increase in net revenues from
video poker. Revenues from the franchise operations increased $5,618 (3.7%)
compared to the corresponding period of the prior year.
Costs and Expenses
Costs and expenses increased $136,337 (3.6%) for the three months ended
June 30, 1998, compared to the three months ended June 30, 1997, primarily due
to increased costs related to the operation of the company-owned restaurants and
increased general and administrative expenses. Food and beverage costs of
restaurant sales increased $1,499. As a percentage of restaurant sales, food and
beverage was 26.8% for the three months ended June 30, 1998 compared to 27.1%
for the three months ended June 30, 1997. Labor and labor related cost of
restaurant sales increased $17,287 for the three months ended June 30, 1998
compared to the three months ended June 30, 1997. As a percentage of restaurant
sales the labor and labor related costs were $1,371,582 (34.5%) for the three
months ended June 30, 1998 compared to $1,354,295 (34.6%) for the three months
ended
(6)
<PAGE>
June 30, 1997. Occupancy costs increased $441 for the three months ended June
30, 1998 compared to the three months ended June 30, 1997. Depreciation and
amortization increased $13,934 (8.5%) for the three months ended June 30, 1998,
compared to the same period of fiscal 1998 due to the acquisition of equipment
and refurbishment of some of the Company restaurants. General and administrative
expenses are comprised of the costs of operating the corporate offices of the
Company and administrative costs of the Company-owned restaurants. General and
administrative expenses as a percentage of revenues were 25.4% for the three
months ended June 30, 1998, compared to 23.4% for the same period of the prior
year. General and administrative costs increased due primarily to increased
employee costs and increased corporate operating expenses.
Income From Operations
Income from operations for the three months ended June 30, 1998 decreased
$51,739 (16.3%) compared to the three months ended June 30, 1997, due to overall
increased operating expenses of the Company-owned restaurants.
Other Income and Expenses
Other income increased $2,221 (14.1%) for the three months ended June 30,
1998, compared to the three months ended June 30, 1997, due primarily to the
increase of the rates of return on investments.
Interest expense decreased $9,657 (11.3%) for the three months ended June
30, 1998 compared to the three months ended June 30, 1997, due primarily to the
reduction of principle balance of outstanding debt.
Income Taxes
The Company's income tax rate was 34% of income before income taxes for the
three months ended June 30, 1998 and 1997.
Recent Accounting Pronouncements
On January 1, 1998, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes requirements for
disclosure of comprehensive income. The objective of SFAS 130 is to report a
measure of all changes in equity that result from transactions and economic
events other than transactions with owners. Comprehensive income is the total of
net income and all other non-owner changes in equity. Comprehensive income did
not differ from reported net income in the periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). This statement will change
the way public companies report information about segments of their business in
their annual financial statements
(7)
<PAGE>
and requires them to report selected segment information in their 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 earns revenues and its major customers. This statement is
effective for fiscal years beginning after December 15, 1997, but is not
required to be presented in interim financial information in the year of
adoption.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS 132"). This statement
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plants. The
statement suggests combined formats for presentation of pension and other
postretirement benefit disclosures. This statement is effective for fiscal years
beginning after December 15, 1997, but is not required to be presented in
interim financial information in the year of the adoption.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 also requires that changes in the derivative
instrument's fair value be recognized currently in results of operations unless
specific hedge accounting criteria are met. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999.
The Company's management has studied the implications of SFAS 131 and SFAS
132, and based on the initial evaluation, expects the adoption to have no impact
on the Company's financial condition or results of operations, but will require
revised disclosures when the respective statements become effective. The
Company's management has studied the implications of SFAS 133 and based on the
initial evaluation, expects the adoption to have no impact on the Company's
financial condition or results of operations.
(8)
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On July 15, 1998, at the Company's Annual Meeting, the holders of the
Company's outstanding Common Stock took the action described below. At July 15,
1998, 1,311,109 shares of Common Stock were issued and outstanding and eligible
to vote at the Annual Meeting.
The shareholders elected each of Anita Goldberg, Paul Welch, Zadoc
(Zed) Merrill and Rudolph (Rudy) Mazurosky to the Company's Board of Directors,
by the votes indicated below, to serve for the ensuring year.
Anita Goldberg
--------------
1,103,751 shares in favor
118,700 shares against or withheld
Paul Welch
----------
1,103,651 shares in favor
118,800 shares against or withheld
Zadoc (Zed) Merrill
-------------------
1,103,651 shares in favor
118,800 shares against or withheld
Rudolph (Rudy) Mazurosky
------------------------
1,103,851 shares in favor
118,600 shares against or withheld
Item 5. Other Information
In accordance with amendments adopted on May 21, 1998 to Rule 14a-4
under the Securities and Exchange Act of 1934, if notice of a shareholder
proposal to be raised at the annual meeting of shareholders is received at the
principal executive offices of the Company after May 1, 1999 (45 days prior to
the month and date in 1999 corresponding to the date on which the Company mailed
its proxy materials for the 1998 annual meeting), proxy voting on that proposal
when and if raised at the 1999 annual meeting will be subject to the
discretionary voting authority of the designated proxy holders. Any shareholder
proposal to be considered for inclusion in proxy materials for the Company's
1999 annual meeting must be received at the principal executive office of the
Company no later than February 5, 1999.
(9)
<PAGE>
Item. 6. Exhibits and Reports of Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports of Form 8-K
None
(10)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1998 ELMER'S RESTAURANTS, INC.
By /s/ ANITA GOLDBERG
--------------------------------------
Anita Goldberg, President
By /s/ JUANITA NELSON
--------------------------------------
Juanita Nelson, Secretary/Controller
(Principal Accounting Officer)
(11)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,581,413
<SECURITIES> 0
<RECEIVABLES> 263,667
<ALLOWANCES> (5,000)
<INVENTORY> 227,498
<CURRENT-ASSETS> 2,215,950
<PP&E> 12,276,677
<DEPRECIATION> 7,468,722
<TOTAL-ASSETS> 8,084,051
<CURRENT-LIABILITIES> 1,448,777
<BONDS> 2,950,809
0
0
<COMMON> 1,417,034
<OTHER-SE> 2,227,431
<TOTAL-LIABILITY-AND-EQUITY> 8,084,051
<SALES> 4,029,060
<TOTAL-REVENUES> 4,188,005
<CGS> 2,435,010
<TOTAL-COSTS> 3,922,816
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,542
<INCOME-PRETAX> 207,628
<INCOME-TAX> 70,500
<INCOME-CONTINUING> 137,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,128
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
