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, 1999 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. 97216 (503) 252-1485
Portland, Oregon (Zip Code) (Registrant's telephone
(Address of principal number, including area
executive offices) 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 [ ]
Number of shares of Common Stock outstanding at August 5, 1999:
1,586,229
<PAGE> Page 1 of 17
ELMER'S RESTAURANTS, INC.
INDEX
Page
Number
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets,
June 30, 1999 (Unaudited) and
March 31, 1999
Condensed Consolidated Statements of Income, 4
Three months ended June 30, 1999 and 1998
(Unaudited)
Condensed Consolidated Statements of 5
Cash Flows,
Three months ended June 30, 1999
and 1998 (Unaudited)
Notes to Condensed Consolidated Financial 6
Statements (Unaudited)
Item 2. Management's Discussion and Analysis of 7-12
Financial Statements (Unaudited)
Item 3. Quantitative and Qualitative 13
Disclosures about Market Risk
PART II: OTHER INFORMATION AND SIGNATURES
Item 2. Changes in Securities and 14
Use of Proceeds
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE> Page 2 of 17
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
June 30, 1999 March 31, 1999
------------- --------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 892,206 $ 603,572
Accounts receivable 318,334 280,979
Inventories 328,410 372,584
Prepaid expenses and other 136,343 167,177
Income taxes receivable 10,732 107,232
------------- ---------------
Total current assets 1,686,025 1,531,544
Property, buildings and equipment - net 6,794,861 6,882,822
Intangible assets - net 4,489,386 4,503,417
Other assets 124,181 128,901
------------- ---------------
Total assets $ 13,094,453 $ 13,046,684
============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, current portion $ 574,943 $ 572,399
Accounts payable 844,214 839,781
Accrued expenses 154,323 165,140
Accrued payroll and related taxes 295,469 294,170
------------- ---------------
Total current liabilities 1,868,949 1,871,490
Notes payable, net of current portion 5,560,379 5,703,539
Deferred income taxes 773,000 773,000
------------- ---------------
Total liabilities 8,202,328 8,348,029
------------- ---------------
Common stock 4,746,520 4,746,520
Retained earnings 145,605 (47,865)
------------- ---------------
Total shareholders' equity 4,892,125 4,698,655
------------- ---------------
Total liabilities and
shareholders' equity $ 13,094,453 $ 13,046,684
============== ================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> Page 3 of 17
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<C> <C> <C>
For the three months ended
June 30,
1999 1998
---------- -----------
REVENUES: $ 5,436,024 $ 554,736
------------ -----------
COSTS AND EXPENSES:
Cost of restaurant sales
Food and beverage $ 1,598,823 $ 259,651
Labor and related 1,775,121 118,211
Occupancy costs 315,207 36,533
Depreciation and amortization 165,062 3,596
General and administrative expenses 1,149,841 78,798
------------ -----------
5,004,054 496,789
------------ -----------
INCOME FROM OPERATIONS BEFORE
OTHER INCOME (EXPENSE) 431,970 57,947
OTHER INCOME (EXPENSE):
Other income 3,451 0
Interest expense (143,451) (3,126)
------------ -----------
Income before income taxes 291,970 54,821
Provision for income taxes (98,500) 0
------------ -----------
NET INCOME $ 193,470 $ 54,821
============ ===========
PER SHARE DATA:
Net income per share $ .12 $ .07
============ ===========
Weighted - average number of
shares outstanding 1,586,229 770,500
============ ===========
(Unaudited Pro forma Information)
Income before income taxes $ 291,970 54,821
Provision for income taxes (98,500) (18,500)
------------ -----------
Pro forma net income $ 193,470 $ 36,321
============ ===========
Pro forma net income per share $ .12 $ .05
============ ===========
Weighted - average number of
shares outstanding 1,586,229 770,500
============ ===========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE> Page 4 of 17
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<C> <C> <C>
For the three months ended
June 30,
1999 1998
---------- -----------
Cash flows from operating activities:
Net income $ 193,470 $ 54,821
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation 138,358 3,551
Amortization 26,704 45
Changes in assets and liabilities:
Receivables (37,355) (2,274)
Inventories 44,174 15,220
Prepaid expenses 30,834 (27,298)
Income taxes receivable 96,500 0
Other assets 4,720 14,440
Accounts payable and accrued expenses (5,085) 57,503
---------- ------------
Net cash provided by operating activities $ 492,320 $ 116,008
---------- ------------
Cash flows from investing activities:
Additions to property, buildings
and equipment $ (50,397) $ (2,875)
---------- ------------
Net cash used in investing activities (50,397) (2,875)
---------- ------------
Cash flows from financing activities:
Payments on notes payable (140,616) (50,000)
Net change in other non-current assets (12,673) (1,061)
Distributions 0 (44,069)
---------- ------------
Net cash used in financing activities (153,289) (95,130)
---------- ------------
Net increase (decrease) in cash
and equivalents 288,634 18,003
Cash and cash equivalents, beginning of period 603,572 42,189
---------- ------------
Cash and cash equivalents, end of period $ 892,206 $ 60,192
========== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 143,451 $ 3,126
========== ============
Income taxes $ 2,000 $ 0
========== ============
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE> Page 5 of 17
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, 1999 balance sheet was derived from
audited financial statements, 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, 1999, 1998, and 1997,
respectively, included in the Company's Annual Report on Form 10-
K for the year ended March 31, 1999.
The consolidated financial statements as of June 30, 1999,
March 31, 1999 and for the three months ended June 30, 1999
respectively, include only the accounts of Elmer's Restaurants,
Inc. ("Elmer's"), CBW Inc. ("CBW"), and Grass Valley Ltd., Inc.
("GVL"). The financial statements for the three months ended
June 30, 1998 include only the accounts of CBW, Inc.
The following table represents the unaudited pro forma
results of operations for the three months ended June 30, 1998 as
if the acquisition of 53.8% of the outstanding common stock of
Elmer's, the merger of CBW with and into Elmer's and the
acquisition of GVL had occurred at the beginning of the periods.
These pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of what would
have occurred had the acquisitions been made at the beginning of
the respective periods or of results which may occur in the
future.
<TABLE>
<S> <C>
Three Months Ended
June 30, 1998
------------------
Total revenue $ 5,195,000
Income from operations $ 378,000
Income before provision for income taxes $ 239,000
Net income $ 158,000
Net income per share of common stock $ .10
Weighted average number of shares outstanding 1,586,229
Prior to the merger with Elmer's, CBW was taxed for federal
and state income tax purposes as a limited liability company or
as an S corporation from inception. The unaudited pro forma
information reflects benefits (provision) for income taxes that
would have been recorded had CBW been a taxable corporation for
all periods presented.
The results of operations for the three months ended June
30, 1999, are not necessarily indicative of the results that may
be expected for the year ending March 31, 2000, or any other
future interim report.
<PAGE> Page 6 of 17
PART I - Financial Information
Item 1. Financial Statements
Unaudited Interim Financial Statements
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting solely
of normal recurring adjustments) necessary to present fairly the
financial position of Elmer's Restaurants, Inc. and subsidiaries
(the "Company) and their results of operations and cash flows.
This report on Form 10-Q for the fiscal quarter ended June 30,
1999 should be read in conjunction with the Company's Annual
Report to Shareholders on Form 10-K for the fiscal year ended
March 31, 1999.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Elmer's Restaurants, Inc. (the "Company" or "Elmer's"),
located in Portland, Oregon, is a franchisor and operator of
full-service, family oriented restaurants under the names
"Elmer's Pancake & Steak House" and "Elmer's Colonial Pancake &
Steak House" and an operator of delicatessen restaurants under
the names "Ashley's" and "Richard's Deli and Pub." The Company
is an Oregon corporation and was incorporated in 1983. Walter
Elmer opened the first Elmer's restaurant in Portland, Oregon in
1960, and the first franchised restaurant opened in 1966. The
Company acquired the Elmer's franchising operation in January
1984 from the Elmer family. The Company now owns and operates 11
Elmer's restaurants and franchises 18 Elmer's restaurants in six
western states. The Company reports on a fiscal year commencing
April 1 and ending March 31 of the following year.
`On August 25, 1998, CBW, Inc. ("CBW"), a closely held
Oregon corporation, acquired a controlling interest in the then
outstanding common stock of Elmer's. On February 18, 1999, CBW
merged with and into Elmer's. For reasons set out below, these
transactions have been accounted for as a purchase of Elmer's by
CBW and, accordingly a new basis of accounting, based on fair
values, was established for the assets and liabilities of
Elmer's. Subsequent to the acquisition on August 25, 1998, the
Company's financial statements reflect the combined results of
operations and financial position of CBW and Elmer's based on the
new basis of accounting for Elmer's and the historical cost basis
of CBW. Prior to August 25, 1998, the financial statements of
the Company include only the results of operations, financial
position and cash flows of CBW, which began operations on June
16, 1995.
Effective February 18, 1999, the Company merged with its
majority shareholder, CBW, in a transaction in which the Company
was the surviving corporation. The Company acquired all of the
stock and assets of CBW including five Ashley's delis. Effective
March 31, 1999, the Company executed a stock exchange agreement
with Grass Valley Ltd., Inc. ("GVL"), a closely held Oregon
corporation, in a transaction in which the Company acquired 100%
of the outstanding stock of GVL. As a wholly owned subsidiary of
the Company, GVL is the owner and operator of four restaurants in
Hillsboro, Aloha, and Tigard, Oregon operating under the trade
name of "Richard's Deli and Pub."
The acquisition of a controlling interest in Elmer's by CBW
and the GVL acquisition were accounted for under the purchase
method. Elmer's merger transaction with CBW was accounted for as
a reverse acquisition. In accordance with generally accepted
accounting principles, the latter transaction has been accounted
for as a purchase of Elmer's. by CBW and accordingly a new basis
of accounting, based on fair values, was established for the
assets and liabilities of Elmer's. (For more information, see
the Notes to Consolidated Financial Statements included as part
of the Company's Annual Report on Form 10-K for the year ended
March 31, 1999). The consolidated financial statements only
include the accounts of CBW for the three months ended June 30,
1998 (rather than the previously reported results of Elmer's).
Because of the significance of these transactions, the Company
believes that a discussion and analysis of the Company's results
of operations on a pro forma basis, which include consolidated
results of operations of Elmer's, CBW, and GVL, provides a more
meaningful comparison than the discussion and analysis of actual
results of
<PAGE> Page 8 of 17
operations which, prior to these transactions, only includes the
results of operations of CBW and supplements the following
highlights of historical results.
Highlights of Historical Results. The Company reported net
income of approximately $193,470, or $.12 per share for the
quarter ended June 30, 1999, on sales of $5.436 million as
compared to reported net income of approximately $36,321, net of
pro forma income tax provision, or $.05 per share for the first
quarter ended June 30, 1998. The $157,149 increase in net income
is attributable to the addition of earnings from Elmer's and GVL
for the three months ended June 30, 1999 and an improvement in
comparable same store operating performance. The Company's total
assets as at June 30, 1999 were $13.1 million which is an
increase of $47,769 over total assets as at March 31, 1999. In
the three months ended June 30, 1999, working capital increased
$157,022 while notes payable (net of current portion) decreased
$143,160. Cash provided by operating activities totaled $492,320
for the three months ended June 30, 1999 compared to $116,008 for
the three months ended June 30, 1998. The increase in cash
provided from operations is attributable to the addition of
operations from Elmer's and GVL for the three months ended June
30, 1999.
Comparison to Pro Forma Results of Operations. As discussed
above, the Company believes that a discussion and analysis of the
Company's results of operations (which include those of CBW and
GVL) compared on a pro forma basis, provides a more meaningful
comparison than the discussion and analysis of reported actual
results of operations. The following discussion and analysis
presents the Company's results of operations for the three months
ended June 30, 1999 and 1998 respectively, as if the merger of
CBW and the acquisition of GVL had occurred on April 1, 1998
after giving effect to pro forma adjustments, including
amortization of goodwill, depreciation, interest expense, and
related income tax effects. The 1998 pro forma information is
provided for illustrative purposes and is not necessarily
indicative of the combined results of operations that would have
actually occurred for such periods nor does it represent a
forecast of results of operations.
For the three months ended June 30, 1999, the Company's net
income and earnings per share increased 22% over pro forma net
income and earnings per share for the comparable period in 1998.
Net income as a percentage of total revenue increased from 3.0%,
based on pro forma results for the three months ended June 30,
1998, to 3.6% for the quarter ended June 30, 1999.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Dollar amounts in thousands Results of Operations Pro Forma Results of Operations
except per share data For the quarter ended For the quarter ended
June 30, 1999 June 30, 1998
------------- --------------
Percent Percent
Amount of Revenues Amount of Revenues
------ ----------- ------ -----------
Revenue $5,436 100.0% $5,195 100.0%
Restaurant costs and expenses 3,854 70.9 3,575 68.8
General and administrative expenses 1,150 21.2 1,243 23.9
Operating income 432 7.9 378 7.3
Non operating income (expense) (140) (2.6) (139) (2.7)
Net income 193 3.6 158 3.0
Earnings per share $0.12 $0.10
Weighted average shares
outstanding 1,586,229 1,586,229
</TABLE>
<PAGE> Page 9 of 17
<TABLE>
<S>
Dollar amounts in thousands
Revenue Pro Forma Revenue
For the quarter ended For the quarter ended
June 30, 1999 June 30, 1998
------------- -------------
<C> <C> <C> <C>
Percent of Percent of
Amount Revenues Amount Revenues
------ -------- ------ --------
Restaurant operations:
Restaurant sales $4,601 84.6% $4,463 85.9%
Lottery 669 12.3 573 11.0
------ ----- ------ -----
5,270 96.9 5,036 96.9
Franchise operations 166 3.1 159 3.1
------ ----- ------ -----
Total pro forma revenue $5,436 100.0% $5,195 100.0%
====== ====== ====== ======
</TABLE>
Revenues. Revenues for the three months ended June 30, 1999 were
4.6% greater than pro forma revenues for the comparable period in
1998. Revenues from same store restaurant operations and
franchise operations showed an increase of 4.6% over the same pro
forma period ended June 30, 1998. The Company anticipates
further improvement in same store sales as it rolls out a new
menu design in the second quarter of fiscal 2000 and an ongoing
"outsert" menu program throughout fiscal 2000.
Restaurant Costs and Expenses. Restaurant costs and expenses,
which consists of four categories including food, beverage and
supply costs, labor and labor related costs, occupancy costs, and
depreciation and amortization, increased to 70.9% of revenue for
the three months ended June 30, 1999 compared to pro forma 68.8%
for the three months ended June 30, 1998. Food, beverage and
supply costs as a percentage of total revenues were 29.4% for the
three months ended June, 30, 1999 compared to a pro forma 28.4%
for the three months ended June 30, 1998. Labor expenses totaled
32.7% of revenues for three months ended June 30, 1999 compared
to 31.0% of pro forma revenues for the three months ended June
30, 1998. The increase in food, beverage and supply cost as a
percentage of revenue in the first quarter of fiscal 2000 over
pro forma first quarter of fiscal 1999 is principally a result of
the introduction of the new "outsert" menu program and in-store
training, promotions and development. The increase in labor as a
percentage of revenues in the first quarter of 2000 over pro
forma first quarter 1999 is driven by an 8.3% increase in
Oregon's minimum wage rate in 1999 and a 10.7% increase in
Washington's minimum wage rate in 1999. Occupancy costs as a
percentage of revenues dropped from a pro forma 6.3% for the
three months ended June 30, 1998 to 5.8% for the three months
ended June 30, 1999. Depreciation and amortization expense as a
percentage of revenues dropped from a pro forma 3.1% for the
three months ended June 30, 1998 to 3.0% for the three months
ended June 30, 1999. Both decreases are principally attributable
to the 4.6% increase in revenues.
General and Administrative Expenses. General and administrative
("G&A") expenses were 21.2% of total revenue in the first quarter
of 2000 compared to 23.9% of pro forma revenues in the comparable
period in 1999. Increased revenues and management attention
towards overhead cost minimization is responsible for the
reduction in the amount of G&A expenses as a percentage of total
revenues.
<PAGE> Page 10 of 17
Non Operating Income (Expenses). Net interest expenses were 2.6%
of total revenues in the first quarter of fiscal 2000 compared to
2.7% of pro forma total revenues in the comparable period in
fiscal 1999.
Liquidity and Capital Resources. As of June 30, 1999, the
Company had cash and equivalents of approximately $892,206
representing an increase of approximately $289,000. The increase
resulted from cash provided by operations totaling approximately
$492,000, cash used in financing activities of approximately
$153,000, and cash used in investing activities of approximately
$50,400. Cash provided by financing activities was primarily
payments on notes payable of $140,616. Cash used in investing
activities was primarily $50,397 for additions to property,
buildings and equipment.
The Company's primary liquidity needs arise from debt service on
indebtedness, operating lease requirements and the funding of
capital expenditures. As of June 30, 1999, the Company had
outstanding indebtedness for borrowed money of $2.5 million under
a term loan facility and $2.3 million real estate loan facilities
with Wells Fargo Bank and $1.25 million under a term loan
facility with Eagle's View Management Company, Inc. ("EVM"),
assumed at the time of the merger with CBW, Inc. The Wells Fargo
loans have a weighted-average maturity of 9 years, bear interest
at an average of 7.9%, require monthly payments of principal and
interest, are collateralized by substantially all of the assets
owned by Elmer's Restaurants, Inc. and impose certain financial
restrictions and covenants, the most restrictive of which,
require the Company to maintain a maximum of total liabilities,
excluding subordinated debt, to tangible net worth plus
subordinated debt of 5.5 to 1.0. The Company was in compliance
with this covenant as at June 30, 1999. In addition, effective
September 30, 1999, and thereafter on a trailing four quarter
basis as of the end of each fiscal quarter, the Company will be
required to maintain a ratio of cash generation to total interest
expense plus the prior period current maturities of long-term
debt of at least 2.25 to 1.0. The Company also has available a
$250,000 line of credit with Wells Fargo Bank through September
1, 2000. The EVM loan has a maturity of approximately 5 years,
an interest rate of 12%, requires monthly payments of interest
only, and is collateralized by a second position on substantially
all the assets owned by Elmer's Restaurants, Inc. and does not
impose financial covenants upon the Company.
The Company's primary source of liquidity during the year was the
operation of the restaurants, franchise fees earned from its
franchisees, internal cash and borrowings as discussed above.
In the future, the Company's liquidity and capital resources will
primarily depend on the operations of Elmer's Restaurants, Inc.,
CBW, Inc. and Grass Valley Ltd., Inc. which, under the provisions
of the Company's loan agreements, would permit, under certain
conditions, distributions and dividends to the Company's
shareholders and early reduction of the EVM indebtedness.
Elmer's Restaurants, Inc., CBW, Inc. and Grass Valley Ltd., Inc.,
like most restaurant businesses, are able to operate with nominal
or deficit working capital because sales are for cash and
inventory turnover is rapid. Renovation and/or remodeling of
existing restaurants is either funded directly from available
cash or, in some instances, is financed through outside lenders.
Construction or acquisition of new restaurants is generally,
although not always, financed by outside lenders.
The Company believes that it will continue to be able to obtain
adequate financing on acceptable terms for new restaurant
construction and acquisitions and that cash generated from
operations will be adequate to meet its financial needs and to
pay operating expenses for the foreseeable future, although no
assurances can be given.
Effects of Year 2000. The Company has completed its assessment
of internal systems and has concluded that its hardware and
software are Year 2000 compliant. The Company has concluded that
it will not be necessary to replace its retail point of sale
hardware and that, based on information available at this time,
the remaining costs to implement the Year 2000 readiness program
will not be material.
Communication with respect to Year 2000 issues with the Company's
suppliers is ongoing. While not expected, the Company may
experience delays in receipt of product, which could adversely
affect sales and
<PAGE> Page 11 of 17
earnings. The Company cannot currently estimate to what extent
future operating results might be adversely affected by the
possible failure of these third parties to successfully address
their Year 2000 issues. However, the Company's program includes
actions designed to identify and minimize where possible, any
third party exposure. The distribution centers that deliver
products to the restaurants maintain an adequate inventory to
supply items for approximately four weeks. If suppliers are
unable to deliver product to the distribution centers due to Year
2000 or other plant malfunctions, alternative suppliers are
currently being identified that could deliver product that
matches the Company's specifications.
There can be no assurance that additional costs will not be
incurred, or that the objective of the program will be achieved.
However, the Company continues to monitor activities related to
the program designed to ensure Year 2000 readiness.
<PAGE> Page 12 of 17
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
Special Note Regarding Forward-Looking Statements:
CERTAIN STATEMENTS IN THIS FORM 10-Q UNDER "ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" CONSTITUTE "FORWARD-LOOKING STATEMENTS" WHICH WE
BELIEVE ARE REASONABLE AND WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933, AS AMENDED AND THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS RELATING TO THE
COMPANY'S BUSINESS, FINANCIAL CONDITION, AND OPERATIONS WHICH MAY
CAUSE THE ACTUAL RESULTS, PERFORMANCE, OR ACHIEVEMENTS OF ELMER'S
RESTAURANTS, INC. (INDIVIDUALLY AND COLLECTIVELY WITH ITS
SUBSIDIARIES, HEREIN THE "COMPANY") TO BE MATERIALLY DIFFERENT
FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS
INCLUDE, AMONG OTHERS, THE FOLLOWING: GENERAL ECONOMIC AND
BUSINESS CONDITIONS; THE ABILITY TO ACCOMPLISH STATED GOALS AND
OBJECTIVES; SUCCESSFUL INTEGRATION OF ACQUISITIONS; THE IMPACT OF
COMPETITIVE PRODUCTS AND PRICING; SUCCESS OF OPERATING
INITIATIVES; DEVELOPMENT AND OPERATING COSTS; ADVERTISING AND
PROMOTIONAL EFFORTS; ADVERSE PUBLICITY; ACCEPTANCE OF NEW PRODUCT
OFFERINGS; CONSUMER TRIAL AND FREQUENCY; AVAILABILITY, LOCATIONS,
AND TERMS OF SITES FOR RESTAURANT DEVELOPMENT; CHANGES IN
BUSINESS STRATEGY OR DEVELOPMENT PLANS; CHANGES IN REGULATIONS
EFFECTING LOTTERY COMMISSIONS; QUALITY OF MANAGEMENT;
AVAILABILITY, TERMS AND DEPLOYMENT OF CAPITAL; THE RESULTS OF
FINANCING EFFORTS; BUSINESS ABILITIES AND JUDGMENT OF PERSONNEL;
AVAILABILITY OF QUALIFIED PERSONNEL; FOOD, LABOR AND EMPLOYEE
BENEFIT COSTS; CHANGES IN, OR THE FAILURE TO COMPLY WITH,
GOVERNMENT REGULATIONS; IMPACT OF YEAR 2000; CONTINUED NASDAQ
LISTING; WEATHER CONDITIONS; CONSTRUCTION SCHEDULES; AND OTHER
FACTORS REFERENCED IN THIS FORM 10-Q.
The Company holds no financial instruments of any kind for
trading purposes. Certain of the Company's outstanding financial
instruments are subject to market risks, including interest rate
risk. Such financial instruments are not currently subject to
foreign currency risk or commodity price risk. The Company's
major market risk exposure is potential loss arising from
changing interest rates and the impact of such changes on its
long-term debt. Of the Company's long-term debt outstanding as at
June 30, 1999, $1.3 million principal amount was accruing
interest at a variable rate of LIBOR plus 2.75%. A rise in
prevailing interest rates could have adverse effects on the
Company's financial condition and results of operations.
Principal Amount by Expected Maturity
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair
Fiscal Year: There- Value
(dollars in thousands) 2000 2001 2002 2003 2004 after Total 6/30/99
- ------------------------------------------------------------------------------------------
Variable rate debt 177.3 236.4 236.4 236.4 236.4 118.2 1,241.0 1,241.0
Average Interest Rate -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2.75% above LIBOR 7.7% 7.7% 7.7% 7.7% 7.7% 7.7%
</TABLE>
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
Securities Sold
(c) The following unregistered securities were issued by the
Company during the three months ended June 30, 1999:
<TABLE>
<S> <C> <C> <C>
Date of Description of Number of Shares Offering/Exercise
Sale/Issuance Securities Issued Sold/Issued/Subject Price Per Share
to Options or Warrants
- -------------- ----------------- ---------------------- ------------------
April 21, 1999 Common Stock Options 100,000 $6.25
</TABLE>
<PAGE> Page 13 of 17
All of the above options were granted to employee directors
pursuant to the 1999 Stock Option Plan. The options so granted
(which are non-qualified stock options) will be fully vested on
March 30, 2000. The issuance of these securities is claimed to be
exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended, as transactions by an issuer
not involving a public offering. There were no underwriting
discounts or commissions paid in connection with the issuance of
any of these securities.
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 30, 2000 (45 days prior to the month and
date in 2000 corresponding to the date on which the Company
mailed its proxy materials for the 1999 annual meeting), proxy
voting on that proposal when and if raised at the 2000 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
2000 annual meeting must be received at the principal executive
office of the Company no later than February 5, 2000.
Item 6. Exhibits and Reports of Form 8-K
a) Exhibits:
Exhibits required to be attached by Item 601 of
Regulation S-K are listed in the Index to Exhibits of this Form
10-Q, and are incorporated herein by this reference.
b) Reports on Form 8-K:
(i) Current Report on Form 8-K/A dated June 14, 1999
and filed June 15, 1999 (amending and restating the Company's
Current Report on Form 8-K dated February 18, 1999 and filed
March 5, 1999), This Report on Form 8-K/A disclosed the merger of
Elmer's Restaurants, Inc. with its majority shareholder, CBW,
Inc., and presented the historical financial statements of CBW,
Inc. and the unaudited pro forma combined financial statements of
CBW, Inc. and Elmer's Restaurants, Inc.
(ii) Current Report on Form 8-K/A dated June 14, 1999
and filed June 15, 1999 (amending and restating the Company's
Current Report on Form 8-K dated March 31, 1999 and filed April
15, 1999). This Report on Form 8-K/A disclosed the Company's
acquisition of Grass Valley, Ltd., Inc. ("GVL") and presented the
audited financial statements of GVL and the unaudited pro forma
combined financial statements for Elmer's Restaurants, Inc. and
GVL.
<PAGE> Page 14 of 17
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, Elmer's Restaurants, Inc. has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Elmer's Restaurants, Inc.
By: /s/ WILLIAM W. SERVICE
----------------------
William W. Service
Chief Executive Officer
By: /s/ JUANITA NELSON
-----------------------
Juanita Nelson,
Secretary/Controller
Dated: August 12, 1999
<PAGE> Page 15 of 17
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
3 (i) * Restated Articles of Incorporation of the Company
(Incorporated herein by reference from Exhibit No. 3.1 to the
Company's Annual Report on Form 10-K for the year ended March 31,
1988.)
3 (ii) * By-Laws of the Company, as amended. (Incorporated
herein by reference from Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the year ended March 31, 1990.)
27 Financial Data Schedule 16
<PAGE> Page 16 of 1
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
ELMER'S RESTAURANT'S, INC.
10-Q DATA
Financial Data Schedule
<TABLE>
<S> <C>
PERIOD TYPE: THREE MONTHS
Quarter End JUN-30-99
Period Start APR-01-99
Period End JUN-30-99
Cash 892,206
Securities -
Receivables 323,334
Allowances (5,000)
Inventory 328,410
Current Assets 1,686,025
FF&E 14,937,965
Depreciation (8,143,104)
Total Assets 13,094,453
Current Liabilities 1,868,949
Bonds, MTGS 5,560,379
Common 4,746,520
Preferred Mandatory -
Preferred -
Other SE 145,605
Total Liability and Equity 13,094,453
Sales 4,600,968
Total Revenues 5,436,024
CGS 3,854,213
Total Costs 5,004,054
Other Expenses -
Loss Provision -
Interest Expense 143,451
Income Pretax 291,970
Income Tax 98,500
Income Continuing 193,470
Discontinued -
Extraordinary -
Changes -
Net Income 193,470
EPS Primary 0.12
EPS Diluted 0.12
<PAGE> Page 17 of 17
26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000771214
<NAME> ELMER'S RESTAURANTS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 892,206
<SECURITIES> 0
<RECEIVABLES> 323,334
<ALLOWANCES> (5,000)
<INVENTORY> 328,410
<CURRENT-ASSETS> 1,686,025
<PP&E> 14,937,965
<DEPRECIATION> (8,143,104)
<TOTAL-ASSETS> 13,094,453
<CURRENT-LIABILITIES> 1,868,949
<BONDS> 5,560,379
0
0
<COMMON> 4,746,520
<OTHER-SE> 145,605
<TOTAL-LIABILITY-AND-EQUITY> 13,094,453
<SALES> 4,600,968
<TOTAL-REVENUES> 5,436,024
<CGS> 3,854,213
<TOTAL-COSTS> 5,004,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143,451
<INCOME-PRETAX> 291,970
<INCOME-TAX> 98,500
<INCOME-CONTINUING> 193,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 193,470
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.12
</TABLE>
