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 December 31, 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.
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 __
Number of shares of Common Stock outstanding at February 5, 2000:
1,665,553
ELMER'S RESTAURANTS, INC.
-------------------------
INDEX
Page
Number
------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets,
December 31, 1999 (Unaudited) and
March 31, 1999
Condensed Consolidated Statements of Income, 4
Nine months and three months ended
December 31, 1999 and 1998 (Unaudited)
Condensed Consolidated Statements of 5
Cash Flows, Nine months ended
December 31, 1999 and 1998 (Unaudited)
Notes to Condensed Consolidated 6
Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of 7-12
Financial Statements (Unaudited)
Item 3. Quantitative and Qualitative Disclosures 11
about Market Risk
PART II: OTHER INFORMATION AND SIGNATURES
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C>
<C>
December 31, 1999
March 31, 1999
----------------- --
- - ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,526,221 $
603,572
Accounts receivable 125,758
280,979
Inventories 343,055
372,584
Prepaid expenses and other 253,980
167,177
Income taxes receivable -
107,232
---------------- -
- - -----------
Total current assets 2,249,014
1,531,544
Property, buildings and equipment-net 6,674,311
6,882,822
Intangible assets - net 4,403,489
4,503,417
Other assets 126,464
128,901
---------------- -
- - -----------
Total assets $ 13,453,278 $
13,046,684
================
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, current portion $ 580,199 $
572,399
Accounts payable 758,298
839,781
Accrued expenses 229,832
165,140
Accrued payroll and related taxes 209,528
294,170
Accrued income taxes 223,816
- - -
---------------- -
- - -----------
Total current liabilities 2,001,673
1,871,490
Notes payable, net of current portion 5,269,387
5,703,539
Deferred income taxes 773,000
773,000
---------------- -
- - -----------
Total liabilities 8,044,060
8,348,029
---------------- -
- - -----------
Common stock 4,746,520
4,746,520
Retained earnings (accumulated deficit) 662,698
(47,865)
---------------- -
- - -----------
Total shareholders' equity 5,409,218
4,698,655
---------------- -
- - -----------
Total liabilities and
shareholders' equity $ 13,453,278 $
13,046,684
================
============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<S> <C> <C>
Nine Months Ended
December 31,
---------------------------
- - ---------
1999
1998
--------------- ------
- - ---------
REVENUES: $ 16,621,041 $
7,276,679
--------------- ------
- - ---------
COSTS AND EXPENSES:
Cost of restaurant sales
Food and beverage 4,745,631
2,110,488
Labor and related 5,288,300
2,260,167
Occupancy costs 940,778
460,390
Depreciation and amortization 506,444
243,789
General and administrative expenses 3,688,992
1,533,204
--------------- ------
- - ---------
15,170,145
6,608,038
--------------- ------
- - ---------
INCOME FROM OPERATIONS
BEFORE OTHER INCOME (EXPENSE) 1,450,896
668,641
OTHER INCOME (EXPENSE):
Other income 52,136
14,339
Interest expense (427,521)
(259,569)
Gain on disposition of assets 1,100
9,977
--------------- ------
- - ---------
Income before income taxes 1,076,611
433,388
Provision for income taxes (366,048)
(121,735)
--------------- ------
- - ---------
Income Before Minority Interest 710,563
311,653
Minority Interest -
(109,824)
Net Income $ 710,563 $
201,829
================
===============
PER SHARE DATA:
Net income per share - Basic $ 0.43 $
0.25
================
===============
Weighted average number of
common shares outstanding - Basic 1,665,553
809,025
================
===============
Net income per share - Diluted $ 0.41 $
0.25
--------------- ------
- - ---------
Weighted average number of
common shares outstanding - Diluted 1,714,897
809,025
--------------- ------
- - ---------
(Unaudited Pro forma
Information)
Income before income taxes $ 1,076,611 $
433,388
Provision for income taxes (366,048)
(147,352)
Minority interest -
(109,824)
--------------- ------
- - ---------
Pro forma net income $ 710,563
176,212
================
===============
Pro forma net income per share - Basic $ 0.43 $
0.22
================
===============
Weighted average number of
common shares outstanding - Basic 1,665,553
809,025
================
===============
Pro forma net income per share - Diluted $ 0.41 $
0.22
================
===============
Weighted average number of
common shares outstanding - Diluted 1,714,897
809,025
================
===============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
<TABLE>
<S> <C> <C>
Three Months Ended
December 31,
---------------------------
- - ---------
1999
1998
--------------- ------
- - ---------
REVENUES: $ 5,584,290 $
4,858,711
--------------- ------
- - ---------
COSTS AND EXPENSES:
Cost of restaurant sales
Food and beverage 1,508,125
1,276,235
Labor and related 1,751,057
1,552,046
Occupancy costs 307,909
303,177
Depreciation and amortization 170,892
178,319
General and administrative expenses 1,315,947
1,113.025
--------------- ------
- - ---------
5,053,930
4,422,802
--------------- ------
- - ---------
INCOME FROM OPERATIONS
BEFORE OTHER INCOME (EXPENSE) 530,360
435,909
OTHER INCOME (EXPENSE):
Other income 36,235
7,803
Interest expense (143,164)
(179,424)
Gain on disposition of assets 1,100
25
--------------- ------
- - ---------
Income before income taxes 424,531
264,313
Provision for income taxes (144,737)
(95,160)
--------------- ------
- - ---------
Income Before Minority Interest 279,794
169,153
Minority Interest
(85,837)
--------------- ------
- - ---------
Net Income $ 279,794
83,316
================
===============
PER SHARE DATA:
Net income per share - Basic $ 0.17 $
0.10
================
===============
Weighted average number of
common shares outstanding - Basic 1,665,553
809,025
================
===============
Net income per share - Diluted $ 0.16 $
0.10
--------------- ------
- - ---------
Weighted average number of
common shares outstanding - Diluted 1,703,945
809,025
--------------- ------
- - ---------
(Unaudited Pro forma
Information)
Income before income taxes $ 424,531 $
264,313
Provision for income taxes (144,737)
(89,866)
Minority interest -
(85,837)
--------------- ------
- - ---------
Pro forma net income $ 279,794
88,610
================
===============
Pro forma net income per share - Basic $ 0.17 $
0.11
================
===============
Weighted average number of
common shares outstanding - Basic 1,665,553
809,025
================
===============
Pro forma net income per share - Diluted $ 0.16 $
0.11
================
===============
Weighted average number of
common shares outstanding - Diluted 1,703,945
809,025
================
===============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
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<C>
For the nine
months ended
December
31,
1999
1998
------------
- - ------------
Cash flows from operating activities
Net income $ 710,563
$ 201,829
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 506,444
243,789
Minority Interest -
109,824
Changes in assets and liabilities:
Receivables 155,221
118,429
Inventories 29,529
(21,195)
Prepaid expenses and other (86,803)
(30,636)
Other assets 2,437
15,705
Accounts payable and accrued expenses (101,433)
(35,906)
Income taxes 331,048
8,068
------------
- - ------------
Net cash provided by operating activities 1,547,006
609,907
------------
- - ------------
Cash flows from investing activities:
Additions to property, buildings equipment
and intangible assets (194,105)
(269,565)
Additions to intangible assets (5,000)
(1,000)
Business acquisition, net of cash acquired -
(3,176,018)
Proceeds from sale of assets 1,100
10,940
------------
- - ------------
Net cash used in investing activities (198,005)
(3,435,643)
------------
- - ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable -
4,000,000
Proceeds from sale of CBW, Inc. common stock -
600,000
Payments on notes payable (426,352)
(155,096)
Net change in other non current assets -
2,086
Distributions -
(44,035)
------------
- - ------------
Net cash provided (used) by
financing activities (426,352)
4,402,955
------------
- - ------------
Net increase in cash and cash equivalents 922,649
1,577,219
Cash and cash equivalents, beginning of period 603,572
42,189
------------
- - ------------
Cash and cash equivalents, end of period $ 1,526,221 $
1,619,408
===========
============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 427,521
$ 259,569
============
============
Income taxes $ 37,000
$ -
============
============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
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" or
"Elmer's") 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.
All net income per share amounts and weighted average number
of common shares outstanding have been retroactively adjusted to
reflect the 5% stock dividend which occurred in November 1999.
The consolidated financial statements as of December 31,
1999 and March 31, 1999 and for the three months and nine months
ended December 31, 1999 respectively, include the accounts of
Elmer's Restaurants, Inc. ("Elmer's"), CBW Inc. ("CBW," including
its wholly-owned subsidiary, CBW Food Company LLC), and Grass
Valley Ltd., Inc. ("GVL").
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 provisions for income taxes that would have
been recorded had CBW been a taxable C-corporation for all
periods presented.
The following table represents the unaudited pro forma
results of operations for the three months and nine months ended
December 31, 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> <C>
Three months ended Nine
Months ended
December 31, 1998
December 31, 1998
------------------ -----
- - ------------
Total revenue $5,415,000
$15,919,000
Income from operations 516,000
1,289,000
Income before provision for
income taxes 378,000
909,000
Net income 250,000
602,000
Net income per share of
common stock .15
.36
Weighted average number of
shares outstanding 1,665,553
1,665,553
</TABLE>
The results of operations for the three months and nine
months ended December 31, 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.
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 December
31, 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 name "Elmer's
Breakfast. Lunch. Dinner." 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, 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 30, 1999). For reasons related to purchase accounting
treatment, the consolidated financial statements for the three
months and nine months ended December 31, 1998 only include the
accounts of CBW and the results of operations of Elmer's from
August 31, 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 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 $280,000 and $711,000, or $.17 and $.43
per share for the three and nine month periods ended December 31,
1999. These results are compared to net income of approximately
$89,000 and $176,000, net of pro forma income tax provision, or
$.11 and $.22 per share for the three and nine month periods
ended December 31, 1998. The approximately $191,000 and $535,000
increases in net income for the three and nine months ended
December 31, 1999 are attributable to the addition of earnings
from Elmer's and GVL, and an improvement in comparable same store
operating performance. The Company's total assets as at December
31, 1999 were $13.5 million which is an increase of $406,594 over
total assets as at March 31, 1999. In the nine months ended
December 31, 1999, working capital increased $587,287 while notes
payable (net of current portion) decreased $434,152. Cash
provided by operating activities totaled $1,547,006 for the nine
months ended December 31, 1999 compared to $609,907 for the nine
months ended December 31, 1998. The increase in cash provided
from operations is attributable to the addition of operations
from Elmer's and GVL for the nine months ended December 31, 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 and
nine month periods ended December 31, 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 future results.
The Company's net income and basic earnings per share increased
12% and 18% over pro forma net income and basic earnings per
share for the three and nine month comparable periods in 1998.
Net income as a percentage of total revenue increased from 4.6%
and 3.8%, based on pro forma results for the three and nine
months ended December 31, 1998, to 4.9% and 4.3% for the three
and nine month period ended December 31, 1999 respectively.
<TABLE>
<C> <C> <C>
Dollar amounts in thousands Pro Forma
Results of
except per share data Results of Operations
Operations For nine
For nine months ended months
ended
December 31, 1999 December
31, 1998
--------------------- ---------
- - -----------
Percent of
Percent of
Amount Revenues Amount
Revenues
------- ---------- -------
- - ----------
Revenue $16,621 100.0% $15,919
100.0%
Restaurant costs and
expenses 11,481 69.1 11,029
69.3
General and administrative
expenses 3,689 22.2 3,601
22.6
Operating income 1,451 8.7 1,289
8.1
Non operating income
(expense) (374) (2.3) (381)
(2.4)
Net income 711 4.3 602
3.8
Earnings per share - Basic $0.43 $0.36
Weighted average shares
outstanding 1,665,553 1,665,553
</TABLE>
<TABLE>
<C> <C> <C>
Dollar amounts in thousands Pro Forma
Results of
except per share data Results of Operations
Operations for the
For the quarter ended quarter
ended
December 31, 1999 December
31, 1998
--------------------- ---------
- - -----------
Percent of
Percent of
Amount Revenues Amount
Revenues
------- ---------- -------
- - ----------
Revenue $ 5,684 100.0% $ 5,415
100.0%
Restaurant costs and
expenses 3,738 65.8 3,743
69.1
General and administrative
expenses 1,316 23.2 1,156
21.3
Operating income 530 9.3 516
9.5
Non operating income
(expense) (106) (1.9) (138)
(2.5)
Net income 280 4.9 250
4.6
Earnings per share - Basic $0.17 $0.15
Weighted average shares
outstanding 1,665,553 1,665,553
</TABLE>
Revenues. Revenues for the three and nine months ended December
31, 1999 were 5.0% and 4.4% greater respectively than pro forma
revenues for the comparable period in 1998. Revenues from same
store restaurant operations showed an increase of 3.1% and 4.5%
for the three and nine months ended December 31, 1999 over pro
forma revenues for the comparable period in 1998. The Company
anticipates further improvement in same store sales as it
realizes sales improvements from the system-wide roll out of a
new menu this quarter 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, decreased to 65.8% and 69.1% of
revenue for the three and nine months ended December 31, 1999
respectively compared to pro forma 69.1% and 69.3% for the three
and nine months ended December 31, 1998. Food, beverage and
supply costs as a percentage of total revenues were 27.0% and
28.6% for the three and nine months ended December 31, 1999
compared to a pro forma 28.8% and 29.1% for the comparable period
in 1998. Labor expenses totaled 31.5% and 31.8% of revenues for
the three and nine months ended December 31, 1999 compared to
31.1% and 31.0% of pro forma revenues for the three and nine
months ended December 31, 1998. The increase in labor as a
percentage of revenues in fiscal year 2000 over 1999 is driven by
an 8.3% increase in Oregon's minimum wage rate that went into
effect in the forth quarter of fiscal year 1999 and one-time
labor expenses associated with the new menu roll-out and
training. Occupancy costs as a percentage of revenues dropped
from a pro forma 6.2% for the three and nine months ended
December 31, 1998 to 5.5% and 5.7% for the three and nine months
ended December 31, 1999. Depreciation and amortization expense as
a percentage of revenues went from a pro forma 3.1% for both the
three and nine months ended December 31, 1998 to 3.1% and 3.0%
for the three and nine months ended December 31, 1999.
General and Administrative Expenses. General and administrative
("G&A") expenses were 23.2% and 22.2% of total revenues for the
three and nine months ended December 31, 1999 compared to 21.3%
and 22.6% of pro forma revenues in the comparable period in 1998.
Increased revenues and management attention towards overhead cost
minimization are responsible for the reduction in the amount of
G&A expenses as a percentage of total revenues for the year. The
roll-out of the new Elmer's menu along with associated travel and
training costs contributed to modestly higher G&A expenses for
the quarter.
Non Operating Income (Expenses). Non operating income (expense)
was (1.9%) and (2.3%) of total revenues for the three and nine
months ended December 31, 1999 compared to (2.5%) and (2.4%) of
pro forma total revenues in the comparable periods in 1998.
Liquidity and Capital Resources. As of December 31, 1999, the
Company had cash and equivalents of approximately $1,526,221
representing an increase of approximately $922,649 for the nine
months ending December 31, 1999. The increase resulted from cash
provided by operations totaling approximately $1,547,000, cash
used in financing activities of approximately $426,000, and cash
used in investing activities of approximately $198,000. Cash
used by financing activities was primarily payments on notes
payable of $426,000. Cash used in investing activities was for
additions to property, buildings and equipment, and tenant
improvements.
The Company's primary liquidity needs arise from debt
service on indebtedness, operating lease requirements and the
funding of capital expenditures. As of December 31, 1999, the
Company had outstanding indebtedness for borrowed money of $2.25
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. The Wells
Fargo loans have a weighted-average maturity of seven years, bear
interest at an average of 8.5%, 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 Company was in
compliance with these covenants as of December 31, 1999. 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 four years, an interest rate of 15%,
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 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 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 Year 2000 issue relates to the
inability of certain computer software programs to properly
recognize and process date sensitive information relative to the
Year 2000 and beyond. To address this issue, we undertook a
company-wide Year 2000 project under the direction of senior
management. As part of this project, we completed a comprehensive
inventory of our internal information systems, equipment and
facilities. All critical items were tested to determine
compliance and minor upgrades were completed. We also completed
formal communication with significant suppliers, customers,
financial and other third parties with which we have a material
relationship in order to determine whether those entities had
adequate plans in place to ensure their Year 2000 preparedness.
As of the date of this filing, we have not experienced any
significant Year 2000 problems with our internal systems or
equipment, nor have we detected any significant Year 2000
problems affecting our customers or suppliers. In addition, the
costs associated with Year 2000 compliance have not been
significant and we do not expect any potential additional costs
to have a material adverse effect on our business, results of
operations or financial condition. However, we will continue to
monitor our information systems, facilities, equipment and
relationships with third parties. Although we believe our
planning efforts have been adequate to address our Year 2000
compliance concerns, we cannot guarantee that we will not
experience unanticipated negative consequences or material costs
caused by undetected errors or defects in the technology used in
our internal systems or that third parties upon which we rely
will not experience similar negative consequences.
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
December 31, 1999, $1.12 million principal amount was accruing
interest at a variable rate of LIBOR plus 2.25%. A rise in
prevailing interest rates could have adverse effects on the
Company's financial condition and results of operations.
<TABLE>
Principal amount by expected maturity
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Year 2000 2001 2002 2003 2004
Thereafter Total Fair Value
Variable rate debt 59.1 236.4 236.4 236.4 236.4 118.2
1,122.9 1,222.9
Average interest rate 8.75% 8.75% 8.75% 8.75% 8.75% 8.75%
2.25% above LIBOR
</TABLE>
Part II - Other Information
Item 5. Other Information
In order to improve market liquidity of the Company's common
stock, the Board of Directors approved a 5% stock dividend on
October 21, 1999. The Board directed that the stock dividend be
issued to shareholders of record on November 10, 1999, payable
December 10, 1999; no consideration for fractional shares to be
issued or paid.
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:
None.
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: February 14, 2000
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
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31,
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 NINE MONTHS
QUARTER END DEC-31-99
PERIOD START APR-01-99
PERIOD END DEC-31-99
CASH 1,526,221
SECURITIES -
RECEIVABLES 130,758
ALLOWANCES (5,000)
INVENTORY 343,055
CURRENT ASSETS 2,249,014
FF&E 15,080,573
DEPRECIATION (8,406,262)
TOTAL ASSETS 13,453,278
CURRENT LIABILITIES 2,001,673
BONDS, MTGS 5,269,387
COMMOM 4,746,520
PREFERRED MANDATORY -
PREFERRED -
OTHER SE 662,698
TOTAL LIABILITY AND EQUITY 13,453,278
SALES 16,132,255
TOTAL REVENUES 16,621,041
CGS 10,033,931
TOTAL COSTS 15,170,145
OTHER EXPENSES -
LOSS PROVISION -
INTEREST EXPENSE 427,521
INCOME PRETAX 1,076,611
INCOME TAX 366,064
INCOME CONTINUING 710,563
DISCONTINUED -
EXTRAORDINARY -
CHANGES -
NET INCOME 710,563
EPS PRIMARY 0.43
EPS DILUTED 0.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000771214
<NAME> ELMER'S RESTAURANTS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,526,221
<SECURITIES> 0
<RECEIVABLES> 130,758
<ALLOWANCES> (5,000)
<INVENTORY> 343,055
<CURRENT-ASSETS> 2,249,014
<PP&E> 15,080,573
<DEPRECIATION> (8,406,262)
<TOTAL-ASSETS> 13,453,278
<CURRENT-LIABILITIES> 2,001,673
<BONDS> 5,269,387
0
0
<COMMON> 4,746,520
<OTHER-SE> 662,698
<TOTAL-LIABILITY-AND-EQUITY> 13,453,278
<SALES> 16,132,255
<TOTAL-REVENUES> 16,621,041
<CGS> 10,033,931
<TOTAL-COSTS> 15,170,145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 427,521
<INCOME-PRETAX> 1,076,611
<INCOME-TAX> 366,064
<INCOME-CONTINUING> 710,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 710,563
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.41
</TABLE>
