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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 JANUARY 8, 2001 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.
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(Exact name of registrant as specified in its charter)
OREGON ___________ 93-083682
(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
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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 20, 2000: 1,962,032
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ELMER'S RESTAURANTS, INC.
INDEX
PAGE
NUMBER
------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
January 8, 2001 (Unaudited) and March 31, 2000 3
Condensed Consolidated Statements of Income,
Forty weeks and twelve weeks ended January 8,
2001 and January 10, 2000 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows,
Forty weeks and twelve weeks ended January 8,
2001 and January 10, 2000 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Statements (Unaudited) 7-11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 11
PART II: OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
January 8, 2001 March 31, 2000
--------------- ---------------
(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,177,955 $ 1,640,210
Accounts receivable 494,564 199,466
Inventories 386,208 339,654
Prepaid expenses and other 277,852 276,604
Income taxes receivable 31,358 --
--------------- ---------------
Total current assets 2,367,937 2,455,934
Property, buildings and equipment-net 8,183,911 6,892,844
Intangible assets - net 5,568,693 4,390,471
Other assets 429,029 107,959
--------------- ---------------
Total assets $ 16,549,570 $ 13,847,208
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, current portion $ 569,327 $ 572,399
Accounts payable 1,458,696 772,174
Accrued expenses 555,362 448,803
Accrued payroll and related taxes 176,687 218,728
Accrued income taxes -- 279,770
--------------- ---------------
Total current liabilities 2,760,072 2,291,874
Notes payable, net of current portion 4,638,530 5,124,130
Convertible notes 1,300,000
Deferred income taxes 793,000 793,000
--------------- ---------------
Total liabilities 9,491,602 8,209,004
--------------- ---------------
Common stock 5,396,520 4,746,520
Retained earnings 1,661,448 891,684
--------------- ---------------
Total shareholders' equity 7,057,968 5,638,204
--------------- ---------------
Total liabilities and shareholders' equity $ 16,549,570 $ 13,847,208
=============== ===============
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
40 WEEKS ENDED 12 WEEKS ENDED
January 8, January 10, January 8, January 10,
-------------------------------- --------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- --------------
REVENUES: $ 18,499,018 $ 17,238,655 $ 5,809,505 $ 5,109,326
-------------- -------------- -------------- --------------
COSTS AND EXPENSES:
Cost of restaurant sales
Food and beverage 5,152,012 4,918,197 1,602,352 1,385,623
Labor and related 5,767,459 5,487,611 1,796,491 1,607,770
Occupancy costs 1,112,978 974,939 409,103 281,826
Depreciation and amortization 529,609 520,182 170,860 151,195
Restaurant opening/closing expenses 131,746 -- 101,779 --
General and administrative expenses 4,322,222 3,837,211 1,364,993 1,206,698
-------------- -------------- -------------- --------------
17,016,026 15,738,140 5,445,578 4,633,112
-------------- -------------- -------------- --------------
INCOME FROM OPERATIONS
BEFORE OTHER INCOME (EXPENSE) 1,482,992 1,500,515 363,927 476,214
OTHER INCOME (EXPENSE):
Other income 103,446 56,611 24,304 33,621
Interest expense (434,162) (443,389) (133,217) (131,022)
Gain on disposition of assets 22,936 22,936
-------------- -------------- -------------- --------------
Income before income taxes 1,175,212 1,113,737 277,950 378,813
Provision for income taxes (405,448) (378,708) (95,892) (129,080)
-------------- -------------- -------------- --------------
NET INCOME $ 769,764 $ 735,029 $ 182,058 $ 249,733
============== ============== ============== ==============
PER SHARE DATA:
Net income per share - Basic $ 0.42 $ 0.40 $ 0.10 $ 0.14
============== ============== ============== ==============
Weighted average number of
common shares outstanding - Basic 1,844,074 1,832,032 1,872,241 1,832,032
============== ============== ============== ==============
Net income per share - Diluted $ 0.41 $ 0.39 $ 0.10 $ 0.13
-------------- -------------- -------------- --------------
Weighted average number of
common shares outstanding - Diluted 1,881,914 1,881,376 1,903,965 1,870,424
============== ============== ============== ==============
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE FORTY WEEKS ENDED
JANUARY 8, JANUARY 10,
2001 2000
-------------- --------------
Cash flows from operating activities
Net income $ 769,764 $ 735,029
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 529,609 520,182
Gain on disposition of assets (22,936)
Change in current assets (333,163) 92,206
Accounts payable and accrued expenses 669,625 (74,834)
Income taxes (311,128) 339,393
-------------- --------------
Net cash provided by operating activities 1,301,771 1,611,976
-------------- --------------
Cash flows from investing activities:
Additions to property, buildings equipment and intangible assets (1,006,864) (234,327)
Business acquisitions, net of cash acquired (1,379,683)
Issuance of note receivable (200,000)
Principal collected on note receivable 11,193
-------------- --------------
Net cash used in investing activities (2,575,354) (234,327)
-------------- --------------
Cash flows from financing activities:
Issuance of 10% convertible notes 1,300,000
Payments on notes payable (488,672) (443,171)
-------------- --------------
Net cash provided by (used in) financing activities 811,328 (443,171)
-------------- --------------
Net increase (decrease) in cash and cash equivalents (462,255) 934,478
Cash and cash equivalents, beginning of period 1,640,210 603,572
-------------- --------------
Cash and cash equivalents, end of period $ 1,177,955 $ 1,538,050
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 434,162 $ 443,389
============== ==============
Income taxes $ 716,576 $ 37,000
============== ==============
Supplemental disclosure of non-cash transactions
Sale of fixed assets for note receivable $ 142,000
==============
Shares issued in conjuction with Mitzel's acquisition $ 650,000
==============
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
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, 2000 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, 2000, 1999, and 1998, respectively, included in the
Company's Annual Report on Form 10-K for the year ended March 31, 2000.
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 and the 10% stock dividend which occurred in
August 2000.
Effective April 1, 2000, the Company changed its quarterly reporting periods
from 3 month periods ending on the last day of the respective month of the
quarter, to a "4-3-3-3" accounting cycle whereby each quarter will end on the
last Monday of the respective quarter. The prior year quarter and year-to-date
period has been restated to conform with the new presentation which is a two-day
longer period ending January 10, 2000.
Effective December 13, 2000 Elmer's Restaurants, Inc. (the "Company") executed
an asset purchase agreement with the owners of six Mitzel's American Kitchen
restaurants, acquiring substantially all the assets of those locations in
consideration for $975,000 in cash and issuance of 130,000 shares of the
Company's restricted common stock. These locations are wholly owned by, and
operated as a division of, the Company. This acquisition has been accounted for
as a purchase and is more fully described in Form 8-K (file number 000-14837)
filed with the Securities and Exchange Commission January 2, 2001. The
acquisition of Mitzel's was financed with the issuance of $1.3 million in 10%
convertible notes, which are more fully described under the Liquidity and
Capital Resources section of this 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 January 8, 2001 should be
read in conjunction with the Company's Annual Report to Shareholders on Form
10-K (file number 000-14873) for the fiscal year ended March 31, 2000, filed on
June 29, 2000.
6
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 Mitzel's
American Kitchen 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 entered into an occupancy lease on August 1, 2000 with Shilo
Management Company and opened its newest restaurant location on November 6, 2000
in Springfield, Oregon. On November 15, 2000 the Company sold its Elmer's
Restaurant unit located in Gresham, Oregon to an existing Elmer's multi-unit
franchisee. The Company entered into a 25-year franchise agreement with the
Gresham franchisee along with an occupancy lease for the building and land still
owned by the Company. On December 13, 2000 the Company acquired the six-unit
chain of family dining restaurants in the Puget Sound area of Washington known
as "Mitzel's American Kitchen"(Mitzel's). Immediately following the Mitzel's
acquisition, the Company closed its Mitzel's Tacoma location due to its close
proximity to the Tacoma Elmer's location. The Company now owns and operates 11
Elmer's restaurants, 5 Mitzel's restaurants, 6 Ashley's Cafe's, 4 Richard's Deli
and Pubs, and franchises 19 Elmer's restaurants in six western states.
The Company expensed administrative and operating costs associated with closing
the Tacoma restaurant in the current quarter, however, certain lease termination
expenses were included as part of the purchase price. The Company has also
charged the expenses associated with the opening of its Springfield, Oregon
restaurant in the current quarter. The Company also operated the Seattle-based
Mitzel's administrative offices in the quarter, which will be consolidated into
the Company's Portland headquarters in the fourth quarter of fiscal year 2001.
The Company franchises or operates a total of 35 full-service, family-oriented
restaurants, with a warm, friendly atmosphere and comfortable furnishings. Most
of the restaurants are decorated in a home style with fireplaces in the dining
rooms. They are free standing buildings, ranging in size from 4,600 to
approximately 7,700 square feet with seating capacities ranging from 120 to 220.
A portion of the dining room in most restaurants may also be used for private
group meetings by closing it off from the public dining areas.
The menu offers an extensive selection of items for breakfast, lunch and dinner.
The Elmer's breakfast menu, which is available all day, contains a wide variety
of selections with particular emphasis on pancakes, waffles, omelets, crepes,
country platters and other popular breakfast items. The Mitzel's menu also
offers a large selection of breakfast, lunch, and dinner items, including its
famous rotisserie turkey.
HIGHLIGHTS OF HISTORICAL RESULTS. The Company reported net income of $182,058
and $769,764, or $.10 and $.41 in fully-diluted earnings per share for the 12
and 40 week period ended January 8, 2001. These results are compared to reported
net income of $249,733 and $735,029, or $.13 and $.39 per share for the 12 and
40 week period ended January 10, 2000. The approximately $68,000 decrease in net
income for the 12 weeks ended January 8, 2001 reflect the absorption of
approximately $102,000 in restaurant opening/closing expenses during the most
recent quarter. Earnings improvements for the 40 weeks ended January 8, 2001 are
attributable to the additional earnings from Elmer's and its subsidiary Grass
Valley Limited ("GVL"), due to an improvement in comparable same store operating
performance. The Company's total assets as at January 8, 2001 grew approximately
$2.7 million to $16.5 million over total assets as at March 31, 2000. Growth in
total assets is principally attributable to the purchase of Mitzel's American
Kitchen and the addition of the Elmer's Springfield unit. In the 40 weeks ended
January 8, 2001, working capital decreased approximately $556,000 and notes
payable (net of current portion) increased $814,000. Cash provided by operating
activities totaled $1.3 million for the 40 weeks ended January 8, 2001 compared
to $1.6 million for the 40 weeks ended January 10, 2000. The decrease in cash
provided
7
from operations is substantially attributable to a reduction in accrued income
taxes and from increases in other current assets.
COMPARISON OF RESULTS OF OPERATIONS. The following discussion and analysis
presents the Company's results of operations for the 12 and 40 weeks ended
January 8, 2001 and the 12 and 40 weeks plus two days ending January 10, 2000
respectively.
For the 12 week period ended January 8, 2001, the Company's net income and
earnings per share decreased 27% over the comparable period in 2000. For the 40
week period ended January 8, 2001, the Company's net income and earnings per
share increased 4.7% over the comparable periods in 2000. Restaurant
opening/closing expenses accounted for over 90% of the decrease in operating
income for the quarter ended January 8, 2001. Net income as a percentage of
total revenue decreased from 4.9% and 4.3% for the 12 and 40 week period ended
January 10, 2000, to 3.1% and 4.2% for the 12 and 40 weeks ended January 8,
2001.
RESULTS OF OPERATIONS FOR RESULTS OF OPERATIONS FOR
Dollar amounts in thousands except THE 12 WEEKS ENDED THE 12 WEEKS ENDED
per share data
JANUARY 8, 2001 JANUARY 10, 2000
------------------ ------------------
Percent of Percent of
Amount Revenues Amount Revenues
------ -------- ------ --------
Revenue $ 5,810 100.0% $ 5,109 100.0%
Restaurant costs and expenses 3,979 68.5 3,426 67.1
Restaurant pre-opening/closing expense 102 1.7 0 0.0
General and administrative expenses 1,365 23.5 1,207 23.6
Operating income 364 6.3 476 9.3
Non operating income (expense) (86) (1.5) (97) (1.9)
Net income 182 3.1 250 4.9
Fully diluted earnings per share $ 0.10 $ 0.13
RESULTS OF OPERATIONS FOR RESULTS OF OPERATIONS FOR
Dollar amounts in thousands except THE 40 WEEKS ENDED THE 40 WEEKS ENDED
per share data
JANUARY 8, 2001 JANUARY 10, 2000
------------------ ------------------
Percent of Percent of
Amount Revenues Amount Revenues
------ -------- ------ --------
Revenue $18,499 100.0% $17,239 100.0%
Restaurant costs and expenses 12,562 67.9 11,901 69.0
Restaurant pre-opening/closing expense 132 0.7 0 0.0
General and administrative expenses 4,322 23.4 3,837 22.3
Operating income 1,483 8.0 1,501 8.7
Non operating income (expense) (308) (1.7) (387) (2.2)
Net income 770 4.2 735 4.3
Fully diluted earnings per share $ 0.41 $ 0.39
REVENUES. Revenues for the 12 and 40 weeks ended January 8, 2001 were 13.7% and
7.3% greater respectively than the comparable period in 2000. Revenue increases
reflect the addition of about nine weeks of the new Springfield operation and
about four weeks of the five Mitzel's units. Revenues from Elmer's brand same
store operations showed an increase of 5.2% and 6.0% for the 12 and 40 weeks
ended January 8, 2001 over the comparable period in 2000.
8
Dollar amounts in thousands REVENUE REVENUE
FOR THE 40 WEEKS ENDED FOR THE 40 WEEKS ENDED
JANUARY 8, 2001 JANUARY 10, 2000
------------------ ------------------
Percent of Percent of
Amount Revenues Amount Revenues
------ -------- ------ --------
Restaurant operations:
Restaurant sales $15,333 82.9% $14,458 83.9%
Lottery 2,579 13.9 2,274 13.2
------- ----- ------- -----
17,912 96.8 16,732 97.1
Franchise operations 587 3.2 507 2.9
------- ----- ------- -----
Total Revenue $18,499 100.0% $17,239 100.0%
======= ====== ======= =====
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
from 67.1% of revenue for the 12 weeks ended January 10, 2000 to 68.5% for the
current quarter ended January 8, 2001 Restaurant costs and expenses have
decreased for the 40 week period ended January 10, 2000 from 69.0% to 67.9% for
the comparable period in 2001. Food, beverage and supply costs as a percentage
of total revenues were 27.6% and 27.8% for the 12 and 40 weeks ended January 8,
2001 compared to 27.1% and 28.5% for the comparable period in 2000. Labor
expenses totaled 30.9% and 31.2% of revenues for 12 and 40 weeks ended January
8, 2001 compared to 31.5% and 31.8% of revenues for the 12 and 40 weeks ended
January 10, 2000. Occupancy costs as a percentage of revenues increased from
5.5% and 5.7% for the 12 and 40 weeks ended January 10, 2000 to 7.0% and 6.0%
for the 12 and 40 weeks ended January 8, 2001. Depreciation and amortization
expense as a percentage of revenues dropped from 3.0% for both the 12 and 40
weeks ended January 10, 2000 to 3.0% and 2.9% for the 12 and 40 weeks ended
January 8, 2001. Restaurant opening/closing expenses in fiscal year 2001
represent 1.8% and .7% of total revenues for the 12 and 40 week period. There
were no restaurant opening/closing expenses in fiscal year 2000. Management
anticipates restaurant opening expenses for new units to increase as a
percentage of revenues as the company continues to add new locations.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative ("G&A") expenses
were 23.5% and 23.4% of total revenue for the 12 and 40 weeks ended January 8,
2001 compared to 23.6% and 22.3% of revenues in the comparable period in 2000.
NON OPERATING INCOME (EXPENSES). Net operating income (expense) was (1.5%) and
(1.7%) of total revenues for the 12 and 40 weeks ended January 8, 2001 compared
to (1.9%) and (2.2%) of total revenues in the comparable period in 2000.
LIQUIDITY AND CAPITAL RESOURCES. As of January 8, 2001, the Company had cash and
equivalents of approximately $1.2 million representing a decrease from March 31,
2000 of approximately $462,000. The decrease from March 31, 2000 is a result of
cash used in investing activities of approximately $2.6 million
9
less $1.3 million in cash provided by operating activities and $0.8 million in
net cash generated from financing activities for the 40 week period ended
January 8, 2001.
The approximately $2.6 million in investing activities is a result of
approximately $1.07 million cash paid for Mitzel's American Kitchen, $860,000
for the construction of the new Springfield Elmer's restaurant, $515,000 in new
system-wide signage and other maintenance capital expenditures. . The Company
also holds a $200,000 note from Mitzel's American Kitchen II, the seller of the
Mitzel's assets, secured by a pledge of 50,000 shares of Elmer's common stock
issued as part of the consideration paid for Mitzel's. The note is due March 31,
2003 and pays monthly 10% interest and principal based on a five-year
amortization schedule.
The approximately $1.3 million in net cash provided by operating activities for
the 40 week period ended January 8, 2001 is a result of $770,000 in net income,
$530,000 in depreciation and amortization.
The approximately $811,000 in net cash provided by financing activities is a
result of the issuance of $1.3 million in 10% convertible subordinated notes due
December 8, 2007, less payments on indebtedness of $489,000. Interest on the
$1.3 million in convertible notes is paid monthly and the principal amortizes
over seven years paid monthly into a company-held bond sinking fund. The issue
is non-callable for three years and is convertible into common stock after six
months of issue at $6.50 per share. Payments on indebtedness are substantially
to Wells Fargo Bank ("Wells Fargo"), the Company's principle lender. The Company
holds a $142,000 note due October 15, 2002 with 24 equal 8% interest and
principal payments from the franchisee and purchaser of the Gresham Elmer's
restaurant.
The Company's primary liquidity needs arise from debt service on indebtedness,
operating lease requirements, and the funding of capital expenditures. As of
January 8, 2001, the Company had outstanding indebtedness for borrowed money of
$1.73 million under a term loan facility and $2.22 million real estate loan
facilities with Wells Fargo 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 nine
years, bear interest at an average of 8.2%, 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 4.0 to 1.0. In addition, on a trailing four quarter
basis as of the end of each fiscal quarter, the Company is 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 was in
compliance with these covenants at January 8, 2001. The Company also has
available a $250,000 line with Wells Fargo through September 1, 2001. The EVM
loan has a maturity of approximately 5 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. and GVL 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. and GVL, 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
(as in the case of the Springfield property) 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
10
meet its financial needs and to pay operating expenses for the foreseeable
future, although no assurances can be given.
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; 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 at January 8, 2001, $866,500 principal
amount was accruing interest at a variable rate of LIBOR plus 2.25%. A rise in
prevailing interest rates could have adverse effects on the Company's financial
condition and results of operations.
PRINCIPAL AMOUNT BY EXPECTED MATURITY
($ in thousands)
Fiscal Year 2001 2002 2003 2004 Thereafter Total Fair Value
Variable rate debt 39.1 236.4 236.4 236.4 118.2 866.5 866.5
Average interest rate 8.4% 8.4% 8.4% 8.4% 8.4%
2.25% above LIBOR
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
(c) Sales of Unregistered Securities During the Quarter
On December 13, 2000 the Company issued 130,000 shares of its Common Stock with
a fair market value of $650,000 to Simon Carey (62,500 shares), George Comeau
(23,750), US Bank N.A. (25,000) Bargreen Ellingson 401K profit sharing plan
(10,000), Mitzel's American Kitchen II, Inc. (8,750). The issuance of the Common
Stock was exempt form the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof, on
the basis that the transactions did not involve any public offering.
On December 1, 2000 the Company issued and sold $1.3 million principal amount of
10% Convertible Notes due December 1, 2007 (the "Convertible Notes"). The
issuance of the Convertible Notes was exempt form the registration requirements
of the Securities Act pursuant to Section 4(2) thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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 (file number 000-14837) dated
December 14, 2000 and filed January 2, 2001, which disclosed the asset purchase
of Mitzel's American Kitchen restaurants, acquiring substantially all of the
assets of those locations in consideration for $975,000 in cash and issuance of
130,000 shares of the Company's restricted common stock. These locations are
wholly owned by, and operated as a division of, the Company.
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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 and
Chief Financial Officer
Dated: February 20, 2001
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