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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 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 executive offices) (Zip Code)
(Registrant's telephone
number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
___________
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statement incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ______
Aggregate market value of Common Stock held by nonaffiliates of
the Registrant at June 10, 1999: $____________
For purposes of this calculation, officers and directors are
considered affiliates.
Number of shares of Common Stock outstanding at June 10, 1999:
1,586,229
Documents Incorporated by Reference
Part of Form 10-K into
Document which incorporated
-------- ----------------------
Proxy Statement for 1999 Annual Meeting
of Shareholders Part III
TABLE OF CONTENTS
Item of Form 10-K Page
PART I...................................................... 1
Item 1. Business................................... 1
Item 2. Properties................................ 11
Item 3. Legal Proceedings......................... 13
Item 4. Submission of Matters to a Vote
of Security Holders....................... 13
Item 4(a). Executive Officers of the Registrant...... 13
PART II.................................................... 14
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters........... 14
Item 6. Selected Financial Data................... 16
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations .............. 17
Item 8. Financial Statements and Supplementary
Data...................................... 25
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................ 26
PART III................................................... 26
Item 10. Directors and Executive Officers of the
Registrant................................ 26
Item 11. Executive Compensation.................... 26
Item 12. Security Ownership of Certain Beneficial
Owners and Management..................... 26
Item 13. Certain Relationships and Related
Transactions.............................. 26
PART IV.................................................... 12
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K....... 27
SIGNATURES.................................................. 33
PART I
Item 1. Business
General
The Company, 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.
Business Segment
The Company primarily operates in one business segment,
viz., restaurant operations. Information as to revenue, operating
profit, identifiable assets, depreciation and amortization
expense and capital expenditures for the Company's business
segment for fiscal 1999 is contained herein by reference to the
Company's consolidated financial statements.
Company-owned Elmer's restaurants are located in the Delta
Park section of Portland, Oregon; Beaverton, Gresham, Hillsboro,
Medford, Albany and Grants Pass, Oregon; Palm Springs,
California; Boise, Idaho; and Tacoma and Lynnwood, Washington.
The Company acquired five Ashley's restaurants on February 18,
1999. Two Ashley's are located in Bend, two are in Springfield,
and one is in Eugene, Oregon. The Company acquired four
Richard's Deli and Pub restaurants on March 31, 1999. Richard's
are located in Tigard, Aloha and two in Hillsboro, Oregon.
Recent Acquisitions and Developments
Effective February 18, 1999, the Company merged with its majority
shareholder CBW, Inc. ('CBW'), a closely held Oregon corporation,
in a transaction in which the Company was the surviving
corporation. CBW was the operator of five restaurants in Eugene,
Springfield, and Bend, Oregon. In consideration for the issuance
by the Company of 770,500 new shares of the Company's restricted
stock to the CBW shareholders and the assumption of approximately
$4 million in debt owed by CBW arising from CBW's acquisition of
the controlling block of the Company's restricted common stock on
August 25, 1998, the Company acquired all the stock and assets of
CBW including CBW's wholly owned subsidiary, CBW Food Company,
LLC (which by operation of merger is now the Company's wholly-
owned subsidiary). The assets include five Ashley's delis
operated by CBW and an option to purchase four Richards' delis
operated by Grass Valley Ltd., Inc.
Each CBW shareholder received 144.4507 shares of the Company's
restricted common stock for every CBW share owned. The shares of
Company stock previously acquired by CBW, a total of 705,000
shares, were concurrently transferred to the Company and were
canceled upon receipt thereof. In further consideration for the
issuance and to secure various indemnification obligations of the
CBW shareholders under the merger agreement, the Company and the
individual CBW shareholders executed an escrow agreement pursuant
to which 220,000 shares were placed in escrow for a period of one
year from the date of closing of the merger transaction. The
Company's primary source of financing for the acquisition
consisted of $3.08 million from its principal lender bank, Wells
Fargo Bank, N.A., the proceeds of which were applied to pay down
$1.75 million of the assumed debt and approximately $1.48 million
in other outstanding debt of the Company. The debt financing is
secured by a grant of various security interests in the Company's
assets as well as the issuance of continuing guaranties by two
subsidiaries of the Company. The Company also used approximately
$1,000,000 to pay down debt assumed in the transaction.
Effective March 31, 1999, Company executed a stock exchange
agreement ("GVL Acquisition") 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
in consideration for the payment by the Company of the sum of
$110,000 in cash and the issuance of 209,620 restricted shares of
the Company's common stock to the GVL shareholders. GVL is now 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 moniker of
Richard's Deli and Pub. The first Richard's Deli and Pub was
opened in August 1994 and all the restaurants are located in
leased retail space. The Company plans to continue operations at
all four locations in a substantially similar manner. The
Company's Management believes that it can leverage the
significant synergy that exists between the Richard's Deli and
Pubs and Ashley's Deli operations while accruing potentially
significant savings arising from the consolidation of back office
functions.
Each GVL shareholder received 1048.1 restricted shares of the
Company's common stock in exchange for each GVL share owned. The
Company's primary source of financing for the cash portion of the
acquisition was from working capital.
The business combinations under the Merger and GVL Acquisition
were accounted for under the purchase method. The Merger
transaction was accounted for as a reverse acquisition as the
shareholders of CBW received the larger portion (53.8%) of the
voting interests in the combined enterprise. (See the Company's
Consolidated Financial Statements incorporated herein for more
details). Accordingly, CBW was considered the acquirer for
accounting purposes and therefore, the Company's assets and
liabilities were recorded based upon their fair market value.
Management of the Company believes the Merger and GVL Acquisition
created a company with over 20 restaurants systemwide, making it
more competitive in the particular restaurant segments
represented and allowing the crossover of product promotions,
menu items, marketing strategies and restaurant images while
generating likely opportunities for the development of
several brands targeting different consumer segments. Management
anticipates that the Merger and GVL Acquisition will also allow
the Company to achieve administrative and operational
efficiencies.
To the extent permitted by operating cash flow or external
financing sources, the Company intends to focus future growth
primarily in its existing markets of higher market penetration
("Core Markets") through strategic acquisitions, new restaurant
openings or through other growth opportunities. The Company will
also continue to seek to expand through existing and new
franchisees. From time to time, the Company may close or sell
restaurants or markets when determined by management and the
Board of Directors to be in the best interests of the Company.
Elmer's Pancake & Steak House
Restaurant Format and Menu. The Company franchises or
operates a total of 29 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 8,000
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. Thirteen of the restaurants have a lounge with
seating capacity ranging from 15 to 75. The normal hours of
operation are from 6 a.m. to 10 or 11 p.m. and to 12 midnight on
weekends in some restaurants with lounges.
Each restaurant offers full service, with a host or hostess
to seat guests and handle payments, wait staff to take and serve
orders, and additional personnel to clear and reset tables.
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 and
other popular breakfast items. Each Elmer's restaurant makes all
its batters and compotes from scratch and prepares its fruit
sauces with fresh fruits when in season. The lunch menu includes
soups made from scratch, salads, french dips, hamburgers and
sandwiches. Customers at dinner may choose among steak, seafood,
chicken, and, in most restaurants, filet mignon and prime rib.
While most menu selections are standard to all Elmer's
restaurants, restaurants in different areas include on their
menus selections that appeal to local preferences. Breakfast and
lunch selections generally range in price from $1.85 to $7.25;
dinner selections generally range in price from $5.50 to $13.50.
A special children's menu is offered in most restaurants.
Ashley's and Richard's Deli and Pub
Restaurant Format and Menu. The Company operates a total of
five Ashley's restaurants and four Richard's Delis and Pubs.
They are substantially similar in design, size and menu. Seven
of the nine units are located in retail strip mall locations, one
is in a food court in a major indoor mall, and
one is a free standing building. They range in size from 1,000
to 2,200 square feet with seating capacities ranging from 15 to
30. A portion of the dining room is also used for the sale of
Oregon lottery games. The normal hours of operation are from 7
a.m. to 10 p.m. and up to 2 a.m. for some restaurants or on
weekends.
Each restaurant offers deli-style hot and cold sandwiches,
soups, salads, and desserts and has a catering department. The
restaurants are approved retailers with the Oregon lottery and
offer all lottery games. Meal selections generally range in
price from $2.95 to $5.95. The catering operation offers small
to medium size food service and event support for business
meetings, outdoor barbecues, and special events.
The above brands provide a vehicle for market penetration
and unit growth, leveraging off the concept of broad appeal,
quick-turn meals and emphasis on service. In a typical market,
Ashley's restaurants and Richard's Delis and Pubs experience
competition from either other moderately-priced, casual dining
and walk-through restaurants or economy sandwich outlets.
Ashley's and Richards' differentiate themselves from economy deli
competitors by their full table and bar service, attentive wait
staff, lottery games, entertaining atmosphere, distinctive decor
and consistently high-quality meals.
Franchise Operations
In addition to the acquisition and development of additional
Company operated restaurants, the Company encourages the
strategic development of franchised restaurants in its existing
markets as well as potentially in certain additional states. The
primary criteria considered by the Company in the selection,
review and approval of prospective franchisees are the
availability of adequate capital to open and operate the number
of restaurants franchised and prior experience in operating full-
service restaurants. Under a franchise agreement, a franchisor
grants to a franchisee the right to operate a business in a
manner developed by the franchisor. The franchisee owns the
franchised operation independently from the franchisor and, in
effect, buys the right to use the franchisor's name, format, and
operational procedures. Franchisees benefit from a common
identification, standardized products, and the business
reputation and services that a franchisor may provide, such as
group advertising, management services, product enhancements, and
group buying programs. The franchisor is able to capitalize on
its business concept without, in many cases, having to invest
substantial capital for expanded operations.
Existing Franchisees. The existing franchise agreements
grant to franchisees the right to operate an Elmer's restaurant
in one specific location for 25 years, renewable generally for an
additional 25-year period. When they entered into franchising
agreements, the existing franchisees paid initial franchise fees
of up to $25,000 plus additional fees of up to $10,000 if the
restaurant had a lounge serving alcoholic beverages. Franchisees
pay monthly franchise royalty fees ranging from one to four
percent of the gross revenues of their restaurants. All but one
restaurant must contribute up to one percent of gross revenues to
a common advertising pool. The Company may terminate a franchise
agreement for several reasons including the franchisee's
bankruptcy or insolvency, default in the payment of indebtedness
to the Company or suppliers, failure to maintain standards set
forth in
the franchise agreement or operations manual, continued material
violation of any safety, health or sanitation law, ordinance or
governmental rule or regulation or cessation of business.
Prospective Franchisees. Prospective new franchisees will
pay an initial franchise fee of $35,000. Initial franchise fees
are payable in cash at the execution of the franchise agreement.
Existing franchisees opening new franchised restaurants may pay a
lower initial franchise fee than new franchisees. For new
franchisees, the monthly franchise royalty fee is expected to be
four percent of the gross revenues of the restaurant, with a
minimum monthly fee of $500.00 A monthly advertising
contribution equal to one percent of the gross revenues of the
restaurant will be assessed. It has been the practice of the
Company in recent years to permit existing franchisees to open
new franchises under the royalty rate that applied to the
existing franchises owned by that franchise. See "Services to
Franchisees" below.
A prospective franchisee who assumes operation of a
previously unsuccessful franchised restaurant may be offered a
reduced initial franchise fee, deferred payment of the franchise
fee, or other concessions. Pursuant to certain area franchise
agreements, the Company will receive reduced initial franchise
fees and monthly royalty fees from additional restaurants that
may be opened in the areas covered by those agreements. See
"Area Franchise Agreements" below. In connection with the
acquisition of the Elmer's franchising operation in 1984, the
Company also granted Dale Elmer, a former director of the
Company, and members of the Elmer family the right to operate a
total of three additional restaurants at a franchise royalty fee
of two percent; no restaurants are being operated on this basis.
The Company estimates that construction costs for the
standard free-standing building range from approximately $860,000
to $1,060,000, with actual costs dependent upon local building
requirements and construction conditions, and further based on
configuration and parking requirements.
The cost of the land may vary considerably depending upon
the quality and size of the site, surrounding population density
and other factors. The cost of leasehold improvements and
restaurant equipment, including kitchen equipment, furniture, and
trade fixtures, is estimated by the Company to range from
approximately $375,000 to $500,000. Inventory and miscellaneous
items such as paper goods, food, janitorial supplies, and other
small wares are estimated initially to cost between approximately
$68,000 and $108,000.
There is no typical elapsed time from the signing of a
franchise agreement until a restaurant is open for business,
although it normally takes 120 days from the receipt of the
building permits to construct a new restaurant facility. Most
restaurants have opened within 12 months of the date of the
signing of the franchise agreement. Franchisees bear all costs
associated with the development and construction of their
restaurants. Although the Company has established criteria to
evaluate prospective franchisees, there can be no assurance that
franchisees will have the business abilities or access to
financial resources necessary to open the restaurants or that the
franchisees will successfully develop or operate restaurants in
their franchise areas in a manner consistent with the Company's
concepts and standards.
The Company has added three franchises since August 1987.
The last currently operating franchise was added in November
1994.
Area Franchise Agreements. Under previous management, the
Elmer's franchising operation granted exclusive area franchise
agreements, whereby independent entities obtained the exclusive
rights to develop Elmer's restaurants within their respective
areas. Areas covered by these agreements are Clackamas County,
Oregon; Vancouver, Washington; and Ada and Canyon Counties,
Idaho. The area franchise agreements require the area franchisee
to share with the Company the initial fees and the franchise
royalty fees for each new restaurant in the area. The Company's
share of the initial fees ranges from $2,500 to $12,500 per
restaurant. There are two restaurants covered by area franchise
agreements. Under the area franchise agreements, the Company
reserves the right to approve each new restaurant franchisee.
The area franchise agreements grant the franchisees the right to
use the Company's name in the particular area and preclude the
Company from opening Company-owned or franchised restaurants in
the areas covered by the agreements. The Company does not intend
to enter into similar agreements in the future.
Services to Franchisees. The Company makes available to its
franchisees various programs and materials. The Company provides
several manuals to assist franchisees in ongoing operations,
including a comprehensive operations manual describing kitchen
operations, floor operations, personnel management, job
descriptions, and other matters. The Company has prepared a
recipe book for franchisees and maintains a complete file of
menus from all franchised restaurants. The Company has developed
and maintains a menu cost-control program and a labor cost-
control program at each of its Company-owned restaurants and has
developed and implemented a training manual and programs for all
positions within the restaurant. The Company is in the process of
updating the operations manual.
The Company provides both formal and informal ongoing
training. At least one two-day seminar is scheduled each year.
At the seminars, franchisees attend lectures by Company personnel
and guest speakers from the industry as well as participate in
group workshops discussing such topics as cost control, promotion
and food presentation.
The Company provides each franchisee with specifications for
menu items selected by the franchisee for inclusion on restaurant
menus. The Company, however, sells no food items or like
products to franchisees, except for certain minor supplies such
as guest checks, gift certificates, and children's menus. The
Company coordinates franchisees' purchases to obtain volume
discounts. Franchisees bear all cost involved in the operation
of their restaurants.
Periodic on-site inspections and audits are conducted to
ensure compliance with Company standards and to aid in
franchisees in improving their sales and profitability.
Company-owned Restaurants
The Company owns and operates 11 Elmer's restaurants, which
it acquired or built from 1984 to 1991, five Ashley's restaurants
acquired February 18, 1999, and four Richard's Deli and Pub
restaurants acquired March 31, 1999. The Company has owned and
operated an Elmer's restaurant
located in the Delta Park section of Portland, Oregon since
January 1984. In August 1986, the Company opened a restaurant in
Tacoma, Washington. In January 1987, the Company began operation
of a restaurant in Lynnwood, Washington and assumed operation of
an Elmer's restaurant in Grants Pass, Oregon that was in bank
foreclosure. In fiscal 1988, the Company acquired from former
franchisees restaurants in Gresham, Albany, and Medford, Oregon;
and Boise, Idaho. In fiscal 1989, the Company purchased the land
and buildings for the Boise and Gresham restaurants and also
purchased, from a former franchisee, an additional restaurant in
Hillsboro, Oregon. In May 1989, the Company acquired a
franchised Elmer's restaurant in Palm Springs, California. In
July 1991, the Company acquired a franchised Elmer's restaurant
in Beaverton, Oregon.
As earlier discussed, the five Ashley's restaurants were
acquired in a merger with CBW, Inc. on February 18, 1999 (as
reported on a Current Report on Form 8-K filed March 5, 1999 and
amended on June 14, 1999). One restaurant in Springfield, Oregon
was opened in 1994 and the other four were opened in 1995. The
Company does not own any of the real estate. The four Richard's
Delis and Pubs were acquired in a purchase of the outstanding
stock of Grass Valley Ltd., Inc. on March 31, 1999 (as reported
on a Current Report on Form 8-K filed April 15, 1999 and amended
on June 14, 1999). The Company does not own any of the real
estate.
The Company and its franchisees coordinate the purchase of
their food, beverages and supplies from Company-approved and
other suppliers. Management monitors the quality of the food,
beverages and supplies provided to the restaurants. The Company
believes that its continued efforts over time have achieved cost
savings, improved food quality and consistency and helped
decrease volatility of food and supply costs for the restaurants.
All essential food and beverage products are available or, upon
short notice, could be made available from alternate qualified
suppliers. Therefore, management believes that the loss of any
one supplier would not have a material adverse effect on the
Company.
Employees
As of March 31, 1999, the Company employed 390 persons on a
full-time basis, of whom 13 were corporate office personnel and
377 were hourly restaurant personnel. At that date, the Company
also employed 135 part-time restaurant personnel. Of the 13
corporate employees, 6 are in upper management positions and the
remainder are professional and administrative or office
employees. Employees of franchised Elmer's restaurants are not
included in these figures. None of the Company's employees is
covered by collective bargaining agreements. The Company
considers its employee relations to be good. Most employees,
other than management and corporate personnel, are paid on an
hourly basis. The Company believes that it provides working
conditions and wages that compare favorably with those of its
competition.
Each Company-operated restaurant employs an average of
approximately 35 hourly employees, many of whom work part-time on
various shifts. The management staff of a typical restaurant
operated by the Company consists of a general manager, one
assistant manager and a shift manager. The Company has an
incentive compensation program for store managers that
provides the store managers with a quarterly bonus based upon the
achievement of certain defined goals.
Trademarks and Service Marks
The Company believes its trademarks and service marks have
significant value and are important to its business. The Company
has registered the trademarks and service marks "Elmer's Pancake
& Steak House" and "Elmer's Colonial Pancake & Steak House" and
the Elmer's logo with the U.S. Patent and Trademark Office. The
service mark "Elmer's Colonial Pancake & Steak House" has also
been registered in certain states. It is the Company's policy to
pursue registration of its marks whenever possible and to oppose
any infringement of its marks.
The Company grants to each of its Elmer's restaurant
franchisees a nonexclusive right to use the trademarks and
service marks in connection with and at each franchise location.
Advertising and Marketing
Word-of-mouth advertising, new restaurant openings, and the
on-premises sale of promotional products have historically been
the primary methods of restaurant advertising. The Company
employs an advertising consultant to assist in projecting the
Elmer's restaurant concept to the general public in the Western
states, primarily through magazines, newspapers, and radio and
television commercials. The Company maintains a common
advertising pool with its franchisees to advertise Elmer's
restaurants. After production costs for the advertising campaign
have been paid out of the common pool, the remaining money is
used for advertising in the various local areas of the franchised
restaurants. The Company-owned Elmer's restaurants and all but
one of the franchised restaurants are required to participate by
contributing one percent of monthly gross revenues. At the
present time, the Company relies principally on word-of-mouth
advertising and catering exposure for advertising of Ashley's and
Richard's.
Generally, ongoing consumer research is employed on a
limited basis to track attitudes, brand awareness and market
share of not only the Company's customers, but also of its major
competitors' customers as well. This is vital in creating a
better understanding of the Company's short and long term
marketing strategies.
Competition
The restaurant industry is highly competitive with respect
to price, concept, quality and speed of service, location,
attractiveness of facilities, customer recognition, convenience
and food quality and variety and is often affected by changes in
the tastes and eating habits of the public, including changes in
local, regional or national economic conditions affecting
consumer spending habits, demographic trends and traffic
patterns, increases in the number, type and location of competing
restaurants, local and national economic conditions affecting
spending habits, and by population and traffic patterns. The
Company competes for potential franchisees with restaurant
franchisors, company-owned restaurants, chains and others. The
Company-owned Elmer's restaurants and the franchised Elmer's
restaurants compete for customers with restaurants from national
and regional
chains as well as local establishments. Some of the Company's
competitors are much larger than the Company, having at their
disposal greater capital resources that can be devoted to
advertising, product development and new restaurants and greater
abilities to withstand adverse business trends. Increased
competition, discounting and changes in marketing strategies by
one or more of these competitors could have an adverse effect on
the Company's sales and earnings in the affected markets. In
general, there is active competition for management personnel,
capital and attractive commercial real estate sites suitable for
restaurants.
The Company believes that the principal competitive factors
in its favor for attracting both restaurant franchisees and
restaurant customers are Elmer's extensive menu, quality of food,
service, and reasonable prices.
Government Regulations
The restaurant industry generally, and each Company-operated
and franchised restaurant specifically, are subject to numerous
federal, state and local government regulations, including those
relating to the preparation and sale of food and those relating
to building, zoning, health, accommodations for disabled members
of the public, sanitation, safety, fire, environmental and land
use requirements; and, in some cases, state and local licensing
of the sale of alcoholic beverages and the state licensing of
gaming. The Company and its franchisees are also subject to
federal and state laws governing their relationship with
employees, including minimum wage requirements, accommodation for
disabilities, overtime, working and safety conditions and
citizenship/residency requirements. Federal and state
environmental regulations have not had a major effect on the
Company's operations to date. The Company has no material
contracts with the United States government or any of its
agencies.
The Company is subject to a number of state laws regulating
franchise operations and sales. For the most part, those laws
impose registration and disclosure requirements on the Company in
the offer and sale of franchises but, in certain cases, also
apply substantive standards to the relationship between the
Company and the franchisees, including limitations on
noncompetition provisions and on provisions concerning the
termination or nonrenewal of a franchise. Some states require
that certain materials be registered before franchises can be
offered or sold in that state. The Company is also subject to
Federal Trade Commission regulations covering disclosure
requirements and sales of franchises.
The failure to obtain or retain food licenses or approvals
to sell franchises, or an increase in the minimum wage rate,
employee benefit costs (including costs associated with mandated
health insurance coverage) or other costs associated with
employees could adversely affect the Company and its franchisees.
A mandated increase in the minimum wage rate was implemented in
1999.
Item 2. Properties
Headquarters
The Company's corporate offices are located in Portland,
Oregon and consist of an office facility of approximately 5,000
square feet. Lease payments totaled $33,636 for fiscal 1999.
The lease expires November 30, 2000.
Company-Owned Restaurants
Company-Owned Properties. The Company owns the real
property upon which the following four Company-owned restaurants
are located. All of the properties are subject to encumbrances
in favor of lending institutions.
Approximate Area
Location Site Restaurant
- -------- ---- ----------
Tacoma, Washington 1.3 acres 6,660 sq. ft.
Lynnwood, Washington 1 acre 6,500 sq. ft.
Gresham, Oregon 1 acre 5,670 sq. ft.
Boise, Idaho 1.3 acres 5,430 sq. ft.
Leased Properties. The Company leases the property upon which
the following seven Corporate-owned restaurants are located.
Each lease contains specific terms relating to calculation of
lease payment, renewal, purchase options, if any, and other
matters.
Approximate Area
----------------
Elmer's Locations Site Restaurant Expiration
- ----------------- ---- ---------- ----------
Grants Pass, Oregon 1 acre 6,350 sq. ft. December 31,
2001
Hillsboro, Oregon 1.2 acres 6,350 sq. ft January 1, 2002
Medford, Oregon 1.25 acres 6,300 sq. ft. May 31, 2003
Albany, Oregon -- 5,460 sq. ft.
February 28, 2003
Palm Springs, California 1.3 acres 5,500 sq. ft. April 30, 2007
Portland, Oregon (Delta Park) 1.2 acres 6,350 sq. ft. July 31, 2006
Beaverton, Oregon -- 5,322 sq. ft. August 31, 2006
Ashley's Locations Sq Ft. Leased Through
- ------------------
Bend, Oregon (North) 1,000 12/31/00
Bend, Oregon (South) 1,400 8/31/03
Eugene, Oregon 1,700 9/30/00
Springfield, Oregon (Gateway) 921 1/31/01
Springfield, Oregon (Thurston) 1,200 4/1/02
Richard's Locations
- -------------------
Aloha, Oregon 1,727 11/30/99
Hillsboro, Oregon (North) 1,092 8/31/01
Hillsboro, Oregon (South) 2,510 10/21/01
Tigard, Oregon 1,743 12/31/02
The Company believes that its facilities are generally in good
condition and that they are suitable for their current uses. The
Company nevertheless engages periodically in construction and
other capital improvement projects designed to expand and improve
the efficiency of its facilities.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security
Holders
Not applicable.
Item 4(a). Executive Officers of the Registrant
As of June 10, 1999, the executive officers and other key
personnel of the Company were as set forth below.
Name Age Position
- ---- --- --------
Bruce Davis 38 President
William Service 38 Chief Executive Officer
Jerry Scott 45 Vice President, Operations
Juanita Nelson 63 Secretary and Controller
The executive officers of the Company are appointed annually
for one year and hold office until their successors are
appointed.
Executive Officers:
Bruce Davis has served as President and Chairman of Board of
Directors since August 1998. For more than five years prior to
joining the Company, Mr. Davis was President of three companies
engaged in the restaurant business: Jaspers Food Management,
Inc. (1993-1999), CBW, Inc. (1995-1999), and Oregon Food
Management, Inc. (1996-present).
William Service has served as Chief Executive Officer and
Director since August 1998. For more than five years prior to
joining the Company, Mr. Service was the Chief Executive Officer
of three companies engaged in the restaurant business: Jaspers
Food Management, Inc. (1993-present), CBW, Inc. (1995-1999), and
Oregon Food Management, Inc. (1996-present).
Key Personnel:
Jerry Scott has served as Vice President, Operations since
August 1998. For more than five years prior to joining the
Company, Mr. Scott served as Vice President of Operations for
Jaspers Food Management, Inc. He served from November 1994 to
November 1995 as Regional Director of Operations of Macheezmo
Mouse Restaurants, Inc. and from June 1993 to September 1994 as
Director of Operations of Mission Investment Company.
Juanita Nelson has served as Controller since March 1985 and
as Secretary since February 1998. For more than five years prior
to joining the Company, Mrs. Nelson was the Office Manager of the
Red Lion Inns and Thunderbird Motor Inns corporate office.
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
The Company's Common Stock is traded on the NASDAQ SmallCap
System, under the symbol "ELMS."
The following table sets forth the high and low reported
sales prices of the Common Stock in the NASDAQ SmallCap Market
for the fiscal year quarters indicated.
Years Ended March 31
----------------------------------------------
1999 1998
----------------------------------------------
High Low High Low
---- --- ---- ---
1st Quarter $45/8 $2 3/4 $21/2 $21/6
2nd Quarter 57/8 35/8 31/8 2
3rd Quarter 5 1/4 315/16 4 1/2 27/8
4th Quarter 6 41/8 6 37/8
Although the Common Stock is traded on the NASDAQ SmallCap
System, there is a relatively low trading volume and, at times,
limited or sporadic quotations.
The Company has not paid or declared cash dividends on its
Common Stock. The Company intends to retain any future earnings
to finance growth and does not presently intend to pay dividends
or make distributions in cash other than the payment of cash in
lieu of functional shares in connection with stock splits, if
any, to the holders of Common Stock. Any future dividends will
be determined by the Board of Directors based on the Company's
earnings, financial condition, capital requirements, debt
covenants of other relevant factors.
As of June 29, 1999, the Company had 207 shareholders of
record.
Unregistered Sales Of Stock:
Sales of unregistered Common Stock made by the Company in
the last three fiscal years are as follows:
CBW Inc. acquired 705,000 restricted shares of the Common
Stock in the Company from Anita Goldberg and Rudolph Mazurosky on
August 25, 1998. The consideration paid by CBW, Inc. for the
Shares was $4,504,950. The shareholders of CBW, Inc. that
acquired the indirect beneficial ownership of the Company's
Common Stock as part of this transaction were William W. Service,
Bruce N. Davis, Thomas C. Connor, Corydon H. Jensen, Linda E.
Bolton (as Trustee under a Restated Trust Agreement dated
6/8/98), Ken Boettcher, Karen Brooks, Gregory Wendt and Donald W.
Woolley. The issuance was made pursuant to available exemptions
from the registration provisions of the Securities Act of 1933,
as amended (specifically, Section 4(2) of the Securities Act) and
relevant Blue Sky statutes. The shares are subject to transfer
restrictions and may only be transferred subject to compliance
with applicable federal and state securities laws.
Effective February 18, 1999, the Company merged with its
majority shareholder CBW Inc. ('CBW'), a closely held Oregon
corporation, in a transaction in which the Company was the
surviving corporation. In consideration for the issuance by the
Company of 770,500 new shares of the Company's restricted Common
Stock to the CBW shareholders and the assumption of approximately
$4 million in debt owed by CBW arising from CBW's acquisition of
the controlling block of the Company's restricted common stock on
August 25, 1998, the Company acquired all the stock and assets of
CBW including CBW's wholly owned subsidiary, CBW Food Company,
LLC (which by operation of merger is now the Company's wholly-
owned subsidiary). Each CBW shareholder received 144.4507 shares
of the Company's restricted Common Stock for every CBW share
owned. The shares of Company stock previously acquired by CBW, a
total of 705,000 shares, were concurrently transferred to the
Company and were canceled upon receipt thereof. The issuances
were made pursuant to available exemptions from the registration
provisions of the Securities Act of 1933, as amended
(specifically, Section 4(2) of the Securities Act) and relevant
Blue Sky statutes. The shares are subject to transfer
restrictions and may only be transferred subject to compliance
with applicable federal and state securities laws.
Effective March 31, 1999, the Company paid the sum of
$110,000 in cash and issued 209,620 shares of Common Stock to the
shareholders of GVL, namely Gary Weeks and Richard Buckley, as
part of the GVL Acquisition (disclosed in Item 1 under the sub-
caption "Recent
Developments and Acquisitions"). The issuances were made pursuant
to available exemptions from the registration provisions of the
Securities Act of 1933, as amended (specifically, Section 4(2) of
the Securities Act) and relevant Blue Sky statutes. The shares
are subject to transfer restrictions and may only be transferred
subject to compliance with applicable federal and state
securities laws.
Item 6. Selected Financial Data
The following selected financial data relating to the Company
should be read in conjunction with the Company's consolidated
financial statements and the related notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," other financial information included herein, and
Elmer's Restaurants, Inc. consolidated financial statements. The
selected financial data set forth below for the Company as of
March 31, 1998 and 1999 and for each of the three years in the
period ended March 31, 1999 are derived from the audited
financial statements included elsewhere herein. The selected
financial data set forth below for the Company as of and for the
period from inception to March 31, 1996 and the year ended March
31, 1997 are derived from the financial statements not included
elsewhere herein.
Elmer's Restaurants, Inc. and Subsidiaries
Selected Financial Data
for the year ended March 31,
1999 1998 1997
1996
Revenues $11,952,728 $1,591,293
$875,199 $94,852
Net income (loss) 290,512 205,270
(40,971) (213,912)
Net income (loss) per share 0.35 0.27
(.05) (0.28)
Total assets 13,046,684 259,675
263,676 267,277
Long-term notes payable,
less current portion 5,703,539 50,000
245,754 275,385
Total liabilities 8,348,029 258,962
463,539 426,169
Total shareholder's equity
(deficit) 4,698,655 713
(199,863) (213,912)
On August 25, 1998, CBW, Inc. ("CBW") acquired a controlling
interest in the then outstanding stock of Elmer's. On February
18, 1999, CBW merged with and into Elmer's. 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.
The results of operations for the year ended March 31, 1999 also
reflect a minority interest in the earnings of the Company
representing the separate 46.2% separate public ownership in
Elmer's from August 25, 1998 through February 17, 1999. The
financial position at March 31, 1999 also reflects the
acquisition of GVL on that date. 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.
New Accounting Pronouncements
New accounting pronouncements are discussed in Note 1 of
Notes to Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with
the "Selected Historical Financial Data" and the financial
statements of the Company and the accompanying notes thereto
included elsewhere herein. Certain information discussed below
may constitute forward-looking statements within the meaning of
the federal securities laws. Although the Company believes that
the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved. Forward-looking information
is subject to certain risks, trends and uncertainties that could
cause actual results to differ materially from projected results.
Among those risks, trends and uncertainties are the general
economic climate, costs of food and labor, consumer demand,
interest rate levels, restrictions imposed by the Company's debt
covenants, management control, availability of supplies, the
availability of financing and other risks associated with the
acquisition, development and operation of new and existing
restaurants. This list of risks of uncertainties is not
exhaustive.
Overview
On August 25, 1998, CBW, Inc. purchased 53.8% of Elmer's
Restaurants, Inc. then outstanding common stock from its then
president and chairman, Ms. Anita Goldberg, and her brother and
director, Rudolph Mazurosky. On February 18, 1999, Elmer's
Restaurants, Inc. merged with CBW, Inc.
In accordance with generally accepted accounting principles,
these transactions have been accounted for as a purchase of
Elmer's Restaurants, Inc. by CBW, Inc. and accordingly a new
basis of accounting, based on fair values, was established for
the assets and liabilities of Elmer's Restaurants, Inc. The
consolidated financial statements include the accounts of CBW,
Inc. for the years ended March 31, 1998 and 1997 (rather than the
previously reported results of Elmer's) and include the accounts
of CBW, Inc. for the year ended March 31, 1999 and of Elmer's
Restaurants, Inc. for the period August 31, 1998 through March
31, 1999 (with a minority interest in the income through February
17, 1999 representing the 46.2 % separate public ownership), as
well as the assets and liabilities of Grass Valley Ltd., Inc.,
which was acquired as of March 31, 1999.
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 results
of operations of Elmer's Restaurants, Inc. and Grass Valley Ltd.,
Inc. 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,
Inc. and supplements the following highlights of historical
results.
Highlights of historical results
The Company reported net income of approximately $290,500,
or $.35 per share for the year ended March 31, 1999, on sales of
approximately $11,953,000. After taking into account the pro
forma income tax provision as if the Company had been a taxable
company for the entire year, the Company reported net income, net
of pro forma income tax provision, of approximately $264,000 or
$.32 per share for the year ended March 31, 1999 compared to
approximately $133,000 of net income, net of pro forma income tax
provision, or $.17 per share for the year ended March 31, 1998.
The increase in net income, net of pro forma income tax
provision, is primarily attributable to the earnings of Elmer's
Restaurants, Inc. of approximately $301,000 for the period from
August 31, 1998, less the minority interest in income of
approximately $136,000 representing the 46.2% separate public
ownership of Elmer's Restaurants, Inc. from August 31, 1998 to
February 17, 1999.
During the fourth quarter of the Company's fiscal year,
Elmer's Restaurants, Inc. executed an option (which it acquired
at the time it merged with CBW, Inc.) to purchase Grass Valley
Ltd., Inc. ("GVL"), the operator of four restaurants in the
Portland area under the name Richard's Deli and Pub. This
acquisition was completed on the last day of the Company's fiscal
year and is reflected in the Company's March 31, 1999 balance
sheet. There are no operating results from the GVL acquisition
reflected in the Company's actual results of operations for the
year ended March 31, 1999.
During the year ended March 31, 1999, total assets increased
$12.8 million to $13 million. This increase is due primarily to
the assets related to Elmer's Restaurants, Inc. totaling
approximately $11.5 million and the acquisition of Grass Valley
Ltd., Inc. for approximately $1.2 million. At March 31, 1999,
total shareholders' equity increased $4.7 million primarily as a
result of the fair market value of the 46.2% separate public
ownership of Elmer's Restaurants, Inc. at the date of merger
totaling approximately $2.8 million, the $1.1 million approximate
fair value of stock issued in connection with the acquisition of
Grass Valley Ltd., Inc. and a $600,000 capital contribution by
the CBW, Inc. shareholders.
Pro Forma Results of Operations
As discussed above, the Company believes that discussion and
analysis of the Company's results of operations on a pro forma
basis, which include CBW, Inc. and Grass Valley Ltd., Inc.,
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 years ended March 31, 1999, 1998 and 1997, as
if the merger of CBW, Inc. and the acquisition of Grass Valley
Ltd., Inc., had occurred at the beginning of the periods after
giving effect to pro forma adjustments, including amortization of
goodwill, depreciation, interest expense, and related income tax
effects.
The 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 any future periods.
The following is a summary of the Company's pro forma
results of operations:
(Dollar amounts in thousands except per share data)
Year Ended
------------------------------------
- -----------------------------
March 31, 1999 March 31, 1998
March 31, 1997
------------------- --------------
- ----- ----------------------
Percent of
Percent of Percent of
Amount Revenues Amount
Revenues Amount Revenues
------ ---------- ------- ----
- ------ ------- ----------
Pro forma revenue $21,232 100.0% $19,763
100.0% $17,722 100.0%
Pro forma restaurant
costs and expenses 14,721 69.3 13,566
68.6 12,328 69.6
Pro forma general and
administrative expenses 4,861 22.9 4,678
23.7 4,315 24.3
Pro forma operating income 1,650 7.8 1,519
7.7 1,074 6.1
Pro forma non operating
income (expense) (508) (2.4) (618)
(3.1) (654) (3.7)
Pro forma net income 751 3.5 595
3.0 263 1.5
Pro forma earnings per share $0.47 $0.38
$0.17
Pro forma weighted average
shares outstanding 1,586,229 1,586,229
1,586,229
Pro Forma Revenue
(Dollar amounts in thousands except per share data)
Year Ended
--------------------------------------
- -----------------------------
March 31, 1999 March 31, 1998
March 31, 1997
------------------ --------------
- ----- ---------------------
Percent of
Percent of Percent of
Amount Revenues Amount
Revenues Amount Revenues
------ --------- ------ ----
- ------ ------ ----------
Restaurant operations:
Restaurant sales $18,255 86.0% $17,029
86.2% $15,955 90.0%
Lottery 2,354 11.1 2,074
10.5 1,112 6.3
------- ----- ------- -
- --- ------- ----
20,609 97.1 19,103
96.7 17,067 96.3
Franchise operations 623 2.9 660
3.3 655 3.7
------- ----- ------ -
- --- ------ ----
Total pro forma revenue $21,232 100.0% $19,763
100.0% $17,722 100.0%
======= ====== =======
====== ======= ======
Pro Forma Revenues. Pro forma revenues for the year ended March
31, 1999 were 7.4% greater than the comparable period in 1998,
primarily as a result of increased same store restaurant sales of
7.2% and an increase in pro forma lottery revenues of 13.5%. Pro
forma revenues for the year ended March 31, 1998 were 11.9%
greater than the comparable period in 1997 due to an increase in
restaurant sales of 7.4% and lottery revenues of 86.5%. The
Company anticipates further improvement in same store sales as it
roles out a new menu design in its second quarter and an ongoing
"outsert" menu program throughout fiscal year 2000.
Pro Forma Restaurant Costs and Expenses. As a percent of pro
forma revenues, pro forma food, beverage and supply costs were
28.8% in 1999 compared to 27.0% in 1998 and 26.0% in 1997. Pro
forma labor was 31.5% of pro forma total revenue in 1999 compared
to 31.9% in 1998 and 32.8% in 1997. Pro forma occupancy and
depreciation and amortization expenses totaled 9.0% of pro forma
revenue in 1999 compared to 9.7% in 1998 and 10.7% in 1997. The
increase in pro forma food, beverage and supply cost as a
percentage of pro forma revenue in 1999 over 1998 is principally
a result of the introduction of the new "outsert" menu items and
in-store training, promotions and development. The reduction in
pro forma labor as a percentage of pro forma revenues in 1999 is
driven by a 1% reduction in labor hours, particularly in the
later half of the year. The Company's reduction in pro forma
labor as a percentage of pro forma revenues in 1999 compared to
1998 occurred while Oregon's minimum wage rate increased 9.1% on
January 1, 1998 (from $5.50 to $6.00 an hour) and another 8.3%
increase on January 1, 1999 (from $6.00 to $6.50 per hour).
Washington's minimum wage rate increased 10.7% on January 1, 1999
from $5.15 to $5.70. The Company is aware that a further 14%
Washington state minimum wage increase (to match Oregon's at
$6.50) is scheduled for January 1, 2000. The Company is not
aware of any further state minimum wage increases scheduled in
states which the Company operates restaurants. The reduction in
pro forma occupancy and depreciation and amortization expenses as
a percentage of pro forma revenues in 1999 and in 1998 is
primarily due to the increase in pro forma revenues.
Pro Forma General and Administrative Expenses. Pro forma general
and administrative expenses were 22.9% of total pro forma revenue
in 1999 compared to 23.7% in 1998 and 24.3% in 1997. The
reduction as a percentage of pro forma revenues is the result of
increased management attention to overhead cost minimization,
particularly in the year ended March 31, 1999.
Pro Forma Non Operating Income (Expenses). This primarily
relates to pro forma net interest expenses which were 2.5% of
total pro forma revenues in 1999 compared to 3.1% in 1998 and
3.6% for 1997. The reduction in pro forma net interest expense
as a percentage of pro forma revenues is the result of scheduled
amortization principal payments and the 7.4% increase in
revenues.
Liquidity and Capital Resources
As of March 31, 1999, the Company had cash and equivalents
of approximately $604,000 representing an increase of
approximately $562,000. The increase resulted from cash provided
by operations totaling approximately $694,000, cash provided by
financing activities of
approximately $3,503,000 and cash used in investing activities of
approximately $3,635,000. Cash provided by financing activities
was primarily net proceeds from borrowings of approximately
$2,948,000 and capital contributions of $600,000. Cash used in
investing activities was primarily $3,438,000 used to finance the
business acquisitions, net of cash acquired. The significant
increase in other current assets and other current liabilities is
primarily the result of the merger of CBW, Inc. and Elmer's
Restaurants, Inc. and the acquisition of Grass Valley Ltd., Inc.
The Company's primary liquidity needs arise form debt
service on indebtedness incurred in connection with the merger of
CBW, Inc., operating lease requirements and the funding of
capital expenditures. As of March 31, 1999, the Company had
outstanding indebtedness for borrowed money of $2.6 million under
a term loan facility and $2.4 million real estate loan facilities
with Wells Fargo Bank and $1.25 million under a term loan
facility with Eagle's View Management, 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 at March 31, 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 Eagle's View Management 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 Eagle's View Management
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.
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 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
4 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.
Inflation
Certain of the Company's operating costs are subject to
inflationary pressures, of which the most significant are food
and labor costs. As of March 31, 1999, a significant percentage
of the Company's employees were paid wages equal to or based on
the state minimum hourly wage rates. Economic growth that would
reduce unemployment or make more jobs available in higher paying
industries could directly affect the Company's labor costs. The
Company believes that inflation has not had a material impact on
its results of operations for fiscal 1997, fiscal 1998 or fiscal
1999. Substantial increases in costs could have a significant
impact on the Company and the industry. If operating expenses
increase, management believes it can recover increased costs by
increasing prices to the extent deemed advisable considering
competition.
Seasonality
The seasonality of restaurant sales due to consumer spending
habits can be significantly affected by the timing of
advertising, competitive market conditions and weather related
events.
While restaurant sales for certain quarters can be stronger, or
weaker, there is no predominant pattern.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Special Note Regarding Forward-Looking Statements:
CERTAIN STATEMENTS IN THIS FORM 10-K UNDER "ITEM 1. BUSINESS,"
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS FORM
10-K CONSTITUTE "FORWARD-LOOKING STATEMENTS" WHICH WE BELIEVE ARE
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 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 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; 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-K.
The Company owned no derivative financial instruments at March
31, 1999, 1998 or 1997. 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 March 31, 1999, $1.3 million principal amount was
accruing interest at a variable rate. A rise in prevailing
interest rates could have adverse effects on the Company's
financial condition and results of operations.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included on pages F-1 to
F-15 of this Report.
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Financial Statements
as of March 31, 1998 and 1999 and for the years ended March 31,
1997, 1998 and 1999
Report of Independent Accountants
----------------------------------
To the Board of Directors and Shareholders
Elmer's Restaurants, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, changes in
shareholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Elmer's
Restaurants, Inc. and Subsidiaries (the Company) at March 31,
1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended March 31,
1999 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally
accepted auditing standards that require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Portland, Oregon
May 21, 1999
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1998 and 1999
March 31,
---------------------
ASSETS 1998 1999
------- --------
Current assets:
Cash and cash equivalents $42,189 $603,572
Accounts receivable 14,736 280,979
Inventories 79,954 372,584
Prepaid expenses and other 4,860 167,177
Income taxes receivable - 107,232
------- --------
Total current assets 141,739 1,531,544
Property, buildings and
equipment, net 103,496 6,882,822
Intangible assets, net of accumulated
amortization of $48,440 - 4,503,417
Other assets 14,440 128,901
-------- -----------
Total assets $259,675 $13,046,684
======== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion $10,731 $572,399
Accounts payable 130,883 839,781
Accrued expenses 67,348 165,140
Accrued payroll and related taxes - 294,170
------- -------
Total current liabilities 208,962 1,871,490
Notes payable, net of
current portion 50,000 5,703,539
Deferred income taxes - 773,000
------- ---------
Total liabilities 258,962 8,348,029
-------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value;
500,000 shares authorized, none issued
Common stock, no par value;
10,000,000 shares authorized,
770,500 shares and 1,586,229
shares outstanding March 31,
1998 and 1999, respectively 295,020 4,746,520
Accumulated deficit (294,307) (47,865)
--------- ----------
Total shareholders' equity 713 4,698,655
-------- ----------
Total liabilities and
shareholders' equity $259,675 $13,046,684
======== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Statements of Operations
for the years ended March 31, 1997, 1998 and 1999.
Years ended March 31,
1997 1998 1999
Revenues $875,199 $1,591,293 $11,952,728
-------- ---------- -----------
Costs and expenses:
Food, beverage and
supplies 176,324 564,115 3,406,602
Labor and related 377,263 420,427 3,735,043
Occupancy costs 130,991 138,058 741,078
Depreciation and
amortization 33,674 56,263 341,170
General and
administrative
expenses 158,910 172,312 2,683,534
-------- --------- ----------
877,162 1,351,175 10,907,427
------- --------- ----------
Income (loss)
from operations (1,963) 240,118 1,045,301
Other income (expense):
Interest income 38 48 18,545
Interest expense (23,411) (34,896) (458,804)
Gain (loss) on
disposal of assets (15,635) - 6,477
-------- -------- ---------
Income (loss)
before provision
for income taxes (40,971) 205,270 611,519
Income tax provision - - (185,000)
-------- ------- ---------
Income (loss)
before minority
interest (40,971) 205,270 426,519
Minority interest - - (136,007)
-------- ------- ---------
Net income
(loss) $(40,971) $205,270 $290,512
========= ======== ========
Net income (loss)
per share $(.05) $.27 $.35
======== ======== ========
Weighted-average number
of shares outstanding 770,500 770,500 838,583
======= ======= =======
(Unaudited Pro Forma Information)
Income (loss) before
benefit (provision)
for income taxes $(40,971) $205,270 $611,519
Benefit (provision)
for income taxes 9,000 (72,000) (211,000)
Minority interest - - (136,007)
-------- --------- ---------
Pro forma net
income (loss) $(31,971) $133,270 $264,512
========= ======== ========
Pro forma net income
(loss) per share $(.04) $.17 $.32
========= ======== ========
Weighted-average number
of shares outstanding 770,500 770,500 838,583
======== ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(Deficit)
for the years ended March 31, 1997, 1998 and 1999
Retained
Earnings
Common Stock (Accumulated
--------------------- Deficit)
Shares Amount
------ ------ ------------
Balance, March 31,
1996 770,500 $55,020 $(213,912)
Net loss - - (40,971)
------- ------- ---------
Balance, March 31,
1997 770,500 55,020 (254,883)
Debt to equity
conversion - 240,000 -
Dividend distributions - - (244,694)
Net income - - 205,270
------- ------- ---------
Balance, March 31,
1998 770,500 295,020 (294,307)
Capital contributions - 600,000 -
Dividend distributions - - (44,070)
Issuance of common stock
in conjunction with
merger (Note 8) 606,109 2,803,000 -
Issuance of common stock
in conjunction with
acquisition of Grass
Valley Ltd., Inc.
(Note 8) 209,620 1,048,500 -
Net income - - 290,512
------- --------- ---------
Balance, March
31, 1999 1,586,229 $4,746,520 $(47,865)
========= ========== =========
The accompanying notes are an integral part of the consolidated
financial statements.
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended March 31, 1997, 1998 and 1999
Years ended March 31,
-----------------------------
1997 1998 1999
---- ---- ----
Cash flows from operating
activities:
Net income (loss) $(40,971) $205,270 $290,512
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 33,674 56,263 341,170
Deferred income taxes - - (7,000)
Gain (loss) on disposition
of assets 15,635 - (6,477)
Minority interest in
earnings of consolidated
subsidiary - - 136,007
Changes in assets
and liabilities:
Receivables (1,714) (13,022) 122,076
Inventories (38,938) (27,835) 29,279
Prepaid expenses (4,886) 2,498 11,402
Other assets (11,245) (1,525) (41,559)
Accounts payable and
accrued expenses 23,841 23,606 (51,156)
Income taxes - - (130,119)
------- ------ ---------
Net cash provided by
(used in) operating
activities (24,604) 245,255 694,135
--------- ------- -------
Cash flows from investing activities:
Additions to property,
buildings and equipment (6,093) (13,657) (217,515)
Proceeds from sale of assets - - 20,000
Payment for business acquisition,
net of cash acquired - - (3,438,127)
------ ------- ----------
Net cash used in
investing activities (6,093) (13,657) 3,635,642)
------- ------- ----------
Cash flows from financing activities:
Proceeds from notes payable 86,144 7,271 7,092,500
Payments on notes payable (72,615) (1,214)(4,145,540)
Capital contributions - 5,760 600,000
Dividend distributions - (244,694) (44,070)
------- -------- ----------
Net cash provided by
(used in) financing
activities 13,529 (232,877) 3,502,890
------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents (17,168) (1,279) 561,383
Cash and cash equivalents,
beginning of year 60,636 43,468 42,189
------- ------- -------
Cash and cash equivalents,
end of year $43,468 $42,189 $603,572
======= ======= ========
Supplemental disclosures of
cash flow information:
Conversion of debt to equity $ - $234,240 $ -
======= ======== ========
Cash paid for:
Interest $23,411 $34,896 $422,023
======= ======= ========
Taxes $ - $ - $467,619
======= ======= ========
The accompanying notes are an integral part of the consolidated
financial statements.
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. The Company and Summary of Significant Accounting Policies:
The Company and Basis of Presentation
Elmer's Restaurants, Inc. and Subsidiaries (the Company), an
Oregon corporation, owns and operates eleven Elmer's Pancake &
Steak House restaurants, five Ashley's Deli restaurants, four
Richard's Deli and Pub restaurants and sells franchises that give
franchisees the right to operate under the name Elmer's Pancake &
Steak House for a specific restaurant or region. Franchises and
Company owned stores are located throughout the western United
States.
On August 25, 1998, CBW, Inc. (CBW) acquired a controlling
interest (705,000 shares representing 53.8% of the outstanding
stock) of the then outstanding common stock of Elmer's
Restaurants, Inc. (Elmer's) for $4,500,000. On February 18,
1999, CBW merged with and into Elmer's. Pursuant to the terms of
the merger, Elmer's Restaurants, Inc. and Subsidiaries was the
surviving corporation. The merger was consummated by Elmer's
issuance of 770,500 shares of Elmer's restricted common stock to
CBW shareholders in exchange for the 705,000 shares previously
acquired. In connection with the merger, Elmer's assumed
approximately $4 million in debt owed by CBW arising from CBW's
acquisition of the controlling block of stock on August 25, 1998.
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. As a result of these transactions, the financial
statements for the years ended March 31, 1997 and 1998 include
the results of operations of CBW rather than the previously
reported results of Elmer's. Elmer's entered into a new
financing agreement whereby it borrowed funds to refinance
existing debt and debt of CBW totaling approximately $1,750,000.
Elmer's also used existing cash to reduce debt by approximately
$1,000,000. Each CBW shareholder received 144.4507 shares of
Elmer's restricted common stock for every CBW share owned.
On March 31, 1999, the Company acquired Grass Valley Ltd., Inc.
(GVL), which is the owner and operator of four delicatessen-style
restaurants operating under the name of Richard's Deli and Pub
located in Oregon (see Note 8).
The consolidated financial statements include the accounts of CBW
for the years ended March 31, 1997, 1998 and 1999, and Elmer's
from August 31, 1998 (the results of operations of Elmer's from
August 25, 1998 to August 31, 1998 is not material to the results
of operations of the Company), as well as the consolidated
balance sheet of its wholly-owned subsidiary, Grass Valley Ltd.,
Inc. at March 31, 1999. All material intercompany accounts and
transactions have been eliminated. The minority interest
included in the financial statements represents the 46.2%
separate public ownership in Elmer's from August 31, 1998 through
February 17 1999.
1. The Company and Summary of Significant Accounting Policies,
Continued:
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Disclosure of Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and
cash equivalents and accounts receivable approximated fair value
as of March 31, 1998 and 1999 because of the relatively short
maturity of these instruments. The carrying value of notes
payable approximated fair value as of March 31, 1998 and 1999
based upon interest rates and terms available for the same or
similar loans.
Cash and Cash Equivalents
The Company considers all short-term, highly-liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
The Company invests its excess cash in interest bearing deposits
with major banks and in U.S. Treasury securities. These
investments generally mature within 90 days and are therefore
subject to minimal risk. Management routinely reviews these
investments in order to limit the amount of credit exposure to
any one financial institution.
Inventories
Inventories of food, beverages and restaurant supplies are stated
at the lower of first-in, first-out cost or market.
Property, Buildings and Equipment
Property, buildings and equipment are stated at cost. Cost of
property, buildings and equipment reflect purchase accounting
adjustments related to the acquisition of 53.8% of the
outstanding common stock of Elmer's by CBW on August 25, 1998 and
purchase accounting adjustments related to the merger of CBW with
and into Elmer's on February 18, 1999, whereby the remaining
46.2% of the outstanding common stock of Elmer's was deemed to
have been acquired by CBW on that date (see Note 8).
1. The Company and Summary of Significant Accounting Policies,
Continued:
Property, Buildings and Equipment, Continued
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Lives used for
calculating depreciation and amortization rates for the principal
asset classifications are as follows: buildings - 35 years;
automobiles, furniture, fixtures and equipment - 3 to 7 years;
leasehold improvements - life of lease or applicable shorter
period. Maintenance and repairs are expensed as incurred;
renewals and improvements are capitalized. Upon disposal of
assets subject to depreciation, the related costs and accumulated
depreciation are removed and resulting gains and losses are
reflected in the consolidated statements of operations.
Intangible Assets
The cost over fair value of net tangible assets of acquired
companies (goodwill) and trademarks are amortized on a straight-
line basis over 30 years. The cost of intangible assets reflects
purchase accounting adjustments related to the acquisition of
53.8% of the outstanding common stock of Elmer's by CBW on August
25, 1998 and the merger of CBW with and into Elmer's on February
18, 1999, whereby the remaining 46.2% of the outstanding common
stock of Elmer's was deemed to have been acquired by CBW on that
date (see Note 8).
Management of the Company reviews the carrying value of
capitalized tangible and intangible assets on a regular basis to
reach a judgment concerning possible permanent impairment of
value. These reviews consider, among other factors: (1) the net
realizable value of each major classification of assets, (2) the
cash flow associated with the assets, and (3) significant changes
in the extent or manner in which major assets are used.
Management believes the carrying value of assets is less than the
estimated fair value.
Franchise Operations
Initial license fees from individual and area franchise sales are
recognized as revenue when substantially all of the terms and
conditions of the franchise agreement are met. Elmer's has sold
area franchises to several restaurant operators in various
western states. The terms of the agreements entered into with
each franchisee protect the territory for the operator and
provide standard building blueprints, recipes, formulas and
methods of food preparation. The term of the franchise is 25
years. Continuing franchise fees (based on a percentage of
sales) are recognized as income when earned.
1. The Company and Summary of Significant Accounting Policies,
Continued:
Income Taxes
CBW has been treated for federal income tax purposes as an S
corporation under Subchapter S of the Internal Revenue Code of
1986, as amended, since May 22, 1997 (and was a limited liability
company from organization to that date) and has been treated as a
S corporation for state income tax purposes under comparable
state tax laws. As a result, CBW's earnings through February 17,
1999 have been taxed directly to CBW's shareholders, at their
individual federal and state income tax rates, rather than to the
Company. The earnings of Elmer's from August 25,1998 through
March 31, 1999 are taxed as a taxable corporation.
Net Income (Loss) Per Share
Basic earnings per share (EPS) is computed using the weighted-
average number of shares of common stock outstanding for the
period. Diluted EPS is computed using the weighted-average
number of shares of common stock and dilutive common stock
equivalents outstanding during the period, if any. Common
equivalent shares from stock options, if any, are excluded from
the computation when their effect is antidilutive.
All references to share and per share information have been
adjusted to give effect to the 770,500 shares of restricted
common stock issued by Elmer's in connection with the merger of
CBW on February 18, 1999 with and into Elmer's as described
above.
Impact of Recently Issued Accounting Standards
The Company adopted FASB SFAS No. 130, "Reporting Comprehensive
Income," which establishes requirements for disclosure of
comprehensive income. The objective of SFAS No. 130 is to report
a measure of all changes in equity that result from transactions
and economic events other than transactions with owners.
Comprehensive income is the total of net income and all other non-
owner changes in equity. Comprehensive income did not differ
significantly from reported net income or loss in the periods
presented.
The Company has also adopted FASB SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." This
statement changes the way public companies report information
about segments of their business in their annual financial
statements and requires selected segment information in quarterly
reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides,
the material countries in which it holds assets and reports
revenues, and its major customers.
1. The Company and Summary of Significant Accounting Policies,
Continued:
Unaudited Pro Forma Financial Information
As more fully described in Note 3, CBW has been 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 (provisions) for income taxes that
would have been recorded had CBW been a taxable corporation for
all periods presented.
2. Property, Buildings and Equipment:
March 31,
1998 1999
Land $ - $2,246,700
Buildings - 1,862,400
Furniture, fixtures and equipment 68,610 2,226,211
Leasehold improvements 98,896 813,796
Automobiles - 12,632
------- ----------
167,506 7,161,739
Less accumulated depreciation
and amortization (64,010) (278,917)
--------- ----------
$103,496 $6,882,822
======== ==========
3. Income Taxes:
CBW has been treated for federal income tax purposes as an S
corporation under Subchapter S of the Internal Revenue Code of
1986, as amended, since May 22, 1997 (and was a limited liability
company from organization to that date) and has been treated as
an S corporation for state income tax purposes under comparable
state tax laws. As a result, CBW's earnings through February 17,
1999 have been taxed directly to CBW shareholders, at their
individual federal and state income tax rates, rather than to the
Company.
The earnings of Elmer's from August 31, 1998 through February 17,
1999 are taxed as a taxable corporation. Effective with the
merger of CBW with and into Elmer's (see Note 8), on February 18,
1999 (Termination date) CBW's S corporation status will
terminate. Subsequent to the Termination date, the Company will
be subject to federal and state income taxes on its earnings.
3. Income Taxes, Continued:
The income tax provision of $185,000 for the year ended March 31,
1999 relates to the results of operations of Elmer's from August
31, 1998 through February 17, 1999 and the results of operations
of the Company from February 18, 1999 through March 31, 1999.
As of March 31, 1999, the deferred tax liability of $773,000
primarily represents the difference between the book basis of
property, buildings and equipment and the related tax basis of
approximately $2,200,000.
The unaudited benefit (provision) for income taxes has been
computed in accordance with SFAS No. 109 as if the Company had
been a taxable corporation for all periods presented:
Years ended March 31,
----------------------------
1997 1998 1999
---- ---- ----
(Unaudited Pro Forma Information)
Currently payable:
Federal $ - $ - $(160,000)
State - - (34,000)
------- ------- ----------
- - (194,000)
Deferred income taxes 9,000 (72,000) (17,000)
------- -------- ---------
$9,000 $(72,000) $(211,000)
====== ========= ==========
A reconciliation of the federal income tax rate to the Company's
pro forma effective income tax rate is as follows:
Years ended March 31,
----------------------------
1997 1998 1999
---- ---- ----
(Unaudited Pro Forma Information)
Income tax at statutory rate 34.0% (34.0)% (34.0)%
Federal graduated rates (15.3) 3.5 -
State income taxes, net of
federal income tax benefit 4.2 (4.4) (3.5)
Other, net (0.9) (0.2) 3.1
------ ----- -----
22.0% (35.1)% (34.4)%
======= ===== =======
3. Income Taxes, Continued:
Deferred income taxes are the result of provisions in the tax
laws that either require or permit certain items of income or
expense to be reported for income tax purposes in different
periods than they are reported for financial reporting. The
unaudited pro forma temporary differences that give rise to the
change in the deferred tax assets were net operating losses
generated of $41,000 in the year ended March 31, 1997 and net
operating losses utilized of $205,000 and $57,500 for the years
ended March 31, 1998 and 1999, respectively.
The net operating losses generated (utilized) resulted in an
unaudited pro forma increase in the deferred tax asset of $9,000
for the year ended March 31, 1997 and a decrease in the deferred
tax asset of $72,000 and $17,000 for the years ended March 31,
1998 and 1999, respectively. The unaudited pro forma deferred
income tax asset arising from the net operating loss carryforward
is $17,000 and $0 at March 31, 1998 and 1999, respectively.
4. Notes Payable:
1998 1999
Notes payable to shareholders,
collateralized by stock, due
at various dates through 1999,
monthly installments total $2,698
including interest at 10.75% $10,731 $ -
Note payable to affiliate,
interest at 10.5%, due 2000 50,000 -
Note payable to financial
institution, collateralized by
substantially all assets of the
Company excluding real estate,
due September 2004, monthly
principal installments of
approximately $39,400 plus
interest at 7.70% - 2,600,000
Notes payable to financial
institutions, collateralized
by real estate, due at various
dates through February
2008, monthly installments
total approximately $22,500
including interest at rates
as follows:
Fixed rate of 8.15% - 480,000
Fixed rate of 8.18% - 1,275,006
Fixed rate of 8.25% - 605,567
Note payable to financing company,
collateralized by substantially all
assets of the Company, interest
only payments due monthly at 12%,
principal balance due February 2004 - 1,262,500
Note payable to others,
collateralized by stock
of a subsidiary, due August
2001, interest at 10% - 52,865
------- ---------
60,731 6,275,938
Less current portion 10,731 572,399
------- ---------
Net of current portion $50,000 $5,703,539
======= ==========
4. Notes Payable, Continued:
Certain notes payable contain restrictive covenants pertaining to
financial ratios and minimum cash flow coverage. The most
restrictive covenant requires 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 at March 31, 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 (defined
as net income before taxes, interest expense, depreciation and
amortization) to total interest expense plus the prior period
current maturities of long-term debt of at least 2.25 to 1.0.
The Company has available a $250,000 line of credit with Wells
Fargo Bank, which matures September 1, 2000, and is
collateralized by substantially all assets of the Company
excluding real estate. Interest on the unpaid balance accrues at
a rate of prime plus 1%. The prime rate at March 31, 1999 was
7.75%. There was no amount outstanding at March 31, 1999.
Future maturities of notes payable for years ending March 31 are:
2000 - $572,399; 2001 - $582,574; 2002 - $574,887; 2003 -
$574,538; 2004 - $1,845,699; and thereafter - $2,125,841.
All interest costs incurred during the years ended March 31,
1997, 1998 and 1999 have been expensed during the respective
periods.
5. Leases:
Minimum fiscal year rental commitments for the years ending
March 31 under operating leases for property, buildings and
equipment with noncancelable terms of more than one year are:
2000 - $681,785; 2001 - $646,339; 2002 - $581,981; 2003 -
$497,749; 2004 - $348,298; and thereafter - $836,118.
The leases generally provide for additional rentals based upon a
specified percentage of sales and require the Company to pay
certain other costs. Rental expense on operating leases amounted
to approximately $127,000, $135,000 and $848,000 for the years
ended March 31, 1997, 1998 and 1999.
6. Related Party Transactions:
Amounts outstanding with Jaspers Food Management, Inc. (JFMI) are
approximately as follows:
Years ended March 31,
-----------------------------
1997 1998 1999
---- ---- ----
Accounts payable (receivable)
and other liabilities $110,000 $76,000 $(3,873)
Note payable 50,000 50,000 -
Accounts payable and other liabilities due to affiliates are due
on demand and accrue interest at an annual rate of 10.5% based on
the outstanding balance over 28 days.
Transactions applicable to JFMI were approximately as follows:
Years ended March 31,
-----------------------------
1997 1998 1999
---- ---- ----
Interest expense $ 10,000 $ 15,000 $ 14,000
Labor and related expenses 377,000 420,000 452,000
Under the terms of a management services agreement, JFMI provides
substantially all store management, accounting, human resources,
training and other administrative services related to the
operation of the five Ashley's Deli restaurants as disclosed in
labor and related expenses above.
Included in accounts receivable at March 31, 1999 is a note
receivable from a franchisee and director of the Company in the
amount of $97,857. The note is due on demand with interest at
7%.
7. Restaurant and Franchise Operations, Continued:
Summary results of operations and other selected financial
information from restaurant operations and franchise operations
are presented after elimination of intercompany transactions:
Years Ended March 31,
------------------------------------
1997 1998 1999
------ ----- -----------
Revenues:
Restaurant operations $875,199 $1,591,293 $11,591,646
Franchise operations - - 809,264
Intercompany
eliminations - - (448,182)
-------- ---------- -----------
Consolidated $875,199 $1,591,293 $11,952,728
======== ========== ===========
Income (loss) from operations:
Restaurant
operations $(1,963) $240,118 $649,753
Franchise
operations - - 395,548
-------- -------- --------
Consolidated $(1,963) $240,118 $1,045,301
======== ======== ==========
Capital and intangible expenditures:
Restaurant
operations $6,093 $13,657 $191,748
Franchise
operations - - 25,767
------ ------- ---------
Consolidated $6,093 $13,657 $217,515
====== ======= ========
Depreciation and amortization:
Restaurant
operations $33,674 $56,263 $261,635
Franchise
operations - - 79,535
------- ------- --------
Consolidated $33,674 $56,263 $341,170
======= ======= ========
Assets:
Restaurant
operations $259,675 $11,571,468
Franchise
operations - 1,475,216
-------- -----------
Consolidated $259,675 $13,046,684
======== ===========
The number of Company-owned stores and operating franchises at
March 31, is as follows:
1997 1998 1999
Company owned stores 5 5 20
Operating franchises - - 18
8. Acquisitions and Merger:
CBW Acquisition of Elmer's
On August 25, 1998, CBW acquired a controlling interest (705,000
shares representing 53.8% of the outstanding stock) in Elmer's
for $4,500,000. The total cost of the acquisition of $4,612,013,
including $112,013 of related acquisition costs, was provided by
approximately $4,000,000 of debt financing and the balance in
CBW's own cash. The purchase method of accounting has been used
to record this transaction and a new basis of accounting was
established for the assets and liabilities of Elmer's to the
extent of the change in ownership based on fair values as
follows:
Current assets $ 1,190,536
Property, buildings and equipment 3,790,027
Intangible assets 2,171,048
Other assets 43,587
Liabilities assumed (2,163,185)
Deferred income taxes (420,000)
-----------
$ 4,612,013
===========
CBW Merger with Elmer's
On February 18, 1999, CBW merged with and into Elmer's, in a
transaction in which Elmer's was the surviving corporation. In
consideration for the issuance by Elmer's of 770,500 shares of
Elmer's restricted common stock to CBW shareholders and the
assumption of approximately $4 million in debt owed by CBW
arising from CBW's acquisition of the controlling block of
Elmer's common stock on August 25, 1998, Elmer's acquired all the
stock and assets of CBW including CBW's wholly-owned subsidiary,
CBW Food Company, LLC.
Each CBW shareholder, received 144.4507 shares of Elmer's
restricted common stock for every CBW share owned. The shares of
Elmer's stock previously acquired by CBW, a total of 705,000
shares, were concurrently transferred to Elmer's and were
canceled upon receipt thereof. In further consideration for the
issuance and to secure various indemnification obligations of CBW
shareholders under the merger agreement, Elmer's and the
individual CBW shareholders executed an escrow agreement for a
period of one year from the date of closing of the merger
transaction.
Elmer's entered into a new financing agreement in connection with
the merger whereby it borrowed funds to refinance existing debt
and debt of CBW totaling approximately $1,750,000. Elmer's also
used existing cash to reduce debt by approximately $1,000,000.
8. Acquisitions and Merger, Continued:
The merger transaction has been accounted for as a purchase of
the remaining 46.2% separate public ownership of Elmer's by CBW.
A new basis of accounting was established for the assets and
liabilities of Elmer's, based on fair values, upon execution of
the merger agreement. The total estimated fair value of assets
acquired in the merger transaction is comprised of the following:
Estimated value of 606,109 shares
of outstanding common stock of Elmer's
(other than CBW ownership) at the date
of the merger $2,803,000
Assumed liabilities 2,123,804
Accrued expenses related to the transaction 20,000
Deferred income taxes 320,000
----------
$5,266,804
==========
The purchase price has been allocated to the assets to be
acquired and obligations to be assumed, based on the estimate of
the 46.2% proportionate fair values of the assets and
liabilities, as follows:
Current assets $839,988
Property, buildings and equipment 3,173,264
Intangible assets 1,220,701
Other assets 32,851
---------
$5,266,804
==========
8. Acquisitions and Merger, Continued:
Acquisition of Grass Valley Ltd., Inc. (dba Richard's Deli and
Pub)
Effective March 31, 1999, Elmer's executed a stock exchange
agreement with Grass Valley Ltd., Inc. (GVL), a closely held
Oregon corporation, in a transaction in which Elmer's acquired
100% of the outstanding stock of GVL in consideration for the
payment by Elmer's of $110,000 in cash and the issuance of
209,620 restricted shares of Elmer's common stock to the GVL
shareholders. GVL is now a wholly-owned and operating subsidiary
of the Company.
The total cost of the merger transaction is comprised of the
following:
Cash $110,000
Estimated value of 209,620 shares of common
stock of Elmer's issued in connection with
merger transaction 1,048,500
Assumed liabilities 181,161
Expenses related to the transaction 44,000
----------
$1,383,661
==========
The excess of the estimated fair value of the assets acquired
($1,383,661) over the historical cost ($223,553) has been
allocated to goodwill ($1,160,108), as the historical costs of
all tangible assets are assumed to be equal to their fair value.
Summary
The following table represents the unaudited pro forma results of
operations for the years ended March 31, 1998 and 1999 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 respective 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.
8. Acquisitions and Merger, Continued:
Summary, Continued
Year ended Year ended
March 31, March 31,
1998 1999
---------- -----------
Total revenue $19,763,000 $12,231,597
Income from operations $ 1,519,000 $ 1,649,526
Income before provision for
income taxes $ 901,000 $ 1,141,293
Net income $ 595,000 $ 751,278
Net income per share of common
stock $ .38 $ .47
Weighted average number of shares
outstanding 1,586,229 1,586,229
Number of Company owned stores 20 20
9. Stock Options
The Board of Directors adopted a stock option plan (Plan),
subject to shareholder approval, which provides for the award of
incentive stock options to key employees and the award of non-
qualified stock options to employees and non-employee Directors.
Under the terms of the Plan, the option price is determined as
the fair value of the Company's common stock at the time the
option is granted. Under the Plan, 320,000 shares of common
stock are authorized for issuance. Options are exercisable upon
vesting. Options generally vest 20% annually and expire 10-15
years after the date of grant.
On February 18, 1999, the Board of Directors granted options to
acquire 169,500 shares of common stock of the Company at an
exercise price of $4.75. The following table summarizes
information about stock options outstanding as of March 31, 1999:
Weighted- Options
Exercisable
Average Weighted-
Weighted-
Range of Remaining Average
Average
Exercise Number Contractual Exercise Number
Exercise
Price Outstanding Life Price Exercisable
Price
- -------- ----------- ----------- --------- -----------
- ----------
$4.75 169,500 12.24 years $4.75 0
$4.75
There were 150,500 shares of common stock reserved for the grant
of stock options under the 1999 Plan at March 31, 1999.
The Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123 (SFAS 123) defines a fair value
based method of accounting for employee stock options and similar
equity instruments and encourages all entities to adopt that
method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the method of accounting
prescribed by APB 25. Entities electing to continue to use the
accounting treatment in APB 25 must make pro forma disclosures of
net income and, if presented, earnings per share, as if the fair
value based method of accounting defined in SFAS 123 had been
adopted.
The total value of options granted during 1999 was computed as
approximately $576,000, which would be amortized on a pro forma
basis over the vesting period of the options. The weighted
average fair market value of the option grants during 1999 was
$4.75 per share.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123. However,
assuming compensation cost had been determined based on fair
value at the date of grant, and recognized as expense on a
straight-line basis over the vesting period of the options,
consistent with the provisions of SFAS No. 123, there would be no
compensation expense for the year ended March 31, 1999.
For purposes of the SFAS No. 123 calculation discussed above, the
fair value of each option grant was estimated as of the date of
grant using Black-Scholes option pricing methodology with the
following weighted average assumptions:
Risk-Free interest rate 6.0%
Expected life 8.64 years
Expected volatility 59%
Expected dividend yield 0%
The effects of applying SFAS 123 in this pro forma disclosure are
not indicative of future amounts, and additional awards are
anticipated in future years.
10. Contingencies:
From time to time, the Company is involved in litigation relating
to claims arising in the normal course of its business. The
Company maintains insurance coverage against potential claims in
amounts which it believes to be adequate. Management believes
that it is not presently a party to any litigation, the outcome
of which would have a material adverse effect on the Company's
business or operations.
Item 9. Changes in the Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors of the Company is
included under the caption "Election of Directors" in the
Company's definitive proxy statement (the "1999 Proxy Statement")
for its 1999 Annual Meeting of Shareholders filed or to be filed
not later than 120 days after the end of the fiscal year covered
by this Report and is incorporated herein by reference.
Information with respect to executive officers of the Company is
included under Item 4(a) of Part I of this Report. Information
with respect to compliance with Section 16(a) of the Securities
Exchange Act is included under "Section 16(a) Beneficial
Ownership Reporting Compliance" in the 1999 Proxy Statement.
Item 11. Executive Compensation
Information with respect to executive compensation is
included under the caption "Executive Compensation" in the 1999
Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Information with respect to security ownership of certain
beneficial owners and management is included under the caption
"Voting Securities and Principal Shareholders" and "Election of
Directors" in the 1999 Proxy Statement incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and
related transactions with management is included under the
caption "Certain Transactions" in the 1999 Proxy Statement is
incorporates herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 10-K
The Financial Statements listed in the accompanying index on page
F-1 are filed as part of this Report.
(a)(1) Financial Statements and Schedules Page in
this Report
-----------
Report of Independent Accountants....................... F-1
Consolidated Balance Sheets at
March 31, 1999 and 1998............................... F-2
Consolidated Statements of Income
For the years ended March 31, 1999, 1998
and 1997.............................................. F-3
Consolidated Statements of Changes in Shareholders'
Equity for the years ended March 31, 1999
1998, and 1997........................................ F-4
Consolidated Statements of Cash Flows
For the years ended March 31, 1999,
1998, and 1997........................................ F-5
Notes to Consolidated Financial Statements.............. F-6
No other schedules are included because the required
information is inapplicable or is presented in the financial
statements or related notes thereto.
(a)(2) Exhibits
--------
2(i) * Plan of Merger, dated February 18, 1999, between Elmer's
Restaurants, Inc. and CBW Inc. (Incorporated herein by reference
from Exhibit 2 of the Current Report on Form 8-K filing dated
March 4,1999.)
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).
9(i) * Voting Trust Agreement dated February 18, 1999, between
Ken Boettcher, Karen Brooks, Bruce N. Davis, Cordy Jensen,
William W. Service, Gregory W. Wendt, and Linda Bolton (as
Trustee Under a Restated Trust Agreement dated June 8,
1998),(collectively, certain shareholders of Elmer's Restaurants,
Inc.), and Bruce N. Davis, William W. Service and Cordy
Jensen,(collectively, the Voting Trustees). (Incorporated herein
by reference from Exhibit 9 of the Current Report on Form 8-K
filing dated March 4,1999).
10.1 * Area Franchisee - Unit Franchisee Agreement dated July 10,
1978 by and between Elmer's Colonial Pancake & Steak House, Inc.
and Paul H. and Jacqueline M. Welch, Dale M. and Sandra Lee
Elmer. Incorporated by reference to Exhibit 10.30 of the
Company's Registration Statement on Form S-18, Registration No. 2-
98298-S (the "Form S-18 Registration").
10.2 * Lease Agreement dated June 18, 1987 by and between Dale M.
Elmer and Sandra Lee Elmer and Elmer's Pancake & Steak House,
Inc., and addenda thereto. Incorporated by reference to Exhibit
10.5 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1989 (the "1989 Form 10-K") and Exhibit 10.3
of the December 31, 1991 Form 10-Q.
10.3 * Franchise Agreement between the Company and Paul H. Welch
and Jacqueline M. Welch dated March 23, 1993. Incorporated by
reference to Exhibit 10.9 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1993 (the "1993 Form 10-
K").
10.4 * Franchise Development Option Agreement between the Company
and Paul H. Welch and Jacqueline M. Welch dated May 3, 1993.
Incorporated by reference to Exhibit 10.10 of the 1993 Form 10-K.
10.5 * Commercial Loan Note, dated May 18, 1995, issued by the
Company to The Bank of California, N.A. and addendum thereto.
Incorporated by reference to Exhibit 10.9 of the Form 10-K for
the fiscal year ended March 31, 1995.
10.6 * Loan Agreement, dated December 21, 1995, between the
Company and Wells Fargo Bank, N.A., successor-by-merger to First
Interstate Bank of Oregon, N.A. and the First Amendment thereto,
dated as of March 18, 1997, Promissory Note dated December 21,
1995 issued by the Company to Wells Fargo Bank, N.A., successor-
by-merger to First Interstate Bank of Oregon, N.A. in connection
with the Loan Agreement, and Deeds of Trust given by the Company
to Ticor Title Insurance Company, Trustee, for benefit of Wells
Fargo Bank, N.A., successor-by-merger to First Interstate Bank of
Oregon, N.A. in connection with the Loan Agreement. Incorporated
by reference to Exhibit 10.6 of the Form 10-K for the fiscal year
ended March 31, 1997 ("1997 Form 10-K").
10.7 * Credit Agreement, dated as of March 18, 1997, between the
Company and Wells Fargo Bank, N.A. and Promissory Note dated
March 18, 1997, issued by the Company to Wells Fargo Bank, N.A.
in connection with the Credit Agreement and Promissory Note dated
May 17, 1995, issued by the Company to Wells Fargo Bank, N.A.,
successor-by-merger to First Interstate Bank of Oregon, N.A.,
which is governed by the Credit Agreement. Incorporated by
reference from Exhibit 10.8 of the 1997 Form 10-K.
10.8 * Promissory Notes, dated March 31, 1997, issued by Paul H.
Welch and Jacqueline M. Welch to the Company. Incorporated by
reference from Exhibit 10.8 of the 1997 Form 10-K.
10.9 * Stock Purchase Agreement, dated as of February 13, 1997,
between the Company and Dale Elmer. Incorporated by reference
from Exhibit 10.9 of the 1997 Form 10-K.
10.10 * Letter Agreement dated March 23, 1998, between the
Company and Wells Fargo Bank, N.A., Promissory Note dated March
30, 1998, issued by the Company to Wells Fargo Bank, N.A., and
Deed of Trust and Assignment of Rents and Leases dated as of
March 23, 1998, given by the Company to Wells Fargo Bank
(Arizona), N.A., Trustee, for the benefit of Wells Fargo Bank,
N.A.
10.11 * Stock Purchase Agreement, dated as of July 9, 1998,
between Anita Goldberg and Rudolph Mazurosky and CBW Inc.
(Incorporated herein by reference from Exhibit 1 of the Schedule
13D filing dated September 3, 1998).
10.12 * Shareholder Agreement, dated as of August 21, 1998, among
Elmer's Restaurants, Inc., CBW Inc., Anita Goldberg, and Rudolph
Mazurosky. (Incorporated herein by reference from Exhibit 2 of
the Schedule 13D filing dated September 3, 1998.)
10.13 * Amended and Restated Loan Agreement, dated as of August
24, 1998, between CBW Inc. and Eagle's View Management Company,
Inc. (Incorporated herein by reference from Exhibit 3 of the
Schedule 13D filing dated September 3, 1998).
10.14 * Stock Purchase Agreement, dated as of July 9, 1998,
between CBW Inc. and Thomas Connor and Donald Woolley.
(Incorporated herein by reference from Exhibit 4 of the Schedule
13D filing dated September 3, 1998).
10.15 * Letter to Linda Bolton, dated as of August 25, 1998, from
Bruce Davis, Jensen, and William Service. (Incorporated herein by
reference from Exhibit 5 of the Schedule 13D filing dated
September 3, 1998).
10.16 * Letter to Thomas Connor and Donald Woolley, dated as of
August 25, 1998, from Jaspers Food Management, Inc. and Oregon
Food Management, Inc.
(Incorporated herein by reference from Exhibit 6 of the Schedule
13D filing dated September 3, 1998).
10.17 * Owner and Voting Agreement, dated as of May 22, 1997,
among various parties, as amended by a First Amendment to Owner
and Voting Agreement, dated as of July 9, 1998. (Incorporated
herein by reference from Exhibit 7 of the Schedule 13D filing
dated September 3, 1998).
10.18 * Share Transfer Agreement, dated as of May 22, 1997, among
various parties, as amended by a First Amendment to Share
Transfer Agreement, dated as of August 25, 1998. (Incorporated
herein by reference from Exhibit 8 of the Schedule 13D filing
dated September 3, 1998).
10.19 * Agreement dated as of September 3, 1998 among CBW Inc.,
Bruce N. Davis, William W. Service, Corydon H. Jensen, Thomas C.
Connor, Donald Woolley, and Linda E. Bolton.(Incorporated herein
by reference from Exhibit 9 of the Schedule 13D filing dated
September 3, 1998).
10.20 * Merger Agreement, dated February 18, 1999, between
Elmer's Restaurants, Inc., CBW Inc., and Ken Boettcher, Karen
Brooks, Thomas C. Conner, Bruce N. Davis, Cordy Jensen, William
W. Service, Gregory W. Wendt, Donald Woolley, and Linda Bolton(as
Trustee Under a Restated Trust Agreement dated June 8, 1998),
(collectively, all the shareholders of CBW Inc.). (Incorporated
herein by reference from Exhibit 10 (i)(a) of the Current Report
on Form 8-K filing dated March 4,1999).
10.21 * Stock Escrow Agreement, dated February 18,1999, between
Elmer's Restaurants, Inc., and Ken Boettcher, Karen Brooks,
Thomas C. Conner, Bruce N. Davis, Cordy Jensen, William W.
Service, Gregory W. Wendt, Donald Woolley, and Linda Bolton(as
Trustee Under a Restated Trust Agreement dated June 8, 1998)
(collectively, all the shareholders of CBW Inc.), William W.
Service as the representative of the Escrow Indemnitors, and
AterWynne LLP, as escrow agent..(Incorporated herein by reference
from Exhibit 10 (i)(b) of the Current Report on Form 8-K filing
dated March 4,1999).
10.22 * Registration Rights Agreement, dated February 18,1999,
between Elmer's Restaurants, Inc., and Ken Boettcher, Karen
Brooks, Thomas C. Conner, Bruce N. Davis, Cordy Jensen, William
W. Service, Gregory W. Wendt, Donald Woolley, and Linda Bolton(as
Trustee Under a Restated Trust Agreement dated June 8, 1998)
(collectively, all the shareholders of CBW Inc.). (Incorporated
herein by reference from Exhibit 10 (i)(c) of the Current Report
on Form 8-K filing dated March 4,1999).
10.23 Credit Agreement, dated as of February 17, 1999, between
the Company and Wells Fargo Bank, N.A., Revolving Line of Credit
Note dated February 17, 1999, Promissory Note dated February 17,
1999 and Term Note dated February 17, 1999 issued by the Company
to Wells Fargo Bank, N.A. and
Deed of Trust (and Rider thereto) given by the Company to Ticor
Title Insurance Company, Trustee, for benefit of Wells Fargo
Bank, N.A
10.24 Continuing Guaranty (not to exceed the principal sum of
$5,300,000 plus interest thereon), dated as of February 17, 1999,
issued by the Company's subsidiary, Elmer's Pancake and Steak
House, Inc. to Wells Fargo Bank, N.A.
10.25 Continuing Guaranty (not to exceed the principal sum of
$5,300,000 plus interest thereon), dated as of February 17, 1999,
issued by the Company's subsidiary, CBW Food Company, LLC to
Wells Fargo Bank, N.A.
10.26 Continuing Security Agreement (Rights to Payment and
Inventory) and Rider thereto, dated as of February 17, 1999,
issued by the Company to Wells Fargo Bank, N.A.
10.27 Security Agreement (Equipment and Fixtures) and Schedule
thereto, dated as of February 17, 1999, issued by the Company to
Wells Fargo Bank, N.A.
10.28 Continuing Security Agreement (Rights to Payment and
Inventory) and Rider thereto, dated as of February 17, 1999,
issued by the Company's subsidiary, Elmer's Pancake and Steak
House, Inc. to Wells Fargo Bank, N.A.
10.29 Security Agreement (Equipment) and Rider thereto, dated as
of February 17, 1999, issued by the Company's subsidiary, Elmer's
Pancake and Steak House, Inc. to Wells Fargo Bank, N.A.
10.30 Continuing Security Agreement (Rights to Payment and
Inventory) and Rider thereto, dated as of February 17, 1999,
issued by the Company's subsidiary, CBW Food Company, LLC to
Wells Fargo Bank, N.A.
10.31 Security Agreement (Equipment) and Rider thereto, dated as
of February 17, 1999, issued by the Company's subsidiary, CBW
Food Company, LLC to Wells Fargo Bank, N.A.
10.32 Second Amendment to Loan Agreement and Security Agreement,
dated as of February 18, 1999, between the Company, CBW Inc., and
Eagle's View Management Company, Inc. (exhibits omitted).
10.33 Promissory Note, dated February 17, 1999, issued by the
Company to Wells Fargo Bank, N.A.
10.34 Rate Letter, dated February 17, 1999 issued by Wells Fargo
Bank, N.A. to the Company.
10.35 Term Note, dated February 17, 1999, issued by the Company
to Wells Fargo Bank, N.A.
10.36 Deed of Trust and Assignment of Rents and Leases, dated as
of February 17, 1999, given by the Company to Wells Fargo Bank
(Arizona), N.A., Trustee for the benefit of Wells Fargo Bank,
N.A.
10.37 Second Trust Deed, dated as of February 18, 1999, given by
the Company to Chicago Title Insurance Company, Trustee for the
benefit of Eagle's View Management Company, Inc.
10.38 Second Trust Deed, dated as of February 18, 1999, given by
the Company to Alliance Title & Escrow Corp., Trustee, for the
benefit of Eagle's View Management Company, Inc.
10.39 Second Trust Deed, dated as of February 18, 1999, given by
the Company to Fidelity National Title Company of Oregon, for the
benefit of Eagle's View Management Company, Inc.
10.40 Second Trust Deed, dated as of February 18, 1999, given by
the Company to Chicago Title Insurance Company, for the benefit
of Eagle's View Management Company, Inc.
10.41 Second Deed of Trust, dated as of February 18, 1999, given
by the Company to Chicago Title Insurance Company for the benefit
of Eagle's View Management Company, Inc.
10.42 First Amendment to Promissory Note and Acknowledgment of
Reduction of Principal, dated February 18, 1999, between the
Company, CBW, Inc., and Eagle's View Management Company, Inc.
10.43 First Modification of Commercial Deed of Trust, dated
February 17, 1999, between the Company and Wells Fargo Bank, N.A.
successor-by-merger to First Interstate Bank of Oregon, N.A.
10.44 First Modification of Deed of Trust and Assignment of
Leases, dated February 17, 1999, between the Company and Wells
Fargo Bank, N.A.
10.45 Rider to Deed of Trust, dated February 17, 1999, issued by
the Company to and for the benefit of Wells Fargo Bank, N.A.
10.46 First Modification of Commercial Deed of Trust, dated
February 17, 1999, between the Company and Wells Fargo Bank,
N.A., successor-by-merger to First Interstate Bank of Oregon,
N.A.
99(i) * Fairness Opinion, dated January 13, 1999, issued by Veber
Partners to the Board of Directors of Elmer's Restaurants, Inc.
(Incorporated herein by reference from Exhibit 99 (i) of the
Current Report on Form 8-K filing dated March 4,1999).
22.1 List of Subsidiaries.
27.1 Financial Data Schedule.
* Previously filed exhibits.
+ Due to the impracticability of obtaining electronic copies of
these exhibits, hard copies of these exhibits will be furnished
by the Company upon the Securities and Exchange Commission's
request.
(b) Reports on Form 8-K. Two reports on Form 8-K were
filed by the Company during the last quarter of the fiscal year
ended March 31, 1999.
A Current Report on Form 8-K was filed on March 5, 1999
and amended June 14, 1999 reporting the merger of the Company's
then majority shareholder, CBW, Inc. with the Company, leaving
the Company as the sole surviving entity.
A Current Report on Form 8-K was filed on April 15,
1999 and amended on June 14, 1999 reporting the Company's
acquisition of the common stock and assets of Grass Valley Ltd.,
Inc. ("GVL"). GVL is now a wholly-owned subsidiary of the
Company.
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
Dated: June 29, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of Elmer's Restaurants, Inc., in the capacities and on the
dates indicated.
SIGNATURE TITLE
DATE
- --------- -----
- ----
/s/ Bruce N. Davis Chairman of the Board &
President June 29, 1999
- -----------------------------
Bruce N. Davis
/s/ William W. Service Chief Executive Officer &
Director June 29, 1999
- ----------------------------- (Principal Executive & Financial
Officer)
William W. Service
/s/ Juanita Nelson Secretary & Controller
June 29, 1999
- ----------------------------- (Principal Accounting Officer)
Juanita Nelson
/s/ Thomas C. Connor Director
June 29, 1999
- -----------------------------
Thomas C. Connor
/s/ Paul Welch Director
June 29, 1999
- -----------------------------
Paul Welch
/s/ Corydon H. Jensen Director
June 29, 1999
- -----------------------------
Corydon H. Jensen
Richard Williams Director
June 29, 1999
- -----------------------------
Richard Williams
/s/ Donald Woolley Director
June 29, 1999
- -----------------------------
Donald Woolley