SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 21, 2003 or
[X] 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
11802 S.E. Stark St.
Portland, Oregon 97216 (503) 252-1485
(ADDRESS OF PRINCIPAL (ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER,
EXECUTIVE OFFICES) 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 [X]
Number of shares of Common Stock outstanding at September 1, 2003: 2,041,709
ELMER'S RESTAURANTS, INC.
-------------------------
INDEX
PAGE
NUMBER
------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets,
July 21, 2003 (Unaudited) and
March 31, 2003
Condensed Consolidated Statements of Operations, 4
Sixteen weeks ended July 21, 2003 and July 22, 2002
(Unaudited)
Condensed Consolidated Statements of Cash Flows, 5
Sixteen weeks ended July 21, 2003 and July 22, 2002
(Unaudited)
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 10
Statements
Item 3. Quantitative and Qualitative Disclosures about Market 14
Risk
Item 4. Controls and Procedures 15
PART II: OTHER INFORMATION AND SIGNATURES
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
ELMER'S RESTAURANTS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 21, 2003 MARCH 31, 2003
------------------- ------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,482,899 $ 2,200,263
Marketable securities 746,294 760,441
Accounts receivable 253,186 260,848
Notes receivable - franchisees and related parties, current portion 189,293 81,771
Inventories 413,072 430,737
Prepaid expenses and other 513,422 227,142
Income taxes receivable 6,117 121,617
------------------- ------------------
Total current assets 4,604,283 4,082,819
Notes receivable - franchisees and related parties, net of current portion 198,088 212,026
Property, buildings and equipment, net 7,037,370 7,075,969
Goodwill 4,897,743 4,897,743
Intangible assets 602,709 602,709
Principal debt service account for convertible debt 239,881 208,929
Other assets 284,707 309,108
------------------- ------------------
Total assets $ 17,864,781 $ 17,389,303
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion $ 332,308 $ 332,810
Accounts payable 1,160,564 1,118,167
Accrued expenses 440,093 314,136
Accrued payroll and related taxes 476,038 486,915
------------------- ------------------
Total current liabilities 2,409,003 2,252,028
Notes payable, net of current portion 4,346,124 4,439,170
Deferred income taxes 959,056 948,000
------------------- ------------------
Total liabilities 7,714,183 7,639,198
------------------- ------------------
Commitments and contingencies
Shareholders' equity
Common stock, no par value; 10,000,000 shares authorized, 2,041,709 shares
issued and outstanding. 7,283,139 7,283,139
Retained earnings 2,849,984 2,486,879
Accumulated other comprehensive gain (loss), net of taxes 17,475 (19,913)
------------------- ------------------
Total shareholders' equity 10,150,598 9,750,105
------------------- ------------------
Total liabilities and shareholders' equity $ 17,864,781 $ 17,389,303
=================== ==================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
ELMER'S RESTAURANTS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIXTEEN WEEKS ENDED
---------------------------------------------
JULY 21, July 22,
2003 2002
-------------------- ---------------------
(Unaudited) (Unaudited)
REVENUES $ 10,059,012 $ 9,438,069
-------------------- ---------------------
COSTS AND EXPENSES:
Cost of restaurant sales:
Food and beverage 3,099,959 2,649,753
Labor and related costs 3,398,561 3,421,296
Restaurant operating costs 1,378,674 1,287,817
Occupancy costs 635,805 612,559
Depreciation and amortization 252,147 221,032
Restaurant opening and closing expenses - 9,717
General and administrative expenses 670,902 687,328
Loss (gain) on sale of land, buildings and equipment 4,071 (755,346)
-------------------- ---------------------
9,440,119 8,134,156
-------------------- ---------------------
INCOME FROM OPERATIONS 618,893 1,303,913
OTHER INCOME (EXPENSE):
Interest income 24,756 72,347
Interest expense (115,993) (134,151)
Loss on debt extinguishment - (97,500)
Gain (loss) on sale of marketable securities 3,449 (55,934)
-------------------- ---------------------
Income before provision for income taxes 531,105 1,088,675
Income tax provision (168,000) (375,593)
-------------------- ---------------------
NET INCOME $ 363,105 $ 713,082
==================== =====================
PER SHARE DATA:
Net income per share - Basic $ 0.18 $ 0.35
==================== =====================
Weighted average number of
common shares outstanding - Basic 2,041,728 2,058,003
==================== =====================
Net income per share - Diluted
common shares outstanding $ 0.17 $ 0.32
==================== =====================
Weighted average number of
common shares outstanding - Diluted 2,131,478 2,229,839
==================== =====================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
ELMER'S RESTAURANTS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the 16 weeks ended
-------------------------------------------
JULY 21, JULY 22,
2003 2002
-------------------- ------------------
Cash flows from operating activities:
Net income $ 363,105 $ 713,082
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 252,147 221,032
Net loss (gain) on disposition of property 4,071 (755,346)
Gain (loss) on sale of marketable securities (3,449) 55,934
Loss on debt extinguishment - 97,500
Changes in assets and liabilities:
Current assets (383,953) (202,380)
Other assets 24,401 (55,829)
Accounts payable 42,397 (275,317)
Accrued expenses 96,609 134,174
Income taxes 115,500 316,627
-------------------- ------------------
Net cash provided by operating activities 510,828 249,477
-------------------- ------------------
Cash flows from investing activities:
Additions to property, buildings and equipment (220,119) (301,913)
Purchases of available-for-sale securities (146,100) (115,381)
Proceeds from sale of available-for-sale securities 230,611 -
Business acquisition - (314,263)
Issuance of note receivable - (129,488)
Principal collected on note receivables 29,416 37,893
Proceeds from sale of assets 2,500 1,319,356
-------------------- ------------------
Net cash (used in) provided by investing activities (103,692) 496,204
-------------------- ------------------
Cash flows from financing activities:
Repurchase of convertible notes - (747,500)
Net change in principal debt service accounts (30,952) 157,995
Payments on notes payable (93,548) (81,725)
-------------------- ------------------
Net cash used in financing activities (124,500) (671,230)
-------------------- ------------------
Net change in cash and cash equivalents 282,636 74,451
Cash and cash equivalents, beginning of period 2,200,263 654,211
-------------------- ------------------
Cash and cash equivalents, end of period $ 2,482,899 $ 728,662
==================== ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 115,993 $ 134,151
==================== ==================
Income taxes $ 52,500 $ 60,100
==================== ==================
Supplemental disclosures of non-cash transactions:
Sale of equipment for note receivable $ - $ 455,631
==================== ==================
Change in unrealized gain (loss) on available-for-sale securities, net of taxes $ 48,471 $ (60)
==================== ==================
Change in fair market value of interest rate swap agreement $ (11,083) $ -
==================== ==================
Forgiveness of notes receivable as partial consideration for
purchase of property, equipment and goodwill 175,625
==================== ==================
Notes payable issued or assumed in conjunction with
acquisition of certain restaurants $ - $ 74,538
==================== ==================
Note receivable issued for franchise fee receivable $ 123,000 $ -
==================== ==================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
ELMER'S RESTAURANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
These interim financial statements do not include all the information and
footnotes necessary for a fair presentation of financial position and results of
operations and cash flows in conformity with generally accepted accounting
principles in the United States of America. These condensed financial statements
should be read in conjunction with the financial statements and related notes
contained in the Company's Annual Report on Form 10-K for the year ended March
31, 2003. Operating results reflected in the interim consolidated financial
statements are not necessarily indicative of the results that may be expected
for the year ended March 29, 2004.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position of the Company and its
subsidiaries, and their results of operations and cash flows.
The Company had comprehensive income of $37,388 for the sixteen weeks ended July
21, 2003. This was composed of an increase in the market value of
available-for-sale securities of $48,471 (net of taxes) partially offset by the
liability associated with an interest rate swap agreement of $11,083 (net of
taxes).
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires business combinations initiated after June 30,
2001, to be accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separate from goodwill. Recorded
goodwill and intangibles have been evaluated against this new criteria and no
changes were considered necessary to the previously recorded intangibles. SFAS
No. 142 requires the use of a nonamortization approach to account for purchased
goodwill and certain intangibles. Under a nonamortization approach, goodwill and
certain intangibles (those deemed to have an indefinite life) will be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles are
determined to be more than their fair value. The Company's intangible assets
were tested for impairment in the third quarter of the fiscal year ended March
31, 2003 and no impairment was found.
Interest rate swap agreement - In June 2003, and in conjunction with the
modification of the Wells Fargo real estate debt agreement discussed below, the
Company entered into an interest rate swap agreement with Wells Fargo to reduce
the impact of changes in interest rates on its floating rate mortgage. The debt
modification and related swap agreement effectively changes the Company's
interest rate exposure on the Wells Fargo real estate debt to a fixed percentage
of 6.17%. The interest rate swap agreement matures May 24, 2010.
Under the terms of the swap agreement, the Company has committed to paying or
receiving interest on the spread between 30-day LIBOR and a fixed rate of 3.92%.
If 30-day LIBOR exceeds 3.92%, the Company receives interest income from the
bank equal to the spread. If 30-day LIBOR is less than 3.92%, the Company makes
interest payments to the bank equal to the spread. The 30-day LIBOR rate is
fixed on a monthly basis by the bank.
The swap is inversely correlated to the related hedged long-term debt and is
therefore considered an effective cash flow hedge of the underlying long-term
debt. The level of effectiveness of the hedge is measured by changes in the fair
value of the hedged long-term debt resulting from fluctuations in interest
rates. As a matter of policy, the Company does not enter into derivative
transactions for trading or speculative purposes.
The interest rate swap agreement qualifies as a cash flow hedge under Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS no. 133 requires that the fair value
of derivative instruments to be recorded and changes in the fair value of the
6
derivative instruments to be recognized in other comprehensive income. As of
July 21, 2003 the fair market value of this agreement results in a liability of
$11,100 (net of tax effect) and recognition of $11,100 in other comprehensive
loss.
Stock options - SFAS No. 123, Accounting for Stock-Based Compensation, 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. It encourages,
but does not require, the companies to record compensation costs for stock-based
employee compensation plans at fair value. The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations.
SFAS No. 123 was amended by SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure - An Amendment of FASB Statement No.
123, which among other things, requires more prominent disclosures in both
annual and interim financial statements. The Company has adopted the disclosure
provisions of SFAS No. 148.
The Company complies with the disclosure-only provisions of SFAS No. 148 and no
compensation cost has been recognized for the plan. Had compensation cost for
the stock-based compensation plan been determined, based on the fair value of
options at the date of grant consistent with the provisions of SFAS No. 123, the
Company's pro forma net income and pro forma earnings per share would have been
as follows:
July 21, July 22,
2003 2002
--------------- ----------------
Net income - as reported $ 363,105 $ 713,082
Net income - pro forma $ 338,670 $ 679,946
Diluted earnings per share -
as reported $ 0.17 $ 0.32
Diluted earnings per share -
pro forma $ 0.16 $ 0.30
---------------------------------------------------------------------------
RECENT TRANSACTIONS
Purchase of Cornell Oaks Property
---------------------------------
July 29, 2003 the Company purchased a one-acre site in Beaverton, Oregon for
$775,000. Construction has begun and the restaurant is expected to open
mid-December, 2003. The Company has secured, but not yet drawn upon project
financing of approximately $1.6 million.
Franchise Opening.
-----------------
Elmer's newest franchised restaurant opened on July 21, 2003. The 5,000 square
foot restaurant in Coeur d'Alene, Idaho occupies a converted Village Inn site.
Purchase of Cooper's Deli and Pub
---------------------------------
July 1, 2002 the Company acquired three Cooper's Deli units located in Salem,
Oregon, from Cooper's Inc. The Cooper's units are substantially similar to the
Company's existing deli operations. Purchase consideration included $100,000
cash, a $66,500, two-year promissory note, $11,500 in assumed liabilities and
the assumption of a $155,000 promissory note due to the Company. The acquisition
cost of $333,000 included $100,000 in tangible assets and $233,000 in goodwill.
7
Repurchase of convertible debt
------------------------------
June 28, 2002 the Company repurchased half ($650,000) of its 10% convertible
notes, paying a 15% premium over face value. As permitted by the early adoption
provisions of SFAS No. 145 - Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections, the total premium
of $97,500 was recorded as a loss on extinguishment. In addition to reducing the
Company's debt, this transaction eliminates the potential obligation to issue up
to 105,000 shares of common stock upon conversion and reduced the Company's
required balances in and contributions to, the debt service account by half.
Relocation of Richard's Deli & Pub
----------------------------------
May 28, 2002 the Company relocated one of two Hillsboro, Oregon units to a
nearby retail mall. The prior landlord's bankruptcy, combined with the
superiority of the new space, made the decision to move compelling. The Company
terminated its occupancy lease and recorded a $77,000 loss on the surrender of
leasehold improvements. The Company entered into a five-year lease for
approximately 4,000 sq. ft. at the new location. This is larger than the
operating requirement; therefore the Company has subleased 1,900 sq. ft. of the
new space to a non-competing use.
Sale of Southern Oregon Elmer's
-------------------------------
The quarter ended July 22, 2002 results include a gain on sale of land, building
and equipment related to the sale of three company owned restaurants. Effective
May 7, 2002 Elmer's Restaurants, Inc. (the "Company") executed asset purchase
and franchise agreements with Southern Oregon Elmer's LLC (the "Buyer"),
refranchising three of the Company's Elmer's restaurants located in Grants Pass,
Medford and Roseburg, Oregon. The Company sold substantially all the assets of
those locations in consideration for $1,385,500 in cash and promissory notes
valued at $349,500. The Buyer signed 25-year franchise agreements for each
location and operates the locations under the Elmer's Breakfast o Lunch o
Dinner(TM) name.
The Buyer has signed a development agreement to open an additional two units
within five years. The first unit in Klamath Falls, Oregon opened October 23,
2002.
The principals of Southern Oregon Elmer's LLC, Robert Brutke and David Thomason,
have substantial industry experience. They are both past-presidents of the
Oregon Restaurant Association, Mr. Thomason operates a 10-unit Carl's Jr.
franchise from Carl Karcher Enterprises and Mr. Brutke has operated a number of
independent concepts in the southern Oregon market, including Brutke's Wagon
Wheel in Roseburg, Oregon.
As a result of this transaction, the Company posted a one-time after tax gain of
approximately $504,000 or $.25 per share in the quarter ending July 22, 2002.
For the year ended April 1, 2002, revenues from the three restaurants were $5.07
million, contributing $332,000 in earnings before taxes and interest expense.
The Company agreed to provide a limited amount of seller financing. The Company
holds notes receivable totaling $364,000, all but $198,000 is due within the
next year.
In valuing the restaurants, the Company considered discounted historical cash
flows, future capital spending requirements, as well as the impact on the
Company's franchise program. The Company believes the consideration paid to be
fair, from a financial point of view, to the Company's shareholders. The
franchise agreements with the Buyer are comparable to other recent Company
franchise agreements.
The Company has assigned its rights and obligations under the occupancy leases
for the Medford and Roseburg locations. The Company remains a guarantor of the
Medford lease until April 2007. The Company's guarantee of the Roseburg lease
could extend until 2018 if the Buyer exercises its options in 2003, 2008 and
2013. The Company has subleased the Grants Pass location to the Buyer for five
years under substantially the same terms and conditions as the underlying master
lease. Provided all parties are in good standing under the lease at the end of
the sublease, the Grants Pass landlord has agreed to lease directly to the Buyer
under substantially similar terms.
The Buyer has indemnified the Company against all losses incurred as a result of
the Company's obligations as a Guarantor. This indemnification is personally
guaranteed by Mssrs. Brutke and Thomason and their spouses.
8
However, in the event of default by the Buyer of the terms of the occupancy
leases, and the failure of Mssrs. Brutke and Thomason to make good on their
personal guarantees, the Company could be required to pay all rent and other
amounts due under the terms of the lease for the remainder of the guarantee
term. In the event of default, the Company expects it would exercise its right
to reoccupy and continue to operate the restaurants as Elmer's Breakfast o Lunch
o Dinner(TM).
The Buyer's obligations under the franchise agreements, promissory notes, lease
assignments and sublease are guaranteed by the Buyer and personally by Mssrs.
Brutke and Thomason.
Purchase of Vancouver, Oregon Elmer's
-------------------------------------
April 15, 2002 the Company acquired an Elmer's restaurant located in Vancouver,
Washington from franchisee and former board member, Paul Welch for approximately
$250,000 in cash and assumed liabilities. The Company has entered into a
long-term occupancy lease at the same location, and continues to operate the
location as an Elmer's restaurant. The purchase price was allocated to the
tangible assets of the restaurant. The Company has spent approximately $148,000
remodeling the facility.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS No. 150 establishes standards for classification
and measurement of certain financial instruments with characteristics of both
liabilities and equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period after June 15, 2003. The Company's
management does not expect that the application of the provisions of this
statement will have a material effect on the Company's consolidated financial
statements.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments
including certain derivatives embedded in other contracts. This statement is
effective for contracts entered into or modified after June 30, 2003. The
Company's management does not expect that the application of the provisions of
this statement will have a material effect on the Company's consolidated
financial statements.
In January 2003, FASB issued Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities. This interpretation clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements, and
requires existing unconsolidated variable interest entities to be consolidated
by their primary beneficiaries if the entities do not effectively disperse risks
among parties involved. The Company's management does not expect that the
application of the provisions of this interpretation will have a material impact
on the Company's consolidated financial statements.
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure--an
Amendment of FASB Statement No. 123." This statement amends FASB Statement No.
123, "Accounting for Stock-Based Compensation," to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this statement
amends the disclosure requirements of statement No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. Management intends to continue using the intrinsic
value method for stock-based employee compensation arrangements and, therefore,
does not expect that the application provisions of this statement will have a
material impact on the Company's condensed consolidated financial statements.
Additional required disclosures have been included in the financial statements.
In November 2002, FASB issued Interpretation No. 45 (FIN 45), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This interpretation elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the
9
fair value of the obligation undertaken in issuing a guarantee. The Company has
complied with the disclosure requirements of FIN 45. The initial recognition and
initial measurement provisions shall be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. Management does not
expect that the application of the provisions of this interpretation will have a
material impact on the Company's condensed consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities. The Company
has adopted this statement and there was no material impact on the condensed
consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
Among other things, this statement rescinds FASB Statement No. 4, "Reporting
Gains and Losses from Extinguishment of Debt," and an amendment of that
statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." The Company adopted the provisions of SFAS No. 145
under its early application provisions in the first quarter of 2003. The Company
recorded a loss on extinguishment of debt totaling $97,500 that is included in
"Other income (expense)" on the condensed consolidated financial statements.
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Elmer's Restaurants, Inc. (the "Company" or "Elmer's") (NASDAQ Small Cap Market
symbol: ELMS), located in Portland, Oregon, is a franchisor and operator of
full-service, family oriented restaurants under the names "Elmer's Breakfast o
Lunch o Dinner" and "Mitzel's American Kitchen" and an operator of delicatessen
restaurants under the names "Ashley's", "Cooper'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 franchises or operates a total of 36 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. The restaurants are primarily freestanding buildings, ranging in size
from 4,600 to approximately 9,000 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.
The menu offers an extensive selection of items for breakfast, lunch and dinner.
CRITICAL ACCOUNTING POLICIES
The Company's reported results are affected by the application of certain
accounting policies that require subjective or complex judgments. These
judgments involve estimates that are inherently uncertain and may have a
significant impact on our quarterly or annual results of operations and
financial condition. Changes in these estimates and judgments could have
significant effects on the Company's results of operations and financial
condition in future years. We believe the Company's most critical accounting
policies cover accounting for long-lived assets - specifically property,
buildings and equipment depreciation thereon and the valuation of intangible
assets. Additional critical accounting policies govern revenue recognition and
accounting for stock options.
Property, Buildings and Equipment
---------------------------------
When the Company purchases property, buildings and equipment, the assets are
recorded at cost. However, when the Company acquires an operating restaurant or
business, the Company must allocate the purchase price between the fair market
value of the tangible assets acquired and any excess to goodwill. The fair
market value
10
of restaurant equipment fixtures and furnishings in an operating restaurant is
difficult to separate from the going concern value of the restaurant. Most of
the value of the equipment is due to the fact that it is in the restaurant and
working. The Company values in place equipment with reference to replacement
cost, age and condition, and utility in its intended use.
Intangible Assets
-----------------
The Company reviews the valuation of its intangible assets annually based on its
third quarter financial statements. If the fair values of the intangibles were
less than their recorded values, an impairment loss would be recognized. The
fair values of the reporting units are estimated using multiples of earnings
before interest, taxes, depreciation and amortization. The market for these
intangibles is limited and the realizable value will differ from the fair values
estimated by using a multiple of earnings.
Depreciation
------------
Property, buildings and equipment are depreciated using the straight-line method
over their estimated useful lives. Leasehold improvements are amortized on a
straight-line method over their estimated useful lives or the term of the
related lease, whichever is shorter. Differences between the realized lives and
the estimated lives could result in changes to the Company's results from
operations in future years, as well as changes in the rate of recurring capital
expenditures.
Revenue Recognition
-------------------
The Company's revenue is primarily from cash and credit card transactions. As
such, restaurant revenue is generally recognized upon receipt of cash or credit
cards receipts. Franchise fees based upon a percent of the franchisees gross
sales are recognized as the franchisees' sales occur. Revenue from the lottery,
which includes traditional ticket based games and video poker games is recorded
on a commission basis, that is net of state regulated payouts. Expenses are
recorded using accrual accounting based upon when goods and services are used.
Stock Options
-------------
The Company accounts for its stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. Based on this
methodology the Company has not recorded any compensation costs related to its
stock options since all options have been issued at an exercise price equal to
or greater than the market value of the Company's stock at the time of issuance.
HIGHLIGHTS OF HISTORICAL RESULTS. The Company reported net income of $363,105 or
$.18 per share for the quarter ended July 21, 2003, on sales of $10.1 million as
compared to reported net income of $713,082 or $.35 per share on sales of $9.4
million for the first quarter ended July 22, 2002. Results for the previous
quarter ended July 22, 2002 reflect the after tax gain on sale of the three
Southern Oregon restaurants of $504,000 or $.25 per share net of tax, partially
offset by losses totaling $.07 per share from the debt repurchase, relocation
and losses on investments. There were no comparable transactions in the current
quarter, which accounts for the decrease in net income of approximately
$350,000. The Company's total assets as of July 21, 2003 were $17.9 million, an
increase of $475,000 from March 31, 2003. In the sixteen weeks ended July 21,
2003, working capital increased $383,000 while notes payable decreased $94,000.
Cash provided by operating activities totaled $511,000 for the period ended July
21, 2003 compared to $249,000 for the period ended July 22, 2002. The increase
in cash provided from operations is primarily attributable to the pay down of
negative working capital attributable to the sale of the three Southern Oregon
units in the prior quarter. The Company has also placed a $350,000 deposit with
the Company's primary food vendor in exchange for improved pricing. The deposit
increased prepaid expenses and reduced cash provided by operations. The deposit
will be returned to the Company when an electronic funds transfer agreement is
finalized with this food vendor.
COMPARISON OF RESULTS OF OPERATIONS. The following discussion and analysis
presents the Company's results of operations for the 16 weeks ended July 21,
2003 and July 22, 2002.
11
For the period ended July 21, 2003, the Company's net income and earnings per
share decreased 49% from the comparable period in 2002. Net income as a
percentage of total revenue decreased from 7.6% for the period ended July 22,
2002, to 3.6% for the period ended July 21, 2003. Excluding gains and losses,
earnings before tax increased from 5.2% of sales to 5.3% of sales.
12
Dollar amounts in thousands except per share RESULTS OF OPERATIONS RESULTS OF OPERATIONS
data (unaudited) FOR THE SIXTEEN WEEKS ENDED FOR THE SIXTEEN WEEKS ENDED
JULY 21, 2003 JULY 22, 2002
------------- -------------
Percent of Percent of
Amount Revenues Amount Revenues
---------- ---------- ---------- ----------
Revenues $10,059 100.0% $9,438 100.0%
Restaurant costs and expenses 8,765 87.1 8,202 86.9
General and administrative expenses 671 6.7 687 7.3
Loss (Gain) on sale of land buildings and
equipment 4 0.1 (755) (8.0)
Income from operations 619 6.1 1,304 13.8
Non operating income (expense) (88) (0.9) (215) (2.3)
Net income 363 3.6 713 7.6
Basic earnings per share $0.18 $0.35
Weighted average shares outstanding 2,041,728 2,058,003
REVENUE REVENUE
FOR THE SIXTEEN WEEKS ENDED FOR THE SIXTEEN WEEKS ENDED
JULY 21, 2003 JULY 22, 2002
------------- -------------
Percent of Percent of
Amount Revenues Amount Revenues
---------- ---------- ---------- ----------
Restaurant operations:
Restaurant sales $8,547 85.0% $8,133 86.2%
Lottery 1,128 11.2 919 9.7
---------- ---------- ---------- ----------
9,675 96.2 9,052 95.9
Franchise operations 384 3.8 386 4.1
---------- ---------- ---------- ----------
Total revenue $10,059 100.0% $9,438 100.0%
========== ========== ========== ==========
REVENUES. Revenues for the period ended July 21, 2003 were 6.6% more than the
comparable period in 2002, reflecting increased same store sales and revenues
from three Cooper's Deli's acquired July 1, 2002. Revenues from same store
restaurant operations were up 5.4% compared to the sixteen weeks ended July 22,
2002. Same store sales at the Company's Elmer's restaurants were up 4.9%. The
Company defines same store sales as restaurants that were Company owned and
operating continuously from April 1, 2002 through July 21, 2003. Revenue from
franchise operations decreased $2,000 with decreases in initial franchise fees
largely offset by increases in royalty income.
RESTAURANT COSTS AND EXPENSES. A comparison of restaurant costs and expenses as
a percent of revenue for the 16 weeks ended July 21, 2003 and July 22, 2002 are
as follows:
13
RESTAURANT COSTS AND EXPENSES RESTAURANT COSTS AND EXPENSES
FOR THE SIXTEEN WEEKS ENDED FOR THE SIXTEEN WEEKS ENDED
------------------------------- ----------------------------------
JULY 21, JULY 21, JULY 22, JULY 22,
2003 2003 2002 2002
-------------- ------------- -------------- ---------------
Cost of restaurant sales:
Food and beverage 3,100 30.8% 2,650 28.1%
Labor and related costs 3,399 33.8% 3,421 36.3%
Restaurant operating costs 1,379 13.7% 1,288 13.6%
Occupancy costs 636 6.3% 613 6.5%
Depreciation and amortization 252 2.5% 221 2.3%
Restaurant opening and closing expenses -- 0.0% 10 0.1%
-------------- ------------- -------------- ---------------
Total Cost of Restaurant Sales $8,766 87.1% $8,203 86.9%
============== ============= ============== ===============
The Company was operating 15 restaurants and 10 delis in 2002 and 15 restaurants
and 13 delis in 2003. The addition of three delis to the Company's restaurant
portfolio had the effect of increasing food and beverage costs as a percentage
of sales and decreasing labor and related costs as a percentage of sales. Deli
operations typically experience higher food costs and lower labor costs as a
percentage of sales, than the Company's full service Elmer's and Mitzel's
concepts. Food and beverage costs at the Company's Elmer's restaurants increased
0.8% of sales while labor and related costs declined 0.6%.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative ("G&A") expenses
were 6.7% of total revenue for the 16 weeks ended July 21, 2003 compared to 7.3%
in the comparable period in 2002. Following the sale of the three Southern
Oregon restaurants, the Company has worked to reduce G&A expense in conjunction
with the reduction in the number of Company owned restaurants.
LOSS (GAIN) ON SALE OF LAND BUILDINGS AND EQUIPMENT. Gain on sale of land,
buildings and equipment declined from 8.0% of sales for the quarter ended July
22, 2002 to 0.1% for the current quarter. The Company sold no restaurants in the
current quarter, compared to three in the quarter ended July 22, 2002.
INCOME FROM OPERATIONS. Income from operations decreased $685,000 to $619,000.
Decreases in Gain on Sale of $759,000 were offset by increased contribution from
restaurant and franchise operations of $74,000.
NON-OPERATING INCOME/(EXPENSE). Non-operating expense was 0.9% of total revenues
for the 16 weeks ended July 21, 2003 compared to 2.3% of total revenues in the
comparable period in 2002. The company had no losses on marketable securities or
debt extinguishment in the current quarter compared to $153,000 in the year ago
period.
LIQUIDITY AND CAPITAL RESOURCES. As of July 21, 2003 the Company had cash and
cash equivalents of approximately $2.5 million representing an increase from
March 31, 2003 of approximately $283,000. Cash provided by operations was
$511,000. Cash used in investing activities was $104,000. Additions to property
buildings and equipment of $220,000 were partly offset by net sales of
marketable securities and principal collected on note receivables. Cash used in
financing activities totaled $125,000, principally payments on notes payable.
The Company's primary liquidity needs arise from debt service on indebtedness,
operating lease requirements and the funding of capital expenditures. The
Company's primary source of liquidity during the year is the operation of its
restaurants, franchise fees earned from its franchisees, cash on hand, and
borrowings. As of July 21, 2003, the Company had outstanding indebtedness of
$2.4 million with GE Capital, $1.6 million in real estate debt with Wells Fargo
Bank and $650,000 in convertible notes.
In May 2003, the Company granted non-executive incentive stock options for
45,000 shares to employees of the Company. The options vest over five years and
have a ten-year term. The exercise price of $5.48 was equal to the market value
of the Company's stock on the grant date.
14
The Wells Fargo real estate debt agreement was amended June 2003 changing the
fixed interest rate of 8% to a variable interest rate based on LIBOR. In
conjunction with this modification, the Company entered into an interest rate
swap agreement, which effectively fixed the interest rate at 6.17%. The
mortgages now have a weighted-average maturity of 7.5 years, bear interest at an
average of 6.0%, require monthly payments of principal and interest, and are
collateralized by three real estate assets.
The $650,000 in convertible notes have a remaining maturity of approximately
five and a half years, bear interest at 10%, require monthly interest-only
payments, straight line principal amortization into a Company-held sinking fund,
and are subordinated to the other Company funded debt. The notes include a
convertible feature that permits the holder to convert the principal of the note
into common stock at any time at $6.19 per share. The Company may call the notes
with a five percent premium beginning December 2003.
Subsequent to the quarter end the Company entered into a financing agreement
with GE Capital to fund approximately $1.6 million toward the Cornell Oaks land,
building and equipment. The loans can be drawn as needed to fund the
construction. The loans have a variable interest rate and terms of seven and 15
years.
Certain of the Company's debt agreements require compliance with debt covenants.
The most restrictive covenants require the Company to maintain a maximum ratio
of total liabilities, excluding subordinated debt, to tangible net worth plus
subordinated debt of 3.5 to 1.0, and 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 2.0 to 1.0. Management believes that the Company is in compliance with
such requirements.
Elmer's Restaurants, Inc., like most restaurant businesses, is able to operate
with nominal or deficit working capital because sales are for cash and inventory
turnover is rapid. Renovation and/or remodeling of existing restaurants is
either funded directly from available cash or, in some instances, is financed
through outside lenders. Construction or acquisition of new restaurants is
generally, although not always, financed by outside lenders.
The Company believes that it will continue to be able to obtain adequate
financing on acceptable terms for new restaurant construction and acquisitions
and that cash generated from operations will be adequate to meet its financial
needs and to pay operating expenses for the foreseeable future, although no
assurances can be given.
CONTRACTUAL OBLIGATIONS
The Company makes a range of contractual commitments in the ordinary
course of business and in conjunction with the acquisition and sale of
restaurants. The following table shows the Company's contractual obligations:
Commitment expiration period
Total amount committed 1 year or less 1-3 years 4-5 years 5 years or more
-----------------------------------------------------------------------------------------------------------------------------
Term debt $4,028,432 $332,308 $698,833 $1,100,356 $1,896,935
Convertible debt 650,000 650,000
Operating Leases 5,763,827 1,372,897 2,098,798 1,116,632 1,175,500
Guarantees 2,292,065 266,942 569,504 361,669 1,093,950
-----------------------------------------------------------------------------------------------------------------------------
Totals $12,734,324 $1,972,147 $3,367,135 $3,228,657 $4,166,385
============ ========== ========== ========== ==========
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Certain statements in this form 10-Q constitute "forward-looking statements"
which we believe are reasonable and within the meaning of the Securities Act of
1933, as amended and the Securities Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors
15
relating to the Company's business, financial condition, and operations which
may cause the actual results, performance, or achievements of Elmer's
Restaurants, Inc. (individually and collectively with its subsidiaries, herein
the "Company") to be materially different from any future results, performance,
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; the ability to accomplish stated goals and objectives; successful
integration of acquisitions; the impact of competitive products and pricing;
success of operating initiatives; development and operating costs; advertising
and promotional efforts; adverse publicity; acceptance of new product offerings;
consumer trial and frequency; availability, locations, and terms of sites for
restaurant development; changes in business strategy or development plans;
changes in regulations affecting lottery commissions; quality of management;
availability, terms and deployment of capital; the results of financing efforts;
business abilities and judgment of personnel; availability of qualified
personnel; food, labor and employee benefit costs; changes in, or the failure to
comply with, government regulations; continued NASDAQ listing; weather
conditions; construction and remodeling schedules; and other factors referenced
in this Form 10-Q.
Market Risks
------------
The Company invests excess cash beyond its working capital requirements in
liquid marketable securities. These securities consist primarily of corporate
and government bond mutual funds focusing on issues with medium and short term
maturities. The Company actively manages its portfolio to reduce interest rate
risk. However, an increase in interest rate levels will tend to reduce the value
of the portfolio.
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. A rise in
prevailing interest rates could have adverse effects on the Company's financial
condition and results of operations. The fair value of financial instruments
approximate the book value at July 21, 2003.
ITEM 4. CONTROLS AND PROCEDURES
The Company's President and its Corporate Controller, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date
within 90 days of the filing date of this quarterly report on Form 10-Q (the
"Evaluation Date"), have concluded that as of the Evaluation Date, The Company's
disclosure controls and procedures were adequate and effective to ensure that
material information relating to the Company and its consolidated subsidiaries
would be made known to them by others within those entities, particularly during
the period in which this quarterly report on Form 10-Q was being prepared.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's disclosure controls and
procedures subsequent to the Evaluation Date, nor any significant deficiencies
or material weaknesses in such disclosure controls and procedures requiring
corrective actions. As a result, no corrective actions were taken.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In accordance with amendments adopted on May 21, 1998 to Rule 14a-4 under the
Securities and Exchange Act of 1934, if notice of a shareholder proposal to be
raised at the annual meeting of shareholders is received at the principal
executive offices of the Company after May 15, 2004 (45 days prior to the month
and date in 2004 corresponding to the date on which the Company mailed its proxy
materials for the 2003 annual meeting), proxy voting on that proposal when and
if raised at the 2004 annual meeting will be subject to the discretionary voting
authority of the designated proxy holders. Any shareholder proposal to be
considered for inclusion in proxy
16
materials for the Company's 2004 annual meeting must be received at the
principal executive office of the Company no later than January 21, 2004.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
a) Exhibits:
Exhibits required to be attached by Item 601 of Regulation S-K are
listed in the Index to Exhibits of this Form 10-Q and are incorporated
herein by this reference.
b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, Elmer's Restaurants, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Elmer's Restaurants, Inc.
By: /s/ BRUCE N. DAVIS
-------------------------------------
Bruce N. Davis
Chief Executive Officer and President
Dated: September 4, 2003
17
CERTIFICATION
I, Bruce N. Davis, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Elmer's
Restaurants, Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Quarterly Report;
4. The registrant's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this Quarterly Report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
(c) presented in this Quarterly Report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the Audit Committee
of registrant's Board of Directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officer and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ BRUCE N. DAVIS
------------------
Bruce N. Davis
Chief Executive Officer and President
September 4, 2003
18
CERTIFICATION
I, Dennis R. Miller, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Elmer's
Restaurants, Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Quarterly Report;
4. The registrant's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this Quarterly Report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
(c) presented in this Quarterly Report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the Audit Committee
of registrant's Board of Directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officer and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ DENNIS R. MILLER
--------------------
Dennis R. Miller
Corporate Controller
September 4, 2003
19
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
3 (i) * Restated Articles of Incorporation of the Company (Incorporated herein
by reference from Exhibit No. 3.1 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1988.)
3 (ii) * By-Laws of the Company, as amended. (Incorporated herein by reference
from Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended
March 31, 1990.)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
of Chief Executive Officer. 20
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
of Corporate Controller. 20
20
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Elmer's Restaurants, Inc. (the
"Company") on Form 10-Q for the period ended July 21, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Bruce
N. Davis, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ BRUCE N. DAVIS
------------------
Bruce N. Davis
Chief Executive Officer and President
September 4, 2003
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Elmer's Restaurants, Inc. (the
"Company") on Form 10-Q for the period ended July 21, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis
R. Miller, Corporate Controller of the Company, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ DENNIS R. MILLER
--------------------
Dennis R. Miller
Corporate Controller
September 4, 2003
21