SECURITIES AND EXCHANGE COMMISSION
                       ----------------------------------
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q


[X]      QUARTERLY  REPORT  PURSUANT  TO SECTION  13 OR 15(D) OF THE  SECURITIES
         EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED JANUARY 3, 2005

[ ]      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]

Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2). Yes [ ] No [X]

Number of shares of Common Stock outstanding at February 15, 2005: 1,842,945









<PAGE>
                            ELMER'S RESTAURANTS, INC.
                                      INDEX

<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                        NUMBER

PART I:  FINANCIAL INFORMATION

<S>                                                                                     <C>
         Item 1.           Financial Statements                                            3
                           Condensed Consolidated Balance Sheets,
                               January 3, 2005 (Unaudited) and March 29, 2004

                           Condensed Consolidated Statements of Income,                    4
                               12 and 40 weeks ended January 3, 2005 (Unaudited)
                               and January 5, 2004 (Unaudited)

                           Condensed Statement of Changes in Shareholders' Equity,         5
                               Forty weeks ended January 3, 2005 (Unaudited)

                           Condensed Consolidated Statements of Cash Flows,                6
                               Forty weeks ended January 3, 2005 (Unaudited)
                               and January 5, 2004 (Unaudited)

                           Notes to Condensed Consolidated Financial Statements            7

         Item 2.           Management's Discussion and Analysis of Financial
                              Condition and Results of Operations                         10

         Item 3.           Quantitative and Qualitative Disclosures about Market
                               Risk                                                       16

         Item 4.           Controls and Procedures                                        17

PART II: OTHER INFORMATION AND SIGNATURES

         Item 5.           Other Information                                              17

         Item 6.           Exhibits and Reports on Form 8-K                               17

                           Signatures                                                     18
</TABLE>
















<PAGE>
                          PART 1 - Financial Information

Item 1.   Financial Statements

                   ELMER'S RESTAURANTS, INC., AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                       January 3, 2005           March 29, 2004
                                                                                    ----------------------    ---------------------
                                                                                         (Unaudited)
                                      ASSETS
<S>                                                                                <C>                       <C>
Current assets:
  Cash and cash equivalents                                                        $            2,495,403    $           1,601,378
  Marketable securities                                                                           821,616                  930,196
  Accounts receivable                                                                             337,775                  261,669
  Notes receivable - franchisees and related parties, current portion                              48,838                   41,036
  Inventories                                                                                     377,809                  372,707
  Prepaid expenses and other                                                                      528,568                  476,159
  Income taxes receivable                                                                               -                  159,877
                                                                                    ----------------------    ---------------------

      Total current assets                                                                      4,610,009                3,843,022

  Notes receivable - franchisees and related parties, net of current portion                      146,479                  191,244
  Property, buildings and equipment, net                                                        8,863,175                9,325,050
  Goodwill                                                                                      4,897,743                4,897,743
  Intangible assets                                                                               602,709                  602,709
  Market value of interest rate swap agreement                                                        164                        -
  Other assets                                                                                    346,603                  185,561
                                                                                    ----------------------    ---------------------

      Total assets                                                                 $           19,466,882    $          19,045,329
                                                                                    ======================    =====================

                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Notes payable, current portion                                                   $              449,237    $             416,278
  Accounts payable                                                                              1,262,473                1,496,905
  Accrued expenses                                                                                453,192                  500,536
  Accrued payroll and related taxes                                                               438,274                  662,253
  Accrued income tax                                                                               69,078                        -
                                                                                    ----------------------    ---------------------

      Total current liabilities                                                                 2,672,254                3,075,972

  Notes payable, net of current portion                                                         4,637,094                4,916,157
  Deferred income taxes                                                                         1,397,473                1,396,000
  Deferred lease obligation                                                                       145,000                        -
  Obligation under interest rate swap                                                                   -                   33,005
                                                                                    ----------------------    ---------------------

      Total liabilities                                                                         8,851,821                9,421,134
                                                                                    ----------------------    ---------------------

Commitments and contingencies

Shareholders' equity
  Common stock, no par value; 10,000,000 shares authorized, 1,840,900
  shares issued and outstanding.                                                                6,359,550                6,216,136
  Retained earnings                                                                             4,237,722                3,391,413
  Accumulated other comprehensive gain (loss), net of taxes                                        17,789                   16,646
                                                                                    ----------------------    ---------------------
      Total shareholders' equity                                                               10,615,061                9,624,195
                                                                                    ----------------------    ---------------------

      Total liabilities and shareholders' equity                                   $           19,466,882    $          19,045,329
                                                                                    ======================    =====================
</TABLE>

    The accompanying notes are an integral part of the condensed consolidated
                              financial statements.

                                        3
<PAGE>
                   ELMER'S RESTAURANTS, INC., AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                       For the forty weeks ended                  For the twelve weeks ended
                                                ----------------------------------------    ---------------------------------------
                                                   January 3,            January 5,             January 3,           January 5,
                                                      2005                  2004                   2005                 2004
                                                ------------------    ------------------    ------------------   ------------------
                                                   (Unaudited)          (Unaudited)             (Unaudited)          (Unaudited)

<S>                                                  <C>                   <C>                    <C>                  <C>
REVENUES                                             $ 25,499,856          $ 25,600,462           $ 7,862,082          $ 7,705,568
                                                ------------------    ------------------    ------------------   ------------------

COSTS AND EXPENSES:

Cost of restaurant sales:
  Food and beverage                                     7,488,581             7,689,431             2,334,374            2,248,565
  Labor and related costs                               8,596,177             8,494,869             2,593,672            2,582,048
  Restaurant operating costs                            3,622,354             3,515,805             1,119,212            1,077,687
  Occupancy costs                                       1,582,137             1,581,561               474,396              473,752
  Depreciation and amortization                           710,224               632,967               242,730              191,710
  Restaurant opening costs                                      -               127,776                     -              127,776
General and administrative expenses                     2,003,878             1,868,970               577,018              517,039
Net (gain) loss on disposition of property               (128,278)                4,071                   731                    -
Net loss on impairment of equipment                       140,000                     -                     -                    -
                                                ------------------    ------------------    ------------------   ------------------

                                                       24,015,073            23,915,450             7,342,133            7,218,577
                                                ------------------    ------------------    ------------------   ------------------

INCOME FROM OPERATIONS                                  1,484,783             1,685,012               519,949              486,991

OTHER INCOME (EXPENSE):
Interest income                                            55,895                65,524                23,248               23,801
Interest expense                                         (307,042)             (294,090)              (82,705)             (85,560)
Loss on debt extinguishment                                     -               (32,500)                    -              (32,500)
Gain (loss) on sale of marketable securities               10,673                57,838                  (136)              43,419
                                                ------------------    ------------------    ------------------   ------------------

  Income before provision for income taxes              1,244,309             1,481,784               460,356              436,151

  Income tax provision                                   (398,000)             (499,000)             (147,000)            (147,000)
                                                ------------------    ------------------    ------------------   ------------------

NET INCOME                                              $ 846,309             $ 982,784             $ 313,356            $ 289,151
                                                ==================    ==================    ==================   ==================

PER SHARE DATA:

  Net income per share - Basic                             $ 0.46                $ 0.48                $ 0.17               $ 0.14
                                                ==================    ==================    ==================   ==================

  Weighted average number of
  common shares outstanding - Basic                     1,825,276             2,036,441             1,836,514            2,024,149
                                                ==================    ==================    ==================   ==================

  Net income per share - Diluted                           $ 0.44                $ 0.46                $ 0.16               $ 0.14
                                                ==================    ==================    ==================   ==================

  Weighted average number of
  common shares outstanding - Diluted                   1,927,132             2,134,112             1,948,265            2,138,528
                                                ==================    ==================    ==================   ==================
</TABLE>

    The accompanying notes are an integral part of the condensed consolidated
                              financial statements.

                                        4
<PAGE>
                   ELMER'S RESTAURANTS, INC., AND SUBSIDIARIES
                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                        Common Stock                                                   Total
                                                  -----------------------    Retained     Accumulated other         shareholders'
                                                    Shares        Amount     earnings  comprehensive gain (loss)       equity
                                                  ------------------------------------ ------------------------- ------------------
<S>                                                <C>         <C>          <C>        <C>                       <C>
BALANCE, March 29, 2004                            1,816,335   $6,216,136   $3,391,413                  $ 16,646       $ 9,624,195
  Stock option exercise                               24,565      124,414                                                  124,414
  Tax benefit from disqualified stock option
  exercise                                                         19,000                                                   19,000
  Comprehensive income:
    Net Income                                             -            -      846,309                         -           846,309

    Change in net unrealized gain (loss) on
    available for sale securities, net of taxes                                                          (18,556)          (18,556)

    Change in fair market value of interest rate
    swap agreement, net of taxes                                                                          19,699            19,699
-------------------------------------------------------------------------------------- ------------------------- ------------------
Total comprehensive income                                                     846,309                     1,143           847,452

                                                  ------------------------------------ ------------------------- ------------------
BALANCE, January 3, 2005                           1,840,900   $6,359,550   $4,237,722                  $ 17,789       $10,615,061
                                                  ==================================== ========================= ==================
</TABLE>
(unaudited)


























    The accompanying notes are an integral part of the condensed consolidated
                              financial statements.

                                        5
<PAGE>
                   ELMER'S RESTAURANTS, INC., AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                            For the forty weeks ended
                                                                                    ------------------------------------------
                                                                                        January 3,              January 5,
                                                                                          2005                     2004
                                                                                    -------------------      -----------------
                                                                                       (unaudited)              (unaudited)

<S>                                                                                  <C>                      <C>
Cash flows from operating activities:
Net income                                                                           $         846,309        $       982,784
  Adjustments to reconcile net income to net
  cash provided by operating activities:
    Depreciation and amortization                                                              710,224                632,967
    (Gain) loss on disposition of equipment                                                   (128,278)                 4,071
    Loss of impairment of equipment                                                            140,000                      -
    Gain on sale of marketable securities                                                      (10,673)               (57,838)
    Loss on debt extinguishment                                                                      -                 32,500
    Changes in assets and liabilities:
      Current assets                                                                          (108,757)              (371,715)
      Other assets                                                                             (56,042)               138,115
      Accounts payable                                                                        (234,432)               452,683
      Accrued expenses                                                                         (75,869)               163,344
      Accrued payroll and related taxes                                                       (223,979)                69,890
      Income taxes                                                                             247,955                389,500
                                                                                    -------------------      -----------------

        Net cash provided by operating activities                                            1,106,458              2,436,301
                                                                                    -------------------      -----------------

Cash flows from investing activities:
  Additions to property, buildings and  equipment                                             (639,703)            (2,587,880)
  Purchases of available-for-sale securities                                                  (353,100)            (1,097,384)
  Proceeds from sale of available-for-sale securities                                          441,599              1,086,986
  Principal collected on note receivables                                                       36,963                128,608
  Proceeds from sale of assets                                                                 423,500                  4,900
  Construction in progress                                                                           -                      -
                                                                                    -------------------      -----------------

        Net cash  provided by (used in) investing activities                                   (90,741)
                                                                                    -------------------      -----------------

Cash flows from financing activities:
  Issuance of notes payable                                                                     68,493              1,199,648
  Repurchase of convertible notes                                                                    -               (682,500)
  Net change in principal debt service accounts                                                      -                208,929
  Payments on notes payable                                                                   (314,599)              (272,117)
  Repurchase of common stock                                                                         -               (151,750)
  Sale of common stock under stock option plan                                                 124,414                      -
                                                                                    -------------------      -----------------

        Net cash (used in) provided by financing activities                                   (121,692)               302,210
                                                                                    -------------------      -----------------

        Net change in cash and cash equivalents                                                894,025                273,741

Cash and cash equivalents, beginning of period                                               1,601,378              2,200,263
                                                                                    -------------------      -----------------

Cash and cash equivalents, end of period                                            $        2,495,403       $      2,474,004
                                                                                    ===================      =================

Supplemental disclosures of cash flow information:
Cash paid during the period for:
  Interest                                                                          $          224,337       $        208,530
                                                                                    ===================      =================

  Income taxes                                                                      $          114,957       $         53,500
                                                                                    ===================      =================

Supplemental disclosures of non-cash transactions:
  Deferred lease obligation recognized on lease renewal                             $          145,000       $              -
                                                                                    ===================      =================
  Change in unrealized (gain) loss on available-for-sale securities, net of taxes   $          (18,556)      $         60,572
                                                                                    ===================      =================
  Change in fair market value of interest rate swap agreement, net of taxes         $           19,699       $         (4,633)
                                                                                    ===================      =================
  Tax benefit from disqualified stock option exercise                                           19,000                      -
                                                                                    ===================      =================
  Note receivable issued for franchise fee receivable                               $                -       $        123,000
                                                                                    ===================      =================
</TABLE>

    The accompanying notes are an integral part of the condensed consolidated
                              financial statements.

                                        6
<PAGE>
                            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
29, 2004.  Operating  results  reflected in the interim  consolidated  financial
statements  are not  necessarily  indicative of the results that may be expected
for the year ending March 28, 2005.

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  $847,452  for the forty weeks ended
January 3, 2005.  This was composed of net income of $846,309 and an increase in
the market value of an interest  rate swap  agreement of $19,699 (net of taxes),
offset by a decline  in the market  value of  available-for-sale  securities  of
$18,556 (net of taxes).

INTEREST  RATE  SWAP  AGREEMENT  -  In  June  2003,  in  conjunction   with  the
modification of the Wells Fargo Bank real estate debt agreement discussed below,
the Company  entered into an interest rate swap  agreement with Wells Fargo Bank
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 Bank real estate debt to a
fixed  percentage rate of 6.17%. The notional amount of the swap agreement as of
January 3, 2005 was $1.0 million.  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  be  recorded  and  changes  in the  fair  value  of the
derivative  instruments  be  recognized  in other  comprehensive  income.  As of
January 3, 2005 the market value of the swap  agreement  was $164 and results in
the  recognition  of $19,699  (net of tax  effect) in other  comprehensive  gain
during the 40 weeks then ended.

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  companies  to adopt  that  method of
accounting for all of their employee stock  compensation  plans.  It encourages,
but does not require,  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

                                        7
<PAGE>
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations.

Under SFAS No. 123 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:

<TABLE>
<CAPTION>
                                                     January 3, 2005                    January 5, 2004
                                                     ---------------                    ---------------
                                                  12 weeks         40 weeks          12 weeks         40 weeks
                                                  --------         --------          --------         --------
<S>                                               <C>              <C>               <C>              <C>
Net income - as reported (unaudited)              $313,356         $846,309          $289,151         $982,784
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects                         (7,242)         (24,138)          (18,326)         (61,087)
                                            ---------------     ------------      ------------    -------------
Net income - pro forma                            $306,114         $822,171          $270,825         $921,697
                                            ===============     ============      ============    =============

Basic earnings per share - as reported               $0.17            $0.46             $0.14            $0.48
Diluted earnings per share - as reported             $0.16            $0.44             $0.14            $0.46
Basic earnings per share - pro forma                 $0.17            $0.46             $0.13            $0.45
Diluted earnings per share - pro forma               $0.16            $0.43             $0.13            $0.43
</TABLE>

As of January 3, 2005 the  Company  had  outstanding  option  grants for 413,537
shares,  of which 307,419 options were vested. As of January 5, 2004 the Company
had outstanding option grants for 460,624,  shares of which 280,502 options were
vested.

GUARANTEES  - In  connection  with  the  sale of three  Elmer's  restaurants  to
Southern  Oregon  Elmer's LLC (the "Buyer") in May 2002,  the Company  agreed to
guarantee  Grants Pass and Medford  real  estate  leases  until April 2007 and a
Roseburg  real estate  lease which  could  extend  until 2018 if all options are
exercised by the Buyer. The Company is also a guarantor on a franchisee lease in
Nampa,  Idaho  until  2007.  The  Company  is a  guarantor  of the  lease on the
Company's recently  refranchised Palm Springs location until April 2007 and on a
rolling  twelve-month basis thereafter until 2020. In all cases, the franchisees
have  indemnified  the Company  against all losses  incurred  as  guarantor.  In
addition,  the  franchisees'   principals  and  their  spouses  have  personally
guaranteed the franchisee's indemnification obligation.

In the event of default by the franchisee of the guaranteed  lease,  the Company
could be required to pay all rent and other  payments due under the terms of the
leases.  As of January 3, 2005,  the  maximum  potential  liability  under these
guarantees is $1,009,223.  In the event of default, the Company expects it would
exercise its right to reoccupy and continue to operate the restaurants.

RECENT TRANSACTIONS AND EVENTS

Receipt of Going Private Offer
------------------------------

August 6,  2004,  the  Company  announced  that it had  received  a  non-binding
proposal for a going private  transaction from a purchaser group led by Bruce N.
Davis,  the  Company's  Chairman  of the  Board,  Chief  Executive  Officer  and
President,  and consisting of the Company's Board of Directors and 12 additional
shareholders.  A copy of the proposal was  attached to the Press  Release  dated
August 6, 2004 and  available  in the 8-K filed  with the SEC on August 6, 2004.
The 8-K is also available on the Company's website www.elmers-restaurants.com.

The acquisition group filed a Schedule TO with the SEC on December 20, 2004. The
tender  offer is an offer to purchase  all  outstanding  shares not owned by the
acquisition  group at a cash price of $7.50 per  share.  February  17,  2005 the
acquisition  group  extended the tender  offer until March 10,  2005.  The group
reported  that

                                        8
<PAGE>
sufficient shares had been tendered as of February 2, 2005 to control 89% of the
outstanding  shares of the Company's stock. The acquisition  group has announced
their intent, if successful in the tender offer, to take the Company private and
to de-register the Company as a reporting company under the Securities  Exchange
Act of  1934.  Copies  of all  SEC  filings  related  to the  tender  offer  are
available, free of charge, at the SEC's website www.sec.gov, or at the Company's
website, www.elmers-restaurants.com.

Sale of Palm Springs Restaurant
-------------------------------

March 30, 2004, the Company  refranchised  the Company's  Elmer's  Restaurant in
Palm Springs,  California.  The buyer executed a 25-year franchise agreement and
assumed  the  Company's  operating  lease  obligations.  The  Company  remains a
guarantor  of the lease  until  April 2007 and on a rolling  twelve-month  basis
thereafter  until 2020.  The sales price of  $415,000  was  received in cash and
resulted  in a pretax  gain of  approximately  $129,000.  Assets  sold  included
prepaids and inventory of approximately $16,000, transaction expenses of $28,000
and equipment of approximately $242,000.

Franchise Opening
-----------------

Elmer's  newest  franchised  restaurant  opened on January 24, 2005.  This 5,900
square foot restaurant in Walla Walla,  Washington was constructed next to a new
Holiday Inn Express also owned by the franchise group.

On January 24, 2005 the Company  signed a 25-year  franchise  agreement with the
new owner of the franchised Elmer's located in Vancouver,  Washington  (Andresen
location).

On September 7, 2004 a franchised restaurant opened in Eugene, Oregon. The 6,000
square foot restaurant in Eugene,  Oregon occupies a converted Izzy's restaurant
site.

On June 28, 2004 the company signed a 25-year  franchise  agreement with the new
owner of the franchised Elmer's located in Pocatello, ID.

On March 15, 2004 a 4,500 square foot franchise restaurant in Corvallis,  Oregon
opened. It occupies a converted Lyon's restaurant site.

On July 21, 2003 a 5,000  square foot  franchise  restaurant  in Coeur  d'Alene,
Idaho opened. It occupies a converted Village Inn site.

Lottery Commission
------------------

March 31, 2004, the Oregon Lottery  Commission  approved a new six-year retailer
contract  effective  June 27,  2004.  The impact of this  contract is  discussed
further under Revenues on page 13.

RECENTLY ISSUED ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 123 (revised 2004) - In December
2004, the FASB revised SFAS No. 123,  "Accounting for Stock Based Compensation."
This statement  supersedes APB Opinion No. 25,  "Accounting  for Stock Issued to
Employees," and its related  implementation  guidance.  The Statement requires a
public entity to measure the cost of employee  services received in exchange for
an award of equity  instruments based on the grant date fair value of the award.
The cost will be recognized over the period during which an employee is required
to provide  service in exchange  for the award - the  requisite  service  period
(usually the vesting period).

This Statement is effective for public entities as of the beginning of the first
interim reporting period that begins after June 15, 2005.  Management  estimates
that the effect of adopting this  Statement  will result in the  recognition  of
approximately  $16,600 of additional  compensation expense, net of taxes, during
fiscal year 2006.

On September 30, 2004, FASB issued a proposed Board-directed Staff Position, FSP
EITF Issue 03-1-a,  "Implementation  Guidance for the  Application  of Paragraph
16," of EITF issue No. 03-1, "The Meaning of

                                        9
<PAGE>
Other-Than-Temporary Impairment and Its Application to Certain Investments." The
proposed  FSP  will  provide  implementation   guidance  with  respect  to  debt
securities  that are impaired solely due to interest rates and/or sector spreads
and  analyzed for  other-than-temporary  impairment  under  paragraph 16 of EITF
Issue  03-1.  The  Board has  delayed  the  effective  date to  provide  further
implementation  guidance.  This  delay  does  not  suspend  the  requirement  to
recognize other-than-temporary impairments as required by existing authoritative
literature. The delay of the effective date for paragraphs 10 through 20 of EITF
Issue 03-1 will be  superseded  concurrent  with the final  issuance of FSB EITF
Issue 03-1-a.  Management does not anticipate adoption of EITF Issue 03-1-a will
have a significant impact upon the Company's consolidated financial statements.



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 34 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 the acquisition
and  depreciation  of property,  buildings and  equipment,  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 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 goodwill and intangible assets annually
based  on its  third  quarter  financial  statements  and  assesses  for  events
occurring in the interim indicating possible  impairment.  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
Company has 7 reporting  units. The reporting units are made up of the franchise
business,

                                       10
<PAGE>
operating restaurants or groups of operating restaurants. The determination of a
reporting  unit  is made  at the  time of  acquisition.  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. The useful lives of the individual assets are
estimated  by the  Company's  management  based  upon  their  experience  in the
restaurant  industry.  Generally  buildings  are  depreciated  over 35 years and
equipment is depreciated over a range of 3 to 10 years.  Leasehold  improvements
are amortized on a straight-line method over their estimated useful lives or the
term of the  related  lease,  whichever  is  shorter.  Periodically  the Company
reviews the net book value of its  depreciable  assets to  determine if there is
any possible  impairment of value. The Company recognized a $140,000  impairment
loss on the write  down of  property  and  equipment  with a  carrying  value of
approximately  $155,000 to a fair value of $15,000 during the twelve weeks ended
July 19, 2004.  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.

The  Company  recently  undertook  a  comprehensive  review  of  its  accounting
practices for leases and amortization of leasehold  improvements,  in light of a
public  letter  published  February  7,  2005 by  Donald  T.  Nicolaisen,  Chief
Accountant  for  the  Securities  and  Exchange  Commission.   The  Company  has
determined that any resulting  variances would not have a material affect on the
Company's financial statements.

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,  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.

In Note 1 Basis of Presentation,  we provide pro forma disclosures of net income
and earnings per share as if the method  prescribed by SFAS No. 123,  Accounting
for  Stock-Based  Compensation,  had  been  applied  in  measuring  compensation
expense.  A change to  recognize  compensation  expense for all options  granted
using a fair value approach in regularly reported financial results would have a
significant impact on our results of operations.

HIGHLIGHTS OF HISTORICAL  RESULTS.  The Company  reported net income of $313,356
and  $846,309,  or $.17 and $.46 in basic  earnings  per  share,  for the 12 and
40-week  periods ended  January 3, 2005.  These results are compared to reported
net income of $289,151 and  $982,784,  or $.14 and $.48 per share for the 12 and
40-week  periods ended January 5, 2004. The Company's total assets as of January
3, 2005 were $19.3 million,  which is an increase of  approximately  $.3 million
over total assets as of March 29, 2004.  In the 40 weeks ended  January 3, 2005,
working capital increased  approximately  $1,111,000 while notes payable (net of
current  portion)  decreased  $279,000.  Cash  provided by operating  activities
totaled  ($1,106,458)  for the 40  weeks  ended  January  3,  2005  compared  to
$2,436,301 for the 40 weeks ended January 5, 2004. The decrease in cash provided
from  operations  is  primarily  attributable  to the timing of payroll  tax and
worker's compensation insurance premiums as well as pay down of negative working
capital attributable to the sale of the Palm Springs restaurant.

COMPARISON  OF RESULTS OF  OPERATIONS.  The  following  discussion  and analysis
presents the  Company's  results of  operations  for the 12 and 40-week  periods
ended January 3, 2005 and January 5, 2004.

                                       11
<PAGE>
For the 12 and 40-week  periods ended January 3, 2005,  the Company's net income
increased 8.4% and decreased 13.9% from the comparable  periods ended January 5,
2004.  Net income as a percentage of total revenue  decreased  from 3.8% for the
40-week  period ended January 5, 2004, to 3.3% for the 40 weeks ended January 3,
2005, primarily due to changes in the lottery contract with the State of Oregon.
Net income as a percentage of total revenue  increased from 3.8% for the 12-week
period ended January 5, 2004, to 4.0% for the 12 weeks ended January 3, 2005.

<TABLE>
<CAPTION>
                                                    RESULTS OF OPERATIONS         RESULTS OF OPERATIONS
Dollar amounts in thousands except per share       FOR THE 40 WEEKS ENDED         FOR THE 40 WEEKS ENDED
data
                                                       JANUARY 3, 2005               JANUARY 5, 2004
                                                       ---------------               ---------------
                                                                Percent of                       Percent of
                                                 Amount          Revenues          Amount         Revenues
<S>                                              <C>            <C>                <C>           <C>
Revenues                                           $25,500          100.0 %          $25,600        100.0 %
Restaurant costs and expenses                       21,999           86.3 %           22,042         86.1 %
General and administrative expenses                  2,004            7.9 %            1,869          7.3 %
Loss (Gain) on sale of land, buildings and
equipment and loss on impairment                        12             .1 %                4           --
 Income from operations                              1,485            5.8 %            1,685          6.6 %
Non operating income (expense)                        (240)           (.9)%             (203)         (.8)%
Net income                                             846            3.3 %              983          3.8 %

Basic earnings per share                             $0.46                             $0.48

                                                    RESULTS OF OPERATIONS         RESULTS OF OPERATIONS
Dollar amounts in thousands except per share       FOR THE 12 WEEKS ENDED         FOR THE 12 WEEKS ENDED
data
                                                       JANUARY 3, 2005               JANUARY 5, 2004
                                                       ---------------               ---------------
                                                                Percent of                       Percent of
                                                 Amount          Revenues          Amount         Revenues
Revenues                                            $7,862          100.0 %           $7,705        100.0 %
Restaurant costs and expenses                        6,764           86.0 %            6,701         87.0 %
General and administrative expenses                    577            7.4 %              517          6.7 %
Loss (Gain) on sale of land, buildings and
equipment and loss on impairment                         1             -- %               --           -- %
 Income from operations                                520            6.6 %              487          6.3 %
Non operating income (expense)                        (60)            (.8)%              (51)         (.7)%
Net income                                             313            4.0 %              289          3.8 %

Basic earnings per share                             $0.17                             $0.14
</TABLE>












                                       12
<PAGE>
<TABLE>
<CAPTION>
                                          REVENUES                        REVENUES
Dollar amounts in thousands        FOR THE 40 WEEKS ENDED          FOR THE 40 WEEKS ENDED
                                       JANUARY 3, 2005                JANUARY 5, 2004
                                       ---------------                ---------------
                                               Percent of                  Percent of
                                   Amount       Revenues       Amount       Revenues
                                ------------  ------------  ------------  ------------
<S>                             <C>           <C>           <C>           <C>
Restaurant operations:
Restaurant sales                    $21,281         83.5%       $21,476         83.9%
Lottery                               3,197         12.5%         3,268         12.8%
                                ------------  ------------  ------------  ------------
                                     24,478         96.0%        24,744         96.7%

Franchise operations                  1,022          4.0%           856          3.3%
                                ------------  ------------  ------------  ------------

Total revenues                      $25,500        100.0%       $25,600        100.0%
                                ============  ============  ============  ============

                                          REVENUES                        REVENUES
Dollar amounts in thousands        FOR THE 12 WEEKS ENDED          FOR THE 12 WEEKS ENDED
                                       JANUARY 3, 2005                JANUARY 5, 2004
                                       ---------------                ---------------

                                               Percent of                  Percent of
                                   Amount       Revenues       Amount       Revenues
                                ------------  ------------  ------------  ------------
Restaurant operations:
Restaurant sales                     $6,544         83.2%        $6,477         84.0%
Lottery                               1,044         13.3%           992         12.9%
                                ------------  ------------  ------------  ------------
                                      7,588         96.5%         7,469         96.9%

Franchise operations                    274          3.5%           236          3.1%
                                ------------  ------------  ------------  ------------

Total revenues                       $7,862        100.0%        $7,705        100.0%
                                ============  ============  ============  ============
</TABLE>

REVENUES.  Revenues for the 12 and 40 weeks ended January 3, 2005 were 2.0% more
and .4% less,  respectively,  than for the comparable periods in 2004.  Revenues
from same store restaurant  operations showed an increase of 3.3% and (0.6%) for
the 12 and 40 weeks  ended  January 3, 2005  respectively,  over the  comparable
periods in 2004.  Same store sales at the core Elmer's brand  increased 1.6% and
decreased  0.3% for the 12 and 40 weeks  ended  January  3,  2005.  The  Company
defines same store sales as  restaurants  that were Company  owned and operating
continuously from April 1, 2003 through January 3, 2005.  Revenue from franchise
operations  increased  $38,000 in the third  quarter due to increases in initial
franchise fees as well as increases in royalty income.

March 31, 2004, the Oregon Lottery  Commission  approved a new six-year retailer
contract  effective  June 27, 2004.  If the new  commission  structure  had been
applied  to sales for the year  ended  March 29,  2004,  it would  have  reduced
commissions by approximately $435,000, or 10%. The following table shows the pro
forma impact by quarter.

           Quarter ended:                                         Adverse impact
           ---------------                                        --------------
             July 19, 2004                                               $93,000
          October 11, 2004                                               250,000
           January 3, 2005                                                96,000
            March 28, 2005                                              (10,000)
             July 25, 2005                                                 6,000


                                       13
<PAGE>
The Lottery has installed additional terminals in most Company locations and the
Company expects year over year sales increases to reduce, but not eliminate, the
impact of the new lower rates.  The $93,000 impact in the quarter ended July 19,
2004 was more than offset by increased  sales prior to the  contracts  effective
date of  June  27,  2004.  For the  quarter  ended  October  11,  2004,  lottery
commissions  declined by $135,000  from the prior  year.  For the quarter  ended
January 3, 2005 lottery commissions increased by $52,000 from the prior year.

RESTAURANT COSTS AND EXPENSES.  A comparison of restaurant costs and expenses as
a percent of revenue for the 40 and 12 weeks  ended  January 3, 2005 and January
5, 2004 are as follows:

<TABLE>
<CAPTION>
                                          RESTAURANT COSTS & EXPENSES        RESTAURANT COSTS & EXPENSES
Dollar amounts in thousands                 FOR THE 40 WEEKS ENDED             FOR THE 40 WEEKS ENDED
                                                JANUARY 3, 2005                    JANUARY 5, 2004
                                                ---------------                    ---------------
                                          Amount           Percent             Amount           Percent
                                        ----------       -----------         ----------       -----------
<S>                                     <C>              <C>                 <C>              <C>
Cost of restaurant sales:
Food and beverage                           $7,489             29.4%             $7,689             30.0%
Labor and related costs                      8,596             33.7%              8,495             33.2%
Restaurant operating costs                   3,622             14.2%              3,516             13.7%
Occupancy costs                              1,582              6.2%              1,581              6.2%
Depreciation and amortization                  710              2.8%                633              2.5%
Restaurant opening and closing
expenses                                        --               --                 128               .5%
                                        ----------       -----------         ----------       -----------
  Total Cost of Restaurant Sales           $21,999             86.3%            $22,042             86.1%
                                        ==========       ===========         ==========       ===========

                                          RESTAURANT COSTS & EXPENSES        RESTAURANT COSTS & EXPENSES
Dollar amounts in thousands                 FOR THE 12 WEEKS ENDED             FOR THE 12 WEEKS ENDED
                                                JANUARY 3, 2005                    JANUARY 5, 2004
                                                ---------------                    ---------------
                                          Amount           Percent             Amount           Percent
                                        ----------       -----------         ----------       -----------
Cost of restaurant sales:
Food and beverage                           $2,334             29.7%             $2,248             29.2%
Labor and related costs                      2,594             33.0%              2,582             33.5%
Restaurant operating costs                   1,119             14.2%              1,078             14.0%
Occupancy costs                                474              6.0%                474              6.1%
Depreciation and amortization                  243              3.1%                192              2.5%
Restaurant opening and closing
expenses                                        --                --                128              1.7%
                                        ----------       -----------         ----------       -----------
  Total Cost of Restaurant Sales            $6,764             86.0%             $6,701             87.0%
                                        ==========       ===========         ==========       ===========
</TABLE>

The  Company  operated  15  restaurants  and 13  delis  during  2003  and  2004.
Restaurant  costs and expenses as a proportion of sales  decreased  1.0% for the
12-week period ended January 3, 2005 over the comparable period in 2004. For the
40-week period ended January 3, 2005,  food and beverage  expenses  increased by
..5% of sales,  principally  due to a decline in sales of low margin items at the
Company's deli  operations  during the first fiscal  quarter.  Food and beverage
costs at the Company's Elmer's  restaurants  increased .54% of sales while labor
and related costs increased 1.0%.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative ("G&A") expenses
were 7.4% and 7.9% of total  revenue  for the 12 and 40 weeks  ended  January 3,
2005,  compared to 6.7% and 7.3% in the  comparable  periods in 2004.  Corporate
wages  were up  $100,000  due to  additional  marketing  and  franchise  support
expenses.

LOSS (GAIN) ON LAND,  BUILDINGS AND EQUIPMENT.  Loss on sale of land,  buildings
and equipment  increased  from 0.0% of sales for the 12 weeks ending  January 5,
2004  to .1% for  the  current  quarter.  The  Company  sold

                                       14
<PAGE>
the Palm  Springs  restaurant  to a franchisee  for a net gain of  approximately
$129,000. The Company recognized a $140,000 impairment loss on the write down of
property and equipment from a carrying value of approximately $155,000 to a fair
value of $15,000.  The Company was not prepared to exercise  its renewal  option
without  significant rent concessions from the landlord,  and over six months of
negotiations,  the landlord had not indicated any  willingness  to do so. A loss
was recognized when  management  determined that it was likely that a restaurant
lease would not be renewed.  However,  in December 2004,  the Company  reached a
five-year  renewal  agreement  with the landlord  which included a $145,000 rent
concession.  The rent concession is recorded as a deferred lease  obligation and
will be amortized over the renewal period as a reduction to rent expense.

INCOME FROM OPERATIONS.  Income from operations decreased $200,229 to $1,484,783
year to date when compared with the prior year to date period.

NON-OPERATING  INCOME/(EXPENSE).  Non-operating  expense  was (.8)% and (.9)% of
total  revenues for the 12 and 40 weeks ended  January 3, 2005 compared to (.7)%
and (.8)% of total revenues in the comparable  period in 2004. The Company had a
loss on marketable  securities  of $136 for the 12 weeks ending  January 3, 2005
against a gain of $8,800 for the 12 weeks  ending  January  5, 2004.  For the 40
weeks  ending  January  3, 2005  gains on  marketable  securities  were  $10,673
compared to a gain of $10,800 in marketable securities last year.

LIQUIDITY AND CAPITAL RESOURCES.  As of January 3, 2005 the Company had cash and
cash  equivalents of  approximately  $2.5 million  representing an increase from
March 29,  2004 of  approximately  $900,000.  Cash  provided by  operations  was
$1,100,000. Cash used in investing activities was $91,000,  principally from the
capital  expenditures  of  $640,000  and  partially  offset  by sale of the Palm
Springs restaurant.

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 January 3, 2005, the Company had outstanding  indebtedness of
$3.7  million  with GE Capital  and $1.4  million in real estate debt with Wells
Fargo Bank.

On January 14, 2004 the Company  purchased  204,255  shares of its Common Stock,
representing  approximately  10% of the then outstanding  shares,  at a purchase
price of $6.43 per share in  accordance  with the terms of a tender  offer.  The
aggregate price of the shares  purchased by the Company through the tender offer
was approximately $1,313,000. Fees and expenses associated with the tender offer
were  approximately  $17,000,  which was expensed in the  Company's  4th Quarter
ended March 29, 2004.

The Wells  Fargo Bank real  estate  debt  agreement  was amended in June 2003 to
change 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 rate of 6.0%,  require monthly  payments of principal and interest,  and
are collateralized by three real estate assets. As of January 3, 2005 the market
value under this  agreement was $164 and resulted in the  recognition of $19,699
(net of tax effect) in other comprehensive gain.

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.

                                       15
<PAGE>
The  Company  believes  that it will  continue  to be  able to  obtain  adequate
financing on acceptable terms for new restaurant construction,  acquisitions and
franchising 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:

<TABLE>
<CAPTION>
                          Commitment expiration period
                            Total amount committed       1 year or less        1-3 years      4-5 years  5 years or more
-------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                    <C>            <C>            <C>              <C>
Term debt                               $5,086,331             $449,237       $1,214,578     $1,152,141       $2,270,375
Operating leases                         4,783,266            1,214,302        1,831,244      1,194,795          542,925
Guarantees                               1,009,223              393,115          592,373         23,735                -
-------------------------------------------------------------------------------------------------------------------------
Totals                                 $10,878,820           $2,056,654       $3,638,195     $2,370,671       $2,813,300
                                       ===========           ==========       ==========     ==========       ==========
</TABLE>


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  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 and contracts  for  restaurant  development;  changes in business
strategy  or  development  plans;  changes  in  regulations   affecting  lottery
commissions;  availability of gambling  outlets that compete with lottery games;
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 costs  associated  with  compliance,  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
approximated the book value at January 3, 2005.

                                       16
<PAGE>
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 January
3, 2005 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, 2005 (45 days prior to the month
and date in 2005 corresponding to the date on which the Company mailed its proxy
materials for the 2004 annual  meeting),  proxy voting on that proposal when and
if raised at the 2005 annual meeting will be subject to the discretionary voting
authority  of the  designated  proxy  holders.  Any  shareholder  proposal to be
considered  for  inclusion  in proxy  materials  for the  Company's  2005 annual
meeting  must be received at the  principal  executive  office of the Company no
later than January 21, 2005.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         a)       Exhibits:

                  Exhibits required to be attached by Item 601 of Regulation S-K
                  are  listed  in the  Exhibit  Index of this  Form 10-Q and are
                  incorporated herein by this reference.

         b)       Reports on Form 8-K:

                  June 23, 2004 reporting fiscal year end financial results.
                  August 6, 2004 reporting going private proposal.
                  September 2, 2004 reporting first quarter financial results.
                  November 18, 2004 reporting second quarter financial results.
                  December 21, 2004  reporting  receipt of tender offer proposal
                  for going private transaction.
                  February 18, 2005  reporting a potential  change to a material
                  contract.





                                       17
<PAGE>
                                   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: February 22, 2005
































                                       18
<PAGE>
                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit                                                                                      Sequential
  No.             Description                                                                 Page No.


<S>      <C>                                                                                 <S>
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.)

31.1     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
         pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
         of Chief Executive Officer and President.                                               20

31.2     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
         pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
         of Secretary and Corporate Controller.                                                  21

32.1     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 and President.                                               22

32.2     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
         pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
         of Secretary and Corporate Controller.                                                  23
</TABLE>