UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter ended April 2, 2003
Commission File No. 0-14311
FAMILY STEAK HOUSES OF FLORIDA, INC.
Incorporated under the laws of IRS Employer Identification
Florida No. 59-2597349
2113 FLORIDA BOULEVARD
NEPTUNE BEACH, FLORIDA 32266
Registrant's Telephone No. (904) 249-4197
Indicate by check mark whether the registrant 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_____
Title of each class Number of shares outstanding
Common Stock 3,706,200
$.01 par value As of May 9, 2003
Family Steak Houses of Florida, Inc.
Consolidated Statements of Operations
(Unaudited) For the Three Months Ended
-------------------------
April 2, April 3,
2003 2002
------------ -----------
Revenues:
Sales $10,728,100 $12,535,000
Vending revenue 51,100 50,900
----------- -----------
Total revenues 10,779,200 12,585,900
Costs and expenses:
Food and beverage 4,099,300 4,632,500
Payroll and benefits 3,202,300 3,460,100
Depreciation and amortization 515,400 576,600
Other operating expenses 1,503,700 1,711,600
General and administrative expenses 676,000 747,100
Franchise fees 429,200 501,000
Loss on store closings and disposition 34,500 64,200
----------- -----------
Total costs and expenses 10,460,400 11,693,100
Earnings from operations 318,800 892,800
Investment (loss) gain (7,200) 17,800
Interest and other income 79,100 20,300
Interest expense (446,100) (416,500)
----------- -----------
(Loss) earnings before income taxes (55,400) 514,400
Provision for income taxes -- --
Net (loss) earnings ($55,400) $514,400
=========== ===========
Basic (loss) earnings per share ($0.02) $0.16
=========== ===========
Diluted (loss) earnings per share ($0.02) $0.16
=========== ===========
See accompanying notes to consolidated financial statements.
2
Family Steak Houses of Florida, Inc.
Consolidated Balance Sheets
(Unaudited) April 2, January 1,
2003 2003
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $2,094,300 $1,679,600
Investments 203,600 58,100
Receivables 114,100 105,400
Current portion of mortgages receivable -- 342,000
Inventories 260,600 236,400
Prepaid and other current assets 432,200 372,900
---------- ----------
Total current assets 3,104,800 2,794,400
Certificate of deposit 10,000 10,000
Property and equipment:
Land 8,703,800 8,703,800
Buildings and improvements 25,565,900 25,496,600
Equipment 12,855,800 12,826,600
Construction in progress 100,500 60,800
---------- ----------
47,226,000 47,087,800
Accumulated depreciation (19,191,900) (18,741,200)
---------- ----------
Net property and equipment 28,034,100 28,346,600
Property held for sale 1,504,800 1,504,800
Other assets, principally deferred charges,
net of accumulated amortization 998,500 1,011,600
---------- ----------
$33,652,200 $33,667,400
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,531,400 $1,346,200
Securities sold, not yet purchased 175,100 19,200
Accrued liabilities 1,315,700 1,383,400
Current portion of workers compensation liability 575,000 501,000
Current portion of long-term debt 738,700 724,600
Current portion of obligation under capital lease 28,600 27,800
---------- ----------
Total current liabilities 4,364,500 4,002,200
Deferred rent 23,800 15,800
Deposit liability 14,800 14,800
Workers compensation liability 295,800 345,200
Long-term debt 19,270,500 19,523,000
Deferred gain 1,293,400 1,311,100
Obligation under capital lease 2,303,400 2,310,800
---------- ----------
Total liabilities 27,566,200 27,522,900
---------- ----------
Shareholders' equity:
Preferred stock of $.01 par;
authorized 10,000,000 shares;
none issued -- --
Common stock of $.01 par;
authorized 4,000,000 shares; outstanding
3,706,200 shares 37,100 37,100
Additional paid-in capital 9,869,600 9,869,600
Accumulated deficit (3,813,500) (3,758,100)
Accumulated other comprehensive loss (7,200) (4,100)
---------- ----------
Total shareholders' equity 6,086,000 6,144,500
---------- ----------
$33,652,200 $33,667,400
========== ==========
See accompanying notes to consolidated financial statements.
3
Family Steak Houses of Florida, Inc.
Consolidated Statements of Cash Flows
(Unaudited) For the Three Months Ended
---------------------------
April 2, April 3,
2003 2002
------------- -------------
Operating activities:
Net (loss) earnings ($55,400) $514,400
Adjustments to reconcile net (loss) earnings to net cash provided
by operating activities:
Depreciation and amortization 515,400 576,600
Directors' fees in the form of stock options -- 5,000
Net realized losses (gains) on investments 7,200 (17,800)
Amortization of loan fees 12,000 9,600
Loss on disposition of equipment 15,500 16,000
(Increase) decrease in:
Receivables (8,700) 58,300
Inventories (24,200) 5,500
Prepaids and other current assets (59,300) 28,300
Other assets (1,600) 1,600
Increase (decrease) in:
Accounts payable 185,200 135,800
Accrued liabilities (67,700) (131,300)
Deferred revenue (17,700) --
Deferred rent 8,000 --
Workers compensation liability 24,600 --
------------- -------------
Net cash provided by operating activities 533,300 1,202,000
------------- -------------
Investing activities:
Purchase of investments (236,500) (14,500)
Principal receipts on mortgages receivable 342,000 4,300
Proceeds from sale of investments 59,000 --
Proceeds from securities sold not yet purchased 177,600 --
Capital expenditures (215,700) (1,012,200)
------------- -------------
Net cash provided by (used in) investing activities 126,400 (1,022,400)
------------- -------------
Financing activities:
Payments on long-term debt (238,400) (161,000)
Proceeds from issuance of long-term debt -- 209,000
Payments on capital lease (6,600) (3,200)
Proceeds from the issuance of common stock -- 200
------------- -------------
Net cash (used in) provided by financing activities (245,000) 45,000
------------- -------------
Net increase in cash and cash equivalents 414,700 224,600
Cash and cash equivalents - beginning of period 1,679,600 183,100
------------- -------------
Cash and cash equivalents - end of period $2,094,300 $407,700
============= =============
Noncash investing and financing activities:
Net change in unrealized gain $3,100 $300
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the quarter for interest $563,100 $419,300
============= =============
See accompanying notes to consolidated financial statements.
4
FAMILY STEAK HOUSES OF FLORIDA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 2, 2003
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
and the interim financial information instructions to Form 10-Q,
and do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation of the results for the interim periods
have been included. Operating results for the thirteen-week
period ended April 2, 2003 are not necessarily indicative of the
results that may be expected for the fiscal year ending December
31, 2003. For further information, refer to the financial
statements and footnotes included in the Company's Annual Report
on Form 10-K for the fiscal year ended January 1, 2003.
The condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany profits, transactions and balances have
been eliminated.
Note 2. Earnings (Loss) Per Share
Basic earnings (loss) per share for the three months ended April
2, 2003 and April 3, 2002 were computed based on the weighted
average number of common shares outstanding. Diluted earnings
(loss) per share for those periods have been computed based on
the weighted average number of common shares outstanding, giving
effect to all dilutive potential common shares that were
outstanding during the period. Dilutive shares are represented
by shares under option and stock warrants. Due to the Company's
net loss for the three months ended April 2, 2003, all
potentially dilutive securities are antidilutive and have been
excluded from the computation of diluted loss per share for the
period.
5
Note 3. New Accounting Standards
In June 2001, the Financial Accounting Standard Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS")
No. 143, "Accounting for Asset Retirement Obligations". This
statement requires entities to record the cost of any legal
obligation for the retirement of tangible long-lived assets in
the period in which it is incurred. SFAS 143 is effective for
fiscal years beginning after June 15, 2002. The Company adopted
the standard effective January 2, 2003. The adoption of SFAS
143 did not have a material effect on the Company's financial
position, results of operations or cash flows.
In July 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Disposal Activities". Under SFAS 146,
liabilities for costs associated with a plan to dispose of an
asset or to exit a business activity must be recognized in the
period in which the costs are incurred. SFAS 146 is effective
for disposal activities initiated after December 31, 2002. The
Company adopted SFAS 146 effective January 2, 2003. The
adoption of SFAS 146 did not have a significant impact on the
Company's financial position, results of operations or cash
flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". SFAS 148
amends SFAS No. 123, "Accounting for Stock-Based Compensation",
and provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-
based employee compensation. SFAS 148 also amends the disclosure
requirements of SFAS 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. SFAS 148 is effective
for financial statements for annual periods ending after
December 15, 2002 and interim periods beginning after
December 31, 2002. The Company has adopted the amendments to
SFAS 123 disclosure provisions required under SFAS 148, but will
continue to use intrinsic value method under APB 25 to account
for stock-based compensation. As such, the adoption of this
statement has not had a significant impact on the Company's
financial position, results of operations or cash flows.
In November 2002, the FASB issued FASB Interpretation ("FIN")
No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others". This interpretation addresses the disclosures to be
made by a guarantor in its interim and annual financial
6
statements about its obligations under certain guarantees. It
also clarifies (for guarantees issued after January 1, 2003)
that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee. At April 2, 2003, the
Company does not have any significant guarantees. The Company
adopted the disclosure requirements of FIN 45 for the fiscal
year ended January 1, 2003, and the recognition provisions
effective January 2, 2003.
Note 4. Stock Based Compensation
The Company accounts for stock-based compensation utilizing the
intrinsic value method per Accounting Principles Board No. 25
(APB 25), "Accounting for Stock Issued to Employees". The
Company's long-term incentive plan provides for the grant of
stock options and restricted stock. The exercise price of each
option equals the market price of the Company's stock on the
date of grant. Options vest in one-quarter increments over a
four-year period starting on the date of grant. An option's
maximum term is 10 years. See Note 9 "Common Shareholders'
Equity" in the Company's Annual Report for the year ended
January 1, 2003 for additional information regarding the
Company's stock options.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". Pursuant
to the disclosure requirements of SFAS 148, the following table
provides an expanded reconciliation for all periods presented:
Three Months Ended Three Months Ended
April 2, 2003 April 1, 2002
------------------ -----------------
Net (loss) earnings, as reported $(55,400) $514,400
Add: Stock based compensation
expense included in net
income, net of tax --- ---
Deduct: Total stock-based
compensation expense
determined under fair value,
net of tax (3,100) (3,100)
------------ ------------
Pro forma net loss $(58,500) $511,300
============ ============
(Loss) earnings per share - basic
and diluted
As reported $ (0.02) $ 0.16
Pro forma $ (0.02) $ 0.16
7
Note 5. Subsequent Event
On April 11, 2003, the Company sold of one of its operating
restaurants in New Port Richey, Florida. The Company sold the
property for $875,000 and paid off its existing mortgage of
approximately $740,000 on the property. At the time of the sale,
the property had a net book value of approximately $828,000.
After recording expenses of the sale of approximately $82,000, the
Company realized a loss on the sale of approximately $35,000.
On April 14, 2003, the Company assigned to a third party
the lease on its operating location in Leesburg, Florida.
The Company will continue to pay rents under the lease
until August 14, 2003. Commencing on August 14, 2003, the
Assignee of the lease will be responsible for the payment
of rent. The Company remains liable under the lease
through January 31, 2008 in the event of default by the
Assignee.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended April 2, 2003 versus April 3, 2002
The Company experienced a decrease of 14.4% in sales during
the thirteen weeks of 2003 compared to the first thirteen weeks
of 2002. Same-store sales (average weekly sales in restaurants
that have been operating for at least 18 months) in the first
quarter of 2003 decreased 11.1% from the same period in 2002,
compared to a decrease of 2.7% from 2002 as compared to 2001.
The decrease in same-store sales was due primarily to a
continuing slow economy, especially in the first quarter due to
low consumer confidence caused by the war with Iraq. Also, the
Easter holiday, which is typically one of the Company's highest
sales days of the year, fell into the second quarter in 2003,
compared to being in the first quarter of 2002.
The costs and expenses of the Company's restaurants include
food and beverage, payroll, payroll taxes and employee benefits,
depreciation and amortization, repairs, maintenance, utilities,
supplies, advertising, insurance, property taxes, rents and
licenses. The Company's food, beverage, payroll, and employee
benefit costs as a percentage of sales are believed to be higher
than the industry average, due to the Company's philosophy of
8
providing customers with high value of food and service for
every dollar a customer spends. In total, food and beverage,
payroll and benefits, depreciation and amortization and other
operating expenses as a percentage of sales increased to 86.9%
in the first quarter of 2003 from 82.8% in the same quarter of
2002.
Food and beverage costs as a percentage of sales increased
to 38.2% in 2003 from 37.0% in 2002, due primarily to menu
enhancements implemented by the Company in 2003, and a reduction
in the Company's average check in the first quarter of 2003 as a
result of marketing promotional discounts. Payroll and benefit
costs as a percentage of sales increased to 29.9% in 2003 from
27.6% in 2002, due to increased workers' compensation costs.
Other operating expenses increased from 13.7% in 2002 to 14.0%
in 2003, due to increased property insurance and building rent
costs.
Depreciation and amortization expenses were 4.8% in 2003
and 4.6% in 2002. General and administrative expenses as a
percentage of sales increased to 6.3% in the first quarter of
2003 from 6.0% in the same quarter of 2002.
Interest expense was $446,100 in the first quarter of 2003
compared to $416,500 in the same quarter of 2002, due to an
increase in interest from obligations under capital leases in
2003. The Company capitalized interest expense of $0 in the
first quarter of 2003 and $3,900 in the first quarter of 2002.
The effective income tax rate for the first three months of
2003 and 2002 was 0.0%. The 0% rate in both years was due to
the use of net operating loss carryforwards to offset taxable
income.
The Company invests a portion of its available cash in
marketable securities. The Company maintains an investment
account to effect these transactions. Investments are made
based on a combination of fundamental and technical analysis
primarily using a value-based investment approach. The holding
period for investments usually ranges from 60 days to 24 months.
Management occasionally purchases marketable securities using
margin debt. In determining whether to engage in transactions
on margin, management evaluates the risk of the proposed
transaction and the relative returns offered thereby. If the
market value of securities purchased on margin were to decline
below certain levels, the Company would be required to use
additional cash from its operating account to fund a margin call
9
in its investment account. Management reviews the status of the
investment account on a regular basis and analyzes such margin
positions and adjusts purchase and sale transactions as
necessary to ensure such margin calls are not likely. The
results for the first quarter of 2003 include realized losses
from the sale of marketable securities of $7,200, compared to
realized gains of $17,800 in 2002.
Net loss was $55,400 in the first quarter of 2003 versus
net earnings of $514,400 in the first quarter of 2002. Loss per
share for the quarter was 2 cents in 2003 compared to earnings
per share of 16 cents in 2002.
The Company's operations are subject to some seasonal
fluctuations. Revenues per restaurant generally increase from
January through April and decline September through December.
Operating results for the quarter ended April 2, 2003 are not
indicative of the results that may be expected for the fiscal
year ending December 31, 2003.
Liquidity and Capital Resources
Substantially all of the Company's revenues are derived
from cash sales. Inventories are purchased on credit and are
converted rapidly to cash. Therefore, the Company does not carry
significant receivables or inventories and, other than repayment
of debt, working capital requirements for continuing operations
are not significant.
At April 2, 2003, the Company had a working capital deficit
of $1,259,800 compared to $1,207,800 at January 1, 2003. Cash
provided by operating activities decreased to $533,400 in the
first quarter of 2003 from $1,202,000 in the first quarter of
2002, primarily due to lower earnings in 2003, and to timing
differences in the payments of accounts payable, workers'
compensation and accrued liabilities.
The Company spent approximately $215,700 in the first
quarter of 2003 for property and equipment. Total capital
expenditures for 2003, based on present costs and plans for
capital improvements, are estimated to be approximately $4.7
million. This amount is based on budgeted expenditures for land,
building, leasehold improvements and equipment for two new
restaurants in 2003, and normal recurring equipment purchases
and minor building improvements ("Capital Maintenance Items").
The Company believes it has sufficient sources of funds for
these expenditures from existing cash on hand and a commitment
10
from GE Capital Franchise Finance Corporation ("GE Capital") to
fund $1.7 million for one of the two new restaurants. However,
the Company's ability to fund construction of both restaurants
will be dependent on improvement in sales trends, or its ability
to raise additional capital.
Management estimates the cost of opening one new restaurant
based on current average costs to be approximately $2,900,000.
To the extent the Company decides to open new restaurants in
2004 and beyond, management plans to fund any new restaurant
construction either by GE Capital funding, sales leaseback
financing, developer-funded leases, refinancing existing
restaurants, or attempting to get additional financing from
other lenders. The Company's ability to open new restaurants is
also dependent upon its ability to locate suitable locations at
acceptable prices, and upon certain other factors beyond its
control, such as obtaining building permits from various
government agencies. The sufficiency of the Company's cash to
fund operations and necessary Capital Maintenance Items will
depend primarily on cash provided by operating activities.
In July 2002, the Company completed a sale leaseback
transaction to refinance one of its restaurants in Tampa,
Florida. The Company sold the property for $3.0 million and
paid off its existing mortgage of approximately $1.1 million on
the property. In the third quarter of 2002, the leaseback of the
building was accounted for as a capital lease and the leaseback
of the land is accounted for as an operating lease, with the
deferred gain on the sale being recognized over the twenty-year
life of the lease. The lease agreement requires annual payments
of $330,000, with increases of 10% every five years. Management
plans to use the proceeds of the transaction to fund a portion
of the construction of a new restaurant in 2003.
On October 29, 2002, the Company completed a transaction
with GE Capital that refinanced two existing mortgages on
restaurant properties in order to provide funding of
approximately $1.1 million. The Company plans to use the
proceeds of this transaction and an additional $1.7 million
available from the commitment from GE Capital to build a new
restaurant expected to open in 2003.
The Company has entered into a series of loan agreements
with GE Capital Franchise Finance Corporation ("GE Capital").
As of April 2, 2003, the outstanding balance due under the
Company's various loans with GE Capital was $20,009,200. The
weighted average interest rate for the GE Capital loans is 7.4%.
The Company used the proceeds of the GE Capital loans primarily
11
to refinance its debt and to fund construction of new
restaurants.
The Company used the proceeds of the GE Capital loans to
retire its Notes with Cerberus Partners, L.P. ("Cerberus") and
its loans with the Daiwa Bank Limited and SouthTrust Bank of
Alabama, N.A. In addition, the Company retired Warrants for
210,000 shares of the Company's common stock previously held by
Cerberus. Cerberus continues to hold Warrants to purchase
140,000 shares of the Company's common stock at an exercise
price of $2.00 per share.
The preceding discussion of liquidity and capital resources
contains certain forward-looking statements. Forward-looking
statements involve a number of risks and uncertainties, and in
addition to the factors discussed herein, among the other
factors that could cause actual results to differ materially are
the following: failure of facts to conform to necessary
management estimates and assumptions; the willingness of GE
Capital or other lenders to extend financing commitments;
repairs or similar expenditures required for existing
restaurants due to weather or acts of God; the Company's ability
to identify and secure suitable locations on acceptable terms
and open new restaurants in a timely manner; the Company's
success in selling restaurants listed for sale; the economic
conditions in the new markets into which the Company expands;
changes in customer dining patterns; competitive pressure from
other national and regional restaurant chains and other food
vendors; business conditions, such as inflation or a recession,
and growth in the restaurant industry and general economy; and
other risks identified from time to time in the Company's SEC
reports, registration statements and public announcements.
However, this list is not a complete statement of all potential
risks or uncertainties. These forward-looking statements are
made as of the date hereof based on management's current
expectations, and the Company does not undertake any obligation
to update such statements, whether as a result of new
information, future events or otherwise.
Recent Developments
On May 12, 2003 the Company's common stock was delisted
from the NASDAQ market. The stock was listed with the same
trading symbol, RYFL on the Over-the-Counter Bulletin Board
(OTCBB) effective May 12, 2003. Management does not believe
that there will be a significant impact from the listing
change on shareholders' ability to trade the stock.
12
The Company operates its Ryan's restaurants under a
Franchise Agreement between the Company and Ryan's dated as of
September 16, 1987, which amended and consolidated all previous
franchise agreements (as amended, the "Franchise Agreement").
The Franchise Agreement extends through December 31, 2010 and
provides for two additional ten-year renewal options. The
renewal options are subject to certain conditions, including the
condition that the Company has performed its obligations under
the Franchise Agreement during its original term.
In October 1996, the Company amended the Franchise
Agreement with Ryan's. The amended Franchise Agreement requires
the Company to pay a monthly royalty fee of 3.0% through
December 2001 and 4.0% thereafter on the gross receipts of each
Ryan's Family Steak House restaurant.
The Franchise Agreement granted the Company the exclusive
right to open Ryan's restaurants in North and Central Florida.
In order to maintain this exclusivity, the Company was required
to have a total of 25 Ryan's restaurants operating on December
31, 2001. At December 31, 2001, the Company was only operating
23 restaurants. On January 4, 2002, the Company was notified by
Ryan's that it had exercised its option to terminate the
exclusive nature of the Company's franchise rights within North
and Central Florida. Management believes that if Ryan's builds
restaurants in the Company's territories, it could limit the
Company's potential to locate and develop suitable restaurant
sites in the future.
The following schedule outlines the number of Ryan's
restaurants required to be operated by the Company as of
December 31 of each year under the amended Franchise Agreement.
Failure to maintain the required number of restaurants is a
default under the agreement, and could result in the Company
losing the right to operate under the Ryan's name.
Number of
Restaurants Required to
End of Fiscal Year be in Operation
2002 22
2003 24
2004 25
2005 27
2006 28
13
The Company was in compliance with this schedule as of the
year ended January 1, 2003. However, based on the Company's
sale on April 11, 2003 of one of its operating stores and the
sublease of another of its operating stores on April 14, 2003
leaving the Company with 20 restaurants in operation (See Note
5. Subsequent Event), it is unlikely that the Company will meet
the requirement as of fiscal year end 2003. Management has
attempted to negotiate a potential solution with Ryan's to
resolve this issue, and has inquired as to whether Ryan's will
consider a shortage in restaurants a default under the Franchise
Agreement. However, no agreement has been reached to date with
Ryan's, and Ryan's has not responded as to its position on a
possible default under the Franchise Agreement.
Ryan's has the option to declare the Company in default of
the Franchise Agreement beginning January 1, 2004 if the minimum
number of restaurants is not maintained. The Company believes
that it has complied with all other provisions of the Franchise
Agreement, and that the closure of certain restaurants is a
prudent and necessary business decision, which should not be
considered a default. However, if Ryan's declares the Company
in default, it could demand that the Company stop using the
Ryan's name for its restaurants. The Company would then have to
decide whether to comply with such a demand and change the name
of all its restaurants, or attempt to have the default notice
overturned by legal action through binding arbitration
provisions stipulated by the Franchise Agreement. If the
Company is forced to change the name of its restaurants,
management does not believe that such action would have a
material effect on the Company's profitability. However, there
can be no assurance that a name change would not result in a
material decline in sales and profitability.
The Franchise Agreement as amended also clarifies that the
Franchisor's consent is needed for certain kinds of
transactions. The transactions include (1) a person's (or
group's) acquisition of 25% of the Company's common stock (other
than a person who owned 15% of the Company's common stock as of
December 15, 1998), (2) turnover during any consecutive 12-month
period of more than a majority of the Company's board of
directors unless the new directors are approved by a two-thirds
vote of the directors then still in office who either were
directors at the beginning of the 12-month period or whose
election or nomination for election was previously so approved;
and (3) the Company's or any affiliates' ownership, engagement
in or interest in the operation of any other family-oriented
steak house restaurant.
14
The Franchise Agreement contains provisions relating to the
operation of the Company's Ryan's restaurants. Upon the
Company's failure to comply with such provisions, the Franchisor
may terminate the Franchise Agreement if such default is not
cured within 30 days of notice from the Franchisor. Termination
of the Franchise Agreement would result in the loss of the
Company's right to use the "Ryan's Family Steak House" name and
concept and could result in the sale of the physical assets of
the Company to the Franchisor pursuant to a right of first
refusal. Termination of the Company's rights under the
Franchise Agreement could result in the disruption of the
Company's operations. The Company believes that it has operated
and maintained each of its Ryan's Family Steak House restaurants
in accordance with the operational procedures and standards set
forth in the Franchise Agreement.
Item 3. Qualitative and Quantitative Disclosure about Market Risk
There has been no significant changes in the Company's
exposure to market risk during the first fiscal quarter of 2003.
For discussion of the Company's exposure to market risk, refer
to Item 7A, Quantitative and Qualitative Disclosures about
Market Risk, contained in the Company's Annual Report on Form
10-K for the fiscal year ended January 1, 2003 which is
incorporated herein by reference..
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. As
required by Rule 13a-15 under the Securities Exchange Act of
1934 (the "Exchange Act"), within the 90 days prior to the
filing date of this report, the Company carried out an
evaluation of the effectiveness of the design and operation of
the Company's disclosure controls and procedures. This
evaluation was carried out under the supervision and with the
participation of the Company's management, including the
Company's Chairman (who serves as the principal executive
officer), Chief Financial Officer (who serves as the principal
financial and accounting officer), Controller and another member
of the Office of the President. Based upon that evaluation, the
Company's Chairman, Chief Financial Officer and Controller have
concluded that the Company's disclosure controls and procedures
are effective in alerting them to material information regarding
the Company's financial statement and disclosure obligation in
15
order to allow the Company to meet its reporting requirements
under the Exchange Act in a timely manner.
(b) Changes in internal control. There have been no changes in
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to, or threatened with, litigation from time
to time, in the normal course of its business. Management, after
reviewing all pending and threatened legal proceedings, considers that
the aggregate liability or loss, if any, resulting from
the final outcome of these proceedings will not have a material
effect on the financial position or operation of the Company. The
Company will, from time to time when appropriate in management's
estimation, record adequate reserves in the Company's financial
statements for pending litigation.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of the
report on Form 10-Q, and the list comprises the
Exhibit Index.
No. Exhibit
3i. Articles of Incorporation of Family Steak Houses of
Florida, Inc. (Exhibits 3.01, 3.03, 3.04, 3.06, 3.07 to
the Company's Annual Report on Form 10-K filed with the
Commission on March 21, 2003 is hereby incorporated by
reference.)
16
3ii. Bylaws of Family Steak Houses of Florida, Inc. (Exhibit
3.02, 3.05, 3.08 to the Company's Annual Report on Form
10-K filed with the Commission on March 21, 2003 is hereby
incorporated by reference.)
10.01 Assignment, Assumption And Consent And Modification
Agreement between the Company and New Plan Excel Realty Trust,
Inc. for the sublease of a restaurant in Leesburg, Florida.
11. Table detailing number of shares and common stock
equivalents used in the computation of basic and diluted (loss)
earnings per share.
13. Annual Report to Shareholders of Family Steak Houses of
Florida, Inc. on Form 10-K filed with the Commission on
March 21, 2003 is hereby incorporated by reference.
99.1. Certification of Periodic Reports by Chief
Executive Officer
99.2. Certification of Periodic Reports by Chief
Operating Officer
(b) There were no filings on Form 8-K for the Quarter ended
April 2, 2003.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FAMILY STEAK HOUSES OF FLORIDA, INC.
(Registrant)
/s/ Glen F. Ceiley
Date: May 15, 2003 Glen F. Ceiley
Chairman of the Board
Principal Executive Officer
/s/ Edward B. Alexander
Date: May 15, 2003 Edward B. Alexander
President/COO
(Chief Operating Officer)
18
CERTIFICATIONS
I, Glen F. Ceiley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Family Steak Houses of Florida, 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 respects 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 are
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
19
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; and
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.
Date: May 15, 2003
/s/ Glen F. Ceiley
Glen F. Ceiley
Chairman of the Board
Principal Executive Officer
20
I, Edward B. Alexander, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Family Steak Houses of Florida, 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 respects 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 are
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):
21
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; and
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.
Date: May 15, 2003
/s/ Edward B. Alexander
Edward B. Alexander
President
Chief Operating Officer
22
Exhibit 10.01
ASSIGNMENT, ASSUMPTION AND CONSENT AND MODIFICATION AGREEMENT
THIS ASSIGNMENT, ASSUMPTION CONSENT AND MODIFICATION AGREEMENT
(hereinafter referred to as "Assignment") is entered into as of
April 9, 2003, by and among NEW PLAN EXCEL REALTY TRUST, INC.,
having an address at 1120 Avenue of the Americas, 12th Floor, New
York, New York, 10036, herein called "Landlord", and FAMILY STEAK
HOUSES OF FLORIDA, INC., having an address at 2113 Florida
Boulevard, Neptune Beach, Florida, 32266, and doing business as
RYAN'S FAMILY STEAK HOUSE, herein called "Tenant" and FA QI NI
and LIANG NI, having an address at 3425 West Vine Street,
Kissimmee, Florida, 34741, and doing business as INTERNATIONAL
SUPER BUFFET, herein called "Assignee".
RECITALS
A. WHEREAS, Landlord and Tenant entered into a written Lease
Agreement dated January 29, 1998, as amended pursuant to that
certain First Amendment to Lease Agreement, dated October 28,
1998, hereinafter collectively referred to as the "Lease", for
the lease of certain retail space currently identified as "Store
No. 31," hereinafter referred to as the "Demised Premises," in
what is commonly referred to as "Leesburg Square," a Shopping
Center located in the City of Leesburg, State of Florida. Said
Shopping Center and the Demised Premises are more particularly
illustrated in Exhibit A of the Lease.
B. WHEREAS, the Lease commenced on February 1, 1998 and
shall expire on January 31, 2008. Tenant has one (1) option to
extend the Lease for an additional five (5) year period
pursuant to terms contained in the Lease.
C. WHEREAS, Tenant desires to assign its interest in the
Lease to Assignee and Assignee desires to assume all of the
terms and conditions of the Lease. Upon execution by Landlord
of this Assignment, Landlord consents to such Assignment.
D. WHEREAS, by this Assignment, Landlord, Tenant and
Assignee desire to amend the Lease in those particulars as
hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by
Tenant and Assignee, the parties agree as follows:
1. Effective Date of Assignment. This assignment is to
become effective upon full execution, hereinafter referred to as
23
the "Effective Date" and payment of rentals to Landlord by the
Assignee, or Assignor on behalf of Assignee, shall commence on
said date and Assignee shall give possession of the Demised
Premises to Assignee on that date.
2. Assignment and Assumption. Tenant does hereby sell,
assign and transfer unto Assignee all its right, title and
interest in the Lease and the Demised Premises including the
Security Deposit, if any, thereunder. Assignee hereby assumes
all the terms, covenants and conditions of the Lease, and
covenants and agrees to fully and faithfully perform all of the
obligations of Tenant under the Lease, whether arising or
accruing before or after the Effective Date hereof. Assignee
however has the right to operate, in the Premises, under the
trade name of "International Super Buffet." Assignee's
assumption contained herein shall inure to the benefit of
Landlord, and Tenant's continued liability under the Lease shall
inure to the benefit of the Landlord.
3. Tenant's Liability. This Assignment shall in no way
serve to release or diminish the obligations of Tenant to
Landlord under the Lease and Tenant shall continue to remain
fully liable for all obligations under the Lease through January
31, 2008 and Tenant's continued liability under the Lease shall
inure to the benefit of Landlord.
4. Rent. Commencing on the Effective Date Assignee hereby
covenants and agrees to pay to Landlord all Rent as set forth in
the Lease at the address set forth below, without any prior
demand therefore and without any offset or deduction whatsoever,
in equal monthly installments on or before the first day of each
month during the Lease Term, in advance, at the address set
forth below or at such other place designated by Landlord.
Notwithstanding the foregoing, the Assignee accepts
responsibility for all rental obligations accruing during the
term of this Lease, both before and after the effective date of
this Assignment including common area maintenance and tax
reconciliations.
5. Address. All notices to be given pursuant to the Lease
shall be given or served in the manner set forth in the Lease at
the address set forth below. Landlord's address for notices and
rent payments are as follows:
24
Landlord's Address for Notices:
New Plan Excel Realty Trust, Inc.
1120 Avenue of the Americas, 12th Floor
New York, NY 10036
Phone: (212) 869-3000
Landlord's Address for Rent Payments:
New Plan Excel Realty Trust, Inc.
P.O. Box 402938
Atlanta, GA 30384-2938
Facsimile: (212) 302-4776
6. Notice of Default. Landlord agrees to provide notice to
Tenant of an event of default by Assignee at its address
referenced herein.
7. Modification of Lease. Section 1.01(m) Permitted Use of
the Lease is hereby modified to read "Tenant shall use and
operate the Demised Premises solely for the operation of an
Asian Buffet. Tenant shall not use the Demised Premises, or
permit the use thereof, for any other use or purpose."
8. Insurance. Notwithstanding anything contained in the
Lease to the contrary and without limiting the requirements
contained therein, the insurance coverage requirements are
hereby increased as follows: commercial general liability
insurance (or its then equivalent successor), in the broadest
and most comprehensive forms generally available with minimum
limits of liability of Two Million ($2,000,000.00) Dollars
combined single limit coverage, or the equivalent.
9. Condition of Premises. Assignee acknowledges that is has
inspected the Demised Premises and hereby agrees to accept
possession and occupancy of the Demised Premises in itsAS
IS/WHERE IS condition with no work to be performed by Landlord.
10. Release. Tenant hereby generally releases and
discharges Landlord and all of its officers, directors,
shareholders, agents, representatives, employees and attorneys,
both present and past, of and from any and all claims, debts,
liabilities, obligations, and causes of action of any kind or
nature, whether known or unknown, based on, arising out of, or
connected with, either directly or indirectly, any term,
provision, matter, fact, event or occurrence related to or
contained in the Lease, or to any landlord/tenant relationship
between Tenant and Landlord. This general release shall be
governed by the laws of the State of Florida.
25
11. Effectiveness of Lease. Except as expressly provided
herein, nothing in this Assignment shall be deemed to waive or
modify any of the provisions of the Lease, or any amendment or
addendum thereto. In the event of any conflict between the
Lease, this Agreement or any other amendment or addendum
thereof, the document later in time shall prevail.
12. Successors and Assigns. This Assignment shall be binding
upon and inure to the benefit of the heirs, executors,
administrators, successors and assigns of the respective parties
hereto.
13. Warranty of Authority. If Tenant or Assignor is a
corporation, the person or persons executing this Assignment on
behalf of each party represents, covenants and warrants to
Landlord as of the date the parties execute and deliver this
Assignment that the signatories signing on behalf of Tenant and
Assignor have the requisite authority to bind pursuant to the
bylaws or a certified copy of a resolution authorizing the same
by Tenant's board of directors.
14. No Broker. As a material inducement to Landlord's
consent herein, Tenant and Assignee represent and warrant that
any and all brokerage commissions or finders fees in connection
with this Assignment have been paid in full and that Landlord
shall not be responsible for any payment of same, and Tenant and
Assignee hereby agree to indemnify and hold Landlord harmless
from and against any and all loss by, or claim against, Landlord
resulting from any inaccuracy in the foregoing representation
and warranty.
15. Entire Agreement. There are no oral or written agreements
or representations between the parties hereto affecting the
Lease not contained in the Lease and any amendments thereto
including, without limitation, this Agreement. The Lease, as
amended, supercedes and cancels any and all previous
negotiations, arrangements, representations, brochures,
displays, projections, estimates, agreements, and
understandings, if any, made by, to, or among Landlord, Tenant
and Assignee and their respective agents and employees with
respect to the subject matter thereof, and none shall be used to
interpret, construe, supplement or contradict the Lease,
including any and all amendments thereto. The Lease, and all
26
amendments thereto, shall be considered to be the only agreement
between the parties hereto and their representatives and agents.
To be effective and binding on Landlord and Tenant, any
amendment, revision change, modification, understanding, etc. to
the provisions of the Lease must be in writing and executed by
both parties in the same manner as the Lease itself.
16. Confidentiality. The terms and conditions contained in
this Agreement shall be considered confidential, proprietary
information and Tenant shall not discuss the contents with any
one other than the officers and/or partners of Tenant. Breach
of confidentiality shall be deemed a default under the Lease and
Landlord may pursue its default rights against Tenant.
17. Landlord's Consent. Landlord hereby consents to the
Assignment without waiving its right to restrict any subsequent
assignment or subletting of the Demised Premises in accordance
with the terms and conditions set forth in the Lease.
18. Tenant is responsible for any and all charges due under
the Lease Agreement up through the date of this Assignment
except as set forth in Paragraph 3. Tenant's Liability,
hereinabove. Assignee is responsible for any and all charges
due under the Lease Agreement beginning with the Effective Date
of the Assignment.
BALANCE OF PAGE INTENTIONALLY LEFT BLANK
27
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
TENANT
FAMILY STEAK HOUSES OF FLORIDA, INC.
By: Edward Alexander
Name: Edward Alexander
Title: President
By: Patrick A. Fekula
Name: Patrick A. Fekula
Title: Corporate Secretary
LANDLORD
NEW PLAN EXCEL REALTY TRUST, INC.
By: Charlie Carver
Name: Charlie Carver
Title: Sr. Vice President
ASSIGNEE:
Fa Qi Ni
Liang Ni
28
Exhibit 11
The table below details the number of shares and common stock
equivalents used in the computation of basic and diluted (loss)
earnings per share:
Three Months Ended
April 2, 2003 April 3, 2002
Basic:
Weighted average common
shares outstanding used
in computing basic (loss)
per share 3,706,200 3,257,900
========= =========
Basic (loss) earnings
per share $ (.02) $ .16
========= =========
Diluted:
Weighted average common
shares outstanding 3,706,200 3,257,900
Effects of shares issuable
under stock plans using the
treasure method --- 13,200
--------- --------
Shares used in computing
diluted (loss) earnings
per share 3,706,200 3,271,100
========== =========
Diluted (loss) earnings
per share $ (.02) $ 0.16
========== =========
29
Exhibit 99.1: Certification of Periodic Reports
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 Family Steak Houses of Florida, Inc.'s
(the "Company") Quarterly Report on Form 10-Q for the period
ending April 2, 2003, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Glen F. Ceiley,
Principal Executive Officer/Chairman of the Board of the
Company, certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 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, as amended; and
(2). The information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the Company.
Date: May 12, 2003 By: /s/ Glen F. Ceiley
Glen F. Ceiley
Principal Executive Officer/
Chairman of the Board
30
Exhibit 99.2: Certification of Periodic Reports
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 Family Steak Houses of Florida, Inc.'s
(the "Company") Quarterly Report on Form 10-Q for the period
ending April 2, 2003, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Edward B.
Alexander, President/ Chief Operating Officer of the Company,
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 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, as amended; and
(2). The information contained in the Report fairly
presents, in all material respects, the financial
condition and results of operations of the Company.
Date: May 12, 2003 By: /s/ Edward B. Alexander
Edward B. Alexander
President/
Chief Operating Officer
31