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 July 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 August 6, 2003
Family Steak Houses of Florida, Inc.
Condensed Consolidated Results of Operations
(Unaudited) For The Quarters Ended For The Six Months Ended
----------------------- -------------------------
July 2, July 3, July 2, July 3,
2003 2002 2003 2002
----------------------- -------------------------
Revenues:
Sales $9,567,400 $10,794,800 $20,295,500 $23,329,800
Vending revenue 56,100 54,600 107,200 105,500
----------- ----------- ----------- -----------
Total revenues 9,623,500 10,849,400 20,402,700 $23,435,300
----------- ----------- ----------- -----------
Cost and expenses:
Food and beverage 3,619,200 3,983,700 7,718,500 8,616,200
Payroll and benefits 2,887,700 3,196,200 6,090,000 6,656,300
Depreciation and amortization 508,200 532,400 1,023,600 1,109,000
Other operating expenses 1,569,100 1,598,000 3,072,800 3,309,600
General and administrative expenses 612,500 675,700 1,288,500 1,422,800
Franchise fees 382,500 431,800 811,700 932,800
Asset valuation charge -- 260,000 -- 260,000
Loss on store closings and disposition
of equipment 30,000 74,300 64,500 138,500
----------- ----------- ----------- -----------
9,609,200 10,752,100 20,069,600 22,445,200
----------- ----------- ----------- -----------
Earnings from operations 14,300 97,300 333,100 990,100
Investment (loss) gain (19,300) 6,800 (26,500) 24,600
Interest and other income 51,600 19,600 130,700 39,900
Interest expense (441,100) (423,000) (887,200) (839,500)
----------- ----------- ----------- -----------
(Loss) earnings before income taxes (394,500) (299,300) (449,900) 215,100
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net (loss) earnings ($394,500) ($299,300) ($449,900) $215,100
=========== =========== =========== ===========
Basic (loss) earnings per share ($0.11) ($0.08) ($0.12) $0.06
=========== =========== =========== ===========
Basic weighted average common shares
outstanding 3,706,200 3,601,100 3,706,200 3,429,500
=========== =========== =========== ===========
Diluted (loss) earnings per share ($0.11) ($0.08) ($0.12) $0.06
=========== =========== =========== ===========
Diluted weighted average common shares
outstanding 3,706,200 3,601,100 3,706,200 3,436,100
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial
2
Family Steak Houses of Florida, Inc.
Condensed Consolidated Balance Sheets
(Unaudited) July 2, January 1,
2003 2003
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $2,558,100 $1,679,600
Investments 88,900 58,100
Receivables 130,000 105,400
Current portion of mortgages receivable -- 342,000
Inventories 242,300 236,400
Prepaid and other current assets 354,900 372,900
---------- -----------
Total current assets 3,374,200 2,794,400
Certificate of deposit 10,000 10,000
Property and equipment:
Land 7,976,600 8,703,800
Buildings and improvements 23,826,700 25,496,600
Equipment 11,845,300 12,826,600
Construction in progress 104,500 60,800
----------- -----------
43,753,100 47,087,800
Accumulated depreciation (17,751,800) (18,741,200)
----------- -----------
Net property and equipment 26,001,300 28,346,600
Property held for sale 1,504,800 1,504,800
Other assets, principally deferred charges,
net of accumulated amortization 960,300 1,011,600
----------- -----------
$31,850,600 $33,667,400
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,292,300 $1,346,200
Securities sold, not yet purchased 597,500 19,200
Accrued liabilities 1,284,100 1,383,400
Current portion of workers compensation
liability 575,000 501,000
Current portion of long-term debt 696,400 724,600
Current portion of obligation under
capital lease 29,400 27,800
----------- -----------
Total current liabilities 4,474,700 4,002,200
Deferred rent 31,700 15,800
Deposit liability 38,800 14,800
Workers compensation benefit liability 280,500 345,200
Long-term debt 17,776,400 19,523,000
Deferred gain 1,275,700 1,311,100
Obligation under capital lease 2,295,700 2,310,800
----------- -----------
Total liabilities 26,173,500 27,522,900
Shareholders' equity:
Preferred stock of $.01 par;
authorized 10,000,000 shares;
none issued -- --
Common stock of $.01 par;
authorized 8,000,000 and
4,000,000 shares;
outstanding 3,706,200 and
3,706,200 shares 37,100 37,100
Additional paid-in capital 9,869,600 9,869,600
Accumulated deficit (4,208,000) (3,758,100)
Accumulated other comprehensive income (21,600) (4,100)
----------- -----------
Total shareholders' equity 5,677,100 6,144,500
----------- -----------
$31,850,600 $33,667,400
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
Family Steak Houses of Florida, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited) For the Six Months Ended
----------------------------
July 02, July 03,
2003 2002
------------ ------------
Operating activities:
Net (loss) earnings ($449,900) $215,100
Adjustments to reconcile net (loss)
earnings to net
cash provided by operating activities:
Depreciation and amortization 1,023,600 1,109,000
Asset valuation charge -- 260,000
Directors' fees in the form of
stock options -- 10,000
Investment loss (gain) 26,500 (24,600)
Amortization of loan fees 34,200 19,200
Amortization of deferred gain (35,400) --
(Gain) loss on disposition of
equipment (125,100) 28,500
Decrease (increase) in:
Receivables (24,600) 47,700
Inventories (5,900) 54,300
Prepaids and other current
assets 18,000 (28,900)
Other assets 11,800 1,700
(Decrease) increase in:
Accounts payable (53,900) (188,300)
Accrued liabilities (99,300) (269,000)
Deferred rent 15,900 --
Deposit liability 24,000 --
Workers compensation benefit
liability 9,300 --
---------- -----------
Net cash provided by operating activities 369,200 1,234,700
---------- -----------
Investing activities:
Purchases of investments (349,500) (175,300)
Principal receipts on mortgages
receivable 342,000 6,500
Proceeds from sale of investments 280,400 --
Proceeds from securities sold,
not yet purchased 572,600 --
Proceeds from sale of property
and equipment 1,796,000 --
Capital expenditures (343,900) (1,202,300)
---------- ----------
Net cash provided by (used in)
investing activities 2,297,600 (1,371,100)
---------- ----------
Financing activities:
Payments on long-term debt and
obligation under capital lease (1,788,300) (340,800)
Proceeds from issuance of
long-term debt -- 209,000
Proceeds from issuance of common stock -- 400,400
---------- ----------
Net cash provided by financing activities (1,788,300) 268,600
---------- ----------
Net increase in cash and cash equivalents 878,500 132,200
Cash and cash equivalents -
beginning of period 1,679,600 183,100
---------- ----------
Cash and cash equivalents - end of period $2,558,100 $315,300
========== ==========
Noncash investing and financing activities:
Net change in unrealized gain (loss) ($17,500) $3,000
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for
interest $982,000 $832,600
========== ==========
Cash paid during the period for
income taxes -- --
========== ==========
See accompanying notes to condensed consolidated financial statements.
4
FAMILY STEAK HOUSES OF FLORIDA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 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 and
twenty-six week periods ended July 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 Per Share
Basic earnings per share for the thirteen and twenty-six
weeks ended July 2, 2003 and July 3, 2002 were computed
based on the weighted average number of common shares
outstanding. Diluted earnings 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 losses
for the quarters ended July 2, 2003, and July 3, 2002, and
for the six months ended July 2, 2003, all potentially
dilutive securities are antidilutive and have been excluded
5
from the computation of diluted earnings per share for
those periods.
Note 3. Other Assets
Other assets consist principally of deferred charges, which are
amortized on a straight-line basis. Deferred charges and related
amortization periods are as follows: financing costs - term of
the related loan, and initial franchise rights - 40 years.
The gross carrying amount of the deferred financing costs was
$924,100 and $931,200 as of July 2, 2003 and January 1, 2003,
respectively. Accumulated amortization related to deferred
financing costs was $192,500 and $168,900 as of July 2, 2003 and
January 1, 2003, respectively. Amortization expense was $22,200
and $9,600 for the three-month periods ended July 2, 2003 and
July 3, 2002, respectively. Amortization expense was $34,200
and $19,200 for the six-month periods ended July 2, 2003 and
July 3, 2002, respectively. Amortization expense for each of the
next five years is expected to be $47,800.
The gross carrying amount of the initial franchise rights was
$384,700 as of July 2, 2003 and January 1, 2003. Accumulated
amortization related to initial franchise rights was $192,000
and $186,700 as of July 2, 2003 and January 1, 2003,
respectively. Amortization expense was $2,600 and $2,700 for
the three-month periods ended July 2, 2003 and July 3, 2002,
respectively. Amortization expense was $5,300 and $5,500 for
the six-month periods ended July 2, 2003 and July 3, 2002,
respectively. Amortization expense for each of the next five
years is expected to be $9,600.
Note 4. Reclassifications
Certain items in the prior year financial statements have
been reclassified to conform to the 2003 presentation.
Note 5. New Accounting Pronouncements
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
6
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 the 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
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 July 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.
7
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity". This statement establishes standards
for classifying and measuring certain financial instruments with
characteristics of both liabilities and equity. The statement
is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The
Company did not enter into any financial instruments with
characteristics outlined within the statement during the period
from June 1, 2003 through July 2, 2003. The Company will adopt
the standard effective July 3, 2003 and does not expect it to
have an impact on the Company's financial condition, results of
operations or cash flows.
Note 6. 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 the grant. Options vest in one-quarter increments over
a four-year period starting on the date of the grant. An
option's maximum term is ten 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 Six Months Ended
July 2, 2003 July 3, 2002 July 2, 2003 July 3, 2002
------------------ ----------------
Net (loss) earnings, as reported $(394,500) $(299,300) $(449,900) $215,100
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 (1,400) (3,100) (4,500) (6,200)
--------- ---------- ----------- ---------
Pro forma net loss $(395,900) $(302,400) $(454,400) $208,900
========= ========= ---------- ---------
(Loss) earnings per share - basic
and diluted as reported $(0.11) $(0.08) $(0.12) $0.06
Pro forma $(0.11) $(0.08) $(0.12) $0.06
8
Note 7. Subsequent Events
On July 21, 2003, the Company subleased to a third party its
operating location on Blanding Boulevard in Jacksonville,
Florida. The Company remains liable under the lease through May
3, 2007 in the event of default by the sub-lessee.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended July 2, 2003 versus July 3, 2002
The Company experienced a decrease in total sales during
the second thirteen weeks of 2003 compared to the second
thirteen weeks of 2002. Total sales decreased 11.4%, due
primarily to the closing of two under-performing stores and the
continued sluggish economy. Average unit sales per store
decreased 3.0% in the second quarter. Same-store sales (average
unit sales in restaurants that have been open for at least 18
months and operating during comparable weeks during the current
and prior year) in the second quarter of 2003 decreased 5.5%
from the same period in 2002, compared to a decrease of 4.7% in
the second quarter of 2002 as compared to 2001. The decrease in
same-store sales results primarily from new competition in the
Company's markets compared to 2002, and a continuing sluggish
economy.
The operating expenses of the Company's restaurants include
food and beverage, payroll and benefits, depreciation and
amortization, and other operating expenses, which include
repairs, maintenance, utilities, supplies, advertising,
insurance, property taxes and rents. In total, food and
beverage, payroll and benefits, depreciation and amortization
and other operating expenses as a percentage of sales increased
to 89.7% in the second quarter of 2003 from 86.2% in the same
quarter of 2002, primarily as a result of increased rent expense
resulting from the sale/leaseback of an operating location in
July 2002, increased utility costs and a decline in same-store
sales.
Food and beverage costs as a percentage of sales increased
to 37.8% in the second quarter of 2003 from 36.9% in the same
period of 2002 primarily as a result of enhanced menus initiated
by the Company and higher beef costs in 2003. Payroll and
benefits as a percentage of sales increased to 30.2% in the
9
second quarter of 2003 from 29.6% in the same quarter of 2002
due to an increase in health insurance costs in 2003.
Other operating expenses as a percentage of sales increased
to 16.4% in the second quarter of 2003 from 14.8% in 2002
primarily due to increased rent expense resulting from a sale
leaseback transaction completed after the second quarter of
2002, and increased utility costs and higher property insurance
costs in 2003. Depreciation and amortization increased to 5.3%
in 2003 from 4.9% in 2002, due to the decline in same-store
sales.
General and administrative expenses as a percentage of
sales were 6.4% in the second quarter of 2003, as compared to
6.3% in the second quarter of 2002.
The effective income tax rate for the quarters ended July
2, 2003 and July 3, 2002 was 0.0%.
Net loss for the second quarter of 2003 was $394,500,
compared to net loss of $299,300 in the second quarter of 2002.
Net loss per share was $.11 for 2003, compared to net loss per
share of $.08 in 2002.
Six Months Ended July 2, 2003 versus July 3, 2002
For the six months ended July 2, 2003, total sales
decreased 13.0% compared to the same period of 2002, due to the
closing of under-performing restaurants and a reduction in same-
store sales resulting primarily from a continuing sluggish
economy. Same-store sales decreased 8.5% for the six months
ended July 2, 2003 from the same period in 2002.
Food and beverage costs as a percentage of sales for the
six month period ended July 2, 2003 increased to 38.0% from
36.9% for the same period in 2002 as a result of enhanced menu
initiatives by the Company and due to higher beef prices during
a portion of 2003. Payroll and benefits as a percentage of
sales increased to 30.0% in 2003 from 28.5% in 2002, due
primarily to increased workers' compensation costs in 2003, and
the decline in same-store sales.
For the six months ended July 2, 2003, other operating
expenses as a percentage of sales increased to 15.1% from 14.2%
in 2002, primarily due to increased rent expenses from a sale
leaseback, higher property insurance costs, and increased
utilities costs. Depreciation and amortization increased to 5.0%
10
for the six-month period ended July 2, 2003, compared to 4.8% in
2002.
General and administrative expenses for the six-month
periods ended July 2, 2003 and July 3, 2002 were 6.3% and 6.1%
of sales respectively. Interest expense increased for the first
six months to $887,200 from $839,500 for the same period in 2002
due to interest expense associated with the sale leaseback.
The effective income tax rate for the six-month periods
ended July 2, 2003 and July 3, 2002 was 0.0%.
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
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 six months of 2003 include realized losses from
the sale of marketable securities of $26,500, compared to
realized gains of $24,600 in 2002.
Net loss for the first six months of 2002 was impacted by
an asset valuation charge of $260,000, or 8 cents per share.
This charge was based on management's review of the estimated
disposal value of two closed restaurants held for sale. No such
charges were considered necessary in 2003.
Net loss for the six months ended July 2, 2003 was $449,900
or $.12 per share, compared to net earnings of $215,100, or $.06
per share for the same period in 2002.
The Company's operations are subject to some seasonal
fluctuations. Revenues per restaurant generally increase from
January through April and decline from September through
December. Operating results for the quarter or six months ended
11
July 2, 2003 are not necessarily 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 July 2, 2003, the Company had a working capital deficit
of $1,100,500 compared to $1,207,800 at January 1, 2003. Cash
provided by operating activities decreased to $369,200 in the
first six months of 2003 from $1,234,700 in the first six months
of 2002, primarily due to the net losses in 2003, and to timing
differences in the payments of accounts payable and accrued
liabilities.
On April 11, 2003, the Company sold one of its operating
locations for $875,000. At the time of the sale, the location,
including land, building, improvements and equipment had a net
book value of $828,100. Related debt of $740,000 was paid off.
Net of expenses of the sale of $81,600, the Company recognized a
loss of $34,700 on the sale.
On May 13, 2003, the Company sold one of its properties
including land, building, improvements and equipment for
$921,000. At the time of the sale, the property had a net book
value of $813,600. Related debt of $626,000 was paid off. Net
of expenses of the sale of $63,300, the Company recognized a
gain of $44,100 on the sale.
The Company spent approximately $344,000 in the first six
months 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 $1.6
million. This amount is based on budgeted expenditures for land,
building, leasehold improvements and equipment for new
restaurants for which construction or land purchase is expected
to begin 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 from GE
Capital Franchise Finance Corporation ("GE Capital") to fund
$1.7 million for one of the two new restaurants. However, the
12
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
2003 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 2004.
The Company has entered into a series of loan agreements
with GE Capital Franchise Finance Corporation ("GE Capital").
As of July 2, 2003, the outstanding balance due under the
Company's various loans with GE Capital was $18,472,800. The
weighted average interest rate for the GE Capital loans is 7.4%.
The Company used the proceeds of the GE Capital loans primarily
13
to refinance its debt and to fund construction of new
restaurants.
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.
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
14
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
The Company was in compliance with this schedule as of the
year ended January 1, 2003. However, due to the Company's sale
in April 2003 of one of its operating stores and the sublease of
two of its operating stores in April 2003 and July 2003
respectively, the Company now has 19 restaurants in operation.
Accordingly, the Company will not 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
15
inquired as to whether Ryan's will consider the shortage in
restaurants a default under the Franchise Agreement. However, no
agreement has been reached to date with Ryan's.
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.
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
16
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 have been no significant changes in the Company's
exposure to market risk during the first six months 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), President (who serves as the principal operating
officer), Director of Finance (who serves as the principal
financial and accounting officer) and another member of the
Board of Directors. Based upon that evaluation, the Company's
Chairman, President and Director of Finance 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 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.
17
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
(a) On June 19, 2003, the Company held its annual
meeting of shareholders to elect directors to
serve for the upcoming year.
(b) The following table sets forth the number of votes
for and against each of the nominees for
director.
Nominee For Withheld
Glen F. Ceiley 3,305,768 56,021
Jay Conzen 3,305,948 55,841
Stephen Catanzaro 3,307,875 53,914
William Means 3,307,875 53,914
The Company is unable to determine the number of
broker non-votes.
Glen F. Ceiley, Jay Conzen, Stephen Catanzaro and
William Means were elected as directors by the
affirmative vote of a majority of the 3,361,789
shares of the Company's common stock represented in
person or by proxy at the annual meeting of
shareholders.
18
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.
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 are hereby incorporated by
reference.)
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 are
hereby incorporated by reference.)
10.01 Sublease of restaurant property between the Company and
Stevie B's, Inc., dated June 9, 2003.
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.
31.1 Chief Executive Officer certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
99.1 Chief Executive Officer certification pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer certification pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
A report on Form 8-K, dated August 8, 2003, reporting
under Item 9, Regulation FD Disclosure, and Item 12,
Results of Operation and Financial Condition, the
19
issuance by the Company of a press release reporting
its financial results for the quarter and six months
ended July 2, 2003.
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: August 13, 2003 Glen F. Ceiley
Chairman of the Board
/s/ Edward B. Alexander
Date: August 13, 2003 Edward B. Alexander
President / COO
20
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-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have;
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiary, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on
such evaluation; and
21
c) disclosed in this quarterly report any change in the
registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially
affected, or is reasonably likely to materially affect,
the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; 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 over
financial reporting.
Date: August 13, 2003 /s/ Glen F. Ceiley
Glen F. Ceiley
Chairman of the Board
Principal Executive Officer
22
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-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have;
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiary, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on
such evaluation; and
c) disclosed in this quarterly report any change in the
registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in
23
the case of an annual report) that has materially
affected, or is reasonably likely to materially affect,
the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; 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 over
financial reporting.
Date: August 13, 2003 /s/ Edward B. Alexander
Edward B. Alexander
President
Chief Operating Officer
24
Exhibit 10.01
SUBLEASE
KEY PROVISIONS SUMMARY
Sublease Date: May ___, 2003
Sublandlord: Family Steak Houses of Florida, Inc., a
Florida corporation
Subtenant: Mr. Steve Barnhill
Premises: Improved real property located in the
Cedar Hills Shopping Center in
Jacksonville, Florida, more particularly
described in the Master Lease.
Master Property: Cedar Hills Shopping Center in
Jacksonville, Florida _________ and being
more particularly described in the Master
Lease
Master Landlord: Cedar Hills Investors, LLC
Master Lease: Lease by and between Master Landlord, as
landlord, and Sublandlord, as tenant,
dated December 30, 1981, as amended, if
amended, for the lease of the Master
Property, attached hereto as Exhibit A.
Notices: Sublandlord:
Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, Florida 32266
Fax: (904) 249-1466
Attn: Mr. Edward B. Alexander
Subtenant:
Mr. Steve Barnhill
751 Pensacola Beach Blvd.
Pensacola Beach, Florida 32561
Fax: (407) 870-9983
Attn: Steve Barnhill
With a copy to: Hughes & Lane, P.A.
4190 Belfort Road, Suite 351
Jacksonville, Florida 32216
Fax: (904) 296-2270
Attention: Edward W. Lane, III
With a copy to: _______________________
_______________________
_______________________
Fax: __________________
Attn: _________________
Commencement Date: July 1, 2003 (Section 2)
Rent Commencement
Date: The Commencement Date
Expiration Date: May 3, 2012 unless terminated sooner as
provided herein (Section 2)
Base Rent: $38,109.96 dollars annually, paid in 12
monthly installments of $3,175.83 (Section 3).
Additional Rent: Percentage Rent (Section 3)]
Permitted Use: Family style restaurant (Section 5)
Security Deposit: $7,500.00 (Section 15)
Brokers: None.
Exhibits: Exhibit A - Master Lease
Exhibit B - Site Plan of Premises
If there are any inconsistencies between the Key Provisions
Summary and the other provisions of this Sublease, then the Key
Provisions Summary shall control.
Sublandlord's Initials Subtenant's Initials
SUBLEASE AGREEMENT
THIS SUBLEASE is made and entered into as of the Sublease
Date by and between Sublandlord and Subtenant.
Recitals
A. Sublandlord leases from Master Landlord pursuant to
the Master Lease the Master Property.
B. Subtenant desires to sublease from Sublandlord the
Premises pursuant to the terms hereof.
NOW, THEREFORE, in consideration of mutual covenants
contained herein and other good and valuable consideration, the
receipt and sufficiency of which is acknowledged, Sublandlord
does hereby sublease unto Subtenant and Subtenant subleases from
Sublandlord the Premises upon the following terms and
conditions:
1. Master Lease Terms and Conditions. Each reference in
this Sublease to any of the provisions in the Key Provisions
Summary shall be construed to incorporate all of the terms
provided for under such provision and shall be read in
conjunction with all other provisions of this Sublease
applicable thereto. Except as set forth herein, this Sublease
is made upon, and shall be subject and subordinate to, all of
the terms, covenants and conditions of the Master Lease and
all mortgages, lease and other documents to which the Master
Lease is or may hereafter become subject and subordinate.
Subtenant shall, upon request, execute certificates reasonably
requested to confirm such subordination. Subtenant hereby
covenants and agrees (a) to assume, faithfully perform, observe
and be bound by all of the terms, covenants, and conditions
required to be performed by or on the part of tenant under the
Master Lease related to the Premises, all of which shall
constitute the terms of this Sublease, except to the extent such
terms are inconsistent with the terms of this Sublease, in which
event the terms of this Sublease shall prevail; (b) to
indemnify, protect, defend and hold Sublandlord harmless from
and against any and all liabilities, penalties, demands and
other costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred under or pursuant to the
Master Lease by reason of Subtenant's failure to fully comply
with any and all of the duties, covenants and obligations of
Sublandlord under and pursuant thereto which are required to be
performed by tenant pursuant to the terms of the Master Lease;
(c) that any default by Master Landlord shall not affect this
Sublease or waive or defer the performance of any of Subtenant's
obligations hereunder; (d) that Subtenant shall not do or cause
to be done or suffer or permit any act to be done which would or
might cause the Master Lease, or the rights of Sublandlord as
tenant under the Master Lease to be endangered, canceled,
terminated, forfeited or surrendered, or which would or might
cause Sublandlord to be in default thereunder or liable for any
damage, claim or penalty; and (e) to obtain Sublandlord's
consent whenever Master Landlord's consent is needed under the
Master Lease. Subtenant agrees, as an express inducement for
Sublandlord's execution of this Sublease, that if there is any
conflict between the provisions of this Sublease and the
provisions of the Master Lease which would permit Subtenant to
do or cause to be done or suffer or permit anything to be done
which is prohibited by the Master Lease, then the provisions of
the Master Lease shall prevail. Subtenant acknowledges that
Sublandlord does not covenant or agree to do or perform any
obligations undertaken or assumed by the Master Landlord under
the Master Lease and that Master Landlord has responsibility for
providing services and utilities under the terms of the Master
Lease. Sublandlord agrees to assist Subtenant in securing the
performance of any responsibility of Master Landlord under the
terms of the Master Lease. Sublandlord shall maintain the
Master Lease in full force and effect during the Sublease Term
provided Sublandlord shall not be liable to Subtenant for any
early termination of or default under the Master Lease which is
not due to the gross negligence or willful misconduct of
Sublandlord.
2. Sublease Term. The Sublease Term of this Sublease shall
begin on the Commencement Date and shall continue until the
Expiration Date (the "Sublease Term").
3. Rent.
A. Base Rent. Subtenant shall pay Sublandlord the Base
Rent in the twelve (12) equal monthly installments, in advance,
on the first day of each month, without notice, deduction or
offset, commencing on the Commencement Date and continuing
through the Sublease Term.
B. Additional Rent. In addition to Base Rent, Subtenant
shall pay to Sublandlord Percentage Rent as provided in Article
4 of the Master Lease, in an amount equal to two percent (2%) of
all Gross Sales (as that term is defined in the Master Lease)
above One Million Six Hundred Twenty-Five Thousand Dollars
($1,625,000.00) and less than Two Million Two Hundred Thousand
Dollars ($2,200,000.00), per year, payable quarterly, and in the
amount of four percent (4%) of all gross sales of Two Million
Two Hundred Thousand Dollars ($2,200,000.00) and above, payable
quarterly. Subtenant shall also pay to Sublandlord reimbursement
for pest control and refuse collection as provided in Section
8.1.5 of the Master Lease, reimbursement for all Taxes (as
defined in the Master Lease) as provided in Section 8.1.14
thereof, reimbursement for insurance premiums as provided in
Section 8.1.15 of the Master Lease, all sums due the Shopping
Center Merchant's Association as provided in Section 8.1.19 of
the Master Lease, and all Florida sales and use tax payable in
respect of any Rent, Additional Rent, charges or other amounts
paid under the Master Lease as provided in Section 8.1.20
thereof. In addition and as Additional Rent, Subtenant shall pay
to Sublandlord all other sums which may be due from time to time
under the Master Lease.
4. Utilities. Subtenant shall be responsible for paying
before delinquency all fees and charges for all utility services
supplied to the Subleased Premises including, but not limited
to, sanitary sewer, portable water, electricity, telephone,
cable television, gas, and garbage collection.
5. Insurance. Subtenant shall, at its sole cost and
expense, maintain throughout the Sublease Term, any insurance
coverage required to be maintained by Sublandlord under the
Master Lease, pursuant to the terms and conditions of the Master
Lease, with a company authorized to transact business in the
State of Florida and otherwise in accordance with the terms
of the Master Lease. Sublandlord and Master Landlord shall be
named as additional insureds under such insurance. Subtenant
shall indemnify and save harmless Sublandlord and Master
Landlord from any claim or loss by reason of an accident or
damage to any person or property happening in the Premises.
Subtenant shall provide Sublandlord and Master Landlord with
certificates of insurance evidencing the insurance be maintained
by Subtenant herein. Subtenant further agrees to give thirty
(30) days advance written notice of any cancellation or
reduction of insurance under any such policy. Neither
Sublandlord nor Subtenant shall be liable to the other party for
damages to the Master Property or the Premises, the improvements
located thereon or the contents thereof, to the extent that such
liability is coverable by a policy of insurance required to be
maintained, or actually maintained, by the damaged party.
Sublandlord and Subtenant hereby grant to one another on behalf
of any insurer providing insurance to either covering the Master
Property or the Premises, the improvements located thereon or
the contents thereof, a waiver of any right of subrogation any
such insurer of one party may acquire against the other by
virtue of payment of any loss under any such insurance. The
foregoing provision shall be of no force or effect to the extent
its existence or enforceability would adversely affect the
enforceability, validity and/or collectability of any insurance
coverage claimed by either party provided that both parties
agree to obtain any insurance endorsements which may be
available at nominal cost if such endorsements would permit the
effectiveness of this provision under circumstances where it
would otherwise be ineffective. If a party is unable to obtain
such endorsement, it shall immediately notify the other of this
inability. In the absence of such notification, each party
shall be deemed to have obtained such waiver of subrogation.
6. Use and Compliance With Laws. Subtenant shall (a) use
the Premises for the Permitted Use only and for no other
purpose; (b) not conduct on the Premises nor permit to be
conducted on the Premises any business which is in violation of
federal law, the laws of the State of Florida, or any law or
ordinance of any political subdivision having jurisdiction over
the Premises: (c) maintain the Premises in compliance with
"tenant's" maintenance requirements under the Master Lease; and
(d) not, without compliance with applicable rules, regulations
and ordinances, generate, store, treat or dispose of any
petroleum, chemical, material or other substance which is
regulated as toxic or hazardous under any applicable federal,
state or local law, ordinance or code ("hazardous materials")
or otherwise breach any of the representations regarding
hazardous materials contained in the Master Lease or this
Sublease and shall promptly notify Sublandlord of any written
allegation of non-compliance received by Subtenant. Without
limiting any other indemnification set forth in this Sublease,
Subtenant shall indemnify, protect, defend and hold Sublandlord
and Master Landlord harmless from and against any and all
damages, liabilities, judgments, costs, claims, liens, expenses,
penalties, suits, demands, actions, fines, and all costs and
expenses thereof (including, without limitation, reasonable
attorneys' and consultants' fees) arising out of or involving
any hazardous materials introduced to the Premises by Subtenant
or at Subtenant's direction or any other violation of any
applicable environmental laws by Subtenant or its agents. This
provision shall survive the expiration or earlier termination of
the Sublease Term. No termination, cancellation or release
agreement entered into by Sublandlord or Master Landlord and
Subtenant shall release Subtenant from its obligations under
this Sublease with respect to all applicable environmental laws
unless specifically so agreed by Sublandlord and Master Landlord
in writing at the time of such agreement. This provision shall
survive the expiration or early termination of this Sublease.
7. Alterations. Subtenant has examined the Premises and
accepts the Premises in an "AS IS" "WHERE IS" condition, and
Subtenant acknowledges and agrees that neither Sublandlord nor
any of Sublandlord's agents, employees or representatives have
made any representation or warranty, either express or implied,
with respect to the Premises or the use thereof by Subtenant.
Subtenant shall not make any alterations to the Premises without
Sublandlord's and Landlord's, as may be required, prior written
consent. If any alterations are permitted, Subtenant shall
comply with all requirements of the Master Lease with respect to
such alterations, including, but not limited to, mechanics'
liens and bonding. Any alterations made, other than the
installation of Subtenant's personal property, shall remain on
and be surrendered with the Premises on the expiration or
earlier termination of the Sublease Term, unless such
alterations are required to be removed pursuant to the terms of
this Sublease or Sublandlord requires Subtenant to remove such
alterations, in which case Subtenant shall, at its own cost,
remove such alterations and repair any damage caused by such
removal.
8. Indemnification. Subtenant shall indemnify, protect,
defend and hold Sublandlord and Landlord harmless from and
against any and all damages, liabilities, judgments, costs,
claims, liens, expenses, penalties, suits, demands, actions,
fines, and all costs and expenses thereof (including, without
limitation, reasonable attorneys' and consultants' fees) arising
out of or involving the use or occupancy of the Premises by
Subtenant, its agents, contractors, employees, invitees,
licensees, servants, subcontractors or subtenants, except to the
extent caused by the gross negligence or willful misconduct of
Sublandlord.
9. Default. The occurrence of one or more of the following
events (herein "Events of Default") shall constitute a default
by Subtenant and a breach of this Sublease: (a) the filing of a
petition by Subtenant for adjudication as bankrupt, the
involuntarily adjudication of Subtenant as bankrupt or the
voluntary reorganization of Subtenant pursuant to the United
States Bankruptcy Code; (b) the appointment of a receiver for
Subtenant; (c) the making by Subtenant of any assignment for the
benefit of creditors; (d) the failure to pay rent within seven
(7) days after same becomes due or the failure to maintain the
required insurance coverages to be maintained by Subtenant
hereunder; (e) a default in the performance of any other
covenant or condition of this Sublease on the part of Subtenant
not cured within five (5) days of Sublandlord's notice thereof
(except no notice shall be required for Sublandlord to commence
to cure Subtenant's default in the event of an emergency or if
required under the Master Lease); and (f) any other act or
omission which would constitute a default under the terms of the
Master Lease.
10. Sublandlord's Remedies On Default By Subtenant. Upon
the occurrence of an Event of Default, Sublandlord shall have
the right to terminate this Sublease and/or Subtenant's right to
possession of the Premises at any time and reenter the Premises.
In addition, Sublandlord shall have the right to pursue any and
all other remedies available at law and in equity to recover
from Subtenant all amounts then due or thereafter accruing and
such other damages as are caused by Subtenant's Event of
Default. No course of dealing between Sublandlord and Subtenant
or any delay on the part of Sublandlord in exercising any rights
Sublandlord may have under this Sublease shall operate as a
waiver of any of the rights of Sublandlord hereunder nor shall
any waiver or prior default operate as a waiver of any
subsequent default. In exercising its rights and remedies under
this Sublease, Sublandlord shall be entitled to recover from
Subtenant all costs incurred, including, without limitation,
reasonable attorneys' fees.
11. Brokers. Sublandlord and Subtenant warrant that they
have not used any broker other than Broker and each party agrees
to indemnify, protect, defend and hold each other harmless from
and against any and all damages, liabilities, judgments, costs,
claims, liens, expenses, penalties, suits, demands, actions,
fines, and all costs and expenses thereof (including, without
limitation, reasonable attorneys' and consultants' fees) for
brokerage commissions arising out of or involving each other's
actions in connection with this Sublease, including the payment
of any commission or any other fee or charge due to any other
broker having a claim through such party.
12. Assignment and Subletting. Subtenant shall not further
sublet all or any portion of the Premises to others or assign or
encumber this Sublease without the prior written consent of
Sublandlord. Consent by Sublandlord to one assignment or
subletting shall not destroy or operate as a waiver of the
prohibitions contained in this paragraph or in the Master Lease
as to future assignments or subleases, and all such later
assignments or subleases shall be made only with the prior
written consent of Sublandlord. In the event an assignment or
encumbrance of this Sublease or subletting of the Premises or
any part thereof is made by Subtenant, Subtenant shall remain
liable to Sublandlord for payment of all rent provided for
hereunder and for the faithful performance of all the covenants
and conditions contained herein to the same extent as if this
Sublease had not been assigned or encumbered or the Premises
sublet. If Subtenant sublets the Premises at a rental that
exceeds all rentals to be paid to Sublandlord hereunder,
Subtenant shall pay over any such excess to Sublandlord.
Subtenant agrees to reimburse Sublandlord for any costs and
expenses (including reasonable attorneys' fees not to exceed
$1,500) incurred by Sublandlord in connection with Subtenant's
assignment or subletting. If a sublease of the Premises is
consented to by Sublandlord and the rental of such sublease
exceeds the rentals to be paid to Sublandlord hereunder, than
Subtenant shall pay such excess to Sublandlord.
13. Entry. Master Landlord and Sublandlord shall have the
same rights to enter into the Premises as are provided to Master
Landlord to enter the Master Property in the Master Lease.
14. Holding Over. Subtenant shall have no right to occupy
the Premises or any portion thereof after the expiration of this
Sublease or after termination of this Sublease or of Subtenant's
right to possession in consequence of an Event of Default
hereunder. If Subtenant or any party claiming by, through or
under Subtenant holds over, Sublandlord may exercise any and
all remedies available to it at law or in equity to recover
possession of the Premises, and to recover damages, including,
without limitation, damages payable by Sublandlord to Master
Landlord by reason of such holdover. For each and every month
or partial month that Subtenant or any party claiming by,
through or under Subtenant remains in occupancy of all or any
portion of the Premises after the expiration of this Sublease or
after termination of this Sublease or Subtenant's right to
possession, Subtenant shall pay, as minimum damages and not as a
penalty, monthly rent at a rate equal to double the rate of
monthly Base Rent and Additional Rent payable by Subtenant
hereunder immediately prior to the expiration or other
termination of this Sublease or of Subtenant's right of
possession. The acceptance by Sublandlord of any lesser sum
shall be construed as payment on account and not in satisfaction
of damages for such holding over.
15. Limitation of Liability. Subtenant agrees that
Subtenant shall look solely to the interest of Sublandlord in
the Premises for the collection of any judgment requiring the
payment of money by Sublandlord for any default or breach under
this Sublease.
16. Security Deposit. As an express condition of the
Sublease, the Subtenant shall deposit with the Sublandlord the
Security Deposit which shall be held during the Sublease Term to
guarantee the faithful performance by Subtenant's obligations as
herein provided. The Security Deposit or any portion thereof
may be applied to the curing of any default that may then exist,
without prejudice to any other remedy or remedies which
Sublandlord may have on account thereof, and upon such
application Subtenant shall pay Sublandlord on demand the amount
so applied which shall be added to the Security Deposit so the
same may be restored to its original amount. Unless prohibited
by law, Sublandlord or its successor may commingle the Security
Deposit with its other funds. Upon termination of this
Sublease, and provided Subtenant is not in default hereunder and
has performed all of its obligations under this Sublease,
Sublandlord shall return the remainder of Security Deposit,
without any interest thereon, to Subtenant. Subtenant covenants
and agrees that it will not assign, pledge, hypothecate,
mortgage or otherwise encumber the aforementioned security
during the Sublease Term.
17. Notice. Any notice that either party desires or is
required to give to the other party shall be in writing and
shall be deemed to have been sufficiently given if either served
personally or sent by overnight mail or prepaid, registered or
certified mail, or via national overnight delivery service
addressed to the other party at the addresses set forth in the
Key Provisions Summary.
18. Jurisdiction. The parties hereto agree that this
Sublease and the enforcement hereof shall be construed in
accordance with and governed by the laws of the State of Florida
and that any action brought under this Sublease shall be brought
in the state courts.
19. Corporate Authority. Subtenant and each person
executing this Sublease on behalf of Subtenant represents and
warrants that Subtenant is validly existing under the laws of
their state of domicile and that Subtenant has full right and
authority to enter into this Sublease and to perform all of
Subtenant's obligations hereunder.
20. Integration and Binding Effect. The entire agreement
between Sublandlord and Subtenant is contained in the provisions
of this Sublease and any stipulations, representations, promises
or agreements, written or oral made prior to or contemporaneous
with this Sublease shall have no legal effect unless contained
herein. In the event Sublandlord retains an attorney to enforce
provisions of this Sublease, Sublandlord shall be entitled to
recover, in addition to all other remedies available at law or
in equity, its reasonable attorneys' fees from the Subtenant.
Titles to the paragraphs of this Sublease shall be ignored when
interpreting this Sublease. This Sublease shall be binding upon
and inure to the benefit of the parties hereto, their respective
heirs, successors and assigns. Any amendments to this Sublease
must be made in writing and executed by the party to be charged
with such amendment.
21. Radon. Radon is a naturally occurring radioactive gas
that, when it has accumulated in a building in sufficient
quantities, may present health risks to persons who are exposed
to it over time. Levels of radon that exceed federal and state
guidelines have been found in buildings in Florida. Additional
information regarding radon and radon testing may be obtained
from your county public health unit.
22. Inspection. Sublandlord shall have the right at all
reasonable times hereunder and upon reasonable notice
(excepting, however, in the event of an emergency which shall
require no notice) for its employees and agents to enter the
Subleased Premises for the purpose of inspecting the same, of
making repairs, additions, or alterations thereto, and of
showing the Subleased Premises to prospective purchasers,
lenders, and tenants, in the same manner and to the same extent
as the Master Landlord is entitled to do under Section 8.1.11 of
the Master Lease.
IN WITNESS WHEREOF, the parties hereto have executed this
Sublease Agreement as of the day and year first above written.
Sublandlord
Signed, sealed and delivered FAMILY STEAK HOUSES OF FLORIDA,
in the presence of: INC.
_____________________________
Witness By:_____________________________
_____________________________ Print Name:_____________________
Print Name Title:__________________________
_____________________________ Date:___________________________
Witness
_____________________________
Print Name
Subtenant
Signed, sealed and delivered
in the presence of:
______________________________
Witness Stevie B's, Inc.
______________________________ Steve Barnhill
Print Name
______________________________
Witness
______________________________
Print Name
EXHIBIT A
MASTER LEASE
EXHIBIT B
FLOOR PLAN
CONSENT OF MASTER LANDLORD
Master Landlord does hereby consent to this Sublease of the
Premises and all the terms and provisions of this Sublease and
acknowledges the right of Subtenant to all of the benefits and
services due Subtenant under the Master Lease during the
Sublease Term; provided, however, the parties acknowledge and
agree that Master Landlord's consent to this Sublease shall not
in any way expand the rights of Sublandlord or Subtenant beyond
the rights granted in the Master Lease.
Master Landlord
CEDAR HILLS INVESTORS, LLC
By:
Print Name:
Title:
Date:
Exhibit 11.1
The table below details the number of shares and common stock
equivalents used in the computation of basic and diluted earnings
per share:
Three Months Ended Six Months
7/02/03 7/03/02 7/02/03 7/03/02
Basic:
Weighted average common
shares outstanding used
in computing basic (loss)
earnings per share 3,706,200 3,601,100 3,706,200 3,429,500
========= ========= ========= =========
Basic (loss) earnings
per share $ (.11) $ (.08) $ (.12) $ .06
========= ========== ========= =========
Diluted:
Weighted average common
shares outstanding 3,706,200 3,601,100 3,706,200 3,429,500
Effects of dilutive stock
options --- --- --- 6,600
--------- ---------- ---------- --------
Shares used in computing
diluted (loss) earnings
per share 3,706,200 3,601,100 3,706,200 3,436,100
========= ========= ========= =========
Diluted (loss) earnings
per share $ (.11) $ (.08) $ (.12) $ .06
========= ========= ======== =========
Exhibit 31.1
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-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have;
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiary, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on
such evaluation; and
c) disclosed in this quarterly report any change in the
registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially
affected, or is reasonably likely to materially affect,
the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; 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 over
financial reporting.
Date: August 13, 2003 /s/ Glen F. Ceiley
Glen F. Ceiley
Chairman of the Board
Principal Executive Officer
Exhibit 31.2
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-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have;
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiary, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on
such evaluation; and
c) disclosed in this quarterly report any change in the
registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially
affected, or is reasonably likely to materially affect,
the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; 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 over
financial reporting.
Date: August 13, 2003 /s/ Edward B. Alexander
Edward B. Alexander
President
Chief Operating Officer
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
July 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: August 13, 2003 By:/s/ Glen F. Ceiley
Glen F. Ceiley
Principal Executive Officer/
Chairman of the Board
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
July 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: August 13, 2003 By:/s/ Edward B. Alexander
Edward B. Alexander
President/COO