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 October 2, 2002
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 November 8, 2002
Family Steak Houses of Florida, Inc.
Condensed Consolidated Results of Operations
(Unaudited)
For The Quarters Ended For The Nine Months Ended
---------------------- -------------------------
October 2, October 3, October 2, October 3,
2002 2001 2002 2001
---------- ----------- ------------ ------------
Revenues:
Sales $9,525,900 $10,099,300 $32,855,700 $32,276,500
Vending revenue 47,000 53,100 152,500 163,000
---------- ----------- ----------- -----------
Total revenues 9,572,900 10,152,400 33,008,200 32,439,500
---------- ----------- ----------- -----------
Cost and expenses:
Food and beverage 3,589,700 3,844,600 12,205,900 12,284,900
Payroll and benefits 2,993,200 3,131,100 9,649,500 9,639,500
Depreciation and
amortization 558,500 560,100 1,667,500 1,607,400
Other operating expenses 1,637,300 1,654,700 4,934,300 4,884,100
General and administrative
expenses 596,900 674,600 2,032,300 1,938,300
Franchise fees 381,000 302,600 1,313,800 967,300
Asset valuation charge -- -- 260,000 --
Loss on store closings and
disposition of equipment 68,800 43,600 207,300 144,000
--------- ----------- ----------- -----------
9,825,400 10,211,300 32,270,600 31,465,500
--------- ----------- ----------- -----------
(Loss) earnings
from operations (252,500) (58,900) 737,600 974,000
Investment (loss) gain (100) 55,300 24,500 (440,900)
Interest and other income 56,600 21,700 96,500 76,200
Interest expense (458,200) (415,200) (1,297,700) (1,319,900)
--------- ----------- ----------- -----------
Loss before income taxes (654,200) (397,100) (439,100) (710,600)
Provision for income taxes -- -- -- --
--------- ----------- ----------- -----------
Net loss ($654,200) ($397,100) ($439,100) ($710,600)
========= =========== =========== ===========
Basic loss per share ($0.18) ($0.16) ($0.12) ($0.29)
========= =========== =========== ===========
Basic weighted average
common shares outstanding 3,706,200 2,432,500 3,521,700 2,425,200
========= =========== =========== ===========
Diluted loss per share ($0.18) ($0.16) ($0.12) ($0.29)
========= =========== =========== ===========
Diluted weighted average
common shares outstanding 3,706,200 2,432,500 3,521,700 2,425,200
========= =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
2
Family Steak Houses of Florida, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
October 2, January 2,
2002 2002
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents $1,122,500 $183,100
Investments 136,900 2,100
Receivables 106,000 159,800
Current portion of mortgages receivable 345,400 13,400
Inventories 271,500 319,800
Prepaid and other current assets 370,000 284,400
---------- -----------
Total current assets 2,352,300 962,600
Mortgages receivable -- 342,000
Certificate of deposit 10,000 10,000
Property and equipment:
Land 8,231,700 9,317,000
Buildings and improvements 24,241,100 24,661,700
Equipment 12,681,200 12,543,200
Construction in progress 19,400 --
---------- -----------
45,173,400 46,521,900
Accumulated depreciation (17,344,400) (16,940,100)
---------- -----------
Net property and equipment 27,829,000 29,581,800
Property held for sale 2,961,700 2,523,700
Other assets, principally deferred
charges,net of accumulated amortization 958,100 841,000
---------- -----------
$34,111,100 $34,261,100
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,271,500 $1,571,300
Accounts payable - construction 2,900 715,500
Securities sold, not yet purchased -- 159,500
Accrued liabilities 2,182,000 2,362,800
Investment margin debt 10,200 --
Current portion of long-term debt 667,000 663,400
Current portion of obligations
under capital lease 27,200 17,700
---------- -----------
Total current liabilities 4,160,800 5,490,200
Long-term debt 18,506,600 19,902,500
Obligations under capital lease 2,318,000 1,025,800
Deferred gain 1,328,900 --
Deferred rent 7,900 --
---------- -----------
Total liabilities 26,322,200 26,418,500
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 3,251,000 shares 37,100 32,500
Additional paid-in capital 9,877,400 9,466,600
Accumulated deficit (2,096,900) (1,657,800)
Accumulated other comprehensive
(loss) income (28,700) 1,300
---------- -----------
Total shareholders' equity 7,788,900 7,842,600
---------- -----------
$34,111,100 $34,261,100
=========== ============
See accompanying notes to condensed consolidated financial statements.
3
Family Steak Houses of Florida, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
-------------------------
October 2, October 3,
2002 2001
------------ ------------
Operating activities:
Net loss ($439,100) ($710,600)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,667,500 1,607,400
Asset valuation charge 260,000 --
Directors' fees in the form of stock options 15,000 4,000
Investment (gain) loss (24,500) 440,900
Amortization of loan fees 56,700 27,100
Amortization of deferred gain (17,700) --
Loss on disposition of equipment 59,900 61,800
Decrease (increase) in:
Receivables 53,800 (20,300)
Inventories 48,300 (73,300)
Prepaids and other current assets (85,600) (92,200)
Other assets (30,700) (53,400)
(Decrease) increase in:
Accounts payable (299,800) (8,000)
Accrued liabilities (251,700) (328,300)
Deferred Rent 7,900 --
---------- ---------
Net cash provided by operating activities 1,020,000 855,100
---------- ---------
Investing activities:
Purchases of investments (303,600) (332,800)
Principal receipts on mortgages receivable 10,000 168,800
Proceeds from sale of investments 3,800 797,400
Proceeds from securities sold, not yet purchased -- 500,600
Capital expenditures (1,672,100) (3,565,300)
Proceeds from sale of assets held for sale 32,600 --
---------- -----------
Net cash used in investing activities (1,929,300) (2,431,300)
----------- -----------
Financing activities:
Payments on long-term debt and obligations
under capital lease (1,619,600) (543,800)
Proceeds from issuance of long-term debt 209,000 1,865,800
Proceeds from sale-leaseback 3,000,000 --
Payment of sale-leaseback costs (151,300) --
Proceeds from rights offering -- 817,000
Proceeds from (payments of) investment margin debt 10,200 (165,100)
Proceeds from issuance of common stock 400,400 8,300
---------- ----------
Net cash provided by financing activities 1,848,700 1,982,200
---------- ----------
Net increase in cash and cash equivalents 939,400 406,000
Cash and cash equivalents - beginning of period 183,100 631,500
---------- ----------
Cash and cash equivalents - end of period $1,122,500 $1,037,500
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $1,253,300 $1,358,300
========== ==========
Cash paid during the period for income taxes -- --
========== ==========
Noncash investing and financing activities:
Net change in unrealized gain ($30,000) $515,100
=========== =========
Capital lease entered to acquire building $1,320,000 --
========== ==========
See accompanying notes to condensed consolidated financial statements
4
FAMILY STEAK HOUSES OF FLORIDA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 2, 2002
(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 thirty-nine week periods ended October
2, 2002 are not necessarily indicative of the results that may be
expected for the fiscal year ending January 1, 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 2, 2002.
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 quarters and nine months ended
October 2, 2002 and October 3, 2001 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
and nine months ended October 2, 2002, and October 3, 2001, all
potentially dilutive securities are antidilutive and have been
excluded from the computation of diluted earnings per share for those
periods.
5
Note 3. Reclassifications
Certain items in the prior year financial statements have been
reclassified to conform to the 2002 presentation.
Note 4. Asset Valuation Charge
In accordance with Statement of Financial Accounting Standards
("SFAS") 144, and the Company's policy for impairment review (see
Note 1 to the Consolidated Financial Statements for the year ended
January 2, 2002), the Company recognized an asset valuation charge of
$260,000 in the nine months ended October 2, 2002.
Note 5. Sale Leaseback Transaction
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 million and paid off its existing mortgage
of approximately $1.1 million on the property. Beginning in the
third quarter of 2002, the leaseback of the building is 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 current annual payments of $330,000, with
increases of 10% every five years.
Note 6. New Accounting Pronouncements
In June 2001, the FASB issued SFAS 141, "Business Combinations," SFAS
142, "Goodwill and Other Intangible Assets," and SFAS 143,
"Accounting for Asset Retirement Obligations." In August 2001, the
FASB issued SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS 141 requires companies to apply the
purchase method of accounting for all business combinations initiated
after June 30, 2001 and prohibits the use of the pooling-of-interest
method. SFAS 142 changes the method by which companies may recognize
intangible assets in purchase business combinations and generally
requires identifiable intangible assets to be recognized separately
from goodwill. In addition, it eliminates the amortization of all
existing and newly acquired goodwill on a prospective basis and
requires companies to assess goodwill for impairment, at least
annually, based on the fair value of the reporting unit associated
with the goodwill. SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS
143 applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction,
6
development and/or the normal operation of a long-lived asset, except
for certain obligations of lessees. SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. The Company adopted SFAS 141 on July 1, 2001. The adoption
of SFAS 141 did not have a material effect on the Company's financial
position, results of operations or cash flows. The Company adopted
SFAS 142 and SFAS 144 on January 3, 2002. The adoption of SFAS 142
and SFAS 144 did not have a material effect on the Company's
financial position, results of operations or cash flows. The Company
will adopt SFAS 143 effective January 2, 2003. It does not appear
the adoption of SFAS 143 will have a material impact on the Company's
financial position, results of operations or cash flows.
In April 2002, the FASB issued SFAS 145, "Recession of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS 145 amends SFAS 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sale-
leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-
leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. The provisions of SFAS 145 related to the rescission of SFAS
4 shall be applied in fiscal years beginning after May 15, 2002. Any gain
or loss on extinguishment of debt that was classified as an extraordinary
item in prior periods presented that does not meet the criteria in Opinion
30 for classification as an extraordinary item shall be reclassified. The
provisions related to SFAS 13 shall be effective for transactions
occurring after May 15, 2002, with early application encouraged. The
Company does not expect the adoption of SFAS 145 to have a material impact
on its financial position, results of operations or cash flows.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement nullifies Emerging
Issues Task Force No. 94-3 and requires that a liability for a cost
associated with an exit or disposal activity be recognized only when the
liability is incurred. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company will
adopt the standard effective January 2, 2003.
Note 7. Subsequent Event
On October 29, 2002, the Company completed a transaction with GE
Capital Franchise Finance Corporation ("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
7
from a commitment from GE Capital to build a new restaurant expected
to open in mid-2003.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
Management believes that the Company's policy regarding asset
impairment is the Company's sole critical accounting policy. This
policy, which is discussed in Note 1 to the Company's Consolidated
Financial Statements for the year ended January 2, 2002, generally
applies to the recoverability of a restaurant's carrying amount.
Results of Operations
Quarter Ended October 2, 2002 versus October 3, 2001
The Company experienced a decrease in sales during the third
quarter of 2002 compared to the third quarter of 2001. Total sales
decreased 5.7%. Average unit sales per store decreased 1.4% in the
third quarter over the same period in 2001. 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 third quarter of 2002 decreased 8.8% from the
same period in 2001, compared to a decrease of 2.7% in the third
quarter of 2001 as compared to 2000. The decrease in both total sales and
same-store sales resulted primarily from significant sales declines at certain
restaurants which faced new competition or road construction in their
markets compared to 2001, and to a slowing economy.
Management is seeking to improve sales trends by focusing on
improved restaurant operations, devising competitive strategies to
offset the effects of new competition, promoting its restaurants,
extensive meal selection, focusing on local store marketing
initiatives, continuing television advertising and making capital
improvements to certain restaurants. The Company tested television
advertising in 2001, and experienced some sales improvements.
Management has implemented additional television advertising in the
first three quarters of 2002 and continues to evaluate the results.
If television advertising proves successful, management will adapt
the Company's marketing strategy to place more focus on television
advertising.
8
Historically, the third and fourth quarters of each fiscal year
are less profitable for the Company than the first and second
quarters. Even if the sales trends improve, the Company is likely to
incur losses in the fourth quarter.
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 92.2% in the third quarter of 2002
from 91.0% in the same quarter of 2001.
Food and beverage costs as a percentage of sales decreased to
37.7% in the third quarter of 2002 from 38.1% in the same period of
2001, primarily due to menu price increases implemented by the
Company. Payroll and benefits as a percentage of sales increased to
31.4% in the third quarter of 2002 from 31.0% in the same quarter of
2001, primarily due to increased workers' compensation expenses.
Other operating expenses as a percentage of sales increased to
17.2% in the third quarter of 2002 compared from 16.4% in 2001,
primarily due to increases in property insurance costs, and to
increased rent expense from a refinancing of a restaurant property
through a sales leaseback transaction (see "Liquidity and Capital
Resources"). Depreciation and amortization as a percentage of sales
increased to 5.9% in 2002 from 5.5% in 2001, due to the decline in
total sales.
General and administrative expenses decreased as a percentage of
sales to 6.3% in the third quarter of 2002, from 6.7% in the same
quarter of 2001, due to the write-off of costs in 2001 associated
with a restaurant that was not developed. Franchise fees increased
as a percentage of sales to 4.0% in 2002 from 3.0% in 2001, in
accordance with the Company's franchise agreement with Ryan's
Properties, Inc. ("Ryan's"). Interest expense increased to $458,200
during the third quarter of 2002 from $415,200 in 2001. The increase
was due to an increase in total debt at October 2, 2002 as compared
to October 3, 2001.
The results of operations for the third quarter of 2002 include
net realized losses of $100 from the sale of marketable securities,
compared to net realized gains of $55,300 in the third quarter of
2001.
9
The effective income tax rate for the quarters ended October 2,
2002 and October 3, 2001 was 0.0%.
Net loss for the third quarter of 2002 was $654,200, compared to
net loss of $397,100 in the third quarter of 2001. Net loss per share
was $.18 for 2002, compared to net loss per share of $.16 in 2001.
Nine Months Ended October 2, 2002 versus October 3, 2001
For the nine months ended October 2, 2002, total sales increased
1.8% compared to the same period of 2001, due to the opening of two
new restaurants. Average unit sales increased 3.1% for the nine
months. Same-store sales decreased 5.3% for the nine months ended
October 2, 2002 from the same period in 2001, for the same reasons
mentioned above for the quarter.
In total, food and beverage, payroll and benefits, depreciation
and amortization and other operating expenses as a percentage of
sales decreased to 86.6% for the first nine months of 2002 from 88.0%
in the same period of 2001.
Food and beverage costs as a percentage of sales for the nine
month period ended October 2, 2002 decreased to 37.2% from 38.1% for
the same period in 2001, primarily due to menu price increases.
Payroll and benefits as a percentage of sales decreased to 29.4% in
2002 from 29.9% in 2001. The decrease was primarily due to reduced
group health insurance expense, offset by higher workers'
compensation costs.
For the nine months ended October 2, 2002, other operating
expenses as a percentage of sales decreased to 15.0% from 15.1% in
2001, primarily due to decreased utilities costs and to costs
incurred in 2001 associated with the opening of a new restaurant,
offset by higher property insurance expenses. Depreciation and
amortization as a percentage of sales increased to 5.1% for the nine-
month period ended October 2, 2002, compared to 5.0% in 2001.
Net loss for the first nine months of 2002 was impacted by an
asset valuation charge of $260,000, or 7 cents per share. This
charge was based on management's review of the estimated disposal
value of two closed restaurants held for sale.
General and administrative expenses for the nine-month periods
ended October 2, 2002 and October 3, 2001 were 6.2% and 6.0% of
sales, respectively. Franchise fees as a percentage of sales
increased to 4.0% in 2002 from 3.0% in 2001, in accordance with the
Company's franchise agreement with Ryan's. Interest expense
10
decreased for the first nine months of 2002 to $1,297,700 from
$1,319,900 for the same period in 2001, due to lower interest rates
in 2002, offset by an increase in total debt at October 2, 2002 as
compared to October 3, 2001.
The results of operations for the nine months ended October 2,
2002 include net realized gains of $24,500 from the sale of
marketable securities compared to net realized losses of $440,900 for
the same period in 2001.
The effective income tax rate for the nine-month periods ended
October 2, 2002 and October 3, 2001 was 0.0%.
Net loss for the nine months ended October 2, 2002 was $439,100
or $.12 per share, compared to net loss of $710,600, or $.29 per
share for the same period in 2001.
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 nine months ended October 2, 2002 are not
necessarily indicative of the results that may be expected for the
fiscal year ending January 1, 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. As a result, working capital requirements
for continuing operations are not significant.
At October 2, 2002, the Company had a working capital deficit of
$1,808,500 compared to $4,527,600 at January 2, 2002. The decrease in
the working capital deficit during the first nine months of 2002 was
due primarily to cash from a private placement stock offering, the
change in status of mortgages receivable to a current asset, and cash
from the completion of a sale leaseback refinancing of one of its
restaurants.
Cash provided by operating activities increased to $1,020,000 in
the first nine months of 2002 from $855,100 in the same period of
2001. This increase was primarily due to decreased losses and
investment gains in 2002.
11
The Company spent approximately $1,672,100 in the first nine
months of 2002 for property and equipment. Total capital
expenditures for 2002, based on present costs and plans for capital
improvements, are estimated to be approximately $2.2 million. This
estimate is based on expenditures incurred through September 2002
plus budgeted expenditures for scheduled remodels of three
restaurants and normal recurring equipment purchases and minor
building improvements ("Capital Maintenance Items"). The Company has
raised sufficient capital to fund these expenditures and the
construction of two new restaurants expected to open in 2003 through
a private placement stock offering (see discussion below), a sale
leaseback of an existing restaurant, a twenty-year lease agreement
for a new restaurant and a refinancing of debt related to two
existing restaurants (see Note 7: "Subsequent Events"). In addition,
the Company has a commitment from GE Capital to fund $1.7 million for
a new restaurant.
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 the 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.
On October 1, 2001, the Company completed a Rights Offering
("the Offering") for its shareholders of record as of August 10,
2001. The Company raised $838,100 net of offering costs from the
Offering, and issued 827,583 shares of common stock to shareholders
exercising rights. Glen F. Ceiley, the chairman of the Company's
board of directors, Bisco Industries, Inc. ("Bisco"), a company for
which Mr. Ceiley is the sole shareholder and president and other
affiliates of Mr. Ceiley purchased 822,280 shares in the Offering.
In April 2002, the Company completed a private placement with
Bisco for 435,000 shares at $0.92 per share, which was based on the
average closing price of the Company's common stock on the ten
trading days prior to the sale. The Company used the $400,200
proceeds from this sale to fund remodels of several restaurants in
2002.
12
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 million and paid off its existing mortgage
of approximately $1.1 million on the property. Beginning in the
third quarter of 2002, the leaseback of the building is 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 current 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 Orlando, Florida in 2003.
On October 29, 2002, the Company completed a transaction with GE
Capital Franchise Finance Corporation ("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 a commitment from GE Capital to build a new restaurant expected
to open in mid-2003.
The Company has entered into a series of loan agreements with
FFCA Mortgage Corporation, which is now known as GE Capital. As of
October 2, 2002, the outstanding balance due under the Company's
various loans with GE Capital was $19,173,600. The weighted average
interest rate for the GE Capital loans is 7.4% at October 2, 2002.
In 2001, the Company paid franchise fees of 3% of gross sales.
The franchise agreement required that the franchise fee increase to
4% beginning January 3, 2002. The increase cost the Company an
additional $328,600 in the first nine months of 2002, and management
projects that it will increase the Company's franchise fee expense by
more than $400,000 per year.
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
13
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.
Recent Developments
Status of Company's Stock with NASDAQ
On August 7, 2002, the Company received notice from NASDAQ that
the Company's closing bid price had declined below $1.00 per share.
Accordingly, NASDAQ informed the Company that in order to continue
the listing of the Company's securities on the Nasdaq SmallCap Market
("SmallCap"), the closing bid price of the Company's common stock
must be a minimum of $1.00 per share for ten consecutive trading days
on or before February 3, 2003, at which time NASDAQ would determine
if the Company meets any of the initial listing criteria for
SmallCap. One of these criteria is to have stockholder's equity of
$5 million. Considering that the Company's stockholders' equity as
of October 2, 2002 was $7,788,900, it is likely that the Company will
comply with this criteria. If the Company has not met the $1.00
minimum bid price requirement before February 3, 2003, but does meet
the $5 million equity criteria, NASDAQ will allow an additional 180
days for the Company to meet the $1.00 minimum bid price
requirements, or until August 2, 2003.
If the Company's stock is delisted from NASDAQ, trading in the
Common Stock would thereafter be conducted on the over-the-counter
markets in the so-called "pink sheets" or the National Association of
Securities Dealers, Inc.'s "Electronic Bulleting Board".
Consequently, the liquidity of the Company's securities could be
impaired, not only in the number of shares that could be bought and
sold, but also as a result of delays in the timing of the
transactions, the news media's coverage of the Company, lower prices
for the Company's securities than might otherwise be attained and a
larger spread between the bid and asked prices for the Company's
securities.
In addition, if the Company's securities were to be delisted
from the NASDAQ SmallCap Market, the Company's securities could
become subject to Rule 15g-9 under the Securities Exchange Act of
1934 relating to penny stocks, which imposes additional sales
practice requirements on broker-dealers which sell such securities to
persons other than established customers and "accredited investors"
(generally, individuals with net worth in excess of $1,000,000 or
14
annual incomes exceeding $200,000 or $300,000 together with their
spouses). SEC regulations define a "penny stock" to be any equity
security that is not listed on the NASDAQ Stock Market or a national
securities exchange and that has a market price (as therein defined)
of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. If the Company's
securities were subject to the rules on penny stocks, the market
liquidity for the Company's securities could be adversely affected.
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 nine months of 2002. 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 2, 2002.
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 timely alerting them to material information
relating to the Company required to be included in the Company's periodic
SEC filings. Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be
disclosed in Company reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rule and forms.
Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be
disclosed in Company reports filed under the Exchange Act is accumulated
and communicated to management, include the Company's Chairman, Chief
Financial Officer and Controller as appropriate, to allow timely decisions
regarding required disclosures.
15
(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. The Company
is not party to any litigation as of October 2, 2002.
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.
Exhibit 10.01: Form of Amended and Restated Mortgage Agreement
between the Company and GE Capital Franchise Finance
Corporation dated October 21, 2002.
Exhibit 10.02: Form of Promissory Note between the Company and GE
Capital Franchise Finance Corporation dated October
21, 2002.
16
Exhibit 10.03: Form of Loan Agreement between the Company and GE
Capital Franchise Finance Corporation dated October
21, 2002.
Exhibit 10.04: Lease agreement between the Company and Barnhill's
Buffet, Inc. for a restaurant property in Orange Park,
Florida.
Exhibit 10.05: Lease agreement between the Company and Barnhill's
Buffet, Inc. for a restaurant property in Neptune
Beach, Florida.
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 Nine Months Ended
10/02/02 10/03/01 10/02/02 10/03/01
Basic:
Weighted average common
shares outstanding used
in computing basic loss
per share 3,706,200 2,432,500 3,521,700 2,425,200
========= ========= ========= =========
Basic loss per share $ (.18) $ (.16) $ (.12) $ (.29)
========= ========== ========= =========
Diluted:
Weighted average common
shares outstanding 3,706,200 2,432,500 3,521,700 2,425,200
Effects of dilutive stock
options --- --- --- ---
--------- ---------- ---------- --------
Shares used in computing
diluted loss per share 3,706,200 2,432,500 3,521,700 2,425,200
========= ========= ========= =========
Diluted loss per share $ (.18) $ (.16) $ (.12) $ (.29)
========= ========= ======== =========
Exhibit 99.1: Certification of Periodic Reports by Chief Executive Officer
Exhibit 99.2: Certification of Periodic Reports by Chief Financial Officer
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: November 13, 2002 Glen F. Ceiley
Chairman of the Board
Principal Executive Officer
/s/ Edward B. Alexander
Date: November 13, 2002 Edward B. Alexander
Executive Vice President / CFO
(Principal Financial and Accounting
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: November 13, 2002
/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):
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
21
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: November 13, 2002
/s/ Edward B. Alexander
Edward B. Alexander
Executive Vice President
Chief Financial Officer
22
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 October 2,
2002, 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: November 13, 2002 By: /s/ Glen F. Ceiley
Glen F. Ceiley
Principal Executive Officer/
Chairman of the Board
23
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 October 2,
2002, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Edward B. Alexander, Executive Vice President/
Chief Financial 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: November 13, 2002 By: /s/ Edward B. Alexander
Edward B. Alexander
Executive Vice President/
Chief Financial Officer
24