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 3, 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 August 2, 2002
FAMILY STEAK HOUSES OF FLORIDA, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
For The Quarters Ended For The Six Months Ended
----------------------------- -----------------------------
July 3, July 4, July 3, July 4,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Sales $ 10,794,800 $ 10,637,400 $ 23,329,800 $ 22,177,200
Vending revenue 54,600 53,100 105,500 109,900
------------ ------------ ------------ ------------
Total revenues 10,849,400 10,690,500 23,435,300 22,287,100
------------ ------------ ------------ ------------
Cost and expenses:
Food and beverage 3,983,700 4,060,800 8,616,200 8,440,300
Payroll and benefits 3,196,200 3,171,000 6,656,300 6,420,200
Depreciation and amortization 532,400 509,200 1,109,000 1,047,300
Other operating expenses 1,598,000 1,638,600 3,309,600 3,229,400
General and administrative expenses 675,700 681,900 1,422,800 1,351,900
Franchise fees 431,800 318,800 932,800 664,700
Asset valuation charge 260,000 -- 260,000 --
Loss on store closings and disposition of equipment 74,300 61,000 138,500 100,400
------------ ------------ ------------ ------------
10,752,100 10,441,300 22,445,200 21,254,200
------------ ------------ ------------ ------------
Earnings from operations 97,300 249,200 990,100 1,032,900
Investment gain (loss) 6,800 (413,900) 24,600 (496,200)
Interest and other income 19,600 20,300 39,900 54,500
Interest expense (423,000) (437,600) (839,500) (904,700)
------------ ------------ ------------ ------------
(Loss) earnings before income taxes (299,300) (582,000) 215,100 (313,500)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net (loss) earnings ($ 299,300) ($ 582,000) $ 215,100 ($ 313,500)
============ ============ ============ ============
Basic (loss) earnings per share ($ 0.08) ($ 0.24) $ 0.06 ($ 0.13)
============ ============ ============ ============
Basic weighted average common shares outstanding 3,601,100 2,423,400 3,429,500 2,421,500
============ ============ ============ ============
Diluted (loss) earnings per share ($ 0.08) ($ 0.24) $ 0.06 ($ 0.13)
============ ============ ============ ============
Diluted weighted average common shares outstanding 3,601,100 2,423,400 3,436,100 2,421,500
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
2
FAMILY STEAK HOUSES OF FLORIDA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 3, January 2,
2002 2002
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 315,300 $ 183,100
Investments 45,500 2,100
Receivables 112,100 159,800
Current portion of mortgages receivable 348,900 13,400
Inventories 265,500 319,800
Prepaid and other current assets 313,300 284,400
------------ ------------
Total current assets 1,400,600 962,600
Mortgages receivable -- 342,000
------------ ------------
Certificate of deposit 10,000 10,000
Property and equipment:
Land 9,022,200 9,317,000
Buildings and improvements 24,105,600 24,661,700
Equipment 12,557,400 12,543,200
Construction in progress 49,800 --
------------ ------------
45,735,100 46,521,900
Accumulated depreciation (17,526,200) (16,940,100)
------------ ------------
Net property and equipment 28,208,900 29,581,800
Property held for sale 2,994,300 2,523,700
Other assets, principally deferred charges,
net of accumulated amortization 814,600 841,000
------------ ------------
$ 33,428,400 $ 34,261,100
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,383,000 $ 1,571,300
Accounts payable - construction 2,900 715,500
Securities sold, not yet purchased -- 159,500
Accrued liabilities 2,093,800 2,362,800
Current portion of long-term debt 699,200 663,400
Current portion of obligation under capital lease 20,200 17,700
------------ ------------
Total current liabilities 4,199,100 5,490,200
Long-term debt 19,746,800 19,902,500
Obligation under capital lease 1,011,400 1,025,800
------------ ------------
Total liabilities 24,957,300 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 2,423,400 shares 37,100 32,500
Additional paid-in capital 9,872,400 9,466,600
Accumulated deficit (1,442,700) (1,657,800)
Accumulated other comprehensive income 4,300 1,300
------------ ------------
Total shareholders' equity 8,471,100 7,842,600
------------ ------------
$ 33,428,400 $ 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 Six Months Ended
-----------------------------
July 03, July 4,
2002 2001
------------ ------------
Operating activities:
Net earnings (loss) $ 215,100 ($ 313,500)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,109,000 1,047,300
Asset valuation charge 260,000 --
Directors' fees in the form of stock options 10,000 2,700
Investment (gain) loss (24,600) 496,200
Amortization of loan fees 19,200 17,900
Loss on disposition of equipment 28,500 36,700
Decrease (increase) in:
Receivables 47,700 9,900
Inventories 54,300 (79,500)
Prepaids and other current assets (28,900) (173,900)
Other assets 1,700 (5,100)
Increase (decrease) in:
Accounts payable (188,300) 230,500
Accrued liabilities (269,000) (408,100)
------------ ------------
Net cash provided by operating activities 1,234,700 861,100
------------ ------------
Investing activities:
Purchases of investments (175,300) --
Principal receipts on mortgages receivable 6,500 165,700
Proceeds from sale of investments -- 780,900
Proceeds from securities sold, not yet purchased -- 500,600
Capital expenditures (1,202,300) (2,302,500)
------------ ------------
Net cash used in investing activities (1,371,100) (855,300)
------------ ------------
Financing activities:
Payments on long-term debt and obligation under
capital lease (340,800) (316,400)
Proceeds from issuance of long-term debt 209,000 1,157,300
Payments of investment margin debt -- (165,100)
Proceeds from issuance of common stock 400,400 --
------------ ------------
Net cash provided by financing activities 268,600 675,800
------------ ------------
Net increase in cash and cash equivalents 132,200 681,600
Cash and cash equivalents - beginning of period 183,100 631,500
------------ ------------
Cash and cash equivalents - end of period $ 315,300 $ 1,313,100
============ ============
Noncash investing and financing activities:
Net change in unrealized (loss) gain $ 3,000 $ 517,100
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 832,600 $ 891,700
============ ============
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 3, 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
twenty-six week periods ended July 3, 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 thirteen and twenty-six weeks ended July 3,
2002 and July 4, 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 ended July 3,
2002, and July 4 ,2001, and for the six months ended July 4, 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 quarter ended July 3, 2002.
Note 5. 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, 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.
6
Note 6. Subsequent Events
In July 2002, the Company completed a sales 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. The transaction will be accounted for as a capital lease beginning in
the third quarter of 2002, with the gain on the sale realized over the
twenty-year life of the lease. The lease agreement requires annual payments
totaling $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 cost
of a new restaurant.
In August 2002, the Company entered into a twenty-year lease agreement for a new
restaurant to be developed in Orlando, Florida. Under the terms of the lease
agreement, the landlord would provide up to $1,150,000 for construction of the
restaurant. The Company plans to use the proceeds of the sales leaseback
transaction described above to fund the remaining cost of this project,
estimated at approximately an additional $1 million, for equipment, impact fees
and tenant improvements.
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 JULY 3, 2002 VERSUS JULY 4, 2001
The Company experienced an increase in total sales during the second
thirteen weeks of 2002 compared to the second thirteen weeks of 2001. Total
sales increased 1.5%, due primarily to new stores opened in May 2001 and
December 2001. Average unit sales per store increased 4.0% in the second quarter
due to the successful opening of high-volume restaurants in May 2001 and
December 2001, and the closure of low-volume restaurants in December 2001 and
May 2002.
7
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 2002 decreased 4.7% from the same period in
2001, compared to a decrease of 3.3% in the second quarter of 2001 as compared
to 2000. The decrease in same-store sales results primarily from significant
sales declines at certain restaurants which faced new competition in their
markets compared to 2001, and due to the fact that the Easter holiday fell into
the first quarter in 2002, compared to the second quarter in 2001.
Management is seeking to continue to improve sales trends by focusing on
improved restaurant operations, devising competitive strategies to offset the
effects of new competition, 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 two quarters of 2002 and is
evaluating the results. If television advertising proves successful, management
will adapt the Company's marketing strategy to place more focus on television
advertising.
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 decreased to 86.2% in the second quarter of 2002 from
88.2% in the same quarter of 2001.
Food and beverage costs as a percentage of sales decreased to 36.9% in the
second quarter of 2002 from 38.2% in the same period of 2001, primarily due to
menu price increases implemented by the Company. Payroll and benefits as a
percentage of sales decreased to 29.6% in the second quarter of 2002 from 29.8%
in the same quarter of 2001, primarily due to decreased group health insurance.
Other operating expenses as a percentage of sales decreased to 14.8% in the
second quarter of 2002 compared from 15.4% in 2001, primarily due to costs
associated with the opening of a new restaurant in 2001. Depreciation and
amortization increased to 4.9% in 2002 from 4.8% in 2001.
8
General and administrative expenses decreased as a percentage of sales to
6.3% in the second quarter of 2002, from 6.4% in the same quarter of 2001.
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 decreased to $423,000 during the
second quarter of 2002 from $437,600 in 2001. The decrease was due to lower
interest rates in 2002, offset by an increase in total debt at July 3, 2002 as
compared to July 4, 2001.
Net loss for the second quarter 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.
The results for the second quarter of 2002 include net realized gains of
$6,800 from the sale of marketable securities, compared to net realized losses
of $413,900 in the second quarter of 2001.
The effective income tax rate for the quarters ended July 3, 2002 and July
4, 2001 was 0.0%.
Net loss for the second quarter of 2002 was $299,300, compared to net loss
of $582,000 in the second quarter of 2001. Net loss per share was $.08 for 2002,
compared to net loss per share of $.24 in 2001.
SIX MONTHS ENDED JULY 3, 2002 VERSUS JULY 4, 2001
For the six months ended July 3, 2002, total sales increased 5.2% compared
to the same period of 2001, due to the opening of two new restaurants. Average
unit sales increased 6.5% for the six months, due to high-volume sales at the
two new restaurants and to the closure of two low-volume restaurants. Same-store
sales decreased 3.7% for the six months ended July 3, 2002 from the same period
in 2001.
In total, food and beverage, payroll and benefits, depreciation and
amortization and other operating expenses as a percentage of sales decreased to
84.4% for the first six months of 2002 from 86.3% in the same period of 2001.
Food and beverage costs as a percentage of sales for the six month period
ended July 3, 2002 decreased to 36.9% 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 28.5% in 2002 from 28.9% in 2001. The decrease was primarily
due to reduced group health insurance expense, offset by higher workers'
compensation costs.
9
For the six months ended July 3, 2002, other operating expenses decreased
to 14.2% from 14.6% in 2001, primarily due to decreased utilities costs and to
costs incurred in 2001 associated with the opening of a new restaurant.
Depreciation and amortization increased to 4.8% for the six-month period ended
July 3, 2002, compared to 4.7% in 2001.
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.
General and administrative expenses for the six-month periods ended July 3,
2002 and July 4, 2001 were 6.1% of sales. 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 decreased for the
first six months to $839,500 from $904,700 for the same period in 2001, due to
lower interest rates in 2002, offset by an increase in total debt at July 3,
2002 as compared to July 4, 2001.
The results for the six months ended July 3, 2002 include net realized
gains of $24,600 from the sale of marketable securities compared to net realized
losses of $496,200 for the same period in 2001.
The effective income tax rate for the six-month periods ended July 3, 2002
and July 4, 2001 was 0.0%. The 0% rate in 2002 was due to the use of net
operating loss carryforwards to offset taxable income.
Net earnings for the six months ended July 3, 2002 was $215,100 or $.06 per
share, compared to net loss of $313,500, or $.13 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
six months ended July 3, 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.
10
At July 3, 2002, the Company had a working capital deficit of $2,798,500
compared to $4,527,600 at January 2, 2002. The decrease in the working capital
deficit during the first six months of 2002 was due primarily to increases in
earnings, cash from a private placement stock offering and the change in status
of mortgages receivable to a current asset.
Cash provided by operating activities increased to $1,234,700 in the first
six months of 2002 from $861,100 in the same period of 2001. This increase was
primarily due to the increased earnings in 2002.
The Company spent $1,202,300 in the first six 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 $2.5 million.
This amount is based on budgeted expenditures for building improvements and
equipment for two new restaurants scheduled to open in 2003, remodels of several
restaurants, and normal recurring equipment purchases and minor building
improvements ("Capital Maintenance Items"). The Company has raised sufficient
capital to fund the remodels and two new restaurants through a private placement
stock offering (see discussion below) a sales leaseback of an existing
restaurant and a twenty-year lease agreement for a new restaurant (see Note 6:
"Subsequent Events"). 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 primarily based on the average closing price of the
Company's common stock on the ten trading days prior to the sale. The Company
plans to use the $400,200 proceeds from this sale to fund the remodels discussed
above.
11
In July 2002, the Company completed a sales 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 $1.8
million on the property. The transaction will be accounted for as a capital
lease beginning in the third quarter of 2002, with the gain on the sale realized
over the twenty-year life of the lease. The lease agreement requires annual
payments totaling $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. (See Note 6: "Subsequent
Events")
Beginning in December 1996, the Company entered into a series of loan
agreements with FFCA Mortgage Corporation, which is now known as GE Capital
Franchise Finance Corporation ("GE Capital"). As of July 3, 2002, the
outstanding balance due under the Company's various loans with GE Capital was
$20,446,000. The weighted average interest rate for the GE Capital loans is 7.4%
at July 3, 2002. The Company used the proceeds of the GE Capital loans primarily
to refinance its debt and to fund construction of new restaurants.
Management estimates the cost of opening one new restaurant based on
current average costs to be $2,900,000. The Company is currently negotiating a
financing commitment with GE Capital that, when completed, would provide
approximately $2,800,000, which would be used to fund construction of a new
restaurant scheduled for opening in 2003. 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.
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 $233,300 in the
first six 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
12
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.
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 July 3, 2002 was
$8,471,100, 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.
13
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
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.
Closure of Restaurant
On May 6, 2002, the Company closed its restaurant in Neptune Beach,
Florida. After this closure, the Company has twenty-two operating restaurants.
The Company's franchise agreement with Ryan's requires that to avoid being in
default the Company must operate 22 restaurants at the end of 2002, and 24
restaurants at the end of 2003. The Company expects to be in compliance with the
requirements of the franchise agreement.
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 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.
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.
14
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 6, 2002, 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 2,902,527 55,394
Jay Conzen 2,902,573 55,348
Stephen Catanzaro 2,902,823 55,098
William Means 2,902,815 55,106
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
2,957,921 shares of the Company's common stock represented in person
or by proxy at the annual meeting of shareholders.
The following tables set forth votes for, against, abstention and
non-votes, regarding approval of the following items by shareholders:
15
For Against Abstain Non-Votes
Amendment to increase the 2,849,126 105,654 3,141 -
authorized number of shares of
common stock from four million
to eight million.
Amendment to eliminate the 75% 2,067,087 115,268 4,554 771,012
vote requirement for
transactions with related
corporations
Amendment to change the 2,066,912 113,388 6,609 771,012
requisite shareholder vote to
approve amendments to the
articles of incorporation and
to permit such amendments to
be adopted by shareholder
consent.
Approval of the 2002 Long-Term 2,009,740 172,570 4,599 771,012
Incentive Plan
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
Contract for sale and leaseback of restaurant property between the Company and
After Ours, LLC, dated June 10, 2002.
Exhibit 10.02
Lease agreement for restaurant property between the Company and After Ours, LLC,
dated July 12, 2002.
16
Exhibit 10.03
Lease agreement between the Company and E.D.I. Investments, Inc. for a
restaurant property, dated August 5, 2002.
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
7/03/02 7/04/01 7/03/02 7/04/01
------------ ------------ ------------ ------------
Basic:
Weighted average common
shares outstanding used
in computing basic (loss)
earnings per share 3,601,100 2,423,400 3,429,500 2,421,500
============ ============ ============ ============
Basic (loss) earnings
per share $ (.08) $ (.24) $ .06 $ (.13)
============ ============ ============ ============
Diluted:
Weighted average common
shares outstanding 3,601,100 2,423,400 3,429,500 2,421,500
Effects of dilutive stock
options 6,600
------------ ------------ ------------ ------------
Shares used in computing
diluted (loss) earnings
per share 3,601,100 2,423,400 3,436,100 2,421,500
============ ============ ============ ============
Diluted (loss) earnings
per share $ (.08) $ (.24) $ .06 $ (.13)
============ ============ ============ ============
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: August 15, 2002 Glen F. Ceiley
Chairman of the Board
/s/ Edward B. Alexander
------------------------------------
Date: August 15, 2002 Edward B. Alexander
Executive Vice President / CFO
(Principal Financial and Accounting
Officer)
18