10-Q 1 q10.txt 10-Q - 2001 1ST QTR UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter ended April 4, 2001 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 2,423,400 $.01 par value As of May 4, 2001 FAMILY STEAK HOUSES OF FLORIDA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 4, 2001 (Unaudited) Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the 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 period have been included. Operating results for the thirteen week period ended April 4, 2001 are not indicative of the results that may be expected for the fiscal year ending January 2, 2002. 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 3, 2001. The 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 weeks ended April 4, 2001 and March 29, 2000 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Quarter Ended April 4, 2001 versus March 29, 2000 The Company experienced an increase of 9.0% in sales during the first thirteen weeks of 2001 compared to the first thirteen weeks of 2000. Same-store sales (average weekly sales in restaurants that have been operating for at least 18 months) in the first quarter of 2001 increased 2.5% from the same period in 2000, compared to an increase of 2.8% from 2000 as compared to 1999. The increase in same-store sales was primarily due to menu price increases implemented at all restaurants in June 2000. 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 and making improvements to certain restaurants. In 2000, the Company added display cooking areas to two of its restaurants, and experienced improved sales trends at these locations. Management intends to make similar additions to several restaurants in 2001. The Company also is testing a program to emphasize take-out sales. This program will include a separate take-out section which has been added to one restaurant and will be added to three additional Company restaurants during 2001. The costs and expenses of the Company's restaurants include food and beverage, payroll, payroll taxes and employee benefits, depreciation and amortization, repairs, maintenance, utilities, supplies, advertising, insurance, property taxes, rents, and licenses. The Company's food, beverage, payroll, and employee benefit costs as a percentage of sales are believed to be higher than the industry average, due to the Company's philosophy of providing customers with high value of food and service for every dollar a customer spends. In total, food and beverage, payroll and benefits, depreciation and amortization and other operating expenses as a percentage of sales increased to 85.0% in the first quarter of 2001 from 84.4% in same quarter of 2000. Food and beverage costs as a percentage of sales decreased to 38.0% in 2001 from 38.6% in 2000, primarily due to menu price increases implemented by the Company in 2000. Payroll and benefit costs as a percentage of sales increased to 28.6% in 2001 from 27.1% in 2000, due to increased health insurance costs, higher workers' compensation expense and to high payroll costs associated with the opening of a new restaurant. Depreciation and amortization expenses were 4.7% in 2001 and 4.8% in 2000. General and administrative expenses as a percentage of sales decreased to 5.4% in the first quarter of 2001 from 6.2% in the same quarter in 2000, primarily due to the elimination of a full-time paid consultant engaged during 2000. Interest expense was $467,100 in the first quarter of 2001 compared to $467,200 in the same quarter of 2000. An increase in total outstanding debt was offset by lower interest rates in 2001. The Company capitalized interest expense of $14,700 in 2001, compared to $0 in 2000. The effective income tax rate for the first three months of 2000 and 2001 was 0.0%. The 0% rate in both years was due to the use of net operating loss carryforwards to offset taxable income. The results for the first quarter of 2001 include realized losses from the sale of marketable securities of $82,300, compared to realized gains of $181,500 in 2000. Net earnings were $268,500 and $538,300 in the first quarters of 2001 and 2000, respectively. Earnings per share assuming dilution for the quarter were 11 cents in 2001 compared to 22 cents in 2000. The Company's operations are subject to some seasonal fluctuations. Revenues per restaurant generally increase from January through April and decline September through December. Operating results for the quarter ended April 4, 2001 are not indicative of the results that may be expected for the fiscal year ending January 2, 2002. Liquidity and Capital Resources Substantially all of the Company's revenues are derived from cash sales. Inventories are purchased on credit and are converted rapidly to cash. Therefore, the Company does not carry significant receivables or inventories and, other than repayment of debt, working capital requirements for continuing operations are not significant. At April 4, 2001, the Company had a working capital deficit of $2,348,100 compared to a working capital deficit of $2,780,600 at January 3, 2001. Cash provided by operating activities decreased to $61,200 in the first quarter of 2001 from $1,305,100 in the first quarter of 2000, due to reductions in accounts payable and accrued liabilities in 2001 as a result of timing differences in payments and due to lower net earnings in 2001. The Company spent approximately $846,800 in the first quarter of 2001 for property and equipment. Total capital expenditures for equipment in 2001, based on present costs and plans for capital improvements, are estimated to be $8.7 million. This amount is based on budgeted expenditures for land, buildings and equipment for three new restaurants in 2001, remodels of several restaurants, and recurring equipment purchases and minor building improvements ("Capital Maintenance Items"). The Company projects that proceeds from the Company's financing agreements (described below) and cash generated from operations may only be sufficient to cover two new restaurants and the estimated Capital Maintenance Items. The Company's ability to open the third restaurant and complete the remodels will be contingent upon its ability to obtain additional capital. 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. In December 1996, the Company entered into two loan agreements with FFCA Mortgage Corporation ("FFCA"). Pursuant to the first Loan Agreement (the "1996 Loan"), the Company borrowed $15.36 million, which loans are evidenced by fourteen Promissory Notes payable to FFCA. Each Note is secured by a mortgage on a Company restaurant property. The Promissory Notes provide for a term of twenty years and an interest rate equal to the thirty-day LIBOR rate plus 3.75%, adjusted monthly. The 1996 Loan provides for various covenants, including the maintenance of prescribed debt service coverages. As of April 4, 2001, the outstanding balance due under the loan was $11,440,200. The Company used the proceeds of the $15.36 million loan agreement to retire its Notes with Cerberus Partners, L.P. ("Cerberus") and its loans with the Daiwa Bank Limited and SouthTrust Bank of Alabama, N.A. In addition, the Company retired warrants for 210,000 shares of the Company's common stock previously held by Cerberus. Cerberus continues to hold Warrants to purchase 140,000 shares of the Company's common stock at an exercise price of $2.00 per share. Pursuant to its second loan agreement with FFCA (the "1998 Loan"), the Company borrowed an additional $2,590,000 in 1998. The proceeds of the 1998 Loan were used to fund the construction of a new restaurant in Leesburg, Florida, and the land and a portion of the cost of construction of a new restaurant in Deland, Florida. This additional financing is evidenced by three additional Promissory Notes secured by mortgages on three Company restaurant properties. The terms and conditions of the 1998 Loan are substantially identical to those of the 1996 Loan. As of April 4, 2001, the outstanding balance under the 1998 Loan was $2,447,400. In October 1998, the Company received two commitments for new financing from FFCA. The Company borrowed a total of $2.6 million in 1999 under the first commitment (the "1999 Loan"). The proceeds of the 1999 Loan were used to fund construction of new restaurants in Deland and Tampa, Florida. The 1999 Loan is secured by mortgages on two Company restaurant properties. As of April 4, 2001, the outstanding balance under the 1999 Loan was $2,510,100. The second commitment (the "2000 Loan") was for construction financing for two new restaurants to be built in 2000 and 2001. Terms of the 2000 Loan include funding of a maximum of $1,600,000 per restaurant. Other terms and conditions of the 1999 and 2000 Loans are substantially identical to those of the 1996 Loan. The Company has borrowed $2,698,800 under the 2000 Loan to fund the purchase of land and for construction for new restaurants in St. Cloud and Titusville, Florida. The St. Cloud restaurant opened in December 2000, and the Titusville restaurant is expected to open in May 2001. The Company plans to open three new restaurants in 2001, including the Titusville restaurant. In July 2000, the Company received a new commitment from FFCA to fund $1,600,000 each for two additional restaurants to be constructed in 2001. 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 FFCA 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 real property listed for sale; the economic conditions in the new markets into which the Company expands; changes in customer dining patterns; changes in food cost, competitive pressures from other national and regional restaurant chains and other food vendors; changes in business conditions, such as inflation or a recession; changes in growth in the restaurant industry and the 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 January 17, 2001, 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, the Company would have to meet the following conditions - on or before April 17, 2001, the closing bid price of the Company's common stock must be a minimum of $1.00 per share for 10 consecutive trading days. On March 22, 2001, NASDAQ notified the Company that it was in full compliance with the bid price requirement, and that the Company's stock listing would remain on the Nasdaq SmallCap Market. Qualitative and Quantitative Disclosure about Market Risk There has been no significant changes in the Company's exposure to market risk during the first fiscal quarter of 2001. 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 3, 2001. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is party to, or threatened with, litigation from time to time, in the normal course of its business. Management, after reviewing all pending and threatened legal proceedings, considers that the aggregate liability or loss, if any, resulting from the final outcome of these proceedings will not have a material effect on the financial position or operation of the Company. The Company will, from time to time when appropriate in management's estimation, record adequate reserves in the Company's financial statements for pending litigation. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed as part of the report on Form 10-Q, and the list comprises the Exhibit Index. 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 April 4, 2001 March 29, 2000 Basic: Weighted average common shares outstanding used in computing basic earnings per share 2,419,800 2,409,300 ========= ========= Basic earnings per share $ 0.11 $ 0.22 ========= ========= Diluted: Weighted average common shares Outstanding 2,419,800 2,409,300 Effects of shares issuable under stock plans using the treasury method 3,600 10,100 Shares used in computing diluted --------- --------- earnings per share 2,423,400 2,419,600 ========= ========= $ 0.11 $ 0.22 ========= ========= SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FAMILY STEAK HOUSES OF FLORIDA, INC. (Registrant) /s/ Glen F. Ceiley________ Date: May 11, 2001 Glen F. Ceiley Principal Executive Officer /s/ Edward B. Alexander Date: May 11, 2001 Edward B. Alexander Executive Vice President (Principal Financial and Accounting Officer) Family Steak Houses of Florida, Inc. Consolidated Results of Operations (Unaudited) For The Three Months Ended --------------------------

April 4, March 29, 2001 2000 ------------- ------------ Revenues: Sales $11,539,800 $10,591,300 Vending revenue 56,800 72,400 ----------- ----------- Total revenues 11,596,600 10,663,700 ----------- ----------- Cost and expenses: Food and beverage 4,379,500 4,091,000 Payroll and benefits 3,296,300 2,870,900 Depreciation and amortization 538,100 508,100 Other operating expenses 1,590,800 1,473,300 General and administrative expenses 622,900 658,100 Franchise fees 345,900 317,400 Loss on store closings and disposition of equipment 39,400 39,200 ------------- ------------ Total costs and expenses 10,812,900 9,958,000 ------------- ------------ Earnings from operations 783,700 705,700 Investment (loss) gain (82,300) 181,500 Gain on sale of property -- 84,600 Interest and other income 34,200 33,700 Interest expense (467,100) (467,200) ------------- ------------ Earnings before income taxes 268,500 538,300 Provision for income taxes -- -- ------------- ------------ Net earnings $268,500 $ 538,300) ============= ============= Basic earnings per share $0.11 $0.22 ============= ============ Diluted earnings per share $0.11 $0.22 ============= ============ See accompanying notes to consolidated financial statements.

Family Steak Houses of Florida, Inc. Consolidated Balance Sheets (Unaudited) April 4, January 3,

2001 2001 -------------- --------------- ASSETS Current assets: Cash and cash equivalents $754,000 $631,500 Investments 396,800 815,200 Receivables 103,700 93,000 Current portion of mortgages receivable 12,400 172,000 Inventories 274,100 256,400 Prepaid and other current assets 288,700 193,600 -------------- --------------- Total current assets 1,829,700 2,161,700 Mortgages receivable 352,200 355,400 Certificate of deposit 10,000 10,800 Property and equipment: Land 8,669,400 8,669,400 Buildings and improvements 22,592,600 22,128,300 Equipment 11,742,500 12,046,200 -------------- --------------- 43,004,500 42,843,900 Accumulated depreciation (16,374,900) (16,487,500) -------------- --------------- Net property and equipment 26,629,600 26,356,400 Property held for sale 1,916,500 1,903,600 Other assets, principally deferred charges, net of accumulated amortization 832,000 839,100 -------------- --------------- $31,570,000 $31,627,000 ============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $1,565,400 $1,370,900 Accounts payable - construction -- 375,100 Accrued liabilities 1,906,700 2,461,600 Investment margin debt -- 165,100 Current portion of long-term debt 702,000 565,900 Current portion of obligation under capital lease 3,700 3,700 -------------- --------------- Total current liabilities 4,177,800 4,942,300 Long-term debt 18,394,500 17,869,400 Obligation under capital lease 1,044,700 1,045,600 -------------- --------------- Total liabilities 23,617,000 23,857,300 Shareholders' equity: Preferred stock of $.01 par; authorized 10,000,000 shares; none issued -- -- Common stock of $.01 par; authorized 4,000,000 shares; outstanding 2,421,600 in 2001 and 2,414,400 shares in 2000 24,200 24,200 Additional paid-in capital 8,632,700 8,631,400 Accumulated deficit (103,500) (372,000) Accumulated other comprehensive loss (600,400) (513,900) ------------- -------------- Total shareholders' equity 7,953,000 7,769,700 -------------- --------------- $31,570,000 $31,627,000 ============== =============== See accompanying notes to consolidated financial statements.

Family Steak Houses of Florida, Inc. Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended -------------------------- April 04, March 29, 2001 2000 ------------ ------------- Operating activities: Net earnings (loss) $268,500 $538,300 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 538,100 508,100 Directors' fees in the form of stock options 1,300 1,700 Amortization of loan fees 9,000 7,500 Net realized losses on investments 82,300 -- Gain on sale of restaurants -- (84,600) Loss on disposition of equipment 25,800 20,400 Decrease (increase) in: Receivables (10,700) 32,200 Inventories (17,700) 19,700 Prepaids and other current assets (95,100) (3,200) Other assets (4,800) (7,300) Increase (decrease) in: Accounts payable (180,600) 317,800 Accrued liabilities (554,900) (43,600) Deferred revenue -- (1,900) ------------ ------------- Net cash provided by operating activities 61,200 1,305,100 ------------ ------------- Investing activities: Net purchases of investments -- (676,100) Principal receipts on notes receivable 162,800 18,800 Proceeds from the sale of investments 250,100 -- Proceeds from sale of restaurants -- 691,100 Proceeds from sale of property held for sale -- 582,500 Issuance of mortgages receivable -- (475,000) Capital expenditures (846,800) (197,000) ------------ ------------- Net cash used in investing activities (433,900) (55,700) ------------ ------------- Financing activities: Payments on long-term debt (126,100) (904,900) Proceeds from issuance of long-term debt 787,300 -- (Payments of) proceeds from investment margin debt (165,100) 98,400 Payments on capital lease (900) (800) ----------- ------------- Net cash provided by (used in) financing activities 495,200 (807,300) ----------- ------------- Net increase (decrease) in cash and cash equivalents 122,500 442,100 Cash and cash equivalents - beginning of period 631,500 747,300 ------------ ------------- Cash and cash equivalents - end of period $754,000 $1,189,400 ============ ============= Noncash investing and financing activities: Net change in unrealized (loss) gain $(86,500) $3,200 ============ ============= Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 491,100 $461,000 ============ ============= Cash paid during the period for income taxes $0 $0 ============ ============= See accompanying notes to consolidated financial statements.