May 15, 1998
OFIS Filer Support
SEC Operations Center
6842 General Green Way
Alexandria, VA 22312-2413
Dear Sirs:
Pursuant to regulations of the Securities and Exchange Commission,
submitted herewith for filing on behalf of Family Steak Houses of Florida,
Inc. is the Company's Quarterly Report on Form 10-Q for the Fiscal Quarter
ended April 1, 1998.
This filing is being effected by direct transmission to the Commission's
Edgar System.
Very truly yours,
Loretta C. Abbey
Controller
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 1, 1998
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 2,368,668
$0.01 par value As of May 8, 1998
FAMILY STEAK HOUSES OF FLORIDA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 1,1998
(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 1, 1998 are not necessarily
indicative of the results that may be expected for the fiscal
year ending December 30, 1998. 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 December 31,
1997.
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 1,
1998 and April 2, 1997 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended April 1, 1998 versus April 2, 1997
The Company experienced a decrease in total sales during the
first thirteen weeks of 1998 compared to the first thirteen weeks
of 1997. 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 first
quarter of 1998 decreased 2.8% from the same period in 1997,
compared to a decrease of 5.2% from 1997 as compared to 1996.
Management believes that the decrease in same-store sales is
primarily due to the effects of increasing competition, including
several new or remodeled restaurants opened by competitors in
areas close to Company restaurants. In addition, Easter Sunday,
traditionally one of the Company's best sales days of the year,
fell into the second quarter of 1998, but was included in the
first quarter results in 1997. Management is seeking to improve
sales trends by focusing on improved restaurant operations,
remodeling certain restaurants, and devising and implementing
competitive strategies to offset the effects of new competition.
Management plans to sell restaurants which are not meeting sales
and profit expectations, and has listed six restaurants for sale.
Proceeds from any sales of restaurants would be used either to
build new restaurants with more competitive facilities in
superior locations, or to reduce long-term debt.
Due primarily to the negative effects of increasing
competition on the Company's sales and profitability, in March
1998 the Company announced that it had retained an investment
banking firm specializing in the restaurant industry to assist
the Company in identifying and evaluating strategic opportunities
which would enhance shareholder value. This process was
continuing as of May 8, 1998. The Company intends to evaluate any
strategic opportunities recommended by the investment banking
firm, and to pursue such strategies it deems appropriate.
However, there can be no assurance that a restructuring or
transaction will result from this process.
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 85.7% in the first
quarter of 1998 from 84.5% in same quarter of 1997.
Food and beverage costs as a percentage of sales were 38.7%
in 1998 and 1997. Payroll and benefit costs as a percentage of sales
increased to 27.7% in 1998 from 27.4% in 1997, primarily due to a
reduction in the Company's worker's compensation accrual in the
first quarter of 1997.
Depreciation and amortization expenses increased from 3.9%
in 1997 to 4.4% in 1998, primarily due to additions to property
and equipment over the last twelve months.
General and administrative expenses as a percentage of sales
increased to 5.8% in the first quarter of 1998 from 5.6% in the
same quarter in 1997. This increase was primarily due to costs
associated with the Company's reverse stock split approved by the
Company's shareholders in February 1998, and to expenses
associated with the retention of an investment banking firm.
Interest expense was $395,500 in the first quarter of 1998
versus $390,500 in the same quarter of 1997. The increase was due
to borrowing of $1.3 million under the Company's credit facility
in February 1998.
The effective income tax rates for the first three months of
1997 and 1998 were 20.0%.
Net earnings were $164,600 and $352,800 in the first
quarters of 1998 and 1997, respectively. Earnings per share
assuming dilution for the quarter were 7 cents in 1998 compared
to 15 cents in 1997.
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 1, 1998 are not
necessarily indicative of the results that may be expected for
the fiscal year ending December 30, 1998.
Recent Developments
The Company began construction of a restaurant in April
1998, which management expects to open in June 1998. In addition,
the Company expects to begin the construction of a second
restaurant by June 1998, which should open by the end of 1998.
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 1, 1998, the Company had a working capital deficit
of $7,100 compared to a working capital deficit of $1,794,700 at
December 31, 1997. The increase in working capital during the
first three months in 1998 was due primarily to increases in cash
provided from new borrowings under the Company's long-term debt
agreement and cash provided by operating activities during the
first quarter of 1998.
Cash provided by operating activities decreased 15.5% to
$1,022,500 in the first quarter of 1998 from $1,209,100 in the
first quarter of 1997, due to lower earnings in 1998.
The Company spent approximately $372,800 in the first
quarter of 1998 and $939,700 in the first quarter of 1997 for
equipment and improvements. Capital expenditures for new
restaurant construction, remodeling and equipment in 1998 are
estimated to be $4,100,000. The Company projects that proceeds
from the Company's financing agreements, sales leaseback
financing and cash generated from operations will be sufficient
to fund these improvements.
In December 1996, the Company entered into a $15.36 million
Loan Agreement with FFCA Mortgage Corporation ("FFCA"). The Loan
Agreement governs eighteen 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 Loan Agreement provides for various
covenants, including the maintenance of prescribed debt service
coverages. As of April 1, 1998, the outstanding balance due under
the loan was $14,583,300.
The Company used the proceeds of the FFCA loan 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.
The Company realized a discount on the retirement of the Cerberus
notes, which was partially offset by unamortized debt issuance
costs. The resulting gain of $348,500, net of income taxes, was
accounted for as an extraordinary item in 1996. 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.
Also in December 1996, the Company entered into a separate
loan agreement with FFCA under which it may borrow up to an
additional $4,640,000 through September 1998. This additional
financing would be evidenced by four additional Promissory Notes
secured by mortgages on four Company restaurant properties. The
terms and conditions of this loan agreement are substantially
identical to those of the loan agreement described above. The
Company borrowed $1,290,000 under the agreement in February 1998,
secured by a mortgage on one restaurant property. As of April 1,
1998, the outstanding balance due under this loan was $1,288,500.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
At a Special Meeting of Shareholders held on February
24, 1998, the Company's shareholders approved a one-
for-five reverse split of the Company's common stock in
order to satisfy the minimum $1.00 bid price required
under recently revised NASDAQ National Market listing
rules. The Company amended its Articles of
Incorporation to reduce the number of authorized shares
of common stock to four million (4,000,000) and
implemented the reverse split effective March 4, 1998.
In connection with the reverse split, as provided under
the Rights Agreement (the "Rights Agreement") with
ChaseMellon Shareholder Services, LLC, the number of
rights issuable with each share of common stock was
adjusted so that five rights are delivered with each
share of common stock.
Pursuant to the Standstill and Settlement with Bisco
and its affiliates, on February 27, 1998, the Company
sold 141,340 shares of its common stock to Bisco at a
purchase price of $2.16, which was the average closing
price of the Company's common stock for the ten trading
days immediately preceding the date of the sale. The
total price paid by Bisco to the Company was $305,312.
These shares of common stock were sold without
registration since the sale did not involve a public
offering within the meaning of Section 4(2) of the
Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On February 24, 1998, the Company held a Special
Meeting of Shareholders to approve a one-for-five
reverse split of the Company's Common Stock.
(c) The following table sets forth the number of votes
for, against or withheld regarding the proposal:
For Against Abstain
6,930,517 1,162,674 38,377
The proposal obtained a majority vote of the
Company's outstanding shares, and therefore was
passed.
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.
First Amendment to Shareholder Rights Agreement
dated February 25, 1998 by and between Family
Steak Houses of Florida, Inc. and ChaseMellon
Shareholder Services, Inc. as Rights Agreement.
(b) Reports on Form 8-K
Form 8-K dated March 6, 1998 announcing
approval by shareholders of a reverse stock
split effective March 4, 1998, and announcing
execution of a one-year Standstill and
Settlement Agreement with Bisco Industries
and its affiliates.
27.01 Financial Data Schedule
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/ Lewis E. Christman, Jr.
Date: May 15, 1998 Lewis E. Christman, Jr.
President
(Chief Executive Officer)
_________________________
/s/ Edward B. Alexander
Date: May 15, 1998 Edward B. Alexander
Vice President of Finance
(Principal Financial and Accounting
Officer)
Family Steak Houses of Florida, Inc.
Consolidated Results of Operations
(Unaudited)
<TABLE>
For The Quarters Ended
---------------------
<CAPTION> April 1, April 2,
1998 1997
---------------------
<C> <C>
<S>
Sales 9,990,600 10,559,100
Cost and expenses:
Food and beverage 3,867,500 4,088,200
Payroll and benefits 2,765,000 2,897,400
Depreciation and amortization 438,300 415,100
Other operating expenses 1,489,900 1,517,200
General and administrative expenses 584,400 587,800
Franchise fees 299,600 316,600
Loss from disposition of equipment 41,200 17,300
---------- ---------
9,485,900 9,839,600
Earnings from operations 504,700 719,500
Interest and other income 96,400 112,000
Interest expense (395,500) (390,500)
---------- ---------
Earnings before income taxes 205,600 441,000
Provision for income taxes 41,000 88,200
---------- ---------
Net earnings $164,600 $352,800
========== =========
Basic earnings per share $0.07 $0.16
========== =========
Diluted earnings per share $0.07 $0.15
========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION> April 1, December 31
1998 1997
========== ===========
<C> <C>
<S>
ASSETS
Current assets:
Cash and cash equivalents $2,916,300 $696,000
Investments 600,300 600,300
Receivables 58,500 93,200
Income taxes receivable 182,900 297,900
Current portion of mortgages 67,000 124,900
Inventories 255,900 280,500
Prepaid and other current assets 360,300 311,200
----------- -----------
Total current assets 4,441,200 2,404,000
Mortgages receivable 291,000 308,700
Property and equipment:
Land 9,088,300 9,088,300
Buildings and improvements 19,990,300 19,908,900
Equipment 13,286,300 13,151,600
----------- -----------
42,364,900 42,148,800
Accumulated depreciation (16,160,300) (15,848,500)
----------- -----------
Net property and equipment 26,204,600 26,300,300
Property held for resale 552,800 552,800
Other assets, principally deferred charges,
net of accumulated amortization 787,300 767,000
---------- ------------
$32,276,900 $30,332,800
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,666,200 $1,287,000
Accrued liabilities 2,500,700 2,630,300
Current portion of long-term debt 278,900 278,900
Current portion of obligation under
capital lease 2,500 2,500
----------- -----------
Total current liabilities 4,448,300 4,198,700
Long-term debt 15,592,900 14,402,800
Obligation under capital lease 1,055,400 1,056,000
Deferred revenue 58,100 30,800
----------- -----------
Total liabilities 21,154,700 19,688,300
Shareholders' equity:
Preferred stock of $.01 par;
authorized 10,000,000 shares;
none issued -- --
Common stock of $.01 par;
authorized 20,000,000 shares;
outstanding 2,367,800 in 1998
and 2,206,000 shares in 1997 24,100 22,200
Additional paid-in capital 8,567,200 8,256,100
Retained earnings 2,530,900 2,366,200
----------- -----------
Total shareholders' equity 11,122,200 10,644,500
----------- -----------
$32,276,900 $30,332,800
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION> For the Quarter Ended
=======================
April 1, April 2,
1998 1997
========================
<C> <C>
<S>
Operating activities:
Net earnings $164,600 $352,800
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 438,300 415,100
Directors' fees in the form of
stock option 7,500 5,000
Amortization of loan fees 5,800 5,500
Loss on disposition of equipment 41,200 17,300
Decrease (increase) in:
Receivables 34,700 (700)
Income taxes receivable 115,000 --
Inventories 24,600 (62,400)
Prepaids and other current assets (49,100) (5,200)
Other assets (37,000) (50,800)
Increase (decrease) in:
Accounts payable 379,200 452,900
Accrued liabilities (129,600) 98,400
Income taxes payable -- (30,300)
Deferred revenue 27,300 --
Deferred income taxes -- 11,500
---------- ----------
Net cash provided by operating activities 1,022,500 1,209,100
---------- ----------
Investing activities:
Proceeds from notes receivable 75,600 29,200
Purchase of investments -- (493,600)
Capital expenditures (372,800) (939,700)
---------- ----------
Net cash used by investing activities (297,200) (1,404,100)
---------- ----------
Financing activities:
Payments on long-term debt (99,900) (147,900)
Construction draw on capital lease -- 500,100
Proceeds from issuance of long-term debt 1,290,000 --
Payments on capital lease (600) (600)
Proceeds from the issuance of common stock 305,500 30,400
---------- ----------
Net cash provided by financing activities 1,495,000 382,000
---------- ----------
Net increase in cash and cash equivalents 2,220,300 187,000
Cash and cash equivalents - beginning of
period 696,000 1,750,800
---------- ----------
Cash and cash equivalents - end of period $2,916,300 $1,937,800
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for interest $509,112 $397,000
========== ===========
Cash paid during the quarter for income taxes -- $107,000
========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the Company's 1998 Form 10Q for the Quarter ended April 1, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-END> APR-01-1998
<CASH> 2916300
<SECURITIES> 600300<F1>
<RECEIVABLES> 241400
<ALLOWANCES> 0
<INVENTORY> 255900
<CURRENT-ASSETS> 4441200
<PP&E> 42364900
<DEPRECIATION> 16160300
<TOTAL-ASSETS> 32276900
<CURRENT-LIABILITIES> 4448300
<BONDS> 0
0
0
<COMMON> 24100
<OTHER-SE> 11098100
<TOTAL-LIABILITY-AND-EQUITY> 32276900
<SALES> 9990600
<TOTAL-REVENUES> 9990600
<CGS> 3867500
<TOTAL-COSTS> 9485900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395500
<INCOME-PRETAX> 205600
<INCOME-TAX> 41000
<INCOME-CONTINUING> 164600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164600
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
<FN>
<F1>Represents investments in certificates of deposits with maturities of less than
one year.
</FN>
</TABLE>
