<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-14311
FAMILY STEAK HOUSES OF FLORIDA, INC.
(exact name of registrant as specified in its charter)
FLORIDA NO. 59-2597349
(State of Incorporation) (I.R.S. Employer Identification)
2113 FLORIDA BOULEVARD
NEPTUNE BEACH, FLORIDA 32266
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (904) 249-4197
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ]
As of February 25, 2000, 2,409,000 shares of Common Stock of the
registrant were outstanding. The aggregate market value of such voting Common
Stock (based upon the closing sale price of the registrant's Common Stock on
the NASDAQ SmallCap Market System on February 22, 2000, as reported in The Wall
Street Journal) held by non-affiliates of the registrant was approximately
$2,635,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1999 Annual Report to Shareholders are
incorporated by reference into Part II. Portions of the Proxy Statement for the
registrant's 2000 Annual Meeting of Shareholders are incorporated by reference
into Part III.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Family Steak Houses of Florida, Inc. ("Family" or the "Company"), is
the sole franchisee of Ryan's Family Steak House restaurants ("Ryan's
restaurants") in the State of Florida.
The Company's first Ryan's restaurant was opened in Jacksonville,
Florida, in May 1982. The Company presently operates 22 Ryan's restaurants in
Florida.
A Ryan's restaurant is a family-oriented restaurant serving
high-quality, reasonably-priced food in a casual atmosphere with
server-assisted service. Ryan's restaurants serve lunch and dinner seven days a
week and offer a variety of charbroiled entrees, including various cuts of
beef, chicken, and seafood. Most of the restaurants serve a brunch on weekends
only. Each restaurant features a diverse selection of items from "scatter bars"
and a separate fresh bakery and dessert bar. In addition to traditional salad
bar items, the scatter bars offer hot meats, pre-made salads, soups, baked
potatoes with toppings, cheeses and a variety of vegetables.
The Company believes that its operating strategy of selling
top-quality meals at reasonable prices, at food costs to the Company which are
higher than the industry average, creates a perception of value to its
customers.
The Company operates its Ryan's restaurants under a Franchise
Agreement with Ryan's Family Steak Houses, Inc., ("Ryan's", or the
"Franchisor") which grants the Company the exclusive right to operate Ryan's
Family Steak House restaurants throughout North and Central Florida.
COMPANY HISTORY
The Company was formed by the combination, effective September 1985,
of six limited partnerships, each of which owned and operated a Ryan's
restaurant franchise. In April 1986, the Company issued 4,266,000 shares of its
common stock in exchange for the assets and liabilities of the predecessor
partnerships and 1,134,000 shares of its common stock to Eddie L. Ervin, Jr.,
in consideration for Mr. Ervin assigning to the Company all of his rights under
the Franchise Agreement, as defined below. The Company completed its initial
public offering of 4,500,000 shares of its
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common stock in 1986 resulting in net proceeds to the Company of approximately
$4,145,000.
FRANCHISE AGREEMENT
The Company operates its Ryan's restaurants under a Franchise
Agreement between the Company and the Franchisor dated as of September 16,
1987, which Franchise Agreement amended and consolidated all previous franchise
agreements (as amended, the "Franchise Agreement"). The Franchise Agreement
extends through December 31, 2010 and provides for two additional ten-year
renewal options. The renewal options are subject to certain conditions,
including the condition that the Company has fully and faithfully performed its
obligations under the Franchise Agreement during its original term. Under the
terms of the Franchise Agreement, the Company has the right to use the
registered mark "Ryan's Family Steak House" and the right to use the
Franchisor's techniques in the operation of Ryan's Family Steak House
restaurants.
In 1996, the Company and the Franchisor amended the Franchise
Agreement. The amended agreement requires the Company to pay a royalty fee of
3.0% through December 2001 and 4.0% thereafter on the gross receipts of each
Ryan's Family Steak House restaurant. Total royalty fee expenses were
$1,165,300, $1,150,900, and $1,108,400, for the fiscal years ended December 29,
1999, December 30, 1998, and December 31, 1997, respectively.
The Franchise Agreement requires the Company to operate a minimum
number of Ryan's restaurants on December 31 of each year. Failure to operate
the minimum number of restaurants could result in the loss of exclusive
franchise rights to the Ryan's concept in North and Central Florida. In 1999,
the Company and Ryan's amended the number of restaurants required to be in
operation as detailed below. The Company operated 23 restaurants as of fiscal
year end 1999 and was therefore in compliance with the Franchise Agreement. In
February 2000 the Company sold a restaurant in Jacksonville, Florida, reducing
the number of operating restaurants to 22. The Company plans to open at least
two restaurants in 2000, and expects to be in compliance with the requirement.
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The following schedule outlines the number of Ryan's restaurants
required to be operated by the Company as of December 31 of each year under the
amended Franchise Agreement:
<TABLE>
<CAPTION>
Number of
Restaurants Required to
End of Fiscal Year be in Operation
- ------------------ ---------------
<S> <C>
1999 21
2000 23
2001 and subsequent years Increases by two each year
</TABLE>
The amendment to the Franchise Agreement adopted in 1999 also
clarified that the Franchisor's consent is needed for certain kinds of
transactions.
The Franchise Agreement contains provisions relating to the operation
of the Company's Ryan's restaurants. Upon the Company's failure to comply with
such provisions, the Franchisor may terminate the Franchise Agreement if such
default is not cured within 30 days of notice from the Franchisor. Termination
of the Franchise Agreement would result in the loss of the Company's right to
use the "Ryan's Family Steak House" name and concept and could result in the
sale of the physical assets of the Company to the Franchisor pursuant to a
right of first refusal. Termination of the Company's rights under the Franchise
Agreement may result in the disruption, and possibly the discontinuance, of the
Company's operations. The Company believes that it has operated and maintained
each of its Ryan's Family Steak House restaurants in accordance with the
operational procedures and standards set forth in the Franchise Agreement, as
amended.
OPERATIONS OF RYAN'S RESTAURANTS
FORMAT. As of February 25, 2000, 19 of the Company's Ryan's
restaurants are located in free-standing buildings which vary in size from
7,500 to 12,000 square feet. Three of the Company's Ryan's restaurants are
located in shopping malls. Each restaurant is constructed of brick or stucco
walls, interior and exterior, with exposed woodwork. The interior of each
Ryan's restaurant contains a dining room, a customer ordering area, and a
kitchen. The dining rooms seat a total of between 270 and 500 persons and
highlight centrally located, illuminated scatter bars and a fresh bakery and
dessert bar. Each Ryan's restaurant has parking for approximately 100 to 175
cars on lots of overall size of approximately 50,000 to 70,000 square feet.
The Ryan's restaurants operate seven days a week. Typical hours of
operation are from 11:00 a.m. to 9:00 p.m., Sunday through Thursday, and from
11:00 a.m. to 10:00 p.m.,
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Friday and Saturday. Restaurants that serve breakfast open at 8:00 a.m.
Saturday and Sunday. In a Ryan's restaurant, the customer enters the
restaurant, orders from the menu, and then enters the dining room. Beverages
are brought to the table by servers. Entrees are cooked to order. The customer
ordering the salad bar is given unlimited access to the scatter bars and the
bakery and dessert bar. Customers receive table service of the entree and
beverage refills. For the fiscal year ended December 29, 1999, the average
weekly customer count per restaurant was approximately 4,900 and the average
meal price (including beverage) was approximately $6.35.
RESTAURANT MANAGEMENT AND SUPERVISION. The Company manages the Ryan's
restaurants pursuant to a standardized operating and control system together
with comprehensive recruiting and training of personnel to maintain food and
service quality. In each Ryan's restaurant, the management group consists of a
general manager, a manager and one to three assistant managers, depending on
sales volume. The Company requires at least two members of the management group
on duty during all peak serving periods. Management-level personnel usually
begin employment at the manager trainee or assistant manager level, depending
on prior restaurant management experience. All new management-level personnel
must complete the Company's five-week training period prior to being placed in
a management position.
Each restaurant management group reports to a supervisor. Presently,
the supervisors each oversee the operations of five to seven restaurants. The
supervisors report directly to the Director of Operations. Communication and
support from all departments in the Company are designed to assist the
supervisors in responding promptly to local problems and opportunities.
All restaurant managers and supervisors participate in incentive
programs based upon the profitability of their restaurants and upon the
achievement of certain pre-set goals. The Company believes these incentive
programs enable it to operate more efficiently and to attract qualified
managers. In 1999, the Company implemented an operating partner program for
certain managers to provide them with an additional career path and give them
increased incentive to maximize the profitability of their restaurants.
PURCHASING, QUALITY AND COST CONTROL. The Company has a centralized
purchase control program which is designed to ensure uniform product quality in
all restaurants. The program also helps to maintain reduced food, beverage, and
supply costs. The Company purchases approximately 95% of the products used by
the Company's restaurants through the centralized purchase control program.
USDA choice grain-fed
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beef, the Company's primary commodity, is closely monitored by the Company for
advantageous purchasing and quality control. The Company purchases beef through
various producers and brokers both on a contract basis and on a spot basis.
Beef and other products are generally delivered directly to the restaurants
three times weekly. The Company has in the past obtained satisfactory sources
of supply for all the items it regularly uses and believes it will be able to
do so in the future.
The Franchise Agreement requires that all suppliers to Ryan's
restaurants are subject to approval by the Franchisor. Through its relationship
with the Franchisor, the Company has obtained favorable pricing on the purchase
of food products from several suppliers. In June 1995, the Company renewed its
agreement with Kraft Foodservice, Inc. to serve as its primary supplier. Kraft
was subsequently purchased by Alliant Foodservice, Inc. The Alliant agreement
is cancelable at any time with 90 days notice.
The Company maintains centralized financial and accounting controls
for its restaurants. On a daily basis, restaurant managers forward customer
counts, sales information and supplier invoices to Company headquarters. On a
weekly basis, restaurant managers forward summarized sales reports and payroll
data. Physical inventories of all food and supply items are taken weekly, and
meat is inventoried daily.
DEVELOPMENT
GENERAL. The Company operated 22 Ryan's restaurants as of February 25,
2000.
SITE LOCATION AND CONSTRUCTION. The Company considers the specific
location of a restaurant to be important to its long-term success. The
Company's Franchisor assists the Company in selection of new restaurant sites.
The site selection process focuses on a variety of factors, including trade
area demographics (such as population density and household income level), an
evaluation of site characteristics (such as visibility, accessibility, and
traffic volume), and an analysis of the potential competition. In addition,
site selection is influenced by the general proximity of a site to other Ryan's
restaurants in order to improve the efficiency of the Company's field
supervisors and potential marketing programs. The Company generally locates its
restaurants near or adjacent to residential areas in an effort to capitalize on
repeat business from such areas as opposed to transient business.
The Company constructs its Ryan's restaurants using a general
contractor selected from several solicited bids. For
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certain new restaurants, the Company may use its construction subsidiary to
serve as the general contractor in order to expedite the process of obtaining
building permits. Management believes that by performing site selection through
the Franchisor, the Company can select superior sites with high average sales
volumes and control real estate costs. New Ryan's restaurants are usually
completed within four months of the date on which construction is commenced.
MANAGEMENT OF NEW RESTAURANTS. When a new Ryan's restaurant is opened,
the principal restaurant management positions are staffed primarily with
management personnel who have prior experience in a management position at
another of the Company's restaurants and who have undergone special training.
Prior to opening, all staff personnel at the new location undergo one week of
intensive training conducted by a training team. Such training includes
preopening drills in which test meals are served to the invited public. Both
the staff at the new location and personnel experienced in store openings at
other locations participate in the training and drills.
PROPRIETARY TRADE MARKS
The name "Ryan's Family Steak House," along with all ancillary signs,
building design and other symbols used in conjunction with the name, are the
primary trademarks and service marks of the Franchisor. Such marks are
registered in the United States. All of these registrations and the goodwill
associated with the Franchisor's trademarks are of material importance to the
Company's business and are licensed to the Company under the Franchise
Agreement.
COMPETITION
The food service business in Florida is highly competitive and is
often affected by changes in the taste and eating habits of the public,
economic conditions affecting spending habits, local demographics, traffic
patterns and local and national economic conditions. The principal bases of
competition in the industry are the quality and price of the food products
offered. Location, speed of service and attractiveness of the facilities are
also important factors. The Company's restaurants are in competition with
restaurants operated or franchised by national, regional and local restaurant
companies offering a similar menu, many of which have greater resources than
the Company. The Company is also in competition with specialty food outlets and
other vendors of food.
The amount of new competition near Company restaurants has increased
significantly in the past few years. In some
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cases, competitors have opened new restaurants with superior facilities close
to the Company's restaurants. In addition, in the past several years, many
restaurants have remodeled their restaurants so that they are similar to the
scatter bar format used by the Company. The increased competition had a
significant negative impact on sales of some Company restaurants in 1999.
Management has developed a plan to attempt to reduce the negative impact on
sales from new competition, but there can be no assurance that sales trends
will improve. The strategies implemented include the installation of an
exhibition grill cooking area in one restaurant, which has to date offset any
negative impact from a newly opened competitor's restaurant, and the addition
of "all you can eat" steak nights on certain nights at all Company restaurants,
which has resulted in positive sales trends for those nights. In addition, the
Franchisor has the right to operate restaurants in several west Florida and
south Florida counties.
EMPLOYEES
As of December 29, 1999, the Company employed approximately 1,100
persons, of whom approximately 50% are considered by management as part-time
employees. No labor unions currently represent any of the Company's employees.
The Company has not experienced any work stoppages attributable to labor
disputes and considers employee relations to be good.
EXECUTIVE OFFICERS
The following persons were executive officers of the Company effective
December 29, 1999:
Edward B. Alexander, age 41, has been Executive Vice President since
September 1999, and has been Chief Financial Officer of the Company since 1990.
In addition, Mr. Alexander served on the Company's Board of Directors from May
1996 to July 1999.
Kevin R. Pickett, age 40, has been Vice President of the Company since
September 1999, and Director of Operations of the Company since August 1996.
Mr. Pickett served as regional supervisor for the Company from July 1993 to
August 1996, and was a manager of various Company restaurants from October 1988
to June 1993.
GOVERNMENT REGULATION
The Company is subject to the Fair Labor Standards Act which governs
such matters as minimum wage requirements, overtime and other working
conditions. A large number of
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the Company's restaurant personnel are paid at or slightly above the federal
minimum wage level and, accordingly, any change in such minimum wage will
affect the Company's labor costs. The Company is also subject to the Equal
Employment Opportunity Act and a variety of federal and state statutes and
regulations. Any new legislation or regulation that may require the Company to
pay more in health insurance premiums may adversely affect the Company's labor
costs. The Company's restaurants are constructed to meet local and state
building requirements and are operated in accordance with state and local
regulations relating to the preparation and service of food. More stringent and
varied requirements of local governments with respect to land use, zoning and
environmental factors may in some cases delay the Company's construction of new
restaurants or remodels of existing ones.
The Company believes that it is in substantial compliance with all
applicable federal, state and local statutes, regulations and ordinances
including those related to protection of the environment and that compliance
has had no material effect on the Company's capital expenditures, earnings or
competitive position, and such compliance is not expected to have a material
adverse effect upon the Company's operations. The Company, however, cannot
predict the impact of possible future legislation or regulation on its
operations.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company procures its food and other products from a variety of
suppliers, and follows a policy of obtaining its food and products from several
major suppliers under competitive terms. A substantial portion of the beef used
by the Company is obtained from one supplier, although the Company believes
comparable beef meeting its specifications is available in adequate quantities
from other suppliers. To ensure against interruption in the flow of food
supplies due to unforeseen or catastrophic events, to take advantage of
favorable purchasing opportunities, and to insure that meat received by the
Company is properly aged, the Company maintains a two to six-week supply of
beef.
WORKING CAPITAL REQUIREMENTS
Substantially all of the Company's revenues are derived from cash
sales. Inventories are purchased on credit and are converted rapidly to cash.
The Company does not maintain significant receivables and inventories.
Therefore, with the exception of debt service, working capital requirements for
continuing operations are not significant.
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In December 1996, the Company entered into a $15.36 million Loan
Agreement with FFCA Mortgage Corporation ("FFCA"). The Loan Agreement governs
fifteen 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.
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. 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 borrowed an additional $2,590,000 in 1998.
This additional financing is evidenced by three additional Promissory Notes
secured by mortgages on three Company restaurant properties. The terms and
conditions of this loan agreement are substantially identical to those of the
$15.36 million Loan Agreement described above.
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, which is secured by mortgages on two restaurant
properties.
The second commitment was for construction financing for two new
restaurants to be built in 2000. Terms of this commitment include funding of a
maximum of $1,600,000 per restaurant. Other terms and conditions of these loan
agreements are substantially identical to those of the $15.36 million Loan
Agreement described above.
SEASONALITY
The Company's operations are subject to seasonal fluctuations.
Revenues per restaurant generally increase from January through April and
decline from September through December.
RESEARCH
The Company relies primarily on the Franchisor to maintain ongoing
research programs relating to the development of new products and evaluation of
marketing activities. Although research and development activities
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are important to the Company, no expenditures for research and development have
been incurred by the Company.
CUSTOMERS
No material part of the Company's business is dependent upon a single
customer or a few customers.
INFORMATION AS TO CLASSES OF SIMILAR PRODUCTS OR SERVICES
The Company operates in only one industry segment. All significant
revenues and pre-tax earnings relate to retail sales of food to the general
public through restaurants owned and operated by the Company. The Company has
no operations outside the continental United States.
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
Location Date Opened
-------- -----------
<S> <C>
Jacksonville May 1982
Orange Park May 1984
Ocala September 1986
Neptune Beach November 1986
Lakeland February 1987
Lakeland March 1987
Winter Haven August 1987
Apopka September 1987
Gainesville December 1987
New Port Richey May 1988
Tampa June 1988
Tallahassee August 1988
Daytona Beach September 1988
Tampa November 1988
Orlando February 1989
Clearwater July 1989
Melbourne October 1989
Lake City March 1991
Brooksville January 1997
Leesburg June 1998
Deland April 1999
Tampa September 1999
</TABLE>
As of February 25, 2000, the Company operated 22 Ryan's restaurants.
The specific rate at which the Company is able to open new restaurants will be
determined, among other factors, by its ability to locate suitable sites on
satisfactory terms, raise the necessary capital, secure appropriate
governmental permits and approvals and recruit and train management personnel.
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As of December 29, 1999, the Company owned the real property on which
17 of its restaurants were located. All of these properties are subject to
mortgages securing the FFCA notes.
The Company leases the real property on which five of its restaurants
are located. Those restaurants are located in Jacksonville, Clearwater,
Brooksville, Leesburg, and Tampa, Florida. The Company also leases two
buildings in Jacksonville, Florida for its executive offices.
The Company's lease on its restaurant in Clearwater, Florida expired
September 1999, and the Company's restaurant there is currently operating on a
month-to-month rental. Due to a prior ruling by the Sixth Judicial Court in
Pinellas County, the Company did not have any renewal options on the lease. In
February 2000, the mall where the restaurant is located was sold to a new
owner. The new owner has offered the Company a new five-year lease agreement,
but with substantially higher monthly rental than is currently paid. The
Company is currently negotiating a short-term lease (twelve to eighteen
months), and believes that such an agreement will be executed in the near
future. Should no agreement be reached, the owner could evict the Company with
30 days notice, and the Company would be required to write-off approximately
$260,000 of leasehold improvements.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject from time to time to various pending legal
proceedings arising in the normal course of business. In the opinion of
management, based on the advice of legal counsel, the ultimate disposition of
currently pending claims and litigation will not have material adverse effect
on the financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information contained under the caption "Common Stock Data" in the
Company's 1999 Annual Report to Shareholders is incorporated herein by
reference.
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ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Five-Year Financial
Summary" in the Company's 1999 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Company's
1999 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK
The Company is exposed to market risk from changes in interest rates.
For its cash and cash equivalents, investments and mortgages receivable, a
change in interest rates effects the amount of interest income than can be
earned. For its debt instruments, a change in interest rates effects the amount
of interest expense incurred.
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The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total
- -------------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C> <C> <C> <C>
Overnight repurchase
account at variable
interest rate $ 575,000 $ 575,000
Weighted average
interest rate 3.7%
Certificates of deposit
at fixed interest rates $ 10,000 $ 10,000
Weighted average
interest rate 4.8%
Mortgages receivable at
fixed interest rate $ 77,800 159,800 $ 237,600
Weighted average
interest rate 9.0% 9.0%
Liabilities
Notes payable at
variable
interest rate $ 381,400 422,300 467,400 517,500 572,900 15,355,500 $17,717,000
Weighted average
interest rate 9.2% 9.2% 9.2% 9.2% 9.2% 9.2%
Long-term capital lease
at fixed interest rate $ 3,400 3,800 18,800 20,900 23,200 982,600 $ 1,052,700
Weighted average
interest rate 10.7% 10.7% 10.7% 10.7% 10.7% 10.7%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and the Report of
Independent Certified Public Accountants as contained in the Company's 1999
Annual Report to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors contained under the caption
"Election of Directors" in the Company's Proxy Statement for the 2000 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission prior to April 27, 2000, is incorporated herein by reference.
The information regarding executive officers is set forth in Item 1 of
this report under the caption "Executive Officers."
The information regarding reports required under section 16(a) of the
Securities Exchange Act of 1934 contained under caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's proxy statement for
the 2000 Annual Meeting of Shareholders, which will be filed with Securities
and Exchange Commission prior to April 27, 2000 is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Pay" in the
Company's Proxy Statement for the 2000 Annual Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission prior to April 27,
2000, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the captions "Security Ownership of
Certain Beneficial Owners and Management" in the Company's Proxy Statement for
the 2000 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission prior to April 27, 2000, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the captions "Election of Directors -
Certain Relationships and Related Transactions" and "Compensation Committee
Interlocks and Insider Participation" in the Company's Proxy Statement for the
2000 Annual Meeting of Shareholders, which will be filed with the Securities
and Exchange Commission prior to April 27, 2000, is incorporated herein by
reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)1. The financial statements listed below are filed with this report on
Form 10-K or are incorporated herein by reference from the Company's
1999 Annual Report to Shareholders. With the exception of the pages
listed below, the 1999 Annual Report to Shareholders is not deemed
"filed" as a part of this report on Form 10-K.
<TABLE>
<CAPTION>
Page
Reference
-----------------------
Form 1999
10-K Annual Report
---- -------------
<S> <C> <C>
Consent of Independent Certified
Public Accountants 21
Independent Auditors' Report 27
Consolidated Statements of Operations 11
Consolidated Balance Sheets 12
Consolidated Statements of Share-
holders' Equity 13
Consolidated Statements of Cash Flows 14
Notes to Consolidated Financial
Statements 15
</TABLE>
(a)2. No financial statement schedules have been included since the required
information is not applicable or the information required is included
in the financial statements or the notes thereto.
(a)3. The following exhibits are filed as part of this report on Form 10-K,
and this list comprises the Exhibit Index.
<TABLE>
<CAPTION>
No. Exhibit
<S> <C>
3.01 Articles of Incorporation of Family Steak Houses of Florida,
Inc. (Exhibit 3.01 to the Company's Registration Statement on
Form S-1, Registration No. 33-1887, is incorporated herein by
reference.)
3.02 Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 3.02
to the Company's Registration Statement on Form S-1,
Registration No. 33-1887, is incorporated herein by
reference.)
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C>
3.03 Articles of Amendment to the Articles of Incorporation of
Family Steak Houses of Florida, Inc. (Exhibit 3.03 to the
Company's Registration Statement on Form S-1, Registration
No. 33-1887, is incorporated herein by reference.)
3.04 Articles of Amendment to the Articles of Incorporation of
Family Steak Houses of Florida, Inc. (Exhibit 3.04 to the
Company's Registration Statement on Form S-1, Registration
No. 33-1887, is incorporated herein by reference.)
3.05 Amended and Restated Bylaws of Family Steak Houses of
Florida, Inc. (Exhibit 4 to the Company's Form 8-A, filed
with the Commission on March 19, 1997, is incorporated herein
by reference.)
3.06 Articles of Amendment to the Articles of Incorporation of
Family Steak Houses of Florida, Inc. (Exhibit 3 to the
Company's Form 8-A filed with the Commission on March 19,
1997, is incorporated herein by reference.)
3.07 Articles of Amendment to the Articles of Incorporation of
Family Steak Houses of Florida, Inc. (Exhibit 3.08 to the
Company's Annual Report on Form 10-K filed with the
Commission on March 31, 1998 is incorporated herein by
reference.)
3.08 Amendment to Bylaws of Family Steak Houses of Florida, Inc.
4.01 Specimen Stock Certificate for shares of the Company's Common
Stock (Exhibit 4.01 to the Company's Registration Statement
on Form S-1, Registration No. 33-1887, is incorporated herein
by reference.)
10.01 Amended Franchise Agreement between Family Steak Houses of
Florida, Inc. and Ryan's Family Steak Houses, Inc., dated
September 16, 1987. (Exhibit 10.01 to the Company's
Registration Statement on Form S-1, filed with the Commission
on October 2, 1987, Registration No. 33-17620, is
incorporated herein by reference.)
10.02 Lease regarding the restaurant located at 3549 Blanding
Boulevard, Jacksonville, Florida (Exhibit 10.03 to the
Company's Registration Statement on Form S-1, Registration
No. 33-1887, is incorporated herein by reference.)
10.03 Amended and Restated Warrant to Purchase Shares of Common
Stock, void after October 1, 2003, which
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
represents warrants issued to The Phoenix Insurance Company,
The Travelers Indemnity Company, and The Travelers Insurance
Company, (subsequently transferred to Cerberus Partners,
L.P.) (Exhibit 10.07 to the Company's Annual Report on Form
10-K, filed with the Commission on March 28, 1995, is
incorporated herein by reference.)
10.04 Warrant to Purchase Shares of Common Stock, void after
October 1, 2003, which represents warrants issued to The
Phoenix Insurance Company, The Travelers Indemnity Company,
and The Travelers Insurance Company. (subsequently
transferred to Cerberus Partners, L.P.) (Exhibit 10.08 to the
Company's Annual Report on Form 10-K, filed with the
Commission on March 28, 1995, is incorporated herein by
reference.)
10.05 Amendment of Franchise Agreement between Ryan's Family Steak
Houses, Inc. and the Company dated July 11, 1994. (Exhibit
10.17 to the Company's Annual Report on Form 10-K, filed with
the Commission on March 28, 1995, is incorporated herein by
reference.)
10.06 Agreement between the Company and Kraft Foodservice, Inc., as
the Company's primary food product distribution. (Exhibit
10.06 to the Company's Quarterly Report on Form 10-Q, filed
with the Commission on August 9, 1995, is incorporated herein
by reference.)
10.07 Lease Agreement between the Company and CNL American
Properties Fund, Inc., dated as of September 18, 1996.
(Exhibit 10.02 to the Company's Quarterly Report on Form
10-Q, filed with the Commission on November 18, 1996 is
hereby incorporated by reference.)
10.08 Rent Addendum to Lease Agreement between the Company and CNL
American Properties Fund, Inc., dated as of September 18,
1996. (Exhibit 10.04 to the Company's Quarterly Report on
Form 10-Q, filed with the Commission on November 18, 1996 is
hereby incorporated by reference.)
10.09 Amendment of Franchise Agreement between the Company and
Ryan's Family Steak Houses, Inc. dated October 3, 1996.
(Exhibit 10.15 to the Company's Annual Report on Form 10-K,
filed with the Commission on April 1, 1997 is hereby
incorporated by reference.)
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C>
10.10 $15.36m Loan Agreement, between the Company and FFCA Mortgage
Corporation, dated December 18, 1996. (Exhibit 10.18 to the
Company's Annual Report on Form 10-K, filed with the
Commission on April 1, 1997 is hereby incorporated by
reference.)
10.11 $4.64m Loan Agreement, between the Company and FFCA Mortgage
Corporation, dated December 18, 1996. (Exhibit 10.19 to the
Company's Annual Report on Form 10-K, filed with the
Commission on April 1, 1997 is hereby incorporated by
reference.)
10.12 Form of Promissory Note between the Company and FFCA Mortgage
Corporation, dated December 18, 1996. (Exhibit 10.20 to the
Company's Annual Report on Form 10-K, filed with the
Commission on April 1, 1997 is hereby incorporated by
reference.)
10.13 Form of Mortgage between the Company and FFCA Mortgage
Corporation, dated December 18, 1996 (Exhibit 5 to the
Company's Schedule 14D-9, filed with the Commission on March
19, 1997 is hereby incorporated by reference.)
10.14 Form of Mortgage between the Company and FFCA Mortgage
Corporation, dated March 18, 1996. (Exhibit 10.22 to the
Company's Annual Report on Form 10-K, filed with the
Commission on April 1, 1997 is hereby incorporated by
reference.)
10.15 Lease agreement dated January 29, 1998 between the Company
and Excel Realty Trust, Inc. (Exhibit 10.19 to the Company's
Annual Report on Form 10-K, filed with the Commission on
March 31, 1998 is hereby incorporated by reference.)
10.16 Commitment for construction financing for two restaurants
from FFCA Acquisition Corporation, dated October 2, 1998.
(Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q
filed with the commission on November 16, 1998 is
incorporated herein by reference.)
10.17 Lease between the Company and Stuart S. Golding Company dated
February 3, 1999. (Exhibit 10.23 to the Company's Annual
Report on Form 10-K, filed with the Commission on March 24,
1999 is hereby incorporated by reference).
10.18 Employment Agreement between the Company and Lewis E.
Christman, Jr., dated as of January 26, 1998.
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
(Exhibit 10.17 to the Company's Annual Report on Form 10-K,
filed with the Commission on March 31, 1998 is hereby
incorporated by reference).
10.19 Amendment of Franchise Agreement between the Company and
Ryan's Family Steak Houses, Inc. dated August 31, 1999.
10.20 Stock option agreement between the Company and director Jay
Conzen, dated November 3, 1999.
13.01 1999 Annual Report to Shareholders.
21.01 Subsidiaries of the Company.
23.01 Consent of Independent Certified Public Accountants -
Deloitte & Touche LLP.
27.00 Financial data schedules (electronic filing only).
</TABLE>
(b) None.
(c) See (a)3. above for a list of all exhibits filed herewith and the Exhibit
Index.
(d) None.
20
<PAGE> 21
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Annual Report of Family
Steak Houses of Florida, Inc. on Form 10-K of our report dated February 18,
2000, appearing in the 1999 Annual Report to Shareholders of Family Steak
Houses of Florida, Inc.
We additionally consent to the incorporation by reference in Registration
Statement No. 33-11684 pertaining to the 1986 Employee Incentive Stock Option
Plan of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated
February 18, 2000 appearing in and incorporated by reference in this Annual
Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended
December 29, 1999.
We further consent to the incorporation by reference in Registration Statement
No. 33-12556 pertaining to the 1986 Stock Option Plan for Non-Employee
Directors of Family Steak Houses of Florida, Inc. on Form S-8 of our report
dated February 18, 2000 appearing in and incorporated by reference in this
Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year
ended December 29, 1999.
We further consent to the incorporation by reference in Registration Statement
No. 33-62101 pertaining to the 1995 Long Term Incentive Plan of Family Steak
Houses of Florida, Inc. on Form S-8 of our report dated February 18, 2000
appearing in and incorporated by reference in this Annual Report on Form 10-K
of Family Steak Houses of Florida, Inc. for the year ended December 29, 1999.
Deloitte & Touche LLP
Certified Public Accountants
Jacksonville, Florida
March 15, 2000
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Date: March 9, 2000 BY: /s/ Glen F. Ceiley
------------------
Glen F. Ceiley
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Edward B. Alexander Executive Vice President March 13, 2000
- ----------------------- (Principal Financial and
Edward B. Alexander Accounting Officer)
/s/ Glen F. Ceiley Chairman of the Board March 9, 2000
- ------------------
Glen F. Ceiley
/s/ Steve Catanzaro Director March 9, 2000
- -------------------
Steve Catanzaro
/s/ Jay Conzen Director March 13, 2000
- --------------
Jay Conzen
/s/ William Means Director March 9, 2000
- -----------------
William Means
</TABLE>
22
<PAGE> 1
EXHIBIT 3.08
AMENDMENT
TO AMENDED AND RESTATED BYLAWS OF
FAMILY STEAKHOUSES OF FLORIDA, INC.
THIS AMENDMENT dated as of November 3, 1999 is to the Amended and
Restated Bylaws (the "Bylaws") of Family Steakhouses of Florida, Inc. (the
"Company").
WHEREAS, Article X of the Bylaws provides that the Bylaws may be
amended or altered by a majority vote of the Board of Directors at any regular
or special meeting; and
WHEREAS, at duly called meetings of the Board of Directors of the
Company held on July 21, 1999 and November 3, 1999, the Board of Directors
adopted the following amendments to the Bylaws:
NOW THEREFORE, to document the action of the Board of Directors, the
Bylaws are hereby amended as follows:
1. Section 5.1. Section 5.1 of the Bylaws is amended to read as
follows:
The officers of the Corporation shall consist of a Chairman,
a President and Chief Executive Officer, one or more Vice
Presidents, a Secretary and a Treasurer, each of whom shall
be appointed by and serve at the pleasure of the Board of
Directors. Any two or more offices may be held by the same
person. The Board of Directors at its first meeting after
each annual meeting of shareholders shall appoint a Chairman,
a President, a Secretary, a Treasurer and may appoint one or
more Vice Presidents. The Chairman or the President are
authorized to appoint such officers on an interim basis,
subject to ratification by the Board of Directors at its next
meeting. Such other officers and assistant officers and
agents as may be deemed necessary may be elected or appointed
by the Board of Directors.
2. Section 3.5. Section 3.5 of the Bylaws is amended to read as
follows:
The annual meeting of the Board of Directors shall be held at
the same place as the annual shareholders' meeting
immediately following the annual meeting of the shareholders.
In addition, there shall be four regular meetings of the
Board of Directors to be held at such time and at such place
within or without the State of Florida as the Board of
Directors may from time to time designate. Upon the request
of any two directors or the President or upon his own
initiative, the Chairman may call a special meeting of the
Board of Directors to be held at such time and place, within
or
<PAGE> 2
without the State of Florida, and for such purpose as the
notice of the meeting may designate.
IN WITNESS WHEREOF, the Company has caused its Secretary to execute
this Amendment as of November 3, 1999.
FAMILY STEAK HOUSES OF FLORIDA, INC.
By:
--------------------------------------
Secretary
<PAGE> 1
EXHIBIT 10.19
August 31, 1999
Mr. Glen F. Ceiley
Chairman of the Board
Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
Dear Glen:
This letter is to serve as an amendment to the Agreement between Ryan's
Properties, Inc. ("Ryan's") and Family Steak Houses of Florida, Inc. ("FSH")
dated July 11, 1994, and amended on October 17, 1994 and October 3, 1996 (the
"Agreement"). The Agreement itself constituted an amendment of the Franchise
Agreement (as defined in the Agreement)(as amended, the "Franchise Agreement").
This letter also serves to amend the Franchise Agreement.
1. Clause (b) of Section 7 (Store Requirements) of the Agreement is deleted and
replaced with the following:
"At the end of each calendar year, FSH agrees to have at least the following
number of Ryan's Family Steak House restaurants in operation:
<TABLE>
<CAPTION>
Number of Ryan's Family Steak House
End of Calendar Year restaurants Required to be in Operation
-------------------- ---------------------------------------
<S> <C>
1999 21
2000 23
2001 25
2002 27
2003 29
Subsequent Years Increases by Two per Year"
</TABLE>
The remaining provisions of Section 7 of the Agreement remain in full force and
effect.
<PAGE> 2
August 31, 1999
Page 2
2. Section XV (TERMINATION AND DEFAULTS) of the Franchise Agreement is amended
by the addition at the end of paragraph B thereof of a new subparagraph 5 of
paragraph B, which new subparagraph 5 is set forth on the attached Rider A.
3. Section XVIII (TRANSFERABILITY OF INTEREST) of the Franchise Agreement is
amended by the addition at the end thereof of new subparagraphs 5 and 6 of
paragraph B, which new subparagraphs 5 and 6 are set forth on the attached
Rider B.
Except as explicitly modified herein, the Agreement and the Franchise Agreement
shall continue in full force and effect in all respects.
RYAN'S PROPERTIES, INC.
Charles D. Way
President
The undersigned has read the above amendments and agrees to the provisions
contained therein.
FAMILY STEAK HOUSES OF FLORIDA, INC.
By:
----------------------------------------
Mr. Glen F. Ceiley
Chairman of the Board
Family Steak Houses of Florida, Inc.
<PAGE> 3
Rider A
(Additional Event of Default)
5. If at the end of any calendar year the number of Restaurants
in operation is less than 80% of the number of Restaurants required to be in
operation as of that date pursuant to the terms of this Agreement, as amended.
<PAGE> 4
Rider B
(Additional Transferability Provisions)
5. For purposes of this paragraph XVIII.B, any of the following
shall be deemed to be an assignment and transfer of this Agreement that
requires FRANCHISOR's prior written consent under this Paragraph XVIII.B:
(a) any person or group of persons (within the meaning
of the Securities Exchange Act of 1934, as amended
(the "34 Act")) (other than any person that
beneficially owned 15% or more of the issued and
outstanding shares of voting capital stock of
FRANCHISEE as of December 15, 1998) shall have
acquired after December 15, 1998 beneficial
ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange
Commission (the "SEC") under the 34 Act) of 25% or
more of the issued and outstanding shares of capital
stock of FRANCHISEE (or FRANCHISEE's direct or
indirect parent) having the right to vote for the
election of directors of FRANCHISEE (or such parent)
under ordinary circumstances, or
(b) during any period of twelve consecutive calendar
months ending after August 15, 1999, individuals who
at the beginning of such period constituted the
board of directors of FRANCHISEE (or any direct or
indirect parent of FRANCHISEE) (together with any
new directors whose election by the board of
directors of FRANCHISEE (or such parent), or whose
nomination for election by the stockholders of
FRANCHISEE (or such parent), was approved by a vote
of at least two-thirds of the directors then still
in office who either were directors at the beginning
of such period or whose election or nomination for
election was previously so approved) cease for any
reason other than death or disability to constitute
a majority of the directors then in office, or
(c) FRANCHISEE, or any individual or entity that,
directly or indirectly, controls, is controlled by
or is under common control with FRANCHISEE, directly
or indirectly, owns, maintains, engages in,
participates in or has any interest in, the
operation of any other family-oriented steak house
restaurant. For purposes of this subparagraph (c),
the term "control" has the meaning of that term
under the regulations promulgated by the SEC under
the 34 Act.
4
<PAGE> 5
For purposes of this paragraph 5, any entity that, directly or indirectly,
controls (within the meaning of the regulations promulgated by the SEC under
the 34 Act) FRANCHISEE shall be deemed a direct or indirect (as the case may
be) "parent" of FRANCHISEE.
6. In the event that FRANCHISOR declines to grant its consent to
any transaction requiring its consent under this paragraph XVIII.B., the
proposed transaction may nonetheless be consummated (subject, in the case of an
asset transfer, to FRANCHISOR's right of first refusal) if the following
conditions are satisfied to the reasonable satisfaction of FRANCHISOR:
(a) FRANCHISEE shall have paid or cause to be paid to
FRANCHISOR in immediately available funds all
amounts due and owing to FRANCHISOR under this
Agreement or accrued under this Agreement with
respect to any period prior to the effective date of
such transaction (the "Transaction Effective Date");
(b) No event of default has occurred and is continuing
under this Agreement as of the Transaction Effective
Date;
(c) All documents and information in the possession of
FRANCHISEE that FRANCHISOR deems to be confidential
trade secrets shall have been returned to FRANCHISOR
prior to the Transaction Effective Date;
(d) On or prior to the Transaction Effective Date,
FRANCHISEE or the transferee (as applicable), on the
one hand, and FRANCHISOR, on the other hand, shall
have executed and delivered an amendment agreement
pursuant to which:
(i) This Agreement is modified solely (except
as provided in clause (ii) below) to
eliminate any requirement that FRANCHISOR
provide to FRANCHISEE or such transferee
(as applicable) information deemed
confidential trade secrets by FRANCHISOR;
(ii) The transferee (if applicable) assumes all
of FRANCHISEE's obligations under this
Agreement; and
(iii) This Agreement shall otherwise remain in
full force and effect and binding on
FRANCHISEE or the transferee (as
applicable).
5
<PAGE> 1
EXHIBIT 10.20
FAMILY STEAK HOUSES OF FLORIDA, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is made
and entered into by and between FAMILY STEAK HOUSES OF FLORIDA, INC., a Florida
corporation ("Company"), and JAY CONZEN ("Optionee") as of the 3rd day of
November, 1999 ("Date of Grant").
WHEREAS, the Company's Executive Compensation Committee (the
"Committee") has recommended and the Company's Board of Directors has approved
the grant to Optionee of a non-qualified stock option to purchase all or any
part of Twenty-Five Thousand (25,000) authorized but unissued shares of voting
common stock of the Company, $.01 par value, at the price of $2.00 per share,
such option to be for the term and upon the terms and conditions hereinafter
stated;
NOW THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to the action of the Executive
Compensation Committee and Board of Directors, Company hereby grants to
Optionee the option to purchase, upon and subject to the terms and conditions
of this Agreement, all or any part of Twenty-Five Thousand (25,000) shares of
the Company's common stock (the "Shares") at the price of $2.00 per Share.
2. METHOD OF PAYMENT. The exercise price shall be paid in full
at the time of exercise in one of the following ways:
(i) in cash, for a payment of $2.00 per Share purchased;
<PAGE> 2
(ii) by the surrender of such number of shares of the
Company's common stock, the fair market value of which is currently equal to
the option price for the Shares currently being purchased pursuant to this
Agreement; or
(iii) by a combination of cash and the Company's common
stock, having an aggregate value on the date of exercise equal to the aggregate
option exercise price for the shares currently being purchased pursuant to the
Plan.
The value of any shares of common stock tendered in payment of the
option price shall be the closing sale price for such shares (as reported in
The Wall Street Journal or other reputable publication) on the trading day
preceding the date they are tendered to the Company. Optionee shall deliver all
shares of common stock utilized for the payment of the option price free and
clear of all liens and encumbrances and in transferable form.
3. WITHHOLDING. Where the Optionee is entitled to receive any
Shares pursuant to the exercise of this option, the Company shall have the
right to require Optionee to pay to the Company the amount of any federal,
state or local income taxes or other amounts which the Company is required to
withhold with respect to such exercise ("Withholding Taxes"), or, in lieu
thereof, Optionee may make a written election to have withheld a portion of the
Shares then issuable with a value equal to the Withholding Taxes. The Company's
method of satisfying its withholding obligations shall be solely in the
discretion of the Company, subject to applicable federal, state and local laws.
4. EXERCISABILITY. The option shall be exercisable as to all
such Shares as of the Date of Grant.
5. EXERCISE OF OPTION. This option may be exercised by ten (10)
days written notice delivered to the Secretary of the Company stating the
number of Shares with respect to which this option is being exercised, together
with cash, surrendered Company stock or a
2
<PAGE> 3
combination thereof in the amount of the purchase price of such shares. Not
fewer than one hundred (100) shares may be purchased at any one time unless the
number purchased is the total number which may be purchased under this option.
Whether the option is exercised by Optionee during his lifetime or by his
personal representative or heirs after his death, such option must be
exercised, if at all, not later than November 3, 2009; otherwise, such option
shall lapse and shall not be exercisable in any amount after November 3, 2009.
6. CESSATION OF SERVICE. If Optionee shall cease to serve as a
director of the Company for any reason, including but not limited to Optionee's
disability or death, this option shall expire twelve (12) months thereafter or,
if earlier, on the date specified in Paragraph 5 hereof.
7. NONTRANSFERABILITY; DEATH OF OPTIONEE. Neither this option
nor any interest or right therein or part thereof shall be subject to
disposition by transfer (other than by will or the laws of descent and
distribution), alienation, anticipation, pledge, encumbrance, assignment or any
other means, whether such disposition is voluntary or involuntary or by
operation of law, by judgment, levy, attachment, garnishment or any other legal
or equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect. This option may only be
transferable by will or by the laws of descent and distribution and may be
exercised only by Optionee during Optionee's lifetime. If Optionee dies while
serving as a director of the Company, the persons to whom Optionee's rights
under this option shall have passed by will or by the applicable laws of
descent and distribution shall have the right to exercise this option for a
period of one (1) year after the date of Optionee's death or, if earlier, on
the date specified in Paragraph 5 hereof.
3
<PAGE> 4
8. CONTINUED SERVICE. This agreement shall not obligate the
Company to nominate the Optionee as a director or otherwise cause Optionee to
serve as a director or to continue to engage Optionee as a consultant.
9. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights
as a stockholder with respect to the Shares until the date of issuance of stock
certificates for such Shares to Optionee. Except as provided in Paragraph 10
hereof, no adjustment will be made for dividends or other rights for which the
record date is prior to the date such stock certificates are issued.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If the
outstanding shares of the common stock of the Company are increased, decreased
or changed into, or exchanged for a different number or kind of shares or
securities of the Company, without receipt of consideration by the Company,
through reorganization, merger, recapitalization, reclassification, stock
split-up, stock dividend, stock consolidation or otherwise, an appropriate and
proportionate adjustment shall be made in the number and kind of Shares and the
exercise price per Share allocated to the unexercised portion of this option,
which shall have been granted prior to any such change in capitalization. Any
such adjustment, however, in this option shall be made without change in the
total price applicable to the unexercised portion of the option but with a
corresponding adjustment in the price for each Share subject to this option.
Adjustments under this section shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final and conclusive. No fractional shares of stock shall be issued
under this option on account of any such adjustment.
11. EFFECT OF CERTAIN TRANSACTIONS. In the event of (i) the
liquidation or dissolution of the Company or (ii) a merger or consolidation of
the Company (a "Transaction"), this Option shall continue in effect in
accordance with its terms and Optionee shall be entitled to
4
<PAGE> 5
receive in respect of each Share subject to the unexercised portion of this
option, upon its exercise, the same number and kind of stock, securities, cash,
property or other consideration that each holder of a share of common stock was
entitled to receive in the Transaction in respect of such share.
12. ADMINISTRATION. This option shall be administered by the
Committee subject to the express terms and conditions set forth herein. The
Committee shall have the power from time to time to construe and interpret this
option and to establish, amend and revoke rules and regulations for the
administration of this option, including, but not limited to, correcting any
defect or supplying any omission, or reconciling any inconsistency in this
Agreement, in the manner and to the extent it shall deem necessary or
advisable, and generally to exercise such powers and to perform such acts as
are deemed necessary or advisable to promote the best interests of the Company
with respect to this option. All decisions and determinations by the Committee
in the exercise of this power shall be final, binding and conclusive upon the
Company, the Optionee, and all other persons having any interest therein.
13. TAX STATUS OF OPTION. This option is not intended to be an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code") or any successor provision thereof.
14. MODIFICATION OR SUBSTITUTION. The Committee may, in its
discretion, modify this option or accept its surrender and grant new options in
substitution for it. Notwithstanding the foregoing, no modification of this
option shall adversely alter or impair any of Optionee's rights or obligations
under this option without the Optionee's consent.
15. SECURITIES LAWS. This option is subject to the requirement
that, if at any time the Committee determines, in its discretion, that the
listing, registration or qualification of Shares issuable pursuant to this
option is required by any securities exchange or under any state
5
<PAGE> 6
or federal law, or the consent or approval of any governmental regulatory body
is necessary or desirable as a condition of, or in connection with the issuance
of the Shares, no Share shall be issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or obtained
free of any conditions as acceptable to the Committee.
16. RESTRICTIONS ON SHARES ISSUED UPON EXERCISE. Unless the
Shares issuable upon exercise of this Option have been registered under the
Securities Act of 1933, as amended (the "Act") and such registration is then
effective with respect to such Shares or the Shares are otherwise exempt from
such registration, such shares shall be restricted against transfer to the
extent required by the Act, and Rule 144 or other regulations thereunder. The
Committee may require Optionee as a condition precedent to receipt of such
shares, to represent and warrant to the Company in writing that (i) the Shares
acquired by him are acquired for Optionee's own account for investment purposes
and without any present intention to distribute or resell the Shares; (ii)
Optionee acknowledges that the Shares have not been registered under the Act
and constitute "restricted securities" thereunder, and, accordingly, the
subsequent transfer of such shares will be subject to certain limitations;
(iii) the Shares will not be sold or transferred other than pursuant to an
effective registration thereof under the Act or pursuant to an exemption
applicable under the Act or the rules and regulations promulgated thereunder;
and (iv) the Optionee or other person then entitled to exercise such Option or
portion will indemnify the Company against and hold it harmless from any loss,
damage, expense or liability resulting to the Company if any sale or
distribution of the Shares by such person is not made in accordance with the
Act or the rules and regulations promulgated thereunder. The certificates
evidencing any of such Shares shall be appropriately legended to reflect their
status as restricted securities.
17. BINDING EFFECT. This Agreement shall inure to the benefit of
and be binding upon the Company's successors and assigns. All obligations
imposed upon Optionee and all
6
<PAGE> 7
rights granted to Optionee under this Agreement shall be binding upon
Optionee's heirs, executors, administrators and successors.
18. SEVERABILITY. Should any provision of this Agreement be held
by a court of competent jurisdiction to be unenforceable or invalid for any
reason, the remaining provisions of this Agreement shall not be affected by
such holding and shall continue in full force in accordance with their terms.
19. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Florida, without regard to its choice or conflict of law rules.
"COMPANY'
FAMILY STEAK HOUSES OF FLORIDA, INC.
By:
-----------------------------------------
Glen F. Ceiley, Chairman
"OPTIONEE"
By:
-----------------------------------------
As to Optionee
7
<PAGE> 1
FAMILY STEAK HOUSES OF FLORIDA, INC.
CORPORATE PROFILE
ABOUT THE COMPANY
Family Steak Houses of Florida, Inc. is the sole franchisee of Ryan's Family
Steak House restaurants in the state of Florida. The Company's first restaurant
was opened in Jacksonville, Florida in May 1982. The Company presently operates
22 Ryan's restaurants in Florida.
A Ryan's Family Steak House restaurant is a family-oriented restaurant serving
high-quality, reasonably priced food in a casual atmosphere with server-assisted
service. The restaurants feature self-service scatter bars, bakery and dessert
bar, and table service of meals and drink refills. Each restaurant serves cuts
of charbroiled steaks and hamburgers, seafood and various chicken entrees. In
addition to traditional salad bar items, the scatter bars include a variety of
hot meats and vegetables, as well as a variety of pre-made salads and cheeses.
The bakery bar consists of fresh baked products such as hot yeast rolls, a
variety of muffins, sweet rolls, brownies and cookies. Other selections include
cobblers, fresh fruit, candy, cheesecake, pudding, ice cream, lowfat yogurt and
a wide variety of dessert toppings. The bakery and dessert bar is included in
the customer's meal price, and items can also be purchased for take-home.
RYAN'S LOCATIONS:
<TABLE>
<S> <C> <C>
Jacksonville (1) Lakeland (2) Gainesville (1)
Orange Park (1) Apopka (1) New Port Richey (1)
Ocala (1) Winter Haven (1) Tampa (3)
Tallahassee (1) Daytona Beach (1) Orlando (1)
Melbourne (1) Clearwater (1) Lake City (1)
Brooksville (1) Leesburg (1) Deland (1)
Neptune Beach (1)
</TABLE>
- ---------------------------------(RYAN'S LOGO)---------------------------------
<PAGE> 2
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
1999 was a year of transition for the Company. You elected a new Board of
Directors at the Annual Meeting of Shareholders in July to give the Company a
new direction and a fresh start. The new Board created a management team of
three individuals called the Office of the President to lead the Company. We
would like to tell you about a few of the things we are doing to help return the
Company to profitability and to improve the value of your investment.
Total sales increased by 1.3% in 1999, despite the fact that we closed or sold
five underperforming restaurants in 1999. Same store sales were also up, for the
second consecutive year. We also opened a very successful and profitable new
restaurant in Deland, Florida in April and another new restaurant in Tampa in
September, both of which have consistently exceeded the Company's average unit
sales volumes. We continue to believe that our strategy of closing and selling
our older, outdated locations and replacing them with new Ryan's in excellent
locations can bring about a dramatic improvement in our bottom line.
Our goal is to expand the Ryan's concept in Florida at a quicker pace in 2000
and beyond. We are working closely with the site selection team from our
franchisor, Ryan's Family Steak Houses, Inc. to identify sites around the state
to accomplish this growth. We have already located several excellent areas of
opportunity which we are pursuing for new Ryan's restaurants.
One of our biggest challenges is the increasing number of competitors opening
new restaurants in Florida. In order to outperform the competition in our
segment, we are trying several innovations in our restaurants. We have added an
"all you can eat steak night" to our already famous buffet offerings at all of
our restaurants one night per week and experienced sales gains on those nights
far beyond our expectations. Because of this success, we have expanded this
offering to additional nights at several locations. In addition, we remodeled
one of our restaurants to include an impressive exhibition grill cooking area,
and have received glowing remarks from our customers. We are looking forward to
expanding on these innovations in 2000.
Another new concept which we are excited about is our new operating partner
program. This program is offered to our best restaurant managers as a means for
them to invest in the Company and the success of their restaurant, while giving
them greater financial incentives to increase profits. This plan has been
successfully used by our franchisor and other successful restaurant chains, and
we look forward to expanding the concept in our Company.
In addition to growing the Company more rapidly and working on innovations to
improve sales at our current locations, we are focusing on improved cost
controls as well. We have set a goal to reduce our food cost by 1% of sales by
improving our purchasing and operating efficiencies. We have undertaken a
project to review every operating expense item in the Company to determine if
each particular cost can be decreased.
We believe that Ryan's is a strong concept which can thrive in the State of
Florida with its rapidly expanding population. For the fifth consecutive year,
consumers in a nationwide survey by Restaurants and Institutions Magazine rated
Ryan's as the #1 choice for BEST FAMILY STEAKHOUSE CHAIN IN AMERICA. We are
committed to doing everything we can to make Ryan's #1 in Florida.
We appreciate all the hard work of our team members and your continued support.
We look to the future with a heightened sense of optimism and focus on
increasing shareholder value.
Sincerely,
OFFICE OF THE PRESIDENT
Edward B. Alexander
Jay Conzen
Kevin R. Pickett
- ---------------------------------(RYAN'S LOGO)---------------------------------
2
<PAGE> 3
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------------
SELECTED INCOME STATEMENT DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales $38,905 $38,412 $36,978 $37,978 $42,105
Cost and expenses:
Food and beverage 15,161 15,015 14,642 15,090 16,591
Payroll and benefits 11,416 10,878 10,516 10,538 11,412
Depreciation and amortization 1,966 1,879 1,671 1,663 1,720
Other operating expenses 6,064 6,183 6,150 5,953 6,313
General and administrative
expenses 2,703 2,472 2,681 2,220 2,452
Change in control payments 908 -- -- -- --
Franchise fees 1,165 1,151 1,108 1,139 1,263
Asset valuation charge -- 209 550 -- --
Loss (gain) on sale of restaurants 18 -- -- -- (159)
Loss (gain) on store closings and
disposition of equipment 140 193 146 57 (105)
------- ------- ------- ------- -------
39,541 37,980 37,464 36,660 39,487
------- ------- ------- ------- -------
(Loss) earnings from operations (636) 432 (486) 1,318 2,618
Interest and other income 375 410 438 465 536
Gain on sale of property held for
sale -- -- -- -- 31
Interest expense (1,721) (1,619) (1,577) (1,516) (1,694)
------- ------- ------- ------- -------
(Loss) earnings before income
taxes and extraordinary item (1,982) (777) (1,625) 267 1,491
(Benefit) provision for income taxes -- (68) (201) 53 147
------- ------- ------- ------- -------
Net (loss) earnings before
extraordinary item (1,982) (709) (1,424) 214 1,344
Extraordinary item - gain on early
extinguishment of debt, net of
income taxes of $89 -- -- -- 348 --
------- ------- ------- ------- -------
Net (loss) earnings $(1,982) $ (709) $(1,424) $ 562 $ 1,344
======= ======= ======= ======= =======
Basic (loss) earnings per share: (2)
(Loss) earnings before
extraordinary item $ (0.82) $ (0.30) $ (0.65) $ 0.10 $ 0.62
Extraordinary item - gain on early
extinguishment of debt -- -- -- 0.16 --
------- ------- ------- ------- -------
Net (loss) earnings per share $ (0.82) $ (0.30) $ (0.65) $ 0.26 $ 0.62
======= ======= ======= ======= =======
Diluted (loss) earnings per share: (2)
(Loss) earnings before
extraordinary item $ (0.82) $ (0.30) $ (0.65) $ 0.09 $ 0.57
Extraordinary item - gain on early
extinguishment of debt -- -- -- 0.15 --
------- ------- ------- ------- -------
Net (loss) earnings per share $ (0.82) $ (0.30) $ (0.65) $ 0.24 $ 0.57
======= ======= ======= ======= =======
SELECTED BALANCE SHEET DATA:
Land and net property and equipment $25,261 $26,138 $26,300 $26,350 $26,837
Total assets 30,759 32,092 30,333 32,803 31,260
Long-term debt 17,336 16,574 14,403 15,107 14,420
Current portion of long-term debt 381 371 279 333 1,580
Shareholders' equity 8,335 10,275 10,644 11,998 11,460
SELECTED OPERATING DATA :
Current ratio 0.4 0.8 0.6 0.9 0.4
Working capital (deficit) $(2,491) $ (744) $(1,795) $ (617) $(3,285)
Cash provided by operating
activities 157 1,525 626 1,645 2,135
Property and equipment additions 3,855 2,786 2,304 1,768 2,600
</TABLE>
- ------------------------
(1) Fifty-three week period.
(2) Per share amounts have been retroactively adjusted to reflect a 1-for-5
reverse stock split effected in March 1998.
- ---------------------------------(RYAN'S LOGO)---------------------------------
3
<PAGE> 4
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Shown for the years indicated are (i) items in the statements of operations as a
percent of total sales, (ii) operating expense items in the statements of
operations as a percent of sales and (iii) the number of restaurants open at the
end of each year.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE
CHANGE VERSUS
PRIOR YEAR
----------------
1999 1998
VS VS
1999 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $38,904,800 $38,412,400 $36,977,800 1.3% 3.9%
=========== =========== =========== === ===
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NET CHANGE
IN PERCENTAGE
----------------
PERCENT OF SALES 1999 1998
---------------------------------- VS VS
1999 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Costs and expenses:
Operating expenses 89.0% 88.4% 89.1% 0.6 (0.7)
General and administrative expenses 6.9 6.4 7.3 0.5 (0.9)
Change in control payments 2.3 -- -- 2.3 --
Franchise fees 3.0 3.0 3.0 -- --
Asset valuation charge -- 0.6 1.5 (0.6) (0.9)
Loss on sale of restaurants 0.1 -- -- 0.1 --
Loss on store closings and disposition of
equipment 0.4 0.5 0.4 (0.1) 0.1
----- ---- ----- ---- ----
101.7 98.9 101.3 2.8 (2.4)
----- ---- ----- ---- ----
(Loss) earnings from operations (1.7) 1.1 (1.3) (2.8) 2.4
Interest and other income 1.0 1.1 1.2 (0.1) (0.1)
Interest expense (4.4) (4.2) (4.3) (0.2) 0.1
----- ---- ----- ---- ----
Loss before income taxes (5.1) (2.0) (4.4) (3.1) 2.4
Income tax benefit -- (0.2) (0.5) 0.2 0.3
----- ---- ----- ---- ----
Net loss (5.1)% (1.8)% (3.9)% (3.3)% 2.1%
===== ==== ===== ==== ====
Operating expenses:
Food and beverage 39.0% 39.1% 39.6% (0.1)% (0.5)%
Payroll and benefits 29.3 28.3 28.4 1.0 (0.1)
Depreciation and amortization 5.1 4.9 4.5 0.2 0.4
Other operating expenses 15.6 16.1 16.6 (0.5) (0.5)
----- ---- ----- ---- ----
89.0% 88.4% 89.1% 0.6% (0.7)%
===== ==== ===== ==== ====
Restaurants open at end of year 23 26 25
===== ==== =====
</TABLE>
- ---------------------------------(RYAN'S LOGO)---------------------------------
4
<PAGE> 5
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
For the year ended December 29, 1999, total sales increased 1.3% compared to
1998, due to an increase in same-store sales and two additional restaurants
opened in 1999. The sales increase in 1999 compared to 1998 consisted of the
following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% CHANGE
FROM 1998
1999 1998 CHANGE TOTAL SALES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Same-Store Sales $34,539,500 $34,485,000 $ 54,500 0.2%
New Restaurants* 4,365,300 2,282,400 2,082,900 5.4%
Closed Restaurants** -- 1,645,000 (1,645,000) (4.3)%
----------- ----------- ----------- ----
Total Sales $38,904,800 $38,412,400 $ 492,400 1.3%
=========== =========== =========== ====
</TABLE>
- ------------------------
* Sales at restaurants open for 18 months or less.
** Sales from restaurants closed or sold in 1999, for the comparable period
(after the date of closure) from 1998.
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) for 1999 increased .2% from the same period in 1998, compared to an
increase of 1.1% from 1998 as compared to 1997. Total sales (including
restaurants open less than 18 months) increased 1.3%.
The increase in same-store sales was primarily due to menu price increases
implemented at all restaurants in 1999. These increases were somewhat offset by
decreases in sales at other Company restaurants caused by the effects of
increasing competition, including several new or remodeled restaurants opened by
competitors in areas close to Company restaurants. Management is seeking to
improve sales trends by focusing on improved restaurant operations and devising
competitive strategies to offset the effects of new competition. In 1999,
management implemented a plan to sell restaurants which are not meeting sales
and profit expectations. To this end, the Company closed three restaurants
during the first four months of 1999 and sold one restaurant in July 1999 and
one in November 1999. In February 2000, the Company sold one additional
restaurant (See Note 12 to the financial statements). The three closed
restaurants are currently listed for sale. Proceeds from any sales of
restaurants would be used either to reduce long-term debt or build new
restaurants with more competitive facilities in superior locations. In 1999, the
proceeds of the sales of restaurants were used to pay off long-term debt.
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, rents and licenses. The Company's food, beverage,
payroll and benefits costs are believed to be higher than the industry average
as a percentage of sales as a result of 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
89.0% in 1999 from 88.4% in 1998.
Food and beverage costs as a percentage of sales decreased to 39.0% in 1999 from
39.1% in 1998, primarily due to sales price increases implemented in 1999.
Payroll and benefits as a percentage of sales increased to 29.3% in 1999
- ---------------------------------(RYAN'S LOGO)---------------------------------
5
<PAGE> 6
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
from 28.3% in 1998, primarily due to higher group health insurance costs in 1999
and lower workers' compensation insurance costs in 1998. Other operating
expenses as a percentage of sales decreased to 15.6% in 1999 from 16.1% in 1998,
primarily due to lower property insurance costs and to reduced costs for
utilities.
Depreciation and amortization increased as a percentage of sales to 5.1% in 1999
from 4.9% in 1998, as a result of additions to property and equipment during
1999. General and administrative expenses as a percentage of sales increased to
6.9% in 1999 from 6.4% in 1998, primarily due to costs associated with the proxy
contest from the Company's 1999 Annual Meeting of Shareholders, and to increased
manager training costs resulting from higher manager turnover in 1999.
In 1999 the Company incurred an expense of $907,500 for a one-time payment to
four employees pursuant to the terms of their employment agreements upon the
change in the control of the Company's Board of Directors.
The Company recognized an asset valuation charge of $209,000 in 1998 in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". The charge was based upon a financial review of all Company-owned
restaurants and applied to one underperforming restaurant held for sale. No such
charges were considered necessary in 1999.
Interest expense increased to $1,720,700 in 1999 from $1,618,900 during 1998 due
to additional borrowing under the Company's credit facility in 1999. The Company
capitalized interest costs of approximately $52,800 in 1999 and $52,600 in 1998,
respectively.
The effective income tax rates for the years ended December 29, 1999 and
December 30, 1998 were 0.0% and (8.7%), respectively. An increase in the
valuation allowance in deferred tax assets for 1999 and 1998 resulted in the
lower than statutory effective rates for those periods.
Net loss for 1999 was $1,982,200, compared to $709,300 in 1998. Loss per share
assuming dilution was $.82 for 1999, compared to $.30 in 1998.
- ---------------------------------(RYAN'S LOGO)---------------------------------
6
<PAGE> 7
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
For the year ended December 30, 1998, total sales increased 3.9% compared to
1997, due to an increase in same-store sales and one additional restaurant
opened in June 1998. The sales increase in 1998 compared to 1997 consisted of
the following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% CHANGE
FROM 1997
1998 1997 CHANGE TOTAL SALES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Same-Store Sales $36,130,000 $35,739,400 $ 390,600 1.1%
New Restaurants* 2,282,400 1,238,400 1,044,000 2.8%
----------- ----------- ---------- ---
Total Sales $38,412,400 $36,977,800 $1,434,600 3.9%
=========== =========== ========== ===
</TABLE>
- ------------------------
* Sales at restaurants open for 18 months or less.
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) for 1998 increased 1.1% from the same period in 1997, compared to a
decrease of 8.0% from 1997 as compared to 1996. Total sales (including
restaurants open less than 18 months) increased 3.9%.
Management believes that the increase in same-store sales was primarily due to
significant increases in sales at certain restaurants remodeled by the Company.
These remodels included installation of scatter bars at three restaurants, which
resulted in same-store sales gains at these locations in excess of 20%. These
increases were somewhat offset by decreases in sales at other Company
restaurants caused by the effects of increasing competition, including several
new or remodeled restaurants opened by competitors in areas close to Company
restaurants.
Food and beverage costs as a percentage of sales decreased to 39.1% in 1998 from
39.6% in 1997, primarily due to lower beef prices, and sales price increases
implemented in 1998. Payroll and benefits as a percentage of sales decreased to
28.3% in 1998 from 28.4% in 1997, primarily due to lower workers' compensation
insurance costs. Other operating expenses as a percentage of sales decreased to
16.1% in 1998 from 16.6% in 1997, primarily due to lower repair and maintenance
costs and to reduced costs for rental of equipment. Depreciation and
amortization increased as a percentage of sales to 4.9% in 1998 from 4.5% in
1997, as a result of additions to property and equipment during 1998.
General and administrative expenses as a percentage of sales decreased to 6.4%
in 1998 from 7.3% in 1997, primarily due to costs associated with the Bisco
Industries, Inc. takeover attempt in 1997.
The Company recognized asset valuation charges of $209,000 in 1998 and $550,000
in 1997 in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". The charges were based upon a financial review of all
Company-owned restaurants and applied to one underperforming restaurant held for
sale in each year.
- ---------------------------------(RYAN'S LOGO)---------------------------------
7
<PAGE> 8
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
In 1998, the Company established a reserve to close two restaurants in 1999,
resulting in a pre-tax charge to earnings of $53,000. The charge to earnings
reflected anticipated costs associated with closing the restaurants. The two
restaurants in Jacksonville, Florida were closed in January 1999.
Interest expense increased to $1,618,900 in 1998 from $1,576,700 during 1997 due
to additional borrowing under the Company's credit facility in 1998. In
addition, the Company capitalized interest cost of approximately $52,600 in
1998.
The effective income tax rates for the year ended December 30, 1998 and December
31, 1997 were (8.7%) and (12.4%), respectively. An increase in the valuation
allowance in deferred tax assets for 1998 and 1997 resulted in the lower than
statutory effective rates for those periods.
Net loss for 1998 was $709,300, compared to $1,423,900 in 1997. Loss per share
assuming dilution was $.30 for 1998, compared to $.65 in 1997.
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 the repayment of debt, working capital requirements for
continuing operations are not significant.
At December 29, 1999, the Company had a working capital deficit of $2,491,100
compared to a working capital deficit of $744,100 at December 30, 1998. The
increase in the working capital deficit in 1999 was primarily due to the
increased loss in 1999.
Cash provided by operating activities decreased to $157,300 in 1999 from
$1,525,100 in 1998, primarily due to the increase in the net loss compared to
1998. Cash provided by operating activities increased to $1,525,100 in 1998 from
$626,100 in 1997 due to a reduction in the net loss compared to 1997.
The Company spent approximately $3,855,000 in 1999, $3,226,000 in 1998 and
$2,741,000 in 1997 for land, new restaurant construction, restaurant remodeling
and equipment. Capital expenditures for 2000, based on present costs and plans
for capital improvements, are estimated to be $9 million. This amount is based
on budgeted expenditures for buildings and equipment for four new restaurants in
2000, plus normal 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 will only be sufficient to cover two restaurants, plus the capital
maintenance items. The Company's ability to open two additional restaurants will
be contingent upon its ability to obtain financing for these restaurants, and
its ability to locate suitable locations at acceptable prices. The Company's
ability to open all four of the restaurants is also dependent upon certain other
factors beyond its control, such as obtaining building permits from various
government agencies.
In December 1996, the Company entered into a $15.36 million Loan Agreement with
FFCA Mortgage Corporation ("FFCA"). The Loan Agreement governs fifteen
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 December 29, 1999,
the outstanding balance due under the loan was $12,625,300.
- ---------------------------------(RYAN'S LOGO)---------------------------------
8
<PAGE> 9
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
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. 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 borrowed an additional $2,590,000 in 1998. This additional
financing is evidenced by three additional Promissory Notes secured by mortgages
on three Company restaurant properties. The terms and conditions of this loan
agreement are substantially identical to those of the $15.36 million Loan
Agreement described above. As of December 29, 1999, the outstanding balance
under this loan was $2,517,200.
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, which is secured by mortgages on two restaurant properties. As of
December 29, 1999, the outstanding balance under this loan was $2,574,500.
The second commitment was for construction financing for two new restaurants to
be built in 2000. Terms of this commitment include funding of a maximum of
$1,600,000 per restaurant. Other terms and conditions of these loan agreements
are substantially identical to those of the $15.36 million Loan Agreement
described above.
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 in this Annual
Report, 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 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 pressures 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 the general
economy; and other risks identified from time to time in the Company's SEC
reports, registration statements and public announcements.
IMPACT OF INFLATION
Costs of food, beverage, and labor are the expenses most affected by inflation
in the Company's business. Although inflation in recent years has been low and
accordingly has not had a significant impact on the Company, there can be no
assurance that inflation will not increase and impact the Company in the future.
A significant portion of the Company's employees are paid by the federally
established statutory minimum wage. Although no minimum wage increases have been
signed into law, various proposals are presently being considered in the United
States Congress. News reports suggest that the Federal minimum wage may increase
by $1.00 per hour to $6.15 with a two to three year phase-in period, beginning
sometime in 2000. The Company is typically able to increase its menu prices to
cover most of the payroll rate increases; however, there can be no assurance
that menu price increases will be able to offset labor cost increases in the
future. Such changes in the federal minimum wage would impact the Company's
payroll and benefits costs. Annual sales price increases have consistently
ranged from 1.0% to 3.0%.
- ---------------------------------(RYAN'S LOGO)---------------------------------
9
<PAGE> 10
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS AND THE YEAR 2000
In November 1999, the Company completed implementation of its final computer
system changes necessary to ensure that all systems were Year 2000 compliant.
The Company has experienced no problems with any of its systems or suppliers as
a result of the Year 2000 compliance technology issue, with the exception of a
credit card software error which affected customers at one restaurant for a
three-day period. The error resulted from a software error by the credit card
processing company, but did not cause significant problems at the restaurant.
The error has been corrected, and the Company does not anticipate any other
problems associated with the Year 2000 technology issue. The Company spent
approximately $50,000 in 1999 to modify its systems to achieve Year 2000
compliance.
- ---------------------------------(RYAN'S LOGO)---------------------------------
10
<PAGE> 11
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED
------------------------------------------------
DECEMBER 29, DECEMBER 30, DECEMBER 31,
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $38,904,800 $38,412,400 $36,977,800
Cost and expenses:
Food and beverage 15,161,100 15,015,500 14,642,500
Payroll and benefits 11,416,100 10,878,300 10,516,000
Depreciation and amortization 1,966,200 1,879,000 1,670,700
Other operating expenses 6,064,100 6,183,100 6,149,700
General and administrative expenses 2,702,600 2,471,800 2,680,900
Change in control payments 907,500 -- --
Franchise fees 1,165,300 1,150,900 1,108,400
Asset valuation charge -- 209,000 550,000
Loss on sale of restaurants 18,400 -- --
Loss on store closings and disposition of equipment 140,200 192,700 146,200
----------- ----------- -----------
39,541,500 37,980,300 37,464,400
----------- ----------- -----------
(Loss) earnings from operations (636,700) 432,100 (486,600)
Interest and other income 375,200 409,900 437,900
Interest expense (1,720,700) (1,618,900) (1,576,700)
----------- ----------- -----------
Loss before income taxes (1,982,200) (776,900) (1,625,400)
Income tax benefit -- (67,600) (201,500)
----------- ----------- -----------
Net loss $(1,982,200) $ (709,300) $(1,423,900)
=========== =========== ===========
Basic loss per share $ (0.82) $ (0.30) $ (0.65)
=========== =========== ===========
Diluted loss per share $ (0.82) $ (0.30) $ (0.65)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- ---------------------------------(RYAN'S LOGO)---------------------------------
11
<PAGE> 12
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
DECEMBER 29, 1999 DECEMBER 30, 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 747,300 $ 1,910,200
Investments available for sale 92,300 --
Certificates of deposit -- 644,000
Receivables 125,000 107,000
Current portion of mortgage receivable 77,800 71,100
Income taxes receivable -- 60,200
Inventories 285,400 333,400
Prepaid and other current assets 204,800 296,600
------------ ------------
Total current assets 1,532,600 3,422,500
Mortgage receivable 159,800 237,600
Certificate of deposit 10,800 --
Investments held to maturity 500,000 --
Property and equipment:
Land 7,537,300 8,882,100
Buildings and improvements 21,156,000 21,236,600
Equipment 11,908,100 12,528,600
------------ ------------
40,601,400 42,647,300
Accumulated depreciation (15,340,500) (16,509,400)
------------ ------------
Net property and equipment 25,260,900 26,137,900
Property held for sale 2,488,700 1,463,400
Other assets, principally deferred charges,
net of accumulated amortization 806,400 830,700
------------ ------------
$ 30,759,200 $ 32,092,100
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,275,300 $ 1,381,000
Accrued liabilities 2,363,600 2,412,000
Current portion of long-term debt 381,400 370,500
Current portion of obligation under capital lease 3,400 3,100
------------ ------------
Total current liabilities 4,023,700 4,166,600
Long-term debt 17,335,600 16,574,300
Obligation under capital lease 1,049,300 1,052,700
Deferred revenue 15,200 23,200
------------ ------------
Total liabilities 22,423,800 21,816,800
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 2,409,500 in 1999 and 2,371,600 shares in
1998 24,100 23,700
Additional paid-in capital 8,624,700 8,594,700
Accumulated other comprehensive income 11,900 --
Retained earnings (accumulated deficit) (325,300) 1,656,900
------------ ------------
Total shareholders' equity 8,335,400 10,275,300
------------ ------------
$ 30,759,200 $ 32,092,100
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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12
<PAGE> 13
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 29, 1999, DECEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS OTHER
--------------------- PAID-IN (ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT) INCOME
- ----------------------------------------------------------------------------------------------------- TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 10,920,700 $109,200 $8,098,400 $ 3,790,100 $ -- $11,997,700
Exercise of stock options 32,060 1,600 49,100 50,700
Common stock 1-for-5 reverse split (8,736,560) (88,600) 88,600 --
Directors' fees in the form of
stock options 20,000 20,000
Comprehensive loss:
Net loss (1,423,900) (1,423,900)
---------- -------- ---------- ----------- ------- -----------
Balance, December 31, 1997 2,216,200 22,200 8,256,100 2,366,200 -- 10,644,500
Exercise of stock options 14,108 100 4,700 4,800
Sale of common stock 141,340 1,400 303,900 305,300
Directors' fees in the form of
stock options 30,000 30,000
Comprehensive loss:
Net loss (709,300) (709,300)
---------- -------- ---------- ----------- ------- -----------
Balance, December 30, 1998 2,371,648 23,700 8,594,700 1,656,900 -- 10,275,300
Exercise of stock options 37,838 400 400
Directors' fees in the form of
stock options 30,000 30,000
Comprehensive loss:
Net loss (1,982,200) (1,982,200)
Other comprehensive income:
Unrealized gains on
securities:
Unrealized holding gains
arising during the
period 39,400 39,400
Less: reclassification
adjustment for gains
included in net income (27,500) (27,500)
----------- ------- -----------
Total comprehensive loss (1,982,200) 11,900 (1,970,300)
---------- -------- ---------- ----------- ------- -----------
Balance, December 29, 1999 2,409,486 $ 24,100 $8,624,700 $ (325,300) $11,900 $ 8,335,400
========== ======== ========== =========== ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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13
<PAGE> 14
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED
------------------------------------------------
DECEMBER 29, DECEMBER 30, DECEMBER 31,
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net loss $(1,982,200) $ (709,300) $(1,423,900)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 1,966,200 1,879,000 1,670,700
Asset valuation charge -- 209,000 550,000
Directors' fees in the form of stock options 30,000 30,000 20,000
Amortization of loan fees 28,800 24,700 22,200
Loss on sale of restaurants 18,400 -- --
Loss on disposition of equipment 93,200 139,700 146,200
(Increase) decrease in:
Receivables (18,000) (13,800) (3,200)
Income taxes receivable 60,200 237,700 (297,900)
Inventories 48,000 (52,900) (78,200)
Prepaids and other current assets 91,800 14,600 (64,000)
Other assets (17,000) (101,700) 29,100
Increase (decrease) in:
Accounts payable (105,700) 94,000 104,000
Accrued liabilities (48,400) (218,300) 48,200
Income taxes payable -- -- (84,800)
Deferred revenue (8,000) (7,600) (12,300)
----------- ----------- -----------
Net cash provided by operating activities 157,300 1,525,100 626,100
----------- ----------- -----------
Investing activities:
Net sale (purchase) of investments 52,800 (43,700) 492,800
Principal receipts on mortgage receivable 71,100 124,900 776,100
Proceeds from sale of property held for sale 1,641,600 -- --
Proceeds from sale of property and equipment -- 263,200 900
Capital expenditures (3,855,200) (3,225,800) (2,740,700)
----------- ----------- -----------
Net cash used in investing activities (2,089,700) (2,881,400) (1,470,900)
----------- ----------- -----------
Financing activities:
Payments on long-term debt and obligation under capital
lease (1,830,900) (329,600) (760,800)
Construction draw on building under capital lease -- -- 500,100
Proceeds from issuance of long-term debt 2,600,000 2,590,000 --
Proceeds from the issuance of common stock 400 310,100 50,700
----------- ----------- -----------
Net cash provided by (used in) financing activities 769,500 2,570,500 (210,000)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (1,162,900) 1,214,200 (1,054,800)
Cash and cash equivalents -- beginning of year 1,910,200 696,000 1,750,800
----------- ----------- -----------
Cash and cash equivalents -- end of year $ 747,300 $ 1,910,200 $ 696,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 1,736,000 $ 1,634,400 $ 1,435,200
=========== =========== ===========
Cash paid during the year for income taxes $ -- $ -- $ 181,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- ---------------------------------(RYAN'S LOGO)---------------------------------
14
<PAGE> 15
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was organized under the laws of the State of Florida in September
l985 and is the sole franchisee of Ryan's Family Steak House restaurants in the
State of Florida.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Steak House Construction. All significant
intercompany transactions and balances have been eliminated.
FISCAL YEAR
The fiscal year consists of a fifty-two or fifty-three week period ending on the
Wednesday nearest to December 31. Fiscal years 1997, 1998 and 1999 consisted of
fifty-two weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company has a cash management program which provides for the investment of
excess cash balances in short-term investments. These investments are stated at
cost which approximates market value and consist of money market instruments.
INVESTMENTS AVAILABLE FOR SALE
Investments available for sale represent marketable securities and are stated at
fair market value as determined by quoted market prices.
CERTIFICATES OF DEPOSIT
Certificates of deposit are stated at cost. Certificates of deposit that are
classified as current assets have maturities of less than one year. These
investments were pledged with various entities in 1998 to support the Company's
workers' compensation liability.
- ---------------------------------(RYAN'S LOGO)---------------------------------
15
<PAGE> 16
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
INVESTMENTS HELD TO MATURITY
Investments held to maturity represent an investment of Company funds in
zero-coupon bonds by an insurance company. The bonds are held as collateral for
a $1 million bond provided by the insurance company to the State of Florida to
support the Company's self-insured workers' compensation liability.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of food items, ingredients and supplies.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance, repairs and betterments
which do not enhance the value of or increase the life of the assets are
expensed as incurred. Depreciation is provided for financial reporting purposes
principally on the straight-line method over the following estimated lives:
buildings -- 25 years, land improvements -- 25 years and equipment -- 3-8 years.
Leasehold improvements are amortized over the life of the related lease, or the
life of the asset, whichever is less.
Interest expense from the FFCA loan is capitalized to the extent that such
proceeds are used for the construction of new restaurants. Interest costs of
approximately $52,800, $52,600 and $0 were capitalized in 1999, 1998, and 1997,
respectively.
PROPERTY HELD FOR SALE
Property held for sale consists of three restaurant properties and an outparcel
stated at the lower of cost or estimated net realizable value.
OTHER ASSETS
Other assets consist primarily of deferred charges. Deferred charges and related
amortization periods are as follows: financing costs -- term of the related
loan, and initial franchise rights -- 40 years.
INCOME TAXES
Deferred income taxes are provided for temporary differences between financial
reporting basis and tax basis of the Company's assets and liabilities using
presently enacted income tax rates.
RECLASSIFICATIONS
Certain items in the prior year financial statements have been reclassified to
conform to the 1999 presentation.
- ---------------------------------(RYAN'S LOGO)---------------------------------
16
<PAGE> 17
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
NEW ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Cost of Start-up
Activities". This SOP requires that the costs of start-up activities, or
one-time activities that relate to the opening of a new facility, be expensed as
incurred instead of being capitalized. The Company incurs such costs when
opening a new restaurant and previously amortized these pre-opening costs over
the first 52 weeks of a restaurant's operations. This SOP was implemented
beginning with the first quarter of 1999. In accordance with this change,
pre-opening costs previously included under depreciation and amortization on the
Company's Consolidated Results of Operations were reclassified as other
operating expense for all applicable periods.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for the reporting and display of comprehensive income and
its components in the financial statements. The adoption of SFAS No. 130 had no
material impact on the Company's consolidated results of operations, financial
position or cash flows. Comprehensive income equals net income plus other
comprehensive income. Other comprehensive income refers to revenues, expenses,
gains and losses that are reflected in shareholder's equity but excluded from
net income.
NOTE 2. CLOSED RESTAURANT COSTS
In 1998, the Company established a reserve to close two restaurants in 1999,
resulting in a pre-tax charge to earnings of $53,000. The charge to earnings
reflected anticipated costs associated with closing the restaurants. The two
restaurants in Jacksonville, Florida were closed in January 1999. A third
restaurant was closed in Orlando, Florida in April 1999. The total book value of
these restaurants as of December 29, 1999 was approximately $2,071,300, which is
included in property held for sale. These three restaurants incurred a combined
pre-tax loss of $231,000 in fiscal year 1998.
NOTE 3. ASSET VALUATION CHARGE
In accordance with SFAS No. 121, the Company recognized an asset valuation
charge of $209,000 in 1998 and $550,000 in 1997. These charges were based upon a
financial review of all Company-owned restaurants and applied to one
underperforming unit each year. The charges were based on the difference between
each unit's net book value and estimated fair value, which equaled the estimated
proceeds from disposal as determined by management. Considerable management
judgment is necessary to estimate proceeds from disposal and, accordingly,
actual proceeds could vary significantly from such estimates. The restaurant for
which the charge was recognized in 1998 was sold in 1999. Management continues
to actively market the other restaurant, but currently cannot estimate the
expected disposal dates. No such charge was considered necessary in 1999.
NOTE 4. FRANCHISE AGREEMENT
In October 1996, the Company amended its Franchise Agreement with Ryan's Family
Steak Houses, Inc. ("Ryan's"). The amended agreement requires the Company to pay
a monthly royalty fee of 3.0% through December 2001, and 4.0% thereafter of the
gross receipts of each Ryan's Family Steak House restaurant. Total royalty fee
expenses were $1,165,300, $1,150,900, and $1,108,400 for fiscal years 1999,
1998, and 1997, respectively.
- ---------------------------------(RYAN'S LOGO)---------------------------------
17
<PAGE> 18
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
The Franchise Agreement requires the Company to operate a minimum number of
Ryan's restaurants on December 31 of each year. Failure to operate the minimum
number could result in the loss of exclusive franchise rights to the Ryan's
concept in North and Central Florida. In 1999, the Company and Ryan's amended
the number of restaurants required to be in operation as detailed below. The
Company operated 23 restaurants as of fiscal year end 1999 and was therefore in
compliance with the Franchise Agreement.
The following schedule outlines the number of Ryan's restaurants required to be
operated by the Company as of December 31 each year under the amended Franchise
Agreement:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
NUMBER OF
RESTAURANTS REQUIRED TO
END OF FISCAL YEAR BE IN OPERATION
- ----------------------------------------------------------------------------------------
<S> <C>
1999 21
2000 23
2001 and subsequent years Increases by two each year
</TABLE>
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Payroll and payroll taxes $ 589,200 $ 618,700
Workers' compensation liability 1,067,400 1,074,100
Other 707,000 719,200
---------- ----------
$2,363,600 $2,412,000
========== ==========
</TABLE>
The Company self-insures workers' compensation losses up to certain limits. The
estimated liability for workers' compensation claims represents an estimate for
the ultimate cost of uninsured losses which are unpaid as of the balance sheet
date. These estimates are continually reviewed and adjustments to the Company's
estimated claim liabilities, if any, are reflected in current operations.
NOTE 6. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Collateralized notes payable to FFCA Mortgage
Corporation,
monthly principal and interest payments totaling
$181,100
effective December 1999, interest at thirty-day
LIBOR rate +
3.75% (9.21% at December 29, 1999) $17,717,000 $16,944,800
----------- -----------
Less current portion: (381,400) (370,500)
----------- -----------
$17,335,600 $16,574,300
=========== ===========
</TABLE>
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18
<PAGE> 19
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Total maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2000 $ 381,400
2001 422,300
2002 467,400
2003 517,500
2004 572,900
Thereafter 15,355,500
-----------
$17,717,000
===========
</TABLE>
In December 1996, the Company entered into a $15.36 million Loan Agreement with
FFCA Mortgage Corporation ("FFCA"). The Loan Agreement governs fifteen
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 December 29, 1999,
the outstanding balance due under the loan was $12,625,300.
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. 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 borrowed an additional $2,590,000 in 1998. This additional
financing is evidenced by three additional Promissory Notes secured by mortgages
on three Company restaurant properties. The terms and conditions of this loan
agreement are substantially identical to those of the $15.36 million Loan
Agreement described above. As of December 29, 1999, the outstanding balance
under this loan was $2,517,200.
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, which is secured by mortgages on two restaurant properties. As of
December 29, 1999, the outstanding balance under this loan was $2,574,500.
The second commitment was for construction financing for two new restaurants to
be built in 2000. Terms of this commitment include funding of a maximum of
$1,600,000 per restaurant. Other terms and conditions of these loan agreements
are substantially identical to those of the $15.36 million Loan Agreement
described above.
NOTE 7. INCOME TAXES
The income tax benefit is comprised of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ -- $(67,600) $(201,500)
======= ======== =========
</TABLE>
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19
<PAGE> 20
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Income taxes for the years ended December 29, 1999, December 30, 1998 and
December 31, 1997 differ from the amount computed by applying the federal
statutory corporate rate to earnings before income taxes. The differences are
reconciled as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax benefit at statutory rate $(693,900) $(271,900) $(568,900)
Increase (decrease) in taxes due to:
Effect of graduated tax rates 19,800 7,800 16,300
State tax net of Federal benefit (72,000) (28,200) (59,000)
Change in deferred tax asset valuation allowance 732,400 224,500 377,900
Expiration of capital loss carryforward 14,100 -- --
Other (400) 200 32,200
--------- --------- ---------
Income tax benefit $ -- $ (67,600) $(201,500)
========= ========= =========
</TABLE>
The components of deferred taxes at December 29, 1999 and December 30, 1998 are
summarized below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 30,
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Capital loss not currently deductible $ 35,200 $ 47,500
Excess tax over book basis:
Property held for sale -- 109,300
Asset valuation reserve 207,000 285,600
Federal and state tax credits 589,400 589,400
Accruals not currently deductible 405,100 424,100
Unearned revenue, previously taxed 9,000 12,000
State net operating loss 977,800 267,700
----------- ----------
Total deferred tax assets 2,223,500 1,735,600
Valuation allowance (1,476,400) (744,200)
----------- ----------
Net deferred tax assets 747,100 991,400
----------- ----------
Deferred tax liabilities:
Excess of tax over book depreciation and amortization 735,800 991,400
Excess book over tax basis:
Property held for sale 11,300 --
----------- ----------
Total deferred tax liabilities 747,100 991,400
----------- ----------
Net deferred taxes $ -- $ --
=========== ==========
</TABLE>
At December 29, 1999 the Company's federal and state tax credit was comprised of
$49,200 in general business credits which expire in 2013 and alternative minimum
tax credits of $540,200 which have no expiration date. Additionally, at December
29, 1999, the Company has Federal net operating losses of $2,453,000, which
begin expiring in 2018 and State net operating losses of $3,965,000 which begin
expiring in 2012.
- ---------------------------------(RYAN'S LOGO)---------------------------------
20
<PAGE> 21
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
NOTE 8. COMMON SHAREHOLDERS' EQUITY
STOCK SPLIT
The Company effected a 1-for-5 reverse stock split of its common stock in March
1998, which was recorded by transferring the aggregate par value of the shares
retired from common stock to additional paid in capital. Accordingly, the
weighted average number of common and equivalent shares, per share amounts for
net earnings, and stock option and warrant data have been retroactively adjusted
to reflect the reverse stock split for all periods presented.
EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for net loss and net loss available to common
shareholders:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1999 1998
------------------------------------ -------------------------------------
INCOME SHARES PER INCOME SHARES PER
(NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Net loss available to
common shareholders $(1,982,200) 2,403,400 $(0.82) $(709,300) 2,348,000 $ (0.30)
====== =======
Effect of Dilutive
Securities:
Stock options 5,800 1,200
Warrants 5,800
DILUTED EPS:
Net loss available to
common shareholders
plus assumed
conversions $(1,982,200) 2,409,200 $(0.82) $(709,300) 2,355,000 $ (0.30)
====== =======
<CAPTION>
- ------------------------- -------------------------------------
1997
-----------------------------------
INCOME SHARES PER
(NUMERATOR) (DENOMINATOR) SHARE
- ------------------------- -------------------------------------
<S> <C> <C> <C>
BASIC EPS:
Net loss available to
common shareholders $(1,423,900) 2,206,000 $(0.65)
======
Effect of Dilutive
Securities:
Stock options
Warrants
DILUTED EPS:
Net loss available to
common shareholders
plus assumed
conversions $(1,423,900) 2,206,000 $(0.65)
======
</TABLE>
The Company has a stock option plan for non-employee directors pursuant to which
up to an aggregate of 180,000 shares of the common stock are authorized to be
granted. All options expire five years after the date of grant or one year after
completion of the term as a director.
The Company also had an employee incentive stock option plan pursuant to which
up to an aggregate of 108,000 shares of the common stock were authorized to be
granted. All options expire ten years after the date of grant or 90 days after
termination of employment. This plan expired as of November 30, 1995. Certain
options outstanding under this plan as of November 30, 1995 remain exercisable
pursuant to terms of the plan.
In 1995 the Company's shareholders approved a new employee long-term incentive
plan pursuant to which an additional 200,000 shares of common stock are
authorized to be granted in the form of stock options or restricted stock. All
options granted under this plan expire no later than ten years after the date of
grant or in most cases three months after termination of employment.
- ---------------------------------(RYAN'S LOGO)---------------------------------
21
<PAGE> 22
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
If compensation cost for stock option grants had been determined based on the
fair value at the grant dates for 1999, 1998, and 1997 consistent with the
method prescribed by SFAS No. 123, the Company's net loss and diluted loss per
share would have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1999 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss As reported $(1,982,200) $(709,300) $(1,423,900)
Pro forma (2,055,200) (735,700) (1,477,800)
Diluted loss As reported $ (.82) $ (.30) $ (.65)
per share Pro forma (.85) (.31) (.67)
</TABLE>
Under SFAS No. 123, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weight-average assumptions used for grants in 1999, 1998, and 1997 respectively:
dividend yield 0 percent each year, expected volatility of 76, 75, and 99
percent, risk-free interest rates of 6.4, 5.1 and 5.6 percent, and expected
lives of 10 years for each year.
The following table summarizes the changes in the total number of stock option
shares outstanding during the three years ended December 29, 1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at beginning of
year 190,940 $2.66 181,940 $3.08 193,840 $3.00
Options granted 102,883 1.08 42,478 .77 34,852 2.64
Options exercised (37,383) .01 (14,028) .37 (32,052) 1.58
Options forfeited (27,000) 3.55 (19,450) 4.20 (14,700) 4.23
-------- -------- --------
Options outstanding
at end of year 229,440 1.77 190,940 2.66 181,940 3.08
======== ======== ========
Options exercisable
at end of year 188,940 2.41 123,830 2.65 103,670 3.20
======== ======== ========
Weighted average fair
value of options
granted during the
year $ 72,800 $ 26,400 $ 41,800
Common shares
reserved for future
grants at end of
year 68,289 -- 98,289 -- 125,689 --
</TABLE>
- ---------------------------------(RYAN'S LOGO)---------------------------------
22
<PAGE> 23
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
The following table summarizes information about fixed stock options outstanding
at December 29, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR EXERCISE OPTIONS OPTIONS WEIGHTED AVERAGE
GRANTED PRICE OUTSTANDING EXERCISABLE REMAINING LIFE (IN YEARS)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991 $4.06 9,400 9,400 1.3
1992 5.63 2,800 2,800 2.1
1993 3.13 4,600 4,600 3.3
1994 1.25 11,500 11,500 5.0
1995 3.75 22,140 22,140 5.7
1995 2.00 47,500 47,500 5.7
1996 2.81 16,200 16,200 7.0
1997 3.28 21,600 21,600 8.0
1998 1.00 28,200 28,200 8.9
1999 2.00 25,000 25,000 9.8
1999 1.50 40,500 -- 9.9
------- -------
229,440 188,940
======= =======
</TABLE>
Remaining non-exercisable options as December 29, 1999 become exercisable as
follows:
<TABLE>
<S> <C>
2000 10,125
2001 10,125
2002 10,125
2003 10,125
------
40,500
======
</TABLE>
Cerberus Partners, L.P., holds detachable warrants to purchase 140,000 shares of
the Company's common stock at $2.00 per share at any time prior to October 1,
2003.
The Company's Board of Directors is authorized to set the various rights and
preferences for the Company's Preferred Stock, including voting, conversion,
dividend and liquidation rights and preferences, at the time shares of Preferred
Stock are issued. As of December 29, 1999 there were no shares of Preferred
Stock issued.
RIGHTS PLAN
On March 18, 1997, the Company entered into a Rights Agreement (the "Rights
Agreement") with ChaseMellon Shareholder Services, LLC and declared a dividend
of rights to purchase Junior Participating Preferred Stock of the Company
("Rights") to shareholders of record as of March 19, 1997.
In accordance with the Agreement, in August 1999 the Company's newly elected
Board of Directors redeemed the Rights. Shareholders were paid $.001 per share,
resulting in a total redemption cost of approximately $12,000 to the Company.
- ---------------------------------(RYAN'S LOGO)---------------------------------
23
<PAGE> 24
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
NOTE 9. PROFIT SHARING AND RETIREMENT PLAN
Employees of the Company participate in a profit sharing and retirement plan
covering substantially all full-time employees at least twenty-one years of age
and with more than one year of service. The plan was established in August 1991.
Contributions are made to the plan at the discretion of the Company's Board of
Directors. No profit-sharing contributions have been made since the inception of
the plan.
The profit sharing plan includes a 40l(k) feature by which employees can
contribute, by payroll deduction only, l% to l5% of their annual compensation
not to exceed $10,000 in 1999.
The plan provides for a Company matching contribution of $.25 per dollar of the
first 6% of employee contributions. The Company's matching contribution was
$37,100 in 1999, $30,900 in 1998 and $29,211 in 1997. Employees vest in Company
contributions based on the following schedule:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YEARS OF VESTING
SERVICE PERCENTAGE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 l00%
</TABLE>
NOTE 10. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
At December 29, 1999, the Company is committed under the terms and conditions of
real and personal property operating leases for minimum rentals aggregating
$3,203,900 plus insurance, common area expenses and taxes. The Company has
various renewal options on these leases covering periods of five to twenty
years.
In September 1996, the Company entered into a twenty-year lease agreement with
two five-year renewal options for a restaurant building. The total net book
value of the assets covered by the lease amount to $979,600 at December 29,
1999. Interest is computed at an annual rate of 10.65%.
- ---------------------------------(RYAN'S LOGO)---------------------------------
24
<PAGE> 25
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Future minimum lease obligations under the noncancelable capital lease and
operating leases consist of the following as of December 29, 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CAPITAL OPERATING
LEASE LEASES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 $ 115,400 $ 355,200
2001 115,400 305,700
2002 129,300 299,300
2003 129,300 256,600
2004 129,300 256,200
Future years 1,792,700 1,730,900
----------- ----------
Total minimum lease payments 2,411,400 $3,203,900
==========
Amounts representing interest (1,358,700)
-----------
Present value of net minimum payments 1,052,700
Current portion (3,400)
-----------
Long-term capitalized lease
obligations $ 1,049,300
===========
</TABLE>
Rental expense for operating leases for the years ended December 29, 1999,
December 30, 1998, and December 31, 1997, was $531,400, $490,000, and $477,700
respectively.
The Company's lease on its restaurant in Clearwater, Florida expired in
September 1999, and the Company's restaurant there is currently operating on a
month-to-month rental. Due to a prior ruling by the Sixth Judicial Court in
Pinellas County, the Company did not have any renewal options on the lease. In
February 2000, the mall where the restaurant is located was sold to a new owner.
The new owner has offered the Company a new five-year lease agreement, but with
substantially higher monthly rent than is currently being paid. The Company is
currently negotiating a short-term lease (twelve to eighteen months), and
believes that such an agreement will be executed in the near future. Should no
agreement be reached, the owner could evict the Company with 30 days notice, and
the Company would be required to write-off approximately $260,000 of leasehold
improvements.
LEGAL MATTERS
The Company, in the normal course of business, is subjected to claims and
litigation with respect to store operations. In the opinion of management, based
on the advice of legal counsel the ultimate disposition of these claims and
litigation will not have a material effect on the financial position or results
of operations of the Company.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents -- For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
- ---------------------------------(RYAN'S LOGO)---------------------------------
25
<PAGE> 26
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
Investments Available for Sale -- The Company's investments available for sale
consist of marketable securities which are valued at the quoted market price.
Certificates of Deposit -- The Company believes that the carrying amount is a
reasonable estimate of the fair value of the certificates of deposit.
Investments Held to Maturity -- The Company's investments held to maturity
represent zero-coupon bonds for which the carrying amount is believed to be a
reasonable estimate of fair value.
Mortgage Receivable -- The fair value of the mortgage receivable is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. The Company believes the carrying amount is a reasonable
estimate of fair value.
Debt -- Interest rates that are currently available to the Company for issuance
of debt with similar terms and remaining maturities are used to estimate fair
value for debt instruments. The Company believes the carrying amount is a
reasonable estimate of such fair value.
NOTE 12. SUBSEQUENT EVENT (UNAUDITED)
In February 2000, the Company sold a restaurant located in Jacksonville,
Florida. The proceeds of the sale were used to pay off long-term debt. The sale
resulted in a gain of approximately $50,000. After the sale, the Company
operates 22 restaurants in Florida.
- ---------------------------------(RYAN'S LOGO)---------------------------------
26
<PAGE> 27
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
FAMILY STEAK HOUSES OF FLORIDA, INC.
We have audited the accompanying consolidated balance sheets of Family
Steak Houses of Florida, Inc. and subsidiary as of December 29, 1999 and
December 30, 1998 and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 29, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Family Steak Houses of Florida,
Inc. and subsidiary as of December 29, 1999 and December 30, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 29, 1999 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Jacksonville, Florida
February 18, 2000
- ---------------------------------(RYAN'S LOGO)---------------------------------
27
<PAGE> 28
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
COMPANY'S REPORT ON FINANCIAL STATEMENTS
Family Steak Houses of Florida, Inc. has prepared and is responsible for
the accompanying consolidated financial statements and related consolidated
financial information included in this report. These consolidated financial
statements were prepared in accordance with generally accepted accounting
principles and are appropriate under the circumstances. These consolidated
financial statements necessarily include amounts determined using management's
best judgements and estimates.
Family Steak Houses of Florida, Inc. maintains accounting and other
control systems which the Company believes provide reasonable assurance that
assets are safeguarded and that the books and records reflect the authorized
transactions of the Company, although there are inherent limitations in all
internal control structure elements, as well as cost/benefit considerations.
- ---------------------------------(RYAN'S LOGO)---------------------------------
28
<PAGE> 29
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
CORPORATE LISTING
CORPORATE OFFICERS AND DIRECTORS
Edward B. Alexander
Executive Vice President
Glen F. Ceiley
Chairman of the Board
President & CEO, Bisco Industries, Inc.
Steve Catanzaro
Director
CFO, Bisco Industries, Inc.
Jay Conzen
Director
Principal, Jay Conzen Investments
William Means
Director
Vice President of Corporate Development
Bisco Industries, Inc.
Kevin R. Pickett
Vice President
ANNUAL MEETING
The annual meeting will be held at:
Sea Turtle Inn
One Ocean Boulevard
Atlantic Beach, FL 32233
June 13, 2000 -- 10:00 a.m.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Suite 2801, Independent Square
One Independent Drive
Jacksonville, FL 32202-5034
GENERAL COUNSEL
McGuire, Woods, Battle & Boothe LLP
3300 Barnett Center
50 North Laura Street
P.O. Box 4099
Jacksonville, FL 32201
TRANSFER AGENT
Chase Mellon Shareholder Services
Four Station Square
Third Floor
Pittsburgh, PA 15219-1173
EXECUTIVE OFFICE
Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, Florida 32266
FORM 10-K
A copy of the Company's Annual Report on
Form 10-K for fiscal 1999, as filed with the
Securities and Exchange Commission, may
be obtained by writing to:
Corporate Secretary
Family Steak Houses of Florida, Inc.
2113 Florida Boulevard
Neptune Beach, FL 32266
- ---------------------------------(RYAN'S LOGO)---------------------------------
29
<PAGE> 30
FAMILY STEAK HOUSES OF FLORIDA, INC.
- --------------------------------------------------------------------------------
COMMON STOCK DATA
The Company's common stock is traded on the NASDAQ SmallCap Market System under
the trading symbol "RYFL". As of February 22, 2000, there were 2,387
shareholders of record, not including individuals holding shares in street
names. The closing sale price for the Company's stock on February 22, 2000 was
$1.09.
The Company has never paid cash dividends on its common stock and does not
expect to pay any dividends in the next few years. Management of the Company
presently intends to retain all available funds for expansion of the business.
The quarterly high and low closing prices (as adjusted for the reverse stock
split) of the Company's common stock are as shown below:
MARKET PRICE OF COMMON STOCK
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
QUARTER HIGH LOW HIGH LOW
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 1 1/2 13/16 3 3/4 1 3/4
Second 1 7/32 23/32 3 1/2 1 11/16
Third 1 7/8 25/32 2 7/16 1 1/4
Fourth 1 9/16 1 1 1/2 11/16
</TABLE>
Pursuant to a Standstill and Settlement Agreement with Bisco Industries, Inc.
("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 under the exemption granted under Rule 506 of Regulation D since
the sale was made to only one purchaser who qualified as an accredited investor.
- ---------------------------------(RYAN'S LOGO)---------------------------------
30
<PAGE> 1
EXHIBIT 21.01
LIST OF SUBSIDIARIES
Steak House Construction Corporation, a Florida corporation.
<PAGE> 1
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Annual Report of Family
Steak Houses of Florida, Inc. on Form 10-K of our report dated February 18,
2000, appearing in the 1999 Annual Report to Shareholders of Family Steak
Houses of Florida, Inc.
We additionally consent to the incorporation by reference in Registration
Statement No. 33-11684 pertaining to the 1986 Employee Incentive Stock Option
Plan of Family Steak Houses of Florida, Inc. on Form S-8 of our report dated
February 18, 2000 appearing in and incorporated by reference in this Annual
Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year ended
December 29, 1999.
We further consent to the incorporation by reference in Registration Statement
No. 33-12556 pertaining to the 1986 Stock Option Plan for Non-Employee
Directors of Family Steak Houses of Florida, Inc. on Form S-8 of our report
dated February 18, 2000 appearing in and incorporated by reference in this
Annual Report on Form 10-K of Family Steak Houses of Florida, Inc. for the year
ended December 29, 1999.
We further consent to the incorporation by reference in Registration Statement
No. 33-62101 pertaining to the 1995 Long Term Incentive Plan of Family Steak
Houses of Florida, Inc. on Form S-8 of our report dated February 18, 2000
appearing in and incorporated by reference in this Annual Report on Form 10-K
of Family Steak Houses of Florida, Inc. for the year ended December 29, 1999.
Deloitte & Touche LLP
Certified Public Accountants
Jacksonville, Florida
March 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FAMILY STEAK HOUSES OF FLORIDA FOR THE TWELVE
MONTHS ENDED DECEMBER 29, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> DEC-29-1999
<EXCHANGE-RATE> 1
<CASH> 747,300
<SECURITIES> 92,300
<RECEIVABLES> 125,000
<ALLOWANCES> 0
<INVENTORY> 285,400
<CURRENT-ASSETS> 1,532,600
<PP&E> 40,601,400
<DEPRECIATION> 15,340,500
<TOTAL-ASSETS> 30,759,200
<CURRENT-LIABILITIES> 4,023,700
<BONDS> 17,335,600
0
0
<COMMON> 24,100
<OTHER-SE> 8,311,300
<TOTAL-LIABILITY-AND-EQUITY> 30,759,200
<SALES> 38,904,800
<TOTAL-REVENUES> 38,904,800
<CGS> 15,161,100
<TOTAL-COSTS> 39,541,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,720,700
<INCOME-PRETAX> (1,982,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,982,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,982,200)
<EPS-BASIC> (.82)
<EPS-DILUTED> (.82)
</TABLE>
