<PAGE>
STACEY'S
BUFFET
1995 ANNUAL REPORT
<PAGE>
ABOUT THE COMPANY
Stacey's Buffet, Inc., at the end of the 1995 fiscal year,
owned and operated 27 buffet restaurants under the name
"Stacey's Buffet and one under the name "Homestyle Family
Buffet." In addition, we have nine stores that operate under
license agreements. There are 29 restaurants in Florida and
the remaining eight restaurants are located throughout
Maryland, New York, New Jersey and Pennsylvania.
The theme of our restaurants is "Stacey's Buffet . . . a nice
place to eat." We are striving to carry out that theme in our
existing stores and in new locations.
Our restaurants feature a wide variety of menu items that are
presented in the modern scatter bar format. We offer plenty
of delicious foods at one low price all in a clean and friendly
atmosphere. This is the key to our company's success.
Stacey's Buffet knows how many choices people have when
it comes to eating out. That is why we want to make a good
first impression. Our guests first encounter a warm
welcome from our cashiers who are friendly and
informative. Guests are then introduced to our value pricing
including special values for children and senior citizens.
Our guests make their own seat selection with hostess
assistance as needed.
Guests proceed to the food bars of their choice. These bars
include a garden fresh salad bar with many choices and
toppings to build your own salad just the way you like it.
These bars also offer hearty vegetables and cream soups,
plus pizza.
Hot food bars serve baked and fried chicken and fish, along
with other entrees. Casseroles, baked dishes and special
offerings change daily. Hot, fresh-baked breads are
distributed over these bars. They include banana nut bread,
dinner rolls, corn muffins and our special recipe cinnamon
rolls. Guests can choose from a number of meat entrees,
plus two carved items at dinner. There's always a mouth
watering selection of hot vegetables to complete the meal.
Guests then have access to a beverage bar which offers milk,
coffee, tea and popular soft drinks.
To top off the dining experience, a separate dessert bar is
offered. This bar features many favorites including bread
pudding, our delicious Texas tornado cake, homemade
cobblers, cakes, pies and hand-dipped or soft serve ice
cream.
All restaurants are currently open seven days a week
(closing only on Christmas Day in most locations) and hours
vary slightly by season and region.
The variety and quality of food combined with excellent
prices makes Stacey's Buffet a superb restaurant value.
<PAGE>
RESTAURANT LOCATIONS
--------------------
CORPORATE RESTAURANTS
NEW YORK
New Hartford
PENNSYLVANIA
Allentown
Lancaster
* Philadelphia
NEW JERSEY
Moorestown
Brick
* Clementon
MARYLAND
Essex
FLORIDA
Jacksonville
Altamonte Springs
Orlando
Winter Park
Lakeland
Seffner
Port Riche (Homestyle Buffet)
Holiday
Clearwater
Largo
Pinellas Park
St. Petersburg
Ft. Myers
North Ft. Myers
Melbourne
Stuart
Ft. Lauderdale
Sunrise
West Palm Beach
Pt. Charlotte
Mt. Dora
* Closed in 1996
LICENSEE RESTAURANTS
FLORIDA
Ormond Beach
Orange City
# Ocala
Kissimmee
Ruskin
Daytona Beach
Port Richey
Tampa
# Bradenton
# Closed in 1996
<PAGE>
TO OUR SHAREHOLDERS:
During 1995 we undertook the challenge of
"reinventing" Stacey's Buffet, Inc. In February of
1995, I joined Stacey's Buffet Inc. in the capacity of
Vice Chairman and Chief Executive Officer with a
goal to save a company which was financially and
operationally deteriorating. Many of the problems
that existed had been lingering for several years.
Immediately we moved to stop the tremendous losses
being generated by several underperforming
Northeast stores. Our actions included:
CLOSING UNPROFITABLE STORES: We closed 13 units
that had combined yearly losses in 1994 of
approximately $2,600,000.
OVERHEAD REDUCTION: During 1995 we reduced
corporate overhead by $604,000 or 18.2%.
LANDLORD DISCUSSIONS: We continue to negotiate
with several of our landlords in an effort to bring
occupancy costs down. To date we have
obtained several rent reductions and are close to
receiving several more. These reductions are
essential and clearly in the best interest of both
Stacey's and the landlords.
Additional steps taken to improve profitability
included:
BOARD OF DIRECTORS: Developing a high caliber,
independent thinking Board of Directors. Your
present Board plays an active role in the
company.
OPERATIONS: Created a Strategic Planning Committee
comprised of several veteran members of our
leadership team. The goal of this committee is
to pull apart and examine each and every facet of
the company in an effort toward improving
efficiency and, therefore, profitability. As a
result, food and labor costs were reduced by
4.5%.
PRESIDENT'S CLUB: In order to provide further
incentive to our General Managers, the
President's Club was created to reward General
Managers for increasing restaurant guest counts
while maintaining an efficient level of food and
labor costs.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
For the entire year, Stacey's Buffet, Inc. recorded a
net loss of $8,109,179 on revenues of $48,826,000.
This loss included a charge of $1,750,000 to the
reserve for store closings and a charge of $4,475,000
to implement the new required Financial Accounting
Standard No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be
Disposed Of."
We believe that recognizing these special charges will
assist the company in addressing its financial
problems and to taking the necessary steps to return
the company to profitability. Some of these steps
include:
MORE EFFECTIVE MARKETING AND PROMOTION: We will
be introducing our "Feel Good Food" campaign
which speaks to a large segment of our
population that wishes to eat food items that are
lower in fat and calories.
COMBAT SEASONALITY: In an effort to boost store sales
in the South and combat the seasonality of our business,
we are targeting our promotional
activities toward families and year round
residents.
OPEN MORE SOUTHERN LOCATIONS: We recently
opened a new store in Mt. Dora, Florida, which
has achieved sales volumes above our
expectations.
FRANCHISING: We are actively considering the
implementation of a Franchise Development
Program.
In closing I wish to thank our dedicated team of
employees, our customers and shareholders, all of
whom have shown tremendous patience and loyalty to
Stacey's Buffet, Inc.
/s/ Stephen J. Marrier
Stephen J. Marrier
Chairman of the Board
<PAGE>
THIS DOCUMENT IS BEING SUBMITTED PURSUANT TO
A RULE 901(D) OF REGUULATION S-T
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended JANUARY 3, 1996
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934For the transition period from __________to ___________
Commission File Number 000-16791
STACEY'S BUFFET, INC.
(Exact Name of Registrant as specified in its Charter)
FLORIDA 59-2736736
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 WEST BAY DRIVE, SUITE #704, LARGO, FL 34640
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 581-4492
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each Exchange on
Title of each class which Registered
------------------- ----------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NASDAQ -- NMS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods 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 / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing sale price of the registrants'common
stock on the National Market System of the NASDAQ Stock Market, as of March
28, 1996 was approximately $7,699,806.
The number of shares outstanding of registrant's common stock as of March
28, 1996 is 12,466,089 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for Annual Meeting of
stockholders to be held on June 21, 1996 are incorporated by reference into
Part III of this Annual Report.
<PAGE>
PART I
BUSINESS
- --------
The Company was originally incorporated under Florida law in August, 1986
to develop and operate a chain of buffet restaurants under the name
Homestyle Buffet, Inc. In December, 1993, the Company merged with a rival
private buffet chain called "Stacey's Buffet," which was owned by the
Stacey Lynn Group ("S-L Group"). S-L Group operated eleven buffet
restaurants and licensed eight buffet restaurants, all under the name
"Stacey's Buffet". S-L Group merged into Homestyle Buffet, Inc., which
changed its name to "Stacey's Buffet, Inc." The senior management of S-L
Group assumed control of the day-to-day operations of the Company.
The Company's restaurants, operating under the name Stacey's Buffet and
Homestyle Family Buffet, offer a broad selection of American and ethnic
menu items as complete meals in a self-service, fixed-price buffet format.
The Company is one of the largest chains of buffet-style restaurants in the
southeastern United States. At January 3, 1996, there were nineteen
company owned Stacey's Buffets located in Florida, one Homestyle Buffet
located in Florida, and eight Stacey's Buffets located in the Northeastern
states of New York, Pennsylvania, New Jersey, and Maryland. Additionally,
there were nine licensed Stacey's Buffets located in Florida.
STACEY'S BUFFET RESTAURANT CONCEPT
The Company's restaurants feature a wide variety of menu items presented in
the buffet format, providing complete meals for lunch and dinner. Lunches
are currently priced at $4.77 to $5.25 and dinners from $5.90 to $7.25
depending upon the restaurant's market area and day of the week. In
addition, the Company has special pricing for children ages 12 and under.
Children ages 3 and under eat free. Seniors may join the Company's 60 Plus
Club which gives them a discount on meals throughout the year. All of the
Company's restaurants are open every day of the year, except Christmas Day.
The style and decor of the restaurants is designed to provide a casual but
quiet and distinctive atmosphere. The Company intends its restaurants to
be particularly attractive to families and seniors. The Company actively
pursues a strategy of keeping prices as low as possible while relying on
volume to keep costs per customer low.
Stacey's Buffet restaurants generally offer more than 100 menu items
including a garden fresh 40 item salad bar, home style soups, pizza, hand-
carved roast beef, turkey or ham, a variety of hot vegetables, numerous
casseroles, baked dishes, warm fresh baked breads and an extensive
selection of desserts and beverages. Management believes that greater menu
selection attracts more customers and provides higher sales volumes for the
Company.
Most Stacey's Buffet restaurants present their menu items in a "scatter
bar" format. Guests proceed to the food bars of their choice. These bars
include a fresh salad bar with many choices and toppings. Other bars also
offer hearty vegetables, cream soups, and pizza.
<PAGE>
Hot food bars serve baked and fried chicken and fish, along with other
entrees. Casseroles, baked dishes and special offerings change daily.
Hot, fresh baked breads are distributed on the bars. They include banana
nut bread, dinner rolls, corn muffins and cinnamon rolls. Guests can
choose from a number of hot meat entrees, plus two carved items at dinner.
A beverage bar offers milk, coffee, tea and popular soft drinks. No
alcoholic beverages are served. Additionally, a separate dessert bar is
offered. This bar features bread pudding, homemade cobblers, cakes, pies,
and hand-dipped or soft serve ice cream.
In general, management believes that the "scatter bar" format is a
preferable buffet format because the approach offers customers the choice
of which food bar to go to first and greater menu item selection. The
scatter bar format also allows customers to sit down before selecting their
menu items. Furthermore, by allowing customers to select a specific item
or items to be eaten next rather than going through the "line" before
eating anything and selecting numerous items, customers are less likely to
take more food than they can eat. Management also believes that customers
prefer the less institutional feel and choices offered by the "scatter bar"
food presentation.
RESTAURANT OPERATIONS AND CONTROLS
The Company ensures food freshness by continuous food preparation. The
Company employs a quality assurance system designed to maintain the
Company's high standards of quality, service and cleanliness. The Company
utilizes established standards and controls to focus on the principal
aspects of restaurant operations and customer satisfaction, including
standards for ingredients and recipes, prepared food quality and
presentation, the appearance and maintenance of premises, and employee
appearance and conduct. Restaurant managers are responsible for adherence
to these standards.
Ingredient specifications, recipes and preparation procedures for the
Company restaurants are developed and monitored by headquarters personnel.
New items will be added to the menu from time to time as either specials or
regular menu items, after in-store evaluation by customers.
A typical restaurant is approximately 10,000 square feet in size,
accommodating approximately 300 customers, including a banquet room for
groups. Decor tends to be traditional with carpeted dining rooms and
upholstered chairs and booths. Most seating is at loose tables and chairs
which allow greater flexibility in seating large parties.
With the exception of Christmas Day, all Stacey's Buffet restaurants are
currently open seven days a week, serving lunch from 11:00 a.m. to 4:00
p.m. and dinner from 4:00 p.m. to 8:00 or 9:00 p.m., Monday through
Saturday, and dinner is served all day on Sunday from 11:00 a.m. to 8:00
p.m.
The operation of the Company's restaurants requires a general manager, two
assistant managers and approximately 50 other employees, including part-
time employees. Each general manager reports directly to the headquarters
office. In addition to maintaining quality and service standards, general
managers are responsible for employee relations, labor scheduling,
determining the quantity of food and supplies needed and ordering those
items from approved vendors, adherence to cost controls, and restaurant
profitability. General managers and assistant managers are eligible for
cash bonus awards if they meet or exceed certain performance standards.
<PAGE>
A number of the Company's managers have had prior buffet or other
restaurant experience. The Company operates in-restaurant training
programs to instruct all managers in its policies and procedures and to
prepare managers for new restaurant openings. The Company's President and
other headquarters personnel personally oversee each opening of a new
restaurant, including training, food preparation and service operation.
The Company's food and beverage ingredients and restaurant supplies are
purchased from independent suppliers approved by headquarters personnel who
negotiate quality specifications, delivery commitments, pricing and payment
terms directly with the suppliers. Management of the Company spends
considerable time and effort maintaining and improving its purchasing
relationships, which it believes has contributed significantly to Stacey's
Buffet's ability to operate in the competitive buffet restaurant market.
The Company attempts to obtain the most favorable prices through volume
discounts. Management anticipates that because of the varied menu offering
at a Stacey's Buffet, it will be able to maintain flexibility in setting
menus and determining daily specials based upon market opportunities. To
date, Stacey's Buffet has not experienced difficulty in obtaining adequate
supplies of food products meeting its quality standards at acceptable
prices.
MARKET PENETRATION
The Company's primary objective is to strengthen and maximize the benefits
of its strong market presence in Florida. From time to time, management
may open additional restaurants on an opportunistic basis where it believes
that there is substantial opportunity for success. In the past, the
Company has frequently opened new locations by leasing space previously
used as a restaurant or for a similar use, often buying the restaurant
equipment from the prior operator, and converting to the Stacey's Buffet
format. The historical cost of converting a restaurant site to a Stacey's
Buffet has been approximately $150,000.
Management believes that the Company's restaurants are typically frequented
by regular customers who have made a predetermined decision to dine at a
particular Stacey's restaurant rather than customers who make an impulsive
decision after first deciding to dine out. Stacey's has generally been
able to take advantage of this fact by locating its restaurants in
convenient and visible, but not the most expensive, sites.
To the extent that the Company chooses to open additional restaurants,
management intends to focus expansion in existing and contiguous markets,
thereby obtaining the benefit of existing name recognition, greater
advertising efficiency and more management control.
COMPETITION
The restaurant business is highly competitive with respect to location,
food types, quality, prices, service and decor. The business is affected
by changes in eating habits of the public, and by changes in local,
regional or national economic conditions, demographic trends and by factors
affecting consumers' disposable income. The Company not only competes with
other buffet restaurants but also with a variety of other types of
restaurants. A significant number of competitors are larger restaurant
chains with longer operating histories, greater name recognition and
greater financial resources.
<PAGE>
The Company's restaurants offer a wide variety of foods and beverages with
no extra charge for additional helpings, in a complete meal format. The
decor is informal and attractive for leisurely dining. The moderate prices
are designed to attract a wide range of value conscious customers and the
Company's restaurant standards and controls are intended to ensure that
each diner enjoys quality food in a pleasant atmosphere.
The Company is aware that other buffet restaurants utilize a concept
similar to Stacey's Buffet restaurants.
ADVERTISING AND PROMOTION
The Company budgets 1/2% of sales for advertising and promotion.
Advertising is concentrated within a 5 to 10 mile radius of the restaurant,
with emphasis on billboards in strategic areas and print media. The
Company targets families as well as the senior market. The Company also
relies upon word-of-mouth exposure to generate customer traffic.
Each general manager of a Company restaurant is given a nominal advertising
budget which will be used to promote local community advertising. All
advertising must be approved by headquarters personnel.
REGULATION
The Company's restaurants must be built to comply with local and state
building and zoning code requirements. The Company must operate its
restaurants in accordance with local, state and federal regulations
concerning food preparation and service. The Company is also subject to
state and federal labor laws that govern its relationships with its
employees, such as minimum wage requirements, overtime, working conditions
and citizenship requirements.
EMPLOYEES
Currently, the Company employs 1,370 persons of which 18 are corporate
supervisory and administrative personnel, 87 are restaurant managers or
management trainees, and 1,265 are non-management restaurant employees.
Approximately 40% of non-management restaurant employees work part-time.
None of the Company's employees are covered by a collective bargaining
agreement. The Company has not experienced difficulty in hiring qualified
employees at competitive wages. Relations with employees have been
satisfactory and the Company believes its working conditions and
compensation package compare favorably with its competition.
LICENSED RESTAURANTS
The Company has entered into license agreements covering certain
restaurants which operate under the name "Stacey's Buffet." One licensee,
Buffet Management, Inc., currently operates two restaurants located in
Kissimmee and Ruskin, Florida. A second licensee is currently operating a
Stacey's Buffet in Ormond Beach, Orange City and South Daytona, Florida.
These three restaurants are owned and operated by separate companies, each
of which is owned 50% by Mr. Homer Duff, who was formerly the Chairman of
the Board of Stacey's Buffet, Inc.
<PAGE>
The Company and Mr. Duff entered into a spin-off agreement in 1995 which
transferred ownership of three restaurants to Mr. Duff in exchange for
2,000,000 shares of the Company's common stock. As part of the spin-off
agreement, the company that owns these restaurants entered into a license
agreement covering the Tampa, Port Richey and Winter Haven, Florida
locations (the "Spun-Off Stores"). Currently two of these locations are
being operated as Stacey's Buffet restaurants, but all are subject to
royalty payments.
Finally, an entity owned by Mr. Duff operates one additional Stacey's
Buffet restaurant, located in Chattanooga, Tennessee, under a license
agreement.
Each licensee pays a royalty equal to 2% of licensee gross sales, subject
to certain maximum amounts, with payments made on a monthly basis, except
that the Spun--Off Stores were not required to pay royalties until January
13, 1996. Additionally, the Chattanooga restaurant is not required to pay
a royalty.
Pursuant to each license agreement, the Company has control over quality
and other aspects of the licensed services as well as the use of the mark,
advertising and any and all matters related to the licensed services and
the mark. The Company has the right of inspection of the licensed
locations and has absolute discretion over the assignment or other transfer
of the license to a third party.
Except with respect to monitoring and overseeing the operations of the
licensed restaurants pursuant to the terms of the license agreements,
management of the Company has no substantive role in the day-to-day
operations and management of the licensed restaurants.
PROPERTIES
The Company's executive office is located in approximately 3,900 square
feet of leased space at 801 West Bay Drive, Suite #704, Largo, Florida.
Most of the Company's current restaurants are located in leased premises in
shopping centers. The current restaurants range in size from
approximately 7,200 to 11,600 square feet. Buffet operations typically
require approximately 10,000 square feet in order to provide adequate
kitchen facilities, and ample room to comfortably accommodate 300 guest at
a sitting. At this size, the Company's restaurants normally experience
peak periods on weekends and at special events. During slower parts of the
week, banquet rooms can be closed to create a smaller, more efficient
dining area. Accordingly, the Company believes that the existing
facilities are appropriate and adequate to the needs of a buffet operation.
Minimum annual rents for the Company's existing restaurants range from
approximately $60,000 to $184,000. In addition, most of the Company's
leases contain clauses requiring the Company to pay rent calculated as a
percentage of restaurant sales generally 3% to 5% above certain annual
sales levels, typically $1,800,000 or more. The Company also pays
operating expenses for the leased space and a portion of common area
maintenance costs. The initial terms of such leases range from five to ten
years, and usually contain renewal options of from five to ten years.
<PAGE>
Leasehold improvements made by the Company usually become the property of
the landlord upon expiration or termination of the lease. To date, nearly
all of the Company's landlords have agreed to bear a portion of the cost of
leasehold improvements. The Company owns substantially all of the
equipment, furniture and fixtures in its restaurants.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth fiscal quarter of the Company's fiscal year ended
January 3,1996.
PART II
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the National Association of
Securities Dealers Automated Quotations (NASDAQ) National Market System
under the symbol "SBUF". Prior to the merger on December 13, 1993, the
symbol for the Company was "HBUF". The table below represents the
quarterly high and low closings prices for the Company's common stock as
reported through December 31, 1995. The prices listed in this table
reflect quotations without adjustment for retail mark-ups, mark-downs or
commissions. The Company has not paid any cash dividends since
inception, and intends to retain earnings , if any, in the foreseeable
future for use in Company expansion. The approximate number of
registered holders of record of the Company's common stock at March 28,
1996 was 751.
Calendar 1995 Calendar 1994
- ------------ -------------
First Quarter $ 1 5/16 $21/32 First Quarter $ 4 1/4 $2 15/16
Second Quarter 1 3/4 3/4 Second Quarter 3 1/4 2
Third Quarter 1 5/16 3/4 Third Quarter 2 1/4 1 9/16
Fourth Quarter 15/16 3/8 Fourth Quarter 2 1/8 1
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
- -----------------------
Fiscal Year Ended*
<CAPTION>
JANUARY 3, December 28, December 29, December 30, January 1,
1996 1994 1993 1992 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Restaurant sales $ 48,826,319 $ 54,259,025 $ 35,261,577 $ 48,933,492 $ 49,446,621
Restaurant costs 47,887,806 54,229,714 35,239,036 48,768,782 46,621,167
---------- ---------- ---------- ----------- ----------
Restaurant profit 938,513 29,311 22,541 164,710 2,825,454
Selling, general and
administrative expenses 2,720,391 3,324,020 2,539,506 3,633,856 3,992,439
Amortization of goodwill 531,653 580,642 23,992 - -
Provision for restaurant
renovations & closings 1,750,000 2,191,881 6,025,169 6,549,325 389,444
Impairment of long-lived assets 4,475,000 - - - -
Other income / (expense) 429,352 256,292 308,784 (197,501) 167,907
----------- ----------- ----------- ------------ ----------
(Loss) before income taxes (8,109,179) (5,810,940) (8,257,342) (10,215,972) 1,388,522)
Income tax (benefit) - - - (456,000) (533,000)
----------- ----------- ----------- ----------- ----------
Net (loss) $ (8,109,179) $ (5,810,940) $ (8,257,342) $ (9,759,972) $ (855,522)
=========== =========== =========== =========== ==========
Net earnings /(loss) per share $(0.60) $(0.40) $(1.29) $(1.64) $(0.14)
Weighted average common and ======= ======= ======= ======= =======
common equivalent shares
outstanding 13,522,693 14,400,640 6,418,683 5,941,979 5,906,005
========== ========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
January 3, December 28, December 29, December 30, January 1,
1996 1994 1993 1992 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ (6,059,799) $(13,574,721) $ (8,234,702) $ (10,005,990) $ (6,147,149)
Total assets 18,461,622 36,897,757 43,561,902 28,055,441 32,970,743
Long-term debt 11,694 156,984 518,571 684,902 855,455
Stockholders'equity $ 10,505,627 $ 21,114,806 $ 26,904,947 $ 15,286,104 $ 25,041,588
RESTAURANT DATA:
Number of Company-owned
restaurants open at the
end of the fiscal year 28 43 41 34 33
</TABLE>
* Certain amounts as of December 28, 1994, December 29, 1993, December
30, 1992 and January 1, 1992 have been reclassified to conform to the January
3, 1996 presentation.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
At the end of fiscal year 1995, the Company owned and operated twenty-eight
restaurants (two were included in the reserve for store closings).
Additionally, there were nine licensed restaurants operating as "Stacey's
Buffet", which are not owned by the Company and not included in this
analysis, except for the royalty income fees included in other income.
There were thirteen restaurants in the Northeast closed during fiscal 1995;
one new restaurant was opened in Florida and three restaurants in Florida
were spun-off.
At the end of fiscal year 1994, the Company owned and operated forty-three
restaurants (six were included in the reserve for closed stores). Of the
forty-three restaurants, eleven were acquired in the December, 1993 merger
with the Stacey Lynn Group. In addition, there were nine licensed
restaurants operating as "Stacey's Buffet." There were two restaurants
closed during fiscal 1994; three new restaurants were opened and one
previously closed restaurant was reopened during the year. In fiscal 1993,
the Company closed four restaurants. In fiscal 1994 and prior years,
operating results for reserved stores were charged against the provision
for restaurant renovations and closings.
A summary of financial information on the operating results of the
Company's restaurants is presented in the following table.
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28, DECEMBER 29,
1996 1994 1993
---- ---- ----
<S> <C> <C> <C>
Restaurant sales 100.0% 100.0% 100.0%
Cost of restaurant sales:
Food cost 39.2% 40.0% 37.3%
Labor cost 30.1% 32.6% 31.1%
Operating cost 17.1% 15.0% 15.0%
Occupancy cost 8.3% 8.9% 11.6%
Depreciation and amortization 3.4% 3.5% 5.0%
------ ------ ------
Total restaurant costs 98.1% 100.0% 100.0%
------ ------ ------
Restaurant profit 1.9% 0.0% 0.0%
Selling, general and administrative expenses 5.5% 6.1% 7.2%
Amortization of goodwill 1.1% 1.1% 0.0%
Provisions for restaurant
renovations and closings 3.6% 4.0% 17.1%
Impairment of long-lived assets 9.2% 0.0% 0.0%
------ ------ ------
Operating loss -17.5% -11.2% -24.3%
Other income (expense) 0.9% 0.5% 0.9%
------ ------ ------
Loss before income taxes -16.6% -10.7% -23.4%
Income tax benefit 0.0% 0.0% 0.0%
------ ------ ------
Net loss -16.6% -10.7% -23.4%
====== ====== ======
Number of Company-owned restaurants
open at end of period 28 43 41
</TABLE>
RESTAURANT SALES
- ----------------
Restaurant sales for fiscal 1995 were $48,826,319, which was a decrease of
10.0% compared to fiscal 1994 sales of $54,259,025. This decrease was due
primarily to the closure of thirteen restaurants located in the Northeast
during the year and the spin-off of three restaurants in Florida to the
former Chairman. Twelve of the thirteen stores were closed during the
first quarter of 1995. In addition, same store sales (stores opened at the
end of 1995 that were also opened for all of 1995 and 1994) posted a 3%
decrease for the year. One new location was added in Florida in the latter
part of the year.
Restaurant sales for fiscal 1994 were $54,259,025, which was an increase of
53.9% over fiscal 1993 sales of $35,261,577. This increase is due primarily
to the December, 1993 merger of the Stacey-Lynn Group with Homestyle
Buffet, Inc. Additionally, same store sales posted a 3% increase during
the year. Three new locations were added in Florida in the latter part of
1994 and one previously closed store was reopened in the middle of 1994.
There were several units that were closed for a period of time, then
reopened within 1994, and there were two permanent closings during 1994.
RESTAURANT COSTS
- ----------------
Restaurant costs include food, labor, operating , occupancy and
depreciation and amortization expenses.
Food costs as a percentage of sales decreased from 40.0% in 1994, to 39.2%
in 1995, as a result of more efficient execution of the Stacey's Buffet
food program concept in 1995 compared to 1994 and the reduction is
consistent with the food cost trend started after the conversion of the
Homestyle stores to the Stacey's food concept in 1994. Overall, wholesale
food costs have remained relatively stable during the current year.
Food costs as a percentage of sales rose from 37.3% in 1993, to 40.0% in
1994, as a result of providing a higher quantity and quality of food served
by the Stacey's Buffet ("Stacey's") concept, as compared to Homestyle
Buffet ("Homestyle") concept. The initial conversion of stores from
Homestyle to Stacey's during the first and second quarter of 1994 resulted
in higher than normal food and labor costs due to adapting to new menus,
new recipes and retraining kitchen personnel.
Total labor costs as a percentage of sales decreased from 32.6% in 1994 to
30.1% in 1995. This decrease was related to improved efficiency of the
Homestyle stores into the Stacey's food program and the closing of the
thirteen lower volume stores in the Northeast that had higher labor costs
as a percentage of sales. Total labor costs as a percentage of sales
increased from 31.1% in 1993 to 32.6% in 1994. This increase was directly
related to the higher volume of food prepared and served as noted above.
Operating expenses and occupancy costs consist primarily of supplies,
utilities, advertising, maintenance, rent, real estate taxes, personal
property taxes, property insurance and liability insurance expenses. The
primary reason that operating expenses as a percentage of sales increased
in 1995 to 17.1% from 15.0% in 1994 results from an increase in general
liability insurance expense. Because of the relatively fixed nature of
most of the operating costs, such as utilities, maintaining and cleaning
the building, etc., overall operating costs as a percentage of sales had
remained constant at 15.0% of sales in 1994 and 1993.
<PAGE>
Total occupancy costs as a percentage of sales decreased from 8.9% in 1994
to 8.3% in 1995 as a result of closing the thirteen Northeast stores that
had higher occupancy costs and generally lower sales volumes than the
remaining stores. Actual rents and related total occupancy costs as a
percentage of sales had declined from 11.6% in 1993 to 8.9% in 1994, as a
result of two factors. Actual rents and related costs such as real estate
taxes and common area maintenance for the eleven Stacey's Buffet's added
with the 1993 merger were substantially lower than the similar occupancy
factors of the original Homestyle leases. In addition, the Company was
able to negotiate rent concessions in some of the old Homestyle units
Depreciation and amortization expense as a percentage of sales decreased
from 3.5% in 1994 to 3.4% in 1995 as a result of the closing of the
thirteen Northeast stores and the spin-off of the three Florida stores.
The closing of the thirteen Northeast stores resulted in the write-off of
approximately $9,319,000 of leasehold improvements and equipment, net of
accumulated depreciation and amortization. Depreciation and amortization
expense as a percentage of sales had decreased from 4.9% in 1993 to 3.5% in
1994. As is the case with occupancy costs, the original Stacey's Buffet
units have a much lower depreciation base than the Homestyle units. There
were also some asset write-offs for closed stores that reduced the overall
depreciation expense in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses decreased from $3,324,020 in
1994 to $2,720,391 in 1995 or a reduction of $603,629. As a percentage of
sales, selling, general and administrative expense was reduced from 6.1% in
1994 to 5.5% in 1995. The reduction in fiscal 1995 of $603,629 is
primarily related to reductions in salaries and wages, health insurance,
other taxes and licenses, incentive compensation, professional fees and
outside services net of increases in legal fees and travel expenses.
Management expects legal fees and travel expenses will decrease in fiscal
1996 compared to 1995.
Total expenses in this category increased from $2,539,506 in 1993 to
$3,324,020 in 1994. As a percentage of sales, selling, general and
administrative expense was reduced from 7.2% in 1993 to 6.1% in 1994. Most
of the monetary increase occurred during the first half of the year when
the transition from the prior management team took place. There were
overlapping management expenses, costs of combining two separate companies'
office expenses and phasing out insurance costs of two companies that
placed an extra burden on overhead for the first two quarters of 1994.
Selling, general and administrative expenses for the 3rd and 4th quarters
of 1994 averaged 5.2% of sales.
AMORTIZATION OF GOODWILL
- ------------------------
This expense category was new in 1994 as a result of the Homestyle/Stacey
merger in December, 1993. Total goodwill is being amortized over 20 years.
In 1995, three restaurants were spun-off as discussed above in Part I under
"Licensed Restaurants". The fair market value of the Company's common stock
received in the spin-off approximated the net book value of the restaurant
assets and $1,966,000 of related goodwill. The future amortization of the
remaining balance of goodwill will result in an annual charge of
approximately $474,500 per year. There was not a similar charge in 1993
prior to the merger.
<PAGE>
PROVISION FOR RESTAURANT RENOVATIONS AND CLOSINGS
- -------------------------------------------------
Because of losses and negative cash flow of certain restaurants in the
Northeast, it was necessary to establish a reserve for the costs associated
with closing these restaurants. These costs consist of the write-off of
the net book value of assets that will not be retained and the costs of
terminating long term leases. The reserve was originally established in
1990 and subsequently adjusted to reflect the current situation from year
to year.
For fiscal 1995, $1,750,000 was added to the existing reserve for
restaurant renovations and closings. This increase is attributable to the
settlement of various lease termination agreements, revised cost estimates
to settle lease obligations and two additional stores which have closed
subsequent to January 3, 1996. For fiscal 1994, $2,191,881 was added to
the existing reserve to cover anticipated closing costs. In 1993, the
charge for store closings and renovations was $6,025,169.
IMPAIRMENT OF LONG-LIVED ASSETS
- -------------------------------
During the fourth quarter ended January 3, 1996, the Company adopted the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 121 ("Statement 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also requires that impairment
losses be recorded on long-lived assets to be disposed of when the carrying
value of the asset exceeds the fair value less the estimated selling costs.
As part of the implementation of Statement 121, all assets related to each
restaurant location, including goodwill, were tested for possible
impairment. As a result of this test, an impairment reserve totaling
$4,475,000 has been charged against operations during the quarter ended
January 3,1996.
Fair value for the long-lived assets was determined based on estimated
market values for similar assets and on the expected discounted cash flows
from the assets.
OTHER INCOME
- ------------
In 1995, other income and expense consists primarily of interest income and
expense and royalty fees from. Income from royalty fees for 1995 was
approximately $289,000. Interest income was approximately $66,000 which
was offset by interest expense of $47,000 in 1995.
<PAGE>
In 1994, other income and expense consists primarily of interest income and
expense, royalty fees from franchisees, and gain or loss from sale of
investments. Income from royalty fees of approximately $328,000 was
partially offset by investment losses of $141,000 in 1994. Investment
losses derived from the sale of intermediate term bonds that declined in
value when short term interest rates rose during 1994. Interest income of
approximately $102,000 was earned on those bonds during 1994, and interest
expense of approximately $60,000 was incurred for 1994. Most of the other
income from 1993 was due from settlements on two leases under more
favorable terms than were originally reserved.
INCOME TAXES
- ------------
There was no income tax expense or benefit for 1995, 1994 and 1993 due to
net operating losses for which no tax benefit is provided.
INFLATION
- ---------
During the three year period covered by this report, there were no
significant commodity price increases that had a major impact on our food
programs. Effective menu management helped to suppress any increases in
key items. There were no increases in the minimum wage during 1995, 1994
and 1993.
The overall impact of inflation on profits was largely offset by greater
volume-purchase discounts and cost reduction programs.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's cash flow provided by operating activities was approximately
$800,000 for fiscal 1995 compared with approximately $2,400,000 for fiscal
1994 and cash flow used in operating activities of approximately $6,700,000
in fiscal 1993. Differences between fiscal 1995 and 1994 are primarily a
result of declining net income, working capital uses of cash primarily as a
result of changes in accrued expenses and the provision for restaurant
renovations and closings. The primary differences in fiscal 1993 cash
flows used in operating activities are the working capital uses of cash
primarily the reduction in short-term investments.
The Company's cash flow used in investing activities was approximately
$200,000 for fiscal 1995 compared with approximately $3,000,000 for fiscal
1994 and approximately $4,600,000 in fiscal 1993. Capital expenditures for
fiscal 1995 related to the costs of converting one new store that was
previously operated as a Stacey's Buffet under a license agreement and the
replacement costs of major renewals of restaurant equipment. The capital
expenditures in 1994 relate primarily to the conversion of the Homestyle
stores to Stacey's Buffet concept after the merger in December, 1993. The
significant use of cash flows in investing activities in 1993 was the
acquisition of S-L Group.
The Company's cash flow used in financing activities was approximately
$100,000 for fiscal 1995 compared with approximately $400,000 for fiscal
1994 and cash flow provided by financing activities was approximately
$11,700,000 in fiscal 1993. The primary use of cash flows used in
financing activities in fiscal 1995 and fiscal 1994 was the payments under
capital lease obligations. The significant cash flows provided by
financing activities in 1993 was the sale of the Company's common stock
issued through a rights offering to then current stockholders and a stand-
by public offering.
<PAGE>
The Company's capital has been obtained through cash from operations,
credit from trade suppliers, and the sale of common stock related to the
merger in December with the Stacey Lynn Group. The remodeling and
conversion program undertaken during 1994 and the operational losses
incurred used up most of the Company's cash reserves. There is $769,668 in
short-term investments, which is being used to secure a $500,000 general
line of credit and a $250,000 letter of credit that supports our self-
funded worker's compensation and general liability insurance programs.
The Company's ratio of current assets to current liabilities at year-end
1995 was .23 compared to .13 at year-end 1994 and .50 at year-end 1993.
Included in current liabilities at year-end for 1995 is $2,100,000 for the
provision for restaurant renovations and closings. Approximately $800,000
of that reserve is for anticipated write-offs of equipment and leasehold
improvements, which do not affect the use of cash. Included in current
liabilities at year-end for 1994 is approximately $8,900,000 for the
provision for restaurant renovations and closings. Approximately
$6,800,000 of that reserve was for anticipated write-offs of fixed assets
and leasehold improvements, which did not affect the use of cash.
The Company's capital has been obtained through cash from operations,
credit from trade suppliers, and the sale of common stock related to the
merger in December 1993 with the Stacey Lynn Group. The remodeling and
conversion program undertaken during 1994 and operational losses have used
up most of the Company's cash reserves. Based on current operating results
and management's projected operating results, the Company believes cash
flow generated from restaurant operations will be sufficient to pay debts
as they become due.
PART III
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE
COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by these items is omitted because the Company is
filing a definitive proxy statement pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this Report
which includes the required information. The required information
contained in the Company's proxy statement is incorporated herein by
reference.
<PAGE>
PART IV
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ----------------------------------------------------------------
(A) (1) FINANCIAL STATEMENTS
The following financial statements of Stacey's Buffet, Inc. are
included in Part II, Item 8:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BALANCE SHEETS as of January 3, 1996 and December 28, 1994
STATEMENTS OF OPERATIONS for the years ended January 3, 1996,
December 28, 1994, and December 29, 1993
STATEMENTS OF STOCKHOLDERS' EQUITY for the years ended January 3,
1996, December 28, 1994, and December 29, 1993
STATEMENTS OF CASH FLOWS for the years ended January 3, 1996,
December 28, 1994, and December 29, 1993
NOTES TO FINANCIAL STATEMENTS
(2) OTHER SCHEDULES
All other schedules are omitted since the required information is
not present or is not present in an amount sufficient to require
submission of the schedules, or because the information required is
included in the financial statements and notes thereto.
(3) EXHIBITS
The following exhibits are either filed as part of this report or
incorporated herein by reference.
Exhibit 3.1 Articles of Incorporation, as amended (1)
Exhibit 3.2 By Laws, as amended (2)
(B) REPORTS ON FORM 8-K
No Form 8-K was required to be filed during the fourth quarter,
1995.
(C) EXHIBITS
Exhibits to this form 10-K are attached or incorporated by reference
as stated above.
(D) NOT APPLICABLE
(1) Filed with Annual Report on Form 10-K for fiscal year ended
December 29, 1993.
(2) Filed with Registration Statement (On Form S-4) on September 3,
1993, Registration No. 33-68418.
<PAGE>
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.
STACEY'S BUFFET, INC.
Date: April 2, 1996
By: Stephen J. Marrier
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report to be signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated
SIGNATURE TITLE DATE
Stephen J. Marrier Chairman and Chief Executive April 2, 1996
Officer and Director
Scott W. Ryan Director April 2, 1996
John F. Robenalt Director April 2, 1996
Garrett B. Hunter Director April 2, 1996
Daniel J. Sullivan Chief Financial Officer (Principal April 2, 1996
Financial and Accounting Officer)
<PAGE>
STACEY'S BUFFET, INC.
Financial Statements
January 3, 1996 and December 28, 1994
With Independent Auditors' Report Thereon
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
Stacey's Buffet, Inc.:
We have audited the accompanying balance sheets of Stacey's
Buffet, Inc. as of January 3, 1996 and December 28, 1994, and
the related statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period
ended January 3, 1996. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these 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, the financial statements referred to above
present fairly, in all material respects, the financial
position of Stacey's Buffet, Inc. as of January 3, 1996 and
December 28, 1994, and the results of its operations and its
cash flows for each of the years in the three-year period
ended January 3, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 4 to the financial statements, the
Company adopted in 1995 the provisions of the
Financial Accounting Standards Board's Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be disposed
Of."
KPMG PEAT MARWICK LLP
Tampa, Florida
March 22, 1996
<PAGE>
STACEY'S BUFFET, INC.
Balance Sheets
January 3, 1996 and December 28, 1994
<TABLE>
<CAPTION>
January 3, December 28,
Assets 1996 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 548,791 30,207
Short-term investments 769,668 839,370
Receivables 101,208 192,751
Inventory 356,667 559,929
Income tax refund receivable - 19,199
Prepaid expenses and other 80,590 362,219
----------- ----------
Total current assets 1,856,924 2,003,675
Property and equipment, net of
accumulated depreciation 7,846,665 23,649,142
Deposits and other assets 173,545 163,143
Goodwill, net of accumulated amortization 8,584,488 11,081,797
----------- -----------
$ 18,461,622 36,897,757
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 2,416,555 2,565,744
Checks in transit 572,016 -
Line of credit 175,000 188,000
Current portion of obligations
under capital leases 159,704 107,719
Accrued expenses 1,820,051 1,887,574
Accrued rent 708,991 1,968,467
Reserve for restaurant
renovations and closings 2,064,406 8,860,892
----------- -----------
Total current liabilities 7,916,723 15,578,396
Obligations under capital leases,
excluding current portion 11,694 156,984
Other liabilities 27,578 47,571
----------- -----------
Total liabilities 7,955,995 15,782,951
Stockholders' equity:
Common stock, $.01 par value. Authorized
25,000,000 shares, issued 12,466,089 shares
at January 3, 1996 and 14,466,089 shares at
December 28, 1994 124,660 144,660
Additional paid in capital 42,688,109 45,168,109
Accumulated deficit (32,307,142) (24,197,963)
----------- -----------
Net stockholders' equity 10,505,627 21,114,806
Commitments and contingencies
----------- -----------
$ 18,461,622 36,897,757
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STACEY'S BUFFET, INC.
Statements of Operations
Years ended January 3, 1996, December 28, 1994
and December 29, 1993
<TABLE>
<CAPTION>
January 3, December 28, December
1996 1994 1993
---- ---- ----
<S> <C> <C> <C>
Restaurant sales $ 48,826,319 54,259,025 35,261,577
Cost of restaurant sales:
Food cost 19,151,959 21,708,862 13,142,917
Labor cost 14,690,105 17,667,224 10,961,411
Operating cost 8,343,591 8,121,165 5,303,069
Occupancy cost 4,034,199 4,831,502 4,091,102
Depreciation and amortization 1,667,952 1,900,961 1,740,537
------------ ------------ ------------
Restaurant profit 938,513 29,311 22,541
Selling, general and administrative expenses 2,720,391 3,324,020 2,539,506
Amortization of goodwill 531,653 580,642 23,992
Provisions for restaurant renovations
and closings 1,750,000 2,191,881 6,025,169
Impairment of long-lived assets 4,475,000 - -
------------ ------------ ------------
Operating loss (8,538,531) (6,067,232) (8,566,126)
Other income (expense) 429,352 256,292 308,784
------------ ------------ -----------
Loss before income taxes (8,109,179) (5,810,940) (8,257,342
Income taxes - - -
------------ ------------ ------------
Net loss $ (8,109,179) (5,810,940) (8,257,342)
============ ============ ============
Net loss per share of common stock $ (0.60) (0.40) (1.29)
======= ======= =======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STACEY'S BUFFET, INC.
Statements of Stockholders' Equity
Years ended January 3, 1996, December 28, 1994
and December 29, 1993
<TABLE>
<CAPTION>
Additional Net
Common stock paid-in Treasury Accumulated stockholders'
Shares Amount capital stock deficit equity
------ -------- ------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 30, 1992 5,942,319 $ 59,423 25,356,362 - (10,129,681) 15,286,104
Exercise of stock options 35,845 358 47,623 - - 47,981
Shares issued in connection
with acquisition 4,000,000 40,000 7,322,000 - - 7,362,000
Shares issued through public
offering 4,225,000 42,250 11,990,415 - - 12,032,665
Stock issued to settle leases 153,500 1,535 349,215 - - 350,750
Stock issued to Directors 31,675 317 82,472 - - 82,789
Net loss - - - - (8,257,342) (8,257,342)
---------- -------- ---------- --------- ------------ -----------
Balances at December 29, 1993 14,388,339 $ 143,883 45,148,087 - (18,387,023) 26,904,947
Exercise of stock options 2,750 27 7,192 - - 7,219
Stock issued to officer 15,000 150 33,600 - - 33,750
Expenses incurred in connection
with 1993 rights offering - - (91,420) - - (91,420)
Stock issued to settle leases 60,000 600 70,650 - - 71,250
Net loss - - - - (5,810,940) (5,810,940)
---------- --------- ---------- --------- ------------ -----------
Balances at December 28, 1994 14,466,089 144,660 45,168,109 - (24,197,963) 21,114,806
Purchase of shares - - - (2,500,000) - (2,500,000)
Retirement of treasury stock (2,000,000) (20,000) (2,480,000) 2,500,000 - -
Net loss - - - - (8,109,179) (8,109,179)
---------- --------- ---------- --------- ------------ -----------
Balances at January 3, 1996 12,466,089 $ 124,660 42,688,109 - (32,307,142) 10,505,627
========== ========= ========== ========= ============ ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STACEY'S BUFFET, INC.
Statements of Cash Flows
Years ended January 3, 1996, December 28, 1994
and December 29, 1993
<TABLE>
<CAPTION>
January 3, December 28, December 29,
1996 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss $ (8,109,179) (5,810,940) (8,257,342)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Other income - termination of restaurant
leases for amount less than reserved - - (271,597)
Depreciation and amortization 2,384,139 2,481,603 1,764,529
Provision for restaurant renovations and closings 1,750,000 2,191,881 6,025,169
Provision for impairment of long-lived assets 4,475,000 - -
Change in assets and liabilities:
(Increase) decrease in assets:
Short-term investments 69,702 4,787,351 (5,626,721)
Receivable (33,457) 37,263 (19,161)
Inventory 162,322 (94,437) 61,846
Income tax refund receivable 19,199 37,610 277,079
Prepaid expenses and other 281,629 115,696 (344,920)
Deposits and other assets (10,402) 105,895 50,343
Increase (decrease) in liabilities:
Accounts payable 422,827 (105,507) 539,435
Line of credit (13,000) 188,000 -
Accrued expenses (1,326,999) 66,201 633,117
Other liabilities (19,993) 6,765 40,806
Reserve for restaurant renovations
and closings 772,641 (1,606,156) (1,553,343)
----------- ----------- -----------
Net cash provided by (used in)
operating activities 824,429 2,401,225 (6,680,760)
Cash flows from investing activities:
Capital expenditures, net" (175,705) (2,952,843) (215,874)
Purchase of business - - (4,396,000)
Other (7,460) - -
----------- ----------- -----------
Net cash used in investing activities (183,165) (2,952,843) (4,611,874)
Cash flows from financing activities:
Net proceeds from issuance of common stock - - 11,776,627
Proceeds from stock options exercised - 7,192 47,981
Payments on capital lease obligations (122,680) (431,292) (152,451)
----------- ----------- -----------
Net cash (used in) provided by
financing activities (122,680) (424,100) 11,672,157
----------- ----------- -----------
Net (decrease) increase in cash 518,584 (975,718) 379,523
Cash and cash equivalents at beginning of year 30,207 1,005,925 626,402
----------- ----------- -----------
Cash and cash equivalents at end of year $ 548,791 30,207 1,005,925
=========== =========== ===========
<PAGE> (Continued)
</TABLE>
2
STACEY'S BUFFET, INC.
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
January 3, December 28, December 29,
1996 1994 1993
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Interest paid $ 46,849 60,735 103,622
========== ========== ==========
Excluded from the January 3, 1996, December 28, 1994 and
December 29, 1993 statement of cash flows are the
following noncash transactions:
Write-off of leasehold improvements and equipment
(net of accumulated depreciation) against the
reserve for restaurant renovations and closings $ 9,319,127 1,183,896 968,053
========== ========== ==========
Issuance of 213,500 shares of common stock to
landlords for lease concessions and as part
of the settlement to terminate leases $ 71,250 350,750
========== ==========
Issuance of 31,675 shares of common stock to Directors
as part of consulting agreements $ 87,789
==========
Issuance of 15,000 shares of common stock to officer $ 33,750
==========
Property and equipment acquired in restaurant
acquisition in exchange for royalty receivable
forgiveness $ 125,000
==========
Obligations under capital leases assumed in
restaurant acquisition $ 29,375
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STACEY'S BUFFET, INC.
Notes to Financial Statements
January 3, 1996 and December 28, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BACKGROUND
----------
Homestyle Buffet, Inc. merged with Stacey-Lynn Group, Inc. on December
13, 1993 and changed its name to Stacey's Buffet, Inc. ("the
Company"). The Company operates a chain of buffet-style restaurants.
The Company had twenty-eight stores open at January 3, 1996, forty-
three stores open at December 28, 1994, and forty-one stores open at
December 29, 1993. Thirteen restaurants were closed in 1995, three
restaurants were sold, and one restaurant was acquired from a
licensee. Two stores were closed and four stores were opened during
1994. In 1993, eleven restaurants were acquired as a result of the
merger with Stacey-Lynn Group, Inc. and four stores were closed.
FISCAL YEAR
-----------
The Company's fiscal year ends on the Wednesday nearest December 31.
CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents includes cash and investments with original
and purchased maturities less than 90 days.
SHORT-TERM INVESTMENTS
----------------------
Short-term investments are carried at market, and consist of U.S.
Treasury and corporate bonds. Substantially all of the short-term
investments have been pledged as security for the Company's line of
credit and a letter of credit facilities.
INVENTORY
---------
Inventory is stated at the lower of cost (first-in, first-out method)
or market.
LONG-LIVED ASSETS
-----------------
Property and equipment are stated at cost. Depreciation on property
and equipment is calculated on the straight-line method over the
estimated useful lives of the assets. Goodwill relates to the merger
with Stacey-Lynn Group, Inc. and is being amortized over 20 years.
The Company accounts for long-lived assets in accordance with the
Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." In the
event that facts and circumstances indicate that the cost of long-
lived assets, including goodwill, may be impaired, an evaluation of
the recoverability would be performed. If an evaluation is required,
<PAGE>
STACEY'S BUFFET, INC.
Notes to Financial Statements
the estimated future undiscounted cash flows associated with the asset
would be compared to the assets carrying amount to determine if a
write-down to market value or discounted cash flow is required.
INCOME TAXES
------------
The Company accounts for income taxes in accordance with the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 109 ("Statement 109"), "Accounting for Income Taxes."
Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
included the enactment date.
EARNINGS (LOSS) PER SHARE
-------------------------
Earnings (loss) per share information is computed based on the
weighted average number of common shares outstanding of 13,522,693
for the year ended January 3, 1996, 14,400,640 for the year ended
December 28, 1994 and 6,418,683 for the year ended December 29, 1993.
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 amount of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
RECLASSIFICATIONS
-----------------
Certain amounts as of December 28, 1994 and December 29, 1993 have
been reclassified to conform to the January 3, 1996 presentation.
<PAGE>
STACEY'S BUFFET, INC.
Notes to Financial Statements
(2) PROPERTY AND EQUIPMENT
----------------------
Property and equipment, net of impairment reserves, consists of the
following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28, USEFUL LIVES
1996 1994 IN YEARS
---- ---- --------
<S> <C> <C> <C>
Restaurant equipment $ 10,027,140 19,433,137 5 - 12
Leashold improvements 4,866,625 13,485,797 15 - 20
Other equipment 591,663 657,884 5
---------- ---------- =====
15,485,428 33,576,818
Less accumulated depreciation 7,638,763 9,927,676
---------- ----------
$ 7,846,665 23,649,142
========== ==========
</TABLE>
(3) LEASES
------
The Company is obligated under capital leases for restaurant equipment that
expire through 1998. The gross amount of restaurant equipment included in
property and equipment at January 3, 1996, and related accumulated
amortization, for equipment recorded under capital leases is as follows:
Equipment $ 384,845
Less accumulated amortization 145,607
--------
$ 239,238
========
The future minimum lease payments under capitalized leases and the present
value of the net minimum lease payments as of January 3, 1996 are as
follows:
FISCAL YEAR ENDED
-----------------
1996 $ 169,237
1997 10,456
1998 1,860
-------
Total minimum lease payments 181,553
Less amount representing interest 10,155
-------
Obligations under capital leases 171,398
Current portion of capital lease
obligations 159,704
Capital lease obligations, less -------
current portion $ 11,694
=======
The Company's restaurants are in leased facilities. These leases are
operating leases with initial terms from five to ten years with options to
renew, resulting in maximum lease terms of fifteen to twenty years.
<PAGE>
STACEY'S BUFFET, INC.
Notes to Financial Statements
Future minimum lease payments under signed noncancelable operating leases
as of January 3, 1996 are as follows:
EXISTING
FISCAL YEAR FACILITIES
----------- ----------
1996 $ 2,656,909
1997 2,420,377
1998 2,205,458
1999 1,565,563
2000 1,025,490
Thereafter 1,041,793
==========
Total rent expense was approximately $3,480,000 for the year ended January
3, 1996, $4,627,000 for the year ended December 28, 1994 and $3,800,000 for
the year ended December 29, 1993. Certain leases have initial free periods
and annual fixed escalators which are expensed on a straight-line basis
over the lease term.
(4) LONG-LIVED ASSETS
-----------------
During the fourth quarter ended January 3, 1996, the Company adopted the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 121 ("Statement 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also requires that impairment losse
be recorded on long-lived assets to be disposed of when the carrying value
of the asset exceeds the fair value less the estimated selling costs.
As part of the implementation of Statement 121, all assets related to each
restaurant location, including goodwill, were tested for possible
impairment. As a result of this test, an impairment reserve totaling
$4,475,000 has been charged against operations during the quarter ended
January 3,1996. Fair value for the long-lived assets was determined based
on estimated market values for similar assets and on the expected
discounted cash flows from the assets.
(5) LINE OF CREDIT
------- ------
The Company executed a line of credit on June 2, 1994 to support short-term
working capital requirements for $500,000. Interest is at the prime rate
and payable monthly. The line is secured by short-term investments held by
the Company. As of January 3, 1996, the unused line was $325,000.
<PAGE>
STACEY'S BUFFET, INC.
Notes to Financial Statements
(6) RESERVE FOR RESTAURANT RENOVATIONS AND CLOSINGS
--------------------------------------------------
The Company increased the estimated reserve for restaurant renovations and
closings in the year ended December 28, 1994 by $2,191,881. The increase
was attributable to revised cost estimates to settle lease obligations, the
addition of several new stores targeted for closing, and the decision to
hold certain stores for sale. The Company charged $2,790,052 against the
reserve for the year ended December 28, 1994.
The Company increased the estimated reserve for restaurant renovations and
closings in the year ended January 3, 1996 by $1,750,000. The increase is
attributable to the settlement of various lease termination agreements,
revised cost estimates to settle lease obligations and two additional
stores which have closed subsequent to January 3, 1996. The Company
charged $8,546,486 (net of accrued rent and expenses related to closed
stores) against the reserve for restaurant renovations and closings for
the year ended January 3, 1996. Additionally, during the year ended
January 3, 1996, the Company entered into several lease termination
agreements with various landlords to facilitate the closing of unprofitable
stores. These agreements are all non-interest bearing and require varying
payments over the next five years.
The balance of the reserve for restaurant renovations and closings as of
January 3, 1996 of is comprised of the following:
RESTAURANT
CLOSINGS
--------
Lease termination agreements and
remaining lease expense $ 1,246,344
Disposal of leasehold improvements
and equipment 818,062
---------
$ 2,064,406
=========
During the year ended December 28, 1994, the results of eight restaurants
were charged against the reserve for restaurant renovations and closings.
During the year ended December 28, 1993, the results of seven restaurants
were charged against the reserve for restaurant renovations and closings.
There were no such charges against the reserve in 1995.
(7) INCOME TAXES
------------
Income tax benefit attributable to loss before income taxes differ from the
amounts computed by applying the U.S. federal income tax rate of 35 percent
for January 3, 1996, December 28, 1994 and December 29, 1993 to loss before
income taxes as a result of the following:
<PAGE>
STACEY'S BUFFET, INC.
Notes to Financial Statements
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28, DECEMBER 29,
1996 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax benefit $ (2,838,000) (2,035,000) (2,890,000)
Increase (reduction) in income
taxes resulting from:
Adjustments to deferred tax
assets and liabilities for
enacted changes in tax laws - - (86,000)
Change in the beginning of the
year balance of the valuation
allowance for deferred tax
assets allocated to income
tax expense 3,154,000 2,296,000 3,402,000
State tax benefit, net of
Federal effect (316,000) (312,000) (415,000)
Other, net - 51,000 (11,000)
--------- --------- ---------
$ - - -
========= ========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below.
JANUARY 3, DECEMBER 28,
1996 1994
Deferred tax assets:
Impairment of long-lived assets $ 1,790,000 -
Provision for store closings 826,000 3,204,000
Net operating loss carryforward 12,252,000 8,982,000
Miscellaneous tax credits 120,000 120,000
Other 55,000 98,000
---------- ----------
Total gross deferred tax assets 15,043,000 12,404,000
Less valuation allowance (12,357,000) (9,203,000)
---------- ----------
Net deferred tax assets 2,686,000 3,201,000
---------- ----------
Deferred tax liabilities:
Property and equipment, due to
differences in depreciation
methods and useful lives (2,686,000) (3,201,000)
---------- ----------
Net deferred tax asset $ - -
========== ==========
<PAGE>
STACEY'S BUFFET, INC.
Notes to Financial Statements
The valuation allowance as of January 3, 1996 was $12,357,000. The net
change in the total valuation allowance was an increase of $3,154,000 and
$2,307,000 for the years ended January 3, 1996 and December 28, 1994,
respectively. The realization of deferred tax assets is dependent upon
sufficient future taxable income. Based on prior operating results, the
Company has a valuation allowance of its potential net deferred tax assets
due to the uncertainty of the realization of the deferred tax assets.
At January 3, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of $30,629,000, which is available to offset
future taxable income, if any, through 2010.
(8) STOCK OPTION PLANS AND WARRANTS
-------------------------------
Effective February 19, 1987, an employee stock option plan was adopted for
which 522,963 shares of the Company's common stock were reserved.
Effective May 9, 1990, the Company adopted a second employee stock option
plan for which 210,000 shares of the Company's common stock were reserved.
The option prices are to be no less than the fair market value of stock at
the date of grant.
During the year ended December 29, 1993, options were granted to purchase
44,800 shares at $2.00 per share. During 1993, options to purchase 217,287
shares were canceled, and options to purchase 35,845 shares were exercised.
During the year ended December 28, 1994, options were granted to purchase
181,750 shares at $3.00 per share, 8,000 shares at $2.31 per share, 24,500
shares at $1.56 per share and 53,500 shares at $1.04 per share. During the
1994, options to purchase 135,607 shares were canceled, and options to
purchase 2,750 shares were exercised.
During the year ended January 3, 1996, options were granted to purchase
35,500 shares at $1.50 per share and 43,500 shares at $.625 per share.
During 1995, options to purchase 94,321 shares were canceled, and no
options to purchase shares were exercised. Under the employee stock option
plan, options vest 25% per year for four years. Options to purchase
73,250 shares were exercisable at January 3, 1996. The vesting schedule
by fiscal year for shares covered by the options is as follows:
FISCAL
YEAR
----
1996 57,250
1997 53,750
1998 30,125
1999 19,125
--------
160,250
========
<PAGE>
STACEY'S BUFFET, INC.
Notes to Financial Statments
As a result of the merger (see note 9), the Company has warrants outstand-
ing for the purchase of 2,125,000 shares at $4.50 per share exercisable
through November 1998. The Company has granted 290,000 stock options to
officers that were unrelated to the employee stock option plan.
In fiscal year 1993, the Company issued 365,000 options at $2.00 per share
to certain directors for consulting services. At December 29, 1993,
239,625 options have vested. The remainder will vest in fiscal year 1994.
Certain directors were also issued 31,675 shares of stock as partial
compensation for consulting services.
(9) MERGER WITH STACEY-LYNN GROUP
-----------------------------
In 1993, the Company merged with the Stacey-Lynn Group, Inc. to form
Stacey's Buffet, Inc. The purchase price paid to Stacey-Lynn Group, Inc.
was $12,396,000 in cash and stock. The Company issued 4,225,000 of stock
to raise capital for the merger. The Company issued $8,000,000 (4,000,000
shares valued at $2.00 a share) of stock to Stacey-Lynn Group, Inc. and
paid $4,396,000 in cash in order to complete the merger. The total fair
value of the assets and liabilities acquired are as follows:
Cash $ 26,020
Accounts receivable 46,355
Inventory 137,331
Prepaid assets 18,302
Property, plant and equipment 1,179,860
Deposits 58,923
Accounts payable and accruals (261,671)
Long-term debt (52,120)
----------
$ 1,153,000
==========
The excess purchase price over the fair market value of the assets acquired
of $11,638,000 has been recorded as goodwill. Goodwill is being amortized
on a straight-line basis over 20 years. The unamortized goodwill balance
as of January 3, 1996 is $8,584,488.
The following presents the unaudited pro forma consolidated results of
operations of the Company for the year ended December 29, 1993 as if the
merger between the Company and Stacey-Lynn Group, Inc. had occurred as of
beginning of the periods presented. The pro forma results are presented
for purposes of additional analysis only and do not purport to present the
results of operations that would have occurred had the combination been in
effect for the entire periods presented or the results that may occur in
the future.
<PAGE>
STACEY'S BUFFET, INC.
Notes to Financial Statements
DECEMBER 29,
1993
----
Restaurant sales $ 54,614,042
==========
Net loss $ (6,721,155)
==========
Net loss per share $ (.47)
==========
(10)RELATED PARTIES
---------------
During 1995, the Company and its former Chairman and Chief Executive
Officer ("former Officer"), agreed to a spin-off of three restaurants in
exchange for 2,000,000 shares of the Company's common stock. The fair
market value of the Company's common stock received in the spin-off
approximated the net book value of the restaurant assets and $1,966,000
of related goodwill. The former Officer entered into a license agreement
to operate the stores under the Stacey's name using the buffet concept
which requires the payment of a two percent royalty after six months of
operations. As part of the transaction, former Officer granted the Board
of Directors the right to direct the voting of his remaining 2,000,000
shares through 1998.
(11)CONTINGENCIES
-------------
The Company has various pending claims incurred in the ordinary course of
business which, in the opinion of management, based on the advice of
outside legal counsel, will not have a material effect on the financial
statements.
(12)LIQUIDITY
---------
The Company's capital has been obtained through cash from operations,
credit from trade suppliers, and the sale of common stock related to the
merger in December 1993 with the Stacey Lynn Group. The remodeling and
conversion program undertaken during 1994 and the operational losses
incurred used up most of the Company's cash reserves. Based on current
operating results and management's projected operating results, the Company
believes that cash flow provided by restaurant operations will be
sufficient to pay debts as they become due.
<PAGE>
CORPORATE INFORMATION
---------------------
CORPORATE MANAGEMENT
AND DIRECTORS
STEPHEN J. MARRIER
Chairman of the Board
Chief Executive Officer
AMOS MONEY
President
Chief Operating Officer
DOUGLAS MONEY
Vice President Operations and
Purchasing
DANIEL J. SULLIVAN
Chief Financial Officer
JOHN F. ROBENALT
Director
Attorney
GARRETT B. HUNTER
Director
President, Business Development Company
of Rhode Island
SCOTT W. RYAN
Director
President, S.W. Ryan & Company
PETER J. HURLEY
Director
President, Harrison Hurley & Company
COUNSEL
Partridge Snow & Hahn
Providence, Rhode Island
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick
Tampa, Florida
TRANSFER AGENT/REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(212) 936-5100
ANNUAL MEETING
The Annual Meeting of shareholders will be
held at 2:00 p.m., Friday, June 21, 1996 at
the Hyatt Regency Tampa, 2 Tampa City
Center, Tampa, Florida 33602.
EXECUTIVE OFFICES
Stacey's Buffet, Inc.
801 West Bay Drive, Suite #704
Largo, Florida 34640
(813) 581-449
