<PAGE>
STACEY'S
BUFFET
1996 ANNUAL REPORT
<PAGE>
ABOUT THE COMPANY
Stacey's Buffet, Inc. (the "Company") at the end of the 1996
fiscal year, owned and operated 24 buffet restaurants under the
name "Stacey's Buffet". In addition, we have one store that
operates under a license agreement. There are 21 restaurants in
Florida and the remaining four restaurants are located throughout
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 food 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 dining 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 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 also 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
Lancaster
NEW JERSEY
Moorestown
Brick
FLORIDA
Altamonte Springs
Orlando
Winter Park
Lakeland
Seffner
Port Richey
Holiday
Clearwater
Largo
Pinellas Park
St. Petersburg
Ft. Myers
North Ft. Myers
Melbourne
Stuart
Ft. Lauderdale
Sunrise
West Palm Beach
Port Charlotte
Mt. Dora
LICENSEE RESTAURANT
-------------------
FLORIDA
Daytona Beach
<PAGE>
TO OUR SHAREHOLDERS:
During 1996, we continued the challenge of
"reinventing" Stacey's Buffet, Inc. by correcting
more of the many problems that have plagued Stacey's
for the past several years. Our actions included:
CLOSING UNPROFITABLE STORES: We sold or closed
five units that had combined yearly losses of
$699,000 in 1995 and $561,000 in 1996.
OVERHEAD REDUCTION: We continued to further
reduce corporate overhead by another $450,000 or
16.5%.
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. These reductions are
essential and clearly in the best interests of both
Stacey's and the landlords.
WHERE DO WE GO FROM HERE?
Over the past few years, it has become clear that
restaurant companies, especially troubled ones like
Stacey's, are no longer in favor on Wall Street and have
fallen off the "radar scope." To gain favor, it will take
extraordinary measures. Gone are the days when a
company could add new units, post sales gains or, in our
case, cut losses significantly while improving the entire
operation, and be recognized by the investment
community. Many major restaurant companies have
done just that only to see a dramatic drop in the market
value of their respective companies.
Will this ever change? Probably in two to five years
after the industry goes through a shake-out that involves
consolidation through mergers, acquisitions, individual
store closings and even a few bankruptcies.
Several investment and consulting firms have stated that
unit growth of restaurants exceeds real sales growth. In
other words, supply exceeds demand. This reinforces
the fact that building more and more restaurants is not
going to do a lot for improving profitability and
attracting new investors. On top of this is the fact that
continued aggressive growth and competition from
many chains continues to erode same store sales and
profitability at many restaurant companies.
<PAGE>
How is a restaurant chain like Stacey's going to compete
in this environment, become profitable and post
significant earnings growth? We need to change the
face of the company by either selling to or merging with
another company. This will provide us with a new
direction as well as economies of scale, synergies and
the like. Cutting costs and building a few new units will
not get it done.
In 1996, we retained the services of Harrison Hurley &
Company to look for ways to reposition our company.
They have identified several opportunities that exist in
the marketplace, and Stacey's is actively investigating
and pursuing such opportunities with the goal of
maximizing shareholder value.
In closing, I wish to thank our dedicated team of
directors and employees, as well as our loyal customers
and shareholders.
/s/ Stephen J. Marrier
Stephen J. Marrier
Chairman of the Board
<PAGE>
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 1, 1997
/ / 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 - Small Cap Market
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
26, 1997 was approximately $1,155,575.
The number of shares outstanding of registrant's common stock as of March
26, 1997 is 2,493,144 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for Annual Meeting of
stockholders to be held on June 20, 1997 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 1, 1997, there were nineteen
company owned Stacey's Buffets located in Florida, one Homestyle Buffet
located in Florida, and four Stacey's Buffets located in the Northeastern
states of New York, Pennsylvania, and New Jersey. In January, 1997 the one
Homestyle Buffet location in Florida was converted to a Stacey's Buffet.
Additionally, there were two 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 $5.29 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 10 and under. Children ages 3
and under eat free. Seniors may join the Company's 55 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.
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.
<PAGE> 2
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 corporate
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.
A number of the Company's managers 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.
<PAGE>
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.
3
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.
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.
<PAGE>
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.
4
EMPLOYEES
Currently, the Company employs 1,099 people, of which 13 are corporate
supervisory and administrative personnel, 75 are restaurant managers or
management trainees, and 1,011 are non-management restaurant employees.
Approximately 49% 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 one restaurant located in
Kissimmee, Florida. A second licensee is currently operating a Stacey's
Buffet in South Daytona, Florida. Each licensee pays a royalty equal to 2%
of licensee gross sales, subject to certain maximum amounts, with payments
made on a monthly basis.
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 to inspect 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.
<PAGE>
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.
All 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 20,000 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
5
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.
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 1, 1997.
<PAGE>
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) Small Caps 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, 1996. All previously reported amounts have been restated to reflect the
five-for-one reverse common stock split that became effective on July 17,
1996. 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 20,
1997 was 667.
CALENDAR 1996 HIGH LOW CALENDAR 1995 HIGH LOW
- ------------- ---- --- ------------- ---- ---
First Quarter $4 1/16 $2 3/16 First Quarter $6 9/16 $3 9/32
Second Quarter 3 29/32 2 11/32 Second Quarter 8 3/4 3 3/4
Third Quarter 2 1/2 1 Third Quarter 6 9/16 3 3/4
Fourth Quarter 1 1/16 9/16 Fourth Quarter 4 11/16 1 7/8
6
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- -----------------------
Fiscal Year Ended*
JANUARY 1, January 3, December 28, December 29, December 30,
1997 1996 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Restaurant sales $ 38,781,373 $ 48,826,319 $ 54,259,025 $ 35,261,577 $ 48,933,492
Restaurant costs 37,740,612 47,887,806 54,229,714 35,239,036 48,768,782
---------- ---------- ---------- ---------- ----------
Restaurant profit 1,040,761 938,513 29,311 22,541 164,710
General and administrative expenses 2,270,372 2,720,391 3,324,020 2,539,506 3,633,856
Amortization of goodwill 474,500 531,653 580,642 23,992 -
Provision for restaurant closings 225,000 1,750,000 2,191,881 6,025,169 6,549,325
Impairment of long-lived assets - 4,475,000 - - -
Other income (expense) 363,856 429,352 256,292 308,784 (197,501)
---------- ---------- ---------- ---------- ----------
Loss before income taxes (1,565,255) (8,109,179) (5,810,940) (8,257,342) (10,215,972)
Income tax benefit - - - - (456,000)
---------- ---------- ---------- ---------- ----------
Net loss $ (1,565,255) $ (8,109,179) $ (5,810,940) $ (8,257,342) $ (9,759,972)
========== ========== ========== ========== ==========
Net loss per share $ (.63) $ (3.00) $ (2.02) $ (6.43) $ (8.21)
========== ========== ========== ========== ==========
Weighted average common
and common equivalent
shares outstanding 2,493,144 2,704,538 2,880,128 1,283,736 1,188,395
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 1, January 3, December 28, December 29, December 30,
1997 1996 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ (6,263,136) $ (6,060,035) $(13,574,721) $ (8,234,702) $(10,005,990)
Total assets 16,778,655 18,461,622 36,897,757 43,561,902 28,055,441
Long-term debt 8,840 11,694 156,984 518,571 684,902
Stockholders' equity 8,940,136 10,505,627 21,114,806 26,904,947 15,286,104
RESTAURANT DATA:
Number of Company-owned
restaurants open at the
end of the fiscal year 24 28 43 41 34
<FN>
* Certain amounts as of January 1, 1996, December 28, 1994, December 29, 1993
and December 30, 1992 have been reclassified to conform to the January 1,
1997 presentation. See Note 1 to the Financial Statements.
</TABLE>
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- ---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
At the end of fiscal year 1996, the Company owned and operated twenty-four
restaurants. Additionally, there were four 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 four restaurants in the Northeast closed during fiscal
1996; one new restaurant was opened in Florida and one restaurant in
Florida was sold.
At the end of fiscal year 1995, the Company owned and operated twenty-eight
restaurants. Additionally, there were nine licensed restaurants operating
as "Stacey's Buffet", which were 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. This restaurant
was reopened after obtaining additional incentives from the landlord to try
to improve the restaurants operating results and was permanently closed
when unprofitable operations continued after the reopening.. The Company
does not plan on reopening closed restaurant locations in the future. In
fiscal 1994 and prior years, operating results for reserved stores were
charged against the provision for restaurant and closings.
<PAGE>
A summary of financial information on the operating results of the Company's
restaurants is presented in the following table.
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 3, DECEMBER 28,
1997 1996 1994
------ ------ ------
<S> <C> <C> <C>
Restaurant sales 100.0% 100.0% 100.0%
Cost of restaurant sales:
Food cost 38.9% 39.2% 40.0%
Labor cost 30.7% 30.1% 32.6%
Operating cost 16.4% 17.1% 15.0%
Occupancy cost 8.7% 8.3% 8.9%
Depreciation and amortization 2.6% 3.4% 3.5%
------ ------ ------
Total restaurant costs 97.3% 98.1% 100.0%
------ ------ ------
Restaurant profit 2.7% 1.9% 0.0%
General and administrative expenses 5.9% 5.5% 6.1%
Amortization of goodwill 1.2% 1.1% 1.1%
Provisions for restaurant closings 0.6% 3.6% 4.0%
Impairment of long-lived assets 0.0% 9.2% 0.0%
------ ------ ------
Operating loss -5.0% -17.5% -11.2%
Other income 0.9% 0.9% 0.5%
------ ------ ------
Loss before income taxes -4.1% -16.6% -10.7%
Income tax 0.0% 0.0% 0.0%
------ ------ ------
Net loss -4.1% -16.6% -10.7%
====== ====== ======
Number of Company-owned
restaurants open at end of period 24 28 43
</TABLE>
8
<PAGE>
RESTAURANT SALES
- ----------------
Restaurant sales for fiscal 1996 were $38,781,373, which was a decrease of
20.6% compared to fiscal 1995 sales of $48,826,319. This decrease was due
primarily to the closure of four restaurants located in the Northeast
during the year and the sale of one restaurant in Florida. Two of the four
stores were closed during the first quarter of 1996. In addition, same
store sales (stores open at the end of 1996 that were also open for all of
1996 and 1995) posted a 3.6% decrease for the year. One new location was
opened in Florida at the end of the first quarter of 1996.
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. Twelve
of the thirteen stores were closed during the first quarter of 1995. In
addition, same store sales (stores open at the end of 1995 that were also
open for all of 1995 and 1994) posted a 3.0% decrease for the year. One
new location was added in Florida in the latter part of the year.
RESTAURANT COSTS
- ----------------
Restaurant costs include food, labor, operating, occupancy, depreciation
and amortization expenses.
Food costs as a percentage of sales decreased from 39.2% in 1995, to 38.9%
in 1996, as a result of continuing efficient execution of the Stacey's
Buffet food program concept. Overall, wholesale food costs have remained
relatively stable during the current year.
Total labor costs as a percentage of sales increased from 30.1% in 1995 to
30.7% in 1996. This increase was related partly to the minimum wage
increase put into effect during 1996 and overall pressure to increase wages
to retain employees. 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 as they were integrated 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.
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.
Operating expenses as a percentage of sales decreased in 1996 to 16.4% from
17.1% in 1995 as a result of a decrease in general liability insurance
expense. 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.
Total occupancy costs as a percentage of sales increased from 8.3% in 1995
to 8.7% in 1996 as a result of generally lower same store sales volumes.
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.
<PAGE>
Depreciation and amortization expense as a percentage of sales decreased
from 3.4% in 1995 to 2.6% in 1996 as a result of the impairment of long-
lived assets when the Company adopted during the fourth quarter ended
January 3, 1996, 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 is discussed below. 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. In 1995, 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.
9
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses decreased from $2,720,391 in 1995 to
$2,270,372 in 1996 or a reduction of $450,019. The decrease in fiscal 1996
of $450,019 is primarily related to continued cost reductions in salaries
and wages, travel, legal fees and payroll taxes net of increases in
professional services fees and store management incentive awards.
General and administrative expenses decreased from $3,324,020 in 1994 to
$2,720,391 in 1995 or a reduction of $603,629. 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.
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 in exchange for the return to the
Company of 400,000 shares of its 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 future amortization of the remaining balance of goodwill will result in
an annual charge of $474,500 per year.
<PAGE>
PROVISION FOR RESTAURANT 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 1996, $225,000 was added to the existing reserve for restaurant
closings. This increase is attributable to the settlement of additional
lease termination agreements and revised cost estimates to settle lease
obligations. For fiscal 1995, $1,750,000 was added to the existing reserve
for restaurant closings. That amount was attributable to the settlement of
various lease termination agreements and revised cost estimates to settle
lease obligations. For fiscal 1994, $2,191,881 was added to the existing
reserve to cover anticipated closing costs.
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, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," (" Statement 121") 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 was 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.
10
<PAGE>
OTHER INCOME
- ------------
In 1996, other income consisted primarily of interest income, net of
interest expense, gain on sale of assets and royalty fees from licensees.
Income from royalty fees for 1996 was approximately $250,000. There was a
gain on the sale of assets of $75,000 included in other income in 1996.
Additionally, interest income was approximately $38,000 which was partially
offset by interest expense of $35,000 in 1996. It is anticipated that the
reduction in the number of stores subject to license agreements with the
Company will substantially reduce the income from royalty fees in fiscal
1997.
In 1995, other income and expense consisted primarily of interest income
and expense and royalty fees from licensees. 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.
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.
INCOME TAXES
- ------------
There was no income tax expense or benefit for 1996, 1995 and 1994 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 was a $.50 per hour increase in the minimum wage to $4.75
per hour, that was effective September 1, 1996. There is an additional
increase in the minimum wage scheduled to become effective on September 1,
1997 for an additional $.40 per hour. There were no increases in the
minimum wage during 1995 and 1994.
The overall impact of inflation during the past three years has largely
been offset by greater volume-purchase discounts and cost reduction
programs.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's cash flow provided by operating activities was approximately
$146,000 for fiscal 1996 compared with approximately $824,000 for fiscal
1995 and approximately $2,401,000 in fiscal 1994. Differences between
fiscal 1996 and 1995 are primarily a result of working capital uses of cash
primarily as a result of changes in accounts payable and the provision for
restaurant closings.
The Company's cash flow used in investing activities was approximately
$295,000 for fiscal 1996 compared with approximately $183,000 for fiscal
1995 and $2,953,000 in fiscal 1994. The primary investing activity for
each of these three years was capital expenditures. Capital expenditures
for fiscal 1996 related to the costs of opening a new store in Florida and
the replacement costs of major renewals of restaurant equipment. Capital
expenditures for fiscal 1995 related to the costs of converting one new
store in Florida 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 Company's cash flow used in financing activities was approximately
$147,000 for fiscal 1996 compared with approximately $123,000 for fiscal
1995 and $424,000 for fiscal 1994. The primary use of cash flows used in
financing activities in fiscal 1996, 1995 and 1994 were payments made under
capital lease obligations.
The Company's liquidity 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 most of the Company's cash reserves. At January 1, 1997,
there is $806,194 in short-term investments, which is being used to secure
a $500,000 line of credit and a $250,000 letter of credit that supports our
self-funded worker's compensation and general liability insurance programs.
On January 5, 1997, the line of credit facility expired and all amounts
outstanding under the line were repaid. Approximately $581,000 of the
short-term investments were released from the security agreement and
converted to cash for operating working capital.
The Company's ratio of current assets to current liabilities at year-end
1996 was .20 compared to .23 at year-end 1995 and .21 at year-end 1994.
Included in current liabilities at year-end for 1996 is $2,175,000 for the
provision for restaurant closings. Approximately $1,167,000 of that
reserve is for anticipated write-offs of equipment and leasehold
improvements, which do not affect the use of cash.
Based on current operating results and management's projected operating
results for fiscal 1997 of the remaining twenty-four restaurants, using
actual fiscal 1996 results as the basis of these projections, the Company
expects cash flows generated from restaurant operations will be adequate to
pay debts as they become due.
12
<PAGE>
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.
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 1, 1997 and January 3, 1996
STATEMENTS OF OPERATIONS for the years ended January 1, 1997,
January 3, 1996 and December 28, 1994
STATEMENTS OF STOCKHOLDERS' EQUITY for the years ended January 1,
1997, January 3, 1996 and December 28, 1994
STATEMENTS OF CASH FLOWS for the years ended January 1, 1997,
January 3,1996, and December 28, 1994
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 exhibit is filed as part of this report or incorporated
herein by reference.
Exhibit 3.1 Articles of Incorporation, as amended
Exhibit 3.2 By Laws, as amended
13
<PAGE>
(b) REPORTS ON FORM 8-K
Reports on Form 8-K filed during the fourth quarter of 1996:
The Company filed a Form 8-K dated November 1, 1996 reporting that
Stacey's Buffet, Inc. had implemented its Shareholder Rights Plan.
(c) EXHIBITS
Exhibits to this form 10-K are attached or incorporated by reference as
stated above.
(d) NOT APPLICABLE
14
<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: March 31, 1997
By: /s/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
--------- --------- ---------
/s/ Stephen J. Marrier Chairman and Chief Executive March 31, 1997
---------------------- Officer and Director
/s/ Garrett B. Hunter Director March 31, 1997
----------------------
/s/ Peter J. Hurley Director March 31, 1997
----------------------
/s/ Daniel J. Sullivan Chief Financial Officer (Principal March 31, 1997
(Principal Financial and Accounting
Officer)
15
<PAGE>
STACEY'S BUFFET, INC.
Financial Statements
January 1, 1997 and January 3, 1996
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 1, 1997 and January 3, 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the years
in the three-year period ended January 1, 1997. 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 1, 1997 and January 3, 1996, and the results
of its operations and its cash flows for each of the years in the three-
year period ended January 1, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Tampa, Florida
February 14, 1997
<PAGE>
<TABLE>
<CAPTION>
STACEY'S BUFFET, INC.
Balance Sheets
January 1, 1997 and January 3, 1996
January 1, January 3,
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 252,991 548,791
Short-term investments 806,194 769,668
Receivables 162,993 101,208
Inventory 309,013 356,667
Prepaid expenses and other 35,352 80,354
----------- ----------
Total current assets 1,566,543 1,856,688
Property and equipment, less accumulated
depreciation 6,939,536 7,846,665
Deposits and other assets 162,588 173,545
Goodwill, less accumulated amortization 8,109,988 8,584,488
----------- -----------
$ 18,461,622 18,461,386
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 2,638,948 2,988,571
Line of credit 340,000 175,000
Current portion of obligations
under capital leases 16,168 159,704
Accrued expenses 2,052,122 1,820,051
Accrued rent 607,818 708,991
Reserve for restaurant closings 2,174,623 2,064,406
----------- -----------
Total current liabilities 7,829,679 7,916,723
Obligations under capital leases,
excluding current portion 8,840 11,694
Other liabilities - 25,578
----------- -----------
Total liabilities 7,838,519 7,955,995
Stockholders' equity:
Common stock, $.01 par value. Authorized
25,000,000 shares; issued 2,493,144 shares
at January 1, 1997 and January 3, 1996 24,931 24,931
Additional paid in capital 42,787,602 42,787,602
Accumulated deficit (33,872,397) (32,307,142)
----------- -----------
Net stockholders' equity 8,940,136 10,505,391
Commitments and contingencies
----------- -----------
$ 16,788,655 18,461,386
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STACEY'S BUFFET, INC.
Statements of Operations
Years ended January 1, 1997, January 3, 1996
and December 28, 1994
January 1, Janaury 3, December 28,
1997 1996 1994
---- ---- ----
<S> <C> <C> <C>
Restaurant sales $ 38,781,373 48,826,319 54,259,025
Cost of restaurant sales:
Food cost 15,085,912 19,151,959 21,708,862
Labor cost 11,909,174 14,690,105 17,667,224
Operating cost 6,374,458 8,343,591 8,121,165
Occupancy cost 3,376,938 4,034,199 4,831,502
Depreciation and amortization 994,130 1,667,952 1,900,961
------------ ------------ ------------
Total restaurant costs 37,740,612 47,887,806 54,229,714
------------ ------------ ------------
Restaurant profit 938,513 29,311 22,541
General and administrative expenses 2,270,372 2,720,391 3,324,020
Amortization of goodwill 474,500 531,653 580,642
Provisions for restaurant closings 225,000 1,750,000 2,191,881
Impairment of long-lived assets - 4,475,000 -
------------ ------------ ------------
Operating loss (1,929,111) (8,538,531) (6,067,232)
Other income 363,856 429,352 256,292
------------ ------------ ------------
Loss before income taxes (1,565,255) (8,109,179) (5,810,940)
Income taxes - - -
------------ ------------ ------------
Net loss $ (1,565,255) (8,109,179) (5,810,940)
============ ============ ============
Net loss per share of common stock $ (0.60) (0.40) (1.29)
======= ======= =======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STACEY'S BUFFET, INC.
Statements of Stockholders' Equity
Years ended January 1, 1997, January 3, 1996
and December 28, 1994
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 29, 1993 14,388,339 $ 143,883 45,148,851 - (18,387,023) 26,904,711
Effect of July 17, 1996 five-
for-one reverse stock split (11,510,745) (115,108) 115,108 - - -
---------- --------- ---------- --------- ------------ ------------
Adjusted balances at December 29, 1993 2,877,594 28,775 45,262,959 - (18,387,023) 26,904,711
Exercise of stock options 550 6 7,213 - - 7,219
Stock issued to officer 3,000 30 33,720 - - 33,750
Expenses incurred in connection
with 1993 rights offering - - (91,420) - - (91,420)
Stock issued to settle leases 12,000 120 71,130 - - 71,250
Net loss - - - - (5,810,940) (5,810,940)
---------- --------- ---------- --------- ------------ ------------
Balances at December 28, 1994 2,893,144 28,931 45,283,602 - (24,197,963) 21,114,570
Purchase of shares - - - (2,500,000) - (2,500,000)
Retirement of treasury stock (400,000) (4,000) (2,496,000) 2,500,000 - -
Net loss - - - - (8,109,179) (8,109,179)
---------- --------- ---------- --------- ------------ -----------
Balances at January 3, 1996 2,493,144 $ 24,931 42,787,602 - (32,307,142) 10,505,391
Net loss - - - - (1,565,255) (1,565,255)
---------- --------- ---------- --------- ------------ -----------
Balances at January 1, 1997 2,493,144 $ 24,931 42,787,602 - (33,872,397) 10,505,627
========== ========= ========== ========= ============ ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STACEY'S BUFFET, INC.
Statements of Cash Flows
Years ended January 1, 1997, January 3, 1996
and December 28, 1994
January 1, January 3, December 28,
1997 1996 1994
---- ---- ----
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss $ (1,565,255) (8,109,179) (5,810,940)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,677,019 2,384,139 2,481,603
Provision for restaurant closings 225,000 1,750,000 2,191,881
Provision for impairment of long-lived assets - 4,475,000 -
Change in assets and liabilities:
(Increase) decrease in assets:
Short-term investments (36,526) 69,702 4,787,351
Receivables (61,785) (33,457) 37,263
Inventory 47,654 162,322 (94,437)
Income tax refund receivable - 19,199 37,610
Prepaid expenses and other 45,002 281,629 115,696
Deposits and other assets 10,957 (10,402) 105,895
Increase (decrease) in liabilities:
Accounts payable (349,623) 422,827 (105,507)
Line of credit 165,000 (13,000) 188,000
Accrued expenses 130,898 (1,326,999) 66,201
Other liabilities (27,578) (19,993) 6,765
Reserve for restaurant closings (114,783) 772,641 (1,606,156)
----------- ----------- -----------
Net cash provided by operating activities 145,980 824,429 2,401,225
Cash flows from investing activities:
Capital expenditures (295,390) (175,705) (2,952,843)
Other - (7,460) -
----------- ----------- -----------
Net cash used in investing activities (183,165) (2,952,843) (4,611,874)
Cash flows from financing activities:
Proceeds from stock options exercised - - 7,192
Payments on capital lease obligations (146,390) (122,680) (431,292)
----------- ----------- -----------
Net cash used in financing activities (146,390) (122,680) (424,100)
----------- ----------- -----------
Net (decrease) increase in cash (295,800) 518,584 (975,718)
Cash and cash equivalents at beginning of period 548,791 30,207 1,005,925
----------- ----------- -----------
Cash and cash equivalents at end of period $ 252,991 548,791 30,207
=========== =========== ===========
(Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STACEY'S BUFFET, INC.
Statements of Cash Flows, Continued
January 1, January 3, December 28,
1997 1996 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Interest paid $ 35,587 $ 46,849 $ 60,735
========== ========== ==========
Supplemental schedule of noncash investing and
financing activities:
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
========== ========== ==========
Issuance of 12,000 shares of common stock to
landlord for lease conssions and as part
of the settlement to terminate lease $ - $ - $ 71,250
========== ========== ==========
Issuance of 3,000 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 $ -
=========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STACEY'S BUFFET, INC.
Notes to Financial Statements
January 1, 1997 and January 3, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
DESCRIPITION OF BUSINESS
------------------------
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-four stores open at January 1, 1997, twenty-eight stores
open at January 3, 1996, and forty-three stores open at December 28,
1994. Of the stores opened at January 1, 1997, twenty are located in
the state of Florida. Four restaurants were closed in 1996, one
restaurant was sold, and one new restaurant was opened. 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.
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.
The carrying amount of short-term investments approximates fair value
because of the short maturity, generally less than three months, of
these instruments.
INVENTORY
---------
Inventory is stated at the lower of cost (first-in, first-out method)
or market.
<PAGE>
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, 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.
(Continued)
2
STACEY'S BUFFET, INC.
Notes to Financial Statements
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 2,493,144 for the year
ended January 1, 1997, 2,704,539 for the year ended January 3, 1996 and
2,880,128 for the year ended December 28, 1994.
<PAGE>
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 January 3, 1996 and December 28, 1994 have been
reclassified to conform to the January 1, 1997 presentation.
(2) PROPERTY AND EQUIPMENT
----------------------
Property and equipment, consists of the following:
JANUARY 1, JANUARY 3, USEFUL LIVES
1997 1996 IN YEARS
---- ---- ------
Restaurant equipment $ 9,610,938 10,027,140 5 - 12
Leasehold improvements 4,741,255 4,866,625 15 - 20
Other equipment 570,203 591,663 5
----------- ----------- =======
14,922,396 15,485,428
Less accumulated depreciation 7,982,860 7,638,763
----------- -----------
$ 6,939,536 7,846,665
=========== ===========
(3) LEASES
------
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.
(Continued)
<PAGE>
3
STACEY'S BUFFET, INC.
Notes to Financial Statements
Future minimum lease payments under signed noncancelable operating
leases as of January 1, 1997 are as follows:
EXISTING
FISCAL YEAR FACILITIES
----------- ----------
1997 $ 2,496,188
1998 2,396,524
1999 1,584,612
2000 1,159,522
2001 796,143
Thereafter 432,910
==========
Total rent expense was approximately $2,700,000 for the year ended
January 1, 1997, $3,480,000 for the year ended January 1, 1996 and
$4,627,000 for the year ended December 28, 1994. 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 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, $4,475,000 was charged against
operations during the quarter ended January 3,1996 for asset
impairments.
Impaired long-lived assets "fair value" was determined based on
estimated market values for similar assets and on the expected
discounted cash flows from those assets.
<PAGE>
(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 1, 1997, the unused
line was $160,000. This line of credit expired on January 6, 1997,
and was paid in full. Additionally, the short-term investments that
secured the line of credit were converted to cash in January, 1997.
(6) RESERVE FOR RESTAURANT CLOSINGS
-------------------------------
The Company increased the estimated reserve for restaurant 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.
(Continued)
<PAGE>
4
STACEY'S BUFFET, INC.
Notes to Financial Statements
The Company increased the reserve for restaurant 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 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 five years.
The Company increased the reserve for restaurant closings in the year
ended January 1, 1997 by a $225,000 charge to the provision for store
closings and $377,876 reclassed from accrued liabilities. The increase
was attributable to revised cost estimates to settle lease obligations
and the addition of five stores that were closed in 1996. The Company
charged $426,338 in cash payments for settlement agreements and $66,321
in cash payments for legal fees and to move retained equipment against
the reserve for store closings for the year ended January 1, 1997.
The balance of the reserve for restaurant closings as of January 1,
1997 is comprised of the following:
RESTAURANT
CLOSINGS
--------
Lease termination agreements and
remaining lease expense $ 1,007,487
Disposal of leasehold improvements
and equipment 1,167,136
----------
$ 2,174,623
==========
During the year ended December 28, 1994, the results of eight
restaurants were charged against the reserve for restaurant renovations
and closings. There were no such charges against the reserve in 1995
or in 1996.
<PAGE>
(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 1, 1997, January 3, 1996 and December 28, 1994 to
loss before income taxes as a result of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 3, DECEMBER 28,
1997 1996 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax benefit $ (548,000) (2,838,000) (2,035,000)
Increase (reduction) in income
taxes resulting from:
Change in the beginning of
the year balance of the
valuation allowance for
deferred tax assets
allocated to income tax
expense 660,000 3,419,000 2,296,000
State tax benefit, net of
Federal effect (112,000) (316,000) (312,000)
Other, net - 265,000 51,000
---------- ---------- ----------
$ - - -
========== ========== ==========
</TABLE>
(Continued)
<PAGE>
5
STACEY'S BUFFET, INC.
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below.
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 3,
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Impairment of long-lived assets $ 1,621,000 1,790,000
Provision for store closings 870,000 826,000
Net operating loss carryforward 12,619,000 12,252,000
Miscellaneous tax credits 121,000 120,000
Goodwill 427,000 309,000
Other 117,000 55,000
------------ ------------
Total gross deferred tax assets 15,775,000 15,352,000
Less valuation allowance (13,061,000) (12,401,000)
------------ ------------
Net deferred tax assets 2,714,000 2,951,000
------------ ------------
Deferred tax liabilities:
Property and equipment, due to
differences in depreciation methods
and useful lives (2,435,000) (2,686,000)
Training (279,000) (265,000)
------------ ------------
Total gross deferred tax liabilities (2,714,000) (2,951,000)
------------ ------------
Net deferred tax asset $ - -
============ ============
</TABLE>
The valuation allowance as of January 1, 1997 was $13,061,000. The net
change in the total valuation allowance was an increase of $660,000 and
$3,419,000 for the years ended January 1, 1997 and January 3, 1996,
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 deferred net tax
assets due to the uncertainty of the realization of the net deferred
tax assets.
At January 1, 1997, the Company has net operating loss carryforwards
for Federal income tax purposes of approximately $31,500,000, which is
available to offset future taxable income, if any, through 2011.
<PAGE>
(8) SHAREHOLDER RIGHTS PLAN
-----------------------
The Company has adopted a Shareholder Rights Plan (the "Plan") which is
designed to prevent an acquirer from gaining control of the Company
without offering a fair price to all shareholders. Under the Plan,
each of the Company's outstanding shares is now accompanied by a Right
that would become exercisable at the close of business on the tenth day
following the earlier to occur of:
1. A public announcement that a person or group had acquired
beneficial ownership of 15% or more of the Company's common
stock or
2. the commencement of, or the first public announcement or
announcement of an intention of any person or group to
commence, a tender offer or exchange offer which would result
in that person or group acquiring beneficial ownership of 15%
or more of the Company's common stock.
Once the Rights become exercisable, each Right entitles the holder to
purchase nine shares of the Company's common stock at a purchase price
of $.01 per share. The Rights may be redeemed by the Company at a
redemption price of $0.001 per right at anytime prior to the Rights
becoming exercisable.
(Continued)
6
STACEY'S BUFFET, INC.
Notes to Financial Statements
(9) STOCKHOLDERS' EQUITY
--------------------
On July 17, 1996, the Company effected a five-to-one reverse stock split
that had been previously approved by the Board of Directors and was
approved by the shareholders at the annual shareholders meeting on June
21, 1996. All references to the number of shares and per share amounts
have been restated to reflect the effect of the reverse split in the
financial statements for all periods presented.
<PAGE>
(10) STOCK OPTION PLANS AND WARRANTS
-------------------------------
Effective February 19, 1987, an employee stock option plan was adopted
for which 104,593 shares of the Company's common stock were reserved.
Effective May 9, 1990, the Company adopted a second employee stock
option plan for which 42,000 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 28, 1994, options were granted to
purchase 36,350 shares at $15.00 per share, 1,600 shares at $11.55 per
share, 4,900 shares at $7.80 per share, and 10,700 shares at $5.20 per
share. During the 1994, options to purchase 27,121 shares were
canceled, and options to purchase 550 shares were exercised.
During the year ended January 3, 1996, options were granted to purchase
7,100 shares at $7.50 per share, 8,700 shares at $3.125 per share,
36,000 shares at $3.75, 17,000 shares at $22.00, 75,000 shares at
$10.00, and 5,000 shares at $4.70, and 20,000 at $5.00. During 1995,
options to purchase 18,864 shares were canceled, and no options to
purchase shares were exercised.
During the year ended January 1, 1997, options were granted to purchase
14,100 shares at $3.60 per share and 150,000 shares at $2.35 per share.
During 1996, options to purchase 10,150 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 236,363 shares were exercisable at
January 1, 1997. The vesting schedule by fiscal year for shares
covered by the options is as follows:
FISCAL YEAR
-----------
1997 52,788
1998 48,288
1999 46,663
2000 41,650
---------
189,389
=========
The Company has warrants outstanding for the purchase of 425,000 shares
at $4.50 per warrant exercisable through November 1998. The result of
the July 17, 1996, five-for-one reverse stock split requires five
warrants to purchase one share of common stock. As of January 1, 1997,
the Company has granted 231,000 stock options to officers that were
unrelated to the employee stock option plan and 26,000 stock options to
the underwriter and a former landlord.
(Continued)
<PAGE>
7
STACEY'S BUFFET, INC.
Notes to Financial Statements
(11) STOCK BASED COMPENSATION
------------------------
During the year ended January 1, 1997, the Company adopted the
Financial Accounting Standards Board's Statement of Financial
Accounting No. 123, "Accounting for Stock-Based Compensation," ("SFAS
No. 123") which recommends stock based compensation be measured at fair
value rather than intrinsic value and requires additional pro forma
disclosure for companies that do not measure stock based compensation
using the fair value method.
The Company applies APB Opinion No. 25 in accounting for its stock
options and warrants and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements. Had the
Company determined compensation cost based on the fair value at the
grant date for its stock options and warrants under SFAS No. 123, the
Company's net loss and loss per share for the years ended January 1,
1997 and January 1, 1996, respectively, would have been increased by
negligible pro forma amounts. This pro forma net loss and loss per
share applies only to options and warrants granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not considered in the pro forma net loss
and loss per share amounts referred to because compensation costs are
reflected over the options and warrants vesting periods and
compensation cost for options and warrants granted prior to December
29, 1994 is not considered.
(12) RELATED PARTIES
---------------
During 1995, the Company and its former Chairman and Chief Executive
Officer ("former Officer"), agreed to spin-off three restaurants in
exchange for 400,000 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. During 1996, the former Officer
terminated the license agreement and no longer operates these stores as
Stacey Buffet restaurants. As part of the transaction, former Officer
granted the Board of Directors the right to direct the voting of his
remaining 400,000 shares through 1999.
<PAGE>
(13) 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.
(14) 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 cash flow generated from 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
MAUREEN A. JACK
Corporate Secretary
GARRETT B. HUNTER
Director
President, Business Development Company
of Rhode Island
PETER J. HURLEY
Director
President, Harrison Hurley & Company
<PAGE>
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 1:30 p.m., Friday, August 1, 1997 . at
The Providence Marriott, One Orms Street,
Providence, Rhode Island 02904.
EXECUTIVE OFFICES
-----------------
Stacey's Buffet, Inc.
801 West Bay Drive, Suite #704
Largo, Florida 33770
(813) 581-4492
