10-K 1 ryan10k.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________ FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 2003 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-14311 FAMILY STEAK HOUSES OF FLORIDA, INC. (exact name of registrant as specified in its charter) Florida No. 59-2597349 (State of Incorporation) (I.R.S. Employer Identification) 2113 Florida Boulevard Neptune Beach, Florida 32266 (Address of Principal Executive Offices) Registrant's telephone number, including area code: (904) 249-4197 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value (Title of Class) ______________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether registrant is an accelerated filer (as defined by Rule 126-2 of the Act. YES [ ] NO [ X ] As of February 28, 2003, 3,706,200 shares of Common Stock of the registrant were outstanding. The aggregate market value of such voting Common Stock (based upon the closing sale price of the registrant's Common Stock on the NASDAQ SmallCap Market System on February 28, 2003, as reported in The Wall Street Journal) held by non-affiliates of the registrant was approximately $636,400. Documents Incorporated by Reference Portions of the registrant's 2002 Annual Report to Shareholders are incorporated by reference into Part II. Portions of the Proxy Statement for the registrant's 2003 Annual Meeting of Shareholders are incorporated by reference into Part III. PART I ITEM 1. BUSINESS General Family Steak Houses of Florida, Inc. ("Family" or the "Company"), is the sole franchisee of Ryan's Family Steak House restaurants ("Ryan's restaurants") in the State of Florida. The Company's first Ryan's restaurant was opened in Jacksonville, Florida, in May 1982. The Company presently operates 22 Ryan's restaurants in Florida. A Ryan's restaurant is a family-oriented restaurant serving high-quality, reasonably-priced food in a casual atmosphere with server-assisted service. The restaurants feature self-service scatter bars with a variety of over 100 fruit, vegetable and meat entree items, bakery and dessert bar, drink refills and table service. Several restaurants feature a display cooking area, where guests can have grilled-to-order steaks, chicken, pork chops and other items, all of which is included in the price of the buffet. The Company believes that its operating strategy of selling top-quality meals at reasonable prices creates a perception of value to its customers. The Company operates its Ryan's restaurants under a Franchise Agreement with Ryan's Properties, Inc., ("Ryan's", or the "Franchisor") which grants the Company the right to operate Ryan's Family Steak House restaurants throughout North and Central Florida. Company History The Company was formed by the combination, effective September 1985, of six limited partnerships, each of which owned and operated a Ryan's restaurant franchise. In April 1986, the Company issued 853,200 shares of its common stock in exchange for the assets and liabilities of the predecessor partnerships and 1,134,000 shares of its common stock to Eddie L. Ervin, Jr., in consideration for Mr. Ervin assigning to the Company all of his rights under the Franchise Agreement, as defined below. The Company completed its initial public offering of 900,000 shares of its common stock in 1986 resulting in net proceeds to the Company of approximately $4,145,000. 2 Franchise Agreement The Company operates its Ryan's restaurants under a Franchise Agreement between the Company and Ryan's dated as of September 16, 1987, which amended and consolidated all previous franchise agreements (as amended, the "Franchise Agreement"). The Franchise Agreement extends through December 31, 2010 and provides for two additional ten-year renewal options. The renewal options are subject to certain conditions, including the condition that the Company has performed its obligations under the Franchise Agreement during its original term. In October 1996, the Company amended the Franchise Agreement with Ryan's. The amended Franchise Agreement requires the Company to pay a monthly royalty fee of 3.0% through December 2001 and 4.0% thereafter on the gross receipts of each Ryan's Family Steak House restaurant. Total royalty fee expenses were $1,681,600, $1,260,300 and $1,197,600 for fiscal years 2002, 2001 and 2000 respectively. The Franchise Agreement granted the Company the exclusive right to open Ryan's restaurants in North and Central Florida. In order to maintain this exclusivity, the Company was required to have a total of 25 Ryan's restaurants operating on December 31, 2001. At December 31, 2001, the Company was only operating 23 restaurants. On January 4, 2002, the Company was notified by Ryan's that it had exercised its option to terminate the exclusive nature of the Company's franchise rights within North and Central Florida. Management believes that if Ryan's builds restaurants in the Company's territories, it could limit the Company's potential to locate and develop suitable restaurant sites in the future. The following schedule outlines the number of Ryan's restaurants required to be operated by the Company as of December 31 of each year under the amended Franchise Agreement. Failure to maintain the required number of restaurants is a default under the agreement, and could result in the Company losing the right to operate under the Ryan's name. 3 Number of Restaurants Required to End of Fiscal Year be in Operation 2002 22 2003 24 2004 25 2005 27 2006 28 The Company was in compliance with this schedule as of the year ended January 1, 2003. However, based on management's current plan to sell or sublease certain under-performing restaurants, it is unlikely that the company will meet the requirement as of fiscal year end 2003. Management has attempted to negotiate a potential solution with Ryan's to resolve this issue, and has inquired as to whether Ryan's will consider a shortage in restaurants a default under the Franchise Agreement. However, no agreement has been reached to date with Ryan's, and Ryan's has not responded as to its position on a possible default under the Franchise Agreement. Ryan's has the option to declare the Company in default of the Franchise Agreement beginning January 1, 2004 if the minimum number of restaurants is not maintained. The Company believes that it has complied with all other provisions of the Franchise Agreement, and that the closure of certain restaurants is a prudent and necessary business decision, which should not be considered a default. However, if Ryan's declares the Company in default, it could demand that the Company stop using the Ryan's name for its restaurants. The Company would then have to decide whether to comply with such a demand and change the name of all its restaurants, or attempt to have the default notice overturned by legal action through binding arbitration provisions stipulated by the Franchise Agreement. If the Company is forced to change the name of its restaurants, management does not believe that such action would have a material effect on the Company's profitability. However, there can be no assurance that a name change would not result in a material decline in sales and profitability. The Franchise Agreement as amended also clarifies that the Franchisor's consent is needed for certain kinds of transactions. The transactions include (1) a person's (or group's) acquisition of 25% of the Company's common stock (other than a person who owned 15% of the Company's common stock as of December 15, 1998), (2) turnover during any consecutive 12-month period of more than a majority of the Company's board of directors unless the new directors are approved by a two-thirds vote of the directors then still in office who either were 4 directors at the beginning of the 12-month period or whose election or nomination for election was previously so approved; and (3) the Company's or any affiliates' ownership, engagement in or interest in the operation of any other family-oriented steak house restaurant. The Franchise Agreement contains provisions relating to the operation of the Company's Ryan's restaurants. Upon the Company's failure to comply with such provisions, the Franchisor may terminate the Franchise Agreement if such default is not cured within 30 days of notice from the Franchisor. Termination of the Franchise Agreement would result in the loss of the Company's right to use the "Ryan's Family Steak House" name and concept and could result in the sale of the physical assets of the Company to the Franchisor pursuant to a right of first refusal. Termination of the Company's rights under the Franchise Agreement could result in the disruption of the Company's operations. The Company believes that it has operated and maintained each of its Ryan's Family Steak House restaurants in accordance with the operational procedures and standards set forth in the Franchise Agreement. Operations of Ryan's Restaurants Format. As of February 28, 2003, 20 of the Company's Ryan's restaurants are located in free-standing buildings which vary in size from 7,500 to 12,000 square feet. Two of the Company's Ryan's restaurants are located in shopping malls. Each restaurant is constructed of brick or stucco walls, interior and exterior, with exposed woodwork. The interior of each Ryan's restaurant contains a dining room, a customer ordering area, and a kitchen. The dining rooms seat between 270 and 500 persons and highlight centrally located, illuminated scatter bars and a fresh bakery and dessert bar. Six restaurants include a display cooking area with a charcoal grill and a flat grill for grilled- to-order steaks, pork chops and chicken items, a rotisserie chicken broiler, a pizza oven and a wok for preparation of Chinese food items. Each Ryan's restaurant has parking for approximately 100 to 175 cars on lots of overall size of approximately 50,000 to 70,000 square feet. The Ryan's restaurants operate seven days a week. Typical hours of operation are from 11:00 a.m. to 9:00 p.m., Sunday through Thursday, and from 11:00 a.m. to 10:00 p.m., Friday and Saturday. Restaurants that serve breakfast open at 8:00 a.m. Saturday and Sunday. In a Ryan's restaurant, the customer enters the restaurant, orders from the menu, and then enters the dining room. Beverages are brought to the table by servers. Entrees are cooked to order at most locations. The customer ordering the buffet is given unlimited access to the scatter bars and the 5 bakery and dessert bar. Customers receive table service of the entree and beverage refills except at stores with display cooking, which offer buffet only. For the fiscal year ended January 1, 2003, the average weekly customer count per restaurant was approximately 5,159 and the average meal price (including beverage) was approximately $7.03. Restaurant Management and Supervision. The Company manages the Ryan's restaurants pursuant to a standardized operating and control system together with comprehensive recruiting and training of personnel to maintain food and service quality. In each Ryan's restaurant, the management group consists of a general manager, a manager and one to three assistant managers, depending on sales volume. The Company requires at least two members of the management group on duty during all peak serving periods. Management-level personnel usually begin employment at the manager trainee or assistant manager level, depending on prior restaurant management experience. All new management-level personnel must complete the Company's five-week training program prior to being placed in a management position. Each restaurant management group reports to a supervisor. Presently, the supervisors each oversee the operations of four to seven restaurants. The supervisors report directly to the Office of the President. Communication and support from all departments in the Company are designed to assist the supervisors in responding promptly to local problems and opportunities. All restaurant managers and supervisors participate in incentive programs based upon the profitability of their restaurants and upon the achievement of certain pre-set goals. The Company believes these incentive programs enable it to operate more efficiently and to attract qualified managers. The Company has an operating partner program for certain managers to provide them with an additional career path and give them increased incentive to maximize the profitability of their restaurants. The Company currently has two operating partners participating in this program. Purchasing, Quality and Cost Control. The Company has a centralized purchase control program which is designed to ensure uniform product quality in all restaurants. The program also helps to maintain reduced food, beverage, and supply costs. The Company purchases approximately 90% of the products used by the Company's restaurants through the centralized purchase control program. USDA choice or select grain-fed beef, the Company's primary commodity, is closely monitored by the Company for advantageous purchasing and quality control. The Company purchases beef through various producers and brokers both on a 6 contract basis and on a spot basis. Beef and other products are generally delivered directly to the restaurants three times weekly, except for fresh produce, which is delivered three to six times per week. The Company has in the past obtained satisfactory sources of supply for all the items it regularly uses and believes it will be able to do so in the future. The Franchise Agreement requires that all suppliers of Ryan's restaurants are subject to approval by the Franchisor. Through its relationship with the Franchisor, the Company has obtained favorable pricing on the purchase of food products from several suppliers. The Company has used Alliant Foodservice, Inc. as its primary supplier since 1991. Alliant was purchased by U.S. Foods, Inc. in 2001. The U.S. Foods agreement is cancelable at any time with 90 days notice. The Company maintains centralized financial and accounting controls for its restaurants. On a daily basis, restaurant managers forward customer counts, sales information and supplier invoices to Company headquarters. On a weekly basis, restaurant managers forward summarized sales reports and payroll data. Physical inventories of all food and supply items are taken weekly, and meat is inventoried daily. Development General. The Company operated 22 Ryan's restaurants as of February 28, 2003. Site Location and Construction. The Company considers the specific location of a restaurant to be important to its long- term success. The Company's Franchisor has in the past assisted the Company in selection of new restaurant sites. The site selection process focuses on a variety of factors, including trade area demographics (such as population density and household income level), an evaluation of site characteristics (such as visibility, accessibility, and traffic volume), proximity to large retailers and an analysis of the potential competition. In addition, site selection is influenced by the general proximity of a site to other Ryan's restaurants in order to improve the efficiency of the Company's field supervisors and potential marketing programs. The Company generally locates its restaurants near or adjacent to residential areas in an effort to capitalize on repeat business from such areas as opposed to transient business. For most of the Company's restaurants built in recent years, the Company used a general contractor selected from several solicited bids. For the Company's newest restaurant, opened in December 2001, the Company used its construction 7 subsidiary as the general contractor in order to expedite the process of obtaining building permits. New Ryan's restaurants are usually completed within four months of the date on which construction is commenced. Management of New Restaurants. When a new Ryan's restaurant is opened, the principal restaurant management positions are staffed primarily with management personnel who have prior experience in a management position at another of the Company's restaurants and who have undergone special training. Prior to opening, all staff personnel at the new location undergo one week of intensive training conducted by a training team. Such training includes pre-opening drills in which test meals are served to the invited public. Both the staff at the new location and personnel experienced in store openings at other locations participate in the training and drills. Proprietary Trade Marks The name "Ryan's Family Steak House," along with all ancillary signs, building design and other symbols used in conjunction with the name, are the primary trademarks and service marks of the Franchisor. Such marks are registered in the United States. All of these registrations and the goodwill associated with the Franchisor's trademarks are of material importance to the Company's business and are licensed to the Company under the Franchise Agreement. Competition The food service business in Florida is highly competitive and is often affected by changes in the taste and eating habits of the public, economic conditions affecting spending habits, local demographics, traffic patterns and local and national economic conditions. The principal bases of competition in the industry are the quality and price of the food products offered. Location, speed of service and attractiveness of the facilities are also important factors. The Company's restaurants are in competition with restaurants operated or franchised by national, regional and local restaurant companies offering a similar menu, many of which have greater resources than the Company. The Company is also in competition with specialty food outlets and other vendors of food. With the termination of the Company's exclusive rights in North and Central Florida, the Company could experience competition from its franchisor. The amount of new competition near Company restaurants has increased significantly in the past few years. In some cases, competitors have opened new restaurants with superior facilities close to the Company's restaurants. In addition, in the past 8 several years, many restaurants have remodeled their restaurants so that they are similar to the scatter bar format used by the Company. Management has developed strategies to attempt to reduce the negative impact on sales from new competition, but there can be no assurance that sales trends will improve. In addition, the Franchisor recently exercised its option to build restaurants in the Company's territory, (see preceding discussion under "Franchise Agreement") and does operate three restaurants in West Florida in its existing territory. Employees As of January 1, 2003, the Company employed approximately 1,150 persons, of whom approximately 50% are considered by management as part-time employees. No labor unions currently represent any of the Company's employees. The Company has not experienced any work stoppages attributable to labor disputes and considers employee relations to be good. Executive Officers The following persons were executive officers of the Company effective January 1, 2003: Edward B. Alexander, age 44, has been Executive Vice President since September 1999, and has been Chief Financial Officer of the Company since 1990. In addition, Mr. Alexander served on the Company's Board of Directors from May 1996 to July 1999. Government Regulation The Company is subject to the Fair Labor Standards Act which governs such matters as minimum wage requirements, overtime and other working conditions. A large number of the Company's restaurant personnel are paid at or slightly above the federal minimum wage level and, accordingly, any change in such minimum wage will affect the Company's labor costs. Costs of food, beverage, and labor are the expenses most affected by inflation in the Company's business. Although inflation in recent years has been low and accordingly has not had a significant impact on the Company, there can be no assurance that inflation will not increase and impact the Company in the future. A significant portion of the Company's employees are paid by the federally established statutory minimum wage. Although no minimum wage increases have been signed into law, various proposals are presently being considered in the United States Congress. Such changes in the federal minimum wage would impact 9 the Company's payroll and benefits costs. The Company is typically able to increase its menu prices to cover most of the payroll rate increases; however, there can be no assurance that menu price increases will be able to offset labor cost increases in the future. Annual sales price increases have consistently ranged from 1.0% to 3.0%. The Company is also subject to the Equal Employment Opportunity Act and a variety of federal and state statutes and regulations. Any new legislation or regulation that may require the Company to pay more in health insurance premiums may adversely affect the Company's labor costs. The Company's restaurants are constructed to meet local and state building requirements and are operated in accordance with state and local regulations relating to the preparation and service of food. More stringent and varied requirements of local governments with respect to land use, zoning and environmental factors may in some cases delay the Company's construction of new restaurants or remodels of existing ones. The Company believes that it is in substantial compliance with all applicable federal, state and local statutes, regulations and ordinances including those related to protection of the environment and that compliance has had no material effect on the Company's capital expenditures, earnings or competitive position, and such compliance is not expected to have a material adverse effect upon the Company's operations. The Company, however, cannot predict the impact of possible future legislation or regulation on its operations. Sources and Availability of Raw Materials The Company procures its food and other products from a variety of suppliers, and follows a policy of obtaining its food and products from several major suppliers under competitive terms. A substantial portion of the beef used by the Company is obtained from one supplier, although the Company believes comparable beef meeting its specifications is available in adequate quantities from other suppliers. To ensure against interruption in the flow of food supplies due to unforeseen or catastrophic events, to take advantage of favorable purchasing opportunities, and to ensure that meat received by the Company is properly aged, the Company maintains a two to six-week supply of beef. Working Capital Requirements Substantially all of the Company's revenues are derived from cash sales. Inventories are purchased on credit and are converted rapidly to cash. The Company does not maintain 10 significant receivables or inventories. Therefore, with the exception of debt service, working capital requirements for continuing operations are not significant. Long-Term Debt In December 1996, the Company entered into a series of loan agreements with FFCA Mortgage Corporation, (now know as GE Capital Franchise Finance Corporation ("GE Capital"). As of January 1, 2003, the outstanding balance due under the Company's various loans with GE Capital was $20,247,700. The weighted average interest rate for the GE Capital loans is 7.40% at January 1, 2003. The Company used the proceeds of the GE Capital loans primarily to refinance its debt and to fund construction of new restaurants. The Company used the proceeds of the GE Capital loans in 1996 to retire its Notes with Cerberus Partners, L.P. ("Cerberus") and its loans with the Daiwa Bank Limited and SouthTrust Bank of Alabama, N.A. In addition, the Company retired Warrants for 210,000 shares of the Company's common stock previously held by Cerberus. Cerberus continues to hold warrants to purchase 140,000 shares of the Company's common stock at an exercise price of $2.00 per share. The Warrants expire October 1, 2003. Seasonality The Company's operations are subject to seasonal fluctuations. Revenues per restaurant generally increase from January through April and decline from September through December. Research The Company relies primarily on the Franchisor to maintain ongoing research programs relating to the development of new products and evaluation of marketing activities. Although research and development activities are important to the Company, no expenditures for research and development have been incurred by the Company. Customers No material part of the Company's business is dependent upon a single customer or a few customers. 11 Information as to Classes of Similar Products or Services The Company operates in only one industry segment. All significant revenues and pre-tax earnings relate to retail sales of food to the general public through restaurants owned and operated by the Company. The Company has no operations outside the continental United States. ITEM 2. PROPERTIES Location Date Opened -------- ----------- (1)Jacksonville May 1982 Ocala September 1986 Lakeland February 1987 Lakeland March 1987 Winter Haven August 1987 Apopka September 1987 Gainesville December 1987 New Port Richey May 1988 Tampa June 1988 Tallahassee August 1988 Daytona Beach September 1988 (1)Tampa November 1988 Orlando February 1989 Melbourne October 1989 Lake City March 1991 (1)Brooksville January 1997 (1)Leesburg June 1998 Deland April 1999 (1)Tampa September 1999 St. Cloud December 2000 Titusville May 2001 Jacksonville December 2001 (1) Leased property As of February 28, 2003, the Company operated 22 Ryan's restaurants. The specific rate at which the Company is able to open new restaurants will be determined, among other factors, by its ability to locate suitable sites on satisfactory terms, raise the necessary capital, secure appropriate governmental permits and approvals and recruit and train management personnel. As of January 1, 2003, the Company owned the real property on which 17 of its restaurants were located. All of these properties are subject to mortgages securing the GE Capital notes. 12 The Company leases the real property on which five of its restaurants are located. Those restaurants are located in Jacksonville, Brooksville, Leesburg, and two in Tampa, Florida. The Company also leases two buildings in Jacksonville, Florida for its executive offices. ITEM 3. LEGAL PROCEEDINGS The Company is subject from time to time to various pending legal proceedings arising in the normal course of business. In the opinion of management, based on the advice of legal counsel, the ultimate disposition of currently pending claims and litigation will not have material adverse effect on the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information contained under the caption "Common Stock Data" in the Company's 2002 Annual Report to Shareholders is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information contained under the caption "Five Year Financial Summary" in the Company's 2002 Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2002 Annual Report to Shareholders is incorporated herein by reference. ITEM 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK The information contained under the caption "Quantitative and Qualitative Disclosure About Risk" in the Company's 2002 Annual Report to Shareholders is incorporated herein by reference. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements The Consolidated Financial Statements of the Company and the Report of Independent Certified Public Accountants as contained in the Company's 2002 Annual Report to Shareholders are incorporated herein by reference. Supplementary Data Following is a summary of the quarterly results of operations for the years ended January 1, 2003 and January 2, 2002:
Fiscal Quarter $ In thousands, First Second Third Fourth Total except per share amounts: 2002 Sales $ 12,535 $ 10,795 $ 9,526 $ 9,194 $ 42,050 Earnings (loss) from operations 893 97 (253) (1,259)(1) (522) Net earnings (loss) 514 (299) (654) (1,661) (2,100) Basic earnings (loss) per share .16 (.08) (.18) (.45) (.59) Diluted earnings (loss) per share .16 (.08) (.18) (.45) (.59) 2001 Sales $ 11,540 $ 10,637 $10,099 $ 9,777 $ 42,053 Earnings (loss) from operations 784 249 (59) (147) 827 Net earnings (loss) 268 (582) (397) (575) (1,286) Basic earnings (loss) per share .11 (.24) (.16) (.18) (.49) Diluted earnings (loss) per share .11 (.24) (.16) (.18) (.49) (1) During the quarter ended January 1, 2003, the Company recorded an asset impairment charge of $728,000 relating to one closed restaurant and one restaurant under lease.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 14 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors contained under the caption "Election of Directors" in the Company's Proxy Statement for the 2003 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission by May 1, 2003, is incorporated herein by reference. The information regarding executive officers is set forth in Item 1 of this report under the caption "Executive Officers." The information regarding reports required under section 16(a) of the Securities Exchange Act of 1934 contained under caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy statement for the 2003 Annual Meeting of Shareholders, which will be filed with Securities and Exchange Commission by May 1, 2003 is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained under the caption "Executive Pay" in the Company's Proxy Statement for the 2003 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission by May 1, 2003, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the captions "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the 2003 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission by May 1, 2003, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the captions "Election of Directors - Certain Relationships and Related Transactions" and "Compensation Committee Interlocks and Insider Participation" in the Company's Proxy Statement for the 2003 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission by May 1, 2003, is incorporated herein by reference. 15 ITEM 14. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"), within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's Chairman (who serves as the principal executive officer), Chief Financial Officer (who serves as the principal financial and accounting officer), Controller and another member of the Office of the President. Based upon that evaluation, the Company's Chairman, Chief Financial Officer and Controller have concluded that the Company's disclosure controls and procedures are effective in alerting them to material information regarding the Company's financial statement and disclosure obligation in order to allow the Company to meet its reporting requirements under the Exchange Act in a timely manner. (b) Changes in internal control. There have been no changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)1. The financial statements listed below are filed with this report on Form 10-K or are incorporated herein by reference from the Company's 2002 Annual Report to Shareholders. With the exception of the pages listed below, the 2002 Annual Report to Shareholders is not deemed "filed" as a part of this report on Form 10-K. 16 Page Reference Form 2002 10-K Annual Report -------------------- Consent of Independent Certified Public Accountants 29 Independent Auditors' Report 37 Consolidated Statements of Operations 15 Consolidated Balance Sheets 16 Consolidated Statements of Share- holders' Equity 17 Consolidated Statements of Cash Flows 18 Notes to Consolidated Financial Statements 19 Common Stock Data 40 Five-Year Financial Summary 4 Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Quantitative and Qualitative Disclosures About Risk 14 (a)2. No financial statement schedules have been included since the required information is not applicable or the information required is included in the financial statements, the notes thereto, or Item 8 of this report. (a)3. The following exhibits are filed as part of this report on Form 10-K, and this list comprises the Exhibit Index. No. Exhibit 3.01 Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.01 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.02 Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 3.02 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.03 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.03 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 17 3.04 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.04 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.05 Amended and Restated Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 4 to the Company's Form 8-A, filed with the Commission on March 19, 1997, is incorporated herein by reference.) 3.06 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3 to the Company's Form 8-A filed with the Commission on March 19, 1997, is incorporated herein by reference.) 3.07 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.08 to the Company's Annual Report on Form 10-K filed with the Commission on March 31, 1998 is incorporated herein by reference.) 3.08 Amendment to Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 3.08 to the Company's Annual Report on Form 10-K filed with the Commission on March 15, 2000 is incorporated herein by reference.) 4.01 Specimen Stock Certificate for shares of the Company's Common Stock (Exhibit 4.01 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 10.01 Amended Franchise Agreement between Family Steak Houses of Florida, Inc. and Ryan's Family Steak Houses, Inc., dated September 16, 1987. (Exhibit 10.01 to the Company's Registration Statement on Form S-1, filed with the Commission on October 2, 1987, Registration No. 33-17620, is incorporated herein by reference.) 10.02 Lease regarding the restaurant located at 3549 Blanding Boulevard, Jacksonville, Florida (Exhibit 10.03 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 10.03 Amended and Restated Warrant to Purchase Shares of Common Stock, void after October 1, 2003, which represents warrants issued to The Phoenix Insurance 18 Company, The Travelers Indemnity Company, and The Travelers Insurance Company, (subsequently transferred to Cerberus Partners, L.P.) (Exhibit 10.07 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference.) 10.04 Warrant to Purchase Shares of Common Stock, void after October 1, 2003, which represents warrants issued to The Phoenix Insurance Company, The Travelers Indemnity Company, and The Travelers Insurance Company (subsequently transferred to Cerberus Partners, L.P.). (Exhibit 10.08 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference.) 10.05 Amendment of Franchise Agreement between Ryan's Family Steak Houses, Inc. and the Company dated July 11, 1994. (Exhibit 10.17 to the Company's Annual Report on Form 10-K, filed with the Commission on March 28, 1995, is incorporated herein by reference.) 10.06 Agreement between the Company and Kraft Foodservice, Inc. (now U.S. Foods), as the Company's primary food product distribution. (Exhibit 10.06 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on August 9, 1995, is incorporated herein by reference.) 10.07 Lease Agreement between the Company and CNL American Properties Fund, Inc., dated as of September 18, 1996. (Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on November 18, 1996 is hereby incorporated by reference.) 10.08 Rent Addendum to Lease Agreement between the Company and CNL American Properties Fund, Inc., dated as of September 18, 1996. (Exhibit 10.04 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on November 18, 1996 is hereby incorporated by reference.) 10.09 Amendment of Franchise Agreement between the Company and Ryan's Family Steak Houses, Inc. dated October 3, 1996. (Exhibit 10.15 to the Company's Annual Report on Form 10-K, filed with the Commission on April 1, 1997 is hereby incorporated by reference.) 19 10.10 $15.36m Loan Agreement, between the Company and FFCA Mortgage Corporation, dated December 18, 1996. (Exhibit 10.18 to the Company's Annual Report on Form 10-K, filed with the Commission on April 1, 1997 is hereby incorporated by reference.) 10.11 $4.64m Loan Agreement, between the Company and FFCA Mortgage Corporation, dated December 18, 1996. (Exhibit 10.19 to the Company's Annual Report on Form 10-K, filed with the Commission on April 1, 1997 is hereby incorporated by reference.) 10.12 Form of Promissory Note between the Company and FFCA Mortgage Corporation, dated December 18, 1996. (Exhibit 10.20 to the Company's Annual Report on Form 10-K, filed with the Commission on April 1, 1997 is hereby incorporated by reference.) 10.13 Form of Mortgage between the Company and FFCA Mortgage Corporation, dated December 18, 1996 (Exhibit 5 to the Company's Schedule 14D-9, filed with the Commission on March 19, 1997 is hereby incorporated by reference.) 10.14 Form of Mortgage between the Company and FFCA Mortgage Corporation, dated March 18, 1996. (Exhibit 10.22 to the Company's Annual Report on Form 10-K, filed with the Commission on April 1, 1997 is hereby incorporated by reference.) 10.15 Lease agreement dated January 29, 1998 between the Company and Excel Realty Trust, Inc. (Exhibit 10.19 to the Company's Annual Report on Form 10-K, filed with the Commission on March 31, 1998 is hereby incorporated by reference.) 10.16 Lease between the Company and Stuart S. Golding Company dated February 3, 1999. (Exhibit 10.23 to the Company's Annual Report on Form 10-K, filed with the Commission on March 24, 1999 is hereby incorporated by reference). 10.17 Amendment of Franchise Agreement between the Company and Ryan's Family Steak Houses, Inc. dated August 31, 1999. (Exhibit 10.19 to the Company's Annual Report on Form 10-K filed with the Commission on March 15, 2000 is incorporated herein by reference.) 10.18 Stock option agreement between the Company and director Jay Conzen, dated November 3, 1999. (Exhibit 10.20 to the Company's Annual Report on Form 10-K 20 filed with the Commission on March 15, 2000 is incorporated herein by reference.) 10.19 Amendment to Franchise Agreement between the Company and Ryan's Properties, Inc. dated January 30, 2002. (Exhibit 10.19 to the Company's Annual Report on Form 10-K filed with the Commission on March 29, 2002 is incorporated herein by reference.) 10.20 Contract for sale and leaseback of restaurant property between the Company and After Ours, LLC, dated June 10, 2002. (Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q filed with the Commission on August 16, 2002 is incorporated herein by reference.) 10.21 Lease agreement for restaurant property between the Company and After Ours, LLC, dated July 12, 2002. (Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q filed with the Commission on August 16, 2002 is incorporated herein by reference.) 10.22 Lease Agreement between the Company and E.D.I. Investments, Inc. for a restaurant property, dated August 5, 2002. (Exhibit 10.03 to the Company's Quarterly Report on Form 10-Q filed with the Commission on August 16, 2002 is incorporated herein by reference.) 10.23 Form of Amended and Restated Mortgage Agreement between the Company and GE Capital Franchise Finance Corporation dated October 21, 2002. (Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q filed with the Commission on November 15, 2002 is incorporated herein by reference.) 10.24 Form of Promissory Note between the Company and GE Capital Franchise Finance Corporation dated October 21, 2002. (Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q filed with the Commission on November 15, 2002 is incorporated herein by reference.) 10.25 Form of Loan Agreement between the Company and GE Capital Franchise Finance Corporation dated October 21, 2002. (Exhibit 10.03 to the Company's Quarterly Report on Form 10-Q filed with the Commission on November 15, 2002 is incorporated herein by reference.) 21 10.26 Lease Agreement between the Company and Barnhill's Buffet, Inc. for a restaurant property in Orange Park, Florida. (Exhibit 10.04 to the Company's Quarterly Report on Form 10-Q filed with the Commission on November 15, 2002 is incorporated herein by reference.) 10.27 Lease Agreement between the Company and Barnhill's Buffet, Inc. for a restaurant property in Neptune Beach, Florida. (Exhibit 10.05 to the Company's Quarterly Report on Form 10-Q filed with the Commission on November 15, 2002 is incorporated herein by reference.) 10.28 Contract between the Company and Barnhill's Buffet, Inc. for sale of a restaurant. 13.01 2002 Annual Report to Shareholders. 21.01 Subsidiaries of the Company. 23.0l Independent Auditors' Consent 99.01 Certifications of Glen F. Ceiley 99.02 Certifications of Edward B. Alexander (b) None. (c) See (a)3. above for a list of all exhibits filed herewith and the Exhibit Index. (d) None. 22 CERTIFICATIONS I, Glen F. Ceiley, certify that: 1. I have reviewed this annual report on Form 10-K of Family Steak Houses of Florida, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): 23 a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 19, 2003 /s/ Glen F. Ceiley Glen F. Ceiley Chairman of the Board Principal Executive Officer 24 I, Edward B. Alexander, certify that: 1. I have reviewed this annual report on Form 10-K of Family Steak Houses of Florida, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have 25 identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 19, 2003 /s/ Edward B. Alexander Edward B. Alexander Executive Vice President Chief Financial Officer 26 Exhibit 99.1: Certification of Periodic Reports CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Family Steak Houses of Florida, Inc.'s (the "Company") Annual Report on Form 10-K for the period ending January 1, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Glen F. Ceiley, Principal Executive Officer/Chairman of the Board of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,: (1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 19, 2003 By: /s/ Glen F. Ceiley Glen F. Ceiley Principal Executive Officer/ Chairman of the Board 27 Exhibit 99.2: Certification of Periodic Reports CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Family Steak Houses of Florida, Inc.'s (the "Company") Annual Report on Form 10-K for the period ending January 1, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward B. Alexander, Executive Vice President/ Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,: (1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 19, 2003 By: /s/ Edward B. Alexander Edward B. Alexander Executive Vice President/ Chief Financial Officer 28 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Annual Report of Family Steak Houses of Florida, Inc. on Form 10-K and in Registration Statement Nos. 33-11684, 33-12556, 33-12556 and 333-98327 of Family Steak Houses of Florida, Inc. on Forms S-8 of our report dated February 28, 2003, appearing in the 2002 Annual Report to Shareholders of Family Steak Houses of Florida, Inc. Deloitte & Touche LLP Certified Public Accountants Jacksonville, Florida March 19, 2003 29 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FAMILY STEAK HOUSES OF FLORIDA, INC. Date: March 19, 2003 By: /s/ Glen F. Ceiley Glen F. Ceiley (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the date indicated. Signature Title Date /s/ Edward B. Alexander Executive Vice President 3/19/03 Edward B. Alexander (Principal Financial and Accounting Officer) /s/ Glen F. Ceiley Chairman of the Board 3/19/03 Glen F. Ceiley /s/ Steve Catanzaro Director 3/19/03 Steve Catanzaro /s/ Jay Conzen Director 3/19/03 Jay Conzen /s/ William Means Director 3/19/03 William Means 30