-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BpPou7AQuPcZb+yBY4qQMgWEhOJrAuEAq21Q944OJygTlaYvnUYBPJGOOFRbm070 dR+cjoFiW+80EQ6JQxumOw== 0000784539-04-000019.txt : 20040528 0000784539-04-000019.hdr.sgml : 20040528 20040528162112 ACCESSION NUMBER: 0000784539-04-000019 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040528 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAMILY STEAK HOUSES OF FLORIDA INC CENTRAL INDEX KEY: 0000784539 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 592597349 STATE OF INCORPORATION: FL FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14311 FILM NUMBER: 04838775 BUSINESS ADDRESS: STREET 1: 2113 FLORIDA BLVD STREET 2: STE A CITY: NEPTUNE BEACH STATE: FL ZIP: 32266 BUSINESS PHONE: 9042494197 MAIL ADDRESS: STREET 1: 2113 FLORIDA BLVD STE A CITY: NEPTUNE BEACH STATE: FL ZIP: 32266 10-K/A 1 ryans10k03rev.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________ FORM 10-K/A FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 25, 2004, 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 Over the Counter Bulletin Board on February 25, 2004, as reported in The Wall Street Journal) held by non-affiliates of the registrant was approximately $1,118,500. Documents Incorporated by Reference Portions of the registrant's 2003 Annual Report to Shareholders are incorporated by reference into Part II. Portions of the Proxy Statement for the registrant's 2004 Annual Meeting of Shareholders are incorporated by reference into Part III. Form 10-K/A Family Steak Houses of Florida, Inc. (the Company) is amending its Annual Report on Form 10-K to correct the total obligations for capital leases in the contractual obligations table. PART I ITEM 1. BUSINESS General Family Steak Houses of Florida, Inc. (the "Company")is the operator of eighteen restaurants in the state of Florida. The Company's first restaurant was opened in Jacksonville, Florida in May 1982. The Company's stock trades on the Over the Counter Bulletin Board under the symbol RYFL. The Company is the sole franchisee for Ryan's Family Steak House, Inc. in the state of Florida operating under a franchise agreement with Ryan's Properties, Inc. (the "Franchisor"). Ryan's restaurants are family-oriented buffet restaurants serving high-quality, reasonably priced food in a casual atmosphere with server-assisted service. Ryan's 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 all-you-can-eat buffet. In December 2003, the Company amended the franchise agreement which, among other things, requires each Ryan's restaurant to be converted to a different name and logo by June 2005. The Ryan's restaurants will be converted to one of two names, based on a variety of factors, either "Whistle Junction" or "Florida Buffet" (the "Whistle Junction Restaurant" and/or the "Florida Buffet Restaurant"). The operations of the Whistle Junction Restaurants and the Florida Buffet Restaurants will maintain the current buffet format and will include enhancements to the buildings, service and menus. Company History The Company was formed effective September 1985 by the combination 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 2 of its common stock in 1986 resulting in net proceeds to the Company of approximately $4,145,000. Franchise Agreement The Company operates its Ryan's restaurants under a franchise agreement between the Company and the Franchisor dated September 16, 1987, which amended and consolidated all previous franchise agreements (as amended, the "Franchise Agreement"). In December 2003, the Company entered into an amendment(the "Amendment") to the Franchise Agreement to terminate the Franchise Agreement by June 2005. The Amendment requires the Company to convert a specific number of its Ryan's restaurants each quarter to a new name and logo, beginning the first quarter of 2004, and requires all of the Ryan's restaurants to be converted by June 2005. As soon as each Ryan's restaurant is converted, franchise fees are no longer payable to the Franchisor for that converted restaurant. (See Note 4 to the Financial Statements for further details in the Company's 2003 Annual Report to Shareholders.) The Amendment requires the Company to pay a monthly franchise fee of 4.0% of the gross receipts of each restaurant operating under the name of Ryan's. Total franchise fee expenses were $1,494,400, $1,681,600 and $1,260,300 for fiscal years 2003, 2002 and 2001, respectively. The Company plans to convert most of the Ryan's restaurants to a new family-buffet dining concept by creating a new brand that will be known as the "Whistle Junction". The new concept entails a substantial redesigning of the restaurant's exterior to look like an old train station. The interior of the restaurants will also feature the train theme, including operating model railroads running throughout the dining room and various train memorabilia. The operation of the Whistle Junction Restaurants will continue to be a buffet format, but with an upgraded menu and improved service levels. The first Whistle Junction Restaurant is scheduled to open in March 2004, and a newly built Whistle Junction Restaurant is scheduled to open in April 2004. Certain of the Ryan's restaurants will be converted to an alternate brand that will be known as the "Florida Buffet" based on various factors including the restaurant's location. Through February 2004, three Ryan's restaurants have been converted to Florida Buffet Restaurants. The Florida Buffet conversions 3 include interior and exterior changes to the building design to incorporate a "Florida look" theme, although the changes are not as significant as those for the Whistle Junction Restaurant. Menu and service enhancements are also added to the Florida Buffet Restaurants which are designed to attract and maintain increased customer volumes. The following schedule outlines the number of Ryan's restaurants required to be converted to another name by the Company at each quarter-end under the Amendment. Failure to convert the cumulative required number of restaurants at any quarter-end date results in a higher franchise fee on the restaurants still using the Ryan's name. Failure to convert all of the restaurants by June 30, 2005 is a default under the Franchise Agreement in the event of which the franchisor has the right to require the Company to cease using the Ryan's name immediately. Cumulated Number of Restaurants Required to End of Fiscal Quarter be Converted March 31, 2004 3 June 30, 2004 5 September 30, 2004 8 December 31, 2004 11 March 31, 2005 14 June 30, 2005 18 The Company is ahead of this schedule for the first quarter of 2004, having converted three restaurants by February 11, 2004. However, the Company's ability to convert the remaining restaurants depends on factors that may be beyond management's control, such as its ability to raise capital for the Whistle Junction remodels, obtaining building permits, the operating results of the converted restaurants, and the resulting impact on the Company's cash flow and other variable factors. Operations of Restaurants Format. As of February 25, 2004, 17 of the Company's restaurants are located in free-standing buildings which vary in size from 7,500 to 12,000 square feet. One of the Company's restaurants is located in a shopping mall. Each restaurant is constructed of brick or stucco walls, interior and exterior, with exposed woodwork. The interior of each restaurant contains a dining room, a customer ordering area, and a kitchen. The dining rooms seat between 270 and 500 persons and highlight 4 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 restaurant has parking for approximately 100 to 175 cars on lots of overall size of approximately 50,000 to 70,000 square feet. The 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 each 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 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 December 31, 2003, the average weekly customer count per restaurant was approximately 5,220 and the average meal price (including beverage) was approximately $7.00. Restaurant Management and Supervision. The Company manages its 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 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 five to seven restaurants. The supervisors report directly to the Director of Operations. Communication and support from all departments in the Company are designed to assist the supervisors in responding promptly to local problems and opportunities. 5 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 contract basis and on a spot basis. Beef and other products are generally delivered directly to the restaurants three times weekly. The Company has in the past obtained satisfactory sources of supply for all the items it regularly uses and believes it will be able to continue to do so in the future. The Franchise Agreement requires all suppliers of Ryan's restaurants be approved by the Franchisor. Through its relationship with the Franchisor, the Company has obtained favorable pricing on the purchase of food products from several suppliers. After the termination of the Franchise Agreement, there can be no assurance that these favorable pricing terms will be maintained on all products. The Company changed its primary distributor to Performance Food Group ("PFG") in 2004. The PFG 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. 6 Development General. The Company operated 15 Ryan's restaurants and three Florida Buffet Restaurants as of February 25, 2004. A new Whistle Junction Restaurant, one of the Company's new restaurant concepts, is under construction and is expected to open in April 2004. Site Location and Construction. The Company considers the specific location of a restaurant to be important to its long- term success. The Company's site selection process for its restaurants focuses on a variety of factors including trade area demographics (such as population density and household income level), site characteristics (such as visibility, accessibility, and traffic volume), proximity to large retailers and potential competition. In addition, site selection is influenced by the general proximity of a site to other Company restaurants 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 relying solely upon transient business. The Company used a general contractor selected from several solicited bids, for most of the Company's restaurants built in recent years. For the Company's newest restaurant, opened in December 2001, the Company used its construction subsidiary as the general contractor to expedite the process of obtaining building permits. New restaurants are usually completed within five months of the date on which construction is commenced. Management of New Restaurants. When a new 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 complete 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. 7 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. The Company has applied for a trademark for its new Whistle Junction concept. 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 Franchise Agreement, the Company could experience competition from its former 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 several years, many restaurants have remodeled to incorporate a scatter bar format similar to that 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. Employees As of December 31, 2003, the Company employed approximately 1,050 persons, of whom approximately 40% 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. 8 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 statutory 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. 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 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. 9 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. 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 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 December 31, 2003, the outstanding balance due under the Company's various loans with GE Capital was $18,189,200. The weighted average interest rate for the GE Capital loans is 7.37% at December 31, 2003. The Company used the proceeds of the GE Capital loans primarily to refinance its debt and to fund construction of one new restaurant. 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 has relied primarily on the Franchisor to maintain ongoing research programs relating to the development 10 of new products. Since the Company has reached an agreement to terminate the Franchise Agreement, beginning in 2004, it will have to conduct its own research and development. Management believes this can be accomplished by working with its various product manufacturers, who actively research and test products and make presentations to the Company on a regular basis. The Company entered into an agreement in 2003 with the Brown Group, an organization experienced with design and development of restaurant concepts, for a total fee of $100,000 for the purpose of developing its new Whistle Junction concept. Customers No material part of the Company's business is dependent upon a single customer or a few customers. Information as to Classes of Similar Products or Services The Company operates in only one industry segment. All significant revenues and pre-tax earnings relate to retail sales of food to the general public through restaurants owned and operated by the Company. The Company has no operations outside the continental United States. As of February 25, 2004, the Company operated 15 Ryan's restaurants and three Florida Buffet Restaurants. 11 ITEM 2. PROPERTIES Restaurant Restaurant Concept Locations Date Opened as of March 1, 2003 -------- ----------- ------------ (2)Ocala September 1986 Ryan's (2)Lakeland February 1987 Ryan's (2)Lakeland March 1987 Ryan's (2)Winter Haven August 1987 Ryan's (2)Gainesville December 1987 Florida Buffet (2)Tampa June 1988 Florida Buffet (2)Tallahassee August 1988 Ryan's (2)Daytona Beach September 1988 Ryan's (1)Tampa November 1988 Ryan's (2)Orlando February 1989 Ryan's (2)Melbourne October 1989 Ryan's (2)Lake City March 1991 Ryan's (1)Brooksville January 1997 Ryan's (2)Deland April 1999 Ryan's (1)Tampa September 1999 Florida Buffet (2)St. Cloud December 2000 Ryan's (2)Titusville May 2001 Ryan's (2)Jacksonville December 2001 Ryan's (1) Leased property (2) Property subject to mortgage securing GE Capital Notes As of December 31, 2003, the Company owned the real property on which 15 of its restaurants were located. All of these properties are subject to mortgages securing the GE Capital notes. The Company also leases two buildings in Jacksonville, Florida for its executive offices. ITEM 3. LEGAL PROCEEDINGS The Company, in the normal course of business, is subject to occasional legal proceedings. However, there are no material pending legal proceedings to which the Company, or any of its subsidiaries, is a party or to which any of their properties are subject; nor are there material proceedings known to be contemplated by any governmental authority; nor are there material proceedings known to the Company, pending or contemplated, in which any director, officer, affiliate or any principal security holder of the Company or any associate of the foregoing is a party or has an interest adverse to the Company. 12 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 2003 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 2003 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 2003 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 2003 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements The Consolidated Financial Statements of the Company and Independent Auditors' Report as contained in the Company's 2003 Annual Report to Shareholders are incorporated herein by reference. 13 Supplementary Data The information contained under the caption "Quarterly Consolidated Financial Data" in the Company's 2003 Annual Report to Shareholders is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9.A. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. As required by Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), as of the end of the period covered by 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 President and the Director of Finance. Based upon that evaluation, the Company's President and Director of Finance have concluded that the Company's disclosure controls and procedures are effective in alerting them to material information regarding the Company's financial statements 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 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 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission by April 29, 2004, is incorporated herein by reference. 14 Executive Officers The following persons were executive officers of the Company effective December 31, 2003: Edward B. Alexander, age 45, has been President of the Company since April 2003. He was Executive Vice President from September 1999 to April 2003, and was Chief Financial Officer of the Company from 1990 to April 2003. In addition, Mr. Alexander served on the Company's Board of Directors from May 1996 to July 1999. ITEM 11. EXECUTIVE COMPENSATION The information contained under the caption "Executive Pay" in the Company's Proxy Statement for the 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission by April 29, 2004, 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 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission by April 29, 2004, 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 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission by April 29, 2004, is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information contained under the caption "Principal Accounting Fees and Services" in the Company's Proxy Statement for the 2004 Annual Meeting of Shareholders, which will be filed 15 with the Securities and Exchange Commission by April 29, 2004, is incorporated herein by reference. 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 2003 Annual Report to Shareholders. With the exception of the pages listed below, the 2003 Annual Report to Shareholders is not deemed "filed" as a part of this report on Form 10-K. Page Reference Form 2003 10-K Annual Report Consent of Independent Certified Public Accountants 25 Independent Auditors' Report 30 Consolidated Statements of Operations 11 Consolidated Balance Sheets 12 Consolidated Statements of Share- holders' Equity 13 Consolidated Statements of Cash Flows 14 Notes to Consolidated Financial Statements 15 Common Stock Data 33 Five-Year Financial Summary 3 Management's Discussion and Analysis of Financial Condition and Results of Operations 4 Quantitative and Qualitative Disclosures About Risk 10 (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. 16 (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.) 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.) 17 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.) 3.09 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. 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 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.) 10.04 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.) 10.05 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.) 10.06 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 18 Commission on November 18, 1996 is hereby incorporated by reference.) 10.07 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.) 10.08 $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.) 10.09 $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.) 10.10 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.) 10.11 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.) 10.12 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.) 10.13 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.) 19 10.14 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). 10.15 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.) 10.16 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 filed with the Commission on March 15, 2000 is incorporated herein by reference.) 10.17 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.) 10.18 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.) 10.19 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.) 10.20 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.) 20 10.21 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.) 10.22 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.) 10.23 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.) 10.24 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.) 10.25 Amendment to Franchise Agreement between the Company and Ryan's Properties, Inc. dated December 17, 2003. 10.26 Distribution agreement between the Company and Performance Food Group, Inc. dated July 30, 2003. 13.01 2003 Annual Report to Shareholders. 21. Subsidiaries of the Company. 23. Independent Auditors' Consent 31.01 Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.02 Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 21 32.01 Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.02 Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K None. 22 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FAMILY STEAK HOUSES OF FLORIDA, INC. Date: May 12, 2004 By: /s/ Edward B. Alexander Edward B. Alexander President Chief Operating 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 President 5/12/04 Edward B. Alexander Chief Operating Officer /s/ Stephen C. Travis Director of Finance 5/12/04 Stephen C. Travis (Principal Financial and Accounting Officer) /s/ Glen F. Ceiley Chairman of the Board 5/12/04 Glen F. Ceiley /s/ Steve Catanzaro Director 5/12/04 Steve Catanzaro /s/ Jay Conzen Director 5/12/04 Jay Conzen /s/ William Means Director 5/12/04 William Means 23 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Steak House Construction Corporation, Inc. 24 EXHIBIT 23 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/A 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 March 19, 2004 (which report expresses an unqualified opinion), appearing in the 2003 Annual Report to Shareholders of Family Steak Houses of Florida, Inc. Deloitte & Touche LLP Certified Public Accountants Jacksonville, Florida May 3, 2004 25 EXHIBIT 31.01 CERTIFICATIONS I, Edward B. Alexander, certify that: 1. I have reviewed this annual report on Form 10-K/A 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; 26 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 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: May 12, 2004 /s/ Edward B. Alexander Edward B. Alexander President and Chief Operating Officer 27 EXHIBIT 31.02 I, Stephen C. Travis, certify that: 1. I have reviewed this annual report on Form 10-K/A 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 28 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 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 29, 2004 /s/ Stephen C. Travis Stephen C. Travis Director of Finance 29 EXHIBIT 32.01 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 December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward B. Alexander, Chief Operating Officer/President 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: May 12, 2004 By: /s/ Edward B. Alexander Edward B. Alexander President and Chief Operating Officer 30 EXHIBIT 32.02 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 December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen C. Travis, Director of Finance/ 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: May 12, 2004 By: /s/ Stephen C. Travis Stephen C. Travis Director of Finance 31 EX-3 2 exhibit3.txt EXHIBIT 3.09 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF FAMILY STEAK HOUSES OF FLORIDA, INC. Florida Document No: H77974 FAMILY STEAK HOUSES OF FLORIDA, INC., pursuant to Section 607.1006, Florida Statutes, does hereby file the following Articles of Amendment and state: 1. That the name of the corporation is FAMILY STEAK HOUSES OF FLORIDA, INC. (the "Corporation"). 2. That Article IV(A) of the Articles of Incorporation of the Corporation, is hereby amended to read as follows: ARTICLE IV A. Common Stock. Eight Million (8,000,000) shares of Common Stock having a par value of one cent ($.01) per share. The whole or part of the common Stock of this corporation shall be payable in lawful money of the United States of America, or in property, labor or services at a just valuation to be fixed by the Board of Directors. 3. That text of Article V of the Articles of Incorporation of the Corporation be deleted and replaced with the words "Intentionally Deleted." 4. That Article IX of the Articles of Incorporation of the Corporation is hereby amended to read as follows: The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Florida, and all rights conferred upon shareholders herein are granted subject to this reservation. 5. That the foregoing amendment was approved by a majority of the outstanding shares of the Corporation's common stock entitled to vote on this amendment at a regular meeting of shareholders held on June 6, 2002, and the number of votes cast was sufficient for approval. 6. The effective date of this amendment shall be the date of filing of these Articles of Amendment. 1 IN WITNESS WHEREOF, the undersigned Chief Financial Officer of this corporation has executed these Articles of Amendment on the ____ day of July, 2002. FAMILY STEAK HOUSES OF FLORIDA, INC. By: Edward B. Alexander Executive Vice President and Chief Financial Officer 2 EX-10 3 exhibit1025.txt EXHIBIT 10.25 2003 AMENDMENT TO FRANCHISE AGREEMENT This 2003 Amendment to Franchise Agreement (this "Amendment") is entered into as of December 17, 2003 by and between Ryan's Properties, Inc. ("Ryan's") and Family Steak Houses of Florida, Inc. ("FSH"). WHEREAS, Ryan's and FSH are parties to that certain Franchise Agreement, dated as of September 16, 1987, as amended prior to the date hereof (the "Existing Franchise Agreement"; the Existing Franchise Agreement as amended by this Amendment shall be referred to as the "Franchise Agreement") (all capitalized terms used herein that are not otherwise defined herein to have the meanings ascribed to them in the Existing Franchise Agreement); and WHEREAS, FSH has informed Ryan's that FSH does not expect to have in operation at December 31, 2003 a number of Restaurants (defined as restaurants of FSH operating as Ryan's Family Steak Houses) equal to at least 80% of the number of Restaurants required to be in operation as of that date pursuant to the terms of the Existing Franchise Agreement; and WHEREAS, Section XV (Termination and Defaults) of the Existing Franchise Agreement provides, among other matters, that FSH shall be in default under the Existing Franchise Agreement if "at the end of any calendar year the number of Restaurants in operation is less than 80% of the number of Restaurants required to be in operation as of that date pursuant to the terms of this Agreement, as amended"; and WHEREAS, the parties desire to wind down and terminate the franchise relationship under the Existing Franchise Agreement in an amicable manner that minimizes unnecessary disruption; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are acknowledged by each of the parties hereto, the parties hereto agree as follows: 1. Termination or Conversion of Restaurants. (a) FSH agrees that, in accordance with the schedule set forth on the attached Exhibit A, FSH shall complete as to each and every one of FSH's Restaurants: (i) its sale to an unaffiliated third party to be operated as a restaurant with a name and logo (immediately upon consummation of such sale) that differs sufficiently from "Ryan's Family Steak House" and "Fire Mountain" to avoid any reasonable likelihood of confusion; (ii) the termination of its operation as a restaurant of any sort; and/or (iii) the conversion of that Restaurant from a "Ryan's Family Steak House" to a restaurant with a name and 1 logo that differs sufficiently from "Ryan's Family Steak House" and "Fire Mountain" to avoid any reasonable likelihood of confusion between any of FSH's restaurants and any of Ryan's restaurants; provided further, that, if at any time FSH changes the exterior facade or interior design of any such Restaurant (or former Restaurant), FSH shall cause the new exterior facade or interior design (as applicable) to differ sufficiently from Ryan's "Fire Mountain" and the `lodge look' of "Ryan's Family Steak House" to avoid any reasonable likelihood of confusion between any of FSH's restaurants and any of Ryan's restaurants. (b) FSH shall cause each such Restaurant sale, termination or conversion to be accomplished in as commercially reasonable a manner as possible consistent with the requirements of this Amendment. (c) No later than five (5) business days after the completion of the sale, termination or conversion of a Restaurant pursuant to this Amendment, FSH shall certify that fact in writing to Ryan's. Ryan's may request any and all such information, and may make any and all such inspections, as may be reasonably necessary to verify the sale, termination or conversion of any or all Restaurants in accordance with this Amendment. (d) The Continuing Services and Royalty Fee set forth in the Existing Franchise Agreement shall continue to apply to the total gross receipts from each of FSH's Restaurants until the date the sale, termination or conversion as contemplated by this Amendment of such Restaurant is completed. Payment of any unpaid Continuing Services and Royalty Fee for any sold, terminated or converted Restaurant shall be made in accordance with the Existing Franchise Agreement. (e) From and after January 1, 2004, (i) Ryan's shall have no further obligations under Paragraphs II (Location), IV (Training and Assistance), Subparagraph B of Paragraph V (Advertising) or Subparagraph D of Paragraph VI (Confidential Operating Manual) of the Franchise Agreement, and (ii) Attachment 1 to the July 13, 1992 letter agreement amending the Franchise Agreement shall no longer be in effect. From and after the date that the sale, termination or conversion as contemplated by this amendment of an FSH Restaurant is completed, Ryan's shall have no further obligations under any provision of the Franchise Agreement with respect to such Restaurant. Without limiting the preceding provisions, from and after the earlier of (i) the date that all Restaurants are sold, terminated or converted or (ii) June 30, 2005, FSH shall not be entitled to receive supplies that are proprietary to Ryan's. Nothing contained herein, however, shall impede FSH from continuing to use recipes obtained from Ryan's and now used at the Restaurants in its converted restaurants; provided, however, that FSH shall remain obligated under Paragraph XIV.D and, to the extent applicable, Paragraph VI.B with respect to such recipes. (f) FSH acknowledges that the deadlines set forth in Exhibit A are of the essence. Accordingly, if FSH fails to complete the sale, termination or conversion as contemplated by this Amendment of the cumulative number of Restaurants as contemplated by this Amendment by any applicable date set forth on Exhibit A: (i) (A) if such failure is with respect to the requirement that all of the Restaurants be sold, terminated or converted by June 30, 2005, such failure shall 2 constitute a default under the Franchise Agreement, and, without the necessity of any notice (including without limitation any "Notice to Cure" or "Notice of Cure"), Ryan's shall have all remedies available under the Franchise Agreement, at law and/or in equity by reason of such breach; or (B) if such failure is with respect to the cumulative number of Restaurants require by this Amendment to be sold, terminated or converted by any date other than June 30, 2005, such failure shall constitute a default under the Franchise Agreement if such failure is not fully cured within one hundred eighty (180) days after the occurrence of such failure, and in such event, without the necessity of any notice (including without limitation any "Notice to Cure" or "Notice of Cure"), Ryan's shall have all remedies available under the Franchise Agreement, at law and/or in equity by reason of such breach; and (ii) without limiting clause (i) in any way, during any quarterly period (except for the first thirty (30) days of such quarterly period, if immediately prior to such period FSH was in compliance with the Franchise Agreement) that more FSH's Restaurants are in operation than permitted by this Amendment (such excess number of Restaurants at any time being hereinafter referred to as the "Excess Number"), the Continuing Service and Royalty Fee during that quarter shall be equal to the sum of (A) 4% of the total gross receipts of all of FSH's Restaurants in operation, plus (B) the produce of (x) 2% of the total gross receipts of all of FSH's Restaurants in operation, multiplied by (y) the quotient of (1) the Excess Number, divided by (2) the total number of FSH's Restaurants in operation. Each of subparagraphs (i) (A), (i)(B) and (ii) of this paragraph (f) is independent of the other, and Ryan's rights under any of such subparagraphs shall not be affected by whether or not Ryan's then has rights under the terms of any of the other such subparagraphs. 2. Additional Agreements. (a) Ryan's agrees that, unless and until FSH defaults under any of its obligations under this Amendment or any of its other obligations under the Franchise Agreement, Ryan's shall not exercise any of the remedies (other than this Amendment) available to it under the Franchise Agreement, at law and/or in equity with respect to the failure by FSH to have in operation as of December 31, 2003 a number of Restaurants at least equal to 80% of the number of Restaurants required to be in operation as of that date under the Existing Franchise Agreement. (b) For so long as FSH is not in default under the Franchise Agreement, Ryan's shall make no derogatory remark concerning FSH to any third party, and shall instruct its officers and directors not to make any such derogatory remark. For so long as Ryan's is not in default under the Franchise Agreement, FSH shall make no derogatory remark concerning Ryan's to any third party, and shall instruct its officers and directors not to make any such derogatory remark. (c) Unless required by law in the reasonable judgment of a party, neither party shall make any public announcement concerning this Amendment or the relationship 3 between the parties without giving the other party a reasonable opportunity to comment on the proposed announcement and without the other party's consent, which consent shall not be unreasonably withheld or delayed. (d) FSH shall not construct or open any additional Restaurant as a Ryan's Family Steak House. (e) If not earlier terminated pursuant to the terms of the Franchise Agreement, and subject to paragraph (f) below, the Franchise Agreement shall terminate and expire at such time as the sale, termination or conversion as contemplated by this Amendment of all of FSH's Restaurants has been completed and all payments due under the Franchise Agreement from any party to the other party have been finally paid in full. (f) This Amendment and the following provisions of the Franchise Agreement shall survive the expiration and termination of the Franchise Agreement: (i) Clause 2 of Subparagraph A of Paragraph III (Proprietary Marks); (ii) Subparagraphs B and C of Paragraph VI (Confidential Operating Manual); (iii) Subparagraph C of Paragraph VIII (Accounting and Records); (iv) Paragraph XII (Insurance), to the extent of any applicable statute of limitations, with respect to insurance protecting Ryan's and its officers and employees against any loss, liability or expense whatsoever from personal injury, death, property damage or products liability, arising or occurring upon or in connection with any Restaurant or by reason of FSH's operation upon, from or occupancy of such Restaurant prior to the date that such Restaurant is sold, terminated or converted as contemplated by this Amendment; (v) Subparagraphs B, D and E of Paragraph XIV (Covenants); (vi) Paragraph XVI (Rights and Duties of Parties upon Expiration or Termination), other than Subparagraph B thereof; (vii) Subparagraph B of Paragraph XXI (Independent Contractor); (viii) Paragraph XXIV (Liability for Breach), subject to Section 3 of this Amendment; and (ix) Paragraphs XXII (Non-Waiver), XXIII (Notice), XXVII (Applicable Law) and XXVIII (Arbitration). Notwithstanding the termination of any provision of the Franchise Agreement, but subject to Section 3 of this Amendment, 4 a party shall be liable to the other party for any breach of any such terminated provision that occurs prior to the date of termination and expiration of the Franchise Agreement. (g) Notwithstanding the terms of Subparagraph C of Paragraph XIV (Covenants) of the Existing Franchise Agreement, such Subparagraph C shall not survive the expiration and termination of the Franchise Agreement pursuant to Section 2(e) of this Amendment. Ryan's acknowledges and agrees that FSH is free to construct and operate restaurants at any time and anywhere, even if such restaurants compete with Ryan's, so long as FSH does not thereby violate the Franchise Agreement as then in effect. Similarly, FSH acknowledges and agrees that Ryan's is free to construct and operate restaurants at any time and anywhere, under the name "Ryan's Family Steak House" or "Fire Mountain" or any other name that Ryan's may then lawfully use, even if such restaurants compete with FSH. 3. Releases. (a) Subject to the limitations contained in paragraph (b) of this Section 3, FSH, on behalf of itself and its successors and assigns, hereby irrevocably and unconditionally releases and forever discharges, individually and collectively, Ryan's, and each of its officers, directors, agents, employees, parent companies, subsidiaries, affiliates, successors and assigns (hereinafter collectively the "Ryan's Parties), of and from any and all charges, claims, complaints, demands, liabilities, causes of action, losses, costs and expenses (collectively, "Claims") of any kind whatsoever (including related attorneys' fees and costs), whether arising in contract or tort or under a statute or any other law or otherwise, known or unknown, or suspected or unsuspected, that FSH may now have or has ever had against any of the Ryan's Parties by reason of any act, omission, transaction or event occurring prior to or on the date of this Amendment. The final release and discharge set forth in the immediately preceding sentence constitutes a material part of the consideration flowing from FSH to Ryan's under this Amendment, and each of the individuals and entities included thin the term "Ryan's Parties" is an intended beneficiary of this consideration. (b) Notwithstanding anything to the contrary herein, the releases and discharges contained in paragraph (a) of this Section 3 do not release, discharge or otherwise affect any of the following Claims: (i) Claims relating to Ryan' obligations under this Amendment or arising after the date hereof under the Franchise Agreement; and (ii) Claims arising from any fraud or illegal activities of Ryan's. (c) Subject to the limitations contained in paragraph (d) of this Section 3, Ryan's, on behalf of itself and its successors and assigns, hereby irrevocably and unconditionally releases and forever discharges, individually and collectively, FSH, and each of its officers, directors, agents, employees, parent companies, subsidiaries, affiliates, successors and assigns (hereinafter collectively the "FSH Parties"), of an from any and all Claims of any kind whatsoever (including related attorneys' fees and costs), whether arising in contract or tort or under a statute or any other law or otherwise, known or unknown, or suspected or unsuspected, that Ryan's may now have or has every had against any of the FSH Parties by reason or any act, omission, transaction or event occurring prior to or on the date of this Amendment. The final release and discharge set forth in the immediately preceding 5 sentence constitutes a material part of the consideration flowing from Ryan's to FSH under this Amendment, and each of the individuals and entities included within the term "FSH Parties" is an intended beneficiary of this consideration. (d) Notwithstanding anything to the contrary herein, the releases and discharges contained in paragraph (c) of this Section 3 do not release, discharge or otherwise affect any of the following Claims: (i) Claims relating to FSH's obligations under this Amendment or arising after the date hereof under the Franchise Agreement; (ii) Claims arising under the Franchise Agreement for any unpaid Continuing Services and Royalty Fees, whether such Fees are payable with respect to past or future periods; and (iii) Claims arising from any fraud or illegal activities of FSH> (e) The parties understand that the Claims released and discharged under this Section 3 include, without limitation, all such Claims arising from FSH's relationship with Ryan's or any of its parent companies or subsidiaries, the termination of such relationship and any other conduct or negotiations occurring on or prior to the date of this Amendment, except as specifically excluded in paragraph (b) or (d) above. (f) The releases and discharges set forth in this Section 3 may be pleaded as a full and complete defense to, and may be used as the basis for an injunction against, any action, suit, or other proceeding that may be instituted, prosecuted or attempted in breach of this Section 3. (g) Each of FSH and Ryan's acknowledges and agrees that the releases and other consideration described in this Section 3 are offered and exchanged in good faith and will not, for any purpose, be considered as admissions of liability on the part of any party, which liability is expressly denied, and no past or present wrongdoing on the part of any party is implied by such releases or other consideration under the terms of this Section 3. (h) Each party warrants to the other party that it has not assigned any Claim released herein. 4. Miscellaneous. (a) Except as amended by this Amendment, the Existing Franchise Agreement shall remain in full force and effect. (b) This Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, and shall inure to the benefit of the Ryan's Parties and the FSH Parties to the extent provided in Section 3 hereof. 6 (c) This Amendment shall be construed as a contract entered into under the laws of the State of South Carolina, without regard to its rules respecting conflicts of laws. Any dispute regarding this Amendment shall be subject to the dispute resolution procedures set forth in the Franchise Agreement. (d) This Amendment and the Franchise Agreement embody the entire agreement of the parties with respect to the subject matter hereof and thereof, and there are no promises, representations, warranties, covenants or undertakings of any party to the other with respect to such subject matter other than those expressly set forth herein and therein. (e) No provision contained in this Amendment or the Franchise Agreement shall be deemed to have been waived by reason of any failure or delay to enforce the same, regardless of the number of breaches or violations that may occur. All waivers of any such provision shall be in writing executed by the party against whom the same is sought to be enforced. This Amendment and the Franchise Agreement may be amended only by a writing executed by each party hereto. (f) In the event any provision of this Amendment is determined, in accordance with the dispute resolution procedures set forth in the Franchise Agreement, to be unenforceable for any reason, the remaining provisions hereof shall remain in full force and effect and the unenforceable provision(s) shall be interpreted and rewritten to give effect to the parties' economic intentions. (g) Each of Ryan's rights under this Amendment is cumulative to its other rights under this Amendment or the Franchise Agreement, at law or in equity. 7 (h) This Amendment may be executed in several counterparts, all of which shall form one and the same agreement. IN WITNESS WHEREOF, Ryan's and FSH have executed this Amendment as of the date first set forth above. RYAN'S: RYAN'S PROPERTIES, INC. a Delaware corporation By: Charles D. Way Name: Charles D. Way Title: President FSH: FAMILY STEAK HOUSES OF FLORIDA, INC. a Florida corporation By: Edward B. Alexander Name: Edward B. Alexander Title: President Attest: Cynthia Newton Name: Cynthia Newton Title: Executive Assistant 8 EXHIBIT A Cumulative Number of Restaurants Deadline For Which Sale, Termination -------- or Conversion Has Been Completed - -------------------------------- 3 March 31, 2004 5 June 30, 2004 8 September 30, 2004 11 December 31, 2004 14 March 31, 2005 18 June 30, 2005 EX-10 4 exhibit1026.txt EXHIBIT 10.26 Date July 30, 2003 Name: Ed Alexander Title: President / COO Company: Family Steak Houses of Florida Inc Address: 2113 Florida Boulevard Neptune Beach, Florida 32266 RE: FOODSERVICE PRODUCTS DISTRIBUTION AGREEMENT WITH FAMILY STEAK HOUSE OF FLORIDA INC. Dear Ed: BACKGROUND A. Performance Food Group, Inc. ("PFG") has developed a national network of foodservice product distribution companies ("PFG Distributors ") that perform purchasing, marketing, warehousing, quality control, product research and development, transportation and distribution services for national and regional foodservice Customers. B. Family Steak Houses of Florida, desires to contract with PFG Florida as its Primary Distributor (as hereinafter defined) for foodservice products to all of the Customer locations listed in Exhibit A ("Customer Locations"), and PFG Florida desires to perform these services. C. Customer hereby contracts with PFG to provide distribution services for the Customer Locations pursuant to the terms and conditions set forth in this Foodservice Products Distribution Agreement (this "Agreement"). AGREEMENT TERMS In consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows. 1. PFG TO SERVE AS PRIMARY DISTRIBUTOR. PFG shall serve as Customer's Primary Distributor to Customer Locations for foodservice products within the designated categories listed in Exhibit "B" "Designated Categories" set forth in Section (5). For all purposes of this Agreement, Primary Distributor shall mean that Customer and/or the Customer Locations shall purchase eighty-five percent (85%) or more of the Products' requirements in each Designated Category for the Customer Locations (the "Requirements Threshold") from the PFG Distributor (as hereinafter defined). 1 2. TERM OF AGREEMENT. The term ("Term") of this Agreement will commence effective as of (9/30/03) and shall continue for Five years until 9/30/08 or until termination by either party hereto effective following ninety (90) days prior notice of termination to the other party. Either party hereto may propose any such amendments ("Amendment(s)") to this Agreement by providing notice of such proposed Amendment ("Amendment Notice") to the other party hereto. 3. PRODUCTS COVERED BY THIS AGREEMENT. Products will include products marketed under the PFG family of brands ("PFG Brands"), national brands, locally controlled labels, other products specified by Customer and stocked by PFG Distributors, and Proprietary Products (as hereinafter defined). 4. AGREED AVERAGE DROP SIZE; ADDITIONAL CHARGES FOR ORDERS THAT DO NOT MEET MINIMUM ORDER REQUIREMENTS. Fee pricing provided in Section (5) hereof is based on an average order size of $4000.00 per location per delivery ("Agreed Average Drop Size"). In the event that the average order size for any thirty (30) day period falls below the Agreed Average Drop Size, PFG will give notice to Customer, and Customer will cause such average order size for the thirty (30) day period following receipt of such notice to equal or exceed the Agreed Average Drop Size. A. When calculating the average drop size: Hot Shot, Fill-ins (because of shortages), Will Calls and or other Emergency Delivery incidents, will not be used in the calculation. B. Exhibit "A" Details the amount of deliveries per week, per unit initially agreed upon by Ryan's Family Steak Houses of Florida Inc and PFG Florida. In addition, individual regularly scheduled orders under $1500.00 will be charged an additional $75.00 to offset the additional charges incurred, and orders below the minimum order size of $500.00 will be delivered at the sole discretion of the PFG Distributor. Exception deliveries made in the event of emergencies will be handled on a case-by-case basis. 5. DISTRIBUTION FEES/MARGIN PRICING; DESIGNATED CATEGORIES. Appointed Distributors shall distribute Products to Customer Locations in the Designated Categories based upon the Case pricing scheme specified in this Section (5). Designated Categories Over Cost Dry Goods $ 1.79 per case Frozen Refrigerated Meats/Seafood/Poultry Janitorial Dairy 2 Fee calculation on sale = (Distributor landed) divided by (100%-Margin) Example: Distributor Landed $20.00 Dollars on Sell $1.79 per case Case Calculation ($20.00)+(1.79)= $21.79 6. PRICING; COST DEFINED; PRICE ADJUSTMENTS. A. All pricing to Customer is calculated on PFG Distributors' cost ("Cost"), as defined below. B. "Cost" is defined as the price invoiced by the vendor, manufacturer, packer, supplier or provider to the distributor plus applicable freight (based on national published freight rates or better), delivery charges, back haul charges (including invoices from in-house freight management) less off-invoice temporary discounts or promotions during the applicable period (excluding cash discounts). Products contracted by Customer will be billed at the contracted Cost plus applicable freight and agreed to Fee. If electronic data interchange or other invoice-less system is used, a printed report or other appropriate verification from the supplier confirming the purchase order cost will be considered an invoice for determining Cost. 7. JOINT PURCHASES. In the event that Customer and PFG Distributor mutually agree to a forward, special or other purchase on Customer's behalf that may require a purchase of inventory beyond thirty (30) days, PFG will impose a surcharge of 2% per month after the first thirty (30) days. The surcharge will be calculated based upon the Cost of any such remaining inventory after thirty (30) days and after each successive thirty (30) day period thereafter. A. This will exclude the purchase of Fresh Beef for Ryan's (Beef Sirloin Top Butts) Which PFG Florida will purchase and hold in accordance with Ryan's Family Steak Houses of Florida Inc. requirements for age and price. 8. ORDERING PROCEDURES. Each PFG Distributor will agree upon the ordering and other pertinent procedures with Customer. A customized order guide ("Order Guide") will be provided to Customer Locations not utilizing direct order entry to facilitate order placement, and such Customer Locations will utilize such Order Guide to order Products by item number and/or line number and desired quantity. Customer will be provided with monthly Order Guides and weekly Order Guides for "at-market" products. Comprehensive instructions and on site training will be provided to Customer Locations utilizing the direct order entry program. 9. CREDITS. Customer is not to return merchandise without written authorization from the appropriate PFG Distributor. All requests for return or adjustment of dry groceries must be reported within seven (7) days of receipt of merchandise and include the invoice number, Customer code and invoice date in order for the Customer to receive the full amount of credit. In the case of fresh or frozen merchandise, returns must be identified at the time of delivery. Returned merchandise must reach the appropriate PFG Distributor in resalable condition and must be packed in its original carton, unless Customer is authorized to return merchandise for quality control inspection. Merchandise made to order, specially designed, crested or imprinted 3 cannot be exchanged or returned. Special order (non-stock) merchandise may only be returned if packed in original shipping cartons and will be subject to transportation and handling charges. Credits shall be granted in accordance with the terms of PFG'S Operating Procedures Manual, which shall be customized by the Appointed Distributors for Customer with prior approval by Customer. Appointed Distributors may impose a re-stocking fee of ten percent (10%) in connection with any such returned merchandise, that needs to be returned to the vendor. A. The 10% Restocking Fee will only apply to special order or proprietary products that were specifically ordered for Ryan's Family Steak Houses of Florida Inc. Any and all products returned during the normal course of business will not carry a restocking fee. 10. DELIVERY AND RECEIVING. All deliveries will be made in accordance with a prearranged delivery schedule designed by PFG Distributors to meet Customer needs. PFG Distributor (s) will establish Holiday delivery schedules at least fourteen (14) days prior to such holiday. Customer will receive an original invoice and one copy with each order, which shall be checked by an authorized representative of Customer at the time of delivery. Should any product be short or damaged, Customer's authorized representative shall notify the PFG Distributor's driver at the time of delivery. The PFG Distributor's driver will note the discrepancy on the invoice, and credit will be taken directly off the invoice. 11. CREDIT TERMS. All payments should be received within 30 days from the date of invoice. In the event of Customer's failure to make payment in accordance with the payment terms specified in the preceding sentence, PFG Florida may (in addition to any such other remedies provided for herein) make adjustments to the margins or incentive payments applicable to Customer and/or discontinue service, and PFG may terminate this Agreement. Family Steak Houses of Florida Inc will have a 48 hour period to resolve any outstanding issues. A. Payment Obligation Family Steak Houses of Florida Inc will provide PFG Florida with weekly ACH Payments that PFG Florida initiates based on Net 30 day terms. It is understood that Ryan's Family Steak Houses of Florida Inc has a credit limit of 1 million dollars and if the balance due exceeds 1 million dollars the total amount over the 1 million dollars is due in full at the next occurrence of the next ACH payment. B. Service Charge If invoices are not paid when due, a service charge equal to lesser of 1 1/2% per month or the maximum interest rate permitted by law may be assessed on the unpaid portion of any such overdue invoice. Unpaid invoice balances and finance charges due to PFG Distributors may be deducted from and/or offset against any credits otherwise due to Customer. C. Financial Information Customer agrees to provide, from time to time, promptly following receipt of a written request therefor from PFG, such additional financial information, including, without limitation, audited financial statements, statement of cash flow and/or any such other financial information requested by PFG. Also a corporate cross guarantee to be provided (See Attached Exhibit "C"). 4 12. AUDIT PRIVILEGES. Customer shall have the right, at Customer's sole expense, to audit records of PFG Distributors related to Customer under this Agreement; provided, however, that any such audits shall be subject to following limitations: (i) date and time of audit shall be mutually agreed upon following reasonable notice from Customer of its audit request; (ii) Customer shall not be entitled to audit a given PFG Distributor more than two times in any twelve month period; (iii) any such audits shall be conducted at such reasonable times during normal business hours and without any unreasonable disruption of the applicable PFG Distributor's business or year-end accounting procedures; and (iv) any such audit will consist of a maximum of 20 items covering the prior 13 week period immediately preceding the audit request. 13. SUBSTITUTIONS/BACK ORDER. PFG Distributor shall be obligated to ship a complete order on every delivery, and in the event that a substitution becomes necessary, the PFG Distributor will substitute an appropriate product at the agreed upon Fee. 14. PROPRIETARY PRODUCTS; SPECIAL ORDERS. PFG Distributor will deliver products requested and specified by Customer that are proprietary to Customer's operations ("Proprietary Products") and special orders by Customer under the conditions specified in the following provisions of this Section (14). PFG Distributors will not bring into stock any product or lines of product for a Customer Location unless Customer's management has authorized, in writing, such action. If Customer approves and authorizes products not currently in existing inventory, the following minimum guidelines will apply to any new products brought into stock: A. PFG Distributors shall not be required to stock any special order or Proprietary Product that does not have or will not have average weekly sales of 10 cases per participating distribution center and 12 annual turns. B. Customer will sign a special stocking request form. C. Customer shall provide PFG Distributors with a minimum of 21 days notice in connection with any request by Customer to bring in any new normally stocked items. Further, customer shall provide PFG Distributors with a minimum of six weeks' notice on special order items. PFG cannot guarantee that the minimum notice periods provided for in the two preceding sentences will be sufficient, and PFG shall not be responsible for or be deemed to be in default of this Agreement by virtue of the inability to obtain items within such minimum notice periods. However, the PFG Distributor shall be required to use commercially reasonable efforts to obtain such items within the prescribed notice periods. D. If PFG has not previously purchased from the supplier/manufacturer designated by Customer, a certificate of insurance indicating coverage that satisfies PFG' required coverage and an appropriate indemnification from supplier/manufacturer must be provided before any product can be brought into inventory. If the specified supplier/manufacturer will not issue an appropriate certificate of insurance and/or provide appropriate indemnification, PFG Florida will not stock or distribute such items. 5 E. In the event Customer (i) decides to discontinue any Proprietary Product or products subject to special orders or (ii) Customer gives or receives notice of termination of this Agreement, Customer shall provide notice thereof to PFG Distributors within 30 days in accordance with the notice provisions of this Agreement. F. Upon thirty (30) days of notice of a request from an Appointed Distributor, Customer agrees to purchase or advise Appointed Distributor how to dispose of such products that constitute remaining special order or Proprietary Products inventory on hand that does not meet the minimum stocking requirements listed in Section 14 (A) hereof. The Appointed Distributor may dispose of these items if they have not been removed from the distribution center after such 30- day period, and Customer shall pay the Appointed Distributor for these items within 15 Days of such disposal. G. In the event that either terminates this Agreement party hereto, Customer agrees (i) to use commercially reasonable efforts to effect an orderly transition with respect to and (ii) to remove from the distribution centers for all PFG Distributors all perishable products within 7 days of the termination date, (all Proprietary Products, Special Order Products, obsolete inventory, other applicable products in stock, and products for which non-cancelable orders have been placed). All other items will be removed within 30 days of termination of contract. All items will be FOB distribution center, and Customer or new distributor will pay for all such inventory and all freight in connection with the disposition of all such Products. Payment for this inventory transition will be made within 30 days of the invoice date. 15. FORCE MAJEURE. Neither party shall be liable to the other party for any loss, delay or failure to perform resulting directly or indirectly from fires, floods, riots, strikes or other circumstances beyond either party's reasonable control. 16. COMPLIANCE WITH LAWS. Each party hereto agrees that it will comply with all laws and regulations applicable to this Agreement and its performance hereunder. Without limiting the foregoing, Customer agrees to fully and accurately report to the appropriate federal and state agencies and authorities all discounts (as such term is defined in 42 CFR Sec 1001.952 (h)) granted hereunder in accordance with all applicable laws and regulations. 17. REPORTING. In addition to monthly and weekly Order Guides, PFG Florida will provide any customer reports if requested by Family Steak Houses of Florida, that are available in the PFG system. 18. NOTICES. Any written notices called for in this agreement may be made by facsimile, personal delivery, overnight or other delivery service or first class mail. Notices by fax will be effective when the transmission is complete and confirmed; notices by personal delivery will be effective upon delivery; notices by overnight or other delivery services will be effective when delivery is confirmed; notices by mail will be effective four business days after mailing. The notice address for each party is set forth below and shall be subject to change upon written notice thereof in accordance with the provisions of this Section (18). 6 19. CHOICE OF LAW; VENUE. This Agreement, including, without limitation, any dispute or claim hereunder, shall be governed by and construed in accordance with the laws of the State of Florida without reference to the choice of law provisions of any state. Further, the parties hereby agree that any and all actions or proceedings arising from or relating to this Agreement shall be brought in the Circuit Court for the County of Hillsborough, Florida, or the United States District Court for the District of Tampa, Florida Division and hereby consent to personal jurisdiction of such courts for any such action of proceeding. 20. LIMITATION OF LIABILITY. PFG shall not be liable to the Customer for any special, indirect, incidental, consequential or punitive damages arising out of or relating to this Agreement under any legal theory. 21. MISCELLANEOUS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. PFG and Customer have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute of law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The parties intend that each representation, warranty and covenant contained herein shall have independent significance. All such exhibits, schedules and other documents, or portions thereof, identified in this Agreement are incorporated herein by reference and made a part hereof. At either party's reasonable request and without further consideration, the other party shall promptly execute and deliver such instruments and documents, and take such other action, as such party may reasonably request to effectuate completely the transactions provided for in this Agreement and to otherwise carry out the purpose and intent of this Agreement. The failure of any of the parties to this Agreement to require the performance of a term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. If any one or more of the provisions of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement will not be affected thereby, and the parties will use all reasonable efforts to substitute for such invalid, illegal or unenforceable provision(s) one or more valid, legal and enforceable provision(s) that, insofar as practicable, implement the purposes and intents hereof. To the extent permitted by applicable law, each party waives any provision of law that would render any provision of this Agreement invalid, illegal or unenforceable in any respect. No remedies set forth herein shall be exclusive and no party shall be limited to any remedy set forth herein. All remedies available to any party shall be cumulative. This Agreement may not be amended or modified, nor may compliance with any condition or covenant set forth herein be waived, except by a writing duly and validly executed by each party hereto, or in the case of a waiver, the party waiving compliance. The titles and/or captions contained in this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. The masculine, feminine or neutral gender and singular or plural nouns shall each to be deemed to include the others whenever the context so indicates. 7 22. ENTIRE AGREEMENT. This agreement sets forth the complete understanding of the parties hereto with respect to the subject matter contained herein, and may not be amended or supplemented except in writing signed by both parties. See Attached Documents: Exhibit A - "Customer Locations" Exhibit B - "Designated Categories" Exhibit C - "Corporate Guaranty" Exhibit D - "Credit Terms / Quick Pay Incentive" Addendum I - Ryan's Family Steak Houses of Florida Inc "Beef Pricing" Addendum II - Ryan's Family Steak Houses of Florida Inc "Produce Pricing" [SIGNATURES APPEAR ON FOLLOWING PAGE] 8 Agreement between Family Steak Houses of Florida Inc. and PFG Florida ACCEPTED BY: CUSTOMER: PFG: Customer Representative Name PFG Representative Name Ed Alexander Mike Colosi Title: President / COO Title: President, CEO Company: Family Steak Houses of Florida Inc. Performance Food Group Florida Address: 2113 Florida Boulevard 3150 N. Gallagher Rd Neptune Beach, FL 32266 Dover, FL 33527 Phone: 904-249-4197 813-659-0811 Fax: 904-249-1466 813-659-1331 _____________________________ ______________________________ (Please Print) (Please Print) _____________________________ ______________________________ (Signature) (Signature) _____________________________ ______________________________ (Title) (Title) _____________________________ ______________________________ (Date) (Date) 9 EX-13 5 exhibit1301.txt EXHIBIT 13.01 FAMILY STEAK HOUSES OF FLORIDA, INC. CORPORATE PROFILE About The Company Family Steak Houses of Florida, Inc. (the "Company") is an operator of eighteen restaurants in the state of Florida. The Company's first restaurant was opened in Jacksonville, Florida in May 1982. The Company's stock trades on the Over the Counter Bulletin Board under the symbol RYFL. Until December 2003, the Company was the sole franchisee for Ryan's Family Steak House restaurants in the state of Florida. In December 2003, the Company made an agreement to convert all of its restaurants to a different name and concept by June 2005. The restaurants will be converted to one of two concepts, either "Whistle Junction" or "Florida Buffet", based on a variety of factors. The operations of the restaurants will maintain the buffet format, but with enhancements to the buildings, service and menus. The Company's restaurants are family-oriented buffet restaurants 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 all-you-can-eat buffet. Restaurant Locations: Jacksonville (1) St. Cloud (1) Gainesville (1) Ocala (1) Winter Haven (1) Tampa (3) Tallahassee (1) Daytona Beach (1) Orlando (1) Melbourne (1) Titusville (1) Lake City (1) Brooksville (1) Deland (1) Lakeland (2) To Our Shareholders: 2003 was a year of significant change for the Company. After years of struggling to make the Company profitable and build shareholder value with the Ryan's concept, we made the decision to break our ties with Ryan's, and take the Company in a new direction. This new direction creates opportunities which we think can return the Company to profitability and growth. Beginning in January 2004, we began the process of converting all of our restaurants to a new name and concept. Most of the restaurants will be converted to a concept and brand called the Whistle Junction. The concept was developed with help from the Brown Group, noted for their experience in creating unique restaurant concepts. It involves conversion of the restaurants to a train station design. The building will have prominent icons and imagery that include a water tower, whistle tower and clock tower, all reminiscent decor of the train station platform on the exterior. Inside the restaurant, branding will be reinforced with other train station memorabilia, including operating model railroads. The idea for these conversions was partially based on outstanding results experienced by our franchisor, Ryan's Inc. of South Carolina, and another local competitor, both of whom remodeled and renamed old Ryan's locations. The franchisor converted several of their Ryan's locations and opened them with a new name, and has experienced significant sales increases. A local competitor in Florida also purchased some old Ryan's locations and completed similar remodels, experiencing sales increases as high as 400% compared to their results as Ryan's. We are convinced that the success of these remodeled restaurants is a good indication that the brand is a little "tired", and it is time to make changes. We believe we have taken these ideas and improved upon them with the Whistle Junction concept. Once the customers come inside the exciting new Whistle Junction building to give it a try, we are going to do everything we can to impress them and retain their business. The operational concept will still be a family-oriented buffet, but numerous enhancements will be made to the food and service. We believe customers will still perceive the Whistle Junction as the best value in town. The overall dining experience will be improved by adding an element of fun and nostalgia, along with even better food and service value than we have provided in the past. Obviously, a lot of work must be done to complete the transformation of all of our restaurants by June 2005. Already, 2 we have one location being remodeled as our first Whistle Junction, with a second remodel scheduled to begin soon. Also, we have our first new store under construction as a Whistle Junction in a prime location in Orlando, Florida. We expect to have three Whistle Junctions operating by early May 2004. As a part of the Company's transformation, we identified a few locations for which the conversion to Whistle Junction would not make sense, for a variety of reasons. Accordingly, these locations have already been converted to a new concept named Florida Buffet. The Florida Buffet conversions are not as extensive as Whistle Junction, but allowed us to stop paying the franchise fee on those locations immediately. These feature a "Florida-look" theme, and also include food and service enhancements. We are heading into 2004 with some momentum. We had positive same-store sales of 2.2% in the fourth quarter of 2003, our first positive quarter since the first quarter of 2001. Average unit sales for the fourth quarter were up 10.7%, due to our successful closure and disposal of several under-performing units in 2003. During the first two months of 2004, the same- store sales gains have increased significantly. The combination of these sales increases, even before the anticipated positive impact of Whistle Junction conversions, and the gradual elimination of franchise fees bodes well for the Company in 2004. By June 2005, we will save $1.5 million per year in franchise fees, and use these savings to strengthen the Company. We hope you will be as excited as management about these changes. Whistle Junction gives the Company a vehicle for growth, free of the fees and restrictions associated with the old franchise agreement. It puts us "back on track" to building shareholder value. All aboard! Thanks for your continuing support. Sincerely, Edward B. Alexander President 3 FAMILY STEAK HOUSES OF FLORIDA, INC. Five Year Financial Summary
- ------------------------------------------------------------------------------- 2003 2002 2001 2000 (1) 1999 - ------------------------------------------------------------------------------- Selected Income Statement Data: (in thousands, except per share data) Revenues: Sales $37,384 $42,050 $42,054 $39,960 $38,905 Vending income 208 192 210 232 198 ------- ------- ------- ------- ------- 37,592 42,242 42,264 40,192 39,103 Cost and expenses: Food and beverage 14,252 15,696 15,938 15,469 15,161 Payroll and benefits 11,678 12,713 12,582 11,306 11,416 Depreciation and amortization 1,991 2,205 2,148 2,061 1,966 Other operating expenses 6,252 6,826 6,754 6,217 6,252 General and administrative expenses 2,317 2,396 2,540 2,445 2,515 Change in control payments -- -- -- -- 908 Franchise fees 1,494 1,682 1,260 1,198 1,165 Asset valuation charge 63 988 -- 190 -- Loss on store closings and disposition of equipment 171 258 214 149 140 ------- ------- ------- ------- ------- 38,218 42,764 41,437 39,035 39,523 ------- ------- ------- ------- ------- Earnings (loss) from operations (626) (522) 827 1,157 (420) Gain (loss) on sale of property 38 -- -- 62 (18) Investment (loss) income (331) 17 (487) 487 28 Interest and other income 254 168 100 157 149 Interest expense (1,736) (1,763) (1,726) (1,910) (1,721) ------- ------- ------- ------- ------- Loss before income taxes (2,401) (2,100) (1,286) (47) (1,982) Income taxes -- -- -- -- -- ------- ------- ------- ------- ------- Net loss $(2,401) $(2,100) $(1,286) $(47) $(1,982) ======= ======== ======= ======= ======= Basic loss per share $(0.65) $(0.59) $(0.49) $(0.02) $(0.82) ------- ------- ------- ------- ------- Diluted loss earnings per share $(0.65) $(0.59) $(0.49) $(0.02) $(0.82) ======= ======== ======= ======= ======= Selected Balance Sheet Data: Land and net property and equipment $24,352 $28,347 $29,582 $26,356 $25,261 Total assets 30,807 33,667 34,261 31,627 30,759 Long-term debt 17,471 19,523 19,903 17,869 17,336 Current portion of long-term debt 718 725 663 566 381 Shareholders' equity 3,761 6,145 7,843 7,770 8,335 Selected Operating Data : Current ratio 0.6 0.7 0.2 0.4 0.4 Working capital (deficit) $(2,274) $(1,208) $(4,528) $(2,781) $(2,491) Cash provided by operating activities 309 822 1,293 1,937 130 Property and equipment additions 937 2,006 5,716 3,648 3,855 - -------------------------------------------------------------
(1) Fifty-three week period. 4 Family Steak Houses of Florida, Inc.
Management's Discussion and Analysis of Financial Condition and Results Shown for the years indicated are (i) items in the statements of operations as a percent of total sales, (ii) operating expense items in the statements of operations as a percent of sales and (iii) the number of restaurants open at the end of each year. Percentage Change Versus Prior Year ------------------------ 2003 2002 vs vs 2003 2002 2001 2002 2001 ----------- ----------- ----------- ------------------------- Sales $37,384,000 $42,050,300 $42,053,500 (11.1%) 0.0% =========== =========== =========== ========== ========= Net Change In Percentage ------------------------- 2003 2002 Percent of Sales vs vs 2003 2002 2001 2002 2001 ----------------------------------- ------------------------- Vending Revenue 0.6% 0.5% 0.5% 0.1% 0.0% -------- ------- ------- --------- -------- Costs and expenses: Operating expenses 91.3% 89.0% 89.0% 2.3 0.0 General and administrative expenses 6.2 5.7 6.0 0.5 (0.3) Franchise fees 4.0 4.0 3.0 0.0 1.0 Asset Valuation Charge 0.2 2.4 --- (2.2) 2.4 Loss on store closings and disposition of equipment 0.5 0.6 0.5 (0.1) 0.1 -------- ------- ------- --------- -------- 102.2 101.7 98.5 0.5 3.2 -------- ------- ------- --------- -------- Earnings (loss) from operations (1.6) (1.2) 2.0 (0.5) (3.2) Investment (loss) income (0.9) --- (1.2) (0.9) 1.2 Interest and other income 0.7 0.4 0.2 0.3 0.2 Interest expense (4.6) (4.2) (4.1) (0.4) (0.1) -------- ------- ------- --------- -------- Loss before income taxes (6.4) (5.0) (3.1) (1.4) (1.9) Income tax benefit --- --- --- --- --- -------- ------- ------- --------- -------- Net Loss (6.4)% (5.0)% (3.1)% (1.4) (1.9)% ======== ======= ======= ========= ======== Operating expenses: Food and beverage 38.1% 37.4% 37.9% 0.7% (0.5)% Payroll and benefits 31.2 30.2 29.9 1.0 0.3 Depreciation and amortization 5.3 5.2 5.1 0.1 0.1 Other operating expenses 16.7 16.2 16.1 0.5 0.1 -------- ------- ------- --------- -------- 91.3% 89.0% 89.0% 2.3% (0.0)% ======== ======= ======= ========= ======== Restaurants open at end of year 18 22 23 ======== ======= =======
5 RESULTS OF OPERATIONS 2003 Compared to 2002 Total sales decreased by 11.1%, to $37,384,000 in 2003 from $42,050,300 in 2002. The decrease was due to the closure of three under-performing restaurants in 2003, and to a decrease in same store sales of 5.3% discussed below. Same store sales for 2003 decreased 5.3% from the same period in 2002, compared to a decrease of 6.1% from 2002 as compared to 2001. The decrease in same store sales was primarily due to declines at certain restaurants which faced new competition in their markets in 2003. Management is seeking to improve sales trends by remodeling and converting most of its restaurants to a new name and format (see Recent Developments). In conjunction with these conversions, service enhancements will be added, including additional staffing to improve food and service. Check average is also expected to increase as a result of price increases and reduced discounting promotions. Based on results of similar conversions by the Company's franchisor, Ryan's Family Steak Houses, Inc. ("the Franchisor"), and other competitors, management believes that significant sales increases can be achieved by these conversions. The operating expenses of the Company's restaurants include food and beverage, payroll and benefits, depreciation and amortization, and other operating expenses, which include repairs, maintenance, utilities, supplies, advertising, insurance, property taxes, rents and licenses. In total, food and beverage, payroll and benefits, depreciation and amortization and other operating expenses as a percentage of sales increased to 91.3% in 2003 from 89.0% in 2002. Food and beverage costs as a percentage of sales increased to 38.1% in 2003 from 37.4% in 2002, primarily due to menu enhancements implemented and higher beef prices in 2003. Payroll and benefits as a percentage of sales increased to 31.2% in 2003 from 30.2% in 2002, primarily due to increases in workers' compensation expense, based on the results of an actuarial review of the Company's claim liability. Other operating expenses as a percentage of sales increased to 16.7% in 2003 from 16.2% in 2002, primarily due to increased property insurance and utilities costs. Depreciation and amortization increased as a percentage of sales to 5.3% in 2003 from 5.2% in 2002. General and administrative expenses as a percentage of sales increased to 6.2% in 2003 from 5.7% in 2002, primarily due to the decline in same-store sales and the addition of a district supervisor position in 2003. 6 The Company recognized an asset impairment charge of $63,100 in 2003 in accordance with Statement of Financial Accounting Standards No. 144 (SFAS 144"), "Accounting for the Impairment of or Disposal of Long-Lived Assets". The charge was based upon a financial review of all Company-owned restaurants and applied to one closed restaurant, for which the Company entered into a sales contract in February 2004. The Company recognized asset impairment charges of $987,700 in 2002. The Company invests a portion of its available cash in marketable securities. The Company maintains an investment account to effect these transactions. Investments are made based on a combination of fundamental and technical analysis primarily using a value-based investment approach. The holding period for investments usually ranges from 60 days to 24 months. Management occasionally purchases marketable securities using margin debt. In determining whether to engage in transactions on margin, management evaluates the risk of the proposed transaction and the relative returns offered thereby. If the market value of securities purchased on margin were to decline below certain levels, the Company would be required to use additional cash from its operating account to fund a margin call in its investment account. Management reviews the status of the investment account on a regular basis and analyzes such margin positions and adjusts purchase and sale transactions as necessary to ensure such margin calls are not likely. A primary investment strategy used by the Company in 2003 consisted of short-selling of securities, which results in obligations to purchase securities at a later date. As of December 31, 2003, the Company's total obligation for these securities sold not yet purchased was $1,187,400, compared to $19,200 at January 1, 2003. The results for the year 2003 include realized losses from the sale of marketable securities of $330,600, compared to realized gains of $17,300 in 2002. Interest expense decreased to $1,735,800 in 2003 from $1,763,400 during 2002, due to lower outstanding debt balances. The Company capitalized interest costs of $0 in 2003 and $3,900 in 2002. The effective income tax rate for the years ended December 31, 2003 and January 2, 2002 was 0.0%. An increase in the valuation allowance in deferred tax assets for 2003 and 2002 resulted in the lower than statutory effective rates for those years. Net loss for 2003 was $2,401,100, compared to $2,100,300 in 2002. Loss per share was $.65 for 2003, compared to $.59 in 2002. 7 2002 Compared to 2001 Total sales decreased to $42,050,300 in 2002 from $42,053,500 in 2001. Incremental sales from restaurants opened in 2000, 2001 and 2002 (new-store sales not included in same-store sales) amounted to $7,452,200. These increases were offset by the decrease in same-store sales of 6.1% discussed below and by the closure of one restaurant in April 2002. Same-store sales (average unit sales in restaurants that have been open for at least 18 months and operating during comparable weeks during the current and prior year) for 2002 decreased 6.1% from the same period in 2001, compared to a decrease of 2.0% from 2001 as compared to 2000. The decrease in same-store sales was primarily due to significant sales declines at several restaurants which faced new competition or road construction, and a continuing slow economy compared to 2001. In total, food and beverage, payroll and benefits, depreciation and amortization and other operating expenses as a percentage of sales were 89.0% in 2002 and in 2001. Food and beverage costs as a percentage of sales decreased to 37.4% in 2002 from 37.9% in 2001, primarily due to menu price increases implemented by the Company. Payroll and benefits as a percentage of sales increased to 30.2% in 2002 from 29.9% in 2001, primarily due to increased workers' compensation expense. Other operating expenses as a percentage of sales increased to 16.2% in 2002 from 16.1% in 2001, primarily due to increased property insurance and building rent costs. Depreciation and amortization increased as a percentage of sales to 5.2% in 2002 from 5.1% in 2001. General and administrative expenses decreased to 5.7% of sales in 2002 from 6.0% in 2001 due to implementation of expense control initiatives. The Company recognized asset impairment charges of $987,700 in 2002 in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment of or Disposal of Long-Lived Assets". The charges were based upon a financial review of all Company-owned restaurants and applied to two closed restaurants held for sale and leasehold improvements from an operating restaurant. No such charges were considered necessary in 2001. The results for 2002 included net realized gains of $17,300 from the sale of marketable securities, compared to net realized losses of $486,700 in 2001. During 2002 and 2001, the Company 8 maintained an online brokerage account for investing excess cash. As of the end of 2002, most of the excess cash has been invested in the Company's operations. Interest expense increased to $1,763,400 in 2002 from $1,726,100 during 2001, due primarily to the write-off of approximately $43,000 in loan fees as a result of refinancing of debt during the year. The Company capitalized interest costs of approximately $3,900 in 2002 and $53,400 in 2001. The effective income tax rate for the years ended January 1, 2003 and January 2, 2002 was 0.0%. An increase in the valuation allowance in deferred tax assets for 2002 and 2001 resulted in the lower than statutory effective rates for those years. Net loss for 2002 was $2,100,300, compared to $1,285,800 in 2001. Loss per share was $.59 for 2002, compared to $.49 in 2001. Critical Accounting Policy The Company's accounting policy for the recognition of impairment losses on long-lived assets is considered critical. The Company's policy is to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the purpose of the impairment review, assets are grouped on a restaurant-by-restaurant basis. The recoverability of the assets is measured by a comparison of the carrying value of each restaurant's assets to future net cash flows expected to be generated by such restaurant's assets. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. LIQUIDITY AND CAPITAL RESOURCES Substantially all of the Company's revenues are derived from cash sales. Inventories are purchased on credit and are converted rapidly to cash. Therefore, the Company does not carry significant receivables or inventories and, other than the repayment of debt, working capital requirements for continuing operations are not significant. At December 31, 2003, the Company had a working capital deficit of $2,274,400 compared to a working capital deficit of $1,207,800 at January 1, 2003. The increase in the working capital deficit in 2003 was primarily due to operating losses and investment losses incurred in 2003. 9 Cash provided by operating activities decreased to $308,600 in 2003 from $822,300 in 2002, primarily due to differences in the payments of accounts payable, workers' compensation and accrued liabilities. Cash provided by operating activities decreased to $822,300 in 2002 from $1,293,200 in 2001, due to timing differences in the payments of accounts payable, workers' compensation and accrued liabilities. The Company spent $938,000 in 2003, $2,006,000 in 2002 and $5,716,400 in 2001 for land, new restaurant construction, restaurant remodeling and equipment. Capital expenditures for 2004, based on present costs and plans for capital improvements, are estimated to be $3.8 million. This amount is based on budgeted expenditures for leasehold improvements and equipment for one new restaurant in 2004, remodeling of twelve restaurants to the Company's new concept and normal recurring equipment purchases and minor building improvements ("Capital Maintenance Items"). The Company believes it has sufficient funds for the construction of one new restaurant expected to open in 2004 and five of the twelve remodels to the new concepts. However, the Company's ability to fund construction of the remodels of the remaining seven restaurants will be dependent on its ability to raise additional capital. Should the Company not be able to raise the necessary capital for remodeling these seven restaurants, it would still be required to change the name and signs of these restaurants, in accordance with the amended Franchise Agreement (see Note 4 to the Financial Statements), but capital requirements for such changes would be minimal. Management estimates the cost of opening any future new restaurants to be approximately $2,900,000. To the extent the Company decides to open new restaurants or remodel its existing restaurants to its new concept in 2004 and beyond, management plans to fund any new restaurant construction either by GE Capital funding, sales leaseback financing, developer-funded leases, refinancing existing restaurants, or attempting to get additional financing from other lenders. The Company's ability to open new restaurants is also dependent upon its ability to identify suitable locations at acceptable prices, and upon certain other factors beyond its control, such as obtaining building permits from various government agencies. The sufficiency of the Company's cash to fund operations and necessary Capital Maintenance Items will depend primarily on cash provided by operating activities. In April 2002, the Company completed a private placement with Bisco for 435,000 shares at $0.92 per share, which was based on the average closing price of the Company's common stock on the 10 ten trading days prior to the sale. The Company used the $400,200 proceeds from this sale to fund remodels of several restaurants in 2002. In July 2002, the Company completed a sale leaseback transaction to refinance one of its restaurants in Tampa, Florida. The Company sold the property for $3.0 million and paid off its existing mortgage of approximately $1.1 million on the property. The leaseback of the building was accounted for as a capital lease and the leaseback of the land is accounted for as an operating lease, with the deferred gain on the sale being recognized over the twenty-year life of the lease. The lease agreement requires annual payments of $330,000, with increases of 10% every five years. Management plans to use the proceeds of the transaction to fund a portion of the construction of a new restaurant in 2004. The Company has entered into a series of loan agreements with GE Capital. As of January 1, 2003, the outstanding balance due under the Company's various loans with GE Capital was $18,189,200. The weighted average interest rate for the GE Capital loans is 7.37%. In 2003, the Company paid franchise fees of 4% of gross sales. Total franchise fees paid in 2003 were $1,494,400. As the Company converts each restaurant from Ryan's to its new concepts, no franchise fees are paid on those converted restaurants, which will improve the Company's cash flow. The Company sold two restaurants and one land parcel in 2003, resulting in total proceeds of $2.1 million. The Company used these proceeds to pay off mortgages on the two restaurants totaling approximately $1,366,000. Total net gains on sales of property in 2003 were $38,000. As of March 10, 2004, the Company had contracts for sale of three additional closed restaurants, all of which we expected to be sold in the second quarter of 2004. If all three restaurants are sold, net cash proceeds of approximately $1 million will be realized. The preceding discussion of liquidity and capital resources contains certain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, and in addition to the factors discussed herein, among the other factors that could cause actual results to differ materially are the following: failure of facts to conform to necessary management estimates and assumptions; the willingness of GE Capital or other lenders to extend financing commitments; 11 repairs or similar expenditures required for existing restaurants due to weather or acts of God; the Company's ability to identify and secure suitable locations on acceptable terms and open new restaurants in a timely manner; the Company's success in selling restaurants listed for sale; the economic conditions in the new markets into which the Company expands; changes in customer dining patterns; competitive pressure from other national and regional restaurant chains and other food vendors; business conditions, such as inflation or a recession, and growth in the restaurant industry and general economy; and other risks identified from time to time in the Company's SEC reports, registration statements and public announcements. Contractual Financial Obligations In addition to using cash flow from operations, the Company finances its operations through the issuance of debt and by entering into leases. These financial obligations are recorded in accordance with accounting rules applicable to the underlying transactions, with the result that some are recorded as liabilities in the Balance Sheet while others are required to be disclosed in the Notes to the Consolidated Financial Statements and Management's Discussion and Analysis. The following schedule summarizes contractual obligations and other contractual commitments as of December 31, 2003:
Payments due by Period Contractual Obligations Total 2004 2005-2006 2007-2008 Thereafter - ------------------------ ----------- ---------- ---------- ---------- ----------- Long-term debt $18,189,200 $718,400 $1,615,300 $1,871,500 $13,984,000 Capital leases 5,053,200 274,400 554,000 594,400 3,630,400 Operating leases 6,364,100 599,500 1,051,600 892,800 3,820,200 ----------- ---------- ---------- ---------- ----------- Total contractual cash obligations $29,606,500 $1,592,300 $3,220,900 $3,358,700 $21,434,600 =========== ========== ========== ========== ===========
Recent Developments In December 2003, the Company entered into an amendment to its franchise agreement with Ryan's Family Steak Houses, Inc. (the "Franchisor") to terminate the franchise agreement between the two Companies by June 2005. This amendment requires the Company to convert a specific number of its Ryan's restaurants each quarter to a new name beginning the first quarter of 2004, and requires all of the Company's restaurants to be renamed by June 2005. As soon as each restaurant is converted, franchise fees are no longer payable to the Franchisor. (See Note 4 to the Financial Statements for further details.) 12 The Company plans to convert most of its restaurants to a new concept called "Whistle Junction". These conversions entail a substantial remodel of the restaurant buildings designed to look like an old train station on the exterior. The interior of the restaurant will also feature the train theme, including an operating model railroad running through the dining room. The operation of the converted restaurants will continue to be a buffet format with an upgraded menu and improved service levels. The first Whistle Junction remodel is scheduled to open in March 2004, and a newly built Whistle Junction is scheduled to open in April 2004. Certain of the Company's restaurants will be converted to an alternate concept called the "Florida Buffet", based on various factors including their location. As of February 2004, three restaurants have been converted to the Florida Buffet. The Florida Buffet conversions include interior and exterior changes to the building designed to incorporate a "Florida look" theme, although the changes are not as extensive as those for the Whistle Junction. Menu and service enhancements are also included in the Florida Buffet locations, designed to attract and maintain increased customer volumes. IMPACT OF INFLATION Costs of food, beverage, and labor are the expenses most affected by inflation in the Company's business. Although inflation in recent years has been low and accordingly has not had a significant impact on the Company, there can be no assurance that inflation will not increase and impact the Company in the future. A significant portion of the Company's employees are paid by the federally established statutory minimum wage. Although no minimum wage increases have been signed into law, various proposals are presently being considered in the United States Congress. The Company is typically able to increase its menu prices to cover most of the payroll rate increases; however, there can be no assurance that menu price increases will be able to offset labor cost increases in the future. Such changes in the federal minimum wage would impact the Company's payroll and benefits costs. Annual sales price increases have consistently ranged from 1.0% to 3.0%. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK The Company is exposed to market risk from changes in interest rates. For its cash and cash equivalents, investments and mortgages receivables, a change in interest rates affects the amount of interest income that can be earned. For its debt 13 instruments, a change in interest rates affects the amount of interest expense incurred. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates.
2004 2005 2006 2007 2008 Thereafter Total ------------------------------------------------------------------------------- Assets Certificates of deposit at fixed interest rates $10,000 $10,000 Weighted average interest rate 1.0% Liabilities Notes payable at variable interest rate $718,400 $777,700 $837,600 $902,200 $969,300 $13,984,000 $18,189,200 Weighted average interest rate 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% Long-term capital leases at fixed interest rate $30,900 $34,400 $42,200 $65,400 $81,800 $2,056,000 $2,310,700 Weighted average interest rate 10.9% 10.9% 10.9% 10.9% 10.9% 10.9%
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in and disagreements with accountants on accounting and financial disclosure. 14 Family Steak Houses of Florida, Inc. Consolidated Statements of Operations
For The Years Ended ------------------------------------ December31, January 1, January 2, 2003 2003 2002 - ------------------------------------------------------------------------------- Revenues: Sales $37,384,000 $42,050,300 $42,053,500 Vending revenue 208,100 192,200 210,500 ----------- ----------- ----------- Total revenues 37,592,100 42,242,500 42,264,000 ----------- ----------- ----------- Costs and expenses: Food and beverage 14,251,900 15,696,500 15,938,200 Payroll and benefits 11,678,100 12,712,800 12,582,000 Depreciation and amortization 1,990,500 2,205,300 2,148,400 Other operating expenses 6,252,100 6,826,600 6,753,800 General and administrative expenses 2,317,300 2,396,000 2,539,900 Franchise fees 1,494,400 1,681,600 1,260,300 Asset valuation charge 63,100 987,700 -- Loss on store closings and disposition of equipment 171,000 257,600 214,300 ----------- ----------- ----------- Total costs and expenses 38,218,400 42,764,100 41,436,900 ----------- ----------- ----------- (Loss) earnings from operations (626,300) (521,600) 827,100 Investment (loss) income (330,600) 17,300 (486,700) Interest and other income 253,700 167,400 99,900 Gain on sale of property 38,000 -- -- Interest expense (1,735,800) (1,763,400) (1,726,100) ----------- ----------- ----------- Loss before income taxes (2,401,000) (2,100,300) (1,285,800) Income tax benefit -- -- -- ----------- ----------- ----------- Net loss ($2,401,000) ($2,100,300) (1,285,800) =========== =========== =========== Basic loss per share ($0.65) ($0.59) ($0.49) =========== =========== =========== Diluted loss per share ($0.65) ($0.59) ($0.49) =========== =========== ===========
See accompanying notes to consolidated financial statements. 15 Family Steak Houses of Florida, Inc. Consolidated Balance Sheets
December 31, January 1, 2003 2003 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $2,287,800 $1,679,600 Investments-available for sale 32,600 58,100 Receivables 110,600 105,400 Current portion of mortgages receivable -- 342,000 Inventories 300,400 236,400 Prepaid and other current assets 500,500 372,900 ----------- ------------ Total current assets 3,231,900 2,794,400 Certificate of deposit-held to maturity 10,000 10,000 Property and equipment: Land 7,310,000 8,703,800 Buildings and improvements 22,858,000 25,496,600 Equipment 11,509,200 12,826,600 Construction in progress 388,300 60,800 ----------- ------------ 42,065,500 47,087,800 Accumulated depreciation (17,713,500) (18,741,200) ----------- ------------ Net property and equipment 24,352,000 28,346,600 Property held for sale 2,288,800 1,504,800 Other assets, principally deferred financing costs, net of accumulated amortization 924,000 1,011,600 ----------- ------------ $30,806,700 $33,667,400 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $1,121,900 $1,346,200 Securities sold, not yet purchased 1,187,400 19,200 Accrued liabilities 1,801,700 1,383,400 Current portion of workers compensation liability 646,000 501,000 Current portion of long-term debt 718,400 724,600 Current portion of obligation under capital lease 30,900 27,800 ---------- ---------- Total current liabilities 5,506,300 4,002,200 Deferred rent 47,500 15,800 Deposit liability 31,300 14,800 Workers compensation benefit liability 469,800 345,200 Long-term debt 17,470,700 19,523,000 Deferred gain 1,240,300 1,311,100 Obligations under capital lease 2,279,800 2,310,800 ---------- ---------- Total liabilities 27,045,700 27,522,900 Commitments and contingencies (Notes 4, 11) Shareholders' equity: Preferred stock of $.01 par; authorized 10,000,000 shares; none issued -- -- Common stock of $.01 par; authorized 8,000,000 and 4,000,000 shares; outstanding 3,706,200 37,100 37,100 Additional paid-in capital 9,869,600 9,869,600 Accumulated deficit (6,159,100) (3,758,100) Accumulated other comprehensive income (loss) 13,400 (4,100) ----------- ------------ Total shareholders' equity 3,761,000 6,144,500 ----------- ----------- $30,806,700 $33,667,400 =========== ===========
See accompanying notes to consolidated financial statements. 16 FAMILY STEAK HOUSES OF FLORIDA, INC.
Consolidated Statements of Shareholders' Equity For the Years Ended December 31, 2003, January 1, 2003 and January 2, 2002 Additional Accumulated Other Common Stock Paid-in Accumulated Comprehensive Shares Amount Capital Deficit Income (loss) Total Balance, January 3, 2001 2,416,231 $24,200 $8,631,400 ($372,000) ($513,900) $7,769,700 Exercise of stock options 7,200 100 100 Directors' fees in the form of stock options 5,300 5,300 Proceeds from rights offering 827,583 8,200 829,900 838,100 Comprehensive loss: Net loss (1,285,800) (1,285,800) Other comprehensive income: Unrealized losses on securities: Net unrealized holding losses arising during the period 28,500 28,500 Less: reclassification adjustment for net losses included in net loss 486,700 486,700 ---------- Total comprehensive loss (770,600) --------- ------- ---------- ----------- ---------- ---------- Balance, January 2, 2002 3,251,014 32,500 9,466,600 (1,657,800) 1,300 7,842,600 Exercise of stock options 20,204 200 200 Directors' fees in the form of stock options 20,000 20,000 Proceeds from private placement 435,000 4,400 383,000 387,400 Comprehensive loss: Net loss (2,100,300) (2,100,300) Other comprehensive income: Unrealized losses on securities: Net unrealized holding gains arising during the period 11,900 11,900 Less: reclassification adjustment for net losses included in net loss (17,300) (17,300) ---------- Total comprehensive loss (2,105,700) --------- ------- ---------- ----------- ---------- ---------- Balance, January 1, 2003 3,706,218 37,100 9,869,600 (3,758,100) (4,100) 6,144,500 Comprehensive loss: Net loss (2,401,000) (2,401,000) Other comprehensive income: Unrealized losses on securities: Net unrealized holding losses arising during the period 17,500 17,500 Less: reclassification adjustment for net losses included in net loss -- ---------- Total comprehensive loss (2,383,500) ----------------------------------------------------------------------------------- Balance, December 31, 2003 3,706,218 $37,100 $9,869,600 ($6,159,100) $13,400 $3,761,000 ========= ======= ========== =========== ========== ==========
See accompanying notes to consolidated financial statements. 17 Family Steak Houses of Florida, Inc. Consolidated Statements of Cash Flows
For the Years Ended December 31,January 1, January 2, 2003 2003 2002 Operating activities: Net loss ($2,401,000) ($2,100,300) ($1,285,800) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,990,500 2,205,400 2,148,400 Asset impairment charge 63,100 987,700 -- Directors' fees in the form of stock options -- 20,000 5,300 Investment loss (gain) 330,600 (17,300) 486,700 Amortization of loan fees 58,300 82,500 36,700 Amortization of deferred gain (70,800) (106,400) Loss on disposition of equipment 26,700 67,300 93,900 Decrease (increase) in: Receivables (5,200) 54,400 (66,800) Inventories (64,000) 83,400 (63,400) Prepaids and other current assets (127,600) (88,500) (104,800) Other assets (3,800) (38,200) (58,600) Increase (decrease) in: Accounts payable (224,300) (225,100) 200,400 Accrued liabilities 418,300 (264,700) (221,900) Deferred rent 31,700 15,800 -- Deposit liability 16,500 14,800 -- Workers compensation liability 269,600 131,500 123,100 ---------- ---------- ---------- Net cash provided by operating activities 308,600 822,300 1,293,200 ---------- ---------- ---------- Investing activities: Principal receipts on mortgages receivable 342,000 13,400 172,000 Purchases of investments (378,900) (343,300) (332,800) Proceeds from sales of investments 272,000 134,600 1,198,900 Proceeds from securities sold not yet purchased 988,600 24,300 135,800 Proceeds from sale of property 1,796,000 -- -- Proceeds from sale of property held for sale 304,300 32,600 3,000 Capital expenditures (938,000) (2,006,000) (5,716,400) ---------- ---------- ---------- Net cash provided by (used in) investing activities 2,386,000 (2,144,400) (4,539,500) ---------- ---------- ---------- Financing activities: Payments on long-term debt and obligation under capital lease (2,086,400) (3,533,200) (754,700) Proceeds from issuance of long-term debt -- 3,190,000 2,879,500 Payment of debt issuance costs -- (74,500) -- Proceeds from sale - leaseback -- 3,000,000 -- Payment of sale - leaseback cost -- (151,300) -- Proceeds from rights offering, net -- -- 838,100 Proceeds from investment margin debt -- -- (165,100) Proceeds from the issuance of common stock -- 387,600 100 --------- ---------- ---------- Net cash (used in ) provided by financing activities (2,086,400) 2,818,600 2,797,900 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 608,200 1,496,500 (448,400) Cash and cash equivalents - beginning of year 1,679,600 183,100 631,500 ---------- ---------- ---------- Cash and cash equivalents - end of year $2,287,800 $1,679,600 $183,100 ========== ========== ========== Noncash investing and financing activities: Net change in unrealized gain (loss) $17,500 ($18,200) $515,200 ========== ========== ========== Transfer from assets held for sale to property $0 $361,600 $0 ========== ========== ========== Transfer to assets held for sale from property $1,136,700 $0 $0 ========== ========== ========== Capital lease under sale - leaseback refinance $0 $1,320,000 $0 ========== ========== ========== Supplemental disclosures of cash flow information: Cash paid during the year for interest $1,682,200 $1,564,300 $1,814,000 ========== ========== ========== Cash paid during the year for income taxes $0 $0 $0 ========== ========== ==========
See accompanying notes to consolidated financial statements. 18 FAMILY STEAK HOUSES OF FLORIDA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Company was organized under the laws of the State of Florida in September l985. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Steak House Construction. All significant intercompany transactions and balances have been eliminated. Fiscal Year The fiscal year consists of a fifty-two or fifty-three week period ending on the Wednesday nearest to December 31. Fiscal years 2003, 2002 and 2001 consisted of fifty-two weeks. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company has a cash management program that provides for the investment of excess cash balances in short-term investments. These investments are stated at cost which approximates market value and consist of money market instruments and have maturities of three months or less. 19 Investments Available for Sale The Company classifies its existing marketable equity securities as available for sale in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." These securities are carried at fair market value, with unrealized gains and losses reported in shareholders' equity as a component of other comprehensive income (loss). Gains or losses on securities sold are based on the specific identification method. Proceeds from sales of these investments were $82,400, $134,600 and $1,198,900 in 2003, 2002 and 2001, respectively. Gross gains of $33,400, $17,100 and $74,000 and gross losses of $7,300, $27,500 and $537,000 were realized on these sales in 2003, 2002 and 2001 respectively. Securities Sold, Not Yet Purchased A primary investment strategy used by the Company in 2003 consisted of short-selling of securities, which results in obligations to purchase securities at a later date. As of December 31, 2003, the Company's total obligation for these securities sold not yet purchased was $1,187,400, compared to $19,200 at January 1, 2003. Certificate of Deposit Certificates of deposit are stated at cost. Inventories Inventories are stated at the lower of cost (first-in, first- out) or market and consist of food items, ingredients and supplies. Property and Equipment Property and equipment are stated at cost. Maintenance, repairs and betterments which do not enhance the value of or increase the life of the assets are expensed as incurred. Depreciation is provided for financial reporting purposes principally on the straight-line method over the following estimated lives: buildings and improvements - 25 years, land improvements - 25 years and equipment - 3 to 8 years. Leasehold improvements are amortized over the life of the related lease, or the life of the asset, whichever is less. Interest expense from the GE Capital loans is capitalized to the extent that such proceeds are used for the construction of new 20 restaurants. Interest costs of approximately $0, $3,900 and $53,400 were capitalized in 2003, 2002 and 2001, respectively. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purpose of the impairment review, assets are grouped on a restaurant-by-restaurant basis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of each restaurant's assets to future net cash flows expected to be generated by such restaurant's assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Property Held for Sale Property held for sale at December 31, 2003 and January 1, 2003 consisted of three restaurant properties and two restaurant properties and an outparcel respectively stated at the lower of cost or estimated net realizable value. Other Assets Other assets consist principally of deferred charges, which are amortized on a straight-line basis. Deferred charges and related amortization periods are as follows: financing costs - term of the related loan, and initial franchise rights - 40 years for 2003 and 2002, 18 months beginning in 2004. The gross carrying amount of the deferred financing costs was $924,000 and $931,200 as of December 31, 2003 and January 1, 2003, respectively. Accumulated amortization related to financing costs was $216,500 and $168,900 as of December 31, 2003 and January 1, 2003, respectively. Amortization expense was $58,300 and $39,500 for 2003 and 2002, respectively. Amortization expense for each of the next five years is expected to be $48,100. The gross carrying amount of the initial franchise rights was $354,700 and $384,700 as of December 31, 2003 and January 1, 2003, respectively. Accumulated amortization related to initial franchise rights was $179,800 and $186,700 as of December 31, 2003 and January 1, 2003, respectively. Amortization expense was $23,500 and $10,900 for 2003 and 2002, respectively. The Company will amortize the remaining franchise rights asset over 21 the eighteen month conversion period allowed by the Amended Franchise Agreement (see Note 4 to the Financial Statements). Income Taxes Deferred income taxes are provided for temporary differences between financial reporting basis and tax basis of the Company's assets and liabilities using presently enacted income tax rates. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefit, or that future deductibility is uncertain. Earnings Per Share Basic earnings per share for fiscal years 2003, 2002 and 2001 were computed based on the weighted average number of common shares outstanding. Diluted earnings per share for those years have been computed based on the weighted average number of common shares outstanding, giving effect to all dilutive potential common shares that were outstanding during the respective year. Dilutive shares are represented by shares under option and stock warrants. Due to the Company's net losses in fiscal years 2003, 2002 and 2001, all potentially dilutive securities are antidilutive and have been excluded from the computation of diluted earnings per share. Stock-Based Compensation The Company accounts for stock-based compensation utilizing the intrinsic value method per Accounting Principles Board No. 25 (APB 25), "Accounting for Stock Issued to Employees". The Company's long-term incentive plan provides for the grant of stock options and restricted stock. The exercise price of each option equals the market price of the Company's stock on the date of grant. Options vest in one-quarter increments over a four-year period starting on the date of grant. An option's maximum term is 10 years. See Note 9 - Common Shareholders' Equity for additional information regarding the Company's stock options. 22 In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". Pursuance to the disclosure requirements of SFAS 148, the following table provides an expanded reconciliation for all periods presented:
2003 2002 2001 ------------ ----------- ------------ Net loss, as reported $(2,401,000) $(2,100,300) $(1,285,800) Add: Stock based compensation expense included in net income, net of tax Deduct: Total stock-based compensation expense determined under fair value, net of tax (12,400) (12,400) (14,800) ------------ ------------ --------- Pro forma net loss $(2,413,400) $(2,112,700) $(1,300,600) ============ ============ ========= Earnings per share - basic and diluted As reported $ (0.65) $ (0.59) $ (0.49) Pro forma $ (0.65) $ (0.59) $ (0.49)
Reclassifications Certain items in the prior year financial statements have been reclassified to conform to the 2003 presentation. New Accounting Standards In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement requires entities to record the cost of any legal obligation for the retirement of tangible long-lived assets in the period in which it is incurred. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Company adopted the standard effective January 2, 2003. The adoption of SFAS 143 did not have a material effect on the Company's financial position, results of operations or cash flows. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Disposal Activities". Under SFAS 146, liabilities for costs associated with a plan to dispose of an asset or to exit a business activity must be recognized in the period in which the costs are incurred. SFAS 146 was effective for disposal activities initiated after December 31, 2002. The adoption of SFAS 146 did not have a significant impact on its financial position, results of operations or cash flows. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", and provides alternative methods of transition for a voluntary 23 change to the fair value based method of accounting for stock- based employee compensation. SFAS 148 also amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for financial statements for annual periods ending after December 15, 2002 and interim periods beginning after December 31, 2002. The Company has adopted the amendments to SFAS 123 disclosure provisions required under SFAS 148, but will continue to use intrinsic value method under APB 25 to account for stock-based compensation as allowed by SFAS 140. In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". This interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees. It also clarifies (for guarantees issued after January 1, 2003) that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligations undertaken in issuing the guarantee. At December 31, 2003, the Company does not have any significant guarantees. The Company adopted the disclosure requirements of FIN 45 for the fiscal year ended January 1, 2003, and the recognition provisions effective January 2, 2003. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". This statement amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", primarily to clarify the meaning of an initial net investment and the meaning of underlying as used in SFAS 133. The Statement also describes characteristics of a derivative that contains financing components. SFAS No. 149 is effective for contracts modified or entered into after June 30, 2003 and hedging relationships designated after June 30, 2003. The Company adopted the standard on July 1, 2003. There was no impact on the Company's financial condition, results of operations or cash flows resulting from adoption. In May, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". This statement establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, but if none, is effective at the beginning 24 of the first interim period beginning after June 15, 2003. The Company has not entered into or modified any financial instruments with characteristics outlined in the statement. The Company adopted the standard on July 3, 2003. There has been no impact on the Company's financial condition, results of operations or cash flows upon adoption. NOTE 2. CLOSED RESTAURANT COSTS The Company closed a restaurant in Apopka, Florida in October 2003 and listed it for sale. As of December 31, 2003, the Company had three closed restaurants. The total book value of the three closed restaurants as of December 31, 2003 was $2,288,800, which is included in property held for sale. As of January 1, 2003, the Company had two closed restaurants with a book value of $1,504,800 included in property held for sale. Costs incurred to close restaurants and continuing losses incurred to maintain the closed restaurants in 2003, 2002 and 2001 were $105,600, $190,300 and $141,200, respectively. NOTE 3. ASSET IMPAIRMENT CHARGES In accordance with SFAS 144, the Company recognized asset impairment charges of $63,100 and $987,700 in 2003 and 2002, respectively. The charges in 2003 resulted from a review of the estimated disposal value of one closed restaurant. The charges in 2002 related to two closed restaurants and a third restaurant where the Company sub-leased the restaurant to another restaurant operator. NOTE 4. FRANCHISE AGREEMENT The Company operates its Ryan's restaurants under a franchise agreement between the Company and the Franchisor dated September 16, 1987, which amended and consolidated all previous franchise agreements (as amended, the "Franchise Agreement"). In December 2003, the Company entered into an amendment (the "Amendment") to the Franchise Agreement to terminate the Franchise Agreement by June 2005. The Amendment requires the Company to convert a specific number of its Ryan's restaurants each quarter to a new name and logo, beginning the first quarter of 2004, and requires all of the Ryan's restaurants to be converted by June 2005. As soon as each Ryan's restaurant is converted, franchise fees are no longer payable to the Franchisor for that converted restaurant. The Amendment requires the Company to pay a monthly franchise fee of 4.0% of the gross receipts of each restaurant operating under the name of Ryan's. Total franchise fee expenses 25 were $1,494,400, $1,681,600 and $1,260,300 for fiscal years 2003, 2002 and 2001, respectively. The following schedule outlines the number of Ryan's restaurants required to be converted to another name by the Company at each quarter-end under the Amendment. Failure to convert the cumulative required number of restaurants at any quarter-end date results in a higher franchise fee on the restaurants still using the Ryan's name. Failure to convert all of the restaurants by June 30, 2005 is a default under the Franchise Agreement in the event of which the franchisor has the right to require the Company to cease using the Ryan's name immediately. Cumulated Number of Restaurants Required to End of Fiscal Quarter be Converted March 31, 2004 3 June 30, 2004 5 September 30, 2004 8 December 31, 2004 11 March 31, 2005 14 June 30, 2005 18 The Company is ahead of this schedule for the first quarter of 2004, having converted three restaurants by February 2004. However, the Company's ability to convert the remaining restaurants depends on factors that may be beyond management's control, such as its ability to raise capital for the Whistle Junction remodels, obtaining building permits, the operating results of the converted restaurants and the resulting impact on the Company's cash flow and other variable factors. Note 5. ACCRUED LIABILITIES Accrued liabilities are summarized as follows: December 31, January 1, 2003 2003 ---------- ---------- Property taxes $479,300 $41,800 Payroll and payroll taxes 577,900 602,300 Other 744,500 739,300 ---------- ---------- $1,801,700 $1,383,400 ========== ========== 26 Note 6. WORKERS' COMPENSATION LIABILITY The Company self-insures workers' compensation losses up to certain limits. The liability for workers' compensation claims represents an estimate of the ultimate cost of uninsured losses which are unpaid as of the balance sheet date. The estimate is continually reviewed and adjustments to the Company's estimated claim liability, if any, are reflected in current operations. The State of Florida Division of Workers' Compensation ("the Division") requires self-insured companies to pledge collateral in favor of the Division in an amount sufficient to cover the Company's projected outstanding liability. In compliance with this requirement, in July 2003 the Company provided a $1 million letter of credit to the Division with an expiration date of July 1, 2004. Based upon the Bank's evaluation of the Company's credit and to avoid collateratization requirements, the letter of credit is guaranteed on behalf of the Company by Bisco Industries, Inc. ("Bisco"). The Chairman of the Company's Board of Directors, Glen F. Ceiley, is the President of Bisco. Note 7. LONG-TERM DEBT Long-term debt is summarized as follows: December 31, January 1, 2003 2003 ----------- ------------- Collateralized notes payable to GE Capital Franchise Finance Corporation, monthly principal and interest payments totaling $185,300, interest at thirty-day LIBOR rate +3.75% (with various minimum interest rates ranging from 4.9% - 8.5%) $18,189,100 $20,247,600 Less current portion (718,400) (724,600) ------------ ------------ $17,470,700 $19,523,000 ============ ============
Total maturities of long-term debt are as follows: 2004 $ 718,400 2005 777,700 2006 837,600 2007 902,200 2008 969,300 Thereafter 13,983,900 ----------- $18,189,100 =========== 27 Beginning in December 1996, the Company entered into a series of loan agreements with FFCA Mortgage Corporation, (now known as GE Capital). The Company used the proceeds of the GE Capital loans primarily to refinance its debt and to fund construction of restaurants. As of December 31, 2003, the outstanding balance due under the Company's various loans with GE Capital was $18,189,100. The weighted average interest rate for the GE Capital loans is 7.37% at December 31, 2003. The GE Capital loan agreements contain various restrictions on fixed charge coverage ratios, determined both on aggregate and individual restaurant levels. As of December 31, 2003, the Company was not in compliance with the debt covenant related to the fixed charge coverage ratio requirement for one particular loan pool. The Company has obtained an agreement of forbearance from GE Capital that waives the fixed coverage ratio restriction at December 31, 2003. The Company is in compliance with all other debt covenants at December 31, 2003. NOTE 8. INCOME TAXES Income taxes for the years ended December 31, 2003, January 1, 2003 and January 2, 2002 differ from the amount computed by applying the federal statutory corporate rate to earnings before income taxes. The differences are reconciled as follows:
2003 2002 2001 ---------- ---------- ----------- Income tax benefit at statutory rate $(816,300) $(714,100) $(437,200) Increase (decrease) in taxes due to: State tax net of Federal benefit (87,200) (76,200) (46,600) Change in deferred tax asset valuation allowance 903,500 790,300 476,200 Other --- --- 7,600 ---------- ---------- ----------- Income tax benefit $ --- $ --- $ --- ========== ========== ===========
28 The components of deferred taxes at December 31, 2003 and January 1, 2003 are summarized below:
December 31, 2003 January 1, 2003 ---------------- --------------- Deferred tax assets: Net operating loss $ 2,097,200 $ 1,373,500 Federal and state tax credits 589,100 589,200 Accruals not currently deductible 440,800 323,500 Excess tax over book basis: Asset valuation reserve 366,500 578,600 Property held for sale 0 167,300 Unrealized loss on investments 0 1,500 Capital loss carryforward 146,400 0 Unearned revenue, previously taxed 493,400 520,100 --------------- --------------- 4,133,400 3,553,700 Valuation allowance (3,116,700) (2,406,700) --------------- --------------- Total deferred tax assets 1,016,700 1,147,000 --------------- --------------- Deferred tax liabilities: Excess of tax over book depreciation and amortization 548,600 1,147,000 Excess of book over tax basis: Property held for sale 463,000 0 Unrealized gain on investments 5,100 0 -------------- -------------- Total deferred tax liabilities 1,016,700 1,147,000 --------------- --------------- Net deferred taxes $ --- $ --- =============== ===============
At December 31, 2003, the Company's federal and state tax credit was comprised of $49,000 in general business credits which expire in 2013 and alternative minimum tax credits of $540,200 which have no expiration date. Additionally, at December 31, 2003, the Company has Federal net operating losses of $5,427,000, which begin expiring in 2018 and State net operating losses of $6,938,600 which begin expiring in 2012. 29 NOTE 9. COMMON SHAREHOLDERS' EQUITY Earnings per Share The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for net loss and net loss attributable to common shareholders:
2003 2002 2001 ---- ---- ---- Net Loss Shares Per Net Loss Shares Per Net Loss Shares Per (Numerator) (Denominator) Share (Numerator) (Denominator) Share (Numerator) (Denominator) Share ----------- ------------- ----- ------------ ------------- ----- ---------- ------------ ----- Basic EPS: Net loss available to common shareholders $(2,401,000) 3,706,200 $(0.65) $(2,100,300) 3,567,800 $(0.59) $(1,285,800) 2,631,700 $(0.49) ======= ======= ======= Effect of Dilutive Securities Stock Options Warrants Diluted EPS: Net loss available to common shareholders plus assumed conversions $(2,401,000) 3,706,200 $(0.65) $(2,100,300) 3,567,800 $(0.59) $(1,285,800) 2,631,700 $(0.49) ======= ======= =======
For the years ended December 31, 2003, January 1, 2003 and January 2, 2002, stock options totaling 0, 3,300 shares and 1,200 shares respectively, were excluded from the computation of diluted earnings per share due to their antidilutive effect. The Company also had an employee incentive stock option plan pursuant to which up to an aggregate of 108,000 shares of the common stock were authorized to be granted. All options expire ten years after the date of grant or 90 days after termination of employment. This plan expired as of November 30, 1995. Certain options outstanding under this plan as of November 30, 1995 remain exercisable pursuant to terms of the plan. In 1995, the Company's shareholders approved a new employee long-term incentive plan pursuant to which an additional 200,000 shares of common stock are authorized to be granted in the form of stock options or restricted stock. In 2002, the Company's shareholders approved a new employee long-term incentive plan pursuant to which an additional 200,000 shares of common stock are authorized to be granted in the form of stock options or restricted stock. All options granted under these plans expire no later than ten years after the date of grant or in most cases three months after termination of employment. The Company applies the intrinsic value method of APB 25 to account for its stock plans. Accordingly, the Company had 30 adopted the disclosure requirements of SFAS 148, effective for the fiscal year beginning January 1, 2003, which requires presentation of pro forma net income and earnings per share information. See Stock-Based Compensation in NOTE 1 - Significant Accounting Policies. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. No employee stock options were granted in 2003, 2002 or 2001. The following table summarizes the changes in the total number of stock option shares outstanding during the three years ended December 31, 2003.
- -------------------------------------------------------------------------------------------------------------- 2003 2002 2001 ---------------------------------------------------------------------------------- Options Weighted Average Options Weighted Average Options Weighted Average Exercise Price Exercise Price Exercise Price - -------------------------------------------------------------------------------------------------------------- Options outstanding at beginning of year 157,490 $2.07 183,840 $2.11 241,940 $2.15 Options granted 0 20,204 .01 7,200 .01 Options exercised 0 (20,204) .01 (7,200) .01 Options forfeited (24,000) 2.36 (26,350) 2.35 (58,100) 2.27 -------- -------- ------- Options outstanding at end of year 133,490 2.02 157,490 2.07 183,840 2.11 ======== ======== ======= Options exercisable at end of year 129,915 2.04 142,340 2.15 151,640 2.28 ======== ======== ======= Weighted average fair value of options granted during the year $ --- $ --- --- Common shares reserved for future grants at end of year 200,000 268,900 87,389 ==============================================================================================================
The following table summarizes information about fixed stock options outstanding at December 31, 2003:
Weighted Average Year Exercise Options Options Remaining Life Granted Price Outstanding Exercisable (In years) 1994 1.25 8,850 8,850 1.0 1995 3.75 14,740 14,740 1.7 1995 2.00 7,500 7,500 1.7 1996 2.81 10,400 10,400 3.0 1997 3.28 12,600 12,600 4.0 1998 1.00 15,800 15,800 4.9 1999 2.00 25,000 25,000 5.8 1999 1.50 24,300 24,300 5.9 2000 1.06 14,300 10,725 7.0 _______ _______ 133,490 129,915 ======= =======
31 Remaining non-exercisable options as of December 31, 2003 become exercisable as follows: 2004 3,575 ====== The Company's Board of Directors is authorized to set the various rights and preferences for the Company's Preferred Stock, including voting, conversion, dividend and liquidation rights and preferences, at the time shares of Preferred Stock are issued. As of December 31, 2003, there were no shares of Preferred Stock issued. On October 1, 2001, the Company completed a Rights Offering ("the Offering") for its shareholders of record as of August 10, 2001. The Company raised $838,100 net of offering costs from the Offering, and issued 827,583 shares of common stock to shareholders exercising rights. In April 2002, the Company completed a private placement with Bisco for 435,000 shares at $0.92 per share, which was based on the average closing price of the Company's common stock on the ten trading days prior to the sale. The Company used the $387,600 proceeds net of issuance costs,from this sale to fund remodels of several restaurants in 2002. NOTE 10. PROFIT SHARING AND RETIREMENT PLAN Employees of the Company participate in a profit sharing and retirement plan covering substantially all full-time employees at least twenty-one years of age and with more than one year of service. The plan was established in August 1991. Contributions are made to the plan at the discretion of the Company's Board of Directors. No profit-sharing contributions have been made since the inception of the plan. The profit sharing plan includes a 40l(k) feature by which employees can contribute, by payroll deduction only, a portion of their annual compensation not to exceed $12,000 in 2003. The plan provides for a Company matching contribution of $.25 per dollar of the first 6% of employee contributions. The Company's matching contribution was $35,000 in 2003, $48,900 in 2002 and $45,000 in 2001. In 2003, employees vested in Company contributions based on the following schedule: 32 Years of Vesting Service Percentage -------- ---------- Less than 2 20% 3 40% 4 60% 5 80% 6 100% NOTE 11. COMMITMENTS AND CONTINGENCIES Lease Obligations At December 31, 2003, the Company is committed under the terms and conditions of real and personal property operating leases for minimum rentals aggregating $6,364,100 plus insurance, common area expenses and taxes. The Company has various renewal options on these leases covering periods of five to twenty years. In September 1996, the Company entered into a twenty-year lease agreement with two five-year renewal options for a restaurant building. The total net book value of the assets covered by the lease amounted to $758,600 at December 31, 2003. Interest is computed at an annual rate of 10.65%. In July 2002, the Company entered into a twenty-year lease agreement with two five-year renewal options for a restaurant building. The total net book value of the assets covered by the lease amounted to $1,221,000 at December 31, 2003. Interest is computed at an annual rate of 10.74%. In August 2002, the Company entered into a fifteen-year lease agreement with two ten-year renewal options for a restaurant building scheduled to open in April 2004. 33 Future minimum lease obligations under non-cancelable capital leases and operating leases consist of the following as of December 31, 2003: - ------------------------------------------------------------------------------------------------
Capital Operating Leases Leases - ------------------------------------------------------------------------------------------------ 2004 $274,400 $599,500 2005 274,400 528,800 2006 279,600 522,800 2007 297,200 498,100 2008 297,200 394,700 Future years 3,630,400 3,820,200 ---------- ---------- Total minimum lease payments 5,053,200 6,364,100 Amount representing interest (2,742,500) ---------- Present value of net minimum payments 2,310,700 Current portion (30,900) ---------- Long-term capital lease obligations $2,279,800 ==========
Rental expense for operating leases for the years ended December 31, 2003, January 1, 2003 and January 2, 2002 was $516,900, $488,400 and $550,500, respectively. The Company has entered into two lease agreements in which it is leasing or sub-leasing two of its restaurant locations to a third party. The following table shows the future minimum rentals receivable under non-cancelable operating leases in effect at year-end 2003: 2004 $ 131,100 2005 131,100 2006 131,100 2007 135,800 2008 140,400 Future years 554,300 ---------- $1,223,800 ========== Rental income from leases was $146,100 and $60,500 for 2003 and 2002, respectively. Legal Matters The Company, in the normal course of business, is subject to occasional legal proceedings. However, there are no material pending legal proceedings to which the Company, or any of its subsidiaries, is a party or to which any of their properties are subject; nor are there material proceedings known to be contemplated by any governmental authority; nor are there 34 material proceedings known to the Company, pending or contemplated, in which any director, officer, affiliate or any principal security holder of the Company or any associate of the foregoing is a party or has an interest adverse to the Company. NOTE 12. QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited) Following is a summary of the quarterly results of operations for the years ended December 31, 2003 and January 1, 2003: Fiscal Quarter $ In thousands, First Second Third Fourth Total except per share amounts: 2003: Sales $ 10,728 $ 9,567 $ 8,559 $ 8,529 $ 37,384 Earnings (loss) from operations 319 (3) (276) (592) (626) Net earnings (loss) (55) (394) (768) (1,183) (2,401) Basic earnings (loss) per share (.02) (.11) (.21) (.32) (.65) Diluted earnings (loss) per share (.02) (.11) (.21) (.32) (.65) 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) (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. (2) During the quarter ended December 31, 2003, the Company recorded an asset impairment charge of $63,100 related to a closed restaurant. (3) During the quarter ended December 31, 2003, the Company increased it's workers' compensation liability by approximately $274,000. NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: 35 Cash and Cash Equivalents - For those short-term instruments, the carrying amount is a reasonable estimate of fair value. Investments Available for Sale - The Company's investments available for sale consist of marketable securities which are valued at the quoted market price. Certificates of Deposit - The Company believes that the carrying amount is a reasonable estimate of the fair value of the certificates of deposit. Debt - Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt instruments. The Company believes the carrying amount is a reasonable estimate of such fair value. NOTE 14. COMPANY LIQUIDITY The sufficiency of the Company's cash to fund operations and necessary capital maintenance items will depend on, among other things, improvements in same store sales results, the status of the Company's efforts to sell properties held for sale and the favorable results from remodels to the new concepts. The Company's ability to complete the remodels will be contingent on its ability to locate sufficient financing. It is estimated that financing will need to be secured for remodels of seven restaurants, at an average estimated cost of $225,000 each. 36 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Family Steak Houses of Florida, Inc. We have audited the accompanying consolidated balance sheets of Family Steak Houses of Florida, Inc. and subsidiary as of December 31, 2003 and January 1, 2003 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Family Steak Houses of Florida, Inc. and subsidiary as of December 31, 2003 and January 1, 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Certified Public Accountants Jacksonville, Florida March 19, 2004 37 COMPANY'S REPORT ON FINANCIAL STATEMENTS Family Steak Houses of Florida, Inc. management has prepared and is responsible for the accompanying consolidated financial statements and related consolidated financial information included in this report. These consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and are appropriate under the circumstances. These consolidated financial statements necessarily include amounts determined using management's best judgements and estimates. Family Steak Houses of Florida, Inc. maintains accounting and other control systems which the Company believes provides reasonable assurance that assets are safeguarded and that the books and records reflect the authorized transactions of the Company, although there are inherent limitations in all internal control structure elements, as well as cost/benefit considerations. 38 Family Steak Houses of Florida, Inc. Corporate Listing Corporate Officers and Directors Independent Certified Public Accountants Edward B. Alexander Deloitte & Touche LLP President, COO Suite 2801, Independent Square One Independent Drive Jacksonville, FL 32202-5034 Steve Catanzaro Director General Counsel McGuire Woods Glen F. Ceiley 50 North Laura Street, Suite 3300 Chairman of the Board P.O. Box 4099 President & CEO, Jacksonville, FL 32201 Bisco Industries, Inc. Jay Conzen Transfer Agent / Rights Agent Director Mellon Shareholder Services President, 200 Galleria Parkway Old Fashioned Kitchen, Inc. Suite 1900 Atlanta, GA 30339 William Means Director Executive Office Vice President of Family Steak Houses of Florida, Inc. Information Services, 2113 Florida Boulevard Bisco Industries, Inc. Neptune Beach, FL 32266 Patrick Fekula Form 10-K Vice President A copy of the Company's Annual Report on Form 10-K for fiscal 2003, as filed with the Securities and Exchange Commission, may be obtained without charge by writing to: Corporate Secretary Family Steak Houses of Florida, Inc. 2113 Florida Boulevard Neptune Beach, FL 32266 39 Common Stock Data The Company's common stock is traded on the Over the Counter Bulletin Board ("OTCBB") under the trading symbol "RYFL". The Company's stock was delisted from the Nasdaq SmallCap Market in 2003. As of February 25, 2004, there were 2,200 shareholders of record, not including individuals holding shares in street names. The closing sale price for the Company's stock on February 25, 2004 was $.78. The Company has never paid cash dividends on its common stock and does not expect to pay any dividends in the next few years. Management of the Company presently intends to retain all available funds for expansion of the business. The quarterly high and low closing prices of the Company's common stock are as shown below: Market Price of Common Stock 2003 2002 Quarter High Low High Low First $.60 $.33 $1.02 $.90 Second .51 .30 1.08 .80 Third .69 .37 1.06 .83 Fourth .80 .56 .82 .48 40 {FLORIDA MAP} RYAN'S LOCATIONS H Headquarters * Brooksville (1) * Daytona Beach (1) * Deland (1) * Gainesville (1) * Jacksonville (1) * Lake City (1) * Lakeland (2) * Melbourne (1) * Ocala (1) * Orlando (1) * St. Cloud (1) * Tallahassee (1) * Tampa (3) * Titusville (1) * Winter Haven (1) 41 EX-21 6 exhibit21.txt EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Steak House Construction Corporation, Inc. EX-23 7 exhibit23.txt EXHIBIT 23 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 March 19, 2004, appearing in the 2003 Annual Report to Shareholders of Family Steak Houses of Florida, Inc. Deloitte & Touche LLP Certified Public Accountants Jacksonville, Florida March 29, 2004 EX-31 8 exhibit3101.txt EXHIBIT 31.01 CERTIFICATIONS 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; 1 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 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 29, 2004 /s/ Edward B. Alexander Edward B. Alexander President and Chief Operating Officer 2 EX-31 9 exhibit3102.txt EXHIBIT 31.02 I, Stephen C. Travis, 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 1 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 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 29, 2004 /s/ Stephen C. Travis Stephen C. Travis Director of Finance 2 EX-32 10 exhibit3201.txt EXHIBIT 32.01 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 December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward B. Alexander, Chief Operating Officer/President 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 29, 2004 By: /s/ Edward B. Alexander Edward B. Alexander President and Chief Operating Officer EX-32 11 exhibit3202.txt EXHIBIT 32.02 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 December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen C. Travis, Director of Finance/ 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 29, 2004 By: /s/ Stephen C. Travis Stephen C. Travis Director of Finance -----END PRIVACY-ENHANCED MESSAGE-----