UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-6836
Flanigan's Enterprises, Inc.
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(Exact name of registrant as specified in its charter)
Florida 59-0877638
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2841 Cypress Creek Road, Fort Lauderdale, Florida 33309
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (954) 974-9003
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.10 Par Value American Stock Exchange
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Title of each class Name of each exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter 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
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $2,831,326 as of December 19, 1996.
There were 907,000 shares of the Registrant's Common Stock ($0.10) Par Value)
outstanding as of September 28, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the Registrant's 1997 definitive proxy material has
been incorporated by reference in Items 10, 11, 12 and 13 of Part III of this
Annual Report on Form 10-KSB.
Exhibit Index Begins on Page 32
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PART I
Item 1. Business.
General
Flanigan's Enterprises, Inc., (the "Company") owns and/or operates
restaurants with lounges, package liquor stores and an entertainment oriented
club (collectively the "units"). At September 28, 1996, the Company operated 14
units, including one unit operated by the Company pursuant to Court Order, and
had interests in seven additional units which have been franchised by the
Company. The table below sets out the changes in the type and number of units
being operated.
<TABLE>
<CAPTION>
FISCAL FISCAL
YEAR YEAR NOTE
TYPES OF UNITS 1995 1996 NUMBER
- -------------- ---- ---- ------
<S> <C> <C> <C>
Combination package and restaurant ........ 4 4
Restaurant only ........................... 5 5 (1)(2)
Package store only ........................ 1 4 (3)(4)(5)
Lounge only ............................... 1 0 (6)
Combination package and lounge ............ 2 0 (4)
Clubs ..................................... 2 1 (7)
TOTAL - Company operated units ............ 15 14
FRANCHISED - units ........................ 9 7 (3)(8)
</TABLE>
Notes:
(1) During the fiscal year 1995, the Company became the owner, through
foreclosure, of a lounge previously sold by the Company, which lounge had been
operated by a wholly owned subsidiary of the Company as a receiver appointed by
the Court since fiscal year 1994. The Company tried to operate this store as a
restaurant under its "Flanigan's Cafe" concept, but since it was not possible to
operate it up to the same standards of the Company's other restaurants, the unit
was closed April 10, 1996. During the fourth quarter, a contract was entered
into by the landlord for the sale of the real property and improvements of this
location. Simultaneously therewith, a separate contract was entered into by the
Company for the sale of its liquor license to the same buyer. At closing, which
occurred during the first quarter of fiscal 1997, the Company's lease for this
store was vacated.
(2) Also during the first quarter of fiscal year 1996, the Company
began operating a restaurant under the "Flanigan's Seafood Bar and Grill"
servicemark as general partner and fifty percent owner of a limited partnership
established for such purpose.
(3) During the first quarter of fiscal year 1996 one franchisee
terminated its franchise agreement and returned its franchised unit to the
Company. The Company immediately began operating the package liquor store of the
returned franchise unit.
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(4) During the second quarter of fiscal year 1996 the Company closed
its last two lounges at combination package and lounge units, but continues to
operate the package liquor stores. The two lounges were only marginally
profitable, with declining revenues.
(5) During fiscal year 1995, the Company was granted possession of a
store previously sold by the Company and began operating the package liquor
store. The Company continues to operate this unit pursuant to Court Order.
(6) During the second quarter of fiscal year 1996, the lease on one
unit operated by the Company as a lounge only expired and the Company was unable
to renew the same upon suitable terms.
(7) Through September 20, 1996, the Company operated its remaining
Pennsylvania club, (Store #850, King of Prussia, Pennsylvania), which was
financed through a limited partnership in which a wholly owned subsidiary of the
Company acted as general partner. The lease for this unit had only thirteen
months remaining, with no more renewal options and revenues were down as a
result of competition from some expensive new clubs constructed on the
waterfront. An opportunity arose to sell the lease, leasehold improvements and
liquor license to Dick Clark Restaurants, Inc. With the approval of the Limited
Partners, the sale of the unit was consummated on September 20, 1996 for a
purchase price of $500,000. The Company had one club (in Atlanta, Georgia)
remaining at fiscal yearend 1996.
(8) Also during fiscal year 1996 one franchise expired and the Company
declined to offer the franchisee the option of executing its new franchise
agreement.
During the first quarter of fiscal 1996, one additional franchisee
agreed to a termination of its Franchise Agreement and while its restaurant did
not formerly operate under the "Flanigan's Seafood Bar and Grill" servicemark,
the franchisee agreed to de-identify the same to avoid any confusion with the
Company's restaurants. The franchisee continued to operate its package liquor
store under a new Franchise Agreement with the Company which included a license
to use the servicemark "Big Daddy's Liquors" only. During the third quarter of
fiscal year 1996, this franchisee notified the Company of its intent to
terminate the new Franchise Agreement and return the franchised unit, including
restaurant, to the Company.
In order to induce the franchisee to continue operating its franchise
through the end of the fiscal year, the Company agreed to reduce the weekly
sublease rent and suspend all weekly payments on account of its purchase money
chattel mortgage. In the interim, the Company determined that the cost necessary
to convert this unit to a "Flanigan's Seafood Bar and Grill" restaurant exceeded
the funds available to the Company and on September 30, 1996, subsequent to the
end of fiscal year 1996, the franchise was sold to a related third party, in
lieu of its return to the Company. The initial shareholder interest of all
officers and directors, which was comprised of the Chairman and a member of his
family, represented one hundred percent of the initial invested capital. It was
also agreed that the Company would manage the franchise for the related third
party, pursuant to a management agreement. Subsequent to the closing of the sale
of the franchise, the
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Company accepted the offer of another related franchisee, who is also a member
of the Board of Directors of the Company, to pay the sum of $150,000 for the
right to buy this franchise from the related third party, renovate the same and
act as manager. As part of this transaction, the Company agreed to continue the
reduced sublease rent, the waiver of any franchise royalties and the suspension
of mortgage payments through March, 1997. Thereafter, the Company will receive
the same weekly payment as previously paid by the former franchisee during
fiscal year 1996. It is also anticipated that the Company will be an investor in
the franchise, as will other related parties, including but not limited to
officers, directors and/or their families.
All of the Company's package liquor stores, restaurants and clubs are
operated on leased properties. As a result of significant escalations of rent on
certain of such leased properties and on leased properties that were not being
operated by the Company, on November 4, 1985 the Company, not including its
subsidiaries, filed a Voluntary Petition in the United States Bankruptcy Court
for the Southern District of Florida seeking to reorganize under Chapter 11 of
the Federal Bankruptcy Code. On May 5, 1987 the Company's Plan of Reorganization
as amended and modified ("the Plan") was confirmed by the Bankruptcy Court. On
December 28, 1987 the Company was officially discharged from bankruptcy. See
Note 2 to the consolidated financial statements for a discussion of the
bankruptcy proceedings to date and Item 7 for a discussion of the effect of the
bankruptcy proceedings herein.
The Company was incorporated in Florida in 1959 and operated in South
Florida as a chain of small cocktail lounges and package liquor stores. By 1970,
the Company had established a chain of "Big Daddy's" lounges and package liquor
stores between Vero Beach and Homestead, Florida. From 1970 to 1979, the Company
expanded its package liquor store and lounge operations throughout Florida and
opened clubs in five other "Sun Belt" states. In 1975, the Company discontinued
most of its package store operations in Florida except in the South Florida
areas of Dade, Broward, Palm Beach and Monroe Counties. In 1982 the Company
expanded its club operations into the Philadelphia, Pennsylvania area as general
partner of several limited partnerships organized by the Company. In March 1985,
the Company began franchising its package liquor stores and lounges in the South
Florida area. See Note 10 to the consolidated financial statements and the
discussion of franchised units on page 5.
During fiscal year 1987, the Company began renovating its lounges to
provide full restaurant food service, and subsequently renovated and added food
service to most of its lounges. The restaurant concept, as the Company offers
it, has been so well received by the public that food sales now represent
approximately 74.9% of total restaurant sales.
The Company's package liquor stores emphasize high volume business by
providing customers with a wide variety of brand name and private label
merchandise at discount prices. The Company's restaurants provide efficient
service of alcoholic beverages and full food service with abundant portions,
reasonably priced, served in a relaxed friendly atmosphere.
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The Company's principal sources of revenue are the sale of food and
alcoholic beverages.
The Company conducts its operations directly and through a number of
wholly owned subsidiaries. The operating subsidiaries are as follows:
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
<S> <C>
Flanigan's Management Services, Inc. Florida
Flanigan's Enterprises. Inc. of Georgia Georgia
Seventh Street Corp. Florida
Big Daddy's #48 Inc. Florida
Flanigan's Enterprises, Inc. of Pa Pennsylvania
</TABLE>
The income derived and expenses incurred by the Company relating to the
aforementioned subsidiaries are consolidated for accounting purposes with the
income and expenses of the Company in the consolidated financial statements in
this Form 10-KSB.
The Company's executive offices are located in a leased facility at
2841 Cypress Creek Road, Fort Lauderdale, Florida 33309 and its telephone
number at such address is (954) 974-9003.
Corporate Reorganization
As noted in Note 2 to the consolidated financial statements, on
November 4, 1985, the Company, not including any of its subsidiaries, filed a
Voluntary Petition in the United States Bankruptcy Court for the Southern
District of Florida seeking to reorganize under Chapter 11 of the Federal
Bankruptcy Code. The primary purposes of the petition were (1) to reject leases
which were significantly above market rates and (2) to reject leases on closed
units which had been repossessed by, or returned to the Company. On May 5, 1987
the Company's Plan of Reorganization as amended and modified was confirmed by
the Bankruptcy Court. On December 28, 1987 the Company was officially discharged
from bankruptcy. See Note 2 to the consolidated financial statements for a
discussion of the bankruptcy proceedings to date and Item 7 for a discussion of
the effect of the bankruptcy proceedings herein.
Financial Information Concerning Industry Segments
The Company's business is carried out principally in two segments: the
restaurant segment, which was the restaurant and lounge segment prior to the
closing of the remaining lounges during fiscal year 1996, and the package liquor
store segment.
Financial information broken into these two principal industry segments
for the two fiscal years ended September 30, 1995 and September 28, 1996 is set
forth in the consolidated financial statements which are attached hereto, and is
incorporated herein by reference.
The Company's Package Liquor Stores and Restaurants
The Company's package liquor stores are operated under the "Big Daddy's
Liquors" servicemark and the Company's restaurants are operated under the
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servicemark "Flanigan's Seafood Bar and Grill". The Company's package liquor
stores emphasize high volume business by providing customers with a wide
selection of brand name and private label liquors, beer and wines. The Company
has a policy of meeting the published sales prices of its competitors. The
Company provides extensive sales training to its package liquor store personnel.
Most package liquor stores are open six or seven days a week from 9:00-10:00
a.m. to 9:00-10:00 p.m., depending upon demand and local law. A small number of
the Company's units have "night windows" with extended evening hours.
The Company's restaurants offer full food and alcoholic beverage
service with approximately 74.9% of their sales being food items. These
restaurants are operated under the "Flanigan's Seafood Bar and Grill" service
mark. Although these restaurants provide a neighborhood atmosphere, they have
the degree of standardization prevalent in casual dining restaurant chains,
including menu. The interior decor is nautical with numerous fishing and boating
pictures and decorations. Drink prices may vary between locations to meet local
conditions. Food prices are standardized. The restaurants' hours of operation
are from 11:00 a.m. to 1:00 - 5:00 a.m. The Company continues to develop strong
customer recognition of its "Flanigan's Seafood Bar and Grill" service mark
through very competitive pricing and efficient and friendly service.
The Company's package liquor stores and restaurants were designed to
permit minor modifications without significant capital expenditures. However,
from time to time the Company is required to redesign and refurbish its units at
significant cost. See Item 2, Properties and Item 7 for further discussion.
Franchised Package Liquor Stores and Lounges
In March of 1985, the Company's Board of Directors approved a plan to
sell, on a franchise basis, up to 26 of the Company's package liquor stores and
lounges in the South Florida area. Under the terms of the franchise plan, the
Company sold the liquor license, furniture, fixtures and equipment of a
particular unit, entered into a sublease for the business premises and a
franchise agreement, whereby the franchisee licensed the right to use the
Company's servicemarks "Big Daddy's Liquors" and "Big Daddy's Lounges" in the
operation of its business. Investors purchasing units were required to execute
ten year franchise agreements with a thirty day cancellation provision. The
franchise agreement also provided for a royalty to the Company, in the amount of
1% of gross sales, plus a contribution to advertising, in an amount between
1-1/2 - 2% of gross sales. In most cases, the sublease agreement provided for
rent in excess of the amount paid by the Company, in order to realize an
additional return of between 2% - 3% of gross sales, depending upon a number of
factors, including but not limited to the performance of the particular unit
sold and its expected sales growth.
As of the end of fiscal year 1986, ten units had been franchised. Four
of these units were franchised to members of the family of the Chairman of the
Board. The Company had limited response to its franchise offering and suspended
its franchise plan at the end of fiscal year 1986.
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During fiscal year 1988, two franchisees (one of whom is on the
Company's Board of Directors) exercised the thirty day cancellation clause under
the franchise agreement and related documents and returned their franchised
units to the Company. No gain or loss was recognized on these returns. The
Company has been profitably operating these two units.
During fiscal year 1990, the Company completed a foreclosure to take
one franchise back, reducing the number of franchised units to seven. This unit
was sold pursuant to a private offering to a Subchapter S corporation whose
president was the Chairman and whose investors included three directors and
members of the Chairman's family. This unit was managed by the Company through
the end of fiscal year 1992. In the first quarter of fiscal year 1993, the Board
of Directors agreed to purchase this unit from the group of investors. In
purchasing this unit, the Board of Directors determined that the projected
profitability would provide a fair return on investment, whereas without this
purchase, the Company would only have received its 4% management fee until the
Subchapter S corporation received its full investment back from this unit.
During fiscal year 1991, the Company sold one unit to the unit's
manager, an unaffiliated third party, who had been operating it pursuant to a
management agreement since 1987. This unit consisted of a package liquor store
and restaurant, which restaurant was not operating under the Company's
"Flanigan's Seafood Bar and Grill" service mark. The Company also entered into a
franchise agreement with the manager, licensing the use of the "Big Daddy's
Liquors" service mark for the liquor package store in exchange for a royalty in
the amount of 1% of gross sales. Although the Company counted this unit as a
franchise, the Company did not consider this transaction a part of its franchise
plan. During the fiscal year 1995, the manager executed the Company's new
franchise agreement for the operation of his restaurant under the "Flanigan's
Seafood Bar and Grill" service mark, as more fully described below. At the same
time the former manager also executed a new franchise agreement for a second
restaurant opened since the purchase of the unit from the Company during the
fiscal year 1991.
During fiscal year 1992, one unaffiliated franchisee expressed an
interest in selling his unit or returning it to the Company pursuant to the
terms of its franchise agreement and related documents. As a result of the
substantial investment necessary to upgrade and renovate this unit, an
affiliated group of investors formed a Subchapter S corporation and purchased
this unit from the franchisee. The shareholder interest of all officers and
directors represents 42% of the total invested capital. The shareholder interest
of the Chairman's family represents an additional 47.5% of the total invested
capital. The Company continues to receive the same royalties, rent and mortgage
payments as it had received from the unaffiliated franchisee.
During fiscal year 1996, one franchisee exercised the thirty day
cancellation clause under the franchise agreement and related documents and
returned its franchised unit to the Company. The franchisee had operated a
package liquor store and lounge under the "Big Daddy's" servicemark. The Company
has been profitably operating the package liquor store of the franchised unit
but has not reopened the lounge. The lease agreement for the business premises
expired on December 31, 1995 and the Company occupies
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the same on an oral month to month lease agreement paying its prorata share of
the real property taxes monthly and insuring the property. Either party may
terminate the oral month to month lease agreement upon seven days advance
written notice.
During fiscal year 1996, one franchise expired and the Company declined
to offer the franchisee the option of executing its new franchise agreement.
During the third quarter of fiscal year 1996, another unaffiliated
franchisee expressed its intent to terminate its new franchise agreement
(package liquor store only) and to return its unit, including restaurant, to the
Company. In order to induce the franchisee to continue operating its franchise
through the end of the fiscal year, the Company agreed to reduce the weekly
sublease rent and suspend all weekly payments on account of its purchase money
chattel mortgage. In the interim, the Company determined that the cost necessary
to convert this unit to a "Flanigan's Seafood Bar and Grill" restaurant exceeded
the funds available to the Company and on September 30, 1996, subsequent to the
end of fiscal year 1996, the franchise was sold to a related third party, in
lieu of its return to the Company. The initial shareholder interest of all
officers and directors, which was comprised of the Chairman and a member of is
family, represented one hundred percent of the initial invested capital. It was
also agreed that the Company would manage the franchise for the related third
party, pursuant to a management agreement. Subsequent to the closing of the sale
of the franchise, the Company accepted the offer of another related franchisee,
who is also a member of the Board of Directors of the Company, to pay the sum of
$150,000 for the right to buy this franchise from the related third party,
renovate the same and act as manager. As part of this transaction, the Company
agreed to continue the reduced sublease rent, the waiver of any franchise
royalties and the suspension of mortgage payments through March, 1997.
Thereafter, the Company will receive the same weekly payment as previously paid
by the former franchisee during fiscal year 1996. It is also anticipated that
the Company will be an investor in the franchise, as will other related parties,
including but not limited to officers, directors and/or their families.
The units that continue to be franchised are doing well and continue to
generate income for the Company. Many of the units that were originally offered
as franchises have been sold outright and are no longer being operated as
Flanigan's or Big Daddy's stores.
Franchised Restaurants
During fiscal year 1995, the Company completed its new franchise
agreement for a franchisee to operate a restaurant under the "Flanigan's Seafood
Bar and Grill" service mark pursuant to a license from the Company. The new
franchise agreement was drafted jointly with existing franchisees with all
modifications requested by the franchisees incorporated therein. The new
franchise agreement provides the Company with the ability to maintain a high
level of food quality and service at its franchised restaurants, which are
essential to a successful franchise operation. A franchisee is required to
execute a new franchise agreement for the balance of the term of its lease for
the business premises, extended by the franchisee's continued occupancy of the
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business premises thereafter, whether by lease or ownership. The new franchise
agreement provides for a royalty to the Company in the amount of approximately
3% of gross sales, plus a contribution to advertising in an amount between 1-1/2
to 3% of gross sales. In most cases, the Company does not sublease the business
premises to the franchisee and in those cases where it does, the Company no
longer receives rent in excess of the amount paid by the Company.
As of the end of fiscal year 1996, all existing franchisees who operate
restaurants under the "Flanigan's Seafood Bar and Grill" or other authorized
service marks have executed new franchise agreements.
During the first quarter of fiscal year 1996, the Company began
operating a restaurant under the "Flanigan's Seafood Bar and Grill" service mark
as general partner and fifty percent owner of a limited partnership established
for such purpose. The limited partnership agreement gives the limited
partnership the right to use the "Flanigan's Seafood Bar and Grill" service mark
while the Company acts as general partner only. No franchise agreement was
executed and the Company does not consider this unit one of its franchises.
Clubs
At the beginning of fiscal 1991, the Company operated entertainment
oriented clubs in the Philadelphia, Pennsylvania area, and one in Georgia.
The club operated by the Company in Florida closed in December 1990,
upon the termination of its lease agreement for the business premises.
In May 1991, the Company voluntarily closed its club in Marina Del Rey,
California due to the continuing harassment and discrimination by the Los
Angeles Police Department. The Company sought relief through the Trial Court and
the California Supreme Court, but did not prevail.
During fiscal year 1991, the Company also negotiated its resignation as
General Partner of CIC Investors #870, Ltd., the owner and operator of a club
located at 532 S. Second Street, Philadelphia, Pennsylvania, and surrendered the
operation of the club to CR Management Enterprises, Inc. on July 26, 1991. The
Company's resignation as General Partner was effective January 26, 1992. As a
part of its agreement, the Company was responsible for all obligations of the
limited partnership accruing prior to July 26, 1991, which are now limited to
insured personal injury claims arising prior to that date, which have been filed
in court. During the fiscal year 1994, the Company learned that the club
operated by CIC Investors #870, Ltd. closed and the limited partnership no
longer had any assets. Furthermore, in the defense of several of these actions
the Company did not receive the cooperation of the successor general partner,
nor the landlord of the business premises, and as a result, the Company will
only defend actions and pay judgments and/or settlements which include the
Company and/or any of its subsidiaries. An accrual for the Company's estimated
liability on these insured liability claims is included in the consolidated
balance sheets in the caption "Accrued and Other Current Liabilities".
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During fiscal year 1992, the Company, as General Partner of CIC
Investors #880 Ltd., negotiated with the landlord to terminate the lease for
Store #880, Granite Run Mall, Media, Pennsylvania and the club closed as of
December 31, 1991. The liquor license formerly used at the club, which had a
value of approximately $100,000, was surrendered as partial consideration for
the termination of the lease. In addition, the Company agreed to pay all rental
arrearages through October 31, 1991 ($84,318), payable $10,000 upon the
execution of a lease termination agreement, an additional $10,000 thirty days
thereafter and the balance in thirty-six monthly payments of $1,787, without
interest. The balance of the rental arrearages were paid in full during fiscal
year 1995.
As of the end of fiscal year 1995, the Company owned one club in
Atlanta Georgia, which was operated by an unaffiliated third party, as discussed
below. In addition, until September 20, 1996, the Company operated its remaining
Pennsylvania club, (Store #850, King of Prussia, Pennsylvania), which was
financed through a limited partnership in which a wholly owned subsidiary of the
Company acted as general partner. The lease for this unit had only thirteen
months remaining, with no more renewal options, and revenues were down as a
result of competition from some expensive new clubs constructed on the
waterfront. An opportunity arose to sell the lease, leasehold improvements and
liquor license to Dick Clark Restaurants, Inc. With the approval of the Limited
Partners, the sale of the unit was consummated on September 20, 1996 for a
purchase price of $500,000. The Company had one club (in Atlanta, Georgia)
remaining at fiscal yearend 1996.
Operation of Units by Unaffiliated Third Parties
During fiscal year 1992, the Company entered into a Management
Agreement with Mardi Gras Management, Inc. for the operation of the Company's
club in Atlanta, Georgia through the balance of the initial term of the lease,
unless sooner terminated by Mardi Gras Management, Inc. upon thirty days prior
written notice, with or without cause. Mardi Gras Management, Inc. assumed the
management of this club effective November 1, 1991 and is currently operating
the club under an adult entertainment format. Pursuant to the Management
Agreement, the Company receives a monthly owner's fee of $12,500.
Operations and Management
The Company emphasizes systematic operations and control of all units.
Each unit has its own manager who is responsible for monitoring inventory
levels, supervising sales personnel, food preparation and service in restaurants
and generally assuring that the unit is managed in accordance with Company
guidelines and procedures. The Company has in effect an incentive cash bonus
plan for its managers and salespersons based upon various performance criteria.
The Company's operations are supervised by area supervisors. Each area
supervisor supervises the operations of the units within his or her territory
and visits those units to provide on-site management and support. There are
three area supervisors responsible for package store, restaurant and club
operations in specific geographic districts.
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All of the Company's managers and salespersons receive extensive
training in sales techniques.
The Company arranges for independent third parties, or "spotters", to
inspect each unit in order to evaluate the unit's operations, including the
handling of cash transactions.
Purchasing and Inventory
The package liquor business requires a constant substantial capital
investment in inventory in the units. Liquor inventory purchased can normally be
returned only if defective or broken.
All Company purchases of liquor inventory are made through its
purchasing department from the Company's corporate headquarters. The major
portion of inventory is purchased under individual purchase orders with licensed
wholesalers and distributors who deliver the merchandise within one to two days
of the placing of an order. Frequently, there is only one wholesaler in the
immediate marketing area with an exclusive distributorship of certain liquor
product lines.
Substantially all of the Company's liquor inventory is shipped by the
wholesalers or distributors directly to the Company's units. The Company
significantly increases its inventory prior to Christmas, New Year's Eve and
other holiday periods.
Pursuant to Florida law, the Company pays for its liquor purchases
within ten days of delivery.
All negotiations with food suppliers are handled by the Company's
purchasing department at the Company's corporate headquarters. This ensures that
the best quality and prices will be available to each unit. Orders for food
products are prepared by each unit's kitchen manager and reviewed by the unit's
general manager before being placed with the approved vendor. Merchandise is
delivered by the supplier directly to each unit. Orders are placed several times
a week to insure product freshness.
Food inventory is primarily paid for monthly.
Government Regulation
The Company is subject to various federal, state and local laws
affecting its business. In particular, the units operated by the Company are
subject to licensing and regulation by the alcoholic beverage control, health,
sanitation, safety and fire department agencies in the state or municipality
where located.
Alcoholic beverage control regulations require each of the Company's
units to apply to a state authority and, in certain locations, county and
municipal authorities, for a license or permit to sell alcoholic beverages on
the premises. In some instances, a unit may be required to apply for separate
licenses in order to sell beer and wine, to sell mixed drinks and to provide
facilities for dancing or live entertainment.
In the State of Florida, which represents the vast majority of the
total liquor licenses held by the Company, liquor licenses are issued on a
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"quota license" basis. Quota licenses are issued on the basis of a population
count established from time to time under the latest applicable census. Because
the total number of liquor licenses available under a quota license system is
limited, the licenses have purchase and resale value based upon supply and
demand in the particular areas in which they are issued. The Florida quota
licenses held by the Company allow the sale of liquor for on-premises and/or
off-premises consumption. In the other states in which the Company operates,
licensed establishments do not have quota restrictions for on-premises
consumption and such licenses are issued to any applicant who meets all of the
state and local licensing requirements based upon extensive license application
filings and investigations of the applicant.
All licenses must be renewed annually and may be revoked or suspended
for cause at any time. Suspension or revocation may result from violation by the
licensee or its employees of any federal, state or local law or regulation
pertaining to alcoholic beverage control. Alcoholic beverage control regulations
relate to numerous aspects of the daily operations of the Company's units,
including minimum age of patrons and employees, hours of operation, advertising,
wholesale purchasing, inventory control, handling, storage and dispensing of
alcoholic beverages, internal control and accounting and collection of state
alcoholic beverage taxes.
As the sale of alcoholic beverages constitutes a large share of the
Company's revenue, the failure to receive or retain, or a delay in obtaining a
liquor license in a particular location could adversely affect the Company's
operations in that location and could impair the Company's ability to obtain
licenses elsewhere.
The Company is subject in certain states to "dram shop" or "liquor
liability" statutes, which generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully served
alcoholic beverages to such person. See Item 1, Insurance, and Item 3, Legal
Proceedings, for further discussion.
The Company maintains a continuous program of training and surveillance
from its corporate headquarters to assure compliance with all applicable liquor
laws and regulations. During the fiscal year ended September 28, 1996, through
the present time, the Company has had no significant pending matters initiated
by the beverage authorities concerning any of the Company's licenses which might
be expected to result in a revocation of a liquor license or other significant
actions against the Company.
The Company is not aware of any statute, ordinance, rule or regulation
under present consideration which would significantly limit or restrict its
business as now conducted. However, in view of the number of jurisdictions in
which the Company does business, and the highly regulated nature of the liquor
business, there can be no assurance that additional limitations may not be
imposed in the future, even though none are presently anticipated.
Federal and state environmental regulations have not had a material
effect on the Company's operation.
12
<PAGE>
Insurance
The Company has general liability insurance which incorporates a
semi-self-insured plan under which the Company assumes the full risk of the
first $50,000 of exposure per occurrence. The Company's insurance carrier is
responsible for $1,000,000 coverage per occurrence above the Company's
self-insured deductible, up to a maximum aggregate of $2,000,000, per year. The
Company is self-insured against liability claims in excess of $1,000,000.
The Company's general policy is to settle only those legitimate and
reasonable claims asserted and to aggressively defend and go to trial, if
necessary, on frivolous and unreasonable claims. The Company has established a
select group of defense attorneys which it uses in conjunction with this
program. Under the Company's current liability insurance policy, any expenses
incurred by the Company in defending a claim, including adjusters and attorney's
fees, are a part of the $50,000 self-insured retention.
An accrual for the Company's estimated liability on liability claims is
included in the consolidated balance sheets in the caption "Accrued and Other
Current Liabilities". A significant unfavorable judgment or settlement against
the Company in excess of its liability insurance coverage could have a
materially adverse effect on the Company.
Through the end of the 1990 fiscal year, the Company was uninsured for
dram shop liability. Pennsylvania still has an unrestricted dram shop law, which
allows persons injured by an "obviously intoxicated person" to bring a civil
action against the business which served alcoholic beverages to an "obviously
intoxicated person". Florida has restricted its dram shop law by statute,
permitting persons injured by an "obviously intoxicated person" to bring a civil
action against the business which served alcoholic beverages to a minor or an
individual known to be habitually addicted to alcohol. Dram shop claims normally
involve traffic accidents and the Company generally does not learn of dram shop
claims until after a claim is filed and the Company then vigorously defends
these claims on the grounds that its employees did not serve an "obviously
intoxicated person". Damages in most dram shop claims are substantial. During
fiscal year 1996, the Company favorably settled the two dram shop cases, (three
dram shop claims), relating to one incident filed against the Company in Florida
during fiscal years 1994 and 1995. Subsequent to the end of fiscal year 1996,
the Company favorably settled its remaining uninsured dram shop claim asserted
against one of the limited partnerships in Pennsylvania and the Company, as
general partner. At the present time, there are no dram shop claims pending
against the Company.
Competition and the Company's Market
The liquor and the hospitality industry is highly competitive and is
often affected by changes in taste and entertainment trends among the public, by
local, national, and economic conditions affecting spending habits, and by
population and traffic patterns. The Company believes that the principal means
of competition among package liquor stores is price and that, in general, the
principal means of competition among restaurants and clubs include location,
type and quality of facilities, type and quality of entertainment offered, and
type, quality and price of beverage and food served.
13
<PAGE>
The Company's package liquor stores compete directly or indirectly with
local retailers and discount "superstores". Due to the competitive nature of the
liquor industry in South Florida, the Company has had to adjust its pricing to
stay competitive, including meeting all competitor's advertisements. Such
practices will continue in the package liquor business. It is the opinion of the
Company's management that the Company has a competitive position in its market
because of widespread consumer recognition of the "Big Daddy's" and "Flanigan's"
names.
The Company's club competes directly or indirectly with other lounges,
clubs and other establishments serving liquor. The Company's principal
competitors are local establishments, but also include clubs owned by national
and regional chains that are much larger than the Company. The Company believes
that the principal competitive factor of its club is the distinctiveness of its
entertainment concepts and its experienced management.
As previously noted, at yearend the Company owned and operated eight
restaurants which had formerly been lounges and were renovated to provide for
full food service. Early in the first quarter of fiscal 1996, the Company began
operating a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark
as general partner and fifty percent owner of a limited partnership established
for such purpose, bringing the total number of restaurants operated to nine.
These restaurants compete directly with other restaurants serving liquor in the
area. The Company's restaurants are competitive due to four factors; product
quality, portion size, moderate pricing and a standardization throughout the
Company owned restaurants and most of the franchises.
The Company's business is subject to seasonal effects, in that liquor
purchases tend to increase during the holiday seasons. The liquor industry and
the Company's liquor business have also been adversely affected by the physical
fitness awareness.
Trade Names
The Company operates principally under three trade names: "Flanigan's",
"Big Daddy's", and "Flanigan's Seafood Bar and Grill". Throughout Florida the
Company's package liquor stores are operated under the "Big Daddy's Liquors"
servicemark. The Company's rights to the use of the "Big Daddy's" servicemark
are set forth under a consent decree of a Federal Court entered into by the
Company in settlement of federal trademark litigation. The consent decree and
the settlement agreement allow the Company to continue, and expand, its use of
the "Big Daddy's" service mark in connection with limited food and liquor sales
in Florida. The consent decree further contained a complete restriction upon all
future sales of distilled spirits in Florida under the "Big Daddy's" name by the
other party who has a federally registered service mark for "Big Daddy's" use in
the restaurant business. The Federal Court retained jurisdiction to enforce the
consent decree. The Company has acquired a registered federal trademark on the
principal register for its "Flanigan's" service mark.
14
<PAGE>
The standard symbolic trademark associated with the Company and its
facilities is the bearded face and head of "Big Daddy" which is predominantly
displayed at all "Flanigan's" facilities and all "Big Daddy's" facilities
throughout the country. The face comprising this trademark is that of the
Company's founder, Joseph "Big Daddy" Flanigan, and it is a federally registered
trademark owned by the Company.
Employees
As of year end, the Company employed 340 persons, of which 266 were
full-time and 74 were part-time. Of these employees, 25 were employed at the
Company's corporate offices. Of the remaining employees, 34 were employed in
package liquor stores, and 281 in restaurants.
None of the Company's employees are represented by collective
bargaining organizations. The Company considers its labor relations to be
favorable.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE REGISTRANT
POSITIONS AND OFFICES OFFICE OR POSITION
NAME CURRENTLY HELD AGE HELD SINCE
---- -------------- --- ----------
<S> <C> <C> <C>
Joseph G. Flanigan Chairman of the Board
of Directors, Chief
Executive Officer,
and President 67 1959
William Patton Vice President
Community Relations 73 1975
Mary C. Reymann Vice President Finance
Controller
and Secretary 72 1980
Edward A. Doxey Treasurer 55 1992
Jeffrey D. Kastner Assistant Secretary 43 1995
</TABLE>
Item 2. Properties
The Company's operations are all conducted on leased property.
Initially, most of these properties were leased by the Company on long-term
ground and building leases with the buildings either constructed by the lessors
under build-to-suit leases or constructed by the Company. A relatively small
number of business locations involve the lease or acquisition of existing
buildings. In almost every instance where the Company initially owned the land
or the building on leased property, the Company entered into a sale and
lease-back transaction with investors to recover a substantial portion of its
per unit investment.
The majority of the Company's leases contained rent escalation clauses
based upon the consumer price index which made the continued profitable
15
<PAGE>
operation of many of these locations impossible and jeopardized the financial
position of the Company. As a result of the Company's inability to renegotiate
these leases, on November 4, 1985 the Company, not including its subsidiaries,
filed a Voluntary Petition in the United States Bankruptcy Court for the
Southern District of Florida seeking to reorganize under Chapter 11 of the
Federal Bankruptcy Code. The primary purpose of the reorganization was to reject
and/or renegotiate the leases on such properties.
On January 11, 1986, the Bankruptcy Court entered its Order granting
the Company's motions to reject thirteen leases and the Company was successful
in negotiating a termination of three other leases. On April 7, 1986, the
Bankruptcy Court granted the Company's motions to reject two additional leases
and two more leases were rejected by the Company's failure to assume the same by
May 22, 1986. In addition, during the pendency of the bankruptcy proceedings,
the Company was successful in renegotiating a substantial number of the
Company's remaining leases, generally amending the terms to five years with
three five year renewal options and deleting cost of living rental adjustments
in exchange for rents based upon the "fair market rental" for each particular
location. The Company believes that the units retained, especially with the
aforementioned lease modifications, are adequate to support its operations,
including any damages as a result of its bankruptcy proceedings.
All of the Company's units require periodic refurbishing in order to
remain competitive. The Company has budgeted $350,000 for its refurbishing
program for fiscal year 1997. See Item 7, "Liquidity and Capital Resources", for
discussion of the amounts spent in fiscal year 1996.
The following table summarizes the Company's properties as of September
28, 1996 including franchise locations, clubs and Company managed locations.
<TABLE>
<CAPTION>
Square License
Name and Location Footage Seats Owned by Lease Terms
- ----------------- ------- ----- -------- -----------
<S> <C> <C> <C> <C>
Big Daddy's Liquors #9 (2)
Flanigan's Enterprises, Inc.
1550 W. 84th Street 8/1/71 to 12/31/99
Hialeah, Florida 4,300 130 Company options to 12/31/2009
Big Daddy's Liquors #10 (2)(4)
15191-93 South Dixie Highway
Miami, Florida 3,500 84 Company Month to month
Big Daddy's Liquors #14 (2)(3)
Big Daddy's #14, Inc.
2041 N.E. Second Street 6/1/79 to 6/1/99
Deerfield Beach, Florida 3,320 90 Franchisee options to 2009
16
<PAGE>
<CAPTION>
Name and Location Footage Seats Owned by Lease Terms
- ----------------- ------- ----- -------- -----------
<S> <C> <C> <C> <C>
Big Daddy's Liquors #15 (3)
CIC Investors #15 Inc.
1479 E. Commercial Boulevard 3/12/76 to 8/31/01
Fort Lauderdale, Florida 4,000 90 Franchisee options to 8/31/2011
Big Daddy's Liquors #18 (2)(3)(5)
Twenty-Seven Birds, Corp.
2721 Bird Avenue 2/15/72 to 12/31/2000
Miami, Florida 4,300 100 Franchisee options to 12/31/2010
Big Daddy's Liquors #19 (2)(4)
Flanigan's Enterprises, Inc.
2505 N. University drive 3/1/72 to 12/31/2000
Hollywood, Florida 4,500 160 Company option to 12/31/2005
Big Daddy's Liquors #20 (2) 7/15/68 to 12/31/96
Flanigan's Enterprises, Inc. options to 12/31/2005
13205 Biscayne Boulevard Additional Lease
North Miami, Florida 5,100 140 Company 5/1/69 to 12/31/96
options to 12/31/2005
Big Daddy's Liquors #22 (2)(4)
Flanigan's Enterprises, Inc.
2600 W. Davie Boulevard 12/16/68 to 12/31/2000
Fort Lauderdale, Florida 4,100 150 Company options to 12/31/2010
Flanigan's Cafe #27
Flanigan's Enterprises, Inc.
732-734 N.E. 125th Street
North Miami, Florida 3,000 90 Company 7/1/50 to 6/30/2049
Big Daddy's Liquors #31 (2)
Flanigan's Enterprises, Inc.
4 North Federal Highway 9/6/68 to 12/31/2000
Hallandale, Florida 4,600 150 Company options to 12/31/2010
Big Daddy's Liquors #33 (2)(3)(5) 11/1/68 to 10/31/1998
Guppies, Inc. options to 10/31/2003
45 South Federal Highway New lease
Boca Raton, Florida 4,620 130 Franchisee 11/1/2003 to 12/31/2009
Big Daddy's Liquors #34 (1)
Flanigan's Enterprises, Inc.
9494 Harding Avenue 5/29/71 to 5/28/97
Surfside, Florida 3,000 50 Company option to 5/28/2002
Big Daddy's Liquors #36 (2) 3/10/87 to 12/31/2000
Flanigan's Enterprises, Inc. Additional leases
102 North Dixie Highway 4/29/87 to 12/31/2000
Lake Worth, Florida 4,600 60 Company option to 12/31/2005
17
<PAGE>
<CAPTION>
Square License
Name and Location Footage Seats Owned by Lease Terms
- ----------------- ------- ----- -------- -----------
<S> <C> <C> <C> <C>
Big Daddy's Liquors #37 (4)
Flanigan's Enterprises, Inc.
1720 North Andrews Avenue 6/1/69 to 5/31/99
Fort Lauderdale, Florida 4,100 80 Company options to 5/31/2019
Big Daddy's Liquors #40 (2)
Flanigan's Enterprises, Inc.
5450 North State Road #7 4/1/71 to 12/31/2000
Fort Lauderdale, Florida 4,600 140 Company option to 12/31/2005
Big Daddy's Liquors #43 (2)(3)(5)
BD 43 Corporation
2500 E. Atlantic Avenue 12/1/72 to 11/30/97
Pompano Beach, Florida 4,500 90 Franchisee options to 2012
Big Daddy's Liquors #47 (6)(8)
Flanigan's Enterprises, Inc.
8600 Biscayne Boulevard 12/21/68-1/1/2010
Miami, Florida 6,000 210 Prior Owner options to 1/1/2050
Flanigan's Lounge #600 (7)
Powers Ferry Landing 5/1/76 to 4/30/2001
Atlanta, Georgia 10,000 400 Company option to 4/30/2006
(1) License subject to chattel mortgage.
(2) License pledged to secure lease rental.
(3) Franchised by Company.
(4) Former franchised unit returned and now operated by the Company.
(5) Lease assigned to franchisee.
(6) Lease originally assigned to unaffiliated third parties.
During the fiscal year, the Company purchased 37% of the
leasehold interest from the unaffiliated third parties.
(7) Location managed by an unaffiliated third party.
(8) Business operated by the Company pursuant to Court Order.
</TABLE>
18
<PAGE>
Item 3. Legal Proceedings.
Due to the nature of the business, the Company is sued from
time-to-time by patrons, usually for alleged personal injuries occurring at the
Company's business locations. The Company has liability insurance which
incorporates a semi-self-insured plan under which the Company assumes the full
risk of the first $50,000 of exposure per occurrence. The Company's insurance
carrier is responsible for $1,000,000 coverage per occurrence above the
Company's self-insured deductible, up to a maximum aggregate of $2,000,000 per
year. Certain states have liquor liability (dram shop) laws which allow a person
injured by an "obviously intoxicated person" to bring a civil suit against the
business (or social host) who had served intoxicating liquors to an already
"obviously intoxicated person". The Company's insurance coverage relating to
this type of incident is limited.
Through the end of the 1990 fiscal year, the Company was uninsured for
dram shop liability. Pennsylvania still has an unrestricted dram shop law, which
allows persons injured by an "obviously intoxicated person" to bring a civil
action against the business which had served alcoholic beverages to an
"obviously intoxicated person". Florida has restricted its dram shop law by
statute permitting persons injured by an "obviously intoxicated person" to bring
a civil action against the business which had served alcoholic beverages to a
minor or an individual known to be habitually addicted to alcohol. Dram shop
claims normally involve traffic accidents and the Company generally does not
learn of dram shop claims until after a claim is filed and the Company then
vigorously defends these claims on the grounds that its employee did not serve
an "obviously intoxicated person". Damages in most dram shop claims are
substantial. During fiscal year 1996, the Company favorably settled the two dram
shop cases, (three dram shop claims) relating to one incident filed against the
Company in Florida during fiscal years 1994 and 1995. Subsequent to the end of
fiscal year 1996, the Company favorably settled its remaining uninsured dram
shop claim asserted against one of the limited partnerships in Pennsylvania and
the Company, as general partner. At the present time, there are no dram shop
claims pending against the Company.
On November 4, 1985 the Company, not including its subsidiaries, filed
a Voluntary Petition in the United States Bankruptcy Court for the Southern
District of Florida seeking to reorganize under Chapter 11 of the Federal
Bankruptcy Code. The Petition, identified as case no. 85-02594-BKC-AJC, was
filed in Fort Lauderdale, Florida. By Order of the Court dated November 4, 1985,
the Company was appointed "debtor in possession". The Company's action was a
result of significant escalations of rent on certain of the Company's leases
which made continued profitable operations at those locations impossible and
jeopardized the Company's financial position. The major purpose of the
reorganization was to reject such leases.
On January 11, 1986, the Bankruptcy Court granted the Company's motions
to reject thirteen leases and the Company was successful in negotiating the
termination of three additional leases. On April 7, 1986, the Bankruptcy Court
granted the Company's motion to reject two additional leases and two more leases
were automatically rejected due to the Company's failure to assume the same
prior to May 22, 1986. During the fiscal year ended October 3, 1987, the Company
negotiated a formula with the Official Committee of Unsecured Creditors,
("Committee"), which formula was used to calculate lease rejection damages under
19
<PAGE>
the Company's Amended Plan of Reorganization. Stipulations were filed by the
Company with all but three of these unsecured creditors, which stipulations
received Bankruptcy Court approval prior to the hearing on confirmation.
In addition to the rejection of leases, the Company also sought its
release from lease agreements for businesses sold, which sales included the
assignment of the leases for the business premises. While several landlords
whose leases had been assigned did file claims against the Company, the majority
did not, which resulted in the Company being released from its guarantees under
those leases. The Company has also been successful in negotiating the limitation
or release of the lease guarantees of those landlords who filed claims, which
settlements received Bankruptcy Court approval prior to the hearing on
confirmation.
On February 5, 1987, the Company filed its Amended Plan of
Reorganization and Amended Disclosure Statement, which documents were approved
by the Committee. On February 25, 1987, the Company further modified its Amended
Plan of Reorganization to secure the claims of Class 6 Creditors (Lease
Rejection) and Class 8 Creditors (Lease Guarantee Rejections). The Bankruptcy
Court approved the Amended Disclosure Statement by Order dated March 7, 1987 and
scheduled the hearing to consider confirmation of the Amended Plan of
Reorganization on April 13, 1987. On April 10, 1987, in order to insure receipt
of the necessary votes to approve its Amended Plan of Reorganization, the
Company agreed to a further modification of its Amended Plan, whereby creditors
of Classes 6 and 8 will receive $813,000 prorata as additional damages in years
8 and 9 of the Amended Plan. On April 13, 1987, the Company's Amended Plan of
Reorganization was confirmed and the Bankruptcy Court entered its Order of
Confirmation on May 5, 1987.
Pursuant to the terms of the Amended Plan of Reorganization, the
Effective Date of the same was June 30, 1987. As of that date, confirmation
payments totaling $1,171,925 were made by the Company's Disbursing Agent with
$647,226 being retained in escrow for disputed claims ($1,819,151 total). The
Bankruptcy Court ratified the disbursements made by the Disbursing Agent by its
Order dated December 21, 1987.
On December 28, 1987, the Bankruptcy Court entered its Notice of
Discharge of the Company.
During fiscal 1991 and again during fiscal 1992, the Company and Class
6 and Class 8 Creditors under the Company's Amended Plan of Reorganization
modified the schedule for the payment of bankruptcy damages, reducing the amount
of the quarterly payments by extending the term of the same, but without
reducing the total amount of bankruptcy damages. The modification to the payment
schedule provided the Company with needed capital.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of fiscal year 1996 the Company did not
submit any matter to a vote of security holders.
20
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
<TABLE>
<CAPTION>
RANGE OF PER SHARE MARKET PRICES
FISCAL 1995 FISCAL 1996
----------- -----------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter ............. 3-7/8 2-1/8 4-5/8 3-1/8
Second quarter ............ 3 2-1/4 5-3/8 3-3/4
Third quarter ............. 4-1/8 2-1/4 5-7/8 4-3/8
Fourth quarter ............ 4-3/4 2-3/4 5-7/16 4-5/8
</TABLE>
The Company's shares are traded on the American Stock Exchange, under
the symbol BDL. No dividends were paid to shareholders from the date of the
initial public offering in August 1969, through the fiscal year ended September
27, 1975. Cash dividends of 20 cents and 10 cents per share were paid on January
12, 1976 and July 5, 1976, respectively. No dividends were paid during the
period July 5, 1976 to March 15, 1988. During fiscal year 1988, a cash dividend
of 10 cents per share was paid on March 15, 1988. No dividends were paid from
March 16, 1988 through the fiscal year ended September 28, 1996.
Item 6. Selected Financial Data.
Not required.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
At September 30, 1995, the Company was operating 15 units including one
unit operated by the Company pursuant to Court Order, and had interests in an
additional nine units which had been franchised by the Company. Of the units
operated by the Company, four were combination package liquor stores and
restaurants, two were combination package liquor stores and lounges, five were
restaurants only, one was a lounge only and one was a package liquor store only.
The unit operated by the Company pursuant to Court Order was a package liquor
store only. There were two clubs, one of which was managed by an unaffiliated
third party in Atlanta, Georgia, and the other which was operated by the Company
as general partner of a limited partnership.
In comparison to September 30, 1995 at September 28, 1996, the Company
was operating 14 units, including one unit operated by the Company pursuant to
Court Order, and had interests in an additional seven units which had been
franchised by the Company. Of the units operated by the Company, four were
combination package liquor stores and restaurants, five were restaurants only,
and four were package liquor stores only. The unit operated by the Company
pursuant to Court Order was a package liquor store only. There was one club
operated by an unaffiliated third party under a management agreement.
21
<PAGE>
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows for the
two years ended September 28, 1996.
<TABLE>
<CAPTION>
Fiscal
Years Ended
----------------------
1995 1996
---- -----
(in thousands)
<S> <C> <C>
Net cash provided by
operating activities ....................... $ 499 $ 531
Net cash provided by (used in)
investing activities ........................ 19 (277)
Net cash used in
financing activities ........................ (700) (143)
----- -----
Net (decrease) increase in cash
and cash equivalents ....................... (182) 111
Cash and cash equivalents:
Beginning of year .......................... 868 686
----- -----
End of year ................................ $ 686 $ 797
===== =====
</TABLE>
Adjustments to net income to reconcile to cash flows from operating
activities in fiscal year 1995 include a provision for uncollectible notes and
mortgages of $97,000 and the recognition of $250,000 in deferred gain, most of
which resulted from the payment of a balloon mortgage receivable. Also included
is a $60,000 provision for reserves for self insurance and a $31,000 loss on
retirement of fixed assets.
Adjustments to net income to reconcile to cash flows from operating
activities in fiscal year 1996 include a provision for uncollectible notes and
mortgages of $104,000 and the recognition of $114,000 in deferred gain. Also
included is a $53,000 loss on the retirement of fixed assets, and a gain of
$135,000 from the sale of the assets of the Pennsylvania limited partnership.
Improvements
Capital expenditures were $348,000 and $613,000 during fiscal years
1995 and 1996, respectively. The capital expenditures were for refurbishment of
lounges, including conversion of a lounge to the "Flanigan's Cafe" concept,
upgrading existing units serving food, improvements to package liquor stores,
upgrading the corporate computer system and other improvements. Except as
otherwise noted all of the money for additions came from operations.
During fiscal year 1995, the Company became the owner, through
foreclosure, of a lounge previously sold by the Company, which lounge had been
operated by a wholly owned subsidiary of the Company as a receiver appointed by
the Court since fiscal year 1994. After acquiring ownership
22
<PAGE>
of the lounge, the Company converted the same to its "Flanigan's Cafe" concept,
but since it was not possible to operate it up to the same standards of the
Company's other restaurants, the unit was closed April 10, 1996. During the
fourth quarter, a contract was entered into by the landlord for the sale of the
real property and improvements of this location. Simultaneously therewith a
separate contract was entered into by the Company for the sale of its liquor
license to the same buyer. At closing, which occurred during the first quarter
of fiscal 1997, the Company's lease for this store was vacated.
All of the Company's units require periodic refurbishing in order to
remain competitive. During fiscal 1992, as cash flow improved, the Company
embarked on a refurbishing program which continued through fiscal year 1996. The
budget for fiscal year 1997 includes approximately $350,000 for this program.
The Company believes that improved operations will provide the cash to continue
the refurbishing program.
Property and Equipment
The Company's property and equipment, at cost less accumulated
depreciation and amortization, was $2,772,000 at September 30, 1995 compared to
$2,634,000 at September 28, 1996. The Company's liquor licenses less accumulated
amortization were $338,000 at September 30, 1995 compared to $349,000 at
September 28, 1996. The Company's leased property under capital leases, less
accumulated amortization, was $227,000 at September 30, 1995 compared to
$195,000 at September 28, 1996. The Company's leased property under capital
leases has continued to decline because any new leases the Company enters into
are operating leases, and thus there are no additions to capital leases. Also
contingent liability on capital leases amounting to $111,000 expired in fiscal
year 1995.
Long term debt
The Company's long term debt was $81,000 at fiscal yearend 1995 and
$21,000 at fiscal yearend 1996.
The Company repaid long term debt, capital lease obligations and
Chapter 11 damages in the amount of $444,000 and $355,000 in fiscal years 1995
and 1996, respectively.
Working capital
The table below summarizes the current assets, current liabilities and
working capital for fiscal years 1995 and 1996:
<TABLE>
<CAPTION>
Sept. 30, Sept. 28,
Item 1995 1996
---- ---------- ---------
<S> <C> <C>
Current assets ....................... $2,118,000 $2,522,000
Current liabilities .................. 2,081,000 2,158,000
Working capital ...................... 37,000 364,000
</TABLE>
23
<PAGE>
During fiscal year 1991 and again in fiscal year 1992, the Company
refinanced existing debt due Class 6 and Class 8 Creditors under the Company's
Amended Plan by extending the payment schedule to the year 2002, thereby
reducing the payments from $500,000 per year to $200,000 per year for two years
and thereafter to $300,000 per year until paid, but without reducing the total
amount of bankruptcy damages.
Management believes that positive cash flow from operations will
adequately fund operations, debt reductions and planned capital expenditures in
fiscal year 1997.
The Company's Amended Plan of Reorganization was prepared to allow the
Company to meet its obligations from cash generated from operations. The Amended
Plan was approved by a majority of the creditors and confirmed by the Bankruptcy
Court on May 5, 1987 and the Company was officially discharged from bankruptcy
on December 28, 1987. As noted above, during fiscal year 1991 and again in
fiscal year 1992, the Class 6 and Class 8 Creditors agreed to refinance existing
debt by extending their payment schedule. See Bankruptcy Proceedings below and
Note 2 to the consolidated financial statements.
Income Taxes
Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes requires, among other things, recognition of future tax benefits
measured at enacted rates attributable to deductible temporary differences
between financial statement and income tax bases of assets and liabilities and
to tax net operating loss carryforwards to the extent that realization of said
benefits is more likely than not. For discussion regarding the Company's net
operating loss carryforwards refer to Note 4 in the Company's Annual Report on
Form 10-KSB for the fiscal year ended September 28, 1996.
Bankruptcy Proceedings
As noted above and in Note 2 to the consolidated financial statements,
on November 4, 1985, Flanigan 's Enterprises, Inc., not including any of its
subsidiaries, filed a Voluntary Petition in the United States Bankruptcy Court
for the Southern District of Florida seeking to reorganize under Chapter 11 of
the Federal Bankruptcy Code. The primary purposes of the Petition were (1) to
reject leases which were significantly above market rates and (2) to reject
leases on closed units which had been repossessed by or returned to the Company.
During fiscal year 1986 the Company terminated or rejected 34 leases.
Many of the leases remaining were renegotiated to five year terms, with three
five year renewal options at fair market rental. As was their right under the
Bankruptcy Code, the landlords of properties rejected by the Company filed
claims for losses or damages sustained as a result of the Company's rejection of
such leases. The amount of such damages is limited by federal law. The Company
outlined a schedule for payment of these damages in the Amended Plan. As noted
above, the Amended Plan was approved by the Bankruptcy Court on May 5, 1987. The
gross amount of damages payable to creditors for rejected leases was $4,278,000.
Since the damage payments were to be made over nine years, the total amount due
was
24
<PAGE>
discounted at a rate of 9.25%. See Note 2 to the consolidated financial
statements for the current payment schedule of these damages.
Other Legal Matters
Through the end of fiscal year 1990, the Company was uninsured for dram
shop liability. During fiscal year 1996, the Company favorably settled the three
insured dram shop claims [two lawsuits relating to one incident], against the
Company in Florida and subsequent to the end of fiscal year 1996, favorably
settled its remaining uninsured dram shop claim against a limited partnership in
Pennsylvania and the Company, as general partner. See page 13 for further
discussion regarding dram shop suits.
During fiscal years 1993 and 1994, the Company paid the 1991, 1992 and
1993 real property taxes, in the aggregate amount of $40,242, as guarantor of
the sublease for a store sold in 1990. During fiscal year 1994, the Company also
paid a non-related third party the sum of $14,991 as reimbursement of real
property taxes erroneously paid on a second folio number for the real property
taxes for the same store for 1990 through 1992. The payment of the 1991 and 1992
real property taxes were evidenced by two promissory notes, one for each year,
which each provide that the entire principal balance and accrued interest,
calculated at the rate of nine percent per annum, will be due in full on January
1, 2010, which is the date the sublease expires. A default under the sublease is
a default under the promissory note, entitling the Company to accelerate the
entire principal balance and all accrued interest; and if the assignee meets all
obligations of the sublease through its expiration date (January 1, 2010), then
each promissory note will be forgiven. The Company's reimbursement of real
property taxes erroneously paid by a non-related third party ($14,991), is
secured by a mortgage on real property owned by an affiliated entity of the
assignee. The Company agreed to review financial records of the assignee each
year to see if the profitability thereof warranted the Company paying the real
property taxes to subsidize the same.
During fiscal year 1995, the Company learned that the assignee was five
months in arrears in the payment of rent to the Sublessors ($35,527) and had
failed to pay the annual ground rent which was due January 1, 1995 ($19,400),
notwithstanding promises that all rental payments would be current by January 1,
1995.
The Company demanded payment of all arrearages or the return of the
store. While negotiating the return of the store, the assignee closed the
package liquor store and removed all inventory. The Company filed suit for
eviction and was granted immediate possession of the business premises,
including furniture, fixtures, equipment and liquor license, to reopen and
preserve the business of the package liquor store. As a result of the default of
the sublease, the two promissory notes given the Company for paying the 1991 and
1992 real property taxes for this store immediately came due in full. During
fiscal year 1995, the Company paid the annual ground rent which was due January
1, 1995 and began making monthly payments to the sublessors commencing February
1, 1995. During fiscal year 1995, the Company also began paying an additional
one half month's rent to the sublessors along with current monthly rent on
account of the rental arrearages. The Company continues to operate the package
liquor store and anticipates doing so throughout the litigation and after
acquiring
25
<PAGE>
ownership thereof through the litigation. Subsequent to the end of fiscal year
1996, the Company entered into a Stipulation with the assignee, the principal of
the assignee and an entity affiliated with the assignee, whereby an Agreed
Summary Final Judgment was immediately entered in favor of the Company against
the assignee, the principal of the assignee and an entity affiliated with the
assignee, jointly and severally, for the full amount due the Company and the
foreclosure of the Company's security interest in the assets of the assignee. It
is anticipated that the Company will acquire ownership of the assets of the
assignee at the foreclosure sale, including the liquor license.
In addition to the above store, during fiscal year 1994, the Company
paid the 1991 and 1992 real property taxes in the aggregate amount of $13,987,
as guarantor of the lease of another store sold in prior years. During fiscal
year 1994, the rental payments for this store decreased to a point where they
did not even equal the current rent and the Company instituted evictions
proceedings. The Company, through a wholly owned subsidiary, was appointed
receiver of the assignee's business. During fiscal year 1995, the Court entered
a Final Judgment in favor of the Company foreclosing the statutory landlord lien
subrogated to the Company. The Company acquired ownership of the assets of the
assignee at the foreclosure sale, including the liquor license. The Company
tried to operate the store as a restaurant under its "Flanigan's Cafe" concept,
but it was not possible to operate up to the same standards as the Company's
other restaurants and the unit was closed April 10, 1996. During fiscal year
1996, a contract was entered into by the landlord for the sale of the real
property and improvements of this location. Simultaneously therewith, a separate
contract was entered into by the Company for the sale of its liquor license to
the same buyer. The sale was closed during the first quarter of fiscal year
1997, thereby relieving the Company of all further liability for the lease
agreement for this location.
During fiscal year 1995, the Company paid the monthly rent due June 1,
1995 through September 30, 1995, as guarantor of the lease of another store sold
in prior years. The assignee of the business vacated the business premises
during fiscal year 1995 and the landlord actively sought a new tenant but was
unable to find a new tenant prior to September 30, 1995, the date the lease
expired. During fiscal year 1996, the Company foreclosed its security interest
in the assets of the assignee, which security interest was given to the Company
to secure its guarantee of the lease for this location. Through its foreclosure
action, the Company acquired ownership of the assets of the assignee, including
the liquor license. The value of the liquor license more than offsets the rent
paid by the Company on account of this store and the cost of the litigation.
During fiscal year 1995, a lawsuit was filed against the Company
alleging age discrimination in its hiring of restaurant assistant managers
during fiscal year 1994. During fiscal year 1996 the lawsuit was favorably
settled by the Company.
During fiscal year 1996, two claims were filed against the Company with
the Equal Employment Opportunity Commission alleging sexual harassment and/or
discrimination. In the first claim, a former employee initially alleged that the
Company permitted sexual harassment to continue at one of its restaurants. After
27
<PAGE>
the former employee was transferred to another restaurant, she resigned, and
thereafter amended her complaint to allege that she was forced to resign due to
retaliatory conduct on the part of the Company. The Company disputes this claim
and is vigorously defending the same.
In the second claim, a former employee alleged that her position with
the Company was changed due to her pregnancy. The Equal Employment Opportunity
Commission failed to make a determination on this claim within one hundred
eighty (180) days of its filing and subsequent to the end of the fiscal year
1996, this claimant filed suit against the Company. The Company disputes this
claim and is vigorously defending the same.
<TABLE>
<CAPTION>
Results of Operation
REVENUES:
Fifty-Two Weeks Ended
--------------------------------------------
Sales Sept. 30, 1995 Sept. 28, 1996
- ----- -------------------- -------------------
<S> <C> <C> <C> <C>
Restaurant, food ............ $ 9,065 51.2% $ 9,588 50.1%
Restaurant, bar ............. 3,316 18.7% 3,220 16.8%
Non-Restaurant, bar ......... 470 2.7% 234 1.2%
Package goods ............... 4,845 27.4% 6,112 31.9%
------- ----- ------- -----
Total ....................... 17,696 100.0% 19,154 100.0%
Franchise revenues .......... 460 629
Owner's fee ................. 150 150
Joint venture income ........ -- 65
Other operating income ...... 204 186
------- -------
Total revenues .............. $18,510 $20,184
</TABLE>
As the table above illustrates, total revenues have increased for the
fiscal year ended September 28, 1996 when compared to fiscal year ended
September 30, 1995. The increases are in restaurant food sales, package sales
and franchise related revenue.
As previously discussed on page three, during the second quarter of
fiscal year 1996, the lease on one unit operated by the Company as a lounge
only, expired and the Company was unable to renew same upon suitable terms. Also
during the second quarter the Company closed its last two lounges at combination
package and lounge units, but continues to operate the package liquor stores.
Bar business, without an accompanying restaurant, continued to decline to the
point of being marginally profitable. The Company can not foresee this trend
reversing and the two units are not suitable for conversion to restaurants. The
closing of these units is responsible for the decline in non-restaurant bar
sales in fiscal year 1996 when compared to fiscal year 1995.
27
<PAGE>
Restaurant food sales represented 51.2% of total sales in the fifty-two
weeks ended September 30, 1995 as compared to 50.1% in the comparable period of
fiscal year 1996. The decrease in percentage of food sales to total sales is a
result of the increase in the percentage of package goods sales. The weekly
average of same store restaurant food sales was $174,094 and $182,170 for the
fifty-two week period of fiscal years 1995 and 1996 respectively, an increase of
4.6 %.
The same store weekly average for restaurant bar sales was $63,550 for
the twelve months ended September 30, 1995 compared to $60,269 for the twelve
months ended September 28, 1996, a decrease of 5.2%.
The Company's emphasis during the past few years has been towards
increasing its restaurant food sales, which caters to a family oriented
business. This accounts for the increased weekly average of same store
restaurant food sales, as well as for the decrease in weekly average of same
store restaurant bar sales.
Package goods sales have reversed the decline of prior years going from
a weekly average of same store sales of $93,212 for the fifty-two weeks of
fiscal year 1995 to $101,220 for the fifty-two weeks of fiscal year 1996, an
increase of 8.6 %. The improvement in package goods sales is attributed to three
factors. The Company has improved its wine selection and made its pricing more
competitive, while the decline in the liquor market appears to have stabilized.
Franchise related revenues show a 36.7 % increase for the fifty-two
week period of fiscal year 1996 as compared to the fifty-two week period of
fiscal year 1995. This increase is a result of the new royalty fees that were
introduced with the new Franchise Agreement that was discussed on pages 8 and 9.
Owner's fee represents fees received pursuant to a management agreement
for the operation of a club owned by the Company in Atlanta, Georgia.
During the first quarter of fiscal year 1996, the Company began
operating a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark
as general partner and fifty percent owner of a limited partnership established
for such purpose. The Company earned $65,000 during fiscal year 1996 as its
share of income.
The gross profit margin for restaurant and lounge sales remained level
at 62.2% and 62.2% for the twelve months of fiscal years 1995 and 1996
respectively.
The gross profit margin for package goods sales during the fifty-two
weeks ended September 30, 1995 and September 28, 1996 were 25.8% and 26.3%
respectively.
Overall gross profits were 52.2% for the twelve months ended September
30, 1995 compared to 50.8% for the same period in fiscal year 1996. The decrease
of 1.4% is a result of a higher ratio of package good sales to total sales.
28
<PAGE>
Operating Costs and Expenses
All discussion below of operating costs, payroll costs and occupancy
costs for the fifty-two weeks ended September 28, 1996 includes costs from the
unit that the Company received through foreclosure and the unit that was
returned to the Company by its franchisee.
Operating costs and expenses for the fifty-two weeks ended September
30, 1995 were $18,241,000 compared to $19,731,000 for the same period in the
current fiscal year. Operating expenses are comprised of the cost of merchandise
sold, payroll and related costs, occupancy costs and selling, general and
administrative expenses.
Payroll and related costs, which include workers compensation insurance
premiums, were $5,071,000 and $5,574,000 for the twelve months of fiscal years
1995 and 1996 respectively, an increase of $503,000. Although the Company
experienced an increase in restaurant payroll in general, there were three other
factors involved in the increase in payroll and related costs. The payrolls from
the two recently acquired units were responsible for some added payroll
expense,and the Company hired an attorney at the beginning of fiscal year 1996,
which attorney is also a member of the Board of Directors. The increase from
adding the attorney to the payroll was offset by an equivalent reduction in
legal expense.
Occupancy costs, which include rent, common area maintenance, repairs
and taxes were $857,000 and $949,000 for the twelve months of fiscal years 1995
and 1996 respectively, with the increase of $92,000 primarily accounted for
because of the addition of the previously mentioned units and a decrease in the
reduction from capital leases to expense.
Selling, general and administrative expenses were $3,859,000 for the
fifty-two weeks ended September 30, 1995 and $3,782,000 for the fifty-two weeks
ended September 28, 1996, a decrease of $77,000 overall. As discussed
previously, the Company has two additional units this fiscal year that it did
not have in fiscal year 1995. The selling, general and administrative expenses
for these two units total $80,000. If the total expenses for the twelve months
of fiscal year 1996 were adjusted by these added expenses, the comparison to
fiscal year 1995 would reveal that management has been able to accomplish a net
decrease in selling, general and administrative expenses of $157,000.
Other Income and Expense
The decline of $12,000 in interest expense on long-term debt which was
$81,000 and $69,000 for the fifty-two weeks of fiscal years 1995 and 1996
respectively, is attributed to the reduction of long-term debt. The decline of
$6,000 in interest expense on obligations under capital leases which was $68,000
and $62,000 for the fifty-two weeks of fiscal years 1995 and 1996 respectively,
is the result of declining principal balances of capital leases in general.
Management fees from the Pennsylvania limited partnership were $77,000
and $66,000 for the twelve months ended September 30, 1995 and September 28,
1996 respectively.
29
<PAGE>
As discussed on page 10, the sale of the lease, leasehold inprovements
and liquor license of the club in King of Prussia was completed on September 20,
1996 and the Company realized a gain of $135,000 on its investment in this
limited partnership.
Other net was $46,000 for the fifty-two weeks of fiscal year 1995 and
$124,000 for the fifty-two weeks of fiscal year 1996. Other net in the
consolidated statements of income consists of the following for the twelve
months ended September 30, 1995 and September 28, 1996:
<TABLE>
<CAPTION>
Fiscal year ending
---------------------------
Sept. 30, Sept. 28,
1995 1996
---------- ----------
<S> <C> <C>
Non-franchise related rental income .......... $ 71,000 $ 32,000
Loss on retirement of fixed assets ........... -- (79,000)
Gain on sale of liquor licenses .............. 30,000 26,000
(Loss) gain on repossession of store ......... (55,000) 50,000
Insurance recovery ........................... -- 53,000
Miscellaneous ................................ -- 42,000
--------- ---------
$ 46,000 $ 124,000
========= =========
</TABLE>
Trends
During the next twelve months management expects a continued increase
in restaurant food and package sales and anticipates that expenses will remain
constant, thereby increasing overall profits. The Company intends to add more
restaurants as cash becomes available.
Other Matters
Impact of Inflation
The Company does not believe that inflation has had any material effect
during the past two years. To the extent allowed by competition, the Company
recovers increased costs by increasing prices.
Post Retirement Benefits Other Than Pensions
The Company currently provides no post retirement benefits to any of
its employees, therefore Financial Accounting Standards Board Statement No. 106
has no effect on the Company's financial statements.
Item 8. Financial Statements and Supplementary Data.
Financial statements of the Company at September 30, 1995 and September
28, 1996, which include each of the two years in the period ended September 28,
1996 and the independent certified public accountants' report thereon are
incorporated by reference from the 1996 Annual Report to Shareholders, included
herein.
30
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
(Not Applicable.)
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information set forth under the caption "Election of Directors" in
the Company's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission pursuant
to regulation 14A under the Securities and Exchange Act of 1934, as amended (the
1997 Proxy Statement), is incorporated herein by reference. See also "Executive
Officers of the Registrant" included in Part I hereof.
Item 11. Executive Compensation.
The information set forth in the 1997 Proxy Statement under the caption
"Executive Compensation" is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the 1997 Proxy Statement is
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the caption "Election of Directors
Certain Relationships and Related Transactions" in the 1997 Proxy Statement
is incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) 1. Financial Statements
All the financial statements, financial statement schedule and
supplementary data listed in the accompanying Index to
Financial Statements and Schedule are filed as part of this
Annual Report.
2. Exhibits
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this Annual Report.
(b) Reports on Form 8-K
No reports on form 8-K were filed during the fourth quarter of
fiscal 1996 or subsequent to yearend.
31
<PAGE>
Index to Exhibits
Item 14 (a) (2)
Description
(2) Plan of Reorganization, Amended Disclosure Statement, Amended Plan of
Reorganization, Modification of Amended Plan of Reorganization, Second
Modification of Amended Plan of Reorganization, Order Confirming Plan of
Reorganization, (Item 7 (c) of Quarterly Report on Form 8-K filed May 5, 1987 is
incorporated herein by reference).
(3) Restated Articles of Incorporation (Part IV, Item 14 (a)(2) of Annual Report
on Form 10-K filed on December 29, 1982 is incorporated herein by reference).
(3) By-laws (Part IV, Item 14 (a)(2) of Annual Report on Form 10-K filed on
December 29, 1982 is incorporated herein by reference).
(10)(a)(1) Employment Agreement with Joseph G. Flanigan (Exhibit A of the Proxy
Statement dated January 27, 1988 is incorporated herein by reference).
(10)(a)(2) Form of Employment Agreement between Joseph G. Flanigan and the
Company (as ratified and amended by the stockholders at the 1988 annual meeting
is incorporated herein by reference).
(10)(c) Consent Agreement regarding the Company's Trademark Litigation (Part
7(c)(19) of the Form 8-K dated April 10, 1985 is incorporated herein by
reference).
(10)(d) King of Prussia (#850) Partnership Agreement (Part 7 (c)(19) of the Form
8-K dated April 10, 1985 is incorporated herein by reference).
(10)(o) Management Agreement for Atlanta, Georgia (#600) (Item 14 (a)(10)(o) of
the Form 10-K dated October 3, 1992 is incorporated herein by reference).
(10)(p) Settlement Agreement with Former Vice Chairman of the Board of Directors
(re #5) (Item 14 (a)(10)(p) of the Form 10-K dated October 3, 1992 is
incorporated herein by reference).
(10)(q) Hardware Purchase Agreement and Software License Agreement for
restaurant point of sale system. (Item 14(a)(10)(g) of the Form 10-KSB dated
October 2, 1993 is incorporated herein by reference).
(10)(a)(3) Key Employee Incentive Stock Option Plan (Exhibit A of the Proxy
Statement dated January 26, 1994 is incorporated herein by reference).
32
<PAGE>
(10)(r) Limited Partnership Agreement of CIC Investors #13, Ltd., between
Flanigan's Enterprises, Inc., as General Partner and fifty percent owner of the
limited partnership, and Hotel Properties, LTD. (Item 14 (a)(10)(r) of the Form
10-KSB dated September 30, 1995 is incorporated herein by reference.)
(10)(s) Form of Franchise Agreement between Flanigan's Enterprises, Inc., and
Franchisees. (Item 14 (a)(10)(s) of the Form 10-KSB dated September 30, 1995 is
incorporated herein by reference.)
(10)(t) Licensing Agreement between Flanigan's Enterprises, Inc. and James B.
Flanigan, dated November 4, 1996, for non-exclusive use of the servicemark
"Flanigan's" in the Commonwealth of Pennsylvania.
(11) Statement regarding computation of per share earnings is set forth in this
Annual Report on Form 10-KSB.
(13) Registrant's Form 10-KSB constitutes the Annual Report to Shareholders for
fiscal year ended September 28, 1996.
(22)(a) Company's subsidiaries are set forth in this Annual Report on Form
10-KSB.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Flanigan's Enterprises, Inc.
Registrant
By: JOSEPH G. FLANIGAN
Date 12/20/1995 -------------------
Joseph G. Flanigan
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/JOSEPH G. FLANIGAN Chairman of the Board, Date 12/20/1995
- --------------------- Chief Executive Officer
Joseph G. Flanigan and President
/s/MARY C. REYMANN Vice President Finance, Date 12/20/1995
- ------------------ Controller
Mary C. Reymann Secretary and Director
/s/CHARLES KUHN Director Date 12/20/1995
- ----------------
Charles Kuhn
/s/GERMAINE M. BELL Director Date 12/20/1995
- -------------------
Germaine M. Bell
/s/CHARLES E. MCMANUS Director Date 12/20/1995
- ---------------------
Charles E. McManus
/s/JEFFREY D. KASTNER Assistant Secretary Date 12/20/1995
- --------------------- and Director
Jeffrey D. Kastner
/s/WILLIAM PATTON Vice President, Public Date 12/20/1995
- ------------------ Relations and Director
William Patton
/s/JAMES G. FLANIGAN Director Date 12/20/1995
- ---------------------
James G. Flanigan
/s/PATRICK J. FLANIGAN Director Date 12/20/1995
- ----------------------
Patrick J. Flanigan
</TABLE>
34
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets -- September 30, 1995 and September 28, 1996
Consolidated Statements of Income for the Years Ended September 30, 1995
and September 28, 1996
Consolidated Statements of Stockholders' Investment for the Years Ended
September 30, 1995 and September 28, 1996
Consolidated Statements of Cash Flows for the Years Ended September 30,
1995 and September 28, 1996
Notes to Consolidated Financial Statements
SCHEDULE:
II Valuation and Qualifying Accounts for the Years Ended September 30,
1995 and September 28, 1996
Schedules, other than the schedule listed above, are not submitted
because they are not applicable, not required, or because the required
information is included in the consolidated financial statements or
notes thereto.
Individual financial statements of the registrant have been omitted
because the registrant is primarily an operating company and the
subsidiaries included in the consolidated financial statements are
wholly owned.
35
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Flanigan's Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Flanigan's
Enterprises, Inc. (a Florida corporation) and subsidiaries as of September 30,
1995 and September 28, 1996, and the related consolidated statements of income,
stockholders' investment and cash flows for the years then ended. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Flanigan's Enterprises, Inc.
and subsidiaries as of September 30, 1995 and September 28, 1996 and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements and schedule is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Miami, Florida,
December 12, 1996.
36
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND SEPTEMBER 28, 1996
ASSETS
1995 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................. $ 686,000 $ 797,000
Receivables, less allowance for
uncollectible amounts and deferred
gains, including related party
receivables of $16,000 and $3,000
(before allowances and deferred gains)
in 1995 and 1996, respectively .......... 235,000 486,000
Inventories ............................... 824,000 911,000
Prepaid expenses .......................... 373,000 328,000
---------- ----------
Total current assets ...................... 2,118,000 2,522,000
---------- ----------
PROPERTY AND EQUIPMENT, net ........................ 2,772,000 2,634,000
---------- ----------
LEASED PROPERTY UNDER CAPITAL LEASES,
less accumulated amortization of
$741,000 and $678,000 in 1995
and 1996, respectively .................... 227,000 195,000
---------- ----------
OTHER ASSETS:
Liquor licenses, less accumulated
amortization of $95,000 and
$83,000 in 1995 and 1996, respectively .. 338,000 349,000
Notes and mortgages receivable, less
allowance for uncollectible amounts and
deferred gains, including related party
receivables of $70,000 and -0- (before
allowances and deferred gains)
in 1995 and 1996, respectively ......... 85,000 76,000
Investment in joint venture ............... -- 120,000
Other ..................................... 324,000 413,000
---------- ----------
Total other assets ........................ 747,000 958,000
---------- ----------
$5,864,000 $6,309,000
========== ==========
</TABLE>
(Continued)
37
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND SEPTEMBER 28, 1996
LIABILITIES AND STOCKHOLDERS' INVESTMENT
(continued)
1995 1996
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ...................... $ 756,000 $ 582,000
Accrued and other current liabilities . 865,000 820,000
Current portion of long-term debt ..... 60,000 16,000
Current obligations under capital
leases .............................. 54,000 61,000
Current portion of damages payable on
terminated or rejected leases ....... 240,000 249,000
Due to Pennsylvania limited
partnership ......................... 106,000 430,000
----------- -----------
Total current liabilities ............. 2,081,000 2,158,000
----------- -----------
LONG-TERM DEBT, net of current portion ......... 21,000 5,000
----------- -----------
OBLIGATIONS UNDER CAPITAL LEASES,
net of current portion ................ 448,000 387,000
----------- -----------
DAMAGES PAYABLE ON TERMINATED OR
REJECTED LEASES, net of current portion 1,462,000 1,212,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)
STOCKHOLDERS' INVESTMENT:
Common stock, par value $.10,
authorized 5,000,000 shares,
issued and outstanding 2,099,000
shares in 1995 and 1996 ............. 210,000 210,000
Capital in excess of par value ........ 6,685,000 6,395,000
(Accumulated deficit) retained earnings (33,000) 753,000
Less - Treasury stock, at cost,
1,246,000 and 1,192,000 shares
in 1995 and 1996, respectively ...... (5,010,000) (4,811,000)
----------- -----------
Total stockholders' investment ........ 1,852,000 2,547,000
----------- -----------
$ 5,864,000 $ 6,309,000
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 28, 1996
1995 1996
------------ ------------
<S> <C> <C>
REVENUES:
Restaurant food sales ............. $ 9,065,000 $ 9,588,000
Restaurant bar sales .............. 3,316,000 3,220,000
Lounge bar sales .................. 470,000 234,000
Package goods sales ............... 4,845,000 6,112,000
Franchise-related revenues ........ 460,000 629,000
Owners fee ........................ 150,000 150,000
Joint venture income .............. -- 65,000
Other operating income ............ 204,000 186,000
------------ ------------
18,510,000 20,184,000
------------ ------------
COSTS AND EXPENSES:
Cost of merchandise sold -
restaurants and lounges .. 4,858,000 4,927,000
package goods ............ 3,596,000 4,499,000
Payroll and related costs ......... 5,071,000 5,574,000
Occupancy costs ................... 857,000 949,000
Selling, general and
administrative expenses .. 3,859,000 3,782,000
------------ ------------
18,241,000 19,731,000
------------ ------------
Income from operations ............ 269,000 453,000
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense on obligations
under capital leases ............ (68,000) (62,000)
Interest expense on long-term
debt and damages payable ........ (81,000) (69,000)
Interest income ................... 60,000 31,000
Management fees from
Pennsylvania limited
partnership ..................... 77,000 66,000
Gain on sale of Pennsylvania
limited partnership ............. -- 135,000
Recognition of deferred gains ..... 250,000 114,000
Other, net ........................ 46,000 124,000
------------ ------------
284,000 339,000
------------ ------------
Income before provision for
income taxes .................... 553,000 792,000
(continued)
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 28, 1996
(continued)
1995 1996
---------- --------
<S> <C> <C>
PROVISION FOR INCOME TAXES ..................... 3,000 6,000
---------- --------
Net income ............................ $ 550,000 $786,000
========== ========
NET INCOME
PER COMMON SHARE:
Primary ............................... $ .60 $ .80
========== ========
Fully diluted ......................... $ .59 $ .80
========== ========
WEIGHTED AVERAGE SHARES
AND EQUIVALENT SHARES OUTSTANDING:
Primary ............................... 921,000 984,000
========== ========
Fully diluted ......................... 928,000 986,000
========== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 28, 1996
COMMON STOCK TREASURY STOCK
------------ --------------
(Accumulated
Capital in Deficit)
Number of Excess of Retained Number of
Shares Amount Par Value Earnings Shares Amount
------ ------ --------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, October 1, 1994 .. 2,099,000 $ 210,000 $ 6,685,000 $ (583,000) 1,168,000 $ 4,773,000
Net income ................ -- -- -- 550,000 -- --
Purchase of 78,000 shares
of treasury stock ...... -- -- -- -- 78,000 237,000
--------- ----------- ----------- ----------- --------- -----------
BALANCE, September 30, 1995 2,099,000 210,000 6,685,000 (33,000) 1,246,000 5,010,000
Net income ................ -- -- -- 786,000 -- --
Purchase of 39,000 shares
of treasury stock ...... -- -- -- -- 39,000 173,000
Exercise of stock options . -- -- (290,000) -- (93,000) (372,000)
--------- ----------- ----------- ----------- --------- -----------
BALANCE, September 28, 1996 2,099,000 $ 210,000 $ 6,395,000 $ 753,000 1,192,000 $ 4,811,000
========= =========== =========== =========== ========= ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 28, 1996
1995 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................. $ 550,000 $ 786,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization ......... 635,000 659,000
Provision for uncollectible
notes and mortgages receivable ...... 97,000 104,000
Provision for potential
uninsured claims .................... 60,000 12,000
Recognition of deferred gains
and other deferred income ........... (250,000) (114,000)
(Gain) loss on property,
equipment and liquor licenses ....... (31,000) 53,000
Gain from sale of Pennsylvania
limited partnership ................. -- (135,000)
Changes in assets and liabilities:
Decrease (increase)in receivables ..... 86,000 (235,000)
Increase in inventories ............... (104,000) (87,000)
(Increase) decrease in prepaid expenses (63,000) 45,000
Increase in other assets .............. (161,000) (326,000)
Decrease in accounts payable .......... (19,000) (174,000)
Decrease in accrued
and other current liabilities ....... (301,000) (57,000)
--------- ---------
Net cash provided by
operating activities .................. 499,000 531,000
--------- ---------
(continued)
42
<PAGE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 28, 1996
(continued)
1995 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property
and equipment and liquor licenses ..... 24,000 10,000
Collections on notes and
mortgages receivable .................. 343,000 290,000
Purchase of property and equipment ...... (348,000) (613,000)
Investment in joint venture ............. -- (120,000)
Proceeds from sale of Pennsylvania
limited partnership ................... -- 156,000
-------- --------
Net cash provided by (used in)
investing activities .................. 19,000 (277,000)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt .............. (126,000) (60,000)
Payments of obligations under
capital leases ........................ (86,000) (54,000)
Payments of damages payable on
terminated or rejected leases ......... (232,000) (241,000)
Change in amount due to Pennsylvania
limited partnership ................... (19,000) 303,000
Purchase of treasury stock .............. (237,000) (173,000)
Proceeds from exercise of options ....... -- 82,000
-------- --------
Net cash used in
financing activities .................. (700,000) (143,000)
-------- --------
(continued)
43
<PAGE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 28, 1996
(continued)
1995 1996
--------- ---------
<S> <C> <C>
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ......................... (182,000) 111,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR ........................ 868,000 686,000
--------- ---------
CASH AND EQUIVALENTS,
END OF YEAR .............................. $ 686,000 $ 797,000
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................... $ 149,000 $ 131,000
Income taxes ........................... 7,000 6,000
Noncash Activities:
Reduction of capital lease assets
and obligations due to amendment
and termination of original lease
term ................................... $ 96,000 $ --
Retirement of fully depreciated
equipment .............................. $ 326,000 $ 51,000
Write-off of fully reserved
mortgage receivable .................... $ 258,000 $ --
Exchange of note receivable
for liquor license ..................... $ 33,000 $ 50,000
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
44
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND SEPTEMBER 28, 1996
(1) NATURE OF OPERATIONS:
Incorporated in 1959, Flanigan's Enterprises, Inc. ("Flanigan's" or the
"Company") began operations in South Florida as a chain of small cocktail
lounges and package liquor stores. At September 28, 1996, the Company owns
and/or operates five full-service restaurants, four package liquor stores, four
combination full-service restaurants and package liquor stores in Florida, and
one club in Georgia, for which Flanigan's receives an owner's fee pursuant to a
management agreement. The Company's restaurants are operated under the
"Flanigan's Seafood Bar and Grill" trademark, while the Company's package stores
are operated under the "Big Daddy's Liquors" trademark. Additionally, the
Company holds interests in seven franchised units.
(2) PETITION IN BANKRUPTCY:
On November 4, 1985, Flanigan's Enterprises, Inc., not including any of
its subsidiaries, filed a voluntary petition in the United States Bankruptcy
Court for the Southern District of Florida seeking to reorganize under Chapter
11 of the Federal Bankruptcy Code. Flanigan's was authorized to continue in the
management and control of its business and property as debtor-in-possession
under the Bankruptcy Code. On May 5, 1987, Flanigan's Plan of Reorganization, as
amended and modified (the "Plan"), was confirmed by the Bankruptcy Court. On
December 28, 1987, Flanigan's was officially discharged from bankruptcy.
The Bankruptcy Code allows the debtor-in-possession to either assume or
reject certain liabilities, leases, or other executory contracts subject to
court approval. Lessors or other parties to contracts which are rejected are
entitled to file claims for losses or damages sustained as a result of the
rejection. In fiscal 1986, Flanigan's recorded estimated damages of $4,278,000
for claims for losses as a result of rejected leases. Because the damage
payments were to be made over nine years, the total amount due was discounted at
a rate of 9.25%, Flanigan's then effective borrowing rate. During fiscal 1991
and 1992, Flanigan's renegotiated the payment of this obligation to extend
through fiscal 2002 which effectively reduced the discount rate to 3.71%.
Remaining liabilities for damage payments are included as "Damages Payable on
Terminated or Rejected Leases" in the accompanying consolidated balance sheets.
Based on the borrowing rates currently available to the Company for bank loans
with similar terms and average maturities, the fair value of damages payable on
terminated or rejected leases is approximately $1,250,000. The fair value of all
other financial instruments approximates the carrying value on the balance
sheets, due to their short-term nature or market rates of interest.
45
<PAGE>
As of September 28, 1996, damages payable on terminated or rejected
leases, including imputed interest, mature as follows:
<TABLE>
<CAPTION>
Fiscal Amount
------ ---------
<S> <C>
1997 $ 300,000
1998 300,000
1999 300,000
2000 300,000
2001 300,000
Thereafter 120,000
---------
$1,620,000
Less - Amount representing
interest (159,000)
----------
$1,461,000
==========
</TABLE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of Consolidation -
The consolidated financial statements include the accounts of
Flanigan's Enterprises, Inc. and its subsidiaries, all of which are wholly
owned. All significant intercompany transactions and balances have been
eliminated in consolidation. The Company's fiscal year ends on the Saturday
nearest September 30.
(b) Cash and Cash Equivalents -
The Company considers all highly liquid debt instruments with a
maturity of three months or less at the date of purchase to be cash equivalents.
(c) Inventories -
Inventories are stated at lower of cost (first in, first out) or
market.
(d) Liquor Licenses -
Liquor licenses purchased prior to October 30, 1970 (the date APB
Opinion No. 17 became effective), which totaled $145,000 at September 30, 1995
and September 28, 1996, are not amortized unless an impairment in value is
indicated. The cost of liquor licenses acquired subsequent to October 30, 1970,
is amortized over a period of 40 years.
46
<PAGE>
(e) Property and Equipment -
For financial reporting, the Company uses the straight-line method for
providing depreciation and amortization on property and equipment. Property and
equipment at September 30, 1995 and September 28, 1996, consisted of the
following:
<TABLE>
<CAPTION>
Useful
Lives 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Furniture and equipment ...... 3 -7 years $ 4,402,000 $ 4,548,000
Leasehold interests and
improvements ............... See below 4,815,000 4,595,000
----------- -----------
9,217,000 9,143,000
Less - accumulated
depreciation and
amortization ............... (6,445,000) (6,509,000)
----------- -----------
$ 2,772,000 $ 2,634,000
=========== ===========
</TABLE>
Leasehold interests are amortized over the minimum term of the lease.
Leasehold improvements are amortized over the life of the lease up to a maximum
of 10 years. If the locations are sold or abandoned before the end of the
amortization period, the unamortized cost is expensed.
(f) Investment in Joint Venture-
The equity method of accounting is used when the Company has a twenty
percent to fifty percent interest in other companies, joint ventures, and
partnerships, and can exercise significant influence. Under the equity method,
original investments are recorded at cost and adjusted by dividends and the
Company's share of undistributed earnings or losses.
(g) Accounting Pronouncements-
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation", which requires adoption in
fiscal 1997. SFAS No. 123 requires that the Company's financial statements
include certain disclosures about stock-based compensation and permits the
adoption of a change in accounting for such arrangements. Changes in accounting
for stock-based compensation are optional and the Company plans to adopt only
the disclosure requirements in fiscal 1997.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", which requires adoption in fiscal 1997. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets and
certain identifiable intangibles to be disposed. The Company believes the
adoption of SFAS No. 121 will not have a material effect on the Company's
financial condition or results of operations.
47
<PAGE>
(h) Use of Estimates in the Preparation of Financial Statements-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(i) Reclassifications-
Certain amounts in the fiscal 1995 financial statements have been
reclassified to conform to the current year presentation.
(4) INCOME TAXES:
The Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes", which requires among other things, recognition of
future tax benefits measured at enacted rates attributable to deductible
temporary differences between financial statement and income tax bases of assets
and liabilities and to tax net operating loss carryforwards to the extent that
realization of said benefits is more likely than not.
The components of the Company's provision for income taxes, which is
all current, for the fiscal years ended 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Federal ........................... $(4,000) $ 1,000
State ............................. 7,000 5,000
------- -------
$ 3,000 $ 6,000
======= =======
</TABLE>
A reconciliation of income taxes with the amounts at the statutory
federal rate follows:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Tax provision at the
statutory rate of 34% .................. $ 188,000 $ 269,000
State income taxes, net of
federal income tax benefit ............. 5,000 3,000
Benefit of operating loss
carryforward ........................... (130,000) (251,000)
Other .................................... (60,000) (15,000)
--------- ---------
$ 3,000 $ 6,000
========= =========
</TABLE>
48
<PAGE>
In fiscal 1991 and prior years the Company generated loss carryforwards
for both financial statement and tax purposes. At September 28, 1996, the
available tax loss carryforward is approximately $4,201,000 which expires
between 2002 and 2006.
In addition to net operating loss carryforwards, the Company has
deferred tax assets amounting to approximately $533,000 at September 28, 1996
which arise primarily due to depreciation recorded at different rates for tax
and book purposes, and capital leases, allowances for uncollectible amounts and
accruals for potential uninsured claims, all recorded for financial reporting
purposes but not recognized for tax purposes. Because realization of the total
amount of available net deferred tax assets, including net operating loss
carryforwards, is not "more likely than not", a valuation allowance has been
provided as follows:
<TABLE>
<CAPTION>
Deferred tax item
Tax Effect Tax Effect
1995 1996
----------- -----------
<S> <C> <C>
Book/tax differences in
property and equipment ................. $ 237,000 $ 275,000
Receivable allowances .................... 99,000 55,000
Leases, capitalized for books only ....... 93,000 86,000
Accruals for potential
uninsured claims ....................... 102,000 54,000
Discount on damages payable .............. (74,000) (54,000)
Other, net ............................... 99,000 117,000
Net operating loss carryforward,
tax effected ........................... 1,679,000 1,428,000
Valuation allowance ...................... (2,235,000) (1,961,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
(5) LEASES
The Company leases a substantial portion of the land and buildings used
in its operations under leases with initial terms expiring between 1996 and
2049. Renewal options are available on many of the leases. In certain instances,
lease rentals are subject to cost-of-living increases or fair market rental
appraisals and/or sales overrides. Certain properties are subleased through
various expiration dates.
Leased property under capital leases is amortized on a straight-line
basis over the lease term, and interest expense (which is based on the Company's
incremental borrowing rate at the inception of the lease) is accrued on the
basis of the outstanding capital lease obligation. Rentals relating to operating
leases are expensed currently.
49
<PAGE>
Future minimum lease payments under capital leases and noncancellable
operating leases, including leases under which the Company is contingently
liable, and noncancellable sublease income are as follows:
<TABLE>
<CAPTION>
Capital Operating Sublease
Leases Leases Income
--------- ----------- ---------
<S> <C> <C> <C>
1997 $ 118,000 $ 1,197,000 $ 758,000
1998 118,000 1,010,000 586,000
1999 109,000 871,000 653,000
2000 77,000 701,000 504,000
2001 55,000 269,000 326,000
Thereafter 265,000 2,160,000 1,669,000
--------- ---------- ----------
Total $ 742,000 $ 6,208,000 $4,496,000
========= =========
Less - Amount representing
interest (294,000)
---------
Present value of minimum
lease payments $ 448,000
=========
</TABLE>
Total rent expense for all operating leases (including those with an
initial term of less than one year and net of subleases) was $541,000 and
$634,000 in 1995 and 1996, respectively, and is included in "Occupancy costs" in
the accompanying consolidated statements of income.
Aggregate annual rentals under leases with related parties, net of
applicable sublease income, were approximately $396,000 in 1995 and $251,000 in
1996. Remaining rental commitments included in future minimum rental payments
required under these leases were approximately $827,000 as of September 28,
1996.
50
<PAGE>
(6) RECEIVABLES:
Receivables, net of deferred gains and allowances for uncollectible
amounts, consisted of the following as of September 30, 1995 and September 28,
1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Notes and mortgages receivable from unrelated parties, bearing interest
at rates ranging from 9% to 15% and due in varying installments
through 2002 $ 519,000 $ 365,000
Mortgages receivable from sales
of franchises to related parties,
bearing interest at rates ranging
from 9% to 15% 86,000 3,000
Various noninterest-bearing
receivables currently due 229,000 466,000
-------- --------
834,000 834,000
Less - Deferred gains (223,000) (109,000)
Allowance for
uncollectible amounts (291,000) (163,000)
-------- --------
320,000 562,000
Amount representing current portion 235,000 486,000
------- -------
$ 85,000 $ 76,000
========= =========
</TABLE>
The majority of the notes and mortgages receivable represent amounts
owed to the Company for store operations which were sold. Unless a significant
amount of cash is received on the sale, a pro rata portion of the gain is
deferred and recognized only as payments on the notes and mortgages are received
by the Company. Any losses on sales of stores are recognized currently. During
fiscal 1995 and 1996, $250,000 and $114,000, respectively, of deferred gains
were recognized on collections of such notes receivable.
Receivables at September 28, 1996 mature as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 756,000
1998 19,000
1999 9,000
2000 11,000
2001 9,000
Thereafter 30,000
----------
$ 834,000
==========
</TABLE>
51
<PAGE>
(7) ACCRUED AND OTHER CURRENT LIABILITIES:
Accrued and other current liabilities consisted of the following as of
September 30, 1995 and September 28, 1996:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Property taxes ........................... $110,000 $ 94,000
Salaries and wages ....................... 214,000 253,000
Franchisee advance funds ................. 82,000 67,000
Potential uninsured claims ............... 300,000 159,000
Other .................................... 159,000 247,000
-------- --------
$865,000 $820,000
======== ========
</TABLE>
Franchisee advance funds represent cash balances held by the Company on
behalf of franchisees (see Note 10) for inventory purchases to be made as part
of the Company-sponsored cooperative buying program.
(8) COMMITMENTS AND CONTINGENCIES:
Guarantees
The Company is contingently liable for annual rentals in the amount of
approximately $650,000 at September 28, 1996, for lease obligations in
connection with the assignment of leases on stores sold. In the event of default
under any of these agreements, the Company will have the right to repossess the
premises.
Employment Agreement
On June 3, 1987, the Company entered into an employment agreement with
the Chairman of the Board, which was ratified by the stockholders at the
Company's 1988 annual meeting. The agreement provides, among other things, for
annual compensation of $150,000, through December 31, 1996, renewable annually,
as well as a bonus based on the Company's cash flow, as defined. For the fiscal
years ended 1995 and 1996, no bonus was earned under the agreement. The
agreement further provides that in the event of termination, the Chairman of the
Board would be entitled to a maximum payment of $450,000.
The agreement also provides for the issuance of stock options to
purchase up to 93,092 shares of the Company's common stock. In December 1989,
the Chairman's option exercise prices were reduced from a range of $4.00 to
$4.125 to $.875, an exercise price in excess of the then fair market value of
the Company's common stock. In fiscal 1996, these options were exercised.
52
<PAGE>
During fiscal 1992, additional options to purchase up to 46,540 shares
were granted to the Chairman at an exercise price of $2.25 per share which
expire February 27, 1997. Exercise prices at the dates of grant equaled the then
fair market value of the Company's common stock; therefore, no related
compensation expense was recorded. On February 25, 1994, the Chairman's option
exercise prices on the additional options were increased from $2.25 to $6.50.
Key Employee Incentive Stock Option Plan
In December 1993, the Board of Directors approved a Key Employee
Incentive Stock Option Plan, which reserved and authorized the issuance of
100,000 shares of the Company's common stock to eligible employees.
During fiscal 1994, 52,000 stock options were granted at an exercise
price of $3.50 per share, which expire April 19, 1999. During fiscal 1996,
30,000 stock options were granted at an exercise price of $3.25 per share, which
expire December 21, 2000, and 18,000 stock options were granted at an exercise
price of $4.38, which expire March 14, 2001. Exercise prices at the date of
grant equaled or exceeded the fair market value of the Company's common stock;
therefore, no related compensation expense was recorded. No options were
exercised during fiscal 1994, 1995, or 1996.
Litigation
The Company is a party to various litigation matters incidental to its
business. Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company.
Certain states have "liquor liability" laws which allow a person
injured by an "intoxicated person" to bring a civil suit against the business
(or social host) who had served intoxicating liquors to an already "obviously
intoxicated person". The Company has general liability insurance which
incorporates a semi-self-insured plan under which the Company assumes the full
risk of the first $50,000 of exposure per occurrence. The Company's insurance
carrier is responsible for $1,000,000 coverage per occurrence above the
Company's self-insured deductible, up to a maximum aggregate of $2,000,000, per
year. The Company is self-insured against liability claims in excess of
$1,000,000. The extent of this coverage varies by year.
Certain liquor liability suits are still in the discovery stage, and
the potential liability to the Company has not been determined. The Company has
accrued for potential uninsured losses based on estimates received from legal
counsel and historical experience. Such accrual is included in "Accrued and
other current liabilities - potential uninsured claims".
53
<PAGE>
(9) LONG-TERM DEBT:
Long-term debt consisted of the following at September 30, 1995 and
September 28, 1996:
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Mortgage payable, bearing interest at
12%, paid in full during 1996 .............. $ 12,000 $ --
Note payable to former Vice-Chairman
of the Board, bearing interest
at 10%, paid in full during 1996 ........... 17,000 --
Other notes payable, bearing interest
at rates ranging from 7-1/4% to
10%, due in varying
installments through 1998 .................. 52,000 21,000
-------- --------
81,000 21,000
Less - Current portion ....................... (60,000) (16,000)
-------- --------
$ 21,000 $ 5,000
======== ========
</TABLE>
Long-term debt at September 28, 1996 matures as follows:
<TABLE>
<CAPTION>
Year Amount
---- ---------
<S> <C>
1997 $ 16,000
1998 4,000
1999 1,000
-------
$ 21,000
=======
</TABLE>
54
<PAGE>
(10) FRANCHISE PROGRAM:
At September 28, 1996, seven stores were operated under franchise
agreements. Under the franchise agreements, the Company agrees to provide
guidance, advice and management assistance to the franchisees. The Company also
agrees to sponsor and manage cooperative buying groups on behalf of the
franchisees for the purchase of inventory. The franchise agreements provide for
fees to the Company of approximately 3% of gross sales. Of the seven franchised
stores, four are owned or operated by related parties. When received, initial
franchise fees are deferred and recognized ratably as payments are received on
the related notes.
(11) DUE TO PENNSYLVANIA LIMITED PARTNERSHIP:
Through September 20, 1996, the Company operated a club in Pennsylvania
through a limited partnership (the "Partnership") in which the Company acted as
the general partner. The Partnership agreement provided the Company with
management fees of 49% of profit before depreciation and management fees, plus a
1% interest in the income of the Partnership. The Company recorded management
fee income related to this agreement of $77,000 and $66,000 in 1995 and 1996,
respectively, included as management fees from Pennsylvania limited partnership
in the accompanying consolidated statements of income.
On September 20, 1996, the Partnership's assets were sold for
approximately $500,000. Such proceeds were received by the Company. Accordingly,
the accompanying consolidated balance sheet at September 28, 1996 reflects a
liability of $430,000 which includes the limited partners' proceeds for the sale
of the Partnership's assets, the limited partners' distributions for 1996
operations, and a reserve for the Partnership's remaining liabilities.
Liabilities to the limited partners for distributions for 1995 operations are
$106,000. Liabilities to the limited partners of the Partnership as of fiscal
yearend 1995 and 1996, respectively, are included as due to Pennsylvania limited
partnership on the accompanying consolidated balance sheets. The Company
recognized a gain of $135,000 on the sale of the Partnership's assets; the gain
is included as gain on sale of Pennsylvania limited partnership in the
accompanying consolidated statements of income.
55
<PAGE>
(12) INCOME PER COMMON SHARE:
Net income per common share is calculated by dividing net income by the
weighted average number of shares and share equivalents outstanding.
<TABLE>
<CAPTION>
-------------------------------------------
1995 1996
------------------- -------------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 905,000 905,000 897,000 897,000
Incremental shares after
application of the treasury
stock method or modified
treasury stock method, as
applicable ...................... 16,000 23,000 87,000 89,000
------- ------- ------- -------
Shares used in calculation of
net income per common share ..... 921,000 928,000 984,000 986,000
======= ======= ======= =======
</TABLE>
(13) RELATED PARTY TRANSACTIONS:
In fiscal 1990, the Company's Chairman and a relative formed a
corporation to manage one of the Company's franchised stores. The corporation
continues to manage the franchised store.
During fiscal 1995 and 1996, the Company incurred legal fees of
approximately $89,000 and $96,000 (in salary), respectively, for services
provided by a member of the Board of Directors.
Also see Notes 5, 6, 9 and 10 for additional related party
transactions.
(14) BUSINESS SEGMENTS:
The Company operates principally in two segments - retail package
stores and restaurants (and lounges in 1995). The operation of package stores
consists of retail liquor sales. The restaurant and lounge operations include
bar sales from cocktail lounges and food sales.
Information concerning the revenues and operating income for the years
ended September 30, 1995 and September 28, 1996, and identifiable assets for the
two segments in which the Company operates, are shown in the following table.
Operating income is total revenue less cost of merchandise sold and operating
expenses relative to each segment. In computing operating income, none of the
following items have been included: interest expense, other non-operating income
and expense and income taxes. Identifiable assets by segment are those assets
that are used in the Company's operations in each segment. Corporate assets are
principally cash and notes and mortgages receivable. The Company does not have
any operations outside of the United States and intersegment transactions are
not material.
56
<PAGE>
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
OPERATING REVENUES:
Retail package stores ........... $ 4,845,000 $ 6,112,000
Restaurants and lounges ......... 12,851,000 13,042,000
Other revenues .................. 814,000 1,030,000
------------ ------------
Total operating revenues ................. $ 18,510,000 $ 20,184,000
============ ============
INCOME FROM OPERATIONS RECONCILED TO
INCOME BEFORE INCOME TAXES:
Operating income:
Retail package stores ........... $ 131,000 $ 303,000
Restaurants and lounges ......... 1,338,000 1,220,000
------------ ------------
1,469,000 1,523,000
Corporate expenses,
net of other revenues ......... (1,200,000) (1,070,000)
------------ ------------
Operating income ......................... 269,000 453,000
Interest expense ................ (149,000) (131,000)
Other ........................... 433,000 470,000
------------ ------------
Income before income taxes ............... $ 553,000 $ 792,000
============ ============
IDENTIFIABLE ASSETS:
Retail package stores ........... $ 1,515,000 $ 1,622,000
Restaurants and lounges ......... 2,429,000 2,260,000
------------ ------------
3,944,000 3,882,000
Corporate ....................... 1,920,000 2,427,000
------------ ------------
Consolidated totals ...................... $ 5,864,000 $ 6,309,000
============ ============
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
CAPITAL EXPENDITURES:
Retail package stores ............... $ 55,000 $199,000
Restaurants and lounges ............. 267,000 350,000
-------- --------
322,000 549,000
Corporate ........................... 26,000 64,000
-------- --------
Total capital expenditures ................... $348,000 $613,000
======== ========
DEPRECIATION AND AMORTIZATION:
Retail package stores ............... $ 84,000 $114,000
Restaurants and lounges ............. 457,000 428,000
-------- --------
541,000 542,000
Corporate ........................... 94,000 117,000
-------- --------
Total depreciation and amortization .......... $635,000 $659,000
======== ========
</TABLE>
(15) OTHER, NET:
Other, net in the consolidated statements of income consist of the
following for the years ended September 30, 1995 and September 28,
1996:
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Non-franchise related rental income .......... 71,000 32,000
Loss on retirement of fixed assets ........... -- (79,000)
(Loss) gain on repossession of store ......... (55,000) 50,000
Gain on sale of liquor licenses .............. 30,000 26,000
Insurance recovery ........................... -- 53,000
Miscellaneous ................................ -- 42,000
--------- ---------
$ 46,000 $ 124,000
========= =========
</TABLE>
58
<PAGE>
(16) SUBSEQUENT EVENTS:
Effective September 30, 1996, one franchised combination package store
and restaurant terminated its franchise agreement. The franchise was sold to a
related third party (the "First Purchaser"), with the Company's agreement to
manage the franchise for this related party. The management agreement was to
provide the Company with management fees equal to 50% of the franchise's cash
flow. Subsequent to the sale of the franchise, the Company accepted the offer of
another franchisee (the "Manager"), also a related party, to purchase the
Company's right to manage the franchise for the sum of $150,000. Additionally,
the Manager also purchased the franchise from the First Purchaser. (The Company
expects to record $150,000 of income in the first quarter of fiscal 1997, upon
the sale of the management rights.)
To raise capital for the renovations, a Florida limited partnership
will be formed, of which the Manager will be the general partner. The limited
partnership units will be sold as follows: 25% to Manager, 25% to the Company,
25% to related parties and 25% to unrelated parties. The Manager will receive a
management fee of 50% of the franchise's cash flow. The Company will account for
this investment under the equity method of accounting.
59
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 28, 1996
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
Balance at Charged to Balance at
Beginning Cost and Amounts End of
Description of Period Expenses Written off Period
----------- --------- -------- ----------- ------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED SEPTEMBER 30, 1995
Allowance for uncollectible
notes and mortgages receivable $ 452,000 $ 97,000 $(258,000) $ 291,000
========= ========= ========= =========
FOR THE YEAR ENDED SEPTEMBER 28, 1996
Allowance for uncollectible
notes and mortgages receivable $ 291,000 $ 104,000 $(232,000) $ 163,000
========= ========= ========= =========
</TABLE>
60
<PAGE>
FLANIGAN'S [GRAPHIC-LOGO]
ENTERPRISES, INC.
VIA TELECOPY
November 4, 1996
Mr. James B. Flanigan
1309 Arrowmink road
Villanova, Pennsylvania 19085
Re: Servicemark "FLANIGAN'S"
Dear Jim:
I am in receipt of your letter of October 10, 1996, in response to my letter of
September 26, 1996, concerning your use of the servicemark "Flanigan's" in the
Commonwealth of Pennsylvania. I am glad that you wish to amicably resolve this
dispute and hopefully, with this letter, this matter can be laid to rest.
As suggested in my letter of September 26, 1996, and especially in view of your
request for a computer disk with Flanigan's operating manual, it is adivsable
for us to memorialize our existing oral agreement with regard to your use of the
servicemark "Flanigan's".
Flanigan's Enterprises, Inc. ("Flanigan's"), has granted you, personally, a
royalty free, non exclusive license to use the servicemark "Flanigan's" in
connection with restaurant services at various locations in the Commonwealth of
Pennsylvania. For purposes of this oral agreement, any reference to "you,
personally", includes any proprietorship, corporation, general or limited
partnership or other entity in which you are an owner and in which you, together
with your wife, Margaret, and/or your daughters, Eileen and Rita, own no less
than fifty-one (51%) percent of such business. In furtherance of our oral
agreement, you are required to maintain certain minimum standards of quality,
which you have maintained and will continue to do so in the future.
In the connection with this license, Flanigan's has provided you with various
materials, whiich have been and will continue to be followed to assure that your
services are of good quality. Specifically, Flanigan's has provided you with its
operational manuals, so that Flanigan's can be assured that you will achieve and
continue achieving the high standards of quality and service offered by
Flanigan's.
Additionally, based upon Joe's knowledge of your good business practices and the
fact that you and Joe are family, I am certain that you have and will maintain
the high standards of quality and service that are associated with the
servicemark "Flanigan's".
2841 West Cypress Creek Road - Fort Lauderdale, Florida 33309
Broward: (305) 974-9003 - Fax (305) 974-2940
<PAGE>
Mr. James B. Flanigan
November 4, 1996
Page 2.
I trust that this letter accurately sets forth Flanigan's agreement for you to
use the servicemark "Flanigan's" in connection with your restaurant services in
the Commonwealth of Pennsylvania, as previously discussed with Joe. Should you
have any questions concerning the oral agreement set forth herein, please do not
hesitate to give me a call to discuss the same. If you are in agreement with the
terms set forth herein, please acknowledge your agreement by signing in the
space provided below and returning a copy of this letter to my attention via
telecopy, with the original by U.S. mail. Please note that in the
acknowledgement you need to list the corporations using the servicemark
"Flanigan's" and that when you sign the acknowledgement, you are signing for
yourself, personally, and as a corporate officer and/or director of each
corporation listed, thereby binding each corporation to the terms hereof.
Very truly yours,
FLANIGAN'S ENTERPRISES, INC.
/s/Jeffrey D. Kastner
- ---------------------
Jeffrey D. Kastner
General coulsel
JDK/lfk
cc: Joseph G. Flanigan, Chairman
Mary C. Reymann, Vice President
Ed Doxey, Treasurer
CONTENTS HEREOF acknowledged and agreed to:
/s/JAMES B. FLANIGAN
- --------------------
JAMES B. FLANIGAN, individually and as
officer and/or director of the following corporations:
Boathouse, Inc.
- ---------------
Boathouse Too, Inc.
- -------------------
Boathouse Three-Inc.
- --------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 797,000
<SECURITIES> 0
<RECEIVABLES> 486,000
<ALLOWANCES> 395,000
<INVENTORY> 911,000
<CURRENT-ASSETS> 2,522,000
<PP&E> 3,293,000
<DEPRECIATION> (659,000)
<TOTAL-ASSETS> 6,309,000
<CURRENT-LIABILITIES> 2,158,000
<BONDS> 1,604,000
0
0
<COMMON> 210,000
<OTHER-SE> 2,377,000
<TOTAL-LIABILITY-AND-EQUITY> 6,309,000
<SALES> 19,154,000
<TOTAL-REVENUES> 20,184,000
<CGS> 9,426,000
<TOTAL-COSTS> 10,305,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 104,000
<INTEREST-EXPENSE> 131,000
<INCOME-PRETAX> 792,000
<INCOME-TAX> 6,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 786,000
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
