UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 29, 1996
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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
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Flanigan's Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-0877638
- ------------------------------- -------------------
(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
--------------------
NA
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(Former name, address and fiscal year, if changed since last report)
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuers classes of
Common Stock as of the latest practicable date 907,378
----------------------------
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
June 29, 1996
PART I. FINANCIAL INFORMATION
1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
Consolidated Summary of Earnings -- For the Thirteen Weeks and
the Thirty-Nine weeks ended July 1, 1995 and June 29, 1996
Consolidated Balance Sheets -- as of September 30, 1995 and
June 29, 1996
Consolidated Statements of Cash Flows for the Thirty-Nine
Weeks Ended July 1, 1995 and June 29, 1996
Notes to Consolidated Financial Statements
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION AND SIGNATURES:
6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
<PAGE>
FLANIGAN'S ENTERPRISES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
July 1, June 29, July 1, June 29,
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Restaurant food sales ......................................... $ 2,240 $ 2,398 $ 6,857 $ 7,334
Restaurant bar sales .......................................... 803 767 2,529 2,514
Non-restaurant bar sales ...................................... 109 0 364 234
Package goods sales ........................................... 1,063 1,391 3,824 4,823
Franchise related revenues .................................... 112 153 352 472
Owners fee .................................................... 38 37 113 112
Other operating income ........................................ 49 37 145 127
-------- -------- -------- --------
4,414 4,783 14,184 15,616
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of merchandise sold restaurant and lounges ............... 1,184 1,200 3,653 3,782
Cost of merchandise sold package goods ........................ 773 1,045 2,833 3,563
Payroll and related costs ..................................... 1,302 1,357 3,863 4,252
Occupancy costs ............................................... 247 236 580 729
Selling, general and administrative expenses .................. 917 956 2,963 2,945
-------- -------- -------- --------
4,423 4,794 13,892 15,271
-------- -------- -------- --------
Income (loss) from operations .............................. (9) (11) 292 345
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense on obligations under capital leases .......... (23) (15) (69) (46)
Interest expense on long-term debt and damages payable ........ (19) (13) (63) (47)
Gain on sale of assets ........................................ (5) (1) -- --
Interest income ............................................... 19 6 46 25
Management fees from Pennsylvania limited partnership ......... 6 28 94 96
Recovery of amounts previously written off .................... -- -- -- --
Recognition of deferred gains ................................. 27 11 95 113
Other net ..................................................... 65 86 101 154
-------- -------- -------- --------
70 102 204 295
-------- -------- -------- --------
Income before income taxes .................................... 61 91 496 640
</TABLE>
(continued)
<PAGE>
FLANIGAN'S ENTERPRISES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands)
(Continued)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
July 1, June 29, July 1, June 29,
1995 1996 1995 1996
------- ------- ------- ----
<S> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES ....................... $ -- $ -- $ -- $--
------- ------- ------- ----
Net income ....................................... $ 61 $ 91 $ 496 $640
======= ======= ======= ====
NET INCOME PER COMMON SHARE:
Primary .......................................... $ .07 $ .09 $ .54 $.65
======= ======= ======= ====
Fully Diluted .................................... $ .07 $ .09 $ .54 $.65
======= ======= ======= ====
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Primary .......................................... 891 985 918 985
======= ======= ======= ====
Fully Diluted .................................... 891 989 918 989
======= ======= ======= ====
</TABLE>
Certain fiscal 1995 items have been reclassified to conform to the
fiscal 1996 presentation. See accompanying notes to consolidated
financial statements
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND JUNE 29, 1996
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 29,
1995 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents including ........................................................ $ 686,000 $ 927,000
Receivables, including current portion
of notes, and mortgages, less allowance for uncollectible amounts of
and deferred gaind, including related party receivables of $90,000
and $3,000 (before allowances and deferred gains)
in 1995 and 1996, respectively ...................................................... 235,000 180,000
Inventories, at lower of cost (first-
in, first out) or market ............................................................ 824,000 1,009,000
Prepaid expenses ...................................................................... 373,000 463,000
---------- ----------
Total current assets .................................................................. 2,118,000 2,579,000
---------- ----------
PROPERTY AND EQUIPMENT, net .................................................................... 2,772,000 2,514,000
---------- ----------
LEASED PROPERTY UNDER CAPITAL LEASES,
less accumulated amortization of
$831,000 and $766,000 in 1995
and 1996 respectively ................................................................. 227,000 203,000
---------- ----------
OTHER ASSETS:
Liquor licenses, less accumulated
amortization of $95,000 in 1995 and
$100,000 in 1996, respectively ...................................................... 338,000 383,000
Notes and mortgages receivable, less
allowance for uncollectible amounts and deferred gains, and including
related party receivables of $14,000 and $0 (before allowances and
deferred gains)
in 1995 and 1996 respectively ....................................................... 85,000 7,000
Other ................................................................................. 324,000 523,000
---------- ----------
Total other assets .................................................................... 747,000 913,000
---------- ----------
$5,864,000 $6,209,000
========== ==========
</TABLE>
(continued)
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND JUNE 29, 1996
LIABILITIES AND STOCKHOLDER'S INVESTMENT (DEFICIT)
(continued)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 29,
1995 1996
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable .............................. $ 756,000 $ 881,000
Accrued and other current liabilities ..... 865,000 824,000
Current portion of long-term debt ......... 60,000 16,000
Current obligations under capital
leases .................................. 54,000 54,000
Current portion of damages payable on
terminated or rejected leases
and other bankruptcy liabilities ........ 240,000 250,000
Due to Pennsylvania
limited partnership ..................... 106,000 96,000
---------- ----------
Total current liabilities ................. 2,081,000 2,121,000
---------- ----------
LONG TERM DEBT, net of current
portion ................................. 21,000 9,000
---------- ----------
OBLIGATIONS UNDER CAPITAL LEASES,
net of current portion .................. 448,000 406,000
---------- ----------
DAMAGES PAYABLE ON TERMINATED OR
REJECTED LEASES AND OTHER
BANKRUPTCY LIABILITIES,
net of current portion .................... 1,462,000 1,273,000
---------- ----------
</TABLE>
(continued)
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND JUNE 29, 1996
LIABILITIES AND STOCKHOLDER'S INVESTMENT (DEFICIT)
(continued)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 29,
1995 1996
<S> <C> <C>
STOCKHOLDERS' INVESTMENT (DEFICIT)
Common stock, par value $.10
authorized 5,000,000 shares,
issued 2,099,000 shares ............... $ 210,000 $ 210,000
Capital in excess of par value .......... 6,685,000 6,685,000
Retained earnings (deficit) ............. (33,000) 607,000
Less - Treasury stock, at cost,
1,225,000 shares and 1,192,000
shares in 1995 and 1996 respectively .. (5,010,000) (5,102,000)
----------- -----------
1,852,000 2,400,000
----------- -----------
$ 5,864,000 $ 6,209,000
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED
JULY 1, 1995 AND JUNE 29, 1996
(In Thousands)
<TABLE>
<CAPTION>
JULY 1, JUNE 29,
1995 1996
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................... $ 496 $ 640
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization
of property, equipment and
capital leases ....................... 488 457
Amortization of liquor licenses ........ 7 5
Recognition of deferred gains
and other deferred income ............ (95) (113)
Accrual for potential
uninsured claims ..................... 90 --
Provision for uncollectible notes
and mortgages receivable ............. 125 105
Reversal of allowance for
uncollectible notes and
mortgages receivable ................. (122) --
Changes in assets and liabilities:
Decrease in receivables ................ 13 55
Increase in inventories ................ (102) (185)
Increase in prepaid expenses ........... (144) (90)
Increase in other assets ............... 9 (199)
Increase in accounts payable ........... (264) 125
Decrease in accrued liabilities ........ (311) (41)
----- -----
Net cash provided by (used in)
operating activities ................. 190 759
----- -----
</TABLE>
(continued)
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED
JULY 1, 1995 AND JUNE 29, 1996
(In Thousands)
<TABLE>
<CAPTION>
JULY 1, JUNE 29,
1995 1996
----- -----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property
and equipment ............................. $ 14 $--
Sale of liquor license ...................... 20 --
Collections on notes and
mortgages receivable ...................... 61 282
Additions to notes and
mortgages receivable ...................... (33) (196)
Disposal of property and equipment .......... -- 68
Additions to property and equipment ......... (174) (243)
Change in due to Pennsylvania
limited partnership ....................... (66) (10)
Aquisition of liquor licenses ............... -- (50)
----- -----
Net cash used in
investing activities ...................... (178) (149)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt ................. 426 --
Payments of long-term debt .................. (380) (56)
Payments of obligations under
capital leases ............................ (93) (42)
Payments of damages payable ................. (173) (179)
Purchase of treasury stock .................. (176) (173)
Sale of treasury stock ...................... -- 81
----- -----
Net cash provided by (used in)
financing activities ...................... (396) (369)
----- -----
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS ............................. (384) 241
CASH AND EQUIVALENTS, BEGINNING OF YEAR .............. 868 686
----- -----
CASH AND EQUIVALENTS, END OF QUARTER ................. $ 484 $ 927
===== =====
</TABLE>
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996
(1) PETITION IN BANKRUPTCY:
On November 4, 1985, Flanigan's Enterprises, Inc. (Flanigan's), 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. In fiscal 1986,
Flanigan's recorded 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%. Certain other bankruptcy-related liabilities
including excise and property taxes, settlements and past rents, were fixed as
to amount and repayment terms in Flanigan's Plan of Reorganization, as amended
and modified (Plan). On May 5, 1987, the Plan was confirmed by the Bankruptcy
Court and on December 28, 1987, Flanigan's was officially discharged from
bankruptcy. All liabilities under the Plan have been properly accrued and
classified in the accompanying consolidated financial statements.
(2) ADJUSTMENTS:
The financial information presented as of any date other than September
30, 1995 has been prepared from the books and records without audit. Financial
information as of September 30, 1995 has been derived from the audited financial
statements of the Company, but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods indicated have
been included. For further information regarding the Company's accounting
policies, refer to the Consolidated Financial Statements and related notes
included in the Company's Annual Report on Form 10-KSB for the year ended
September 30, 1995.
(3) Reclassification
Certain amounts in the fiscal 1995 financial statements have been
reclassified to conform to the fiscal 1996 presentation.
(4) FRANCHISE PROGRAM:
At September 30, 1995, nine units were operated under Franchise
Agreements, while at June 29, 1996, eight units were operated under Franchise
Agreements. During the first quarter of fiscal 1996, one franchisee exercised
the thirty day cancellation clause under the original 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. In addition, during the same fiscal quarter, 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. This franchisee will continue
operating its package liquor store under a new Franchise Agreement with the
<PAGE>
Company which includes a license to use the servicemark "Big Daddy's Liquors"
only. During the fiscal quarter, this franchisee notified the Company of its
intent to terminate the new Franchise Agreement and return the franchised unit,
including restaurant, to the Company effective September 29, 1996.
At September 30, 1995 there were four franchised units operating under
the Company's original Franchise Agreement, while at June 29, 1996, there was
only one franchised unit operating under the original Franchise Agreement. While
the original Franchise Agreement was prepared for the operation of a lounge, the
new Franchise Agreement, which was drafted jointly with existing franchisees,
was prepared for the operation of a restaurant and provides the Company with the
ability to maintain a high level of food quality and service at its franchised
restaurants. Under either Franchise Agreement, the Company agrees to provide
guidance, advice and management assistance to the franchisee. The Company also
agrees to sponsor and manage cooperative buying groups on behalf of the
franchisees for the purchase of inventory. Under the original Franchise
Agreement, the Company received fees of 2-1/2% to 3% of gross sales, while under
the new Franchise Agreement, the Company receives fees of 4-1/2% to 6% of gross
sales, including contributions to advertising. Of the eight franchised units,
five are owned or operated by related parties.
(5) 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.
(6) COMMITMENTS AND CONTINGENCIES:
Guarantees
The Company has guaranteed approximately $150,000 of notes and
mortgages to lenders in connection with sales of stores to outside parties. In
addition, the Company is contingently liable for annual rentals in the amount of
approximately $777,000 at September 30, 1995, 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.
During fiscal 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. 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 agreed to review financial
records of the assignee each year to see if the profit-ability 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),
<PAGE>
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 liquor
package 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 liquor package store. As the 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 are immediately 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. From May
1, 1995 through February 1, 1996, the Company paid an additional one half
month's rent to the sublessors along with current monthly rent to satisfy all
rental arrearages. The Company continues to operate the liquor package store and
anticipates doing so throughout the litigation and after acquiring ownership
thereof through the litigation. The obligations of the assignee are secured by
the personal guarantee of a principal of the assignee and cross collateralized
with the assets of an entity affiliated with the assignee, which is discussed
below.
During fiscal year 1996, the Company has operated the liquor package
store at a significant loss. In an effort to reduce these losses, the Company
extended an offer to each sublessor of this location to purchase his or her
interest in the same. As of the end of the third fiscal quarter, sublessors
representing ownership of twenty eight (28%) percent of the Sublease Agreement
for this location had accepted the Company's offer.
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 eviction
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's
guarantee of the lease for this store expires on August 10, 1997. The Company
tried to operate this store as a restaurant under its "Flanigan's Cafe" concept,
but it was not possible to operate it up to the same standards of the Company's
other restaurants, so the unit was closed during the third quarter of fiscal
1996. Subsequent to the end of the third fiscal 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
should occur prior to the close of the fiscal year, the Company's lease for this
store will be vacated.
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 the fiscal year 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. The obligations of the assignee are secured by the assets of the
assignee, the personal guarantee of a principal of the assignee and cross
collateralized with the assets of an entity affiliated with the assignee, which
is discussed above. During the first quarter of fiscal 1996, the Company filed
<PAGE>
suit against the assignee to recoup funds paid as guarantor of the lease and to
foreclose its security interest in the assets of the assignee.
During the third fiscal quarter, the Company concluded its action to
foreclose its security interest in the assets of the assignee and acquired
ownership of the same at the foreclosure sale. The value of the assets, which
included a quota liquor license only, exceeded the amount of the Company's Final
Judgment, thereby extinguishing the assignee's obligation to the Company, At the
same time, the cross collateralization of the assets of this assignee to secure
the obligations of an entity affiliated with the same, which is discussed above,
became moot, as this assignee no longer has any assets.
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 the first quarter of fiscal 1996, the
Company, without admitting any wrongdoing, settled the claim on terms which do
not have a materially adverse impact upon the Company's financial position.
Subsequent to the end of fiscal year 1995, two claims were filed
against the Company with the Equal Employment Opportunity Commission alleging
sexual discrimination. In the first claim, a former employee alleges that the
Company permitted sexual harassment to continue at one of its restaurants, while
in the second claim, a former employee alleges that her position with the
Company was terminated due to her pregnancy. The Company, after learning of the
first complaint, transferred the employee to another store in the same capacity
of assistant manager, but after about one month, the employee quit and continues
to pursue her claim. The second claimant was offered and accepted reinstatement.
While the second claimant continues to work, this does not preclude her from
pursuing her claim for damages for the period that she was unemployed. The
Company disputes both claims and is vigorously defending the same.
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 1994 and 1995 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 provided for the issuance of stock options to
purchase up to 93,092 shares of the Company's stock. On December 12, 1989, the
Chairman's option exercise prices were reduced from a range of $4.00 to $4.125
to $.875, 110% of the then fair market value of the Company's common stock. At
September 30, 1995, options to purchase 93,092 shares of common stock at an
exercise price of $.875 per share were outstanding, which would have expired
December 31, 1995. During the first quarter of fiscal year 1996, the Chairman
exercised all of his stock options under the agreement and purchased 93,092
shares of the Company's common stock.
During fiscal 1992, options to purchase up to 46,540 shares were
granted at an exercise price of $2.25 per share which expire February 27, 1997.
Exercise prices at the dates of grant equaled the fair market value of the
Company's common stock, therefore no related compensation was recorded. By
written resolution, dated January 12, 1994, the Board of Directors approved an
amendment to the stock option, increasing the option exercise price to $6.50 per
share, which reflects in excess of 110% of the then fair market value of the
<PAGE>
Company's common stock. The expiration date of the stock option was also
extended through February 27, 2002. This action was approved by the stockholders
at the Company's 1994 Annual Meeting.
The Company currently provides no post retirement benefits to any of
its employees.
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 the first quarter
of fiscal year 1996, an additional 30,000 stock options were granted at an
exercise price of $3.25 per share which expire December 21, 2000. During the
second quarter of fiscal 1996, 18,000 more stock options were granted at an
exercise price of $4.375 per share which expire March 13, 2001. Exercise prices
at the date of grant 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", known as "dram shop" claims. The Company is generally
self-insured for liability claims, with major losses partially covered by
third-party insurance carriers. The extent of this coverage varies by year.
During the second quarter of fiscal year 1996, the Company settled the
two dram shop cases filed against the Company in Florida in fiscal years 1994
and 1995, respectively, arising out of an automobile accident in which two
individuals died and a third was seriously injured. The settlement of these two
cases was within the Company's insurance coverage and therefore had no adverse
material impact upon the Company's financial position. With the settlement of
these two dram shop cases, the Company continues to defend one remaining
uninsured dram shop case against one of the limited partnerships in Pennsylvania
and the Company as general partner. See Note 6 in the Company's Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1995,
The Company has accrued for potential uninsured losses based on
estimates received from legal counsel and its historical experience. Such
accrual is included in the "Accrued and other liabilities - potential uninsured
claims". See Note 6 in the Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1995,
Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
At July 1, 1995, the Company was operating 15 units and had interests
in an additional eight units which had been franchised by the Company. At fiscal
yearend 1995, the Company was operating 15 units and had interests in an
additional nine units which had been franchised by the Company.
<PAGE>
During the first quarter of fiscal 1996 one franchisee exercised the
thirty day cancellation clause under the Franchise Agreement and returned its
franchised unit to the Company, which the Company is operating as a "Big
Daddy's" package store. The Company also 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.
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. Also during the second quarter the Company closed its last two
lounges at combination package and lounge units, but continues to operate the
package stores. It is for that reason that the Company has no non-restaurant bar
sales for the fiscal quarter and does not anticipate having any in the immediate
future. Bar business, without an accompanying restaurant, continues to decline
to the point of being unprofitable. The Company can not foresee this trend
reversing and the two units are not suitable for conversion to restaurants.
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. Subsequent to the end of the third fiscal 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 should occur prior to the close of the fiscal year, the
Company's lease for this store will be vacated. This brings the total number of
stores operated by the Company at June 29, 1996 to 15 with an interest in eight
franchised units.
<PAGE>
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows through
the first nine months of fiscal years 1995 and 1996.
<TABLE>
<CAPTION>
Nine months ended
---------------------
July 1, June 29,
1995 1996
----- -----
(in thousands)
<S> <C> <C>
Net cash provided by
operating activities ........................... $ 190 $ 759
Net cash used in
investing activities ............................ (178) (149)
Net cash used in
financing activities ............................ (396) (369)
----- -----
Net increase (decrease) in cash
and cash equivalents ........................... (384) 241
Cash and cash equivalents:
Beginning of period ............................ 868 686
----- -----
End of period .................................. $ 484 $ 927
===== =====
</TABLE>
Adjustments to net income to reconcile to cash flows from operating
activities at the end of the third quarter of fiscal year 1995 include the
provision for $125,000 of allowances for uncollectible notes and mortgages
receivable, $90,000 in accruals for potential uninsured claims and the
recognition of $95,000 in deferred gain.
Adjustments to net income to reconcile to cash flows from operating
activities at the end of the third quarter of fiscal year 1996 include a
provision for uncollectible notes and mortgages of $105,000 and the recognition
of $113,000 in deferred gain.
Improvements
The Company had additions to fixed assets of $243,000 during the nine
months ended June 29, 1996 compared to $174,000 for the same period last year
and $348,000 for the year ended September 30, 1995 The additions were for the
continuation of the program to upgrade existing units serving food, improvements
to package stores, upgrading the corporate computer system and other
improvements. Except as otherwise noted all of the funds for additions came from
operations.
All of the Company's units require periodic refurbishing in order to
remain competitive. During fiscal 1992, as cash flow improved, the Company
embarked upon a refurbishing program which continued through fiscal 1995. The
budget for fiscal 1996 includes $300,000 for this program. The Company believes
that improved operations will provide the cash to continue the refurbishing
program.
<PAGE>
Working Capital
The table below summarizes the current assets, current liabilities and
working capital for the quarters ended July 1, 1995 and June 29, 1996 and for
the fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
July June September
Item 1, 1995 29, 1996 30, 1995
---- ------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current assets .................... $2,145 $2,579 $2,118
Current liabilities ............... 1,864 2,121 2,081
------ ------ ------
Working capital ................... 281 458 37
</TABLE>
As noted in Note 1 to the consolidated statements above, during fiscal
1991 and 1992, the Company extended the payment schedule under the Plan for
damages as a result of rejected leases through fiscal 2002 thereby reducing the
payments from $500,000 per year to $200,000 per year for two years (fiscal 1991
and 1992), and thereafter to $300,000 per year until paid, but without reducing
the total amount of bankruptcy damages.
Bankruptcy Proceedings
As noted above and in Note 1 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 to reject
leases which were significantly above market rates and to reject leases on
closed units which had been repossessed by or returned to the Company. During
the bankruptcy proceedings, the Company terminated or rejected 34 leases and
renegotiated many of its remaining leases. As a result of the rejection of
leases, the Company agreed to bankruptcy damages of $4,278,000 to the landlords
of such rejected leases, payable pursuant to the Company's Plan. The Plan was
approved by the Bankruptcy Court on May 5, 1987 and the Company was officially
discharged from bankruptcy on December 28, 1987. See Item 3 and Item 7 of Part I
of the Company's Annual Report on Form 10-KSB for the year ended September 30,
1995 for further discussion of the Company's bankruptcy proceedings. See Note 1
to the consolidated financial statements of the Annual Report on Form 10-KSB for
the year ended September 30, 1995 for the current payment schedule of bankruptcy
damages.
Other Legal Matters
In addition to the above, see "Litigation" on page 14 of this Report
and see Item 3 and Item 7 to Part I of the Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1995 for a discussion of other legal proceedings
resolved in prior years.
<PAGE>
Results of Operation
<TABLE>
<CAPTION>
REVENUES:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Sales July 1, 1995 June 29, 1996 July 1, 1995 June 29, 1996
- ----- ----------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restaurant, food ................... $ 2,240 53.1% $ 2,398 52.6% $ 6,849 50.4% $ 7,334 49.2%
Restaurant, bar .................... 803 19.0% 767 16.8% 2,529 18.6% 2,514 16.7%
Non-Restaurant, bar ................ 109 2.7% -- - % 364 2.8% 234 1.7%
Package goods ...................... 1,063 25.2% 1,391 30.6% 3,832 28.2% 4,823 32.4%
------- ----- ------ ------ ------ ----- ------- -----
Total .............................. 4,215 100 % 4,556 100 % 13,574 100 % 14,905 100 %
Franchise revenues ................. 112 153 352 472
Owner's fee ........................ 38 37 113 112
Other operating income ............. 49 37 145 127
Total revenues ..................... $ 4,414 $ 4,783 $14,184 $15,616
</TABLE>
As the table above illustrates, total revenues have increased for the
quarter and the thirty-nine weeks ended June 29, 1996 when compared to the same
periods in fiscal year 1995.
The increases are primarily in restaurant food sales, package sales and
franchise related revenue.
As previously discussed on page 15, 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. Also during the second quarter
the Company closed its last two lounges at combination package and lounge units,
but continues to operate the package stores. Bar business, without an
accompanying restaurant, continues to decline to the point of being
unprofitable. 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 no non-restaurant bar sales being shown for the third quarter.
Restaurant food sales represented 53.1% and 50.4% of total sales in the
thirteen and thirty-nine weeks ended July 1, 1995 as compared to 52.6% and 49.2%
in the comparable periods of fiscal 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 $171,443
and $180,867 for the thirty-nine week period of fiscal years 1995 and 1996
respectively, an increase of 5.5 percent.
The same store weekly average for restaurant bar sales was $64,847 for
the thirty-nine week period of fiscal 1995 compared to $62,270 for the same
period of the current fiscal year, a decrease of 4.0%.
The Company's emphasis during the past few years has been towards
increasing its food sales, which caters to a family oriented business. This
accounts for the increased weekly average of same store food sales, as well as
for the decrease in weekly average for 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 $98,068 for the thirty-nine weeks of
fiscal 1995 to $107,268 for the thirty-nine weeks of fiscal 1996, an increase of
9.3 percent. The improvement in package goods sales is attributed to three
<PAGE>
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 34.1 percent increase for the
thirty-nine week period of fiscal 1996 as compared to the same period of fiscal
1995. This increase is a result of the new royalty fees that were introduced
with the new Franchise Agreement that was discussed in the second paragraph on
page eleven.
Owner's fee represents fees received pursuant to a management agreement
for the operation of a club owned by the Company in Atlanta, Georgia.
The gross profit margin for restaurant and lounge sales remained level
at 62.5% for the first nine months of fiscal years 1995 and 1996 respectively.
The gross profit margin for package goods sales during the thirty-nine
weeks ended July 1, 1995 and June 29, 1996 were 25.9% and 26.1% respectively.
Overall gross profits were 52.2% for the nine months ended July 1, 1995
compared to 50.7% for the same period in fiscal 1996. The decrease of 1.5% is a
result of a lower ratio of restaurant sales to total sales.
Operating Costs and Expenses
All discussion below of operating costs, payroll costs and occupancy
costs for the thirty-nine weeks ended June 29, 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 thirty-nine weeks ended July 1,
1995 were $13,892,000 compared to $15,271,000 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 $3,863,000 and $4,252,000 for the first nine months of fiscal
years 1995 and 1996 respectively, an increase of $389,000. 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 will be offset by an equivalent reduction in
legal expense.
Occupancy costs, which include rent, common area maintenance, repairs
and taxes were $580,000 and $729,000 for the first nine months of fiscal years
1995 and 1996 respectively, with the increase of $149,000 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 $2,963,000 for the
thirty-nine weeks ended July 1, 1995 and $2,945,000 for the thirty-nine weeks
ended June 29, 1996, a decrease of $18,000 overall. As discussed previously, the
Company has two additional units this fiscal year that it did not have in fiscal
year 1995. The expenses for these two units add up to $271,000. If the total
expenses for the first nine months of fiscal year 1996 were adjusted by these
added expenses, the comparison to fiscal year 1995 would indicate that
<PAGE>
management has been able to accomplish a net decrease in selling, general and
administrative expenses, primarily in promotions, utilities and telephone.
Other Income and Expense
The decline of $16,000 in interest expense on long-term debt which was
$47,000 and $63,000 for the thirty-nine weeks of fiscal 1995 and 1996
respectively, is attributed to the reduction of long-term debt. The decline of
$23,000 in interest expense on obligations under capital leases which was
$69,000 and $46,000 for the third quarter of fiscal 1995 and 1996 respectively
is the result of the expiration of a capital lease late in fiscal year 1995.
Management fees from the Pennsylvania limited partnership were $94,000
and $96,000 for the nine months ended July 1, 1995 and June 29, 1996
respectively.
Other net was $99,000 for the thirty-nine weeks of fiscal 1995 and
$151,000 for the thirty-nine weeks of fiscal year 1996. Other net in the
consolidated statements of income consist of the following for the nine months
ended July 1, 1995 and June 29, 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Non-franchise related rental income .......... 66,000 25,000
Loss on retirement of fixed assets ........... (5,000) (67,000)
Gain on sale of liquor licenses .............. 30,000 --
Gain on acquisition of licenses .............. -- 50,000
Gain on investments .......................... -- 45,000
Food rebates ................................. 8,000 23,000
Insurance recovery ........................... -- 52,000
Other, net ................................... -- 23,000
--------- ---------
$ 99,000 $ 151,000
========= =========
</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.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None
b. Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The information furnished reflects all
adjustments to the statement of the results for the interim periods.
FLANIGAN'S ENTERPRISES, INC.
/s/Joseph G. Flanigan
-------------------------------------------
JOSEPH G. FLANIGAN, Chief Executive Officer
Date 8/13/1996
/s/Mary C. Reymann
-------------------------------------------
MARY C. REYMANN, Chief Financial Officer
Date 8/13/1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-29-1996
<CASH> 927,000
<SECURITIES> 0
<RECEIVABLES> 539,000
<ALLOWANCES> (358,000)
<INVENTORY> 1,009,000
<CURRENT-ASSETS> 2,579,000
<PP&E> 9,244,000
<DEPRECIATION> (6,730,000)
<TOTAL-ASSETS> 6,209,000
<CURRENT-LIABILITIES> 2,121,000
<BONDS> 9,000
0
0
<COMMON> 210,000
<OTHER-SE> 2,190,000
<TOTAL-LIABILITY-AND-EQUITY> 6,209,000
<SALES> 14,905,000
<TOTAL-REVENUES> 1,516,000
<CGS> 7,345,000
<TOTAL-COSTS> 7,926,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 105,000
<INTEREST-EXPENSE> 93,000
<INCOME-PRETAX> 640,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 640,000
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
