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 December 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.
(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
------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (305) 974-9003
--------------------
NA
--------------------------------------------------------------------
(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 907,000
----------------------------
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
December 28, 1996
PART I. FINANCIAL INFORMATION
1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
Consolidated Summary of Earnings -- For the Thirteen Weeks
ended December 30, 1995 and December 28, 1996
Consolidated Balance Sheets -- as of September 28, 1996 and
December 28, 1996
Consolidated Statements of Cash Flows for the Thirteen Weeks
Ended December 30, 1995 and December 28, 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>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
DECEMBER 30, 1995 and DECEMBER 28, 1996
(In Thousands Except Per Share Data)
DECEMBER 30, DECEMBER 28,
1995 1996
------- -------
<S> <C> <C>
REVENUES:
Restaurant food sales ..................... $ 2,291 $ 2,303
Restaurant bar sales ...................... 851 731
Non-restaurant bar sales .................. 120 --
Package goods sales ....................... 1,731 1,773
Franchise - related revenues .............. 152 132
Owner's fee ............................... 38 37
Other operating income .................... 56 33
------- -------
5,239 5,009
------- -------
COSTS AND EXPENSES:
Cost of merchandise sold
restaurant and lounges .................. 1,246 1,131
Cost of merchandise sold
package goods ........................... 1,311 1,355
Payroll and related costs ................. 1,429 1,375
Occupancy costs ........................... 258 227
Selling, general and
administrative expenses ................. 942 870
------- -------
5,186 4,958
------- -------
Income from operations .................... 53 51
------- -------
OTHER INCOME (EXPENSE):
Interest expense on obligations
under capital leases .................... (15) (15)
Interest expense on long-term
debt and damages payable ................ (17) (17)
Gain on sale of assets .................... 1 --
Sale of management rights ................. -- 150
Interest income ........................... 12 4
Management fees from
Pennsylvania limited
partnership ............................. 33 --
Recognition of deferred gains ............. 32 1
Other, net ................................ 64 27
------- -------
110 150
------- -------
Income before income taxes ................ 163 201
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED
DECEMBER 30, 1995 AND DECEMBER 28, 1996
(In Thousands Except Per Share Data)
(continued)
DECEMBER 30, DECEMBER 28,
1995 1996
------- --------
<S> <C> <C>
PROVISION FOR INCOME TAXES: ....................... $ -- $ --
------- --------
Net income ............................... $ 163 $ 201
======= ========
NET INCOME
PER COMMON SHARE:
Primary .................................. $ .19 $ .21
======= ========
Fully Diluted ............................ $ .19 $ .21
======= ========
WEIGHTED AVERAGE SHARES
AND EQUIVALENT SHARES OUTSTANDING:
Primary .................................. 972,000 935,000
======= ========
Fully Diluted ............................ 972,000 935,000
======= ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1996 AND DECEMBER 28, 1996
ASSETS
SEPTEMBER 28, DECEMBER 28,
1996 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents .................................................. $ 797,000 $1,283,000
Receivables, including current portion of notes,
and mortgages, less allowance for uncollectible amounts
and deferred gains, including related party receivables
of $16,000 AND $19,000 (before allowances
and deferred gains) both in 1996 and 1997 respectively.............. 486,000 180,000
Inventories, at lower of cost (first-
in, first out) or market ............................................ 911,000 1,083,000
Prepaid expenses ...................................................... 328,000 382,000
---------- ----------
Total current assets .................................................. 2,522,000 2,928,000
---------- ----------
PROPERTY AND EQUIPMENT, net .................................................... 2,634,000 2,600,000
---------- ----------
LEASED PROPERTY UNDER CAPITAL LEASES,
less accumulated amortization of
$678,000 and $687,000 in 1996
and 1997 respectively ................................................. 195,000 186,000
---------- ----------
OTHER ASSETS:
Liquor licenses, less accumulated
amortization of $97,000 in 1996 and
$85,000 in 1997 respectively ........................................ 349,000 328,000
Notes and mortgages receivable, less
allowance for uncollectible amounts and deferred gains,
and including related party receivables of $66,000 and $84,000
(before allowances and deferred gains)
in 1996 and 1997 respectively ...................................... 76,000 104,000
Investment in joint venture ........................................... 120,000 120,000
Other ................................................................. 413,000 403,000
---------- ----------
Total other assets .................................................... 958,000 955,000
---------- ----------
$6,309,000 $6,669,000
========== ==========
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTIMBER 28, 1996 AND DECEMBER 28, 1996
LIABILITIES AND STOCKHOLDER'S INVESTMENT (DEFICIT)
(continued)
SEPTEMBER 28, DECEMBER 28,
1996 1996
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ............................ $ 582,000 $1,168,000
Accrued and other current liabilities ... 820,000 611,000
Current portion of long-term debt ....... 16,000 13,000
Current obligations under capital
leases ................................ 61,000 61,000
Current portion of damages payable on
terminated or rejected leases
and other bankruptcy liabilities ...... 249,000 313,000
Due to Pennsylvania
limited partnership ................... 430,000 231,000
---------- ----------
Total current liabilities ............... 2,158,000 2,397,000
---------- ----------
LONG TERM DEBT, net of current
portion ............................... 5,000 4,000
---------- ----------
OBLIGATIONS UNDER CAPITAL LEASES,
net of current portion ................ 387,000 372,000
---------- ----------
DAMAGES PAYABLE ON TERMINATED OR
REJECTED LEASES AND OTHER
BANKRUPTCY LIABILITIES,
net of current portion .................. 1,212,000 1,148,000
---------- ----------
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1996 AND DECEMBER 28, 1996
LIABILITIES AND STOCKHOLDER'S INVESTMENT (DEFICIT)
(continued)
SEPTEMBER 28, DECEMBER 28,
1996 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 ...... 6,395,000 6,395,000
Retained earnings (deficit) ......... 753,000 954,000
Less - Treasury stock, at cost,
1,246,000 and 1,192,000 shares
in 1995 and 1996 respectively ..... (4,811,000) (4,811,000)
----------- -----------
2,547,000 2,748,000
----------- -----------
$ 6,309,000 $ 6,669,000
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED
DECEMBER 30, 1995 AND DECEMBER 28, 1996
(In Thousands)
DECEMBER 30, DECEMBER 28,
1995 1996
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................... $ 163 $ 201
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization
of property, equipment and
capital leases ....................... 154 158
Amortization of liquor licenses ........ 2 1
Recognition of deferred gains
and other deferred income ............ (32) (1)
Provision for uncollectible notes
and mortgages receivable ............. 40 50
(Gain) loss on property, equipment
and liquor licenses .................. (30) 19
Changes in assets and liabilities:
Decrease in receivables ................ 152 306
Increase in inventories ................ (178) (172)
Decrease (increase) in prepaid expenses 131 (54)
(Increase) decrease in other assets .... (312) 10
Increase in accounts payable ........... 206 469
Decrease in accrued liabilities ........ (151) (92)
----- -----
Net cash provided by (used in)
operating activities ................. 145 895
----- -----
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED
DECEMBER 30, 1995 AND DECEMBER 28, 1996
(In Thousands)
DECEMBER 30, DECEMBER 28,
1995 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property
equipment and liquor licenses ......... $ -- $ 20
Collections on notes and
mortgages receivable .................. 198 82
Additions to notes and
mortgages receivable .................. (140) (159)
Additions to property and equipment ..... (59) (134)
Change in due to Pennsylvania
limited partnership ................... (9) (199)
------- -------
Net cash used in
investing activities .................. (10) (390)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt .............. (14) (4)
Payments of obligations under
capital leases ........................ (28) (15)
Purchase of treasury stock .............. (51) --
Sale of treasury stock .................. 81 --
------- -------
Net cash provided by (used in)
financing activities .................. (12) (19)
------- -------
NET INCREASE IN CASH AND EQUIVALENTS ............. 123 486
CASH AND EQUIVALENTS, BEGINNING OF YEAR .......... 686 797
------- -------
CASH AND EQUIVALENTS, END OF QUARTER ............. $ 809 $ 1,283
======= =======
</TABLE>
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 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
28, 1996 has been prepared from the books and records without audit. Financial
information as of September 28, 1996 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 28, 1996.
(3) Reclassification
Certain amounts in the fiscal 1996 financial statements have been
reclassified to conform to the fiscal 1997 presentation.
(4) Franchise Program
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
<PAGE>
the business premises, extended by the franchisee's continued occupancy of the
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 fiscal year 1996, the Company's franchise agreement with a
member of Mr. Flanigan's family expired and was not renewed nor was a new
franchise agreement executed with said franchisee. During the first quarter of
fiscal year 1997, the Company filed suit against the franchisee for servicemark
infringement, seeking injunctive relief and monetary damages. The suit is in the
early discovery stage.
During the first quarter of fiscal 1997, the Company entered into a
Licensing Agreement with a member of Mr. Flanigan's family, licensing the
non-exclusive use of the "Flanigan's' servicemark in the Commonwealth of
Pennsylvania only. The Company receives no royalty fee or other compensation
under this Licensing Agreement. During the first quarter of fiscal year 1997,
the Company also entered into a Franchise Agreement with an unrelated franchisee
in the Commonwealth of Pennsylvania, which Franchise Agreement includes the
non-exclusive use of the "Flanigan's" servicemark at one franchised restaurant
within the Commonwealth of Pennsylvania only. Under this Franchise Agreement,
the Company receives a royalty fee equal to one percent of gross sales from the
franchised restaurant, payable on a monthly basis.
During the first quarter of fiscal year 1996, one additional franchisee
agreed to the termination of its Franchise Agreement and while its restaurant
did not formally 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 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 fiscal year 1996, 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, [during the first
quarter of fiscal year 1997], the franchise was sold to a related 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 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
<PAGE>
$150,000.00 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 until the weekly gross sales
from the franchised restaurant reached $25,000 or March 31, 1997, whichever
occurs earlier. Thereafter, the Company will receive the same monthly payment as
previously paid by the former franchisee during fiscal year 1996. This related
third party plans to form a limited partnership for the purpose of owning this
restaurant and raising the necessary funds to renovate the same. The Company has
agreed to be an investor in the franchise and it is anticipated that other
related parties, including but not limited to officers and directors of the
Company, and/or their families, will also be investors in the limited
partnership.
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.
Subsequent to the end of the first quarter of fiscal year 1997, the
Company entered into a contract for the purchase of a restaurant for a purchase
price of $750,000, with the seller holding a purchase money mortgage in the
amount of $500,000. The Company plans to form a limited partnership, of which it
will act as general partner, for the purpose of raising the funds necessary to
purchase and renovate the restaurant for its operation under the "Flanigan's
Seafood Bar and Grill' servicemark. The limited partnership will only have the
right to use the "Flanigan's Seafood Bar and Grill servicemark while the Company
acts as general partner and operates the restaurant. The Company also plans to
invest in this restaurant as a limited partner. No franchise agreement will be
executed and the Company will not consider this unit one of its franchises.
(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 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.
<PAGE>
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. During fiscal 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), was
secured by a mortgage on real property owned by an affiliated entity of the
assignee, which mortgage was paid in full during fiscal year 1996. 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),
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 became 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. 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 operated the liquor package store throughout the
litigation. During the first quarter of fiscal year 1997, 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. The Company acquired
ownership of the assets of the assignee at the foreclosure sale, including the
liquor license, and continues to operate the package liquor store. The Company
intends to vigorously pursue collection of its Agreed Summary Final Judgment.
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
<PAGE>
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 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. 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 restau-rants.
After 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. During the first quarter of
fiscal year 1997, the Equal Employment Opportunity Commis-sion closed its files
on both claims without making a determination on either claim. The claimant has
a period of ninety days from the date the Equal Employment Opportunity
Commission closed its files to file suit against the Company or forever be
barred. The Company disputes the claim and if suit is filed by the claimant, the
Company will vigorously defend 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 days of its filing and during the first quarter of fiscal year 1997, this
claimant filed suit against the Company. The Company disputes this claim and is
vigorously defending the same.
<PAGE>
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, 1995, 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 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. In
fiscal year 1996 these options were exercised.
During fiscal 1992, 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 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 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 year 1996 an additional 10,000 stock options were
granted at an exercise price of $4.00 per share which expires March 14, 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 have been exercised through the first quarter of fiscal year 1997.
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.
<PAGE>
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 first 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 Flanigan's insurance coverage and therefore had no adverse
material impact upon the Company's financial position. During the fourth quarter
of fiscal year 1996, the Company settled its one remaining uninsured dram shop
case against one of the limited partnerships in Pennsylvania and the Company as
general partner, and currently has no dram shop cases pending. for further
discussion see the section headed Insurance on page 13 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended September 28, 1996.
The Company accrues for potential uninsured losses based on estimates
received from legal counsel and its historical experience, when uninsured claims
are pending. Such accrual is included in the "Accrued and other liabilities -
potential uninsured claims". See Note 8 in the Company's Annual Report on Form
10-KSB for the fiscal year ended September 28, 1996.
<PAGE>
Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
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. During the first quarter of fiscal year 1997 the Company acquired
ownership of the one unit operated by the Company pursuant to Court Order
through foreclosure. The table below sets out the changes in the type and number
of units being operated.
<TABLE>
<CAPTION>
Dec. 30, Dec. 28, FISCAL YEAR NOTE
TYPES OF UNITS 1995 1996 1996 NUMBER
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Combination package and restaurant 4 4 4
Restaurant only 6 5 5 (1)(2)
Package store only 2 4 4 (3)(4)(5)
Lounge only 1 0 0 (6)
Combination package and lounge 2 0 0 (4)
Clubs 2 1 1 (7)
- ---------------------------------------------------------------------------------------------------
TOTAL - Company operated units. 17 14 14
FRANCHISED - units 8 7 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 of fiscal year 1996, a
contract was entered into by the landlord for the sale of the real property and
improvements of this location. Simulta-neously 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.
<PAGE>
(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, pursuant to Court Order. During the first quarter of fiscal year 1997 the
Company acquired ownership of this store through foreclosure.
(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 the end of the first quarter of fiscal year 1997.
(8) During fiscal year 1996 one franchise expired and the Company
declined to offer the franchisee the option of executing its new franchise
agreement.
<PAGE>
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows for the
first quarter of fiscal years 1996 and 1997.
<TABLE>
<CAPTION>
Three months ended
December 30, December 28,
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Net cash provided by
operating activities ..................... $ 145 $ 895
Net cash (used in) provided by
investing activities ...................... (10) (390)
Net cash used in
financing activities ...................... (12) (19)
------- -------
Net increase in cash
and cash equivalents ..................... 123 486
Cash and cash equivalents:
Beginning of year ........................ 686 797
------- -------
End of year .............................. $ 809 $ 1,283
======= =======
</TABLE>
Adjustments to net income to reconcile to cash flows from operating
activities in the first quarter of fiscal 1996 include the provision for $40,000
of allowances for uncollectible notes and mortgages receivable and the
recognition of $32,000 in deferred gain.
Adjustments to net income to reconcile to cash flows from operating
activities in the first quarter of fiscal 1997 include a provision for
uncollectible notes and mortgages of $50,000.
Improvements
The Company had additions to fixed assets of $134,000 during the
quarter ended December 28, 1996 compared to $59,000 for the same quarter last
year and $613,000 for the year ended September 28, 1996. The additions were to
continue upgrading 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 year 1992, as cash flow improved, the Company
embarked upon a refurbishing program which continued through fiscal year 1996.
The budget for fiscal 1997 includes $650,000 for this program. The Company
believes that improved operations will provide the cash to continue the
refurbishing program.
<PAGE>
Subsequent to the end of the first quarter of fiscal year 1997, the
Company entered into a contract for the purchase of the real property adjacent
to its restaurant located at 4 N. Federal Highway, Hallandale. The Company plans
to use this real property as additional parking for customers of its restaurant.
The purchase price is $620,000, with the seller holding a purchase money
mortgage in the amount of $495,000.
Working Capital
The table below summarizes the current assets, current liabilities and
working capital for the quarters ended December 30, 1995 and December 28, 1996
and for the fiscal year ended September 28, 1996.
<TABLE>
<CAPTION>
December 30, December 30, September 30,
Item 1995 1996 1996
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current assets $ 2,136 $ 2,928 $ 2,522
Current liabilities 2,165 2,397 2,158
Working capital (deficit) (29) 531 364
</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 28,
1996 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 28, 1996 for the current payment schedule of bankruptcy
damages.
<PAGE>
Other Legal Matters
In addition to the above, see "Litigation" on page 15 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 28, 1996 for a discussion of other legal proceedings
resolved in prior years.
Results of Operation
REVENUES:
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Restaurant food sales ............ $2,291 45.9 $2,303 47.9
Restaurant bar sales ............. 851 17.1 731 15.2
Non-Restaurant bar sales ......... 120 2.4 --
Package goods sales .............. 1,731 34.6 1,773 36.9
------ ----- ------ -----
Total sales ...................... 4,993 100.0 4,807 100.0
Franchise related revenues ....... 152 132
Owner's fee ...................... 38 37
Other operating income ........... 56 33
------ -------
5,239 5,009
</TABLE>
Restaurant food sales represented 45.9% of total sales in the first
quarter of fiscal 1996 as compared to 47.9% in the first quarter of fiscal 1997.
The weekly average of same store restaurant food sales was $171,593 in 1996 and
$175,038 in 1997, an increase of two percent.
The same store weekly average for restaurant bar sales was $62,536 for
the first quarter of fiscal 1996 compared to $56,228 for the first quarter of
fiscal year 1997, a decrease of ten percent. The Company's emphasis during the
past few years has been toward increasing its restaurant food sales, which
caters to a family oriented business. This accounts for the increased 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 $133,153 for the first quarter of fiscal
1996 to $136,404 for the first quarter of fiscal 1997. The improvement in
package goods sales is attributed to three factors. The Company has improved its
wine selections and made its pricing more competitive, while the decline in the
liquor market appears to have reached a plateau.
The gross profit margin for restaurant and lounge sales improved from
60.8% to 62.7% for the first quarter of fiscal years 1996 and 1997
respec-tively.
<PAGE>
The gross profit margin for package goods sales during the first
quarter of fiscal year 1996 was 24.2% and was 23.5% for the first quarter of
fiscal year 1997. The decrease in package goods gross profit percentage is the
result of price increases that the Company was not in position to pass on to the
customer because of intense competition.
Overall gross profits were 48.7% in the first quarter of fiscal year
1996 compared to 48.2% for the first quarter of fiscal year 1997. The decrease
is a result of the incerased ratio of package sales to total sales.
Operating Costs and Expenses
Operating costs and expenses for the first quarter of fiscal year 1996
were $5,186,000 compared to $4,958,000 for the same quarter in fiscal year 1997.
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 $1,429,000 and $1,375,000 for the first quarter of fiscal years
1996 and 1997 respectively. The decrease of $54,000 resulted from the closing of
the two stores and two lounges as discussed on pages 16 and 17, Notes 1, 4 and
6.
Occupancy costs, which include rent, common area maintenance, repairs
and taxes were $258,000 and $227,000 for the first quarter of fiscal years 1996
and 1997 respectively, with the decrease accounted for by the closing of two
stores as discussed above and also the reduction of rent by the landlord on the
unit returned to the Company as discussed on page 17, Note (3).
Selling, general and administrative expenses were $942,000 for the
first quarter of fiscal year 1996 and $870,000 for the first quarter of fiscal
year 1997. As discussed previously, the Company has reduced the number of units
it operates this fiscal year compared to the first quarter of fiscal 1996.
Other Income and Expense
Management fees from the Pennsylvania limited partnership were $33,000
for the first quarter of fiscal year 1996. The club was sold in the fourth
quarter of fiscal year 1996.
The Company received $150,000 for its right to manage a franchise
location. Refer to the discussion of this transaction on pages 11 and 12 for
further information.
Other net was $64,000 for the first quarter of fiscal year 1996 which
reflects a prior period adjustment of $20,000 and $9,500 of income from a
settlement. Other net for the first quarter of fiscal year 1997 is $27,000.
Trends
During the next twelve months management expects to maintain its level
of sales and anticipates that expenses will remain constant.
<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 2/11/1997
/s/Mary C. Reymann
------------------
Mary C. Reymann
Chief Financial Officer
Date 2/11/1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-END> DEC-28-1996
<CASH> 1,283,000
<SECURITIES> 0
<RECEIVABLES> 729,000
<ALLOWANCES> (446,000)
<INVENTORY> 1,083,000
<CURRENT-ASSETS> 2,928,000
<PP&E> 9,137,000
<DEPRECIATION> (6,537,000)
<TOTAL-ASSETS> 6,669,000
<CURRENT-LIABILITIES> 2,397,000
<BONDS> 1,149,000
0
0
<COMMON> 210,000
<OTHER-SE> 2,538,000
<TOTAL-LIABILITY-AND-EQUITY> 6,669,000
<SALES> 4,807,000
<TOTAL-REVENUES> 5,009,000
<CGS> 2,486,000
<TOTAL-COSTS> 2,472,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 201,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201,000
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
