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 April 3, 1999
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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (954) 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 1,864,000
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
April 3, 1999
PART I. FINANCIAL INFORMATION
1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
Consolidated Summary of Earnings -- For the Thirteen Weeks and
the Twenty-Six Weeks ended March 28, 1998 and April 3, 1999
Consolidated Balance Sheets -- as of October 3, 1998 and April 3,
1999
Consolidated Statements of Cash Flows for the Twenty-Six Weeks
ended March 28, 1998 and April 3, 1999
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 SUMMARY OF EARNINGS
(In Thousands Except Per Share Amounts)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
March 28, April 3, March 28, April 3,
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant food sales $ 2,874 $ 2,917 $ 5,269 $ 5,483
Restaurant bar sales 784 717 1,519 1,385
Package goods sales 1,999 1,812 3,989 3,733
Franchise related revenues 177 215 336 417
Owners fee 51 38 88 75
Joint venture income 100 82 166 176
Other operating income 53 27 111 53
-------- -------- -------- --------
6,038 5,808 11,478 11,322
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of merchandise sold restaurant and 1,333 1,293 2,517 2,486
Cost of merchandise sold package goods 1,467 1,279 2,955 2,727
Payroll and related costs 1,528 1,500 2,968 2,937
Occupancy costs 284 272 527 521
Selling, general and administrative expenses 819 696 1,707 1,544
-------- -------- -------- --------
5,431 5,040 10,674 10,215
-------- -------- -------- --------
Income from operations 607 768 804 1,107
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense on obligations under capital leases (12) (12) (23) (23)
Interest expense on long-term debt and damages payable (48) (30) (82) (66)
Abandoned fixed assets -- (39) -- (39)
Settlement of litigation -- -- 110 --
Interest income 22 8 35 21
Recovery on judgment -- -- -- 50
Recognition of deferred gains 3 1 4 2
Other net 7 25 13 23
-------- -------- -------- --------
(28) (47) 57 (32)
-------- -------- -------- --------
Income before income taxes 579 721 861 1,075
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands Except Per Share Amounts)
(Continued)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
March 28, April 3, March 28, April 3,
1998 1999 1998 1999
-------- ------- ------- ------
<S> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES $ -- $ -- $ -- $ 8
------ ------ ------ ------
Net income $ 579 $ 721 $ 861 $1,067
====== ====== ====== ======
</TABLE>
In March 1997, the Financial Standards Accounting Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" which establishes standards for computing and presenting earnings per
share ("EPS"). This Statement replaces primary and fully diluted EPS with basic
and diluted EPS.
<PAGE>
The following data show the amounts used in computing earnings per
share and the effects on income and the weighted-average number of shares of
potential dilutive common stock. All computations reflect the 2 for 1 stock
split paid April 1, 1999 to shareholders of record on March 17, 1999.
<TABLE>
<CAPTION>
For The Thirteen Weeks Ended
--------------------------------------------------------------------------
March 28, 1998 April 3, 1999
----------------------------------- -----------------------------------
Numerator Denom. EPS Numerator Denom. EPS
--------- ------ --- --------- ------ ---
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS 578,117 1,814,436 0.32 721,000 1,868,440 0.39
---- ----
Effect/dilutive
Stock Options -- 185,072 -- 162,350
------- --------- ------- --------- ----
DILUTED EPS 578,117 1,999,508 0.29 721,000 2,030,790 0.36
------- --------- ---- ------- --------- ----
<CAPTION>
For The Twenty-six weeks ended
----------------------------------------------------------------------------
March 28, 1998 April 3, 1999
--------------------------------- -------------------------------------
Numerator Denom. EPS Numerator Denom. EPS
--------- ------ --- --------- ------ ---
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS 861,581 1,814,436 0.47 1,067,000 1,864,220 0.57
---- --------- --------- ------
Effect/dilutive
Stock Options -- 169,468 -- 152,778
--------- --------- ------
DILUTED EPS 861,581 1,983,904 0.43 1,067,000 2,016,998 0.53
------- --------- ---- --------- --------- ------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 3, 1998 AND APRIL 3, 1999
ASSETS
OCTOBER 3, APRIL 3,
1998 1999
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $1,468,000 $1,247,000
Receivables, including current portion
of notes, and mortgages, less allowance
for uncollectible amounts and
deferred gains, including related party
receivables of $25,000 and $-0- (before
allowances and deferred gains) in 1998 and 1999
respectively 320,000 381,000
Inventories, at lower of cost (first-
in, first out) or market 1,237,000 1,483,000
Prepaid expenses 431,000 471,000
---------- ----------
Total current assets 3,456,000 3,582,000
---------- ----------
PROPERTY AND EQUIPMENT, net 3,717,000 3,921,000
---------- ----------
LEASED PROPERTY UNDER CAPITAL LEASES,
less accumulated amortization of
$744,000 and $761,000 in 1998
and 1999 respectively 129,000 112,000
---------- ----------
OTHER ASSETS:
Liquor licenses, less accumulated
amortization of $98,000 in 1998 and
$102,000 in 1999 respectively 384,000 380,000
Notes and mortgages receivable, less
allowance for uncollectible amounts and
deferred gains, and including
related party receivables of $173,000 and
$148,000 (before allowances
and deferred gains)
in 1998 and 1999 respectively 161,000 195,000
Investment in joint venture 937,000 1,018,000
Other 259,000 245,000
---------- ----------
Total other assets 1,741,000 1,838,000
---------- ----------
$9,043,000 $9,453,000
========== ==========
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 3, 1998 AND APRIL 3, 1999
LIABILITIES AND STOCKHOLDER'S INVESTMENT (DEFICIT)
(continued)
OCTOBER 3, APRIL 3,
1998 1999
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 850,000 $ 882,000
Accrued and other current liabilities 752,000 629,000
Current portion of long-term debt 241,000 248,000
Current obligations under capital
leases 101,000 103,000
Current portion of damages payable on
terminated or rejected leases
and other bankruptcy liabilities 268,000 276,000
Due to Pennsylvania
limited partnership 30,000 17,000
---------- ----------
Total current liabilities 2,242,000 2,155,000
---------- ----------
LONG TERM DEBT, net of current
portion 793,000 582,000
---------- ----------
OBLIGATIONS UNDER CAPITAL LEASES,
net of current portion 218,000 179,000
---------- ----------
DAMAGES PAYABLE ON TERMINATED OR
REJECTED LEASES AND OTHER
BANKRUPTCY LIABILITIES,
net of current portion 685,000 551,000
---------- ----------
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 3, 1998 AND APRIL 3, 1999
LIABILITIES AND STOCKHOLDER'S INVESTMENT (DEFICIT)
(continued)
OCTOBER 3, APRIL 3,
1998 1999
----------- -----------
<S> <C> <C>
STOCKHOLDERS' INVESTMENT (DEFICIT)
Common stock, par value $.10
authorized 5,000,000 shares,
issued 4,198,000 shares adjusted to
account for 2 for 1 stock split to
shareholders of record
3/17/1999 payable 4/1/1999 $ 210,000 $ 420,000
Capital in excess of par value 6,395,000 6,185,000
Retained earnings 3,234,000 4,036,000
Less - Treasury stock, at cost,
1,170,000 shares in 1998 and
2,203,000 in 1999 (4,734,000) (4,655,000)
----------- -----------
Total stockholders' investment 5,105,000 5,986,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 9,043,000 $ 9,453,000
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED
MARCH 28, 1998 AND APRIL 3, 1999
(In Thousands)
MARCH 28, APRIL 3,
1998 1999
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 860 $ 1,067
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization
of property, equipment and
capital leases 323 326
Amortization of liquor licenses 5 5
Leasehold improvements written
off from closed store -- 40
Recognition of deferred gains
and other deferred income (5) (2)
Changes in provision for uncollectible notes
and mortgages receivable (30) --
Changes in assets and liabilities:
Increase in receivables (106) (61)
Increase in inventories (43) (246)
Increase in prepaid expenses (13) (40)
Increase in accounts payable 327 31
Decrease in accrued liabilities (334) (123)
------- -------
Net cash provided by (used in)
operating activities 984 997
------- -------
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED
MARCH 28, 1998 AND APRIL 3, 1999
(In Thousands)
MARCH 28, APRIL 3,
1998 1999
------- -------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on notes and
mortgages receivable $ 77 $ (34)
Additions to notes and
mortgages receivable -- --
Additions to property and equipment (467) (510)
Change in due to Pennsylvania
limited partnership (42) (25)
------- -------
Net cash used in
investing activities (432) (569)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 500 --
Payments of long-term debt (83) (211)
Payments of obligations under
capital leases (35) (39)
Payment of damages payable (64) (134)
Purchase of treasury stock -- (79)
Payment of cash dividend -- (186)
------- -------
Net cash provided by (used in)
financing activities 318 (649)
------- -------
NET INCREASE IN CASH AND EQUIVALENTS 870 (221)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,334 1,468
------- -------
CASH AND EQUIVALENTS, END OF QUARTER $ 2,204 $ 1,247
======= =======
</TABLE>
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 3, 1999
(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 October
3, 1998 has been prepared from the books and records without audit. Financial
information as of October 3, 1998 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
October 3, 1998.
(3) Reclassification
Certain amounts in the fiscal 1998 financial statements have been
reclassified to conform to the fiscal 1999 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
<PAGE>
execute a new franchise agreement for the balance of the term of its lease for
the business premises, extended by the franchisee's continued occupancy of the
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 had executed new franchise agreements.
During fiscal year 1996, the Company's franchise agreement with a
member of Mr. Flanigan's family expired and the Company declined to offer the
franchisee the option of executing its new franchise agreement. During the first
quarter of fiscal year 1997, the Company filed suit against the franchisee for
servicemark infringement, seeking injunctive relief and monetary damages. During
the first quarter of 1998 a Stipulated Agreed Order of Dismissal Upon Mediation
was issued whereby the Company received $110,000 and the former franchisee
agreed to cease all use of the "Flanigan's" servicemark and other trade dress
features common to the Company owned and/or franchised restaurants.
(5) Investment in Joint Ventures
During the first quarter of fiscal year 1996, the Company began
operating a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark
as general partner and fifty percent owner of a limited partnership established
for such purpose. The limited partnership agreement gives the limited
partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark
while the Company acts as general partner only.
During the third quarter of fiscal year 1997, a related party formed a
limited partnership to purchase an existing franchise in Fort Lauderdale,
Florida, and through which it raised the necessary funds to renovate the
restaurant. The Company is a twenty-five percent owner of the limited
partnership as are other related parties, including but not limited to officers
and directors of the Company and their families. The Company also continues to
receive the same franchise fees as it received from the non-related franchisee.
During the fourth quarter of fiscal year 1997, the Company formed a
limited partnership and raised funds through a private offering to purchase the
assets of a restaurant in Surfside, Florida and renovate the same for operation
under the "Flanigan's Seafood Bar and Grill" servicemark. The Company acts as
general partner of the limited partnership and is also a forty-two percent owner
of the same, as are other related parties, including but not limited to officers
and directors of the Company and their families. The limited partnership
agreement gives the limited partnership the right to use the "Flanigan's Seafood
Bar and Grill" servicemark for a fee equal to 3% of gross sales from the
operation of the restaurant, while the Company acts as general partner only.
This restaurant opened in the second quarter of fiscal year 1998.
<PAGE>
In order to ensure that the Company had adequate cash reserves in view
of its investment in the restaurant discussed above, and for other improvements,
during the second quarter of fiscal year 1997, the Board of Directors authorized
the Company to borrow up to $1,200,000 at an interest rate of twelve (12%)
percent per annum and fully amortized over five (5) years. During the fourth
quarter of fiscal year 1997, the Company borrowed $375,000 from private
investors, in units of $5,000, which loan is fully secured with specific
receivables owned by the Company. During the first quarter of fiscal year 1998,
the Company closed on its loan from Barnett Bank in the amount of $500,000, with
interest at prime rate. Equal quarterly principal payments began March, 31, 1998
and will continue quarterly for three (3) years. Interest is payable monthly on
the outstanding principal balance. The loan is also fully secured with liquor
licenses owned by the Company.
During the third quarter of fiscal year 1998, the Company entered into
a lease agreement for a restaurant in Kendall, Florida and a separate agreement
for the purchase of the furniture, fixtures and equipment of the existing
restaurant. The lease agreement and separate agreement were each contingent upon
the Company applying for and receiving zoning variances from Miami Dade County,
Florida. During the first quarter of fiscal year 1999, the Company submitted its
application for zoning variances to Miami Dade County, Florida, which zoning
variances were unanimously granted at a hearing on November 18, 1998. Upon the
expiration of the appeal period on December 28, 1998, the granting of the zoning
variances became final. At the same time, the Company raised funds through a
private offering for a limited partnership to be formed, to own and renovate the
restaurant for operation of the same under the "Flanigan's Seafood Bar and
Grill" servicemark. During the second quarter of fiscal year 1999, the limited
partnership was formed. The Company acts as general partner of the limited
partnership and is a forty percent owner of the same, as are other related
parties, including but not limited to officers and directors of the Company and
their families. The limited partnership agreement gives the limited partnership
the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee
equal to 3% of the gross sales from the operation of the restaurant, while the
Company acts as general partner only. While it was originally anticipated that
the restaurant would be renovated and open for business by June 1, 1999, the
issuance of building permits has been delayed due to circumstances beyond the
Company's control. The Company is now confident that the building permits will
be issued by June 1, 1999, and the restaurant will be renovated and open for
business prior to the end of fiscal year 1999.
(6) 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.
(7) COMMITMENTS AND CONTINGENCIES:
Guarantees
The Company is contingently liable for annual rentals in the amount of
approximately $420,000 at April 3, 1999, 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 year 1996, a claim was filed against the Company with the
Equal Employment Opportunity Commission ("EEOC") alleging sexual discrimination.
A former employee alleged that her position with the Company was changed due to
her pregnancy. The Equal Employment Opportunity Commission failed to make a
determination on this claim within one hundred eighty (180) days of its filing
and during the first quarter of fiscal year 1997, this claimant filed suit
against the Company. The Company disputed this claim and vigorously defended the
same. During the fourth quarter of fiscal year 1997, the former employee's
attorney withdrew and during the first quarter of fiscal year 1998 the lawsuit
was dismissed due to the failure of the former employee to retain substitute
counsel.
Employment Agreement
On June 3, 1987, the Company entered into an employment agreement (the
"Employment Agreement") with the Chairman of the Board, which was ratified by
the stockholders at the Company's 1988 Annual Meeting. The Employment Agreement
provides, among other things, for annual compensation of $150,000, as well as a
bonus based on the Company's cash flow, as defined. The Employment Agreement is
renewable annually and was renewed through December 31, 1999. The Employment
Agreement was amended in January 1997 to redefine a bonus equal to 15% of the
Company's annual pre-tax income in excess of $650,000 and to grant stock
options, which was ratified by the stockholders at the Company's 1997 Annual
Meeting. For fiscal year 1997, a bonus of $78,000 was earned under the amended
Employment Agreement and for fiscal year 1998, a bonus of $116,000 was earned
under the amended Employment Agreement. For fiscal year 1998, the Chairman
refused $30,000 of his bonus earned under the amended Employee Agreement to
offset salaries paid to other executives of the Company. The Employment
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 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
200,000 shares of the Company's common stock to eligible employees. At the
Company's 1994 Annual Meeting, the stockholders approved this plan.
During fiscal year 1994, 104,000 stock options were granted at an
option price of $1.75 per share which expire April 19, 1999. During fiscal year
1996, an additional 60,000 stock options were granted at an option price of
$1.625 per share which expire December 21, 2000, and an additional 36,000 stock
options were granted at an option price of $2.19 per share which expire March
14, 2001. Option prices on the date of grant equaled or exceeded the fair market
value of the Company's common stock; therefore, no related compensation expense
was recorded. 45,800 options were exercised during fiscal year 1998. 24,200
options were exercised during the second quarter of fiscal year 1999 and 38,000
options were exercised subsequent to the end of the second quarter of fiscal
year 1999. The difference between the fair market value and the exercise price
was charged to retained earnings on the date the options were exercised. All
stock options and option prices stated reflect the 2 for 1 stock split which was
paid April 1, 1999.
<PAGE>
Key Employee Incentive Stock Option Plan for Store Level Management
On December 10, 1998, the Board of Directors approved a Key Employee
Incentive Stock Option Plan for Store Level Management, which reserved and
authorized the issuance of 200,000 shares of the Company's common stock to
eligible employees. For purposes of this plan, eligible employees include store
managers and assistant managers (both restaurants and package liquor stores) and
kitchen managers (restaurants). The stockholders voted to approve and ratify
this plan at the Company's 1999 Annual Meeting. As of the end of the second
quarter of fiscal year 1999, no stock options had been granted under this plan.
All stock options reflect the 2 for 1 split which was paid April 1, 1999.
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 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 fiscal year 1997, 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 12 of
the Company's Annual Report on Form 10-KSB for the fiscal year ended October 3,
1998.
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 10 in the Company's Annual Report on Form
10-KSB for the fiscal year ended October 3, 1998.
<PAGE>
Item 8. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
The Company owns and/or operates restaurants with lounges, package
liquor stores and an entertainment oriented club (collectively the "units"). At
April 3, 1999, the Company was operating 14 units. The Company had interests in
seven additional units which have been franchised by the Company. The table
below sets out the changes, if any, in the type and number of units being
operated.
<TABLE>
<CAPTION>
Mar. 28, Oct. 3, Apr. 3, NOTE
TYPES OF UNITS 1998 1998 1999 NUMBER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Combination package and restaurant 4 4 4
Restaurant only 6 5 6 (1)(4)(5)(6)(8)
Package store only 4 3 3 (2)(3)(7)
Clubs 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL - Company operated units. 15 13 14 (6)(7)
FRANCHISED - units 7 7 7 (5)
</TABLE>
Notes:
(1) During the fourth quarter of fiscal year 1997, the Company formed a
limited partnership and raised funds through a private offering to purchase the
assets of a restaurant in Surfside, Florida and renovate the same for operation
under the "Flanigan's Seafood Bar and Grill" servicemark. The Company acts as
general partner and forty-two percent owner of the partnership. The restaurant
opened during the second quarter of fiscal year 1998.
(2) 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 and continues to
operate the package liquor store.
(3) During fiscal year 1996, one franchisee exercised the thirty day
cancellation clause under the franchise agreement and related documents and
returned its franchised unit to the Company. The franchisee had operated a
package liquor store and lounge under the "Big Daddy's" servicemark. The Company
profitably operated the package liquor store of the franchised unit but did not
reopen the lounge. The lease agreement for the business premises expired on
December 31, 1995 and the Company occupied the same on an oral month to month
lease agreement, paying its prorata share of the real property taxes monthly and
insuring the property until April 1998 when the oral month to month lease
agreement was terminated and the package liquor store was closed.
(4) During the third quarter of fiscal year 1998, the Company closed a
restaurant in North Miami, Florida. During the first quarter of fiscal year 1999
the location was sub-leased to an unaffiliated third party who is operating the
location as a lounge, not affiliated with or under the "Flanigan's Seafood Bar
and Grill" servicemark.
<PAGE>
(5) During the first quarter of fiscal year 1999, the Company purchased
the Management Agreement of a franchisee, which includes the right to manage the
franchised restaurant, effective December 1, 1998. The franchise includes a
package liquor store, which is still operated exclusively by the franchisee.
(6) During the third quarter of fiscal year 1998, the Company entered
into a lease agreement for a restaurant in Kendall, Florida, and a separate
agreement for the purchase of the furniture, fixtures and equipment of the
existing restaurant. During the first quarter of fiscal year 1999, the zoning
variances required from Miami-Dade County, Florida were unanimously granted and
became final with the expiration of the applicable appeal period. During the
second quarter of fiscal year 1999, the Company formed a limited partnership,
through which it raised funds through a private offering to renovate the
restaurant for operation under the "Flanigan's Seafood Bar and Grill"
servicemark. The Company acts as general partner and forty percent owner of the
partnership. It is anticipated that the renovated restaurant will be open for
business during the fourth quarter of fiscal year 1999.
This unit is not yet included in the table.
(7) During the second quarter of fiscal year 1999, the Company entered
into a lease agreement for a new package liquor store in Fort Lauderdale,
Florida. It is anticipated that the package liquor store will be open for
business during the third quarter of fiscal year 1999. This unit is not yet
included in the table.
(8) Subsequent to the end of the second quarter of fiscal year 1999,
the Company closed a restaurant whose lease will expire on May 31, 1999.
This unit has not yet been deleted from the table.
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows for the
second quarter of fiscal years 1998 and 1999.
<TABLE>
<CAPTION>
Six months ended
Mar. 28, Apr. 3,
1998 1999
-------- -------
(in thousands)
<S> <C> <C>
Net cash provided by
operating activities $ 984 $ 997
Net cash used in
investing activities (432) (569)
Net cash used in
financing activities 318 (649)
------- -------
Net increase (decrease) in
cash and cash equivalents 870 (221)
Cash and cash equivalents:
Beginning of year 1,334 1,468
------- -------
End of period $ 2,204 $ 1,247
======= =======
</TABLE>
<PAGE>
Improvements
The Company had additions to fixed assets of $522,000 during the six
months ended April 3, 1999 compared to $467,000 for the six months ended March
28, 1998 and $808,000 for the fiscal year ended October 3, 1998. The capital
expenditures were for upgrading existing units serving food, improvements to
package liquor stores, upgrading the corporate computer system to be Y2K
compliant and the purchase of the management agreement of an existing
franchisee.
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 1998.
The budget for fiscal 1999 includes $439,000 for this program. The Company
believes that improved operations will provide the cash to continue the
refurbishing program.
Year 2000
The Company and its subsidiaries are proceeding on schedule with
efforts to convert its computer systems to be Y2K compliant. As of the end of
the second quarter of fiscal year 1999, the conversion was substantially
completed and the Company expects its computer systems to be fully Y2K compliant
during the third quarter of fiscal year 1999.
Working Capital
The table below summarizes the current assets, current liabilities and
working capital for the twenty-six weeks ended March 28, 1998 and April 3, 1999
and for the fiscal year ended October 3, 1998.
<TABLE>
<CAPTION>
March April October
Item 28, 1998 3, 1999 3, 1998
------------------------- -------- ------- -------
(in thousands)
<S> <C> <C> <C>
Current assets $ 4,032 $ 3,582 $ 3,456
Current liabilities 2,984 2,155 2,242
Working capital (deficit) 1,048 1,427 1,214
</TABLE>
As noted in Note 1 to the consolidated financial statements, 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.
Dividend
During the first quarter of fiscal year 1999, the Board of Directors
declared a dividend of 20 cents per share to shareholders of record on January
4, 1999, which dividend was paid on February 1, 1999.
On February 26, 1999, the Board of Directors declared a 2 for 1 stock
split to shareholders of record on March 17, 1999 and payable April 1, 1999.
<PAGE>
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 October 3, 1998
for further discussion of the Company's bankruptcy proceedings. See Note 2 to
the consolidated financial statements of the Annual Report on Form 10-KSB for
the year ended October 3, 1998 for the current payment schedule of bankruptcy
damages.
Other Legal Matters
During fiscal year 1996, the Company was forced to continue its lawsuit
against the assignee of a store sold in 1990 when the assignee failed to
amicably return the package liquor store in order to regain possession of the
business premises, including furniture, fixtures, equipment and liquor license
and for damages for unpaid real property taxes, rent and damages to the business
premises. During the first quarter of fiscal year 1997, the parties entered into
a Stipulation whereby the Court entered an Agreed Summary Final Judgment for
Eviction, Damages and Foreclosure of Security Agreement, ("Summary Final
Judgment") through which the furniture, fixtures, equipment and liquor license
at this location were sold at foreclosure sale to the Company and through which
the Company also received an award of damages. During the first quarter of
fiscal year 1999, the Company settled the damages awarded in its favor in the
Summary Final Judgment upon its receipt of a cash payment of $15,000 and the
assignment of a liquor license, with a fair market value of $35,000.
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 October 3, 1998 for a discussion of other legal proceedings
resolved in prior years.
<PAGE>
Results of Operation
<TABLE>
<CAPTION>
REVENUES:
Thirteen Weeks Ended Twenty-Six Weeks Ended
Sales March 28, 1998 April 3, 1999 March 28, 1998 April 3, 1999
- ----- ------------------ ------------------ -------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restaurant, food $2,874 50.8% $2,917 53.6% $ 5,269 48.9% $ 5,483 51.7%
Restaurant, bar 784 13.8% 717 13.2% 1,519 14.1% 1,385 13.1%
Package goods 1,999 35.4% 1,812 33.3% 3,989 37.0% 3,733 35.2%
------ ---- ------ ---- ------- ---- ------- ----
Total 5,657 100. % 5,446 100.% 10,777 100.% 10,601 100. %
Franchise revenues 177 215 336 417
Owner's fee 51 38 88 75
Joint venture income 100 82 166 176
Other operating income 53 27 111 53
----- ------ ------- -------
Total revenues $6,038 $5,808 $11,478 $11,322
</TABLE>
Restaurant food sales represented 50.8% and 48.9% of total sales in the
thirteen and twenty-six weeks ended March 28, 1998 as compared to 53.6% and
51.7% in the comparable periods of fiscal 1999. The weekly average of same store
restaurant food sales was $196,697 and $210,885 for the twenty-six week period
of fiscal years 1998 and 1999 respectively, an increase of 7.2%.
The same store weekly average for restaurant bar sales declined from
$54,467 for the twenty-six week period of fiscal 1998 compared to $53,264 for
the same period of the current fiscal year, a decline of 2.2%.
Package goods sales have reversed the decline of prior years going from
a weekly average of same store sales of $137,371 for the twenty-six weeks of
fiscal year 1998 to $143,731 for the twenty-six weeks of fiscal year 1999, an
increase of 4.6%. The improvement in package goods sales indicates that the
decline in the liquor market has stabilized.
Franchise related revenues were $336,000 for the twenty-six week period
of fiscal 1998 and $417,000 for the same period of fiscal 1999, an increase of
24.1%. This increase is due to royalty fees generated from the restaurant in
Surfside, Florida which was open the entire twenty-six week period of fiscal
year 1999 and increased franchise gross sales.
The gross profit margin for restaurant sales increased from 62.9% for
the first six months of fiscal year 1998 to 63.1% for the first six months of
fiscal year 1999.
The gross profit margin for package goods sales for the twenty-six
weeks ended March 28, 1998 was 25.9% and increased to 26.9% for the twenty-six
weeks ended April 3, 1999.
Overall gross profit was 49.2% for the twenty-six weeks ended March 28,
1998 and remained unchanged at 49.2% for the same period in fiscal 1999.
<PAGE>
Operating Costs and Expenses
Operating costs and expenses for the twenty-six weeks ended March 28,
1998 were $5,202,000 compared to $5,002,000 for the same period in the current
fiscal year, a decrease of 3.8%. Operating expenses are comprised of the payroll
and related costs, occupancy costs and selling, general and administrative
expenses.
Payroll and related costs, which include workers compensation insurance
premiums, were $2,968,000 and $2,937,000 for the first six months of fiscal
years 1998 and 1999 respectively, a decrease of 1.0%.
Occupancy costs, which include rent, common area maintenance, repairs
and taxes were $527,000 and $521,000 for the first six months of fiscal years
1998 and 1999 respectively, a decrease of 1.1%.
Selling, general and administrative expenses were $1,707,000 for the
twenty-six weeks ended March 28, 1998 and $1,544,000 for the twenty-six weeks
ended April 3, 1999, a decrease of 9.5%.
Other Income and Expense
Other income declined from $57,000 to ($32,000) for the twenty-six
weeks of fiscal 1998 and 1999 respectively. The decline is accounted for by the
extraordinary $110,000 settlement of litigation in the twenty-six weeks ended
March 28, 1998 and the $39,000 write off of leasehold improvements in the
twenty-six weeks ended April 3, 1999 for the restaurant which closed in April
1999.
Trends
During the next twelve months management expects continued increases in
restaurant and package sales and income from investments in joint ventures and
anticipates that expenses will remain constant.
(9) Change in Certifying Accountant.
On February 26, 1999, the Audit Committee recommended and the Board of Directors
adopted a resolution authorizing management (i) to dismiss Arthur Andersen, LLP,
("AA"), as the Company's independent accountant, effective upon management's
notification to AA of such dismissal, and (ii) concurrently with such dismissal,
to engage Rachlin, Cohen & Holtz, LLP, ("RCH"), as the Company's independent
accountant for the fiscal year ending October 2, 1999.
On March 4. 1999, the Company notified AA of its dismissal. Also on March 4,
1999, the Company engaged RCH as the Company's independent accountants,
effective immediately. During the two (2) most recent fiscal years and during
the subsequent interim period preceding the decision to change independent
accountant, neither the Company nor anyone on its behalf consulted RCH regarding
either the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements, and neither a written report nor
oral advice was provided to the Company by RCH with respect to any such
consultation.
<PAGE>
AA audited the Company's annual consolidated financial statements as of and for
each of the fiscal years from the date of the Company's initial public offering
in 1969 through the fiscal year ended October 3. 1998, ("Historical Financial
Statements"). AA's auditor's reports for at least the past seven (7) years on
these Historical Financial Statements did not contain any adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles,
By a current report on Form 8-K, dated March 5, 1999 and filed with the
Securities and Exchange Commission on March 12, 1999, in connection with AA's
dismissal, the Company reported that during the two (2) most recent fiscal
years, and in the subsequent interim period, there had been no disagreements
between the Company's management and AA on any matters of accounting principles
or practices, financial statement disclosure or auditing scope and procedures
which, if not resolved to the satisfaction of AA, would have caused AA to make
reference to the matters in an auditor's report. By letter dated March 5, 1999
and filed with the Securities and Exchange Commission, AA agreed with the
Company's report.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None
b. Reports on Form 8-K - dated March 5, 1999, filed with the
Securities and Exchange Commission on March 12, 1999.
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 5/14/1999
/s/Edward A. Doxey
------------------
EDWARD A. DOXEY,
Chief Financial Officer
Date 5/14/1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-2-1999
<PERIOD-END> APR-3-1999
<CASH> 1,247
<SECURITIES> 0
<RECEIVABLES> 381
<ALLOWANCES> 0
<INVENTORY> 1,483
<CURRENT-ASSETS> 3,582
<PP&E> 10,513
<DEPRECIATION> 6,592
<TOTAL-ASSETS> 9,453
<CURRENT-LIABILITIES> 2,155
<BONDS> 1,312
0
0
<COMMON> 420
<OTHER-SE> 5,566
<TOTAL-LIABILITY-AND-EQUITY> 9,453
<SALES> 10,601
<TOTAL-REVENUES> 11,322
<CGS> 5,213
<TOTAL-COSTS> 10,215
<OTHER-EXPENSES> 32
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,075
<INCOME-TAX> 8
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<CHANGES> 0
<NET-INCOME> 1,067
<EPS-PRIMARY> .57
<EPS-DILUTED> .53
</TABLE>
