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 July 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
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Commission File Number 1-6836
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Flanigan's Enterprises, Inc.
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(Exact name of registrant as specified in its charter)
Florida 59-0877638
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
2841 Cypress Creek Road, Fort Lauderdale, Florida 33309
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (954) 974-9003
-----------------------------
NA
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(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuers classes of
Common Stock as of the latest practicable date 1,976,000
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<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
July 3, 1999
PART I. FINANCIAL INFORMATION
1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
Consolidated Summary of Earnings -- For the Thirteen Weeks and
the Thirty-Nine weeks ended June 27, 1998 and July 3, 1999
Consolidated Balance Sheets -- as of October 3, 1998 and July 3,
1999
Consolidated Statements of Cash Flows for the Thirty-Nine Weeks
Ended June 27, 1998 and July 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
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<PAGE>
FLANIGAN'S ENTERPRISES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
June 27, July 3, June 27, July 3,
1998 1999 1998 1999
------- ------- ------- ------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant food sales $ 2,672 $ 2,683 $ 7,941 $ 8,166
Restaurant bar sales 692 673 2,211 2,058
Package goods sales 1,465 1,680 5,454 5,413
Franchise related revenues 199 225 535 642
Owners fee 49 62 137 137
Joint venture income 45 160 211 336
Other operating income 14 12 125 65
----- ----- ------ ------
5,136 5,495 16,614 16,817
----- ----- ------ ------
COSTS AND EXPENSES:
Cost of merchandise sold restaurant and lounges 1,278 1,217 3,795 3,703
Cost of merchandise sold package goods 1,077 1,218 4,032 3,945
Payroll and related costs 1,419 1,445 4,387 4,382
Occupancy costs 215 221 742 742
Selling, general and administrative expenses 806 859 2,513 2,403
----- ----- ------ ------
4,795 4,960 15,469 15,175
----- ----- ------ ------
Income from operations 341 535 1,145 1,642
----- ----- ------ ------
OTHER INCOME (EXPENSE):
Interest expense on obligations under capital leases (11) (11) (34) (34)
Interest expense on long-term debt and damages payable (29) (27) (111) (93)
Abondoned fixed assets - - - (39)
Settlement of litigation - - 110 -
Interest income 19 13 54 34
Recovery of judgment - - - 50
Y2K costs - (107) - (107)
Recognition of deferred gains - - 4 2
Other net 7 33 20 56
----- ----- ------ ------
(14) (99) 43 (131)
----- ----- ------ ------
Income before income taxes 327 436 1,188 1,511
(continued)
</TABLE>
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<PAGE>
FLANIGAN'S ENTERPRISES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands Except Per Share Amounts)
(Continued)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
June 27, July 3, June 27, July 3,
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES $ 12 $ 16 $ 12 $ 24
------- ------- ------- -------
Net income $ 315 $ 420 $ 1,176 $ 1,487
======= ======= ======= =======
</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.
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.
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<PAGE>
<TABLE>
<CAPTION>
For The Thirteen Weeks Ended For The Thirty-nine weeks ended
June 27, 1998 July 3, 1999 June 27, 1998 July 3, 1999
Numerator Denom. EPS Numerator Denom. EPS Numerator Denom. EPS Numerator Denom. EPS
------------------------- -------------------------- -------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS 315,000 1,844,816 0.17 420,000 1,975,831 0.21 1,176,000 1,825,724 0.64 1,487,000 1,975,831 0.75
---- ---- ---- ----
Effect/dilutive
Stock Options - 208,932 - 115,956 - 199,308 - 121,199
------------------ ------------------- -------------------- --------------------
DILUTED EPS 315,000 2,053,748 0.15 420,000 2,091,787 0.20 1,176,000 2,025,032 0.58 1,487,000 2,097,030 0.71
------------------ ---- ------------------- ---- -------------------- ---- -------------------- ----
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 3, 1998 AND JULY 3, 1999
<TABLE>
<CAPTION>
ASSETS
OCTOBER 3, JULY 3,
1998 1999
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 1,468,000 $ 1,763,000
Receivables, including current portion
of notes, and mortgages, less allowance for uncollectible amounts and
deferred gains, including related party receivables of $24,000 and
$44,000 (before allowances and deferred gains) in 1998 and 1999
respectively 320,000 260,000
Inventories, at lower of cost (first-
in, first out) or market 1,237,000 1,614,000
Prepaid expenses 431,000 305,000
--------- ---------
Total current assets 3,456,000 3,942,000
--------- ---------
PROPERTY AND EQUIPMENT, net 3,717,000 3,838,000
--------- ---------
LEASED PROPERTY UNDER CAPITAL LEASES,
less accumulated amortization of
$728,000 and $771,000 in 1998
and 1999 respectively 129,000 101,000
--------- ---------
OTHER ASSETS:
Liquor licenses, less accumulated
amortization of $90,000 in 1998 and
$97,000 in 1999 respectively 384,000 321,000
Notes and mortgages receivable, less
allowance for uncollectible amounts and deferred gains, and including
related party receivables of $72,000 and $91,000 (before allowances
and deferred gains)
in 1998 and 1999 respectively 161,000 365,000
Investment in joint ventures 937,000 988,000
Other 259,000 137,000
--------- ---------
Total other assets 1,741,000 1,811,000
--------- ---------
$ 9,043,000 $ 9,692,000
========= =========
</TABLE>
(continued)
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<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 3, 1998 AND JULY 3, 1999
LIABILITIES AND STOCKHOLDER'S INVESTMENT (DEFICIT)
(continued)
<TABLE>
<CAPTION>
OCTOBER 3, JULY 3,
1998 1999
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 850,000 $ 867,000
Accrued and other current liabilities 752,000 801,000
Current portion of long-term debt 241,000 81,000
Current obligations under capital
leases 101,000 104,000
Current portion of damages payable on
terminated or rejected leases
and other bankruptcy liabilities 268,000 269,000
Due to Pennsylvania
limited partnership 30,000 17,000
--------- ---------
Total current liabilities 2,242,000 2,139,000
--------- ---------
LONG TERM DEBT, net of current
portion 793,000 552,000
--------- ---------
OBLIGATIONS UNDER CAPITAL LEASES,
net of current portion 218,000 157,000
--------- ---------
DAMAGES PAYABLE ON TERMINATED OR
REJECTED LEASES, net of
current portion 685,000 484,000
--------- ---------
</TABLE>
(continued)
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<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 3, 1998 AND JULY 3, 1999
LIABILITIES AND STOCKHOLDER'S INVESTMENT (DEFICIT)
(continued)
<TABLE>
<CAPTION>
OCTOBER 3, JULY 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 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 4,456,000
Less - Treasury stock, at cost,
2,384,000 and 2,220,000 shares
in 1998 and 1999, respectively (4,734,000) (4,701,000)
----------- -----------
Total stockholders' investment 5,105,000 6,360,000
----------- -----------
$ 9,043,000 $ 9,692,000
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets
-7-
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED
JUNE 27, 1998 AND JULY 3, 1999
(In Thousands)
<TABLE>
<CAPTION>
JUNE 27, JULY 3,
1998 1999
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,176 $ 1,487
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization
of property, equipment and
capital leases 447 456
Amortization of liquor licenses 6 12
Recognition of deferred gains
and other deferred income (4) (2)
Changes in provision for uncollectible
notes and mortgages receivable (91) -
Leasehold improvements written off
from closed store - 57
Changes in assets and liabilities:
Decrease in receivables 12 60
(Increase) decrease in inventories 58 (377)
(Increase) decrease in prepaid expenses 35 126
Increase (decrease) in accounts payable (147) 17
Decrease in accrued liabilities (519) 49
---- ----
Net cash provided by (used in)
operating activities 973 1,885
---- ----
</TABLE>
(continued)
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<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED
JUNE 27, 1998 AND JULY 3, 1999
(In Thousands)
<TABLE>
<CAPTION>
JUNE 27, JULY 3,
1998 1999
-------- -------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of liquor license - 75
Collections on notes and
mortgages receivable 26 80
Additions to notes and
mortgages receivable - (224)
Additions to property and equipment (678) (624)
Distribution to Pennsylvania
limited partnership - (13)
----- -----
Net cash used in
investing activities (652) (706)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt 500 -
Payments of long-term debt (136) (401)
Payments of obligations under
capital leases (53) (61)
Payments of damages payable (195) (201)
Exercise of stock option 52 60
Purchase of treasury stock - (95)
Payment of cash dividend - (186)
----- -----
Net cash provided by (used in)
financing activities 168 (884)
----- -----
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS 489 295
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,334 1,468
----- -----
CASH AND EQUIVALENTS, END OF QUARTER $ 1,823 $ 1,763
===== =====
</TABLE>
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<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 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
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
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<PAGE>
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.
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
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<PAGE>
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. The Company prepaid the loan
in full during the third quarter of fiscal year 1999.
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 Company's monetary commitment to the limited partnership for
its forty percent ownership is $580,000. 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 now has all documents
required by Miami-Dade County, Florida fully executed and is confident that the
building permits will be issued by August 31, 1999. The restaurant will be
renovated and open for business the first quarter of fiscal year 2000.
(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.
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<PAGE>
(7) COMMITMENTS AND CONTINGENCIES:
Guarantees
The Company is contingently liable for annual rentals in the amount of
approximately $390,000 at July 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.
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.
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<PAGE>
During fiscal year 1994, 104,000 stock options were granted at an
option price of $1.75 per share all of which were exercised prior to their
expiration on 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
during the third 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.
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 third
quarter of fiscal year 1999, no stock options had been granted under this plan.
Approximately 120,000 options were granted as of the first day of the fourth
quarter of fiscal year 1999. 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.
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<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
July 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>
June 27, July 3, Apr. 3, NOTE
TYPES OF UNITS 1998 1999 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 . 4 . 3 . (2)(3)(7)
Clubs . . . . . 1 . 1 . 1
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL - Company operated units. . . 15 14 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.
(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.
-15-
<PAGE>
(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
limited partnership. Due to circumstances beyond the control of the Company, it
is anticipated that the renovated restaurant will be open for business during
the first quarter of fiscal year 2000. 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. The unit began operating on May 29, 1999. The capital expenditures
required to open the store were not material.
(8) During the third quarter of fiscal year 1999, the Company closed a
restaurant whose lease expired on May 31, 1999 and sold its furniture, fixtures,
leasehold improvements and liquor license to an unrelated third party.
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows through
the third quarter of fiscal years 1998 and 1999.
<TABLE>
<CAPTION>
Nine months ended
-------------------------------
June 27, July 3,
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Net cash provided by
operating activities $ 973 $ 1,885
Net cash used in
investing activities (652) (706)
Net cash provided by
financing activities 168 (884)
-------- --------
Net increase (decrease) in
cash and cash equivalents 489 295
Cash and cash equivalents:
Beginning of year 1,334 1,468
-------- --------
End of period $ 1,823 $ 1,763
======== ========
</TABLE>
-16-
<PAGE>
Improvements
The Company had additions to fixed assets of $655,000 during the nine
months ended July 3, 1999 compared to $678,000 for the nine months ended June
27, 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 continues through fiscal year 1999.
The budget for fiscal year 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 completed its program to upgrade its computer systems to be
Y2K compliant during the third quarter of fiscal year 1999. The cost of this
program was $107,000 which was expensed during the third quarter of fiscal year
1999.
Working Capital
The table below summarizes the current assets, current liabilities and
working capital for the thirty-nine weeks ended June 27, 1998 and July 3, 1999
and for the fiscal year ended October 3, 1998.
<TABLE>
<CAPTION>
June July October
Item 27, 1998 3, 1999 3, 1998
------------------------- -------- ------- -------
(in thousands)
<S> <C> <C> <C>
Current assets $ 3,745 $ 3,942 $ 3,456
Current liabilities 2,232 2,139 2,242
Working capital (deficit) 1,513 1,803 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. The dividend of 20 cents
per share is not adjusted for the 2 for 1 stock split set forth below.
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.
-17-
<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.
-18-
<PAGE>
Results of Operation
<TABLE>
<CAPTION>
REVENUES:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Sales June 27, 1998 July 3, 1999 June 27, 1998 July 3, 1999
- ----- -------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restaurant, food $2,672 55.3% $2,683 53.3% $7,941 50.9% $8,166 52.2%
Restaurant, bar 692 14.3% 673 13.4% 2,211 14.2% 2,058 13.2%
Package goods 1,465 30.4% 1,680 33.3.% 5,454 34.9% 5,413 34.6%
------ ----- ------ ----- ----- ----- ------- -----
Total 4,829 100. % 5,036 100. % 15,606 100. % 15,637 100. %
Franchise revenues 199 225 535 642
Owner's fee 49 62 137 137
Joint venture income 45 160 211 336
Other operating income 14 12 125 65
------ ------ ----- -------
Total revenues $5,136 $5,495 $16,614 $16,817
</TABLE>
Restaurant food sales represented 55.3% and 50.9% of total sales in the
thirteen and thirty-nine weeks ended June 27, 1998 as compared to 53.3% and
52.2% in the comparable periods of fiscal year 1999. The weekly average of same
store restaurant food sales was $173,858 and $186,045 for the thirty-nine week
period of fiscal years 1998 and 1999 respectively, an increase of 7.0%. The
Company attributes the increase in food sales to its television advertising
commenced during the second quarter of fiscal year 1998.
The same store weekly average for restaurant bar sales increased from
$47,864 for the thirty-nine week period of fiscal year 1998 compared to $50,327
for the same period of fiscal year 1999, an increase of 5.1%
Same store package goods sales have reversed the decline of prior years
going from a weekly average of same store sales of $128,217 for the thirty-nine
weeks of fiscal year 1998 to $136,641 for the thirty-nine weeks of fiscal year
1999, an increase of 6.6%. The improvement in package goods sales indicates that
the decline in the liquor market has stabilized.
Franchise related revenues were $535,000 for the thirty-nine week
period of fiscal year 1998 and $642,000 for the same period of fiscal year 1999,
an increase of 20.0%. This increase in franchise related revenues is due to
royalty fees generated from the operation of the restaurant in Surfside, Florida
for the full thirty-nine week period in fiscal year 1999, whereas only fifteen
weeks applied for the same period in fiscal year 1998. All other franchises
experienced increased sales generating additional revenues for the Company.
The gross profit margin for restaurant sales was 62.6% for the first
nine months of fiscal year 1998 increasing to 64.7% for the nine months ended
July 3, 1999.
The gross profit margin for package goods sales during the thirty-nine
weeks ended June 27, 1998 was 26.1%, increasing to 27.1% for the thirty-nine
weeks ended July 3, 1999.
Overall gross profits were 50.7% for the thirty-nine weeks ended June
27, 1998, increasing to 51.2% for the same period in fiscal year 1999.
-19-
<PAGE>
Operating Costs and Expenses
Operating costs and expenses for the thirty-nine weeks ended June 27,
1998 were $15,469,000 compared to $15,175,000 for the same period in the fiscal
year 1999, a decrease of 1.9%. Operating expenses are comprised of the cost of
merchandise sold, payroll and related costs, occupancy costs and selling,
general and administrative expenses. The decrease is attributable to an
insurance recovery of $157,000 from prior years and the closing of one
restaurant in May 1999 and another in April 1998.
Payroll and related costs, which include workers compensation insurance
premiums, were $4,387,000 and $4,392,000 for the first thirty-nine weeks of
fiscal years 1998 and 1999 respectively.
Occupancy costs, which include rent, common area maintenance, repairs
and taxes were the same at $742,000 for the first nine months of fiscal years
1998 and 1999.
Selling, general and administrative expenses were $2,513,000 for the
thirty-nine weeks ended June 27, 1998 and $2,403,000 for the thirty-nine weeks
ended July 3, 1999.
Other Income and Expense
Other income and expenses declined from $43,000 to ($131,000) for the
thirty-nine weeks of fiscal year 1998 and 1999 respectively. The decline is
accounted for by the extraordinary $110,000 settlement of litigation in the
thirty-nine weeks ended June 27, 1998 and the $57,000 write off of leasehold
improvements in the thirty-nine weeks ended July 3, 1999 for the restaurant
which closed in May 1999, and the $107,000 expensed for the Y2K project
completed during the third quarter of fiscal year 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 accountant, 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.
-20-
<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.
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.
Joseph G. Flanigan
-------------------------------------------
JOSEPH G. FLANIGAN, Chief Executive Officer
Date 8/17/1999
----------------
Edward A. Doxey
-------------------------------------------
EDWARD A. DOXEY, Chief Financial Officer
Date 8/17/1999
----------------
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-2-1999
<PERIOD-END> JUL-3-1999
<CASH> 1,763
<SECURITIES> 0
<RECEIVABLES> 260
<ALLOWANCES> 0
<INVENTORY> 1,614
<CURRENT-ASSETS> 3,942
<PP&E> 10,464
<DEPRECIATION> 6,626
<TOTAL-ASSETS> 9,692
<CURRENT-LIABILITIES> 2,139
<BONDS> 0
0
0
<COMMON> 420
<OTHER-SE> 5,940
<TOTAL-LIABILITY-AND-EQUITY> 9,692
<SALES> 15,637
<TOTAL-REVENUES> 16,817
<CGS> 7,648
<TOTAL-COSTS> 15,175
<OTHER-EXPENSES> 131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> 1,511
<INCOME-TAX> 24
<INCOME-CONTINUING> 1,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,487
<EPS-BASIC> .75
<EPS-DILUTED> .71
</TABLE>
