UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
(X) ANNUAL REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the fiscal year ended September 30, 2000
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OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number I-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 of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2841 Cypress Creek Road, Fort Lauderdale, FL 33309
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (954) 974-9003
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.10 Par Value American Stock Exchange
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Title of each Class Name of each exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $3,786,000 as of November 16, 2000.
There were 1,856,478 shares of the Registrant's Common Stock ($0.10) Par Value
outstanding as of September 30, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the Registrant's 2001 definitive proxy material has
been incorporated by reference in Items 10, 11, 12 and 13 of Part III of this
Annual Report on Form 10-KSB.
Exhibit Index Begins on Page 31
PART I
Item 1. Business
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When used in this report, the words "anticipate", "believe", "estimate",
"will", "may", "intend" and expect and similar expressions identify
forward-looking statements. Forward-looking statements in this report include,
but are not limited to, those relating to the general expansion of the Company's
business. Although we believe that our plans, intentions and expectations
reflected in these forward-looking statements are reasonable, we can give no
assurance that these plans, intentions or expectations will be achieved.
General
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Flanigan's Enterprises, Inc., (the "Company") owns and/or operates
restaurants with lounges, package liquor stores and an entertainment oriented
club (collectively the "units"). At September 30, 2000, the Company operated 15
units, and had interests in seven additional units which have been franchised by
the Company. The table below sets out the changes in the type and number of
units being operated.
FISCAL FISCAL
YEAR YEAR NOTE
TYPES OF UNITS 2000 1999 NUMBER
-------------- ---- ---- ------
Combination package and restaurant 4 4
Restaurant only 6 5 (1)(2)(3)(4)(5)
Package store only 4 4 (6)(7)(8)
Clubs 1 1
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TOTAL - Company operated units 15 14
FRANCHISED - units 7 7 (3)
Notes:
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(1) During the third quarter of fiscal year 1999, the lease for a restaurant
operated by the Company in Fort Lauderdale, Florida expired and the Company
elected not to renew the same. The furniture, fixture, equipment and liquor
license used by the Company at this restaurant were sold to an unrelated third
party.
(2) During the third quarter of fiscal year 1998 the Company formed a limited
partnership and raised funds through a private offering to purchase the assets
of a restaurant in Kendall, Florida and renovate the same for operation under
the "Flanigan's Seafood Bar and Grill" servicemark. The Company acts as general
partner and forty percent
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ownership of the partnership. The restaurant opened for business on April 9,
2000.
(3) During the first quarter of fiscal year 1999, the Company purchased the
Management Agreement of a franchise, 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. The
Company retains its interest in the franchise and continues to receive the same
royalties and rent as it received prior to its purchase of the Management
Agreement.
(4) During the third quarter of fiscal year 2000, the Company, as agent for a
limited partnership to be formed, entered into an agreement for the purchase of
an existing restaurant location in West Miami, Florida. The Company plans to
file its application for a special use and zoning variances with Miami-Dade
County, FL during the second quarter of fiscal year 2001. Once the limited
partnership is formed, with the Company acting as general partner and up to
forty percent owner of the same, funds will be raised to renovate the business
premises for operation as a "Flanigan's Seafood Bar and Grill" restaurant. The
renovations are expected to begin during the third quarter of fiscal year 2001
and the restaurant is expected to be open for business by the end of fiscal year
2001. This restaurant is not included in the table of units.
(5) During the fiscal year, the Company received official notification from
the State of Florida, Department of Transportation ("DOT"), that the DOT was
exercising its right of eminent domain to "take" the hotel property upon which a
restaurant, operated by the Company as general partner of a limited partnership,
is located. It is also anticipated that the DOT will take title to the hotel
property during the fourth quarter of fiscal year 2001, at which time the
restaurant will be forced to close.
(6) During the third quarter of fiscal year 1999, the Company opened a package
liquor store in Fort Lauderdale, Florida.
(7) During the fourth quarter of fiscal year 2000, the Company entered into a
lease for the operation of a package liquor store in Hialeah, Florida. The
Company plans to file its application for a zoning variance during the second
quarter of fiscal year 2001 and expects the package liquor store to be open for
business during the third quarter of fiscal year 2001. This package liquor store
is not included in the table of units.
(8) The lease for one (1) package liquor store owned and operated by the
Company in Lake Worth, Florida expires on December 31, 2000 and the Company
elected not to exercise its five year renewal option to extend the terms of the
same, consequently the package liquor store will close permanently, at the close
of business on December 31, 2000. The net book value of the assets in the store
approximates $35,000. The past five (5) years the store has operated at
approximately break even. The Company does not expect the closing to have a
material impact on the Company.
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All of the Company's package liquor stores, restaurants and clubs are
operated on leased properties.
The Company was incorporated in Florida in 1959 and operated in South Florida
as a chain of small cocktail lounges and package liquor stores. By 1970, the
Company had established a chain of "Big Daddy's" lounges and package liquor
stores between Vero Beach and Homestead, Florida. From 1970 to 1979, the Company
expanded its package liquor store and lounge operations throughout Florida and
opened clubs in five other "Sun Belt" states. In 1975, the Company discontinued
most of its package store operations in Florida except in the South Florida
areas of Dade, Broward, Palm Beach and Monroe Counties. In 1982 the Company
expanded its club operations into the Philadelphia, Pennsylvania area as general
partner of several limited partnerships organized by the Company. In March 1985
the Company began franchising its package liquor stores and lounges in the South
Florida area. See Note 9 to the consolidated financial statements and the
discussion of franchised units on page 6.
During fiscal year 1987, the Company began renovating its lounges to provide
full restaurant food service, and subsequently renovated and added food service
to most of its lounges. The restaurant concept, as the Company offers it, has
been so well received by the public that food sales now represent approximately
75% of total restaurant sales.
The Company's package liquor stores emphasize high volume business by
providing customers with a wide variety of brand name and private label
merchandise at discount prices. The Company's restaurants provide efficient
service of alcoholic beverages and full food service with abundant portions,
reasonably priced, served in a relaxed, friendly and casual atmosphere.
The Company's principal sources of revenue are the sale of food and alcoholic
beverages.
The Company conducts its operations directly and through a number of wholly
owned subsidiaries. The operating subsidiaries are as follows:
SUBSIDIARY STATE OF INCORPORATION
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Flanigan's Management Services, Inc. Florida
Flanigan's Enterprises, Inc. of Georgia Georgia
Seventh Street Corp. Florida
Flanigan's Enterprises, Inc. of Pa. Pennsylvania
The income derived and expenses incurred by the Company relating to the
aforementioned subsidiaries are consolidated for accounting purposes with the
income and expenses of the Company in the consolidated financial statements in
this Form 10-KSB.
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The Company's executive offices are located in a leased facility at 2841
Cypress Creek Road, Fort Lauderdale, Florida 33309 and its telephone number at
such address is (954) 974-9003.
Corporate Reorganization
------------------------
As noted in Note 6 to the consolidated financial statements, on November 4,
1985, the Company, not including any of its subsidiaries, filed a Voluntary
Petition in the United States Bankruptcy Court for the Southern District of
Florida seeking to reorganize under Chapter 11 of the Federal Bankruptcy Code.
The primary purposes of the petition were (1) to reject leases which were
significantly above market rates and (2) to reject leases on closed units which
had been repossessed by, or returned to the Company. On May 5, 1987, the
Company's Plan of Reorganization as amended and modified was confirmed by the
Bankruptcy Court. On December 28, 1987 the Company was officially discharged
from bankruptcy. See Note 6 to the consolidated financial statements for a
discussion of the bankruptcy proceedings to date and Item 7 for a discussion of
the effect of the bankruptcy proceedings herein.
Financial Information Concerning Industry Segments
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The Company's business is carried out principally in two segments: the
restaurant segment and the package liquor store segment.
Financial information broken into these two principal industry segments for
the two fiscal years ended September 30, 2000 and October 2, 1999 is set forth
in the consolidated financial statements which are attached hereto, and is
incorporated herein by reference.
The Company's Package Liquor Stores and Restaurants
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The Company's package liquor stores are operated under the "Big Daddy's
Liquors" servicemark and the Company's restaurants are operated under the
"Flanigan's Seafood Bar and Grill" servicemark. The Company's package liquor
stores emphasize high volume business by providing customers with a wide
selection of brand name and private label liquors, beer and wines. The Company
has a policy of meeting the published sales prices of its competitors. The
Company provides extensive sales training to its package liquor store personnel.
All package liquor stores are open six or seven days a week from 9:00-10:00 a.m.
to 9:00-10:00 p.m., depending upon demand and local law. Approximately half of
the Company's units have "night windows" with extended evening hours.
The Company's restaurants offer full food and alcoholic beverage service with
approximately 75% of their sales being food items. These restaurants are
operated under the "Flanigan's Seafood Bar and Grill" servicemark. Although
these restaurants provide a neighborhood atmosphere, they have the degree of
standardization prevalent in casual dining restaurant chains, including menu.
The interior decor is nautical with numerous fishing and boating pictures and
decorations. Drink prices may vary between locations to meet local
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conditions. Food prices are standardized. The restaurants' hours of operation
are from 11:00 a.m. to 1:00-5:00 a.m. The Company continues to develop strong
customer recognition of its "Flanigan's Seafood Bar and Grill" servicemark
through very competitive pricing and efficient and friendly service.
The Company's package liquor stores and restaurants were designed to permit
minor modifications without significant capital expenditures. However, from time
to time the Company is required to redesign and refurbish its units at
significant cost. See Item 2, Properties and Item 7 for further discussion.
Franchised Package Liquor Stores and Lounges
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In March 1985, the Company's Board of Directors approved a plan to sell, on a
franchise basis, up to 26 of the Company's package liquor stores and lounges in
the South Florida area. Under the terms of the franchise plan, the Company sold
the liquor license, furniture, fixtures and equipment of a particular unit,
entered into a sublease for the business premises and a franchise agreement,
whereby the franchisee licensed the "Big Daddy's Liquors" and "Big Daddy's
Lounges" servicemarks in the operation of its business. Investors purchasing
units were required to execute ten year franchise agreements with a thirty day
cancellation provision. The franchise agreement also provided for a royalty to
the Company, in the amount of 1% of gross sales, plus a contribution to
advertising, in an amount between 1-1/2% to 2% of gross sales. In most cases,
the sublease agreement provided for rent in excess of the amount paid by the
Company, in order to realize an additional return of between 2% to 3% of gross
sales, depending on a number of factors, including but not limited to the
performance of the particular unit sold and its expected sales growth.
As of the end of fiscal year 2000, seven units are franchised. Five of these
units are franchised to members of the family of the Chairman of the Board and
Officers or Directors. The Company has suspended its franchise plan.
During the first quarter of fiscal year 1999, the manager of a franchise
restaurant expressed an interest in selling his rights under a Management
Agreement and effective December 1, 1998 the Company assumed management of its
franchised restaurant. The franchise includes a package liquor store, which is
still operated exclusively by the franchisee. The Company retains its interest
in the franchise and continues to receive the same royalties and rent as it
received prior to its purchase of the right to manage the franchised restaurant.
The units that continue to be franchised are doing well and continue to
generate income for the Company. Many of the units that were originally offered
as franchises have been sold outright and are no longer being operated as
Flanigan's or Big Daddy's stores.
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Franchised Restaurants
----------------------
During fiscal year 1995, the Company completed its new franchise agreement
for a franchisee to operate a restaurant under the "Flanigan's Seafood Bar and
Grill" servicemark pursuant to a license from the Company. The new franchise
agreement was drafted jointly with existing franchisees with all modifications
requested by the franchisees incorporated therein. The new franchise agreement
provides the Company with the ability to maintain a high level of food quality
and service at its franchised restaurants, which are essential to a successful
franchise operation. A franchisee is required to execute a new franchise
agreement for the balance of the term of its lease for the business premises,
extended by the franchisee's continued occupancy of the 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.
All existing franchisees who operate restaurants under the "Flanigan's
Seafood Bar and Grill" or other authorized servicemarks had executed new
franchise agreements.
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 only while the
Company acts as general partner.
As previously discussed, during the third quarter of fiscal year 1997, a
related party formed a limited partnership to own a certain franchise in Fort
Lauderdale, Florida, 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.
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%
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of the gross sales from the operation of the restaurant, only while the Company
acts as general partner. This restaurant opened in the second quarter of fiscal
year 1998.
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 and separate agreement were each contingent upon the
Company applying for an receiving zoning variances from Miami-Dade County,
Florida. Although zoning variances became final during the first quarter of
fiscal year 1999, for reasons beyond the control of the Company, building
permits were not issued until September 1999 at which time the renovations
commenced. 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.
The Company is general partner of the limited partnership and is the owner of
forty percent of the same, as well as other related parties, including but not
limited to officers and directors of the Company and their families. The limited
partnership agreement will give the 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.
The restaurant opened for business on April 9, 2000.
During the third quarter of fiscal year 2000, the Company as agent for a
limited partnership to be formed, entered into an agreement for the purchase of
an existing restaurant location in West Miami, Florida. The Company plans to
file its application for a special use and zoning variances from Miami-Dade
County, Florida during the second quarter of fiscal year 2001. Once the limited
partnership is formed with the Company as general partner and up to forty
percent owner of the same, funds will be raised to renovate the business
premises for operation as a "Flanigan's Seafood Bar and Grill" restaurant. Other
related parties, including but not limited to officers and directors of the
Company and their families, are also expected to be limited partners. The
limited partnership agreement will give the 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. The renovations are expected to begin during the third
quarter of fiscal year 2001 and the restaurant is expected to open for business
by the end of fiscal year 2001.
Clubs
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As of the end of fiscal year 2000, the Company owned one club in Atlanta,
Georgia, which was operated by an unaffiliated third party, as discussed below.
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Operation of Units by Unaffiliated Third Parties
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During fiscal year 1992, the Company entered into a Management Agreement with
Mardi Gras Management, Inc. for the operation of the Company's club in Atlanta,
Georgia through the balance of the initial term of the lease, unless sooner
terminated by Mardi Gras Management, Inc. upon thirty days prior written notice,
with or without cause. Mardi Gras Management, Inc. assumed the management of
this club effective November 1, 1991 and is currently operating the club under
an adult entertainment format. During fiscal year 1997, the Company agreed to
modify the Management Agreement to give Mardi Gras Management, Inc. one five
year renewal option to extend the term of the same provided the Company is
satisfied with the financial condition of Mardi Gras Management, Inc. within its
sole discretion, and Mardi Gras Management, Inc. agreed to modify the owner's
fee to $150,000 per year versus ten percent of gross sales from the club,
whichever is greater.
Pursuant to the Management Agreement, as modified, the Company receives a
monthly owner's fee of $12,500, subject to adjustment each year on or about July
1, with an additional owners fee equal to 10% of the gross sales exceeding
$1,500,000 for the prior 12 month period, being due the Company. Subsequent to
the end of fiscal year 2000, the Company accepted the exercise of the five year
renewal option by Mardi Gras Management upon its receipt of a security deposit
of $175,000 and the agreement of Mardi Gras Management to pay an additional
$25,000 within a reasonable period of time. Simultaneously, with its acceptance
of the exercise of the renewal option by Mardi Gras Management, the Company
exercised its five year renewal option under the ground lease for the business
premises.
Operations and Management
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The Company emphasizes systematic operations and control of all units. Each
unit has its own manager who is responsible for monitoring inventory levels,
supervising sales personnel, food preparation and service in restaurants and
generally assuring that the unit is managed in accordance with Company
guidelines and procedures. The Company has in effect an incentive cash bonus
program for its managers and salespersons based upon various performance
criteria. The Company's operations are supervised by area supervisors. Each area
supervisor supervises the operations of the units within his or her territory
and visits those units to provide on-site management and support. There are four
area supervisors responsible for package store, restaurant and club operations
in specific geographic districts.
All of the Company's managers and salespersons receive extensive training in
sales techniques.
The Company arranges for independent third parties, or "shoppers", to inspect
each unit in order to evaluate the unit's operations, including the handling of
cash transactions.
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Purchasing and Inventory
------------------------
The package liquor business requires a constant substantial capital
investment in inventory in the units. Liquor inventory purchased can normally be
returned only if defective or broken.
All Company purchases of liquor inventory are made through its purchasing
department from the Company's corporate headquarters. The major portion of
inventory is purchased under individual purchase orders with licensed
wholesalers and distributors who deliver the merchandise within one or two days
of the placing of an order. Frequently there is only one wholesaler in the
immediate marketing area with an exclusive distributorship of certain liquor
product lines.
Substantially all of the Company's liquor inventory is shipped by the
wholesalers or distributors directly to the Company's units. The Company
significantly increases its inventory prior to Christmas, New Year's eve and
other holidays.
Pursuant to Florida law, the Company pays for its liquor purchases within ten
days of delivery.
All negotiations with food suppliers are handled by the Company's purchasing
department at the Company's corporate headquarters. This ensures that the best
quality and prices will be available to each unit. Orders for food products are
prepared by each unit's kitchen manager and reviewed by the unit's general
manager before being placed with the approved vendor. Merchandise is delivered
by the supplier directly to each unit. Orders are placed several times a week to
ensure product freshness. Food inventory is primarily paid for monthly.
Government Regulation
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The Company is subject to various federal, state and local laws affecting its
business. In particular, the units operated by the Company are subject to
licensing and regulation by the alcoholic beverage control, health, sanitation,
safety and fire department agencies in the state or municipality where located.
Alcoholic beverage control regulations require each of the Company's units to
apply to a state authority and, in certain locations, county and municipal
authorities, for a license or permit to sell alcoholic beverages on the
premises.
In the State of Florida, which represents all but one of the total liquor
licenses held by the Company, most of the Company's liquor licenses are issued
on a "quota License" basis. Quota licenses are issued on the basis of a
population count established from time to time under the latest applicable
census. Because the total number of liquor licenses available under a quota
license system is limited and restrictions placed upon their transfer, the
licenses have purchase and resale value based upon supply and demand in the
particular areas
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in which they are issued. The quota licenses held by the Company allow the sale
of liquor for on and off premises consumption only. In Florida, the other liquor
licenses held by the Company or limited partnerships of which the Company is the
general partner are restaurant liquor licenses, which do not have quota
restrictions and no purchase or resale value. A restaurant liquor license is
issued to every applicant who meets all of the state and local licensing
requirements, including, but not limited to zoning and minimum restaurant size,
seating and menu. The restaurant liquor licenses held by the Company allow the
sale of liquor for on premises consumption only.
In the State of Georgia, the other state in which the Company operates,
licensed establishments also do not have quota restrictions for on-premises
consumption and such licenses are issued to any applicant who meets all of the
state and local licensing requirements based upon extensive license application
filings and investigations of the applicant.
All licenses must be renewed annually and may be revoked or suspended for
cause at any time. Suspension or revocation may result from violation by the
licensee or its employees of any federal, state or local law regulation
pertaining to alcoholic beverage control. Alcoholic beverage control regulations
relate to numerous aspects of the daily operations of the Company's units,
including, minimum age of patrons and employees, hours of operations
advertising, wholesale purchasing, inventory control, handling, storage and
dispensing of alcoholic beverages, internal control and accounting and
collection of state alcoholic beverage taxes.
As the sale of alcoholic beverages constitutes a large share of the Company's
revenue, the failure to receive or retain, or a delay in obtaining a liquor
license in a particular location could adversely affect the Company's operations
in that location and could impair the Company's ability to obtain licenses
elsewhere.
The Company is subject in certain states to "dram shop" or "liquor liability"
statutes, which generally provide a person injured by an intoxicated person the
right to recover damages from an establishment that wrongfully served alcoholic
beverages to such person. See Item 1, Insurance and Item 3, Legal Proceedings
for further discussion. The Company maintains a continuous program of training
and surveil-lance from its corporate headquarters to assure compliance with all
applicable liquor laws and regulations. During the fourth quarter of fiscal year
1997, the Division of Alcoholic Beverages and Tobacco (DABT), subpoenaed several
employees of the Company to inquire about three cash purchases of inventory made
in calendar years 1995 and 1996 from a distributor, without invoices. The total
purchase price for the inventory was $5,100. The Company was charged
administratively by the DABT for failing to have invoices for these cash
transactions, but during the fourth quarter of fiscal year 1999, the Company
entered in a settlement agreement with the DABT and paid a fine of $4,000. At
its meeting on September 4, 1997,the Board of Directors was advised of the
investigation by the DABT and unanimously passed a resolution
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prohibiting management from purch-asing inventory without an invoice and in
cash. Otherwise, during the fiscal years ended October 2, 1999, and September
30, 2000, and through the present time, no significant pending matters have been
initiated by the DABT concerning any of the Company's licenses which might be
expected to result in a revocation of a liquor license or other significant
actions against the Company.
The Company is not aware of any statute, ordinance, rule or regulation under
present consideration which would significantly limit or restrict its business
as now conducted. However, in view of the number of jurisdictions in which the
Company does business, and the highly regulated nature of the liquor business,
there can be no assurance that additional limitations may not be imposed in the
future, even though none are presently anticipated.
Federal and state environmental regulations have not had a material effect on
the Company's operation.
Insurance
---------
The Company has general liability insurance which incorporates a
semi-self-insured plan under which the Company assumes the full risk of the
first $50,000 of exposure per occurrence. The Company's insurance carrier is
responsible for $1,000,000 coverage per occurrence above the Company's
self-insured deductible, up to a maximum aggregate of $2,000,000 per year.
During the fiscal year, the Company was able to purchase excess liability
insurance at a reasonable premium, whereby the Company's excess insurance
carrier is responsible for $4,000,000 coverage above the Company's primary
general liability insurance coverage. The Company is self- insured against
liability claims in excess of $5,000,000.
The Company's general policy is to settle only those legitimate and
reasonable claims asserted and to aggressively defend and go to trial, if
necessary, on frivolous and unreasonable claims. The Company has established a
select group of defense attorneys which it uses in conjunction with this
program. Under the Company's current liability insurance policy, any expense
incurred by the Company in defending a claim, including adjusters and attorney's
fees, are a part of the $50,000 self-insured retention.
An accrual for the Company's estimated liability on liability claims is
included in the consolidated balance sheets in the caption "Accounts Payable and
Accrued Expenses". A significant unfavorable judgment or settlement against the
Company in excess of its liability insurance coverage could have a materially
adverse effect on the Company.
Competition and the Company's Market
------------------------------------
The liquor and hospitality industries are highly competitive and are often
affected by changes in taste and entertainment trends among the public, by
local, national and economic conditions affecting
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spending habits, and by population and traffic patterns. The Company believes
that the principal means of competition among package liquor stores is price and
that, in general, the principal means of competition among restaurants include
location, type and quality of facilities and type, quality and price of beverage
and food served.
The Company's package liquor stores compete directly or indirectly with local
retailers and discount "superstores". Due to the competitive nature of the
liquor industry in South Florida, the Company has had to adjust its pricing to
stay competitive, including meeting all competitor's advertisements. Such
practices will continue in the package liquor business. It is the opinion of the
Company's management that the Company has a competitive position in its market
because of widespread consumer recognition of the "Big Daddy's" and "Flanigan's"
names.
As previously noted, at September 30, 2000 the Company owned and operated six
restaurants, all of which had formerly been lounges and were renovated to
provide full food service. These restaurants compete directly with other
restaurants serving liquor in the area. The Company's restaurants are
competitive due to four factors; product quality, portion size, moderate pricing
and a standardization throughout the Company owned restaurants and most of the
franchises.
The Company's business is subject to seasonal effects, in that liquor
purchases tend to increase during the holiday seasons.
Trade Names
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The Company operates principally under three servicemarks; "Flanigan's", "Big
Daddy's", and "Flanigan's Seafood Bar and Grill". Throughout Florida the
Company's package liquor stores are operated under the "Big Daddy's Liquors"
servicemark. The Company's rights to the use of the "Big Daddy's" servicemark
are set forth under a consent decree of a Federal Court entered into by the
Company in settlement of federal trademark litigation. The consent decree and
the settlement agreement allow the Company to continue, and expand, its use of
the "Big Daddy's "servicemark in connection with limited food and liquor sales
in Florida. The consent decree further contained a restriction upon all future
sales of distilled spirits in Florida under the "Big Daddy's" name by the other
party who has a federally registered servicemark for "Big Daddy's" use in the
restaurant business. The Federal Court retained jurisdiction to enforce the
consent decree. The Company has acquired a registered Federal trademark on the
principal register for its "Flanigan's" servicemark.
The standard symbolic trademark associated with the Company and its
facilities is the bearded face and head of "Big Daddy" which is predominantly
displayed at all "Flanigan's" facilities and all "Big Daddy's" facilities
throughout the country. The face comprising this trademark is that of the
Company's founder, Joseph "Big Daddy" Flanigan, and is a federally registered
trademark owned by the Company.
-13-
<PAGE>
Employees
---------
As of year end, the Company employed 342 employees, of which 267 were
full-time and 75 were part-time. Of these, 26 were employed at the corporate
offices. Of the remaining employees, 32 were employed in package liquor stores
and 284 in restaurants.
None of the Company's employees are represented by collective bargaining
organizations. The Company considers its labor relations to be favorable.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE REGISTRANT
Positions and Offices Office or Position
Name Currently Held Age Held Since
---- -------------- --- ----------
<S> <C> <C> <C>
Joseph G. Flanigan Chairman of the Board 71 1959
of Directors, Chief
Executive Officer and
President
William Patton Vice President 77 1975
Community Relations
Edward A. Doxey Chief Financial Officer and Secretary 59 1992
Jeffrey D. Kastner Assistant Secretary 47 1995
</TABLE>
Item 2. Properties
------------------
The Company's operations are all conducted on leased property. Initially most
of these properties were leased by the Company on long-term ground and building
leases with the buildings either constructed by the lessors under build-to-suit
leases or constructed by the Company. A relatively small number of business
locations involve the lease or acquisition of existing buildings. In almost
every instance where the Company initially owned the land or building on leased
property, the Company entered into a sale and lease-back transaction with
investors to recover a substantial portion of its per unit investment.
The majority of the Company's leases contained rent escalation clauses based
upon the consumer price index which made the continued profitable operation of
many of these locations impossible and jeopardized the financial position of the
Company. As a result of the Company's inability to renegotiate these leases, on
November 4, 1985 the Company, not including its subsidiaries, filed a Voluntary
Petition in the United States Bankruptcy Court for the Southern District of
Florida seeking to reorganize under Chapter 11 of the Federal Bankruptcy Code.
The primary purpose of the reorganization was to reject and/or renegotiate the
leases on such properties.
-14-
<PAGE>
All of the Company's units require periodic refurbishing in order to remain
competitive. The Company has budgeted $500,000 for its refurbishing program for
fiscal year 2001 which includes expenditures in order to bring the stores into
compliance with ADA. See Item 7, "Liquidity and Capital Resources" for
discussion of the amounts spent in fiscal year 2000.
The following table summarizes the Company's properties as of September 30,
2000 including franchise locations, a club and Company managed locations.
<TABLE>
<CAPTION>
Square License Lease
Name and Location Footage Seats Owned by Terms
----------------- ------- ----- -------- -----
<S> <C> <C> <C> <C>
Big Daddy's Liquors #8 1,800 N/A Company 5/1/99 to 4/30/14
Flanigan's Enterprises, Inc.
959 State Road 84
Fort Lauderdale, FL
Flanigan's Seafood Bar 4,300 130 Company 10/1/71 to 12/31/04
and Grill #9 and Option to
Flanigan's Enterprises, 12/31/09
Inc. (2)
1550 W.84th Street
Hialeah, FL
Flanigan's Legends 5,000 150 Franchise 1/4/00-1/3/20
Seafood Bar and Grill #11, Option to 1/3/25
11 Corporation (3)
330 Southern Blvd.
W. Palm Beach, FL
Flanigan's Legends 5,000 180 Franchise 11/15/92 to 11/15/02
Seafood Bar and Grill Option to 11/15/12
#12 Galeon Tavern, Inc. (3)
2401 Tenth Ave. North
Lake Worth, FL
Flanigan's Seafood 5,000 200 Joint N/A
Bar & Grill #13 Venture
CIC Investors #13 Ltd.
1549 NW LeJeune Rd
Miami, FL
Flanigan's Seafood 3,320 90 Franchise 6/1/79 to 6/1/04
Bar and Grill #14, Option to 6/1/09
Big Daddy's #14, Inc. (2)(3)(5)(10)
2041 NE Second St.
Deerfield Beach, FL
Piranha Pats II-#15 4,000 90 Joint 3/2/76 to 8/31/01
CIC Investors #15 Ltd. (3) (5) Venture/ Options to 8/31/11
1479 E. Commercial Blvd. Franchise
Ft. Lauderdale, FL
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Square License Lease
Name and Location Footage Seats Owned by Terms
----------------- ------- ----- -------- -----
<S> <C> <C> <C> <C>
Flanigan's Seafood 4,300 100 Franchise 2/15/72 to 12/31/05
Bar and Grill #18 Option to 12/31/10
Twenty Seven Birds Corp.
(2)(3)(5)
2721 Bird Avenue
Miami, FL
Flanigan's Seafood 4,500 160 Company 3/1/72 to 12/31/05
Bar and Grill #19
Flanigan's Enterprises, Inc.
(2)(4)
2505 N. University Dr.
Hollywood, FL
Flanigan's Seafood 5,100 140 Company 7/15/68 to 12/31/01
Bar and Grill #20 Options to 12/31/05
Flanigan's Enterprises Additional Lease
Inc. (2) 5/1/69 to 12/31/01
13205 Biscayne Blvd. Options to 12/31/05
North Miami, FL
Flanigan's Seafood 4,100 200 Company 12/16/68 to 12/31/05
Bar and Grill #22 Option to 12/31/10
Flanigan's Enterprises
Inc. (2)(4)
2600 W. Davie Blvd.
Ft. Lauderdale, FL
Flanigan's Enterprises 3,000 90 Company 7/1/50 to 6/30/49
Inc. #27 (9)
732-734 NE 125th St.
North Miami, FL
Flanigan's Seafood 4,600 150 Company 9/6/68 to 12/31/05
Bar and Grill #31 Option to 12/31/10
Flanigan's Enterprises
Inc. (2)
4 N. Federal Highway
Hallandale, FL
Flanigan's Guppy's 4,620 130 Franchise 11/1/68 to 10/31/03
Seafood Bar and Grill #33 New Lease
Guppies, Inc. (2)(3)(5) 11/1/03 to 12/31/09
45 S. Federal Highway
Boca Raton, FL
Big Daddy's Liquors 3,000 N/A Company 5/29/97 to 5/28/02
#34, Flanigan's Options to 5/28/17
Enterprises, Inc. (1)
9494 Harding Ave.
Surfside, FL
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Square License Lease
Name and Location Footage Seats Owned by Terms
----------------- ------- ----- -------- -----
<S> <C> <C> <C> <C>
Big Daddy's Liquors 4,600 N/A Company 3/10/87 to 12/31/00
#36, Flanigan's Additional Lease
Enterprises, Inc. (2)(11) 4/29/87 to 12/31/00
102 N. Dixie Highway Option to 12/31/05
Lake Worth, FL
Flanigan's Seafood 4,600 140 Company 4/1/71 to 12/31/05
Bar and Grill #40 Options to 12/31/15
Flanigan's Enterprises
Inc. (2)
5450 N. State Road 7
Ft. Lauderdale, FL
Piranha Pat's #43 4,500 90 Franchise 12/1/72 to 11/30/02
BD 43 Corporation (2)(3)(5) Option to 11/30/12
2500 E. Atlantic Blvd.
Pompano Beach, FL
Big Daddy's Liquors 6,000 N/A Company 12/21/68 to 1/1/10
#47, Flanigan's Options to 1/1/60
Enterprises, Inc. (6)(8)
8600 Biscayne Blvd.
Miami, FL
Flanigan's Seafood 6,800 200 Joint 8/1/97 to 12/31/11
Bar and Grill #60, Venture
CIC Investors #60 Ltd.
9516 Harding Avenue
Surfside, FL
Flanigan's Seafood 4,850 161 Joint 4/1/98 to 3/31/08
Bar and Grill #70 Venture Options to 3/31/28
12790 SW 88 St
Kendall, FL
Flanigan's Enterprises 10,000 400 Company 5/1/76 to 4/30/06
#600 (7)
Powers Ferry Landing
Atlanta, GA
</TABLE>
(1) License subject to chattel mortgage.
(2) License pledged to secure lease rental.
(3) Franchised by Company.
(4) Former franchised unit returned and now operated by Company.
(5) Lease assigned to franchisee.
(6) Lease originally assigned to unaffiliated third parties. During fiscal year
1996, the Company purchased 37% of the leasehold interest from the
unaffiliated third parties. An additional 11% was purchased during fiscal
year 1997, bringing the total interest purchased to 48%.
-17-
<PAGE>
(7) Location managed by an unaffiliated third party.
(8) Business formerly operated by the Company pursuant to Court Order, until
December 31, 1996 when the Company reacquired ownership of the business
through foreclosure.
(9) Location was closed in May 1998. The Company entered into a five year
sub-lease agreement, with two five year options, with an unaffiliated third
party who is presently operating a restaurant at this location.
(10) Effective December 1, 1998, the Company purchased the Management Agreement
to operate the franchised restaurant for the franchisee.
(11) Lease expires December 31, 2000 and the Company elected not to exercise the
final five year renewal option.
Item 3. Legal Proceedings.
--------------------------
Due to the nature of the business, the Company is sued from time to time by
patrons, usually for alleged personal injuries occurring at the Company's
business locations. The Company has liability insurance which incorporates a
semi-self-insured plan under which the Company assumes the full risk of the
first $50,000 of exposure per occurrence. The Company's primary general
liability insurance carrier is responsible for $1,000,000 coverage per
occurrence above the Company's self-insured deductible, up to a maximum
aggregate of $2,000,000 per year. During the fiscal year, the Company was able
to purchase excess liability insurance, at a reasonable premium whereby the
Company's excess insurance carrier is responsible for $4,000,000 coverage above
the Company's primary general liability insurance coverage. Certain states have
liquor liability (dram shop) laws which allow a person injured by an "obviously
intoxicated person" to bring a civil suit against the business (or social host)
who had served intoxicating liquors to an already "obviously intoxicated
person". The Company's insurance coverage relating to this type of incident is
limited.
Dram shop claims normally involve traffic accidents and the Company generally
does not learn of dram shop claims until after a claim is filed and then the
Company vigorously defends these claims on the grounds that its employee did not
serve an "obviously intoxicated person". Damages in most dram shop cases are
substantial. At the present time, there are no dram shop cases pending against
the Company. The Company has in place insurance coverage to protect it from
losses, if any.
On November 4, 1985 the Company, not including its subsidiaries, filed a
Voluntary Petition in the United States Bankruptcy Court for the Southern
District of Florida seeking to reorganize under Chapter 11 of the Federal
Bankruptcy Code. The Petition, identified as case no. 85-02594-BKC-AJC was filed
in Fort Lauderdale, Florida. By Order
-18-
<PAGE>
of the Court dated November 4, 1985, the Company was appointed "debtor in
possession".
The Company's action was a result of significant escalations of rent on
certain of the Company's leases which made continued profitable operations at
those locations impossible and jeopardized the Company's financial position. The
major purpose of the reorganization was to reject such leases.
On January 11, 1986, the Bankruptcy Court granted the Company's motions to
reject thirteen leases and the Company was successful in negotiating the
termination of three additional leases. On April 7, 1986, the Bankruptcy Court
granted the Company's motion to reject two additional leases and two more leases
were automatically rejected due to the Company's failure to assume the same
prior to May 22, 1986. During the fiscal year ended October 3, 1987 the Company
negotiated a formula with the Official Committee of Unsecured Creditors
("Committee"), which formula was used to calculate lease rejection damages under
the Company's Amended Plan of Reorganization. Stipulations were filed by the
Company with all but three of these unsecured creditors, which stipulations
received Bankruptcy Court approval prior to the hearing on confirmation.
In addition to the rejection of leases, the Company also sought its release
from lease agreements for businesses sold, which sales included the assignment
of the leases for the business premises. While several landlords whose leases
had been assigned did file claims against the Company, the majority did not,
which resulted in the Company being released from its guarantees under those
leases. The Company was also successful in negotiating the limitation or release
of lease guarantees of those landlords who filed claims, which settlements
received Bankruptcy Court approval prior to the hearing on confirmation.
On February 5, 1987, the Company filed its Amended Plan of Reorganization and
Amended Disclosure Statement, which documents were approved by the Committee. On
February 25, 1987, the Company further modified its Amended Plan of
Reorganization to secure the claims of Class 6 Creditors (Lease Rejection) and
Class 8 Creditors (Lease Guarantee Rejections). The Bankruptcy Court approved
the Amended Disclosure Statement by Order dated March 7, 1987 and scheduled the
hearing to consider confirmation of the Amended Plan of Reorganization on April
13, 1987. On April 10, 1987, in order to insure receipt of the necessary votes
to approve its Amended Plan of Reorganization, the Company agreed to further
modification of its Amended Plan, whereby creditors of Class 6 and 8 will
receive $813,000 prorata as additional damages under the terms of the Amended
Plan. On April 13, 1987, the Company's Amended Plan of Reorganization was
confirmed and the Bankruptcy Court entered its Order of Confirmation on May 5,
1987.
Pursuant to the terms of the Amended Plan of Reorganization, the Effective
Date of the same was June 30, 1987. As of that date, confirmation payments
totaling $1,171,925 were made by the Company's Disbursing Agent with $647,226
being retained in escrow for disputed
-19-
<PAGE>
claims ($1,819,151 total). The Bankruptcy Court ratified the disbursements made
by the Disbursing Agent by its Order dated December 21, 1987.
On December 28, 1987, the Bankruptcy Court entered its Notice of Discharge of
the Company.
During fiscal year 1991 and again during fiscal year 1992, the Company and
Class 6 and Class 8 Creditors under the Company's Amended Plan of Reorganization
modified the schedule for the payment of bankruptcy damages, reducing the amount
of the quarterly payments by extending the term of the same, but without
reducing the total amount of bankruptcy damages. The modification to the payment
schedule provided the Company with needed capital.
During the fiscal year 2000, the Company was served with several complaints
alleging violations of the Americans with Disabilities Act, ("ADA"), at all of
its locations. The lawsuits included the restaurants owned by the limited
partnerships and franchises. The sudden influx of lawsuits alleging ADA
violations was due to the fact that it is likely that the ADA will be amended to
include a provision requiring plaintiffs to provide the potential defendant with
90 days notice of ADA violations prior to filing suit, during which time the
violations may be corrected. As of now, the ADA has no notice provision and the
first time that the Company received notice of any ADA violations was when it
was served with a copy of the complaint. The Company has retained an ADA expert.
who is in the process of inspecting all locations, including the limited
partnerships and franchises, and will provide a report setting forth ADA
violations which need to be corrected. It is the Company's intent to correct all
ADA violations noted by its ADA expert and then vigorously defend the lawsuits
arguing that all locations are in compliance. The cost to correct the ADA
violations is included in the budget for capital improvements during fiscal year
2000-2001.
Item 4. Submission of matters to a Vote of Security Holders.
------------------------------------------------------------
During the fourth quarter of fiscal year 2000 the Company did not submit any
matter to a vote of the security holders
-20-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
------------------------------------------------------------------------------
RANGE OF PER SHARE MARKET PRICES
ADJUSTED FOR 2 FOR 1 STOCK SPLIT PAID APRIL 1, 1999
Fiscal 2000 Fiscal 1999
----------- -----------
High Low High Low
First quarter 6-1/4 4-1/4 5-1/8 3-5/8
Second quarter 5-5/8 4-1/8 8 4-3/16
Third quarter 4-3/4 3-3/4 6-7/8 3-3/4
Fourth quarter 4-5/8 3-3/4 5-3/8 4-1/8
On December 10, 1998 the Company declared a cash dividend of 20 cents per
share (pre split shares) payable February 1, 1999 to shareholders of record as
of January 4, 1999.
On February 26, 1999 the Company declared a two for one stock split payable
April 1, 1999 to shareholders of record on March 17, 1999.
On February 14, 2000 the Company declared a cash dividend of 11 cents per
share payable March 17, 2000 to shareholders of record as of March 1, 2000.
Item 6. Selected Financial Data.
Not required
Item 7. Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations.
--------------
Results of Operations
---------------------
General
-------
As of September 30, 2000, the Company was operating fifteen units. The
Company had interests in an additional seven units which had been
franchised by the Company. Of the units operated by the Company, four were
combination package liquor stores and restaurant, six were restaurants only
and four were package liquor stores only. There was one club operated by an
unaffiliated third party under a management agreement. During fiscal year
1999, one restaurant only was closed with the expiration of its lease and
the liquor license and some of the furniture, fixtures and equipment were
sold to an unaffiliated third party. The closing of the restaurant resulted
in a $51,000 loss to the Company. During fiscal year 1999 the Company
opened one package liquor store only in Fort Lauderdale, Florida, and
purchased the Management Agreement of a franchise, which includes the right
to manage the franchised restaurant only. During fiscal year 2000, one
restaurant only, owned by a limited
-21-
<PAGE>
partnership of which the Company acts as general partner, was opened for
business.
REVENUES (in thousands):
Fifty Two Fifty Two
Weeks Ended Weeks Ended
Sales Sept. 30, 2000 Oct. 2, 1999
----- -------------- ------------
Restaurant, food $ 11,485 49.5% $ 10,708 51.8%
Restaurant, bar 2,859 12.3% 2,722 13.2%
Package goods 8,870 38.2% 7,255 35.0%
------ ----- ----- -----
Total 23,214 100.0% 20,685 100.0%
Franchise revenues 1,065 894
Owners fee 261 230
Joint venture income 460 341
Other operating income 160 165
------ ------
Total Revenues $ 25,160 $ 22,315
As the table above illustrates, total revenues have increased for the fiscal
year ended September 30, 2000 when compared to the fiscal year ended October 2,
1999.
During the third quarter of fiscal year 1998 the Company closed its
restaurant in North Miami which operated under the "Flanigan's Cafe"
servicemark. During the first quarter of fiscal year 1999, the Company entered
into a sublease for the property with an unaffiliated third party.
During the second quarter of fiscal year 1999, the Company closed a location
in Fort Lauderdale at the expiration of the lease. The liquor license and some
of the equipment and fixtures were sold to an unaffiliated third party. This
closing resulted in a loss of $51,000 to the Company.
During the second quarter of fiscal year 1999, the Company formed a limited
partnership to renovate and operate a restaurant under the "Flanigan's Seafood
Bar and Grill" servicemark in Kendall, Florida, as general partner and forty
percent owner of the same. Due to the difficulties in obtaining the required
permits to begin construction which were beyond control of the Company,
construction began in the first quarter of fiscal year 2000 and the restaurant
opened for business during the third quarter of fiscal year 2000. The Company
reported income of $17,000 for the fiscal year ended September 30, 2000 as
compared to the recognition of a $106,000 loss for the fiscal year ended October
2, 1999. The loss was attributed to pre-opening costs and expenditures of
certain intangible costs as required by SOP-98-5, "reporting on the cost of
start-up activities".
During the second quarter of fiscal year 1999 the Company entered into a
lease for a package liquor store in Fort Lauderdale, FL. The package liquor
store opened for business during the third quarter of fiscal year 1999.
-22-
<PAGE>
During the first quarter of the fiscal year ended September 30, 2000, the
Company purchased, for $850,000 in cash, a two story building in Fort
Lauderdale, Florida, which will be used as the Company's corporate office. The
Company also plans to renovate a portion of the ground floor of the office
building to be used as a package liquor store.
During the third quarter of fiscal year 2000, the Company, as agent for a
limited partnership to be formed, entered into an agreement for the purchase of
an existing restaurant location in West Miami, Florida. The Company is
completing its application for a special use and zoning variances from
Miami-Dade County, Florida and expects to file its application during the second
quarter of fiscal year 2001.
Restaurant food sales represented 49.5% of total sales in the fiscal year
ended September 30, 2000 as compared to 51.8% in the fiscal year ended October
2, 1999. The weekly average of same store restaurant food sales was $220,859 and
$198,057 for the fiscal year ended September 30, 2000 and the fiscal year ended
October 2, 1999 respectively, an increase of 11.5%.
Restaurant bar sales represented 12.3% of total sales in the fiscal year
ended September 30, 2000 as compared to 13.2% in the fiscal year ended October
2, 1999. The weekly average of same store restaurant bar sales was $54,981 and
$50,226 for the fiscal year ended September 30, 2000 and the fiscal year ended
October 2, 1999 respectively, an increase of 9.5%.
Package store sales with same store weekly sales averaged $147,923 and
$133,173 for the fiscal year ended September 30, 2000 and the fiscal year ended
October 2, 1999 respectively, an increase of 11.1%.
Franchise revenue increased to $1,065,000 for the fiscal year ended September
30, 2000 as compared to $894,000 for the fiscal year ended October 2, 1999. The
increase in franchise revenue resulted from higher sales for the franchises, and
the opening of an additional joint venture restaurant during the third quarter
of the fiscal year ended September 30, 2000.
Owner's fee represents fees received pursuant to a Management Agreement from
the operation of a club owned by the Company in Atlanta, Georgia. The Management
Agreement was amended effective July 1, 1996, whereby the Company also receives
ten percent of sales exceeding $1,500,000 per annum as additional owner's fees.
Income from this club was $261,000 for the fiscal year ended September 30, 2000
as compared to $230,000 for the fiscal year ended October 2, 1999.
The gross profit margin for restaurant sales were 63.9% and 64.2% for the
fiscal years 2000 and 1999 respectively.
The gross profit margin for package goods sales were 26.4% and 26.6%, for the
fiscal years 2000 and 1999 respectively.
-23-
<PAGE>
Overall gross profits were 49.5% and 50.7% for the fiscal years 2000 and 1999
respectively.
Operating Costs and Expenses
----------------------------
Operating costs and expenses for the fiscal year ended September 30, 2000
were $23,380,000 compared to $20,772,000 for the fiscal year October 2, 1999.
Operating expenses are comprised of the cost of merchandise sold, payroll and
related costs, occupancy costs and selling, general and administrative expenses.
Payroll and related costs which include workers compensation insurance
premiums were $6,724,000 and $6,135,000 for fiscal years 2000 and 1999,
respectively. The 9.6 % increase is attributed to increases in salaries paid to
all employees in order to recruit and maintain competent individuals in a very
competitive labor market.
Occupancy costs, which include rent, common area maintenance, repairs and
taxes were $1,050,000 and $1,033,000 for fiscal years 2000 and 1999
respectively. The 1.6% increase was attributable to increases in property
maintenance.
Selling, general and administrative expenses were $3,889,000 for the fiscal
year ended September 30, 2000 and $3,410,000 for the fiscal year ended October
2, 1999. The net increase of 13.9% in selling, general and administrative
expenses is due to a general increase in prices.
Other Income and Expenses
-------------------------
Other income and expense were a loss of $75,000 for the fiscal year ended
September 30, 2000 as compared with income of $232,000 for the fiscal year ended
October 2, 1999.
During the fourth quarter of fiscal year 1999 the Company recovered $157,000
from a worker's compensation settlement for a claim in fiscal year 1994 and
reduced by $118,000 a worker's compensation reserve from a claim in fiscal year
1993.
During fiscal year 2000 the Company's interest expense was $177,000 as
compared with $148,000 for the fiscal year ended October 2, 1999.
The category "Other, net" was $44,000 for the fiscal year ended September 30,
2000 and $325,000 for the fiscal year ended October 2, 1999. Other, net in the
consolidated statements of income consists of the following for the fiscal years
ended September 30, 2000 and October 2, 1999:
-24-
<PAGE>
Fiscal
Years Ended
-------------------
2000 1999
======== ========
Non-franchise related rental income $ 31,000 $ 36,000
Loss on retirement of fixed assets - (66,000)
Insurance recovery & reserve reduction - 275,000
Gain on sale of liquor license 8,000 30,000
Miscellaneous 5,000 50,000
------- -------
Other Net $ 44,000 $ 325,000
======== =======
Trends
------
During the next twelve months management expects continued increases in
restaurant and package goods sales, both for Company stores and franchised
stores. The Company anticipates expenses to increase slightly, therefore
increasing overall profits before income taxes.
The Company utilized the balance of its net operating loss carryforward during
fiscal year 2000. The provision for income taxes was $341,000 for fiscal year
ended September 30, 2000 as compared with a benefit of $593,000 for the fiscal
year ended October 2, 1999 due the recognition of the deferred tax asset and the
utilization of the net operating loss carryforward.
The Company intends to add additional restaurants and package stores as cash
becomes available.
Liquidity and Capital Resources
-------------------------------
Cash Flows
----------
The following table is a summary of the Company's cash flows for the fiscal
years ended September 30, 2000 and October 2, 1999:
Fiscal
Years Ended
----------------
2000 1999
---- ----
(in thousands)
Net cash provided by operating activities $ 558 $ 2,652
Net cash used in investing activities (1,412) (1,032)
Net cash used in financing activities (159) (1,336)
------- -------
Net increase (decrease) in cash
and equivalents (1,013) 284
Cash and equivalents, beginning of year 1,752 1,468
------ -----
Cash and equivalents, end of year $ 739 $ 1,752
====== ======
-25-
<PAGE>
The Year 2000 Issue
-------------------
The Company completed the installation of a Great Plains Accounting Package
in fiscal year 1999 to address the year 2000 issue at a cost of $152,000. The
system is fully operational and is year 2000 compliant. The Company incurred
consultants fees, in the amount of $113,000, which were expensed during fiscal
year 1999, and $46,000 which were expensed during fiscal year 2000.
The Company utilizes POSitouch cash registers in its restaurant operations
and Omron cash registers in its package liquor operations. The registers record
revenues and calculate inventory. Both systems are year 2000 compliant.
Improvements
------------
Capital expenditures were $1,945,000 and $934,000 during fiscal years 2000
and 1999, respectively. The capital expenditures for both fiscal years were for
upgrading existing units serving food, improvements to package liquor stores and
the replacement of the corporate computer system. The fiscal year 2000 capital
expenditures included the purchase of an office building for $850,000. The
corporate offices will be located in the building.
All of the Company's units require periodic refurbishing in order to remain
competitive . During fiscal 1992, as cash flow improved, the Company embarked on
a refurbishing program which continued through fiscal year 2000. The budget for
fiscal year 2001 includes approximately $500,000 for this purpose and an
additional $250,000 for renovations to the office building. The Company expects
the funds for these improvements to be provided from operations.
Property and Equipment
----------------------
The Company purchased an office building for $850,000 during the first
quarter of 2000. As the end of fiscal year 2000, the Company had not received
the required building permits to begin renovations to the building. The Company
estimates the permits will be issued during the first quarter of fiscal year
2001 and the cost of the renovations will approximate $250,000. The Company
expects that the funds for these improvements will be provided from operations.
Long Term Debt
--------------
In order to ensure that the Company had adequate cash reserves in view of its
investment in joint ventures, 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 percent (12%) per annum
and fully amortized over five (5) years. During the fourth quarter of fiscal
year 1997, the Company borrowed $375,000 from investors, in units of $5,000,
which loan is fully secured with specific receivables owned by the Company.
-26-
<PAGE>
During the first quarter of fiscal year 1998, the Company closed on its loan
from Bank of America (formerly Barnett Bank and Nations Bank) in the principal
amount of $500,000 with interest at prime rate. Equal quarterly principal
payments began March 31, 1998 with interest payable monthly. The Company prepaid
the loan in full during the third quarter of fiscal year 1999.
The Company closed on its $1,000,000 loan with Bank of America (formerly
Nations Bank) during the second quarter of fiscal year 2000. The promissory note
earns interest at prime rate, payable monthly on the outstanding principal
balance, with quarterly payments of principal commencing at the rate of $50,000
per quarter for 8 quarters, and then at the rate of $75,000 per quarter for 8
quarters, at which time any outstanding principal balance and all accrued
interest shall be due in full. The promissory note is secured by a security
interest in all assets of the Company, including the office building purchased
by the Company. The promissory note may be paid at any time, in whole or in
part, with any prepayments applying against the quarterly payment or payments of
principal next due.
The Company repaid long term debt, including the Bank of America note
payable, capital lease obligations and Chapter 11 bankruptcy damages in the
amount of $421,000 and $807,000 in fiscal years 2000 and 1999 respectively.
Working capital
---------------
The table below summarizes the current assets, current liabilities and
working capital for the fiscal years 2000 and 1999:
Sept. 30 Oct. 2
Item 2000 1999
---- -------- ------
Current assets $ 3,419,000 $ 4,075,000
Current liabilities 2,136,000 2,693,000
Working capital 1,283,000 1,382,000
Management believes that positive cash flow from operations will adequately
fund operations, debt reductions and planned capital expenditures in fiscal year
2001.
Income Taxes
------------
Financial Accounting Standards Board Statement No. 109, Accounting for Income
Taxes requires, among other things, recognition of future tax benefits measured
at enacted rates attributable to deductible temporary differences between
financial statement and income tax bases of assets and liabilities and to tax
net operating loss carryforwards to the extent that realization of said benefits
is more likely than not. For discussion regarding the Company's net operating
loss carryforwards refer to Note 7 to the consolidated financial statements for
fiscal year ended September 30, 2000.
-27-
<PAGE>
Bankruptcy Proceedings
----------------------
As noted above and in Note 6 to the consolidated financial statements, on
November 4, 1985, Flanigan's Enterprises, Inc., not including any of its
subsidiaries, filed a Voluntary Petition in the United States Bankruptcy Court
for the Southern District of Florida seeking to reorganize under Chapter 11 of
the Federal Bankruptcy Code. The primary purposes of the petition were (1) to
reject leases which were significantly above market rates and (2) to reject
leases on closed units which had been repossessed by or returned to the Company.
During fiscal year 1986 the Company terminated or rejected 34 leases. Many of
the leases remaining were renegotiated to five year terms, with three five year
renewal options at fair market rental. As was their right under the Bankruptcy
Code, the landlords of properties rejected by the Company filed claims for
losses or damages sustained as a result of the Company's rejection of such
leases. The amount of such damages is limited by federal law. The Company
outlined a schedule for payment of these damages in the Amended Plan. As noted
above, the Amended Plan was approved in the Bankruptcy Court on May 5, 1987. The
gross amount of damages payable to creditors for the rejected leases was
$4,278,000. Since the damage payments were to be made over nine years, the total
amount due was discounted at a rate of 9.25%. See Note 6 to the consolidated
financial statements for the current payment schedule of these damages.
Other Legal Matters
-------------------
Through the end of fiscal year 1990, the Company was uninsured for dram shop
liability. See page 13 for further discussion regarding dram shop suits.
During the fiscal year, the Company received official notification from the
State of Florida, Department of Transportation, ("DOT"), that DOT was exercising
ifs right of eminent domain to "take" the hotel property upon which a
restaurant, operated by the Company as general partner of a limited partnership
is located. The DOT made its initial offer for the property approximately 60
days ago and it is anticipated that suit for eminent domain will be filed at any
time, with the DOT depositing funds representing its offer into the Registry of
the Court. If an agreement is not reached over the value of the property taken,
the value is decided by the court. A dispute has also arisen with the hotel
owner over the limited partnership's right to participate in an award paid by
DOT. It is the Company's position that the limited partnership has possessory
rights to the restaurant property, which entitles it to substantial damages. If
an agreement is not reached with the hotel owner upon an equitable distribution
of the condemnation award, the issue will also be decided by the court. Eminent
domain cases are heard by the court on an expedited basis, moving to the top of
the jury calendar. It is also anticipated that the DOT will take title to the
hotel property during the fourth quarter of fiscal year 2001, at which time the
restaurant will be forced to close.
-28-
<PAGE>
Other Matters
-------------
Impact of Inflation
-------------------
The Company does not believe that inflation has had any material effect
during the past two fiscal years. To the extent allowed by competition, the
Company recovers increased costs by increasing prices.
Post Retirement Benefits Other Than Pensions
--------------------------------------------
The Company currently provides no post retirement benefits to any of its
employees, therefore Financial Accounting Standards Board Statement No. 106 has
no effect on the Company's financial statements.
Subsequent Events
-----------------
None
Item 8. Financial Statements and Supplementary Data.
----------------------------------------------------
Financial statements of the Company at September 30, 2000 and October 2,
1999, which include each of the two years in the period ended September 30, 2000
and the independent certified public accountants' report thereon, are included
herein.
Item 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 ended 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 fiscal years 1997 and 1998, 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.
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 offering in
1969 through the fiscal year ended October 3, 1998, ("Historical Financial
Statements"). AA's auditors reports for
-29-
<PAGE>
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 Statements, 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 III
--------
Item 10. Directors and Executive Officers of the Registrant.
------------------------------------------------------------
The information set forth under the caption "Election of Directors" in the
Company's definitive Proxy Statement for its 2001 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission pursuant
to regulation 14A under the Securities and Exchange Act of 1934, as amended (the
2001 Proxy Statement), is incorporated herein by reference. See also "Executive
Officers of the Registrant" included in Part I hereof.
Item 11. Executive Compensation.
--------------------------------
The information set forth in the 2001 Proxy Statement under the caption
"Executive Compensation" is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
------------------------------------------------------------------------
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 2001 Proxy Statement is incorporated by
reference.
Item 13. Certain Relationships and Related Transactions.
--------------------------------------------------------
The information set forth under the caption "Election of Directors - Certain
Relationships and Related Transactions" in the 2001 Proxy Statement is
incorporated by reference.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
-------------------------------------------------------------------------
(a) 1. Financial Statements
---------------------------
All the financial statements, financial statement schedule and
supplementary data listed in the accompanying Index to Exhibits are filed as
part of this Annual Report.
2. Exhibits
-----------
The exhibits listed on the accompanying Index to Exhibits are filed as
part of this Annual Report.
(b) Reports on Form 8-K
-----------------------
No reports on form 8-K were filed during the fourth quarter of fiscal
year 2000 or subsequent to year end.
Index to Exhibits
Item (14) (a) (2)
Description
-----------
(2) Plan of Reorganization, Amended Disclosure Statement, Amended Plan of
Reorganization, Modification of Amended Plan of Reorganization, Second
Modification of Amended Plan of Reorganization, Order Confirming Plan of
Reorganization, (Item 7 (c) of Quarterly Report on Form 8-K filed May 5, 1987 is
incorporated herein by reference).
(3) Restated Articles of Incorporation (Part IV, Item 4 (a) (2) of Annual Report
on Form 10-K filed on December 29, 1982 is incorporated herein by reference).
(10)(a)(1) Employment Agreement with Joseph G. Flanigan (Exhibit A of the Proxy
Statement dated January 27, 1988 is incorporated herein by reference).
(10)(a)(2) Form of Employment Agreement between Joseph G. Flanigan and the
Company (as ratified and amended by the stockholders at the 1988 annual meeting
is incorporated herein by reference).
(10)(c) Consent Agreement regarding the Company's Trademark Litigation (Part
7(c)(19) of the Form 8-K dated April 10, 1985 is incorporated herein by
reference).
(10)(d) King of Prussia (#850) Partnership Agreement (Part 7 (c) (19) of the
Form 8-K dated April 10, 1985 is incorporated herein by reference).
(10)(o) Management Agreement for Atlanta, Georgia, (#600) (Item 14(a)(10)(o) of
the Form 10-K dated October 3, 1992 is incorporated herein by reference).
(10)(p) Settlement Agreement with Former Vice Chairman of the Board of Directors
(re #5) (Item 14 (a)(10)(p) of the Form 10-K dated October 3, 1992 is
incorporated herein by reference).
-31-
<PAGE>
(10)(q) Hardware Purchase Agreement and Software License Agreement for
restaurant point of sale system. (Item 14(a)(10)(g) of Form 10-KSB dated October
2, 1993 is incorporated herein by reference).
(10)(a)(3) Key Employee Incentive Stock Option Plan (Exhibit A of the Proxy
Statement dated January 26, 1994 is incorporated herein by reference).
(10)(r) Limited Partnership Agreement of CIC Investors #13, Ltd,. between
Flanigan's Enterprises, Inc., as General Partner and fifty percent owner of the
limited partnership, and Hotel Properties, LTD. (Item 14 (a)(10)(r) of the Form
10-KSB dated September 30, 1995 is incorporated herein by reference).
(10)(s) Form of Franchise Agreement between Flanigan's Enterprises, Inc. and
Franchisees. (Item 14 (a)(10)(s) of the Form 10-KSB dated September 30, 1995 is
incorporated herein by reference).
(10)(t) Licensing Agreement between Flanigan's Enterprises, Inc. and James B.
Flanigan, dated November 4, 1996, for non-exclusive use of the servicemark
"Flanigan's" in the Commonwealth of Pennsylvania. (Item 14 (a)(10)(t) of the
Form 10-KSB dated September 28, 1996 is incorporated herein by reference).
(10)(u) Limited Partnership Agreement of CIC Investors #15 Ltd., dated March 28,
1997, between B.D. 15 Corp. as General Partner and numerous limited partners,
including Flanigan's Enterprises, Inc. as a limited partner owning twenty five
percent of the limited partnership (Item 14 (a)(10)(u) of the Form 10-KSB dated
September 27, 1997 is incorporated herein by reference).
(10)(v) Limited Partnership Agreement of CIC Investors #60 Ltd., dated July 8,
1997, between Flanigan's Enterprises, Inc., as General Partner and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning forty percent of the limited partnership (Item 14 (a)(10)(v) of Form
10-KSB dated September 27, 1997 is incorporated herein by reference).
(10)(w) Stipulated Agreed Order of Dismissal upon Mediation with former
franchisee (Item 14 (a)(10)(w) of Form 10-KSB dated September 27, 1997 is
incorporated herein by reference).
(10)(x) Limited Partnership Agreement of CIC Investors #70, Ltd. dated February
1999 between Flanigan's Enterprises, Inc. as General Partner and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning forty percent of the limited partnership. (Item 14 (a) (10) (x) of Form
10-KSB dated October 2, 1999 is incorporated herein by reference)
(11) Statement regarding computation of per share earnings is set forth in this
Annual Report on Form 10-KSB.
(13) Registrant's Form 10-KSB constitutes the Annual Report to Shareholders for
the fiscal year ended September 30, 2000.
-32-
<PAGE>
(22)(a) Company's subsidiaries are set forth in this Annual Report on Form
10-KSB.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the registrant had duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Flanigan's Enterprises, Inc.
Registrant
By: JOSEPH G. FLANIGAN Date: 12/29/00
------------------ --------
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in their capacities and on the dates indicated.
JOSEPH G. FLANIGAN Chairman of the Board, Date: 12/29/00
------------------ Chief Executor Officer, --------
Joseph G. Flanigan and President
EDWARD A. DOXEY Chief Financial Officer Date: 12/29/00
--------------- Secretary and Director --------
Edward A. Doxey
CHARLES KUHN Director Date: 12/29/00
------------ --------
Charles Kuhn
GERMAINE M. BELL Director Date: 12/29/00
---------------- --------
Germaine M. Bell
CHARLES E. MCMANUS Director Date: 12/29/00
------------------ --------
Charles E. McManus
JEFFREY D. KASTNER Assistant Secretary Date: 12/29/00
------------------ and Director --------
Jeffrey D. Kastner
WILLIAM PATTON Vice President, Public Date: 12/29/00
-------------- Relations and Director --------
William Patton
JAMES G. FLANIGAN Director Date: 12/29/00
----------------- --------
James G. Flanigan
PATRICK J. FLANIGAN Director Date: 12/29/00
------------------- --------
Patrick J. Flanigan
-33-
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2
Statements of Income F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5-F-6
Notes to Financial Statements F-7-F-23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
Flanigan's Enterprises, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheet of Flanigan's
Enterprises, Inc. and Subsidiaries as of September 30, 2000, and the related
consolidated statements of income, stockholders' equity and cash flows for the
two years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Flanigan's
Enterprises, Inc. and Subsidiaries as of September 30, 2000, and the
consolidated results of their operations and their cash flows for the two years
then ended in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
November 22, 2000
F-1
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
ASSETS
------
<TABLE>
<CAPTION>
Current Assets:
<S> <C>
Cash and cash equivalents $ 739,000
Notes and mortgages receivable, current maturities, net 119,000
Due from franchisees 186,000
Other receivables 264,000
Inventories 1,382,000
Prepaid expenses 318,000
Deferred tax assets 411,000
------------
Total current assets 3,419,000
------------
Property and Equipment 5,317,000
------------
Leased Property Under Capital Leases, Net 60,000
------------
Other Assets:
Liquor licenses, net 271,000
Notes and mortgages receivable, net 147,000
Investments in joint ventures 1,530,000
Deferred tax assets 251,000
Other 214,000
------------
Total other assets 2,413,000
------------
Total assets $ 11,209,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 1,514,000
Current portion of long-term debt 295,000
Current obligations under capital leases 38,000
Current portion of damages payable on terminated or rejected leases 289,000
------------
Total current liabilities 2,136,000
------------
Long-Term Debt, Net of Current Maturities 1,160,000
------------
Obligations Under Capital Leases, Net of Current Portion 135,000
------------
Damages Payable on Terminated or Rejected Leases, Net of Current Portion 111,000
------------
Commitments, Contingencies, Other Matters and Subsequent Event --
Stockholders' Equity:
Common stock, $.10 par value; 5,000,000 shares authorized;
4,197,642 shares issued 420,000
Capital in excess of par value 6,052,000
Retained earnings 6,565,000
Notes receivable on sale of common stock (181,000)
Treasury stock, at cost, 2,341,164 shares (5,189,000)
------------
Total stockholders' equity 7,667,000
------------
Total liabilities and stockholders' equity $ 11,209,000
============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
Revenues:
<S> <C> <C>
Restaurant food sales $ 11,485,000 $ 10,708,000
Restaurant beverage sales 2,859,000 2,722,000
Package goods sales 8,870,000 7,255,000
Franchise-related revenues 1,065,000 894,000
Owner's fee 261,000 230,000
Joint venture income 460,000 341,000
Other operating income 160,000 165,000
------------ ------------
25,160,000 22,315,000
Costs and Expenses:
Cost of merchandise sold:
Restaurants and lounges 5,185,000 4,871,000
Package goods 6,532,000 5,323,000
Payroll and related costs 6,724,000 6,135,000
Occupancy costs 1,050,000 1,033,000
Selling, general and administrative expenses 3,889,000 3,410,000
------------ ------------
23,380,000 20,772,000
Income from Operations 1,780,000 1,543,000
------------ ------------
Other Income (Expense):
Interest expense on obligations under capital leases (46,000) (34,000)
Interest expense on long-term debt and damages payable (131,000) (114,000)
Interest income 54,000 52,000
Recognition of deferred gains 4,000 3,000
Other (Note 14) 44,000 325,000
------------ ------------
(75,000) 232,000
Income Before Provision for Income Taxes 1,705,000 1,775,000
------------ ------------
Provision (Benefit) for Income Taxes (Note 7):
Current 373,000 37,000
Deferred (32,000) (630,000)
------------ ------------
341,000 (593,000)
------------ ------------
Net Income $ 1,364,000 $ 2,368,000
============ ============
Net Income Per Common Share:
Basic $ 0.73 $ 1.21
============ ============
Diluted $ 0.71 $ 1.15
============ ============
Weighted Average Shares and Equivalent Shares Outstanding:
Basic 1,856,000 1,957,000
============ ============
Diluted 1,931,000 2,062,000
============ ============
</TABLE>
See notes consolidated financial statements.
F-3
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
<TABLE>
<CAPTION>
Notes
Common Stock Receivable
------------ Capital in on Sale of
Excess of Retained Common
Shares Amount Par Value Earnings Stock
------ ------ --------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, October 3, 1998 4,197,642 $ 420,000 $ 6,185,000 $ 3,234,000 $ --
Year Ended October 2, 1999:
Dividends paid ($0.10 per share) -- -- -- (186,000) --
Net income -- -- -- 2,368,000 --
Purchase of treasury stock -- -- -- -- --
Common stock issued in exchange for
notes receivable -- -- 61,000 -- (198,000)
Exchange of shares - exercise of stock options -- -- (188,000) -- --
Payments received on notes receivable -- -- -- -- 6,000
----------- ----------- ----------- ----------- -----------
Balance, October 2, 1999 4,197,642 420,000 6,058,000 5,416,000 (192,000)
Year Ended September 30, 2000:
Dividends paid ($0.11 per share) -- -- -- (215,000) --
Net income -- -- -- 1,364,000 --
Purchase of treasury stock -- -- -- -- --
Exchange of shares - exercise of stock options -- -- (6,000) -- --
Payments received on notes receivable -- -- -- -- 11,000
----------- ----------- ----------- ----------- -----------
Balance, September 30, 2000 4,197,642 $ 420,000 $ 6,052,000 $ 6,565,000 $ (181,000)
=========== =========== =========== =========== ===========
<CAPTION>
Treasury Stock
--------------
Shares Amount Total
------ ------ -----
<S> <C> <C> <C>
Balance, October 3, 1998 2,339,442 $(4,734,000) $ 5,105,000
Year Ended October 2, 1999:
Dividends paid ($0.10 per share) -- -- (186,000)
Net income -- -- 2,368,000
Purchase of treasury stock 68,700 (313,000) (313,000)
Common stock issued in exchange for
notes receivable (68,000) 137,000 --
Exchange of shares - exercise of stock options (92,949) 188,000 --
Payments received on notes receivable -- -- 6,000
----------- ----------- -----------
Balance, October 2, 1999 2,247,193 (4,722,000) 6,980,000
Year Ended September 30, 2000:
Dividends paid ($0.11 per share) -- -- (215,000)
Net income -- -- 1,364,000
Purchase of treasury stock 105,971 (492,000) (492,000)
Exchange of shares - exercise of stock options (12,000) 25,000 19,000
Payments received on notes receivable -- -- 11,000
----------- ----------- -----------
Balance, September 30, 2000 2,341,164 $(5,189,000) $ 7,667,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 1,364,000 $ 2,368,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 681,000 637,000
Deferred income taxes benefit (32,000) (630,000)
Recognition of deferred gains and other deferred income (4,000) (3,000)
(Gain) loss on disposal of property, equipment and liquor licenses (8,000) 36,000
Joint venture income (460,000) (341,000)
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables (144,000) 208,000
Inventories 46,000 (191,000)
Prepaid expenses 84,000 29,000
Other assets (4,000) (152,000)
Increase (decrease) in:
Accounts payable and accrued expenses (80,000) (8,000)
Due to franchisees (885,000) 699,000
----------- -----------
Net cash provided by operating activities 558,000 2,652,000
----------- -----------
Cash Flows from Investing Activities:
Collections on notes and mortgages receivable 36,000 95,000
Purchase of property and equipment (1,860,000) (934,000)
Distributions from joint ventures 401,000 413,000
Collections on notes receivable, sale of common stock 11,000 --
Investment in joint venture -- (606,000)
----------- -----------
Net cash used in investing activities (1,412,000) (1,032,000)
----------- -----------
Cash Flows from Financing Activities:
Borrowings of long-term debt 950,000 --
Payments of long-term debt (79,000) (450,000)
Payments of obligations under capital leases (70,000) (76,000)
Payments of damages payable on terminated or rejected leases (272,000) (281,000)
Purchase of treasury stock (492,000) (313,000)
Dividends paid (215,000) (186,000)
Proceeds from exercise of options 19,000 --
Due to Pennsylvania limited partnership -- (30,000)
----------- -----------
Net cash used in financing activities (159,000) (1,336,000)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (1,013,000) 284,000
Cash and Cash Equivalents, Beginning 1,752,000 1,468,000
----------- -----------
Cash and Cash Equivalents, Ending $ 739,000 $ 1,752,000
=========== ===========
(Continued)
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(Continued)
<TABLE>
<CAPTION>
2000 1999
---- ----
Supplemental Disclosure of Cash Flow Information:
<S> <C> <C>
Cash paid during the year for:
Interest $ 177,000 $168,000
========= ========
Income taxes $ 490,000 $ 52,000
========= ========
Non-Cash Financing and Investing Activities:
Deposit transferred to property and equipment $ 85,000 $ --
========= ========
Notes receivable for sales of liquor license $ 35,000 $196,000
========= ========
Common stock issued for notes receivable $ -- $198,000
========= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Incorporated in 1959, Flanigan's Enterprises, Inc. ("Flanigan's" or
the "Company") operates in South Florida as a chain of full-service
restaurants and package liquor stores. At September 30, 2000, the
Company owned and/or operated six full-service restaurants, four
package liquor stores and four combination full-service restaurants
and package liquor stores in Florida. In addition, Flanigan's owns
one club in Georgia, which is operated pursuant to a management
agreement with an unrelated third party. The Company holds
interests in four of the eleven franchised units through joint
venture investments. The Company's restaurants are operated under
the "Flanigan's Seafood Bar and Grill" servicemark while the
Company's package stores are operated under the "Big Daddy's
Liquors" servicemark.
The Company's Articles of Incorporation, as amended, authorize the
Company to issue and have outstanding at any one time 5,000,000
shares of common stock at a par value of $.10. The Company
authorized and effected a 2-for-1 stock split for stockholders of
record on March 17, 1999. This stock split has been given
retroactive effect in these consolidated financial statements.
The Company operates under a 52-53 week year ending the Saturday
closest to September 30.
Principles of Consolidation
The consolidated financial statements include the accounts of
Flanigan's Enterprises, Inc. and its subsidiaries, all of which are
wholly owned. All significant intercompany transactions and
balances have been eliminated in consolidation.
The entities included in these consolidated financial statements
are as follows:
Flanigan's Enterprises, Inc.
Flanigan's Management Services, Inc.
Flanigan's Enterprises, Inc. of Georgia
Flanigan's Enterprises, Inc. of Pa.
Seventh Street Corp.
Big Daddy's #48, Inc.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Although these
estimates are based on management's knowledge of current events and
actions it may undertake in the future, they may ultimately differ
from actual results.
F-7
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a
maturity of three months or less at the date of purchase to be cash
equivalents.
Inventories
Inventories, which consist primarily of packaged liquor products,
are stated at the lower of cost (first in, first out) or market.
Liquor Licenses
The cost of liquor licenses purchased prior to October 21, 1970
(the date Accounting Principles Board ("APB") Opinion No. 17 became
effective), amounted to approximately $130,000 at September 30,
2000. These licenses are not amortized unless an impairment in
value is indicated. The costs of all liquor licenses acquired
subsequent to October 21, 1970 are amortized over a period of 40
years.
Property and Equipment
For financial reporting, the Company uses the straight-line method
for providing depreciation and amortization on property and
equipment. The estimated useful lives range from three to five
years for vehicles, and three to seven years for furniture and
equipment.
Leasehold interests are amortized over the minimum term of the
lease. Leasehold improvements are amortized over the life of the
lease up to a maximum of 10 years. If the locations are sold or
abandoned before the end of the amortization period, the
unamortized costs are expensed. The office building is amortized
over forty years.
Investment in Joint Ventures
The Company uses the equity method of accounting when the Company
has a twenty percent to fifty percent interest in other companies,
joint ventures, and partnerships, and can exercise significant
influence. Under the equity method, original investments are
recorded at cost and are adjusted for the Company's share of
undistributed earnings or losses. All significant intercompany
profits are eliminated.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash and cash equivalents and
notes and mortgages receivable.
F-8
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk (Continued)
From time to time during the year, the Company had deposits in
financial institutions in excess of the federally insured limits.
At September 30, 2000, the Company had deposits in excess of
federally insured limits of approximately $1,459,000. The Company
maintains its cash with high quality financial institutions, which
the Company believes limits these risks.
Notes and mortgages receivable arise primarily from the sale of
operating assets, including liquor licenses. Generally, those
assets serve as collateral for the receivable. Management believes
that the collateral, coupled with the credit standing of the
purchasers, limits the risk.
Revenue Recognition
The Company records revenues from normal recurring sales upon the
delivery of products or services. Continuing royalties, which are a
percentage of net sales of franchised stores, are accrued as income
when earned.
Pre-opening Costs
Pre-opening costs are those typically associated with the opening
of a new store or restaurant. Pre-opening costs are expensed as
incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
incurred for the years ended September 30, 2000 and October 2, 1999
were $174,000 and $160,000, respectively.
Fair Value of Financial Instruments
The respective carrying value and cash equivalents of certain
on-balance-sheet financial instruments approximated their fair
value. These instruments include cash and cash equivalents, notes
and mortgages receivable, damages payable on terminated or rejected
leases, debt and capital leases, and accounts payable. Fair values
were assumed to approximate carrying values for those financial
instruments, which are short-term in nature or are receivable or
payable on demand.
Newly Issued Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements". SAB 101 provides guidance for revenue
recognition under certain circumstances, and is effective during
fiscal year 2001. SAB 101 is not expected to have a material effect
on the Company's consolidated results of operations, financial
position and cash flows.
F-9
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Newly Issued Accounting Pronouncements (Continued)
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the balance
sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of the gain or loss
recognition on the hedging derivative with the recognition of (i)
the changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not designated
as a hedging instrument, the gain or loss is recognized in income in
the period of change. On June 30, 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." SFAS No.
133 as amended by SFAS No. 137 is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. In June 2000, the
FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS No. 133 as amended
by SFAS No. 137 and 138 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts
to hedge existing risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new standard on October
1, 2000 to have a material effect on its financial statements.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires all costs related to the development of internal use
software other than those incurred during the application
development stage to be expensed as incurred. Costs incurred during
the application development stage are required to be capitalized and
amortized over the estimated useful life of the software. SOP 98-1
was adopted by the Company in fiscal 1999 and did not have a
material effect on the Company's financial position or results of
operations.
Income Taxes
The Company accounts for its income taxes using SFAS No. 109,
"Accounting for Income Taxes", which requires the recognition of
deferred tax liabilities and assets for expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
F-10
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), encourages, but
does not require companies to record stock-based compensation plans
using a fair value based method. The Company has chosen to continue
to account for stock-based compensation using the intrinsic value
based method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Accordingly,
compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's common stock at
the date of the grant over the amount an employee must pay to
acquire the stock.
Long-Lived Assets
The Company continually evaluates whether events and circumstances
have occurred that may warrant revision of the estimated life of
its intangible and other long-lived assets or whether the remaining
balance of its intangible and other long-lived assets should be
evaluated for possible impairment. If and when such factors, events
or circumstances indicate that intangible or other long-lived
assets should be evaluated for possible impairment, the Company
will make an estimate of undiscounted cash flow over the remaining
lives of the respective assets in measuring their recoverability.
NOTE 2. NOTES AND MORTGAGES RECEIVABLES
Receivables, net of allowances for uncollectible amounts and deferred
gains, consist of the following at September 30, 2000:
<TABLE>
<CAPTION>
<S> <C>
Notes and mortgages receivable from unrelated parties, bearing interest at rates
ranging from 9% to 15% and due in varying installments through 2004 $195,000
Notes and mortgages receivable from related parties, bearing interest at rates
ranging from 10% to 14% and due in varying installments through 2007 155,000
-------
350,000
Less deferred gains 84,000
--------
266,000
Amount representing current portion 119,000
-------
$147,000
</TABLE>
The majority of the notes and mortgages receivable represent amounts
owed to the Company for store operations, which were sold. Unless a
significant amount of cash is received on the sale, a pro rata portion
of the gain is deferred and recognized only as payments on the notes
and mortgages are received by the Company. Any losses on sales of
stores are recognized currently. During fiscal 2000 and 1999, $4,000
and $3,000 of deferred gains were recognized on collections of such
notes receivable.
F-11
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. NOTES AND MORTGAGES RECEIVABLES (Continued)
Future scheduled payments on the receivables at September 30, 2000
consist of the following:
2001 $119,000
2002 55,000
2003 23,000
2004 62,000
2005 9,000
Thereafter 82,000
--------
$350,000
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2000 consisted of the
following:
Furniture and equipment $ 6,010,000
Leasehold interests and improvements 5,498,000
Land and land improvements 1,007,000
Building and improvements 771,000
Vehicles 147,000
------------
13,433,000
Less accumulated depreciation and amortization 8,116,000
-----------
$ 5,317,000
NOTE 4. INVESTMENTS IN JOINT VENTURES
Miami, Florida
The Company operates a restaurant in Miami, Florida under the
"Flanigan's Seafood Bar and Grill" servicemark pursuant to a joint
venture agreement. The Company is the general partner and has a
fifty percent limited partnership interest.
Fort Lauderdale, Florida
The Company has entered into a franchise agreement with a unit in
Fort Lauderdale. The Company is a twenty-five percent limited
partner in the franchise. Other related parties, including, but not
limited to, officers and directors of the Company and their
families are also investors.
Surfside, Florida
The Company has an investment in a limited partnership, which
purchased the assets of a restaurant in Surfside, Florida and
renovated it for operation under the "Flanigan's Seafood Bar and
Grill" servicemark.
F-12
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVESTMENTS IN JOINT VENTURES (Continued)
Surfside, Florida (Continued)
The Company acts as general partner of the limited partnership and
is also a forty percent limited partner. Other related parties,
including, but not limited to, officers and directors of the
Company and their families are also investors.
Kendall, Florida
During 1999, the Company made an investment in a limited
partnership, which constructed and now operates a restaurant under
the "Flanigan's Seafood Bar and Grill" servicemark in Kendall,
Florida. Construction began in late 1999 and the restaurant opened
in April 2000. The Company acts as the general partner and has a
forty percent limited partnership interest.
Summary
The following is a summary of condensed unaudited financial
information pertaining to the Company's joint venture investments:
2000 1999
---- ----
Financial Position:
Current assets $ 403,000 $ 564,000
Non-current assets 4,590,000 3,038,000
Current liabilities 588,000 437,000
Non-current liabilities 538,000 548,000
Operating Results:
Revenues 10,208,000 5,609,000
Income from operations 6,480,000 3,600,000
Net income 1,192,000 424,000
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at
September 30, 2000:
Accounts payable $ 972,000
Salaries and wages 186,000
Property taxes 124,000
Potential uninsured claims 81,000
Franchisee advance funds 17,000
Other 134,000
----------
$1,514,000
Franchisee advance funds represent cash advances by the franchisees for
inventory purchases to be made as part of the Company-sponsored
cooperative buying program.
F-13
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. DAMAGES PAYABLE ON TERMINATED OR REJECTED LEASES
On November 4, 1985, Flanigan's Enterprises, Inc., not including any of
its subsidiaries, filed a voluntary petition in the United States
Bankruptcy Court for the Southern District of Florida seeking to
reorganize under Chapter 11 of the Federal Bankruptcy Code. Flanigan's
was authorized to continue the management and control of its business
and property as debtor-in-possession under the Bankruptcy Code. On May
5, 1987, Flanigan's Plan of Reorganization, as amended and modified,
was confirmed by the Bankruptcy Court. On December 28, 1987, Flanigan's
was officially discharged from bankruptcy.
In fiscal 1986 in connection with the bankruptcy petition, Flanigan's
recorded estimated damages of $4,278,000 for claims for losses as a
result of rejected leases. Because the damage payments were to be made
over nine years, the total amount due was discounted at a rate of
9.25%, Flanigan's then effective borrowing rate. Remaining liabilities
for damage payments are included as "Damages Payable on Terminated or
Rejected Leases" in the accompanying consolidated balance sheet. Based
on the borrowing rate currently available to the Company for bank loans
with similar terms and average maturities, the fair value of damages
payable on terminated and rejected leases is approximately $400,000.
As of September 30, 2000, damages payable on terminated or rejected
leases, including imputed interest, mature as follows:
2001 $300,000
2002 119,000
-------
Total 419,000
Less amount representing interest 19,000
-------
400,000
Less current maturities 289,000
-------
Long-term maturities $111,000
=======
NOTE 7. INCOME TAXES
The components of the Company's provision (benefit) for income taxes,
for the fiscal years ended 2000 and 1999 are as follows:
2000 1999
---- ----
Current:
Federal $284,000 $ 24,000
State 89,000 13,000
-------- --------
373,000 37,000
Deferred:
Federal (31,000) (610,000)
State (1,000) (20,000)
-------- --------
(32,000) (630,000)
-------- --------
$341,000 $(593,000)
======== ========
F-14
<PAGE>
NOTE 7. INCOME TAXES (Continued)
A reconciliation of income tax computed at the statutory federal rate
to income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Tax provision at the statutory rate of 34% $ 580,000 $ 582,000
State income taxes, net of federal income tax 51,000 10,000
Change in valuation allowance - (983,000)
Net operating loss utilization (41,000) 250,000
Tip credit utilization (199,000) 250,000
Tip and alternative minimum tax credit carryforwards - 250,000
Other (50,000) 48,000
--------- ---------
$ 341,000 $(593,000)
========= =========
</TABLE>
At September 30, 2000, the Company has available tip credit
carryforwards of approximately $310,000, which expire through 2015, and
alternative minimum tax credit carryforwards of approximately $73,000,
which do not expire.
In addition to tax credit carryforwards, the Company had deferred tax
assets which arise primarily due to depreciation recorded at different
rates for tax and book purposes, capital leases reported as operating
leases for tax purposes, and accruals for potential uninsured claims
recorded for financial reporting purposes but not recognized for tax
purposes.
The components of the deferred tax assets were as follows at September
30, 2000:
Current:
Tip credit carryforward $310,000
Alternative minimum tax credit 73,000
Accruals for potential uninsured claims 28,000
--------
$411,000
Long-Term:
Book/tax differences in property and equipment $271,000
Joint venture investments (31,000)
Leases, capitalized for books only 11,000
--------
$251,000
F-15
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 2000:
<TABLE>
<CAPTION>
<S> <C>
Note payable to bank, secured by general assets of the Company; bearing
interest at 9.5% payable in monthly installments; principal is due in
quarterly installments of $50,000 for 8 quarters then $75,000 for 8
quarters, maturing in April 2004 $ 950,000
Mortgage payable, secured by land, bearing interest at 8%; payable in
monthly installments of principal and interest, maturing in April 2007 335,000
Notes payable to various employees, related and unrelated parties,
secured by various company assets, bearing interest at 12%, payable in
monthly installments of principal and interest, maturing in July 2002 170,000
----------
1,455,000
Less current portion 295,000
----------
$1,160,000
==========
</TABLE>
Long-term debt at September 30, 2000 matures as follows:
2001 $ 295,000
2002 321,000
2003 312,000
2004 238,000
2005 14,000
Thereafter 275,000
----------
$1,455,000
==========
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Legal Matters
The Company is a party to various claims, legal actions and
complaints arising in the ordinary course of its business. In the
opinion of management, all such matters are without merit or involve
such amounts that an unfavorable disposition would not have a
material adverse effect on the financial position or results of
operations of the Company.
During this fiscal year, the Company was served with several
complaints alleging violations of the Americans with Disabilities
Act ("ADA") at all of its locations. The Company has retained an ADA
expert, who is in the process of inspecting all locations, including
the limited partnerships and franchises, and will provide a report
setting forth ADA violations which need to be corrected. It is the
Company's intent to correct all ADA violations noted by its ADA
expert and then vigorously defend the lawsuits arguing that all
locations are in compliance. The Company estimates it will cost
approximately $10,000 per location to bring the location into
compliance.
F-16
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Pending Joint Venture
During the third quarter of fiscal year 2000, the Company, as agent
for a limited partnership to be formed, entered into an agreement
for the purchase of an existing restaurant location in West Miami,
Florida. The Company plans to file its application for a special use
and zoning variances with Miami-Dade County, Florida during the
second quarter of fiscal 2001. Once the limited partnership is
formed, with the Company acting as general partner and up to forty
percent owner of the same, funds will be raised to renovate the
business premises for operation as a "Flanigan's Seafood Bar and
Grill" restaurant. The renovations are expected to begin during the
third quarter of fiscal year 2001 and the restaurant is expected to
be open for business by the end of fiscal year 2001.
Leases
The Company leases a substantial portion of the land and building
used in its operations under leases with initial terms expiring
between 2001 and 2049. Renewal options are available on many of the
leases. In certain instances, lease rentals are subject to
cost-of-living increases or fair market rental appraisals and/or
sales overrides. Certain properties are subleased through various
expiration dates.
Leased property under capital leases is amortized on a straight-line
basis over the lease term, and interest expense (which is based on
the Company's incremental borrowing rate at the inception of the
lease) is accrued on the basis of the outstanding capital lease
obligation. Rentals relating to operating leases are expensed
currently.
Future minimum lease payments under capital leases and
non-cancelable operating leases are as follows:
Capital Operating
Leases Leases
--------- ----------
2001 $ 55,000 $ 811,000
2002 32,000 597,000
2003 32,000 537,000
2004 32,000 524,000
2005 32,000 412,000
Thereafter 139,000 3,515,000
--------- ----------
Total 322,000 $6,396,000
==========
Less amount representing interest 149,000
---------
Present value of minimum lease payments 173,000
Less current obligations under capital leases 38,000
---------
$ 135,000
=========
F-17
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Leases (Continued)
Total rent expense for all operating leases (including those with an
initial term of less than one year and net of subleases) was
$703,000 and $695,000 in 2000 and 1999, respectively, and is
included in "Occupancy costs" in the accompanying consolidated
statements of income.
The Company guarantees various leases for franchisees. Remaining
rental commitments required under these leases total approximately
$2,648,000.
Franchise Programs
At September 30, 2000, the Company operated seven units under
franchise agreements and four units under joint venture agreements.
Under the franchise agreements, the Company agrees to provide
guidance, advice and management assistance to the franchisees. The
Company also agrees to sponsor and manage cooperative buying groups
on behalf of the franchisees for the purchase of inventory. The
franchise agreements provide for fees to the Company of
approximately 3% of gross sales. Of the seven franchised stores,
five are owned or operated by related parties. When received,
initial franchise fees are deferred and recognized ratably as
payments are received on the related notes. The Company is not
currently offering or accepting new franchises.
Employment Agreements
Chief Executive Officer
The Company has entered into an employment agreement with the
Chief Executive Officer which is renewable annually on December
31. The agreement provides, among other things, for a base
annual salary not to exceed $150,000 and a performance bonus
equal to fifteen percent of pre-tax net income in excess of
$650,000. Bonuses for fiscal years 2000 and 1999 amounted to
approximately $150,000 and $165,000, respectively. In addition,
the agreement provides for an option to purchase 4.99% of the
outstanding common stock of the Company (but not less than
45,350 shares) at $2.48 per share (post-stock split), which
option expires December 31, 2001. During 1999, the employee
exercised options to purchase 50,000 shares of common stock.
Store Managers
In the ordinary course of business, the Company enters into
employment agreements with store managers, which provide for,
among other things, base annual salary, performance bonuses, and
various employee benefits. In principle, these agreements may be
terminated by the Company for cause and by the manager with
notice.
F-18
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Management Agreement
The Company receives an owner's fee pursuant to a management
agreement with a company, which operates a club in Atlanta,
Georgia, owned by the Company. The management agreement, which was
executed in fiscal 1992, contains one five-year renewal option,
which the management company exercised in fiscal 2001. The exercise
provided for an additional security deposit of $200,000 to be paid
by the management company. The Company receives the greater of
$150,000 or 10% of gross sales annually, paid monthly.
Eminent Domain Action
During fiscal year 2000, the Company received official notification
from the State of Florida, Department of Transportation ("DOT")
that the DOT was exercising its right of eminent domain to "take"
the hotel property upon which a restaurant, operated by the Company
as general partner of a limited partnership, is located. It is
anticipated that the DOT will take title to the hotel property
during the fourth quarter of fiscal year 2001, at which time the
restaurant will be forced to close.
NOTE 10. COMMON STOCK
Treasury Stock
Exchange of Common Shares
During fiscal 1999, the Company accepted shares of Company
common stock owned by certain employee/officers of the Company
as full payment of financial obligations that arose as the
result of exercising options. The employee/officers surrendered
46,636 shares of common stock, receiving credit for the then
market value of this stock, as satisfaction in full for payments
owing pursuant to exercising certain options to acquire 139,585
shares of common stock.
Purchase of Common Shares
During 2000 and 1999, the Company purchased a total of 105,971
and 68,700 shares of common stock at a total cost of
approximately $492,000 and $313,000 under a repurchase program
authorized by the Board of Directors.
F-19
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. COMMON STOCK (Continued)
Treasury Stock (Continued)
Sale of Common Shares
During 1999, the Company sold an aggregate of 68,000 Company
common shares to certain employee/officers (38,000 of which were
pursuant to the exercise of options) for a total of
approximately $198,000. These employee/officers purchased their
shares by means of notes which bear interest at 7%. The notes
are non-recourse, and are secured by the shares owned by the
employee/officers. The majority of the notes provide for payment
of interest only until maturity, June 2004.
Key Employee Incentive Stock Option Plan
In December 1993, the Board of Directors approved a Key Employee
Incentive Stock Option Plan, which reserved and authorized the
issuance of 100,000 shares of the Company's common stock to
eligible employees. At the Company's 1994 annual meeting, the
stockholders approved this plan. The stock options vest over a
period of one year.
Options for all of the shares of common stock that were reserved
for issuance to the Key Employee Incentive Stock Option Plan had
been issued.
Stock Options
In July 1999, the Company granted options to purchase 115,900
shares of Company common stock to certain employees. The options
vest one year from the grant date, have a ten-year life, and an
exercise price of $4.50 per share.
The Company applies APB No. 25 and related interpretations in
accounting for its stock-based compensation plans. Accordingly, no
compensation cost has been recognized for its stock options plans.
Had compensation cost for the options been determined based on the
fair value at the grant date consistent with SFAS 123, the
Company's net income would have been as follows:
2000 1999
---- ----
Net income:
As Reported $1,364,000 $2,368,000
Pro Forma $1,308,000 $2,260,000
Earnings Per Share:
Basic:
As Reported $.73 $1.21
Pro Forma $.70 $1.15
Diluted:
As Reported $.71 $1.15
Pro Forma $.68 $1.10
F-20
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. COMMON STOCK (Continued)
Stock Options (Continued)
The Company used the Black-Scholes option-pricing model to
determine the fair value of grants made in 1999. No grants were
made in 2000. The following assumptions were applied in determining
the pro forma compensation cost:
Risk Free Interest Rate 6%
Expected Dividend Yield -0-
Expected Option Life 5 Years
Expected Stock Price Volatility 75%
Changes in outstanding incentive stock options for common stock are
as follows:
2000 1999
---- ----
Outstanding at beginning of year 276,295 337,980
Options granted - 115,900
Options exercised (12,000) (177,585)
Options expired (31,250) -
------- --------
Outstanding at end of year 233,045 276,295
======= ========
Exercisable at end of year 233,045 160,395
======= ========
Weighted average option exercise price information for fiscal years
2000 and 1999 is as follows:
2000 1999
---- ----
Outstanding at beginning of year $2.50 $2.39
==== ====
Granted during the year - 4.50
==== ====
Exercised during the year 1.63 2.25
==== ====
Outstanding at end of year 3.27 3.34
==== ====
Exercisable at end of year $3.27 $2.50
==== ====
Significant options groups outstanding at September 30, 2000 and
related weighted average price and life information are as follows:
Grant Options Options Exercise Remaining
Date Outstanding Exercisable Price Life (Years)
---- ----------- ----------- ----- ------------
12/21/95 40,000 40,000 1.63 .25
3/14/96 36,000 36,000 2.25 .5
1/08/97 72,395 72,395 3.25 1.25
7/3/99 84,650 84,650 4.50 8.5
F-21
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11. NET INCOME PER COMMON SHARE
The Company follows SFAS No. 128, "Earnings Per Share." SFAS 128
provides for the calculation of basic and diluted earnings per share.
Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share assume exercising warrants and options granted and
convertible preferred stock and debt. Earnings per share are computed
by dividing income available to common stockholders by the basic and
diluted weighted average number of common shares.
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Basic weighted average shares 1,856,000 1,957,000
Incremental shares relating to outstanding options 75,000 105,000
--------- ---------
Diluted weighted average shares 1,931,000 2,062,000
========= =========
</TABLE>
NOTE 12. RELATED PARTY TRANSACTIONS
The Company's Chairman and a relative formed a corporation to manage
one of the Company's franchised stores.
During fiscal 2000 and 1999, respectively, the Company incurred legal
fees in the form of salary of approximately $116,000 and $129,000 for
services provided by a member of the Board of Directors.
Also see Notes 2, 4, 5, 8, 9, and 10 for additional related party
transactions.
NOTE 13. BUSINESS SEGMENTS
The Company operates principally in two segments - retail package
stores and restaurants. The operation of package stores consists of
retail liquor sales.
Information concerning the revenues and operating income for the years
ended September 30, 2000 and October 2, 1999, and identifiable assets
for the two segments in which the Company operates, are shown in the
following table. Operating income is total revenue less cost of
merchandise sold and operating expenses relative to each segment. In
computing operating income, none of the following items have been
included: interest expense, other non-operating income and expense and
income taxes. Identifiable assets by segment are those assets that are
used in the Company's operations in each segment. Corporate assets are
principally cash and notes and mortgages receivable. The Company does
not have any operations outside of the United States and intersegment
transactions are not material.
2000 1999
---- ----
Operating Revenues:
Retail package stores $ 8,870,000 $ 7,255,000
Restaurants 14,344,000 13,430,000
Other revenues 1,946,000 1,630,000
----------- -----------
Total operating revenues $25,160,000 $22,315,000
=========== ===========
F-22
<PAGE>
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 13. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
2000 1999
---- ----
Income From Operations Reconciled to Income before
<S> <C> <C>
Income Taxes:
Retail package stores $ 308,000 $ 256,000
Restaurants 1,761,000 1,607,000
----------- ---------
2,069,000 1,863,000
Corporate expenses, net of other revenues (289,000) (320,000)
----------- ----------
Operating Income 1,780,000 1,543,000
Interest expense, net of interest income (123,000) (96,000)
Other 48,000 328,000
------------- ----------
Income Before Income Taxes $ 1,705,000 $1,775,000
=========== =========
Identifiable Assets:
Retail package store $ 2,066,000 $ 2,108,000
Restaurants 3,969,000 3,587,000
----------- -----------
6,035,000 5,695,000
Corporate 7,398,000 5,077,000
----------- -----------
Consolidated Totals $13,433,000 $10,772,000
========== ==========
Capital Expenditures:
Retail package stores $ 67,000 $ 82,000
Restaurants 967,000 794,000
------------ ------------
1,034,000 876,000
Corporate 911,000 58,000
------------ -------------
Total Capital Expenditures $ 1,945,000 $ 934,000
=========== ============
Depreciation and Amortization:
Retail package stores $ 97,000 $ 92,000
Restaurants 438,000 417,000
------------ ------------
535,000 509,000
Corporate 146,000 128,000
------------ ------------
Total Depreciation and Amortization $ 681,000 $ 637,000
============ ============
</TABLE>
NOTE 14. OTHER INCOME (EXPENSE)
Other income (expense) in the consolidated statements of income
consists of the following for the years ended September 30, 2000 and
October 2, 1999, respectively.
2000 1999
---- ----
Non-franchise related rental income $31,000 $ 36,000
Loss on retirement of property and equipment - (66,000)
Insurance recoveries - 275,000
Gain on sale of liquor license 8,000 30,000
Miscellaneous 5,000 50,000
------- --------
$44,000 $325,000
====== =======
F-23
