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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the fiscal year ended October 2, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number I-6836
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
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 $5,460,000 as of December 13, 1999.
There were 1,950,000 shares of the Registrant's Common Stock ($0.10 Par Value)
outstanding as of October 2, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the Registrant's 1999 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 34
PART I
Item 1. Business
General
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 October 2, 1999, the Company operated 14
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
1999 1998 NUMBER
TYPES OF UNITS
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Combination package and restaurant 4 4
Restaurant only 5 5 (1)(2)(3)(4)
Package store only 4 3 (5)(6)
Clubs 1 1
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TOTAL - Company operated units 14 13
FRANCHISED - units 7 7 (4)
Notes:
(1) During the fourth quarter of fiscal year 1997, the Company formed a
limited partnership and raised funds through a private offering to purchase the
assets of a restaurant in Surfside, Florida and renovate the same for operation
under the "Flanigan's Seafood Bar and Grill" servicemark. The Company acts as
general partner and forty two percent owner of the partnership. The restaurant
opened in the second quarter of 1998.
(2) 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.
(3) 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 ownership of the partnership. Due to delays beyond the
control of the Company, the restaurant is currently being renovated and is
expected to be open for business during the second quarter of fiscal year 2000.
The restaurant is not included in the table of units.
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(4) 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.
(5) During the third quarter of fiscal year 1999, the Company opened a
package liquor store in Fort Lauderdale, FL
(6) During fiscal year 1996, one franchisee exercised the thirty day
cancellation clause under the franchise agreement and related documents and
returned its franchised unit to the Company. The franchisee had operated a
package liquor store and lounge under the "Big Daddy's" servicemark. The Company
profitably operated the package liquor store of the franchised unit but did not
reopen the lounge. The lease agreement for the business premises expired on
December 31, 1995 and the Company occupied the same on an oral month to month
lease agreement, paying its prorata share of the real property taxes monthly and
insuring the property until April 1998 when the oral month to month lease
agreement was terminated and the package liquor store was closed.
All of the Company's package liquor stores, restaurants and clubs are
operated on leased properties. As a result of significant escalations of rent on
certain of such leased properties and on leased properties that were not being
operated by the Company, 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. On May 5, 1987 the Company's Plan of Reorganization
as amended and modified ("the Plan") 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.
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
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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 11 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
78.6% 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.
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
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Company. On May 5, 1987, the Company's Plan of Reorganization as amended and
modified was confirmed by the Bankruptcy Court. On December 28, 1997 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
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 October 2, 1999 and October 3, 1998 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
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 79.7% 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 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.
5
Franchised Package Liquor Stores and Lounges
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 1986, ten units had been franchised. Four of
these units were franchised to members of the family of the Chairman of the
Board. The Company had limited response to its franchise offering and suspended
its franchise plan at the end of fiscal year 1986.
During fiscal year 1988, two franchisees (one of whom is on the Company's
Board of Directors) exercised the thirty day cancellation clause under the
franchise agreement and related documents and returned their franchised units to
the Company. No gain or loss was recognized on these returns. The Company has
been profitably operating these two units.
During fiscal year 1990, the Company completed a foreclosure to take one
franchise back, reducing the number of franchised units to seven. This unit was
sold pursuant to a private offering to a Subchapter S corporation whose
president was the Chairman and whose investors included three directors and
members of the Chairman's family. This unit was managed by the Company through
the end of fiscal year 1992. In the first quarter of fiscal year 1993, the Board
of Directors agreed to purchase this unit from the group of investors. In
purchasing this unit, the Board of Directors determined that the projected
profitability would provide a fair return on investment, whereas without this
purchase, the Company would only have received its 4% management fee until the
Subchapter S corporation received its full investment back from this unit.
During fiscal year 1991, the Company sold one unit to the unit's manager, an
unaffiliated third party, who had been operating it pursuant to a management
agreement since 1987. This unit consisted of a package liquor store and
restaurant, which restaurant was not
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operating under the Company's "Flanigan's Seafood Bar and Grill" servicemark.
The Company also entered into a franchise agreement with the manager, licensing
the use of the "Big Daddy's Liquors" servicemark for the liquor package store in
exchange for a royalty in the amount of 1% of gross sales. Although the Company
counted this unit as a franchise, the Company did not consider this transaction
a part of its franchise plan. During fiscal year 1995, the manager executed the
Company's new franchise agreement for the operation of his restaurant under the
"Flanigan's Seafood Bar and Grill" servicemark as more fully described below. At
the same time, the former manager also executed a new franchise agreement for a
second restaurant opened since the purchase of the unit from the Company during
fiscal year 1991.
During fiscal year 1992, one unaffiliated franchisee expressed an interest
in selling his unit or returning it to the Company pursuant to the terms of the
franchise agreement and documents. As a result of the substantial investment
necessary to upgrade and renovate this unit, an affiliated group of investors
formed a Subchapter S Corporation and purchased the unit from the franchisee.
The shareholder interest of all the officers and directors represented 42% of
the invested capital. The shareholder interest of the Chairman's family
represented an additional 47.5% of the total invested capital. The Company
continues to receive the same royalties, rent and mortgage payments as it had
from the unaffiliated franchisee.
During fiscal year 1996, one franchisee exercised the thirty day cancellation
clause under the franchise agreement and related documents and returned its
franchised unit to the Company. The franchisee had operated a package liquor
store and lounge under the "Big Daddy's" servicemark. The Company profitably
operated the package liquor store of the franchised unit but did not reopen the
lounge. The lease agreement for the business premises expired on December 31,
1995 and the Company occupied the same on an oral month to month lease agreement
paying its prorata share of the real property taxes monthly and insuring the
property until April 1998 when the oral month to month lease agreement was
terminated and the package liquor store was closed.
During the third quarter of fiscal year 1996, another unaffiliated franchisee
expressed its intent to terminate its new franchise agreement (package liquor
store only) and to return its unit, including restaurant to the Company. In
order to induce the franchisee to continue operating its franchise through the
end of fiscal year 1996, the Company agreed to reduce the weekly sublease rent
and suspend all weekly payments on account of its purchase money chattel
mortgage. In the interim, the Company determined that the cost necessary to
convert this unit to a "Flanigan's Seafood Bar and Grill" restaurant exceeded
the funds available to the Company and on September 30, 1996, during the first
quarter of fiscal year 1997, the franchise was sold to a related party, in
7
lieu of its return to the Company. The initial shareholder interest of all
officers and directors, which was comprised of the Chairman and a member of his
family, represented one hundred percent of the initial invested capital. It was
also agreed that the Company would manage the franchise for the related third
party, pursuant to a management agreement. Subsequent to the closing of the sale
of the franchise, another related franchisee, who is also a member of the Board
of Directors of the Company, paid the Company the sum of $150,000 to approve his
purchase of this franchise from the related third party and for the Company to
relinquish its right to act as manager of the franchise. As a part of this
transaction, the Company agreed to continue the reduced sublease rent, the
waiver of any franchise royalties and the suspension of mortgage payments
through March 1997. Since April 1, 1997 the Company has received the same weekly
payment as previously paid by the former franchisee during fiscal year 1996.
During the third quarter of fiscal year 1997 this related party formed a limited
partnership to own this franchise and through which it raised the necessary
funds to renovate the restaurant. The Company is an investor in the franchise,
as are other related parties, including, but not limited to officers and
directors of the Company and their families.
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.
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
8
premises thereafter, whether by lease or ownership. The new franchise agreement
provides for a royalty to the Company in the amount of approximately 3% of gross
sales plus a contribution to advertising in an amount between 1-1/2% to 3% of
gross sales. In most cases, the Company does not sublease the business premises
to the franchisee and in those cases where it does, the Company no longer
receives rent in excess of the amount paid by the Company.
As the end of fiscal year 1998, all existing franchisees who operate
restaurants under the "Flanigan's Seafood Bar and Grill" or other authorized
servicemarks had executed new franchise agreements.
During fiscal year 1996, the Company's franchise agreement with a member of
Mr. Flanigan's family expired and the Company declined to offer the franchisee
the option of executing its new franchise agreement. During the first quarter of
the fiscal year 1997, the Company filed suit against the franchisee for
servicemark infringement, seeking injunctive relief and monetary damages. During
the first quarter of fiscal year 1998, a Stipulated Agreed Order of Dismissal
Upon Mediation was issued whereby the Company received $110,000 and the former
franchisee agreed to cease all use of the "Flanigan's" servicemark and other
trade dress features common to Company owned and/or franchised restaurants.
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
9
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,
only while the Company acts as general partner. This restaurant opened in the
second quarter of fiscal year 1998.
In order to ensure that the Company had adequate cash reserves in view of its
investment in the restaurant discussed above, and for other improvements, during
the second quarter of fiscal year 1997, the Board of Directors authorized the
Company to borrow up to $1,200,000 at an interest 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 private investors, in units
of $5,000, which loan is fully secured with specific receivables owned by the
Company. During the first quarter of fiscal year 1998, the Company closed on its
loan from Nations Bank (formerly Barnett 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.
In the third quarter of fiscal year 1998, the Company entered into a lease
agreement for a restaurant in Kendall, Florida and a separate agreement for the
purchase of the furniture, fixtures and equipment of the existing restaurant.
The lease agreement and separate agreement were each contingent upon the Company
applying for and receiving zoning variances from Miami Dade County, Florida.
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. The
restaurant is expected to open during the second quarter of fiscal year 2000. 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.
Clubs
As of the end of fiscal year 1999, the Company owned one club in Atlanta,
Georgia, which was operated by an unaffiliated third party, as discussed below.
In addition, until September 20, 1996, the Company operated its remaining
Pennsylvania club, (Store #850, King of Prussia, Pennsylvania), which was
financed through a
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limited partnership in which a wholly owned subsidiary of the Company acted as
general partner. The lease for this unit had only thirteen months remaining,
with no more renewal options, and revenues were down as a result of competition
from some expensive new clubs constructed on the waterfront. An opportunity
arose to sell the lease, leasehold improvements and liquor license to Dick Clark
Restaurants, Inc. With the approval of the limited partners, the sale of the
unit was consummated on September 20, 1996 for a purchase price of $500,000.
Operation of Units by Unaffiliated Third Parties
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 equal to 10% of the gross sales
exceeding $1,500,000 for the prior 12 month period, being due the Company.
Operations and Management
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
three 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.
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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.
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
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.
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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, the licenses
have purchase and resale value based upon supply and demand in the particular
areas in which they are issued. The quota licenses held by the Company allow the
sale of liquor for on 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. 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 surveillance 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.
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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 subsequent to the end of fiscal year 1998, 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 prohibiting
management from purchasing inventory without an invoice and in cash. Otherwise,
during the fiscal years ended October 3, 1998, and October 2, 1999, 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. The
Company is self-insured against liability claims in excess of $1,000,000.
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 "Accrued and Other
Liabilities". 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.
14
Through the end of the 1990 fiscal year, the Company was uninsured for dram
shop liability. Florida has restricted its dram shop law by statute, permitting
persons injured by an "obviously intoxicated person" to bring a civil action
against the business which served alcoholic beverages to a minor or an
individual known to be habitually addicted to alcohol. 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 the Company then vigorously defends
these claims on the grounds that its employees did not serve an "obviously
intoxicated person". Damages in most dram shop claims are substantial. At the
present time, there are no dram shop claims pending against 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 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 October 2, 1999 the Company owned and operated eight
restaurants, six 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
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
15
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.
During fiscal year 1996, the Company's franchise agreement with a member of
Mr. Flanigan's family expired and the Company declined to offer the franchisee
the option of executing its new franchise agreement. During the first quarter of
fiscal year 1997, the Company filed suit against the franchisee for servicemark
infringement, seeking injunctive relief and monetary damages. During the first
quarter of fiscal year 1998, a Stipulated Agreed Order of Dismissal Upon
Mediation was issued whereby the Company received $110,000 and the former
franchisee agreed to cease all use of the "Flanigan's" servicemark and other
dress features common to the Company owned and/or franchised restaurants.
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.
Employees
As of year end, the Company employed 368 employees, of which 298 were
full-time and 70 were part-time. Of these, 23 were employed at the corporate
offices. Of the remaining employees, 38 were employed in package liquor stores
and 307 in restaurants.
None of the Company's employees are represented by collective bargaining
organizations. The Company considers its labor relations to be favorable.
16
EXECUTIVE OFFICERS OF THE REGISTRANT
Positions and Offices Office or Position
Name Currently Held Age Held Since
---- -------------- --- ----------
Joseph G. Flanigan Chairman of the Board 70 1959
of Directors, Chief
Executive Officer and
President
William Patton Vice President 76 1975
Community Relations
Edward A. Doxey Chief Financial Officer 58 1992
and Secretary
Jeffrey D. Kastner Assistant Secretary 46 1995
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.
On January 11, 1986, the Bankruptcy Court entered its Order granting the
Company's motions to reject thirteen leases and the Company was successful in
negotiating a termination of three other leases. On April 7, 1986, the
Bankruptcy Court granted the Company's motion to reject two additional leases
and two more
17
leases were rejected by the Company's failure to assume the same by May 22,
1986. In addition, during the pendency of the bankruptcy proceedings, the
Company was successful in renegotiating a substantial number of the Company's
remaining leases, generally amending the terms to five years with three five
year renewal options and deleting cost of living rental adjustments in exchange
for rents based upon the "fair market rental" for each particular location. The
Company believes that the units retained, especially with the aforementioned
lease modifications, are adequate to support its operations, including any
damages as a result of its bankruptcy proceedings.
All of the Company's units require periodic refurbishing in order to remain
competitive. The Company has budgeted $432,000 for its refurbishing program for
fiscal year 2000. See Item 7, "Liquidity and Capital Resources" for discussion
of the amounts spent in fiscal year 1999.
The following table summarizes the Company's properties as of October 2, 1999
including franchise locations, a club and Company managed locations.
Square License Lease
Name and Location Footage Seats Owned by Terms
- ----------------- ------- ----- -------- -----
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 5/15/97
Seafood Bar and Grill 5/14/00
#11, 11 Corporation (3)
330 Southern Blvd.
W. Palm Beach, FL
Flanigan's Legends 5,000 180 Franchise 11/15/92 to
Seafood Bar and Grill 11/15/02
#12 Galeon Tavern, Inc. (3) Option to
2401 Tenth Ave. North 11/15/12
Lake Worth, FL
18
Square License Lease
Name and Location Footage Seats Owned by Terms
- ----------------- ------- ----- -------- -----
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 Franchise 3/2/76 to 8/31/01
CIC Investors #15 Ltd. (3)(5) Options to 8/31/11
1479 E. Commercial Blvd.
Ft. Lauderdale, FL
Flanigan's Seafood 4,300 100 Franchise 2/15/72 to 12/31/00
Bar and Grill #18 Options 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 12/31/00
Bar and Grill #19 Option to 12/31/05
Flanigan's Enterprises
Inc. (2)(4)
2505 N. University Dr.
Hollywood, FL
Flanigan's Seafood 5,100 140 Company 7/15/68 to 12/31/00
Bar and Grill #20 Options to 12/31/05
Flanigan's Enterprises Additional Lease
Inc. (2) 5/1/69 to 12/31/00
North Miami, FL Options to 12/31/05
Flanigan's Seafood 4,100 200 Company 12/16/68 to
Bar and Grill #22 12/31/00
Flanigan's Enterprises Options to 12/31/10
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
19
Square License Lease
Name and Location Footage Seats Owned by Terms
- ----------------- ------- ----- -------- -----
Flanigan's Seafood 4,600 150 Company 9/6/68 to 12/31/00
Bar and Grill #31 Options 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
Big Daddy's Liquors 4,600 N/A Company 3/10/87 to 12/31/00
#36, Flanigan's Additional Lease
Enterprises, Inc. (2) 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 12/31/00
Bar and Grill #40 Option to 12/31/05
Flanigan's Enterprises
Inc. (2)
5450 N. State Road 7
Ft. Lauderdale, 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
20
Square License Lease
Name and Location Footage Seats Owned by Terms
- ----------------- ------- ----- -------- -----
Flanigan's Enterprises 10,000 400 Company 5/1/76 to 4/30/01
#600 (7) Option to 4/30/06
Powers Ferry Landing
Atlanta, GA
(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%.
(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.
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 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.
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
21
intoxicating liquors to an already "obviously intoxicated person". The Company's
insurance coverage relating to this type of incident is limited.
Through the end of the 1990 fiscal year, the Company was uninsured for dram
shop liability. Florida has restricted its dram shop by statute, permitting
persons injured by an "obviously intoxicated person" to bring a civil action
against the business which had served alcoholic beverages to a minor or to an
individual known to be habitually addicted to alcohol. 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.
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 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,
22
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 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.
Item 4. Submission of matters to a Vote of Security Holders.
During the fourth quarter of fiscal year 1999 the Company did not submit any
matter to a vote of the security holders.
23
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 1999 Fiscal 1998
----------- -----------
High Low High Low
---- --- ---- ---
First quarter 5-1/8 3-5/8 6-3/8 3-11/16
Second quarter 8 4-3/16 6-3/4 3-9/16
Third quarter 6-7/8 3-3/4 6-5/8 5-3/8
Fourth quarter 5-3/8 4-1/8 5-11/16 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 on
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.
Item 6. Selected Financial Data.
Not required
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
At October 3, 1998, the Company was operating thirteen 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 restaurants, five were restaurants only and three were package liquor
stores only. There was one club operated by an unaffiliated third party under a
management agreement.
As compared to fiscal year 1998, as of October 2, 1999, the Company was
operating fourteen 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, four 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
24
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.
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows for the fiscal
years ended October 2, 1999 and October 3, 1998:
Fiscal
Years Ended
-----------
1999 1998
------- -------
(in thousands)
Net cash provided by operating activities $ 2,652 $ 1,060
Net cash used in investing activities (1,032) (760)
Net cash used in financing activities (1,336) (166)
------
Net increase in cash and equivalents 284 134
Cash and equivalents, beginning of year 1,468 1,334
------- -------
Cash and equivalents, end of year $ 1,752 $ 1,468
======= =======
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 has been tested and is year 2000 compliant. The company incurred
consultants fees, in the amount of $113,000, which were expensed during fiscal
year 1999.
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 $934,000 and $808,000 during fiscal years 1999 and
1998, respectively. The capital expenditures were for upgrading existing units
serving food, improvements to package liquor stores and the replacement of the
corporate computer system.
25
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 1999. The budget for
fiscal year 2000 includes approximately $432,000 for this purpose. The Company
expects the monies for these improvements will be provided from operations.
Property and Equipment
The Company's property and equipment, at cost, less accumulated depreciation
and amortization, was $4,004,000 at October 2, 1999 compared to $3,717,000 at
October 3, 1998. The Company's liquor licenses less accumulated amortization
were $303,000 at October 2, 1999 compared to $358,000 at October 3, 1998. The
Company's leased property under capital leases, less accumulated amortization
was $ $93,000 at October 2, 1999 compared to $129,000 at October 3, 1998. The
Company's leased property under capital leases has continued to decline because
any new leases the Company enters into are operating leases, and thus there are
no additions to capital leases.
Long term debt
The Company closed on its $500,000 loan with Nations Bank (formerly Barnett
Bank) during the first quarter of 1998 and repaid principal of $125,000 during
the fiscal year 1998. The balance of $375,000 was repaid in full during fiscal
year 1999. The Company repaid long term debt, including the Nations Bank note
payable, capital lease obligations and Chapter 11 bankruptcy damages in the
amount of $807,000 and $692,000 in fiscal years 1999 and 1998 respectively.
Working capital
The table below summarizes the current assets, current liabilities and
working capital for the fiscal years 1999 and 1998:
Oct. 2 Oct. 3
Item 1999 1998
- ---- ------ ------
Current assets $ 4,075,000 $ 3,456,000
Current liabilities 2,693,000 2,242,000
Working capital 1,382,000 1,214,000
During fiscal year 1991 and again in fiscal year 1992, the Company refinanced
existing debt due Class 6 and 8 Creditors under the Company's Amended Plan by
extending the payment schedule to the year 2002, thereby reducing the payments
from $500,000 per year to $200,000 per year for two years and thereafter to
$300,000 per year until paid, but without reducing the total amount of
bankruptcy damages.
26
Management believes that positive cash flow from operations will adequately
fund operations, debt reductions and planned capital expenditures in fiscal year
2000.
The Company's Amended Plan of Reorganization was prepared to allow the
Company to meet its obligations from cash generated from operations. The Amended
Plan was approved by the majority of the creditors and confirmed by the
Bankruptcy Court on May 5, 1987 and the Company was officially discharged from
bankruptcy on December 28, 1987. As noted above, during fiscal year 1991 and
again in fiscal year 1992, the Class 6 and 8 Creditors agreed to refinance
existing debt by extending their payment schedule. See Bankruptcy Proceedings
below and Note 6 to the consolidated financial statements.
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 October 2, 1999.
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
27
years, the total amount due was discounted at a rate of 9.25%. See Note 2 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 pages 12 and 13 for further discussion regarding dram shop suits.
During fiscal year 1996, a former employee alleged that her position with the
Company was changed due to her pregnancy. The Equal Employment Opportunity
Commission failed to make a determination on this claim within one hundred
eighty (180) days of its filing and subsequent to the end of fiscal year 1996,
this claimant filed suit against the Company. The Company disputed this claim
and vigorously defended the same. During the fourth quarter of fiscal year 1997,
the former employee's attorney withdrew and during the first quarter of fiscal
year 1998 the lawsuit was dismissed due to the failure of the employee to retain
substitute counsel.
Results of Operations
REVENUES (in thousands):
Fifty Two Fifty Three
Weeks Ended Weeks Ended
Sales Oct. 2, 1999 Oct. 3, 1998
- ----- ------------ ------------
Restaurant, food $ 10,708 51.8% $ 10,628 52.0%
Restaurant, bar 2,722 13.2% 2,891 14.2%
Package goods 7,255 35.0% 6,901 33.8%
-------- ----- -------- -----
Total 20,685 100.0% 20,420 100.0%
Franchise revenues 894 761
Owners fee 230 173
Joint venture income 341 207
Other operating income 165 206
-------- --------
Total Revenues $ 22,315 $ 21,767
As the table above illustrates, total revenues have increased for the fiscal
year ended October 2, 1999 when compared to the fiscal year ended October 3,
1998.
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.
28
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 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.
Restaurant food sales represented 51.8% of total sales in the fifty two weeks
ended October 2, 1999 as compared to 52.0% in the fifty three weeks ended
October 3, 1998. The weekly average of same store restaurant food sales was
$197,672 and $183,711 for the fifty two weeks ended October 2, 1999 and the
fifty three weeks ended October 3, 1998 respectively, an increase of 7.6%.
Restaurant bar sales represented 13.2% of total sales in the fifty two weeks
ended October 2, 1999 as compared to 14.2% in the fifty three weeks ended
October 3, 1998. The weekly average of same store restaurant bar sales was
$50,245 and $47,293 for the fifty two weeks ended October 2, 1999 and the fifty
three weeks ended October 3, 1998 respectively, an increase of 6.2%.
Package store sales for the second consecutive year have reversed the decline
of prior years with same store weekly sales averaging $133,173 and $121,498 for
the fifty two weeks ended October 2, 1999 and the fifty three weeks ended
October 3, 1998 respectively, an increase of 9.6%.
Franchise revenue increased to $894,000 for the fifty two weeks ended October
2, 1999 as compared to $761,000 for the fifty three weeks ended October 3, 1998.
The increase in franchise revenue resulted from higher sales for the franchises,
and a joint venture restaurant having been open for all fifty two weeks ending
October 2, 1999 whereas it was only open for business in the second quarter of
fiscal year 1998.
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 annual sales exceeding $150,000 per annum as additional owner's
fees. Income from this club was $230,000 for the fifty two weeks ended October
2, 1999 as compared to $173,000 for the fifty three weeks ended October 3, 1998.
29
During the second quarter of fiscal year 1998, the Company began operating a
restaurant under the "Flanigan's Seafood Bar and Grill" servicemark as general
partner and forty two percent owner of a limited partnership established for
such purpose. The Company reports income and investment under the equity method
of accounting. The Company reported $99,000 in income for the fifty two weeks
ended October 2, 1999 as compared to a loss of $66,000 for the fifty three weeks
ended October 3, 1998. The loss in fiscal year 1998 was attributed to
pre-opening costs and expenditures of certain intangible costs as required by
SOP 98-5, "reporting on the costs of start-up activities".
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 difficulties in obtaining the required permits
to begin construction which were beyond the control of the Company, construction
began in the first quarter of fiscal year 2000 and the restaurant is expected to
open during the second quarter of fiscal year 2000. The Company recognized a
loss of $106,000 for the fifty two weeks 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 costs of start-up activities".
The gross profit margin for restaurant sales were 64.2% and 62.3% for the
fiscal years 1999 and 1998 respectively.
The gross profit margin for package goods sales were 26.6% and 26.0%, for the
fiscal years 1999 and 1998 respectively.
Overall gross profits were 50.7% and 50.0% for the fiscal years 1999 and 1998
respectively.
Operating Costs and Expenses
Operating costs and expenses for the fifty two weeks ended October 2, 1999
were $20,772,000 compared to $20,383,000 for the fifty three weeks ended October
3, 1998. 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 $6,135,000 and $5,964,000 for fiscal years 1999 and 1998,
respectively. The 2.9% increase is attributed to increases in salaries paid to
restaurant and package division employees.
30
Occupancy costs, which include rent, common area maintenance, repairs and
taxes were $1,033,000 and $1,047,000 for fiscal years 1999 and 1998
respectively. The 0.1 % decrease was attributable to the closing of a restaurant
and the opening of a package store.
Selling, general and administrative expenses were $3,410,000 for the fifty
two weeks ended October 2, 1999 and $3,163,000 for the fifty three weeks ended
October 3, 1998. The net increase of 7.8% in selling, general and administrative
expenses is due to a general increase in prices.
Other Income and Expenses
Other income and expense totaled $232,000 and $37,000 in fiscal years 1999
and 1998 respectively.
The decrease of $43,000 in interest expense on long-term debt and damages
payable, which were $114,000 and $157,000 for the fifty two weeks ended October
2, 1999 and the fifty three weeks ended October 3, 1998 is attributed to the
decrease in long term debt. The decline of $12,000 in interest expense on
obligations under capital leases, which was $34,000 and $46,000 for fiscal years
1999 and 1998, respectively, is the result of declining principal balances of
the capital leases in general.
The Company realized $110,000 of income in the first quarter of fiscal year
1998 from the settlement of litigation.
The Company recovered $157,000 from a workman's compensation settlement in
the fourth quarter of fiscal year 1999 for a claim in fiscal year 1994 and
reduced by $118,000 a workman's compensation reserve from a claim in fiscal year
1993.
The category "Other, net" was $325,000 for the fifty two weeks ended October
2, 1999 and $162,000 for the fifty three weeks ended October 3, 1998. Other, net
in the consolidated statements of income consists of the following for the
fiscal years ended October 2, 1999 and October 3, 1998:
Fiscal
Years Ended
---------------------
1999 1998
--------- ---------
Non-franchise related rental income $ 36,000 $ 45,000
Loss on retirement of fixed assets (66,000) (37,000)
Settlement of litigation - 110,000
Insurance recovery & reserve reduction 275,000 -
Sale of liquor license 30,000 -
Miscellaneous 50,000 44,000
--------- ---------
Other Net $ 325,000 $ 162,000
========= =========
31
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 1999. The Company will be fully taxable for fiscal year 2000 which
will create a material increase in its Federal and State tax expense.
The Company intends to add additional restaurants and package stores as cash
becomes available.
Other Matters
Impact of Inflation
The Company does not believe that inflation has had any material effect
during the past two 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
During the fourth quarter of fiscal year 1999, the Company entered into a
contract for the purchase of a two story office building in Fort Lauderdale,
Florida for a purchase price of $850,000, 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 for use as a package liquor store. The Company
closed on the purchase of the office building during the first quarter of fiscal
year 2000, paying the entire purchase price in cash.
32
Item 8. Financial Statements and Supplementary Data.
Financial statements of the Company at October 2, 1999 and October 3, 1998,
which include each of the two years in the period ended October 2, 1999 and the
independent certified public accountants' report thereon, are incorporated by
reference from the 1999 Annual Report to Shareholders, 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 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 indictaed agreement
with the statements contained within the form 8-K.
33
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 2000 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
2000 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 2000 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 2000 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 2000 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 1999 or subsequent to year end.
34
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).
(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).
35
(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.
(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 October 2, 1999.
(22)(a) Company's subsidiaries are set forth in this Annual Report on Form
10-KSB.
36
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: 1/3/00
------------------ ------
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: 1/3/00
- ------------------ Chief Executor Officer, ------
Joseph G. Flanigan and President
EDWARD A. DOXEY Chief Financial Officer Date: 1/3/00
- --------------- Secretary and Director ------
Edward A. Doxey
CHARLES KUHN Director Date: 1/3/00
- ------------ ------
Charles Kuhn
GERMAINE M. BELL Director Date: 1/3/00
- ---------------- ------
Germaine M. Bell
CHARLES E. MCMANUS Director Date: 1/3/00
- ------------------ ------
Charles E. McManus
JEFFREY D. KASTNER Assistant Secretary Date: 1/3/00
- ------------------- and Director ------
Jeffrey D. Kastner
WILLIAM PATTON Vice President, Public Date: 1/3/00
- -------------- Relations and Director ------
William Patton
JAMES G. FLANIGAN Director Date: 1/3/00
- ----------------- ------
James G. Flanigan
PATRICK J. FLANIGAN Director Date: 1/3/00
- ------------------- ------
Patrick J. Flanigan
38
FLANIGAN'S ENTERPRISES, INC. and SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1-F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-3
Statements of Income F-4
Statements of Stockholder's Equity F-5
Statements of Cash Flows F-6-F-7
Notes to Financial Statements F-8-F-24
39
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 October 2, 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year 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 audit.
We conducted our audit 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
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
audit provides 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 October 2, 1999, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
November 24, 1999
except for last paragraph of Note 15, as to which
the date is December 14, 1999
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Flanigan's Enterprises, Inc.:
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Flanigan's Enterprises, Inc. (a Florida
corporation) and subsidiaries for the year ended October 3, 1998. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Flanigan's
Enterprises, Inc. and subsidiaries for the year ended October 3, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
December 10, 1998.
F-2
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
OCTOBER 2, 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 1,752,000
Notes and mortgages receivable, current maturities, net 212,000
Inventories 1,428,000
Prepaid expenses 402,000
Deferred tax asset 281,000
------------
Total current assets 4,075,000
Property and Equipment 4,004,000
Leased Property Under Capital Leases, Net 93,000
------------
Other Assets:
Liquor licenses, net 303,000
Notes and mortgages receivable, net 171,000
Investments in joint ventures 1,471,000
Deferred tax asset 349,000
Other 306,000
------------
Total other assets 2,600,000
------------
Total assets $ 10,772,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,594,000
Due to franchisees 699,000
Current portion of long-term debt 84,000
Current obligations under capital leases 38,000
Current portion of damages payable on terminated or rejected leases 278,000
------------
Total current liabilities 2,693,000
Long-Term Debt, Net of Current Maturities 500,000
------------
Obligations Under Capital Leases, Net of Current Portion 205,000
------------
Damages Payable on Terminated or Rejected Leases, Net of Current Portion 394,000
------------
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 6,058,000
Retained earnings 5,416,000
Notes receivable on sale of common stock (192,000)
Less - treasury stock, at cost, 2,247,193 shares (4,722,000)
------------
Total stockholders' equity 6,980,000
------------
Total liabilities and stockholders' equity $ 10,772,000
============
See notes to consolidated financial statements.
F-3
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
OCTOBER 2, 1999 AND OCTOBER 3, 1998
1999 1998
------------ ------------
Revenues:
Restaurant food sales $ 10,708,000 $ 10,628,000
Restaurant bar sales 2,722,000 2,891,000
Package goods sales 7,255,000 6,901,000
Franchise-related revenues 894,000 761,000
Owner's fee 230,000 173,000
Joint venture income 341,000 207,000
Other operating income 165,000 206,000
------------ ------------
22,315,000 21,767,000
Costs and Expenses:
Cost of merchandise sold:
Restaurants and lounges 4,871,000 5,102,000
Package goods 5,323,000 5,107,000
Payroll and related costs 6,135,000 5,964,000
Occupancy costs 1,033,000 1,047,000
Selling, general and administrative expenses 3,410,000 3,163,000
------------ ------------
20,772,000 20,383,000
Income from Operations 1,543,000 1,384,000
------------ ------------
Other Income (Expense):
Interest expense on obligations under capital leases (34,000) (46,000)
Interest expense on long-term debt and damages payable (114,000) (157,000)
Interest income 52,000 72,000
Recognition of deferred gains 3,000 6,000
Other 325,000 162,000
------------ ------------
232,000 37,000
------------ ------------
Income Before Provision for Income Taxes 1,775,000 1,421,000
------------ ------------
Provision (Benefit) for Income Taxes:
Current 37,000 33,000
Deferred (630,000) --
------------ ------------
(593,000) 33,000
Net Income $ 2,368,000 $ 1,388,000
============ ============
Net Income Per Common Share:
Basic $ 1.21 $ 0.76
============ ============
Diluted $ 1.15 $ 0.69
============ ============
Weighted Average Shares and Equivalent Shares Outstanding:
Basic 1,957,000 1,830,000
============ ============
Diluted 2,062,000 2,020,000
============ ============
See notes to consolidated financial statements.
F-4
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
OCTOBER 2, 1999 AND OCTOBER 3, 1998
Notes
Common Stock Capital in Receivable
-------------------- Excess of Retained on Sale of
Shares Amount Par Value Earnings Common Stock
------ ------ --------- -------- ------------
Balance, September 27, 1997 4,197,642 $420,000 $ 6,185,000 $ 1,846,000 $ -
Year Ended October 3, 1998:
Net income - - - 1,388,000 -
Stock options exercised - - - - -
--------- -------- ----------- ----------- ----------
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)
========= ======== =========== =========== ==========
Treasury Stock
---------------------
Shares Amount Total
------ ------ -----
Balance, September 27, 1997 2,383,442 $(4,812,000) $ 3,639,000
Year Ended October 3, 1998:
Net income - - 1,388,000
Stock options exercised (44,000) 78,000 78,000
--------- ----------- -----------
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
========= =========== ===========
See notes to consolidated financial statements.
F-5
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 1998
1999 1998
----------- -----------
Cash Flows from Operating Activities:
Net income $ 2,368,000 $ 1,388,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 637,000 655,000
Deferred income taxes benefit (630,000) --
Reduction of uncollectible notes and
mortgages receivable -- (124,000)
Recognition of deferred gains and other deferred income (3,000) (6,000)
Loss on disposal of property, equipment and liquor licenses 36,000 37,000
Joint venture income (341,000) --
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables 208,000 (151,000)
Inventories (191,000) 16,000
Prepaid expenses 29,000 (98,000)
Other assets (152,000) (96,000)
Increase (decrease) in:
Accounts payable and accrued expenses (8,000) (561,000)
Due to franchisees 699,000 --
----------- -----------
Net cash provided by operating activities 2,652,000 1,060,000
----------- -----------
Cash Flows from Investing Activities:
Collections on notes and mortgages receivable 95,000 48,000
Purchase of property and equipment (934,000) (808,000)
Investment in joint venture (606,000) --
Distributions from joint ventures 413,000 --
----------- -----------
Net cash used in investing activities (1,032,000) (760,000)
----------- -----------
Cash Flows from Financing Activities:
Borrowings of long-term debt -- 500,000
Payments of long-term debt (450,000) (362,000)
Payments of obligations under capital leases (76,000) (70,000)
Payments of damages payable on terminated or rejected leases (281,000) (260,000)
Due to Pennsylvania limited partnership (30,000) (52,000)
Purchase of treasury stock (313,000) --
Dividends paid (186,000) --
Proceeds from exercise of options -- 78,000
----------- -----------
Net cash used in financing activities (1,336,000) (166,000)
----------- -----------
Net Increase in Cash and Cash Equivalents 284,000 134,000
Cash and Cash Equivalents, Beginning 1,468,000 1,334,000
----------- -----------
Cash and Cash Equivalents, Ending $ 1,752,000 $ 1,468,000
=========== ===========
(Continued)
See notes to consolidated financial statements.
F-6
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 1998
(Continued)
(Continued)
1999 1998
----------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 168,000 $ 199,000
=========== =========
Income taxes $ 52,000 $ 33,000
=========== =========
Non-Cash Financing and Investing Activities:
Retirement of unrealizable general ledger system, at net book value $ -- $ 37,000
=========== =========
Investment in joint venture $ -- $ (50,000)
=========== =========
Receipt of liquor license in connection with litigation settlement $ -- $ 35,000
=========== =========
Common stock issued for notes receivable $ 198,000 $ --
=========== =========
Notes receivable for sales of property, equipment and
intangible assets $ 196,000 $ --
=========== =========
See notes to consolidated financial statements.
F-7
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999 AND 1998
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 October 2, 1999, the
Company owned and/or operated five full-service restaurants, three
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-8
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 October 2, 1999.
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.
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 distributions received and
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-9
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 October 2, 1999, the Company had deposits in excess of federally
insured limits of approximately $1,639,000. 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 quality of the purchasers,
limits the risk.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
incurred for the years ended October 2, 1999 and October 3, 1998
were $160,000 and $226,000, 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 June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosures
About Segments of an Enterprise and Related Information". SFAS No.
130 establishes standards for reporting and displaying
comprehensive income, its components and accumulated balances. SFAS
No. 131 establishes standards for the way that public companies
report information about operating segments in annual financial
statements and requires reporting of selected information about
operating segments in interim financial statements issued to the
public. Both SFAS No. 130 and SFAS No. 131 are effective for
periods beginning after December 15, 1997. The Company adopted
these new accounting standards in fiscal year 1999.
F-10
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.
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 affect 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-11
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 October 2, 1999:
Notes and mortgages receivable from unrelated parties, bearing
interest at rates ranging from 9% to 15% and due in varying
installments through 2002 $225,000
Notes and mortgages receivable from related parties, bearing interest
at rates ranging from 10% to 14% and due in varying
installments through 2007 125,000
Various noninterest-bearing receivables currently due 127,000
--------
477,000
Less deferred gains 94,000
--------
383,000
Amount representing current portion 212,000
--------
$171,000
========
F-12
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 2. NOTES AND MORTGAGES RECEIVABLES (Continued)
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 1999 and 1998, $3,000
and $6,000 of deferred gains were recognized on collections of such
notes receivable.
Future scheduled payments on the receivables at October 2, 1999 consist
of the following:
2000 $212,000
2001 35,000
2002 55,000
2003 21,000
2004 18,000
Thereafter 136,000
--------
$477,000
========
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at October 2, 1999 consisted of the following:
Land and land improvements $ 836,000
Vehicles 122,000
Furniture and equipment 5,412,000
Leasehold interests and improvements 5,154,000
-----------
11,524,000
Less accumulated depreciation and
amortization 7,520,000
-----------
$ 4,004,000
===========
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.
F-13
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 4. INVESTMENTS IN JOINT VENTURES (Continued)
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.
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 will construct and operate a restaurant under the
"Flanigan's Seafood Bar and Grill" servicemark in Kendall, Florida.
Construction was begun in late 1999 and the restaurant is expected
to open in early 2000. The Company acts as the general partner and
has a forty percent limited partnership interest. The Company
recognized a loss on the equity method relating to this partnership
of $106,000 due primarily to the expensing of start-up costs as
required by SOP 98-5, "Reporting on the Costs of Start-up
Activities."
The following is a summary of condensed unaudited financial information
pertaining to the Company's joint venture investments:
1999 1998
---- ----
Financial Position:
Current assets $ 564,000 $ 205,000
Non-current assets 3,038,000 2,960,000
Current liabilities 437,000 324,000
Non-current liabilities 548,000 589,000
Operating Results:
Revenues $5,609,000 $6,083,000
Gross profit 3,600,000 3,345,000
Net income 424,000 854,000
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at
October 2, 1999:
Accounts payable $ 902,000
Salaries and wages 319,000
Property taxes 115,000
Potential uninsured claims 101,000
Franchisee advance funds 40,000
Other 117,000
----------
$1,594,000
==========
F-14
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Continued)
Franchisee advance funds represent cash advances by the franchisees for
inventory purchases to be made as part of the Company-sponsored
cooperative buying program.
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 $672,000.
As of October 2, 1999, damages payable on terminated or rejected
leases, including imputed interest, mature as follows:
2000 $300,000
2001 300,000
2002 119,000
--------
Total 719,000
Less amount representing interest 47,000
--------
672,000
Less current maturities 278,000
--------
Long-term maturities $394,000
========
F-15
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 7. INCOME TAXES
The components of the Company's provision (benefit) for income taxes,
for the fiscal years ended 1999 and 1998 are as follows:
1999 1998
---- ----
Current:
Federal $ 24,000 $29,000
State 13,000 4,000
--------- -------
37,000 33,000
Deferred:
Federal (610,000) -
State (20,000) -
--------- -------
(630,000) -
--------- -------
$(593,000) $33,000
========= =======
A reconciliation of income tax computed at the statutory federal rate
to income tax expense (benefit) is as follows:
1999 1998
---- ----
Tax provision at the statutory rate of 34% $582,000 $ 483,000
State income taxes, net of federal income tax 10,000 3,000
Change in valuation allowance (983,000) (489,000)
Tip and alternative minimum tax credit carryforwards 250,000 -
Other 48,000 36,000
--------- ----------
$(593,000) $ 33,000
========= ==========
At October 2, 1999, the Company has available tax net operating loss
carryforwards of approximately $100,000 which expire through 2006, tip
credit carryforwards of approximately $200,000 which expire through
2015, and alternative minimum tax credit carryforwards of approximately
$50,000 which do not expire.
In addition to net operating loss and 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 October 2,
1999:
Current:
Accruals for potential uninsured claims $ 34,000
Discount on damages payable (11,000)
Joint venture investments (26,000)
Net operating loss carryforward 34,000
Tip credit carryforward 200,000
Alternative minimum tax credit 50,000
--------
$281,000
========
F-16
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 7. INCOME TAXES (Continued)
Long Term:
Book/tax differences in property and equipment $299,000
Leases, capitalized for books only 50,000
--------
$349,000
========
NOTE 8. LONG-TERM DEBT
Long-term debt consists of the following at October 2, 1999:
Mortgage payable, secured by land, bearing interest
at 8%; payable in monthly installments of principal
and interest, maturing in April 2007 $344,000
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 240,000
584,000
Less current portion 84,000
--------
$500,000
========
Long-term debt at October 2, 1999 matures as follows:
Amount
--------
2000 $ 84,000
2001 95,000
2002 90,000
2003 12,000
2004 12,000
Thereafter 291,000
--------
$584,000
========
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Leases
The Company leases a substantial portion of the land and building
used in its operations under leases with initial terms expiring
between 1999 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.
F-17
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Leases (Continued)
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
------ ------
2000 $ 77,000 $ 858,000
2001 55,000 581,000
2002 32,000 403,000
2003 32,000 371,000
2004 32,000 358,000
Thereafter 171,000 1,020,000
--------- ----------
Total 399,000 $3,591,000
==========
Less amount representing interest 156,000
---------
Present value of minimum lease payments 243,000
Less current obligations under capital leases 38,000
---------
$ 205,000
=========
Total rent expense for all operating leases (including those with
an initial term of less than one year and net of subleases) was
$695,000 and $672,000 in 1999 and 1998, 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 are approximately
$1,712,000.
Franchise Programs
At October 2, 1999, the Company operated seven units under
franchise agreements and three units under joint venture
agreements. Additionally, the Company has one other unit under
construction under a joint venture agreement (see Note 4). 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.
F-18
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
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, a performance bonus equal
to fifteen percent of pre-tax net income in excess of $650,000
and 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). This 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.
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 1999, the Company purchased a total of 68,700 shares of
common stock at a total cost of approximately $313,000 under a
repurchase program authorized by the Board of Directors.
F-19
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 10. COMMON STOCK (Continued)
Sale of Common Shares
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.
At October 2, 1999, 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.
Common 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 for the Company's stock-based compensation plans
been determined pursuant to SFAS No. 123, the Company's net income
and earnings per share would have decreased accordingly.
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:
1999 1998
---- ----
Net income:
As Reported $2,368,000 $1,388,000
Pro Forma 2,260,000 1,388,000
Earnings Per Share:
Basic:
As Reported 1.21 0.76
Pro Forma 1.15 0.76
Diluted:
As Reported 1.15 0.69
Pro Forma 1.10 0.69
F-20
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 10. COMMON STOCK (Continued)
Common 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 1998. 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:
1999 1998
---- ----
Outstanding at beginning of year 337,980 382,780
Options granted 115,900 -
Options exercised (177,585) (45,800)
------- -------
Outstanding at end of year 276,295 337,980
======= =======
Exercisable at end of year 160,395 337,980
======= =======
Weighted average option exercise price information for fiscal years
1999 and 1998 is as follows:
1999 1998
---- ----
Outstanding at beginning of year $2.39 $2.31
Granted during the year 4.50 -
Exercised during the year 2.25 1.73
Outstanding at end of year 3.34 2.39
===== =====
Exercisable at end of year $2.50 $2.39
===== =====
Significant options groups outstanding at October 2, 1999 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 52,000 52,000 1.63 1
3/14/96 36,000 36,000 2.25 1.5
1/08/97 72,395 72,395 3.25 2.5
7/3/99 115,900 - 4.50 9.5
F-21
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 11. NET INCOME PER COMMON SHARE
In 1998, the Company adopted 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.
1999 1998
--------------------- ---------------------
Basic Diluted Basic Diluted
--------- --------- --------- ---------
Weighted average shares outstanding 1,957,000 1,957,000 1,830,000 1,830,000
Incremental shares - application
Treasury stock method -
Outstanding stock options -- 105,000 -- 190,000
--------- --------- --------- ---------
Shares used in calculation of
Net Income per Common Share 1,957,000 2,062,000 1,830,000 2,020,000
========= ========= ========= =========
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 1999 and 1998, respectively, the Company incurred legal
fees in the form of salary of approximately $129,000 and $105,000 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 October 2, 1999 and October 3, 1998, 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.
1999 1998
---- ----
Operating Revenues:
Retail package stores $ 7,255,000 $ 6,901,000
Restaurants 13,430,000 13,519,000
Other revenues 1,630,000 1,347,000
----------- -----------
Total operating revenues $22,315,000 $21,767,000
=========== ===========
F-22
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 13. BUSINESS SEGMENTS (Continued)
1999 1998
------------ ------------
Income From Operations Reconciled to Income
Before Income Taxes:
Retail package stores $ 256,000 $ 173,000
Restaurants 1,607,000 1,378,000
------------ ------------
1,863,000 1,551,000
Corporate expenses, net of other revenues (320,000) (167,000)
------------ ------------
Operating Income 1,543,000 1,384,000
Interest expense, net of interest income (96,000) (131,000)
Other 328,000 168,000
------------ ------------
Income Before Income Taxes $ 1,775,000 $ 1,421,000
============ ============
Identifiable Assets:
Retail package store $ 2,108,000 $ 2,006,000
Restaurants 3,587,000 3,090,000
------------ ------------
5,695,000 5,096,000
Corporate 5,077,000 3,947,000
------------ ------------
Consolidated Totals $ 10,772,000 $ 9,043,000
============ ============
Capital Expenditures:
Retail package stores $ 82,000 $ 4,000
Restaurants 794,000 672,000
------------ ------------
876,000 676,000
Corporate 58,000 132,000
------------ ------------
Total Capital Expenditures $ 934,000 $ 808,000
============ ============
Depreciation and Amortization:
Retail package stores $ 92,000 $ 99,000
Restaurants 417,000 435,000
------------ ------------
509,000 534,000
Corporate 128,000 121,000
------------ ------------
Total Depreciation and Amortization $ 637,000 $ 655,000
============ ============
F-23
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 14. OTHER INCOME (EXPENSE)
Other income (expense) in the consolidated statements of income consist
of the following for the years ended October 2, 1999 and October 3,
1998, respectively.
1999 1998
--------- ---------
Non-franchise related rental income $ 36,000 $ 45,000
Loss on retirement of property and equipment (66,000) (37,000)
Settlement of litigation -- 110,000
Insurance recoveries 275,000 --
Gain on sale of liquor license 30,000 --
Miscellaneous 50,000 44,000
--------- ---------
$ 325,000 $ 162,000
========= =========
NOTE 15. SUBSEQUENT EVENT
On September 15, 1999, the Company entered into a contract to purchase
an office building for a purchase price of $850,000. The Company
intends to utilize the office building to house its corporate
headquarters and to operate a package liquor store. On December 14,
1999, the Company closed on the purchase and paid the full purchase
price in cash.
F-24