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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 26, 2004
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE OF 1934
For the transition period from to
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Commission File Number I-6836
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Flanigan's Enterprises, Inc.
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(Exact name of registrant as specified in its charter)
Florida 59-0877638
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5059 N.E. 18th Avenue, Fort Lauderdale, Florida 33334
- ----------------------------------------------- -----------------
(Address of principal executive offices ) (Zip Code)
Registrant's telephone number, including area code, (954)-377-1961
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been the subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuers classes of
Common Stock as of the latest practicable date 1,916,825 as of August 9, 2004.
1
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
JUNE 26, 2004
PART I. FINANCIAL INFORMATION
1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
Consolidated Summary of Earnings -- For the Thirteen and Thirty
Nine Weeks ended June 26, 2004 and June 28, 2003.
Consolidated Balance Sheets -- As of June 26, 2004 and September
27, 2003.
Consolidated Statements of Cash Flows for the Thirty Nine Weeks
ended June 26, 2004 and June 28, 2003.
Notes to Unaudited Condensed Consolidated Financial Statements
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION AND SIGNATURES
6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
2
FLANIGAN'S ENTERPRISES, INC.
UNAUDITED CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands Except Per Share Amounts)
Thirteen Weeks Thirty Nine Weeks
Ended Ended
June 26 June 28 June 26 June 28
2004 2003 2004 2003
-------- -------- -------- --------
REVENUES:
Restaurant food sales $ 6,975 $ 6,221 $ 20,210 $ 17,355
Restaurant bar sales 1,541 1,650 4,727 4,594
Package good sales 2,499 2,279 8,257 7,642
Franchise related revenues 230 263 753 663
Owner's fee 37 60 129 195
Other operating income 53 52 96 217
-------- -------- -------- --------
$ 11,335 $ 10,525 $ 34,172 $ 30,666
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of merchandise sold:
Restaurant and lounges 3,167 2,687 8,862 7,454
Package goods 1,810 1,636 6,000 5,622
Payroll and related costs 3,018 3,056 9,292 8,513
Occupancy costs 725 548 2,028 1,523
Selling, general and
administrative expenses 2,478 2,231 7,119 5,601
-------- -------- -------- --------
11,198 10,158 33,301 28,712
-------- -------- -------- --------
Income from operations 137 367 871 1,954
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (30) (33) (91) (107)
Minority interest in earnings of
consolidated joint (145) (121) (244) (585)
Interest income 7 10 38 29
Joint venture income 5 (2) 9 20
Other 35 (33) 53 41
-------- -------- -------- --------
(128) (179) (235) (602)
Income before Provision for
Income Taxes 9 188 636 1,352
3
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands Except Per Share Amounts)
(Continued)
Thirteen Weeks Thirty Nine Weeks
Ended Ended
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
-------- -------- -------- -------
PROVISION FOR INCOME TAXES $ 2 $ 46 $ 146 $ 314
--- ----- ----- -------
Net Income $ 7 $ 142 $ 490 $ 1,038
=== ===== ===== =======
For The Thirteen Weeks Ended
June 26, 2004 June 28, 2003
Numerator Denominator EPS Numerator Denominator EPS
--------- ----------- ----- --------- ----------- -----
Basic EPS $ 7,000 1,925,526 $ .00 $ 142,000 1,926,470 $ .07
Effective/dilutive
Stock Options 32,203 40,364
------- --------- ----- --------- --------- -----
Diluted EPS $ 7,000 1,957,729 $ .00 $ 142,000 1,966,806 $ .07
------- --------- ----- --------- --------- -----
For The Thirty Nine Weeks Ended
June 26, 2004 June 28, 2003
Numerator Denominator EPS Numerator Denominator EPS
---------- ----------- ----- ----------- ----------- -----
Basic EPS $ 490,000 1,926,630 $.25 $ 1,038,000 1,926,470 $ .54
Effective/dilutive
Stock Options 32,656 34,334
--------- --------- ----- ----------- --------- -----
Diluted EPS $ 490,000 1,959,286 $.25 $ 1,038,000 1,960,804 $ .53
The accompanying notes to consolidated financial statements are an integral
part of these statements.
4
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 26, 2004 (UNAUDITED) AND SEPTEMBER 27, 2003
ASSETS
JUNE 26 SEPTEMBER 27
2004 2003
--------- ------------
Current Assets:
Cash and cash equivalents $ 2,656 $ 1,587
Investments:
Certificate of deposit -- 354
Marketable securities 370 185
Notes and mortgages receivable,
current maturities, net 22 23
Due from franchisees 61 16
Other receivables 195 361
Inventories 1,770 1,362
Refundable deposit, major supplier -- 77
Prepaid expenses 814 718
Prepaid income taxes 149 163
Deferred tax asset 112 112
-------- --------
Total Current Assets 6,149 4,958
-------- --------
Property and Equipment 12,959 12,413
-------- --------
Investments in Joint Ventures 132 320
-------- --------
Other Assets:
Liquor licenses, net 309 347
Notes and mortgages receivable, net 135 149
Deferred tax asset 208 208
Other 333 338
-------- --------
Total Other Assets 985 1,042
-------- --------
Total Assets $ 20,225 $ 18,733
======== ========
5
FLANIGAN'S ENTERPRISES, INC, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 26, 2004 (UNAUDITED) AND SEPTEMBER 27, 2003
LIABILITIES AND STOCKHOLDER'S EQUITY
JUNE 26, SEPTEMBER 27,
2004 2003
-------- -------------
Current Liabilities:
Accounts payable and accrued expenses $ 3,194 $ 2,108
Due to franchisees 451 409
Current portion of long term debt 52 278
Deferred revenues 72 70
-------- --------
Total Current Liabilities 3,769 2,865
-------- --------
Long Term Debt, Net of Current Maturities 1,304 1,314
-------- --------
Minority Interest in Equity of
Consolidated Joint Ventures 5,002 4,203
-------- --------
Commitments, Contingencies and Other Matters
Stockholder's Equity:
Common stock, $.10 par value; 5,000,000 shares
authorized; 4,197,642 shares issued 420 420
Capital in excess of par value 6,103 6,103
Retained earnings 9,024 9,115
Accumulated other comprehensive income 39 26
Treasury stock, at cost, 2,287,347 and
2,271,172 shares (5,436) (5,313)
-------- --------
Total stockholders' equity 10,150 10,351
-------- --------
Total liabilities and stockholders' equity $ 20,225 $ 18,733
======== ========
See notes to consolidated finanicial statements
6
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTY NINE WEEKS ENDED JUNE 26, 2004 AND JUNE 28, 2003
(In Thousands)
JUNE 26 JUNE 28
2004 2003
------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income $ 490 $ 1,038
Adjustments to reconcile net income
to net cash and cash equivalents provided
by operating activities:
Depreciation and amortization 1,059 945
Minority interest in earnings of
consolidated joint venture 244 585
Recognition of deferred income
other deferred income 2 (3)
Joint venture income -- (20)
Changes in assets and liabilities :
(Increase) decrease in:
Due from franchises 143 (109)
Other receivables 166 (70)
Inventories (408) (161)
Prepaid expenses (82) (591)
Refundable deposit, major supplier 77 (126)
Other assets 5 282
Increase (decrease) in:
Accounts payable and accrued expenses 1,086 1,450
Due to franchises 42 148
------- -------
Net cash, and cash equivalents
provided by operating activities 2,824 3,368
------- -------
(continued)
7
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTY NINE WEEKS ENDED JUNE 26, 2004 AND JUNE 28, 2003
(In Thousands)
JUNE 26 JUNE 28
2004 2003
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on notes and mortgages
receivable 15 43
Purchase of property and equipment (1,567) (1,790)
Proceeds from certificate of deposit redemption 354 --
Investment in marketable securities (172) (149)
Distributions from unconsolidated joint ventures -- 13
------- -------
Net Cash and cash equivalents
used in investing activities (1,370) (1,883)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long term debt (236) (248)
Dividends paid (581) (520)
Purchase of treasury stock (123) -
Distribution to joint venture
minority partners (770) (709)
Proceeds from joint venture interest 1,325 1,148
------- -------
Net cash and cash equivalents
used in financing activities (385) (329)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,069 1,156
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,587 1,143
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,656 $ 2,299
======= =======
8
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 26, 2004
(1) BASIS OF PRESENTATION:
The financial information for the periods ended June 26, 2004, and
June 28, 2003 are unaudited. Financial information as of September 27, 2003
has been derived from the audited financial statements of the Company, but
does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the
financial information for the periods indicated have been included. For
further information regarding the Company's accounting policies, refer to the
Consolidated Financial Statements and related notes included in the Company's
Annual Report on Form 10- K for the year ended September 27, 2003. Operating
results for interim periods are not necessarily indicative of results to be
expected for a full year.
(2) EARNINGS PER SHARE:
Statements of Financial Accounting Standards ("SFAS") No. 128, Earnings
per share establishes standards for computing and presenting earnings per
share ("EPS"). This statement requires the presentation of basic and diluted
EPS. The data on Page 4 shows the amounts used in computing earnings per share
and the effects on income and the weighted average number of shares of
potentially dilutive common stock equivalents.
(3) RECLASSIFICATION:
Certain amounts in the fiscal 2003 financial statements have been
reclassified to conform to the fiscal 2004 presentation.
(4) FRANCHISE PROGRAM:
The Company allows certain stores to operate pursuant to a franchise
agreement under which a franchisee operates a restaurant under the "Flanigan's
Seafood Bar and Grill" servicemark pursuant to a license from the Company. The
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 franchise agreement for the balance of the term of its lease for the
business premises, extended by the franchisee's continued occupancy of the
business premises thereafter, whether by lease or ownership. The franchise
agreement provides for a royalty to the Company in an amount of approximately
3% of gross sales, plus a contribution to advertising in an amount of between
1-1/2% to 3% of gross sales.
9
All existing franchisees who operate restaurants under the "Flanigan's
Seafood Bar and Grill' or other authorized service marks have executed
franchise agreements.
(5) INVESTMENT IN JOINT VENTURES:
The Company has determined that all but one joint venture discussed
below should be consolidated by virtue of control as evidenced by general
partnership interests held by the Company. As a result, the accompanying
consolidated financial statements reflect the joint ventures in which they
have a general partnership interest on a consolidated basis. The remaining
joint venture in which the Company does not have control has been accounted
for utilizing the equity method.
Beginning with the limited partnership which owns the restaurant in
Kendall, Florida and for all limited partnerships formed subsequent thereto
for the purpose of owning and operating a restaurant under the "Flanigan's
Seafood Bar and Grill" servicemark, a standard financial arrangement has been
used in each limited partnership agreement. Under this financial arrangement,
until the limited partnership has received an aggregate sum equal to the
initial investment of all limited partners from the net profit from the
operation of the restaurant, the limited partnership receives an aggregate sum
equal to 25% of the initial investment of all limited partners first each
year, with any additional net profit divided equally between the Company, as
manager of the restaurant, and the limited partnership. Once the limited
partnership has received an aggregate sum equal to the initial investment of
all limited partners from the net profit from the operation of the restaurant,
the net profit is divided equally between the Company, as manager of the
restaurant, and the limited partnership. As of June 26, 2004, only the limited
partnership which owns the restaurant in Kendall, Florida has received an
aggregate sum equal to the initial investment of all limited partners from the
net profit from the operation of the restaurant and the Company receives
one-half of the net profit as manager of the restaurant. The Company plans to
continue forming limited partnerships to raise funds to own and operate
restaurants under the "Flanigan's Seafood Bar and Grill" servicemark using
the same financial arrangement.
Miami, Florida
The Company operated a restaurant in Miami, Florida under the
"Flanigan's Seafood Bar and Grill" servicemark pursuant to a limited
partnership agreement through the end of the second quarter of fiscal year
2002. The Company acts as the general partner and owned a fifty percent
limited partnership interest. The State of Florida, Department of
Transportation, ("DOT"), exercised its right of eminent domain to 'take' the
hotel property upon which this restaurant was located. During fiscal year
2002, the Company, as general partner of the limited partnership, settled its
apportionment claim against the hotel owner for $700,000, which settlement
resulted in a gain from disposition of approximately $459,000 to the Company
during the fiscal year ended September 28, 2002. During fiscal year 2003, the
limited partnership settled all claims for additional compensation from the
DOT for $27,000 and during the third quarter of fiscal year 2004 received a
final payment from the DOT for $10,000 as reimbursement of expenses incurred
by the limited partnership during the eminent domain proceedings. The
additional compensation and reimbursement of expenses from the DOT belong
solely to the Company. The unrelated joint venture partner received $350,000
in full settlement of its interest and the Company controls 100% of the
partnership as of June 26, 2004.
10
During the third quarter of fiscal year 2003, the Company, as general
partner of the limited partnership, entered into a Sale of Business Agreement
for the purchase of an existing restaurant in Pinecrest, Florida, which
transaction closed during the first quarter of fiscal year 2004. The purchase
price of approximately $340,000 related to the acquisition of a below market
lease and will therefore be recognized as additional lease expense over the
remaining life of the lease once operation of the restaurant commences. As of
June 26, 2004, the $340,000 is included in the accompanying balance sheet in
other assets. The Company agreed to unconditionally guaranty the lease for the
business premises in order to procure the consent of the landlord to the
assignment of the lease. During the second quarter of fiscal year 2004 and
after removing the interior finishes in anticipation of completing its
building plans for the renovation of the business premises, the Company found
numerous, substantial structural deficiencies which must be rectified prior to
any renovations being made. During the third quarter of fiscal year 2004, the
Company, as general partner of the limited partnership, and the landlord
agreed upon the structural repairs required and to equally share the cost
thereof in order to minimize further delay to the renovation of the business
premises. The structural repairs should be completed during the fourth quarter
of fiscal year 2004, with the limited partnership's share of the same
estimated to be $50,000. The limited partnership still intends to raise funds
through a private offering to renovate the restaurant once the renovation
costs have been determined. The Company continues to act as general partner
and will also be the owner of up to a thirty three and one-third percent
limited partnership interest. It is anticipated that the renovated restaurant
will be open for business by the start of the second quarter of fiscal year
2005.
Fort Lauderdale, Florida
A related third party acts as general partner of a limited partnership
which owns and operates a franchised restaurant in Fort Lauderdale, Florida
under the "Flanigan's Seafood Bar and Grill" servicemark. 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. This joint venture is not consolidated in the accompanying
consolidated financial statements of the Company.
Surfside, Florida
The Company acts as general partner of a limited partnership which owns
and operates a restaurant in Surfside, Florida under the "Flanigan's Seafood
Bar and Grill" servicemark. The Company is also a forty two 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. This
restaurant opened for business in the second quarter of fiscal year 1998.
11
Kendall, Florida
The Company acts as general partner of a limited partnership which owns
and operates a restaurant in Kendall, Florida under the "Flanigan's Seafood
Bar and Grill" servicemark. The Company is also a forty 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. As of April 1, 2003,
the limited partners had received distributions from the limited partnership
equal to their original investment and pursuant to the limited partnership
agreement, the Company thereafter receives fifty percent of the net profit
from the operation of the restaurant as a management fee. This restaurant
opened for business on April 9, 2000.
West Miami, Florida
The Company acts as general partner of a limited partnership which owns
and operates a restaurant in West Miami, Florida under the "Flanigan's Seafood
Bar and Grill" servicemark. The Company is also 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. This
restaurant opened for business on October 11, 2001.
Weston, Florida
During the fourth quarter of fiscal year 2002, the Company, as general
partner of a limited partnership, began raising funds to renovate the business
premises of an existing restaurant in Weston, Florida for operation as a
"Flanigan's Seafood Bar and Grill" restaurant. The Company is also the owner
of twenty eight percent of the limited partnership, as are other related
parties, including but not limited to officers and directors of the Company
and their families. The restaurant, which had operated under its existing
servicemark, was closed on July 13, 2002 and building permits were issued to
the limited partnership at the start of fiscal year 2003. The restaurant
opened for business on January 20, 2003.
Stuart, Florida
During the third quarter of fiscal year 2003, a limited partnership was
formed with the Company as general partner, which limited partnership entered
into a lease agreement to own and operate a restaurant in a Howard Johnson's
Hotel in Stuart, Florida. During the first quarter of fiscal year 2004, the
limited partnership completed its private offering, raising the sum of
$1,500,000 to renovate the business premises for operation as a "Flanigan's
Seafood Bar and Grill" restaurant. The Company continues to act as general
partner and is also the owner of a twelve percent limited partnership
interest, as are other related parties, including but not limited to officers
and directors of the Company and their families. The restaurant opened for
business on January 11, 2004.
12
Wellington, Florida
Immediately subsequent to the end of the third quarter of fiscal year
2004, a limited partnership was formed with the Company as general partner,
which limited partnership entered into a lease agreement to own and operate a
restaurant in Wellington, Florida under the "Flanigan's Seafood Bar and Grill"
servicemark. During the fourth quarter of fiscal year 2004, the limited
partnership will begin its private offering to raise the sum of $1,700,000 to
renovate the business premises. The Company will continue to act as general
partner and will also be the owner of at least a ten percent limited
partnership interest, as will other related parties, including but not limited
to officers and directors of the Company and their families. It is anticipated
the that the renovated restaurant will open for business by the start of the
second quarter of fiscal year 2005.
(6) INCOME TAXES:
Financial Accounting Standards Board Statement No. 109, Accounting
for Income Taxes, requires among other things, recognition of future tax
benefits measured at enacted rates attributable to deductible temporary
differences between financial statement and income tax basis of assets and
liabilities and to tax net operating loss carryforwards and tax credits to the
extent that realization of said tax benefits is more likely than not. The
deferred tax asset was $ 320,000 as of June 26, 2004 and as of September 27,
2003.
(7) COMMITMENTS AND CONTINGENCIES:
Guarantees
The Company guarantees various leases for franchisees, limited
partnerships and locations sold in prior years. Remaining rental commitments
required under these leases are approximately $3,000,000. In the event of a
default under any of these agreements, the Company will have the right to
repossess the premises and operate the business to recover amounts paid under
the guarantee either by liquidating assets or operating the business.
Litigation
The Company is a party to various litigation matters incidental to its
business. Certain claims, suits and complaints arising in the ordinary course
of business have been filed or are pending against the Company.
13
Certain states have "liquor liability" laws which allow a person injured
by an "intoxicated person" to bring a civil suit against the business (or
social host) who served intoxicating liquors to an already "obviously
intoxicated person", know as "dram shop" claims. Florida has restricted its
dram shop claims by statute, permitting persons injured by an "obviously
intoxicated person" to bring court action only against the business which had
served alcoholic beverages to a minor or to an individual known to be
habitually addicted to alcohol. The Company is generally self-insured for
liability claims, with major losses partially covered by third-party insurance
carriers. The extent of this coverage varies by year. The Company currently
has no dram shop cases pending. For further discussion see the section headed
Legal Proceedings on page 16 of the Company's Annual Report on Form 10-K for
the fiscal year ended September 27, 2003. The Company accrues for potential
uninsured losses based upon estimates received from legal counsel and its
historical experience, when uninsured claims are pending. Such accrual is
included in the "Accounts payable and accrued expenses". See Note 6 in the
Company's Annual Report on Form 10-K for the fiscal year ended September 27,
2003.
During fiscal year 2000, the Company was served with several complaints
alleging violations of the American with Disabilities Act ("ADA"), at all of
its locations. The ADA has no notice provision and the first time the Company
received notice of any ADA violations was when it was served with a copy of
the complaint. Of the lawsuits filed, only a few have been actively pursued.
The Company retained an ADA expert who has inspected locations involved in the
active lawsuits, including the limited partnerships and franchises, and
provided a report setting forth ADA violations which need to be corrected. The
Company corrected ADA violations noted by its ADA expert and then vigorously
defended the lawsuits arguing that the locations are in compliance. During
fiscal year 2001 and fiscal year 2002, the Company, including three (3) of its
franchises, settled all active lawsuits alleging ADA violations.
During fiscal year 2003, the Company was served with a complaint
alleging violations of the ADA at one of its locations. The Company corrected
all violations noted in the complaint and settled the lawsuit during the third
quarter of fiscal year 2004, including reimbursement of reasonable attorney's
and costs.
During fiscal year 2003, the Company, as general partner of one of its
limited partnerships, and one of its franchisees, received notifications
alleging their failure to complete correcting ADA violations pursuant to their
respective settlement agreements from previous lawsuits alleging ADA
violations. The Company, as general partner of the limited partnership, and
the franchisee corrected any uncorrected ADA violations and during the third
quarter of fiscal year 2004, settled the claims for reimbursement of
reasonable attorney's fees and costs.
(8) INVESTMENTS:
Investments in equity securities that have readily determinable fair
values are classified and accounted for as available-for-sale. Available-for-
sale securities are carried at fair value with unrealized gains and losses
recorded as a separate component of accumulated other comprehensive income.
Realized gains and losses are calculated based on the specific identification
method and recorded in "other income" on the income statement. At June 26,
2004, the fair market value was $370,000, which exceeded a cost of $331,000
and resulted in an unrealized gain of $39,000.
14
(9) CORPORATE REORGANIZATION:
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 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. In addition, the Company also sought its release from
lease agreements for businesses sold, which sales included the assignment of
the lease for the business premises. 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. The effective date of the Amended Plan
or Reorganization was June 30, 1987 and the Bankruptcy Court ratified the
initial disbursements made by the Disbursing Agent by its Order dated December
21, 1987 and entered its Order of Discharge of the Company of December 28,
1987.
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, which
modifications provided the Company with needed capital. During the third
quarter of fiscal year 2002, the remaining liabilities under the Amended Plan
of Reorganization were paid in full.
II MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
The Company owns and/or operates full service restaurants, package
liquor stores and an entertainment oriented club (collectively the "units").
At June 26, 2004, the Company operated 18 units and had equity interests in
seven units which have been franchised by the Company. The table below sets
out the changes, if any, in the type and number of units being operated.
15
June 26, Sept. 27 June 28, Note
Types of Units 2004 2003 2003 Number
- -------------- ------ ------ ------ ------
Company owned:
Combination package
and restaurant 4 4 4
Restaurant only 2 2 2
Package store only 5 4 4 (2)(3)
Company Managed
Restaurants Only:
Limited Partnerships 5 4 4 (4)(5)(6)(7)
Franchise 1 1 1
Company Owned Club: 1 1 1
Total Company
Owned/Operated Units 18 16 16
Franchised Units 7 7 7 (1)
Notes:
(1) Since the fourth quarter of 1999, the Company has managed a restaurant
for a franchisee. The franchised restaurant is included in the table of
units as a restaurant operated by the Company and the franchise is also
included as a unit franchised by the Company and in which the Company
has an interest.
(2) During the fourth quarter of fiscal year 2001, the Company entered into
a ground lease for an out parcel in Hollywood, Florida. The Company has
constructed a building on the out parcel, one-half (1/2) of which is
being used by the Company for the operation of a package liquor store
and the other one-half (1/2) of which has been subleased by the Company
as retail space. The package store opened for business on November 17,
2003.
(3) During the second quarter of fiscal year 2001, the Company completed
renovations to its new corporate offices and relocated to the same. The
new corporate offices consist of a two (2) story building, with space
set aside on the ground floor for a package liquor store. The Company
filed an application for its building permits during the third quarter
of fiscal year 2002, but is still involved in litigation with the
adjacent shopping center over the Company's right to non-exclusive
parking in the shopping center. A decision on moving forward with the
construction of the package liquor store has been postponed until the
litigation is concluded. This package liquor store is not included in
the table of units.
(4) During the first quarter of fiscal year 2002, the State of Florida,
Department of Transportation, ("DOT"), exercised its right of eminent
domain to `take' title to the hotel property upon which a restaurant
operated by the Company as general partner of a limited partnership was
located. The restaurant closed at the end of business on March 30, 2002
and is not included in the table of units.
16
During the third quarter of fiscal year 2003, the Company, as general
partner of the limited partnership, entered into a Sale of Business
Agreement for the purchase of an existing restaurant in Pinecrest,
Florida, which transaction closed during the first quarter of fiscal year
2004. During the second quarter of fiscal year 2004 and after removing
the interior finishes, the Company found numerous, substantial structural
deficiencies in the business premises, which must be rectified prior to
any renovations being made. During the third quarter of fiscal year
2004, the Company, as general partner of the limited partnership and the
landlord agreed upon the structural repairs to be made to the business
premises and to equally share the cost thereof. The structural repairs
should be completed during the fourth quarter of fiscal year 2004. The
limited partnership still intends to raise funds through a private
offering to renovate the restaurant. The Company continues to act as
general partner and will also be the owner of up to a thirty three and
one-third percent limited partnership interest. It is anticipated that
the renovated restaurant will be open for business by the start of the
second quarter of fiscal year 2005 and is not included in the table of
units.
(5) During the fourth quarter of fiscal year 2001, a limited partnership
was formed with the Company as general partner, which limited
partnership entered into a sublease agreement to own and operate an
existing restaurant in Weston, Florida. During the fourth quarter of
fiscal year 2002, the limited partnership raised funds to renovate the
business premises for operation as a "Flanigan's Seafood Bar and Grill"
restaurant. The Company continues to act as general partner and has a
28 percent ownership interest in the limited partnership. The
restaurant opened for business on January 20, 2003.
(6) During the third quarter of fiscal year 2003, a limited partnership was
formed with the Company as general partner, which limited partnership
entered into a lease agreement to own and operate a restaurant in a
Howard Johnson's Hotel in Stuart, Florida. During the first quarter of
fiscal year 2004, the limited partnership raised funds through a
private offering to renovate the business premises for operation as a
"Flanigan's Seafood Bar and Grill" restaurant. The Company continues to
act as general partner and also has a twelve percent ownership interest
in the limited partnership. The restaurant opened for business on
January 11, 2004.
(7) Immediately subsequent to the end of the third quarter of fiscal year
2004, the Company, as general partner of a limited partnership, entered
into a lease agreement to own and operate a restaurant in Wellington,
Florida under the "Flanigan's Seafood Bar and Grill" servicemark.
During the fourth quarter of fiscal year 2004, the limited partnership
will begin its private offering to raise the sum of $1,700,000 to
renovate the business premises. The Company will continue to act as
general partner and will also be the owner of at least a ten percent
limited partnership interest. It is anticipated that the renovated
restaurant will be open for business by the second quarter of fiscal
year 2005 and is not included in the table of units.
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows for the
thirty nine weeks of fiscal years 2004 and 2003.
17
Thirty Nine Weeks Ended
June 26, June 28,
2004 2003
---------- -----------
(In Thousands)
Net cash provided by
operating activities $ 2,824 $ 3,368
Net cash used in
investing activities (1,370) (1,883)
Net cash used in
financing activities (385) (329)
-------- --------
Net Increase in Cash
and Cash Equivalents 1,069 1,156
Cash and Cash Equivalents, Beginning 1,587 1,143
-------- --------
Cash and Cash Equivalents, Ending $ 2,656 $ 2,299
======== ========
On December 18, 2003 the Company declared a cash dividend of 30 cents
per share payable on January 15, 2004 to shareholders of record on December
30, 2003.
On December 19, 2002, the Company declared a cash dividend of 27 cents
per share payable on January 30, 2003 to shareholders of record on January 13,
2003.
On December 13, 2001, the Company declared a cash dividend of 25 cents
per share payable on January 17, 2002 to shareholders of record on December
30, 2001.
Capital Expenditures
The Company had additions to fixed assets of $ 1,567,000 during the
thirty nine weeks ended June 26, 2004 as compared to $1,790,000 for the thirty
nine weeks ended June 28, 2003 and $ 3,028,000 for the fiscal year ended
September 27, 2003. The additions to fixed assets during the thirty nine weeks
ended June 26, 2004 included the renovations to the business premises of the
restaurant in Stuart, Florida; the addition to fixed assets during the thirty
nine weeks ended June 28, 2003 included the renovations to the restaurant in
Weston, Florida; and the addition to fixed assets for the fiscal year ended
September 27, 2003 included the renovations to the restaurant in Weston,
Florida and the construction of the building in Hollywood, Florida, one half
(1/2) of which is used by the Company for the operation of a package liquor
store and the other one half (1/2) of which as been subleased by the Company
as retail space.
18
All of the Company's units require periodic refurbishing in order to
remain competitive. The Company maintains a refurbishing program for which the
budget for fiscal year 2004 is $350,000. The Company expects the funds for
these improvements to be provided from operations. In addition, during the
first quarter of fiscal year 2004, the limited partnership which owns the
restaurant in Stuart, Florida completed its private offering, raising the sum
of $1,500,000 towards capital expenditures for fiscal year 2004. It is
anticipated that two (2) new joint ventures in Pinecrest, Florida and
Wellington, Florida will require approximately $2,500,000 and $1,700,000 in
capital expenditures respectively, the majority of which will be raised
through private offerings by the limited partnerships.
Working Capital
The table below summarizes the current assets, current liabilities, and
working capital for the fiscal quarters ended June 26, 2004, and June 28, 2003
and the fiscal year ended September 27, 2003.
June 26, June 28, Sept. 27,
Item 2004 2003 2003
---- ------- ------- -------
(In Thousands)
Current Assets $ 6,149 $ 7,711 $ 4,958
Current Liabilities 3,769 3,884 2,865
------- ------- -------
Working Capital 2,380 3,827 2,093
During the fourth quarter of fiscal year 2002, the Company closed on a
$456,000 loan from Bank Atlantic, which loan was used to prepay a Company
loan. The promissory note earns interest at prime rate per annum and is fully
amortized over 24 months with equal monthly payments of principal and interest
each in the amount of $19,021, commencing August 3, 2002. The promissory note
is unsecured and may be prepaid in whole or in part at any time, without
penalty, with any prepayments applying against the payments last due on the
promissory note. At the start of the fourth quarter of fiscal year 2004, the
promissory note was paid in full.
During the fourth quarter of fiscal year 2001, the Company borrowed the
sum of $895,000 from the Bank of America, d/b/a Nations Bank. The promissory
note earns interest at the rate of 8.62% per annum, amortized over 20 years
with principal and interest payable monthly, with the entire unpaid principal
balance and all accrued interest due on August 1, 2008. The promissory note is
secured by a mortgage on the office building purchased by the Company for its
corporate offices, which office building was released from the lien granted by
the Company to Bank of America, d/b/a Nations Bank, as collateral for the loan
in January of fiscal year 2000. In order to hedge the interest rate risk, the
Company entered into an ISDA Master Agreement with Bank of America, ("SWAP
Agreement"), and in the event the Company elects to prepay the promissory
note, there may be a prepayment penalty associated therewith.
Legal Matters
See "Litigation" on page 13 of this report and Item 1 and Item 3 to Part
1 of the Annual Report on Form 10-K for the fiscal year ended September 27,
2003 for a discussion of other legal proceedings resolved in prior years.
19
Results of Operation
Thirteen Weeks Ended
June 26, June 28,
2004 2003
Amount Percent Amount Percent
-------- -------- -------- ---------
(In Thousands) (In Thousands)
Restaurant food sales $ 6,975 63.32 $ 6,221 61.29
Restaurant bar sales 1,541 13.99 1,650 16.26
Package goods sales 2,499 22.69 2,279 22.45
-------- ------ -------- ------
Total sales $ 11,015 100.00 $ 10,150 100.00
Franchise related revenues 230 263
Owners fee 37 60
Other operating income 53 52
-------- --------
Total Revenue $ 11,335 $ 10,525
======== ========
Thirty Nine Weeks Ended
June 26, June 28,
2004 2003
Amount Percent Amount Percent
-------- --------- -------- --------
(In Thousands) (In Thousands)
Restaurant food sales $ 20,210 60.88 $ 17,355 58.65
Restaurant bar sales 4,727 14.24 4,594 15.53
Package goods sales 8,257 24.88 7,642 25.82
-------- ------ -------- ------
Total sales 33,194 100.00 $ 29,591 100.00
Franchise related revenues 753 663
Owners fee 129 195
Other operating income 96 217
-------- --------
Total Revenue $ 34,172 $ 30,666
======== ========
20
As the Company opens new joint venture restaurants on a more regular
basis, the Company's income from operations will be effected by the higher
costs associated with the opening of the same. To insure that a new restaurant
opens with the high quality of service for which the Company is known, the
Company has a select group of employees, known as "new restaurant openers",
who travel to new restaurants for that purpose. "New restaurant openers" may
spend up to 90 days at a new restaurant. During the thirty nine weeks ended
June 26, 2004, the joint venture restaurant in Stuart, Florida reported a loss
of $300,000 and the joint venture restaurant in Pinecrest, Florida, which is
only undergoing renovations at this time, has already reported a loss of
$167,000 thus contributing to the reduction in operating income for the thirty
nine weeks ended June 26, 2004, when compared to the thirty nine weeks ended
June 28, 2003.
Total revenues increased by 7.70% and 11.43% for the thirteen weeks and
thirty nine weeks of fiscal year 2004, respectively, as compared to the total
revenues for the thirteen weeks and thirty nine weeks of fiscal year 2003. The
increase for the thirteen weeks was primarily due to the restaurant in Stuart,
Florida and the package goods store in Hollywood, Florida being open for the
entire fiscal quarter. In addition to the above explanation, the increase in
total revenue for the thirty nine weeks was also primarily due to the
restaurant in Weston, Florida being open for the first quarter of fiscal 2004
and the opening of the package goods store in Hollywood, Florida on November
17, 2003. Total revenues should continue to increase due to the operation of
the restaurant in Stuart, Florida and the package goods store in Hollywood,
Florida through the remainder of fiscal year 2004.
Restaurant food sales represented 63.32% and 60.88% of total sales in
the thirteen weeks and thirty nine weeks of fiscal year 2004, respectively, as
compared to 61.29% and 58.65% of total sales in the thirteen weeks and thirty
nine weeks of fiscal year 2003 respectively. The weekly average of same store
restaurant food sales were $425,807 and $403,675 for the thirty nine weeks,
ended June 26, 2004 and June 28, 2003, respectively, an increase of 5.49%. The
weekly average of same store restaurant food sales were $442,997 and $406,096
for the thirteen weeks ended June 26, 2004 and June 28, 2003, respectively, an
increase than 9.09%. The increase for the thirteen weeks was primarily due to
the restaurant in Stuart, Florida being open for the entire fiscal quarter. In
addition to the above explanation, the increase in restaurant food sales for
the thirty nine weeks was also primarily due to the restaurant in Weston,
Florida being open for the entire first quarter of fiscal 2004. Restaurant
food sales should continue to increase due to the operation of the restaurant
in Stuart, Florida through the remainder of fiscal year 2004.
Restaurant bar sales represented 13.99% and 14.24% of total sales in the
thirteen weeks and thirty nine weeks of fiscal year 2004, respectively, as
compared to 16.26% and 15.53% of total sales in the thirteen weeks and thirty
nine weeks of fiscal year 2003, respectively. The weekly average of same
store restaurant bar sales were $99,024 and $104,333 for the thirty nine weeks
ended June 26, 2004 and June 28, 2003, respectively, a decrease of 5.10%. The
weekly average of same store restaurant bar sales were $97,532 and $105,295
for the thirteen weeks ended June 26, 2004 and June 28, 2003 respectively, a
decrease of 7.40%. The increase in restaurant bar sales for the thirteen weeks
was primarily due to the restaurant in Stuart, Florida being open for the
entire fiscal quarter. In addition to the above explanation, the increase in
restaurant bar sales for the thirty nine weeks was also primarily due to the
restaurant in Weston, Florida being open for he entire first quarter of fiscal
2004. The decrease in the weekly average of same store restaurant bar sales is
expected to continue as the Company's perception as a family restaurant
continues to grow.
21
Package goods sales represented 22.69% and 24.88% of total sales in the
thirteen weeks and thirty nine weeks of fiscal year 2004, respectively, as
compared to 22.45% and 25.82% of total sales in the thirteen weeks and thirty
nine weeks of fiscal year 2003, respectively. The weekly average of same store
package goods sales were $187,172 and $184,769 for the thirty nine weeks ended
June 26, 2004 and June 28, 2003, respectively, an increase of 1.30%. The
weekly average of same store package good sales were $164,846 and $164,357 for
the thirteen weeks ended June 26, 2004 and June 28, 2003 respectively, an
increase of less than 1.00%. Package good sales are expected to continue
increasing through the remainder of fiscal year 2004 due to the opening of the
new package goods store in Hollywood, Florida and the continued increase in
the weekly average of same store package sales.
The gross profit margin for restaurant sales was 62.81% and 65.87% for
the thirteen weeks ended June 26, 2004 and June 28, 2003, respectively. The
gross profit margin for the restaurant sales was 64.47% and 66.05% for the
thirty nine weeks ended June 26, 2004 and June 28, 2003, respectively. The
gross profit margin for restaurant and bar sales were adversely effected by
higher food costs during the third quarter of fiscal year 2004 and it is
anticipated that the gross profit for restaurant and bar sales will continue
to be adversely affected by higher food costs through the remainder of fiscal
year 2004. The Company has taken steps to offset higher food costs with higher
menu prices, where competitively possible, and will continue to do so through
the remainder of fiscal year 2004.
The gross profit margin for package goods sales was 27.58% and 28.22%
for the thirteen weeks ended June 26, 2004 and June 28, 2003, respectively.
The gross profit margin for package good sales was 27.34% and 26.44% for the
thirty nine weeks ended June 26, 2004 and June 28, 2003, respectively. The
gross profit margin for package goods sales is expected to remain constant
through the remainder of fiscal year 2004.
Franchise related revenues, which includes but is not limited to rental
income and franchise-related income such as franchise royalties, bookkeeping
and accounting fees and reimbursement of attorney's fees, were $230,000 and
$263,000 for the thirteen weeks ended June 26, 2004 and June 28, 2003
respectively, a decrease of 12.55%. Franchise related revenues were $753,000
and $663,000 for the thirty nine weeks ended June 26, 2004 and June 28, 2003
respectively, an increase of 13.57%. The decrease in the franchise related
income for the thirteen weeks ended June 26, 2004 was due to the reimbursement
of legal fees to the Company in the thirteen weeks ended June 30, 2003, which
did not occur in the thirteen weeks ended June 26, 2004. The increase in
franchise related revenues for the thirty nine weeks was due to the restaurant
in Weston, Florida having been open for the entire thirty nine weeks; the
restaurant in Stuart, Florida having been open for the entire thirteen weeks
and approximately two-thirds (2/3rds) of the thirty nine weeks; and the
overall increase in business by the franchises and limited partnerships.
22
Operating Costs and Expenses
Operating costs and expenses were $ 11,198,000 and $10,158,000 for the
thirteen weeks ended June 26, 2004 and June 28, 2003 respectively, an increase
of 10.24%. Operating costs and expenses were $33,301,000 and $28,712,000 for
the thirty nine weeks ended June 26, 2004 and June 28, 2003, a increase of
15.98%. The increase for the thirteen weeks was primarily due to the
restaurant in Stuart, Florida and the package goods store in Hollywood,
Florida being open for the entire fiscal quarter. In addition to the above
explanation, the increase in operating costs and expenses for the thirty nine
weeks was also due to the restaurant in Weston, Florida being open for the
first quarter of fiscal year 2004 and the package goods store in Hollywood,
Florida being open for one-half (1/2) of the first quarter of fiscal year
2004. Total operating costs and expenses are expected to continue increasing
through the remainder of fiscal year 2004 due to the operation of the
restaurant in Stuart, Florida and the package goods store in Hollywood,
Florida and a general increase in overall operating costs and expenses,
including but not limited to food costs.
Payroll and related costs were $3,018,000 and $3,056,000 for the
thirteen weeks ended June 26, 2004 and June 28, 2003 respectively, an decrease
of 1.24%. Payroll and related costs were $9,292,000 and $8,512,000 for the
thirty nine weeks ended June 26, 2004 and June 28, 2003, respectively, an
increase of 9.16%. The decrease in payroll and related costs during the
thirteen weeks ended June 26, 2004 is due to the fact that the restaurant in
Weston, Florida had just opened during the thirteen weeks ended June 28, 2003,
thereby incurring higher payroll costs, for that thirteen week period. The
increase for the thirty nine weeks is accounted for by the opening and
operation of the restaurant in Stuart, Florida since January 11, 2004; the
operation of the restaurant in Weston, Florida for the entire thirty nine
weeks; and the operation of the new package goods store in Hollywood, Florida
since November 17, 2003. Payroll and related costs will continue to increase
through the remainder of fiscal year 2004 with the operation of the restaurant
in Stuart, Florida and the package goods store in Hollywood, Florida.
Occupancy costs which include rent, common area maintenance, repairs and
taxes were $725,000 and $548,000 for the thirteen weeks ended June 26, 2004
and June 28, 2003 respectively, a increase of 32.29%. Occupancy costs were
$2,028,000 and $1,523,000 for the thirty nine weeks ended June 26, 2004 and
June 28, 2003, respectively, an increase of 33.16%. The increase is accounted
for by the payment of rent for the restaurant in Stuart, Florida and the full
payment of rent for the restaurant in Weston, Florida for the entire thirty
nine weeks, when compared to the payment of partial rent for the restaurant in
Weston, Florida during the fiscal quarter ending December 28, 2002, and the
payment of rent for the restaurant in Pinecrest, Florida during the second and
third quarters of fiscal year 2004. Occupancy costs will continue to increase
through the remainder of fiscal year 2004 with the payment of rent for the
restaurants in Stuart, Florida and Pinecrest, Florida.
Selling, general and administrative expenses were $2,478,000 and
$2,231,000 for the thirteen weeks ended June 26, 2004 and June 28, 2003,
respectively, an increase of 11.07%. Selling, general and administrative
expenses were $7,119,000 and $5,601,000 for the thirty nine weeks ended June
26, 2004 and June 28, 2003 respectively, an increase of 27.10%. The increase
in selling, general and administrative expense is accounted for by the
operation of the restaurant in Weston, Florida for the entire thirty nine
weeks and the operation of the restaurant in Stuart, Florida since January 11,
2004; expenses associated with the restaurant in Pinecrest, Florida ; the
operation of the package goods store in Hollywood, Florida since November 17,
2003; higher insurance costs and an overall increase in expenses generally.
23
Trends
During the next twelve months management expects continued increases in
restaurant sales, due primarily to the opening of the restaurant in Stuart,
Florida, the anticipated opening of the restaurants in Pinecrest, Florida and
Wellington, Florida and continued increases in same store restaurant sales.
Package good sales are also expected to increase due primarily to the opening
of a new package goods store in Hollywood, Florida and increases in same store
package goods sales. At the same time, management also expects higher food
costs, especially the cost of ribs, and overall expenses to increase
generally. The Company has already raised some of its menu prices to offset
higher food costs and will continue to do so wherever competitively possible.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are more fully described
in Note 1 to the Company's consolidated financial statements located in Item 8
of the Annual Report on Form 10-K. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues, and expenses, and the
related disclosures of contingent assets and liabilities. Actual results could
differ from those estimates under different assumptions or conditions. The
Company believes that the following critical accounting policies are subject
to estimates and judgments used in the preparation of its consolidated
financial statements:
DEPRECIATION
The estimate of useful lives for tangible and intangible assets are
significant estimates. Expenditures for the leasehold improvements and
equipment when a restaurant is first constructed are material. In addition,
periodic refurbishing takes place and those expenditures can be material.
Management estimates the useful life of those assets by considering, among
other things, expected use, life of the lease on the building, and warranty
period, if applicable. The assets are then depreciated using a straight line
method over those estimated lives. These estimated lives are reviewed
periodically and adjusted if necessary. Any necessary adjustment to
depreciation expense is made in the income statement of the period in which
the adjustment is determined to be necessary.
In fiscal 2004, management reviewed the estimated useful lives for
leasehold improvements and recorded an adjustment which was not significant.
24
DEFERRED TAX ASSETS
Deferred tax assets result primarily from timing differences relating to
depreciation and tip credits. The calculations are reviewed periodically by
management and the estimates are adjusted as the assumptions or conditions
indicate.
CONSOLIDATION
At June 26, 2004, the Company operates 5 restaurants as general partner
for the limited partnership that owns the operations of these restaurants. The
Company refers to these entities as joint ventures or limited partnerships.
Additionally, the Company expects that any expansion which takes place in
opening new restaurants will also result in the Company operating the
restaurants as general partner. In addition to the general partnership
interest, the Company also purchases limited partnership units ranging from
12% to 42% of the total units outstanding. As a result of these controlling
interests, the Company consolidates the operations of these limited
partnerships with those of the Company despite the fact the Company does not
own in excess of 50% of the equity interests. All intercompany transactions
are eliminated in consolidation. The minority interests in the earnings of
these joint ventures are removed from net income and are not included in the
calculation of earnings per share.
QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does hold market risk sensitive instruments for investment
purposes. The Company also recognizes market risk from interest rate exposure.
Market Risk - Investments
In the quarter ended December 28, 2002, the Company began an investment
program to accumulate funds to satisfy debt in the future. The Company made
an investment in an equity security which is subject to market risk. At its
meeting on December 19, 2003, the Board of Directors authorized the Company to
make a further investment in the same equity security as an additional
accumulation of funds to satisfy debt in the future. The additional investment
in the equity security was made during the second quarter of fiscal year 2004.
To the extent that market price declines it will have a negative impact of the
value of the investment. There is no assurance that market price will increase
or decrease in the next year.
At June 26, 2004, the Company's cash resources earn interest at variable
rates. Accordingly, the Company's return on these funds is affected by
fluctuations in interest rates. Any decrease in interest rates will have a
negative effect on the Company's earnings. In addition, the Company incurs
interest charges on debt at variable rates, which to the extent the Company
has not entered into interest rate swap agreements to hedge this risk, could
negatively impact the Company's earnings. There is no assurance that interest
rates will increase or decrease over the next fiscal year.
25
The Company has two debt arrangements which have variable interest
rates. For one of these instruments, which is a mortgage note, the Company has
entered into an interest rate swap agreement to hedge the interest rate risk.
The other debt instrument has an outstanding principal balance at June 26,
2004 of $19,021. Subsequent to the end of the third quarter of fiscal year
2004, the debt instrument was paid in full with no increase in interest rate.
CONTROLS AND PROCEDURES
We maintain controls and procedures that are designed to ensure (1) that
information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934, as amended (the "Exchange Ace"), is
recorded, processed, summarized, and reported within the time periods
specified in the Securities and Exchange Commission ("SEC") rules and forms,
and (2) that this information is accumulated and communicated to our
management including the Chief Executive Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the
cost benefit relationship of possible controls and procedures.
In June, 2004, under the supervision and review of our Chief Executive
Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our disclosure controls and procedures. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective in
alerting them in a timely manner to material information regarding us
(including our consolidated subsidiaries) that is required to be included in
our periodic reports to the SEC.
In addition, there have been no significant changes in our internal
controls or in other factors that could significantly affect those controls
since our June, 2004 evaluation. We cannot assure you, however, that our
system of disclosure controls and procedures will always achieve its stated
goals under all future conditions, no matter how remote.
PART II, OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None
b. Reports on Form 8-K - None
26
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized. The information furnished reflects all
adjustments to the statement of the results for the interim period.
FLANIGAN'S ENTERPRISES, INC.
-------------------------------------------
JOSEPH G. FLANIGAN, Chief Executive Officer
Date 8/9/04
---------------
-------------------------------------------
JEFFREY D. KASTNER, Chief Financial Officer
Date 8/9/04
---------------
27
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph G. Flanigan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Flanigan's
Enterprises, Inc. for the period ended June 26, 2004;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the consolidated financial statements, and
other financial information included in this quarterly report, fairly
present in all material respects of the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a- and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 45 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5 The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee or registrant's board of directors (or persons
performing the equivalent function);
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
6 The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Joseph G. Flanigan
-------------------------------------
Name: Joseph G. Flanigan
Chief Executive Officer
Date: August 9, 2004
28
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey D Kastner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Flanigan's
Enterprises, Inc. for the period ended June 26, 2004.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the consolidated financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects of the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in the quarterly
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a- and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 45 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee or registrant's board of directors (or persons performing the
equivalent function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Jeffrey D. Kastner
----------------------------------
Name: Jeffrey D. Kastner
Chief Financial Officer
Date: August 9, 2004
29
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Flanigan's Enterprises, Inc., (the
"Company") on Form 10-Q for the period ended June 26, 2004, as filed with the
Securities and Exchange Commission of the date hereof (the "Report"), I,
Joseph G. Flanigan, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. SS.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act
of 2002, that:
1) This Report fully complies with the requirements of Section 13 (a) or 15(d)
of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company for
the periods presented.
/s/ Joseph G. Flanigan
---------------------------
Joseph G. Flanigan
Chief Executive Officer
August 9, 2004
30
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES- OXLEY ACT OF 2002
In connection with the Quarterly Report of Flanigan's Enterprises, Inc., (the
"Company") on Form 10-Q for the period ended June 26, 2004, as filed with the
Securities and Exchange Commission of the date hereof (the "Report"), I,
Jeffrey D. Kastner, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. SS.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act
of 2002, that:
1) This Report fully complies with the requirements of Section 13 (a) or 15(d)
of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company for
the periods presented.
/s/ Jeffrey D. Kastner
------------------------------
Jeffrey D. Kastner
Chief Financial Officer
August 9, 2004
31