UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the fiscal year ended September 29, 2007
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5059 N.E. 18th Avenue, Fort Lauderdale, FL 33334
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (954) 377-1961
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.10 Par Value American Stock Exchange
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Title of each class Name of each exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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
1
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 [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Securities Exchange Act
of 1934).
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [_] No [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $9,310,000 as of March 31, 2007, the last business day of the
registrant's most recently completed second fiscal quarter, at a price of $11.17
per share.
There were 1,890,733 shares of the Registrant's Common Stock $0.10 par value,
outstanding as of December 26, 2007
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part III is incorporated by reference to portions of the
Registrant's Proxy statement for the 2008 Annual Meeting of Shareholders which
will be filed with the Securities and Exchange Commission by January 27, 2008.
2
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-K
PART I.
Item 1 Business 5
Item 1A Risk Factors 20
Item 2 Properties 24
Item 3 Legal Proceedings 29
Item 4 Submission of Matters to a Vote of Security Holders 29
PART II
Item 5 Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities. 30
Item 6 Selected Financial Data. 30
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operation. 31
Item 7A Quantitative and Qualitative Disclosures About Market Risk. 47
Item 8 Financial Statements and Supplementary Data. 48
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. 48
Item 9A Controls and Procedures. 48
Item 9B. Other Information 49
PART III
Item 10 Directors, Executive Officers and Corporate Governance. 49
Item 11 Executive Compensation. 49
Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters. 50
3
Item 13 Certain Relationships and Related Transactions and
Director Independence. 50
Item 14 Principal Accountant Fees and Services. 50
PART IV
Item 15 Exhibits and Financial Statement Schedules 50
SIGNATURES
CERTIFICATIONS
As used in this Annual Report on Form 10-K, the terms "we," "us," "our," the
"Company" and "Flanigan's" mean Flanigan's Enterprises, Inc. and its
subsidiaries (unless the context indicates a different meaning).
4
PART I
Item 1. Business
----------------
When used in this report, the words "anticipate", "believe", "estimate",
"will", "intend" and "expect" and similar expressions identify forward-looking
statements. Forward-looking statements in this report include, but are not
limited to, those relating to the general expansion of the Company's business.
Although we believe that our plans, intentions and expectations reflected in
these forward-looking statements are reasonable, we can give no assurance that
these plans, intentions or expectations will be achieved.
General
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At September 29, 2007, we (i) operated 21 units, (excluding the adult
entertainment club referenced in (ii) below), consisting of restaurants, package
liquor stores and combination restaurants/package liquor stores that we either
own or have operational control over and partial ownership in; (ii) own but do
not operate one adult entertainment club; and (iii) franchise an additional six
units, consisting of two restaurants, (one of which we operate) and four
combination restaurants/package liquor stores. The table below provides
information concerning the type (i.e. restaurant, package liquor store or
combination restaurant/package liquor store) and ownership of the units (i.e.
whether (i) we own 100% of the unit; (ii) the unit is owned by a limited
partnership of which we are the sole general partner and/or have invested in; or
(iii) the unit is franchised by us), as of September 29, 2007 and as compared to
September 30, 2006 and October 1, 2005. With the exception of one restaurant we
operate under the name "The Whale's Rib" and in which we do not have an
ownership interest, all of the restaurants operate under our service mark
"Flanigan's Seafood Bar and Grill" and all of the package liquor stores operate
under our service mark "Big Daddy's Liquors".
FISCAL FISCAL FISCAL
YEAR YEAR YEAR NOTE
2007 2006 2005 NUMBER
TYPES OF UNITS
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Company Owned:
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Combination package liquor
store and restaurant 4 4 4
Restaurant only 3 2 2 (1)
Package liquor store only 5 5 5
Company Managed
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Restaurants Only:
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Limited partnerships 7 7 6 (2)
Franchise 1 1 1
Unrelated Third Party 1 1 -- (3)
Company Owned Club: 1 1 1
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TOTAL - Company
5
Owned/Operated Units: 22 21 19
FRANCHISED - units 6 7 7 (4) (5)
-- -- --
Notes:
(1) Includes a restaurant located in Lake Worth, Florida which we acquired
from a franchisee during the second quarter of our fiscal year 2007 and which
commenced operating as a Company owned restaurant on March 4, 2007.
(2) Includes a restaurant located in Pinecrest, Florida which is owned by
a limited partnership in which we are the sole general partner and own 39% of
the limited partnership interest which commenced operating on August 14, 2006.
(3) This represents a restaurant named "The Whale's Rib" located in
Deerfield Beach, Florida which we have managed since the second quarter of our
fiscal year 2006.
(4) We operate a restaurant located in Deerfield Beach, Florida for one
(1) franchisee. This unit is included in the table both as a franchised
restaurant, as well as a restaurant operated by us.
(5) Excludes a restaurant located in Lake Worth, Florida which we acquired
from a franchisee during the second quarter of our fiscal year 2007.
With the exception of our combination package store and restaurant located
at 4 N. Federal Highway, Hallandale, Florida, (Store #31), which is operated on
property owned by us, all of our package liquor stores, restaurants as well as
our adult entertainment club are operated on properties leased from unaffiliated
third parties.
History and Development of Our Business
---------------------------------------
We were incorporated in Florida in 1959 and commenced operating as a chain
of small cocktail lounges and package liquor stores throughout South Florida. By
1970, we had established a chain of "Big Daddy's" lounges and package liquor
stores between Vero Beach and Homestead, Florida. From 1970 to 1979, we expanded
our package liquor store and lounge operations throughout Florida and opened
clubs in five other "Sun Belt" states. In 1975, we discontinued most of our
package store operations in Florida except in the South Florida areas of
Miami-Dade, Broward, Palm Beach and Monroe Counties. In 1982 we expanded our
club operations into the Philadelphia, Pennsylvania area as general partner of
several limited partnerships we organized. In March 1985 we began franchising
package liquor stores and lounges in the South Florida area. See Note 10 to the
consolidated financial statements and the discussion of franchised units on
pages 8 and 9.
During our fiscal year 1987, we began renovating our lounges to provide
full restaurant food service, and subsequently renovated and added food service
to most of our lounges. Food sales currently represent approximately 81% and bar
sales approximately 19% of our total restaurant sales.
Our package liquor stores emphasize high volume business by providing
customers with a wide variety of brand name and private label merchandise at
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discount prices. Our restaurants offer alcoholic beverages and full food service
with abundant portions and reasonable prices, served in a relaxed, friendly and
casual atmosphere.
We conduct our operations directly and through a number of limited
partnerships and wholly owned subsidiaries, all of which are listed below. Our
subsidiaries and the limited partnerships, (except for the limited partnership,
where we are not the general partner, which owns and operates our franchised
restaurant in Fort Lauderdale, Florida) are reported on a consolidated basis.
STATE OF PERCENTAGE
ENTITY ORGANIZATION OWNED
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Flanigan's Management Services, Inc. Florida 100
Flanigan's Enterprises, Inc. of Georgia Georgia 100
Flanigan's Enterprises, Inc. of Pa. Pennsylvania 100
CIC Investors #13, Limited Partnership Florida 39
CIC Investors #50, Limited Partnership Florida 16
CIC Investors #55, Limited Partnership Florida 100
CIC Investors #60, Limited Partnership Florida 42
CIC Investors #65, Limited Partnership Florida 26
CIC Investors #70, Limited Partnership Florida 40
CIC Investors #75, Limited Partnership Florida 12
CIC Investors #80, Limited Partnership Florida 25
CIC Investors #95, Limited Partnership Florida 28
Josar Investments, LLC Florida 100
Package Liquor Store Operations
-------------------------------
Our package liquor stores emphasize high volume business by providing
customers with a wide selection of brand name and private label liquors, beer
and wines while offering competitive pricing by meeting the published sales
prices of our competitors. We provide extensive sales training to our package
liquor store personnel. The stores are open for business 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.
7
Company Owned Package Liquor Stores. We own and operate nine package
-------------------------------------
liquor stores in the South Florida area under the name "Big Daddy's Liquors",
four of which are jointly operated with restaurants we own.
Franchised Package Liquor Stores. We franchise four package liquor
-----------------------------------
stores in the South Florida area, all of which are operated under the name "Big
Daddy's Liquors" and are jointly operated with our franchisee's restaurant
operations. Three of the four franchised package liquor stores are franchised to
members of the family of our Chairman of the Board, officers and/or directors.
We have not entered into a franchise arrangement for either a package liquor
store, restaurant or combination package liquor store/restaurant since 1986 and
do not anticipate that we will do so in the foreseeable future.
Generally, a franchise agreement with our franchisees for the operation
of a package liquor store runs for the balance of the term of the franchisee's
lease for the business premises, extended by the franchisee's continued
occupancy of the business premises thereafter, whether by lease or ownership. In
exchange for our providing management and related services to the franchisee and
our granting the right to the franchisee to use our service mark, "Big Daddy's
Liquors", franchisees of package liquor stores pay us weekly in arrears, (i) a
royalty equal to approximately 1% of gross sales; plus (ii) an amount for
advertising equal to between 1-1/2% to 3% of gross sales generated at the stores
based on our actual advertising costs allocated between stores, prorata, based
upon gross sales.
Restaurant Operations.
----------------------
Our restaurants provide a neighborhood casual, standardized dining
experience, typical of restaurant chains. The interior decor of the restaurants
is nautical with numerous fishing and boating pictures and decorations. The
restaurants are designed to permit minor modifications without significant
capital expenditures. However, from time to time we are required to redesign and
refurbish the restaurants at significant cost. Drink prices may vary between
locations to meet local conditions. Food prices are substantially standardized
for all restaurants. The restaurants' hours of operation are from 11:00 a.m. to
1:00-5:00 a.m. depending upon demand and local law.
Company Owned Restaurants. We own and operate seven restaurants all
--------------------------
under our service mark "Flanigan's Seafood Bar and Grill" four of which are
jointly operated with package liquor stores we own. We acquired one of the seven
restaurants we own, (the Lake Worth, Florida restaurant), during the second
quarter of our fiscal year 2007 from a former franchisee who informed us that he
did not intend to continue operating the restaurant.
Franchised Restaurants. We franchise six restaurants, all of which
-----------------------
operate under our service mark "Flanigan's Seafood Bar and Grill", two of which
operate as a restaurant only and four of which operate jointly with a franchisee
operated "Big Daddy's Liquors" package liquor store.
Generally, a franchise agreement with our franchisees for the operation
of a restaurant runs for the balance of the term of the franchisee's lease for
the business premises, extended by the franchisee's continued occupancy
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of the business premises thereafter, whether by lease or ownership. In exchange
for our providing management and related services to the franchisee and our
granting the right to the franchisee to use our service mark, "Flanigan's
Seafood Bar and Grill", our franchisees pay us weekly in arrears, (i) a royalty
equal to approximately 3% of gross sales; plus (ii) an amount for advertising
equal to between 1-1/2% to 3% of gross sales from the restaurants based on our
actual advertising costs allocated between stores, prorata, based upon gross
sales.
For accounting purposes, we do not consolidate our franchisees'
operations. Franchise royalties we receive are "earned" when sales are made by
franchisees.
Restaurants Owned by Affiliated Limited Partnerships
----------------------------------------------------
We have invested with others, (some of whom are or are affiliated with
our officers and directors), in nine limited partnerships seven of which
currently own and operate South Florida based restaurants under our service mark
"Flanigan's Seafood Bar and Grill". (The Pembroke Pines, Florida limited
partnership restaurant commenced operating on October 29, 2007 and the Davie,
Florida limited partnership restaurant is expected to open for business during
the third quarter of our fiscal year 2008.) In addition to being a limited
partner in these limited partnerships, we are the sole general partner of all of
these limited partnerships and manage and control the operations of the
restaurants except for the restaurant located in Fort Lauderdale, Florida where
we only hold a limited partnership interest.
Generally, the terms of the limited partnership agreements provide that
until the investors' cash investment in a limited partnership (including any
cash invested by us) is returned in full, the limited partnership distributes to
the investors annually out of available cash from the operation of the
restaurant, as a return of capital, up to 25% of the cash invested in the
limited partnership, with no management fee paid to us. Any available cash in
excess of the 25% of the cash invested in the limited partnership distributed to
the investors annually, is paid one-half (1/2) to us as a management fee and
one-half (1/2) to the investors, (including us), prorata based upon the
investors' investment, as a return of capital. Once all of the investors,
(including us), have received, in full, amounts equal to their cash invested, an
annual management fee becomes payable to us equal to one-half (1/2) of cash
available to be distributed, with the other one half (1/2) of available cash
distributed to the investors (including us), as a profit distribution, pro-rata
based upon the investors' investment. As of September 29, 2007, limited
partnerships owning three (3) restaurants have returned all cash invested and we
receive an annual management fee equal to one-half (1/2) of the cash available
for distribution by the limited partnership. In addition to our receipt of
distributable amounts from the limited partnerships, we receive a fee equal to
3% of gross sales for use of our "Flanigan's Seafood Bar and Grill" service
mark, which use is authorized while we act as general partner only. This 3% fee
is "earned" when sales are made by the limited partnerships and is paid weekly,
in arrears. We anticipate that we will continue to form limited partnerships to
raise funds to own and operate restaurants under our service mark "Flanigan's
Seafood Bar and Grill" using the same or substantially similar financial
arrangement.
Below is information on the nine limited partnerships which own and
operate "Flanigan's Seafood Bar and Grill" restaurants:
9
Pinecrest, Florida
We are the sole general partner and 39% limited partner in this limited
partnership which has owned and operated a restaurant in Pinecrest, Florida
under our "Flanigan's Seafood Bar and Grill" service mark since August 14, 2006.
14.9% of the remaining limited partnership interest is owned by persons who are
either our officers, directors or their family members. As of the end of our
fiscal year 2007, this limited partnership has returned to its investors
approximately 10% of their initial cash invested.
Fort Lauderdale, Florida
A corporation, owned by one of our directors, acts as sole general
partner of a limited partnership which has owned and operated a restaurant in
Fort Lauderdale, Florida under our "Flanigan's Seafood Bar and Grill" service
mark since April 1, 1997. We have a 25% limited partnership interest in this
limited partnership. 57.6% of the remaining limited partnership interest is
owned by persons who are either our officers, directors or their family members.
We have a franchise arrangement with this limited partnership. For accounting
purposes, we do not consolidate this limited partnership.
Surfside, Florida
We are the sole general partner and a 42% limited partner in this
limited partnership which has owned and operated a restaurant in Surfside,
Florida under our "Flanigan's Seafood Bar and Grill" service mark since March 6,
1998. 34.7% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. As of the end of
our fiscal year 2007, this limited partnership has returned to its investors all
of their initial cash invested.
Kendall, Florida
We are the sole general partner and a 40% limited partner in this
limited partnership which has owned and operated a restaurant in Kendall,
Florida under our "Flanigan's Seafood Bar and Grill" service mark since April 4,
2000. 29.5% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. As of the end of
our fiscal year 2007, this limited partnership has returned to its investors all
of their initial cash invested.
West Miami, Florida
We are the sole general partner and a 25% limited partner in this
limited partnership which has owned and operated a restaurant in West Miami,
Florida under our "Flanigan's Seafood Bar and Grill" service mark since October
11, 2001. 42.4% of the remaining limited partnership interest is owned by
persons who are either our officers, directors or their family members. As of
the end of our fiscal year 2007, this limited partnership has returned to its
investors all of their initial cash invested.
10
Weston, Florida
We are the sole general partner and a 28% limited partner in this
limited partnership which has owned and operated a restaurant in Weston, Florida
under our "Flanigan's Seafood Bar and Grill" service mark since January 20,
2003. 34.3% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. As of the end of
our fiscal year 2007, this limited partnership has returned to its investors
approximately 64% of their initial cash invested.
Stuart, Florida
We are the sole general partner and 12% limited partner in this limited
partnership which has owned and operated a restaurant in a Howard Johnson's
Hotel in Stuart, Florida under our "Flanigan's Seafood Bar and Grill" service
mark since January 11, 2004. 31.0% of the remaining limited partnership interest
is owned by persons who are either our officers, directors or their family
members. As of the end of our fiscal year 2007, this limited partnership has
returned to its investors approximately 22.5% of their initial cash invested.
During our fiscal year 2006, the limited partners of this limited partnership
only received three (3) quarterly distributions due to the limited cash flow
generated by the restaurant. During our fiscal year 2007, no distributions were
made to limited partners as this limited partnership had a net loss of $98,000
from the operation of the restaurant during the fiscal year before depreciation
and amortization and owed us $203,000 in advances made to meet its cash flow
needs.
Wellington, Florida
We are the sole general partner and a 26% limited partner in this
limited partnership which has owned and operated a restaurant in Wellington,
Florida under our "Flanigan's Seafood Bar and Grill" service mark since May 27,
2005. 25.1% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. As of the end of
our fiscal year 2007, this limited partnership has returned to its investors
approximately 37% of their initial cash invested.
Davie, Florida
We are the sole general partner and a 48% limited partner of a limited
partnership which on January 2, 2007, (when we were the sole general partner and
we and a wholly owned subsidiary were the sole limited partners), acquired
personal property assets and a leasehold interest of an existing restaurant
operation in Davie, Florida for $650,000, which is intended to commence
operations as a "Flanigan's Seafood Bar and Grill" restaurant during the third
quarter of our fiscal year 2008. 9.5% of the remaining limited partnership
interest is owned by persons who are either our officers, directors or their
family members.
We advanced to the limited partnership the entire $650,000 purchase
price and have, in addition, advanced to the limited partnership approximately
$400,000 for expenses, including amounts for renovations and upgrades at this
location. The cost to renovate and equip this location for operation as a
"Flanigan's Seafood Bar and Grill" restaurant has increased
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substantially from our original estimates in December, 2005 due primarily to
increases in construction costs and equipment. During the fourth quarter of
fiscal year 2007, this limited partnership commenced and subsequent to the end
of fiscal year 2007, completed its private offering of limited partnership
interests, raising gross proceeds of $3,875,000. The amounts we advanced to the
limited partnership credited our obligation to pay for our equity investment in
the limited partnership at the same price as other investors who acquired
limited partnership interests in the limited partnership.
Pembroke Pines, Florida
We are the sole general partner and a 16% limited partner in a limited
partnership which on October 24, 2006, (when we were the sole general partner
and we and a wholly owned subsidiary were the sole limited partners), acquired
the assets and a leasehold interest of an existing restaurant operation in
Pembroke Pines, Florida for a purchase price of $305,000, which commenced
operations on October 29, 2007 as a "Flanigan's Seafood Bar and Grill"
restaurant. 17.7% of the remaining limited partnership interest is owned by
persons who are either our officers, directors or their family members.
During the third quarter of fiscal year 2007, the limited partnership
completed its private offering, raising gross proceeds of $2,350,000 to complete
the renovations and upgrades at the Pembroke Pines, Florida location. We had
advanced to the limited partnership the entire $305,000 purchase price and in
addition, had advanced to the limited partnership approximately $375,000 for
expenses, including amounts for renovation and upgrades at this location. The
amounts we advanced to the limited partnership credited our obligation to pay
for our equity investment in the limited partnership at the same price as other
investors who acquired limited partnership interests in the limited partnership.
The excess amounts advanced by us, (approximately $300,000), were reimbursed to
us without interest from general working capital of the limited partnership.
Management Agreement for "The Whale's Rib" Restaurant
-----------------------------------------------------
Since January, 2006, we have managed "The Whale's Rib", a casual dining
restaurant located in Deerfield Beach, Florida, pursuant to a management
agreement. We paid $500,000 in exchange for our rights to manage this
restaurant. The restaurant is owned by a third party unaffiliated with us. In
exchange for providing management, bookkeeping and related services, we receive
one-half (1/2) of the net profit, if any, from the operation of the restaurant.
The term of the management agreement, which commenced January 9, 2006, is for
ten (10) years, with four (4) five (5) year renewal options in favor of the
owner of the restaurant. For our fiscal years ended September 29, 2007 and
September 30, 2006, we generated $160,000 and $108,000 of revenue, respectively,
from providing these management services.
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Adult Entertainment Club
------------------------
We own, but do not operate, an adult entertainment nightclub located in
Atlanta, Georgia which operates under the name "Mardi Gras". We have a
management agreement with an unaffiliated third party to manage the club.
Effective May 1, 2006, the unaffiliated third party that manages the club became
obligated under a new lease for the business premises where the club operates
for a period of ten (10) years, with one (1) ten (10) year renewal option and as
of such date we are no longer obligated under the lease. Under our management
agreement, the unaffiliated third party management firm is obligated to pay us
an annual amount, paid monthly, equal to the greater of $150,000 or ten (10%)
percent of gross sales from the club, offset by one-half (1/2) of any rental
increases, provided our fees will never be less than $150,000 per year. For our
fiscal years ended September 29, 2007 and September 30, 2006, we earned $203,000
and $224,000 of revenue, respectively, from the operation of the club.
Operations and Management
--------------------------
We emphasize systematic operations and control of all package liquor
stores and restaurants regardless of whether we own, franchise or manage the
unit. 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 our
guidelines and procedures. We have in effect an incentive cash bonus program for
our managers and salespersons based upon various performance criteria. Our
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 five area supervisors
responsible for package liquor store, restaurant and club operations in specific
geographic districts.
All of our managers and salespersons receive extensive training in
sales techniques. We arrange 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. Our inventory consists primarily of liquor
and wine products and as such, does not become excessive or obsolete that would
require identifying and recording of the same. Liquor inventory purchased can
normally be returned only if defective or broken.
All of our purchases of liquor inventory are made through our
purchasing department from our 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 our liquor inventory is shipped by
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the wholesalers or distributors directly to our stores. We significantly
increase our inventory prior to Christmas, New Year's Eve and other holidays.
Under Florida law, we are required to pay for our liquor purchases within ten
days of delivery.
During our fiscal year 2006, our Board of Directors approved the
purchase of a new point of sale computer system, including surveillance cameras,
for all of our package liquor stores, subject to management testing and
approving the system prior to its installation. The testing was successfully
completed during the first quarter of our fiscal year 2008 and the installation
of the new system is expected to take place during the second quarter of our
fiscal year 2008. Although we have not yet signed a contract for the purchase
and installation of the new point of sale package system, the projected cost of
the new point of sale computer system is approximately $400,000, of which
approximately $90,000 has been paid to date for the testing of the system and
purchase of new hand-held, wireless scanners.
Negotiations with food suppliers are conducted by our purchasing
department at our corporate headquarters. We believe this ensures that the best
quality and prices will be available to each restaurant. Orders for food
products are prepared by each restaurant's kitchen manager and reviewed by the
restaurant's general manager before orders are placed. Food is delivered by the
supplier directly to each restaurant. Orders are placed several times a week to
ensure product freshness. Food inventory is primarily paid for monthly.
Government Regulation
---------------------
Our operations are subject to various federal, state and local laws
affecting our business. In particular, our operations are subject to regulation
by federal agencies and to licensing and regulation by state and local health,
sanitation, alcoholic beverage control, safety and fire department agencies in
the state or municipality where our units are located.
Alcoholic beverage control regulations require each of our restaurants
and package liquor stores to obtain a license to sell alcoholic beverages from a
state authority and in certain locations, county and municipal authorities.
In Florida, where all of our restaurants and package liquor stores are
located, most of our liquor licenses are issued on a "quota license" basis.
Quota licenses are issued on the basis of a population count established from
time to time under the latest applicable census. Because the total number of
liquor licenses available under a quota license system is limited and
restrictions placed upon their transfer, the licenses have purchase and resale
value based upon supply and demand in the particular areas in which they are
issued. The quota licenses held by us allow the sale of liquor for on and off
premises consumption. In Florida, the other liquor licenses held by us or
limited partnerships of which we are 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
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menu. The restaurant liquor licenses held by us allow the sale of liquor for on
premises consumption only.
In the State of Georgia, where our adult entertainment club is located,
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 our 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 our
revenue, the failure to receive or retain, or a delay in obtaining a liquor
license in a particular location could adversely affect our operations in that
location and could impair our ability to obtain licenses elsewhere.
During our fiscal years 2007, 2006 and 2005, no significant pending
matters have been initiated concerning any of our licenses which might be
expected to result in a revocation of a liquor license or other significant
actions against us.
We are subject to "dram-shop" statutes due to our restaurant operations
and club ownership. These statutes generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated individual. We carry
liquor liability coverage as part of our existing comprehensive general
liability insurance, which we believe is consistent with coverage carried by
other entities in the restaurant industry. Although we are covered by insurance,
a judgment against us under a dram-shop statute in excess of our liability
coverage could have a material adverse effect on us.
Our operations are also subject to federal and state laws governing
such matters as wages, working conditions, citizenship requirements and
overtime. Some states, including Florida, have set minimum wage requirements
higher than the federal level. Significant numbers of hourly personnel at our
restaurants are paid at rates related to the Florida minimum wage and,
accordingly, increases in the minimum wage will increase labor costs. We are
also subject to the Americans With Disability Act of 1990 (ADA), which, among
other things, may require certain renovations to our restaurants to meet
federally mandated requirements. The cost of any such renovations is not
expected to materially affect us.
We are not aware of any statute, ordinance, rule or regulation under
present consideration which would significantly limit or restrict our business
as now conducted. However, in view of the number of jurisdictions in which we
conduct business, and the highly regulated nature of the liquor
15
business, there can be no assurance that additional limitations may not be
imposed in the future, even though none are presently anticipated.
General Liability Insurance
---------------------------
We have general liability insurance which incorporates a
semi-self-insured plan under which we assume the full risk of the first $50,000
of exposure per occurrence, while the limited partnerships assume the full risk
of the first $10,000 of exposure per occurrence. Our insurance carrier is
responsible for $1,000,000 coverage per occurrence above our self-insured
deductible, up to a maximum aggregate of $2,000,000 per year. During our fiscal
years 2005, 2006, and again in 2007 we were able to purchase excess liability
insurance at a reasonable premium, whereby our excess insurance carrier is
responsible for $6,000,000 coverage above our primary general liability
insurance coverage. With the exception of one (1) limited partnership which has
higher general liability insurance coverage to comply with the terms of its
lease for the business premises, we are un-insured against liability claims in
excess of $7,000,000 per occurrence and in the aggregate.
Our 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. We have established a select group of defense
attorneys which we use in conjunction with this program. Under our current
liability insurance policy, any expense incurred by us in defending a claim,
including adjusters and attorney's fees, are a part of the $50,000 retention.
An accrual for our estimated liability claims is included in the
consolidated balance sheets in the caption "Accounts payable and accrued
expenses". A significant unfavorable judgment or settlement against us in excess
of its liability insurance coverage could have a materially adverse effect on
the Company.
Property Insurance; Windstorm Insurance; Deductibles
----------------------------------------------------
For the policy year commencing December 30, 2007, our property
insurance, including windstorm insurance coverage, will be with the same
insurance carriers and with the same coverage as provided for the policy year
which commenced December 30, 2006. Our insurance expense for the policy year
commencing December 30, 2007, estimated at $434,000, which includes insurance
coverage for our consolidated limited partnerships, decreased by approximately
$153,000, (26%), due primarily to decreases in windstorm insurance coverage.
For the policy year which commenced December 30, 2006, our property
insurance provided for full insurance coverage for property losses, other than
those caused by windstorm, such as a hurricane. The losses caused by hurricanes
during the 2004 and 2005 hurricane seasons in South Florida made windstorm
insurance coverage difficult to obtain and, where available, expensive to the
point that full windstorm coverage for all locations was economically
prohibitive. For those locations east of I-95, windstorm insurance coverage was
only available through the State of Florida sponsored
16
insurance fund and then limited to $1,000,000 per building, including personal
property, but without business interruption insurance. The State of Florida
sponsored insurance fund had deductibles of 3% per location, per occurrence.
Windstorm coverage for locations west of I-95 was procured through a private
insurance carrier, including business interruption insurance, which provided
coverage of $10,000,000 per occurrence and in the aggregate, with "named storm
deductibles" of 5% per location per occurrence, with a minimum deductible of
$100,000 per occurrence and "other windstorm deductibles" of $100,000 per
occurrence. The windstorm policy provided by the private insurance carrier
contained a limitation on recovery for roof replacement, with any roofs dating
prior to 2001 being covered for their actual replacement value, in lieu of their
replacement cost. We determined that only two roofs at its locations west of
I-95 for which it and/or its limited partnerships are responsible, pre-date 2001
so the exposure due to the roof replacement limitation was not significant. The
private insurance policy also provided business interruption insurance for
locations east of I-95, with a deductible of 5% per location, per occurrence,
for business interruption insurance, as well as windstorm insurance in excess of
the primary coverage provided through the State of Florida sponsored insurance
fund. Management believed that the windstorm insurance coverage effective
December 30, 2006 would have provided adequate insurance coverage for all
locations in the event of a hurricane, but in the event that more than four (4)
locations had been destroyed by a hurricane, thereby requiring total
reconstruction, the windstorm insurance coverage may have been inadequate and we
and/or the limited partnership may have had to bear the cost of any uninsured
expenses, which may have had a material adverse effect upon the financial
condition and/or results of operations of the Company. Our insurance expense for
the policy year commencing December 30, 2006, including insurance coverage for
our consolidated limited partnerships, increased by approximately $345,000,
(141%), due primarily to increases in windstorm insurance coverage. During the
policy year commencing December 30, 2006, neither we, nor any of our limited
partnerships, made a claim against our property insurance.
For the policy year which commenced December 30, 2005, which included
windstorm insurance coverage and was the third and final year of our (3) year
property insurance policy with our insurance carrier, the property insurance had
a deductible of $25,000 - $50,000 per location, per occurrence. In the event a
casualty, such as a hurricane, had impacted every location whereby property
damage and business interruption claims reached or exceeded every deductible,
then we and our limited partnerships would have faced a maximum deductible of
$825,000. During the policy year commencing December 30, 2005, neither we, nor
any of our limited partnerships, made a claim against our property insurance.
Hurricane Wilma; Windstorm Claims
---------------------------------
During our fiscal year 2006, we submitted claims totaling $1,092,300
for damages and business interruption caused when Hurricane Wilma impacted South
Florida on October 24, 2005, (property insurance policy year commencing December
30, 2004). During our fiscal year 2007, we settled our claims against our
insurance carrier for $929,000, ($979,000 less the $50,000 deductible). In
connection with this settlement, during our fiscal year 2006, we received
advances in the aggregate amount of $700,000, ($750,000
17
less the $50,000 deductible), from our insurance carrier and during our fiscal
year 2007 we received a final payment of $229,000.
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. We believe that the principal means of
competition among package liquor stores is price and that, in general, the
principal means of competition among restaurants include the location, type and
quality of facilities and the type, quality and price of beverage and food
served.
Our 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, we have had to adjust our pricing to stay
competitive, including meeting all competitors' advertisements. Such practices
will continue in the package liquor business. We believe that we have a
competitive position in our market because of widespread consumer recognition of
the "Big Daddy's" and "Flanigan's" names.
We have many well-established competitors, both nationally and locally
owned, with substantially greater financial resources and a longer history of
operations than we do. Their resources and market presence may provide
advantages in marketing, purchasing and negotiating leases. We compete with
other restaurant and retail establishments for sites and finding management
personnel.
Our business is subject to seasonal effects, including that liquor
purchases tend to increase during the holiday seasons.
Trade Names
-----------
We operate our package liquor stores and restaurants under two service
marks; "Big Daddy's Liquors" and "Flanigan's Seafood Bar and Grill", both of
which are federally registered trademarks owned by us. Our right to the use of
the "Big Daddy's" service mark is set forth under a consent decree of a Federal
Court entered into by us in settlement of federal trademark litigation. The
consent decree and the settlement agreement allow us to continue to use and to
expand our use of the "Big Daddy's" service mark in connection with limited food
and liquor sales in Florida, while restricting the future sale of distilled
spirits in Florida under the "Big Daddy's" name by the other party who has a
federally registered service mark for "Big Daddy's" use in the restaurant
business. The Federal Court retained jurisdiction to enforce the consent decree.
We have acquired registered Federal trademarks on the principal register for our
"Flanigan's" and "Flanigan's Seafood Bar and Grill" service marks.
The standard symbolic trademark associated with our facilities and
operations is the bearded face and head of "Big Daddy" which is predominantly
displayed at all "Flanigan's" facilities and all "Big Daddy's" facilities
18
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 us.
Employees
---------
As of our fiscal year end 2007, we employed 950 persons, of which 759
were full-time and 191 were part-time. Of these, 44 were employed at our
corporate offices in administrative capacities and 5 were employed in
maintenance. Of the remaining employees, 50 were employed in package liquor
stores and 851 in restaurants.
None of our employees are represented by collective bargaining
organizations. We consider our labor relations to be favorable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Positions and Offices Office or Position
Name Currently Held Age Held Since
---- --------------------- --- ------------------
James G. Flanigan Chairman of the Board 43 (1)
of Directors, Chief
Executive Officer and
President
August Bucci Chief Operating Officer 63 2002
and Executive Vice
President
Jeffrey D. Kastner Chief Financial Officer 54 (2)
General Counsel and
Secretary
Jean Picard Vice President of 69 2002
Package Liquor Store
Operations
(1) Chairman of the Board of Directors, Chief Executive Officer since 2005;
President since 2002.
(2) Chief Financial Officer since 2005; Secretary since 1995; and General
Counsel since 1982.
Flanigan's 401(k) Plan
----------------------
Effective July 1, 2004, we began sponsoring a 401(k) retirement plan
covering substantially all employees who meet certain eligibility requirements.
Employees may contribute elective deferrals to the plan up to amounts allowed
under the Internal Revenue Code. We are not required to contribute to the plan
but may make discretionary profit sharing and/or matching contributions. During
our fiscal years ended September 29, 2007, September 30, 2006 and October 1,
2005, the Board of Directors approved
19
discretionary matching contributions totaling $29,000, $12,000 and $37,500,
respectively.
Item 1A Risk Factors
---------------------
An investment in our common stock involves a high degree of risk. These
risks should be considered carefully with the uncertainties described below, and
all other information included in this Annual Report on Form 10-K, before
deciding whether to purchase our common stock. Additional risks and
uncertainties not currently known to management or that management currently
deems immaterial may also become important factors that may harm our business,
financial condition or results or operations. The occurrence of any of the
following risks could harm our business, financial condition and results of
operations. The trading price of our common stock could decline due to any of
these risks and uncertainties and you may lose part or all of your investment.
Certain statements in this report contain forward-looking information.
In general, forward-looking statements include estimates of future revenues,
cash flows, capital expenditures, or other financial items and assumptions
underlying any of the foregoing. Forward-looking statements reflect management's
current expectations regarding future events and use words such as "anticipate",
"believe", "expect", "may", "will" and other similar terminology. These
statements speak only as of the date they were made and involve a number of
risks and uncertainties that could cause actual results to differ materially
from those expressed in the forward-looking statements. Several factors, many
beyond our control, could cause actual results to differ materially from
management's expectations.
Our Business Could Be Materially Adversely Affected If We Are Unable To
Expand In A Timely And Profitable Manner
----------------------------------------
To grow successfully, we must open new restaurants on a timely and
profitable basis. We have experienced delays in restaurant openings from time to
time and may experience delays in the future. During our fiscal year 2006, we,
as general partner of the limited partnerships which own the Pembroke Pines,
Florida and Davie, Florida restaurants, submitted building plans to the
appropriate governmental agencies for building permits and expected, at a
minimum, to open these two (2) new restaurants during our fiscal year 2007. Due
to delays in the permitting process and construction, the Pembroke Pines,
Florida restaurant only opened for business during the first quarter of fiscal
year 2008 and the Davie, Florida restaurant is not expected to open for business
before the third quarter of our fiscal year 2008. Increases in labor and
building material costs increased the cost of planned renovations to the Davie,
Florida restaurant by approximately $1,000,000.
Our ability to open and profitably operate restaurants and/or package
liquor stores is subject to various risks such as identification and
availability of suitable and economically viable locations, the negotiation of
acceptable leases or the purchase terms of existing locations, the availability
of limited partner investors or other means to raise capital,
20
the need to obtain all required governmental permits (including zoning
approvals) on a timely basis, the need to comply with other regulatory
requirements, the availability of necessary contractors and subcontractors, the
availability of construction materials and labor, the ability to meet
construction schedules and budgets, variations in labor and building material
costs, changes in weather or other acts of God that could result in construction
delays and adversely affect the results of one or more restaurants and/or
package liquor stores for an indeterminate amount of time. If we are unable to
successfully manage these risks, we will face increased costs and lower than
anticipated revenues which will materially adversely affect our business,
financial condition, operating results and cash flow.
General Economic Factors May Adversely Affect Results of Operations
-------------------------------------------------------------------
National, regional and local economic conditions, such as recessionary
economic cycles, a protracted economic slowdown or a worsening economy could
adversely affect disposable consumer income and consumer confidence. Unfavorable
changes in these factors or in other business and economic condition affecting
our customers could reduce customer traffic in some or all of our restaurants
and/or package liquor stores, impose practical limits on pricing and increase
costs, any of which could lower profit margins and have a material effect on our
results of operations.
Changes in Customer Preferences for Casual Dining Styles Could Adversely Affect
Financial Performance
--------------------------------------------------------------------------------
Changing customer preferences, tastes and dietary habits can adversely
impact our business and financial performance. We offer a large variety of
entrees, side dishes and desserts and its continued success depends, in part, on
the popularity of our cuisine and casual style of dining. A change from this
dining style may have an adverse effect on our business.
Labor Shortages, an Increase in Labor Costs, or an Inability to Attract
Employees Could Harm Our Business
-------------------------------------------------------------------------------
Our employees and our ability to deliver an enjoyable dining experience
to our customers are essential to our operations. If we are unable to attract
and retain enough qualified restaurant and/or package liquor store personnel at
a reasonable cost, and if they do not deliver an enjoyable dining experience,
our results may be negatively affected. Additionally, competition for qualified
employees could require us to pay higher wages, which could result in higher
labor costs.
Increases in Employee Minimum Wages by the Federal or State Government Could
Adversely Affect Business
--------------------------------------------------------------------------------
Certain of our Company employees are paid wages that relate to federal
and state minimum wage rates. Increases in the minimum wage rates, such as
annual cost of living increases in the State of Florida minimum wage, may
21
significantly increase our labor costs. In addition, since our business is
labor-intensive, shortages in the labor pool or other inflationary pressure
could increase labor costs, which could harm our financial performance.
Fluctuations in Commodity Prices and Availability of Commodities Including Pork,
Beef, Fish, Poultry and Dairy Could Affect Our Business
--------------------------------------------------------------------------------
A significant component of our costs are related to food commodities
including pork, beef, fish, poultry and dairy products. If there is a
substantial increase in prices for these products and we are unable to offset
the increases with changes in menu prices, our results could be negatively
affected.
Due to Our Geographic Locations, Restaurants are Subject to Climate Conditions
that Could Affect Operations
--------------------------------------------------------------------------------
All but one (1) of our restaurants and package liquor stores are
located in South Florida, with the remaining restaurant located in Central
Florida. During hurricane season, (June 1st through November 30th each year),
our restaurants and/or package liquor stores may face harsh weather associated
with hurricanes and tropical storms. These harsh weather conditions may make it
more difficult for customers to visit our restaurants and package liquor stores,
or may necessitate the closure of the stores and restaurants for a period of
time. If customers are unable to visit our restaurants and/or package liquor
stores, our sales and operating results may be negatively affected.
Due to Our Geographic Locations, We May Not be Able to Acquire Windstorm
Insurance Coverage or Adequate Windstorm Insurance Coverage at a Reasonable Rate
-------------------------------------------------------------------------------
Due to the anticipated active hurricane seasons in South Florida in the
future, we may not be able to acquire windstorm insurance coverage for our
restaurant and package liquor store locations on a year-to-year basis or may not
be able to get adequate windstorm insurance coverage at reasonable rates. If we
are unable to obtain windstorm insurance coverage or adequate windstorm
insurance coverage at reasonable rates, then we will be self-insured for all or
a part of the exposure for damages caused by a hurricane impacting South
Florida, which may have a material adverse effect upon our financial condition
and/or results of operations.
Inability to Attract and Retain Customers Could Affect Results of Operations
----------------------------------------------------------------------------
We take pride in our ability to attract and retain customers, however,
if we do not deliver an enjoyable dining experience for our customers, they may
not return and results may be negatively affected.
22
We May Face Liability Under Dram Shop Statutes
----------------------------------------------
Our sale of alcoholic beverages subjects us to "dram shop" statutes.
These statutes allow an injured person to recover damages from an establishment
that served alcoholic beverages to an intoxicated person. If we receive a
judgment substantially in excess of our insurance coverage, or if we fail to
maintain our insurance coverage, our business, financial condition, operating
results or cash flows could be materially and adversely affected. We currently
have no "dram shop" claims. See "Item 1. Business--Government Regulation" for a
discussion of the regulations with which we must comply.
We May Face Instances of Food Borne Illness
-------------------------------------------
Recently, several nationally known restaurants experienced outbreaks of
food poisoning believed to be caused by E.coli contained in fresh spinach, which
is not included in any of the items on our menu. In years past, Asian and
European countries experienced outbreaks of avian flu. Incidents of "mad cow"
disease have occurred in Canadian and U.S. cattle herds. These problems, other
food-borne illnesses (such as, hepatitis A, trichinosis or salmonella) and
injuries caused by food tampering have in the past, and could in the future,
adversely affect the price and availability of affected ingredients and cause
changes in consumer preference. As a result, our sales could decline.
Instances of food-borne illnesses, real or perceived, whether at our
restaurants or those of our competitors, could also result in negative publicity
about us or the restaurant industry, which could adversely affect sales. If we
react to negative publicity by changing our menu or other key aspects of the
dining experience we offer, we may lose customers who do not accept those
changes and may not be able to attract enough new customers to produce the
revenue needed to make our restaurants profitable. If our guests become ill from
food-borne illnesses, we could be forced to temporarily close some restaurants.
A decrease in guest traffic as a result of health concerns or negative
publicity, or as a result of a change in our menu or dining experience or a
temporary closure of any of our restaurants, could materially harm our business.
We Face Competition in the Restaurant and Liquor Industries, and If We are
Unable to Compete Effectively, Our Business and Financial Performance will be
Adversely Affected
--------------------------------------------------------------------------------
The restaurant and liquor industries are intensely competitive and are
affected by changes in customer tastes, dietary habits and by economic and
demographic trends. New menu items, concepts and trends are constantly emerging.
We compete on quality, variety, value, service, price and location. If we are
unable to compete effectively, our business, financial condition and results of
operations will be materially adversely affected.
23
Item 2. Properties
------------------
Our operations are conducted primarily on leased property with the
exception of (i) our corporate headquarters, which is conducted in an office
building and the land upon which it is built, which we purchased in December,
1999 and have occupied since April 2001; and (ii) our combination restaurant and
package liquor store in Hallandale, Florida which operates in a building and the
land upon which it is built, which we purchased in July, 2006.
All of our units require periodic refurbishing in order to remain
competitive. We have budgeted $375,000 for our refurbishing program for fiscal
year 2008. See Item 7, "Liquidity and Capital Resources" for discussion of the
amounts spent in fiscal year 2007.
The following table summarizes information related to the properties
upon which our operations are conducted:
Square Franchised/
Name and Location Footage Seats Owned by Lease Terms
----------------- ------- ----- -------- -----------
Big Daddy's Liquors #4 1,978 N/A Company 3/1/02 to 2/28/27
Flanigan's Enterprises and Options to
Inc. (6) 2/28/47
7003 Taft Street
Hollywood, FL
Big Daddy's Liquors #7 1,450 N/A Company 11/1/00 to 10/31/08
Flanigan's Enterprises and Annual Options
Inc. to 10/31/15
1550 W. 84th Street
Hialeah, FL
Big Daddy's Liquors #8 1,942 N/A Company 5/1/99 to 4/30/14
Flanigan's Enterprises
Inc.
959 State Road 84
Fort Lauderdale, FL
Flanigan's Seafood 4,300 130 Company 10/1/71 to 12/31/09
Bar and Grill #9 New lease 1/1/10
Flanigan's Enterprises to 12/31/14
Inc. Options to
1550 W. 84th Street 12/31/24
Hialeah, FL
Flanigan's Legends 5,000 150 Franchise 1/4/00 to 1/3/20
Seafood Bar and Grill Option to 1/3/25
#11, 11 Corporation (1)
330 Southern Blvd.
W. Palm Beach, FL
24
Square Franchised/
Name and Location Footage Seats Owned by Lease Terms
----------------- ------- ----- -------- -----------
Flanigan's Legends 5,000 180 Company 11/15/92 to
Seafood Bar and Grill 11/15/08
#12 Galeon Tavern, Inc.(11) Options to
2401 Tenth Ave. North 11/15/14
Lake Worth, FL
Flanigan's Seafood 3,320 90 Franchise 6/1/79 to 6/1/09
Bar and Grill #14, Options to 6/1/19
Big Daddy's #14, Inc. (1)(2)(5)
2041 NE Second St.
Deerfield Beach, FL
Piranha Pats II-#15 4,000 90 Franchise/ 3/2/76 to 8/31/11
CIC Investors #15 Ltd.(1)(2) Limited
1479 E. Commercial Blvd. Partnership
Ft. Lauderdale, FL
Flanigan's Seafood 4,300 100 Franchise 2/15/72 to 12/31/10
Bar and Grill #18 Options to
Twenty Seven Birds 12/31/20
Corp. (1)(2)
2721 Bird Avenue
Miami, FL
Flanigan's Seafood 4,500 160 Company 3/1/72 to 12/31/10
Bar and Grill #19 Options to 12/31/20
Flanigan's Enterprises
Inc.
2505 N. University Dr.
Hollywood, FL
Flanigan's Seafood 5,100 140 Company 7/15/68 to 12/31/08
Bar and Grill #20 Annual options
Flanigan's Enterprises until the Company
Inc. fails to exercise
13205 Biscayne Blvd. Additional Lease
North Miami, FL 5/1/69 to 12/31/08
Annual options
until the Company
fails to exercise
Flanigan's Seafood 4,100 200 Company 12/16/68 to
Bar and Grill #22 12/31/10
Flanigan's Enterprises Options to 12/31/20
Inc. Option to purchase
2600 W. Davie Blvd.
Ft. Lauderdale, FL
25
Square Franchised/
Name and Location Footage Seats Owned by Lease Terms
----------------- ------- ----- -------- -----------
Flanigan's Seafood 4,600 150 Company Company Owned
Bar and Grill #31
Flanigan's Enterprises
Inc. (7)
4 N. Federal Highway
Hallandale, FL
Flanigan's Guppy's 4,620 130 Franchise 11/1/03 to 4/30/11
Seafood Bar and Grill #33
Guppies, Inc. (1)(2)
45 S. Federal Highway
Boca Raton, FL
Big Daddy's Liquors 3,000 N/A Company 5/29/97 to 5/28/12
#34, Flanigan's Option to 5/28/17
Enterprises, Inc.
9494 Harding Ave.
Surfside, FL
Flanigan's Seafood 4,600 140 Company 4/1/71 to 12/31/10
Bar and Grill #40 Options to 12/31/15
Flanigan's Enterprises
Inc.
5450 N. State Road 7
N. Lauderdale, FL
Piranha Pat's #43 4,500 90 Franchise 12/1/72 to 11/30/12
BD 43 Corporation (1)(2) Option to 11/30/22
2500 E. Atlantic Blvd.
Pompano Beach, FL
Big Daddy's Liquors 6,000 N/A Company 12/21/68 to 1/1/10
#47, Flanigan's Options to 1/1/50
Enterprises, Inc. (3)
8600 Biscayne Blvd.
Miami, FL
Flanigan's Seafood 8,000 200 Limited 06/01/91 to 5/31/11
Bar and Grill #13, Partnership Options to 5/31/21
CIC Investors #13, Ltd
11415 S. Dixie Highway
Pinecrest, FL
Flanigan's Seafood 4,000 200 Limited 10/24/06 to 10/23/11
Bar and Grill #50, Partnership Options to 10/23/26
CIC investors #50,
Ltd.(8)
17185 Pines Boulevard
Pembroke Pines, FL
26
Square Franchised/
Name and Location Footage Seats Owned by Lease Terms
----------------- ------- ----- -------- -----------
Flanigan's Seafood 5,900 200 Limited 1/5/07 to 12/31/21
Bar and Grill #55, Partnership Options to 12/31/31
CIC Investors #55, Ltd.(9)
2190 S. University Drive
Davie, Florida
Flanigan's Seafood 6,800 200 Limited 8/1/97 to 12/31/11
Bar and Grill #60, Partnership
CIC Investors #60 Ltd.
9516 Harding Avenue
Surfside, FL
Flanigan's Seafood 6,128 200 Limited 4/01/05 to 3/31/15
Bar and Grill #65 Partnership Options to 3/31/25
CIC Investors #65, Ltd
2335 State Road 7,Suite 100
Wellington, FL
Flanigan's Seafood 4,850 161 Limited 4/1/98 to 4/30/10
Bar and Grill #70 Partnership Options to 4/30/30
CIC Investors #70 Ltd.
12790 SW 88 St
Kendall, FL
Flanigan's Seafood 7,000 200 Limited 10/1/03 to 9/30/09
Bar and Grill #75 Partnership Options to 9/30/27
CIC Investors # 75 Ltd.
950 S. Federal Highway
Stuart, FL 34994
Flanigan's Seafood 5,000 165 Limited 6/15/01 to 12/14/19
Bar and Grill #80 Partnership Options to 12/14/39
CIC Investors #80 Ltd.
8695 N.W. 12th St
Miami, FL
Flanigan's Seafood 5,700 235 Limited 7/29/01 to 7/28/17
Bar and Grill #95 Partnership Options to 7/28/32
CIC Investors #95 Ltd.
2460 Weston Road
Weston, FL
Mardi Gras 10,000 400 Company 4/30/06 to 4/30/16
Flanigan's Enterprises, Option to 4/30/26
Inc., #600 (4)(10)
Powers Ferry Landing
Atlanta, GA
(1) Franchised by Company.
(2) Lease assigned to franchisee.
27
(3) We own 48% of the underlying leasehold from the unaffiliated third
parties to whom the lease had been assigned and subleased back.
(4) Location managed by an unaffiliated third party.
(5) Effective December 1, 1998, we purchased the Management Agreement to
operate the franchised restaurant for the franchisee.
(6) Ground lease executed by us on September 25, 2001. We constructed a
building of 4,120 square feet, 1,978 square feet is used by us for the
operation of a package liquor store and the other 2,142 square feet is
subleased as retail space. The package liquor store opened for business
on November 17, 2003.
(7) During the fourth quarter of our fiscal year 2006, we purchased the
real property and an assignment of a ground lease of this location
pursuant to an option to purchase contained in the Sublease Agreement.
During the first quarter of our fiscal year 2007, we purchased the real
property subject to the ground lease.
(8) Restaurant opened for business on October 29, 2007.
(9) Restaurant estimated to open for business during the third quarter of
our fiscal year 2008.
(10) During the third quarter of our fiscal year 2006, our lease for this
location expired. The unaffiliated third party entered into a new lease
for the business premises effective May 1, 2006 and as of that date, we
no longer have responsibility to pay any amounts under the lease.
(11) Effective March 4, 2007, we purchased the assets of the franchised
restaurant from our franchisee.
During the first quarter of our fiscal year 2007, we purchased the real
property and building where our combination restaurant and package liquor store
located at 4 North Federal Highway, Hallandale, Florida (Store #31) operates. We
paid $552,500 for the real property, which was partially financed with an
advance of $250,000 on the mortgage procured by us during the fourth quarter of
our fiscal year 2006 to purchase the limited liability company which owns the
real property and the ground lease at this location, thereby raising the
principal balance on such mortgage to $3,530,000. The mortgage amount bears
interest at the rate of seven and one-half (7 1/2%) percent per annum, is
amortized over twenty years with equal monthly payments of principal and
interest, each in the amount of $28,600 with the entire principal balance and
all accrued interest due in August 2013.
During the third quarter of our fiscal year 2007, we purchased the real
property located adjacent to the parking lot of our combination restaurant and
package liquor store located at 4 North Federal Highway, Hallandale, Florida,
(Store #31). A residence, consisting of approximately 1,200 square feet, is
located upon the property and was leased to an unaffiliated third party who
vacated the residence during the fourth quarter of our fiscal year 2007. We paid
$600,000 for this property, $450,000 of which we borrowed from an unaffiliated
third party first mortgagee. The mortgage amount bears interest at the rate of
ten (10%) percent per annum, is amortized over thirty (30) years with equal
monthly payments of principal and interest, each in the
28
amount of $3,949, with the entire principal balance and all accrued interest due
in April 2017.
During the third quarter of our fiscal year 2007, we sold the real
property located at 732 - 734 N.E. 125th Street, North Miami, Florida (Store
#27) and our rights under the liquor license for that location to the sublessee,
an unaffiliated third party for $780,000. We purchased this real property during
the first quarter of our fiscal year 2007 for a purchase price of $250,000 and
realized a gain of $393,000 from the sale.
Item 3. Legal Proceedings.
--------------------------
From time to time, we are a defendant in litigation arising in the
ordinary course of our business, including claims resulting from "slip and fall"
accidents, claims under federal and state laws governing access to public
accommodations, employment-related claims and claims from guests alleging
illness, injury or other food quality, health or operational concerns. To date,
none of this litigation, some of which is covered by insurance, has had a
material effect on us.
We own the building where our corporate offices are located. On April
16, 2001, we filed suit against the owner of the adjacent shopping center to
determine our right to non-exclusive parking in the shopping center. During the
second quarter of our fiscal year 2007, the appellate court affirmed the
granting of a summary judgment in favor of the shopping center. During the third
quarter of our fiscal year 2007, the appellate court, upon re-hearing, again
affirmed the granting of a summary judgment in favor of the shopping center. The
seller from whom we purchased the real estate was named as a defendant in the
lawsuit and is currently asserting a claim against us for reimbursement of its
attorneys' fees and costs resulting from the litigation.
During the first quarter of our fiscal year 2007, we and the limited
partnership which owns the restaurant in Pinecrest, Florida filed suit against
the limited partnership's landlord. We are the sole general partner and a 39%
limited partner in this limited partnership. We are seeking to recover the cost
of structural repairs to the business premises we paid, as we believe these
structural repairs were the landlord's responsibility under the lease. The
lawsuit, in addition to attempting to recover the amounts expended by us for
structural repairs is also attempting to recover the rent paid by the limited
partnership while the repairs were occurring. The claim also includes a request
by the limited partnership for the court to determine if the limited partnership
has the exclusive right to the use of the pylon sign in front of the business
premises. The landlord filed its answer to the complaint denying liability for
structural repairs to the business premises, denying any obligation to reimburse
the limited partnership for any rent paid while structural repairs occurred and
denying the limited partnership's right to use the pylon sign. The lawsuit is in
the discovery stage.
Item 4. Submission of Matters to a Vote of Security Holders.
------------------------------------------------------------
None.
29
PART II
-------
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
--------------------------------------------------------------------------------
Our common stock is traded on the American Stock Exchange under the
symbol "BDL". As of the close of business on December 26, 2007, there were
approximately 351 holders of record of our common stock. The following table
sets forth the high and low sales price of a share of our common stock for each
quarter in our fiscal years 2007 and 2006 as reported by the American Stock
Exchange:
Fiscal 2007 Fiscal 2006
----------- -----------
High Low High Low
---- --- ---- ---
First quarter 11.75 8.91 10.55 9.38
Second quarter 12.30 10.28 10.40 9.09
Third quarter 12.00 10.17 11.29 9.45
Fourth quarter 11.30 8.65 12.30 7.86
On December 9, 2004, we declared a cash dividend of 32 cents per share
payable on January 28, 2005 to shareholders of record on January 14, 2005.
On January 13, 2006, we declared a cash dividend of 35 cents per share
payable on February 15, 2006 to shareholders of record on January 31, 2006.
We have recently determined that we must retain any earnings for the
development and operation of our business and accordingly, we do not intend to
pay any cash dividends in the foreseeable future.
Information regarding our equity compensation plan(s) is set forth
under page F-27 of this report.
Item 6. Selected Financial Data.
The following table sets forth selected historical financial data as of
and for our fiscal years 2007, 2006, 2005, 2004 and 2003 that has been derived
from, and is qualified by reference to, our audited consolidated financial
statements. The information set forth below should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and related notes thereto
included elsewhere in this report.
30
(In thousands - except EPS)
---------------------------
-------------------------------------------------------------------------
2007 2006 2005 2004 2003
-------------------------------------------------------------------------
Statement of Operations Data
-------------------------------------------------------------------------
Revenue $61,101 $55,014 $49,032 $45,933 $40,253
-------------------------------------------------------------------------
Income from Operations
$ 2,100 $ 1,638 $ 2,045 $ 1,273 $ 2,024
-------------------------------------------------------------------------
Net income $ 1,267 $ 1,250 $ 1,107 $ 440 $ 888
-------------------------------------------------------------------------
Earnings per $ 0.67 $ 0.66 $ 0.58 $ 0.23 $ 0.46
share (basic)
-------------------------------------------------------------------------
Balance Sheet Data
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets $30,337 $27,398 $21,099 $19,774 $18,733
-------------------------------------------------------------------------
Long term liabilities
$ 6,080 $ 5,181 $ 1,557 $ 1,217 $ 1,314
-------------------------------------------------------------------------
Net working capital
$ 1,755 $ 1,396 $ 2,137 $ 2,131 $ 2,093
-------------------------------------------------------------------------
Stockholders' equity
$12,084 $10,792 $10,273 $10,101 $10,351
-------------------------------------------------------------------------
Dividends declared
$ 0 $ 658 $ 609 $ 581 $ 520
-------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
--------------------------------------------------------------------------------
Except for the historical information contained herein, the following
discussion contains forward-looking statements that are subject to known and
unknown risks, uncertainties and other factors that may cause our actual results
to differ materially from those expressed or implied by such forward-looking
statements. We discuss such risks, uncertainties and other factors throughout
this report and specifically under the captions Risk Factors. In addition, the
following discussion and analysis should be read in conjunction with the 2007
Consolidated Financial Statements and the related Notes to the Consolidated
Financial Statements included elsewhere in this report.
Overview
---------
Financial Information Concerning Industry Segments
--------------------------------------------------
Our business is conducted principally in two segments: the restaurant
segment and the package liquor store segment. Financial information broken into
these two principal industry segments for the three fiscal years ended
31
September 29, 2007, September 30, 2006 and October 1, 2005 is set forth in the
consolidated financial statements which are attached hereto.
General
-------
At September 29, 2007, we (i) operate 21 units, (excluding the adult
entertainment club referenced in (ii) below), consisting of restaurants, package
liquor stores and combination restaurants/package liquor stores that we either
own or have operational control over and partial ownership in; (ii) own but do
not operate one adult entertainment club; and (iii) franchise an additional six
units, consisting of two restaurants, (one of which we operate) and four
combination restaurants/package liquor stores.
Franchised Units. In exchange for our providing management and related
services to our franchisees and granting them the right to use our service marks
"Flanigan's Seafood Bar and Grill" and "Big Daddy's Liquors", our franchisees
(five of which are franchised to members of the family of our Chairman of the
Board, officers and/or directors), are required to (i) pay to us a royalty equal
to 1% of gross package liquor sales and 3% of gross restaurant sales; and (ii)
make advertising expenditures equal to between 1.5% to 3% of all gross sales
based upon our actual advertising costs allocated between stores, prorata, based
upon gross sales.
Affiliated Limited Partnership Owned Units. We manage and control the
operations of the nine restaurants owned by limited partnerships, except the
Fort Lauderdale, Florida restaurant which is managed and controlled by a related
franchisee. Accordingly, the results of operations of all limited partnership
owned restaurants, except the Fort Lauderdale, Florida restaurant are
consolidated with our results of operations for accounting purposes. The results
of operations of the Fort Lauderdale, Florida restaurant are accounted for by us
utilizing the equity method.
Results of Operations
---------------------
REVENUES (in thousands):
-----------------------------------------------------------------------------
Fifty Two Fifty Two Fifty Two
Weeks Ended Weeks Ended Weeks Ended
Sept. 29, 2007 Sept. 30, 2006 Oct. 1, 2005
Sales
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Restaurant, food $38,047 63.8% $32,847 61.4% $29,219 61.3%
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Restaurant, bar 8,764 14.7% 7,610 14.2% 6,610 13.9%
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Package goods 12,784 21.5% 13,046 24.4% 11,810 24.8%
-----------------------------------------------------------------------------
32
Total Sales 59,595 100.0% 53,503 100.0% 47,639 100.0%
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Franchise revenues 1,134 1,114 984
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Owner's fee 203 224 261
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Other operating
income 169 173 148
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Total Revenues $61,101 $55,014 $49,032
-----------------------------------------------------------------------------
Comparison of Fiscal Years Ended September 29, 2007 and September 30, 2006
--------------------------------------------------------------------------
Revenues. Total revenue for our fiscal year 2007 increased by
$6,087,000 or 11.1% to $61,101,000 from $55,014,000 for fiscal year 2006.
Approximately $5,820,000 or 95.6% of this increase resulted from sales from two
restaurant locations (the Pinecrest, Florida limited partnership owned
restaurant ($4,802,000) and the Company owned Lake Worth, Florida restaurant
($1,018,000)). The Pinecrest, Florida restaurant opened for business on August
14, 2006 and the Lake Worth, Florida restaurant opened for business as a Company
owned restaurant on March 4, 2007. Prior to March 4, 2007, the Lake Worth,
Florida restaurant was franchised by the Company and owned by an unaffiliated
third party. To a lesser extent, increased revenue is attributable to increased
menu prices.
Restaurant Food Sales. Restaurant revenue generated from the sale of
food at restaurants totaled $38,047,000 for our fiscal year 2007 as compared to
$32,847,000 for our fiscal year 2006. The increase in restaurant food sales is
due to sales from the Pinecrest, Florida and Lake Worth, Florida restaurants.
Comparable weekly restaurant food sales (for restaurants open for all of our
fiscal year 2007 and our fiscal year 2006, which consists of six restaurants
owned by us and six restaurants owned by affiliated limited partnerships) was
$638,000 and $620,000 for our fiscal year 2007 and our fiscal year 2006,
respectively, an increase of 2.9%. Comparable weekly restaurant food sales for
Company owned restaurants only was $297,000 and $281,000 for our fiscal year
2007 and our fiscal year 2006, respectively, an increase of 5.7%. Comparable
weekly restaurant food sales for affiliated limited partnership owned
restaurants only was $341,000 and $339,000 for our fiscal year 2007 and our
fiscal year 2006, respectively, an increase of 0.59%. We anticipate that
restaurant food sales will continue to increase through our fiscal year 2008 due
to, among other things, the opening of the Pembroke Pines, Florida restaurant,
(owned by an affiliated limited partnership), during the first quarter of our
fiscal year 2008 and the
33
anticipated opening of the Davie, Florida restaurant, (owned by an affiliated
limited partnership), during the third quarter of our fiscal year 2008.
Restaurant Bar Sales. Restaurant revenue generated from the sale of
alcoholic beverages at restaurants totaled $8,764,000 for our fiscal year 2007
as compared to $7,610,000 for our fiscal year 2006. The increase in restaurant
bar sales is due to sales from the Pinecrest, Florida and Lake Worth, Florida
restaurants, as well as promotions introduced during our fiscal year 2005, which
continue to increase restaurant bar sales. Comparable restaurant bar sales (for
restaurants open for all of our fiscal year 2007 and our fiscal year 2006, which
consists of six restaurants owned by us and six restaurants owned by affiliated
limited partnerships) was $151,000 and $144,000 for our fiscal year 2007 and our
fiscal year 2006, respectively, an increase of 4.9%. Comparable weekly
restaurant bar sales for Company owned restaurants only was $66,000 and $62,000
for our fiscal year 2007 and our fiscal year 2006, respectively, an increase of
6.5%. Comparable weekly restaurant bar sales for affiliated limited partnership
owned restaurants only was $85,000 and $82,000 for our fiscal year 2007 and our
fiscal year 2006, respectively, an increase of 3.7%. We anticipate that
restaurant bar sales will continue to increase through our fiscal year 2008 due
to, among other things, the opening of the Pembroke Pines, Florida restaurant,
(owned by an affiliated limited partnership), during the first quarter of our
fiscal year 2008 and the anticipated opening of the Davie, Florida restaurant,
(owned by an affiliated limited partnership) during the third quarter of our
fiscal year 2008.
Package Liquor Store Sales. Revenue generated from sales of liquor and
related items at package liquor stores totaled $12,784,000 for our fiscal year
2007 as compared to $13,046,000 for our fiscal year 2006. The weekly average of
same store package liquor store sales, which now includes all nine (9) Company
owned package liquor stores, was $246,000 for our fiscal year 2007 as compared
to $251,000 for our fiscal year 2006, a decrease of 2.0%. The decrease was
primarily due to increased competition and package liquor store sales are
expected to decline through our fiscal year 2008. Increased competition has had
a greater adverse impact upon package liquor store sales during holidays when
customers routinely make larger volume purchases, which historically have been
more likely to occur during the first and second quarters of our fiscal year.
Operating Costs and Expenses. Operating costs and expenses, (consisting
of cost of merchandise sold, payroll and related costs, occupancy costs and
selling, general and administrative expenses), for our fiscal year 2007
increased $5,625,000 or 10.5% to $59,001,000 from $53,376,000 for our fiscal
year 2006. The increase was primarily due to expenses related to the opening of
the Pinecrest, Florida and Lake Worth, Florida restaurants and to a lesser
extent a general increase in food costs. We anticipate that our operating costs
and expenses will continue to increase through our fiscal year 2008 due to,
among other things, the opening of the Pembroke Pines, Florida restaurant during
the first quarter of our fiscal year 2008 and the expected opening of the Davie,
Florida restaurant during the third quarter of our fiscal year 2008. Operating
costs and expenses decreased slightly as a percentage of total sales to
approximately 96.6% in our fiscal year 2007 from 97.0% in our fiscal year 2006.
This decrease as a percentage of sales was primarily due to increased sales,
including menu price increases.
34
Gross Profit. Gross profit is calculated by subtracting the cost of
merchandise sold from sales.
Restaurant Food and Bar Sales. Gross profit for food and bar sales for
our fiscal year 2007 increased to $30,653,000 from $26,505,000 for our fiscal
year 2006. Our gross profit margin for restaurant food and bar sales (calculated
as gross profit reflected as a percentage of restaurant food and bar sales), was
65.5% for our fiscal year 2007 and our fiscal year 2006. The gross profit for
restaurant and bar sales for fiscal year 2007 remained substantially equal to
that of our fiscal year 2006 because overall increases in food costs were offset
by a decrease in the cost of ribs and menu price increases during our fiscal
year 2007.
Package Liquor Store Sales. Gross profit for package liquor store sales
for our fiscal year 2007 decreased to $3,584,000 from $3,734,000 for our fiscal
year 2006. Our gross profit margin (calculated as gross profit reflected as a
percentage of package liquor store sales) for package liquor store sales was
28.0% for our fiscal year 2007 and 28.6% for our fiscal year 2006. We anticipate
the gross profit margin for package liquor store sales to remain constant
through our fiscal year 2008.
Payroll and Related Costs. Payroll and related costs for our fiscal
year 2007 increased $1,231,000 or 7.7% to $17,293,000 from $16,062,000 for our
fiscal year 2006. This increase is attributable to the operation of the
Pinecrest, Florida and Lake Worth, Florida restaurants. We anticipate that our
payroll and related costs will continue to increase through our fiscal year 2008
due to, among other things, the opening of the Pembroke Pines, Florida
restaurant during the first quarter of our fiscal year 2008 and the expected
opening of the Davie, Florida restaurant during the third quarter of our fiscal
year 2008. Payroll and related costs as a percentage of total sales was 28.3% in
our fiscal year 2007 and 29.2% of total sales in our fiscal year 2006.
Occupancy Costs. Occupancy costs (consisting of rent, common area
maintenance, repairs, real property taxes and amortization of leasehold
purchases) for our fiscal year 2007 increased $533,000 or 16.0% to $3,867,000
from $3,334,000 for our fiscal year 2006. This increase is due to, (i) three
additional restaurant locations for a part of fiscal year 2007, (Pembroke Pines,
Florida - $125,000; Davie, Florida - $138,000; and Lake Worth, Florida -
$48,000) = $311,000; and (ii) increases in real property taxes and common area
maintenance, which generally includes a pro-rata share of property insurance for
units located within shopping centers. We anticipate that our occupancy costs
will continue to increase through our fiscal year 2008 due to rental payments
for the three additional restaurant locations, (Pembroke Pines, Florida, Davie,
Florida and Lake Worth, Florida).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (consisting of general corporate expenses, including but
not limited to advertising, insurance, professional costs, clerical and
administrative overhead) for our fiscal year 2007 increased $1,767,000 or 16.5%
to $12,483,000 from $10,716,000 for our fiscal year 2006. Selling, general and
administrative expenses increased as a percentage of total sales in our fiscal
year 2007 to approximately 20.4% as compared to 19.5% in our fiscal year 2006.
This increase is attributable to the operation of the Pinecrest, Florida and
Lake Worth, Florida restaurants and an overall
35
increase in expenses, including but not limited to property and windstorm
insurance coverage and utilities. We anticipate that our selling, general and
administrative expenses will continue to increase through our fiscal year 2008
due to, among other things, the opening of the Pembroke Pines, Florida
restaurant during the first quarter of our fiscal year 2008 and the expected
opening of the Davie, Florida restaurant during the third quarter of our fiscal
year 2008.
Depreciation. Depreciation for our fiscal year 2007 increased $255,000
or 15.1% to $1,949,000 from $1,694,000 for our fiscal year 2006. The increase in
depreciation expense was due primarily to the increase in capital expenditures
resulting from the refurbishing of two Company owned restaurants. As a
percentage of total sales, depreciation expense was relatively consistent over
both periods, representing 3.2% of revenue for our fiscal year 2007 and 3.1% of
revenue for our fiscal year 2006.
Other Income and Expense. Other income and expenses was an expense of
$35,000 for our fiscal year 2007 as compared to income of $674,000 for our
fiscal year 2006. Other income and expense for fiscal year 2007 includes a gain
of $393,000 from the sale of real property and an interest expense of $508,000,
as compared to an interest expense of $206,000 for our fiscal year 2006. The
increase in interest expense is primarily due to the interest paid on our line
of credit and mortgage used to purchase the Hallandale property. Other income
and expense for our fiscal year 2006 includes insurance recovery, net of
casualty loss, of $666,000.
Interest Expense. Interest expense for our fiscal year 2007 increased
$302,000 to $508,000 from $206,000 for our fiscal year 2006. This increase was
attributable to additional expenses incurred in connection with mortgages
acquired to purchase real property in Hallandale, Florida and additional
borrowings under our line of credit.
Net Income. Net income for our fiscal year 2007 increased $17,000 or
1.4% to $1,267,000 from $1,250,000 for our fiscal year 2006. As a percentage of
sales, net income for our fiscal year 2007 is 2.1%, as compared to 2.3% in our
fiscal year 2006. The decrease in net income as a percentage of sales (-0.2%) is
primarily due to higher food costs and overall expenses, including electric, gas
and real property taxes, property and windstorm insurance coverage and interest
expense due to our line of credit. Our net income during our fiscal year 2007
includes a gain of $393,000 from the sale of real property. Without giving
effect to the sale of the real property, we would have generated net income of
$1,007,000 for our fiscal year 2007. Our net income during our fiscal year 2006
includes a gain of $554,000 relating to replacement cost insurance proceeds in
excess of net book value of assets destroyed. Without giving effect to the
replacement cost insurance proceeds in excess of net book value of assets
destroyed, we would have generated net income of $876,000 for our fiscal year
2006. Our net income was affected during our fiscal year 2007 by higher food
costs and overall expenses, including electric, gas and real property taxes,
property and windstorm insurance coverage and interest expense due to the
mortgage on our Hallandale property and our line of credit.
36
Comparison of Fiscal Years Ended September 30, 2006 and October 1, 2005
-----------------------------------------------------------------------
Revenues. Total revenue for our fiscal year 2006 increased by
$5,982,000 or 12.2% to $55,014,000 from $49,032,000 for our fiscal year 2005.
Approximately $4,152,000 or 69.4% of this increase resulted from sales from two
restaurant locations (the Pinecrest, Florida limited partnership owned
restaurant opening during the fourth quarter of our fiscal year 2006 ($728,000)
and the Wellington, Florida limited partnership owned restaurant being open for
our entire fiscal year 2006 ($3,424,000)), increases in same store sales and to
a lesser extent, increased menu prices. The Pinecrest, Florida restaurant opened
for business on August 14, 2006.
Restaurant Food Sales. Restaurant revenue generated from the sale of
food totaled $32,847,000 for our fiscal year 2006 as compared to $29,219,000 for
our fiscal year 2005. The increase in restaurant food sales is due to sales from
the Pinecrest, Florida and Wellington, Florida restaurants. Comparable weekly
restaurant food sales (for restaurants open for all of fiscal year 2006 and
fiscal year 2005, which consists of six restaurants owned by us and five
restaurants owned by affiliated limited partnerships) was $502,000 and $476,000
for our fiscal year 2006 and our fiscal year 2005, respectively, an increase of
5.5%. Comparable weekly restaurant food sales for Company owned restaurants only
was $281,000 and $268,000 for our fiscal year 2006 and our fiscal year 2005,
respectively, an increase of 4.9%. Comparable weekly restaurant food sales for
affiliated limited partnership owned restaurants only was $221,000 and $208,000
for our fiscal year 2006 and our fiscal year 2005, respectively, an increase of
6.3%. The weekly average of same store restaurant food sales increased for our
fiscal year 2006 as compared to our fiscal year 2005 due to increased volume and
menu price increases.
Restaurant Bar Sales. Revenue generated from the sale of alcoholic
beverages at restaurants totaled $7,610,000 for our fiscal year 2006 as compared
to $6,610,000 for our fiscal year 2005. The increase in restaurant bar sales is
due to sales from the Pinecrest, Florida and Wellington, Florida restaurants.
Comparable restaurant bar sales (for restaurants open for all of our fiscal year
2006 and our fiscal year 2005, which consists of six restaurants owned by us and
five restaurants owned by affiliated limited partnerships) was $114,000 and
$106,000 for our fiscal year 2006 and our fiscal year 2005, respectively, an
increase of 7.5%. Comparable weekly restaurant bar sales for Company owned
restaurants only was $62,000 and $57,000 for our fiscal year 2006 and our fiscal
year 2005, respectively, an increase of 8.8%. Comparable weekly restaurant bar
sales for affiliated limited partnership owned restaurants only was $52,000 and
$49,000 for our fiscal year 2006 and our fiscal year 2005, respectively, an
increase of 6.1%. During our fiscal year 2006, we continued offering promotions
at the bars only, during limited hours, which promotions began during our fiscal
year 2005. With this promotion, the increase in the weekly average of same store
restaurant bar sales is expected to continue, but management is careful to
preserve and continue promoting our perception as a family restaurant.
Package Liquor Store Sales. Revenue generated from sales of liquor and
related items at package liquor stores totaled $13,046,000 for our fiscal year
2006 as compared to $11,810,000 for our fiscal year 2005. The weekly
37
average of same store package liquor store sales was $223,000 for our fiscal
year 2006 as compared to $192,000 for our fiscal year 2005, an increase of
16.1%. The increase was primarily due to increased volume.
Operating Costs and Expenses. Operating costs and expenses, (consisting
of cost of merchandise sold, payroll and related costs, occupancy costs and
selling, general and administrative expenses), for our fiscal year 2006
increased $6,389,000 or 13.6% to $53,376,000 from $46,987,000 for our fiscal
year 2005. The increase was primarily due to expenses related to the opening of
the Pinecrest, Florida restaurant during the fourth quarter of our fiscal year
2006, the Wellington, Florida restaurant being open for our entire fiscal year,
increased payroll and related costs, as well as a general increase in overall
expenses. Operating costs and expenses increased as a percentage of total sales
to approximately 97.0% in our fiscal year 2006 from 95.8% in our fiscal year
2005. This increase as a percentage of sales was primarily due to higher food
costs and overall expenses.
Gross Profit. Gross profit is calculated by subtracting the cost of
merchandise sold from sales.
Restaurant Food and Bar Sales. Gross profit for food and bar sales for
our fiscal year 2006 increased to $26,505,000 from $23,327,000 for our fiscal
year 2005. Our gross profit margin (calculated as gross profit reflected as a
percentage of sales), for restaurant food and bar sales increased to 65.5% for
our fiscal year 2006 compared to 65.1% for our fiscal year 2005. We offset
increased costs during our fiscal year 2006 with menu price increases, which
resulted in an increased gross profit margin for restaurant food and bar sales
when compared to our fiscal year 2005. Notwithstanding the increased gross
profit margin for restaurant food and bar sales during our fiscal year 2006,
during the fourth quarter of our fiscal year 2006 the gross profit margin for
restaurant food and bar sales was 64.1%, as compared to 66.0% for the fourth
quarter of our fiscal year 2005. The decline of 1.9% in gross profit margin
contributed to an operating loss of $135,000 for the fourth quarter of our
fiscal year 2006. Due to the decline in gross profit margin for restaurant food
and bar sales during the fourth quarter of our fiscal year 2006 and the
expectation that costs will continue increasing during our fiscal year 2007, we
instituted menu price increases during the first quarter of our fiscal year 2007
to restore and maintain our gross profit margin for restaurant food and bar
sales.
Package Store Sales. Gross profit for package store sales for our
fiscal year 2006 increased to $3,734,000 from $3,374,000 for our fiscal year
2005. Our gross profit margin (calculated as gross profit reflected as a
percentage of sales) for package store sales was 28.6% for our fiscal year 2006
and our fiscal year 2005.
Payroll and Related Costs. Payroll and related costs for our fiscal
year 2006 increased $2,426,000 or 17.8% to $16,062,000 from $13,636,000 for our
fiscal year 2005. This increase is attributable to the opening of the new
restaurant in Pinecrest, Florida during the fourth quarter of our fiscal 2006,
the impact of the Florida minimum wage which went into effect during the third
quarter of our fiscal year 2005 and further impacted by its first annual cost of
living increase effective January 1, 2006 and the restaurant in Wellington,
Florida being open for our entire fiscal year. Payroll and
38
related costs as a percentage of total sales was 29.2% in our fiscal year
2006 and 27.8% of total sales in our fiscal year 2005.
Occupancy Costs. Occupancy costs (consisting of rent, common area
maintenance, repairs, real property taxes and amortization of leasehold
purchases) for our fiscal year 2006 increased $358,000 or 12.0% to $3,334,000
from $2,976,000 for our fiscal year 2005. This increase is due to, (i) rental
payments at the Wellington, Florida restaurant for our entire fiscal year; (ii)
the amortization of the leasehold purchase for the Pinecrest, Florida location
($22,000); and (iii) increases in real property taxes and common area
maintenance, which generally includes a pro-rata share of property insurance for
units located within shopping centers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (consisting of general corporate expenses, including but
not limited to advertising, insurance, professional costs, clerical and
administrative overhead) for our fiscal year 2006 increased $1,279,000 or 13.6%
to $10,716,000 from $9,437,000 for our fiscal year 2005. Selling, general and
administrative expenses increased as a percentage of total sales in our fiscal
year 2006 to approximately 19.5% as compared to 19.2% in our fiscal year 2005.
This increase is attributable to the Pinecrest, Florida restaurant during the
fourth quarter of our fiscal year 2006, the operation of the Wellington, Florida
restaurant for our entire fiscal year 2006 and an overall increase in expenses,
including but not limited to property and windstorm insurance coverage and
utilities.
Depreciation. Depreciation for our fiscal year 2006 increased $274,000
or 19.3% to $1,694,000 from $1,420,000 for our fiscal year 2005. The increase in
depreciation expense was due primarily to the increase in capital expenditures
resulting from the refurbishing of two Company owned restaurants. As a
percentage of revenue, depreciation expense was relatively consistent over both
periods, representing 3.1% of revenue for our fiscal year 2006 and 2.9% of
revenue for our fiscal year 2005.
Other Income and Expense. Other income and expenses was income of
$674,000 for our fiscal year 2006 and $8,000 for our fiscal year 2005. Other
income and expense for our fiscal year 2006 includes insurance recovery, net of
casualty loss, of $666,000 which includes the deletion of the net book value of
property and equipment as a result of Hurricane Wilma ($64,000), repair of
damage ($138,000) and food waste ($61,000), caused by Hurricane Wilma, offset by
insurance recoveries of $929,000, ($979,000 less a $50,000 deductible), from our
insurance carrier.
Interest Expense. Interest expense for our fiscal year 2006 increased
$90,000 to $206,000 from $116,000 for our fiscal year 2005. This increase was
attributable to additional expenses incurred in connection with borrowings under
our line of credit.
Net Income. Net income for our fiscal year 2006 increased $143,000 or
12.9% to $1,250,000 from $1,107,000 for our fiscal year 2005. As a percentage of
sales, net income for both our fiscal year 2006 and our fiscal year 2005 is
2.3%. Our net income during our fiscal year 2006 includes a gain of $554,000
relating to replacement cost insurance proceeds in excess of net book value of
assets destroyed. Without giving effect to the replacement
39
cost insurance proceeds in excess of net book value of assets destroyed, we
would have generated net income of $876,000 for our fiscal year 2006. Net income
as a percentage of sales remained constant because increased sales, including
menu price increases, were offset by higher food costs and overall expenses,
including electric, gas and real property taxes, property and windstorm
insurance coverage and interest expense due to our line of credit.
New Limited Partnership Restaurants
-----------------------------------
The limited partnership owned restaurant located in Pembroke Pines,
Florida opened for business subsequent to the end of our fiscal year 2007
(October 29, 2007) and we anticipate that the limited partnership owned
restaurant located in Davie, Florida will open for business during the third
quarter of our fiscal year 2008. As new restaurants open, our income from
operations will be adversely affected due to our obligation to fund pre-opening
costs, including but not limited to pre-opening rent for the new locations.
During our fiscal year 2007, we recognized non-cash pre-opening rent in the
approximate amount of $18,000 and recognized cash pre-opening rent in the
approximate amount of $119,000 for the recently opened Pembroke Pines, Florida
restaurant. During our fiscal year 2007, we also paid and expensed pre-opening
rent in the approximate amount of $104,000 for the currently unopened Davie,
Florida restaurant, which is the full rent provided in the lease. During our
fiscal year 2006, we paid and expensed pre-opening rent for the Pinecrest,
Florida restaurant, in the approximate amount of $153,000, which was the full
rent provided in the lease. During our fiscal year 2005, we recognized non-cash
pre-opening rent, in the approximate amount of $136,000 and recognized cash
pre-opening rent in the approximate amount of $18,000 for the Wellington,
Florida restaurant. We are recognizing rent expense on a straight line basis
over the term of the lease.
Through our fiscal year 2008, income from operations will be adversely
affected by pre-opening costs, including but not limited to pre-opening rent, to
be incurred for the Pembroke Pines, Florida and Davie, Florida restaurants.
Management believes that the Company's current cash availability from its line
of credit and expected cash from operations will be sufficient to fund
operations and capital expenditures for at least the next twelve months.
During our fiscal year 2007, the limited partnership restaurants in
Pembroke Pines, Florida and Davie, Florida reported losses of $341,000 and
$174,000, respectively, primarily due to pre-opening costs, thus contributing to
a reduction in the operating income for our fiscal year 2007. During our fiscal
year 2006, the limited partnership restaurant in Pinecrest, Florida reported a
loss of $337,000 primarily due to pre-opening costs, thus contributing to a
reduction in the operating income for our fiscal year 2006. During our fiscal
year 2005, the limited partnership restaurant in Wellington, Florida reported a
loss of $416,000 primarily due to pre-opening costs, thus contributing to a
reduction in the operating income for our fiscal year 2005.
40
Trends
------
During the next twelve months, we expect continued increases in
restaurant sales due primarily to the restaurants in Lake Worth, Florida and
Pembroke Pines, Florida being open for the entire twelve month period and the
anticipated opening of the new restaurant in Davie, Florida. Same store
restaurant food and bar sales are expected to decline over the next twelve month
period, with decreases primarily in restaurants in Palm Beach County, Florida
and to a lesser extent in Broward County, Florida, offset partially by increases
in same store restaurant food and bar sales in Miami-Dade County, Florida, due
to our strong name recognition in that county. Package liquor store sales are
expected to decrease due primarily to increased competition. Management also
expects higher food costs and overall expenses to increase. In December, 2006,
we raised menu prices to offset the higher food costs and overall expenses. In
December 2007, we again raised menu prices to offset higher food costs and
overall expenses and will continue to do so whenever necessary and wherever
competitively possible.
We continue to search for new locations to open restaurants and thereby
expand our business, using our limited partnership ownership model.
We are not actively searching for locations for the operation of new
package liquor stores, but if an appropriate location for a package liquor store
becomes available, we will consider it.
Liquidity and Capital Resources
-------------------------------
Cash Flows
----------
-----------------------------------------------------------------------------
Fiscal Years
-----------------------------------------------------------------------------
2007 2006 2005
----------------------------------------------------------------------------
(in thousands)
-----------------------------------------------------------------------------
Net cash provided by
operating activities $2,138 $2,080 $2,664
-----------------------------------------------------------------------------
Net cash used in
investing activities (2,761) (3,594) (2,054)
-----------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 1,148 538 (872)
-----------------------------------------------------------------------------
Net increase (decrease)
in cash and equivalents 525 (976) (262)
-----------------------------------------------------------------------------
Cash and equivalents,
beginning of year 1,698 2,674 2,936
-----------------------------------------------------------------------------
Cash and equivalents,
end of year $2,223 $1,698 $2,674
-----------------------------------------------------------------------------
41
Liquidity and Capital Resources
-------------------------------
We fund our operations through cash from operations and borrowings from
our line of credit. As of September 29, 2007, we had cash of approximately
$2,223,000, an increase of $525,000 from our cash balance of $1,698,000 as of
September 30, 2006 and a decrease of $451,000 from our cash balance of October
1, 2005. The increase in cash as of September 29, 2007 was due primarily to our
sale for cash of real property resulting in $763,000 of net proceeds to us and
our receipt of approximately $300,000 as reimbursement of expenses we advanced
to the limited partnership which owns the recently opened restaurant in Pembroke
Pines, Florida.
Capital Expenditures
--------------------
In addition to using cash for our operating expenses, we use cash to
fund the development and construction of new restaurants and secondarily to fund
capitalized property improvement for our existing restaurants. We acquired
property and equipment of $4,886,000 (of which $700,000 was financed) during our
fiscal year 2007, which included $1,402,500 for the purchase of real property
and $615,000 for renovations to three (3) existing Company owned restaurants, as
compared to $7,721,000, (of which $3,350,000 was financed), during our fiscal
year 2006, which included $531,000 as a direct result of damages caused by
Hurricane Wilma and $601,000 for the acquisition of a subsidiary, and
$2,397,000, (of which $302,000 was financed), during our fiscal year 2005. The
additions to fixed assets during our fiscal year 2007 included most of the
renovations to the business premises of the Pembroke Pines, Florida restaurant
and the purchase of leasehold interests of our Lake Worth, Florida , Pembroke
Pines, Florida and Davie, Florida restaurants. The additions to fixed assets
during our fiscal year 2006 included most of the renovations to the business
premises of the Pinecrest, Florida restaurant and the purchase of a subsidiary
for $3,862,500, while the additions to fixed assets during our fiscal year 2005
included most of the renovations to the business premises of the Wellington,
Florida restaurant and the purchase of a vehicle for $302,000.
In addition, during our fiscal year 2007, we purchased leasehold
interests for the Pembroke Pines, Florida ($305,000), Davie, Florida ($650,000)
and Lake Worth, Florida ($45,000) locations, the cost of which is being
amortized as additional rent over the life of the lease. The purchase of the
leasehold interest for the Lake Worth, Florida location occurred as a part of
the purchase of the franchise restaurant.
All of our owned units require periodic refurbishing in order to remain
competitive. The cost of this refurbishment in our fiscal year 2007 was
$684,000. We anticipate the cost of this refurbishment in our fiscal year 2008
will be approximately $375,000, which funds will be provided from operations. In
addition, we also anticipate that during our fiscal year 2008, the limited
partnership which owns the Davie, Florida restaurant will require approximately
$3,225,000 in capital expenditures to complete its renovations and preparation
for opening as a "Flanigan's Seafood Bar and Grill" restaurant. The funds were
raised through a private offering which commenced during the fourth quarter of
our fiscal year 2007 and was completed subsequent to the end of our fiscal year
2007, raising the sum of $3,875,000, of which $1,850,000 represents our
investment in the same. We did not advance any funds to this limited partnership
in excess of our investment in the same.
42
Contractual Cash Obligations
----------------------------
Less Than 1-5 After
Total 1 Year Years 5 Years
------- ------- ------- -------
Long-term debt $ 6,080 $ 196 $ 1,676 $ 4,208
Operating leases 16,225 2,501 8,389 5,335
Rib Contract 3,200 3,200 -- --
------- ------- ------- -------
Total $25,505 $ 5,897 $10,065 $ 9,543
======= ======= ======= =======
The table also does not include any lease guarantees for franchisees.
Purchase Commitments
--------------------
In order to fix the cost and ensure adequate supply of baby back ribs
for our restaurants, effective November 20, 2007, we entered into a purchase
agreement with our rib supplier, whereby we agreed to purchase approximately
$3,200,000 of baby back ribs during calendar year 2008 from this vendor at a
fixed cost. While we anticipate purchasing all of our rib supply from this
vendor, we believe there are several other alternative vendors available, if
needed.
Purchase of Company Common Stock
--------------------------------
Pursuant to a discretionary plan approved by our Board of Directors,
during our fiscal year 2007 we purchased 3,332 shares of our common stock for an
aggregate purchase price of $36,000. Of the shares purchased, 2,500 shares were
purchased from August Bucci, our Chief Operating Officer and Director, in an off
the market private transaction, at an aggregate purchase price of $28,000, which
reflected an actual per share purchase price which was less than the closing per
share market price on the date of purchase. During our fiscal year 2006, we
purchased 14,350 shares of our common stock for an aggregate purchase price of
$139,000. Of the shares purchased, 7,500 shares were purchased from Mr. Bucci in
an off the market private transaction, at an aggregate purchase price of
$77,000, which reflected an actual per share purchase price which was less than
the closing per share market price on the date of each purchase.
Long Term Debt
--------------
As of the end of our fiscal year 2007, we had long term debt,
(including our line of credit), of $6,080,000, as compared to $5,181,000 and
$1,557,000 as of the end of our fiscal year 2006 and our fiscal year 2005,
respectively. The net increase in long term debt as of the end of our fiscal
year 2007 is attributed to the following:
(i) our April 2007 borrowing in exchange for a mortgage note in the
principal amount of $450,000 from an unaffiliated third party lender in
connection with our purchase of the real property located adjacent to the
parking lot of our combination restaurant and package liquor store located at 4
North Federal Highway, Hallandale, Florida. Our repayment obligations
43
under this mortgage note are secured by a first mortgage on the real property
purchased. The mortgage note bears interest at the rate of ten (10%) percent per
annum, is amortized over thirty (30) years with equal monthly payments of
principal and interest, each in the amount of $3,949, with the entire principal
balance and all accrued interest due in ten (10) years;
(ii) our December 2006 borrowing of $250,000 as an advance on the
mortgage note procured by us to purchase the membership interest of the limited
liability company which owns the real property and ground lease at our
combination restaurant and package liquor store located at 4 N. Federal Highway,
Hallandale, Florida (Store #31). The mortgage bears interest at the rate of
seven and one-half (7 1/2%) percent per annum, is amortized over twenty (20)
years with equal monthly payments of principal and interest, each in the amount
of $28,600, with the entire principal balance and all accrued interest due on
its original maturity date in seven (7) years; and
(iii) our December 2006 borrowing in the principal amount of $1.0
million, in exchange for a mortgage note we delivered in connection with our
re-financing an existing mortgage note encumbering the real property upon which
our corporate offices are located. The mortgage bears interest at the rate of
7.25% per annum, is amortized over twenty (20) years with equal monthly payments
of principal and interest, each in the amount of $8,000, with the entire
principal balance and all accrued interest due in seven (7) years. We incurred a
pre-payment expense of $17,000 when we re-financed.
As of the end of our fiscal year 2007, the amount outstanding under our
line of credit from an unaffiliated financial institution was $962,000. During
our fiscal year 2007, we increased our line of credit from $2,000,000 to
$2,650,000. The outstanding balance on our line of credit bears interest at
prime rate, with monthly payments of interest only and the unpaid principal
balance and all accrued interest due in full on December 26, 2008. We granted
our lender a second mortgage on our corporate offices as additional collateral,
(in addition to a security interest in substantially all of our assets which
continue to be collateral to secure our repayment obligations under our credit
line), for the increase in the line of credit ($650,000).
We repaid long term debt, including auto loans and mortgages in the
amount of $213,000, $489,000 and $309,000 in our fiscal years 2007, 2006 and
2005 respectively.
We also repaid our line of credit in the amount of $1,000,000 and $-0-
in our fiscal years 2006 and 2005 respectively. Subsequent to the end of our
fiscal year 2007, we borrowed $600,000 on our line of credit to pay the balance
of the purchase price for our limited partnership units in the limited
partnership which owns the Davie, Florida location.
Working capital
---------------
The table below summarizes our current assets, current liabilities and
working capital for our fiscal years 2007, 2006 and 2005:
44
Sept. 29 Sept. 30 Oct. 1
(in thousands) 2007 2006 2005
Current assets $6,322 $6,315 $6,091
Current liabilities 4,567 4,919 3,954
Working capital 1,755 1,396 2,137
Working capital as of September 29, 2007 increased by $359,000 or 25.7%
from working capital as of September 30, 2006 and decreased by $382,000 or 17.9%
from working capital as of October 1, 2005. Our working capital improved during
our fiscal year 2007 when the limited partnership which owns the Pembroke Pines,
Florida restaurant completed its private offering, raising the sum of
$2,350,000. The funds from the private offering were used to reimburse us
$300,000 for advances we made to the limited partnership for pre-opening
expenses in excess of out investment in the same, to complete the renovations to
the business premises for operation of a "Flanigan's Seafood Bar and Grill"
restaurant and provide working capital. In addition, during our fiscal year
2007, we sold the real property located at 732 - 734 N.E. 125th Street, North
Miami, Florida for $780,000, which further improved our working capital. On the
other hand, our working capital during our fiscal year 2007 was adversely
affected by advances made by us to the limited partnership owning the Davie,
Florida location, ($1,085,000), all of which ultimately became a part of our
investment in the same subsequent to the end of our fiscal year 2007.
Working capital as of September 30, 2006, which was supplemented by a
draw of $762,000 against our line of credit, was adversely affected by the
purchase of the management agreement to operate the restaurant in Deerfield
Beach, Florida ($500,000); investment in the limited partnership which owns the
restaurant in Pinecrest, Florida ($1,295,000); and the purchase of the
membership interest of the limited liability company which owns the real
property and ground lease to a small portion of property of our combination
restaurant and package liquor store located at 4 N. Federal Highway, Hallandale,
Florida. During our fiscal year 2006, the limited partnership which owns the
Pinecrest, Florida restaurant completed its private offering, raising the sum of
$3,300,000. The funds from the private offering were used to reimburse us for
advances made to the limited partnership in excess of our investment in the
same, ($1,506,000), to complete the renovations to the business premises for
operation of a "Flanigan's Seafood Bar and Grill" restaurant and provide working
capital.
Working capital as of October 1, 2005 was adversely affected by our
investment in the limited partnership which owns the restaurant in Wellington,
Florida. During our fiscal year 2005, the limited partnership completed its
private offering, raising the sum of $1,850,000. The funds from the private
offering were used to complete the renovations to the business premises for
operation of a "Flanigan's Seafood Bar and Grill" restaurant and provide working
capital.
We believe that positive cash flow from operations will adequately fund
operations and debt reductions, but not all of the planned capital expenditures
in our fiscal year 2008, which will have to be supplemented
45
through future advances on our line of credit. We also anticipate that during
our fiscal year 2008, working capital will be affected by our investment in the
limited partnership which owns the restaurant in Davie, Florida and payment of
the balance for the purchase of a new point of sale system for our package
liquor stores (approximately $310,000), once we execute a contract for the same.
Off-Balance Sheet Arrangements
------------------------------
We had no off-balance sheet arrangements as of the end of our fiscal
year 2007, our fiscal year 2006 or our fiscal year 2005.
Critical Accounting Policies
----------------------------
Our significant accounting policies are more fully described in Note 1
to our consolidated financial statements located in Item 8 of this 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. We believe that
the following critical accounting policies are subject to estimates and
judgments used in the preparation of our consolidated financial statements:
Estimated Useful Lives of Property and Equipment
------------------------------------------------
The estimate of useful lives for property and equipment are significant
estimates. Expenditures for leasehold improvements and equipment when a
restaurant is first constructed are material. In addition, periodic refurbishing
takes place and those expenditures can be material. We estimate 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.
Consolidation of Limited Partnerships
-------------------------------------
As of September 29, 2007, we operate seven (7) restaurants as general
partner of the limited partnerships that own the operations of these
restaurants, excluding the Pembroke Pines, Florida and Davie, Florida limited
partnership restaurants. Additionally, we expect that any expansion which takes
place in opening new restaurants will also result in us operating the
restaurants as general partner. In addition to the general partnership interest
we also purchase limited partnership units ranging from 12% to 42% of the total
units outstanding. As a result of these controlling interests, we consolidate
the
46
operations of these limited partnerships with ours despite the fact that we do
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
limited partnerships are removed from net income and are not included in the
calculation of earnings per share.
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 and tip credit carryforwards to the extent that
realization of said benefits is more likely than not. For discussion regarding
our carryforwards refer to Note 8 of the consolidated financial statements for
our fiscal year 2007.
Other Matters
-------------
Impact of Inflation
--------------------
The primary inflationary factors affecting our operations are food,
beverage and labor costs. A large number of restaurant personnel are paid at
rates based upon applicable minimum wage and increases in minimum wage directly
affect labor costs. During the past three of our fiscal years, inflation has not
had a material impact on our operating results. To the extent permitted by
competition, we recover increased costs by increasing prices.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
We do not ordinarily hold market risk sensitive instruments for trading
purposes. As of September 29, 2007 and September 30, 2006, we held no equity
securities. During the fourth quarter of our fiscal year 2006, we sold the one
equity security which we held as of October 1, 2005, realizing a gain of
$78,000.
Interest Rate Risk
------------------
At September 29, 2007, borrowings under our line of credit bear
interest at a variable annual rate equal to the prime rate of interest.
Increases in interest rates may have a material affect upon results of
47
operations, depending upon the outstanding principal balance on our line of
credit from time to time.
At September 29, 2007, our cash resources earn interest at variable
rates. Accordingly, our return on these funds is affected by fluctuations in
interest rates
There is no assurance that interest rates will increase or decrease
over our next fiscal year.
Item 8. Financial Statements and Supplementary Data.
---------------------------------------------------
Our Financial Statements and supplementary data are on pages F-1
through F-31.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures.
--------------------------------------------------------------------------------
None.
Item 9A. Controls and Procedures.
---------------------------------
(a) Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have, with the
participation of management evaluated the effectiveness of the design and
operation of the Company's "disclosure controls and procedures" (as defined in
the Securities Exchange Act of 1934 ("Exchange Act") Rule 13a-15(e) or
15d-15(e)) as of September 29, 2007. It is the conclusion of our Chief Executive
Officer and Chief Financial Officer that such disclosure controls and procedures
operate such that important information flows to appropriate collection and
disclosure points in a timely manner and are effective in ensuring that material
information is accumulated and communicated to management and made known to the
Chief Executive Officer and Chief Financial Officer particularly during the
period in which this report was prepared, as appropriate, to allow timely
decisions regarding timely disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any system of
controls and procedures, no matter how well designed and operated, is subject to
limitations, including the exercise of our judgment in evaluating the same. As a
result, there can be no assurance that our disclosure controls and procedures
will prevent all errors.
(b) Change in Internal Control over Financial Reporting
During our fiscal year 2007, we continued to assess the effectiveness
of our "internal controls over financial reporting" on an account by account
basis as a part of our on-going accounting and financial reporting review
process. The assessments were made by management, under the supervision of our
Chief Financial Officer, and reported to the Audit Committee of the Board of
Directors.
During our fiscal year 2007, management significantly expanded
procedures to remediate one material weakness in our internal control over
financial reporting which existed as of September 30, 2006, namely the
accounting for officers' bonuses, specifically with respect to the posting of
interim payments against officers' bonuses which directly relate to accruals of
the same. The expanded procedures include the following:
48
o posting of interim payments of officers' bonuses against
accruals of officers' bonuses directly from payroll;
o establish a separate accrued officers' bonus liability
account in lieu of the general accrued payroll account;
o payment of officers' bonuses by written memorandum, thereby
creating a paper trail for reconciliation purposes; and
o additional post-closing procedure for the reporting period,
including a reconciliation of the accrued officers' bonus
liability account, officers' bonus payroll expense account and
interim or final payments of officers' bonuses.
With the exception of the changes to the accounting of officers'
bonuses discussed above, we made no changes in our internal control over
financial reporting during our fiscal year 2007 that materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. Notwithstanding, the effectiveness of our system of internal control
over financial reporting is subject to limitations, including the exercise of
our judgment in evaluating the same. As a result, there can be no assurance that
our internal control over financial reporting will prevent all errors.
Item 9B. Other Information.
----------------------------
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
----------------------------------------------------------------
The information required by Item 10 is incorporated by reference to our
Proxy Statement for our 2008 Annual Meeting of Shareholders, which will be filed
with the Securities and Exchange Commission by January 27, 2008.
Item 11. Executive Compensation.
--------------------------------
The information required by Item 11 is incorporated by reference to our
Proxy Statement for our 2008 Annual Meeting of Shareholders, which will be filed
with the Securities and Exchange Commission by January 27, 2008.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters.
--------------------------------------------------------------------------------
The information required by Item 12 is incorporated by reference to our
Proxy Statement for our 2008 Annual Meeting of Shareholders, which will be filed
with the Securities and Exchange Commission by January 27, 2008.
49
Item 13. Certain Relationships and Related Transactions and Director
Independence.
--------------------------------------------------------------------------------
The information required by Item 13 is incorporated by reference to our
Proxy Statement for our 2008 Annual Meeting of Shareholders, which will be filed
with the Securities and Exchange Commission by January 27, 2008.
Item 14. Principal Accountant Fees and Services.
-------------------------------------------------
The information required by Item 14 is incorporated by reference to our
Proxy Statement for our 2008 Annual Meeting of Shareholders, which will be filed
with the Securities and Exchange Commission by January 27, 2008.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
----------------------------------------------------
(a)(1) Financial Statements
See Item 8, "Financial Statements and Supplementary Data" for Financial
Statements included with this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
The following financial statement schedules are filed as a part of this
report:
1. Financial Statements:
- Report of Independent Registered Public Accounting Firm
- Consolidated Balance Sheets as of September 29, 2007 and
September 30, 2006
- Consolidated Statements of Income for the years ended
September 29, 2007, September 30, 2006 and October 1, 2005
- Consolidated Statements of Stockholders' Equity for the
years ended September 29, 2007, September 30, 2006 and October
1, 2005
- Condolidated Statements of Cash Flows for the years ended
September 29, 2007, September 30, 2006 and October 1, 2005
- Notes to Consolidated Financial Statements
2. Financial Statements Schedule:
- Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because the required information
is not applicable or the information is included in the consolidated financial
statements or the Notes thereto.
2. Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as
part of this Annual Report.
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
50
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).
(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).
51
(10)(v) Limited Partnership Agreement of CIC Investors #60 Ltd., dated July 8,
1997, between Flanigan's Enterprises, Inc., as General Partner and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning forty percent of the limited partnership (Item 14 (a)(10)(v) of Form
10-KSB dated September 27, 1997 is incorporated herein by reference).
(10)(w) Stipulated Agreed Order of Dismissal upon Mediation with former
franchisee (Item 14 (a)(10)(w) of Form 10-KSB dated September 27, 1997 is
incorporated herein by reference).
(10)(x) Limited Partnership Agreement of CIC Investors #70, Ltd. dated February
1999 between Flanigan's Enterprises, Inc. as General Partner and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning forty percent of the limited partnership. (Item 14 (a) (10) (x) of Form
10-KSB dated October 2, 1999 is incorporated herein by reference)
(10)(y) Limited Partnership Agreement of CIC Investors #80, Ltd., dated May
2001, between Flanigan's Enterprises, Inc. as General Partner and numerous
limited partners, including Flanigan's Enterprises, Inc., as limited partner
owning twenty five percent of the limited partnership. (Item 14(a) (10)(y) of
Form 10-KSB dated September 29, 2001 is incorporated herein by reference.)
(10)(z) Limited Partnership Agreement of CIC Investors #95, Ltd., dated July
2001, between Flanigan's Enterprises, Inc., as General Partner and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning twenty eight percent of the limited partnership.(Item 14 (a) (10)(z) of
Form 10-KSB dated September 29, 2001 is incorporated herein by reference.)
(10)(aa) Limited Partnership Agreement of CIC Investors #75, Ltd., dated June
17, 2003, between Flanigan's Enterprises, Inc., as General Partner, and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning twelve percent of the limited partnership. (Item 14(a)(10)(aa) of Form
10-K dated September 27, 2003 is incorporated herein by reference.)
(10)(bb) Limited Partnership Agreement of CIC Investors #65, Ltd., dated June
24, 2004, between Flanigan's Enterprises, Inc., as General Partner, and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning twenty six percent of the limited partnership. (Item 14(a)(10)(bb) of
Form 10-K dated October 2, 2004 is incorporated herein by reference.)
(10)(cc) Amended and Restated Limited Partnership Certificate and Agreement of
CIC Investors #13, Ltd., dated March 1, 2006, between Flanigan's Enterprises,
Inc., as General Partner, Flanigan's Management services, Inc. and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning thirty nine percent of the limited partnership. (Item 14(a)(10)(cc) of
Form 10-K dated September 30, 2006 is incorporated herein by reference.)
(10)(dd) Limited Partnership Agreement of CIC Investors #50, Ltd., dated October
17, 2006, between Flanigan's Enterprises, Inc., as General Partner, Flanigan's
Management Services, Inc. and numerous limited partners, including Flanigan's
Enterprises, Inc. as limited partner owning sixteen percent of the limited
partnership.
(10)(ee) Limited Partnership Agreement of CIC Investors #55, Ltd., dated
December 12, 2006, between Flanigan's Enterprises, Inc., as General Partner,
Flanigan's Management Services, Inc. and numerous limited partners, including
52
Flanigan's Enterprises, Inc. as limited partner owning forty eight percent of
the limited partnership.
(13) Registrant's Form 10-K constitutes the Annual Report to Shareholders for
the fiscal year ended September 29, 2007.
(22)(a) Company's subsidiaries are set forth in this Annual Report on Form 10-K.
31.1 CERTIFICATION PURSUANT TO 302 OF SARBANES-OXLEY ACT OF 2002 OF CHIEF
EXECUTIVE OFFICER
31.2 CERTIFICATION PURSUANT TO 302 OF SARBANES-OXLEY ACT OF 2002 OF CHIEF
FINANCIAL OFFICER
32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Flanigan's Enterprises, Inc.
Registrant
By: /s/ JAMES G. FLANIGAN II
------------------------
JAMES G. FLANIGAN II
Chief Executive Officer
Date: 12/28/07
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.
/s/ JAMES G. FLANIGAN II Chairman of the Board, Date: 12/28/07
---------------------- Chief Executor Officer,
James G. Flanigan II and Director
/s/ JEFFREY D. KASTNER Chief Financial Officer Date: 12/28/07
---------------------- Secretary and Director
Jeffrey D. Kastner
/s/ MICHAEL ROBERTS Director Date: 12/28/07
----------------------
MICHAEL ROBERTS
53
/s/ GERMAINE M. BELL Director Date: 12/28/07
----------------------
Germaine M. Bell
/s/ BARBARA J. KRONK Director Date: 12/28/07
----------------------
Barbara J. Kronk
/s/ AUGIE BUCCI Chief Operating Officer Date: 12/28/07
---------------------- and Director
Augie Bucci
/s/ MICHAEL B. FLANIGAN Director Date: 12/28/07
----------------------
Michael B. Flanigan
/s/ PATRICK J. FLANIGAN Director Date: 12/28/07
-----------------------
Patrick J. Flanigan
/s/ CHRISTOPHER O'NEIL Director Date: 12/28/07
-----------------------
Christopher O'Neil
54
================================================================================
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 2007, SEPTEMBER 30, 2006 AND OCTOBER 1, 2005
================================================================================
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
PAGE
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Income F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-7 - F-32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
Board of Directors and Stockholders
Flanigan's Enterprises, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Flanigan's
Enterprises, Inc. and Subsidiaries as of September 29, 2007 and September 30,
2006 and the related consolidated statements of income, stockholders' equity and
cash flows for each of the years in the three-year period ended September 29,
2007. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Flanigan's Enterprises, Inc. and Subsidiaries as of September 29, 2007 and
September 30, 2006, and the consolidated results of their operations and their
cash flows for each of the years in the three-year period ended September 29,
2007 in conformity with accounting principles generally accepted in the United
States.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
December 27, 2007
F-1
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 2007 AND SEPTEMBER 30, 2006
ASSETS 2007 2006
------ ---- ----
Current Assets:
Cash and cash equivalents $ 2,223,000 $ 1,698,000
Notes and mortgages receivable, current maturities 14,000 12,000
Due from franchisees 735,000 569,000
Other receivables 137,000 821,000
Inventories 2,165,000 2,215,000
Prepaid expenses 840,000 813,000
Deferred tax assets 208,000 187,000
------------ ------------
Total current assets 6,322,000 6,315,000
------------ ------------
Property and Equipment, Net 19,410,000 17,967,000
------------ ------------
Investment in Limited Partnership 142,000 153,000
------------ ------------
Other Assets:
Liquor licenses, net 347,000 347,000
Notes and mortgages receivable 44,000 103,000
Deferred tax assets 492,000 397,000
Leasehold purchase 2,085,000 1,291,000
Other 1,495,000 825,000
------------ ------------
Total other assets 4,463,000 2,963,000
------------ ------------
Total assets $ 30,337,000 $ 27,398,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 3,666,000 $ 4,096,000
Income taxes payable 331,000 264,000
Due to franchisees 312,000 268,000
Current portion of long-term debt 196,000 223,000
Deferred revenues 45,000 54,000
Deferred rent 17,000 14,000
------------ ------------
Total current liabilities 4,567,000 4,919,000
------------ ------------
Long-Term Debt, Net of Current Maturities 4,922,000 4,196,000
------------ ------------
Line of Credit 962,000 762,000
------------ ------------
Deferred Rent, Net of Current Portion 232,000 223,000
------------ ------------
Minority Interest in Equity of Consolidated Limited Partnerships 7,570,000 6,506,000
------------ ------------
Commitments, Contingencies and Subsequent Events
Stockholders' Equity:
Common stock, $.10 par value; 5,000,000 shares authorized;
4,197,642 shares issued for the years ended 2007 and 2006 420,000 420,000
Capital in excess of par value 6,240,000 6,203,000
Retained earnings 11,331,000 10,064,000
Treasury stock, at cost, 2,306,909 and 2,313,087 shares (5,907,000) (5,895,000)
------------ ------------
Total stockholders' equity 12,084,000 10,792,000
------------ ------------
Total liabilities and stockholders' equity $ 30,337,000 $ 27,398,000
============ ============
See notes to consolidated financial statements.
F-2
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 29, 2007, SEPTEMBER 30, 2006 AND OCTOBER 1, 2005
2007 2006 2005
---- ---- ----
Revenues:
Restaurant food sales $ 38,047,000 $ 32,847,000 $ 29,219,000
Restaurant beverage sales 8,764,000 7,610,000 6,610,000
Package store sales 12,784,000 13,046,000 11,810,000
Franchise-related revenues 1,134,000 1,114,000 984,000
Owner's fee 203,000 224,000 261,000
Other operating income 169,000 173,000 148,000
------------ ------------ ------------
61,101,000 55,014,000 49,032,000
------------ ------------ ------------
Costs and Expenses:
Cost of merchandise sold:
Restaurants and lounges 16,158,000 13,952,000 12,502,000
Package goods 9,200,000 9,312,000 8,436,000
Payroll and related costs 17,293,000 16,062,000 13,636,000
Occupancy costs 3,867,000 3,334,000 2,976,000
Selling, general and administrative expenses 12,483,000 10,716,000 9,437,000
------------ ------------ ------------
59,001,000 53,376,000 46,987,000
------------ ------------ ------------
Income from Operations 2,100,000 1,638,000 2,045,000
------------ ------------ ------------
Other Income (Expense):
Interest expense (508,000) (206,000) (116,000)
Interest and other income 79,000 183,000 106,000
Limited partnership income 1,000 31,000 18,000
Insurance recovery, net of casualty loss -- 666,000 --
Gain on sale of property and equipment 393,000 -- --
------------ ------------ ------------
(35,000) 674,000 8,000
------------ ------------ ------------
Income Before Provision for Income Taxes and
Minority Interest in Earnings of Consolidated
Limited Partnerships 2,065,000 2,312,000 2,053,000
------------ ------------ ------------
Provision for Income Taxes:
Current 814,000 870,000 525,000
Deferred (116,000) (120,000) 18,000
------------ ------------ ------------
698,000 750,000 543,000
------------ ------------ ------------
Minority Interest in Earnings of Consolidated
Limited Partnerships (100,000) (312,000) (403,000)
------------ ------------ ------------
Net Income $ 1,267,000 $ 1,250,000 $ 1,107,000
============ ============ ============
Net Income Per Common Share:
Basic $ 0.67 $ 0.66 $ 0.58
============ ============ ============
Diluted $ 0.66 $ 0.65 $ 0.58
============ ============ ============
Weighted Average Shares and Equivalent Shares Outstanding:
Basic 1,889,000 1,884,000 1,895,000
============ ============ ============
Diluted 1,910,000 1,909,000 1,923,000
============ ============ ============
See notes to consolidated financial statements.
F-3
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 29, 2007, SEPTEMBER 30, 2006 AND OCTOBER 1, 2005
Common Stock Accumulated Treasury Stock
------------ Capital in Other --------------
Excess of Retained Comprehensive
Shares Amount Par Value Earnings Income Shares Amount Total
--------- --------- ----------- ----------- -------- ---------- ----------- -----------
Balance, October 2, 2004 4,197,642 $ 420,000 $ 6,147,000 $ 8,974,000 $ 25,000 2,280,817 $(5,465,000) $10,101,000
Year Ended October 1, 2005:
Comprehensive income:
Net income -- -- -- 1,107,000 -- -- -- 1,107,000
Net unrealized gain
on securities -- -- -- -- 25,000 -- -- 25,000
--------- --------- ----------- ----------- -------- ---------- ----------- -----------
-- -- -- 1,107,000 25,000 -- -- 1,132,000
Purchase of treasury stock -- -- -- -- -- 42,720 (353,000) (353,000)
Exchange of shares -
exercise of stock options -- -- 1,000 -- -- (490) 1,000 2,000
Dividends paid ($0.32 per
share) -- -- -- (609,000) -- -- -- (609,000)
--------- --------- ----------- ----------- -------- ---------- ----------- -----------
Balance, October 1, 2005 4,197,642 420,000 6,148,000 9,472,000 50,000 2,323,047 (5,817,000) 10,273,000
Year ended September 30, 2006:
Comprehensive income:
Net income -- -- -- 1,250,000 -- -- -- 1,250,000
Net unrealized gain on
securities -- -- -- -- (50,000) -- -- (50,000)
--------- --------- ----------- ----------- -------- ---------- ----------- -----------
-- -- -- 1,250,000 (50,000) -- -- 1,200,000
Purchase of treasury stock -- -- -- -- -- 14,350 (139,000) (139,000)
Exchange of shares - exercise
of stock options -- -- 55,000 -- -- (24,310) 61,000 116,000
Dividends paid ($0.35 per
share) -- -- -- (658,000) -- -- -- (658,000)
--------- --------- ----------- ----------- -------- ---------- ----------- -----------
Balance, September 30, 2006 4,197,642 420,000 6,203,000 10,064,000 -- 2,313,087 (5,895,000) 10,792,000
Year Ended September 29, 2007:
Net income -- -- -- 1,267,000 -- -- -- 1,267,000
Purchase of treasury stock -- -- -- -- -- 3,332 (36,000) (36,000)
Exchange of shares -
exercise of stock options -- -- 37,000 -- -- (9,510) 24,000 61,000
--------- --------- ----------- ----------- -------- ---------- ----------- -----------
Balance, September 29, 2007 4,197,642 $ 420,000 $ 6,240,000 $11,331,000 $ -- 2,306,909 $(5,907,000) $12,084,000
========= ========= =========== =========== ======== ========== =========== ===========
See notes to consolidated financial statements.
F-4
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 29, 2007, SEPTEMBER 30, 2006 AND OCTOBER 1, 2005
2007 2006 2005
---- ---- ----
Cash Flows from Operating Activities:
Net income $ 1,267,000 $ 1,250,000 $ 1,107,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,949,000 1,694,000 1,420,000
Amortization of leasehold purchases 206,000 145,000 123,000
Gain on sale of property and equipment (393,000) -- --
Loss on abandonment of property and equipment 94,000 61,000 121,000
Insurance recovery, net of casualty loss -- (666,000) --
Gain on sale of marketable securities -- (78,000) --
Deferred income taxes (116,000) (120,000) 18,000
Deferred rent 12,000 (18,000) --
Minority interests in earning of consolidated limited partnerships 100,000 312,000 403,000
Income from unconsolidated limited partnership (1,000) (31,000) (18,000)
Recognition of deferred revenues (9,000) (8,000) (8,000)
Changes in operating assets and liabilities:
(Increase) decrease in:
Due from franchisees (166,000) (450,000) (119,000)
Other receivables 191,000 (221,000) 82,000
Inventories 50,000 (225,000) (340,000)
Prepaid expenses (27,000) (92,000) (156,000)
Other assets (700,000) (397,000) (82,000)
Increase (decrease) in:
Accounts payable and accrued expenses (430,000) 1,180,000 83,000
Income taxes payable 67,000 (31,000) 304,000
Due to franchisees 44,000 (225,000) (274,000)
----------- ----------- -----------
Net cash provided by operating activities 2,138,000 2,080,000 2,664,000
----------- ----------- -----------
Cash Flows from Investing Activities:
Collections on notes and mortgages receivable 12,000 17,000 21,000
Purchase of property and equipment (3,131,000) (3,710,000) (2,095,000)
Acquisition of subsidiary -- (601,000) --
Purchase of leaseholds (955,000) -- --
Purchase of assets of franchised restaurant (100,000) -- --
Proceeds from sale of fixed assets 908,000 -- --
Proceeds from sale of marketable securities 381,000 -- --
Distributions from unconsolidated limited parnterships 12,000 -- 20,000
Proceeds from insurance settlement 112,000 700,000 --
----------- ----------- -----------
Net cash used in investing activities (2,761,000) (3,594,000) (2,054,000)
----------- ----------- -----------
Cash Flows from Financing Activities:
Payments of long-term debt (1,001,000) (489,000) (309,000)
Payment of line of credit (1,000,000) -- --
Proceeds from long-term debt 960,000 -- 250,000
Proceeds from line of credit 1,200,000 762,000 --
Dividends paid -- (658,000) (609,000)
Purchase of treasury stock (36,000) (139,000) (353,000)
Distributions to limited partnerships' minority partners (1,006,000) (1,054,000) (1,218,000)
Proceeds from limited partnership interests 1,970,000* 2,000,000* 1,365,000*
Proceeds from exercise of stock options 61,000 116,000 2,000
----------- ----------- -----------
Net cash provided by (used in) financing activities 1,148,000 538,000 (872,000)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 525,000 (976,000) (262,000)
Cash and Cash Equivalents, Beginning 1,698,000 2,674,000 2,936,000
----------- ----------- -----------
Cash and Cash Equivalents, Ending $ 2,223,000 $ 1,698,000 $ 2,674,000
=========== =========== ===========
* exclusive of the Company's investment in the limited partnership owning
the restaurant in Pembroke Pines, Florida of $380,000 in fiscal year
2007; exclusive of the Company's investment in the limited partnership
owning the restaurant in Pinecrest, Florida of $1,295,000 in fiscal
year 2006; and exclusive of the Company's investment in the limited
partnership owning the restaurant in Wellington, Florida of $485,000 in
fiscal year 2005.
See notes to consolidated financial statements.
F-5
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 29, 2007, SEPTEMBER 30, 2006 AND OCTOBER 1, 2005
2007 2006 2005
---- ---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 508,000 $ 206,000 $ 116,000
=========== =========== ===========
Income taxes $ 631,000 $ 881,000 $ 225,000
=========== =========== ===========
Non-Cash Financing and Investing Activities:
Purchase of vehicles in exchange for debt $ -- $ 70,000 $ 302,000
=========== =========== ===========
Purchase of Josar Investments, LLC in exchange for debt $ -- $ 3,280,000 $ --
=========== =========== ===========
Sale of marketable securities not settled by September 30, 2006 $ -- $ 381,000 $ --
=========== =========== ===========
Purchase of real property in exchange for debt $ 700,000 $ -- $ --
=========== =========== ===========
See notes to consolidated financial statements.
F-6
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 2007, SEPTEMBER 30, 2006 AND OCTOBER 1, 2005
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
The Company was incorporated in 1959 and operates in South Florida
as a chain of full-service restaurants and package liquor stores.
Restaurant food and beverage sales make up the majority of our
total revenue. At September 29, 2007, we (i) operated 21 units,
(excluding the adult entertainment club referenced in (ii) below),
consisting of restaurants, package liquor stores and combination
restaurants/package liquor stores that we either own or have
operational control over and partial ownership in; (ii) own but do
not operate one adult entertainment club; and (iii) franchise an
additional six units, consisting of two restaurants, (one of which
we operate) and four combination restaurants/package liquor stores.
With the exception of one restaurant we operate but do not have an
ownership interest in which operates under the name "The Whale's
Rib", all of the restaurants operate under our service mark
"Flanigan's Seafood Bar and Grill" and all of the package liquor
stores operate under our service mark "Big Daddy's Liquors".
The Company's Articles of Incorporation, as amended, authorize us
to issue and have outstanding at any one time 5,000,000 shares of
common stock at a par value of $0.10 per share.
We operate under a 52-53 week year ending the Saturday closest to
September 30. Our fiscal years 2007, 2006 and 2005 are each
comprised of a 52-week period.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and our subsidiaries, all of which are wholly owned, and
the accounts of the nine limited partnerships in which we act as
general partner and have controlling interests. All significant
intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The consolidated financial statements and related disclosures are
prepared in conformity with accounting principles generally
accepted in the U.S. We are required to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and revenue and expenses
during the period reported. These estimates include assessing the
estimated useful lives of tangible assets. Estimates and
assumptions are reviewed periodically and the effects of revisions
are reflected in our consolidated financial statements in the
period they are determined to be necessary. Although these
estimates are based on our knowledge of current events and actions
we may undertake in the future, they may ultimately differ from
actual results.
F-7
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
We consider all highly liquid debt instruments with an original
maturity of three months or less at the date of purchase to be cash
equivalents.
Inventories
Our inventories, which consist primarily of package liquor
products, are stated at the lower of average cost or market.
Liquor Licenses
In accordance with Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" (SFAS 142), our liquor
licenses are not being amortized, but are tested annually for
impairment (see Note 7).
Property and Equipment
Our property and equipment are stated at cost. We capitalize
expenditures for major improvements and depreciation commences when
the assets are placed in service. We record depreciation on a
straight-line basis over the estimated useful lives of the
respective assets. We charge maintenance and repairs, which do not
improve or extend the life of the respective assets, to expense as
incurred. When we dispose of assets, the cost and related
accumulated depreciation are removed from the accounts and any gain
or loss is included in income.
Our estimated useful lives range from three to five years for
vehicles, and three to seven years for furniture and equipment.
Leasehold improvements are currently being amortized over the life
of the lease up to a maximum of 20 years. The building and building
improvements of our corporate offices in Fort Lauderdale, Florida
and our combination restaurant and package liquor store in
Hallandale, Florida, both of which we own, are being depreciated
over forty years.
Leasehold Purchases
Our purchase of an existing restaurant location usually includes a
lease to the business premises. As a result, a portion of the
purchase price is allocated to the leasehold interest, which we
refer to as a leasehold purchase. We capitalize the cost of the
leasehold purchase and amortization commences upon our assumption
of the lease. We amortize leasehold purchases over the term of the
lease up to a maximum of 15 years.
F-8
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Limited Partnerships
We use the consolidation method of accounting when we have a
controlling interest in other companies and limited partnerships.
We use the equity method of accounting when we have an interest
between twenty to fifty percent in other companies and limited
partnerships, but do not exercise control. Under the equity method,
our original investments are recorded at cost and are adjusted for
our share of undistributed earnings or losses. All significant
intercompany profits are eliminated.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations
of credit risk are cash and cash equivalents, other receivables and
notes and mortgages receivable.
Cash and Cash Equivalents
From time to time during the year, we had deposits in financial
institutions in excess of the federally insured limits. At
September 29, 2007, we had deposits in excess of federally insured
limits of approximately $3,246,000. We maintain our cash with high
quality financial institutions, which we believe limits these
risks.
Notes and Mortgages Receivable
Our notes and mortgages receivable arise primarily from the sale of
operating assets, including liquor licenses. Generally, those
assets serve as collateral for the receivable. We believe that the
collateral, coupled with the credit standing of the purchasers,
limits these risks.
Major Supplier
Throughout our fiscal years 2007, 2006 and 2005, we purchased
substantially all of our food products from our major supplier
pursuant to a master distribution agreement which entitled us to
receive certain purchase discounts, rebates and advertising
allowances. We believe that several other alternative vendors are
available, if necessary.
Revenue Recognition
We record revenues from normal recurring sales upon the sale of
food and beverages and the sale of package liquor products. We
report our sales net of sales tax. Continuing royalties, which are
a percentage of net sales of franchised stores, are accrued as
income when earned.
F-9
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pre-opening Costs
Our pre-opening costs are those typically associated with the
opening of a new restaurant and generally include payroll costs
associated with the "new restaurant openers" (a team of select
employees who travel to new restaurants to ensure that our high
standards for quality are met), rent and promotional costs. We
expense pre-opening costs as incurred. During our fiscal year 2007,
the limited partnership restaurants in Pembroke Pines, Florida and
Davie, Florida reported losses of $341,000 and $174,000,
respectively, primarily due to pre-opening costs. During our fiscal
year 2006, the limited partnership restaurant in Pinecrest, Florida
reported a loss of $337,000 and during our fiscal year 2005, the
limited partnership restaurant in Wellington, Florida reported a
loss of $416,000, primarily due to pre-opening costs.
Advertising Costs
Our advertising costs are expensed as incurred. Advertising costs
incurred during our fiscal years ended September 29, 2007,
September 30, 2006 and October 1, 2005 were approximately $234,000,
$464,000, and $375,000 respectively.
Fair Value of Financial Instruments
The respective carrying value of certain of our on-balance-sheet
financial instruments approximated their fair value. These
instruments include cash and cash equivalents, notes and mortgages
receivable, other receivables, accounts payables and accrued
expenses. We have assumed fair values to approximate carrying
values for those financial instruments, which are short-term in
nature or are receivable or payable on demand.
We estimated the fair value of long-term debt based on current
rates offered to us for debt of comparable maturities and similar
collateral requirements.
Income Taxes
We account for our 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 consolidated 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.
Stock-Based Compensation
On January 1, 2006, we adopted SFAS No. 123 (revised 2004),
"Share-Based Payment," (SFAS No. 123R) to account for stock-based
employee compensation. Among other items, SFAS 123R eliminates the
use of Accounting Principles Board Opinion ("APB") No. 25,
F-10
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation (Continued)
"Accounting for Stock Issued to Employees," and the intrinsic value
method of accounting and requires companies to recognize the cost
of employee services received in exchange for stock-based awards
based on the grant date fair value of those awards in their
financial statements. We elected to use the modified prospective
method for adoption, which requires compensation expense to be
recorded for all unvested stock options beginning in the first
quarter of adoption. For stock-based awards granted or modified
subsequent to January 1, 2006, compensation expense, based on the
fair value on the date of grant, is recognized in the consolidated
financial statements over the vesting period. This application
requires us to record compensation expense for all awards granted
to employees and directors after the adoption date and for the
unvested portion of awards that were outstanding at the date of
adoption. We had no unvested stock options as of January 1, 2006
and granted no stock options during fiscal year 2007 or in the nine
months ended September 30, 2006, so there is no impact of SFAS No.
123R on our consolidated financial statements for our fiscal years
2007 or 2006. In accordance with the modified prospective method,
our consolidated financial statements for prior periods have not
been restated to reflect and do not include the impact of SFAS No.
123R.
Had compensation cost for the options been determined based on the
fair value at the grant date during fiscal year 2005, consistent
with SFAS 123, our net income would have been as follows:
2005
----
Net income, as reported $ 1,107,000
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (88,000)
-------------
Pro forma net income $ 1,019,000
=============
Earnings Per Share:
Basic:
As reported $ 0.58
Pro forma $ 0.54
Diluted:
As reported $ 0.58
Pro forma $ 0.53
Long-Lived Assets
We continually evaluate whether events and circumstances have
occurred that may warrant revision of the estimated life of our
intangible and other long-lived assets or
F-11
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-Lived Assets (Continued)
whether the remaining balance of our 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, we will determine the fair value of the asset
by making an estimate of expected future cash flows over the
remaining lives of the respective assets and compare that fair
value with the carrying value of the assets in measuring their
recoverability. In determining the expected future cash flows, the
assets will be grouped at the lowest level for which there are cash
flows, at the individual store level.
Reclassifications
We have reclassified certain amounts in the prior year consolidated
financial statements to conform to the presentation of the 2007
consolidated financial statements.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007),
"Business Combinations" ("SFAS 141R"). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in
the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and
financial effects of the business combination. SFAS 141R is
effective for the fiscal years beginning after December 15, 2008
and will be adopted by us in the first quarter of our fiscal year
2010. We are currently evaluating the potential impact, if any, of
the adoption of SFAS 141R on our consolidated results of operations
and financial condition.
In December 2007, the FASB issued Statement of Financial Accounting
Standard No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 ("SFAS 160"). SFAS
160 will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling
interests (NCI) and classified as a component of equity. This new
consolidation method will significantly change the accounting for
transactions with minority interest holders. SFAS 160 is effective
for fiscal years beginning after December 15, 2008 (our fiscal year
2010). We have not yet determined the impact, if any, of SFAS 160
on our consolidated financial statements.
In February 2007, the FASB issued SFAS 159, "Fair Value Option for
Financial Assets and Liabilities" which permits an entity to choose
to measure many financial instruments and certain other items at
fair value. The standard contains an amendment to SFAS 115
pertaining to available-for-sale and trading securities. The
objective of the standard is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in
F-12
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements (Continued)
reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge
accounting provisions. The provisions of SFAS 159 are effective for
financial statements issued for fiscal years beginning after
November 15, 2007. We do not expect the adoption of Statement 159
at the beginning of fiscal year 2009 to have a material impact.
In September 2006, the SEC issued Staff Accounting Bulletin No.
108, "Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements"
(SAB 108). SAB 108 requires companies to evaluate the materiality
of identified unadjusted errors on each financial statement and
related disclosures using both the rollover and the iron curtain
approach. SAB 108 applies to annual financial statements for fiscal
years ending after November 15, 2006. There was no material impact
on our financial condition or results of operation from the
adoption of SAB 108 during the fiscal year ended September 29,
2007.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" ("SFAS
157"). SFAS 157 provides a common definition of fair value and
establishes a framework to make the measurement of fair value in
generally accepted accounting principles more consistent and
comparable. SFAS 157 also requires expanded disclosures to provide
information about the extent to which fair value is used to measure
assets and liabilities, the methods and assumptions used to measure
fair value and the effect of fair value measures on earnings. SFAS
157 is effective for fiscal years beginning after November 15, 2007
(our fiscal year 2009), although early adoption is permitted. In
September 2007, the FASB provided a one-year deferral for the
implementation of SFAS 157 only with regard to nonfinancial assets
and liabilities. We have not yet determined the impact, if any, of
SFAS 157 on our consolidated financial statements.
In July 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of SFAS Statement No. 109. This
Interpretation clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in
accordance with SFAS Statement No. 109, Accounting for Income
Taxes. This Interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. This Interpretation also provides guidance on
de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. This Interpretation
is effective for fiscal years beginning after December 15, 2006. We
do not expect the adoption of Interpretation No. 48 at the
beginning of our fiscal year 2008 to have a material impact.
In March 2006, the FASB Emerging Issues Task Force issued Issue
06-3 "How Sales Taxes Collected From Customers and Remitted to
Government Authorities Should Be Presented in
F-13
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements (Continued)
the Income Statement" (EITF 06-3). A consensus was reached that a
company should disclose its accounting policy (i.e. gross or net
presentation) regarding presentation of taxes within the scope of
EITF 06-3. If taxes are reported on a gross basis, a company should
disclose the amount of such taxes for each period for which an
income statement is presented. The guidance is effective for
periods beginning after December 15, 2006.
In May 2005, the FASB issued SFAS No. 154, "Accounting for Changes
and Error Corrections, a Replacement of APB Opinion No. 20 and FASB
Statement No. 3". SFAS 154 applies to all voluntary changes in
accounting principle and requires retrospective application to
prior periods' financial statements of changes in accounting
principle. This statement also requires that a change in
depreciation, amortization, or depletion method for long-lived,
non-financial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. SFAS 154
carries forward without change the guidance contained in Opinion
No. 20 for reporting the correction of an error in previously
issued financial statements and a change in accounting estimate.
This statement is effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005.
We adopted this SFAS in the first quarter of our fiscal year 2007.
The implementation did not have an effect on the results of our
operations or financial position.
NOTE 2. ACQUISITIONS
On March 4, 2007, we acquired the assets of a franchised restaurant
located in Lake Worth, Florida for $100,000 of total consideration.
We have included the assets acquired in our consolidated financial
statements as of that date. We allocated the purchase price $55,000
to the value of property and equipment and $45,000 to the value of
the leasehold purchased.
On July 26, 2006, we acquired Josar Investments, LLC (Josar) for
$3,876,000 of total consideration. The assets acquired, liabilities
assumed and the results of operations have been included in our
consolidated financial statements as of that date. The acquisition
of Josar included our purchase of 100% of the membership interests
of Josar, which became our wholly owned subsidiary. We purchased
Josar for the purpose of acquiring the land and building owned by
Josar and leased by us for our combination restaurant and package
liquor store operation. We fully attributed the purchase price to
the fair value of the land and building.
Contemporaneous to closing on the purchase of Josar, we entered
into a mortgage loan on the property acquired together with
property owned by us adjacent thereto for $3,280,000. Proceeds from
the mortgage loan were used to satisfy a portion of the purchase
price, to retire the previous mortgage loan on our adjacent
property for $266,000 and to pay certain fees associated with the
transaction.
NOTE 3 - DISPOSITIONS
On April 23, 2007, we sold our real property located at 732-734
N.E. 125th Street, North Miami, Florida and our rights under the
liqour license for that location for $780,000. We purchased this
real property during the first quarter of our fiscal year 2007 for
a purchase price of $250,000 and realized a gain of $393,000 from
the sale.
F-14
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. NOTES AND MORTGAGES RECEIVABLE
Our receivables consist of the following at September 29, 2007 and
September 30, 2006:
2007 2006
---- ----
Note and mortgage receivable from an unrelated party, bearing
interest at the rate of 15% per annum. Interest only payments were due
through 2013. During our fiscal year 2007, this note was paid in full. $ -- $ 45,000
-------- --------
Mortgage receivable from related party, bearing interest at 14% and due in
installments through August, 2011 58,000 70,000
-------- --------
58,000 115,000
Current portion 14,000 12,000
-------- --------
$ 44,000 $103,000
======== ========
The remaining note and mortgage receivable represents the amount
owed to us for a store operation which was sold. Since we did not
receive a significant amount of cash on the sale, a pro rata
portion of the gain are deferred and recognized only as payments on
the note and mortgage is received by us. We recognized
approximately $9,000 of deferred gain on collections of such note
receivable during our fiscal year ended September 29, 2007; and
approximately $8,000 was recognized during our fiscal years ended
September 30, 2006 and October 1, 2005, respectively.
Future scheduled payments on our receivables at September 29, 2007
consist of the following:
2008 $14,000
2009 16,000
2010 19,000
2011 9,000
-------
$58,000
=======
NOTE 5. PROPERTY AND EQUIPMENT
2007 2006
---- ----
Furniture and equipment $ 7,909,000 $ 8,057,000
Leasehold improvements 15,413,000 14,146,000
Land and land improvements 5,104,000 4,203,000
Building and improvements 2,383,000 2,122,000
Vehicles 670,000 665,000
----------- -----------
31,479,000 29,193,000
Less accumulated depreciation and amortization 12,069,000 11,226,000
----------- -----------
$19,410,000 $17,967,000
=========== ===========
F-15
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. LEASEHOLD PURCHASES
2007 2006
---- ----
Leasehold purchase, at cost $2,911,000 $1,911,000
Less accumulated amortization 826,000 620,000
---------- ----------
$2,085,000 $1,291,000
========== ==========
NOTE 7. INVESTMENTS IN LIMITED PARTNERSHIPS
We have invested with others, (some of whom are or are affiliated
with our officers and directors), in nine limited partnerships
which own and operate nine South Florida based restaurants under
our service mark "Flanigan's Seafood Bar and Grill". In addition to
being a limited partner in these limited partnerships, we are the
sole general partner of all of these limited partnerships and
manage and control the operations of the restaurants except for the
restaurant located in Fort Lauderdale, Florida where we only hold a
limited partnership interest.
Generally, the terms of the limited partnership agreements provide
that until the investors' cash investment in a limited partnership
(including any cash invested by us) is returned in full, the
limited partnership distributes to the investors annually out of
available cash from the operation of the restaurant, as a return of
capital, up to 25% of the cash invested in the limited partnership,
with no management fee paid to us. Any available cash in excess of
the 25% of the cash invested in the limited partnership distributed
to the investors annually, is paid one-half (1/2) to us as a
management fee and one-half (1/2) to the investors, (including us),
prorata based upon the investors' investment, as a return of
capital. Once all of the investors, (including us), have received,
in full, amounts equal to their cash invested, an annual management
fee becomes payable to us equal to one-half (1/2) of cash available
to be distributed, with the other one half (1/2) of available cash
distributed to the investors (including us), as a profit
distribution, pro-rata based upon the investors' investment.
As of September 29, 2007, limited partnerships owning three (3)
restaurants have returned all cash invested and we receive an
annual management fee equal to one-half (1/2) of the cash available
for distribution by the limited partnership. In addition to our
receipt of distributable amounts from the limited partnerships, we
receive a fee equal to 3% of gross sales for use of our "Flanigan's
Seafood Bar and Grill" service mark, which use is authorized while
we act as general partner only. This 3% fee is "earned" when sales
are made by the limited partnerships and is paid weekly, in
arrears. We anticipate that we will continue to form limited
partnerships to raise funds to own and operate restaurants under
our service mark "Flanigan's Seafood Bar and Grill" using the same
or substantially similar financial arrangement.
Surfside, Florida
We are the sole general partner and a 42% limited partner in this
limited partnership which has owned and operated a restaurant in
Surfside, Florida under our "Flanigan's Seafood Bar
F-16
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
Surfside, Florida (Continued)
and Grill" service mark since March 6, 1998. 34.7% of the remaining
limited partnership interest is owned by persons who are either our
officers, directors or their family members. As of the end of our
fiscal year 2007, this limited partnership has returned to its
investors all of their initial cash invested. This entity is
consolidated in the accompanying financial statements.
Kendall, Florida
We are the sole general partner and a 40% limited partner in this
limited partnership which has owned and operated a restaurant in
Kendall, Florida under our "Flanigan's Seafood Bar and Grill"
service mark since April 4, 2000. 29.5% of the remaining limited
partnership interest is owned by persons who are either our
officers, directors or their family members. As of the end of our
fiscal year 2007, this limited partnership has returned to its
investors all of their initial cash invested. This entity is
consolidated in the accompanying financial statements.
West Miami, Florida
We are the sole general partner and a 25% limited partner in this
limited partnership which has owned and operated a restaurant in
West Miami, Florida under our "Flanigan's Seafood Bar and Grill"
service mark since October 11, 2001. 42.4% of the remaining limited
partnership interest is owned by persons who are either our
officers, directors or their family members. As of the end of our
fiscal year 2007, this limited partnership has returned to its
investors all of their initial cash invested. This entity is
consolidated in the accompanying financial statements.
Weston, Florida
We are the sole general partner and a 28% limited partner in this
limited partnership which has owned and operated a restaurant in
Weston, Florida under our "Flanigan's Seafood Bar and Grill"
service mark since January 20, 2003. 34.3% of the remaining limited
partnership interest is owned by persons who are either our
officers, directors or their family members. As of the end of our
fiscal year 2007, this limited partnership has returned to its
investors approximately 64% of their initial cash invested. This
entity is consolidated in the accompanying financial statements.
Stuart, Florida
We are the sole general partner and a 12% limited partner in this
limited partnership which has owned and operated a restaurant in a
Howard Johnson's Hotel in Stuart, Florida under our
F-17
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
Stuart, Florida (Continued)
"Flanigan's Seafood Bar and Grill" service mark since January 11,
2004. 31.0% of the remaining limited partnership interest is owned
by persons who are either our officers, directors or their family
members. As of the end of our fiscal year 2007, this limited
partnership has returned to its investors approximately 22.5% of
their initial cash invested. During our fiscal year 2006, the
limited partners of this limited partnership only received three
(3) quarterly distributions due to the limited cash flow generated
by the restaurant.
During our fiscal year 2007, no distributions were made to limited
partners as this limited partnership had a net loss of $98,000 from
the operation of the restaurant during the fiscal year before
depreciation and amortization and owed the Company $203,000 in
advances made to meet operating losses. This entity is consolidated
in the accompanying financial statements and therefore the
intercompany transactions are eliminated.
Wellington, Florida
We are the sole general partner and a 26% limited partner in this
limited partnership which has owned and operated a restaurant in
Wellington, Florida under our "Flanigan's Seafood Bar and Grill"
service mark since May 27, 2005. 25.1% of the remaining limited
partnership interest is owned by persons who are either our
officers, directors or their family members. As of the end of our
fiscal year 2007, this limited partnership has returned to its
investors approximately 37% of their initial cash invested.
Pinecrest, Florida
We are the sole general partner and 39% limited partner in this
limited partnership which has owned and operated a restaurant in
Pinecrest, Florida under our "Flanigan's Seafood Bar and Grill"
service mark since August 14, 2006. 14.9% of the remaining limited
partnership interest is owned by persons who are either our
officers, directors or their family members. As of the end of our
fiscal year 2007, this limited partnership has returned to its
investors approximately 10% of their initial cash invested. This
entity is consolidated in the accompanying financial statements.
Davie, Florida
We are the sole general partner and a 48% limited partner of a
limited partnership which on January 2, 2007, (when we were the
sole general partner and we and a wholly owned subsidiary were the
sole limited partners), acquired personal property assets and a
leasehold interest in an existing restaurant operation in Davie,
Florida for $650,000, which is intended to commence operations as a
"Flanigan's Seafood Bar and Grill" restaurant during the third
quarter of our fiscal year 2008. 9.5% of the remaining limited
partnership interest is owned by persons who are either our
officers, directors or their family members.
F-18
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
Davie, Florida (Continued)
We advanced to the limited partnership the entire $650,000 purchase
price and have, in addition, advanced to the limited partnership
approximately $400,000 for expenses, including amounts for
renovations and upgrades at this location. During the fourth
quarter of fiscal year 2007, this limited partnership commenced and
subsequent to the end of fiscal year 2007, completed its private
offering of limited partnership interests, raising gross proceeds
of $3,875,000. The amounts we advanced to the limited partnership
credited our obligation to pay for our equity investment in the
limited partnership at the same price as other investors who
acquired limited partnership interests in the limited partnership.
Pembroke Pines, Florida
We are the sole general partner and a 16% limited partner in a
limited partnership which on October 24, 2006, (when we were the
sole general partner and we and a wholly owned subsidiary were the
sole limited partners), acquired the assets and a leasehold
interest of an existing restaurant operation in Pembroke Pines,
Florida for a purchase price of $305,000, which commenced
operations on October 29, 2007 as a "Flanigan's Seafood Bar and
Grill" restaurant. 17.7% of the remaining limited partnership
interest is owned by persons who are either our officers, directors
or their family members.
During the third quarter of fiscal year 2007, the limited
partnership completed its private offering, raising gross proceeds
of $2,350,000 to complete the renovations and upgrades at the
Pembroke Pines, Florida location. We advanced to the limited
partnership the entire $305,000 purchase price and in addition, had
advanced to the limited partnership approximately $375,000 for
expenses, including amounts for renovation and upgrades at this
location. The amounts we advanced to the limited partnership
credited our obligation to pay for our equity investment in the
limited partnership at the same price as other investors who
acquired limited partnership interests in the limited partnership.
The excess amounts advanced by us, (approximately $300,000), were
reimbursed to us without interest from general working capital of
the limited partnership. This entity is consolidated in the
accompanying financial statements.
Fort Lauderdale, Florida
A corporation, owned by one of our directors, acts as sole general
partner of a limited partnership which has owned and operated a
restaurant in Fort Lauderdale, Florida under our "Flanigan's
Seafood Bar and Grill" service mark since April 1, 1997. We have a
25% limited partnership interest in this limited partnership. 57.6%
of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. We
have a franchise arrangement with this limited partnership. For
accounting purposes, we do not consolidate the operations of this
F-19
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
Fort Lauderdale, Florida (Continued)
limited partnership into our operations. This entity is reported
using the equity method in the accompanying consolidated financial
statements.
The following is a summary of condensed unaudited financial
information pertaining to our limited partnership investment in
Fort Lauderdale, Florida:
2007 2006 2005
---- ---- ----
Financial Position:
Current assets $ 49,000 $ 68,000 $ 47,000
Non-current assets 615,000 588,000 544,000
Current liabilities 152,000 88,000 134,000
Non-current liabilities 58,000 71,000 81,000
Operating Results:
Revenues 2,286,000 2,171,000 2,111,000
Gross profit 1,507,000 1,426,000 1,378,000
Net income 5,000 122,000 72,000
NOTE 8. LIQUOR LICENSES
Liquor licenses are tested for impairment in September of each of
our fiscal years. The fair value of liquor licenses at September
29, 2007, exceeded the carrying amount; therefore, we recognized no
impairment loss. The fair value of the liquor licenses was
evaluated by comparing the carrying value to recent sales for
similar liquor licenses in the County issued. At September 29, 2007
and September 30, 2006, the total carrying amount of our liquor
licenses was approximately $347,000. We acquired no liquor licenses
in fiscal year 2007 which required capitalization.
NOTE 9. INCOME TAXES
The components of our provision for income taxes for our fiscal
years 2007, 2006 and 2005 are as follows:
2007 2006 2005
---- ---- ----
Current:
Federal $ 664,000 $ 703,000 $ 407,000
State 150,000 167,000 118,000
--------- --------- ---------
814,000 870,000 525,000
--------- --------- ---------
Deferred:
Federal (99,000) (94,000) 21,000
State (17,000) (26,000) (3,000)
--------- --------- ---------
(116,000) (120,000) 18,000
--------- --------- ---------
$ 698,000 $ 750,000 $ 543,000
========= ========= =========
F-20
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. INCOME TAXES (Continued)
A reconciliation of income tax computed at the statutory federal
rate to income tax expense is as follows:
2007 2006 2005
---- ---- ----
Tax provision at the statutory rate of 34% $ 749,000 $ 795,000 $ 561,000
State income taxes, net of federal income tax 88,000 93,000 76,000
Tax benefit of tip credit generated (141,000) (127,000) (118,000)
Tax benefit of employee retention credit -- (14,000) --
Other 2,000 3,000 24,000
--------- --------- ---------
$ 698,000 $ 750,000 $ 543,000
========= ========= =========
At October 1, 2005, we had alternative minimum tax credit
carryforwards available of approximately $61,000, which were
utilized in our fiscal year ending September 30, 2006.
We have deferred tax assets which arise primarily due to
depreciation recorded at different rates for tax and book purposes
offset by cost basis differences in depreciable assets due to the
deferral of the recognition of insurance recoveries on casualty
losses for tax purposes, investments in limited partnerships,
accruals for potential uninsured claims and bonuses accrued for
book purposes but not paid within two and a half months for tax
purposes, and the capitalization of certain inventory costs for tax
purposes not recognized for financial reporting purposes.
The components of our deferred tax assets at September 29, 2007 and
September 30, 2006 were as follows:
2007 2006
---- ----
Current:
Reversal of aged payables $ 27,000 $ 27,000
Capitalized inventory costs 22,000 22,000
Accrued bonuses 135,000 132,000
Accruals for potential uninsured claims 24,000 6,000
-------- --------
$208,000 $187,000
======== ========
Long-Term:
Book/tax differences in property and equipment $321,000 $233,000
Limited partnership investments 171,000 164,000
-------- --------
$492,000 $397,000
======== ========
Internal Revenue Service Audit of Company's Corporate Income Tax Return
for the Fiscal Year Ending October 1, 2005
During the first quarter of fiscal year 2007, the corporate income
tax return for our fiscal year ending October 1, 2005 was audited
by the Internal Revenue Service. We agreed that the sum of $107,000
was due as additional corporate income tax for our fiscal year
ending October 1,
F-21
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. INCOME TAXES (Continued)
2005. The effects of the settlement of the audit were considered in
the computation of tax amounts for our fiscal year ended September
30, 2006.
NOTE 10. DEBT
Long-Term Debt
2007 2006
---- ----
Mortgage payable to bank, secured by land and building, bearing
interest at 7.5%; payable in monthly installments of principal and
interest of $28,600, maturing in August 2013. $3,446,000 $3,274,000
Mortgage payable to bank, secured by first mortgage on a building,
bearing interest at 7.5%; payable in monthly installments of
principal and interest of approximately $8,000, maturing in
December 2013. 985,000 --
Mortgage payable, secured by land and building, bearing interest at
10.0%; payable in monthly installments of principal and interest of
$3,949, maturing in April, 2017. 449,000 --
Note payable to finance company, secured by vehicle, bearing
interest at 9.25%, payable in monthly installments of principal and
interest of approximately $4,500 through maturity in July 2010, at
which time the unpaid principal of $45,000 becomes due. 161,000 196,000
Mortgage payable to bank; secured by first mortgage on a building;
payable $2,248 per month, plus interest through maturity in August,
2008. We prepaid this mortgage during the first quarter of fiscal
year 2007, with the re-financing of the building.
-- 788,000
Other 77,000 161,000
---------- ----------
5,118,000 4,419,000
Less current portion 196,000 223,000
---------- ----------
$4,922,000 $4,196,000
---------- ----------
F-22
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. DEBT (Continued)
Long-Term Debt (Continued)
Long-term debt at September 29, 2007 matures as follows:
2008 $ 196,000
2009 180,000
2010 228,000
2011 150,000
2012 155,000
Thereafter 4,209,000
----------
$5,118,000
==========
Line of Credit
As of the end of our fiscal year 2007, we have a $2,650,000 line of
credit, which has a variable interest rate at prime, (7.75% at
September 29, 2007), and is payable in monthly installments of
interest only on the outstanding principal balance, with a maturity
in the first quarter of our fiscal year 2009. The original
agreement provides for a security interest in substantially all of
our assets. We granted our lender a second mortgage on our
corporate offices as additional collateral for the increase in the
line of credit in the first quarter of our fiscal year 2007. As of
September 29, 2007, our line of credit had a principal balance of
$962,000 as compared to $762,000 as of September 30, 2006.
Subsequent to the end of our fiscal year 2007, we drew additional
funds on our line of credit, in the amount of $600,000, raising the
total outstanding balance to $1,562,000.
NOTE 11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Legal Matters
We are a party to various claims, legal actions and complaints
arising in the ordinary course of our business. It is our opinion
that all such matters are without merit or involve such amounts
that an unfavorable disposition would not have a material adverse
effect on our financial position or results of operations.
Leases
We lease a substantial portion of the land and buildings used in
our operations under leases with initial terms expiring between
2008 and 2049. Renewal options are available on many of our leases.
Most of our leases are fixed rent agreements. For two Company-owned
restaurant/package liquor store combination units, lease rentals
are subject to sales overrides ranging from 1.75% to 4% of annual
sales in excess of established amounts. For four limited
partnership restaurants, lease rentals are subject to sales
overrides ranging from 2% to 5% of annual sales in excess of the
base rent paid. We recognize rent lease expense on a straight
F-23
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Leases (Continued)
line basis over the term of the lease. Certain of our leases are
subject to fair market rental appraisals at the time of renewal. We
have the option to purchase the real property which we lease for
the operation of our Fort Lauderdale, Florida restaurant.
We have a ground lease for an out parcel in Hollywood, Florida
where we constructed a building on the out parcel, one-half (1/2)
of which is used by us for the operation of a package liquor store
and the other one-half (1/2) of which is subleased by us as retail
space. Rent for the retail space commenced January 1, 2005, and we
generated $46,000, $45,000 and $31,000 of revenue from this source
during our fiscal years ending September 29, 2007, September 30,
2006 and October 1, 2005, respectively. Future minimum sublease
payments under the non-cancelable sublease is $412,000, including
Florida sales tax (currently 6%).
Future minimum lease payments, including Florida sales tax
(currently 6% to 7%) under our non-cancelable operating leases as
of September 29, 2007 are as follows:
2008 $ 2,501,000
2009 2,327,000
2010 2,130,000
2011 1,650,000
2012 1,188,000
Thereafter 6,429,000
-----------
Total $16,225,000
===========
Total rent expense for all of our operating leases was
approximately $2,625,000, $2,355,000 and $2,158,000 in our fiscal
years 2007, 2006 and 2005, respectively, and is included in
"Occupancy costs" in our accompanying consolidated statements of
income. This total rent expense is comprised of the following:
2007 2006 2005
---- ---- ----
Minimum Base Rent $2,259,000 $2,079,000 $1,903,000
Contingent Percentage Rent 366,000 276,000 255,000
---------- ---------- ----------
Total $2,625,000 $2,355,000 $2,158,000
========== ========== ==========
We guarantee various leases for franchisees and stores sold in
prior years. Remaining rental payments required under these leases
total approximately $3,004,000. Our guarantees increased
substantially during fiscal year 2007 due to the exercise of five
year renewal options by one franchisee and the lessee of one store
sold in prior years.
Purchase Commitments
Effective December 1, 2007, we entered into a purchase agreement
with our rib supplier. The terms of the agreement stipulate that we
will purchase approximately $3,200,000 of baby back ribs during the
2008 calendar year at a fixed cost. We contract for the purchase of
baby back ribs on an annual basis to fix the cost and ensure
adequate supply for the calendar year. We
F-24
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Purchase Commitments (Continued)
purchase all of our rib supply from this vendor, but we believe
that several other alternative vendors are available, if necessary.
Franchise Program
At September 29, 2007, we were the franchisor of six units under
franchise agreements. At September 30, 2006 and October 1, 2005, we
were the franchisor of seven units under franchise agreements. On
March 4, 2007, we acquired the assets of the franchised restaurant
in Lake Worth, Florida. Of the six franchised stores, four are
combination restaurant/package liquor stores and two are
restaurants. Four franchised stores are owned and operated by
related parties. Under the franchise agreements, we provide
guidance, advice and management assistance to the franchisees. In
addition and for an additional annual fee of approximately $25,000,
we also act as fiscal agent for the franchisees whereby we collect
all revenues and pay all expenses and distributions. We also, from
time to time, advance funds on behalf of the franchisees for the
cost of renovations. The resulting amounts receivable from and
payable to these franchisees are reflected in the accompanying
consolidated balance sheet as either an asset or a liability. We
also agree to sponsor and manage cooperative buying groups on
behalf of the franchisees for the purchase of inventory. The
franchise agreements provide for royalties to us of approximately
3% of gross restaurant sales and 1% of gross package liquor sales.
We are not currently offering or accepting new franchises.
Employment Agreement/Bonuses
As of September 29, 2007, September 30, 2006 and October 1, 2005,
we had no employment agreements.
During the second quarter of our fiscal year 2005, our Board of
Directors approved an annual performance bonus, with 14% of the
corporate pre-tax net income, plus or minus non-recurring items,
but before depreciation and amortization in excess of $650,000 paid
to the Chief Executive Officer and 6% paid to other members of
management. Bonuses for our fiscal years 2007, 2006 and 2005
amounted to approximately $438,000, $523,000 and $448,000,
respectively.
During the second quarter of fiscal year 2005, our Board of
Directors also approved an annual performance bonus, with 5% of the
pre-tax net income before depreciation and amortization from our
restaurants and our share of the pre-tax net income before
depreciation and amortization from the restaurants owned by the
limited partnerships paid to the Chief Operating Officer and 5%
paid to the Chief Financial Officer. Bonuses for our fiscal years
2007, 2006 and 2005 amounted to approximately $323,000, $298,000
and $216,000, respectively.
F-25
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Employment Agreement/Bonuses (Continued)
During the second quarter of fiscal year 2005, our Board of
Directors approved an annual performance bonus, with 3% of the
pre-tax net income before depreciation and amortization from the
package liquor stores paid to the Vice President of Package
Operations and 2% paid to the package store supervisor. Bonuses for
our fiscal years 2007, 2006 and 2005 amounted to approximately
$36,000, $52,000 and $48,000, respectively.
Management Agreements
Atlanta, Georgia
We own, but do not operate, an adult entertainment nightclub
located in Atlanta, Georgia which operates under the name "Mardi
Gras". We have a management agreement with an unaffiliated third
party to manage the club. Effective May 1, 2006, the unaffiliated
third party that manages the club became obligated under a new
lease for the business premises where the club operates for a
period of ten (10) years, with one (1) ten (10) year renewal option
and as of such date we are no longer obligated under the lease.
Under our management agreement, the unaffiliated third party
management firm is obligated to pay us an annual amount, paid
monthly, equal to the greater of $150,000 or ten (10%) percent of
gross sales from the club, offset by one-half (1/2) of any rental
increases, provided our fees will never be less than $150,000 per
year. For our fiscal years ended September 29, 2007 and September
30, 2006, we generated $203,000 and $224,000 of revenue,
respectively, from the operation of the club.
Deerfield Beach, Florida
Since January, 2006, we have managed "The Whale's Rib", a casual
dining restaurant located in Deerfield Beach, Florida, pursuant to
management agreement. We paid $500,000 in exchange for our rights
to manage this restaurant. The management agreement is being
amortized straight line over the life of the initial term of the
agreement, ten (10) years. The restaurant is owned by a third party
unaffiliated with us. In exchange for providing management,
bookkeeping and related services, we receive one-half (1/2) of the
net profit, if any, from the operation of the restaurant. The term
of the management agreement, which commenced January 9, 2006, is
for ten (10) years, with four (4) five (5) year renewal options in
favor of the owner of the restaurant. For our fiscal year ended
September 29, 2007 and the nine months in our fiscal year September
30, 2006, we generated $160,000 and $108,000 of revenue,
respectively, from providing these management services.
F-26
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 12. COMMON STOCK
Treasury Stock
Purchase of Common Shares
Pursuant to a discretionary plan approved by our Board of
Directors, during our fiscal year 2007, we purchased 3,332 shares
of our common stock for an aggregate purchase price of $36,000. Of
the shares purchased, 2,500 shares were purchased from August
Bucci, our Chief Operating Officer and Director, in an off the
market private transaction, at an aggregate purchase price of
$28,000, which reflected an actual per share purchase price which
was less than the closing per share market price on the date of
purchase. During our fiscal year 2006, we purchased 14,350 shares
of our common stock for an aggregate purchase price of $139,000. Of
the shares purchased, 7,500 shares were purchased from Mr. Bucci in
an off the market private transaction, at an aggregate purchase
price of $77,000, which reflected an actual per share purchase
price which was less than the closing per share market price on the
date of each purchase. During our fiscal year 2005, we purchased
42,720 shares of our common stock for an aggregate purchase price
of $353,000.
Sale of Common Shares
During our fiscal years 2007, 2006 and 2005, we sold an aggregate
of 9,510, 24,120, and 490 shares of our common stock, respectively,
pursuant to the exercise of options, to certain employees and
officers for a total of approximately $61,000, $116,000 and $2,000,
respectively.
Stock Options
We granted no options during our fiscal years 2007, 2006 and 2005.
Effective January 1, 2006, we adopted SFAS No. 123 (revised 2004),
"Share-Based Payment," (SFAS No. 123R) to account for stock-based
employee compensation. We elected to use the modified prospective
method for adoption, which requires compensation expense to be
recorded for all unvested stock options beginning in the first
quarter of adoption. We had no unvested stock options as of January
1, 2006 and granted no stock options in the fiscal year ended
September 29, 2007 or in the nine months ended September 30, 2006,
so no compensation cost has been recognized on our consolidated
financial statements for our fiscal years ended September 29, 2007
and September 30, 2006.
Changes in our outstanding incentive stock options for common stock
are as follows:
2007 2006 2005
---- ---- ----
Outstanding at beginning of year 67,850 100,810 101,900
Options granted -- -- --
Options exercised (9,510) (24,120) (490)
F-27
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Options expired (8,040) (8,840) (600)
-------- -------- --------
Outstanding at end of year 50,300 67,850 100,810
-------- -------- --------
Exercisable at end of year 50,300 67,850 100,810
======== ======== ========
The intrinsic value as of the exercise date of the 9,510, 24,120,
and 490 stock options exercised during our fiscal years ended
September 29, 2007, September 30, 2006 and October 1, 2005 were
approximately $45,000, $124,000 and $2,000 , respectively.
Weighted average option exercise price information for our fiscal
years 2007, 2006 and 2005 is as follows:
2007 2006 2005
---- ---- ----
Outstanding at beginning of year $ 6.27 $ 5.75 $ 5.77
======== ======== ========
Granted during the year $ -- $ -- $ --
======== ======== ========
Exercised during the year $ 6.23 $ 4.83 $ 4.56
======== ======== ========
Outstanding at end of year $ 6.31 $ 6.27 $ 5.75
======== ======== ========
Exercisable at end of year $ 6.31 $ 6.27 $ 5.75
======== ======== ========
Our significant option groups outstanding at September 29, 2007 and
related weighted average price and life information are as follows:
Grant Options Options Exercise Remaining
Date Outstanding Exercisable Price Life (Years)
---- ----------- ----------- ----- ------------
10-1-03 10,300 10,300 $6.14 1.0
5-20-04 40,000 40,000 $6.35 1.625
The weighted-average remaining contractual terms of our stock
options outstanding and stock options exercisable at September 29,
2007 was 1.5 years. The aggregate intrinsic value of our options
outstanding and stock options exercisable at September 29, 2007 was
approximately $125,000.
NOTE 13. NET INCOME PER COMMON SHARE
We follow 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 the
exercise of options granted. Earnings per share are computed by
dividing income available to common stockholders by the basic and
diluted weighted average number of common shares.
F-28
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 13. NET INCOME PER COMMON SHARE (Continued)
2007 2006 2005
---- ---- ----
Basic weighted average shares 1,889,000 1,884,000 1,895,000
Incremental shares relating to outstanding
Options 21,000 25,000 28,000
--------- --------- ---------
Diluted weighted average shares 1,910,000 1,909,000 1,923,000
========= ========= =========
NOTE 14. RELATED PARTY TRANSACTIONS
Our Chief Executive Officer manages one of our franchised stores.
Also see Notes 6, 10, and 11 for additional related party transactions.
NOTE 15. BUSINESS SEGMENTS
We operate principally in two reportable segments -package stores and
restaurants. The operation of package stores consists of retail liquor
sales and related items. Information concerning the revenues and
operating income for our fiscal years ended 2007, 2006 and 2005, and
identifiable assets for the two reportable segments in which we
operate, 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 our operations in each segment. Corporate
assets are principally cash, notes and mortgages receivable, real
property, improvements, furniture, equipment and vehicles. We do not
have any operations outside of the United States and transactions
between restaurants and package liquor stores are not material.
2007 2006 2005
---- ---- ----
Operating Revenues:
Restaurants $ 46,811,000 $ 40,457,000 $ 35,829,000
Package stores 12,784,000 13,046,000 11,810,000
Other revenues 1,506,000 1,511,000 1,393,000
------------ ------------ ------------
Total operating revenues $ 61,101,000 $ 55,014,000 $ 49,032,000
============ ============ ============
Operating Income Reconciled to Income
before Income Taxes and Minority Interest in
Earnings of Consolidated Limited Partnerships
Restaurants $ 3,281,000 $ 3,083,000 $ 3,355,000
Package stores 470,000 817,000 725,000
------------ ------------ ------------
3,751,000 3,900,000 4,080,000
F-29
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Corporate expenses, net of other revenues (1,651,000) (2,262,000) (2,035,000)
------------ ------------ ------------
Operating income 2,100,000 1,638,000 2,045,000
Equity in net income of limited partnership 1,000 31,000 18,000
Minority interest in earnings of consolidated
limited partnerships (100,000) (312,000) (403,000)
Interest expense, net of interest income (494,000) (164,000) (68,000)
Other 458,000 807,000 58,000
------------ ------------ ------------
Income Before Income Taxes $ 1,965,000 $ 2,000,000 $ 1,650,000
============ ============ ============
Identifiable Assets:
Restaurants $ 18,202,000 $ 15,635,000 $ 10,277,000
Package store 3,577,000 3,602,000 3,527,000
------------ ------------ ------------
21,779,000 19,237,000 13,804,000
Corporate 8,558,000 8,161,000 7,295,000
------------ ------------ ------------
Consolidated Totals $ 30,337,000 $ 27,398,000 $ 21,099,000
============ ============ ============
Capital Expenditures:
Restaurants $ 3,505,000 $ 6,832,000 $ 1,848,000
Package stores 274,000 148,000 251,000
------------ ------------ ------------
3,779,000 6,980,000 2,099,000
Corporate 1,107,000 741,000 298,000
------------ ------------ ------------
Total Capital Expenditures $ 4,886,000 $ 7,721,000 $ 2,397,000
============ ============ ============
Depreciation and Amortization:
Restaurants $ 1,550,000 $ 1,277,000 $ 1,166,000
Package stores 245,000 229,000 163,000
------------ ------------ ------------
1,795,000 1,506,000 1,329,000
Corporate 360,000 333,000 214,000
------------ ------------ ------------
Total Depreciation and Amortization $ 2,155,000 $ 1,839,000 $ 1,543,000
============ ============ ============
NOTE 16. QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of our unaudited quarterly results of
operations for the quarters in our fiscal years 2007 and 2006.
Quarter Ended
-------------------------------------------------------
December 30, March 31, June 30 September 29,
2006 2007 2007 2007
---- ---- ---- ----
Revenues $14,985,000 $16,304,000 $15,407,000 $14,405,000
Income from operations 712,000 810,000 288,000 290,000
Net income 324,000 332,000 427,000 184,000
F-30
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 16. QUARTERLY INFORMATION (UNAUDITED) (Continued)
Net income per share -
Basic 0.17 0.18 0.23 0.10
Net income per share -
Diluted 0.17 0.17 0.22 0.10
Weighted average common
stock outstanding - basic 1,884,201 1,887,917 1,892,891 1,890,543
Weighted average common
stock outstanding - diluted 1,911,022 1,915,176 1,914,986 1,908,462
The following is a summary of the significant fourth quarter
adjustments for our fiscal year 2007:
Decrease in accrual for officers' bonuses ($191,000)
Adjusting estimated income taxes to actual 95,000
---------
($ 96,000)
=========
Quarter Ended
----------------------------------------------------------
December 31, April 1, July 1, September 30,
2005 2006 2006 2006
---- ---- ---- ----
Revenues $ 13,249,000 $ 14,477,000 $ 13,851,000 $ 13,437,000
Income (loss) from operations 662,000 512,000 650,000 (186,000)
Net income (loss) 363,000 582,000 203,000 102,000
Net income (loss) per share -
basic .19 .31 .11 .05
Net income (loss) per share -
Diluted .19 .30 .11 .05
Weighted average common
stock outstanding - basic 1,874,776 1,879,809 1,893,486 1,887,167
Weighted average common
stock outstanding - diluted 1,913,990 1,908,919 1,920,472 1,912,147
The following is a summary of the significant fourth quarter
adjustments for our fiscal year 2006:
Additional accrual for officers' bonuses $ 116,000
=========
Quarterly operating results are not necessarily representative of
our operations for a full year for various reasons including the
seasonal nature of both the restaurant and package store segments.
NOTE 17. 401(k) PLAN
Effective July 2004, we began sponsoring a 401(k) retirement plan
covering substantially all employees who meet certain eligibility
requirements. Employees may contribute elective deferrals to the
plan up to amounts allowed under the Internal Revenue Code. We are
not required to contribute to the plan but may make discretionary
profit sharing and matching
F-31
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 17. 401(k) PLAN (Continued)
contributions. During our fiscal years 2007, 2006 and 2005, we made
discretionary contributions of $29,000, $12,000 and $37,500,
respectively.
Schedule II - Valuation and Qualifying Accounts
We maintain no accounts that qualify for this schedule for each of our
three fiscal years ended September 29, 2007, September 30, 2006 or
October 1, 2005.
================================================================================
F-32