UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 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 1-6836
FLANIGAN'S ENTERPRISES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Florida 59-0877638
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5059 N.E. 18th Avenue, Fort Lauderdale, Florida 33334
----------------------------------------------- -----
Address of principal executive offices) Zip Code
(954) 377-1961
--------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_|
Smaller reporting company |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|
On February 12, 2008, 1,889,533 shares of Common Stock, $0.10 par value per
share, were outstanding.
--------------------------------------------------------------------------------
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
---------------------------------------------
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION..................................................1
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)..........1
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME.................2
CONDENSED CONSOLIDATED BALANCE SHEETS.................................4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS.............6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......22
ITEM 4T. CONTROLS AND PROCEDURES........................................22
PART II. OTHER INFORMATION....................................................23
ITEM 1. LEGAL PROCEEDINGS...............................................23
ITEM 1A. RISK FACTORS...................................................23
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.....23
ITEM 6. EXHIBITS.........................................................24
As used in this Quarterly Report on Form 10-Q, 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).
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
Thirteen Weeks Ended
December 29, 2007 December 30, 2006
----------------- ----------------
REVENUES:
Restaurant food sales $ 9,747 $ 9,030
Restaurant bar sales 2,290 2,087
Package store sales 3,431 3,482
Franchise related revenues 331 300
Owner's fee 66 40
Other operating income 39 46
--------------- ---------------
15,904 14,985
--------------- ---------------
COSTS AND EXPENSES:
Cost of merchandise sold:
Restaurant and lounges 4,070 3,815
Package goods 2,465 2,544
Payroll and related costs 4,808 4,062
Occupancy costs 965 852
Selling, general and administrative expenses 3,416 3,000
--------------- ---------------
15,724 14,273
--------------- ---------------
Income from Operations 180 712
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense (120) (133)
Interest and other income (expense) 16 36
--------------- ---------------
(104) (97)
--------------- ---------------
Income before Provision for Income Taxes
and Minority Interest in (Earnings) Losses
of Consolidated Limited Partnerships 76 615
Provision for Income Taxes (152) (183)
Minority Interest in (Earnings) Losses of
Consolidated Limited Partnerships 261 (108)
--------------- ---------------
NET INCOME $ 185 $ 324
=============== ===============
2
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Continued)
Thirteen Weeks Ended
December 29, 2007 December 30, 2006
----------------- -----------------
Net Income Per Common Share:
Basic $ 0.10 $ 0.17
=============== ===============
Diluted $ 0.10 $ 0.17
=============== ===============
Weighted Average Shares and Equivalent
Shares Outstanding
Basic 1,890,372 1,884,201
=============== ===============
Diluted 1,903,300 1,911,022
=============== ===============
See accompanying notes to unaudited condensed consolidated financial statements.
3
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 2007 (UNAUDITED) AND SEPTEMBER 29, 2007
(In Thousands)
ASSETS
December 29, 2007 September 29, 2007
----------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents $ 4,354 $ 2,223
Notes and mortgages receivables,
current maturities, net 15 14
Due from franchisees 639 735
Other receivables 265 137
Inventories 2,424 2,165
Prepaid expenses 565 840
Deferred tax asset 208 208
--------------- ---------------
Total Current Assets 8,470 6,322
--------------- ---------------
Property and Equipment, Net 20,160 19,410
--------------- ---------------
Investment in Limited Partnership 139 142
--------------- ---------------
OTHER ASSETS:
Liquor licenses, net 347 347
Notes and mortgages receivable, net 41 44
Deferred tax asset 503 492
Leasehold purchases 2,027 2,085
Other 991 1,495
--------------- ---------------
Total Other Assets 3,909 4,463
--------------- ---------------
Total Assets $ 32,678 $ 30,337
=============== ===============
4
FLANIGAN'S ENTERPRISES, INC, AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 2007 (UNAUDITED) AND SEPTEMBER 29, 2007
(In Thousands)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 29, 2007 September 29, 2007
----------------- ------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,176 $ 3,666
Income taxes payable 28 331
Due to franchisees 184 312
Current portion of long term debt 183 196
Deferred revenues 42 45
Deferred rent 17 17
---------------- ----------------
Total Current Liabilities 4,630 4,567
---------------- ----------------
Long Term Debt, Net of Current Maturities 4,880 4,922
Line of Credit 1,562 962
Deferred Rent, Net of Current Portion 228 232
Minority Interest in Equity of
Consolidated Limited Partnerships 9,119 7,570
Commitments, Contingencies and
Subsequent Events
Stockholders' Equity:
Common stock, $.10 par value, 5,000,000
shares authorized; 4,197,642 shares issued 420 420
Capital in excess of par value 6,240 6,240
Retained earnings 11,516 11,331
Treasury stock, at cost, 2,308,109 shares
at December 29, 2007 and 2,306,909
shares at September 29, 2007 (5,917) (5,907)
---------------- ----------------
Total Stockholders' Equity 12,259 12,084
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 32,678 $ 30,337
================ ================
See accompanying notes to unaudited condensed consolidated financial statements.
5
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED DECEMBER 29, 2007 AND DECEMBER 30, 2006
(In Thousands)
December 29, December 30,
------------ ------------
2007 2006
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 185 $ 324
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 513 484
Amortization of leasehold purchases 58 39
Loss on abandonment of property and equipment 5 10
Deferred income tax (11) --
Deferred rent (4) 12
Minority interest in earnings of
consolidated limited partnerships (261) 108
Income from unconsolidated limited partnership -- (3)
Recognition of deferred revenue (3) (2)
Changes in operating assets and liabilities:
(increase) decrease in
Due from franchisees 96 231
Other receivables (128) 138
Prepaid income taxes -- (50)
Inventories (259) (428)
Prepaid expenses 275 206
Other assets 486 (112)
Increase (decrease) in:
Accounts payable and accrued expenses 510 (154)
Income taxes payable (303) (264)
Due to franchisees (128) 13
------------ ------------
Net cash provided by operating activities 1,031 552
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection on notes and mortgages receivable 2 2
Purchase of property and equipment (1,311) (1,004)
Purchase of leasehold interests -- (305)
Proceeds from sale of fixed assets 61 49
Proceeds from sale of marketable securities -- 381
Distributions from unconsolidated limited partners 3 --
Proceeds from insurance settlement -- 112
------------ ------------
Net cash used in investing activities (1,245) (765)
------------ ------------
6
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED DECEMBER 29, 2007 AND DECEMBER 30, 2006
(In Thousands)
(Continued)
December 29, December 30,
------------ ------------
2007 2006
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long term debt (55) (837)
Proceeds from long term debt -- 788*
Proceeds from line of credit 600 1,200
Purchase of treasury stock (10) (3)
Distributions to limited partnership (215) (150)
minority partners
Proceeds from limited partnership interests 2,025** --
------------ ------------
Net cash provided by financing activities 2,345 998
------------ ------------
Net Increase in Cash and Cash Equivalents 2,131 785
Beginning of Period 2,223 1,698
------------ ------------
End of Period $ 4,354 $ 2,483
============ ============
Supplemental Disclosure for Cash Flow Information:
Cash paid during period for:
Interest 120 133
============ ============
Income taxes 466 497
============ ============
Supplemental Disclosure of Non-Cash Investing and
Financing Activities:
Purchase of real property -- 250
============ ============
* During the first quarter of our fiscal year 2007, we re-financed our
corporate office building with a new mortgage, in the principal amount of
$1,000,000. The existing mortgage was satisfied with a payment of
$827,000, including prepayment penalty, ($17,000), and closing costs and
as of December 30, 2006, the excess mortgage proceeds, ($173,000), were
still in the possession of the closing agent and reflected in Other
Accounts Receivable.
** exclusive of the Company's investment in the limited partnership owning
the restaurant in Davie, FL of $1,850,000.
See accompanying notes to unaudited condensed consolidated financial statements
7
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 2007
(1) BASIS OF PRESENTATION:
The accompanying financial information for the periods ended December 29, 2007
and December 30, 2006 are unaudited. Financial information as of September 29,
2007 has been derived from the audited financial statements of the Company, but
does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
information for the periods indicated have been included. For further
information regarding the Company's accounting policies, refer to the
Consolidated Financial Statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended September 29, 2007. Operating
results for interim periods are not necessarily indicative of results to be
expected for a full year.
These financial statements include estimates relating to performance based
officers' bonuses. The estimates are reviewed periodically and the effects of
any revisions are reflected in the financial statements in the period they are
determined to be necessary. Although these estimates are based on management's
knowledge of current events and actions it may take in the future, they may
ultimately differ from actual results.
(2) EARNINGS PER SHARE:
Statements of Financial Accounting Standards ("SFAS") No. 128, Earnings per
share establishes standards for computing and presenting earnings per share
("EPS"). This statement requires the presentation of basic and diluted EPS. The
data on Page 3 shows the amounts used in computing earnings per share and the
effects on income and the weighted average number of shares of potentially
dilutive common stock equivalents.
(3) RECLASSIFICATION:
Certain amounts in the fiscal year 2007 financial statements have been
reclassified to conform to the fiscal year 2008 presentation.
(4) RECENT 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
8
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 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 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. The adoption of Interpretation No. 48 at the beginning of our
fiscal year 2008 did not 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 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. We report taxes on a
net presentation in our income statement.
(5) INVESTMENT IN LIMITED PARTNERSHIPS:
Davie, Florida
During the fourth quarter of fiscal year 2007, building permits were issued to
the limited partnership which owns the restaurant in Davie, Florida, enabling
renovations and upgrades to the business premises
9
to proceed. During the first quarter of fiscal year 2008, the limited
partnership completed a private offering of limited partnership interests,
raising gross proceeds of $3,875,000, of which $1,850,000 represented our
investment. As of the completion of the private offering, we had advanced
$1,224,000 for expenses of the limited partnership. The amounts advanced to the
limited partnership were used to credit 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. In addition
to being the sole general partner of this limited partnership, we maintain a 48%
limited partnership interest in this limited partnership and an additional 9.5%
of the limited partnership interests are owned by persons who are either
officers, directors or their family members. The limited partnership will use
the gross proceeds from the private offering to complete the renovations and
upgrades at the Davie, Florida location and anticipates that this location will
be open for business as a "Flanigan's Seafood Bar and Grill" restaurant during
the third quarter of fiscal year 2008.
Pembroke Pines, Florida
We are the sole general partner and a 16% limited partner in this limited
partnership which owns a restaurant in Pembroke Pines, Florida which commenced
operating under our "Flanigan's Seafood Bar and Grill" service mark on October
29, 2007. 17.7% of the remaining limited partnership interest is owned by
persons who are either our officers, directors or their family members.
(6) LINE OF CREDIT:
Under a secured line of credit with a third party financial institution we are
able to borrow up to $2,600,000. During the second quarter of fiscal year 2008,
we extended the maturity date of our secured line of credit from December 26,
2008 to January 2, 2009. During the first quarter of fiscal year 2008, 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 and paid monthly installments of interest payments, with
no principal payments. As of December 29, 2007, the amount outstanding under the
line of credit was $1,562,000, with a remaining availability of $1,038,000.
(8) INCOME TAXES:
Financial Accounting Standards Board Statement No. 109, Accounting for Income
Taxes, requires among other things, recognition of future tax benefits measured
at enacted rates attributable to deductible temporary differences between
financial statement and income tax basis of assets and liabilities and to tax
net operating loss carryforwards and tax credits to the extent that realization
of said tax benefits is more likely than not.
(9) STOCK OPTION PLANS:
We have two stock option plans under which qualified stock options may be
granted to our officers and other employees. Under these plans, the exercise
price for the qualified stock options must be at least 110% of the fair market
value of the Company's Common Stock on the date the options are granted. In
general, options granted under our stock option plans expire after a five (5)
year period and generally vest no later than one (1) year from the date of
grant. As of December 29, 2007, options to acquire 50,300 shares were
outstanding at an average exercise price of $6.31 per share. Under the plans,
options to acquire an aggregate of 45,000 shares are available for grant.
No stock options were granted during the thirteen weeks ended December 29, 2007,
nor were stock options granted during the thirteen weeks ended December 30,
2006.
10
No stock options were exercised during the thirteen weeks ended December 29,
2007, nor were stock options exercised during the thirteen weeks ended December
30, 2006.
Stock option activity during the thirteen weeks ended December 29, 2007 was as
follows:
Weighted Average
Total Options Exercise Price
------------- --------------
Outstanding at September 29, 2007 50,300 $ 6.31
Granted -- --
Exercised -- --
Expired -- --
Outstanding at December 29, 2007 50,300 $ 6.31
============ ============
Options exercisable at December 29, 2007 50,300 $ 6.31
============ ============
The weighted-average remaining contractual terms of stock options outstanding
and stock options exercisable at December 29, 2007 was approximately 1.25 years.
The aggregate intrinsic value of options outstanding and stock options
exercisable at December 29, 2007 was approximately $90,000.
(10) COMMITMENTS AND CONTINGENCIES:
Guarantees
We guarantee various leases for franchisees, limited partnerships that own
restaurants and locations sold in prior years. Remaining rental commitments
required under these leases are approximately $2,839,000. In the event of a
default under any of these agreements, we will have the right to repossess the
premises and operate the business to recover amounts paid under the guarantee
either by liquidating assets or operating the business.
Litigation
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 fiscal year 2007,
the appellate court affirmed and upon re-hearing, again affirmed the granting of
a summary judgment in favor of the shopping center. The seller from whom we
purchased the building 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. We dispute the seller's entitlement to
reimbursement of its attorney's fees and costs and are appealing the ruling
against us by the trial court. We also believe that the amount of the seller's
claim is excessive.
During 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 limited partnership while the repairs
were occurring. The claim also includes the request by the limited partnership
for the court to determine if the limited partnership has
11
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.
(11) 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 the
thirteen weeks ended December 29, 2007 and December 30, 2006, 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.
Thirteen Weeks Thirteen Weeks
Ending Ending
December 29, 2007 December 30, 2006
----------------- -----------------
Operating Revenues:
Restaurants $ 12,037 $ 11,117
Package stores 3,431 3,482
Other revenues 436 386
--------------- ---------------
Total operating revenues $ 15,904 $ 14,985
=============== ===============
Operating Income Reconciled to Income Before Income Taxes and
Minority Interests in Earnings of Consolidated Limited
Partnerships
Restaurants $ 590 $ 903
Package stores 145 180
--------------- ---------------
735 1,083
Corporate expenses, net of other
Revenues (555) (371)
--------------- ---------------
Operating income 180 712
Other income (expense) (104) (97)
--------------- ---------------
Income Before Income Taxes and Minority Interests in Earnings of
Consolidated Limited Partnerships $ 76 $ 615
=============== ===============
Depreciation and Amortization:
Restaurants $ 418 $ 375
Package stores 62 59
--------------- ---------------
480 434
Corporate 91 89
--------------- ---------------
Total Depreciation and Amortization $ 571 $ 523
=============== ===============
Capital Expenditures:
12
Restaurants $ 1,169 $ 1,158
Package stores 56 80
--------------- ---------------
1,225 1,238
Corporate 86 321
--------------- ---------------
Total Capital Expenditures $ 1,311 $ 1,559
=============== ===============
December 29, September 29,
2007 2007
---- ----
Identifiable Assets:
Restaurants $ 18,399 $ 18,202
Package store 3,802 3,577
--------------- ---------------
22,201 21,779
Corporate 10,477* 8,558
--------------- ---------------
Consolidated Totals $ 32,678 $ 30,337
=============== ===============
* Includes $2,025,000 from outside investors and $600,000 borrowed by the
Company on its line of credit as the balance of its investment in the
private offering by the limited partnership which owns the Davie, Florida
location.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reported financial results may not be indicative of the financial results of
future periods. All non-historical information contained in the following
discussion constitutes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Words such as "anticipates, appears, expects, trends, intends, hopes,
plans, believes, seeks, estimates, may, will," and variations of these words or
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and involve a number of
risks and uncertainties, including but not limited to customer demand and
competitive conditions. Factors that could cause actual results to differ
materially are included in, but not limited to, those identified in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in the Annual Report on Form 10-K for the Company's fiscal year
ended September 29, 2007 and in this Quarterly Report on Form 10-Q. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may reflect events or circumstances after
the date of this report.
OVERVIEW
At December 29, 2007, we (i) operated 22 units, (excluding the adult
entertainment club referenced in (ii) below), consisting of restaurants, package
stores and combination restaurants/package 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 stores. The table below provides information concerning the
type (i.e. restaurant, package 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
December 29, 2007 and as compared to December 30, 2006 and September 29, 2007.
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".
13
Types of Units December 29, September December 30,
2007 29, 2007 2006
---- -------- ----
Company Owned:
Combination package and restaurant 4 4 4
Restaurant only 3 3 2 (1)
Package store only 5 5 5
Company Operated Restaurants Only:
Limited Partnerships 8 7 7 (2)
Franchise 1 1 1 (3)
Unrelated Third Party 1 1 1
Company Owned Club: 1 1 1
Total Company Owned/Operated Units 23 22 21
Franchised Units 6 6 7 (3)(4)
Notes:
(1) Includes a restaurant located in Lake Worth, Florida which we acquired from
a franchisee and which commenced operating as a Company owned restaurant on
March 4, 2007.
(2) Includes a restaurant located in Pembroke Pines, Florida which is owned by a
limited partnership in which we are the sole general partner and own 16% of the
limited partnership interest and commenced operating on October 29, 2007.
(3) We operate a restaurant for one (1) franchisee. This unit is included in the
table both as a franchised restaurant, as well as a restaurant operated by the
Company.
(4) Excludes a restaurant located in Lake Worth, Florida which we acquired from
a franchisee during the second quarter of our fiscal year 2007.
RESULTS OF OPERATIONS
Thirteen Weeks Ended
--------------------
December 29, 2007 December 30, 2006
----------------- -----------------
Amount Amount
------ ------
(In thousands) Percent (In thousands) Percent
-------------- ------- -------------- -------
Restaurant food sales $ 9,747 63.01 $ 9,030 61.85
Restaurant bar sales 2,290 14.81 2,087 14.30
Package store sales 3,431 22.18 3,482 23.85
------------ ------------ ------------ ------------
Total Sales $ 15,468 100.00 $ 14,599 100.00
Franchise related revenues 331 300
Owner's fee 66 40
Other operating income 39 46
------------ ------------
Total Revenue $ 15,904 $ 14,985
============ ============
14
Franchise Financial Arrangement: 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 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,
pro-rata, based upon gross sales.
Limited Partnership Financial Arrangement: We manage and control the operations
-----------------------------------------
of all restaurants owned by limited partnerships, except the Fort Lauderdale,
Florida restaurant which is owned by a related franchisee. Accordingly, the
results of operations of all limited partnership owned restaurants, except the
Fort Lauderdale, Florida restaurant are consolidated into our operations for
accounting purposes. The results of operations of the Fort Lauderdale, Florida
restaurant are accounted for by us utilizing the equity method. In general,
until the investors' cash investment in a limited partnership (including any
cash invested by us and our affiliates) is returned in full, the limited
partnership distributes to the investors annually out of available cash from the
operation of the restaurant 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, with the
balance distributed to the investors. Once the investors in the limited
partnership have received, in full, amounts equal to their cash invested, an
annual management fee is payable to us equal to one-half (1/2) of cash available
to the limited partnership, with the other one half (1/2) of available cash
distributed to the investors (including us and our affiliates). As of December
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
its receipt of distributable amounts from the limited partnerships, we receive a
fee equal to 3% of gross sales for use of the service mark "Flanigan's Seafood
Bar and Grill".
Comparison of Thirteen Weeks Ended December 29, 2007 and December 30, 2006.
---------------------------------------------------------------------------
Revenues. Total revenue for the thirteen weeks ended December 29, 2007 increased
$919,000 or 6.13% to $15,904,000 from $14,985,000 for the thirteen weeks ended
December 30, 2006. This increase resulted from sales from two restaurant
locations (the Pembroke Pines, Florida limited partnership owned restaurant
($747,000) and the Company owned Lake Worth, Florida restaurant ($408,000)),
both of which were opened after December 30, 2006, offset by the decline in same
store restaurant food and bar sales. The Pembroke Pines, Florida and Lake Worth,
Florida restaurants generated $1,155,000 of revenues during the thirteen weeks
ended December 29, 2007 and without giving effect to the revenue generated from
these two new restaurants, total revenue for the thirteen weeks ended December
29,2007 would have decreased $236,000 or 1.57% to $14,749,000 from $14,985,000
for the thirteen weeks ended December 30, 2006. The Pembroke Pines, Florida
restaurant opened for business on October 29, 2007 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.
Restaurant Food Sales. Restaurant revenue generated from the sale of
---------------------
food at restaurants totaled $9,747,000 for the thirteen weeks ended December 29,
2007 as compared to $9,030,000 for the thirteen weeks ended December 30, 2006.
The increase in restaurant food sales is due to sales from the Pembroke Pines,
Florida and Lake Worth restaurants. The Pembroke Pines, Florida and Lake Worth,
Florida location generated $885,000 of revenues from the sale of food during the
thirteen weeks ended December 29, 2007 and without giving effect to the revenue
generated from these two new restaurants, revenue from the sale of food for the
thirteen weeks ended December 29, 2007 would have decreased
15
$168,000 or 1.86% to $8,862,000 from $9,030,000 for the thirteen weeks ended
December 30, 2006. Comparable weekly restaurant food sales (for restaurants open
for all of the first quarter of our fiscal year 2008 and the first quarter of
our fiscal year 2007, which consists of six restaurants owned by us and seven
restaurants owned by affiliated limited partnerships) was $676,000 and $695,000
for the thirteen weeks ended December 29, 2007 and December 30, 2006,
respectively, a decrease of 2.73%. Comparable weekly restaurant food sales for
Company owned restaurants only was $283,000 and $282,000 for the first quarter
of our fiscal year 2008 and the first quarter of our fiscal year 2007,
respectively, an increase 0f 0.35%. Comparable weekly restaurant food sales for
affiliated limited partnership owned restaurants only was $393,000 and $413,000
for the first quarter of our fiscal year 2008 and the first quarter of our
fiscal year 2007, respectively, a decrease of 4.84%. 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 expected 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 (bar sales) totaled $2,290,000 for the
thirteen weeks ended December 29, 2007 as compared to $2,087,000 for the
thirteen weeks ended December 30, 2006. The increase in restaurant bar sales is
due to sales from the Pembroke Pines, Florida and Lake Worth restaurants. The
Pembroke Pines, Florida and Lake Worth, Florida locations generated $199,000 of
revenues from bar sales during the thirteen weeks ended December 29, 2007 and
without giving effect to the revenue from bar sales generated from these two new
restaurants, revenue from bar sales for the thirteen weeks ended December 29,
2007 and December 30, 2006 would have been approximately equal at $2,091,000 and
$2,087,000, respectively. Comparable weekly restaurant bar sales (for
restaurants open for all of the first quarter of our fiscal year 2008 and the
first quarter of our fiscal year 2007, which consists of six restaurants owned
by us and seven restaurants owned by affiliated limited partnerships) was
$161,000 for each of the thirteen weeks ended December 29, 2007 and December 30,
2006. Comparable weekly restaurant bar sales for Company owned restaurants only
was $66,000 and $63,000 for the first quarter of our fiscal year 2008 and the
first quarter of our fiscal year 2007, respectively, an increase of 4.76%.
Comparable weekly restaurant bar sales for affiliated limited partnership owned
restaurants only was $95,000 and $98,000 for the first quarter of our fiscal
year 2008 and the first quarter of our fiscal year 2007, respectively, a
decrease of 3.06%. We anticipate that restaurant bar sales will continue to
increase through 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 expected
opening of the new restaurant location in Davie, Florida, (owned by an
affiliated limited partnership), during the third quarter of fiscal year 2008.
Package Store Sales. Revenue generated from sales of liquor and related
-------------------
items at package stores totaled $3,431,000 for the thirteen weeks ended December
29, 2007 as compared to $3,482,000 for the thirteen weeks ended December 30,
2006, a decrease of 1.46%. The weekly average of same store package store sales
was $264,000 and $268,000 for the thirteen weeks ended December 29, 2007 and
December 30, 2006, respectively. The decrease was primarily due to increased
competition and package store sales are expected to decline through the balance
of our fiscal year 2008. Increased competition has had a greater adverse impact
upon package store sales 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 the thirteen weeks ended December 29,
2007 increased $1,451,000 or 10.17% to $15,724,000 from $14,273,000 for the
thirteen weeks ended December 30, 2006. The increase was primarily due to
expenses related to the opening of the Pembroke Pines, Florida and Lake Worth,
Florida restaurants and
16
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 expected opening of the Davie, Florida
restaurant during the third quarter of fiscal year 2008. Operating costs and
expenses increased as a percentage of total sales to approximately 98.87% in the
first quarter of our fiscal year 2008 from 95.25% in the first quarter of our
fiscal year 2007.
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
-----------------------------
the thirteen weeks ended December 29, 2007 increased to $7,967,000 from
$7,302,000 for the thirteen weeks ended December 30, 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), increased to 66.19% for the
thirteen weeks ended December 29, 2007 compared to 65.68% for the thirteen weeks
ended December 30, 2006. This increase in gross profit for restaurant and bar
sales for the first quarter of our fiscal year 2008 was primarily due to menu
price increases instituted at the end of the first quarter of our fiscal year
2007 and a decrease in the cost of ribs during calendar year 2007
Package Store Sales. Gross profit for package store sales for the
---------------------
thirteen weeks ended December 29, 2007 increased to $966,000 from $938,000 for
the thirteen weeks ended December 30, 2006. Our gross profit margin, (calculated
as gross profit reflected as a percentage of package sales), was 28.16% for the
thirteen weeks ended December 29, 2007 compared to 26.94% for the thirteen weeks
ended December 30, 2006. The increase in our gross profit margin, (1.22%), was
primarily due to the purchase of "close out" and inventory reduction merchandise
from wholesalers. We anticipate the gross profit margin for package store sales
to remain constant throughout the balance of fiscal year 2008.
Payroll and Related Costs. Payroll and related costs for the thirteen weeks
ended December 29, 2007 increased $746,000 or 18.37% to $4,808,000 from
$4,062,000 for the thirteen weeks ended December 30, 2006. This increase is
primarily attributable to the Pembroke Pines, Florida and Lake Worth, Florida
restaurants. We anticipate that our payroll costs and related 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 fiscal year 2008. Payroll and related
costs as a percentage of total sales was 30.23% in the first quarter of our
fiscal year 2008 and 27.11% of total sales in the first quarter of our fiscal
year 2007. This increase as a percentage of sales was primarily due to the
opening of the Pembroke Pines, Florida restaurant during the first quarter of
our fiscal year 2008 and the need to pay higher wages to attract and retain
employees.
Occupancy Costs. Occupancy costs (consisting of rent, common area maintenance,
repairs, real property taxes and amortization of leasehold purchases) for the
thirteen weeks ended December 29, 2007 increased $113,000 or 13.26% to $965,000
from $852,000 for the thirteen weeks ended December 30, 2006. This increase is
due to, (i) rental payments at three additional restaurant locations, (Pembroke
Pines, Florida-$36,000, Davie, Florida- $33,000, and Lake Worth,
Florida-$21,000); 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 stabilize throughout the balance of our fiscal year 2008.
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 the thirteen weeks ended December 29, 2007
increased $416,000 or 13.87% to $3,416,000 from $3,000,000 for the thirteen
weeks ended December 30, 2006. Selling, general and administrative expenses
increased as a percentage of total sales in the first quarter of
17
our fiscal year 2008 to approximately 21.48% as compared to 20.02% in the first
quarter of our fiscal year 2007. This increase is attributable to the operation
of the Pembroke Pines, Florida restaurant and an overall 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 throughout the balance of our fiscal year 2008 due to,
among other things, the opening of our 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 fiscal year 2008.
Depreciation. Depreciation for the thirteen weeks ended December 29, 2007 and
December 30, 2006 was $513,000 and $484,000 respectively. As a percentage of
revenue, depreciation expense remained at 3.23% of revenue in the thirteen weeks
ended December 29, 2007 and the thirteen weeks ended December 30, 2006.
Other Income and Expense. Other income and expenses was an expense of $104,000
for the thirteen weeks ended December 29, 2007, as compared to an expense of
$97,000 for the thirteen weeks ended December 30, 2006. Other income and expense
for the thirteen weeks ended December 29, 2007 includes interest expense of
$120,000, as compared to interest expense of $133,000 for the thirteen weeks
ended December 30, 2006. The decrease in interest expense is attributable to a
reduced average balance outstanding on our line of credit during the thirteen
weeks ended December 29, 2007.
Interest Expense, Net. Interest expense, net, for the thirteen weeks ended
December 29, 2007 decreased $13,000 to $120,000 from $133,000 for the thirteen
weeks ended December 30, 2006. This decrease was attributable to a reduced
average balance outstanding on our line of credit.
Net Income. Net income for the thirteen weeks ended December 29, 2007 decreased
$139,000 or 42.9% to $185,000 from $324,000 for the thirteen weeks ended
December 30, 2006. As a percentage of sales, net income for the first quarter of
our fiscal year 2007 is 1.16%, as compared to 2.16% in the first quarter of our
fiscal year 2007. The decrease in net income as a percentage of sales (-1.00%)
is primarily due to our share of the pre-opening and opening expenses associated
with the limited partnership owned restaurant in Pembroke Pines, ($40,000), our
share of the and pre-opening expenses associated with the limited partnership
owned restaurant in Davie, Florida, ($102,000) during the first quarter of
fiscal year 2008, higher food costs and overall expenses, including electric,
gas and real property taxes, property and windstorm insurance coverage. During
the first quarter of fiscal year 2007, we did not have significant pre-opening
expenses associated with the limited partnership owned restaurant in Pembroke
Pines, ($19,000), which adversely affected net income.
New Limited Partnership Restaurants
The limited partnership owned restaurant located in Pembroke Pines, Florida
opened for business during the first quarter of our fiscal year 2008 (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 the first
quarter of our fiscal year 2008, we recognized non-cash pre-opening rent in the
approximate amount of $6,000 and recognized cash pre-opening rent in the
approximate amount of $12,000 for the recently opened Pembroke Pines, Florida
restaurant. During the first quarter of our fiscal year 2008, we also paid and
expensed pre-opening rent in the approximate amount of $33,000 for the currently
unopened Davie, Florida restaurant, which is the full rent provided in the
lease. During the first quarter of our fiscal year 2007, we recognized non-cash
pre-opening rent in the approximate amount of
18
$18,000 for the recently opened Pembroke Pines, Florida restaurant. We are
recognizing rent expense on a straight line basis over the term of the lease.
During the first quarter of our fiscal year 2008, the limited partnership
restaurant in Davie, Florida reported losses of $175,000 primarily due to
pre-opening costs, thus contributing to a reduction in the operating income for
the first quarter of our fiscal year 2008. During the first quarter of our
fiscal year 2007, the limited partnership restaurant in Pembroke Pines, Florida
reported a loss of $19,000 primarily due to pre-opening costs, thus contributing
to a reduction in the operating income for the first quarter of our fiscal year
2007.
Throughout the balance of 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 Davie, Florida restaurant. Management
believes that our current cash availability from our line of credit and expected
cash from operations will be sufficient to fund operations and capital
expenditures for at least the next twelve months.
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 store sales are expected to decrease
due primarily to increased competition. Management also expects higher food
costs and overall expenses to increase. During the first quarter of our fiscal
year 2007, we raised menu prices to offset the higher food costs and overall
expenses. During the first quarter of our fiscal year 2008, 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.
Liquidity and Capital Resources
We fund our operations through cash from operations and borrowings under our
line of credit. As of December 29, 2007, we had cash of approximately
$4,354,000, an increase of $2,131,000 from our cash balance of $2,223,000 as of
September 29, 2007. The increase in cash was due primarily to the limited
partnership which owns the Davie, Florida location completing its private
offering, (raising the sum of $3,875,000, of which $1,850,000 represents our
investment), and our borrowing of $600,000 on our line of credit to pay the
balance of the purchase price for our limited partnership units in this limited
partnership during the first quarter of our fiscal year 2008. The amounts we
advanced to the limited partnership, ($1,224,000), were used to credit 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.
Cash Flows
The following table is a summary of our cash flows for the thirteen weeks of
fiscal years 2008 and 2007.
19
Thirteen Weeks Ended
December 29, 2007 December 30, 2006
----------------- -----------------
(in Thousands)
Net cash provided by operating activities $ 1,031 $ 552
Net cash used in investing activities (1,245) (765)
Net cash provided by financing activities 2,345 998
--------------- ---------------
Net Increase in Cash and Cash Equivalents 2,131 785
Cash and Cash Equivalents, Beginning 2,223 1,698
--------------- ---------------
Cash and Cash Equivalents, Ending $ 4,354 $ 2,483
=============== ===============
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.
Capital Expenditures
We acquired property and equipment of $1,311,000 during the thirteen weeks ended
December 29, 2007, including $96,000 for renovations to one (1) existing Company
owned restaurant, as compared to $1,254,000, (of which $250,000 was financed),
during the thirteen weeks ended December 30, 2006, which included $802,500 for
the purchase of real property and $204,000 for renovations to two (2) existing
Company restaurants. During the first quarter of our fiscal year 2008, the
limited partnership which owns the Davie, Florida restaurant completed its
private offering, raising the sum of $3,875,000, of which $1,850,000 represents
our investment. We did not advance any funds to this limited partnership in
excess of our investment in the same. The funds from the private offering will
be used 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 the thirteen weeks ended December 30, 2006, we purchased the
leasehold interest for the Pembroke Pines, Florida ($305,000) location, the cost
of which is being amortized as additional rent over the life of the lease.
All of the Company owned units require periodic refurbishing in order to remain
competitive. Management anticipates the cost of this refurbishment in fiscal
year 2008 to be approximately $375,000, of which $112,000 has been spent through
December 29, 2007.
Long Term Debt
As of December 29, 2007, we had long term debt of $6,625,000, as compared to
$6,794,000 as of December 30, 2006, and $6,080,000 as of September 29, 2007. The
net increase in long term debt as of December 29, 2007 is attributed to the
borrowing of $600,000 under our secured line of credit during the first quarter
of fiscal year 2008 to pay the balance of the purchase price for our limited
partnership units in the limited partnership which owns the Davie, Florida
restaurant.
As of December 29, 2007, the amount outstanding under our secured line of credit
was $1,562,000. During the second quarter of fiscal year 2008, but retroactive
to December 26, 2007, we extended the maturity date of our secured line of
credit from December 26, 2008 to January 2, 2009.
20
The following schedule represents our cash contractual obligations by maturity
(in thousands):
Cash Contractual Obligations
Less than
Cash Contractual Obligations Total 1 Year 1 -5 Years After 5 Years
---------------------------- ------------ ------------ ------------ -------------
Long Term Debt Obligations $ 6,624 $ 138 $ 2,274 $ 4,212
Operating Lease Obligations 15,600 2,495 8,026 5,079
Rib Contract 3,200 3,200 -- --
------------ ------------ ------------ ------------
$ 25,424 $ 5,833 $ 10,300 $ 9,291
============ ============ ============ ============
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.
Working Capital
The table below summarizes the current assets, current liabilities, and working
capital for our fiscal quarters ended December 29, 2007, December 30, 2006 and
fiscal year ended September 29, 2007.
Item Dec. 29, 2007 Dec. 30, 2006 Sept 29, 2007
---- ------------- ------------- -------------
(in Thousands)
Current Assets $ 8,470 $ 6,684 $ 6,322
Current Liabilities 4,630 4,523 4,567
------------ ------------ ------------
Working Capital $ 3,840 $ 2,161 $ 1,755
Working capital as of December 29, 2007 increased by 77.70% from the working
capital for the fiscal quarter ending December 30, 2006 and increased by 118.80%
from the working capital for the fiscal year ending September 29, 2007. Our
working capital improved during the first quarter of our fiscal year 2008 when
the limited partnership which owns the Davie, Florida restaurant completed its
private offering, raising the sum of $3,875,000, less $1,224,000 which we
advanced for expenses of the limited partnership and was used to credit our
obligation to pay for our equity investment. The funds from the private offering
will be used 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 also continued to improve during the fiscal quarter ending
December 29, 2007 due to the minimal demand upon our cash flow for extraordinary
items during the fiscal quarter.
We believe that positive cash flow from operations will adequately fund
operations and debt reduction through the balance of our fiscal year 2008.
Subsequent to the end of the first quarter of our fiscal year 2008, we
contracted for the purchase of a new point of sale system for our package
stores, at a cost of
21
approximately $182,000, excluding a surveillance camera system which we estimate
will cost an additional $90,000. Prior to the end of the first quarter of our
fiscal year 2008, we had already paid approximately $80,000 as the cost to
customize and test the new point of sale system and to purchase universal
wireless hand-held scanners, which payments are in addition to the contracted
amount. We anticipate that this new point of sale system for our package stores
will be installed and fully operational by the end of our fiscal year 2008.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements.
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. To date, inflation has not had a material impact on our operating
results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not ordinarily hold market risk sensitive instruments for trading purposes
and as of December 29, 2007 held no equity securities.
Interest Rate Risk
At December 29, 2007, of the Company's debt arrangements, only 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 operations, depending upon the outstanding principal balance on our
line of credit from time to time.
At December 29, 2007, our cash resources earn interest at variable rates.
Accordingly, our return on these funds is affected by fluctuations in interest
rates.
ITEM 4T. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, with the participation
of management, evaluated the effectiveness 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 December 29, 2007. Based upon that
evaluation, it is the opinion 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.
22
(b) Change in Internal Control over Financial Reporting
During the first quarter of our fiscal year 2008, 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. We made no changes in our internal control over
financial reporting during the fiscal quarter ending December 29, 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.
Limitations on the Effectiveness of Controls
We believe that a control system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the control system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives and our Chief Executive
Officer and Chief Financial Officer have concluded that such controls and
procedures are effective at the reasonable assurance level.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Litigation" on page 11 of this Report and Item 1 and Item 3 to Part 1 of
the Annual Report on Form 10-K for the fiscal year ended September 29, 2007 for
a discussion of other legal proceedings resolved in prior years.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in
our Annual Report on Form 10-K for the fiscal year ended September 29, 2007 and
in other reports filed from time to time with the SEC since the date we filed
our Form 10-K. Readers are urged to carefully review these risk factors since
they may cause our results to differ from the "forward-looking statements" made
in this report or otherwise made by or on our behalf. Those risk factors are not
the only ones we face. Additional risks not presently known to us or other
factors not perceived by us to present significant risks to our business at this
time also may impair our business operations. We do not undertake to update any
of these forward-looking statements or to announce the results of any revisions
to these forward-looking statements except as required by law.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchase of Company Common Stock
Pursuant to a discretionary plan approved by the Board of Directors, on December
17, 2007, we purchased 1,200 shares of our common stock from the Joseph G.
Flanigan Charitable Trust for an aggregate purchase price of $9,600.
23
ITEM 6. EXHIBITS
The following exhibits are filed with this Report:
Exhibit Description
------- -----------
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
24
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLANIGAN'S ENTERPRISES, INC.
Date: February 12, 2008 /s/ James G. Flanigan
-----------------------------------------------
JAMES G. FLANIGAN, Chief Executive Officer
and President
/s/ Jeffrey D. Kastner
-----------------------------------------------
JEFFREY D. KASTNER, Chief Financial Officer and
Secretary (Principal Financial and Accounting
Officer)
25