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 June 30, 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, 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|
On August 14, 2007, 1,890,733 shares of Common Stock, $0.10 par value per share,
were outstanding.
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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......................................15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....25
ITEM 4. CONTROLS AND PROCEDURES........................................25
PART II. OTHER INFORMATION...................................................26
ITEM 1. LEGAL PROCEEDINGS..............................................26
ITEM 1A. RISK FACTORS..................................................26
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS....26
ITEM 6. EXHIBITS........................................................27
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 Thirty-nine Weeks
Ended Ended
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
-------- -------- -------- --------
REVENUES:
Restaurant food sales $ 9,773 $ 8,405 $ 28,832 $ 24,440
Restaurant bar sales 2,206 1,943 6,642 5,669
Package store sales 3,037 3,036 10,050 10,228
Franchise related revenues 279 291 887 837
Owner's fee 71 96 151 171
Other operating income 41 80 134 231
-------- -------- -------- --------
15,407 13,851 46,696 41,576
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of merchandise sold:
Restaurant and lounges 4,211 3,495 12,206 10,232
Package goods 2,174 2,175 7,237 7,343
Payroll and related costs 4,494 4,096 13,098 11,904
Occupancy costs 1,099 800 2,863 2,398
Selling, general and administrative expenses 3,141 2,635 9,482 7,876
-------- -------- -------- --------
15,119 13,201 44,886 39,753
-------- -------- -------- --------
Income from Operations 288 650 1,810 1,823
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (129) (53) (387) (124)
Interest and other income 40 18 110 56
Insurance recovery, net of casualty loss -- (8) -- 442
Gain on sale of property and equipment 393 -- 393 --
-------- -------- -------- --------
304 (43) 116 374
-------- -------- -------- --------
Income before Provision for Income Taxes
and Minority Interest in (Earnings) Losses of
Consolidated Limited Partnerships 592 607 1,926 2,197
Provision for Income Taxes (236) (258) (603) (705)
Minority Interest in (Earnings) Losses of
Consolidated Limited Partnerships 71 (146) (240) (345)
-------- -------- -------- --------
Net Income $ 427 $ 203 $ 1,083 $ 1,147
======== ======== ======== ========
2
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Continued)
Thirteen Weeks Thirty-nine Weeks
Ended Ended
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
---------- ---------- ---------- ----------
Net Income Per Common Share:
Basic $ 0.23 $ 0.11 $ 0.57 $ 0.61
========== ========== ========== ==========
Diluted $ 0.22 $ 0.11 $ 0.57 $ 0.60
========== ========== ========== ==========
Weighted Average Shares and Equivalent
Shares Outstanding
Basic 1,892,891 1,893,486 1,888,336 1,882,690
========== ========== ========== ==========
Diluted 1,914,986 1,920,472 1,910,119 1,908,085
========== ========== ========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
3
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2007 (UNAUDITED) AND SEPTEMBER 30, 2006
(In Thousands)
ASSETS
JUNE 30, SEPTEMBER 30,
2007 2006
---------- ----------
Current Assets:
Cash and cash equivalents $ 3,330 $ 1,698
Notes and mortgages receivables,
current maturities, net 14 12
Due from franchisees 314 569
Other receivables 161 821
Inventories 2,202 2,215
Prepaid expenses 1,056 813
Deferred tax asset 186 187
---------- ----------
Total Current Assets 7,263 6,315
---------- ----------
Property and Equipment, Net 19,287 17,967
---------- ----------
Investment in Limited Partnership 149 153
---------- ----------
Other Assets:
Liquor licenses, net 347 347
Notes and mortgages receivable, net 48 103
Deferred tax asset 392 397
Leasehold purchases 2,142 1,291
Other 1,227 825
---------- ----------
Total Other Assets 4,156 2,963
---------- ----------
Total Assets $ 30,855 $ 27,398
========== ==========
4
FLANIGAN'S ENTERPRISES, INC, AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2007 (UNAUDITED) AND SEPTEMBER 30, 2006
(In Thousands)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, SEPTEMBER 30,
2007 2006
---------- ----------
Current Liabilities:
Accounts payable and accrued expenses $ 4,046 $ 4,096
Income taxes payable 114 264
Due to franchisees 420 268
Current portion of long term debt 211 223
Deferred revenues 47 54
Deferred rent 16 14
---------- ----------
Total Current Liabilities 4,854 4,919
---------- ----------
Long Term Debt, Net of Current Maturities 4,963 4,196
Line of Credit 962 762
Deferred Rent, Net of Current Portion 237 223
Minority Interest in Equity of
Consolidated Limited Partnerships 7,939 6,506
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 6,203
Retained earnings 11,147 10,064
Treasury stock, at cost, 2,306,909 shares
at June 30, 2007 and 2,313,277
shares at September 30, 2006 (5,907) (5,895)
---------- ----------
Total Stockholders' Equity 11,900 10,792
---------- ----------
Total Liabilities and Stockholders' Equity $ 30,855 $ 27,398
========== ==========
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 THIRTY-NINE WEEKS ENDED JUNE 30, 2007 AND JULY 1, 2006
(In Thousands)
JUNE 30, JULY 1,
2007 2006
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,083 $ 1,147
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,454 1,229
Amortization of leasehold purchases 149 108
Gain on sale of property and equipment (393) --
Loss on abandonment of property and equipment 26 10
Casualty loss -- 64
Deferred income tax 6 (26)
Deferred rent 16 (14)
Minority interest in earnings of
consolidated limited partnerships 240 345
Income from unconsolidated limited partnership (5) (23)
Recognition of deferred revenue (7) (6)
Changes in operating assets and liabilities:
(Increase) decrease in
Due from franchisees 255 (89)
Other receivables 167 (65)
Inventories 13 (118)
Prepaid expenses (243) (192)
Other assets (414) (954)
Increase (decrease) in:
Accounts payable and accrued expenses (50) 397
Income taxes payable (150) 300
Due to franchisees 152 (45)
--------- ---------
Net cash provided by operating activities 2,299 2,068
--------- ---------
Cash Flows from Investing Activities:
Collection on notes and mortgages receivable 8 12
Purchase of property and equipment (2,417) (2,356)
Purchase of leaseholds (955) --
Purchase of assets from franchise restaurant (100) --
Proceeds from sale of fixed assets 862 --
Proceeds from sale of marketable securities 381 --
Distributions from unconsolidated limited partnership 9 --
Proceeds from insurance settlement 112 --
--------- ---------
Net cash used in investing activities (2,100) (2,344)
--------- ---------
6
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED JUNE 30, 2007 AND JULY 1, 2006
(In Thousands)
(Continued)
JUNE 30, JULY 1,
2007 2006
------- -------
Cash flows from Financing Activities:
Payment of long term debt (157) (184)
Payment of line of credit (1,000) --
Proceeds from long term debt 172 --
Proceeds from line of credit 1,200 762
Dividends paid -- (658)
Purchase of treasury stock (36) (95)
Purchase of minority limited partnership interest -- (8)
Distributions to limited partnership
minority partners (777) (809)
Proceeds from limited partnership interests 1,970* 2,005**
Proceeds from exercise of stock options 61 117
------- -------
Net cash provided by financing activities 1,433 1,130
------- -------
Net Increase in Cash and Cash Equivalents 1,632 854
Beginning of Period 1,698 2,674
------- -------
End of Period $ 3,330 $ 3,528
======= =======
Supplemental Disclosure for Cash Flow Information:
Cash paid during period for:
Interest $ 387 $ 124
======= =======
Income taxes $ 747 $ 431
======= =======
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Purchase of vehicle in exchange for debt $ -- $ 70
Purchase of real property in exchange for debt 700 --
======= =======
* exclusive of the Company's investment in the limited partnership owning the
restaurant in Pembroke Pines, FL of $380,000.
** exclusive of the Company's investment in the limited partnership owning the
restaurant in Pinecrest, FL of $1,295,000.
See accompanying notes to unaudited condensed consolidated financial statements
7
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(1) BASIS OF PRESENTATION:
The accompanying financial information for the periods ended June 30, 2007 and
July 1, 2006 are unaudited. Financial information as of September 30, 2006 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 30, 2006. 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 4 shows the amounts used in computing earnings per share and the
effects on income and the weighted average number of shares of potentially
dilutive common stock equivalents.
(3) RECLASSIFICATION:
Certain amounts in the fiscal year 2006 financial statements have been
reclassified to conform to the fiscal year 2007 presentation.
(4) RECENT ACCOUNTING PRONOUNCEMENTS:
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. The Company does 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
8
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. The adoption of SAB 108 at the beginning of fiscal year
2007 did not have a material impact on the financial condition or results of
operation of the Company.
In September 2006, the FASB issued SFAS 157, "Fair Value Measurements" which
provides guidance for using fair value to measure assets and liabilities. The
standard applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value but does not expand the use of fair
value in any new circumstances. The standard clarifies that for items that are
not actively traded, such as certain kinds of derivatives, fair value should
reflect the price in a transaction with a market participant, including an
adjustment for risk, not just the company's mark-to-model value. SFAS 157 also
requires expanded disclosure of the effect on earnings for items measured using
unobservable data. The provisions of SFAS 157 are effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. The Company does not expect the adoption of
Statement 157 at the beginning of fiscal year 2009 to have a material impact.
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 Company is currently evaluating the impact that the
adoption of Interpretation No. 48 may have upon the financial condition or
results of operation of the Company.
(5) INVESTMENT IN LIMITED PARTNERSHIPS:
Davie, Florida
On January 2, 2007, a limited partnership in which (i) the Company is the sole
general partner; and (ii) the Company and a wholly owned subsidiary are
currently the sole limited partners, acquired personal property assets and a
leasehold interest in an existing restaurant operation located in Davie, Florida
for $650,000. The Company advanced the purchase price to the limited partnership
and through June 30, 2007, has advanced an additional $274,000 for expenses of
the limited partnership. The amounts advanced to the limited partnership are
used to credit the Company's obligation to pay for its equity investment in the
limited partnership at the same price as other investors who acquire limited
partnership interests in the limited partnership. Any excess amounts advanced by
the Company are reimbursed without interest.
Since the limited partnership acquired these restaurant assets, it has been
preparing plans to renovate and upgrade the business premises for operation as a
"Flanigan's Seafood Bar and Grill" restaurant. Management projects the cost to
carry out these plans will be approximately $2,951,000, exclusive of the
$924,000 already advanced by the Company. The percentage of limited partnership
interest the Company maintains in the limited partnership will primarily depend
upon the demand for the limited partnership interests. The limited partnership
anticipates that the Davie, Florida location will be open for business as a
"Flanigan's Seafood Bar and Grill" restaurant during the second quarter of
fiscal year 2008.
Pembroke Pines, Florida
During the third quarter of fiscal year 2007, building permits were issued to
the limited partnership which owns the restaurant in Pembroke Pines, Florida,
enabling renovations and upgrades to the business premises
9
to proceed. During the third quarter of fiscal year 2007, the limited
partnership also completed a private offering of limited partnership interests,
raising gross proceeds of $2,350,000. In addition to being the sole general
partner of this limited partnership, the Company maintains a 16% limited
partnership interest in this limited partnership. The limited partnership will
use the gross proceeds to complete the renovations and upgrades at the Pembroke
Pines, Florida location and anticipates that this location will be open for
business as a "Flanigan's Seafood Bar and Grill" restaurant during the fourth
quarter of fiscal year 2007.
(6) INVESTMENT IN REAL PROPERTY:
Hallandale, Florida
During the third quarter of fiscal year 2007, the Company purchased the real
property located adjacent to the parking lot of the Company's combination
restaurant and package liquor store located at 4 North Federal Highway,
Hallandale, Florida, (Store #31) for $600,000. A residence, consisting of
approximately 1,200 square feet, is located upon the property and was leased to
an unrelated third party who, subsequent to the end of the third quarter of
fiscal year 2007, vacated the residence. The purchase price for this real
property was partially financed with a private purchase money mortgage in the
principal amount of $450,000 from an unrelated third party. 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 amount of $3,949.07, with the entire principal balance and all accrued
interest due in ten (10) years.
North Miami, Florida
During the third quarter of fiscal year 2007, the Company sold the real property
located at 732 - 734 N.E. 125th Street, North Miami, Florida and its rights
under the liquor license for that location for $780,000. The Company purchased
this real property during the first quarter of fiscal year 2007 for a purchase
price of $250,000 and realized a gain of $393,000 from the sale.
(7) LINE OF CREDIT:
Under a secured line of credit with a third party financial institution, which
matures on December 26, 2008, the Company is able to borrow up to $2,600,000.
During the third quarter of fiscal year 2007, the Company did not borrow from
the line of credit, paid monthly installments of interest and in addition, made
a $1,000,000 principal payment. As of June 30, 2007, the amount outstanding
under the line of credit was $962,000, with a remaining availability of
$1,638,000.
(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:
The Company has two stock option plans under which qualified stock options may
be granted to officers and other employees of the Company. 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 the Company's 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 June 30, 2007, options to acquire 50,300
shares were outstanding at an average exercise price of $6.31 per share. Under
the plans, options to aquire an aggregate of 45,000 shares are available for
grant.
10
No stock options were granted during the thirty-nine weeks ended June 30, 2007,
nor were stock options granted during the thirty-nine weeks ended July 1, 2006.
Stock option exercises during the thirty-nine weeks ended June 30, 2007 and July
1, 2006 resulted in cash inflows to the Company of $61,000 and $117,000,
respectively. The corresponding intrinsic value as of the exercise date of the
9,510 and 24,120 stock options exercised during the thirty-nine weeks ended June
30, 2007 and July 1, 2006 were $45,000 and $124,000, respectively.
Stock option activity during the thirty-nine weeks ended June 30, 2007 was as
follows:
Weighted Average
Total Options Exercise Price
------------- --------------
Outstanding at September 30, 2006 67,850 $6.27
Granted -- --
Exercised (9,510) $6.23
Expired (8,040) $6.11
------- -----
Outstanding at June 30, 2007 50,300 $6.31
======= =====
Options exercisable at June 30, 2007 50,300 $6.31
======= =====
The weighted-average remaining contractual terms of stock options outstanding
and stock options exercisable at June 30, 2007 was approximately 1.47 years. The
aggregate intrinsic value of options outstanding and stock options exercisable
at June 30, 2007 was approximately $251,000.
(10) COMMITMENTS AND CONTINGENCIES:
Guarantees
The Company guarantees various leases for franchisees, limited partnerships that
own restaurants and locations sold in prior years. Remaining rental commitments
required under these leases are approximately $1,231,000. In the event of a
default under any of these agreements, the Company will have the right to
11
repossess the premises and operate the business to recover amounts paid under
the guarantee either by liquidating assets or operating the business.
Litigation
The Company owns the building where its corporate offices are located. On April
16, 2001, the Company filed suit against the owner of the adjacent shopping
center to determine the Company's right to non-exclusive parking in the shopping
center. During the second quarter of fiscal year 2007, the appellate court
affirmed the granting of a summary judgment in favor of the shopping center.
During the third quarter of 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 the Company purchased the building was
named as a defendant in the lawsuit and is currently asserting a claim against
the Company for reimbursement of its attorneys' fees and costs resulting from
the litigation.
During the first quarter of fiscal year 2007, the Company and the limited
partnership which owns the restaurant in Pinecrest, Florida filed suit against
the limited partnership's landlord. The Company is the sole general partner and
a 39% limited partner in this limited partnership. The Company is seeking to
recover the cost of structural repairs to the business premises paid for by the
Company, which it contends were the landlord's responsibility under the lease.
The lawsuit, in addition to attempting to recover the amounts expended by the
Company for structural repairs is also attempting to recover the rent paid by
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.
Certain states have liquor liability (dram shop) laws which allow a person
injured by an "obviously intoxicated person" to bring a civil suit against the
business (or social host) who had served intoxicating liquors to an already
"obviously intoxicated person". Dram shop claims normally involve traffic
accidents and the Company generally does not learn of dram shop claims until
after a claim is filed and then the Company vigorously defends these claims on
the grounds, among others, that its employee did not serve an "obviously
intoxicated person". Damages in most dram shop cases are substantial. At the
present time, there are no dram shop cases pending against the Company. The
Company maintains general liability insurance. See Item 1, "General Liability
Insurance" on page 14 of the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 2006 for a discussion of general liability insurance.
(11) BUSINESS SEGMENTS:
The Company operates 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 and
thirty-nine weeks ended June 30, 2007 and July 1, 2006, and identifiable assets
for the two reportable segments are shown in the following table. Operating
income is total revenue less cost of merchandise sold and operating expenses
relative to each segment. In computing operating income, none of the following
items have been included: interest expense, other non-operating income and
expense and income taxes. Identifiable assets by segment are those assets that
are used in the Company's operations in each segment. Corporate assets are
principally cash, notes and mortgages receivable, real property, improvements,
furniture, equipment and vehicles. The Company does not operate outside of the
United States and transactions between restaurants and package liquor stores are
not material.
12
Thirteen Weeks Ending Thirteen Weeks Ending
June 30, 2007 July 1, 2006
------------- ------------
Operating Revenues:
Restaurants $ 11,979 $ 10,348
Package stores 3,037 3,036
Other revenues 391 467
------------ ------------
Total operating revenues $ 15,407 $ 13,851
============ ============
Operating Income Reconciled to Income Before Income
Taxes and Minority Interests in Earnings of Consolidated
Limited Partnerships
Restaurants $ 246 $ 864
Package stores 116 160
------------ ------------
362 1,024
Corporate expenses, net of other
Revenues (74) (374)
------------ ------------
Operating income 288 650
Other income (expense) 304 (43)
------------ ------------
Income Before Income Taxes and Minority Interests in
Earnings of Consolidated Limited Partnerships $ 592 $ 607
============ ============
Depreciation and Amortization:
Restaurants $ 321 $ 273
Package stores 57 57
------------ ------------
378 330
Corporate 88 96
------------ ------------
Total Depreciation and Amortization $ 466 $ 426
============ ============
Capital Expenditures:
Restaurants $ 398 $ 974
Package stores 61 35
------------ ------------
459 1,009
Corporate 671 231
------------ ------------
Total Capital Expenditures $ 1,130 $ 1,240
============ ============
13
Thirty-nine Weeks Thirty-nine Weeks
Ending Ending
June 30, 2007 July 1, 2006
------------- ------------
Operating Revenues:
Restaurants $ 35,474 $ 30,109
Package stores 10,050 10,228
Other revenues 1,172 1,239
------------ ------------
Total operating revenues $ 46,696 $ 41,576
============ ============
Operating Income Reconciled to Income Before Income Taxes and
Minority Interests in Earnings of Consolidated
Limited Partnerships
Restaurants $ 2,490 $ 2,699
Package stores 498 701
------------ ------------
2,988 3,400
Corporate expenses, net of other
Revenues (1,178) (1,577)
------------ ------------
Operating income 1,810 1,823
Other income (expense) 116 374
------------ ------------
Income Before Income Taxes and Minority Interests in
Earnings of Consolidated Limited Partnerships $ 1,926 $ 2,197
============ ============
Depreciation and Amortization:
Restaurants $ 1,005 $ 808
Package stores 180 169
------------ ------------
1,185 977
Corporate 269 252
------------ ------------
Total Depreciation and Amortization $ 1,454 $ 1,229
============ ============
Capital Expenditures:
Restaurants $ 1,806* $ 1,626
Package stores 261 110
------------ ------------
2,067 1,736
Corporate 1,106 690
------------ ------------
Total Capital Expenditures $ 3,173* $ 2,426
============ ============
*includes $56,000 in assets from purchase of
franchised restaurant.
June 30, September 30,
2007 2006
------------ ------------
Identifiable Assets:
Restaurants $ 17,074 $ 15,635
Package store 3,655 3,602
------------ ------------
20,729 19,237
Corporate 10,126 8,161
------------ ------------
Consolidated Totals $ 30,855 $ 27,398
============ ============
14
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 30, 2006 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 June 30, 2007, the Company (i) operated 22 units, consisting of restaurants,
package liquor stores, combination restaurants/package liquor stores and one
adult entertainment club; and (ii) franchised an additional six units,
consisting of two restaurants and four combination restaurants and 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) the Company owns 100% of the unit;
(ii) the unit is owned by a limited partnership of which the Company is the
general partner and/or has invested in; or (iii) the unit is franchised by the
Company) as of June 30, 2007 and as compared to September 30, 2006 and July 1,
2006. Restaurants operate under the service mark "Flanigan's Seafood Bar and
Grill" and package liquor stores operate under the service mark "Big Daddy's
Liquors".
Types of Units June 30, 2007 Sept 30, 2006 July 1, 2006
-------------- ------------- ------------- ------------
Company Owned:
Combination package and restaurant 4 4 4
Restaurant only 3 2 2 (1)
Package store only 5 5 5
Company Operated Restaurants Only:
Limited Partnerships 7 7 6 (2)
Franchise 1 1 1
Unrelated Third Party 1 1 1
Company Owned Club: 1 1 1
Total Company Owned/Operated Units 22 21 20
Franchised Units 6 7 7 (3)
15
Notes:
(1) Includes a restaurant located in Lake Worth, Florida which the Company
acquired from a franchisee during the second quarter of 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 the Company is the sole general partner and owns
39% of the limited partnership interest and commenced operating on August 14,
2006.
(3) The Company operates 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.
RESULTS OF OPERATIONS
-----------------Thirteen Weeks Ended------------------
June 30, 2007 July 1, 2006
------------- ------------
Amount Amount
------ ------
(In thousands) Percent (In thousands) Percent
------------ ----------- ------------ -----------
Restaurant food sales $ 9,773 65.08 $ 8,405 62.80
Restaurant bar sales 2,206 14.69 1,943 14.52
Package store sales 3,037 20.23 3,036 22.68
------------ ----------- ------------ -----------
Total Sales $ 15,016 100.00 $ 13,384 100.00
Franchise related revenues 279 291
Owner's fee 71 96
Other operating income 41 80
------------ ------------
Total Revenue $ 15,407 $ 13,851
============ ============
---------------Thirteen-Nine Weeks Ended---------------
June 30, 2007 July 1, 2006
------------- ------------
Amount Amount
------ ------
(In thousands) Percent (In thousands) Percent
------------ ----------- ------------ -----------
Restaurant food sales $ 28,832 63.33 $ 24,440 60.59
Restaurant bar sales 6,642 14.59 5,669 14.05
Package store sales 10,050 22.08 10,228 25.36
------------ ----------- ------------ -----------
Total Sales $ 45,524 100.00 $ 13,384 100.00
Franchise related revenues 887 837
Owner's fee 151 171
Other operating income 134 231
------------ ------------
Total Revenue $ 46,696 $ 41,576
============ ============
Franchise Financial Arrangement: In exchange for the Company providing services
-------------------------------
to its franchisees, including management and related services and the right to
use the service marks "Flanigan's Seafood Bar and Grill" and "Big Daddy's
Liquors", franchisees are required to (i) pay to the Company a royalty of 3% of
gross sales; and (ii) make advertising expenditures equal to between 1.5% to 3%
of gross sales.
Limited Partnership Financial Arrangement: The Company manages and controls 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
with the Company for accounting purposes. The results of operations of the Fort
Lauderdale, Florida restaurant are accounted for by the Company utilizing the
equity method. In general, until the investors' cash investment in a limited
partnership (including any cash invested by the Company and its 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 the Company.
Any available cash in excess of the 25% of the cash invested in the limited
partnership, is paid one-half (1/2) to the Company 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 the Company 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 the Company and its affiliates). As
of June 30, 2007, limited partnerships owning three (3) restaurants have
returned all cash invested and the Company receives 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, the Company receives a fee equal to 3% of gross sales for
use of the service mark "Flanigan's Seafood Bar and Grill".
16
Comparison of Thirteen Weeks Ended June 30, 2007 and July 1, 2006.
------------------------------------------------------------------
Revenues. Total revenue for the thirteen weeks ended June 30, 2007 increased
$1,556,000 or 11.23% to $15,407,000 from $13,851,000 for the thirteen weeks
ended July 1, 2006. This increase resulted from sales from two restaurant
locations (the Pinecrest, Florida limited partnership owned restaurant
($1,174,000) and the Company owned Lake Worth, Florida restaurant ($421,000)),
offset by the declines in same store restaurant food and bar sales. 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. To a lesser extent, increased revenue is attributable
to increased menu prices.
Restaurant Food Sales. Revenue (Sales of food) generated from the sale
---------------------
of food totaled $9,773,000 for the thirteen weeks ended June 30, 2007 as
compared to $8,405,000 for the thirteen weeks ended July 1, 2006. The increase
in restaurant food sales is due to sales from the Pinecrest, Florida and Lake
Worth restaurants. The weekly average of same store restaurant food sales, which
includes six (6) limited partnership restaurants, was $631,081 and $646,564 for
the thirteen weeks ended June 30, 2007 and July 1, 2006, respectively, a
decrease of 2.39%. The Company anticipates that restaurant food sales will
continue to increase through fiscal year 2007 due to, among other things, the
expected opening of the new restaurant location in Pembroke Pines, Florida
during the fourth quarter of fiscal year 2007.
Restaurant Bar Sales. Revenue generated from the sales of alcoholic
---------------------
beverages at restaurants totaled $2,206,000 for the thirteen weeks ended June
30, 2007 as compared to $1,943,000 for the thirteen weeks ended July 1, 2006.
The increase in restaurant bar sales is due to sales from the Pinecrest, Florida
and Lake Worth restaurants. The weekly average of same store restaurant bar
sales, which includes six (6) limited partnership restaurants, was $145,780 and
$149,469 for the thirteen weeks ended June 30, 2007 and July 1, 2006,
respectively, a decrease of 2.47%. The decrease in same store restaurant bar
sales is consistent with the decrease in same store restaurant food sales. The
Company anticipates that restaurant bar sales will continue to increase through
fiscal year 2007 due to, among other things, the expected opening of the new
restaurant location in Pembroke Pines, Florida during the fourth quarter of
fiscal year 2007.
Package Store Sales. Revenue generated from sales of liquor and related
-------------------
items at package stores totaled $3,037,000 for the thirteen weeks ended June 30,
2007 as compared to $3,036,000 for the thirteen weeks ended July 1, 2006. The
weekly average of same store package store sales was $233,546 and $233,545 for
the thirteen weeks ended June 30, 2007 and July 1, 2006, respectively. Package
store sales were stable during the third quarter of fiscal year 2007,
notwithstanding increased competition, but are expected to decline throughout
the balance of fiscal year 2007. 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 the Company's 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 June 30, 2007
increased $1,918,000 or 14.53% to $15,119,000 from $13,201,000 for the thirteen
weeks ended July 1, 2006. The increase is primarily due to the Company's
expenses related to the Pinecrest, Florida and Lake Worth, Florida restaurants
and to a lesser extent a general increase in food costs and overall expenses.
The Company anticipates that its operating costs and expenses will continue to
increase through fiscal year 2007 due to, among other things, the expected
opening of the new restaurant location in Pembroke Pines, Florida during the
fourth quarter of fiscal year 2007.
Gross Profit. Gross profit is calculated by subtracting the cost of merchandise
sold from sales.
17
Restaurant Food and Bar Sales. Gross profit for food and bar sales for
-----------------------------
the thirteen weeks ended June 30, 2007 increased to $7,768,000 from $6,853,000
for the thirteen weeks ended July 1, 2006. The Company's gross profit margin
(calculated as gross profit reflected as a percentage of sales), for restaurant
food and bar sales decreased to 64.85% for the thirteen weeks ended June 30,
2007 compared to 66.23% for the thirteen weeks ended July 1, 2006. This decrease
in gross profit for restaurant and bar sales for the third quarter of fiscal
2007 was primarily due to increases in food costs, partially offset by menu
price increases.
Package Store Sales. Gross profit for package store sales for the
---------------------
thirteen weeks ended June 30, 2007 increased to $863,000 from $861,000 for the
thirteen weeks ended July 1, 2006. The Company's gross profit margin (calculated
as gross profit reflected as a percentage of sales) for package store sales was
28.42% for the thirteen weeks ended June 30, 2007 compared to 28.36% for the
thirteen weeks ended July 1, 2006. The Company anticipates the gross profit
margin for package store sales to remain constant throughout the balance of
fiscal year 2007.
Payroll and Related Costs. Payroll and related costs for the thirteen weeks
ended June 30, 2007 increased $398,000 or 9.72% to $4,494,000 from $4,096,000
for the thirteen weeks ended July 1, 2006. This increase is attributable to the
Pinecrest, Florida and Lake Worth, Florida restaurants. The Company anticipates
that its payroll costs and related expenses will continue to increase through
fiscal year 2007 due to, among other things, the expected opening of the new
restaurant location in Pembroke Pines, Florida during the fourth quarter of
fiscal year 2007.
Occupancy Costs. Occupancy costs (consisting of rent, common area maintenance,
repairs and real property taxes) for the thirteen weeks ended June 30, 2007
increased $299,000 or 37.38% to $1,099,000 from $800,000 for the thirteen weeks
ended July 1, 2006. This substantial increase is due to, (i) rental payments at
three additional restaurant locations, (Pembroke Pines, Florida-$36,000, Davie,
Florida- $44,000, and Lake Worth, Florida-$28,000); (ii) the amortization of
leasehold purchases for the Pembroke Pines, Florida restaurant ($3,800) and
Davie, Florida restaurant ($11,000); 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. The Company
anticipates that its occupancy costs will continue to increase through fiscal
year 2007 due to the rental payments at 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 the thirteen weeks ended June 30, 2007 increased
$506,000 or 19.20% to $3,141,000 from $2,635,000 for the thirteen weeks ended
July 1, 2006. This increase is attributable to the operation of the two
additional restaurant locations and an overall increase in expenses, including
but not limited to property and windstorm insurance coverage and utilities. The
Company anticipates that its selling, general and administrative expenses will
continue to increase through fiscal year 2007 due to the expected opening of the
new restaurant location in Pembroke Pines, Florida during the fourth quarter of
fiscal year 2007.
Interest Expense, Net. Interest expense, net, for the thirteen weeks ended June
30, 2007 increased $76,000 to $129,000 from $53,000 for the thirteen weeks ended
July 1, 2006. This increase was attributable to additional expenses incurred in
connection with the Company's acquiring and making payments related to a
purchase money mortgage utilized to purchase real property in Hallandale,
Florida, as well as additional borrowings under the Company's line of credit.
Depreciation. Depreciation for the thirteen weeks ended June 30, 2007 increased
$40,000 or 9.38% to $466,000 from $426,000 for the thirteen weeks ended July 1,
2006. The increase in depreciation expense
18
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
3.02% of revenue in the thirteen weeks ended June 30, 2007 and 3.07% of revenue
in the thirteen weeks ended July 1, 2006.
Other Income and Expense. Other income and expenses was income of $304,000 for
the thirteen weeks ended June 30, 2007, as compared to an expense of $43,000 for
the thirteen weeks ended July 1, 2006. Other income and expense for the thirteen
weeks ended June 30, 2007 includes a gain of $393,000 from the sale of real
property and an interest expense of $129,000, as compared to an interest expense
of $53,000 for the thirteen weeks ended July 1, 2006. The increase in interest
expense is due to the interest paid on the Company's line of credit and mortgage
used for the purchase of the real property in Hallandale, Florida during the
thirteen weeks ended June 30, 2007. Other income and expenses for the thirteen
weeks ended July 1, 2006 includes an insurance recovery, net of casualty loss of
$8,000.
Net Income. Net income for the thirteen weeks ended June 30, 2007 increased
$224,000 or 110.34% to $427,000 from $203,000 for the thirteen weeks ended July
1, 2006. The increase in net income was due to the sale of real property on
which the Company recognized a gain of $393,000. Without giving effect to the
sale of the real property, the Company would have generated net income of
$191,000 for the thirteen weeks ended June 30, 2007.
Comparison of Thirty-nine Weeks Ended June 30, 2007 and July 1, 2006.
---------------------------------------------------------------------
Revenues. Total revenue for the thirty-nine weeks ended June 30, 2007 increased
$5,120,000 or 12.31% to $46,696,000 from $41,576,000 for the thirty-nine weeks
ended July 1, 2006. Approximately $4,231,000 or 82.63% of this increase resulted
from sales from two restaurant locations (the Pinecrest, Florida limited
partnership owned restaurant ($3,664,000) and the Company owned Lake Worth,
Florida restaurant ($567,000)). 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. To a lesser
extent, increased revenue is attributable to increased menu prices.
Restaurant Food Sales. Revenue (Sales of Food) generated from the sale
---------------------
of food at restaurants totaled $28,832,000 for the thirty-nine weeks ended June
30, 2007 as compared to $24,440,000 for the thirty-nine weeks ended July 1,
2006. The increase in restaurant food sales is due to sales from the Pinecrest,
Florida and Lake Worth, Florida restaurants. The weekly average of same store
restaurant food sales, which includes six (6) limited partnership restaurants,
was $648,347 and $626,676 for the thirty-nine weeks ended June 30, 2007 and July
1, 2006, respectively, an increase of 3.46%. The Company anticipates that
restaurant food sales will continue to increase through fiscal year 2007 due to,
among other things, the expected opening of the Pembroke Pines, Florida
restaurant during the fourth quarter of fiscal year 2007.
Restaurant Bar Sales. Revenue generated from the sales of alcoholic
---------------------
beverages totaled $6,642,000 for the thirty-nine weeks ended June 30, 2007 as
compared to $5,669,000 for the thirty-nine weeks ended July 1, 2006. The
increase in restaurant bar sales is due to sales from the Pinecrest, Florida and
Lake Worth restaurants as well as promotions introduced during fiscal year 2005,
which continue to increase restaurant bar sales. The weekly average of same
store restaurant bar sales, which includes six (6) limited partnership
restaurants, was $152,762 and $145,370 for the thirty-nine weeks ended June 30,
2007 and July 1, 2006, respectively, an increase of 5.08%. The increase in
restaurant bar sales is consistent with the increase in same store restaurant
food sales. The Company anticipates that restaurant bar sales will continue to
19
increase through fiscal year 2007 due to, among other things, the opening of the
Pembroke Pines, Florida restaurant during the fourth quarter of fiscal year
2007.
Package Store Sales. Revenue generated from sales of liquor and related
-------------------
items at package stores totaled $10,050,000 for the thirty-nine weeks ended June
30, 2007 as compared to $10,228,000 for the thirty-nine weeks ended July 1,
2006. The weekly average of same store package sales was $257,692 and $262,256
for the thirty-nine weeks ended June 30, 2007 and July 1, 2006, respectively, a
decrease of 1.74%. The decrease was primarily due to increased competition and
package store sales are expected to decline throughout the balance of fiscal
year 2007. 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 the Company's 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 thirty-nine weeks ended June 30,
2007 increased $5,133,000 or 12.91% to $44,886,000 from $39,753,000 for the
thirty-nine weeks ended July 1, 2006. The increase is primarily due to the
Company's expenses related to the Pinecrest, Florida and Lake Worth, Florida
restaurants and to a lesser extent a general increase in food costs. The Company
anticipates that its operating costs and expenses will continue to increase
through fiscal year 2007 due to, among other things, the expected opening of the
Pembroke Pines, Florida restaurant during the fourth quarter of 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 restaurant food and bar
-----------------------------
sales for the thirty-nine weeks ended June 30, 2007 increased to $23,268,000
from $19,877,000 for the thirty-nine weeks ended July 1, 2006. The Company's
gross profit margin (calculated as gross profit reflected as a percentage of
sales) for restaurant food and bar sales decreased to 65.59% for the thirty-nine
weeks ended June 30, 2007 compared to 66.02% for the thirty-nine weeks ended
July 1, 2006. This decrease in gross profit for restaurant and bar sales for the
thirty-nine weeks ended June 30, 2007 was primarily due to increases in food
costs, partially offset by menu price increases.
Package Store Sales. Gross profit for package store sales for the
---------------------
thirty-nine weeks ended June 30, 2007 decreased to $2,813,000 from $2,885,000
for the thirty-nine weeks ended July 1, 2006. The Company's gross profit margin
(calculated as gross profit reflected as a percentage of sales) for package
store sales was 27.99% for the thirty-nine weeks ended June 30, 2007 compared to
28.21% for the thirty-nine weeks ended July 1, 2006. The Company anticipates the
gross profit margin for package store sales to remain constant through the
balance of fiscal year 2007.
Payroll and Related Costs. Payroll and related costs for the thirty-nine weeks
ended June 30, 2007 increased $1,194,000 or 10.03% to $13,098,000 from
$11,904,000 for the thirty-nine weeks ended July 1, 2006. This increase is
attributable to the operation of the two additional restaurant locations. The
Company anticipates that its payroll costs and related expenses will continue to
increase through fiscal year 2007 due to, among other things, the expected
opening of the Pembroke Pines, Florida restaurant during the fourth quarter of
fiscal year 2007.
Occupancy Costs. Occupancy costs (consisting of rent, common area maintenance,
repairs and real property taxes) for the thirty-nine weeks ended June 30, 2007
increased $465,000 or 19.39% to $2,863,000 from $2,398,000 for the thirty-nine
weeks ended July 1, 2006. This substantial increase is due to, (i) rental
payments at three additional restaurant locations, (Pembroke Pines,
Florida-$89,000, Davie, Florida- $92,000, and Lake Worth, Florida-$35,000); (ii)
the amortization of leasehold purchases for the Pembroke Pines, Florida
restaurant ($10,000) and Davie, Florida restaurant ($22,000); and (iii)
20
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. The Company anticipates that its occupancy costs will continue
to increase through fiscal year 2007 due to the 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 the thirty-nine weeks ended June 30, 2007 increased
$1,606,000 or 20.39% to $9,482,000 from $7,876,000 for the thirty-nine weeks
ended July 1, 2006. This increase is attributable to the operation of the two
additional restaurant locations and an overall increase in expenses. The Company
anticipates that its selling, general and administrative expenses will continue
to increase through fiscal year 2007 due to the expected opening of the new
restaurant location in Pembroke Pines, Florida during the fourth quarter of
fiscal year 2007.
Interest Expense, Net. Interest expense, net, for the thirty-nine weeks ended
June 30, 2007 increased $263,000 to $387,000 from $124,000 for the thirty-nine
weeks ended July 1, 2006. This increase was attributable to additional expenses
incurred in connection with the Company's purchase money mortgage utilized to
purchase real property in Hallandale, Florida as well as additional borrowings
under the Company's line of credit.
Depreciation. Depreciation for the thirty-nine weeks ended June 30, 2007
increased $225,000 or 18.31% to $1,454,000 from $1,229,000 for the thirty-nine
weeks ended July 1, 2006. The increase in depreciation expense was due primarily
to the increase in capital expenditures resulting from the refurbishing of three
Company owned restaurants. As a percentage of revenue, depreciation expense was
relatively consistent over both periods, representing 3.11% of revenue in the
thirty-nine weeks ended June 30, 2007 and 2.96% of revenue in the thirty-nine
weeks ended July 1, 2006.
Other Income and Expense. Other income and expenses was income of $116,000 and
$374,000 for the thirty-nine weeks ended June 30, 2007 and July 1, 2006,
respectively. Other income and expense for the thirty-nine weeks ended June 30,
2007 includes a gain of $393,000 from the sale of real property and an interest
expense of $387,000, as compared to an interest expense of $124,000 for the
thirty-nine ended July 1, 2006. The increase in interest expense is due to the
interest paid on the Company's line of credit and mortgage used for the purchase
of the membership interest of the limited liability company which owns the
property in Hallandale, Florida during the thirty-nine weeks ended June 30,
2007. Other income and expenses for the thirty-nine weeks ended July 1, 2006
includes insurance recovery, net of casualty loss of income of $442,000.
Net Income. Net income for the thirty-nine weeks ended June 30, 2007 decreased
$64,000 or 5.57% to $1,083,000 from $1,147,000 for the thirty-nine weeks ended
July 1, 2006. The Company's net income during the thirty-nine weeks ended June
30, 2007 includes a gain of $393,000 on the sale of real property. Without
giving effect to the sale of the real property, the Company would have generated
net income of $813,000 for the thirty-nine weeks. The Company's net income was
adversely affected during the thirty-nine weeks ended June 30, 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 the Company's Hallandale property and its line of credit.
21
New Limited Partnership Restaurants
Management anticipates that limited partnership owned restaurants located in
Pembroke Pines, Florida and Davie, Florida will open for business during the
fourth quarter of fiscal year 2007 and the second quarter of fiscal year 2008,
respectively. As new restaurants open, the Company's income from operations will
be adversely affected due to its obligation to fund pre-opening costs, including
but not limited to pre-opening rent for the new locations. During the
thirty-nine weeks ended June 30, 2007, the Company recognized non-cash
pre-opening rent in the approximate amount of $18,000 and recognized cash
pre-opening rent in the approximate amount of $71,000 for the Pembroke Pines,
Florida restaurant. During the thirty-nine weeks ended June 30, 2007, the
Company also paid and expensed pre-opening rent in the approximate amount of
$92,000 for the Davie, Florida restaurant, which is the full rent provided in
the lease. During the thirty-nine weeks ended July 1, 2006, the Company 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.
The Company is recognizing rent expense on a straight line basis over the term
of the lease.
Throughout the balance of fiscal year 2007, 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.
Trends
During the next twelve months management expects continued increases in
restaurant sales, due primarily to the Pinecrest, Florida and Lake Worth,
Florida restaurants being open for the entire twelve month period and the
anticipated opening of the Pembroke Pines, Florida and Davie, Florida
restaurants. Package 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, the Company raised its menu prices to
offset higher food costs and overall expenses and will continue to do so when
necessary and wherever competitively possible.
Liquidity and Capital Resources
The Company funds operations through cash from operations and borrowings under
its line of credit. As of June 30, 2007, the Company had cash of approximately
$3,330,000, an increase of $1,632,000 from the Company's cash balance of
$1,698,000 as of September 30, 2006. The increase in cash was due primarily to
the Company's sale for cash of real property resulting on $763,000 of net
proceeds to the Company and the Company receiving approximately $300,000 in
reimburment of expenses it advanced for the limited partnership owned
restaurant in Pembroke Pines, Florida.
22
Cash Flows
The following table is a summary of the Company's cash flows for the thirty-nine
weeks of fiscal years 2007 and 2006.
---Thirty-Nine Weeks Ended---
June 30, 2007 July 1, 2006
------------- ------------
(in Thousands)
Net cash provided by operating activities $ 2,299 $ 2,068
Net cash used in investing activities (2,100) (2,344)
Net cash provided by financing activities 1,433 1,130
------------ ------------
Net Increase in Cash and Cash Equivalents 1,632 854
Cash and Cash Equivalents, Beginning 1,698 2,674
Cash and Cash Equivalents, Ending $ 3,330 $ 3,528
============ ============
On January 13, 2006, the Company declared a cash dividend of 35 cents per share
which was paid on February 15, 2006 to shareholders of record on January 31,
2006.
At its regular meeting on May 19, 2007, the Board of Directors determined that
the Company must retain any earnings for the development and operation of its
business and could not declare or pay any cash dividends in the current period.
Capital Expenditures
The Company acquired property and equipment of $3,173,000 (of which $700,000 was
financed) during the thirty-nine weeks ended June 30, 2007, including $1,402,500
for the purchase of real property and $615,000 for renovations to three (3)
existing Company owned restaurants, as compared to $2,426,000, (of which $70,000
was financed), during the thirty-nine weeks ended July 1, 2006, which included
$531,000 as a direct result of damages caused by Hurricane Wilma. The additions
to fixed assets during the thirty-nine weeks ended July 1, 2006 included most of
the renovations to the business premises of the Pinecrest, Florida restaurant.
During the third quarter of 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
the Company for advances made to the limited partnership in excess of its
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. During the thirty-nine weeks ended July
1, 2006, the Company also purchased one (1) vehicle, for a purchase price of
$70,000, which vehicle was 100% financed.
In addition, during the thirty nine weeks ended June 30, 2007, the Company
purchased leasehold interests for the Pembroke Pines, Florida ($305,000) and
Davie, Florida ($650,000) locations, 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 2007 to be approximately $800,000, of which $615,000 has been spent through
June 30, 2007.
Long Term Debt
As of June 30, 2007, the Company had long term debt of $6,136,000, as compared
to $2,205,000 as of July 1, 2006, and $5,181,000 as of September 30, 2006.
23
As of June 30, 2007, the amount outstanding under the Company's line of credit
was $962,000.
During the third quarter of fiscal year 2007, in connection with the Company's
purchase of the real property located adjacent to the parking lot of the
Company's combination restaurant and package liquor store located at 4 North
Federal Highway, Hallandale, Florida, the Company became obligated to repay to
an unaffiliated third party lender, a purchase money mortgage in the principal
amount of $450,000. 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 amount of $3,949.07, with the
entire principal balance and all accrued interest due in ten (10) years.
Purchase of Company Common Stock
Pursuant to a discretionary plan approved by the Board of Directors, during the
thirteen weeks ended June 30, 2007, the Company purchased 2,500 shares of its
common stock from the Chief Operating Officer and Director of the Company for an
aggregate purchase price of $28,000. During the thirty-nine weeks ended June 30,
2007, the Company purchased 3,332 shares of its common stock for an aggregate
purchase price of $36,000, with 332 shares purchased from a former employee of
the Company for an aggregate amount of $3,818 and 500 shares purchased from the
Joseph G. Flanigan Charitable Trust for an aggregate purchase price of $5,190.
Working Capital
The table below summarizes the current assets, current liabilities, and working
capital for the fiscal quarters ended June 30, 2007, July 1, 2006 and the fiscal
year ended September 30, 2006.
Item June 30, 2007 July 1, 2006 Sept 30, 2006
----- ------------- ------------- -------------
(in Thousands)
Current Assets $ 7,263 $ 7,350 $ 6,315
Current Liabilities 4,854 4,583 4,919
------------- ------------- -------------
Working Capital $ 2,409 $ 2,767 $ 1,396
Working capital as of June 30, 2007 decreased by 12.93% from the working capital
for the fiscal quarter ending July 1, 2006 and increased by 72.56% from the
working capital for the fiscal year ending September 30, 2006. Working capital
continued to improve during the fiscal quarter ending June 30, 2007 primarily
due to the minimal demand upon the Company's cash flow for extraordinary items
during the fiscal quarter. The Company's working capital improved during the
third quarter of fiscal year 2007 with the completion of its private offering by
the limited partnership which owns the Pembroke Pines, Florida restaurant, which
private offering raised the sum of $2,350,000, and reimbursed the Company
approximately $300,000 for amounts previously advanced in excess of its
investment in the limited partnership. In addition, during the third quarter of
fiscal year 2007, the Company sold the real property located at 732 - 734 N.E.
125th Street, North Miami, Florida, realizing net sale proceeds in the
approximate amount of $763,000, which further improved the Company's working
capital.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements.
24
Inflation
The primary inflationary factors affecting the Company's 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 the
Company's operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes and as of June 30, 2007 held no equity securities.
Interest Rate Risk
At June 30, 2007, of the Company's debt arrangements, only Borrowings under the
Company's 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
the line of credit from time to time.
At June 30, 2007, the Company's cash resources earn interest at variable rates.
Accordingly, the Company's return on these funds is affected by fluctuations in
interest rates.
ITEM 4. 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 June 30, 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.
(b) Change in Internal Control over Financial Reporting
During the third quarter of fiscal year 2007, the Company 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 June 30, 2007
that materially affected, or are reasonably likely to materially affect, the
Company's 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.
25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Litigation" on page 12 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 30, 2006 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
the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2006 and in other reports filed from time to time with the SEC since the date
the Company filed its Form 10-K. Readers are urged to carefully review these
risk factors since they may cause the Company's results to differ from the
"forward-looking statements" made in this report or otherwise made by or on
behalf of the Company. Those risk factors are not the only ones the Company
faces. Additional risks not presently known to the Company or other factors not
perceived by the Company to present significant risks to its business at this
time also may impair the Company's business operation. The Company does 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, during the
thirteen weeks ended June 30, 2007, the Company purchased 2,500 shares of its
common stock from the Chief Operating Officer and Director of the Company for an
aggregate purchase price of $28,000. During the thirty-nine weeks ended June 30,
2007, the Company purchased 3,332 shares of its common stock for an aggregate
purchase price of $36,000, with 332 shares purchased from a former employee of
the Company for an aggregate amount of $3,818 and 500 shares purchased from the
Joseph G. Flanigan Charitable Trust for an aggregate purchase price of $5,190.
26
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.
27
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: August 14, 2007 /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)
28