-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D+nZX1aQE4Ie0dqxYLEg8uVMnc9ivbgGJ4cI/b1rBF5xovMGYCe/8OSsnsf4ioED Ec9QMe4XlgjaCwWaAi2dCQ== 0000914317-02-001608.txt : 20021227 0000914317-02-001608.hdr.sgml : 20021227 20021227171421 ACCESSION NUMBER: 0000914317-02-001608 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLANIGANS ENTERPRISES INC CENTRAL INDEX KEY: 0000012040 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 590877638 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06836 FILM NUMBER: 02870637 BUSINESS ADDRESS: STREET 1: 2841 CYPRESS CREEK RD CITY: FORT LAUDERDALE STATE: FL ZIP: 33309 BUSINESS PHONE: 3059749003 MAIL ADDRESS: STREET 1: 2841 CYPRESS CREEK ROAD CITY: FORT LAUDERDALE STATE: FL ZIP: 33309 FORMER COMPANY: FORMER CONFORMED NAME: MOSAM CORP DATE OF NAME CHANGE: 19690415 FORMER COMPANY: FORMER CONFORMED NAME: CASTLEWOOD INTERNATIONAL CORP DATE OF NAME CHANGE: 19760222 FORMER COMPANY: FORMER CONFORMED NAME: BIG DADDYS LOUNGES INC DATE OF NAME CHANGE: 19780309 10-K 1 form10k-47611_1202.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10K (X) ANNUAL REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the fiscal year ended September 28,2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number I-6836 Flanigan's Enterprises, Inc. --------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 59-0877638 - ------------------------------- ------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5059 N.E. 18th Avenue, Fort Lauderdale, FL 33334 - -------------------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code, (954) 377-1961 -------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.10 Par Value American Stock Exchange ---------------------------- ----------------------- Title of each Class Name of each exchange on which registered Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The aggregate market value of the voting stock held by non-affiliates of the registrant was $5,419,000 as of December 20, 2002. There were 1,926,470 shares of the Registrant's Common Stock ($0.10) Par Value outstanding as of September 28, 2002. DOCUMENTS INCORPORATED BY REFERENCE Information contained in the Registrant's 2003 definitive proxy material has been incorporated by reference in Items 10, 11, 12 and 13 of Part III of this Annual Report on Form 10-K. Exhibit Index Begins on Page 35 PART I Item 1. Business - ---------------- When used in this report, the words "anticipate", "believe", "estimate", "will", "may", "intend" and "expect" and similar expressions identify forward-looking statements. Forward-looking statements in this report include, but are not limited to, those relating to the general expansion of the Company's business. Although we believe that our plans, intentions and expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. General Flanigan's Enterprises, Inc., (the "Company") owns and/or operates restaurants with lounges, package liquor stores and an entertainment oriented club (collectively the "units"). At September 28, 2002, the Company operated 16 units, and had interests in seven additional units which have been franchised by the Company. The table below sets out the changes in the type and number of units being operated. FISCAL FISCAL FISCAL YEAR YEAR YEAR NOTE 2002 2001 2000 NUMBER TYPES OF UNITS - ------------------------------------------------------------------- Combination package and restaurant 4 4 4 Restaurant only 7 7 6 (1)(2)(3)(4) Package store only 4 3 4 (5)(6)(7)(8) Clubs 1 1 1 - ------------------------------------------------------------------- TOTAL - Company operated units 16 15 15 FRANCHISED - units 7 7 7 (9) Notes: (1) During the third quarter of fiscal year 1998 the Company formed a limited partnership and raised funds through a private offering to purchase the assets of a restaurant in Kendall, Florida and renovate the same for operation under the "Flanigan's Seafood Bar and Grill" servicemark. The Company acts as general partner and has a forty percent ownership of the partnership. The restaurant opened for business on April 9, 2000. - 1 - (2) During the third quarter of fiscal year 2001, the Company formed a limited partnership and raised funds through a private offering to purchase the assets of a restaurant in West Miami, Florida and renovate the same for operation under the "Flanigan's Seafood Bar and Grill" servicemark. The Company acts as general partner and has a twenty five percent ownership of the partnership. The restaurant opened for business on October 11, 2001. (3) During fiscal year 2000, the Company received official notification from the State of Transportation, Department of Transportation, ("DOT"), that the DOT was exercising its right of eminent domain to "take" the hotel property upon which a restaurant, operated by the Company as general partner of a limited partnership, was located. The restaurant was closed at the end of business on March 30, 2002 and is not included in the table of units. (4) During the fourth quarter of fiscal year 2001, a limited partnership was formed with the Company as general partner, which limited partnership entered into a sublease agreement to own and operate an existing restaurant in Weston, Florida. During the fourth quarter of fiscal year 2002, the sublessor resolved the zoning and related matters and the limited partnership began raising funds to renovate the business premises for operation as a "Flanigan's Seafood Bar and Grill" restaurant. With the sale of limited partnership units during the fourth quarter of fiscal year 2002, the Company no longer consolidates the limited partnership for financial reporting purposes. The Company continues to act as the general partner and has a 28 percent ownership interest in the limited partnership. The restaurant, which had operated under its existing servicemark, was closed on July 13, 2002 and building permits were issued to the limited partnership at the start of fiscal year 2003. The Company anticipates the restaurant will be open for business by December 31, 2002. The restaurant is included in the table of units. (5) During the fourth quarter of fiscal year 2000, the Company entered into a lease for the operation of a package liquor store in Hialeah, Florida. This package liquor store opened for business during the first quarter of fiscal year 2002. (6) The lease for one (1) package liquor store owned and operated by the Company in Lake Worth, Florida expired on December 31, 2000 and the Company elected not to exercise its five year renewal option to extend the terms of the same. Consequently the package liquor store was closed permanently, at the close of business on December 31, 2000. - 2 - (7) During the fourth quarter of fiscal year 2001, the Company entered into a ground lease for an out parcel in Hollywood, Florida. The Company plans to construct a building on the out parcel, one-half (1/2) of which will be used by the Company for the operation of a package liquor store and the other one-half (1/2) will be subleased by the Company as retail space. The Company filed its building plans during the fourth quarter of fiscal year 2002 and expects the building to be complete and the package store open for business by the end of fiscal year 2003. This unit is not included in the table of units. (8) During the second quarter of fiscal year 2001, the Company completed renovations to its new corporate offices and relocated to the same. The new corporate offices consist of a two (2) story building, with space set aside on the ground floor for a package liquor store. The Company filed the application for its building permits during the third quarter of fiscal year 2002 and expects the package liquor store to be open for business during fiscal year 2003. The package liquor is not included in the table of units. (9) Since the fourth quarter of 1999, the Company has managed the restaurant for a franchisee. The franchised restaurant is included in the table of units as a restaurant operated by the Company and the franchise is also included as a unit franchised by the Company and in which the Company has an interest. All of the Company's package liquor stores, restaurants and clubs are operated on leased properties. The Company was incorporated in Florida in 1959 and operated in South Florida as a chain of small cocktail lounges and package liquor stores. By 1970, the Company had established a chain of "Big Daddy's" lounges and package liquor stores between Vero Beach and Homestead, Florida. From 1970 to 1979, the Company expanded its package liquor store and lounge operations throughout Florida and opened clubs in five other "Sun Belt" states. In 1975, the Company discontinued most of its package store operations in Florida except in the South Florida areas of Dade, Broward, Palm Beach and Monroe Counties. In 1982 the Company expanded its club operations into the Philadelphia, Pennsylvania area as general partner of several limited partnerships organized by the Company. In March 1985 the Company began franchising its package liquor stores and lounges in the South Florida area. See Note 10 to the consolidated financial statements and the discussion of franchised units on page 6. During fiscal year 1987, the Company began renovating its lounges to provide full restaurant food service, and subsequently renovated and added food service to most of its lounges. The restaurant concept, as the Company offers it, has been so well received by the public that food sales now represent approximately 80% of total restaurant sales. - 3 - The Company's package liquor stores emphasize high volume business by providing customers with a wide variety of brand name and private label merchandise at discount prices. The Company's restaurants provide efficient service of alcoholic beverages and full food service with abundant portions, reasonably priced, served in a relaxed, friendly and casual atmosphere. The Company's principal sources of revenue are the sale of food and alcoholic beverages. The Company conducts its operations directly and through a number of wholly owned subsidiaries. The operating subsidiaries are as follows: SUBSIDIARY STATE OF INCORPORATION - ---------- ---------------------- Flanigan's Management Services, Inc. Florida Flanigan's Enterprises, Inc. of Georgia Georgia Seventh Street Corp. Florida Flanigan's Enterprises, Inc. of Pa. Pennsylvania The income derived and expenses incurred by the Company relating to the aforementioned subsidiaries are consolidated for accounting purposes with the income and expenses of the Company in the consolidated financial statements in this Form 10-K. The Company's executive offices, which are owned by the Company, are located in a two story building at 5059 N.E. 18th Avenue, Fort Lauderdale, Florida 33334 and its telephone number at such address is (954) 377-1961. Corporate Reorganization - ------------------------ As noted in Note 7 to the consolidated financial statements, on November 4, 1985, the Company, not including any of its subsidiaries, filed a Voluntary Petition in the United States Bankruptcy Court for the Southern District of Florida seeking to reorganize under Chapter 11 of the Federal Bankruptcy Code. The primary purposes of the petition were (1) to reject leases which were significantly above market rates and (2) to reject leases on closed units which had been repossessed by, or returned to the Company. On May 5, 1987, the Company's Plan of Reorganization as amended and modified was confirmed by the Bankruptcy Court. On December 28, 1987 the Company was officially discharged from bankruptcy. During the third quarter of fiscal year 2002, the remaining liabilities under the Plan were paid in full. See Note 7 to the consolidated financial statements for a discussion of the bankruptcy proceedings to date and Item 7 for a discussion of the effect of the bankruptcy proceedings herein. - 4 - Financial Information Concerning Industry Segments - -------------------------------------------------- The Company's business is carried out principally in two segments: the restaurant segment and the package liquor store segment. Financial information broken into these two principal industry segments for the three fiscal years ended September 28, 2002, September 29, 2001 and September 30, 2000 is set forth in the consolidated financial statements which are attached hereto, and is incorporated herein by reference. The Company's Package Liquor Stores and Restaurants - --------------------------------------------------- The Company's package liquor stores are operated under the "Big Daddy's Liquors" servicemark and the Company's restaurants are operated under the "Flanigan's Seafood Bar and Grill" servicemark. The Company's package liquor stores emphasize high volume business by providing customers with a wide selection of brand name and private label liquors, beer and wines. The Company has a policy of meeting the published sales prices of its competitors. The Company provides extensive sales training to its package liquor store personnel. All package liquor stores are open six or seven days a week from 9:00-10:00 a.m. to 9:00-10:00 p.m., depending upon demand and local law. Approximately half of the Company's units have "night windows" with extended evening hours. The Company's restaurants offer full food and alcoholic beverage service with approximately 80% of their sales being food items. These restaurants are operated under the "Flanigan's Seafood Bar and Grill" servicemark. Although these restaurants provide a neighborhood atmosphere, they have the degree of standardization prevalent in casual dining restaurant chains, including menu. The interior decor is nautical with numerous fishing and boating pictures and decorations. Drink prices may vary between locations to meet local conditions. Food prices are standardized. The restaurants' hours of operation are from 11:00 a.m. to 1:00-5:00 a.m. The Company continues to develop strong customer recognition of its "Flanigan's Seafood Bar and Grill" servicemark through very competitive pricing and efficient and friendly service. The Company's package liquor stores and restaurants were designed to permit minor modifications without significant capital expenditures. However, from time to time the Company is required to redesign and refurbish its units at significant cost. See Item 2, Properties and Item 7 for further discussion. - 5 - Franchised Package Liquor Stores and Restaurants - ------------------------------------------------ In March 1985, the Company's Board of Directors approved a plan to sell, on a franchise basis, up to 26 of the Company's package liquor stores and lounges in the South Florida area. Under the terms of the franchise plan, the Company sold the liquor license, furniture, fixtures and equipment of a particular unit, entered into a sublease for the business premises and a franchise agreement, whereby the franchisee licensed the "Big Daddy's Liquors" and "Big Daddy's Lounges" servicemarks in the operation of its business. Investors purchasing units were required to execute ten year franchise agreements with a thirty day cancellation provision. The franchise agreement also provided for a royalty to the Company, in the amount of 1% of gross sales, plus a contribution to advertising, in an amount between 1-1/2% to 2% of gross sales. In most cases, the sublease agreement provided for rent in excess of the amount paid by the Company, in order to realize an additional return of between 2% to 3% of gross sales, depending on a number of factors, including but not limited to the performance of the particular unit sold and its expected sales growth. As of the end of fiscal year 2002, seven units were franchised. Five of these units are franchised to members of the family of the Chairman of the Board and Officers or Directors. The Company had limited response to its franchise offering and suspended its franchise plan at the end of fiscal year 1986. The units that continue to be franchised are doing well and continue to generate income for the Company. Many of the units that were originally offered as franchises have been sold outright and are no longer being operated as Flanigan's or Big Daddy's stores. Franchised Restaurants - ---------------------- During fiscal year 1995, the Company completed its new franchise agreement for a franchisee to operate a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark pursuant to a license from the Company. The new franchise agreement was drafted jointly with existing franchisees with all modifications requested by the franchisees incorporated therein. The new franchise agreement provides the Company with the ability to maintain a high level of food quality and service at its franchised restaurants, which are essential to a successful franchise operation. A franchisee is required to execute a new franchise agreement for the balance of the term of its lease for the business premises, extended by the franchisee's continued occupancy of the business premises thereafter, whether by lease or ownership. The new franchise agreement provides for a royalty to the Company in the amount of approximately 3% of gross sales plus a contribution to advertising in an amount between 1-1/2% to 3% of gross sales. In - 6 - most cases, the Company does not sublease the business premises to the franchisee and in those cases where it does, the Company no longer receives rent in excess of the amount paid by the Company. All existing franchisees who operate restaurants under the "Flanigan's Seafood Bar and Grill" or other authorized servicemarks have executed new franchise agreements. Investment in Joint Ventures The Company operated a restaurant in Miami, Florida under the "Flanigan's Seafood Bar and Grill" servicemark pursuant to a limited partnership agreement through the end of the second quarter of fiscal year 2002. The Company acts as the general partner and owns a fifty percent limited partnership interest. The State of Florida, Department of Transportation, ("DOT"), exercised its right of eminent domain to "take" the hotel property upon which this restaurant was located and the restaurant closed as the end of business on March 30,2002. The Company, as general partner of the limited partnership, pursued a claim for the "taking" of the restaurant, including its furniture, fixtures and equipment, against the DOT and an apportionment claim against the owner of the hotel property as compensation for its possessory rights to the restaurant premises and its share of compensation paid by the DOT for its furniture, fixtures and equipment pursuant to a Stipulated Final Judgment between the DOT and the owner of the hotel property, ("Stipulated Final Judgment"). The settlement resulted in approximately $230,000 of income to the Company during the fiscal year ended September 28, 2002, which is included in "Other Income (Expense) on Page F-3 of this report. The limited partnership has reserved its right to seek additional compensation from the DOT for (1) its claim for the value of the furniture, fixture and equipment located in the restaurant which were not paid for in the Stipulated Final Judgment; (2) its claim for the value of its furniture, fixtures and equipment above and beyond the value paid by the DOT in the Stipulated Final Judgment; and (3) any other rights reserved to the limited partnership in the Stipulated Final Judgment, which additional compensation will belong solely to the Company. The amount of compensation, if any, cannot be estimated as of this date. During the third quarter of fiscal year 1997, a related party formed a limited partnership to own a certain franchise in Fort Lauderdale, Florida, through which it raised the necessary funds to renovate the restaurant for operation under the "Flanigan's Seafood Bar and Grill" servicemark. The Company is a twenty five percent owner of the limited partnership as are other related parties, including, but not limited to officers and directors of the Company and their families. - 7 - During the fourth quarter of fiscal year 1997, a limited partnership was formed which raised funds through a private offering to purchase the assets of a restaurant in Surfside, Florida and renovate the same for operation under the "Flanigan's Seafood Bar and Grill" servicemark. The Company acts as general partner of the limited partnership and is also a forty two percent owner of the same, as are other related parties, including, but not limited to officers and directors of the Company and their families. The limited partnership agreement gives the limited partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of the gross sales from the operation of the restaurant, only while the Company acts as general partner. This restaurant opened for business in the second quarter of fiscal year 1998. During the third quarter of fiscal year 1998, a limited partnership was formed which raised funds through a private offering to acquire and renovate a restaurant in Kendall, Florida. The Company is general partner of the limited partnership and is also the owner of forty percent of the same, as are other related parties, including but not limited to officers and directors of the Company and their families. The limited partnership agreement gives the partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of the gross sales from the operation of the restaurant, while the Company acts as general partner only. The restaurant opened for business on April 9, 2000. During the third quarter of fiscal year 2000, a limited partnership was formed which raised funds through a private offering to purchase an existing restaurant location in West Miami, Florida. The Company is general partner of the limited partnership and is also the owner of twenty five percent of the same as are other related parties, including but not limited to officers and directors of the Company and their families. The limited partnership agreement gives the partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of the gross sales from the operation of the restaurant, while the Company acts as general partner only. The restaurant opened for business on October 11, 2001. During the fourth quarter of fiscal year 2001, a limited partnership was formed with the Company as general partner, which limited partnership entered into a sublease agreement to own and operate an existing restaurant in Weston, Florida. During the fourth quarter of fiscal year 2002, the sublessor resolved the zoning and related matters and the limited partnership began raising funds to renovate the business premises for operation as a "Flanigan's Seafood Bar and Grill" restaurant. With the sale of limited partnership units during the fourth quarter of fiscal year 2002, the Company no longer consolidates the limited partnership for financial reporting purposes. The Company continues to act as - 8 - the general partner of the limited partnership and is also the owner of twenty eight percent of the same, as are other related parties, including but not limited to officers and directors of the Company and their families. The limited partnership agreement gives the partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of the gross sales from the operation of the restaurant, while the Company acts as general partner only. The restaurant, which had operated under its existing servicemark, was closed on July 13, 2002 and building permits were issued to the limited partnership at the start of fiscal year 2003. The Company anticipates that the restaurant will be open for business by December 31, 2002. Clubs - ----- As of the end of fiscal year 2002, the Company owned one club in Atlanta, Georgia, which was operated by an unaffiliated third party, as discussed below. Operation of Units by Unaffiliated Third Parties - ------------------------------------------------ During fiscal year 1992, the Company entered into a Management Agreement with Mardi Gras Management, Inc. for the operation of the Company's club in Atlanta, Georgia through the balance of the initial term of the lease, unless sooner terminated by Mardi Gras Management, Inc. upon thirty days prior written notice, with or without cause. Mardi Gras Management, Inc. assumed the management of this club effective November 1, 1991 and is currently operating the club under an adult entertainment format. During fiscal year 1997, the Company agreed to modify the Management Agreement to give Mardi Gras Management, Inc. one five year renewal option to extend the term of the same, without the right to terminate the same upon thirty days prior written notice, with or without cause, provided the Company was satisfied with the financial condition of Mardi Gras Management, Inc. within its sole discretion, and Mardi Gras Management, Inc. agreed to modify the owner's fee to $150,000 per year versus ten percent of gross sales from the club, whichever is greater. Pursuant to the Management Agreement, as modified, the Company receives a monthly owner's fee of $12,500, subject to adjustment each year on or about July 1, with an additional owners fee equal to 10% of the gross sales exceeding $1,500,000 for the prior 12 month period, being due the Company. During the first quarter of fiscal year 2001, the Company accepted the exercise of the five year renewal option by Mardi Gras Management upon its receipt of a security deposit of $200,000. Simultaneously, with its acceptance of the exercise of the renewal option by Mardi Gras Management, the Company exercised its five year renewal option under the ground lease for the business premises. - 9 - Operations and Management - ------------------------- The Company emphasizes systematic operations and control of all units. Each unit has its own manager who is responsible for monitoring inventory levels, supervising sales personnel, food preparation and service in restaurants and generally assuring that the unit is managed in accordance with Company guidelines and procedures. The Company has in effect an incentive cash bonus program for its managers and salespersons based upon various performance criteria. The Company's operations are supervised by area supervisors. Each area supervisor supervises the operations of the units within his or her territory and visits those units to provide on-site management and support. There are four area supervisors responsible for package store, restaurant and club operations in specific geographic districts. All of the Company's managers and salespersons receive extensive training in sales techniques. The Company arranges for independent third parties, or "shoppers", to inspect each unit in order to evaluate the unit's operations, including the handling of cash transactions. Purchasing and Inventory - ------------------------ The package liquor business requires a constant substantial capital investment in inventory in the units. Liquor inventory purchased can normally be returned only if defective or broken. All Company purchases of liquor inventory are made through its purchasing department from the Company's corporate headquarters. The major portion of inventory is purchased under individual purchase orders with licensed wholesalers and distributors who deliver the merchandise within one or two days of the placing of an order. Frequently there is only one wholesaler in the immediate marketing area with an exclusive distributorship of certain liquor product lines. In September 2002, the Company changed the accounting method for valuing inventories from first in first out to average cost. See Note 2 in the consolidated financial statements for more details. Substantially all of the Company's liquor inventory is shipped by the wholesalers or distributors directly to the Company's units. The Company significantly increases its inventory prior to Christmas, New Year's eve and other holidays. Pursuant to Florida law, the Company pays for its liquor purchases within ten days of delivery. - 10 - All negotiations with food suppliers are handled by the Company's purchasing department at the Company's corporate headquarters. This ensures that the best quality and prices will be available to each unit. Orders for food products are prepared by each unit's kitchen manager and reviewed by the unit's general manager before being placed with the approved vendor. Merchandise is delivered by the supplier directly to each unit. Orders are placed several times a week to ensure product freshness. Food inventory is primarily paid for monthly. Government Regulation - --------------------- The Company is subject to various federal, state and local laws affecting its business. In particular, the units operated by the Company are subject to licensing and regulation by the alcoholic beverage control, health, sanitation, safety and fire department agencies in the state or municipality where located. Alcoholic beverage control regulations require each of the Company's units to apply to a state authority and, in certain locations, county and municipal authorities, for a license or permit to sell alcoholic beverages on the premises. In the State of Florida, which represents all but one of the total liquor licenses held by the Company, most of the Company's liquor licenses are issued on a "quota license" basis. Quota licenses are issued on the basis of a population count established from time to time under the latest applicable census. Because the total number of liquor licenses available under a quota license system is limited and restrictions placed upon their transfer, the licenses have purchase and resale value based upon supply and demand in the particular areas in which they are issued. The quota licenses held by the Company allow the sale of liquor for on and off premises consumption only. In Florida, the other liquor licenses held by the Company or limited partnerships of which the Company is the general partner are restaurant liquor licenses, which do not have quota restrictions and no purchase or resale value. A restaurant liquor license is issued to every applicant who meets all of the state and local licensing requirements, including, but not limited to zoning and minimum restaurant size, seating and menu. The restaurant liquor licenses held by the Company allow the sale of liquor for on premises consumption only. In the State of Georgia, the other state in which the Company operates, licensed establishments also do not have quota restrictions for on-premises consumption and such licenses are issued to any applicant who meets all of the state and local licensing requirements based upon extensive license application filings and investigations of the applicant. - 11 - All licenses must be renewed annually and may be revoked or suspended for cause at any time. Suspension or revocation may result from violation by the licensee or its employees of any federal, state or local law regulation pertaining to alcoholic beverage control. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the Company's units, including, minimum age of patrons and employees, hours of operations, advertising, wholesale purchasing, inventory control, handling, storage and dispensing of alcoholic beverages, internal control and accounting and collection of state alcoholic beverage taxes. As the sale of alcoholic beverages constitutes a large share of the Company's revenue, the failure to receive or retain, or a delay in obtaining a liquor license in a particular location could adversely affect the Company's operations in that location and could impair the Company's ability to obtain licenses elsewhere. The Company is subject in certain states to "dram shop" or "liquor liability" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to such person. See Item 1, Insurance and Item 3, Legal Proceedings for further discussion. The Company maintains a continuous program of training and surveillance from its corporate headquarters to assure compliance with all applicable liquor laws and regulations. During the fiscal years ended September 30, 2000, September 29, 2001,and September 28, 2002 and through the present time, no significant pending matters have been initiated by the Department of Alcohol, Beverages and Tobacco concerning any of the Company's licenses which might be expected to result in a revocation of a liquor license or other significant actions against the Company. The Company is not aware of any statute, ordinance, rule or regulation under present consideration which would significantly limit or restrict its business as now conducted. However, in view of the number of jurisdictions in which the Company does business, and the highly regulated nature of the liquor business, there can be no assurance that additional limitations may not be imposed in the future, even though none are presently anticipated. Federal and state environmental regulations have not had a material effect on the Company's operation. Insurance - --------- The Company has general liability insurance which incorporates a semi-self-insured plan under which the Company assumes the full risk of the first $50,000 of exposure per occurrence. The - 12 - Company's insurance carrier is responsible for $1,000,000 coverage per occurrence above the Company's self-insured deductible, up to a maximum aggregate of $2,000,000 per year. During fiscal year 2000, fiscal year 2001, and again in fiscal year 2002 the Company was able to purchase excess liability insurance at a reasonable premium, whereby the Company's excess insurance carrier is responsible for $4,000,000 coverage above the Company's primary general liability insurance coverage. The Company is self-insured against liability claims in excess of $5,000,000. The Company's general policy is to settle only those legitimate and reasonable claims asserted and to aggressively defend and go to trial, if necessary, on frivolous and unreasonable claims. The Company has established a select group of defense attorneys which it uses in conjunction with this program. Under the Company's current liability insurance policy, any expense incurred by the Company in defending a claim, including adjusters and attorney's fees, are a part of the $50,000 self-insured retention. An accrual for the Company's accounts payable and accrued expenses include estimated liability claims which is included in the consolidated balance sheets in the caption " Accounts payable and accrued expenses". A significant unfavorable judgment or settlement against the Company in excess of its liability insurance coverage could have a materially adverse effect on the Company. Competition and the Company's Market - ------------------------------------ The liquor and hospitality industries are highly competitive and are often affected by changes in taste and entertainment trends among the public, by local, national and economic conditions affecting spending habits, and by population and traffic patterns. The Company believes that the principal means of competition among package liquor stores is price and that, in general, the principal means of competition among restaurants include location, type and quality of facilities and type, quality and price of beverage and food served. The Company's package liquor stores compete directly or indirectly with local retailers and discount "superstores". Due to the competitive nature of the liquor industry in South Florida, the Company has had to adjust its pricing to stay competitive, including meeting all competitor's advertisements. Such practices will continue in the package liquor business. It is the opinion of the Company's management that the Company has a competitive position in its market because of widespread consumer recognition of the "Big Daddy's" and "Flanigan's" names. - 13 - As previously noted, at September 28, 2002 the Company owned and operated six restaurants, all of which had formerly been lounges and were renovated to provide full food service. These restaurants compete directly with other restaurants serving liquor in the area. The Company's restaurants are competitive due to four factors; product quality, portion size, moderate pricing and a standardization throughout the Company owned restaurants and most of the franchises. The Company's business is subject to seasonal effects, in that liquor purchases tend to increase during the holiday seasons. Trade Names - ----------- The Company operates principally under three servicemarks; "Flanigan's", "Big Daddy's", and "Flanigan's Seafood Bar and Grill". Throughout Florida the Company's package liquor stores are operated under the "Big Daddy's Liquors" servicemark. The Company's rights to the use of the "Big Daddy's" servicemark are set forth under a consent decree of a Federal Court entered into by the Company in settlement of federal trademark litigation. The consent decree and the settlement agreement allow the Company to continue, and expand, its use of the "Big Daddy's "servicemark in connection with limited food and liquor sales in Florida. The consent decree further contained a restriction upon all future sales of distilled spirits in Florida under the "Big Daddy's" name by the other party who has a federally registered servicemark for "Big Daddy's" use in the restaurant business. The Federal Court retained jurisdiction to enforce the consent decree. The Company has acquired a registered Federal trademark on the principal register for its "Flanigan's" servicemark. The standard symbolic trademark associated with the Company and its facilities is the bearded face and head of "Big Daddy" which is predominantly displayed at all "Flanigan's" facilities and all "Big Daddy's" facilities throughout the country. The face comprising this trademark is that of the Company's founder, Joseph "Big Daddy" Flanigan, and is a federally registered trademark owned by the Company. Employees - --------- As of year end, the Company employed 359 employees, of which 248 were full-time and 111 were part-time. Of these, 29 were employed at the corporate offices. Of the remaining employees, 39 were employed in package liquor stores and 291 in restaurants. None of the Company's employees are represented by collective bargaining organizations. The Company considers its labor relations to be favorable. - 14 - EXECUTIVE OFFICERS OF THE REGISTRANT Positions and Offices Office or Position Name Currently Held Age Held Since ---- --------------------- --- ------------------ Joseph G. Flanigan Chairman of the Board 73 1959 of Directors, Chief Executive Officer James G. Flanigan President 38 2002 William Patton Vice President 79 1975 Community Relations Edward A. Doxey Chief Financial Officer 61 1992 and Secretary Jeffrey D. Kastner Assistant Secretary 49 1995 August Bucci Vice President of 58 2002 Restaurant Operations Jean Picard Vice President of 64 2002 Package Store Operations Item 2. Properties - ------------------ The Company's operations are all conducted on leased property with the exception of the Corporate Headquarters Office Building which was purchased in December, 1999 and has been occupied by the Company since April 2001. Initially most of these properties were leased by the Company on long-term ground and building leases with the buildings either constructed by the lessors under build-to-suit leases or constructed by the Company. A relatively small number of business locations involve the lease or acquisition of existing buildings. In almost every instance where the Company initially owned the land or building on leased property, the Company entered into a sale and lease-back transaction with investors to recover a substantial portion of its per unit investment. The majority of the Company's leases contained rent escalation clauses based upon the consumer price index which made the continued profitable operation of many of these locations impossible and jeopardized the financial position of the Company. As a result of the Company's inability to renegotiate these leases, on November 4, 1985 the Company, not including its subsidiaries, filed a Voluntary Petition in the United States Bankruptcy Court for the Southern District of Florida seeking to reorganize under Chapter 11 of the Federal Bankruptcy Code. The primary purpose of the reorganization was to reject and/or renegotiate the leases on such properties. - 15 - All of the Company's units require periodic refurbishing in order to remain competitive. The Company has budgeted $410,000 for its refurbishing program for fiscal year 2003. See Item 7, "Liquidity and Capital Resources" for discussion of the amounts spent in fiscal year 2002. The following table summarizes the Company's properties as of September 28, 2002 including franchise locations, a club and Company managed locations. Square License Lease Name and Location Footage Seats Owned by Terms - ----------------- ------- ----- -------- ----- Big Daddy's Liquors #4 2,100 N/A Company 3/1/02 to 2/28/27 Flanigan's Enterprises and Options to Inc. (10) 2/28/37 7003 Taft Street Hollywood, FL Big Daddy's Liquors #7 1,450 N/A Company 11/1/00 to 10/31/05 Flanigan's Enterprises and Options to Inc. 10/31/15 1550 W. 84th Street Hialeah, FL Big Daddy's Liquors #8 1,800 N/A Company 5/1/99 to 4/30/14 Flanigan's Enterprises Inc. 959 State Road 84 Fort Lauderdale, FL Flanigan's Seafood Bar 4,300 130 Company 10/1/71 to 12/31/04 and Grill #9 and Option to Flanigan's Enterprises 12/31/09 Inc. (1) 1550 W.84th Street Hialeah, FL Flanigan's Legends 5,000 150 Franchise 1/4/00 to 1/3/20 Seafood Bar and Grill Option to 1/3/25 #11, 11 Corporation (3) 330 Southern Blvd. W. Palm Beach, FL Flanigan's Legends 5,000 180 Franchise 11/15/92 to Seafood Bar and Grill 11/15/12 #12 Galeon Tavern, Inc. (3) 2401 Tenth Ave. North Lake Worth, FL - 16 - Square License Lease Name and Location Footage Seats Owned by Terms - ----------------- ------- ----- -------- ----- Flanigan's Seafood 3,320 90 Franchise 6/1/79 to 6/1/04 Bar and Grill #14, Option to 6/1/09 Big Daddy's #14, Inc. (2)(3)(5)(9) 2041 NE Second St. Deerfield Beach, FL Franchise/ Piranha Pats II-#15 4,000 90 Joint 3/2/76 to 8/31/06 CIC Investors #15 Ltd. (3)(5) Venture Option to 8/31/11 1479 E. Commercial Blvd. Ft. Lauderdale, FL Flanigan's Seafood 4,300 100 Franchise 2/15/72 to 12/31/05 Bar and Grill #18 Options to 12/31/20 Twenty Seven Birds Option to purchase Corp. (2)(3)(5) 2721 Bird Avenue Miami, FL Flanigan's Seafood 4,500 160 Company 3/1/72 to 12/31/05 Bar and Grill #19 Flanigan's Enterprises Inc. (2)(4) 2505 N. University Dr. Hollywood, FL Flanigan's Seafood 5,100 140 Company 7/15/68 to 12/31/03 Bar and Grill #20 Annual options Flanigan's Enterprises until the Company Inc. (2) fails to exercise 13205 Biscayne Blvd. Additional Lease North Miami, FL 5/1/69 to 12/31/03 Annual options until the Company fails to exercise Flanigan's Seafood 4,100 200 Company 12/16/68 to Bar and Grill #22 12/31/05 Flanigan's Enterprises Options to 12/31/20 Inc. (2)(4) Option to purchase 2600 W. Davie Blvd. Ft. Lauderdale, FL Flanigan's Enterprises 3,000 90 Company 7/1/50 to 6/30/49 Inc. #27 (8) 732-734 NE 125th St. North Miami, FL - 17 - Square License Lease Name and Location Footage Seats Owned by Terms - ----------------- ------- ----- -------- ----- Flanigan's Seafood 4,600 150 Company 9/6/68 to 12/31/05 Bar and Grill #31 Options to 12/31/20 Flanigan's Enterprises Option to purchase Inc. (2) 4 N. Federal Highway Hallandale, FL Flanigan's Guppy's 4,620 130 Franchise 11/1/68 to 10/31/03 Seafood Bar and Grill #33 New Lease Guppies, Inc. (2)(3)(5) 11/1/03 to 12/31/09 45 S. Federal Highway Boca Raton, FL Big Daddy's Liquors 3,000 N/A Company 5/29/97 to 5/28/07 #34, Flanigan's Options to 5/28/17 Enterprises, Inc. (1) 9494 Harding Ave. Surfside, FL Flanigan's Seafood 4,600 140 Company 4/1/71 to 12/31/05 Bar and Grill #40 Options to 12/31/15 Flanigan's Enterprises Inc. (2) 5450 N. State Road 7 Ft. Lauderdale, FL Piranha Pat's #43 4,500 90 Franchise 12/1/72 to 11/30/07 BD 43 Corporation (2)(3)(5) Option to 11/30/12 2500 E. Atlantic Blvd. Pompano Beach, FL Big Daddy's Liquors 6,000 N/A Company 12/21/68 to 1/1/10 #47, Flanigan's Options to 1/1/60 Enterprises, Inc. (6) 8600 Biscayne Blvd. Miami, FL Flanigan's Seafood 6,800 200 Joint 8/1/97 to 12/31/11 Bar and Grill #60, Venture CIC Investors #60 Ltd. 9516 Harding Avenue Surfside, FL Flanigan's Seafood 4,850 161 Joint 4/1/98 to 3/31/08 Bar and Grill #70 Venture Options to 3/31/28 CIC Investors #70 Ltd. 12790 SW 88 St Kendall, FL - 18 - Square License Lease Name and Location Footage Seats Owned by Terms - ----------------- ------- ----- -------- ----- Flanigan's Seafood 5,000 165 Joint 4/15/01 to 12/14/05 Bar and Grill #80 Venture Options to 12/14/19 CIC Investors #80 Ltd. 8695 N.W. 12th St Miami, FL Flanigan's Seafood 5,700 235 Joint 7/29/01 to 7/28/16 Bar and Grill #95 Venture Options to 7/28/31 CIC Investors #95 Ltd. 2460 Weston Road Weston, FL Flanigan's Enterprises 10,000 400 Company 5/1/76 to 4/30/06 #600 (7) Powers Ferry Landing Atlanta, GA (1) License subject to chattel mortgage. (2) License pledged to secure lease rental. (3) Franchised by Company. (4) Former franchised unit returned and now operated by Company. (5) Lease assigned to franchisee. (6) Lease assigned to unaffiliated third parties, until December 31, 1996, when the Company reacquired ownership through fore-closure. During fiscal year 1996, the Company purchased 37% of the leasehold interest from the unaffiliated third parties. An additional 11% was purchased during fiscal year 1997, bringing the total interest purchased to 48%. (7) Location managed by an unaffiliated third party. (8) Location was closed in May 1998. The Company entered into a five year sub-lease agreement, with two five year options, with an unaffiliated third party who is presently operating a restaurant at this location. (9) Effective December 1, 1998, the Company purchased the Management Agreement to operate the franchised restaurant for the franchisee. (10) Ground lease executed by the Company on September 25, 2001. The Company intends to construct a building of approximately 4200 square feet, one half (1/2) of which will be used by the Company for the operation of a package liquor store and the other one half (1/2) will be subleased as retail space. - 19 - Item 3. Legal Proceedings. - -------------------------- Due to the nature of the business, the Company is sued from time to time by patrons, usually for alleged personal injuries occurring at the Company's business locations. The Company has liability insurance which incorporates a semi-self-insured plan under which the Company assumes the full risk of the first $50,000 of exposure per occurrence. The Company's primary general liability insurance carrier is responsible for $1,000,000 coverage per occurrence above the Company's self-insured deductible, up to a maximum aggregate of $2,000,000 per year. During the fiscal year 2000, fiscal year 2001, and again in fiscal year 2002, the Company was able to purchase excess liability insurance, at a reasonable premium, whereby the Company's excess insurance carrier is responsible for $4,000,000 coverage above the Company's primary general liability insurance coverage. 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 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 has in place insurance coverage to protect it from losses, if any. On November 4, 1985 the Company, not including its subsidiaries, filed a Voluntary Petition in the United States Bankruptcy Court for the Southern District of Florida seeking to reorganize under Chapter 11 of the Federal Bankruptcy Code. The Petition, identified as case no. 85-02594-BKC-AJC was filed in Fort Lauderdale, Florida. By Order of the Court dated November 4, 1985, the Company was appointed "debtor in possession". The Company's action was a result of significant escalations of rent on certain of the Company's leases which made continued profitable operations at those locations impossible and jeopardized the Company's financial position. The major purpose of the reorganization was to reject such leases. On January 11, 1986, the Bankruptcy Court granted the Company's motions to reject thirteen leases and the Company was successful in negotiating the termination of three additional leases. On April 7, 1986, the Bankruptcy Court granted the Company's motion to reject two additional leases and two more leases were automatically rejected due to the Company's failure to assume the same prior to May 22, 1986. During the fiscal year ended October 3, 1987 the Company negotiated a formula with the Official Committee of Unsecured Creditors ("Committee"), which formula was used to calculate lease rejection damages under the Company's - 20 - Amended Plan of Reorganization. Stipulations were filed by the Company with all but three of these unsecured creditors, which stipulations received Bankruptcy Court approval prior to the hearing on confirmation. In addition to the rejection of leases, the Company also sought its release from lease agreements for businesses sold, which sales included the assignment of the leases for the business premises. While several landlords whose leases had been assigned did file claims against the Company, the majority did not, which resulted in the Company being released from its guarantees under those leases. The Company was also successful in negotiating the limitation or release of lease guarantees of those landlords who filed claims, which settlements received Bankruptcy Court approval prior to the hearing on confirmation. On February 5, 1987, the Company filed its Amended Plan of Reorganization and Amended Disclosure Statement, which documents were approved by the Committee. On February 25, 1987, the Company further modified its Amended Plan of Reorganization to secure the claims of Class 6 Creditors (Lease Rejection) and Class 8 Creditors (Lease Guarantee Rejections). The Bankruptcy Court approved the Amended Disclosure Statement by Order dated March 7, 1987 and scheduled the hearing to consider confirmation of the Amended Plan of Reorganization on April 13, 1987. On April 10, 1987, in order to insure receipt of the necessary votes to approve its Amended Plan of Reorganization, the Company agreed to further modification of its Amended Plan, whereby creditors of Class 6 and 8 received $813,000 prorata as additional damages under the terms of the Amended Plan. On April 13, 1987, the Company's Amended Plan of Reorganization was confirmed and the Bankruptcy Court entered its Order of Confirmation on May 5, 1987. Pursuant to the terms of the Amended Plan of Reorganization, the Effective Date of the same was June 30, 1987. As of that date, confirmation payments totaling $1,171,925 were made by the Company's Disbursing Agent with $647,226 being retained in escrow for disputed claims ($1,819,151 total). The Bankruptcy Court ratified the disbursements made by the Disbursing Agent by its Order dated December 21, 1987. On December 28, 1987, the Bankruptcy Court entered its Notice of Discharge of the Company. During fiscal year 1991 and again during fiscal year 1992, the Company and Class 6 and Class 8 Creditors under the Company's Amended Plan of Reorganization modified the schedule for the payment of bankruptcy damages, reducing the amount of the quarterly payments by extending the term of the same, but without reducing the total amount of bankruptcy damages. The modification to the payment schedule provided the Company with needed capital. - 21 - During the third quarter of fiscal year 2002, the remaining liabilities under the Amended Plan of Reorganization were paid in full. During fiscal year 2000, the Company was served with several complaints alleging violations of the Americans with Disabilities Act, ("ADA"), at all of its locations. The lawsuits included the restaurants owned by the limited partnerships and franchises. The sudden influx of lawsuits alleging ADA violations was due to the fact that it was anticipated at the time that the ADA was going to be amended to include a provision requiring plaintiffs to provide the potential defendant with 90 days notice of ADA violations prior to filing suit, during which time the violations may be corrected. The amendment has not yet been enacted and as of now, the ADA still has no notice provision and the first time that the Company received notice of any ADA violations was when it was served with a copy of the complaint. Of the law suits filed, only a few have been actively pursued. The Company has retained an ADA expert who has inspected locations involved in active lawsuits, including the limited partnerships and franchises, and provided a report setting forth ADA violations which need to be corrected. It is the Company's intent to correct ADA violations noted by its ADA expert and then vigorously defend the lawsuits arguing that the locations are in compliance. During fiscal year 2001 and fiscal year 2002, the Company, including three (3) of its franchises, settled all active law suits alleging ADA violations. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------ During the fourth quarter of fiscal year 2002 the Company did not submit any matter to a vote of the security holders. PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. - ------------------------------------------------------------------------------ Fiscal 2002 Fiscal 2001 Fiscal 2000 ----------- ----------- ----------- High Low High Low High Low ---- --- ---- --- ---- --- First quarter 6.20 4.25 4.38 3.75 6.25 4.25 Second quarter 6.21 5.65 4.65 3.75 5.63 4.13 Third quarter 7.20 6.00 5.00 4.06 4.75 3.75 Fourth quarter 6.85 5.40 6.45 4.35 4.63 3.75 On February 14, 2000 the Company declared a cash dividend of 11 cents per share payable March 17, 2000 to shareholders of record as of March 1, 2000. - 22 - On February 13, 2001 the Company declared a cash dividend of 12 cents per share payable March 17, 2001 to shareholders of record as of March 1, 2001. On December 13, 2001 the Company declared a cash dividend of 25 cents per share payable on January 17, 2002 to shareholders of record on December 30,2001. Item 6. Selected Financial Data. - --------------------------------
- -------------------------------------------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 - -------------------------------------------------------------------------------------------------------------------- Statement of Operations Data - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Revenue $21,767,000 $22,315,000 $25,160,000 $26,704,000 $28,297,000 - -------------------------------------------------------------------------------------------------------------------- Income from Operations 1,384,000 1,543,000 1,780,000 2,004,000 2,090,000 - -------------------------------------------------------------------------------------------------------------------- Net income 1,388,000 2,368,000 1,364,000 1,529,000 1,383,000 - -------------------------------------------------------------------------------------------------------------------- Earnings per share $ 1.51 $ 1.21 $ 0.73 $ 0.80 $ 0.71 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Balance Sheet Data - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Total assets $9,043,000 $10,772,000 $11,209,000 $12,757,000 $13,192,000 - -------------------------------------------------------------------------------------------------------------------- Long term liabilities 1,696,000 1,099,000 1,406,000 1,715,000 1,349,000 - -------------------------------------------------------------------------------------------------------------------- Net working capital 1,214,000 1,382,000 1,283,000 2,440,000 2,506,000 - -------------------------------------------------------------------------------------------------------------------- Stockholders' equity 5,105,000 6,980,000 7,667,000 8,968,000 9,957,000 - -------------------------------------------------------------------------------------------------------------------- Dividends declared - 186,000 215,000 231,000 499,000 - --------------------------------------------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations. - -------------- As of September 28, 2002, the Company was operating sixteen units. The Company had interests in an additional six units which had been franchised by the Company. Of the units operated by the Company, four were combination package liquor store and restaurant, seven were restaurants only and four were package liquor stores only. There was one club operated by an unaffiliated third party under a management agreement. During fiscal year 2001, one package liquor store only was closed with the expiration of its lease and the liquor license was sold during the first quarter of fiscal year 2002 to an unaffiliated third party. During fiscal year 2000, one restaurant only, owned by a limited partnership of which the Company acts as general partner, was opened for business. During fiscal year 2001, another restaurant only was acquired by a limited partnership of which the Company acts as general partner. The restaurant, which was being operated by the Company under the restaurant's servicemark, was closed during the fourth quarter of fiscal year 2002 and is currently being renovated for operation - 23 - under the "Flanigan's Seafood Bar and Grill" servicemark. During fiscal year 2001, the Company also entered into a ground lease to construct a building for the operation of a package liquor store only from one half (1/2) of the building and sublease retail space with the other one half (1/2). At the start of fiscal year 2001, one restaurant only , owned by a limited partnership of which the Company acts as general partner, was opened for business. Liquidity and Capital Resources - ------------------------------- Cash Flows - ---------- The following table is a summary of the Company's cash flows for the fiscal years ended September 28, 2002, September 29, 2001 and September 30, 2000:
- --------------------------------------------------------------------------------------------------- Fiscal Years Ended - --------------------------------------------------------------------------------------------------- 2002 2001 2000 - --------------------------------------------------------------------------------------------------- (in thousands) - --------------------------------------------------------------------------------------------------- Net cash provided by - --------------------------------------------------------------------------------------------------- operating activities $ 943 $1,311 $ 558 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Net cash used in - --------------------------------------------------------------------------------------------------- investing activities (588) (583) (1,412) - --------------------------------------------------------------------------------------------------- Net cash used in - --------------------------------------------------------------------------------------------------- financing activities (880) (71) (159) - --------------------------------------------------------------------------------------------------- Net increase (decrease) - --------------------------------------------------------------------------------------------------- in cash and equivalents (525) 657 (1,013) - --------------------------------------------------------------------------------------------------- Cash and equivalents. - --------------------------------------------------------------------------------------------------- beginning of year 1,396 739 1,752 - --------------------------------------------------------------------------------------------------- Cash and equivalents. - --------------------------------------------------------------------------------------------------- end of year $ 871 $1,396 $ 739 - ---------------------------------------------------------------------------------------------------
Contractual Cash Obligations - -------------------------------------------------------------------------------------------- Less Than 1-5 After Total 1 Year Years 5 Years - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Long-term debt $1,608,000 $ 259,000 $ 330,000 $1,019,000 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Operating leases 4,385,000 842,000 1,940,000 1,603,000 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Subtotal 5,993,000 1,101,000 2,270,000 2,622,000 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Operating lease - -------------------------------------------------------------------------------------------- guarantees for - -------------------------------------------------------------------------------------------- franchisees 7,265,000 885,000 2,941,000 3,439,000 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- $13,258,000 $1,986,000 $5,211,000 $6,061,000 - --------------------------------------------------------------------------------------------
- 24 - Improvements - ------------ Capital expenditures were $558,000, $1,091,000 and $1,860,000 during fiscal years 2002, 2001 and 2000, respectively. The capital expenditures for each fiscal year included upgrading existing units serving food, improvements to package liquor stores and the replacement of the corporate computer system. The fiscal year 2000 capital expenditures included the purchase of an office building for $850,000. The fiscal year 2001 capital expenditures included renovations to the office building for $250,000. All of the Company's units require periodic refurbishing in order to remain competitive . During fiscal 1992, as cash flow improved, the Company embarked on a refurbishing program which continues. The budget for fiscal year 2003 includes approx-imately $280,000 for this purpose. The Company expects the funds for these improvements to be provided from operations. Property and Equipment - ---------------------- The Company purchased an office building for $850,000 during the first quarter of 2000 and renovated the same during the second and third quarters of fiscal year 2001 for $250,000. The corporate offices were relocated to the building during the third quarter of fiscal year 2001. Long term debt - -------------- During the fourth quarter of fiscal year 1997, the Company borrowed $375,000 from investors, in units of $5,000, which loan was fully secured with specific receivables owned by the Company. The loan was paid in full during the fourth quarter of fiscal year 2002. The Company closed on a $1,000,000 loan with Bank of America (formerly Nations Bank) during the second quarter of fiscal year 2000. The promissory note earned interest at prime rate, payable monthly on the outstanding principal balance, with quarterly payments of principal commencing at the rate of $50,000 per quarter for 8 quarters, and then at the rate of $75,000 per quarter for 8 quarters, at which time any outstanding principal balance and all accrued interest shall be due in full. The promissory note was secured by a security interest in all assets of the Company, including the office building purchased by the Company. The promissory note was prepaid in full during the fourth quarter of fiscal year 2002. - 25 - During the fourth quarter of fiscal year 2002, the Company closed on a $456,000 loan with Bank Atlantic, which loan was used to prepay the Company's loan with Bank of America discussed above. The promissory note earns interest at the rate of prime (4.75% at 9/30/02) per annum and is fully amortized over 19 months, with equal monthly payments of principal and interest. The principal due as of September 28, 2002 was $418,000. During the fourth quarter of fiscal year 2001, the Company borrowed the sum of $895,000 from Bank of America (formerly Nations Bank). The promissory note earns interest at the rate of 6.12% per annum, amortized over 20 years with principal and interest payable monthly, with the entire unpaid principal balance and all accrued interest due on August 1, 2008. The promissory note is secured by a mortgage on the office building purchased by the Company for its corporate offices, which office building was released from the lien granted by the Company to the Bank of America (formerly Nations Bank), as collateral for the loan in January of fiscal year 2000. In order to achieve the fixed interest rate, the Company entered into an ISDA Master Agreement with Bank of America. ("SWAP Agreement"), and in the event the Company elects to prepay the promissory note, there may be a prepayment penalty associated therewith. The outstanding balance as of the end of fiscal year 2002 was $876,000. The Company repaid long term debt, including the Bank of America note payable, capital lease obligations and Chapter 11 bankruptcy damages in the amount of $486,000, $726,000 and $421,000 in fiscal years 2002, 2001 and 2000 respectively. Working capital - --------------- The table below summarizes the current assets, current liabilities and working capital for the fiscal years 2002, 2001 and 2000: - ------------------------------------------------------------------------------- Sept. 28 Sept. 29 Sept. 30 2002 2001 2000 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Current assets $4,392,000 $4,514,000 $3,419,000 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Current liabilities 1,886,000 2,074,000 2,136,000 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Working capital 2,506,000 2,440,000 1,283,000 - ------------------------------------------------------------------------------- Management believes that positive cash flow from operations will adequately fund operations, debt reductions and planned capital expenditures in fiscal year 2003. - 26 - Income Taxes - ------------ Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes requires, among other things, recognition of future tax benefits measured at enacted rates attributable to deductible temporary differences between financial statement and income tax bases of assets and liabilities and to tax net operating loss and tip credit carryforwards to the extent that realization of said benefits is more likely than not. For discussion regarding the Company's carryforwards refer to Note 8 to the consolidated financial statements for fiscal year ended September 28, 2002. Bankruptcy Proceedings - ---------------------- As noted above and in Note 7 to the consolidated financial statements, on November 4, 1985, Flanigan's Enterprises, Inc., not including any of its subsidiaries, filed a Voluntary Petition in the United States Bankruptcy Court for the Southern District of Florida seeking to reorganize under Chapter 11 of the Federal Bankruptcy Code. The primary purposes of the petition were (1) to reject leases which were significantly above market rates and (2) to reject leases on closed units which had been repossessed by or returned to the Company. During fiscal year 1986 the Company terminated or rejected 34 leases. Many of the leases remaining were renegotiated to five year terms, with three five year renewal options at fair market rental. As was their right under the Bankruptcy Code, the landlords of properties rejected by the Company filed claims for losses or damages sustained as a result of the Company's rejection of such leases. The amount of such damages is limited by federal law. The Company outlined a schedule for payment of these damages in the Amended Plan. As noted above, the Amended Plan was approved in the Bankruptcy Court on May 5, 1987. The gross amount of damages payable to creditors for the rejected leases was $4,278,000. Since the damage payments were to be made over nine years, the total amount due was discounted at a rate of 9.25%. During the third quarter of fiscal year 2002, the remaining damage payments under the Amended Plan were paid in full. See Note 7 to the consolidated financial statements for the current payment schedule of these damages. Other Legal Matters - ------------------- Through the end of fiscal year 1990, the Company was uninsured for dram shop liability. See page 20 for further discussion regarding dram shop suits. - 27 - The Company operated a restaurant in Miami, Florida under the "Flanigan's Seafood Bar and Grill" servicemark pursuant to a limited partnership agreement through the second quarter of fiscal year 2002. The Company acts as the general partner and owns a fifty percent limited partnership interest. The State of Florida, Department of Transportation, ("DOT") exercised its right of eminent domain to "take" the hotel property upon which this restaurant was located and the restaurant closed at the end of business on March 30, 2002. The Company, as general partner of the limited partnership, pursued a claim for "taking" of the restaurant, including its furniture, fixtures and equipment, against the DOT and an apportionment claim against the owner of the hotel property as compensation for its possessory rights to the restaurant premises and its share of the compensation paid by the DOT for its furniture, fixtures and equipment pursuant to a Stipulated Final Judgment between the DOT and the owner of the hotel property, ("Stipulated Final Judgment"). The settlement resulted in approximately $230,000 of income to the Company during fiscal year ended September 28, 2002, which is included in "Other Income (Expense)" on Page 3 of this report. The limited partnership has reserved its right to seek additional compensation from the DOT for (1) its claim for the value of the furniture, fixtures and equipment located in the restaurant which were not paid for in the Stipulated Final Judgment; (2) its claim for the value of its furniture, fixtures and equipment above and beyond the value paid by the DOT in the Stipulated Final Judgment; and (3) any other rights reserved to the limited partnership in the Stipulated Final Judgment, which additional compensation will belong solely to the Company. The amount of compensation, if any, cannot be estimated as of this date. Critical Accounting Policies - ---------------------------- The Company"s significant accounting policies are more fully described in Note 1 to the Company"s consolidated financial statements located in Item 8 of this Annual Report on Form 10-K. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosures of contingent assets and liabilities. Actual results could differ from those estimates under different assumptions or conditions. The Company believes that the following critical accounting policy is subject to estimates and judgments used in the preparation of its consolidated financial statements: Deferred tax assets result primarily from timing differences relating to depreciation and tip credits. The calculations are reviewed periodically by management and the estimates are adjusted as the assumptions or conditions indicate. - 28 - Results of Operations - ---------------------
REVENUES (in thousands): - --------------------------------------------------------------------------------------------------------------- Fifty Two Fifty Two Fifty Two Weeks Ended Weeks Ended Weeks Ended Sales Sept. 28, 2002 Sept. 29, 2001 Sept. 30, 2000 - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Restaurant, food $13,119 51.2% $12,453 51.1% $11,485 49.5% - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Restaurant, bar 3,317 13.0% 3,025 12.4% 2,859 12.3% - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Package goods 9,174 35.8% 8,907 36.5% 8,870 38.2% - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Total 25,610 100.0% 24,385 100.0% 23,214 100.0% - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Franchise revenues 1,402 1,249 1,065 - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Owners fee 251 269 261 - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Joint venture - --------------------------------------------------------------------------------------------------------------- income 732 571 460 - ------------------------------------ -------------- --------------- ------------- --------------- ------------- - --------------------------------------------------------------------------------------------------------------- Other operating - --------------------------------------------------------------------------------------------------------------- income 302 230 160 - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Total Revenues $28,297 $26,704 $25,160 - ---------------------------------------------------------------------------------------------------------------
As the table above illustrates, total revenues have increased for the fiscal year ended September 28, 2002 when compared to the fiscal years ended September 29, 2001 and September 30, 2000. During the second quarter of fiscal year 1999, the Company formed a limited partnership to renovate and operate a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark in Kendall, Florida, as general partner and forty percent owner of the same. Due to the difficulties in obtaining the required permits to begin construction which were beyond control of the Company, construction began in the first quarter of fiscal year 2000 and the restaurant opened for business during the third quarter of fiscal year 2000. The Company reported income of $239,000 for the fiscal year 2002 as compared with $183,000 for the fiscal year ended September 29, 2001 and $17,000 for the fiscal year ended September 30, 2000. During the first quarter of the fiscal year ended September 30, 2000, the Company purchased, for $850,000 in cash, a two story building in Fort Lauderdale, Florida, which is presently being used for the corporate offices The Company also plans to renovate a portion of the ground floor of the office building to be used as a package liquor store. - 29 - During the third quarter of fiscal year 2000, the Company formed a limited partnership to purchase an existing restaurant location in West Miami, Florida to renovate and operate under the "Flanigan's Seafood Bar and Grill" servicemark, as general partner and twenty five percent owner of the same. The renovations began during the fourth quarter of fiscal year 2001 and the restaurant opened for business during the first quarter of 2002. The Company reported income of $74,000 for fiscal year 2002. During the fourth quarter of fiscal year 2001, a limited partnership was formed with the Company as general partner, which limited partnership entered into a sublease agreement to own and operate an existing in Weston, Florida. During the fourth quarter of fiscal year 2002, the sublessor resolved the zoning and related matters and the limited partnership began raising funds to renovate the business premises for operation as a "Flanigan's Seafood Bar and Grill" restaurant. With the sale of limited partnership units during the fourth quarter of fiscal year 2002, the Company no longer consolidates the limited partnership for financial reporting purposes. The Company continues to act as the general partner of the limited partnership and is also the owner of twenty eight percent of the same, as are other related parties, including, but not limited to officers and directors of the Company and their families. The limited partnership agreement gives the partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of the gross sales from the operation of the restaurant, while the Company acts as general partner only. The restaurant, which had operated under its existing servicemark, was closed on July 13, 2002 and building permits were issued at the start of fiscal year 2003. The Company anticipates that the restaurant will be open for business by December 31, 2002. The Company realized a loss from operations of the restaurant through July 13, 2002 of approximately $56,000 and realized a loss from the joint venture of approximately $14,000 for the remainder of the year. Restaurant food sales represented 51.2% of total sales for the fiscal year ended September 28, 2002 as compared to 51.1% and 49.5% of total sales in the fiscal years ended September 29, 2001 and September 30, 2000 respectively. The weekly average of same store restaurant food sales (excluding Weston) was $237,000 for the fiscal year ended September 28, 2002 as compared to $235,000 and $207,000 for the fiscal years ended September 29, 2001 and September 30, 2000, respectively, an increase of 4.4% and 0.1% from the fiscal years ended September 29, 2001 and September 30, 2000, respectively. - 30 - Restaurant bar sales represented 13.0% of total sales for the fiscal year ended September 28, 2002 as compared to 12.4% and 12.3% of total sales in the fiscal years ended September 29, 2001 and September 30, 2000, respectively. The weekly average of same store restaurant bar sales was $55,000 for the fiscal year ended September 28, 2002 as compared to $56,000 and $55,000 for the fiscal years ended September 29, 2001 and September 30, 2000 respectively, representing no change from fiscal year 2000 and an increase of .4% from fiscal year 2001. Package store sales represented 35.8% of total sales for the fiscal year ended September 28, 2002 as compared to 36.5% and 38.2% of total sales in the fiscal years ended September 30, 2001 and September 30, 2000, respectively. The weekly average of same store package sales was $170,000 for the fiscal year ended September 28, 2002 as compared to $168,000 and $154,000 for the fiscal years ended September 29, 2001 and September 30, 2000 respectively, an increase of 10.4% from fiscal year 2000 and an increase of less than .2% from fiscal year 2001. Franchise revenue increased to $1,402,000 for the fiscal year ended September 28, 2002 as compared to $1,249,000 and $1,065,000 for the fiscal years ended September 29, 2001 and September 30, 2000 respectively. The increase in franchise revenue resulted from higher sales for the franchises, and the operation of additional joint ventures during fiscal years 2002 and 2001. Owner's fee represents fees received pursuant to a Management Agreement from the operation of a club owned by the Company in Atlanta, Georgia. The Management Agreement was amended effective July 1, 1996, whereby the Company also receives ten percent of sales exceeding $1,500,000 per annum as additional owner's fees. Income from this club was $251,000 for the fiscal year ended September 28, 2002 as compared to $269,000 and $261,000 for the fiscal years ended September 29, 2001 and September 30, 2000, respectively. The gross profit margin for restaurant sales was 65.3% for the fiscal year ended September 28, 2002 as compared to 62.8% and 63.9% for the fiscal years ended September 29, 2001 and September 30 2000, respectively. This was largely due to reduced costs of ribs, the Company"s most popular menu item. The gross profit margin for package goods sales was 25.9% for the fiscal year ended September 28, 2002 as compared to 27.2% and 26.4% for the fiscal years ended September 29, 2001 and September 30, 2000, respectively. The decrease in gross profit margin in 2002 is due in part to a charge of approximately $160,000 relating to the change in inventory valuation method to average cost. - 31 - Overall gross profits were 50.4% for the fiscal year ended September 29, 2002 as compared to 49.8% and 49.5% for the fiscal years ended September 29, 2001 and September 30, 2000, respectively. Operating Costs and Expenses - ---------------------------- Operating costs and expenses for the fiscal year ended September 28, 2002 were $26,207,000 as compared to $24,700,000 and $23,380,000 for the fiscal years ended September 29, 2001 and September 30, 2000, respectively. Operating expenses are comprised of the cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses. Payroll and related costs which include workers compensation insurance premiums were $7,946,000 for the fiscal year ended September 28, 2002 as compared to $7,446,000 and $6,724,000 for the fiscal years September 29 2001 and September 30, 2000, respectively. The 6.7% increase from the fiscal year 2001 and the 14.5% increase from the fiscal year 2000 is attributed to increases in salaries paid to all employees in order to recruit and maintain competent individuals in a very competitive labor market. Occupancy costs, which include rent, common area maintenance, repairs and taxes were $1,279,000 for the fiscal year ended September 28, 2002 as compared to 1,084,000 and $1,050,000 for the fiscal years ended September 29, 2001 and September 30, 2000, respectively. Selling, general and administrative expenses were $4,560,000 for the fiscal year ended September 28, 2002 as compared to $3,926,000 and $3,889,000 for the fiscal years ended September 29, 2001 and September 30, 2000, respectively. Other Income and Expenses - ------------------------- Other income and expenses were a loss of $19,000. for the fiscal year ended September 28, 2002 as compared to income of $14,000 and a loss of $75,000 for the fiscal years ended September 29, 2001 and September 30, 2000, respectively. Interest expense was $143,000 for the fiscal year ended September 28, 2002 as compared to $187,000 and $177,000 for the fiscal years ended September 29, 2001 and September 30, 2000, respectively. The category "Other, net" was $65,000 for the fiscal year ended September 28, 2002 as compared with $133,000 and $48,000 for the fiscal years ended September 29, 2001 and ended September 30, 2000, respectively. - 32 - Trends - ------ During the next twelve months management expects continued increases in restaurant and package goods sales, both for Company stores and franchised stores. The Company anticipates expenses to increase slightly, therefore resulting in a small increase in overall profits before income taxes. The Company utilized the balance of its net operating loss carryforward during fiscal year 1999 and was fully taxable for fiscal years 2002, 2001 and 2000. The provision for income taxes was $688,000 for the fiscal year ended September 28, 2002 $489,000 for fiscal year ended September 29, 2001 and $341,000 for the fiscal year ended September 30, 2000. The Company intends to add additional restaurants and package stores as opportunities and resources become available. Other Matters - ------------- Impact of Inflation -------------------- The Company does not believe that inflation has had any material effect during the past three fiscal years. To the extent allowed by competition, the Company recovers increased costs by increasing prices. Post Retirement Benefits Other Than Pensions -------------------------------------------- The Company currently provides no post retirement benefits to any of its employees, therefore Financial Accounting Standards Board Statement No. 106 has no effect on the Company's financial statements. Subsequent Events ----------------- None Item 7A. Quantative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------ The Company does not ordinarily hold market risk sensitive instruments for trading purposes. The Company does however recognize market risk from interest rate exposure. - 33 - Interest Rate Risk - ------------------ At September 28, 2002, the Company's cash resources earn interest at variable rates. Accordingly, the Company's return on these funds is affected by fluctuations in interest rates. Any decrease in interest rates will have a negative effect on the Company's earnings. In addition, the Company incurs interest charges on debt at variable rates, which to the extent that the Company has not entered into interest rate swap agreements to hedge this risk, could negatively impact the Company's earnings. There is no assurance that interest rates will increase or decrease over the next fiscal year. Item 8. Financial Statements and Supplementary Data. - ---------------------------------------------------- Financial statements of the Company at September 28, 2002, September 29, 2001 and September 30, 2000, which include each of the three years in the period ended September 28, 2002 and the independent certified public accountants' report thereon, are included herein. PART III Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------ The information set forth under the caption "Election of Directors" in the Company's definitive Proxy Statement for its 2003 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to regulation 14A under the Securities and Exchange Act of 1934, as amended (the 2003 Proxy Statement), is incorporated herein by reference. See also "Executive Officers of the Registrant" included in Part I hereof. Item 11. Executive Compensation. - -------------------------------- The information set forth in the 2003 Proxy Statement under the caption "Executive Compensation" is incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------ The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the 2003 Proxy Statement is incorporated by reference. - 34 - Item 13. Certain Relationships and Related Transactions. - -------------------------------------------------------- The information set forth under the caption "Election of Directors - Certain Relationships and Related Transactions" in the 2003 Proxy Statement is incorporated by reference. PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K. - ------------------------------------------------------------------------- (a) 1. Financial Statements -------------------- All the financial statements, financial statement schedule and supplementary data listed in the accompanying Index to Exhibits are filed as part of this Annual Report. 2. Exhibits -------- The exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report. (b) Reports on Form 8-K ------------------- No reports on form 8-K were filed during the fourth quarter of fiscal year 2002 or subsequent to year end. Index to Exhibits Item (14) (a) (2) Description ----------- (2) Plan of Reorganization, Amended Disclosure Statement, Amended Plan of Reorganization, Modification of Amended Plan of Reorganization, Second Modification of Amended Plan of Reorganization, Order Confirming Plan of Reorganization, (Item 7 (c) of Quarterly Report on Form 8-K filed May 5, 1987 is incorporated herein by reference). (3) Restated Articles of Incorporation (Part IV, Item 4 (a) (2) of Annual Report on Form 10-K filed on December 29, 1982 is incorporated herein by reference). (10)(a)(1) Employment Agreement with Joseph G. Flanigan (Exhibit A of the Proxy Statement dated January 27, 1988 is incorporated herein by reference). (10)(a)(2) Form of Employment Agreement between Joseph G. Flanigan and the Company (as ratified and amended by the stockholders at the 1988 annual meeting is incorporated herein by reference). - 35 - (10)(c) Consent Agreement regarding the Company's Trademark Litigation (Part 7(c)(19) of the Form 8-K dated April 10, 1985 is incorporated herein by reference). (10)(d) King of Prussia (#850) Partnership Agreement (Part 7 (c) (19) of the Form 8-K dated April 10, 1985 is incorporated herein by reference). (10)(o) Management Agreement for Atlanta, Georgia, (#600) (Item 14(a)(10)(o) of the Form 10-K dated October 3, 1992 is incorporated herein by reference). (10)(p) Settlement Agreement with Former Vice Chairman of the Board of Directors (re #5) (Item 14 (a)(10)(p) of the Form 10-K dated October 3, 1992 is incorporated herein by reference). (10)(q) Hardware Purchase Agreement and Software License Agreement for restaurant point of sale system. (Item 14(a)(10)(g) of Form 10-KSB dated October 2, 1993 is incorporated herein by reference). (10)(a)(3) Key Employee Incentive Stock Option Plan (Exhibit A of the Proxy Statement dated January 26, 1994 is incorporated herein by reference). (10)(r) Limited Partnership Agreement of CIC Investors #13, Ltd,. between Flanigan's Enterprises, Inc., as General Partner and fifty percent owner of the limited partnership, and Hotel Properties, LTD. (Item 14 (a)(10)(r) of the Form 10-KSB dated September 30, 1995 is incorporated herein by reference). (10)(s) Form of Franchise Agreement between Flanigan's Enterprises, Inc. and Franchisees. (Item 14 (a)(10)(s) of the Form 10-KSB dated September 30, 1995 is incorporated herein by reference). (10)(t) Licensing Agreement between Flanigan's Enterprises, Inc. and James B. Flanigan, dated November 4, 1996, for non-exclusive use of the servicemark "Flanigan's" in the Commonwealth of Pennsylvania. (Item 14 (a)(10)(t) of the Form 10-KSB dated September 28, 1996 is incorporated herein by reference). (10)(u) Limited Partnership Agreement of CIC Investors #15 Ltd., dated March 28, 1997, between B.D. 15 Corp. as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as a limited partner owning twenty five percent of the limited partnership (Item 14 (a)(10)(u) of the Form 10-KSB dated September 27, 1997 is incorporated herein by reference). - 36 - (10)(v) Limited Partnership Agreement of CIC Investors #60 Ltd., dated July 8, 1997, between Flanigan's Enterprises, Inc., as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as limited partner owning forty percent of the limited partnership (Item 14 (a)(10)(v) of Form 10-KSB dated September 27, 1997 is incorporated herein by reference). (10)(w) Stipulated Agreed Order of Dismissal upon Mediation with former franchisee (Item 14 (a)(10)(w) of Form 10-KSB dated September 27, 1997 is incorporated herein by reference). (10)(x) Limited Partnership Agreement of CIC Investors #70, Ltd. dated February 1999 between Flanigan's Enterprises, Inc. as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as limited partner owning forty percent of the limited partnership. (Item 14 (a) (10) (x) of Form 10-KSB dated October 2, 1999 is incorporated herein by reference) (10)(y) Limited Partnership Agreement of CIC Investors #80, Ltd., dated May 2001, between Flanigan's Enterprises, Inc. as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc., as limited partner owning twenty five percent of the limited partnership. (10)(z) Limited Partnership Agreement of CIC Investors #95, Ltd., dated July 2001, between Flanigan's Enterprises, Inc., as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as limited partner owning twenty eight percent of the limited partnership. (13) Registrant's Form 10-K constitutes the Annual Report to Shareholders for the fiscal year ended September 28, 2002. (22)(a) Company's subsidiaries are set forth in this Annual Report on Form 10-K. 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 99.2 OFFICER CERTIFICATIONS 99.3 INDEPENDENT ACCOUNTANT PREFERABILITY LETTER - 37 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Flanigan's Enterprises, Inc. Registrant By: /s/ JOSEPH G. FLANIGAN ------------------------ JOSEPH G. FLANIGAN Chief Executive Officer Date: 12/27/02 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities and on the dates indicated. /s/ JOSEPH G. FLANIGAN Chairman of the Board, Date: 12/27/02 - ---------------------- Chief Executor Officer, Joseph G. Flanigan and Director /s/ EDWARD A. DOXEY Chief Financial Officer Date: 12/27/02 - ---------------------- Secretary and Director Edward A. Doxey /s/ MICHAEL ROBERTS Director Date: 12/27/02 - ---------------------- MICHAEL ROBERTS /s/ GERMAINE M. BELL Director Date: 12/27/02 - ---------------------- Germaine M. Bell /s/ CHARLES E. MCMANUS Director Date: 12/27/02 - ---------------------- Charles E. McManus /s/ JEFFREY D. KASTNER Assistant Secretary Date: 12/27/02 - ---------------------- and Director Jeffrey D. Kastner WILLIAM PATTON Vice President, Public Date: 12/27/02 - ---------------------- Relations and Director William Patton /s/ JAMES G. FLANIGAN President Director Date: 12/27/02 - ---------------------- James G. Flanigan /s/ PATRICK J. FLANIGAN Director Date: 12/27/02 - ----------------------- Patrick J. Flanigan - 38 - CERTIFICATION I, Joseph A. Flanigan, certify that: 1. I have reviewed this annual report on Form 10-K of Flanigan"s Enterprises, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant"s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant"s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registant"s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant"s auditors and the audit committee of registrant"s board of directors (or persons performing the equivalent function); a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant"s ability to record, process, summarize and report financial data and have identified for the registrant"s auditors any material weaknesses in internal controls; and - 39 - b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant"s internal controls; and 6. The registrant"s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Joseph G. Flanigan ---------------------- Name: Joseph G. Flanigan Chief Executive Officer Date: December 27, 2002 - 40 - I, Edward A. Doxey, Chief Financial Officer of Flanigan"s Enterprises, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Flanigan"s Enterprises, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant"s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant"s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registant"s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant"s auditors and the audit committee of registrant"s board of directors (or persons performing the equivalent function); a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant"s ability to record, process, summarize and report financial data and have identified for the registrant"s auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant"s internal controls; and - 41 - 6. The registrant"s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Edward A. Doxey ---------------------- Name: Edward A. Doxey Chief Financial Officer Date: December 27, 2002 - 42 - ================================================================================ FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES ================================================================================ CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 2002 AND SEPTEMBER 29, 2001 ================================================================================ ================================================================================ FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS ----------------------------- PAGE ---- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1 CONSOLIDATED FINANCIAL STATEMENTS Balance Sheets F-2 Statements of Income F-3 Statements of Stockholders' Equity F-4 Statements of Cash Flows F5-F-6 Notes to Financial Statements F-7-F-27 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------- Board of Directors and Stockholders Flanigan's Enterprises, Inc. Fort Lauderdale, Florida We have audited the accompanying consolidated balance sheets of Flanigan's Enterprises, Inc. and Subsidiaries as of September 28, 2002 and September 29, 2001, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 28, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Flanigan's Enterprises, Inc. and Subsidiaries as of September 28, 2002 and September 29, 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 28, 2002 in conformity with accounting principles generally accepted in the United States. /s/ RACHLIN COHEN & HOLTZ LLP ----------------------------- RACHLIN COHEN & HOLTZ LLP Fort Lauderdale, Florida November 27, 2002 F-1 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 28, 2002 AND SEPTEMBER 29, 2001
ASSETS 2002 2001 ------ ---- ---- Current Assets: Cash and cash equivalents $ 871,000 $ 1,396,000 Notes and mortgages receivable, current maturities, net 85,000 120,000 Due from franchisees 355,000 683,000 Other receivables 311,000 311,000 Inventories 1,387,000 1,337,000 Refundable deposit, major supplier 708,000 -- Prepaid expenses 436,000 349,000 Deferred tax assets 239,000 318,000 ------------ ------------ Total current assets 4,392,000 4,514,000 ------------ ------------ Property and Equipment 5,498,000 5,650,000 ------------ ------------ Investments in Joint Ventures 2,414,000 1,684,000 ------------ ------------ Other Assets: Liquor licenses, net 333,000 266,000 Notes and mortgages receivable, net 92,000 71,000 Deferred tax assets 248,000 338,000 Other 215,000 234,000 ------------ ------------ Total other assets 888,000 909,000 ------------ ------------ Total assets $ 13,192,000 $ 12,757,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses 1,431,000 $ 1,564,000 Due to franchisees 196,000 131,000 Current portion of long-term debt 259,000 262,000 Damages payable on terminated or rejected leases -- 117,000 ------------ ------------ Total current liabilities 1,886,000 2,074,000 ------------ ------------ Long-Term Debt, Net of Current Maturities 1,349,000 1,715,000 ------------ ------------ Commitments, Contingencies and Other Matters -- Stockholders' Equity: Common stock, $.10 par value; 5,000,000 shares authorized; 4,197,642 shares issued 420,000 420,000 Capital in excess of par value 6,103,000 6,028,000 Retained earnings 8,747,000 7,863,000 Notes receivable on sale of common stock -- (291,000) Treasury stock, at cost, 2,271,172 and 2,275,164 shares, respectively (5,313,000) (5,052,000) ------------ ------------ Total stockholders' equity 9,957,000 8,968,000 ------------ ------------ Total liabilities and stockholders' equity $ 13,192,000 $ 12,757,000 ============ ============
See notes to consolidated financial statements F-2 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED SEPTEMBER 28, 2002, SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
2002 2001 2000 ---- ---- ---- Revenues: Restaurant food sales $ 13,119,000 $ 12,453,000 $ 11,485,000 Restaurant beverage sales 3,317,000 3,025,000 2,859,000 Package goods sales 9,174,000 8,907,000 8,870,000 Franchise-related revenues 1,402,000 1,249,000 1,065,000 Owner's fee 251,000 269,000 261,000 Joint venture income 732,000 571,000 460,000 Other operating income 302,000 230,000 160,000 ------------ ------------ ------------ 28,297,000 26,704,000 25,160,000 ------------ ------------ ------------ Costs and Expenses: Cost of merchandise sold: Restaurants and lounges 5,624,000 5,757,000 5,185,000 Package goods 6,798,000 6,487,000 6,532,000 Payroll and related costs 7,946,000 7,446,000 6,724,000 Occupancy costs 1,279,000 1,084,000 1,050,000 Selling, general and administrative expenses 4,560,000 3,926,000 3,889,000 ------------ ------------ ------------ 26,207,000 24,700,000 23,380,000 ------------ ------------ ------------ Income from Operations 2,090,000 2,004,000 1,780,000 ------------ ------------ ------------ Other Income (Expense): Interest expense on obligations under capital leases -- (46,000) (46,000) Interest expense on long-term debt and damages payable (143,000) (141,000) (131,000) Interest income 59,000 68,000 54,000 Other 65,000 133,000 48,000 ------------ ------------ ------------ (19,000) 14,000 (75,000) ------------ ------------ ------------ Income Before Provision for Income Taxes 2,071,000 2,018,000 1,705,000 ------------ ------------ ------------ Provision (Benefit) for Income Taxes: Current 519,000 483,000 373,000 Deferred 169,000 6,000 (32,000) ------------ ------------ ------------ 688,000 489,000 341,000 ------------ ------------ ------------ Net Income $ 1,383,000 $ 1,529,000 $ 1,364,000 ============ ============ ============ Net Income Per Common Share: Basic $ 0.71 $ 0.80 $ 0.73 ============ ============ ============ Diluted $ 0.70 $ 0.80 $ 0.71 ============ ============ ============ Weighted Average Shares and Equivalent Shares Outstanding: Basic 1,961,000 1,903,000 1,856,000 ============ ============ ============ Diluted 1,989,000 1,922,000 1,931,000 ============ ============ ============
See notes to consolidated financial statements. F-3 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 28, 2002, SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
Notes Receivable Common Stock Capital in on Sale of Excess of Retained Common Shares Amount Par Value Earnings Stock ------ ------ --------- -------- ----- Balance, October 2, 1999 4,197,642 $ 420,000 $ 6,058,000 $ 5,416,000 $ (192,000) Year Ended September 30, 2000: Dividends paid ($0.11 per share) -- -- -- (215,000) -- Net income -- -- -- 1,364,000 -- Purchase of treasury stock -- -- -- -- -- Exchange of shares - exercise of stock options -- -- (6,000) -- -- Payments received on notes receivable -- -- -- -- 11,000 --------- ----------- ----------- ----------- ----------- Balance, September 30, 2000 4,197,642 420,000 6,052,000 6,565,000 (181,000) Year Ended September 29, 2001: Dividends paid ($0.12 per share) -- -- -- (231,000) -- Net income -- -- -- 1,529,000 -- Purchase of treasury stock -- -- -- -- -- Notes receivable issued upon exercise of stock options (24,000) (122,000) (70,000) 155,000 9,000 Payments received on notes receivable -- -- -- -- 12,000 --------- ----------- ----------- ----------- ----------- Balance, September 29, 2001 4,197,642 420,000 6,028,000 7,863,000 (291,000) Year Ended September 28, 2002: Dividends paid ($0.25 per share) (499,000) (499,000) Net income 1,383,000 1,383,000 Purchase of treasury stock 68,803 (423,000) (423,000) Exchange of shares - exercise of stock options 75,000 (72,795) 162,000 237,000 Payments received on notes receivable -- -- -- -- 291,000 --------- ----------- ----------- ----------- ----------- Balance, September 28, 2002 4,197,642 $ 420,000 $ 6,103,000 $ 8,747,000 $ -- ========= =========== =========== =========== ===========
Treasury Stock -------------- Shares Amount Total ------ ------ ----- Balance, October 2, 1999 2,247,193 $(4,722,000) $ 6,980,000 Year Ended September 30, 2000: Dividends paid ($0.11 per share) -- -- (215,000) Net income -- -- 1,364,000 Purchase of treasury stock 105,971 (492,000) (492,000) Exchange of shares - exercise of stock options (12,000) 25,000 19,000 Payments received on notes receivable -- -- 11,000 --------- ---------- --------- Balance, September 30, 2000 2,341,164 (5,189,000) 7,667,000 Year Ended September 29, 2001: Dividends paid ($0.12 per share) -- -- (231,000) Net income -- -- 1,529,000 Purchase of treasury stock 4,000 (18,000) (18,000) Notes receivable issued upon exercise of stock options Payments received on notes receivable -- -- 12,000 --------- ---------- --------- Balance, September 29, 2001 2,275,164 (5,052,000) 8,968,000 Year Ended September 28, 2002: Dividends paid ($0.25 per share) Net income Purchase of treasury stock Exchange of shares - exercise of stock options Payments received on notes receivable -- -- 291,000 --------- ---------- ---------- Balance, September 28, 2002 2,271,172 $(5,313,000) $ 9,957,000 ========= =========== ===========
See notes to consolidated financial statements F-4 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 28, 2002, SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
2002 2001 2000 ---- ---- ---- Cash Flows from Operating Activities: Net income $ 1,383,000 $ 1,529,000 $ 1,364,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 717,000 758,000 681,000 Deferred income taxes 169,000 6,000 (32,000) Recognition of deferred gains and other deferred income (5,000) (4,000) (4,000) (Gain) loss on disposal of property, equipment and liquor licenses 19,000 (21,000) (8,000) Joint venture income (732,000) (571,000) (460,000) Changes in operating assets and liabilities: (Increase) decrease in: Due from franchisees 328,000 (433,000) (139,000) Other receivables (21,000) (47,000) (144,000) Inventories (50,000) 45,000 46,000 Prepaid expenses (87,000) (31,000) 84,000 Refundable deposit, major supplier (708,000) -- -- Other assets (2,000) (37,000) (4,000) Increase (decrease) in: Accounts payable and accrued expenses (133,000) 50,000 (80,000) Due to franchisees 65,000 67,000 (746,000) ----------- ----------- ----------- Net cash provided by operating activities 943,000 1,311,000 558,000 ----------- ----------- ----------- Cash Flows from Investing Activities: Collections on notes and mortgages receivable 12,000 79,000 36,000 Notes receivable (39,000) -- -- Purchase of property and equipment (558,000) (1,091,000) (1,860,000) Purchase of liquor licenses (50,000) -- -- Sale of liquor license 45,000 -- -- Distributions from joint ventures 467,000 640,000 401,000 Investment in limited partnerships (465,000) (223,000) -- ----------- ----------- ----------- Net cash used in investing activities (588,000) (583,000) (1,423,000) ----------- ----------- ----------- Cash Flows from Financing Activities: Borrowings of long-term debt -- 895,000 950,000 Payments of long-term debt (369,000) (373,000) (79,000) Payments of obligations under capital leases -- (70,000) (70,000) Payments of damages payable on terminated or rejected leases (117,000) (283,000) (272,000) Collections on notes receivable, sale of common stock 291,000 12,000 11,000 Purchase of treasury stock (423,000) (18,000) (492,000) Dividends paid (499,000) (231,000) (215,000) Proceeds from exercise of stock options 237,000 9,000 19,000 ----------- ----------- ----------- Net cash used in financing activities (880,000) (71,000) (148,000) ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents (525,000) 657,000 (1,013,000) Cash and Cash Equivalents, Beginning 1,396,000 739,000 1,752,000 ----------- ----------- ----------- Cash and Cash Equivalents, Ending $ 871,000 $ 1,396,000 $ 739,000 =========== =========== ===========
(Continued) See notes to consolidated financial statements F-5 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 28, 2002, SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
2002 2001 2000 ---- ---- ---- Cash paid during the year for: Interest $ 143,000 $ 181,000 $ 177,000 ========= ========= ========= Income taxes $ 493,000 $ 433,000 $ 490,000 ========= ========= ========= Non-Cash Financing and Investing Activities: Notes receivable issued upon exercise of stock options $ -- $ 122,000 $ -- ========= ========= ========= Deposit transferred to property and equipment $ -- $ -- $85,000 ========= ========= ========= Notes receivable for sales of liquor license $67,000 $ -- $35,000 ========= ========= =========
See notes to consolidated financial statements F-6 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 2002, SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Capitalization Incorporated in 1959, Flanigan's Enterprises, Inc. ("Flanigan's" or the "Company") operates in South Florida as a chain of full-service restaurants and package liquor stores. At September 28, 2002, the Company owned and operated two full-service restaurants, four package liquor stores and four combination full-service restaurants and package liquor stores in Florida. In addition, Flanigan's owns one club in Georgia, which is operated pursuant to a management agreement with an unrelated third party. The Company holds interests in six of the twelve franchised units through joint venture investments. The Company's restaurants are operated under the "Flanigan's Seafood Bar and Grill" servicemark while the Company's package stores are operated under the "Big Daddy's Liquors" servicemark. The Company's Articles of Incorporation, as amended, authorize the Company to issue and have outstanding at any one time 5,000,000 shares of common stock at a par value of $.10. The Company operates under a 52-53 week year ending the Saturday closest to September 30. Principles of Consolidation The consolidated financial statements include the accounts of Flanigan's Enterprises, Inc. and its subsidiaries, all of which are wholly owned. All significant intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Cash and Cash Equivalents The Company considers all highly liquid debt instruments with an original maturity of three months or less at the date of purchase to be cash equivalents. Inventories Inventories, which consist primarily of packaged liquor products, are stated at the lower of average cost or market. See Note 2 regarding a change in accounting method. F-7 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Liquor Licenses The cost of liquor licenses purchased prior to October 21, 1970 (the date Accounting Principles Board ("APB") Opinion No. 17 became effective), amounted to approximately $130,000 at September 28, 2002. These licenses are not amortized unless an impairment in value is indicated. The costs of all liquor licenses acquired subsequent to October 21, 1970 are amortized over a period of 40 years. Property and Equipment For financial reporting, the Company uses the straight-line method for providing depreciation and amortization on property and equipment. The estimated useful lives range from three to five years for vehicles, and three to seven years for furniture and equipment. Leasehold interests are amortized over the minimum term of the lease. Leasehold improvements are amortized over the life of the lease up to a maximum of 10 years. If the locations are sold or abandoned before the end of the amortization period, the unamortized costs are expensed. The office building is being amortized over forty years. Investment in Joint Ventures The Company uses the equity method of accounting when the Company has a twenty percent to fifty percent interest in other companies, joint ventures, and partnerships, and can exercise significant influence. Under the equity method, original investments are recorded at cost and are adjusted for the Company's share of undistributed earnings or losses. All significant intercompany profits are eliminated. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents and notes and mortgages receivable. From time to time during the year, the Company had deposits in financial institutions in excess of the federally insured limits. At September 28, 2002, the Company had deposits in excess of federally insured limits of approximately $677,000. The Company maintains its cash with high quality financial institutions, which the Company believes limits these risks. Notes and mortgages receivable arise primarily from the sale of operating assets, including liquor licenses. Generally, those assets serve as collateral for the receivable. Management believes that the collateral, coupled with the credit standing of the purchasers, limits these risks. F-8 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Major Supplier/Refundable Deposit In the fourth quarter of fiscal 2001, the Company entered into an addendum to a master distribution agreement with a major supplier, which entitles the Company to receive certain purchase discounts and advertising allowances. In exchange, the Company agreed to make payments of 35% of restaurant sales weekly against amounts owed for food purchases. The Company was required to make a deposit of $750,000, which is refundable, to the extent not applied against amounts owing, upon termination of the agreement. The Company purchases substantially all of its food products from this vendor, however, management believes that several other alternative vendors are available if necessary. Revenue Recognition The Company records revenues from normal recurring sales upon the sale of food and beverages and the sale of packaged liquor products. Continuing royalties, which are a percentage of net sales of franchised stores, are accrued as income when earned. Pre-opening Costs Pre-opening costs are those typically associated with the opening of a new store or restaurant. Pre-opening costs are expensed as incurred. Advertising Costs Advertising costs are expensed as incurred. Advertising costs incurred for the years ended September 28, 2002, September 29, 2001 and September 30, 2000 were $154,000, $162,000 and $174,000, respectively. Fair Value of Financial Instruments The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These instruments include cash and cash equivalents, notes and mortgages receivable, damages payable on terminated or rejected leases, debt and capital leases, and accounts payable. Fair values were assumed to approximate carrying values for those financial instruments, which are short-term in nature or are receivable or payable on demand. The fair value of long-term debt is estimated based on current rates offered to the Company for debt of comparable maturities and similar collateral requirements. F-9 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recently Issued Accounting Pronouncements In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 will become effective in the second quarter of fiscal 2003. The Company believes that the adoption of this statement will not have a significant impact on the results of operations or financial position of the Company. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144, which is effective for fiscal years beginning after December 15, 2001 and for interim periods within those fiscal years, requires testing for recoverability of long-lived assets whenever events or circumstances indicate that the carrying value may not be recoverable. An impairment loss shall be recognized when the carrying value of a long-lived asset exceeds its fair value. The Company does not believe that the adoption of SFAS No. 144 will have a material effect on the consolidated financial statements. In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations". The Statement addresses accounting for and reporting obligations relating to the retirement of long lived assets by requiring that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The Statement will be effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company does not believe that the adoption of SFAS No. 143 will have a material effect on the consolidated financial statements. Also in June 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires companies to account for goodwill and other intangibles in the following manner. Intangible assets which are acquired shall be recognized and measured based on fair value. Recognized intangible assets are to be amortized over their useful life. Goodwill and intangible assets determined to have an indefinite life are not amortized. Intangible assets that are not amortized and goodwill shall be tested for impairment annually. The provisions of SFAS No. 142 are to be applied in fiscal years beginning after December 15, 2001. Retroactive application is not permitted. The Company does not believe that the adoption of SFAS No. 142 will have a material effect on the consolidated financial statements. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations". SFAS No. 141 addresses financial accounting and reporting for business combinations. All business combinations are to be accounted for using one method- the purchase method. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001. SFAS No. 141 did not have a material effect on the Company's consolidated financial statements. F-10 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recently Issued Accounting Pronouncements (Continued) In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". SAB 101 provides guidance for revenue recognition under certain circumstances, and became effective during fiscal year 2001. SAB 101 did not have a material effect on the Company's consolidated results of operations, financial position and cash flows. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of the gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. On June 30, 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 133 as amended by SFAS No. 137 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 133 as amended by SFAS No. 137 and 138 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 in fiscal year 2001 did not have a material effect on the Company's consolidated financial statements. Derivative Financial Instruments and Hedging Activities The Company holds a derivative financial instrument for the purpose of hedging the risk of certain identifiable and anticipated transactions. In general, the type of risk hedged is that relating to the variability of future earnings and cash flows caused by movements in interest rates. In hedging the transaction, the Company, in the normal course of business, holds an interest rate swap, which hedges the fair value of fixed-rate debt and cash flows of variable-rate financial assets. Derivatives are held only for the purpose of hedging such risks, not for speculation. Generally, the Company entered into the hedging relationship such that changes in the fair values or cash flows of items and transactions being hedged are expected to be offset by corresponding changes in the value of the derivative. At September 28, 2002, a hedging relationship existed for the mortgage obligation described in Note 9. F-11 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes The Company accounts for its income taxes using SFAS No. 109, "Accounting for Income Taxes", which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Stock-Based Compensation Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), encourages, but does not require companies to record stock-based compensation plans using a fair value based method. The Company has chosen to continue to account for stock-based compensation using the intrinsic value based method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's common stock at the date of the grant over the amount an employee must pay to acquire the stock. Long-Lived Assets The Company continually evaluates whether events and circumstances have occurred that may warrant revision of the estimated life of its intangible and other long-lived assets or whether the remaining balance of its intangible and other long-lived assets should be evaluated for possible impairment. If and when such factors, events or circumstances indicate that intangible or other long-lived assets should be evaluated for possible impairment, the Company will make an estimate of undiscounted cash flow over the remaining lives of the respective assets in measuring their recoverability. Reclassifications Certain amounts in the 2001 and 2000 financial statements have been reclassified to conform with the 2002 financial statements. F-12 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 2. CHANGE IN ACCOUNTING METHOD During September 2002, the Company changed its method of accounting for package store inventory from first in, first out (FIFO) to average cost. Management believes that the average cost method better captures and allocates inventory costs relating to volume discounts and free product received by the Company. The change resulted in a decrease in inventory value of approximately $160,000, which decreased net income by $106,000 and basic earnings per share by $.05. It was not possible to calculate the cumulative effect of the change in accounting method on prior years. Accordingly, proforma results for prior years under the average cost method are not presented. NOTE 3. NOTES AND MORTGAGES RECEIVABLES Receivables, net of allowances for uncollectible amounts and deferred gains, consist of the following at September 28, 2002 and September 29, 2001:
2002 2001 ---- ---- Notes and mortgages receivable from unrelated parties, bearing interest at rates ranging from 10.5% to 15% and due in varying installments through 2013 $108,000 $121,000 Notes and mortgages receivable from related parties, bearing interest at rates ranging from 10% to 14% and due in varying installments through 2007 144,000 150,000 --------- --------- 252,000 271,000 Less deferred gains 75,000 80,000 --------- --------- 177,000 191,000 Amount representing current portion 85,000 120,000 --------- --------- $ 92,000 $ 71,000 ========= =========
The majority of the notes and mortgages receivable represent amounts owed to the Company for store operations which were sold. Unless a significant amount of cash is received on the sale, a pro rata portion of the gain is deferred and recognized only as payments on the notes and mortgages are received by the Company. Any losses on sales of stores are recognized currently. Approximately $5,000, $4,000, and $4,000 of deferred gains were recognized on collections of such notes receivable during the fiscal years ended September 28, 2002, September 29, 2001, and September 30, 2000, respectively. Future scheduled payments on the receivables at September 28, 2002 consist of the following: 2003 $ 85,000 2004 18,000 2005 20,000 2006 13,000 2007 71,000 2008 - Thereafter 45,000 -------- $252,000 ======== F-13 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 4. PROPERTY AND EQUIPMENT
September 28, September 29, 2002 2001 ---- ---- Furniture and equipment $ 6,191,000 $ 6,287,000 Leasehold interests and improvements 5,362,000 5,256,000 Land and land improvements 1,013,000 1,007,000 Building and improvements 1,265,000 1,208,000 Vehicles 203,000 186,000 ------------ ------------ 14,034,000 13,944,000 Less accumulated depreciation and amortization 8,536,000 8,294,000 ------------ ------------ $ 5,498,000 $ 5,650,000 ============ ============
NOTE 5. INVESTMENTS IN JOINT VENTURES Miami, Florida The Company operated a restaurant in Miami, Florida under the "Flanigan's Seafood Bar and Grill" servicemark pursuant to a joint venture agreement. The Company is the general partner and has a fifty percent limited partnership interest. The Company closed the restaurant in the second quarter of 2002. See Eminent Domain Action in Note 10. The partnership received $700,000 in the eminent domain action. The investment in this joint venture has been adjusted to $350,000, the Company's proportionate share of the current value of the assets in the joint venture. The partnership plans to locate an appropriate site for another restaurant which the Company will operate. Fort Lauderdale, Florida The Company has a franchise agreement with a unit in Fort Lauderdale. The Company is a twenty-five percent limited partner in the franchise. Other related parties, including, but not limited to, officers and directors of the Company and their families are also investors. Surfside, Florida The Company has an investment in a limited partnership, which purchased the assets of a restaurant in Surfside, Florida and renovated it for operation under the "Flanigan's Seafood Bar and Grill" servicemark. The Company acts as general partner of the limited partnership and is also a forty-two percent limited partner. Other related parties, including, but not limited to, officers and directors of the Company and their families are also investors. F-14 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 5. INVESTMENTS IN JOINT VENTURES (Continued) Kendall, Florida During 1999, the Company made an investment in a limited partnership, which constructed and now operates a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark in Kendall, Florida. Construction began in late 1999 and the restaurant opened in April 2000. The Company is the general partner and has a forty percent limited partnership interest. West Miami, Florida During 2001, the Company made an investment in a limited partnership, which purchased, renovated and now operates a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark in West Miami, Florida. The restaurant opened for business in October 2001. The Company is the general partner and has a twenty-five percent limited partnership interest. Other related parties, including, but not limited to, officers and directors of the Company and their families are also investors. Weston, Florida During 2002, the Company made an investment in a limited partnership, which has acquired and is currently renovating a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark in Weston, Florida. The restaurant is expected to open for business by December 31, 2002. The Company is the general partner and has a twenty-five percent limited partnership interest as of September 28, 2002. During the fourth calendar quarter of 2002, the Company invested $47,850 for an additional 3% interest, bringing the total ownership percentage to 28%. Other related parties, including, but not limited to, officers and directors of the Company and their families are also investors. Prior to the formation of the limited partnership and beginning of renovations, the Company operated a restaurant on this site for the months October 2001 through July 2002. See Note 10. Summary The following is a summary of condensed unaudited financial information pertaining to the Company's joint venture investments:
2002 2001 2000 ---- ---- ---- Financial Position: Current assets $ 909,000 $ 632,000 $ 403,000 Non-current assets 6,286,000 6,120,000 4,590,000 Current liabilities 1,403,000 679,000 588,000 Non-current liabilities 436,000 489,000 538,000 Operating Results: Revenues 14,119,000 12,429,000 10,208,000 Gross profit 9,054,000 7,866,000 6,480,000 Net income 2,029,000 1,258,000 1,192,000
F-15 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
September 28, September 29, 2002 2001 ---- ---- Accounts payable $ 734,000 $ 914,000 Lease security deposit 200,000 200,000 Salaries and wages 130,000 130,000 Property taxes 123,000 128,000 Deferred revenue, joint venture 94,000 - Potential uninsured claims 48,000 91,000 Other 102,000 101,000 ---------- ---------- $1,431,000 $1,564,000 ========== ==========
NOTE 7. DAMAGES PAYABLE ON TERMINATED OR REJECTED LEASES On November 4, 1985, Flanigan's Enterprises, Inc., not including any of its subsidiaries, filed a voluntary petition in the United States Bankruptcy Court for the Southern District of Florida seeking to reorganize under Chapter 11 of the Federal Bankruptcy Code. Flanigan's was authorized to continue the management and control of its business and property as debtor-in-possession under the Bankruptcy Code. On May 5, 1987, Flanigan's Plan of Reorganization, as amended and modified, was confirmed by the Bankruptcy Court. On December 28, 1987, Flanigan's was officially discharged from bankruptcy. In fiscal 1986 in connection with the bankruptcy petition, Flanigan's recorded estimated damages of $4,278,000 for claims for losses as a result of rejected leases. Because the damage payments were to be made over nine years, the total amount due was discounted at a rate of 9.25%, Flanigan's then effective borrowing rate. Flanigan's renegotiated the payment of this obligation to extend into fiscal 2002 which effectively reduced the discount rate to 3.71%. Remaining liabilities for damage payments are included as "Damages Payable on Terminated or Rejected Leases" in the accompanying consolidated balance sheet. Based on the borrowing rate currently available to the Company for bank loans with similar terms and average maturities, the fair value of damages payable on terminated and rejected leases was approximately $117,000 at September 29, 2001. All damages payable on terminated and rejected leases were satisfied in full in fiscal year ending 2002. F-16 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 8. INCOME TAXES The components of the Company's provision (benefit) for income taxes, for the fiscal years ended 2002, 2001 and 2000 are as follows:
2002 2001 2000 ---- ---- ---- Current: Federal $383,000 $366,000 $284,000 State 136,000 117,000 89,000 -------- -------- -------- 519,000 483,000 373,000 -------- -------- -------- Deferred: Federal 161,000 6,000 (31,000) State 8,000 - (1,000) -------- -------- -------- 169,000 6,000 32,000 -------- -------- -------- $688,000 $489,000 $341,000 ======== ======== ========
A reconciliation of income tax computed at the statutory federal rate to income tax expense (benefit) is as follows:
2002 2001 2000 ---- ---- ---- Tax provision at the statutory rate of 34% $704,000 $686,000 $580,000 State income taxes, net of federal income tax 62,000 61,000 51,000 Deferred income taxes 169,000 6,000 (32,000) Net operating loss utilization - - (41,000) Tip credit utilization (261,000) (256,000) (199,000) Other 14,000 (8,000) (18,000) -------- -------- -------- $688,000 $489,000 $341,000 ======== ======== ========
At September 28, 2002, the Company has available tip credit carryforwards of approximately $149,000, which expire through 2015, and alternative minimum tax credit carryforwards of approximately $74,000, which do not expire. In addition to tax credit carryforwards, the Company had deferred tax assets which arise primarily due to depreciation recorded at different rates for tax and book purposes, investment in joint ventures accounting difference for book and tax purposes, capital leases reported as operating leases for tax purposes, and accruals for potential uninsured claims recorded for financial reporting purposes but not recognized for tax purposes. F-17 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 8. INCOME TAXES (Continued) The components of the deferred tax assets were as follows at September 28, 2002 and September 29, 2001:
2002 2001 ---- ---- Current: Tip credit carryforward $149,000 $213,000 Alternative minimum tax credit 74,000 74,000 Accruals for potential uninsured claims 16,000 31,000 -------- -------- $239,000 $318,000 ========= ======== Long-Term: Book/tax differences in property and equipment $201,000 $327,000 Joint venture investments 47,000 11,000 --------- -------- $ 248,000 $338,000 ========= ========
NOTE 9. LONG-TERM DEBT September 28, September 29, 2002 2001 ---- ---- Mortgage payable to bank; secured by first mortgage on a building; payable $1,594 per month, plus interest through maturity in August, 2008, at which time the unpaid principal of approximately $736,000 plus unpaid interest becomes due. The Company has entered into an interest rate swap agreement for a notional amount of approximately $895,000. The interest rate swap agreement hedges the interest rate risk of the mortgage payable to a fixed rate of 6.12%. $876,000 $893,000 Note payable to bank, unsecured, bearing interest at prime (4.75% at September 28, 2002); payable in monthly installments of principal and interest, maturing in July, 2004. 418,000 -- Mortgage payable, secured by land, bearing interest at 8%; payable in monthly installments of principal and interest, maturing in April 2013. 314,000 325,000 Note payable to bank, secured by general assets of the Company; bearing interest at 6% payable in monthly installments. This note was paid off during the year ended September 28, 2002 with the proceeds from a new note. -- 680,000 Notes payable to various employees, related and unrelated parties, secured by various company assets, bearing interest at 12%, payable in monthly installments of principal and interest, maturing in July 2002. -- 79,000 ---------- ---------- 1,608,000 1,977,000 Less current portion 259,000 262,000 ---------- ---------- $1,349,000 $1,715,000 ========== ==========
F-18 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 9. LONG-TERM DEBT (Continued) Long-term debt at September 28, 2002 matures as follows: 2003 $ 259,000 2004 214,000 2005 35,000 2006 38,000 2007 43,000 Thereafter 1,019,000 ---------- $ 1,608,000 ========== NOTE 10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS Legal Matters The Company is a party to various claims, legal actions and complaints arising in the ordinary course of its business. In the opinion of management, all such matters are without merit or involve such amounts that an unfavorable disposition would not have a material adverse effect on the financial position or results of operations of the Company. During fiscal year 2000, the Company was served with several complaints alleging violations of the Americans with Disabilities Act ("ADA") at all of its locations. As of September 28, 2002, all complaints have been settled. Leases The Company leases a substantial portion of the land and building used in its operations under leases with initial terms expiring between 2003 and 2049. Renewal options are available on many of the leases. In certain instances, lease rentals are subject to cost-of-living increases or fair market rental appraisals and/or sales overrides. Certain properties are subleased through various expiration dates. On July 29, 2001, the Company, on behalf of a limited partnership not formed at the time, entered into a sublease agreement on an existing restaurant to renovate and operate the restaurant under the "Flanigan's Seafood Bar and Grill" servicemark. The term is for fifteen years with the option to extend for three additional periods of five years each. The sublease provides for minimum annual rent payments plus additional rent from operational profits. In September 2002, the limited partnership was formed and the rights and obligations under the sublease agreement now reside with the limited partnership. See Note 5. F-19 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS Leases (Continued) During the fourth quarter of fiscal year 2001, the Company entered into a ground lease for an out parcel in Hollywood, Florida. The Company plans to construct a building on the out parcel, one-half (1/2) of which will be used by the Company for the operation of a package liquor store and the other one-half (1/2) will be subleased by the Company as retail space. The Company filed its building plans during the fourth quarter of fiscal year 2002 and expects the building to be complete and the package liquor store open for business by the end of fiscal year 2003. The estimated construction cost of this building has not yet been determined. Future minimum lease payments under non-cancelable operating leases are as follows: 2003 $ 842,000 2004 802,000 2005 607,000 2006 336,000 2007 195,000 Thereafter 1,603,000 ---------- Total $ 4,385,000 ========== Total rent expense for all operating leases (including those with an initial term of less than one year and net of subleases) was $867,000, $758,000 and $703,000 in 2002, 2001 and 2000 respectively, and is included in "Occupancy costs" in the accompanying consolidated statements of income. The Company guarantees various leases for franchisees. Remaining rental payments required under these leases total approximately $7,265,000. Franchise Programs At September 28, 2002, the Company operated seven units under franchise agreements, one of which the Company has an ownership interest pursuant to a joint venture agreement. Of the remaining six franchised stores, four are owned and operated by related parties. Under the franchise agreements, the Company agrees to provide guidance, advice and management assistance to the franchisees. In addition, the Company acts as fiscal agent for the franchisees whereby the Company collects all revenues and pays all expenses and distributions. The Company also, from time to time, advances funds on behalf of the franchisees for the cost of renovations. The resulting amounts receivable from and payable to these franchisees are reflected in the accompanying consolidated balance sheet as either an asset or a liability. The Company also agrees to sponsor and manage cooperative buying groups on behalf of the franchisees for the purchase of inventory. The franchise agreements provide for fees to the Company of approximately 3% of gross sales. The Company is not currently offering or accepting new franchises. F-20 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued) Employment Agreements Chief Executive Officer The Company has entered into an employment agreement with the Chief Executive Officer, which is renewable annually on December 31. The agreement provides, among other things, for a base annual salary not to exceed $150,000 and a performance bonus equal to fifteen percent of pre-tax net income in excess of $650,000. In fiscal year 2002, the agreement was amended to increase the performance bonus to 20% of pre-tax net income in excess of $650,000, 10% of which is to be allocated to other members of management. Bonuses for fiscal years 2002, 2001 and 2000 amounted to approximately $363,000, $228,000 and $150,000, respectively. In addition, the agreement provided for an option to purchase 4.99% of the outstanding common stock of the Company (but not less than 90,700 shares) at $3.25 per share, which option expired January 8, 2002. All of the remaining unexercised options, which represented the right to purchase 72,395 common shares, were exercised in December 2001 in exchange for approximately $235,000. Store Managers In the ordinary course of business, the Company enters into employment agreements with store managers, which provide for, among other things, base annual salary, performance bonuses, and various employee benefits. In principle, these agreements may be terminated by the Company for cause and by the manager with notice. Management Agreement The Company receives an owner's fee pursuant to a management agreement with a company which operates a club in Atlanta, Georgia, owned by the Company. The management agreement, which was executed in fiscal 1992, contained one five-year renewal option, which the management company exercised in fiscal 2001. The exercise provided for an additional security deposit of $200,000 to be paid by the management company. The Company receives the greater of $150,000 or 10% of gross sales annually, paid monthly. Eminent Domain Action During fiscal year 2000, the Company received official notification from the State of Florida, Department of Transportation ("DOT") that the DOT was exercising its right of eminent domain to "take" the hotel property upon which a restaurant, operated by the Company as general partner of a limited partnership, was located. The DOT took title to the hotel property during the second quarter of fiscal year 2002 and the restaurant was forced to close. As a result of the eminent domain proceedings, the limited partnership received $700,000. See Note 5. F-21 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 11. COMMON STOCK Treasury Stock Purchase of Common Shares During 2002, 2001 and 2000, the Company purchased a total of 68,803, 4,000 and 105,971 shares of Company common stock at a total cost of approximately $423,000, $18,000, and $492,000 under a repurchase program authorized by the Board of Directors. Sale of Common Shares During 2002, 2001, and 2000, the Company sold an aggregate of 72,795, 70,000, and 12,000 shares of common stock pursuant to the exercise of options to certain employee/officers for a total of approximately $237,000, $131,000 and $19,000, respectively. During 2001, these employee/officers purchased their shares, in part, by means of notes of approximately $122,000, which were non-interest bearing and due on demand. The notes were fully repaid during August 2002. Key Employee Incentive Stock Option Plan In December 1993, the Board of Directors approved a Key Employee Incentive Stock Option Plan, which reserved and authorized the issuance of 100,000 shares of the Company's common stock to eligible employees. At the Company's 1994 annual meeting, the stockholders approved this plan. The stock options vest over a period of one year. Options for all of the shares of common stock that were reserved for issuance to the Key Employee Incentive Stock Option Plan have been issued. Stock Options In April 2002, the Company granted options to purchase 25,500 shares of Company common stock to certain employees. The options vest one year from the grant date, have a five-year life, and an exercise price of $6.10 per share, the then market price of the common stock. In April 2001, the Company granted options to purchase 57,800 shares of Company common stock to certain employees. The options vest one year from the grant date, have a five-year life, and an exercise price of $4.16 per share, the then market price of the common stock. At September 28, 2002, 47,750 shares remain outstanding and exercisable. The Company applies APB No. 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation cost has been recognized in connection with the granting of these stock options. F-22 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 11. COMMON STOCK (Continued) Stock Options (Continued) Had compensation cost for the options been determined based on the fair value at the grant date consistent with SFAS 123, the Company's net income would have been as follows: 2002 2001 2000 ---- ---- ---- Net income: As Reported $1,383,000 $1,529,000 $1,364,000 Pro Forma $1,268,000 $1,450,000 $1,308,000 Earnings Per Share: Basic: As Reported $.71 $.80 $.73 Pro Forma $.65 $.76 $.70 Diluted: As Reported $.70 $.80 $.71 Pro Forma $.64 $.75 $.68 The Company used the Black-Scholes option-pricing model to determine the fair value of grants made in 2002 and 2001. No grants were made in 2000. The following assumptions were applied in determining the pro forma compensation cost: 2002 2001 Risk Free Interest Rate 4.0% 6.0% Expected Dividend Yield - - Expected Option Life 5 years 5 years Expected Stock Price Volatility 75% 75% Changes in outstanding incentive stock options for common stock are as follows: 2002 2001 2000 ---- ---- ---- Outstanding at beginning of year 207,595 233,045 276,295 Options granted 25,500 57,800 -- Options exercised (72,795) (70,000) (12,000) Options expired (31,400) (13,250) (31,250) ------- ------- ------- Outstanding at end of year 128,900 207,595 233,045 ------- ------- ------- Exercisable at end of year 103,400 149,795 233,045 ======= ======= ======= Weighted average option exercise price information for fiscal years 2002 and 2001 is as follows: 2002 2001 2000 ---- ---- ---- Outstanding at beginning of year $3.97 $3.27 $2.50 ===== ===== ===== Granted during the year $6.10 $4.16 $ - ===== ===== ==== Exercised during the year $3.25 $1.89 $1.63 ===== ===== ===== Outstanding at end of year $4.69 $3.97 $3.27 ===== ===== ===== Exercisable at end of year $4.34 $3.90 $3.27 ===== ===== ===== F-23 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 11. COMMON STOCK (Continued) Stock Options (Continued) Significant options groups outstanding at September 28, 2002 and related weighted average price and life information are as follows: Grant Options Options Exercise Remaining Date Outstanding Exercisable Price Life (Years) ---- ----------- ----------- ----- ------------ 7/3/99 55,650 55,650 4.50 1.5 4/2/01 47,750 47,750 4.16 3.5 4/20/02 25,500 -- 6.10 4.5 NOTE 12. NET INCOME PER COMMON SHARE The Company follows SFAS No. 128, "Earnings Per Share." SFAS 128 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share assume exercising warrants and options granted and convertible preferred stock and debt. Earnings per share are computed by dividing income available to common stockholders by the basic and diluted weighted average number of common shares.
2002 2001 2000 ---- ---- ---- Basic weighted average shares 1,961,000 1,903,000 1,856,000 Incremental shares relating to outstanding options 28,000 19,000 75,000 --------- --------- --------- Diluted weighted average shares 1,989,000 1,922,000 1,931,000 ========= ========= =========
NOTE 13. RELATED PARTY TRANSACTIONS The Company's Chairman and a relative formed a corporation to manage one of the Company's franchised stores. During fiscal 2002, 2001 and 2000, respectively, the Company incurred legal fees in the form of salary of approximately $151,000, $129,000 and $116,000 for services provided by a member of the Board of Directors. Also see Notes 3, 5, 6, 9, 10, and 11 for additional related party transactions. F-24 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 14. BUSINESS SEGMENTS The Company operates principally in two segments - retail package stores and restaurants. The operation of package stores consists of retail liquor sales. Information concerning the revenues and operating income for the years ended September 28, 2002, September 29, 2001 September 30, 2000, and identifiable assets for the two segments in which the Company operates, are shown in the following table. Operating income is total revenue less cost of merchandise sold and operating expenses relative to each segment. In computing operating income, none of the following items have been included: interest expense, other non-operating income and expense and income taxes. Identifiable assets by segment are those assets that are used in the Company's operations in each segment. Corporate assets are principally cash and notes and mortgages receivable. The Company does not have any operations outside of the United States and intersegment transactions are not material.
2002 2001 2000 ---- ---- ---- Operating Revenues: Restaurants $ 16,436,000 $ 15,478,000 $ 14,344,000 Equity in the net income of joint ventures 732,000 571,000 460,000 Retail package stores 9,174,000 8,907,000 8,870,000 Other revenues 1,955,000 1,748,000 1,486,000 ------------ ------------ ------------ Total operating revenues $ 28,297,000 $ 26,704,000 $ 25,160,000 ============ ============ ============ Income From Operations Reconciled to Income before Income Taxes: Restaurants $ 2,125,000 $ 1,935,000 $ 1,761,000 Retail package stores 304,000 368,000 308,000 ------------ ------------ ------------ 2,429,000 2,303,000 2,069,000 Corporate expenses, net of other revenues 339,000 (310,000) (289,000) ------------ ------------ ------------ Operating Income 2,090,000 1,993,000 1,780,000 Interest expense, net of interest income (84,000) (100,000) (123,000) Other 65,000 125,000 48,000 ------------ ------------ ------------ Income Before Income Taxes $ 2,071,000 $ 2,018,000 $ 1,705,000 ============ ============ ============ Identifiable Assets: Restaurants $ 4,018,000 $ 3,707,000 $ 3,969,000 Retail package store 2,085,000 1,943,000 2,066,000 ------------ ------------ ------------ 6,103,000 5,650,000 6,035,000 Corporate 7,931,000 8,294,000 7,398,000 ------------ ------------ ------------ Consolidated Totals $ 14,034,000 $ 13,944,000 $ 13,433,000 ============ ============ ============ Capital Expenditures: Restaurants $ 248,000 $ 565,000 $ 967,000 Retail package stores 41,000 34,000 67,000 ------------ ------------ ------------ 289,000 599,000 1,034,000 Corporate 269,000 492,000 911,000 ------------ ------------ ------------ Total Capital Expenditures $ 558,000 $ 1,091,000 $ 1,945,000 ============ ============ ============
F-25 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 14. BUSINESS SEGMENTS (Continued)
2002 2001 2000 ---- ---- ---- Depreciation and Amortization: Restaurants $475,000 $478,000 $438,000 Retail package stores 77,000 89,000 97,000 552,000 567,000 535,000 Corporate 165,000 191,000 146,000 ------- ------- ------- Total Depreciation and Amortization $717,000 $758,000 $681,000 ======== ======== ========
NOTE 15. QUARTERLY INFORMATION (UNAUDITED) The following is a summary of the Company's unaudited quarterly results of operations for the quarters in fiscal years 2002 and 2001.
Quarter Ended --------------------------------------------------------- December 29, March 30, June 29, September 28, 2001 2002 2002 2002 ---- ---- ---- ---- Revenues $7,142,000 $7,800,000 $6,767,000 $6,588,000 Income from operations 573,000 804,000 138,000 575,000 Net income 448,000 623,000 288,000 24,000* Net income per share - basic 0.23 0.32 0.15 0.01 Net income per share - diluted 0.23 0.31 0.14 0.01 Weighted average common stock outstanding - basic 1,924,865 1,959,869 1,972,843 1,952,916 Weighted average common stock outstanding - diluted 1,930,748 1,997,433 2,013,120 1,980,589
Quarter Ended -------------------------------------------------------- December 30, March 31, June 30, September 29, 2000 2001 2001 2001 Revenues $6,655,000 $7,109,000 $6,456,000 $6,484,000 Income from operations 643,000 787,000 319,000 255,000 Net income 436,000 584,000 222,000 287,000 Net income per share - basic 0.23 0.31 0.12 .15 Net income per share - diluted 0.23 0.31 0.11 .14 Weighted average common stock outstanding - basic 1,861,314 1,904,500 1,922,478 1,922,478 Weighted average common stock outstanding - diluted 1,875,706 1,914,460 1,939,467 2,050,773
* Net income for the quarter includes decreases relating to the change in accounting method of $160,000, $106,000 net of income taxes, and a deferred tax adjustment of $169,000. F-26 FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 15. QUARTERLY INFORMATION (UNAUDITED) (Continued) Quarterly operating results are not necessarily representative of operations for a full year for various reasons including the seasonal nature of both the restaurant and package store segments. Each of the quarters includes thirteen weeks. F-27 EX-99.1 3 exhibit99-1.txt 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Flanigan"s Enterprises, Inc. (the "Company") on Form 10-K for the year ended September 28, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph G. Flanigan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, adopted pursuant to Section 06 of the Sarbanes-Oxley Act of 2002 that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joseph G. Flanigan ---------------------- Name: Joseph G. Flanigan Chief Executive Officer Date: December 27, 2002 EX-99.2 4 exhibit99-2.txt 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Flanigan"s Enterprises, Inc. (the "Company") on Form 10-K for the year ended September 28, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward A. Doxey, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, adopted pursuant to Section 06 of the Sarbanes-Oxley Act of 2002 that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Edward A. Doxey ---------------------- Name: Edward A. Doxey Chief Financial Officer Date: December 27, 2002 EX-99.3 5 exhibit99-3.txt 99.3 INDEPENDENT ACCOUNTANT PREFERABILITY LETTER December 24, 2002 Board of Directors Flanigan"s Enterprises, Inc. 5059 NE 18th Avenue Ft. Lauderdale, Florida 33334 Dear Sirs/Madams: We have audited the consolidated financial statements as of September 28, 2002 and September 29, 2001, and for each of the three years in the period ended September 28, 2002, included in your Annual Report on Form 10-K to the Securities and Exchange Commission and have issued our report thereon dated November 27, 2002. Note 2 to such consolidated financial statements contains a description of your adoption during the year ended September 28, 2002 of average cost as the Company"s inventory valuation method rather than first in first out, which was previously used by the Company. In our judgment, such change is to an alternative accounting principle that is preferable under the circumstances. Yours truly, /s/ RACHLIN COHEN & HOLTZ LLP ----------------------------- RACHLIN COHEN & HOLTZ LLP -----END PRIVACY-ENHANCED MESSAGE-----