UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number I-6836
Flanigan's Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-0877638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5059 N.E. 18th Avenue, Fort Lauderdale, Florida 33334
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (954) 377- 1961
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 the subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [_] Accelerated filer [ ] Non-accelerated [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.) Yes [_] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date. On May 15, 2007, 1,892,993
shares of Common Stock, $0.10 par value, were outstanding.
-1-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
March 31, 2007
PART I. FINANCIAL INFORMATION
---------------------
Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income -- For the Thirteen and Twenty Six Weeks ended
March 31, 2007 and April 1, 2006. (Unaudited)
Consolidated Balance Sheets -- As of March 31, 2007 (Unaudited) and September
30, 2006.
Consolidated Statements of Cash Flows - For the Twenty Six Weeks ended March 31,
2007 and April 1, 2006. (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION AND SIGNATURES
--------------------------------
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Default upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8K
Signatures
Exhibit - 31.1
Exhibit - 31.2
Exhibit - 32.1
Exhibit - 32.2
-2-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
Thirteen Weeks Twenty Six Weeks
Ended Ended
March 31 April 1 March 31 April 1
2007 2006 2007 2006
-------- -------- -------- --------
Revenues:
Restaurant food sales $ 10,029 $ 8,641 $ 19,059 $ 16,035
Restaurant beverage sales 2,349 1,994 4,436 3,726
Package store sales 3,531 3,439 7,013 7,192
Franchise-related revenues 308 285 608 546
Owner's fee 40 38 80 75
Other operating income 47 80 93 151
-------- -------- -------- --------
16,304 14,477 31,289 27,725
-------- -------- -------- --------
Costs and Expenses:
Cost of merchandise sold:
Restaurants and lounges 4,180 3,623 7,995 6,737
Package goods 2,519 2,449 5,063 5,168
Payroll and related costs 4,542 4,274 8,604 7,808
Occupancy costs 945 783 1,764 1,537
Selling, general and
administrative expenses 3,308 2,836 6,341 5,302
-------- -------- -------- --------
15,494 13,965 29,767 26,552
-------- -------- -------- --------
Income from Operations 810 512 1,522 1,173
-------- -------- -------- --------
Other Income (Expense):
Interest expense (125) (38) (258) (71)
Interest and other income 34 16 70 38
Insurance recovery, net of casualty loss -- 405 -- 450
-------- -------- -------- --------
(91) 383 (188) 417
-------- -------- -------- --------
Income Before Provision for Income Taxes
and Minority Interests in Earnings of
Consolidated Limited Partnerships 719 895 1,334 1,590
Provision for Income Taxes (184) (262) (367) (447)
Minority Interest in Earnings of
Consolidated Limited Partnerships (203) (51) (311) (199)
-------- -------- -------- --------
Net Income $ 332 $ 582 $ 656 $ 944
======== ======== ======== ========
-3-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Continued)
Thirteen Weeks Twenty Six Weeks
Ended Ended
March 31 April 1 March 31 April 1
2007 2006 2007 2006
------------- ------------- ------------- -------------
Net Income Per Common Share:
Basic $ 0.18 $ 0.31 $ 0.35 $ 0.50
============= ============= ============= =============
Diluted $ 0.17 $ 0.30 $ 0.34 $ 0.50
============= ============= ============= =============
Weighted Average Shares and Equivalent
Shares Outstanding
Basic 1,887,917 1,879,809 1,886,059 1,877,186
============= ============= ============= =============
Diluted 1,915,176 1,908,919 1,912,122 1,906,622
============= ============= ============= =============
See accompanying notes to unaudited condensed consolidated financial statements.
-4-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 (UNAUDITED) AND SEPTEMBER 30, 2006
(In Thousands)
ASSETS
MARCH 31 SEPTEMBER 30
2007 2006
------------ ------------
Current Assets:
Cash and cash equivalents $ 3,369 $ 1,698
Notes and mortgages receivable,
current maturities, net 58 12
Due from franchisees 212 569
Other receivables 153 821
Inventories 2,383 2,215
Prepaid expenses 1,291 813
Deferred tax asset 154 187
------------ ------------
Total Current Assets 7,620 6,315
------------ ------------
Property and Equipment, Net 19,857 18,939
------------ ------------
Investment in Limited Partnership 157 153
------------ ------------
Other Assets:
Liquor licenses, net 347 347
Notes and mortgages receivable, net 52 103
Deferred tax asset 396 397
Other 2,294 1,144
------------ ------------
Total Other Assets 3,089 1,991
------------ ------------
Total Assets $ 30,723 $ 27,398
============ ============
-5-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 (UNAUDITED) AND SEPTEMBER 30, 2006
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands)
MARCH 31 SEPTEMBER 30
2007 2006
------------ ------------
Current Liabilities:
Accounts payable and accrued expenses $ 5,212 $ 4,096
Income taxes payable 92 264
Due to franchisees 500 268
Current portion of long term debt 222 223
Deferred revenues 49 54
Deferred rent 16 14
------------ ------------
Total Current Liabilities 6,091 4,919
------------ ------------
Long Term Debt, Net of Current Maturities 4,557 4,196
------------ ------------
Line of Credit 1,962 762
------------ ------------
Deferred Rent, Net of Current Portion 241 223
------------ ------------
Minority Interest in Equity of
Consolidated Limited Partnerships 6,399 6,506
------------ ------------
Commitments, Contingencies and Subsequent
Events
Stockholders' Equity:
Common stock $.10 par value;
5,000,000 shares authorized
4,197,642 shares issued 420 420
Capital in excess of par value 6,224 6,203
Retained earnings 10,720 10,064
Treasury stock, at cost 2,308,869 shares
at March 31,2007 and 2,313,277
shares at September 30, 2006 (5,891) (5,895)
------------ ------------
Total Stockholders' Equity 11,473 10,792
------------ ------------
Total Liabilities and
Stockholders' Equity $ 30,723 $ 27,398
============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
-6-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY SIX WEEKS ENDED MARCH 31, 2007 AND APRIL 1, 2006
(In Thousands)
MARCH 31 APRIL 1
2007 2006
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 656 $ 944
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,049 864
Loss on abandonment of property and equipment 23 6
Casualty loss -- 58
Deferred Income Tax 34 (38)
Deferred rent 20 (11)
Minority interest in earnings
of consolidated limited partnerships 311 199
Income from unconsolidated limited
partnership (4) (13)
Recognition of deferred revenue (5) (4)
Changes in operating assets and liabilities:
(Increase)decrease in:
Due from franchisees 357 82
Other receivables 175 (529)
Inventories (168) (183)
Prepaid expenses (478) (368)
Other assets (1,104) (874)
Increase(decrease)in:
Accounts payable and accrued expenses 1,116 1,200
Income tax payable (172) (60)
Due to franchisees 232 82
---------- ----------
Net cash provided by
operating activities 2,042 1,355
---------- ----------
Cash flows from Investing Activities:
Collection on notes and mortgages
receivable 5 7
Purchase of property and equipment (1,738) (1,116)
Purchase of assets of franchised restaurant (100) --
Proceeds from sale of marketable securities 381 --
Proceeds from sale of fixed assets 92 --
Proceeds from insurance settlement 112 --
---------- ----------
Net cash used in
investing activities (1,248) (1,109)
---------- ----------
-7-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY SIX WEEKS ENDED MARCH 31, 2007 AND April 1, 2006
(In Thousands)
MARCH 31 APRIL 1
2007 2006
---------- ----------
Cash flows from Financing Activities:
Payment of long term debt (102) (147)
Proceeds from long term debt 172 --
Proceeds from line of credit 1,200 762
Dividends paid -- (658)
Purchase of treasury stock (9) (43)
Purchase of minority limited partnership
Interest -- (8)
Distributions to limited partnership
minority partners (418) (565)
Proceeds from exercise of stock options 34 117
---------- ----------
Net cash provided by (used in) financing
activities 877 (542)
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents 1,671 (296)
Cash and Cash Equivalents,
Beginning of Period 1,698 2,674
---------- ----------
Cash and Cash Equivalents,
End of Period $ 3,369 $ 2,378
========== ==========
Supplemental Disclosure for Cash Flow Information:
Cash paid during period for:
Interest $ 258 $ 71
========== ==========
Income taxes $ 497 $ 424
========== ==========
Supplemental Disclosure for Non-Cash Investing and
Financing Activities:
Purchase of vehicle in exchange for debt $ -- $ 70
Purchase of real property in exchange
for debt $ 250 $ --
========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
-8-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007
(1) BASIS OF PRESENTATION:
The accompanying financial information for the periods ended March 31,
2007 and April 1, 2006 are unaudited. Financial information as of September 30,
2006 has been derived from the audited financial statements of the Company, but
does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
information for the periods indicated have been included. For further
information regarding the Company's accounting policies, refer to the
Consolidated Financial Statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended September 30, 2006. Operating
results for interim periods are not necessarily indicative of results to be
expected for a full year.
These financial statements include estimates relating to performance
based officers' bonuses. The estimates are reviewed periodically and the effects
of any revisions are reflected in the financial statements in the period they
are determined to be necessary. Although these estimates are based on
management's knowledge of current events and actions it may take in the future,
they may ultimately differ from actual results.
(2) EARNINGS PER SHARE:
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
per share establishes standards for computing and presenting earnings per share
("EPS"). This statement requires the presentation of basic and diluted EPS. The
data on Page 4 shows the amounts used in computing earnings per share and the
effects on income and the weighted average number of shares of potential
dilutive common stock equivalents.
(3) RECLASSIFICATION:
Certain amounts in the fiscal year 2006 financial statements have been
reclassified to conform to the fiscal year 2007 presentation.
(4) RECENT ACCOUNTING PRONOUNCEMENTS:
In February 2007, the FASB issued SFAS 159, "Fair Value Option for
Financial Assets and Liabilities" which permits an entity to choose to measure
many financial instruments and certain other items at fair value. The standard
contains an amendment to SFAS 115 pertaining to available-for-sale and trading
securities. The objective of the standard is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. The provisions of SFAS 159
are effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Company does not expect the adoption of Statement 159 at
the beginning of fiscal year 2009 to have a material impact.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" (SAB 108). SAB 108 requires
-9-
companies to evaluate the materiality of identified unadjusted errors on each
financial statement and related disclosures using both the rollover and the iron
curtain approach. SAB 108 applies to annual financial statements for fiscal
years ending after November 15, 2006. The adoption of SAB 108 at the beginning
of fiscal year 2007 did not have a material impact on the financial condition or
results of operation of the Company.
In September 2006, the FASB issued SFAS 157, "Fair Value Measurements"
which provides guidance for using fair value to measure assets and liabilities.
The standard applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value but does not expand the use of fair
value in any new circumstances. The standard clarifies that for items that are
not actively traded, such as certain kinds of derivatives, fair value should
reflect the price in a transaction with a market participant, including an
adjustment for risk, not just the company's mark-to-model value. SFAS 157 also
requires expanded disclosure of the effect on earnings for items measured using
unobservable data. The provisions of SFAS 157 are effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. The Company does not expect the adoption of
Statement 157 at the beginning of fiscal year 2009 to have a material impact.
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS Statement No. 109. This Interpretation clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with SFAS Statement No. 109, Accounting for
Income Taxes. This Interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. This Interpretation is effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the impact that the
adoption of Interpretation No. 48 may have upon the financial condition or
results of operation of the Company.
(5) INVESTMENT IN LIMITED PARTNERSHIPS:
Davie, Florida
During the second quarter of fiscal year 2007, the Company, as general
partner of a limited partnership, entered into a new lease for the business
premises and closed on the purchase of the rights to the existing restaurant in
Davie, Florida to renovate and operate under the "Flanigan's Seafood Bar and
Grill" servicemark. The purchase price was $650,000. The estimate for
renovations and pre-opening expenses is an additional $2,250,000. The funds
necessary for this limited partnership, ($2,900,000) will be raised through a
private offering, which the limited partnership plans to commence and complete
during the fourth quarter of fiscal year 2007. As of March 31, 2007, the Company
had advanced approximately $758,000 to the limited partnership. The Company acts
as general partner and will own up to thirty percent of the limited partnership.
The restaurant is expected to open for business during the first quarter of
fiscal year 2008.
Pembroke Pines, Florida
During the second quarter of fiscal year 2007, the limited partnership
commenced and subsequent to the end of the second quarter of fiscal year 2007,
completed its private offering, raising the sum of $2,350,000 to complete the
renovation of the business premises to operate as a "Flanigan's Seafood Bar and
Grill" restaurant, which also reimbursed approximately $300,000 to the Company
for advances made in excess of its investment, ($380,000), in the same.
Subsequent to the end of the second quarter of fiscal year 2007, building
permits were issued to the limited partnership, enabling the
-10-
limited partnership to proceed with its renovations to the business premises.
The Company acts as general partner and owns sixteen percent of the limited
partnership. The restaurant is expected to open for business during the fourth
quarter of fiscal year 2007.
(6) PURCHASE OF FRANCHISED RESTAURANT:
Lake Worth, Florida
During the second quarter of fiscal year 2007, the Company purchased the
assets of the franchised restaurant located at 2401 10th Avenue North, Lake
Worth, Palm Beach County, Florida from its franchisee for a purchase price of
$100,000. The purchase price was allocated between the leasehold interest
($45,000), and furniture and equipment, ($55,000). The lease for the business
premises was to expire on November 15, 2007, with the franchisee electing not to
exercise the final five (5) year renewal option. As a part of the assignment of
the lease to the Company, the landlord agreed to extend the term of the lease
until November 15, 2008 under the same terms and conditions, with two (2) three
(3) year renewal options at a fixed, increased annual rent. As of March 4, 2007,
the franchised restaurant began operating as a Company owned restaurant.
(7) INVESTMENT IN REAL PROPERTY:
Hallandale, Florida
During the second quarter of fiscal year 2007, the Company entered into a
contract for the purchase of real property which is located adjacent to the
parking lot of the Company's combination restaurant and package liquor store
located at 4 North Federal Highway, Hallandale, Florida, (Store #31). A
residence, consisting of approximately 1,200 square feet, is located upon the
property and is leased to an unrelated third party for a monthly rental of
$1,450. The purchase price for this property is $600,000 and will be partially
financed with a private mortgage in the principal amount of $450,000. The
mortgage bears interest at the rate of ten (10%) percent per annum, is amortized
over thiry (30) years, with equal monthly payments of principal and interest,
each in the amount of $3,949.07 with the entire principal balance and all
accrued interest due in ten (10) years. Subsequent to the end of the second
quarter of fiscal year 2007, the Company closed on the purchase of the real
property.
North Miami, Florida
During the second quarter of fiscal year 2007, the Company entered into a
Sale and Purchase Agreement to sell the real property located at 732 - 734 N.E.
125th Street, North Miami, Florida (Store #27), which real property the Company
purchased during the first quarter of fiscal year 2007, to the sublessee, an
unrelated third party. The sales price for this property is $780,000, including
the interest of the Company in the liquor license. Subsequent to the end of the
second quarter of fiscal year 2007, the Company closed on the sale of the real
property, including the interest of the Company in the liquor license, and
expects a gain of approximately $390,000 to be realized from the sale.
(8) LINE OF CREDIT:
During the second quarter of fiscal year 2007, the Company paid monthly
installments of interest only on its line of credit. During the second quarter
of fiscal year 2007, no payments were made to reduce the principal balance, nor
were any additional draws made on the same. As of March 31, 2007, the principal
balance outstanding was $1,962,000. Subsequent to the end of the second quarter
of fiscal year 2007, the Company made a principal payment of $750,000, reducing
the outstanding principal balance on the line of credit to $1,212,000. The line
of credit matures as of December 26, 2008.
-11-
(9) INCOME TAXES:
Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes, requires among other things, recognition of future tax benefits
measured at enacted rates attributable to deductible temporary differences
between financial statement and income tax basis of assets and liabilities and
to tax net operating loss carryforwards and tax credits to the extent that
realization of said tax benefits is more likely than not.
(10) STOCK OPTION PLANS:
The Company has several stock option plans under which qualified stock
options may be granted to officers and other employees of the Company. The
option price for qualified stock options must be issued at 110% of the fair
market value of the Company's Common Stock on the date the options are granted.
In general, options granted under the Company's stock option plans expire after
a five (5) year period and generally vest no later than one (1) year from the
date of grant. As of March 31, 2007, there were approximately 45,000 shares
available for grant under the Company's stock option plans.
No stock options were granted during the twenty six weeks ended March 31,
2007, nor were stock options granted during the twenty six weeks ended April 1,
2006.
Stock option exercises during the twenty six weeks ended March 31, 2007
and April 1, 2006 resulted in cash inflows to the Company of $34,000 and
$117,000, respectively. The corresponding intrinsic value as of the exercise
date of the 5,050 and 24,070 stock options exercised during the twenty six weeks
ended March 31, 2007 and April 1, 2006 were $22,000 and $124,000, respectively.
Stock option activity during the twenty six weeks ended March 31, 2007 was
as follows:
Weighted
Total Average
Options Exercise Price
------------ --------------
Outstanding at September 30, 2006 67,850 $ 6.27
Granted -- --
Exercised (5,050) $ 6.35
Expired (2,600) $ 6.13
------------ ------------
Outstanding at March 31, 2007 60,200 $ 6.27
============ ============
Options exercisable at March 31, 2007 60,200 $ 6.27
============ ============
The weighted-average remaining contractual terms of stock options
outstanding and stock options exercisable at March 31, 2007 was 1.68 years. The
aggregate intrinsic value of options outstanding and stock options exercisable
-12-
at March 31, 2007 was approximately $295,000.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment".
This statement is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation", supersedes Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and amends SFAS No. 95, "Statement of
Cash Flows." The statement eliminates the alternative to use the intrinsic value
method of accounting that was provided in SFAS No. 123, which generally resulted
in no compensation expense recorded in financial statements related to the
issuance of equity awards to employees. The statement also requires that the
cost resulting from all share-based payment transactions be recognized in the
financial statements. It establishes fair value as the measurement objective in
accounting for share-based payment arrangements and generally requires all
companies to apply a fair-value-based measurement method in accounting for
share-based payment transactions with employees. The Company adopted SFAS No.
123R effective January 1, 2006, using a modified version of prospective
application in accordance with the statement. This application requires the
Company to record compensation expense for all awards granted to employees and
directors after the adoption date and for the unvested portion of awards that
are outstanding at the date of adoption. The Company had no unvested stock
options as of September 30, 2006 and granted no stock options in the twenty six
weeks ended March 31, 2007, so there is no impact of SFAS No. 123R on the
Company's condensed consolidated financial statements for the twenty six weeks
ending March 31, 2007.
(11) COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS:
Guarantees
The Company guarantees various leases for franchisees, limited
partnerships and locations sold in prior years. Remaining rental commitments
required under these leases are approximately $1,350,000. In the event of a
default under any of these agreements, the Company will have the right to
repossess the premises and operate the business to recover amounts paid under
the guarantee either by liquidating assets or operating the business.
Litigation
The corporate offices consist of a two (2) story building, with space
initially set aside on the ground floor for a package liquor store. The Company
filed suit against the adjacent shopping center to determine the Company's right
to non-exclusive parking in the shopping center. During the second quarter of
fiscal year 2007, the appellate court affirmed the granting of a summary
judgment in favor of the shopping center. Subsequent to the end of the second
quarter of fiscal year 2007, the Company filed its motion for a re-hearing of
its appeal before the entire appellate court, alleging obvious errors in the
appellate decision.
During the first quarter of fiscal year 2007, the Company filed suit
against the landlord of the limited partnership which owns the restaurant in
Pinecrest, Florida seeking to recover the cost of structural repairs to the
business premises which it contends were the responsibility of the landlord
pursuant to the terms of the lease and to recover rent paid while the structural
repairs delayed the renovation of the business premises. The complaint includes
a count by the limited partnership seeking a determination by the court that it
has the exclusive right to the use of the pylon sign in front of the business
premises. During the second quarter of fiscal year 2007, the landlord filed its
-13-
answer to the complaint denying liability for structural repairs to the business
premises, denying any obligation to reimburse the limited partnership for any
rent paid while structural repairs delayed its renovations and denying the
limited partnership's right to use the pylon sign. The lawsuit is in the
discovery stage.
Certain states have liquor liability (dram shop) laws which allow a person
injured by an "obviously intoxicated person" to bring a civil suit against the
business (or social host) who had served intoxicating liquors to an already
"obviously intoxicated person". Dram shop claims normally involve traffic
accidents and the Company generally does not learn of dram shop claims until
after a claim is filed and then the Company vigorously defends these claims on
the grounds that its employee did not serve an "obviously intoxicated person".
Damages in most dram shop cases are substantial. At the present time, there are
no dram shop cases pending against the Company. The Company maintains general
liability insurance. See Item 1, "General Liability Insurance" on page 14 of the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2006 for a discussion of general liability insurance.
There is no material pending legal proceedings, other than ordinary
routine litigation incident to the business, none of which the Company believes
is material.
(12) 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 thirteen
and twenty six weeks ended March 31, 2007 and April 1, 2006, 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, notes and mortgages receivable,
real property, improvements, furniture, equipment and vehicles. The Company does
not have any operations outside of the United States and intersegment
transactions are not material.
Thirteen Thirteen
Weeks Ended Weeks Ended
March 31, April 1,
2007 2006
---------- ----------
Operating Revenues:
Restaurants $ 12,378 $ 10,635
Package stores 3,531 3,439
Other revenues 395 403
---------- ----------
Total operating revenues $ 16,304 $ 14,477
========== ==========
Operating Income Reconciled to Income Before
Income Taxes and Minority Interest in
Earnings of Consolidated
Limited Partnerships
Restaurants $ 1,307 $ 1,078
Package stores 202 238
---------- ----------
1,509 1,316
-14-
Corporate expenses, net of other
Revenues (699) (804)
---------- ----------
Operating income 810 512
Other income (expense) (91) 383
---------- ----------
Income Before Income Taxes and Minority
Interest in Earnings of
Consolidated Limited Partnerships $ 719 $ 895
========== ==========
Depreciation and Amortization:
Restaurants $ 379 $ 303
Package stores 64 57
---------- ----------
443 360
Corporate 92 74
---------- ----------
Total Depreciation and Amortization $ 535 $ 434
========== ==========
Capital Expenditures:
Restaurants $ 600 $ 479
Package stores 120 53
---------- ----------
720 532
Corporate 69 128
---------- ----------
Total Capital Expenditures $ 789 $ 660
========== ==========
Twenty Six Twenty Six
Weeks Ended Weeks Ended
March 31, April 1,
2007 2006
---------- ----------
Operating Revenues:
Restaurants $ 23,495 $ 19,761
Package stores 7,013 7,192
Other revenues 781 772
---------- ----------
Total operating revenues $ 31,289 $ 27,725
========== ==========
Operating Income Reconciled to Income Before
Income Taxes and Minority Interest in
Earnings of Consolidated
Limited Partnerships
Restaurants $ 2,244 $ 1,831
Package stores 382 541
---------- ----------
2,626 2,372
Corporate expenses, net of other
Revenues (1,104) (1,199)
---------- ----------
Operating income 1,522 1,173
Other income (expense) (188) 417
---------- ----------
Income Before Income Taxes and Minority
Interest in Earnings of
Consolidated Limited Partnerships $ 1,334 $ 1,590
========== ==========
-15-
Depreciation and Amortization:
Restaurants $ 745 $ 596
Package stores 123 112
---------- ----------
868 708
Corporate 181 156
---------- ----------
Total Depreciation and Amortization $ 1,049 $ 864
========== ==========
Capital Expenditures:
Restaurants $ 1,408 $ 652
Package stores 200 75
---------- ----------
1,608 727
Corporate 435 459
---------- ----------
Total Capital Expenditures $ 2,043 $ 1,186
========== ==========
March 31, September 30,
Identifiable Assets: 2007 2006
---- ----
Restaurants $ 17,739 $ 15,635
Package store 3,802 3,602
---------- ----------
21,541 19,237
Corporate 9,182 8,161
---------- ----------
Consolidated Totals $ 30,723 $ 27,398
========== ==========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Reported financial results may not be indicative of the financial results
of future periods. All non-historical information contained in the following
discussion constitutes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Words such as "anticipates, appears, expects, trends, intends, hopes,
plans, believes, seeks, estimates, may, will," and variations of these words or
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and involve a number of
risks and uncertainties, including but not limited to customer demand and
competitive conditions. Factors that could cause actual results to differ
materially are included in, but not limited to, those identified in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in the Annual Report on Form 10-K for the Company's fiscal year
ended September 30, 2006 and in this Quarterly Report on Form 10-Q. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may reflect events or circumstances after
the date of this report.
The Company owns and /or operates full service restaurants, package liquor
stores and an adult entertainment oriented club (collectively the "units"). At
March 31, 2007, the Company operated 22 units and had equity interests in six
units which have been franchised by the Company. The table below sets out the
changes, if any, in the type and number of units being operated.
-16-
March 31 Sept. 30 April 1 Note
2007 2006 2006 Number
Types of Units
-----------------------------------------------------------------------
Company Owned:
Combination package
and restaurant 4 4 4
Restaurant only 3 2 2 (1)
Package store only 5 5 5
Company Managed
Restaurants Only:
Limited partnerships 7 7 6 (2)(3)(4)
Franchise 1 1 1
Unrelated Third Party 1 1 -- (5)
Company Owned Club: 1 1 1
Total Company
Owned/Operated Units 22 21 19
Franchised units 6 7 7 (6)
Notes:
(1) During the second quarter of fiscal year 2007, the Company purchased
the assets of a franchised restaurant in Lake Worth, Florida, which franchised
restaurant was operating under the "Flanigan's Seafood Bar and Grill"
servicemark. The restaurant opened for business as a Company-owned location on
March 4, 2007.
(2) During the third quarter of fiscal year 2003, the Company, as general
partner of the limited partnership, entered into a Sale of Business Agreement
for the purchase of an existing business in Pinecrest, Florida, which
transaction closed during the first quarter of fiscal year 2004. During the
third quarter of fiscal year 2006, the limited partnership raised funds through
a private offering to renovate the business premises for operation as a
"Flanigan's Seafood Bar and Grill" restaurant. The Company acts as general
partner and owns a thirty nine percent limited partnership interest. The
restaurant opened for business on August 14, 2006.
(3) During the first quarter of fiscal year 2006, the Company, as agent
for a limited partnership to be formed, entered into a contract to purchase an
existing restaurant location in Davie, Florida to renovate and operate a
restaurant under the "Flanigan's Seafood Bar and Grill" servicemark. During the
second quarter of fiscal year 2007, the limited partnership closed on the
purchase of the existing restaurant location. The restaurant is expected to open
for business during the first quarter of fiscal year 2008, provided the
landlord's approval of building plans and all necessary zoning approvals,
variances and/or special use permits are timely received. This restaurant is not
included in the table of units.
(4) During the third quarter of fiscal year 2006, the Company, as agent
for a limited partnership to be formed, entered into a contract to purchase an
existing restaurant location in Pembroke Pines, Florida to renovate and operate
a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark. During
the first quarter of fiscal year 2007, the limited partnership closed on the
purchase of the existing restaurant location. During the second quarter of
fiscal year 2007, the limited partnership commenced and subsequent to the end of
the second quarter of fiscal year 2007, completed its private offering, raising
funds to renovate the business premises for operation as a "Flanigan's Seafood
Bar and Grill" restaurant. Subsequent to the end of the second quarter of fiscal
-17-
year 2007, building permits were issued to the limited partnership. The Company
acts as general partner and owns a sixteen percent limited partnership interest.
The restaurant is expected to open for business during the fourth quarter of
fiscal year 2007. This restaurant is not included in the table of units.
(5) During the second quarter of fiscal year 2006, the Company assumed the
management of an existing restaurant in Deerfield Beach, Florida under its
current format, "The Whale's Rib", pursuant to a management agreement whereby
the Company is entitled to one-half (1/2) of the net profit from the operation
of the same. This restaurant is included in the table of units.
(6) The Company manages the restaurant for one (1) franchisee with respect
to one (1) of the six (6) franchised units. 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.
Results of Operations
Thirteen Weeks Ended
March 31, April 1,
2007 2006
Amount Percent Amount Percent
------- ------- ------- -------
(In Thousands) (In Thousands)
Restaurant food sales $10,029 63.04 $ 8,641 61.40
Restaurant bar sales 2,349 14.77 1,994 14.17
Package store sales 3,531 22.19 3,439 24.43
------- ------- ------- -------
Total sales $15,909 100.00 $14,074 100.00
Franchise related revenues 308 285
Owner's fee 40 38
Other operating income 47 80
------- -------
Total Revenue $16,304 $14,477
======= =======
Twenty Six Weeks Ended
March 31, April 1,
2007 2006
Amount Percent Amount Percent
------- ------- ------- -------
(In Thousands) (In Thousands)
Restaurant food sales $19,059 62.47 $16,035 59.49
Restaurant bar sales 4,436 14.54 3,726 13.83
Package store sales 7,013 22.99 7,192 26.68
------- ------- ------- -------
Total sales $30,508 100.00 $26,953 100.00
Franchise related revenues 608 546
Owner's fee 80 75
Other operating income 93 151
------- -------
Total Revenue $31,289 $27,725
======= =======
-18-
Comparison of Thirteen Weeks Ended March 31, 2007 and April 1, 2006
-------------------------------------------------------------------
Notwithstanding an increase in total revenue of $1,827,000 in the second
quarter of fiscal year 2007 when compared to the second quarter of fiscal year
2006, net income decreased to $332,000 from $582,000 in the second quarter of
fiscal year 2007. The increase in total revenue is primarily due to the
restaurant in Pinecrest, Florida ($1,212,000) being open during the second
quarter of fiscal year 2007 and menu price increases. The decrease in net income
during the second quarter of fiscal year 2007 is primarily due to the Company's
recognition of an insurance recovery, net of casualty loss, in the amount of
$405,000, during the second quarter of fiscal year 2006. Higher overall
expenses, including real property taxes, property and windstorm insurance
coverage, interest expense due to the mortgage on the Company's Hallandale
property and its line of credit and a higher effective tax rate, all adversely
affected net income during the thirteen weeks ended March 31, 2007. Higher food
costs, with the exception of the Company's price for ribs for calendar year
2007, and overall expenses are expected to continue increasing, but management
believes that the menu price increases put into effect during the first quarter
of fiscal year 2007 will offset the increases in food costs and overall expenses
throughout the balance of fiscal year 2007.
As the table above illustrates, total revenues in the thirteen weeks ended
March 31, 2007 increased by 12.62% as compared to the total revenues for the
thirteen weeks ended April 1, 2006 primarily due to the restaurant in Pinecrest,
Florida, being open for the fiscal quarter. Total revenues should continue to
increase due to the restaurant in Pinecrest, Florida being open for the entire
fiscal year and the anticipated opening of the restaurant in Pembroke Pines,
Florida during the fourth quarter of fiscal year 2007.
Restaurant food sales represented 63.04% of total sales in the thirteen
weeks ended March 31, 2007 as compared to 61.40% of total sales in the thirteen
weeks ended April 1, 2006. The increase in restaurant food sales is due to the
restaurant in Pinecrest, Florida, being open for the fiscal quarter, menu price
increases and the continued increase in the weekly average of same store
restaurant food sales. The weekly average of same store restaurant food sales,
which includes six (6) limited partnership restaurants, were $724,000 and
$697,000 for the thirteen weeks ended March 31, 2007 and April 1, 2006,
respectively, an increase of 3.87%. Restaurant food sales should continue to
increase due to the restaurant in Pinecrest, Florida being open for the entire
fiscal year; the anticipated opening of the restaurant in Pembroke Pines,
Florida during the fourth quarter of fiscal year 2007; and the expected
continued increase in the weekly average of same store restaurant food sales.
Restaurant bar sales represented 14.77% of total sales in the thirteen
weeks ended March 31, 2007 as compared to 14.17% of total sales in the thirteen
weeks ended April 1, 2006. The increase in restaurant bar sales is due to the
restaurant in Pinecrest, Florida being open for the fiscal quarter and the use
of promotions to increase restaurant bar sales, without jeopardizing the
Company's perception as a family restaurant. The weekly average of same store
restaurant bar sales, which includes six (6) limited partnership restaurants,
were $172,000 and $161,000 for the thirteen weeks ended March 31, 2007 and April
1, 2006, respectively, an increase of 6.83%. Restaurant bar sales should
continue to increase due to the restaurant in Pinecrest, Florida being open for
the entire fiscal year; the anticipated opening of the restaurant in Pembroke
Pines, Florida during the fourth quarter of fiscal year 2007; and the expected
continued increase in the weekly average of same store restaurant bar sales.
-19-
Package store sales represented 22.19% of total sales in the thirteen
weeks ended March 31, 2007, as compared to 24.43% of total sales in the thirteen
weeks ended Apri1, 2006. The percentage of package store sales to total sales
decreased primarily due to the restaurant in Pinecrest, Florida being open for
the fiscal quarter and will continue to decrease as new restaurants are opened.
The weekly average of same store package sales were $272,000 and $265,000 for
the thirteen weeks ended March 31, 2007 and April 1, 2006, respectively, an
increase of 2.64%. The increase occurred due to the fact that New Year's Eve
fell in the second quarter of fiscal year 2007, as compared to the first quarter
of fiscal year 2006. Otherwise, package sales were adversely affected by
increased competition during the second quarter of fiscal year 2007 and are
expected to decrease throughout the balance of fiscal year 2007 due to the same.
The gross profit margin for restaurant food and bar sales was 66.23% and
65.93% for the thirteen weeks ended March 31, 2007 and April 1, 2006,
respectively. During the latter part of the first quarter of fiscal year 2007,
the Company instituted menu price increases to restore and maintain its gross
profit margin for restaurant sales. The gross profit margin for restaurant food
and bar sales is expected to remain constant throughout the balance of fiscal
year 2007.
The gross profit margin for package store sales was 28.66% and 28.79% for
the thirteen weeks ended March 31, 2007 and April 1, 2006, respectively. The
gross profit margin for package store sales is expected to remain constant
throughout the balance of fiscal year 2007.
Operating Costs and Expenses
Operating costs and expenses were $15,494,000 and $13,965,000 for the
thirteen weeks ended March 31, 2007 and April 1, 2006, respectively, an increase
of 10.95%. The increase is due to the operation of the restaurant in Pinecrest,
Florida for the fiscal quarter, as well as a general increase in overall
operating costs and expenses. Operating costs and expenses are expected to
continue increasing throughout the balance of fiscal year 2007 with the
restaurant in Pinecrest, Florida being open for the entire fiscal year;
anticipated opening of the restaurant in Pembroke Pines, Florida during the
fourth quarter of fiscal year 2007; and a general increase in overall operating
costs and expenses.
Payroll and related costs were $4,542,000 and $4,274,000 for the thirteen
weeks ended March 31, 2007 and April 1, 2006, respectively, an increase of
6.27%. The increase is attributed to the operation of the restaurant in
Pinecrest, Florida for the fiscal quarter. Throughout the balance of fiscal year
2007, payroll and related costs are expected to increase due to the anticipated
opening of the restaurant in Pembroke Pines, Florida during the fourth quarter
of fiscal year 2007.
Occupancy costs which include rent, common area maintenance, repairs and
taxes were $945,000 and $783,000 for the thirteen weeks ended March 31, 2007 and
April 1, 2006, respectively, an increase of 20.69%. The increase is accounted
for primarily by the payment of rent for the restaurants in Pembroke Pines,
Florida and Davie, Florida as of the second quarter of fiscal year 2007, and
increases in real property taxes and common area maintenance, which generally
includes a pro-rata share of property insurance for units located within
shopping centers. Occupancy costs will increase during the balance of fiscal
year 2007 due primarily to the payment of rent for the restaurants in Pembroke
Pines, Florida and Davie, Florida.
Selling, general and administrative expenses were $3,308,000 and
$2,836,000 for the thirteen weeks ended March 31, 2007 and April 1, 2006,
respectively, an increase of 16.64%. The increase in selling, general and
administrative expense is accounted for by the operation of the restaurant in
Pinecrest, Florida for the fiscal quarter and an overall increase in expenses,
as noted above.
-20-
Other Income and Expense
Other income and expenses was an expense of $91,000 for the thirteen weeks
ended March 31, 2007, as compared to income of $383,000 for the thirteen weeks
ended April 1, 2006. Other income and expense for the thirteen weeks ended March
31, 2007 includes interest expense of $125,000, as compared to an expense of
$38,000 for the thirteen weeks ended April 1, 2006. The increase in interest
expense is due to the interest paid on the Company's line of credit and mortgage
used for the purchase of the membership interest of the limited liability
company which owns the property in Hallandale, Florida during the thirteen weeks
ended March 31, 2007, which did not exist during the thirteen weeks ended April
1, 2006. Other income and expenses for the thirteen weeks ended April 1, 2006
includes insurance recovery, net of casualty loss, of approximately $405,000.
Comparison of Twenty Six Weeks Ended March 31, 2007 and April 1, 2006.
----------------------------------------------------------------------
Notwithstanding an increase in total revenue of $3,564,000 in the twenty
six weeks ended March 31, 2007 when compared to the twenty six weeks ended April
1, 2006, net income decreased to $656,000 from $944,000 for the twenty six weeks
ended March 31, 2007. The increase in total revenue is primarily due to the
restaurant in Pinecrest, Florida ($2,497,000) being open during the twenty six
weeks ended March 31, 2007 and menu price increases put into effect during the
latter part of the first quarter of fiscal year 2007. The decrease in net income
during the twenty six weeks ended March 31, 2007 is primarily due to higher food
costs and overall expenses, including real property taxes, property and
windstorm insurance coverage, interest expense due to the mortgage on the
Company's Hallandale property and its line of credit and a higher effective tax
rate. In addition, during the twenty six weeks ended April 1, 2006, the Company
recognized an insurance recovery, net of casualty loss, in the amount of
$450,000. Higher food costs, with the exception of the Company's price for ribs
for calendar year 2007, and overall expenses are expected to continue
increasing, but management believes that the menu price increases put into
effect during the first quarter of fiscal year 2007 will offset the increases in
food costs and overall expenses throughout the balance of fiscal year 2007.
As the table above illustrates, total revenues in the twenty six weeks
ended March 31, 2007 increased by 12.85% as compared to the total revenues for
the twenty six weeks ended April 1, 2006 primarily due to the restaurant in
Pinecrest, Florida, being open for the twenty six weeks ended March 31, 2007 and
menu price increases made during the first quarter of fiscal year 2007. Total
revenues are expected to increase due to the restaurant in Pinecrest, Florida
being open for the entire fiscal year and the anticipated opening of the
restaurant in Pembroke Pines, Florida during the fourth quarter of fiscal year
2007.
Restaurant food sales represented 62.47% of total sales in the twenty six
weeks ended March 31, 2007 as compared to 59.49% of total sales in the twenty
six weeks ended April 1, 2006. The weekly average of same store restaurant food
sales, which now includes six (6) limited partnership restaurants, were $637,000
and $601,000 for the twenty six weeks ended March 31, 2007 and April 1, 2006,
respectively, an increase of 5.99%. The increase in restaurant food sales is due
to the restaurant in Pinecrest, Florida being open for the quarter, menu price
increases and the continued increase in the weekly average of same store
restaurant food sales. Restaurant food sales should continue to increase due to
the restaurant in Pinecrest, Florida being open for the entire fiscal year; the
anticipated opening of the restaurant in Pembroke Pines, Florida during the
fourth quarter of fiscal year 2007; and the continued increase in the weekly
average of same store restaurant food sales.
-21-
Restaurant bar sales represented 14.54% of total sales in the twenty six
weeks ended March 31, 2007 as compared to 13.83% of total sales in the twenty
six weeks ended April 1, 2006. The weekly average of same store restaurant bar
sales were $152,000 and $140,000 for the twenty six weeks ended March 31, 2007
and April 1, 2006, respectively, an increase of 8.57%. The increase in
restaurant bar sales is due to the restaurant in Pinecrest, Florida being open
during the twenty six weeks ended March 31, 2007 and the use of promotions to
increase restaurant bar sales, without jeopardizing the Company's perception as
a family restaurant. Restaurant bar sales should continue to increase due to the
restaurant in Pinecrest, Florida being open for the entire fiscal year; the
anticipated opening of the restaurant in Pembroke Pines, Florida during the
fourth quarter of fiscal year 2007; and the continued increase in the weekly
average of same store restaurant bar sales.
Package store sales represented 22.99% of total sales in the twenty six
weeks ended March 31, 2007, as compared to 26.68% of total sales in the twenty
six weeks ended April 1, 2006. The percentage of package store sales to total
sales decreased primarily due to the restaurant in Pinecrest, Florida being open
for the twenty six weeks ended March 31, 2007 and will continue to decrease as
new restaurants are opened. The weekly average of same store package sales, were
$270,000 and $277,000 for the twenty six weeks ended March 31, 2007 and April 1,
2006, respectively, a decrease of 2.53%. The decrease was primarily due to
increased competition. Package store sales are expected to continue decreasing
throughout the balance of fiscal year 2007 due to increased competition.
The gross profit margin for restaurant food and bar sales was 65.97% and
65.91% for the twenty six weeks ended March 31, 2007 and April 1, 2006,
respectively. The stabilization of gross profit for restaurant and bar sales for
the twenty six weeks ended March 31, 2007 was primarily due to menu price
increases instituted during the first quarter of fiscal year 2007.
The gross profit margin for package stores sales was 27.81% and 28.14% for
the twenty six weeks ended March 31, 2007 and April 1, 2006, respectively. The
decrease in gross profit margin for package store sales is due to increased
competition and the Company's policy of meeting all advertised prices. The gross
profit margin for package store sales is expected to remain constant throughout
the balance of fiscal year 2007.
Operating Costs and Expenses
Operating costs and expenses were $29,767,000 and $26,552,000 for the
twenty six weeks ended March 31, 2007 and April 1, 2006, respectively, an
increase of 12.11%. The increase is due to the operation of the restaurant in
Pinecrest, Florida for the twenty six weeks ended March 31, 2007, as well as a
general increase in overall operating costs and expenses. Operating costs and
expenses are expected to continue increasing throughout the balance of fiscal
year 2007 with the anticipated opening of the restaurant in Pembroke Pines,
Florida during the fourth quarter of fiscal year 2007 and a general increase in
overall operating costs and expenses.
Payroll and related costs were $8,604,000 and $7,808,000 for the twenty
six weeks ended March 31, 2007 and April 1, 2006, respectively, an increase of
10.19%. The increase is attributed to the operation of the restaurant in
Pinecrest, Florida for the twenty six weeks ended March 31, 2007. Throughout the
balance of fiscal year 2007 payroll and related costs are expected to increase
due to the anticipated opening of the restaurant in Pembroke Pines, Florida
during the fourth quarter of fiscal year 2007.
-22-
Occupancy costs which include rent, common area maintenance, repairs and
taxes were $1,764,000 and $1,537,000 for the twenty six weeks ended March 31,
2007 and April 1, 2006, respectively, an increase of 14.77%. The increase is
accounted for primarily by the payment of rent for the restaurants in Pembroke
Pines, Florida and Davie, Florida as of the second quarter of fiscal year 2007,
increases in common area charges for units located within shopping centers and
increased accruals for real property taxes.
Selling, general and administrative expenses were $6,341,000 and
$5,302,000 for the twenty six weeks ended March 31, 2007 and April 1, 2006,
respectively, an increase of 19.60%. The increase in selling, general and
administrative expense is accounted for by the operation of the restaurant in
Pinecrest, Florida for the twenty six weeks ended March 31, 2007 and an overall
increase in expenses, as noted above.
Other Income and Expense
Other income and expenses was an expense of $188,000 for the twenty six
weeks ended March 31, 2007, as compared to income of $417,000 for the twenty six
weeks ended April 1, 2006. Other income and expense for the twenty six weeks
ended March 31, 2007 includes interest expense of $258,000, as compared to
$71,000 for the twenty six weeks ended April 1, 2006. The increase in interest
expense is due to the interest paid on the Company's line of credit and mortgage
used for the purchase of the membership interest of the limited liability
company which owns the property in Hallandale, Florida during the twenty six
weeks ended March 31, 2007, which did not exist during the twenty six weeks
ended April 1, 2006. Other income and expenses for the twenty six weeks ended
April 1, 2006 includes insurance recovery, net of casualty loss, of $450,000.
New Limited Partnership Restaurants
As the Company opens new limited partnership restaurants on a more regular
basis the Company's income from operations will be adversely affected by the
higher costs associated with the opening of the same. The higher costs include,
but are not limited to pre-opening rent. During the twenty six weeks ended March
31, 2007, the Company recognized non-cash pre-opening rent in the approximate
amount of $18,000 and recognized cash pre-opening rent in the approximate amount
of $35,000 for the new limited partnership restaurant in Pembroke Pines,
Florida. During the twenty six weeks ended March 31, 2007, the Company also paid
and expensed pre-opening rent in the approximate amount of $48,000 for the new
limited partnership restaurant in Davie, Florida, which is the full rent
provided in the lease. During the twenty six weeks ended April 1, 2006, the
Company paid and expensed pre-opening rent for the limited partnership
restaurant in Pinecrest, Florida, in the approximate amount of $103,000, which
was the full rent provided in the lease. The Company is recognizing rent expense
on a straight line basis over the term of the lease.
Throughout the balance of fiscal year 2007, income from operations will be
adversely affected by the pre-opening costs to be incurred for the new limited
partnership restaurants in Pembroke Pines, Florida and Davie, Florida, including
but not limited to the payment and expensing of pre-opening rent.
Trends
During the next twelve months management expects continued increases in
restaurant sales, due primarily to the restaurant in Pinecrest, Florida being
open for the entire fiscal year; the anticipated opening of the restaurants in
Pembroke Pines, Florida and Davie, Florida; and continued increases in same
store restaurant sales. Package store sales are expected to decrease due
primarily to increased competition. At the same time, management expects higher
food costs and overall expenses to increase. The Company has already raised its
menu prices to offset higher food costs and overall expenses and will continue
to do so wherever competitively possible.
-23-
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows for the
twenty six weeks of fiscal years 2007 and 2006.
Twenty Six Weeks Ended
March 31, April 1,
2007 2006
---------- ----------
(In Thousands)
Net cash provided by
operating activities $ 2,042 $ 1,355
Net cash used in
investing activities (1,248) (1,109)
Net cash provided by (used in)
financing activities 877 (542)
---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,671 (296)
Cash and Cash Equivalents, Beginning 1,698 2,674
---------- ----------
Cash and Cash Equivalents, Ending $ 3,369 $ 2,378
========== ==========
On January 13, 2006, the Company declared a cash dividend of 35 cents per
share payable on February 15, 2006 to shareholders of record on January 31,
2006.
As a result of significant investments in capital expenditures and the
expansion of locations in the prior and current fiscal years, the Board is
evaluating the Company's ability to declare dividends in the current period.
Capital Expenditures
The Company had additions to property and equipment of $2,043,000 (of
which $250,000 was financed), during the twenty six weeks ended March 31, 2007,
including $802,500 for the purchase of real property and $204,000 for
renovations to two (2) existing Company restaurants, as compared to $1,116,000
during the twenty six weeks ended April 1, 2006, which included $101,000 as a
direct result of Hurricane Wilma. During the twenty six weeks ended April 1,
2006, the Company purchased one (1) vehicle, for a purchase price of $70,000,
which vehicle was 100% financed.
All of the Company's units require periodic refurbishing in order to
remain competitive. The budget for fiscal year 2007 is $800,000. The Company
expects the funds for these improvements to be provided from operations. In
addition, it is anticipated that the limited partnership owning the restaurant
in Pembroke Pines, Florida will require approximately $2,000,000 in additional
funds for capital expenditures to complete its renovations and prepare for
opening as a "Flanigan's Seafood Bar and Grill" restaurant. Subsequent to the
end of the second quarter of fiscal year 2007, this limited partnership
completed its private offering, raising the sum of $2,350,000, which also
reimbursed approximately $300,000 to the Company for advances made in excess of
its investment, ($380,000), in the same. It is also anticipated that the limited
partnership owning the restaurant in Davie, Florida will require approximately
$2,100,000 in additional funds for capital expenditures to complete its
renovations and prepare for opening as a "Flanigan's Seafood Bar and Grill"
restaurant, which funds will be raised through a private offering. The funds
raised through the private offering will also reimburse the Company for advances
made in excess of its investment in this limited partnership. As of March 31,
2007, the Company had advanced approximately $758,000 to this limited
partnership.
-24-
Long Term Debt
As of March 31, 2007, the Company had long term debt of $6,741,000, as
compared to $2,242,000 as of April 1, 2006, and $5,181,000 as of September 30,
2006.
The Company's long term debt includes its line of credit, which had a
principal balance of $1,962,000 as of March 31, 2007. Subsequent to the end of
the second quarter of fiscal year 2007, the Company made a principal payment of
$750,000, reducing the outstanding principal balance on the line of credit to
$1,212,000.
As of March 31, 2007, the Company is in compliance with the affirmative
covenants contained in its loan documents.
Subsequent to the end of the second quarter of fiscal year 2007, the
Company closed on a $450,000 private mortgage which financed the Company's
purchase of the real property which is located adjacent to the parking lot of
the Company's combination restaurant and package liquor store located at 4 North
Federal Highway, Hallandale, Florida, (Store #31). The mortgage bears interest
at the rate of ten (10%) percent per annum, is amortized over thirty (30) years
with equal monthly payments of principal and interest, each in the amount of
$3,949.07, with the entire principal balance and all accrued interest due in ten
(10) years.
Purchase of Company Common Stock
Pursuant to a discretionary plan approved by the Board of Directors,
during the thirteen weeks ended March 31, 2007, the Company purchased 500 shares
of its common stock for an aggregate purchase price of $5,200. During the twenty
six weeks ending March 31, 2007, the Company purchased 832 shares of its common
stock for an aggregate purchase price of $9,000.
Working Capital
The table below summarizes the current assets, current liabilities, and
working capital for the fiscal quarters ended March 31, 2007, April 1, 2006, and
the fiscal year ended September 30, 2006.
March 31, April 1, Sept. 30,
Item 2007 2006 2006
-------- -------- --------
(In Thousands)
Current Assets $7,620 $6,746 $6,315
Current Liabilities 6,091 5,152 4,919
Working Capital 1,529 1,594 1,396
Working capital for the fiscal quarter ending March 31, 2007 decreased by
4.08% from the working capital for the fiscal quarter ending April 1, 2006 and
increased by 9.53% from the working capital for the fiscal year ending September
30, 2006. Working capital improved during the fiscal quarter ended March 31,
2007 primarily due to the minimal demand upon the Company's cash flow for
extraordinary items during the fiscal quarter. At the end of the first quarter
of fiscal year 2007, the Company took a draw against its line of credit,
-25-
($1,200,000), which draw included funds to advance to the limited partnership to
close on the purchase of the existing restaurant in Davie, Florida ($650,000),
which transaction closed at the start of the second quarter of fiscal year 2007.
Working capital for the fiscal quarter ended April 1, 2006 was improved by an
insurance recovery, net of casualty loss, of $405,000, as the Company received
reimbursement from its insurance carrier of a part of its losses as a result of
Hurricane Wilma.
Subsequent to the end of the second quarter of fiscal year 2007, the
Company's working capital improved with the completion of its private offering
by the limited partnership which owns the restaurant in Pembroke Pines, Florida,
which private offering raised the sum of $2,350,000. The Company invested
$380,000 in the limited partnership and was reimbursed approximately $300,000 in
excess advances made to the same. In addition and also subsequent to the end of
the second quarter of fiscal year 2007, the Company closed on the sale of the
real property located at 732 - 734 N.E. 125th Street, North Miami, Florida
(Store #27), realizing net sale proceeds in the approximate amount of $763,000
and further improving the Company's working capital.
Management believes that over the balance of fiscal year 2007, working
capital will continue to improve as management does not anticipate the same
demand upon the Company's cash flow as it experienced during fiscal year 2006
and the first quarter of fiscal year 2007. Notwithstanding, management also
believes that working capital will be adversely affected by investments and/or
further advances to be made by the Company to the limited partnership which owns
the restaurant in Davie, Florida until such time as the limited partnership
completes its private offering, currently planned for the fourth quarter of
fiscal year 2007, and is reimbursed advances made by the Company in excess of
its investment in the same.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes and as of March 31, 2007 held no equity securities.
Interest Rate Risk
At March 31, 2007, the Company has one debt arrangement, its line of
credit, which has a variable interest rate, which is at prime. Increases in
interest rates may have a material affect upon results of operations, depending
upon the outstanding principal balance on the line of credit from time to time.
At March 31, 2007, the Company's cash resources earn interest at variable
rates. Accordingly, the Company's return on these funds is affected by
fluctuations in interest rates. Any decrease in interest rates will have a
negative effect on the Company's earnings.
There is no assurance that interest rates will increase or decrease over
the next fiscal year.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, with the
participation of management, evaluated the effectiveness of the Company's
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934, as amended, ("Exchange Act") Rule 13a-15(e) or 15d-15(e)) as of March
31, 2007. Based upon that evaluation, it is the opinion of our Chief Executive
-26-
Officer and Chief Financial Officer that such disclosure controls and procedures
operate such that important information flows to appropriate collection and
disclosure points in a timely manner and are effective in ensuring that material
information is accumulated and communicated to management and made known to the
Chief Executive Officer and Chief Financial Officer particularly during the
period in which this report was prepared, as appropriate, to allow timely
decisions regarding timely disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any system of
controls and procedures, no matter how well designed and operated, is subject to
limitations, including the exercise of our judgment in evaluating the same. As a
result, there can be no assurance that our disclosure controls and procedures
will prevent all errors.
(b) Change in Internal Control Over Financial Reporting
During the second quarter of fiscal year 2007, the Company continued to
assess the effectiveness of our "internal controls over financial reporting" on
an account by account basis as a part of our on-going accounting and financial
reporting review process. The results of management's assessment and review were
reported to the Audit Committee of the Board of Directors.
During the second quarter of fiscal year 2007, management significantly
expanded procedures to remediate one material weakness in our internal control
over financial reporting which existed as of December 30, 2006, namely the
accounting for officers' bonuses, specifically with respect to the posting of
interim payments against officers' bonuses which directly relate to accruals of
the same. The expanded procedures include the following:
o posting of interim payments of officers' bonuses against accruals
of officers' bonuses directly from payroll;
o establish a separate accrued officers' bonus liability account in
lieu of the general accrued payroll account;
o payment of officers' bonuses by written memorandum, thereby
creating a paper trail for reconciliation purposes; and
o additional post-closing procedure for the reporting period,
including a reconciliation of the accrued officers' bonus liability
account, officers' bonus payroll expense account and interim or
final payments of officers' bonuses.
With the exception of the changes to the accounting of officers' bonuses
discussed above, we made no changes in our internal control over financial
reporting during the second quarter ending March 31, 2007 that materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting. Notwithstanding, the effectiveness of our
system of internal control over financial reporting is subject to limitations,
including the exercise of our judgment in evaluating the same. As a result,
there can be no assurance that our internal control over financial reporting
will prevent all errors.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings: See "Litigation" on page 14 of this report and Item
1 and Item 3 to Part 1 of the Annual Report on Form 10-K for the fiscal year
ended September 30, 2006 for a discussion of other legal proceedings resolved in
prior years.
Item 2- Unregistered Sales of Equity Securities and Use of Proceeds: None
-27-
Item 3- Defaults Upon Senior Securities: None
Item 4- Submission of Matters to a Vote of Security Holders: None
Item 5- Other Information: None
Item 6- Exhibits and Reports on Form 8-K:
(a) Exhibits: Exhibits 31.1, 31.2, 32.1 and 32.2 (Certifications)
(b) Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized. The information furnished reflects all
adjustments to the statement of the results for the interim period.
FLANIGAN'S ENTERPRISES, INC.
/s/ James G. Flanigan
----------------------------------
JAMES G. FLANIGAN,
Chief Executive Officer and
President
Date: May 15, 2007
------------
/s/ Jeffrey D. Kastner
----------------------------------
JEFFREY D. KASTNER
Chief Financial Officer and Secretary
Date: May 15, 2007
------------
-28-