UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10K
(X)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the fiscal year ended October 3, 2009
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, FL
33334
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---------
(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 NYSE
AMEX
----------------------------
-----------------------
Title of
each class
Name of each exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (ß232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes [
] No [_]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrantís knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of ìlarge accelerated filerî, ìaccelerated filerî and ìsmaller reporting
companyî in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):
Large accelerated filer ® Accelerated filer ® Non-accelerated filer ®
Smaller
reporting company ›
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes [_] No [X]
The aggregate market value of the voting stock held by
non-affiliates of the registrant was $3,221,000 as of March 28, 2009, the last
business day of the registrantís most recently completed second fiscal quarter.
The closing price per share on March 28, 2009 was $4.04.
There were 1,861,933 shares of the Registrant's Common Stock,
$0.10 par value, outstanding as of January 4, 2010.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part III (Items 10, 11, 12, 13 and 14) is
incorporated by reference to portions of the Registrantís Proxy Statement for
the 2010 Annual Meeting of Shareholders which will be filed with the Securities
and Exchange Commission by February 1, 2010.
FLANIGAN'S
ENTERPRISES, INC. AND SUBSIDIARIES
TABLE
OF CONTENTS
As used in
this Annual Report on Form 10-K, the terms ìwe,î ìus,î ìour,î the ìCompanyî and
ìFlaniganísî mean Flanigan's Enterprises, Inc. and its subsidiaries (unless the
context indicates a different meaning).
PART I
Item
1. Business
----------------
When used in this report, the
words "anticipate", "believe", "estimate", ìwillî,
ìintendî and ìexpectî 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. We
undertake no obligation to update forward-looking statements to reflect events
or circumstances occurring after the date of this annual report on Form 10-K.
General
–------
At
October 3, 2009, we (i) operated 23 units, (excluding the adult entertainment
club referenced in (ii) below), consisting of restaurants, package liquor
stores and combination restaurants/package liquor stores that we either own or
have operational control over and partial ownership in; (ii) own but do not
operate one adult entertainment club; and (iii) franchise an additional six
units, consisting of two restaurants, (one of which we operate) and four
combination restaurants/package liquor stores. The table below provides information concerning the type
(i.e. restaurant, package liquor store or combination restaurant/package liquor
store) and ownership of the units (i.e. whether (i) we own 100% of the unit;
(ii) the unit is owned by a limited partnership of which we are the sole
general partner and/or have invested in; or (iii) the unit is franchised by
us), as of October 3, 2009 and as compared to September 27, 2008. With the exception of ìThe Whaleís Ribî,
a restaurant we operate but do not own, all of the restaurants operate under
our service mark ìFlaniganís Seafood Bar and Grillî and all of the package
liquor stores operate under our service mark ìBig Daddyís Liquorsî.
FISCAL FISCAL
YEAR YEAR
NOTE
2009 2008
NUMBER
TYPES
OF UNITS
-------------------------------------------------------------------
Company
Owned:
Combination package liquor
store and restaurant 4 4
Restaurant only 3 3 (1)
Package liquor store only 5 5
Company
Managed
Restaurants Only:
Limited partnerships 9 9 (2)
Franchise
1 1
Unrelated Third Party 1 1
Company
Owned Club: 1 1
-------------------------------------------------------------------
TOTAL
- Company
Owned/Operated Units: 24 24
FRANCHISED
- units 6 6 (1)(3)
Notes:
(1) Subsequent to our 2009 fiscal year end, we purchased
from a franchisee the operating restaurant assets of the franchised restaurant
located in Boca Raton, Florida and accordingly, the restaurant converted from a
franchised unit to a company owned restaurant.
(2) Includes a restaurant
located in Davie, Florida which is owned by a limited partnership in which we are
the sole general partner and own 48% of the limited partnership interest and
commenced operating on July 28, 2008.
(3) We operate a restaurant for one (1) franchisee. This unit is included in the table both
as a franchised restaurant, as well as a restaurant operated by us.
History and Development of Our
Business
---------------------------------------
We were incorporated in
Florida in 1959 and commenced operating as a chain of small cocktail lounges
and package liquor stores throughout South Florida. By 1970, we had established
a chain of "Big Daddy's" lounges and package liquor stores between
Vero Beach and Homestead, Florida. From 1970 to 1979, we expanded our package
liquor store and lounge operations throughout Florida and opened clubs in five
other "Sun Belt" states. In 1975, we discontinued most of our package
store operations in Florida except in the South Florida areas of Miami-Dade,
Broward, Palm Beach and Monroe Counties. In 1982 we expanded our club
operations into the Philadelphia, Pennsylvania area as general partner of
several limited partnerships we organized. In March 1985 we began franchising
package liquor stores and lounges in the South Florida area. See Note 8 to the
consolidated financial statements and the discussion of franchised units on
page 8.
During our fiscal year
1987, we began renovating our lounges to provide full restaurant food service,
and subsequently renovated and added food service to most of our lounges. Food
sales currently represent approximately 81% and bar sales approximately 19% of
our total restaurant sales.
Our package liquor stores
emphasize high volume business by providing customers with a wide variety of
brand name and private label merchandise at discount prices. Our restaurants
offer alcoholic beverages and full food service with abundant portions and
reasonable prices, served in a relaxed, friendly and casual atmosphere.
We conduct our operations
directly and through a number of limited partnerships and wholly owned
subsidiaries, all of which are listed below. Our subsidiaries and the limited partnerships, (except for
the limited partnership, where we are not the general partner, which owns and
operates our franchised restaurant in Fort Lauderdale, Florida) are reported on
a consolidated basis.
|
|
STATE OF |
PERCENTAGE |
|
ENTITY |
ORGANIZATION |
OWNED |
|
|
|
|
|
Flaniganís
Management Services, Inc. |
Florida |
100 |
|
Flaniganís
Enterprises, Inc. of Georgia |
Georgia |
100 |
|
Flaniganís
Enterprises, Inc. of Pa. |
Pennsylvania |
100 |
|
CIC
Investors #13, Limited Partnership |
Florida |
40 |
|
CIC
Investors #50, Limited Partnership |
Florida |
17 |
|
CIC
Investors #55, Limited Partnership |
Florida |
48 |
|
CIC
Investors #60, Limited Partnership |
Florida |
45 |
|
CIC
Investors #65, Limited Partnership |
Florida |
28 |
|
CIC
Investors #70, Limited Partnership |
Florida |
41 |
|
CIC
Investors #75, Limited Partnership |
Florida |
13 |
|
CIC
Investors #80, Limited Partnership |
Florida |
27 |
|
CIC
Investors #95, Limited Partnership |
Florida |
30 |
|
Josar
Investments, LLC |
Florida |
100 |
Package Liquor Store Operations
---------------------------------
Our package liquor stores emphasize
high volume business by providing customers with a wide selection of brand name
and private label liquors, beer and wines while offering competitive pricing by
meeting the published sales prices of our competitors. We provide extensive
sales training to our package liquor store personnel. The stores are open for business six or seven days a week
from 9:00-10:00 a.m. to 9:00-10:00 p.m., depending upon demand and local law.
Approximately half of the Company's units have "night windows" with
extended evening hours.
Company Owned Package Liquor Stores. We own and operate nine package
liquor stores in the South Florida area under the name ìBig Daddyís Liquorsî,
four of which are jointly operated with restaurants we own.
Franchised Package Liquor Stores. We franchise four package liquor stores
in the South Florida area, all of which are operated under the name ìBig
Daddyís Liquorsî and are jointly operated with our franchiseeís restaurant
operations. Three of the four
franchised package liquor stores are franchised to members of the family of our
Chairman of the Board, officers and/or directors. We have not entered into a franchise arrangement for either
a package liquor store, restaurant or combination package liquor
store/restaurant since 1986 and do not anticipate that we will do so in the
foreseeable future.
Generally, a franchise agreement with
our franchisees for the operation of a package liquor store runs for the
balance of the term of the franchiseeís lease for the business premises,
extended by the franchiseeís continued occupancy of the business premises
thereafter, whether by lease or ownership. In exchange for our providing management and related
services to the franchisee and our granting the right to the franchisee to use
our service mark, ìBig Daddyís Liquorsî, franchisees of package liquor stores
pay us weekly in arrears, (i) a royalty equal to approximately 1% of gross
sales; plus (ii) an amount for advertising equal to between 1-1/2% to 3% of
gross sales generated at the stores depending upon our actual advertising
costs.
Restaurant Operations.
----------------------
Our restaurants provide a neighborhood
casual, standardized dining experience, typical of restaurant chains. The
interior decor of the restaurants is nautical with numerous fishing and boating
pictures and decorations. The restaurants are designed to permit minor
modifications without significant capital expenditures. However, from time to
time we are required to redesign and refurbish the restaurants at significant
cost. Drink prices may vary
between locations to meet local conditions. Food prices are substantially
standardized for all restaurants. The restaurants' hours of operation are from
11:00 a.m. to 1:00-5:00 a.m. depending upon demand and local law.
Company Owned Restaurants. We own and operate seven restaurants
all under our service mark ìFlaniganís Seafood Bar and Grillî four of which are
jointly operated with package liquor stores we own.
Franchised Restaurants. We franchise six restaurants, all of
which operate under our service mark ìFlaniganís Seafood Bar and Grillî, two of
which operate as a restaurant only and four of which operate jointly with a
franchisee operated ìBig Daddyís Liquorsî package liquor store.
Generally, a franchise agreement with
our franchisees for the operation of a restaurant runs for the balance of the
term of the franchiseeís lease for the business premises, extended by the
franchiseeís continued occupancy of the business premises thereafter, whether
by lease or ownership. In exchange
for our providing management and related services to the franchisee and our granting
the right to the franchisee to use our service mark, ìFlaniganís Seafood Bar
and Grillî, our franchisees pay us weekly in arrears, (i) a royalty equal to
approximately 3% of gross sales; plus (ii) an amount for advertising equal to
between 1-1/2% to 3% of gross sales from the restaurants.
For accounting purposes, we do not
consolidate the revenue and expenses of our franchiseesí operations with our
revenue and expenses. Franchise
royalties we receive are ìearnedî when sales are made by franchisees.
Restaurants Owned by Affiliated
Limited Partnerships
----------------------------------------------------
We have invested with others, (some of
whom are or are affiliated with our officers and directors), in ten limited
partnerships which currently own and operate ten South Florida based
restaurants under our service mark ìFlaniganís Seafood Bar and Grillî. In addition to being a limited partner
in these limited partnerships, we are the sole general partner of all of these
limited partnerships and manage and control the operations of the restaurants
except for the restaurant located in Fort Lauderdale, Florida where we only
hold a limited partnership interest.
Generally, the terms of the limited
partnership agreements provide that until the investorsí cash investment in a
limited partnership (including any cash invested by us) is returned in full,
the limited partnership distributes to the investors annually out of available
cash from the operation of the restaurant, as a return of capital, up to 25% of
the cash invested in the limited partnership, with no management fee paid to
us. Any available cash in excess
of the 25% of the cash invested in the limited partnership distributed to the
investors annually, is paid one-half (‡) to us as a management fee and one-half
(1/2) to the investors, (including us), pro-rata based on the investorsí
investment, as a return of capital.
Once all of the investors, (including us), have received, in full,
amounts equal to their cash invested, an annual management fee becomes payable
to us equal to one-half (‡) of cash available to be distributed, with the other
one half (‡) of available cash distributed to the investors (including us), as
a profit distribution, pro-rata based on the investorsí investment. As of October 3, 2009, limited
partnerships owning three (3) restaurants, (Surfside, Florida, Kendall, Florida
and West Miami, Florida locations), have returned all cash invested and we
receive an annual management fee equal to one-half (‡) of the cash available
for distribution by the limited partnership. In addition to our receipt of distributable amounts from the
limited partnerships, we receive a fee equal to 3% of gross sales for use of
our ìFlaniganís Seafood Bar and Grillî service mark, which use is authorized
while we act as general partner only.
This
3% fee is ìearnedî when sales are made by the limited partnerships and is paid
weekly, in arrears. Although we
have no restaurants under development and whether we will have any under
development in the future will be dependant, among other things, on market
conditions and our ability to raise capital, we anticipate that we will
continue to form limited partnerships to raise funds to own and operate
restaurants under our service mark ìFlaniganís Seafood Bar and Grillî using the
same or substantially similar financial arrangement.
Below is information on the ten
limited partnerships which own and operate ìFlaniganís Seafood Bar and Grillî
restaurants:
Pinecrest, Florida
We are the sole general partner and 40%
limited partner in this limited partnership which has owned and operated a
restaurant in Pinecrest, Florida under our ìFlaniganís Seafood Bar and Grillî
service mark since August 14, 2006.
15.0% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. As of the end of our fiscal year 2009,
this limited partnership has returned to its investors approximately 34% of
their initial cash invested, increased from approximately 18% as of our fiscal
year ended 2008.
Fort Lauderdale, Florida
A corporation, owned by one of our
directors, acts as sole general partner of a limited partnership which has
owned and operated a restaurant in Fort Lauderdale, Florida under our
ìFlaniganís Seafood Bar and Grillî service mark since April 1, 1997. We have a 25% limited partnership
interest in this limited partnership.
58.8% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned
to its investors all cash invested, but since we are not the general partner of
this limited partnership, we do not receive an annual management fee. We
have a franchise arrangement with this limited partnership and for accounting
purposes, we do not consolidate the operations of this limited partnership into
our operations.
Surfside, Florida
We are the sole general partner and a
45% limited partner in this limited partnership which has owned and operated a
restaurant in Surfside, Florida under our ìFlaniganís Seafood Bar and Grillî
service mark since March 6, 1998. 34.9%
of the remaining limited partnership interest is owned by persons who are
either our officers, directors or their family members. This limited partnership has returned
to its investors all of their initial cash invested and we receive an annual management
fee equal to one-half (‡) of the cash available for distribution by this
limited partnership.
Kendall, Florida
We are the sole general partner and a
41% limited partner in this limited partnership which has owned and operated a
restaurant in Kendall, Florida under our ìFlaniganís Seafood Bar and Grillî
service mark since April 4, 2000.
29.7% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned
to its investors all of their initial cash invested and we receive an annual management
fee equal to one-half (‡) of the cash available for distribution by this
limited partnership.
West Miami, Florida
We are the sole general partner and a
27% limited partner in this limited partnership which has owned and operated a
restaurant in West Miami, Florida under our ìFlaniganís Seafood Bar and Grillî
service mark since October 11, 2001.
34.1% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned
to its investors all of their initial cash invested and we receive an annual management
fee equal to one-half (‡) of the cash available for distribution by this
limited partnership.
Weston, Florida
We are the sole general partner and a 30%
limited partner in this limited partnership which has owned and operated a
restaurant in Weston, Florida under our ìFlaniganís Seafood Bar and Grillî
service mark since January 20, 2003.
35.1% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. As of the end of our fiscal year 2009,
this limited partnership has returned to its investors approximately 73.75% of
their initial cash invested.
During our fiscal year 2009, no distributions were made to limited partners
as this limited partnership had limited positive cash flow generated by this
restaurant. The limited cash flow
was primarily attributable to increased competition, which we expect to
continue into our fiscal year 2010.
Stuart, Florida
We are the sole general partner and 13%
limited partner in this limited partnership which has owned and operated a
restaurant in a Howard Johnsonís Hotel in Stuart, Florida under our ìFlaniganís
Seafood Bar and Grillî service mark since January 11, 2004. 31.0% of the
remaining limited partnership interest is owned by persons who are either our
officers, directors or their family members. As of the end of our fiscal year 2009, this limited
partnership has returned to its investors approximately 22.5% of their initial
cash invested. During our fiscal
years 2009 and 2008, no distributions were made to limited partners as this
limited partnership had a net gain of $1,000 and a net loss of $8,000 from the
operation of the restaurant during the fiscal years 2009 and 2008,
respectively, before depreciation and amortization, and owed the Company $241,000
and $216,000, as of the end of our fiscal years 2009 and 2008, respectively, in
advances made to meet operating losses.
As of October 3, 2009, the amounts this limited partnership owes to us
have been offset with an allowance for doubtful accounts, in the amount of
$241,000, on our balance sheet and is offset by an eliminating entry in
consolidation in accordance with ASC 810 regarding accounting for
consolidation.
On October 1,
2009, the limited partnership operating the Stuart, Florida restaurant was
served with a copy of a complaint, arising out of foreclosure proceedings
commenced against the limited partnershipís landlord. The limited partnership was named in and served with the
complaint because it is the tenant on the property which is the subject of the
foreclosure proceedings. As of
October 3, 2009, due to the limited partnershipís inability to re-negotiate its
three year renewal option, it leases the property on a month-to-month term. We
do not know what the outcome of these foreclosure proceedings will be or what
impact it will have on the limited partnership, but thus far no request has
been made to have the limited partnership vacate the premises. If the limited partnership were
required to vacate the Stuart, Florida premises, it would have a material
adverse effect on its operations.
No assurance can be given that the limited partnership would be able to
locate a suitable replacement location at reasonable rates and terms, if at
all.
Wellington, Florida
We are the sole general partner and a
28% limited partner in this limited partnership which has owned and operated a
restaurant in Wellington, Florida under our ìFlaniganís Seafood Bar and Grillî
service mark since May 27, 2005.
25.7% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. As of the end of our fiscal year 2009,
this limited partnership has returned to its investors approximately 42% of
their initial cash invested, increased from approximately 41% as of the end of our
fiscal year 2008.
Davie,
Florida
We are the sole general partner and a
48% limited partner in this limited partnership which has owned and operated a
restaurant in Davie, Florida under our ìFlaniganís Seafood Bar and Grillî
service mark since July 28, 2008.
9.7% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. As of the end of our fiscal year 2009,
this limited partnership has returned to its investors approximately 7.0% of
their initial cash invested.
Pembroke
Pines, Florida
We are the sole general partner and a
17% limited partner in this limited partnership which has owned and operated a
restaurant in Pembroke Pines, Florida under our ìFlaniganís Seafood Bar and
Grillî service mark since October 29, 2007. 17.9% of the remaining limited partnership interest is owned
by persons who are either our officers, directors or their family members. As of the end of our fiscal year 2009,
this limited partnership has returned to its investors approximately 11.0% of
their initial cash invested. As of the end of our fiscal year 2008, no cash had
been distributed to investors.
Management Agreement for ìThe
Whaleís Ribî Restaurant
-----------------------------------------------------
Since
January, 2006, we have managed ìThe Whaleís Ribî, a casual dining restaurant
located in Deerfield Beach, Florida, pursuant to a management agreement. We paid $500,000 in exchange for our
rights to manage this restaurant.
The restaurant is owned by a third party unaffiliated with us. In exchange for providing management,
bookkeeping and related services, we receive one-half (‡) of the net profit, if
any, from the operation of the restaurant. The term of the management agreement, which commenced
January 9, 2006, is for ten (10) years, with four (4) five (5) year renewal
options in favor of the owner of the restaurant. For our fiscal years ended October 3, 2009 and September 27,
2008, we generated $185,000 and $150,000 of revenue, respectively, from
providing these management services. As of October 3, 2009, we have generated
revenue in the aggregate amount of $603,000 since the effective date of the
management agreement on January 9, 2006.
Adult Entertainment Club
------------------------
We own, but do not operate, an adult
entertainment nightclub located in Atlanta, Georgia which operates under the
name ìMardi Grasî. We have a
management agreement with an unaffiliated third party to manage the club. Under our management agreement, the
unaffiliated third party management firm is obligated to pay us an annual
amount, paid monthly, equal to the greater of $150,000 or ten (10%) percent of
gross sales from the club, offset by one-half (1/2) of any rental increases,
provided our fees will never be less than $150,000 per year. For our fiscal
years ended October 3, 2009 and September 27, 2008, we generated $170,000 and
$238,000 of revenue, respectively, from the operation of the club.
Operations and Management
--------------------------
We emphasize systematic operations and
control of all package liquor stores and restaurants regardless of whether we
own, franchise or manage the unit. Each unit has its own manager who is
responsible for monitoring inventory levels, supervising sales personnel, food
preparation and service in restaurants and generally assuring that the unit is
managed in accordance with our guidelines and procedures. We have in effect an
incentive cash bonus program for our managers and salespersons based upon
various performance criteria. Our operations are supervised by area
supervisors. Each area supervisor supervises the operations of the units within
his or her territory and visits those units to provide on-site management and
support. There are five area supervisors responsible for package liquor store,
restaurant and club operations in specific geographic districts.
All of our managers and salespersons
receive extensive training in sales techniques. We arrange for independent
third parties, or "shoppers", to inspect each unit in order to
evaluate the unit's operations, including the handling of cash transactions.
Purchasing and Inventory
------------------------
The package liquor business requires a
constant substantial capital investment in inventory in the units. Our
inventory consists primarily of liquor and wine products and as such, does not
become excessive or obsolete that would require identifying and recording of
the same. Liquor inventory
purchased can normally be returned only if defective or broken.
All of our purchases of liquor
inventory are made through our purchasing department from our corporate
headquarters. The major portion of inventory is purchased under individual
purchase orders with licensed wholesalers and distributors who deliver the
merchandise within one or two days of the placing of an order. Frequently there
is only one wholesaler in the immediate marketing area with an exclusive distributorship
of certain liquor product lines. Substantially all of our liquor inventory is
shipped by the wholesalers or distributors directly to our stores. We
significantly increase our inventory prior to Christmas, New Year's Eve and
other holidays. Under Florida law,
we are required to pay for our liquor purchases within ten days of delivery.
During the first quarter of our fiscal
year 2009, the package liquor stores we own and those owned by our franchisees
began using a new point of sale computer system. The cost of this new point of sale computer system,
including hand-held, wireless scanners but excluding surveillance camera
system, was approximately $287,000, all of which has been paid. We are currently installing the
surveillance camera system in all of our owned package liquor stores and those
owned by our franchisees, which we estimate will be fully installed by the end
of our fiscal year 2010 and cost an additional $118,000, in the aggregate. As of October 3, 2009, surveillance
camera systems have been installed in two of our package liquor stores at a
cost of approximately $26,000, which has been paid.
Negotiations with food suppliers are
conducted by our purchasing department at our corporate headquarters. We
believe this ensures that the best quality and prices will be available to each
restaurant. Orders for food products are prepared by each restaurant's kitchen
manager and reviewed by the restaurant's general manager before orders are
placed. Food is delivered by the
supplier directly to each restaurant. Orders are placed several times a week to
ensure product freshness. Food inventory is primarily paid for monthly.
Government Regulation
---------------------
Our operations are subject to various
federal, state and local laws affecting our business. In particular, our
operations are subject to regulation by federal agencies and to licensing and
regulation by state and local health, sanitation, alcoholic beverage control,
safety and fire department agencies in the state or municipality where our
units are located.
Alcoholic beverage control regulations
require each of our restaurants and package liquor stores to obtain a license
to sell alcoholic beverages from a state authority and in certain locations,
county and municipal authorities.
In Florida, where all of our
restaurants and package liquor stores are located, most of our liquor licenses
are issued on a "quota license" basis. Quota licenses are issued on
the basis of a population count established from time to time under the latest
applicable census. Because the total number of liquor licenses available under
a quota license system is limited and restrictions are placed upon their
transfer, the licenses have purchase and resale value based upon supply and
demand in the particular areas in which they are issued. The quota licenses
held by us allow the sale of liquor for on and off premises consumption. In
Florida, the other liquor licenses held by us or limited partnerships of which
we are the general partner are restaurant liquor licenses, which do not have
quota restrictions and no purchase or resale value. A restaurant liquor license
is issued to every applicant who meets all of the state and local licensing
requirements, including, but not limited to zoning and minimum restaurant size,
seating and menu. The restaurant liquor licenses held by us allow the sale of
liquor for on premises consumption only.
In the State of Georgia, where our
adult entertainment club is located, licensed establishments also do not have
quota restrictions for on-premises consumption and such licenses are issued to
any applicant who meets all of the state and local licensing requirements based
upon extensive license application filings and investigations of the applicant.
All licenses must be renewed annually
and may be revoked or suspended for cause at any time. Suspension or revocation
may result from violation by the licensee or its employees of any federal,
state or local law regulation pertaining to alcoholic beverage control.
Alcoholic beverage control regulations relate to numerous aspects of the daily
operations of our units, including, minimum age of patrons and employees, hours
of operations, advertising, wholesale purchasing, inventory control, handling,
storage and dispensing of alcoholic beverages, internal control and accounting
and collection of state alcoholic beverage taxes.
As the sale of alcoholic beverages
constitutes a large share of our revenue, the failure to receive or retain, or
a delay in obtaining a liquor license in a particular location could adversely
affect our operations in that location and could impair our ability to obtain
licenses elsewhere.
During our fiscal years 2009 and 2008,
no significant pending matters have been initiated concerning any of our licenses
which might be expected to result in a revocation of a liquor license or other
significant actions against us.
We are subject to ìdram-shopî statutes
due to our restaurant operations and club ownership. These statutes generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated individual. We carry
liquor liability coverage as part of our existing comprehensive general
liability insurance, which we believe is consistent with coverage carried by
other entities in the restaurant industry. Although we are covered by
insurance, a judgment against us under a dram-shop statute in excess of our
liability coverage could have a material adverse effect on us.
Our operations are also
subject to federal and state laws governing such matters as wages, working
conditions, citizenship requirements and overtime. Significant numbers of hourly personnel at our restaurants
are paid at rates related to the federal or Florida minimum wage, whichever is
higher, and accordingly, increases in the minimum wage will increase labor
costs. We are also subject to the Americans With Disability Act of 1990 (ADA),
which, among other things, may require certain renovations to our restaurants
to meet federally mandated requirements. The cost of any such renovations is
not expected to materially affect us.
We are not aware of any statute,
ordinance, rule or regulation under present consideration which would
significantly limit or restrict our business as now conducted. However, in view
of the number of jurisdictions in which we conduct business, and the highly
regulated nature of the liquor business, there can be no assurance that
additional limitations may not be imposed in the future, even though none are
presently anticipated.
General Liability Insurance
---------------------------
We have general liability insurance
which incorporates a semi-self-insured plan under which we assume the full risk
of the first $50,000 of exposure per occurrence, while the limited partnerships
assume the full risk of the first $10,000 of exposure per occurrence. Our insurance carrier is responsible
for $1,000,000 coverage per occurrence above our self-insured deductible, up to
a maximum aggregate of $2,000,000 per year. During our fiscal year 2008 and
again in fiscal year 2009 we were able to purchase excess liability insurance
at a reasonable premium, whereby our excess insurance carrier is responsible
for $6,000,000 coverage above our primary general liability insurance coverage.
With the exception of one (1) limited partnership which has higher general
liability insurance coverage to comply with the terms of its lease for the
business premises, we are un-insured against liability claims in excess of
$7,000,000 per occurrence and in the aggregate.
Our general policy is to settle only
those legitimate and reasonable claims asserted and to aggressively defend and
go to trial, if necessary, on frivolous and unreasonable claims. We have established
a select group of defense attorneys which we use in conjunction with this
program. Under our current liability insurance policy, any expense incurred by
us in defending a claim, including adjusters and attorney's fees, are a part of
our $50,000 self-insured retention.
In accordance with accounting
guidance, we accrue for any self-insured liability by recognizing costs when it
is probable that a covered liability has been incurred and the cost can be
reasonably estimated. Accordingly,
our annual self-insurance costs may be subject to adjustment from previous
estimates as facts and circumstances change. Our self-insured accruals are included in the accompanying consolidated
balance sheets in the caption "Accounts payable and accrued
expenses". A significant unfavorable judgment or settlement against us in
excess of our liability insurance coverage could have a materially adverse
effect on the Company.
Property Insurance;
Windstorm Insurance; Deductibles
----------------------------------------------------
For the policy year commencing
December 30, 2009, our property insurance will be the second year of our two
(2) year property insurance policy with our insurance carrier, including
coverage for properties leased by us and our consolidated limited partnerships,
and will provide for full insurance coverage for property losses, including
those caused by windstorm, such as a hurricane. For property losses caused by windstorm, the property
insurance will have deductibles of 5% per location, per occurrence. For all other property losses,
the property insurance will have deductibles of $10,000 per location, per
occurrence. Our insurance expense for the policy year commencing December 30,
2009, including insurance coverage for our consolidated limited partnerships, will
be approximately equal to our insurance expense for the policy year ending
December 30, 2008, ($294,000), adjusted by changes we made to our insurable
values. Our insurance expense for
the policy year which commenced December 30, 2008, including insurance coverage
for our consolidated limited partnerships, ($294,000), decreased by
approximately $140,000, (32%), from the policy year which commenced December
30, 2007, due primarily to decreases in premium rates for windstorm insurance coverage.
Competition and the Company's
Market
------------------------------------
The liquor and hospitality industries
are highly competitive and are often affected by changes in taste and
entertainment trends among the public, by local, national and economic
conditions affecting spending habits, and by population and traffic patterns.
We believe that the principal means of competition among package liquor stores
is price and that, in general, the principal means of competition among
restaurants include the location, type and quality of facilities and the type,
quality and price of beverage and food served.
Our package liquor stores compete
directly or indirectly with local retailers and discount
"superstores". Due to the competitive nature of the liquor industry
in South Florida, we have had to adjust our pricing to stay competitive,
including meeting all competitorsí advertisements. Such practices will continue
in the package liquor business. We
believe that we have a competitive position in our market because of widespread
consumer recognition of the "Big Daddy's Liquors" name.
Our restaurants compete directly or
indirectly with many well-established competitors, both nationally and locally
owned. Due to the competitive
nature of the hospitality industry, we have had to limit our menu price
increases, while offering our customary quality and quantity of beverage and
food served, all at a reasonable price. We believe that we have a competitive position in our market
because of widespread consumer recognition of the "Flaniganís Seafood Bar
and Grill" name.
We have many well-established
competitors, both nationally and locally owned, with substantially greater
financial resources and a longer history of operations than we do. Their
resources and market presence may provide advantages in marketing, purchasing
and negotiating leases. We compete with other restaurant and retail
establishments for sites and finding management personnel.
Our business is subject to seasonal effects,
including that liquor purchases tend to increase during the holiday seasons.
Trade Names
-----------
We operate our package liquor stores
and restaurants under two service marks; "Big Daddy's Liquors" and
"Flanigan's Seafood Bar and Grill", both of which are federally
registered trademarks owned by us.
Our right to the use of the "Big Daddy's" service mark is set
forth under a consent decree of a Federal Court entered into by us in settlement
of federal trademark litigation. The consent decree and the settlement
agreement allow us to continue to use and to expand our use of the "Big
Daddy'sî service mark in connection with our package liquor sales in Florida,
while restricting future liquor sales in Florida under the "Big
Daddy's" name by the other party who has a federally registered service
mark for "Big Daddy's" use in the restaurant business. The Federal
Court retained jurisdiction to enforce the consent decree. We have acquired
registered Federal trademarks on the principal register for our "Flanigan's"
and ìFlaniganís Seafood Bar and Grillî service marks.
The standard symbolic trademark
associated with our facilities and operations is the bearded face and head of
"Big Daddy" which is predominantly displayed at all
"Flanigan's" facilities and all "Big Daddy's" facilities
throughout the country. The face comprising this trademark is that of the
Companyís founder, Joseph "Big Daddy" Flanigan, and is a federally
registered trademark owned by us.
Employees
---------
As of our fiscal year end 2009, we
employed 903 persons, of which 688 were full-time and 215 were part-time. Of
these, 40 were employed at our corporate offices in administrative capacities
and 5 were employed in maintenance. Of the remaining employees, 39 were
employed in package liquor stores and 819 in restaurants.
None of our employees are represented
by collective bargaining organizations.
We consider our labor relations to be favorable.
EXECUTIVE
OFFICERS
Positions and Offices
Office or Position
Name
Currently Held
Age Held Since
----
---------------------
---
------------------
James G. Flanigan Chairman
of the Board 45
(1)
of Directors, Chief
Executive Officer and
President
August Bucci
Chief Operating Officer 65
2002
and Executive Vice
President
Jeffrey D. Kastner Chief Financial
Officer 56
(2)
General Counsel and
Secretary
Jean Picard
Vice President of 71
2002
Package Liquor Store
Operations
(1) Chairman of
the Board of Directors, Chief Executive Officer since 2005;
President since 2002.
(2) Chief
Financial Officer since 2004; Secretary since 1995; and General
Counsel since 1982.
Flaniganís 401(k) Plan
----------------------
Effective July 1, 2004, we began
sponsoring a 401(k) retirement plan covering substantially all employees who
meet certain eligibility requirements.
Employees may contribute elective deferrals to the plan up to amounts
allowed under the Internal Revenue Code.
We are not required to contribute to the plan but may make discretionary
profit sharing and/or matching contributions. During our fiscal years ended October 3, 2009 and September
27, 2008, the Board of Directors approved discretionary matching contributions
totaling $NONE and $30,000, respectively.
Subsequent Events
-----------------
(a) Purchase of Real
Property, (Hollywood, FL.):
During
the fourth quarter of our fiscal year 2009 we contracted and then subsequent to
our fiscal year 2009, we closed on the purchase of the real property and
building where our combination
restaurant and package liquor store located at 2505 N. University Drive,
Hollywood, Florida, (Store #19), operates. We paid $1,350,000 for this
property, $850,000 of which we borrowed from an unaffiliated third party,
pursuant to a first mortgage. The mortgage note
bears interest at the rate of eight and one-half (8‡%) percent per annum, is
amortized over fifteen (15) years with equal monthly payments of principal and
interest, each in the amount of $8,300.00, with the entire principal balance
and all accrued interest due in eight (8) years.
(b) Purchase of Operating Assets from Franchisee (Boca Raton, Fl.)
Subsequent
to our fiscal year 2009, we purchased from our franchisee, the operating assets
of the franchised restaurant located at 45 S. Federal Highway, Boca Raton, Palm
Beach County, Florida for an aggregate purchase price of $245,000 and on
October 18, 2009 this restaurant began operating as a Company-owned restaurant.
The lease at this location expires on April 30, 2011. Our franchisee was unsuccessful in obtaining an extension of
the lease term. There can be no
assurance that the lease term will be extended or that we will find a suitable
replacement location at reasonable rates, if at all.
Environmental Matters
---------------------
We
are not aware of any federal, state or local environmental laws or regulations
that will materially affect our earnings or competitive position or result in
material capital expenditures.
However, we cannot predict the effect of possible future environmental
legislation or regulations on our operations.
Item 1A Risk Factors
------------------------
An
investment in our common stock involves a high degree of risk. These risks should be considered
carefully with the uncertainties described below, and all other information
included in this Annual Report on Form 10-K, before deciding whether to
purchase our common stock.
Additional risks and uncertainties not currently known to management or
that management currently deems immaterial may also become important factors
that may harm our business, financial condition or results or operations. The occurrence of any of the following
risks could harm our business, financial condition and results of
operations. The trading price of
our common stock could decline due to any of these risks and uncertainties and
you may lose part or all of your investment.
Certain
statements in this report contain forward-looking information. In general, forward-looking statements
include estimates of future revenues, cash flow, capital expenditures, or other
financial items and assumptions underlying any of the foregoing. Forward-looking statements reflect
managementís current expectations regarding future events and use words such as
ìanticipateî, ìbelieveî, ìexpectî, ìmayî, ìwillî and other similar terminology. These statements speak only as of the
date they were made and involve a number of risks and uncertainties that could
cause actual results to differ materially from those expressed in the
forward-looking statements.
Several factors, many beyond our control, could cause actual results to
differ materially from managementís expectations.
General Economic Factors May Adversely Affect
Results Of Operations
-------------------------------------------------------------------
The
disruption experienced in the United States and global credit markets during the
second half of calendar year 2008 and which continued into calendar year 2009 has
adversely affected disposable consumer income and consumer confidence. Prolonged negative changes in domestic
and global economic conditions or disruptions of either or both of the
financial and credit markets have had a material adverse effect on our results
of operations, financial condition and liquidity. During the fiscal year ended October 3, 2009, we accessed
the credit markets and applied for financing to purchase the real property and
improvements of two (2) locations, upon one (1) of which we operate a
combination package liquor store and restaurant and upon the other we operate a
restaurant. We also accessed the
credit markets to extend the maturity date of our line of credit. While the impact of the current crisis made
it more difficult to obtain financing, we were able to procure financing but at
a higher cost and upon less favorable terms than in the past. From an operating standpoint, the
current financial crisis has resulted in reduced customer traffic in some or
all of our restaurants and/or package liquor stores, reduced revenues and
profitability, increased costs and imposed practical limits on our menu
pricing. A continued decline in same
store restaurant revenues and/or profitability may result in a deterioration of
our financial position.
Intense Competition In The Restaurant And Package Liquor Store Industry
Could Prevent Us From Increasing Or Sustaining Our Revenues And Profitability.
-----------------------------------------------------------------------------
The
restaurant and package liquor store industry is intensely competitive with
respect to food quality, price-value relationships, ambiance, service and
location and many restaurants and package liquor stores compete with us at each
of our locations. There are a number of well-established competitors with
substantially greater financial, marketing, personnel and other resources than
ours, and many of our competitors are well established in the markets where we
have restaurants and/or stores where we intend to locate restaurants.
Additionally, other companies may develop restaurants and/or stores that
operate with similar concepts.
Any
inability to successfully compete with the other restaurants and/or stores in
our markets will prevent us from increasing or sustaining our revenues and
profitability and will result in a material adverse effect on our business,
financial condition, results of operations or cash flows. We may also need to modify
or refine elements of our business to evolve our concepts in order to compete
with popular new restaurant formats or store concepts that may develop in the
future. There can be no assurance that we will be successful in implementing
these modifications or that these modifications will not reduce our
profitability.
New Information Or Attitudes Regarding Diet And
Health Could Result In Changes In Regulations And Consumer Eating Habits That
Could Adversely Affect Our Revenues.
-----------------------------------------------------------------------------
Regulations and consumer eating habits may change as a result of
new information or attitudes regarding diet and health. These changes may include regulations
that impact the ingredients and nutritional content of our menu items at our
restaurants. For example, a number
of states, counties and cities are enacting menu labeling laws requiring
multi-unit restaurant operators to make certain nutritional information
available to guests or restrict the sales of certain types of ingredients in
restaurants. The success of our
restaurant operations is dependent, in part, upon our ability to effectively
respond to changes in consumer health and disclosure regulations and to adapt
our menu offerings to trends in eating habits. If consumer health regulations or consumer eating habits
change significantly, we may be required to modify or delete certain menu
items. To the extent we are unable
to respond with appropriate changes to our menu offerings, it could materially
affect customer demand and have an adverse impact on our revenues.
Adverse Public Or Medical Opinions About
Health Effects Of Consuming Our Products As Well As Negative Publicity About Us,
Our Restaurants And/Or Package Liquor Stores And About Others Across The Food And
Liquor Industry Supply Chain, Whether Or Not Accurate, Could Negatively Affect
Us.
-----------------------------------------------------------------------------
Restaurant operators have received more scrutiny from regulators
and health organizations in recent years relating to the health effects of
consuming certain products. An
unfavorable report on the products we use in our menu, the size of our portions
or the consumption of those items could influence the demand for our offerings. In addition, adverse publicity or news
reports, whether or not accurate, of food quality issues, illness, injury,
health concerns, or operating issues stemming from a single restaurant, a
limited number of restaurants,
restaurants operated by others or generally in the food supply chain
could be damaging to the restaurant industry overall and specifically harm our
reputation. A decrease in guest
traffic as a result of these types of health concerns or negative publicity
could materially harm our results of operations.
Our Inability To Successfully And Sufficiently
Raise Menu Prices Could Result In A Decline In Profitability.
-----------------------------------------------------------------------------
We
utilize menu price increases to help offset cost increases, including increased
cost for commodities, minimum wages, employee benefits, insurance arrangements,
construction, utilities and other key operating costs. If our selection and amount of menu
price increases are not accepted by consumers and reduce guest traffic, or are
insufficient to counter increased costs, our financial results could be
negatively affected.
Fluctuations In Commodity Prices And Availability Of
Commodities Including Pork, Beef, Fish, Poultry And Dairy Could Affect Our
Business
-----------------------------------------------------------------------------
A
significant component of our costs are related to food commodities including
pork, beef, fish, poultry and dairy products. If there is a substantial increase in prices for these
products and we are unable to offset the increases with changes in menu prices,
our results could be negatively affected.
Our Business Could Be Materially Adversely Affected
If We Are Unable To Expand In A Timely And Profitable Manner
-----------------------------------------------------------------------------
To
grow successfully, we must open new restaurants on a timely and profitable
basis. We have experienced delays
in restaurant openings from time to time and may experience delays in the
future. During fiscal year 2009, we
did not open any new restaurants, nor do we have any new restaurants under
development. During our fiscal
year 2008, due to delays in the permitting process and construction, the Davie,
Florida restaurant was opened after substantial delays. Increases in labor and building
material costs increased the cost of planned renovations to the Davie, Florida
restaurant by approximately $1,000,000.
Our ability to open and
profitably operate restaurants and/or package liquor stores is subject to
various risks such as identification and availability of suitable and
economically viable locations, the negotiation of acceptable leases or the
purchase terms of existing locations, the availability of limited partner investors
or other means to raise capital, the need to obtain all required governmental
permits (including zoning approvals) on a timely basis, the need to comply with
other regulatory requirements, the availability of necessary contractors and
subcontractors, the availability of construction materials and labor, the
ability to meet construction schedules and budgets, variations in labor and
building material costs, changes in weather or other acts of God that could
result in construction delays and adversely affect the results of one or more
restaurants and/or package liquor stores for an indeterminate amount of
time. If we are unable to
successfully manage these risks, we will face increased costs and lower than
anticipated revenues which will materially adversely affect our business,
financial condition, operating results and cash flow.
Changes In Customer Preferences For Casual Dining
Styles Could Adversely Affect Financial Performance
-----------------------------------------------------------------------------
Changing
customer preferences, tastes and dietary habits can adversely impact our
business and financial performance.
We offer a large variety of entrees, side dishes and desserts and its
continued success depends, in part, on the popularity of our cuisine and casual
style of dining. A change from
this dining style may have an adverse effect on our business.
Labor Shortages, An Increase In Labor Costs, Or
Inability To Attract Employees Could Harm Our Business
-----------------------------------------------------------------------------
Our
employees are essential to our operations and our ability to deliver an
enjoyable dining experience to our customers. If we are unable to attract and retain enough qualified
restaurant and/or package liquor store personnel at a reasonable cost, and if
they do not deliver an enjoyable dining experience, our results may be
negatively affected. Additionally,
competition for qualified employees could require us to pay higher wages, which
could result in higher labor costs.
Increases In Employee Minimum Wages By The Federal Or
State Government Could Adversely Affect Business
-----------------------------------------------------------------------------
Certain
of our Company employees are paid wages that relate to federal and state
minimum wage rates. Increases in
the minimum wage rates, such as annual cost of living increases in the State of
Florida minimum wage, may significantly increase our labor costs. In addition, since our business is
labor-intensive, shortages in the labor pool or other inflationary pressure
could increase labor costs, which could harm our financial performance.
Due To Our Geographic Locations, Restaurants Are
Subject To Climate Conditions That Could Affect Operations
-----------------------------------------------------------------------------
All
but one (1) of our restaurants and package liquor stores are located in South
Florida, with the remaining restaurant located in Central Florida. During hurricane season, (June 1st
through November 30th each year), our restaurants and/or package
liquor stores may face harsh weather associated with hurricanes and tropical
storms. These harsh weather
conditions may make it more difficult for customers to visit our restaurants
and package liquor stores, or may necessitate the closure of the stores and
restaurants for a period of time.
If customers are unable to visit our restaurants and/or package liquor
stores, our sales and operating results may be negatively affected.
Due To Our Geographic
Locations, We May Not Be Able To Acquire Windstorm Insurance Coverage Or
Adequate Windstorm Insurance Coverage At A Reasonable Rate
-----------------------------------------------------------------------------
Due
to the anticipated active hurricane seasons in South Florida in the future, we
may not be able to acquire windstorm insurance coverage for our restaurant and
package liquor store locations on a year-to-year basis or may not be able to
get adequate windstorm insurance coverage at reasonable rates. If we are unable to obtain windstorm
insurance coverage or adequate windstorm insurance coverage at reasonable
rates, then we will be self-insured for all or a part of the exposure for
damages caused by a hurricane impacting South Florida, which
may have a material adverse effect upon our financial condition and/or results
of operations.
Inability To Attract And Retain Customers Could
Affect Results Of Operations
-----------------------------------------------------------------------------
We
take pride in our ability to attract and retain customers, however, if we do
not deliver an enjoyable dining experience for our customers, they may not
return and results may be negatively affected.
Failure To Comply With Governmental Regulations
Could Harm Our Business And Our Reputation.
-----------------------------------------------------------------------------
We
are subject to regulation by federal agencies and regulation by state and local
health, sanitation, building, zoning, safety, fire and other departments
relating to the development and operation of restaurants. These regulations
include matters relating to:
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Our
facilities are licensed and subject to regulation under state and local fire,
health and safety codes. The construction and remodeling of restaurants will be
subject to compliance with applicable zoning, land use and environmental
regulations. We may not be able to obtain necessary licenses or other approvals
on a cost-effective and timely basis in order to construct and develop
restaurants in the future.
Various
federal and state labor laws govern our operations and our relationship with
our employees, minimum wage, overtime, working conditions, fringe benefit and
work authorization requirements. In particular, we are subject to federal
immigration regulations. Given the location of many of our restaurants, even if
we operate those restaurants in strict compliance with federal immigration
requirements, our employees may not all meet federal work authorization or
residency requirements, which could lead to disruptions in our work force.
Our
business can be adversely affected by negative publicity resulting from, among
other things, complaints or litigation alleging poor food quality, food-borne
illness or other health concerns or operating issues stemming from one or a
limited number of restaurants. Unfavorable publicity could negatively impact
public perception of our brands.
We
are required to comply with the alcohol licensing requirements of the federal
government, states and municipalities where our restaurants are located.
Alcoholic beverage control regulations require applications to state
authorities and, in certain locations, county and municipal authorities for a
license and permit to sell alcoholic beverages. Typically, licenses must be
renewed annually and may be revoked or suspended for cause at any time.
Alcoholic beverage control regulations relate to numerous aspects of the daily
operations of the restaurants, including minimum age of guests and employees,
hours of operation, advertising, wholesale purchasing, inventory control and
handling and storage and dispensing of alcoholic beverages. If we fail to
comply with federal, state or local regulations, our licenses may be revoked
and we may be forced to terminate the sale of alcoholic beverages at one or
more of our restaurants.
The
Federal Americans with Disabilities Act (the ìADAî) prohibits discrimination on
the basis of disability in public accommodations and employment. We are
required to comply with the ADA and regulations relating to accommodating the
needs of disabled persons in connection with the construction of new facilities
and with significant renovations of existing facilities.
Failure
to comply with these and other regulations could negatively impact our
reputation and could have an adverse effect on our business, financial
condition, results of operations or cash flows.
We
May Face Liability Under Dram Shop Statutes
----------------------------------------------
Our sale of alcoholic beverages
subjects us to ìdram shopî statutes.
These statutes allow an injured person to recover damages from an
establishment that served alcoholic beverages to an intoxicated person. If we
receive a judgment substantially in excess of our insurance coverage, or if we
fail to maintain our insurance coverage, our business, financial condition,
operating results or cash flows could be materially and adversely
affected. We currently have no
ìdram shopî claims. See ìItem 1.
Business—Government Regulationî for a discussion of the regulations with
which we must comply.
We
May Face Instances Of Food Borne Illness
-------------------------------------------
In years past, several nationally known restaurants
experienced outbreaks of food poisoning believed to be caused by E.coli
contained in fresh spinach, which is not included in any of the items on our
menu, Asian and European countries experienced outbreaks of avian flu and incidents
of ìmad cowî disease have occurred in Canadian and U.S. cattle herds. These
problems, other food-borne illnesses (such as, hepatitis A, trichinosis or
salmonella) and injuries caused by food tampering have in the past, and could
in the future, adversely affect the price and availability of affected
ingredients and cause changes in consumer preference. As a result, our sales could decline.
Instances of food-borne illnesses, real or perceived, whether
at our restaurants or those of our competitors, could also result in negative
publicity about us or the restaurant industry, which could adversely affect
sales. If we react to negative publicity by changing our menu or other key
aspects of the dining experience we offer, we may lose customers who do not
accept those changes, and may not be able to attract enough new customers to
produce the revenue needed to make our restaurants profitable. If our guests
become ill from food-borne illnesses, we could be forced to temporarily close
some restaurants. A decrease in guest traffic as a result of health concerns or
negative publicity, or as a result of a change in our menu or dining experience
or a temporary closure of any of our restaurants, could materially harm our
business.
Item 1B. Unresolved Staff
Comments
----------------------------------
As
a Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in
Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting
obligations and therefore are not required to provide the information requested
by this Item 1B.
Item 2. Properties
------------------