Item 1. Business.

                                                 FISCAL     FISCAL
                                                  YEAR       YEAR      NOTE
TYPES OF UNITS                                    1995       1996     NUMBER
- --------------                                    ----       ----     ------
Combination package and restaurant ........         4         4
Restaurant only ...........................         5         5        (1)(2)
Package store only ........................         1         4        (3)(4)(5)
Lounge only ...............................         1         0        (6)
Combination package and lounge ............         2         0        (4)
Clubs .....................................         2         1        (7)

TOTAL - Company operated units ............        15        14

FRANCHISED - units ........................         9         7        (3)(8)

Notes:

(1) During the fiscal year 1995, the Company became the owner, through foreclosure, of a lounge previously sold by the Company, which lounge had been operated by a wholly owned subsidiary of the Company as a receiver appointed by the Court since fiscal year 1994. The Company tried to operate this store as a restaurant under its "Flanigan's Cafe" concept, but since it was not possible to operate it up to the same standards of the Company's other restaurants, the unit was closed April 10, 1996. During the fourth quarter, a contract was entered into by the landlord for the sale of the real property and improvements of this location. Simultaneously therewith, a separate contract was entered into by the Company for the sale of its liquor license to the same buyer. At closing, which occurred during the first quarter of fiscal 1997, the Company's lease for this store was vacated.

(2) Also during the first quarter of fiscal year 1996, the Company began operating a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark as general partner and fifty percent owner of a limited partnership established for such purpose.

(3) During the first quarter of fiscal year 1996 one franchisee terminated its franchise agreement and returned its franchised unit to the Company. The Company immediately began operating the package liquor store of the returned franchise unit.

(4) During the second quarter of fiscal year 1996 the Company closed its last two lounges at combination package and lounge units, but continues to operate the package liquor stores. The two lounges were only marginally profitable, with declining revenues.

(5) During fiscal year 1995, the Company was granted possession of a store previously sold by the Company and began operating the package liquor store. The Company continues to operate this unit pursuant to Court Order.

(6) During the second quarter of fiscal year 1996, the lease on one unit operated by the Company as a lounge only expired and the Company was unable to renew the same upon suitable terms.

(7) Through September 20, 1996, the Company operated its remaining Pennsylvania club, (Store #850, King of Prussia, Pennsylvania), which was financed through a limited partnership in which a wholly owned subsidiary of the Company acted as general partner. The lease for this unit had only thirteen months remaining, with no more renewal options and revenues were down as a result of competition from some expensive new clubs constructed on the waterfront. An opportunity arose to sell the lease, leasehold improvements and liquor license to Dick Clark Restaurants, Inc. With the approval of the Limited Partners, the sale of the unit was consummated on September 20, 1996 for a purchase price of $500,000. The Company had one club (in Atlanta, Georgia) remaining at fiscal yearend 1996.

(8) Also during fiscal year 1996 one franchise expired and the Company declined to offer the franchisee the option of executing its new franchise agreement.

During the first quarter of fiscal 1996, one additional franchisee agreed to a termination of its Franchise Agreement and while its restaurant did not formerly operate under the "Flanigan's Seafood Bar and Grill" servicemark, the franchisee agreed to de-identify the same to avoid any confusion with the Company's restaurants. The franchisee continued to operate its package liquor store under a new Franchise Agreement with the Company which included a license to use the servicemark "Big Daddy's Liquors" only. During the third quarter of fiscal year 1996, this franchisee notified the Company of its intent to terminate the new Franchise Agreement and return the franchised unit, including restaurant, to the Company.

In order to induce the franchisee to continue operating its franchise through the end of the fiscal year, the Company agreed to reduce the weekly sublease rent and suspend all weekly payments on account of its purchase money chattel mortgage. In the interim, the Company determined that the cost necessary to convert this unit to a "Flanigan's Seafood Bar and Grill" restaurant exceeded the funds available to the Company and on September 30, 1996, subsequent to the end of fiscal year 1996, the franchise was sold to a related third party, in lieu of its return to the Company. The initial shareholder interest of all officers and directors, which was comprised of the Chairman and a member of his family, represented one hundred percent of the initial invested capital. It was also agreed that the Company would manage the franchise for the related third party, pursuant to a management agreement. Subsequent to the closing of the sale of the franchise, the

Company accepted the offer of another related franchisee, who is also a member of the Board of Directors of the Company, to pay the sum of $150,000 for the right to buy this franchise from the related third party, renovate the same and act as manager. As part of this transaction, the Company agreed to continue the reduced sublease rent, the waiver of any franchise royalties and the suspension of mortgage payments through March, 1997. Thereafter, the Company will receive the same weekly payment as previously paid by the former franchisee during fiscal year 1996. It is also anticipated that the Company will be an investor in the franchise, as will other related parties, including but not limited to officers, directors and/or their families.

All of the Company's package liquor stores, restaurants and clubs are operated on leased properties. As a result of significant escalations of rent on certain of such leased properties and on leased properties that were not being operated by the Company, on November 4, 1985 the Company, not including its subsidiaries, filed a Voluntary Petition in the United States Bankruptcy Court for the Southern District of Florida seeking to reorganize under Chapter 11 of the Federal Bankruptcy Code. On May 5, 1987 the Company's Plan of Reorganization as amended and modified ("the Plan") was confirmed by the Bankruptcy Court. On December 28, 1987 the Company was officially discharged from bankruptcy. See Note 2 to the consolidated financial statements for a discussion of the bankruptcy proceedings to date and Item 7 for a discussion of the effect of the bankruptcy proceedings herein.

The Company was incorporated in Florida in 1959 and operated in South Florida as a chain of small cocktail lounges and package liquor stores. By 1970, the Company had established a chain of "Big Daddy's" lounges and package liquor stores between Vero Beach and Homestead, Florida. From 1970 to 1979, the Company expanded its package liquor store and lounge operations throughout Florida and opened clubs in five other "Sun Belt" states. In 1975, the Company discontinued most of its package store operations in Florida except in the South Florida areas of Dade, Broward, Palm Beach and Monroe Counties. In 1982 the Company expanded its club operations into the Philadelphia, Pennsylvania area as general partner of several limited partnerships organized by the Company. In March 1985, the Company began franchising its package liquor stores and lounges in the South Florida area. See Note 10 to the consolidated financial statements and the discussion of franchised units on page 5.

During fiscal year 1987, the Company began renovating its lounges to provide full restaurant food service, and subsequently renovated and added food service to most of its lounges. The restaurant concept, as the Company offers it, has been so well received by the public that food sales now represent approximately 74.9% of total restaurant sales.

The Company's package liquor stores emphasize high volume business by providing customers with a wide variety of brand name and private label merchandise at discount prices. The Company's restaurants provide efficient service of alcoholic beverages and full food service with abundant portions, reasonably priced, served in a relaxed friendly atmosphere.

The Company's principal sources of revenue are the sale of food and alcoholic beverages.

The Company conducts its operations directly and through a number of wholly owned subsidiaries. The operating subsidiaries are as follows:

     SUBSIDIARY                                      STATE OF INCORPORATION
     ----------                                      ----------------------
Flanigan's Management Services, Inc.                         Florida
Flanigan's Enterprises. Inc. of Georgia                      Georgia
Seventh Street Corp.                                         Florida
Big Daddy's #48 Inc.                                         Florida
Flanigan's Enterprises, Inc. of Pa                           Pennsylvania

The income derived and expenses incurred by the Company relating to the aforementioned subsidiaries are consolidated for accounting purposes with the income and expenses of the Company in the consolidated financial statements in this Form 10-KSB.

The Company's executive offices are located in a leased facility at 2841 Cypress Creek Road, Fort Lauderdale, Florida 33309 and its telephone number at such address is (954) 974-9003.

Corporate Reorganization

As noted in Note 2 to the consolidated financial statements, on November 4, 1985, the Company, not including any of its subsidiaries, filed a Voluntary Petition in the United States Bankruptcy Court for the Southern District of Florida seeking to reorganize under Chapter 11 of the Federal Bankruptcy Code. The primary purposes of the petition were (1) to reject leases which were significantly above market rates and (2) to reject leases on closed units which had been repossessed by, or returned to the Company. On May 5, 1987 the Company's Plan of Reorganization as amended and modified was confirmed by the Bankruptcy Court. On December 28, 1987 the Company was officially discharged from bankruptcy. See Note 2 to the consolidated financial statements for a discussion of the bankruptcy proceedings to date and Item 7 for a discussion of the effect of the bankruptcy proceedings herein.

Financial Information Concerning Industry Segments

The Company's business is carried out principally in two segments: the restaurant segment, which was the restaurant and lounge segment prior to the closing of the remaining lounges during fiscal year 1996, and the package liquor store segment.

Financial information broken into these two principal industry segments for the two fiscal years ended September 30, 1995 and September 28, 1996 is set forth in the consolidated financial statements which are attached hereto, and is incorporated herein by reference.

The Company's Package Liquor Stores and Restaurants

The Company's package liquor stores are operated under the "Big Daddy's Liquors" servicemark and the Company's restaurants are operated under the

servicemark "Flanigan's Seafood Bar and Grill". The Company's package liquor stores emphasize high volume business by providing customers with a wide selection of brand name and private label liquors, beer and wines. The Company has a policy of meeting the published sales prices of its competitors. The Company provides extensive sales training to its package liquor store personnel. Most package liquor stores are open six or seven days a week from 9:00-10:00
a.m. to 9:00-10:00 p.m., depending upon demand and local law. A small number of the Company's units have "night windows" with extended evening hours.

The Company's restaurants offer full food and alcoholic beverage service with approximately 74.9% of their sales being food items. These restaurants are operated under the "Flanigan's Seafood Bar and Grill" service mark. Although these restaurants provide a neighborhood atmosphere, they have the degree of standardization prevalent in casual dining restaurant chains, including menu. The interior decor is nautical with numerous fishing and boating pictures and decorations. Drink prices may vary between locations to meet local conditions. Food prices are standardized. The restaurants' hours of operation are from 11:00 a.m. to 1:00 - 5:00 a.m. The Company continues to develop strong customer recognition of its "Flanigan's Seafood Bar and Grill" service mark through very competitive pricing and efficient and friendly service.

The Company's package liquor stores and restaurants were designed to permit minor modifications without significant capital expenditures. However, from time to time the Company is required to redesign and refurbish its units at significant cost. See Item 2, Properties and Item 7 for further discussion.

Franchised Package Liquor Stores and Lounges

In March of 1985, the Company's Board of Directors approved a plan to sell, on a franchise basis, up to 26 of the Company's package liquor stores and lounges in the South Florida area. Under the terms of the franchise plan, the Company sold the liquor license, furniture, fixtures and equipment of a particular unit, entered into a sublease for the business premises and a franchise agreement, whereby the franchisee licensed the right to use the Company's servicemarks "Big Daddy's Liquors" and "Big Daddy's Lounges" in the operation of its business. Investors purchasing units were required to execute ten year franchise agreements with a thirty day cancellation provision. The franchise agreement also provided for a royalty to the Company, in the amount of 1% of gross sales, plus a contribution to advertising, in an amount between 1-1/2 - 2% of gross sales. In most cases, the sublease agreement provided for rent in excess of the amount paid by the Company, in order to realize an additional return of between 2% - 3% of gross sales, depending upon a number of factors, including but not limited to the performance of the particular unit sold and its expected sales growth.

As of the end of fiscal year 1986, ten units had been franchised. Four of these units were franchised to members of the family of the Chairman of the Board. The Company had limited response to its franchise offering and suspended its franchise plan at the end of fiscal year 1986.

During fiscal year 1988, two franchisees (one of whom is on the Company's Board of Directors) exercised the thirty day cancellation clause under the franchise agreement and related documents and returned their franchised units to the Company. No gain or loss was recognized on these returns. The Company has been profitably operating these two units.

During fiscal year 1990, the Company completed a foreclosure to take one franchise back, reducing the number of franchised units to seven. This unit was sold pursuant to a private offering to a Subchapter S corporation whose president was the Chairman and whose investors included three directors and members of the Chairman's family. This unit was managed by the Company through the end of fiscal year 1992. In the first quarter of fiscal year 1993, the Board of Directors agreed to purchase this unit from the group of investors. In purchasing this unit, the Board of Directors determined that the projected profitability would provide a fair return on investment, whereas without this purchase, the Company would only have received its 4% management fee until the Subchapter S corporation received its full investment back from this unit.

During fiscal year 1991, the Company sold one unit to the unit's manager, an unaffiliated third party, who had been operating it pursuant to a management agreement since 1987. This unit consisted of a package liquor store and restaurant, which restaurant was not operating under the Company's "Flanigan's Seafood Bar and Grill" service mark. The Company also entered into a franchise agreement with the manager, licensing the use of the "Big Daddy's Liquors" service mark for the liquor package store in exchange for a royalty in the amount of 1% of gross sales. Although the Company counted this unit as a franchise, the Company did not consider this transaction a part of its franchise plan. During the fiscal year 1995, the manager executed the Company's new franchise agreement for the operation of his restaurant under the "Flanigan's Seafood Bar and Grill" service mark, as more fully described below. At the same time the former manager also executed a new franchise agreement for a second restaurant opened since the purchase of the unit from the Company during the fiscal year 1991.

During fiscal year 1992, one unaffiliated franchisee expressed an interest in selling his unit or returning it to the Company pursuant to the terms of its franchise agreement and related documents. As a result of the substantial investment necessary to upgrade and renovate this unit, an affiliated group of investors formed a Subchapter S corporation and purchased this unit from the franchisee. The shareholder interest of all officers and directors represents 42% of the total invested capital. The shareholder interest of the Chairman's family represents an additional 47.5% of the total invested capital. The Company continues to receive the same royalties, rent and mortgage payments as it had received from the unaffiliated franchisee.

During fiscal year 1996, one franchisee exercised the thirty day cancellation clause under the franchise agreement and related documents and returned its franchised unit to the Company. The franchisee had operated a package liquor store and lounge under the "Big Daddy's" servicemark. The Company has been profitably operating the package liquor store of the franchised unit but has not reopened the lounge. The lease agreement for the business premises expired on December 31, 1995 and the Company occupies

the same on an oral month to month lease agreement paying its prorata share of the real property taxes monthly and insuring the property. Either party may terminate the oral month to month lease agreement upon seven days advance written notice.

During fiscal year 1996, one franchise expired and the Company declined to offer the franchisee the option of executing its new franchise agreement.

During the third quarter of fiscal year 1996, another unaffiliated franchisee expressed its intent to terminate its new franchise agreement (package liquor store only) and to return its unit, including restaurant, to the Company. In order to induce the franchisee to continue operating its franchise through the end of the fiscal year, the Company agreed to reduce the weekly sublease rent and suspend all weekly payments on account of its purchase money chattel mortgage. In the interim, the Company determined that the cost necessary to convert this unit to a "Flanigan's Seafood Bar and Grill" restaurant exceeded the funds available to the Company and on September 30, 1996, subsequent to the end of fiscal year 1996, the franchise was sold to a related third party, in lieu of its return to the Company. The initial shareholder interest of all officers and directors, which was comprised of the Chairman and a member of is family, represented one hundred percent of the initial invested capital. It was also agreed that the Company would manage the franchise for the related third party, pursuant to a management agreement. Subsequent to the closing of the sale of the franchise, the Company accepted the offer of another related franchisee, who is also a member of the Board of Directors of the Company, to pay the sum of $150,000 for the right to buy this franchise from the related third party, renovate the same and act as manager. As part of this transaction, the Company agreed to continue the reduced sublease rent, the waiver of any franchise royalties and the suspension of mortgage payments through March, 1997. Thereafter, the Company will receive the same weekly payment as previously paid by the former franchisee during fiscal year 1996. It is also anticipated that the Company will be an investor in the franchise, as will other related parties, including but not limited to officers, directors and/or their families.

The units that continue to be franchised are doing well and continue to generate income for the Company. Many of the units that were originally offered as franchises have been sold outright and are no longer being operated as Flanigan's or Big Daddy's stores.

Franchised Restaurants

During fiscal year 1995, the Company completed its new franchise agreement for a franchisee to operate a restaurant under the "Flanigan's Seafood Bar and Grill" service mark pursuant to a license from the Company. The new franchise agreement was drafted jointly with existing franchisees with all modifications requested by the franchisees incorporated therein. The new franchise agreement provides the Company with the ability to maintain a high level of food quality and service at its franchised restaurants, which are essential to a successful franchise operation. A franchisee is required to execute a new franchise agreement for the balance of the term of its lease for the business premises, extended by the franchisee's continued occupancy of the

business premises thereafter, whether by lease or ownership. The new franchise agreement provides for a royalty to the Company in the amount of approximately 3% of gross sales, plus a contribution to advertising in an amount between 1-1/2 to 3% of gross sales. In most cases, the Company does not sublease the business premises to the franchisee and in those cases where it does, the Company no longer receives rent in excess of the amount paid by the Company.

As of the end of fiscal year 1996, all existing franchisees who operate restaurants under the "Flanigan's Seafood Bar and Grill" or other authorized service marks have executed new franchise agreements.

During the first quarter of fiscal year 1996, the Company began operating a restaurant under the "Flanigan's Seafood Bar and Grill" service mark as general partner and fifty percent owner of a limited partnership established for such purpose. The limited partnership agreement gives the limited partnership the right to use the "Flanigan's Seafood Bar and Grill" service mark while the Company acts as general partner only. No franchise agreement was executed and the Company does not consider this unit one of its franchises.

Clubs

At the beginning of fiscal 1991, the Company operated entertainment oriented clubs in the Philadelphia, Pennsylvania area, and one in Georgia.

The club operated by the Company in Florida closed in December 1990, upon the termination of its lease agreement for the business premises.

In May 1991, the Company voluntarily closed its club in Marina Del Rey, California due to the continuing harassment and discrimination by the Los Angeles Police Department. The Company sought relief through the Trial Court and the California Supreme Court, but did not prevail.

During fiscal year 1991, the Company also negotiated its resignation as General Partner of CIC Investors #870, Ltd., the owner and operator of a club located at 532 S. Second Street, Philadelphia, Pennsylvania, and surrendered the operation of the club to CR Management Enterprises, Inc. on July 26, 1991. The Company's resignation as General Partner was effective January 26, 1992. As a part of its agreement, the Company was responsible for all obligations of the limited partnership accruing prior to July 26, 1991, which are now limited to insured personal injury claims arising prior to that date, which have been filed in court. During the fiscal year 1994, the Company learned that the club operated by CIC Investors #870, Ltd. closed and the limited partnership no longer had any assets. Furthermore, in the defense of several of these actions the Company did not receive the cooperation of the successor general partner, nor the landlord of the business premises, and as a result, the Company will only defend actions and pay judgments and/or settlements which include the Company and/or any of its subsidiaries. An accrual for the Company's estimated liability on these insured liability claims is included in the consolidated balance sheets in the caption "Accrued and Other Current Liabilities".

During fiscal year 1992, the Company, as General Partner of CIC Investors #880 Ltd., negotiated with the landlord to terminate the lease for Store #880, Granite Run Mall, Media, Pennsylvania and the club closed as of December 31, 1991. The liquor license formerly used at the club, which had a value of approximately $100,000, was surrendered as partial consideration for the termination of the lease. In addition, the Company agreed to pay all rental arrearages through October 31, 1991 ($84,318), payable $10,000 upon the execution of a lease termination agreement, an additional $10,000 thirty days thereafter and the balance in thirty-six monthly payments of $1,787, without interest. The balance of the rental arrearages were paid in full during fiscal year 1995.

As of the end of fiscal year 1995, the Company owned one club in Atlanta Georgia, which was operated by an unaffiliated third party, as discussed below. In addition, until September 20, 1996, the Company operated its remaining Pennsylvania club, (Store #850, King of Prussia, Pennsylvania), which was financed through a limited partnership in which a wholly owned subsidiary of the Company acted as general partner. The lease for this unit had only thirteen months remaining, with no more renewal options, and revenues were down as a result of competition from some expensive new clubs constructed on the waterfront. An opportunity arose to sell the lease, leasehold improvements and liquor license to Dick Clark Restaurants, Inc. With the approval of the Limited Partners, the sale of the unit was consummated on September 20, 1996 for a purchase price of $500,000. The Company had one club (in Atlanta, Georgia) remaining at fiscal yearend 1996.

Operation of Units by Unaffiliated Third Parties

During fiscal year 1992, the Company entered into a Management Agreement with Mardi Gras Management, Inc. for the operation of the Company's club in Atlanta, Georgia through the balance of the initial term of the lease, unless sooner terminated by Mardi Gras Management, Inc. upon thirty days prior written notice, with or without cause. Mardi Gras Management, Inc. assumed the management of this club effective November 1, 1991 and is currently operating the club under an adult entertainment format. Pursuant to the Management Agreement, the Company receives a monthly owner's fee of $12,500.

Operations and Management

The Company emphasizes systematic operations and control of all units. Each unit has its own manager who is responsible for monitoring inventory levels, supervising sales personnel, food preparation and service in restaurants and generally assuring that the unit is managed in accordance with Company guidelines and procedures. The Company has in effect an incentive cash bonus plan for its managers and salespersons based upon various performance criteria. The Company's operations are supervised by area supervisors. Each area supervisor supervises the operations of the units within his or her territory and visits those units to provide on-site management and support. There are three area supervisors responsible for package store, restaurant and club operations in specific geographic districts.

All of the Company's managers and salespersons receive extensive training in sales techniques.

The Company arranges for independent third parties, or "spotters", to inspect each unit in order to evaluate the unit's operations, including the handling of cash transactions.

Purchasing and Inventory

The package liquor business requires a constant substantial capital investment in inventory in the units. Liquor inventory purchased can normally be returned only if defective or broken.

All Company purchases of liquor inventory are made through its purchasing department from the Company's corporate headquarters. The major portion of inventory is purchased under individual purchase orders with licensed wholesalers and distributors who deliver the merchandise within one to 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 the Company's liquor inventory is shipped by the wholesalers or distributors directly to the Company's units. The Company significantly increases its inventory prior to Christmas, New Year's Eve and other holiday periods.

Pursuant to Florida law, the Company pays for its liquor purchases within ten days of delivery.

All negotiations with food suppliers are handled by the Company's purchasing department at the Company's corporate headquarters. This ensures that the best quality and prices will be available to each unit. Orders for food products are prepared by each unit's kitchen manager and reviewed by the unit's general manager before being placed with the approved vendor. Merchandise is delivered by the supplier directly to each unit. Orders are placed several times a week to insure product freshness.
Food inventory is primarily paid for monthly.

Government Regulation

The Company is subject to various federal, state and local laws affecting its business. In particular, the units operated by the Company are subject to licensing and regulation by the alcoholic beverage control, health, sanitation, safety and fire department agencies in the state or municipality where located.

Alcoholic beverage control regulations require each of the Company's units to apply to a state authority and, in certain locations, county and municipal authorities, for a license or permit to sell alcoholic beverages on the premises. In some instances, a unit may be required to apply for separate licenses in order to sell beer and wine, to sell mixed drinks and to provide facilities for dancing or live entertainment.

In the State of Florida, which represents the vast majority of the total liquor licenses held by the Company, 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, the licenses have purchase and resale value based upon supply and demand in the particular areas in which they are issued. The Florida quota licenses held by the Company allow the sale of liquor for on-premises and/or off-premises consumption. In the other states in which the Company operates, licensed establishments 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 or regulation pertaining to alcoholic beverage control. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the Company's units, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control, handling, storage and dispensing of alcoholic beverages, internal control and accounting and collection of state alcoholic beverage taxes.

As the sale of alcoholic beverages constitutes a large share of the Company's revenue, the failure to receive or retain, or a delay in obtaining a liquor license in a particular location could adversely affect the Company's operations in that location and could impair the Company's ability to obtain licenses elsewhere.

The Company is subject in certain states to "dram shop" or "liquor liability" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to such person. See Item 1, Insurance, and Item 3, Legal Proceedings, for further discussion.

The Company maintains a continuous program of training and surveillance from its corporate headquarters to assure compliance with all applicable liquor laws and regulations. During the fiscal year ended September 28, 1996, through the present time, the Company has had no significant pending matters initiated by the beverage authorities concerning any of the Company's licenses which might be expected to result in a revocation of a liquor license or other significant actions against the Company.

The Company is not aware of any statute, ordinance, rule or regulation under present consideration which would significantly limit or restrict its business as now conducted. However, in view of the number of jurisdictions in which the Company does business, and the highly regulated nature of the liquor business, there can be no assurance that additional limitations may not be imposed in the future, even though none are presently anticipated.

Federal and state environmental regulations have not had a material effect on the Company's operation.

Insurance

The Company has general liability insurance which incorporates a semi-self-insured plan under which the Company assumes the full risk of the first $50,000 of exposure per occurrence. The Company's insurance carrier is responsible for $1,000,000 coverage per occurrence above the Company's self-insured deductible, up to a maximum aggregate of $2,000,000, per year. The Company is self-insured against liability claims in excess of $1,000,000.

The Company's general policy is to settle only those legitimate and reasonable claims asserted and to aggressively defend and go to trial, if necessary, on frivolous and unreasonable claims. The Company has established a select group of defense attorneys which it uses in conjunction with this program. Under the Company's current liability insurance policy, any expenses incurred by the Company in defending a claim, including adjusters and attorney's fees, are a part of the $50,000 self-insured retention.

An accrual for the Company's estimated liability on liability claims is included in the consolidated balance sheets in the caption "Accrued and Other Current Liabilities". A significant unfavorable judgment or settlement against the Company in excess of its liability insurance coverage could have a materially adverse effect on the Company.

Through the end of the 1990 fiscal year, the Company was uninsured for dram shop liability. Pennsylvania still has an unrestricted dram shop law, which allows persons injured by an "obviously intoxicated person" to bring a civil action against the business which served alcoholic beverages to an "obviously intoxicated person". Florida has restricted its dram shop law by statute, permitting persons injured by an "obviously intoxicated person" to bring a civil action against the business which served alcoholic beverages to a minor or an individual known to be habitually addicted to alcohol. 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 the Company then vigorously defends these claims on the grounds that its employees did not serve an "obviously intoxicated person". Damages in most dram shop claims are substantial. During fiscal year 1996, the Company favorably settled the two dram shop cases, (three dram shop claims), relating to one incident filed against the Company in Florida during fiscal years 1994 and 1995. Subsequent to the end of fiscal year 1996, the Company favorably settled its remaining uninsured dram shop claim asserted against one of the limited partnerships in Pennsylvania and the Company, as general partner. At the present time, there are no dram shop claims pending against the Company.

Competition and the Company's Market

The liquor and the hospitality industry is highly competitive and is often affected by changes in taste and entertainment trends among the public, by local, national, and economic conditions affecting spending habits, and by population and traffic patterns. The Company believes that the principal means of competition among package liquor stores is price and that, in general, the principal means of competition among restaurants and clubs include location, type and quality of facilities, type and quality of entertainment offered, and type, quality and price of beverage and food served.

The Company's package liquor stores compete directly or indirectly with local retailers and discount "superstores". Due to the competitive nature of the liquor industry in South Florida, the Company has had to adjust its pricing to stay competitive, including meeting all competitor's advertisements. Such practices will continue in the package liquor business. It is the opinion of the Company's management that the Company has a competitive position in its market because of widespread consumer recognition of the "Big Daddy's" and "Flanigan's" names.

The Company's club competes directly or indirectly with other lounges, clubs and other establishments serving liquor. The Company's principal competitors are local establishments, but also include clubs owned by national and regional chains that are much larger than the Company. The Company believes that the principal competitive factor of its club is the distinctiveness of its entertainment concepts and its experienced management.

As previously noted, at yearend the Company owned and operated eight restaurants which had formerly been lounges and were renovated to provide for full food service. Early in the first quarter of fiscal 1996, the Company began operating a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark as general partner and fifty percent owner of a limited partnership established for such purpose, bringing the total number of restaurants operated to nine. These restaurants compete directly with other restaurants serving liquor in the area. The Company's restaurants are competitive due to four factors; product quality, portion size, moderate pricing and a standardization throughout the Company owned restaurants and most of the franchises.

The Company's business is subject to seasonal effects, in that liquor purchases tend to increase during the holiday seasons. The liquor industry and the Company's liquor business have also been adversely affected by the physical fitness awareness.

Trade Names

The Company operates principally under three trade names: "Flanigan's", "Big Daddy's", and "Flanigan's Seafood Bar and Grill". Throughout Florida the Company's package liquor stores are operated under the "Big Daddy's Liquors" servicemark. The Company's rights to the use of the "Big Daddy's" servicemark are set forth under a consent decree of a Federal Court entered into by the Company in settlement of federal trademark litigation. The consent decree and the settlement agreement allow the Company to continue, and expand, its use of the "Big Daddy's" service mark in connection with limited food and liquor sales in Florida. The consent decree further contained a complete restriction upon all future sales of distilled spirits in Florida under the "Big Daddy's" name by the other party who has a federally registered service mark for "Big Daddy's" use in the restaurant business. The Federal Court retained jurisdiction to enforce the consent decree. The Company has acquired a registered federal trademark on the principal register for its "Flanigan's" service mark.

The standard symbolic trademark associated with the Company and its facilities is the bearded face and head of "Big Daddy" which is predominantly displayed at all "Flanigan's" facilities and all "Big Daddy's" facilities throughout the country. The face comprising this trademark is that of the Company's founder, Joseph "Big Daddy" Flanigan, and it is a federally registered trademark owned by the Company.

                                              EXECUTIVE OFFICERS OF THE REGISTRANT

                                    POSITIONS AND OFFICES                    OFFICE OR POSITION
         NAME                       CURRENTLY HELD                 AGE          HELD SINCE
         ----                       --------------                 ---          ----------
Joseph G. Flanigan                  Chairman of the Board
                                    of Directors, Chief
                                    Executive Officer,
                                    and President                  67               1959

William Patton                      Vice President
                                    Community Relations            73               1975

Mary C. Reymann                     Vice President Finance
                                    Controller
                                    and Secretary                  72               1980

Edward A. Doxey                     Treasurer                      55               1992

Jeffrey D. Kastner                  Assistant Secretary            43               1995