UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2017
OROctober 3, 2020
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File Number 1-6836001-06836
FLANIGAN'S ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Florida | 59-0877638 |
(State or | (I.R.S. Employer |
Identification Number) | |
5059 N.E. 18th Avenue, Fort Lauderdale, Florida | 33334 |
(Address of | (Zip |
(954) 377-1961
(Registrant's telephone number, including area code)
Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange |
on which registered | ||
Common Stock, $0.10 par value | BDL | NYSE AMERICAN |
Securities registered pursuant to Section 12(g) of the Act: NONENone
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso ☐ Nox ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso ☐ Nox
☒
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. Yesx ☒ Noo ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yesx ☒ Noo ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s 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.x
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 “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer¨ Accelerated filer¨ Non-accelerated filer¨
Smaller reporting companyý Emerging growth company¨
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☐ | |
Smaller reporting company ☒ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨ ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yeso ☐ Nox ☒
TheAs of March 28, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant was $19,947,000 as of April 1, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, based$9,608,000 (based on the closing price of the common stock as reported on the NYSE AMERICAN of $24.25.$11.31 per share).
There were 1,858,647 shares of the Registrant's Common Stock, $0.10 par value, outstanding as of December 21, 2017.
January 15, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part III (Items 10, 11, 12, 13 and 14) hereof is incorporated by reference to portions of the Registrant’s Proxy Statement for the 20182021 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the registrant’s fiscal year covered by this report.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
PART I | |||
Item 1 | Business | ||
1 | |||
Item 1A | Risk Factors | ||
14 | |||
Item 1B | Unresolved Staff Comments | ||
28 | |||
Item 2 | Properties | ||
28 | |||
Item 3 | Legal Proceedings | 36 | |
Item 4 | Mine Safety Disclosures | 36 | |
PART II | |||
Item 5 | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity | 36 | |
Item 6 | Selected Financial Data | 37 | |
Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of | 37 | |
Item 7A | Quantitative and Qualitative Disclosures About Market | ||
50 | |||
Item 8 | Financial Statements and Supplementary | ||
51 | |||
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial | ||
51 | |||
Item 9A | Controls and | ||
51 | |||
Item | Other Information | ||
PART | |||
III | |||
Item 10 | Directors, Executive Officers and Corporate Governance | ||
52 | |||
Item 11 | Executive Compensation | ||
52 | |||
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters | ||
Item 13 | Certain Relationships and Related Transactions, and Director | ||
53 | |||
Item 14 | Principal Accounting Fees and Services |
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PART IV | ||||
Item 15 | Exhibits and Financial Statement | |||
Item 16 | Form 10–K Summary | 57 | ||
SIGNATURES | 58 | |||
EXHIBIT INDEX | ||||
LIST XBRL DOCUMENTS | ||||
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As used in this Annual Report on Form 10-K, the terms “we,” “us,” “our,” the “Company” and “Flanigan’s” mean Flanigan's Enterprises, Inc. and its subsidiaries (unless the context indicates a different meaning).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to the future effects of the COVID 19 pandemic, the general expansion of our business, and other statements which are not statements of current or historical facts.
The forward-looking statements contained in this annual report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk Factors” may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this annual report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this annual report, those results or developments may not be indicative of results or developments in subsequent periods.
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When used in this report, the words "anticipate", "believe", "estimate", “will”, “intend” and “expect” and similar expressions identify forward-looking statements. Forward-looking statements in this report include, but are not limited to, those relating to the general expansion of our 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
General
At September 30, 2017, weAs of October 3, 2020, Flanigan’s Enterprises, Inc., a Florida corporation, together with its subsidiaries (“we”, “our”, “ours” and “us” as the context requires), (i) operated 26operates 27 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; and (ii) own but do not operate one adult entertainment club; and (iii) franchisefranchises an additional five units, consisting of two restaurants (one of which we operate) and three 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 September 30, 2017October 3, 2020 and as compared to October 1, 2016.September 28, 2019. With the exception of “The Whale’s Rib”, a restaurant we operate but do not own, all of the restaurants operate under our service mark “Flanigan’s Seafood Bar and Grill” and all of the package liquor stores operate under our service markmarks “Big Daddy’s Liquors”. or “Big Daddy’s Wine & Liquors.”
FISCAL | FISCAL | ||||||||
YEAR | YEAR | ||||||||
2017 | 2016 | NOTE NUMBER | |||||||
TYPES OF UNITS | FISCAL YEAR 2020 | FISCAL YEAR 2019 | |||||||
Company Owned: | |||||||||
Combination package liquor | |||||||||
store and restaurant | 3 | 4 | (1) | ||||||
Company-Owned: | |||||||||
Combination package liquor store and restaurant | 3 | (1) | |||||||
Restaurant only | 7 | 6 | (1) | 7 | |||||
Package liquor store only | 6 | 5 | (1) | 7 | 6 | (2) | |||
Company Managed | |||||||||
Restaurants Only: | |||||||||
Company Managed Restaurants Only: | |||||||||
Limited partnerships | 8 | 8 | 8 | ||||||
Franchise | 1 | 1 | 1 | ||||||
Unrelated Third Party | 1 | 1 | 1 | ||||||
TOTAL – Company-Owned/Operated Units | 27 | 26 | |||||||
Franchised Units | 5 | (3) |
____________________
Notes:
(1) | During the first quarter of our fiscal year 2019, our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) was damaged by a fire which has caused it to be closed since the first quarter of our fiscal year 2019. Revenues and expenses from Store #19 for the time Store #19 was open during the first quarter of our fiscal year 2019 (two (2) days) are immaterial, with the exception of payroll. Store #19 remains closed. |
(2) | During the first quarter of our fiscal year 2020, our new package liquor store located at 12776 N. Kendall Drive, Miami, Florida (Store #45) opened for business. |
(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 Company-operated restaurant. |
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Company Owned Club: | 1 | 1 | ||||
TOTAL - Company | ||||||
Owned/Operated Units: | 27 | 26 | ||||
FRANCHISED - units | 5 | 5 | (2) |
Notes:Impact of COVID-19
(1) In March 2020, a novel strain of coronavirus was declared a global pandemic and a National Public Health Emergency. The novel coronavirus pandemic and related “shelter-in-place” orders and other governmental mandates relating thereto (collectively, “COVID-19”) adversely affected and will, in all likelihood continue to adversely affect, our restaurant operations and financial results for the foreseeable future. Due to COVID-19, from mid-March 2020 through mid-May 2020, we ceased all dining and bar services at all of our restaurants, limiting service to take-out and delivery only of food, and implemented reduced hours at our retail package liquor stores. From mid-May 2020 through the beginning of July 2020, there was a gradual elimination of restrictions on our restaurant operations, permitting us to, among other things, provide dining for outdoor seating patrons with appropriate social distancing and provide dining for indoor patrons at up to 50% capacity (depending on the location of the restaurant), but with no bar service and increased operating hours at our package liquor stores. From the beginning of July 2020 through the beginning of September 2020, we ceased dine-in service at all of our Miami-Dade County, Florida restaurants, (two Company-owned and six limited partnership owned restaurants). Since the beginning of September 2020, we have been offering both food and bar options at all of our restaurants, including those located in Miami-Dade County, Florida, with appropriate social distancing and dine-in service at up to 100% capacity, including outdoor dining.
Due to COVID-19, we implemented (i) certain cost cutting measures including material layoffs at our restaurants and reduced corporate personnel salaries; and (ii) a number of changes to our operations such as the establishment of an in-house delivery service and an adjustment to our traditional staffing model to meet customer demand. We have been in regular contact with our suppliers and while to date we have not experienced significant disruptions in our supply chain, we could see future disruptions should the impacts of COVID-19 extend for a considerable amount of time. To support our employees, we have implemented work from home support, increased sanitization of high touch, high traffic areas in our restaurants, retail package liquor stores and corporate offices, provided personal protective equipment for our employees and increased the frequency of personal hygiene practices. From March 29, 2020 through May 9, 2020, the salaries of all our non-executive corporate office personnel were reduced by 20%, the base salaries of our Chief Operating Officer and Chief Financial Officer were each reduced by 50% and our Chief Executive Officer waived his base salary, representing salary savings of approximately $135,000 during this period. Our employee headcount as of fiscal year end 2020 was 1,804 persons reduced from 1,870 persons as of our fiscal year end 2019.
In addition and also due to COVID-19, we did not make any quarterly distributions to our limited partners for the quarter ended March 31, 2020. For each of the quarters ended June 30, 2020 and September 30, 2020, we made quarterly distributions to our limited partners equal to one-half (½) of the amounts that would have been distributed for the quarter ended March 31, 2020.
During the third quarter of fiscal year end 2020, the United States government passed a $2.0 trillion Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) designed primarily to help keep businesses running during and after the COVID-19 pandemic. The CARES Act included provisions for certain deductions and tax credits, filing deadline extensions, filing payment deadlines and making available certain grant money to assist businesses. This CARES ACT allowed us to take advantage of credits, deferments, and deductions, and loans from an unrelated third party lender pursuant to the Paycheck Protection Program (“PPP Loans”) (described below) during the third quarter of our fiscal year 2017,2020. As a result, during the third and fourth quarter of 2020, we re-located the package liquor store fromreversed certain of our combination package liquor storecost cutting measures, including (i) reinstating employees laid off at our restaurants in anticipation of resuming dine-in service, (ii)restoring corporate personnel and restaurant located at 13205 Biscayne Boulevard, North Miami, Florida to our newly constructed, free-standing building located at 13185 Biscayne Boulevard, North Miami, Florida.executive salaries and (iii) paying prior salary reductions.
(2) We operatedo not believe COVID-19 has had a restaurant for one (1) franchisee. This unit is includedmaterial adverse effect on our access to supplies or labor, although there can be no assurance that there will not be a significant adverse impact on our supply chain or access to labor in the table both as a franchised restaurant, as well as a restaurant operated by us.future. We are actively monitoring our food suppliers to assess how they are managing their operations to mitigate supply flow and food safety risks. To ensure we mitigate potential supply availability risk, we are building additional inventory back stock levels when appropriate and we have also identified alternative supply sources in key product categories including but not limited to food, sanitation and safety supplies.
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Additional information regarding the impact of COVID-19 on our business and the CARES Act is set forth within this Part I, Part II Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements.
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 1113 to the consolidated financial statements and the discussion of franchised units on page 7.4.
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 76.6%81.1% and bar sales approximately 23.4%18.9% 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.
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State Of
| Percentage
| |
Flanigan’s Management Services, Inc. | Florida | 100 |
Flanigan’s Enterprises, Inc. of Georgia | Georgia | 100 |
Flanigan’s Enterprises, Inc. of Pa. | Pennsylvania | 100 |
Flanigan’s Enterprises of N. Miami, Inc. | Florida | 100 |
CIC Investors #13, Limited Partnership | Florida | 45 |
CIC Investors #50, Limited Partnership | Florida | |
CIC Investors #55, Limited Partnership | Florida | 49 |
CIC Investors #60, Limited Partnership | Florida | 46 |
CIC Investors #65, Limited Partnership | Florida | 28 |
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CIC Investors #70, Limited Partnership | Florida | 41 |
CIC Investors #80, Limited Partnership | Florida | 27 |
CIC Investors #85, Limited Partnership | Florida | 100 |
CIC Investors #90, Limited Partnership | Florida | 5 |
Josar Investments, LLC | Florida | 100 |
Flanigan’s Calusa Center, LLC | Florida | 100 |
Flanigan’s Fish Company, LLC | Florida | 51 |
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, beerbeers and wines while offering competitive pricing by meeting the published sales prices of our competitors. We provide sales training to our package liquor store personnel. The stores are open for business 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 halfMost of our units have "night windows" with extended evening hours.
Company OwnedCompany-Owned Package Liquor Stores. We own and operate nine package liquor stores in the South Florida area under the name “Big Daddy’s Liquors”, threetwo of which are jointly operated with restaurants we own.
Franchised Package Liquor Stores. We currently franchise three package liquor stores, all in the South Florida area, all of which are operated under the name “Big Daddy’s Liquors”. Of the three franchised package liquor stores, two are jointly operated with our franchisee’s restaurant operations
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and one is operated in a free-standingfreestanding building adjacent to the franchisee’s restaurant operation. Two of the three remaining 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 franchisee’s lease for the business premises, extended by the franchisee’s 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, “Big Daddy’s Liquors”, 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.Operations
Our restaurants provide a neighborhood casual, standardized dining experience, typical of casual 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.
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Company OwnedCompany-Owned Restaurants. We own and operate tennine restaurants all under our service mark “Flanigan’s Seafood Bar and Grill” threetwo of which are jointly operated with package liquor stores we own. One additional combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) has been closed since October 2018 due to fire damage.
Franchised Restaurants. We franchise five restaurants, all of which operate under our service mark “Flanigan’s Seafood Bar and Grill”, two of which operate as a restaurant only, two of which operate jointly with a franchisee operated “Big Daddy’s Liquors” package liquor store and one of which operates adjacent to a “Big Daddy’s Liquors” 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 franchisee’s lease for the business premises, extended by the franchisee’s 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, “Flanigan’s Seafood Bar and Grill”, 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 depending upon our actual advertising costs.
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For accounting purposes, we do not consolidate the revenue and expenses of our franchisees’ operations with our revenue and expenses. Franchise royalties we receive are “earned” when sales are made by franchisees.
Restaurants Owned by Affiliated Limited Partnerships
We have invested along with others, (some of whom are or are affiliated with our officers and directors), in nine limited partnerships which currently own and operate nine South Florida based restaurants under our service mark “Flanigan’s Seafood Bar and Grill”. In addition to being a limited partner in these limited partnerships, we are the sole general partner of eight of these limited partnerships and manage and control the operations of these restaurants. We are only a limited partner in the limited partnership which owns and operates the restaurant located in Fort Lauderdale, Florida. We are currently developing a “Flanigan’s Seafood Bar and Grill” restaurant in Sunrise, Florida which will be owned by a limited partnership using the same or substantially similar financial arrangement and of which we will be the sole general partner and may invest as a limited partner.
Generally, the terms of the limited partnership agreements provide that until the investors’ cash investment in a limited partnership (including any cash invested by us) is returned in full, (available cash is distributed to the investors pro-rata based on ownership interest), 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 (½) to us as a management fee and one-half (1/2)(½) to the investors, (including us), pro-rata based on the investors’ 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 (½) of cash available to be distributed, with the other one halfone-half (½) of available cash distributed to the investors (including us), as a profit distribution, pro-rata based on the investors’ investment. As of September 30, 2017,October 3, 2020, all eight (8) limited partnerships owning six (6) restaurants, (Surfside, Florida, Kendall, Florida, West Miami, Florida, Pinecrest, Florida, Wellington, Floridawhere we are the general partner and Miami, Florida locations),are eligible to receive a management fee, have returned to their respective investors all cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by thethese limited partnership.partnerships. 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 “Flanigan’s Seafood Bar and Grill” service mark, which use is authorized while we act as general partner only. This 3% fee is “earned” when sales are made by the limited partnerships and is paid weekly, in arrears. Whether we will have any additional restaurants under development in the future will be dependent, 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 “Flanigan’s Seafood Bar and Grill” using the same or substantially similar financial arrangements.
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Below is information on the nine limited partnerships which own and operate “Flanigan’s Seafood Bar and Grill” restaurants:
Surfside, Florida
We are the sole general partner and a 46% limited partner in this limited partnership which has owned and operated a restaurant in Surfside, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since March
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6, 1998. 33.3% 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 (½) 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 “Flanigan’s Seafood Bar and Grill” service mark since April 4, 2000. 28.3% 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 (½) 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 “Flanigan’s Seafood Bar and Grill” service mark since October 11, 2001. 32.7% 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 (½) of the cash available for distribution by this limited partnership.
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 “Flanigan’s Seafood Bar and Grill” service mark since May 27, 2005. 22.4% 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 (1/2) of the cash available for distribution by this limited partnership.
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Pinecrest, Florida
We are the sole general partner and 45% limited partner in this limited partnership which has owned and operated a restaurant in Pinecrest, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since August 14, 2006. 20.2% 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 (½) of the cash available for distribution by this limited partnership.
Pembroke Pines, Florida
We are the sole general partner and a 23%24% limited partner in this limited partnership which has owned and operated a restaurant in Pembroke
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Pines, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since October 29, 2007. 23.8% 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 2017, thisThis limited partnership has returned to its investors approximately 91.0%all of their initial cash invested increased from approximately 75.0% asand we receive an annual management fee equal to one-half (½) of the end of our fiscal year 2016.cash available for distribution by this limited partnership.
Davie, Florida
We are the sole general partner and a 49% limited partner in this limited partnership which has owned and operated a restaurant in Davie, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since July 28, 2008. 12.3% 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 2017, thisThis limited partnership has returned to its investors approximately 83.0%all of their initial cash invested increased from approximately 70.5% asand we receive an annual management fee equal to one-half (½) of the end of our fiscal year 2016.cash available for distribution by this limited partnership.
Miami, Florida
We are the sole general partner and a 5% limited partner in this limited partnership which has owned and operated a restaurant in Miami, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since December 27, 2012. 26.8% 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 2017, thisThis limited partnership has returned to its investors all of their initial cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by this limited partnership.
Sunrise, Florida
During the second quarter of our fiscal year 2019, we entered into a Lease Agreement (the “Sunrise Lease Agreement”) with a non-affiliated third party to rent approximately 6,900 square feet of commercial space in Sunrise, Florida where, subject to certain conditions, we anticipate opening a new restaurant location under our “Flanigan’s Seafood Bar and Grill” service mark. During the third quarter of our fiscal year 2019, we assigned the Sunrise Lease Agreement to a newly formed limited partnership in which we currently are (i) the sole general partner; and (ii) our wholly owned subsidiary is the sole limited partner. While there can be no assurances that we will be successful in doing so, we intend to sell limited partnership interests to third parties as well as affiliates of the Company in order to raise net proceeds, in the amount of $5,000,000, which proceeds will be used to renovate this potential restaurant location. We anticipate that the new restaurant location’s ownership and operating structure will be substantially similar to that of our other restaurants owned by limited partnerships.
Fort Lauderdale, Florida
A corporation owned by one of our board members acts as sole general partner of a limited partnership which has owned and operated a restaurant in Fort Lauderdale, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since April 1, 1997. We have a 25% limited partnership interest in this limited partnership. 31.9% 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 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.
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Management Agreement for “The Whale’s Rib” Restaurant
Since January 2006, we have managed “The Whale’s Rib”, 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 (½) of the net profit, if any, from the operation of the
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restaurant. For our fiscal years ended October 3, 2020 and September 30, 2017 and October 1, 2016,28, 2019, we generated $425,000$150,000 and $442,000$375,000 of revenue, respectively from providing these management services.
Adult Entertainment Club
We own, but do not operate, an adult entertainment nightclub located in Atlanta, Georgia which operates under the name “Mardi Gras”. 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 September 30, 2017 and October 1, 2016, we generated $150,000 of revenue each fiscal year 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 supervisors, who visit units to provide on-site management and support. There are three supervisors responsible for package liquor store operations and five supervisors responsible for restaurant operations.
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.
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Under Florida law, we are required to pay for our liquor purchases within ten days of delivery.
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.
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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, theThe 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 noor 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,
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advertising, wholesale purchasing, inventory control, handling, storage and dispensing of alcoholic beverages, internal control and accounting and collection of state alcoholic beverage taxes.accounting.
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 20172020 and 2016,2019, 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 “dram-shop” statutes due to our restaurant operations and club ownership.operations. 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 Withwith 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.
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Coronavirus Pandemic
In March 2020, a novel strain of coronavirus was declared a global pandemic and a National Public Health Emergency. The novel coronavirus pandemic and related “shelter-in-place” orders and other governmental mandates relating thereto (collectively, “COVID-19”) adversely affected and will, in all likelihood continue to adversely affect, our restaurant operations and financial results for the foreseeable future. Due to COVID-19, from mid-March 2020 through mid-May 2020, we ceased all dining and bar services at all of our restaurants, limiting service to take-out and delivery only of food, and implemented reduced hours at our retail package liquor stores. From mid-May 2020 through the beginning of July 2020, there was a gradual elimination of restrictions on our restaurant operations, permitting us to, among other things, provide dining for outdoor seating patrons with appropriate social distancing and provide dining for indoor patrons at up to 50% capacity (depending on the location of the restaurant), but with no bar service and increased operating hours at our package liquor stores. From the beginning of July 2020 through the beginning of September 2020, we ceased dine-in service at all of our Miami-Dade County, Florida restaurants, (two Company-owned and six limited partnership owned restaurants). Since the beginning of September 2020, we have been offering both food and bar options at all of our restaurants, including those located in Miami-Dade County, Florida, with appropriate social distancing and dine-in service at up to 100% capacity, including outdoor seating.
Due to COVID-19, we implemented (i) certain cost cutting measures including material layoffs at our restaurants and reduced corporate personnel salaries; and (ii) a number of changes to our operations such as the establishment of an in-house delivery service and an adjustment to our traditional staffing model to meet customer demand. We have been in regular contact with our suppliers and while to date we have not experienced significant disruptions in our supply chain, we could see future disruptions should the impacts of COVID-19 extend for a considerable amount of time. To support our employees, we have implemented work from home support, increased sanitization of high touch, high traffic areas in our restaurants, retail package liquor stores and corporate offices, provided personal protective equipment for our employees and increased the frequency of personal hygiene practices. From March 29, 2020 through May 9, 2020, the salaries of all our non-executive corporate office personnel were reduced by 20%, the base salaries of our Chief Operating Officer and Chief Financial Officer were each reduced by 50% and our Chief Executive Officer waived his base salary, representing salary savings of approximately $135,000 during this period. Our employee headcount as of fiscal year end 2020 was 1,804 persons reduced from 1,870 persons as of our fiscal year end 2019.
In addition and also due to COVID-19, we did not make any quarterly distributions to our limited partners for the quarter ended March 31, 2020. For each of the quarters ended June 30, 2020 and September 30, 2020, we made quarterly distributions to our limited partners equal to one-half (½) of the amounts that would have been distributed for the quarter ended March 31, 2020.
During the third quarter of fiscal year end 2020, the United States government passed a $2.0 trillion Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) designed primarily to help keep businesses running during and after the COVID-19 pandemic. The CARES Act included provisions for certain deductions and tax credits, filing deadline extensions, filing payment deadlines and making available certain grant money to assist businesses. This CARES ACT allowed us to take advantage of credits, deferments, and deductions, and PPP Loans (described below) during the third quarter of our fiscal year 2020. As a result, during the third and fourth quarter of 2020, we reversed certain of our cost cutting measures, including (i) reinstating employees laid off at our restaurants in anticipation of resuming dine-in service, (ii) restoring corporate personnel and executive salaries and (iii) paying prior salary reductions.
During the third quarter of our fiscal year 2020, we, certain of the entities owning the limited partnership stores (the “LP’s”), franchised stores (the “Franchisees”) as well as the store we manage but do not own (the “Managed Store”), (collectively, the “Borrowers”), applied for and received loans from an unrelated third party lender pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) enacted March 27, 2020, in the aggregate principal amount of approximately $13.1 million, (the “PPP Loans”), of which approximately: (i) $5.9 million was loaned to us; (ii) $4.1 million was loaned to 8 of the LP’s; (iii) $2.6 million was loaned to 5 of the Franchisees; and (iv) $0.5 million was loaned to the Managed Store. The PPP Loans to the Franchisees and the Managed Store are not included in our consolidated financial statements. Due to our receipt of the PPP Loans, we reversed certain cost cutting measures, including reinstating employees laid off at our restaurants in anticipation of resuming dine-in service and restoring corporate personnel salaries.
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The PPP Loans, which are in the form of Notes issued by each of the Borrowers, mature two years from the date of funding (dates ranging from May 5, 2022 to May 11, 2022) and bear interest at a rate of 1.00% per annum, payable monthly commencing approximately six months from the date of issuance of the Notes (issuance dates ranging from April 30, 2020 to May 6, 2020). The Notes may be prepaid by the applicable Borrower at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loans have been used and are available to the respective Borrower to fund designated expenses, including certain payroll costs, group health care benefits and other permitted expenses, including rent and interest on mortgages and other debt obligations incurred before February 15, 2020. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent the proceeds of the PPP Loans are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP. No assurance can be given that the Borrowers will obtain forgiveness of the PPP Loans in whole or in part.
With respect to any portion of any of the PPP Loans that is not forgiven under the terms of the PPP, such amounts will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the applicable PPP Note and cross-defaults on any other loan with the Lender or other creditors.
We do not believe COVID-19 has had a material adverse effect on our access to supplies or labor, although there can be no assurance that there will not be a significant adverse impact on our supply chain or access to labor in the future. We are actively monitoring our food suppliers to assess how they are managing their operations to mitigate supply flow and food safety risks. To ensure we mitigate potential supply availability risk, we are building additional inventory back stock levels when appropriate and we have also identified alternative supply sources in key product categories including but not limited to food, sanitation and safety supplies.
Prior to obtaining the PPP Loans, we were in compliance with the financial covenants contained in our loans with our unrelated third party institutional lender (the “Institutional Lender”) under which as of October 3, 2020, we owe in the aggregate, approximately $12,209,000 (the “Institutional Loans”). We determined that as of the end of the third quarter of our fiscal year 2020, we were not in compliance with our financial covenants contained in the Institutional Loans related to the Rent Adjusted Funded Debt to EBITDA Ratio because our consolidated debt during the third quarter of our fiscal year 2020 increased due to our repayment obligations under the PPP Loans (the “Covenant Breach’). Pursuant to the terms of the Institutional Loans, the Covenant Breach, grants the Institutional Lender the right to exercise certain remedies under the Institutional Loans, including the right to accelerate the indebtedness owed by us to the Institutional Lender thereunder. On August 10, 2020, we received a written waiver of the Covenant Breach from the Institutional Lender, which, among other things, waives the Covenant Breach through June 30, 2021. As of October 3, 2020, we are in compliance with the financial covenants contained in our loans with our Institutional Lender.
There can be no assurances that we will be in compliance with our financial covenants thereafter due to, among other things, that our results of operations will likely continue to be materially impacted by the COVID-19 pandemic. Absent a waiver, failure to be in compliance with our financial covenants would constitute a default under the Institutional Loans with our Institutional Lender when reported. Such a default, if not cured or waived, would allow the Institutional Lender to accelerate the maturity of the indebtedness we owe under the Institutional Loans, making it due and payable at the time. If maturity of the Institutional Loans were accelerated, it would have a material adverse impact on our consolidated financial statements and results of operations.
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General Liability Insurance
We have general liability insurance which incorporates a semi-self-insured plan under which we assume the full riskdeductible of the first $50,000 of exposure$10,000 per occurrence whilefor both us and the limited partnerships assume the full risk of the first $10,000 of exposure per occurrence.partnerships. 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 20172020, we were able to purchase excess liability insurance at a reasonable premium, whereby our excess insurance carrier is responsible for $6,000,000$10,000,000 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
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business premises, weWe are un-insureduninsured against liability claims in excess of $7,000,000$11,000,000 per occurrence and in the aggregate. Subsequent to the end of our fiscal year 2020, we secured general liability and excess liability insurance for the period commencing after the expiration of the current policies on December 30, 2020.
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 group of defense attorneys which we use in conjunction with this program. Under our current liability insurance policy, any expensecertain expenses incurred by us in defending a claim, including adjusters and attorney's fees, are a part of our $50,000 or $10,000 as applicable, self-insured retentions.deductible.
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-insuranceinsurance 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 beginning December 30, 2016,2019, our property insurance is a one (1) year policy with an unaffiliated third party insurance carrier, including coverage for properties leased by us and our consolidated limited partnerships, and provides for full insurance coverage for property losses, including those caused by windstorm, such as a hurricane. We are in discussions to secure property insurance for the period commencing after the expiration of the current policy on December 30, 2017. For property losses caused by windstorm, the property insurance has a fixed deductible of $100,000, plus 5% of all insured losses, per occurrence. For all other property losses, the property insurance has deductibles of $10,000 per location, per occurrence. The one (1)Subsequent to the end of our fiscal year 2020, we secured property insurance premium is infor the amountperiod commencing after the expiration of $505,000, of which $405,000 is financed through an unaffiliated third party lender. The finance agreement provides that we are obligated to repay the amount financed, together with interest at the rate of 2.95% per annum, over 10 months, with monthly payments of principal and interest, each in the amount of approximately $41,000. The finance agreement is secured by a security interest in the insurancecurrent policy all unearned premium, return premium, dividend payments and loss payments thereof.on December 30, 2020.
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.
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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 competitors’ 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. In September 2017,June 2019, we increased certain menu prices for our bar offerings to target an increase to our total bar revenues of approximately 4.9%6.2% annually and we also increased certain restaurant menu prices for our food offerings to target an increase to our total food revenues of approximately 4.0% annually. In February 2016, we increased certain menu prices for our bar offerings to target an increase to our total bar revenues of approximately 3.0% annually and we also increased certain restaurant menu prices for our food offerings to target an increase to our total food revenues of approximately 3.7%3.4% annually. We believe that we have a competitive position in our market because of widespread consumer recognition of the "Flanigan’s Seafood Bar and Grill" name.
We have many well-established competitors, both nationally and locally owned, with substantially greater financial resources 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 Courtfederal 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's” 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 Courtfederal court retained jurisdiction to enforce the consent decree. We have acquired registered Federal trademarks on the principal register for our "Flanigan's" and “Flanigan’s Seafood Bar and Grill” 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
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Company’s founder, Joseph "Big Daddy" Flanigan, and is a federally registered trademark owned by us.
Employees
As of our fiscal year end 2017,2020, we employed 1,7071,804 persons, of which 979952 were full-time and 728852 were part-time. Of these, 4151 were employed at our corporate offices in administrative capacities and 1113 were employed in maintenance. Of the remaining employees, 5765 were employed in our package liquor stores and 1,5981,675 in our restaurants.
None of our employees are represented by collective bargaining organizations. We consider our labor relations to be favorable.
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EXECUTIVE OFFICERS
Positions and Offices | Office or Position | ||
Name | Currently Held | Age | Held Since |
James G. Flanigan | Chairman of the Board | 53 | (1) |
of Directors, Chief | |||
Executive Officer and | |||
President | |||
August Bucci | Chief Operating Officer | 73 | 2002 |
and Executive Vice | |||
President | |||
Jeffrey D. Kastner | Chief Financial Officer, | 64 | (2) |
General Counsel and | |||
Secretary | |||
Christopher O’Neil | Vice President of Package | 52 | 2016 |
Operations |
Executive Officers
Name
| Positions and Offices Currently Held
| Age
| Office or Position Held Since
|
James G. Flanigan | Chairman of the Board of Directors, Chief Executive Officer and President
| 56 | (1) |
August Bucci | Chief Operating Officer and Executive Vice President
| 76 | 2002 |
Jeffrey D. Kastner | Chief Financial Officer, General Counsel and Secretary
| 67 | (2) |
Christopher O’Neil | Vice President of Package Operations
| 55 | 2016 |
----------------
(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. |
Flanigan’s 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, 2020 and September 30, 2017 and
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October 1, 2016,28, 2019, the Board of Directors approved discretionary matching contributions totaling $47,000$81,000 and $43,000,$74,000, respectively.
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.
Our Website
Our website address is https://www.flanigans.net
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 and therefore not referenced herein, may also become material and may harm our business, financial condition or results of 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.
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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 management’s current expectations regarding future events and use words such as “anticipate”, “believe”, “expect”, “may”, “will” 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 management’s expectations. New risks and uncertainties arise from time to time, and we cannot predict when they may arise or how they may affect us. We assume no obligation to update any forward-looking statements after the date of this report as a result of new information, future events or other developments, except as required by applicable laws and regulations.
The Novel Coronavirus (COVID-19) Pandemic Has Had A Significant Impact On Our Operations Since March 2020 And Could Materially And Adversely Affect Our Future Business And Financial Results.
The global pandemic caused by the novel coronavirus (COVID-19 virus) has and will continue to materially and adversely affect our restaurant business for what may be a prolonged period of time. This damage and disruption has resulted from events and factors that were impossible for us to predict and are beyond our control. In the United States, as well as globally, individuals are being encouraged to practice social distancing, restricted from gathering in groups, and in some areas are restricted from non-essential movements outside of their homes. In compliance with government directives from time to time, we temporarily (i) shifted our restaurant operations to a take-out or delivery only operating model; (ii) reduced the operating hours of our retail package stores; (iii) laid off a significant number of employees; and (iv) substantially modified our corporate operations to comply with social distancing requirements. As a result, and despite experiencing increased sales and traffic at certain of our retail package liquor stores, these changes caused by the COVID-19 pandemic materially adversely affected our results of operations for our fiscal year 2020 and will, in all likelihood, impact our results of operations, liquidity and/or financial condition for our fiscal year 2021, particularly if further government directives are put in place for a significant amount of time.
The COVID-19 pandemic’s impact on the economy in general, globally, nationally and locally, could also adversely affect our guests’ financial condition, resulting in reduced spending at our restaurants and package liquor stores. The COVID-19 pandemic and these responses have affected and will continue to adversely affect our guest traffic, sales and operating costs and we cannot predict how long the pandemic will last or what other government responses may occur. Moreover, once restrictions are lifted, it is unclear whether guests will be comfortable dining out and, if so, how quickly guests will return to our restaurants, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, and other factors that are beyond our control. Any failure of consumers to return to pre-pandemic dining patterns could have a long-term material adverse impact on us and our future prospects.
The equity markets in the United States have been extremely volatile due to the COVID-19 pandemic and our stock price has fluctuated significantly and may continue to do so. If the business interruptions caused by COVID-19 continue indefinitely or last longer than we expect, we may need to seek other sources of liquidity. The COVID-19 pandemic has created significant disruption and extreme volatility in global capital markets and is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be readily available on favorable terms, especially the longer the COVID-19 pandemic lasts, or available at all. In the second quarter of fiscal 2020, our Board of Directors voted to cancel a previously declared cash dividend due to uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and local governments in response to COVID-19. Additionally, certain of our restaurants have been further disrupted when an employee has been diagnosed with COVID-19 or exposed to a person with a confirmed positive diagnosis of COVID-19. In the event an employee has been diagnosed with COVID-19, our policy requires quarantine of some or all of a restaurant’s or store’s employees and disinfection of the restaurant or store facilities. Additionally, if an employee has direct contact with a friend or family member with a confirmed positive diagnosis of COVID-19, such employee must exclude himself or herself from work for a certain period of time. If a significant percentage of our workforce is unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, our operations will be negatively impacted, potentially materially adversely affecting our liquidity, financial condition or results of operations. If an outbreak is traced to one or more of our locations, it could impact our reputation and subject us to legal claims.
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We have not experienced any significant issues related to suppliers; however, our suppliers could be adversely impacted by the COVID-19 pandemic. If our suppliers’ employees are unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, or if the supply chain is disrupted for any other reason such as travel limitations and other restrictions on commerce, we could face shortages of food items or other supplies at our restaurants and our operations and sales could be adversely impacted by such supply interruptions.
Considering the significant uncertainty as to our ability to increase sales to levels we achieved before the COVID-19 pandemic based on aforementioned uncertainties and other known and unknown risks related to the pandemic, refer to Part I, Item 1 – Business, Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations discussions on Liquidity for further information. Additionally, the impact of COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, may also precipitate or exacerbate other risks discussed in this Item 1A - Risk Factors and elsewhere in this report, any of which could have a material effect on us. This situation is changing rapidly and additional effects may arise that we are not presently aware of or that we currently do not consider to present significant risks to our operations. If we are not able to respond to and manage the impact of such events effectively, our business and financial condition will be negatively impacted.
Our Sales and Profit Growth Could beBe Adversely Affected If Comparable Restaurant Sales Increases Are Less Than We Expect, and We May Not Successfully Increase Comparable Restaurant Sales or They May Decrease.
While future sales growth will depend substantially on our opening new restaurants, changes in comparable restaurant sales (which represent the change in period-over-period sales for restaurants) will also affect our sales growth and will continue to be a critical factor affecting profit growth. This is because the profit margin on comparable restaurant sales is generally higher, as comparable restaurant sales increases enable fixed costs
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to be spread over a higher sales base. Conversely, declines in comparable restaurant sales can have a significant adverse effect on profitability due to the loss of the positive impact on profit margins associated with comparable restaurant sales increases. There is no assurance that comparable restaurant sales will increase in fiscal year 20182021 due to, among other things, ongoing consumer and economic uncertainty.
Our ability to increase comparable restaurant sales depends on many factors, including:
●
· | perceptions of the Flanigan’s brand; |
· | competition, especially from an increasing number of competitors in the fast casual segment of the restaurant industry and from other restaurants whose strategies overlap ours, as well as from grocery stores, meal kit delivery services and other dining options; |
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Table of the Flanigans’ brand;Contents
● competition, especially from an increasing number of competitors in the fast casual segment of the restaurant industry and from other restaurants whose strategies overlap ours;
● executing our strategies effectively, including our marketing and branding strategies;
● changes in consumer preferences and discretionary spending; and
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· | executing our strategies effectively, including our marketing and branding strategies; |
· | changes in consumer preferences and discretionary spending; |
· | our ability to increase menu prices without adversely affecting our existing business; |
· | weather, natural disasters and other factors limiting access to our restaurants; and |
· | changes in government regulation that may impact customer perceptions of our food. |
As a result it is possible that we will not achieve our targeted comparable restaurant sales or that the change in comparable restaurant sales could be negative. A number of these factors are beyond our control and therefore we cannot assure that we will be able to sustain comparable restaurant sales increases.
High Unemployment, Instability in the Housing Market, High Energy and Food Costs and General Economic Uncertainty Could Result in a Decline in Consumer Discretionary Spending That Would Materially Affect our Financial Performance.
Dining out is a discretionary expense. Factors that affect consumer behavior and spending for restaurant dining, such as changes in general economic conditions (including national, regional and local economic conditions), discretionary spending patterns, employment levels, instability in the housing market, and high energy and food costs may have a material adverse effect on us. If economic conditions worsen, our financial performance could be adversely affected.
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 or where we intend to locate restaurants. Additionally, other companies may develop restaurants and/or stores that operate with similar concepts.
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Any inability to compete 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 resultbecause 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 labelingmenu-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 respond 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.
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Adverse Public Or Medical Opinions About Health Effects Of Consuming Our Products As Well As Negative Publicity About Us, Our Restaurants And/Oror 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 resultbecause of these types of health concerns or negative publicity could materially harm our results of operations.
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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. However, we have not experienced any adverse affectseffects from past menu price increases.
Increases in Food Costs, Raw Materials and Other Supplies and Services May Have a Material Adverse Impact on our Financial Performance.
Our operating margins depend on, among other things, our ability to anticipate and react to changes in the costs of key operating resources, including food and beverage costs, utilities and other supplies and services. We attempt to negotiate short-term and long-term agreements for our principal commodity, supply and equipment requirements, depending on market conditions and expected demand. However, we are currently unable to contract for extended periods of time for certain of our commodities. Consequently, these commodities can be subject to unforeseen supply and cost fluctuations due to factors such as changes in demand patterns, increases in the cost of key inputs, fuel costs, weather and other market conditions outside of our control. Dairy costs can also fluctuate due to government regulation. Our suppliers also may be affected by higher costs to produce and transport commodities used in our restaurants, higher minimum wage and benefit costs, and other expenses that they pass through to their customers, which could result in higher costs for goods and services supplied to us.
Our Business Could Be Materially Adversely Affected If We Are Unable To Expand In A Timely And Profitable MannerManner.
To grow successfully, we must open new restaurants and/or package liquor stores on a timely and profitable basis. We have experienced delays in restaurant and/or package liquor store openings from time to time and may experience delays in the future. During our fiscal years 2017 and 2016year 2020, we had nocontinued developing our new restaurants under development. We currently do not have anyrestaurant in Sunrise, Florida. During our fiscal year 2019, we developed a new restaurants under development.package liquor store in Miami, Florida (Store #45).
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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.
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If we are unable to successfully manage these risks successfully, 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 PerformancePerformance.
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 our 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.
Our Success Depends Substantially on the Value of our Brands and our Reputation for Offering Guests a Satisfactory Experience.
We believe we have built a reasonably strong reputation for the predictability of our menu items, as part of the experience that guests enjoy in our restaurants. We believe we must protect and grow the value of our brands to continue to be successful in the future. Any incident that erodes consumer trust in or affinity for our brands could be harmful to us. If consumers perceive or experience a reduction in food quality, service or ambiance, or in any way believe we failed to deliver a consistently positive experience, our brand value could suffer.
Our Marketing And Advertising Strategies May Not Be Successful, Which Could Adversely Impact Our Business.
From time to time, we introduce new advertising campaigns and media strategies. If our advertising campaign and new media strategies do not resonate with customers in the manner we hope, they may not result in increased sales, but would still increase our expenses. We will continue to invest in marketing and advertising strategies that we believe will attract customers or increase their connection with our brand. If these marketing and advertising investments do not drive increased restaurant and/or package store sales, the expense associated with these programs will adversely impact our financial results, and we may not generate the levels of comparable sales we expect.
Labor Shortages, An Increase In Labor Costs, Or Inability To Attract Employees Could Harm Our BusinessBusiness.
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.
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Increases In Employee Minimum Wages By The Federal Or State Government Could Adversely Affect BusinessBusiness.
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 OperationsOperations.
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),
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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.
If We Were to Experience Widespread Difficulty Renewing Existing Leases on Favorable Terms, Our Revenue or Occupancy Costs Could be Adversely Affected.
Most of the properties on which we operate restaurants are leased from third parties, and some of our leases are due for renewal or extension options in the next several years. Some leases expire without any renewal options. While we currently expect to pursue the renewal of substantially all of our expiring restaurant leases, any difficulty renewing a significant number of such leases, or any substantial increase in rents associated with lease renewals, could adversely impact us. If we have to close any restaurants due to difficulties in renewing leases, we would lose revenue from the affected restaurants and may not be able to open suitable replacement restaurants. Substantial increases in rents associated with lease renewals would increase our occupancy costs, reducing our restaurant margins.
Due To Our Geographic Locations, We May Not Be Able To Acquire Windstorm Insurance Coverage Or Adequate Windstorm Insurance Coverage At A Reasonable RateRate.
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 OperationsOperations.
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.
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A 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:to the following:
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the preparation and sale of food and alcoholic beverages; |
· | employment; |
· | building construction and access; |
· | zoning requirements; and |
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 “ADA”) 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.
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We May Face Liability Under Dram Shop Statutes
Statutes.
Our sale of alcoholic beverages subjects us to “dram shop” statutes. These statutes, which 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. WeThere are currently have threeno “dram shop” claims which we are defending vigorously.pending against us. See “Item 1. Business—Government Regulation” for a discussion of the regulations with which we must comply.
We May Face Instances Ofof Food Borne Illness
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 “mad cow” 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.
If We Are Unable To Protect Our Customers’ Credit Card Data, We Could Be Exposed To Data Loss, Litigation, And Liability, And Our Reputation Could Be Significantly Harmed.
In connection with credit card sales, we transmit confidential credit card information by way of secure private retail networks. Although we use private networks, third parties may have the technology or know-how to breach the security of the customer information transmitted in connection with credit card sales, and our security measures and those of our technology vendors may not effectively prohibit others from obtaining improper access to this information. If a person is able to circumvent these security measures, he or she could destroy or steal valuable information or disrupt our operations. Any security breach could expose us to risks of data loss, litigation, and liability, and could seriously disrupt our operations and any resulting negative publicity could significantly harm our reputation.
If We Experience a Significant Failure in or Interruption of Certain Key Information Technology Systems, our Business could be Adversely Impacted.
We use a variety of applications and systems to manage the flow of information securely within each of our restaurants and within our centralized corporate infrastructure. The services available within our systems and applications include restaurant and store operations, supply chain, inventory, scheduling, training, human capital management, financial tools and data protection services. The restaurant and store structure is based primarily on a point-of-sale system that operates locally and is integrated with other functions necessary to operations. It records sales transactions, receives out of store orders and authorizes, batches and transmits credit card transactions. The system also allows employees to enter time clock information and to produce a variety of management reports. Select information that is captured from this system at each restaurant or store is collected in the central corporate infrastructure, which enables management to continually monitor operating results. Our ability to manage efficiently and effectively our business depends significantly on the reliability and capacity of these and other systems and our operations depend substantially on the availability of our point-of-sale system and related networks and applications. These systems may be vulnerable to attacks or outages from security breaches, viruses and other disruptive problems, as well as from physical theft, fire, power loss, telecommunications failure or other catastrophic events. Any failure of these systems to operate effectively, whether from security breaches, maintenance problems, upgrades or transitions to new platforms, or other factors could result in interruptions to or delays in our restaurant or other operations, adversely impacting the restaurant or store experience for our customers or negatively impacting our ability to manage our business. If our information technology systems fail and our redundant systems or disaster recovery plans are not adequate to address such failures, or if our business interruption insurance does not sufficiently compensate us for any losses that we may incur, our revenues and profits could be reduced and the reputation of our brand and our business could be materially adversely affected. In addition, remediation of any problems with our systems could result in significant, unplanned expenses.
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The Effect Ofof Recent Changes Toto U.S. Healthcare Laws May Increase Our Healthcare Costs and Negatively Impact Our Financial Results.
We offer eligible full-time employees the opportunity to enroll in healthcare coverage subsidized by us.the Company. For various reasons, many of our eligible employees currently choose not to participate in our healthcare plans. However, under the comprehensive U.S. health care reform law enacted in 2010, the Affordable Care Act, certain provisions, including, the employer mandate, may increase our labor costs significantly. The law, in certain circumstances, imposes a penalty on individuals who do not obtain healthcare coverage, which may result in employees who are currently eligible but elect not to participate in our healthcare plans to now find it advantageous to do so, which may increase our healthcare costs. In general, implementing the requirements of the Affordable Care Act is likely to impose additional administrative costs on us. The costs and other effects of these new healthcare requirements cannot be determined with certainty, but they may have a material adverse effect on our financial and operating results.
Governmental regulationRegulation in oneOne or moreMore of the following areas may adversely affect our existingFollowing Areas May Adversely Affect Our Existing and future operationsFuture Operations and results, includingResults, Including by harming our abilityHarming Our Ability to open new restaurantsOpen New Restaurants or increasing our operating costs.Increasing Our Operating Costs.
Employment and Immigration Regulations
We are subject to various federal and state laws governing our relationship with and other matters pertaining to our employees, including wage and hour laws, requirements to provide meal and rest periods or other benefits, healthcare, family leave mandates, requirements regarding working conditions and accommodations to certain employees, citizenship or work authorization and related requirements, insurance and workers’ compensation rules and anti-discrimination laws. Complying with these rules subjects us to substantial expense and can be cumbersome and can also expose us to liabilities from claims for non-compliance. For example, historically, lawsuits have been filed against us alleging violations of federal and state laws regarding employee wages and payment of overtime. We could suffer losses from and we incur legal costs to defend, these and similar cases and the amount of such losses or costs could be significant. In addition, several states and localities in which we operate and the federal government have from time to time enacted minimum wage increases, paid sick leave and mandatory vacation accruals and similar requirements and these changes could increase our labor costs. Changes in U.S. healthcare laws could also adversely impact us if they result in significant new welfare and benefit costs or increased compliance expenses.
We also are subject to being audited from time to time for compliance with citizenship or work authorization requirements. From time to time, the State of Florida is consideringconsiders adopting new state immigration laws and the U.S. Congress and Department of Homeland Security from time to time consider or implement changes to Federal immigration laws, regulations or enforcement programs as well. Changes in immigration or work authorization laws may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome or reduce the availability of potential employees. Although we require all workers to provide us with government-specified documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers. We currently participate in the “E-Verify” program, an Internet-based, free program run by
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the U.S. government to verify employment eligibility for all employees throughout our company. However, use of E-Verify does not guarantee that we will properly identify all applicants who are ineligible for employment. Unauthorized workers may subject us to fines or penalties and we could experience adverse publicity that negatively impactsaffects our brand and may make it more difficult to hire and keep qualified employees. Termination of a significant number of employees would disrupt our operations including slowing our throughput and could also cause additional adverse publicity and temporary increases in our labor costs as we train new employees. We could also become subject to fines, penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws. Our reputation and financial performance may be materially harmed as a result of any of these factors.
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On the other hand, in the event we wrongfully reject work authorization documents or if our compliance procedures are found to have a disparate impact on a protected class, such as a racial minority or based on the citizenship status of applicants, we could be found to be in violation of anti-discrimination laws. We could experience adverse publicity arising from enforcement activity related to work authorization compliance, anti-discrimination compliance, or both, that negatively impacts our brand and may make it more difficult to hire and keep qualified employees. Moreover, our business could be adversely affected by increased labor costs or difficulties in finding the right employees for our restaurants.
Additionally, while we do not currently have any unionized employees, union organizers have engaged in efforts to organize employees of other restaurant companies. If a significant portion of our employees were to become union organized, our labor costs could increase and our efforts to maintain a culture appealing only to top performing employees could be impaired. Potential changes in labor laws, including the possible passage of legislation designed to make it easier for employees to unionize, could increase the likelihood of some or all of our employees being subjected to greater organized labor influence and could have an adverse effect on our business and financial results by imposing requirements that could potentially increase our costs, reduce our flexibility and impact our employee culture.
Americans with Disabilities Act and Similar State Laws
We are subject to the U.S. Americans with Disabilities Act, or ADA, and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas. We have incurred legal fees in connection with ADA-related complaints in the past and we may in the future have to modify restaurants, for example by adding access ramps or redesigning certain architectural features, to provide service to or make reasonable accommodations for disabled persons under these laws. The expenses associated with these modifications or any damages, legal fees and costs associated with litigating or resolving claims under the ADA or similar state laws, could be material.
Nutrition and Food Regulation
In recent years there has been an increased legislative, regulatory and consumer focus at the federal, state and municipal levels on the food industry including nutrition and advertising practices. Restaurants operating in the quick-service and fast-casual segments have been a
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particular focus. For example, the State of California, New York City and a number of other jurisdictions around the U.S. have adopted regulations requiring that chain restaurants include calorie information on their menus and/or make other nutritional information available and nation-wide nutrition disclosure requirements included in the U.S. health care reform law went into effect as of December 1, 2015. These nutrition disclosure requirements may increase our expenses or slow customers as they select their food and beverage choices decreasing our throughput. These initiatives may also change customercustomers’ buying habits in a way that adversely impacts our sales.
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Privacy/Cybersecurity
We are required to collect and maintain personal information about our employees and we collect information about customers as part of some of our marketing programs as well. The collection and use of such information is regulated at the federal and state levels and the regulatory environment related to information security and privacy is increasingly demanding. If our security and information systems are compromised or if we otherwise fail to comply with these laws and regulations, we could face litigation and the imposition of penalties that could adversely affect our financial performance. Our reputation as a brand or as an employer could also be adversely affected from these types of security breaches or regulatory violations, which could impair our sales or ability to attract and keep qualified employees.
Local Licensure, Zoning and Other Regulation
Each of our restaurants is also subject to state and local licensing and regulation by health, alcoholic beverage, sanitation, food and workplace safety and other agencies. We may experience material difficulties or failures in obtaining the necessary licenses or approvals for new restaurants, which could delay planned restaurant openings. In addition, stringent and varied requirements of local regulators with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations.
Environmental Laws
We are subject to federal, state and local environmental laws and regulations concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances, as well as local ordinances relating to our operations. We have not conducted a comprehensive environmental review of our properties or operations. We cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be administered or interpreted, or the amount of future expenditures that we may need to make to comply with or to satisfy claims relating to environmental laws.
We Could Be Party To Litigation That Could Adversely Affect Us By Distracting Management, Increasing Our Expenses or Subjecting Us to Material Money Damages and Other Remedies.
We could be party to litigation that could adversely affect us by distracting management, increasing our expenses or subjecting us to material money damages and other remedies.
We could become subject to numerous claims alleging violations of federal and state laws regarding workplace and employment matters, including wages, work hours, overtime, vacation and family leave, discrimination, wrongful termination and similar matters, and we could become subject to
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class action or other lawsuits related to these or different matters. Our customers could file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to our restaurants or that we have problems with food quality, operations or our food related disclosure or advertising practices. The restaurant industry has been subject to a growing number of claims based on the nutritional content of food products sold and disclosure and advertising practices.
Regardless of whether any claims against us are valid or whether we are ultimately held liable for such claims, they may be expensive to defend and may divert time and money away from our operations and hurt our performance. A significant judgment for any claims against us could materially and adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations, whether directed at us or at fast casual or quick-service restaurants generally, may also materially and adversely affect our reputation or prospects, which in turn could adversely affect our results.
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Our Success May Depend on the Continued Service and Availability of Key Personnel.
Our Chairman and Chief Executive Officer and President, James Flanigan, has been the principal architect of our business strategy since 2002. August Bucci and Jeffrey Kastner, our Chief Operating Officer and Chief Financial Officer, respectively, have also served with us since 2002 in the case of Mr. Bucci and since 2004 in the case of Mr. Kastner, and much of our growth has occurred under their direction as well. We believe our executive officers have created an employee culture, food culture and business strategy at our company that has been critical to our success and that may be difficult to replicate under another management team. We also believe that it may be difficult to locate and retain executive officers who are able to grasp and implement our unique strategic vision. If our company culture were to deteriorate following a change in leadership, or if a new management team were to be unsuccessful in executing our strategy or were to change important elements of our current strategy, our growth prospects or future operating results may be adversely impacted.
We are Exposed to Risks Related to Cybersecurity.
Although we maintain systems and processes that are designed to protect the security of our computer systems, software, networks and other technology, there is no assurance that all of our security measures will provide absolute security. Any material incidents could cause us to experience financial losses that are either not insured against or not fully covered through any insurance maintained by us and increased expenses related to addressing or mitigating the risks associated with any such material incidents. Cyber threats are rapidly evolving and are becoming increasingly sophisticated. Despite our efforts to ensure the integrity of our systems, as cyber threats evolve and become more difficult to detect and successfully defend against, one or more cyber threats might defeat the measures that we or our vendors take to anticipate, detect, avoid or mitigate such threats. Certain techniques used to obtain unauthorized access, introduce malicious software, disable or degrade service, or sabotage systems may be designed to remain dormant until a triggering event and we may be unable to anticipate these techniques or implement adequate preventative measures since techniques change frequently or are not recognized until launched, and because cyberattacks can originate from a wide variety of sources. If our information security systems or data are compromised in a material way, our ability to conduct our business may be impaired, we may incur financial losses and we may incur costs to remediate possible harm and/or to pay fines or take other action which could have a material adverse impact on our business.
If There is a Material Failure in our Information Technology Systems, Our Business Operations and Profits could be Negatively Affected and our Systems may be Inadequate to Support our Future Growth Strategies.
We rely heavily on information technology systems in all aspects of our operations including our restaurant point-of sale systems, financial systems, marketing programs, employee engagement, supply chain management, cyber-security, and various other processes and transactions. Our ability to effectively manage and run our business depends on the reliability and capacity of our information technology systems, including technology services and systems for which we contract from third parties. These systems and services may be insufficient to effectively manage and run our business. These systems and our business needs will continue to evolve and require upgrading and maintenance over time, consequently requiring significant future commitments of resources and capital.
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Moreover, these technology services and systems, communication systems, and electronic data could be subject or vulnerable to damage or interruption from hurricanes, terrorist attacks, floods, fires, power loss, telecommunications failures, computer viruses, loss of data, data breaches, or other attempts to harm our systems. A failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or any other failure to maintain a continuous and secure information technology network for any of the above reasons could result in interruption and delays in customer services, adversely affect our reputation, and negatively impact our results of operations.
Acts of Violence at or Threatened Against our Restaurants or the Centers in which they are Located, including Active Shooter Situations and Terrorism, Could Unfavorably Impact our Restaurant Sales, which could Materially Adversely Affect our Financial Performance.
Any act of violence at or threatened against our restaurants or the centers in which they are located, including active shooter situations and terrorist activities, may result in restricted access to our restaurants and/or restaurant closures in the short-term and, in the long-term, may cause our customers and staff to avoid our restaurants. Any such situation could adversely impact customer traffic and make it more difficult to staff our restaurants fully, which could materially adversely affect our financial performance.
The occurrence or threat of extraordinary events, such as active shooter or future terrorist attacks military and governmental responses, and the protest of future wars, may result in negative changes to economic conditions likely resulting in decreased consumer spending. Additionally, decreases in consumer discretionary spending may impact the frequency with which our customers choose to dine out at restaurants or the amount they spend on meals while dining out at restaurants, thereby adversely affecting our sales and results of operations. A decrease in consumer discretionary spending may also adversely affect our ability to achieve the benefit of planned menu price increases to help preserve our operating margins.
Social Media Impact on Customer Perceptions of our Brand.
The considerable expansion in the use of social media over recent years can further amplify any negative publicity that may be generated. The adverse impact of publicity on customers’ perception of us could have a further negative impact on our sales. If the impact of any such publicity is particularly long-lasting, the value of our brand may suffer and our ability to grow could be diminished.
Our digital business, which has become an increasing significant part of our business, is subject to risks.
Primarily due to the COVID-19 pandemic, our revenue derived from digital orders, which includes delivery and customer pickup has increased substantially. While we are uncertain as to whether this business will continue to increase and/or be significant, we have implemented technology, targeted advertising and promotions and to some extent remodeled our restaurants, to accommodate the growth of our digital business. If we do not continue to grow our digital business, it may be difficult for us to recoup these costs or achieve our sales growth potential. We rely on third-party delivery services to fulfill package store delivery orders, and the ordering and payment platforms used by these third-parties, or online ordering system, could be interrupted by technological failures, user errors, cyber-attacks or other factors, which could adversely impact sales through these channels and negatively impact our reputation. Additionally, our delivery partners are responsible for order fulfillment and errors or failures to make timely deliveries could cause guests to stop ordering from us. The third-party delivery business is competitive, with a number of players competing for market share and delivery drivers. If the third-party delivery services that we utilize cease or curtail operations, increase their fees, or give greater priority or promotions on their platforms to our competitors, our delivery business and our sales may be negatively impacted.
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Item 1B. Unresolved Staff Comments
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. |
Our operations are conducted primarily on leased property with the exception of:of the following:
(i) | a 10,000 square foot stand-alone building located in Fort Lauderdale, Florida that we purchased in December, 1999, which since April 2001 has housed our corporate headquarters; |
(i) a 10,000 square foot stand-alone building located in Fort Lauderdale, Florida that we purchased in December, 1999, which since April, 2001 has housed our corporate headquarters;
(ii) | a 4,600 square foot stand-alone building located in Hallandale, Florida that we purchased in July 2006 and which since September 1968 has housed our Hallandale, Florida Company-owned combination restaurant and package liquor store (Store #31); |
(iii) | a 4,120 square foot stand-alone building in Hollywood, Florida we constructed in November 2003, upon real property we acquired in September 2001 pursuant to a 25 year ground lease interest, (a portion of this building is leased to an unaffiliated third party), and which since November 2003 has housed our Hollywood, Florida Company-owned package liquor store (Store #4); |
(iv) | a 4,500 square foot stand-alone building located in Hollywood, Florida that we purchased in October 2009 and which housed our Hollywood, Florida Company-owned combination restaurant and package liquor store (Store #19) from March, 1972 until it was destroyed by fire on October 2, 2018 and the vacant parcel of real property adjacent thereto which we purchased in February 2015; |
(v) | a 4,600 square foot stand-alone building located in Fort Lauderdale, Florida that we purchased in August 2010 and which since December, 1968 has housed our Fort Lauderdale, Florida Company-owned restaurant (Store #22); |
(vi) | a 5,100 square foot stand-alone building in North Miami, Florida that we purchased in November 2010; the two parcels of real property adjacent thereto which we purchased in December 2012, one of which is contiguous to the real property and which we previously leased for non-exclusive parking and the vacant parcel of real property adjacent to the two parcels of real property which we purchased in March 2017. The stand-alone building housed our North Miami, Florida Company-owned combination restaurant and package liquor store, (Store #20), from July, 1968 until June 2017 when the package liquor store was re-located to a new building we constructed on the adjacent property; |
(vii) | a 23,678 square foot two building shopping center in Miami, Florida that we purchased in November 2010: (A) one stand-alone building, approximately 18,828 square feet, (i) houses our recently opened (October 2019) new package liquor store and (ii) is otherwise leased to ten unaffiliated third party retailers; and (B) the second stand-alone building, approximately 4,850 square feet, has housed our Kendall, Florida based restaurant since April 4, 2000, which is owned by our affiliated limited partnership (Store #70); |
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(ii) a 4,600 square foot stand-alone building located in Hallandale, Florida that we purchased in July, 2006 and which since September, 1968 has housed our Hallandale, Florida Company-owned combination restaurant and package liquor store (Store #31);
(viii) | a 6,400 square foot building in Fort Lauderdale, Florida that we purchased in February 2014, 4,000 square feet of which has been leased to a related franchisee (Store #15) since April 1, 1997 and the balance (2,400 square feet) of which we use as storage. In August 2018 we purchased the real property and quadraplex adjacent thereto to insure adequate parking for the franchised restaurant in the future, if needed; |
(iii) a 4,120 square foot stand-alone building in Hollywood, Florida we constructed in November, 2003, upon real property we acquired in September, 2001 pursuant to a 25 year ground lease interest, (a portion of this building is leased to an unaffiliated third party), and which since November, 2003 has housed our Hollywood, Florida Company-owned package liquor store (Store #4);
(ix) | a 6,000 square foot stand-alone building in Fort Lauderdale, Florida and the vacant real property diagonally adjacent that we purchased in October 2015, which we use as office and warehouse space, covered parking for our food truck and as a storage yard; and |
(iv) a 4,500 square foot stand-alone building located in Hollywood, Florida that we purchased in October, 2009 and which since March, 1972 has housed our Hollywood, Florida Company-owned combination restaurant and package liquor store (Store #19) and the vacant parcel of real property adjacent thereto which we purchased in February, 2015;
(v) a 4,600 square foot stand-alone building located in Fort Lauderdale, Florida that we purchased in August, 2010 and which since December, 1968 has housed our Fort Lauderdale, Florida Company-owned restaurant (Store #22);
(vi) a 5,100 square foot stand-alone building in North Miami, Florida that we purchased in November, 2010, the two parcels of real property adjacent thereto which we purchased in December, 2012, one of which is contiguous to the real property and which we previously leased for non-exclusive parking and the vacant parcel of real property adjacent to the two parcels of real property which we purchased in March, 2017. The stand alone building housed our North Miami Company-owned combination restaurant and package liquor store (Store #20) from July, 1968 until June, 2017 when the package liquor store was relocated to a new building we constructed on the adjacent property;
(vii) a 23,678 square foot two building shopping center in Miami, Florida that we purchased in November, 2011; one building, approximately 18,828 square feet, is leased to eleven unaffiliated third parties, with one vacant bay reserved for the Company to construct a new package liquor store and the second stand-alone building, approximately 4,850 square feet, has housed our Kendall, Florida based restaurant since April 4, 2000, which is owned by our affiliated limited partnership (Store #70);
(viii) a 6,400 square foot building in Fort Lauderdale, Florida that we purchased in February, 2014, 4,000 square feet of which has been leased to a related franchisee (Store #15) since April 1, 1997 and the balance (2,400 square feet) of which we use as storage; and
(ix) a 6,000 square foot stand-alone building in Fort Lauderdale, Florida and the vacant real property diagonally adjacent that we purchased in October, 2015, which we use as office and warehouse space, covered parking for our food truck and as a storage yard.
(x) | a 4,600 square foot stand-alone building located in North Lauderdale, Florida that we purchased subsequent to the end of our fiscal year 2020 and which since April 1971 has housed our Company owned combination restaurant and package liquor store (Store #40). |
All of our units require periodic refurbishing in order to remain competitive. We have budgeted $400,000$950,000 for our refurbishing program for fiscal year 2018.2021. See Item 7, "Liquidity and Capital Resources" for discussion of the amounts spent in fiscal year 2017.2020.
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The following table summarizes information related to the properties upon which our operations are conducted:
Square | Franchised/ | |||
Name and Location | Footage | Seats | Owned by | Lease Terms |
Big Daddy's Liquors #4 | 1,978 | N/A | Company | 3/1/02 to 2/28/27 |
Flanigan's Enterprises | and Options to | |||
Inc. (6) | 2/28/47 | |||
7003 Taft Street | ||||
Hollywood, FL | ||||
Big Daddy's Liquors #7 | 1,450 | N/A | Company | 11/1/00 to 10/31/20 |
Flanigan's Enterprises, | and Option to | |||
Inc. (10) | 10/31/25 | |||
1550 W. 84th Street | ||||
Hialeah, FL | ||||
Big Daddy's Liquors #8 | 4,084 | N/A | Company | 5/1/99 to 4/30/19 |
Flanigan's Enterprises, | and Options to | |||
Inc. | 4/30/29 | |||
959 State Road 84 | ||||
Fort Lauderdale, FL | ||||
Flanigan’s Seafood | 4,700 | 130 | Company | 1/1/10 to 12/31/19 |
Bar and Grill #9 | and Option to | |||
Flanigan’s Enterprises, Inc. | 12/31/24 | |||
1550 W. 84th Street | ||||
Hialeah, FL | ||||
Flanigan's Legends | 5,000 | 150 | Franchise | 1/4/00 to 1/3/20 |
Seafood Bar and Grill #11 | and Option to | |||
11 Corporation (1) | 1/3/25 | |||
330 Southern Blvd. | ||||
W. Palm Beach, FL | ||||
Flanigan's Seafood | 5,000 | 180 | Company | 11/16/92 to |
Bar and Grill #12 | 11/15/18 and | |||
Flanigan’s Enterprises, Inc. | Options to | |||
2405 Tenth Ave. North | 11/15/38 | |||
Lake Worth, FL | ||||
Flanigan's Seafood | 3,320 | 90 | Franchise | 6/1/79 to 6/1/19 |
Bar and Grill #14 | Option to 6/1/24 | |||
Big Daddy's #14, Inc. (1)(2)(5) | ||||
2041 NE Second St. | ||||
Deerfield Beach, FL | ||||
Flanigan’s Seafood | 4,000 | 90 | Franchise/ | 1/1/09 to 8/31/21 |
Bar and Grill #15 | Limited | Options to 8/31/36 | ||
CIC Investors #15 Ltd.(1)(9) | Partnership | |||
1479 E. Commercial Blvd. | ||||
Ft. Lauderdale, FL |
Name and Location | Approx. Square Footage | Seats | Franchised/ Owned by | Lease Terms |
Big Daddy's Liquors #4 Flanigan's Enterprises Inc. (5) 7003 Taft Street Hollywood, Florida
| 1,978 | N/A | Company | 3/1/02 to 2/28/27 Options to 2/28/47 |
Big Daddy's Liquors #7 Flanigan's Enterprises, Inc. 1550 W. 84th Street Hialeah, Florida
| 1,450 | N/A | Company | 11/1/00 to 10/31/25
|
Big Daddy's Liquors #8 Flanigan's Enterprises, Inc. 959 State Road 84 Fort Lauderdale, Florida
| 4,084 | N/A | Company | 5/1/99 to 4/30/24 Option to 4/30/29 |
Flanigan’s Seafood Bar and Grill #9 Flanigan’s Enterprises, Inc. 1550 W. 84th Street Hialeah, Florida
| 4,700 | 130 | Company | 1/1/10 to 12/31/24 Options to 12/31/49 |
Flanigan's Legends Seafood Bar and Grill #11 11 Corporation, Inc. (1) 330 Southern Blvd. W. Palm Beach, Florida
| 5,000 | 150 | Franchise | 1/4/00 to 1/3/25 |
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Name and Location | Approx. Square Footage | Seats | Franchised/ Owned by | Lease Terms |
Flanigan's Seafood Bar and Grill #12 Flanigan’s Enterprises, Inc. 2405 Tenth Ave. North Lake Worth, Florida
| 5,000 | 180 | Company | 11/16/92 to 11/15/23 Options to 11/15/38 |
Flanigan's Seafood Bar and Grill #14 Big Daddy's #14, Inc. (1) (4) 2041 NE Second St. Deerfield Beach, Florida
| 3,320 | 90 | Franchise | 6/1/79 to 6/1/24 and Options to 6/1/34 |
Flanigan’s Seafood Bar and Grill #15 CIC Investors #15 Ltd. (1) (7) 1479 E. Commercial Blvd. Ft. Lauderdale, Florida
| 4,000 | 90 | Franchise/ Limited Partnership | 1/1/09 to 8/31/21 Options to 8/31/36 |
Flanigan’s Seafood Bar and Grill #18 Twenty Seven Birds Corp. (1) (2) 2721 BirdAvenue Miami, Florida
| 4,500 | 200 | Franchise | 2/15/72 to Options to |
Big Daddy's Liquors #18 Twenty Seven Birds Corp. (1) (2) 2988 S.W. 27th Avenue Miami, Florida
| 3,000 | N/A | Franchise | 2/15/72 to Options to |
Flanigan’s Seafood Bar and Grill #19 (8) Flanigan’s Enterprises, Inc. 2505 N. University Dr. Hollywood, Florida
| 4,500 | 160 | Company | Company-Owned |
Flanigan's Seafood Bar and Grill #20 Flanigan's Enterprises, Inc. 13205 Biscayne Blvd. North Miami, Florida
| 5,100 | 150 | Company | Company-Owned |
Big Daddy’s Liquors #20 Flanigan's Enterprises, Inc. 13185 Biscayne Blvd. North Miami, Florida
| 2,500 | N/A | Company | Company-Owned |
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Name and Location | Approx. Square Footage | Seats | Franchised/ Owned by | Lease Terms |
Flanigan's Seafood Bar and Grill #22 Flanigan's Enterprises, Inc. 2600 W. Davie Blvd. Ft. Lauderdale, Florida
| 4,100 | 200 | Company | Company-Owned |
Flanigan's Seafood Bar and Grill #31 Flanigan's Enterprises, Inc. 4 N. Federal Highway Hallandale, Florida
| 4,600 | 150 | Company | Company-Owned |
Flanigan's Seafood Bar and Grill #33 Flanigan’s Enterprises, Inc. 45 S. Federal Highway Boca Raton, Florida
| 4,620 | 130 | Company | 10/1/10 to 6/30/30 |
Big Daddy's Liquors #34 Flanigan's Enterprises, Inc. 9494 Harding Ave. Surfside, Florida
| 3,000 | N/A | Company | 5/29/97 to 5/28/22 Options to 5/28/37 |
Flanigan's Seafood Bar and Grill #40 Flanigan's Enterprises, Inc. (10) 5450 N. State Road 7 N. Lauderdale, Florida
| 4,600 | 140 | Company | Company-Owned |
Piranha Pat's #43 BD 43 Corporation (1) (2) 2500 E. Atlantic Blvd. Pompano Beach, Florida
| 4,500 | 90 | Franchise | 12/1/72 to 11/30/22 |
Big Daddy’s Liquors #45 Flanigan’s Enterprises, Inc. 12776 S.W. 88th Street Miami, Florida
| 3,250 | N/A | Company | 7/1/19 to 6/30/24 Options to 6/30/34 |
Big Daddy's Liquors #47 Flanigan's Enterprises, Inc. (3) 8600 Biscayne Blvd. Miami, Florida
| 6,000 | N/A | Company | 12/21/68 to 1/1/30 Options to 1/1/50 |
Flanigan’s Seafood Bar and Grill #13 CIC Investors #13, Ltd. 11415 S. Dixie Highway Pinecrest, Florida
| 8,000 | 200 | Limited Partnership | 06/01/91 to 7/31/26 |
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Square | Franchised/ | |||
Name and Location | Footage | Seats | Owned by | Lease Terms |
Flanigan's Seafood | 4,500 | 200 | Franchise | 2/15/72 to 12/31/20 |
Bar and Grill #18 | Options to 12/31/35 | |||
Twenty Seven Birds Corp. (1)(2) | ||||
2721 Bird Avenue | ||||
Miami, FL | ||||
Big Daddy's Liquors #18 | 3,000 | N/A | Franchise | 2/15/72 to 12/31/20 |
Twenty Seven Birds Corp. (1)(2) | Options to 12/31/35 | |||
2988 S.W. 27th Avenue | ||||
Miami, FL | ||||
Flanigan’s Seafood | 4,500 | 160 | Company | Company-Owned |
Bar and Grill #19 | ||||
Flanigan’s Enterprises, Inc. | ||||
2505 N. University Dr. | ||||
Hollywood, FL | ||||
Flanigan's Seafood | 5,100 | 150 | Company | Company-Owned |
Bar and Grill #20 | ||||
Flanigan's Enterprises, Inc. | ||||
13205 Biscayne Blvd. | ||||
North Miami, FL | ||||
Big Daddy’s Liquors #20 | 2,500 | N/A | Company | Company-Owned |
Flanigan's Enterprises, Inc. | ||||
13185 Biscayne Blvd. | ||||
North Miami, FL | ||||
Flanigan's Seafood | 4,100 | 200 | Company | Company-Owned |
Bar and Grill #22 | ||||
Flanigan's Enterprises, Inc. | ||||
2600 W. Davie Blvd. | ||||
Ft. Lauderdale, FL | ||||
Flanigan's Seafood | 4,600 | 150 | Company | Company Owned |
Bar and Grill #31 | ||||
Flanigan's Enterprises, Inc. | ||||
4 N. Federal Highway | ||||
Hallandale, FL | ||||
Flanigan's Seafood Bar | 4,620 | 130 | Company | 10/1/10 to 6/30/20 |
and Grill #33 | ||||
Flanigan’s Enterprises, Inc. | ||||
45 S. Federal Highway | ||||
Boca Raton, FL | ||||
Big Daddy's Liquors #34 | 3,000 | N/A | Company | 5/29/97 to 5/28/22 |
Flanigan's Enterprises, Inc. | Options to 5/28/37 | |||
9494 Harding Ave. | ||||
Surfside, FL |
Name and Location | Approx. Square Footage | Seats | Franchised/ Owned by | Lease Terms |
Flanigan’s Seafood Bar and Grill #50 CIC Investors #50, Ltd. 17185 Pines Boulevard Pembroke Pines, Florida
| 4,000 | 200 | Limited Partnership | 10/24/06 to 10/23/21 and Options to 10/23/31 |
Flanigan’s Seafood Bar and Grill #55 CIC Investors #55, Ltd. 2190 S. University Drive Davie, Florida
| 5,900
| 200
| Limited Partnership | 1/5/07 to 12/31/21 and Options to 12/31/31
|
Flanigan’s Seafood Bar and Grill #60 CIC Investors #60 Ltd. 9516 Harding Avenue Surfside, Florida
| 6,800 | 200 | Limited Partnership | 8/1/97 to 12/31/21 |
Flanigan’s Seafood Bar and Grill #65 CIC Investors #65, Ltd. 2335 State Road 7, Suite 100 Wellington, Florida
| 6,128
| 200 | Limited Partnership
| 5/01/05 to 6/30/25
|
Flanigan's Seafood Bar and Grill #70 CIC Investors #70 Ltd. 12790 SW 88 St. Miami, Florida
| 4,850 | 200 | Limited Partnership | 4/1/00 to 3/31/25 Option to 3/31/30 |
Flanigan’s Seafood Bar and Grill #75 Flanigan’s Enterprises, Inc. 950 S. Federal Highway Stuart, Florida
| 7,000 | 200 | Company | 5/1/10 to 4/30/26 Option to 4/30/31 |
Flanigan's Seafood Bar and Grill #80 CIC Investors #80 Ltd. 8695 N.W. 12th St Miami, Florida
| 5,000 | 165 | Limited Partnership | 6/15/01 to 12/14/24 Options to 12/14/39 |
Flanigan's Seafood Bar and Grill #85 (9) CIC Investors #85 Ltd. 14301 W. Sunrise Blvd. Sunrise, Florida | 6,900 | 200 | Limited Partnership | 3/1/19 to 2/28/29 Option to 2/28/44 Option to Purchase until 2/28/21 |
Flanigan's Seafood Bar and Grill #90 CIC Investors #90 Ltd. 9857 S.W. 40th Street Miami, Florida
| 4,300 | 200 | Limited Partnership | 4/1/11 to 3/31/26 Option to 3/31/31 |
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Square | Franchised/ | |||
Name and Location | Footage | Seats | Owned by | Lease Terms |
Flanigan's Seafood | 4,600 | 140 | Company | 4/1/71 to 12/31/20 |
Bar and Grill #40, | Option to Purchase | |||
Flanigan's Enterprises, Inc. | on 12/31/2020 | |||
5450 N. State Road 7 | ||||
N. Lauderdale, FL | ||||
Piranha Pat's #43 | 4,500 | 90 | Franchise | 12/1/72 to 11/30/22 |
BD 43 Corporation (1)(2) | ||||
2500 E. Atlantic Blvd. | ||||
Pompano Beach, FL | ||||
Big Daddy's Liquors #47 | 6,000 | N/A | Company | 12/21/68 to 1/1/20 |
Flanigan's Enterprises, | Options to 1/1/50 | |||
Inc. (3) | ||||
8600 Biscayne Blvd. | ||||
Miami, FL | ||||
Flanigan’s Seafood | 8,000 | 200 | Limited | 06/01/91 to 5/31/21 |
Bar and Grill #13, | Partnership | |||
CIC Investors #13, Ltd. | ||||
11415 S. Dixie Highway | ||||
Pinecrest, FL | ||||
Flanigan’s Seafood | 4,000 | 200 | Limited | 10/24/06 to 10/23/21 |
Bar and Grill #50, | Partnership | Options to 10/23/31 | ||
CIC Investors #50, Ltd. | ||||
17185 Pines Boulevard | ||||
Pembroke Pines, FL | ||||
Flanigan’s Seafood | 5,900 | 200 | Limited | 1/5/07 to 12/31/21 |
Bar and Grill #55 | Partnership | Options to 12/31/31 | ||
CIC Investors #55, Ltd. | ||||
2190 S. University Drive | ||||
Davie, Florida | ||||
Flanigan's Seafood | 6,800 | 200 | Limited | 8/1/97 to 12/31/21 |
Bar and Grill #60 | Partnership | |||
CIC Investors #60 Ltd. | ||||
9516 Harding Avenue | ||||
Surfside, FL | ||||
Flanigan’s Seafood | 6,128 | 200 | Limited | 5/01/05 to 6/30/20 |
Bar and Grill #65 | Partnership | Option to 3/31/25 | ||
CIC Investors #65, Ltd. | ||||
2335 State Road 7, Suite 100 | ||||
Wellington, FL |
Name and Location | Approx. Square Footage | Seats | Franchised/ Owned by | Lease Terms |
Flanigan's Seafood Bar and Grill #95 Flanigan’s Enterprises, Inc. 2460 Weston Road Weston, Florida
| 5,700 | 235 | Company | 10/1/17 to 9/30/22
|
Flanigan’s Calusa Center, LLC (6) 12750 – 12790 S.W. 88th Street Miami, Florida | 23,700 | Company | Company-owned shopping center |
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Square | Franchised/ | |||
Name and Location | Footage | Seats | Owned by | Lease Terms |
Flanigan's Seafood | 4,850 | 161 | Limited | 4/1/00 to 3/31/20 |
Bar and Grill #70 | Partnership | Options to 3/31/30 | ||
CIC Investors #70 Ltd. | ||||
12790 SW 88 St | ||||
Miami, FL | ||||
Flanigan’s Seafood | 7,000 | 200 | Company | 5/1/10 to 4/30/21 |
Bar and Grill #75 (11) | Options to 4/30/31 | |||
Flanigan’s Enterprises, Inc. | ||||
950 S. Federal Highway | ||||
Stuart, FL | ||||
Flanigan's Seafood | 5,000 | 165 | Limited | 6/15/01 to 12/14/19 |
Bar and Grill #80 | Partnership | Options to 12/14/39 | ||
CIC Investors #80 Ltd. | ||||
8695 N.W. 12th St | ||||
Miami, FL | ||||
Flanigan's Seafood | 4,300 | 200 | Limited | 4/1/11 to 3/31/26 |
Bar and Grill #90 | Partnership | Option to 3/31/31 | ||
CIC Investors #90 Ltd. | ||||
9857 S.W. 40th Street | ||||
Miami, FL | ||||
Flanigan's Seafood | 5,700 | 235 | Company | 10/1/17 to 9/30/22 |
Bar and Grill #95 (12) | Options to 9/30/32 | |||
Flanigan’s Enterprises, Inc. | ||||
2460 Weston Road | ||||
Weston, FL | ||||
Mardi Gras | 10,000 | 400 | Company | 4/30/06 to 4/30/21 |
Flanigan’s Enterprises, | Option to 4/30/26 | |||
Inc., #600 (4)(7) | ||||
Powers Ferry Landing | ||||
Atlanta, GA | ||||
Flanigan’s Calusa | 28,000 sq. ft. shopping center | Company owned | ||
Center, LLC (8) | ||||
12750 – 12790 S.W. 88th Street | ||||
Miami, Florida |
---------------------------------------------
(1) | Franchised by Company. |
(2) | Lease assigned to franchisee. |
(3) | In 1974, we sold and assigned the underlying ground lease to unaffiliated third parties and simultaneously subleased it back. |
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(4) |
Effective December 1, 1998, we purchased the Management Agreement to operate the franchised restaurant for the franchisee. |
Ground lease executed by us on September 25, 2001. We constructed a 4,120 square foot building, of which 1,978 square feet is used by us for the operation of a package liquor store and the other 2,142 square feet is subleased to an unaffiliated third party as retail space. The package liquor store opened for business on November 17, 2003. |
During the first quarter of our fiscal year 2012, our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, closed on the purchase of |
During the second quarter of our fiscal year 2014, we closed on the purchase of the building in Fort Lauderdale, Florida, which is leased to our franchisee owned restaurant located at 1479 E. Commercial Boulevard, Fort Lauderdale, Florida, (Store #15). |
During the |
During the second quarter of our fiscal year |
(10) | Subsequent to the end of our fiscal 2020, we purchased the 4,600 square foot stand-alone building located at 5450 N. State Road 7, North Lauderdale, Florida and which since April, 1971 has housed our Company-owned combination restaurant and package liquor store (Store #40). |
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Recent Casualty Loss
During the first quarter of our fiscal year 2019, our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) was damaged by a fire and was forced to close. Due to the damage caused by the fire, we determined that Store #19 should be demolished and rebuilt and as a result, the package liquor store and restaurant were closed for our fiscal years 2020 and 2019. We had insurance coverage of $1,975,000, in the aggregate, which our insurance carrier paid. We sustained a loss of $1,373,000 on our building and business personal property, against which we received insurance proceeds of $1,200,000 resulting in a loss of $173,000. We had a gain of $775,000 on our business interruption coverage, which when netted against our loss of $173,000 on our building and business personal property produced a gain of $602,000 during our fiscal year 2019.
Purchase of Real PropertyProperty; Option to Lease Agreement
North Miami,
Pompano Beach, Florida
During the second quarter of our fiscal year 2017,2019, we purchased from an unrelated third party the vacant real property (the “Property”), located at 2119 S.E. 9th Street, Pompano Beach, Florida for $1,300,000 cash at closing. The Property is adjacent to property owned by a third party unaffiliated with us and leased to another third party unaffiliated with us for use as a restaurant (the “Adjacent Property”). At closing, we executed an Option to Lease Agreement to lease the Adjacent Property for a 50-year term commencing in November 2022. We will either (i) sublease the building on the Adjacent Property to a related party for operation as a “Flanigan’s Seafood Bar and Grill” restaurant as a franchise and use the Property as parking; or (ii) renovate the building on the Adjacent Property for operation as a “Flanigan’s Seafood Bar and Grill” restaurant and use the Property as parking. If we renovate this new restaurant location on the Adjacent Property, we plan to raise funds using our limited partnership ownership model.
Execution of Leases for New Locations
Miramar, Florida (“Flanigan’s Seafood Bar and Grill”)
During fourth quarter of our fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party for the lease of a restaurant location in a shopping center in Miramar, Florida. The shopping center is currently in the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises by August 28, 2021. We plan to assign the Lease Agreement to a limited partnership in which is(i) we will be the sole general partner; and (ii) a wholly owned subsidiary will be the limited partner. While there can be no assurances that we will be successful in doing so, we intend to sell limited partnership interests to third parties as well as affiliates of the Company in order to raise net proceeds, in an amount to be determined, which proceeds will be used to renovate this potential restaurant location. We anticipate that the new restaurant location’s ownership and operating structure will be substantially similar to that of our other restaurants owned by limited partnerships. Any amounts we advance to the limited partnership will be applied as a credit to limited partnership equity in the limited partnership we may acquire (which equity shall be purchased at the same price and upon the same terms as other equity investors). If we do not acquire equity in the limited partnership for at least $250,000, any excess amounts advanced by us will be reimbursed to us by the limited partnership without interest. Through October 3, 2020, we have no advances to the limited partnership.
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contiguous
Miramar, Florida (“Big Daddy’s Liquors”)
During the fourth quarter of our fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party for the lease of a package liquor store location in a shopping center in Miramar, Florida, directly adjacent to the real property we own wherenew non-affiliated restaurant location described above. The shopping center is currently in the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises by August 28, 2021. The new package liquor store location will be Company-owned.
Re-Financing of Existing Mortgage
During the first quarter of our fiscal year 2019, our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, re-financed its mortgage with our unrelated third party lender, increasing the principal amount from $2.72 million to $7.21 million. The principal balance and all accrued interest of our existing mortgage matured November 30, 2019. The re-financed mortgage earns interest at the fixed annual rate of 3.86%, is amortized over twenty (20) years, with equal monthly payments of principal and interest each in the amount of $43,000 and the entire principal balance and all accrued interest due in seven (7) years. The funds we received from the re-financing of this mortgage (approximately $4.5 million) will be used for working capital.
SUBSEQUENT EVENTS
Menu Price Increases
Effective November 29, 2020 we increased menu prices for our bar offerings to target an increase to our bar revenues of approximately 1.83% annually and effective December 6, 2020 we increased menu prices for our food offerings to target an increase to our food revenues of approximately 2.45% annually to offset higher food costs and higher overall expenses. Prior to these increases, we previously raised menu prices in the third quarter of our fiscal year 2019.
Exercise of Options to Purchase
North Lauderdale, Florida (“Flanigan’s Seafood Bar and Grill”/”Big Daddy’s Liquors”)
On October 7, 2014, we entered into an Amendment to Lease Agreement (the “Lease Amendment”) with a non-affiliated third party from whom we rent approximately 4,600 square feet of commercial space located at 13185 Biscayne Boulevard,5450 N. State Road 7, North Miami,Lauderdale, Florida where we operate a combination “Flanigan’s Seafood Bar and Grill” restaurant and “Big Daddy’s Liquors” package liquor store (Store #20P)#40). The Lease Amendment extended the term of the Lease Agreement until December 31, 2020 and grants us the option to purchase, (the “Option to Purchase”), the real property and improvements on December 31, 2020 for $1,200,000. During the fourth quarter of our restaurant located at 13205 Biscayne Boulevard, North Miami, Florida (Store #20R) operate for $2.47 millionfiscal year 2020 we exercised the Option to Purchase and closed on the acquisition of the property on December 31, 2020. We paid all cash at closing. To fund the cash at closing, we borrowed $2.0 million using our Credit Line (defined below at Item 7, Debt(c)) and used cash on hand for the remainder. We intend to use the Property to provide for a larger parking lot for our customers.
Execution of New Lease for Existing Location
Sunrise, Florida (“Flanigan’s Seafood Bar and Grill”)
Weston, Florida
During the second quarter of our fiscal year 2017,2019, we renewedentered into a Lease Agreement (the “Sunrise Lease Agreement”) with a non-affiliated third party to rent approximately 6,900 square feet of commercial space located at 14301 W. Sunrise Boulevard, Sunrise, Florida where, subject to certain conditions, we anticipate opening a new restaurant location. The Sunrise Lease Agreement grants us an option to purchase, (the “Option to Purchase”) the real property and improvements by February 28, 2021. During the third quarter of our leasefiscal year 2019, we assigned the Sunrise Lease Agreement, excluding the Option to Purchase, to a newly formed limited partnership. Subsequent to the end of our fiscal year 2020, we exercised the Option to Purchase and anticipate closing during the second quarter of our fiscal year 2021. We intend to pay all cash at closing.
General Liability Insurance; Excess Insurance
For the policy year beginning December 30, 2020, we bound general liability insurance with an unrelated third party insurance carrier which incorporates a deductible of $10,000 per occurrence for both us and the restaurant we own locatedlimited partnerships. Our insurance carrier is responsible for $1,000,000 coverage per occurrence above our deductible, up to a maximum aggregate of $2,000,000 per year. We were also able to bind excess liability insurance at 2460 Weston Road, Weston, Florida (Store #95)a reasonable premium, whereby our excess insurance carrier is responsible for a period$10,000,000 coverage above our primary general liability insurance coverage. We are uninsured against liability claims in excess of five (5) years from October 1, 2017 through September 30, 2022, with two (2) five (5) year renewal options, under the same terms$11,000,000 per occurrence and conditions, except an increase in the percentage rent.aggregate. Certain expenses incurred in defending a claim, including attorney's fees, are a part of our $10,000 deductible.
Subsequent EventsProperty Insurance; Windstorm Insurance; Deductibles
For the policy year beginning December 30, 2020, our property insurance is a one (1) year policy with an unaffiliated third party insurance carrier, including coverage for properties leased by us and our consolidated limited partnerships, and provides 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 has a fixed deductible of $100,000, plus 5% of all insured losses, per occurrence. For all other property losses, the property insurance has deductibles of $10,000 per location, per occurrence.
Financed Insurance Premiums
For the policy year commencing December 30, 2020, we financed the premises on the following property, general liability, excess liability and terrorist policies, totaling approximately $1.94 million, which property, general liability, excess liability and terrorist insurance includes coverage for our franchises which are not included in our consolidated financial statements:
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(i) For the policy year beginning December 30, 2020, our general liability insurance, excluding limited partnerships, is a one (1) year policy with our insurance carriers. The one (1) year general liability insurance premium is in the amount of $340,000;
(ii) For the policy year beginning December 30, 2020, our general liability insurance for our limited partnerships is a one (1) year policy with our insurance carriers. The one (1) year general liability insurance premium is in the amount of $426,000;
(iii) For the policy year beginning December 30, 2020, our automobile insurance is a one (1) year policy. The one (1) year automobile insurance premium is in the amount of $93,000;
(iv) For the policy year beginning December 30, 2020, our property insurance is a one (1) year policy. The one (1) year property insurance premium is in the amount of $627,000;
(v) For the policy year beginning December 30, 2020, our excess liability insurance is a one (1) year policy. The one (1) year excess liability insurance premium is in the amount of $443,000;
(vi) For the policy year beginning December 30, 2020, our terrorist insurance is a one (1) year policy. The one (1) year terrorist insurance premium is in the amount of $5,000; and
(vii) For the policy year beginning December 30, 2020, our equipment breakdown insurance is a one (1) year policy. The one (1) year equipment breakdown insurance premium is in the amount of $6,000.
Of the $1,940,000 annual premium amounts, which includes coverage for our franchises which are not included in our consolidated financial statements, we financed $1,776,000 through an unaffiliated third party lender. The finance agreement obligates us to repay the amounts financed together with interest at the rate of 2.45% per annum, over 11 months, with monthly payments of principal and interest, each in the amount of $164,000. The finance agreement is secured by a first priority security interest in all insurance policies, all unearned premium, return premiums, dividend payments and loss payments thereof.
Except as otherwise provided herein, subsequent events have been evaluated through the date these consolidated financial statements were issued and no other events required disclosure.
ITEM 3. | LEGAL PROCEEDINGS |
From time to time, we are a defendant in litigation arising in the ordinary course of our business, including claims resulting from “slip and fall” accidents, dram shop claims, claims under federal and state laws governing access to public accommodations, employment-related claims and claims from guests alleging illness, injury or other food quality, health or operational concerns. To date, none of this litigation, some of which is covered by insurance, has had a material effect on us.
Item 4. Mine Safety Disclosures.
ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
ITEM 5. | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Our common stock is traded on the NYSE AMERICAN under the symbol “BDL”. The following table sets forth the high and low sales prices of a share of our common stock for the periods specified as reported by the NYSE AMERICAN:
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Fiscal Year 2017 | High | Low | ||||||
First Quarter (October 2, 2016 - December 31, 2016) | $ | 25.20 | $ | 22.70 | ||||
Second Quarter (January 1, 2017 – March 31, 2017) | $ | 26.65 | $ | 23.40 | ||||
Third Quarter (April 1, 2017 – June 30, 2017) | $ | 30.95 | $ | 23.15 | ||||
Fourth Quarter (July 1, 2017 – September 30, 2017) | $ | 30.30 | $ | 20.20 |
Fiscal Year 2016 | High | Low | ||||||
First Quarter (October 4, 2015 - January 2, 2016) | $ | 27.96 | $ | 19.65 | ||||
Second Quarter (January 3, 2016 – April 2, 2016) | $ | 23.11 | $ | 17.37 | ||||
Third Quarter (April 3, 2016 – July 2, 2016) | $ | 22.80 | $ | 18.25 | ||||
Fourth Quarter (July 3, 2016 – October 1, 2016) | $ | 25.72 | $ | 20.68 |
Holders
As of the close of business on December 21, 2017,29, 2020, there were approximately 247172 holders of record of our common stock.
Dividend Policy
DuringOn March 24, 2020, due to the adverse effects of the COVID-19 pandemic on our fiscal year 2017,operations, our Board of Directors cancelled a previously declared a cash dividend of 20 cents$.30 per share which was paid on March 31, 2017 to shareholders of record on March 17, 2017.20, 2020 and payable on April 3, 2020. During our fiscal year 2016,2019, our Board of Directors declared and paid a cash dividend of 18 cents$.28 per share which was paid on April 1, 2016 to shareholders of record on March 18, 2016.15, 2019. Any future determination to pay cash dividends will be at our Board’s discretion and will depend upon our financial condition, operating results, capital requirements and such other factors as our Board deems relevant.
Issuer Repurchases of Equity Securities
Pursuant to a discretionary plan approved by the Board of Directors at its meeting on May 17, 2007, the Board of Directors authorized management to purchase up to 100,000 shares of our common stock, at a purchase price up to $15.00 per share. Since the Board’s 2007 authorization, we have purchased an aggregate of 34,586 shares, none of which were purchased by us in our fiscal year 2017.2020. As of September 30, 2017,October 3, 2020, we still have authority to purchase 65,414 shares of our common stock under the discretionary plan approved by the Board of Directors.
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Item 6. Selected Financial Data
ITEM 6. | SELECTED FINANCIAL DATA |
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 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Except for the historical information contained herein, the following discussion contains forward-looking statements that are subject to known and
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unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. We discuss such risks, uncertainties and other factors throughout this report and specifically under the captions “Risk Factors”. In addition, the following discussion and analysis should be read in conjunction with the 20172020 Consolidated Financial Statements and the related Notes to Consolidated Financial Statements included elsewhere in this report.
OverviewOVERVIEW
Financial Information Concerning Industry Segments
Our business is conducted principally in two segments: the restaurant segment and the package liquor store segment. Financial information broken into these two principal industry segments for the two fiscal years ended October 3, 2020 and September 30, 2017 and October 1, 201628, 2019 is set forth in the consolidated financial statementsConsolidated Financial Statements which are attached hereto.
General
At September 30, 2017, we
As of October 3, 2020, Flanigan’s Enterprises, Inc., a Florida corporation, together with its subsidiaries (“we”, “our”, “ours” and “us” as the context requires), (i) operated 2627 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; and (ii) own but do not operate one adult entertainment club; and (iii) franchisefranchises an additional five units, consisting of two restaurants (one of which we operate), and three combination restaurants/package liquor stores.
Franchised Units. In exchange for our providing management and related services to our franchisees and granting them the right to use our service marks "Flanigan's Seafood Bar and Grill" and "Big Daddy's Liquors", our franchisees (four of which are franchised to members of the family of our Chairman of the Board, officers and/or directors), are required to (i) pay to us a royalty equal to 1% of gross package liquor sales and 3% of gross restaurant sales; and (ii) make advertising expenditures equal to between 1.5% to 3% of all gross sales based upon our actual advertising costs allocated between stores, pro-rata, based upon gross sales.
Affiliated Limited Partnership Owned Units. We manage and control the operations of the eight restaurants owned by limited partnerships, except the Fort Lauderdale, Florida restaurant which is managed and controlled by a related franchisee. Accordingly, the results of operations of all limited partnership owned restaurants, except the Fort Lauderdale, Florida restaurant are consolidated with our results of operations for accounting purposes. The results of operations of the Fort Lauderdale, Florida restaurant are accounted for by us utilizing the equity method.
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Results of OperationsRESULTS OF OPERATIONS
REVENUES (in thousands): | ||||||||||||||||
Fifty Two | Fifty Two | |||||||||||||||
Weeks Ended | Weeks Ended | |||||||||||||||
Sept. 30, 2017 | Oct. 1, 2016 | |||||||||||||||
Sales | ||||||||||||||||
Restaurant, food | $ | 66,917 | 64.2 | % | $ | 64,954 | 64.2 | % | ||||||||
Restaurant, bar | 20,476 | 19.6 | % | 20,492 | 20.3 | % | ||||||||||
Package goods | 16,842 | 16.2 | % | 15,661 | 15.5 | % | ||||||||||
Total | 104,235 | 100.0 | % | 101,107 | 100.0 | % | ||||||||||
Franchise related revenues | 1,592 | 1,584 | ||||||||||||||
Owner’s fee | 150 | 150 | ||||||||||||||
Other operating income | 233 | 225 | ||||||||||||||
Rental income | 612 | 552 | ||||||||||||||
Total Revenues | $ | 106,822 | $ | 103,618 |
REVENUES (in thousands):
53 Weeks Ended | 52 Weeks Ended | |||||||||||||||
Oct. 3, 2020 | Sept. 28, 2019 | |||||||||||||||
Sales | ||||||||||||||||
Restaurant, food | $ | 68,685 | 61.9% | $ | 71,814 | 63.2% | ||||||||||
Restaurant, bar | 15,967 | 14.4% | 22,476 | 19.8% | ||||||||||||
Package goods | 26,276 | 23.7% | 19,327 | 17.0% | ||||||||||||
Total | 110,928 | 100.0% | 113,617 | 100.0% | ||||||||||||
Franchise related revenues | 1,260 | 1,610 | ||||||||||||||
Other operating income | 109 | �� | 213 | |||||||||||||
Rental income | 680 | 762 | ||||||||||||||
Total Revenues | $ | 112,977 | $ | 116,202 |
Comparison of Fiscal Years Ended October 3, 2020 and September 30, 2017 and October 1, 201628, 2019
Revenues. Total revenue for our fiscal year 2017 increased $3,204,0002020 decreased $3,225,000 or 3.09%2.78% to $106,822,000$112,977,000 from $103,618,000$116,202,000 for our fiscal year 20162019. The decrease in total revenue was due primarily to the negative impact of COVID-19 on our operations. Due to COVID-19, from mid-March 2020 through mid-May 2020, we ceased all dining and bar services at all of our restaurants, limiting service to take-out and delivery only of food, and implemented reduced hours at our retail package liquor stores. From mid-May 2020 through the beginning of July 2020, there was a gradual elimination of restrictions on our restaurant operations, permitting us to, among other things, provide dining for outdoor seating patrons with appropriate social distancing and provide dining for indoor patrons at up to 50% capacity (depending on the location of the restaurant), but with no bar service and increased restaurant trafficoperating hours at our package liquor stores. From the beginning of July 2020 through the beginning of September 2020, we ceased dine-in service at all of our Miami-Dade County, Florida restaurants, (two Company-owned and six limited partnership owned restaurants). Since the beginning of September 2020, we have been offering both food and bar options at all of our restaurants, including those located in Miami-Dade County, Florida, with appropriate social distancing and dine-in service at up to a lesser extent100% capacity, including outdoor dining. The negative effect of COVID-19 on our operations was partially offset by the fifty-third week in our fiscal year 2020, the 2019 Price Increases (defined below) and increased menu prices.package liquor store sales. Effective September 3, 2017June 16, 2019 we increased certain menu prices for our bar offerings to target an increase to our total bar revenues of approximately 4.9%6.2% annually and effective September 16, 2017June 23, 2019 we increased certain menu prices for our food offerings to target an increase to our total food revenues of approximately 4.0%3.4% annually, (the “Price Increases 2017”“2019 Price Increases”). Effective February 7, 2016 we increased certain menu pricesWe expect that total revenue for our bar offerings to target an increasefiscal year 2021 will decrease due to our total bar revenues of approximately 3.0% annuallyoperations being adversely impacted by COVID-19. We expect that Store #19 will remain closed during our fiscal year 2021 and effective February 15, 2016 we increased certain menu prices for our food offeringsaccordingly do not expect to target an increase to our total food revenues of approximately 3.7% annually, (the “Price Increases 2016”).generate any revenue from it.
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Restaurant Food Sales. Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants (food sales) totaled $66,917,000$68,685,000 for our fiscal year 20172020 as compared to $64,954,000$71,814,000 for our fiscal year 2016.2019. The increasedecrease in restaurant revenue from the sale of food at restaurantssales for our fiscal year 20172020 as compared to restaurant food sales during our fiscal year 20162019 is primarily dueattributable to increased restaurant trafficthe negative effects of COVID-19 on our operations, partially offset by the fifty-third week in our fiscal year 2020 and to a lesser extent the 2019 Price Increases 2017 and 2016.Increases. Comparable weekly restaurant food sales (for restaurants, subject to closures for COVID-19, open for all of our fiscal years 20172020 and 2016,2019, which consists of tennine restaurants owned by us, (excluding Store #19 which was closed for our fiscal years 2020 and 2019 due to a fire on October 2, 2018) and eight restaurants owned by affiliated limited partnerships) was $1,287,000 and $1,249,000$1,379,000 for our fiscal years 20172020 and 2016,2019, respectively, an increasea decrease of 3.04%6.67%. Comparable weekly restaurant food sales for Company ownedCompany-owned restaurants only was $679,000$649,000 and $659,000$696,000 for our fiscal years 20172020 and 2016,2019, respectively, an increasea decrease of 3.03%6.75%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only was $608,000$638,000 and $590,000$683,000 for our fiscal years 20172020 and 2016,2019, respectively, an increasea decrease of 3.05%6.59%. We expect that restaurant food sales, including non-alcoholic beverages, for our fiscal year 2021 will decrease due to the negative effects of COVID-19 on our operations.
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Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants totaled $20,476,000$15,967,000 for our fiscal year 20172020 as compared to $20,492,000$22,476,000 for our fiscal year 2016.2019. The decrease in restaurant revenue from the sale of alcoholic beverages from restaurantsbar sales for our fiscal year 20172020 as compared to restaurant bar sales during our fiscal year 20162019 is primarily dueattributable to price discounts offeredthe negative effects of COVID-19 on our operations, partially offset by the Company to promote its Joe’s Pale Ale draft beer during the second andfifty third quarters ofweek in our fiscal year 20172020 and increased competition at several restaurant locations, offset by increased restaurant traffic and by a lesser extent to the 2019 Price Increases 2017 and 2016.Increases. Comparable weekly restaurant bar sales (for restaurants, open (except, however, when closed due to government directives in fiscal year 2020) for all of our fiscal years 20172020 and 2016,2019, which consists of tennine restaurants owned by us, (excluding Store #19 which was closed for our fiscal years 2020 and 2019 due to a fire on October 2, 2018) and eight restaurants owned by affiliated limited partnerships) was $393,000$301,000 and $394,000$432,000 for our fiscal years 20172020 and 2016,2019, respectively, a decrease of 0.25%30.32%. Comparable weekly restaurant bar sales for Company ownedCompany-owned restaurants only was $188,000$135,000 and $186,000$197,000 for our fiscal years 20172020 and 2016,2019, respectively, an increasea decrease of 1.08%31.47%. Comparable weekly restaurant bar sales for affiliated limited partnership owned restaurants only was $205,000$166,000 and $208,000$235,000 for our fiscal years 20172020 and 2016,2019, respectively, a decrease of 1.44%29.36%. We expect that restaurant bar sales, including non-alcoholic beverages, for our fiscal year 2021 will decrease due to the negative effects of COVID-19 on our operations.
Package Liquor Store Sales. Revenue generated from sales of liquor and related items at package liquor stores totaled $16,842,000$26,276,000 for our fiscal year 20172020 as compared to $15,661,000$19,327,000 for our fiscal year 2016,2019, an increase of $1,181,000$6,949,000 or 7.54%35.95%. This increase was primarily due to increased package liquor store traffic.traffic despite COVID-19 and because of the opening of our new retail package liquor store (Store #45) located in Kendall, Florida during the first quarter of our fiscal year 2020. The weekly average of same store package liquor store sales, which includes all nine (9) Company ownedeight (8) Company-owned package liquor stores, (excluding Store #19, which was $324,000 and $301,000closed for our fiscal years 20172020 and 2016, respectively.2019 due to a fire on October 2, 2018 and also excluding Store #45, which opened for business on October 10, 2019), was $462,000 and $372,000 for our fiscal years 2020 and 2019 respectively, an increase of 24.19%. We anticipate that revenue generated from the sale of liquor and related items at package liquor stores for our fiscal year 2021 will increase when compared to our fiscal year 2020 due to what appears to be an increased demand for package liquor store products resulting from COVID-19.
Operating Costs and Expenses. Operating costs and expenses, (consisting of cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses), for our fiscal year 20172020 increased $3,747,000$180,000 or 3.87%0.16% to $100,564,000$110,066,000 from $96,817,000$109,886,000 for our fiscal year 2016.2019. The minimal increase was primarily due to an expected general increase in food costs, offset by actions taken by managementcost cutting measures we have implemented since mid-March 2020 to reduce and/or control costs and expenses.because of the negative effects of COVID-19 on our operations. We anticipate thatexpect our operating costs and expenses will increase throughfor our fiscal year 2018 due to an expected general increase in food costs.2021 as cost cutting measures are reversed. Operating costs and expenses increased as a percentage of total sales to approximately 94.14%97.42% in our fiscal year 20172020 from 93.43%94.56% in our fiscal year 2016.
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2019.
Gross Profit. Gross profit is calculated by subtracting the cost of merchandise sold from sales.
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Restaurant Food and Bar Sales. Gross profit for restaurant food and bar sales for our fiscal year 2017 increased2020 decreased to $55,786,000$56,134,000 from $55,676,000$61,212,000 for our fiscal year 2016.2019. Our gross profit margin for restaurant food and bar sales (calculated as gross profit reflected as a percentage of restaurant food and bar sales), was 63.86%66.31% for our fiscal year 20172020 and 65.16%64.92% for our fiscal year 2016. The decrease in2019. Gross profit margin for restaurant food and bar sales increased during our fiscal year 2020 when compared to our fiscal year 2019 due to the inclusion of a 10% take-out charge on restaurant food sales, offset by the negative effects of COVID-19 on our restaurant bar operations and higher gross profit margin for food sales and bar sales was due primarily toitems as well as higher food costs. We anticipateIf we can maintain the same level of our take out charges on restaurant food sales, we expect that our gross profit margin for restaurant food and bar sales will increase during our fiscal year 2018 due to2021 for the Price Increases 2017, offset partially by higher food costs.same reasons.
Package Liquor Store Sales. Gross profit for package liquor store sales for our fiscal year 20172020 increased to $4,808,000$7,084,000 from $4,454,000$5,269,000 for our fiscal year 2016.2019, due primarily to increased package liquor store traffic which we believe has been caused by COVID-19, as well as the opening of our new Store #45 during the first quarter of our fiscal year 2020. Our gross profit margin (calculated as gross profit reflected as a percentage of package liquor store sales) for package liquor store sales was 28.55%26.96% for our fiscal year 20172020 and 28.44%27.26% for our fiscal year 2016.2019. We anticipate that ourthe gross profit margin for package liquor store salesmerchandise will remain stabledecrease during our fiscal year 2018.2021 due to higher costs and a reduction in pricing of certain package store merchandise to be more competitive.
Payroll and Related Costs. Payroll and related costs for our fiscal year 2017 increased $693,0002020 decreased $474,000 or 2.16%1.32% to $32,795,000$35,399,000 from $32,102,000$35,873,000 for our fiscal year 2016 due partially to payroll and related costs associated with higher restaurant sales which require additional2019. Lower payroll and related costs for employees such as cooksour fiscal year 2020 were due to certain cost cutting measures including material layoffs at our restaurants and bartenders.reduced corporate personnel salaries from mid-March 2020 through mid-May 2020 and thereafter due to an adjustment to our traditional staffing model to meet customer demand, increased by payroll for our package liquor store in Kendall, Florida, which opened for business during the first quarter of our fiscal year 2020. We anticipate that until our restaurant operations are restored to pre-COVID-19 levels, of which there can be no assurance, payroll and related costs will be less than our costs from 2019. Payroll and related costs as a percentage of total sales was 30.70% for31.33% in our fiscal year 20172020 as compared to 30.98% for30.87% of total sales in our fiscal year 2016.2019.
Occupancy Costs. Occupancy costs (consisting of percentage rent, common area maintenance, repairs, real property taxes, and amortization of leasehold interests)purchases and rent expense associated with operating lease liabilities under ASC 842) for our fiscal year 20172020 increased $19,000$986,000 or 0.35%16.29% to $5,432,000$7,040,000 from $5,413,000$6,054,000 for our fiscal year 2016.2019 primarily due to our adoption of ASC 842. We anticipate that our occupancy costs will remain stable throughout our fiscal year 2018.2021.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (consisting of general corporate expenses, including but not limited to advertising, insurance, professional costs, clerical and administrative overhead) for our fiscal year 2017 increased $371,0002020 decreased $906,000 or 2.02%4.35% to $18,696,000$19,917,000 from $18,325,000$20,823,000 for our fiscal year 2016.2019. Selling, general and administrative expenses decreased as a percentage of total sales in our fiscal year 20172020 to 17.50%17.63% as compared to 17.69%17.92% in our fiscal year 2016.2019. We anticipate that until our operations are restored to pre-COVID-19 levels, of which there can be no assurance, our selling, general and administrative expenses will increase throughoutbe less than our expenses for our fiscal year 2018 due primarily to2020, offset by increases in expenses across all categories.
Depreciation and Amortization. Depreciation and amortization for our fiscal year 2017,2020, which is included in selling, general and administrative expenses, decreased $18,000increased $200,000 or 0.67%6.58% to $2,667,000$3,240,000 from $2,685,000$3,040,000 for our fiscal year 2016.2019. As a percentage of revenue, depreciation and amortization expense was 2.50%2.87% of revenue for our fiscal year 20172020 and 2.59%2.62% of revenue for our fiscal year 2016.2019.
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Interest Expense, Net. Interest expense, net, for our fiscal year 20172020 increased $43,000$128,000 to $600,000$836,000 from $557,000$708,000 for our fiscal year 2016.2019. Interest expense, net, increased primarilyfor our fiscal year 2020 due to the financingour borrowing of our new construction office and warehouse property located at 1290 East Commercial
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Boulevard, Oakland Park, Florida 33334 and 4990 N.E. 12th Avenue, Oakland Park, Florida 33334 at the end ofan additional $4.5 million during the first quarter of our fiscal year 20172020 on the re-financing by our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, of its mortgage loan with an unrelated third party lender, increasing the principal amount borrowed from $2.72 million to $7.21 million and our borrowing $2.00of an additional approximately $10.0 million on our Credit Line during the secondthird quarter of our fiscal year 2017, which borrowed funds were used to purchase the vacant real property which is contiguous to the real property we own where2020 on our new package liquor store located at 13185 Biscayne Boulevard, North Miami, Florida (Store #20P) and our restaurant located at 13205 Biscayne Boulevard, North Miami, Florida (Store #20R) operate. We anticipate that interestPPP Loans. Interest expense, net, will increase throughoutfor our fiscal year 2021 due to our borrowing of an additional $10.0 million during the balancethird quarter of our fiscal year 2018 due primarily2020 on our PPP Loans, if not forgiven.
Income Taxes. Income tax expense for our fiscal year 2020 was a benefit of $60,000, as compared to an expense of $887,000 for our above-described increased borrowing.
fiscal year 2019.
Net Income. Net income for our fiscal year 20172020 decreased $579,000$3,193,000 or 11.65%59.38% to $4,390,000$2,184,000 from $4,969,000$5,377,000 for our fiscal year 2016.2019. Net income for our fiscal year 20172020 decreased when compared to net income for our fiscal year 2016 primarily2019 due to increasedthe negative effects of COVID-19 on our operations, our adoption of ASC 842, higher food costs and overall expenses, offset by higher revenueour implementation of the cost cutting measures and the 2019 Price Increases 2017 and 2016.Increases. As a percentage of sales, net income forin our fiscal year 20172020 is 4.11%1.93%, as compared to 4.80% for4.63% in our fiscal year 2016.
2019.
Net Income (Loss) Attributable to Stockholders. Net income attributable to stockholders for our fiscal year 20172020 decreased $20,000$2,538,000 or 0.66%69.57% to $3,020,000$1,110,000 from $3,040,000$3,648,000 for our fiscal year 2016.2019. Net income attributable to stockholders for our fiscal year 20172020 decreased when compared to our fiscal year 20162019 primarily due to increasedthe negative effects of COVID-19 on our operations, our adoption of ASC 842, higher food costs and overall expenses, offset by higherour implementation of the cost cutting measures, increased revenue at our package retail stores and the 2019 Price Increases 2017 and 2016.Increases. As a percentage of sales, net income for our fiscal year 20172020 is 2.83%0.98%, as compared to 2.93%3.14% for our fiscal year 2016.2019.
New Limited Partnership Restaurants
As new restaurants open, our income from operations will be adversely affected due to our obligation to fundadvance pre-opening costs, including but not limited to pre-opening rent for the new locations. During our fiscal year 2017,2020, we did not have ahad one new restaurant location in Sunrise, Florida in the development stagestage. During the fourth quarter of our fiscal year 2019, we entered leases for two spaces adjacent to each other, to house a new “Flanigan’s Seafood Bar and did not recognize any pre-opening costs.
Grill” as well as a “Big Daddy’s Wine and Liquors” in a shopping center in Miramar, Florida, which shopping center is currently under construction.
Menu Price Increases and Trends
Effective September 3, 2017June 16, 2019 we increased menu prices for our bar offerings to target an increase to our bar revenues of approximately 4.9%6.2% annually and effective September 16, 2017June 23, 2019 we increased menu prices for our food offerings to target an increase to our food revenues of approximately 4.0%3.4% annually to offset higher food costs and higher overall expenses. The last timePrior to these increases, we increasedpreviously raised menu prices was in the secondfourth quarter of our fiscal year 2016 and we plan2017.
Subsequent to limit further menu price increases as long as possible. During the next twelve months, if demand for our restaurant and bar offerings remains substantially similar to the demand during our fiscal year 2017, of which there can be no assurance, we expect that restaurant and bar sales, as well as gross profit for food and bar operations should increase as a result of increased menu prices, offset partially by higher food costs. We anticipate that our package liquor store sales and gross profit margin for package liquor store sales will remain stable during our fiscal year 2018.
We do not have a new “Flanigan’s Seafood Bar and Grill” restaurant in the development stage, but continue to search for new locations to open
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restaurants and thereby expand our business. As of the end of our fiscal year 20172020, we abandonedincreased menu prices for our attemptbar offerings (effective November 29, 2020) to expand “The Whale’s Rib” restaurant concept thattarget an increase of our bar revenues of approximately 1.83% annually and we manage in Deerfield Beach, Florida through the opening of a new restaurant in Miami, Florida dueincreased menu prices for our food offerings (effective December 6, 2020) to target an increase to our inabilityfood revenues of approximately 2.45% annually to get all necessary governmental approvals.offset higher food costs and higher overall expenses.
COVID-19 has and will continue to materially and adversely affect our restaurant business for what may be a prolonged period of time. This damage and disruption has resulted from events and factors that were impossible for us to predict and are beyond our control. As a result, we wrote off approximately $54,000and despite experiencing increased sales and traffic at certain of our package liquor stores, COVID-19 has materially adversely affected our results of operations for our fiscal year 2020 and will, in expenses incurred applyingall likelihood, impact our results of operations, liquidity and/or financial condition for governmental approvalsour fiscal year 2021. The extent to expand “The Whale’s Rib”which our restaurant concept in Miami, Florida.business may be adversely impacted and its effect on our operations, liquidity and/or financial condition cannot be accurately predicted.
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We are not actively searching for locations for the operation of new package liquor stores, but when our attempt to expand “The Whale’s Rib” restaurant concept in Miami, Florida was abandoned, we decided that the space we had targeted for the “The Whales Rib” would be ideal for the operation of a package liquor store.store and during the fourth quarter of our fiscal year 2018, we received governmental approval to operate a package liquor store at that location. The new package liquor store (Store #45) located in Kendall, Florida opened for business in October 2019. During the fourth quarter of our fiscal year 2019, we entered a lease to house a new “Big Daddy’s Wine & Liquors” package liquor store in space adjacent to where we are planning a new “Flanigan’s Seafood Bar and Grill”, restaurant in a shopping center in Miramar, Florida, which shopping center is currently under construction.
Liquidity and Capital Resources
LIQUIDITY AND CAPITAL RESOURCES
We fund our day to day operations through cash generated from operations. As of September 30, 2017,October 3, 2020, we had cash of approximately $9,885,000, a decrease$29,922,000, an increase of $289,000$16,250,000 from our cash balance of $10,174,000$13,672,000 as of October 1, 2016.September 28, 2019. During the secondthird quarter of our fiscal year 2017,2020, we, borrowed $2.00 million from our Credit Line and used $2.74 million cash at closing, to close on the purchasecertain of the vacant real property which is contiguousentities owning the limited partnership stores (the “LP’s”), franchised stores (the “Franchisees”) as well as the store we manage but do not own (the “Managed Store”) (collectively, the “Borrowers”), applied for and received loans from an unrelated third party lender (the “Lender”) pursuant to the real property we own where our new package liquor store located at 13185 Biscayne Boulevard, North Miami, Florida, (Store #20P)Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and our restaurant located at 13205 Biscayne Boulevard, North Miami, Florida (Store #20R) operate.Economic Security Act (the “CARES Act”) enacted March 27, 2020, in the aggregate principal amount of approximately $13.1 million (the “PPP Loans”), of which approximately: (i) $5.9 million was loaned to us; (ii) $4.1 million was loaned to 8 of the LP’s; (iii) $2.6 million was loaned to 5 of the Franchisees; and (iv) $0.5 million was loaned to the Managed Store. During the secondfirst quarter of our fiscal year 2017,2020, our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, re-financed its mortgage loan with an unrelated third party lender, increasing the principal amount borrowed from $2.72 million to $7.21 million.
The PPP Loans, which are in the form of Notes issued by each of the Borrowers, mature two years from the date of funding (dates ranging from May 5, 2022 to May 11, 2022) and bear interest at a rate of 1.00% per annum, payable monthly commencing approximately six months from the date of issuance of the Notes (issuance dates ranging from April 30, 2020 to May 6, 2020). The Notes may be prepaid by the applicable Borrower at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loans are available to the respective Borrower to fund designated expenses, including certain payroll costs, group health care benefits and other permitted expenses, including rent and interest on mortgages and other debt obligations incurred before February 15, 2020. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent the proceeds of the PPP Loans are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP. No assurance can be given that the Borrowers will obtain forgiveness of the PPP Loan in whole or in part.
With respect to any portion of any of the PPP Loans that is not forgiven under the terms of the PPP, such amounts will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the applicable PPP Note and cross-defaults on any other loan with the Lender or other creditors.
Notwithstanding the negative effects of COVID-19 on our operations, we also paid on March 31, 2017 a dividend of $.20 per share. During the second quarter of our fiscal year 2016, we paid on April 1, 2016 a dividend of $.18 per share. We believe that our current cash availability from our cash on hand, positive cash flow from operations and borrowed funds available on our term loan will be sufficient to fund our operations and planned capital expenditures for at least the next twelve months.
Cash Flows
Fiscal Years | ||||||||
2017 | 2016 | |||||||
(in thousands) | ||||||||
Net cash and cash equivalents | ||||||||
provided by operating activities | $ | 8,254 | $ | 8,767 | ||||
Net cash and cash equivalents | ||||||||
used in investing activities | (7,053 | ) | (3,372 | ) | ||||
Net cash and cash equivalents | ||||||||
used in financing activities | (1,490 | ) | (4,488 | ) | ||||
Net increase (decrease) | ||||||||
in cash and equivalents | (289 | ) | 907 | |||||
Cash and equivalents, | ||||||||
beginning of year | 10,174 | 9,267 | ||||||
Cash and equivalents, | ||||||||
end of year | $ | 9,885 | $ | 10,174 |
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During our fiscal year 2017, our Board of Directors declared a cash dividend of 20 cents per share which was paid on March 31, 2017 to shareholders of record on March 17, 2017. During our fiscal year 2016, our Board of Directors declared a cash dividend of 18 cents per share which was paid on April 1, 2016 to shareholders of record on March 18, 2016. Any future determination to pay cash dividends will be at our Board’s discretion and will depend upon our financial condition, operating results, capital requirements and such other factors as our Board deems relevant. There can be no assurances that any future dividends will be paid.
CASH FLOWS
Fiscal Years | ||||||||
2020 | 2019 | |||||||
(in thousands) | ||||||||
Net cash and cash equivalents provided by operating activities | $ | 8,785 | $ | 9,627 | ||||
Net cash and cash equivalents used in investing activities | (3,271 | ) | (4,609 | ) | ||||
Net cash and cash equivalents provided by (used in) financing activities | 10,736 | (4,760 | ) | |||||
Net increase in cash and equivalents | 16,250 | 258 | ||||||
Cash and equivalents, beginning of year | 13,672 | 13,414 | ||||||
Cash and equivalents, end of year | $ | 29,922 | $ | 13,672 |
Capital Expenditures
In addition to using cash for our operating expenses, we use cash to fund the development and construction of new restaurants and to fund capitalized property improvements for our existing restaurants. WeDuring our fiscal year 2020, we acquired property and equipment of $7,220,000,$2,766,000, (of which $24,000$379,000 was for construction in progress; $118,000 was deposits recorded in other assets; and $10,000 was deposits transferred to construction in progress as of September 28, 2019), which amount included $278,000 for renovations to two (2) existing limited partnership restaurant and $466,000 for renovations to five (5) Company-owned restaurants. During our fiscal year 2019, we acquired property and equipment of $6,323,000, (of which $1,300,000 was for the purchase of a vehicle for debt; $2,419,000vacant real property in Pompano Beach, Florida; $1,058,000 was for construction in process; and $489,000progress; $595,000 was deposits recorded in other assetsassets; and $386,000 was deposits transferred to construction in progress as of October 1, 2016)September 29, 2018), during our fiscal year 2017, which amount included $2.475 million for the purchase of real property, $1,272,000 for construction and redevelopment of a new package store on the same, $635,000 for the construction of a catering kitchen and $428,000 for renovations to four (4) existing Company owned restaurants and two (2) existing Company owned package liquor stores. We acquired property and equipment of $3,424,000, (including $350,000 of deposits recorded in other assets as of October 3, 2015), during our fiscal year 2016, including $242,000$120,000 for renovations to one (1) existing Company ownedlimited partnership restaurant and one (1) existing limited partnership owned restaurant.$559,000 for renovations to three (3) Company-owned restaurants. We anticipate the cost of this refurbishment in our fiscal year 20182021 will be approximately $400,000,$950,000, excluding construction/renovations to Store #19 (our combination package liquor store and restaurant which is being rebuilt due to damages caused by a fire) and Store #85 (our Sunrise, Florida restaurant location in development), which funds will be provided from operations.
Debt
As of September 30, 2017, the end of our fiscal year 2017,October 3, 2020, we had long term debt of $12,398,000,$26,323,000, as compared to $10,255,000$13,080,000 as of September 28, 2019. Our long term debt increased as of October 3, 2020 as compared to September 28, 2019 due to (i) the PPP Loan to us of $5.9 million; (ii) the PPP Loans to our eight limited partnerships of $4.1 million; (iii) the re-financing of its mortgage loan by our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, increasing the principal amount borrowed from $2.72 million to $7.21 million; and (iv) $1,317,000 for financed insurance premiums, less any payments made on account thereof.
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Prior to obtaining the PPP Loans, we were in compliance with the financial covenants contained in our loans with our unrelated third party institutional lender (the “Institutional Lender”) under which as of October 3, 2020, we owe in the aggregate approximately $12,209,000 (the “Institutional Loans”). We determined that as of the end of the third quarter of our fiscal year 2016.2020, we were not in compliance with our financial covenants contained in the Institutional Loans related to the Rent Adjusted Funded Debt to EBITDA Ratio because our consolidated debt during the third quarter of our fiscal year 2020 increased due to our repayment obligations under the PPP Loans (the “Covenant Breach’). Pursuant to the terms of the Institutional Loans, the Covenant Breach, grants the Institutional Lender the right to exercise certain remedies under the Institutional Loans, including the right to accelerate the indebtedness owed by us to the Institutional Lender thereunder. On August 10, 2020, we received a written waiver of the Covenant Breach from the Institutional Lender, which, among other things, waives the Covenant Breach through June 30, 2021. As of September 30, 2017,October 3, 2020, we are in compliance with the financial covenants of allcontained in our loans with our lender.Institutional Lender.
There can be no assurances that we will be in compliance with our financial covenants thereafter due to, among other things, that our results of operations will likely continue to be materially impacted by the COVID-19 pandemic. Absent a waiver, failure to be in compliance with our financial covenants would constitute a default under the Institutional Loans with our Institutional Lender when reported. Such a default, if not cured or waived, would allow the Institutional Lender to accelerate the maturity of the indebtedness we owe under the Institutional Loans, making it due and payable at the time. If maturity of the Institutional Loans were accelerated, it would have a material adverse impact on our consolidated financial statements and results of operations.
We repaid long term debt, including auto loans, financed insurance premiums and mortgages in the amount of $1,793,000$2,540,000 and $2,039,000$2,820,000 in our fiscal years 20172020 and 2016,2019, respectively.
(a) Re-Financing of Corporate OfficesMortgage on Real Property
DuringOn November 27, 2019, our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, re-financed its mortgage loan with an unrelated third party lender, increasing the first quarterprincipal amount borrowed from $2.72 million to $7.21 million. The principal balance and all accrued interest of our fiscal year 2017, we re-financed the mortgage loan encumbering our corporate offices located at 5059 N.E. 18th Avenue, Fort Lauderdale, Florida 33334, whichthat had been outstanding matured November 30, 2019. The re-financed mortgage loan was and continues
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to be extended and held by an unaffiliated third party lender. The refinanced mortgage loan is in the original principal amount of $840,000 and bearsearns interest at the fixed annual rate of 4.65% per annum. The mortgage loan3.86%, is amortizableamortized over a fifteen (15) year period, with our currenttwenty (20) years, requires us to pay monthly paymentpayments of principal and interest totaling $6,519. Thein the amount of $43,373 with the entire principal balance and all accrued but unpaid interest are due on December 28, 2031.
Duringin November 2026. We intend to use the second quarterexcess funds we received from the re-financing of our fiscal year 2017, we terminated the interest rate swap agreement we entered into July, 2010 which related to the priorthis mortgage loan encumbering our corporate offices located at 5059 N.E. 18th Avenue, Fort Lauderdale, Florida 33334. The interest rate swap agreement required us to pay interest for a seven (7) year period at a fixed rate of 5.11% on an initial amortizing notional principal amount of $935,000, while receiving interest for the same period at LIBOR, Daily Floating Rate, plus 2.25%, on the same amortizing notional principal amount. We paid an $8,500 pre-payment penalty to the lender in connection with the termination of the interest rate swap agreement.
(b) Financing of Office and Warehouse Space
During the first quarter of our fiscal year 2017, we borrowed the sum of $822,500 from an unaffiliated third party lender (the “$822,500 Loan”). The proceeds of the $822,500 Loan will be used(approximately $4.4 million) for working capital. Our repayment obligations under the $822,500 Loan are secured by a first mortgage on our office located at 1290 East Commercial Boulevard, Oakland Park, Florida 33334 and our warehouse located at 4990 N.E. 12th Avenue, Oakland Park, Florida 33334. The $822,500 Loan bears interest at the fixed rate of 4.65% per annum and is amortizable over a fifteen (15) year period, with our current monthly payment of principal and interest totaling $6,384. The entire principal balance and all accrued but unpaid interest are due on December 28, 2031.
(c) Revolving Credit Line/Term Loan
During the first quarter of our fiscal year 2017, we closed on a secured revolving line of credit from an unaffiliated third party lender which, subject to certain conditions, entitles us to borrow, from time to time through December 28, 2017, up to $5,500,000 (the “Credit Line”). From December 28, 2016 through December 28, 2017, we are obligated to pay interest only on the outstanding balance under the Credit Line, at a rate of LIBOR, Daily Floating Rate, plus 2.25%, per annum (3.4844% as of September 30, 2017). During the second quarter of our fiscal year 2017, we entered into an interest rate swap agreement to hedge the interest rate risk when the unpaid principal balance under the Credit Line converts to a term loan on December 28, 2017 and our repayment obligations thereunder become amortizable over a five year period, payable in equal monthly installments of principal and interest at the rate of 4.61% per annum, with any outstanding principal balance and all accrued but unpaid interest due on December 28, 2022. We granted our lender a first priority security interest in substantially all of our personal property assets to secure our repayment obligations under this loan. During the second quarter of our fiscal year 2017, we borrowed $2.0 million on the Credit Line and used such borrowed amounts to purchase the Property (See Purchase of Real Property above) and accordingly incurred, but
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did not pay any interest amounts. Subsequent to the end of our fiscal year 2017, we borrowed the balance of the Line of Credit, ($3.5 million) and as of December 21, 2017, we have no credit available under the Credit Line.
(d)(b) Financed Insurance Premiums
During our fiscal year 2017,2020, we bound and financed through an unrelated third party lender the premiums on the following three (3) property, and general liability, excess liability and terrorism insurance policies, totaling approximately $1.21 million, which property andpolicies:
(i) | For the policy year beginning December 30, 2019, our general liability insurance, excluding limited partnerships, is a one (1) year policy, including automobile and excess liability coverage. The annual premium for this insurance coverage is $418,000; |
(ii) | For the policy year beginning December 30, 2019, our general liability insurance for our limited partnerships is a one (1) year policy, including excess liability coverage. The annual premium for this insurance coverage is $459,000; |
(iii) | For the policy year beginning December 30, 2019, our property insurance is a one (1) year policy and the annual premium for this insurance coverage is $561,000; |
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(iv) | For the policy year beginning December 30, 2019, our excess liability insurance is a one (1) year policy and the annual premium for this insurance coverage is $360,000; and |
(v) | For the policy year beginning December 30, 2019, our terrorism insurance is a one (1) year policy and the annual premium for this insurance coverage is $12,000. |
Of the $1,810,000 annual premium amounts, which includes coverage for our franchises which are not included in our consolidated financial statements:
(i) For the policy year beginning December 30, 2016, our general liability insurance, excluding limited partnerships, is a one (1) year policy with our insurance carriers, including automobile and excess liability coverage. We are in discussions to secure general liability insurance, including automobile and excess liability coverage for the period commencing after the expiration of the current policy. The one (1) year general liability insurance premiums, including automobile and excess liability coverage, total, in the aggregate $513,000, of which $409,000 isstatements, we financed $1,656,000 through an unaffiliated third party lender (the “Third Party Lender”).lender. The finance agreement obligates us to repay the amounts financed together with interest at the rate of 2.95%2.55% per annum, over 1011 months, with monthly payments of principal and interest, each in the amount of $42,000.$158,000. The finance agreement is secured by a first priority security interest in all insurance policies, all unearned premium, return premium,premiums, dividend payments and loss payments thereof.
(ii) For the policy year beginning December 30, 2016, our general liability insurance for our limited partnerships is a one (1) year policy with our insurance carriers, including excess liability coverage. We are in discussions to secure general liability insurance, including excess liability coverage for the period commencing after the expiration of the current policy. The one (1) year general liability insurance premiums, including excess liability coverage, total, in the aggregate $498,000, of which $398,000 is financed through the Third Party Lender. The finance agreement obligates us to repay the amounts financed, together with interest at the rate of 2.95% per annum, over 10 months, with monthly payments of principal and interest, each in the amount of $40,000. The finance agreement is secured by a first priority security interest in all insurance policies, all unearned premium, return premium, dividend payments and loss payments thereof.
(iii) For the policy year beginning December 30, 2016, our property insurance is a one (1) year policy. We are in discussions to secure property insurance for the period commencing after the expiration of the current policy. The one (1) year property insurance premium is in the amount of $505,000, of which $405,000 is financed through the Third Party Lender. The finance agreement provides that we are obligated to repay the amounts financed, together with interest at the rate of 2.95% per annum, over 10 months, with monthly payments of principal and interest, each in the amount of approximately $41,000. The finance agreement is secured by a first priority security interest in all insurance policies, all unearned premium, return premium, dividend payments and loss payments thereof.
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As of September 30, 2017,October 3, 2020, the aggregate principal balance owed to the third party lender from the financing of our property and general liability insurance policies is $192,000.$365,000, excluding amounts which are reimbursed by our franchises for insurances covering their operations, but including the annual premiums for boiler insurance ($2,000) and directors and officers liability insurance ($34,000), which were added to the finance agreement during the third quarter of our fiscal year 2020 and are financed over the balance of the term of the same.
(c) Paycheck Protection Loans
During the third quarter of our fiscal year 2020, we, certain of the entities owning the limited partnership stores (the “LP’s”), franchised stores (the “Franchisees”), as well as the store we manage but do not own (the “Managed Store”) (collectively, the “Borrowers”), applied for and received loans from an unrelated third party lender pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) enacted March 27, 2020, in the aggregate principal amount of approximately $13.1 million, (the “PPP Loans”), of which approximately: (i) $5.9 million was loaned to us ; (ii) $4.1 million was loaned to 8 of the LP’s ; (iii) $2.6 million was loaned to 5 of the Franchisees; and (iv) $0.5 million was loaned to the Managed Store. The PPP Loans to the Franchisees and the Managed Store are not included in our consolidated financial statements.
The PPP Loans, which are in the form of Notes issued by each of the Borrowers, mature two years from the date of funding (dates ranging from May 5, 2022 to May 11, 2022) and bear interest at a rate of 1.00% per annum, payable monthly commencing approximately six months from the date of issuance of the Notes (issuance dates ranging from April 30, 2020 to May 6, 2020). The Notes may be prepaid by the applicable Borrower at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loans are available to the respective Borrower to fund designated expenses, including certain payroll costs, group health care benefits and other permitted expenses, including rent and interest on mortgages and other debt obligations incurred before February 15, 2020. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent the proceeds of the PPP Loans are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP. No assurance can be given that the Borrowers will obtain forgiveness of the PPP Loans in whole or in part.
With respect to any portion of any of the PPP Loans that is not forgiven under the terms of the PPP, such amounts will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the applicable PPP Note and cross-defaults on any other loan with the Lender or other creditors.
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Leases
To conduct certain of our operations, we lease restaurant and package liquor store space in South Florida from unrelated third parties. Our leases have remaining lease terms of up to 10 years, some of which include options to renew and extend the lease terms for up to an additional 30 years. We presently intend to renew some of the extension options available to us and for purposes of computing the right-of-use assets and lease liabilities required by ASC 842, we have incorporated into all lease terms which may be extended, an additional term of the lesser of (i) the amount of years the lease may be extended; or (ii) 15 years.
Following adoption of ASC 842, common area maintenance and property taxes are not considered to be lease components.
The components of lease expense are as follows:
53 Weeks | ||||
Ended October 3, 2020 | ||||
Operating Lease Expense, which is included in occupancy costs | $ | 4,521,000 |
Supplemental balance sheet information related to leases as follows:
Classification on the Condensed Consolidated Balance Sheet | October 3, 2020 | |||
Assets | ||||
Finance lease assets | $ | 4,749,000 | ||
Operating lease assets | 22,150,000 | |||
$ | 26,899,000 | |||
Liabilities | ||||
Finance current liabilities | $ | 4,772,000 | ||
Operating current liabilities | 3,116,000 | |||
Operating lease non-current liabilities | 20,337,000 | |||
Weighted Average Remaining Lease Term: | ||||
Finance leases | 0.42 Years | |||
Operating leases | 7.71 Years | |||
Weighted Average Discount: | ||||
Finance leases | 5.5% | |||
Operating leases | 5.5% |
The following table outlines the minimum future lease payments for the next five years and thereafter:
For fiscal year | Operating Leases | Finance Leases | ||||||
2021 | $ | 4,246,000 | $ | 4,881,000 | ||||
2022 | 2,927,000 | |||||||
2023 | 2,942,000 | |||||||
2024 | 2,975,000 | |||||||
2025 | 2,957,000 | |||||||
Thereafter | 14,131,000 | |||||||
Total lease payments (Undiscounted cash flows) | 30,178,000 | 4,881,000 | ||||||
Less imputed interest | (6,772,000 | ) | (109,000 | ) | ||||
Total | $ | 23,406,000 | $ | 4,772,000 |
Total rent expense for all of our operating leases was approximately $3,963,000 in our fiscal year 2019 and is included in “Occupancy Costs” in our accompanying consolidated statements of income. The total rent expense is comprised of the following:
2019 | ||||
Minimum Base Rent | $ | 3,149,000 | ||
Contingent Percentage Rent | 814,000 | |||
Total | $ | 3,963,000 |
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Construction Contracts
On June 14, 2017,(a) 2505 N. University Drive, Hollywood, Florida (Store #19)
During the third quarter of our fiscal year 2019, we entered into an agreement with a construction contract inthird party unaffiliated architect for design and development services totaling $77,000 for the amountre-build of $880,000 to renovate our restaurant located at 13205 Biscayne Boulevard, North Miami,2505 N. University Drive, Hollywood, Florida (Store #20), including but not limited#19) which has been closed since October 2018 due to damages caused by a fire, of which $62,000 has been paid. Additionally, during the third quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated general contractor for site work at this location totaling $1,618,000, (i) to connect the real property where this restaurant operated (Store #19) to city sewer and (ii) to construct a new building on the adjacent parcel of real property for the operation of a package liquor store. During our fiscal year 2020, we agreed to change orders to the agreement for additional construction services increasing the total contract price by $112,000 to $1,730,000, of a new kitchen and to expand the restaurant into the former package liquor store space.which $-0- has been paid through October 3, 2020. Subsequent to the end of our fiscal year 2017,2020, we agreed uponto additional change orders increasedto the amount payable underagreement for additional construction services increasing the constructiontotal contract price by $28,000 to $1,080,000,$1,757,000 of which $345,000$64,000 has been paid.
(b) 14301 W. Sunrise Boulevard, Sunrise, Florida (Store #85)
During the third quarter of our fiscal year 2019, we also entered into an agreement with a third party unaffiliated design group for design and development services of our new location at 14301 W. Sunrise Boulevard, Sunrise, Florida 33323 (Store #85) for a total contract price of $122,000. During our fiscal year 2020, we agreed upon amendments to the $122,000 Contract for additional design and development services which had the effect of increasing the total contract price by $18,000 to $140,000, of which $106,000 has been paid through October 3, 2020. Additionally during the fourth quarter of our fiscal year 2020, we entered into an agreement with a third party unaffiliated general contractor for interior renovations at this location totaling $1,236,000, of which $-0- has been paid through October 3, 2020. Subsequent to October 3, 2020, $111,000 has been paid.
Purchase Commitments/Supply
In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants, on November 9, 2020, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $6,420,000 of baby back ribs during calendar year 2021 from this vendor at a fixed cost.
While we anticipate purchasing all of our rib supply from this vendor, we believe there are several other alternative vendors available, if needed.
Flanigan’s Fish Company, LLC
During the third quarter of our fiscal year 2020, we temporarily suspended the operation of our Flanigan’s Fish Company, LLC, a Florida limited liability company (“FFC”) due to the decrease in demand for imported fresh fish caused by restrictions placed upon the operation of our restaurants due to COVID-19, relying instead on outside fresh fish purveyors. The suspension of operations lasted approximately 5 ½ weeks, after which we resumed operations. As of October 3, 2020, FFC supplies certain of the fish to all of our restaurants. Since we hold the controlling interest of FFC, the balance sheet and operating results of this entity are consolidated into the accompanying financial statements of the Company. Sales and purchases of fish are recognized in restaurant food sales and restaurant and lounges (cost of merchandise sold), respectively, in the consolidated statements of income at the time of sale to the restaurant. In addition, the 49% of FFC owned by the unrelated third party is recognized as noncontrolling interest in our consolidated financial statements.
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Purchase of Limited Partnership Interests
During our fiscal year 2020, we did not purchase any limited partnership interests. During our fiscal year 2019, we purchased from one limited partner (who is not an officer, director or family member of officers or directors) a limited partnership interest of 0.63% in a limited partnership which owns a restaurant, for a purchase price of $4,800.
Working Capital
The table below summarizes our current assets, current liabilities and working capital as of the end of our fiscal years 2020 and 2019:
Oct. 3, 2020 | Sept. 28, 2019 | |||||||
(in thousands) | ||||||||
Current assets | $ | 36,508 | $ | 19,593 | ||||
Current liabilities | 25,362 | 13,129 | ||||||
Working capital | 11,146 | 6,464 |
Our working capital as of our fiscal year 2017,ended October 3, 2020 increased $4,682,000 or 72.43% to $11,146,000 from $6,464,000 as of September 28, 2019 due to the cash received from (i) the PPP Loan to us of $5.9 million; (ii) the PPP Loans to our eight limited partnerships of $4.1 million; and (iii) the re-financing of its mortgage loan by our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, increasing the principal amount borrowed from $2.72 million to $7.21 million, offset by $1,281,000 due to our adoption of ASC 842. During our fiscal year 2019, we entered into an agreement,used working capital of approximately $1,300,000 to close on our purchase of the vacant parcel of property located at 2119 S.E. 9th Street, Pompano Beach, Florida.
While there can be no assurance due to, among other things, unanticipated expenses or unanticipated decline in the amount of $127,000, for designrevenues, or both, we believe that our cash on hand, cash flow from operations and development services for the construction offunds available from our borrowings will adequately fund operations, debt reductions and planned capital expenditures throughout our fiscal year 2021.
During our fiscal year 2021, we plan to use certain funds on-hand, borrowed funds and/or insurance proceeds (i) to construct a new building on a parcel of real property which we own which is adjacent to the real property where our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) operates. Upon completion of the construction of the new building,operated into which we plan to re-locate our package liquor store to the new building and to renovate and expandre-build the restaurant intorestaurant; (ii) to exercise the former package liquor store space.
Subsequent to the end of our fiscal year 2017, we also entered into a second agreement in the amount of $174,000, for design and development services to renovate our restaurant located at 2505 N. University Drive, Hollywood, Florida, (Store #19), including but not limited to the construction of a new kitchen and to expand the restaurant into the former package liquor store space.
Purchase Commitments
In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants, on November 7, 2017, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $6,208,000 of baby back ribs during calendar year 2018 from this vendor at a fixed cost.
While we anticipate purchasing all of our rib supply from this vendor, we believe there are several other alternative vendors available, if needed.
Purchase of Limited Partnership Interests
During our fiscal year 2017, we did not purchase any limited partnership interests. During our fiscal year 2016, we purchased from one limited partner (who is not an officer, director or family member of officers or directors) limited partnership interests of 0.85% and 0.26% in limited partnerships which each own a restaurant, for an aggregate purchase price of $9,800.
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Working capital
The table below summarizes our current assets, current liabilities and working capital as of the end of our fiscal years 2017 and 2016:
Sept. 30 | Oct. 1 | |||||||
(in thousands) | 2017 | 2016 | ||||||
Current assets | $ | 14,939 | $ | 15,331 | ||||
Current liabilities | 11,203 | 11,456 | ||||||
Working capital | 3,736 | 3,875 |
Our working capital decreased by 3.59% as of September 30, 2017 from October 1, 2016. During our fiscal year 2017, we used working capital of approximately $1,272,000 to build a new building on a parcel of real property we own which is near our combination package liquor store and restaurant located at 13205 Biscayne Boulevard, North Miami, Florida, (Store #20) and re-located our package liquor store to the new building. We also used $2,475,000, ($2,000,000 of which was drawn on our Credit Line), to fund the purchase price of our acquisition of the vacant real property which is contiguous to the real property we own where our new package liquor store located at 13185 Biscayne Boulevard, North Miami, Florida, (Store #20P) and our restaurant located at 13205 Biscayne Boulevard, North Miami, Florida (Store #20R) operate. We also used $635,000 for the construction of a catering kitchen adjacent to our restaurant located at 2600 Davie Boulevard, Fort Lauderdale, Florida. During our fiscal year 2016, we used $922,500option to purchase the real property and improvements located at 1290 East Commercial Boulevard, Oakland Park, Broward County,5450 N. State Road 7, North Lauderdale, Florida from which we operate our combination “Flanigan’s Seafood Bar and the vacant real property located at 4990 N.E. 12th Avenue, Oakland Park, Broward County, Florida.
During our fiscal year 2018, we intend to use working capital to renovateGrill” restaurant and expand our restaurant located at 13205 Biscayne Boulevard, North Miami, Florida into the former“Big Daddy’s Liquors” package liquor store space. We estimate that(Store #40); (iii) to exercise the renovationoption to purchase the real property and expansion of the former package liquor store space will cost approximately $2,500,000, ofimprovements located at 14301 W. Sunrise Boulevard, Sunrise, Florida which we intendare currently developing for a limited partnership for operation as a “Flanigan’s Seafood Bar and Grill” restaurant (Store #85); (iv) advance the cost of renovations to finance a part.develop the “Flanigan’s Seafood Bar and Grill” restaurant which we are currently developing (Store #85). There can be no assurances as to the timing offor us to construct the renovationnew building for the package liquor store and expansion ofre-build the restaurant.restaurant for Store #19 or to complete the renovations for the restaurant for Store #85.
While there can be no assurance due to, among other things, unanticipated expenses or unanticipated decline in revenues, or both, we believe that our cash on hand, positive cash flow from operations and funds available on our term loan will adequately fund operations, debt reductions and planned capital expenditures throughout our fiscal year 2018.48
Off-Balance Sheet Arrangements
We do not have off-balance sheet arrangements.
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Recently Adopted and Recently Issued Accounting Pronouncements
Adopted
In April 2015,Effective September 29, 2019, we adopted Accounting Standards Codification 842, Leases (“ASC 842”). The new guidance requires that lease arrangements be presented on the FASB issued ASU 2015-03,Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 provides authoritative guidance relatedlessee’s balance sheet by recording a right-of-use asset and a lease liability equal to the presentationpresent value of debt issuancethe related future minimum lease payments. We adopted the standard in the first quarter of fiscal 2020, using the retrospective approach. Upon adoption, the Company recorded a right-of-use asset of $27.8 million and a lease liability of $27.8 million. At October 1, 2020, the Company decreased the operating lease right-of-use asset by $2.6 million and the operating lease liability by $2.6 million with the reclassification of an operating lease to a finance lease due to the exercise of a purchase option subsequent to the end of our fiscal year 2020. The Company recorded a finance lease right-of-use asset of $4.8 million and a finance lease liability of $4.8 million.
We elected the transition package of practical expedients, under which the Company does not have to reassess (1) whether any expired or existing contracts are leases, or contain leases, (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. In addition, we made an accounting policy election to exclude leases with an initial term of 12 months or less from the balance sheet. This standard had a material impact on the balance sheet, requiring companiesCondensed Consolidated Statements of Income due to present debt issuance costs as a direct deduction from the carrying valueescalations of debt. The amendmentsrent in this update are effective for public business entities in fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this new guidancethe extensions but did not have a material impact on our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, “Consolidation: Amendments toCondensed Consolidated Statement of Cash Flows. See Note 13 for further disclosures resulting from the Consolidation Analysis” to modify the analysis that companies must perform in order to determine whether a legal entity should be consolidated. ASU 2015-02 simplifies current guidance by reducing the number of consolidation models; eliminating the risk that a reporting entity may have to consolidate based on a fee arrangement with another legal entity; placing more weight on the risk of loss in order to identify the party that has a controlling financial interest; reducing the number of instances that related party guidance needs to be applied when determining the party that has a controlling financial interest; and changing rules for companies in certain industries that ordinarily employ limited partnership or variable interest entity structures. ASU 2015-02 is effective for public companies for fiscal years beginning after December 15, 2015 and interim periods within those fiscal periods. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
Issuedstandard.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred TaxesIssued. ASU 2015-17 requires that all deferred tax liabilities and tax assets be classified as non-current in a classified balance sheet, rather than separating such deferred taxes into current and non-current amounts, as is required under current guidance. ASU 2015-17 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2016 and may be applied either prospectively or retrospectively. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In August 2016, the Financial Accounting Standards Board (“FASB”)There are no recently issued ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments”. This ASU addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, “Statement of Cash Flows”, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017, which will require us to adopt these provisions in the first quarter of our fiscal year 2019. We doaccounting pronouncements that we have not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes all existing guidance on accounting for leases in ASC Topic 840. ASU 2016-02 is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. ASU 2016-02 will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which will require us to adopt these provisions in the first quarter of our fiscal year 2020. Early adoption is permitted. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. We expect the adoption of the new guidanceyet adopted that we believe will have a material impacteffect on our consolidated balance sheets due to recognition of the right-of-use asset and the lease liability related to our current operating leases. The process of evaluating the full impact of the new guidance of our consolidated financial statements and disclosures is ongoing, but we anticipate the initial evaluation of the impact will be completed in our fiscal year 2018.statements.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers,” (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles when it becomes effective. The new standard was originally effective for interim and annual periods in fiscal years beginning after December 15, 2016. In July 2015, the FASB affirmed its proposal for a one year deferral of the effective date and these updates are now effective for annual and interim periods for fiscal years beginning after December 15, 2017, which will require us to adopt these provisions in the first quarter of our fiscal year 2019. Early application in our fiscal year 2018 permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We do not believe that these updates will impact our recognition of revenue from sales generated at Company owned or operated restaurants or package liquor stores or our recognition of royalty fees from franchisees. We are continuing to evaluate the impact the adoption of these updates will have on the recognition of revenue related to our gift card and loyalty programs, as well as which adoption method will be used. The Company is still evaluating the full impact of the new guidance on our consolidated financial statements and disclosures, but we anticipate the initial evaluation of the impact will be completed in the first half of our fiscal year 2018.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements located in Item 8 of this Annual Report on Form 10-K. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosures of contingent assets and liabilities. Actual results
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could differ from those estimates under different assumptions or conditions. We believe that the following critical accounting policies are subject to estimates and judgments used in the preparation of our consolidated financial statements:
Estimated Useful Lives of Property and Equipment
The estimates of useful lives for property and equipment are significant estimates. Expenditures for the leasehold improvements and equipment when a restaurant is first constructed are material. In addition, periodic refurbishing takes place and those expenditures can be material. We estimate the useful life of those assets by considering, among other things, expected use, life of the lease on the building, and warranty period, if applicable. The assets are then depreciated using a straight line method over those estimated lives. These estimated lives are reviewed periodically and adjusted if necessary. Any necessary adjustment to depreciation expense is made in the income statement of the period in which the adjustment is determined to be necessary.
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Consolidation of Limited Partnerships
As of September 30, 2017,October 3, 2020, we operate eight (8) restaurants as general partner of the limited partnerships that own the operations of these restaurants. We expect that any expansion which takes place in opening new restaurants will also result in us operating the restaurants as general partner. In addition to the general partnership interest we also purchased limited partnership units ranging from 5% to 49% of the total units outstanding. As a result of these controlling interests, we consolidate the operations of these limited partnerships with ours despite the fact that we do not own in excess of 50% of the equity interests. All intercompany transactions are eliminated in consolidation. The non-controlling interests in the earnings of these limited partnerships are removed from net income and are not included in the calculation of earnings per share.
Income Taxes
We account for our income taxes using FASB ASC Topic 740, –“Income Taxes”, which requires among other things, recognition of future tax benefits measured at enacted rates attributable to deductible temporary differences between financial statement and income tax basesbasis of assets and liabilities and to tax net operating loss carryforwards and tip credit carryforwardstax credits to the extent that realization of said tax benefits is more likely than not. For discussion regarding our carryforwards refer to Note 911 to the consolidated financial statements for our fiscal year 2017.2020.
Other Matters
Impact of Inflation
The primary inflationary factors affecting our operations are food, beverage and labor costs. A large number of restaurant personnel are paid at rates based upon applicable minimum wage and increases in minimum wage
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directly affect labor costs. To date, inflation has not had a material impact on our operating results, but this circumstance may change in the future if food and fuel costs continue to rise.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As part of our ongoing operations, we are exposed to interest rate fluctuations on our borrowings. As more fully described in Note 12 “Fair Value Measurements of Financial Instruments” to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for our fiscal year ended September 30, 2017,October 3, 2020, we use interest rate swap agreements to manage these risks. These instruments are not used for speculative purposes but are used to modify variable rate obligations into fixed rate obligations.
At September 30, 2017,October 3, 2020, we had threetwo variable rate debt instruments outstanding that are impacted by changes in interest rates. In November, 2011, we financed our purchaseThe interest rate of both variable rate debt instruments is equal to the real propertylender’s LIBOR Rate plus two and two building shopping center in Miami, Florida, withone-quarter percent (2.25%) per annum. The debt instruments further provide that the “LIBOR Rate” is a $4,500,000 mortgage loan (the “$4.5M Mortgage Loan”).rate of interest equal to the British Bankers Association LIBOR Rate or successor thereto approved by the lender if the British Bankers Association is no longer making a LIBOR rate available. In January 2013, we refinanced the mortgage loan encumbering the property where our combination package liquor store and restaurant located at 4 N. Federal Highway, Hallandale, Florida, (Store #31) operates, which mortgage loan is held by an unaffiliated third party lender (the “$1.405M Loan”). In December 2016, we closed on a secured revolving line of credit which entitlesentitled us to borrow, from time to time through December 28, 2017, up to $5,500,000 (the “Credit Line”), which on December 28, 2017 converted to a term loan (the “Term Loan”).
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As a means of managing our interest rate risk on these debt instruments, we entered into interest rate swap agreements with our unrelated third party lender to convert these variable rate debt obligations to fixed rates. We are currently party to the following three (3)two (2) interest rate swap agreements:
(i) The first interest rate swap agreement entered into in November, 2011 by our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, relates to the $4.5 Mortgage Loan (the “$4.5M Mortgage Loan Swap”). The $4.5M Mortgage Loan Swap requires us to pay interest for an eight (8) year period at a fixed rate of 4.51% on an initial amortizing notional principal amount of $3,750,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at September 30, 2017, the interest rate swap agreement is an effective hedging agreement and the fair value was not material;
(ii) The second interest rate swap agreement entered into in January 2013 relates to the $1.405M Loan (the “$1.405M Term Loan Swap”). The $1.405M Term Loan Swap requires us to pay interest for a twenty (20) year period at a fixed rate of 4.35% on an initial amortizing notional principal amount of $1,405,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at September 30, 2017,October 3, 2020, the interest rate swap agreement is an effective hedging agreement and the fair value was not material; and
(iii)(ii) The thirdsecond interest rate swap agreement entered into in December 2016 which becomesand became effective December 28, 2017, relates to the Credit LineTerm Loan (the “Line of Credit“Term Loan Swap”). The
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Line of Credit Term Loan Swap requires us to pay interest for a five (5) year period commencing December 28, 2017 at a fixed rate of 4.61% on an initial amortizing notional principal amount of $5,500,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at October 3, 2020, the interest rate swap agreement is an effective hedging agreement and the fair value was not material
At September 30, 2017,October 3, 2020, our cash resources earn interest at variable rates. Accordingly, our return on these funds is affected by fluctuations in interest rates.
There is no assurance that interest rates will increase or decrease over our next fiscal year or that an increase will not have a material adverse effect on our operations.
Item 8. Financial Statements and Supplementary Data.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
Our Consolidated Financial Statements and supplementary data are on pages F-1 through F-6.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. |
None
Item 9A. Controls and Procedures.
ITEM 9A. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
Based on evaluations as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer, with the participation of our management team, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective to ensure that information the Company is required to disclose in reports that it files or submits under the Securities Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
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Management’s Assessment on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the Company's internal control over financial reporting. This evaluation was based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (“COSO”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have
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concluded that as of September 30, 2017,October 3, 2020, our internal control over financial reporting was effective.
Limitations on the Effectiveness of Controls and Permitted Omission from Management’s Assessment
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can only provide reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 30, 2017, we have not made any change to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION. |
None.
Item 10. Directors, Executive Officers and Corporate Governance.
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The information required by Item 10 is incorporated by reference to our Proxy Statement for our 20182021 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days from the end of our 20172020 fiscal year. The information under the heading “Executive Officers” in Part I of this Form 10-K is also incorporated herein by reference.
Item 11. Executive Compensation.
ITEM 11. | EXECUTIVE COMPENSATION. |
The information required by Item 11 is incorporated by reference to our Proxy Statement for our 20182021 Annual Meeting of Shareholders, which will
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be filed with the Securities and Exchange Commission no later than 120 days from the end of our 20172020 fiscal year.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information required by Item 12 is incorporated by reference to our Proxy Statement for our 20182021 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days from the end of our 20172020 fiscal year.
Item 13. Certain Relationships and Related Transactions and Director Independence.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. |
The information required by Item 13 is incorporated by reference to our Proxy Statement for our 20182021 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days from the end of our 20172020 fiscal year.
Item 14. Principal Accountant Fees and Services.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
The information required by Item 14 is incorporated by reference to our Proxy Statement for our 20182021 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days from the end of our 20172020 fiscal year.
Item 15. Exhibits and Financial Statement Schedules.
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
(a)(1) Financial Statements
See Part II, Item 8, “Financial Statements and Supplementary Data” for Financial Statements included with this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
All other schedules have been omitted because the required information is not applicable or the information is included in the consolidated financial statements or the Notes thereto.
(a)(3) Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report.
Incorporated by Reference | ||||||||||
Exhibit Number | Exhibit Description | Form | Date | Number | Filed Herewith | |||||
2 | Plan of Reorganization, Amended Disclosure Statement, Amended Plan of Reorganization, Modification of Amended Plan of Reorganization, Second Modification of Amended Plan of Reorganization, Order Confirming Plan of Reorganization | SB-2 | 5/5/1987 | 2 |
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3 | Restated Articles of Incorporation, adopted January 9, 1984 | 10-K | 12/29/1982 | 3 | ||||||
10(a)(1) | Employment Agreement with Joseph G. Flanigan* | DEF14A | 1/27/1988 | 10(a)(1) | ||||||
10(a)(2) | Form of Employment Agreement between Joseph G. Flanigan and the Company (as ratified and amended by the stockholders at the 1988 annual meeting is incorporated herein by reference).* | 10-K | 10(a)(1) | |||||||
10(c) | Consent Agreement regarding the Company's Trademark Litigation | 8-K | 4/10/1985 | 10( c) | ||||||
10(d) | King of Prussia(#850)Partnership Agreement* | 8-K | 4/10/1985 | 10(d) | ||||||
10(o) | Management Agreement for Atlanta, Georgia, (#600)* | 10-K | 10/3/1992 | 10(o) | ||||||
10(p) | Settlement Agreement with Former Vice Chairman of the Board of Directors (re #5) | 10-K | 10/3/1992 | 10(p) | ||||||
10(q) | Hardware Purchase Agreement and Software License Agreement for restaurant point of sale system. | 10-KSB | 10/2/1993 | 10(q) | ||||||
10(a)(3) | Key Employee Incentive Stock Option Plan | DEF14A | 1/26/1994 | 10(a)(3) | ||||||
10( r) | Limited Partnership Agreement of CIC Investors #13, Ltd,. between Flanigan's Enterprises, Inc., as General Partner and fifty percent owner of the limited partnership, and Hotel Properties, LTD. * | 10-KSB | 9/30/1995 | 10(r) | ||||||
10(s) | Form of Franchise Agreement between Flanigan's Enterprises, Inc. and Franchisees.* | 10-KSB | 9/30/1995 | 10(s) | ||||||
10(t) | Licensing Agreement between Flanigan's Enterprises, Inc. and James B. Flanigan, dated November 4, 1996, for non-exclusive use of the service mark "Flanigan's" in the Commonwealth of Pennsylvania. * | 10-KSB | 9/28/1996 | 10(t) |
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List of XBRL documents as exhibits 101
ITEM 16. | FORM 10-K SUMMARY |
None.
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Incorporated by Reference | ||||||||||
Exhibit Number | Exhibit Description | Form | Date | Number | Filed Herewith | |||||
2 | Plan of Reorganization, Amended Disclosure Statement, Amended Plan of Reorganization, Modification of Amended Plan of Reorganization, Second Modification of Amended Plan of Reorganization, Order Confirming Plan of Reorganization | SB-2 | 5/5/87 | 2 | ||||||
3 | Restated Articles of Incorporation, adopted January 9, 1984 | 10-K | 12/29/1982 | 3 | ||||||
10(a)(1) | Employment Agreement with Joseph G. Flanigan* | DEF14A | 1/27/1988 | 10(a)(1) | ||||||
10(a)(2) | Form of Employment Agreement between Joseph G. Flanigan and the Company (as ratified and amended by the stockholders at the 1988 annual meeting is incorporated herein by reference).* | 10-K | 10(a)(1) | |||||||
10(c) | Consent Agreement regarding the Company's Trademark Litigation | 8-K | 4/10/1985 | 10(c) | ||||||
10(d) | King of Prussia(#850)Partnership Agreement* | 8-K | 4/10/1985 | 10(d) | ||||||
10(o) | Management Agreement for Atlanta, Georgia, (#600)* | 10-K | 10/3/1992 | 10(o) | ||||||
10(p) | Settlement Agreement with Former Vice Chairman of the Board of Directors (re #5) | 10-K | 10/3/1992 | 10(p) | ||||||
10(q) | Hardware Purchase Agreement and Software License Agreement for restaurant point of sale system. | 10-KSB | 10/2/1993 | 10(q) | ||||||
10(a)(3) | Key Employee Incentive Stock Option Plan | DEF14A | 1/26/1994 | 10(a)(3) | ||||||
10( r) | Limited Partnership Agreement of CIC Investors #13, Ltd,. between Flanigan's Enterprises, Inc., as General Partner and fifty percent owner of the limited partnership, and Hotel Properties, LTD. * | 10-KSB | 9/30/1995 | 10(r) | ||||||
10(s) | Form of Franchise Agreement between Flanigan's Enterprises, Inc. and Franchisees.* | 10-KSB | 9/30/1995 | 10(s) |
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List of XBRL documents as exhibits 101
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
By: | |||
JAMES G. FLANIGAN II | |||
Chief Executive Officer | |||
Date: | |||
By: | |||
JEFFREY D. KASTNER | |||
Chief Financial Officer and Secretary | |||
(Principal Financial and Accounting Officer) | |||
Date: |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities and on the dates indicated.
/s/ JAMES G. FLANIGAN II | Chairman of the Board, | Date: | |
James G. Flanigan II | Chief Executive Officer, | ||
and Director | |||
/s/ JEFFREY D. KASTNER | Chief Financial Officer, | Date: | |
Jeffrey D. Kastner | Secretary and Director | ||
/s/ | Chief Operating Officer | Date: | |
and Director | |||
/s/ | Director | Date: 1/15/2021 | |
Michael B. Flanigan | |||
/s/ PATRICK J. FLANIGAN | Director | Date: 1/15/2021 | |
Patrick J. Flanigan | |||
/s/ CHRISTOPHER O’NEIL | Vice President of Package | Date: | |
Christopher O’Neil | Operations and Director | ||
58
/s/ MARY ELIZABETH BENNETT | Director | Date: | |
Mary Elizabeth Bennett | |||
/s/ CHRISTOPHER J. NELMS | Director | Date: | |
Christopher J. Nelms | |||
/s/ JOHN P. FOSTER | Director | Date: 1/15/2021 | |
John P. Foster |
6059
FLANIGAN’SENTERPRISES,INC. ANDSUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 3, 2020 AND SEPTEMBER 30, 2017 AND OCTOBER 1, 201628, 2019
FLANIGAN’SENTERPRISES,INC. ANDSUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-1 |
CONSOLIDATED FINANCIAL STATEMENTS | |
Balance Sheets | F-2 |
Statements of Income | F-3 |
Statements of Stockholders’ Equity | F-4 |
Statements of Cash Flows | F-5 – F-6 |
Notes to Financial Statements | F-7 - |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the
Shareholders and Board of Directors and Stockholders of
Flanigan’s Enterprises, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Flanigan’s Enterprises, Inc. and Subsidiaries, (the “Company”), as of October 3, 2020 and September 30, 2017 and October 1, 2016 and28, 2019, the related consolidated statements of income, stockholders’ equity and cash flows for each of the two years then ended. in the period ended October 3, 2020 and September 28, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 3, 2020 and September 28, 2019, and the results of its operations and cash flows for each of the two years in the period ended October 3, 2020, in conformity with accounting principles generally accepted in the United States of America.
Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases due to the adoption of ASU No. 2016-02, Leases (Topic 842), as amended, effective September 29, 2019, using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on thesethe Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerationAs part of our audits, we are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our auditaudits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Flanigan’s Enterprises, Inc. and Subsidiaries as of September 30, 2017 and October 1, 2016, and the consolidated results of their operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Marcum LLPllp
Marcum LLPllp
We have served as the Company’s auditor since 1999.
Fort Lauderdale, FL
December 21, 2017January 15, 2021
F-1
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 3, 2020 AND SEPTEMBER 30, 2017 AND OCTOBER 1, 201628, 2019
(rounded(rounded to the nearest thousandth, except share amounts)
ASSETS | 2017 | 2016 | ||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 9,885,000 | $ | 10,174,000 | ||||
Prepaid income taxes | 67,000 | 180,000 | ||||||
Due from franchisees | — | 62,000 | ||||||
Other receivables | 496,000 | 627,000 | ||||||
Inventories | 2,842,000 | 2,633,000 | ||||||
Prepaid expenses | 1,350,000 | 1,274,000 | ||||||
Deferred tax assets | 299,000 | 381,000 | ||||||
Total current assets | 14,939,000 | 15,331,000 | ||||||
Property and Equipment, Net | 42,178,000 | 38,138,000 | ||||||
Construction in progress | 527,000 | 15,000 | ||||||
42,705,000 | 38,153,000 | |||||||
Investment in Limited Partnership | 237,000 | 212,000 | ||||||
Other Assets: | ||||||||
Liquor licenses | 630,000 | 630,000 | ||||||
Deferred tax assets | 999,000 | 862,000 | ||||||
Leasehold interests, net | 538,000 | 660,000 | ||||||
Other | 461,000 | 553,000 | ||||||
Total other assets | 2,628,000 | 2,705,000 | ||||||
Total assets | $ | 60,509,000 | $ | 56,401,000 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 8,066,000 | $ | 7,790,000 | ||||
Due to franchisees | 1,781,000 | 2,098,000 | ||||||
Current portion of long-term debt | 1,076,000 | 1,466,000 | ||||||
Deferred rent | 88,000 | 102,000 | ||||||
Total current liabilities | 11,011,000 | 11,456,000 | ||||||
Long-Term Debt, Net of Current Portion | 11,322,000 | 8,626,000 | ||||||
Commitments and Contingencies | ||||||||
Equity: | ||||||||
Flanigan's Enterprises, Inc. stockholders' equity | ||||||||
Common stock, $.10 par value; 5,000,000 shares authorized; 4,197,642 shares | ||||||||
issued; 1,858,647 outstanding for years ended 2017 and 2016 | 420,000 | 420,000 | ||||||
Capital in excess of par value | 6,240,000 | 6,240,000 | ||||||
Retained earnings | 31,398,000 | 28,750,000 | ||||||
Treasury stock, at cost, 2,338,995 shares for the years | ||||||||
ended 2017 and 2016 | (6,077,000 | ) | (6,077,000 | ) | ||||
Total Flanigan's Enterprises, Inc. stockholders' equity | 31,981,000 | 29,333,000 | ||||||
Noncontrolling interests | 6,195,000 | 6,986,000 | ||||||
Total equity | 38,176,000 | 36,319,000 | ||||||
Total liabilities and equity | $ | 60,509,000 | $ | 56,401,000 |
See notes to consolidated financial statements.
ASSETS | 2020 | 2019 | ||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 29,922,000 | $ | 13,672,000 | ||||
Prepaid income taxes | 74,000 | 55,000 | ||||||
Other receivables | 681,000 | 870,000 | ||||||
Inventories | 3,624,000 | 3,292,000 | ||||||
Prepaid expenses | 2,207,000 | 1,704,000 | ||||||
Total current assets | 36,508,000 | 19,593,000 | ||||||
Property and Equipment, Net | 46,003,000 | 46,187,000 | ||||||
Construction in progress | 981,000 | 1,292,000 | ||||||
46,984,000 | 47,479,000 | |||||||
Right-of-use asset, finance leases | 4,749,000 | — | ||||||
Right-of-use asset, operating leases | 22,150,000 | — | ||||||
26,899,000 | — | |||||||
Investment in Limited Partnerships | 621,000 | 231,000 | ||||||
Other Assets: | ||||||||
Liquor licenses | 630,000 | 630,000 | ||||||
Deferred tax assets | 352,000 | 249,000 | ||||||
Leasehold interests, net | 200,000 | 296,000 | ||||||
Other | 290,000 | 277,000 | ||||||
Total other assets | 1,472,000 | 1,452,000 | ||||||
Total assets | $ | 112,484,000 | $ | 68,755,000 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 9,238,000 | $ | 8,532,000 | ||||
Due to franchisees | 3,142,000 | 2,553,000 | ||||||
Current portion of long-term debt | 5,094,000 | 1,983,000 | ||||||
Finance lease liability, current | 4,772,000 | — | ||||||
Operating lease liability, current | 3,116,000 | — | ||||||
Deferred rent | — | 61,000 | ||||||
Total current liabilities | 25,362,000 | 13,129,000 | ||||||
Long-Term Debt, Net of Current Portion | 21,229,000 | 11,097,000 | ||||||
Operating lease liability, non current | 20,337,000 | — | ||||||
Total liabilities | 66,928,000 | 24,226,000 | ||||||
Commitments and Contingencies | ||||||||
Equity: | ||||||||
Flanigan's Enterprises, Inc. stockholders' equity | ||||||||
Common stock, $.10 par value; 5,000,000 shares authorized; 4,197,642 shares | ||||||||
issued; 1,858,647 outstanding for years ended 2020 and 2019 | 420,000 | 420,000 | ||||||
Capital in excess of par value | 6,240,000 | 6,240,000 | ||||||
Retained earnings | 38,848,000 | 37,738,000 | ||||||
Treasury stock, at cost, 2,338,995 shares for the years | ||||||||
ended 2020 and 2019 | (6,077,000 | ) | (6,077,000 | ) | ||||
Total Flanigan's Enterprises, Inc. stockholders' equity | 39,431,000 | 38,321,000 | ||||||
Noncontrolling interests | 6,125,000 | 6,208,000 | ||||||
Total equity | 45,556,000 | 44,529,000 | ||||||
Total liabilities and equity | $ | 112,484,000 | $ | 68,755,000 |
F-2
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 3, 2020 and September 30, 2017 and October 1, 201628, 2019
(rounded to the nearest thousandth, except share and per share amounts)
2020 | 2019 | |||||||
Revenues: | ||||||||
Restaurant food sales | $ | 68,685,000 | $ | 71,814,000 | ||||
Restaurant bar sales | 15,967,000 | 22,476,000 | ||||||
Package store sales | 26,276,000 | 19,327,000 | ||||||
Franchise-related revenues | 1,260,000 | 1,610,000 | ||||||
Other operating income | 109,000 | 213,000 | ||||||
Rental income | 680,000 | 762,000 | ||||||
112,977,000 | 116,202,000 | |||||||
Costs and Expenses: | ||||||||
Cost of merchandise sold: | ||||||||
Restaurants and lounges | 28,518,000 | 33,078,000 | ||||||
Package goods | 19,192,000 | 14,058,000 | ||||||
Payroll and related costs | 35,399,000 | 35,873,000 | ||||||
Occupancy costs | 7,040,000 | 6,054,000 | ||||||
Selling, general and administrative expenses | 19,917,000 | 20,823,000 | ||||||
110,066,000 | 109,886,000 | |||||||
Income from Operations | 2,911,000 | 6,316,000 | ||||||
Other Income (Expense): | ||||||||
Interest expense | (836,000 | ) | (708,000 | ) | ||||
Interest and other income | 49,000 | 54,000 | ||||||
Insurance recovery, net of casualty loss | — | 602,000 | ||||||
(787,000 | ) | (52,000 | ) | |||||
Income Before Provision for Income Taxes | 2,124,000 | 6,264,000 | ||||||
Benefit (Provision) for Income Taxes | 60,000 | (887,000 | ) | |||||
Net Income | 2,184,000 | 5,377,000 | ||||||
Less: Net Income Attributable to Noncontrolling Interests | (1,074,000 | ) | (1,729,000 | ) | ||||
Net Income Attributable to Flanigan's Enterprises, Inc. Stockholders | $ | 1,110,000 | $ | 3,648,000 | ||||
Net Income Per Common Share: | ||||||||
Basic and Diluted | $ | 0.60 | $ | 1.96 | ||||
Weighted Average Shares and Equivalent Shares Outstanding: | ||||||||
Basic and Diluted | 1,858,647 | 1,858,647 |
2017 | 2016 | |||||||||||
Revenues: | ||||||||||||
Restaurant food sales | $ | 66,917,000 | $ | 64,954,000 | ||||||||
Restaurant bar sales | 20,476,000 | 20,492,000 | ||||||||||
Package store sales | 16,842,000 | 15,661,000 | ||||||||||
Franchise-related revenues | 1,592,000 | 1,584,000 | ||||||||||
Owner's fee | 150,000 | 150,000 | ||||||||||
Other operating income | 233,000 | 225,000 | ||||||||||
Rental income | 612,000 | 552,000 | ||||||||||
106,822,000 | 103,618,000 | |||||||||||
Costs and Expenses: | ||||||||||||
Cost of merchandise sold: | ||||||||||||
Restaurants and lounges | 31,607,000 | 29,770,000 | ||||||||||
Package goods | 12,034,000 | 11,207,000 | ||||||||||
Payroll and related costs | 32,795,000 | 32,102,000 | ||||||||||
Occupancy costs | 5,432,000 | 5,413,000 | ||||||||||
Selling, general and administrative expenses | 18,696,000 | 18,325,000 | ||||||||||
100,564,000 | 96,817,000 | |||||||||||
Income from Operations | 6,258,000 | 6,801,000 | ||||||||||
Other Income (Expense): | ||||||||||||
Interest expense | (600,000 | ) | (557,000 | ) | ||||||||
Interest and other income | 102,000 | 92,000 | ||||||||||
(498,000 | ) | (465,000 | ) | |||||||||
Income Before Provision for Income Taxes | 5,760,000 | 6,336,000 | ||||||||||
Provision for Income Taxes | (1,370,000 | ) | (1,367,000 | ) | ||||||||
Net Income | 4,390,000 | 4,969,000 | ||||||||||
Less: Net Income Attributable to Noncontrolling Interests | (1,370,000 | ) | (1,929,000 | ) | ||||||||
Net Income Attributable to Flanigan's Enterprises, Inc. Stockholders | $ | 3,020,000 | $ | 3,040,000 | ||||||||
Net Income Per Common Share: | ||||||||||||
Basic and Diluted | $ | 1.63 | $ | 1.64 | ||||||||
Weighted Average Shares and Equivalent Shares Outstanding: | ||||||||||||
Basic and Diluted | 1,858,647 | 1,858,647 |
See notes to consolidated financial statements.
F-3
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 3, 2020 AND SEPTEMBER 30, 2017 AND OCTOBER 1, 201628, 2019
(rounded(rounded to nearest thousandth, except share amounts)
Common Stock | Capital in | Treasury Stock | ||||||||||||||||||||||||||||||
Excess of | Retained | Noncontrolling | ||||||||||||||||||||||||||||||
Shares | Amount | Par Value | Earnings | Shares | Amount | Interests | Total | |||||||||||||||||||||||||
Balance, October 3, 2015 | 4,197,642 | $ | 420,000 | $ | 6,240,000 | $ | 26,054,000 | 2,338,995 | $ | (6,077,000 | ) | $ | 7,162,000 | $ | 33,799,000 | |||||||||||||||||
Year Ended October 1, 2016: | ||||||||||||||||||||||||||||||||
Net income | — | — | — | 3,040,000 | — | — | 1,929,000 | 4,969,000 | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (2,095,000 | ) | (2,095,000 | ) | ||||||||||||||||||||||
Dividends paid | — | — | — | (344,000 | ) | — | — | — | (344,000 | ) | ||||||||||||||||||||||
Purchase of noncontrolling interests | — | — | — | — | — | — | (10,000 | ) | (10,000 | ) | ||||||||||||||||||||||
Balance, October 1, 2016 | 4,197,642 | 420,000 | 6,240,000 | 28,750,000 | 2,338,995 | (6,077,000 | ) | 6,986,000 | 36,319,000 | |||||||||||||||||||||||
Year Ended September 30, 2017: | ||||||||||||||||||||||||||||||||
Net income | — | — | — | 3,020,000 | — | — | 1,370,000 | 4,390,000 | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (2,161,000 | ) | (2,161,000 | ) | ||||||||||||||||||||||
Dividends paid | — | — | — | (372,000 | ) | — | — | — | (372,000 | ) | ||||||||||||||||||||||
Balance, September 30, 2017 | 4,197,642 | $ | 420,000 | $ | 6,240,000 | $ | 31,398,000 | 2,338,995 | $ | (6,077,000 | ) | $ | 6,195,000 | $ | 38,176,000 |
See notes to consolidated financial statements.
Common Stock | Capital in | Treasury Stock | ||||||||||||||||||||||||||||||
Excess of | Retained | Noncontrolling | ||||||||||||||||||||||||||||||
Shares | Amount | Par Value | Earnings | Shares | Amount | Interests | Total | |||||||||||||||||||||||||
Balance, September 28, 2019 | 4,198 | $ | 420 | $ | 6,240 | $ | 37,738 | 2,339 | $ | (6,077 | ) | $ | 6,208 | 44,529 | ||||||||||||||||||
Net income | — | — | — | 1,110 | — | — | 1,074 | 2,184 | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (1,157 | ) | (1,157 | ) | ||||||||||||||||||||||
Balance, October 3, 2020 | 4,198 | 420 | 6,240 | 38,848 | 2,339 | (6,077 | ) | 6,125 | 45,556 | |||||||||||||||||||||||
Balance September 29, 2018: | 4,198 | 420 | 6,240 | 34,610 | 2,339 | (6,077 | ) | 6,149 | 41,342 | |||||||||||||||||||||||
Net income | — | — | — | 3,648 | — | — | 1,729 | 5,377 | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (1,665 | ) | (1,665 | ) | ||||||||||||||||||||||
Purchase of noncontrolling interests | — | — | — | — | — | — | (5 | ) | (5 | ) | ||||||||||||||||||||||
Dividends paid | — | — | — | (520 | ) | — | — | — | (520 | ) | ||||||||||||||||||||||
Balance, September 28, 2019 | 4,198 | $ | 420 | $ | 6,240 | $ | 37,738 | 2,339 | $ | (6,077 | ) | $ | 6,208 | $ | 44,529 |
F-4
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 3, 2020 AND SEPTEMBER 30, 2017 AND OCTOBER 1, 201628, 2019
(rounded to nearest thousandth)
2020 | 2019 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 2,184,000 | $ | 5,377,000 | ||||
Adjustments to reconcile net income to net cash and cash equivalents provided by | ||||||||
operating activities: | ||||||||
Depreciation and amortization | 3,144,000 | 2,919,000 | ||||||
Amortization of leasehold interests | 96,000 | 121,000 | ||||||
Amortization of operating lease right-of-use asset | 3,050,000 | — | ||||||
Gain/loss on sale/abandonment of property and equipment | 53,000 | 87,000 | ||||||
Insurance recovery, net of casualty loss | — | 118,000 | ||||||
Amortization of deferred loan costs | 33,000 | 33,000 | ||||||
Deferred income taxes | (103,000 | ) | 363,000 | |||||
Deferred rent | — | (13,000 | ) | |||||
Income from unconsolidated limited partnership | (7,000 | ) | (20,000 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
(Increase) decrease in: | ||||||||
Prepaid income taxes | (19,000 | ) | 202,000 | |||||
Other receivables | 57,000 | (264,000 | ) | |||||
Inventories | (332,000 | ) | (222,000 | ) | ||||
Prepaid expenses | 930,000 | 1,271,000 | ||||||
Other assets | 305,000 | 120,000 | ||||||
Increase (decrease) in: | ||||||||
Accounts payable and accrued expenses | 590,000 | (964,000 | ) | |||||
Lease liabilities | (1,785,000 | ) | — | |||||
Due to franchisees | 589,000 | 499,000 | ||||||
Net cash and cash equivalents provided by operating activities | 8,785,000 | 9,627,000 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchase of property and equipment | (2,259,000 | ) | (4,284,000 | ) | ||||
Purchase of construction in progress | (379,000 | ) | (1,058,000 | ) | ||||
Deposit on purchase of fixed assets | (446,000 | ) | (411,000 | ) | ||||
Proceeds from sale of fixed assets | 64,000 | 36,000 | ||||||
Insurance recovery | 132,000 | 1,068,000 | ||||||
Distributions from unconsolidated limited partnership | 22,000 | 40,000 | ||||||
Investment in limited partnership | (405,000 | ) | — | |||||
Net cash and cash equivalents used in investing activities | (3,271,000 | ) | (4,609,000 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Payments of long-term debt | (2,540,000 | ) | (2,820,000 | ) | ||||
Proceeds from long-term debt | 14,433,000 | 250,000 | ||||||
Dividends paid | — | (520,000 | ) | |||||
Distributions to noncontrolling interests | (1,157,000 | ) | (1,665,000 | ) | ||||
Purchase of noncontrolling interests | — | (5,000 | ) | |||||
Net cash and cash equivalents provided by (used in) financing activities | 10,736,000 | (4,760,000 | ) | |||||
Net Increase in Cash and Cash Equivalents | 16,250,000 | 258,000 | ||||||
Cash and Cash Equivalents, Beginning | 13,672,000 | 13,414,000 | ||||||
Cash and Cash Equivalents, Ending | $ | 29,922,000 | $ | 13,672,000 |
2017 | 2016 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 4,390,000 | $ | 4,969,000 | ||||
Adjustments to reconcile net income to net cash and cash equivalents provided by | ||||||||
operating activities: | ||||||||
Depreciation and amortization | 2,545,000 | 2,564,000 | ||||||
Amortization of leasehold interests | 122,000 | 121,000 | ||||||
Gain/loss on sale/abandonment of property and equipment | 50,000 | 285,000 | ||||||
Amortization of deferred loan costs | 40,000 | — | ||||||
Deferred income taxes | (55,000 | ) | 35,000 | |||||
Deferred rent | (14,000 | ) | (13,000 | ) | ||||
Income from unconsolidated limited partnership | (45,000 | ) | (17,000 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
(Increase) decrease in: | ||||||||
Prepaid income taxes | 113,000 | (180,000 | ) | |||||
Due from franchisees | 62,000 | (62,000 | ) | |||||
Other receivables | 131,000 | (56,000 | ) | |||||
Inventories | (209,000 | ) | (223,000 | ) | ||||
Prepaid expenses | 1,123,000 | 734,000 | ||||||
Other assets | 42,000 | 50,000 | ||||||
Increase (decrease) in: | ||||||||
Accounts payable and accrued expenses | 276,000 | 498,000 | ||||||
Income taxes payable | — | (143,000 | ) | |||||
Due to franchisees | (317,000 | ) | 205,000 | |||||
Net cash and cash equivalents provided by operating activities | 8,254,000 | 8,767,000 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchase of property and equipment | (4,288,000 | ) | (3,074,000 | ) | ||||
Purchase of construction in progress | (2,419,000 | ) | — | |||||
Deposit on purchase of fixed assets | (439,000 | ) | (328,000 | ) | ||||
Proceeds from sale of fixed assets | 73,000 | — | ||||||
Distributions from unconsolidated limited partnership | 20,000 | 30,000 | ||||||
Net cash and cash equivalents used in investing activities | (7,053,000 | ) | (3,372,000 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Payments of long-term debt | (1,793,000 | ) | (2,039,000 | ) | ||||
Deferred loan costs | (86,000 | ) | — | |||||
Proceeds from long-term debt | 2,922,000 | — | ||||||
Dividends paid | (372,000 | ) | (344,000 | ) | ||||
Distributions to noncontrolling interests | (2,161,000 | ) | (2,095,000 | ) | ||||
Purchase of noncontrolling interests | — | (10,000 | ) | |||||
Net cash and cash equivalents used in financing activities | (1,490,000 | ) | (4,488,000 | ) | ||||
Net Increase (Decrease) in Cash and Cash Equivalents | (289,000 | ) | 907,000 | |||||
Cash and Cash Equivalents, Beginning | 10,174,000 | 9,267,000 | ||||||
Cash and Cash Equivalents, Ending | $ | 9,885,000 | $ | 10,174,000 |
See notes to consolidated financial statements.
F-5
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(rounded to nearest thousandth)
2017 | 2016 | 2020 | 2019 | ||||||||||||||
Supplemental Disclosure of Cash Flow Information: | Supplemental Disclosure of Cash Flow Information: | ||||||||||||||||
Cash paid during the year for: | |||||||||||||||||
Interest | $ | 600,000 | $ | 559,000 | $ | 836,000 | $ | 708,000 | |||||||||
Income taxes | $ | 1,149,000 | $ | 1,656,000 | $ | 61,000 | $ | 322,000 | |||||||||
Supplemental Disclosure for Non-Cash Investing and Financing Activities: | |||||||||||||||||
Financing of insurance contracts | $ | 1,199,000 | $ | 914,000 | $ | 1,317,000 | $ | 1,041,000 | |||||||||
Purchase deposits transferred to property and equipment | $ | 489,000 | $ | 350,000 | $ | 118,000 | $ | 595,000 | |||||||||
Purchase deposits transferred to construction in progress | $ | 10,000 | $ | 386,000 | |||||||||||||
Construction in progress transferred to property and equipment | $ | 1,907,000 | $ | — | $ | 700,000 | $ | 3,165,000 | |||||||||
Purchase of vehicles in exchange for debt | $ | 24,000 | $ | — | |||||||||||||
Insurance recovery receivable | $ | — | $ | 132,000 | |||||||||||||
Finance lease liabilities arising from right-of-use asset | $ | 4,772,000 | $ | — | |||||||||||||
Operating lease liabilities arising from right-of-use asset | $ | 25,177,000 | — |
See notes to consolidated financial statements.
F-6
FLANIGAN’SENTERPRISES,INC. ANDSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 3, 2020 AND SEPTEMBER 30, 2017 AND OCTOBER 1, 201628, 2019
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
The Company was incorporated in 1959 and operates in South Florida as a chain of full-service restaurants and package liquor stores. Restaurant food and beverage sales make up the majority of our total revenue. At September 30, 2017,As of October 3, 2020, we (i) operated 2627 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)(ii) franchise an additional five units, consisting of two restaurants, (one of which we operate) and three combination restaurants/package liquor stores. With the exception of one restaurant we operate under the name “The Whale’s Rib”, and in which we do not have an ownership interest, all of the restaurants operate under our service mark “Flanigan’s Seafood Bar and Grill” and all of the package liquor stores operate under our service mark “Big Daddy’s Liquors”.
The Company’s Articles of Incorporation, as amended, authorize us to issue and have outstanding at any one time 5,000,000 shares of common stock at a par value of $0.10 per share.
We operate under a 52-53 week year ending the Saturday closest to September 30. Our fiscal years 2017year 2020 is comprised of a 53-week period and 2016 are eachour fiscal year 2019 is comprised of a 52-week period.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and our subsidiaries, all of which are wholly owned, and the accounts of the eight limited partnerships in which we act as general partner and have controlling interests. All significant intercompany transactions and balances have been eliminated in consolidation.
Noncontrolling interests in consolidated subsidiaries are included in the consolidated balance sheets as a separate component of equity. We report consolidated net income inclusive of both the Company’s and the noncontrolling interests’ share, as well as amounts of consolidated net income (loss) attributable to each of the Company and the noncontrolling interests.
Use of Estimates
The consolidated financial statements and related disclosures are prepared in conformity with accounting principles generally accepted in the United States. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
F-7
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates (Continued)
disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the period reported. These estimates include assessing the estimated useful lives of tangible assets, and the recognition of deferred tax assets and liabilities and estimates relating to the calculation of incremental borrowing rates and length of leases associated with right-of-use assets and corresponding liabilities. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in our consolidated financial statements in the period they are determined to be necessary. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, they may ultimately differ from actual results.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents.
Inventories
Our inventories, which consist primarily of package liquor products, are stated at the lower of average cost or net realizable value.
Liquor Licenses
In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 350, “Intangibles -Goodwill and Other”, our liquor licenses are indefinite lived assets, which are not being amortized, but are tested annually for impairment (see Note 8)10).
Property and Equipment
Our property and equipment are stated at cost. We capitalize expenditures for major improvements and depreciation commences when the assets are placed in service. We record depreciation on a straight-line basis over the estimated useful lives of the respective assets. We charge maintenance and repairs, which do not improve or extend the life of the respective assets, to expense as incurred. When we dispose of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income.
Our estimated useful lives range from three to five years for vehicles and three to seven years for furniture and equipment. Leasehold improvements are currently being amortized over the shorter of the life of the lease or the life of the asset up to a maximum of 20 years. Our building and building improvements of our corporate offices in Fort Lauderdale, Florida; our building and building improvements of our construction office/warehouse in Fort Lauderdale, Florida; our combination restaurant and package liquor storesstore in Hallandale, Florida and Hollywood, Florida; our restaurants in N. Miami Florida and Fort Lauderdale, Florida; our package liquor store in N. Miami, Florida, and our shopping center in Miami, Florida and property in Fort Lauderdale, Florida, all of which we own, are being depreciated over forty years.
F-8
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leasehold Interests
Our purchase of an existing restaurant location usually includes a lease to the business premises. As a result, a portion of the purchase price is allocated to the leasehold interest. We capitalize the cost of the leasehold interest and amortization commences upon our assumption of the lease. We amortize leasehold interests on a straight line basis over the remaining term of the lease.
Investment in Limited Partnerships
We use the consolidation method of accounting when we have a controlling interest in other companies and limited partnerships. We use the equity method of accounting when we have significant influence and an interest between twenty to fifty percent in other companies and limited partnerships, but do not exercise control. Under the equity method, our original investments are recorded at cost and are adjusted for our share of undistributed earnings or losses. All significant intercompany profits are eliminated.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk are cash and cash equivalents.
Cash and Cash Equivalents
We maintain deposit balances with financial institutions which balances may, from time to time, exceed the federally insured limits, which are $250,000 for interest and non-interest bearing accounts. We have not experienced any losses in such accounts.
Major Suppliers
Throughout our fiscal years 20172020 and 2016,2019, we purchased substantially all of our food products from one major supplier pursuant to a master distribution agreement which entitled us to receive certain purchase discounts, rebates and advertising allowances that are recorded as a reduction of cost of merchandise sold in periods in which they are earned. We believe that several other alternative vendors are available, if necessary.
Throughout our fiscal years 20172020 and 2016,2019, we purchased the majority of our alcoholic beverages from three local distributors. Each distributor has exclusive rights from the manufacturers to sell specific brands in given areas, so unless the exclusive distribution rights are transferred to another vendor, there are no alternate distributors available.
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
We recordRevenue related to food, bar and package sale are recorded at the point of sale. Royalty-related revenues, from normal recurring sales upon the sale of food and beverages and the salewhich are 1% of package liquor products.sales and 3% of restaurant sales, are recorded as income on a weekly basis, in arrears. We report our sales net of sales tax. Continuing royalties, which are a percentage of net sales of franchised stores, are accrued as income when earned.
F-9
Pre-opening Costs
OurAs new restaurants open, our income from operations will be adversely affected due to our obligation to fund pre-opening costs are those typically associated with the opening of a new restaurant and generally include payroll costs associated with the new restaurant opening, rent and promotional costs. We expense pre-opening costs as incurred. During our fiscal years 2017 and 2016, we reported none.
Advertising Costs
Our advertising costs are expensed as incurred. Advertising costs incurred during our fiscal years ended October 3, 2020 and September 30, 2017 and October 1, 201628, 2019 were approximately $185,000($113,000) and $494,000$97,000 respectively. Advertising costs incurred during our fiscal year ended October 3, 2020 were a credit as a result of lower advertising costs during the fiscal year due to COVID-19 and advertising allowances.
General Liability Insurance
We have general liability insurance which incorporates a semi-self-insured plan under which we assume the full riskdeductible of the first $50,000 of exposure$10,000 per occurrence whilefor both us and the limited partnerships assume the full risk of the first $10,000 of exposure per occurrence.partnerships. 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 yearsyear ended September 30, 2017 and October 1, 2016,3, 2020, we were able to purchase excess liability insurance, whereby our excess insurance carrier is responsible for $6,000,000$10,000,000 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, weWe are un-insured against liability claims in excess of $7,000,000$11,000,000 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. 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 or $10,000 as applicable, self-insured retention.deductible.
Fair Value of Financial Instruments
The respective carrying value of certain of our on-balance-sheet financial instruments approximated their fair value. These instruments include cash and cash equivalents, other
F-10
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (Continued)
receivables, accounts payables, accrued expenses and debt. We have assumed carrying values to approximate fair values for those financial instruments, which are short-term in nature or are receivable or payable on demand. We estimated the fair value of debt based on current rates offered to us for debt of comparable maturities and similar collateral requirements.
F-10
Fair Value of Financial Instruments(Continued)
In accordance with FASB ASC Topic 820-10-50-1, we utilized a valuation model to determine the fair value of our swap agreements. As the valuation models for the swap agreements were based upon observable inputs, they are classified as Level 2 (see Note 12)14).
Derivative Instruments
We account for derivative instruments in accordance with FASB ASC Topic 815-10-05-4, “Accounting for Derivative Instruments and Hedging Activities”as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. In accordance with FASB ASC Topic 815-10-05-4, derivative instruments are recognized as assets or liabilities in the Company’s consolidated balance sheets and are measured at fair value. We recognize all changes in fair value through earnings unless the derivative is determined to be an effective hedge. We currently have threetwo derivatives which we have designated as effective hedges (See Note 12)14).
Income Taxes
We account for our income taxes using FASB ASC Topic 740, “Income Taxes”, which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
We follow the provisions regardingAccounting for Uncertainty in Income Taxes,which require the recognition of a financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. We applied these changes to tax positions for our fiscal years ending October 3, 2020 and September 30, 2017 and October 1, 2016.28, 2019. We had no material unrecognized tax benefits and no adjustments to our financial position, results of operations or cash flows were required. Generally, federal, state and local authorities may examine the Company’s tax returns for three years from the date of filing and the current and prior three years remain subject to examination as of September 30, 2017.October 3, 2020. We do not expect that unrecognized tax benefits will increase within the next twelve months. We recognize accrued interest and penalties related to uncertain tax positions as income tax expense.
F-11
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-Lived Assets
We continually evaluate whether events and circumstances have occurred that may warrant revision of the estimated life of our intangible and other long-lived assets or whether the remaining balance of our intangible and other long-lived assets should be evaluated for possible impairment. If and when such factors, events or circumstances indicate that intangible or other long-lived assets should be evaluated for possible impairment, we will determine the fair value of the asset by making an estimate of expected future cash flows over the remaining lives of the respective assets and compare that fair value with the carrying value of the assets in measuring their recoverability. In determining the expected future cash flows, the assets will be grouped at the lowest level for which there are cash flows, at the individual store level.
Earnings Per Share
We follow FASB ASC Topic 260 - “Earnings per Share.” This section provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution. Earnings per share are computed by dividing income available to common stockholders by the basic and diluted weighted average number of common shares.
Recently Adopted and Recently Issued Accounting Pronouncements
Adopted
In April 2015,Effective September 29, 2019, we adopted Accounting Standards Codification 842, Leases (“ASC 842”). The new guidance requires that lease arrangements be presented on the FASB issued ASU 2015-03,Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 provides authoritative guidance relatedlessee’s balance sheet by recording a right-of-use asset and a lease liability equal to the presentationpresent value of debt issuancethe related future minimum lease payments. We adopted the standard in the first quarter of fiscal 2020, using the modified retrospective approach. Upon adoption, the Company recorded a right-of-use asset of $27.8 million and a lease liability of $27.8 million. At October 1, 2020 the Company decreased the operating lease right-of-use asset by $2.6 million and the operating lease right-of-use liability by $2.6 million with the reclassification of an operating lease to a finance lease due to the exercise of a purchase option subsequent to the end of our fiscal year 2020. The Company recorded a finance lease right-of-use asset of $4.8 million and a finance lease liability of $4.8 million.
We elected the transition package of practical expedients, under which the Company does not have to reassess (1) whether any expired or existing contracts are leases, or contain leases, (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. In addition, we made an accounting policy election to exclude leases with an initial term of 12 months or less from the balance sheet. This standard had a material impact on the balance sheet, requiring companiesCondensed Consolidated Statements of Income due to present debt issuance costs as a direct deduction from the carrying valueescalations of debt. The amendmentsrent in this update are effective for public business entities in fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this new guidancethe extensions but did not have a material impact on our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, “Consolidation: Amendments to the Consolidation Analysis” to modify the analysis that companies must perform in order to determine whether a legal entity should be consolidated. ASU 2015-02 simplifies current guidance by reducing the numberCondensed Consolidated Statement of consolidation models; eliminating the risk that a reporting entity may have to consolidate based on a fee arrangement with another legal entity; placing more weight on the risk of loss in order to identify the party that has a controlling financial interest; reducing the number of instances that related party guidance needs to be applied when determining the party that has a controlling financial interest; and changing rules for companies in certain industries that ordinarily employ limited partnership or variable interest entity structures. ASU 2015-02 is effective for public companies for fiscal years beginning after December 15, 2015 and interim periods within those fiscal periods. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
F-12
Recently Adopted and Recently Issued Accounting Pronouncements (Continued)Cash Flows.
Issued
In November 2015, the FASBThere are no recently issued ASU 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requiresaccounting pronouncements that all deferred tax liabilities and tax assets be classified as non-current in a classified balance sheet, rather than separating such deferred taxes into current and non-current amounts, as is required under current guidance.ASU 2015-17 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2016 and may be applied either prospectively or retrospectively. We dowe have not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-15 “Classification of Certain Cash Receipts and Cash Payments”. This ASU addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, “Statement of Cash Flows”, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017, which will require us to adopt these provisions in the first quarter of our fiscal year 2019. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes all existing guidance on accounting for leases in ASC Topic 840. ASU 2016-02 is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. ASU 2016-02 will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which will require us to adopt these provisions in the first quarter of our fiscal year 2020. Early adoption is permitted. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. We expect the adoption of the new guidanceyet adopted that we believe will have a material impacteffect on our consolidated balance sheets due to recognition of the right-of-use asset and the lease liability related to our current operating leases. The process of evaluating the full impact of the new guidance of our consolidated financial statements and disclosures is ongoing, but we anticipate the initial evaluation of the impact will be completed in our fiscal year 2018.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers,” (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles whenstatements.
F-13F-12
Recently Adopted and Recently Issued Accounting Pronouncements (Continued)
Issued(Continued)
it becomes effective. The new standard was originally effective for interim and annual periods in fiscal years beginning after December 15, 2016. In July 2015, the FASB affirmed its proposal for a one year deferral of the effective date and these updates are now effective for annual and interim periods for fiscal years beginning after December 15, 2017, which will require us to adopt these provisions in the first quarter of our fiscal year 2019. Early application in our fiscal year 2018 permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We do not believe that these updates will impact our recognition of revenue from sales generated at Company owned or operated restaurants or package liquor stores or our recognition of royalty fees from franchisees. We are continuing to evaluate the impact the adoption of these updates will have on the recognition of revenue related to our gift card and loyalty programs, as well as which adoption method will be used. The Company is still evaluating the full impact of the new guidance on our consolidated financial statements and disclosures, but we anticipate the initial evaluation of the impact will be completed in the first half of our fiscal year 2018.
NOTE 2. | PROPERTY AND EQUIPMENT |
2017 | 2016 | 2020 | 2019 | |||||||||||||
Furniture and equipment | $ | 11,774,000 | $ | 11,211,000 | $ | 12,381,000 | $ | 11,767,000 | ||||||||
Leasehold improvements | 22,405,000 | 21,428,000 | 25,355,000 | 23,841,000 | ||||||||||||
Land and land improvements | 19,555,000 | 17,034,000 | 21,289,000 | 21,222,000 | ||||||||||||
Building and improvements | 16,603,000 | 14,520,000 | 19,455,000 | 19,121,000 | ||||||||||||
Vehicles | 1,357,000 | 1,230,000 | 1,635,000 | 1,547,000 | ||||||||||||
71,694,000 | 65,423,000 | 80,115,000 | 77,498,000 | |||||||||||||
Less accumulated depreciation and amortization | 29,516,000 | 27,285,000 | (34,112,000 | ) | (31,311,000 | ) | ||||||||||
42,178,000 | 38,138,000 | 46,003,000 | 46,187,000 | |||||||||||||
Construction in progress | 527,000 | 15,000 | 981,000 | 1,292,000 | ||||||||||||
$ | 42,705,000 | $ | 38,153,000 | $ | 46,984,000 | $ | 47,479,000 |
Depreciation and amortization expense for the fiscal years ended October 3, 2020 and September 30, 2017 and October 1, 201628, 2019 was approximately $2,545,000$3,144,000 and $2,564,000,$2,919,000, respectively.
2017 | 2016 | |||||||
Leasehold interests, at cost | $ | 3,024,000 | $ | 3,024,000 | ||||
Less accumulated amortization | 2,486,000 | 2,364,000 | ||||||
$ | 538,000 | $ | 660,000 |
NOTE 3. LEASEHOLD INTERESTS
F-14
2020 | 2019 | |||||||
Leasehold interests, at cost | $ | 3,024,000 | $ | 3,024,000 | ||||
Less accumulated amortization | 2,824,000 | 2,728,000 | ||||||
$ | 200,000 | $ | 296,000 |
Future leasehold amortization as of September 30, 2017October 3, 2020 is as follows:
2018 | $ | 121,000 | ||
2019 | 121,000 | |||
2020 | 96,000 | |||
2021 | 80,000 | |||
2022 | 33,000 | |||
Thereafter | 87,000 | |||
Total | $ | 538,000 |
2021 | $ | 82,000 | ||
2022 | 33,000 | |||
2023 | 22,000 | |||
2024 | 22,000 | |||
2025 | 22,000 | |||
Thereafter | 19,000 | |||
Total | $ | 200,000 |
NOTE 4. INVESTMENTS IN LIMITED PARTNERSHIPS
We have invested with others (some of whom are affiliated with our officers and directors) in nine limited partnerships which own and operate nine South Florida based restaurants under our service mark “Flanigan’s Seafood Bar and Grill”. In addition to being alimited partner in these limited partnerships, we are the sole general partner of alleight 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 investors’ 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
F-13
NOTE 4. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
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 (½) to us as a management fee and one-half (1/2) to the investors (including us) prorata based upon the investors’ 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 (½) of cash available to be distributed, with the other one half (½) of available cash distributed to the investors (including us) as a profit distribution, pro-rata based upon the investors’ investment.
As of September 30, 2017,October 3, 2020, limited partnerships owning six (6)eight (8) restaurants, (Surfside, Florida, Kendall, Florida, West Miami, Florida, Pinecrest, Florida, Wellington, Florida, Miami, Florida, Pembroke Pines, Florida and Miami,Davie, Florida locations), have returned all cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. In addition to our receipt ofdistributable amounts from the limited partnerships, we receive a fee equal to 3% of gross sales for use of our “Flanigan’s Seafood Bar and Grill” service mark, which use is authorized only while we act as general partner. This 3% fee is “earned” when sales are made by the limited partnerships and is paid weekly, in arrears.
F-15
Surfside, Florida
We are the sole general partner and a 46% limited partner in this limited partnership which has owned and operated a restaurant in Surfside, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since March 6, 1998. 33.3% 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 (½) of the cash available for distribution by the limited partnership. This entity is consolidated in the accompanying financial statements.
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 “Flanigan’s Seafood Bar and Grill” service mark since April 4, 2000. 28.3% 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 (½) of the cash available for distribution by the limited partnership. This entity is consolidated in the accompanying financial statements.
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 “Flanigan’s Seafood Bar and Grill” service mark since October 11, 2001. 32.7% 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
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NOTE 4. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
West Miami, Florida (continued)
receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. This entity is consolidated in the accompanying financial statements.
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 “Flanigan’s Seafood Bar and Grill” service mark since May 27, 2005. 22.4% 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 (½) of the cash available for distribution by the limited partnership. This entity is consolidated in the accompanying financial statements.
Pinecrest, Florida
We are the sole general partner and 45% limited partner in this limited partnership which has owned and operated a restaurant in Pinecrest, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since August 14, 2006. 20.2% of the remaining limited partnership
F-16
by this limited partnership. This entity is consolidated in the accompanying financial statements.
Pinecrest,Pembroke Pines, Florida (Continued)
We are the sole general partner and a 24% limited partner in this limited partnership which has owned and operated a restaurant in Pembroke Pines, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since October 29, 2007. 23.8% 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 of their initial cash invested and we receive an annual management fee equal to one-half (1/2) of the cash available for distribution by this limited partnership. This entity is consolidated in the accompanying financial statements.
Pembroke Pines, Florida
We are the sole general partner and a 23% limited partner in this limited partnership which has owned and operated a restaurant in Pembroke Pines, Florida under our “Flanigan’s Seafood
Bar and Grill” service mark since October 29, 2007. 23.8% 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 2017, this limited partnership has returned to its investors approximately 91.0% of their initial cash invested, increased from approximately 75.0% as of the end of our fiscal year 2016. This entity is consolidated in the accompanying financial statements.
Davie, Florida
We are the sole general partner and a 49% limited partner in this limited partnership which has owned and operated a restaurant in Davie, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since July 28, 2008. 12.3% 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 2017, thisThis limited partnership has returned to its investors approximately 83.0%all of their initial cash invested increased from approximately 70.5% asand we receive an
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NOTE 4. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
Davie, Florida (continued)
annual management fee equal to one-half (1/2) of the end of our fiscal year 2016.cash available for distribution by this limited partnership. This entity is consolidated in the accompanying financial statements.
Miami, Florida
We are the sole general partner and a 5% limited partner in this limited partnership which has owned and operated a restaurant in Miami, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since December 27, 2012. 26.8% 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 2017, thisThis limited partnership has returned to its investors all of their initial cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by this limited partnership. This entity is consolidated in the accompanying financial statements.
Sunrise, Florida
During the second quarter of our fiscal year 2019, we entered into a Lease Agreement (the “Sunrise Lease Agreement”) with a non-affiliated third party to rent approximately 6,900 square feet of commercial space in Sunrise, Florida where, subject to certain conditions, we anticipate opening a new restaurant location under our “Flanigan’s Seafood Bar and Grill” service mark. During the third quarter of our fiscal year 2019, we assigned the Sunrise Lease Agreement to a newly formed limited partnership in which we currently are (i) the sole general partner; and (ii) our wholly owned subsidiary is the sole limited partner. While there can be no assurances that we will be successful in doing so, we intend to sell limited partnership interests to third parties as well as affiliates of the Company in order to raise net proceeds, in the amount of $5,000,000, which proceeds will be used to renovate this potential restaurant location. We anticipate that the new restaurant location’s ownership and operating structure will be substantially similar to that of our other restaurants owned by limited partnerships.
Fort Lauderdale, Florida
A corporation, owned by a member of our Board of Directors, acts as sole general partner of a limited partnership which has owned and operated a restaurant in Fort Lauderdale, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since April 1, 1997. We have a 25% limited partnership interest in this limited partnership. 31.9% of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family
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Fort Lauderdale, Florida (Continued)
members. We have a franchise arrangement with this limited partnership. For accounting purposes, we do not consolidate the operations of this limited partnership into our operations. This entity is reported using the equity method in the accompanying consolidated financial statements. The following is a summary of condensed unaudited financial information pertaining to our limited partnership investment in Fort Lauderdale, Florida:
2017 | 2016 | 2020 | 2019 | |||||||||||||
Financial Position: | ||||||||||||||||
Current assets | $ | 309,000 | $ | 167,000 | $ | 591,000 | $ | 295,000 | ||||||||
Non-current assets | 625,000 | 647,000 | 655,000 | 639,000 | ||||||||||||
Current liabilities | 164,000 | 145,000 | 562,000 | 187,000 | ||||||||||||
Operating Results: | ||||||||||||||||
Revenues | 3,594,000 | 3,480,000 | 3,430,000 | 3,924,000 | ||||||||||||
Gross profit | 2,327,000 | 2,310,000 | 2,279,000 | 2,568,000 | ||||||||||||
Net income | 181,000 | 66,000 | 24,000 | 82,000 |
NOTE 5. INVESTMENT IN REAL PROPERTY; OPTION TO LEASE AGREEMENT:
North Miami,Pompano Beach, Florida
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During the second quarter of our fiscal year 2017,2019, we purchased from an unrelated third party the vacant real property (the “Property”), which is contiguous to the real property we own where our new package liquor store located at 13185 Biscayne Boulevard, North Miami,2119 S.E. 9th Street, Pompano Beach, Florida (Store #20P) and our restaurant located at 13205 Biscayne Boulevard, North Miami, Florida (Store #20R) operate for $2.47 million$1,300,000 cash at closing. To fund the cash atThe Property is adjacent to property owned by a third party unaffiliated with us and leased to another third party unaffiliated with us for use as a restaurant (the “Adjacent Property”). At closing, we borrowed $2.0 millionexecuted an Option to Lease Agreement to lease the Adjacent Property for a 50 year term commencing in November, 2022. We will either (i) sublease the building on the Adjacent Property to a related franchisee for operation as a “Flanigan’s Seafood Bar and Grill” restaurant and use the Property as parking; or (ii) renovate the building on the Adjacent Property for operation as a “Flanigan’s Seafood Bar and Grill” restaurant and use the Property as parking. If we renovate this new restaurant location on the Adjacent Property, we plan to raise funds using our Credit Line (defined below at Note 10) and used cash on hand for the remainder. The Property will provide for a larger parking lot to be used by our customers.limited partnership ownership model.
NOTE 6. EXECUTION OF LEASES FOR NEW LOCATIONS:
Weston,Miramar, Florida (“Flanigan’s Seafood Bar and Grill”)
During fourth quarter of our fiscal year 2019, we entered into a Lease Agreement for a non-affiliated restaurant location in a shopping center in Miramar, Florida. The shopping center is currently in the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises by August 28, 2021. We plan to assign the Lease Agreement to a limited partnership in which (i) we will be the sole general partner; and (ii) a wholly owned subsidiary will be the limited partner. While there can be no assurances that we will be successful in doing so, we intend to sell limited partnership interests to third parties as well as affiliates of the Company in order to raise net proceeds, in an amount to be determined, which proceeds will be used to renovate this potential restaurant location. We anticipate that the new restaurant location’s ownership and operating structure will be substantially similar to that of our other restaurants owned by limited partnerships. Any amounts we advance to the limited partnership will be applied as a credit to limited partnership equity in the limited partnership we may acquire (which equity shall be purchased at the same price and upon the same terms as other equity investors). If we do not acquire equity in the limited partnership for at least $250,000, any excess amounts advanced by us will be reimbursed to us by the limited partnership without interest. Through October 3, 2020, we have no advances to the limited partnership.
Miramar, Florida (“Big Daddy’s Liquors”)
During the secondfourth quarter of our fiscal year 2017,2019, we renewedentered into a Lease Agreement for a non-affiliated package liquor store location in a shopping center in Miramar, Florida, directly adjacent to the new non-affiliated restaurant location. The shopping center is currently in the developmental stage and the Lease Agreement is still contingent upon our leasereceipt of delivery of the leased premises by August 28, 2021. The new package liquor store location will be Company owned.
NOTE 7. MORTGAGE / FINANCED INSURANCE PREMIUMS:
(a) Mortgage on Real Property
On November 27, 2019, our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, re-financed its mortgage loan with an unrelated third party forlender, increasing the restaurant we own locatedprincipal amount borrowed from $2.72 million to $7.21 million. The principal balance and all accrued interest of the mortgage loan that had been outstanding matured November 30, 2019. The re-financed mortgage loan earns interest at 2460 Weston Road, Weston, Florida (Store #95) for a periodthe fixed annual rate of five (5)3.86%, is amortized over twenty (20) years, from October 1, 2017 through September 30, 2022, with two (2) five (5) year renewal options, under the same termsrequires us to pay monthly payments of principal and conditions, except an increaseinterest in the percentage rent.
amount of $43,373 with the entire principal balance and all accrued interest due in November 2026. We intend to use the excess funds we received from the re-financing of this mortgage loan (approximately $4.4 million) for working capital.
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(b) Financed Insurance Premiums
During our fiscal year 2017,2020, we bound and financed through an unrelated third party lender the premiums on the following three (3) property, general liability, excess liability and terrorism insurance policies:
(i) For the policy year beginning December 30, 2019, our general liability insurance, policies, totaling approximately $1.21 million, which propertyexcluding limited partnerships, is a one (1) year policy, including automobile and excess liability coverage. The annual premium for this insurance coverage is $418,000;
(ii) For the policy year beginning December 30, 2019, our general liability insurance for our limited partnerships is a one (1) year policy, including excess liability coverage. The annual premium for this insurance coverage is $459,000;
(iii) For the policy year beginning December 30, 2019, our property insurance is a one (1) year policy and the annual premium for this insurance coverage is $561,000;
(iv) For the policy year beginning December 30, 2019, our excess liability insurance is a one (1) year policy and the annual premium for this insurance coverage is $360,000; and
(v) For the policy year beginning December 30, 2019, our terrorism insurance is a one (1) year policy and the annual premium for this insurance coverage is $12,000.
Of the $1,810,000 annual premium amounts, which includes coverage for our franchises which are not included in our consolidated financial statements:
(i) For the policy year beginning December 30, 2016, our general liability insurance, excluding limited partnerships, is a one (1) year policy with our insurance carriers, including automobile and excess liability coverage. The one (1) year general liability insurance premiums, including automobile and excess liability coverage, total, in the aggregate $513,000, of which $409,000 isstatements, we financed $1,656,000 through an unaffiliated third party lender (the “Third Party Lender”).lender. The finance agreement obligates us to repay the amounts financed together with interest at the rate of 2.95%2.55% per annum, over 1011 months, with monthly payments of principal and interest, each in the amount of $42,000.$153,000 . The finance agreement is secured by a first priority security interest in all insurance policies, all unearned premium, return premium, dividend payments and loss payments thereof.
(ii) For the policy year beginning December 30, 2016, our general liability insurance for our limited partnerships is a one (1) year policy with our insurance carriers, including excess liability coverage. The one (1) year general liability insurance premiums, including excess liability coverage, total, in the aggregate $498,000, of which $398,000 is financed through the Third Party Lender. The finance agreement obligates us to repay the amounts financed, together with interest at the rate of 2.95% per annum, over 10 months, with monthly payments of principal and interest, each in the amount of $40,000. The finance agreement is secured by a first priority security interest in all insurance policies, all unearned premium, return premium, dividend payments and loss payments thereof.
(iii) For the policy year beginning December 30, 2016, our property insurance is a one (1) year policy. The one (1) year property insurance premium is in the amount of $504,000, of which $404,000 is financed through the Third Party Lender. The finance agreement provides that we are obligated to repay the amounts financed, together with interest at the rate of 2.95% per annum, over 10 months, with monthly payments of principal and interest, each in the amount of approximately $41,000. The finance agreement is secured by a first priority security interest in all insurance policies, all unearned premium, return premium, dividend payments and loss payments thereof.
As of September 30, 2017,October 3, 2020, the aggregate principal balance owed to the third party lender from the financing of our property and general liability insurance policies is $192,000.$365,000, excluding amounts which are reimbursed by our franchises for insurances covering their operations, but including the annual premiums for boiler insurance ($2,000) and directors and officers liability insurance ($34,000), which were added to the finance agreement during the third quarter of our fiscal year 2020 and are financed over the balance of the term of the same.
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(c) Paycheck Protection Loans
During the third quarter of our fiscal year 2020, we, certain of the entities owning the limited partnership stores (the “LP’s”), franchised stores (the “Franchisees”), as well as the store we manage but do not own (the “Managed Store”) (collectively, the “Borrowers”), applied for and received loans from an unrelated third party lender pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) enacted March 27, 2020, in the aggregate principal amount of approximately $13.1 million, (the “PPP Loans”), of which approximately: (i) $5.9 million was loaned to us; (ii) $4.1 million was loaned to 8 of the LP’s ; (iii) $2.6 million was loaned to 5 of the Franchisees; and (iv) $0.5 million was loaned to the Managed Store. The PPP Loans to the Franchisees and the Managed Store are not included in our consolidated financial statements.
The PPP Loans, which are in the form of Notes issued by each of the Borrowers, mature two years from the date of funding (dates ranging from May 5, 2022 to May 11, 2022) and bear interest at a rate of 1.00% per annum, payable monthly commencing approximately six months from the date of issuance of the Notes (issuance dates ranging from April 30, 2020 to May 6, 2020). The Notes may be prepaid by the applicable Borrower at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loans will be available to the respective Borrower to fund designated expenses, including certain payroll costs, group health care benefits and other permitted expenses, including rent and interest on mortgages and other debt obligations incurred before February 15, 2020. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent the proceeds of the PPP Loans are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP. No assurance can be given that the Borrowers will obtain forgiveness of the PPP Loans in whole or in part.
With respect to any portion of any of the PPP Loans that is not forgiven under the terms of the PPP, such amounts will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the applicable PPP Note and cross-defaults on any other loan with the Lender or other creditors.
NOTE 8. CORONAVIRUS PANDEMIC:
In March 2020, a novel strain of coronavirus was declared a global pandemic and a National Public Health Emergency. The novel coronavirus pandemic and related “shelter-in-place” orders and other governmental mandates relating thereto (collectively, “COVID-19”) adversely affected and will, in all likelihood continue to adversely affect, our restaurant operations and financial results for the foreseeable future. Due to COVID-19, from mid-March 2020 through mid-May 2020, we ceased all dining and bar services at all of our restaurants, limiting service to take-out and delivery only of food, and implemented reduced hours at our retail package liquor stores. From mid-May 2020 through the beginning of July 2020, there was a gradual elimination of restrictions on our restaurant operations, permitting us to, among other things, provide dining for outdoor seating patrons with appropriate social distancing and provide dining for indoor patrons at up to 50% capacity (depending on the location of the restaurant), but with no bar service and increased operating hours at our package liquor stores. From the beginning of July 2020 through the beginning of September 2020, we ceased dine-in service at all of our Miami-Dade County, Florida restaurants, (two Company-owned and six limited partnership owned restaurants). Since the beginning of September 2020, we have been offering both food and bar options at all of our restaurants, including those located in Miami-Dade County, Florida, with appropriate social distancing and dine-in service at up to 100% capacity, including outdoor dining.
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Due to COVID-19, we implemented (i) certain cost cutting measures including material layoffs at our restaurants and reduced corporate personnel salaries; and (ii) a number of changes to our operations such as the establishment of an in-house delivery service and an adjustment to our traditional staffing model to meet customer demand. We have been in regular contact with our suppliers and while to date we have not experienced significant disruptions in our supply chain, we could see future disruptions should the impacts of COVID-19 extend for a considerable amount of time. To support our employees, we have implemented work from home support, increased sanitization of high touch, high traffic areas in our restaurants, retail package liquor stores and corporate offices, provided personal protective equipment for our employees and increased the frequency of personal hygiene practices. From March 29, 2020 through May 9, 2020, the salaries of all our non-executive corporate office personnel were reduced by 20%, the base salaries of our Chief Operating Officer and Chief Financial Officer were each reduced by 50% and our Chief Executive Officer waived his base salary, representing salary savings of approximately $135,000 during this period. Our employee headcount as of fiscal year end 2020 was 1,804 persons reduced from 1,870 persons as of our fiscal year end 2019.
In addition and also due to COVID-19, we did not make any quarterly distributions to our limited partners for the quarter ended March 31, 2020. For each of the quarters ended June 30, 2020 and September 30, 2020, we made quarterly distributions to our limited partners equal to one-half (½) of the amounts that would have been distributed for the quarter ended March 31, 2020.
During the third quarter of fiscal year end 2020, the United States government passed a $2.0 trillion Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) designed primarily to help keep businesses running during and after the COVID-19 pandemic. The CARES Act included provisions for certain deductions and tax credits, filing deadline extensions, filing payment deadlines and making available certain grant money to assist businesses. This CARES ACT allowed us to take advantage of credits, deferments, and deductions, and PPP Loans (described below) during the third quarter of our fiscal year 2020. As a result, during the third and fourth quarter of 2020, we reversed certain of our cost cutting measures, including (i) reinstating employees laid off at our restaurants in anticipation of resuming dine-in service, (ii) restoring corporate personnel and executive salaries and (iii) paying prior salary reductions.
During the third quarter of our fiscal year 2020, we, certain of the entities owning the limited partnership stores (the “LP’s”), franchised stores (the “Franchisees”) as well as the store we manage but do not own (the “Managed Store”), (collectively, the “Borrowers”), applied for and received loans from an unrelated third party lender pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) enacted March 27, 2020, in the aggregate principal amount of approximately $13.1 million, (the “PPP Loans”), of which approximately: (i) $5.9 million was loaned to us; (ii) $4.1 million was loaned to 8 of the LP’s; (iii) $2.6 million was loaned to 5 of the Franchisees; and (iv) $0.5 million was loaned to the Managed Store. The PPP Loans to the Franchisees and the Managed Store are not included in our consolidated financial statements. Due to our receipt of the PPP Loans, we reversed certain cost cutting measures, including reinstating employees laid off at our restaurants in anticipation of resuming dine-in service and restoring corporate personnel salaries.
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The PPP Loans, which are in the form of Notes issued by each of the Borrowers, mature two years from the date of funding (dates ranging from May 5, 2022 to May 11, 2022) and bear interest at a rate of 1.00% per annum, payable monthly commencing approximately six months from the date of issuance of the Notes (issuance dates ranging from April 30, 2020 to May 6, 2020). The Notes may be prepaid by the applicable Borrower at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loans have been used and are available to the respective Borrower to fund designated expenses, including certain payroll costs, group health care benefits and other permitted expenses, including rent and interest on mortgages and other debt obligations incurred before February 15, 2020. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent the proceeds of the PPP Loans are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP. No assurance can be given that the Borrowers will obtain forgiveness of the PPP Loans in whole or in part.
With respect to any portion of any of the PPP Loans that is not forgiven under the terms of the PPP, such amounts will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the applicable PPP Note and cross-defaults on any other loan with the Lender or other creditors.
We do not believe COVID-19 has had a material adverse effect on our access to supplies or labor, although there can be no assurance that there will not be a significant adverse impact on our supply chain or access to labor in the future. We are actively monitoring our food suppliers to assess how they are managing their operations to mitigate supply flow and food safety risks. To ensure we mitigate potential supply availability risk, we are building additional inventory back stock levels when appropriate and we have also identified alternative supply sources in key product categories including but not limited to food, sanitation and safety supplies.
Prior to obtaining the PPP Loans, we were in compliance with the financial covenants contained in our loans with our unrelated third party institutional lender (the “Institutional Lender”) under which as of October 3, 2020, we owe in the aggregate, approximately $12,209,000 (the “Institutional Loans”). We determined that as of the end of the third quarter of our fiscal year 2020, we were not in compliance with our financial covenants contained in the Institutional Loans related to the Rent Adjusted Funded Debt to EBITDA Ratio because our consolidated debt during the third quarter of our fiscal year 2020 increased due to our repayment obligations under the PPP Loans (the “Covenant Breach’). Pursuant to the terms of the Institutional Loans, the Covenant Breach, grants the Institutional Lender the right to exercise certain remedies under the Institutional Loans, including the right to accelerate the indebtedness owed by us to the Institutional Lender thereunder. On August 10, 2020, we received a written waiver of the Covenant Breach from the Institutional Lender, which, among other things, waives the Covenant Breach through June 30, 2021. As of October 3, 2020, we are in compliance with the financial covenants contained in our loans with our Institutional Lender.
There can be no assurances that we will be in compliance with our financial covenants thereafter due to, among other things, that our results of operations will likely continue to be materially impacted by the COVID-19 pandemic. Absent a waiver, failure to be in compliance with our financial covenants would constitute a default under the Institutional Loans with our Institutional Lender when reported. Such a default, if not cured or waived, would allow the Institutional Lender to accelerate the maturity of the indebtedness we owe under the Institutional Loans, making it due and payable at the time. If maturity of the Institutional Loans were accelerated, it would have a material adverse impact on our consolidated financial statements and results of operations.
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NOTE 9. CASUALTY LOSS:
During the first quarter of our fiscal year 2019, our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) was damaged by a fire and was forced to close. Due to the damage caused by the fire, we determined that Store #19 should be demolished and rebuilt and as a result, the package liquor store and restaurant were closed for at least our fiscal years 2020 and 2019. We had insurance coverage of $1,975,000, in the aggregate, which our insurance carrier paid. We sustained a loss of $1,373,000 on our building and business personal property, against which we received insurance proceeds of $1,200,000 resulting in a loss of $173,000. We had a gain of $775,000 on our business interruption coverage, which when netted against our loss of $173,000 on our building and business personal property produced a gain of $602,000 during our fiscal year 2019.
NOTE 10. LIQUOR LICENSES
Liquor licenses, which are indefinite lived assets, are tested for impairment in September of each of our fiscal years. The fair value of liquor licenses at September 30, 2017,October 3, 2020, exceeded the
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carrying amount; therefore, we recognized no impairment loss. The fair value of the liquor licenses was evaluated by comparing the carrying value to recent sales for similar liquor licenses in the County issued. At October 3, 2020 and September 30, 2017 and October 1, 2016,28, 2019, the total carrying amount of our liquor licenses was $630,000. We acquired a restaurant liquor license (4COP SFS) for our Flanigan’s Seafood Bar and Grill restaurant located at 13205 Biscayne Boulevard, North Miami, Florida (Store #20R) and downgraded the 4COP Quota liquor license formerly used at our combination Flanigan’s Seafood Bar and Grill restaurant and Big Daddy’s Liquors package liquor store located at 13205 Biscayne Boulevard, North Miami, Florida (Store #20) to a 3PS liquor license for use at our new Big Daddy’s Liquors package liquor store located at 13185 Biscayne Boulevard, North Miami, Florida (Store #20P) during our fiscal year 2017. We acquired no liquor licenses in our fiscal year 2016.2020.
NOTE 11. INCOME TAXES
The components of our provision for income taxes for our fiscal years 20172020 and 20162019 are as follows:
2017 | 2016 | 2020 | 2019 | |||||||||||||
Current: | ||||||||||||||||
Federal | $ | 1,125,000 | $ | 1,078,000 | $ | (70,000 | ) | $ | 261,000 | |||||||
State | 300,000 | 254,000 | 113,000 | 263,000 | ||||||||||||
Deferred: | 1,425,000 | 1,332,000 | 43,000 | 524,000 | ||||||||||||
Federal | (50,000 | ) | 32,000 | (88,000 | ) | 301,000 | ||||||||||
State | (5,000 | ) | 3,000 | (15,000 | ) | 62,000 | ||||||||||
(55,000 | ) | 35,000 | (103,000 | ) | 363,000 | |||||||||||
$ | 1,370,000 | $ | 1,367,000 | $ | (60,000 | ) | $ | 887,000 |
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A reconciliation of income tax computed at the statutory federal rate to income tax expense is as follows:
2017 | 2016 | 2020 | 2019 | |||||||||||||
Tax provision at the statutory rate of 34% | $ | 1,959,000 | $ | 2,154,000 | ||||||||||||
Tax provision at the statutory rate | $ | 446,000 | $ | 1,315,000 | ||||||||||||
Non-controlling interests | (466,000 | ) | (656,000 | ) | (226,000 | ) | (363,000 | ) | ||||||||
State income taxes, net of federal income tax | 185,000 | 186,000 | 43,000 | 231,000 | ||||||||||||
FICA tip credit | (361,000 | ) | (343,000 | ) | (418,000 | ) | (463,000 | ) | ||||||||
True up adjustment | (2,000 | ) | (26,000 | ) | 43,000 | 71,000 | ||||||||||
Tax effect of rate change due to Tax Reform | 13,000 | 51,000 | ||||||||||||||
Other permanent items | 55,000 | 52,000 | 39,000 | 45,000 | ||||||||||||
$ | 1,370,000 | $ | 1,367,000 | $ | (60,000 | ) | $ | 887,000 |
We have deferred tax assets which arise primarily due to depreciation recorded at different rates for tax and book purposes offset by cost basis differences in depreciable assets due to the deferral of the recognition of insurance recoveries on casualty losses for tax purposes, investments in and management fees paid by limited partnerships, accruals for potential uninsured claims, bonuses accrued for book purposes but not paid within two and a half months for tax purposes, the capitalization of certain inventory costs for tax purposes not recognized for financial reporting purposes, the recognition of revenue from gift cards not redeemed within twelve months of issuance, allowances for uncollectable receivables,
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unfunded limited retirement commitments and tax credit carryforwards generated as a result of the application of alternative minimum taxes.
The components of our deferred tax assets at October 3, 2020 and September 30, 2017 and October 1, 201628, 2019 were as follows:
2020 | 2019 | |||||||||||||||
2017 | 2016 | |||||||||||||||
Current: | ||||||||||||||||
Long-Term: | ||||||||||||||||
Reversal of aged payables | $ | 27,000 | $ | 27,000 | $ | 18,000 | $ | 19,000 | ||||||||
Capitalized inventory costs | 28,000 | 26,000 | 22,000 | 20,000 | ||||||||||||
Accrued bonuses | 319,000 | 342,000 | 166,000 | 251,000 | ||||||||||||
Accruals for potential uninsured claims | 20,000 | 41,000 | 27,000 | 23,000 | ||||||||||||
Gift cards | 160,000 | 178,000 | 162,000 | 143,000 | ||||||||||||
Limited partnership management fees | (255,000 | ) | (233,000 | ) | (192,000 | ) | (325,000 | ) | ||||||||
$ | 299,000 | $ | 381,000 | |||||||||||||
Tip credit | 7,000 | — | ||||||||||||||
Book/tax differences in property and equipment | (507,000 | ) | (205,000 | ) | ||||||||||||
Book/tax differences in operating leases | 279,000 | — | ||||||||||||||
Limited partnership investments | 307,000 | 254,000 | ||||||||||||||
Accrued limited retirement | 63,000 | 69,000 | ||||||||||||||
Total Deferred Tax Assets | $ | 352,000 | $ | 249,000 |
Long-Term: | ||||||||
Book/tax differences in property and equipment | $ | 552,000 | $ | 628,000 | ||||
Limited partnership investments | 357,000 | 197,000 | ||||||
Accrued limited retirement | 90,000 | 37,000 | ||||||
$ | 999,000 | $ | 862,000 |
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NOTE 12. DEBT
Long-Term Debt
2017 | 2016 | |||||||
Mortgage payable to lender, secured by a first mortgage on real property and improvements, bearing interest at BBA LIBOR – 1 Month +2.25%, (3.487% at September 30, 2017), but with $2,672,000 of the principal amount fixed at 4.51% pursuant to a swap agreement, amortized over 20 years, payable in monthly installments of principal and interest of approximately $23,700, and our current monthly payment of principal and interest as to that portion of the principal amount not fixed by the interest rate swap agreement, ($534,000), is payable at BBA LIBOR – 1 Month + 2.25% interest rate, (3.487% as of September 30, 2017). The entire principal balance and all accrued but unpaid interest is due on November 30, 2019. | $ | 3,206,000 | $ | 3,431,000 | ||||
2020 | 2019 | |||||||
Mortgage payable to unrelated third party, secured by a first mortgage on real property and improvements, bearing interest at 3.86%, amortized over twenty (20) years, payable in monthly installments of principal and interest of approximately $43,000, with a balloon payment of approximately $5,373,000 due on November 27, 2026. As of October 3, 2020, the net book value of the collateral securing this mortgage was $5,596,000. | 7,070,000 | 2,756,000 | ||||||
Mortgage payable to unrelated third party, secured by first mortgage on real property and improvements, bearing interest at 7½%, amortized over twenty (20) years, payable in monthly installments of principal and interest of approximately $15,700, with a balloon payment of approximately $1,331,000 in December, 2022. As of October 3, 2020, the net book value of the collateral securing this mortgage was $2,499,000. | 1,508,000 | 1,586,000 | ||||||
Mortgage payable to lender, secured by a first mortgage on real property and improvements, bearing interest at BBA LIBOR – 1 Month +2.25%, (2.39% at October 3, 2020), but with the interest fixed at 4.35% pursuant to a swap agreement, amortized over twenty (20) years, payable in monthly installments of principal and interest of approximately $8,775, with a balloon payment of approximately $858,000 on January 22, 2023. As of October 3, 2020, the net book value of the collateral securing this mortgage was $3,516,000. | 1,017,000 | 1,062,000 | ||||||
Revolving credit line/term loan payable to lender, which entitled the Company to borrow, from time to time through December 28, 2017, up to $5,500,000, (the “Credit Line”), secured by a blanket lien on all Company assets, bearing interest through December 28, 2017 at LIBOR – Daily Floating Rate + 2.25%, (2.39% at October 3, 2020). Effective December 28, 2017, an interest rate swap agreement requires us to pay interest for a five (5) year period at a fixed rate of 4.61% on an initial amortizing notional principal amount of $5,500,000, while receiving interest for the same period at LIBOR, Daily Floating Rate, plus 2.25%, per annum (2.39% at October 3, 2020) on the same notional principal amount, with a final payment on December 28, 2022. On December 21, 2017, we borrowed the remaining $3,500,000 and on December 28, 2017 the entire principal balance under the Credit Line ($5,500,000) converted to the Term Loan. | 2,750,000 | 3,575,000 | ||||||
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Mortgage payable to unrelated third party, secured by first mortgage on real property and improvements, bearing interest at 7½%, amortized over 20 years, payable in monthly installments of principal and interest of approximately $15,700, with a balloon payment of approximately $1,331,000 in December, 2022. | 1,715,000 | 1,772,000 | ||||||
Mortgage payable to lender, secured by a first mortgage on real property and improvements, bearing interest at BBA LIBOR – 1 Month +2.25%, (3.485% at September 30, 2017), but with the interest fixed at 4.35% pursuant to a swap agreement, amortized over 20 years, payable in monthly installments of principal and interest of approximately $8,775, with a balloon payment of approximately $858,000 on January 22, 2023. | 1,176,000 | 1,229,000 | ||||||
Revolving credit line/term loan payable to lender, which entitles the Company to borrow, from time to time through December 28, 2017, up to $5,500,000, secured by a blanket lien on all Company assets, bearing interest through December 28, 2017 at LIBOR – Daily Floating Rate + 2.25%, (3.4844% at September 30, 2017). Effective December 28, 2017, an interest rate swap agreement requires us to pay interest for a five (5) year period at a fixed rate of 4.61% on an initial amortizing notional principal amount of $5,500,000, while receiving interest for the same period at LIBOR, Daily Floating Rate, plus 2.25%, per annum (3.4844% at September 30, 2017) on the same notional principal amount, with a final payment on December 28, 2022. Subsequent to the end of our fiscal year 2017, we borrowed the remaining $3,500,000. | 2,000,000 | — | ||||||
Mortgage payable to lender, secured by a first mortgage on real property and improvements, bearing interest at the fixed rate of 4.65% per annum, fully amortized over fifteen (15) years, payable in monthly installments of principal and interest of approximately $6,384, with a final payment on December 28, 2031. | 794,000 | — | ||||||
Mortgage payable to a related party, an entity the owners of which include persons who are either our officers, directors or their family members, secured by first mortgage on real property and improvements, bearing interest at 5%, amortized over 15 years, payable in monthly installments of principal and interest of approximately $5,700, with a balloon payment of approximately $457,000 due in March, 2021. | 603,000 | 640,000 | ||||||
Mortgage payable to lender, secured by a first mortgage on real property and improvements, bearing interest at the fixed rate of 4.65% per annum, fully amortized over fifteen (15) years, payable in monthly installments of principal and interest of approximately $6,384, with a final payment on December 28, 2031. As of October 3, 2020, the net book value of the collateral securing this mortgage was $843,000. | 679,000 | 712,000 | ||||||
Mortgage payable to a related party, an entity the owners of which include persons who are either our officers, directors or their family members, secured by first mortgage on real property and improvements, bearing interest at 5%, amortized over fifteen (15) years, payable in monthly installments of principal and interest of approximately $5,700, with a balloon payment of approximately $465,000 due in March, 2021. As of October 3, 2020, the net book value of the collateral securing this mortgage was $1,549,000. | 483,000 | 523,000 | ||||||
Mortgage payable to lender, secured by a first mortgage on real property and improvements, bearing interest at the fixed rate of 4.65% per annum, fully amortized over fifteen (15) years, payable in monthly installments of principal and interest of approximately $6,519, with a final payment on December 28, 2031. As of October 3, 2020, the net book value of the collateral securing this mortgage was $946,000. | 693,000 | 727,000 | ||||||
Mortgage payable to related party, an entity the owners of which include persons who are either our officers, directors or their family members, secured by first mortgage on real property and improvements, bearing interest at 5%, amortized over fifteen (15) years, payable in monthly installments of principal and interest of approximately $4,900, with a balloon payment of approximately $398,000 in May, 2021. As of October 3, 2020, the net book value of the collateral securing this mortgage was $2,384,000. | 423,000 | 451,000 | ||||||
Financed insurance premiums, secured by all insurance policies, bearing interest at 3.85% payable in monthly installments of principal and interest in the aggregate amount of $158,000 a month through November 30, 2020. | 365,000 | 208,000 | ||||||
Mortgage payable to related party, an entity the owners of which include persons who are either our officers, directors or their family members, secured by first mortgage on real property and improvements, bearing interest at 5%, amortized over fifteen (15) years, payable in monthly installments of principal and interest of approximately $6,000, with a balloon payment of approximately $484,000 due in April, 2021. As of October 3, 2020, the net book value of the collateral securing this mortgage was $1,599,000. | 511,000 | 545,000 | ||||||
Mortgage payable to unrelated third party, secured by first mortgage on real property and improvements, bearing interest at 7½%, amortized over twenty (20) years, payable in monthly installments of principal and interest of approximately $7,300, with a final payment due in March, 2034. As of October 3, 2020, the net book value of the collateral securing this mortgage was $1,123,000. | 743,000 | 768,000 | ||||||
F-22F-25
Re-financed mortgage in the original principal amount of $840,000, payable to lender, secured by a first mortgage on real property and improvements, bearing interest at the fixed rate of 4.65% per annum, fully amortized over fifteen (15) years, payable in monthly installments of principal and interest of approximately $6,519, with a final payment on December 28, 2031. During the second quarter of our fiscal year 2017, we terminated the interest rate swap agreement which related to the prior mortgage loan which required us to pay interest for a seven (7) year period at a fixed rate of 5.11% on an initial amortizing notional principal amount of $935,000, while receiving interest for the same period at LIBOR, Daily Floating Rate, plus 2.25% on the same amortizing notional principal amount. We paid an $8,500 pre-payment penalty to the lender in connection with the termination of the interest rate swap agreement. | 811,000 | 750,000 | ||||||
Mortgage payable to related party, an entity the owners of which include persons who are either our officers, directors or their family members, secured by first mortgage on real property and improvements, bearing interest at 5%, amortized over 15 years, payable in monthly installments of principal and interest of approximately $4,900, with a balloon payment of approximately $391,000 in May, 2021. | 520,000 | 552,000 | ||||||
Financed insurance premiums, secured by all insurance policies, bearing interest at 2.95% payable in monthly installments of principal and interest in the aggregate amount of $123,000 a month through October 30, 2017. | 192,000 | 186,000 | ||||||
Mortgage payable to related party, an entity the owners of which include persons who are either our officers, directors or their family members, secured by first mortgage on real property and improvements, bearing interest at 5%, amortized over 15 years, payable in monthly installments of principal and interest of approximately $6,000, with a balloon payment of approximately $476,000 due in April, 2021. | 630,000 | 669,000 | ||||||
Mortgage payable to unrelated third party, secured by first mortgage on real property and improvements, bearing interest at 7½%, amortized over 20 years, payable in monthly installments of principal and interest of approximately $7,300, with a final payment due in March, 2034. | 822,000 | 847,000 | ||||||
Other | 138,000 | 179,000 | ||||||
Less unamortized loan costs | (209,000 | ) | (163,000 | ) | ||||
12,398,000 | 10,092,000 | |||||||
Less current portion | 1,076,000 | 1,466,000 | ||||||
$ | 11,322,000 | $ | 8,626,000 |
Mortgage payable to related third party, secured by first mortgage on real property and improvements, bearing interest at 4%, amortized over eight (8) years, payable in monthly installments of principal and interest of approximately $3,000, with a final payment due in November, 2026. As of October 3, 2020, the net book value of the collateral securing this mortgage was $524,000. | 197,000 | 228,000 | ||||||
Loans from an unrelated third party lender pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) enacted March 27, 2020, in the aggregate principal amount of approximately $10.0 million, (the “PPP Loans”), of which approximately $5.9 million was loaned to us and $4.1 million was loaned to 8 of the limited partnerships. The PPP Loans, which are in the form of Notes issued by each of the Borrowers, mature two years from the date of funding (dates ranging from May 5, 2022 to May 11, 2022) and bear interest at a rate of 1.00% per annum, payable monthly commencing approximately six months from the date of issuance of the Notes (issuance dates ranging from April 30, 2020 to May 6, 2020). | $ | 10,036,000 | — | |||||
Other | 45,000 | 75,000 | ||||||
Less unamortized loan costs | (197,000 | ) | (136,000 | ) | ||||
26,323,000 | 13,080,000 | |||||||
Less current portion | 5,094,000 | 1,983,000 | ||||||
$ | 21,229,000 | $ | 11,097,000 |
F-23
Long-term debt at September 30, 2017October 3, 2020 matures as follows:
2018 | $ | 1,076,000 | ||||||||||
2019 | 1,023,000 | |||||||||||
2020 | 3,547,000 | |||||||||||
2021 | 2,087,000 | $ | 5,094,000 | |||||||||
2022 | 727,000 | 10,060,000 | ||||||||||
2023 | 3,240,000 | |||||||||||
2024 | 457,000 | |||||||||||
2025 | 479,000 | |||||||||||
Thereafter | 4,147,000 | 7,190,000 | ||||||||||
$ | 12,607,000 | $ | 26,520,000 | |||||||||
Less unamortized loan costs | (209,000 | ) | (197,000 | ) | ||||||||
$ | 12,398,000 | $ | 26,323,000 |
Prior to obtaining the PPP Loans, we were in compliance with the financial covenants contained in our loans with our unrelated third party institutional lender (the “Institutional Lender”) under which as of October 3, 2020, we owe in the aggregate, approximately $12,209,000 (the “Institutional Loans”). We determined that as of the end of the third quarter of our fiscal year 2020, we were not in compliance with our financial covenants contained in the Institutional Loans related to the Rent Adjusted Funded Debt to EBITDA Ratio because our consolidated debt during the third quarter of our fiscal year 2020 increased due to our repayment obligations under the PPP Loans (the “Covenant Breach’). Pursuant to the terms of the Institutional Loans, the Covenant Breach, grants the Institutional Lender the right to exercise certain remedies under the Institutional Loans, including the right to accelerate the indebtedness owed by us to the Institutional Lender thereunder. On August 10, 2020, we received a written waiver of the Covenant Breach from the Institutional Lender, which, among other things, waives the Covenant Breach through June 30, 2021. As of September 30, 2017,October 3, 2020, we are in compliance with the financial covenants of allcontained in our loans with our lender.Institutional Lender.
F-26
There can be no assurances that we will be in compliance with our financial covenants thereafter due to, among other things, that our results of operations will likely continue to be materially impacted by the COVID-19 pandemic. Absent a waiver, failure to be in compliance with our financial covenants would constitute a default under the Institutional Loans with our Institutional Lender when reported. Such a default, if not cured or waived, would allow the Institutional Lender to accelerate the maturity of the indebtedness we owe under the Institutional Loans, making it due and payable at the time. If maturity of the Institutional Loans were accelerated, it would have a material adverse impact on our consolidated financial statements and results of operations.
NOTE 13. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Construction Contracts
During our fiscal year 2016, we entered into a construction contract in the amount of $1,061,000 to build a new building on a parcel of real property which we own which is near the real property where our combination package liquor store and restaurant located at 13205 Biscayne Boulevard, North Miami,a. 2505 N. University Drive, Hollywood, Florida (Store #20) operated to re-locate our package liquor store to the new building and to renovate and expand the restaurant into the former package liquor store space. During our fiscal year 2017, we completed the new building and re-located our package liquor store, which opened for business on June 6, 2017. The construction contract, with change orders, totaled $1,272,000 and was paid in full as of September 30, 2017.#19)
On June 14, 2017, we entered into a construction contract inDuring the amount of $880,000 to renovate our restaurant located at 13205 Biscayne Boulevard, North Miami, Florida, (Store #20), including but not limited to the construction of a new kitchen and to expand the restaurant into the former package liquor store space. As of September 30, 2017 we are in the early construction stage, but subsequent thereto, agreed change orders increased the amount of the construction contract to $1,080,000, of which $345,000 has been paid.
Subsequent to the endthird quarter of our fiscal year 2017,2019, we entered into an agreement in the amount of $127,000,with a third party unaffiliated architect for design and development services totaling $77,000 for the constructionre-build of a new building on a parcel of real property which we own which is adjacent to the real property where our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) operates. Upon completionwhich has been closed since October 2018 due to damages caused by a fire, of which $62,000 has been paid. Additionally, during the constructionthird quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated general contractor for site work at this location totaling $1,618,000, (i) to connect the real property where this restaurant operated (Store #19) to city sewer and (ii) to construct a new building we plan to re-locate ouron the adjacent parcel of real property for the operation of a package liquor storestore. During our fiscal year 2020, we agreed to change orders to the new building andagreement for additional construction services increasing the total contract price by $112,000 to renovate and expand the restaurant into the former package liquor store space.
$1,730,000, of which $-0- has been paid through October 3, 2020. Subsequent to the end of our fiscal year 2017,2020, we alsoagreed to additional change orders to the agreement for additional price by $28,000 to $1,757,000, of which $64,000 has been paid.
b. 14301 W. Sunrise Boulevard, Sunrise, Florida (Store #85)
During the third quarter of our fiscal year 2019, we entered into an agreement with a second agreement in the amount of $174,000,third party unaffiliated design group for design and development services to renovateof our restaurant locatednew location at 2505 N. University Drive, Hollywood,14301 W. Sunrise Boulevard, Sunrise, Florida 33323 (Store #19), including but not limited#85) for a total contract price of $122,000. During the first quarter of our fiscal year 2020, we agreed upon changes to the agreement for additional design and development services which had the effect of increasing the total contract price of the same by $18,000 to $140,000, of which $106,000 has been paid. Additionally, during the fourth quarter of our fiscal year 2020, we entered into an agreement with a third party unaffiliated general contractor for interior renovations at this location totaling $1,236,000, of which $-0- has been paid through October 3, 2020. Subsequent to October 3, 2020, $111,000 has been paid.
F-24F-27
NOTE 13. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS(Continued) |
Construction Contracts(Continued)
construction of a new kitchen and to expand the restaurant into the former package liquor store space.
Legal Matters
Our sale of alcoholic beverages subjects us to “dram shop” statutes, which 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 flow,flows could be materially and adversely affected. We currently have threeno “dram shop” claims which we are defending vigorously.pending.
We are a party to various other claims, legal actions and complaints arising in the ordinary course of our business. It is our opinion that all such matters are without merit or involve such amounts that an unfavorable disposition would not have a material adverse effect on our financial position or results of operations.
Leases
We lease a substantial portionTo conduct certain of the land and buildings used in our operations, under leases with initial terms expiring between 2018we lease restaurant and 2027. Renewal options are available on many of our leases. Most of our leases are fixed rent agreements. For one Company-owned restaurant/package liquor store combination unit,space in South Florida from unrelated third parties. Our leases have remaining lease rental is subjectterms of up to sales overrides ranging from 3%10 years, some of which include options to 4% of annual sales in excess of established amounts. For another Company-owned restaurant,renew and extend the lease rental is subjectterms for up to sales overrides of 7.3% of annual sales in excessan additional 30 years. We presently intend to renew some of the base rent paidextension options available to us and another Company-owned restaurant,for purposes of computing the right-of-use assets and lease rental is subject to sales overrides of 3.5% of annual sales. For four limited partnership restaurants,liabilities required by ASC 842, we have incorporated into all lease rentals are subject to sales overrides ranging from 2% to 5.5% of annual sales in excess of the base rent paid. We recognize rent expense on a straight line basis over theterms which may be extended, an additional term of the lesser of (i) the amount of years the lease may be extended; or (ii) 15 years.
Following adoption of ASC 842, common area maintenance and percentage rent as incurred.property taxes are not considered to be lease components.
We have a ground
The components of lease for an out parcel in Hollywood, Florida where we constructed a 4,120 square foot stand-alone building, one-half (1/2) of which is used by us for the operation of our Company-owned package liquor store and the other one-half (1/2) of which is subleased to an unrelated third party as retail space. Rent for the retail space commenced January 1, 2005, and we generated approximately $59,000 and $102,000 of revenue from this source during our fiscal years ended September 30, 2017 and October 1, 2016, respectively. Total future minimum sublease payments under the non-cancelable sublease are $134,000, including Florida sales tax (currently 6%) through December 31, 2019.
Future minimum lease payments, including Florida sales tax (currently 6% to 7%) under our non-cancelable operating leases as of September 30, 2017expense are as follows:
2018 | $ | 3,093,000 | ||
2019 | 3,010,000 | |||
2020 | 2,425,000 | |||
2021 | 1,596,000 | |||
2022 | 959,000 | |||
Thereafter | 725,000 | |||
Total | $ | 11,808,000 |
53 Weeks | ||||
Ended October 3, 2020 | ||||
Operating Lease Expense, which is included in occupancy costs | $ | 4,521,000 |
Supplemental balance sheet information related to leases as follows:
Classification on the Condensed Consolidated Balance Sheet | October 3, 2020 | |||
Assets | ||||
Finance lease assets | $ | 4,749,000 | ||
Operating lease assets | 22,150,000 | |||
$ | 26,899,000 | |||
Liabilities | ||||
Finance current liabilities | $ | 4,772,000 | ||
Operating current liabilities | 3,116,000 | |||
Operating lease non-current liabilities | 20,337,000 | |||
Weighted Average Remaining Lease Term: | ||||
Finance leases | 0.42 Years | |||
Operating leases | 7.71 Years | |||
Weighted Average Discount: | ||||
Finance leases | 5.5% | |||
Operating leases | 5.5% |
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The following table outlines the minimum future lease payments for the next five years and thereafter:
For fiscal year | Operating Leases | Finance Leases | ||||||
2021 | $ | 4,246,000 | $ | 4,881,000 | ||||
2022 | 2,927,000 | |||||||
2023 | 2,942,000 | |||||||
2024 | 2,975,000 | |||||||
2025 | 2,957,000 | |||||||
Thereafter | 14,131,000 | |||||||
Total lease payments (Undiscounted cash flows) | 30,178,000 | 4,881,000 | ||||||
Less imputed interest | (6,772,000 | ) | (109,000 | ) | ||||
Total | $ | 23,406,000 | $ | 4,772,000 |
Total rent expense for all of our operating leases was approximately $3,484,000 and $3,506,000$3,963,000 in our fiscal years 2017 and 2016, respectively,year 2019 and is included in “Occupancy
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NOTE 11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS(Continued)
Leases(Continued)
Costs” in our accompanying consolidated statements of income. ThisThe total rent expense is comprised of the following:
2017 | 2016 | |||||||
Minimum Base Rent | $ | 2,679,000 | $ | 2,694,000 | ||||
Contingent Percentage Rent | 805,000 | 812,000 | ||||||
Total | $ | 3,484,000 | $ | 3,506,000 |
2019 | ||||
Minimum Base Rent | $ | 3,149,000 | ||
Contingent Percentage Rent | 814,000 | |||
Total | $ | 3,963,000 |
Purchase Commitments
In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants during calendar year 2018,2021, on November 7, 2017,9, 2020, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $6,208,000$6,420,000 of baby back ribs during calendar year 20182021 from this vendor at a fixed cost.
While we anticipate purchasing all of our rib supply from this vendor, we believe that several other alternative vendors are available, if necessary.
During the third quarter of our fiscal year 2020, we temporarily suspended the operation of the Flanigan’s Fish Company, LLC, a Florida limited liability company (“FFC”) due to the decrease in demand for imported fresh fish caused by restrictions placed upon the operation of our restaurants due to COVID-19, relying instead on outside fresh fish purveyors. The suspension of operations lasted approximately 5 ½ weeks, after which we resumed operations. As of October 3, 2020, FFC supplies certain of the fish to all of our restaurants. Since we hold the controlling interest of FFC, the balance sheet and operating results of this entity are consolidated into the accompanying financial statements of the Company, but eliminated upon consolidation. Sales and purchases of fish are recognized in restaurant food sales and restaurant and lounges (cost of merchandise sold), respectively, in the consolidated statements of income at the time of sale to the restaurant. In addition, the 49% of FFC owned by the unrelated third party is recognized as noncontrolling interest in our consolidated financial statements.
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NOTE 13. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Purchase of Limited Partnership Interests
During our fiscal year 2020, we did not purchase any limited partnership interests. During our fiscal year 2019, we purchased from one limited partner (who is not an officer, director or family member of officers or directors) a limited partnership interest of 0.63% in a limited partnership which owns a restaurant, for a purchase price of $4,800.
Franchise Program
At October 3, 2020 and September 30, 2017 and October 1, 2016,28, 2019, we were the franchisor of five units under franchise agreements. Of the five franchised stores, three are combination restaurant/package liquor stores and two are restaurants (one of which we operate). Four franchised stores are owned and operated by related parties as follows:
• James G. Flanigan, our Chairman of the Board of Directors, Chief Executive Officer and President of the Company, and Michael B. Flanigan, a member of our Board of Directors and James G. Flanigan’s brother, are each a 35.24% owner of a company which has a franchise arrangement with us for the operation of a restaurant and adjacent package liquor store located in Coconut Grove, Florida (Store #18).
• Patrick J. Flanigan, brother to both James G. Flanigan and Michael B. Flanigan and a member of our Board of Directors, owns 100% of a company which has a franchise arrangement with us for the operation of a combination restaurant/package liquor store located in Pompano Beach, Florida (Store #43).
•Our officers and directors collectively own 30% of the shareholder interest of a company which has a franchise arrangement with us for the operation of a restaurant located in Deerfield Beach, Florida. The shareholder interest of James G. Flanigan’s
F-26
NOTE 11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS(Continued)
Franchise Program(Continued)
family represents an additional 60% of the total invested capital in this franchised location (Store #14).
•Patrick J. Flanigan is the sole general partner and a 25% limited partner in a limited partnership which has a franchise arrangement with us for the operation of a restaurant located in Fort Lauderdale, Florida. The Company is a 25% limited partner in this limited partnership and officers and directors of the Company (excluding Patrick J. Flanigan) own an additional 31.9% limited partnership interest in this franchised location (Store #15).
Under the franchise agreements, we provide guidance, advice and management assistance to the franchisees. In addition and for an additional annual fee of approximately $25,000, we alsoact as fiscal agent for the franchisees whereby we collect all revenues and pay all expenses and distributions. We also, from time to time, advance
F-30
NOTE 13. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Franchise Program (Continued)
funds on behalf of the franchisees for the cost of renovations. The resulting amounts receivable from and payable to these franchisees are reflected in the accompanying consolidated balance sheet as either an asset or a liability. We also agree to sponsor and manage cooperative buying groups on behalf of the franchisees for the purchase of inventory. The franchise agreements provide for royalties to us of approximately 3% of gross restaurant sales and 1% of gross package liquor sales. During our fiscal years 20172020 and 2016,2019, we earned royalties of $661,000$666,000 and $606,000,$751,000, respectively, from our related franchises. We are not currently offering or accepting new franchises.
Employment Agreement/Agreements/Bonuses
As of October 3, 2020 and September 30, 2017 and October 1, 2016,28, 2019, we had no employment agreements.
Our Board of Directors approved an annual performance bonus, with 14.75% of the corporate pre-tax net income, plus or minus non-recurring items, but before depreciation and amortization in excess of $650,000 paid to the Chief Executive Officer and 5.25% paid to other members of management. Bonuses for our fiscal years 20172020 and 20162019 amounted to approximately $1,337,000$933,000 and $1,497,000,$1,444,000, respectively.
Our Board of Directors also approved an annual performance bonus, with 5% of the pre-tax net income before depreciation and amortization from our restaurants in excess of $1,875,000 and our share of the pre-tax net income before depreciation and amortization from the restaurants owned by the limited partnerships paid to the Chief Operating Officer and 5% paid to the Chief Financial Officer. Bonuses for our fiscal years 20172020 and 20162019 amounted to approximately $838,000$679,000 and $897,000,$970,000, respectively.
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NOTE 11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS(Continued)
Management Agreements
Atlanta, Georgia
We own, but do not operate, an adult entertainment nightclub located in Atlanta, Georgia which operates under the name “Mardi Gras”. 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 each of our fiscal years ended September 30, 2017 and October 1, 2016, we generated $150,000 of revenue from the operation of the club.
Deerfield Beach, Florida
Since January 2006, we have managed “The Whale’s Rib”, 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 management agreement was amortized on a straight linestraight-line basis over the life of the initial term of the agreement, ten (10) years. The restaurant is owned by a third party unaffiliated with us. In exchange for providing management, bookkeeping and related services, we receive one-half (½) of the net profit, if any, from the operation of the restaurant. During the third quarter of our fiscal year 2011, the term of the management agreement was extended through January 9, 2036. For the fiscal years ended October 3, 2020 and September 30, 2017 and October 1, 2016,28, 2019, we generated $425,000$150,000 and $442,000$375,000 of revenue respectively, from providing these management services.
F-31
NOTE 14. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
We follow FASB (ASC) Topic 820, “Fair Value Measurements and Disclosures”, for financial assets and liabilities and for non-financial assets and liabilities that are recognized or disclosed at fair value on at least an annual basis. Topic 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of non-performance. Topic 820 establishes a fair market hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Topic 820 establishes three levels of inputs that may be used to measure fair value:
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NOTE 12. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
(Continued)
for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to evaluation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data.
Interest Rate Swap Agreements
At September 30, 2017,October 3, 2020, we had threetwo variable rate debt instruments outstanding that are impacted by changes in interest rates. In November, 2011, we financed our purchaseThe interest rate of both variable rate debt instruments is equal to the real propertylender’s LIBOR Rate plus two and two building shopping center in Miami, Florida, withone-quarter percent (2.25%) per annum. The debt instruments further provide that the “LIBOR Rate” is a $4,500,000 mortgage loan (the “$4.5M Mortgage Loan”).rate of interest equal to the British Bankers Association LIBOR Rate or successor thereto approved by the lender if the British Bankers Association is no longer making a LIBOR rate available. In January, 2013, we refinanced the mortgage loan encumbering the property where our combination package liquor store and restaurant located at 4 N. Federal Highway, Hallandale, Florida, (Store #31) operates, which mortgage loan is held by an unaffiliated third party lender (the “$1.405M Loan”). In December, 2016, we closed on a secured revolving line of credit which entitlesentitled us to borrow, from time to time through December 28, 2017, up to $5,500,000 (the “Credit Line”), which on December 28, 2017 converted to the term loan (the “Term Loan”).
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NOTE 14. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
(Continued)
Interest Rate Swap Agreements (Continued)
As a means of managing our interest rate risk on these debt instruments, we entered into interest rate swap agreements with our unrelated third party lender to convert these variable rate debt obligations to fixed rates. We are currently party to the following three (3)two (2) interest rate swap agreements:
(i) One (1) interest rate swap agreement entered into in November, 2011 by our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, relates to the $4.5 Mortgage Loan (the “$4.5M Mortgage Loan Swap”). The $4.5M Mortgage Loan Swap requires us to pay interest for an eight (8) year period at a fixed rate of 4.51% on an initial amortizing notional principal amount of $3,750,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at September 30, 2017, the interest rate swap agreement is an effective hedging agreement and the fair value was not material; and
(ii) The second interest rate swap agreement entered into in January, 2013 relates to the $1.405M Loan (the “$1.405M Term Loan Swap”). The $1.405M Term Loan Swap requires us to pay interest for a twenty (20) year period at a fixed rate of 4.35% on an initial amortizing notional principal amount of $1,405,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at September 30, 2017,October 3, 2020, the interest rate swap agreement is an effective hedging agreement and the fair value was not material; and
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NOTE 12. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
(Continued)
Interest Rate Swap Agreements(Continued)
(iii)(ii) The thirdsecond interest rate swap agreement entered into in December, 2016, which becomesbecame effective December 28, 2017, relates to the Credit Line (the “Line of Credit Swap”). The Line of Credit Swap requires us to pay interest for a five (5) year period, commencing December 28, 2017 at a fixed rate of 4.61% on an initial amortizing notional principal amount of $5,500,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at October 3, 2020, the interest rate swap agreement is an effective hedging agreement and the fair value was not material.
NOTE 15. COMMON STOCK
Treasury Stock
Purchase of Common Shares
During our fiscal years 20172020 and 2016,2019, we did not purchase any shares of our common stock. As of September 30, 2017,October 3, 2020, we still have authority to purchase 65,414 shares of our common stock under the discretionary plan approved by the Board of Directors on May 17, 2007. Our current repurchase plan has no expiration date and purchases under this program may be made from time to time on the open market and in private transactions, depending on market conditions, up to a purchase price of price of $15 per share.
NOTE 16. BUSINESS SEGMENTS
We operate principally in two reportable segments – package stores and restaurants. The operation of package stores consists of retail liquor sales and related items. Information concerning the revenues and operating income for our fiscal years ended 2020 and 2019, and identifiable assets for the two reportable segments in which we operate, are shown in the following table. Operating income is total revenue less cost of merchandise sold and operating expenses relative to each segment. In computing operating income, none of the following items have been included: interest expense, other non-operating income and expense and income taxes. Identifiable assets by segment are those assets that are used in our operations in each segment. Corporate assets are principally cash and real property, improvements, furniture, equipment and vehicles used at our corporate headquarters. We do not have any operations outside of the United States and transactions between restaurants and package liquor stores are not material.
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NOTE 16. BUSINESS SEGMENTS (Continued)
2020 | 2019 | |||||||
Operating Revenues: | ||||||||
Restaurants | $ | 84,652,000 | $ | 94,290,000 | ||||
Package stores | 26,276,000 | 19,327,000 | ||||||
Other revenues | 2,049,000 | 2,585,000 | ||||||
Total operating revenues | $ | 112,977,000 | $ | 116,202,000 | ||||
Income from Operations Reconciled to Income after | ||||||||
Restaurants | $ | 4,532,000 | $ | 8,965,000 | ||||
Package stores | 1,699,000 | 879,000 | ||||||
6,231,000 | 9,844,000 | |||||||
Corporate expenses, net of other revenues | (3,320,000 | ) | (3,528,000 | ) | ||||
Income from Operations | 2,911,000 | 6,316,000 | ||||||
Interest expense | (836,000 | ) | (708,000 | ) | ||||
Interest and Other Income | 49,000 | 54,000 | ||||||
Insurance recovery, net of casualty loss | — | 602,000 | ||||||
Income before provision for income taxes | $ | 2,124,000 | $ | 6,264,000 | ||||
Benefit (Provision) for Income Taxes | 60,000 | (887,000 | ) | |||||
Net Income | 2,184,000 | 5,377,000 | ||||||
Net Income Attributable to Noncontrolling Interests | (1,074,000 | ) | (1,729,000 | ) | ||||
Net Income Attributable to Flanigan’s Enterprises, Inc, Stockholders | $ | 1,110,000 | $ | 3,648,000 | ||||
Identifiable Assets: | ||||||||
Restaurants | $ | 55,030,000 | $ | 31,077,000 | ||||
Package store | 13,771,000 | 10,540,000 | ||||||
68,801,000 | 41,617,000 | |||||||
Corporate | 43,683,000 | 27,138,000 | ||||||
Consolidated Totals | $ | 112,484,000 | $ | 68,755,000 | ||||
Capital Expenditures | ||||||||
Restaurants | $ | 1,834,000 | $ | 3,464,000 | ||||
Package stores | 260,000 | 898,000 | ||||||
2,094,000 | 4,362,000 | |||||||
Corporate | 672,000 | 1,961,000 | ||||||
Total Capital Expenditures | $ | 2,766,000 | $ | 6,323,000 |
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Depreciation and Amortization: | ||||||||
Restaurants | $ | 2,485,000 | $ | 2,373,000 | ||||
Package stores | 355,000 | 274,000 | ||||||
2,850,000 | 2,647,000 | |||||||
Corporate | 390,000 | 393,000 | ||||||
Total Depreciation and Amortization | $ | 3,240,000 | $ | 3,040,000 |
NOTE 17. QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of our unaudited quarterly results of operations for the quarters in our fiscal years 2020 and 2019.
Quarter Ended | ||||||||||||||||
Dec. 28, 2019 | March 28, 2020 | June 27, 2020 | Oct. 3, 2020 | |||||||||||||
Revenues | $ | 30,941,000 | $ | 30,128,000 | $ | 23,663,000 | $ | 28,245,000 | ||||||||
Income from operations | 1,231,000 | 1,517,000 | (732,000 | ) | 895,000 | |||||||||||
Net income (loss) attributable to stockholders | 494,000 | 648,000 | (455,000 | ) | 423,000 | |||||||||||
Net income (loss) per share – basic and diluted | 0.27 | 0.35 | (0.24 | ) | 0.22 | |||||||||||
Weighted average common stock outstanding – basic and diluted | 1,858,647 | 1,858,647 | 1,858,647 | 1,858,647 | ||||||||||||
Quarter Ended | ||||||||||||||||
Dec. 29, 2018 | March 30, 2019 | June 29, 2019 | Sept. 28, 2019 | |||||||||||||
Revenues | $ | 27,894,000 | $ | 29,736,000 | $ | 29,512,000 | $ | 29,060,000 | ||||||||
Income from operations | 655,000 | 1,890,000 | 1,944,000 | 1,827,000 | ||||||||||||
Net income attributable to stockholders | 743,000 | 1,021,000 | 968,000 | 916,000 | ||||||||||||
Net income per share – basic and diluted | 0.40 | 0.55 | 0.52 | 0.49 | ||||||||||||
Weighted average common stock outstanding – basic and diluted | 1,858,647 | 1,858,647 | 1,858,647 | 1,858,647 |
Quarterly operating results are not necessarily representative of our operations for a full year for various reasons including the seasonal nature of both the restaurant and package store segments.
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NOTE 18. 401(k) PLAN
Effective July 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 matching contributions. During our fiscal years 2020 and 2019, we made discretionary contributions of $81,000 and $74,000, respectively.
We operate principally in two reportable segments – package stores and restaurants. The operation of package stores consists of retail liquor sales and related items. Information concerning the revenues and operating incomeNOTE 19. SUBSEQUENT EVENTS
Menu Price Increases
Effective November 29, 2020 we increased menu prices for our bar offerings to target an increase to our bar revenues of approximately 1.83% annually and effective December 6, 2020 we increased menu prices for our food offerings to target an increase to our food revenues of approximately 2.45% annually to offset higher food costs and higher overall expenses. Prior to these increases, we previously raised menu prices in the third quarter of our fiscal years ended 2017year 2019.
Exercise of Options to Purchase
North Lauderdale, Florida (“Flanigan’s Seafood Bar and 2016, and identifiable assets for the two reportable segments in whichGrill”/”Big Daddy’s Liquors”)
On October 7, 2014, we entered into an Amendment to Lease Agreement (the “Lease Amendment”) with a non-affiliated third party from whom we rent approximately 4,600 square feet of commercial space located at 5450 N. State Road 7, North Lauderdale, Florida where we operate a combination “Flanigan’s Seafood Bar and Grill” restaurant and “Big Daddy’s Liquors” package liquor store (Store #40). The Lease Amendment extended the term of the Lease Agreement until December 31, 2020 and granted us the option to purchase, (the “Option to Purchase”), the real property and improvements on December 31, 2020 for $1,200,000. During the fourth quarter of our fiscal year 2020 we exercised the Option to Purchase and closed on December 31, 2020. We paid all cash at closing.
Sunrise, Florida (“Flanigan’s Seafood Bar and Grill”)
During the second quarter of our fiscal year 2019, we entered into a Lease Agreement (the “Sunrise Lease Agreement”) with a non-affiliated third party to rent approximately 6,900 square feet of commercial space located at 14301 W. Sunrise Boulevard, Sunrise, Florida where, subject to certain conditions, we anticipate opening a new restaurant location. The Sunrise Lease Agreement grants us an option to purchase, (the “Option to Purchase”) the real property and improvements by February 28, 2021. During the third quarter of our fiscal year 2019, we assigned the Sunrise Lease Agreement, excluding the Option to Purchase, to a newly formed limited partnership. Subsequent to the end of our fiscal year 2020, we exercised the Option to Purchase and anticipate closing during the second quarter of our fiscal year 2021. We intend to pay all cash at closing.
General Liability Insurance; Excess Insurance
For the policy year beginning December 30, 2020, we bound general liability insurance with an unrelated third party insurance carrier which incorporates a deductible of $10,000 per occurrence for both us and the limited partnerships. Our insurance carrier is responsible for $1,000,000 coverage per occurrence above our deductible, up to a maximum aggregate of $2,000,000 per year. We were also able to bind excess liability insurance at a reasonable premium, whereby our excess insurance carrier is responsible for $10,000,000 coverage above our primary general liability insurance coverage. We are shownuninsured against liability claims in excess of $11,000,000 per occurrence and in the following table. Operating income is total revenue less costaggregate. Certain expenses incurred in defending a claim, including attorney's fees, are a part of merchandise sold and operating expenses relative to each segment. In computing operating income, none of the following items have been included: interest expense, other non-operating income and expense and income taxes. Identifiable assets by segment are those assets that are used in our operations in each segment. Corporate assets are principally cash and real property, improvements, furniture, equipment and vehicles used at our corporate headquarters. We do not have any operations outside of the United States and transactions between restaurants and package liquor stores are not material.$10,000 deductible.
Operating Revenues: | 2017 | 2016 | ||||||
Restaurants | $ | 87,393,000 | $ | 85,446,000 | ||||
Package stores | 16,842,000 | 15,661,000 | ||||||
Other revenues | 2,587,000 | 2,511,000 | ||||||
Total operating revenues | $ | 106,822,000 | $ | 103,618,000 |
Property Insurance; Windstorm Insurance; Deductibles
For the policy year beginning December 30, 2020, our property insurance is a one (1) year policy with an unaffiliated third party insurance carrier, including coverage for properties leased by us and our consolidated limited partnerships, and provides 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 has a fixed deductible of $100,000, plus 5% of all insured losses, per occurrence. For all other property losses, the property insurance has deductibles of $10,000 per location, per occurrence.
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Financed Insurance Premiums
Income from Operations Reconciled to Income after Income Taxes and Net Income Attributable to Noncontrolling Interests: | ||||||||
Restaurants | $ | 8,659,000 | $ | 9,468,000 | ||||
Package stores | 1,028,000 | 853,000 | ||||||
9,687,000 | 10,321,000 | |||||||
Corporate expenses, net of other revenues | (3,429,000 | ) | (3,520,000 | ) | ||||
Income from Operations | 6,258,000 | 6,801,000 | ||||||
Interest expense | (600,000 | ) | (557,000 | ) | ||||
Interest and Other Income | 102,000 | 92,000 | ||||||
Income before provision for income taxes | $ | 5,760,000 | $ | 6,336,000 | ||||
Provision for Income Taxes | (1,370,000 | ) | (1,367,000 | ) | ||||
Net Income | 4,390,000 | 4,969,000 | ||||||
Net Income Attributable to Noncontrolling Interests | (1,370,000 | ) | (1,929,000 | ) | ||||
Net Income Attributable to Flanigan’s Enterprises, Inc, stockholders | $ | 3,020,000 | $ | 3,040,000 | ||||
Identifiable Assets: | ||||||||
Restaurants | $ | 28,089,000 | $ | 25,758,000 | * | |||
Package store | 9,684,000 | 7,663,000 | * | |||||
37,773,000 | 33,421,000 | |||||||
Corporate | 22,736,000 | 22,980,000 | * | |||||
Consolidated Totals | $ | 60,509,000 | $ | 56,401,000 | ||||
Capital Expenditures | ||||||||
Restaurants | $ | 4,592,000 | $ | 1,353,000 | ||||
Package stores | 2,119,000 | 328,000 | ||||||
6,711,000 | 1,681,000 | |||||||
Corporate | 509,000 | 1,743,000 | ||||||
Total Capital Expenditures | $ | 7,220,000 | $ | 3,424,000 | ||||
Depreciation and Amortization: | ||||||||
Restaurants | $ | 2,115,000 | $ | 2,064,000 | ||||
Package stores | 216,000 | 205,000 | ||||||
2,331,000 | 2,269,000 | |||||||
Corporate | 336,000 | 416,000 | ||||||
Total Depreciation and Amortization | $ | 2,667,000 | $ | 2,685,000 |
* The Company moved assets ofFor the policy year commencing December 30, 2020, we financed the premiums on the following property, general liability, excess liability and terrorist policies, totaling approximately $2,936,000, consisting primarily of land, from corporate ($233,000)$1.94 million, which property, general liability, excess liability and restaurant ($2,703,000) to package store ($2,936,000) to correctly report assets related to each segment.terrorist insurance includes coverage for our franchises which are not included in our consolidated financial statements:
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The following(i) For the policy year beginning December 30, 2020, our general liability insurance, excluding limited partnerships, is a summaryone (1) year policy with our insurance carriers. The one (1) year general liability insurance premium is in the amount of $340,000;
(ii) For the policy year beginning December 30, 2020, our unaudited quarterly resultsgeneral liability insurance for our limited partnerships is a one (1) year policy with our insurance carriers. The one (1) year general liability insurance premium is in the amount of operations$426,000;
(iii) For the policy year beginning December 30, 2020, our automobile insurance is a one (1) year policy. The one (1) year automobile insurance premium is in the amount of $93,000;
(iv) For the policy year beginning December 30, 2020, our property insurance is a one (1) year policy. The one (1) year property insurance premium is in the amount of $627,000;
(v) For the policy year beginning December 30, 2020, our excess liability insurance is a one (1) year policy. The one (1) year excess liability insurance premium is in the amount of $443,000;
(vi) For the policy year beginning December 30, 2020, our terrorist insurance is a one (1) year policy. The one (1) year terrorist insurance premium is in the amount of $5,000; and
(vii) For the policy year beginning December 30, 2020, our equipment breakdown insurance is a one (1) year policy. The one (1) year equipment breakdown insurance premium is in the amount of $6,000.
Of the $1,940,000 annual premium amounts, which includes coverage for the quartersour franchises which are not included in our fiscal years 2017consolidated financial statements, we financed $1,776,000 through an unaffiliated third party lender. The finance agreement obligates us to repay the amounts financed together with interest at the rate of 2.45% per annum, over 11 months, with monthly payments of principal and 2016.interest, each in the amount of $164,000. The finance agreement is secured by a first priority security interest in all insurance policies, all unearned premium, return premiums, dividend payments and loss payments thereof.
Quarter Ended | ||||||||||||||||
Dec. 31, 2016 | April 1, 2017 | July 1, 2017 | Sept. 30, 2017 | |||||||||||||
Revenues | $ | 26,594,000 | $ | 27,433,000 | $ | 26,967,000 | $ | 25,828,000 | ||||||||
Income from operations | 1,473,000 | 2,095,000 | 1,586,000 | 1,104,000 | ||||||||||||
Net income attributable to stockholders | 664,000 | 1,047,000 | 842,000 | 467,000 | ||||||||||||
Net income per share basic and diluted | 0.36 | 0.56 | 0.45 | 0.26 | ||||||||||||
Weighted average common stock outstanding – basic and diluted | 1,858,647 | 1,858,647 | 1,858,647 | 1,858,647 | ||||||||||||
Quarter Ended | ||||||||||||||||
Jan. 2, 2016 | April 2, 2016 | July 2, 2016 | Oct. 1, 2016 | |||||||||||||
Revenues | $ | 25,278,000 | $ | 26,974,000 | $ | 26,383,000 | $ | 24,983,000 | ||||||||
Income from operations | 1,351,000 | 1,978,000 | 2,411,000 | 1,061,000 | ||||||||||||
Net income attributable to stockholders | 624,000 | 874,000 | 1,147,000 | 395,000 | ||||||||||||
Net income per share – basic and diluted | 0.34 | 0.47 | 0.62 | 0.21 | ||||||||||||
Weighted average common stock outstanding – basic and diluted | 1,858,647 | 1,858,647 | 1,858,647 | 1,858,647 |
Quarterly operating results are not necessarily representative of our operations for a full year for various reasons includingExcept as otherwise provided herein, subsequent events have been evaluated through the seasonal nature of both the restaurantdate these consolidated financial statements were issued and package store segments.
Effective July 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 notno other events required to contribute to the plan but may make discretionary profit sharing and matching contributions. During our fiscal years 2017 and 2016, we made discretionary contributions of $47,000 and $43,000, respectively.disclosure.
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Except as otherwise provided herein, subsequent events have been evaluated through the date these consolidated financial statements were issued and no other events required disclosure.