ITEM 1. CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
(in thousands, except per share amounts)
|
|
---------Thirteen Weeks Ended--------
|
|
|
|
December 28, 2019
|
|
|
December 29, 2018
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
Restaurant food sales
|
|
$
|
18,742
|
|
|
$
|
16,828
|
|
Restaurant bar sales
|
|
|
5,891
|
|
|
|
5,323
|
|
Package store sales
|
|
|
5,707
|
|
|
|
5,135
|
|
Franchise related revenues
|
|
|
360
|
|
|
|
367
|
|
Rental income
|
|
|
194
|
|
|
|
198
|
|
Other operating income
|
|
|
47
|
|
|
|
43
|
|
|
|
|
30,941
|
|
|
|
27,894
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
Cost of merchandise sold:
|
|
|
|
|
|
|
|
|
Restaurant and lounges
|
|
|
8,424
|
|
|
|
7,724
|
|
Package goods
|
|
|
4,139
|
|
|
|
3,768
|
|
Payroll and related costs
|
|
|
9,517
|
|
|
|
8,598
|
|
Occupancy costs
|
|
|
1,857
|
|
|
|
1,510
|
|
Selling, general and administrative expenses
|
|
|
5,773
|
|
|
|
5,639
|
|
|
|
|
29,710
|
|
|
|
27,239
|
|
Income from Operations
|
|
|
1,231
|
|
|
|
655
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(204
|
)
|
|
|
(185
|
)
|
Interest and other income
|
|
|
12
|
|
|
|
13
|
|
Insurance recovery, net of casualty loss
|
|
|
—
|
|
|
|
602
|
|
|
|
|
(192
|
)
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
Income before Provision for Income Taxes
|
|
|
1,039
|
|
|
|
1,085
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
(118
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
921
|
|
|
|
998
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(427
|
)
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
Net income attributable to stockholders
|
|
$
|
494
|
|
|
$
|
743
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF INCOME
(in thousands, except per share amounts)
(Continued)
|
|
---------Thirteen Weeks Ended--------
|
|
|
|
December 28, 2019
|
|
|
December 29, 2018
|
|
|
|
|
|
Net Income Per Common Share:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
0.27
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares and Equivalent
Shares Outstanding
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
1,858,647
|
|
|
|
1,858,647
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 2019 (UNAUDITED) AND SEPTEMBER
28, 2019
(in thousands)
ASSETS
|
|
December 28, 2019
|
|
|
September 28, 2019
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,122
|
|
|
$
|
13,672
|
|
Prepaid income taxes
|
|
|
62
|
|
|
|
55
|
|
Other receivables
|
|
|
921
|
|
|
|
870
|
|
Inventories
|
|
|
3,956
|
|
|
|
3,292
|
|
Prepaid expenses
|
|
|
2,648
|
|
|
|
1,704
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
26,709
|
|
|
|
19,593
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net
|
|
|
46,919
|
|
|
|
46,187
|
|
Construction in progress
|
|
|
693
|
|
|
|
1,292
|
|
|
|
|
47,612
|
|
|
|
47,479
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets, operating leases
|
|
|
27,068
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Investment in Limited Partnership
|
|
|
230
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquor licenses
|
|
|
630
|
|
|
|
630
|
|
Deferred tax assets
|
|
|
124
|
|
|
|
249
|
|
Leasehold interests, net
|
|
|
265
|
|
|
|
296
|
|
Other
|
|
|
266
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
1,285
|
|
|
|
1,452
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
102,904
|
|
|
$
|
68,755
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
FLANIGAN'S
ENTERPRISES, INC, AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 2019 (UNAUDITED) AND SEPTEMBER
28, 2019
(in thousands)
(Continued)
LIABILITIES AND EQUITY
|
|
December 28, 2019
|
|
|
September 28, 2019
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
10,728
|
|
|
$
|
8,532
|
|
Due to franchisees
|
|
|
1,585
|
|
|
|
2,553
|
|
Current portion of long term debt
|
|
|
3,058
|
|
|
|
1,983
|
|
Current portion of operating lease liabilities
|
|
|
1,810
|
|
|
|
—
|
|
Current portion of deferred rent
|
|
|
58
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
17,239
|
|
|
|
13,129
|
|
|
|
|
|
|
|
|
|
|
Long Term Debt, Net of Current Maturities
|
|
|
15,062
|
|
|
|
11,097
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities, non current
|
|
|
25,585
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
57,886
|
|
|
|
24,226
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Flanigan’s Enterprises, Inc. Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Common stock, $.10 par value, 5,000,000
shares authorized; 4,197,642 shares issued
|
|
|
420
|
|
|
|
420
|
|
Capital in excess of par value
|
|
|
6,240
|
|
|
|
6,240
|
|
Retained earnings
|
|
|
38,232
|
|
|
|
37,738
|
|
Treasury stock, at cost, 2,338,995 shares
at December 28, 2019 and 2,338,995
shares at September 28, 2019
|
|
|
(6,077
|
)
|
|
|
(6,077
|
)
|
Total Flanigan’s Enterprises, Inc.
stockholders’ equity
|
|
|
38,815
|
|
|
|
38,321
|
|
Noncontrolling interests
|
|
|
6,203
|
|
|
|
6,208
|
|
Total equity
|
|
|
45,018
|
|
|
|
44,529
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
102,904
|
|
|
$
|
68,755
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE
THIRTEEN WEEKS ENDED DECEMBER 28, 2019 AND DECEMBER 29, 2018
|
|
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Excess of
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Interests
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 29, 2018
|
|
|
4,197,642
|
|
|
$
|
420
|
|
|
$
|
6,240
|
|
|
$
|
34,610
|
|
|
|
2,338,995
|
|
|
$
|
(6,077
|
)
|
|
$
|
6,149
|
|
|
$
|
41,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
743
|
|
|
|
—
|
|
|
|
—
|
|
|
|
255
|
|
|
|
998
|
|
Distributions to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(437
|
)
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 29, 2018
|
|
|
4,197,642
|
|
|
$
|
420
|
|
|
$
|
6,240
|
|
|
$
|
35,353
|
|
|
|
2,338,995
|
|
|
$
|
(6,077
|
)
|
|
$
|
5,967
|
|
|
$
|
41,903
|
|
|
|
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Excess of
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Interests
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 28, 2019
|
|
|
4,197,642
|
|
|
$
|
420
|
|
|
$
|
6,240
|
|
|
$
|
37,738
|
|
|
|
2,338,995
|
|
|
$
|
(6,077
|
)
|
|
$
|
6,208
|
|
|
$
|
44,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
494
|
|
|
|
—
|
|
|
|
—
|
|
|
|
427
|
|
|
|
921
|
|
Distributions to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(432
|
)
|
|
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 28, 2019
|
|
|
4,197,642
|
|
|
$
|
420
|
|
|
$
|
6,240
|
|
|
$
|
38,232
|
|
|
|
2,338,995
|
|
|
$
|
(6,077
|
)
|
|
$
|
6,203
|
|
|
$
|
45,018
|
|
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED DECEMBER 28,
2019 AND DECEMBER 29, 2018
(in thousands)
|
|
December
28,
2019
|
|
|
December 29, 2018
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
921
|
|
|
$
|
998
|
|
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
786
|
|
|
|
690
|
|
Amortization of leasehold interests
|
|
|
31
|
|
|
|
30
|
|
Amortization of operating lease right-of-use asset
|
|
|
754
|
|
|
|
—
|
|
Loss on abandonment of property and equipment
|
|
|
7
|
|
|
|
14
|
|
Insurance recovery, net of casualty loss
|
|
|
—
|
|
|
|
118
|
|
Amortization of deferred loan costs
|
|
|
9
|
|
|
|
5
|
|
Deferred income taxes
|
|
|
125
|
|
|
|
125
|
|
Deferred rent
|
|
|
(3
|
)
|
|
|
(3
|
)
|
(Income) loss from unconsolidated limited partnership
|
|
|
(9
|
)
|
|
|
(1
|
)
|
Changes in operating assets and liabilities:
(increase) decrease in
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
(51
|
)
|
|
|
(518
|
)
|
Prepaid income taxes
|
|
|
(7
|
)
|
|
|
(38
|
)
|
Inventories
|
|
|
(664
|
)
|
|
|
(410
|
)
|
Prepaid expenses
|
|
|
453
|
|
|
|
447
|
|
Other assets
|
|
|
391
|
|
|
|
66
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
2,080
|
|
|
|
1,250
|
|
Operating lease
liabilities
|
|
|
(427
|
)
|
|
|
—
|
|
Due to franchisees
|
|
|
(968
|
)
|
|
|
62
|
|
Net cash and cash equivalents provided by operating activities
|
|
|
3,428
|
|
|
|
2,835
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(803
|
)
|
|
|
(750
|
)
|
Purchase of construction in progress
|
|
|
(99
|
)
|
|
|
(446
|
)
|
Deposits on property and equipment
|
|
|
(411
|
)
|
|
|
(134
|
)
|
Proceeds from sale of fixed assets
|
|
|
7
|
|
|
|
10
|
|
Insurance recovery
|
|
|
—
|
|
|
|
400
|
|
Distributions from unconsolidated limited partnership
|
|
|
10
|
|
|
|
10
|
|
Net cash and cash equivalents used in investing activities
|
|
|
(1,296
|
)
|
|
|
(910
|
)
|
See accompanying notes to unaudited condensed
consolidated financial statements.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED DECEMBER 28,
2019 AND DECEMBER 29, 2018
(in thousands)
(Continued)
|
|
December 28,
2019
|
|
|
December 29,
2018
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of long term debt
|
|
|
(648
|
)
|
|
|
(652
|
)
|
Proceeds from long term debt
|
|
|
4,398
|
|
|
|
250
|
|
Distributions to limited
partnerships’ noncontrolling interests
|
|
|
(432
|
)
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
Net cash and cash equivalents provided by (used in) financing activities
|
|
|
3,318
|
|
|
|
(839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
5,450
|
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
Beginning of Period
|
|
|
13,672
|
|
|
|
13,414
|
|
|
|
|
|
|
|
|
|
|
End of Period
|
|
$
|
19,122
|
|
|
$
|
14,500
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure for Cash Flow Information:
Cash paid during period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
204
|
|
|
$
|
185
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
|
Financing of insurance contracts
|
|
$
|
1,281
|
|
|
$
|
1,041
|
|
Purchase deposits transferred to property and equipment
|
|
$
|
29
|
|
|
$
|
231
|
|
Purchase deposits transferred to CIP
|
|
$
|
2
|
|
|
$
|
213
|
|
CIP transferred to property and equipment
|
|
$
|
700
|
|
|
$
|
—
|
|
Insurance recovery receivable
|
|
$
|
—
|
|
|
$
|
800
|
|
Right-of-use assets and associated liabilities
arising from adoption of ASC 842
|
|
$
|
27,822
|
|
|
$
|
—
|
|
See accompanying notes to unaudited condensed
consolidated financial statements
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 28, 2019
(1) BASIS OF PRESENTATION:
The accompanying condensed consolidated financial
information for the thirteen weeks ended December 28, 2019 and December 29, 2018 are unaudited. Financial information as of September
28, 2019 has been derived from the audited financial statements of the Company, but does not include all disclosures required by
accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated have
been included. For further information regarding the Company's accounting policies, refer to the Consolidated Financial Statements
and related notes included in the Company's Annual Report on Form 10-K for the year ended September 28, 2019. Operating results
for interim periods are not necessarily indicative of results to be expected for a full year.
The condensed consolidated financial statements
include the accounts of the Company, its wholly-owned subsidiaries and the accounts of the eight limited partnerships in which
we act as general partner and have controlling interests. All intercompany balances and transactions have been eliminated. Non-controlling
interest represents the limited partners’ proportionate share of the net assets and results of operations of the eight limited
partnerships.
These condensed consolidated financial statements
include estimates relating to performance based officers’ bonuses. The estimates are reviewed periodically and the effects
of any revisions are reflected in the financial statements in the period they are determined to be necessary. Although these estimates
are based on management’s knowledge of current events and actions it may take in the future, they may ultimately differ from
actual results.
The condensed consolidated financial
statements include estimates relating to the calculation of incremental borrowing rates and length of leases associated with
right-of-use assets and corresponding liabilities.
(2) EARNINGS PER SHARE:
We follow Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) Section 260 - “Earnings per Share”. This section provides for
the calculation of basic and diluted earnings per share. The data on Page 2 shows the amounts used in computing earnings per share
and the effects on income and the weighted average number of shares of potentially dilutive common stock equivalents. As of December
28, 2019 and December 29, 2018, no stock options were outstanding.
(3) RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Adopted
Effective October 1, 2019, we adopted Accounting
Standards Codification 842, Leases (“ASC 842”). The new guidance requires that lease arrangements be presented on the
lessee’s balance sheet by recording a right-of-use asset and a lease liability equal to the present value of the 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.
(3) RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
(Continued)
Adopted (Continued)
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 Condensed Consolidated Statements of Income due to the escalations of rent in
the extensions but did not have a material impact on the Condensed Consolidated Statement of Cash Flows. See Note 6 for further
disclosures resulting from the adoption of this new standard.
Recently Issued
There are no recently issued accounting pronouncements
that we have not yet adopted.
(4) 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 basis of assets and
liabilities and to tax net operating loss carryforwards and tax credits to the extent that realization of said tax benefits is
more likely than not.
(5) DEBT:
(a) Mortgage on Real Property
During the thirteen weeks ended December 28,
2019, 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 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 the fixed
annual rate of 3.86%, is amortized over twenty (20) years, requires us to pay monthly payments of principal and interest in the
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.
The interest rate swap agreement entered into
in November, 2011 by our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, relating to the prior mortgage loan also
matured November 30, 2019 and was not renewed as a part of the re-financing.
(b) Financed Insurance Premiums
During the thirteen weeks ended December 28,
2019, we bound the following property, general liability, excess liability and terrorist policies:
(i) For
the policy year beginning December 30, 2019, 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 insurance coverage, total, in the aggregate $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
with our insurance carriers, including excess liability coverage. The one (1) year general liability insurance premium is in the
amount of $459,000;
(iii) For
the policy year beginning December 30, 2019, our property insurance is a one (1) year policy. The one (1) year property insurance
premium is in the amount of $561,000; and
(iv) For
the policy year beginning December 30, 2019, our excess liability insurance is a one (1) year policy. The one (1) year excess liability
insurance premium is in the amount of $360,000.
(v) For
the policy year beginning December 30, 2019, our terrorist insurance is a one (1) year policy. The one (1) year terrorist insurance
premium is in the amount of $12,000.
We financed the premiums on the above five
(5) property, general liability, excess insurance and terrorist policies, totaling approximately $1.81 million, which property,
general liability, excess liability and terrorist insurance includes coverage for our franchises which are not included in our
consolidated financial statements. The one (1) year insurance premiums, total, in the aggregate $1,810,000, of which $1,656,000
is financed through an unaffiliated third party lender. The finance agreement obligates us to repay the amounts financed together
with interest at the rate of 2.55% per annum, over 11 months, with monthly payments of principal and interest, each in the amount
of $153,000. 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.
As of December 28, 2019, the aggregate
principal balance owed from the financing of our property and general liability insurance policies is $1,281,000, excluding
coverage for our franchises which are not included in our consolidated financial statements.
(6) COMMITMENTS AND CONTINGENCIES:
Construction Contracts
a. 2505 N. University Drive, Hollywood,
Florida (Store #19)
During our fiscal year 2018 and prior to it
being closed in the first quarter of our fiscal year 2019 due to damages caused by a fire, we entered into an agreement with a
third party unaffiliated general contractor for design and development services for the construction of a new building (the “New
Building”) on a parcel of real property which we own and 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) operated until it was closed in
October, 2018 due to damages caused by a fire for a total contract price of for a total contract price of $127,000 (the “$127,000
Contract”). We plan to re-locate our package liquor store at the property to the New Building. During the term of the $127,000
Contract, we agreed to change orders which had the effect of increasing the total contract price of the same to $138,000, and during
the second quarter of our fiscal year 2019, we paid the balance of the total contract price of the $127,000 Contract, in the amount
of $25,000. During the first quarter of our fiscal year 2020, we agreed upon changes to the $127,000 Contract for additional design
and development services for the construction of the New Building which had the effect of increasing the total contract price of
the same by $10,000 to $148,000, of which $6,000 has been paid.
During the third quarter of our fiscal year
2019, we entered into an agreement with a third party unaffiliated architect for design and development services totaling $77,000
for the re-build of our
(6) COMMITMENTS AND CONTINGENCIES (Continued)
Construction Contracts (Continued)
a. 2505 N. University Drive, Hollywood,
Florida (Store #19) (Continued)
restaurant located at 2505 N. University Drive,
Hollywood, Florida (Store #19) which has been closed since October 2018 due to damages caused by a fire, of which $27,000 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 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, of which $-0- 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 third party unaffiliated design group for design and development services of our new
restaurant in development to be located at 14301 W. Sunrise Boulevard, Sunrise, Florida 33323 (Store #85) for a total contract
price of $122,000, (the $122,000 Contract”). During the first quarter of 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
of the same by $18,000 to $140,000, of which $97,000 has been paid.
Leases
We lease restaurant and package liquor store
space in South Florida for our business operations. Our leases have remaining lease terms of up to 10 years, some of which
include options to extend the leases for up to 30 years. We intend to renew some of the extension options available
to us and they are included in the computations of the right-of-use assets and lease liabilities. Following adoption of ASC 842,
common area maintenance and property taxes are not considered to be lease components.
The components of lease expense were as follows:
|
|
13 Weeks
|
|
|
|
Ended Dec. 28, 2019
|
|
Operating Lease Expense, which is included in occupancy costs
|
|
$
|
1,130,000
|
|
Supplemental
balance sheet information related to leases as follows:
|
|
Classification on the
|
|
|
|
|
|
Condensed Consolidated
|
|
|
|
|
|
Balance Sheet
|
|
Dec. 28, 2019
|
|
Assets
|
|
|
|
|
|
Operating lease assets
|
|
Other non-current assets
|
|
$
|
27,068,000
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Other current liabilities
|
|
Current liabilities
|
|
$
|
1,810,000
|
|
Operating lease liabilities
|
|
Other non-current liabilities
|
|
$
|
25,585,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term:
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
9.08 Years
|
|
|
|
|
|
|
|
|
Weighted Average Discount:
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
5.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table outlines the minimum future lease payments for
the next five years and thereafter:
For fiscal year
|
|
|
|
2020 (Nine months)
|
|
$
|
2,437,000
|
|
2021
|
|
|
4,466,000
|
|
2022
|
|
|
3,172,000
|
|
2023
|
|
|
3,193,000
|
|
2024
|
|
|
3,234,000
|
|
Thereafter
|
|
|
19,942,000
|
|
Total lease payments (Undiscounted cash flows)
|
|
|
36,444,000
|
|
|
|
|
|
|
Less imputed interest
|
|
|
(9,049,000
|
)
|
Total
|
|
$
|
27,395,000
|
|
Litigation
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 flows could be materially and adversely
affected. We currently have no “dram shop” claims.
We are a party to various other claims,
legal actions and complaints arising in the ordinary course of our business. It is our opinion, after consulting with legal counsel,
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.
(7) 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 the thirteen weeks ended December 28, 2019 and December 29, 2018, 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 expenses 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.
|
|
(in thousands)
|
|
|
|
Thirteen
Weeks
Ending
December
28, 2019
|
|
|
Thirteen
Weeks
Ending
December
29, 2018
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
24,633
|
|
|
$
|
22,151
|
|
Package stores
|
|
|
5,707
|
|
|
|
5,135
|
|
Other revenues
|
|
|
601
|
|
|
|
608
|
|
Total operating revenues
|
|
$
|
30,941
|
|
|
$
|
27,894
|
|
|
|
|
|
|
|
|
|
|
Income from Operations Reconciled to Income After Income Taxes and Net Income Attributable to Noncontrolling Interests
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
1,735
|
|
|
$
|
1,387
|
|
Package stores
|
|
|
383
|
|
|
|
167
|
|
|
|
|
2,118
|
|
|
|
1,554
|
|
Corporate expenses, net of other revenues
|
|
|
(887
|
)
|
|
|
(899
|
)
|
Income from Operations
|
|
|
1,231
|
|
|
|
655
|
|
Interest expense
|
|
|
(204
|
)
|
|
|
(185
|
)
|
Interest and Other income
|
|
|
12
|
|
|
|
13
|
|
Insurance recovery, net of casualty loss
|
|
|
—
|
|
|
|
602
|
|
Income Before Provision for Income Taxes
|
|
$
|
1,039
|
|
|
$
|
1,085
|
|
Provision for Income Taxes
|
|
|
(118
|
)
|
|
|
(87
|
)
|
Net Income
|
|
|
921
|
|
|
|
998
|
|
Net Income Attributable to Noncontrolling Interests
|
|
|
(427
|
)
|
|
|
(255
|
)
|
Net Income Attributable to Flanigan’s Enterprises, Inc. Stockholders
|
|
$
|
494
|
|
|
$
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
635
|
|
|
$
|
557
|
|
Package stores
|
|
|
84
|
|
|
|
66
|
|
|
|
|
719
|
|
|
|
623
|
|
Corporate
|
|
|
98
|
|
|
|
97
|
|
Total Depreciation and Amortization
|
|
$
|
817
|
|
|
$
|
720
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
701
|
|
|
$
|
1,341
|
|
Package stores
|
|
|
103
|
|
|
|
78
|
|
|
|
|
804
|
|
|
|
1,419
|
|
Corporate
|
|
|
129
|
|
|
|
222
|
|
Total Capital Expenditures
|
|
$
|
933
|
|
|
$
|
1,641
|
|
|
|
December 28,
|
|
|
September 28,
|
|
|
|
2019
|
|
|
2019
|
|
Identifiable Assets:
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
55,848
|
|
|
$
|
31,077
|
|
Package store
|
|
|
14,595
|
|
|
|
10,540
|
|
|
|
|
70,443
|
|
|
|
41,617
|
|
Corporate
|
|
|
32,461
|
|
|
|
27,138
|
|
Consolidated Totals
|
|
$
|
102,904
|
|
|
$
|
68,755
|
|
(8) SUBSEQUENT EVENTS:
Subsequent events have
been evaluated through the date these consolidated financial statements were issued and except as disclosed herein, no other events
required disclosure.
ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reported financial results may not be indicative
of the financial results of future periods. All non-historical information contained in the following discussion constitutes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Words such as “anticipates, appears, expects, trends, intends, hopes, plans, believes, seeks, estimates, may, will,”
and variations of these words or similar expressions are intended to identify forward-looking statements. These statements are
not guarantees of future performance and involve a number of risks and uncertainties, including but not limited to customer demand
and competitive conditions. Factors that could cause actual results to differ materially are included in, but not limited to, those
identified in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in
the Annual Report on our Form 10-K for the fiscal year ended September 28, 2019 and in this Quarterly Report on Form 10-Q. We undertake
no obligation to publicly release the results of any revisions to these forward-looking statements that may reflect events or circumstances
after the date of this report.
OVERVIEW
As of December 28, 2019, Flanigan’s Enterprises,
Inc., a Florida corporation, together with its subsidiaries, (i) operates 27 units, 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) franchises 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 December 28, 2019
and as compared to December 29, 2018. 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 marks “Big Daddy’s Liquors” or “Big Daddy’s Wine & Liquors”.
Types of Units
|
|
December 28,
2019
|
|
September
28,
2019
|
|
December 29,
2018
|
|
|
Company Owned:
Combination package and restaurant
|
|
3
|
|
3
|
|
3
|
|
(1)
|
Restaurant only
|
|
7
|
|
7
|
|
7
|
|
|
Package store only
|
|
7
|
|
6
|
|
6
|
|
(2)
|
|
|
|
|
|
|
|
|
|
Company Operated Restaurants Only:
|
|
|
|
|
|
|
|
|
Limited Partnerships
|
|
8
|
|
8
|
|
8
|
|
|
Franchise
|
|
1
|
|
1
|
|
1
|
|
|
Unrelated Third Party
|
|
1
|
|
1
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Total Company Owned/Operated Units
|
|
27
|
|
26
|
|
26
|
|
|
Franchised Units
|
|
5
|
|
5
|
|
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 through December 28, 2019.
(2) During the first quarter of our fiscal
year 2020, our new package liquor store located at 12776 N. Kendal 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 restaurant
operated by us.
Franchise Financial Arrangement:
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 store 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.
Limited Partnership Financial Arrangement:
We manage and control the operations of all restaurants owned by limited partnerships, except the Fort Lauderdale, Florida restaurant
which is owned by a related franchisee. Accordingly, the results of operations of all limited partnership owned restaurants, except
the Fort Lauderdale, Florida restaurant are consolidated into our operations for accounting purposes. The results of operations
of the Fort Lauderdale, Florida restaurant are accounted for by us utilizing the equity method of accounting. In general, until
the investors’ cash investment in a limited partnership (including any cash invested by us and our affiliates) is returned
in full, the limited partnership distributes to the investors annually out of available cash from the operation of the restaurant
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, with the balance distributed to the investors. Once the investors in the limited partnership have received, in
full, amounts equal to their cash invested, an annual management fee is payable to us equal to one-half (½) of cash available
to the limited partnership, with the other one half (½) of available cash distributed to the investors (including us and
our affiliates). As of December 28, 2019, all limited partnerships 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 receipt of distributable
amounts from the limited partnerships, we receive a fee equal to 3% of gross sales for use of the service mark “Flanigan’s
Seafood Bar and Grill”.
RESULTS OF OPERATIONS
|
|
-----------------------Thirteen Weeks Ended-----------------------
|
|
|
|
December 28, 2019
|
|
|
December 29, 2018
|
|
|
|
Amount
(In thousands)
|
|
|
Percent
|
|
|
Amount
(In thousands)
|
|
|
Percent
|
|
Restaurant food sales
|
|
$
|
18,742
|
|
|
|
61.77
|
|
|
$
|
16,828
|
|
|
|
61.67
|
|
Restaurant bar sales
|
|
|
5,891
|
|
|
|
19.42
|
|
|
|
5,323
|
|
|
|
19.51
|
|
Package store sales
|
|
|
5,707
|
|
|
|
18.81
|
|
|
|
5,135
|
|
|
|
18.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
$
|
30,340
|
|
|
|
100.00
|
|
|
$
|
27,286
|
|
|
|
100.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise related revenues
|
|
|
360
|
|
|
|
|
|
|
|
367
|
|
|
|
|
|
Rental income
|
|
|
194
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
Other operating income
|
|
|
47
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
30,941
|
|
|
|
|
|
|
$
|
27,894
|
|
|
|
|
|
Comparison of Thirteen Weeks Ended December 28, 2019 and
December 29, 2018.
Revenues.
Total revenue for the thirteen weeks ended December 28, 2019 increased $3,047,000 or 10.92% to $30,941,000
from $27,894,000 for the thirteen weeks ended December 29, 2018 due primarily to increased restaurant traffic and increased menu
prices. Effective June 16, 2019 we increased certain menu prices for our bar offerings to target an increase to our total bar revenues
of approximately 6.2% annually and effective June 23, 2019 we increased certain menu prices for our food offerings to target an
increase to our total food revenues of approximately 3.4% annually, (the “2019 Price Increases”).
We anticipate that total revenue for the balance of our fiscal year 2020 will increase due
to increased restaurant traffic and the 2019 Price Increases. We expect that Store #19 will remain closed during the balance of
our fiscal year 2020 and accordingly do not expect to generate any revenue from it.
Restaurant Food Sales.
Restaurant revenue generated from the sale of food, including non-alcoholic
beverages, at restaurants totaled $18,742,000 for the thirteen weeks ended December 28, 2019 as compared to $16,828,000 for the
thirteen weeks ended December 29, 2018. The increase in restaurant revenue for the thirteen weeks ended December 28, 2019
as compared to restaurant revenue during the thirteen weeks ended December
29, 2018 is primarily due to increased restaurant traffic and the 2019 Price Increases. Comparable weekly restaurant food sales
(for restaurants open for all of the first quarter of our fiscal year 2020 and the first quarter of our fiscal year 2019, which
consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirteen weeks ended December 28,
2019 and December 29, 2018 due to a fire on October 2, 2018) and eight
restaurants owned by affiliated limited partnerships) was $1,432,000 and $1,295,000 for the thirteen weeks ended December 28, 2019
and December 29, 2018, respectively, an increase of 10.58%. Comparable weekly restaurant food sales for Company owned restaurants
only was $721,000 and $642,000 for the first quarter of our fiscal year 2020 and the first quarter of our fiscal year 2019, respectively,
an increase of 12.31%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only was $711,000
and $653,000 for the first quarter of our fiscal year 2020 and the first quarter of our fiscal year 2019, respectively, an increase
of 8.88%. We expect restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants
to increase throughout the balance of our fiscal year 2020 due to increased restaurant traffic and the 2019 Price Increases.
Restaurant
Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants totaled $5,891,000 for the
thirteen weeks ended December 28, 2019 as compared to $5,323,000 for the thirteen weeks ended December 29, 2018. The increase in
restaurant revenue from the sale of alcoholic beverages at restaurants during the thirteen weeks ended December 28, 2019 is primarily
due to increased restaurant traffic and the 2019 Price Increases. Comparable weekly restaurant bar sales (for restaurants open
for all of the first quarter of our fiscal year 2020 and the first quarter of our fiscal year 2019, which consists of nine restaurants
owned by us, (excluding Store #19 which was closed for the thirteen weeks ended December 28, 2019 and December 29, 2018
due to a fire on October 2, 2018), and eight restaurants owned by affiliated
limited partnerships) was $453,000 for the thirteen weeks ended December 28, 2019 and $410,000 for the thirteen weeks ended December
29, 2018, an increase of 10.49%. Comparable weekly restaurant bar sales for Company owned restaurants only was $207,000 and $183,000
for the first quarter of our fiscal year 2020 and the first quarter of our fiscal year 2019, respectively, an increase of 13.11%.
Comparable weekly restaurant bar sales for affiliated limited partnership owned restaurants only was $246,000 and $227,000 for
the first quarter of our fiscal year 2020 and the first quarter of our fiscal year 2019, respectively, an increase of 8.37%. We
expect restaurant revenue generated from the sale of alcoholic beverages at restaurants to increase throughout the balance of our
fiscal year 2020 due to increased restaurant traffic and the 2019 Price Increases.
Package Store Sales.
Revenue generated from sales of liquor and related items at package liquor stores totaled $5,707,000 for the thirteen weeks ended
December 28, 2019 as compared to $5,135,000 for the thirteen weeks ended December 29, 2018, an increase of $572,000. This increase
was primarily due to increased package liquor store traffic and the opening of our new Store #45 during the first quarter of our
fiscal year 2020. The weekly average of same store package liquor store sales, which includes eight (8) Company owned package liquor
stores, (excluding Store #19, which was closed for the thirteen weeks ended December 28, 2019 and December 29, 2018 due to a fire
on October 2, 2018 and also excluding Store #45, which opened for business on October 10, 2019), was $416,000 for the thirteen
weeks ended December 28, 2019 as compared to $395,000 for the thirteen weeks ended December 29, 2018, an increase of 5.31%. We
expect package liquor store sales to increase throughout the balance of our fiscal year 2020 due to the opening of a new package
liquor store located in Kendall, Florida during the first quarter of our fiscal year 2020.
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 the thirteen weeks ended December 28, 2019 increased $2,471,000 or 9.07% to $29,710,000
from $27,239,000 for the thirteen weeks ended December 29, 2018. The increase was primarily due to an expected general increase
in food costs, offset by actions taken by management to reduce and/or control costs. We anticipate that our operating costs and
expenses will continue to increase through our fiscal year 2020 for the same reasons. Operating costs and expenses decreased as
a percentage of total sales to approximately 96.02% in the first quarter of our fiscal year 2020 from 97.65% in the first quarter
of our fiscal year 2019.
Gross Profit. Gross profit is
calculated by subtracting the cost of merchandise sold from sales.
Restaurant Food and
Bar Sales. Gross profit for food and bar sales for the thirteen weeks ended December 28, 2019 increased to $16,209,000
from $14,427,000 for the thirteen weeks ended December 29, 2018 due primarily to the 2019 Price Increases. 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
65.80% for the thirteen weeks ended December 28, 2019 and 65.13% for the thirteen weeks ended December 29, 2018. We anticipate
that our gross profit for restaurant food and bar sales will increase during our fiscal year 2020 due primarily to the 2019 Price
Increases, offset by higher food costs.
Package Store Sales.
Gross profit for package store sales for the thirteen weeks ended December 28, 2019 increased to $1,568,000 from $1,367,000 for
the thirteen weeks ended December 29, 2018, due primarily to the opening of a new package liquor store located at 12776 N. Kendall
Drive, Miami, Florida, during the thirteen weeks ended December 28, 2019. Our gross profit margin, (calculated as gross profit
reflected as a percentage of package liquor store sales), for package store sales was 27.48% for the thirteen weeks ended December
28, 2019 and 26.62% for the thirteen weeks ended December 29, 2018. We anticipate that the gross profit margin for package store
merchandise will decrease during our fiscal year 2020 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 the thirteen weeks ended December 28, 2019 increased $919,000 or 10.69% to $9,517,000 from $8,598,000 for
the thirteen weeks ended December 29, 2018. Higher payroll and related costs for the thirteen weeks ended December 28, 2019 were
primarily due to higher restaurant sales, which require additional payroll and related costs for employees such as cooks, bartenders
and servers, and payroll for our new package liquor store in Kendall, Florida. Payroll and related costs as a percentage of total
sales was 30.76% in the first quarter of our fiscal year 2020 and 30.82% of total sales in the first quarter of our fiscal year
2019.
Occupancy Costs. Occupancy
costs (consisting of percentage rent, common area maintenance, repairs, real property taxes, amortization of leasehold
purchases and rent expense associated with operating lease liabilities under ASC 842) for the thirteen weeks ended December
28, 2019 increased $347,000 or 22.98% to $1,857,000 from $1,510,000 for the thirteen weeks ended December 29, 2018 due
primarily to our adoption of ASC 842. We anticipate that our occupancy costs will increase throughout our fiscal year 2020
due primarily to the rent we are required to pay pursuant to the newly acquired lease agreement for our new restaurant in
development to be located in Sunrise, Florida, and our adoption of ASC 842.
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 the thirteen weeks ended December 28, 2019 increased $134,000
or 2.38% to $5,773,000 from $5,639,000 for the thirteen weeks ended December 29, 2018. Selling, general and administrative expenses
decreased as a percentage of total sales in the first quarter of our fiscal year 2020 to 18.66% as compared to 20.21% in the first
quarter of our fiscal year 2019. We anticipate that our selling, general and administrative expenses will increase throughout the
balance of our fiscal year 2020 due primarily to increases across all categories.
Depreciation and Amortization.
Depreciation and amortization for the thirteen weeks ended December 28, 2019 increased $97,000 or 13.47% to $817,000 from $720,000
for the thirteen weeks ended December 29, 2018. As a percentage of total revenue, depreciation expense was 2.64% of revenue for
the thirteen weeks ended December 28, 2019 and 2.58% of revenue in the thirteen weeks ended December 29, 2018.
Interest Expense, Net. Interest
expense, net, for the thirteen weeks ended December 28, 2019 increased $19,000 to $204,000 from $185,000 for the thirteen weeks
ended December 29, 2018. Interest expense, net, will increase for the balance of our fiscal year 2020 due to our borrowing of an
additional $4.5 million during the first quarter of our fiscal year 2020 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.
Income Taxes. Income taxes
for the thirteen weeks ended December 28, 2019 was $118,000 and $87,000 for the thirteen weeks ended December 29, 2018.
Net Income. Net income for
the thirteen weeks ended December 28, 2019 decreased $77,000 or 7.72% to $921,000 from $998,000 for the thirteen weeks ended
December 29, 2018. Net income for the thirteen weeks ended December 28, 2019 decreased when compared to the thirteen weeks
ended December 29, 2018 primarily due to higher food costs and overall expenses and our adoption of ASC 842, offset by higher
restaurant traffic and the 2019 Price Increases. As a percentage of sales, net income for the first quarter of our fiscal year 2020 is
2.98%, as compared to 3.58% in the first quarter of our fiscal year 2019.
Net Income Attributable to Stockholders.
Net income for the thirteen weeks ended December 28, 2019 decreased $249,000 or 33.51% to $494,000 from $743,000 for the thirteen
weeks ended December 29, 2018. Net income attributable to stockholders for the thirteen weeks ended December 28, 2019 decreased
when compared to the thirteen weeks ended December 29, 2018 primarily due to higher food costs and overall expenses and our adoption
of ASC 842, offset by higher restaurant traffic and the 2019 Price Increases. As a percentage of sales, net income for the first
quarter of our fiscal year 2020 is 1.60%, as compared to 2.66% in the first quarter of our fiscal year 2019.
New Limited Partnership Restaurants
As new restaurants open, our income from operations
will be adversely affected due to our obligation to advance pre-opening costs, including but not limited to pre-opening rent for
the new locations. During the first quarter of our fiscal year 2020, we had one new restaurant location in Sunrise, Florida in
the development stage and have advanced $480,000 through December 28, 2019. 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 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 as well as lease.
Menu Price Increases and Trends
Effective June 16, 2019 we increased menu prices
for our bar offerings to target an increase to our bar revenues of approximately 6.2% annually and effective June 23, 2019 we increased
menu prices for our food offerings to target an increase to our food revenues of approximately 3.4% annually to offset higher food
costs and higher overall expenses. Prior to these increases, we previously raised menu prices in the fourth quarter of our fiscal
year 2017. During the next twelve months, if demand for our restaurant and bar offerings remain substantially similar to the demand
during our fiscal year 2019, (including a lack of restaurant and bar sales from Store #19 which we expect will be closed for our
entire fiscal year 2020), of which there can be no assurance, we expect that restaurant and bar sales in our restaurants as well
as gross profit for food and bar operations (including a lack of restaurant and bar sales from Store #19 which we expect will be
closed for our entire fiscal year 2020) should increase as a result of the 2019 Price Increases, offset partially by higher food
costs. We anticipate that our package liquor store sales will continue to increase, primarily due to our recently opened (October,
2019) package liquor store in Kendall, Florida, (excluding package liquor store sales from Store #19, which we expect will be closed
for our entire fiscal year 2020 due to the Store #19 Closure), while gross profit margin for package liquor store sales will, in
all likelihood, decrease.
In addition to the rebuilding of Store #19,
which was closed in October 2018 due to a fire, we have a new “Flanigan’s Seafood Bar and Grill” restaurant in
Sunrise, Florida in the development stage. During the fourth quarter of our fiscal year 2019, we entered a lease for space to house
a new “Flanigan’s Seafood Bar and Grill” in a shopping center in Miramar, Florida, which shopping center is currently
under construction. We continue to search for new locations to open additional restaurants.
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 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) 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 to be constructed shopping center in Miramar, Florida.
Liquidity and Capital Resources
We fund our operations through cash from operations.
As of December 28, 2019, we had cash of approximately $19,122,000, an increase of $5,450,000 from our cash balance of $13,672,000
as of September 28, 2019. During the first quarter of our fiscal year 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. We believe that our current cash availability from our cash on hand, positive cash flow from operations
and borrowed funds will be sufficient to fund our operations and planned capital expenditures for at least the next twelve months.
Cash Flows
The following table is a summary of our cash
flows for the first thirteen weeks of fiscal years 2020 and 2019.
|
|
---------Thirteen Weeks Ended--------
|
|
|
|
December 28, 2019
|
|
|
December 29, 2018
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
3,428
|
|
|
$
|
2,835
|
|
Net cash used in investing activities
|
|
|
(1,296
|
)
|
|
|
(910
|
)
|
Net cash provided by (used in) financing activities
|
|
|
3,318
|
|
|
|
(839
|
)
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
5,450
|
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Beginning
|
|
|
13,672
|
|
|
|
13,414
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Ending
|
|
$
|
19,122
|
|
|
$
|
14,500
|
|
We did not declare or pay a cash dividend on
our capital stock in the first quarter of our fiscal year 2020 or the first quarter of our fiscal year 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.
Capital Expenditures
In addition to using cash for our
operating expenses, we use cash generated from operations and borrowings to fund the development and construction of new
restaurants and to fund capitalized property improvements for our existing restaurants. During the thirteen weeks ended
December 28, 2019, we acquired property and equipment and construction in progress of $933,000, (of which $29,000 was
deposits recorded in other assets and $2,000 was purchase deposits transferred to construction in progess as of September 28,
2019), including $295,000 for renovations to two (2) limited partnership owned restaurants and three (3) Company owned
restaurants. During the thirteen weeks ended December 29, 2018, we acquired property and equipment and construction in
progress of $1,641,000, (of which $231,000 was deposits recorded in other assets and $213,000 was purchase deposits
transferred to construction in progress as of September 29, 2018),
including $100,000 for renovations to three (3) Company owned restaurants.
All
of our owned units require periodic refurbishing in order to remain competitive. We anticipate the cost of this refurbishment in
our fiscal year 2020 to be approximately $750,000, 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), $295,000 of which has been spent through December 28, 2019.
Long Term Debt
As of December 28, 2019, we had long term debt
of $18,120,000, as compared to $15,220,000 as of December 29, 2018, and $13,080,000 as of September 28, 2019. Our long term debt
increased as of December 28, 2019 as compared to September 28, 2019 due to 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 $1,281,000 for financed insurance premiums, less any payments made on account thereof. As
of December 28, 2019, we are in compliance with the covenants of all loans with our lender.
Construction Contracts
a. 2505 N. University Drive, Hollywood,
Florida (Store #19)
During our fiscal year 2018 and prior to its
being closed in the first quarter of our fiscal year 2019 due to damages caused by a fire, we entered into an agreement with a
third party unaffiliated general contractor for design and development services for the construction of a new building (the “New
Building”) on a parcel of real property which we own and 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) operated until it was closed in
October, 2018 due to damages caused by a fire for a total contract price of for a total contract price of $127,000 (the “$127,000
Contract”). We plan to re-locate our package liquor store at the property to the New Building. During the term of the $127,000
Contract, we agreed to change orders which had the effect of increasing the total contract price of the same to $138,000, and during
the second quarter of our fiscal year 2019, we paid the balance of the total contract price of the $127,000 Contract, in the amount
of $25,000. During the first quarter of our fiscal year 2020, we agreed upon changes to the $127,000 Contract for additional design
and development services for the construction of the New Building which had the effect of increasing the total contract price of
the same by $10,000 to $148,000, of which $6,000 has been paid.
During the third quarter of our fiscal year
2019, we entered into an agreement with a third party unaffiliated architect for design and development services totaling $77,000
for the re-build of our restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) which has been closed since
October 2018 due to damages caused by a fire, of which $27,000 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 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, of which $-0- 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 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, (the $122,000
Contract”). During the first quarter of our fiscal year 2020, we agreed upon changes to the $122,000 Contract 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 $97,000 has been paid.
Purchase Commitments
In order to fix the cost and ensure adequate
supply of baby back ribs for our restaurants, on November 5, 2019, we entered into a purchase agreement with our current rib supplier,
whereby we agreed to purchase approximately $5,314,000 of baby back ribs during calendar year 2020 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 Interest
During the thirteen weeks ended December 28,
2019 and the thirteen weeks ended December 29, 2018, we did not purchase any limited partnership interests.
Working Capital
The table below summarizes the current assets,
current liabilities, and working capital for our fiscal quarters ended December 28, 2019, December 29, 2018 and our fiscal year
ended September 28, 2019.
Item
|
|
Dec. 28, 2019
|
|
|
Dec. 29, 2018
|
|
|
Sept. 28, 2019
|
|
|
|
(in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
26,709
|
|
|
$
|
22,595
|
|
|
$
|
19,593
|
|
Current Liabilities
|
|
|
17,239
|
|
|
|
15,745
|
|
|
|
13,129
|
|
Working Capital
|
|
$
|
9,470
|
|
|
$
|
6,850
|
|
|
$
|
6,464
|
|
Our working capital increased during our fiscal
quarter ended December 28, 2019 from our working capital for our fiscal quarter ended December 29, 2018 and our fiscal year ended
September 28, 2019 due to the cash received from the re-financing by our wholly owned subsidiary, Flanigan’s Calusa Center,
LLC, of a mortgage loan, increasing the principal amount from $2.72 million to $7.21 million, offset by $327,000 due to our adoption
of ASC 842.
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 borrowed on our term loan will adequately fund operations, debt reductions and planned capital
expenditures throughout our fiscal year 2020.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet
arrangements.
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 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.