Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
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):
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its annual report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
As of April 3, 2021, 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 $20,147,000 (based on the closing price of the common stock as reported on the NYSE AMERICAN of $23.77 per share).
There were 1,858,647 shares of the Registrant's Common Stock, $0.10 par value, outstanding as of January 14, 2022.
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 2022 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.
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,” “could”, “may”,
“might”, “will” and “would” 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 caution readers not to place undue reliance on any forward-looking statements, which speak only as of the dates on which
they are made 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.
PART I
ITEM 1. BUSINESS
General
As of October 2, 2021, Flanigan’s
Enterprises, Inc., a Florida corporation, together with its subsidiaries (“we”, “our”, “ours” and
“us” as the context requires), (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 October 2, 2021 and as compared to October 3, 2020. With
the exception of “The Whale’s Rib”, a restaurant we operate but do not own, all of the restaurants operate under our
service marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s” 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
|
|
FISCAL YEAR
2021
|
|
FISCAL YEAR
2020
|
|
|
|
Company-Owned:
|
|
|
|
|
|
|
|
|
|
|
|
Combination package liquor store and restaurant
|
|
|
3
|
|
|
|
3
|
(1)
|
|
|
|
Restaurant only
|
|
|
7
|
|
|
|
7
|
|
|
|
|
Package liquor store only
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Managed Restaurants Only:
|
|
|
|
|
|
|
|
|
|
|
|
Limited partnerships
|
|
|
8
|
|
|
|
8
|
|
|
|
|
Franchise
|
|
|
1
|
|
|
|
1
|
|
|
|
|
Unrelated Third Party
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL – Company-Owned/Operated Units
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised Units
|
|
|
5
|
|
|
|
5
|
(2)
|
|
|
____________________
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)
|
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.
|
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 16 to the consolidated financial statements and the discussion of franchised units on page 8.
During our fiscal year 1987, we
began renovating our lounges to provide full restaurant food service, and subsequently renovated and added food service to most of our
lounges. Food sales currently represent approximately 80.2% and bar sales approximately 19.8% 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.
|
Entity
|
State Of
Organization
|
Percentage
Owned
|
|
|
|
|
|
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 #25, Limited Partnership
|
Florida
|
100
|
|
CIC Investors #50, Limited Partnership
|
Florida
|
24
|
|
CIC Investors #55, Limited Partnership
|
Florida
|
49
|
|
CIC Investors #60, Limited Partnership
|
Florida
|
46
|
|
CIC Investors #65, Limited Partnership
|
Florida
|
28
|
|
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, beers 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. Most
of our units have "night windows" with extended evening hours.
Company-Owned
Package Liquor Stores. We own and operate nine package liquor stores in the South Florida area under the name “Big Daddy’s
Liquors” or “Big Daddy’s Wine & Liquors”, two 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 and one is operated in a freestanding 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
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.
Company-Owned
Restaurants. We own and operate nine restaurants all under our service mark “Flanigan’s Seafood Bar and Grill”
two 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.
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 “Flanigan’s” restaurants in Sunrise, Florida and Miramar, Florida,
both of which will be owned by a limited partnership using the same or substantially similar financial arrangement and corporate structure
as our other restaurants owned by limited partnerships, with the Company acting as the sole general partner of the limited partnerships.
Additionally, we and certain of our affiliates may become limited partners in these limited partnerships.
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 (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-half (½) of available cash distributed to the investors
(including us), as a profit distribution, pro-rata based on the investors’ investment. As of October 2, 2021, all eight (8) limited
partnerships where we are the general partner and 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 these limited
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” or “Flanigan’s” service marks, 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 marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s”
using the same or substantially similar financial arrangements.
Below is information on the nine
limited partnerships which own and operate “Flanigan’s Seafood Bar and Grill” or “Flanigan’s” 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 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.
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 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 (½) of the 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. 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.
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. 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.
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” 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 are currently
selling 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. Through
October 2, 2021, we have made capital contributions of $2,982,000, including construction in progress of $2,224,000, in this limited partnership.
Miramar, Florida
During the fourth quarter of our
fiscal year 2019, we entered into a Lease Agreement (the “Miramar Lease Agreement”) with a non-affiliated third party to rent
approximately 6,000 square feet of commercial space in Miramar, Florida where, subject to certain conditions, we anticipate opening a
new restaurant location under our “Flanigan’s” service mark. Subsequent to the end of our fiscal year 2021, we assigned
the Miramar 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 are currently
selling limited partnership interests to third parties as well as affiliates of the Company in order to raise net proceeds, in the amount
of $4,000,000, 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. Through
October 2, 2021, we have made capital contributions of $313,000, including construction in progress of $260,000, in this limited partnership.
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.
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 restaurant. For our fiscal years ended October 2, 2021 and October 3, 2020, we generated $400,000 and $150,000 of revenue,
respectively from providing these management services.
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 six 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. 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. We purchase food and other commodities for use in our
operations based on market prices established with our suppliers. Many of the food products purchased by us can be subject to price volatility
due to market supply and demand factors outside of our control. We mitigate the risk of supply shortages and obtain competitive prices
by utilizing multiple qualified suppliers for substantially all our food products.
We negotiate short and long term
agreements for certain of our principal food product requirements , depending on market conditions and expected demand. We evaluate the
possibility of entering into arrangements to assist us in managing risk and variability associated with the supply and demand of food
products.
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. During the third quarter of our fiscal year 2021, we agreed to increase the fixed cost of the remaining baby back ribs for our calendar
year 2021 by approximately $408,000 to ensure adequate supply for our restaurants during calendar year 2022.
In order to ensure adequate supply
of baby back ribs for our restaurants for calendar year 2022, on October 4, 2021, we entered into a purchase agreement with our current
rib supplier, whereby we agreed to purchase approximately $10,414,000 of baby back ribs during calendar year 2022 from this vendor at
market cost. Our purchase agreement provides for the purchase of “2.25 & Down Baby Back Ribs” (industry jargon for the
weight range in which slabs of baby back ribs are sold), at a monthly cost of the average market price per pound of the prior 4 weeks.
While we anticipate purchasing
all of our rib supply from this vendor, we believe there are several other alternative vendors available, if needed.
Information
Technology
Our
restaurant and package liquor store point of sale and back-office systems provide information regarding daily sales, cash receipts, inventory,
food and beverage costs, labor costs and other controllable operating expenses. Our restaurants offer online ordering for to-go sales.
Restaurant
and package liquor store hardware and software support is provided by both our internal support services team as well as third-party vendors. Each
restaurant and package liquor store has a private high-speed wide area connection to send and receive critical business data as well as
to access web-based applications securely as well as a failover capability. All of our core and critical applications are backed
up to external data centers. To mitigate business interruptions, we utilize a data backup and replication infrastructure between
our onsite and external data centers, so all data is replicated nightly between the sites.
We
require cybersecurity awareness training for all staff members with access to our cyber systems. We also maintain cyber risk insurance
coverage to further reduce our risk profile. Security of our financial data and other sensitive information remains a high priority
for us, led by our information technology department. In an effort to further secure our customers’ credit card information, we
employ an encryption and tokenization platform for all credit card transactions in our restaurants, ensuring no credit card data is stored
in our internal systems.
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, food preparation and safety, sanitation, alcoholic beverage control, safety
and fire department agencies in the state or municipality where our units are located.
Alcoholic beverage control regulations
require each of our restaurants and package liquor stores to obtain a license to sell alcoholic beverages from a state authority and in
certain locations, county and municipal authorities.
In Florida, where all of our restaurants
and package liquor stores are located, most of our liquor licenses are issued on a "quota license" basis. Quota licenses are issued
on the basis of a population count established from time to time under the latest applicable census. Because the total number of liquor
licenses available under a quota license system is limited and restrictions are placed upon their transfer, the licenses have purchase
and resale value based upon supply and demand in the particular areas in which they are issued. The quota licenses held by us allow the
sale of liquor for on and off premises consumption. The other liquor licenses held by us or limited partnerships of which we are the general
partner, are restaurant liquor licenses, which do not have quota restrictions or 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.
All licenses must be renewed annually
and may be revoked or suspended for cause at any time. Suspension or revocation may result from violation by the licensee or its employees
of any federal, state or local law regulation pertaining to alcoholic beverage control. Alcoholic beverage control regulations relate
to numerous aspects of the daily operations of our units, including, minimum age of patrons and employees, hours of operations, advertising,
wholesale purchasing, inventory control, handling, storage and dispensing of alcoholic beverages, internal control and accounting.
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 2021 and
2020, 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. These statutes generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the intoxicated individual. We carry liquor liability coverage
as part of our existing comprehensive general liability insurance, which we believe is consistent with coverage carried by other entities
in the restaurant industry. Although we are covered by insurance, a judgment against us under a dram-shop statute in excess of our liability
coverage could have a material adverse effect on us.
Our operations are also subject
to federal and state laws governing such matters as wages, working conditions, citizenship requirements and overtime. Significant numbers
of hourly personnel at our restaurants are paid at rates related to the federal or Florida minimum wage, whichever is higher, and accordingly,
increases in the minimum wage will increase labor costs. We are also subject to the Americans with Disability Act of 1990 (ADA), which,
among other things, may require certain renovations to our restaurants to meet federally mandated requirements. The cost of any such renovations
is not expected to materially affect us.
A significant number of our hourly
restaurant staff members receive income from gratuities. Many of our locations participate voluntarily in a Tip Reporting Alternative
Commitment (“TRAC”) agreement with the Internal Revenue Service (“IRS”). By complying with the educational and
other requirements of the TRAC agreement, we reduce the likelihood of potential employer-only FICA
tax assessments for unreported or underreported tips.
We are also subject to laws relating
to information security, privacy, cashless payments and consumer credit protection and fraud.
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.
Human
Capital
We
depend on our staff members to successfully execute all aspects of our day-to-day operations. Our ability to attract highly-motivated
staff members and retain an engaged, experienced team is key to successful execution of our strategy. We are currently operating in a
competitive labor environment. If we are unable to retain qualified restaurant management and operating personnel in an increasingly competitive
market, we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect our financial
performance.
Development
and Training
We
invest resources to ensure our staff receive training in order to maximize their potential. In addition, we strive to provide our staff
with career advancement opportunities. Our training programs allow us to fill certain of our management positions with internal candidates.
Benefits
and Wellness
We
believe access to healthcare is a compelling benefit for many staff members and we offer healthcare benefits to our hourly staff members
who work a minimum of 30 hours per week, on average. We attempt to provide a robust suite of benefits and wellness offerings.
Employee
Engagement
Listening
to our staff members is an essential part of building an engaged workforce, and we provide avenues for staff to share their ideas and
concerns.
As
of our fiscal year end 2021, we employed 1,555 persons, of which 665 were full-time and 890 were part-time. Of these, 51 were employed
at our corporate offices in administrative capacities and 12 were employed in maintenance. Of the remaining employees, 58 were employed
in our package liquor stores and 1,434 in our restaurants. None of our employees are represented by collective bargaining organizations.
We consider our labor relations to be favorable.
Giving
Back
Another
key aspect of our culture is giving back to the communities where our staff live and work, and uniting our staff members around charitable
causes personal to them. We periodically donate philanthropic organizations through campaigns designed to engage our staff company-wide
service programs, as follows:
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Breast Cancer Awareness – We donate $10,000 to local Breast Cancer Support
organizations.
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Donated over $100,000 to HOPE mission over five years through our Flanigan’s
Rockin’ Rib Run. Money is used for disaster and hunger relief all over the world, youth outreach, and community building.
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Achievement Awards – We provide schools in Miami-Dade, Broward, and Palm
Beach County with free meal coins and achievement awards throughout the year. We give out approximately 30,000 awards every year.
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Fishing Tournaments/Marine Conservation – We donate to fishing tournaments
and beach cleanup projects.
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Supporting the local community – We donate funds to boy scouts, baseball
teams, schools, etc.
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Habitat for Humanity – We have sponsored multiple home building projects
through Habitat for Humanity.
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Sheridan House – We donated 500 backpacks to underprivileged children.
We also collect and donate school supplies annually.
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Hurricane Relief – We donated $10,000 to the Bahamas after Hurricane Dorian.
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Reclaimed Wood – All of our locations use reclaimed wood on interior walls.
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We also believe our
sustainability programs and initiatives like restaurant-based composting and recycling and replacing our off-premise packaging with materials
that reduce the use of plastics and improve recyclability serve to foster pride in our staff.
COVID
-19 Pandemic
Key
to our management of human capital during the COVID-19 pandemic were our decisions to 1) obtain adequate personal protective equipment
for our staff and require the use of face masks by our restaurant teams in addition to any jurisdictional requirements in an effort to
keep our teams and customers safe; 2) institute a special paid time off program with the goal of ensuring that hourly staff and managers
could afford to take adequate time off from work to care for their health and the health of their families; 3) implement work from home
support, increased sanitization of high touch, high traffic areas in our restaurants, package liquor stores and corporate offices; and
4) for certain periods during the pandemic, with their consent, reduce the salaries of all of our non-executive corporate office personnel
by 20%, the base salaries of our Chief Operating Officer and Chief Financial Officer by 50%, and the waiver by our Chief Executive Officer
of his base salary.
Executive Officers
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Name
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Positions and Offices Currently Held
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Age
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Office or Position
Held Since
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James G. Flanigan
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Chairman of the Board of Directors, Chief Executive Officer and President
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57
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(1)
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August Bucci
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Chief Operating Officer and Executive Vice President
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77
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2002
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Jeffrey D. Kastner
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Chief Financial Officer, General Counsel and Secretary
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68
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(2)
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Christopher O’Neil
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Vice President of Package Operations
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56
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2016
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(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 2, 2021 and October 3, 2020,
the Board of Directors approved discretionary matching contributions totaling $59,000 and $81,000, respectively.
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 suggested
and mandated social distancing and “shelter-in-place” orders and other governmental mandates relating thereto (collectively,
“COVID-19”) caused significant disruptions to our business, adversely affected and will, in all likelihood continue to adversely
affect, our restaurant operations and financial results for the foreseeable future. Throughout our fiscal year 2021, in accordance with
guidance from health officials, we offered both indoor and outdoor food and bar options at all of our restaurants, with, among other precautions
appropriate social distancing and mask requirements for all customers and employees.
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 eight of the LP’s; (iii) $2.6 million was loaned to five 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.
During our fiscal year 2021, we applied for and received forgiveness the entire amount of principal and accrued interest on all PPP Loans,
including Franchisees and the Managed Store.
During the second quarter of our
fiscal year 2021, certain of the LPs, as well as the Managed Store, applied for and received 2nd PPP loans, in the aggregate
principal amount of approximately $3.98 million (the “2nd PPP Loans”), of which approximately: (i) $3.46 million
was loaned to six of the LP’s; and (iv) $0.52 million was loaned to the Managed Store.
The 2nd PPP
Loans, which are in the form of notes issued by each of the Borrowers, mature five (5) years from the date of funding (March 23, 2021)
and bear interest at a rate of 1.00% per annum, payable monthly commencing after the U.S. Small Business Administration makes a determination
of the forgiveness of the 2nd PPP Loans. 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 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 2nd 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. Subsequent to the end of
our fiscal year 2021, we applied for and received forgiveness of the entire amount of principal and accrued interest on all 2nd
PPP Loans.
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.
As of October 2, 2021, we are
in compliance with the financial covenants contained in our loans with our unrelated third party institutional lender (the “Institutional
Lender”) under which we owe in the aggregate, approximately $17,096,000 (the “Institutional Loans”).
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.
General Liability Insurance
We have general liability insurance
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 maxi mum aggregate of $2,000,000 per year. During our fiscal year
2021, we were able to purchase 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 uninsured against liability claims in excess of
$11,000,000 per occurrence and in the aggregate. We are in discussions to secure general liability and excess liability insurance for
the period commencing after the expiration of the current policies on December 30, 2021.
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, certain expenses incurred in defending a claim, including attorney's fees, are a
part of our $10,000 deductible.
In accordance with accounting
guidance, we accrue for any 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 insurance costs may be subject to adjustment from previous estimates as facts and
circumstances change. Our 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, 2021, 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, 2021. 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. We are in discussions to secure property insurance for the period commencing after the expiration of the
current policy on December 30, 2021.
Competition and the Company's
Market
The liquor and hospitality industries
are highly competitive and are often affected by changes in taste and entertainment trends among the public, by local, national and economic
conditions affecting spending habits, and by population and traffic patterns. We believe that the principal means of competition among
package liquor stores is price and that, in general, the principal means of competition among restaurants include the location, type and
quality of facilities and the type, quality and price of beverage and food served.
Our package liquor stores compete
directly or indirectly with local retailers and discount "superstores". Due to the competitive nature of the liquor industry in
South Florida, we have had to adjust our pricing to stay competitive, including meeting all 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" and “Big Daddy’s Wine & Liquors” names.
Our restaurants compete directly
or indirectly with many well-established competitors, both nationally and locally owned. We believe that we have a competitive position
in our market because of widespread consumer recognition of the "Flanigan’s Seafood Bar and Grill" and “Flanigan’s”
names.
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 the service marks; "Big Daddy's Liquors", “Big Daddy’s Wine & Liquors”, "Flanigan's
Seafood Bar and Grill", and “Flanigan’s”. Our right to the use of the "Big Daddy's" service mark is set
forth under a consent decree of a federal court entered into by us in settlement of federal trademark litigation. The consent decree and
the settlement agreement allow us to continue to use and to expand our use of the "Big Daddy'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 court retained
jurisdiction to enforce the consent decree. We have acquired registered Federal trademarks on the principal register for our “Big
Daddy’s Liquors”, "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 Company’s founder, Joseph "Big Daddy" Flanigan, and is a federally registered trademark owned by us.
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.
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.
Risks Related
to COVID-19 Pandemic
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.
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 suggested
and mandated social distancing and “shelter-in-place” orders and other governmental mandates relating thereto (collectively,
“COVID-19”) caused significant disruptions to our business, adversely affected and will, in all likelihood continue to adversely
affect, our restaurant operations and financial results for the foreseeable future, particularly if further government directives are
put in place for a significant amount of time. Throughout our fiscal year 2021, in accordance with guidance from health officials, we
offered both indoor and outdoor food and bar options at all of our restaurants, with, among other precautions, appropriate social distancing
and mask requirements for all customers and employees.
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.
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. During
our fiscal year 2021, our Board of Directors did not declare a cash dividend due to uncertainty surrounding the duration of restrictions
mandated by state and local governments in response to COVID-19.
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.
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.
Risks Related
to Our Business
If we are unable to
staff and retain qualified restaurant and package liquor store management and operating personnel in an increasingly competitive market,
we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect our financial performance.
Similar
to the broader economy, we are experiencing labor shortfalls relative to our sales levels in certain parts of our workforce. If we are
unable to attract and retain qualified people, our restaurants could be short staffed, we may be forced to incur overtime expenses, and
our ability to operate and expand our concepts effectively and to meet our customers’ demand could be limited, any of which could
materially adversely affect our financial performance.
We have experienced
and continue to experience significant labor cost inflation. If we are unable to offset higher labor costs, our cost of doing business
will significantly increase, which could materially adversely impact our financial performance.
Increases
in minimum wages and minimum tip credit wages, extensions of personal and other leave policies, other governmental regulations affecting
labor costs and a diminishing pool of potential staff members when the unemployment rate falls and legal immigration is restricted, especially
in certain localities, could significantly increase our labor costs and make it more difficult to fully staff our restaurants, any of
which could materially adversely affect our financial performance.
We
believe the United States federal government may significantly increase the federal minimum wage and tip credit wage (or eliminate the
tip credit wage) and require significantly more mandated benefits than what is currently required under federal law. In addition to increasing
the overall wages paid to our minimum wage and tip credit wage earners, these increases create pressure to increase wages and other benefits
paid to other staff members who, in recognition of their tenure, performance, job responsibilities and other similar considerations, historically
received a rate of pay exceeding the applicable minimum wage or minimum tip credit wage. Because we employ a large workforce, any wage
increase and/or expansion of benefits mandates will have a particularly significant impact on our labor costs. Our vendors, contractors
and business partners are similarly impacted by wage and benefit cost inflation, and many have or will increase their price for goods,
construction and services in order to offset their increasing labor costs.
Our
labor expenses include significant costs related to our health benefit plans. Health care costs continue to rise and are especially difficult
to project. Material increases in costs associated with medical claims, or an increase in the severity or frequency of such claims, may
cause health care costs to vary substantially from year-over-year. Given the unpredictable nature of actual health care claims trends,
including the severity or frequency of claims, in any given year our health care costs could significantly exceed our estimates,
which could materially adversely affect our financial performance.
Any
significant changes to the healthcare insurance system could impact our healthcare costs. Material increases in healthcare costs could
materially adversely affect our financial performance.
While
we try to offset labor cost increases through price increases, more efficient purchasing practices, productivity improvements and greater
economies of scale, there can be no assurance that these efforts will be successful. If we are unable to effectively anticipate and respond
to increased labor costs, our financial performance could be materially adversely affected.
Our Sales and Profit Growth Could Be
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 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 2022 due to, among other things, ongoing consumer and economic uncertainty.
Our ability to increase comparable
restaurant sales depends on many factors, including:
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perceptions of the Flanigan’s brand;
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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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executing our strategies effectively, including our marketing and branding strategies;
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changes in consumer preferences and discretionary spending;
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our ability to increase menu prices without adversely affecting our existing business;
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weather, natural disasters and other factors limiting access to our restaurants; and
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changes in government regulation that may impact customer perceptions of our food.
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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.
COVID-19 has had a significant
impact on domestic economies and will likely continue to negatively impact these economies for some time. Dining out is a discretionary
expense. In addition to COVID-19, 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.
Any inability to compete successfully
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 because of new information or attitudes regarding diet and health. These changes may include regulations that
impact the ingredients and nutritional content of our menu items at our restaurants. For example, a number of states, counties and cities
are enacting menu-labeling laws requiring multi-unit restaurant operators to make certain nutritional information available to guests
or restrict the sales of certain types of ingredients in restaurants. The success of our restaurant operations is dependent, in part,
upon our ability to respond effectively to changes in consumer health and disclosure regulations and to adapt our menu offerings to trends
in eating habits. If consumer health regulations or consumer eating habits change significantly, we may be required to modify or delete
certain menu items. To the extent we are unable to respond with appropriate changes to our menu offerings, it could materially affect
customer demand and have an adverse impact on our revenues.
Adverse Public Or Medical Opinions About Health
Effects Of Consuming Our Products As Well As Negative Publicity About Us, Our Restaurants And/or Package Liquor Stores And About Others
Across The Food And Liquor Industry Supply Chain, Whether Or Not Accurate, Could Negatively Affect Us.
Restaurant operators have received
more scrutiny from regulators and health organizations in recent years relating to the health effects of consuming certain products. An
unfavorable report on the products we use in our menu, the size of our portions or the consumption of those items could influence the
demand for our offerings. In addition, adverse publicity or news reports, whether or not accurate, of food quality issues, illness, injury,
health concerns, or operating issues stemming from a single restaurant, a limited number of restaurants, restaurants operated by others
or generally in the food supply chain could be damaging to the restaurant industry overall and specifically harm our reputation. A decrease
in guest traffic because of these types of health concerns or negative publicity could materially harm our results of operations.
Our Inability To Successfully And Sufficiently
Raise Menu Prices Could Result In A Decline In Profitability.
We utilize menu price increases
to help offset cost increases, including increased cost for commodities, minimum wages, employee benefits, insurance arrangements, construction,
utilities and other key operating costs. If our selection and amount of menu price increases are not accepted by consumers and reduce
guest traffic, or are insufficient to counter increased costs, our financial results could be negatively affected. However, we have not
experienced any adverse effects 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 Manner.
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 year 2021, we continued developing
our new restaurants in Sunrise, Florida (Store #85) and Miramar, Florida (Store #25). During our fiscal year 2021, we also continued developing
our new package liquor store in Miramar, Florida (Store #24).
Our ability to open and profitably
operate restaurants and/or package liquor stores is subject to various risks such as identification and availability of suitable and economically
viable locations, the negotiation of acceptable leases or the purchase terms of existing locations, the availability of limited partner
investors or other means to raise capital, the need to obtain all required governmental permits (including zoning approvals) on a timely
basis, the need to comply with other regulatory requirements, the availability of necessary contractors and subcontractors, the availability
of construction materials and labor, the ability to meet construction schedules and budgets, variations in labor and building material
costs, changes in weather or other acts of God that could result in construction delays and adversely affect the results of one or more
restaurants and/or package liquor stores for an indeterminate amount of time. If we are unable to 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 Performance.
Changing customer preferences,
tastes and dietary habits can adversely impact our business and financial performance. We offer a large variety of entrees, side dishes
and desserts and 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 Business.
Our employees are essential to
our operations and our ability to deliver an enjoyable dining experience to our customers. If we are unable to attract and retain enough
qualified restaurant and/or package liquor store personnel at a reasonable cost, and if they do not deliver an enjoyable dining experience,
our results may be negatively affected. Additionally, competition for qualified employees could require us to pay higher wages, which
could result in higher labor costs.
Increases In Employee Minimum Wages By The Federal
Or State Government Could Adversely Affect Business.
Certain of our Company employees
are paid wages that relate to federal and state minimum wage rates. Increases in the minimum wage rates, such as fixed annual increases
in the State of Florida minimum wage, may significantly increase our labor costs. In addition, since our business is labor-intensive,
shortages in the labor pool or other inflationary pressure could increase labor costs, which could harm our financial performance.
Due To Our Geographic Locations, Restaurants
Are Subject To Climate Conditions That Could Affect Operations.
All but one (1) of our restaurants
and package liquor stores are located in South Florida, with the remaining restaurant located in Central Florida. During hurricane season,
(June 1 through November 30 each year), our restaurants and/or package liquor stores may face harsh weather associated with hurricanes
and tropical storms. These harsh weather conditions may make it more difficult for customers to visit our restaurants and package liquor
stores or may necessitate the closure of the stores and restaurants for a period of time. If customers are unable to visit our restaurants
and/or package liquor stores, our sales and operating results may be negatively affected.
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 Rate.
Due to the anticipated active
hurricane seasons in South Florida in the future, we may not be able to acquire windstorm insurance coverage for our restaurant and package
liquor store locations on a year-to-year basis or may not be able to get adequate windstorm insurance coverage at reasonable rates. If
we are unable to obtain windstorm insurance coverage or adequate windstorm insurance coverage at reasonable rates, then we will be self-insured
for all or a part of the exposure for damages caused by a hurricane impacting South Florida, which may have a material adverse effect
upon our financial condition and/or results of operations.
Inability To Attract And Retain Customers Could
Affect Results Of Operations.
We take pride in our ability to
attract and retain customers, however, if we do not deliver an enjoyable dining experience for our customers, they may not return and
results may be negatively affected.
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 the following:
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the preparation and sale of food and alcoholic beverages;
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building construction and access;
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zoning requirements; and
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Our
facilities are licensed and subject to regulation under state and local fire, health and safety codes. The construction and remodeling
of restaurants will be subject to compliance with applicable zoning, land use and environmental regulations. We may not be able to obtain
necessary licenses or other approvals on a cost-effective and timely basis in order to construct and develop restaurants in the future.
Various federal and state labor
laws govern our operations and our relationship with our employees, minimum wage, overtime, working conditions, fringe benefit and work
authorization requirements. In particular, we are subject to federal immigration regulations. Given the location of many of our restaurants,
even if we operate those restaurants in strict compliance with federal immigration requirements, our employees may not all meet federal
work authorization or residency requirements, which could lead to disruptions in our work force.
Our business can be adversely
affected by negative publicity resulting from, among other things, complaints or litigation alleging poor food quality, food-borne illness
or other health concerns or operating issues stemming from one or a limited number of restaurants. Unfavorable publicity could negatively
impact public perception of our brands.
We are required to comply
with the alcohol licensing requirements of the federal government, states and municipalities where our restaurants are located. Alcoholic
beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for
a license and permit to sell alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause
at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum
age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling and storage and dispensing
of alcoholic beverages. If we fail to comply with federal, state or local regulations, our licenses may be revoked and we may be forced
to terminate the sale of alcoholic beverages at one or more of our restaurants.
The Federal Americans with
Disabilities Act (the “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.
We May Face Liability Under Dram Shop
Statutes.
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.
There are currently no “dram shop” claims pending against us. See “Item 1. Business—Government Regulation”
for a discussion of the regulations with which we must comply.
Concerns relating
to pandemics and other diseases, food safety and food-borne illness could reduce customer traffic to our restaurants, disrupt our food
supply chain or cause us to be the target of litigation, which could materially adversely affect our financial performance.
The
COVID-19 pandemic has had a significant adverse impact on our customer traffic and ability to operate our restaurants and may continue
to do so for the foreseeable future. Future pandemics and other diseases may have a similar or more severe impact.
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.
The Effect of Recent Changes to 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 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. 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 Regulation in One or More
of the Following Areas May Adversely Affect Our Existing and Future Operations and Results, Including by Harming Our Ability to Open New
Restaurants or 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 considers 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 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 affects 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.
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 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 customers’ buying habits in a way that adversely impacts our sales.
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, and 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 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.
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, Jeffrey Kastner and Christopher O’Neil, our Chief Operating Officer, Chief Financial Officer and Vice President of
Package Operations, respectively, have also served with us since 2002 in the case of Mr. Bucci, since 2004 in the case of Mr. Kastner
and 2016 in the case of Mr. O’Neil, 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.
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
Our
institutional lender will no longer originate, renew or modify loans at LIBOR effective January 1, 2022.
Beginning
January 1, 2022, our institutional lender will no longer originate, renew or modify loans at LIBOR, except in limited situations. The
limited exceptions include our LIBOR transactions which reduce or hedge our LIBOR exposure on contracts entered into before January 1,
2022.
|
|
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.
Our operations are conducted primarily
on leased property with the exception 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;
|
|
|
(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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(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;
|
|
|
(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
|
|
|
(x)
|
a 6,900 square foot stand-alone building in Sunrise, Florida, which will house our Sunrise, Florida based
restaurant currently being developed, which will be owned by an affiliated limited partnership (Store #85).
|
All of our units require periodic
refurbishing in order to remain competitive. We have budgeted $1,000,000 for our refurbishing program for fiscal year 2022. See Item 7,
"Liquidity and Capital Resources" for discussion of the amounts spent in fiscal year 2021.
The following table summarizes information related
to the properties upon which our operations are conducted:
|
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
|
|
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
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 8/31/26 Options to 8/31/36
|
|
Name and Location
|
Approx.
Square
Footage
|
Seats
|
Franchised/
Owned by
|
Lease Terms
|
|
Flanigan’s Seafood Bar and
Grill #18
Twenty Seven Birds Corp. (1) (2)
2721 Bird Avenue
Miami, Florida
|
4,500
|
200
|
Franchise
|
2/15/72 to
12/31/25
Options to
12/31/35
|
|
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
12/31/25
Options to
12/31/35
|
|
Flanigan’s Wine & Liquors #19 (8)
Flanigan’s Enterprises, Inc.
7990 Davie Road Extension
Hollywood, Florida
|
3,000
|
N/A
|
Company
|
Company-Owned
|
|
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
|
|
Flanigan's Seafood Bar and Grill #22
Flanigan's Enterprises, Inc.
2600 W. Davie Blvd.
Ft. Lauderdale, Florida
|
4,100
|
200
|
Company
|
Company-Owned
|
|
Big Daddy’s Wine & Liquors #24
Flanigan’s Enterprises, Inc. (11)
11225 Miramar Parkway, #245
Miramar, Florida
|
2,000
|
N/A
|
Company
|
3/5/22 to 3/5/32
Options to 3/5/47
|
|
Name and Location
|
Approx.
Square
Footage
|
Seats
|
Franchised/
Owned by
|
Lease Terms
|
|
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.
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
|
6/01/91 to 1/31/31
Option to 1/31/36
|
|
Flanigan’s #25
CIC Investors #25, Ltd. (10)
11225 Miramar Parkway, #250
Miramar, Florida
|
6,000
|
200
|
Limited
Partnership
|
3/5/22 to 3/5/32
Options to 3/5/47
|
|
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
10/23/26 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 12/31/26
Option 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 12/31/26
|
|
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
|
Company-Owned
|
|
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 2/14/24
Options to 2/14/39
|
|
Flanigan's Seafood Bar and Grill #85
CIC Investors #85 Ltd. (9)
14301 W. Sunrise Blvd.
Sunrise, Florida
|
6,900
|
200
|
Limited
Partnership
|
Company-Owned
|
|
Flanigan's Seafood Bar and Grill #90
CIC Investors #90 Ltd.
9857 S.W. 40th Street
Miami, Florida
|
6,400
|
200
|
Limited
Partnership
|
4/1/11 to 3/31/31
Option to 3/31/36
|
|
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 Options to 9/30/32
|
|
Flanigan’s Calusa Center, LLC (6)
12750 – 12790 S.W. 88th Street
Miami, Florida
|
23,700
|
N/A
|
Company
|
Company-owned
shopping center
|
---------------------------------------------
|
|
(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. We have re-purchased from the unaffiliated third parties and currently own 52% of the underlying ground lease, as well
as the sublease agreement. As a result, we pay all rent due under the ground lease, but only 48% of the rent due under the sublease agreement.
|
|
|
(4)
|
Effective December 1, 1998, we purchased the Management Agreement to operate the franchised restaurant for
the franchisee.
|
|
|
(5)
|
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.
|
|
|
(6)
|
During the first quarter of our fiscal year 2012, our wholly owned subsidiary, Flanigan’s Calusa Center,
LLC, closed on the purchase of a two building shopping center in Miami, Florida, which consists of (i) one stand-alone building which
is leased to ten unaffiliated third parties and houses our recently opened (October 2019) package liquor store (approximately 3,250 square
feet) and (ii) a second stand-alone building where our limited partnership owned restaurant located at 12790 SW 88th Street,
Miami, Florida, (Store #70), operates.
|
|
|
(7)
|
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).
|
|
|
(8)
|
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. While it was initially contemplated
that Store #19 would be renovated, because of the damage caused by the fire, we determined that Store #19 should be demolished and rebuilt.
As a result, the package liquor store and restaurant has been closed since our first quarter year 2019. Our loss was covered by insurance,
including but not limited to business interruption coverage.
|
|
|
(9)
|
During the second quarter of our fiscal year 2019, we entered into a lease for this location, which lease
was subsequently assigned to a limited partnership. We plan to raise funds to renovate this new location for operation as a “Flanigan’s
Seafood Bar and Grill” restaurant using our limited partnership ownership model. The option to purchase was retained by the Company
when the lease was assigned to the limited partnership and the option to purchase was exercised by the Company during the second quarter
of our fiscal year 2021.
|
|
|
(10)
|
During the fourth quarter of our fiscal year 2019, we entered into a lease for this location, which lease
was subsequently assigned to a limited partnership. We plan to raise funds to renovate this new location for operation as a “Flanigan’s”
restaurant using our limited partnership ownership model.
|
|
|
(11)
|
During the fourth quarter of our fiscal year 2019, we entered into a lease for this location. We are developing
this new location for operation as a “Big Daddy’s Wine & Liquors” retail package liquor store.
|
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 2021, 2020 and 2019.
Purchase
of Real Property
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 rented 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 through 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 the acquisition of the property 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 granted us an option to purchase, (the “Option
to Purchase”) the real property and improvements by March 2, 2021 for $4,800,000. 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. During the first quarter
of our fiscal year 2021, we exercised the Option to Purchase and during the second quarter of our fiscal year 2021 we closed on the acquisition
of the real property located at 14301 W. Sunrise Boulevard, Sunrise, Florida. We financed this acquisition with a loan from an unrelated
third party lender in the principal amount of $2.2 million and paid cash for the balance. The mortgage loan accrues interest at the fixed
annual rate of 3.65%, is amortized over fifteen (15) years, and requires us to pay monthly payments of principal and interest in the amount
of $15,900 with the entire principal balance and all accrued but unpaid interest due in March, 2036.
Purchase
of 4 COP Liquor License
During the third quarter of our
fiscal 2021, we purchased a 4 COP quota liquor license, which permits the sale of beer, wine and liquor for on and/or off premise consumption,
for Broward County, Florida from an unrelated third party for $192,200. The liquor license is currently inactive, but we intend to use
it in connection with the operation of a package liquor store we are developing in Miramar, Florida.
Execution of Leases for New
Locations
Miramar, Florida (“Flanigan’s”)
During the fourth quarter of
our fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party, (the “Landlord”), to rent approximately
6,000 square feet of commercial space for a restaurant location in a shopping center at 11225 Miramar Parkway, #250, Miramar, Florida
33024 (Store #25), which shopping center was under construction and where we anticipate opening a new restaurant location. We assigned
this 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 are currently
selling limited partnership interests to third parties, as well as affiliates of the Company, in order to raise net proceeds in an amount
of $4,000,000, which proceeds will be used to build out this potential restaurant location. 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). Any excess amounts advanced by us will
be reimbursed to us by the limited partnership without interest. Subsequent to the end of the third quarter of our fiscal year 2021, we
received notification from the Landlord that it had completed substantially all of the Landlord’s work under the Lease Agreement
and was delivering possession of the leased premises to us.
Miramar, Florida (“Big Daddy’s Wine
& Liquors”)
During the fourth quarter of our
fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party, (the “Landlord”), to rent approximately
2,000 square feet of commercial space for a restaurant location in a shopping center at 11225 Miramar Parkway, #245, Miramar, Florida
33024 (Store #24), which shopping center was under construction and where we anticipate opening a new retail package liquor store. The
new package liquor store location will be Company-owned. Subsequent to the end of the third quarter of our fiscal year 2021, we received
notification from the Landlord that it had completed substantially all of the Landlord’s work under the Lease Agreement and was
delivering possession of the leased premises to us.
Extension
of Leases for Existing Locations
Pinecrest, Florida
During the second quarter of our
fiscal year 2021, the lease with an unrelated third party for the space located at 11415 S. Dixie Highway, Pinecrest, Florida (Store #13)
where a limited partnership owned restaurant operates, was extended through January 31, 2031 with one (1) five (5) year renewal option.
The fixed annual rental was reduced by 7½% and the fixed annual rental increases were reduced to 2% from 3% for the first seven (7)
years. Otherwise the extended lease is on substantially the same terms and conditions, including fixed annual rental increases and continued
percentage rent as existed before the extension.
Surfside, Florida
During the second quarter of our
fiscal year 2021, the lease with an unrelated third party for the space located at 9516 Harding Avenue, Surfside, Florida (Store #60)
where a limited partnership owned restaurant operates was extended through December 31, 2026. The fixed annual rental increases were increased
from $0.75 per square foot annually to $1.00 per square foot effective January 1, 2022. Otherwise, the extended lease is on substantially
the same terms and conditions as existed before the extension.
Expansion
of Leased Premises; Extension of Lease
Miami, Florida
During the third quarter of our
fiscal year 2021, the lease with an unrelated third party for the space located at 9857 SW 40th Street, Miami, Florida (Store
#90), where a limited partnership owned restaurant, was amended to add approximately 2,100 square feet to the leased premises and extend
the term of the lease through March 31, 2031, with one (1) five (5) year renewal option. The fixed annual rental for the expanded leased
premises was increased by $5,000 monthly, with fixed annual rental increases. Otherwise, the extended lease is on substantially the same
terms and conditions as existed before the expansion and extension.
Re-Financing of Existing Mortgage
Mortgage on Real Property – North
Miami, Florida
During the third quarter of our
fiscal year 2021, we re-financed with an unrelated third party lender, our mortgage loan encumbering the real property and improvements
located at 13105 – 13205 Biscayne Boulevard, North Miami, Florida where our Flanigan’s Seafood Bar and Grill restaurant and
Big Daddy’s Liquors retail package liquor store operate (Store #20), increasing the principal amount borrowed from $1.5 million
to $4.3 million. We received the net cash proceeds from the refinancing transaction ($2.8 million) shortly after the end of the third
quarter of our fiscal year 2021. The re-financed mortgage loan earns interest at the fixed annual rate of 3.63%, is amortized over fifteen
(15) years, requires us to pay monthly payments of principal and interest in the amount of $31,129 with the entire principal balance and
all accrued interest due in July 2036. We intend to use the excess funds we received from the re-financing of this mortgage loan for working
capital purposes.
SUBSEQUENT EVENTS
Menu Price Increases
Subsequent to the end of our fiscal
year 2021, we increased menu prices for our food offerings to target an increase to our food revenues of approximately 8.55% annually
and menu prices for our bar offerings to target an increase to our bar revenues of approximately 7.68% annually to offset higher food
and bar costs and higher overall expenses.
Forgiveness
of 2nd PPP Loans
Subsequent to the end of
our fiscal year 2021, application was made and we received forgiveness of the entire amount of principal and accrued interest on the 2nd
PPP Loans, including the Managed Store.
General Liability Insurance;
Excess Insurance
For the policy year beginning
December 30, 2021, 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 uninsured against liability claims in excess of $11,000,000 per occurrence and in the aggregate. Certain expenses incurred in defending
a claim, including attorney's fees, are a part of our $10,000 deductible.
Property Insurance; Windstorm
Insurance; Deductibles
For the policy year beginning
December 30, 2021, 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, 2021, we financed the premiums on the following property, general liability, excess liability and terrorist policies, totaling
approximately $2.54 million, which property, general liability, excess liability and terrorist insurance includes coverage for our franchises
which are not included in our consolidated financial statements:
(i) For the
policy year beginning December 30, 2021, 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 $467,000;
(ii) For
the policy year beginning December 30, 2021, 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 $589,000;
(iii) For
the policy year beginning December 30, 2021, our automobile insurance is a one (1) year policy. The one (1) year automobile insurance
premium is in the amount of $194,000;
(iv) For
the policy year beginning December 30, 2021, our property insurance is a one (1) year policy. The one (1) year property insurance premium
is in the amount of $700,000;
(v) For the
policy year beginning December 30, 2021, our excess liability insurance are two (2) one (1) year policies. The aggregate (1) year excess
liability insurance premiums are in the amount of $576,000;
(vi) For
the policy year beginning December 30, 2021, our terrorist insurance is a one (1) year policy. The one (1) year terrorist insurance premium
is in the amount of $8,900; and
(vii) For the policy year beginning December 30, 2021,
our equipment breakdown insurance is a one (1) year policy. The one (1) year equipment breakdown insurance premium is in the amount of
$6,800.
Of the $2,542,000 annual
premium amounts, which includes coverage for our franchises which are not included in our consolidated financial statements, we financed
$2,328,000 through an unaffiliated third party lender. The finance agreement obligates us to repay the amounts financed together with
interest at the rate of 2.55% per annum, over 11 months, with monthly payments of principal and interest, each in the amount of $215,000.
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.
|
Not applicable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 2, 2021 AND OCTOBER 3, 2020
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. As of October 2, 2021, we (i) operated 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) 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 marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s” and all of the package liquor stores operate under our service marks “Big Daddy’s Liquors” or “Big Daddy’s Wine & 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 year 2021 is comprised of a 52-week period and our fiscal year 2020 is comprised of a 53-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
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, 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 13).
Property and Equipment
Our property and equipment are stated at cost less accumulated depreciation and amortization. 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 15 years. Our buildings of our corporate offices in Fort Lauderdale, Florida; our construction office/warehouse in Fort Lauderdale, Florida; our combination restaurant and package liquor stores in Hallandale, Florida and North Lauderdale, Florida; our restaurants in N. Miami and Fort Lauderdale, Florida; our property in Sunrise, Florida which we lease to a limited partnership (Store #85), our property in Fort Lauderdale, Florida which we lease to a franchisee (Store #15), our package store in N. Miami, Florida, and our shopping center in Miami, Florida, all of which we own, are being depreciated over forty years. Building improvements are being depreciated over 20 years.
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 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 2021 and 2020, we purchased substantially all of our food products from one major supplier. This major supplier represents 41% and 48% of our cost of goods sold and 24% and 27% of our accounts payable and accrued expenses as of October 2, 2021 and October 3, 2020, respectively. We believe that several other alternative vendors are available, if necessary.
Throughout our fiscal years 2021 and 2020, we purchased the majority of our alcoholic beverages from three local distributors. One of these three local distributors represents 26% and 27% of our cost of goods sold and 2% and 5% of our accounts payable and accrued expenses as of October 2, 2021 and October 3, 2020, respectively. 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.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenue-related to food, bar and package sales are recorded at the point of sale. Royalty-related revenues, which are 1% of package sales and 3% of restaurant sales, are recorded as income on a weekly basis, in arrears. We report our sales net of sales tax.
Our Big Daddy’s Good Customer Loyalty Program awards customers with a $20 Good Customer Gift Card, (“Gift Card”) to be used at our Flanigan’s Seafood Bar and Grill restaurants for every ten (10) purchases of at least $25 made by such customer at our Big Daddy’s Liquors package liquor stores. Pursuant to ASC 606, we recognize deferred revenue in the amount of the Gift Card upon the issuance of the Gift Card and reduce package liquor store revenue by a like amount. We recognize revenue when the Gift Card is redeemed in our restaurants or when it expires unused.
Pre-opening Costs
As new restaurants open, our income from operations will be adversely affected due to our obligation to fund pre-opening costs. 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.
Advertising Costs
Our advertising costs are expensed as incurred. Advertising costs incurred during our fiscal years ended October 2, 2021 and October 3, 2020 were approximately $218,000 and $330,000, respectively.
General Liability Insurance
We have general liability insurance 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. During our fiscal year ended October 2, 2021, we were able to purchase excess liability insurance, whereby our excess insurance carrier is responsible for $10,000,000 coverage above our primary general liability insurance coverage. We are un-insured against liability claims in excess of $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 attorney's fees, are a part of our $10,000 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 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.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 17).
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 two derivatives which we have designated as effective hedges (See Note 17).
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 regarding Accounting 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. For our fiscal years ending October 2, 2021 and October 3, 2020, 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 October 2, 2021. 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.
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
Effective September 29, 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 using the modified retrospective approach. Upon adoption, we recorded a right-of-use asset of $27.8 million and a lease liability of $27.8 million.
We elected the transition package of practical expedients, under which we are not required 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 twelve (12) months or less from the balance sheet. This standard had a material impact on the Consolidated Balance Sheets due to the recording of a right-of-use asset and lease liability and on the Consolidated Statements of Income due to the escalations of rent in the extensions but did not have a material impact on the Consolidated Statement of Cash Flows.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued
The FASB issued guidance, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This accounting standards update provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. LIBOR rates will be published until June 30, 2023 and all principal and interest of the $1.405M Loan will be due in full on January 23, 2023 and all principal and interest of the Term Loan will be fully amortized and paid in full as of December 28, 2022 so the discontinuance of LIBOR rates will have no impact on us.
NOTE 2. PROPERTY AND EQUIPMENT
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
12,970,000
|
|
|
$
|
12,381,000
|
|
|
Leasehold improvements
|
|
|
26,456,000
|
|
|
|
25,355,000
|
|
|
Land and land improvements
|
|
|
25,922,000
|
|
|
|
21,289,000
|
|
|
Building and improvements
|
|
|
20,418,000
|
|
|
|
19,455,000
|
|
|
Vehicles
|
|
|
1,856,000
|
|
|
|
1,635,000
|
|
|
|
|
|
87,622,000
|
|
|
|
80,115,000
|
|
|
Less accumulated depreciation and amortization
|
|
|
(36,181,000
|
)
|
|
|
(34,112,000
|
)
|
|
|
|
|
51,441,000
|
|
|
|
46,003,000
|
|
|
Construction in progress
|
|
|
5,445,000
|
|
|
|
981,000
|
|
|
|
|
$
|
56,886,000
|
|
|
$
|
46,984,000
|
|
Depreciation and amortization expense for the fiscal years ended October 2, 2021 and October 3, 2020 was approximately $2,981,000 and $3,144,000, respectively.
NOTE 3. LEASEHOLD INTERESTS
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Leasehold interests, at cost
|
|
$
|
3,024,000
|
|
|
$
|
3,024,000
|
|
|
Less accumulated amortization
|
|
|
2,906,000
|
|
|
|
2,824,000
|
|
|
|
|
$
|
118,000
|
|
|
$
|
200,000
|
|
Future leasehold amortization as of October 2, 2021 is as follows:
|
2022
|
|
$
|
33,000
|
|
|
2023
|
|
|
22,000
|
|
|
2024
|
|
|
22,000
|
|
|
2025
|
|
|
22,000
|
|
|
2026
|
|
|
18,000
|
|
|
Thereafter
|
|
|
1,000
|
|
|
Total
|
|
$
|
118,000
|
|
Leasehold amortization expense for the fiscal years ended October 2, 2021 and October 3, 2020 was approximately $82,000 and $96,000, respectively.
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 marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s”. 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 the restaurants except for the restaurant located in Fort Lauderdale, Florida where we only hold a limited partnership interest.
NOTE 4. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
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 (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-half (½) of available cash distributed to the investors (including us), as a profit distribution, pro-rata based on the investors’ investment.
As of October 2, 2021, all eight (8) limited partnerships where we are the general partner and 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 these limited 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” or “Flanigan’s” service marks, 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 marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s” using the same or substantially similar financial arrangements.
Below is information on the nine limited partnerships which own and operate “Flanigan’s Seafood Bar and Grill” or “Flanigan’s” 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 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.
NOTE 4. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
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 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 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.
NOTE 4. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
Pembroke Pines, Florida
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.
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. 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.
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. 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. 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” 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 are currently selling 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. Through October 2, 2021, we have made capital contributions of $2,982,000, including construction in progress of $2,224,000, in this limited partnership.
NOTE 4. INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
Miramar, Florida
During the fourth quarter of our fiscal year 2019, we entered into a Lease Agreement (the “Miramar Lease Agreement”) with a non-affiliated third party to rent approximately 6,000 square feet of commercial space in Miramar, Florida where, subject to certain conditions, we anticipate opening a new restaurant location under our “Flanigan’s” service mark. Subsequent to the end of our fiscal year 2021, we assigned the Miramar 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 are currently selling limited partnership interests to third parties as well as affiliates of the Company in order to raise net proceeds, in the amount of $4,000,000, 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. Through October 2, 2021, we have made capital contributions of $313,000, including construction on progress of $260,000, in this limited partnership.
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 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 unaudited financial information pertaining to our limited partnership investment in Fort Lauderdale, Florida:
|
|
|
October 2, 2021
|
|
|
October 3, 2020
|
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
624,000
|
|
|
$
|
591,000
|
|
|
Non-Current Assets
|
|
|
701,000
|
|
|
|
655,000
|
|
|
Total Assets
|
|
|
1,325,000
|
|
|
|
1,246,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
259,000
|
|
|
|
562,000
|
|
|
Non-Current Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
Total Liabilities
|
|
|
259,000
|
|
|
|
562,000
|
|
|
Equity
|
|
|
1,066,000
|
|
|
|
684,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,325,000
|
|
|
|
1,246,000
|
|
|
Operating Results:
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
4,172,000
|
|
|
|
3,430,000
|
|
|
Gross profit
|
|
|
2,735,000
|
|
|
|
2,279,000
|
|
|
Net income
|
|
|
495,000
|
|
|
|
24,000
|
|
NOTE 5. PURCHASE OF REAL PROPERTY:
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 rented 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 through 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 the acquisition of the property 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 granted us an option to purchase, (the “Option to Purchase”) the real property and improvements by March 2, 2021 for $4,800,000. 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. During the first quarter of our fiscal year 2021, we exercised the Option to Purchase and during the second quarter of our fiscal year 2021 we closed on the acquisition of the real property located at 14301 W. Sunrise Boulevard, Sunrise, Florida. We financed this acquisition with a loan from an unrelated third party lender in the principal amount of $2.2 million and paid cash for the balance. The mortgage loan accrues interest at the fixed annual rate of 3.65%, is amortized over fifteen (15) years, and requires us to pay monthly payments of principal and interest in the amount of $15,900 with the entire principal balance and all accrued but unpaid interest due in March, 2036.
NOTE 6. PURCHASE OF 4 COP LIQUOR LICENSE
During the third quarter of our fiscal year 2021, we purchased a 4 COP quota liquor license, which permits the sale of beer, wine and liquor for on and/or off premises consumption, for Broward County, Florida from an unrelated third party for $192,000. The liquor license is currently inactive, but we intend to use it in connection with the operation of a package liquor store we are developing in Miramar, Florida.
NOTE 7. EXECUTION OF LEASES FOR NEW LOCATIONS:
Miramar, Florida (“Flanigan’s Seafood Bar and Grill”)
During the fourth quarter of our fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party, (the “Landlord”), to rent approximately 6,000 square feet of commercial space for a restaurant location in a shopping center at 11225 Miramar Parkway, #250, Miramar, Florida 33024 (Store #25), which shopping center was under construction and where we anticipate opening a new restaurant location. We assigned this 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 are currently selling limited partnership interests to third parties, as well as affiliates of the Company, in order to raise net proceeds in an amount of $4,000,000, which proceeds will be used to build out this potential restaurant location. 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). Any excess amounts advanced by us will be reimbursed to us by the limited partnership without interest. During the fourth quarter of our fiscal year 2021, we received notification from the Landlord that it had completed substantially all of the Landlord’s work under the Lease Agreement and was delivering possession of the leased premises to us. Through October 2, 2021, we made advances of $313,000 to the limited partnership.
NOTE 7. EXECUTION OF LEASES FOR NEW LOCATIONS: (Continued)
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, (the “Landlord”), to rent approximately 2,000 square feet of commercial space for a package liquor store glocation in a shopping center at 11225 Miramar Parkway, #245, Miramar, Florida 33024 (Store #24), which shopping center was under construction and where we anticipate opening a new retail package liquor store. The new package liquor store location will be Company-owned. During the fourth quarter of our fiscal year 2021, we received notification from the Landlord that it had completed substantially all of the Landlord’s work under the Lease Agreement and was delivering possession of the leased premises to us.
NOTE 8. EXTENSION OF LEASES FOR EXISTING LOCATIONS
Pinecrest, Florida
During the second quarter of our fiscal year 2021, the lease with an unrelated third party for the space located at 11415 S. Dixie Highway, Pinecrest, Florida (Store #13) where a limited partnership owned restaurant operates, was extended through January 31, 2031 with one (1) five (5) year renewal option. The fixed annual rental was reduced by 7½% and the fixed annual rental increases were reduced to 2% from 3% for the first seven (7) years. Otherwise the extended lease is on substantially the same terms and conditions, including fixed annual rental increases and continued percentage rent as existed before the extension.
Surfside, Florida
During the second quarter of our fiscal year 2021, the lease with an unrelated third party for the space located at 9516 Harding Avenue, Surfside, Florida (Store #60) where a limited partnership owned restaurant operates was extended through December 31, 2026. The fixed annual rental increases were increased from $0.75 per square foot annually to $1.00 per square foot effective January 1, 2022. Otherwise, the extended lease is on substantially the same terms and conditions as existed before the extension.
NOTE 9. EXPANSION OF LEASED PREMISES; EXTENSION OF LEASE
Miami, Florida
During the third quarter of our fiscal year 2021, the lease with an unrelated third party for the space located at 9857 SW 40th Street, Miami, Florida (Store #90), where a limited partnership owned restaurant operates, was amended to add approximately 2,100 square feet to the leased premises and extend the term of the lease through March 31, 2031, with one (1) five (5) year renewal option. The fixed annual rental for the expanded leased premises was increased by $5,000 monthly, with fixed annual rental increases. Otherwise, the extended lease is on substantially the same terms and conditions as existed before the expansion and extension.
NOTE 10. MORTGAGE / FINANCED INSURANCE PREMIUMS:
(a) Mortgage on Real Property - Sunrise, Florida
During the first quarter of our fiscal year 2021, we exercised the Option to Purchase and during the second quarter of our fiscal year 2021 we closed on the acquisition of the real property located at 14301 W. Sunrise Boulevard, Sunrise, Florida. We financed this acquisition with a loan from an unrelated third party lender in the principal amount of $2.2 million. The mortgage loan accrues interest at the fixed annual rate of 3.65%, is amortized over fifteen (15) years, and requires us to pay monthly payments of principal and interest in the amount of $15,900 with the entire principal balance and all accrued but unpaid interest due in March, 2036.
(b) Mortgage on Real Property – North Miami, Florida
During the third quarter of our fiscal year 2021, we re-financed with a loan from an unrelated third party lender, our mortgage loan encumbering the real property and improvements located at 13105 – 13205 Biscayne Boulevard, North Miami, Florida where our Flanigan’s Seafood Bar and Grill restaurant and Big Daddy’s Liquors retail package liquor store operate (Store #20), increasing the principal amount borrowed from $1.5 million to $4.3 million. We received the net cash proceeds from the refinancing transaction ($2.8 million) shortly after the end of the third quarter of our fiscal year 2021. The re-financed mortgage loan earns interest at the fixed annual rate of 3.63%, is amortized over fifteen (15) years, requires us to pay monthly payments of principal and interest in the amount of $31,129 with the entire principal balance and all accrued interest due in July, 2036. We intend to use the excess funds we received from the re-financing of this mortgage loan for working capital purposes.
(c) Financed Insurance Premiums
During our fiscal year 2021, we financed the premiums 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:
NOTE 10. MORTGAGE / FINANCED INSURANCE PREMIUMS: (Continued)
(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 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.
During the third quarter of our fiscal year 2021, we financed the premium of our directors and officers liability insurance policy for the one (1) year period commencing April 15, 2021. The one (1) year directors and officers liability insurance policy premium is in the amount of $55,000. Of the $55,000 annual premium amount, we financed $50,000 through an unaffiliated third party lender. The finance agreement obligates us to repay the amount financed together with interest at the rate of 4.00% per annum, over 11 months, with monthly payments of principal and interest of $4,700. 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 October 2, 2021, the aggregate principal balance owed from the financing of our property and general liability insurance policies, including the financing of our directors and officers liability insurance policy, but excluding coverage for our franchises, (of approximately $113,000), which are not included in our consolidated financial statements is $409,000.
NOTE 11. 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. Throughout our fiscal year 2021, in accordance with guidance from health officials, we offered both indoor and outdoor food and bar options at all of our restaurants, with among other precautions, appropriate social distancing and mask requirements for all customers and employees.
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. During our fiscal year 2021, we applied for and received forgiveness the entire amount of principal and accrued interest on all PPP Loans, including Franchisees and the Managed Store.
NOTE 11. CORONAVIRUS PANDEMIC: (Continued)
During the second quarter of our fiscal year 2021, certain of the LPs, as well as the Managed Store, applied for and received 2nd PPP loans, in the aggregate principal amount of approximately $3.98 million (the “2nd PPP Loans”), of which approximately: (i) $3.46 million was loaned to 6 of the LP’s; and (iv) $0.52 million was loaned to the Managed Store.
The 2nd PPP Loans, which are in the form of notes issued by each of the Borrowers, mature five (5) years from the date of funding (March 23, 2021) and bear interest at a rate of 1.00% per annum, payable monthly commencing after the U.S. Small Business Administration makes a determination of the forgiveness of the 2nd PPP Loans. 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 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 2nd 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. Subsequent to the end of our fiscal year 2021, we applied for and received forgiveness of the entire amount of principal and accrued interest on all 2nd PPP Loans.
We believe COVID-19 has had a material adverse effect on our access to supplies or labor and will have 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.
As of October 2, 2021, we are in compliance with the financial covenants contained in our loans with our unrelated third party institutional lender (the “Institutional Lender”) under which we owe in the aggregate, approximately $17,096,000 (the “Institutional Loans”).
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 12. RE-CONSTRUCTION FOLLOWING 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 2021, 2020 and 2019. During our fiscal year 2022, we expect to complete construction of the new building for our package liquor store and open for business. We also expect to receive building permits to construct the new building for our restaurant, but do not expect to open for business during our fiscal year 2022.
NOTE 13. 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 October 2, 2021, exceeded the 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 2, 2021 and October 3, 2020, the total carrying amount of our fifteen (15) 4 COP quota liquor licenses was $822,000 and $630,000, respectively. We acquired a 4 COP quota liquor license in our fiscal year 2021 for $192,200 for use in Broward County, Florida which we intend to use it in connection with the operation of a package liquor store we are developing in Miramar, Florida.
NOTE 14. INCOME TAXES
The components of our provision for income taxes for our fiscal years 2021 and 2020 are as follows:
|
|
|
2021
|
|
|
2020
|
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
251,000
|
|
|
$
|
(70,000
|
)
|
|
State
|
|
|
176,000
|
|
|
|
113,000
|
|
|
Deferred:
|
|
|
427,000
|
|
|
|
43,000
|
|
|
Federal
|
|
|
649,000
|
|
|
|
(88,000
|
)
|
|
State
|
|
|
109,000
|
|
|
|
(15,000
|
)
|
|
|
|
|
758,000
|
|
|
|
(103,000
|
)
|
|
|
|
$
|
1,185,000
|
|
|
$
|
(60,000
|
)
|
A reconciliation of income tax computed at the statutory federal rate to income tax expense is as follows:
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Tax provision at the statutory rate
|
|
$
|
3,770,000
|
|
|
$
|
446,000
|
|
|
Non-controlling interests
|
|
|
(1,046,000
|
)
|
|
|
(226,000
|
)
|
|
State income taxes, net of federal income tax
|
|
|
196,000
|
|
|
|
43,000
|
|
|
FICA tip credit
|
|
|
(297,000
|
)
|
|
|
(418,000
|
)
|
|
True up adjustment
|
|
|
115,000
|
|
|
|
43,000
|
|
|
Tax effect of rate change due to Tax Reform
|
|
|
(1,000
|
)
|
|
|
13,000
|
|
|
PPP forgiveness
|
|
|
(1,576,000
|
)
|
|
|
—
|
|
|
Other permanent items
|
|
|
24,000
|
|
|
|
39,000
|
|
|
|
|
$
|
1,185,000
|
|
|
$
|
(60,000
|
)
|
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, unfunded limited retirement commitments and FICA tax credit.
NOTE 14. INCOME TAXES (Continued)
The components of our deferred tax assets at October 2, 2021 and October 3, 2020 were as follows:
|
|
|
2021
|
|
|
2020
|
|
|
Long-Term:
|
|
|
|
|
|
|
|
|
|
Reversal of aged payables
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
|
Capitalized inventory costs
|
|
|
26,000
|
|
|
|
22,000
|
|
|
Accrued bonuses
|
|
|
96,000
|
|
|
|
166,000
|
|
|
Accruals for potential uninsured claims
|
|
|
34,000
|
|
|
|
27,000
|
|
|
Gift cards
|
|
|
195,000
|
|
|
|
162,000
|
|
|
Limited partnership management fees
|
|
|
(720,000
|
)
|
|
|
(192,000
|
)
|
|
Tip credit
|
|
|
85,000
|
|
|
|
7,000
|
|
|
Book/tax differences in property and equipment
|
|
|
(886,000
|
)
|
|
|
(507,000
|
)
|
|
Book/tax differences in operating leases
|
|
|
428,000
|
|
|
|
279,000
|
|
|
Limited partnership investments
|
|
|
264,000
|
|
|
|
307,000
|
|
|
Accrued limited retirement
|
|
|
54,000
|
|
|
|
63,000
|
|
|
Total Deferred Tax Assets (Liabilities)
|
|
$
|
(406,000
|
)
|
|
$
|
352,000
|
|
NOTE 15. DEBT
Long-Term Debt
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Mortgage payable to institutional lender, 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 2, 2021, the net book value of the collateral securing this mortgage was $5,535,000.
|
|
|
6,821,000
|
|
|
|
7,070,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage payable to institutional lender, secured by first mortgage on real property and improvements, bearing interest at the fixed rate of 3.63% per annum, fully amortized over fifteen (15) years, payable in monthly installments of principal and interest of approximately $31,000, with a final payment of July 1, 2036. As of October 2, 2021, the net book value of the collateral securing this mortgage was $11,563,000.
|
|
|
4,246,000
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage payable to institutional lender, secured by first mortgage on real property and improvements, bearing interest at the fixed rate of 3.65% per annum, fully amortized over fifteen (15) years, payable in monthly installments of principal and interest of approximately $15,950, with a final payment of March 2, 2036. As of October 2, 2021, the net book value of the collateral securing this mortgage was $4,542,000.
|
|
|
2,145,000
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
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. The principal balance and all accrued interest was paid in full on July 1, 2021.
|
|
|
--
|
|
|
|
1,508,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage payable to institutional lender, secured by a first mortgage on real property and improvements, bearing interest at BBA LIBOR – 1 Month +2.25%, (2.33% at October 2, 2021), 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 2, 2021, the net book value of the collateral securing this mortgage was $3,497,000.
|
|
|
954,000
|
|
|
|
1,017,000
|
|
|
|
|
|
|
|
|
|
|
|
|
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%, (2.33% at October 2, 2021). 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 (2.33% at October 2, 2021) 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.
|
|
|
1,650,000
|
|
|
|
2,750,000
|
|
NOTE 15. DEBT (Continued)
|
Mortgage payable to institutional 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 2, 2021, the net book value of the collateral securing this mortgage was $827,000.
|
|
|
633,000
|
|
|
|
679,000
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $302,000 due in July, 2024. As of October 2, 2021, the net book value of the collateral securing this mortgage was $1,534,000.
|
|
|
442,000
|
|
|
|
483,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage payable to institutional 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 2, 2021, the net book value of the collateral securing this mortgage was $981,000.
|
|
|
647,000
|
|
|
|
693,000
|
|
|
|
|
|
|
|
|
|
|
|
|
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. The principal balance and all accrued interest was paid in full on April, 2021.
|
|
|
--
|
|
|
|
423,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Financed insurance premiums, secured by all insurance policies, bearing interest at 2.45% payable in monthly installments of principal and interest in the aggregate amount of $164,000 a month through November 30, 2021.
|
|
|
409,000
|
|
|
|
365,000
|
|
|
|
|
|
|
|
|
|
|
|
|
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. The principal balance and all accrued interest was paid in full on April, 2021.
|
|
|
--
|
|
|
|
511,000
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2, 2021, the net book value of the collateral securing this mortgage was $1,104,000.
|
|
|
713,000
|
|
|
|
743,000
|
|
NOTE 15. DEBT (Continued)
|
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 2, 2021, the net book value of the collateral securing this mortgage was $511,000.
|
|
|
171,000
|
|
|
|
197,000
|
|
|
|
|
|
|
|
|
|
|
|
|
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 five years from the date of funding (dates ranging from May 5, 2025to May 11, 2025) 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
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $3.46 million, (the “2nd PPP Loans”), which was loaned to 6 of the limited partnerships. The 2nd PPP Loans, which are in the form of Notes issued by each of the Borrowers, mature five years from the date of funding (March 23, 2021) and bear interest at a rate of 1.00% per annum, payable monthly commencing after the U.S. Small Business Administration makes a determination of the forgiveness of 2nd PPP Loans). Subsequent to the end of our fiscal year 2021, the principal balance and all accrued interest due on the 2nd PPP Loans was forgiven in full.
|
|
|
3,464,000
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
74,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Less unamortized loan costs
|
|
|
(254,000
|
)
|
|
|
(197,000
|
)
|
|
|
|
|
22,115,000
|
|
|
|
26,323,000
|
|
|
Less current portion
|
|
|
2,555,000
|
|
|
|
5,094,000
|
|
|
|
|
$
|
19,560,000
|
|
|
$
|
21,229,000
|
|
Long-term debt at October 2, 2021 matures as follows:
|
2022
|
|
$
|
2,555,000
|
|
|
2023
|
|
|
2,970,000
|
|
|
2024
|
|
|
1,862,000
|
|
|
2025
|
|
|
1,559,000
|
|
|
2026
|
|
|
1,595,000
|
|
|
Thereafter
|
|
|
11,828,000
|
|
|
|
|
$
|
22,369,000
|
|
|
Less unamortized loan costs
|
|
|
(254,000
|
)
|
|
|
|
$
|
22,115,000
|
|
As of October 2, 2021, we are in compliance with the financial covenants contained in our loans with our unrelated third party institutional lender (the “Institutional Lender”). We owe in the aggregate, approximately $17,097,000 (the “Institutional Loans”), as of October 2, 2021.
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 16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Construction Contracts
a. 7990 Davie Road Extension, Hollywood, Florida (Store #19 – “Big Daddy’s Wine & Liquors”)
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 years 2020 and 2021, we agreed to change orders to the agreement for additional construction services increasing the total contract price by $502,000 to $2,120,000, of which $1,092,000 of the total amount obligated has been paid through October 2, 2021 and an additional $335,000 has been paid subsequent to the end of our fiscal year 2021.
b. 2505 N. University Drive, Hollywood, Florida (Store #19 – “Flanigan’s”)
During the third quarter of our fiscal year 2019, we entered into an agreement with an unaffiliated third party 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 2, 2018 due to damages caused by a fire, of which $62,000 has been paid. Subsequent to the end of our fiscal year 2021, we entered into an agreement with a third party unaffiliated general contractor to re-build our restaurant at this location totaling $2,515,000, of which none has been paid.
c. 14301 W. Sunrise Boulevard, Sunrise, Florida (Store #85 – “Flanigan’s”)
During the third quarter of our fiscal year 2019, we also entered into an agreement with an unaffiliated third party 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 $131,000 has been paid through October 2, 2021. 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, and during our fiscal year 2021 we agreed to change orders to the agreement for additional interior renovations increasing the total contract price by $183,000 to $1,419,000, of which $1,081,000 has been paid through October 2, 2021 and an additional $187,000 has been paid subsequent to the end of our fiscal year 2021.
d. 11225 Miramar Parkway, #250, Miramar, Florida (“Flanigan’s”)
During the fourth quarter of our fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party, (the “Landlord”) to rent approximately 6,000 square feet of commercial space for a restaurant location in a shopping center at 11225 Miramar Parkway, #250, Miramar, Florida (Store #25), which shopping center was under construction. During the second quarter of our fiscal year 2021, we entered into an Architectural Professional Services Agreement with a third-party unaffiliated architect for design and development services for this, new location (Store #25) for a total contract price of $73,850, which contract price has been paid in full through October 2, 2021. During the fourth quarter of our fiscal year 2021, we received notification from the Landlord that it had completed substantially all of the Landlord’s work under the Lease Agreement and was delivering possession of the leased premises to us. Subsequent to the end of our fiscal year 2021, we entered into an agreement with a third party unaffiliated general contractor for interior renovations at this location totaling $1,421,000, of which none has been paid.
NOTE 16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
e. 11225 Miramar Parkway, #245, Miramar, Florida (“Big Daddy’s Wine and Liquors”)
During the fourth quarter of our fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party, (the “Landlord”) to rent approximately 2,000 square feet of commercial space for a retail package liquor store location in a shopping center at 11225 Miramar Parkway, #245, Miramar, Florida (Store #24), which shopping center was under construction. During the second quarter of our fiscal year 2021, we entered into an Architectural Professional Services Agreement with a third-party unaffiliated architect for design and development services for this, new location (Store #24) for a total contract price of $18,650, which contract price has been paid in full through October 2, 2021. During the fourth quarter of our fiscal year 2021, we received notification from the Landlord that it had completed substantially all of the Landlord’s work under the Lease Agreement and was delivering possession of the leased premises to us. Subsequent to the end of our fiscal year 2021, we entered into an agreement with a third party unaffiliated general contractor for interior renovations at this location totaling $317,000, of which none has been paid.
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 flows could be materially and adversely affected. We currently have no “dram shop” claims 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, in consultation 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.
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 exercise certain 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:
|
|
|
52 Weeks
|
|
53 Weeks
|
|
|
|
|
Ended
|
|
Ended
|
|
|
|
|
October 2, 2021
|
|
October 3, 2020
|
|
|
Finance Lease Amortization
|
|
$
|
198,000
|
|
$
|
-
|
|
|
Finance Lease Expense, which is included in interest expense
|
|
|
109,000
|
|
|
-
|
|
|
Operating Lease Expense, which is included in occupancy costs
|
|
|
3,601,000
|
|
|
4,521,000
|
|
|
|
|
$
|
3,908,000
|
|
$
|
4,521,000
|
|
NOTE 16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Supplemental balance sheet information related to leases as follows:
|
Classification on the Consolidated Balance Sheet
|
|
October 2, 2021
|
|
October 3, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Finance lease assets
|
|
$
|
-
|
|
$
|
4,749,000
|
|
|
Operating lease assets
|
|
|
28,559,000
|
|
|
22,150,000
|
|
|
|
|
$
|
28,559,000
|
|
$
|
26,899,000
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Finance current liabilities
|
|
$
|
-
|
|
$
|
4,772,000
|
|
|
Operating current liabilities
|
|
|
2,009,000
|
|
|
3,116,000
|
|
|
Operating lease non-current liabilities
|
|
$
|
27,183,000
|
|
$
|
20,337,000
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term:
|
|
|
|
|
|
|
|
|
Finance leases
|
|
|
-
|
|
|
0.42 Years
|
|
|
Operating leases
|
|
|
8.93 Years
|
|
|
7.71 Years
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount:
|
|
|
|
|
|
|
|
|
Finance leases
|
|
|
-
|
|
|
5.5%
|
|
|
Operating leases
|
|
|
4.62%
|
|
|
5.5%
|
|
|
For fiscal year
|
|
|
Operating
|
|
|
|
Finance
|
|
|
2022
|
|
$
|
3,297,000
|
|
|
$
|
-
|
|
|
2023
|
|
|
3,501,000
|
|
|
|
-
|
|
|
2024
|
|
|
3,544,000
|
|
|
|
-
|
|
|
2025
|
|
|
3,537,000
|
|
|
|
-
|
|
|
2026
|
|
|
3,371,000
|
|
|
|
-
|
|
|
Thereafter
|
|
$
|
19,830,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease payments (Undiscounted cash flows)
|
|
$
|
37,080,000
|
|
|
$
|
-
|
|
|
Less imputed interest
|
|
|
(7,888,000
|
)
|
|
|
(-
|
)
|
|
Total
|
|
$
|
29,192,000
|
|
|
$
|
-
|
|
Purchase Commitments
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. During the third quarter of our fiscal year 2021, we agreed to increase the fixed cost of the remaining baby back ribs for our calendar year 2021 by approximately $408,000 and our current rib supplier guaranteed adequate supply for our restaurants during calendar year 2022.
In order to ensure adequate supply of baby back ribs for our restaurants for calendar year 2022, on October 4, 2021, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $10,414,000 of baby back ribs during calendar year 2022 from this vendor at market cost. Our purchase agreement provides for the purchase of 2.25 & Down Baby Back Ribs, at a monthly cost of the average market price per pound of the prior 4 weeks.
While we anticipate purchasing all of our rib supply from this vendor, we believe there are several other alternative vendors available, if needed.
NOTE 16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Flanigan’s Fish Company, LLC
As of October 2, 2021, Flanigan’s Fish Company, LLC, a Florida limited liability company (“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.
Franchise Program
At October 2, 2021 and October 3, 2020, 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 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).
NOTE 16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Franchise Program (Continued)
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 each, we also act as fiscal agent for the franchisees whereby we collect all revenues and pay all expenses and distributions. We also, from time to time, advance 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 2021 and 2020, we earned royalties of $786,000 and $666,000, respectively, from our related franchises. We are not currently offering or accepting new franchises.
Employment Agreements/Bonuses
As of October 2, 2021 and October 3, 2020, 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 2021 and 2020 amounted to approximately $3,730,000 and $933,000, 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 2021 and 2020 amounted to approximately $1,530,000 and $679,000, respectively.
Management Agreements
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-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 2, 2021 and October 3, 2020, we generated $400,000 and $150,000 of revenue respectively, from providing these management services.
NOTE 17. 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:
•
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities.
•
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices 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.
•
Level 3 Inputs – One or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or estimation.
Interest Rate Swap Agreements
At October 2, 2021, we had two variable rate debt instruments outstanding that are impacted by changes in interest rates. The interest rate of both variable rate debt instruments is equal to the lender’s LIBOR Rate plus two and one-quarter percent (2.25%) per annum. The debt instruments further provide that the “LIBOR Rate” is a 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 entitled 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”).
NOTE 17. 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 two (2) interest rate swap agreements:
(i) One (1) 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 October 2, 2021, 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 December, 2016, which became 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 2, 2021, the interest rate swap agreement is an effective hedging agreement and the fair value was not material.
Beginning January 1, 2022, our unrelated third party lender will no longer originate, renew or modify loans at LIBOR, except in limited situations. The limited exceptions include our LIBOR transactions which reduce or hedge our LIBOR exposure on contracts entered into before January 1, 2022, including our $1.405M Term Loan Swap and our Line of Credit Swap. In addition, the principal balance and all accrued interest are due in full on January 23, 2023 on our $1.405M Term Loan Swap and the principal balance and all accrued interest on our Line of Credit Swap is fully amortized and due on December 27, 2022. Consequently, the transition of our unrelated third party lender from LIBOR to alternate measures should not have an effect on us.
NOTE 18. COMMON STOCK
Treasury Stock
Purchase of Common Shares
During our fiscal years 2021 and 2020, we did not purchase any shares of our common stock. As of October 2, 2021, 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 19. BUSINESS SEGMENTS
We operate 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 2021 and 2020, 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.
|
|
|
2021
|
|
2020
|
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
105,298,000
|
|
$
|
84,652,000
|
|
|
Package stores
|
|
|
29,304,000
|
|
|
26,276,000
|
|
|
Other revenues
|
|
|
2,705,000
|
|
|
2,049,000
|
|
|
Total operating revenues
|
|
$
|
137,307,000
|
|
$
|
112,977,000
|
|
|
Income from Operations Reconciled to Income after
Income Taxes and Net Income Attributable to
Noncontrolling Interests:
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
9,424,000
|
|
$
|
4,532,000
|
|
|
Package stores
|
|
|
1,643,000
|
|
|
1,699,000
|
|
|
|
|
|
11,067,000
|
|
|
6,231,000
|
|
|
Corporate expenses, net of other revenues
|
|
|
(2,417,000
|
)
|
|
(3,320,000
|
)
|
|
Income from Operations
|
|
|
8,650,000
|
|
|
2,911,000
|
|
|
Interest expense
|
|
|
(938,000
|
)
|
|
(836,000
|
)
|
|
Interest and Other Income
|
|
|
58,000
|
|
|
49,000
|
|
|
Gain on forgiveness of PPP loans
|
|
|
10,136,000
|
|
|
—
|
|
|
Gain on sale of property and equipment
|
|
|
44,000
|
|
|
—
|
|
|
Income before provision for income taxes
|
|
$
|
17,950,000
|
|
$
|
2,124,000
|
|
|
Benefit (Provision) for Income Taxes
|
|
|
(1,185,000
|
)
|
|
60,000
|
|
|
Net Income
|
|
|
16,765,000
|
|
|
2,184,000
|
|
|
Net Income Attributable to Noncontrolling Interests
|
|
|
(4,981,000
|
)
|
|
(1,074,000
|
)
|
|
Net Income Attributable to Flanigan’s Enterprises, Inc, Stockholders
|
|
$
|
11,784,000
|
|
$
|
1,110,000
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets:
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
67,978,000
|
|
$
|
55,030,000
|
|
|
Package store
|
|
|
15,653,000
|
|
|
13,771,000
|
|
|
|
|
|
83,631,000
|
|
|
68,801,000
|
|
|
Corporate
|
|
|
44,371,000
|
|
|
43,683,000
|
|
|
Consolidated Totals
|
|
$
|
128,002,000
|
|
$
|
112,484,000
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
10,842,000
|
|
$
|
1,834,000
|
|
|
Package stores
|
|
|
1,240,000
|
|
|
260,000
|
|
|
|
|
|
12,082,000
|
|
|
2,094,000
|
|
|
Corporate
|
|
|
1,173,000
|
|
|
672,000
|
|
|
Total Capital Expenditures
|
|
$
|
13,255,000
|
|
$
|
2,766,000
|
|
NOTE 19. BUSINESS SEGMENTS (Continued)
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
2,332,000
|
|
$
|
2,495,000
|
|
|
Package stores
|
|
|
348,000
|
|
|
355,000
|
|
|
|
|
|
2,680,000
|
|
|
2,850,000
|
|
|
Corporate
|
|
|
383,000
|
|
|
390,000
|
|
|
Total Depreciation and Amortization
|
|
$
|
3,063,000
|
|
$
|
3,240,000
|
|
NOTE 20. QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of our unaudited quarterly results of operations for the quarters in our fiscal years 2021 and 2020.
|
|
|
Quarter Ended
|
|
|
|
|
Jan. 2,
2021
|
|
April 3,
2021
|
|
July 3,
2021
|
|
Oct. 2,
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
31,380,000
|
|
$
|
34,357,000
|
|
$
|
37,935,000
|
|
$
|
33,635,000
|
|
|
Income from operations
|
|
|
1,270,000
|
|
|
2,793,000
|
|
|
2,609,000
|
|
|
1,978,000
|
|
|
Net income attributable to stockholders
|
|
|
780,000
|
|
|
2,451,000
|
|
|
7,199,000
|
|
|
1,354,000
|
|
|
Net income per share – basic and diluted
|
|
|
0.42
|
|
|
1.32
|
|
|
3.87
|
|
|
0.73
|
|
|
Weighted average common stock outstanding – basic and diluted
|
|
|
1,858,647
|
|
|
1,858,647
|
|
|
1,858,647
|
|
|
1,858,647
|
|
|
|
|
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
|
|
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.
NOTE 21. 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 2021 and 2020, we made discretionary contributions of $59,000 and $81,000, respectively.
NOTE 22. SUBSEQUENT EVENTS
Menu Price Increases
Subsequent to the end of our fiscal year 2021, we increased menu prices for our food offerings to target an increase to our food revenues of approximately 8.83% annually and menu prices for our bar offerings to target an increase to our bar revenues of approximately 7.80% annually to offset higher food and bar costs and higher overall expenses.
Forgiveness of 2nd PPP Loans
Subsequent to the end of our fiscal year 2021, we applied for and received forgiveness of the entire amount of principal and accrued interest on all 2nd PPP Loans, including the Managed Store. During the first quarter of our fiscal year 2022, we expect to have other income of $3.49 million from the forgiveness of principal and accrued interest of the 2nd PPP Loans.
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.
General Liability Insurance; Excess Insurance
For the policy year beginning December 30, 2021, 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 uninsured against liability claims in excess of $11,000,000 per occurrence and in the aggregate. Certain expenses incurred in defending a claim, including attorney's fees, are a part of our $10,000 deductible.
Property Insurance; Windstorm Insurance; Deductibles
For the policy year beginning December 30, 2021, 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, 2021, we financed the premiums on the following property, general liability, excess liability and terrorist policies, totaling approximately $2.54 million, which property, general liability, excess liability and terrorist insurance includes coverage for our franchises which are not included in our consolidated financial statements:
(i) For the policy year beginning December 30, 2021, 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 $467,000;
(ii) For the policy year beginning December 30, 2021, 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 $589,000;
(iii) For the policy year beginning December 30, 2021, our automobile insurance is a one (1) year policy. The one (1) year automobile insurance premium is in the amount of $194,000;
(iv) For the policy year beginning December 30, 2021, our property insurance is a one (1) year policy. The one (1) year property insurance premium is in the amount of $700,000;
(v) For the policy year beginning December 30, 2021, our excess liability insurance are two (2) one (1) year policies. The aggregate (1) year excess liability insurance premiums are in the amount of $576,000;
(vi) For the policy year beginning December 30, 2021, our terrorist insurance is a one (1) year policy. The one (1) year terrorist insurance premium is in the amount of $8,900; and
(vii) For the policy year beginning December 30, 2021, our equipment breakdown insurance is a one (1) year policy. The one (1) year equipment breakdown insurance premium is in the amount of $6,800.
Of the $2,542,000 annual premium amounts, which includes coverage for our franchises which are not included in our consolidated financial statements, we financed $2,328,000 through an unaffiliated third party lender. The finance agreement obligates us to repay the amounts financed together with interest at the rate of 2.55% per annum, over 11 months, with monthly payments of principal and interest, each in the amount of $215,000. 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.