BDL 10-Q
Flanigans Enterprises Inc (BDL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
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.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined
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On February 12, 2024,
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
LIST XBRL DOCUMENTS
As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “Flanigan’s” mean Flanigan’s Enterprises, Inc. and its subsidiaries (unless the context indicates a different meaning).
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
| Thirteen Weeks Ended | ||||||||
| December 30, 2023 | December 31, 2022 | |||||||
| REVENUES: | ||||||||
| Restaurant food sales | $ | $ | ||||||
| Restaurant bar sales | ||||||||
| Package store sales | ||||||||
| Franchise related revenues | ||||||||
| Rental income | ||||||||
| Other operating income | ||||||||
| COSTS AND EXPENSES: | ||||||||
| Cost of merchandise sold: | ||||||||
| Restaurant and lounges | ||||||||
| Package goods | ||||||||
| Payroll and related costs | ||||||||
| Occupancy costs | ||||||||
| Selling, general and administrative expenses | ||||||||
| Income from Operations | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest and other income | ||||||||
| Loss on disposal of property and equipment | ( | ) | ||||||
| ( | ) | ( | ) | |||||
| Income before benefit (provision) for income taxes | ||||||||
| Benefit (provision) for income taxes | ( | ) | ||||||
| Net Income | ||||||||
| Less: Net Income attributable to noncontrolling interests | ( | ) | ( | ) | ||||
| Net Income Attributable to Flanigan’s Enterprises Inc. Stockholders | $ | $ | ||||||
| Net Income Per Common Share: | ||||||||
| $ | $ | |||||||
| Weighted Average Shares and Equivalent Shares Outstanding | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
1
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| Thirteen Weeks Ended | ||||||||
| December 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Net Income: | $ | $ | ||||||
| Other comprehensive loss: | ||||||||
| Change in fair value of interest rate swap, net of tax | ( | ) | ||||||
| Total Comprehensive Income | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2023 (UNAUDITED) AND SEPTEMBER 30, 2023
(in thousands, except share and per share amounts)
| ASSETS | December 30, 2023 | September 30, 2023 | ||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid income taxes | ||||||||
| Other receivables | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Construction in progress | ||||||||
| Right-of-use assets, operating leases | ||||||||
| Investment in limited partnerships | ||||||||
| Other Assets: | ||||||||
| Liquor licenses | ||||||||
| Deposits on property and equipment | ||||||||
| Leasehold interests, net | ||||||||
| Other | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
FLANIGAN’S ENTERPRISES, INC, AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2023 (UNAUDITED) AND SEPTEMBER 30, 2023
(in thousands, except share and per share amounts)
(Continued)
| LIABILITIES AND STOCKHOLDERS' EQUITY | December 30, 2023 | September 30, 2023 | ||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued compensation | ||||||||
| Due to franchisees | ||||||||
| Current portion of long-term debt | ||||||||
| Operating lease liabilities, current | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Long-Term Debt, Net of Current Portion | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Deferred tax liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Flanigan’s Enterprises, Inc. Stockholders’ Equity | ||||||||
| Common stock, $ | ||||||||
| Capital in excess of par value | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income | ||||||||
| Treasury stock, at cost, | ( | ) | ( | ) | ||||
| Total Flanigan’s Enterprises, Inc. stockholders’ equity | ||||||||
| Noncontrolling interests | ||||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY
FOR THE THIRTEEN WEEKS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022
(in thousands, except share amounts)
| Capital in | ||||||||||||||||||||||||||||||||||||
| Common Stock | Excess of | Retained | Treasury Stock | Noncontrolling | ||||||||||||||||||||||||||||||||
| Shares | Amount | Par Value | AOCI | Earnings | Shares | Amount | Interests | Total | ||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||
| Net income | — | — | $ | |||||||||||||||||||||||||||||||||
| Other comprehensive (loss) | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, December 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||
| Common Stock | Capital in Excess of | Retained | Treasury Stock | Noncontrolling | ||||||||||||||||||||||||||||||||
| Shares | Amount | Par Value | AOCI | Earnings | Shares | Amount | Interests | Total | ||||||||||||||||||||||||||||
| Balance, October 1, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||
| Net income | — | — | $ | |||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022
(in thousands)
| December 30, 2023 | December 31, 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of leasehold interests | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Loss on abandonment of property and equipment | ||||||||
| Amortization of deferred loan costs | ||||||||
| (Income) loss from unconsolidated limited partnership | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Other receivables | ( | ) | ||||||
| Prepaid income taxes | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses | ||||||||
| Other assets | ||||||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Due to franchisees | ( | ) | ||||||
| Deferred revenue | ||||||||
| Net cash and cash equivalents provided by operating activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of construction in progress | ( | ) | ( | ) | ||||
| Deposits on property and equipment | ( | ) | ( | ) | ||||
| Purchase of leaseholds | ( | ) | ||||||
| Proceeds from sale of property and equipment | ||||||||
| Distributions from unconsolidated limited partnership | ||||||||
| Net cash and cash equivalents used in investing activities | ( | ) | ( | ) | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022
(in thousands)
(Continued)
| December 30, 2023 | December 31, 2022 | |||||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on long-term debt | ( | ) | ( | ) | ||||
| Distributions to limited partnerships’ noncontrolling interests | ( | ) | ( | ) | ||||
| Net cash and cash equivalents used in financing activities | ( | ) | ( | ) | ||||
| Net Increase in Cash and Cash Equivalents | ||||||||
| Cash and Cash Equivalents - Beginning of Period | ||||||||
| Cash and Cash Equivalents - End of Period | $ | $ | ||||||
| Supplemental Disclosure for Cash Flow Information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
| Decrease in fair value of interest rate swap | $ | $ | ||||||
| Purchase deposits capitalized to property and equipment | $ | $ | ||||||
| Purchase deposits transferred to construction in progress | $ | $ | ||||||
| Construction in progress transferred to property and equipment | $ | $ | ||||||
| Construction in progress in accounts payable and accrued expenses | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
7
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022
(1) BASIS OF PRESENTATION:
The accompanying condensed consolidated financial information for the thirteen weeks ended December 30, 2023 and December 31, 2022 is unaudited. Financial information as of September 30, 2023 has been derived from the audited financial statements of Flanigan’s Enterprises, Inc., a Florida corporation, together with its subsidiaries, (the “Company”, “we”, “our”, “ours” and “us” as the context requires), but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated have been included. For further information regarding the Company’s accounting policies, refer to the Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023. Operating results for interim periods are not necessarily indicative of results to be expected for a full year.
The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of the ten limited partnerships in which we act as general partner and have controlling interests. All intercompany balances and transactions have been eliminated. Non-controlling interest represents the limited partners’ proportionate share of the net assets and results of operations of the ten limited partnerships.
The consolidated financial statements and related disclosures for condensed interim reporting 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 disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods 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 and estimates relating to loyalty reward programs. 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.
(2) EARNINGS PER SHARE:
We follow Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Section 260 - “Earnings per Share”. This section provides for the calculation of basic and diluted earnings per share. The data on Page 1 shows the amounts used in computing earnings per share. As of December 30, 2023 and December 31, 2022, no stock options or other potentially dilutive securities were outstanding and, accordingly, there is no difference in basic and diluted per share amounts.
(3) RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Adopted
The FASB issued guidance, ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This guidance is effective for the Company in the first quarter of our fiscal year 2024; however, after performing a thorough analysis the Company concluded there is no material impact from the adoption of this ASU.
8
Recently Issued
The FASB issued guidance, ASU 2022-06 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides an 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 London interbank offered rate (“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 were published until June 30, 2023. All principal and interest of the Term Loan was paid during the first quarter of our fiscal year 2023, so the discontinuance of LIBOR rates did not impact us.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. This ASU will be effective for the Company in our fiscal year 2025, with the guidance applied retrospectively to all periods presented in the financial statements. Early adoption is permitted. We are currently evaluating the impact the adoption of the new accounting guidance will have on our segment disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,”, which requires enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This ASU will be effective for the Company in our fiscal year 2026, with the guidance applied either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impact the adoption of the new accounting guidance will have on our tax disclosures.
There are no other recently issued accounting pronouncements that we have not yet adopted that we believe may have a material effect on our condensed consolidated financial statements.
(4) INCOME TAXES:
We account for our income taxes using FASB ASC Topic
740, “Income Taxes”, which requires among other things, recognition of future tax benefits measured at enacted rates
attributable to deductible temporary differences between financial statement and income tax basis of assets and liabilities and to tax
net operating loss carryforwards and tax credits to the extent that realization of said tax benefits is more likely than not. The Company’s
income tax expense computed at the statutory federal rate of
(5) PURCHASE OF LEASEHOLD / SUB-LEASEHOLD INTERESTS:
In 1974, we sold the underlying ground lease
to the real property located at 8600 Biscayne Boulevard, El Portal, Florida to related and unrelated third parties and simultaneously
subleased it back. We operate our retail package liquor store (Store #47) and warehouse from this location. In the first quarter of our
fiscal year 2024, we re-purchased a
(6) DEBT:
In February 2023, we determined that as of December
31, 2022, we did not meet the required Post-Distribution Basic Fixed Charge Coverage Ratio (the “Post-Distribution/Fixed Charge
Covenant”) contained in each of our six (6) loans (the “Institutional Loans”) with an unrelated third party institutional
lender (the “Institutional Lender’). On February 23, 2023, we received from the Institutional Lender a written waiver of the
non-compliance with the Post-Distribution/Fixed Charge Covenant (the “Covenant Non-Compliance”), pursuant to which, among
other things, the Institutional Lender waived (1) the non-compliance as of December 31, 2022 and (2) their right to exercise certain remedies
under the Institutional Loans, including the right to accelerate the indebtedness owed by us thereunder, resulting in the indebtedness
under the Institutional Loans to be immediately due and payable, which would have a material adverse effect on the Company. The Post-Distribution/Fixed
Charge Covenant requires we maintain a ratio of at least
For further information regarding the Company’s long-term debt, refer to the Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023.
9
(7) INSURANCE PREMIUMS:
During the first quarter of our fiscal year 2024,
for the policy year commencing December 30, 2023, we obtained coverage on the following property, general liability, excess liability
and terrorism policies with premiums totaling approximately $
(i) For
the policy year beginning December 30, 2023, our general liability insurance, excluding limited partnerships, is a one (1) year policy
with our insurance carriers. For the policy commencing December 30, 2023, the $
(ii) For
the policy year beginning December 30, 2023, 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 $
(iii) For
the policy year beginning December 30, 2023, our automobile insurance is a one (1) year policy. The one (1) year automobile insurance
premium is in the amount of $
(iv) For
the policy year beginning December 30, 2023, our property insurance is a one (1) year policy. The one (1) year property insurance premium
is in the amount of $
(v) For
the policy year beginning December 30, 2023, our excess liability insurance is a one (1) year policy. The one (1) year excess liability
insurance premium is in the amount of $
(vii) For
the policy year beginning December 30, 2023, our terrorism insurance is a one (1) year policy. The one (1) year terrorism insurance premium
is in the amount of $
We paid the $
10
(8) COMMITMENTS AND CONTINGENCIES:
Construction Contract
2505 N. University Drive, Hollywood, Florida (Store #19 – “Flanigan’s”)
During the first quarter of our fiscal year 2022,
we entered into an agreement with a third party unaffiliated general contractor to re-build our restaurant located at 2505 N. University
Drive, Hollywood, Florida (Store#19), which has been closed since October 2, 2018 due to damage caused by a fire, totaling $
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
Following adoption of ASC 842 during our fiscal year ended October 3, 2020, common area maintenance and property taxes are not considered to be lease components.
| (in thousands) | ||||||||
| 13 Weeks | 13 Weeks | |||||||
| Ended December 30, 2023 | Ended December 31, 2022 | |||||||
| Operating Lease Expense, which is included in occupancy costs | $ | $ | ||||||
| (in thousands) | ||||||||
| Classification on the Condensed Consolidated Balance Sheets | December 30, 2023 | September 30, 2023 | ||||||
| Assets | ||||||||
| Operating lease assets | $ | $ | ||||||
| Liabilities | ||||||||
| Operating lease current liabilities | $ | $ | ||||||
| Operating lease non-current liabilities | $ | $ | ||||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount: | ||||||||
| Operating leases | ||||||||
11
| (in thousands) | ||||
| For fiscal year | Operating | |||
| 2024 (nine (9) months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments (undiscounted cash flows) | ||||
| Less imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
Litigation
Our sale of alcoholic beverages subjects us to “dram shop” statutes, which allow an injured person to recover damages from an establishment that served alcoholic beverages to an intoxicated person. If we receive a judgment substantially in excess of our insurance coverage or if we fail to maintain our insurance coverage, our business, financial condition, operating results or cash flows could be materially and adversely affected. We currently have no “dram shop” claims.
From time to time, we are a party to various other claims, legal actions and complaints arising in the ordinary course of our business, including claims resulting from “slip and fall” accidents, 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. It is our opinion, after consulting with legal counsel, that all such matters are without merit or involve such amounts that an unfavorable disposition, some of which is covered by insurance, would not have a material adverse effect on our financial position or results of operations.
(9) 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, (“COVID-19”) adversely affected and will, in all likelihood continue to adversely affect, our restaurant operations and financial results for the foreseeable future. The Department of Health and Human Services (HHS) permitted the federal Public Health Emergency for COVID-19 (PHE) declared by the Secretary of the Department of Health and Human Services (Secretary) under Section 319 of the Public Health Service (PHS) Act to expire at the end of the day on May 11, 2023.
COVID-19 has had a material adverse effect on our access to supplies or labor and 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.
12
(10) BUSINESS SEGMENTS:
We operate in
| (in thousands) | ||||||||
| Thirteen Weeks | Thirteen Weeks | |||||||
| Ending | Ending | |||||||
| December 30, 2023 | December 31, 2022 | |||||||
| Operating Revenues: | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Other revenues | ||||||||
| Total operating revenues | $ | $ | ||||||
| Income from Operations Reconciled to Income After Income Taxes and Net Income Attributable to Noncontrolling Interests | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Corporate expenses, net of other revenues | ( | ) | ( | ) | ||||
| Income from Operations | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest and Other income | ||||||||
| Loss on disposal of property and equipment | ( | ) | ||||||
| Income before benefit (provision) for Income Taxes | $ | $ | ||||||
| Benefit (provision) for Income Taxes | ( | ) | ||||||
| Net Income | ||||||||
| Net Income Attributable to Noncontrolling Interests | ( | ) | ( | ) | ||||
| Net Income Attributable to Flanigan’s Enterprises, Inc. Stockholders | $ | $ | ||||||
| Depreciation and Amortization: | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Corporate | ||||||||
| Total Depreciation and Amortization | $ | $ | ||||||
| Capital Expenditures: | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Corporate | ||||||||
| Total Capital Expenditures | $ | $ | ||||||
13
| (in thousands) | ||||||||
| December 30, | September 30, | |||||||
| 2023 | 2023 | |||||||
| Identifiable Assets: | ||||||||
| Restaurants | $ | $ | ||||||
| Package store | ||||||||
| Corporate | ||||||||
| Consolidated Totals | $ | $ | ||||||
(11) SUBSEQUENT EVENTS:
Subsequent events have been evaluated through the date these unaudited condensed consolidated financial statements were issued and no further events required adjustments or disclosure.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING LOOKING FORWARD STATEMENTS
Reported financial results may not be indicative of the financial results of future periods. All non-historical information contained in the following discussion constitutes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words such as “anticipates, appears, expects, trends, intends, hopes, plans, believes, seeks, estimates, may, will,” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve a number of risks and uncertainties, including but not limited to the effect of the novel coronavirus pandemic and related “shelter-in-place” orders and other governmental mandates (“COVID 19”), customer demand and competitive conditions. Factors that could cause actual results to differ materially are included in, but not limited to, those identified in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our periodic reports, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may reflect events or circumstances after the date of this report.
OVERVIEW
As of December 30, 2023, Flanigan’s Enterprises, Inc., a Florida corporation, together with its subsidiaries (“we”, “our”, “ours” and “us” as the context requires), (i) operates 31 units, consisting of restaurants, package liquor stores, combination restaurant/package liquor stores and a sports bar that we either own or have operational control over and partial ownership in; and franchises an additional five units, consisting of two restaurants (one of which we operate) and three combination restaurant/package liquor stores. The table below provides information concerning the type (i.e. restaurant, sports bar, package liquor store or combination restaurant/package liquor store) and ownership of the units (i.e. whether (i) we own 100% of the unit; (ii) the unit is owned by a limited partnership of which we are the sole general partner and/or have invested in; or (iii) the unit is franchised by us), as of December 30, 2023 and as compared to September 30, 2023. With the exception of “The Whale’s Rib”, a restaurant we operate but do not own, and “Brendan’s Sports Pub” a restaurant/bar we 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”.
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| TYPES OF UNITS | December 30, 2023 |
September 30, 2023 |
|
| Company Owned: | |||
| Combination package liquor store and restaurant | 2 | 3 | (1) |
| Restaurant only, including sports bar | 8 | 8 | |
| Package liquor store only | 9 | 8 | (1) |
| Company Managed Restaurants Only: | |||
| Limited partnerships | 10 | 10 | |
| Franchise | 1 | 1 | |
| Unrelated Third Party | 1 | 1 | |
| Total Company Owned/Operated Units | 31 | 31 | |
| 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. During the first quarter of our fiscal year 2023, we opened our newly built stand-alone package liquor store on this site replacing our package liquor store destroyed by fire and previously operating here (Store #19P). Store #19P is now reflected in the above chart as a stand-alone liquor store, rather than as a combination unit. We are constructing a stand-alone restaurant building on this site (adjacent to the package liquor store), replacing our restaurant destroyed by fire and previously operating here (Store #19R). We believe this restaurant will be operational during our fiscal year 2024.
(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 restaurant operated by us.
Franchise Financial Arrangement: In exchange for our providing management and related services to our franchisees and granting them the right to use our service marks “Flanigan’s Seafood Bar and Grill” and “Big Daddy’s Liquors”, our franchisees (four of which are franchised to members of the family of our Chairman of the Board, officers and/or directors), are required to (i) pay to us a royalty equal to 1% of gross package store sales and 3% of gross restaurant sales; and (ii) make advertising expenditures equal to between 1.5% to 3% of all gross sales based upon our actual advertising costs allocated between stores, pro-rata, based upon gross sales.
Limited Partnership Financial Arrangement: We manage and control the operations of all restaurants owned by limited partnerships, except the Fort Lauderdale, Florida restaurant which is owned by a related franchisee. Accordingly, the results of operations of all limited partnership owned restaurants, except the Fort Lauderdale, Florida restaurant are consolidated into our operations for accounting purposes. The results of operations of the Fort Lauderdale, Florida restaurant are accounted for by us utilizing the equity method of accounting. In general, until the investors’ cash investment in a limited partnership (including any cash invested by us and our affiliates) is returned in full, the limited partnership distributes to the investors annually out of available cash from the operation of the restaurant up to 25% of the cash invested in the limited partnership, with no management fee paid to us. Any available cash in excess of the 25% of the cash invested in the limited partnership distributed to the investors annually, is paid one-half (½) to us as a management fee, with the balance distributed to the investors as a return of capital. Once the investors in the limited partnership have received, in full, amounts equal to their cash invested, an annual management fee is payable to us equal to one-half (½) of cash available to the limited partnership, with the other one half (½) of available cash distributed to the investors (including us and our affiliates), as a profit distribution. As of December 30, 2023, all limited partnerships, with the exception of the 2022 Sunrise restaurant (Store #85), which opened for business in March 2022 and the 2023 Miramar restaurant (Store #25), which opened for business in April 2023, have returned all cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. In addition to receipt of distributable amounts from the limited partnerships, we receive a fee equal to 3% of gross sales for use of the service mark “Flanigan’s Seafood Bar and Grill” or “Flanigan’s”.
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RESULTS OF OPERATIONS
| -----------------------Thirteen Weeks Ended----------------------- | ||||||||||||||||
| December 30, 2023 | December 31, 2022 | |||||||||||||||
| Amount | Amount | |||||||||||||||
| (In thousands) | Percent | (In thousands) | Percent | |||||||||||||
| Restaurant food sales | $ | 26,355 | 59.33 | $ | 24,767 | 60.17 | ||||||||||
| Restaurant bar sales | 7,463 | 16.80 | 6,988 | 16.98 | ||||||||||||
| Package store sales | 10,602 | 23.87 | 9,403 | 22.85 | ||||||||||||
| Total Sales | $ | 44,420 | 100.00 | $ | 41,158 | 100.00 | ||||||||||
| Franchise related revenues | 418 | 459 | ||||||||||||||
| Rental income | 253 | 213 | ||||||||||||||
| Other operating income | 49 | 31 | ||||||||||||||
| Total Revenue | $ | 45,140 | $ | 41,861 | ||||||||||||
Comparison of Thirteen Weeks Ended December 30, 2023 and December 31, 2022.
Revenues. Total revenue for the thirteen weeks ended December 30, 2023 increased $3,279,000 or 7.83% to $45,140,000 from $41,861,000 for the thirteen weeks ended December 31, 2022 due primarily to increased package liquor store and restaurant sales, increased menu prices, revenue generated from the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023, the opening of the package liquor store in Hollywood, Florida (Store #19P) in December 2022, and the opening of the package liquor store in Miramar, Florida (Store #24) in March 2023. Effective March 26, 2023 we increased menu prices for our food offerings to target an increase to our food revenues of approximately 2.06% and effective March 19, 2023 we increased menu prices for our bar offerings to target an increase to our bar revenues of approximately 5.65% annually, to offset higher food costs and higher overall expenses (collectively the “Recent Price Increases”). Prior to these increases, we previously raised menu prices in the first quarter of our fiscal year 2022.
Restaurant Food Sales. Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants totaled $26,355,000 for the thirteen weeks ended December 30, 2023 as compared to $24,767,000 for the thirteen weeks ended December 31, 2022. The increase in restaurant food sales during the thirteen weeks ended December 30, 2023 as compared to restaurant food sales during the thirteen weeks ended December 31, 2022 is attributable to the increased menu prices, and restaurant food sales generated from the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023. Comparable weekly restaurant food sales for restaurants open for all of the thirteen weeks ended December 30, 2023 and December 31, 2022, respectively, which consists of ten restaurants owned by us and nine restaurants owned by affiliated limited partnerships (excluding our Miramar, Florida location Store #25 which opened for business during the third quarter of our fiscal year 2023) was $1,871,000 and $1,882,000 for the thirteen weeks ended December 30, 2023 and December 31, 2022, respectively, a decrease of 0.58%. Comparable weekly restaurant food sales for Company owned restaurants only was $838,000 and $841,000 for the thirteen weeks ended December 30, 2023 and December 31, 2022, respectively, a decrease of 0.36%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only (excluding Store #25 which opened for business during the third quarter of our fiscal year 2023), was $1,034,000 and $1,041,000 for the thirteen weeks ended December 30, 2023 and December 31, 2022, respectively, a decrease of 0.67%. We expect that restaurant food sales, including non-alcoholic beverages, for the balance of our fiscal year 2024 will increase due to increased restaurant traffic and the operation of Store #25 during our fiscal year 2024.
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Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants totaled $7,463,000 for the thirteen weeks ended December 30, 2023 as compared to $6,988,000 for the thirteen weeks ended December 31, 2022. The increase in restaurant bar sales during the thirteen weeks ended December 30, 2023 is primarily due to the increased menu prices and restaurant bar sales generated from the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023. Comparable weekly restaurant bar sales (for restaurants open for all of the thirteen weeks ended December 30, 2023 and December 31, 2022 respectively, which consists of ten restaurants owned by us and nine restaurants owned by affiliated limited partnerships, (excluding our Miramar, Florida location Store #25,which opened for business during the third quarter of our fiscal year 2023) was $537,000 and $538,000 for the thirteen weeks ended December 30, 2023 and December 31, 2022, respectively, a decrease of 0.19%. Comparable weekly restaurant bar sales for Company owned restaurants only was $235,000 and $229,000 for the thirteen weeks ended December 30, 2023 and December 31, 2022, respectively, an increase of 2.62%. Comparable weekly restaurant bar sales for affiliated limited partnership owned restaurants only (excluding Store #25 which opened for business during the third quarter of our fiscal year 2023), was $302,000 and $309,000 for the thirteen weeks ended December 30, 2023 and December 31, 2022, respectively, a decrease of 2.27%. We expect that restaurant bar sales for the balance of our fiscal year 2024 will increase due to increased restaurant traffic and the operation of Store #25 during the balance of our fiscal year 2024.
Package Store Sales. Revenue generated from sales of liquor and related items at package liquor stores totaled $10,602,000 for the thirteen weeks ended December 30, 2023 as compared to $9,403,000 for the thirteen weeks ended December 31, 2022, an increase of $1,199,000. This increase was primarily due to increased package liquor store traffic and the package liquor sales generated from the operation of our package liquor stores in Hollywood, Florida (Store #19P) and Miramar, Florida (Store #24). Sales were up notwithstanding that both New Year’s Eve and New Year’s Day fall in the second quarter of our fiscal year 2024, while New Year’s Eve fell in the first quarter of our fiscal year 2023 and New Year’s Day fell in the second quarter of fiscal year 2023. The weekly average of same store package liquor store sales, which includes nine (9) Company-owned package liquor stores (excluding Store #19P, which was closed due to a fire on October 2, 2018 but re-opened for business during the first quarter of our fiscal year 2023 and excluding Store #24 which opened for business during the second quarter of our fiscal year 2023), was $712,000 and $716,000 for the thirteen weeks ended December 30, 2023 and December 31, 2022, respectively, a decrease of 0.56%. We expect that package liquor store sales for our fiscal year 2024 will increase due to increased package liquor store traffic and the operation of the package liquor stores located in Hollywood, Florida (Store #19P) and in Miramar, Florida (Store #24).
Operating Costs and Expenses. Operating costs and expenses (consisting of cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses), for the thirteen weeks ended December 30, 2023 increased $3,683,000 or 9.06% to $44,347,000 from $40,664,000 for the thirteen weeks ended December 31, 2022. The increase was primarily due to increased payroll, increased consultant fees to improve our accounting process and an expected general increase in food costs, costs and expenses incurred from our limited partnership owned restaurant in Miramar, Florida (Store #25), the package liquor store in Hollywood, Florida (Store #19P) and the package liquor store in Miramar, Florida (Store #24), partially offset by actions taken by management to reduce and/or control costs. We anticipate that our operating costs and expenses will continue to increase through our fiscal year 2024. Operating costs and expenses increased as a percentage of total revenue to approximately 98.24% for the thirteen weeks ended December 30, 2023 from 97.14% for the thirteen weeks ended December 31, 2022.
Gross Profit. Gross profit is calculated by subtracting the cost of merchandise sold from sales.
Restaurant Food Sales and Bar Sales. Gross profit for food and bar sales for the thirteen weeks ended December 30, 2023 increased to $21,987,000 from $20,949,000 due to higher sales volume for the thirteen weeks ended December 30, 2023. Gross profit margin for the restaurant food and bar sales decreased during the thirteen weeks ended December 30, 2023 when compared to the thirteen weeks ended December 31, 2022 due to higher food costs partially offset by, among other things, recent price increases. Our gross profit margin for restaurant food and bar sales (calculated as gross profit reflected as a percentage of restaurant food and bar sales), was 65.02% for the thirteen weeks ended December 30, 2023 and 65.97% for the thirteen weeks ended December 31, 2022.
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Package Store Sales. Gross profit for package store sales for the thirteen weeks ended December 30, 2023 increased to $2,722,000 from $2,419,000 for the thirteen weeks ended December 31, 2022. Our gross profit margin (calculated as gross profit reflected as a percentage of package liquor store sales), for package store sales was 25.67% for the thirteen weeks ended December 30, 2023 and 25.73% for the thirteen weeks ended December 31, 2022. We anticipate that the gross profit margin for package liquor store merchandise will decrease for the balance of fiscal year 2024 due to higher costs and a reduction in pricing of certain package store merchandise to be more competitive.
Payroll and Related Costs. Payroll and related costs for the thirteen weeks ended December 30, 2023 increased $749,000 or 5.49% to $14,385,000 from $13,636,000 for the thirteen weeks ended December 31, 2022. Payroll and related costs for the thirteen weeks ended December 30, 2023 were higher due primarily to the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023, the retail package liquor store in Hollywood, Florida (Store #19P) in December 2022, the retail package liquor store in Miramar, Florida (Store #24) in March 2023 and higher salaries to employees to remain competitive with other potential employees in a tight labor market. Payroll and related costs as a percentage of total revenue was 31.87% in the thirteen weeks ended December 30, 2023 and 32.57% of total revenue in the thirteen weeks ended December 31, 2022.
Occupancy Costs. Occupancy costs (consisting of percentage rent, common area maintenance, repairs, real property taxes, amortization of leasehold interests and rent expense associated with operating lease liabilities under ASC 842) for the thirteen weeks ended December 30, 2023 increased $316,000 or 17.10% to $2,164,000 from $1,848,000 for the thirteen weeks ended December 31, 2022, primarily due to an increase in real property taxes.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (consisting of general corporate expenses, including but not limited to advertising, insurance, professional costs, clerical and administrative overhead) for the thirteen weeks ended December 30, 2023 increased $697,000 or 9.43% to $8,087,000 from $7,390,000 for the thirteen weeks ended December 31, 2022, due primarily to Store #19P, Store #24, and Store #25 being open for the thirteen weeks ended December 30, 2023, increased consultant fees to improve our accounting process, inflation and otherwise to increases in expenses across all categories. Selling, general and administrative expenses increased as a percentage of total revenue for the thirteen weeks ended December 30, 2023 to 17.92% as compared to 17.65% for the thirteen weeks ended December 31, 2022.
Depreciation and Amortization. Depreciation and amortization expense for the thirteen weeks ended December 30, 2023, which is included in selling, general and administrative expenses, increased $165,000 or 20.10% to $986,000 from $821,000 from the thirteen weeks ended December 31, 2022. This increase is driven by the opening of Stores #19P, #24, and #25. As a percentage of total revenue, depreciation and amortization expense was 2.18% of revenue in the thirteen weeks ended December 30, 2023 and 1.96% of revenue in the thirteen weeks ended December 31, 2022.
Interest Expense, Net. Interest expense, net, for the thirteen weeks ended December 30, 2023 decreased $13,000 to $262,000 from $275,000 for the thirteen weeks ended December 31, 2022.
Income Taxes. Income tax for the thirteen weeks ended December 30, 2023 was a benefit of $18,000, as compared to an expense of $63,000 for the thirteen weeks ended December 31, 2022.
Net Income. Net income for the thirteen weeks ended December 30, 2023 decreased $280,000 or 32.04% to $594,000 from $874,000 for the thirteen weeks ended December 31, 2022 due primarily to higher food costs and overall increased expenses, including but not limited to, increased consultant fees to improve our accounting process. As a percentage of revenue, net income for the thirteen weeks ended December 30, 2023 is 1.32%, as compared to 2.09% for the thirteen weeks ended December 31, 2022.
Net Income Attributable to Flanigan’s Enterprises, Inc. Stockholders. Net income attributable to Flanigan’s Enterprises, Inc. stockholders for the thirteen weeks ended December 30, 2023 decreased $515,000 or 82.53% to $109,000 from $624,000 for the thirteen weeks ended December 31, 2022 due primarily to higher food costs and overall increased expenses, including but not limited to, increased consultant fees to improve our accounting process. As a percentage of revenue, net income attributable to stockholders for the thirteen weeks ended December 30, 2023 is 0.24%, as compared to 1.49% for the thirteen weeks ended December 31, 2022.
Menu Price Increases and Trends
During the thirteen weeks ended December 30, 2023, we did not increase our menu prices. During our fiscal year 2023 we increased menu prices for our food offerings (effective March 26, 2023) to target an aggregate increase to our food revenues of approximately 2.06% annually and we increased menu prices for our bar offerings (effective March 19, 2023) to target an increase to our bar revenues of approximately 5.65% annually to offset higher food and liquor costs and higher overall expenses. Prior to these increases, we previously raised menu prices in the first quarter of our fiscal year 2022.
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COVID-19 has and will continue to materially and adversely affect our restaurant business for what may be a prolonged period of time. This damage and disruption has resulted from events and factors that were impossible for us to predict and are beyond our control. The extent to which our restaurant business may be adversely impacted and its effect on our operations, liquidity and/or financial condition cannot be accurately predicted.
Based on current COVID-19 trends, the Department of Health and Human Services (HHS) permitted the federal Public Health Emergency for COVID-19 (PHE) declared by the Secretary of the Department of Health and Human Services (Secretary) under Section 319 of the Public Health Service (PHS) Act to expire at the end of the day on May 11, 2023.
Liquidity and Capital Resources
We fund our operations through cash from operations and borrowings from third parties. As of December 30, 2023, we had cash and cash equivalents of approximately $26,897,000, an increase of $1,365,000 from our cash balance of $25,532,000 as of September 30, 2023.
Inflation is affecting all aspects of our operations, including but not limited to food, beverage, fuel and labor costs. Supply chain issues also contribute to inflation. Inflation, including supply chain issues are having a material impact on our operating results.
We believe that our current cash availability from our cash on hand and positive cash flow from operations will be sufficient to fund our operations and planned capital expenditures for at least the next twelve months.
Cash Flows
The following table is a summary of our cash flows for the thirteen weeks ended December 30, 2023 and December 31, 2022.
| ---------Thirteen Weeks Ended-------- | ||||||||
| December 30, 2023 | December 31, 2022 | |||||||
| (in thousands) | ||||||||
| Net cash provided by operating activities | $ | 3,450 | $ | 5,879 | ||||
| Net cash used in investing activities | (774 | ) | (2,680 | ) | ||||
| Net cash used in financing activities | (1,311 | ) | (2,194 | ) | ||||
| Net Increase in Cash and Cash Equivalents | 1,365 | 1,005 | ||||||
| Cash and Cash Equivalents, Beginning | 25,532 | 42,138 | ||||||
| Cash and Cash Equivalents, Ending | $ | 26,897 | $ | 43,143 | ||||
We did not declare or pay a cash dividend on our capital stock in the first quarter of our fiscal year 2024 or the first quarter of our fiscal year 2023. Any future determination to pay cash dividends will be at our Board’s discretion and will depend upon our financial condition, operating results, capital requirements and such other factors as our Board deems relevant.
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Capital Expenditures
In addition to using cash for our operating expenses, we use cash generated from operations and borrowings to fund the development and construction of new restaurants and to fund capitalized property improvements for our existing restaurants. During the thirteen weeks ended December 30, 2023, we acquired property and equipment and construction in progress of $1,378,000, (of which $115,000 was purchase deposits transferred to property and equipment and $574,000 was construction in progress in accounts payable), including $233,000 for renovations to two (2) Company owned restaurants. During the thirteen weeks ended December 31, 2022, we acquired property and equipment and construction in progress of $1,499,000, (of which $28,000 was purchase deposits transferred to property and equipment and $37,000 was purchase deposits transferred to construction in progress), including $105,000 for renovations to two (2) existing limited partnership owned restaurants and $149,000 for renovations to two (2) Company owned restaurants.
We anticipate the cost of refurbishment in our fiscal year 2024 will be approximately $450,000, excluding construction/renovations to Store#19R (our restaurant which is being rebuilt due to damages caused by a fire), although capital expenditures for our refurbishing program for fiscal year 2024 may be significantly higher.
Long-Term Debt
As of December 30, 2023, we had long-term debt (including the current portion) of $22,816,000, as compared to $23,128,000 as of September 30, 2023.
In February 2023, we determined that as of December 31, 2022, we did not meet the required Post-Distribution Basic Fixed Charge Coverage Ratio (the “Post-Distribution/Fixed Charge Covenant”) contained in each of our six (6) loans (the “Institutional Loans”) with our unrelated third party institutional lender (the “Institutional Lender’). On February 23, 2023, we received from the Institutional Lender, a written waiver of the non-compliance with the Post-Distribution/Fixed Charge Covenant (the “Covenant Non-Compliance”), pursuant to which, among other things, the Institutional Lender waived (1) the non-compliance as of December 31, 2022 and (2) their right to exercise certain remedies under the Institutional Loans, including the right to accelerate the indebtedness owed by us thereunder, resulting in the indebtedness under the Institutional Loans to be immediately due and payable, which would have a material adverse effect on the Company. The Post-Distribution/Fixed Charge Covenant requires we maintain a ratio of at least 1.15 to 1.00 and for the twelve (12) months ended December 30, 2023 our ratio was calculated to be 1.55 to 1.00 and as a result, our classification of debt is appropriate as of December 30, 2023.
For further information regarding the Company’s long-term debt, refer to the Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023.
Construction Contract
2505 N. University Drive, Hollywood, Florida (Store #19 – “Flanigan’s”)
During the first quarter of our fiscal year 2022, we entered into an agreement with a third party unaffiliated general contractor to re-build our restaurant located at 2505 N. University Drive, Hollywood, Florida (Store#19), which has been closed since October 2, 2018 due to damage caused by a fire, totaling $2,515,000 and through the end of the first quarter of our fiscal year 2024 we agreed to change orders increasing the total contract price by $1,252,000 to $3,767,000, of which $2,625,000 has been paid through December 30, 2023 and $350,000 has been paid subsequent to the end of the first quarter of our fiscal year 2024.
Purchase Commitments
In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants for calendar year 2024, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $7.0 million of “2.25 & Down Baby Back Ribs” (industry jargon for the weight range in which slabs of baby back ribs are sold) from this vendor during calendar year 2024, at a prescribed cost, which we believe is competitive.
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Working Capital
The table below summarizes the current assets, current liabilities, and working capital for our fiscal quarter ended December 30, 2023, and our fiscal year ended September 30, 2023.
| Item | December 30, 2023 | September 30, 2023 | ||||||
| (in Thousands) | ||||||||
| Current Assets | $ | 36,246 | $ | 35,294 | ||||
| Current Liabilities | 24,330 | 22,371 | ||||||
| Working Capital | $ | 11,916 | $ | 12,923 | ||||
Our working capital decreased during our fiscal quarter ended December 30, 2023 from our working capital for our fiscal year ended September 30, 2023 primarily due to our purchases of property and equipment.
While there can be no assurance due to, among other things, unanticipated expenses or unanticipated decline in revenues, or both, we believe that our cash on hand and positive cash flow from operations will adequately fund operations, debt reductions and planned capital expenditures throughout our fiscal year 2024.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements.
Critical Accounting Policies
During the thirteen weeks ended December 30, 2023, we have not made any change to our critical accounting policies. See Item 7, page 40 of our Annual Report on Form 10-K for our fiscal year ended September 30, 2023 for a discussion of significant accounting policies.
Inflation
The primary inflationary factors affecting our operations are food, beverage and labor costs. A large number of restaurant personnel are paid at rates based upon applicable minimum wage and increases in minimum wage directly affect labor costs. Inflation is having a material impact on our operating results, especially rising food, fuel and labor costs. We have endeavored to offset the adverse effects of cost increases by increasing our menu prices.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not ordinarily hold market risk sensitive instruments for trading purposes and as of December 30, 2023 held no equity securities.
Interest Rate Risk
As part of our ongoing operations, we are exposed to interest rate fluctuations on our borrowings. As more fully described in Note 15 “Fair Value Measurements of Financial Instruments” to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for our fiscal year ended September 30, 2023, we use interest rate swap agreements to manage these risks. These instruments are not used for speculative purposes but are used to modify variable rate obligations into fixed rate obligations.
At December 30, 2023, we had one variable rate instrument outstanding that is impacted by changes in interest rates. The interest rate of our variable rate debt instrument is equal to the lender’s BSBY Screen Rate plus one and one-half percent (1.50%) per annum. In September 2022, we refinanced the mortgage loan encumbering the property where our combination package liquor store and restaurant located at 4 N. Federal Highway, Hallandale Beach, Florida, (Store #31) operates, which mortgage loan is held by an unaffiliated third party lender (the “$8.90M Loan”).
As a means of managing our interest rate risk on this debt instrument, we entered into an interest rate swap agreement with our unrelated third-party lender to convert this variable rate debt obligation to a fixed rate. We are currently party to the following interest rate swap agreement:
(i) The interest rate swap agreement entered into in September 2022 relates to the $8.90M Loan (the “$8.90M Term Loan Swap”). The $8.90M Term Loan Swap requires us to pay interest for a fifteen (15) year period at a fixed rate of 4.90% on an initial amortizing notional principal amount of $8,900,000, while receiving interest for the same period at BSBY Screen Rate – 1 Month, plus 1.50%, on the same amortizing notional principal amount. We determined that the interest rate swap agreement is an effective hedging agreement and that changes in fair value will be adjusted quarterly based on the valuation statement. As of December 30, 2023 the fair value of the swap agreement is reflected on the condensed consolidated balance sheet in other assets and accumulated other comprehensive income.
During our fiscal year 2023, we invested the aggregate sum of $900,000 in 90 day certificates of deposit, fully government guaranteed and at an average fixed annual interest rate of 4.87%. During the first quarter of our fiscal year 2024, the aggregate balance of our 90 day certificates of deposit from 2023 were rolled over into new 90 day certificates of deposit, fully government guaranteed and at an average fixed annual interest rate of 5.34%. Otherwise, at December 30, 2023, our cash resources offset our bank charges and any excess cash resources earn interest at variable rates. Accordingly, our return on these funds is affected by fluctuations in interest rates.
There is no assurance that interest rates will increase or decrease over our next fiscal year or that an increase will not have a material adverse effect on our operations.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the U.S. Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of December 30, 2023, an evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934). Based on that evaluation, management, including our Chief Executive Officer and Chief Financial Officer, concluded that as a result of the material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 30, 2023.
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Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our interim or annual financial statements will not be prevented or detected on a timely basis.
During the course of our independent registered public accounting firm performing its quarterly review procedures in connection with our unaudited condensed consolidated financial statements to be included in our Form 10-Q for the first quarter of our 2023 fiscal year, we became aware of certain errors made by management in recording certain transactions and in performing debt covenant calculations. As a result of these errors we have concluded that we do not have a sufficient complement of trained and knowledgeable accounting personnel to prevent and detect errors on a timely basis and that this deficiency constitutes a material weakness in our internal control over financial reporting as of December 30, 2023.
During our fiscal year 2023, we began the process of addressing this material weakness by engaging qualified accounting consultants who have been brought on to enhance, and continue to enhance, our internal controls over financial reporting. These individuals are licensed CPA’s with appropriate levels of knowledge and experience in public accounting. During the first quarter of our fiscal year 2024, the Company has begun to staff the newly formed Financial Reporting Division of our Accounting Department. This Department is headed by a Financial Reporting Manager who reports directly to the CFO. This individual is a qualified CPA with experience in financial reporting and the restaurant industry. We will continue our efforts in our fiscal year 2024 of improving our accounting and finance related processes.
Changes in Internal Control Over Financial Reporting
During the thirteen weeks ended December 30, 2023, we have not made any change to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, we are in the process of designing and planning to enhance certain controls to address the material weakness discussed above. There is no assurance that this process will result in remediation of the material weakness or prevent other material weaknesses from arising in the future.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See “Litigation” in Note 8 of this Report and Item 1 and Item 3 to Part 1 of the Annual Report on Form 10-K for the fiscal year ended September 30, 2023 for a discussion of other legal proceedings resolved in prior years.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchase of Company Common Stock
During the thirteen weeks ended December 30, 2023 and December 31, 2022, we did not purchase any shares of our common stock. As of December 30, 2023, we still have authority to purchase 65,414 shares of our common stock under the discretionary plan approved by the Board of Directors at its meeting on May 17, 2007.
ITEM 6. EXHIBITS
The following exhibits are filed with this Report:
List of XBRL documents as exhibits 101
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FLANIGAN’S ENTERPRISES, INC. | |
| Date: February 13, 2024 | /s/ James G. Flanigan |
| JAMES G. FLANIGAN, Chief Executive Officer and President | |
| /s/ Jeffrey D. Kastner | |
| JEFFREY D. KASTNER, Chief Financial Officer and Secretary | |
| (Principal Financial and Accounting Officer) |
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