BDL 10-Q
Flanigans Enterprises Inc (BDL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
quarterly period ended
OR
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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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
(I.R.S. Employer |
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incorporation or organization) |
Identification Number) |
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(Address of principal executive offices) |
Zip Code |
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( (Registrant's telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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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.
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).
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):
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Smaller reporting
company |
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Emerging growth company ☐ |
If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
On August
17, 2021,
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
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 OPERATIONS
(in thousands, except per share amounts)
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Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
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July 3, 2021 |
June 27, 2020 |
July 3, 2021 |
June 27, 2020 |
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REVENUES: |
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Restaurant food sales |
$ |
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$ |
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$ |
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$ |
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Restaurant bar sales |
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Package store sales |
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Franchise related revenues |
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Rental income |
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Other operating income (loss) |
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( |
) |
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COSTS AND EXPENSES: |
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Cost of merchandise sold: |
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Restaurant and lounges |
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Package goods |
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Payroll and related costs |
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Occupancy costs |
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Selling, general and administrative expenses |
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Income (Loss) from Operations |
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) |
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OTHER INCOME (EXPENSE): |
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Interest expense |
( |
) |
( |
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( |
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( |
) |
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Interest and other income |
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Gain on forgiveness of PPP loans |
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Gain on sale of property and equipment |
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Income (Loss) before Provision for Income Taxes |
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( |
) |
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Benefit (Provision) for Income Taxes |
( |
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( |
) |
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Net Income (Loss) |
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( |
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Less: Net income (Loss) attributable to noncontrolling interests |
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( |
) |
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Net Income (Loss) attributable to stockholders |
$ |
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$ |
( |
) |
$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Continued)
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Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
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July 3, 2021 |
June 27, 2020 |
July 3, 2021 |
June 27, 2020 |
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Net Income (Loss) Per Common Share: |
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Basic and Diluted |
$ |
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$ |
( |
) |
$ |
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$ |
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Weighted Average Shares and Equivalent Shares Outstanding |
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Basic and Diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 3, 2021 (UNAUDITED) AND OCTOBER 3, 2020
(in thousands)
ASSETS
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July 3, 2021 |
October 3, 2020 |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ |
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$ |
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Prepaid income taxes |
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Other receivables |
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Inventories |
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Prepaid expenses |
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Total Current Assets |
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Property and Equipment, Net |
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Construction in Progress |
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Right-of-use assets, finance leases |
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Right-of-use assets, operating leases |
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Investment in Limited Partnership |
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OTHER ASSETS: |
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Liquor licenses |
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Deferred tax asset |
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Leasehold purchases, net |
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Other |
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Total Other Assets |
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Total Assets |
$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 3, 2021 (UNAUDITED) AND OCTOBER 3, 2020
(in thousands)
(Continued)
LIABILITIES AND STOCKHOLDERS’ EQUITY
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July 3, 2021 |
October 3, 2020 |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
$ |
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$ |
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Due to franchisees |
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Current portion of long-term debt |
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Finance lease liability, current |
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Operating lease liability, current |
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Total Current Liabilities |
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Long-term Debt, Net of Current Portion |
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Operating lease liabilities, non-current |
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Deferred tax liabilities |
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Total Liabilities |
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Equity: |
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Flanigan’s Enterprises, Inc. Stockholders’ Equity |
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Common
stock, $. shares
authorized; |
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Capital in excess of par value |
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Retained earnings |
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Treasury
stock, at cost, at
July 3, 2021 and shares at October 3, 2020 |
( |
) |
( |
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Total Flanigan’s Enterprises, Inc. stockholders’ equity |
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Noncontrolling interest |
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Total equity |
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Total liabilities and equity |
$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THIRTEEN WEEKS ENDED JULY 3, 2021 AND JUNE 27, 2020
(in thousands)
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Capital in |
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Common Stock |
Excess of |
Retained |
Treasury Stock |
Noncontrolling |
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Shares |
Amount |
Par Value |
Earnings |
Shares |
Amount |
Interests |
Total |
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Balance, September 28, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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Net income |
— |
— |
— |
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— |
— |
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Distributions to noncontrolling interests |
— |
— |
— |
— |
— |
— |
( |
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( |
) |
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Balance, December 28, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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Net income |
— |
— |
— |
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— |
— |
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Distributions to noncontrolling interests |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) |
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Balance, March 28, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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Net income (Loss) |
— |
— |
— |
( |
) |
— |
— |
( |
) |
( |
) |
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Balance, June 27, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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Capital in |
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Common Stock |
Excess of |
Retained |
Treasury Stock |
Noncontrolling |
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Shares |
Amount |
Par Value |
Earnings |
Shares |
Amount |
Interests |
Total |
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Balance, October 3, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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Net income |
— |
— |
— |
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— |
— |
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Distributions to noncontrolling interests |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) |
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Balance, January 2, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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Net income |
— |
— |
— |
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— |
— |
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Distributions to noncontrolling interests |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) |
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Balance, April 3, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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Net income |
— |
— |
— |
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— |
— |
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Distributions to noncontrolling interests |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) |
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Balance, July 3, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED JULY 3, 2021 AND JUNE 27, 2020
(in thousands)
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July 3, 2021 |
June 27, 2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ |
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$ |
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Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: |
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Depreciation and amortization |
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Amortization of leasehold interests |
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Amortization of finance lease right-of-use asset |
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Amortization of operating lease right-of-use asset |
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Gain on forgiveness of PPP loans |
( |
) |
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Non-cash interest expense |
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Gain on sale of property and equipment |
( |
) |
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Loss on abandonment of property and equipment |
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Amortization of deferred loan costs |
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Deferred income taxes |
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( |
) |
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Income from unconsolidated limited partnership |
( |
) |
( |
) |
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Changes in operating assets and liabilities: (increase) decrease in |
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Other receivables |
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( |
) |
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Prepaid income taxes |
( |
) |
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Inventories |
( |
) |
( |
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Prepaid expenses |
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Other assets |
( |
) |
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Increase (decrease) in: |
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Accounts payable and accrued expenses |
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( |
) |
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Operating lease liabilities |
( |
) |
( |
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Due to franchisees |
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Net cash and cash equivalents provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property and equipment |
( |
) |
( |
) |
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Purchase of construction in progress |
( |
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( |
) |
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Deposits on property and equipment |
( |
) |
( |
) |
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Purchase of liquor license |
( |
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Proceeds from sale of fixed assets |
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Distributions from unconsolidated limited partnership |
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Investment in limited partnership |
( |
) |
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Net cash and cash equivalents used in investing activities |
( |
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( |
) | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED JULY 3, 2021 AND JUNE 27, 2020
(in thousands)
(Continued)
|
July 3, 2021 |
June 27, 2020 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payment of long-term debt |
( |
) |
( |
) |
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Deferred loan costs |
( |
) |
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Proceeds from long-term debt |
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Proceeds from PPP loans |
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Principal payments on finance leases |
( |
) |
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Distributions to limited partnerships noncontrolling partners |
( |
) |
( |
) | ||||
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Net cash and cash equivalents (used in) provided by financing activities |
( |
) |
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Net Increase in Cash and Cash Equivalents |
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Beginning of Period |
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End of Period |
$ |
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$ |
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Supplemental Disclosure for Cash Flow Information: Cash paid during period for: |
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Interest |
$ |
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$ |
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Income taxes |
$ |
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$ |
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Supplemental Disclosure of Non-Cash Investing and Financing Activities: |
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Financing of insurance contracts |
$ |
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$ |
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Purchase deposits transferred to property and equipment |
$ |
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$ |
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Purchase deposits transferred to CIP |
$ |
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$ |
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CIP transferred to property and equipment |
$ |
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$ |
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Operating lease liabilities arising from right-of-use asset |
$ |
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$ |
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Right-of-use assets and associated liabilities arising from adoption of ASC 842 |
$ |
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$ |
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Purchase of vehicle in exchange for debt |
$ |
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$ |
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Purchase of property in exchange for debt |
$ |
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$ |
|
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See accompanying notes to unaudited condensed consolidated financial statements.
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS AND THIRTY-NINE WEEKS ENDED
JULY 3, 2021 AND JUNE 27, 2020
(1) BASIS OF PRESENTATION:
The accompanying condensed consolidated financial information for the periods ended July 3, 2021 and June 27, 2020 are unaudited. Financial information as of October 3, 2020 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 October 3, 2020. Operating results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.
The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of the eight (8) limited partnerships in which we act as general partner and have controlling interests. All intercompany balances and transactions have been eliminated. Non-controlling interest represents the limited partners’ proportionate share of the net assets and results of operations of the eight (8) limited partnerships.
These condensed consolidated financial statements include estimates relating to performance based officers’ bonuses. The estimates are reviewed periodically and the effects of any revisions are reflected in the financial statements in the period they are determined to be necessary. Although these estimates are based on management’s knowledge of current events and actions it may take in the future, they may ultimately differ from actual results.
The condensed consolidated financial statements include estimates relating to the calculation of incremental borrowing rates and length of leases associated with right-of-use assets and corresponding liabilities.
(2) EARNINGS PER SHARE:
We follow Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Section 260 - “Earnings per Share”. This section provides for the calculation of basic and diluted earnings per share. The data on Page 2 shows the amounts used in computing earnings per share and the effects on income. As of July 3, 2021 and June 27, 2020, no stock options were outstanding.
(3) 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
(3) RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: (Continued)
Adopted (Continued)
recording a right-of-use asset and a lease liability equal to the present value of the related future minimum lease payments. We adopted the standard in the first quarter of fiscal 2020, using the modified retrospective approach. Upon adoption, 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 Condensed Consolidated Balance Sheets due to the recording of a right-of-use asset and lease liability and on the Condensed Consolidated Statements of Income due to the escalations of rent in the extensions but did not have a material impact on the Condensed Consolidated Statement of Cash Flows.
Recently Issued
There are no recently issued accounting pronouncements that we have not yet adopted that we believe will have a material effect on our 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.
(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
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) PURCHASE OF 4 COP LIQUOR LICENSE:
During
the third quarter of our fiscal year 2021, we purchased a 4 COP quota liquor license for Broward County, Florida from an unrelated third
party for $
(7) 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 (
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 $
(8) 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
(9) DEBT:
(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 $
(b) Mortgage on Real Property – North Miami, Florida
On July
1, 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 $
(c) Mortgage Extension
During
the third quarter of our fiscal 2021, a mortgage payable to a related third party, ballooned with a payment of approximately $
(d) Financed Insurance Premiums
During
the thirty-nine weeks ended July 3, 2021, we financed the premiums on the following property, general liability, excess liability and
terrorist policies, totaling approximately $
(i)For
the policy year beginning December 30, 2020, our general liability insurance, excluding limited partnerships, is a one (
(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 (
(iii)For
the policy year beginning December 30, 2020, our automobile insurance is a one (1) year policy. The one (
(iv)For
the policy year beginning December 30, 2020, our property insurance is a one (1) year policy. The one (
(v)For
the policy year beginning December 30, 2020, our excess liability insurance is a one (1) year policy. The one (
(vi)For
the policy year beginning December 30, 2020, our terrorist insurance is a one (1) year policy. The one (
(vii)For
the policy year beginning December 30, 2020, our equipment breakdown insurance is a one (1) year policy. The one (
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 $
During
the third quarter of our fiscal year 2021, we financed the premium of our directors and officers liability insurance policy for the one
(
As of July
3, 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 $
(10) COMMITMENTS AND CONTINGENCIES:
Construction Contracts
a. 2505 N. University Drive, Hollywood, Florida (Store #19)
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 $
b. 14301 W. Sunrise Boulevard, Sunrise, Florida (Store #85)
During
the third quarter of our fiscal year 2019, we also entered into an agreement with 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 $
c. 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 for the lease of a restaurant
location in a shopping center at 11225 Miramar Parkway, #250, Miramar, Florida 33024 (Store #25). The shopping center is currently in
the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises by August 28,
2021. 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 $
d. 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 for the lease of a retail
package liquor store location in a shopping center at 11225 Miramar Parkway, #245, Miramar, Florida 33024 (Store #24). The shopping center
is currently in the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises
by August 28, 2021. 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 $
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, common area maintenance and property taxes are not considered to be lease components.
The components of lease expense are as follows:
|
13 Weeks |
13 Weeks |
|||||||
|
Ended July 3, 2021 |
Ended June 27, 2020 |
|||||||
|
Finance Lease Amortization |
$ |
|
$ |
|
||||
|
Finance Lease Expense, which is included in interest expense |
|
|
||||||
|
Operating Lease Expense, which is included in occupancy costs |
|
|
||||||
|
$ |
|
$ |
|
|||||
|
39 Weeks |
39 Weeks |
|||||||
|
Ended July 3, 2021 |
Ended June 27, 2020 |
|||||||
|
Finance Lease Amortization |
$ |
|
$ |
|
||||
|
Finance Lease Expense, which is included in interest expense |
|
|
||||||
|
Operating Lease Expense, which is included in occupancy costs |
|
|
||||||
|
$ |
|
$ |
|
|||||
Supplemental balance sheet information related to leases as follows:
|
Classification on the Condensed Consolidated Balance Sheet |
July 3, 2021 |
October 3, 2020 |
||||||
|
|
||||||||
|
Assets |
||||||||
|
Finance lease assets |
$ |
|
$ |
|
||||
|
Operating lease assets |
|
|
||||||
|
$ |
|
$ |
|
|||||
|
|
||||||||
|
Liabilities |
||||||||
|
Finance current liabilities |
$ |
|
$ |
|
||||
|
Operating current liabilities |
|
|
||||||
|
Operating lease non-current liabilities |
$ |
|
$ |
|
||||
|
|
||||||||
|
Weighted Average Remaining Lease Term: |
||||||||
|
Finance leases |
— |
|
||||||
|
Operating leases |
|
|
||||||
|
|
||||||||
|
Weighted Average Discount: |
||||||||
|
Finance leases |
|
|
||||||
|
Operating leases |
|
|
||||||
|
For fiscal year 2021 |
Operating |
Finance |
||||||
|
2021 (three (3) months) |
$ |
|
$ |
|
||||
|
2022 |
|
|
||||||
|
2023 |
|
|
||||||
|
2024 |
|
|
||||||
|
2025 |
|
|
||||||
|
Thereafter |
|
|
||||||
|
|
||||||||
|
Total lease payments |
||||||||
|
(Undiscounted cash flows) |
|
|
||||||
|
Less imputed interest |
( |
) |
|
|||||
|
Total |
$ |
|
$ |
|
||||
Litigation
Our sale of alcoholic beverages subjects us to “dram shop” statutes, which allow an injured person to recover damages from an establishment that served alcoholic beverages to an intoxicated person. If we receive a judgment substantially in excess of our insurance coverage or if we fail to maintain our insurance coverage, our business, financial condition, operating results or cash flows could be materially and adversely affected. We currently have no “dram shop” claims.
We are a party to various other claims, legal actions and complaints arising in the ordinary course of our business. It is our opinion, after consulting with legal counsel, that all such matters are without merit or involve such amounts that an unfavorable disposition would not have a material adverse effect on our financial position or results of operations.
(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 the third quarter of our fiscal year 2021, in accordance with guidance from health officials, we have 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 $
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 $
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
With respect to any portion of any of the 2nd PPP Loans that is not forgiven under the terms of the PPP, such amounts will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the applicable 2nd PPP Loan and cross-defaults on any other loan with the lender or other creditors.
(12) BUSINESS SEGMENTS:
We operate
principally in
|
(in thousands) |
||||||||
|
Thirteen Weeks Ended July 3, 2021 |
Thirteen Weeks Ended June 27, 2020 |
|||||||
|
Operating Revenues: |
||||||||
|
Restaurants |
$ |
|
$ |
|
||||
|
Package stores |
|
|
||||||
|
Other revenues |
|
|
||||||
|
Total operating revenues |
$ |
|
$ |
|
||||
|
|
||||||||
|
Income (Loss) from Operations Reconciled to Income (Loss) After Income Taxes and Net Income (Loss) Attributable to Noncontrolling Interests |
||||||||
|
Restaurants |
$ |
|
$ |
( |
) |
|||
|
Package stores |
|
|
||||||
|
|
|
( |
) |
|||||
|
Corporate expenses, net of other revenues |
( |
) |
( |
) | ||||
|
Income (Loss) from operations |
|
( |
) |
|||||
|
Interest expense |
( |
) |
( |
) |
||||
|
Interest and other income |
|
|
||||||
|
Gain on extinguishment of debt |
|
|
||||||
|
Gain on sale of property and equipment |
|
|
||||||
|
Income (Loss) Before for Income Taxes |
$ |
|
$ |
( |
) |
|||
|
Benefit (Provision) for Income Taxes |
( |
) |
|
|||||
|
Net Income (Loss) |
|
( |
) |
|||||
|
Net Income (Loss) Attributable to Noncontrolling Interests |
|
( |
) | |||||
|
Net Income (Loss) 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 |
$ |
|
$ |
|
||||
|
Thirty-Nine Weeks Ended July 3, 2021 |
Thirty-Nine Weeks Ended June 27, 2020 |
|||||||
|
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 |
|
|
||||||
|
Gain on extinguishment of debt |
|
|
||||||
|
Gain on sale of property and equipment |
|
|
||||||
|
Income Before 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 |
$ |
|
$ |
|
||||
|
|
||||||||
|
July 3, |
October 3, |
|||||||
|
2021 |
2020 |
|||||||
|
Identifiable Assets: |
||||||||
|
Restaurants |
$ |
|
$ |
|
||||
|
Package store |
|
|
||||||
|
|
|
|||||||
|
Corporate |
|
|
||||||
|
Consolidated Totals |
$ |
|
$ |
|
||||
(13) SUBSEQUENT EVENTS:
Leases:
a. 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
b. 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
Subsequent events have been evaluated through the date these condensed consolidated financial statements were issued and except as disclosed herein, no further events required disclosure.
18
| 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 October 3, 2020. 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 July 3, 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 July 3, 2021 and as compared to June 27, 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 mark “Flanigan’s Seafood Bar and Grill” and all of the package liquor stores operate under our service marks “Big Daddy’s Liquors” or “Big Daddy’s Wine & Liquors”.
| Types of Units |
July 3, 2021 |
October 3, 2020 | June 27, 2020 | |
|
Company Owned: Combination package and restaurant |
3 |
3 |
3 |
(1) |
| Restaurant only | 7 | 7 | 7 | |
| Package store only | 7 | 7 | 7 | |
| Company Operated Restaurants Only: | ||||
| Limited Partnerships | 8 | 8 | 8 | |
| Franchise | 1 | 1 | 1 | |
| Unrelated Third Party | 1 | 1 | 1 | |
| Total Company Owned/Operated Units | 27 | 27 | 27 | |
| Franchised Units | 5 | 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. Store #19 remains closed through July 3, 2021.
(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.
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 the third quarter of our fiscal year 2021, in accordance with guidance from health officials, we have 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.
19
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 (4) of which are franchised to members of the family of our Chairman of the Board, officers and/or directors), are required to (i) pay to us a royalty equal to 1% of gross package store sales and 3% of gross restaurant sales; and (ii) make advertising expenditures equal to between 1.5% to 3% of all gross sales based upon our actual advertising costs allocated between stores, pro-rata, based upon gross sales.
Limited Partnership Financial Arrangement: We manage and control the operations of all restaurants owned by limited partnerships, except the Fort Lauderdale, Florida restaurant which is owned by a related franchisee. Accordingly, the results of operations of all limited partnership owned restaurants, except the Fort Lauderdale, Florida restaurant are consolidated into our operations for accounting purposes. The results of operations of the Fort Lauderdale, Florida restaurant are accounted for by us utilizing the equity method of accounting. In general, until the investors’ cash investment in a limited partnership (including any cash invested by us and our affiliates) is returned in full, the limited partnership distributes to the investors annually out of available cash from the operation of the restaurant up to 25% of the cash invested in the limited partnership, with no management fee paid to us. Any available cash in excess of the 25% of the cash invested in the limited partnership distributed to the investors annually, is paid one-half (½) to us as a management fee, with the balance distributed to the investors. Once the investors in the limited partnership have received, in full, amounts equal to their cash invested, an annual management fee is payable to us equal to one-half (½) of cash available to the limited partnership, with the other one half (½) of available cash distributed to the investors (including us and our affiliates). As of July 3, 2021, all limited partnerships have returned all cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. In addition to receipt of distributable amounts from the limited partnerships, we receive a fee equal to 3% of gross sales for use of the service mark “Flanigan’s Seafood Bar and Grill”.
RESULTS OF OPERATIONS
| -----------------------Thirteen Weeks Ended----------------------- | ||||||||||||||||
| July 3, 2021 | June 27, 2020 | |||||||||||||||
|
Amount (In thousands) |
Percent |
Amount (In thousands) |
Percent |
|||||||||||||
| Restaurant food sales | $ | 23,484 | 63.16 | $ | 14,514 | 62.44 | ||||||||||
| Restaurant bar sales | 5,617 | 15.10 | 1,630 | 7.01 | ||||||||||||
| Package store sales | 8,082 | 21.74 | 7,099 | 30.55 | ||||||||||||
| Total Sales | $ | 37,183 | 100.00 | $ | 23,243 | 100.00 | ||||||||||
| Franchise related revenues | 444 | 278 | ||||||||||||||
| Rental income | 250 | 151 | ||||||||||||||
| Other operating income (Loss) | 58 | (9 | ) | |||||||||||||
| Total Revenue | $ | 37,935 | $ | 23,663 | ||||||||||||
20
| -----------------------Thirty-Nine Weeks Ended----------------------- | ||||||||||||||||
| July 3, 2021 | June 27, 2020 | |||||||||||||||
|
Amount (In thousands) |
Percent |
Amount (In thousands) |
Percent |
|||||||||||||
| Restaurant food sales | $ | 62,501 | 61.56 | $ | 51,469 | 61.91 | ||||||||||
| Restaurant bar sales | 15,110 | 14.88 | 12,836 | 15.44 | ||||||||||||
| Package store sales | 23,923 | 23.56 | 18,833 | 22.65 | ||||||||||||
| Total Sales | $ | 101,534 | 100.00 | $ | 83,138 | 100.00 | ||||||||||
| Franchise related revenues | 1,252 | 945 | ||||||||||||||
| Rental income | 663 | 554 | ||||||||||||||
| Other operating income | 223 | 95 | ||||||||||||||
| Total Revenue | $ | 103,672 | $ | 84,732 | ||||||||||||
Comparison of Thirteen Weeks Ended July 3, 2021 and June 27, 2020.
Revenues. Total revenue for the thirteen weeks ended July 3, 2021 increased $14,272,000 or 60.31% to $37,935,000 from $23,663,000 for the thirteen weeks ended June 27, 2020 due primarily to increased package liquor store and restaurant sales, increased menu prices and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended June 27, 2020 as compared with the thirteen weeks ended July 3, 2021. Effective December 6, 2020 and then effective April 11, 2021 we increased menu prices for our food offerings to target an increase to our food revenues of approximately 2.45% and 4.60% annually, respectively, to offset higher food costs and higher overall expenses. Effective November 29, 2020 we increased menu prices for our bar offerings to target an increase to our bar revenues of approximately 1.83% annually. Prior to these increases, we previously raised menu prices in the third quarter of our fiscal year 2019. We expect that Store #19 (2505 N. University Drive, Hollywood, Florida) will remain closed during our fiscal year 2021 due to damages caused by a fire on October 2, 2018 and accordingly do not expect to generate any revenue from it.
Restaurant Food Sales. Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants totaled $23,484,000 for the thirteen weeks ended July 3, 2021 as compared to $14,514,000 for the thirteen weeks ended June 27, 2020. The increase in restaurant food sales for the thirteen weeks ended July 3, 2021 as compared to restaurant food sales during the thirteen weeks ended June 27, 2020 is attributable to menu price increases and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended June 27, 2020 as compared with the thirteen weeks ended July 3, 2021. Comparable weekly restaurant food sales (for restaurants open for all of the thirteen weeks ended July 3, 2021 and June 27, 2020 respectively, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirteen weeks ended July 3, 2021 and June 27, 2020 due to a fire on October 2, 2018) and eight restaurants owned by affiliated limited partnerships) was $1,789,000 and $1,112,000 for the thirteen weeks ended July 3, 2021 and June 27, 2020, respectively, an increase of 60.88%. Comparable weekly restaurant food sales for Company owned restaurants only was $893,000 and $547,000 for the thirteen weeks ended July 3, 2021 and June 27, 2020 respectively, an increase of 63.25%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only was $896,000 and $565,000 for the thirteen weeks ended July 3, 2021 and June 27, 2020 respectively, an increase of 58.58%.
Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants totaled $5,617,000 for the thirteen weeks ended July 3, 2021 as compared to $1,630,000 for the thirteen weeks ended June 27, 2020. The increase in restaurant bar sales during the thirteen weeks ended July 3, 2021 is primarily due to the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended June 27, 2020 as compared with the thirteen weeks ended July 3, 2021, offset by the 2021 Price Increases and 2020 Price Increases. Comparable weekly restaurant bar sales (for restaurants open for all of the thirteen weeks ended July 3, 2021 and June 27, 2020 respectively, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirteen weeks ended July 3, 2021 and June 27, 2020 due to a fire on October 2, 2018), and eight restaurants owned by affiliated limited partnerships) was $432,000 for the thirteen weeks ended July 3, 2021 and $125,000 for the thirteen weeks ended June 27, 2020, an increase of 245.60%. Comparable weekly restaurant bar sales for Company owned restaurants only was $188,000 and $50,000 for the thirteen weeks ended July 3, 2021 and June 27, 2020 respectively, an increase of 276.00%. Comparable weekly restaurant bar sales for affiliated limited partnership owned restaurants only was $244,000 and $75,000 for the thirteen weeks ended July 3, 2021 and June 27, 2020 respectively, an increase of 225.33%.
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Package Store Sales. Revenue generated from sales of liquor and related items at package liquor stores totaled $8,082,000 for the thirteen weeks ended July 3, 2021 as compared to $7,099,000 for the thirteen weeks ended June 27, 2020, an increase of $983,000. This increase was primarily due to increased package liquor store traffic due to what appears to be continued increased demand for package liquor store products resulting from COVID-19. The weekly average of same store package liquor store sales, which includes nine (9) Company-owned package liquor stores, (excluding Store #19, which was closed for the thirteen weeks ended July 3, 2021 and June 27, 2020 due to a fire on October 2, 2018, but includes Store #45, which opened for business on October 10, 2019), was $622,000 and $546,000 for the thirteen weeks ended July 3, 2021 and June 27, 2020 respectively, an increase of 13.92%.
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 July 3, 2021 increased $10,931,000 or 44.81% to $35,326,000 from $24,395,000 for the thirteen weeks ended June 27, 2020. The increase was primarily due to payroll and an expected general increase in food costs, offset by actions taken by management to reduce and/or control costs. We anticipate that our operating costs and expenses will continue to increase through our fiscal year 2021 for the same reasons. Operating costs and expenses decreased as a percentage of total revenue to approximately 93.12% in the third quarter of our fiscal year 2021 from 103.09% in the third quarter of our fiscal year 2020.
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 July 3, 2021 increased to $19,137,000 from $10,756,000 for the thirteen weeks ended June 27, 2020. 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 65.76% for the thirteen weeks ended July 3, 2021 and 66.63% for the thirteen weeks ended June 27, 2020. Gross profit margin for restaurant food and bar sales decreased during the third quarter of our fiscal year 2021 when compared to the third quarter of our fiscal year 2020 due to higher food costs, offset among other things by the menu price increases.
Package Store Sales. Gross profit for package store sales for the thirteen weeks ended July 3, 2021 increased to $2,171,000 from $1,856,000 for the thirteen weeks ended June 27, 2020, due primarily to increased package liquor store traffic which we believe is due to what appears to be continued increased demand caused by COVID-19. Our gross profit margin, (calculated as gross profit reflected as a percentage of package liquor store sales), for package store sales was 26.86% for the thirteen weeks ended July 3, 2021 and 26.14% for the thirteen weeks ended June 27, 2020.
Payroll and Related Costs. Payroll and related costs for the thirteen weeks ended July 3, 2021 increased $4,635,000 or 58.57% to $12,548,000 from $7,913,000 for the thirteen weeks ended June 27, 2020. Payroll and related costs for the thirteen weeks ended July 3, 2021 were higher due primarily to increased performance bonuses, increased hours and higher costs for employees such as cooks. Payroll and related costs as a percentage of total revenue was 33.08% in the thirteen weeks ended July 3, 2021 and 33.44% of total revenue in the thirteen weeks ended June 27, 2020.
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Occupancy Costs. Occupancy costs (consisting of percentage rent, common area maintenance, repairs, real property taxes, amortization of leasehold purchases and rent expense associated with operating lease liabilities under ASC 842) for the thirteen weeks ended July 3, 2021 increased $6,000 or 0.36% to $1,651,000 from $1,645,000 for the thirteen weeks ended June 27, 2020. The limited increase in occupancy costs was primarily due to the termination of rent for our combination retail package liquor store and restaurant located at 5450 N. State Road 7, North Lauderdale, Florida (Store #40), the real property and improvements of which we purchased on December 31, 2020 and the elimination of occupancy costs due to the elimination of rent for our restaurant location which we are developing located at 14301 West Sunrise Boulevard, Sunrise, Florida (Store #85), the real property and improvements of which we purchased on March 2, 2021. We anticipate that our occupancy costs will decrease throughout the balance of our fiscal year 2021 for the same reason.
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 July 3, 2021 increased $1,046,000 or 24.87% to $5,252,000 from $4,206,000 for the thirteen weeks ended June 27, 2020. Selling, general and administrative expenses decreased as a percentage of total revenue in the thirteen weeks ended July 3, 2021 to 13.84% as compared to 17.77% in the thirteen weeks ended June 27, 2020. We anticipate that our selling, general and administrative expenses as a percentage of total revenue will decrease throughout the balance of our fiscal year 2021 due primarily to increases in total revenue when compared to the balance of our fiscal year 2020.
Depreciation and Amortization. Depreciation and amortization expense for the thirteen weeks ended July 3, 2021 decreased $38,000 or 4.70% to $770,000 from $808,000 from the thirteen weeks ended June 27, 2020. As a percentage of total revenue, depreciation and amortization expense was 2.03% of revenue in the thirteen weeks ended July 3, 2021 and 3.41% of revenue in the thirteen weeks ended June 27, 2020.
Interest Expense, Net. Interest expense, net, for the thirteen weeks ended July 3, 2021 increased $14,000 to $210,000 from $196,000 for the thirteen weeks ended June 27, 2020. Interest expense, net, increased for the thirteen weeks ended July 3, 2021 due to interest on our borrowing of $2,200,000 during the second quarter of our fiscal year 2021 from an unrelated third party lender used to finance our purchase of the real property and improvements located at 14301 West Sunrise Boulevard, Sunrise, Florida (Store #85) (the “$2.2 Million Borrowing”) and the borrowing by six of our limited partnerships of an additional approximately $3.35 million of 2nd PPP Loans during the second quarter of our fiscal year 2021. Interest expense, net, will increase throughout the balance of our fiscal year 2021 due to (i) the $2.2 Million Borrowing; (ii) our borrowing of $4,300,000 during the third quarter of our fiscal year 2021 from an unrelated third party lender to re-finance our mortgage loan of our property located at 13105 – 13205 Biscayne Boulevard, North Miami, Florida (Store #20); and (iii) the borrowing by certain of our limited partnerships of an additional $3.35 million of 2nd PPP Loans during the second quarter of our fiscal year 2021, if not forgiven.
Income Taxes. Income tax for the thirteen weeks ended July 3, 2021 was an expense of $475,000, as compared to a benefit of $53,000 for the thirteen weeks ended June 27, 2020. Income tax for the third quarter of our fiscal year 2021 was not affected by the forgiveness of debt of certain of the PPP Loans, pursuant to the terms of the PPP Loans.
Net Income (Loss). Net income for the thirteen weeks ended July 3, 2021 increased $9,284,000 or 1,075.78% to $8,421,000 from a loss of $863,000 for the thirteen weeks ended June 27, 2020 due primarily to the forgiveness of debt of certain of the PPP Loans and increased revenue at our retail package liquor stores and restaurants, offset by higher food costs and overall expenses. As a percentage of revenue, net income for the thirteen weeks ended July 3, 2021 is 22.20%, as compared to (3.65%) in the thirteen weeks ended June 27, 2020.
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Net Income (Loss) Attributable to Stockholders. Net income attributable to stockholders for the thirteen weeks ended July 3, 2021 increased $7,654,000 or 1,682.20% to $7,199,000 from a loss of $455,000 for the thirteen weeks ended June 27, 2020 due primarily to the forgiveness of debt of certain of the PPP Loans and increased revenue at our retail package liquor stores and restaurants, offset by higher food costs and overall expenses. As a percentage of revenue, net income attributable to stockholders for the third quarter of our fiscal year 2021 is 18.98%, as compared to (1.92%) in the third quarter of our fiscal year 2020.
Comparison of Thirty-Nine Weeks Ended July 3, 2021 and June 27, 2020.
Revenues. Total revenue for the thirty-nine weeks ended July 3, 2021 increased $18,940,000 or 22.35% to $103,672,000 from $84,732,000 for the thirty-nine ended June 27, 2020 due primarily to increased package liquor store and restaurant sales, increased menu prices and the comparatively more adverse effects of COVID-19 on our operations during the thirty-nine weeks ended June 27, 2020 as compared with the thirty-nine weeks ended July 3, 2021. We expect that Store #19 (2505 N. University Drive, Hollywood, Florida) will remain closed during our fiscal year 2021 due to damages caused by a fire on October 2, 2018 and accordingly do not expect to generate any revenue from it.
Restaurant Food Sales. Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants totaled $62,501,000 for the thirty-nine weeks ended July 3, 2021 as compared to $51,469,000 for the thirty-nine weeks ended June 27, 2020. The increase in restaurant food sales for the thirty-nine weeks ended July 3, 2021 as compared to restaurant food sales during the thirty-nine ended June 27, 2020 is attributable to menu price increases and the comparatively more adverse effects of COVID-19 on our operations during the thirty-nine weeks ended June 27, 2020 as compared with the thirty-nine weeks ended July 3, 2021. Comparable weekly restaurant food sales (for restaurants open for the thirty-nine weeks ended July 3, 2021 and June 27, 2020 respectively, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirty-nine weeks ended July 3, 2021 and June 27, 2020 respectively, due to a fire on October 2, 2018) and eight restaurants owned by affiliated limited partnerships) was $1,590,000 and $1,310,000 for the thirty-nine weeks ended July 3, 2021 and June 27, 2020 respectively, an increase of 21.37%. Comparable weekly restaurant food sales for Company owned restaurants only was $787,000 and $660,000 for the thirty-nine weeks ended July 3, 2021 and June 27, 2020 respectively, an increase of 19.24%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only was $803,000 and $650,000 for the thirty-nine weeks ended July 3, 2021 and June 27, 2020 respectively, an increase of 23.54%.
Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants totaled $15,110,00 for the thirty-nine weeks ended July 3, 2021 as compared to $12,836,000 for the thirty-nine weeks ended June 27, 2020. The increase in restaurant bar sales during the thirty-nine weeks ended July 3, 2021 is primarily due to menu price increases, offset by the comparatively more adverse effects of COVID-19 on our operations during the thirty-nine weeks ended June 27, 2020 as compared with the thirty-nine weeks ended July 3, 2021. Comparable weekly restaurant bar sales (for restaurants open for the thirty-nine weeks ended July 3, 2021 and June 27, 2020, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirty-nine weeks ended July 3, 2021 and June 27, 2020 due to a fire on October 2, 2018), and eight restaurants owned by affiliated limited partnerships) was $387,000 for the thirty-nine weeks ended July 3, 2021 and $329,000 for the thirty-nine weeks ended June 27, 2020 respectively, an increase of 17.63%. Comparable weekly restaurant bar sales for Company owned restaurants only was $165,000 and $149,000 for the thirty-nine weeks ended July 3, 2021 and June 27, 2020, respectively, an increase of 10.74%. Comparable weekly restaurant bar sales for affiliated limited partnership owned restaurants only was $222,000 and $180,000 for the thirty-nine weeks ended July 3, 2021 and June 27, 2020, respectively, an increase of 23.33%.
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Package Store Sales. Revenue generated from sales of liquor and related items at package liquor stores totaled $23,923,000 for the thirty-nine weeks ended July 3, 2021 as compared to $18,833,000 for the thirty-nine weeks ended June 27, 2020, an increase of $5,090,000. This increase was primarily due to increased package liquor store traffic due to what appears to be continued increased demand for package store products caused by COVID-19 . The weekly average of same store package liquor store sales, which includes nine (9) Company-owned package liquor stores, (excluding Store #19, which was closed for the thirty-nine weeks ended July 3, 2021 and June 27, 2020 respectively due to a fire on October 2, 2018, but includes Store #45, which opened for business on October 10, 2019), was $613,000 and $483,000 for the thirty-nine weeks ended July 3, 2021 and June 27, 2020 respectively, an increase of 26.92%.
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 thirty-nine weeks ended July 3, 2021 increased $14,284,000 or 17.27% to $97,000,000 from $82,716,000 for the thirty-nine weeks ended June 27, 2020. The increase was primarily due to payroll and an expected general increase in food costs, offset by actions taken by management to reduce and/or control costs. We anticipate that our operating costs and expenses will continue to increase through our fiscal year 2021 for the same reasons. Operating costs and expenses decreased as a percentage of total revenue to approximately 93.56% in the thirty-nine weeks ended July 3, 2021 from 97.62% in the thirty-nine weeks ended June 27, 2020.
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 thirty-nine weeks ended July 3, 2021 increased to $51,663,000 from $42,593,000 for the thirty-nine weeks ended June 27, 2020. 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 66.57% for the thirty-nine weeks ended July 3, 2021 and 66.24% for the thirty-nine weeks ended June 27, 2020. Gross profit margin for restaurant food and bar sales increased during the thirty-nine weeks ended July 3, 2021 when compared to the thirty-nine weeks ended June 27, 2020 due to, among other things, menu price increases and the comparatively more adverse effects of COVID-19 on our operations during the thirty-nine weeks ended June 27, 2020 as compared with the thirty-nine weeks ended July 3, 2021, offset by higher food costs.
Package Store Sales. Gross profit for package liquor store sales for the thirty-nine weeks ended July 3, 2021 increased to $6,493,000 from $5,125,000 for the thirty-nine weeks ended June 27, 2020, due primarily to increased package liquor store traffic which we believe is due to what appears to be continues increased demand for package store products caused by COVID-19. Our gross profit margin, (calculated as gross profit reflected as a percentage of package liquor store sales), for package store sales was 27.14% for the thirty-nine weeks ended July 3, 2021 and 27.21% for the thirty-nine weeks ended June 27, 2020.
Payroll and Related Costs. Payroll and related costs for the thirty-nine weeks ended July 3, 2021 increased $5,893,000 or 22.17% to $32,475,000 from $26,582,000 for the thirty-nine weeks ended June 27, 2020. Payroll and related costs for the thirty-nine weeks ended July 3, 2021 were higher due primarily to increased performance bonuses, increased hours and higher costs for employees such as cooks. Payroll and related costs as a percentage of total revenue was 31.32% in the thirty-nine weeks ended July 3, 2021 and 31.37% of total revenue in the thirty-nine weeks ended June 27, 2020.
Occupancy Costs. Occupancy costs (consisting of percentage rent, common area maintenance, repairs, real property taxes, amortization of leasehold purchases and rent expense associated with operating lease liabilities under ASC 842) for the thirty-nine weeks ended July 3, 2021 decreased $296,000 or 5.53% to $5,059,000 from $5,355,000 for the thirty-nine weeks ended June 27, 2020. The decrease in occupancy costs was primarily due to the termination of rent for our combination retail package liquor store and restaurant located at 5450 N. State Road 7, North Lauderdale, Florida (Store #40), the real property and improvements of which we purchased on December 31, 2020 and the elimination of occupancy costs due to the elimination of rent for our restaurant location which we are developing located at 14301 West Sunrise Boulevard, Sunrise, Florida (Store #85), the real property and improvements of which we purchased on March 2, 2021. We anticipate that our occupancy costs will decrease throughout the balance of our fiscal year 2021.
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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 thirty-nine weeks ended July 3, 2021 increased $729,000 or 4.75% to $16,088,000 from $15,359,000 for the thirty-nine weeks ended June 27, 2020. Selling, general and administrative expenses decreased as a percentage of total revenue in the thirty-nine weeks ended July 3, 2021 to 15.52% as compared to 18.13% in the thirty-nine weeks ended June 27, 2020. We anticipate that our selling, general and administrative expenses will decrease as a percentage of total revenue throughout the balance of our fiscal year 2021 due primarily to increases in total revenue when compared to the balance of our fiscal year 2020.
Depreciation and Amortization. Depreciation and amortization expense for the thirty-nine weeks ended July 3, 2021 decreased $135,000 or 5.53% to $2,306,000 from $2,441,000 from the thirty-nine weeks ended June 27, 2020. As a percentage of total revenue, depreciation and amortization expense was 2.22% of revenue in the thirty-nine weeks ended July 3, 2021 and 2.88% of revenue in the thirty-nine weeks ended June 27, 2020.
Interest Expense, Net. Interest expense, net, for the thirty-nine weeks ended July 3, 2021 increased $139,000 to $737,000 from $598,000 for the thirty-nine weeks ended June 27, 2020. Interest expense, net, increased for the thirty-nine weeks ended July 3, 2021 due to (i) the $2.2 Million Borrowing; and (ii) the borrowing by six of our limited partnerships of an additional approximately $3.35 million of 2nd PPP Loans, both of which borrowings occurred during the second quarter of our fiscal year 2021. Interest expense, net, will increase throughout the balance of our fiscal year 2021 due to (i) the $2.2 Million Borrowing; (ii) our borrowing of $4,300,000 during the third quarter of our fiscal year 2021 from an unrelated third party lender to re-finance our mortgage loan of our property located at 13105 – 13205 Biscayne Boulevard, North Miami, Florida (Store #20); and (iii) the borrowing by certain of our limited partnerships of an additional $3.35 million of 2nd PPP Loans during the second quarter of our fiscal year 2021, if not forgiven.
Income Taxes. Income tax for the thirty-nine weeks ended July 3, 2021 was an expense of $1,004,000, as compared to a benefit of $23,000 for the thirty-nine weeks ended June 27, 2020. Income tax for the thirty-nine weeks ended July 3, 2021 was not affected by the forgiveness of debt of certain of the PPP Loans, pursuant to the terms of the PPP Loans.
Net Income. Net income for the thirty-nine weeks ended July 3, 2021 increased $13,667,000 or 924.70% to $15,145,000 from $1,478,000 for the thirty-nine weeks ended June 27, 2020 due primarily to the forgiveness of debt of certain of the PPP Loans and increased revenue at our retail package liquor stores and restaurants, offset by higher food costs and overall expenses. As a percentage of revenue, net income for the thirty-nine weeks ended July 3, 2021 is 14.61%, as compared to 1.74% in the thirty-nine weeks ended June 27, 2020.
Net Income Attributable to Stockholders. Net income attributable to stockholders for the thirty-nine weeks ended July 3, 2021 increased $9,743,000 or 1,418.20% to $10,430,000 from $687,000 for the thirty-nine weeks ended June 27, 2020 due primarily to the forgiveness of debt of certain of the PPP Loans and increased revenue at our retail package liquor stores and restaurants, offset by higher food costs and overall expenses. As a percentage of revenue, net income attributable to stockholders for the thirty-nine weeks ended July 3, 2021 is 10.06%, as compared to 0.81% for the thirty-nine weeks ended June 27, 2020.
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New Limited Partnership Restaurants
As new restaurants open, our income from operations will be adversely affected due to our obligation to advance pre-opening costs, including but not limited to pre-opening rent for the new locations. During the thirteen weeks ended July 3, 2021, we had one new restaurant location in Sunrise, Florida in the development stage. During the fourth quarter of our fiscal year 2019, we entered leases for two spaces adjacent to each other, to house a new “Flanigan’s Seafood Bar and Grill” as well as a “Big Daddy’s Wine and Liquors” in a shopping center in Miramar, Florida, which shopping center is currently under construction.
Menu Price Increases and Trends
During the third quarter of our fiscal year 2021, we increased menu prices for our food offerings (effective April 11, 2021) to target an increase to our food revenues of approximately 4.60% annually to offset higher food costs and higher overall expenses.
During the first quarter of our fiscal year 2021, we increased menu prices for our bar offerings (effective November 29, 2020) to target an increase to our bar revenues of approximately 1.83% annually and we increased menu prices for our food offerings (effective December 6, 2020) to target an increase to our food revenues of approximately 2.45% annually to offset higher food costs and higher overall expenses. Prior to these increases, we previously raised menu prices in the third quarter of our fiscal year 2019.
COVID-19 has and will continue to materially and adversely affect our restaurant business for what may be a prolonged period of time. This damage and disruption has resulted from events and factors that were impossible for us to predict and are beyond our control. As a result, COVID-19 has materially adversely affected our results of operations for the thirteen weeks ended July 3, 2021 and will, in all likelihood, impact our results of operations, liquidity and/or financial condition throughout the remainder of our fiscal year 2021. 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.
We are not actively searching for locations for the operation of new package liquor stores, but during the fourth quarter of our fiscal year 2019, we entered a lease to house a new “Big Daddy’s Wine & Liquors” package liquor store in space adjacent to where we are planning a new “Flanigan’s Seafood Bar and Grill”, restaurant in a shopping center in Miramar, Florida, which shopping center is currently under construction.
Liquidity and Capital Resources
We fund our operations through cash from operations and borrowings from third parties. As of July 3, 2021, we had cash of approximately $31,953,000, an increase of $2,031,000 from our cash balance of $29,922,000 as of October 3, 2020. During the second quarter of our fiscal year 2021, we closed on the purchase of the real property and improvements located at 14301 West Sunrise Boulevard, Sunrise, Florida where we are developing a “Flanigan’s Seafood Bar and Grill” restaurant (Store #85) for $4,800,000. 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. During the first quarter of our fiscal year 2021, we closed on the purchase of the real property and improvements 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) and paid $1,200,000 cash at closing. 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 (the “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. During the second quarter of our fiscal year 2021, we applied for forgiveness for all PPP Loans, including Franchisees and the Managed Store. As of July 3, 2021, the entire amount of principal and accrued interest was forgiven under the PPP Loans. During the first quarter of our fiscal year 2020, our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, re-financed its mortgage loan with an unrelated third party lender, increasing the principal amount borrowed from $2.72 million to $7.21 million.
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During the second quarter of our fiscal year 2021, 6 of the entities owning limited partnership stores (the “LP’s”) and the store we manage but do not own (the “Managed Store”) (collectively, the “Borrowers”), applied for and received net amounts of approximately $3.98 million from the 2nd PPP Loans, of which approximately: (i) $3.35 million was loaned to 6 of the LP’s ; and (ii) $0.63 million was loaned to the Managed Store.
Notwithstanding the negative effects of COVID 19 on our operations, we believe that our current cash availability from our cash on hand, positive cash flow from operations and borrowed funds will be sufficient to fund our operations and planned capital expenditures for at least the next twelve months.
Cash Flows
The following table is a summary of our cash flows for the thirty-nine weeks ended July 3, 2021 and June 27, 2020.
| ---------Thirty-Nine Weeks Ended-------- | ||||||||
| July 3, 2021 | June 27, 2020 | |||||||
| (in Thousands) | ||||||||
| Net cash provided by operating activities | $ | 11,523 | $ | 7,437 | ||||
| Net cash used in investing activities | (8,374 | ) | (2,448 | ) | ||||
| Net cash provided by (used in) financing activities | (1,118 | ) | 11,821 | |||||
| Net Increase in Cash and Cash Equivalents | 2,031 | 16,810 | ||||||
| Cash and Cash Equivalents, Beginning | 29,922 | 13,672 | ||||||
| Cash and Cash Equivalents, Ending | $ | 31,953 | $ | 30,482 | ||||
During the thirty-nine weeks ended July 3, 2021, we did not declare or pay a cash dividend on our capital stock. During the thirty-nine weeks ended June 27, 2020, due to the negative effects of COVID 19 on our operations, our Board of Directors cancelled a previously declared cash dividend of $.30 per share to shareholders of record on March 20, 2020 and payable on April 3, 2020. 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 to fund the development and construction of new restaurants and to fund capitalized property improvements for our existing restaurants. During the thirty-nine weeks ended July 3, 2021, we acquired property, plant and equipment and construction in progress of $9,683,000, (of which $58,000 was for the purchase of a motor vehicle; $2,200,000 was for the purchase of real property; $14,000 was deposits recorded in other assets and $18,000 was purchase deposits transferred to construction in process as of October 3, 2020), which amount included $35,000 for the renovation to two (2) existing limited partnership restaurants and $70,000 for renovations to two (2) Company owned restaurants. During the thirty-nine weeks ended June 27, 2020, we acquired property, plant and equipment and construction in progress of $2,171,000, (of which $96,000 was deposits recorded in other assets and $2,000 was purchase deposits transferred to construction in process as of September 28, 2019), which amount included $263,000 for the renovation to two (2) existing limited partnership restaurants and $429,000 for renovations to five (5) Company owned restaurants.
All of our owned units require periodic refurbishing in order to remain competitive. We anticipate the cost of this refurbishment in our fiscal year 2021 to be approximately $950,000, excluding construction/renovations to Store #19 (our combination package liquor store and restaurant which is being rebuilt due to damages caused by a fire) and Store #85 (our Sunrise, Florida restaurant location in development), which funds will be provided from operations.
Long-Term Debt
As of July 3, 2021, we had long-term debt of $20,211,000, as compared to $26,323,000 as of October 3, 2020. Our long term debt decreased due to the forgiveness of our PPP Loan and the PPP Loans of our limited partnerships. As of July 3, 2021, we are in compliance with the covenants of all loans with our lenders.
As of July 3, 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 $226,000), which are not included in our consolidated financial statements is $798,000.
Construction Contracts
a. 2505 N. University Drive, Hollywood, Florida (Store #19)
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 2018 due to damages caused by a fire, of which $62,000 has been paid. Additionally, during the third quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated general contractor for site work at this location totaling $1,618,000, (i) to connect the real property where this restaurant operated (Store #19) to city sewer and (ii) to construct a new building on the adjacent parcel of real property for the operation of a package liquor store. During our fiscal year 2020 and the first, second and third quarters of our fiscal year 2021, we agreed to change orders to the agreement for additional construction services increasing the total contract price by $490,000 to $2,107,000, of which $767,000 of the total amount obligated has been paid through July 3, 2021 and an additional $194,000 has been paid subsequent to the end of the third quarter of our fiscal year 2021.
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b. 14301 W. Sunrise Boulevard, Sunrise, Florida (Store #85)
During the third quarter of our fiscal year 2019, we also entered into an agreement with 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 July 3, 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 the third quarter of our fiscal year 2021 we agreed to change orders to the agreement for additional interior renovations increasing the total contract price by $131,000 to $1,367,000, of which $820,000 has been paid through July 3, 2021 and an additional $101,000 has been paid subsequent to the end of the third quarter of our fiscal year 2021.
c. 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 for the lease of a restaurant location in a shopping center at 11225 Miramar Parkway, #250, Miramar, Florida 33024 (Store #25). The shopping center is currently in the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises by August 28, 2021. 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 total amount has been paid in full through July 3, 2021.
d. 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 for the lease of a retail package liquor store location in a shopping center at 11225 Miramar Parkway, #245, Miramar, Florida 33024 (Store #24). The shopping center is currently in the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises by August 28, 2021. 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 total amount has been paid in full through July 3, 2021.
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 at a fixed cost. Subsequent to the end of 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.
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While we anticipate purchasing all of our rib supply from this vendor, we believe there are several other alternative vendors available, if needed.
Working Capital
The table below summarizes the current assets, current liabilities, and working capital for our fiscal quarters ended July 3, 2021, June 27, 2020 and our fiscal year ended October 3, 2020.
| Item | July 3, 2021 | June 27, 2020 | Oct. 3, 2020 | |||||||||
| (in Thousands) | ||||||||||||
| Current Assets | $ | 39,768 | $ | 37,288 | $ | 36,508 | ||||||
| Current Liabilities | 20,796 | 21,164 | 25,362 | |||||||||
| Working Capital | $ | 18,972 | $ | 16,124 | $ | 11,146 | ||||||
Our working capital increased during our fiscal quarter ended July 3, 2021 from our working capital for our fiscal quarter ended June 27, 2020 and our working capital as of October 3, 2020 due to our receipt of $3.35 million from the 2nd PPP Loans.
While there can be no assurance due to, among other things, unanticipated expenses or unanticipated decline in revenues, or both, we believe that our cash on hand, positive cash flow from operations and borrowed funds will adequately fund operations, debt reductions and planned capital expenditures for the next twelve months.
Off-Balance Sheet Arrangements
We do not have off-balance sheet arrangements.
Inflation
The primary inflationary factors affecting our operations are food, beverage and labor costs. A large number of restaurant personnel are paid at rates based upon applicable minimum wage and increases in minimum wage directly affect labor costs. To date, inflation has not had a material impact on our operating results, but this circumstance may change in the future if food and fuel costs rise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not ordinarily hold market risk sensitive instruments for trading purposes and as of July 3, 2021 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 12 “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 October 3, 2020, we use interest rate swap agreements to manage these risks. These instruments are not used for speculative purposes but are used to modify variable rate obligations into fixed rate obligations.
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At July 3, 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 a term loan (the “Term Loan”).
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) The first 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 July 3, 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 and became effective December 28, 2017, relates to the Term Loan (the “Term Loan Swap”). The Term Loan Swap 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 – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at July 3, 2021, the interest rate swap agreement is an effective hedging agreement and the fair value was not material
At July 3, 2021, our cash resources earn interest at variable rates. Accordingly, our return on these funds is affected by fluctuations in interest rates.
There is no assurance that interest rates will increase or decrease over our next fiscal year or that an increase will not have a material adverse effect on our operations.
ITEM 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.
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As of July 3, 2021, 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 our disclosure controls and procedures were not effective as of July 3, 2021.
Material Weakness in Internal Control Over Financial Reporting
During the first quarter of our fiscal year 2021, we identified a material weakness in internal control related to our effectiveness in distinguishing between an operating lease and a finance lease for purposes of applying Accounting Standards Codification 842, Leases (“ASC 842”). We adopted ASC 842 on September 29, 2019.
We have not identified any material misstatements to our previously issued financial statements.
Remediation Measures
To address the material weakness described above we have been implementing and continue to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated and that such controls are designed, implemented and operating effectively. The remediation actions include (i) developing a training program for our accounting personnel designed to ensure that they have the relevant expertise related to the application of ASC 842; (ii) developing and maintaining documentation relating to ASC 842 to promote knowledge transfer when changes occur in personnel; (iii) implementing a management review plan to monitor the impact of ASC 842 with focus on our financial reporting processes, which includes the quarterly review of all new or remeasured leases from our outside consultants to ensure the proper classification; and (iv) reporting on the remediation measures to the Audit Committee and the Board of Directors.
Changes in Internal Control Over Financial Reporting
During the period covered by this report, 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See “Litigation” on page 12 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 October 3, 2020 for a discussion of other legal proceedings resolved in prior years.
ITEM 1A. RISK FACTORS
For a detailed discussion of the risks that affect our business, please refer to the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended October 3, 2020 filed with the SEC on January 15, 2021 as well as other periodic reports.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchase of Company Common Stock
During the thirty-nine weeks ended July 3, 2021 and June 27, 2020, we did not purchase any shares of our common stock. As of July 3, 2021, 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:
| Exhibit | Description | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| Exhibit 101.INS XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||
| Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema Document. | ||
| Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||
| Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. | ||
| Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||
| Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||
| Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||
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: August 17, 2021 | /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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