FORM 10-K
For the fiscal year ended September 30, 2023
For the transition period from ____________
to ____________
Commission File Number 001-06836
FLANIGAN'S ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
(Address of Principal Executive Offices) (Zip Code)
(954)377-1961
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, $0.10 par value BDL NYSE AMERICAN
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒
Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by
check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its annual report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
As of March 31, 2023, the last business day
of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates
of the registrant was $23,800,000 (based on the closing price of the common stock as reported on the NYSE AMERICAN of $28.28 per share).
There were 1,858,647 shares of the Registrant's Common Stock, $0.10
par value, outstanding as of December 29, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part III (Items 10,
11, 12, 13 and 14) hereof is incorporated by reference to portions of the Registrant’s Proxy Statement for the 2024 Annual Meeting
of Shareholders which will be filed with the Securities and Exchange Commission no later than 120 days after the end of the registrant’s
fiscal year covered by this report.
FLANIGAN'S
ENTERPRISES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I
Item 1 Business 1
Item 1A Risk Factors 12
Item 1B Unresolved Staff Comments 22
Item 2 Properties 23
Item 3 Legal Proceedings 31
Item 4 Mine Safety Disclosures 31
PART II
Item 6 Reserved 32
Item 7A Quantitative and Qualitative Disclosures About Market Risk 41
Item 8 Financial Statements and Supplementary Data 42
Item 9A Controls and Procedures 42
Item 9B Other Information 43
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 43
PART III
Item 10 Directors, Executive Officers and Corporate Governance 43
Item 11 Executive Compensation 43
Item 14 Principal Accountant Fees and Services 43
PART IV
Item 15 Exhibits and Financial Statement Schedules 44
SIGNATURES 47
EXHIBIT INDEX
LIST XBRL DOCUMENTS
As used in this Annual Report on Form 10-K, the
terms “we,” “us,” “our,” the “Company” and “Flanigan’s” mean Flanigan's
Enterprises, Inc. and its subsidiaries (unless the context indicates a different meaning).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report, including,
without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended
(“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). These
forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,”
“anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,”
“projects,” “predicts,” “continue,” or “should,” “could”, “may”,
“might”, “will” and “would” or, in each case, their negative or other variations or comparable terminology.
There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited
to, any statements relating to the future effects of the COVID 19 pandemic, (“COVID 19”) the general expansion of our business
and other statements which are not statements of current or historical facts.
The forward-looking statements
contained in this annual report are based on our current expectations and beliefs concerning future developments and their potential effects
on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of
risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially
different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited
to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize,
or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking
statements. We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the dates on which
they are made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk
Factors” may not be exhaustive.
By their nature, forward-looking
statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the
future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations,
financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested
by the forward-looking statements contained in this annual report. In addition, even if our results of operations, financial condition
and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this
annual report, those results or developments may not be indicative of results or developments in subsequent periods.
PART I
ITEM 1. BUSINESS
General
As of September 30,
2023, Flanigan’s Enterprises, Inc., a Florida corporation, together with its subsidiaries (“we”, “our”,
“ours” and “us” as the context requires), (i) operates 31 units, consisting of restaurants, package liquor stores,
combination restaurant/package liquor stores and a sports bar that we either own or have operational control over and partial ownership
in; and franchises an additional five units, consisting of two restaurants (one of which we operate) and three combination restaurant/package
liquor stores. The table below provides information concerning the type (i.e. restaurant, sports bar, package liquor store or combination
restaurant/package liquor store) and ownership of the units (i.e. whether (i) we own 100% of the unit; (ii) the unit is owned by a limited
partnership of which we are the sole general partner and/or have invested in; or (iii) the unit is franchised by us), as of September
30, 2023 and as compared to October 1, 2022. With the exception of “The Whale’s Rib”, a restaurant we operate but do
not own, and “Brendan’s Sports Pub” a restaurant/bar we own, all of the restaurants operate under our service marks
“Flanigan’s Seafood Bar and Grill” or “Flanigan’s” and all of the package liquor stores operate under
our service marks “Big Daddy’s Liquors” or “Big Daddy’s Wine & Liquors”.
TYPES OF UNITS FISCAL YEAR 2023 FISCAL YEAR 2022
Company Owned:
Combination package liquor store and restaurant 3 3
Restaurant only, including sports bar 8 8 (1)
Package liquor store only 8 7 (2) (3)
Company Managed Restaurants Only:
Limited partnerships 10 10 (4)
Franchise 1 1
Unrelated Third Party 1 1
Total Company Owned/Operated Units 31 30
Franchised Units 5 5 (5)
____________________
Notes:
(1) During the third quarter of our fiscal year 2022,
we entered into a new lease for the business premises and purchased the assets of a restaurant/bar known as “Brendan’s Sports
Pub” located at 868 S. Federal Highway, Pompano Beach, Florida and began operating the location under its current trade name.
(2) During the first quarter of our fiscal year 2019,
our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19), was damaged by
a fire which has caused it to be closed since the first quarter of our fiscal year 2019. During the first quarter of our fiscal year 2023,
we opened our newly built stand-alone package liquor store on this site replacing our package liquor store destroyed by fire and previously
operating here (Store #19P). We are constructing a stand-alone restaurant building on this site (adjacent to the package liquor store),
replacing our restaurant destroyed by fire and previously operating here (Store #19R). This restaurant was not operational during our
fiscal year 2023, but we believe this restaurant will be operational during our fiscal year 2024.
(3) During the second quarter of our fiscal year 2023,
our package liquor store located at 11225 Miramar Parkway #245, Miramar, Florida (Store #24) opened for business.
(4) During the second quarter of our fiscal year 2022,
our limited partnership owned restaurant located at 14301 West Sunrise Boulevard, Sunrise, Florida (Store #85) opened for business (the
“2022 Sunrise Restaurant”). During the third quarter of our fiscal year 2023, our limited partnership owned restaurant located
at 11225 Miramar Parkway #250, Miramar, Florida (Store #25) opened for business (the “2023 Miramar Restaurant”).
(5) 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.
1
History and Development of Our Business
We were incorporated in Florida
in 1959 and commenced operating as a chain of small cocktail lounges and package liquor stores throughout South Florida. By 1970, we had
established a chain of "Big Daddy's" lounges and package liquor stores between Vero Beach and Homestead, Florida. From 1970
to 1979, we expanded our package liquor store and lounge operations throughout Florida and opened clubs in five other "Sun Belt"
states. In 1975, we discontinued most of our package store operations in Florida except in the South Florida areas of Miami-Dade, Broward,
Palm Beach and Monroe Counties. In 1982, we expanded our club operations into the Philadelphia, Pennsylvania area as general partner of
several limited partnerships we organized. In March 1985, we began franchising package liquor stores and lounges in the South Florida
area. (See Note 14 to the consolidated financial statements and the discussion of franchised units on pages 3 and 4).
During our fiscal year 1987, we
began renovating our lounges to provide full restaurant food service, and subsequently renovated and added food service to most of our
lounges. Food sales currently represent approximately 78.71% and bar sales approximately 21.29% of our total restaurant sales.
Our package liquor stores emphasize
high volume business by providing customers with a wide variety of brand name and private label merchandise at discount prices. Our restaurants
and our new sports bar establishment offer alcoholic beverages and food service with abundant portions and reasonable prices, served in
a relaxed, friendly and casual atmosphere.
We conduct our operations directly
and through a number of limited partnerships and wholly owned subsidiaries, all of which are listed below. Our subsidiaries and the limited
partnerships, (except for the limited partnership, where we are not the general partner, which owns and operates our franchised restaurant
in Fort Lauderdale, Florida) are reported on a consolidated basis.
Entity State Of Organization Percentage Owned
Flanigan’s Management Services, Inc. Florida 100
Flanigan’s Enterprises, Inc. of Georgia Georgia 100
Flanigan’s Enterprises of N. Miami, Inc. Florida 100
CIC Investors #13, Limited Partnership Florida 45
CIC Investors #25, Limited Partnership Florida --
CIC Investors #50, Limited Partnership Florida 24
CIC Investors #55, Limited Partnership Florida 49
CIC Investors #60, Limited Partnership Florida 46
CIC Investors #65, Limited Partnership Florida 28
CIC Investors #70, Limited Partnership Florida 41
CIC Investors #80, Limited Partnership Florida 27
CIC Investors #85, Limited Partnership Florida 7
CIC Investors #90, Limited Partnership Florida 5
Josar Investments, LLC Florida 100
Flanigan’s Calusa Center, LLC Florida 100
Flanigan’s Fish Company, LLC Florida 51
2
Package Liquor Store Operations
Our package liquor stores emphasize
high volume business by providing customers with a wide selection of brand name and private label liquors, beers and wines while offering
competitive pricing by meeting the published sales prices of our competitors. We provide sales training to our package liquor store personnel.
The stores are open for business seven days a week from 9:00-10:00 a.m. to 9:00-10:00 p.m., depending upon demand and local law. Most
of our units have "night windows" with extended evening hours.
Company-Owned Package Liquor
Stores. As of our fiscal year ended September 30, 2023, we own and operate eleven package liquor stores in the South Florida area
under the name “Big Daddy’s Liquors” or “Big Daddy’s Wine & Liquors”, two of which are jointly
operated with restaurants we own.
Franchised Package Liquor Stores.
We currently franchise three package liquor stores, all in the South Florida area, all of which are operated under the name “Big
Daddy’s Liquors”. Of the three franchised package liquor stores, two are jointly operated with our franchisee’s restaurant
operations and one is operated in a freestanding building adjacent to the franchisee’s restaurant operation. Two of the three franchised
package liquor stores are franchised to members of the family of our Chairman of the Board, officers and/or directors. We have not entered
into a franchise arrangement for either a package liquor store, restaurant or combination package liquor store/restaurant since 1986 and
do not anticipate that we will do so in the foreseeable future.
Generally, a franchise agreement
with our franchisees for the operation of a package liquor store runs for the balance of the term of the franchisee’s lease for
the business premises, extended by the franchisee’s continued occupancy of the business premises thereafter, whether by lease or
ownership. In exchange for our providing management and related services to the franchisee and our granting the right to the franchisee
to use our service mark, “Big Daddy’s Liquors”, franchisees of package liquor stores pay us weekly in arrears, (i) a
royalty equal to approximately 1% of gross sales; plus (ii) an amount for advertising equal to between 1-1/2% to 3% of gross sales generated
at the stores depending upon our actual advertising costs.
For accounting purposes, we do
not consolidate the revenue and expenses of our franchisees’ operations with our revenue and expenses. Franchise royalties we receive
are recognized as revenue when sales are made by franchisees.
Restaurant Operations
Our restaurants provide a neighborhood
casual, standardized dining experience, typical of casual restaurant chains. The interior decor of the restaurants is nautical with numerous
fishing and boating pictures and decorations. The restaurants are designed to permit minor modifications without significant capital expenditures.
However, from time to time we are required to redesign and refurbish the restaurants at significant cost. Drink prices may vary between
locations to meet local conditions. Food prices are substantially standardized for all restaurants. The restaurants' hours of operation
are from 11:00 a.m. to 1:00-5:00 a.m. depending upon demand and local law.
Company-Owned Restaurants.
We own and operate nine restaurants all under our service mark “Flanigan’s Seafood Bar and Grill” three of which are jointly
operated with package liquor stores we own. We are constructing a stand-alone restaurant to be located in Hollywood, Florida to replace
our restaurant destroyed by fire. We believe this restaurant will be operational during our fiscal year 2024.
Franchised Restaurants.
We franchise five restaurants, all of which operate under our service mark “Flanigan’s Seafood Bar and Grill”, two of
which operate as a restaurant only, two of which operate jointly with a franchisee operated “Big Daddy’s Liquors” package
liquor store and one of which operates adjacent to a “Big Daddy’s Liquors” package liquor store. Four of the five franchised
restaurants are franchised to members of the family of our Chairman of the Board, officers and/or directors. We have not entered into
a franchise arrangement for either a package liquor store, restaurant or combination package liquor store/restaurant since 1986 and do
not anticipate that we will do so in the foreseeable future.
Generally, a franchise agreement
with our franchisees for the operation of a restaurant runs for the balance of the term of the franchisee’s lease for the business
premises, extended by the franchisee’s continued occupancy of the business premises thereafter, whether by lease or ownership. In
exchange for our providing management and related services to the franchisee and our granting the right to the franchisee to use our service
mark, “Flanigan’s Seafood Bar and Grill”, our franchisees pay us weekly in arrears, (i) a royalty equal to approximately
3% of gross sales; plus (ii) an amount for advertising equal to between 1-1/2% to 3% of gross sales from the restaurants depending upon
our actual advertising costs.
For accounting purposes, we do
not consolidate the revenue and expenses of our franchisees’ operations with our revenue and expenses. Franchise royalties we receive
are recognized as revenue when sales are made by franchisees.
3
Restaurants Owned by Affiliated Limited Partnerships
We have invested along with others,
(some of whom are or are affiliated with our officers and directors), in eleven limited partnerships which currently own and operate eleven
South Florida based restaurants under our service mark “Flanigan’s Seafood Bar and Grill”. In addition to being a limited
partner in these limited partnerships, we are the sole general partner of ten of these limited partnerships and manage and control the
operations of these restaurants. We are only a limited partner in the limited partnership which owns and operates the restaurant located
in Fort Lauderdale, Florida.
Generally, the terms of the limited partnership agreements
provide that until the investors’ cash investment in a limited partnership (including any cash invested by us) is returned in full,
(available cash is distributed to the investors pro-rata based on ownership interest), the limited partnership distributes to the investors
annually out of available cash from the operation of the restaurant, as a return of capital, up to 25% of the cash invested in the limited
partnership, with no management fee paid to us. Any available cash in excess of the 25% of the cash invested in the limited partnership
distributed to the investors annually, is paid one-half (1⁄2) to us as a management fee and one-half (1⁄2) to the investors,
(including us), pro-rata based on the investors’ investment, as a return of capital. Once all of the investors, (including us),
have received, in full, amounts equal to their cash invested, an annual management fee becomes payable to us equal to one-half (1⁄2)
of cash available to be distributed, with the other one-half (1⁄2) of available cash distributed to the investors (including us),
as a profit distribution, pro-rata based on the investors’ investment. As of September 30, 2023, all limited partnerships, with
the exception of the 2022 Sunrise Restaurant, which opened for business in March, 2022 and the 2023 Miramar Restaurant, which opened for
business in April, 2023, have returned all cash invested and we receive an annual management fee equal to one-half (1⁄2) 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 our service marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s”,
which use is authorized while we act as general partner only. This 3% fee is “earned” when sales are made by the limited partnerships
and is paid weekly, in arrears. Whether we will have any additional restaurants under development in the future will be dependent, among
other things, on market conditions and our ability to raise capital. We anticipate that we will continue to form limited partnerships
to raise funds to own and operate restaurants under our service marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s”
using the same or substantially similar financial arrangements.
Below is information on the eleven
limited partnerships which own and operate “Flanigan’s Seafood Bar and Grill” or “Flanigan’s” restaurants:
Surfside, Florida
We are the sole general partner
and a 46% limited partner in this limited partnership which has owned and operated a restaurant in Surfside, Florida under our “Flanigan’s
Seafood Bar and Grill” service mark since March 6, 1998. 33.3% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial
cash invested and we receive an annual management fee equal to one-half (1⁄2) of the cash available for distribution by this limited
partnership.
Kendall, Florida
We are the sole general partner
and a 41% limited partner in this limited partnership which has owned and operated a restaurant in Kendall, Florida under our “Flanigan’s
Seafood Bar and Grill” service mark since April 4, 2000. 28.3% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial
cash invested and we receive an annual management fee equal to one-half (1⁄2) of the cash available for distribution by this limited
partnership.
West Miami, Florida
We are the sole general partner
and a 27% limited partner in this limited partnership which has owned and operated a restaurant in West Miami, Florida under our “Flanigan’s
Seafood Bar and Grill” service mark since October 11, 2001. 32.7% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial
cash invested and we receive an annual management fee equal to one-half (1⁄2) of the cash available for distribution by this limited
partnership.
4
Wellington, Florida
We are the sole general partner
and a 28% limited partner in this limited partnership which has owned and operated a restaurant in Wellington, Florida under our “Flanigan’s
Seafood Bar and Grill” service mark since May 27, 2005. 22.4% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial
cash invested and we receive an annual management fee equal to one-half (1⁄2) of the cash available for distribution by this limited
partnership.
Pinecrest, Florida
We are the sole general partner
and 45% limited partner in this limited partnership which has owned and operated a restaurant in Pinecrest, Florida under our “Flanigan’s
Seafood Bar and Grill” service mark since August 14, 2006. 20.2% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial
cash invested and we receive an annual management fee equal to one-half (1⁄2) of the cash available for distribution by this limited
partnership.
Pembroke Pines, Florida
We are the sole general partner
and a 24% limited partner in this limited partnership which has owned and operated a restaurant in Pembroke Pines, Florida under our “Flanigan’s
Seafood Bar and Grill” service mark since October 29, 2007. 23.8% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial
cash invested and we receive an annual management fee equal to one-half (1⁄2) of the cash available for distribution by this limited
partnership.
Davie, Florida
We are the sole general partner
and a 49% limited partner in this limited partnership which has owned and operated a restaurant in Davie, Florida under our “Flanigan’s
Seafood Bar and Grill” service mark since July 28, 2008. 12.3% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial
cash invested and we receive an annual management fee equal to one-half (1⁄2) of the cash available for distribution by this limited
partnership.
Miami, Florida
We are the sole general partner
and a 5% limited partner in this limited partnership which has owned and operated a restaurant in Miami, Florida under our “Flanigan’s
Seafood Bar and Grill” service mark since December 27, 2012. 26.8% of the remaining limited partnership interest is owned by persons
who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial
cash invested and we receive an annual management fee equal to one-half (1⁄2) of the cash available for distribution by this limited
partnership.
Sunrise, Florida
We are the sole general partner
and a 7% limited partner in this limited partnership which has owned and operated a restaurant in Sunrise, Florida under our “Flanigan’s”
service mark since March 20, 2022. 31.3% of the remaining limited partnership interest is owned by persons who are either our officers,
directors or their family members. As of the end of our fiscal year 2023, this limited partnership has returned to its investors approximately
14.5% of their initial cash invested.
Miramar, Florida
We are the sole general partner
in this limited partnership which has owned and operated a restaurant in Miramar, Florida under our “Flanigan’s” service
mark since April 18, 2023. No units of limited partnership interest were purchased by the Company. 24.0% of the limited partnership interest
is owned by persons who are either our officers, directors or their family members. As of the end of our fiscal year 2023, this limited
partnership has returned to its investors approximately 10.0% of their initial cash invested.
Fort Lauderdale, Florida
A corporation owned by one of
our board members acts as sole general partner of a limited partnership which has owned and operated a restaurant in Fort Lauderdale,
Florida under our “Flanigan’s Seafood Bar and Grill” service mark since April 1, 1997. We have a 25% limited partnership
interest in this limited partnership. 31.9% of the remaining limited partnership interest is owned by persons who are either our officers,
directors or their family members. This limited partnership has returned to its investors all cash invested, but since we are not the
general partner of this limited partnership, we do not receive an annual management fee. We have a franchise arrangement with this limited
partnership and for accounting purposes, we do not consolidate the operations of this limited partnership into our operations.
5
Management Agreement for “The Whale’s Rib” Restaurant
Since January 2006, we have managed
“The Whale’s Rib”, a casual dining restaurant located in Deerfield Beach, Florida, pursuant to a management agreement.
We paid $500,000 in exchange for our rights to manage this restaurant. The restaurant is owned by a third party unaffiliated with us.
In exchange for providing management, bookkeeping and related services, we receive one-half (1⁄2) of the net profit, if any, from
the operation of the restaurant. For our fiscal years ended September 30, 2023 and October 1, 2022, we generated $400,000 of revenue each
fiscal year from providing these management services.
Operations and Management
We emphasize systematic operations
and control of all package liquor stores and restaurants regardless of whether we own, franchise or manage the unit. Each unit has its
own manager who is responsible for monitoring inventory levels, supervising sales personnel, food preparation and service in restaurants
and generally assuring that the unit is managed in accordance with our guidelines and procedures. We have in effect an incentive cash
bonus program for our managers and salespersons based upon various performance criteria. Our operations are supervised by supervisors,
who visit all Company, limited partnership and franchise owned units and the managed unit to provide on-site management and support. There
are three supervisors responsible for package liquor store operations and six supervisors responsible for restaurant operations.
All of our managers and salespersons
receive extensive training in sales techniques. We arrange for independent third parties, or "shoppers", to inspect each unit
in order to evaluate the unit's operations, including the handling of cash transactions.
Purchasing and Inventory
The package liquor business requires
a constant substantial capital investment in inventory at the stores. Our inventory consists primarily of liquor and wine products and
as such, does not become excessive or obsolete that would require identifying and recording of the same. Liquor inventory purchased can
normally be returned only if defective or broken.
All of our purchases of liquor
inventory are made through our purchasing department from our corporate headquarters. The major portion of inventory is purchased under
individual purchase orders with licensed wholesalers and distributors who deliver the merchandise within one or two days of the placing
of an order. Frequently there is only one wholesaler in the immediate marketing area with an exclusive distributorship of certain liquor
product lines. Substantially all of our liquor inventory is shipped by the wholesalers or distributors directly to our stores. We significantly
increase our inventory prior to Christmas, New Year's Eve and other holidays. Under Florida law, we are required to pay for our liquor
purchases within ten days of delivery.
Negotiations with food suppliers
are conducted by our purchasing department at our corporate headquarters. We believe this ensures that the best quality and prices will
be available to each restaurant. Orders for food products are prepared by each restaurant's kitchen manager and reviewed by the restaurant's
general manager before orders are placed. Food is delivered by the supplier directly to each restaurant. Orders are placed several times
a week to ensure product freshness. Food inventory is primarily paid for monthly. We purchase food and other commodities for use in our
operations based on market prices established with our suppliers. Many of the food products purchased by us can be subject to price volatility
due to market supply and demand factors outside of our control. We mitigate the risk of supply shortages and obtain competitive prices
by utilizing multiple qualified suppliers for substantially all our food products.
We negotiate short-term and long-term
agreements for certain of our principal food product requirements, depending on market conditions and expected demand. We evaluate the
possibility of entering into arrangements to assist us in managing risk and variability associated with the supply and demand of food
products.
In order to fix the cost and ensure
adequate supply of baby back ribs for our restaurants for calendar years 2023 and 2024, we entered into purchase agreements with our current
rib supplier, whereby we agreed to purchase approximately $6.8 million and $7.0 million of “2.25 & Down Baby Back Ribs”
(industry jargon for the weight range in which slabs of baby back ribs are sold) from this vendor during calendar years 2023 and 2024
respectively, at prescribed costs, which we believe are competitive. The increase in our cost of baby back ribs for calendar year 2024
compared to calendar year 2023 is due to our purchase of ribs for Store #25, Miramar, Florida being open for the entire calendar year
and Store #19, Hollywood, Florida anticipated to be open for a part of the calendar year, offset by a decrease in market price.
6
While we anticipate purchasing
all of our rib supply from this vendor, we believe there are several other alternative vendors available, if needed.
Information Technology
Our
restaurant and package liquor store point-of-sale and back-office systems provide information regarding daily sales, cash receipts, inventory,
food and beverage costs, labor costs and other controllable operating expenses. Our restaurants and package liquor stores offer online
ordering for to-go sales and our package liquor stores also offer delivery services by third-party vendors.
Restaurant
and package liquor store hardware and software support is provided by both our internal support services team as well as third-party vendors. Each
restaurant and package liquor store has a private high-speed wide area connection to send and receive critical business data as well as
to access web-based applications securely as well as a failover capability. All of our core and critical applications are backed
up to external data centers. To mitigate business interruptions, we utilize a data backup and replication infrastructure between
our onsite and external data centers, so all data is replicated nightly between the sites.
We require cybersecurity awareness training for all staff members with
access to our cyber systems. We also maintain cyber risk insurance coverage to further reduce our risk profile. Security of our financial
data and other sensitive information remains a high priority for us, led by our information technology department. In an effort to further
secure our customers’ credit card information, we employ an encryption and tokenization platform for all credit card transactions
in our restaurants, ensuring no credit card data is stored in our internal systems. We also transact business through online ordering
for both our restaurants and package liquor stores through third party vendors. (See Item 1A. Risk Factors and the discussion of cybersecurity
risks on page 12.)
Government Regulation
Our operations are subject to
various federal, state and local laws affecting our business. In particular, our operations are subject to regulation by federal agencies
and to licensing and regulation by state and local health, food preparation and safety, sanitation, alcoholic beverage control, safety
and fire department agencies in the state or municipality where our units are located.
Alcoholic beverage control regulations
require each of our restaurants and package liquor stores to obtain a license to sell alcoholic beverages from a state authority and in
certain locations, county and municipal authorities.
In Florida, where all of our restaurants
and package liquor stores are located, most of our liquor licenses are issued on a "quota license" basis. Quota licenses are
issued on the basis of a population count established from time to time under the latest applicable census. Because the total number of
liquor licenses available under a quota license system is limited and restrictions are placed upon their transfer, the licenses have purchase
and resale value based upon supply and demand in the particular areas in which they are issued. The quota licenses held by us allow the
sale of liquor for on and off premises consumption (the “4 COP Quota Liquor License”). The other liquor licenses held by us
or limited partnerships of which we are the general partner, are restaurant liquor licenses, which do not have quota restrictions or purchase
or resale value. A restaurant liquor license is issued to every applicant who meets all of the state and local licensing requirements,
including, but not limited to zoning and minimum restaurant size, seating and menu. The restaurant liquor licenses held by us allow the
sale of liquor for on premises consumption only, (the “4 COP SFS Liquor License”).
All licenses must be renewed annually
and may be revoked or suspended for cause at any time. Suspension or revocation may result from violation by the licensee or its employees
of any federal, state or local law regulation pertaining to alcoholic beverage control. Alcoholic beverage control regulations relate
to numerous aspects of the daily operations of our units, including, minimum age of patrons and employees, hours of operations, advertising,
wholesale purchasing, inventory control, handling, storage and dispensing of alcoholic beverages, internal control and accounting.
As the sale of alcoholic beverages
constitutes a large share of our revenue, the failure to receive or retain, or a delay in obtaining a liquor license in a particular location
could adversely affect our operations in that location and could impair our ability to obtain licenses elsewhere.
During our fiscal years 2023 and
2022, no significant pending matters have been initiated concerning any of our licenses which might be expected to result in a revocation
of a liquor license or other significant actions against us.
We are subject to “dram-shop”
statutes due to our restaurant operations. These statutes generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the intoxicated individual. We carry liquor liability coverage
as part of our existing comprehensive general liability insurance, which we believe is consistent with coverage carried by other entities
in the restaurant industry. Although we are covered by insurance, a judgment against us under a dram-shop statute in excess of our liability
coverage could have a material adverse effect on us. We currently have no “dram shop” claims.
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Our operations are also subject
to federal and state laws governing such matters as wages, working conditions, citizenship requirements and overtime. Significant numbers
of hourly personnel at our restaurants are paid at rates related to the federal or Florida minimum wage, whichever is higher, and accordingly,
increases in the minimum wage will increase labor costs. We are also subject to the Americans with Disability Act of 1990 (ADA), which,
among other things, may require certain renovations to our restaurants to meet federally mandated requirements. The cost of any such renovations
is not expected to materially affect us.
A significant number of our hourly
restaurant staff members receive income from gratuities. Many of our locations participate voluntarily in a Tip Reporting Alternative
Commitment (“TRAC”) agreement with the Internal Revenue Service (“IRS”). By complying with the educational and
other requirements of the TRAC agreement, we reduce the likelihood of potential employer-only FICA
(Federal Insurance Contributions Act) tax assessments for unreported or underreported tips. We are not under investigation or audit, nor
have we been assessed for potential employer-only FICA tax assessments for unreported or underreported tips.
We are also subject to laws relating
to information security, privacy, cashless payments and consumer credit protection and fraud.
We are not aware of any statute,
ordinance, rule or regulation under present consideration which would significantly limit or restrict our business as now conducted. However,
in view of the number of local jurisdictions within the State of Florida in which we conduct business, and the highly regulated nature
of the liquor business, there can be no assurance that additional limitations may not be imposed in the future, even though none are presently
anticipated.
Human Capital
We
depend on our staff members to successfully execute all aspects of our day-to-day operations. Our ability to attract highly motivated
staff members and retain an engaged, experienced team is key to successful execution of our strategy. We are currently operating in a
competitive labor environment. If we are unable to hire or retain qualified restaurant management and operating personnel in an increasingly
competitive market, we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect
our financial performance.
Development and Training
We
invest resources to ensure our staff receive training in order to maximize their potential. In addition, we strive to provide our staff
with career advancement opportunities. Our training programs allow us to fill certain of our management positions with internal candidates.
Benefits and Wellness
We
believe access to healthcare is a compelling benefit for many staff members and we offer healthcare benefits to our hourly staff members
who work a minimum of 30 hours per week, on average. We attempt to provide a robust suite of benefits and wellness offerings.
Employee Engagement
Listening
to our staff members is an essential part of building an engaged workforce, and we provide avenues for staff to share their ideas and
concerns.
As
of our fiscal year end 2023, we employed 1,855 persons, of which 707 were full-time and 1,148 were part-time. Of these, 57 were employed
at our corporate offices in administrative capacities and 12 were employed in maintenance. Of the remaining employees, 74 were employed
in our package liquor stores and 1,712 in our restaurants. None of our employees are represented by collective bargaining organizations.
We consider our labor relations to be favorable.
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Giving Back
Another
key aspect of our culture is giving back to the communities where our staff live and work, and uniting our staff members around
charitable causes personal to them. We periodically donate to philanthropic organizations through campaigns designed to engage our
staff company-wide service programs, as follows:
● Reclaimed Wood – All of our locations use reclaimed wood on interior walls.
We also believe our
sustainability programs and initiatives like restaurant-based composting and recycling and replacing our off-premise packaging with materials
that reduce the use of plastics and improve recyclability serve to foster pride in our staff.
Executive Officers
Name Positions and Offices Currently Held Age Office or Position Held Since
August Bucci Chief Operating Officer and Executive Vice President 79 2002
Jeffrey D. Kastner Chief Financial Officer, General Counsel and Secretary 70 (2)
Christopher O’Neil Vice President of Package Operations 58 2016
(1) Chairman of the Board of Directors, Chief Executive Officer since 2005;
President since 2002.
(2) Chief Financial Officer since 2004; Secretary since 1995; and General
Counsel since 1982.
Flanigan’s 401(k) Plan
Effective July 1, 2004, we began
sponsoring a 401(k) retirement plan covering substantially all employees who meet certain eligibility requirements. Employees may contribute
elective deferrals to the plan up to amounts allowed under the Internal Revenue Code. We are not required to contribute to the plan but
may make discretionary profit sharing and/or matching contributions. During our fiscal years ended September 30, 2023 and October 1, 2022,
the Board of Directors approved discretionary matching contributions totaling $70,000 and $71,000, respectively.
Coronavirus Pandemic
In March 2020, a novel strain
of coronavirus was declared a global pandemic and a National Public Health Emergency. The novel coronavirus pandemic, (“COVID-19”)
adversely affected and will, in all likelihood continue to adversely affect our restaurant operations and financial results for the foreseeable
future. The Department of Health and Human Services (HHS) permitted the federal Public Health Emergency for COVID-19 (PHE) declared by
the Secretary of the Department of Health and Human Services (Secretary) under Section 319 of the Public Health Service (PHS) Act to expire
at the end of the day on May 11, 2023.
During the second quarter of our
fiscal year 2021, certain of the entities owning the limited partnership stores (the “LP’s”), as well as the store we
manage but do not own (the “Managed Store”), applied for and received loans from an unrelated third party lender pursuant
to the Paycheck Protection Program (the “PPP”) under the United States Coronavirus Aid, Relief and Economic Security Act (the
“CARES Act”) enacted March 27, 2020, in the aggregate principal amount of approximately $3.98 million, (the “2nd
PPP Loans”), of which approximately: (i) $3.46 million was loaned to six of the LP’s; and (ii) $0.52 million was loaned to
the Managed Store. The 2nd PPP Loan to the Managed Store is not included in our consolidated financial statements. During the
first quarter of our fiscal year 2022, we applied for and received forgiveness of the entire amount of principal and accrued interest
for all 2nd PPP Loans, including the Managed Store.
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COVID-19 has had a material adverse
effect on our access to supplies or labor and there can be no assurance that there will not be a significant adverse impact on our supply
chain or access to labor in the future. We are actively monitoring our food suppliers to assess how they are managing their operations
to mitigate supply flow and food safety risks. To ensure we mitigate potential supply availability risk, we are building additional inventory
back stock levels when appropriate and we have also identified alternative supply sources in key product categories including but not
limited to food, sanitation and safety supplies.
As of September 30, 2023, we are
in compliance with the financial covenants contained in our loans with our unrelated third-party institutional lender (the “Institutional
Lender”) under which we owe in the aggregate, approximately $21,610,000 (the “Institutional Loans”) of our total loans
of approximately $23,128,000.
During the first quarter of our
fiscal year 2023, we satisfied the principal balance and all accrued interest due on our $5.5 million term loan to our unrelated lender.
The outstanding principal balance ($367,000) and accrued interest ($-0-) were paid in full on December 28, 2022.
In February 2023, we
determined that as of December 31, 2022, we did not meet the required Post-Distribution Basic Fixed Charge Coverage Ratio (the
“Post-Distribution/Fixed Charge Covenant”) contained in each of our six (6) loans (the “Institutional
Loans”) with our unrelated third party institutional lender (the “Institutional Lender’). On February 23, 2023, we
received from the Institutional Lender, a written waiver of the non-compliance with the Post-Distribution/Fixed Charge Covenant (the
“Covenant Non-Compliance”), pursuant to which, among other things, the Institutional Lender waived (1) the
non-compliance as of December 31, 2022 and (2) their right to exercise certain remedies under the Institutional Loans, including the
right to accelerate the indebtedness owed by us thereunder, resulting in the indebtedness under the Institutional Loans to be
immediately due and payable, which would have a material adverse effect on the Company. The Post-Distribution/Fixed Charge Covenant
requires we maintain a ratio of at least 1.15 to 1.00 and for the twelve (12) months ended September 30, 2023 our ratio was
calculated to be 1.40 to 1.00. We have prepared projections going forward and expect to be in compliance. As a result, our
classification of debt is appropriate as of September 30, 2023.
There can be no assurances that
we will be in compliance with our financial covenants thereafter due to, among other things, that our results of operations will likely
continue to be materially impacted by the COVID-19 pandemic. Absent a waiver, failure to be in compliance with our financial covenants
would constitute a default under the Institutional Loans with our Institutional Lender when reported. Such a default, if not cured or
waived, would allow the Institutional Lender to accelerate the maturity of the indebtedness we owe under the Institutional Loans, making
it due and payable at the time. If maturity of the Institutional Loans were accelerated, it would have a material adverse impact on our
consolidated financial statements and results of operations.
General Liability Insurance
For the policy year beginning
December 30, 2022, we have general liability insurance which incorporates a deductible of $10,000 per occurrence for both us and the limited
partnerships. During the fourth quarter of our fiscal year 2023 we converted the deductible of $10,000 per occurrence for both us and
the limited partnerships to a $10,000 self-insured retention per occurrence. Our insurance carrier is responsible for $1,000,000 coverage
per occurrence above our deductible, up to a maximum aggregate of $2,000,000 per year. We were also able to purchase excess liability
insurance at a reasonable premium, whereby our excess insurance carrier is responsible for $10,000,000 coverage above our primary general
liability insurance coverage. We are uninsured against liability claims in excess of $11,000,000 per occurrence and in the aggregate.
We secured general liability and excess liability insurance for the period commencing after the expiration of the current policies on
December 30, 2023. The $10,000 self-insured retention per occurrence increases to $50,000 for us but remains the same at $10,000 for the
limited partnerships for the period commencing after the expiration of the current policies on December 30, 2023. (See Item 2. Subsequent
Events for a discussion of general liability and excess liability insurance for the period commencing December 30, 2023 on page 31.)
Our general policy is to settle
only those legitimate and reasonable claims asserted and to aggressively defend and go to trial, if necessary, on frivolous and unreasonable