Item 1A Risk Factors 11
Item 1B Unresolved Staff Comments 21
Item 1C Cybersecurity 21
Item 2 Properties 22
Item 3 Legal Proceedings 30
Item 4 Mine Safety Disclosures 30
PART II
Item 6 Reserved 30
Item 7A Quantitative and Qualitative Disclosures About Market Risk 37
Item 8 Financial Statements and Supplementary Data 38
Item 9A Controls and Procedures 38
Item 9B Other Information 39
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 39
PART III
Item 10 Directors, Executive Officers and Corporate Governance 39
Item 11 Executive Compensation 39
Item 14 Principal Accountant Fees and Services 39
PART IV
Item 15 Exhibits and Financial Statement Schedules 40
SIGNATURES 43
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, 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 28,
2024, Flanigan’s Enterprises, Inc., a Florida corporation, together with its subsidiaries (“we”, “our”,
“ours” and “us” as the context requires), (i) operates 32 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 (ii) 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
28, 2024 and as compared to September 30, 2023. With the exception of “The Whale’s Rib,” a restaurant we operate but
do not own, and “Brendan’s Sports Pub” a restaurant/bar we own, all of the restaurants operate under our service marks
“Flanigan’s Seafood Bar and Grill” or “Flanigan’s” and all of the package liquor stores operate under
our service marks “Big Daddy’s Liquors” or “Big Daddy’s Wine & Liquors”.
TYPES OF UNITS
Company Owned:
Combination package liquor store and restaurant 2 3 (1)
Restaurant only, including sports bar 9 8 (1)
Package liquor store only 9 8 (1)
Company Managed Restaurants Only:
Limited partnerships 10 10
Franchise 1 1
Unrelated Third Party 1 1
Total Company Owned/Operated Units 32 31
Franchised Units 5 5 (2)
Notes:
(1) During the first quarter of our fiscal
year 2019, our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19), was
damaged by a fire which 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 (2505 N. University Drive, Building A, Hollywood, Florida)
(Store #19P), replacing our package liquor store destroyed by fire and previously operating here. Store #19P is now reflected in the above
chart as a stand-alone liquor store, rather than as a combination unit. Store #19R, a stand-alone restaurant building on this site, (2505
N. University Drive, Building B, Hollywood, Florida) opened on March 26, 2024 (adjacent to the package liquor store), and replaced our
restaurant destroyed by fire and previously operating here. Store #19R is now reflected in the above chart as a stand-alone restaurant,
rather than as a combination unit.
(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.
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 12 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 79.28% and bar sales approximately 20.72% 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 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
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 10:00-11:00 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 28, 2024, 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 1.5% 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.
As of our fiscal year ended September 28, 2024, we own and operate eleven restaurants all under our service mark “Flanigan’s
Seafood Bar and Grill” two of which are jointly operated with package liquor stores we own.
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 1.5% 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 except for the restaurant located in Fort Lauderdale, Florida where we only hold a limited partnership
interest.
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 28, 2024, all limited partnerships, with
the exception of the limited partnership which owns the restaurant in Sunrise, Florida (Store #85), which opened for business in March
2022 and the limited partnership which owns the restaurant in Miramar, Florida (Store #25), which opened for business in April 2023, have
returned all cash invested and we receive an annual management fee equal to one-half (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 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 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 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 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. 21.9% of the 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. 19.4% of the 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. 23.0% of the 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. 12.0% of the 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. 26.3% of the 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 22, 2022. 32.1% 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 2024, this limited partnership has returned to its investors approximately 19.0%
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. 25.5% 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 2024, this limited
partnership has returned to its investors approximately 25.0% 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. 56.9% of the 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 28, 2024 and September 30, 2023, we generated $200,000 and $400,000
respectively 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 regularly 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 year 2025, we entered into a purchase agreement with a new rib supplier, whereby we
agreed to purchase approximately $7.8 million of “2.5 & Down Baby Back Ribs” (weight range in which baby back ribs are
sold) during calendar year 2025, at a prescribed cost, which we believe is competitive. For calendar year 2024, we entered into a purchase
agreement with our current rib supplier, whereby we agreed to purchase approximately $7.0 million of “2.25 & Down Baby Back
Ribs” during calendar year 2024, at a prescribed cost, which we also believe is competitive. The increase in our cost of baby back
ribs for calendar year 2025 compared to calendar year 2024 is due to our purchase of larger sized baby back ribs and the purchase of baby
back ribs for Store #19R, Hollywood, Florida for the entire calendar year, offset by a decrease in market price.
While we anticipate purchasing
all of our rib supply from this new vendor, we believe there are several other alternative vendors available, if needed.
6
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 and Item 1C information on cybersecurity risk management.)
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.
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 2024 and
2023, 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.
7
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 Federal
Insurance Contributions Act (FICA 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 2024, we employed 1,990 persons, of which 669 were full-time and 1,321 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 1,847 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 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 80 2002
Jeffrey D. Kastner Chief Financial Officer, General Counsel and Secretary 71 (2)
Christopher O’Neil Vice President of Package Operations 59 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 28, 2024 and September 30,
2023, the Board of Directors approved discretionary matching contributions totaling $74,000 and $70,000, respectively.
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General Liability Insurance
For the policy year beginning
December 30, 2023, we have general liability insurance which incorporates a $50,000 self-insured retention per occurrence for us and a
$10,000 self-insured retention per occurrence for the limited partnerships. Our insurance carrier is responsible for $1,000,000 coverage
per occurrence above our self-insured retentions, up to a maximum aggregate of $2,000,000 per year. We were also able to purchase excess
liability insurance whereby our excess insurance carrier is responsible for $10,000,000 coverage above our primary general liability insurance
coverage. We are uninsured against liability claims in excess of $11,000,000 per occurrence and in the aggregate. We secured general liability
insurance and excess liability insurance to be effective as of December 30, 2024. (See Item 2. Subsequent Events for a discussion of general
liability and excess liability insurance for the period commencing December 30, 2024.)
Our general policy is to settle
only those legitimate and reasonable claims asserted and to aggressively defend and go to trial, if necessary, on frivolous and unreasonable
claims. Under our current liability insurance policy, certain expenses incurred by us in defending a claim, including attorney's fees,
are a part of our $50,000 self-insured retention, and a part of our limited partnerships’ $10,000 self-insured retention.
In accordance with accounting
guidance, we accrue for any liability by recognizing costs when it is probable that a covered liability has been incurred and the cost
can be reasonably estimated. Accordingly, our annual insurance costs may be subject to adjustment from previous estimates as facts and
circumstances change. Our accruals are included in the accompanying consolidated balance sheets in the caption "Accounts payable
and accrued expenses". A significant unfavorable judgment or settlement against us in excess of our liability insurance coverage
could have a materially adverse effect on the Company.
Property Insurance; Windstorm Insurance
For the policy year beginning
December 30, 2023, our property insurance is a one (1) year policy with an unaffiliated third party insurance carrier, including coverage
for properties leased by us and our consolidated limited partnerships, and provides for full insurance coverage for property losses, including
those caused by windstorms, such as a hurricane. For property losses caused by windstorm, the property insurance has a fixed deductible
of $100,000, plus 5% of all insured losses, per occurrence. For all other property losses, the property insurance has deductibles of $10,000
per location, per occurrence. We secured property insurance, including windstorm coverage, to be effective as of December 30, 2024. (See
Item 2. Subsequent Events for a discussion of property insurance for the period commencing December 30, 2024.)
Insurance Premiums
Due to continuing higher interest
rates, for the policy year commencing December 30, 2023 we paid the premiums for property, general liability, excess liability and terrorism
policies in full with premiums totaling approximately $3.92 million which includes coverage for our franchises (of approximately $850,000),
which are not included in our consolidated financial statements. For the policy year commencing December 30, 2024, we will pay the premiums
for property, general liability, excess liability and terrorism policies in full again due to continuing higher interest rates. (See
Item 2. Subsequent Events for a discussion of property, general liability, excess liability, and terrorism insurance policies for the
period commencing December 30, 2024.)
Competition and the Company's Market
The liquor and hospitality industries
are highly competitive and are often affected by changes in taste and entertainment trends among the public, by local, national and economic
conditions affecting spending habits, and by population and traffic patterns. We believe that the principal means of competition among
package liquor stores is price and that, in general, the principal means of competition among restaurants include the location, type and
quality of facilities and the type, quality and price of beverage and food served.
Our package liquor stores compete
directly or indirectly with local retailers and discount “superstores”. Due to the competitive nature of the liquor industry
in South Florida, we have had to adjust our pricing to stay competitive, including meeting all competitors’ advertisements subject
to certain limitations. Such practices will continue in the package liquor business. We believe that we have a competitive position in
our market because of widespread consumer recognition of the "Big Daddy's Liquors" and “Big Daddy’s Wine & Liquors”
names.
Our restaurants compete directly
or indirectly with many well-established competitors, both nationally and locally owned. Effective August 25, 2024 we increased menu prices
for our bar offerings to target an increase to our bar revenues of approximately 5.63% annually to offset higher food and liquor costs
and higher overall expenses. Effective March 26, 2023, we increased menu prices for our food offerings to target an increase to our food
revenues of approximately 2.06% annually and on March 20, 2023 we increased menu prices for our bar offerings to target an increase to
our bar revenues of approximately 5.65% annually to offset higher food and liquor costs and higher overall expenses. We believe that we
have a competitive position in our market because of widespread consumer recognition of the “Flanigan’s Seafood Bar and Grill"
and “Flanigan’s” names.
We have many well-established
competitors, both nationally and locally owned, with substantially greater financial resources than we do. Their resources and market
presence may provide advantages in marketing, purchasing and negotiating leases. We compete with other restaurant and retail establishments
for sites and finding management personnel.
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Our business is subject to seasonal
effects, including that liquor purchases tend to increase during the holiday seasons.
Trade Names
We operate our package liquor
stores and restaurants under the service marks: "Big Daddy's Liquors", “Big Daddy’s Wine & Liquors”, “Flanigan’s
Seafood Bar and Grill", and “Flanigan’s”. We operate our sports bar under the service mark: “Brendan’s
Sports Pub”. Our right to the use of the "Big Daddy's" service mark is set forth under a consent decree of a federal court
entered into by us in settlement of federal trademark litigation. The consent decree and the settlement agreement allow us to continue
to use and to expand our use of the "Big Daddy's” service mark in connection with our package liquor sales in Florida, while
restricting future liquor sales in Florida under the "Big Daddy's" name by the other party who has a federally registered service
mark for "Big Daddy's" use in the restaurant business. The federal court retained jurisdiction to enforce the consent decree.
We have acquired registered Federal trademarks on the principal register for our “Big Daddy’s Liquors”, "Flanigan's"
and “Flanigan’s Seafood Bar and Grill” service marks.
The standard symbolic trademark
associated with our facilities and operations is the bearded face and head of "Big Daddy" which is predominantly displayed at
all "Flanigan's" facilities and all "Big Daddy's" facilities throughout the country. The face comprising this trademark
is that of the Company’s founder, Joseph "Big Daddy" Flanigan, and is a federally registered trademark owned by us.
ITEM 1A. RISK FACTORS
An investment in our common stock
involves a high degree of risk. These risks should be considered carefully with the uncertainties described below, and all other information
included in this Annual Report on Form 10-K, before deciding whether to purchase our common stock. Additional risks and uncertainties
not currently known to management or that management currently deems immaterial and therefore not referenced herein, may also become material
and may harm our business, financial condition or results of operations. The occurrence of any of the following risks could harm our business,
financial condition and results of operations. The trading price of our common stock could decline due to any of these risks and uncertainties
and you may lose part or all of your investment.
Certain statements in this report
contain forward-looking information. In general, forward-looking statements include estimates of future revenues, cash flow, capital expenditures,
or other financial items and assumptions underlying any of the foregoing. Forward-looking statements reflect management’s current
expectations regarding future events and use words such as “anticipate”, “believe”, “expect”, “may”,
“will” and other similar terminology. These statements speak only as of the date they were made and involve a number of risks
and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Several
factors, many beyond our control, could cause actual results to differ materially from management’s expectations. New risks and
uncertainties arise from time to time, and we cannot predict when they may arise or how they may affect us. We assume no obligation to
update any forward-looking statements after the date of this report as a result of new information, future events or other developments,
except as required by applicable laws and regulations.
Risks Related to Our Business
If we are unable to
staff and retain qualified restaurant and package liquor store management and operating personnel in an increasingly competitive market,
we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect our financial performance.
Similar
to the broader economy, we are experiencing labor shortfalls relative to our sales levels in certain parts of our workforce. If we are
unable to attract and retain qualified people, our restaurants could be short staffed, we may be forced to incur overtime expenses, and
our ability to operate and expand our concepts effectively and to meet our customers’ demand could be limited, any of which could
materially adversely affect our financial performance.
We have experienced
and continue to experience significant labor cost inflation. If we are unable to offset higher labor costs, our cost of doing business
will significantly increase, which could materially adversely impact our financial performance.
Increases
in minimum wages and minimum tip credit wages, extensions of personal and other leave policies, other governmental regulations affecting
labor costs and a diminishing pool of potential staff members when the unemployment rate falls and legal immigration is restricted, especially
in certain localities, could significantly increase our labor costs and make it more difficult to fully staff our restaurants, any of
which could materially adversely affect our financial performance.
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We
believe the United States federal government may significantly increase the federal minimum wage and tip credit wage (or eliminate the
tip credit wage) and require significantly more mandated benefits than what is currently required under federal law. The State of Florida
has already enacted a minimum wage and tip credit, with the minimum wage currently at $13.00 per hour and a tip credit of $3.02 per hour.
The minimum wage increases $1.00 per hour annually until it reaches $15.00 per hour in 2026. The tip credit does not increase. In addition
to increasing the overall wages paid to our minimum wage and tip credit wage earners, these increases create pressure to increase wages
and other benefits paid to other staff members who, in recognition of their tenure, performance, job responsibilities and other similar
considerations, historically received a rate of pay exceeding the applicable minimum wage or minimum tip credit wage. Because we employ
a large workforce, any wage increase and/or expansion of benefits mandates will have a particularly significant impact on our labor costs.
Our vendors, contractors and business partners are similarly impacted by wage and benefit cost inflation, and many have or will increase
their price for goods, construction and services in order to offset their increasing labor costs. Additionally, while our employees are
not currently covered by any collective bargaining agreements, union organizers may engage in efforts to organize our employees and those
of other restaurant companies. If a significant portion of our employees were to unionize, our labor costs could increase and it could
negatively impact our culture, reduce our flexibility and disrupt our business. In addition, our responses to any union organizing efforts
could negatively impact our reputation and dissuade guests from patronizing our restaurants.
Our
labor expenses include significant costs related to our health benefit plans. Health care costs continue to rise and are especially difficult
to project. Material increases in costs associated with medical claims, or an increase in the severity or frequency of such claims, may
cause health care costs to vary substantially from year-over-year. Given the unpredictable nature of actual health care claims trends,
including the severity or frequency of claims, in any given year our health care costs could significantly exceed our estimates,
which could materially adversely affect our financial performance.
Any
significant changes to the healthcare insurance system could impact our healthcare costs. Material increases in healthcare costs could
materially adversely affect our financial performance.
While
we try to offset labor cost increases through price increases, more efficient purchasing practices, productivity improvements and greater