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FLANIGANS ENTERPRISES INC - Quarter Report: 2021 April (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

     
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 3, 2021

 

OR

     
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to

Commission File Number 1-6836

FLANIGAN'S ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

 

Florida 59-0877638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
   
5059 N.E. 18th Avenue, Fort Lauderdale, Florida 33334
(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, $.10 par value BDL NYSE AMERICAN

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

 

On May 20, 2021, 1,858,647 shares of Common Stock, $0.10 par value per share, were outstanding.

 

 

 

 

 

 


FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

 

INDEX TO FORM 10-Q

 

 

PART I. FINANCIAL INFORMATION  
   
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME 1
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 5
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8
   
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 30
ITEM 4.  CONTROLS AND PROCEDURES 31
   
PART II. OTHER INFORMATION 32
   
ITEM 1.  LEGAL PROCEEDINGS 32
ITEM 1A. RISK FACTORS 32
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 32
ITEM 6. EXHIBITS 32
SIGNATURES 33

  

LIST XBRL DOCUMENTS

 

 

As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “Flanigan’s” mean Flanigan's Enterprises, Inc. and its subsidiaries (unless the context indicates a different meaning).

 

 

 

Index 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

 

 

 

 

 

Index 

FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

 

 

   Thirteen Weeks Ended   Twenty Six Weeks Ended 
  

April

3, 2021

   March
28, 2020
  

April

3, 2021

   March
28, 2020
 
         
REVENUES:                    
   Restaurant food sales  $20,689   $18,213   $39,017   $36,955 
   Restaurant bar sales   5,050    5,315    9,493    11,206 
   Package store sales   7,830    6,027    15,841    11,734 
   Franchise related revenues   422    307    808    667 
   Rental income   226    209    413    403 
   Other operating income   140    57    165    104 
    34,357    30,128    65,737    61,069 
                     
COSTS AND EXPENSES:                    
   Cost of merchandise sold:                    
       Restaurant and lounges   8,462    7,900    15,984    16,324 
       Package goods   5,668    4,326    11,519    8,465 
   Payroll and related costs   10,464    9,152    19,927    18,669 
   Occupancy costs   1,602    1,853    3,408    3,710 
   Selling, general and administrative expenses   5,368    5,380    10,836    11,153 
    31,564    28,611    61,674    58,321 
Income from Operations   2,793    1,517    4,063    2,748 
                     
OTHER INCOME (EXPENSE):                    
   Interest expense   (248)   (198)   (527)   (402)
   Interest and other income   19    13    31    25 
   Gain on forgiveness of PPP loans   3,653        3,653     
   Gain on sale of property and equipment   8        33     
    3,432    (185)   3,190    (377)
                     
Income before Provision for Income Taxes   6,225    1,332    7,253    2,371 
                     
Benefit (Provision) for Income Taxes   (533)   88    (529)   (30)
                     
Net Income   5,692    1,420    6,724    2,341 
                     
Less: Net income attributable to noncontrolling interests   (3,241)   (772)   (3,493)   (1,199)
                      
Net Income attributable to stockholders  $2,451   $648   $3,231   $1,142 


1 

Index 

 

FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

(Continued)

 

 

   Thirteen Weeks Ended   Twenty Six Weeks Ended 
  

April

3, 2021

  

March

28, 2020

  

April

3, 2021

   March
28, 2020
 
     
Net Income Per Common Share:                    
   Basic and Diluted   $1.32   $0.35   $1.74   $0.61 
                     
Weighted Average Shares and Equivalent
Shares Outstanding
                    
   Basic and Diluted   1,858,647    1,858,647    1,858,647    1,858,647 
                     

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

2 

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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

APRIL 3, 2021 (UNAUDITED) AND OCTOBER 3, 2020

(in thousands)

 

 

 

ASSETS

 

   April 3, 2021   October 3, 2020 
     
CURRENT ASSETS:          
           
   Cash and cash equivalents  $32,628   $29,922 
   Prepaid income taxes   349    74 
   Other receivables   497    681 
   Inventories   4,172    3,624 
   Prepaid expenses   2,593    2,207 
           
          Total Current Assets   40,239    36,508 
           
   Property and Equipment, Net   50,615    46,003 
   Construction in Progress   1,846    981 
    52,461    46,984 
           
   Right-of-use assets, finance leases       4,749 
   Right-of-use assets, operating leases   26,679    22,150 
    26,679    26,899 
           
   Investment in Limited Partnership   1,017    621 
           
OTHER ASSETS:          
           
   Liquor licenses   630    630 
   Deferred tax asset       352 
   Leasehold purchases, net   157    200 
   Other   339    290 
           
          Total Other Assets   1,126    1,472 
           
          Total Assets  $121,522   $112,484 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3 

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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

APRIL 3, 2021 (UNAUDITED) AND OCTOBER 3, 2020

(in thousands)

 

(Continued)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

   April 3, 2021   October 3, 2020 
     
CURRENT LIABILITIES:          
           
   Accounts payable and accrued expenses  $10,074   $9,238 
   Income taxes payable   166     
   Due to franchisees   4,329    3,142 
   Current portion of long term debt   6,923    5,094 
   Finance lease liability, current       4,772 
   Operating lease liability, current   1,825    3,116 
           
          Total Current Liabilities   23,317    25,362 
           
Long Term Debt, Net of Current Portion   21,346    21,229 
           
Operating lease liabilities, non-current   25,304    20,337 
           
Total Liabilities   69,967    66,928 
           
Equity:          
Flanigan’s Enterprises, Inc. Stockholders’ Equity          
   Common stock, $.10 par value, 5,000,000
      shares authorized; 4,197,642 shares issued
   420    420 
   Capital in excess of par value   6,240    6,240 
Retained earnings   42,079    38,848 
   Treasury stock, at cost, 2,338,995 shares
      at April 3, 2021 and 2,338,995
      shares at October 3, 2020
   (6,077)   (6,077)
   Total Flanigan’s Enterprises, Inc.
      stockholders’ equity
   42,662    39,431 
   Noncontrolling interest   8,893    6,125 
      Total equity   51,555    45,556 
           
      Total liabilities and equity  $121,522   $112,484 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4 

Index 

FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THIRTEEN WEEKS ENDED APRIL 3, 2021 AND MARCH 28, 2020

 

           Capital in                      
   Common Stock   Excess of   Retained    Treasury Stock   Noncontrolling      
   Shares   Amount   Par Value   Earnings   Shares   Amount   Interests   Total 
                                 
Balance, September 28, 2019   4,197,642   $420   $6,240   $37,738    2,339   $(6,077)  $6,208   $44,529 
                                         
Net income               494            427    921 
Distributions to noncontrolling interests                           (432)   (432)
                                         
Balance, December 28, 2019   4,197,642   $420   $6,240   $38,232    2,339   $(6,077)  $6,203   $45,018 
                                         
Net income               648            772    1,420 
Distributions to noncontrolling interests                           (483)   (483)
                                         
Balance, March 28, 2020   4,197,642   $420   $6,240   $38,880    2,339   $(6,077)  $6,492   $45,955 

 

           Capital in                      
   Common Stock   Excess of   Retained    Treasury Stock   Noncontrolling      
   Shares   Amount   Par Value   Earnings   Shares   Amount   Interests   Total 
Balance, October 3, 2020   4,197,642   $420   $6,240   $38,848    2,339   $(6,077)  $6,125   $45,556 
                                         
Net income               780            252    1,032 
Distributions to noncontrolling interests                           (242)   (242)
                                         
Balance, January 2, 2021   4,197,642   $420   $6,240   $39,628    2,339   $(6,077)  $6,135   $46,346 
                                         
Net income               2,451            3,241    5,692 
Distributions to noncontrolling interests                           (483)   (483)
                                         
Balance, April 3, 2021   4,197,642   $420   $6,240   $42,079    2,339   $(6,077)  $8,893   $51,555 

 

5 

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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE TWENTY-SIX WEEKS ENDED APRIL 3, 2021 AND MARCH 28, 2020

(in thousands)

 

   April 3, 2021   March 28, 2020 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
           
Net income  $6,724   $2,341 
Adjustments to reconcile net income to net cash and
   cash equivalents provided by operating activities:
          
   Depreciation and amortization   1,493    1,580 
   Amortization of leasehold interests   43    52 
   Amortization of finance lease right-of-use asset   198     
   Amortization of operating lease right-of-use asset   1,258    1,506 
   Gain on forgiveness of PPP loans   (3,653)    
   Non-cash interest expense   109     
   Gain on sale of property and equipment   (33)    
   Loss on abandonment of property and equipment   16    13 
   Amortization of deferred loan costs   20    14 
   Deferred income taxes   352    (34)
   Income from unconsolidated limited partnership   (111)   (27)
   Changes in operating assets and liabilities:
      (increase) decrease in
          
          Other receivables   184    108 
          Prepaid income taxes   (275)   55 
          Inventories   (548)   (654)
          Prepaid expenses   1,117    546 
          Other assets   215    419 
      Increase (decrease) in:          
          Accounts payable and accrued expenses   741   (499)
          Operating lease liabilities   (2,111)   (865)
          Income taxes payable   166    9 
          Due to franchisees   1,187    (351)
Net cash and cash equivalents provided by operating
   activities
   7,092    4,213 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
           
     Purchases of property and equipment   (4,114)   (1,422)
     Purchase of construction in progress   (847)   (155)
     Deposits on property and equipment   (296)   (446)
     Proceeds from sale of fixed assets   49    23 
     Distributions from unconsolidated limited partnership   12    18 
    Investment in limited partnership   (297)    
Net cash and cash equivalents used in investing
   activities
   (5,493)   (1,982)


See accompanying notes to unaudited condensed consolidated financial statements.

 

6 

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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE TWENTY-SIX WEEKS ENDED APRIL 3, 2021 AND MARCH 28, 2020

(in thousands)

 

(Continued)

 

   April 3, 2021   March 28, 2020 
         
CASH FLOWS FROM FINANCING ACTIVITIES:          
           
     Payment of long term debt   (1,495)   (1,325)
     Deferred loan costs   (56)    
     Proceeds from long-term debt       4,398 
     Proceeds from PPP loans   3,464     
     Principal payments on finance leases   (81)    
     Distributions to limited partnerships’
          noncontrolling interests
   (725)   (915)
           
Net cash and cash equivalents provided by financing activities   1,107    2,158 
           
Net Increase in Cash and Cash Equivalents   2,706    4,389 
           
         Beginning of Period   29,922    13,672 
           
         End of Period  $32,628   $18,061 
           
Supplemental Disclosure for Cash Flow Information:
     Cash paid during period for:
          
         Interest  $527   $402 
         Income taxes  $61   $ 
           
Supplemental Disclosure of Non-Cash Investing and Financing Activities:          
        Financing of insurance contracts  $1,377   $1,281 
        Purchase deposits transferred to property and equipment  $14   $61 
        Purchase deposits transferred to CIP  $18   $2 
        CIP transferred to PP&E  $   $700 
        Right-of-use assets and associated liabilities arising from adoption of ASC 842  $5,787   $27,822 
        Purchase of vehicle in exchange for debt  $58   $ 
        Purchase of property in exchange for debt  $2,200   $ 

 


See accompanying notes to unaudited condensed consolidated financial statements

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FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Thirteen Weeks and Twenty-Six Weeks Ended

APRIL 3, 2021 AND MARCH 28, 2020

 

 

(1) BASIS OF PRESENTATION:

 

The accompanying condensed consolidated financial information for the periods ended April 3, 2021 and March 28, 2020 are unaudited. Financial information as of October 3, 2020 has been derived from the audited financial statements of Flanigan’s Enterprises, Inc., a Florida corporation, together with its subsidiaries, (the “Company”, “we”, “our”, “ours” and “us” as the context requires), but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated have been included. For further information regarding the Company's accounting policies, refer to the Consolidated Financial Statements and related notes included in the Company's Annual Report on Form 10-K for the year ended October 3, 2020. Operating results for interim periods are not necessarily indicative of results to be expected for a full year.

 

The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of the eight limited partnerships in which we act as general partner and have controlling interests. All intercompany balances and transactions have been eliminated. Non-controlling interest represents the limited partners’ proportionate share of the net assets and results of operations of the eight limited partnerships.

 

These condensed consolidated financial statements include estimates relating to performance based officers’ bonuses. The estimates are reviewed periodically and the effects of any revisions are reflected in the financial statements in the period they are determined to be necessary. Although these estimates are based on management’s knowledge of current events and actions it may take in the future, they may ultimately differ from actual results.

 

The condensed consolidated financial statements include estimates relating to the calculation of incremental borrowing rates and length of leases associated with right-of-use assets and corresponding liabilities.

 

(2) EARNINGS PER SHARE:

 

We follow Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Section 260 - “Earnings per Share”. This section provides for the calculation of basic and diluted earnings per share. The data on Page 2 shows the amounts used in computing earnings per share and the effects on income. As of April 3, 2021 and March 28, 2020, no stock options were outstanding.

 

(3) RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

 

Adopted

 

Effective September 29, 2019, we adopted Accounting Standards Codification 842, Leases (“ASC 842”). The new guidance requires that lease arrangements be presented on the lessee’s balance sheet by recording a right-of-use asset and a lease liability equal to the present value of the related future minimum lease payments. We adopted the standard in the first quarter of fiscal 2020, using the modified

8 

Index 

(3) RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

(Continued)

 

Adopted (Continued)

 

retrospective approach. Upon adoption, the Company recorded a right-of-use asset of $27.8 million and a lease liability of $27.8 million. At October 1, 2020, the Company decreased the operating lease right-of-use asset by $2.6 million and the operating lease liability by $2.6 million with the reclassification of an operating lease to a finance lease due to the exercise of a purchase option during the first quarter of our fiscal year 2021. The Company recorded a finance lease right-of-use asset of $4.8 million and a finance lease liability of $4.8 million as of October 3, 2020. At April 3, 2021, the Company eliminated a finance lease right-of-use asset of $4.7 million and a finance lease liability of $4.7 million due to the exercise of the option to purchase contained in the lease.

 

We elected the transition package of practical expedients, under which the Company does not have to reassess (1) whether any expired or existing contracts are leases, or contain leases, (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. In addition, we made an accounting policy election to exclude leases with an initial term of 12 months or less from the balance sheet. This standard had a material impact on the Condensed Consolidated Balance Sheets due to the recording of a right-of-use asset and lease liability and on the Condensed Consolidated Statements of Income due to the escalations of rent in the extensions but did not have a material impact on the Condensed Consolidated Statement of Cash Flows.

 

Recently Issued

 

There are no recently issued accounting pronouncements that we have not yet adopted that we believe will have a material effect on our financial statements.

 

(4) INCOME TAXES:

 

We account for our income taxes using FASB ASC Topic 740, “Income Taxes”, which requires among other things, recognition of future tax benefits measured at enacted rates attributable to deductible temporary differences between financial statement and income tax basis of assets and liabilities and to tax net operating loss carryforwards and tax credits to the extent that realization of said tax benefits is more likely than not.

 

(5) PURCHASE OF REAL PROPERTY:

 

North Lauderdale, Florida (“Flanigan’s Seafood Bar and Grill”/”Big Daddy’s Liquors”)

 

On October 7, 2014, we entered into an Amendment to Lease Agreement (the “Lease Amendment”) with a non-affiliated third party from whom we rented approximately 4,600 square feet of commercial space located at 5450 N. State Road 7, North Lauderdale, Florida where we operate a combination “Flanigan’s Seafood Bar and Grill” restaurant and “Big Daddy’s Liquors” package liquor store (Store #40). The Lease Amendment extended the term of the Lease Agreement until December 31, 2020 and granted us the option to purchase, (the “Option to Purchase”), the real property and improvements through December 31, 2020 for $1,200,000. During the fourth quarter of our fiscal year 2020 we exercised the Option to Purchase and closed on the acquisition of the property on December 31, 2020. We paid all cash at closing.

 

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Sunrise, Florida (“Flanigan’s Seafood Bar and Grill”)

 

During the second quarter of our fiscal year 2019, we entered into a Lease Agreement (the “Sunrise Lease Agreement”) with a non-affiliated third party to rent approximately 6,900 square feet of commercial space located at 14301 W. Sunrise Boulevard, Sunrise, Florida where, subject to certain conditions, we anticipate opening a new restaurant location. The Sunrise Lease Agreement granted us an option to purchase, (the “Option to Purchase”) the real property and improvements by March 2, 2021 for $4,800,000. During the third quarter of our fiscal year 2019, we assigned the Sunrise Lease Agreement, excluding the Option to Purchase, to a newly formed limited partnership. During the first quarter of our fiscal year 2021, we exercised the Option to Purchase and closed on the acquisition of the property on March 2, 2021. We financed this acquisition with a loan from an unrelated third-party lender in the principal amount of $2.2 million and paid cash for the balance.

 

(6) EXTENSION OF LEASES FOR EXISTING LOCATIONS:

 

Pinecrest, Florida

 

During the second quarter of our fiscal year 2021, the lease with an unrelated third party for the space located at 11415 S. Dixie Highway, Pinecrest, Florida (Store #13) where a limited partnership owned restaurant operates, was extended through January 31, 2031 with one (1) five (5) year renewal option. The fixed annual rental was reduced by 7½% and the fixed annual rental increases were reduced to 2% from 3% for the first seven (7) years. Otherwise the extended lease is on substantially the same terms and conditions, including fixed annual rental increases and continued percentage rent as existed before the extension.

 

Surfside, Florida

 

During the second quarter of our fiscal year 2021, the lease with an unrelated third party for the space located at 9516 Harding Avenue, Surfside, Florida (Store #60) where a limited partnership owned restaurant operates was extended through December 31, 2026. The fixed annual rental increases were increased from $0.75 per square foot annually to $1.00 per square foot effective January 1, 2022, otherwise the extended lease is on substantially the same terms and conditions as existed before the extension.

 

(7) DEBT:

 

(a) Mortgage on Real Property - Sunrise, Florida

 

During the first quarter of our fiscal year 2021, we exercised the Option to Purchase and during the second quarter of our fiscal year 2021 we closed on the acquisition of the real property located at 14301 W. Sunrise Boulevard, Sunrise, Florida. We financed this acquisition with a loan from an unrelated third party lender in the principal amount of $2.2 million. The mortgage loan accrues interest at the fixed annual rate of 3.65%, is amortized over fifteen (15) years, and requires us to pay monthly payments of principal and interest in the amount of $15,900 with the entire principal balance and all accrued but unpaid interest due in March, 2036.

 

(b) Financed Insurance Premiums

 

During the twenty-six weeks ended April 3, 2021, we financed the premiums on the following property, general liability, excess liability and terrorist policies, totaling approximately $1.94 million, which property, general liability, excess liability and terrorist insurance includes coverage for our franchises which are not included in our consolidated financial statements:

 

10 

Index 

(i)

For the policy year beginning December 30, 2020, our general liability insurance, excluding limited partnerships, is a one (1) year policy with our insurance carriers. The one (1) year general liability insurance premium is in the amount of $340,000;

 

(ii)

For the policy year beginning December 30, 2020, our general liability insurance for our limited partnerships is a one (1) year policy with our insurance carriers. The one (1) year general liability insurance premium is in the amount of $426,000;

 

(iii)

For the policy year beginning December 30, 2020, our automobile insurance is a one (1) year policy. The one (1) year automobile insurance premium is in the amount of $93,000;

 

(iv)

For the policy year beginning December 30, 2020, our property insurance is a one (1) year policy. The one (1) year property insurance premium is in the amount of $627,000;

 

(v)

For the policy year beginning December 30, 2020, our excess liability insurance is a one (1) year policy. The one (1) year excess liability insurance premium is in the amount of $443,000;

 

(vi)

For the policy year beginning December 30, 2020, our terrorist insurance is a one (1) year policy. The one (1) year terrorist insurance premium is in the amount of $5,000; and

 

(vii)

For the policy year beginning December 30, 2020, our equipment breakdown insurance is a one (1) year policy. The one (1) year equipment breakdown insurance premium is in the amount of $6,000.

 

Of the $1,940,000 annual premium amounts, which includes coverage for our franchises which are not included in our consolidated financial statements, we financed $1,776,000 through an unaffiliated third party lender. The finance agreement obligates us to repay the amounts financed together with interest at the rate of 2.45% per annum, over 11 months, with monthly payments of principal and interest of $164,000. The finance agreement is secured by a first priority security interest in all insurance policies, all unearned premium, return premiums, dividend payments and loss payments thereof.

 

As of April 3, 2021, the aggregate principal balance owed from the financing of our property and general liability insurance policies is $1,127,000, excluding coverage for our franchises (of approximately $339,000), which are not included in our condensed consolidated financial statements.

 

(8) COMMITMENTS AND CONTINGENCIES:

 

Construction Contracts

 

a. 2505 N. University Drive, Hollywood, Florida (Store #19)

 

During the third quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated architect for design and development services totaling $77,000 for the re-build of our restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) which has been closed since October 2018 due to damages caused by a fire, of which $62,000 has been paid. Additionally, during the third quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated general contractor for site work at this location totaling $1,618,000, (i) to connect the real property where this restaurant operated (Store #19) to city sewer and (ii) to construct a new building on the adjacent parcel of real property for the operation of a package liquor store. During our fiscal year 2020 and the first and second quarters of our fiscal year 2021, we agreed to change orders to the agreement for additional construction services increasing the total contract price by $140,000 to $1,757,000, of which $133,000 of the total amount obligated has been paid through April 3, 2021. Subsequent to the end of the second quarter of our fiscal year 2021, we agreed to change orders to the agreement for additional construction services increasing the total contract price by $350,000 to $2,107,000, with an additional $117,000 paid subsequent to the end of the second quarter of our fiscal year 2021.

 

11 

Index 

b. 14301 W. Sunrise Boulevard, Sunrise, Florida (Store #85)

 

During the third quarter of our fiscal year 2019, we also entered into an agreement with a third party unaffiliated design group for design and development services of our new location at 14301 W. Sunrise Boulevard, Sunrise, Florida 33323 (Store #85) for a total contract price of $122,000. During our fiscal year 2020, we agreed upon amendments to the $122,000 Contract for additional design and development services which had the effect of increasing the total contract price by $18,000 to $140,000, of which $115,000 has been paid through April 3, 2021, with an additional $16,000 paid subsequent to the end of the second quarter of our fiscal year 2021. Additionally, during the fourth quarter of our fiscal year 2020, we entered into an agreement with a third party unaffiliated general contractor for interior renovations at this location totaling $1,236,000, of which $111,000 has been paid through April 3, 2021 and an additional $156,000 has been paid subsequent to the end of the second quarter of our fiscal year 2021.

 

c. Miramar, Florida (“Flanigan’s Seafood Bar and Grill”)

 

During the fourth quarter of our fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party for the lease of a restaurant location in a shopping center at 11225 Miramar Parkway, #250, Miramar, Florida 33024 (Store #25). The shopping center is currently in the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises by August 28, 2021. During the second quarter of our fiscal year 2021, we entered into an Architectural Professional Services Agreement with a third-party unaffiliated architect for design and development services for this new location (Store #25) for a total contract price of $73,850, of which $51,695 has been paid during the second quarter of our fiscal year 2021 and an additional $7,385 has been paid subsequent to the end of the second quarter of our fiscal year 2021.

 

d. Miramar, Florida (“Big Daddy’s Wine and Liquors”)

 

During the fourth quarter of our fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party for the lease of a retail package liquor store location in a shopping center at 11225 Miramar Parkway, #245, Miramar, Florida 33024 (Store #24). The shopping center is currently in the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises by August 28, 2021. During the second quarter of our fiscal year 2021, we entered into an Architectural Professional Services Agreement with a third-party unaffiliated architect for design and development services for this new location (Store #24) for a total contract price of $18,650, of which $14,920 has been paid during the second quarter of our fiscal year 2021.

 

Leases

 

To conduct certain of our operations, we lease restaurant and package liquor store space in South Florida from unrelated third parties. Our leases have remaining lease terms of up to 10 years, some of which include options to renew and extend the lease terms for up to an additional 30 years. We presently intend to renew some of the extension options available to us and for purposes of computing the right-of-use assets and lease liabilities required by ASC 842, we have incorporated into all lease terms which may be extended, an additional term of the lesser of (i) the amount of years the lease may be extended; or (ii) 15 years.

 

12 

Index 

Following adoption of ASC 842, common area maintenance and property taxes are not considered to be lease components.

 

 

The components of lease expense are as follows:

   13 Weeks   13 Weeks 
   Ended April 3, 2021   Ended March 28, 2020 
Finance Lease Amortization  $79,000   $ 
Finance Lease Expense, which is included in interest expense   44,000     
Operating Lease Expense, which is included in occupancy costs   808,000    1,131,000 
   $931,000   $1,131,000 

 

   26 Weeks   26 Weeks 
   Ended April 3, 2021   Ended March 28, 2020 
Finance Lease Amortization  $198,000   $ 
Finance Lease Expense, which is included in interest expense   109,000     
Operating Lease Expense, which is included in occupancy costs   1,867,000    2,261,000 
   $2,174,000   $2,261,000 

 

 

Supplemental balance sheet information related to leases as follows:

 

Classification on the Condensed Consolidated Balance Sheet  April 3, 2021   October 3, 2020 
         
Assets          
Finance lease assets   $   $4,749,000 
Operating lease assets   26,679,000    22,150,000 
   $26,679,000   $26,899,000 
           
Liabilities          
Finance current liabilities  $   $4,772,000 
Operating current liabilities   1,825,000    3,116,000 
Operating lease non-current liabilities   $25,304,000   $20,337,000 
           
Weighted Average Remaining Lease Term:          
Finance leases       0.42 Years 
Operating leases   8.41 Years     7.71 Years 
           
Weighted Average Discount:          
Finance leases       5.5% 
Operating leases    5.2%    5.5% 

 

 

For fiscal year 2021  Operating   Finance 
2021   (six (6) months)  $1,584,000   $ 
2022   3,124,000     
2023   3,201,000     
2024   3,240,000     
2025   3,227,000     
Thereafter   21,089,000     
           
Total lease payments           
     (Undiscounted cash flows)    35,465,000     
Less imputed interest   (8,336,000)    
Total  $27,129,000   $ 

 

13 

Index 

 

Litigation

 

Our sale of alcoholic beverages subjects us to “dram shop” statutes, which allow an injured person to recover damages from an establishment that served alcoholic beverages to an intoxicated person. If we receive a judgment substantially in excess of our insurance coverage or if we fail to maintain our insurance coverage, our business, financial condition, operating results or cash flows could be materially and adversely affected. We currently have no “dram shop” claims.

We are a party to various other claims, legal actions and complaints arising in the ordinary course of our business. It is our opinion, after consulting with legal counsel, that all such matters are without merit or involve such amounts that an unfavorable disposition would not have a material adverse effect on our financial position or results of operations.

 

(9) CORONAVIRUS PANDEMIC

 

In March 2020, a novel strain of coronavirus was declared a global pandemic and a National Public Health Emergency. The novel coronavirus pandemic and related “shelter-in-place” orders and other governmental mandates relating thereto (collectively, “COVID-19”) adversely affected and will, in all likelihood continue to adversely affect, our restaurant operations and financial results for the foreseeable future. Throughout the second quarter of our fiscal year 2021, in accordance with guidance from health officials, we have offered both indoor and outdoor food and bar options at all of our restaurants, with, among other precautions appropriate social distancing and mask requirements for all customers and employees.

 

During the third quarter of our fiscal year 2020, we, certain of the entities owning the limited partnership stores (the “LP’s”), franchised stores (the “Franchisees”) as well as the store we manage but do not own (the “Managed Store”), (collectively, the “Borrowers”), applied for and received loans from an unrelated third party lender pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) enacted March 27, 2020, in the aggregate principal amount of approximately $13.1 million, (the “PPP Loans”), of which approximately: (i) $5.9 million was loaned to us; (ii) $4.1 million was loaned to 8 of the LP’s; (iii) $2.6 million was loaned to 5 of the Franchisees; and (iv) $0.5 million was loaned to the Managed Store. The PPP Loans to the Franchisees and the Managed Store are not included in our consolidated financial statements. Under the terms of the PPP Loans, up to the entire amount of principal and accrued interest may be forgiven to the extent the proceeds of the PPP Loans are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP. During the second quarter of our fiscal year 2021, we applied for forgiveness for all PPP Loans, including Franchisees and the Managed Store and the entire amount of principal and accrued interest was forgiven for 7 of our limited partnerships, 2 of our Franchisees and the Managed Store (principal amount of approximately $5,208,000). Accordingly, during the second quarter of our fiscal year 2021, we recorded a gain on forgiveness of debt of $3,653,000 of PPP Loans ($3,622,000 of principal and $31,000 of interest). Subsequent to the end of the second quarter of our fiscal year 2021, the entire amount of principal and accrued interest was forgiven for our remaining limited partnership and for 2 of our Franchisees (principal amount of approximately $1,291,000).

 

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”), (collectively, the “Borrowers”), applied for and received 2nd PPP loans, in the aggregate principal amount of approximately $3.98 million (the “2nd PPP Loans”), of which approximately: (i) $3.35 million was loaned to 6 of the LP’s; and (iv) $0.63 million was loaned to the Managed Store.

The 2nd PPP Loans, which are in the form of Notes issued by each of the Borrowers, mature five years from the date of funding (March 23, 2021) and bear interest at a rate of 1.00% per annum, payable monthly commencing after the U.S. Small Business Administration makes a determination of the forgiveness of the 2nd PPP Loans. The Notes may be prepaid by the applicable Borrower at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loans will be available to the respective Borrower to fund designated expenses, including certain payroll costs, group health care benefits and other permitted expenses, including rent and interest on mortgages and other debt obligations incurred before February 15, 2020. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent the proceeds of the 2nd PPP Loans are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP. No assurance can be given that the Borrowers will obtain forgiveness of the 2nd PPP Loans in whole or in part.

14 

Index 

With respect to any portion of any of the 2nd PPP Loans that is not forgiven under the terms of the PPP, such amounts will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the applicable 2nd PPP Note and cross-defaults on any other loan with the lender or other creditors.

 

(10) BUSINESS SEGMENTS:

 

We operate principally in two reportable segments – package stores and restaurants. The operation of package stores consists of retail liquor sales and related items. Information concerning the revenues and operating income for the thirteen weeks and twenty-six weeks ended April 3, 2021 and March 28, 2020, and identifiable assets for the two reportable segments in which we operate, are shown in the following table. Operating income is total revenue less cost of merchandise sold and operating expenses relative to each segment. In computing operating income, none of the following items have been included: interest expense, other non-operating income and expenses and income taxes. Identifiable assets by segment are those assets that are used in our operations in each segment. Corporate assets are principally cash and real property, improvements, furniture, equipment and vehicles used at our corporate headquarters. We do not have any operations outside of the United States and transactions between restaurants and package liquor stores are not material.

 

   (in thousands) 
  

Thirteen Weeks
Ended

April 3, 2021

  

Thirteen Weeks
Ended

March 28, 2020

 
Operating Revenues:          
   Restaurants  $25,739   $23,528 
   Package stores   7,830    6,027 
   Other revenues   788    573 
      Total operating revenues  $34,357   $30,128 
           
Income from Operations Reconciled to Income After Income Taxes and Net Income Attributable to Noncontrolling Interests          
    Restaurants  $2,037   $1,962 
    Package stores   735    590 
    2,772    2,552 
    Corporate expenses, net of other revenues   21    (1,035)
    Income from operations   2,793    1,517 
    Interest expense   (248)   (198)
    Interest and other income   19    13 
    Gain on forgiveness of PPP loans   3,653     
    Gain on sale of property and equipment   8     
Income Before Provision for Income Taxes  $6,225   $1,332 
     Provision for Income Taxes   (533)   88 
Net Income   5,692    1,420 
Net Income Attributable to Noncontrolling Interests   (3,241)   (772)
Net Income Attributable to Flanigan’s Enterprises, Inc.          
  Stockholders  $2,451   $648 
           
Depreciation and Amortization:          
   Restaurants  $578   $629 
   Package stores   87    90 
    665    719 
   Corporate   97    96 
Total Depreciation and Amortization  $762   $815 
           
Capital Expenditures:          
   Restaurants  $5,523   $433 
   Package stores   169    54 
    5,692    487 
   Corporate   454    220 
Total Capital Expenditures  $6,146   $707 

 

15 

Index 

  

 

Twenty Six Weeks
Ended

April 3, 2021

  

 

Twenty Six Weeks
Ended

March 28, 2020

 
Operating Revenues:          
   Restaurants  $48,510   $48,161 
   Package stores   15,841    11,734 
   Other revenues   1,386    1,174 
      Total operating revenues  $65,737   $61,069 
           
Income from Operations Reconciled to Income After Income Taxes and Net Income Attributable to Noncontrolling Interests          
    Restaurants  $3,217   $3,697 
    Package stores   1,450    973 
    4,667    4,670 
     Corporate expenses, net of other revenues   (604)   (1,922)
    Income from Operations   4,063    2,748 
    Interest expense   (527)   (402)
    Interest and Other Income   31    25 
    Gain on forgiveness of debt   3,653     
    Gain on sale of property and equipment   33     
Income Before Provision for Income Taxes  $7,253   $2,371 
   Provision for Income Taxes   (529)   (30)
Net Income   6,724    2,341 
Net Income Attributable to Noncontrolling Interests   (3,493)   (1,199)
Net Income Attributable to Flanigan’s Enterprises, Inc.          
  Stockholders  $3,231   $1,142 
           
Depreciation and Amortization:          
   Restaurants   1,171    1,264 
   Package stores   176    174 
    1,347    1,438 
   Corporate   189    194 
Total Depreciation and Amortization  $1,536   $1,632 
           
Capital Expenditures:          
   Restaurants  $6,287   $1,134 
   Package stores   282    157 
    6,569    1,291 
   Corporate   682    349 
Total Capital Expenditures  $7,251   $1,640 
           

 

   April 3,   October 3, 
   2021   2020 
Identifiable Assets:          
   Restaurants  $59,169   $55,030 
   Package store   13,663    13,771 
    72,832    68,801 
   Corporate   48,690    43,683 
Consolidated Totals  $121,522   $112,484 

 

(11)       SUBSEQUENT EVENTS:

Extension of Lease for Existing Location

 

Miami, Florida

16 

Index 

Subsequent to the end of the second quarter of our fiscal year 2021, the lease with an unrelated third party for the restaurant owned by our limited partnership and located at 9857 SW 40th Street, Miami, Florida (Store #90) was amended to add approximately 2,100 square feet to the business premises and extend the term of the lease through March 31, 2031, with one (1) five (5) year renewal option. The fixed annual rental was increased by $5,000 monthly, with fixed annual rental increases. Otherwise, the extended lease is on substantially the same terms and conditions as existed before the extension.

Menu Price Increases

 

Subsequent to the end of the second quarter of our fiscal year 2021, we increased menu prices for our food offerings (effective April 11, 2021) to target an increase to our food revenues of approximately 4.60% annually to offset higher food costs and higher overall expenses.

Subsequent events have been evaluated through the date these condensed consolidated financial statements were issued and except as disclosed herein, no further events required disclosure.

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CAUTIONARY NOTE REGARDING LOOKING FORWARD STATEMENTS

 

Reported financial results may not be indicative of the financial results of future periods. All non-historical information contained in the following discussion constitutes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words such as “anticipates, appears, expects, trends, intends, hopes, plans, believes, seeks, estimates, may, will,” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve a number of risks and uncertainties, including but not limited to the effect of the novel coronavirus pandemic and related “shelter-in-place” orders and other governmental mandates (“COVID 19”), customer demand and competitive conditions. Factors that could cause actual results to differ materially are included in, but not limited to, those identified in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our periodic reports, including our Annual Report on Form 10-K for the fiscal year ended October 3, 2020. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may reflect events or circumstances after the date of this report.

 

OVERVIEW

 

As of April 3, 2021, Flanigan’s Enterprises, Inc., a Florida corporation, together with its subsidiaries (“we”, “our”, “ours” and “us” as the context requires), (i) operates 27 units, consisting of restaurants, package liquor stores and combination restaurants/package liquor stores that we either own or have operational control over and partial ownership in; and (ii) franchises an additional five units, consisting of two restaurants (one of which we operate) and three combination restaurants/package liquor stores. The table below provides information concerning the type (i.e. restaurant, package liquor store or combination restaurant/package liquor store) and ownership of the units (i.e. whether (i) we own 100% of the unit; (ii) the unit is owned by a limited partnership of which we are the sole general partner and/or have invested in; or (iii) the unit is franchised by us), as of April 3, 2021 and as compared to March 28, 2020. With the exception of “The Whale’s Rib”, a restaurant we operate but do not own, all of the restaurants operate under our service mark “Flanigan’s Seafood Bar and Grill” and all of the package liquor stores operate under our service marks “Big Daddy’s Liquors” or “Big Daddy’s Wine & Liquors”.

 

Types of Units

April 3, 2021

October 3, 2020 March 28, 2020  

Company Owned:

Combination package and restaurant

 

3

 

3

 

3

 

(1)

Restaurant only 7 7 7  
Package store only 7 7 7  
         
Company Operated Restaurants Only:        
Limited Partnerships 8 8 8  
Franchise 1 1 1  
Unrelated Third Party 1 1 1  
         
Total Company Owned/Operated Units 27 27 27  
Franchised Units 5 5 5 (2)

Notes:

(1) During the first quarter of our fiscal year 2019, our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) was damaged by a fire which has caused it to be closed since the first quarter of our fiscal year 2019. Store #19 remains closed through April 3, 2021.

(2) We operate a restaurant for one (1) franchisee. This unit is included in the table both as a franchised restaurant, as well as a restaurant operated by us.

 

17 

Index 

In March 2020, a novel strain of coronavirus was declared a global pandemic and a National Public Health Emergency. The novel coronavirus pandemic and related “shelter-in-place” orders and other governmental mandates relating thereto (collectively, “COVID-19”) adversely affected and will, in all likelihood continue to adversely affect, our restaurant operations and financial results for the foreseeable future. Throughout the second quarter of our fiscal year 2021, in accordance with guidance from health officials, we have offered both indoor and outdoor food and bar options at all of our restaurants, with, among other precautions appropriate social distancing and mask requirements for all customers and employees.

 

Franchise Financial Arrangement: In exchange for our providing management and related services to our franchisees and granting them the right to use our service marks “Flanigan’s Seafood Bar and Grill” and “Big Daddy’s Liquors”, our franchisees (four of which are franchised to members of the family of our Chairman of the Board, officers and/or directors), are required to (i) pay to us a royalty equal to 1% of gross package store sales and 3% of gross restaurant sales; and (ii) make advertising expenditures equal to between 1.5% to 3% of all gross sales based upon our actual advertising costs allocated between stores, pro-rata, based upon gross sales.

 

Limited Partnership Financial Arrangement: We manage and control the operations of all restaurants owned by limited partnerships, except the Fort Lauderdale, Florida restaurant which is owned by a related franchisee. Accordingly, the results of operations of all limited partnership owned restaurants, except the Fort Lauderdale, Florida restaurant are consolidated into our operations for accounting purposes. The results of operations of the Fort Lauderdale, Florida restaurant are accounted for by us utilizing the equity method of accounting. In general, until the investors’ cash investment in a limited partnership (including any cash invested by us and our affiliates) is returned in full, the limited partnership distributes to the investors annually out of available cash from the operation of the restaurant up to 25% of the cash invested in the limited partnership, with no management fee paid to us. Any available cash in excess of the 25% of the cash invested in the limited partnership distributed to the investors annually, is paid one-half (½) to us as a management fee, with the balance distributed to the investors. Once the investors in the limited partnership have received, in full, amounts equal to their cash invested, an annual management fee is payable to us equal to one-half (½) of cash available to the limited partnership, with the other one half (½) of available cash distributed to the investors (including us and our affiliates). As of April 3, 2021, all limited partnerships have returned all cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. In addition to receipt of distributable amounts from the limited partnerships, we receive a fee equal to 3% of gross sales for use of the service mark “Flanigan’s Seafood Bar and Grill”.

 

RESULTS OF OPERATIONS

   -----------------------Thirteen Weeks Ended----------------------- 
   April 3, 2021   March 28, 2020 
  

Amount

(In thousands)

  

 

Percent

  

Amount

(In thousands)

  

 

Percent

 
Restaurant food sales  $20,689    61.63   $18,213    61.62 
Restaurant bar sales   5,050    15.04    5,315    17.98 
Package store sales   7,830    23.33    6,027    20.40 
                     
Total Sales  $33,569    100.00   $29,555    100.00 
                     
Franchise related revenues   422         307      
Rental income   226         209      
Other operating income   140         57      
                     
Total Revenue  $34,357        $30,128      

 

18 

Index 

   -----------------------Twenty Six Weeks Ended----------------------- 
   April 3, 2021   March 28, 2020 
  

Amount

(In thousands)

  

 

Percent

  

Amount

(In thousands)

  

 

Percent

 
Restaurant food sales  $39,017    60.63   $36,955    61.70 
Restaurant bar sales   9,493    14.75    11,206    18.71 
Package store sales   15,841    24.62    11,734    19.59 
                     
Total Sales  $64,351    100.00   $59,895    100.00 
                     
Franchise related revenues   808         667      
Rental income   413         403      
Other operating income   165         104      
                     
Total Revenue  $65,737        $61,069      

 

Comparison of Thirteen Weeks Ended April 3, 2021 and March 28, 2020.

 

Revenues. Total revenue for the thirteen weeks ended April 3, 2021 increased $4,229,000 or 14.04% to $34,357,000 from $30,128,000 for the thirteen weeks ended March 28, 2020 due primarily to increased package liquor store and restaurant sales, increased menu prices and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended March 28, 2020 as compared with the thirteen weeks ended April 3, 2021. Effective November 29, 2020 we increased menu prices for our bar offerings to target an increase to our bar revenues of approximately 1.83% annually and effective December 6, 2020 we increased menu prices for our food offerings to target an increase to our food revenues of approximately 2.45% annually to offset higher food costs and higher overall expenses, (the “2020 Prices Increases”). Prior to these increases, we previously raised menu prices in the third quarter of our fiscal year 2019. We expect that Store #19 (2505 N. University Drive, Hollywood, Florida) will remain closed during our fiscal year 2021 due to damages caused by a fire in October 2018 and accordingly do not expect to generate any revenue from it.

 

Restaurant Food Sales. Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants totaled $20,689,000 for the thirteen weeks ended April 3, 2021 as compared to $18,213,000 for the thirteen weeks ended March 28, 2020. The increase in restaurant food sales for the thirteen weeks ended April 3, 2021 as compared to restaurant food sales during the thirteen weeks ended March 28, 2020 is attributable to the 2020 Price Increases and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended March 28, 2020 as compared with the thirteen weeks ended April 3, 2021. Comparable weekly restaurant food sales (for restaurants open for all of the thirteen weeks ended April 3, 2021 and March 28, 2020 respectively, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirteen weeks ended April 3, 2021 and March 28, 2020 due to a fire on October 2, 2018) and eight restaurants owned by affiliated limited partnerships) was $1,578,000 and $1,388,000 for the thirteen weeks ended April 3, 2021 and March 28, 2020, respectively, an increase of 13.69%. Comparable weekly restaurant food sales for Company owned restaurants only was $786,000 and $713,000 for the thirteen weeks ended April 3, 2021 and March 28, 2020 respectively, an increase of 10.24%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only was $792,000 and $675,000 for the thirteen weeks ended April 3, 2021 and March 28, 2020 respectively, an increase of 17.33%.

 

19 

Index 

Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants totaled $5,050,000 for the thirteen weeks ended April 3, 2021 as compared to $5,315,000 for the thirteen weeks ended March 28, 2020. The decrease in restaurant bar sales during the thirteen weeks ended April 3, 2021 is primarily due to the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended April 3, 2021 as compared with the thirteen weeks ended March 28, 2020, offset by the 2020 Price Increases. Comparable weekly restaurant bar sales (for restaurants open for all of the thirteen weeks ended April 3, 2021 and March 28, 2020 respectively, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirteen weeks ended April 3, 2021 and March 28, 2020 due to a fire on October 2, 2018), and eight restaurants owned by affiliated limited partnerships) was $389,000 for the thirteen weeks ended April 3, 2021 and $409,000 for the thirteen weeks ended March 28, 2020, a decrease of 4.89%. Comparable weekly restaurant bar sales for Company owned restaurants only was $166,000 and $189,000 for the thirteen weeks ended April 3, 2021 and March 28, 2020 respectively, a decrease of 12.17%. Comparable weekly restaurant bar sales for affiliated limited partnership owned restaurants only was $223,000 and $220,000 for the thirteen weeks ended April 3, 2021 and March 28, 2020 respectively, an increase of 1.36%.

 

Package Store Sales. Revenue generated from sales of liquor and related items at package liquor stores totaled $7,830,000 for the thirteen weeks ended April 3, 2021 as compared to $6,027,000 for the thirteen weeks ended March 28, 2020, an increase of $1,803,000. This increase was primarily due to increased package liquor store traffic due to what appears to be an increased demand for package liquor store products resulting from COVID-19 during the second quarter of our fiscal year 2021, offset by the fact that both New Year’s Eve and New Year’s Day 2021 (days we have historically experienced high sales volume in our package liquor stores) occurred during the first quarter of our fiscal year 2021 and occurred during the second quarter of our fiscal year 2020. The weekly average of same store package liquor store sales, which includes nine (9) Company-owned package liquor stores, (excluding Store #19, which was closed for the thirteen weeks ended April 3, 2021 and March 28, 20020 due to a fire on October 2, 2018, but includes Store #45, which opened for business on October 10, 2019), was $602,000 and $464,000 for the thirteen weeks ended April 3, 2021 and March 28, 2020 respectively, an increase of 29.74%.

 

Operating Costs and Expenses. Operating costs and expenses, (consisting of cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses), for the thirteen weeks ended April 3, 2021 increased $2,953,000 or 10.32% to $31,564,000 from $28,611,000 for the thirteen weeks ended March 28, 2020. The increase was primarily due to an expected general increase in food costs and payroll, offset by actions taken by management to reduce and/or control costs. We anticipate that our operating costs and expenses will continue to increase through our fiscal year 2021 for the same reasons. Operating costs and expenses decreased as a percentage of total revenue to approximately 91.87% in the second quarter of our fiscal year 2021 from 94.96% in the second quarter of our fiscal year 2020.

 

Gross Profit. Gross profit is calculated by subtracting the cost of merchandise sold from sales.

 

Restaurant Food Sales and Bar Sales. Gross profit for food and bar sales for the thirteen weeks ended April 3, 2021 increased to $17,277,000 from $15,628,000 for the thirteen weeks ended March 28, 2020. Our gross profit margin for restaurant food and bar sales (calculated as gross profit reflected as a percentage of restaurant food and bar sales), was 67.12% for the thirteen weeks ended April 3, 2021 and 66.42% for the thirteen weeks ended March 28, 2020. Gross profit margin for restaurant food and bar sales increased during the second quarter of our fiscal year 2021 when compared to the second quarter of our fiscal year 2020 due to, among other things, the inclusion of a 10% take-out charge on restaurant food sales, which is approximately three times pre-pandemic levels, the 2020 Price Increases and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended March 28, 2020 as compared with the thirteen weeks ended April 3, 2021, offset by higher food costs. .

 

20 

Index 

Package Store Sales. Gross profit for package store sales for the thirteen weeks ended April 3, 2021 increased to $2,162,000 from $1,701,000 for the thirteen weeks ended March 28, 2020, due primarily to increased package liquor store traffic which we believe has been caused by COVID-19. Our gross profit margin, (calculated as gross profit reflected as a percentage of package liquor store sales), for package store sales was 27.61% for the thirteen weeks ended April 3, 2021 and 28.22% for the thirteen weeks ended March 28, 2020.

 

Payroll and Related Costs. Payroll and related costs for the thirteen weeks ended April 3, 2021 increased $1,312,000 or 14.34% to $10,464,000 from $9,152,000 for the thirteen weeks ended March 28, 2020. Payroll and related costs for the thirteen weeks ended April 3, 2021 were stable, notwithstanding higher costs for employees such as cooks. Payroll and related costs as a percentage of total revenue was 30.46% in the thirteen weeks ended April 3, 2021 and 30.38% of total revenue in the thirteen weeks ended March 28, 2020.

 

Occupancy Costs. Occupancy costs (consisting of percentage rent, common area maintenance, repairs, real property taxes, amortization of leasehold purchases and rent expense associated with operating lease liabilities under ASC 842) for the thirteen weeks ended April 3, 2021 decreased $251,000 or 13.55% to $1,602,000 from $1,853,000 for the thirteen weeks ended March 28, 2020. The decrease in occupancy costs was primarily due to the termination of rent for our combination retail package liquor store and restaurant located at 5450 N. State Road 7, North Lauderdale, Florida (Store #40), the real property and improvements of which we purchased on December 31, 2020 and the elimination of occupancy costs due to the elimination of rent for our restaurant location which we are developing located at 14301 West Sunrise Boulevard, Sunrise, Florida (Store #85), the real property and improvements of which we purchased on March 2, 2021. We anticipate that our occupancy costs will decrease throughout the balance of our fiscal year 2021.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses (consisting of general corporate expenses, including but not limited to advertising, insurance, professional costs, clerical and administrative overhead) for the thirteen weeks ended April 3, 2021 decreased $12,000 or 0.22% to $5,368,000 from $5,380,000 for the thirteen weeks ended March 28, 2020. Selling, general and administrative expenses decreased as a percentage of total revenue in the thirteen weeks ended April 3, 2021 to 15.62% as compared to 17.86% in the thirteen weeks ended March 28, 2020. We anticipate that our selling, general and administrative expenses will decrease throughout the balance of our fiscal year 2021 due primarily to increases in total revenue when compared to the balance of our fiscal year 2020.

 

Depreciation and Amortization. Depreciation and amortization expense for the thirteen weeks ended April 3, 2021 decreased $53,000 or 6.50% to $762,000 from $815,000 from the thirteen weeks ended March 28, 2020. As a percentage of total revenue, depreciation and amortization expense was 2.22% of revenue in the thirteen weeks ended April 3, 2021 and 2.71% of revenue in the thirteen weeks ended March 28, 2020.

 

Interest Expense, Net. Interest expense, net, for the thirteen weeks ended April 2, 2021 increased $50,000 to $248,000 from $198,000 for the thirteen weeks ended March 28, 2020. Interest expense, net, will increase throughout the balance of our fiscal year 2021 due to interest on our borrowing of $2,200,000 during the second quarter of our fiscal year 2021 from our unrelated third party lender to finance our purchase of the real property and improvements located at 14301 West Sunrise Boulevard, Sunrise, Florida (Store #85) and the borrowing by six of our limited partnerships of an additional approximately $3.35 million during the second quarter of our fiscal year 2021 on the 2nd PPP Loans, if not forgiven.

 

Income Taxes. Income tax for the thirteen weeks ended April 3, 2021 was an expense of $533,000, as compared to a benefit of $88,000 for the thirteen weeks ended March 28, 2020. Income tax for the second quarter of our fiscal year 2021 was not affected by the forgiveness of debt of certain of the PPP Loans, pursuant to the terms of the PPP Loans. The income tax benefit for the thirteen weeks ended March 28, 2020 reflects an adjustment to the income tax expense for the first quarter of our fiscal year 2020 which was based upon a pre COVID-19 estimated annual net income for our fiscal year 2020.

 

21 

Index 

Net Income. Net income for the thirteen weeks ended April 3, 2021 increased $4,272,000 or 300.85% to $5,692,000 from $1,420,000 for the thirteen weeks ended March 28, 2020 due primarily to the forgiveness of debt of certain of the PPP Loans, increased revenue at our retail package liquor stores and restaurants, the 2020 Price Increases and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended March 28, 2020 as compared with the thirteen weeks ended April 3, 2021, offset by higher food costs and overall expenses. As a percentage of revenue, net income for the thirteen weeks ended April 3, 2021 is 16.57%, as compared to 4.71% in the thirteen weeks ended March 28, 2020.

 

Net Income Attributable to Stockholders. Net income attributable to stockholders for the thirteen weeks ended April 3, 2021 increased $1,803,000 or 278.24% to $2,451,000 from $648,000 for the thirteen weeks ended March 28, 2020 due primarily to the forgiveness of debt of certain of the PPP Loans, increased revenue at our retail package liquor stores and restaurants, the 2020 Price Increases and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended March 28, 2020 as compared with the thirteen weeks ended April 3, 2021, offset by higher food costs and overall expenses. As a percentage of revenue, net income attributable to stockholders for the second quarter of our fiscal year 2021 is 7.13%, as compared to 2.15% in the second quarter of our fiscal year 2020.

 

Comparison of Twenty-Six Weeks Ended April 1, 2021 and March 28, 2020.

 

Revenues. Total revenue for the twenty-six weeks ended April 3, 2021 increased $4,668,000 or 7.64% to $65,737,000 from $61,069,000 for the twenty-six ended March 28, 2020 due primarily to increased package liquor store and restaurant sales, increased menu prices and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended March 28, 2020 as compared with the thirteen weeks ended April 3, 2021. We expect that Store #19 (2505 N. University Drive, Hollywood, Florida) will remain closed during our fiscal year 2021 due to damages caused by a fire in October 2018 and accordingly do not expect to generate any revenue from it.

 

Restaurant Food Sales. Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants totaled $39,017,000 for the twenty-six weeks ended April 3, 2021 as compared to $36,955,000 for the twenty-six weeks ended March 28, 2020. The increase in restaurant food sales for the twenty-six weeks ended April 3, 2021 as compared to restaurant food sales during the twenty-six ended March 28, 2020 is attributable to the 2020 Price Increases and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended March 28, 2020 as compared with the thirteen weeks ended April 3, 2021. Comparable weekly restaurant food sales (for restaurants open for the twenty-six weeks ended April 3, 2021 and March 28, 2020 respectively, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the twenty-six weeks ended April 3, 2021 and March 28, 2020 respectively, due to a fire on October 2, 2018) and eight restaurants owned by affiliated limited partnerships) was $1,489,000 and $1,410,000 for the twenty-six weeks ended April 3, 2021 and March 28, 2020 respectively, an increase of 5.60%. Comparable weekly restaurant food sales for Company owned restaurants only was $733,000 and $717,000 for the twenty-six weeks ended April 3, 2021 and March 28, 2020 respectively, an increase of 2.23%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only was $756,000 and $693,000 for the twenty-six weeks ended April 3, 2021 and March 28, 2020 respectively, an increase of 9.09%.

 

22 

Index 

Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants totaled $9,493,000 for the twenty-six weeks ended April 3, 2021 as compared to $11,206,000 for the twenty-six weeks ended March 28, 2020. The decrease in restaurant bar sales during the twenty-six weeks ended April 3, 2021 is primarily due to the comparatively more adverse effects of COVID-19 on our operations during the twenty-six weeks ended April 3, 2021 as compared with the twenty-six weeks ended March 28, 2020, offset by 2020 Price Increases. Comparable weekly restaurant bar sales (for restaurants open for the twenty-six weeks ended April 3, 2021 and March 28, 2020, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the twenty-six weeks ended April 3, 2021 and March 28, 2020 due to a fire on October 2, 2018), and eight restaurants owned by affiliated limited partnerships) was $365,000 for the twenty-six weeks ended April 3, 2021 and $431,000 for the twenty-six weeks ended March 28, 2020 respectively, a decrease of 15.31%. Comparable weekly restaurant bar sales for Company owned restaurants only was $153,000 and $198,000 for the twenty-six weeks ended April 3, 2021 and March 28, 2020, respectively, a decrease of 22.73%. Comparable weekly restaurant bar sales for affiliated limited partnership owned restaurants only was $212,000 and $233,000 for the twenty-six weeks ended April 3, 2021 and March 28, 2020, respectively, a decrease of 9.01%.

 

Package Store Sales. Revenue generated from sales of liquor and related items at package liquor stores totaled $15,841,000 for the twenty-six weeks ended April 3, 2021 as compared to $11,734,000 for the twenty-six weeks ended March 28, 2020, an increase of $4,107,000. This increase was primarily due to increased package liquor store traffic due to what appears to be an increased demand for package liquor store products resulting from COVID-19 during the twenty-six weeks of our fiscal year 2021. The weekly average of same store package liquor store sales, which includes nine (9) Company-owned package liquor stores, (excluding Store #19, which was closed for the twenty-six weeks ended April 3, 2021 and March 28, 2020 respectively due to a fire on October 2, 2018, but includes Store #45, which opened for business on October 10, 2019), was $609,000 and $451,000 for the twenty-six weeks ended April 3, 2021 and March 28, 2020 respectively, an increase of 35.03%.

 

Operating Costs and Expenses. Operating costs and expenses, (consisting of cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses), for the twenty-six weeks ended April 3, 2021 increased $3,353,000 or 5.75% to $61,674,000 from $58,321,000 for the twenty-six weeks ended March 28, 2020. The increase was primarily due to an expected general increase in food costs and payroll, offset by actions taken by management to reduce and/or control costs. We anticipate that our operating costs and expenses will continue to increase through our fiscal year 2021 for the same reasons. Operating costs and expenses decreased as a percentage of total revenue to approximately 93.82% in the twenty-six weeks ended April 3, 2021 from 95.50% in the twenty-six weeks ended March 28, 2020.

 

Gross Profit. Gross profit is calculated by subtracting the cost of merchandise sold from sales.

 

Restaurant Food Sales and Bar Sales. Gross profit for food and bar sales for the twenty-six weeks ended April 3, 2021 increased to $32,526,000 from $31,837,000 for the twenty-six weeks ended March 28, 2020. Our gross profit margin for restaurant food and bar sales (calculated as gross profit reflected as a percentage of restaurant food and bar sales), was 67.05% for the twenty-six weeks ended April 3, 2021 and 66.11% for the twenty-six weeks ended March 28, 2020. Gross profit margin for restaurant food and bar sales increased during the twenty-six weeks ended April 3, 2021 when compared to the twenty-six weeks ended March 28, 2020 due to, among other things, the inclusion of a 10% take-out charge on restaurant food sales, which is approximately three times pre-pandemic levels, the 2020 Price Increases and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended March 28, 2020 as compared with the thirteen weeks ended April 3, 2021, offset by higher food costs.

 

Package Store Sales. Gross profit for package liquor store sales for the twenty-six weeks ended April 3, 2021 increased to $4,322,000 from $3,269,000 for the twenty-six weeks ended March 28, 2020, due primarily to increased package liquor store traffic which we believe has been caused by COVID-19. Our gross profit margin, (calculated as gross profit reflected as a percentage of package liquor store sales), for package store sales was 27.28% for the twenty-six weeks ended April 3, 2021 and 27.86% for the twenty-six weeks ended March 28, 2020.

 

23 

Index 

Payroll and Related Costs. Payroll and related costs for the twenty-six weeks ended April 3, 2021 increased $1,258,000 or 6.74% to $19,927,000 from $18,669,000 for the twenty-six weeks ended March 28, 2020. Payroll and related costs for the twenty-six weeks ended April 3, 2021 were stable, notwithstanding higher costs for employees such as cooks. Payroll and related costs as a percentage of total revenue was 30.31% in the twenty-six weeks ended April 3, 2021 and 30.57% of total revenue in the twenty-six weeks ended March 28, 2020.

 

Occupancy Costs. Occupancy costs (consisting of percentage rent, common area maintenance, repairs, real property taxes, amortization of leasehold purchases and rent expense associated with operating lease liabilities under ASC 842) for the twenty-six weeks ended April 3, 2021 decreased $302,000 or 8.14% to $3,408,000 from $3,710,000 for the twenty-six weeks ended March 28, 2020. The decrease in occupancy costs was primarily due to the termination of rent for our combination retail package liquor store and restaurant located at 5450 N. State Road 7, North Lauderdale, Florida (Store #40), the real property and improvements of which we purchased on December 31, 2020 and the elimination of occupancy costs due to the elimination of rent for our restaurant location which we are developing located at 14301 West Sunrise Boulevard, Sunrise, Florida (Store #85), the real property and improvements of which we purchased on March 2, 2021. We anticipate that our occupancy costs will decrease throughout the balance of our fiscal year 2021.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses (consisting of general corporate expenses, including but not limited to advertising, insurance, professional costs, clerical and administrative overhead) for the twenty-six weeks ended April 3, 2021 decreased $317,000 or 2.84% to $10,836,000 from $11,153,000 for the twenty-six weeks ended March 28, 2020. Selling, general and administrative expenses decreased as a percentage of total revenue in the twenty-six weeks ended April 3, 2021 to 16.48% as compared to 18.26% in the twenty-six weeks ended March 28, 2020. We anticipate that our selling, general and administrative expenses will decrease throughout the balance of our fiscal year 2021 due primarily to increases in total revenue when compared to the balance of our fiscal year 2020.

 

Depreciation and Amortization. Depreciation and amortization expense for the twenty-six weeks ended April 3, 2021 decreased $96,000 or 5.88% to $1,536,000 from $1,632,000 from the twenty-six weeks ended March 28, 2020. As a percentage of total revenue, depreciation and amortization expense was 2.34% of revenue in the twenty-six weeks ended April 3, 2021 and 2.67% of revenue in the twenty-six weeks ended March 28, 2020.

 

Interest Expense, Net. Interest expense, net, for the twenty-six weeks ended April 2, 2021 increased $125,000 to $527,000 from $402,000 for the twenty-six weeks ended March 28, 2020. Interest expense, net, increased for the twenty-six weeks ended April 3, 2021 and will increase throughout the balance of our fiscal year 2021 due to interest on our borrowing of $2,200,000 during the second quarter of our fiscal year 2021 from our unrelated third party lender to finance our purchase of the real property and improvements located at 14301 West Sunrise Boulevard, Sunrise, Florida (Store #85) and the borrowing by six of our limited partnerships of an additional approximately $3.35 million during the second quarter of our fiscal year 2021 on the 2nd PPP Loans, if not forgiven.

 

Income Taxes. Income tax for the twenty-six weeks ended April 3, 2021 was an expense of $529,000, as compared to an expense of $30,000 for the twenty-six weeks ended March 28, 2020. Income tax for the twenty-six weeks ended April 3, 2021 was not affected by the forgiveness of debt of certain of the PPP Loans, pursuant to the terms of the PPP Loans.

 

24 

Index 

Net Income. Net income for the twenty-nine weeks ended April 3, 2021 increased $4,383,000 or 187.23% to $6,724,000 from $2,341,000 for the twenty-six weeks ended March 28, 2020 due primarily to the forgiveness of debt of certain of the PPP Loans, increased revenue at our retail package liquor stores and restaurants, the 2020 Price Increases and the comparatively more adverse effects of COVID-19 on our operations during the twenty-six weeks ended March 28, 2020 as compared with the twenty-six weeks ended April 3, 2021, offset by higher food costs and overall expenses. As a percentage of revenue, net income for the twenty-six weeks ended April 3, 2021 is 10.23%, as compared to 3.83% in the twenty-six weeks ended March 28, 2020.

 

Net Income Attributable to Stockholders. Net income attributable to stockholders for the twenty-six weeks ended April 3, 2021 increased $2,089,000 or 182.92% to $3,231,000 from $1,142,000 for the twenty-six weeks ended March 28, 2020 due primarily to the forgiveness of debt of certain of the PPP Loans, increased revenue at our retail package liquor stores and restaurants, the 2020 Price Increases and the comparatively more adverse effects of COVID-19 on our operations during the twenty-six weeks ended March 28, 2020 as compared with the twenty-six weeks ended April 3, 2021, offset by higher food costs and overall expenses. As a percentage of revenue, net income attributable to stockholders for the twenty-six weeks ended April 3, 2021 is 4.92%, as compared to 1.87% for the twenty-six weeks ended March 28, 2020.

 

New Limited Partnership Restaurants

 

As new restaurants open, our income from operations will be adversely affected due to our obligation to advance pre-opening costs, including but not limited to pre-opening rent for the new locations. During the thirteen weeks ended April 3, 2021, we had one new restaurant location in Sunrise, Florida in the development stage. During the fourth quarter of our fiscal year 2019, we entered into leases for two spaces adjacent to each other, to house a new “Flanigan’s Seafood Bar and Grill” as well as a “Big Daddy’s Wine and Liquors” in a shopping center in Miramar, Florida, which shopping center is currently under construction.

 

Menu Price Increases and Trends

 

Subsequent to the end of the second quarter of our fiscal year 2021, we increased menu prices for our food offerings (effective April 11, 2021) to target an increase to our food revenues of approximately 4.60% annually to offset higher food costs and higher overall expenses.

During the first quarter of our fiscal year 2021, we increased menu prices for our bar offerings (effective November 29, 2020) to target an increase to our bar revenues of approximately 1.83% annually and we increased menu prices for our food offerings (effective December 6, 2020) to target an increase to our food revenues of approximately 2.45% annually to offset higher food costs and higher overall expenses. Prior to these increases, we previously raised menu prices in the third quarter of our fiscal year 2019.

COVID-19 has and will continue to materially and adversely affect our restaurant business for what may be a prolonged period of time. This damage and disruption has resulted from events and factors that were impossible for us to predict and are beyond our control. As a result, COVID-19 has materially adversely affected our results of operations for the thirteen weeks ended April 3, 2021 will, in all likelihood, impact our results of operations, liquidity and/or financial condition throughout the remainder of our fiscal year 2021. The extent to which our restaurant business may be adversely impacted and its effect on our operations, liquidity and/or financial condition cannot be accurately predicted.

We are not actively searching for locations for the operation of new package liquor stores, but during the fourth quarter of our fiscal year 2019, we entered a lease to house a new “Big Daddy’s Wine & Liquors” package liquor store in space adjacent to where we are planning a new “Flanigan’s Seafood Bar and Grill”, restaurant in a shopping center in Miramar, Florida, which shopping center is currently under construction.

25 

Index 

Liquidity and Capital Resources

 

We fund our operations through cash from operations and borrowings from third parties. As of April 3, 2021, we had cash of approximately $32,628,000, an increase of $2,706,000 from our cash balance of $29,922,000 as of October 3, 2020. During the first quarter of our fiscal year 2021, we closed on our purchase of the real property and improvements located at 5450 N. State Road 7, North Lauderdale, Florida where we operate a combination “Flanigan’s Seafood Bar and Grill” restaurant and “Big Daddy’s Liquors” package liquor store (Store #40) and paid $1,200,000 cash at closing. During the third quarter of our fiscal year 2020, we, certain of the entities owning the limited partnership stores (the “LP’s”), franchised stores (the “Franchisees”) as well as the store we manage but do not own (the “Managed Store”) (collectively, the “Borrowers”), applied for and received loans from an unrelated third party lender (the “Lender”) pursuant to the PPP under the CARES Act, in the aggregate principal amount of approximately $13.1 million (the “PPP Loans”), of which approximately: (i) $5.9 million was loaned to us; (ii) $4.1 million was loaned to 8 of the LP’s; (iii) $2.6 million was loaned to 5 of the Franchisees; and (iv) $0.5 million was loaned to the Managed Store. During the second quarter of our fiscal year 2021, we applied for forgiveness for all PPP Loans, including Franchisees and the Managed Store and the entire amount of principal and accrued interest was forgiven for 7 of our limited partnerships, 2 of our Franchisees and the Managed Store (principal amount of approximately $5,208,000). Subsequent to the end of the second quarter of our fiscal year 2021, the entire amount of principal and accrued interest was forgiven for our remaining limited partnership and for 2 of our Franchisees (principal amount of approximately $1,291,000). During the first quarter of our fiscal year 2020, our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, re-financed its mortgage loan with an unrelated third party lender, increasing the principal amount borrowed from $2.72 million to $7.21 million.

During the second quarter of our fiscal year 2021, 6 of the entities owning limited partnership stores (the “LP’s”) and the store we manage but do not own (the “Managed Store”) (collectively, the “Borrowers”), applied for and received second loans from an unrelated third party lender (the “Lender”) pursuant to the PPP under the CARES Act, as amended, in the aggregate principal amount of approximately $3.98 million (the “2nd PPP Loans”), of which approximately: (i) $3.35 million was loaned to 6 of the LP’s ; and (ii) $0.63 million was loaned to the Managed Store.

The 2nd PPP Loans, which are in the form of Notes issued by each of the Borrowers, mature five years from the date of funding (March 23, 2021) and bear interest at a rate of 1.00% per annum, payable monthly commencing after the U.S. Small Business Administration makes a determination of the forgiveness of the 2nd PPP Loans. The Notes may be prepaid by the applicable Borrower at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loans will be available to the respective Borrower to fund designated expenses, including certain payroll costs, group health care benefits and other permitted expenses, including rent and interest on mortgages and other debt obligations incurred before February 15, 2020. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent the proceeds of the 2nd PPP Loans are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP. No assurance can be given that the Borrowers will obtain forgiveness of the 2nd PPP Loans in whole or in part.

With respect to any portion of any of the 2nd PPP Loans that is not forgiven under the terms of the PPP, such amounts will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the applicable PPP Note and cross-defaults on any other loan with the Lender or other creditors.

26 

Index 

Notwithstanding the negative effects of COVID 19 on our operations, we believe that our current cash availability from our cash on hand, positive cash flow from operations and borrowed funds will be sufficient to fund our operations and planned capital expenditures for at least the next twelve months.

Cash Flows

 

The following table is a summary of our cash flows for the twenty-six weeks ended April 3, 2021 and March 28, 2020.

 

   ---------Twenty-Six Weeks Ended-------- 
   April 3, 2021   March 28, 2020 
   (in Thousands) 
         
Net cash provided by operating activities  $7,092   $4,213 
Net cash provided by (used in) investing activities   (5,493)   (1,982)
Net cash provided by (used in) financing activities   1,107    2,158 
Net Increase in Cash and Cash Equivalents   2,706    4,389 
Cash and Cash Equivalents, Beginning   29,922    13,672 
Cash and Cash Equivalents, Ending  $32,628   $18,061 

 

During the twenty-six weeks ended April 3, 2021, we did not declare or pay a cash dividend on our capital stock. During the twenty-six weeks ended March 28, 2020, due to the negative effects of COVID 19 on our operations, our Board of Directors cancelled a previously declared cash dividend of $.30 per share to shareholders of record on March 20, 2020 and payable on April 3, 2020. Any future determination to pay cash dividends will be at our Board’s discretion and will depend upon our financial condition, operating results, capital requirements and such other factors as our Board deems relevant.

 

Capital Expenditures

 

In addition to using cash for our operating expenses, we use cash to fund the development and construction of new restaurants and to fund capitalized property improvements for our existing restaurants. During the twenty-six weeks ended April 3, 2021, we acquired property, plant and equipment and construction in progress of $7,251,000, (of which $58,000 was for the purchase of a vehicle for debt; of which $2,200,000 was for the purchase of real property for debt; $14,000 was deposits recorded in other assets and $18,000 was purchase deposits transferred to construction in process as of October 3, 2020), which amount included $23,000 for the renovation to one (1) existing limited partnership restaurants and $364,000 for renovations to five (5) Company owned restaurants. During the twenty-six weeks ended March 28, 2020, we acquired property, plant and equipment and construction in progress of $1,640,000, (of which $61,000 was deposits recorded in other assets and $2,000 was purchase deposits transferred to construction in process as of September 28, 2019), which amount included $263,000 for the renovation to two (2) existing limited partnership restaurants and $254,000 for renovations to four (4) Company owned restaurants.

 

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All of our owned units require periodic refurbishing in order to remain competitive. We anticipate the cost of this refurbishment in our fiscal year 2021 to be approximately $950,000, excluding construction/renovations to Store #19 (our combination package liquor store and restaurant which is being rebuilt due to damages caused by a fire) and Store #85 (our Sunrise, Florida restaurant location in development), which funds will be provided from operations.

 

Long Term Debt

 

As of April 3, 2021, we had long term debt of $28,269,000, as compared to $17,448,000 as of March 28, 2018, and $26,323,000 as of October 3, 2020. Our long term debt increased as of April 3, 2021 as compared to October 3, 2020 due to the 2nd PPP Loans received by 6 of our limited partnerships and $1,281,000 for financed insurance premiums, less any payments made on account thereof, offset by the forgiveness of certain of the PPP Loans of our limited partnerships. As of April 3, 2021, we are in compliance with the covenants of all loans with our lender.

 

As of April 3, 2021, the aggregate principal balance owed from the financing of our property and general liability insurance policies is $1,127,000, excluding coverage for our franchises (of approximately $339,000), which are not included in our consolidated financial statements.

 

Construction Contracts

 

a. 2505 N. University Drive, Hollywood, Florida (Store #19)

 

During the third quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated architect for design and development services totaling $77,000 for the re-build of our restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) which has been closed since October 2018 due to damages caused by a fire, of which $62,000 has been paid. Additionally, during the third quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated general contractor for site work at this location totaling $1,618,000, (i) to connect the real property where this restaurant operated (Store #19) to city sewer and (ii) to construct a new building on the adjacent parcel of real property for the operation of a package liquor store. During our fiscal year 2020 and the first and second quarters of our fiscal year 2021, we agreed to change orders to the agreement for additional construction services increasing the total contract price by $140,000 to $1,757,000, of which $133,000 of the total amount obligated has been paid through April 3, 2021. Subsequent to the end of the second quarter of our fiscal year 2021, we agreed to change orders to the agreement for additional construction services increasing the total contract price by $350,000 to $2,107,000, with an additional $117,000 paid subsequent to the end of the second quarter of our fiscal year 2021.

 

b. 14301 W. Sunrise Boulevard, Sunrise, Florida (Store #85)

 

During the third quarter of our fiscal year 2019, we also entered into an agreement with a third party unaffiliated design group for design and development services of our new location at 14301 W. Sunrise Boulevard, Sunrise, Florida 33323 (Store #85) for a total contract price of $122,000. During our fiscal year 2020, we agreed upon amendments to the $122,000 Contract for additional design and development services which had the effect of increasing the total contract price by $18,000 to $140,000, of which $115,000 has been paid through April 3, 2021, with an additional $16,000 paid subsequent to the end of the second quarter of our fiscal year 2021. Additionally, during the fourth quarter of our fiscal year 2020, we entered into an agreement with a third party unaffiliated general contractor for interior renovations at this location totaling $1,236,000, of which $111,000 has been paid through April 3, 2021 and an additional $156,000 has been paid subsequent to the end of the second quarter of our fiscal year 2021.

 

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c. Miramar, Florida (“Flanigan’s Seafood Bar and Grill”)

 

During the fourth quarter of our fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party for the lease of a restaurant location in a shopping center at 11225 Miramar Parkway, #250, Miramar, Florida 33024 (Store #25). The shopping center is currently in the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises by August 28, 2021. During the second quarter of our fiscal year 2021, we entered into an Architectural Professional Services Agreement with a third-party unaffiliated architect for design and development services for this new location (Store #25) for a total contract price of $73,850, of which $51,695 has been paid during the second quarter of our fiscal year 2021 and an additional $7,385 has been paid subsequent to the end of the second quarter of our fiscal year 2021.

 

d. Miramar, Florida (“Big Daddy’s Wine and Liquors”)

 

During the fourth quarter of our fiscal year 2019, we entered into a Lease Agreement with a non-affiliated third party for the lease of a retail package liquor store location in a shopping center at 11225 Miramar Parkway, #245, Miramar, Florida 33024 (Store #24). The shopping center is currently in the developmental stage and the Lease Agreement is still contingent upon our receipt of delivery of the leased premises by August 28, 2021. During the second quarter of our fiscal year 2021, we entered into an Architectural Professional Services Agreement with a third-party unaffiliated architect for design and development services for this new location (Store #24) for a total contract price of $18,650, of which $11,190 has been paid during the second quarter of our fiscal year 2021.

 

Purchase Commitments

 

In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants, on November 9, 2020, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $6,420,000 of baby back ribs during calendar year 2021 from this vendor at a fixed cost.

 

While we anticipate purchasing all of our rib supply from this vendor, we believe there are several other alternative vendors available, if needed.

 

Working Capital

 

The table below summarizes the current assets, current liabilities, and working capital for our fiscal quarters ended April 3, 2021, March 28, 2020 and our fiscal year ended October 3, 2020.

 

Item   April 3, 2021   March 28, 2020   Oct. 3, 2020 
   (in Thousands) 
             
Current Assets  $40,239   $25,324   $36,508 
Current Liabilities   23,317    15,957    25,362 
Working Capital  $16,922   $9,367   $11,146 

 

Our working capital increased during our fiscal quarter ended April 3, 2021 from our working capital for our fiscal quarter ended March 28, 2020 due to the cash received from (i) the PPP Loan to us of $5.9 million; (ii) the PPP Loans to eight limited partnerships of $4.1 million; and the 2nd PPP Loans to six of limited partnerships of $3.35 million.

 

While there can be no assurance due to, among other things, unanticipated expenses or unanticipated decline in revenues, or both, we believe that our cash on hand, positive cash flow from operations and borrowed funds will adequately fund operations, debt reductions and planned capital expenditures throughout our fiscal year 2021.

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Off-Balance Sheet Arrangements

 

We do not have off-balance sheet arrangements.

 

Inflation

 

The primary inflationary factors affecting our operations are food, beverage and labor costs. A large number of restaurant personnel are paid at rates based upon applicable minimum wage and increases in minimum wage directly affect labor costs. To date, inflation has not had a material impact on our operating results, but this circumstance may change in the future if food and fuel costs rise.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We do not ordinarily hold market risk sensitive instruments for trading purposes and as of April 3, 2021 held no equity securities.

 

Interest Rate Risk

 

As part of our ongoing operations, we are exposed to interest rate fluctuations on our borrowings. As more fully described in Note 12 “Fair Value Measurements of Financial Instruments” to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for our fiscal year ended October 3, 2020, we use interest rate swap agreements to manage these risks. These instruments are not used for speculative purposes but are used to modify variable rate obligations into fixed rate obligations.

 

At April 3, 2021, we had two variable rate debt instruments outstanding that are impacted by changes in interest rates. The interest rate of both variable rate debt instruments is equal to the lender’s LIBOR Rate plus two and one-quarter percent (2.25%) per annum. The debt instruments further provide that the “LIBOR Rate” is a rate of interest equal to the British Bankers Association LIBOR Rate or successor thereto approved by the lender if the British Bankers Association is no longer making a LIBOR rate available. In January 2013, we refinanced the mortgage loan encumbering the property where our combination package liquor store and restaurant located at 4 N. Federal Highway, Hallandale, Florida, (Store #31) operates, which mortgage loan is held by an unaffiliated third party lender (the “$1.405M Loan”). In December 2016, we closed on a secured revolving line of credit which entitled us to borrow, from time to time through December 28, 2017, up to $5,500,000 (the “Credit Line”), which on December 28, 2017 converted to a term loan (the “Term Loan”).

 

As a means of managing our interest rate risk on these debt instruments, we entered into interest rate swap agreements with our unrelated third-party lender to convert these variable rate debt obligations to fixed rates. We are currently party to the following two (2) interest rate swap agreements:

 

(i)        The first interest rate swap agreement entered into in January 2013 relates to the $1.405M Loan (the “$1.405M Term Loan Swap”). The $1.405M Term Loan Swap requires us to pay interest for a twenty (20) year period at a fixed rate of 4.35% on an initial amortizing notional principal amount of $1,405,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at April 3, 2021, the interest rate swap agreement is an effective hedging agreement and the fair value was not material; and

 

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(ii)        The second interest rate swap agreement entered into in December 2016 and became effective December 28, 2017, relates to the Term Loan (the “Term Loan Swap”). The Term Loan Swap requires us to pay interest for a five (5) year period at a fixed rate of 4.61% on an initial amortizing notional principal amount of $5,500,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at April 3, 2021, the interest rate swap agreement is an effective hedging agreement and the fair value was not material

 

At April 3, 2021, our cash resources earn interest at variable rates. Accordingly, our return on these funds is affected by fluctuations in interest rates.

 

There is no assurance that interest rates will increase or decrease over our next fiscal year or that an increase will not have a material adverse effect on our operations.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the U.S. Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As of April 3, 2021, an evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934) . Based on that evaluation, management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of April 3, 2021.

 

Material Weakness in Internal Control Over Financial Reporting

 

During the first quarter of our fiscal year 2021, we identified a material weakness in internal control related to our effectiveness in distinguishing between an operating lease and a finance lease for purposes of applying Accounting Standards Codification 842, Leases (“ASC 842”). We adopted ASC 842 on September 29, 2019.

 

We have not identified any material misstatements to our previously issued financial statements.

 

Remediation Measures

To address the material weakness described above we have been implementing and continue to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated and that such controls are designed, implemented and operating effectively. The remediation actions include (i) developing a training program for our accounting personnel designed to ensure that they have the relevant expertise related to the application of ASC 842; (ii) developing and maintaining documentation relating to ASC 842 to promote knowledge transfer when changes occur in personnel; (iii) implementing a management review plan to monitor the impact of ASC 842 with focus on our financial reporting processes; and (iv) reporting on the remediation measures to the Audit Committee and the Board of Directors.

 

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Changes in Internal Control Over Financial Reporting

 

During the period covered by this report, we have not made any change to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

See “Litigation” on page 12 of this Report and Item 1 and Item 3 to Part 1 of the Annual Report on Form 10-K for the fiscal year ended October 3, 2020 for a discussion of other legal proceedings resolved in prior years.

 

ITEM 1A. RISK FACTORS

For a detailed discussion of the risks that affect our business, please refer to the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended October 3, 2020 filed with the SEC on January 15, 2021 as well as other periodic reports.  

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Purchase of Company Common Stock

 

During the twenty-six weeks ended April 3, 2021 and March 28, 2020, we did not purchase any shares of our common stock. As of April 3, 2021, we still have authority to purchase 65,414 shares of our common stock under the discretionary plan approved by the Board of Directors at its meeting on May 17, 2007.

 

ITEM 6. EXHIBITS

 

The following exhibits are filed with this Report:

 

Exhibit Description
   
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
   
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
   
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema Document
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document

 

 

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SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  FLANIGAN'S ENTERPRISES, INC.
   
   
Date: May 20, 2021 /s/ James G. Flanigan
  JAMES G. FLANIGAN, Chief Executive Officer and President
   
   
  /s/ Jeffrey D. Kastner
  JEFFREY D. KASTNER, Chief Financial Officer and Secretary
   (Principal Financial and Accounting Officer)

 

 

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