UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission
File Number
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
(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 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
On
August 15, 2023,
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
| 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 | 7 |
| NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 9 |
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 17 |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 29 |
| ITEM 4. CONTROLS AND PROCEDURES | 30 |
| PART II. OTHER INFORMATION | 31 |
| ITEM 1. LEGAL PROCEEDINGS | 31 |
| ITEM 1A. RISK FACTORS | Not Applicable |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 31 |
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES | Not Applicable |
| ITEM 4. MINE SAFETY DISCLOSURES | Not Applicable |
| ITEM 5. OTHER INFORMATION | Not Applicable |
| ITEM 6. EXHIBITS | 31 |
| SIGNATURES | 32 |
LIST XBRL DOCUMENTS
As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “Flanigan’s” mean Flanigan’s Enterprises, Inc. and its subsidiaries (unless the context indicates a different meaning).
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
| July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | |||||||||||||
| REVENUES: | ||||||||||||||||
| Restaurant food sales | $ | $ | $ | $ | ||||||||||||
| Restaurant bar sales | ||||||||||||||||
| Package store sales | ||||||||||||||||
| Franchise related revenues | ||||||||||||||||
| Rental income | ||||||||||||||||
| Other operating income | ||||||||||||||||
| COSTS AND EXPENSES: | ||||||||||||||||
| Cost of merchandise sold: | ||||||||||||||||
| Restaurant and lounges | ||||||||||||||||
| Package goods | ||||||||||||||||
| Payroll and related costs | ||||||||||||||||
| Occupancy costs | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Income from Operations | ||||||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest and other income | ||||||||||||||||
| Gain on forgiveness of PPP loans | ||||||||||||||||
| Gain on sale of property and equipment | ||||||||||||||||
| ( | ) | ( | ) | ( | ) | |||||||||||
| Income before Provision for Income Taxes | ||||||||||||||||
| Provision for Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Income | ||||||||||||||||
| Less: Net loss (income) attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Income attributable to Flanigan’s Enterprises Inc. stockholders | $ | $ | $ | $ | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
1
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(Continued)
| Thirteen
Weeks Ended | Thirty
Nine Weeks Ended | |||||||||||||||
| July
1, 2023 | July
2, 2022 | July
1, 2023 | July
2, 2022 | |||||||||||||
| Net Income Per Common Share: | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Weighted Average Shares and Equivalent Shares Outstanding | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 1, 2023 (UNAUDITED) AND OCTOBER 1, 2022
(in thousands, except share and per share amounts)
ASSETS
| July 1, 2023 | October 1, 2022 | |||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid income taxes | ||||||||
| Other receivables | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Construction in Progress | ||||||||
| Right-of-use assets, operating leases | ||||||||
| Investment in Limited Partnership | ||||||||
| OTHER ASSETS: | ||||||||
| Liquor licenses | ||||||||
| Deposits on property and equipment | ||||||||
| Leasehold interests, net | ||||||||
| Other | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
FLANIGAN’S ENTERPRISES, INC, AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 1, 2023 (UNAUDITED) AND OCTOBER 1, 2022
(in thousands, except share and per share amounts)
(Continued)
LIABILITIES AND STOCKHOLDERS’ EQUITY
| July
1, 2023 | October
1, 2022 | |||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued compensation | ||||||||
| Due to franchisees | ||||||||
| Current portion of long term debt | ||||||||
| Operating lease liabilities, current | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Debt, Net of Current Portion | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Deferred tax liabilities | ||||||||
| Total Liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Equity: | ||||||||
| Flanigan’s Enterprises, Inc. Stockholders’ Equity | ||||||||
| Common stock, $ | ||||||||
| Capital in excess of par value | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost, | ( | ) | ( | ) | ||||
| Total Flanigan’s Enterprises, Inc. stockholders’ equity | ||||||||
| Noncontrolling interests | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY
FOR THE THIRTY-NINE WEEKS ENDED JULY 1, 2023 AND JULY 2, 2022
(in thousands, except share amounts)
| Capital in | ||||||||||||||||||||||||||||||||
| Common Stock | Excess of | Retained | Treasury Stock | Noncontrolling | ||||||||||||||||||||||||||||
| Shares | Amount | Par Value | Earnings | Shares | Amount | Interests | Total | |||||||||||||||||||||||||
| Balance, October 2, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Net income | - | - | $ | |||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | - | - | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | $ | |||||||||||||||||||||||||||
| Distributions to noncontrolling interests | - | - | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Sale of noncontrolling interests | - | - | $ | |||||||||||||||||||||||||||||
| Balance, April 2, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | $ | ||||||||||||||||||||||||||
| Distributions to noncontrolling interests | - | - | - | - | - | - | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Dividends paid | - | ( | ) | - | $ | ( | ) | |||||||||||||||||||||||||
| Balance, July 2, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY
FOR THE THIRTY-NINE WEEKS ENDED JULY 1, 2023 AND JULY 2, 2022
(in thousands, except share amounts)
(Continued)
| Common Stock | Capital in Excess of | Retained | Treasury Stock | Noncontrolling | ||||||||||||||||||||||||||||
| Shares | Amount | Par Value | Earnings | Shares | Amount | Interests | Total | |||||||||||||||||||||||||
| Balance, October 2, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Net income | - | - | $ | |||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | - | - | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Net income | - | - | $ | |||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | - | - | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Balance, April 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Net income | - | - | - | $ | ||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | - | - | - | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Dividends paid | - | - | ( | ) | - | $ | ( | ) | ||||||||||||||||||||||||
| Balance, July 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED JULY 1, 2023 AND JULY 2, 2022
(in thousands)
| July
1, 2023 | July
2, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of leasehold interests | ||||||||
| Amortization of operating lease right-of-use asset | ||||||||
| Gain on forgiveness of PPP Loans | ( | ) | ||||||
| Gain on sale of property and equipment | ( | ) | ||||||
| Loss on abandonment of property and equipment | ||||||||
| Amortization of deferred loan costs | ||||||||
| Deferred income taxes | ||||||||
| Income from unconsolidated limited partnership | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in | ||||||||
| Other receivables | ( | ) | ||||||
| Prepaid income taxes | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Due to franchisees | ( | ) | ||||||
| Deferred revenue | ||||||||
| Net cash and cash equivalents provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchase of construction in progress | ( | ) | ( | ) | ||||
| Deposits on property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property and equipment | ||||||||
| Business acquistion | ( | ) | ||||||
| Distributions from unconsolidated limited partnership | ||||||||
| Net cash and cash equivalents used in investing activities | ( | ) | ( | ) | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
7
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED JULY 1, 2023 AND JULY 2, 2022
(in thousands)
(Continued)
| July 1, 2023 | July 2, 2022 | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on long term debt | ( | ) | ( | ) | ||||
| Proceeds from noncontrolling interest offering | ||||||||
| Dividends paid | ( | ) | ( | ) | ||||
| Distributions to limited partnerships’ noncontrolling interests | ( | ) | ( | ) | ||||
| Net cash and cash equivalents (used in) provided by financing activities | ( | ) | ||||||
| Net (Decrease) Increase in Cash and Cash Equivalents | ( | ) | ||||||
| Cash and Cash Equivalents - Beginning of Period | ||||||||
| Cash and Cash Equivalents - End of Period | $ | $ | ||||||
| Supplemental Disclosure for Cash Flow Information: | ||||||||
| Cash paid during period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
| Financing of insurance contracts | $ | $ | ||||||
| Purchase deposits capitalized to property and equipment | $ | $ | ||||||
| Purchase deposits transferred to CIP | $ | $ | ||||||
| CIP transferred to property and equipment | $ | $ | ||||||
| CIP in accounts payable | $ | $ | ||||||
| Operating lease liabilities arising from ROU asset | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
8
FLANIGAN’S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED JULY 1, 2023 AND JULY 2, 2022
(1) BASIS OF PRESENTATION:
The accompanying condensed consolidated financial information for the thirteen and thirty-nine weeks ended July 1, 2023 and July 2, 2022 is unaudited. Financial information as of October 1, 2022 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 1, 2022. Operating results for interim periods are not necessarily indicative of results to be expected for a full year.
The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of the ten limited partnerships in which we act as general partner and have controlling interests. All intercompany balances and transactions have been eliminated. Non-controlling interest represents the limited partners’ proportionate share of the net assets and results of operations of the ten limited partnerships.
The consolidated financial statements and related disclosures for condensed interim reporting are prepared in conformity with accounting principles generally accepted in the United States. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported. These estimates include assessing the estimated useful lives of tangible assets, the recognition of deferred tax assets and liabilities and estimates relating to the calculation of incremental borrowing rates and length of leases associated with right-of-use assets and corresponding liabilities and estimates relating to loyalty reward programs. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in our consolidated financial statements in the period they are determined to be necessary. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, they may ultimately differ from actual results.
Certain amounts presented in the financial statements previously issued for the thirteen and thirty-nine weeks ended July 2, 2022 have been reclassified to conform to the presentation for the thirteen and thirty-nine weeks ended July 1, 2023.
(2) EARNINGS PER SHARE:
We follow Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Section 260 - “Earnings per Share”. This section provides for the calculation of basic and diluted earnings per share. The data on Page 2 shows the amounts used in computing earnings per share and the effects on income. As of July 1, 2023 and July 2, 2022, no stock options or other potentially dilutive securities were outstanding.
(3) RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Adopted
There are no accounting pronouncements that we have recently adopted.
9
Recently Issued
The FASB issued guidance, ASU 2022-06 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the London interbank offered rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This accounting standards update provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. LIBOR rates were published until June 30, 2023. All principal and interest of the Term Loan was paid during the first quarter of our fiscal year 2023, so the discontinuance of LIBOR rates will have no impact on us.
The FASB issued guidance, ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This guidance would be effective for the Company in the first quarter of our fiscal year 2024; however, after performing a thorough analysis the Company concluded it does not possess any financial asset instrument that would be subject to this guidance.
There are no other recently issued accounting pronouncements that we have not yet adopted that we believe may 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. The Company’s income tax expense computed at the statutory federal rate of
(5) PURCHASE OF REAL PROPERTY:
El Portal, Florida (“Big Daddy’s Liquors”/Warehouse)
During
the third quarter of our fiscal year 2023, we closed with a non-affiliated third party on the purchase of the real property it owns located
at 8600 Biscayne Boulevard, El Portal, Florida consisting of approximately
Hallandale Beach, Florida
During the third quarter of our fiscal year 2023
we closed with a non-affiliated third party on the purchase of a three building shopping center in Hallandale Beach, Florida, which consists
of one stand-alone building which is leased to two unaffiliated third parties (approximately
10
(6) DEBT:
Payoff of Term Loan
During
the first quarter of our fiscal year 2023, we satisfied the principal balance and all accrued interest due on our $
In
February 2023, we determined that as of December 31, 2022, we did not meet the required Post-Distribution Basic Fixed Charge Coverage
Ratio (the “Post-Distribution/Fixed Charge Covenant”) contained in each of our six (6) loans (the “Institutional Loans”)
with our unrelated third party institutional lender (the “Institutional Lender’). On February 23, 2023, we received from
the Institutional Lender, a written waiver of the non-compliance with the Post-Distribution/Fixed Charge Covenant (the “Covenant
Non-Compliance”), pursuant to which, among other things, the Institutional Lender waived (1) the non-compliance as of December
31, 2022 and (2) their right to exercise certain remedies under the Institutional Loans, including the right to accelerate the indebtedness
owed by us thereunder, resulting in the indebtedness under the Institutional Loans to be immediately due and payable, which would have
a material adverse effect on the Company. The Post-Distribution/Fixed Charge Covenant requires we maintain a ratio of at least
For further information regarding the Company’s long-term debt, refer to the Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended October 1, 2022.
(7) INSURANCE PREMIUMS
Prior
to fiscal year 2023 we financed our annual insurance premiums. Due to higher interest rates, during the first quarter of our fiscal year
2023, for the policy year commencing December 30, 2022, we paid the premiums for property, general liability, excess liability and terrorist
policies, totaling approximately $
We
paid the $
(8) COMMITMENTS AND CONTINGENCIES:
Construction Contracts
(a) 2505 N. University Drive, Hollywood, Florida (Store #19 – “Flanigan’s”)
During
the third quarter of our fiscal year 2019, we entered into an agreement with an unaffiliated third party architect for design and development
services totaling $
(b) 14301 W. Sunrise Boulevard, Sunrise, Florida (Store #85 – “Flanigan’s”)
During
the second quarter of our fiscal year 2022, we entered into an agreement with a third party unaffiliated general contractor for exterior
renovations at this location totaling $
11
$
(c) 11225 Miramar Parkway, #250, Miramar, Florida (“Flanigan’s”)
During the second quarter of our fiscal year 2022,
we entered into an agreement with a third party unaffiliated general contractor for interior renovations at this location totaling $
Leases
To
conduct certain of our operations, we lease restaurant and package liquor store space in South Florida from unrelated third parties.
Our leases have remaining lease terms of up to
Following adoption of ASC 842 during the year ended October 3, 2020, common area maintenance and property taxes are not considered to be lease components.
The components of lease expense are as follows:
| 13 Weeks | 13 Weeks | |||||||
| Ended July 1, 2023 | Ended July 2, 2022 | |||||||
| Operating Lease Expense, which is included in occupancy costs | $ | $ | ||||||
| 39 Weeks | 39 Weeks | |||||||
| Ended July 1, 2023 | Ended July 2, 2022 | |||||||
| Operating Lease Expense, which is included in occupancy costs | $ | $ | ||||||
Supplemental balance sheet information related to leases is as follows:
| Classification on the Condensed Consolidated Balance Sheet | July
1, 2023 | October
1, 2022 | ||||||
| Assets | ||||||||
| Operating lease assets | $ | $ | ||||||
| Liabilities | ||||||||
| Operating lease current liabilities | $ | $ | ||||||
| Operating lease non-current liabilities | $ | $ | ||||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount: | ||||||||
| Operating leases | % | % | ||||||
The following table outlines the minimum future lease payments for the next five years and thereafter:
12
| For fiscal year 2023 | Operating | |||
| 2023 (three (3) months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| (Undiscounted cash flows) | ||||
| Less imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
Litigation
Our sale of alcoholic beverages subjects us to “dram shop” statutes, which allow an injured person to recover damages from an establishment that served alcoholic beverages to an intoxicated person. If we receive a judgment substantially in excess of our insurance coverage or if we fail to maintain our insurance coverage, our business, financial condition, operating results or cash flows could be materially and adversely affected. We currently have no “dram shop” claims.
From time to time, we are a party to various other claims, legal actions and complaints arising in the ordinary course of our business, including claims resulting from “slip and fall” accidents, claims under federal and state laws governing access to public accommodations, employment-related claims and claims from guests alleging illness, injury or other food quality, health or operational concerns. It is our opinion, after consulting with legal counsel, that all such matters are without merit or involve such amounts that an unfavorable disposition, some of which is covered by insurance, would not have a material adverse effect on our financial position or results of operations.
(9) CORONAVIRUS PANDEMIC:
In March 2020, a novel strain of coronavirus was declared a global pandemic and a National Public Health Emergency. The novel coronavirus pandemic, (“COVID-19”) adversely affected and will, in all likelihood continue to adversely affect, our restaurant operations and financial results for the foreseeable future. The Department of Health and Human Services (HHS) permitted the federal Public Health Emergency for COVID-19 (PHE) declared by the Secretary of the Department of Health and Human Services (Secretary) under Section 319 of the Public Health Service (PHS) Act to expire at the end of the day on May 11, 2023.
During
the second quarter of our fiscal year 2021, certain of the entities owning the limited partnership stores (the “LP’s”),
as well as the store we manage but do not own (the “Managed Store”), applied for and received loans from an unrelated third
party lender pursuant to the Paycheck Protection Program (the “PPP”) under the United States Coronavirus Aid, Relief and
Economic Security Act (the “CARES Act”) enacted March 27, 2020, in the aggregate principal amount of approximately $
COVID-19 has had a material adverse effect on our access to supplies or labor and there can be no assurance that there will not be a significant adverse impact on our supply chain or access to labor in the future. We are actively monitoring our food suppliers to assess how they are managing their operations to mitigate supply flow and food safety risks. To ensure we mitigate potential supply availability risk, we are building additional inventory back stock levels when appropriate and we have also identified alternative supply sources in key product categories including but not limited to food, sanitation and safety supplies.
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(10) BUSINESS SEGMENTS:
We operate in two reportable segments – package stores and restaurants. The operation of package stores consists of retail liquor sales and related items. The operation of restaurants consists of restaurant food and bar sales. 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. Information concerning the revenues and operating income for the thirteen weeks and thirty-nine weeks ended July 1, 2023 and July 2, 2022, and identifiable assets for the two reportable segments in which we operate, are shown in the following tables.
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| (in thousands) | ||||||||
| Thirteen Weeks Ending | Thirteen Weeks Ending | |||||||
| July 1, 2023 | July 2, 2022 | |||||||
| Operating Revenues: | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Other revenues | ||||||||
| Total operating revenues | $ | $ | ||||||
| Income from Operations Reconciled to Income After Income Taxes and Net Income Attributable to Noncontrolling Interests | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Corporate expenses, net of other revenues | ( | ) | ( | ) | ||||
| Income from Operations | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest and Other income | ||||||||
| Income Before Provision for Income Taxes | $ | $ | ||||||
| Provision for Income Taxes | ( | ) | ( | ) | ||||
| Net Income | ||||||||
| Net Income Attributable to Noncontrolling Interests | ( | ) | ( | ) | ||||
| Net Income Attributable to Flanigan’s Enterprises, Inc. | $ | $ | ||||||
| Stockholders | ||||||||
| Depreciation and Amortization: | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Corporate | ||||||||
| Total Depreciation and Amortization | $ | $ | ||||||
| Capital Expenditures: | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Corporate | ||||||||
| Total Capital Expenditures | $ | $ | ||||||
15
| Thirty-Nine Weeks Ending July 1, 2023 | Thirty-Nine Weeks Ending July 2, 2022 | |||||||
| Operating Revenues: | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Other revenues | ||||||||
| Total operating revenues | $ | $ | ||||||
| Income from Operations Reconciled to Income After Income Taxes and Net Income Attributable to Noncontrolling Interests | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Corporate expenses, net of other revenues | ( | ) | ( | ) | ||||
| Income from Operations | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest and Other income | ||||||||
| Gain on forgiveness of PPP Loans | - | |||||||
| Gain on sale of property and equipment | - | |||||||
| Income Before Provision for Income Taxes | $ | $ | ||||||
| Provision for Income Taxes | ( | ) | ( | ) | ||||
| Net Income | ||||||||
| Net Income Attributable to Noncontrolling Interests | ( | ) | ( | ) | ||||
| Net Income Attributable to Flanigan’s Enterprises, Inc. Stockholders | $ | $ | ||||||
| Depreciation and Amortization: | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Corporate | ||||||||
| Total Depreciation and Amortization | $ | $ | ||||||
| Capital Expenditures: | ||||||||
| Restaurants | $ | $ | ||||||
| Package stores | ||||||||
| Corporate | ||||||||
| Total Capital Expenditures | $ | $ | ||||||
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| (in thousands) | ||||||||
| July 1, | October 1, | |||||||
| 2023 | 2022 | |||||||
| Identifiable Assets: | ||||||||
| Restaurants | $ | $ | ||||||
| Package store | ||||||||
| Corporate | ||||||||
| Consolidated Totals | $ | $ | ||||||
(11) SUBSEQUENT EVENTS:
Subsequent events have been evaluated through the date these condensed consolidated financial statements were issued and 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 1, 2022. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may reflect events or circumstances after the date of this report.
OVERVIEW
As of July 1, 2023, Flanigan’s Enterprises, Inc., a Florida corporation, together with its subsidiaries (“we”, “our”, “ours” and “us” as the context requires), (i) operates 32 units, consisting of restaurants, package liquor stores, combination restaurant/package liquor stores and a sports bar that we either own or have operational control over and partial ownership in; and franchises an additional five units, consisting of two restaurants (one of which we operate) and three combination restaurant/package liquor stores. The table below provides information concerning the type (i.e. restaurant, sports bar, package liquor store or combination restaurant/package liquor store) and ownership of the units (i.e. whether (i) we own 100% of the unit; (ii) the unit is owned by a limited partnership of which we are the sole general partner and/or have invested in; or (iii) the unit is franchised by us), as of July 1, 2023 and as compared to October 1, 2022. With the exception of “The Whale’s Rib”, a restaurant we operate but do not own, and “Brendan’s Sports Pub” a restaurant/bar we own, all of the restaurants operate under our service marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s” and all of the package liquor stores operate under our service marks “Big Daddy’s Liquors” or “Big Daddy’s Wine & Liquors”.
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| July 1, 2023 | October 1, 2022 | |||||||||||
| TYPES OF UNITS | ||||||||||||
| Company Owned: | ||||||||||||
| Combination package liquor store and restaurant | 3 | 3 | ||||||||||
| Restaurant only, including sports bar | 8 | 8 | (1) | |||||||||
| Package liquor store only | 9 | 7 | (2) (3) | |||||||||
| Company Managed Restaurants Only: | ||||||||||||
| Limited partnerships | 10 | 10 | (4) | |||||||||
| Franchise | 1 | 1 | ||||||||||
| Unrelated Third Party | 1 | 1 | ||||||||||
| Total Company Owned/Operated Units | 32 | 30 | ||||||||||
| Franchised Units | 5 | 5 | (5) | |||||||||
Notes:
(1) During the third quarter of our fiscal year 2022, we entered into a new lease for the business premises and purchased the assets of a restaurant/bar known as “Brendan’s Sports Pub” located at 868 S. Federal Highway, Pompano Beach, Florida and began operating the location under its current trade name.
(2) During the first quarter of our fiscal year 2019, our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19), was damaged by a fire which has caused it to be closed since the first quarter of our fiscal year 2019. During the first quarter of our fiscal year 2023, we opened our newly built stand-alone package liquor store on this site replacing our package liquor store destroyed by fire and previously operating here (Store #19P). We are constructing a stand-alone restaurant building on this site (adjacent to the package liquor store), replacing our restaurant destroyed by fire and previously operating here (Store #19R). We do not believe this restaurant will be operational during our fiscal year 2023.
(3) During the second quarter of our fiscal year 2023, our package liquor store located at 11225 Miramar Parkway #245, Miramar, Florida (Store #24) opened for business.
(4) During the second quarter of our fiscal year 2022, our limited partnership owned restaurant located at 14301 West Sunrise Boulevard, Sunrise, Florida (Store #85) opened for business in March, 2022 (the “2022 Sunrise Restaurant”). During the third quarter of our fiscal year 2023, our limited partnership owned restaurant located at 11225 Miramar Parkway #250, Miramar, Florida (Store #25) opened for business in April, 2023 (the “2023 Miramar Restaurant”).
(5) We operate a restaurant for one (1) franchisee. This unit is included in the table both as a franchised restaurant, as well as a restaurant operated by us.
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
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25% of the cash invested in the limited partnership distributed to the investors annually, is paid one-half (½) to us as a management fee, with the balance distributed to the investors. Once the investors in the limited partnership have received, in full, amounts equal to their cash invested, an annual management fee is payable to us equal to one-half (½) of cash available to the limited partnership, with the other one half (½) of available cash distributed to the investors (including us and our affiliates). As of July 1, 2023, all limited partnerships, with the exception of the 2022 Sunrise Restaurant, which opened for business in March, 2022 and the 2023 Miramar Restaurant, which opened for business in April, 2023, have returned all cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. In addition to receipt of distributable amounts from the limited partnerships, we receive a fee equal to 3% of gross sales for use of the service mark “Flanigan’s Seafood Bar and Grill” or “Flanigan’s”.
RESULTS OF OPERATIONS
| -----------------------Thirteen Weeks Ended----------------------- | ||||||||||||||||
| July 1, 2023 | July 2, 2022 | |||||||||||||||
| Amount | Amount | |||||||||||||||
| (In thousands) | Percent | (In thousands) | Percent | |||||||||||||
| Restaurant food sales | $ | 28,126 | 63.06 | $ | 25,574 | 64.01 | ||||||||||
| Restaurant bar sales | 7,687 | 17.23 | 6,755 | 16.91 | ||||||||||||
| Package store sales | 8,791 | 19.71 | 7,626 | 19.08 | ||||||||||||
| Total Sales | $ | 44,604 | 100.00 | $ | 39,955 | 100.00 | ||||||||||
| Franchise related revenues | 466 | 460 | ||||||||||||||
| Rental income | 252 | 213 | ||||||||||||||
| Other operating income | 50 | 47 | ||||||||||||||
| Total Revenue | $ | 45,372 | $ | 40,675 | ||||||||||||
| -----------------------Thirty-Nine Weeks Ended----------------------- | ||||||||||||||||
| July 1, 2023 | July 2, 2022 | |||||||||||||||
| Amount | Amount | |||||||||||||||
| (In thousands) | Percent | (In thousands) | Percent | |||||||||||||
| Restaurant food sales | $ | 80,006 | 62.11 | $ | 72,554 | 62.40 | ||||||||||
| Restaurant bar sales | 21,956 | 17.04 | 19,431 | 16.71 | ||||||||||||
| Package store sales | 26,853 | 20.85 | 24,285 | 20.89 | ||||||||||||
| Total Sales | $ | 128,815 | 100.00 | $ | 116,270 | 100.00 | ||||||||||
| Franchise related revenues | 1,409 | 1,384 | ||||||||||||||
| Rental income | 683 | 611 | ||||||||||||||
| Other operating income | 129 | 143 | ||||||||||||||
| Total Revenue | $ | 131,036 | $ | 118,408 | ||||||||||||
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Comparison of Thirteen Weeks Ended July 1, 2023 and July 2, 2022.
Revenues. Total revenue for the thirteen weeks ended July 1, 2023 increased $4,697,000 or 11.55% to $45,372,000 from $40,675,000 for the thirteen weeks ended July 2, 2022 due primarily to increased package liquor store and restaurant sales, increased menu prices, revenue generated from the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023, the opening of Brendan’s Sports Pub (Store #30) in June 2022, the opening of the package liquor store in Hollywood, Florida (Store #19P) in December 2022, the opening of the package liquor store in Miramar, Florida (Store #24) in March 2023 and the comparatively less adverse effects of COVID-19 on our operations during the thirteen weeks ended July 1, 2023 as compared with the thirteen weeks ended July 2, 2022. Effective March 26, 2023 we increased menu prices for our food offerings to target an increase to our food revenues of approximately 2.06% and effective March 19, 2023 we increased menu prices for our bar offerings to target an increase to our bar revenues of approximately 5.65% annually, to offset higher food costs and higher overall expenses (collectively the “Recent Price Increases”). Prior to these increases, we previously raised menu prices in the first quarter of our fiscal year 2022.
Restaurant Food Sales. Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants totaled $28,126,000 for the thirteen weeks ended July 1, 2023 as compared to $25,574,000 for the thirteen weeks ended July 2, 2022. The increase in restaurant food sales during the thirteen weeks ended July 1, 2023 as compared to restaurant food sales during the thirteen weeks ended July 2, 2022 is attributable to the Recent Price Increases, restaurant food sales generated from the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023, the opening of Brendan’s Sports Pub (Store #30) in June 2022 and the comparatively greater adverse effects of COVID-19 on our operations during the thirteen weeks ended July 2, 2022 as compared with the thirteen weeks ended July 1, 2023. Comparable weekly restaurant food sales (for restaurants open for all of the thirteen weeks ended July 1, 2023 and July 2, 2022 respectively, which consists of nine restaurants owned by us and nine restaurants owned by affiliated limited partnerships (excluding our Miramar, Florida location (Store #25), and Brendan’s Sports Pub (Store #30), which opened for business during the third quarter of our fiscal year 2023 and the third quarter of our fiscal year 2022, respectively) was $1,901,000 and $1,860,000 for the thirteen weeks ended July 1, 2023 and July 2, 2022, respectively, an increase of 2.20%. Comparable weekly restaurant food sales for Company owned restaurants only (excluding Store #30 which opened for business during the third quarter of our fiscal year 2022), was $938,000 and $931,000 for the thirteen weeks ended July 1, 2023 and July 2, 2022, respectively, an increase of 0.75%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only (excluding Store #25 which opened for business during the third quarter of our fiscal year 2023), was $963,000 and $930,000 for the thirteen weeks ended July 1, 2023 and July 2, 2022, respectively, an increase of 3.55%. We expect that restaurant food sales, including non-alcoholic beverages, for the balance of our fiscal year 2023 will increase due to increased restaurant traffic and the operation of the 2023 Miramar Restaurant during the balance of our fiscal year 2023.
Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants totaled $7,687,000 for the thirteen weeks ended July 1, 2023 as compared to $6,755,000 for the thirteen weeks ended July 2, 2022. The increase in restaurant bar sales during the thirteen weeks ended July 1, 2023 is primarily due to the Recent Price Increases, restaurant bar sales generated from the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023, the opening of Brendan’s Sports Pub (Store #30) in June 2022 and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks ended July 2, 2022 as compared with the thirteen weeks ended July 1, 2023. Comparable weekly restaurant bar sales (for restaurants open for all of the thirteen weeks ended July 1, 2023 and July 2, 2022 respectively, which consists of nine restaurants owned by us and nine restaurants owned by affiliated limited partnerships, (excluding our Miramar, Florida location (Store #25), and Brendan’s Sports Pub, (Store #30), which opened for business during the third quarter of our fiscal year 2023 and the third quarter of our fiscal year 2022, respectively) was $510,000 and $492,000 for the thirteen weeks ended July 1, 2023 and July 2, 2022, respectively, an increase of 3.66%. Comparable weekly restaurant bar sales for Company owned restaurants only (excluding Store #30 which opened for business during third quarter of our fiscal year 2022), was $216,000 and $212,000 for the thirteen weeks ended July 1, 2023 and July 2, 2022, respectively, an increase of 1.89%. Comparable weekly restaurant bar sales for affiliated limited partnership owned restaurants only (excluding Store #25 which opened for business during the third quarter of our fiscal year 2023), was $294,000 and $280,000 for the thirteen weeks ended July 1, 2023 and July 1, 2022, respectively, an increase of 5.00%. We expect that restaurant bar sales for the balance of our fiscal year 2023 will increase due to increased restaurant traffic and the operation of the 2023 Miramar Restaurant during the balance of our fiscal year 2023.
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Package Store Sales. Revenue generated from sales of liquor and related items at package liquor stores totaled $8,791,000 for the thirteen weeks ended July 1, 2023 as compared to $7,626,000 for the thirteen weeks ended July 2, 2022, an increase of $1,165,000. This increase was primarily due to increased package liquor store traffic due to what appears to be continued increased demand for package liquor store products resulting from the COVID-19 pandemic and package liquor sales generated from the operation of our package liquor store in Hollywood, Florida (Store #19P) and the opening of our package liquor store in Miramar, Florida (Store #24) in March, 2023. The weekly average of same store package liquor store sales, which includes nine (9) Company-owned package liquor stores (excluding Store #19P, which was closed for our fiscal years 2022 and 2021 due to a fire on October 2, 2018 but re-opened for business during the first quarter of our fiscal year 2023 and excluding Store #24 which opened for business during the second quarter of our fiscal year 2023), was $606,000 and $587,000 for the thirteen weeks ended July 1, 2023 and July 2, 2022, respectively, a increase of 3.24%. We expect that package liquor store sales for our fiscal year 2023 will increase due to increased package liquor store traffic and the operation of the package liquor stores located at 7990 Davie Road Extension, Hollywood, Florida (Store #19P) which opened for business during the first quarter of our fiscal year 2023 and located at 11225 Miramar Parkway #245, Miramar, Florida (Store #24), which opened for business during the second quarter of our fiscal year 2023.
Operating Costs and Expenses. Operating costs and expenses (consisting of cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses), for the thirteen weeks ended July 1, 2023 increased $4,080,000 or 10.57% to $42,672,000 from $38,592,000 for the thirteen weeks ended July 2, 2022. The increase was primarily due to increased payroll, increased consultant fees to improve our accounting process and an expected general increase in food costs, costs and expenses incurred from the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023, Brendan’s Sports Pub (Store #30) in June 2022, the package liquor store in Hollywood, Florida (Store #19P) and the package liquor store in Miramar, Florida (Store #24), partially offset by actions taken by management to reduce and/or control costs. We anticipate that our operating costs and expenses will continue to increase through our fiscal year 2023. Operating costs and expenses decreased as a percentage of total revenue to approximately 94.05% for the thirteen weeks ended July 1, 2023 from 94.88% for the thirteen weeks ended July 2, 2022.
Gross Profit. Gross profit is calculated by subtracting the cost of merchandise sold from sales.
Restaurant Food Sales and Bar Sales. Gross profit for food and bar sales for the thirteen weeks ended July 1, 2023 increased to $24,078,000 from $20,459,000 for the thirteen weeks ended July 2, 2022. Gross profit margin for the restaurant food and bar sales increased during the thirteen weeks ended July 1, 2023 when compared to the thirteen weeks ended July 2, 2022 due to decreases in our cost of ribs and the Recent Price Increases , partially offset by, among other things, higher food costs. 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 67.23% for the thirteen weeks ended July 1, 2023 and 63.28% for the thirteen weeks ended July 2, 2022.
Package Store Sales. Gross profit for package store sales for the thirteen weeks ended July 1, 2023 increased to $2,293,000 from $1,996,000 for the thirteen weeks ended July 2, 2022. Our gross profit margin (calculated as gross profit reflected as a percentage of package liquor store sales), for package store sales was 26.08% for the thirteen weeks ended July 1, 2023 and 26.17% for the thirteen weeks ended July 2, 2022. We anticipate that the gross profit margin for package liquor store merchandise will decrease for the balance of fiscal year 2023 due to higher costs and a reduction in pricing of certain package store merchandise to be more competitive.
Payroll and Related Costs. Payroll and related costs for the thirteen weeks ended July 1, 2023 increased $1,800,000 or 14.06% to $14,598,000 from $12,798,000 for the thirteen weeks ended July 2, 2022. Payroll and related costs for the thirteen weeks ended July 1, 2023 were higher due primarily to the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023, Brendan’s Sports Pub (Store #30) in June 2022, the retail package liquor store in Hollywood, Florida (Store #19P) in December 2022, the retail package liquor store in Miramar, Florida (Store #24) in March, 2023 and higher salaries to employees to remain competitive with other potential employees in a tight labor market. Payroll and related costs as a percentage of total revenue was 32.17% in the thirteen weeks ended July 1, 2023 and 31.46% of total revenue in the thirteen weeks ended July 2, 2022.
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Occupancy Costs. Occupancy costs (consisting of percentage rent, common area maintenance, repairs, real property taxes, amortization of leasehold interests and rent expense associated with operating lease liabilities under ASC 842) for the thirteen weeks ended July 1, 2023 increased $137,000 or 7.71% to $1,914,000 from $1,777,000 for the thirteen weeks ended July 2, 2022. The increase in occupancy costs was primarily due to the payment of rent during the third quarter of our fiscal year 2023 for Brendan’s Sports Pub (Store #30) which we acquired and opened for business in June 2022.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (consisting of general corporate expenses, including but not limited to advertising, insurance, professional costs, clerical and administrative overhead) for the thirteen weeks ended July 1, 2023 increased $1,410,000 or 21.64% to $7,927,000 from $6,517,000 for the thirteen weeks ended July 2, 2022, due primarily to Store #19P, Store #24, Store #30 and Store #25 being open for the thirteen weeks ended July 1, 2023 only, increased consultant fees to improve our accounting process, inflation and otherwise to increases in expenses across all categories. Selling, general and administrative expenses increased as a percentage of total revenue for the thirteen weeks ended July 1, 2023 to 17.47% as compared to 16.02% for the thirteen weeks ended July 2, 2022.
Depreciation and Amortization. Depreciation and amortization expense for the thirteen weeks ended July 1, 2023, which is included in selling, general and administrative expenses, increased $146,000 or 18.53% to $934,000 from $788,000 from the thirteen weeks ended July 2, 2022. This increase is driven by the opening of Stores #19P, #24, and #25. As a percentage of total revenue, depreciation and amortization expense was 2.06% of revenue in the thirteen weeks ended July 1, 2023 and 1.94% of revenue in the thirteen weeks ended July 2, 2022.
Interest Expense, Net. Interest expense, net, for the thirteen weeks ended July 1, 2023 increased $87,000 to $264,000 from $177,000 for the thirteen weeks ended July 2, 2022. Interest expense, net, increased for the thirteen weeks ended July 1, 2023 due to the interest on our borrowing of $8,900,000 during the fourth quarter of our fiscal year 2022 from an unrelated third party lender to re-finance the mortgage loan on our property located at 4 N. Federal Highway, Hallandale Beach, Florida (Store #31).
Income Taxes. Income tax for the thirteen weeks ended July 1, 2023 was an expense of $51,000, as compared to an expense of $22,000 for the thirteen weeks ended July 2, 2022.
Net Income. Net income for the thirteen weeks ended July 1, 2023 increased $447,000 or 22.76% to $2,411,000 from $1,964,000 for the thirteen weeks ended July 2, 2022 due primarily to increased revenue at our retail package liquor stores and restaurants partially offset by higher food costs and overall increased expenses. As a percentage of revenue, net income for the thirteen weeks ended July 1, 2023 is 5.31%, as compared to 4.83% in the thirteen weeks ended July 2, 2022.
Net Income Attributable to Flanigan’s Enterprises, Inc. Stockholders. Net income attributable to Flanigan’s Enterprises, Inc. stockholders for the thirteen weeks ended July 1, 2023 decreased $230,000 or 12.53% to $1,605,000 from $1,835,000 for the thirteen weeks ended July 2, 2022 due primarily to higher food costs, overall increased expenses and a higher portion of net income attributable to noncontrolling interests (specifically the operations of our Miramar location). As a percentage of revenue, net income attributable to stockholders for the thirteen weeks ended July 1, 2023 is 3.54%, as compared to 4.51% for the thirteen weeks ended July 2, 2022.
Comparison of Thirty-Nine Weeks Ended July 1, 2023 and July 2, 2022.
Revenues. Total revenue for the thirty-nine weeks ended July 1, 2023 increased $12,628,000 or 10.66% to $131,036,000 from $118,408,000 for the thirty-nine weeks ended July 2, 2022 due primarily to increased package liquor store and restaurant sales, the Recent Price Increases, revenue generated from the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023, the opening of our limited partnership owned restaurant in Sunrise, Florida (Store #85) in March 2022, the opening of Brendan’s Sports Pub (Store #30) in June 2022, the opening of the package liquor store in Hollywood, Florida (Store #19P) in December 2022, the opening of the package liquor store in Miramar, Florida (Store #24) in March, 2023 and the comparatively less adverse effects of COVID-19 on our operations during the thirty-nine weeks ended July 1, 2023 as compared with the thirty-nine weeks ended July 2, 2022.
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Restaurant Food Sales. Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants totaled $80,006,000 for the thirty-nine weeks ended July 1, 2023 as compared to $72,554,000 for the thirty-nine weeks ended July 2, 2022. The increase in restaurant food sales during the thirty-nine weeks ended July 1, 2023 as compared to restaurant food sales during the thirty-nine weeks ended July 2, 2022 is attributable to the Recent Price Increases, restaurant food sales generated from the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023, the opening of our limited partnership owned restaurant in Sunrise, Florida (Store #85) in March 2022, the opening of Brendan’s Sports Pub (Store #30) in June 2022 and the comparatively greater adverse effects of COVID-19 on our operations during the thirty-nine weeks ended July 2, 2022 as compared with the thirty-nine weeks ended July 1, 2023. Comparable weekly restaurant food sales (for restaurants open for all of the thirty-nine weeks ended July 1, 2023 and July 2, 2022 respectively, which consists of nine restaurants owned by us and eight restaurants owned by affiliated limited partnerships, (excluding our Sunrise, Florida location (Store #85), and Brendan’s Sports Pub (Store #30), which opened for business during the second and third quarters of our fiscal year 2022, respectively and excluding our Miramar, Florida location (Store #25) which opened for business during the third quarter of our fiscal year 2023) was $1,873,000 and $1,803,000 for the thirty-nine weeks ended July 1, 2023 and July 2, 2022, respectively, an increase of 3.88%. Comparable weekly restaurant food sales for Company owned restaurants only (excluding Store #30 which opened for business during the third quarter of our fiscal year 2022), was $920,000 and $892,000 for the thirty-nine weeks ended July 1, 2023 and July 2, 2022, respectively, an increase of 3.14%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only (excluding Store #85 which opened for business during the second quarter of our fiscal year 2022 and excluding Store #25 which opened for business during the third quarter of our fiscal year 2023), was $953,000 and $912,000 for the thirty-nine weeks ended July 1, 2023 and July 2, 2022, respectively, an increase of 4.50%. We expect that restaurant food sales, including non-alcoholic beverages, for the balance of our fiscal year 2023 will increase due to increased restaurant traffic and the operation of the 2023 Miramar Restaurant during the balance of our fiscal year 2023.
Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants totaled $21,956,000 for the thirty-nine weeks ended July 1, 2023 as compared to $19,431,000 for the thirty-nine weeks ended July 2, 2022. The increase in restaurant bar sales during the thirty-nine weeks ended July 1, 2023 is primarily due to the Recent Price Increases, restaurant bar sales generated from the opening of our limited partnership owned restaurant in Miramar, Florida (Store #25) in April, 2023, the opening of our limited partnership owned restaurant in Sunrise, Florida (Store #85) in March, 2022, the opening of Brendan’s Sports Pub (Store #30) in June 2022 and the comparatively more adverse effects of COVID-19 on our operations during the thirty-nine weeks ended July 2, 2022 as compared with the thirty-nine weeks ended July 1, 2023. Comparable weekly restaurant bar sales (for restaurants open for all of the thirty-nine weeks ended July 1, 2023 and July 2, 2022 respectively, which consists of nine restaurants owned by us and eight restaurants owned by affiliated limited partnerships, (excluding our Sunrise, Florida location (Store #85), and Brendan’s Sports Pub (Store #30), which opened for business during the second and third quarters of our fiscal year 2022, respectively and excluding our Miramar, Florida location (Store #25) which opened for business during the third quarter of our fiscal year 2023) was $472,000 and $488,000 for the thirty-nine weeks ended July 1, 2023 and July 2, 2022, respectively, a decrease of 3.28%. Comparable weekly restaurant bar sales for Company owned restaurants only (excluding Store #30 which opened for business during the third quarter of our fiscal year 2022), was $181,000 and $213,000 for the thirty-nine weeks ended July 1, 2023 and July 2, 2022, respectively, a decrease of 15.02%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only (excluding Store #85 which opened for business during the second quarter of our fiscal year 2022 and excluding Store #25 which opened for business during the third quarter of our fiscal year 2023), was $291,000 and $274,000 for the thirty-nine weeks ended July 1, 2023 and July 2, 2022, respectively, an increase of 6.20%. We expect that restaurant bar sales for the balance of our fiscal year 2023 will increase due to increased restaurant traffic and the operation of the 2023 Miramar Restaurant during the balance of our fiscal year 2023.
Package Store Sales. Revenue generated from sales of liquor and related items at package liquor stores totaled $26,853,000 for the thirty-nine weeks ended July 1, 2023 as compared to $24,285,000 for the thirty-nine weeks ended July 2, 2022, an increase of $2,568,000. This increase was primarily due to increased package liquor store traffic due to what appears to be continued increased demand for package liquor store products resulting from the COVID-19 pandemic and package liquor sales generated from the opening of our package liquor store in Hollywood, Florida (Store #19P) in December 2022 and our package liquor store in Miramar, Florida (Store #24) in March, 2023. The weekly average of same store package liquor store sales, which includes nine (9) Company-owned package liquor
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stores, (excluding Store #19, which was closed for our fiscal years 2022 and 2021 due to a fire on October 2, 2018 but re-opened for business during the first quarter of our fiscal year 2023 and excluding Store #24, which opened for business during the third quarter of our fiscal year 2023), was $631,000 and $623,000 for the thirty-nine weeks ended July 1, 2023 and July 2, 2022, respectively, an increase of 1.28%. We expect that package liquor store sales for our fiscal year 2023 will increase due to increased package liquor store traffic and the operation of the package liquor stores located at 7990 Davie Road Extension, Hollywood, Florida (Store #19P) which opened for business during the first quarter of our fiscal year 2023 and located at 11225 Miramar Parkway #245, Miramar, Florida (Store #24), which opened for business during the second quarter of our fiscal year 2023.
Operating Costs and Expenses. Operating costs and expenses (consisting of cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses), for the thirty-nine weeks ended July 1, 2023 increased $10,718,000 or 9.43% to $124,428,000 from $113,710,000 for the thirty-nine weeks ended July 2, 2022. The increase was primarily due to increased payroll, increased consultant fees to improve our accounting process and an expected general increase in food costs, costs and expenses incurred from Store #19P, Store #24, Store #30 and Store #25 being open for the thirty-nine weeks ended July 1, 2023 only, while Store #85 being open for all of the thirty-nine weeks ended July 1, 2023 but for only a part of the thirty-nine weeks ended July 2, 2022, partially offset by actions taken by management to reduce and/or control costs. We anticipate that our operating costs and expenses will continue to increase through our fiscal year 2023. Operating costs and expenses decreased as a percentage of total revenue to approximately 94.96% for the thirty-nine weeks ended July 1, 2023 from 96.03% for the thirty-nine weeks ended July 2, 2022.
Gross Profit. Gross profit is calculated by subtracting the cost of merchandise sold from sales.
Restaurant Food Sales and Bar Sales. Gross profit for food and bar sales for the thirty-nine weeks ended July 1, 2023 increased to $68,211,000 from $58,408,000 for the thirty-nine weeks ended July 2, 2022. Our gross profit margin for restaurant food and bar sales (calculated as gross profit reflected as a percentage of restaurant food and bar sales), was 66.90% for the thirty-nine weeks ended July 1, 2023 and 63.50% for the thirty-nine weeks ended July 2, 2022. Gross profit margin for restaurant food and bar sales increased during the thirty-nine weeks of our fiscal year 2023 when compared to the thirty-nine weeks of our fiscal year 2022 due among other things by the Recent Price Increases and decreases in our cost of ribs, partially offset by, among other things, higher food costs.
Package Store Sales. Gross profit for package store sales for the thirty-nine weeks ended July 1, 2023 increased to $7,159,000 from $6,446,000 for the thirty-nine weeks ended July 2, 2022. Our gross profit margin (calculated as gross profit reflected as a percentage of package liquor store sales), for package store sales was 26.66% for the thirty-nine weeks ended July 1, 2023 and 26.54% for the thirty-nine weeks ended July 2, 2022. We anticipate that the gross profit margin for package liquor store merchandise will decrease for the balance of our fiscal year 2023 due to higher costs and a reduction in pricing of certain package store merchandise to be more competitive.
Payroll and Related Costs. Payroll and related costs for the thirty-nine weeks ended July 1, 2023 increased $5,343,000 or 14.42% to $42,408,000 from $37,065,000 for the thirty-nine weeks ended July 2, 2022. Payroll and related costs for the thirty-nine weeks ended July 1, 2023 were higher due primarily to the opening of our limited partnership owned restaurant in Sunrise, Florida (Store #85) in March 2022, our limited partnership owned restaurant in Miramar, Florida (Store #25) in April 2023, Brendan’s Sports Pub (Store #30) in June 2022, the retail package liquor store in Hollywood, Florida (Store #19P) in December 2022, the retail package liquor store in Miramar, Florida (Store #24) in March, 2023 and higher salaries to employees to remain competitive with other potential employers in a tight labor market. Payroll and related costs as a percentage of total revenue was 32.36% in the thirty-nine weeks ended July 1, 2023 and 31.30% of total revenue in the thirty-nine weeks ended July 2, 2022.
Occupancy Costs. Occupancy costs (consisting of percentage rent, common area maintenance, repairs, real property taxes, amortization of leasehold interests and rent expense associated with operating lease liabilities under ASC 842) for the thirty-nine weeks ended July 1, 2023 increased $450,000 or 8.67% to $5,640,000 from $5,190,000 for the thirty-nine weeks ended July 2, 2022. The increase in occupancy costs was primarily due to the payment of rent for our retail package liquor store located at 11225 Miramar Parkway #245, Miramar, Florida (Store #24) and our restaurant location which were developing located at 11225 Miramar Parkway, #250, Miramar, Florida (Store #25) during the thirty-nine weeks of our fiscal year 2023, as opposed to a part of the thirty-nine weeks of our fiscal year
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2022 and the payment of rent for the thirty-nine weeks of our fiscal year 2023 for Brendan’s Sports Pub (Store #30) which we acquired and opened for business in June 2022.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (consisting of general corporate expenses, including but not limited to advertising, insurance, professional costs, clerical and administrative overhead) for the thirty-nine weeks ended July 1, 2023 increased $2,896,000 or 14.45% to $22,935,000 from $20,039,000 for the thirty-nine weeks ended July 2, 2022 due primarily to Store #19P, Store #24, Store #30 and Store #25 being open for the thirty-nine weeks ended July 1, 2023 only, while Store #85 being open for all of the thirty-nine weeks ended July 1, 2023 but for only a part of the thirty-nine weeks ended July 2, 2022, increased consultant fees to improve our accounting process, inflation and otherwise to increases in expenses across all categories. Selling, general and administrative expenses increased as a percentage of total revenue for the thirty-nine weeks ended July 1, 2023 to 17.50% as compared to 16.92% for the thirty-nine weeks ended July 2, 2022.
Depreciation and Amortization. Depreciation and amortization expense for the thirty-nine weeks ended July 1, 2023, which is included in selling, general and administrative expenses, increased $404,000 or 18.29% to $2,613,000 from $2,209,000 from the thirty-nine weeks ended July 2, 2022. This increase is driven by the opening of Stores #19P, #24, and #25. As a percentage of total revenue, depreciation and amortization expense was 1.99% of revenue in the thirty-nine weeks ended July 1, 2023 and 1.87% of revenue in the thirty-nine weeks ended July 2, 2022.
Interest Expense, Net. Interest expense, net, for the thirty-nine weeks ended July 1, 2023 increased $254,000 to $801,000 from $547,000 for the thirty-nine weeks ended July 2, 2022. Interest expense, net, increased for the thirty-nine weeks ended July 1, 2023 due to the interest on our borrowing of $8,900,000 during the fourth quarter of our fiscal year 2022 from an unrelated third party lender to re-finance the mortgage loan on our property located at 4 N. Federal Highway, Hallandale Beach, Florida (Store #31).
Income Taxes. Income tax for the thirty-nine weeks ended July 1, 2023 was an expense of $404,000, as compared to an expense of $522,000 for the thirty-nine weeks ended July 2, 2022.
Net Income. Net income for the thirty-nine weeks ended July 1, 2023 decreased $1,782,000 or 24.60% to $5,463,000 from $7,245,000 for the thirty-nine weeks ended July 2, 2022 due primarily to the income attributable to the forgiveness of debt of certain of our 2nd PPP Loans during the first quarter ended January 1, 2022, higher food costs and overall increased expenses during the thirty-nine weeks ended July 1, 2023, partially offset by increased revenue at our retail package liquor stores and restaurants and the Recent Price Increases. As a percentage of revenue, net income for the thirty-nine weeks ended July 1, 2023 is 4.17%, as compared to 6.12% in the thirty-nine weeks ended July 2, 2022.
Net Income Attributable to Flanigan’s Enterprises, Inc. Stockholders. Net income attributable to Flanigan’s Enterprises, Inc. stockholders for the thirty-nine weeks ended July 1, 2023 decreased $933,000 or 18.44% to $4,126,000 from $5,059,000 for the thirty-nine weeks ended July 2, 2022 due primarily to the income attributable to the forgiveness of debt of certain of our 2nd PPP Loans during the first quarter ended January 1, 2022, higher food costs and overall increased expenses during the thirty-nine weeks ended July 1, 2023, partially offset by increased revenue at our retail package liquor stores and restaurants and the Recent Price Increases. As a percentage of revenue, net income attributable to stockholders for the thirty-nine weeks ended July 1, 2023 is 3.15%, as compared to 4.27% for the thirty-nine weeks ended July 2, 2022.
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 thirty-nine weeks ended July 1, 2023, we had one new restaurant location in Miramar, Florida in the development stage, which houses a new “Flanigan’s” and opened for business during the third quarter of our fiscal year 2023. Rent for the new restaurant location in Miramar, Florida commenced during the second quarter of our fiscal year 2022.
Menu Price Increases and Trends
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During the thirty-nine weeks ended July 1, 2023, we increased menu prices for our food offerings (effective March 26, 2023) to target an aggregate increase to our food revenues of approximately 2.06% annually and we increased menu prices for our bar offerings (effective March 20, 2023) to target an increase to our bar revenues of approximately 5.65% annually to offset higher food and liquor costs and higher overall expenses. During the thirty-nine weeks ended July 2, 2022, we increased menu prices for our food offerings (effective October 3, 2021 and December 19, 2021, respectively) to target an aggregate increase to our food revenues of approximately 8.83% annually and we increased menu prices for our bar offerings (effective December 12, 2021) to target an increase to our bar revenues of approximately 7.80% annually to offset higher food and liquor costs and higher overall expenses. Prior to these increases, we previously raised menu prices in the third quarter of our fiscal year 2021.
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 thirty-nine weeks ended July 1, 2023 and will, in all likelihood, impact our results of operations, liquidity and/or financial condition throughout the balance of our fiscal year 2023. The extent to which our restaurant business may be adversely impacted and its effect on our operations, liquidity and/or financial condition cannot be accurately predicted.
Based on current COVID-19 trends, the Department of Health and Human Services (HHS) permitted the federal Public Health Emergency for COVID-19 (PHE) declared by the Secretary of the Department of Health and Human Services (Secretary) under Section 319 of the Public Health Service (PHS) Act to expire at the end of the day on May 11, 2023.
Liquidity and Capital Resources
We fund our operations through cash from operations and borrowings from third parties. As of July 1, 2023, we had cash and cash equivalents of approximately $26,995,000, a decrease of $15,143,000 from our cash balance of $42,138,000 as of October 1, 2022. This decrease is primarily due to our decision not to finance our insurance premiums for the annual period beginning December 30, 2022, the purchase of property at Hallandale Beach ($8,500,000), El Portal ($3,200,000), and the continued construction of Store #19 ($764,000) as disclosed above.
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 loans from an unrelated third party lender (the “Lender”) pursuant to the Paycheck Protection Program (the “PPP”) under the United States Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted March 27, 2020, in the aggregate principal amount of approximately $3.98 million (the “2nd PPP Loans”), of which approximately: (i) $3.46 million was loaned to six (6) of the LP’s; and (ii) $0.52 million was loaned to the Managed Store. During the first quarter of our fiscal year 2022, we applied for forgiveness for all PPP Loans, including the Managed Store, and as of July 1, 2023, the entire amount of principal and accrued interest was forgiven under the 2nd PPP Loans.
Inflation is affecting all aspects of our operations, including but not limited to food, beverage, fuel and labor costs. Supply chain issues also contribute to inflation. Inflation, including supply chain issues are having a material impact on our operating results.
Notwithstanding the negative effects of COVID-19 on our operations, we believe that our current cash availability from our cash on hand, positive cash flow from operations and borrowed funds will be sufficient to fund our operations and planned capital expenditures for at least the next twelve months.
Cash Flows
The following table is a summary of our cash flows for the thirty-nine weeks ended July 1, 2023 and July 2, 2022.
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| ---------Thirty-Nine Weeks Ended-------- | ||||||||
| July 1, 2023 | July 2, 2022 | |||||||
| (in thousands) | ||||||||
| Net cash provided by operating activities | $ | 7,200 | $ | 7,790 | ||||
| Net cash used in investing activities | (16,998 | ) | (6,519 | ) | ||||
| Net cash (used in) provided by financing activities | (5,234 | ) | 1,712 | |||||
| Net (Decrease) Increase in Cash and Cash Equivalents | (15,032 | ) | 2,983 | |||||
| Cash and Cash Equivalents, Beginning | 42,138 | 32,676 | ||||||
| Cash and Cash Equivalents, Ending | $ | 27,106 | $ | 35,659 | ||||
During the thirty-nine weeks ended July 1, 2023, our Board of Directors declared a cash dividend of $0.45 per share to shareholders of record on June 12, 2023 and was made payable on June 26, 2023. During the thirty-nine weeks ended July 2, 2022, our Board of Directors declared a cash dividend of $1.00 per share to shareholders of record on March 31, 2022 and was made payable on April 19, 2022. 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 generated from operations and borrowings to fund the development and construction of new restaurants and to fund capitalized property improvements for our existing restaurants. During the thirty-nine weeks ended July 1, 2023, we acquired property and equipment and construction in progress of $15,890,000, (of which $2,298,000 was purchase deposits transferred to property and equipment and $502,000 was purchase deposits transferred to construction in process as of October 1, 2022, and $538,000 was construction in progress in accounts payable) including $105,000 for renovations to two (2) existing limited partnership owned restaurants and $294,000 for renovations to three (3) Company owned restaurants. During the thirty-nine weeks ended July 2, 2022, we acquired property and equipment and construction in progress of $10,227,000, (of which $562,000 was deposits recorded in other assets as of October 2, 2021 and $549,000 was construction in progress in accounts payable), including $727,000 for renovations to three (3) existing limited partnership owned restaurants and $149,000 for one (1) Company owned restaurant.
Of the planned renovations for fiscal year 2023, we have exceeded our $653,000 projection and anticipate additional expenditure for refurbishments including but not limited to parking lot drainage at locations #33 and #32 as well as installation of a grease trap line at store #20. This excludes construction/renovations to Store #19R (our restaurant which is being rebuilt due to damages caused by a fire) and Store #24 (our Miramar, Florida package store location which opened for business in March, 2023).
Long Term Debt
As of July 1, 2023, we had long term debt (including the current portion) of $23,430,000, as compared to $25,389,000 as of October 1, 2022. Our long term debt decreased as of July 1, 2023 as compared to October 1, 2022 because we satisfied the principal balance and all accrued interest ($367,000) due on our $5.5 million term loan. In addition, we did not finance our insurance premiums for our annual insurance renewal effective December 30, 2022.
In February 2023, we determined that as of December 31, 2022, we did not meet the required Post-Distribution Basic Fixed Charge Coverage Ratio (the “Post-Distribution/Fixed Charge Covenant”) contained in each of our six (6) loans (the “Institutional Loans”) with our unrelated third party institutional lender (the “Institutional Lender’). On February 23, 2023, we received from the Institutional Lender, a written waiver of the non-compliance with the Post-Distribution/Fixed Charge Covenant (the “Covenant Non-Compliance”), pursuant to which, among other things, the
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Institutional Lender waived (1) the non-compliance as of December 31, 2022 and (2) their right to exercise certain remedies under the Institutional Loans, including the right to accelerate the indebtedness owed by us thereunder, resulting in the indebtedness under the Institutional Loans to be immediately due and payable, which would have a material adverse effect on the Company. The Post-Distribution/Fixed Charge Covenant requires we maintain a ratio of at least 1.15 to 1.00 and for the twelve (12) months ended July 1, 2023 our ratio was calculated to be 1.50 to 1.00. We have prepared projections going forward and expect to be in compliance. As a result, our classification of debt is appropriate as of July 1, 2023.
For further information regarding the Company’s long-term debt, refer to the Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended October 1, 2022.
Construction Contracts
(a) 2505 N. University Drive, Hollywood, Florida (Store #19 – “Flanigan’s”)
During the third quarter of our fiscal year 2019, we entered into an agreement with an unaffiliated third party architect for design and development services totaling $77,000 for the re-build of our restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19), which has been closed since October 2, 2018 due to damages caused by a fire, of which $62,000 has been paid. During the first quarter of our fiscal year 2022, we entered into an agreement with a third party unaffiliated general contractor to re-build our restaurant at this location totaling $2,515,000 and subsequent to the end of the third quarter of our fiscal year 2023 we agreed to change orders increasing the total contract price by $453,000 to $2,968,000, of which $1,065,000 has been paid through July 1, 2023 and $495,000 has been paid subsequent to the end of the third quarter of our fiscal year 2023 through the date of filing this quarterly report.
(b) 14301 W. Sunrise Boulevard, Sunrise, Florida (Store #85 – “Flanigan’s”)
During the second quarter of our fiscal year 2022, we entered into an agreement with a third party unaffiliated general contractor for exterior renovations at this location totaling $ 343,000 and through the end of the third quarter of our fiscal year 2023 we agreed to change orders to the agreement increasing the total contract price by $327,000 to $670,000, of which $531,000 has been paid through July 1, 2023 and an additional $104,000 has been paid subsequent to the end of the third quarter of our fiscal year 2023 through the date of filing of this quarterly report.
(c) 11225 Miramar Parkway, #250, Miramar, Florida (“Flanigan’s”)
During the second quarter of our fiscal year 2022, we entered into an agreement with a third party unaffiliated general contractor for interior renovations at this location totaling $1,421,000, and through the third quarter of our fiscal year 2023 we agreed to change orders to the agreement increasing the total contract price by $441,000 to $1,862,000 which was paid through July 1, 2023.
Purchase Commitments
In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants for calendar year 2023, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $6.8 million of “2.25 & Down Baby Back Ribs” (industry jargon for the weight range in which slabs of baby back ribs are sold) from this vendor during calendar year 2023, at a prescribed cost, which we believe is competitive. The decrease in our cost of baby back ribs for calendar year 2023 compared to calendar year 2022 ($10.4 million) is due to a decrease in market price.
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
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The table below summarizes the current assets, current liabilities, and working capital for our fiscal quarter ended July 1, 2023, and our fiscal year ended October 1, 2022.
| Item | July 1, 2023 | Oct. 1, 2022 | ||||||
| (in Thousands) | ||||||||
| Current Assets | $ | 37,208 | $ | 50,893 | ||||
| Current Liabilities | 21,599 | 22,176 | ||||||
| Working Capital | $ | 15,609 | $ | 28,717 | ||||
Our working capital decreased during our fiscal quarter ended July 1, 2023 from our working capital for our fiscal year ended October 1, 2022 primarily due to increases in (i) purchases of real property; (ii) purchases of property and equipment; and (iii) deposits on property and equipment. Current assets as of October 1, 2022 increased by $8,900,000 due to our refinancing of the mortgage encumbering store #31. Current assets as of July 1, 2023 decreased due to our decision not to finance our insurance premiums for the annual period beginning December 30, 2022, as well as the current year investments in the purchase of property.
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 2023.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements.
Critical Accounting Policies
During the thirty-nine weeks ended July 1, 2023, we have not made any change to our critical accounting policies. See Item 7, page 51 of our Annual Report on Form 10-K for our fiscal year ended October 1, 2022 for a discussion of significant accounting policies.
Inflation
The primary inflationary factors affecting our operations are food, beverage and labor costs. A large number of restaurant personnel are paid at rates based upon applicable minimum wage and increases in minimum wage directly affect labor costs. Inflation is having a material impact on our operating results, especially rising food, fuel and labor costs. We have endeavored to offset the adverse effects of cost increases by increasing our menu prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not ordinarily hold market risk sensitive instruments for trading purposes and as of July 1, 2023 held no equity securities.
Interest Rate Risk
As part of our ongoing operations, we are exposed to interest rate fluctuations on our borrowings. As more fully described in Note 15 “Fair Value Measurements of Financial Instruments” to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for our fiscal year ended October 1, 2022, 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 July 1, 2023, we had one variable rate instrument outstanding that is impacted by changes in interest rates.
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As a means of managing our interest rate risk on this debt instrument, we entered into an interest rate swap agreement with our unrelated third-party lender to convert this variable rate debt obligation to a fixed rate. We are currently party to the following interest rate swap agreement:
(i) The interest rate swap agreement entered into in September 2022 relates to the $8.90M Loan (the “$8.90M Term Loan Swap”). The $8.90M Term Loan Swap requires us to pay interest for a fifteen (15) year period at a fixed rate of 4.90% on an initial amortizing notional principal amount of $8,900,000, while receiving interest for the same period at BSBY Screen Rate – 1 Month, plus 1.50%, on the same amortizing notional principal amount. We determined that at July 1, 2023, the interest rate swap agreement is an effective hedging agreement and the fair value was not material.
During the thirty-nine weeks ended July 1, 2023 we invested the aggregate sum of $900,000 in 90 day certificates of deposit, fully government guaranteed and at an average fixed annual interest rate of 4.87%. Otherwise, at July 1, 2023, our cash resources offset our bank charges and any excess cash resources earn interest at variable rates. Accordingly, our return on these funds is affected by fluctuations in interest rates.
There is no assurance that interest rates will increase or decrease over our next fiscal year or that an increase will not have a material adverse effect on our operations.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the U.S. Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of July 1, 2023, an evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934). Based on that evaluation, management, including our Chief Executive Officer and Chief Financial Officer, concluded that as a result of the material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of July 1, 2023.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our interim or annual financial statements will not be prevented or detected on a timely basis.
During the course of our independent registered public accounting firm performing its quarterly review procedures in connection with our unaudited condensed consolidated financial statements to be included in our Form 10-Q for the first quarter of our 2023 fiscal year, we became aware of certain errors made by management in recording certain transactions and in performing debt covenant calculations. As a result of these errors we have concluded that we do not have a sufficient complement of trained and knowledgeable accounting personnel to prevent and detect errors on a timely basis and that this deficiency constitutes a material weakness in our internal control over financial reporting as of July 1, 2023.
During the thirty-nine weeks ended July 1, 2023, we began the process of addressing this material weakness by engaging qualified accounting consultants who have been brought on to enhance our internal controls over financial reporting. These individuals are licensed CPA’s with appropriate levels of knowledge and experience in public accounting.
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Changes in Internal Control Over Financial Reporting
During the thirteen weeks ended July 1, 2023, we have not made any change to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, we are in the process of designing and planning to enhance certain controls to address the material weakness discussed above. There is no assurance that this process will result in remediation of the material weakness or prevent other material weaknesses from arising in the future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See “Litigation” in Note 8 of this Report and Item 1 and Item 3 to Part 1 of the Annual Report on Form 10-K for the fiscal year ended October 1, 2022 for a discussion of other legal proceedings resolved in prior years.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchase of Company Common Stock
During the thirty-nine weeks ended July 1, 2023 and July 2, 2022, we did not purchase any shares of our common stock. As of July 1, 2023, we still have authority to purchase 65,414 shares of our common stock under the discretionary plan approved by the Board of Directors at its meeting on May 17, 2007.
ITEM 6. EXHIBITS
The following exhibits are filed with this Report:
List of XBRL documents as exhibits 101
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FLANIGAN’S ENTERPRISES, INC. | |
| Date: August 15, 2023 | /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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