COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

12 Months Ended

Sep. 28, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

NOTE 13. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

Construction Contracts

a. 13205 Biscayne Boulevard, North Miami, Florida (Store #20)

On June 14, 2017, we entered into an agreement with a third party unaffiliated general contractor to renovate our restaurant located at 13205 Biscayne Boulevard, North Miami, Florida, (Store #20) for a total contract price of $880,000. The renovations include, but are not limited to the construction of a new kitchen and the expansion of the restaurant into our former package liquor store location. During the term of the agreement, we agreed to change orders which had the effect of increasing the total contract price for the renovations to $1,177,000. During our fiscal year 2019, the unaffiliated general contractor completed its work under the agreement and the total contract was paid in full.

During our fiscal year 2018, we entered into an agreement with a third party unaffiliated general contractor to renovate and add an outdoor patio area to the front of our restaurant located at 13205 Biscayne Boulevard, North Miami, Florida (Store #20) for a total contract price of $912,000. During the term of the agreement, we agreed to change orders which had the effect of decreasing the total contract price for the renovation to $880,000. During our fiscal year 2019, the unaffiliated general contractor completed its work under the agreement and the total contract was paid in full.

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

During our fiscal year 2018 and prior to its being closed in the first quarter of our fiscal year 2019 due to damages caused by a fire, we entered into two agreements with a third party unaffiliated general contractor for design and development services for a total contract price of $127,000 (the “$127,000 Contract”) and $174,000 (the “$174,000 Contract”). The $127,000 Contract provided for design and development services for the construction of a new building (the “New Building”) on a parcel of real property which we own and which is adjacent to the real property where our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida, (Store #19) operated until it was closed in October 2018 due to damages caused by a fire. The $174,000 Contract provided for design and development services for the renovation of the existing building which housed the combination package liquor store and restaurant until it was closed in October 2018 due to damages caused by a fire. If we complete the construction of the New Building and as a result of the fire, the rebuild of the existing building, (the “Rebuilt Building”), we plan to re-locate our package liquor store located at the property to the New Building and to operate the restaurant located at the property in the Rebuilt Building. During the term of the $127,000 Contract, we agreed to change orders which had the effect of increasing the total contract price of the same to $138,000, and during the second quarter of our fiscal year 2019, we paid the balance of the total contract price of the $127,000 Contract, in the amount of $25,000. Subsequent to the end of our fiscal year 2019, we agreed upon changes to the $127,000 Contract for additional design and development services for the construction of the New Building which had the effect of increasing the total contract price of the same by $10,000 to $148,000, of which $6,000 has been paid. During the term of the $174,000 Contract, we also agreed to change orders which had the effect of increasing the total contract price of the same to $187,000, and during the second quarter of our fiscal year 2019, we paid $46,000 as the final payment of the contract price of the $174,000 Contract, (of which a total of $157,000 was paid), which we cancelled during the first quarter of our fiscal year 2019 due to the building being damaged by fire.

During the third quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated architect for design and development services totaling $77,000 for the re-build of our restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) which has been closed since October 2018 due to damages caused by a fire. Additionally, during the third quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated general contractor for site work totaling $1,618,000, (i) to connect the real property where this restaurant operated (Store #19) to city sewer and (ii) to construct a new building on the adjacent parcel of real property for the operation of a package liquor store. As of September 28, 2019, we paid $-0- on account of the contract.

c. 4 N. Federal Highway, Hallandale Beach, Florida (Store #31)

During the first quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated design group for design and development services for a contract price of $356,000 (the “$356,000 Contract”), providing for design and development services for the construction of two (2) new buildings on the real property which we own and where our combination package liquor store and restaurant located at 4 N. Federal Highway, Hallandale Beach, Florida, (Store #31) operates. Our plan for the real property was to (i) demolish the building which currently houses our combination package liquor store and restaurant, (ii) build two new buildings, one of which will house our package liquor store and the other of which will house our restaurant; and (iii) enter into a ground lease with an existing retail tenant for a parcel of land which will not be improved by the two buildings. During the second quarter of our fiscal year 2019, we learned that our planned development of Store #31 would cause the loss of too many parking spaces, so we abandoned our development plans and terminated the $356,000 Contract. We paid $130,000 on account of the $356,000 Contract and owe no further amounts under it.

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

During the third quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated design group for design and development services of our new location at 14301 W. Sunrise Boulevard, Sunrise, Florida 33323 (Store #85) for a total contract price of $122,000, of which we paid $77,000 through September 28, 2019. Subsequent to the end of our fiscal year 2019, we agreed upon changes to the agreement for additional design and development services which had the effect of increasing the total contract price of the same by $18,000 to $140,000, of which an additional $19,000 has been paid.

Legal Matters

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 one “dram shop” claim which we are defending vigorously.

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

Leases

We lease a substantial portion of the land and buildings used in our operations under leases with initial terms expiring between 2020 and 2027. Renewal options are available on many of our leases. Most of our leases are fixed rent agreements. For one Company-owned restaurant/package liquor store combination unit, lease rental is subject to sales overrides ranging from 3% to 4% of annual sales in excess of established amounts. For another Company-owned restaurant, lease rental is subject to sales overrides of 7.3% of annual sales in excess of the base rent paid and another Company-owned restaurant, lease rental is subject to sales overrides of 3.5% of annual sales. For four limited partnership restaurants, lease rentals are subject to sales overrides ranging from 2% to 5.5% of annual sales in excess of the base rent paid. We recognize rent expense on a straight line basis over the term of the lease and percentage rent as incurred.

We have a ground lease for an out parcel in Hollywood, Florida where we constructed a 4,120 square foot stand-alone building, one-half (1/2) of which is used by us for the operation of our Company-owned package liquor store and the other one-half (1/2) of which is subleased to an unrelated third party as retail space. Rent for the retail space commenced January 1, 2005, and we generated approximately $66,000 and $66,000 of revenue from this source during our fiscal years ended September 28, 2019 and September 29, 2018, respectively. Total future minimum sublease payments under the non-cancelable sublease are $116,000, including Florida sales tax (currently 6.7%) through December 31, 2020.

Future minimum lease payments, including Florida sales tax (currently 6.2% to 6.7%) under our non-cancelable operating leases as of September 28, 2019, excluding future minimum lease payments for Store #45 and Store #70 which are eliminated in consolidation, are as follows:

2020	$	3,431,000
2021		3,107,000
2022		2,613,000
2023		1,942,000
2024		1,842,000
Thereafter		5,472,000
Total	$	18,407,000

Total rent expense for all of our operating leases was approximately $3,963,000 and $3,805,000 in our fiscal years 2019 and 2018, respectively, and is included in “Occupancy Costs” in our accompanying consolidated statements of income. This total rent expense is comprised of the following:

	2019		2018
Minimum Base Rent	$	3,149,000	$	3,023,000
Contingent Percentage Rent		814,000		782,000
Total	$	3,963,000	$	3,805,000

Purchase Commitments

In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants during calendar year 2020, on November 5, 2019, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $5,314,000 of baby back ribs during calendar year 2020 from this vendor at a fixed cost.

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

Purchase of Limited Partnership Interests

During our fiscal year 2019, we purchased from one limited partner (who is not an officer, director or family member of officers or directors) a limited partnership interest of 0.63% in a limited partnership which owns a restaurant, for a purchase price of $4,800. During our fiscal year 2018, we purchased from one limited partner (who is not an officer, director or family member of officers or directors) a limited partnership interest of 0.21% in a limited partnership which owns a restaurant, for a purchase price of $1,600.

Franchise Program

At September 28, 2019 and September 29, 2018, we were the franchisor of five units under franchise agreements. Of the five franchised stores, three are combination restaurant/package liquor stores and two are restaurants (one of which we operate). Four franchised stores are owned and operated by related parties as follows:

•     James G. Flanigan, our Chairman of the Board of Directors, Chief Executive Officer and President of the Company, and Michael B. Flanigan, a member of our Board of Directors and James G. Flanigan’s brother, are each a 35.24% owner of a company which has a franchise arrangement with us for the operation of a restaurant and package liquor store located in Coconut Grove, Florida (Store #18).

•      Patrick J. Flanigan, brother to both James G. Flanigan and Michael B. Flanigan and a member of our Board of Directors, owns 100% of a company which has a franchise arrangement with us for the operation of a combination restaurant/package liquor store located in Pompano Beach, Florida (Store #43).

•     Our officers and directors collectively own 30% of the shareholder interest of a company which has a franchise arrangement with us for the operation of a restaurant located in Deerfield Beach, Florida. The shareholder interest of James G. Flanigan’s family represents an additional 60% of the total invested capital in this franchised location (Store #14).

•     Patrick J. Flanigan is the sole general partner and a 25% limited partner in a limited partnership which has a franchise arrangement with us for the operation of a restaurant located in Fort Lauderdale, Florida. The Company is a 25% limited partner in this limited partnership and officers and directors of the Company (excluding Patrick J. Flanigan) own an additional 31.9% limited partnership interest in this franchised location (Store #15).

Under the franchise agreements, we provide guidance, advice and management assistance to the franchisees. In addition and for an additional annual fee of approximately $25,000, we also act as fiscal agent for the franchisees whereby we collect all revenues and pay all expenses and distributions. We also, from time to time, advance funds on behalf of the franchisees for the cost of renovations. The resulting amounts receivable from and payable to these franchisees are reflected in the accompanying consolidated balance sheet as either an asset or a liability. We also agree to sponsor and manage cooperative buying groups on behalf of the franchisees for the purchase of inventory. The franchise agreements provide for royalties to us of approximately 3% of gross restaurant sales and 1% of gross package liquor sales. During our fiscal years 2019 and 2018, we earned royalties of $751,000 and $707,000, respectively, from our related franchises. We are not currently offering or accepting new franchises.

Employment Agreements/Bonuses

As of September 28, 2019 and September 29, 2018, we had no employment agreements.

Our Board of Directors approved an annual performance bonus, with 14.75% of the corporate pre-tax net income, plus or minus non-recurring items, but before depreciation and amortization in excess of $650,000 paid to the Chief Executive Officer and 5.25% paid to other members of management. Bonuses for our fiscal years 2019 and 2018 amounted to approximately $1,444,000 and $1,524,000, respectively.

Our Board of Directors also approved an annual performance bonus, with 5% of the pre-tax net income before depreciation and amortization from our restaurants in excess of $1,875,000 and our share of the pre-tax net income before depreciation and amortization from the restaurants owned by the limited partnerships paid to the Chief Operating Officer and 5% paid to the Chief Financial Officer. Bonuses for our fiscal years 2019 and 2018 amounted to approximately $970,000 and $956,000, respectively.

Management Agreements

Atlanta, Georgia

Until September 20, 2018, we owned, but did not operate, an adult entertainment nightclub located in Atlanta, Georgia which operated under the name “Mardi Gras”. We had a management agreement with an unaffiliated third party to manage the club. Under our management agreement, the unaffiliated third party management firm paid us an annual amount, paid monthly, equal to the greater of $150,000 or ten (10%) percent of gross sales from the club, offset by one-half (1/2) of any rental increases, provided our fees would never be less than $150,000 per year. For our fiscal years ended September 28, 2019 and September 29, 2018, we generated $-0- and $138,000 of revenue, respectively, from the operation of the club. On September 20, 2018, the adult entertainment club was closed permanently after a federal court in Georgia upheld recently enacted local legislation which prohibited the operation of the club as it was then operated and we will no longer receive any revenue under the management agreement.

Deerfield Beach, Florida

Since January 2006, we have managed “The Whale’s Rib”, a casual dining restaurant located in Deerfield Beach, Florida, pursuant to a management agreement. We paid $500,000 in exchange for our rights to manage this restaurant. The management agreement was amortized on a straight line basis over the life of the initial term of the agreement, ten (10) years. The restaurant is owned by a third party unaffiliated with us. In exchange for providing management, bookkeeping and related services, we receive one-half (½) of the net profit, if any, from the operation of the restaurant. During the third quarter of our fiscal year 2011, the term of the management agreement was extended through January 9, 2036. For the fiscal years ended September 28, 2019 and September 29, 2018, we generated $375,000 and $380,000 of revenue respectively, from providing these management services.