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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS | 12 Months Ended
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Sep. 30, 2017
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS |
NOTE 11. | COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Construction Contracts During our fiscal year 2016, we entered into a construction contract in the amount of $1,061,000 to build a new building on a parcel of real property which we own which is near the real property where our combination package liquor store and restaurant located at 13205 Biscayne Boulevard, North Miami, Florida, (Store #20) operated to re-locate our package liquor store to the new building and to renovate and expand the restaurant into the former package liquor store space. During our fiscal year 2017, we completed the new building and re-located our package liquor store, which opened for business on June 6, 2017. The construction contract, with change orders, totaled $1,272,000 and was paid in full as of September 30, 2017. On June 14, 2017, we entered into a construction contract in the amount of $880,000 to renovate our restaurant located at 13205 Biscayne Boulevard, North Miami, Florida, (Store #20), including but not limited to the construction of a new kitchen and to expand the restaurant into the former package liquor store space. As of September 30, 2017 we are in the early construction stage, but subsequent thereto, agreed change orders increased the amount of the construction contract to $1,080,000, of which $345,000 has been paid. Subsequent to the end of our fiscal year 2017, we entered into an agreement, in the amount of $127,000, for design and development services for the construction of a new building on a parcel of real property which we own 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) operates. Upon completion of the construction of the new building, we plan to re-locate our package liquor store to the new building and to renovate and expand the restaurant into the former package liquor store space. Subsequent to the end of our fiscal year 2017, we also entered into a second agreement in the amount of $174,000, for design and development services to renovate our restaurant located at 2505 N. University Drive, Hollywood, Florida, (Store #19), including but not limited to the construction of a new kitchen and to expand the restaurant into the former package liquor store space. 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 flow, could be materially and adversely affected. We currently have three “dram shop” claims 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 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 2018 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 $59,000 and $102,000 of revenue from this source during our fiscal years ended September 30, 2017 and October 1, 2016, respectively. Total future minimum sublease payments under the non-cancelable sublease are $134,000, including Florida sales tax (currently 6%) through December 31, 2019. Future minimum lease payments, including Florida sales tax (currently 6% to 7%) under our non-cancelable operating leases as of September 30, 2017 are as follows:
2018 |  | $ | 3,093,000 |
2019 |  |  | 3,010,000 |
2020 |  |  | 2,425,000 |
2021 |  |  | 1,596,000 |
2022 |  |  | 959,000 |
Thereafter |  |  | 725,000 |
Total |  | $ | 11,808,000 |
Total rent expense for all of our operating leases was approximately $3,484,000 and $3,506,000 in our fiscal years 2017 and 2016, respectively, and is included in “Occupancy Costs” in our accompanying consolidated statements of income. This total rent expense is comprised of the following:
|  | 2017 |  |  | 2016 |
Minimum Base Rent |  | $ | 2,679,000 |  |  | $ | 2,694,000 |
Contingent Percentage Rent |  |  | 805,000 |  |  |  | 812,000 |
Total |  | $ | 3,484,000 |  |  | $ | 3,506,000 |
Purchase Commitments In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants during calendar year 2018, on November 7, 2017, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $6,208,000 of baby back ribs during calendar year 2018 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. Franchise Program At September 30, 2017 and October 1, 2016, 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 2017 and 2016, we earned royalties of $661,000 and $606,000, respectively, from our related franchises. We are not currently offering or accepting new franchises. Employment Agreement/Bonuses As of September 30, 2017 and October 1, 2016, 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 2017 and 2016 amounted to approximately $1,337,000 and $1,497,000, 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 2017 and 2016 amounted to approximately $838,000 and $897,000, respectively. Management Agreements Atlanta, Georgia We own, but do not operate, an adult entertainment nightclub located in Atlanta, Georgia which operates under the name “Mardi Gras”. We have a management agreement with an unaffiliated third party to manage the club. Under our management agreement, the unaffiliated third party management firm is obligated to pay 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 will never be less than $150,000 per year. For each of our fiscal years ended September 30, 2017 and October 1, 2016, we generated $150,000 of revenue from the operation of the club. 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 30, 2017 and October 1, 2016, we generated $425,000 and $442,000 of revenue respectively, from providing these management services.

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