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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS | 12 Months Ended
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Sep. 29, 2018
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS | NOTE 11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS Construction Contracts 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 our fiscal year 2018, we agreed to change orders which had the effect of increasing the total contract price for the renovation to $1,059,000, of which $830,000 has been paid. During our fiscal year 2018, 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 provides for design and development services for the construction of a new building (the “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. The $174,000 Contract provides for design and development services for the renovation of the existing building which currently houses the combination package liquor store and restaurant. If we complete the construction of the New Building and the renovation of the existing building, we currently 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 renovated and expanded existing building. During our fiscal year 2018, we agreed to change orders which had the effect of increasing the total contract price for the $127,000 Contract to $138,000, of which $88,000 has been paid and increasing the total contract price for the $174,000 Contract to $187,000, of which $110,000 has been paid. Subsequent to the end of our fiscal year 2018, our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) was damaged by a fire which caused it to be closed. The renovation of the restaurant has been changed to a re-build and during our fiscal year 2019, the building will be demolished in anticipation of re-building the same. The $174,000 Contract will be terminated with payment of the balance of a yet to be agreed modified contract price, representing payment for all work done by the third party unaffiliated general contractor. 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 our fiscal year 2018, we agreed to change orders which had the effect of decreasing the total contract price for the renovation to $869,000, of which we have paid $560,000. Subsequent to the end of our fiscal year 2018, 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”). The $356,000 Contract provides for design and development services for the construction of two (2) new buildings on the real property which we own 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 is 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. 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 two “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 2019 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 $59,000 of revenue from this source during our fiscal years ended September 29, 2018 and September 30, 2017, respectively. Total future minimum sublease payments under the non-cancelable sublease are $85,000, including Florida sales tax (currently 5.8%) through December 31, 2019. Future minimum lease payments, including Florida sales tax (currently 5.8% to 7%) under our non-cancelable operating leases as of September 29, 2018 are as follows:
2019 |  | $ | 3,358,000 |
2020 |  |  | 2,834,000 |
2021 |  |  | 2,075,000 |
2022 |  |  | 1,566,000 |
2023 |  |  | 877,000 |
Thereafter |  |  | 1,812,000 |
Total |  | $ | 12,522,000 |
Total rent expense for all of our operating leases was approximately $3,805,000 and $3,484,000 in our fiscal years 2018 and 2017, respectively, and is included in “Occupancy Costs” in our accompanying consolidated statements of income. This total rent expense is comprised of the following:
|  | 2018 |  |  | 2017 |
Minimum Base Rent |  | $ | 3,023,000 |  |  | $ | 2,679,000 |
Contingent Percentage Rent |  |  | 782,000 |  |  |  | 805,000 |
Total |  | $ | 3,805,000 |  |  | $ | 3,484,000 |
Purchase Commitments In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants during calendar year 2019, on November 15, 2018, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $5,888,000 of baby back ribs during calendar year 2019 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 29, 2018 and September 30, 2017, 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 2018 and 2017, we earned royalties of $707,000 and $661,000, respectively, from our related franchises. We are not currently offering or accepting new franchises. Employment Agreement/Bonuses As of September 29, 2018 and September 30, 2017, 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 2018 and 2017 amounted to approximately $1,524,000 and $1,337,000, 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 2018 and 2017 amounted to approximately $956,000 and $838,000, 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 29, 2018 and September 30, 2017, we generated $138,000 and $150,000 of revenue, respectively, from the operation of the club. On September 20, 2018, the adult entertainment club was closed permanently when the Federal Court upheld local recently enacted legislation which prohibited the operation of the club as 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 29, 2018 and September 30, 2017, we generated $380,000 and $425,000 of revenue respectively, from providing these management services.

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