BDL Flanigans Enterprises Inc

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

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 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 the Annual Report on our Form 10-K for the fiscal year ended September 29, 2018 and in this Quarterly Report on Form 10-Q. We undertake no obligation to release publicly 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 June 29, 2019, Flanigan’s Enterprises, Inc., a Florida corporation, together with its subsidiaries, (i) operates 26 units, consisting of restaurants, package liquor stores and combination restaurants/package liquor stores that we either own or have operational control over and partial ownership in; and (ii) franchises an additional five units, consisting of two restaurants (one of which we operate) and three combination restaurants/package liquor stores. The foregoing excludes an adult entertainment club which we owned but did not operate and which was permanently closed on September 20, 2018 when a Federal Court upheld enacted local legislation which prohibited the operation of the club as then operated. The table below provides information concerning the type (i.e. restaurant, package liquor store or combination restaurant/package liquor store) and ownership of the units (i.e. whether (i) we own 100% of the unit; (ii) the unit is owned by a limited partnership of which we are the sole general partner and/or have invested in; or (iii) the unit is franchised by us), as of June 29, 2019 and as compared to June 30, 2018 and September 29, 2018. With the exception of “The Whale’s Rib”, a restaurant we operate but do not own, all of the restaurants operate under our service mark “Flanigan’s Seafood Bar and Grill” and all of the package liquor stores operate under our service mark “Big Daddy’s Liquors”.

Notes:

(1) Our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) has been closed since October, 2018 due to damages caused by a fire. Revenues and expenses from Store #19 for the period of time the store was open during the first quarter of our fiscal year 2019, except payroll, are immaterial.

(2) During the fourth quarter of our fiscal year 2018, the adult entertainment club which we owned but did not operate was closed permanently when a Federal Court upheld enacted local legislation which prohibited the operation of the club as then operated.

(3) 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 managed and controlled 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’ initial cash investment in a limited partnership (including any cash invested by us and our affiliates) is returned in full, the limited partnership distributes to the investors annually out of available cash from the operation of the restaurant up to 25% of the cash invested in the limited partnership, with no management fee paid to us. Any available cash in excess of the 25% of the cash invested in the limited partnership distributed to the investors annually, is paid one-half (½) to us as a management fee, with the balance distributed to the investors. Once the investors in the limited partnership have received, in full, amounts equal to their initial 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 June 29, 2019, limited partnerships owning eight (8) restaurants, (Surfside, Florida, Kendall, Florida, West Miami, Florida, Pinecrest, Florida, Wellington, Florida, Miami, Florida, Pembroke Pines, Florida and Davie, Florida locations), have returned all cash initially 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 from the limited partnerships a fee equal to 3% of gross sales for their use of our service mark “Flanigan’s Seafood Bar and Grill”.

Comparison of Thirteen Weeks Ended June 29, 2019 and June 30, 2018.

Revenues . Total revenue for the thirteen weeks ended June 29, 2019 increased $1,076,000 or 3.78% to $29,512,000 from $28,436,000 for the thirteen weeks ended June 30, 2018 due primarily to increased restaurant traffic and notwithstanding the loss of revenue from our combination restaurant/package liquor store located at 2505 N. University Drive, Hollywood, Florida (Store #19), which was closed for the thirteen weeks ended June 29, 2019 due to a fire on October 2, 2018, (the “Store #19 Closure”). We anticipate that Store #19 will remain closed through at least the end of our fiscal year 2019. Revenue generated from operations at our Store #19 was $1,338,000 for the thirteen weeks ended June 30, 2018. Effective June 16, 2019 we increased certain menu prices for our bar offerings to target an increase to our total bar revenues of approximately 6.2% annually and effective June 23, 2019 we increased certain menu prices for our food offerings to target an increase to our total food revenues of approximately 3.4% annually, (the “Price Increases”). We expect total revenue to increase throughout the balance of our fiscal year 2019 due to the Price Increases and increased restaurant traffic, offset by the loss of revenue resulting from the Store #19 Closure.

Restaurant Food Sales . Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants (food sales) totaled $18,447,000 for the thirteen weeks ended June 29, 2019 as compared to $17,852,000 for the thirteen weeks ended June 30, 2018. The increase in restaurant revenue from the sale of food at restaurants during the thirteen weeks ended June 29, 2019 is primarily due to increased restaurant traffic, offset by the loss of revenue resulting from the Store #19 Closure. Restaurant revenue from the sale of food at our Store #19 was $884,000 for the thirteen weeks ended June 30, 2018. Comparable weekly restaurant food sales (for restaurants open for all of the third quarter of our fiscal year 2019 and the third quarter of our fiscal year 2018, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirteen weeks ended June 29, 2019) and eight restaurants owned by affiliated limited partnerships) was $1,415,000 and $1,305,000 for the thirteen weeks ended June 29, 2019 and June 30, 2018, respectively, an increase of 8.43%. Comparable weekly restaurant food sales for Company owned restaurants only was $717,000 and $648,000 for the third quarter of our fiscal year 2019 and the third quarter of our fiscal year 2018, respectively, an increase of 10.65%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only was $698,000 and $657,000 for the third quarter of our fiscal year 2019 and the third quarter of our fiscal year 2018, respectively, an increase of 6.24%. We expect restaurant revenue generated from food sales, including non-alcoholic beverages, at restaurants to decrease throughout the balance of our fiscal year 2019 due to the loss of food sales resulting from the Store #19 Closure, offset by the Price Increases.

Restaurant Bar Sales . Restaurant revenue generated from the sale of alcoholic beverages at restaurants (bar sales) totaled $5,652,000 for the thirteen weeks ended June 29, 2019 as compared to $5,470,000 for the thirteen weeks ended June 30, 2018. The increase in restaurant revenue from the sale of alcoholic beverages at restaurants during the thirteen weeks ended June 29, 2019 is primarily due to increased restaurant traffic, offset by the loss of revenue resulting from the Store #19 Closure. Restaurant revenue from the bar sales at our Store #19 was $190,000 for the thirteen weeks ended June 30, 2018. Comparable weekly restaurant bar sales (for restaurants open for all of the third quarter of our fiscal year 2019 and the third quarter of our fiscal year 2018, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirteen weeks ended June 29, 2019), and eight restaurants owned by affiliated limited partnerships) was $435,000 for the thirteen weeks ended June 29, 2019 and $406,000 for the thirteen weeks ended June 30, 2018, an increase of 7.14%. Comparable weekly restaurant bar sales for Company owned restaurants only was $200,000 and $180,000 for the third quarter of our fiscal year 2019 and the third quarter of our fiscal year 2018, respectively, an increase of 11.11%. Comparable weekly restaurant bar sales for affiliated limited partnership owned restaurants only was $235,000 and $226,000 for the third quarter of our fiscal year 2019 and the third quarter of our fiscal year 2018, respectively, an increase of 3.98%. We expect restaurant revenue generated from bar sales to increase throughout the balance of our fiscal year 2019 due to the Price Increases and increased restaurant traffic, offset by the loss of bar sales resulting from the Store #19 Closure

Package Store Sales . Revenue generated from sales of liquor and related items at package liquor stores totaled $4,752,000 for the thirteen weeks ended June 29, 2019 as compared to $4,435,000 for the thirteen weeks ended June 30, 2018, an increase of $317,000. This increase was primarily due to increased package liquor store traffic, offset by the loss of revenue generated from sales of liquor and related items at Store #19, due to the Store #19 Closure. Revenue generated from sales of liquor and related items at our Store #19 was $265,000 for the thirteen weeks ended June 30, 2018. The weekly average of same store package liquor store sales, which includes eight (8) Company owned package liquor stores, (excluding Store #19, which was closed for the thirteen weeks ended June 29, 2019), was $366,000 for the thirteen weeks ended June 29, 2019 as compared to $341,000 for the thirteen weeks ended June 30, 2018, an increase of 7.33% We expect package liquor store sales to increase throughout the balance of our fiscal year 2019 due to increased package liquor store traffic, offset by the loss of revenue generated from sales of liquor and related items resulting from the Store #19 Closure.

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 June 29, 2019 increased $1,226,000 or 4.65% to $27,568,000 from $26,342,000 for the thirteen weeks ended June 30, 2018. The increase was primarily due to an expected general increase in food costs, offset by a reduction of operating costs and expenses at Store #19 due to the Store #19 Closure and actions taken by management to reduce and/or control costs. Operating costs and expenses at our Store #19 were $570,000 for the thirteen weeks ended June 30, 2018. We anticipate that our operating costs and expenses will continue to increase throughout the balance of our fiscal year 2019 for the same reasons. Operating costs and expenses increased as a percentage of total revenue to approximately 93.41% in the third quarter of our fiscal year 2019 from 92.64% in the third quarter of our fiscal year 2018.

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 sales and bar sales for the thirteen weeks ended June 29, 2019 increased to $15,718,000 from $15,266,000 for the thirteen weeks ended June 30, 2018. Our gross profit margin for food sales and bar sales (calculated as gross profit reflected as a percentage of restaurant food sales and bar sales), was 65.22% for the thirteen weeks ended June 29, 2019 and 65.46% for the thirteen weeks ended June 30, 2018. We anticipate that our gross profit for restaurant food and bar sales will increase throughout the balance of our fiscal year 2019 due to the Price Increases, partially offset by higher food costs.

Package Store Sales . Gross profit for package store sales for the thirteen weeks ended June 29, 2019 increased to $1,333,000 from $1,267,000 for the thirteen weeks ended June 30, 2018. Our gross profit margin, (calculated as gross profit reflected as a percentage of package liquor store sales), for package liquor store sales was 28.05% for the thirteen weeks ended June 29, 2019 and 28.57% for the thirteen weeks ended June 30, 2018. We anticipate that the gross profit margin for package store merchandise will decrease throughout the balance of our fiscal year 2019 due to anticipated lower pricing of certain package store merchandise in order for us to stay competitive.

Payroll and Related Costs. Payroll and related costs for the thirteen weeks ended June 29, 2019 increased $288,000 or 3.27% to $9,105,000 from $8,817,000 for the thirteen weeks ended June 30, 2018. Higher payroll and related costs for the thirteen weeks ended June 29, 2019 were primarily due to higher restaurant sales, which require additional payroll and related costs for employees such as cooks, bartenders and servers and higher pay rates, offset by a decrease in payroll and related costs of $387,000 at Store #19 due to the Store #19 Closure. Payroll and related costs as a percentage of total revenue was 30.85% in the third quarter of our fiscal year 2019 and 31.01% of total sales in the third quarter of our fiscal year 2018.

Occupancy Costs. Occupancy costs (consisting of rent, common area maintenance, repairs, real property taxes and amortization of leasehold purchases) for the thirteen weeks ended June 29, 2019 increased $125,000 or 8.88% to $1,533,000 from $1,408,000 for the thirteen weeks ended June 30, 2018. We anticipate that our occupancy costs will increase throughout the balance of our fiscal year 2019 due to the rent we are required to pay pursuant to the Sunrise Lease Agreement.

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 June 29, 2019 increased $237,000 or 4.84% to $5,130,000 from $4,893,000 for the thirteen weeks ended June 30, 2018. Selling, general and administrative expenses increased as a percentage of total revenue in the third quarter of our fiscal year 2019 to 17.38% as compared to 17.21% in the third quarter of our fiscal year 2018. We anticipate that our selling, general and administrative expenses will increase throughout the balance of our fiscal year 2019 due primarily to increases across all categories.

Depreciation and Amortization. Depreciation and amortization expense, which is included in selling, general and administrative expenses, for the thirteen weeks ended June 29, 2019 increased $72,000 or 10.15% to $781,000 from $709,000 from the thirteen weeks ended June 30, 2018. As a percentage of total revenue, depreciation and amortization expense was 2.65% of revenue in the thirteen weeks ended June 29, 2019 and 2.49% of revenue in the thirteen weeks ended June 30, 2018.

Interest Expense, Net . Interest expense, net, for the thirteen weeks ended June 29, 2019 decreased $18,000 to $175,000 from $193,000 for the thirteen weeks ended June 30, 2018.

Income Taxes. Income taxes for the thirteen weeks ended June 29, 2019 was $309,000 and $303,000 for the thirteen weeks ended June 30, 2018.

Net Income. Net income for the thirteen weeks ended June 29, 2019 decreased $139,000 or 8.61% to $1,476,000 from $1,615,000 for the thirteen weeks ended June 30, 2018. Net income for the thirteen weeks ended June 29, 2019 decreased when compared to the thirteen weeks ended June 30, 2018 primarily due to a net loss of $25,000 from Store #19 resulting from the Store #19 Closure and by higher food costs and overall expenses, offset by higher restaurant traffic. During the thirteen weeks ended June 30, 2018, the net income from Store #19 was $186,000. As a percentage of sales, net income for the third quarter of our fiscal year 2019 is 5.00%, as compared to 5.68% in the third quarter of our fiscal year 2018. Throughout the balance of our fiscal year 2019, our net income will be adversely affected by a loss of net income from Store #19 resulting from the Store #19 Closure, which location will remain closed through at least the end of our fiscal year 2019 and we do not anticipate we will be receiving any further insurance proceeds from the Store #19 Closure, other than $132,000 in depreciation insurance recovery which we have yet to receive, offset by the Price Increases and increased traffic.

Net Income Attributable to Stockholders. Net income attributable to stockholders for the thirteen weeks ended June 29, 2019 decreased $75,000 or 7.09% to $968,000 from $1,043,000 for the thirteen weeks ended June 30, 2018. Net income for the thirteen weeks ended June 29, 2019 decreased when compared to the thirteen weeks ended June 30, 2018 primarily due to a net loss of $25,000 from Store #19 resulting from the Store #19 Closure and by higher food costs and overall expenses, offset by higher restaurant traffic. During the thirteen weeks ended June 30, 2018, the net income from Store #19 was $186,000. As a percentage of revenue, net income attributable to stockholders for the thirteen weeks ended June 29, 2019 is 3.28%, as compared to 3.67% for the thirteen weeks ended June 30, 2018. Throughout the balance of our fiscal year 2019, our net income attributable to stockholders will be adversely affected by a loss of net income from Store #19 resulting from the Store #19 Closure, which location will remain closed through at least the end of our fiscal year 2019 and we do not anticipate we will be receiving any further insurance proceeds from the Store #19 Closure, other than $132,000 in depreciation insurance recovery which we have yet to receive, offset by the Price Increases and increased traffic.

Comparison of Thirty Nine Weeks Ended June 29, 2019 and June 30, 2018 .

Revenues . Total revenue for the thirty nine weeks ended June 29, 2019 increased $857,000 or 0.99% to $87,142,000 from $86,285,000 for the thirty nine weeks ended June 30, 2018 due primarily to increased restaurant traffic and notwithstanding the loss of revenue resulting from the Store #19 Closure. Revenue generated from operations at Store #19 was $4,035,000 for the thirty nine weeks ended June 30, 2018. We expect total revenue to increase throughout the balance of our fiscal year 2019 due to the Price Increases and increased traffic, partially offset by the loss of revenue resulting from the Store #19 Closure.

Restaurant Food Sales . Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants (food sales) totaled $53,494,000 for the thirty nine weeks ended June 29, 2019 as compared to $53,368,000 for the thirty nine weeks ended June 30, 2018. The increase in restaurant revenue from food sales during the thirty nine weeks ended June 29, 2019 is primarily due to increased restaurant traffic, offset by the loss of food sales at Store #19 resulting from the Store #19 Closure. Restaurant revenue from the sale of food at our Store #19 was $2,631,000 for the thirty nine weeks ended June 30, 2018. Comparable weekly restaurant food sales (for restaurants open for all of the thirty nine weeks of our fiscal years 2019 and 2018, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirty nine weeks ended June 29, 2019) and eight restaurants owned by affiliated limited partnerships) was $1,370,000 and $1,301,000 for the thirty nine weeks ended June 29, 2019 and June 30, 2018, respectively, an increase of 5.30%. Comparable weekly restaurant food sales for Company owned restaurants only was $693,000 and $656,000 for the thirty nine weeks of our fiscal years 2019 and 2018, respectively, an increase of 5.64%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only was $677,000 and $645,000 for the thirty nine weeks of our fiscal years 2019 and 2018, respectively, an increase of 4.96%. We expect restaurant revenue generated from food sales, including non-alcoholic beverages, at restaurants to increase throughout the balance of our fiscal year 2019 due to the Price Increases and increased traffic, partially offset by the loss of food sales resulting from the Store #19 Closure.

Restaurant Bar Sales . Restaurant revenue generated from the sale of alcoholic beverages at restaurants (bar sales) totaled $16,720,000 for the thirty nine weeks ended June 29, 2019 as compared to $16,595,000 for the thirty nine weeks ended June 30, 2018. The increase in restaurant revenue from bar sales during the thirty nine weeks ended June 29, 2019 is primarily due to increased restaurant traffic, offset by the loss of bar sales at Store #19 resulting from the Store #19 Closure. Restaurant revenue from the bar sales at Store #19 was $564,000 for the thirty nine weeks ended June 30, 2018. Comparable weekly restaurant bar sales (for restaurants open for all of the thirty nine weeks of our fiscal years 2019 and 2018, respectively, which consists of nine restaurants owned by us, (excluding Store #19 which was closed for the thirty nine weeks ended June 29, 2019) and eight restaurants owned by affiliated limited partnerships) was $429,000 for the thirty nine weeks ended June 29, 2019 and $411,000 for the thirty nine weeks ended June 30, 2018, an increase of 4.38%. Comparable weekly restaurant bar sales for Company owned restaurants only was $196,000 and $187,000 for the thirty nine weeks of our fiscal years 2018 and 2019, respectively, an increase of 4.81%. Comparable weekly restaurant bar sales for affiliated limited partnership owned restaurants only was $233,000 and $224,000 for the thirty nine weeks of our fiscal year 2019 and 2018, respectively, an increase of 4.02%. We expect restaurant revenue generated from bar sales to increase throughout the balance of our fiscal year 2019 due to the Price Increases and increased restaurant traffic, partially offset by the loss of bar sales at Store #19 resulting from the Store #19 Closure.

Package Store Sales . Revenue generated from sales of liquor and related items at package liquor stores totaled $14,979,000 for the thirty nine weeks ended June 29, 2019 as compared to $14,314,000 for the thirty nine weeks ended June 30, an increase of $665,000. This increase was primarily due to increased package liquor store traffic, offset by the loss of revenue generated from sales of liquor and related items at Store #19 resulting from the Store #19 Closure. Revenue generated from sales of liquor and related items at Store #19 was $840,000 for the thirty nine weeks ended June 30, 2018. The weekly average of same store package liquor store sales, which includes eight (8) Company owned package liquor stores, (excluding Store #19, which was closed for the thirty nine weeks ended June 29, 2019), was $384,000 for the thirty nine weeks ended June 29, 2019 as compared to $345,000 for the thirty nine weeks ended June 30, 2018, an increase of 11.30%. We expect package liquor store sales to increase throughout the balance of our fiscal year 2019 due to increase package liquor store traffic, offset by the loss of revenue generated from sales of liquor and related items at Store #19 resulting from the Store #19 Closure.

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 June 29, 2019 increased $2,561,000 or 3.20% to $82,653,000 from $80,092,000 for the thirty nine weeks ended June 30, 2018. The increase was primarily due to an expected general increase in food costs, offset by a reduction of operating costs and expenses at Store #19, which was closed for the thirty nine weeks ended June 29, 2019 due to the Store #19 Closure and actions taken by management to reduce and/or control costs. Operating costs and expenses at Store #19 were $1,658,000 for the thirty nine weeks ended June 30, 2018. We anticipate that our operating costs and expenses will continue to increase throughout our fiscal year 2019 for the same reasons. Operating costs and expenses increased as a percentage of total revenue to approximately 94.85% for the thirty nine weeks of our fiscal year 2019 from 92.82% for the thirty nine weeks of our fiscal year 2018.

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 sales and bar sales for the thirty nine weeks ended June 29, 2019 increased to $45,791,000 from $45,712,000 for the thirty nine weeks ended June 30, 2018. Our gross profit margin for food sales and bar sales (calculated as gross profit reflected as a percentage of restaurant food sales and bar sales), was 65.22% for the thirty nine weeks ended June 29, 2019 and 65.34% for the thirty nine weeks ended June 30, 2018. We anticipate that our gross profit for restaurant food and bar sales will increase throughout the balance of our fiscal year 2019 due to the Price Increases, partially offset by higher food costs.

Package Store Sales . Gross profit for package store sales for the thirty nine weeks ended June 29, 2019 increased to $4,073,000 from $4,017,000 for the thirty nine weeks ended June 30, 2018. Our gross profit margin, (calculated as gross profit reflected as a percentage of package liquor store sales), for package liquor store sales was 27.19% for the thirty nine weeks ended June 29, 2019 and 28.06% for the thirty nine weeks ended June 30, 2018. We anticipate that the gross profit margin for package store sales will decrease throughout the balance of our fiscal year 2019 due to anticipated lower pricing of certain package store merchandise undertaken in order for us to stay competitive.

Payroll and Related Costs. Payroll and related costs for the thirty nine weeks ended June 29, 2019 increased $413,000 or 1.57% to $26,770,000 from $26,357,000 for the thirty nine weeks ended June 30, 2018. Higher payroll and related costs for the thirty nine weeks ended June 29, 2019 were primarily due to higher restaurant sales, which require additional payroll and related costs for employees such as cooks, bartenders and servers and higher pay rates, offset by a decrease in payroll and related costs of $1,043,000 at Store #19, which was closed for substantially all of the thirty nine weeks ended June 29, 2019 due to the Store #19 Closure. Payroll and related costs as a percentage of total revenue was 30.72% for the thirty nine weeks ended June 29, 2019 and 30.55% of total revenue for the thirty nine weeks ended June 30, 2018.

Occupancy Costs. Occupancy costs (consisting of rent, common area maintenance, repairs, real property taxes and amortization of leasehold purchases) for the thirty nine weeks ended June 29, 2019 increased $249,000 or 5.79% to $4,547,000 from $4,298,000 for the thirty nine weeks ended June 30, 2018. We anticipate that our occupancy costs will increase throughout the balance of our fiscal year 2019 due to the rent we are required to pay pursuant to the Sunrise Lease Agreement.

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 June 29, 2019 increased $1,118,000 or 7.51% to $16,007,000 from $14,889,000 for the thirty nine weeks ended June 30, 2018. Selling, general and administrative expenses increased as a percentage of total revenue for the thirty nine weeks ended June 29, 2019 to 18.37% as compared to 17.26% for the thirty nine weeks ended June 30, 2018. We anticipate that our selling, general and administrative expenses will increase throughout the balance of our fiscal year 2019 due primarily to increases across all categories.

Depreciation and Amortization. Depreciation and amortization expense, which is included in selling, general and administrative expenses, for the thirty nine weeks ended June 29, 2019 increased $164,000 or 7.88% to $2,245,000 from $2,081,000 from the thirty nine weeks ended June 30, 2018. As a percentage of total revenue, depreciation and amortization expense was 2.58% of revenue in the thirty nine weeks ended June 29, 2019 and 2.41% of revenue in the thirty nine weeks ended June 30, 2018.

Interest Expense, Net . Interest expense, net, for the thirty nine weeks ended June 29, 2019 decreased $24,000 to $541,000 from $565,000 for the thirty nine weeks ended June 30, 2018.

Income Taxes. Income taxes for the thirty nine weeks ended June 29, 2019 was $653,000 and $1,216,000 for the thirty nine weeks ended June 30, 2018. Income taxes decreased during the thirty nine weeks ended June 29, 2019 due to a reduction of $268,000 to our deferred tax asset due to the corporate tax rate reduction, which reduction was a part of our current tax expense during the thirty nine weeks ended June 30, 2018.

Net Income. Net income for the thirty nine weeks ended June 29, 2019 decreased $517,000 or 11.60% to $3,939,000 from $4,456,000 for the thirty nine weeks ended June 30, 2018. Net income for the thirty nine weeks ended June 29, 2019 decreased when compared to the thirty nine weeks ended June 30, 2018 primarily due to higher food costs and overall expenses and a net loss of $299,000 from Store #19 resulting from the Store #19 Closure, offset by the receipt in the first quarter of our 2019 fiscal year of a $602,000 insurance recovery, as a result of the Store #19 Closure and higher restaurant traffic. During the thirty nine weeks ended June 30, 2018, the net income from Store #19 was $593,000. As a percentage of total revenue, net income for the thirty nine weeks ended June 29, 2019 is 4.52%, as compared to 5.16% for the thirty nine weeks ended June 30, 2018. Net income for the thirty nine weeks ended June 30, 2018 was also reduced by a reduction of $268,000 to our deferred tax asset. For the balance of our fiscal year 2019, our net income will be adversely affected by a loss of net income from Store #19 resulting from the Store #19 Closure. We anticipate that Store #19 will remain closed through at least the end of our fiscal year 2019 and we do not anticipate we will receive any additional insurance proceeds from the Store #19 Closure, other than $132,000 in depreciation insurance recovery which we have yet to receive, offset by the Price Increases and increased traffic.

Net Income Attributable to Stockholders. Net income attributable to stockholders for the thirty nine weeks ended June 29, 2019 decreased $329,000 or 10.75% to $2,732,000 from $3,061,000 for the thirty nine weeks ended June 30, 2018. Net income for the thirty nine weeks ended June 29, 2019 decreased when compared to the thirty nine weeks ended June 30, 2018 primarily due to higher food costs and overall expenses and a net loss of $299,000 from Store #19 resulting from the Store #19 Closure, offset by the receipt in the first quarter of our 2019 fiscal year of a $602,000 insurance recovery, as a result of the Store #19 Closure and higher restaurant traffic. During the thirty nine weeks ended June 29, 2019, the net income from Store #19 was $593,000. Net income for the thirty nine weeks ended June 30, 2018 was also reduced by a reduction of $268,000 to our deferred tax asset. As a percentage of revenue, net income attributable to stockholders for the thirty nine weeks ended June 29, 2019 is 3.14%, as compared to 3.55% for the thirty nine weeks ended June 30, 2018. Throughout the balance of our fiscal year 2019, our net income attributable to stockholders will be adversely affected by a loss of net income from Store #19 resulting from the Store #19 Closure. We anticipate that Store #19 will remain closed through at least the end of our fiscal year 2019 and we do not anticipate we will receive any additional insurance proceeds from the Store #19 Closure, other than $132,000 in depreciation insurance recovery which we have yet to receive, offset by the Price Increases and increased traffic.

New Limited Partnership Restaurants

As new restaurants open, our income from operations will be adversely affected due to our obligation to fund pre-opening costs, including but not limited to pre-opening rent for the new locations. During the thirteen weeks ended June 29, 2019, we had one new restaurant location in Sunrise, Florida in the development stage and have recognized pre-opening costs of $239,000.

Menu Price Increases and Trends

Effective June 16, 2019 we increased menu prices for our bar offerings to target an increase to our bar revenues of approximately 6.2% annually and effective June 23, 2019 we increased menu prices for our food offerings to target an increase to our food revenues of approximately 3.4% annually to offset higher food costs and higher overall expenses. Prior to these increases, we previously raised menu prices in the fourth quarter of our fiscal year 2017. During the next twelve months, if demand for our restaurant and bar offerings remain substantially similar to the demand during our fiscal year 2019, (excluding restaurant and bar sales from Store #19 which we expect will be closed for our entire fiscal year 2019) of which there can be no assurance, we expect that restaurant and bar sales in our restaurants as well as gross profit for food and bar operations (excluding restaurant and bar sales from Store #19 which we expect will be closed for our entire fiscal year 2019) should increase as a result of the Price Increases, offset partially by higher food costs. We anticipate that our package liquor store sales will continue to increase, (excluding package liquor store sales from Store #19, which we expect will be closed for our entire fiscal year 2019 due to the Store #19 Closure), while gross profit margin for package liquor store sales will, in all likelihood, decrease.

In addition to the rebuilding of Store #19, which was closed in October 2018 due to a fire, we have a new “Flanigan’s Seafood Bar and Grill” restaurant in Sunrise, Florida in the development stage and also continue to search for new locations to open restaurants and thereby expand our business.

We are not actively searching for locations for the operation of new package liquor stores, but when our attempt to expand “The Whale’s Rib” restaurant concept in Miami, Florida was abandoned, we decided that the space we had targeted for the “The Whales Rib” would be ideal for the operation of a package liquor store and during the fourth quarter of our fiscal year 2018, we received governmental approval to operate a package liquor store. It is anticipated that this new package liquor store will be open for business during the fourth quarter of our fiscal year 2019.

Liquidity and Capital Resources

We fund our operations through cash from operations. As of June 29, 2019, we had cash of approximately $12,533,000, a decrease of $881,000 from our cash balance of $13,414,000 as of September 29, 2018. During the second quarter of our fiscal year 2019, on March 29, 2019, we paid a cash dividend of 28 cents per share. 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.

During the thirty nine weeks ended June 29, 2019, our Board of Directors declared and paid a cash dividend of 28 cents per share to shareholders of record on March 15, 2019. During the thirty nine weeks ended June 30, 2018, our Board of Directors declared and paid a cash dividend of 25 cents per share to shareholders of record on March 16, 2018. Any future determination to pay cash dividends will be at our Board’s discretion and will depend upon our financial condition, operating results, capital requirements and such other factors as our Board deems relevant.

Capital Expenditures

In addition to using cash for our operating expenses, we use cash to fund the development and construction of new restaurants and to fund capitalized property improvements for our existing restaurants. During the thirty nine weeks ended June 29, 2019, we acquired property and equipment and construction in progress of $5,244,000, (of which $1,300,000 was for the purchase of vacant real property in Pompano Beach, Florida; $236,000 was for construction in process; and $548,000 was deposits recorded in other assets as of September 29, 2018), which amount included $73,000 for renovations to one (1) existing limited partnership restaurant and $385,000 for renovations to three (3) Company owned restaurants. During the thirty nine weeks ended June 30, 2018, we acquired property and equipment and construction in progress of $3,219,000, (of which $81,000 was for the purchase of a vehicle for debt; $1,439,000 was for construction in progress; and $132,000 was deposits recorded in other assets as of September 30, 2017), which amount included $326,000 for renovations to four (4) Company owned restaurants.

All of our owned units require periodic refurbishing in order to remain competitive. We anticipated the cost of this refurbishment in our fiscal year 2019 to be approximately $450,000, however $458,000 has been spent through June 29, 2019.

Long Term Debt

As of June 29, 2019, we had long term debt of $13,828,000, as compared to $14,576,000 as of September 29, 2018. As of June 29, 2019, we are in compliance with the covenants of all loans with our lender.

As of June 29, 2019, the aggregate principal balance owed from the financing of our property and general liability insurance policies is $520,000.

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, of which $1,162,000 has been paid. Subsequent to the end of the third quarter of our fiscal year 2019, the unaffiliated general contractor completed its work under the agreement and we paid the balance of $15,000.

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, of which $875,000 has been paid. Subsequent to the end of the third quarter of our fiscal year 2019, the unaffiliated general contractor completed its work under the agreement and we paid the balance of $5,000.

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. 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.

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 $33,000 through June 29, 2019.

Purchase Commitments/ Supply

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 there are several other alternative vendors available, if needed.

During the fourth quarter of our fiscal year 2018, we (as a 51% member control person) and a third party unaffiliated with us, experienced in the business of importing fresh fish into the United States (as a 49% member), formed Flanigan’s Fish Company, LLC, a Florida limited liability company (“FFC”). The current purpose of FFC is to acquire and sell only to our restaurants imported fresh fish at competitive prices to what we are currently paying outside fresh fish purveyors. Commencing with the third quarter of our fiscal year 2019, FFC began to supply fish to our restaurants and as of June 29, 2019, FFC supplies certain of the fish to nine (9) of our restaurants. Since we hold the controlling interest of FFC, the balance sheet and operating results of this entity are consolidated into the accompanying financial statements of the Company. Sales and purchases of fish are recognized in restaurant food sales and restaurant and lounges (cost of merchandise sold), respectively, in the consolidated statements of income at the time of sale to the restaurant. In addition, the 49% of FFC owned by the unrelated third party is recognized as noncontrolling interest in our consolidated financial statements.

Purchase of Limited Partnership Interest

During the thirty nine weeks ended June 29, 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 the thirty nine weeks ended June 30, 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.

Our working capital decreased during our fiscal quarter ended June 29, 2019 from our working capital for our fiscal quarter ended June 30, 2018 and our fiscal year ended September 29, 2018 due to the $1,300,000 we paid to close on our purchase of the vacant parcel of property located at 2119 S.E. 9 ^th Street, Pompano Beach, Florida. In addition, we also reclassified the principal balance ($2,813,000) of a mortgage which matures November 30, 2019 and which we plan to refinance.

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 funds available from our term loan will adequately fund operations, debt reductions and planned capital expenditures throughout our fiscal year 2019.

Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements.

Inflation

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