FLANIGAN'S ENTERPRISES, INC. CAUTIONARY NOTE REGARDING LOOKING FORWARD STATEMENTS
Reported financial results may not be indicative of the financial results of
future periods. All non-historical information contained in the following
discussion constitutes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Words such as "anticipates, appears, expects, trends, intends, hopes,
plans, believes, seeks, estimates, may, will," and variations of these words or
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and involve a number of
risks and uncertainties, including but not limited to the effect of the novel
coronavirus pandemic and related "shelter-in-place" orders and other
governmental mandates ("COVID 19"), customer demand and competitive conditions.
Factors that could cause actual results to differ materially are included in,
but not limited to, those identified in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations," in our periodic
reports, including our Annual Report on Form 10-K for the fiscal year ended
October 1, 2022 . We undertake no obligation to publicly release the results of
any revisions to these forward-looking statements that may reflect events or
circumstances after the date of this report.
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OVERVIEW
As of December 31, 2022 , Flanigan's Enterprises, Inc. , a Florida corporation,
together with its subsidiaries ("we", "our", "ours" and "us" as the context
requires), (i) operates 30 units, consisting of restaurants, package liquor
stores, combination restaurant/package liquor stores and a sports bar that we
either own or have operational control over and partial ownership in; and
franchises an additional five units, consisting of two restaurants (one of which
we operate) and three combination restaurant/package liquor stores. The table
below provides information concerning the type (i.e. restaurant, sports bar,
package liquor store or combination restaurant/package liquor store) and
ownership of the units (i.e. whether (i) we own 100% of the unit; (ii) the unit
is owned by a limited partnership of which we are the sole general partner
and/or have invested in; or (iii) the unit is franchised by us), as of December
31, 2022 and as compared to October 1, 2022 . With the exception of "The Whale's
Rib", a restaurant we operate but do not own, and "Brendan's Sports Pub " a
restaurant/bar we own, all of the restaurants operate under our service marks
"Flanigan's Seafood Bar and Grill " or "Flanigan's" and all of the package liquor
stores operate under our service marks "Big Daddy's Liquors" or "Big Daddy's
Wine & Liquors".
December 31, October 1,
TYPES OF UNITS 2022 2022
Company Owned:Combination package liquor store and restaurant 3 3 (1) Restaurant only, including sports bar 8 8 (2) Package liquor store only 7 7 Company Managed Restaurants Only: Limited partnerships 10 10 (3) Franchise 1 1 Unrelated Third Party 1 1 Total Company Owned/Operated Units 30 30 Franchised Units 5 5 (4) Notes: (1) During the first quarter of our fiscal year 2019, our combination package liquor store and restaurant located at2505 N. University Drive ,Hollywood, Florida (Store #19), was damaged by a fire which has caused it to be closed since the first quarter of our fiscal year 2019. During the first quarter of our fiscal year 2023, we opened our newly built stand-alone package liquor store on this site replacing our package liquor store destroyed by fire and previously operating here. We are constructing a stand-alone restaurant building on this site (adjacent to the package liquor store), replacing our restaurant destroyed by fire and previously operating here. We do not believe this restaurant will be operational during our fiscal year 2023. 15
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(2) During the third quarter of our fiscal year 2022, we entered into a new
lease for the business premises and purchased the assets of a restaurant/bar
known as "
(3) During the second quarter of our fiscal year 2022, our limited partnership owned restaurant located at14301 West Sunrise Boulevard ,Sunrise, Florida (Store #85) opened for business in March, 2022 (the "2022Sunrise Restaurant "). Our limited partnership owned restaurant located at11225 Miramar Parkway #250,Miramar, Florida (Store #25) is expected to open for business during the second quarter of our fiscal year 2023 (the "2023Miramar Restaurant ").
(4) 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 theFort Lauderdale, Florida restaurant which is owned by a related franchisee. Accordingly, the results of operations of all limited partnership owned restaurants, except theFort Lauderdale, Florida restaurant are consolidated into our operations for accounting purposes. The results of operations of theFort Lauderdale, Florida restaurant are accounted for by us utilizing the equity method of accounting. In general, until the investors' cash investment in a limited partnership (including any cash invested by us and our affiliates) is returned in full, the limited partnership distributes to the investors annually out of available cash from the operation of the restaurant up to 25% of the cash invested in the limited partnership, with no management fee paid to us. Any available cash in excess of the 25% of the cash invested in the limited partnership distributed to the investors annually, is paid one-half (½) to us as a management fee, with the balance distributed to the investors. Once the investors in the limited partnership have received, in full, amounts equal to their cash invested, an annual management fee is payable to us equal to one-half (½) of cash available to the limited partnership, with the other one half (½) of available cash distributed to the investors (including us and our affiliates). As ofDecember 31, 2022 , all limited partnerships, with the exception of the 2022Sunrise Restaurant , which opened for business in March, 2022 and the 2022Miramar Restaurant , which we anticipate will open for business in February, 2023, have returned all cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. In addition to receipt of distributable amounts from the limited partnerships, we receive a fee equal to 3% of gross sales for use of the service mark "Flanigan's Seafood Bar and Grill " or "Flanigan's". RESULTS OF OPERATIONS
-----------------------Thirteen Weeks Ended-----------------------
December 31, 2022 January 1, 2022
Amount Amount
(In thousands) Percent (In thousands) Percent
Restaurant food sales $ 24,767 60.18 $ 22,205 60.47
Restaurant bar sales 6,988 16.98 6,007 16.35
Package store sales 9,403 22.84 8,511 23.18
Total Sales $ 41,158 100.00 $ 36,723 100.00
Franchise related revenues 459 446 Rental income 213 199 Other operating income 31 35 Total Revenue$ 41,861 $ 37,403 16 Table of Contents
Comparison of Thirteen Weeks Ended
Revenues. Total revenue for the thirteen weeks endedDecember 31, 2022 increased$4,458,000 or 11.92% to$41,861,000 from$37,403,000 for the thirteen weeks endedJanuary 1, 2022 due primarily to increased package liquor store and restaurant sales, increased menu prices, revenue generated from the opening of our limited partnership owned restaurant inSunrise, Florida , (Store #85) inMarch 2022 and the comparatively less adverse effects of COVID-19 on our operations during the thirteen weeks endedDecember 31, 2022 as compared with the thirteen weeks endedJanuary 1, 2022 . EffectiveOctober 3, 2021 and then effectiveDecember 19, 2021 we increased menu prices for our food offerings to target an increase to our food revenues of approximately 2.38% and 3.34% annually, respectively, to offset higher food costs and higher overall expenses and effectiveDecember 12, 2021 we increased menu prices for our bar offerings to target an increase to our bar revenues of approximately 7.80% annually, (collectively the "Recent Price Increases"). Prior to these increases, we previously raised menu prices in the third quarter of our fiscal year 2021. Restaurant Food Sales. Restaurant revenue generated from the sale of food, including non-alcoholic beverages, at restaurants totaled$24,767,000 for the thirteen weeks endedDecember 31, 2022 as compared to$22,205,000 for the thirteen weeks endedJanuary 1, 2022 . The increase in restaurant food sales during the thirteen weeks endedDecember 31, 2022 as compared to restaurant food sales during the thirteen weeks endedJanuary 1, 2022 is attributable to the Recent Price Increases, restaurant food sales generated from the opening of our limited partnership owned restaurant inSunrise, Florida , (Store #85) inMarch 2022 , the opening ofBrendan's Sports Pub (Store #30) in June, 2022 and the comparatively greater adverse effects of COVID-19 on our operations during the thirteen weeks endedJanuary 1, 2022 as compared with the thirteen weeks endedDecember 31, 2022 . Comparable weekly restaurant food sales (for restaurants open for all of the thirteen weeks endedDecember 31, 2022 andJanuary 1, 2022 respectively, which consists of nine restaurants owned by us and eight restaurants owned by affiliated limited partnerships, (excluding ourSunrise, Florida location, (Store #85), andBrendan's Sports Pub , (Store #30), both of which opened for business during the second quarter of our fiscal year 2022) was$1,770,000 and$1,693,000 for the thirteen weeks endedDecember 31, 2022 andJanuary 1, 2022 , respectively, an increase of 4.55%. Comparable weekly restaurant food sales for Company owned restaurants only was$829,000 and$804,000 for the thirteen weeks endedDecember 31, 2022 andJanuary 1, 2022 , respectively, an increase of 3.11%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only, (excluding Store #85 which opened for business during the second quarter of our fiscal year 2022), was$941,000 and$890,000 for the thirteen weeks endedDecember 31, 2022 andJanuary 1, 2022 , respectively, an increase of 5.73%. We expect that restaurant food sales, including non-alcoholic beverages, for the balance of our fiscal year 2023 will increase due to increased restaurant traffic and the opening for business of the 2023Miramar Restaurant during the second quarter of fiscal
year 2023. Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants totaled$6,988,000 for the thirteen weeks endedDecember 31, 2022 as compared to$6,007,000 for the thirteen weeks endedJanuary 1, 2022 . The increase in restaurant bar sales during the thirteen weeks endedDecember 31, 2022 is primarily due to the Recent Price Increases, restaurant bar sales generated from the opening of our limited partnership owned restaurant inSunrise, Florida , (Store #85) inMarch 2022 , the opening ofBrendan's Sports Pub (Store #30) in June, 2022 and the comparatively more adverse effects of COVID-19 on our operations during the thirteen weeks endedJanuary 1, 2022 as compared with the thirteen weeks endedDecember 31, 2022 . Comparable weekly restaurant bar sales (for restaurants open for all of the thirteen weeks endedDecember 31, 2022 andJanuary 1, 2022 respectively, which consists of nine restaurants owned by us and eight restaurants owned by affiliated limited partnerships, (excluding ourSunrise, Florida location, (Store #85), andBrendan's Sports Pub , (Store #30), both of which opened for business during the second quarter of our fiscal year 2022) was$498,000 and$462,000 for the thirteen weeks endedDecember 31, 2022 andJanuary 1, 2022 , respectively, an increase of 7.79%. Comparable weekly restaurant bar sales for Company owned restaurants only was$212,000 and$203,000 for the thirteen weeks endedDecember 31, 2022 andJanuary 1, 2022 , respectively, an increase of 4.43%. Comparable weekly restaurant food sales for affiliated limited partnership owned restaurants only, (excluding Store #85 which opened for business during the second quarter of our fiscal year 2022), was$286,000 and$259,000 for the thirteen weeks endedDecember 31, 2022 andJanuary 1, 2022 , respectively, an increase of 10.42%. We expect that restaurant bar sales, including non-alcoholic beverages, for the balance of our fiscal year 2023 will increase due to increased restaurant traffic and the opening for business of the 2023Miramar Restaurant during the second quarter of fiscal
year
2023.
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Package Store Sales. Revenue generated from sales of liquor and related items at
package liquor stores totaled $9,403,000 for the thirteen weeks ended December
31 2022 as compared to $8,511,000 for the thirteen weeks ended January 1, 2022 ,
an increase of $892,000 . This increase was primarily due to increased package
liquor store traffic due to what appears to be continued increased demand for
package liquor store products resulting from the COVID-19 pandemic. The weekly
average of same store package liquor store sales, which includes nine (9)
Company-owned package liquor stores, (excluding Store #19, which was closed for
our fiscal years 2022 and 2021 due to a fire on October 2, 2018 but re-opened
for business during the first quarter of our fiscal year 2023), was $716,000 and
$675,000 for the thirteen weeks ended December 31, 2022 respectively, an
increase of 6.07%. We expect that package liquor store sales for our fiscal year
2023 will increase due to increased package liquor store traffic and the opening
of the package liquor stores located at 7990 Davie Road Extension, Hollywood,
Florida (Store #19P) which opened for business during the first quarter of our
fiscal year 2023 and 11225 Miramar Parkway , Miramar, Florida (Store #24) which
we anticipate will open for business during the second quarter of our fiscal
year 2023.
Operating Costs and Expenses. Operating costs and expenses, (consisting of cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses), for the thirteen weeks endedDecember 31, 2022 increased$4,026,000 or 10.99% to$40,664,000 from$36,638,000 for the thirteen weeks endedDecember 31, 2022 . The increase was primarily due to increased payroll and an expected general increase in food costs, costs and expenses incurred from the opening of our limited partnership owned restaurant inSunrise, Florida , (Store #85) inMarch 2022 ,Brendan's Sports Pub (Store #30) in June, 2022, pre-opening expenses from our limited partnership owned restaurant inMiramar, Florida (Store #25) and pre-opening expenses from our package liquor store inMiramar, Florida (Store #24), partially offset by actions taken by management to reduce and/or control costs. We anticipate that our operating costs and expenses will continue to increase through our fiscal year 2023. Operating costs and expenses decreased as a percentage of total revenue to approximately 97.14% for the thirteen weeks endedDecember 31, 2022 from 97.95% for the thirteen weeks endedJanuary 1, 2022 .
Gross Profit. Gross profit is calculated by subtracting the cost of merchandise sold from sales.
Restaurant Food Sales and Bar Sales. Gross profit for food and bar sales for the thirteen weeks endedDecember 31, 2022 increased to$20,949,000 from$17,879,000 for the thirteen weeks endedJanuary 1, 2022 . Our gross profit margin for restaurant food and bar sales (calculated as gross profit reflected as a percentage of restaurant food and bar sales), was 65.97% for the thirteen weeks endedDecember 31, 2022 and 63.37% for the thirteen weeks endedJanuary 1, 2022 . Gross profit margin for restaurant food and bar sales increased during the first quarter of our fiscal year 2023 when compared to the first quarter of our fiscal year 2022 due among other things by the decrease in our price of ribs and the Recent Price Increases, offset among other things by higher food costs. 18 Table of Contents
Package Store Sales. Gross profit for package store sales for the thirteen weeks endedDecember 31, 2022 increased to$2,419,000 from$2,171,000 for the thirteen weeks endedJanuary 1, 2022 . Our gross profit margin, (calculated as gross profit reflected as a percentage of package liquor store sales), for package store sales was 25.72% for the thirteen weeks endedDecember 31, 2022 and 25.51% for the thirteen weeks endedJanuary 1, 2022 . We anticipate that the gross profit margin for package liquor store merchandise will decrease during our fiscal year 2023 due to higher costs and a reduction in pricing of certain package store merchandise to be more competitive. Payroll and Related Costs. Payroll and related costs for the thirteen weeks endedDecember 31, 2022 increased$1,400,000 or 11.44% to$13,636,000 from$12,236,000 for the thirteen weeks endedJanuary 1, 2022 . Payroll and related costs for the thirteen weeks endedDecember 31, 2022 were higher due primarily to the opening of our limited partnership owned restaurant inSunrise, Florida , (Store #85) inMarch 2022 ,Brendan's Sports Pub (Store #30) in June, 2022 and higher salaries to employees to remain competitive with other potential employers in a tighter labor market. Payroll and related costs as a percentage of total revenue was 32.57% in the thirteen weeks endedDecember 31, 2022 and 32.71% of total revenue in the thirteen weeks endedJanuary 1, 2022 . Occupancy Costs. Occupancy costs (consisting of percentage rent, common area maintenance, repairs, real property taxes, amortization of leasehold interests and rent expense associated with operating lease liabilities under ASC 842) for the thirteen weeks endedDecember 31, 2022 increased$150,000 or 8.83% to$1,848,000 from$1,698,000 for the thirteen weeks endedJanuary 1, 2022 . The increase in occupancy costs was primarily due to the commencement of rent for our retail package liquor store which we are developing located at11225 Miramar Parkway , #245,Miramar, Florida (Store #24) and our restaurant location which we are developing located at11225 Miramar Parkway , #250,Miramar, Florida (Store #25) during the second quarter of our fiscal year 2022, both of which we anticipate will open during our fiscal year 2023 andBrendan's Sports Pub (Store #30) which we acquired and opened for business in June, 2022. Selling, General and Administrative Expenses. Selling, general and administrative expenses (consisting of general corporate expenses, including but not limited to advertising, insurance, professional costs, clerical and administrative overhead) for the thirteen weeks endedDecember 31, 2022 increased$1,359,000 or 22.53% to$7,390,000 from$6,031,000 for the thirteen weeks endedJanuary 1, 2022 . Selling, general and administrative expenses increased as a percentage of total revenue for the thirteen weeks endedDecember 31, 2022 to 17.65% as compared to 16.12% for the thirteen weeks endedJanuary 1, 2022 , due primarily to Store #30 and Store #85 being open during the thirteen weeks endedDecember 31, 2022 only, inflation and otherwise to increases in expenses across all categories. We anticipate that our selling, general and administrative expenses as a percentage of total revenue will increase throughout the balance of our fiscal year 2023 due primarily to increases across all categories. Depreciation and Amortization. Depreciation and amortization expense for the thirteen weeks endedDecember 31, 2022 , which is included in selling, general and administrative expenses, increased$122,000 or 17.45% to$821,000 from$699,000 from the thirteen weeks endedJanuary 1, 2022 . As a percentage of total revenue, depreciation and amortization expense was 1.96% of revenue in the thirteen weeks endedDecember 31, 2022 and 1.83% of revenue in the thirteen weeks endedJanuary 1, 2022 . Interest Expense, Net. Interest expense, net, for the thirteen weeks endedDecember 31, 2022 increased$82,000 to$275,000 from$193,000 for the thirteen weeks endedJanuary 1, 2022 . Interest expense, net, increased for the thirteen weeks endedDecember 31, 2022 due to the interest on our borrowing of$8,900,000 during the fourth quarter of our fiscal year 2022 from an unrelated third party lender to re-finance the mortgage loan on our property located at4 N. Federal Highway ,Hallandale Beach, Florida (Store #31). 19 Table of Contents
Income Taxes. Income tax for the thirteen weeks endedDecember 31, 2022 was an expense of$63,000 , as compared to an expense of$147,000 for the thirteen
weeks endedJanuary 1, 2022 . Net Income. Net income for the thirteen weeks endedDecember 31, 2022 decreased$3,064,000 or 77.81% to$874,000 from$3,938,000 for the thirteen weeks endedJanuary 1, 2022 due primarily to the$3,488,000 of income attributable to the forgiveness of debt of certain of our 2nd PPP Loans during the first quarter endedJanuary 1, 2022 , higher food costs and overall increased expenses during the thirteen weeks endedDecember 31, 2022 , partially offset by increased revenue at our retail package liquor stores and restaurants and the Recent Price Increases. As a percentage of revenue, net income for the thirteen weeks endedDecember 31, 2022 is 2.09%, as compared to 10.53% in the thirteen weeks endedJanuary 1, 2022 . Net Income Attributable toFlanigan's Enterprises, Inc. Stockholders. Net income attributable toFlanigan's Enterprises, Inc. stockholders for the thirteen weeks endedDecember 31, 2022 decreased$940,000 or 60.10% to$624,000 from$1,564,000 for the thirteen weeks endedJanuary 1, 2022 due primarily to the income attributable to the forgiveness of debt of certain of our 2nd PPP Loans during the first quarter endedJanuary 1, 2022 , (net of the amount attributable to noncontrolling interests), higher food costs and overall increased expenses during the thirteen weeks endedDecember 31, 2022 , partially offset by increased revenue at our retail package liquor stores and restaurants and the Recent Price Increases. As a percentage of revenue, net income attributable toFlanigan's Enterprises, Inc. stockholders for the thirteen weeks endedDecember 31, 2022 is 1.49%, as compared to 4.18% for the thirteen weeks endedJanuary 1, 2022 .
As new restaurants open, our income from operations will be adversely affected due to our obligation to advance pre-opening costs, including but not limited to pre-opening rent for the new locations. During the first quarter of our fiscal year 2023, we had one new restaurant location inMiramar, Florida in the development stage, which location will house a new "Flanigan's". Rent for the new restaurant location inMiramar, Florida commenced during the second quarter of our fiscal year 2022.
Menu Price Increases and Trends
During the thirteen weeks endedDecember 31, 2022 , we did not increase our menu prices. During the thirteen weeks endedJanuary 1, 2022 , we increased menu prices for our food offerings (effectiveOctober 3, 2021 andDecember 19, 2021 , respectively) to target an aggregate increase to our food revenues of approximately 8.83% annually and we increased menu prices for our bar offerings (effectiveDecember 12, 2021 ) to target an increase to our bar revenues of approximately 7.80% annually to offset higher food and liquor costs and higher overall expenses. Prior to these increases, we previously raised menu prices in the third quarter of our fiscal year 2021. COVID-19 has and will continue to materially and adversely affect our restaurant business for what may be a prolonged period of time. This damage and disruption has resulted from events and factors that were impossible for us to predict and are beyond our control. As a result, COVID-19 has materially adversely affected our results of operations for the thirteen weeks endedDecember 31, 2022 and will, in all likelihood, impact our results of operations, liquidity and/or financial condition throughout the balance of our fiscal year 2023. The extent to which our restaurant business may be adversely impacted and its effect on our operations, liquidity and/or financial condition cannot be accurately predicted. 20 Table of Contents
Liquidity and Capital Resources
We fund our operations through cash from operations and borrowings from third parties. As ofDecember 31, 2022 , we had cash of approximately$43,143,000 , an increase of$1,005,000 from our cash balance of$42,138,000 as ofOctober 1, 2022 . During the second quarter of our fiscal year 2021, certain of the entities owning the limited partnership stores (the "LP's"), as well as the store we manage but do not own (the "Managed Store ") (collectively, the "Borrowers"), applied for and received loans from an unrelated third party lender (the "Lender") pursuant to the Paycheck Protection Program (the "PPP") under the United States Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") enactedMarch 27, 2020 , in the aggregate principal amount of approximately$3.98 million (the "2nd PPP Loans"), of which approximately: (i)$3.46 million was loaned to six (6) of the LP's; and (ii)$0.52 million was loaned to theManaged Store . During first quarter of our fiscal year 2022, we applied for forgiveness for all PPP Loans, including theManaged Store , and as ofDecember 31, 2022 , the entire amount of principal and accrued interest was forgiven
under the 2nd PPP Loans. Inflation is affecting all aspects of our operations, including but not limited to food, beverage, fuel and labor costs. Supply chain issues also contribute to inflation. Inflation, including supply chain issues are having a material impact on our operating results. Notwithstanding the negative effects of COVID-19 on our operations, we believe that our current cash availability from our cash on hand, positive cash flow from operations and borrowed funds will be sufficient to fund our operations and planned capital expenditures for at least the next twelve months. Cash Flows
The following table is a summary of our cash flows for the first thirteen weeks of fiscal years 2023 and 2022.
---------Thirteen Weeks Ended--------
December 31, 2022 January 1, 2022
(in thousands)
Net cash provided by operating activities $ 5,879 $ 4,229 Net cash used in investing activities (2,680 ) (1,677 ) Net cash used in financing activities (2,194 ) (1,626 ) Net Increase in Cash and Cash Equivalents 1,005 926 Cash and Cash Equivalents, Beginning 42,138 32,676 Cash and Cash Equivalents, Ending $ 43,143 $ 33,602
We did not declare or pay a cash dividend on our capital stock in the first
quarter of our fiscal year 2023 or the first quarter of our fiscal year 2022.
Any future determination to pay cash dividends will be at our Board's discretion
and will depend upon our financial condition, operating results, capital
requirements and such other factors as our Board deems relevant.
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Capital Expenditures
In addition to using cash for our operating expenses, we use cash generated from operations and borrowings to fund the development and construction of new restaurants and to fund capitalized property improvements for our existing restaurants. During the thirteen weeks endedDecember 31, 2022 , we acquired property and equipment and construction in progress of$1,499,000 , (of which$28,000 was purchase deposits transferred to property and equipment and$37,000 was purchase deposits transferred to construction in process as ofOctober 1, 2022 ), including$105,000 for renovations to two (2) existing limited partnership owned restaurants and$149,000 for renovations to two (2) Company owned restaurants. During the thirteen weeks endedJanuary 1, 2022 , we acquired property and equipment and construction in progress of$2,011,000 , (of which$4,000 was deposits recorded in other assets and$140,000 was purchase deposits transferred to construction in process as ofOctober 2, 2021 ), including$587,000 for renovations to two (2) existing limited partnership owned restaurants and one (1) Company owned restaurant. We anticipate the cost of this refurbishment in our fiscal year 2023 will be approximately$650,000 , excluding construction/renovations to Store #19R (our restaurant which is being rebuilt due to damages caused by a fire) and Store #24 (ourMiramar, Florida package store location in development), although capital expenditures for our refurbishing program for fiscal year 2023 may be significantly higher Long Term Debt
As ofDecember 31, 2022 , we had long term debt of$24,034,000 , as compared to$25,389,000 as ofOctober 1, 2022 . Our long term debt decreased as ofDecember 31, 2022 as compared toOctober 1, 2022 because we paid off the balance of our term loan ($367,000 ) during the thirteen weeks endedDecember 31, 2022 . In addition, we did not finance our insurance premiums for our annual insurance renewal effectiveDecember 30, 2022 . InFebruary 2023 , we determined that as ofDecember 31, 2022 , we did not meet the required Post-Distribution Basic Fixed Charge Coverage Ratio (the "Post-Distribution/Fixed Charge Covenant") contained in each of our six (6) loans (the "Institutional Loans") with our unrelated third party institutional lender (the "Institutional Lender'). The Post-Distribution/Fixed Charge Covenant requires we maintain a ratio of at least 1.15 to 1.00 and for the twelve (12) months endedDecember 31, 2022 our ratio was calculated to be 1.13 to 1.00. OnFebruary 23, 2023 , we received from the Institutional Lender, a written waiver of the non-compliance with the Post-Distribution/Fixed Charge Covenant (the "Covenant Non-Compliance"), pursuant to which, among other things, the Institutional Lender waived (1) the non-compliance as ofDecember 31, 2022 and (2) their right to exercise certain remedies under the Institutional Loans, including the right to accelerate the indebtedness owed by us thereunder, resulting in the indebtedness under the Institutional Loans to be immediately due and payable, which would have a material adverse effect on the Company. We believe we will regain compliance with the Post-Distribution/Fixed Charge Covenant as of the end of our second fiscal quarter of our fiscal year endingSeptember 30, 2023 and going forward. We have prepared projections for the next year, including estimated covenant calculations for the next four (4) fiscal quarters and we expect to be in compliance. As a result, our classification of debt is appropriate as ofDecember 31, 2022 . For further information regarding the Company's long-term debt, refer to the Consolidated Financial Statements and related notes included in the Company's Annual Report on Form 10K for the year endedOctober 1, 2022 . Construction Contracts
(a) 7990 Davie Road Extension,
During the third quarter of our fiscal year 2019, we entered into an agreement with a third party unaffiliated general contractor for site work at this location 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. During our fiscal years 2020, 2021 and 2022, we agreed to change orders to the agreement for additional construction services increasing the total contract price by$624,000 to$2,242,000 and subsequent to the end of the first quarter of our fiscal year 2023 we agreed to change orders to the agreement for additional construction services increasing the total contract price by$71,000 to$2,313,000 , of which$1,682,000 of the total amount obligated has been paid throughDecember 31, 2022 and an additional$400,000 has been paid subsequent to the end of the first quarter of our fiscal year 2023 through the date of filing of this quarterly report. (b)2505 N. University Drive ,Hollywood, Florida (Store #19 - "Flanigan's") During the third quarter of our fiscal year 2019, we entered into an agreement with an unaffiliated third party architect for design and development services totaling$77,000 for the re-build of our restaurant located at2505 N. University Drive ,Hollywood, Florida (Store #19), which has been closed sinceOctober 2, 2018 due to damages caused by a fire, of which$62,000 has been paid. During the first quarter of our fiscal year 2022, we entered into an agreement with a third party unaffiliated general contractor to re-build our restaurant at this location totaling$2,515,000 , of which none has been paid. 22
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(c) 14301 W. Sunrise Boulevard,
During the second quarter of our fiscal year 2022, we entered into an agreement with a third party unaffiliated general contractor for exterior renovations at this location totaling$343,000 and through our fiscal year 2023 we agreed to change orders to the agreement for additional interior renovations increasing the total contract price by$74,000 to$417,000 , of which$353,000 has been paid throughDecember 31, 2022 and$64,000 has been paid subsequent to the end of the first quarter of our fiscal year 2023 through the date of filing of this quarterly report.
(d)
During the second quarter of our fiscal year 2022, we entered into an agreement with a third party unaffiliated general contractor for interior renovations at this location totaling$1,421,000 , and through the first quarter of our fiscal year 2023 we agreed to change orders to the agreement increasing the total contract price by$290,000 to$1,711,000 of which$1,159,000 has been paid throughDecember 31, 2022 and$141,000 , has been paid subsequent to the end of the first quarter of our fiscal year 2023 through the date of filing of this quarterly report.
(e)
During the first quarter of our fiscal year 2022, we entered into an agreement with a third party unaffiliated general contractor for interior renovations at this location totaling$317,000 , and through the first quarter of our fiscal year 2023 we agreed to change orders to the agreement increasing the total contract price by$45,000 to$369,000 of which$316,000 has been paid throughDecember 31, 2022 and$16,000 has been paid subsequent to the end of the first quarter of our fiscal year 2023 through the date of filing of this quarterly report. Purchase Commitments In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants for calendar year 2023, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately$ 6.8 million of "2.25 & DownBaby Back Ribs " (industry jargon for the weight range in which slabs of baby back ribs are sold) from this vendor during calendar year 2023, at a prescribed cost, which we believe are competitive. The decrease in our cost of baby back ribs for calendar year 2023 compared to calendar year 2022 ($10.4 million ) is due to a decrease in market price.
While we anticipate purchasing all of our rib supply from this vendor, we believe there are several other alternative vendors available, if needed.
Working Capital The table below summarizes the current assets, current liabilities, and working capital for our fiscal quarter endedDecember 31, 2022 and our fiscal year
endedOctober 1, 2022 . Item Dec. 31, 2022 Oct. 1, 2022 (in Thousands) Current Assets$ 51,374 $ 50,893 Current Liabilities 24,699 22,176 Working Capital$ 26,675 $ 28,717 23 Table of Contents
Our working capital decreased during our fiscal quarter endedDecember 31, 2022 from our working capital for our fiscal year endedOctober 1, 2022 primarily due to increases in (i) purchases of property and equipment; (ii) deposits on property and equipment; and (iii) deferred revenue; and decreases in prepaid expenses. While there can be no assurance due to, among other things, unanticipated expenses or unanticipated decline in revenues, or both, we believe that our cash on hand, positive cash flow from operations and borrowed funds will adequately fund operations, debt reductions and planned capital expenditures throughout our fiscal year 2023.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements.
Critical Accounting Policies
See Item 7, page 51 of our Annual Report on Form 10-K for our fiscal year ended
Inflation The primary inflationary factors affecting our operations are food, beverage and labor costs. A large number of restaurant personnel are paid at rates based upon applicable minimum wage and increases in minimum wage directly affect labor costs. Inflation is having a material impact on our operating results, especially rising food, fuel and labor costs. We have endeavored to offset the adverse effects of cost increases by increasing our menu prices.
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