FLANIGANS ENTERPRISES INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES . Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the U.S. Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, 2023, an evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934). Based on that evaluation, management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of September 30, 2023. Material Weakness in Internal Control Over Financial Reporting A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our interim or annual financial statements will not be prevented or detected on a timely basis. During the course of our independent registered public accounting firm performing its quarterly review procedures in connection with our unaudited condensed consolidated financial statements to be included in our Form 10-Q for the first quarter of our 2023 fiscal year, we became aware of certain errors made by management in recording certain transactions and in performing debt covenant calculations. As a result of these errors we concluded that we did not have a sufficient complement of trained and knowledgeable accounting personnel to prevent and detect errors on a timely basis and that this deficiency constitutes a material weakness in our internal control over financial reporting as of September 30, 2023. During our fiscal year 2023, we began the process of addressing this material weakness by engaging qualified accounting consultants who have been brought on to enhance, and continue to enhance, our internal controls over financial reporting. These individuals are licensed CPA’s with appropriate levels of knowledge and experience in public accounting. Subsequent to the end of our fiscal year 2023, the Company has begun to staff the newly formed Financial Reporting Division of our Accounting Department. This Department is headed by a Financial Reporting Manager who reports directly to the CFO. This individual is a qualified CPA with experience in financial reporting and the restaurant industry. The Company also hired a Senior Accountant to report under this Financial Reporting Manager and has been enlisted with the preparation of various schedules and entries. We will continue our efforts in our fiscal year 2024 of improving our accounting and finance related processes. 42 Changes in Internal Control Over Financial Reporting During the period covered by this report, we have not made any change to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management’s Assessment on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the Company’s internal control over financial reporting. This evaluation was based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (“COSO”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2023, our internal control over financial reporting was not effective. Limitations on the Effectiveness of Controls and Permitted Omission from Management’s Assessment Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can only provide reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K. ITEM 9B. OTHER INFORMATION. None. ITEM 9C DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. None. PART III The information required by Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 ( Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related Transactions, and Director Independence), and Item 14 (Principal Accountant Fees and Services) is incorporated by reference to our Proxy Statement for our 2024 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days from the end of our 2023 fiscal year. The information under the heading “Executive Officers” in Part I of this Form 10-K is also incorporated herein by reference. 43 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . (a)(1) Financial Statements See Part II, Item 8, “Financial Statements and Supplementary Data” for Financial Statements included with this Annual Report on Form 10-K. (a)(2) Financial Statement Schedules All other schedules have been omitted because the required information is not applicable or the information is included in the consolidated financial statements or the Notes thereto. (a)(3) Exhibits The exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report. Incorporated by Reference Exhibit Number Exhibit Description Form Date Number Filed Herewith 2 Plan of Reorganization, Amended Disclosure Statement, Amended Plan of Reorganization, Modification of Amended Plan of Reorganization, Second Modification of Amended Plan of Reorganization, Order Confirming Plan of Reorganization SB-2 5/5/1987 2 3 Restated Articles of Incorporation, adopted January 9, 1984 10-K 12/29/1982 3 10(a)(1) Employment Agreement with Joseph G. Flanigan* DEF14A 1/27/1988 10(a)(1) 10(a)(2) Form of Employment Agreement between Joseph G. Flanigan and the Company (as ratified and amended by the stockholders at the 1988 annual meeting is incorporated herein by reference).* 10-K 10(a)(1) 10(c) Consent Agreement regarding the Company's Trademark Litigation 8-K 4/10/1985 10( c) 10(d) King of Prussia(#850)Partnership Agreement* 8-K 4/10/1985 10(d) 10(o) Management Agreement for Atlanta, Georgia, (#600)* 10-K 10/3/1992 10(o) 10(p) Settlement Agreement with Former Vice Chairman of the Board of Directors (re #5) 10-K 10/3/1992 10(p) 10(q) Hardware Purchase Agreement and Software License Agreement for restaurant point of sale system. 10-KSB 10/2/1993 10(q) 10(a)(3) Key Employee Incentive Stock Option Plan DEF14A 1/26/1994 10(a)(3) 10( r) Limited Partnership Agreement of CIC Investors #13, Ltd,. between Flanigan's Enterprises, Inc., as General Partner and fifty percent owner of the limited partnership, and Hotel Properties, LTD. * 10-KSB 9/30/1995 10(r) 44 10(s) Form of Franchise Agreement between Flanigan's Enterprises, Inc. and Franchisees. * 10-KSB 9/30/1995 10(s) 10(t) Licensing Agreement between Flanigan's Enterprises, Inc. and James B. Flanigan, dated November 4, 1996, for non-exclusive use of the service mark "Flanigan's" in the Commonwealth of Pennsylvania. * 10-KSB 9/28/1996 10(t) 10(u) Limited Partnership Agreement of CIC Investors #15 Ltd., dated March 28, 1997, between B.D. 15 Corp. as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as a limited partner owning twenty five percent of the limited partnership. * 10-KSB 9/27/1997 10(u) 10(v) Limited Partnership Agreement of CIC Investors #60 Ltd., dated July 8, 1997, between Flanigan's Enterprises, Inc., as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as limited partner owning forty percent of the limited partnership. * 10-KSB 9/27/1997 10(v) 10(w) Stipulated Agreed Order of Dismissal upon Mediation with former franchisee. 10-KSB 9/27/1997 10(w) 10(x) Limited Partnership Agreement of CIC Investors #70, Ltd. dated February 1999 between Flanigan's Enterprises, Inc. as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as limited partner owning forty percent of the limited partnership. * 10-KSB 10/02/1999 10(x) 10(y) Limited Partnership Agreement of CIC Investors #80, Ltd., dated May 2001, between Flanigan's Enterprises, Inc. as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc., as limited partner owning twenty five percent of the limited partnership. * 10-KSB 9/29/2001 10(y) 10(z) Limited Partnership Agreement of CIC Investors #95, Ltd., dated July 2001, between Flanigan's Enterprises, Inc., as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as limited partner owning twenty eight percent of the limited partnership. * 10-KSB 9/29/2001 10(z) 10(bb) Limited Partnership Agreement of CIC Investors #65, Ltd., dated June 24, 2004, between Flanigan’s Enterprises, Inc., as General Partner, and numerous limited partners, including Flanigan’s Enterprises, Inc. as limited partner owning twenty six percent of the limited partnership. * 10-K 10/2/2004 10(bb) 45 10(cc) Amended and Restated Limited Partnership Certificate and Agreement of CIC Investors #13, Ltd., dated March 1, 2006, between Flanigan’s Enterprises, Inc., as General Partner, Flanigan’s Management Services, Inc. and numerous limited partners, including Flanigan’s Enterprises, Inc. as limited partner owning thirty nine percent of the limited partnership. * 10-K 9/30/2006 10(cc) 10(dd) Limited Partnership Agreement of CIC Investors #50, Ltd., dated October 17, 2006, between Flanigan’s Enterprises, Inc., as General Partner, Flanigan’s Management Services, Inc. and numerous limited partners, including Flanigan’s Enterprises, Inc. as limited partner owning sixteen percent of the limited partnership. * 10-K 9/29/2007 10(dd) 10(ee) Limited Partnership Agreement of CIC Investors #55, Ltd., dated December 12, 2006, between Flanigan’s Enterprises, Inc., as General Partner, Flanigan’s Management Services, Inc. and numerous limited partners, including Flanigan’s Enterprises, Inc. as limited partner owning forty eight percent of the limited partnership. * 10-K 9/29/2007 10(ee) 10(ff) Limited Partnership Agreement of CIC Investors #90, Ltd., dated January 18, 2012, between Flanigan’s Enterprises, Inc., as General Partner, Flanigan’s Management Services, Inc. and numerous limited partners, including Flanigan’s Enterprises, Inc. as limited partner owning five percent of the limited partnership. * 10-K 9/29/2012 10(ff) 10(gg) Limited Partnership Agreement of CIC Investors #85, Ltd., dated April 4, 2019, between Flanigan’s Enterprises, Inc., as General Partner, Flanigan’s Management Services, Inc. and numerous limited partners, including Flanigan’s Enterprises, Inc. as limited partner owning seven percent of the limited partnership. * 10-K 10/1/2022 10(gg) 10(hh) Limited Partnership Agreement of CIC Investors #25, Ltd., dated September 21, 2021, between Flanigan’s Enterprises, Inc., as General Partner, Flanigan’s Management Services, Inc. and numerous limited partners, excluding Flanigan’s Enterprises, Inc. * 10-K 10/1/2022 10(hh) 13 Registrant's Form 10-K constitutes the Annual Report to Shareholders for the fiscal year ended September 30, 2023. X 21(a) Company's subsidiaries are set forth in this Annual Report on Form 10-K. X 46 31.1 Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended of Chief Executive Officer. X 31.2 Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended of Chief Financial Officer . X 32.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer. X 32.2 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer. X * Compensatory plan or arrangement. List of XBRL documents as exhibits 101 ITEM 16. FORM 10-K SUMMARY None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLANIGAN'S ENTERPRISES, INC. By: /s/ JAMES G. FLANIGAN II JAMES G. FLANIGAN II Chief Executive Officer Date: 12/29/2023 By: /s/ JEFFREY D. KASTNER JEFFREY D. KASTNER Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) Date: 12/29/2023 47 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities and on the dates indicated. /s/ JAMES G. FLANIGAN II Chairman of the Board, Date: 12/29/2023 James G. Flanigan II Chief Executive Officer, and Director /s/ JEFFREY D. KASTNER Chief Financial Officer, Date: 12/29/2023 Jeffrey D. Kastner Secretary and Director /s/ AUGUST BUCCI Chief Operating Officer Date: 12/29/2023 August Bucci and Director /s/ MICHAEL B. FLANIGAN Director Date: 12/29/2023 Michael B. Flanigan /s/ PATRICK J. FLANIGAN Director Date: 12/29/2023 Patrick J. Flanigan /s/ CHRISTOPHER O’NEIL Vice President of Package Date: 12/29/2023 Christopher O’Neil Operations and Director /s/ MARY ELIZABETH BENNETT Director Date: 12/29/2023 Mary Elizabeth Bennett /s/ CHRISTOPHER J. NELMS Director Date: 12/29/2023 Christopher J. Nelms /s/ JOHN P. FOSTER Director Date: 12/29/2023 John P. Foster 48 Flanigan’s Enterprises, Inc. and Subsidiaries CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2023 AND OCTOBER 1, 2022 Flanigan’s Enterprises, Inc. and Subsidiaries INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 688 ) F-1 CONSOLIDATED FINANCIAL STATEMENTS Balance Sheets F-2 – F-3 Statements of Income F-4 Statements of Comprehensive Income F-5 Statements of Stockholders’ Equity F-6 Statements of Cash Flows F-7 – F-8 Notes to Consolidated Financial Statements F-9 – F-30 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Flanigan’s Enterprises, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Flanigan’s Enterprises, Inc. and subsidiaries (the “Company”) as of September 30, 2023 and October 1, 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the two years in the period ended September 30, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and October 1, 2022, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 1999. Fort Lauderdale, FL December 29, 2023 F- 1 Flanigan’s Enterprises, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2023 AND OCTOBER 1, 2022 (in thousands, except share and per share amounts) ASSETS 2023 2022 Current Assets: Cash and cash equivalents $ 25,532 $ 42,138 Prepaid income taxes 219 235 Other receivables 834 456 Inventories 7,198 6,489 Prepaid expenses 1,511 1,575 Total current assets 35,294 50,893 Property and equipment, net 74,724 55,747 Construction in Progress 5,416 7,517 80,140 63,264 Right-of-use assets, operating leases 26,987 29,517 Investment in Limited Partnerships 252 294 Other Assets: Liquor licenses 1,268 1,268 Deposits on property and equipment 887 1,860 Leasehold interests, net 63 86 Other 878 310 Total other assets 3,096 3,524 Total assets $ 145,769 $ 147,492 See notes to consolidated financial statements. F- 2 Flanigan’s Enterprises, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2023 AND OCTOBER 1, 2022 (in thousands, except share and per share amounts) (Continued) LIABILITIES AND STOCKHOLDERS’ EQUITY 2023 2022 Current Liabilities: Accounts payable and accrued expenses $ 9,271 $ 8,111 Accrued compensation 1,808 2,104 Due to franchisees 4,977 4,780 Current portion of long term debt 1,295 2,299 Operating lease liabilities, current 2,385 2,253 Deferred revenue 2,635 2,629 Total current liabilities 22,371 22,176 Long Term Debt, Net of Current Portion 21,833 23,090 Operating lease liabilities, non-current 25,850 28,281 Deferred tax liabilities 801 605 Total liabilities 70,855 74,152 Commitments and Contingencies Stockholder’s Equity: Flanigan’s Enterprises, Inc. Stockholders’ Equity Common stock, $ .10 par value, 5,000,000 shares authorized; 4,197,642 shares issued; 1,858,647 outstanding for the years ended 2023 and 2022 420 420 Capital in excess of par value 6,240 6,240 Retained earnings 58,247 55,086 Accumulated other comprehensive income 395 — Treasury stock, at cost, 2,338,995 shares ( 6,077 ) ( 6,077 ) Total Flanigan’s Enterprises, Inc. stockholders’ equity 59,225 55,669 Noncontrolling interests 15,689 17,671 Total stockholders' equity 74,914 73,340 Total liabilities and stockholders' equity $ 145,769 $ 147,492 See notes to consolidated financial statements. F- 3 Flanigan’s Enterprises, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME Years Ended September 30, 2023 and October 1, 2022 (in thousands, except share and per share amounts) 2023 2022 Revenues: Restaurant food sales $ 107,238 $ 97,429 Restaurant bar sales 29,000 26,198 Package store sales 35,187 31,692 Franchise related revenues 1,857 1,826 Rental income 951 814 Other operating income 163 173 174,396 158,132 Costs and Expenses: Cost of merchandise sold: Restaurant and lounges 45,488 44,555 Package goods 25,810 23,310 Payroll and related costs 56,607 49,736 Occupancy costs 7,566 7,031 Selling, general and administrative expenses 31,901 26,571 167,372 151,203 Income from Operations 7,024 6,929 Other Income (Expense): Interest expense ( 1,067 ) ( 757 ) Interest and other income 108 131 Gain on forgiveness of PPP loans — 3,488 Gain on sale of property and equipment — 21 ( 959 ) 2,883 Income before Provision for Income Taxes 6,065 9,812 Provision for Income Taxes ( 649 ) ( 763 ) Net Income 5,416 9,049 Less: Net Income Attributable to Noncontrolling Interests ( 1,417 ) ( 2,737 ) Net Income Attributable to Flanigan’s Enterprises Inc. Stockholders $ 3,999 $ 6,312 Net Income Per Common Share: Basic and Diluted $ 2.15 $ 3.40 Weighted Average Shares and Equivalent Shares Outstanding Basic and Diluted 1,858,647 1,858,647 See notes to consolidated financial statements. F- 4 Flanigan’s Enterprises, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended September 30, 2023 and October 1, 2022 (in thousands) 2023 2022 Net income: $ 5,416 $ 9,049 Other comprehensive income: Change in fair value of interest rate swap 395 — Total Comprehensive Income 5,811 9,049 See notes to consolidated financial statements. F- 5 Flanigan’s Enterprises, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 2023 AND OCTOBER 1, 2022 (in thousands, except share amounts) Capital in Common Stock Excess of Retained Treasury Stock Noncontrolling Shares Amount Par Value AOCI Earnings Shares Amount Interests Total Balance, October 1, 2022 4,197,642 $ 420 $ 6,240 $ — $ 55,086 2,338,995 $ ( 6,077 ) $ 17,671 $ 73,340 Net income — — — — 3,999 — — 1,417 5,416 Other Comprehensive Income — — — 395 — — — — 395 Distributions to noncontrolling interests — — — — — — — ( 3,399 ) ( 3,399 ) Dividends paid — — — — ( 838 ) — — — ( 838 ) Balance, September 30, 2023 4,197,642 $ 420 $ 6,240 $ 395 $ 58,247 2,338,995 $ ( 6,077 ) $ 15,689 $ 74,914 Capital in Common Stock Excess of Retained Treasury Stock Noncontrolling Shares Amount Par Value AOCI Earnings Shares Amount Interests Total Balance, October 1, 2021 4,197,642 $ 420 $ 6,240 $ — $ 50,632 2,338,995 $ ( 6,077 ) $ 9,415 $ 60,630 Net income — — — — 6,312 — — 2,737 9,049 Distributions to noncontrolling interests — — — — — — — ( 3,111 ) ( 3,111 ) Sale of minority interest — — — — — — — 8,630 8,630 Dividends paid — — — — ( 1,858 ) — — — ( 1,858 ) Balance, October 1, 2022 4,197,642 $ 420 $ 6,240 $ — $ 55,086 2,338,995 $ ( 6,077 ) $ 17,671 $ 73,340 See notes to consolidated financial statements. F- 6 Flanigan’s Enterprises, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2023 AND OCTOBER 1, 2022 (in thousands) 2023 2022 Cash Flows from Operating Activities: Net income $ 5,416 $ 9,049 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Depreciation and amortization 3,561 2,990 Amortization of leasehold interests 23 32 Amortization of operating lease right-of-use assets 2,530 2,377 Gain on forgiveness of PPP Loans — ( 3,488 ) Gain on sale of property and equipment — ( 21 ) Loss on abandonment of property and equipment 65 40 Amortization of deferred loan costs 38 36 Deferred income taxes 62 199 Loss from unconsolidated limited partnership ( 9 ) ( 16 ) Changes in operating assets and liabilities: (Increase) decrease in: Other receivables ( 378 ) ( 6 ) Prepaid income taxes 16 ( 96 ) Inventories ( 709 ) ( 1,429 ) Prepaid expenses 64 1,751 Other assets ( 39 ) ( 299 ) Increase (decrease) in: Accounts payable and accrued expenses ( 55 ) 898 Operating lease liabilities ( 2,299 ) ( 1,993 ) Due to franchisees 197 302 Deferred revenue 6 176 Net cash and cash equivalents provided by operating activities 8,489 10,502 Cash Flows from Investing Activities: Purchase of property and equipment ( 13,177 ) ( 4,017 ) Purchase of construction in progress ( 3,531 ) ( 3,393 ) Deposits on property and equipment ( 1,962 ) ( 1,698 ) Purchase of liquor license — ( 446 ) Proceeds from sale of property and equipment 60 55 Business acquisition — ( 75 ) Distributions from unconsolidated limited partnership 51 32 Net cash and cash equivalents used in investing activities ( 18,559 ) ( 9,542 ) F- 7 Flanigan’s Enterprises, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2023 AND OCTOBER 1, 2022 (in thousands) 2023 2022 Cash Flows from Financing Activities: Payments on long term debt ( 2,299 ) ( 3,736 ) Deferred loan costs ( 131 ) Proceeds from long-term debt 8,708 Proceeds from noncontrolling interest offering — 8,630 Dividends paid ( 838 ) ( 1,858 ) Distributions to limited partnerships’ noncontrolling interests ( 3,399 ) ( 3,111 ) Net cash and cash equivalents (used in) provided by financing activities ( 6,536 ) 8,502 Net (Decrease) Increase in Cash and Cash Equivalents ( 16,606 ) 9,462 Cash and Cash Equivalents - Beginning of Period 42,138 32,676 Cash and Cash Equivalents - End of Period $ 25,532 $ 42,138 Supplemental Disclosure for Cash Flow Information: Cash paid during the year for: Interest $ 1,067 $ 757 Income taxes $ 571 $ 660 Supplemental Disclosure of Non-Cash Investing and Financing Activities: Financing of insurance contracts $ — $ 1,861 Change in fair value of interest rate swap $ 529 $ — Purchase deposits capitalized to property and equipment $ 2,390 $ 50 Purchase deposits transferred to construction in progress $ 545 $ 512 Construction in progress transferred to property and equipment $ 7,110 $ 3,258 Construction in progress in accounts payable and accrued expenses $ 931 $ 1,426 Operating lease liabilities arising from right-of-use assets $ — $ 3,335 See notes to consolidated financial statements. F- 8 Flanigan’s Enterprises, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023 AND OCTOBER 1, 2022 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Capitalization The Company was incorporated in 1959 and operates in South Florida as a chain of full-service restaurants and package liquor stores. Restaurant food and beverage sales make up the majority of our total revenue. As of September 30, 2023, we (i) operated 31 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) franchise an additional five units, consisting of two restaurants, (one of which we operate) and three combination restaurants/package liquor stores. With the exception of one restaurant we operate under the name “The Whale’s Rib”, a restaurant in which we do not have an ownership interest, 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”. The Company’s Articles of Incorporation, as amended, authorize us to issue and have outstanding at any one time 5,000,000 shares of common stock at a par value of $ 0.10 per share. We operate under a 52-53 week year ending the Saturday closest to September 30. Our fiscal years 2023 and 2022 are each comprised of a 52-week period. Principles of Consolidation The consolidated financial statements include the accounts of the Company and our subsidiaries, all of which are wholly owned, and the accounts of the ten limited partnerships in which we act as general partner and have controlling interests. All significant intercompany transactions and balances have been eliminated in consolidation. Noncontrolling interests in consolidated subsidiaries are included in the consolidated balance sheets as a separate component of equity. We report consolidated net income inclusive of both the Company’s and the noncontrolling interests’ share, as well as amounts of consolidated net income (loss) attributable to each of the Company and the noncontrolling interests. We use the consolidation method of accounting when we have a controlling interest in other companies and limited partnerships. We use the equity method of accounting when we have significant influence and an interest between twenty to fifty percent in other companies and limited partnerships, but do not exercise control. Under the equity method, our original investments are recorded at cost and are adjusted for our share of undistributed earnings or losses. All intercompany profits are eliminated. Use of Estimates The consolidated financial statements and related disclosures are prepared in conformity with accounting principles generally accepted in the United States. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported. These estimates include assessing the estimated useful lives of tangible assets, the recognition of deferred tax assets and liabilities and estimates relating to the calculation of incremental borrowing rates and length of leases associated with right-of-use assets and corresponding liabilities, and estimates relating to loyalty reward programs. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in our consolidated financial statements in the period they are determined to be necessary. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, they may ultimately differ from actual results. Cash and Cash Equivalents We consider all highly liquid investments with an original maturity of three months or less at the date of purchase and receivables from our credit card merchants to be cash equivalents. We maintain deposit balances with financial institutions, which balances may from time to time, exceed the federally insured limits which are $ 250,000 for interest and non-interest bearing accounts. We have not experienced any losses on such accounts. F- 9 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Inventories Our inventories, which consist primarily of package liquor products, are stated at the lower of average cost or net realizable value. Liquor Licenses In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 350, “ Intangibles - Goodwill and Other ”, our liquor licenses are indefinite lived assets, which are not being amortized, but are tested annually for impairment (see Note 11). Property and Equipment Our property and equipment are stated at cost less accumulated depreciation and amortization. We capitalize expenditures for major improvements and depreciation commences when the assets are placed in service. We record depreciation on a straight-line basis over the estimated useful lives of the respective assets. We charge maintenance and repairs, which do not improve or extend the life of the respective assets, to expense as incurred. When we dispose of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Our estimated useful lives range from three to five years for vehicles and three to seven years for furniture and equipment. Leasehold improvements are currently being amortized over the shorter of the life of the lease or the life of the asset up to a maximum of 15 years. Our buildings of our corporate offices in Fort Lauderdale, Florida; our construction office/warehouse in Fort Lauderdale, Florida; our combination restaurant and package liquor stores in Hallandale, Florida and North Lauderdale, Florida; our restaurants in N. Miami and Fort Lauderdale, Florida; our property in Sunrise, Florida which we lease to a limited partnership (Store #85), our property in Fort Lauderdale, Florida which we lease to a franchisee (Store #15), our package stores in N. Miami, Florida and El Portal, Florida and our shopping centers in Miami, Florida and Hallandale Beach, Florida all of which we own, are being depreciated over forty years . Building improvements are being depreciated over 20 years. Leasehold Interests Our purchase of an existing restaurant location usually includes a lease to the business premises. As a result, a portion of the purchase price is allocated to the leasehold interest. We capitalize the cost of the leasehold interest and amortization commences upon our assumption of the lease. We amortize leasehold interests on a straight-line basis over the remaining term of the lease. Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk are cash and cash equivalents. Major Suppliers Throughout our fiscal years 2023 and 2022, we purchased a significant portion of our food products from one major supplier. This major supplier represents 42 % and 42 % of our cost of goods sold and 29 % and 22 % of our accounts payable and accrued expenses as of September 30, 2023 and October 1, 2022, respectively. We believe that several other alternative vendors are available, if necessary. Throughout our fiscal years 2023 and 2022, we purchased the majority of our alcoholic beverages from three local distributors. One of these three local distributors represents 24 % and 23 % of our cost of goods sold for the years ended September 30, 2023 and October 1, 2022, respectively and 5 % and 2 % of our accounts payable and accrued expenses as of September 30, 2023 and October 1, 2022, respectively. Each distributor has exclusive rights from the manufacturers to sell specific brands in given areas, so unless the exclusive distribution rights are transferred to another vendor, there are no alternate distributors available. F- 10 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition Revenue-related to food, bar and package sales are recorded at the point of sale. Royalty-related revenues, which are 1 % of package sales and 3 % of restaurant sales, are recorded as income on a weekly basis, in arrears. We report our revenues net of sales tax. Our Big Daddy’s Good Customer Loyalty Program awards customers with a $ 20 Good Customer Gift Card, (“Gift Card”) to be used at our Flanigan’s Seafood Bar and Grill restaurants for every ten (10) purchases of at least $25 made by such customer at our Big Daddy’s Liquors package liquor stores. Pursuant to ASC 606, we recognize deferred revenue in the amount of the Gift Card upon the issuance of the Gift Card and reduce package liquor store revenue by a like amount. We recognize revenue when the Gift Card is redeemed in our restaurants or when it expires unused. Gift cards have various expiration dates based upon each program, while gift cards purchased for cash have no expiration dates. Pre-opening Costs As new restaurants open, our income from operations will be adversely affected due to our obligation to fund pre-opening costs. Pre-opening costs are those typically associated with the opening of a new restaurant and generally include payroll costs associated with the new restaurant opening, rent and promotional costs. We expense pre-opening costs as incurred and during our fiscal year ended September 30, 2023 we expensed $ 188,000 for CIC Investors #25. During our fiscal year ended October 1, 2022 we expensed $ 65,000 for CIC Investors #25, Ltd, and $ 388,000 for CIC Investors #85, Ltd. Advertising Costs Our advertising costs are expensed as incurred. Advertising costs incurred during our fiscal years ended September 30, 2023 and October 1, 2022 were approximately $ 253,000 and $ 209,000 , respectively. General Liability Insurance We have general liability insurance which incorporates a deductible of $ 10,000 per occurrence for both us and the limited partnerships. During the fourth quarter of our fiscal year 2023, we converted the deductible of $ 10,000 per occurrence for both us and the limited partnerships to $ 10,000 self-insured retention per occurrence. Our insurance carrier is responsible for $ 1,000,000 coverage per occurrence above our deductible, up to a maximum aggregate of $ 2,000,000 per year. During our fiscal year ended September 30, 2023, we were able to purchase excess liability insurance, whereby our excess insurance carrier is responsible for $ 10,000,000 coverage above our primary general liability insurance coverage. We are un-insured against liability claims in excess of $ 11,000,000 per occurrence and in the aggregate. Our general policy is to settle only those legitimate and reasonable claims asserted and to aggressively defend and go to trial, if necessary, on frivolous and unreasonable claims. Under our current liability insurance policy, any expense incurred by us in defending a claim, including attorney's fees, are a part of our $ 10,000 deductible, and/or self-insured retention. Fair Value of Financial Instruments The respective carrying value of certain of our on-balance-sheet financial instruments approximated their fair value. These instruments include cash and cash equivalents, other receivables, accounts payables, accrued expenses and debt. We have assumed carrying values to approximate fair values for those financial instruments, which are short-term in nature or are receivable or payable on demand. We estimated the fair value of debt based on current rates offered to us for debt of comparable maturities and similar collateral requirements. In accordance with FASB ASC Topic 820-10-50-1, we utilized a valuation model to determine the fair value of our swap agreement. As the valuation models for the swap agreement were based upon observable inputs, they are classified as Level 2 (see Note 15). Derivative Instruments We account for derivative instruments in accordance with FASB ASC Topic 815-10-05-4, “ Accounting for Derivative Instruments and Hedging Activities” as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. In accordance with FASB ASC Topic 815-10-05-4, derivative instruments are recognized as assets or liabilities in the Company’s consolidated balance sheets and are measured at fair value. As of September 30, 2023 the fair value of the swap agreement is now reflected on the balance sheet in other assets and accumulated other comprehensive income. We determined that the interest rate swap agreement is an effective hedging agreement and that changes in fair value will be adjusted quarterly based on the valuation statement (see Note 15). F- 11 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes We account for our income taxes using FASB ASC Topic 740, “ Income Taxes ”, which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We follow the provisions regarding Accounting for Uncertainty in Income Taxes, which require the recognition of a financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. We applied these changes to tax positions for our fiscal years ended September 30, 2023 and October 1, 2022. We had no material unrecognized tax benefits and no adjustments to our financial position, results of operations or cash flows were required. Generally, federal, state and local authorities may examine the Company’s tax returns for three years from the date of filing and the current and prior three years remain subject to examination as of September 30, 2023. Long-Lived Assets We continually evaluate whether events and circumstances have occurred that may warrant revision of the estimated life of our intangible and other long-lived assets or whether the remaining balance of our intangible and other long-lived assets should be evaluated for possible impairment. If and when such factors, events or circumstances indicate that intangible or other long-lived assets should be evaluated for possible impairment, we will determine the fair value of the asset by making an estimate of expected future cash flows over the remaining lives of the respective assets and compare that fair value with the carrying value of the assets in measuring their recoverability. In determining the expected future cash flows, the assets will be grouped at the lowest level for which there are cash flows, at the individual store level. Earnings Per Share We follow FASB ASC Topic 260 - “ Earnings per Share .” This section provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution. Earnings per share are computed by dividing income available to common stockholders by the basic and diluted weighted average number of common shares. Recently Adopted and Recently Issued Accounting Pronouncements Adopted There are no accounting pronouncements that we have recently adopted. F- 12 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recently Issued The FASB issued guidance, ASU 2022-06 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the London interbank offered rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This accounting standards update provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. LIBOR rates were published until June 30, 2023. All principal and interest of the Term Loan was paid during the first quarter of our fiscal year 2023, so the discontinuance of LIBOR rates will have no impact on us. The FASB issued guidance, ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This guidance would be effective for the Company in the first quarter of our fiscal year 2024; however, after performing a thorough analysis the Company concluded that there is no material impact. There are no other recently issued accounting pronouncements that we have not yet adopted that we believe may have a material effect on our financial statements. NOTE 2. PROPERTY AND EQUIPMENT, NET (in thousands) 2023 2022 Furniture and equipment $ 15,956 $ 14,600 Leasehold improvements 31,314 28,114 Land and land improvements 36,027 25,930 Building and improvements 30,613 23,931 Vehicles 2,085 1,958 115,995 94,533 Less accumulated depreciation and amortization ( 41,271 ) ( 38,786 ) 74,724 55,747 Construction in progress 5,416 7,517 $ 80,140 $ 63,264 Depreciation and amortization expense for the fiscal years ended September 30, 2023 and October 1, 2022 was approximately $ 3,561 ,000 and $ 2,990 ,000, respectively. NOTE 3. LEASEHOLD INTERESTS, NET (in thousands) 2023 2022 Leasehold interests, at cost $ 3,024 $ 3,024 Less accumulated amortization 2,961 2,938 $ 63 $ 86 F- 13 NOTE 3. LEASEHOLD INTERESTS, NET (Continued) Future leasehold amortization as of September 30, 2023 is as follows: (in thousands) 2024 $ 22 2025 22 2026 18 2027 1 Total $ 63 Leasehold amortization expense for the fiscal years ended September 30, 2023 and October 1, 2022 was approximately $ 23,000 and $ 32,000 , respectively. NOTE 4. INVESTMENT IN LIMITED PARTNERSHIPS We have invested along with others (some of whom are affiliated with our officers and directors) in eleven limited partnerships which currently own and operate eleven South Florida based restaurants under our service marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s”. In addition to being a limited partner in these limited partnerships, we are the sole general partner of ten of these limited partnerships and manage and control the operations of the restaurants except for the restaurant located in Fort Lauderdale, Florida where we only hold a limited partnership interest. Generally, the terms of the limited partnership agreements provide that until the investors’ cash investment in a limited partnership (including any cash invested by us) is returned in full, (available cash is distributed to the investors pro-rata based on ownership interest), the limited partnership distributes to the investors annually out of available cash from the operation of the restaurant, as a return of capital, 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 and one-half (½) to the investors (including us), pro-rata based on the investors’ investment, as a return of capital. Once all of the investors (including us), have received, in full, amounts equal to their cash invested, an annual management fee becomes payable to us equal to one-half (½) of cash available to be distributed, with the other one-half (½) of available cash distributed to the investors (including us), as a profit distribution, pro-rata based on the investors’ investment. As of September 30, 2023, all limited partnerships, with the exception of the 2022 Sunrise Restaurant, which opened for business in March, 2022 and the 2023 Miramar Restaurant, which opened for business in April 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 our service marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s”, which use is authorized while we act as general partner only. This 3 % fee is “earned” when sales are made by the limited partnerships and is paid weekly, in arrears. Whether we will have any additional restaurants under development in the future will be dependent, among other things, on market conditions and our ability to raise capital. We anticipate that we will continue to form limited partnerships to raise funds to own and operate restaurants under our service marks “Flanigan’s Seafood Bar and Grill” or “Flanigan’s” using the same or substantially similar financial arrangements. Below is information on the eleven limited partnerships which own and operate “Flanigan’s Seafood Bar and Grill” or “Flanigan’s” restaurants: Surfside, Florida We are the sole general partner and a 46 % limited partner in this limited partnership which has owned and operated a restaurant in Surfside, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since March 6, 1998. 33.3 % of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. This entity is consolidated in the accompanying consolidated financial statements. F- 14 Kendall, Florida We are the sole general partner and a 41 % limited partner in this limited partnership which has owned and operated a restaurant in Kendall, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since April 4, 2000. 28.3 % of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. This entity is consolidated in the accompanying consolidated financial statements. West Miami, Florida We are the sole general partner and a 27 % limited partner in this limited partnership which has owned and operated a restaurant in West Miami, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since October 11, 2001. 32.7 % of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. This entity is consolidated in the accompanying consolidated financial statements. Wellington, Florida We are the sole general partner and a 28 % limited partner in this limited partnership which has owned and operated a restaurant in Wellington, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since May 27, 2005. 22.4 % of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. This entity is consolidated in the accompanying consolidated financial statements. Pinecrest, Florida We are the sole general partner and 45 % limited partner in this limited partnership which has owned and operated a restaurant in Pinecrest, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since August 14, 2006. 20.2 % of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by this limited partnership. This entity is consolidated in the accompanying consolidated financial statements. Pembroke Pines, Florida We are the sole general partner and a 24 % limited partner in this limited partnership which has owned and operated a restaurant in Pembroke Pines, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since October 29, 2007. 23.8 % of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by this limited partnership. This entity is consolidated in the accompanying consolidated financial statements. Davie, Florida We are the sole general partner and a 49 % limited partner in this limited partnership which has owned and operated a restaurant in Davie, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since July 28, 2008. 12.3 % of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by this limited partnership. This entity is consolidated in the accompanying consolidated financial statements. F- 15 NOTE 4. INVESTMENT IN LIMITED PARTNERSHIPS (Continued) Miami, Florida We are the sole general partner and a 5 % limited partner in this limited partnership which has owned and operated a restaurant in Miami, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since December 27, 2012. 26.8 % of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family members. This limited partnership has returned to its investors all of their initial cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by this limited partnership. This entity is consolidated in the accompanying consolidated financial statements. Sunrise, Florida We are the sole general partner and a 7 % limited partner in this limited partnership which has owned and operated a restaurant in Sunrise, Florida under our “Flanigan’s” service mark since March 20, 2022. 31.3 % of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family members. As of the end of our fiscal year 2023, this limited partnership has returned to its investors approximately 14.5 % of their initial cash invested and as a result, we are currently not entitled to receive any management fees from this limited partnership. This entity is consolidated in the accompanying consolidated financial statements. Miramar, Florida We are the sole general partner in this limited partnership which has owned and operated a restaurant in Miramar, Florida under our “Flanigan’s” service mark since April 18, 2023. No units of limited partnership interest were purchased by the Company. 24.0 % of the limited partnership interest is owned by persons who are either our officers, directors or their family members. As of the end of our fiscal year 2023, this limited partnership has returned to its investors approximately 10 % of their initial cash invested and as a result, we are currently not entitled to receive any management fee from this limited partnership. This entity is consolidated in the accompanying consolidated financial statements. Fort Lauderdale, Florida A corporation, owned by a member of our Board of Directors, acts as sole general partner of a limited partnership which has owned and operated a restaurant in Fort Lauderdale, Florida under our “Flanigan’s Seafood Bar and Grill” service mark since April 1, 1997. We have a 25 % limited partnership interest in this limited partnership. 31.9 % of the remaining limited partnership interest is owned by persons who are either our officers, directors or their family members. We have a franchise arrangement with this limited partnership. For accounting purposes, we do not consolidate the operations of this limited partnership into our operations. Our investment in this entity is reported using the equity method in the accompanying consolidated financial statements. The following is a summary of financial information pertaining to our limited partnership investment in Fort Lauderdale, Florida: (in thousands) Sep. 30, 2023 Oct. 1, 2022 Financial Position: Current Assets $ 355 $ 534 Non-Current Assets 733 743 Total Assets 1,088 1,277 Current Liabilities 259 280 Non-Current Liabilities — — Total Liabilities 259 280 Equity 829 997 Total Liabilities and Equity $ 1,088 $ 1,277 Operating Results: Revenues 4,848 4,735 Gross Profit 3,208 3,017 Net (Loss) Income ( 40 ) 59 F- 16 NOTE 5. PRIVATE OFFERINGS: CIC Investors #85, Ltd. (Flanigan’s, Sunrise, Florida) On February 15, 2022, a Florida limited partnership (CIC Investors #85, Ltd.) in which the Company serves as general partner, completed a private placement of 1,000 Units of limited partnership interests at $ 5,000 per Unit for proceeds of $ 5,000,000 , 74 Units of which ($ 370,000 ) were purchased by the Company upon the same terms and conditions as all other investors. The Company’s investment is eliminated in consolidation. The proceeds of the private placement were used to satisfy (including reimbursement to us for advances we have made), build-out and renovation expenses and the purchase of such furniture, fixtures and equipment necessary for operation of our Sunrise, Florida restaurant under the service mark “Flanigan’s”, which commenced operations on March 22, 2022. Capital raised from private investors is credited to sale of noncontrolling interests in our Statements of Stockholders’ Equity. Under ASC 810, Consolidation, the Company, which is the entity issuing financial statements, is required to consolidate CIC Investors #85, Ltd. as we have a controlling interest in CIC Investors #85, Ltd. as general partner, although the Company only has a 7.40 % ownership. CIC Investor #25, Ltd. (Flanigan’s, Miramar, Florida) On February 15, 2022, a Florida limited partnership (CIC Investors #25, Ltd.) in which the Company serves as general partner, completed a private placement of 800 Units of limited partnership interests at $ 5,000 per Unit for gross proceeds of $ 4,000,000 . No units of limited partnership interest were purchased by the Company. The proceeds of the private placement are being used to satisfy (including reimbursement to us for advances we have made), build-out and renovation expenses and the purchase of such furniture, fixtures and equipment necessary for operation of our Miramar, Florida restaurant under the service mark “Flanigan’s”, which opened for business in April 2023. Capital raised from private investors is credited to sale of noncontrolling interests in our Statements of Stockholders’ Equity. Under ASC 810, Consolidation, the Company, which is the entity issuing financial statements, is required to consolidate CIC Investors #25, Ltd. as we have a controlling interest in CIC Investors #25, Ltd. as general partner, although the Company has no direct ownership. NOTE 6. EXECUTION OF LEASE FOR NEW LOCATION; BUSINESS ACQUISITION OF “BRENDAN’S SPORTS PUB” Lease Pompano Beach, Florida (Brendan’s Sports Pub) During the third quarter of our fiscal year 2022, we entered into a Lease (the “BSP Lease”) with a non-affiliated third party from whom we rented approximately 3,556 square feet of commercial space located at 868 South Federal Highway, Pompano Beach, Florida, from where we operate the existing “Brendan’s Sports Pub” business (Store #30), the assets of which we simultaneously purchased. The term of the BSP Lease is for fifty (50) years , triple net to the landlord with fixed rent of $ 78,000 per year, with two ( 2 %) percent annual increases commencing in year five. Assets Brendan’s Sports Pub, Pompano Beach, Florida During the third quarter of our fiscal year 2022 and simultaneously with the execution of the BSP Lease, we purchased the assets of the business known as “Brendan’s Sports Pub” located at 868 South Federal Highway, Pompano Beach, Florida for a purchase price of $ 75,000 , including but not limited to the furniture, fixtures, equipment and service mark, “Brendan’s Sports Pub”, but excluding the 4 COP liquor license used in the operation of the business. We did not assume any obligations of the business. We accounted for the purchase of the assets of the business known as "Brendan's Sports Pub" as a business combination that is insignificant for purposes of all of the disclosures required under ASC 805. F- 17 NOTE 7. PURCHASE OF REAL PROPERTY; 4 COP LIQUOR LICENSE El Portal, Florida (“Big Daddy’s Liquors”/Warehouse) During the third quarter of our fiscal year 2023, we closed with a non-affiliated third party on the purchase of the real property it owns located at 8600 Biscayne Boulevard, El Portal, Florida consisting of approximately 6,000 square feet of commercial space which we sublease and where our “Big Daddy’s Liquors” package liquor store and our warehouse (Store #47) operate for $ 3,200,000 . We paid all cash at closing. Despite the purchase of this property, the sublease arrangement remains in place with all investors. Hallandale Beach, Florida During the third quarter of our fiscal year 2023, we closed with a non-affiliated third party on the purchase of a three building shopping center in Hallandale Beach, Florida, which consists of one stand-alone building which is leased to two unaffiliated third parties (approximately 1,450 square feet); a second stand-alone building which is leased to one unaffiliated third party (approximately 1,500 square feet); and a third stand-alone building which is leased to one unaffiliated third party (approximately 2,500 square feet) for $ 8,500,000 . The rental income generated by these four lease arrangements is not material. The real property is located adjacent to our real property located at 4 N. Federal Highway, Hallandale Beach, Florida, where our combination package store and restaurant (Store #31) operates. We paid all cash at closing and accounted for this transaction as an asset acquisition. Purchase of 4 COP Liquor License During our fiscal year 2022, we purchased a 4 COP quota liquor license for Broward County, Florida from an unrelated third party for $ 446,000 . The liquor license is currently in use in connection with the operation of our package liquor store in Miramar, Florida. The 4 COP quota liquor license for Broward County, Florida which we purchased during the third quarter of our fiscal year 2021 and was inactive, was transferred for use in our operation of “Brendan’s Sports Pub” during our fiscal year 2022. NOTE 8. RE-FINANCING OF EXISTING MORTGAGES; INSURANCE PREMIUMS Re-Finance of Mortgage on Real Property – Fort Lauderdale, Florida During our fiscal year 2022, we requested and received a loan advance of $ 697,000 from an entity managed by a member of our Board of Directors who is also our Chief Financial Officer, which entity currently holds a first priority mortgage note on our real property and improvements where our restaurant located at 2600 West Davie Boulevard, Fort Lauderdale, Florida operates (the “West Davie Mortgage Note”). Including the $ 697,000 advance, the principal outstanding amount owed under the West Davie Mortgage Note as of September 30, 2023 is $ 1,049,000 . The West Davie Mortgage Note accrues interest at 6 % annually, (increased from 5 % annually), is amortizable over 15 years with monthly installments of principal and interest of approximately $ 9,300 required to be made and a final balloon payment of approximately $ 487,000 required to be made August 1, 2032. Re-Finance of Mortgage on Real Property – Hallandale Beach, Florida During our fiscal year 2022, we re-financed our mortgage debt with a non-affiliated third-party lender secured by our real property located at 4 N. Federal Highway, Hallandale, Florida where our combination package liquor store and restaurant (Store #31) operates and borrowed an additional $ 8,012,000 raising the principal balance to $ 8,900,000 , (the “$ 8.90 M Mortgage”). The $ 8.90 M Mortgage bears interest at a variable rate equal to the BSBY Screen Rate – 1 Month plus 1.50% . We entered into an interest rate swap agreement to hedge the interest rate risk, which fixed the interest rate on the $ 8.90 M Mortgage at 4.90 % per annum throughout its term. The $ 8.90 M Mortgage is fully amortized over fifteen (15) years, with our monthly payment of principal and interest totaling $ 33,000 . Insurance Premiums Prior to fiscal year 2023, we financed our annual insurance premiums. Due to higher interest rates, during the first quarter of our fiscal year 2023, for the policy year commencing December 30, 2022, we paid the premiums for property, general liability, excess liability and terrorist policies, totaling approximately $ 3.281 million, which includes coverage for our franchisees (which is $ 658,000 ), which are not included in our consolidated financial statements. Due to continuing higher interest rates for the policy year commencing December 30, 2023, we will pay the premiums for property, general liability, excess liability, crime and terrorism policies in full ($ 3.932 million), which includes coverage for our franchises (approximately $ 786,000 ), at the beginning of the second quarter of our fiscal year 2024. We paid the $ 3.281 million annual premium amounts on January 9, 2023, which includes coverage for our franchisees which are not included in our consolidated financial statements. We secured property insurance for the period commencing after the expiration of the current policy on December 30, 2023. (See Note 20. Subsequent Events for a discussion of insurance premiums for the period commencing December 30, 2023 on page F-29.) F- 18 NOTE 9. CORONAVIRUS PANDEMIC In March 2020, a novel strain of coronavirus was declared a global pandemic and a National Public Health Emergency. The novel coronavirus pandemic, (“COVID-19”) adversely affected and will, in all likelihood continue to adversely affect, our restaurant operations and financial results for the foreseeable future. The Department of Health and Human Services (HHS) permitted the federal Public Health Emergency for COVID-19 (PHE) declared by the Secretary of the Department of Health and Human Services (Secretary) under Section 319 of the Public Health Service (PHS) Act to expire at the end of the day on May 11, 2023. 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”), applied for and received loans from an unrelated third party lender pursuant to the Paycheck Protection Program (the “PPP”) under the United States Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) enacted March 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 of the LP’s; and (ii) $ 0.52 million was loaned to the Managed Store. The 2nd PPP Loan to the Managed Store is not included in our consolidated financial statements. During the first quarter of our fiscal year 2022, we applied for and received forgiveness of the entire amount of principal and accrued interest for all 2nd PPP Loans, including the Managed Store. COVID-19 has had a material adverse effect on our access to supplies or labor and there can be no assurance that there will not be a significant adverse impact on our supply chain or access to labor in the future. We are actively monitoring our food suppliers to assess how they are managing their operations to mitigate supply flow and food safety risks. To ensure we mitigate potential supply availability risk, we are building additional inventory back stock levels when appropriate and we have also identified alternative supply sources in key product categories including but not limited to food, sanitation and safety supplies. NOTE 10. RE-CONSTRUCTION FOLLOWING CASUALTY LOSS During the first quarter of our fiscal year 2019, our combination package liquor store and restaurant located at 2505 N. University Drive, Hollywood, Florida (Store #19) was damaged by a fire and was forced to close. The package liquor store re-opened for business during the first quarter of our fiscal year 2023 in a newly constructed stand-alone building. We believe the restaurant will reopen for business in our fiscal year 2024 in a newly constructed stand-alone building where our combination package liquor store and restaurant was previously located. NOTE 11. LIQUOR LICENSES Liquor licenses, which are indefinite lived assets, are tested for impairment in September of each of our fiscal years. The fair value of liquor licenses at September 30, 2023, exceeded the carrying amount; therefore, we recognized no impairment loss. The fair value of the liquor licenses was evaluated by comparing the carrying value to recent sales for similar liquor licenses in the County issued. At September 30, 2023 and October 1, 2022, the total carrying amount of our liquor licenses was $ 1,268,000 . F- 19 NOTE 12. INCOME TAXES The components of our provision for income taxes for our fiscal years 2023 and 2022 are as follows: (in thousands) 2023 2022 Current: Federal $ 298 $ 302 State 289 262 Deferred: 587 564 Federal ( 84 ) 172 State 146 27 62 199 $ 649 $ 763 A reconciliation of income tax computed at the statutory federal rate to income tax expense is as follows: (in thousands) 2023 2022 Tax provision at the statutory rate $ 1,273 $ 2,061 Non-controlling interests ( 297 ) ( 575 ) State income taxes, net of federal income tax 343 210 FICA tip credit ( 799 ) ( 744 ) True up adjustment 89 43 PPP forgiveness — ( 252 ) Other permanent items, net 40 20 $ 649 $ 763 We have deferred tax liabilities and assets which arise primarily due to depreciation recorded at different rates for tax and book purposes offset by cost basis differences in depreciable assets due to the deferral of the recognition of insurance recoveries on casualty losses for tax purposes, investments in and management fees paid by limited partnerships, accruals for potential uninsured claims, bonuses accrued for book purposes but not paid within two and a half months for tax purposes, the capitalization of certain inventory costs for tax purposes not recognized for financial reporting purposes, the recognition of revenue from gift cards not redeemed within twelve months of issuance, allowances for uncollectable receivables, unfunded limited retirement commitments and FICA tax credit. The components of our deferred tax assets (liabilities) at September 30, 2023 and October 1, 2022 were as follows: (in thousands) 2023 2022 Reversal of aged payables $ 18 $ 18 Capitalized inventory costs 28 26 Accrued bonuses 66 84 Accruals for potential uninsured claims 13 19 Gift cards 223 198 Deferred revenue 179 — Limited partnership management fees ( 873 ) ( 862 ) Tip credit 570 71 Book/tax differences in property and equipment ( 1,573 ) ( 1,106 ) Book/tax differences in operating leases 134 488 Limited partnership investments 475 394 Interest rate swaps ( 134 ) — Accrued limited retirement 73 65 Total Deferred Tax Liabilities, Net $ ( 801 ) $ ( 605 ) F- 20 NOTE 12. INCOME TAXES (Continued) As of September 30, 2023, the Company has federal general business credit carryforward of $ 570,000 . General business credit carryovers can be carried back 1 year and carried forward 20 years. The company's general business credit carryforward will begin to expire in fiscal year 2040. NOTE 13. DEBT Debt consists of the following as of September 30, 2023 and October 1, 2022: Long-Term Debt 2023 2022 Mortgage payable to institutional lender, secured by a first mortgage on real property and improvements, bearing interest at 3.86 %, amortized over twenty ( 20 ) years, payable in monthly installments of principal and interest of approximately $ 43,400 , with a balloon payment of approximately $ 5,373,000 due on November 27, 2026. As of September 30, 2023, the net book value of the collateral securing this mortgage was $ 5,571,000 6,295 6,563 Mortgage payable to institutional lender, secured by first mortgage on real property and improvements, bearing interest at the fixed rate of 3.63 % per annum, fully amortized over fifteen ( 15 ) years, payable in monthly installments of principal and interest of approximately $ 31,100 , with a final payment on July 1, 2036. As of September 30, 2023, the net book value of the collateral securing this mortgage was $ 11,149,000 . 3,815 4,044 Mortgage payable to institutional lender, secured by first mortgage on real property and improvements, bearing interest at the fixed rate of 3.65 % per annum, fully amortized over fifteen ( 15 ) years, payable in monthly installments of principal and interest of approximately $ 16,000 , with a final payment on March 2, 2036. As of September 30, 2023, the net book value of the collateral securing this mortgage was $ 7,601,000 1,913 2,031 Mortgage payable to institutional lender, secured by a first mortgage on real property and improvements, bearing interest at BSBY Screen Rate – 1 Month +1.50% , ( 5.38 % at September 30, 2023), but with the interest fixed at 4.90 % pursuant to a swap agreement, amortized over fifteen ( 15 ) years, payable in monthly installments of principal and interest of approximately $ 33,000 . From the re-financing of this mortgage, we withdrew $ 8,012,000 during our fiscal year ended October 1, 2022. As of September 30, 2023, the net book value of the collateral securing this mortgage was $ 3,458,000 . 8,505 8,900 Revolving credit line/term loan payable to institutional lender, which entitled the Company to borrow, from time to time through December 28, 2017, up to $ 5 ,500,000, (the “Credit Line”), secured by a blanket lien on all Company assets, bearing interest through December 28, 2017 at LIBOR – Daily Floating Rate + 2.25 % . Effective December 28, 2017, an interest rate swap agreement requires us to pay interest for a five (5) year period at a fixed rate of 4.61 % on an initial amortizing notional principal amount of $ 5,500,000 , while receiving interest for the same period at LIBOR, Daily Floating Rate, plus 2.25%, per annum on the same notional principal amount, with a final payment on December 28, 2022. On December 21, 2017, we borrowed the remaining $ 3,500,000 and on December 28, 2017 the entire principal balance under the Credit Line ($ 5,500,000 ) converted to the Term Loan. On December 28, 2022, we paid the outstanding principal balance ($ 367,000 ) and accrued interest ($- 0 -) in full. — 550 Mortgage payable to institutional lender, secured by a first mortgage on real property and improvements, bearing interest at the fixed rate of 4.65 % per annum, fully amortized over fifteen ( 15 ) years, payable in monthly installments of principal and interest of approximately $ 6,400 , with a final payment on December 28, 2031. As of September 30, 2023, the net book value of the collateral securing this mortgage was $ 1,033,000 . 535 585 F- 21 NOTE 13. DEBT (Continued) Mortgage payable to a related party, an entity the owners of which include persons who are either our officers, directors or their family members, secured by first mortgage on real property and improvements, bearing interest at 6 %, amortized over fifteen ( 15 ) years, payable in monthly installments of principal and interest of approximately $ 9,300 , with a balloon payment of approximately $ 487,000 on August 1, 2032. As of September 30, 2023, the net book value of the collateral securing this mortgage was $ 1,873,000 . 1,049 1,096 Mortgage payable to institutional lender, secured by a first mortgage on real property and improvements, bearing interest at the fixed rate of 4.65 % per annum, fully amortized over fifteen ( 15 ) years, payable in monthly installments of principal and interest of approximately $ 6,500 , with a final payment on December 28, 2031. As of September 30, 2023, the net book value of the collateral securing this mortgage was $ 988,000 . 547 598 Financed insurance premiums, secured by all insurance policies, bearing interest at 2.55 % payable in monthly installments of principal and interest in the aggregate amount of $ 215,000 a month through November 30, 2022. — 507 Mortgage payable to unrelated third party, secured by first mortgage on real property and improvements, bearing interest at 7.5 %, amortized over twenty ( 20 ) years, payable in monthly installments of principal and interest of approximately $ 7,300 , with a final payment on March 1, 2034. As of September 30, 2023, the net book value of the collateral securing this mortgage was $1,066,000. 641 678 Mortgage payable to related third party, secured by first mortgage on real property and improvements, bearing interest at 4 %, amortized over eight ( 8 ) years, payable in monthly installments of principal and interest of approximately $ 3,000 , with a final payment on November 1, 2026. As of September 30, 2023, the net book value of the collateral securing this mortgage was $ 559,000 . 109 140 Other 29 44 Less unamortized loan costs ( 310 ) ( 347 ) 23,128 25,389 Less current portion 1,295 2,299 $ 21,833 $ 23,090 Long-term debt at September 30, 2023 matures as follows: 2024 1,295 2025 1,357 2026 1,413 2027 6,555 2028 1,180 Thereafter 11,638 23,438 Less unamortized loan costs ( 310 ) $ 23,128 F- 22 NOTE 13. DEBT (Continued) As of September 30, 2023, we are in compliance with the financial covenants contained in our loans with our unrelated third party institutional lender (the “Institutional Lender”). We owe in the aggregate, approximately $ 21,610,000 (the “Institutional Loans”), as of September 30, 2023. There can be no assurances that we will be in compliance with our financial covenants thereafter due to, among other things, that our results of operations will likely continue to be materially impacted by the COVID-19 pandemic. Absent a waiver, failure to be in compliance with our financial covenants would constitute a default under the Institutional Loans with our Institutional Lender when reported. Such a default, if not cured or waived, would allow the Institutional Lender to accelerate the maturity of the indebtedness we owe under the Institutional Loans, making it due and payable at the time. If maturity of the Institutional Loans were accelerated, it would have a material adverse impact on our financial position. NOTE 14. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS Construction Contracts (a) 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 at 2505 N. University Drive, Hollywood, Florida (Store #19), which has been closed since October 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 and during our fiscal year 2023 we agreed to change orders increasing the total contract price by $ 1,021,000 to $ 3,536,000 , of which $ 1,534,000 has been paid through September 30, 2023 and $ 1,090,000 has been paid subsequent to the end of our fiscal year 2023. (b) 14301 W. Sunrise Boulevard, Sunrise, Florida (Store #85 – "Flanigan's”) 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 the end of our fiscal year 2023 we agreed to change orders to the agreement increasing the total contract price by $ 327,000 to $ 670,000 , of which the full amount has been paid as of the end of our fiscal year 2023. 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 no “dram shop” claims pending. 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. F- 23 NOTE 14. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued) Leases To conduct certain of our operations, we lease restaurant and package liquor store space in South Florida from unrelated third parties. Our leases have remaining lease terms of up to 49 years, some of which include options to renew and extend the lease terms for up to an additional 30 years. We presently intend to renew some of the extension options available to us and for purposes of computing the right-of-use assets and lease liabilities required by ASC 842, we have incorporated into all lease terms which may be extended, an additional term of the lesser of (i) the amount of years the lease may be extended; or (ii) 15 years. Following adoption of ASC 842 during our fiscal year ended October 3, 2020, common area maintenance and property taxes are not considered to be lease components. The components of lease expense are as follows: (in thousands) 52 Weeks 52 Weeks Ended September 30, 2023 Ended October 1, 2022 Operating Lease Expense, which is included in occupancy costs $ 3,822 $ 3,725 Supplemental balance sheet information related to leases is as follows: (in thousands) Classification on the Consolidated Balance Sheets September 30, 2023 October 1, 2022 Assets Operating lease assets $ 26,987 $ 29,517 Liabilities Operating lease current liabilities $ 2,385 $ 2,253 Operating lease non-current liabilities $ 25,850 $ 28,281 Weighted Average Remaining Lease Term: Operating leases 9.86 Years 10.82 Years Weighted Average Discount: Operating leases 4.75 % 4.66 % The following table outlines the minimum future lease payments for the next five years and thereafter: (in thousands) For fiscal year Operating 2024 3,619 2025 3,606 2026 3,440 2027 3,344 2028 3,309 Thereafter 21,819 Total lease payments (undiscounted cash flows) 39,137 Less imputed interest ( 10,902 ) Total operating lease liabilities $ 28,235 F- 24 NOTE 14. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued) Purchase Commitments In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants for calendar years 2023 and 2024, we entered into purchase agreements with our current rib supplier, whereby we agreed to purchase approximately $ 7.0 million of “2.25 & Down Baby 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 is competitive. The increase in our cost of baby back ribs for calendar year 2024 compared to calendar year 2023 is due to our purchase of ribs for Store #25, Miramar, Florida being open for the entire calendar year and Store #19, Hollywood, Florida anticipated to be open for a part of the calendar year, offset by 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. Flanigan’s Fish Company, LLC As of September 30, 2023, Flanigan’s Fish Company, LLC, a Florida limited liability company (“FFC”), supplies certain fish to all of our restaurants. Since we hold the controlling interest in FFC, the balance sheet and operating results of this entity are consolidated into the accompanying consolidated 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. Franchise Program At September 30, 2023 and October 1, 2022, 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 adjacent 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 2023 and 2022, we earned royalties of $ 1,163,000 and $ 1,132,000 , respectively, from our related franchises, which royalties are included in Franchise-related revenues in our Consolidated Statements of Income. We are not currently offering or accepting new franchises. F- 25 NOTE 14. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued) Employment Agreements/Bonuses As of September 30, 2023 and October 1, 2022, 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, (the “Officers Bonus”). Officers Bonuses for our fiscal years 2023 and 2022 amounted to approximately $ 1,604,000 and $ 2,167,000 , respectively. Our Board of Directors also approved an additional 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 (the “Restaurant Bonus’'). Restaurant Bonuses for our fiscal years 2023 and 2022 amounted to approximately $ 1,090,000 and $ 1,340,000 , respectively. Management Agreements 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 and paid on a straight-line basis over the life of the initial term of the agreement, ten ( 10 ) years. The restaurant is owned by a third party unaffiliated with us. In exchange for providing management, bookkeeping and related services, we receive one-half (½) of the net profit, if any, from the operation of the restaurant. During the third quarter of our fiscal year 2011, the term of the management agreement was extended through January 9, 2036. For the fiscal years ended September 30, 2023 and October 1, 2022, we generated $ 400,000 of revenue from each fiscal year from providing these management services. NOTE 15. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS We follow FASB (ASC) Topic 820, “Fair Value Measurement”, for financial assets and liabilities and for non-financial assets and liabilities that are recognized or disclosed at fair value on at least an annual basis. Topic 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of non-performance. Topic 820 establishes a fair market hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Topic 820 establishes three levels of inputs that may be used to measure fair value: ● Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities. ● Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to evaluation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. ● Level 3 Inputs – One or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or estimation. F- 26 NOTE 15. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (Continued) Interest Rate Swap Agreements At September 30, 2023, we had one variable rate instrument outstanding that is impacted by changes in interest rates. The interest rate of our variable rate debt instrument is equal to the lender’s BSBY Screen Rate plus one and one-half percent ( 1.50 %) per annum. In September 2022, we refinanced the mortgage loan encumbering the property where our combination package liquor store and restaurant located at 4 N. Federal Highway, Hallandale Beach, Florida, (Store #31) operates, which mortgage loan is held by an unaffiliated third party lender (the “$ 8.90 M Loan”). As a means of managing our interest rate risk on this debt instrument, we entered into an interest rate swap agreement with our unrelated third-party lender to convert this variable rate debt obligation to a fixed rate. We are currently party to the following interest rate swap agreement: (i) The interest rate swap agreement entered into in September 2022 relates to the $ 8.90 M Loan (the “$ 8.90 M Term Loan Swap”). The $ 8.90 M Term Loan Swap requires us to pay interest for a fifteen ( 15 ) year period at a fixed rate of 4.90 % on an initial amortizing notional principal amount of $ 8,900,000 , while receiving interest for the same period at BSBY Screen Rate – 1 Month, plus 1.50% , on the same amortizing notional principal amount. As of September 30, 2023 the fair value of the swap agreement is now reflected on the balance sheet in other assets and accumulated other comprehensive income. We determined that the interest rate swap agreement is an effective hedging agreement and that changes in fair value will be adjusted quarterly based on the valuation statement. NOTE 16. COMMON STOCK Treasury Stock Purchase of Common Shares During our fiscal years 2023 and 2022, we did not purchase any shares of our common stock. As of September 30, 2023, we still have authority to purchase 65,414 shares of our common stock under the discretionary plan approved by the Board of Directors on May 17, 2007. Our current repurchase plan has no expiration date and purchases under this program may be made from time to time on the open market and in private transactions, depending on market conditions, up to a purchase price of price of $ 15 per share. The Internal Revenue Service will impose a 1.0 % tax on stock repurchases after December 31, 2022. NOTE 17. BUSINESS SEGMENTS We operate principally in two reportable segments – package stores and restaurants. This determination was made by the Chief Financial Officer of the Company to align our financial reporting presentation with the major streams of revenue generation. The operation of package stores consists of retail liquor sales and related items. Information concerning the revenues and operating income for our fiscal years ended 2023 and 2022, and identifiable assets for the two reportable segments in which we operate, are shown in the following table. Operating income is total revenue less cost of merchandise sold and operating expenses relative to each segment. In computing operating income, none of the following items have been included: interest expense, other non-operating income and expense and income taxes. Identifiable assets by segment are those assets that are used in our operations in each segment. Corporate assets are principally cash and real property, improvements, furniture, equipment and vehicles used at our corporate headquarters. We do not have any operations outside of the United States and transactions between restaurants and package liquor stores are not material. F- 27 NOTE 17. BUSINESS SEGMENTS (Continued) (in thousands) September 30, 2023 October 1, 2022 Operating Revenues: Restaurants $ 136,238 $ 123,627 Package stores 35,187 31,692 Other revenues 2,971 2,813 Total operating revenues $ 174,396 $ 158,132 Income from Operations Reconciled to Income after Income Taxes and Net Income Attributable to Noncontrolling Interests: Restaurants $ 7,611 $ 6,228 Package stores 2,704 2,608 10,315 8,836 Corporate expenses, net of other revenues ( 3,291 ) ( 1,907 ) Income from Operations 7,024 6,929 Interest expense ( 1,067 ) ( 757 ) Interest and Other Income 108 131 Gain on forgiveness of debt — 3,488 Gain on sale of property and equipment — 21 Income before provision for income taxes $ 6,065 $ 9,812 Provision for Income Taxes ( 649 ) ( 763 ) Net Income 5,416 9,049 Net Income Attributable to Noncontrolling Interests ( 1,417 ) ( 2,737 ) Net Income Attributable to Flanigan’s Enterprises, Inc. $ 3,999 $ 6,312 Depreciation and Amortization: Restaurants $ 2,669 $ 2,290 Package stores 468 316 3,137 2,606 Corporate 447 406 Total Depreciation and Amortization $ 3,584 $ 3,012 Capital Expenditures Restaurants $ 7,440 $ 6,578 Package stores 3,855 2,038 11,295 8,616 Corporate 9,279 826 Total Capital Expenditures $ 20,574 $ 9,442 Identifiable Assets: Restaurants $ 76,575 $ 73,596 Package stores 23,714 20,035 100,289 93,631 Corporate 45,480 53,861 Consolidated Totals $ 145,769 $ 147,492 F- 28 NOTE 18. QUARTERLY INFORMATION (UNAUDITED) The following is a summary of our unaudited quarterly results of operations for the quarters in our fiscal years 2023 and 2022. (in thousands) Quarter Ended Dec. 31, 2022 April 1, 2023 July 1, 2023 Sep. 30, 2023 Revenues $ 41,861 $ 43,803 $ 45,372 $ 43,360 Income from operations 1,197 2,711 2,700 416 Net income (loss) attributable to stockholders 624 1,897 1,605 ( 127 ) Net income (loss) per share – basic and diluted 0.34 1.02 0.86 ( 0.07 ) Weighted average common stock outstanding – basic and diluted 1,858,647 1,858,647 1,858,647 1,858,647 (in thousands) Quarter Ended Jan 1, 2022 April 2, 2022 July 2, 2022 Oct. 1, 2022 Revenues $ 37,403 $ 40,330 $ 40,675 $ 39,724 Income from operations 765 1,850 2,083 2,231 Net income attributable to stockholders 1,564 1,660 1,835 1,253 Net income per share – basic and diluted 0.84 0.89 0.99 0.68 Weighted average common stock outstanding – basic and diluted 1,858,647 1,858,647 1,858,647 1,858,647 Quarterly operating results are not necessarily representative of our operations for a full year for various reasons including the seasonal nature of both the restaurant and package store segments. NOTE 19. 401(k) PLAN Effective July 1, 2004, we began sponsoring a 401(k) retirement plan covering substantially all employees who meet certain eligibility requirements. Employees may contribute elective deferrals to the plan up to amounts allowed under the Internal Revenue Code. We are not required to contribute to the plan but may make discretionary profit sharing and/or matching contributions. During our fiscal years ended September 30, 2023 and October 1, 2022, the Board of Directors approved discretionary matching contributions totaling $ 70,000 and $ 71,000 , respectively. NOTE 20. SUBSEQUENT EVENTS Purchase of Leasehold / Sub-leasehold Interests In 1974, we sold the underlying ground lease to the real property located at 8600 Biscayne Boulevard, El Portal, Florida to related and unrelated third parties and simultaneously subleased it back. We operate our retail package liquor store (Store #47) and warehouse from this location. Subsequent to the end of our fiscal year 2023, we re-purchased a 4 % interest in the underlying ground lease, as well as the sublease agreement from an unrelated third party for $ 31,000 and currently own 56 % of each lease. As a result, we now only pay 44 % of the rent due under the sublease agreement. Insurance Premiums Subsequent to the end of our fiscal year 2023, for the policy year commencing December 30, 2023, we bound coverage on the following property, general liability, excess liability, crime and terrorism policies with premiums totaling approximately $ 3.932 million, of which property, general liability, excess liability and terrorism insurance includes coverage for our franchises (of approximately $ 786,000 ), which are not included in our consolidated financial statements: (i) For the policy year beginning December 30, 2023, our general liability insurance, excluding limited partnerships, is a one (1) year policy with our insurance carriers. For the policy commencing December 30, 2023, the $ 10,000 self-insured retention per occurrence increases to $ 50,000 for us but remains the same at $ 10,000 for the limited partnerships. The one (1) year general liability insurance premium is in the amount of $ 455,000 ; (ii) For the policy year beginning December 30, 2023, our general liability insurance for our limited partnerships is a one (1) year policy with our insurance carriers. The one (1) year general liability insurance premium is in the amount of $ 1,055,000 ; (iii) For the policy year beginning December 30, 2023, our automobile insurance is a one (1) year policy. The one (1) year automobile insurance premium is in the amount of $ 211,000 ; F- 29 (iv) For the policy year beginning December 30, 2023, our property insurance is a one (1) year policy. The one (1) year property insurance premium is in the amount of $ 1,428,000 ; (v) For the policy year beginning December 30, 2023, our excess liability insurance is a one (1) year policy. The one (1) year excess liability insurance premium is in the amount of $ 763,000 ; (vi) For the policy year beginning December 30, 2023, our crime coverage insurance is a one (1) year policy. The one (1) year crime coverage insurance premium is in the amount of $ 1,000 ; and (vii) For the policy year beginning December 30, 2023, our terrorism insurance is a one (1) year policy. The one (1) year terrorism insurance premium is in the amount of $ 19,000 . Of the $ 3,932,000 annual premium amounts, which includes coverage for our franchises which are not included in our consolidated financial statements, we will pay the annual premium amounts in full with no financing due to high interest rates. Subsequent events have been evaluated through the date these consolidated financial statements were issued and except as disclosed herein, no other events required disclosure. F- 30