FLANIGANS ENTERPRISES INC Commitments Disclosure

NOTE 12. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

 

 Master Service Agreement

 

During the first quarter of our fiscal year 2025, we entered into a new Master Services Agreement with our current major vendor for a period of one (1) year effective January 1, 2025, with Company options for four (4) one (1) year renewal options to extend the term of the same.  In this new Master Service Agreement, as in our prior Master Service Agreements, we commit to purchase specific products through our current major vendor but are free to purchase other products through other vendors, provided no less than 80% of our overall product needs are purchased through our current major vendor. During the third quarter of our fiscal year 2025, we exercised the first one (1) year renewal option and extended the term of the Master Services Agreement for a period of one (1) year effective January 1, 2026.

 

ERP Contract

 

In the third quarter of our fiscal year 2024, we entered into an agreement with Oracle, an unrelated third-party vendor for the licensing and support of NetSuite, a cloud-based Oracle ERP solution to replace our previous general ledger. The agreement is for a period of five years at a fixed rate of approximately $40,000 annually, with a cap on the percentage increase to our fees for our options to extend the term of the agreement for years six and seven. Effective June 29, 2025, the first day of the fourth quarter of our fiscal year 2025, NetSuite functions as the Company’s general ledger.

 

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. There are currently no “dram shop” claims pending against us.

 

We are a party to various other claims, legal actions and complaints arising in the ordinary course of our business. It is our opinion that all such matters are without merit or involve such amounts that an unfavorable disposition would not have a material adverse effect on our financial position or results of operations.

Leases

 

To conduct certain 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 47 years, some of which include options to renew and extend the lease terms for up to an additional 24 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.

 

Common area maintenance and property taxes are not considered to be lease components. Variable lease costs include amounts based on a percentage of gross sales in excess of specified levels. They are recognized when probable and are not included in determining the present value of our operating lease liability.

 

The components of lease expense are as follows:

 

		(in thousands)
		52 Weeks				52 Weeks
		Ended September 27, 2025				Ended September 28, 2024
Operating Lease Expense, which is included in occupancy costs		$	3,983			$	3,852
Variable Lease Expense, which is included in occupancy costs		$	910			$	918

 

		(in thousands)
Classification on the Condensed Consolidated Balance Sheets		September 27, 2025				September 28, 2024
Assets
Operating lease assets		$	24,817			$	26,828
Liabilities
Operating lease current liabilities		$	2,704			$	2,467
Operating lease non-current liabilities		$	23,793			$	25,847
Weighted Average Remaining Lease Term:
Operating leases			9.53 Years				10.17 Years
Weighted Average Discount:
Operating leases			5.13	%			5.02	%

 

The following table outlines the minimum future lease payments for the next five years and thereafter:

 

		(in thousands)
For fiscal year		Operating
2026			3,946
2027			3,840
2028			3,816
2029			3,836
2030			3,474
Thereafter			17,735
Total lease payments (undiscounted cash flows)			36,647
Less imputed interest			(10,150	)
Total operating lease liabilities		$	26,497

Purchase Commitments

 

In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants for calendar year 2026, we entered into a purchase agreement with our existing rib supplier, whereby we agreed to purchase approximately $9.2 million of “2.5 & Down Baby Back Ribs” (weight range in which baby back ribs are sold) during calendar year 2026, at a prescribed cost, which we believe is competitive. For calendar year 2025, we entered into a purchase agreement with a new rib supplier, whereby we agreed to purchase approximately $7.8 million of “2.5 & Down Baby Back Ribs” during calendar year 2025, at a prescribed cost, which we believed was competitive. The increase in our cost of baby back ribs for calendar year 2026 compared to calendar year 2025 is due to an increase in market price and quantity ordered.

 

Flanigan’s Fish Company, LLC

 

As of September 27, 2025, 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 (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 a noncontrolling interest in our consolidated financial statements.

 

Franchise Program

 

At September 27, 2025 and September 28, 2024, 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 52.28% and 40.00 % owners, respectively, 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 2025 and 2024, we earned royalties of $1,242,000 and $1,195,000, 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.

Employment Agreements/Bonuses

 

As of September 27, 2025 and September 28, 2024, 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 2025 and 2024 amounted to approximately $1,849,000 and $1,434,000, 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 2025 and 2024 amounted to approximately $1,311,000 and $1,037,000, 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 27, 2025 and September 28, 2024, we generated $200,000 of revenue in each respective fiscal year from providing these management services.