What changed in this filing

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Item 1. Business

2020-12-22 compared with 2019-12-17 · 72 added, 20 removed, 203 unchanged (31% of the section changed)

COVID-19 Pandemic

On March 11, 2020, in light of the rapid spread of the novel Coronavirus (“COVID-19” or “Coronavirus”), the World Health Organization declared the COVID-19 outbreak to be a global pandemic and the United States declared a National Public Health Emergency.

The COVID-19 pandemic has significantly disrupted consumer demand, as well as the Company’s restaurant operations.

Following the pandemic declaration in March 2020, federal, state and local governments began to respond to the public health crisis by requiring social distancing, "stay at home" directives, and mandatory closure of all of our locations.

As a result of state and local governments lifting “stay at home” orders and mandatory shut-down requirements from May through August 2020, the Company has reopened all of its properties, with the exception of Thunder Grill in Washington, D.C., at varying levels of limited capacity as allowed by federal, state and local governments.

Due to the impact of the COVID-19 pandemic, during the year ended October 3, 2020, subsequent to reopening after initial shut-downs, the Company has temporarily closed several restaurants, typically for three to seven days.

The Coronavirus has caused unprecedented business disruptions, especially in the hospitality industry.

Although we have experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on our business remains uncertain, the duration and scope of which cannot currently be predicted.

As a result of these developments, the Company is experiencing a significant negative impact on its revenues, results of operations and cash flows, and has a working capital deficiency of $3,234,000 as of October 3, 2020, all of which could negatively impact its ability to meet its obligations over the next 12 months.

However, we believe that our existing cash balances, which include the proceeds from Paycheck Protection Program loans (see Note 10 - Notes Payable of the consolidated financial statements) and actions taken by management, set out below and otherwise, will be sufficient to meet our liquidity and capital spending requirements through December 23, 2021.

In response to the business disruption and liquidity concerns caused by the COVID-19 pandemic, the Company has taken the following actions, which management expects will enable it to meet its obligations over the next 12 months:

• While restaurants were closed or continue to be closed, we furloughed all hourly employees and approximately 95% of salaried restaurant management personnel, while enacting salary reductions for all remaining restaurant management personnel.

• As restaurants re-opened, restaurant management salaries were restored to 70% of pre-pandemic amounts.

If a location produced sustained cash flow, restaurant management salaries were restored to 100% of pre-pandemic amounts.

• Initially reduced the pay of all corporate and administrative staff by 50% to 75% and senior management salaries by 75% to 95%.

As of October 3, 2020, most corporate salaries have been restored to 65% of pre-pandemic levels.

In addition, the Board waived its fees for the balance of 2020.

• Entered into a Payment Suspension Agreement with our bank which deferred aggregate principal payments of $675,000 due on June 1, 2020 to the respective loan maturity dates and an agreement to extend the maturity dates of our revolving credit agreement (see Note 10 - Notes Payable of the consolidated financial statements).

In addition, the bank agreed to relaxed financial covenants through fiscal Q3 2021.

• Canceled the payment of the $0.25 dividend declared on March 2, 2020.

• Suspended future dividend payments until such time as the Board deems appropriate to reinstate.

• Canceled or delayed all non-essential capital expenditures.

• Suspended the vast majority of lease payments while our restaurants were closed as a result of government mandated shutdowns, and attempted to negotiate rent concessions, abatements and deferrals with these landlords to reduce the lease payments.

While some landlords have agreed to concessions, several negotiations are still ongoing as of the date of this filing and we will attempt to obtain further concessions through April 2021 at many of our leased properties.

However, there can be no assurance that the Company will be successful in obtaining the relief it is seeking.

• Certain Company subsidiaries applied for and received a total of approximately $15.0 million of loans under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020.

• Utilized additional provisions of the CARES Act to obtain tax savings as well as the deferral of our portion of social security taxes to future years.

Due to the rapid development and fluidity of this situation, management cannot determine the ultimate impact that the COVID-19 pandemic will have on the Company’s consolidated financial condition, liquidity, future results of operations, suppliers, industry, and workforce and therefore any prediction as to the ultimate material adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain.

The disruption in operations has led the Company to consider the impact of the COVID-19 pandemic on its liquidity, debt covenant compliance, and recoverability of long-lived and ROU assets, goodwill and intangible assets, among others.

In addition, we cannot predict how soon we will be able to reopen any or all of our restaurants at full capacity or whether they will be required to close again in the future, as these decisions will depend primarily on the actions of a number of governmental bodies over which we have no control.

Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our restaurants, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses.

If these disruptions continue, the Company expects a continued material negative impact on its consolidated financial condition, future results of operations and liquidity.

The extent of such negative impact will be determined, in part, by the longevity and severity of the pandemic.

We are a New York corporation formed in 1983.

As of the fiscal year ended September 28, 2019, we owned and/or operated 20 restaurants and bars, 17 fast food concepts and catering operations through our subsidiaries.

As of the fiscal year ended October 3, 2020, we owned and/or operated 20 restaurants and bars, 17 fast food concepts and catering operations through our subsidiaries.

Initially our facilities were located only in New York City.

As of the fiscal year ended September 28, 2019, five of our restaurant and bar facilities are located in New York City, two are located in Washington, D.C., five are located in Las Vegas, Nevada, three are located in Atlantic City, New Jersey, three are located on the east coast of Florida and two are located on the gulf coast of Alabama.

As of the fiscal year ended October 3, 2020, five of our restaurant and bar facilities are located in New York City, two are located in Washington, D.C., five are located in Las Vegas, Nevada, three are located in Atlantic City, New Jersey, three are located on the east coast of Florida and two are located on the gulf coast of Alabama.

In addition to the shift from a Manhattan-based operation to a multi-city operation, the nature of the facilities operated by us has shifted from smaller, neighborhood restaurants to larger, destination properties intended to benefit from high patron traffic attributable to the uniqueness of the location and catered events.

Most of our properties which have been opened in recent years are of the latter description.

As of the fiscal year ended September 28, 2019, these include the operations at the 12 fast food facilities in Tampa, Florida and Hollywood, Florida (2004);

As of the fiscal year ended October 3, 2020, these include the operations at the 12 fast food facilities in Tampa, Florida and Hollywood, Florida (2004);

the Gallagher’s Steakhouse and Gallagher’s Burger Bar in the Resorts Atlantic City Hotel and Casino in Atlantic City, New Jersey (2005);

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The wall treatments, lighting and decorations are typically vivid, unusual and, in some cases, highly theatrical.

The following table sets forth the restaurant properties we lease, own and operate as of September 28, 2019:

The following table sets forth the restaurant properties we lease, own and operate as of October 3, 2020:

Name Location Year

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(6) The lease for this location expired in January 2019 and has been operating on a month-to-month basis with the consent of the landlord.

(7) On November 13, 2020, the Company was advised by the landlord that it would have to vacate Gallagher’s Steakhouse and Gallagher’s Burger Bar at the Resorts Casino Hotel located in Atlantic City, NJ.

which were on a month-to-month, no rent lease.

The Company expects that the closure of this property will occur on January 4, 2021 and will not result in a material charge to the Company’s operations.

(8) This location is for a kiosk located at Bryant Park, New York, NY and all seating is outdoors.

(*) Represents common area seating.

The following table sets forth our less than wholly-owned properties that are managed by us, which have been consolidated as of September 28, 2019 – see Notes 1 and 2 to the Consolidated Financial Statements:

The following table sets forth our less than wholly-owned properties that are managed by us, which have been consolidated as of October 3, 2020 – see Notes 1 and 2 to the Consolidated Financial Statements:

Name Location Year

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(**) Represents number of seats in the Bingo Hall at the Foxwoods Resort and Casino where our restaurant is located.

We are not currently committed to any significant projects;

We are not currently committed to any significant development projects, except for the acquisition of Blue Moon Fish Company discussed below;

however, we may take advantage of opportunities we consider to be favorable, when they occur, depending upon the availability of financing and other factors.

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Rent payments under the lease are $600,000 per year with 10% increases every five years.

The opening of a new restaurant is invariably accompanied by substantial pre-opening expenses and early operating losses associated with the training of personnel, excess kitchen costs, costs of supervision and other expenses during the pre-opening period and during a post-opening “shake out” period until operations can be considered to be functioning normally.

The amount of such pre-opening expenses and early operating losses can generally be expected to depend upon the size and complexity of the facility being opened.

During 2019, the Company was advised by the landlord of our food court at the Hard Rock Casino and Hotel in Hollywood, Florida that they were exercising their right to relocate our space, at their sole cost, as contractually agreed to in the original lease.

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The Company recorded the value of the renovations made by the landlord, which includes leasehold improvements and furniture, fixtures and equipment, in the amount of $5,474,000 with a corresponding increase in deferred rent.

The net book value of the existing leasehold improvements relating to the original location in the amount of $918,000 is being reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.

The net book value of the existing leasehold improvements relating to the original location in the amount of $918,000 was reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.

During 2019, the Company was advised by the landlord of our food court at the Hard Rock Casino and Hotel in Tampa, Florida that they were exercising their right to renovate the front of the house space, at their sole cost, as contractually agreed to in the original lease.

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The Company recorded the value of the renovations made by the landlord, which includes leasehold improvements and furniture, fixtures and equipment, in the amount of $3,179,000 with a corresponding increase in deferred rent.

The net book value of the existing leasehold improvements relating to the original location in the amount of $459,000 is being reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.

The net book value of the existing leasehold improvements relating to the original location in the amount of $459,000 was reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.

On September 29, 2019, upon the adoption of Accounting Standard Codification Topic 842 (“ASC 842”), the unamortized Hollywood and Tampa balances of leasehold improvements and deferred rent in the amounts of $8,269,000 and $7,198,000, respectively, were reclassified as right-of-use assets in the net amount of $1,071,000 and are being amortized to lease expense on a straight-line basis over the remaining terms of the respective leases.

Prior to the COVID-19 pandemic, the Company was in the process of developing three restaurants at a large outdoor mall in Easton, Ohio in partnership with the landlord.

In connection therewith, the Company had capitalized costs of approximately $400,000, of which $200,000 was reimbursed by the landlord in October 2020.

The Company does not expect this project to continue.

Accordingly, the balance of the unreimbursed costs have been expensed to general and administrative expense as of October 3, 2020.

On October 2, 2020, the Company, through a newly formed, wholly-owned subsidiary, entered into an agreement to acquire the assets of Bear Ice, Inc.

and File Gumbo Inc., which collectively operate a restaurant and bar named Blue Moon Fish Company located in Lauderdale by the Sea, FL.

The transaction closed on December 1, 2020 with the total purchase price being $2,750,000 plus inventory and was paid with cash in the amount of $1,750,000 and a four year note held by the sellers in the amount of $1,000,000 payable monthly with 5% interest.

The acquisition will be accounted for as a business combination.

Concurrent with the acquisition, the Company assumed the related lease which expires in 2026 and has four, five-year extension options.

Rent payments under the lease are approximately $360,000 per year and increase by approximately 15% as each option is exercised.

The amount of such pre-opening expenses and early operating losses can generally be expected to depend upon the size and complexity of the facility being opened.

Our restaurants generally do not achieve substantial increases in revenue from year to year, which we consider to be typical of the restaurant industry.

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There can be no assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to establish their own identity.

Recent Restaurant Dispositions

As of December 29, 2018, the Company determined that it would not be able to operate Durgin-Park profitably due to decreased traffic at the Faneuil Hall Marketplace in Boston, MA, where it was located, and rising labor costs.

As a result, included in the consolidated statement of operations for the year ended September 28, 2019 are losses on closure in the amount of $1,106,000 consisting of:

(i) impairment of trademarks in the amount of $721,000, (ii) accelerated depreciation of fixed assets in the amount of $333,000, and (iii) write-offs of prepaid and other expenses in the amount of $52,000.

The restaurant closed on January 12, 2019.

On April 2, 2020, the Company advised the landlord of a catering space in New York, NY that we would be terminating the lease.

In connection with this notification, the Company recorded a loss of $364,000 during the year ended October 3, 2020 consisting of (i) rent accrued in accordance with the termination provisions of the lease, (ii) the write-off of the unamortized balance of purchased leasehold rights, (iii) the write-off of our security deposit, (iv) the write-off of ROU assets and related lease liabilities, and (v) the write-off of the net book value of fixed assets.

On November 13, 2020, the Company was advised by the landlord that it would have to vacate Gallagher’s Steakhouse and Gallagher’s Burger Bar at the Resorts Casino Hotel located in Atlantic City, NJ.

which were on a month-to-month, no rent lease.

The closure of this property will occur on January 4, 2020 and will not result in a material charge to the Company’s operations.

Investment in New Meadowlands Racetrack LLC

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In addition to the Company’s ownership interest in NMR, if casino gaming is approved at the Meadowlands and NMR is granted the right to conduct said gaming, the Company shall be granted the exclusive right to operate the food and beverage concessions in the gaming facility with the exception of one restaurant.

In conjunction with this investment, the Company, through a 97% owned subsidiary, Ark Meadowlands LLC (“AM VIE”), also entered into a long-term agreement with NMR for the exclusive right to operate food and beverage concessions serving the new raceway facilities (the “Racing F&B Concessions”) located in the new raceway grandstand constructed at the Meadowlands

Racetrack in northern New Jersey.

Under the agreement, NMR is responsible to pay for the costs and expenses incurred in the operation of the Racing F&B Concessions, and all revenues and profits thereof inure to the benefit of NMR.

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Such amount is subject to the same terms and conditions as the original loan discussed above.

The principal and accrued interest related to this note in the amounts of $1,713,000 and $1,928,000, are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated balance sheets at September 28, 2019 and September 29, 2018, respectively.

The principal and accrued interest related to this note in the amounts of $1,766,000 and $1,713,000, are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated balance sheets at October 3, 2020 and September 28, 2019, respectively.

On June 7, 2018, the New Jersey State Legislature voted to legalize sports betting at casinos and racetracks in the state.

Pursuant to this legislation, NMR opened a sports book in partnership with FanDuel, a leading provider of daily fantasy sports, in June 2018.

Recent Restaurant Dispositions

As a result, included in the statement of income for the 39 weeks ended June 29, 2019 are losses on closure in the amount of $1,106,000 consisting of:

The restaurant closed on January 12, 2019.

Restaurant Management

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However, we do not contract for long periods of time for our fresh commodities such as produce, poultry, meat, fish and dairy items and, consequently, such commodities can be subject to unforeseen supply and cost fluctuations.

Independent foodservice distributors deliver most food and supply items daily to restaurants.

Independent food service distributors deliver most food and supply items daily to restaurants.

The financial impact of the termination of any such supply agreements would not have a material adverse effect on our financial position.

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State and local authorities in many jurisdictions routinely monitor compliance with alcoholic beverage laws.

The failure to receive or retain, or a delay in obtaining, a liquor license for a particular restaurant could adversely affect our ability to obtain such licenses in jurisdictions where the failure to receive or retain, or a delay in obtaining, a liquor license occurred.

The failure to receive or retain, or a delay in obtaining, a liquor

license for a particular restaurant could adversely affect our ability to obtain such licenses in jurisdictions where the failure to receive or retain, or a delay in obtaining, a liquor license occurred.

We are subject to “dram-shop” statutes in most of the states in which we have operations, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to such person.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business