What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-16 compared with 2023-02-14 · 94 added, 55 removed, 123 unchanged (55% of the section changed)

17 unchanged sentences

Some of these measures may have an adverse impact on our business, including possible impairments of assets.

As of December 31, 2022, the Company owned and operated 17 restaurants and bars, 16 fast food concepts and catering operations, exclusively in the United States, that have similar economic characteristics, nature of products and service, class of customer and distribution methods.

As of April 1, 2023, the Company owned and operated 17 restaurants and bars, 16 fast food concepts and catering operations, exclusively in the United States, that have similar economic characteristics, nature of products and service, class of customer and distribution methods.

The Company believes it meets the criteria for aggregating its operating components into a single operating segment in accordance with applicable accounting guidance.

4 unchanged sentences

Under this method certain years will contain 53 weeks.

The periods ended December 31, 2022 and January 1, 2022 each included 13 weeks.

The periods ended April 1, 2023 and April 2, 2022 each included 13 and 26 weeks.

The Company has substantial fixed costs that do not decline proportionally with sales.

9 unchanged sentences

Results of Operations

The Company’s operating income for the 13 weeks ended December 31, 2022 decreased 21.1% to $2,203,000 as compared to $2,791,000 for the 13 weeks ended January 1, 2022.

This decrease resulted primarily from increased labor costs in connection with record low unemployment and ongoing COVID-related labor challenges, percentage rents paid on higher sales in the current period and the inflationary impact on commodity prices and other high-volume items partially offset by a 7.9% increase in revenues.

The following table summarizes the significant components of the Company’s operating results for the 13-week periods ended December 31, 2022 and January 1, 2022:

13 Weeks Ended Variance

2022 January 1,

(in thousands)

The Company’s operating income for the 13 and 26 weeks ended April 1, 2023 decreased 89.9% and 26.2%, respectively, as compared to the comparable prior periods primarily as a result of increased labor costs in connection with record low unemployment, the temporary closure of Gallagher's Steakhouse in Las Vegas, NV for renovation, percentage rents paid on higher sales in the current period and the inflationary impact on commodity prices and other high-volume cost of sales items partially offset by increases in revenues form our event business in New York City and Washington, D.C.

The following table summarizes the significant components of the Company’s operating results for the 13- and 26-week periods ended April 1, 2023 and April 2, 2022:

13 Weeks Ended Variance 26 Weeks Ended Variance

2023 April 2,

2022 $ % April 1,

2023 April 2,

(in thousands) (in thousands)

Food and beverage sales $ 40,913 $ 38,822 $ 2,091 5.4 % $ 87,452 $ 82,058 $ 5,394 6.6 %

10 unchanged sentences

OPERATING INCOME $ 23 $ 227 $ (204) -89.9 % $ 2,227 $ 3,018 $ (791) -26.2 %

During the 13-week period ended December 31, 2022, revenues increased 7.9% as compared to revenues in the 13-week period ended January 1, 2022.

This increase resulted primarily from an increase in same-store sales discussed below.

During the 13- and 26-week periods ended April 1, 2023, revenues increased 5.8% and 6.9%, respectively, as compared to revenues in the 13- and 26-week periods ended April 2, 2022.

These increases resulted primarily from an increase in same-store sales discussed below.

As required by our lease, Gallagher's Steakhouse at the New York-New York Hotel and Casino in Las Vegas, NV was substantially closed for renovation for the period from February 5, 2023 through April 27, 2023.

Revenues for the period from closure through April 1, 2023 were $714,000 as compared to $2,326,000 for the comparable prior period.

Food and Beverage Same-Store Sales

On a Company-wide basis, same-store sales increased 6.4% during the 13 weeks ended December 31, 2022 as compared to the same period of last year as follows:

On a Company-wide basis, same-store sales increased 5.0% during the 13 weeks ended April 1, 2023 as compared to the same period of last year as follows:

13 Weeks Ended Variance

2022 January 1,

2023 April 2,

(in thousands)

8 unchanged sentences

Food and beverage sales $ 40,913 $ 38,822

The increases in company-wide same-store sales for the 13 weeks ended December 31, 2022 as compared to the prior period were driven primarily by increased customer traffic and targeted menu price increases in Las Vegas, New York and Washington, D.C.

as the impact of the COVID-19 pandemic continues to subside.

In New York and Washington, D.C., the current period also benefited from very strong revenues from our event business.

Same-store sales in Alabama increased 1.6% primarily as a result of targeted menu rice increases.

Same-store sales in Florida decreased 9.2% primarily as a result of lower traffic in the current period as the prior period benefited from outsized volumes as a result of the population increase in Southeast Florida as a result of the migration of people during the pandemic, partially offset by targeted menu price increases.

Same-store sales in Las Vegas increased 1.5% primarily as a result of increased customer traffic and targeted menu price increases partially offset by the negative impact of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023).

Same store sales increases in New York and Washington, D.C.

of 40.2% and 25.2%, respectively, as compared to the prior period were driven primarily by strong revenues from our event business, increased customer traffic and targeted menu price increases.

Same-store sales in Atlantic City decreased 17.1% as a result of lower customer traffic at the property where we are located.

Same-store sales in Alabama increased 6.3% primarily as a result of increased customer traffic and targeted menu price increases.

Same-store sales in Florida increased 0.2% primarily as a result of increased customer traffic and targeted menu price increases offset by lower headcounts at the Rustic Inn in the current period.

On a Company-wide basis, same-store sales increased 5.7% during the 26 weeks ended April 1, 2023 as compared to the same period of last year as follows:

26 Weeks Ended Variance

2023 April 2,

(in thousands)

Las Vegas $ 28,205 $ 26,721 $ 1,484 5.6 %

New York 15,493 11,912 3,581 30.1 %

Washington, DC 4,328 3,534 794 22.5 %

Atlantic City, NJ 1,344 1,568 (224) -14.3 %

Alabama 6,673 6,415 258 4.0 %

Florida 30,045 31,290 (1,245) -4.0 %

Same-store sales 86,088 81,440 $ 4,648 5.7 %

Other 1,364 618

Food and beverage sales $ 87,452 $ 82,058

Same-store sales in Las Vegas increased 5.6% primarily as a result of increased customer traffic and targeted menu price increases partially offset by the negative impact of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023).

Same store sales increases in New York and Washington, D.C.

of 30.1% and 22.5%, respectively, as compared to the prior period were driven primarily by strong revenues from our event business, increased customer traffic and targeted menu price increases.

Same-store sales in Atlantic City decreased 14.3% as a result of lower customer traffic at the property where we are located.

Same-store sales in Alabama increased 4.0% primarily as a result of increased customer traffic and targeted menu price increases.

Same-store sales in Florida decreased 4.0% primarily as a result of lower traffic in the first quarter as compared to the comparable prior period which benefited from outsized volumes as a result of the population increase in Southeast Florida as a result of the migration of people during the pandemic combined with lower

headcounts at the Rustic Inn in the second quarter partially offset by increased customer traffic and targeted menu price increases targeted menu price increases at our other Florida properties in the second quarter.

Other food and beverage sales consist of sales related to new restaurants opened or acquired during the applicable period, sales related to properties that were closed and other adjustments and fees.

Costs and Expenses

Costs and expenses for the 13 weeks ended December 31, 2022 and January 1, 2022 were as follows (in thousands):

Costs and expenses for the 13 and 26 weeks ended April 1, 2023 and April 2, 2022 were as follows (in thousands):

13 Weeks Ended

1 unchanged sentence

Revenues Increase

(Decrease) 26 Weeks Ended

Revenues 26 Weeks Ended

Revenues Increase

Food and beverage cost of sales $ 11,795 28.2 % $ 12,255 31.0 % (460) -3.8 % $ 24,231 27.1 % $ 24,796 29.7 % (565) -2.3 %

5 unchanged sentences

Total costs and expenses $ 41,874 $ 39,359 $ 2,515 $ 87,115 $ 80,553 $ 6,562

Food and beverage costs as a percentage of total revenues for the 13 weeks ended December 31, 2022 as compared with the same period of last year decreased as a result of targeted increases in menu pricing, changes in menu mix and a very strong event business in Washington, D.C.

Food and beverage costs as a percentage of total revenues for the 13 and 26 weeks ended April 1, 2023 as compared with the same period of last year decreased as a result of targeted increases in menu pricing, changes in menu mix and a very strong event business in Washington, D.C.

and New York City in the current period, partially offset by increases in commodity prices and other high-volume items caused by inflation.

Payroll expenses as a percentage of total revenues for the 13 weeks ended December 31, 2022 increased as compared with the same period of last year primarily as a result of record low unemployment and ongoing COVID-related labor challenges combined with merit increases.

Occupancy expenses as a percentage of total revenues for the 13 weeks ended December 31, 2022 increased as compared with the same period of last year primarily as a result of increases in base rents, percentage rents paid on higher sales in the current period and increases in property and liability insurance premiums.

Other operating costs and expenses as a percentage of total revenues for the 13 weeks ended December 31, 2022 as compared to the same period of last year increased slightly primarily as a result of inflation.

General and administrative expenses (which relate solely to the corporate office in New York City) for the 13 weeks ended December 31, 2022 increased slightly as compared with the same period of last year primarily as a result of annual merit increases.

Depreciation and amortization expense for the 13 weeks ended December 31, 2022 decreased slightly as compared to the same period of last year primarily as a result of the timing of additions in the prior period.

Payroll expenses as a percentage of total revenues for the 13 and 26 weeks ended April 1, 2023 increased as compared with the same period of last year primarily as a result of record low unemployment and ongoing COVID-related labor challenges combined with merit increases.

Occupancy expenses as a percentage of total revenues for the 13 and 26 weeks ended April 1, 2023 increased as compared with the same period of last year primarily as a result of increases in base rents, percentage rents paid on higher sales in the current period and increases in property and liability insurance premiums.

Other operating costs and expenses as a percentage of total revenues for the 13 and 26 weeks ended April 1, 2023 as compared to the same period of last year increased primarily as a result of inflation.

General and administrative expenses (which relate solely to the corporate office in New York City) for the 13 weeks ended April 1, 2023 were comparable with the same period of last year.

General and administrative expenses (which relate solely to the corporate office in New York City) for the 26 weeks ended April 1, 2023 increased slightly as compared with the same period of last year primarily as a result of annual merit increases.

Depreciation and amortization expense for the 13 and 26 weeks ended April 1, 2023 decreased slightly as compared to the same period of last year primarily as a result of the timing of additions in the prior period.

Liquidity and Capital Resources

4 unchanged sentences

We believe that our operating lease arrangements provide appropriate leverage of our capital structure in a financially efficient manner.

As of December 31, 2022, we had a cash and cash equivalents balance of $19,427,000 and a certificate of deposit in the amount of $5,044,000 that matured in January 2023.

In addition, the Company had working capital of $4,850,000 at December 31, 2022 as compared with working capital of $4,210,000 at October 1, 2022.

As of April 1, 2023, we had a cash and cash equivalents balance of $17,890,000.

The Company had a working capital deficit of ($5,842,000) at April 1, 2023 as compared with working capital of $4,210,000 at October 1, 2022.

This decrease is the result of the prepayment of a promissory note in the amount of $6,666,000 on March 30, 2023 and the prepayment of three promissory notes in the aggregate amount of $6,046,000 on April 4, 2023 (see Note 14 - Subsequent Events).

The country is currently experiencing multi-decade high inflation.

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There can be no assurance that all of our future cost increases can be offset by higher menu prices or that higher menu prices will be accepted by our restaurant customers without any resulting changes in their visit frequencies or purchasing patterns.

Cash Flows for 13 Weeks Ended December 31, 2022 and January 1, 2022

Net cash used in operating activities for the 13 weeks ended December 31, 2022 decreased to $(903,000) as compared to $3,852,000 provided by operating activities in the same period of last year.

This decrease was primarily attributable to a decrease in accrued expenses related to catering deposits, the payment of bonuses and changes in net working capital primarily related to accounts receivable, inventory and accounts payable.

Net cash used in investing activities for the 13 weeks ended December 31, 2022 and January 1, 2022 was $(751,000) and $(408,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants.

Net cash used in financing activities for the 13 weeks ended December 31, 2022 of $(2,358,000) resulted primarily from principal payments on notes payable, the payment of dividends and the payment of distributions to non-controlling interests.

Net cash used in financing activities for the 13 weeks ended January 1, 2022 of $(2,448,000) resulted primarily from principal payments on notes payable and the payment of distributions to non-controlling interests.

Cash Flows for 26 Weeks Ended April 1, 2023 and April 2, 2022

Net cash provided by operating activities for the 26 weeks ended April 1, 2023 decreased to $2,111,000 as compared to $4,963,000 in the same period of last year.

This decrease was primarily attributable to a decrease in consolidated net income and changes in net working capital primarily related to accounts receivable, inventory, accounts payable and accrued expenses.

Net cash provided by (used in) investing activities for the 26 weeks ended April 1, 2023 and April 2, 2022 was $2,998,000 and $(1,090,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants and in the current period the proceeds from the maturity of a certificate of deposit.

Net cash used in financing activities for the 26 weeks ended April 1, 2023 of $(10,658,000) resulted primarily from principal payments on notes payable of $8,640,000 (including the prepayment of a promissory note in the amount of $6,666,000 on March 30, 2023), the resumption of payment of dividends in the amount of $900,000 and the payment of distributions to non-controlling interests in the amount of $587,000.

Net cash used in financing activities for the 26 weeks ended April 2, 2022 of $(4,052,000) resulted primarily from principal payments on notes payable of $2,468,000 and the payment of distributions to non-controlling interests in the amount of $1,069,000.

Recent Restaurant Expansions and Other Developments

On April 8, 2022, the Company extended its lease for Gallagher's Steakhouse at the New York-New York Hotel and Casino in Las Vegas, NV through December 31, 2032.

In connection with the extension, the Company has agreed to spend a minimum of $1,500,000 (of which approximately $500,000 has been spent to date) to materially refresh the premises by April 30, 2023 (as extended from September 30, 2022 due to supply chain issues), subject to various extensions as set out in the agreement.

In connection with the extension, the Company has agreed to spend a minimum of $1,500,000 (all of which has been expended to date) to materially refresh the premises by April 30, 2023 (as extended from September 30, 2022 due to supply chain issues), subject to various extensions as set out in the agreement.

Accordingly, the property was substantially closed for renovation on February 5, 2023 and reopened on April 28, 2023.

The total cost of the refresh was approximately $1,900,000.

On June 24, 2022, the Company extended its lease for America at the New York-New York Hotel and Casino in Las Vegas, NV through December 31, 2033.

In connection with the extension, the Company has agreed to spend a minimum of $4,000,000 to materially refresh the premises by December 31, 2024, subject to various extensions as set out in the agreement.

No amounts have been expended to date related to this refresh.

On July 21, 2022, the Company extended its lease for the Village Eateries at the New York-New York Hotel and Casino in Las Vegas, NV through December 31, 2034.

As part of this extension, the Broadway Burger Bar and Grill and Gonzalez y Gonzalez , were carved out of the Village Eateries footprint and the extended date for those two locations is December 31, 2033.

In connection with the extension, the Company has agreed to spend a minimum of $3,500,000 to materially refresh all three of these premises by June 30, 2023, subject to various extensions as set out in the agreement.

In connection with the extension, the Company has agreed to spend a minimum of $3,500,000 to materially refresh all three of these premises by June 30, 2023 (of which approximately $50,000 has been spent to date), subject to various extensions as set out in the agreement, which the Company expects will be agreed to.

Each of the above refresh obligations are to be consistent with designs approved by the Landlord which shall not be unreasonably withheld.

5 unchanged sentences

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

Recent Restaurant Dispositions

Recent Restaurant Dispositions and Other Developments

On July 5, 2022, the Company terminated its lease for Lucky 7 at the Foxwoods Resort Casino.

The closure did not result in a material change to the Company's operations.

Notes Payable – Bank

On June 1, 2018, the Company refinanced (the "Refinancing") its then existing indebtedness with its current lender, Bank Hapoalim B.M.

(“BHBM”), by entering into an amended and restated credit agreement (the “Revolving Facility”), which was to mature on May 19, 2022 (as extended).

The Revolving Facility provides for total availability of the lesser of (i) $10,000,000 and (ii) $35,000,000 less the then aggregate amount of all indebtedness and obligations to BHBM.

On July 26, 2021, all outstanding borrowings under the Revolving Facility, in the amount of $9,666,000, were converted to a promissory note with quarterly principal payments of $500,000 commencing on September 1, 2021, with a balloon payment of $2,166,000 on June 1, 2025.

Such note bears interest at LIBOR plus 3.5% per annum.

We expect that the LIBOR rate will be discontinued by June 30, 2023 and will continue to work with BHBM to identify a suitable replacement rate and amend our debt agreements to reflect this new reference rate accordingly.

We do not expect the discontinuation of LIBOR as a reference rate in our debt agreements to have a material adverse effect on our financial position or materially affect our interest expense.

Borrowings under the Revolving Facility, which include the promissory notes as discussed in Note 8 of the consolidated condensed financial statements, are secured by all tangible and intangible personal property (including accounts receivable,

inventory, equipment, general intangibles, documents, chattel paper, instruments, letter-of-credit rights, investment property, intellectual property and deposit accounts) and fixtures of the Company.

The Revolving Facility also requires, among other things, that the Company meet minimum quarterly tangible net worth amounts, maintain a minimum fixed charge coverage ratio and meet minimum annual net income amounts.

The Revolving Facility contains customary representations, warranties and affirmative covenants as well as customary negative covenants, subject to negotiated exceptions on liens, relating to other indebtedness, capital expenditures, liens, affiliate transactions, disposal of assets and certain changes in ownership.

During the 26 weeks ended April 1, 2023, the Company dissolved the entity which owned Clyde Frazier's Wine and Dine, which was closed in September of 2021.

In connection with the dissolution, the Company reclassified the remaining non-controlling interest balance to additional paid-in capital.

Credit Facility

On March 30, 2023, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”), with its lender, Bank Hapoalim B.M.

This facility, which matures on June 1, 2025, replaced our revolving credit facility which was entered into in June 1, 2018.

Under the terms of the Credit Agreement:

(i) a promissory note under the Prior Credit Agreement in the amount of $6,666,000 was repaid, (ii) BHBM established a new revolving credit facility in the amount of $10,000,000, with a commitment termination date of May 31, 2025, (ii) the Company may use the revolving commitments of BHBM to obtain letters of credit up to a sublimit thereunder of $1,000,000, and (iv) the LIBOR rate option for all borrowings was replaced with the secured overnight financing rate for U.S.

Government Securities (“SOFR”).

Advances under the Credit Agreement bear interest, at the Company's election at the time of the advance, at either BHBM's prime rate of interest plus a 0.45% spread or SOFR plus a 3.65% spread.

In addition, there is a 0.30% per annum fee for any unused portion of the $10,000,000 revolving facility.

As of April 1, 2023, no advances were outstanding under the Credit Agreement.

As of April 1, 2023, the weighted average interest on the outstanding BHBM notes payable was approximately 8.2%.

We do not expect the replacement of LIBOR with SOFR as a reference rate in our debt agreements to have a material adverse effect on our financial position or materially affect our interest expense.

Borrowings and all other obligations under Credit Agreement, which include the promissory notes as discussed in Note 8 of the consolidated condensed financial statements, are secured by all tangible and intangible personal property (including accounts receivable, inventory, equipment, general intangibles, documents, chattel paper, instruments, letter-of-credit rights, investment property, intellectual property and deposit accounts) and fixtures of the Company.

The Credit Facility also requires, among other things, that the Company meet minimum quarterly tangible net worth amounts, maintain a minimum fixed charge coverage ratio and meet minimum annual net income amounts.

The Credit Agreement contains customary representations, warranties and affirmative covenants as well as customary negative covenants, subject to negotiated exceptions on liens, relating to other indebtedness, capital expenditures, liens, affiliate transactions, disposal of assets and certain changes in ownership.

Paycheck Protection Program Loans

3 unchanged sentences

Funds from the PPP Loans were to be used only for payroll and related costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations that were incurred by a Borrower prior to February 15, 2020 (the “Qualifying Expenses”).

Under the terms of the PPP Loans, some or all of the amounts thereunder, including accrued interest, were to be forgiven if they were used for Qualifying Expenses as described in and in compliance with the CARES Act.

During the 13 weeks ended December 31, 2022 and January 1, 2022, $272,000 and $0 of PPP Loans, respectively (including $6,000 and $0 of accrued interest, respectively) were forgiven.

During the 13 weeks ended December 31, 2022 and January 1, 2022, the Company made payments related to the unforgiven portion of PPP Loans in the aggregate amount of $531,000 and $0, respectively.

As of December 31, 2022, no PPP Loans were outstanding;

Under the terms of the PPP Loans, some or all of

the amounts thereunder, including accrued interest, were to be forgiven if they were used for Qualifying Expenses as described in and in compliance with the CARES Act.

During the 26 weeks ended April 1, 2023 and April 2, 2022, $272,000 and $1,122,000 of PPP Loans, respectively (including $6,000 and $20,000 of accrued interest, respectively) were forgiven.

During the 13 weeks ended April 1, 2023 and April 2, 2022, $0 and $1,122,000 of PPP Loans, respectively (including $0 and $20,000 of accrued interest, respectively) were forgiven.

During the 26 weeks ended April 1, 2023 and April 2, 2022, the Company made payments related to the unforgiven portion of PPP Loans in the aggregate amount of $531,000 and $976,000, respectively.

As of April 1, 2023, no PPP Loans were outstanding;

however, the Company is appealing a forgiveness denial in the amount of $280,000.

4 unchanged sentences

Recent Events

On February 8, 2023, the Board of Directors of the Company (the "Board") declared a quarterly cash dividend of $0.125 per share to be paid on March 14, 2023 to the stockholders of record of each share of the Company's common stock at the close of business on February 28, 2023.

On April 4, 2023, the Company repaid the Shuckers and Oyster House promissory notes in the amounts of $3,485,000 and $2,564.000, respectively.

such amounts are included in the current portion of notes payable in the accompanying Consolidated Condensed Balance Sheet as of April 1, 2023.

On April 20, 2023, the Company extended the due date of the $1,500,000 promissory note due from Meadowlands Newmark, LLC from January 31, 2024 to June 30, 2029.

On May 9, 2023, the Board of Directors declared a quarterly cash dividend of $0.1875 per share to be paid on June 13, 2023 to shareholders of record of each share of the Company's common stock at the close of business on May 31, 2023.

Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will depend upon operating performance and other factors.

6 unchanged sentences

The Company’s critical accounting estimates are described in the Company’s MD&A included in Form 10-K for the year ended October 1, 2022.

There have been no significant changes to such critical accounting estimates during the first fiscal quarter 2023.

Recently Adopted and Issued Accounting Standards

See Note 1 to the consolidated condensed financial statements for a description of recent accounting pronouncements, including those adopted in fiscal 2023 and the expected dates of adoption of new accounting standards and the anticipated impact on the consolidated condensed financial statements.

There have been no significant changes to such critical accounting estimates during the second fiscal quarter 2023.

Quantitative and Qualitative Disclosures about Market Risk

1 unchanged sentence

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-Q

Item 2. Management’s Discussion and Analysis