What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-12-21 compared with 2022-12-20 · 146 added, 116 removed, 184 unchanged (59% of the section changed)

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Recent global events, including the COVID-19 pandemic ("COVID-19"), have adversely affected global economies, disrupted global supply chains and labor force participation and created significant volatility and disruption of financial markets.

We experienced significant and variable disruptions to our business as federal, state and local restrictions were mandated, among other remedial measures, to mitigate the spread of the COVID-19 virus.

During fiscal 2021, most of our restaurants operated with no restrictions on indoor dining, although there was a significant reduction in guest traffic at our restaurants due to changes in consumer behavior as public health officials encouraged social distancing.

While restrictions on the type of permitted operating model and occupancy capacity may continue to change, during fiscal 2022 all of our restaurants operated with no restrictions.

During fiscal 2022, in addition to the associated impact of COVID-19, our operating results have been impacted by geopolitical and other macroeconomic factors, leading to increased commodity and wage inflation and other increased costs.

As a result, we experienced significant and variable disruptions to our business as federal, state and local restrictions were mandated, among other remedial measures, to mitigate the spread of the COVID-19 virus.

While restrictions on the type of permitted operating model and occupancy capacity may continue to change, during fiscal 2022 all of our restaurants operated with no restrictions, other than in New York City where customers were required to show proof of vaccination through November 1, 2022.

In addition to the associated impacts of COVID-19, our operating results have been impacted by geopolitical and other macroeconomic factors, leading to increased commodity and wage inflation and other increased costs.

The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events, could lead to further government mandates, including but not limited to capacity restrictions, shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation and disruptions in our supply chain.

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

As of October 1, 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 September 30, 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 segments into a single reporting segment in accordance with applicable accounting guidance.

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Under this method, certain years will contain 53 weeks.

The fiscal years ended October 1, 2022 and October 2, 2021 both included 52 weeks.

The fiscal years ended September 30, 2023 and October 1, 2022 both included 52 weeks.

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

Although our business is highly seasonal, our broader geographical reach as a result of recent acquisitions mitigates some of the risk.

For instance, the second quarter of our fiscal year, consisting of the non-holiday portion of the cold weather season in New York and Washington (January, February and March), is the poorest performing quarter;

Although our business is highly seasonal, our broader geographical reach as a result of recent acquisitions is expected to continue to mitigate some of the risk.

For instance, the second quarter of our fiscal year, consisting of the non-holiday portion of the cold weather season in New York and

Washington (January, February and March), is the poorest performing quarter;

however, in recent years this has been partially offset by our locations in Florida as they experience increased results in the winter months.

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Results of Operations

The Company’s operating income for the year ended October 1, 2022 increased 58.9% from $9,864,000 as compared to $6,207,000 for the year ended October 2, 2021.

This increase resulted primarily from a 39.3% increase in revenues, as all of our restaurants were operating with no dining restrictions in the current period in comparison to the prior period as a result of government mandates in connection with the COVID-19 pandemic, partially offset by increases in commodity prices and other high-volume items caused by inflation, increased labor costs in connection with ongoing COVID-related labor challenges and percentage rents paid on higher sales in the current year.

The following table summarizes the significant components of the Company’s operating results for the years ended October 1, 2022 and October 2, 2021, respectively:

The Company’s operating loss for the year ended September 30, 2023 (which includes a goodwill impairment charge of $10,000,000) was $4,840,000, down 149.1% as compared to operating income of $9,864,000 for the year ended October 1, 2022.

Excluding the goodwill impairment charge of $10,000,000, operating income for the year ended September 30, 2023 decreased 47.7% to $5,160,000 as compared to $9,864,000 for the year ended October 1, 2022.

This decrease resulted primarily from increases in labor costs combined with increased base rents and inflationary pressures related to non-commodity items partially offset by an easing in commodity prices.

The following table summarizes the significant components of the Company’s operating results for the years ended September 30, 2023 and October 1, 2022, respectively:

Year Ended Variance

September 30,

2023 October 1,

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General and administrative expenses 12,407 12,936 (529) -4.1 %

Gain on lease termination — (810) 810 N/A

Goodwill impairment 10,000 — 10,000 N/A

Depreciation and amortization 4,310 4,297 13 0.3 %

Total costs and expenses 189,633 173,810 15,823 9.1 %

OPERATING INCOME $ 9,864 $ 6,207 $ 3,657 58.9 %

During the year ended October 1, 2022, revenues increased 39.3% as compared to revenues for the year ended October 2, 2021.

This increase resulted primarily from increased customer traffic at all of our properties as they are operating with no dining restrictions in the current period in comparison to the prior period where there were restrictions as a result of government mandates in connection with the COVID-19 pandemic combined with targeted menu price increases and in New York and Washington, D.C., strong revenues from our event business in the current period.

OPERATING INCOME (LOSS) $ (4,840) $ 9,864 $ (14,704) -149.1 %

During the year ended September 30, 2023, revenues increased 0.6% as compared to revenues for the year ended October 1, 2022.

This small increase was primarily as a result of the changes in same-store sales discussed below.

Food and Beverage Same-Store Sales

On a Company-wide basis, same-store food and beverage sales increased 38.1% for the year ended October 1, 2022 as compared to the year ended October 2, 2021 as follows:

On a Company-wide basis, same-store food and beverage sales for the year ended September 30, 2023 were consistent with the year ended October 1, 2022 as follows:

Year Ended Variance

September 30,

2023 October 1,

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Food and beverage sales $ 180,820 $ 180,010

The increases in company-wide same-store sales for the year ended October 1, 2022 as compared to the prior year were driven primarily by increased customer traffic as a result of the impact of the COVID-19 pandemic on the prior period combined with targeted increases in menu pricing and a strong recovery in our event business in Washington, D.C.

and New York City in the current period.

Other food and beverage sales consist of current year for pre-acquisition periods of restaurants opened or acquired during the applicable period ( Blue Moon Fish Company - see Liquidity and Capital Resources - Recent Expansion and Other Developments), sales related to properties that were closed ( Clyde Frazier's Wine and Dine, Lucky 7 and Gallagher's Steakhouse and Gallagher's Burger Bar - see Liquidity and Capital Resources - Recent Restaurant Dispositions) and other adjustments and fees.

_____________________

Entries related to percentages in the table above marked " —% " indicate percentage less than 1%.

Same-store sales in Las Vegas increased marginally 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 from February 5, 2023 to April 27, 2023.

Same-store sales in New York increased 10.9% driven primarily by strong revenues from our event business and increased customer traffic.

Same-store sales in Washington, DC decreased marginally driven primarily by lower headcounts in the third and fourth quarters partially offset by strong revenues from our event business and targeted menu price increases in the first two quarters.

Same-store sales in Atlantic City decreased 15.6% as a result of lower customer traffic at the property where we are located.

Same-store sales in Alabama increased 2.5% primarily as a result of increased customer traffic and targeted menu price increases.

Same-store sales in Florida decreased 6.0% primarily as a result of lower headcounts 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 partially offset by targeted menu price increases.

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 ( Lucky 7 - see Liquidity and Capital Resources - Recent Restaurant Dispositions) and other adjustments and fees.

Prior to the COVID-19 pandemic, our restaurants generally did not achieve substantial increases in revenue from year to year, which we consider to be typical of the restaurant industry.

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Included in other revenues are purchase service fees which represent commissions earned by a subsidiary of the Company for providing purchasing services to other restaurant groups, as well as merchandise sales, license fees, property management fees and other rentals.

The increase in other revenues for the year ended October 1, 2022 as compared to the year ended October 2, 2021 is primarily due to the impact of the COVID-19 pandemic in the prior year.

The increase in other revenues for the year ended September 30, 2023 as compared to the year ended October 1, 2022 is primarily due to an increase in purchase service fees.

Costs and Expenses

Costs and expenses for the years ended October 1, 2022 and October 2, 2021 were as follows (in thousands):

Costs and expenses for the years ended September 30, 2023 and October 1, 2022 were as follows (in thousands):

September 30,

Total Revenues Year Ended

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General and administrative expenses 12,407 6.7 % 12,936 7.0 % (529) -4.1 %

Gain on lease termination — — % (810) -0.6 % 810 N/A

Goodwill impairment 10,000 5.4 % — — % 10,000 N/A

Depreciation and amortization 4,310 2.3 % 4,297 2.3 % 13 0.3 %

Total costs and expenses $ 189,633 $ 173,810 $ 15,823

Food and beverage costs as a percentage of total revenues for the year ended October 1, 2022 decreased as compared to last year primarily as a result of targeted increases in menu pricing, changes in menu mix and a 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 year ended October 1, 2022 increased as compared to last year primarily as a result of increased labor costs in connection with ongoing COVID-related labor challenges partially offset by increased volumes, targeted increases in menu pricing and changes in menu mix and a strong event business in Washington, D.C.

and New York City in the current period.

Occupancy expenses as a percentage of total revenues for the year ended October 1, 2022 increased as compared to last year primarily as a result of percentage rents paid on higher sales in the current period.

Other operating costs and expenses as a percentage of total revenues for the year ended October 1, 2022 decreased as compared to last year as a result of the fixed nature of some of these expenses and lower sales in the prior period as a result of the COVID-19 pandemic, partially offset by increased maintenance at properties which was deferred as we were experiencing lower traffic in prior periods combined with higher restaurant-level professional fees in the current period.

General and administrative expenses (which relate solely to the corporate office in New York City) for the year ended October 1, 2022 increased as compared to last year primarily as a result of increased bonus accruals combined with salary reductions of corporate personnel in the prior period as a result of the impacts on our business from the COVID-19 pandemic.

Depreciation and amortization expense for the year ended October 1, 2022 increased as compared to last year primarily as a result of assets placed in service in the current period.

Gain on Lease Termination

On September 1, 2021, the Company advised the landlord of Clyde Frazier's Wine and Dine that we would be closing the property permanently and terminating the lease.

In connection with this notification, the Company recorded a gain of $810,000 during the year ended October 2, 2021 consisting of:

(i) rent and other costs incurred in accordance with the termination provisions of the lease in the amount of $318,000, (ii) impairment of long-lived assets in the amount of $69,000 and (iii) the write-off of our security deposit in the amount of $121,000 offset by the write-off of ROU assets and related lease liabilities in the net amount of $1,318,000.

Impairment loss from write-down of long-lived assets

Management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants.

Periodically it is concluded that certain properties have become impaired based on their existing and anticipated future economic outlook in their respective markets.

In such instances, we may impair assets to reduce their carrying values to fair values.

Estimated fair values of impaired properties are based on comparable valuations, cash flows and/or management judgment.

Included in depreciation and amortization for the year ended October 2, 2021 is an impairment charge of $69,000 related to Clyde Frazier's Wine and Dine.

Food and beverage costs as a percentage of total revenues for the year ended September 30, 2023 decreased as compared to last year primarily as a result of a very strong event business in New York City and Washington, D.C., which has higher margins, combined with some easing in commodity prices.

Payroll expenses as a percentage of total revenues for the year ended September 30, 2023 increased as compared to last year primarily as a result of increased labor costs in connection with record low unemployment and ongoing COVID-related labor challenges combined with merit increases and increasing minimum wages in the states where we operate.

Occupancy expenses as a percentage of total revenues for the year ended September 30, 2023 increased as compared to last year primarily as a result of increases in base rents and increases in property and liability insurance premiums.

Other operating costs and expenses as a percentage of total revenues for the year ended September 30, 2023 increased as compared to last year primarily as a result of inflation.

General and administrative expenses (which relate solely to the corporate office in New York City) for the year ended September 30, 2023 decreased as compared to last year primarily as a result of severance accruals in the prior period partially offset by annual merit increases.

Depreciation and amortization expense for the year ended September 30, 2023 increased slightly as compared to the same period of last year primarily as a result of the timing of additions in the prior period.

Goodwill Impairment

Goodwill is the excess of cost over fair market value of tangible and intangible net assets acquired.

Goodwill is not presently amortized but tested for impairment annually or when the facts or circumstances indicate a possible impairment of goodwill as a result of a continual decline in performance or as a result of fundamental changes in a market.

In performing its goodwill impairment test as of September 30, 2023, the Company determined that a triggering event had occurred and the Company performed a qualitative and quantitative impairment test to determine if the carrying value of our equity, including goodwill, exceeded its fair value.

The fair value of our equity was determined using the income-based approach.

In the income approach, we utilized a discounted cash flow analysis, which involved estimating the expected future after-tax cash flows generated and then discounting those cash flows to present value, reflecting the relevant risks associated with the achievement of projected cash flows, the possibility that the Bryant Park Grill & Cafe and The Porch at Bryant Park leases may not be renewed beyond their expirations on April 30, 2025 (see Note 11 - Commitments and Contingencies to the Consolidated Financial Statements), and the time value of money.

This approach requires the use of significant estimates and assumptions, including forecasted revenue growth rates, forecasted EBITDA margins, and discount rates that reflect the risk inherent in the future cash flows.

Based on the impairment analysis, the carrying amount of our equity exceeded its estimated fair value, which indicated an impairment of the carrying value of our goodwill.

Accordingly, during the fourth quarter of fiscal 2023, the Company recorded a

goodwill impairment charge of $10,000,000, of which $8,000,000 was deductible for tax purposes and resulted in a deferred income tax benefit of $2,300,000.

Our income tax expense, deferred tax assets and liabilities, and liabilities for uncertain tax positions reflect management’s best estimate of current and future taxes to be paid.

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The Company does not expect the Act to materially impact its financial statements.

On March 27, 2020, the CARES Act was enacted to provide economic relief to those impacted by the COVID-19 pandemic.

In addition to the PPP loans, the CARES Act made various tax law changes including among other things (i) modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 tax years to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes, (ii) enhanced recoverability of AMT tax credit carryforwards, (iii) increased the limitation under Internal Revenue Code ("IRC") Section 163(j) for 2019 and 2020 to permit additional expensing of interest, and (iv) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k).

On December 27, 2020, the Consolidated Appropriations Act of 2021 (“CAA”) was enacted and provided clarification on the tax deductibility of expenses funded with PPP loans as fully deductible for tax purposes.

During the years ended October 1, 2022 and October 2, 2021, the Company recorded income of $2,420,000 and $10,400,000, respectively (including $65,000 and $84,000 of accrued interest, respectively), for financial reporting purposes related to the forgiveness of its PPP Loans.

During the years ended September 30, 2023 and October 1, 2022, the Company recorded income of $272,000 and $2,420,000, respectively (including $6,000 and $65,000 of accrued interest, respectively), for financial reporting purposes related to the forgiveness of its PPP loans.

The forgiveness of these amounts is not taxable.

As a result of the CARES Act and the CAA, the Company carried back taxable losses from fiscal years 2020 and 2021 to generate a refund of previously paid income taxes.

As a result of these carrybacks, the Company recorded income tax benefits as the taxable losses from fiscal 2020 and fiscal 2021 are being carried back to tax years in which the Company was subject to a higher federal corporate income tax rate.

Included in Prepaid and Refundable Income Taxes at October 1, 2022 and October 2, 2021 is $1,360,000 and $3,766,000, respectively, related to these carryback claims.

The Company’s overall effective tax rate in the future will be affected by factors such as the utilization of state and local net operating loss carryforwards, the generation of FICA tax credits and the mix of earnings by state taxing jurisdictions as Nevada does not impose a state income tax, as compared to the other major state and local jurisdictions in which the Company has operations.

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

As of October 1, 2022, we

had a cash and cash equivalents balance of $23,439,000 and a certificate of deposit in the amount of $5,021,000 maturing in January 2023.

We experienced significant disruptions to our business as federal, state and local restrictions were mandated to mitigate the spread of the COVID-19 virus.

While restrictions on the type of permitted operating model and occupancy capacity may continue to change, during fiscal 2022 all of our restaurants operated with no restrictions.

During fiscal 2021, most of our restaurants operated with no restrictions on indoor dining, although there were impacts to our business from accelerating case counts.

During fiscal 2022, along with the impacts of COVID-19, our operating results have been impacted by geopolitical and other macroeconomic factors, leading to increased commodity and wage inflation and other increased costs.

If these factors significantly impact our cash flow in the future, we may again implement mitigation actions such as suspending dividends, increasing borrowings or modifying our operating strategies.

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

The Company had working capital of $4,210,000 at October 1, 2022 as compared to $2,572,000 at October 2, 2021.

This increase resulted primarily from cash provided by operations offset by a change in our debt maturities in connection with conversion of our revolving credit borrowings to term loans and the resumption of the payment of dividends in June 2022.

The Company had a working capital deficit of $5,932,000 at September 30, 2023 as compared to working capital of $4,210,000 at October 1, 2022.

This decrease is primarily 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.

We believe that our existing cash balances and current banking facilities will be sufficient to meet our liquidity and capital spending requirements and finance our operating activities for at least the next 12 months.

Cash Flows for the Years Ended October 1, 2022 and October 2, 2021

Net cash provided by operating activities for the year ended October 1, 2022 increased to $20,347,000 as compared to $9,294,000 for the year ended October 2, 2021.

This increase was attributable to an increase in operating income as a result of the continued recovery from the COVID-19 pandemic and changes in net working capital primarily related to accounts receivable, inventory, prepaid, refundable and accrued income taxes and accounts payable and accrued expenses.

Net cash used in investing activities for the years ended October 1, 2022 and October 2, 2021 was $(7,761,000) and $(3,450,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants and, in the current period, the purchase of a certificate of deposit in the amount of $5,000,000.

Net cash used in financing activities for the years ended October 1, 2022 and October 2, 2021 was $(8,318,000) and $(3,559,000), respectively, and resulted primarily from principal payments on notes payable, the payment of distributions to non-controlling interest and, in the current period, the resumption of the payment of dividends, partially offset by proceeds from stock option exercises.

On May 11, 2022 and August 10, 2022, the Board of Directors (the "Board") of the Company declared quarterly cash dividends of $0.125 per share which were paid on June 13, 2022 and September 13, 2022 to the stockholders of record of each share of the Company's common stock at the close of business on May 31, 2022 and August 31, 2022.

The payment of future dividends, and the amount of any dividend, is at the discretion of the Company’s Board of Directors and is based on future earnings, cash flow, financial condition, capital requirements and other relevant factors.

The country is currently experiencing multi-decade high inflation.

Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the cost of food and other raw materials, labor, energy and other supplies and services.

While we have not had material disruptions in our supply chain, we have experienced some product shortages and higher costs for many commodities.

There has also been a general shortage in the availability of restaurant staff and hourly workers in certain

geographic areas in which we operate and has caused increases in the costs of recruiting and compensating such employees.

In addition, certain operating and other costs, including health benefits, taxes, insurance, and other outside services, continue to increase with the general level of inflation and may also be subject to other cost and supply fluctuations outside of our control.

While we have been able to offset inflation and other changes in the costs of key operating resources by targeted increases in menu prices, coupled with more efficient purchasing practices, there can be no assurance that we will be able to continue to do so in the future.

From time to time, competitive conditions will limit our menu pricing flexibility.

In addition, macroeconomic conditions that impact consumer discretionary spending for food away from home could make additional menu price increases imprudent.

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 the Years Ended September 30, 2023 and October 1, 2022

Net cash provided by operating activities for the year ended September 30, 2023 decreased to $8,386,000 as compared to $20,347,000 for the year ended October 1, 2022.

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

Net cash provided by investing activities for the year ended September 30, 2023 was $1,276,000 compared to net cash used in investing activities for the year ended October 1, 2022 of $(7,761,000).

This increase resulted primarily from increased purchases of fixed assets associated with the renovation of Gallagher's Steakhouse and, in the current period, the proceeds from the maturity of a certificate of deposit.

Net cash used in financing activities for the year ended September 30, 2023 was $(19,686,000) and resulted primarily from principal payments on notes payable of $16,334,000 (including 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), the payment of dividends in the amount of $2,252,000 and the payment of distributions to non-controlling interests in the amount of $1,139,000.

Net cash used in financing activities for the year ended October 1, 2022 was $(8,318,000) and resulted primarily from principal payments on notes payable of $6,512,000, the resumption of the payment of dividends in the amount of $894,000 and the payment of distributions to non-controlling interests in the amount of $1,615,000.

On November 9, 2022, February 9, 2023, May 9, 2023 and August 8, 2023, the Board of Directors of the Company (the "Board") declared quarterly cash dividends of $0.125, $0.125, $0.1875 and $0.1875, respectively, per share, which were paid on December 13, 2022, March 14, 2023, June 13, 2023 and September 13, 2023 to the stockholders of record of the Company's common stock at the close of business on November 30, 2022, February 28, 2023, May 31, 2023 and August 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.

Restaurant Expansion 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 to materially refresh the premises by April 30, 2023 (as extended from September 30, 2022 due to supply chain issues), subject to additional extensions as set out in the agreement.

In connection with the extension, the Company agreed to spend a minimum of $1,500,000 to materially refresh the premises by April 30, 2023 (as extended from September 30, 2022 due to supply chain issues).

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 each of 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.

The above refresh obligations related to the New York-New York Hotel and Casino lease extensions are to be consistent with designs approved by the Landlord which shall not be unreasonably withheld.

We will continue to pay all rent as required by the leases without abatement during construction.

Note that our substantial completion of work set forth in plans approved by the Landlord shall constitute our compliance with the requirements of the completion deadlines, regardless of whether or not the amount actually expended in connection therewith is less than the minimum.

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 March 31, 2024 (as extended from June 30, 2023), subject to various extensions as set out in the agreement.

To date approximately $300,000 has been spent on this refresh.

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

We have and will continue to pay all rent as required by the leases without abatement during construction.

Note that our substantial completion of work set forth in plans approved by the landlord shall constitute our compliance with the requirements

of the completion deadlines, regardless of whether or not the amount actually expended in connection therewith is less than the minimum.

On September 19, 2023, the Company extended the lease for its corporate office through December 31, 2038.

The amended lease provides for rents, beginning on January 1, 2024, approximately 19% lower than the Company is currently paying.

The lease also provides for, among other things, the ability for the Company to vacate the premises upon 12 months' notice.

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.

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

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.

Investment in and Receivable from New Meadowlands Racetrack

On March 12, 2013, the Company made a $4,200,000 investment in the New Meadowlands Racetrack LLC (“NMR”) through its purchase of a membership interest in Meadowlands Newmark, LLC, an existing member of NMR.

On November 19, 2013, the Company invested an additional $464,000 in NMR through a purchase of an additional membership interest in Meadowlands Newmark, LLC resulting in a total ownership of 11.6% of Meadowlands Newmark, LLC, and an effective ownership interest in NMR of 7.4%, subject to dilution.

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In February 2017, the Company funded its proportionate share ($222,000) of a $3,000,000 capital call bringing its total investment to $5,108,000 with no change in ownership.

During the years ended September 30, 2023 and October 1, 2022, the Company received distributions from NMR in the amounts of $52,000 and $421,000, respectively, which are included in other income in the consolidated statements of operations for the years then ended.

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.

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The note may be prepaid, in whole or in part, at any time without penalty or premium.

On July 13, 2016, the Company made an additional loan to Meadowlands Newmark, LLC in the amount of $200,000.

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

The principal and accrued interest related to this note, after a $500,000 payment made in July 2021, in the amounts of $1,357,000 and $1,317,000, are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated balance sheets at October 1, 2022 and October 2, 2021, 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 operates a sports book in partnership with FanDuel, a leading provider of daily fantasy sports.

The principal and accrued interest related to this note in the amounts of $1,399,000 and $1,357,000, are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated balance sheets

at September 30, 2023 and October 1, 2022, respectively.

On April 30, 2023, the due date of the note was extended to June 30, 2029.

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 provided 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 Revolver Borrowings, 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 10 of the consolidated financial statements in the aggregate amount of $22,345,000, 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.

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 (the "Prior Credit Agreement").

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, (iii) 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 September 30, 2023, no advances were outstanding under the Credit Agreement.

As of September 30, 2023, the weighted average interest on the outstanding BHBM indebtedness was approximately 8.8%.

The replacement of LIBOR with SOFR as a reference rate in our debt agreements did not have a material adverse effect on our financial position or materially affect our interest expense.

Borrowings under the Credit Agreement, which include the promissory notes as discussed in Note 10 of the consolidated financial statements in the aggregate amount of $6,909,000, 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 loan agreements provide, 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 loan agreements also contain 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.

The Company was in compliance with all of its financial covenants under the Credit Agreement as of September 30, 2023 except for the minimum annual net income requirement (as a result of the non-cash goodwill impairment).

On December 13, 2023, BHBM agreed to waive applicability of this covenant (and any breach arising therefrom) as of September 30, 2023.

Paycheck Protection Program Loans

During the year ended October 3, 2020, subsidiaries (the “Borrowers”) of the Company received loan proceeds from several banks (the “Lenders”) in the aggregate amount of $14,995,000 (the “PPP Loans”) under the Paycheck Protection Program (the “PPP”) of the CARES Act, which was enacted March 27, 2020.

During the year ended October 3, 2020, subsidiaries and consolidated VIEs (the “Borrowers”) of the Company received loan proceeds from several banks (the “Lenders”) in the aggregate amount of $14,995,000 (the “PPP Loans”) under the Paycheck Protection Program (the “PPP”) of the CARES Act, which was enacted March 27, 2020.

In addition, during the 13 weeks ended April 3, 2021, one of our consolidated VIEs received a second draw PPP Loan in the amount of $111,000.

The PPP Loans are evidenced by individual promissory notes of each of the Borrowers (together, the “Notes”) in favor of the Lender, which Notes bear interest at the rate of 1.00% per annum.

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

While the Company and each Borrower believe that PPP Loan proceeds were used exclusively for Qualifying Expenses, it is unclear and uncertain whether the conditions for forgiveness of the remaining PPP Loans outstanding at October 1, 2022 will be met under the current guidelines of the CARES Act.

Therefore, we cannot make any assurances that the Company, or any of the Borrowers, will be eligible for forgiveness of the remaining PPP Loans in the amount of $797,000, in whole or in part.

During the years ended October 1, 2022 and October 2, 2021, $2,420,000 and $10,400,000, respectively (including $65,000 and $84,000 of accrued interest, respectively), of PPP Loans were forgiven.

To the extent, if any, that any of the remaining PPP Loans are not forgiven, beginning one month following expiration of the Deferral Period, and continuing monthly for 10 months (the “Maturity Date”), each respective Borrower is obligated to make monthly payments of principal and interest to the Lender with respect to any unforgiven portion of the Notes, in such equal amounts required to fully amortize the principal amount outstanding on such Notes as of the last day of the applicable Deferral Period by the applicable Maturity Date.

Critical Accounting Policies

The PPP Loans were evidenced by individual promissory notes of each of the Borrowers (together, the “Notes”) in favor of the Lender, which Notes bore interest at the rate of 1.00% per annum.

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 years ended September 30, 2023 and October 1, 2022, $272,000 and $2,420,000 of PPP Loans, respectively (including $6,000 and $66,000 of accrued interest, respectively), were forgiven.

During the years ended September 30, 2023 and October 1, 2022, the Company made payments related to the unforgiven portion of PPP Loans in the aggregate amount of $531,000 and $1,571,000, respectively.

As of September 30, 2023, no PPP Loans were outstanding;

however, the Company was denied forgiveness of one PPP Loan in fiscal 2023 in the amount of $280,000 and accordingly such amount was repaid.

The Company filed an appeal concurrent with the repayment, which was granted, and the amount was forgiven and refunded to the Company in November 2023.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements.

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Long-Lived Assets

Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

In the evaluation of the fair value and future benefits of long-lived assets, management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants.

Periodically it is concluded that certain properties have become impaired based on their existing and anticipated future economic outlook in their respective markets.

In such instances, we may impair assets to reduce their carrying values to fair values.

Estimated fair values of impaired properties are based on comparable valuations, cash flows and/or management judgment.

Management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants.

Periodically it is concluded that certain properties have become impaired based on their existing and anticipated future economic outlook in their respective markets.

In such instances, we may impair assets to reduce their carrying values to fair values.

Estimated fair values of impaired properties are based on comparable valuations, cash flows and/or management's judgment.

Included in the year ended October 2, 2021 is an impairment charge of $69,000 related to Clyde Frazier's Wine and Dine.

Long-lived assets, such as property, plant and equipment subject to amortization, and right-of-use assets ("ROU assets") are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

In the evaluation of the fair value and future benefits of long-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets.

If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value.

Various factors including estimated future sales growth and estimated profit margins are included in this analysis.

The Company considers a triggering event related to long-lived assets or ROU assets in a net asset position to have occurred related to a specific restaurant if the restaurant’s cash flows for the last 12 months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets.

Additionally, the Company considers a triggering event related to ROU assets to have occurred related to a specific lease if the location has been subleased and future estimated sublease income is less than current lease payments.

If the Company concludes that the carrying value of certain long-lived and ROU assets will not be recovered based on expected undiscounted future cash flows, an impairment loss is recorded to reduce the long-lived or ROU assets to their estimated fair value.

The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs.

There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis, which requires the use of estimates and assumptions.

If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future periods, and such charges could be material.

Based on the results of this analysis, no impairment charges were recognized related to long-lived assets and ROU assets during the years ended September 30, 2023 and October 1, 2022.

Given the inherent uncertainty in projecting results of restaurants under the current circumstances, the Company is monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.

For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.

Recoverability of Investment in New Meadowlands Racetrack (“NMR”)

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We review our investment in NMR each reporting period to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on its fair value.

As a result, we performed an assessment of the recoverability of our indirect investment in NMR as of October 1, 2022 which involved critical accounting estimates.

As a result, we performed an assessment of the recoverability of our indirect investment in NMR as of September 30, 2023 which involved critical accounting estimates.

These estimates require significant management judgment, include inherent uncertainties and are often interdependent;

therefore, they do not change in isolation.

Factors that management estimated include, among others, the probability of gambling being approved in northern New Jersey which is the most heavily weighted assumption and NMR obtaining a license to operate a casino, revenue levels, cost of capital, marketing spending, tax rates and capital spending.

Factors that management estimated include, among others, the probability of gambling being approved in northern New Jersey and NMR obtaining a license to operate a casino, revenue levels, cost of capital, marketing spending, tax rates and capital spending.

In performing this assessment, we estimate the fair value of our investment in NMR using our best estimate of these assumptions which we believe would be consistent with what a hypothetical marketplace participant would use.

The variability of these factors

depends on a number of conditions, including uncertainty about future events and our inability as a minority shareholder to control certain outcomes and thus our accounting estimates may change from period to period.

The variability of these factors depends on a number of conditions, including uncertainty about future events and our inability as a minority shareholder to control certain outcomes and thus our accounting estimates may change from period to period.

If other assumptions and estimates had been used when these tests were performed, impairment charges could have resulted.

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We assess the potential impairment of goodwill and trademarks annually (at the end of our fourth quarter) and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

If we determine through the impairment review process that goodwill or trademarks are impaired, we record an impairment charge in our consolidated statements of income.

Such impairment analyses for goodwill requires a comparison of the fair value of the Company’s equity to the carrying amount of goodwill since the Company operates in one segment.

At October 1, 2022 and October 2, 2021, we performed qualitative assessments of factors to determine whether further impairment testing of goodwill was required.

Based on this assessment, no impairment losses were warranted at October 1, 2022 and October 2, 2021.

Qualitative factors considered in this assessment included industry and market considerations, overall financial performance and other relevant events, management expertise and stability at key positions.

Additional impairment analyses at future dates may be performed to determine if indicators of impairment are present, and if so, such amount will be determined and the associated charge will be recorded to the consolidated statements of income.

If we determine through the impairment review process that goodwill or trademarks are impaired, we record an impairment charge in our consolidated statements of operations.

With respect to goodwill, the Company assesses qualitative factors to determine whether it is necessary to perform a more detailed quantitative impairment test.

The Company may elect to bypass the qualitative assessment and proceed directly to the quantitative test.

When performing the quantitative test, an impairment loss is recognized if the carrying value of our equity, including goodwill, exceeds its fair value.

Due to the volatility of the Company's stock price in the fourth quarter of fiscal 2023, the upcoming expiration of the current Bryant Park Grill & Cafe and The Porch at Bryant Park leases on April 30, 2025 and the related requests for proposals from the landlord for both locations received in July 2023 and September 2023, respectively (see Note 11 - Commitments and Contingencies to the Consolidated Financial Statements), the Company determined that there were indicators of potential impairment of its goodwill as of September 30, 2023.

As such, the Company performed a qualitative and quantitative assessment

for its goodwill and recorded a pre-tax noncash goodwill impairment charge of $10,000,000 in the fourth quarter of 2023 (see Note 7 – Goodwill, Trademarks and Intangible Assets to the Consolidated Financial Statements).

The fair value of the equity was determined using the income approach.

Given the relatively low volume of shares traded and the lack of reliable market data as of September 30, 2023, the Company determined the income approach provided the best approximation of fair value.

This approach requires the use of significant estimates and assumptions, including forecasted revenue growth rates, forecasted cash flows from operations, and discount rates that reflect the risk inherent in the future cash flows.

More specifically, the weighted average cost of capital is a sensitive estimate as it reflects the market conditions including the risk that the Bryant Park Grill & Café and The Porch at Bryant Park leases will not be renewed.

The Company did not record any impairment to its goodwill during the year ended October 1, 2022.

Our impairment analysis for trademarks consists of a comparison of the fair value to the carrying value of the assets.

This comparison is made based on a review of historical, current and forecasted sales and profit levels, as well as a review of any factors that may indicate potential impairment.

For the years ended October 1, 2022 and October 2, 2021, our impairment analysis did not result in any other charges related to trademarks.

For the years ended September 30, 2023 and October 1, 2022, our impairment analysis did not result in any other charges related to trademarks.

Stock-Based Compensation

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Excess income tax benefits related to share-based compensation expense that must be recognized directly in equity are considered financing rather than operating cash flow activities.

The fair value of each of the Company’s stock options is estimated on the date of grant using a Black-Scholes option-pricing model that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of

our stock, the expected life of the options and the risk-free interest rate.

The Company issues new shares upon the exercise of employee stock options.

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Recent Developments

See Note 17 of the Notes to Consolidated Financial Statements for a description of recent developments that have occurred subsequent to October 1, 2022.

See Note 17 of the Notes to Consolidated Financial Statements for a description of recent developments that have occurred subsequent to September 30, 2023.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-K

Item 7. Management’s Discussion and Analysis