What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-11 compared with 2024-08-13 · 74 added, 102 removed, 101 unchanged (64% of the section changed)

9 unchanged sentences

Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years and the associated quarters, months and periods of those fiscal years.

Inflation and Other Matters

Our operating results have been and continue to be impacted by geopolitical and macroeconomic events, causing increased commodity prices, wage inflation and other increased costs.

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

As of June 29, 2024, 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's agreements with the Bryant Park Corporation (the “Landlord”), (a private non-profit entity that manages Bryant Park under agreements with the New York City Department of Parks & Recreation) for the Bryant Park Grill & Cafe and The Porch at Bryant Park expire on April 30, 2025.

During July 2023 (for the Bryant Park Grill & Cafe ) and September 2023 (for The Porch at Bryant Park ), the Company received requests for proposals (the "RFPs") from the Landlord to which we responded on October 26, 2023.

The agreements offered under the RFPs for both locations are for new 10-year agreements, with one five-year renewal option.

On January 27, 2025, at a public local community board meeting, the Landlord stated that it had selected a new operator for both locations, although no agreements have been signed.

Any such agreements must be approved by both the New York City Department of Parks & Recreation and the New York Public Library.

Management continues to work with its outside advisors who have been assisting with our efforts to obtain the extensions by ensuring the RFP awards process was both fair and transparent.

We intend to pursue all available options to protect the Company's interests.

As of December 28, 2024, the Company owned and operated 16 restaurants and bars, 12 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.

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Under this method certain years will contain 53 weeks.

The periods ended June 29, 2024 and July 1, 2023 each included 13 and 39 weeks.

The periods ended December 28, 2024 and December 30, 2023 each included 13 weeks.

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

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

We generally achieve our best results during the warm weather, attributable to our extensive outdoor dining availability, particularly at Bryant Park in New York and Sequoia in Washington, D.C.

We generally achieve our best results during the warm weather,

attributable to our extensive outdoor dining availability, particularly at Bryant Park in New York and Sequoia in Washington, D.C.

(our largest restaurants) and our outdoor cafes.

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Results of Operations

The Company’s operating income for the 13 and 39 weeks ended June 29, 2024 (which include impairment charges of $1,561,000 and $939,000 related to Sequoia's ROU assets and long-lived assets, respectively) decreased 77.3% and 79.1%, respectively, as compared to the same periods of the prior year.

Excluding the impairment charges, operating income of $3,324,000 and $3,725,000 for the 13 and 39 weeks ended June 29, 2024, respectively, decreased 8.6% and 36.5% as compared to the same periods of the prior year.

These decreases resulted primarily from increases in labor costs combined with increased base rents and inflationary pressures related to non-commodity items partially offset by the reversal of stock-based compensation expenses relating to forfeitures in the amount of $774,000 combined with the negative impact on the prior period of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023).

The following table summarizes the significant components of the Company’s operating results for the 13- and 39-week periods ended June 29, 2024 and July 1, 2023:

13 Weeks Ended Variance 39 Weeks Ended Variance

2023 $ % June 29,

(in thousands) (in thousands)

The Company’s operating income for the 13 weeks ended December 28, 2024 (which includes a loss on the closure of El Rio Grande of $146,000 and a gain on the termination of our Tampa Food Court lease of $5,235,000) increased 254.9% as compared to the same period of the prior year.

Excluding the El Rio Grande closure loss and the Tampa Food Court lease termination gain, operating income of $600,000 for the 13 weeks ended December 28, 2024 decreased 62.6% as compared to the same period of the prior year.

We attribute this decrease primarily to a decrease in same store sales as discussed below combined with continued inflationary pressures in most areas as well as minimum wage increases.

The following table summarizes the significant components of the Company’s operating results for the 13-week periods ended December 28, 2024 and December 30, 2023:

13 Weeks Ended Variance

2024 December 30,

(in thousands)

Food and beverage sales $ 44,442 $ 46,630 $ (2,188) -4.7 %

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Depreciation and amortization 777 1,092 (315) -28.8 %

Impairment losses on right-of

use and long-lived assets

2,500 — 2,500 100.0 % 2,500 — 2,500 100.0 %

Loss on closure of El Rio Grande 146 — 146 N/A

Gain on closure of Tampa Food

(5,235) — (5,235) N/A

Total costs and expenses 39,299 45,884 (6,585) -14.4 %

OPERATING INCOME $ 5,689 $ 1,603 $ 4,086 254.9 %

During the 13- and 39-week periods ended June 29, 2024, revenues decreased marginally as compared to revenues for the 13- and 39-week periods ended July 1, 2023.

The net decreases resulted primarily from decreases in same-store sales discussed below, offset by an increase in sales at Gallagher's Steakhouse at the New York-New York Hotel and Casino in Las Vegas, NV, which was substantially closed for renovation in the prior period from February 5, 2023 through April 27, 2023.

Revenues related to Gallagher's Steakhouse for the period of closure were $1,068,000 as compared to $3,056,000 for the comparable current period, of which $354,000 as compared to $918,000 related to the 13-week periods ended July 1, 2023 and June 29, 2024, respectively, and $714,000 as compared $2,138,000 related to the 39-week periods ended July 1, 2023 and June 29, 2024, respectively.

During the 13-week period ended December 28, 2024, revenues decreased 5.3% as compared to revenues for the 13-week period ended December 30, 2023.

We attribute this decrease primarily to the decreases in same-store sales discussed below and the closures of El Rio Grande and the Tampa Food Court .

Food and Beverage Same-Store Sales

On a Company-wide basis, same-store sales decreased 0.7% during the 13 weeks ended June 29, 2024 as compared to the same period of last year as follows:

13 Weeks Ended Variance

(in thousands)

Las Vegas $ 13,532 $ 13,202 $ 330 2.5 %

New York 11,481 12,117 (636) -5.2 %

Washington, D.C.

3,178 3,773 (595) -15.8 %

Atlantic City, NJ 734 798 (64) -8.0 %

Alabama 5,690 5,184 506 9.8 %

Florida 13,840 13,743 97 0.7 %

Same-store sales 48,455 48,817 $ (362) -0.7 %

Other 721 990

Food and beverage sales $ 49,176 $ 49,807

Same-store sales in Las Vegas increased 2.5% primarily as a result of the negative impact on the prior period of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023).

Same-store sales in New York decreased 5.2% primarily as a result of decreased revenues from our event business.

Same-store sales in Washington, D.C.

decreased 15.8% as a result of lower headcounts, especially during lunch and after-work hours, which we attribute to continued hybrid work schedules.

Same-store sales in Atlantic City decreased 8.0% as a result of as a result of lower customer traffic at the property where we are located.

Same-store sales in Alabama increased 9.8% primarily as a result of better-than-expected customer traffic combined with targeted menu price increases.

Same-store sales in Florida increased 0.7% primarily as a result of increased traffic at our food court located in the Hard Rock Hotel and Casino in Hollywood, FL.

On a Company-wide basis, same-store sales during the 39 weeks ended June 29, 2024 were consistent as compared to the same period of last year as follows:

On a Company-wide basis, same-store sales decreased 2.3% during the 13 weeks ended December 28, 2024 as compared to the same period of last year as follows:

13 Weeks Ended Variance

2024 December 30,

(in thousands)

9 unchanged sentences

Food and beverage sales $ 44,442 $ 46,630

Same-store sales in Las Vegas increased 1.9% primarily as a result of the negative impact on the prior period of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023), partially offset by lower headcounts in the current period.

Same-store sales in New York increased 3.4% driven primarily by strong revenues from our event business in the first two quarters of fiscal 2024.

Same-store sales in Las Vegas decreased 3.8% which we attribute primarily to lower customer traffic at the New York-New York Hotel and Casino.

Same-store sales in New York decreased 1.6% which we attribute primarily to a decrease in revenue from our event business.

Same-store sales in Washington, D.C.

decreased 12.6% as a result of lower headcounts, especially during lunch and after-work hours, which we attribute to continued hybrid work schedules as well as the closure of the property from Monday through lunch on Thursdays for the winter.

Same-store sales in Atlantic City decreased 4.2% 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 better-than-expected customer traffic combined with targeted menu price increases.

Same-store sales in Florida decreased 3.3% 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.

decreased 18.2% which we attribute primarily to lower headcounts, especially during lunch and after-work hours, which we attribute to continued hybrid work schedules.

Same-store sales in Alabama increased 6.9% which we attribute primarily to better-than-expected customer traffic combined with targeted menu price increases.

Other food and beverage sales consist of sales related to properties that were closed and other fees.

Costs and Expenses

Costs and expenses for the 13 and 39 weeks ended June 29, 2024 and July 1, 2023 were as follows (in thousands):

Costs and expenses for the 13 weeks ended December 28, 2024 and December 30, 2023 were as follows (in thousands):

13 Weeks Ended

Revenues 13 Weeks Ended

July 1, 2023 %

Revenues Increase

(Decrease) 39 Weeks Ended

June 29, 2024 %

Revenues 39 Weeks Ended

July 1, 2023 %

December 30, 2023 %

Revenues Increase

5 unchanged sentences

Depreciation and amortization 777 1.7 % 1,092 2.3 % (315) -28.8 %

Impairment losses on right-of use and long-lived assets 2,500 5.0 % — — % 2,500 100.0 % 2,500 1.8 % — — % 2,500 100.0 %

Loss on closure of El Rio Grande

146 0.3 % — — % 146 N/A

Gain on closure of Tampa Food Court (5,235) (11.6) % — — % (5,235) N/A

Total costs and expenses $ 39,299 $ 45,884 $ (6,585)

Food and beverage costs as a percentage of total revenues for the 13 weeks ended June 29, 2024 as compared with the same period of last year increased as a result of increases in commodity prices, which had been easing for several quarters.

Food and beverage costs as a percentage of total revenues for the 39 weeks ended June 29, 2024 as compared with the same period of last year increased marginally as a result of a strong event business in New York City in the first two quarters, which has higher margins, partially offset by higher commodity prices in the current quarter.

Payroll expenses as a percentage of total revenues for the 13 and 39 weeks ended June 29, 2024 increased as compared with the same period of last year primarily as a result of increasing minimum wages in the states where we operate.

Occupancy expenses as a percentage of total revenues for the 13 and 39 weeks ended June 29, 2024 increased as compared with the same periods of 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 13 and 39 weeks ended June 29, 2024 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 and 39 weeks ended June 29, 2024 decreased as compared to the same periods of last year primarily as a result of the reversal of compensation expense in the amount of $774,000 related to options that expired unexercised.

Depreciation and amortization expense for the 13 weeks and 39 weeks ended June 29, 2024 decreased slightly as compared to the same period of last year primarily as a result of certain assets becoming fully depreciated.

Impairment losses on Right-of-Use and Long-lived Assets

During the 13 weeks ended June 29, 2024, impairment indicators were identified at our Sequoia property located in Washington, D.C.

due to lower-than-expected operating results.

Accordingly, the Company tested the recoverability of Sequoia's ROU and long-lived assets and concluded they were not recoverable.

Based on a discounted cash flow analysis, the Company recognized impairment charges of $1,561,000 and $939,000 related to Sequoia's ROU assets and long-lived assets, respectively.

No impairment charges were recognized related to long-lived assets or ROU assets during the 13 and 39 weeks ended July 1, 2023.

Given the inherent uncertainty in projecting results of restaurants, the Company will continue to monitor the recoverability of the carrying value of the assets of Sequoia and several other restaurants on an ongoing basis.

If expected performance is not realized, further impairment charges may be recognized in future periods, and such charges could be material.

Food and beverage costs as a percentage of total revenues for the 13 weeks ended December 28, 2024 as compared with the same period of last year increased as a result of increases in commodity prices, which had been easing for several quarters, combined with a slightly weaker event business in New York City in the first quarter of the current year compared to the prior year.

Payroll expenses as a percentage of total revenues for the 13 weeks ended December 28, 2024 increased as compared with the same period of last year primarily as a result of increasing minimum wages in the states where we operate.

Occupancy expenses as a percentage of total revenues for the 13 weeks ended December 28, 2024 increased as compared with the same period of 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 13 weeks ended December 28, 2024 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 December 28, 2024 decreased as compared to the same periods of last year primarily as a result of the lower bonus accruals partially offset by increased legal and consulting fees.

Depreciation and amortization expense for the 13 weeks ended December 28, 2024 decreased slightly as compared to the same period of last year primarily as a result of certain assets becoming fully depreciated and the removal of assets associated with El Rio Grande and the Tampa Food Court .

Loss on Closure of El Rio Grande

In October 2024, the Company advised the landlord of El Rio Grande we would be terminating the lease and closing the property permanently.

In connection with this notification, the Company recorded a loss of $876,000 during the year ended September 28, 2024 consisting of:

(i) rent and other costs incurred in accordance with the termination provisions of the lease in the amount of $398,000, (ii) accrued severance and other costs in the amount of $94,000, (iii) an impairment charge related to long-lived assets in the amount of $269,000 and (iv) the write-off of our security deposit in the amount of $238,000, all partially offset by a gain related to the write-off of ROU assets and related lease liabilities in the net amount of $123,000.

The property closed on January 3, 2025 and during the 13 weeks ended December 28, 2024, the Company incurred additional operating losses of $146,000.

Gain on Termination of Tampa Food Court Lease

On November 26, 2024, the Company agreed to terminate its lease for the food court at The Hard Rock Hotel and Casino in Tampa, FL and, accordingly, vacated the premises on December 15, 2024.

In connection with this, Ark Hollywood/Tampa Investment LLC, a subsidiary of the Company, (in which we own a 65% interest) received a termination payment in the amount of $5,500,000, all obligations under the lease ceased and we recorded a gain, net of expenses in the amount of $5,235,000 during the 13 weeks ended December 28, 2024.

It is expected that Ark Hollywood/Tampa Investment LLC will distribute approximately 35% of the net proceeds, after expenses, to the other equity holders of Ark Hollywood/Tampa Investment LLC during the second fiscal quarter of 2025.

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 June 29, 2024, we had a cash and cash equivalents balance of $11,467,000.

The Company had a working capital deficit of $(9,057,000) at June 29, 2024 as compared with a working capital deficit of $(5,932,000) at September 30, 2023.

This increase in the deficit is primarily the result of all of our note payments becoming current as they mature through May 31, 2025.

As of December 28, 2024, we had a cash and cash equivalents balance of $13,101,000.

The Company had a working capital deficit of $4,264,000 at December 28, 2024 as compared with a working capital deficit of $10,659,000 at December 30, 2023.

This decrease in the deficit is primarily the result of the payment received in connection with the termination of the Tampa Food Court lease.

The country is currently experiencing multi-decade high inflation.

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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.

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

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 39 Weeks Ended June 29, 2024 and July 1, 2023

Net cash provided by operating activities for the 39 weeks ended June 29, 2024 and July 1, 2023 was $3,926,000 and $6,872,000, respectively, and resulted primarily due to changes in working capital, primarily accounts receivable and accrued expenses.

Net cash used in investing activities for the 39 weeks ended June 29, 2024 was $1,204,000 as compared to cash provided by investing activities of $2,008,000 in the same period as last year.

This resulted primarily from proceeds from the maturity of certificates of deposit in the prior period partially offset by lower purchases of fixed assets at existing restaurants in the current period.

Net cash used in financing activities for the 39 weeks ended June 29, 2024 and July 1, 2023 was $(4,670,000) and $(18,333,000), respectively, and resulted primarily from principal payments on notes payable, the payment of dividends and the payment of distributions to non-controlling interests and in the prior year principal payments on PPP Loans.

Recent Restaurant Expansions and Other Developments

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.

To date approximately $100,000 has been spent on 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, 2024, as extended.

To date approximately $250,000 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 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.

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

To achieve significant increases in revenue or to replace revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons, we would have to open additional restaurant facilities or expand existing restaurants.

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.

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 and Other Developments

During the 13 weeks ended December 30, 2023, the Company dissolved the entity which owned Lucky 7 at the Foxwoods Resort and Casino, which was closed in July of 2022.

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

Cash Flows for 13 Weeks Ended December 28, 2024 and December 30, 2023

Net cash used in operating activities for the 13 weeks ended December 28, 2024 was $1,346,000 as compared to net cash provided by operating activities of $558,000 in the same period last year and resulted primarily from a decrease in operating income, excluding the loss on the closure of El Rio Grande and a gain on the termination of our Tampa Food Court lease.

Net cash provided by investing activities for the 13 weeks ended December 28, 2024 was $4,895,000 as compared to cash used in investing activities of $254,000 in the same period as last year.

This increase resulted primarily from the payment received in connection with the termination of the Tampa Food Court lease.

Net cash used in financing activities for the 13 weeks ended December 28, 2024 and December 30, 2023 was $721,000 and $1,597,000, respectively, and resulted primarily from principal payments on notes payable and the payment of distributions to non-controlling interests and in the prior year the payment of dividends.

Credit Facility

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

As of June 29, 2024, no advances were outstanding under the Credit Agreement.

As of June 29, 2024, the weighted average interest on the outstanding BHBM indebtedness was approximately 9.0%.

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.

As of December 28, 2024, no advances were outstanding under the Credit Agreement.

As of December 28, 2024, the weighted average interest on the outstanding BHBM indebtedness was approximately 8.2%.

Borrowings and all other obligations under the Credit Agreement, which include the promissory notes as discussed in Note 7 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 Agreement 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.

1 unchanged sentence

Cash Flow Outlook

We are not aware of any trends or events that would materially affect our capital requirements or liquidity.

We believe that our existing cash balances, internal cash-generating capabilities, current banking facilities and ability to secure additional financing, if necessary, are sufficient to finance our capital expenditures, debt maturities and other operating activities for at least the next twelve months.

The agreements offered under the RFPs for both locations are for new 10-year agreements, with one five-year renewal option.

On January 27, 2025, at a public local community board meeting, the Landlord stated that it had selected a new operator for both locations, although, to the best of our knowledge, no agreements have been signed as of the date of this filing.

Any such agreements must be approved by both the New York City Department of Parks & Recreation and the New York Public Library.

Management continues to work with its outside advisors who have been assisting with our efforts to obtain the extensions by ensuring the RFP awards process was both fair and transparent.

We intend to pursue all available options to protect the Company's interests.

Other than the status of the above property, we are not aware of any other trends or events that would materially affect our capital requirements or liquidity.

Critical Accounting Estimates

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Management bases its estimates on certain assumptions, which it believes are reasonable in the circumstances, and actual results could differ from those estimates.

Although management does not believe that any change in those assumptions in the near term would have a material effect on the Company’s consolidated condensed

financial position or the results of operations, differences in actual results could be material to the consolidated condensed financial statements.

Although management does not believe that any change in those assumptions in the near term would have a material effect on the Company’s consolidated condensed financial position or the results of operations, differences in actual results could be material to the consolidated condensed financial statements.

The Company’s critical accounting estimates are described in the Company’s MD&A included in Form 10-K for the year ended September 28, 2024.

There have been no significant changes to such critical accounting estimates during the second fiscal quarter 2024.

There have been no significant changes to such critical accounting estimates during the first fiscal quarter 2025.

Quantitative and Qualitative Disclosures about Market Risk

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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-Q

Item 2. Management’s Discussion and Analysis