ARK RESTAURANTS CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This section and other parts of this Quarterly Report on Form 10-Q ("Form 10-Q") contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to any historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended September 28, 2024 and the consolidated condensed financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q. All information presented herein is based on our fiscal calendar. 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. Recent Developments Bryant Park Grill & Cafe and The Porch at Bryant Park The Company's agreements with the Bryant Park Corporation (the “Landlord”) (a private non-profit corporation that operates and maintains Bryant Park under agreements with the City of New York Department of Parks & Recreation), for the Bryant Park Grill & Cafe expired on April 30, 2025 and for The Porch at Bryant Park expired on March 31, 2025. In July of 2023 (for the Bryant Park Grill & Cafe ) and September of 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 were for new 10-year agreements, with one five-year renewal option. In the second quarter of 2025, the Landlord stated publicly that it had selected a new operator for the Bryant Park Grill & Café and The Porch at Bryant Park . However, to the best of our knowledge, no agreements between the Landlord and the selected operator have received the approvals of either the City of New York Department of Parks & Recreation or the New York Public Library, of which both approvals are required before any new lease can become effective. Management has been working with outside advisors in assisting with our efforts to obtain the extensions by ensuring the RFP awards process was both fair and transparent. On March 28, 2025, we filed a complaint in New York State Supreme Court (the "New York Action"), alleging among other things, that the bid process conducted by the Landlord was defective, failed to comply with the provisions of the agreements underlying the Landlord’s right to operate Bryant Park and violated applicable law; that a lease was being awarded to a lower bidder with a limited, unsuccessful track record in the hospitality business; and that the award of the Cafe lease violated our right of first lease under our lease agreements. As part of the relief sought in the New York Action, we are requesting that the Court declare that, under the circumstances presented, the Landlord was required to accept—and should have accepted —our submitted bids. In addition, on March 28, 2025, we also filed a motion for a preliminary injunction in Court to enjoin the Landlord from commencing legal proceedings to evict the Company from the Bryant Park Grill & Café and The Porch at Bryant Park premises. On April 24, 2025, the Court denied the motion. We have filed a notice of appeal of the ruling. On April 29, 2025, we also filed a motion for a preliminary injunction in the New York State Supreme Court, Appellate Division, First Department. That motion is now pending. The Company has received from the Landlord a “notice to quit” the premises and for the Company to terminate its tenancy. On June 16, 2025, the Company filed an amended complaint in the New York Action, adding a cause of action for age discrimination by the Landlord in its selection of a new operator for the Bryant Park Grill & Café and The Porch at Bryant Park . On June 26, 2025, the Landlord filed counterclaims against the Company in the New York Action seeking, among other things, to eject the Company from the Bryant Park Grill & Café and The Porch at Bryant Park premises. The Company has continued to make all required use and occupancy payments for the Bryant Park Grill & Café and The Porch at Bryant Park , and will continue to make such payments. As of the date of this filing, we continue to operate the above properties as a holdover tenant and intend to do so until we are either awarded the lease extensions or ordered to vacate the premises. The underlying lawsuit filed by the Company to protect its rights continues, and we will pursue all available options to protect the Company's interests. Management, after consultation with legal counsel, is unable to predict the outcome of this matter at this time. While the outcome of these proceedings cannot be predicted with certainty, the Bryant Park Grill & Cafe and The Porch at Bryant Park , collectively, accounted for $19.7 million and $23.3 million of our total revenues for the 39 weeks ended June 28, 2025 and June 29, 2024, - 20 - respectively, which represented approximately 15.4% and 16.7% of our total revenue for such periods, respectively. If the Company is unable to prevail in the above actions and/or is unable to extend or renew these leases on favorable terms, if at all, it could have a material adverse effect on our business, financial condition, and results of operations. 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. The ongoing impact of these events could lead to further shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation, disruptions in the supply chain and delays in opening or acquiring new restaurants. 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. Overview As of June 28, 2025, 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. Accounting Period Our fiscal year ends on the Saturday nearest September 30. We report fiscal years under a 52/53-week format. This reporting method is used by many companies in the hospitality industry and is meant to improve year-to-year comparisons of operating results. Under this method certain years will contain 53 weeks. The periods ended June 28, 2025 and June 29, 2024 each included 13 and 39 weeks. Seasonality 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, D.C. (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. 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. However, even during summer months these facilities can be adversely affected by unusually cool or rainy weather conditions. Our facilities in Las Vegas are indoors and generally operate on a more consistent basis throughout the year. Results of Operations The Company's operating loss for the 13 weeks ended June 28, 2025 (which includes impairment charges of $2,940,000 and $1,760,000 related to Sequoia's ROU and long-lived assets, respectively, and a gain on the closure of El Rio Grande of $178,000) decreased 514.4% as compared to operating income in the same period of the prior year (which includes impairment charges of $1,561,000 and $939,000 related to Sequoia's ROU and long-lived assets, respectively). Excluding the above items in the current and prior periods, adjusted operating income of $1,107,000 for the 13 weeks ended June 28, 2025 decreased 66.7% as compared to adjusted operating income of $3,324,000 for the 39 weeks ended June 29, 2024. The Company's operating income for the 39 weeks ended June 28, 2025 (which includes: (i) a gain on the closure of El Rio Grande of $173,000, (ii) a gain on the termination of our Tampa Food Court lease of $5,235,000, (iii) impairment charges of $2,940,000 and $1,760,000 related to Sequoia's ROU and long-lived assets, respectively, and (iv) a goodwill impairment charge of $3,440,000) decreased 291.2% as compared to the same period of the prior year (which includes impairment charges of $1,561,000 and $939,000 related to Sequoia's ROU assets and long-lived assets, respectively). Excluding the above items in the current and prior periods, adjusted operating income of $390,000 for the 39 weeks ended June 28, 2025 decreased 89.5% compared to adjusted operating income of $3,725,000 for the 39 weeks ended June 29, 2024. - 21 - The following table summarizes the significant components of the Company’s operating results for the 13- and 39-week periods ended June 28, 2025 and June 29, 2024: 13 Weeks Ended Variance 39 Weeks Ended Variance June 28, 2025 June 29, 2024 $ % June 28, 2025 June 29, 2024 $ % (in thousands) (in thousands) REVENUES: Food and beverage sales $ 42,937 $ 49,176 $ (6,239) -12.7 % $ 126,503 $ 136,994 $ (10,491) -7.7 % Other revenue 778 1,220 (442) -36.2 % 1,925 3,145 (1,220) -38.8 % Total revenues 43,715 50,396 (6,681) -13.3 % 128,428 140,139 (11,711) -8.4 % COSTS AND EXPENSES: Food and beverage cost of sales 12,060 13,304 (1,244) -9.4 % 35,650 37,512 (1,862) -5.0 % Payroll expenses 15,280 17,479 (2,199) -12.6 % 46,103 49,969 (3,866) -7.7 % Occupancy expenses 5,444 6,261 (817) -13.0 % 17,128 18,368 (1,240) -6.8 % Other operating costs and expenses 6,038 6,305 (267) -4.2 % 17,422 18,233 (811) -4.4 % General and administrative expenses 2,822 2,690 132 4.9 % 9,292 9,151 141 1.5 % Depreciation and amortization 964 1,033 (69) -6.7 % 2,443 3,181 (738) -23.2 % Gain on closure of El Rio Grande (178) — (178) N/A (173) — (173) N/A Gain on closure of Tampa Food Court lease — — — N/A (5,235) — (5,235) N/A Impairment losses on right-of use and long-lived assets 4,700 2,500 2,200 N/A 4,700 2,500 2,200 N/A Goodwill impairment — — — N/A 3,440 — 3,440 N/A Total costs and expenses 47,130 49,572 (2,442) -4.9 % 130,770 138,914 (8,144) -5.9 % OPERATING INCOME (LOSS) $ (3,415) $ 824 $ (4,239) -514.4 % $ (2,342) $ 1,225 $ (3,567) -291.2 % Revenues During the 13- and 39-week periods ended June 28, 2025, revenues decreased 13.3% and 8.4%, respectively, as compared to revenues for the 13- and 39-week periods ended June 29, 2024. 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 7.4% during the 13 weeks ended June 28, 2025 as compared to the same period of last year as follows: 13 Weeks Ended Variance June 28, 2025 June 29, 2024 $ % (in thousands) Las Vegas $ 13,225 $ 13,532 $ (307) -2.3 % New York 8,273 10,455 (2,182) -20.9 % Washington, D.C. 2,515 3,178 (663) -20.9 % Atlantic City, NJ 595 734 (139) -18.9 % Alabama 5,333 5,690 (357) -6.3 % Florida 12,801 12,575 226 1.8 % Same-store sales 42,742 46,164 $ (3,422) -7.4 % Other 195 3,012 Food and beverage sales $ 42,937 $ 49,176 - 22 - Same-store sales in Las Vegas decreased 2.3% as a result of lower than expected headcounts from competition at Yolos located in Planet Hollywood Resort & Casino. Same-store sales in New York decreased 20.9% which we attribute primarily to decreases in both catering and a la carte revenue at the Bryant Park Grill as a result of the negative publicity related to our dispute with the landlord. Same-store sales in Washington, D.C. decreased 20.9% which we attribute primarily to lower headcounts as a result of challenging conditions associated with hybrid work schedules, government layoffs and elevated crime rates. Same-store sales in Atlantic City, NJ decreased 18.9% which we attribute primarily to lower than expected customer traffic at the property where we are located. Same-store sales in Alabama decreased 6.3% which we attribute primarily to lower customer traffic as a result of economic pressures on the customers who frequent our properties. Same-store sales in Florida increased 1.8% which we attribute primarily to increased headcounts. Other food and beverage sales consist of sales related to properties that were closed ( El Rio Grande and the Tampa Food Court) and other fees. On a Company-wide basis, same-store sales decreased 3.3% during the 39 weeks ended June 28, 2025 as compared to the same period of last year as follows: 39 Weeks Ended Variance June 28, 2025 June 29, 2024 $ % (in thousands) Las Vegas $ 41,479 $ 42,175 $ (696) -1.7 % New York 23,474 26,188 (2,714) -10.4 % Washington, D.C. 5,907 7,079 (1,172) -16.6 % Atlantic City, NJ 1,825 2,052 (227) -11.1 % Alabama 12,076 12,334 (258) -2.1 % Florida 39,141 38,355 786 2.0 % Same-store sales 123,902 128,183 $ (4,281) -3.3 % Other 2,601 8,811 Food and beverage sales $ 126,503 $ 136,994 Same-store sales in Las Vegas decreased 1.7% as a result of lower than expected headcounts from competition at Yolos located in Planet Hollywood Resort & Casino. Same-store sales in New York decreased 10.4% which we attribute primarily to decreases in both catering and a la carte revenue at the Bryant Park Grill as a result of the negative publicity related to our dispute with the landlord. Same-store sales in Washington, D.C. decreased 16.6% which we attribute primarily to lower headcounts as a result of challenging conditions in the area associated with hybrid work schedules, government layoffs and elevated crime rates. Same-store sales in Atlantic City, NJ decreased 11.1% which we attribute primarily to lower than expected customer traffic at the property where we are located. Same-store sales in Alabama decreased 2.1% which we attribute primarily to lower customer traffic in the second half of the period as a result of inclement weather and economic pressures on the customers who frequent our properties, partially offset by targeted menu price increases in the first quarter. Same-store sales in Florida increased 2.0% which we attribute primarily to increased headcounts. Other food and beverage sales consist of sales related to properties that were closed ( El Rio Grande and the Tampa Food Court) and other fees. - 23 - Costs and Expenses Costs and expenses for the 13 and 39 weeks ended June 28, 2025 and June 29, 2024 were as follows (in thousands): 13 Weeks Ended June 28, 2025 % to Total Revenues 13 Weeks Ended June 29, 2024 % to Total Revenues Increase (Decrease) 39 Weeks Ended June 28, 2025 % to Total Revenues 39 Weeks Ended June 29, 2024 % to Total Revenues Increase (Decrease) $ % $ % Food and beverage cost of sales $ 12,060 27.6 % $ 13,304 26.4 % $ (1,244) -9.4 % $ 35,650 27.8 % $ 37,512 26.8 % $ (1,862) -5.0 % Payroll expenses 15,280 35.0 % 17,479 34.7 % (2,199) -12.6 % 46,103 35.9 % 49,969 35.7 % (3,866) -7.7 % Occupancy expenses 5,444 12.5 % 6,261 12.4 % (817) -13.0 % 17,128 13.3 % 18,368 13.1 % (1,240) -6.8 % Other operating costs and expenses 6,038 13.8 % 6,305 12.5 % (267) -4.2 % 17,422 13.6 % 18,233 13.0 % (811) -4.4 % General and administrative expenses 2,822 6.5 % 2,690 5.3 % 132 4.9 % 9,292 7.2 % 9,151 6.5 % 141 1.5 % Depreciation and amortization 964 2.2 % 1,033 2.0 % (69) -6.7 % 2,443 1.9 % 3,181 2.3 % (738) -23.2 % Gain on closure of El Rio Grande (178) -0.4 % — — % (178) N/A (173) -0.1 % — — % (173) N/A Gain on termination of Tampa Food Court lease — — % — — % — N/A (5,235) -4.1 % — — % (5,235) N/A Impairment losses on right-of-use and long-lived assets 4,700 10.8 % 2,500 5.0 % 2,200 N/A 4,700 3.7 % 2,500 1.8 % 2,200 N/A Goodwill impairment — — % — — % — N/A 3,440 2.7 % — — % 3,440 N/A Total costs and expenses $ 47,130 $ 49,572 $ (2,442) $ 130,770 $ 138,914 $ (8,144) Food and beverage costs as a percentage of total revenues for the 13 and 39 weeks ended June 28, 2025 increased as compared with the same periods of last year as a result of increases in commodity prices, which had been easing for several quarters, combined with a weaker event business in New York City and Washington, D.C. in the first and third quarters of the current year compared to the prior year. Payroll expenses as a percentage of total revenues for the 13 and 39 weeks ended June 28, 2025 increased marginally as compared with the same periods of last year as a result of increasing minimum wages in the states where we operate partially offset by better management of overtime hours. Occupancy expenses as a percentage of total revenues for the 13 and 39 weeks ended June 28, 2025 increased marginally 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 partially offset by lower percentage rents as a result of the sales decreases discussed above. Other operating costs and expenses as a percentage of total revenues for the 13 and 39 weeks ended June 28, 2025 increased as compared to the same period of last year primarily as a result of inflation and restaurant-level legal fees incurred in connection with the Bryant Park Grill & Café and The Porch at Bryant Park dispute with the landlord. General and administrative expenses (which relate solely to the corporate office in New York City) for the 13 and 39 weeks ended June 28, 2025 increased as compared to the same periods of last year primarily as a result of increased consulting fees partially offset by lower bonus accruals in the current period. Depreciation and amortization expense for the 13 and 39 weeks ended June 28, 2025 decreased as compared to the same periods 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 . (Gain) 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. The property closed permanently on January 3, 2025 and was vacated and delivered to the landlord on April 30, 2025. During the 13 weeks ended June 28, 2025, the Company recognized a gain of $178,000 as a result of refinements of estimates. During the 39 weeks ended June 28, 2025, the Company recognized a gain in the amount of $173,000 as a result of additional operating losses by the above refinements of estimates. - 24 - 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. During the 13 weeks ended March 29, 2025, Ark Hollywood/Tampa Investment LLC distributed approximately $1,710,000 of the net proceeds, after expenses, to the other equity holders of Ark Hollywood/Tampa Investment LLC. 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 and long-lived assets, respectively. The Company continued to monitor the performance of Sequoia throughout fiscal 2025 and, as a result of lower than expected operating results we tested the recoverability of its ROU and long-lived assets as of June 28, 2025. Based on a discounted cash flow analysis, we recognized additional impairment charges of $2,940,000 and $1,760,000 during the 13 weeks ended June 28, 2025 related to Sequoia's ROU and long-lived assets, respectively. 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. 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. During the three months ended March 29, 2025, the Company identified a triggering event in accordance with the Financial Accounting Standards Board (“FASB”), Accounting Standards Update ("ASU") 350-20, “ Intangibles—Goodwill and Other ,” primarily related to a decline in the Company's stock price in the second quarter of fiscal 2025 and the continued uncertainty related to the expiration of the Bryant Park Grill & Cafe and The Porch at Bryant Park leases (see Note 8 - Commitments and Contingencies). As a result, the Company performed an interim quantitative impairment test and based on the results of the assessment, the fair value of our equity was determined to be less than its carrying amount. Accordingly, the Company recognized a non-cash impairment charge of the remaining balance of its goodwill in the amount of $3,440,000 in our consolidated condensed statements of operations for the 39 weeks ended June 28, 2025. The Company did not record any impairment to its goodwill during the 13 and 39 weeks ended June 29, 2024. Gain on Sale of Condominiums During the 13 weeks ended June 28, 2025, the Company sold two of the 14 condominium units it owns at the Island Beach Resort in Jensen Beach, FL which is adjacent to our Shuckers restaurant. In connection with the sales, the Company received net proceeds of $839,000 and recorded a gain of $391,000. The Company intends to sell all of these units subject to market forces. Liquidity and Capital Resources Our primary source of capital has been cash provided by operations and, in recent years, bank and other borrowings to finance specific transactions, acquisitions and large remodeling projects. We utilize cash generated from operations to fund the cost of developing and opening new restaurants and smaller remodeling projects of existing restaurants we own. Consistent with many other restaurant operators, we typically use operating lease arrangements for our restaurants. In recent years we have been able to acquire the underlying real estate at several locations along with the restaurant operation. We believe that our operating lease arrangements provide appropriate leverage of our capital structure in a financially efficient manner. As of June 28, 2025, we had a cash and cash equivalents balance of $12,325,000. The Company had a working capital deficit of $2,767,000 at June 28, 2025 as compared with a working capital deficit of $10,659,000 at June 29, 2024. This decrease in the deficit is primarily the result of the payment received in connection with the termination of the Tampa Food Court lease, amendments to the due dates of our notes payable and proceeds from the sales of the two condominiums. - 25 - 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 39 Weeks Ended June 28, 2025 and June 29, 2024 Net cash provided by operating activities for the 39 weeks ended June 28, 2025 was $1,119,000 as compared to $3,926,000 in the same period as last year. This decrease resulted primarily from a decrease in operating income, excluding: (i) a loss on the closure of El Rio Grande of $173,000 in fiscal 2025, (ii) a gain on the termination of our Tampa Food Court lease of $5,235,000 in fiscal 2025, (iii) impairment charges related to Sequoia's ROU and long-lived assets of $4,700,000 and 2,500,000 in fiscal 2025 and fiscal 2024, respectively, and (iv) a goodwill impairment charge of $3,440,000 in fiscal 2025. Net cash provided by investing activities for the 39 weeks ended June 28, 2025 was $4,662,000 as compared to cash used in investing activities of $1,204,000 in the same period as last year. This increase resulted primarily from the payment received in connection with the termination of our Tampa Food Court lease and the proceeds received from the sales of condominiums. Net cash used in financing activities for the 39 weeks ended June 28, 2025 and June 29, 2024 was $3,729,000 and $4,670,000, 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 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. (“BHBM”) which originally matured on June 1, 2025. On May 29, 2025, the Company entered into an Omnibus Amendment to the Credit Agreement which: (i) extended the maturity date of the Credit Agreement to June 1, 2028, (ii) amended the terms of the outstanding promissory notes, (iii) reduced the maximum permitted obligations outstanding under the Credit Agreement from $30,000,000 to $20,000,000 (including the outstanding promissory notes), (iv) increased the minimum tangible net worth covenant from $22,000,000 to $28,000,000, and (v) removed the annual net income covenant. Advances and loans 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 facility. As of June 28, 2025, no advances were outstanding under the Credit Agreement. As of June 28, 2025, the weighted average interest on the outstanding BHBM indebtedness was approximately 8.0%. 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 and maintain a minimum fixed charge coverage ratio. 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. - 26 - Deferred Tax Asset Valuation Allowance The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance is established when, based on an evaluation of all available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The determination of the need for a valuation allowance requires significant judgment, including an assessment of the Company’s recent earnings history, future taxable income projections, the nature and expiration period of temporary differences, tax planning strategies, and changes in tax laws and regulations. As of March 29, 2025, the Company concluded that its net deferred tax assets in the amount of $4,799,000 were no longer realizable on a more-likely-than-not basis as the Company is now in a cumulative loss position due to the goodwill impairment recorded in the current quarter and, accordingly, recorded a discrete tax provision for such amount as it can no longer rely on forecasts of future taxable income to support the realization of such deferred tax assets. Management will continue to evaluate the need for a valuation allowance on a quarterly basis and may adjust the allowance as new information becomes available. If actual results differ from these estimates or if the Company’s assumptions change, the valuation allowance may need to be adjusted in future periods, which could materially affect the Company’s financial condition and results of operations. Cash Flow Outlook As discussed above, the Company's agreements with the Bryant Park Corporation (the “Landlord”), (a private non-profit corporation that operates and maintains Bryant Park under agreements with the City of New York Department of Parks & Recreation) for the Bryant Park Grill & Cafe expired on April 30, 2025 and for The Porch at Bryant Park expired on March 31, 2025. As of the date of this filing, we continue to operate the above properties as a holdover tenant and intend to do so until we are either awarded the lease extensions or ordered to vacate the premises. The underlying lawsuit filed by the Company to protect its rights continues, and we will pursue all available options to protect the Company's interests. Management, after consultation with legal counsel, is unable to predict the outcome of this matter at this time. While the outcome of these proceedings cannot be predicted with certainty, the Bryant Park Grill & Cafe and The Porch at Bryant Park , collectively, accounted for $19.7 million and $23.3 million of our total revenues for the 39 weeks ended June 28, 2025 and June 29, 2024, respectively, which represented approximately 15.4% and 16.7% of our total revenue for such periods, respectively. The Company’s inability to extend or renew these leases on favorable terms, if at all, could have a material adverse effect on our business, financial condition, and results of operations. 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. 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 12 months. Critical Accounting Estimates The preparation of financial statements requires the Company to make estimates and assumptions of future events. In the process of preparing its consolidated condensed financial statements, the Company estimates the appropriate carrying value of certain assets and liabilities, which are not readily apparent from other sources. The critical accounting estimates underlying the Company’s consolidated condensed financial statements include projected cash flows for fixed asset impairments, allowances for potential bad debts on accounts and notes receivable, assumptions regarding discount rates related to lease accounting, the useful lives and recoverability of its long-lived assets, such as property and intangibles, fair values of financial instruments, the realizable value of its tax assets and other matters. 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. There have been no material changes in our critical accounting policies and estimates from those disclosed in Item 7 of our Annual Report on Form 10-K for the year ended September 28, 2024. - 27 - Item 3. Quantitative and Qualitative Disclosures about Market Risk Not Applicable.