Greetings, and welcome to Ark Restaurants' Third Quarter 2020 Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host, Sonal Shah. Thank you. You may begin.

Thank you, Operator. Good morning, and thank you for joining us on our conference call for the third fiscal quarter ended June 27, 2020. My name is Sonal Shah, and I'm General Counsel of Ark Restaurants. With me on the call today is Michael Weinstein, our Chairman and CEO; and Anthony Sirica, our Chief Financial Officer; Vinny Pascal, our Chief Operating Officer. For those of you who have not yet obtained a copy of our press release, it was issued over the newswires yesterday and is available on our website. To review the full text of that press release, along with the associated financial tables, please go to our home page at www.arkrestaurants.com. Before we begin, however, I'd like to read the safe harbor statement. I need to remind everyone that part of our discussion this morning will include forward-looking statements, and that these statements are not guarantees of future performance and therefore, undue reliance should not be placed on them. We refer everyone to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance and financial condition. I'll now turn the call over to Michael.

Hi, everybody. So I'm going to call on Anthony first to explain what expenses were incurred in the June quarter during the absence of any operations of the restaurants by government closures. So Anthony, why don't you give us an explanation of that?

Right. So obviously, the June quarter, a bunch of our restaurants were either closed for the entire quarter, some are still closed, as well as some, as noted in the press release, opened up at various times during the quarter. So we have gone through our P&Ls and identified costs associated with payroll and occupancy expenses at the restaurants from the closure date or the beginning of the quarter, which would be March 29 through either the date they opened or through the end of the quarter if they haven't opened yet. And that amounted to about approximately $2.3 million of costs related to payroll, rents and inventory write-offs and things of that nature, that we would not have incurred, but we made the election to keep certain people at the restaurants on the payroll, not reduce salaries, while the properties were closed, so we would be in a good position to reopen them quickly when we got the word from the various state and local governments. With that, we did open a number of properties during the quarter. As you can see in the release, we opened our restaurants in Florida, Rustic Inn, Shuckers and JB's opened in mid-May; the Food Courts at Tampa in Hollywood opened in early June; our operations at the New York-New York Resort & Casino in Vegas opened in, I believe, the second week of June; our Sequoia property in Washington, D.C. opened in early June; and our Bryant Park and Rio Grande properties in New York opened in late June on or around June 23 or 24. I turn it over to you, Michael.

Yes. And Alabama opened sometime in May as well.

Yes, Alabama opened in mid-May as well. And it included the -- in the $2.3 million, we have not included any corporate expenses or salaries for the continuing corporate employees, although they reduced levels, because we felt those are somewhat fixed.

Correct. So the operations of these restaurants, some of them went smoothly, some of them did not go smoothly. Two of our restaurants were closed for a period of time after they opened, because they had COVID cases. It's somewhat confusing, with the local health departments, what the protocols are. They had not been well established. We felt if we had more than 1 or 2 COVID cases in a restaurant that we had to close them, get everybody tested, continue testing until we had enough people with negative results to reopen. So Shuckers, during this period of time, was closed for, I think, a period of 8 or 9 days. Gulf Shores was closed for probably 5 or 6 days, while that process took place. All of these restaurants are subject to the virus, and what will happen if we experience virus cases in any one of them and how we feel it's appropriate to handle those situations. Going around to country, venue by venue, Vegas has been breakeven to cash flow positive in all the weeks that it's operated. It has recently been affected. And the sales have declined, as California experienced the spike in cases a lot of Vegas businesses driving from California. The hotels are also experiencing cases. So it's, in general, a problem for volume at New York, New York. But so far, we managed to be on the whole cash flow positive. Alabama has been cash flow positive, despite closing Gulf Shores, which is the bigger generator of cash flow in Alabama, of the 2 that we have in California -- in Alabama. Florida, in general, has been on the whole cash flow positive. JB's has been cash flow negative from first day. That tends to have an older crowd. And with the spikes…

Right. So we applied for and received approximately $15 million of Paycheck Protection Program loans under the CARES Act. I would say 2/3 of that money came in on April 30 or May 1, and the balance of the money came in between mid-May and the end of May. The way the current regs are written, you have 24 weeks from the date that you received the money to spend the money. So for instance, in a situation like Robert or Clyde's, where we received the money on May 1, the restaurants aren't even open yet. And we don't even know if they'll get opened by the time the 24 weeks expires. So at that point, we have to make a business decision, if the rules are not changed, as to whether we return the money or keep the money at a 1% 2-year loan. But that we would have to discuss with our banks because we have certain lending capacity with them that we want to maintain. So that is the difficulty with many of these loans, where either the restaurants, the properties aren't open, and we cannot spend the money or they're open, as a situation like Bryant Park, and the revenues are so low, that we can't even incur the payroll to get it above 60%, which is the requirement of forgiveness, in order to be able to have the loans forgiven. So again, another situation, Bryant Park, where the rents -- the base rents, which we're talking to the landlord about, but at the current base rents, we would never be able to spend 60% of the money on payroll to offset the base rent in order to have the loan forgiven. So we would again have to make a business decision and talk to our bank as to what we would do with these funds, whether we turn them or take them as a loan at 1%.

There are certain restaurants, Gulf Shores being one of them, where the PPP money will be converted into a grant.

Las Vegas.

Las Vegas will be probably converted, most of it, into a grant. There are a handful where we'll get a grant. And that will help our balance sheet in the end because those restaurants are cash flow positive. They didn't need PPP money to be cash flow positive, and we're able to spend it according to the formula that the government laid out. So there will be money granted. Of the $15 million, Anthony, take a guess? $5 million to $8 million will be granted.

Yes, I would say, at least $7 million to $8 million, hopefully more.

Yes. So that will help our balance sheet. The big problem becomes other than the unknown and how the virus will be contained or not contained over the winter months, that's an unknown. And our revenues are largely unknown in New York because of that. I think in the South, and Vegas, the governors are not going to close those facilities. In the South, especially -- in Florida, especially, if they are having -- going to have a season, which usually begins Christmas week and last until Mother's Day, if cases are contained, and people are willing to fly in vacation in Florida, we should see revenues in Florida increase. But it's a week-to-week situation. And again, in New York, we only have outdoor seats. In Washington, D.C., basically outdoor seats. If it rains 1 day or 2 days, or we have a hurricane like we had last week, which affects Northeast, these revenues are -- and cash flows become unpredictable. And so we hope Florida has a season. We hope progress is made on the virus. We're very encouraged by what happens in the 2 casinos in Florida, and our business just seems to be increasing every week. We would expect, once you get out of the heat of August in Las Vegas, revenues to increase. That would be additional cash flow. But I can assure you, with all of these unknowns, we're staying around there -- a balance sheet is strong enough to withstand this. Our bank has been very cooperative. And it's not a deteriorating situation. In my view, it's going to be an improving situation as we get further and further away from these months. With that, I'm happy to answer any questions.

[Operator Instructions]. It appears there are no questions. At this point, I'd like to turn the call over to Michael Weinstein for closing comments. Excuse me, we had someone jumped into the queue. We do have a question from Steve Olson, a Private Investor.

Could you just run quickly over the current debt balances, cash, net debt as of the end of June?

Anthony?

Yes. Including the PPP loans, we have $45.5 million of debt and we have $21 million of cash.

I like to break in here. A lot of that debt over -- roughly $20 million was created by our purchasing JB's on the Beach, Shuckers and the two restaurants in Alabama, which came with the land and the buildings. We're our own landlord there. So that -- $20 million of that is specific almost to the real estate. We essentially created Rustic Inn, for instance, which is our best 1 of the 4, but Gulf Shores is not far behind. We bought Rustic Inn for $7.5 million, when it was earning $1.5 million. Pre-pandemic, it was earning $3.5 million. We believe that given current interest rates, on a sale-leaseback, we could give up $1 million of rent and probably get $12 million, $13 million for that property.

Mike, can I jump in one second?

Yes.

The total balance on those loans is about $13 million. After they've been amortizing for a number of years.

Yes, they've been amortized down dramatically.

[Indiscernible] the current balance.

So because of the way we acquired those, that value doesn't really show on our balance sheet in a way that's easily understandable. But we can unlock with purchase leaseback...

Sale leaseback.

Sale leaseback, excuse me, a significant amount of money. So that's sort of a fallback plan. We -- during the last couple of months, we've been busy and not really investigating that. But cap rates are very favorable right now.

Now the tax benefit that was booked in the quarter, will some of that be eligible to be refunded in cash for prior taxes paid? Or is that just an adjustment to kind of deferred tax account on the balance sheet?

No. We'll be filing carryback claims, back to, I think, '14 or '15, I forget, in the year that we have...

It's '15, Anthony. I think we missed '14, I think.

Yes. Well, I don't know if we missed it. But anyway, we'll be filing carryback claims, and we expect to get refunds somewhere in the range of $1.5 million to $2.5 million.

On the Meadowlands investment, last quarter, the 10-Q referenced that an impairment analysis was done and it was determined that the fair market value exceeded the carrying value, so no impairment charge was necessary. Is that analysis done quarterly? It did not appear in this quarter that any impairment charge was taken. So if you could just kind of comment about the Meadowlands investment? And then kind of relating to that investment, the sports betting -- the mobile sports betting, was that a onetime fee that joint venture got? Or will -- in future years, will moneys be coming into that joint venture? I understand we're just an investor in that entity, but will that entity get additional cash from the mobile sports betting?

All right. So I'm remised in not having had any dialogue with you on this call about Meadowlands. So thank you for the question, and it gives me an opportunity to tell you where we think we are. We're somewhere around, on a fully diluted basis now, an 8% holder of interest in the LLC, that is the new Meadowlands Racetrack. And we have in the mid-$5 million investment in it. The early years, when we had that investment, we had to pony up some money for our share of the losses. That has not been the case in sports betting. The sports betting deals were done by Jeff Gural, who's the general partner in this. And in the case of FanDuel, they paid a $7.5 million onetime fee and a $7.5 million advance of profits. The way the deal works is after expenses, we're 50% -- the Meadowlands is a 50% partner in the profits. Meadowlands immediately became the -- I think, the largest venue in the United States for sports betting. It certainly does multiples of what all the casinos in Atlantic City are doing in terms of sports betting. There was also Internet betting deals, and we get a percentage of the cash flow of that. And so those -- the FanDuel deal is ongoing, but there was an advance of $7.5 million that will, I think, be used up in the first 2 years. The Internet stuff, I'm not sure of the cash flows there, but we're a continuing partner of that. The Meadowlands became cash flow positive, pre-pandemic, and then all of a sudden, there are no sports. But there's still betting going on. And so I think Meadowlands probably is a little bit above breakeven in terms of cash flow. The situation is that…

Last quarter, the 10-Q disclosed the investment of about $500,000 in 3 restaurants in the Ohio. Can you talk a little bit more about this project and opportunity?

Yes. Yes.

I know you've discussed previously. So it seems like it's moving along.

It's not moving along. So Eastern Ohio is one of the most highly productive malls, for lack of a better word, in the country. There are 52 restaurants in that project, many of them small, but you do have Cheesecake and Smith & Wollensky, P.F. Chang's, et cetera. And the developer came to us and basically, who I've known for many years, have said, Michael, these restaurants are -- the project, the Easton Town Center, is 20 years old. And he said, all -- some of our leases are expiring. We're very unhappy with the quality of the product. There's nothing that generates enthusiasm in these 52 restaurants. Leases are coming due. We don't want to renew them. Would you help us redevelop conceptually what these restaurants should be? And we made a deal to start out with 3. That deal, we invested $500,000, of which some $200,000 is the responsibility of Easton Township -- Town Center, but we fronted the money. They have recently sent us a check back for half of it, because the project is on hold. Until we get a better outlook about how Easton Town Center is doing, and by the way, it's doing better than the developer thought it would do during this period, but it's still not back to where it was. And quite frankly, we just put everything on hold because we don't want to infringe upon our cash right now until we get a better outlook for the company. We still talk to the developer every other week, I think, and the developer still wants to go ahead eventually. But right now, they're on hold as well. I mean, they're only collecting something like 40% to 50% of the rents. So it's hard to imagine. It was a big development company, but they're having cash problems in terms of developing new relationships. And I think at this point, they don't want to start anything where they have to make a substantial tenant improvement allowance. So that's on hold. There are other opportunities that I'm having a meeting tonight with a company that has many projects nationally that have restaurants in them, that are not going to reopen, and they're looking to do something with us to get them tenanted. What those deals could be at this point? I'm not sure. But essentially, we're not going to be putting up money to be a lessee in any space. We prefer to be a buyer, like we were in Rustic, in Shuckers, in Alabama and be our own landlord. And if we're going to spend money, that's where it's going to be spent. But there are opportunities, I think, where developers are in trouble. They don't have viable tenancy anymore in their restaurants. And a lot of them are closing. So there may be opportunities for us to manage facilities and other developments. But all of that's subject to what happens with this virus, and we're not rushing to expand.

Right. You know what, I understand that, but there might be opportunities to opportunistically add some units without incurring additional G&A expenses and using your expertise in...

We think so. We think so. But there's a risk. Generally, in those deals, unless a landlord is going to do something that they're not used to doing, which is making investment in working capital losses beyond kind of improvements, you can lose a lot of money before this all turns around.

Right.

So it's difficult for everybody. We know that -- we know two things, that we believe it's not mythology. We believe that deep in our hearts that, after 9/11, I said to everybody. I made this speech twice, after 9/11 and during 2008, 2009, another time, we suspended the dividend until we got our footing back. I said, "Look, we have great assets. They've been very productive in the past, they'll be productive again. We just got to get through this time line." And that's what I believe here. And so we've got to be constantly looking to say, what this balance sheet look like? How many months or years of runway do we have? And we have a lot of runway now with our balance sheet. And I'm not going to impair that right now. I mean -- so any deal we do to expand would have to be a deal that we do not impair that balance sheet or we do a deal where we make a commitment that, at some time in the future, when conditions are better, that we'll be in a position to do the deal. But right now, everything is dangerous. Honestly, everything is dangerous.

Would you calculate the cash burn for the quarter in the $3 million to $4 million range? Is that down?

Well, the $4.5 million, whatever the cash burn was in the current quarter, was exacerbated by us just being closed everywhere.

It was helped by the fact that nobody in the company was allowed to make more than $50,000. And you're talking about, in one case, for salaries in [indiscernible] yes -- for salaries at corporate went from -- with bonuses went from $3 million to $200,000. Our managers, some of whom make Vegas, he's in the mid-6 figures. Most of our managers are in the mid-$200,000. Everybody was taken down to $50,000. Our managers, our chefs, everybody sacrificed, and I'm trying to be a person handing out propaganda here. But this company has been good to everybody. And everybody recognizes that we'll do whatever we have to do to make sure this company retains the assets that it has because they're good assets and they're going to be productive in the future. We're not going to do anything that distracts us from that.

Our next question comes from Roger Lipton with Lipton Financial Services.

So most of what I was going to talk about was just answered on the previous question. But it sounds like the $45 million of debt includes the PPP, right?

Correct.

Correct.

So 7 or 8 of that will go away, presumably, right?

Yes.

Yes.

Yes. Right. So and then...

And the rest will probably be returned.

Do you think you return it rather than hang on? It's cheap money, 1% money. But you don't need...

Yes, but we have a bank to deal with.

Right. Right.

And it's only a two year amortization. I know they changed it to five years, but the five years with of loans made after June 5, I believe, and these banks are not cooperating and changing the paperwork from 2 to 5 years currently.

Right. Right. So recognizing there's a lot of moving parts here and anything can happen day-to-day. Right now, I mean, as we sit here today, what's sort of the monthly cash burn, if it is burning?

It's not that much. Anthony...

I'm still waiting to finalize the July P&L, but I think it's probably about $200,000 a month, say.

Right. Right. Okay. All right. As you say, you never can tell what next week brings. The vaccination -- a vaccine could help a lot and all that. And then just back when the towers were burning, who would have ever start that new towers will be built and people would rent space on the top of those towers. So never say never, we'll get a new mayor, and this city will come back. All right, Michael, good job. Where all is -- this is a strange world. We'll do our best here. So good work.

There are no further questions at this time. At this point, I'd like to turn the call back over to Michael Weinstein for closing comments.

All right. I hope we got the answers you need into your hands, but we're always available. I'm happy if anybody has questions to give you my cell number. It's 646-322-9197. If I don't have the answer, I'll merge your sim with Anthony, and we'll get you the answers you need. Again, 646-322-9197. Other than that, we'll see you probably after the election at this point, right? So what happens? Thank you so much.

This concludes today's conference call. You may disconnect your lines at this time, and we thank you for your participation.