LEASES

9 Months Ended

Oct. 01, 2023

LEASES

LEASES

NOTE 7 – LEASES

Concurrent with the closing of the acquisition of Keegan's net assets, we entered into a lease for approximately 2,800 square feet of restaurant space. The 131-month Keegan's lease provides for an initial rent of $5,000 per month with an annual escalation equal to the greater of 3% or the Consumer Price Index. The lease is being accounted for as an operating lease. At the inception of the lease, we recorded an operating lease obligation and a right-of-use asset of $624,000. The present value discounted at 4% of the remaining lease obligation of $558,571 is reflected as a liability in the accompanying financial statements as of October 1, 2023.

Keegan's lease does not provide an implicit interest rate; we used our incremental borrowing rate of 4% to determine the present value. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.

Concurrent with the acquisition of PIE assets, we entered into a lease for approximately 3,500 square feet of restaurant and bakery production space. The terms of the 60-month lease provide for an initial rent of $10,000 per month with an annual escalation after 24 months of 3%. The PIE lease includes three five-year renewal option periods. The PIE lease is accounted for as an operating lease. At the inception of the lease, we recorded an operating lease obligation and a right-of-use asset of $1,055,000. The present value discounted at 5% of the remaining lease obligation of $933,235 is reflected as a liability in the accompanying financial statements as of October 1, 2023.

The PIE lease did not provide an implicit interest rate; we used our estimated incremental borrowing rate of 5% to determine the present value of future lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.

Concurrent with the acquisition of Village Bier Garten assets, we entered into a five-year lease with the seller for approximately 3,000 square feet of restaurant space and access to an additional 3,000 square feet of shared entertainment and seating area. The terms of the triple-net 60-month provide for an initial rent of $8,200 per month with an annual escalation of 3%. The VBG lease includes three five-year renewal option periods. The VBG lease does not provide an implicit interest rate; we used our estimated incremental borrowing rate of 5% to determine the present value of future lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the lease term. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales tax.

The VBG lease is accounted for as an operating lease. At the inception of the lease, we recorded an operating lease obligation and a right-of-use asset of $469,949. The present value discounted at 5% of the remaining lease obligation of $452,871 is reflected as a liability in the accompanying financial statements as of October 1, 2023.

The weighted average remaining lease term is approximately 5.0 years.

Following is a schedule of the approximate minimum future lease payments on the operating leases as of October 1, 2023:

	Total
Remainder 2023	$	70,788
2024		289,076
2025		297,745
2026		306,674
2027		268,437
2028 and thereafter		1,039,438
Total future minimum lease payments		2,272,158
Less - interest		(406,471	)
	$	1,865,687

The Company is a party to a month-to-month land lease agreement for one of its Burger Time locations. The net book value of the building on this land is approximately $18,500. The monthly lease payment is $1,600 plus the cost of property taxes. The total operating lease expense for the 39-week and 13-week period in 2023 was $81,000 and $26,333, respectively, and cash paid for leases during the 39 weeks in 2023 totaled $76,000  and variable expenses for lease properties were approximately $26,000.

The weighted average remaining lease term is approximately 5.3 years.

The Company also pays a monthly rent under month-to-month arrangements for corporate and administrative office spaces in West Fargo, North Dakota, and Minnetonka, Minnesota, for a combined monthly rent of approximately $2,200.