NOTE 7 – LEASES

In connection with the acquisition of Keegan’s, the Company agreed to a lease for approximately 2,800 square feet of restaurant space. The lease has a term of 131 months and provides for an initial base rent of $5,000 per month, with annual increases equal to the greater of 3% or the Consumer Price Index (CPI). Current monthly base rent is $5,628. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales taxes.

The lease is accounted for as an operating lease. At lease commencement, the Company recorded a right-of-use asset and corresponding operating lease liability of approximately $624,000. The operating lease liability was approximately $437,000 as of June 28, 2026, and $459,000 as of December 28, 2025, discounted using a rate of 3.75% and is reflected as operating lease liabilities in the accompanying consolidated balance sheets.

Upon acquisition of the PIE assets, the Company leased approximately 3,500 square feet of restaurant and bakery production space. The lease has an initial term of 60 months and has been renewed for an additional five-year term. The lease provided for an initial base rent of $10,000 per month, with a 3% annual escalation beginning after the first 24 months. Current monthly base rent is $10,927. Variable lease costs consist primarily of property taxes, insurance, certain utility expenses, and sales taxes.

The PIE lease includes two remaining 5-year option periods extending to May 2041. The lease is accounted for as an operating lease. At lease commencement, the Company determined that it was reasonably certain to exercise the initial five-year renewal option and therefore included this period in the lease term. As a result, the Company recorded a right-of-use asset and corresponding operating lease liability of approximately $1,055,000.

The operating lease liability related to the PIE lease as of June 28, 2026, was approximately $723,000 and approximately $772,000 as of December 28, 2025, discounted using a rate of 5.0% and is reflected as operating lease liabilities in the accompanying consolidated balance sheets.

In May 2024, in connection with the acquisition of Schnitzel Haus, the Company assumed the remaining 44 months of the restaurant’s 4,200-square-foot lease, with a monthly base rent of approximately $4,700.

The Schnitzel Haus lease is accounted for as an operating lease. At lease commencement, the Company recorded a right-of-use asset and corresponding operating lease liability of approximately $182,000. The operating lease liability related to this lease was approximately $88,000 as of June 28, 2026, and approximately $123,000 as of December 28, 2025, discounted using a rate of 6.5%, and is reflected as a liability in the accompanying consolidated balance sheets.

Village Bier Garten Lease –

The Company’s acquisition of Village Bier Garten assets in 2023 included a 60-month triple-net lease for approximately 3,000 square feet of restaurant space. The lease provided for an initial rent of approximately $8,200 per month, subject to an annual escalation of 3%.

On January 2, 2025, the Company ceased operations at the Village Bier Garten location in Cocoa, Florida, and entered into an agreement to assign the lease to a third party. After possession was transferred, the assignee operated a restaurant on the premises and paid rent directly to the landlord for several months, which the landlord accepted. In November 2025, the landlord issued a notice of default alleging nonpayment of rent beginning in August 2025. The landlord later regained possession, barred the Company from accessing the premises, and initiated legal proceedings to recover amounts allegedly owed under the lease.

As a result of the cessation of operations and loss of use of the premises, the Company evaluated the related right-of-use asset for impairment in accordance with ASC 842 and ASC 360 and recorded a full impairment charge of approximately $215,000 during the year ended December 28, 2025.

Given the outstanding litigation seeking acceleration of unpaid rent under the lease, as of June 28, 2026 and December 28, 2025, the Company has included a net lease liability of approximately $209,000, representing the total unpaid lease payments under the full lease term.

The ultimate resolution of the matter is subject to ongoing litigation and may differ from the amounts recorded.

The following table presents future minimum lease payments under the Company’s operating leases as of June 28, 2026, including amounts related to the PIE lease, assuming exercise of the initial five-year renewal option. During the first quarter of 2026, the Company exercised the initial five-year renewal option.

The weighted-average remaining lease term of the Company’s operating leases was approximately 5.1 years, and the weighted-average discount rate was approximately 4.50%.

The Company is unable to readily determine the interest rate implicit in its leases. Therefore, the discount rate used represents the Company’s estimated incremental borrowing rate at lease commencement for a similar term, collateralized by the leased assets.

The total operating lease expenses for the second 13-week period in 2026 and 2025 were approximately $68,000 and $73,000, respectively. In the 2026 and 2025 respective 26-week periods, operating lease expenses totaled approximately $153,000 and $147,000. Cash paid for leases during the 13 weeks ending June 28, 2026, totaled approximately $65,000, and in the 13 weeks ending June 29, 2025 it totaled approximately $68,000. Cash paid for leases was approximately $137,000 and $141,000 for the 2026 and 2025 26-week periods, respectively. Variable expenses for lease properties were approximately $2,000 in the 13 weeks in 2026 and $11,000 in the 13 weeks of 2025. Variable lease expenses were approximately $11,000 and $20,000 in the 26-week periods in 2026 and 2025, respectively.