Greetings, and welcome to the Ark Restaurants First Quarter 2015 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Bob Stewart, Chief Financial Officer. Thank you, sir. You may begin. .

Thank you, operator. Good morning, and thank you for joining us on our conference call for the first fiscal quarter ended December 27, 2014. With me on the call today is Michael Weinstein, our Chairman and CEO; and 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 newswire 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 homepage 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 afternoon 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 will now turn the call over to Michael. .

Hi, everybody. This was a solid quarter for us. There's a lot going on, so I thought maybe I'd take you through venue by venue and just give you an idea of how the company is doing section by section..

We obviously have had a lot of leases expire over the last 2 years, and so all the good that we're doing, or that we think we're doing, in generating new operating profits from new operations or increasing operating profits at older operations has largely been offset in the last 2 or 3 years by leases that have been expiring that we cannot review -- renew for a variety of reasons.

Some, they were just too expensive to renew; others, the landlords put the spaces we were in to alternate uses and didn't want a restaurant. So we've been fighting this loss of EBITDA for several years, and the fact that we had this quarter shows that what we're doing in our existing and new restaurants is really working out..

Las Vegas remains kind of flat to down a little bit, but our operating profits have held up. New York has been sensational. We were up 5% in this quarter compared to last quarter. One of the big pluses is, Clyde's is finally turning around. We had extraordinary losses there the first year, half of them in the second year.

This is the third year that we just finished, and the December quarter was the first time we've shown an operating profit, the December quarter being our first quarter of our new fiscal year. And the numbers since then in January and February have held up. So we think we finally have solved the revenue problem at Clyde's..

Robert and Bryant Park remain extremely, extremely strong; El Rio Grande, as well. New York has just been a great market for us..

Washington D.C., we've had some revenue challenges in Union Station where we run 2 restaurants. Union Station is under construction. I would think that anybody sitting at either one of our restaurants will find certain parts of the day completely unpleasant with the noise and the hammering and the dust, so our sales have been off there.

But Sequoia has been very strong. Sequoia is on the waterfront. We have 4 years left on that lease. We think we renegotiated a 20-year extension, so we're in very good shape in Sequoia. And once Union Station gets finished, which is probably 8 months to 1 year away, we think sales will bounce back pretty quickly there.

And Washington should again be a very strong market for us..

Atlantic City, despite all the closings and the dread of news that comes out of Atlantic City, we are up and doing well. And Gallagher's and our Burger Bar and Tropicana is doing well, so we're satisfied with that market..

Boston is flat but we did license Durgin-Park to host and they have a Durgin-Park at the airport and that's started to contribute, I guess, a couple of hundred thousand dollars a year in additional revenue, so that's a good thing. We are down a little bit in Connecticut, not too much.

And in Florida, we're basically down a lot because, as I've said in previous conference calls, the Hard Rocks have changed there. We operate in 2 Hard Rock casinos in Tampa and Hollywood. And Hard Rock has changed its marketing policy. A good part of the fast food revenue that we had there was comps and they have basically terminated their comp policy.

So the 31% basically [ph] represents sales that used to be used through that marketing arrangement and that no longer exists. We are still profitable..

At this juncture, what I can tell you is everything we are doing is profitable. We don't have 1 restaurant that is operating at a loss. That's probably the first time in the history of the company that we can say that..

As you know, we bought the Rustic Inn in Florida last year. We bought it in late February, so we're just about to have our first 12 months under our belt. We think we can increase sales through price increases and other efficiencies, probably 15%, 20% there. In season, we're running $300,000-plus a week.

We were surprised that in the summer, which is not season in Fort Lauderdale, we were still running at $200,000-plus a week. That hadn't happened before for Rustic, in its previous 50 years. So that's been very, very strong for the company..

And last week or 2 weeks ago, we opened the Rustic Inn in Jupiter. On our first full 7-day week, we did $140,000. So that's a huge start for us. And in this quarter, we had -- December quarter, we had $200,000, approximately of startup losses.

We'll probably have a small amount of more for the first couple of weeks, but at the $140,000 level, if that holds, we should be profitable pretty quickly as we get efficient. It generally takes us 1 month to get efficient, get payroll in line, get food costs in line. So that's been a big plus..

We've already started to look for a third Rustic, based upon its early strong beginnings of the second Rustic. We may be a little bit too optimistic, but it takes time to do these deals and we're now looking for other waterfront properties in Florida..

As far as our investments, at the Meadowlands Racetrack, we still are confident that there'll be a license -- a gaming license issued to the Meadowlands. As I've told everybody, we think we're in good position to get that, but that's not, by any means, assured. It could go to request for proposal, that's up to the politicians in New Jersey.

But I think we've done everything right here. We built a spectacular $100 million grandstand with our partners, Jeff Gural and Hard Rock Casino. People are enjoying it. But harness racing is not a moneymaker and, in order for this project to stay alive over a long period of time, we need a casino license. And that's basically it. Ready for questions. .

[Operator Instructions] Our first question comes from Bruce Geller with DGHM. .

Can you -- when does the change in the marketing policy in the Florida restaurants annualize -- start to annualize out through the results?.

May 5 was the day they stopped comping into the food courts. So it's in May that we annualize that. .

And is there -- I mean, I guess you guys knew going in that, that was always a risk.

I mean, have there been anything in your agreements historically that you've done that -- or in hindsight, that you should've done that could help insulate against something like that?.

The only thing you can ask for is the guarantee of comps. And the hotels -- we run in several casinos, operations, and in none of them have we historically asked for a guarantee of comps. I don't think it's something that's on the table that they would give.

The biggest error in negotiating any lease that I can recall, and I make mistakes, but not asking for a guarantee of comps at the food court at Foxwoods which we closed a couple of years ago and took a writeoff for ourselves and our investors, we thought for sure that there would be significant comps and there weren't, but there was no traffic going into that facility.

We do ask for it because they -- the developer/landlord of the casino is always saying, "Oh, you're going to do fabulous." And we always ask, "Well, can you guarantee us a comp number?" And the answer is no. But we have very -- we've had 10 years of extraordinary returns in Florida. It doesn't mean we're happy about the situation.

But we're still very profitable, our investors are doing well. So it is what it is. Whether or not it changes over time, I can tell you the customers are not happy about not being able to comp into the food court. But they've determined that that's a customer they're really not looking for. .

Okay.

So you don't think it was something that they were testing that maybe they would go back to the older policy on?.

It could be. But look, we were -- the Hollywood property is undergoing extensive expansion.

And we were of the mind for a while, and still are a little bit of the mind, that maybe they did this to put pressure on us because they need us to move in order to effectuate the expansion that they are looking for and -- or repositioning different retail components within the casino, and they can't move us without a negotiation.

It's not something that's in our lease, where they can move us to a similar location. So we thought maybe it was pressure.

But as time goes on, they haven't come back to us and said, "Hey, let's talk about your location at the food court." So we tend to think it's pretty reliable that this was a marketing plan that has changed as they brought in new management.

They brought in new management about 1 year ago, and we think this is that management's take on what customer they want and what customer is productive and how much comps do cost them and probably felt that their operating profits would benefit from eliminating the comps. .

So there's really nothing you can do until it comes time to renegotiate those leases?.

Well, the leases don't renegotiate for another 10 years. And quite honestly, I'm stunned that we have the leases that we have. They're very strong tenant leases, and I don't know what's going to happen in 10 years. We sort of have this situation with Hard Rock. They're our partners in Meadowlands.

They asked us to be the food service providers when they were bidding on a location in Troy, New York, which was one of the sites that New York Legislature had earmarked for a casino. So on the one hand, we're partners in one facility. They asked us to go with them to another facility, which they did not get awarded the license.

And on the other hand, we have -- we're getting hammered by their policy in Hollywood and Tampa. So I don't think they're looking to hurt us on purpose, and I think this is just an outcome of a new marketing philosophy and they have that flexibility.

The lease doesn't come up for 10 years, so unless they want to discuss it, before then, we just sit here and wait. .

Do you feel comfortable throwing so much support behind a partner in the Meadowlands that hurt you so badly in Florida?.

Well, "hurt me so badly" is a stronger statement than I think that the situation deserves. So, would I like to have the comps back? Absolutely. Am I about to start a war with them about it? I don't have the guns to support the war. It's their marketing philosophy, it's their facility, we're just a tenant.

And if our lease was -- if we were shortsighted in negotiating the lease by not having a guarantee in comps if it could have been gotten, I would tell you I got the lease reduced from a 15% rent to a 10% rent early on through -- because they wanted something for us -- from us, and I think that's far more valuable than what happened with the comps.

So we're -- look, we think they're straightforward businessmen, I have nothing but respect for Jim Allen and the organization he's built. And I'm not just saying that hoping that he's on the conference call listening to me.

But I do respect him, he's built a terrific organization, 2 very strong facilities in Tampa and Hollywood, they throw up tons of cash flow, and I couldn't think of a better partner to have if we get the license in the Meadowlands. .

So was it a similar change in policy in both Tampa and Hollywood?.

Yes. At exactly the same moment, yes. .

Okay.

And my last question for now is, would you mind just maybe giving a little bit more of an update, to the extent you can, on the prospects for the Meadowlands getting gaming rights?.

Well, there are several things you can look at that are fairly significant. Number one, the collapse of Atlantic City. Casinos in Atlantic City have gone down from $5 billion in sales to less than $3 billion in sales over the last 5 or 6 years, I guess. And the city has an eight -- the state has an 8% interest in those revenues.

So their revenues are down from $400 million to under $240 million right now. That's significant in a state that really is looking to find additional revenue to run the state. There have been foreclosings in Atlantic City recently. Revel went bankrupt twice.

I think everybody knows that with the competition from Maryland, Pennsylvania and Delaware, Atlantic City has to shrink dramatically and has started to shrink dramatically in terms of its gaming offerings.

In order for the remaining casinos to be profitable, resorts -- we're in resorts with Gallagher's and at Burger Bar and, fortunately, that has a very financially strong owner but it still loses money. The state has failed in getting interest and demand in online gaming. And so that's Atlantic City.

The second thing that happened, which woke up the legislature, I believe, is -- and this is all my interpretation, so you got to be careful; I tend to be wrong a lot.

But the second thing that occurred to me, when you talk about the state legislature, was Caesars, which had a position in Atlantic City, and the legislature has been protecting Atlantic City as the only venue for casino gaming in New Jersey. Caesars applied for a liquor -- for a gaming license in Orange County.

Even though they didn't get it, the fact that they were prepared to desert the comfort of the security and protection of the state of New Jersey to go after those revenues, I think was a wake-up call to the legislature, "What are we protecting these guys for?" I think it was a wake-up call for the governor as well.

Then what happened is the legislator, who has always protected Jersey, from the south of Jersey, made a statement 7 months ago, "It's time we consider the northern part of New Jersey for a casino license." And what has been bandied about has always been the Meadowlands because it's a lot of acreage with a lot of parking and already has a racetrack, so this legalized gaming head to Meadowlands and Jersey City, where there's been a proposal kicking around to build a mega resort.

So all those things come into play. The Newark Star-Ledger and the Bergen Record, which are the 2 powerhouse newspapers in the North, have been continuously writing editorials, saying "What are we waiting for? We need a casino in the north." And then you have the expansion of casino gaming in New York State.

And fortunately for New Jersey, they didn't take Orange County, they went to the Catskills. But Genting -- the guy who is Chairman of Genting, own 75% of the Empire and he's going to build a billion-dollar facility there. By the way, as an aside, we are probably going to do food service at that facility.

Not necessarily in the casino, but at the surrounding retail that's being constructed. So there's a lot of pressure on Jersey to raise revenue. There is no reason anymore to secure Atlantic City as the only gaming site in the state.

And there has been significant activity at the legislature level to try to write legislation before this August to be prepared to put a referendum to change the constitution of the state to allow for casino gaming in the north.

I would say to you, and I've gone out in a little bit of a limb, there's a 100% chance that there'd be a referendum on the ballot in November for a gaming license at the Meadowlands. Whether or not we get that gaming license is not anywhere assured. As I said, we built a $100 million grandstand facility.

That is set up to be a casino the day after the referendum passes. We could bring in slots and table games. The building was built to support that from not only a design point of view, but a structural point of view. It would be an easy Phase 1, we can start giving the state revenue immediately.

If that casino license is not given to us either outright or a request for proposal, I think it would take somebody else 2 or 3 years to get into the business. They would have to find a site in the Meadowlands and do environmental studies and go through that whole process before they can start to build. So there's a delay of revenues.

So we think we're in a favored position. But again, you're just dealing with politicians who have other concerns and not necessarily in our corner, not necessarily not in our corner, but we won't know until the legislation is written.

Hard Rock has gotten approved for a gaming license in the state of New Jersey as a preface to all of this, so that if we are given a casino license, at least our partner who will be running the casino is in line to get a license.

We have, as part of our investment, the rights to all food and beverage at the casino and the racetrack and any expansion of the casino or the racetrack, with the exception of 1 Hard Rock Cafe. So we have renderings ready, but that's no big deal, anybody could do renderings. But we think we're in a good position.

Right now, I would tell you, if we didn't get it, I think we would all be disappointed, because we think we've done everything right. In addition to which, what we're trying to build is not a $4 billion resort, we want to build something far more modest so that Atlantic City is not challenged by what we build.

And I think that's a different approach than anybody else would have who would come into the Meadowlands. So that's, I think, as much of an answer as I can give you right now. .

Our next question comes from Stephen Anfang with Anfang Resources. .

First of all, congratulations. I think your stock today hit at an all-time high. .

Well, not an all-time high, but a recovery high. .

At least for 5 years. It's... .

Yes. .

Congratulations.

My question really deals with whether, based upon the great capitalization your company presently has the luxury of, cash flow-wise and minimal debt, have you guys yet considered rolling out any kind of chain concept, taking one of your concepts that seems to work well and bringing it forward into a chain kind of atmosphere to capitalize on your -- on any marketing and G&A expenses? Usual reasons, whether it's Durgin-Park, which seems to be popular in New England or whatever.

I pose that as a question that, as you know, I've always been interested in it. .

I just recently wrote my letter to the shareholders and I said the history of this company started with us building 6 restaurants in 6 blocks on the Upper West Side of Manhattan a long, long, long time ago. And therefore, they all had to be different names and different menus not to compete with each other. And we kept going with that.

And where other people have gotten better multiples on their businesses or on their stocks by having a brand, we've never been brand people. And I understand the importance of brands and I understand that brands can do well in a location where a nonbrand might not just because people have anticipation for the brand and reliability in the brand.

But on the other hand, we have Bryant Park, where the park didn't want a brand. We have New York, New York, where New York, New York, when Gary Primm was the developer along with MGM, he didn't want brands. He wanted different restaurants with a New York sensibility. And so we were sort of making decisions based upon what developers wanted.

And the opportunity was always for us not to have to guarantee leases, not to have to compete with people who were much smarter brands than we were. So the only opportunity that's really come along, that is our recent acquisition of Rustic. And we purchased the land and buildings and business operations of Rustic at a very favorable price.

We've improved the cash flow coming out of Rustic by $1 million a year just with our know-how and with the cooperation of great management down there.

And then we found the situation in Jupiter where we could test whether or not that was -- that brand could be expanded upon in another location, where we bought a waterfront restaurant for literally $250,000 and renegotiated the lease with General Electric Capital at a very favorable tenant lease. We were fortunate in being able to do that.

And boom, we opened up, and this brand means something in Jupiter, Rustic. So I would tell you that it's an unusual restaurant in terms of its menu and just the whole feeling of it. Interesting enough, the original Rustic only does 12% in liquor sales. Jupiter is doing 25% in liquor sales.

So the margins are going to be better because we put bars in and the old Rustic didn't really have a bar. And so we're learning a lot from the first and the second one and, as I said, we've already made a call to the broker who delivered those 2 to us to go find a third one.

So regionally, we feel comfortable that Rustic is a strong enough brand that we can do a third and we'll see how that goes. But we're one-at-a-time people. And this -- and we've built thousand-seat restaurants that, if we're right, do $15 million to $20 million, and we've got a few of those. So no, we don't think branding is the way to go.

We think we're conservative on our balance sheet. We're reluctant borrowers. And yes, we have a lot to do here but some days, it's like a lava lamp, we're not building 15 restaurants a year. We're building 2 or 3, but they tend to be big and they tend to be highly profitable, if we're right.

And we're comfortable with our business, we're really comfortable. .

Okay. By the way, so much time was spent on the Meadowlands in this question-and-answer. I will say you have a great partner there, a very astute real estate guy as your partner leading that, so I have the ultimate... .

Jeff Gural, yes. .

I have the ultimate [indiscernible] that, if it's going to be doable, and I know Jeffrey's attitude on not taking too many chances, it will be done. .

Hope so. .

Yes, congratulations. .

Thanks, Stephen. Thank you. .

[Operator Instructions] Our next question comes from Jeff Kaminski [ph], private investor. .

I had a question regarding the Rustic Inn, although the last gentleman asked and you answered some of those questions already.

But the model that seems to be successful down there and the success that you've had early with restaurants that have been in existence there, is that something you can take forward to your other properties? In other words, was this a marketing or a menu change that is responsible for the success at the 2 Rustics? And if so, is that something you can bring forward to the other properties? Where exactly do you attribute the early success with new ownership down there and how can you use that in your other restaurants?.

First of all, we -- the last 2 quarters, and we go over P&Ls monthly here, and we have flash P&Ls every week on every single restaurant. And Vinny Pascal, who's our COO, and Bob Stewart and myself sit down, and we go through these things.

And I must tell you, from our level of expertise, whatever that may be, and expertise may be the wrong word, but from our level of knowledge of restaurants and how they run, we look at these P&Ls and there's very little wrong in them. I mean, very, very little. Our managers who have been with us forever are doing great work, great work.

And in Rustic, we inherited a management team in place that is spectacular. What we did at Rustic is we just said what they were afraid of. We said the offerings here are too much value. The portions are huge, we're not charging enough. And we think, from what we know, people will pay for this.

Even though we're not South Florida people, but we thought it was just too cheap. And we did 2 price increases. One, we did a price increase initially on the shellfish and the crabs, which they're famous for. And then 3 months later, when we felt those were -- the prices were absorbed without any loss of headcounts, we raised the entire menu.

The rest of the menu. And right now, I could tell you, we're doing 10% to 15% more business every single week with no loss of headcounts. Now it's in season. The tourists may have less of a reluctance to spend the extra few dollars and locals will, and we'll find that out in the summer months.

But we wanted to raise the prices before we went to Jupiter, which is a little bit of a wealthier community and a more well-heeled community, and so that we had the same price points at each restaurant. And so basically, we took a restaurant that, when we were shown the numbers, it was earning $1 million.

We thought with add-backs, it might be earning $1.3 million, $1.4 million, $1.5 million. Add-backs meaning personal stuff that the former owners charged into the restaurant that we would not charge in, cars and other insurance policies and stuff.

And with the price increases, we think we're going at about a $2.2 million, $2.3 million [ph] clip at Rustic, maybe a little bit more in Fort Lauderdale. And yes, so that's what we did in Rustic.

Nothing that dramatic except saying, "Hey, this product is being offered to the customer for too cheap of a price and they will pay more because the product is good and the quantity of the product." Everybody is bringing a doggy back home. So we have other areas where we think we can expand at Rustic.

As I said, we're going to build a new bar in Fort Lauderdale. We think takeout is underperforming. They never -- they do, do takeout, they don't do deliveries. Maybe we should be doing deliveries.

The model for me is the barbecue restaurant in Memphis that sends things out, Federal Express all over the country, I think we could be using that model if we knew how to market it. But I must caution you, and I'm not being -- undervaluing ourselves here, we are lousy marketers. We spend no money marketing.

What we are good at is -- our brand is being able to run these 600-, 700-, 800-, 1000-seat facilities. And I always say, you're at Bryant Park on a Thursday night, at 5:50, the place is mostly empty. People get out of work at about 5:00, 5:30, start to use the bar and that bar will do $25,000, $30,000 on a Thursday night, our outdoor bar.

And then at 6:00, there are 1,000 people sitting, all at once, and they will all be out by 7:00, if they want to, or earlier. We know production and we know quality and that's our brand. And that happened to be the Rustics brand. They knew production and they knew quality and that's why we like it so much.

So there was very little we could teach them, and I don't think there's all that much to teach us, although I would like to have garlic crabs on some of our menus throughout the country because I think it's a great product, if we can make it as good as they can. But I don't think, beyond that, there's very much going on. .

Our next question comes from Chris Patrick with [indiscernible]. .

Michael and Bob, it's Chris Patrick [ph] with [indiscernible]. Just a couple of questions here.

Is there any kind of update to give on the -- I believe, you referred to it as the Bryant Park kiosk?.

Yes. There's a small kiosk. We have a licensing agreement, which has not yet been signed, but I think it will be. It sits in the corner of Bryant Park. The previous owner, if we believe them, or the previous operator, did about $2.3 million. 80% of that was in liquor. They were not renewed by the park. The park has asked us to do it.

We've gone through 2 or 3 drafts of the lease. We applied for a liquor license. They sort of accepted our menu proposal and our price points. The park clearly has a lot of discretion and control. But I think we get that, and I think it adds a few hundred thousand dollars to operating profit.

It's the only time we've ever signed a license as opposed to a lease, but that's the only thing that's available in that park at this point. So yes, I think it's going forward. We should be open sometime in April. .

Perfect. Okay. On the Bryant Park, just real quick, it is a few years out obviously, but the outdoor cafe and the indoor areas, is that separate leases? Any... .

Yes. .

This was brought up, I think, in a conference call a couple of quarters ago. .

Yes. The lease for the 40th Street side, which is the grill, which is partially enclosed and has a rooftop, as well as a patio and the whole thing there is probably 550, 600 seats, that has 13 years left on the lease. The outdoor area on the 42nd Street side, which is another 400 seats and a huge bar, has 6 years left.

On that lease, we have a right of first refusal. So the mechanism is that they can go out and try to find another lessee for it, but they have to come to us with a valid offer and we have the opportunity to say we want it and that's the end of it; then we get another 10 years. It's going to be hard for us to not say we want it.

We're already paying a very big rent there. So I don't think too many people are going to challenge it. And one of the things that makes that work is the fact that it's supported by the other restaurant, the grill.

So somebody else running that space -- and it's not impossible, but they would really have to have a big catering operation to be able to deliver product all day long to satisfy the demands and stress put on that kitchen.

So the fact that we're next door and also rent basement space across the street because we need it, I think, sort of secures our position. I don't think that's going away very soon. .

Okay, great. Somebody else had already talked -- asked about the chain concept.

My question is, outside of the Rustic Inn and this Bryant Park kiosk, are there any other locations right now that you're looking at to add a restaurant or a concept?.

We are looking at stuff all the time. It's -- we've never really commented on what we're looking at because, for every 50 deals we look at, maybe we do 1. The difficulty we always have is that we're -- and our leases are public record. If you went through those leases, they're unlike anybody else's leases. I mean, they're really strong leases.

I always tell the story, when Sheldon Adelson signed the lease with Barneys in the expansion of the Venetian, they said, "We're going to move you." General Growth said, "We're going to move you." He said, "I said, 'You can't move us.'" And they said, "No, it's in the lease. It's in every lease." "Well, it wasn't in our lease.

You can't move us." We are difficult, difficult people to make a deal with. I'm risk-averse. This is a huge part of my equity in life, and I'm not going to take risks with it.

Building a restaurant, as Clyde's proved, where I thought I had a slam dunk, to use a bad expression for a basketball-themed restaurant, but where I thought I had a slam dunk, we went through a lot of pain to get this to finally have a profitable quarter.

No matter how right you think you are, and this is an argument for brands, but what we do, it's somewhat fickle. And we can produce excellent food at excellent prices in a location we think that will work and, boom, it doesn't work, and we've been through that. So our leases are very, very difficult leases for a landlord to accept.

They really have to want us. And so we look at a lot and a lot of stuff and we just can't make a deal that we're happy with. But once in a while, we do, and it's a Rustic and it's another Rustic and it's -- there's stuff that goes on. So I'm almost apologetic for the lava lamp growth of our business, but it's been dependable. .

Sure. Last question for me then, just on the -- some of the expenses. The food and beverage costs were up about 11% year-over-year... .

Yes. Let me answer that quickly before you go to the next one. The best analogy is, if you're sitting in a restaurant and you're the owner, you would like to see somebody order a lobster at a 50% cost rather than a hamburger at a 28% cost because the whole dollar profit is bigger. That is Rustic's business. Rustic runs very, very high food costs.

But in the end, you're happy with the operation because you're assuming so much volume and the sense of value is so great that it's -- the flow-through over the transom is spectacular volume.

So Rustic, as we built the first one, or as we bought the first one, and the second one, where our food costs generally, for the company, have been right around 30%, a little bit less. And here we hold Rustic that, when we first bought it, it had a 46%, 47% food cost. It's now running more like 42% with the price increases we had.

So the more volume Rustic does, the more it impacts our food cost. And if you took Rustic out, our food costs are running basically the same as they've always run. So Rustic is impacting us. .

Okay. I missed the first part there.

Are you saying that with lobster, the margins are higher? Or it's just the higher costs that bring up the food cost?.

No. The higher costs are not making our margins higher. Our margins are lower, but our whole dollar profits are higher selling a lobster rather than a hamburger. So we have a higher check average at Rustic although we have a higher food cost. .

Right, right. And then last question, occupancy -- or not occupancy, the payroll expenses were up a little bit year-over-year. .

And that has to do with several factors. It has to do -- a change of legislated minimum wage increases that are -- we're being hit with in every menu, and that continues. That has to do with New York State's new rules on, let's call it, spread of hours and sick leaves.

Spread of hours, just to inform you, is somebody who works 9 hours for me, they have to get paid for a tenth hour, whether they work it or not. Sick leave, in New York now, you have guaranteed 6 sick pay leave days and 1 hour -- or in other words, 1 hour for every 40 hours. Vinny Pascal, our COO, handles this for us.

He is immersed in every venue in labor laws. And we audit our payrolls on a regular basis at every single restaurant because the labor laws have become so complicated that we want to make sure that we're abiding by the regulations. It is difficult. Vinny, if you want to say something. .

I think that also has to do with the administrative charge that we charge on parties. And that also has to do with the change of law. We pay $35 an hour to our servers to work, close down events, and that's in the payroll.

Although if you look down at the bottom, you'll see what the administrative charge gives us back, which is always greater than what we're paying out, but it does have an effect on the cost of your payroll. .

Yes, that's a good point. So about 1.5 years ago, we started to charge -- we started to pay people differently for events. The people who work for us. So you could be a waiter with regular minimum wage and on a payroll, getting tips. But if you work a private party, you now get paid $35 an hour. We charge the party 22% administrative charge.

We've had no problem with that whatsoever. And obviously, they don't tip out any of our waiters, waitresses, hosts, et cetera, because they're paying us administrative charge. We just pay a straight $35 an hour.

Waiters and waitresses are happy with that because they're making $35 an hour where, if they were working on a party that wasn't very lucrative, they may not make that much. But on the bigger events, they probably would have made more with the tip. But this secures them that they're going to make a very good wage for working that party.

If it's a party -- for instance, it's $100,000 party, our fee would be -- administrative fee would be $22,000. We may be paying out $17,000 or $16,000 to -- in terms of payroll for that party. So we're making an additional $5,000, $6,000, $7,000. And... .

We have to pay sales taxes. .

Yes. And so now there's $35 that we're paying out. It shows up in payroll where, before, it was a tip. So that also was a good point by Vinny. We're making more money, but our payroll expenses went up a little bit to reflect that $35 an hour. .

You have a follow-up question from Bruce Geller with DGHM. .

Actually my question was answered, so thank you. .

There are no further questions in the queue at this time. I would like to turn the call back over to management for closing comments. .

Well, thank you, all, for being on this conference call. We think we're going to have a couple of good quarters coming up and we're really happy with the way the business is working. Obviously, the second Rustic coming up with such good early results is a big relief and a big benefit for as.

Again, we're going to keep our balance sheet simple and just try to stay in a strong position. If the Meadowlands happens, we're obviously going to need to find a way to finance our shares so that we're not diluted, but we think we can do that. And we look forward to our next conference call with you. Thank you very much. .

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a great day..