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 October 3, 2020 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.
COVID-19 Pandemic
The COVID-19 pandemic has adversely affected, and is expected to continue to
adversely affect, our operations and financial results for the foreseeable
future. As of July 3, 2021, all of our restaurants have re-opened and currently,
national, state and local jurisdictions have removed their capacity restrictions
on businesses and therefore our restaurants are serving customers in our dining
rooms without social distancing requirements. However, we cannot predict whether
we will be required to limit capacity or close again in the future, as these
decisions will depend primarily on the actions of a number of governmental
bodies over which we have no control. It is possible additional outbreaks could
require us to reduce our capacity, implement social distancing or further
suspend our in-restaurant dining operations, and there is no guarantee that
state and local jurisdictions, that have currently eased restrictions, will not
reverse or roll-back the restrictions, as many have done in the past.
Additionally, our restaurant operations have been and could continue to be
disrupted by employee staffing issues because of illness, fear of contracting
COVID-19 or caring for family members due to COVID-19, or for other reasons.
Furthermore, we remain in regular contact with our major suppliers and while to
date we have not experienced significant disruptions in our supply chain due to
COVID-19, we could see significant future disruptions should the impacts of
COVID-19 extend for a considerable amount of time.
As a result of the COVID-19 pandemic, the Company experienced a significant
negative impact on its revenues, results of operations and cash flows, and has a
working capital deficiency of $(2,134,000) as of July 3, 2021. However, we
believe that our existing cash balances, current banking facilities and cash
provided by operations will be sufficient to meet our liquidity and capital
spending requirements through August 18, 2022.
Overview
As of July 3, 2021, the Company owned and operated 18 restaurants and bars, 17
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 segments into a single reporting segment
in accordance with applicable accounting guidance.
The consolidated condensed statements of operations for the 13 and 39 weeks
ended July 3, 2021 include revenues and income of approximately $2,141,000 and
$4,582,000 and $432,000 and $887,000, respectively, related to Blue Moon Fish
Company, which was acquired on December 1, 2020.
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 July 3, 2021 and June 27, 2020 each included 13 and 39 weeks.


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Seasonality


The Company has substantial fixed costs that do not decline proportionately with
sales. At our properties located in the northeast, the first and second fiscal
quarters, which include the winter months, usually reflect lower customer
traffic than in the third and fourth fiscal quarters. However, sales in the
third and fourth fiscal quarters can be adversely affected by inclement weather
due to the significant amount of outdoor seating at the Company's restaurants.
Results of Operations
The Company's operating income for the 13 weeks ended July 3, 2021 was
$5,113,000, as compared to an operating loss of $(5,623,000) for the 13 weeks
ended June 27, 2020. This increase resulted primarily from the strong
performance of our Florida, Alabama and Las Vegas operations in the current
period combined with the fact that all of our properties were closed for the
majority of the prior period and operated at limited capacity when they reopened
as a result of government mandates in connection with the COVID-19 pandemic.
The Company's operating income for the 39 weeks ended July 3, 2021 was $309,000,
as compared to an operating loss of $(5,123,000) for the 39 weeks ended June 27,
2020. This increase also resulted primarily from the strong performance of our
Florida, Alabama and Las Vegas operations in the current quarter combined with
the fact that all of our properties were closed for the majority of the third
quarter of the prior fiscal year and operated at limited capacity when they
reopened as a result of government mandates in connection with the COVID-19
pandemic.
The following table summarizes the significant components of the Company's
operating results for the 13- and 39-week periods ended July 3, 2021 and
June 27, 2020:
                                    13 Weeks Ended                        Variance                        39 Weeks Ended                         Variance
                               July 3,          June 27,                                             July 3,          June 27,
                                2021              2020                $                %              2021              2020               $                 %
                                    (in thousands)                                                        (in thousands)
REVENUES:

Food and beverage sales $ 42,137 $ 6,907 $ 35,230

        510.1  %       $ 87,207          $ 82,850          $ 4,357               5.3  %
Other revenue                     828               292               536           183.6  %          1,824             1,866              (42)             -2.3  %
Total revenues                 42,965             7,199            35,766           496.8  %         89,031            84,716            4,315               5.1  %
COSTS AND EXPENSES:
Food and beverage cost of
sales                          12,676             1,847            10,829           586.3  %         26,382            22,366            4,016              18.0  %
Payroll expenses               12,304             3,701             8,603           232.5  %         29,345            31,925           (2,580)             -8.1  %
Occupancy expenses              4,251             3,004             1,247            41.5  %         11,248            12,274           (1,026)             -8.4  %
Other operating costs and
expenses                        4,737               852             3,885           456.0  %         11,077            11,834             (757)             -6.4  %
General and administrative
expenses                        2,802             2,437               365            15.0  %          7,625             7,888             (263)             -3.3  %
Loss on termination of lease        -                 -                 -               -  %              -               364             (364)           -100.0  %
Depreciation and
amortization                    1,082               981               101            10.3  %          3,045             3,188             (143)             -4.5  %
Total costs and expenses       37,852            12,822            25,030           195.2  %         88,722            89,839           (1,117)             -1.2  %
OPERATING INCOME (LOSS)      $  5,113          $ (5,623)         $ 10,736           190.9  %       $    309          $ (5,123)         $ 5,432             106.0  %



Revenues

During the 13-week period ended July 3, 2021, revenues increased 496.8% as compared to revenues in the 13-week period ended June 27, 2020. This increase resulted primarily from all of our properties operating with no capacity restrictions in the current period combined with the fact that all of our properties were closed for the majority of the prior period and operated at limited capacity when they reopened as a result of government mandates in connection with the COVID-19 pandemic.


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Food and Beverage Same-Store Sales On a Company-wide basis, same-store sales increased 455.0% during the third fiscal quarter of 2021 as compared to the same period last year as follows:


                               13 Weeks Ended                 Variance
                           July 3,       June 27,
                             2021          2020           $              %
                               (in thousands)
Las Vegas                 $ 12,144      $  1,462      $ 10,682         730.6  %
New York                     5,501           125         5,376       4,300.8  %
Washington, D.C.             3,192           166         3,026       1,822.9  %
Atlantic City, NJ              554             -           554              N/A
Connecticut                    103             -           103              N/A
Alabama                      5,073         2,436         2,637         108.3  %
Florida                     13,873         3,098        10,775         347.8  %
Same-store sales            40,440         7,287      $ 33,153         455.0  %
Other                        1,697          (380)
Food and beverage sales   $ 42,137      $  6,907


The increases in same-store sales for the 13-week period ended July 3, 2021 as
compared to the same period of the prior year are the result of all of our
properties operating with no capacity restrictions in the current period
combined with the fact that all of our properties were closed for the majority
of the prior period and operated at limited capacity when they reopened as a
result of government mandates in connection with the COVID-19 pandemic.
Costs and Expenses
Costs and expenses for the 13- and 39-weeks ended July 3, 2021 and June 27, 2020
were as follows (in thousands):
                            13 Weeks                      13 Weeks                                                          39 Weeks                     39 Weeks
                             Ended            %            Ended            %                    Increase                     Ended           %            Ended           %                    Increase
                            July 3,        to Total       June 27,       to Total               (Decrease)                   July 3,       to Total      June 27,       to Total               (Decrease)
                              2021         Revenues         2020         Revenues          $                  %               2021         Revenues        2020         Revenues          $                  %
Food and beverage cost of
sales                     $  12,676             29.5  % $   1,847             25.7  %    10,829             586.3  %       $ 26,382             29.6  % $ 22,366             26.4  %     4,016               18.0  %
Payroll expenses             12,304             28.6  %     3,701             51.4  %     8,603             232.5  %         29,345             33.0  %   31,925             37.7  %    (2,580)              -8.1  %
Occupancy expenses            4,251              9.9  %     3,004             41.7  %     1,247              41.5  %         11,248             12.6  %   12,274             14.5  %    (1,026)              -8.4  %
Other operating costs and
expenses                      4,737             11.0  %       852             11.8  %     3,885             456.0  %         11,077             12.4  %   11,834             14.0  %      (757)              -6.4  %
General and
administrative expenses       2,802              6.5  %     2,437             33.9  %       365              15.0  %          7,625              8.6  %    7,888              9.3  %      (263)              -3.3  %
Loss on termination of
lease                             -                -  %         -                -  %         -                 -  %              -                -  %      364              0.4  %      (364)            -100.0  %
Depreciation and
amortization                  1,082              2.5  %       981             13.6  %       101              10.3  %          3,045              3.4  %    3,188              3.8  %      (143)              -4.5  %
Total costs and expenses  $  37,852                     $  12,822                     $  25,030                            $ 88,722                     $ 89,839                     $  (1,117)

Food and beverage costs as a percentage of total revenues for the 13- and 39-weeks ended July 3, 2021 increased as compared with the same period of last year primarily as a result of increases in costs of seafood and other high-volume items.

Payroll expenses as a percentage of total revenues for the 13- and 39-weeks ended July 3, 2021 decreased as compared with the same period of last year primarily as a result of retaining key restaurant management personnel with lower corresponding revenues in the prior period as a result of the government mandated closures and/or capacity restrictions at all of our restaurants in connection with the COVID-19 pandemic.



Occupancy expenses as a percentage of total revenues for the 13- and 39-weeks
ended July 3, 2021 decreased as compared with the same period of last year
primarily as a result of the fixed nature of many of these expenses and lower
sales in the prior period as a result of the COVID-19 pandemic.
                                     - 24 -
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Other operating costs and expenses as a percentage of total revenues for the 13-
and 39-weeks ended July 3, 2021 as compared to the same period of last year
decreased primarily as a result of the fixed nature of some of these expenses
and lower sales in the prior period as a result of the COVID-19 pandemic,
decreased maintenance at properties where we are experiencing lower traffic and
increased professional fees at the restaurant-level in the prior periods.

General and administrative expenses (which relate solely to the corporate office
in New York City) for the 13-weeks ended July 3, 2021 increased as compared with
the same period of last year primarily as a result of headcount and salary
reductions of corporate personnel in the prior period as a result of the impacts
on our business from the COVID-19 pandemic. General and administrative expenses
for the 39-weeks ended July 3, 2021 decreased as compared with the same period
of last year primarily as a result of lower legal fees in the current period
partially offset by headcount and salary reductions of corporate personnel in
the prior period as a result of the impacts on our business from the COVID-19
pandemic.

Depreciation and amortization expense for the 13-weeks ended July 3, 2021
increased as compared to the same period of last year primarily as a result of
assets placed in service in the current period. Depreciation and amortization
expense for the 39-weeks ended July 3, 2021 decreased as compared to the same
period of last year primarily as a result of lower charges in the current period
as a result of asset impairments in the first quarter of 2020.
Income Taxes

We calculate our interim income tax provision in accordance with ASC Topic 270,
Interim Reporting and ASC Topic 740, Accounting for Income Taxes. At the end of
each interim period, we estimate the annual effective tax rate and apply that
rate to our ordinary year to date earnings. In addition, the tax effects of
unusual or infrequently occurring items including changes in judgment about
valuation allowances and effects of changes in enacted tax laws are recognized
discretely in the interim period in which the change occurs. The computation of
the annual estimated effective tax rate at each interim period requires certain
estimates and significant judgment including the expected operating (loss)
income for the year, permanent and temporary differences as a result of
differences between amounts measured and recognized in accordance with tax laws
and financial accounting standards, and the likelihood of recovering deferred
tax assets generated in the current fiscal year. The accounting estimates used
to compute income tax expense may change as new events occur, additional
information is obtained, or the tax environment changes.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES
Act") was enacted to provide economic relief to those impacted by the COVID-19
pandemic. In addition to the PPP loans, the CARES Act made various tax law
changes including among other things (i) modifications to the federal net
operating loss rules including permitting federal net operating losses incurred
in 2018, 2019, and 2020 tax years to be carried back to the five preceding
taxable years in order to generate a refund of previously paid income taxes,
(ii) enhanced recoverability of AMT tax credit carryforwards, (iii) increased
the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional
expensing of interest, and (iv) enacted a technical correction so that qualified
improvement property can be immediately expensed under IRC Section 168(k).

On December 27, 2020, the Consolidated Appropriations Act of 2021 ("CAA") was
enacted and provided clarification on the tax deductibility of expenses funded
with PPP loans as fully deductible for tax purposes. During the 13 and 39-weeks
ended July 3, 2021, the Company recorded income for financial reporting purposes
related to the forgiveness of some of its PPP loans. The forgiveness of these
PPP loans is not taxable. The income recorded for financial reporting purposes
was considered an unusual or infrequent event and the tax effect was recorded
discretely in the quarter in which the loans were forgiven.

As a result of the CARES Act and the CAA, the Company carried back taxable
losses from fiscal year 2020 and is expected to carryback taxable losses from
fiscal 2021 to generate a refund of previously paid income taxes. As a result of
these carrybacks, the Company recorded income tax benefits as the taxable losses
from fiscal 2020 and fiscal 2021 are being carried back to tax years in which
the Company was subject to a higher federal corporate income tax rate. The
carryback of taxable losses from fiscal 2021 was recorded as a component of the
estimated annual effective tax rate. The adjustment to the fiscal 2020 carryback
was recorded as a discrete item.

The provision for income taxes for the 13-week period ended July 3, 2021 was
$4,684,000. The effective tax rate for the 13-week period ended July 3, 2021 of
58.5% differed from the statutory rate of 21% primarily related to changes in
the annual effective tax rate as a result of updated forecasts of pre-tax
earnings coupled with a discrete tax benefit attributable to the income related
to the PPP loan forgiveness which is not taxable for income tax reporting
purposes.

                                     - 25 -
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The income tax benefit for the 39-week period ended July 3, 2021 was $(155,000).
The effective tax rate for the 39-week period ended July 3, 2021 of -2.31%
differed from the statutory rate of 21% primarily related to the discrete tax
benefit attributable to the income related to the PPP loan forgiveness which is
not taxable for income tax reporting purposes.

The income tax benefit for the 13- and 39-week periods ended June 27, 2020 was
($3,118,000) and $(3,213,000), respectively. The effective tax rate for the 13
and 39-week periods ended June 27, 2020 of 52.3% and 53.1%, respectively,
differed from the statutory rate of 21% primarily as a result of the tax
benefits related to the generation of FICA tax credits and the incremental
benefit arising from the ability to carryback fiscal 2020 net operating losses
to prior years when the tax rate was 34%.

The Company's overall effective tax rate in the future will be affected by
factors such as changes in tax law, the utilization of state and local net
operating loss carryforwards, the generation of FICA tax credits. additional
forgiveness of PPP loans and the mix of earnings by state taxing jurisdictions
as Nevada does not impose a state income tax, as compared to the other major
state and local jurisdictions in which the Company has operations. The final
annual tax rate cannot be determined until the end of the fiscal year;
therefore, the actual tax rate could differ from current estimates.
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 July 3, 2021, we had
a cash and cash equivalents balance of $18,280,000.

The Company had a working capital deficiency of $(2,134,000) at July 3, 2021 as
compared with a deficiency of $(3,234,000) at October 3, 2020. This increase
resulted primarily from cash provided by operations offset by a change in our
debt maturities in connection with conversion of our revolving credit borrowings
to term loans. We believe that our existing cash balances and current banking
facilities will be sufficient to meet our liquidity and capital spending
requirements and finance our operating activities for at least the next 12
months.

Our liquidity has been adversely affected primarily by decreased customer traffic as a result the government mandated closures and capacity restrictions at all our of restaurants in connection with the COVID-19 pandemic.



The COVID-19 pandemic has adversely affected, and may continue to adversely
affect, our operations and financial results for the foreseeable future. As of
July 3, 2021, all of our restaurants have re-opened and currently, national,
state and local jurisdictions have removed their capacity restrictions on
businesses and therefore our restaurants are serving customers in our dining
rooms without social distancing requirements. However, we cannot predict whether
we will be required to limit capacity or close again in the future, as these
decisions will depend primarily on the actions of a number of governmental
bodies over which we have no control. It is possible additional outbreaks could
require us to reduce our capacity, implement social distancing or further
suspend our in-restaurant dining operations, and there is no guarantee that
state and local jurisdictions, that have currently eased restrictions, will not
reverse or roll-back the restrictions, as many have done in the past.
Additionally, our restaurant operations have been and could continue to be
disrupted by employee staffing issues because of illness, fear of contracting
COVID-19 or caring for family members due to COVID-19, or for other reasons.
Furthermore, we remain in regular contact with our major suppliers and while to
date we have not experienced significant disruptions in our supply chain due to
COVID-19, we could see significant future disruptions should the impacts of
COVID-19 extend for a considerable amount of time.

Due to the fluidity of the COVID-19 pandemic, management cannot determine the
ultimate impact that it will have on the Company's consolidated financial
condition, liquidity, future results of operations, suppliers, industry, and
workforce and therefore any prediction as to the ultimate material adverse
impact on the Company's consolidated financial condition, liquidity, and future
results of operations is uncertain. The disruption in operations has led the
Company to consider the impact of the COVID-19 pandemic on its liquidity, debt
covenant compliance, and recoverability of long-lived and ROU assets, goodwill
and intangible assets, among others. If these disruptions were to re-occur, they
could have a material negative impact on our consolidated financial condition,
future results of operations and liquidity. The extent of such negative impact
will be determined, in part, by the longevity and severity of the pandemic.


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Cash Flows for 39 Weeks Ended July 3, 2021 and June 27, 2020
Net cash provided by operating activities for the 39-weeks ended July 3, 2021
increased to $6,648,000 as compared to $(2,510,000) used in operations in the
same period of last year. This increase was attributable to an increase in
operating income as a result of the continued recovery from the COVID-19
pandemic and changes in net working capital primarily related to accounts
receivable, inventory and accounts payable and accrued expenses.
Net cash used in investing activities for the 39-weeks ended July 3, 2021 and
June 27, 2020 was $(3,455,000) and $(1,986,000), respectively, and resulted
primarily from purchases of fixed assets at existing restaurants and, in the
current period, the cash portion of the purchase price of the Blue Moon Fish
Company acquisition.
Net cash used in financing activities for the 39-weeks ended July 3, 2021 of
$(1,799,000) resulted primarily from principal payments on notes payable and the
payment of distributions to non-controlling interests partially offset by
proceeds from stock option exercises.
Net cash provided by financing activities for the 39-weeks ended June 27, 2020
of $18,044,000 resulted primarily from borrowings under our credit facility and
proceeds from PPP loans partially offset by principal payments on notes payable
and the payment of dividends.
Recent Restaurant Expansions and Other Developments

On December 1, 2020, the Company, through a newly formed, wholly-owned
subsidiary, acquired the assets of Bear Ice, Inc. and File Gumbo Inc., which
collectively operated a restaurant and bar named Blue Moon Fish Company located
in Lauderdale-by-the-Sea, FL. The total purchase price of $2,820,000 was paid
with cash in the amount of $1,820,000 and a four-year note held by the sellers
in the amount of $1,000,000 payable monthly with 5% interest. Concurrent with
the acquisition, the Company assumed the related lease which expires in 2026 and
has four five-year extension options. Rent payments under the lease are
approximately $360,000 per year and increase by approximately 15% as each option
is exercised.
On January 26, 2021, the Company exercised its right-of-first-refusal to acquire
the land, building and parking lot associated with JB's on the Beach and
immediately contributed such rights and interest to an unrelated entity
("Newco") that purchased the properties on March 22, 2021. In exchange, the
Company received a 5% interest in Newco, as defined, which plans future
development of the sites. In addition, all rights and privileges under the
current lease were assigned to Newco, as landlord and the lease terms remain
unchanged.
Our restaurants generally do not achieve substantial increases in revenue from
year to year, which we consider to be typical of the restaurant industry. To
achieve significant increases in revenue or to replace revenue of restaurants
that lose customer favor or which close because of lease expirations or other
reasons, we would have to open additional restaurant facilities or expand
existing restaurants. There can be no assurance that a restaurant will be
successful after it is opened, particularly since in many instances we do not
operate our new restaurants under a trade name currently used by us, thereby
requiring new restaurants to establish their own identity.
We may take advantage of other opportunities we consider to be favorable, when
they occur, depending upon the availability of financing and other factors.
Recent Restaurant Dispositions
On November 13, 2020, the Company was advised by the landlord that it would have
to vacate Gallagher's Steakhouse and Gallagher's Burger Bar at the Resorts
Casino Hotel located in Atlantic City, NJ which were on a month-to-month, no
rent lease. The closure of these properties occurred on January 2, 2021 and did
not result in a material charge to the Company's operations.

As of January 2, 2021, the Company determined that, given the current situation,
it will not reopen Thunder Grill in Washington, D.C. which has been closed since
March 20, 2020. This closure did not result in a material charge to the
Company's operations.
Investment in and Receivable from New Meadowlands Racetrack
On March 12, 2013, the Company made a $4,200,000 investment in the New
Meadowlands Racetrack LLC ("NMR") through its purchase of a membership interest
in Meadowlands Newmark, LLC, an existing member of NMR with a then 63.7%
ownership interest. On November 19, 2013, the Company invested an additional
$464,000 in NMR through the purchase of an additional membership interest in
Meadowlands Newmark, LLC resulting in a total ownership of 11.6% of Meadowlands
Newmark, LLC,
                                     - 27 -
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and an effective ownership interest in NMR of 7.4%, subject to dilution. In
2015, the Company invested an additional $222,000 in NMR and in February 2017,
the Company invested an additional $222,000 in NMR, both as a result of capital
calls with no change in ownership, bringing its total investment to $5,108,000.
In addition to the Company's ownership interest in NMR, if casino gaming is
approved at the Meadowlands and NMR is granted the right to conduct said gaming,
the Company shall be granted the exclusive right to operate the food and
beverage concessions in the gaming facility with the exception of one
restaurant.
In conjunction with this investment, the Company, through a 97% owned
subsidiary, Ark Meadowlands LLC ("AM VIE"), also entered into a long-term
agreement with NMR for the exclusive right to operate food and beverage
concessions serving the new raceway facilities (the "Racing F&B Concessions")
located in the new raceway grandstand constructed at the Meadowlands Racetrack
in northern New Jersey. Under the agreement, NMR is responsible to pay for the
costs and expenses incurred in the operation of the Racing F&B Concessions, and
all revenues and profits thereof inure to the benefit of NMR. AM VIE receives an
annual fee equal to 5% of the net profits received by NMR from the Racing F&B
Concessions during each calendar year.
On April 25, 2014, the Company loaned $1,500,000 to Meadowlands Newmark, LLC.
The note bears interest at 3%, compounded monthly and added to the principal,
and is due in its entirety on January 31, 2024. The note may be prepaid, in
whole or in part, at any time without penalty or premium. On July 13, 2016, the
Company made an additional loan to Meadowlands Newmark, LLC in the amount of
$200,000. Such amount is subject to the same terms and conditions as the
original loan as discussed above. The principal and accrued interest related to
this note in the amounts of $1,807,000 and $1,766,000 are included in Investment
In and Receivable from New Meadowlands Racetrack in the consolidated condensed
balance sheets at July 3, 2021 and October 3, 2020, respectively.
On June 7, 2018, the New Jersey State Legislature voted to legalize sports
betting at casinos and racetracks in the state. Pursuant to this legislation NMR
opened a sports book in partnership with FanDuel, a leading provider of daily
fantasy sports.
Notes Payable - Bank
On June 1, 2018, the Company refinanced (the "Refinancing") its then existing
indebtedness with its current lender, Bank Hapoalim B.M. ("BHBM"), by entering
into an amended and restated credit agreement (the "Revolving Facility"), which
was to mature on May 19, 2022 (as extended). The Revolving Facility provides for
total availability of the lesser of (i) $10,000,000 and (ii) $35,000,000 less
the then aggregate amount of all indebtedness and obligations to BHBM. On July
26, 2021, all outstanding Revolver Borrowings, in the amount of $9,666,000, were
converted to a promissory note with quarterly principal payments of $500,000
commencing on September 1, 2021, with a balloon payment of $2,166,000 on June 1,
2025. Such note bears interest at LIBOR plus 3.5% per annum. We expect that the
LIBOR rate will be discontinued at some point during 2021 and to work with BHBM
to identify a suitable replacement rate and amend our debt agreements to reflect
this new reference rate accordingly. We do not expect the discontinuation of
LIBOR as a reference rate in our debt agreements to have a material adverse
effect on our financial position or materially affect our interest expense.
Borrowings under the Revolving Facility, which include the promissory notes as
discussed in Note 8 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 Revolving Facility also
requires, among other things, that the Company meet minimum quarterly tangible
net worth amounts, maintain a minimum fixed charge coverage ratio and meet
minimum annual net income amounts. The Revolving Facility 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.
On June 12, 2020 and again on February 15, 2021, as a result of the impact of
the COVID-19 pandemic on our business, BHBM agreed to modified financial
covenants through fiscal Q2 2022. The Company was in compliance with all of its
financial covenants under the Revolving Facility as of July 3, 2021.
Paycheck Protection Program Loans
During the year ended October 3, 2020, subsidiaries (the "Borrowers") of the
Company received loan proceeds from several banks (the "Lenders") in the
aggregate amount of $14,995,000 (the "PPP Loans") under the Paycheck Protection
Program (the "PPP") of the CARES Act, which was enacted March 27, 2020. In
addition, during the 13-weeks ended April 3, 2021, one of our consolidated VIEs
received a second draw PPP Loan in the amount of $111,000. The PPP Loans are
evidenced by individual promissory notes of each of the Borrowers (together, the
"Notes") in favor of the Lender, which Notes bear interest at the rate of 1.00%
per annum. Funds from the PPP Loans may be used only for payroll and related
costs, costs used to continue group health
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care benefits, mortgage payments, rent, utilities, and interest on other debt
obligations that were incurred by a Borrower prior to February 15, 2020 (the
"Qualifying Expenses"). Under the terms of the PPP Loans, some or all of the
amounts thereunder, including accrued interest, may be forgiven if they are used
for Qualifying Expenses as described in and in compliance with the CARES Act.
Each Note may be prepaid by the respective Borrower at any time prior to
maturity with no prepayment penalties. No payments of principal or interest are
due under the Notes until the date on which the amount of loan forgiveness (if
any) under the CARES Act for each respective Note is remitted to the Lender and
a forgiveness decision is received by the Borrower. Forgiveness applications can
be submitted up to 10 months after the end of the related notes covered period
(which is defined as 24 weeks after the date of the loan) (the "Deferral
Period") and the ultimate forgiveness decisions can be made by the Lenders up to
60 days after submitting the applications and possibly longer if forgiveness is
fully or partially denied and the Borrower appeals the decision. While the
Company and each Borrower used the PPP Loan proceeds exclusively for Qualifying
Expenses, it is unclear and uncertain whether the conditions for forgiveness of
the PPP Loans outstanding at July 3, 2021 will be met under the current
guidelines of the CARES Act. Therefore, we cannot make any assurances that the
Company, or any of the Borrowers, will be eligible for forgiveness of the
remaining PPP Loans, in whole or in part.
During the 13 and 39 weeks ended July 3, 2021, $3,195,000 (including $36,000 of
accrued interest) and $7,318,000 of PPP Loans (including $63,000 of accrued
interest), respectively, were forgiven. To the extent, if any, that any of the
remaining PPP Loans are not forgiven, beginning one month following expiration
of the Deferral Period, and continuing monthly until 24 months from the date of
each applicable Note (the "Maturity Date"), each respective Borrower is
obligated to make monthly payments of principal and interest to the Lender with
respect to any unforgiven portion of the Notes, in such equal amounts required
to fully amortize the principal amount outstanding on such Notes as of the last
day of the applicable Deferral Period by the applicable Maturity Date.
Recent Events
On August 3, 2021, New York City became the first U.S. city to require proof of
at least one dose of a COVID-19 vaccine for a variety of activities for workers
and customers, including indoor dining. The requirements are effective starting
on August 16, 2021 with enforcement to begin on September 13, 2021.
As a result of these new requirements, the Company temporarily closed Clyde
Frazier's Wine & Dine on August 8, 2021.
Critical Accounting Policies
The preparation of financial statements requires the application of certain
accounting policies, which may require 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 primary estimates underlying the Company's consolidated
condensed financial statements include projected cash flows, 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 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.
The Company's critical accounting policies are described in the Company's Form
10-K for the year ended October 3, 2020. There have been no significant changes
to such policies during fiscal 2021 other than those disclosed in Note 1 to the
consolidated condensed financial statements.
Recently Adopted and Issued Accounting Standards
See Note 1 to the consolidated condensed financial statements for a description
of recent accounting pronouncements, including those adopted in fiscal 2021 and
the expected dates of adoption of new accounting standards and the anticipated
impact on the consolidated condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable


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