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 endedOctober 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 ofJuly 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 ofJuly 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 throughAugust 18, 2022 . Overview As ofJuly 3, 2021 , the Company owned and operated 18 restaurants and bars, 17 fast food concepts and catering operations, exclusively inthe 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 endedJuly 3, 2021 include revenues and income of approximately$2,141,000 and$4,582,000 and$432,000 and$887,000 , respectively, related toBlue Moon Fish Company , which was acquired onDecember 1, 2020 . Accounting Period Our fiscal year ends on the Saturday nearestSeptember 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 endedJuly 3, 2021 andJune 27, 2020 each included 13 and 39 weeks. - 22 - --------------------------------------------------------------------------------
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 endedJuly 3, 2021 was$5,113,000 , as compared to an operating loss of$(5,623,000) for the 13 weeks endedJune 27, 2020 . This increase resulted primarily from the strong performance of ourFlorida ,Alabama andLas 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 endedJuly 3, 2021 was$309,000 , as compared to an operating loss of$(5,123,000) for the 39 weeks endedJune 27, 2020 . This increase also resulted primarily from the strong performance of ourFlorida ,Alabama andLas 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 endedJuly 3, 2021 andJune 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
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
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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 endedJuly 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 endedJuly 3, 2021 andJune 27, 2020 were as follows (in thousands): 13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended % Ended % Increase Ended % Ended % IncreaseJuly 3 , to TotalJune 27 , to Total (Decrease)July 3 , to TotalJune 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
Payroll expenses as a percentage of total revenues for the 13- and 39-weeks
ended
Occupancy expenses as a percentage of total revenues for the 13- and 39-weeks endedJuly 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 - -------------------------------------------------------------------------------- Other operating costs and expenses as a percentage of total revenues for the 13- and 39-weeks endedJuly 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 inNew York City ) for the 13-weeks endedJuly 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 endedJuly 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 endedJuly 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 endedJuly 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. OnMarch 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). OnDecember 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 endedJuly 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 endedJuly 3, 2021 was$4,684,000 . The effective tax rate for the 13-week period endedJuly 3, 2021 of 58.5% differed from the statutory rate of 21% primarily related to changes in the annual effective tax rate as a result of updated forecasts of pre-tax earnings coupled with a discrete tax benefit attributable to the income related to the PPP loan forgiveness which is not taxable for income tax reporting purposes. - 25 - -------------------------------------------------------------------------------- The income tax benefit for the 39-week period endedJuly 3, 2021 was$(155,000) . The effective tax rate for the 39-week period endedJuly 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 endedJune 27, 2020 was ($3,118,000 ) and$(3,213,000) , respectively. The effective tax rate for the 13 and 39-week periods endedJune 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 asNevada 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 ofJuly 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) atJuly 3, 2021 as compared with a deficiency of$(3,234,000) atOctober 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 ofJuly 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. - 26 - -------------------------------------------------------------------------------- Cash Flows for 39 Weeks EndedJuly 3, 2021 andJune 27, 2020 Net cash provided by operating activities for the 39-weeks endedJuly 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 endedJuly 3, 2021 andJune 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 theBlue Moon Fish Company acquisition. Net cash used in financing activities for the 39-weeks endedJuly 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 endedJune 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 OnDecember 1, 2020 , the Company, through a newly formed, wholly-owned subsidiary, acquired the assets ofBear Ice, Inc. andFile Gumbo Inc. , which collectively operated a restaurant and bar namedBlue Moon Fish Company located inLauderdale-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. OnJanuary 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 onMarch 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 OnNovember 13, 2020 , the Company was advised by the landlord that it would have to vacateGallagher's Steakhouse andGallagher's Burger Bar at theResorts Casino Hotel located inAtlantic City, NJ which were on a month-to-month, no rent lease. The closure of these properties occurred onJanuary 2, 2021 and did not result in a material charge to the Company's operations. As ofJanuary 2, 2021 , the Company determined that, given the current situation, it will not reopenThunder Grill inWashington, D.C. which has been closed sinceMarch 20, 2020 . This closure did not result in a material charge to the Company's operations. Investment in and Receivable from New Meadowlands Racetrack OnMarch 12, 2013 , the Company made a$4,200,000 investment in theNew Meadowlands Racetrack LLC ("NMR") through its purchase of a membership interest inMeadowlands Newmark, LLC , an existing member of NMR with a then 63.7% ownership interest. OnNovember 19, 2013 , the Company invested an additional$464,000 in NMR through the purchase of an additional membership interest inMeadowlands Newmark, LLC resulting in a total ownership of 11.6% ofMeadowlands Newmark, LLC , - 27 - -------------------------------------------------------------------------------- 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 inFebruary 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 atthe 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 northernNew 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. OnApril 25, 2014 , the Company loaned$1,500,000 toMeadowlands Newmark, LLC . The note bears interest at 3%, compounded monthly and added to the principal, and is due in its entirety onJanuary 31, 2024 . The note may be prepaid, in whole or in part, at any time without penalty or premium. OnJuly 13, 2016 , the Company made an additional loan toMeadowlands 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 atJuly 3, 2021 andOctober 3, 2020 , respectively. OnJune 7, 2018 , theNew 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 OnJune 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 onMay 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. OnJuly 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 onSeptember 1, 2021 , with a balloon payment of$2,166,000 onJune 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. OnJune 12, 2020 and again onFebruary 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 ofJuly 3, 2021 . Paycheck Protection Program Loans During the year endedOctober 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 enactedMarch 27, 2020 . In addition, during the 13-weeks endedApril 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 - 28 - -------------------------------------------------------------------------------- care benefits, mortgage payments, rent, utilities, and interest on other debt obligations that were incurred by a Borrower prior toFebruary 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 atJuly 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 endedJuly 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 OnAugust 3, 2021 ,New York City became the firstU.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 onAugust 16, 2021 with enforcement to begin onSeptember 13, 2021 . As a result of these new requirements, the Company temporarily closedClyde Frazier's Wine & Dine onAugust 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 endedOctober 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 - 29 -
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