Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended September 28, 2019 (our "Annual Report") and the unaudited consolidated condensed financial statements and the accompanying notes thereto included herein.
COVID-19 Pandemic
On March 11, 2020, in light of the rapid spread of the novel Coronavirus (“COVID-19” or "Coronavirus"), the World Health Organization declared the COVID-19 outbreak to be a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has significantly disrupted consumer demand, as well as the Company’s restaurant operations. Following the pandemic declaration in March 2020, federal, state and local governments began to respond to the public health crisis by requiring social distancing, "stay at home" directives, and mandatory closure of all of our locations.
As a result of state and local governments lifting “stay at home” orders and mandatory shut-down requirements in May and June 2020, the Company has reopened: (i) all of its properties located in Florida and Alabama, (ii) its operations in the New York-New York Hotel & Casino Resort in Las Vegas, (iii) Sequoia in Washington, DC, (iv) The Porch at Bryant Park in New York, NY, (v) Bryant Park Grill and Café in New York, NY, and (vi) El Rio Grande in New York, NY at varying levels of limited capacity as allowed by federal, state and local governments.
Due to the impact of the COVID-19 pandemic, during the 13 and 39 weeks ended June 27, 2020, the Company has temporarily closed several restaurants, typically for one to five days. The Coronavirus has caused unprecedented business disruptions, especially in the hospitality industry. Although we have experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on our business remains uncertain, the duration and scope of which cannot currently be predicted.
As a result of these developments, the Company is experiencing a significant negative impact on its revenues, results of operations and cash flows, which could negatively impact its ability to meet its obligations over the next 12 months. However, we believe that our existing cash balances, which include the proceeds from Paycheck Protection Program loans (see Note 7 - Notes Payable) and actions taken by management since mid-March 2020, set out below and otherwise, will be sufficient to meet our liquidity and capital spending requirements through August 12, 2021.
In response to the business disruption and liquidity concerns caused by the COVID-19 pandemic, the Company has taken the following actions, which management expects will enable it to meet its obligations over the next 12 months:
•
While restaurants were closed or continue to be closed, we furloughed all hourly employees and approximately 95% of salaried restaurant management personnel, while enacting salary reductions for all remaining restaurant management personnel.
•
As restaurants re-open, restaurants management salaries were restored to 70% of pre-pandemic amounts. If a location is producing sustained cash flow, restaurant management salaries were restored to 100% of pre-pandemic amounts.
•
Initially reduced the pay of all corporate and administrative staff by 50% to 75% and senior management salaries by 75% to 95%, and temporarily suspended all board fees. As of June 27, 2020, most corporate salaries have been restored to 65% of pre-pandemic levels.
•
Entered into a Payment Suspension Agreement with its bank which deferred aggregate principal payments of $675,000 due on June 1, 2020 to the respective loan maturity dates. In addition, the bank agreed to relaxed financial covenants through fiscal Q3 2021.
•
Canceled the payment of the $0.25 dividend declared on March 2, 2020.
•
Suspended future dividend payments until such time as the Board deems appropriate to reinstate.
•
Canceled or delayed all non-essential capital expenditures.
•
Suspended the vast majority of lease payments for the months of April, May and June 2020 and through August 2020 for all locations that are still closed and is currently in negotiations for rent concessions, abatements and deferrals with its landlords to reduce these lease payments. While most landlords have agreed to certain concessions subsequent to quarter end, there can be no assurance that the Company will be successful in obtaining all of the relief it is seeking.
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•
Certain Company subsidiaries applied for and received a total of approximately $15.0 million of loans under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020.
•
Utilized additional provisions of the CARES Act to obtain tax savings as well as the deferral of our portion of social security taxes to future years.
Due to the rapid development and fluidity of this situation, the management cannot determine the ultimate impact that the COVID-19 pandemic 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. In addition, we cannot predict how soon we will be able to reopen all of our restaurants at full capacity, and our ability to reopen will depend in part on the actions of a number of governmental bodies over which we have no control. Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our restaurants, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses. If these disruptions continue, the Company expects a continued material negative impact on its 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.
Overview
As of June 27, 2020 , the Company owned and operated 20 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 June 27, 2020 include revenues and income (loss) of approximately $646,000 and $6,126,000 and $(307,000) and $316,000, respectively, related to JB's on the Beach , which was acquired on May 15, 2019. As of December 29, 2018 , the Company determined that it would not be able to operate Durgin-Park profitably due to decreased traffic at the Faneuil Hall Marketplace in Boston, MA, where it was located, and rising labor costs. As a result, included in the consolidated condensed statement of income for the 39 weeks ended June 29, 2019 are losses on closure in the amounts of $1,106,000 consisting of: (i) impairment of trademarks in the amount of $721,000 , (ii) accelerated depreciation of fixed assets in the amount of $333,000 , and (iii) write-offs of prepaid and other expenses in the amount of $52,000 . The restaurant closed on January 12, 2019.
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 including the current year ending October 3, 2020 will contain 53 weeks. The periods ended June 27, 2020 and June 29, 2019 each included 13 and 39 weeks.
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 loss for the 13 weeks ended June 27, 2020 was $(5,623,000), as compared to operating income of $4,731,000 for the 13 weeks ended June 29, 2019 . This decrease resulted primarily from the government mandated closure of all of our restaurants in March 2020 in connection with the COVID-19 pandemic and a $364,000 loss on the termination of a lease.
The Company’s operating loss for the 39 weeks ended June 27, 2020 was $(5,123,000) as compared to operating income of $5,114,000 for the 39 weeks ended June 29, 2019 which included a loss of $1,106,000 relating to the closure of Durgin-Park located in Boston, MA. This decrease resulted primarily from the government mandated closure of all of our restaurants in March 2020 in connection with the COVID-19 pandemic and a $364,000 loss on the termination of a lease.
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In addition to the decrease in restaurant revenue from the mandatory closures and operating at varying levels of limited capacity, the Company estimates that it incurred approximately $2,300,000 and $3,000,000 of costs directly related to COVID-19 during the 13 and 39 weeks ended June 27, 2020 consisting primarily of payments to employees for paid-time off during restaurant closures, inventory waste, and rent and rent related costs for closed restaurants from the day that they closed.
Recently, there has been a significant increase in reported COVID-19 cases in certain states, including Florida and Alabama, where we have significant locations. This has resulted in some local governments responding by taking additional measures, including implementing a further reduction of in-restaurant capacity in certain locations. Although this is a developing situation, to this point these capacity reductions have not had a significant impact on our overall sales trends. We continue to monitor and adhere to local restrictions and are maintaining elevated safety measures, including additional sanitation and disinfecting practices and the use of gloves and facial protection for our employees.
The following table summarizes the significant components of the Company’s operating results for the 13- and 39- week periods ended June 27, 2020 and June 29, 2019 :
13 Weeks Ended
Variance
39 Weeks Ended
Variance
June 27,
2020
June 29,
2019
$
%
June 27,
2020
June 29,
2019
$
%
(in thousands)
(in thousands)
REVENUES:
Food and beverage sales
$
6,907
$
43,888
$
(36,981
)
-84.3
%
$
82,850
$
118,212
$
(35,362
)
-29.9
%
Other revenue
292
919
(627
)
-68.2
%
1,866
2,455
(589
)
-24.0
%
Total revenues
7,199
44,807
(37,608
)
-83.9
%
84,716
120,667
(35,951
)
-29.8
%
COSTS AND EXPENSES:
Food and beverage cost of sales
1,847
11,714
(9,867
)
-84.2
%
22,366
31,982
(9,616
)
-30.1
%
Payroll expenses
3,701
14,864
(11,163
)
-75.1
%
31,925
41,948
(10,023
)
-23.9
%
Occupancy expenses
3,004
4,246
(1,242
)
-29.3
%
12,274
13,058
(784
)
-6.0
%
Other operating costs and expenses
852
4,840
(3,988
)
-82.4
%
11,834
15,051
(3,217
)
-21.4
%
General and administrative expenses
2,437
3,238
(801
)
-24.7
%
7,888
8,840
(952
)
-10.8
%
Loss on termination of lease
—
—
—
N/A
364
—
364
100.0
%
Loss on closure of Durgin-Park
—
—
—
N/A
—
1,106
(1,106
)
-100.0
%
Depreciation and amortization
981
1,174
(193
)
-16.4
%
3,188
3,568
(380
)
-10.7
%
Total costs and expenses
12,822
40,076
(27,254
)
-68.0
%
89,839
115,553
(25,714
)
-22.3
%
OPERATING INCOME (LOSS)
$
(5,623
)
$
4,731
$
(10,354
)
-218.9
%
$
(5,123
)
$
5,114
$
(10,237
)
-200.2
%
Revenues
During the Company’s 13-week period ended June 27, 2020 , revenues decreased 83.9% as compared to revenues in the 13-week period ended June 29, 2019 . This decrease resulted primarily from the government mandated closure of all of our restaurants in March 2020 and limited re-openings beginning in late May 2020 in connection with the COVID-19 pandemic.
Food and Beverage Same-Store Sales
On a Company-wide basis, same-store sales decreased 84.3% during the third fiscal quarter of 2020 as compared to the same period last year as follows:
13 Weeks Ended
Variance
June 27,
2020
June 29,
2019
$
%
(in thousands)
Las Vegas
$
1,462
$
11,952
$
(10,490
)
-87.8
%
New York
125
11,859
(11,734
)
-98.9
%
Washington, DC
166
4,282
(4,116
)
-96.1
%
Atlantic City, NJ
—
1,645
(1,645
)
-100.0
%
Connecticut
—
476
(476
)
-100.0
%
Alabama
2,436
4,322
(1,886
)
-43.6
%
Florida
2,452
7,516
(5,064
)
-67.4
%
Same-store sales
6,641
42,052
$
(35,411
)
-84.2
%
Other
266
1,836
Food and beverage sales
$
6,907
$
43,888
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A discussion of same-store sales has not been presented for the 13-week period ended June 27, 2020 as it is not meaningful as a result of the government mandated closure of all of our restaurants in March 2020 and limited re-openings beginning in late May 2020 in connection with the COVID-19 pandemic.
Costs and Expenses
Costs and expenses for the 13 and 39 weeks ended June 27, 2020 and June 29, 2019 were as follows (in thousands):
13 Weeks Ended
June 27,
2020
%
to Total
Revenues
13 Weeks Ended
June 29,
2019
%
to Total
Revenues
Increase
(Decrease)
39 Weeks
Ended
June 27,
2020
%
to Total
Revenues
39 Weeks
Ended
June 29,
2019
%
to Total
Revenues
Increase
(Decrease)
$
%
$
%
Food and beverage cost of sales
$
1,847
25.7
%
$
11,714
26.1
%
(9,867
)
-84.2
%
$
22,366
26.4
%
$
31,982
26.5
%
(9,616
)
-30.1
%
Payroll expenses
3,701
51.4
%
14,864
33.2
%
(11,163
)
-75.1
%
31,925
37.7
%
41,948
34.8
%
(10,023
)
-23.9
%
Occupancy expenses
3,004
41.7
%
4,246
9.5
%
(1,242
)
-29.3
%
12,274
14.5
%
13,058
10.8
%
(784
)
-6.0
%
Other operating costs and expenses
852
11.8
%
4,840
10.8
%
(3,988
)
-82.4
%
11,834
14.0
%
15,051
12.5
%
(3,217
)
-21.4
%
General and administrative expenses
2,437
33.9
%
3,238
7.2
%
(801
)
-24.7
%
7,888
9.3
%
8,840
7.3
%
(952
)
-10.8
%
Loss on termination of lease
—
—
%
—
—
%
—
N/A
364
0.4
%
—
—
%
364
100.0
%
Loss on closure of Durgin-Park
—
—
%
—
—
%
—
N/A
—
—
%
1,106
0.9
%
(1,106
)
-100.0
%
Depreciation and amortization
981
13.6
%
1,174
2.6
%
(193
)
-16.4
%
3,188
3.8
%
3,568
3.0
%
(380
)
-10.7
%
Total costs and expenses
$
12,822
$
40,076
$
(27,254
)
$
89,839
$
115,553
$
(25,714
)
Food and beverage costs as a percentage of total revenues for the 13 weeks ended June 27, 2020 increased as compared with the same period of last year primarily as a result of inventory write-offs required as a result of the government mandated closures of all of our restaurants in March 2020 in connection with the COVID-19 pandemic. Food and beverage costs as a percentage of total revenues for the 39 weeks ended June 27, 2020 decreased as compared with the same period of last year as a result of a better mix of catering versus a la carte business at our larger properties (through the respective closure date) combined with menu price increases partially offset by increases in food costs and inventory write-offs required as a result of the government mandated closures of all of our restaurants in March 2020 in connection with the COVID-19 pandemic.
Payroll expenses as a percentage of total revenues for the 13 and 39 weeks ended June 27, 2020 increased as compared with the same periods of last year primarily as a result of retaining key restaurant management personnel at reduced salaries from the respective closure date through the end of the quarter with no or limited corresponding revenues as a result of the government mandated closures of all of our restaurants in March 2020 in connection with the COVID-19 pandemic.
Occupancy expenses as a percentage of total revenues for the 13 and 39 weeks ended June 27, 2020 increased as compared with the same periods of last year primarily as a result of accrued rents and having no or limited sales from the respective closure date through the end of the quarter as a result of the government mandated closures of all of our restaurants in March 2020 in connection with the COVID-19 pandemic.
Other operating costs and expenses as a percentage of total revenues for the 13 and 39 weeks ended June 27, 2020 as compared to the same period of last year increased primarily as a result of increased professional fees at the restaurant-level.
General and administrative expenses (which relate solely to the corporate office in New York City) as a percentage of total revenues for the 13 and 39 weeks ended June 27, 2020 increased as compared with the same periods of last year primarily as a result of retaining corporate personnel at temporarily reduced salaries from the respective closure date through the end of the quarter with no or limited corresponding revenues as a result of the government mandated closures of all of our restaurants in March 2020 in connection with the COVID-19 pandemic.
Depreciation and amortization expense for the 13 and 39 weeks ended June 27, 2020 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 fourth quarter of 2019 and second quarter of 2020 partially offset by depreciation on improvements placed in service in fiscal 2019.
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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. The related tax expense or benefit is recognized in the interim period in which it occurs. In addition, the effect of changes in enacted tax laws, rates or tax status is recognized 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 CARES Act was enacted to provide economic relief to those impacted by the COVID-19 pandemic. The CARES Act includes provisions, among others, allowing for the carryback of net operating losses generated in 2018, 2019 and 2020, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expense, and technical amendments regarding the expensing of qualified improvement property.
As a result of the CARES Act, the Company is expecting to carry back estimated taxable losses in fiscal year 2020 to previous tax years in which the Company was subject to higher federal corporate income tax rates. The Company accounted for this income tax benefit as part of its estimated annual effective tax rate.
The income tax benefit for the 39-week period ended June 27, 2020 was $(3,213,000). The effective tax rate for the 39-week period ended June 27, 2020 of 52.3% 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 carry back the 2020 net operating loss to prior years when the tax rate was 34%.
The income tax provision for the 39-week periods ended June 29, 2019 was $728,000 and includes a discrete tax provision of approximately $304,000 in connection with the settlement of various state and local tax examinations as well as changes in the uncertain tax position liability as a result of lapses in the statute of limitations. The effective tax rate for the 39-week period ended June 29, 2019 of 17.6% differed from the statutory rate of 21% as a result of the tax benefits related to the generation of FICA tax credits, a discrete tax provision in connection with the settlement of various state and local tax examinations offset by changes in the uncertain tax position liability as a result of lapses in the statute of limitations during the interim period ended June 29, 2019.
The Company’s overall effective tax rate in the future will be affected by factors such as the utilization of state and local net operating loss carryforwards, the generation of FICA tax credits 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 and retail store operations, 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 June 27, 2020 , we had a cash and cash equivalents balance of $20,725,000.
Our liquidity may be adversely affected by a number of factors, including a decrease in customer traffic or average check per customer due to changes in economic conditions.
COVID-19 Pandemic
In response to the uncertain market conditions resulting from the COVID-19 pandemic, we have enhanced our liquidity position through the following measures:
•
Fully drew down our Revolving Facility as of June 9, 2020.
- 27 -
•
Entered into a Payment Suspension Agreement with our bank which deferred aggregate principal payments of $675,000 due on June 1, 2020 to the respective loan maturity dates.
•
Although we were in compliance with all of our financial covenants under our Revolving Facility, our lender agreed to relaxed financial covenants through fiscal Q3 2021.
•
Canceled the payment of the $0.25 dividend declared on March 2, 2020.
•
Suspended future dividend payments until such time as the Board deems appropriate to reinstate.
•
Canceled or delayed all non-essential capital expenditures.
•
Suspended the vast majority of lease payments for the months of April, May and June 2020 and through August 2020 for all locations that are still closed and we are currently in negotiations for rent concessions, abatements and deferrals with our landlords to reduce these lease payments. While some landlords have agreed to certain concessions, there can be no assurance that the Company will be successful in obtaining all of the relief it is seeking.
•
Certain Company subsidiaries applied for and received approximately $15.0 million of loans under the Paycheck Protection Program of the CARES Act, which was enacted March 27, 2020.
•
Utilized additional provisions of the CARES Act to obtain tax savings as well as the deferral of our portion of social security taxes to future years.
The Company had a working capital of $5,610,000 at June 27, 2020 as compared with a deficiency of $(4,373,000) at September 28, 2019. This increase resulted primarily from the proceeds of borrowings under the Paycheck Protection Program of $15.0 million offset by the recognition of $6,222,000 of current operating lease liabilities in connection with the adoption of ASC 842 on September 29, 2019. We believe that our existing cash balances combined with measures taken due to COVID-19 pandemic described above, will be sufficient to meet our liquidity and capital spending requirements and finance our operating activities for at least the next 12 months.
Cash Flows for 39 Weeks Ended June 27, 2020 and June 29, 2019
Net cash used in operating activities for the 39 weeks ended June 27, 2020 decreased to ($251,000) as compared to $6,752,000 provided by operations in the same period of last year. This decrease was attributable to the impacts of government mandated closures of our restaurants in March 2020 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 June 27, 2020 and June 29, 2019 was $(1,986,000) and $(2,575,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants.
Net cash provided by (used in) financing activities for the 39 weeks ended June 27, 2020 and June 29, 2019 of $18,044,000 and $(3,613,000), respectively, resulted primarily from the payment of dividends, principal payments on notes payable and distributions to non-controlling interests and in the current period borrowings under our credit facility and the proceeds from PPP Loans.
On November 26, 2019, the Board of Directors declared a quarterly dividend of $0.25 per share on the Company’s common stock which was paid on January 7, 2020, to shareholders of record at the close of business on December 16, 2019.
On March 13, 2020, the Company announced that, in light of the unprecedented circumstances and rapidly changing situation with respect to COVID-19, as part of an overall plan to preserve cash flow, the Board of Directors determined that it was appropriate for the Company to defer payment of the dividend that was declared on March 2, 2020. Payment of such dividend, which was scheduled for April 6, 2020 to shareholders of record on March 16, 2020, was canceled on July 1, 2020.
The payment of future dividends is at the discretion of the Company’s Board of Directors and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors. The Company does not expect to pay quarterly cash dividends for the foreseeable future as a result of the disruption to its operations from the COVID-19 pandemic.
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Recent Restaurant Expansions and Other Developments
On May 15, 2019, the Company, through a newly formed, wholly-owned subsidiary, acquired the assets of JB's on the Beach, a restaurant and bar located in Deerfield Beach, Florida for $7,036,000. The acquisition is accounted for as a business combination and was financed with a bank loan from the Company’s existing lender in the amount of $7,000,000 and cash from operations. Concurrent with the acquisition, the Company entered into a 20 year lease (with a five year extension option) for the restaurant facility and parking lot with the former owner of JB's on the Beach, who is also the owner of the underlying real estate. Rent payments under the lease are $600,000 per year with 10% increases every five years.
During 2019, the Company was advised by the landlord of our food court at the Hard Rock Casino and Hotel in Hollywood, Florida, that they were exercising their right to relocate our space, at their sole cost, as contractually agreed to in the original lease. The new facilities were completed on September 16, 2019, on which date we closed our existing location and opened the new facilities. The Company recorded the value of the renovations made by the landlord, which includes leasehold improvements and furniture, fixtures and equipment, in the amount of $5,474,000 with a corresponding increase in deferred rent. The net book value of the existing leasehold improvements relating to the original location in the amount of $918,000 is being reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.
During 2019, the Company was advised by the landlord of our food court at the Hard Rock Casino and Hotel in Tampa, Florida, that they were exercising their right to renovate the front of the house space, at their sole cost, as contractually agreed to in the original lease. In connection with this renovation we closed our existing facilities on June 2, 2019 and re-opened the renovated facilities on September 28, 2019. The Company recorded the value of the renovations made by the landlord, which includes leasehold improvements and furniture, fixtures and equipment, in the amount of $3,179,000 with a corresponding increase in deferred rent. The net book value of the existing leasehold improvements relating to the original location in the amount of $459,000 is being reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.
Upon adoption of ASC 842, the unamortized Hollywood and Tampa balances were reclassified as ROU assets in the net amount of $1,071,000 and are being amortized to lease expense on a straight-line basis over the remaining terms of the respective leases.
The Company is in the process of developing three restaurants in Easton, Ohio in partnership with the landlord of the facility. Included in fixed assets are costs of approximately $500,000 in connection with the project. The Company expects the properties to open in fiscal 2021 and 2022.
Recent Restaurant Dispositions
As of December 29, 2018, the Company determined that it would not be able to operate Durgin-Park profitably due to decreased traffic at the Faneuil Hall Marketplace in Boston, MA, where it is located, and rising labor costs. As a result, included in the Statements of Operations for the 13 and 39 weeks ended June 29, 2019 are losses on closure in the amounts of $39,000 and $1,106,000, respectively, consisting of: (i) impairment of trademarks in the amount of $721,000, (ii) accelerated depreciation of fixed assets in the amount of $333,000, and (iii) write-offs of prepaid and other expenses in the amount of $52,000. The restaurant closed on January 12, 2019.
On April 2, 2020, the Company advised the landlord of a catering space in New York, NY that we would be terminating the lease. In connection with this notification, the Company recorded a loss of $364,000 at March 28, 2020, consisting of rent accrued in accordance with the termination provisions of the lease, the write-off of the unamortized balance of purchased leasehold rights, our security deposit and the new book value of fixed assets.
Other Recent Events
Cancellation of Dividend
As a result of disruption to the Company's operations from the COVID-19 pandemic, on July 1, the Board of Directors unanimously approved the cancellation of the divided that was declared on March 2, 2020.
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 allowances for potential bad
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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 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 September 28, 2019. There have been no significant changes to such policies during fiscal 2020 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 2020 and the expected dates of adoption 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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