What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-02-16 compared with 2020-08-11 · 164 added, 116 removed, 86 unchanged (77% of the section changed)

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.

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 condensed consolidated 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

2 unchanged sentences

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.

As a result of state and local governments lifting “stay at home” orders and mandatory shut-down requirements from May through August 2020, the Company had reopened all of its properties, with the exception of Thunder Grill in Washington, D.C., at varying levels of limited capacity as allowed by federal, state and local governments.

However, indoor dining in New York City was again shut down indefinitely starting on December 14, 2020 (which was amended on January 29, 2021 to allow indoor dining at 25% maximum capacity starting on February 12, 2021) and Washington, D.C.

and Las Vegas rolled back indoor dining from 50% to 25% of capacity in mid-December as well.

In addition to government mandated shut-downs and capacity restrictions, the Company temporarily closed several restaurants, typically for three to ten days due to a high rate of positive COVD-19 tests of our employees.

These closures and capacity rollbacks have had and will continue to have a material adverse impact on our operations.

The pandemic has caused and continues to cause unprecedented business disruptions, especially in the hospitality industry.

Although we have experienced some recovery from the initial impact of COVID-19 in our Florida and Alabama locations, 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.

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.

As a result of these developments, the Company is experiencing a significant negative impact on its revenues, results of operations and cash flows, and has a working capital deficiency of $(1,560,000) as of January 2, 2021, all of 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 and actions taken by management, set out below and otherwise, will be sufficient to meet our liquidity and capital spending requirements through February 17, 2022.

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.

• As restaurants re-opened, restaurant management salaries were restored to 70% of pre-pandemic amounts.

If a location produced 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%.

As of January 2, 2021, corporate salaries continue to be at 50-65% of pre-pandemic levels.

In addition, members of the Board waived their director fees through December 31, 2020.

• Extended the maturity date of all outstanding revolver borrowings under our credit agreement in the amount of $9,666,000 to February 17, 2022.

In addition, the bank agreed to modified financial covenants through fiscal Q2 2022.

• Canceled the payment of the $0.25 dividend declared on March 2, 2020.

1 unchanged sentence

• 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.

• Suspended the vast majority of lease payments while our restaurants were closed as a result of government mandated shutdowns, and attempted to negotiate rent concessions, abatements and deferrals with these landlords to reduce the lease payments.

While some landlords have agreed to concessions, several negotiations are still ongoing as of the date of this filing and we will attempt to obtain further concessions at many of our leased properties.

However, there can be no assurance that the Company will be successful in obtaining the relief it is seeking.

• 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.

• Utilized additional provisions of the CARES Act to obtain tax savings, file carryback claims and defer a portion of our social security taxes to future years.

Due to the rapid development and fluidity of this situation, 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.

In addition, we cannot predict how soon we will be able to reopen any or all of our restaurants at full capacity or whether they will be required to 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.

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.

If these disruptions continue, the Company expects a continued material negative impact on its consolidated financial position, 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.

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.

As of January 2, 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 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.

The consolidated condensed statements of operations for the 13 weeks ended January 2, 2021 include revenues and income of approximately $478,000 and $7,000, respectively, related to Blue Moon Fish Company , which was acquired on December 1, 2020.

Accounting Period

2 unchanged sentences

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.

Under this method certain years will contain 53 weeks.

The periods ended January 2, 2021 and December 28, 2019 each included 13 weeks.

The Company has substantial fixed costs that do not decline proportionately with sales.

2 unchanged sentences

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.

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.

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

39 Weeks Ended

(in thousands)

The Company’s operating loss for the 13 weeks ended January 2, 2021 was $(3,307,000), as compared to operating income of $2,436,000 for the 13 weeks ended December 28, 2019.

This decrease resulted primarily from the government mandated closures and/or capacity restrictions (discussed above) at all of our restaurants in the current period in connection with the COVID-19 pandemic.

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 $150,000 of costs directly related to COVID-19 during the 13 weeks ended January 2, 2021 consisting primarily of payments to employees for paid-time off during restaurant closures or while they are out due to illness.

Further, we cannot predict how soon we will be able to reopen any or all of our restaurants at full capacity or whether they will be required to 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.

The following table summarizes the significant components of the Company’s operating results for the 13-week periods ended January 2, 2021 and December 28, 2019:

13 Weeks Ended Variance

2021 December 28,

(in thousands)

8 unchanged sentences

General and administrative expenses 1,787 3,054 (1,267) -41.5 %

Loss on termination of lease

Loss on closure of Durgin-Park

Depreciation and amortization 941 1,195 (254) -21.3 %

1 unchanged sentence

OPERATING INCOME (LOSS) $ (3,307) $ 2,436 $ (5,743) -235.8 %

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.

During the Company’s 13-week period ended January 2, 2021, revenues decreased 53.4% as compared to revenues in the 13-week period ended December 28, 2019.

This decrease resulted primarily from the government mandated closures and/or capacity restrictions at all of our restaurants in the current period 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

On a Company-wide basis, same-store sales decreased 51.9% during the first fiscal quarter of 2021 as compared to the same period last year as follows:

13 Weeks Ended Variance

2021 December 28,

(in thousands)

Washington, DC

Las Vegas $ 5,819 $ 12,206 $ (6,387) -52.3 %

New York 2,249 11,489 (9,240) -80.4 %

Washington, D.C.

903 2,466 (1,563) -63.4 %

Atlantic City, NJ 594 1,513 (919) -60.7 %

Connecticut 88 410 (322) -78.5 %

Alabama 2,016 2,601 (585) -22.5 %

Florida 7,931 10,053 (2,122) -21.1 %

Same-store sales 19,600 40,738 $ (21,138) -51.9 %

Other 289 2,091

Food and beverage sales $ 19,889 $ 42,829

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.

A discussion of same-store sales has not been presented for the 13-week period ended January 2, 2021 as it is not meaningful as a result of the government mandated closures and/or capacity restrictions at all of our restaurants in the current period 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

Costs and expenses for the 13 weeks ended January 2, 2021 and December 28, 2019 were as follows (in thousands):

13 Weeks Ended

Revenues 13 Weeks Ended

Revenues Increase

Food and beverage cost of sales $ 5,943 29.3 % $ 10,940 25.1 % $ (4,997) -45.7 %

3 unchanged sentences

General and administrative expenses 1,787 8.8 % 3,054 7.0 % (1,267) -41.5 %

Loss on termination of lease

Loss on closure of Durgin-Park

Depreciation and amortization 941 4.6 % 1,195 2.7 % (254) -21.3 %

Total costs and expenses $ 23,606 $ 41,078 $ (17,472)

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.

Food and beverage costs as a percentage of total revenues for the 13 weeks ended January 2, 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 weeks ended January 2, 2021 increased 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 current 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 weeks ended January 2, 2021 increased as compared with the same period of last year primarily as a result of accrued rents where we have not finalized abatement agreements and lower sales in the current 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.

Other operating costs and expenses as a percentage of total revenues for the 13 weeks ended January 2, 2021 as compared to the same period of last year increased primarily as a result of the fixed nature of some of the expenses.

General and administrative expenses (which relate solely to the corporate office in New York City) for the 13 weeks ended January 2, 2021 decreased as compared with the same period of last year primarily as a result of headcount and continued salary reductions of corporate personnel as a result of the impacts on our business from COVID-19 pandemic.

Depreciation and amortization expense for the 13 weeks ended January 2, 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.

We calculate our interim income tax provision in accordance with ASC Topic 270, Interim Reporting and ASC Topic 740, Accounting for Income Taxes.

4 unchanged sentences

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.

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.

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 income tax benefit for the 13-week period ended January 2, 2021 was $(2,919,000).

The effective tax rate for the 13-week period ended January 2, 2021 of 80.67% differed from the statutory rate of 21% primarily as a result of the tax benefits related to the generation of FICA tax credits, the carryback of fiscal 2021 taxable losses to prior years when the Federal corporate tax rate was 34% and operating income attributable to non-controlling interests that is not taxable to the Company.

The effective tax rate also includes a discrete benefit of $(352,000) primarily related to an adjustment of the estimated fiscal year 2020 carryback claim.

The income tax provision for the 13-week period ended December 28, 2019 was $319,000.

The effective tax rate for the 13 week period ended December 28, 2019 was 15.2% and differed from the statutory rate of 21% as a result of the tax benefits related to the generation of FICA tax credits and operating income attributable to non-controlling interests that is not taxable to the Company.

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 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;

3 unchanged sentences

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.

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 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

As of January 2, 2021, we had a cash and cash equivalents balance of $10,813,000.

The Company had a working capital deficiency of $(1,560,000) at January 3, 2021 as compared with a deficiency of $(3,234,000) at October 3, 2020.

This increase resulted primarily from the change in our debt maturities in connection with an amendment to our credit agreement.

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.

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.

Due to the rapid development and 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.

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.

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.

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.

• Extended the maturity date of all outstanding revolver borrowings under our credit agreement in the amount of $9,666,000 to February 17, 2022.

• Although we were in compliance with all of our financial covenants under our Revolving Facility, our lender agreed to modified financial covenants through fiscal Q2 2022.

• Canceled the payment of the $0.25 dividend declared on March 2, 2020.

1 unchanged sentence

• 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.

However, there can be no assurance that the Company will be successful in obtaining 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.

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.

• Utilized additional provisions of the CARES Act to obtain tax savings, file carryback claims and defer a portion of our social security taxes to future years.

Cash Flows for 13 Weeks Ended January 2, 2021 and December 28, 2019

Net cash used in operating activities for the 13 weeks ended January 2, 2021 decreased to $(2,985,000) as compared to $2,452,000 provided by operations in the same period of last year.

This decrease was attributable to a decrease in net income as a result of the impacts of the COVID-19 pandemic on our operations 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 13 weeks ended January 2, 2021 and December 28, 2019 was $(2,413,000) and $(796,000), 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 13 weeks ended January 2, 2021 and December 28, 2019 of $(675,000) and $(1,622,000), respectively, resulted primarily from principal payments on notes payable and in the prior period the payment of dividends and distributions to non-controlling interests.

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.

5 unchanged sentences

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.

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.

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

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.

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.

On November 19, 2013, the Company invested an additional $464,000 in NMR through a purchase of an additional membership interest in Meadowlands Newmark, LLC resulting in a total ownership of 11.6% of Meadowlands Newmark, LLC, and an effective ownership interest in NMR of 7.4%, subject to dilution.

In 2015, the Company invested an additional $222,000 in NMR with no change in ownership.

In February 2017 the Company funded its proportionate share ($222,000) of a $3,000,000 capital call bringing its total investment to $5,108,000 with no change in ownership.

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 $1,780,000 and $1,766,000 are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated condensed balance sheets at January 2, 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 matures on October 3, 2021.

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.

Borrowings under the Revolving Facility are payable upon maturity of the Revolving Facility with interest payable monthly at LIBOR plus 3.5%, subject to adjustment based on certain ratios.

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.

As a result of the impacts to our business from the COVID-19 pandemic, on February 15, 2021, BHBM agreed to extend the maturity date of our Revolving Facility including all outstanding borrowings thereunder, in the amount of $9,666,000 (including $6,300,000 which were due on July 31, 2021), to February 17, 2022.

Borrowings under the Revolving Facility, which include the promissory notes as discussed in Note 8 of the consolidated 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.

As of January 2, 2021 and October 3, 2020, borrowings of $9,666,000 were outstanding under the Revolving Facility and had a weighted average interest rate of 3.6% and 3.0%, respectively.

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 January 2, 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.

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 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 intends to use the PPP Loan proceeds exclusively for Qualifying Expenses, it is unclear and uncertain whether the conditions for forgiveness of the PPP Loans 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 PPP Loans, in whole or in part.

To the extent, if any, that any or all of the 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.

Each Borrower is permitted to prepay its respective Note at any time without payment of any premium.

Critical Accounting Policies

1 unchanged sentence

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

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.

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 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.

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 2020 and the expected dates of adoption and the anticipated impact on the consolidated condensed financial statements.

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.

Quantitative and Qualitative Disclosures about Market Risk

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis