ARK RESTAURANTS CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This section and other parts of this Quarterly Report on Form 10-Q ("Form 10-Q") contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to any historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended October 3, 2020 and the consolidated condensed financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years and the associated quarters, months and periods of those fiscal years. COVID-19 Pandemic The Company is subject to continued risks and uncertainties as a result of the outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic which was declared a National Public Health Emergency in March 2020. We experienced significant disruptions to our business as suggested and mandated social distancing and shelter-in-place orders led to the temporary closure of all of our restaurants. In the third quarter of fiscal 2020, certain jurisdictions began allowing the reopening of indoor dining at varying capacities. However, restrictions on indoor dining capacity and social distancing protocols continue to change. As of April 3, 2021, the Company had reopened all of its properties, with the exception of Thunder Grill in Washington, D.C., at varying levels of capacity as allowed by local, state and federal governments. In addition to government mandated shut-downs and capacity restrictions, during the 26 weeks ended April 3, 2021, 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, capacity restrictions and social distancing protocols 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 impact of COVID-19 in our Florida, Las Vegas 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. Further, we cannot predict how long the COVID-19 pandemic will last or whether it will reoccur, what additional restrictions may be enacted, or if individuals will be comfortable returning to our restaurants during or following social distancing protocols and what long-lasting effects the COVID-19 pandemic may have on the restaurant industry as a whole. The extent of the reopening process, along with the potential impact of the COVID-19 pandemic on consumer spending behavior, will determine the continued significance of the impact of the COVID-19 pandemic to our operating results and financial position. As a result of these developments, the Company experienced a significant negative impact on its revenues, results of operations and cash flows, and has a working capital deficiency of $(3,561,000) as of April 3, 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 will be sufficient to meet our liquidity and capital spending requirements through May 18, 2022. - 23 - Overview As of April 3, 2021, the Company owned and operated 18 restaurants and bars, 17 fast food concepts and catering operations, exclusively in the United States, that have similar economic characteristics, nature of products and service, class of customer and distribution methods. The Company believes it meets the criteria for aggregating its operating segments into a single reporting segment in accordance with applicable accounting guidance. The consolidated condensed statements of operations for the 13 and 26 weeks ended April 3, 2021 include revenues and income of approximately $1,962,000 and $2,441,000 and $448,000 and $455,000, respectively, related to Blue Moon Fish Company , which was acquired on December 1, 2020. Accounting Period Our fiscal year ends on the Saturday nearest September 30. We report fiscal years under a 52/53-week format. This reporting method is used by many companies in the hospitality industry and is meant to improve year-to-year comparisons of operating results. Under this method certain years will contain 53 weeks. The periods ended April 3, 2021 and March 28, 2020 each included 13 and 26 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 April 3, 2021 was $(1,497,000), as compared to $(1,936,000) for the 13-weeks ended March 28, 2020. This increase resulted primarily from strong performance of our Florida and Alabama operations in the current period partially offset by the government mandated closures of all our restaurants in March 2020 in connection with the COVID-19 pandemic. The Company’s operating loss for the 26-weeks ended April 3, 2021 was $(4,803,000), as compared to operating income of $500,000 for the 26-weeks ended March 28, 2020. This decrease resulted primarily from the severe impacts of the government mandated closures and/or capacity restrictions at all of our restaurants in the first quarter of fiscal 2021, particularly on our event business in New York and Washington, D.C. as compared to the same period of the prior year, which was prior to the COVID-19 pandemic. Although all of our restaurants are currently, or will be operating, indoor dining at what state and local governments are calling 100% capacity, they are still subject to indoor dining social distancing protocols which still limits their capacity. We cannot predict when these social distancing protocols will be lifted or whether we will be required to limit capacity or close again in the future, as these decisions will depend primarily on the actions of a number of governmental bodies over which we have no control. Moreover, as 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. - 24 - The following table summarizes the significant components of the Company’s operating results for the 13- and 26- week periods ended April 3, 2021 and March 28, 2020: 13 Weeks Ended Variance 26 Weeks Ended Variance April 3, 2021 March 28, 2020 $ % April 3, 2021 March 28, 2020 $ % (in thousands) (in thousands) REVENUES: Food and beverage sales $ 25,181 $ 33,114 $ (7,933) -24.0 % $ 45,070 $ 75,943 $ (30,873) -40.7 % Other revenue 586 888 (302) -34.0 % 996 1,573 (577) -36.7 % Total revenues 25,767 34,002 (8,235) -24.2 % 46,066 77,516 (31,450) -40.6 % COSTS AND EXPENSES: Food and beverage cost of sales 7,764 9,578 (1,814) -18.9 % 13,705 20,518 (6,813) -33.2 % Payroll expenses 8,391 13,103 (4,712) -36.0 % 17,041 28,224 (11,183) -39.6 % Occupancy expenses 3,523 3,830 (307) -8.0 % 6,997 9,269 (2,272) -24.5 % Other operating costs and expenses 3,529 5,654 (2,125) -37.6 % 6,339 10,982 (4,643) -42.3 % General and administrative expenses 3,036 2,397 639 26.7 % 4,824 5,451 (627) -11.5 % Loss on termination of lease — 364 (364) N/A — 364 (364) N/A Depreciation and amortization 1,021 1,012 9 0.9 % 1,963 2,208 (245) -11.1 % Total costs and expenses 27,264 35,938 (8,674) -24.1 % 50,869 77,016 (26,147) -34.0 % OPERATING INCOME (LOSS) $ (1,497) $ (1,936) $ 439 -22.7 % $ (4,803) $ 500 $ (5,303) -1060.6 % Revenues During the 13-week period ended April 3, 2021, revenues decreased 24.2% as compared to revenues in the 13-week period ended March 28, 2020. This decrease resulted primarily from the impacts of COVID-19 pandemic on our business. Food and Beverage Same-Store Sales On a Company-wide basis, same-store sales decreased 25.4% during the first fiscal quarter of 2021 as compared to the same period last year as follows: 13 Weeks Ended Variance April 3, 2021 March 28, 2020 $ % (in thousands) Las Vegas $ 6,737 $ 10,681 $ (3,944) -36.9 % New York 1,283 4,561 (3,278) -71.9 % Washington, D.C. 755 1,294 (539) -41.7 % Atlantic City, NJ 257 512 (255) -49.8 % Connecticut 103 402 (299) -74.4 % Alabama 2,674 2,352 322 13.7 % Florida 11,711 11,744 (33) -0.3 % Same-store sales 23,520 31,546 $ (8,026) -25.4 % Other 1,661 1,568 Food and beverage sales $ 25,181 $ 33,114 With the exception of Florida and Alabama, where COVID-19 restrictions were lifted in Q4 2020, the decreases in same-store sales for the 13-week period ended April 3, 2021 as compared to the same period of the prior year, are result of the impact of the COVID-19 pandemic on our business. - 25 - Costs and Expenses Costs and expenses for the 13 and 26 weeks ended April 3, 2021 and March 28, 2020 were as follows (in thousands): 13 Weeks Ended April 3, 2021 % to Total Revenues 13 Weeks Ended March 28, 2020 % to Total Revenues Increase (Decrease) 26 Weeks Ended April 3, 2021 % to Total Revenues 26 Weeks Ended March 28, 2020 % to Total Revenues Increase (Decrease) $ % $ % Food and beverage cost of sales $ 7,764 30.1 % $ 9,578 28.2 % (1,814) -18.9 % $ 13,705 29.8 % $ 20,518 26.5 % (6,813) -33.2 % Payroll expenses 8,391 32.6 % 13,103 38.5 % (4,712) -36.0 % 17,041 37.0 % 28,224 36.4 % (11,183) -39.6 % Occupancy expenses 3,523 13.7 % 3,830 11.3 % (307) -8.0 % 6,997 15.2 % 9,269 12.0 % (2,272) -24.5 % Other operating costs and expenses 3,529 13.7 % 5,654 16.6 % (2,125) -37.6 % 6,339 13.8 % 10,982 14.2 % (4,643) -42.3 % General and administrative expenses 3,036 11.8 % 2,397 7.0 % 639 26.7 % 4,824 10.5 % 5,451 7.0 % (627) -11.5 % Loss on termination of lease — — % 364 1.1 % (364) N/A — — % 364 0.5 % (364) N/A Depreciation and amortization 1,021 4.0 % 1,012 3.0 % 9 0.9 % 1,963 4.3 % 2,208 2.8 % (245) -11.1 % Total costs and expenses $ 27,264 $ 35,938 $ (8,674) $ 50,869 $ 77,016 $ (26,147) Food and beverage costs as a percentage of total revenues for the 13- and 26-weeks ended April 3, 2021 increased as compared with the same period of last year primarily as a result of increases in costs of seafood and other high-volume items. Payroll expenses as a percentage of total revenues for the 13-weeks ended April 3, 2021 decreased as compared with the same period of last year primarily as a result of retaining key restaurant management personnel with lower corresponding revenues in the prior period as a result of the government mandated closures and/or capacity restrictions at all of our restaurants in connection with the COVID-19 pandemic. Payroll expenses as a percentage of total revenues for the 26-weeks ended April 3, 2021 increased as compared with the same period of last year primarily as a result of increased labor costs in connection with ongoing COVID-related labor challenges created by the high level of government stimulus offset by retaining key restaurant management personnel with lower corresponding revenues in the prior period as a result of the government mandated closures and/or capacity restrictions at all of our restaurants in connection with the COVID-19 pandemic. Occupancy expenses as a percentage of total revenues for the 13- and 26-weeks ended April 3, 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 COVID-19 pandemic. Other operating costs and expenses as a percentage of total revenues for the 13- and 26-weeks ended April 3, 2021 as compared to the same period of last year decreased primarily as a result of decreased maintenance at properties where we are experiencing lower traffic combined with increased professional fees at the restaurant-level in the prior periods. General and administrative expenses (which relate solely to the corporate office in New York City) for the 13- and 26-weeks ended April 3, 2021 increased as compared with the same period of last year primarily as a result of headcount and salary reductions of corporate personnel in the prior period as a result of the impacts on our business from the COVID-19 pandemic. Depreciation and amortization expense for the 13-weeks ended April 3, 2021 increased marginally as compared to the same period of last year primarily as a result of assets placed in service in the current period. Depreciation and amortization expense for the 26-weeks ended April 3, 2021 decreased as compared to the same period of last year primarily as a result of lower charges in the current period as a result of asset impairments in the first quarter of 2020. Income Taxes We calculate our interim income tax provision in accordance with ASC Topic 270, Interim Reporting and ASC Topic 740, Accounting for Income Taxes. At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary year to date earnings. In addition, the tax effects of unusual or infrequently occurring items including changes in judgement about valuation allowances and effects of changes in enacted tax laws are recognized discretely in the interim period in which the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain - 26 - estimates and significant judgment including the expected operating (loss) income for the year, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets generated in the current fiscal year. The accounting estimates used to compute income tax expense may change as new events occur, additional information is obtained, or the tax environment changes. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was enacted to provide economic relief to those impacted by the COVID-19 pandemic. In addition to the PPP loans, the CARES Act made various tax law changes including among other things (i) modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 tax years to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes, (ii) enhanced recoverability of AMT tax credit carryforwards, (iii) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest, and (iv) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k). On December 27, 2020, the Consolidated Appropriations Act of 2021 (“CAA”) was enacted and provided clarification on the tax deductibility of expenses funded with PPP loans as fully deductible for tax purposes. During the period ended April 3, 2021 the Company recorded income for financial reporting purposes related to the forgiveness of some of its PPP loans. The forgiveness of these PPP loans is not taxable. The income recorded for financial reporting purposes was considered an unusual or infrequent event and the tax effect was recorded discretely in the quarter ended April 3, 2021. 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 26-week period ended April 3, 2021 was $(4,839,000). The effective tax rate for the 26-week period ended April 3, 2021 of 376.56% differed from the statutory rate of 21% primarily related to the discrete tax benefit attributable to the income related to the PPP loan forgiveness which is not taxable for tax purposes. The income tax benefit for the 26-week period ended March 28, 2020 was ($95,000). The effective tax rate for the 26-week period ended March 28, 2020 of 50.4% differed from the statutory rate of 21% primarily as a result of the tax benefits related to the generation of FICA tax credits and the incremental benefit arising from the ability to carryback the 2020 net operating loss to prior years when the tax rate was 34%. The Company’s overall effective tax rate in the future will be affected by factors such as changes in tax law, the utilization of state and local net operating loss carryforwards, the generation of FICA tax credits and the mix of earnings by state taxing jurisdictions as Nevada does not impose a state income tax, as compared to the other major state and local jurisdictions in which the Company has operations. The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from current estimates. Liquidity and Capital Resources Our primary source of capital has been cash provided by operations and, in recent years, bank and other borrowings to finance specific transactions, acquisitions and large remodeling projects. We utilize cash generated from operations to fund the cost of developing and opening new restaurants and smaller remodeling projects of existing restaurants we own. Consistent with many other restaurant operators, we typically use operating lease arrangements for our restaurants. In recent years we have been able to acquire the underlying real estate at several locations along with the restaurant operation. We believe that our operating lease arrangements provide appropriate leverage of our capital structure in a financially efficient manner. As of April 3, 2021, we had a cash and cash equivalents balance of $11,398,000. The Company had a working capital deficiency of $(3,561,000) at April 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 the 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. - 27 - 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. 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 any or all of our restaurants at full capacity, without social distancing restrictions 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. The extent of such negative impact will be determined, in part, by the longevity and severity of the pandemic. Cash Flows for 26 Weeks Ended April 3, 2021 and March 28, 2020 Net cash used in operating activities for the 26-weeks ended April 3, 2021 decreased to $(1,644,000) as compared to $2,110,000 provided by operations in the same period of last year. This decrease was attributable to a decrease in operating 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 26-weeks ended April 3, 2021 and March 28, 2020 was $(2,926,000) and $(1,769,000), 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 26-weeks ended April 3, 2021 and March 28, 2020 of $(918,000) and $(188,000), respectively, resulted primarily from principal payments on notes payable and in the prior period the payment of dividends, distributions to non-controlling interests partially offset borrowings under our credit facility. 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. Recent Restaurant Expansions and Other Developments On December 1, 2020, the Company, through a newly formed, wholly-owned subsidiary, acquired the assets of Bear Ice, Inc. and File Gumbo Inc., which collectively operated a restaurant and bar named Blue Moon Fish Company located in Lauderdale-by-the-Sea, FL. The total purchase price of $2,820,000 was paid with cash in the amount of $1,820,000 and a four-year note held by the sellers in the amount of $1,000,000 payable monthly with 5% interest. Concurrent with the acquisition, the Company assumed the related lease which expires in 2026 and has four five-year extension options. Rent payments under the lease are approximately $360,000 per year and increase by approximately 15% as each option is exercised. On January 26, 2021, the Company exercised its right-of-first-refusal to acquire the land, building and parking lot associated with J B’s on the Beach and immediately contributed such rights and interest to an unrelated entity ("Newco") that purchased the properties on March 22, 2021. In exchange, the Company expects to receive an interest in Newco, which plans future development of the sites. In addition, all rights and privileges under the current lease were assigned to Newco, as landlord and the lease terms will remain unchanged. The Company is still in the process of negotiating the final details of the above with the managing member of Newco. - 28 - Our restaurants generally do not achieve substantial increases in revenue from year to year, which we consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons, we would have to open additional restaurant facilities or expand existing restaurants. There can be no assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to establish their own identity. We may take advantage of other opportunities we consider to be favorable, when they occur, depending upon the availability of financing and other factors. Recent Restaurant Dispositions On November 13, 2020, the Company was advised by the landlord that it would have to vacate Gallagher’s Steakhouse and Gallagher’s Burger Bar at the Resorts Casino Hotel located in Atlantic City, NJ which were on a month-to-month, no rent lease. The closure of these properties occurred on January 2, 2021 and did not result in a material charge to the Company’s operations. As of January 2, 2021, the Company determined that, given the current situation, it will not reopen Thunder Grill in Washington, D.C. which has been closed since March 20, 2020. This closure did not result in a material charge to the Company’s operations. Investment in and Receivable from New Meadowlands Racetrack On March 12, 2013, the Company made a $4,200,000 investment in the New Meadowlands Racetrack LLC (“NMR”) through its purchase of a membership interest in Meadowlands Newmark, LLC, an existing member of NMR with a then 63.7% ownership interest. On November 19, 2013, the Company invested an additional $464,000 in NMR through 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 $1,793,000 and $1,766,000 are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated condensed balance sheets at April 3, 2021 and October 3, 2020, respectively. On June 7, 2018, the New Jersey State Legislature voted to legalize sports betting at casinos and racetracks in the state. Pursuant to this legislation NMR opened a sports book in partnership with FanDuel, a leading provider of daily fantasy sports. Notes Payable – Bank On June 1, 2018, the Company refinanced (the "Refinancing") its then existing indebtedness with its current lender, Bank Hapoalim B.M. (“BHBM”), by entering into an amended and restated credit agreement (the “Revolving Facility”), which 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 - 29 - discontinuation of LIBOR as a reference rate in our debt agreements to have a material adverse effect on our financial position or materially affect our interest expense. Borrowings under the Revolving Facility, which include the promissory notes as discussed in Note 8 of the consolidated condensed financial statements, are secured by all tangible and intangible personal property (including accounts receivable, inventory, equipment, general intangibles, documents, chattel paper, instruments, letter-of-credit rights, investment property, intellectual property and deposit accounts) and fixtures of the Company. The Revolving Facility also requires, among other things, that the Company meet minimum quarterly tangible net worth amounts, maintain a minimum fixed charge coverage ratio and meet minimum annual net income amounts. The Revolving Facility contains customary representations, warranties and affirmative covenants as well as customary negative covenants, subject to negotiated exceptions on liens, relating to other indebtedness, capital expenditures, liens, affiliate transactions, disposal of assets and certain changes in ownership. As of April 3, 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. As a result of the impacts to our business from the COVID-19 pandemic, on May 11, 2021, BHBM agreed to extend the maturity date of our Revolving Facility including all outstanding borrowings thereunder, in the amount of $9,666,000 to May 19, 2022. 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 April 3, 2021. Paycheck Protection Program Loans During the year ended October 3, 2020, subsidiaries (the “Borrowers”) of the Company received loan proceeds from several banks (the “Lenders”) in the aggregate amount of $14,995,000 (the “PPP Loans”) under the Paycheck Protection Program (the “PPP”) of the CARES Act, which was enacted March 27, 2020. In addition, during the 13-weeks ended April 3, 2021, one of our consolidated VIEs received a second draw PPP Loan in the amount of $111,000. The PPP Loans are evidenced by individual promissory notes of each of the Borrowers (together, the “Notes”) in favor of the Lender, which Notes bear interest at the rate of 1.00% per annum. Funds from the PPP Loans may be used only for payroll and related costs, costs used to continue group health 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. During the 13 weeks ended April 3, 2021, $4,124,000 of PPP Loans (including $27,000 of accrued interest) were forgiven. 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. Recent Events See Note 13 - Subsequent Events to the consolidated condensed financial statements for a description of recent events. - 30 - Critical Accounting Policies The preparation of financial statements requires the application of certain accounting policies, which may require the Company to make estimates and assumptions of future events. In the process of preparing its consolidated condensed financial statements, the Company estimates the appropriate carrying value of certain assets and liabilities, which are not readily apparent from other sources. The primary estimates underlying the Company’s consolidated condensed financial statements include projected cash flows, allowances for potential bad debts on accounts and notes receivable, assumptions regarding discount rates related to lease accounting, the useful lives and recoverability of its assets, such as property and intangibles, fair values of financial instruments, the realizable value of its tax assets and other matters. Management bases its estimates on certain assumptions, which it believes are reasonable in the circumstances, and actual results could differ from those estimates. Although management does not believe that any change in those assumptions in the near term would have a material effect on the Company’s consolidated condensed financial position or the results of operations, differences in actual results could be material to the consolidated condensed financial statements. The Company’s critical accounting policies are described in the Company’s Form 10-K for the year ended October 3, 2020. There have been no significant changes to such policies during fiscal 2021 other than those disclosed in Note 1 to the consolidated condensed financial statements. Recently Adopted and Issued Accounting Standards See Note 1 to the consolidated condensed financial statements for a description of recent accounting pronouncements, including those adopted in fiscal 2021 and the expected dates of adoption of new accounting standards and the anticipated impact on the consolidated condensed financial statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not Applicable