What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-12-21 compared with 2020-12-22 · 127 added, 186 removed, 199 unchanged (61% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statement Regarding Forward-Looking Disclosure

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included under Item 8 of this annual report.

This discussion contains forward-looking statements, which involve risks and uncertainties.

Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to, those discussed elsewhere in this annual report.

Please see the discussion of forward-looking statements at the beginning of this annual report under "Special Note Regarding Forward-Looking Statements".

COVID-19 Pandemic

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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 from May through August 2020, the Company has 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.

Due to the impact of the COVID-19 pandemic, during the year ended October 3, 2020, subsequent to reopening after initial shut-downs, the Company has temporarily closed several restaurants, typically for three to seven 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 10 - Notes Payable of the consolidated financial statements) and actions taken by management, set out below and otherwise, will be sufficient to meet our liquidity and capital spending requirements through December 23, 2021.

In response to the business disruption and liquidity concerns caused by the COVID-19 pandemic, the Company has taken the following actions, which management expects will enable it to meet its obligations over the next 12 months:

• While restaurants were closed or continue to be closed, we furloughed all hourly employees and approximately 95% of salaried restaurant management personnel, while enacting salary reductions for all remaining restaurant management personnel.

• As restaurants re-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 October 3, 2020, most corporate salaries have been restored to 65% of pre-pandemic levels.

In addition, the Board waived its fees for the balance of 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 and an agreement to extend the maturity dates of our revolving credit facility (see Note 10 - Notes Payable of the consolidated financial statements).

In addition, the bank agreed to relaxed financial covenants through fiscal Q3 2021.

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

• Suspended future dividend payments until such time as the Board deems appropriate to reinstate.

• Canceled or delayed all non-essential capital expenditures.

• Suspended the vast majority of lease payments 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 through April 2021 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, 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 any or all of our restaurants at full capacity or whether they will be required to close again in the future, 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.

We are 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.

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 restaurant dining rooms, and we began to reopen dining rooms.

While restrictions on the type of permitted operating model and occupancy capacity may continue to change, as of October 2, 2021, all of our restaurants were operating with no indoor dining restrictions.

We cannot predict how long the COVID-19 pandemic will last, whether vaccines will be effective at eliminating or slowing the spread of the virus or variants, whether it will reoccur or whether variants will spike, what additional restrictions may be enacted, to what extent we can maintain sales volumes during or following any resumption of mandated social distancing protocols or vaccination or mask mandates and what long-lasting effects the COVID-19 pandemic may have on the restaurant industry as a whole.

The ongoing effects of the COVID-19 pandemic, including, but not limited to, labor-related impacts, supply chain disruption and consumer behavior, will determine the continued significance of the impact of the COVID-19 pandemic to our operating results and financial position.

As of October 2, 2021, the Company owned and operated 17 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 statements of operations for the years ended October 3, 2020 and September 28, 2019 include revenues and income (loss) of approximately $7,489,000 and $168,000 and $3,380,000 and ($122,000), 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 statement of operations for the year ended September 28, 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 statements of operations for the year ended October 2, 2021 includes revenues and income of approximately $5,929,000 and $981,000, respectively, related to Blue Moon Fish Company , which was acquired on December 1, 2020.

As of September 1, 2021, the Company advised the landlord of Clyde Frazier's Wine and Dine that we would be closing the property permanently and terminating the lease.

In connection with this notification, the Company recorded a gain of $810,000 during the year ended October 2, 2021 consisting of:

(i) rent and other costs incurred in accordance with the termination provisions of the lease in the amount of $318,000, (ii) impairment of long-lived assets in the amount of $69,000 and (iii) the write-off of our security deposit in the amount of $121,000 offset by the write-off of ROU assets and related lease liabilities in the net amount of $1,318,000.

Accounting Period

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Under this method, certain years will contain 53 weeks.

The fiscal years ended October 3, 2020 and September 28, 2019 included 53 and 52 weeks, respectively.

The fiscal years ended October 2, 2021 and October 3, 2020 included 52 and 53 weeks, respectively.

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

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.

Although our business is highly seasonal, our broader geographical reach as a result of recent acquisitions mitigates some of the risk.

For instance, the second quarter of our fiscal year, consisting of the non-holiday portion of the cold weather season in New York and Washington (January, February and March), is the poorest performing quarter;

however, in recent years this has been partially offset by our locations in Florida as they experience increased results in the winter months.

We generally achieve our best results during the warm weather, attributable to our extensive outdoor dining availability, particularly at Bryant Park in New York and Sequoia in Washington, D.C.

(our largest restaurants) and our outdoor cafes.

However, even during summer months these facilities can be adversely affected by unusually cool or rainy weather conditions.

Our facilities in Las Vegas are indoor and generally operate on a more consistent basis throughout the year.

Results of Operations

The Company’s operating loss for the year ended October 3, 2020 was $(7,796,000) as compared to operating income of $3,246,000 for the year ended September 28, 2019 which included a loss of $1,106,000 relating to the closure of Durgin-Park located in Boston, MA.

This decrease resulted primarily from the government mandated closure of all of our restaurants in March 2020 in connection with the COVID-19 pandemic and a $364,000 loss on the termination of a lease.

Although state and local governments have lifted “stay at home” orders and mandatory shut-down requirements at varying levels of limited capacity from May through September 2020 and the Company has reopened all of its properties, with the exception of Thunder Grill in Washington, D.C., our revenues and operating results continue to be well below prior periods.

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 $3,150,000 of costs directly related to COVID-19 during the year ended October 3, 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 states where we have significant locations.

This has resulted in some local governments responding by taking additional measures, including implementing a further reduction of in-restaurant capacity in certain locations.

Although this is a developing situation, to this point these capacity reductions have not had a significant impact on our overall sales trends.

We continue to monitor and adhere to local restrictions and are maintaining elevated safety measures, including additional sanitation and disinfecting practices and the use of gloves and facial protection for our employees.

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 years ended October 3, 2020 and September 28, 2019, respectively:

The Company’s operating income for the year ended October 2, 2021 was $6,207,000 as compared to an operating loss of $(7,796,000) for the year ended October 3, 2020.

This increase resulted primarily from the strong performance of our Florida, Alabama and Las Vegas operations in the current year combined with the government mandated closure of our restaurants in March 2020 in connection with the COVID-19 pandemic, with limited capacity when they reopened, as well as a $364,000 loss on the termination of a lease.

In addition to the decrease in restaurant revenue from the mandatory closures and operating at varying levels of limited capacity in the year ended October 3, 2020, the Company estimates that it incurred approximately $3,150,000 of costs directly related to COVID-19 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.

The following table summarizes the significant components of the Company’s operating results for the years ended October 2, 2021 and October 3, 2020, respectively:

Year Ended Variance

2020 September 28,

2021 October 3,

Food and beverage sales $ 128,988 $ 104,062 $ 24,926 24.0 %

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General and administrative expenses 10,523 10,160 363 3.6 %

Loss on termination of lease 364 — 364 100.0 %

Loss on closure of Durgin-Park — 1,106 (1,106) -100.0 %

Impairment loss from write-down of long-lived assets — 2,857 (2,857) -100.0 %

(Gain) loss on lease termination (810) 364 (1,174) -322.5 %

Depreciation and amortization 3,630 4,056 (426) -10.5 %

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OPERATING INCOME (LOSS) $ 6,207 $ (7,796) $ 14,003 -179.6 %

During the year ended October 3, 2020, revenues decreased 34.4% compared to the year ended September 28, 2019.

This decrease resulted primarily from the government mandated closure of all of our restaurants in March 2020 and limited re-openings beginning in May 2020 in connection with the COVID-19 pandemic.

During the year ended October 2, 2021, revenues increased 23.8% as compared to revenues in the year ended October 3, 2020.

This increase resulted primarily from our properties operating with fewer or no capacity restrictions in the current year in comparison to prior year as a result of government mandates in connection with the COVID-19 pandemic.

Food and Beverage Same-Store Sales

On a Company-wide basis, same-store food and beverage sales decreased 37.1% for the year ended October 3, 2020 as compared to the year ended September 28, 2019 as follows:

On a Company-wide basis, same-store food and beverage sales increased 25.4% for the year ended October 2, 2021 as compared to the year ended October 3, 2020 as follows:

Year Ended Variance

2020 September 28,

2021 October 3,

(in thousands)

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Food and beverage sales $ 128,988 $ 104,062

A discussion of same-store sales for the year ended October 3, 2020 is not meaningful as a result of the impact of the government mandated closure of all of our restaurants in March 2020 and limited re-openings beginning in May 2020 in connection with the COVID-19 pandemic.

Other food and beverage sales consist of sales related to new restaurants opened or acquired during the applicable period ( JB’s on the Beach - $7,489,000 in 2020 and $3,380,000 in 2019), sales related to properties that were closed ( Durgin-Park - $1,040,000 in 2019) and other fees.

Our restaurants generally do not achieve substantial increases in revenue from year to year, which we consider to be typical of the restaurant industry.

The increase in company-wide same-store sales was driven primarily by increased customer traffic as a result of the impact of the COVID-19 pandemic on the prior year combined with targeted increases in menu pricing in the current year.

Same-store sales in New York decreased 5.8% due to lower traffic in midtown Manhattan where our properties are located as a result of companies allowing employees to continue to work from home.

Same-store sales in Connecticut decreased 55.3% due to declining traffic at the Foxwoods Resort and Casino where our property is located.

Other food and beverage sales consist of sales related to new restaurants opened or acquired during the applicable period ( Blue Moon Fish Company - $5,929,000 in 2021), sales related to properties that were closed ( Clyde Frazier's Wine and Dine - $866,000 in 2021 and $2,038,000 in 2020, Gallagher's Steakhouse and Gallagher's Burger Bar - $430,000 in 2021 and $2,205,000 in 2020 and Thunder Grill - $1,034,000 in 2020) and other adjustments and fees.

Prior to the COVID-19 pandemic, our restaurants generally did 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.

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Other Revenues

Included in Other Revenues are purchase service fees which represent commissions earned by a subsidiary of the Company for providing purchasing services to other restaurant groups, as well as license fees, property management fees and other rentals.

The decrease in other revenues for the year ended October 3, 2020 as compared to the year ended September 28, 2019 is primarily due to the impact of the COVID-19 pandemic.

Included in Other Revenues are purchase service fees which represent commissions earned by a subsidiary of the Company for providing purchasing services to other restaurant groups, as well as merchandise sales, license fees, property management fees and other rentals.

The increase in Other Revenues for the year ended October 2, 2021 as compared to the year ended October 3, 2020 is primarily due to the impact of the COVID-19 pandemic in the prior year.

Costs and Expenses

Costs and expenses for the years ended October 3, 2020 and September 28, 2019 were as follows (in thousands):

Costs and expenses for the years ended October 2, 2021 and October 3, 2020 were as follows (in thousands):

Total Revenues Year Ended

September 28,

Total Revenues Increase

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General and administrative expenses 10,523 8.0 % 10,160 9.5 % 363 3.6 %

Loss on termination of lease 364 0.3 % — — % 364 100.0 %

Loss on closure of Durgin-Park — — % 1,106 0.7 % (1,106) -100.0 %

Impairment loss from write-down of

long-lived assets — — % 2,857 1.8 % (2,857) -100.0 %

(Gain) loss on lease termination (810) -0.6 % 364 0.3 % (1,174) -322.5 %

Depreciation and amortization 3,630 2.8 % 4,056 3.8 % (426) -10.5 %

Total costs and expenses $ 125,663 $ 114,286 $ 11,377

Food and beverage costs as a percentage of total revenues for the year ended October 3, 2020 were consistent with the same period of last year primarily as a result of a better mix of catering versus a la carte business at our larger properties (through the respective closure dates) 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 year ended October 3, 2020 increased as compared with the same period of last year primarily as a result of retaining key restaurant management personnel at reduced salaries while restaurants were closed and operating at reduced capacity with no or limited corresponding revenues during the current year 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 year ended October 3, 2020 increased as compared with the same period of last year primarily as a result of rents being proportionally higher (even after some being reduced or abated by landlords) as compared to having no or limited corresponding revenues during the current year 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 year ended October 3, 2020 increased as compared with the same period of last year 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 year ended October 3, 2020 increased as compared with the same period of last year primarily as a result of retaining corporate personnel at temporarily reduced salaries while restaurants were closed and operating at reduced capacity with no or limited corresponding revenues during the current year 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 year ended October 3, 2020 decreased as compared with 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 2020.

Loss on Termination of Lease

Food and beverage costs as a percentage of total revenues for the year ended October 2, 2021 increased as compared to last year primarily as a result of increases in crab, seafood, chicken and beef prices.

Payroll expenses as a percentage of total revenues for the year ended October 2, 2021 decreased as compared to 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 partially offset by higher group medical costs, wage rates and overtime in fiscal 2021.

Occupancy expenses as a percentage of total revenues for the year ended October 2, 2021 decreased as compared to last year primarily as a result of the finalization of several abatements with landlords resulting in a reduction of rent expense in the amount of $800,000 in the current year.

Other operating costs and expenses as a percentage of total revenues for the year ended October 2, 2021 decreased as compared to last year as a result of the fixed nature of some of these expenses and lower sales in the prior period as a result of the COVID-19 pandemic, decreased maintenance at properties where we are experiencing lower traffic and increased professional fees at the restaurant-level in the prior periods.

General and administrative expenses (which relate solely to the corporate office in New York City) as a percentage of total revenues for the year ended October 2, 2021 decreased as compared to last year primarily as a result of lower legal fees in the current period partially offset by headcount and salary reductions of corporate personnel in the prior period as a result of the impacts on our business from the COVID-19 pandemic.

Depreciation and amortization expense for the year ended October 2, 2021 decreased as compared to 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.

(Gain) Loss on Lease Termination

On September 1, 2021, the Company advised the landlord of Clyde Frazier's Wine and Dine that we would be closing the property permanently and terminating the lease.

In connection with this notification, the Company recorded a gain of $810,000 during the year ended October 2, 2021 consisting of:

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 during the 13 weeks ended March 28, 2020, consisting of (i) rent accrued in accordance with the termination provisions of the lease, (ii) the write-off of the unamortized balance of purchased leasehold rights, (iii) the write-off of our security deposit, (iv) the write-off of ROU assets and related lease liabilities, and (v) the write-off of net book value of fixed assets.

Loss on closure of Durgin-Park

As a result, included in the statement of operations for the year ended October 3, 2020 are losses on closure in the amount of $1,106,000 consisting of:

The restaurant closed on January 12, 2019.

I mpairment loss from write-down of long-lived assets

Impairment loss from write-down of long-lived assets

Management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants.

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Estimated fair values of impaired properties are based on comparable valuations, cash flows and/or management judgment.

As a result of the underperformance and increased competition at Clyde Frazier's Wine and Dine , the Company has recorded an impairment charge of $2,857,000 in the year ended September 28, 2019 related to this property.

Included in the year ended October 2, 2021 is an impairment charge of $69,000 related to Clyde Frazier's Wine and Dine.

Our income tax expense, deferred tax assets and liabilities, and liabilities for uncertain tax positions reflect management’s best estimate of current and future taxes to be paid.

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The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses.

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.

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 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).

As a result of the CARES Act, the Company recorded an income tax receivable of $2,673,000 as it is expecting to carryback its current year estimated taxable losses for fiscal year 2020 and recover prior taxes paid.

The Company recorded an income tax benefit of $1,022,000 related to the carryback as the Company was subject to higher federal corporate income tax rates in prior periods than the current statutory tax rate of 21%.

On November 18, 2020, the IRS issued Revenue Ruling 2020-27 that treats expenses funded by PPP loans as non-deductible for tax purposes if a business reasonably expects that a PPP loan will be forgiven in the future.

Based on this Revenue Ruling 2020-27 and the uncertainty related to the PPP loan forgiveness in future periods, as discussed in Note 10 - Notes Payable of the consolidated financial statements, the Company has treated these expenses as deductible in fiscal 2020.

The Company will continue to evaluate the impact of this ruling on its consolidated financial statements and may be required to reverse its income tax receivable and related income tax benefits during future interim periods as each Borrower applies for forgiveness.

On March 27, 2020, the CARES Act was enacted to provide economic relief to those impacted by the COVID-19 pandemic.

In addition to the Paycheck Protection Program 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 Internal Revenue Code ("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 year ended October 2, 2021, the Company recorded income for financial reporting purposes related to the forgiveness of $10,400,000 (including $84,000 of accrued interest) of its PPP loans.

The forgiveness of these amounts is not taxable.

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.

Included in Prepaid and Refundable Income Taxes at October 2, 2021 is $3,766,000 related to these carryback claims.

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.

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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.

We believe that our operating lease

arrangements provide appropriate leverage of our capital structure in a financially efficient manner.

As of October 2, 2021, we had a cash and cash equivalents balance of $19,171,000.

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.

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.

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.

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

• Suspended future dividend payments until such time as the Board deems appropriate to reinstate.

• Canceled or delayed all non-essential capital expenditures.

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

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 deficiency of $(3,234,000) at October 3, 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 $6,117,000 of current operating lease liabilities in connection with the adoption of ASC 842 on September 29, 2019 and the current portion of revolver advances in the amount of $6,300,000.

We believe that our existing cash balances combined with measures taken due to COVID-19 pandemic described above, will be sufficient to meet our liquidity and capital spending requirements and finance our operating activities for at least the next 12 months.

Cash Flows for the Years Ended October 3, 2020 and September 28, 2019

Net cash used in operating activities for the year ended October 3, 2020 decreased to ($4,528,000) as compared to $10,615,000 provided by operations for the year ended September 28, 2019.

This decrease was attributable a decrease in net income as a result of the impacts of COVID-19 pandemic on our operations and changes in net working capital primarily related to prepaid, refundable and accrued income taxes, prepaid expenses and other current assets, accounts payable and accrued expenses.

Net cash used in investing activities for the years ended October 3, 2020 and September 28, 2019 was $(2,457,000) and $(3,196,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants.

Net cash provided by (used in) financing activities for the years ended October 3, 2020 and September 28, 2019 was $16,694,000 and $(5,254,000), respectively, resulted primarily from the payment of dividends, principal payments on notes payable and distributions to non-controlling interests and in the current period borrowings under our credit facility and the proceeds from PPP Loans.

On December 3, 2018, March 1, 2019, June 13, 2019, September 9, 2019 and November 26, 2019, our Board of Directors declared quarterly cash dividends in the amount of $0.25 per share.

On March 2, 2020, the Board of Directors declared a quarterly dividend of $0.25 per share on the Company’s common stock which was to be paid on April 6, 2020, to shareholders of record at the close of business on March 16, 2020.

We are 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 restaurant dining rooms, and we began to reopen dining rooms.

The Company had a working capital of $2,572,000 at October 2, 2021 as compared with a deficiency of $(3,234,000) at October 3, 2020.

This increase resulted primarily from cash provided by operations offset by a change in our debt maturities in connection with conversion of our revolving credit borrowings to term loans.

We believe that our existing cash balances and current banking facilities will be sufficient to meet our liquidity and capital spending requirements and finance our operating activities for at least the next 12 months.

Cash Flows for the Years Ended October 2, 2021 and October 3, 2020

Net cash provided by operating activities for the year ended October 2, 2021 increased to $9,294,000 as compared to $(4,528,000) used in operations for the year ended October 3, 2020.

This increase was attributable to an increase in operating income as a result of the continued recovery from the COVID-19 pandemic and changes in net working capital primarily related to accounts receivable, inventory, prepaid, refundable and accrued income taxes and accounts payable and accrued expenses.

Net cash used in investing activities for the years ended October 2, 2021 and October 3, 2020 was $(3,450,000) and $(2,457,000), 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 year ended October 2, 2021 of $(3,559,000) resulted primarily from principal payments on notes payable and the payment of distributions to non-controlling interests partially offset by proceeds from stock option exercises.

Net cash provided by financing activities for the year ended October 3, 2020 of $16,694,000 resulted primarily from borrowings under our credit facility and proceeds from PPP loans partially offset by principal payments on notes payable and the payment of dividends.

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.

On July 1, 2020, the dividend declared on March 2, 2020 was canceled.

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.

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 Company’s leases at the New York-New York Hotel and Casino in Las Vegas, Nevada are scheduled to expire in January 2023.

The Company is currently negotiating extensions with the landlord.

The failure to reach new agreements will have a material adverse effect on our results of operations and cash flows.

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 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.

Restaurant Expansion 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.

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 was 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 was reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.

On September 29, 2019, upon adoption of ASC 842, the unamortized Hollywood and Tampa balances of leasehold improvements and deferred rent in the amounts of $8,269,000 and $7,198,000, respectively, 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.

Prior to the COVID-19 pandemic, the Company was in the process of developing three restaurants at a large outdoor mall in Easton, Ohio in partnership with the landlord.

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The Company does not expect this project to continue.

Accordingly, the balance of these unreimbursed costs have been expensed to general and administrative expense as of October 3, 2020.

On October 2, 2020, the Company, through a newly formed, wholly-owned subsidiary, entered into an agreement to acquire the assets of Bear Ice, Inc.

and File Gumbo Inc., which collectively operate a restaurant and bar named Blue Moon Fish Company located in Lauderdale by the Sea, FL.

The transaction closed on December 1, 2020 with the total purchase price being $2,750,000 plus inventory and was paid with cash in the amount of $1,750,000 and a four year note held by the sellers in the amount of $1,000,000 payable monthly with 5% interest.

The acquisition will be accounted for as a business combination.

Accordingly, the balance of the unreimbursed costs in the amount of $200,000 were written off and are included in general and administrative expenses for the year ended October 3, 2020.

On December 1, 2020, the Company, through a newly formed, wholly-owned subsidiary, acquired the assets of Bear Ice, Inc.

and File Gumbo Inc., which collectively operated a restaurant and bar named Blue Moon Fish Company located in Lauderdale-by-the-Sea, FL.

The total purchase price of $2,820,000 was paid with cash in the amount of $1,820,000 and a four-year note held by the sellers in the amount of $1,000,000 payable monthly with 5% interest.

Concurrent with the acquisition, the Company assumed the related lease which expires in 2026 and has four five-year extension options.

Rent payments under the lease are approximately $360,000 per year and increase by approximately 15% as each option is exercised.

On January 26, 2021, the Company exercised its right-of-first-refusal to acquire the land, building and parking lot associated with JB’s on the Beach and immediately contributed such rights and interest to an unrelated entity ("Newco") that purchased the properties on March 22, 2021.

In exchange, the Company received a 5% interest in Newco, which plans future development of the sites.

In addition, all rights and privileges under the current lease were assigned to Newco, as landlord and the lease terms remain unchanged.

The opening of a new restaurant is invariably accompanied by substantial pre-opening expenses and early operating losses associated with the training of personnel, excess kitchen costs, costs of supervision and other expenses during the pre-opening period and during a post-opening “shake out” period until operations can be considered to be functioning normally.

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Recent Restaurant Dispositions

As a result, included in the consolidated statement of operations for the year ended October 3, 2020 are losses on closure in the amount of $1,106,000 consisting of:

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 net book value of fixed assets.

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 this property will occur on January 4, 2020 and will not result in a material charge to the Company’s operations.

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 it would not reopen Thunder Grill in Washington, D.C.

which had been closed since March 20, 2020.

This closure did not result in a material charge to the Company’s operations.

On September 1, 2021, the Company advised the landlord of Clyde Frazier's Wine and Dine that we would be closing the property permanently and terminating the lease.

In connection with this notification, the Company recorded a gain of $810,000 during the year ended October 2, 2021 consisting of:

Investment in and Receivable from New Meadowlands Racetrack

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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 $1,766,000 and $1,713,000, are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated balance sheets at October 3, 2020 and September 28, 2019, respectively.

The principal and accrued interest related to this note, after a $500,000 payment made in July 2021, in the amounts of $1,317,000 and $1,766,000, are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated balance sheets at October 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, in June 2018.

Pursuant to this legislation, NMR operates 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 May 31, 2021 (see Note 17 - Subsequent Events of the consolidated financial statements).

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.

(“BHBM”), by entering into an amended and restated credit agreement (the “Revolving Facility”), which was to mature on May 19, 2022 (as extended).

The Revolving Facility provided for total availability of the lesser of (i) $10,000,000 and (ii) $35,000,000 less the then aggregate amount of all indebtedness and obligations to BHBM.

On July 26, 2021, all outstanding Revolver Borrowings, in the amount of $9,666,000, were converted to a promissory note with quarterly principal payments of $500,000 commencing on September 1, 2021, with a balloon payment of $2,166,000 on June 1, 2025.

Such note bears interest at LIBOR plus 3.5% per annum.

We expect that the LIBOR rate will be discontinued at some point during 2022 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 believe that the discontinuation of LIBOR as a reference rate in our debt agreements will have a material adverse effect on our financial position or materially affect our interest expense.

As of October 3, 2020 and September 28, 2019, borrowings of $9,666,000 (of which $6,300,000 are due on July 31, 2021 - see Note 17 - Subsequent Events of the consolidated financial statements) and $3,366,000, respectively, were outstanding under the Revolving Facility and had a weighted average interest rate of 3.0% and 4.9%, respectively.

We do not expect the discontinuation of LIBOR as a reference rate in our debt agreements to have a material adverse effect on our financial position or materially affect our interest expense.

Borrowings under the Revolving Facility, which include the promissory notes as discussed in Note 10 of the consolidated financial statements in the aggregate amount of $27,047,000, 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 loan agreements provide, among other things, that the Company meet minimum quarterly tangible net worth amounts, as defined, maintain a fixed charge coverage ratio of not less than 1.1:1 and minimum annual net income amounts, and contain customary representations, warranties and affirmative covenants.

The agreements also contain customary negative covenants, subject to negotiated exceptions, on liens relating to other indebtedness, capital expenditures, liens, affiliate transactions, disposal of assets and certain changes in ownership.

On April 20, 2020, the Company entered into a Payment Suspension Agreement with BHBM which deferred all monthly interest payments through June 1, 2020 and deferred aggregate principal payments of $675,000 due on June 1, 2020 to the respective loan maturity dates.

On June 12, 2020, as a result of the impact of the COVID-19 pandemic on our business, BHBM agreed to relaxed financial covenants through fiscal Q3 2021.

In September 2020, the Company made principal payments in the amount of $675,000 that were due on June 1, 2020 that had been previously deferred.

The loan agreements provide, 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 loan agreements also contain customary representations, warranties and affirmative covenants as well as customary negative covenants, subject to negotiated exceptions on liens, relating to other indebtedness, capital expenditures, liens, affiliate transactions, disposal of assets and certain changes in ownership.

On June 12, 2020 and again on February 15, 2021, as a result of the impact of the COVID-19 pandemic on our business, BHBM agreed to modified financial covenants through fiscal Q2 2022.

The Company was in compliance with all of its financial covenants under the Revolving Facility as of October 2, 2021.

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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.

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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.

Based on all of these factors, we cannot make any assurance that the Company, or any of the Borrowers, will be eligible for forgiveness of the PPP Loans, in whole or in part.

Accordingly, all amounts outstanding under the PPP Loans have been classified as long-term in the consolidated balance sheet as of October 3, 2020.

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.

While the Company believes that it and each Borrower used the PPP Loan proceeds exclusively for Qualifying Expenses, it is unclear and uncertain whether the conditions for forgiveness of the PPP Loans outstanding at October 2, 2021 will be met under the current guidelines of the CARES Act.

Therefore, we cannot make any assurances that the Company, or any of the Borrowers, will be eligible for forgiveness of the remaining PPP Loans, in whole or in part.

Accordingly, based on the above, we have classified $2,032,000 of the PPP Loans as short-term in the consolidated balance sheet as of October 2, 2021.

During the year ended October 2, 2021, $10,400,000 (including $84,000 of accrued interest) of PPP Loans were forgiven.

To the extent, if any, that any of the remaining PPP Loans are not forgiven, beginning one month following expiration of the Deferral Period, and continuing monthly for 10 months (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.

Critical Accounting Policies

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Sales tax collected from customers is excluded from sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities.

Catering service revenue is generated through contracts with customers whereby the customer agrees to pay a contract rate for the service.

Revenues from catered events are recognized in income upon satisfaction of the performance obligation (the

date the event is held) and all customer payments, including nonrefundable upfront deposits, are deferred as a liability until such time.

We recognized $7,358,000 and $13,817,000 in catering services revenue for the years ended October 3, 2020 and September 28, 2019, respectively.

Unearned revenue which is included in accrued expenses and other current liabilities on the consolidated balance sheets as of October 3, 2020 and September 28, 2019 was $4,050,000 and $4,549,000, respectively.

Catering service revenue is generated through contracts with customers whereby the customer agrees to pay a contract

rate for the service.

Revenues from catered events are recognized in income upon satisfaction of the performance obligation (the date the event is held) and all customer payments, including nonrefundable upfront deposits, are deferred as a liability until such time.

Revenues from gift cards are deferred and recognized upon redemption.

Deferrals are not reduced for potential non-use as we generally have a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions in which they are sold.

As of October 3, 2020 and September 28, 2019, the total liability for gift cards in the amounts of approximately $227,000 and $203,000, respectively, are included in accrued expenses and other current liabilities in the consolidated balance sheets.

Other revenues include purchase service fees which represent commissions earned by a subsidiary of the Company for providing purchasing services to other restaurant groups, as well as license fees, property management fees and other rentals.

Reclassifications

Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

The Company eliminated the presentation of restaurant operating income (loss) as a non-GAAP measure from its consolidated statements of operations.

Use of Estimates

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Estimated fair values of impaired properties are based on comparable valuations, cash flows and/or management judgment.

As a result of the underperformance and increased competition at Clyde Frazier's Wine and Dine , we recorded an impairment charge of $2,857,000 in fiscal 2019 related to this property.

No impairment charges were warranted at October 3, 2020.

Management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants.

Periodically it is concluded that certain properties have become impaired based on their existing and anticipated future economic outlook in their respective markets.

In such instances, we may impair assets to reduce their carrying values to fair values.

Estimated fair values of impaired properties are based on comparable valuations, cash flows and/or management's judgment.

Included in the year ended October 2, 2021 is an impairment charge of $69,000 related to Clyde Frazier's Wine and Dine.

Recoverability of Investment in New Meadowlands Racetrack (“NMR”)

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Leases with a lease term of 12 months or less are accounted for using the practical expedient which allows for straight-line rent expense over the remaining term of the lease.

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No.

2016-02, Leases (Topic 842), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize assets and liabilities for leases with lease terms of more than 12 months.

The new guidance also requires additional disclosures about leases.

The Company adopted the new standard on September 29, 2019 (the first day of fiscal year 2020) using the modified retrospective approach, without restating comparative periods for those lease contracts for which we have taken possession of the property as of September 28, 2019.

Accordingly, prior period amounts were not revised and continue to be reported in accordance with ASC Topic 840 (“ASC 840”), the accounting standard then in effect.

As part of our adoption we elected the "package of practical expedients", as well as the hindsight practical expedient, permitted under the new guidance, which, among other things, allowed the Company to continue utilizing historical classifications of leases as well as allowing us to combine lease and non-lease components of our real estate leases.

We also elected to adopt the short-term lease exception for all leases with terms of 12 months or less and account for them using straight-line rent expense over the remaining life of the lease.

As a result of the adoption of this guidance, we recorded ROU assets of $62,330,000 and lease liabilities related to our real estate operating leases of $63,943,000.

The adoption of this standard did not materially impact retained earnings or our consolidated statement of operations and had no impact on cash flows.

Deferred Income Tax Valuation Allowance

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Such impairment analyses for goodwill requires a comparison of the fair value of the Company’s equity to the carrying amount of goodwill since the Company operates in one segment.

At October 3, 2020 and September 28, 2019, we performed qualitative assessments of factors to determine whether further impairment testing of goodwill was required.

Based on this assessment, no impairment losses were warranted at October 3, 2020 and September 28, 2019.

At October 2, 2021 and October 3, 2020, we performed qualitative assessments of factors to determine whether further impairment testing of goodwill was required.

Based on this assessment, no impairment losses were warranted at October 2, 2021 and October 3, 2020.

Qualitative factors considered in this assessment included industry and market considerations, overall financial performance and other relevant events, management expertise and stability at key positions.

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This comparison is made based on a review of historical, current and forecasted sales and profit levels, as well as a review of any factors that may indicate potential impairment.

As of December 29, 2018, the Company recorded an impairment charge of $721,000 related to its Durgin-Park trademark as discussed above.

For the years ended October 3, 2020 and September 28, 2019, our impairment analysis did not result in any other charges related to trademarks.

For the years ended October 2, 2021 and October 3, 2020, our impairment analysis did not result in any other charges related to trademarks.

Stock-Based Compensation

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See Note 1 of Notes to Consolidated Financial Statements for a description of recent accounting pronouncements, including those adopted in fiscal 2021 and the expected dates of adoption and the anticipated impact on the consolidated financial statements.

Recent Developments

See Note 17 of Notes to Consolidated Financial Statements for a description of recent developments that have occurred subsequent to October 3, 2020.

Quantitative and Qualitative Disclosures About Market Risk

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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-K

Item 7. Management’s Discussion and Analysis