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 2, 2021 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 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. While restrictions on the type of permitted operating model and occupancy capacity may continue to change, all of our restaurants are currently operating with no 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. Overview As of April 2, 2022, 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. 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 2, 2022 and April 3, 2021 each included 13 and 26 weeks. Seasonality The Company has substantial fixed costs that do not decline proportionally with sales. 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, D.C. (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. - 22 - Results of Operations The Company’s operating income (as set out below) for the 13 and 26 weeks ended April 2, 2022, as compared to the same periods of April 3, 2021 increased primarily as a result of all of our restaurants operating with no dining restrictions in the current period in comparison to the prior period as a result of government mandates in connection with the COVID-19 pandemic combined with a modest recovery in our event business in Washington, D.C. and New York City in the current period. The following table summarizes the significant components of the Company’s operating results for the 13- and 26-week periods ended April 2, 2022 and April 3, 2021: 13 Weeks Ended Variance 26 Weeks Ended Variance April 2, 2022 April 3, 2021 $ % April 2, 2022 April 3, 2021 $ % (in thousands) (in thousands) REVENUES: Food and beverage sales $ 38,822 $ 25,181 $ 13,641 54.2 % $ 82,058 $ 45,070 $ 36,988 82.1 % Other revenue 764 586 178 30.4 % 1,513 996 517 51.9 % Total revenues 39,586 25,767 13,819 53.6 % 83,571 46,066 37,505 81.4 % COSTS AND EXPENSES: Food and beverage cost of sales 12,255 7,764 4,491 57.8 % 24,796 13,705 11,091 80.9 % Payroll expenses 13,482 8,391 5,091 60.7 % 27,722 17,041 10,681 62.7 % Occupancy expenses 4,616 3,523 1,093 31.0 % 9,848 6,997 2,851 40.7 % Other operating costs and expenses 4,840 3,529 1,311 37.1 % 9,978 6,339 3,639 57.4 % General and administrative expenses 3,018 3,036 (18) -0.6 % 5,982 4,824 1,158 24.0 % Depreciation and amortization 1,148 1,021 127 12.4 % 2,227 1,963 264 13.4 % Total costs and expenses 39,359 27,264 12,095 44.4 % 80,553 50,869 29,684 58.4 % OPERATING INCOME (LOSS) $ 227 $ (1,497) $ 1,724 115.2 % $ 3,018 $ (4,803) $ 7,821 162.8 % Revenues During the 13-week period ended April 2, 2022, revenues increased 53.6% as compared to revenues in the 13-week period ended April 3, 2021. This increase resulted primarily from all of our restaurants operating with no dining restrictions in the current period in comparison to the prior period as a result of government mandates in connection with the COVID-19 pandemic. During the 26-week period ended April 2, 2022, revenues increased 81.4% as compared to revenues in the 26-week period ended April 3, 2021. This increase also resulted primarily from all of our restaurants operating with no dining restrictions in the current period in comparison to the prior period as a result of government mandates in connection with the COVID-19 pandemic. - 23 - Food and Beverage Same-Store Sales On a Company-wide basis, same-store sales increased 54.0% during the 13 weeks ended April 2, 2022 as compared to the same period of last year as follows: 13 Weeks Ended Variance April 2, 2022 April 3, 2021 $ % (in thousands) Las Vegas $ 12,719 $ 6,737 $ 5,982 88.8 % New York 3,387 1,119 2,268 202.7 % Washington, D.C. 1,206 755 451 59.7 % Atlantic City, NJ 907 257 650 252.9 % Connecticut 76 103 (27) -26.2 % Alabama 3,336 2,674 662 24.8 % Florida 17,366 13,674 3,692 27.0 % Same-store sales 38,997 25,319 $ 13,678 54.0 % Other (175) (138) Food and beverage sales $ 38,822 $ 25,181 On a Company-wide basis, same-store sales increased 79.6% during the 26 weeks ended April 2, 2022 as compared to the same period of last year as follows: 26 Weeks Ended Variance April 2, 2022 April 3, 2021 $ % (in thousands) Las Vegas $ 26,721 $ 12,556 $ 14,165 112.8 % New York 11,912 3,209 8,703 271.2 % Washington, D.C. 3,534 1,658 1,876 113.1 % Atlantic City, NJ 1,568 428 1,140 266.4 % Connecticut 143 191 (48) -25.1 % Alabama 6,415 4,690 1,725 36.8 % Florida 30,201 22,083 8,118 36.8 % Same-store sales 80,494 44,815 $ 35,679 79.6 % Other 1,564 255 Food and beverage sales $ 82,058 $ 45,070 The increases in company-wide same-store sales were driven primarily by increased customer traffic as a result of the impact of the COVID-19 pandemic on the prior period combined with targeted increases in menu pricing and a modest recovery in our event business in Washington, D.C. and New York City in the current period. Same-store sales in Connecticut decreased 26.2% due to disruption to our business as a result of its relocation within 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, sales related to properties that were closed ( Clyde Frazier's Wine and Dine, Gallagher's Steakhouse and Gallagher's Burger Bar - see Liquidity and Capital Resources - Recent Restaurant Dispositions) and other adjustments and fees. - 24 - Costs and Expenses Costs and expenses for the 13 and 26 weeks ended April 2, 2022 and April 3, 2021 were as follows (in thousands): 13 Weeks Ended April 2, 2022 % to Total Revenues 13 Weeks Ended April 3, 2021 % to Total Revenues Increase (Decrease) 26 Weeks Ended April 2, 2022 % to Total Revenues 26 Weeks Ended April 3, 2021 % to Total Revenues Increase (Decrease) $ % $ % Food and beverage cost of sales $ 12,255 31.0 % $ 7,764 30.1 % 4,491 57.8 % $ 24,796 29.7 % $ 13,705 29.8 % 11,091 80.9 % Payroll expenses 13,482 34.1 % 8,391 32.6 % 5,091 60.7 % 27,722 33.2 % 17,041 37.0 % 10,681 62.7 % Occupancy expenses 4,616 11.7 % 3,523 13.7 % 1,093 31.0 % 9,848 11.8 % 6,997 15.2 % 2,851 40.7 % Other operating costs and expenses 4,840 12.2 % 3,529 13.7 % 1,311 37.1 % 9,978 11.9 % 6,339 13.8 % 3,639 57.4 % General and administrative expenses 3,018 7.6 % 3,036 11.8 % (18) -0.6 % 5,982 7.2 % 4,824 10.5 % 1,158 24.0 % Depreciation and amortization 1,148 2.9 % 1,021 4.0 % 127 12.4 % 2,227 2.7 % 1,963 4.3 % 264 13.4 % Total costs and expenses $ 39,359 $ 27,264 $ 12,095 $ 80,553 $ 50,869 $ 29,684 Changes in food and beverage costs as a percentage of total revenues for the 13 and 26 weeks ended April 2, 2022 as compared with the same periods of last year reflect increased volumes, targeted increases in menu pricing, changes in menu mix and a modest recovery in our event business in Washington, D.C. and New York City in the current period, partially offset by increases in costs of seafood and other high-volume items. Payroll expenses as a percentage of total revenues for the 13 weeks ended April 2, 2022 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 partially offset by increased volumes, targeted increases in menu pricing and changes in menu mix. Payroll expenses as a percentage of total revenues for the 26 weeks ended April 2, 2022 decreased as compared with the same period of last year primarily as a result of retaining key restaurant management personnel with lower corresponding revenues for several months at the beginning of prior period as a result of the government mandated closures and/or capacity restrictions at several of our restaurants in connection with the COVID-19 pandemic combined with increased labor costs in connection with ongoing COVID-related labor challenges partially offset by increased volumes, targeted increases in menu pricing and changes in menu mix. Occupancy expenses as a percentage of total revenues for the 13 and 26 weeks ended April 2, 2022 decreased as compared with the same period of last year primarily as a result of the fixed nature of many of these expenses and lower sales in the prior period as a result of the COVID-19 pandemic. Other operating costs and expenses as a percentage of total revenues for the 13 and 26 weeks ended April 2, 2022 as compared to the same period of last year decreased primarily as a result of the fixed nature of some of these expenses and lower sales in the prior period as a result of the COVID-19 pandemic, decreased maintenance at properties where we are experiencing lower traffic and increased professional fees at the restaurant-level in the prior periods. General and administrative expenses (which relate solely to the corporate office in New York City) for the 13 weeks ended April 2, 2022 decreased slightly as compared with the same period of last year primarily as a result of headcount reductions of corporate personnel. General and administrative expenses for the 26 weeks ended April 2, 2022 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 and 26 weeks ended April 2, 2022 increased as compared to the same period of last year primarily as a result of assets placed in service in the current period. - 25 - Income Taxes We calculate our interim income tax provision in accordance with ASC Topic 270, Interim Reporting and ASC Topic 740, Accounting for Income Taxes. At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary year to date earnings. In addition, the tax effects of unusual or infrequently occurring items including changes in judgment about valuation allowances and effects of changes in enacted tax laws are recognized discretely in the interim period in which the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including the expected operating (loss) income for the year, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets generated in the current fiscal year. The accounting estimates used to compute income tax expense may change as new events occur, additional information is obtained, or the tax environment changes. The Company’s overall effective tax rate in the future will be affected by factors such as changes in tax law, the utilization of state and local net operating loss carryforwards, the generation of FICA tax credits, additional forgiveness of PPP Loans and the mix of earnings by state taxing jurisdictions 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 2, 2022, we had a cash and cash equivalents balance of $18,542,000. Due to the fluidity of the COVID-19 pandemic, management cannot determine the ultimate impact that it will have on the Company’s consolidated financial condition, liquidity, future results of operations, suppliers, industry, and workforce and therefore any prediction as to the ultimate material adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain. The disruption in operations has led the Company to consider the impact of the COVID-19 pandemic on its liquidity, debt covenant compliance, and recoverability of long-lived and ROU assets, goodwill and intangible assets, among others. If these disruptions were to re-occur, they could have a material negative impact on our consolidated financial condition, future results of operations and liquidity. The extent of such negative impact will be determined, in part, by the longevity and severity of the pandemic. Cash Flows for 26 Weeks Ended April 2, 2022 and April 3, 2021 Net cash provided by operating activities for the 26 weeks ended April 2, 2022 increased to $4,963,000 as compared to $(1,644,000) used in operations in the same period of last year. This increase was attributable to an increase in operating income as a result of the continued recovery from the COVID-19 pandemic and changes in net working capital primarily related to accounts receivable, inventory and accounts payable and accrued expenses. Net cash used in investing activities for the 26 weeks ended April 2, 2022 and April 3, 2021 was $(1,090,000) and $(2,926,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants and, in the prior 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 2, 2022 of $(4,502,000) resulted primarily from principal payments on notes payable and the payment of distributions to non-controlling interests. Net cash used in financing activities for the 26 weeks ended April 3, 2021 of $(918,000) resulted primarily from principal payments on notes payable partially offset by proceeds from the exercise of stock options. - 26 - 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 JB’s on the Beach and immediately contributed such rights and interest to an unrelated entity ("Sandcastle 1, LLC") that purchased the properties on March 22, 2021. In exchange, the Company received a 5% interest in Sandcastle 1, LLC, which plans future development of the sites. In addition, all rights and privileges under the current lease were assigned to Sandcastle 1, LLC, as landlord and the lease terms remain unchanged. Our restaurants generally do not achieve substantial increases in revenue from year to year, which we consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons, we would have to open additional restaurant facilities or expand existing restaurants. There can be no assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to establish their own identity. We may take advantage of other opportunities we consider to be favorable, when they occur, depending upon the availability of financing and other factors. Recent Restaurant Dispositions 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 then-current situation regarding the COVID-19 pandemic, 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. 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 terminated the lease. In connection with termination, 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. Included in the consolidated condensed statement of operations for the 13 weeks ended January 2, 2021 are revenues and net operating losses of approximately $172,000 and $(709,000) related to the above properties. 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 was to mature on May 19, 2022 (as extended). The Revolving Facility provides for total availability of the lesser of (i) $10,000,000 and (ii) $35,000,000 less the then aggregate amount of all indebtedness and obligations to BHBM. On July 26, 2021, all outstanding borrowings under the Revolving Facility, 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 expect the discontinuation of LIBOR as a reference rate in our debt agreements to have a material adverse effect on our financial position or materially affect our interest expense. Borrowings under the Revolving Facility, which include the promissory notes as discussed in Note 8 of the consolidated condensed financial statements, are secured by all tangible and intangible personal property (including accounts receivable, inventory, equipment, general intangibles, documents, chattel paper, instruments, letter-of-credit rights, investment property, - 27 - 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. Paycheck Protection Program Loans During the year ended October 3, 2020, subsidiaries and consolidated VIEs (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 believe that PPP Loan proceeds were used exclusively for Qualifying Expenses, it is unclear and uncertain whether the conditions for forgiveness of the remaining PPP Loans outstanding at April 2, 2022 will be met under the current guidelines of the CARES Act. Therefore, we cannot make any assurances that the Company, or any of the Borrowers, will be eligible for forgiveness of the remaining PPP Loans, in whole or in part. During the 13 weeks ended April 2, 2022 and April 3, 2021, $1,122,000 and $4,124,000 of PPP Loans, respectively (including $20,000 and $27,000 of accrued interest) were forgiven. To the extent that any of the remaining PPP Loans are not forgiven, beginning one month following expiration of the Deferral Period, and continuing monthly until 24 months from the date of each applicable Note (the “Maturity Date”), each respective Borrower is obligated to make monthly payments of principal and interest to the Lender with respect to any unforgiven portion of the Notes, in such equal amounts required to fully amortize the principal amount outstanding on such Notes as of the last day of the applicable Deferral Period by the applicable Maturity Date. Accordingly, based on the above, we have classified the PPP Loan amounts expected to be forgiven as long-term in accordance with SEC interpretative guidance and the remaining amounts expected to be repaid in the next 12 months of $892,000 and $2,032,000 as short-term in the consolidated condensed balance sheets as of April 2, 2022 and October 2, 2021, respectively. During the 26 weeks ended April 2, 2022, the Company made payments related to the unforgiven portion of PPP Loans in the aggregate amount of $976,000. Recent Events On April 8, 2022, the Company extended its lease for Gallagher's Steakhouse at the New York-New York Hotel and Casino in Las Vegas, NV through December 31, 2032. In connection with the extension, the Company has agreed to spend a minimum of $1,500,000 to materially refresh the premises by September 30, 2022, subject to various extensions as set out in the agreement. On May 11, 2022, the Board of Directors (the "Board") of the Company declared a quarterly cash dividend of $0.125 per share which will be paid on June 13, 2022 to the stockholders of record of each share of the Company's common stock at the close of business on May 31, 2022. Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will depend upon operating performance and other factors. 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, - 28 - 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 2, 2021. There have been no significant changes to such policies during fiscal 2022 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 2022 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