Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As part of our ongoing operations,
we are exposed to interest rate fluctuations on our borrowings. As more fully described in Note 15 “Fair Value Measurements of Financial
Instruments” to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data”
of this Annual Report on Form 10-K for our fiscal year ended October 1, 2022, we use interest rate swap agreements to manage these risks.
These instruments are not used for speculative purposes but are used to modify variable rate obligations into fixed rate obligations.
At October 1, 2022, we had two
variable rate instruments outstanding that are impacted by changes in interest rates. The interest rate of the first variable rate debt
instrument is equal to the lender’s LIBOR Rate plus two and one-quarter percent (2.25%) per annum and the second variable rate debt
instrument is equal to the lender’s BSBY Screen Rate plus one and one-half percent (1.50%) per annum. The debt instrument further
provides that the “LIBOR Rate” is a rate of interest equal to the British Bankers Association LIBOR Rate or successor thereto
approved by the lender if the British Bankers Association is no longer making a LIBOR rate available and the “BSBY Screen Rate is
a rate of interest equal to the Bloomberg Short-Term Bank Yield Interest Rate or successor thereto approved by the lender. In December
2016, we closed on a secured revolving line of credit which entitled us to borrow, from time to time through December 28, 2017, up to
$5,500,000 (the “Credit Line”), which on December 28, 2017 converted to a term loan (the “Term Loan”). Subsequent
to the end of our fiscal year 2022 (December 28, 2022), we paid the balance of the Term Loan in full. In September 2022, we refinanced
the mortgage loan encumbering the property where our combination package liquor store and restaurant located at 4 N. Federal Highway,
Hallandale Beach, Florida, (Store #31) operates, which mortgage loan is held by an unaffiliated third party lender (the “$8.90M
Loan”).
As a means of managing our interest
rate risk on these debt instruments, we entered into interest rate swap agreements with our unrelated third party lender to convert these
variable rate debt obligations to fixed rates. We are currently party to the following two (2) interest rate swap agreements:
(i)
The first interest rate swap agreement entered into in December 2016 and became effective December 28, 2017, relates to the Term Loan
(the “Term Loan Swap”). The Term Loan Swap requires us to pay interest for a five (5) year period at a fixed rate of 4.61%
on an initial amortizing notional principal amount of $5,500,000, while receiving interest for the same period at LIBOR – 1 Month,
plus 2.25%, on the same amortizing notional principal amount. We determined that at October 1, 2022, the interest rate swap agreement
is an effective hedging agreement and the fair value was not material. Subsequent to the end of our fiscal year 2022 (December 28, 2022)
we paid the balance of the Term Loan in full, which was the same date the swap agreement matured; and
(ii) The
second interest rate swap agreement entered into in September 2022 relates to the $8.90M Loan (the “$8.90M Term Loan Swap”).
The $8.90M Term Loan Swap requires us to pay interest for a fifteen (15) year period at a fixed rate of 4.90% on an initial amortizing
notional principal amount of $8,900,000, while receiving interest for the same period at BSBY Screen Rate – 1 Month, plus 1.50%,
on the same amortizing notional principal amount. We determined that at October 1, 2022, the interest rate swap agreement is an effective
hedging agreement and the fair value was not material.
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At October 1, 2022, our cash resources
offset our bank charges and any excess cash resources earn interest at variable rates. Accordingly, our return on these funds is affected
by fluctuations in interest rates.
There is no assurance that interest
rates will increase or decrease over our next fiscal year or that an increase will not have a material adverse effect on our operations.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .
Our Consolidated Financial Statements
are on pages F-1 through F-31.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
None
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