UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________

FORM 10-Q

__________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 03, 2020~~March 10, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission file number: 001-08308

__________________________

Luby's, Inc.

(Exact name of registrant as specified in its charter)

__________________________

Delaware

74-1335253

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

13111 Northwest Freeway, Suite 600

77040

Houston

Texas

(Address of principal executive offices)

(Zip Code)

(713) 329-6800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange at which registered
Common Stock ($0.32 par value per share)	LUB	New York Stock Exchange
Common Stock Purchase Rights	N/A	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of ~~July 15, 2020,~~April 21, 2021, there were ~~30,625,470~~ 30,798,474 shares of the registrant’s common stock outstanding.

Additional Information

We file reports with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The SEC maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information that we file electronically. Our website address is http://www.lubysinc.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is specifically referenced elsewhere in this report.

Luby’s, Inc.

Form 10-Q

Quarter ended ~~June 3, 2020~~March 10, 2021

Table of Contents

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

Luby’s, Inc.

Consolidated Statement of Net Assets in Liquidation

(Liquidation Basis)

(Unaudited)

(In thousands)


	March 10, 2021

ASSETS
Cash and cash equivalents	$	7,830
Accounts receivable	6,229
Restricted cash and cash equivalents	6,655
Properties and business units for sale	211,286



Total Assets	$	232,000

LIABILITIES
Accounts payable	$	3,917
Accrued expenses and other liabilities	17,247
Credit facility debt	46,583
PPP Loan	10,000
Operating lease liabilities	15,705
Liability for estimated costs in excess of estimated receipts during liquidation	15,215
Other liabilities	801
Total Liabilities	$	109,468

Commitments and Contingencies	0

Net assets in liquidation (Note 3)	$	122,532

The accompanying notes are an integral part of these consolidated financial statements.

Luby’s, Inc.

Consolidated Statement of Changes in Net Assets in Liquidation

(Liquidation Basis)

(unaudited)

(In thousands)


	Quarter Ended March 10, 2021		Period from November 19, 2020 through March 10, 2021
	(12 Weeks)		(16 weeks)

Net assets in liquidation, beginning of period	$	117,305	$	117,341
Changes in net assets in liquidation
Changes in liquidation value of properties and business units for sale	4,518		4,518

Changes in estimated cash flows during liquidation	630		594
Net changes in liquidation value	5,148		5,112
Proceeds received from exercise of stock options	79		79
Changes in net assets in liquidation	5,227		5,191
Net assets in liquidation, end of period	$	122,532	$	122,532

The accompanying notes are an integral part of these consolidated financial statements.

Luby’s, Inc.

Consolidated Balance ~~Sheets~~Sheet

(Going Concern Basis)

(In thousands, except share data)

June 3,
2020 August 28,
2019
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 14,122 $ 3,640
Restricted cash and cash equivalents 7,917 9,116
Trade accounts and other receivables, net 5,498 8,852
Food and supply inventories 2,120 3,432
Prepaid expenses 1,399 2,355
Total current assets 31,056 27,395
Property held for sale 17,916 16,488
Assets related to discontinued operations 1,691 1,813
Property and equipment, net 104,288 121,743
Intangible assets, net 15,695 16,781
Goodwill 195 514
Operating lease right-of-use assets 17,790 —
Other assets 625 1,266
Total assets $ 189,256 $ 186,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable $ 9,808 $ 8,465
Liabilities related to discontinued operations 11 14
Current portion of long-term debt 6,386 —
Operating lease liabilities-current 4,412 —
Accrued expenses and other liabilities 21,360 24,475
Total current liabilities 41,977 32,954
Long-term debt, less current portion 57,316 45,439
Operating lease liabilities-noncurrent 22,771 —
Other liabilities 1,550 6,577
Total liabilities $ 123,614 $ 84,970
Commitments and Contingencies
SHAREHOLDERS’ EQUITY
Common stock, 0.32 par value; 100,000,000 shares authorized; shares issued were 30,998,504 and 30,478,972; and shares outstanding were 30,498,504 and 29,978,972 at June 3, 2020 and August 28, 2019, respectively $ 9,921 $ 9,753
Paid-in capital 35,407 34,870
Retained earnings 25,089 61,182
Less cost of treasury stock, 500,000 shares (4,775) (4,775)
Total shareholders’ equity $ 65,642 $ 101,030
Total liabilities and shareholders’ equity $ 189,256 $ 186,000


	August 26, 2020
ASSETS
Current Assets:
Cash and cash equivalents	$	15,069
Restricted cash and cash equivalents	6,756
Trade accounts and other receivables, net	6,092
Food and supply inventories	1,653
Prepaid expenses	1,577


Total current assets	31,147
Property held for sale	11,249
Assets related to discontinued operations	1,715
Property and equipment, net	100,599
Intangible assets, net	15,343
Goodwill	195
Operating lease right-of-use assets	16,756

Other assets	399
Total assets	$	177,403
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	6,770
Liabilities related to discontinued operations	17

Operating lease liabilities-current	3,903
Accrued expenses and other liabilities	19,569
Total current liabilities	30,259
Long-term debt, less current portion	54,118

Operating lease liabilities-noncurrent	17,797
Other liabilities	1,630
Total liabilities	$	103,804
Commitments and Contingencies	0
SHAREHOLDERS’ EQUITY
Common stock, $0.32 par value; 100,000,000 shares authorized; 31,125,470 shares issued and 30,625,470 shares outstanding at August 26, 2020.	$	9,960
Paid-in capital	35,655
Retained earnings	32,759
Less cost of treasury stock, 500,000 shares	(4,775)
Total shareholders’ equity	$	73,599
Total liabilities and shareholders’ equity	$	177,403

The accompanying notes are an integral part of these consolidated financial statements.

Luby’s, Inc.

Consolidated Statements of Operations (unaudited)

(Going Concern Basis)

(In thousands, except per share data)

Quarter Ended Three Quarters Ended
June 3,
2020 June 5,
2019 June 3,
2020 June 5,
2019
(12 weeks) (12 weeks) (40 weeks) (40 weeks)
SALES:
Restaurant sales $ 13,832 $ 65,611 $ 157,781 $ 222,079
Culinary contract services 4,963 7,571 21,735 24,610
Franchise revenue 193 1,482 3,058 5,126
Vending revenue 6 102 130 292
TOTAL SALES 18,994 74,766 182,704 252,107
COSTS AND EXPENSES:
Cost of food 4,039 18,478 45,378 61,707
Payroll and related costs 5,487 25,015 61,402 84,258
Other operating expenses 5,766 11,491 30,625 39,404
Occupancy costs 3,696 4,023 12,470 14,064
Opening costs — 6 14 49
Cost of culinary contract services 4,712 6,791 20,060 22,324
Cost of franchise operations 437 330 1,411 849
Depreciation and amortization 2,709 2,927 9,149 11,052
Selling, general and administrative expenses 3,339 8,623 20,313 26,386
Other Charges 164 803 2,912 3,280
Provision for asset impairments and restaurant closings 12,708 675 14,478 3,097
Net gain on disposition of property and equipment (364) (434) (2,861) (12,935)
Total costs and expenses 42,693 78,728 215,351 253,535
LOSS FROM OPERATIONS (23,699) (3,962) (32,647) (1,428)
Interest income 19 11 47 30
Interest expense (1,641) (1,324) (5,076) (4,593)
Other income, net 402 112 790 198
Loss before income taxes and discontinued operations (24,919) (5,163) (36,886) (5,793)
Provision for income taxes 53 132 210 346
Loss from continuing operations (24,972) (5,295) (37,096) (6,139)
Loss from discontinued operations, net of income taxes (7) (6) (23) (18)
NET LOSS (24,979) (5,301) (37,119) (6,157)
Loss per share from continuing operations:
Basic $ (0.82) $ (0.18) $ (1.23) $ (0.21)
Assuming dilution $ (0.82) $ (0.18) $ (1.23) $ (0.21)
Loss per share from discontinued operations:
Basic $ 0.00 $ 0.00 $ 0.00 $ 0.00
Assuming dilution $ 0.00 $ 0.00 $ 0.00 $ 0.00
Loss per share:
Basic $ (0.82) $ (0.18) $ (1.23) $ (0.21)
Assuming dilution $ (0.82) $ (0.18) $ (1.23) $ (0.21)
Weighted average shares outstanding:
Basic 30,398 29,874 30,206 29,732
Assuming dilution 30,398 29,874 30,206 29,732

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~Luby’s, Inc.~~

~~Consolidated Statement of Shareholders’ Equity (unaudited)~~

~~(In thousands)~~

Common Stock Total
Issued Treasury Paid-In Retained Shareholders’
Shares Amount Shares Amount Capital Earnings Equity
Balance at August 29, 2018 30,003 $ 9,602 (500) $ (4,775) $ 33,872 $ 73,929 $ 112,628
Cumulative effect of accounting changes from the adoption of ASC Topic 606
— — — — — 2,479 2,479
Net loss — — — — — (7,489) (7,489)
Share-based compensation expense 42 13 — — 426 — 439
Common stock issued under employee benefit plans 81 26 — — (26) — —
Common stock issued under nonemployee benefit plans 38 12 — — (12) — —
Balance at December 19, 2018 30,164 $ 9,653 (500) $ (4,775) $ 34,260 $ 68,919 $ 108,057
Net income — — — — — 6,632 6,632
Share-based compensation expense 98 31 — — 363 — 394
Common stock issued under employee benefit plans 12 4 — — (4) — —
Common stock issued under nonemployee benefit plans 15 5 — — (5) — —
Balance at March 13, 2019 30,289 $ 9,693 (500) $ (4,775) $ 34,614 $ 75,551 $ 115,083
Net loss — — — — — (5,301) (5,301)
Share-based compensation expense 86 28 — — 341 — 369
Balance at June 5, 2019 30,375 $ 9,721 (500) $ (4,775) $ 34,955 $ 70,250 $ 110,151


	Quarter Ended March 11, 2020		Period Ended November 18, 2020		Two Quarters Ended March 11, 2020
	(12 weeks)		(12 weeks)		(28 weeks)
SALES:
Restaurant sales	$	60,391	$	36,485	$	143,949
Culinary contract services	6,998		4,918		16,772
Franchise revenue	1,158		530		2,865
Vending revenue	14		14		124
TOTAL SALES	68,561		41,947		163,710
COSTS AND EXPENSES:
Cost of food	17,399		9,348		41,341
Payroll and related costs	23,782		12,964		55,915
Other operating expenses	10,065		7,154		24,860
Occupancy costs	3,783		2,634		8,773
Opening costs	2		0		14
Cost of culinary contract services	6,400		4,467		15,348
Cost of franchise operations	409		294		974
Depreciation and amortization	2,677		2,142		6,440
Selling, general and administrative expenses	6,816		4,267		16,974
Other charges	1,509		416		2,748
Net provision (gain) for asset impairments and restaurant closings	661		(85)		1,770
Net loss (gain) on disposition of property and equipment	(2,527)		117		(2,498)
Total costs and expenses	70,976		43,718		172,659
LOSS FROM OPERATIONS	(2,415)		(1,771)		(8,949)
Interest income	5		8		28
Interest expense	(1,473)		(1,212)		(3,435)
Other income, net	148		30		388
Loss before income taxes and discontinued operations	(3,735)		(2,945)		(11,968)
Provision for income taxes	62		58		156
Loss from continuing operations	(3,797)		(3,003)		(12,124)
Loss from discontinued operations, net of income taxes	(6)		(16)		(17)
NET LOSS	(3,803)		(3,019)		(12,141)
Loss per share from continuing operations:
Basic and diluted	$	(0.13)	$	(0.10)	$	(0.40)

Loss per share from discontinued operations:
Basic and diluted	$	0.00	$	0.00	$	0.00

Loss per share:
Basic and diluted	$	(0.13)	$	(0.10)	$	(0.40)

Weighted average shares outstanding:
Basic and diluted	30,215		30,662		30,123

Common Stock Total
Issued Treasury Paid-In Retained Shareholders’
Shares Amount Shares Amount Capital Earnings Equity
Balance at August 28, 2019 30,478 $ 9,753 (500) $ (4,775) $ 34,870 $ 61,182 $ 101,030
Net loss — — — — — (8,338) (8,338)
Cumulative effect of accounting changes from the adoption of ASC Topic 842
— — — — — 1,027 1,027
Share-based compensation expense 58 19 — — 347 — 366
Common stock issued under employee benefit plans 45 15 — — (51) — (36)
Common stock issued under nonemployee benefit plans 64 20 — — (20) — —
Balance at December 18, 2019 30,645 $ 9,807 (500) $ (4,775) $ 35,146 $ 53,871 $ 94,049
Net loss — — — — — (3,803) $ (3,803)
Share-based compensation expense 101 32 — — 334 — 366
Common stock issued under employee benefit plans 6 2 — — (2) — —
Balance at March 11, 2020 30,752 $ 9,841 (500) $ (4,775) $ 35,478 $ 50,068 $ 90,612
Net loss — $ — $ — $ — $ (24,979) (24,979)
Share-based compensation expense 225 72 — (58) — 14
Common stock issued under employee benefit plans 22 8 — (13) — (5)
Balance at June 3, 2020 30,999 $ 9,921 (500) $ (4,775) $ 35,407 $ 25,089 $ 65,642

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~Luby’s, Inc.~~

~~Consolidated Statements of Cash Flows (unaudited)~~

~~(In thousands)~~

Three Quarters Ended
June 3,
2020 June 5,
2019
(40 weeks) (40 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (37,119) $ (6,157)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for asset impairments and net (gains) losses on property sales 11,617 (9,838)
Depreciation and amortization 9,149 11,052
Amortization of debt issuance cost 974 1,063
Share-based compensation expense 746 1,192
Cash used in operating activities before changes in operating assets and liabilities (14,633) (2,688)
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts and other receivables 3,424 (880)
Decrease in food and supply inventories 179 148
Decrease in prepaid expenses and other assets 783 1,106
Decrease in operating lease assets 3,954 —
Decrease in operating lease liabilities (5,239) —
Decrease in accounts payable, accrued expenses and other liabilities (2,563) (8,567)
Net cash used in operating activities (14,095) (10,881)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets and property held for sale 7,580 21,761
Purchases of property and equipment (1,890) (2,866)
Net cash provided by investing activities 5,690 18,895
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolver borrowings 4,700 37,500
Revolver repayments — (55,500)
Proceeds from term loan 5,000 58,400
Term loan repayments (2,012) (36,107)
Proceeds from PPP Loan 10,000 —
Debt issuance costs — (3,236)
Taxes paid on equity withheld — (12)
Net cash provided by financing activities 17,688 1,045
Net increase in cash and cash equivalents and restricted cash 9,283 9,059
Cash and cash equivalents and restricted cash at beginning of period 12,756 3,722
Cash and cash equivalents and restricted cash at end of period $ 22,039 $ 12,781
Cash paid for:
Income taxes, net of (refunds) $ 13 $ 510
Interest 3,955 3,255

The accompanying notes are an integral part of these consolidated financial statements.

Luby’s, Inc.

Consolidated Statement of Shareholders’ Equity (unaudited)

(Going Concern Basis)

(In thousands)


	Common Stock										Total
	Issued			Treasury			Paid-In		Retained		Shareholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
Balance at August 26, 2020	31,124	$	9,960	500	$	(4,775)	$	35,655	$	32,759	$	73,599
Net loss	—	—		—	—		—		(3,019)		(3,019)
Share-based compensation expense	51	16		—	—		167		—		183
Common stock issued under employee benefit plans	4	1		—	—		(1)		—		0

Balance at November 18, 2020	31,179	$	9,977	500	$	(4,775)	$	35,821	$	29,740	$	70,763


	Common Stock										Total
	Issued			Treasury			Paid-In		Retained		Shareholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
Balance at August 28, 2019	30,478	$	9,753	(500)	$	(4,775)	$	34,870	$	61,182	$	101,030
Net loss	—	—		—	—		—		(8,338)		(8,338)
Cumulative effect of accounting changes from the adoption of ASC Topic 842	—	—		—	—		—		1,027		1,027
Share-based compensation expense	58	19		—	—		347		—		366
Common stock issued under employee benefit plans	45	15		—	—		(51)		—		(36)
Common stock issued under nonemployee benefit plans	64	20		—	—		(20)		—		0
Balance at December 18, 2019	30,645	$	9,807	(500)	$	(4,775)	$	35,146	$	53,871	$	94,049
Net loss	—	—		—	—		—		(3,803)		$	(3,803)

Share-based compensation expense	101	32		—	—		334		—		366
Common stock issued under employee benefit plans	6	2		—	—		(2)		—		0

Balance at March 11, 2020	30,752	$	9,841	(500)	$	(4,775)	$	35,478	$	50,068	$	90,612

The accompanying notes are an integral part of these consolidated financial statements.

Luby’s, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Going Concern Basis)

(In thousands)


	Period Ended November 18, 2020		Two Quarters Ended March 11, 2020
	(12 weeks)		(28 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,019)	$	(12,141)
Adjustments to reconcile net loss to net cash used in operating activities:
Net provision (gain) for asset impairments and restaurant closings	(85)		1,770
Net loss (gain) on disposition of property and equipment	117		(2,498)
Depreciation and amortization	2,142		6,440
Amortization of debt issuance cost	223		577
Share-based compensation expense	183		733

Cash used in operating activities before changes in operating assets and liabilities	(439)		(5,119)
Changes in operating assets and liabilities:
Decrease in trade accounts and other receivables	679		509

Increase in food and supply inventories	(950)		(94)
Decrease in prepaid expenses and other assets	909		197
Decrease in operating lease assets	1,928		2,407

Decrease in operating lease liabilities	(3,154)		(3,541)
Increase (decrease) in accounts payable, accrued expenses and other liabilities	1,046		(263)
Net cash provided by (used in) operating activities	19		(5,904)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets and property held for sale	114		5,453

Purchases of property and equipment	(433)		(1,490)
Net cash provided by (used in) investing activities	(319)		3,963
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolver borrowings	0		3,300

Proceeds from term loan	0		2,500
Term loan repayments	0		(831)



Net cash provided by financing activities	0		4,969
Net increase (decrease) in cash and cash equivalents and restricted cash	(300)		3,028
Cash and cash equivalents and restricted cash at beginning of period	21,825		12,756
Cash and cash equivalents and restricted cash at end of period	$	21,525	$	15,784
Cash paid for:
Income taxes, net of (refunds)	$	4	$	7
Interest	$	1,059	$	2,647

The accompanying notes are an integral part of these consolidated financial statements.

Luby’s, Inc.

Notes to Consolidated Financial Statements (unaudited)

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Luby’s, Inc. (the “Company”, "we", "our", "us", or “Luby’s”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements that are prepared for our Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods ~~ended June 3, 2020~~ are not necessarily indicative of the results that may be expected for the fiscal year ending August ~~26, 2020.~~

On June 3, 2020, we announced that our Board of Directors approved a course of action whereby we will immediately pursue the sale of our operating divisions and assets, including our real estate assets, or the sale of the Company in its entirety, and distribute the net proceeds to our stockholders after payment of debt and other obligations. During the sale process, many of our restaurants will remain open.

We have not established a definitive timeframe for completing this process which will most likely lead to the adoption by the Board of Directors of a formal plan of sale and proceeds distribution followed by an orderly wind down of any remaining operations. Such a plan of sale and proceeds distribution will require shareholder approval. There can be no assurance that such a plan of sale and proceeds distribution will be adopted by the Board of Directors or approved by the shareholders.

~~The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. See Note 3. Going Concern.~~

The consolidated balance sheet dated August 28, 2019, included in this Quarterly Report on Form 10-Q (this “Form 10-Q”), has been derived from our audited consolidated financial statements as of that date. However, this Form 10-Q does not include all of the information and footnotes required by GAAP for audited, year-end financial statements. Therefore, these25, 2021. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended August ~~28, 2019.~~26, 2020.

Prior to Adoption of the Plan of Liquidation

The consolidated financial statements prior to November 19, 2020 were prepared on the going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Plan of Liquidation

On November 17, 2020 our shareholders approved the Plan of Liquidation and Dissolution (the “Plan of Liquidation“ or the “Plan”). The Plan provides for an orderly sale of our businesses, operations, and real estate, payment of our liabilities and other obligations, and an orderly wind down of any remaining operations and dissolution of the Company. We intend to attempt to convert all of our assets into cash, satisfy or resolve our remaining liabilities and obligations, including contingent liabilities, claims and costs associated with the liquidation of the Company, and then file a certificate of dissolution with the state of Delaware. The assets to be sold include our Luby's Cafeterias, Fuddruckers, and Culinary Contract Services ("CCS") operating divisions, as well as our real estate. We currently anticipate that our common stock will be delisted from the New York Stock Exchange ("NYSE") upon the filing of the certificate of dissolution, which is not expected to occur until the earlier of the completion of all or substantially all of the asset sales or three years. The delisting of our common stock may occur sooner in accordance with the applicable rules of the NYSE.

Following the Adoption of the Plan of Liquidation

We have determined, as a result of the approval of the Plan by our shareholders, that liquidation is imminent, as defined in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 205-30 Financial Statement Presentation, Liquidation Basis of Accounting ("ASC 205-30"). Liquidation is considered imminent when the likelihood is remote that we will return from liquidation and either (a) the Plan is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the Plan will be blocked by other parties, or (b) the Plan is being imposed by other forces (for example, involuntary bankruptcy).

Accordingly, we have changed our basis of accounting from the going concern basis to the liquidation basis effective November 19, 2020. Although shareholder approval of the Plan occurred on November 17, 2020, we are using the liquidation basis of accounting effective November 19, 2020 as a convenience date. Any activity between November 17, 2020 and November 19, 2020 would not be materially different under the liquidation basis of accounting.

The liquidation basis of accounting differs significantly from the going concern basis, as summarized below.

Under the liquidation basis of accounting, the consolidated balance sheet and consolidated statements of operations, equity and cash flows are no longer presented.

The liquidation basis of accounting requires a statement of net assets in liquidation, a statement of changes in net assets in liquidation and all disclosures necessary to present relevant information about our expected resources in liquidation. The liquidation basis of accounting may only be applied prospectively from the day liquidation becomes imminent and the initial statement of changes in net assets in liquidation may present only changes in net assets that occurred during the period since that date.

instances, indicative offers, as well as capitalization rates observed for income-producing real estate. For estimated business unit valuations we considered estimated values of the economic components of possible transactions, the value of a buyer assuming certain liabilities in a purchase transaction, and, in certain instances, indicative offers, as well as the probabilities of certain outcomes. Estimates for the liquidation value of the business units, or subset of operating restaurants, were also tested for reasonableness through a multiple of historical and projected business cash flows. All estimates by nature involve a large degree of judgement and sensitivity to the underlying assumptions.

The liquidation basis of accounting requires us to accrue and present separately, without discounting, the estimated disposal and other costs, including any costs associated with the sale or settlement of our assets and liabilities and the estimated operating income or loss that we reasonably expect to incur, including providing for federal income taxes during the remaining expected duration of the liquidation period. In addition, deferred tax assets previously provided for under the going concern basis of accounting, which include net operating losses and other tax credits, may be realized partially or in full, subject to IRS limitations, to offset taxable income we expect to generate from the liquidation process.

Under the liquidation basis of accounting, we recognize liabilities as they would have been recognized under the going concern basis as adjusted for the timing assumptions related to the liquidation process and they will not be reduced to expected settlement values prior to settlement.

These estimates will be periodically reviewed and adjusted as appropriate. There can be no assurance that these estimated values will be realized. Such amounts should not be taken as an indication of the timing or the amount of future distributions or our actual dissolution.

The valuation of our assets and liabilities, as described above, represents estimates, based on present facts and circumstances, of the net realizable value of the assets and costs associated with carrying out the Plan. The actual values and costs associated with carrying out the Plan may differ from amounts reflected in the accompanying consolidated financial statements because of the Plan's inherent uncertainty. These differences may be material. In particular, these estimates will vary with the length of time necessary to complete the Plan. It is currently anticipated that a majority of our assets will be sold by December 31, 2021, with a final liquidation by June 30, 2022; however, it is likely that the full realization of proceeds from these sales will extend beyond that date.

Net assets in liquidation represents the estimated liquidation value to holders of common shares upon liquidation. It is not possible to predict with certainty the timing or aggregate amount which may ultimately be distributed to our shareholders and no assurance can be given that the distributions will equal or exceed the estimate presented in these consolidated financial statements.

COVID-19

The novel coronavirus disease (“COVID-19”) pandemic has had a significant impact on our level of operations, guest behavior, guest traffic, and the number of locations where we and our Fuddruckers franchisees operate. As a result, at the onset of the COVID-19 pandemic in the spring of 2020, we modified our business operations within our restaurants and significantly reduced staffing at our corporate support office.

On March 13, 2020, President Donald Trump declared a national emergency in response to the COVID-19 pandemic. Throughout the remainder of calendar 2020, we cycled through periods initially when state government orders mandated a suspension of on-premise dining, followed by periods when our on-premise dining capacity was limited due to government order, a condition that continues at certain locations through the date of this filing. Prior to the onset of the COVID-19 pandemic we operated 118 restaurants. As of March 10, 2021, we operated 81 restaurants (58 Luby’s cafeterias and 23 Fuddruckers restaurants). Additionally, our Fuddruckers franchisees operated 90 locations prior to the COVID-19 pandemic and operated 72 restaurants as of March 10, 2021.

Vaccines for COVID-19 were first made available in the United States ("U.S.") in December 2020 with increasing rates of vaccination in the U.S. population with each passing month. Additionally, in March 2021, restaurants in our core Texas market were permitted to return to utilization of 100% of seating capacity. Furthermore, the U.S. Treasury provided a new round of stimulus through direct payments to U.S. citizens. As we execute on our Plan of Liquidation, we are still operating a number of restaurants as described above. Uncertainty remains regarding the continued rate of immunization in the public, timing of an economic recovery, and changed guest decision-making with regard to dining in restaurants. The COVID-19 pandemic could continue to materially impact our cash flows and value of net assets in liquidation, while we execute on our Plan of Liquidation.

Accounting Periods

The Company’s fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate. The first fiscal quarter consists of four four-week periods, or 16 weeks, and the remaining three quarters typically include three four-week periods, or 12 weeks, in length. The fourth fiscal quarter includes 13 weeks in certain fiscal years to adjust for our standard 52 week, or 364 day, fiscal year compared to the 365 day calendar year.

Reportable Segments

~~Each~~Prior to the shareholder approval of the Plan, each restaurant iswas considered an operating segment because operating results and cash flow can be determined for each restaurant. We ~~aggregate~~aggregated our operating segments into reportable segments by restaurant brand due to the nature of the products and services, the production processes, the customers, the methods used to distribute the products and services, the similarity of store level profit margins and the nature of the regulatory environment are alike. The Company ~~has~~had 5 reportable segments: Luby’s cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise restaurant, Fuddruckers franchise operations, and ~~Culinary Contract Services (“CCS”).~~

~~Prior~~CCS. Although we continue to ~~the fourth quarter of fiscal 2019~~operate our ~~internal organization~~restaurant, franchise and reporting structure supported 3 reportable segments; Company-owned restaurants, Franchise operations and Culinary Contract Services. The Company-owned restaurants consisted of the three brands discussed above, which were aggregated into one reportable segment. In the fourth quarter of fiscal 2019CCS businesses, we ~~re-evaluated and disaggregated the Company-owned restaurants into 3 reportable segments based on brand name. As such,~~no longer make operating decisions or assess performance by segment, as of the fourth quarter 2019, our 5 reportable segments are Luby’s cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise restaurants, Fuddruckers franchise operations and Culinary Contract Services. Management believes this change better reflects the priorities and decision-making analysis around the allocation of our resources and better aligns to the economic characteristics within similar restaurant brands. We began reporting on the new structure in the fourth quarter of fiscal 2019 as reflected in our Annual Report on Form 10-K. The segment data for the comparable periods of fiscal 2019 has been recast to conform to the current period presentation. Recasting this historical information did not have an impact on the consolidated financial performance of Luby’s Inc. for any of the periods presented.

~~Other Charges~~

Other charges includes those expenses that we consider related to our restructuring efforts or are not part of our recurring operations. These expenses were included in our Selling, general, and administrative cost expense line in previously reported quarters of fiscal 2019. See Note 8 to these unaudited consolidated financial statements.

~~Recently Adopted Accounting Pronouncements~~

~~On August 29~~, 2019, the first day of fiscal 2020, (the "Effective Date") we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), along with related clarifications and improvements (“ASC 842”). ASC 842 requires lessees to recognize, on their consolidated balance sheet, a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset. The guidance requires lessors to classify leases as sales-type, direct financing or operating. The pronouncement also requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. We have implemented a new lease tracking and accounting system in connection with the adoption of ASC 842.

We elected the optional transition method to apply ASC 842 as of the effective date and therefore, we have not applied the standard to the comparative periods presented on our consolidated financial statements. We also elected the package of practical expedients that allowed us not to reassess previous accounting conclusions regarding lease identification, initial direct costs and classification for existing or expired leases as of the effective date. We did not elect the practical expedient that would have permitted us to use hindsight when determining the lease term, including option periods, and impairment of operating lease assets.

We have made an accounting policy election to account for lease components and non-lease components as a single lease component for all underlying classes of assets where (1) the lease component is predominant, (2) the lease component, if accounted for separately, would be classified as an operating lease and (3) the timing and pattern of the lease component and non-lease component are the same. We have also elected the short-term lease recognition exemption for all of our ~~leases that allows us to not recognize right-of-use~~ assets and ~~related liabilities~~businesses are now considered held for ~~leases with an initial term of 12 months or less~~sale. Accordingly, effective November 19, 2020, we have only 1 reporting and ~~that do not include an option to purchase the underlying asset that we are reasonably certain to exercise. Our transition to ASC 842 represents a change in accounting principle.~~

~~Upon adoption of~~ ~~ASC 842, we recorded~~ operating lease liabilities of approximately $32.5 million based on the present value of the remaining lease payments using discount rates as of the effective date. The current portion of the operating lease liabilities recorded was approximately $8.1 million. In addition, we recorded operating lease right-of-use assets of approximately $27.2 million, calculated as the initial amount of the operating lease liability, adjusted for amounts reclassified from other lease related asset and liability accounts (such as prepaid rent, favorable and unfavorable lease intangibles and straight-line rent timing differences), in accordance with the new guidance, and impairment of certain right-of-use assets recognized as a charge to retained earnings as of the effective date.

On the effective date, we recorded the $1.0 million net cumulative effect of the adoption as an increase to retained earnings. Included in the net cumulative effect was an adjustment of approximately $2.0 million to clear the unamortized balance for deferred gains from sale / leaseback transactions. For most future sale / leaseback transactions, the gain (adjusted for any off-market items) will be recognized immediately in the period that the sale / leaseback transaction occurs.

~~The impact of adopting~~ ~~ASC 842~~ ~~on effected lines of our opening consolidated balance sheet was as follows:~~

Balance at August 28, 2019 ASC 842 Adjustment Balance at August 29, 2019
(In thousands)
ASSETS
Trade accounts and other receivables, net $ 8,852 $ 70 $ 8,922
Prepaid expenses 2,355 (225) 2,130
Total Current Assets 27,395 (155) 27,240
Intangible assets, net 16,781 (190) 16,591
Operating lease right-of-use assets, net — 27,191 27,191
Total Assets $ 186,000 $ 26,846 $ 212,846
LIABILITIES
Operating lease liabilities-current $ — $ 8,061 $ 8,061
Accrued expenses and other liabilities 24,475 (1,002) 23,473
Total Current Liabilities 32,954 7,059 40,013
Operating lease liabilities-non-current — 24,360 24,360
Other liabilities 6,577 (5,600) 977
Total Liabilities $ 84,970 $ 25,819 $ 110,789
SHAREHOLDERS’ EQUITY
Retained earnings $ 61,182 $ 1,027 $ 62,209
Total Shareholders Equity 101,030 1,027 102,057
Total Liabilities and Shareholders Equity $ 186,000 $ 26,846 $ 212,846

segment.

New Accounting Pronouncements - "to be Adopted"

There are no issued accounting pronouncements that ~~we have yet~~are applicable or relevant to ~~adopt that we believe would have a material effect on our financial statements.~~

us under the liquidation basis of accounting.

Subsequent Events

We evaluated events subsequent to ~~June 3, 2020~~March 10, 2021 through the date the financial statements were issued to determine if the nature and significance of the events warrant inclusion in our consolidated financial statements.

On March 16, 2021, we entered into franchise agreements with a third-party to take over the operations at 8 company owned Fuddruckers restaurants. On April 1, 2021, we entered into a franchise agreement with the same third-party to take over the operations at 1 additional company owned Fuddruckers restaurant. The new operator has assumed the lease obligation or ownership of the tenant entity at each of these 9 locations. On April 23, 2021, we entered into franchise agreements with the same third-party to take over the operations at 2 additional company owned Fuddruckers restaurants and we entered into a management agreement with the same third-party to take over the operations at 1 additional Fuddruckers restaurant. At March 10, 2021, in contemplation of the completion of these transactions, we increased the liquidation value of our properties and business units held for sale by $3.4 million.

On April 5, 2021, we closed on the sale of 1 of our properties for a gross sale price that exceeded our previously reported liquidation value for this asset. In contemplation of the completion of this transaction, we increased the liquidation value of our properties and business units held for sale by $0.8 million at March 10, 2021.

~~Note 2. COVID-19 Pandemic~~

~~COVID-19 Pandemic~~

On March 13, 2020, President Donald Trump declared a national emergency in response to the novel coronavirus disease ("COVID-19") pandemic. On March 19, 2020, Governor Greg Abbott of Texas issued a public health disaster for the state of Texas to bring the entire state in line with CDC guidelines including, (1) closing of schools statewide, (2) ban on dine-in eating and gatherings of groups of more than 10 people, and (3) closing of gyms and bars. Governor Abbott followed with an essential services order on March 31, 2020, requiring anyone who is not considered an essential, critical infrastructure worker to stay home except for essential activity, essential businesses, essential government functions and critical care facilities. Most other states, including those states where we operate, issued similar orders. The governor of Texas began relaxing some restrictions on businesses operating in Texas beginning May 1, 2020, which permitted a gradual reopening of businesses, including restaurants, with modified operations..

The spread of COVID-19 has affected the United States economy, our operations and those of third parties on which we rely. Beginning on March 17, 2020, we began suspending on-premise dining at our restaurants and substantially all employees at those locations were placed on furlough. By March 31, 2020 we had suspended on-premise dining at all 118 of our company-owned restaurants and had suspended all operations at 50 of our Luby's Cafeteria's, 36 company-owned Fuddruckers restaurants and our 1 Cheeseburger in Paradise restaurant. The 28 Luby's Cafeteria's and 3 Fuddruckers restaurants that remained open were providing take-out, drive-through and curbside pickup, or delivery with reduced operating hours and on-site staff. In

~~addition, more than 50 percent~~Note 2. Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation

The liquidation basis of accounting requires us to estimate net cash flows from operations and to accrue all costs associated with implementing and completing the plan of liquidation. We project that we will have estimated costs in excess of estimated receipts during the liquidation period. These amounts can vary significantly due to, among other things, the timing and estimates for receipts and costs associated with the operations of our business units until they are sold, the timing of business and property sales, estimates of direct costs incurred to complete the sales, the timing and amounts associated with discharging known and contingent liabilities, the costs associated with the winding up of operations, and other costs that we may incur which are not currently foreseeable. These receipts and accruals will be adjusted periodically as projections and assumptions change. These receipts and costs are estimated and are anticipated to be collected and paid out over the liquidation period. Upon transition to the liquidation basis of accounting on November 19, 2020, the Company accrued revenues and expenses expected to be earned or incurred during liquidation. The liability for estimated costs in excess of estimated receipts during liquidation at March 10, 2021 and November 19, 2020 was comprised of (in thousands):


	March 10, 2021		November 19, 2020




Total estimated receipts during liquidation	$	59,513	$	92,017






Total estimated costs of operations	(48,212)		(76,151)
Selling, general and administrative expenses	(14,531)		(18,745)

Interest expense	(1,386)		(2,305)
Interest component of operating lease payments	(5,918)		(7,064)
Capital expenditures	(610)		(943)
Sales costs	(4,071)		(4,079)
Total estimated costs during liquidation	(74,728)		(109,287)
Liability for estimated costs in excess of estimated receipts during liquidation	$	(15,215)	$	(17,270)

The change in the liability for estimated costs in excess of estimated receipts during liquidation between November 19, 2020 and March 10, 2021 is as follows (in thousands):


	November 19, 2020		Net Change in Working Capital (3)		Changes in Estimated Future Cash Flows During Liquidation (4)		March 10, 2021

Assets:
Estimated net inflows from operations (1)	$	7,859	$	(6,994)	$	4,518	$	5,383

	7,859		(6,994)		4,518		5,383
Liabilities:
Sales costs	(4,079)		373		(365)		(4,071)
Corporate expenditures (2)	(21,050)		8,082		(3,559)		(16,527)

	(25,129)		8,455		(3,924)		(20,598)

Liability for estimated costs in excess of estimated receipts during liquidation	$	(17,270)	$	1,461	$	594	$	(15,215)

(1) Estimated net inflows from operations consists of total estimated receipts during liquidation less the sum of (i) total estimated costs of operations during liquidation, (ii) interest component of operating lease payments and (iii) capital expenditures.

(2) Corporate expenditures consists of (i) selling, general and administrative ~~staff were placed on furlough~~expenses and ~~salaries were temporarily reduced by 50 percent~~(ii) interest expense.

(3) Net change in working capital represents changes in cash, restricted cash, accounts receivable, accounts payable, and accrued expenses and other liabilities as a result of the Company's operating activities for the ~~remaining general~~period from November 19, 2020 to March 10, 2021.

(4) Changes in estimated future cash flows during liquidation includes adjustments to previous estimates and ~~administrative staff~~changes in estimated holding periods of our assets.

Note 3. Net Assets in Liquidation

The following is a reconciliation of total shareholders’ equity under the going concern basis of accounting as of November 18, 2020 to net assets in liquidation under the liquidation basis of accounting as of November 19, 2020 (in thousands):


Total Shareholders' Equity as of November 18, 2020	$	70,763
Increase due to estimated net realizable value of properties and business units (1)	78,985
Decrease due to write-off of deferred financing costs	(2,260)


Decrease due to write-off of operating lease right-of-use assets	(14,829)
Net increase due to write-off of deferred assets, deferred income and goodwill	1,952
Liability for estimated costs in excess of estimated receipts during liquidation	(17,270)
Adjustment to reflect the change to the liquidation basis of accounting	46,578
Estimated value of net assets in liquidation as of November 19, 2020	$	117,341

(1) Under liquidation basis of accounting, all assets are recorded at net realizable value which implicitly includes the tangible and ~~other salaried employees, including~~intangible value of all ~~senior management. Furthermore,~~assets. This adjustment at November 19, 2020 reflects adjusting real properties to net realizable value and recording an estimated value for our business units, Luby's Cafeterias, Fuddruckers restaurants and franchise ~~owners suspended~~ operations, and Culinary Contract Services.

Net assets in liquidation increased by $5.2 million during the period from November 19, 2020 through March 10, 2021. The increase was primarily due to a $4.5 million increase in properties and business units for sale and a $0.7 million net increase due to a remeasurement of assets and liabilities. The increase in properties and business units for sale was due to a $3.4 million increase in value attributable to the contemplated sale and conversion to franchise locations of 9 Fuddruckers restaurants that was completed subsequent to March 10, 2021, and a $1.5 million increase in value attributable to properties that have closed, or ~~moved~~are under contract to ~~limited food-to-go operations~~sell with non-refundable deposits, at ~~their locations, reducing~~prices that exceeded our previous liquidation values. This increase was partially offset by a $0.4 million reduction in value for one of our real estate assets.

We have one class of common stock. The net assets in liquidation at March 10, 2021 would result in liquidating distributions of approximately $3.98 per common share based on the number of ~~franchise locations~~common shares outstanding at that date. This estimate is dependent on projections of costs and expenses to be incurred during the period required to complete the Plan and the realization of estimated net realizable value of our properties and business units. There is inherent uncertainty with these estimates, and they could change materially based on the timing of business and property sales, the performance of the underlying assets, any changes in ~~operation to 37 by early~~the underlying assumptions of the projected cash flows, as well as the ultimate vesting of outstanding restricted share awards and exercise of vested stock options. The estimated liquidating distributions per share on a fully diluted basis, assuming all restricted stock awards vest and all in-the-money stock options are exercised, is not materially different than the amount stated above. No assurance can be given that the liquidating distributions will equal or exceed the estimate presented in these consolidated financial statements.

PPP Loan

As discussed in more detail at Note 15. Debt, in April 2020 ~~from 90 prior~~we received a $10.0 million PPP Loan. In November 2020 we submitted an application for forgiveness of the full $10.0 million. While we believe that we qualify for full forgiveness pursuant to the ~~COVID-19 pandemic.~~

~~Beginning in May 2020,~~terms of the loan agreement, under the liquidation basis of accounting we ~~began to gradually reopen~~must account for the ~~dining rooms with state-mandated limits on guest capacity~~liability at the ~~28 Luby's locations~~full $10.0 million face amount until such time as the forgiveness has been approved by the Small Business Administration ("SBA") and ~~3 Fuddruckers locations that had~~the loan has been ~~previously operating with food-to-go service only. We also began to reopen restaurants that were temporarily closed. As~~settled.

Lease Obligations

Under both the going concern basis of ~~June 3, 2020, there were 31 Luby's Cafeteria's~~accounting and ~~8 Fuddruckers restaurants operating, all~~the liquidation basis of ~~which had their dining rooms open~~accounting, lease obligations are recorded at ~~limited capacity. There were 59 franchise locations in operation as~~the present value of ~~June 3, 2020. We are continuing~~ the ~~gradual reopening of our restaurants and~~total fixed lease payments over the reasonably certain lease term using discount rates as of the effective date of ~~this filing there were 46 Luby's Cafeteria's~~the lease and ~~17 Fuddruckers Restaurants operating with dining rooms open at limited capacity and there were 64 franchise locations in operation.~~

~~We considered~~ the ~~disruptions to our operations and cash flows from the COVID-19 pandemic, beginning in this fiscal quarter, to be triggering events for purposes of testing our long-lived assets,~~obligation is reduced as ~~well as goodwill, for impairment. See "Note 12. Impairment of Long-Lived Assets, Discontinued Operations and Property Held for Sale."~~

~~The full extent and duration~~we make lease payments. As a result of the ~~impact~~same accounting treatment, there is no reconciling entry to adjust total shareholders’ equity under the going concern basis of accounting as of November 18, 2020 to net assets in liquidation under the ~~COVID-19 pandemic on our operations and financial performance is currently unknown, and depends on future developments that are uncertain and unpredictable, including~~liquidation basis of accounting as of November 19, 2020.

During the duration of the spread of the pandemic, its impact on capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus, its spread to other regions, the actions to contain the virus or treat its impact, and consumer attitudes and behaviors, among others. The COVID-19 pandemic has materially disrupted our operations and cash flows for the thirdfourth quarter of fiscal 2020 and ~~has resulted~~the first two quarters of fiscal 2021, we were able to settle 27 leases for closed restaurant properties and negotiated an early termination date and reduced lease payment at 1 operating restaurant property. While the amounts paid to settle our lease liabilities varied, in the ~~recording of additional non-cash impairment charges related to our property and equipment and operating lease right-of-use assets related to our restaurants and goodwill.~~

~~Given the uncertainty regarding the spread of this virus and the timing~~aggregate, we have settled these 27 leases for approximately 21% of the ~~economic recovery,~~total undiscounted base rent payments that would otherwise have been due under the ~~COVID-19 pandemic could~~leases through their original contractual termination date. We can offer no assurances that we will continue to ~~materially impact our results of operations and cash flows.~~settle any lease obligations for less than the total undiscounted base rent payments, or for less than their discounted value recorded within net assets in liquidation.

~~See Note 3. Going Concern.~~

~~Payroll Protection Plan (PPP) Loan and Credit Facility Debt Modification~~

As more fully discussed at "Note 15. Debt", in the third quarter of fiscal 2020 we entered into a promissory note in the amount of $10.0 million (the "PPP Loan"). In conjunction with the entering into the PPP Loan, we amended our credit facility to permit us to incur indebtedness under the PPP Loan and to terminate the $5.0 million undrawn portion of the delayed draw term loan upon receipt of the PPP Loan.

~~Note 3. Going Concern~~

~~We sustained a net loss of $15.2 million and cash flow from operations was a use of cash of $13.1 million in fiscal year ended August 28, 2019. In the~~ ~~two quarters ended March 11, 2020~~ ~~(a period prior to the COVID-19 pandemic), we sustained a net loss of $12.1 million and cash flow from operations was a use of cash of $5.9 million. In the~~ ~~quarter ended~~ ~~June 3, 2020 we sustained a net loss of $25.0 million and for the~~ ~~three quarters ended~~ June 3, 2020 our cash flow from operations was a use of cash of $14.1 million. On March 13, 2020, shortly after the end of our second quarter, President Donald Trump declared a national emergency in response to the COVID-19 pandemic followed by Governor Greg Abbott of Texas issuing a public health disaster for the state of Texas on March 19, 2020. We took the necessary actions described in "Note 2. COVID-19 Pandemic" which further stressed the liquid financial resources of the Company. We borrowed the remaining $1.4 million available on our revolving line of credit with MSD Capital, borrowed $2.5 million on our Delayed Draw Term Loan, and applied for and received a $10.0 million PPP Loan as described in "Note 2. COVID-19 Pandemic". As of the date of this filing, we have 0 undrawn borrowing capacity under our credit facility. Further, we do not believe that we are currently able to secure any additional debt financing.

a going concern as of the balance sheet date, and for at least one year beyond the financial statement issuance date. The assessment of a company’s ability to meet its obligations is inherently judgmental.

On June 3, 2020, the Company announced that the Board of Directors of the Company will aggressively pursue a sale of the Company's operations and assets and distribute the net proceeds to our stockholders, after payment of debt and other obligations. This course of action is more fully explained in "Note 1 - Basis of Presentation". We have not established a timeframe, nor have we committed to a specific plan, but such a plan could extend beyond one year. Until a ~~formal plan of sale and proceeds distribution~~ is approved, we believe we will be able to meet our obligations for the next 12 months when they come due through (1) cash flow from operating certain restaurants, (2) available cash balances, and (3) proceeds generated from real estate property sales as discussed below.

Since the onset of the COVID-19 Pandemic, we have reviewed and modified many aspects of our operating plan within our restaurants and corporate overhead. The Company is now operating at an increased level of operational cost efficiency. These efforts are expected to partially mitigate the adverse impacts of the COVID-19 pandemic. Additionally, the sale of some assets will likely be necessary for the Company to generate cash to fund its operations. The Company has historically been able to successfully generate proceeds from property sales. Although the Company has been successful in these endeavors in the past, there are no assurances the Company will generate sufficient funds to meet all its obligations as they become due. The following conditions were considered in management’s evaluation of going concern and its efforts to mitigate that concern:

•Revamped restaurant operations to generate cost efficiencies, which resulted in higher restaurant operating margins even while sales levels have not returned to pre-COVID-19 pandemic levels. As the restaurants adapted to the new operating environment, a lower cost labor model was deployed, food costs declined as menu offerings were concentrated among the historically top selling items, and various restaurant service and supplier costs were reevaluated.

•Restructured corporate overhead earlier in calendar 2020 prior to the COVID-19 pandemic, including a transition to third party provider for certain accounting and payroll functions. Significant further restructuring took place in April, May and June of 2020, as we reviewed all corporate service providers, information technology needs, and personnel requirements to support a reduced level of operations going forward.

•Secured the PPP Loan which was necessary for funding continuing operations. We believe that a portion of the PPP loan will be eligible for forgiveness; however, that amount cannot currently be calculated.

•In addition to the approximate $7.2 million proceeds from property sales achieved in fiscal 2020 through the third quarter, we generated an additional $10.7 million proceeds from property sales in June 2020 and anticipate an additional $9.2 million in proceeds from property sales before the end of fiscal 2020 in August.

We believe these plans are sufficient to overcome the significant doubt whether we can meet our liquidity needs for the 12 months from the issuance of these financial statements. However, we cannot predict with certainty that these efforts will be successful or sufficient.

Note 4. Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:


		June 3, 2020		August 28, 2019			November 18, 2020		August 26, 2020
		(in thousands)							(in thousands)
Cash and cash equivalents	Cash and cash equivalents	$	14,122	$	3,640	Cash and cash equivalents	$	14,874	$	15,069
Restricted cash and cash equivalents	Restricted cash and cash equivalents	7,917		9,116		Restricted cash and cash equivalents	6,651		6,756
Total cash and cash equivalents shown in our consolidated statements of cash flows	Total cash and cash equivalents shown in our consolidated statements of cash flows	$	22,039	$	12,756	Total cash and cash equivalents shown in our consolidated statements of cash flows	$	21,525	$	21,825

Restricted cash and cash equivalents as of March 10, 2021 was $6.7 million. Amounts included in restricted cash represent those required to be set aside for (1) ~~maximum~~estimated amount of interest payable in the next 12 months under the ~~2018~~ Credit Agreement (see "Note 15. Debt"), (2) collateral for letters of credit issued for potential insurance obligations, which letters of credit expire within 12 months and (3) prefunding of the credit limit under our corporate purchasing card program.

Note 5. Revenue Recognition

Under the going concern basis of accounting, we recognized revenue as described below. Under the liquidation basis of accounting, we estimate the cash receipts from food and beverage sales at each of our restaurants, royalties and fees from our Fuddruckers franchisees, and fees under our culinary contract services ("CCS") contracts. We estimate these expected cash receipts from operating these businesses through the point when we expect the operations of these businesses or individual income producing properties are sold to a new owner or when we otherwise estimate operations cease. This estimated ending period for operating these businesses generally varies from third quarter fiscal 2021 through first quarter fiscal 2022. These estimated revenues are included in the calculation of estimated costs in excess of estimated receipts during liquidation on our consolidated statement of net assets in liquidation. Estimated proceeds from the sale of our operating businesses and real estate assets are recorded separately for the estimated operating revenues and are included in properties and business units for sale on our consolidated statement of net assets in liquidation.

Restaurant Sales

~~Restaurant~~Under the going concern basis of accounting, restaurant sales ~~consist~~consisted of sales of food and beverage products to restaurant guests at our Luby’s ~~Cafeterias~~cafeterias and our Fuddruckers and Cheeseburger in Paradise restaurants. Revenue from restaurant sales iswas recognized at the point of sale and iswas presented net of discounts, coupons, employee meals and complimentary meals. Sales taxes that we ~~collect~~collected and ~~remit~~remitted to the appropriate taxing authority related to these sales ~~are~~were excluded from revenue. Under the liquidation basis of accounting, we have estimated the sales to be collected at each restaurant through the point when we estimate that operations at each restaurant no longer occur under our ownership. This estimated point when we no longer operate restaurants varies based on whether the restaurant location is operated as a Luby's cafeteria or a Fuddruckers restaurant, whether the restaurant location is situated on property we own or lease, and other factors. However, it is estimated that, as we sell certain restaurants to new owners to steward the Luby's and Fuddruckers brands, most restaurant operations would no longer be owned by us by the end of fiscal 2021. During this holding period when we operate restaurants, sales are estimated based on recent sales history and consideration of historical seasonal patterns.

We sell gift cards to our customers in our venues and through certain third-party distributors. These gift cards do not expire and do not incur a service fee on unused balances. ~~Sales~~Under the going concern basis of accounting sales of gift cards to our restaurant customers ~~are~~were initially recorded as a contract liability, included in accrued expenses and other liabilities, at their expected redemption value. When gift cards ~~are~~were redeemed, we ~~recognize~~recognized revenue and ~~reduce~~reduced the contract liability. Discounts on gift cards sold by third parties ~~are~~were recorded as a reduction to accrued expenses and other liabilities and ~~are~~were recognized as a reduction to revenue over a period that ~~approximates~~approximated redemption patterns. The portion of gift cards sold to customers that are never redeemed is commonly referred to as gift card breakage. We ~~recognize~~recognized gift card breakage revenue in proportion to the pattern of gift card redemptions exercised by our customers, using an estimated breakage rate based on our historical experience. Under the liquidation basis of accounting, the unredeemed gift card balance, net of estimated breakage, is included in accrued expenses and other liabilities on our consolidated statement of net assets in liquidation.

~~Culinary contract services~~

CCS revenue

Our ~~Culinary Contract Services~~CCS segment provides food, beverage and catering services to our clients at their locations. Depending on the type of client and service, we are either paid directly by our client and/or directly by the customer to whom we have been provided access by our client.

We typically use one of the following types of client ~~contracts:~~contracts in our CCS business:

Fee-Based Contracts

Revenue from fee-based contracts iswas based on our costs incurred and invoiced to the client for reimbursement along with the agreed management fee, which may be calculated as a fixed dollar amount or a percentage of sales or other variable measure. Some fee-based contracts entitle us to receive incentive fees based upon our performance under the contract, as measured by factors such as sales, operating costs and client satisfaction surveys. This potential incentive revenue iswas allocated entirely to the management services performance obligation. ~~We recognize~~Under the going concern basis of accounting, we recognized revenue from our management fee and payroll cost reimbursement over time as the services ~~are performed. We recognize~~were performed; and we recognized revenue from our food and 3^rdthird party purchases reimbursement at the point in time when the vendor ~~delivers~~delivered the goods or ~~performs~~performed the services.

Profit and Loss Contracts

Revenue from profit and loss contracts ~~consist~~consisted primarily of sales made to consumers, typically with little or no subsidy charged to clients. ~~Revenue is~~Under the going concern basis of accounting, revenue was recognized at the point of sale to the consumer. Sales taxes that we ~~collect~~collected and ~~remit~~remitted to the appropriate taxing authority related to these sales ~~are~~were excluded from revenue.

As part of client contracts, we sometimes make payments to clients, such as concession rentals, vending commissions and profit share. These payments ~~are~~were accounted for as operating costs when incurred.

Revenue from the sale of frozen foods ~~includes~~included royalty fees based on a percentage of frozen food sales and iswas recognized at the point in time when product iswas delivered by our contracted manufacturers to the retail outlet.

Under the liquidation basis of accounting, we have estimated the cash receipts, based on recent cash collections and forecasted level of operations for our CCS contracts through the expected holding period for this business unit. The estimated cash receipts are included in the calculation of estimated costs in excess of estimated receipts on our consolidated statement of net assets in liquidation.

Franchise revenues

Franchise revenues ~~consist~~consisted primarily of royalties, marketing and advertising fund (“MAF”) contributions, initial and renewal franchise fees, and upfront fees from area development agreements related to our Fuddruckers restaurant brand. Our performance obligations under franchise agreements consist of: (1) a franchise license, including a license to use our brand and MAF management, (2) pre-opening services, such as training and inspections and (3) ongoing services, such as development of training materials and menu items as well as restaurant monitoring and inspections. These performance obligations are highly interrelated, so we do not consider them to be individually distinct. We ~~account~~accounted for them as a single performance obligation, which iswas satisfied over time by providing a right to use our intellectual property over the term of each franchise agreement.

Royalties, including franchisee MAF contributions, are calculated as a percentage of franchise restaurant sales. MAF contributions paid by franchisees are used for the creation and development of brand advertising, marketing and public relations, merchandising research and related programs, activities and materials. The initial franchisee fee is payable upon execution of the franchise agreement and the renewal fee is due and payable at the expiration of the initial term of the franchise agreement. Our franchise agreement royalties, including advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and ~~are~~were recognized as franchise sales occur.

~~Initial~~Under the going concern basis of accounting, initial and renewal franchise fees and area development fees ~~are~~were recognized as revenue over the term of the respective agreement. Area development fees are not distinct from franchise fees, so upfront fees paid by franchisees for exclusive

development rights ~~are~~were deferred and apportioned to each franchise restaurant opened by the franchisee. The pro-rata amount apportioned to each restaurant iswas accounted for as an initial franchise fee.

Revenue from vending machine sales iswas recorded at the point in time when the sale ~~occurs.~~occurred.

Under the liquidation basis of accounting, we have estimated the cash collections from Fuddruckers franchisees over an anticipated holding period. Recent trends in collection of Fuddruckers franchise royalties were used as a basis for this forecast.

Contract Liabilities

Contract liabilities ~~consist~~consisted of (1) deferred revenue resulting from initial and renewal franchise fees and upfront area development fees paid by franchisees, which, ~~are~~under the going concern basis of accounting, were generally recognized on a

straight-line basis over the term of the underlying agreement, (2) liability for unused gift cards and (3) unamortized discount on gift cards sold to 3^rdthird party retailers. These contract liabilities are included in accrued expenses and other liabilities in our consolidated balance ~~sheets.~~sheet as of August 26, 2020. The following table reflects the change in contract ~~liabilities:~~liabilities for the fiscal year ended August 26, 2020, under the going concern basis of accounting:

Gift Cards, net of discounts Franchise Fees
(In thousands)
Balance at August 28, 2019 $ 2,882 $ 1,287
Revenue recognized that was included in the contract liability balance at the beginning of the year (977) (97)
Increase, net of amounts recognized as revenue during the period 1,498 —
Balance at June 3, 2020 $ 3,403 $ 1,190

The following table illustrates the estimated revenues expected to be recognized in the future related to our deferred franchise fees that are unsatisfied (or partially unsatisfied) as of June 3, 2020:

~~Franchise Fees~~

~~(In thousands)~~

~~Remainder of fiscal 2020~~

~~Fiscal 2021~~

~~Fiscal 2022~~

~~Fiscal 2023~~

~~Fiscal 2024~~

~~Thereafter~~

~~309~~

~~Total operating franchise restaurants~~

~~435~~

~~Franchise restaurants not yet opened~~⁽¹⁾

~~755~~

~~Total~~

~~1,190~~

⁽¹⁾Amortization of the deferred franchise fees will begin when the restaurant commences operations and revenue will be recognized straight-line over the franchise term (which is typically 20 years). If the franchise agreement is terminated, the deferred franchise fee will be recognized in full in the period of termination.


	Gift Cards, net of discounts		Franchise Fees
	(In thousands)
Balance at August 28, 2019	$	2,880	$	1,287
Revenue recognized that was included in the contract liability balance at the beginning of the year	(1,011)		(128)
Increase, net of amounts recognized as revenue during the period	1,541		0
Balance at August 26, 2020	$	3,410	$	1,159

Disaggregation of Total Revenues (in millions):

Quarter Ended Three Quarters Ended
June 3, 2020 June 5, 2019 June 3, 2020 June 5, 2019
(in millions)
Revenue from performance obligations:
Satisfied at a point in time $ 15.7 $ 69.4 $ 167.7 $ 234.4
Satisfied over time 3.3 5.4 15.0 17.7
Total Sales $ 19.0 $ 74.8 $ 182.7 $ 252.1


	Quarter Ended March 11, 2020		Period Ending November 18, 2020		Two Quarters Ended March 11, 2020
	(12 weeks)		(12 weeks)		(28 weeks)
	(in millions)
Revenue from performance obligations:
Satisfied at a point in time	$	63.8	$	38.5	$	152.0
Satisfied over time	4.8		3.4		11.7
Total Sales	$	68.6	$	41.9	$	163.7

See "Note 7. Reportable Segments" for disaggregation of revenue by reportable segment.

Note 6. Leases

~~Lessee~~Under the going concern basis of accounting, we accounted for our operating leases as described below. Under the liquidation basis of accounting, we value the operating lease right-of-use assets at 0, since we do not expect to receive cash proceeds or other consideration for the right-of-use assets.

We determine if a contract contains a lease at the inception date of the contract. Our material operating leases consist of restaurant locations and administrative facilities ("Property Leases"). U.S. GAAP requires that our leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the date on which the leased asset is available for our use (the “Commencement Date”) and the lease term used in the evaluation includes the non-cancellable period for which we have the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty (the "Reasonably Certain Lease Term"). Our lease agreements generally contain a primary term of five to 30 years with one or more options to renew or extend the lease generally from one to five years each. In addition to leases for our restaurant locations and administrative facilities, we also lease vehicles and administrative equipment under operating leases. ~~As of June 3, 2020, we did not have any finance leases.~~

At the inception of a new lease, we ~~recognize~~recognized an operating lease liability and a corresponding ~~right of use~~right-of-use asset, which are calculated as the present value of the total fixed lease payments over the reasonably certain lease term using discount rates as of the effective date.

Property lease agreements may include rent holidays, rent escalation clauses and contingent rent provisions based on a percentage of sales in excess of specified levels. Contingent rental expenses (“variable lease cost”) ~~are~~were recognized prior to the achievement of a specified target, provided that the achievement of the target iswas considered probable. Most of our lease agreements include renewal periods at our option. We ~~include~~included the rent holiday periods and scheduled rent increases in our calculation of straight-line rent expense.

Lease cost for operating leases iswas recognized on a straight-line basis and ~~includes~~included the amortization of the right-of-use asset and interest expense related to the operating lease liability. We ~~use~~used the reasonably certain lease term in our calculation of straight-line rent expense. We ~~expense~~expensed rent from commencement date through restaurant open date as opening expense. Once a restaurant ~~opens~~opened for business, we ~~record~~recorded straight-line rent expense plus any additional variable contingent rent expense (such as common area maintenance, insurance and property tax costs) to the extent it is due under the lease agreement as occupancy expense for our restaurants and selling, general and administrative expense for our corporate office and support facilities. The interest expense related to the lease liability for abandoned leases iswas recorded to provision for asset impairments

and store closings. Rental expense for lease properties that ~~are~~were subsequently subleased to franchisees or other third parties iswas recorded as other income.

We ~~make~~made judgments regarding the reasonably certain lease term for each property lease, which ~~can impact~~impacted the classification and accounting for a lease as a finance lease or an operating lease, the rent holiday and/or escalations in payments that ~~are~~were taken into consideration when calculating straight-line rent, and the term over which leasehold improvements for each restaurant ~~are~~were amortized. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.

The discount rate used to determine the present value of the lease payments is ~~the Company’s~~our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, ~~as the Company~~we generally cannot determine the interest rate implicit in the lease.

Lessor

We occasionally lease or sublease certain restaurant properties to our franchisees or to third parties. The lease descriptions, terms, variable lease payments and renewal options are generally similar to our lessee leases described above. Similar to our lessee accounting, we elected the ~~lessor~~ practical expedient that allows us to not separate non-lease components from lease components in regard to all property leases where we are the ~~lessor. As of June 3, 2020, we did not have any sales-type or direct financing leases.~~lessors.

Supplemental balance sheet information related to our leases was as follows:

~~Operating Leases~~

~~Classification~~

~~June 3, 2020~~

~~(in thousands)~~

~~Right-of-use assets~~

~~Operating lease right-of-use assets~~

~~17,790~~

~~Current lease liabilities~~

~~Operating lease liabilities-current~~

~~4,412~~

~~Non-current lease liabilities~~

~~Operating lease liabilities-noncurrent~~

~~22,771~~

~~Total lease liabilities~~

~~27,183~~


Operating Leases	Balance Sheet Classification	March 10, 2021		August 26, 2020
		(Liquidation Basis)		(Going Concern Basis)
		(in thousands)
Right-of-use assets	Operating lease right-of-use assets	$	0	$	16,756

Current lease liabilities	Operating lease liabilities-current	N/A		$	3,903
Non-current lease liabilities	Operating lease liabilities-noncurrent	N/A		17,797
Total lease liabilities		$	15,705	$	21,700

See the Lease Liabilities section of Note 3. Net Assets in Liquidation for further discussion of our lease liabilities.

Weighted-average lease terms and discount rates ~~at June 3, 2020~~ were as follows:


~~Weighted-average remaining lease term~~						~~5.85 years~~

~~Weighted-average discount rate~~						~~9.68%~~

March 10, 2021

August 26, 2020

Weighted-average remaining lease term

6.33 years

5.73 years

Weighted-average discount rate

9.77%

9.57%

~~Components~~Under the going concern basis of accounting, components of lease expense were as follows:


		12 Weeks Ended		40 Weeks Ended			12 Weeks Ended		12 Weeks Ended		28 Weeks Ended
		June 3, 2020							March 11, 2020		November 18, 2020		March 11, 2020
		(in thousands)							(in thousands)
Operating lease expense	Operating lease expense	$	1,872	$	6,451	Operating lease expense	$	1,874	$	1,120	$	4,412
Variable lease expense	Variable lease expense	201		753		Variable lease expense	257		138		553
Short-term lease expense	Short-term lease expense	43		170		Short-term lease expense	62		92		125
Sublease expense	Sublease expense	86		373		Sublease expense	161		18		161
Total lease expense	Total lease expense	$	2,202	$	7,747	Total lease expense	$	2,354	$	1,368	$	5,251

~~Operating~~Under the going concern basis of accounting, operating lease income iswas included in other income on our consolidated statements of operations and was comprised of:


		12 Weeks Ended		40 Weeks Ended			12 Weeks Ended		12 Weeks Ended		28 Weeks Ended
		June 3, 2020							March 11, 2020		November 18, 2020		March 11, 2020
		(in thousands)							(in thousands)
Operating lease income	Operating lease income	$	121	$	623	Operating lease income	$	213	$	62	$	503
Sublease income	Sublease income	86		373		Sublease income	114		18		286
Variable lease income	Variable lease income	26		134		Variable lease income	33		5		109
Total lease income	Total lease income	$	233	$	1,130	Total lease income	$	360	$	85	$	898

Supplemental disclosures of cash flow information related to leases were as follows:

12 Weeks Ended 40 Weeks Ended
June 3, 2020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities $ 1,338 $ 6,626
Right-of-use assets obtained in exchange for lease liabilities $ 1,038 $ 1,941


	12 Weeks Ended		12 Weeks Ended		28 Weeks Ended
	March 11, 2020		November 18, 2020		March 11, 2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	2,431	$	2,358	$	5,282

Right-of-use assets obtained in exchange for lease liabilities	$	903	$	0	$	903

Operating lease obligations maturities in accordance with Topic 842 as of ~~June 3, 2020~~March 10, 2021 were as follows:

(in thousands)

Remainder of FY ~~2020~~2021

~~1,283~~1,997

~~FY 2021~~

~~6,401~~

FY 2022

~~5,178~~3,307

FY 2023

~~5,400~~3,345

FY 2024

~~3,277~~2,535

FY 2025

3,349

Thereafter

~~17,098~~7,105

Total lease payments

~~38,637~~21,638

Less: imputed interest

~~(11,454)~~(5,933)

Present value of operating lease obligations

~~27,183~~15,705

~~The operating lease obligation and rent expense tables above include amounts related to 2 leases with related parties, which are further described at "Note 14. Related Parties".~~

Annual future minimum lease payments under non-cancelable operating leases with terms in excess of one year as of August 28, 2019 in accordance with the previous lease accounting standard (ASC 840) are as follows:


~~Fiscal Year Ending:~~	~~(In thousands)~~
~~August 26, 2020~~	$	~~8,841~~
~~August 25, 2021~~	~~7,155~~
~~August 31, 2022~~	~~5,643~~
~~August 30, 2023~~	~~4,410~~
~~August 28, 2024~~	~~3,768~~
~~Thereafter~~	~~10,312~~
~~Total minimum lease payments~~	$	~~40,129~~

Note 7. Reportable Segments

As more fully ~~discussed~~described at ~~"Note~~Note 1. Basis of Presentation", in the fourth quarter of fiscal 2019, the Company reevaluated its reportable segments and has disaggregated its Company-owned restaurants into 3 reportable segments; Luby’s cafeterias, Fuddruckers restaurants and Cheeseburger in Paradise restaurants. We began reporting on the new structure in the fourth quarter of fiscal 2019. The segment data for the comparable periods presented has been recast to conform to the current period presentation. We havePresentation, through November 18, 2020, we had 5 reportable segments: Luby’s Cafeterias, Fuddruckers Restaurants, Cheeseburger in Paradise Restaurants, Fuddruckers franchise operations, and ~~Culinary contract services.~~

CCS. In connection with our Plan of Liquidation, we have 1 reportable segment as of November 19, 2020.

Company-owned restaurants

Company-owned restaurants ~~consists~~consisted of Luby’s Cafeterias, Fuddruckers Restaurants and Cheeseburger in Paradise Restaurant reportable segments. We ~~consider~~considered each restaurant to be an operating segment because operating results and cash flow ~~can~~could be determined for each restaurant. We ~~aggregate~~aggregated our restaurant operating segments into reportable segments by restaurant brand because the nature of the products and services, the production processes, the customers, the methods used to distribute the products and services, the long-term store level profit margins, and the nature of the regulatory environment ~~are~~were similar. The chief operating decision maker ~~analyzes~~analyzed store level profit which is defined as restaurant sales and vending revenue, less cost of food, payroll and related costs, other operating expenses and occupancy costs. All Company-owned ~~Luby’s cafeterias, Fuddruckers and Cheeseburger in Paradise~~ restaurants are casual dining restaurants.

The Luby’s Cafeterias segment ~~includes~~included the results of our company-owned Luby’s Cafeterias restaurants. The total number of Luby’s cafeterias operating at ~~June 3,~~November 18, 2020 and August ~~28, 2019~~26, 2020 were 3160 and ~~79,~~61, respectively.

The Fuddruckers ~~Restaurant~~restaurant segment ~~includes~~included the results of our company-owned Fuddruckers restaurants. The total number of Fuddruckers restaurants operating at ~~June 3,~~November 18, 2020 and August ~~28, 2019~~26, 2020 were 824 and ~~44, respectively.~~

The Cheeseburger in Paradise Restaurant segment includes the results of our Cheeseburger in Paradise restaurants. The total number of Cheeseburger in Paradise restaurants operating at June 3, 2020 and August 28, 2019 was 0 and 1,24, respectively.

1719

Included in the restaurant counts above are 5 Combo units, where a Luby's cafeteria and a Fuddruckers restaurant occupy the same location. The Combo units are included in the above counts for both Luby's cafeteria and Fuddruckers restaurants.

~~Culinary Contract Services ("CCS")~~We operated 1 Cheeseburger in Paradise restaurant during the quarter ended December 16, 2019, which was closed permanently in March 2020.

CCS

CCS, branded as Luby’s Culinary Services, consists of a business line servicing healthcare, sport stadiums, corporate dining clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. CCS had contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, retail grocery stores, behavioral hospitals, a senior living facility, sports stadiums, government, and business and industry clients. CCS has the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients. The cost of ~~culinary contract services~~CCS on our consolidated statements of operations includes all food, payroll and related costs, other operating expenses, and other direct general and administrative expenses related to CCS sales. The total number of CCS contracts at ~~June 3,~~November 18, 2020 and August ~~28, 2019~~26, 2020 were 2726 and ~~31,~~26, respectively.

CCS began selling Luby's Famous Fried Fish, Macaroni & Cheese and Chicken Tetrazzini in February 2017, December 2016, and May, 2019, respectively, in the freezer section of H-E-B stores, a Texas-born retailer. H-E-B stores now stock the family-sized versions of Luby's Classic Macaroni and Cheese , Chicken Tetrazzini, and Luby's Fried Fish. HEB also stocks single serve versions of these three items as well as Jalapeno Macaroni and Cheese.

Fuddruckers Franchise Operations

We only offer franchises for the Fuddruckers brand. ~~Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants.~~ Initial franchise agreements generally have a term of 20 years. Franchise agreements typically grant franchisees an exclusive territorial license to operate a single restaurant within a specified area.

Franchisees bear all direct costs involved in the development, construction, and operation of their restaurants. In exchange for a franchise fee, we provide franchise assistance in the following areas: site selection, prototypical architectural plans, interior and exterior design and layout, training, marketing and sales techniques, assistance by a Fuddruckers “opening team” at the time a franchised restaurant opens, and operations and accounting guidelines set forth in various policies and procedures manuals.

All franchisees are required to operate their restaurants in accordance with Fuddruckers standards and specifications, including controls over menu items, food quality, and preparation. The Company requires the successful completion of its training program by a minimum of ~~three~~3 managers for each franchised restaurant. In addition, franchised restaurants are evaluated regularly by the Company for compliance with franchise agreements, including standards and specifications through the use of periodic, unannounced, on-site inspections and standards evaluation reports.

~~The number of~~We had 71 franchised restaurants ~~operating~~ at ~~June 3,~~both November 18, 2020 and August ~~28, 2019 were 59 and 102, respectively.~~26, 2020.

Segment Table

The tables below show segment financial ~~information.~~information under the going concern basis of accounting. The table also lists total assets for each reportable segment. Corporate assets include cash and cash equivalents, restricted cash, property and equipment, assets related to discontinued operations, property held for sale, deferred tax assets, and prepaid expenses.


		Quarter Ended						Three Quarters Ended
		June 3, 2020		June 5, 2019		June 3, 2020		June 5, 2019			Quarter Ended March 11, 2020		Period Ended November 18, 2020		Two Quarters Ended March 11, 2020
		(12 weeks)		(12 weeks)		(40 weeks)		(40 weeks)			(12 weeks)		(12 weeks)		(28 weeks)
		(In thousands)															(In thousands)
Sales:	Sales:									Sales:
Luby's cafeterias	Luby's cafeterias	$	12,414	$	49,521	$	127,426	$	166,751	Luby's cafeterias	$	47,886	$	31,949	$	115,030
Fuddruckers restaurants	Fuddruckers restaurants	1,411		15,414		28,962		53,292		Fuddruckers restaurants	11,872		4,550		27,551
Cheeseburger in Paradise restaurants	Cheeseburger in Paradise restaurants	30		778		1,522		2,328		Cheeseburger in Paradise restaurants	647		0		1,492
Culinary contract services	Culinary contract services	4,944		7,571		21,735		24,610		Culinary contract services	6,998		4,918		16,772
Fuddruckers franchise operations	Fuddruckers franchise operations	195		1,482		3,059		5,126		Fuddruckers franchise operations	1,158		530		2,865
Total	Total	$	18,994	$	74,766	$	182,704	$	252,107	Total	68,561		$	41,947	$	163,710
Segment level profit:	Segment level profit:									Segment level profit:
Luby's cafeterias	Luby's cafeterias	$	(3,191)	$	5,821	$	9,595	$	20,968	Luby's cafeterias	$	4,877	$	4,896	$	12,786
Fuddruckers restaurants	Fuddruckers restaurants	(1,818)		859		(1,324)		2,275		Fuddruckers restaurants	527		(412)		494
Cheeseburger in Paradise restaurants	Cheeseburger in Paradise restaurants	(141)		26		(236)		(305)		Cheeseburger in Paradise restaurants	(28)		(85)		(95)
Culinary contract services	Culinary contract services	251		780		1,675		2,286		Culinary contract services	598		451		1,424
Fuddruckers franchise operations	Fuddruckers franchise operations	(244)		1,152		1,648		4,277		Fuddruckers franchise operations	749		236		1,890
Total	Total	$	(5,143)	$	8,638	$	11,358	$	29,501	Total	6,723		$	5,086	$	16,499
Depreciation and amortization:	Depreciation and amortization:									Depreciation and amortization:
Luby's cafeterias	Luby's cafeterias	$	1,783	$	1,984	$	5,979	$	7,027	Luby's cafeterias	$	1,738	$	1,530	$	4,182
Fuddruckers restaurants	Fuddruckers restaurants	340		497		1,276		2,378		Fuddruckers restaurants	387		167		937
Cheeseburger in Paradise restaurants	Cheeseburger in Paradise restaurants	22		17		69		97		Cheeseburger in Paradise restaurants	19		0		47
Culinary contract services	Culinary contract services	8		25		26		70		Culinary contract services	5		8		17
Fuddruckers franchise operations	Fuddruckers franchise operations	—		177		297		590		Fuddruckers franchise operations	178		1		414
Corporate	Corporate	556		227		1,502		890		Corporate	350		436		843
Total	Total	$	2,709	$	2,927	$	9,149	$	11,052	Total	2,677		$	2,142	$	6,440
Capital expenditures:	Capital expenditures:									Capital expenditures:
Luby's cafeterias	Luby's cafeterias	$	369	$	774	$	1,656	$	2,177	Luby's cafeterias	$	414	$	416	$	1,238
Fuddruckers restaurants	Fuddruckers restaurants	17		212		129		360		Fuddruckers restaurants	90		17		139
Cheeseburger in Paradise restaurants	Cheeseburger in Paradise restaurants	12		5		30		16		Cheeseburger in Paradise restaurants	0		0		2
Culinary contract services		—		12		—		22

Fuddruckers franchise operations	Fuddruckers franchise operations	—		—		9		—		Fuddruckers franchise operations	0		0		14
Corporate	Corporate	2		82		66		291		Corporate	41		0		97
Total	Total	400		$	1,085	$	1,890	$	2,866	Total	$	545	$	433	$	1,490

1921


		Quarter Ended								Three Quarters Ended
		June 3, 2020		June 5, 2019		June 3, 2020		June 5, 2019			Quarter Ended March 11, 2020		Period Ended November 18, 2020		Two Quarters Ended March 11, 2020
		(12 weeks)		(12 weeks)		(40 weeks)		(40 weeks)			(12 weeks)		(12 weeks)		(28 weeks)
		(In thousands)															(In thousands)
Loss before income taxes and discontinued operations:	Loss before income taxes and discontinued operations:									Loss before income taxes and discontinued operations:
Segment level profit	Segment level profit	$	(5,143)	$	8,638	$	11,358	$	29,501	Segment level profit	$	6,723	$	5,086	$	16,499
Opening costs	Opening costs	—		(6)		(14)		(49)		Opening costs	(2)		0		(14)
Depreciation and amortization	Depreciation and amortization	(2,709)		(2,927)		(9,149)		(11,052)		Depreciation and amortization	(2,677)		(2,142)		(6,440)
Selling, general and administrative expenses	Selling, general and administrative expenses	(3,339)		(8,623)		(20,313)		(26,386)		Selling, general and administrative expenses	(6,816)		(4,267)		(16,974)
Other charges	Other charges	(164)		(803)		(2,912)		(3,280)		Other charges	(1,509)		(416)		(2,748)
Provision for asset impairments and restaurant closings		(12,708)		(675)		(14,478)		(3,097)
Net gain on disposition of property and equipment		364		434		2,861		12,935
Net provision for asset impairments and restaurant closings										Net provision for asset impairments and restaurant closings	(661)		85		(1,770)
Net loss on disposition of property and equipment										Net loss on disposition of property and equipment	2,527		(117)		2,498
Interest income	Interest income	19		11		47		30		Interest income	5		8		28
Interest expense	Interest expense	(1,641)		(1,324)		(5,076)		(4,593)		Interest expense	(1,473)		(1,212)		(3,435)
Other income, net	Other income, net	402		112		790		198		Other income, net	148		30		388
Total	Total	$	(24,919)	$	(5,163)	$	(36,886)	$	(5,793)	Total	$	(3,735)	$	(2,945)	$	(11,968)

June 3, 2020 August 28, 2019
(In thousands)
Total assets:
Luby's cafeterias $ 108,875 $ 107,287
Fuddruckers restaurants ⁽¹⁾
16,823 25,725
Cheeseburger in Paradise restaurants ⁽²⁾
518 829
Culinary contract services 5,331 6,703
Fuddruckers franchise operations ⁽³⁾
9,555 10,034
Corporate 48,154 $ 35,422
Total $ 189,256 $ 186,000



	August 26, 2020
	(in thousands)
Total assets:
Luby's cafeterias	$	90,349
Fuddruckers restaurants (1)	26,502
Cheeseburger in Paradise restaurants (2)	164
Culinary contract services	4,744
Fuddruckers franchise operations (3)	8,973
Corporate	46,671
Total	$	177,403

(1) Includes Fuddruckers trade name intangible of ~~$7.1 million and $7.5~~$6.9 million at ~~June 3, 2020 and~~ August ~~28, 2019, respectively.~~26, 2020.

(2) Includes Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles of ~~$37 thousand and $46~~$34 thousand at ~~June 3, 2020 and~~ August ~~28, 2019, respectively.~~26, 2020.

(3) Fuddruckers franchise operations segment includes royalty intangibles of ~~$8.6 million and $9.2~~$8.4 million at ~~June 3, 2020 and~~ August ~~28, 2019 respectively.~~26, 2020.

Note 8. Other Charges

~~Other~~Under the going concern basis of accounting, other charges ~~includes~~included those expenses that we ~~consider~~considered related to our restructuring efforts or ~~are~~were not part of our ongoing operations.


	Quarter Ended March 11, 2020		Period Ended November 18, 2020		Two Quarters Ended March 11, 2020
	(12 weeks)		(12 weeks)		(28 weeks)
	(In thousands)

Employee severances	$	544	$	0	$	1,162
Restructuring related	966		416		1,586
Total Other charges	$	1,510	$	416	$	2,748

Quarter Ended Three Quarters Ended
June 3
2020 June 5
2019 June 3
2020 June 5
2019
(In thousands)
Proxy communication related $ — $ 60 $ — $ 1,862
Employee severances 45 — 1,207 645
Restructuring related 119 743 1,705 772
Total Other charges $ 164 $ 803 $ 2,912 $ 3,279

Under the liquidation basis of accounting, costs that are expected to be settled in cash have been accrued for and are included in the calculation of estimated costs in excess of estimated receipts on our consolidated statement of net assets in liquidation.

2122

Note 9. Fair Value Measurements

(Going Concern Basis)

GAAP establishes a framework for using fair value to measure assets and liabilities and expands disclosure about fair value measurements. Fair value measurements guidance applies whenever other authoritative accounting guidance requires or permits assets or liabilities to be measured at fair value.

GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers include:

•Level 1: Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

◦

•Level 2: Defined as pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.

◦

•Level 3: Defined as pricing inputs that are unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The fair values of the Company's cash and cash equivalents, restricted cash and cash equivalents, trade receivables and other receivables, net, and accounts payable approximate their carrying value due to their short duration. The carrying value of the Company's total long-term debt, net of unamortized discounts and debt issue costs, at ~~June 3,~~August 26, 2020 ~~and August 28, 2019~~ was approximately ~~$63.7~~$54.1 million, ~~and $45.4 million, respectively,~~ which approximates fair value because the applicable interest rate is adjusted frequently based on short-term market rates (Level 2).

There were no recurring fair value measurements related to assets or liabilities at ~~June 3, 2020 or June 5, 2019 . We terminated our interest rate swap in the first quarter of fiscal 2019 and received cash proceeds of approximately $0.3 million which is recorded in other income.~~

August 26, 2020.

There were no ~~recurring~~non-recurring fair value ~~measurements related to liabilities at June 3,~~measurement adjustments for the 12 week period ended November 18, 2020. ~~The fair value~~

Under the going concern basis of ~~the Company's 2017 Performance Based Incentive Plan liabilities was 0 at June 5, 2019.~~

~~Non-recurring~~accounting, non-recurring fair value measurements related to impaired ~~goodwill,~~ operating lease right-of-use assets and property held for sale ~~and property and equipment~~for the two quarters ended March 11, 2020 consisted of the following:

Fair Value
Measurement Using
June 3, 2020 Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Total
Impairments⁽⁵⁾
Nonrecurring Fair Value Measurements (In thousands)
Continuing Operations
Property held for sale ⁽¹⁾
$ 3,362 $ — $ — $ 3,362 $ (14)
Property and equipment related to company-owned restaurants ⁽²⁾
424 — — 424 (4,888)
Goodwill ⁽³⁾
— — — — (320)
Operating lease right-of-use assets ⁽⁴⁾
— — — — (5,447)
Total Nonrecurring Fair Value Measurements $ 3,786 $ — $ — $ 3,786 $ (10,669)


			Fair Value Measurement Using
	March 11, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Impairments(3)
Nonrecurring Fair Value Measurements			(In thousands)
Continuing Operations
Property held for sale (1)	$	3,362	$	0	$	0	$	3,362	$	(14)

Operating lease right-of-use assets (2)	0		0		0		0		(1,181)

Total Nonrecurring Fair Value Measurements	$	3,362	$	0	$	0	$	3,362	$	(1,195)

(1) In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately $3.4 million were written down to their fair value, less ~~cost~~costs to sell, of approximately $3.4 million, resulting in an impairment charge of approximately $14 thousand.

⁽²⁾ In accordance with Subtopic 360-10, long-lived assets held and used with a carrying value of $5.3 million were written down to their fair value of approximately $0.4 million, resulting in an impairment charge of approximately $4.9 million.

⁽³⁾ ~~In accordance with Subtopic 360-20, goodwill with a carrying value of $320 thousand was written down to its fair value of 0 resulting in an impairment charge of approximately $320 thousand.~~

⁽⁴ In accordance with Subtopic 360-10, operating lease ~~right-to-use~~right-of-use assets with a carrying ~~value~~amount of approximately ~~$5.4~~$1.2 million were written down to their fair value of 0, resulting in an impairment charge of approximately ~~$5.4~~$1.2 million.

⁽⁵⁾ Total impairments for continuing operations are included in provision for asset impairments and restaurant closings in our consolidated statement of operations for the three quarters ended June 3, 2020.(3)

Fair Value
Measurement Using
June 5, 2019 Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Total
Impairments⁽³⁾
Nonrecurring Fair Value Measurements (In thousands)
Continuing Operations
Property held for sale ⁽¹⁾
$ 8,030 $ — $ — $ 8,030 $ (70)
Property and equipment related to company-owned restaurants ⁽²⁾
704 — — 704 (3,476)
Total Nonrecurring Fair Value Measurements $ 8,734 $ — $ — $ 8,734 $ (3,546)

⁽¹⁾ In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately $8.1 million were written down to their fair value, less costs to sell, of approximately $8.0 million, resulting in an impairment charge of approximately $70 thousand.

⁽²⁾ In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of approximately $4.2 million were written down to their fair value of approximately $0.7 million, resulting in an impairment charge of approximately $3.5 million.

⁽³⁾ Total impairments are included in provision for asset impairments and restaurant closings in our unaudited consolidated statement of operations for the ~~three~~two quarters ended ~~June 5, 2019.~~March 11, 2020.

Note 10. Income Taxes

NaN cash payments of estimated federal income taxes were made during the ~~three~~12 week period ended November 18, 2020 and the two quarters ended ~~June 3,~~March 11, 2020, ~~and June 5, 2019,~~ respectively. ~~Deferred~~Under the going concern basis of accounting, deferred tax assets and liabilities ~~are~~were recorded based on differences between the financial reporting basis and the tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when the differences are expected to reverse. Under the liquidation basis of accounting, we have estimated the actual cash tax payments based on our estimate of operations and the timing and amount to be collected on the sale of our assets. We have included a liability of $616 thousand in accrued expenses and other liabilities on our consolidated statement of net assets in liquidation at March 10, 2021.

~~Deferred~~Under the going concern basis of accounting, deferred tax assets are recognized to the extent future taxable income is expected to be sufficient to utilize those assets prior to their expiration. If current available evidence and information raises doubt regarding the realization of the deferred tax assets, on a more likely than not basis, a valuation allowance is necessary. In evaluating our ability to realize the Company's deferred tax assets, the Company considered available positive and negative evidence, scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. As

Under the going concern basis of ~~June 3, 2020, management continues to maintain a full valuation allowance against net deferred tax assets.~~

~~The~~accounting, the effective tax rate ("ETR") for continuing operations was a negative ~~0.2%~~1.6% for the quarter ended ~~June 3,~~March 11, 2020. The ETR was a negative 2.0% for the 12 week period ended November 18, 2020 and a negative ~~2.6%~~1.3% for the ~~quarter~~two quarters ended ~~June 5, 2019.~~March 11, 2020. The ETR for the ~~quarter~~12 week period ended ~~June 3,~~November 18, 2020 ~~differs~~differed from the federal statutory rate of 21% due to management's full valuation allowance conclusion, state income taxes, and other discrete items.

The ETR for continuing operations was a negative 0.6% for the three quarters ended June 3, 2020 and a negative 6.0% for the three quarters ended June 5, 2019. The ETR for the three quarters ended June 3, 2020 differs from the federal statutory rate of 21% due to management's full valuation allowance conclusion, state income taxes, and other discrete items.

Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in our consolidated financial statements. Amounts considered probable of settlements within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated balance sheet.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous tax provisions; however, there was no impact on our income tax provision due to management's full valuation allowance conclusion. We will continue to assess the effect of the CARES Act and the ongoing other legislation related to the COVID-19 pandemic that may be issued, including the Consolidated Appropriations Act 2021 that was signed in law on December 27, 2020.

Note 11. Property and Equipment, Intangible Assets and Goodwill

Under the going concern basis of accounting, our property and equipment, intangible assets and goodwill was accounted for as described below. Under the liquidation basis of accounting, our property and equipment and intangible assets, including intangible assets not recognized on the going concern basis, are recorded on the statement of net assets in liquidation at the amount of their estimated cash proceeds or other consideration from liquidation.

~~The costs,~~Our property and equipment were recorded at cost, net of impairment, and accumulated depreciation of property and equipment at ~~June 3,~~August 26, 2020, ~~and August 28, 2019,~~ together with the related estimated useful lives used in computing depreciation and amortization, ~~were~~ as ~~follows:~~summarized below:

June 3,
2020 August 28,
2019 Estimated
Useful Lives
(years)
(In thousands)
Land $ 43,350 $ 45,845 —
Restaurant equipment and furnishings 60,565 67,015 3 to 15
Buildings 119,811 126,957 20 to 33
Leasehold and leasehold improvements 22,086 22,098 Lesser of lease term or estimated useful life
Office furniture and equipment 3,234 3,364 3 to 10
249,046 265,279
Less accumulated depreciation and amortization (144,758) (143,536)
Property and equipment, net $ 104,288 $ 121,743
Intangible assets, net $ 15,695 $ 16,781 15 to 21


		August 26, 2020		Estimated Useful Lives (years)
	(In thousands)
Land		$	42,572		—
Restaurant equipment and furnishings		60,685		3	to	15
Buildings		114,909		20	to	33
Leasehold and leasehold improvements		20,429		Lesser of lease term or estimated useful life
Office furniture and equipment		3,178		3	to	10

		241,773
Less accumulated depreciation and amortization		(141,174)
Property and equipment, net		$	100,599
Intangible assets, net		$	15,343	15	to	21

Intangible assets, net, ~~includes~~included the Fuddruckers trade name and franchise agreements ~~and are~~were amortized. ~~The Company believes~~We believed the Fuddruckers brand name ~~has~~had an expected accounting life of 21 years from the date of acquisition based on the expected use of its assets and the restaurant environment in which it is being used. The trade name ~~represents~~represented a respected brand with customer loyalty and the Company ~~intends~~intended to cultivate and protect the use of the trade name. The franchise agreements, after considering renewal periods, ~~have~~had an estimated accounting life of 21 years from the date of acquisition, July 2010, and ~~will be~~was being amortized over this period of time.

Intangible assets, net, also ~~includes~~included the license agreement and trade name related to Cheeseburger in Paradise and the value of the acquired licenses and permits allowing the sales of beverages with alcohol. These assets ~~have~~had an expected useful life of 15 years from the date of acquisition, December 2012.

The aggregate amortization expense related to intangible assets subject to amortization was approximately ~~$1.1~~$0.3 million and ~~$1.0~~$0.8 million for the ~~three~~12 week period ended November, 18, 2020 and the two quarters ended ~~June 3,~~March 11, 2020, ~~and June 5, 2019,~~ respectively. ~~The aggregate amortization expense related to intangible assets subject to amortization is expected to be approximately $1.4 million in each of the next five successive fiscal years.~~

The following table presents intangible assets as of ~~June 3, 2020 and~~ August ~~28, 2019:~~26, 2020.


		August 26, 2020
	(In thousands)
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible Assets Subject to Amortization:

Fuddruckers trade name and franchise agreements		$	29,496	$	(14,189)	$	15,307

Cheeseburger in Paradise trade name and license agreements		146		(110)		36

Intangible assets, net		$	29,642	$	(14,299)	$	15,343

June 3, 2020 August 29, 2018
(In thousands) (In thousands)
Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount
Intangible Assets Subject to Amortization:
Fuddruckers trade name and franchise agreements $ 29,486 $ (13,828) $ 15,658 $ 29,486 $ (12,752) $ 16,734
Cheeseburger in Paradise trade name and license agreements 146 (109) 37 146 (99) 47
Intangible assets, net $ 29,632 $ (13,937) $ 15,695 $ 29,632 $ (12,851) $ 16,781

~~Goodwill,~~Under the going concern basis of accounting, goodwill, net of accumulated impairments, was approximately $195 thousand ~~and $514 thousand~~ as of ~~June 3, 2020 and~~ August 28, 2019, respectively. Goodwill has been allocated and impairment is assessed at the reporting level, which is the individual restaurants within our Fuddruckers and Cheeseburger in Paradise reporting segments that were acquired in fiscal 2010 and fiscal 2013, respectively. The net Goodwill balance at June 3, 2020 is comprised of amounts from the Fuddruckers acquisition in 2010. The Company performs a goodwill impairment test annually as of the end of the second fiscal quarter of each year and more frequently when negative conditions or a triggering event arises. Management prepares valuations for each of its restaurants using a discounted cash flow analysis (Level 3 inputs) to determine the fair value of each reporting unit for comparison with the reporting unit's carrying value in determining if there has been an impairment of goodwill at the reporting level.

26, 2020. The Company recorded ~~$320 thousand and~~ 0 goodwill impairment charges during the ~~three~~12 week period ended November 18, 2020 and the two quarters ended ~~June 3,~~March 11, 2020, ~~and June 5, 2019,~~ respectively. ~~The fiscal year 2020 impairment charge were to completely impair~~Under the liquidation basis of accounting, there is 0 goodwill ~~allocated one Cheeseburger~~included on our statement of net assets in ~~Paradise restaurant and two Cheeseburger in Paradise restaurants that were converted into Fuddruckers restaurants.~~

liquidation.

Note 12. Impairment of Long-Lived Assets, Discontinued Operations, Property Held for Sale and Store Closings

Impairment of Long-Lived Assets and Store Closings

WeUnder the going concern basis of accounting, we periodically ~~evaluate~~evaluated long-lived assets held for use and held for sale whenever events or changes in circumstances ~~indicate~~indicated that the carrying amount of those assets may not be recoverable. We ~~analyze~~analyzed historical cash flows of operating locations and ~~compare~~compared results of poorer performing locations to more profitable locations. We also ~~analyze~~analyzed lease terms, condition of the assets and related need for capital expenditures or repairs, as well as construction activity and the economic and market conditions in the surrounding area.

For assets held for use, we ~~estimate~~estimated future cash flows using assumptions based on possible outcomes of the areas analyzed. If the estimated undiscounted future cash flows ~~are~~were less than the carrying value of the location’s assets, we ~~record~~recorded an impairment loss based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable

assumptions and projections, ~~require~~required management’s subjective judgments. Assumptions and estimates used ~~include~~included operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and, if applicable, lease terms. The span of time for which future cash flows ~~are~~were estimated iswas often lengthy, increasing the sensitivity to assumptions made. The time span could be 20 to 25 years for newer properties, but only 5 to 10 years for older properties. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets ~~can~~could vary within a wide range of outcomes. We ~~consider~~considered the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss iswas then based on the fair value of the asset as determined by discounted cash flows.

We recognized the following impairment charges to income from operations:


	Period Ended		Two Quarters Ended
	November 18, 2020		March 11, 2020
	(12 weeks)		(28 weeks)
	(In thousands, except per share data)
Net provision (gain) for asset impairments and restaurant closings	$	(85)	$	1,770
Net loss (gain) on disposition of property and equipment	117		(2,498)

	$	32	$	(728)
Effect on EPS:
Basic	$	0	$	0.02
Assuming dilution	$	0	$	0.02

Three Quarters Ended
June 3,
2020 June 5,
2019
(40 weeks) (40 weeks)
(In thousands, except per share data)
Provision for asset impairments and restaurant closings $ 14,478 $ 3,097
Net gain on disposition of property and equipment (2,861) (12,935)
$ 11,617 $ (9,838)
Effect on EPS:
Basic $ (0.38) $ 0.33
Assuming dilution $ (0.38) $ 0.33

The ~~$14.5~~$0.1 million net gain in provision for asset impairments and restaurant closings for the period ended November 18, 2020 is primarily related to a $0.7 million net gain on the termination of 7 leases where we permanently ceased operations and negotiated buyouts of the leases, partially offset by a $0.6 million write-off of the right-of-use asset for 1 of our leased locations.

The $1.8 million provision for asset impairments and restaurant closings for the ~~three~~two quarters ended ~~June 3,~~March 11, 2020 was ~~due~~ primarily related to the ~~write off~~impairment of ~~$5.4 million~~the right-of-use asset for 272 of our leased locations where we ~~permanently~~ ceased operations during the period ~~impairment losses of $4.9 million for property~~ and ~~equipment at 28 of our restaurant locations and $1.2 million for~~ certain surplus equipment written down to fair ~~value, as well as $2.6 million of store closing expenses accrued for the leased locations where we permanently ceased operations~~

value.

The ~~$2.9~~$2.5 million net gain on disposition of property and equipment for the ~~three~~two quarters ended ~~June 3,~~March 11, 2020 was primarily ~~related~~due to gains on the sale of 2 previously held for sale properties ~~and 1 property previously held for use,~~ partially offset by routine asset retirements.

The $3.1 million provision for asset impairments and restaurant closings for the three quarters ended June 5, 2019 was primarily related to assets at 9 property locations, 6 properties held for sale and 1 international joint venture investment written down to their fair values.

The $12.9 million net gain on disposition of property and equipment for the three quarters ended June 5, 2019 is primarily related to gains on the sale and leaseback of 2 properties and the gain on the sale of 1 undeveloped property that was held for sale, partially offset by routine asset retirements.

Discontinued Operations

As a result of the first quarter fiscal 2010 adoption of our Cash Flow Improvement and Capital Redeployment Plan, we reclassified 24 Luby’s Cafeterias to discontinued operations. AsUnder the going concern basis of ~~June 3,~~accounting, at November 18, 2020, 1 non-operating location ~~remains~~remained held for sale.

The following table sets forth the assets and liabilities for all discontinued operations:

June 3,
2020 August 28,
2019
(In thousands)
Property and equipment $ 1,691 $ 1,813
Assets related to discontinued operations—non-current $ 1,691 $ 1,813
Accrued expenses and other liabilities $ 11 $ 14
Liabilities related to discontinued operations—current $ 11 $ 14


		August 26, 2020
	(In thousands)


Property and equipment		$	1,715

Assets related to discontinued operations—non-current		$	1,715

Accrued expenses and other liabilities		$	17
Liabilities related to discontinued operations—current		$	17

AsUnder the going concern basis of June 3, 2020, we had 1 property classified as discontinued operations. The asset carrying value of the owned property was approximately $1.7 million and is included in assets related to discontinued operations. We are actively marketing this property for sale. The asset carrying value at 1 other property with a ground lease, included in discontinued operations, was previously impaired to 0.

~~The following table sets forth the sales and pretax~~accounting, losses ~~reported~~ from ~~discontinued operations:~~

Three Quarters Ended
June 3,
2020 June 5,
2019
(40 weeks) (40 weeks)
(In thousands)
Sales $ — $ —
Pretax loss $ (23) $ (18)
Income tax expense from discontinued operations — —
Loss from discontinued operations, net of income taxes $ (23) $ (18)

~~The following table summarizes~~ discontinued operations for the ~~three quarters of fiscal~~12 week period ended November 18, 2020 and ~~2019:~~the quarter ended and two quarters ended March 11, 2020 were not significant.

Three Quarters Ended
June 3,
2020 June 5,
2019
(40 weeks) (40 weeks)
(In thousands, except per share data)
Discontinued operating loss $ (23) $ (18)
Impairments — —
Pretax loss (23) (18)
Income tax expense from discontinued operations — —
Loss from discontinued operations, net of income taxes $ (23) $ (18)
Effect on EPS from discontinued operations—basic $ (0.00) $ (0.00)

Property Held for Sale

Under the going concern basis of accounting, property held for sale was accounted for as discussed below. Under the liquidation basis of accounting, all of our property is for sale and is recorded on the statement of net assets in liquidation at the amount of their estimated cash proceeds or other consideration from liquidation.

WeUnder the going concern basis of accounting, we periodically ~~review~~reviewed long-lived assets against our plans to retain or ultimately dispose of properties. If we ~~decide~~decided to dispose of a property, it ~~will be~~was moved to property held for sale, actively marketed and recorded at fair value less transaction costs. We ~~analyze~~analyzed market conditions each reporting period and ~~record~~recorded additional impairments due to declines in market values of like assets. The fair value of the property iswas determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like ours. Gains ~~are~~were not recognized until the properties ~~are~~were sold.

~~Property~~Under the going concern basis of accounting, property held for sale ~~includes~~included unimproved land, closed restaurant properties, properties with operating restaurants that our Board of Directors ~~has~~had approved for sale, and related equipment for locations not classified as discontinued operations. The specific assets ~~are~~were valued at the lower of net depreciated value or net realizable value.

At ~~June 3,~~August 26, 2020, ~~and August 28, 2019~~ we had ~~15 and 14~~10 owned properties with a carrying value of approximately ~~$17.9~~$11.2 million ~~and $16.5 million, respectively,~~ in property held for sale. During the three quarters ended June 3, 2020, 2 properties were sold that were previously classified as held for sale and we recognized a net gain of $2.2 million on the sales. We also reclassified 3 properties from property and equipment to property held for sale. The pretax profit (loss) for the disposal group of 15 locations for the three quarters ended June 3, 2020 and June 5, 2019 was approximately $(0.3) million and $0.6 million, respectively.

~~We are actively marketing the locations currently classified as property held for sale.~~

Abandoned Leased Facilities - Liability for Store Closings

AsWe classified 9 and 18 leased restaurant locations as abandoned as of ~~June 3,~~March 10, 2021 and August 26, 2020, ~~we classified 28 leased restaurants as abandoned.~~respectively. Although we may remain obligated under the terms of the leases for the rent and other costs that may be associated with the leases, we decided to cease operations and we have no foreseeable plans to occupy the spaces as a company restaurant in the future. The total liability represents the present value of the total amount of rent and other direct costs (such as common area costs, property taxes, and insurance allocated by the landlord) for the remaining lease term less the present value of any sublease income expected to be collected.

During the two quarters ended March 10, 2021, we settled and terminated nine abandoned leases.

The liability for our abandoned leases at ~~June 3, 2020~~March 10, 2021 and August ~~28, 2019~~26, 2020 is as follows (in thousands):


							March 10, 2021		August 26, 2020
		June 3, 2020		August 28, 2019			(Liquidation Basis)		(Going Concern Basis)
Short-term lease liability	Short-term lease liability	$	1,063	$	—	Short-term lease liability	N/A		$	365
Long-term lease liability	Long-term lease liability	6,399		$	—	Long-term lease liability	N/A		2,348
Operating lease liabilities						Operating lease liabilities	$	1,585	2,713
Accrued expenses and other liabilities	Accrued expenses and other liabilities	3,215		$	1,441	Accrued expenses and other liabilities	1,700		2,088
Total	Total	$	10,677	$	1,441	Total	$	3,285	$	4,801

Note 13. Commitments and Contingencies

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Pending Claims

From time to time, the Company is subject to various private lawsuits, administrative proceedings, and claims that arise in the ordinary course of its business. A number of these lawsuits, proceedings, and claims may exist at any given time. These matters typically involve claims from guests, employees, and others related to issues common to the restaurant industry. The Company currently believes that the final disposition of these types of lawsuits, proceedings, and claims will not have a material adverse effect on ~~the Company’s financial position, results~~our cash flows and value of ~~operations, or liquidity. It is possible, however, that the Company’s future results of operations for a particular fiscal quarter or fiscal year could be impacted by changes~~net assets in ~~circumstances relating to lawsuits, proceedings, or claims.~~

~~Cheeseburger in Paradise Royalty Commitment~~

The license agreement and trade name relates to a perpetual license to use intangible assets including trademarks, service marks and publicity rights related to Cheeseburger in Paradise owned by Jimmy Buffett and affiliated entities. In return, the Company pays a royalty fee of 2.5% of gross sales, less discounts, at the Company's operating Cheeseburger in Paradise location to an entity owned or controlled by Jimmy Buffett. The trade name represents a respected brand with positive customer loyalty, and the Company intends to cultivate and protect the use of the trade name.

liquidation.

Note 14. Related Parties

Affiliate Services

Christopher J. Pappas, the Company’s former Chief Executive Officer (see Subsequent Events section of Note 1. Basis of Presentation), and Harris J. Pappas, a former director of Company, own 2 restaurant related entities (the “Pappas entities”) that may, from time to time, ~~may~~ provide services to the Company and its subsidiaries, as detailed in the Amended and Restated Master Sales Agreement dated August 2, 2017 among the Company and the Pappas entities. Collectively, Messrs. Pappas and the Pappas entities own greater than 5 percent of the Company's common stock.

Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities may provide specialized (customized) equipment fabrication and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables. ~~The Company incurred~~We received 0 ~~and $15 thousand~~services under the Amended and Restated Master Sales Agreement for custom-fabricated and refurbished equipment in the ~~three~~two quarters ended ~~June 3,~~March 10, 2021 and March 11, 2020, ~~and June 5, 2019,~~ respectively. Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of our Board of Directors.

Operating Leases

In the third quarter of fiscal 2004, Messrs. Pappas became partners in a limited partnership which purchased a retail strip center in Houston, Texas. Messrs. Pappas collectively own a 50% limited partnership interest and a 50% general partnership interest in the limited partnership. A third party company manages the center. One of the Company’s restaurants has rented approximately 7% of the space in that center since July 1969. No changes were made to the Company’s lease terms as a result of the transfer of ownership of the center to the new partnership.

On November 22, 2006, the Company executed a new lease agreement with respect to this shopping center. Effective upon the Company’s relocation and occupancy into the new space in July 2008, the new lease agreement ~~provides~~provided for a primary term of approximately 12 years with 2 subsequent ~~five-year~~five-year options and ~~gives~~gave the landlord an option to buy out the tenant on or after the calendar year 2015 by paying the then unamortized cost of improvements to the tenant. The Company ~~pays~~paid rent of $22.00 per square foot per year plus maintenance, taxes, and insurance during the remaining primary term of the lease. Thereafter, the lease ~~provides~~provided for increases in rent at set intervals. The new lease agreement was approved by the Finance and Audit Committee of our Board of Directors. Due to the COVID-19 pandemic, the landlord agreed to abate the rent for April, 2020. We entered into an amendment to the lease, effective July 1, 2020, whereby (1) the lease ~~will~~was terminated early ~~terminate~~ on December 31, 2020, (2) the rent for May and June of 2020 iswas abated and (3) commencing July 1, 2020 through the early termination date, the monthly rent iswas a fixed gross amount. The amendment was approved by the Finance and Audit Committee of our Board of ~~Directores.~~Directors.

In the third quarter of fiscal 2014, on March 12, 2014, the Company executed a new lease agreement with a Pappas ~~Restaurants, Inc.~~entity for one of our Fuddruckers locations in Houston, Texas. The lease ~~provides~~provided for a primary term of approximately six years with 2 subsequent ~~five-year~~five-year options. Pursuant to the lease agreement, the Company paid $28.53 per square foot per year plus maintenance, taxes, and insurance from March 12, 2014 until May 31, 2020. ~~Currently, the~~The lease agreement ~~provides~~provided for increases in rent at set intervals. The new lease agreement was approved by the Finance and Audit Committee of our Board of Directors. In December 2019 we exercised the first ~~five-year~~five-year renewal option, effective June 1, 2020. The renewal was approved by the Finance and Audit Committee of our Board of Directors. Due to the COVID-19 pandemic, ~~Pappas Restaurants, Inc.~~the landlord agreed to abate the rent for April and May of 2020.

The lease was terminated on February 26, 2021, in conjunction with the sale of the Fuddruckers operations at this location to a Pappas entity to operate as a franchised location, as further described below.

For the ~~three~~two quarters ended ~~June 3,~~March 10, 2021 and March 11, 2020, ~~and June 5, 2019,~~ affiliated rents incurred as a percentage of relative total Company cost was ~~0.46%~~0.41% and ~~0.55%~~0.58%, respectively. Rent payments under the two lease agreements described above were ~~$300~~$133 thousand and ~~$439~~$300 thousand, respectively.

Fuddruckers Franchise

In February 2021, we completed the sale and transfer of a previously company-owned Fuddruckers restaurant to HPCP Investments, LLC, one of the Pappas entities, for cash proceeds of approximately $0.2 million and the termination of our operating lease on the property, discussed above. Concurrent with the sale, Pappas Restaurants, Inc. entered into a franchise agreement with us to operate a Fuddruckers restaurant at this location. Each of these transactions was approved by the Finance and Audit Committee of our Board of Directors.

Key Management Personnel

~~The~~Mr. Pappas resigned his position as President and Chief Executive Officer, effective January 27, 2021. Mr. Pappas remains a member of the Board of Directors of the Company. Previously, on December 11, 2017, the Company had entered into a new employment agreement with ~~Christopher Pappas on December 11, 2017.~~Mr. Pappas. Under the employment agreement, which is no longer effective as of January 27, 2021 (see Subsequent Events section of Note 1. Basis of Presentation), the initial term of Mr. Pappas' employment ended on August 28, 2019 and automatically ~~renews~~renewed for additional one year periods, unless terminated in accordance with its terms. ~~Mr. Pappas continues to devote his primary time and business efforts to the Company while maintaining his role at Pappas Restaurants, Inc.~~ The employment agreement ~~was~~had been unanimously approved by the Executive Compensation Committee ~~(the “Committee”)~~ of our Board of Directors as well as by the full ~~Board. Effective~~Board at that time. Previously, effective August 1, 2018, the Company and ~~Christopher J.~~Mr. Pappas agreed to reduce his fixed annual base salary to ~~one~~1 dollar.

Also, effective January 27, 2021, the Board of Directors appointed John Garilli as the Company’s Interim President and Chief Executive Officer. The Company and Mr. Garilli’s employer, Winthrop Capital Advisors LLC ("WCA"), have entered into an agreement (the “Agreement”), pursuant to which the Company paid WCA a one-time fee of $50,000 and will pay a monthly fee of $20,000 for so long as Mr. Garilli serves the Company in said positions. The Company has also entered into an Indemnity Agreement with Mr. Garilli and WCA. The Company and WCA had previously entered into a consulting agreement, pursuant to which WCA provided consulting services related to the Company’s adoption of the liquidation basis of accounting in the filing of our Quarterly Report on Form 10-Q for the quarter ended December 16, 2020. The Company and WCA executed a second consulting agreement to provide similar services for the filing of our Quarterly Report on Form 10-Q for the quarter ended March 10, 2021.

Paulette Gerukos, Vice President of Human Resources of the Company, is the sister-in-law of Harris J. Pappas.

Note 15. Debt

The following table summarizes ~~credit facility~~ debt ~~less current portion~~balances at ~~June 3, 2020~~March 10, 2021 (liquidation basis) and August ~~28, 2019 (in thousands):~~26, 2020 (going concern basis), in thousands:

June 3,
2020 August 28,
2019
Long-Term Debt
2018 Credit Agreement - Revolver $ 10,000 $ 5,300
2018 Credit Agreement - Term Loan 46,386 43,399
Total credit facility debt 56,386 48,699
2020 PPP Loan 10,000 —
Total Long-Term Debt 66,386 48,699
Less:
Unamortized debt issue costs (1,556) (1,887)
Unamortized debt discount (1,128) (1,373)
Total long-term debt, less unamortized debt issuance costs 63,702 45,439
Current portion of credit facility debt 6,386 —
Long-term debt, less current portion $ 57,316 $ 45,439



	March 10, 2021		August 26, 2020
Long-Term Debt	(Liquidation Basis)		(Going Concern Basis)
2018 Credit Agreement - Revolver	$	10,000	$	10,000
2018 Credit Agreement - Term Loans	36,583		36,583
Total credit facility debt	46,583		46,583
2020 PPP Loan	10,000		10,000
Total Long-Term Debt	N/A		56,583
Less:
Unamortized debt issue costs	N/A		(1,410)
Unamortized debt discount	N/A		(1,055)
Total long-term debt, less unamortized debt issuance costs	N/A		54,118
Current portion of credit facility debt	N/A		0
Long-term debt, less current portion	N/A		$	54,118

PPP Loan

including payroll costs, covered rent and mortgage obligations, and covered utility payments. The PPP Loan matures on April 12, 2022, two years from the commencement date and bears interest at a rate of 1.0% per annum. ~~Monthly amortized principle~~

On June 5, 2020, the Paycheck Protection Program Flexibility Act (the “new Act”) was signed into law and ~~interest~~made significant changes to the PPP to provide additional relief for borrowers under the PPP. The new Act increased flexibility for businesses that were unable to operate as normal due to COVID-19 related restrictions. The new Act extended the period that businesses have to use PPP funds to qualify for loan forgiveness to 24 weeks, up from 8 weeks under the original rules, relaxed the requirements that loan recipients must adhere to in order to qualify for loan forgiveness, and extended the payment deferral period to the earlier of the date when the amount of loan forgiveness is determined by the SBA and lender or 10 months after the 24 week covered period ends. Initially, all payments were to be deferred for six months. Under the new Act, payments are deferred ~~for six months after~~until the ~~date~~SBA remits any loan forgiveness amount to the lender, TCB in the case of ~~disbursement. The~~the Company. Interest accrues over the entire period of the PPP Loan ~~funds~~for the portion of the PPP that is not ultimately forgiven.

On November 12, 2020, we submitted an application for forgiveness of the entire $10.0 million due on the PPP Loan. Notwithstanding our application for loan forgiveness, we are unable to predict the actual amount of loan forgiveness, if any, that will be approved. On January 28, 2021, we were ~~received on April 21, 2020. The~~notified that our PPP Loan ~~contains events of default and other provisions customary~~had been selected for a loan of this type. The Payroll Protection Program provides that (1) the use of PPP Loan amount shall be limited to certain qualifying expenses, (2) 100 per cent of the principal amount of the loan is guaranteedreview by the Small Business Administration ("SBA") and ~~(3) an amount up~~we have responded on a timely basis to the ~~full principal amount may qualify for loan forgiveness in accordance with the terms of CARES Act.. We are not yet able to determine the amount that might be forgiven.~~information inquiry. As of ~~June 3, 2020, the Company was~~March 10, 2021, we were in full compliance with all covenants with respect to the PPP Loan.

2018 Credit Agreement

On December 13, 2018, ~~the Company~~we entered into a credit agreement ~~(as amended by the First Amendment (as~~(amended as defined below), the ~~“2018~~ (“Credit Agreement”) among the Company, the lenders from time to time party thereto, and a subsidiary of MSD Capital, MSD PCOF Partners VI, LLC (“MSD”), as Administrative Agent, pursuant to which the lenders party thereto agreed to make loans to the Company from time to time up to an aggregate principal amount of $80 million consisting of a $10 million revolving credit facility (the ~~“2018 Revolver”~~“Revolver”), a $10 million delayed draw term loan (“~~2018~~ Delayed Draw Term Loan”), and a $60 million term loan (the ~~“2018 Term~~“Term Loan”, and together with the ~~2018~~ Revolver and the ~~2018~~ Delayed Draw Term Loan, the ~~“2018 Credit~~“Credit Facility”). The ~~2018~~ Credit Facility terminates on, and all amounts owing thereunder must be repaid on, December 13, 2023.

On July 31, 2019, ~~the Company~~we entered into the First Amendment to the ~~2018~~ Credit Agreement (the “First Amendment”) to extend the ~~2018~~ Delayed Draw Term Loan expiration date for up to one year to the earlier to occur of (a) the date on which the commitments under the ~~2018~~ Delayed Draw Term Loan have been terminated or reduced to ~~zero~~0 in accordance with the terms of the ~~2018~~ Credit Agreement and (b) September 13, 2020. On December 18, 2019, ~~the Company~~we entered into the Second Amendment to the ~~2018~~ Credit Agreement which did not change any terms of the agreement permanently. The amendment only decreased the amount of mandatory prepayment related to the sale of two properties in the ~~.quarter~~quarter ended March 11, 2020. We entered into the Third Amendment to Credit Agreement, dated April 21, 2020 (the "Third Amendment"). The Third Amendment permitted us to incur indebtedness under the PPP Loan and terminated the $5.0 million undrawn portion of the delayed draw term loan upon receipt of the PPP Loan. On August 21, 2020, we entered into the Fourth Amendment to the Credit Agreement that decreased the amount of mandatory prepayments related to the sale of two properties in the

quarter ended August 26, 2020. No other terms of the agreement were changed permanently by this amendment.

Borrowings under the ~~2018~~ Revolver, ~~2018~~ Delayed Draw Term Loan, and ~~2018~~ Term Loan ~~will~~ bear interest at the three month London InterBank Offered Rate ("LIBOR") plus 7.75% per annum. Interest is payable quarterly and accrues daily. Under the terms of the ~~2018~~ Credit Agreement, the maximum amount of interest payable, based on the aggregate principal amount of $80.0 million and interest rates in effect at December 13, 2018, in the next 12 months was required to be prefunded at the closing date of the 2018 Credit Agreement. The prefunded amount at ~~June 3, 2020~~March 10, 2021 of approximately ~~$5.3~~$4.1 million is recorded in restricted cash and cash equivalents on ~~the Company's~~our consolidated ~~balance sheet.~~statement of net asset in liquidation. Three month LIBOR is set ~~to terminate in December, 2021.~~be discontinued after June 30, 2023. We expect to agree to a replacement rate with MSD prior to the LIBOR termination.

The ~~2018~~ Credit Facility is subject to the following minimum amortization payments: 1st anniversary: $10.0 million; 2nd anniversary: $10.0 million; 3rd anniversary: $15.0 million; and 4th anniversary: $15.0 million.

As of March 10, 2021, we have approximately $6.6 million principal payments due under the Credit Facility in the next 12 months. On April 5, 2021, in connection with the sale of a real estate asset, we made a principal payment of $2.8 million, leaving a principal balance of $3.8 million to be paid by December 13, 2021.

The Company also ~~pays~~paid a quarterly commitment fee based on the unused portion of the ~~2018~~ Revolver and the ~~2018~~ Delayed Draw Term Loan at 0.50% per annum. Voluntary prepayments, refinancing and asset dispositions constituting a sale of all or substantially all assets, under the ~~2018~~ Delayed Draw Term Loan and the ~~2018~~ Term Loan are subject to a make whole premium during years one and two equal to the present value of all interest otherwise owed from the date of the prepayment through the end of year two, a 2.0% fee during year three, and a 1.0% fee during year four. Finally, the Company paid to the lenders a one-time fee of $1.6 million in connection with the closing of the ~~2018~~ Credit Facility.

Indebtedness under the ~~2018~~ Credit Facility is secured by a security interest in, among other things, all of ~~the Company’s~~our present and future personal property (other than certain excluded assets), all of the personal property of ~~its~~our guarantors (other than certain excluded assets) and all Mortgaged Property (as defined in the ~~2018~~ Credit Agreement) of the Company and its subsidiaries. Under the ~~2018~~ Credit Facility, 80% of net proceeds from asset sales, including real property sales, are applied aas mandatory prepayments of our ~~2018~~ Term Loan.

The ~~2018~~ Credit Facility contains customary covenants and restrictions on ~~the Company’s~~our ability to engage in certain activities, including financial performance covenants, asset sales and acquisitions, and contains customary events of default. Specifically, among other things, ~~the Company is~~we are required to maintain minimum Liquidity (as defined in the ~~2018~~ Credit Agreement) of $3.0 million as of the last day of each fiscal quarter and a minimum Asset Coverage Ratio (as defined in the ~~2018~~ Credit Agreement) of 2.50 to 1.00. As of ~~June 3, 2020, the Company was~~March 10, 2021, we were in full compliance with all covenants with respect to the ~~2018~~ Credit Facility.

All amounts owing by the Company under the ~~2018~~ Credit Facility are guaranteed by the subsidiaries of the Company.

As of ~~June 3, 2020~~March 10, 2021, we had approximately ~~$1.9~~$1.8 million committed under letters of credit, which are used as security for the payment of insurance obligations and are fully cash collateralized, and approximately ~~$39~~$16 thousand in other indebtedness.

As of ~~July 20, 2020,~~April 26, 2021, the Company was in compliance with all covenants under the terms of the ~~2018~~ Credit Agreement.

~~2016 Credit Agreement~~

~~On December 13, 2018, the 2016 Credit Agreement was terminated with all outstanding amounts paid in full.~~

Note 16. Share-Based and Other Compensation

Matters

We have 2 active ~~share based~~share-based stock plans, the Luby's Incentive Stock Plan, as amended and restated effective December 5, 2015 (the "Employee Stock Plan") and the Non-employee Director Stock Plan, as amended and restated effective February 9, 2018. Both plans authorize the granting of stock options, restricted stock, and other types of awards consistent with the purpose of the plans.

~~Of the aggregate 2.10 million~~As of March 10, 2021, 0 shares ~~approved~~remain available for future issuance under the Non-employee Director Stock Plan, as amended, 2.07 million options, restricted stock units and restricted stock awards have been granted to date, and 144 thousand options were canceled or expired and added back into the plan since the plan’s inception. As of June 3, 2020, approximately 176 thousand shares remain available for future issuance.Plan. Compensation costs for share-based payment arrangements under the Non-employee Director Stock Plan, recognized in selling, general and administrative expenses, ~~for the three quarters ended June 3, 2020 and June 5, 2019~~ was approximately ~~$567~~$158 thousand, $237 thousand and ~~$440 thousand, respectively, and approximately $178 thousand and $151~~$390 thousand for the 12 weeks ended November 18, 2020 and the quarter ended and two quarters ended ~~June 3,~~March 11, 2020, ~~and June 5, 2019,~~ respectively.

Of the aggregate 4.1 million shares approved for issuance under the Employee Stock Plan, as amended, ~~7.3~~7.4 million options and restricted stock units have been granted to date, and ~~4.7~~5.2 million options and restricted stock units were canceled or expired and added back into the plan since the plan’s inception in 2005. As of ~~June 3, 2020,~~March 10, 2021, approximately ~~1.5~~1.9 million shares remain available for future issuance. Compensation costs for share-based payment arrangements under the Employee Stock Plan, recognized in selling, general and administrative expenses, ~~for the three quarters ended June 3, 2020 and June 5, 2019~~ was approximately ~~$179~~$25 thousand, $40 thousand and ~~$752 thousand, respectively, and approximately $(163) thousand and $219~~$136 thousand, respectively, for the 12 weeks ended November 18, 2020 and the quarter ended and two quarters ended ~~June 3, 2020 and June 5, 2019.~~March 11, 2020.

Stock Options

Stock options granted under either the Employee Stock Plan or the Non-employee Director Stock Plan have exercise prices equal to the market price of the Company’s common stock at the date of the grant.

Option awards under the Non-employee Director Stock Plan generally vest 100% on the first anniversary of the grant date and expire ten years from the grant date. NaN options were granted under the Non-employee Director Stock Plan in the ~~three~~two quarters ended ~~June 3, 2020.~~March 10, 2021. NaN options to purchase shares were outstanding under ~~this plan~~the Non-employee Director Stock Plan as of ~~June 3, 2020.~~

March 10, 2021.

Options granted under the Employee Stock Plan generally vest 50% on the first anniversary date of the grant date, 25% on the second anniversary of the grant date and 25% on the third anniversary of the grant date, with all options expiring ten years from the grant date. NaN options were granted in the ~~three~~two quarters ended ~~June 3, 2020.~~March 10, 2021. Options to purchase ~~1,165,283~~823,083 shares at option prices of $2.82 to $5.95 per share remain outstanding as of ~~June 3, 2020.~~

March 10, 2021.

A summary of the Company’s stock option activity for the ~~three~~two quarters ended ~~June 3, 2020~~March 10, 2021 is presented in the following table:

Shares
Under
Fixed
Options Weighted-
Average
Exercise
Price Weighted-
Average
Remaining
Contractual
Term Aggregate
Intrinsic
Value
(Per share) (In years) (In thousands)
Outstanding at August 28, 2019 1,387,412 $ 4.06 5.7 $ —
Cancelled / Forfeited (62,129) $ 4.29 — —
Expired (160,000) $ 3.44 — —
Outstanding at June 3, 2020 1,165,283 $ 4.13 5.2 $ —
Exercisable at June 3, 2020 1,129,069 $ 4.17 5.2 $ —


	Shares Under Fixed Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
		(Per share)		(In years)	(In thousands)
Outstanding at August 26, 2020	860,501	$	4.07	5.0	$	0

Exercised	(26,887)	$	2.82	—	$	12.8


Expired	(10,531)	$	5.39	—	—
Outstanding at March 10, 2021	823,083	$	4.09	4.4	$	109.7
Exercisable at March 10, 2021	823,083	$	4.09	4.4	$	109.7

The intrinsic value for stock options is defined as the difference between the current market value, or closing price on ~~June 3, 2020,~~March 10, 2021, and the grant price on the measurement dates in the table above.

At ~~June 3, 2020,~~March 10, 2021, there ~~was approximately $18 thousand of total~~is 0 unrecognized compensation cost related to unvested ~~options that are expected to be recognized over a weighted-average period of 0.5 years.~~options.

Restricted Stock Units

Grants of restricted stock units consist of the Company’s common stock and generally vest after three years. All restricted stock units are cliff-vested. Restricted stock units are valued at the closing market price of the Company’s common stock at the date of grant.

A summary of the Company’s restricted stock unit activity during the ~~three~~two quarters ended ~~June 3, 2020~~March 10, 2021 is presented in the following table:

Restricted
Stock
Units Weighted
Average
Fair Value Weighted-
Average
Remaining
Contractual
Term
(Per share) (In years)
Unvested at August 28, 2019 274,009 $ 3.40 1.2
Granted 65,236 $ 2.27 —
Vested (152,139) $ 3.96 —
Forfeited (13,298) 2.82 —
Unvested at June 3, 2020 173,808 $ 2.57 8.4

At June 3, 2020, there was approximately $0.2 million of total unrecognized compensation cost related to unvested restricted stock units that is expected to be recognized over a weighted-average period of 2.0 years.


	Restricted Stock Units	Weighted Average Fair Value		Weighted- Average Remaining Contractual Term
		(Per share)		(In years)
Unvested at August 26, 2020	173,808	$	2.57	2.0

Vested	(108,572)	$	2.75	—

Unvested at March 10, 2021	65,236	$	2.27	1.9

Performance Based Incentive Plan

The 2018 TSR Performance Based Incentive Plan (the "2018 TSR Plan") ~~provides~~provided for a specified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over a period of three years. The grant date fair value of the 2018 TSR Plan was determined based on a Monte Carlo simulation model for a period of three years. The target number of shares for distribution at 100% of the award was 373,294 on the grant date. The 2018 TSR Plan iswas accounted for as an equity award since it provides for a specified number of shares. The expense for this plan year iswas amortized over a period of three years based on 100% target award. The three years measurement period ended on August 26, 2020. Based on our total shareholder return ranking, no shares were vested and distributed.

Non-cash compensation expense related to ~~the Company's~~our 2018 TSR ~~Performance Based Incentive Plans,~~Plan, recorded in selling, general and administrative expenses, was approximately $9$89 thousand and ~~$355~~$207 thousand in the ~~three~~quarter ended and two quarters ended ~~June 3,~~March 11, 2020, ~~and June 5, 2019, respectively, and approximately $(198) thousand and $118 thousand, respectively in the quarters ended June 3, 2020 and June 5, 2019.~~

~~A summary of the Company’s restricted stock Performance Based Incentive Plan activity during the three quarters ended June 3, 2020 is presented in the following table:~~

Units Weighted
Average
Fair Value
(Per share)
Unvested at August 28, 2019 266,443 $ 3.68
Forfeited (85,617) 3.68
Unvested at June 3, 2020 180,826 $ 3.68

At June 3, 2020, there was approximately $0.1 million of total unrecognized compensation cost related to 2018 TSR Performance Based Incentive Plan that is expected to be recognized over a weighted-average period of 0.2 years.

respectively.

Restricted Stock Awards

Under the Non-employee Director Stock Plan, directors ~~may be granted~~received grants of restricted stock in lieu of cash payments, for all or a portion of their compensation as directors. Directors ~~may receive~~received a 20% premium of additional restricted stock by opting to receive stock over a minimum required amount of stock, in lieu of cash. The number of shares granted iswas valued at the average of the high and low price of the Company’s stock at the date of the grant. Restricted stock awards vest when granted because they are granted in lieu of a cash payment. However, directors are restricted from selling their shares until after the third anniversary of the date of the grant. As of March 10, 2021, there are no shares available for issuance under the Non-employee Director Stock Plan and future directors compensation will be paid in cash.

Cash and Restricted Share Bonus Plan

On August 12, 2020, the Board of Directors approved a bonus opportunity agreement by which 5 members of management, including the Chief Operating Officer, the Chief Financial Officer and the Chief Accounting Officer are eligible to receive both a cash bonus and a restricted stock award bonus (collectively, the "retention awards"). The retention awards are intended to retain certain key employees in their roles with the Company and to carry out the Plan of Dissolution. A portion of the retention awards is earned for each of the closing of the sale of (1) our CCS business line, (2) the Fuddruckers business line and (3) 30 or more of our Luby's Cafeterias (each being a "Triggering Event"). The cash bonus will be paid on the next payroll cycle following such Triggering Event. The restricted stock award will be considered earned as of such Triggering Event and shall vest on the 1st anniversary of the Triggering Event, unless the individual's employment with us is terminated prior to the restriction lapsing. The total cash bonus available to be earned is $0.2 million. The total number of restricted stock available to be earned is 127,000 shares. The grant date for the restricted stock award was August 25, 2020 and the grant date fair value was $139 thousand, based on the average share price of our common stock on the grant date of $1.095.

Severance Agreements

On August 12, 2020, the Board of Directors approved severance agreements for 8 members of management, including the Chief Operating Officer, the Chief Financial Officer and the Chief Accounting Officer. The agreements provide for a separation payment upon (1) termination by the Company of employment without cause (as defined in the severance agreement), (2) resignation for Good Reason (as defined in the Appendix to the severance agreement), in either case the individual ceases to be employed by us or a successor to all or part of our business. The separation payment will not be paid if the individual is offered, but declines comparable employment with a successor. The separation payment is calculated as a percentage of the individual's annual base salary, ranging from 25% to 100% The total amount of severance that would be paid as of March 10, 2021 is $1.0 million.

Note 17. Earnings Per Share (Going Concern Basis)

~~Basic~~Under the going concern basis of accounting, basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income per share, the basic weighted average number of shares is increased by the dilutive effect of stock options determined using the treasury stock method. Stock options excluded from the computation of net income per share for the 12 week period ended November 18, 2020 and the quarter ended and two quarters ended ~~and three quarters ended June 3,~~March 11, 2020 ~~and June 5, 2019~~ include ~~1,165,283~~849,970 shares, 1,174,247 shares, and ~~1,464,010~~1,174,247 shares respectively, with exercise prices exceeding market prices whose inclusion would also be anti-dilutive.

The components of basic and diluted net loss per share are as follows:


		Quarter Ended						Three Quarters Ended							Quarter Ended		Period Ended	Two Quarters Ended
		June 3, 2020		June 5, 2019		June 3, 2020		June 5, 2019			March 11, 2020		November 18, 2020		March 11, 2020
		(12 weeks)		(12 weeks)		(40 weeks)		(40 weeks)			(12 weeks)		(12 weeks)		(28 weeks)
		(In thousands, except per share data)															(In thousands, except per share data)
Numerator:	Numerator:									Numerator:
Loss from continuing operations	Loss from continuing operations	$	(24,972)	$	(5,295)	$	(37,096)	$	(6,139)	Loss from continuing operations	$	(3,797)	$	(3,003)	$	(12,124)
Loss from discontinued operations, net of income taxes	Loss from discontinued operations, net of income taxes	(7)		(6)		(23)		(18)		Loss from discontinued operations, net of income taxes	(6)		(16)		(17)
NET INCOME (LOSS)		$	(24,979)	$	(5,301)	$	(37,119)	$	(6,157)
NET LOSS										NET LOSS	$	(3,803)	$	(3,019)	$	(12,141)
Denominator:	Denominator:									Denominator:
Denominator for basic earnings per share—weighted-average shares	Denominator for basic earnings per share—weighted-average shares	30,398		29,874		30,206		29,732		Denominator for basic earnings per share—weighted-average shares	30,215		30,662		30,123
Effect of potentially dilutive securities:	Effect of potentially dilutive securities:									Effect of potentially dilutive securities:
Employee and non-employee stock options	Employee and non-employee stock options	—		—		—		—		Employee and non-employee stock options	0		0		0
Denominator for earnings per share assuming dilution	Denominator for earnings per share assuming dilution	30,398		29,874		30,206		29,732		Denominator for earnings per share assuming dilution	30,215		30,662		30,123

Loss per share from continuing operations:	Loss per share from continuing operations:									Loss per share from continuing operations:
Basic		$	(0.82)	$	(0.18)	$	(1.23)	$	(0.21)
Assuming dilution		$	(0.82)	$	(0.18)	$	(1.23)	$	(0.21)
Basic and diluted										Basic and diluted	$	(0.13)	$	(0.10)	$	(0.40)

Loss per share from discontinued operations:	Loss per share from discontinued operations:									Loss per share from discontinued operations:
Basic		$	0.00	$	0.00	$	0.00	$	0.00
Assuming dilution		$	0.00	$	0.00	$	0.00	$	0.00
Basic and diluted										Basic and diluted	$	0.00	$	0.00	$	0.00

Loss per share:	Loss per share:									Loss per share:
Basic		$	(0.82)	$	(0.18)	$	(1.23)	$	(0.21)
Assuming dilution		$	(0.82)	$	(0.18)	$	(1.23)	$	(0.21)
Basic and diluted										Basic and diluted	$	(0.13)	$	(0.10)	$	(0.40)

Note ~~18:~~18. Shareholder Rights Plan

On February 15, 2018, the Board of Directors adopted a shareholder rights plan with a 10% triggering threshold and declared a dividend distribution of one right initially representing the right to purchase one half of a share of Luby’s common stock, upon specified terms and conditions. The rights plan was effective immediately.

The Board adopted the shareholder rights plan in view of the concentrated ownership of Luby’s common stock as a means to ensure that all of Luby’s stockholders are treated equally. The shareholder rights plan is designed to limit the ability of any person or group to gain control of Luby’s without paying all of Luby’s stockholders a premium for that control. The shareholder rights plan was not adopted in response to any specific takeover bid or other plan or proposal to acquire control of Luby’s.

If a person or group acquires 10% or more of the outstanding shares of Luby’s common stock (including in the form of synthetic ownership through derivative positions), each right will entitle its holder (other than such person or members of such group) to purchase, for ~~$12,~~$12.00, a number of shares of Luby’s common stock having a then-current market value of twice such price. The rights plan exempts any person or group owning 10% or more (35.5% or more in the case of Harris J. Pappas, Christopher J. Pappas and their respective affiliates and associates) of Luby’s common stock immediately prior to the adoption of the rights plan. However, the rights will be exercisable if any such person or group acquires any additional shares of Luby’s common stock (including through derivative positions) other than as a result of equity grants made by Luby’s to its directors, officers or employees in their capacities as such.

Prior to the acquisition by a person or group of beneficial ownership of 10% or more of the outstanding shares of Luby’s common stock, the rights are redeemable for $0.01 per right at the option of Luby’s Board of Directors.

The dividend distribution was made on February 28, 2018 to stockholders of record on that date. Unless and until a triggering event occurs and the rights become exercisable, the rights will trade with shares of Luby’s common stock.

Luby’s financial condition, operations, and earnings per share were not affected by the adoption of the shareholder rights plan.

On February 11, 2019, the Board of Directors approved the first amendment to the shareholder rights plan extending the term of the shareholder rights plan to February 15, 2020.

On February 14, 2020, the Board of Directors approved the second amendment to the shareholder rights plan extending the term of the plan to February 15, 2021.

On November 17, 2020, the Company's shareholders ratified the shareholder rights plan.

On February 14, 2021, the Board of Directors approved the third amendment to the shareholder rights plan extending the term of the plan to February 15, 2022.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and footnotes for the quarter ended ~~June 3, 2020~~March 10, 2021 included in Item 1 of Part I of this Quarterly Report on Form 10 (this “Form 10-Q”), and the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended August ~~28, 2019.~~

The following presents an analysis of the results and financial condition of our continuing operations. Except where indicated otherwise, the results of discontinued operations are excluded from this discussion.

The following table sets forth selected operating data as a percentage of total sales (unless otherwise noted) for the periods indicated. All information is derived from the accompanying consolidated statements of income.

~~Percentages in the table on the following page may not total due to rounding.~~

Quarter Ended Three Quarters Ended
June 3,
2020 June 5,
2019 June 3,
2020 June 5,
2019
(12 weeks) (12 weeks) (40 weeks) (40 weeks)
Restaurant sales 72.8 % 87.8 % 86.4 % 88.1 %
Culinary contract services 26.1 % 10.1 % 11.9 % 9.8 %
Franchise revenue 1.0 % 2.0 % 1.7 % 2.0 %
Vending revenue — % 0.1 % 0.1 % 0.1 %
TOTAL SALES 100.0 % 100.0 % 100.0 % 100.0 %
STORE COSTS AND EXPENSES:
(As a percentage of restaurant sales)
Cost of food 29.2 % 28.2 % 28.8 % 27.8 %
Payroll and related costs 39.7 % 38.1 % 38.9 % 37.9 %
Other operating expenses 41.7 % 17.5 % 19.4 % 17.7 %
Occupancy costs 26.7 % 6.1 % 7.9 % 6.3 %
Vending revenue — % (0.2) % (0.1) % (0.1) %
Store level profit (37.2) % 10.2 % 5.1 % 10.3 %
COMPANY COSTS AND EXPENSES:
(As a percentage of total sales)
Opening costs 0.0 % 0.0 % 0.0 % 0.0 %
Depreciation and amortization 14.3 % 3.9 % 5.0 % 4.4 %
Selling, general and administrative expenses 17.6 % 11.5 % 11.1 % 10.5 %
Other Charges 0.9 % 1.1 % 1.6 % 1.3 %
Provision for asset impairments and restaurant closings 66.9 % 0.9 % 7.9 % 1.2 %
Net gain on disposition of property and equipment (1.9) % (0.6) % (1.6) % (5.1) %
Culinary Contract Services Costs
(As a percentage of Culinary Contract Services sales)
Cost of culinary contract services 94.9 % 89.7 % 92.3 % 90.7 %
Culinary segment profit 5.1 % 10.3 % 7.7 % 9.3 %
Franchise Operations Costs
(As a percentage of Franchise revenue)

Cost of franchise operations 226.4 % 22.3 % 46.1 % 16.6 %
Franchise segment profit (126.4) % 77.7 % 53.9 % 83.4 %
(As a percentage of total sales)
Total costs and expenses
LOSS FROM OPERATIONS (124.8) % (5.3) % (17.9) % (0.6) %
Interest income 0.1 % 0.0 % 0.0 % 0.0 %
Interest expense (8.6) % (1.8) % (2.8) % (1.8) %
Other income, net 2.1 % 0.1 % 0.4 % 0.1 %
Loss before income taxes and discontinued operations (131.2) % (6.9) % (20.2) % (2.3) %
Provision for income taxes 0.3 % 0.2 % 0.1 % 0.1 %
Loss from continuing operations (131.5) % (7.1) % (20.3) % (2.4) %
Loss from discontinued operations, net of income taxes 0.0 % 0.0 % 0.0 % 0.0 %
NET LOSS (131.5) % (7.1) % (20.3) % (2.4) %

Although store level profit, defined as restaurant sales less cost of food, payroll and related costs, other operating expenses, and occupancy costs is a non-GAAP measure, we believe its presentation is useful because it explicitly shows the results of our most significant reportable segment. The following table reconciles between store level profit, a non-GAAP measure, to loss from continuing operations, a GAAP measure:

Quarter Ended Three Quarters Ended
June 3,
2020 June 5,
2019 June 3,
2020 June 5,
2019
(12 weeks) (12 weeks) (40 weeks) (40 weeks)
(In thousands) (In thousands)
Store level profit $ (5,150) $ 6,706 $ 8,036 $ 22,938
Plus:
Sales from culinary contract services 4,963 7,571 21,735 24,610
Sales from franchise operations 193 1,482 3,058 5,126
Less:
Opening costs — 6 14 49
Cost of culinary contract services 4,712 6,791 20,060 22,324
Cost of franchise operations 437 330 1,411 849
Depreciation and amortization 2,709 2,927 9,149 11,052
Selling, general and administrative expenses 3,339 8,623 20,313 26,386
Other Charges 164 803 2,912 3,280
Provision for asset impairments and restaurant closings 12,708 675 14,478 3,097
Net gain on disposition of property and equipment (364) (434) (2,861) (12,935)
Interest income (19) (11) (47) (30)
Interest expense 1,641 1,324 5,076 4,593
Other income, net (402) (112) (790) (198)
Provision for income taxes 53 132 210 346
Loss from continuing operations $ (24,972) $ (5,295) $ (37,096) $ (6,139)

26, 2020

The following table shows our restaurant unit count as of August ~~28, 2019~~26, 2020 and ~~June 3, 2020.~~

March 10, 2021.

Restaurant Counts:


	August 26, 2020	FY21 YTDQ2 Openings	FY21 YTDQ2 Closings	FY21 YTDQ2 Franchise Conversion	March 10, 2021
Luby’s cafeterias	61	—	(3)	—	58
Fuddruckers restaurants	24	—	—	(1)	23


Total	85	—	(3)	(1)	81

August 28,
2019 FY20 YTDQ3
Openings FY20 YTDQ3
Closings June 3,
2020
Luby’s Cafeterias 79 — (3) 76
Fuddruckers Restaurants 44 — (13) 31
Cheeseburger in Paradise 1 — — 1
Total 124 — (16) 108

~~Overview~~

~~Luby’s, Inc. (“Luby’s”, the “Company”, "we", "us", or "our") is~~Subsequent to March 10, 2021, we have entered into franchise agreements with a ~~multi-branded company operating in the restaurant industry~~third-party operator for 11 Fuddruckers restaurants and ~~in the contract food services industry. Our primary brands include Luby’s Cafeteria, Fuddruckers - World’s Greatest Hamburgers~~^®~~, Luby’s Culinary Contract Services and Cheeseburger in Paradise.~~

We are headquartered in Houston, Texas. Our corporate headquarters is located at 13111 Northwest Freeway, Suite 600, Houston, Texas 77040, and our telephone number at that address is (713) 329-6800. Our website is www.lubysinc.com. The information on our website is not, and shall not be deemed to be, a ~~part of this Form 10-Q or incorporated by reference into any of our other filings~~management agreement with the ~~SEC.~~

same third-party operator for one additional Fuddruckers restaurant. As of ~~June 3, 2020,~~April 26, 2021, we ~~owned or leased 108~~operate 11 Fuddruckers company-owned restaurants, of which 76five are ~~traditional cafeterias, 31~~Combo units, where a Luby's cafeteria and a Fuddruckers restaurant occupy the same location. The Combo units are gourmet hamburger restaurants, and one is a casual dining restaurant and bar. These establishments are located in close proximity to retail centers, business developments and residential areas mostly throughout the United States. Includedincluded in the ~~108 restaurants that we own or lease are 12 restaurants located at six property locations where we operate a side-by-side Luby’s Cafeteria~~above counts for both Luby's cafeteria and Fuddruckers restaurants. As of April 26, 2021, we have 83 Fuddruckers restaurants operated by franchise owners.

Overview

Prior to Adoption of the Plan of Liquidation

The consolidated financial statements prior to November 19, 2020 were prepared on the ~~same property. We refer to these locations as “Combo locations.” Of these locations, there were 31 Luby's Cafeteria restaurants~~going concern basis, which contemplates the realization of assets and ~~Combo locations and 8 Fuddruckers restaurants operating with dining rooms open at limited capacity as~~the satisfaction of ~~June 3, 2020,~~

~~As of June 3, 2020, we operated 27 Culinary Contract Services locations. We operated 20 of these locations~~liabilities in the Houston, Texas area, two in Dallas, Texas, three in the Texas Lower Rio Grande Valley, one in Kansas, and one in North Carolina. Luby’s Culinary Contract Services currently provides food service management to hospitals, corporate dining facilities, sports stadiums, and a senior care facility.

As of June 3, 2020, we had 37 franchise owners operating 83 Fuddruckers restaurants. Our largest 6 franchise owners own five to twelve restaurants each and 12 franchise owners each own two to four restaurants. The 19 remaining franchise owners each own one restaurant.

~~Special Committee Update~~

~~On June 3, 2020, the Company announced that, upon the recommendation of a Special Committee of the Board of Directors, the full Board approved a~~normal course of ~~action to pursue~~business.

Plan of Liquidation

On November 17, 2020 our shareholders approved the Plan of Liquidation and Dissolution (the “Plan of Liquidation“ or the “Plan”). The Plan provides for an orderly sale of ~~the Company’s operating divisions~~our businesses, operations, and ~~assets, including its~~ real estate, ~~assets, and distribute the net proceeds to stockholders after~~ payment of ~~the Company’s debts~~our liabilities and other ~~obligations.During the sale process, many of the Company’s restaurants will remain open.The decision by the Company’s Board of Directors follows a comprehensive review of the Company’s operations~~obligations, and ~~assets led by a Special Committee, which reviewed a range of strategic alternatives available to the Company with the objective of maximizing stockholder value.~~

The Company has not established a definitive timeframe for completing this process which most likely will lead to the adoption by the Board of Directors of a formal plan of sale and proceeds distribution followed by an orderly wind down of any remaining ~~operations. Such~~operations and dissolution of the Company. We intend to attempt to convert all of our assets into cash, satisfy or resolve our remaining liabilities and obligations, including contingent liabilities, claims and costs associated with the liquidation of the Company, and then file a certificate of dissolution with the state of Delaware. The assets to be sold include our Luby's Cafeterias, Fuddruckers, and Culinary Contract Services ("CCS") operating divisions, as well as our real estate. We currently anticipate that our common stock will be delisted from the New York Stock Exchange ("NYSE") upon the filing of the certificate of dissolution, which is not expected to occur until the earlier of the completion of all or substantially all of the asset sales or three years. The delisting of our common stock may occur sooner in accordance with the applicable rules of the NYSE.

Following the Adoption of the Plan of Liquidation

We have determined, as a result of the approval of the Plan by our shareholders, that liquidation is imminent, as defined in ASC 205-30 Financial Statement Presentation, Liquidation Basis of Accounting. Liquidation is considered imminent when the likelihood is remote that we will return from liquidation and either (a) the Plan is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the Plan will be blocked by other parties, or (b) the Plan is being imposed by other forces (for example, involuntary bankruptcy).

The liquidation basis of accounting differs significantly from the going concern basis, as summarized below.

Under the liquidation basis of accounting, the consolidated balance sheet and consolidated statements of operations, equity and cash flows are no longer presented.

liquidation basis of accounting may only be applied prospectively from the day liquidation becomes imminent and the initial statement of changes in net assets in liquidation may present only changes in net assets that occurred during the period since that date.

Under the liquidation basis of accounting, our assets are measured at their estimated net realizable value, or liquidation value, which represents the amount of their estimated cash proceeds or other consideration from liquidation, based on current contracts, estimates and other indications of sales value, and may include previously unrecognized assets that we may expect to either sell in the course of our liquidation or use in settling liabilities, such as trademarks or other intangibles. In developing these estimates, we utilized third party valuation experts, investment bankers, real estate brokers, the expertise of members of the Special Committee of our Board of Directors, and forecasts generated by our management. For estimated real estate values, we considered comparable sales transactions, our past experience selling real estate assets of the Company, and, in certain instances, indicative offers, as well as capitalization rates observed for income-producing real estate. For estimated business unit valuations we considered estimated values of the economic components of possible transactions, the value of a buyer assuming certain liabilities in a purchase transaction, and, in certain instances, indicative offers, as well as, the probabilities of certain outcomes. Estimates for the liquidation value of the business units, or subset of operating restaurants, were also tested for reasonableness through a multiple of historical and projected business cash flows. All estimates by nature involve a large degree of judgement and sensitivity to the underlying assumptions.

The liquidation basis of accounting requires us to accrue and present separately, without discounting, the estimated disposal and other costs, including any costs associated with the sale or settlement of our assets and ~~proceeds distribution, if adopted by~~liabilities and the ~~Board,~~estimated operating income or loss that we reasonably expect to incur, including providing for federal income taxes during the remaining expected duration of the liquidation period. In addition, deferred tax assets previously provided for under the going concern basis of accounting, which include net operating losses and other tax credits, may be realized partially or in full, subject to IRS limitations, to offset taxable income we expect to generate from the liquidation process.

Under the liquidation basis of accounting, we will recognize liabilities as they would ~~require stockholder approval.~~have been recognized under the going concern basis as adjusted for the timing assumptions related to the liquidation process and they will not be reduced to expected settlement values prior to settlement.

These estimates will be periodically reviewed and adjusted as appropriate. There can be no assurance ~~such a plan of sale and proceeds distribution~~that these estimated values will be ~~adopted by~~realized. Such amounts should not be taken as an indication of the ~~Board~~timing or ~~approved by stockholders.~~the amount of future distributions or our actual dissolution.

The ~~Company has retained Duff & Phelps Securities, LLC to assist it~~valuation of our assets and liabilities, as described above, represents estimates, based on present facts and circumstances, of the net realizable value of the assets and costs associated with carrying out the Plan. The actual values and costs associated with carrying out the Plan may differ from amounts reflected in the accompanying consolidated financial statements because of the Plan's inherent uncertainty. These differences may be material. In particular, these estimates will vary with the ~~sale~~length of ~~Luby’s Cafeteria~~time necessary to complete the Plan. It is currently anticipated that a majority of our assets will be sold by December 31, 2021, with a final liquidation by June 30, 2022; however, it is likely that the full realization of proceeds from these sales will extend beyond that date.

We have one class of common stock. The net assets in liquidation at March 10, 2021 would result in liquidating distributions of approximately $3.98 per common share based on the number of common shares outstanding at that date. This estimate is dependent on projections of costs and ~~Culinary Contract Services~~expenses to be incurred during the period required to complete the Plan and ~~has retained Brookwood Associates LLC~~the realization of estimated net realizable value of our properties and business units. There is inherent uncertainty with these estimates, and they could change materially based on the timing of business and property sales, the performance of the underlying assets, any changes in the underlying assumptions of the projected cash flows, as well as the ultimate vesting of outstanding restricted share awards and exercise of vested stock options. The estimated liquidating distributions per share on a fully diluted basis, assuming all restricted stock awards vest and all in-the-money stock options are exercised, is not materially different than the amount stated above. It is not possible to ~~assist it~~predict with certainty the ~~sale of Fuddruckers.~~

timing or aggregate amount that may ultimately be distributed to our shareholders and no assurance can be given that the liquidating distributions will equal or exceed the estimate presented in these consolidated financial statements.

COVID-19 ~~Pandemic~~

On March 13, 2020, President Donald Trump declared a national emergency in response to the ~~novel coronavirus disease ("COVID-19")~~COVID-19 pandemic. ~~On March 19, 2020, Governor Greg Abbott~~Throughout the remainder of Texas issued a public health disaster for the state of Texas to bring the entire state in line with CDC guidelines including, (1) closing of schools statewide, (2) ban on dine-in eating and gatherings of groups of more than 10 people, and (3) closing of gyms and bars. Governor Abbott followed with an essential services order on March 31, 2020, requiring anyone who is not considered an essential, critical infrastructure worker to stay home except for essential activity, essential businesses, essential government functions and critical care facilities. Most other states, including those states where we operate, issued similar orders. The governor of Texas began relaxing some restrictions on businesses operating in Texas beginning May 1, 2020, which permitted a gradual reopening of businesses, including restaurants, with modified operations..

~~The spread of COVID-19 has affected the United States economy, our operations and those of third parties on which we rely. Beginning on March 17,~~calendar 2020, we ~~began suspending~~cycled through periods initially when state government orders mandated a suspension of on-premise dining, atfollowed by periods when our ~~restaurants and substantially all employees at~~on-premise dining capacity was limited due to government

3937

~~those~~order, a condition that continues at certain locations ~~were placed on furlough. By~~through the date of this filing. Prior to the onset of the COVID-19 pandemic we operated 118 restaurants. As of March ~~31, 2020~~10, 2021, we ~~had suspended on-premise dining at all 118 of~~operated 81 restaurants (58 Luby’s cafeterias and 23 Fuddruckers restaurants). Additionally, our ~~company-owned restaurants and had suspended all operations at 50 of our Luby's Cafeteria's, 36 company-owned~~ Fuddruckers ~~restaurants and our~~ ~~one~~ Cheeseburger in Paradise restaurant. The 28 Luby's Cafeteria's and 3 Fuddruckers restaurants that remained open were providing take-out, drive-through and curbside pickup, or delivery with reduced operating hours and on-site staff. In addition, more than 50 percent of our general and administrative staff were placed on furlough and salaries were temporarily reduced by 50 percent for the remaining general and administrative staff and other salaried employees, including all senior management. Furthermore, our franchise owners suspended operations or moved to limited food-to-go operations at theirfranchisees operated 90 locations ~~reducing the number of franchise locations in operation to 37 by early April 2020 from 90~~ prior to the COVID-19 ~~pandemic.~~

~~Beginning in May 2020, we began to gradually reopen the dining rooms with state-mandated limits on guest capacity at the 28 Luby's locations~~pandemic and ~~3 Fuddruckers locations that had been previously operating with food-to-go service only. We also began to reopen~~operated 72 restaurants that were temporarily closed. As of June 3, 2020, there were 31 Luby's Cafeteria's and 8 Fuddruckers restaurants operating, all of which had their dining rooms open at limited capacity. There were 59 franchise locations in operation as of ~~June 3, 2020. We are continuing~~March 10, 2021.

Vaccines for COVID-19 were first made available in the ~~gradual reopening~~United States ("U.S.") in December 2020 with increasing rates of vaccination in the U.S. population with each passing month. Additionally, in March 2021, restaurants in our ~~restaurants and as~~core Texas market were permitted to return to utilization of 100% of seating capacity. Furthermore, the ~~date~~U.S. Treasury provided a new round of ~~this filing there were 46 Luby's Cafeteria's and 17 Fuddruckers Restaurants operating with dining rooms open at limited capacity and there were 64 franchise locations in operation.~~

~~The full extent and duration of the impact of the COVID-19 pandemic~~stimulus through direct payments to U.S. citizens. As we execute on our ~~operations and financial performance is currently unknown, and depends on future developments that~~Plan of Liquidation, we are ~~uncertain and unpredictable, including~~still operating a number of restaurants as described above. Uncertainty remains regarding the ~~duration~~continued rate of the spread of the pandemic, its impact on capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus, its spread to other regions, the actions to contain the virus or treat its impact, and consumer attitudes and behaviors, among others. The COVID-19 pandemic has materially disrupted our operations and cash flows for the third quarter of fiscal 2020 and has resultedimmunization in the ~~recording of additional non-cash impairment charges related to our property and equipment and operating lease right-of-use assets related to our restaurants and goodwill.~~

~~Given the uncertainty regarding the spread of this virus and the~~public, timing of ~~the~~an economic recovery, ~~the~~and changed guest decision-making with regard to dining in restaurants. The COVID-19 pandemic could continue to materially impact our ~~results~~cash flows and value of ~~operations~~net assets in liquidation, while we execute on our Plan of Liquidation.

Asset Disposal and ~~cash flows.~~Liquidation Activities

~~See "Going Concern" below.~~Brands

~~Payroll Protection Plan (PPP) Loan~~•In December 2020 we terminated our sub-license to the Cheeseburger in Paradise brand name in return for compensation from the sub-licensor. Proceeds from the sale were immaterial.

•In December 2020 we announced that we entered into an agreement to franchise 13 of our company-owned Fuddruckers restaurants to Black Titan Holding, LLC.

◦Subsequent to March 10, 2021, we closed on the sale and ~~Credit Facility Debt Modification~~transfer of nine of these Fuddruckers restaurants. In each case, Black Titan Holding, LLC entered into a franchise agreement with us to operate each of these nine Fuddruckers restaurants. Black Titan Holding, LLC assumed the lease obligation or ownership of the tenant entity at each of these nine locations and thus Luby’s no longer has a lease obligation at these property locations.

~~As more fully discussed in "Debt" below, in~~◦Also subsequent to March 10, 2021, we closed on the sale and transfer of two of these Fuddruckers restaurants and we entered into a management agreement on one of these Fuddruckers restaurants with Black Titan, LLC. However, Luby's continues to be either directly or contingently liable for the lease obligation at these property locations.

◦We anticipate the sale and transfer of the remaining Fuddruckers location to Black Titan Holding, LLC before the end of the third quarter of fiscal ~~2020~~2021.

•During the second quarter of fiscal 2021, we sold our rights to the Koo Koo Roo brand name to an independent third party. Proceeds from the sale were immaterial.

•In February 2021 we completed the sale and transfer of a previously company-owned Fuddruckers restaurant to HPCP Investments, LLC, a company affiliated with Christopher J. Pappas, a director, owner of greater than 5% of our common stock, and our former chief executive officer. Proceeds from the sale were approximately $0.2 million. Concurrent with the sale, Pappas Restaurants, Inc., another company affiliated with Mr. Pappas entered into a ~~promissory note in the amount of $10.0 million (the "PPP Loan"). In conjunction~~franchise agreement with ~~the entering into the PPP Loan, we amended our credit facility to permit~~ us to ~~incur indebtedness~~operate a Fuddruckers restaurant at this location. Also as part of this transaction, our operating lease with HPCP Investments, LLC for this location was terminated and our remaining lease obligation was cancelled. Each of these transactions was approved by the Finance and Audit Committee of our Board of Directors. These transactions are monetization events under ~~the PPP Loan and to terminate the $5.0 million undrawn portion~~our Plan of ~~the delayed draw term loan upon receipt of the PPP Loan.~~Liquidation.

~~Going Concern~~Real Estate

~~We sustained a net loss of $15.2 million and cash flow from operations was a use of cash of $13.1 million in~~•During fiscal year ~~ended August 28, 2019.~~2020, we sold nine properties for total net proceeds of approximately $23.7 million.

•During fiscal year 2021, through April 26, 2021, we have closed on the sale of two properties for total net proceeds of approximately $5.1 million.

•As of April 26, 2021, the Company has ownership of 63 properties.

Lease Settlements

In fiscal year 2020, we terminated and settled our remaining lease obligation for 16 closed restaurant properties and negotiated an early termination date and reduced lease payment at one operating restaurant property. In the first two quarters ~~ended March 11, 2020~~ ~~(a period prior~~of fiscal year 2021, we terminated and settled our remaining lease obligation at ten closed restaurant properties and we settled one addition lease obligation for a closed restaurant property. While the amounts paid to ~~the COVID-19 pandemic), we sustained a net loss of $12.1 million and cash flow from operations was a use of cash of $5.9 million. In the~~ ~~quarter ended~~ ~~June 3, 2020 we sustained a net loss of $25.0 million and for the~~ ~~three quarters ended~~ ~~June 3, 2020~~settle our cash flow from operations was a use of cash of $14.1 million. On March 13, 2020, shortly after the end of our second quarter, President Donald Trump declared a national emergency in response to the COVID-19 pandemic followed by Governor Greg Abbott of Texas issuing a public health disaster for the state of Texas on March 19, 2020. We took the necessary actions described in "Note 2. COVID-19 Pandemic" which further stressed the liquid financial resources of the Company. We borrowed the remaining $1.4 million available on our revolving line of credit with MSD Capital, borrowed $2.5 million on our Delayed Draw Term Loan, and applied for and received a $10.0 million PPP Loan as described in "COVID-19 Pandemic", above. As of the date of this filing, we have no undrawn borrowing capacity under our credit facility. Further, we do not believe that we are currently able to secure any additional debt financing.

The full extent and duration of the impact of the COVID-19 pandemic on our operations and financial performance is currently unknown. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations and its ability to generate proceeds from real estate property sales to meet its obligations. The above conditions and events,lease liabilities varied, in the aggregate, ~~raise substantial doubt about our ability to continue as a going concern. Notwithstanding~~we have settled these 27 leases for approximately 21% of the ~~aforementioned substantial doubt, the accompanying consolidated financial statements~~total undiscounted base rent payments that would otherwise have been ~~prepared assuming~~due under the leases through their original contractual termination date. Although we can offer no assurances that ~~the Company~~we will continue ~~as a going concern. The financial statements do not include~~to settle any ~~adjustments to reflect~~lease obligation for less than its recorded values, any future settlements at less than the ~~possible future effects on~~recorded value of the ~~recoverability and classification of~~related lease obligation would increase our reported net assets ~~or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern Management has assessed the Company’s ability to continue as~~in liquidation.

4038

~~On June 3, 2020, the Company announced that the Board~~General and Administrative Expenses

As we progress through our Plan of ~~Directors of the Company will aggressively pursue a sale of the Company's operations~~Liquidation, we remain focused on reducing our operating and ~~assets and distribute the net proceeds~~administrative costs, when appropriate, to provide maximum liquidation value to our stockholders, after payment of debt and other obligations. This course of action is more fully explained in "Special Committee Update" above. We have not established a timeframe, nor have we committed to a specific plan, but such a plan could extend beyond one year. Until a ~~formal plan of sale and proceeds distribution~~ is approved, we believe we will be able to meet our obligations for the next 12 months when they come due through (1) cash flow from operating certain restaurants, (2) available cash balances, and (3) proceeds generated from real estate property sales as discussed below.

•Restructured corporate overhead earlier in calendar 2020 prior to the COVID-19 pandemic, including a transition to third party provider for certain accounting and payroll function. Significant further restructuring took place in April, May and June of 2020, as we reviewed all corporate service providers, information technology needs, and personnel requirements to support a reduced level of operations going forward.

•In addition to the approximate $7.2 million proceeds from property sales achieved in fiscal year 2020 through the third quarter, we generated an additional $10.7 million proceeds from property sales in June 2020 and anticipate an additional $9.2 million proceeds from property sales before the end of fiscal 2020 in August.

Accounting Periods

The Company’s fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate. The first fiscal quarter consists of four four-week periods, or 16 weeks, and the remaining three quarters typically includes three four-week periods, or 12 weeks, in length. The fourth fiscal quarter includes 13 weeks in certain fiscal years to adjust for our standard 52 week, or 364 day, fiscal year compared to the 365 day calendar year. Comparability between quarters may be affected by the varying lengths of the quarters, as well as the seasonality associated with the restaurant business.

~~Same-Store Sales~~

Due to the lack of comparability of current year quarter and year-to-date restaurant sales as a result of the effects of the COVID-19 pandemic, we are not presenting Same-Store Sales comparisons in this Quarterly Report on Form 10Q.

4139

RESULTS OF OPERATIONS

Quarter Ended ~~June 3,~~March 11, 2020 and Period Ended November 18, 2020 Compared to ~~Quarter Ended June 5, 2019 and Three~~the Two Quarters Ended ~~June 3,~~March 11, 2020 ~~Compared to Three Quarters Ended June 5, 2019~~

Comparability between quarters is affected by the varying lengths of the quarters and quarters ending at different points in the calendar year when seasonal patterns for sales are different. Both the quarter ended June 3, 2020 and the quarter ended June 5, 2019 consisted of 12 weeks.

~~Sales~~


		Quarter Ended		Quarter Ended									Quarter Ended March 11, 2020		Period Ended November 18, 2020		Two Quarters Ended March 11, 2020
($000s)		June 3, 2020		June 5, 2019		Increase/ (Decrease)
		(12 weeks)		(12 weeks)		(12 weeks vs 12 weeks)							(12 weeks)		(12 weeks)		(28 weeks)
											(Going Concern Basis of Accounting, in thousands)
SALES:										SALES:
Restaurant sales	Restaurant sales	$	13,832	$	65,611	$	(51,779)	(78.9)	%	Restaurant sales	$	60,391	$	36,485	$	143,949
Culinary contract services	Culinary contract services	4,963		7,571		(2,608)		(34.4)	%	Culinary contract services	6,998		4,918		16,772
Franchise revenue	Franchise revenue	193		1,482		(1,289)		(87.0)	%	Franchise revenue	1,158		530		2,865
Vending revenue	Vending revenue	6		102		(96)		(94.1)	%	Vending revenue	14		14		124
TOTAL SALES	TOTAL SALES	$	18,994	$	74,766	$	(55,772)	(74.6)	%	TOTAL SALES	68,561		41,947		163,710
COSTS AND EXPENSES:										COSTS AND EXPENSES:
Cost of food										Cost of food	17,399		9,348		41,341
Payroll and related costs										Payroll and related costs	23,782		12,964		55,915
Other operating expenses										Other operating expenses	10,065		7,154		24,860
Occupancy costs										Occupancy costs	3,783		2,634		8,773
Opening costs										Opening costs	2		—		14
Cost of culinary contract services										Cost of culinary contract services	6,400		4,467		15,348
Cost of franchise operations										Cost of franchise operations	409		294		974
Depreciation and amortization										Depreciation and amortization	2,677		2,142		6,440
Selling, general and administrative expenses										Selling, general and administrative expenses	6,816		4,267		16,974
Other charges										Other charges	1,509		416		2,748
Net provision for asset impairments and restaurant closings										Net provision for asset impairments and restaurant closings	661		(85)		1,770
Net loss (gain) on disposition of property and equipment										Net loss (gain) on disposition of property and equipment	(2,527)		117		(2,498)
Total costs and expenses										Total costs and expenses	70,976		43,718		172,659
LOSS FROM OPERATIONS										LOSS FROM OPERATIONS	(2,415)		(1,771)		(8,949)
Interest income										Interest income	5		8		28
Interest expense										Interest expense	(1,473)		(1,212)		(3,435)
Other income, net										Other income, net	148		30		388
Loss before income taxes and discontinued operations										Loss before income taxes and discontinued operations	(3,735)		(2,945)		(11,968)
Provision for income taxes										Provision for income taxes	62		58		156
Loss from continuing operations										Loss from continuing operations	(3,797)		(3,003)		(12,124)
Loss from discontinued operations, net of income taxes										Loss from discontinued operations, net of income taxes	(6)		(16)		(17)
NET LOSS										NET LOSS	$	(3,803)	$	(3,019)	$	(12,141)

~~The Company has five reportable segments: Luby's cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise, Fuddruckers franchise operations, and Culinary contract services.~~

~~Company-Owned Restaurants~~

~~Restaurant Sales~~

($000s) Quarter
Ended Quarter
Ended
Restaurant Brand June 3, June 5, Increase/(Decrease)
2020 2019 $ Amount % Change
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Luby’s Cafeterias $ 11,857 $ 44,930 $ (33,073) (73.6) %
Combo locations 540 4,591 (4,051) (88.2) %
Luby's cafeteria segment 12,397 49,521 (37,124) (75.0) %
Fuddruckers restaurants segment 1,405 15,312 (13,907) (90.8) %
Cheeseburger in Paradise segment 30 778 (748) (96.1) %
Total Restaurant Sales $ 13,832 $ 65,611 $ (51,779) (78.9) %

~~Total restaurant sales decreased approximately $51.8 million in~~Under the ~~quarter ended June 3,~~liquidation basis of accounting subsequent to November 18, 2020, ~~compared~~we no longer report Results of Operations information. Comparisons to the quarter ended June 5, 2019. The decrease in restaurant sales included an approximate $33.1 million decrease in sales at stand-alone Luby's Cafeterias, an approximate $13.9 million decrease in sales at stand-alone Fuddruckers restaurants, an approximate $4.1 million decrease in sales from Combo locations,March 11, 2020 and ~~an approximate $0.7 million decrease in sales at Cheeseburger in Paradise restaurants.~~

•~~The approximate $33.1 million decrease in sales at stand-alone Luby's Cafeteria restaurants was~~ the result of temporary closures and reduced operations due to local COVID-19 restrictions. There were 27 locations that remained open throughout the quarter ended June 3, 2020. The 27 locations were open with food-to-go only for 69% of the store-days in the month. During this time, the stores' average weekly sales were $25,000 per week which was 57% lower than the quarter ended June 5, 2019. When limited dine in was allowed, representing 25% of the total store-days in the quarter ended June 3, 2020, sales averaged $43,000 per week, which was 28% lower than the quarter ended June 5, 2019. As of June 3, 2020, there were 30 stand-alone Luby's Cafeteria restaurants open with limited dine in allowed. Permanent store closures of four locations accounted for approximately $1.7 million in reduced sales compared to the quarter ended June 5, 2019.

•The approximate $13.9 million decrease in sales at stand-alone Fuddruckers restaurants was the result of temporary closures and reduced operations due to local COVID-19 restrictions. During the quarter ended June 3, 2020, there were three units that operated throughout. Those three locations operated with food-to-go only for 56% of the store days in the quarter ended June 3, 2020. Restaurant sales per store per week at these three locations with just food-to-go were $12,000 per week, down 60% compared to the quarter ended June 5, 2019. These same three stores operated with limited dine in capacity for 36% of the store days for the quarter ended June 3, 2020. Sales per store per week were $22,000, down 29% from the quarter ended June 5, 2019, at these locations when dining rooms were opened for limited operations. As of June 3, 2020, there were 8 stand-alone Fuddruckers restaurants operating with limited dining room operations. Also, 15 permanent restaurant closings and seven restaurant transfers to a franchise owner's operations accounted for approximately $6.3 million of this sales decline.

•The approximate $4.1 million decrease in sales at Combo locations reflects a 88.2% decrease in sales at the six locations. Only one location operated throughout the quarter, with just the Luby's Cafeteria side open, in the quarter ended June 3, 2020.

•The approximate $0.7 million decrease in sales at Cheeseburger in Paradise restaurants in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019 was the result of the one remaining location being closed for most of the quarter ended June 3, 2020.

Three Quarters Ended Three Quarters Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Restaurant sales $ 157,781 $ 222,079 $ (64,298) (29.0) %
Culinary contract services 21,735 24,610 (2,875) (11.7) %
Franchise revenue 3,058 5,126 (2,068) (40.3) %
Vending revenue 130 292 (162) (55.5) %
TOTAL SALES $ 182,704 $ 252,107 $ (69,403) (27.5) %

~~The Company has five reportable segments: Luby's cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise, Fuddruckers franchise operations, and Culinary contract services.~~

~~Company-Owned Restaurants~~

~~Restaurant Sales~~

($000s) Three Quarters Ended Three Quarters Ended
Restaurant Brand June 3, June 5, Increase/(Decrease)
2020 2019 $ Amount % Change
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Luby’s Cafeterias $ 115,944 $ 151,839 $ (35,895) (23.6) %
Combo locations 11,552 14,911 $ (3,359) (22.5) %
Luby's cafeteria segment 127,496 166,750 $ (39,254) (23.5) %
Fuddruckers restaurants segment 28,763 53,001 (24,238) (45.7) %
Cheeseburger in Paradise segment 1,522 2,328 (806) (34.6) %
Total Restaurant Sales $ 157,781 $ 222,079 $ (64,298) (29.0) %

~~Total restaurant sales decreased approximately $64.3 million in the three~~two quarters ended ~~June 3,~~March 11, 2020 compared to the three quarters ended June 5, 2019. The decrease in restaurant sales included an approximate $35.9 million decrease in sales at stand-alone Luby's Cafeterias, an approximate $24.2 million decrease in sales at stand-alone Fuddruckers restaurants, an

~~approximate $0.8 million decrease in sales at Cheeseburger in Paradise restaurants, and an approximate $3.4 million decrease in sales from Combo locations.~~

•The approximate $35.9 million decrease in sales at stand-alone Luby's Cafeteria restaurants was due to the impact of temporary closures and reduced operations mandated from local COVID-19 related restrictions and due to the closure of 8 locations (accounting for approximately $6.1 million in reduced sales).

•The approximate $24.2 million decrease in sales at stand-alone Fuddruckers restaurants was the result of 29 restaurant closings including seven restaurant transfers to a franchise owner's operations (accounting for approximately $16.9 million of this sales decline combined) and due to the impact of temporary closures and reduced operations mandated from local COVID-19 related restrictions.

•~~The approximate $3.4 million decrease in sales at Combo locations primarily reflects the impact of temporary closures and reduced operations mandated from local COVID-19 related restrictions.~~

•The approximate $0.8 million decrease in sales at Cheeseburger in Paradise restaurants was the result of temporary closure of the one Cheeseburger in Paradise on March 18, 2020 due to local COVID-19 restrictions.

~~Cost of Food~~

Quarter
Ended Quarter
Ended
($000s) June 3, 2020 June 5, 2019 Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Cost of food:
Luby's cafeteria segment $ 3,650 $ 14,127 $ (10,477) (74.2) %
Fuddruckers restaurants segment 366 4,102 (3,736) (91.1) %
Cheeseburger in Paradise segment 23 249 (226) (90.8) %
Total Restaurants $ 4,039 $ 18,478 $ (14,439) (78.1) %
As a percentage of restaurant sales
Luby's cafeteria segment 29.4 % 28.5 % 0.9 %
Fuddruckers restaurants segment 26.0 % 26.8 % (0.8) %
Cheeseburger in Paradise segment 75.9 % 32.0 % 43.9 %
Total Restaurants 29.2 % 28.2 % 1.0 %

~~Cost of food is comprised of the cost associated with the sale of food and beverage products that~~ are consumed while dining in our restaurants, as take-out, and as catering. Cost of food decreased approximately $14.4 million, or 78.1%, in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019 due to operation of 27 fewer locations (primarily Fuddruckers restaurants) and the temporary closures and reduced operations at restaurants due to local COVID restrictions. As a percentage of restaurant sales, food costs increased 1.0% to 29.2% in the quarter ended June 3, 2020 compared to 28.2% in the quarter ended June 5, 2019. For the 27 Luby's cafeterias that remained open throughout the quarter ended June 3, 2020, the cost of food as a percentage of sales decreased 1.3% to 26.5%.not applicable.

Three Quarters Ended Three Quarters Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Cost of food:
Luby's cafeteria segment $ 36,938 $ 47,181 $ (10,243) (21.7) %
Fuddruckers restaurants segment 7,955 13,797 (5,842) (42.3) %
Cheeseburger in Paradise segment 485 729 (244) (33.5) %
Total Restaurants $ 45,378 $ 61,707 $ (16,329) (26.5) %
As a percentage of restaurant sales
Luby's cafeteria segment 29.0 % 28.3 % 0.7 %
Fuddruckers restaurants segment 27.7 % 26.0 % 1.7 %
Cheeseburger in Paradise segment 31.8 % 31.3 % 0.5 %
Total Restaurants 28.8 % 27.8 % 1.0 %

Cost of food is comprised of the cost associated with the sale of food and beverage products that are consumed while dining in our restaurants, as take-out, and as catering. Cost of food decreased approximately $16.3 million, or 26.5%, in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019 due to operation of 38 fewer locations (primarily Fuddruckers restaurants) and the temporary closures and reduced operations due to local COVID-19 restrictions. As a percentage of restaurant sales, food costs increased 1.0% to 28.8% in the three quarters ended June 3, 2020 compared to 27.8% in the three quarters ended June 5, 2019.

~~Payroll and Related Costs~~

Quarter
Ended Quarter
Ended
($000s) June 3, 2020 June 5, 2019 Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Payroll and related Costs:
Luby's Cafeteria Segment $ 4,778 $ 19,013 $ (14,235) (74.9) %
Fuddruckers Restaurants Segment 692 5,738 (5,046) (87.9) %
Cheeseburger in Paradise Segment 17 264 (247) (93.6) %
Total Restaurants $ 5,487 $ 25,015 $ (19,528) (78.1) %
As a percentage of restaurant sales
Luby's Cafeteria Segment 38.5 % 38.4 % 0.1 %
Fuddruckers Restaurants Segment: 49.3 % 37.5 % 11.8 %
Cheeseburger in Paradise Segment 56.0 % 34.0 % 22.0 %
Total Restaurants 39.7 % 38.1 % 1.6 %

Payroll and related costs decreased approximately $19.5 million, or 78.1%, in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019. The decrease reflects the impact of temporary closures and reduced operations due to local COVID-19 restrictions and operating 27 fewer restaurants. Due to the various COVID-19 restrictions under which our restaurants operated, the company implemented a new labor model, reducing the amount of crew hours and minimizing the number of managers at the stores that remained open. As a percentage of restaurant sales, payroll and related costs increased 1.6% to 39.7% in the quarter ended June 3, 2020 compared to 38.1% in the quarter ended June 5, 2019. For Luby's cafeterias that operated throughout the quarter, payroll and related costs decreased 3.0% to 34.0% in the quarter ended June 3, 2020 from 37.0% in the quarter ended June 5, 2019.

Three Quarters Ended Three Quarters Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Payroll and related Costs:
Luby's Cafeteria Segment $ 49,369 $ 63,016 $ (13,647) (21.7) %
Fuddruckers Restaurants Segment $ 11,424 $ 20,298 $ (8,874) (43.7) %
Cheeseburger in Paradise Segment $ 609 $ 944 $ (335) (35.5) %
Total Restaurants $ 61,402 $ 84,258 $ (22,856) (27.1) %
As a percentage of restaurant sales
Luby's Cafeteria Segment 38.7 % 37.8 % 0.9 %
Fuddruckers Restaurants Segment: 39.7 % 38.3 % 1.4 %
Cheeseburger in Paradise Segment 40.0 % 40.5 % (0.5) %
Total Restaurants 38.9 % 37.9 % 1.0 %

Payroll and related costs decreased approximately $22.9 million, or 27.1%, in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019. The decrease reflects (1) operating 27 fewer restaurants and (2) the impact of temporary closures and reduced operations as the result of local COVID-19 restrictions in the quarter ended June 3, 2020. As a percentage of restaurant sales, payroll and related costs increased 1.0% to 38.9% in the three quarters ended June 3, 2020 compared to 37.9% in the three quarters ended June 5, 2019.

~~Other Operating Expenses~~

Quarter
Ended Quarter
Ended
($000s) June 3, 2020 June 5, 2019 Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Other operating expenses:
Luby's Cafeteria Segment $ 5,019 $ 8,430 $ (3,411) (40.5) %
Fuddruckers Restaurants Segment $ 691 $ 2,898 $ (2,207) (76.2) %
Cheeseburger in Paradise Segment $ 56 $ 163 $ (107) (65.6) %
Total Restaurants $ 5,766 $ 11,491 $ (5,725) (49.8) %
As a percentage of restaurant sales
Luby's Cafeteria Segment 40.5 % 17.0 % 23.5 %
Fuddruckers Restaurants Segment: 49.2 % 18.9 % 30.3 %
Cheeseburger in Paradise Segment 188.7 % 21.0 % 167.7 %
Total Restaurants 41.7 % 17.5 % 24.2 %

Other operating expenses include restaurant-related expenses for utilities, repairs and maintenance, local store advertising, property and liability insurance uninsured losses, services and supplies. Other operating expenses decreased approximately $5.7 million, or 49.8%, in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019. Of the approximate $5.7 million decrease in total other operating expenses, an approximate $4.6 million is attributed to store closures (both temporary due to local COVID-19 restrictions and permanent) and $1.1 million attributable to stores that continued to operate throughout the quarter. The $1.1 million decrease in other operating expenses at stores that continue to operate is primarily attributable to (1) an approximate $0.4 million decrease in the costs of supplies (2) an approximate $0.2 million decrease in services (3) an approximate $0.1 million decrease in utilities expense and (4) an approximate $0.2 million decrease in repairs expense. As a result of the reduced sales level from COVID-19 restrictions, the company worked to manage costs by reducing frequencies of certain services, limited repairs to only operation critical items, and implementation of other cost efficiencies. As a percentage of restaurant sales, other operating expenses increased 24.2%, to 41.7%, in the quarter ended June 3, 2020, compared to 17.5% in the quarter ended June 5, 2019 due primarily to the reasons enumerated above and reduced sales.

Three Quarters Ended Three Quarters Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Other operating expenses:
Luby's Cafeteria Segment $ 24,443 $ 28,413 $ (3,970) (14.0) %
Fuddruckers Restaurants Segment $ 5,781 $ 10,266 $ (4,485) (43.7) %
Cheeseburger in Paradise Segment $ 401 $ 725 $ (324) (44.7) %
Total Restaurants $ 30,625 $ 39,404 $ (8,779) (22.3) %
As a percentage of restaurant sales
Luby's Cafeteria Segment 19.2 % 17.0 % 2.2 %
Fuddruckers Restaurants Segment: 20.1 % 19.4 % 0.7 %
Cheeseburger in Paradise Segment 26.4 % 31.1 % (4.7) %
Total Restaurants 19.4 % 17.7 % 1.7 %

~~Occupancy Costs~~

Quarter
Ended Quarter
Ended
($000s) June 3, 2020 June 5, 2019 Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Occupancy costs:
Luby's Cafeteria Segment $ 2,140 $ 2,131 $ 9 0.4 %
Fuddruckers Restaurants Segment $ 1,481 $ 1,817 $ (336) (18.5) %
Cheeseburger in Paradise Segment $ 75 $ 75 $ — — %
Total Restaurants $ 3,696 $ 4,023 $ (327) (8.1) %
As a percentage of restaurant sales
Luby's Cafeteria Segment 17.3 % 4.3 % 13.0 %
Fuddruckers Restaurants Segment: 105.5 % 11.9 % 93.6 %
Cheeseburger in Paradise Segment 252.1 % 9.7 % 242.4 %
Total Restaurants 26.7 % 6.1 % 20.6 %

Occupancy costs include property lease expense, property taxes, and common area maintenance charges, property insurance, and permits and licenses. Occupancy costs decreased approximately $0.3 million, or 8.1%, to approximately $3.7 million in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019. The decrease was primarily due to a decrease in rent and property taxes associated with operating 27 fewer restaurants in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019, partially offset by the additional lease expense at three properties that were sold and leased back. As a percentage of restaurant sales, occupancy costs increased to 26.7%, in the quarter ended June 3, 2020 compared to 6.1% in the quarter ended June 5, 2019 primarily as a result of lower sales due to temporary closures and reduced operations due to local COVID-19 restrictions reducing sales.

Three Quarters Ended Three Quarters Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Occupancy costs:
Luby's Cafeteria Segment $ 7,080 $ 7,173 $ (93) (1.3) %
Fuddruckers Restaurants Segment $ 5,126 $ 6,656 $ (1,530) (23.0) %
Cheeseburger in Paradise Segment $ 264 $ 235 $ 29 12.3 %
Total Restaurants $ 12,470 $ 14,064 $ (1,594) (11.3) %
As a percentage of restaurant sales
Luby's Cafeteria Segment 5.6 % 4.3 % 1.3 %
Fuddruckers Restaurants Segment: 17.8 % 12.6 % 5.2 %
Cheeseburger in Paradise Segment 17.3 % 10.1 % 7.2 %
Total Restaurants 7.9 % 6.3 % 1.6 %

Occupancy costs include property lease expense, property taxes, and common area maintenance charges, property insurance, and permits and licenses. Occupancy costs decreased approximately $1.6 million, or 11.3%, to approximately $12.5 million in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019. The decrease was primarily due to a decrease in rent and property taxes associated with operating 38 fewer restaurants in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019, partially offset by the additional lease expense at three properties that were sold and leased back. As a percentage of restaurant sales, occupancy costs increased to 7.9%, in the three quarters ended

~~June 3, 2020 compared to 6.3% in the three quarters ended June 5, 2019 primarily as a result of lower sales due to closures and reduced operations due to local COVID-19 restrictions..~~

~~Franchise Operations~~

We offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants. Franchise revenue includes (1) royalties paid to us as the franchisor for the Fuddruckers brand; (2) funds paid to us as the franchisor for pooled advertising expenditures; and (3) amortization of initial and renewal franchise fees and remaining unamortized franchisee fees for franchise agreements that terminate early. Cost of franchise operations includes the direct costs associated with supporting franchisees with opening new Fuddruckers franchised restaurants and the corporate overhead expenses associated with generating franchise revenue. These corporate expenses primarily include the salaries and benefits, travel and related expenses, and other expenses for employees whose primary job function involves supporting our franchise owners and the development of new franchise locations.

Quarter
Ended Quarter
Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Franchise revenue $ 193 $ 1,482 $ (1,289) (87.0) %
Cost of franchise operations 437 330 107 32.4 %
Franchise profit $ (244) $ 1,152 $ (1,396) (121.2) %
Franchise profit as a percentage of franchise revenue (126.4) % 77.7 % (204.1) %

Franchise revenue decreased approximately $1.3 million in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019. The $1.3 million decrease in franchise revenue reflects the temporary closures or reduced operations of most of the franchise network due to local COVID-19 restrictions in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019.

Cost of franchise operations increased approximately $0.1 million in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019. The increase in Cost of franchise operations primarily reflects timing of recognizing marketing and advertising fee expenses in the quarter ended June 3, 2020. Franchise segment profit, defined as franchise revenue less cost of franchise operations, decreased approximately $1.4 million in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019 due primarily to the reasons noted above for the decrease in Franchise revenue and increase in Cost of franchise operations.

~~As of June 3, 2020, there were 83 Fuddruckers franchise restaurants of which, 59 were operating at of June 3, 2020.~~

Three Quarters Ended Three Quarters Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Franchise revenue $ 3,058 $ 5,126 $ (2,068) (40.3) %
Cost of franchise operations 1,411 849 562 66.2 %
Franchise profit $ 1,647 $ 4,277 $ (2,630) (61.5) %
Franchise profit as a percentage of franchise revenue 53.9 % 83.4 % (29.5) %

Franchise revenue decreased approximately $2.1 million in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019. The $2.1 million decrease in franchise revenue reflects primarily (1) $1.6 million lower franchise royalties and (2) $0.5 million lower franchise fees in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019

Cost of franchise operations increased approximately $0.6 million in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019. The increase in Cost of franchise operations primarily reflects (1) timing of recognizing marketing and advertising fee expenses; (2) an increase in wages supporting the franchise network in the three quarters ended June 3, 2020; and (3) the receipt of funds in the three quarters ended June 5, 2019 from vendors in support of a franchise meeting. Franchise segment profit, defined as franchise revenue less cost of franchise operations, decreased approximately $2.6 million in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019 due primarily to the reasons noted above for the decrease in Franchise revenue and increase in Cost of franchise operations.

~~Culinary Contract Services~~

Culinary Contract Services is a business line servicing healthcare, sport stadiums, corporate dining clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. Culinary Contract Services has contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, behavioral hospitals, sports stadiums, and business and industry clients. Culinary Contract Services has the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients. We focus on clients who are able to enter into agreements in which all operating costs are reimbursed to us and we generally charge a fixed fee as opposed to agreements where we retain all revenues and operating costs and we are exposed to the variability of the operating results of the location. The fixed fee agreements typically present lower financial risk to the company. We operated 27 Culinary Contract Services locations as of June 3, 2020 and 28 as of June 5, 2019.

Quarter
Ended Quarter
Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Culinary contract services sales $ 4,963 $ 7,571 $ (2,608) (34.4) %
Cost of culinary contract services 4,712 6,791 (2,079) (30.6) %
Culinary contract services profit $ 251 $ 780 $ (529) (67.8) %
Culinary contract services profit as a percentage of Culinary contract services sales 5.1 % 10.3 % (5.2) %

Culinary contract services sales decreased approximately $2.6 million, or 34.4%, in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019. The $2.6 million sales decrease was primarily related to the decrease in activity and temporary closures due to local COVID-19 restrictions.

Cost of culinary contract services includes the food, payroll and related costs, other direct operating expenses, and corporate overhead expenses associated with generating Culinary Contract Services sales. Cost of culinary contract services decreased approximately $2.1 million, or 30.6%, in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019. Culinary contract services segment profit, defined as Culinary contract services sales less Cost of culinary contract services, decreased to 5.1% in the quarter ended June 3, 2020 from 10.3% in the quarter ended June 5, 2019 due to the impact to our Culinary contract services clients from COVID-19.

Three Quarters Ended Three Quarters Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(28 weeks) (28 weeks) (40 weeks vs 40 weeks)
Culinary contract services sales $ 21,735 $ 24,610 $ (2,875) (11.7) %
Cost of culinary contract services 20,060 22,324 (2,264) (10.1) %
Culinary contract services profit $ 1,675 $ 2,286 $ (611) (26.7) %
Culinary contract services profit as a percentage of Culinary contract services sales 7.7 % 9.3 % (1.6) %

Culinary contract services sales decreased approximately $2.9 million, or 11.7%, in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019. The $2.9 million sales decrease was primarily related to the decrease in culinary contract service locations and the impact of COVID-19 in the quarter ended June 3, 2020.

Cost of culinary contract services includes the food, payroll and related costs, other direct operating expenses, and corporate overhead expenses associated with generating Culinary Contract Services sales. Cost of culinary contract services decreased approximately $2.3 million, or 10.1%, in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019. Culinary contract services segment profit, defined as Culinary contract services sales less Cost of culinary contract services, decreased to 7.7% in the three quarters ended June 3, 2020 from 9.3% in the three quarters ended June 5, 2019 due to the change in the mix of our culinary agreements with clients and the impact of COVID-19 in the quarter ended June 3, 2020.

~~Company-wide Expenses~~

~~Opening Costs~~

Opening costs include labor, supplies, occupancy, and other costs necessary to support a restaurant through its opening period. Opening costs were immaterial in the quarter ended June 3, 2020 compared to $6 thousand in the quarter ended June 5, 2019. The opening costs in the quarter ended June 3, 2020 and in the quarter ended June 5, 2019 primarily reflects the carrying cost for one location that we lease for a potential future Fuddruckers opening.

Opening costs were $14 thousand in the three quarters ended June 3, 2020 compared to $49 thousand in the three quarters ended June 5, 2019. The opening costs in the three quarters ended June 3, 2020 and in the three quarters ended June 5, 2019 primarily reflects the carrying cost for one location that we lease for a potential future Fuddruckers opening.

~~Depreciation and Amortization Expense~~

Quarter
Ended Quarter
Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Depreciation and amortization $ 2,709 $ 2,927 $ (218) (7.4) %
As a percentage of total sales 14.3 % 3.9 % 10.4 %

Depreciation and amortization expense decreased by approximately $0.2 million, or 7.4%, in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019 due primarily to certain assets reaching the end of their depreciable lives and the removal of certain assets upon sale. As a percentage of total revenue, Depreciation and amortization expense increased to 14.3% in the quarter ended June 3, 2020, compared to 3.9% in the quarter ended June 5, 2019 due to sales declines due primarily to COVID-19.

Three Quarters Ended Three Quarters Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(28 weeks) (28 weeks) (40 weeks vs 40 weeks)
Depreciation and amortization $ 9,149 $ 11,052 $ (1,903) (17.2) %
As a percentage of total sales 5.0 % 4.4 % 0.6 %

Depreciation and amortization expense decreased by approximately $1.9 million, or 17.2%, in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019 due primarily to certain assets reaching the end of their depreciable lives and the removal of certain assets upon sale. As a percentage of total revenue, Depreciation and amortization expense increased to 5.0% in the three quarters ended June 3, 2020, compared to 4.4% in the three quarters ended June 5, 2019.

~~Selling, General and Administrative Expenses~~

Quarter
Ended Quarter
Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
General and administrative expenses $ 3,063 $ 7,332 $ (4,269) (58.2) %
Marketing and advertising expenses 276 1,291 (1,015) (78.6) %
Selling, general and administrative expenses $ 3,339 $ 8,623 $ (5,284) (61.3) %
As a percentage of total sales 17.6 % 11.5 % 6.1 %

Selling, general and administrative expenses include marketing and advertising expenses, corporate salaries and benefits-related costs, including restaurant area leaders and regional directors, share-based compensation, professional fees, travel and recruiting expenses and other office expenses. Selling, general and administrative expenses decreased approximately $5.3 million, or 61.3%, in the quarter ended June 3, 2020 compared to the quarter ended June 5, 2019. The decrease in selling, general and administrative expenses reflects (1) an approximate $2.7 million reduction in salaries and benefits expense and (2) an approximate $1.0 million decrease in services (3) an approximate $0.6 million decrease in other components of selling, general and administrative expenses (including travel and recruiting related) and (4) an approximate $1.0 million decrease in marketing and advertising, including decreased expenditures across most marketing channels as spending was reduced as a result of the impact of reduced sales due to COVID-19. As a percentage of total revenue, Selling, general and administrative expenses increased to 17.6% in the quarter ended June 3, 2020, compared to 11.5% in the quarter ended June 5, 2019 due to the reasons described above partially offset by the impact of a decrease in sales resulting from a reduced number of stores in operation during local COVID-19 restrictions.

Three Quarters Ended Three Quarters Ended
($000s) June 3,
2020 June 5,
2019 Increase/
(Decrease)
(28 weeks) (28 weeks) (40 weeks vs 40 weeks)
General and administrative expenses $ 16,946 $ 23,400 $ (6,454) (27.6) %
Marketing and advertising expenses 3,367 2,986 381 12.8 %
Selling, general and administrative expenses $ 20,313 $ 26,386 $ (6,073) (23.0) %
As a percentage of total sales 11.1 % 10.5 % 0.6 %

Selling, general and administrative expenses include marketing and advertising expenses, corporate salaries and benefits-related costs, including restaurant area leaders and regional directors, share-based compensation, professional fees, travel and recruiting expenses and other office expenses. Selling, general and administrative expenses decreased approximately $6.1 million, or 23.0%, in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019. The decrease in selling, general and administrative expenses reflects (1) an approximate $4.1 million reduction in salaries and benefits expense, (2) an approximate $1.4 million reduction in services and (3) an approximate $1.0 million decrease in other components of Selling, general administrative expense (travel, supplies, occupancy, and other general overhead costs), partially offset by (4) an approximate $0.4 million increase in marketing and advertising, including increased expenditures for various digital media advertising and other efforts to reach our guests and drive traffic in an effective and efficient manner through the first two quarters offset by decreases in marketing in the third quarter due to reduced marketing spend during COVID-19. As a percentage of total revenue, Selling, general and administrative expenses increased to 11.1% in the three quarters ended June 3, 2020, compared to 10.5% in the three quarters ended June 5, 2019 due to the reasons described above partially offset by the impact of a decrease in sales resulting from a reduced number of stores in operation and COVID-19 restrictions.

~~Other Charges~~

Other charges include those expenses that we consider related to our restructuring efforts or not part of our recurring operations. We have identified these expenses amounting to approximately $0.2 million in the quarter ended June 3, 2020 and $0.8 million for the quarter ended June 5, 2019 and recorded in Other charges. In the three quarters ended June 3, 2020, we recorded $2.9 million in Other Charges compared to $3.3 million for the three quarters ended June 5, 2019. These expenses were included in our Selling, general, and administrative cost expense line in previously reported quarters of fiscal 2019.

Quarter
Ended Three Quarters Ended
($000s) June 3,
2020 June 5,
2019 June 3,
2020 June 5,
2019
(In thousands)
Proxy communication related $ — 60 — 1,862
Employee severance 45 — 1,207 645
Restructuring related 119 743 1,705 772
Total Other charges $ 164 $ 803 $ 2,912 $ 3,279

In the first half of fiscal 2019, a shareholder of the company proposed alternative nominees to the Board of Directors and other possible changes to the corporate strategy resulting in a contested proxy at the Company’s annual meeting. We incurred approximately $1.7 million (approximately $0.1 million in the quarter ended June 5, 2019) in proxy communication expense which was primarily for outside professional services and related costs in order to communicate with shareholders about management's strategy and the experience of the Company's members on the Board of Directors. For the three quarters ended June 5, 2019, we had recognized proxy communication related expenses of $1.9 million. In fiscal 2019, we separated a number of employees as part of our efforts to streamline our corporate overhead costs and to support a reduced number of restaurants in operation. Employees who were separated from the company were paid severance based on the number of years of service and earnings with the organization, resulting in an approximate $1.3 million charge ($1.2 million of the $1.3 million in the three quarters ended June 5, 2019). In fiscal 2020, we separated with an additional number of employees to further streamline our corporate overhead costs. Severance payments to these employees, based on the same criteria as in 2019, resulted in an approximately $45 thousand charge in the quarter ended June 3, 2020. In 2020, employee severance based on the same criteria as in 2019 for the three quarters ended June 3, 2020, we incurred $1.2 million. Also, in fiscal 2019, we engaged a professional consulting firm to evaluate initiatives to right-size corporate overhead costs and revenue enhancing measures. In addition, we engaged other outside consultants to evaluate various other components of our strategy. We also incurred cost of other outside professionals as we began efforts to transition portions of our accounting, payroll, operational reporting, and other back-office functions to a leading multi-unit restaurant outsourcing firm. The transition was substantially complete by the end of the second fiscal quarter of 2020. Lastly, we incurred expenses related to certain information technology systems that will be replaced by the capabilities of the outsourcing firm. We incurred an expense of $0.1 million for these restructuring efforts in the quarter ended June 3, 2020. For the three quarters ended June 3, 2020, we incurred $1.7 million for these restructuring efforts.

~~Provision for Asset Impairments and Restaurant Closings~~

The approximate $12.7 million impairment charge for the quarter ended June 3, 2020 is related to the impairment of physical and right-of-use assets for primarily 35 locations closed or negatively impacted as a result of temporary COVID-19 restrictions. The approximate $0.7 million impairment charge for the quarter ended June 5, 2019 is primarily related to one property written down to its fair value as well as net lease termination costs.

The approximate $14.5 million impairment charge for the three quarters ended June 3, 2020 is primarily related to two property locations where the right of use asset was written off as well as spare inventory of restaurant equipment and parts at our maintenance facility written down to their estimated fair value as well as the approximate 35 locations impaired in the third quarter. The approximate $3.1 million impairment charge for the three quarters ended June 5, 2019 is primarily related to assets at nine property locations held for use, and six properties held for sale, and one international joint venture, each written down to their fair value.

~~Net Loss (Gain) on Disposition of Property and Equipment~~

Gain on disposition of property and equipment was $0.4 million in the quarter ended June 3, 2020 and was primarily related to the sale of two locations partially offset by routine asset activity at other locations. The gain on disposition of property and equipment was approximately $0.4 million in the quarter ended June 5, 2019 is primarily related to the sale one property locations as well as routine asset retirement activity.

Gain on disposition of property and equipment was $2.9 million in the three quarters ended June 3, 2020 and was primarily related to the sale of three locations partially offset by routine asset activity at other locations. The gain on disposition of property and equipment was approximately $12.9 million in the three quarters ended June 5, 2019 is primarily related to the sale and leaseback of two property locations where we operate a total of three restaurants, partially offset by net lease termination costs at other locations as well as routine asset retirement activity.

~~Interest Income~~

~~Interest income was $19 thousand in the quarter ended June 3, 2020 compared to $11 thousand in the quarter ended June 5, 2019.~~

~~Interest income was $47 thousand in the three quarters ended June 3, 2020 compared to $30 thousand in the three quarters ended June 5, 2019.~~

~~Interest Expense~~

~~Interest expense was approximately $1.6 million in the quarter ended June 3, 2020 and $1.3 million in the quarter ended June 5, 2019. The increase reflects higher debt balances.~~

Interest expense was approximately $5.1 million in the three quarters ended June 3, 2020 and $4.6 million in the three quarters ended June 5, 2019. The increase reflects higher average debt balance and interest rates in the credit agreement entered into on December 13, 2018, and higher amortization expense related to pre-paid interest and fees associated with the credit agreement entered into on December 13, 2018, partially offset by lower average interest rates.

~~Other Income, Net~~

Other income, net, consisted primarily of the following components: net rental property income and expenses relating to property for which we are the landlord; prepaid sales tax discounts earned through our participation in state tax prepayment programs; oil and gas royalty income; and changes in the fair value of our interest rate swap prior to its termination in December 2018.

Other income, net was approximately $0.4 million in the quarter ended June 3, 2020 compared to $0.1 million in the quarter ended June 5, 2019. The approximate $0.4 million of other income in the quarter ended June 3, 2020 is primarily related to the recognition of deferred independent consideration related to the sale of two properties that were cancelled. The $0.1 million of income in the quarter ended June 5, 2019 primarily reflects net rental income and sales tax discount expense.

Other income, net was approximately $0.8 million in the three quarters ended June 3, 2020 compared to $0.2 million in the three quarters ended June 5, 2019. The approximate $0.8 million of other income, net in the three quarters ended June 3, 2020 is primarily the recognition of the deferred independent consideration, net rental income and sales tax discount benefit. The $0.2 million of other income, net in the three quarters ended June 5, 2019 primarily reflects net rental income, partially offset by sales tax discount expense, and a decrease to the fair value of our interest rate swap prior to its termination.

~~Taxes~~

For the quarter ended June 3, 2020, the income taxes related to continuing operations resulted in a tax provision of approximately $0.1 million compared to a tax provision of approximately $0.1 million for the quarter ended June 5, 2019. The effective tax rate ("ETR") for continuing operations was a negative 0.2% for the quarter ended June 3, 2020 and 2.6% for the quarter ended June 5, 2019. The ETR for the quarter ended June 3, 2020 and the quarter ended June 5, 2019 differs from the federal statutory rate of 21.0% due to management's full valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items.

For the three quarters ended June 3, 2020, the income taxes related to continuing operations resulted in a tax provision of approximately $0.2 million compared to a tax provision of approximately $0.3 million for the three quarters ended June 5, 2019. The ETR for continuing operations was a negative 0.6% for the three quarters ended June 3, 2020 and a negative 6.0% for the three quarters ended June 5, 2019. The ETR for the three quarters ended June 3, 2020 and three quarters ended June 5, 2019 differs from the federal statutory rate of 21.0% due to management's full valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous tax provision, there was no impact on our income tax provision due to management’s full valuation allowance conclusion.

~~Discontinued Operations~~

Discontinued operations resulted in a loss of $7 thousand in the quarter ended June 3, 2020 compared to a loss of approximately $6 thousand in the quarter ended June 5, 2019. The loss from discontinued operations in the quarter ended June 3, 2020 and in the quarter ended June 3, 2020 was related to carrying costs associated with assets related to discontinued operations.

Discontinued operations resulted in a loss of $23 thousand in the three quarters ended June 3, 2020 compared to a loss of approximately $18 thousand in the three quarters ended June 5, 2019. The loss from discontinued operations in the three quarters ended June 3, 2020 and in the three quarters ended June 3, 2020 was related to carrying costs associated with assets related to discontinued operations.

5540

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

~~Our primary sources of short-term~~We have previously financed our operations through borrowings from our Credit Facility, proceeds from our PPP Loan and ~~long-term liquidity are cash flows from operations and proceeds~~ from asset sales. Our ability to meet our obligations is contingent upon the disposition of our assets in accordance with our Plan of Liquidation. We expect that the proceeds from the sale of assets pursuant to the Plan will be adequate to pay our obligations; however, we cannot provide any assurance as to the prices or net proceeds we may receive from the disposition of our assets. We believe that the cash flow from operations along with the sales proceeds will continue to provide adequate capital to fund our operating, administrative and other expenses during liquidation, as well as funding our debt service obligations in the short term.

Cash and cash equivalents and restricted cash ~~increased~~decreased approximately ~~$9.3~~$7.3 million at ~~June 3, 2020~~March 10, 2021 to ~~$22.0~~$14.5 million from ~~$12.8~~$21.8 million at the beginning of the fiscal year. ~~See Overview section above for a discussion of our liquidity issues as a result of the COVID-19 pandemic.~~

~~The following table summarizes our cash flows from operating, investing, and financing activities:~~

Three Quarters Ended
June 3,
2020 June 5,
2019
(40 weeks) (40 weeks)
(In thousands)
Total cash provided by (used in):
Operating activities $ (14,095) $ (10,881)
Investing activities 5,690 18,895
Financing activities 17,688 1,045
Net increase in cash and cash equivalents and restricted cash $ 9,283 $ 9,059

~~Operating Activities~~. Cash used in operating activities was approximately $14.1 million in the three quarters ended June 3, 2020,, approximately $3.2 million higher than the $10.9 million cash used in operating activities for the three quarters ended June 5, 2019. The approximate $3.2 million increase in cash used in operating activities is due to approximately $11.9 million increase in net loss after adjusting for non-cash items, partially offset by approximately $8.7 million less cash used for working capital purposes.

Net loss after adjusting for non-cash items (a use of cash) was approximately $14.6 million in the three quarters ended June 3, 2020, an approximate $11.9 million increase compared to the three quarters ended June 5, 2019. The $11.9 million increase in net loss after adjusting for non-cash items was primarily due to decreased store-level profit from our Company-owned restaurants.

Changes in working capital were an approximate $0.5 million source of cash in the three quarters ended June 3, 2020 and an approximate $8.2 million use of cash in the three quarters ended June 5, 2019. The approximate $8.7 million decrease in the use of cash between the three quarters ended June 3, 2020 and the three quarters ended June 5, 2019 is described below.

Increases in current asset accounts are a use of cash while decreases in current asset accounts are a source of cash. During the three quarters ended June 3, 2020, the change in trade accounts and other receivables, net, was an approximate $3.4 million source of cash which was an approximate $4.3 million decrease from the use of cash in the three quarters ended June 5, 2019. The change in food and supplies inventory during the three quarters ended June 3, 2020 was an approximate $0.2 million source of cash which was an approximate ~~$31 thousand increase~~ from the source of cash in the three quarters ended June 5, 2019. The change in prepaid expenses and other assets was an approximate $0.8 million source of cash during the three quarters ended June 3, 2020, compared to a $1.1 million source of cash in the three quarters ended June 5, 2019.

Increase in current liability accounts are a source of cash, while decreases in current liability accounts are a use of cash. During the three quarters ended June 3, 2020, changes in the balances of accounts payable, accrued expenses and other liabilities was an approximate $2.6 million use of cash, compared to a use of cash of approximately $8.6 million during the three quarters ended June 5, 2019.

~~Investing Activities~~. Cash used in investing activities was approximately $5.7 million in the three quarters ended June 3, 2020 and an approximate $18.9 million use of cash in the three quarters ended June 5, 2019. Capital expenditures were approximately $1.9 million in the three quarters ended June 3, 2020 and approximately $2.9 million in the three quarters ended June 5, 2019. Proceeds from the disposal of assets were approximately $7.6 million in the three quarters ended June 3, 2020 and approximately $21.8 million in the three quarters ended June 5, 2019.

~~Financing Activities. Cash provided by financing activities was $17.7 million in the three quarters ended June 3, 2020 compared to an approximate~~ ~~$1.0 million source of cash~~ during the three quarters ended June 5, 2019. Cash flows from financing activities was primarily the result of our 2018 Credit Agreement and the PPP Loan. During the three quarters ended June 3, 2020 cash was provided by Revolver borrowings of $4.7 million, by Delayed Draw Term Loan borrowings of$5.0 million and by the PPP Loan borrowings of $10.0 million and cash was used for repayments on our Term Loan of approximately $(2.0) million During the three quarters ended June 5, 2019, cash provided by borrowings on our 2018 Term Loan were approximately $58.4 million, cash used for to repay our 2016 Term Loan was approximately $36.1 million, net repayments on our 2016 Revolver was approximately $18.0 million and cash used for debt issue costs was approximately $3.2 million..

Status of Long-Term Investments and Liquidity

At ~~June 3, 2020,~~March 10, 2021, we did not hold any long-term investments.

Status of Trade Accounts and Other Receivables, Net

We monitor the aging of our receivables, including Fuddruckers franchising related receivables, and record provisions for uncollectable accounts, as appropriate. Credit terms of accounts receivable associated with our CCS business vary from 30 to 45 days based on contract terms.

Capital Expenditures

Capital expenditures consist of purchases of real estate for future restaurant sites, Culinary Contract Services investments, new unit construction, purchases of new and replacement restaurant furniture and equipment, and ongoing remodeling programs. Capital expenditures for the ~~three~~two quarters ended ~~June 3, 2020~~March 10, 2021 were approximately ~~$1.9~~$0.8 million primarily related to recurring maintenance of our existing units. ~~We expect to be able to fund all~~Our future maintenance capital expenditures ~~in fiscal 2020 using proceeds from~~are difficult to predict and will depend on the ~~sale~~timing of ~~assets~~the sales of our businesses and ~~cash flows from operations. We expect to spend less than $2.5 million on capital expenditures in fiscal 2020.~~ real estate as part of our Plan of Liquidation.

DEBT

~~Note 15. Debt~~



		June 3, 2020		August 28, 2019			March 10, 2021		August 26, 2020
Long-Term Debt	Long-Term Debt					Long-Term Debt	(Liquidation Basis)		(Going Concern Basis)
2018 Credit Agreement - Revolver	2018 Credit Agreement - Revolver	$	10,000	$	5,300	2018 Credit Agreement - Revolver	$	10,000	$	10,000
2018 Credit Agreement - Term Loan		46,386		43,399
2018 Credit Agreement - Term Loans						2018 Credit Agreement - Term Loans	36,583		36,583
Total credit facility debt	Total credit facility debt	56,386		48,699		Total credit facility debt	46,583		46,583
2020 PPP Loan	2020 PPP Loan	10,000		—		2020 PPP Loan	10,000		10,000
Total Long-Term Debt	Total Long-Term Debt	66,386		48,699		Total Long-Term Debt	N/A		56,583
Less:	Less:					Less:
Unamortized debt issue costs	Unamortized debt issue costs	(1,556)		(1,887)		Unamortized debt issue costs	N/A		(1,410)
Unamortized debt discount	Unamortized debt discount	(1,128)		(1,373)		Unamortized debt discount	N/A		(1,055)
Total long-term debt, less unamortized debt issuance costs	Total long-term debt, less unamortized debt issuance costs	63,702		45,439		Total long-term debt, less unamortized debt issuance costs	N/A		54,118
Current portion of credit facility debt	Current portion of credit facility debt	6,386		—		Current portion of credit facility debt	N/A		—
Long-term debt, less current portion	Long-term debt, less current portion	$	57,316	$	45,439	Long-term debt, less current portion	N/A		$	54,118

PPP Loan

On April 21, ~~2020~~2020. we entered into ~~the PPP Loan~~a promissory note with Texas Capital Bank, N.A., ("TCB") effective April 12, 2020, that provides for a loan in the amount of $10.0 million (the 'PPP Loan") pursuant to the Paycheck Protection Program ("PPP") established under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The PPP Loan is subject to forgiveness under the PPP upon our request to the extent that the proceeds are used to pay expenses permitted by the PPP, including payroll costs, covered rent and mortgage obligations, and covered utility payments. The PPP Loan matures on April 12, 2022, two years from the commencement date and bears interest at a rate of 1.0% per annum. Monthly amortized principle and interest payments are deferred for six months after the date of disbursement. The PPP Loan funds were received on April 21, 2020. The PPP Loan contains events of default and other provisions customary for a loan of this type. The Payroll Protection Program

5741

~~provides~~On June 5, 2020, the Paycheck Protection Program Flexibility Act (the “new Act”) was signed into law and made significant changes to the PPP to provide additional relief for borrowers under the PPP. The new Act increased flexibility for businesses that ~~(1)~~were unable to operate as normal due to COVID-19 related restrictions. The new Act extended the period that businesses have to use PPP funds to qualify for loan forgiveness to 24 weeks, up from 8 weeks under the original rules, relaxed the requirements that loan recipients must adhere to in order to qualify for loan forgiveness, and extended the payment deferral period to the earlier of the date when the amount of loan forgiveness is determined by the SBA and lender or 10 months after the 24 week covered period ends. Initially, all payments were to be deferred for six months. Under the new Act, payments are deferred until the SBA remits any loan forgiveness amount to the lender, TCB in the case of the Company. Interest accrues over the entire period of the PPP Loan ~~amount shall be limited to certain qualifying expenses, (2) 100 per cent~~for the portion of the ~~principal~~PPP that is not ultimately forgiven.

On November 12, 2020, we submitted an application for forgiveness of the entire $10.0 million due on the PPP Loan. Notwithstanding our application for loan forgiveness, we are unable to predict the actual amount of ~~the~~ loan ~~is guaranteed~~forgiveness, if any, that will be approved. On January 28, 2021, we were notified that our PPP Loan (see Note 15. Debt) had been selected for review by the Small Business Administration ("SBA") and ~~(3) an amount up~~we have responded on a timely basis to the ~~full principal amount may qualify for loan forgiveness in accordance with the terms of CARES Act.. We are not yet able to determine the amount that might be forgiven.~~information inquiry. As of ~~June 3, 2020, the Company was~~March 10, 2021, we were in full compliance with all covenants with respect to the PPP Loan.

2018 Credit Agreement

On December 13, 2018, ~~the Company~~we entered into a credit agreement ~~(as amended by the First Amendment (as~~(amended as defined below), the ~~“2018 Credit~~“Credit Agreement”) among the Company, the lenders from time to time party thereto, and a subsidiary of MSD Capital, MSD PCOF Partners VI, LLC (“MSD”), as Administrative Agent, pursuant to which the lenders party thereto agreed to make loans to the Company from time to time up to an aggregate principal amount of $80 million consisting of a $10 million revolving credit facility (the ~~“2018 Revolver”~~“Revolver”), a $10 million delayed draw term loan (“~~2018~~ Delayed Draw Term Loan”), and a $60 million term loan (the ~~“2018 Term~~“Term Loan”, and together with the ~~2018~~ Revolver and the ~~2018~~ Delayed Draw Term Loan, the ~~“2018 Credit~~“Credit Facility”). The ~~2018~~ Credit Facility terminates on, and all amounts owing thereunder must be repaid on, December 13, 2023.

On July 31, 2019, ~~the Company~~we entered into the First Amendment to the ~~2018~~ Credit Agreement (the “First Amendment”) to extend the ~~2018~~ Delayed Draw Term Loan expiration date for up to one year to the earlier to occur of (a) the date on which the commitments under the ~~2018~~ Delayed Draw Term Loan have been terminated or reduced to zero in accordance with the terms of the ~~2018~~ Credit Agreement and (b) September 13, 2020. On December 18, 2019, ~~the Company~~we entered into the Second Amendment to the ~~2018~~ Credit Agreement which did not change any terms of the agreement permanently. The amendment only decreased the amount of mandatory prepayment related to the sale of two properties in the ~~.quarter~~quarter ended March 11, 2020. We entered into the Third Amendment to Credit Agreement, dated April 21, 2020 (the "Third Amendment"). The Third Amendment permitted us to incur indebtedness under the PPP Loan and terminated the $5.0 million undrawn portion of the delayed draw term loan upon receipt of the PPP Loan. On August 21, 2020, we entered into the Fourth Amendment to the Credit Agreement that decreased the amount of mandatory prepayments related to the sale of two properties in the quarter ended August 26, 2020. No other terms of the agreement were changed permanently by this amendment.

Facility, 80% of net proceeds from asset sales, including real property sales, are applied aas mandatory prepayments of our ~~2018~~ Term Loan.

All amounts owing by the Company under the ~~2018~~ Credit Facility are guaranteed by the subsidiaries of the Company.

As of ~~July 20, 2020,~~April 26, 2021, the Company was in compliance with all covenants under the terms of the ~~2018~~ Credit Agreement.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The unaudited consolidated financial statements included in Item 1 of Part 1 of this Form 10-Q were prepared in conformity with GAAP. Preparation of the financial statements requires us to make judgments, estimates and assumptions that affect the amounts of assets and liabilities in the financial statements and revenues and expenses during the reporting periods. Due to the significant, subjective and complex judgments and estimates used when preparing our unaudited consolidated financial statements, management regularly reviews these assumptions and estimates with the Finance and Audit Committee of our Board. Actual results may differ from these estimates, including our estimates of future cash flows, which are subject to the current economic environment and changes in estimates. ~~Other than~~Under the ~~implementation~~going concern basis of ~~ASC 842 as discussed in Note 1 and 4 of the accompanying unaudited consolidated financial statements,~~accounting, we had no changes in the critical accounting policies and estimates which were disclosed in our Annual Report on Form 10-K for the fiscal year ended August ~~28, 2019.~~

26, 2020. We adopted the liquidation basis of accounting, effective November 19, 2020. As more fully described in Note 1. Basis of Presentation to our unaudited consolidated financial statements, applying the liquidation basis of accounting also requires us to make judgements, estimates and assumptions that affect the amounts of assets and liabilities on our Statement of Net Assets in Liquidation.

NEW ACCOUNTING PRONOUNCEMENTS

~~See Note 1 to the accompanying unaudited consolidated financial statements for a discussion of recent accounting guidance adopted and not yet adopted.~~ We expect that accounting guidance not yet adopted will not have a significant impact on our consolidated financial position or results of operations or we are currently evaluating the impact of adopting the accounting guidance.

INFLATION

It is generally our policy to maintain stable menu prices without regard to seasonal variations in food costs. Certain increases in costs of food, wages, supplies, transportation and services may require us to increase our menu prices from time to time. To the extent prevailing market conditions allow, we intend to adjust menu prices to maintain profit margins.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Form 10-Q, other than statements of historical facts, are forward-looking statements for purposes of these provisions, including any statements regarding:

•the implementation of the Plan of Liquidation (as defined herein), including the timing and amount of any liquidating distribution made in connection with the Plan of Liquidation,

•future sales of assets in accordance with the Plan of Liquidation and the amount of proceeds that we may receive as a result of any such sales,

•future operating results,

•future capital expenditures and expected sources of funds for capital expenditures,

•future debt, including liquidity and the sources and availability of funds related to debt, ~~and~~expected forgiveness of our PPP Loan, expected repayment of debt

• and expected sources of funds for working capital requirements,

•~~plans for expansion and revisions to our business,~~

•closing existing units,

•~~effectiveness of management's disposal plans,~~

•~~future sales of assets and the gains or losses that may be recognized as a result of any such sales,~~ and

•continued compliance with the terms of our 2018 Credit ~~Agreement.~~

Agreement and our PPP Loan.

In some cases, investors can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “outlook,” “may,” “should,” “will,” and “would” or similar words. Forward-looking statements are based on certain assumptions and analyses made by management in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are relevant. Although management

believes that its assumptions are reasonable based on information currently available, those assumptions are subject to significant risks and uncertainties, many of which are outside of its control. The following factors, as well as the factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended August ~~28, 2019~~26, 2020 and any other cautionary language in this Form 10-Q, provide examples of risks, uncertainties, and events that may cause our financial and operational results to differ materially from the expectations described in our forward-looking statements:

•our ability to ~~pursue strategic alternatives~~successfully implement the Plan of Liquidation,

•the duration of the COVID-19 pandemic and its impact on our business and general business and economic conditions,

•the ~~effects~~forgiveness of ~~the COVID-19 pandemic,~~our PPP Loan,

•the ~~possible inability of the Company~~ability to ~~sell itself, its operations or assets on terms deemed to be favorable to the Company or its stockholders,~~realize property values,

•~~if presented, whether the Company’s stockholders will approve any sale and proceeds distribution plan,~~collectability of accounts receivable,

•the ~~impact~~availability and cost of ~~competition,~~credit,

•~~decisions made in the allocation of capital resources,~~

•~~our operating initiatives, changes in promotional, couponing and advertising strategies and the success of management’s business plans,~~costs relating to legal proceedings,

•fluctuations in the costs of commodities, including beef, poultry, seafood, dairy, cheese, oils and produce,

•~~ability to raise menu prices and customer acceptance of changes in menu items,~~

•increases in utility costs, including the costs of natural gas and other energy supplies,

•changes in the availability and cost of labor, including the ability to attract qualified managers and team members,

•decisions made in the allocation of capital resources,

•the impact of competition,

•the seasonality of the business,

•~~collectability of accounts receivable,~~weather conditions in the regions in which our restaurants operate,

•changes in governmental regulations, including changes in minimum wages and health care benefit regulation,

•the effects of inflation and changes in our customers’ disposable income, spending trends and habits,

•the ~~ability to realize property values,~~

•~~the availability and cost of credit,~~

•~~the~~ effectiveness of our credit card controls and Payment Card Industry ("PCI") compliance,

•~~weather conditions in the regions in which our restaurants operate,~~

•~~costs relating to legal proceedings,~~

•impact of adoption of new accounting standards,

•effects of actual or threatened future terrorist attacks in the United States,

•unfavorable publicity relating to operations, including publicity concerning food quality, illness or other health concerns or labor relations, and

•the continued service of key management personnel.

Each forward-looking statement speaks only as of the date of this Form 10-Q, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investors should be aware that the occurrence of the events described above and elsewhere in this Form 10-Q could have material adverse effect on our business ~~results~~and our Plan of ~~operations, cash flows and financial condition.~~

Liquidation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of ~~June 3, 2020.~~March 10, 2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~June 3, 2020,~~March 10, 2021, our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

During the quarter ended June 3, 2020 we continued the process of outsourcing certain of our accounting and payroll processing functions to a 3rd party accounting service provider. In conjunction with this transition, we modified the design, operation and documentation of our internal control over financial reporting.

~~With the exception of the transition described above, there was~~There were no ~~change~~changes in our internal ~~control~~controls over financial reporting during the quarter ended ~~June 3, 2020, which~~March 10, 2021 that have materially affected, or ~~was~~are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that many of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation to minimize the impact on the design and operating effectiveness of our internal controls.

6044

Part II—OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes to our legal proceedings as disclosed in “Legal Proceedings” in Item 3 of Part I of our Annual Report on Form 10-K for the fiscal year ended August ~~28, 2019.~~

26, 2020.

Item 1A. Risk Factors

~~There~~Except as described below, there have been no material changes during the quarter ended ~~June 3, 2020~~March 10, 2021 to the Risk Factors discussed in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended August ~~28, 2019, except as reported on the Current~~26, 2020 and Item 1A of Part II of our Quarterly Report on Form ~~8-K dated April 4,~~10-Q for the fiscal quarter ended December 16, 2020.

Item 5. Other Information

~~None~~None.

Item 6. Exhibits


~~10.1~~4.1			~~Promissory Note, effective~~Third Amendment to Rights Agreement, dated as of ~~April 12, 2020,~~February 14, 2021, by and between Luby’s, Inc., and American Stock Transfer & Trust Company, LLC, as ~~borrower, and Texas Capital Bank, N.A., as lender~~rights agent (incorporated by reference to Exhibit ~~10.1~~4.4 to ~~the Company's Current Report on~~Luby’s, Inc.’s Form 8-K filed with the Securities and Exchange Commission on ~~April 23,~~February 16, 2021 (File No. 001-08308)).

10.1			Professional Services Agreement, dated as of February 1, 2021, between Luby’s Inc. and Winthrop Capital Advisors LLC (incorporated by reference to Exhibit 10.1 to Luby’s, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 16, 2020 ~~File~~filed with the Securities and Exchange Commission on February 2, 2021 (File No. ~~1-08308)~~001-08308)).

10.2			~~Third Amendment to Credit~~Lease Termination Agreement and Release, dated as of ~~April 21, 2020, among the Company, the lenders from time to time party thereto,~~February 23, 2021, between Luby’s Fuddruckers Restaurants, LLC and ~~MSD PCOF Partners VI,~~HPCP Investments, LLC ~~as Administrative Agent~~ (incorporated by reference to Exhibit ~~10.2~~10.1 to ~~the Company's Current Report on~~Luby’s, Inc.’s Form 8-K filed with the Securities and Exchange Commission on ~~April 23, 2020, File~~February 24, 2021 (File No. ~~1-08308).~~

~~10.3~~			Final Separation Agreement and Release, dated April 24, 2020, by and between Kennedy Scott Gray and Luby's, Inc. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on June 5, 2020, File No. 1-08308)001-08308)).

31.1			Rule 13a-14(a)/15d-14(a) certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Rule 13a-14(a)/15d-14(a) certification of the Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Section 1350 certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Section 1350 certification of the Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS			XBRL Instance Document

101.SCH			XBRL Schema Document

101.CAL			XBRL Calculation Linkbase Document

101.DEF			XBRL Definition Linkbase Document

101.LAB			XBRL Label Linkbase Document

101.PRE			XBRL Presentation Linkbase Document

6145

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	LUBY’S, INC. (Registrant)

Date: ~~7/20/2020~~4/26/2021	By:	/s/ ~~Christopher J. Pappas~~John Garilli
		~~Christopher J. Pappas~~John Garilli
		Interim President and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~7/20/2020~~4/26/2021	By:	/s/ Steven Goodweather
		Steven Goodweather
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)

6246


			Page

Part I—Financial Information

Item 1 Financial Statements			4

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			36

Item 3 Quantitative and Qualitative Disclosures About Market Risk			6044

Item 4 Controls and Procedures			6044

Part II—Other Information

Item 1 Legal Proceedings			6145

Item 1A Risk Factors			6145

Item 5 Other Information			6145

Item 6 Exhibits			6145

Signatures			6246


	Balance at August 28, 2019		ASC 842 Adjustment		Balance at August 29, 2019
	(In thousands)
ASSETS
Trade accounts and other receivables, net	$	8,852	$	70	$	8,922
Prepaid expenses	2,355		(225)		2,130
Total Current Assets	27,395		(155)		27,240
Intangible assets, net	16,781		(190)		16,591
Operating lease right-of-use assets, net	—		27,191		27,191
Total Assets	$	186,000	$	26,846	$	212,846
LIABILITIES
Operating lease liabilities-current	$	—	$	8,061	$	8,061
Accrued expenses and other liabilities	24,475		(1,002)		23,473
Total Current Liabilities	32,954		7,059		40,013
Operating lease liabilities-non-current	—		24,360		24,360
Other liabilities	6,577		(5,600)		977
Total Liabilities	$	84,970	$	25,819	$	110,789
SHAREHOLDERS’ EQUITY
Retained earnings	$	61,182	$	1,027	$	62,209
Total Shareholders Equity	101,030		1,027		102,057
Total Liabilities and Shareholders Equity	$	186,000	$	26,846	$	212,846


	Quarter Ended						Three Quarters Ended
	June 3 2020		June 5 2019		June 3 2020		June 5 2019
	(In thousands)
Proxy communication related	$	—	$	60	$	—	$	1,862
Employee severances	45		—		1,207		645
Restructuring related	119		743		1,705		772
Total Other charges	$	164	$	803	$	2,912	$	3,279


	June 3, 2020		August 28, 2019		Estimated Useful Lives (years)
	(In thousands)
Land	$	43,350	$	45,845		—
Restaurant equipment and furnishings	60,565		67,015		3	to	15
Buildings	119,811		126,957		20	to	33
Leasehold and leasehold improvements	22,086		22,098		Lesser of lease term or estimated useful life
Office furniture and equipment	3,234		3,364		3	to	10

	249,046		265,279
Less accumulated depreciation and amortization	(144,758)		(143,536)
Property and equipment, net	$	104,288	$	121,743
Intangible assets, net	$	15,695	$	16,781	15	to	21


	June 3, 2020										August 29, 2018
	(In thousands)										(In thousands)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible Assets Subject to Amortization:

Fuddruckers trade name and franchise agreements	$	29,486	$	(13,828)	$	15,658	$	29,486	$	(12,752)	$	16,734

Cheeseburger in Paradise trade name and license agreements	146		(109)		37		146		(99)		47

Intangible assets, net	$	29,632	$	(13,937)	$	15,695	$	29,632	$	(12,851)	$	16,781


	Units	Weighted Average Fair Value
		(Per share)
Unvested at August 28, 2019	266,443	$	3.68


Forfeited	(85,617)	3.68
Unvested at June 3, 2020	180,826	$	3.68


	August 28, 2019	FY20 YTDQ3 Openings	FY20 YTDQ3 Closings	June 3, 2020
Luby’s Cafeterias	79	—	(3)	76
Fuddruckers Restaurants	44	—	(13)	31
Cheeseburger in Paradise	1	—	—	1

Total	124	—	(16)	108