UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 17, 202016, 2021

OR

[  ] 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 000-02396

BRIDGFORD FOODS CORPORATION

(Exact name of registrant as specified in its charter)

(714) 526-5533

(Registrant’s telephone number, including area code)

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

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 such files). Yes [X] No [  ]

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

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 May 29, 2020,28, 2021, the registrant had 9,076,832 shares of common stock outstanding.

BRIDGFORD FOODS CORPORATION

FORM 10-Q QUARTERLY REPORT

INDEX

References to “Bridgford Foods” or the “Company” contained in this Quarterly Report on Form 10-Q (this “Report”) refer to Bridgford Foods Corporation.

Items 1 through 54 of Part II have been omitted because they are not applicable with respect to the Company and/or the current reporting period.

Part I. Financial Information

Item 1. a.

BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

See accompanying notes to condensed consolidated financial statements.

Item 1. b.

BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

See accompanying notes to condensed consolidated financial statements.

Item 1. c.

BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

24 weeks ended April 19, 201917, 2020 and April 17, 202016, 2021

(unaudited)

(in thousands)

See accompanying notes to condensed consolidated financial statements.

BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

12 weeks ended April 19, 201917, 2020 and April 17, 202016, 2021

(unaudited)

(in thousands)

See accompanying notes to condensed consolidated financial statements.

Item 1. d.

BRIDGFORD FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

See accompanying notes to condensed consolidated financial statements.

Item 1. e.

BRIDGFORD FOODS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(dollars in thousands, except percentages, time periods, share and per share amounts)thousands)

Note 1 – Summary of Significant Accounting Policies:

The unaudited condensed consolidated financial statements of Bridgford Foods Corporation (the “Company”, “we”, “our”, “us”) for the twenty-four weeks ended April 17, 202016, 2021 and April 19, 201917, 2020 have been prepared in conformity with the accounting principles described in the Company’s Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended November 1, 2019October 30, 2020 (the “Annual Report”) and include all adjustments considered necessary by management for a fair presentation of the interim periods. This Report should be read in conjunction with the Annual Report. Due to seasonality and other factors, interim results are not necessarily indicative of the results for the full year. Recent accounting pronouncements and their effect on the Company are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Report.

We have considered the impact of federal, state, and local government actions related to the global novel coronavirus pandemic (“COVID-19” or “pandemic”) on our condensed consolidated financial statements. TheseThe business disruptions associated with the pandemic had a significant negative impact on our consolidated condensed financial statements for the twelve-weektwenty-four-week period ended April 17, 2020.16, 2021. Due to restrictions associated with the pandemic, consumers went out less and consumed more food at home purchasing lower-margin items like groceries from essential stores that remained open during the health crisis. The Company’s sales increased as a result of strong consumer demand for food items during the twenty-four-week period ended April 16, 2021. We expect these events to have future business impacts, the extent of which is uncertain and largely subject to whether the severity worsens, or the duration of current business shutdowns continue. These impacts could include but may not be limited to risks and uncertainty related to shifts in demand between sales channels, market volatility, constraints in our supply chain, our ability to operate production facilities and worker availability. These unknowns may subject the Company to future risks related to long-lived asset impairments, increased reserves for uncollectible accounts, the price and availability of ingredients and raw materials used in our products, and adjustments to reflect the market value of our inventory.

The November 1, 2019October 30, 2020 balance sheet amounts within these interim condensed consolidated financial statements were derived from the audited fiscal year 20192020 financial statements.statements included in the Annual Report.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported revenues and expenses during the reporting periods. Some of the estimates needed to be made by management include the allowance for doubtful accounts, promotional and returns allowances, inventory reserves, the estimated useful lives of property, plant and equipment, and the valuation allowance for the Company’s deferred tax assets. Actual results could materially differ from these estimates. Amounts estimated related to liabilities for self-insured workers’ compensation, employee healthcare and pension benefits are especially subject to inherent uncertainties and these estimated liabilities may ultimately settle at amounts which vary from our current estimates. Market conditions and the volatility in stock markets may cause significant changes in the measurement of our pension fund liabilities and the performance of our life insurance policies in future periods.

Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued payroll, advertising and other expenses and notes payable. The carrying amount of these instruments approximate fair market value due to their short-term maturity or market interest rates. As of April 17, 2020,16, 2021, the Company had accounts held with nationally recognized financial institutions in excess of the Federal Deposit Insurance Corporation insurance coverage limit. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk with regard to its cash and cash equivalents. The Company grants payment terms to a significant number of customers that are diversified over a wide geographic area. The Company monitors the payment histories of its customers and maintains an allowance for doubtful accounts which is reviewed for adequacy on a quarterly basis. The Company does not require collateral from its customers.

Comprehensive income or loss

Comprehensive income or loss consists of net income and additional minimum pension liability adjustments.  There were no differences between net income and comprehensive income during the twelve and twenty-four weeks ended April 16, 2021 or April 17, 2020.

Customer Concentration > 20% of AR or 10% of Sales *

The table below shows customers that accounted for more than 20% of consolidated accounts receivable (“AR”) or 10% of consolidated sales for the twenty-four weeks ended April 17, 202016, 2021 and April 19, 2019,17, 2020, respectively.

* = No other customer accounted for more than 20% of AR or 10% of consolidated sales for the twenty-four weeks ended April 17, 202016, 2021 or the twenty-four weeks ended April 19, 2019.17, 2020.

(1) = Wal-Mart accounts receivable represented a lower percentage of sales as of April 16, 2021 due to accelerated payments on outstanding accounts receivable.

Revenue recognition

Revenues are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606 – Contracts with Customers upon passage of title to the customer, typically upon product pick-up, shipment, or delivery to customers. Products are delivered to customers primarily through our own long-haul fleet, common carrier, or through a Company owned direct store delivery system.

The Company recognizes revenue for the sale of the product at the point in time when our performance obligation has been satisfied and control of the product has transferred to our customer, which generally occurs upon shipment, pickup or delivery to a customer based on terms of the sale. Contracts with customers are typically short-term in nature with completion of a single performance obligation. Product is sold to foodservice, retail, institutional and other distribution channels. Products are delivered to customers primarily through our own long-haul fleet, common carrier or through a Company owned direct store delivery system. Shipping and handling that occurs after the customer has obtained control of the product is recorded as a fulfillment cost rather than an additional performance obligation. Costs paid to third party brokers to obtain contracts are recognized as part of selling expenses. Other sundry items in context of the contract are also recognized as selling expense. Any taxes collected on behalf of the government are excluded from net revenue.

We record revenue at the transaction price which is measured as the amount of consideration we anticipate to receive in exchange for providing product to our customers. Revenue is recognized as the net amount estimated to be received after deducting estimated or known amounts including variable consideration for discounts, trade allowances, consumer incentives, coupons, volume-based incentives, cooperative advertising, product returns and other such programs. Promotional allowances, including customer incentive and trade promotion activities, are recorded as a reduction to sales based on amounts estimated being due to customers, based primarily on historical utilization and redemption rates. Estimates are reviewed regularly until incentives or product returns are realized and the result of any such adjustments are known.

Leases

Leases are recognized in accordance with Accounting Standards Update (“ASU”) 2016-02ASC Topic 842, Leases (ASC 842) which requires a lessee to recognize assets and liabilities with lease terms of more than 12 months. We lease or rent property for such operations as storing inventory, packaging, or processing product and renting equipment and parking vehicles.equipment. We analyze our agreements to evaluate whether or not a lease exists by determining what assets exist for which we control for a period of time in exchange for consideration. In the event a lease exists, we classify it as a finance or operating lease and record a right-of-use (“ROU”) asset and the corresponding lease liability at the inception of the lease. In the case of month-to-month lease or rental agreements with terms of 12 months or less, we made an accounting policy election to not recognize lease assets and liabilities and instead to record them on a straight-line basis over the lease term. The storage units rented for use by our Snack Food Product SegmentProducts segment direct store delivery route system are not costly to relocate, contain no significant leasehold improvements, no degree of integration over leased assets, orders can be fulfilled by another route storage unit interchangeable,interchangeably, no specialized assets exist, market price is paid for storage units and there is no guarantee of debt.

Finance lease ROU assets are recorded within property, plant and equipment, net of accumulated depreciation and amortization.amortization in the accompanying condensed consolidated balance sheets. The Company’s lease of long-haul trucks used in its Frozen Food Products Segmentsegment qualifies as a finance lease. Finance lease liabilities are recorded as a separate line item on the Condensed Consolidated Balance Sheetscondensed consolidated balance sheets reflecting both the current and long-term obligation. The classification ofas a finance or operating lease determines whether the recognition, measurement and presentation of expenses and cash flows are partconsidered operating or financing.

Financial statement reclassification

Certain financial statement reclassifications have been recorded in 2020 to conform to the current year presentation of cash flow from operations or financing arrangements.operating (loss) income and income (loss) before taxes.

Subsequent events

Management has evaluated events subsequent to April 17, 202016, 2021 through the date that the accompanying condensed consolidated financial statements were filed with the Securities and Exchange Commission for transactions and other events which may require adjustments of and/or disclosure in such financial statements.

The Company repaid its line of credit with Wells Fargo Bank, N.A.As previously reported, on May 13, 2020 for $4,500 with the proceeds from the fifth borrowing of $7,200 under the Fifth Wells Fargo Loan Agreement (as defined in Note 6). The proceeds under the fifth borrowing were received on April 17, 2020. A total of $33,450 was borrowed for equipment financing under the Wells Fargo Agreement (as defined in Note 6). Refer to Note 6 “Equipment Notes Payable and Financial Arrangements” for more information on the equipment financing.

Based on Management’s review, no other material events were identified that require adjustment to the financial statements or additional disclosure.

On March 16, 2020, Bridgford Food Processing Corporation (“BFPC”), a wholly-owned subsidiary of Bridgford Foods Corporation,the Company, entered into a Purchase and Sale Agreement with CRG Acquisition, LLC (“CRG”), pursuant to which BFPC agreed to sell to CRG, pursuant to the the terms and conditions set forth in the CRG Purchase Agreement, a parcel of land including an approximate 156,000 square foot four-story industrial food processing building located at 170 N. Green Street in Chicago, Illinois (the “Property”). The purchase price for the Property is $60,000,000,$60,000 subject to a due diligence period and certain closing adjustments and prorations, and is conditioned upon, among other customary closing conditions, CRG receiving zoning and other governmental approvals necessary for the construction and development of a mixed usemixed-use project on the Property in accordance with certain development plans to be approved by the City of Chicago. The cost basis of the Property was insignificant.

On May 12, 2020,April 28, 2021, the Company executed the secondsixth amendment to the CRG Purchase Agreement, dated as of June 1, 2020April 28, 2021 of the CRG Purchase and Sale Agreement with CRG Acquisition, LLC.Agreement. Under the original terms and conditions of the CRG Purchase Agreement, the closing of the sale of the Property to CRG would occur on the date that is thirty (30) days after CRG’s receipt of the necessary zoning approvals, but in any event no earlier than October 31, 2020 and no later than March 31, 2021. The first amendment dated as of April 10, 2020 extended the inspection period to June 1, 2020. The second amendment extendsdated as of June 1, 2020 extended the inspection period to July 31, 2020, zoning period to February 1, 2021 and closing date andto February 5, 2021. The third amendment dated July 31, 2020 further extended the inspection period to October 31, 2020, zoning period from December 31, 2020 to January 31,April 30, 2021 and closing date to May 6, 2021. The fourth amendment dated November 2, 2020 further extended the inspection period to February 1, 2021, the zoning period to August 2, 2021 and closing date to August 31, 2021. The fifth amendment dated February 1, 2021 further extended the inspection period to May 1, 2021, the zoning period to November 1, 2021 and closing date to December 1, 2021. The sixth amendment dated April 28, 2021 further extended the inspection period to July 30, 2021, the zoning period to February 1, 2022 and closing date to March 1, 2022. The escrow account for the transaction has received $1,650 in earnest money shall begin Augustdeposits through April 16, 2021. We have received a total of $750 in total which is non-refundable earnest money through April 16, 2021 which is thus not part of restricted cash. An additional $100 of non-refundable earnest money had been received as of May 3, 2021, bringing that total to $850. The total amount of earnest money deposited in the escrow account since the inception of the CRG Purchase Agreement increased to $1,650 as of April 16, 2021.

On February 15, 2021, our line of credit with Wells Fargo Bank, N.A. was increased to $15,000 with an unused commitment fee of 0.25% of the available loan amount. The amended line of credit expires March 1, 2020.2022. Under the terms of this line of credit, we may borrow up to $15,000 at an interest rate equal to the bank’s prime rate or LIBOR plus 2.0%. The Company borrowed $2,000 under this line of credit during the first quarter of fiscal 2021 and had $2,000 borrowings outstanding as of April 16, 2021. The Company borrowed an additional $2,000 under this line of credit on April 27, 2021. The line of credit contains various covenants, the more significant of which require us to maintain a minimum tangible net worth, a minimum quick ratio and a fixed charge coverage ratio. The Company was in compliance with all covenants as of April 16, 2021.

Based on Management’s review, no other material events were identified that require adjustment to the financial statements or additional disclosure.

Basic(Loss) earnings per share

Basic(Loss) earnings per share are calculated based on the weighted average number of shares outstanding for all periods presented. No stock options, warrants, or other potentially dilutive convertible securities were outstanding as of April 17, 202016, 2021 or April 19, 2019.17, 2020.

Note 2 – Inventories:

Inventories are comprised of the following at the respective period ends:

Inventories are valued at the lower of cost (which approximates actual cost on a first-in, first-out basis) or net realizable value. Inventories include the cost of raw materials, labor, and manufacturing overhead. We regularly review inventory quantities on hand and write down any excess or obsolete inventories to net realizable value. An inventory reserve is created when potentially slow-moving or obsolete inventories are identified in order to reflect the appropriate inventory value. Changes in economic conditions, production requirements, and lower than expected customer demand could result in additional obsolete or slow-moving inventory that cannot be sold or must be sold at reduced prices and could result in additional reserve provisions.

Note 3 – Contingencies and Commitments:

The Company leases warehouse and/or office facilities throughout the United States throughunder month-to-month rental agreements. In the case of month-to-month lease or rental agreements with terms of 12 months or less, the Company made an accounting policy election to not recognize lease assets and instead to liabilities and record them on a straight-line basis over the lease term. For further information regarding our lease accounting policy, please refer to Note 1 – Summary of Significant Accounting Policies, Leases.

The Company leases three long-haul trucks received during fiscal year 2019. Six-year leasesperformed a detailed analysis and determined that the only indication of a long-term lease was Hogshed Ventures, LLC. A right-of-use asset and corresponding liability for semi-trucks expirewarehouse storage space was recorded in 2025. Amortizationthe amount of equipment$1,091 for the Company’s lease with Hogshed Ventures, LLC for property located at 40th Street in Chicago, Illinois as of October 30, 2020. We lease this space under these finance leases was $34 duringa non-cancelable operating lease. This lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. Further this lease does not contain contingent rent provisions. This lease terminates on June 30, 2023. This lease includes both lease (e.g., fixed rent) and non-lease components (e.g., real estate taxes, insurance, common-area, and other maintenance costs). The non-lease components are deemed to be executory costs and are included in the second quarterminimum lease payments used to determine the present value of fiscal year 2020.the operating lease obligation and related right-of-use asset.

The Hogshed lease does not provide an implicit rate and we estimated our incremental interest rate to be approximately 1.6%. We used our estimated incremental borrowing rate and other information available at the lease commencement date in determining the present value of the lease payments.

The following is a schedule by years of future minimum lease payments for transportation leases:leases and right-of-use assets:

(a) Minimum payments exclude contingent rentals based on actual mileage and adjustments of rental payments based on the Consumer Price Index.

(b) Amount necessary to reduce net minimum lease payments to present value calculated at the Company’s incremental borrowing rate at the inception of the leases.

(c) Reflected in Part I. Financial Information Item 1. a. Condensed Consolidated Balance Sheetscondensed consolidated balance sheets as current and noncurrent obligations under capital leases of $104$151 and $325,$254, and right-of-use assets of $393 and $519, respectively as of April 17, 2020.16, 2021.

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

Most flour purchases are made at market price with contracts. However, the Company may purchase bulk flour at current market prices under short-term (30 - 120 days) fixed price contracts during the normal course of business. Under these arrangements, the Company is obligated to purchase specific quantities at fixed prices, within the specified contract period. These contracts provide for potential price increases if agreed quantities are not purchased within the specified contract period. The contracts are not material. These contracts are typically settled within a month’s time and no significant contracts remain open at the close of the quarterly or annual reporting period. No significant contracts remained unfulfilled aton April 17, 2020.16, 2021. The Company does not participate in the commodity futures market or hedging to limit commodity exposure.

Note 4 – Segment Information:

The Company has two reportable operating segments: Frozen Food Products (the processing and distribution of frozen food products) and Snack Food Products (the processing and distribution of meat and other convenience foods).

We evaluate each segment’s performance based on revenues and operating income. Selling, general and administrative (“SG&A”) expenses include corporate accounting, information systems, human resource management and marketing, which are managed at the corporate level. These activities are allocated to each operating segment based on revenues and/or actual usage. Assets managed at the corporate level are not attributable to each operating segment and thus have been included as “other” in the accompanying segment information.

The following segment information is presented for the twelve weeks ended April 17, 202016, 2021 and April 19, 2019.17, 2020.

The following segment information is presented for the twenty-four weeks ended April 17, 202016, 2021 and April 19, 2019.17, 2020.

The following information further disaggregates our sales to customers by major distribution channel and customer type for the twelve weeks ended April 17, 202016, 2021 and April 19, 2019,17, 2020, respectively.

Twelve weeks Ended April 16, 2021

(a) Includes sales to food retailers, such as grocery retailers, warehouse club stores, and internet-based retailers.Twelve weeks Ended April 17, 2020

(b) Includes sales to foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, convenience stores, healthcare facilities and the military.

The following information further disaggregates our sales to customers by major distribution channel and customer type for the twenty-four weeks ended April 17, 202016, 2021 and April 19, 2019,17, 2020, respectively.

(a) Includes sales to food retailers, such as grocery retailers, warehouse club stores, and internet-based retailers.

(b) Includes sales to foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, convenience stores, healthcare facilities and the military.

Note 5 – Income Taxes:

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)(“CARES Act”) was enacted in response to the COVID-19COVID19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before January 01, 2021. In addition, the CARES Act allows NOLs incurred in taxable years beginning after December 31, 2017 and before January 01, 2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.taxes The Company is currently evaluating the impacthas filed a federal income tax return for tax year 2018 (fiscal year 2019) and carried back a taxable loss of various provisions of the CARES Act, but at present, expects that the NOL carryback provision of the CARES Act would result in a material cash benefit$9,900 to us. Whiletax years 2013 (fiscal 2014), 2014 (fiscal year 2015) and 2015 (fiscal year 2016). Furthermore, the Company is still in the processgenerated taxable loss of filing income tax returns$24,505 for tax year 2019 (FY20), it estimates a taxable loss of approximately $10,000 that can be carried back to tax(fiscal year 2015 (FY16). Furthermore, The Company estimates additional taxable loss for tax year 2020 (current FY 21)2020) which can be carried back to remaining taxable income of tax year 2015 (FY16)(fiscal year 2016) and taxable income of tax years 2016 (FY 17)(fiscal year 2017) and 2018 (FY 19)(fiscal year 2019).

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Tax Act”). was signed into law. Among other significant changes, Thethe Tax Act reduced the corporate federal income tax rate from 35% to 21%. The carryback of NOLs from tax years 2018 and 2019 and 2020 under the CARES Act to pre- Taxpre-Tax Act years will generategenerated an income tax benefit due to the differential in income tax rates.

Under U.S. GAAP, specifically ASC Topic 740,Income Taxes, the tax effects of changesrates which was recorded in tax laws must be recognized in the period in which the law is enacted, or March 27, 2020, for the CARES Act. Thus, at the date of enactment, the Company has recorded an income tax benefit of $1,100 which represents the impact of the carryback of NOL related to taxfiscal year 2019 (FY20) which can be estimated with reasonable certainty. Once the Company can reasonably estimate the amount of NOL that will be generated in tax year 2020 (current fiscal year) that is available to carryback to prior years, it will record the appropriate tax benefit to the income tax provision in applicable quarters.2020.

The Company’s effective tax rate was -28.2%19.7% and 23.6%164.1% for the second quarter of fiscal 20202021 and 2019,2020, respectively. The effective tax ratesrate for the second quarter of fiscal years 2020 and 2019 wereyear 2021 was impacted by such items as non-deductible meals and entertainment, non-taxable gains and losses on life insurance policies and state income taxes.

As of April 17, 2020,16, 2021, the Company has noa federal or state (except $800 California) net operating loss carry forwards.forward of approximately $2,818 and $4,233 state net operating loss carry forwards of approximately $4,233.

Our federal income tax returns are open to audit under the statute of limitations for the fiscal years 20162017 through 2018.2019. We are subject to income tax in California and various other state taxing jurisdictions. Our state income tax returns are open to audit under the statute of limitations for the fiscal years 20152016 through 2018.2019.

Note 6 – Equipment Notes Payable and Financial Arrangements:

The Company maintains a line of credit with Wells Fargo Bank, N.A. that extends through March 1, 2022. Under the terms of this line of credit, we may borrow up to $15,000 at an interest rate equal to the bank’s prime rate or LIBOR plus 2.0%. The line of credit has an unused commitment fee of 0.25% of the available loan amount. We borrowed $2,000 under this line of credit on December 2, 2020 which remains outstanding as of April 16, 2021. We borrowed an additional $2,000 under this line of credit on April 27, 2021. The line of credit is presented under the current portion of non-current liabilities in the Condensed Consolidated Balance Sheets. The line of credit contains various covenants, the more significant of which require us to maintain a minimum tangible net worth, a minimum quick ratio, and a fixed charge coverage ratio. The Company was in compliance with all covenants as of April 16, 2021.

On December 26, 2018, we entered into a master collateral loan and security agreement with Wells Fargo Bank, N.A. (the “Original Wells Fargo Loan Agreement”) for up to $15,000 in equipment financing. Pursuant tofinancing which was amended and expanded as detailed below. We subsequently entered into additional master collateral loan and security agreements with Wells Fargo Bank, N.A. on each of December 19, 2019, March 5, 2020 and April 17, 2020 (collectively the Original Wells Fargo Loan Agreement we borrowed $15,000, two separate receipts of $7,500 each, to purchase specific equipment for our new Chicago processing facility at a fixed rate of 4.13% and 3.98%, respectively, per annum. The loan terms are seven years and are secured by the purchased equipment. The first funding of $7,500 was received on December 28, 2018. The second funding of $7,500 was received on April 23, 2019. The Original Wells Fargo Loan Agreement contains various affirmative and negative covenants that limit the use of funds and define other provisions of the loan. On December 19, 2019, we entered into a third master collateral loan and security agreement with Wells Fargo Bank, N.A. (the “Third Wells Fargo Loan Agreement”) for $3,750 in equipment financing. Pursuant to the Third Wells Fargo Loan Agreement, we borrowed $3,750 to purchase specific equipment for our new Chicago processing facility at a fixed rate of 3.70% per annum. The loan term is seven years and is secured by the purchased equipment. The funds were received on December 23, 2019. On March 5, 2020, we entered into a fourth master collateral loan and security agreement with Wells Fargo Bank, N.A. (the “Fourth Wells Fargo Loan Agreement”) for $7,500 in equipment financing. Pursuant to the Fourth Wells Fargo Loan Agreement, we borrowed $7,500 to purchase specific equipment for our new Chicago processing facility at a fixed rate of 3.29% per annum. The loan term is seven years and is secured by the purchased equipment. The funds were received on March 6, 2020. On April 17, 2020, we entered into a fifth master collateral loan and security agreement with Wells Fargo Bank, N.A. (the “Fifth Wells Fargo Loan Agreement” and together with the Original Wells Fargo Loan Agreement, the Third Wells Fargo Loan Agreement and the Fourth Wells Fargo Loan Agreement,subsequent agreements referred to as the “Wells Fargo Loan Agreements”) for $7,200 in equipment financing.. Pursuant to the Fifth Wells Fargo Loan Agreement, we borrowed $7,200 to purchase specific equipment for our new Chicago processing facility at a fixed rate of 3.68% per annum. The loan term is seven years and is secured by the purchased equipment. The funds were received on April 17, 2020. The Company was in compliance with all covenants under the Wells Fargo Loan Agreements, as of April 17, 2020.we borrowed the following amounts.

The first secured equipment note payable is due with monthly principal and interest payments of $103 commencing on January 31, 2019 for 84 monthly installments including interest of 4.13% per annum. The second secured equipment note payable is due with monthly principal and interest payments of $102 commencing on May 31, 2019 for 84 monthly installments including interest of 3.98% per annum. The third secured equipment note payable is due with monthly principal and interest payments of $54 commencing on February 3, 2020 for 84 monthly installments of 3.70% per annum. The fourth secured equipment note payable is due with monthly principal and interest payments of $100 commencing on March 13, 2020 for 84 monthly installments of 3.29% per annum. The fifth secured equipment note payable is due with monthly principal and interest payments of $97 commencing on May 15, 2020 for 84 monthly installments of 3.68% per annum.

The Company maintains a line of credit with Wells Fargo Bank, N.A. that extends through March 1, 2022. Under the terms of this line of credit, we may borrow up to $7,500 at an interest rate equal to the bank’s prime rate or LIBOR plus 1.5%. The Company borrowed $2,000 under this line of credit on November 24, 2019 and $2,500 under the line of credit on January 24, 2020 for a combined total of $4,500. The Company repaid its line of credit with Wells Fargo Bank, N.A. on May 13, 2020 of $4,500 with the proceeds from the fifth borrowing of $7,200 under the master collateral loan and security agreement with Wells Fargo Bank, N.A.