Management's discussion and analysis of the financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and footnotes for the fiscal years ended August 25, 2021 ("fiscal
2021") and August 26, 2020, ("fiscal 2020") included in Part II, Item 8 of this
Form 10-K.
The following table shows our restaurant unit count as of August 25, 2021 and
August 26, 2020.
Restaurant Counts:
                                Beginning of          Fiscal Year 2021        Fiscal Year 2021           Fiscal Year 2021               August 25,
                              Fiscal Year 2021            Openings                Closings             Franchise Conversion                2021
Luby's cafeterias                       61                       -                      (8)                           -                        53
Fuddruckers restaurants                 24                       -                      (2)                         (15)                        7

Total                                   85                       -                     (10)                         (15)                       60



Included in the above counts for both Luby's Cafeterias and Fuddruckers
Restaurants are five Combo units, where a Luby's cafeteria and a Fuddruckers
restaurant occupy the same location. Subsequent to August 25, 2021, we sold the
Luby's brand and the operations of 35 Luby's restaurants, including one Combo
unit (discussed below). As of November 19, 2021 we operate 14 Luby's cafeterias
and six Fuddruckers restaurants (including two Combo units) under licensing
agreements with the new owners of the respective brands until we can complete
the orderly disposition of these assets.
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Overview


Prior to Adoption of the Plan of Liquidation
The consolidated financial statements prior to November 19, 2020 were prepared
on the going concern basis of accounting, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business and
were prepared in accordance with accounting principles generally accepted in the
United States ("US GAAP").
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 convert all 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 as of the date the shareholders
approved the Plan included our Luby's Cafeterias, Fuddruckers, and Culinary
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 November 17, 2023. 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.
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
includes business unit valuations representing 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
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
                                       15
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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 the assets we owned on the
date of the shareholder approval of the plan will be sold by December 31, 2021,
with liquidation substantially complete by June 30, 2022. It is also anticipated
that any assets and liabilities remaining at such time will be transferred to a
liquidating entity and it is likely that the full realization of proceeds from
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.
We have one class of common stock. The net assets in liquidation at August 25,
2021 would result in liquidating distributions of $5.00 per common share based
on 30,973,755 common shares outstanding at that date. On November 1, 2021, we
paid a cash liquidating distribution of $2.00 per common share, reducing the
estimate of future liquidating distributions to $3.00 per share. 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 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.
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 former 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. Full on-premise dining resumed in
Texas in March 2021, when government restrictions limiting on-premise dining
were lifted. Prior to the onset of the COVID-19 pandemic we operated 118
restaurants, of which 87 were closed as a result of the pandemic and 53 of those
were reopened as permitted when restrictions were lifted. The 31 of our
restaurants that remained open during the pandemic were open, but at reduced
capacity levels or for takeout only.
Despite increasing vaccination rates, U.S. Treasury stimulus payments to U.S.
citizens and other positive developments, risks and uncertainties remain as
cases of COVID-19 infection continue within the communities where we operate,
albeit at reduced levels. 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.
                                       16
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Asset Disposal and Liquidation Activities
Brands
•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.
•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.
•During the fourth quarter of fiscal 2021, we sold the Fuddruckers franchise
business operations for $15.0 million plus the assumption of certain liabilities
to Black Titan Franchise Systems LLC, an affiliate of Black Titan Holding, LLC
which previously purchased 13 franchise locations in separate transactions. The
notes issued in connection with this transaction are included in accounts and
notes receivable in the accompanying consolidated statement of net assets in
liquidation at August 25, 2021 at a discounted rate that represents the amount
we expect to receive upon liquidation. There can be no assurance that we will
realize or receive the full value of such consideration.
•Subsequent to the end of fiscal year 2021, on August 26, 2021, we sold the
Luby's Cafeterias brand name and the business operations at 35 Luby's locations
to an unrelated third party for an adjusted aggregate consideration of
approximately $28.4 million which includes the assumption of certain liabilities
and the issuance of notes to us. There can be no assurance that we will realize
or receive full value of such consideration. The net asset value of the sale is
included in properties and business units for sale on the accompanying
consolidated statement of net assets in liquidation at August 25, 2021 at a
discounted rate that represents the amount we expect to receive upon
liquidation..
Fuddruckers
•In December 2020, we announced that we entered into an agreement to franchise
13 of our company-owned Fuddruckers restaurants to Black Titan Holdings, LLC.
•In March 2021, we closed on the sale and transfer of nine of these Fuddruckers
restaurants. In each case, Black Titan Holdings, LLC entered into a franchise
agreement with us to operate each of these nine Fuddruckers restaurants. Black
Titan Holdings, 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.
•In April 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 Holdings, LLC. However, Luby's
continues to be either directly or contingently liable for the lease obligation
at these property locations.
•In May 2021, we closed on the sale and transfer of the remaining Fuddruckers
location to Black Titan Holdings, LLC and Black Titan Holdings, LLC entered into
a franchise agreement with us to operate this Fuddruckers restaurant. Black
Titan Holdings, LLC assumed the lease obligation for this location and thus
Luby's no longer has a lease obligation at this property location.
•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 franchise
agreement with us to 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 our
Plan of Liquidation.
Cafeterias
•We continue to operate an additional 14 Luby's restaurants which are not part
of the above referenced sales agreement. We are currently evaluating the
remaining locations to determine the best exit strategy for each location.
                                       17
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Real Estate
•During fiscal year 2020, we sold nine properties for total gross proceeds of
approximately $23.7 million.
•During fiscal year 2021, we have closed on the sale of 11 properties for total
gross proceeds of approximately $32.1 million.
•Subsequent to August 25, 2021, through November 11 we have closed on the sale
of 30 properties for total gross proceeds of approximately $101.0 million.
•As of November 19, 2021, the Company owns 24 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 fiscal year 2021,
we terminated and settled our remaining lease obligation at 11 closed restaurant
properties and we settled one additional lease obligation for a closed
restaurant property. While the amounts paid to settle our lease liabilities
varied, in the aggregate, we have settled these 28 leases for approximately 21%
of the total undiscounted base rent payments that would otherwise have been due
under the leases through their original contractual termination date. Although
we can offer no assurances that we will continue to settle any lease obligation
for less than its recorded values, any future settlements at less than the
recorded value of the related lease obligation would increase our reported net
assets in liquidation, while any future settlements above the recorded value
would decrease our reported net assets in liquidation..

General and Administrative Expenses
As we progress through our Plan of Liquidation, we remain focused on reducing
our operating and administrative costs, when appropriate, to provide maximum
liquidation value to our shareholders.
Accounting Periods
Our 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. Our first quarter consists of four four-week periods, while our last
three quarters normally consist of three four-week periods. Fiscal year 2022
will be a 53 week, 371 day fiscal year. Comparability between quarters may be
affected by the varying lengths of the quarters, as well as the seasonality
associated with the restaurant business.

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RESULTS OF OPERATIONS
Period Ended November 18, 2020 and Fiscal Year Ended August 26, 2020
                                                                      Period Ended                   Year Ended
                                                                    November 18, 2020             August 26, 2020
                                                                       (12 weeks)                    (52 weeks)
                                                                         (In thousands, except per share data)
SALES:
Restaurant sales                                               $              36,485             $       183,511
Culinary contract services                                                     4,918                      26,747
Franchise revenue                                                                530                       3,634
Vending revenue                                                                   14                         130
TOTAL SALES                                                                   41,947                     214,022
COSTS AND EXPENSES:
Cost of food                                                                   9,348                      52,505
Payroll and related costs                                                     12,964                      69,833
Other operating expenses                                                       7,154                      36,588
Occupancy costs                                                                2,634                      15,130
Opening costs                                                                      -                          14
Cost of culinary contract services                                             4,467                      24,218
Cost of franchise operations                                                     294                       1,543
Depreciation and amortization                                                  2,142                      11,514
Selling, general and administrative expenses                                   4,267                      24,571
Other charges                                                                    416                       3,401

Net provision for (gain on) asset impairments and restaurant closings

                                                                         (85)                     10,193
Net loss (gain) on disposition of property and equipment                         117                     (11,557)
Total costs and expenses                                                      43,718                     237,953
LOSS FROM OPERATIONS                                                          (1,771)                    (23,931)
Interest income                                                                    8                          60
Interest expense                                                              (1,212)                     (6,388)
Other income, net                                                                 30                       1,195
Loss before income taxes and discontinued operations                          (2,945)                    (29,064)
Provision for income taxes                                                        58                         357
Loss from continuing operations                                               (3,003)                    (29,421)
Loss from discontinued operations, net of income taxes                           (16)                        (29)
NET LOSS                                                       $              (3,019)            $       (29,450)



Under the liquidation basis of accounting subsequent to November 18, 2020, we no
longer report results of operations information. Comparisons of the 12 week
period ended November 18, 2020 to the fiscal year ended August 26, 2020 are not
meaningful.


LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents
We have previously funded our operations through borrowings from our Credit
Facility, proceeds from our PPP Loan and from asset sales. Since the adoption of
our Plan of Liquidation, our ability to meet our obligations is contingent upon
the disposal of our assets in accordance with the Plan. We expect that the
proceeds from the sale of our assets pursuant to the Plan will be adequate to
meet our obligations; however, we cannot provide assurance as to the prices or
net proceeds we may receive from the disposition of our assets.
                                       19
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STATUS OF LONG-TERM INVESTMENTS AND LIQUIDITY
We had no long-term investments as of August 25, 2021. As noted in Note 2.
Subsequent Events in our consolidated financial statements included in Item 8.
of this Form 10-K, subsequent to August 25, 2021, as part of the transaction to
sell the Luby's brand and the operations of 35 Luby's cafeterias, we paid $3.0
million to acquire preferred stock and common stock warrants in CAL Acquisition
Corp, an unrelated third party. Luby's is restricted from selling the preferred
stock or exercising the common stock warrants for a period of nine months, which
may be extended an additional three months. Also, a portion of the purchase
price for the above-mention sale was paid in notes. We will continue to monitor
the underlying investments and notes to determine the future realizable value of
the preferred stock and common stock warrants.
STATUS OF TRADE ACCOUNTS AND NOTES RECEIVABLES, NET
We monitor the aging of our receivables and record reserves to adjust to
estimated net realizable value, as appropriate. Credit terms of accounts
receivable associated with our CCS business vary from 30 to 45 days based on
contract terms.
Our notes receivable at August 25, 2021 are recorded in our consolidated
statement of net assets at the amount we expect to realize based on the credit
terms of the notes. See Note 10. Accounts and Notes Receivable in our
consolidate financial statements included in Item 8. of this Form 10-K for a
further description of the notes. We continue to monitor the terms of the notes
receivable and the payment history of the issuer to determine net realizable
value.
CAPITAL EXPENDITURES
Capital expenditures for fiscal year 2021 were approximately $1.2 million
primarily related to recurring maintenance of our existing units. Our future
maintenance capital expenditures are difficult to predict and will depend on the
timing of the sales of our businesses and real estate as part of our Plan of
Liquidation.
DEBT

                                                                    August 25,                  August 26,
                                                                       2021                        2020
                                                                                              (Going Concern
Long-Term Debt                                                  (Liquidation Basis)               Basis)
2018 Credit Agreement - Revolver                              $              5,000          $         10,000
2018 Credit Agreement - Term Loans                                          12,024                    36,583
Total credit facility debt                                    $             17,024          $         46,583
2020 PPP Loan                                                 $                  -                    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                                                                   N/A                      -
Total Long Term Balance Sheet Debt

N/A $ 54,118




PPP Loan
On April 21, 2020. we entered into a promissory note with Texas Capital Bank,
N.A., ("TCB") effective April 12, 2020, that provided 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 was subject to forgiveness under the PPP upon
our request to the extent that the proceeds were used to pay expenses permitted
by the PPP, including payroll costs, covered rent and mortgage obligations, and
covered utility payments. The PPP Loan was to mature on April 12, 2022, two
years from the commencement date and bore interest at a rate of 1% per annum.
On November 12, 2020, we submitted an application for forgiveness of the entire
$10.0 million due on the PPP Loan. On June 29, 2021, we received notice from the
Small Business Administration ("SBA") that our $10.0 million PPP Loan had been
forgiven in full and the principal and accrued interest amounts on our loan were
settled on the same date.
2018 Credit Agreement
On December 13, 2018, we entered into a credit agreement (amended as defined
below), the ("Credit Agreement") among the Company, the lenders from time to
time party thereto, and a subsidiary of MSD Capital, MSD PCOF Partners VI, LLC
                                       20
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("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 $80.0 million consisting of a $10.0 million revolving credit
facility (the "Revolver"), a $10.0 million delayed draw term loan ("Delayed Draw
Term Loan"), and a $60.0 million term loan (the "Term Loan", and together with
the Revolver and the Delayed Draw Term Loan, the "Credit Facility"). The Credit
Facility was to terminate on, and all amounts owing thereunder was to be repaid
on December 13, 2023.
Subsequent to August 25, 2021, we paid all outstanding amounts due under the
Credit Agreement and the Credit Agreement was terminated, effective September
30, 2021.
Borrowings under the Revolver, Delayed Draw Term Loan, and Term Loan bore
interest at the three month London InterBank Offered Rate ("LIBOR") plus 7.75%
per annum. Interest was payable quarterly and accrued daily. Under the terms of
the 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 August 25,
2021 of approximately $3.2 million is recorded in restricted cash and cash
equivalents on our consolidated statement of net assets in liquidation.
Through the date of the Third Amendment, the Company also paid a quarterly
commitment fee based on the unused portion of the Revolver and the Delayed Draw
Term Loan at 0.5% per annum. Voluntary prepayments, refinancing and asset
dispositions constituting a sale of all or substantially all assets, under the
Delayed Draw Term Loan and the Term Loan were 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. As of August 25, 2021, no
make whole premium was paid or payable by the Company under the Credit Facility.
Finally, the Company paid to the lenders a one-time fee of $1.6 million in
connection with the closing of the Credit Facility.
Indebtedness under the Credit Facility was secured by a security interest in,
among other things, all of the present and future personal property of the
Company and its subsidiaries (other than certain excluded assets) and all
Mortgaged Property (as defined in the Credit Agreement) of the Company and its
subsidiaries. Under the Credit Facility, 80% of net proceeds from asset sales,
including real property sales, were applied as mandatory prepayments of our Term
Loan. Mandatory prepayments were not subject to the make whole premium described
above.
The Credit Facility contained customary covenants and restrictions on our
ability to engage in certain activities, including financial performance
covenants, asset sales and acquisitions, and contained customary events of
default. Specifically, among other things, we were required to maintain minimum
Liquidity (as defined in the 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
Credit Agreement) of 2.50 to 1.00. As of August 25, 2021 we were in full
compliance with all covenants with respect to the Credit Facility.
All amounts owing by the Company under the Credit Facility were guaranteed by
the subsidiaries of the Company.
As of August 25, 2021, we had approximately $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 $7 thousand in other
indebtedness.
COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Claims
From time to time, we are subject to various other private lawsuits,
administrative proceedings and claims that arise in the ordinary course of our
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. We currently believe
that the final disposition of these types of lawsuits, proceedings and claims
will not have a material adverse effect on our financial position, results of
operations or liquidity. It is possible, however, that our future results of
operations for a particular quarter or fiscal year could be impacted by changes
in circumstances relating to lawsuits, proceedings or claims.

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AFFILIATIONS AND RELATED PARTIES
Christopher J. Pappas, our former Chief Executive Office and Harris J. Pappas, a
former Director of the Company, own two restaurant entities (the "Pappas
entities") that may, from time to time, 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% 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 $18 thousand and $8 thousand under
the Amended and Restated Master Sales Agreement for custom-fabricated and
refurbished equipment in fiscal 2021 and 2020, respectively. Services provided
under this agreement are subject to review and approval by the Finance and Audit
Committee of the Company's 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 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 for a primary term
of 12 years with two subsequent five-year options and gives 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 rent of
$22.00 per square foot plus maintenance, taxes, and insurance during the
remaining primary term of the lease. Thereafter, the lease provides for
increases in rent at set intervals. The new lease agreement was approved by the
Finance and Audit Committee. 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 was terminated early on December
31, 2020, (2) the rent for May and June of 2020 is abated and (3) commencing
July 1, 2020 through the early termination date, the monthly rent was a fixed
gross amount. The amendment was approved by the Finance and Audit Committee of
our Board of Directors.
In the third quarter of fiscal 2014, on March 12, 2014, the Company executed a
new lease agreement for one of the Company's Houston Fuddruckers locations with
Pappas Restaurants, Inc. The lease provides for a primary term of six years with
two subsequent five-year options. Pursuant to the new ground lease agreement,
the Company pays rent of $28.53 per square foot plus maintenance, taxes, and
insurance from March 12, 2014 until May 31, 2020. The lease agreement provided
for increases in rent at set intervals. The lease agreement was approved by the
Finance and Audit Committee of our Board of Directors. In December 2019 we
exercised the first 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. 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 operate as a franchised location, as further described below.
For the fiscal years ended August 25, 2021 and August 26, 2020, affiliated rents
incurred as a percentage of relative total Company cost was 0.25% and 0.52%,
respectively. Rent payments under the two lease agreements described above were
133 thousand and $411 thousand in fiscal 2021 and 2020, 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
as 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
Mr. Pappas resigned his position as President and Chief Executive Officer,
effective January 27, 2021. Mr. Pappas remained a member of the Board of
Directors of the Company until August 23, 2021. Previously, on December 11,
2017, the Company had entered into a new employment agreement with Mr. Pappas.
Under the employment agreement, which is no longer effective as of January 27,
2021, the initial term of Mr. Pappas' employment ended on August 28, 2019 and
automatically renewed for additional one year periods, unless terminated in
accordance with its terms. The employment agreement had been unanimously
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approved by the Executive Compensation Committee of our Board of Directors as
well as by the full Board at that time. Previously, effective August 1, 2018,
the Company and Mr. Pappas agreed to reduce his fixed annual base salary to
one 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 also executed separate consulting
agreements to provide similar services for the filing of our Quarterly Report on
Form 10-Q for the quarters ended March 10, 2021 and June 2, 2021, and for the
filing of our Annual Report on Form 10-K for the fiscal year ended August 25,
2021, respectively.
Paulette Gerukos, Vice President of Human Resources of the Company, is the
sister-in-law of Harris J. Pappas.


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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are described in Note 1, "Nature of Operations and
Significant Accounting Policies," to our Consolidated Financial Statements
included in Item 8 of Part II of this report. The Consolidated Financial
Statements are prepared in conformity with accounting principles generally
accepted in the United States. 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. Management believes the following are critical
accounting policies due to the significant, subjective and complex judgments and
estimates used when preparing our consolidated financial statements. Management
regularly reviews these assumptions and estimates with the Finance and Audit
Committee of our Board of Directors.
Liquidation Basis of Accounting
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. The two areas that require the most significant,
subjective and complex judgements and estimates are (i) properties and business
units for sale and (ii) liability for estimated costs in excess of estimated
receipts during liquidation.
Properties and business units for sale
In developing the estimated net realizable value for our properties and business
units held for sale, 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 consider 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 consider
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, is 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.
Estimated costs in excess of estimated receipts during liquidation
The liquidation basis of accounting requires the estimation of net cash flows
from operations and 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.
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 the assets we owned on the
date of the shareholder approval of the plan will be sold by December 31, 2021,
with liquidation substantially complete by June 30, 2022. It is also anticipated
that any assets and liabilities remaining at such time will be transferred to a
liquidating entity and it is likely that the full realization of proceeds from
sales will extend beyond that date.
NEW ACCOUNTING PRONOUNCEMENTS
There are no new accounting pronouncements that are applicable or relevant to
the Company under the Liquidation Basis of Accounting.
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.
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