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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ____________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended August 25, 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 Number)
 
13111 Northwest Freeway, Suite 600
Houston, Texas 77040
(Address of principal executive offices, including zip code)
 
(713) 329-6800
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:

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
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ☐    No  
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  
 
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       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  ☒   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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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  
 
The aggregate market value of the shares of common stock of the registrant held by non-affiliates of the registrant as of March 10, 2021, was approximately $62,053,000 (based upon the assumption that directors and executive officers are the only affiliates).
 
As of November 1, 2021, there were 31,019,233 shares of the registrant’s common stock outstanding.

Documents incorporated by reference: None
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Luby’s, Inc.
Form 10-K
Year ended August 25, 2021
Table of Contents
  Page
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Additional Information 
We file reports with the Securities and Exchange Commission (“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 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 the 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. 
Compliance with New York Stock Exchange Requirements 
We submitted to the New York Stock Exchange (“NYSE”) the CEO certification required by Section 303A.12(a) of the NYSE’s Listed Company Manual with respect to our fiscal year ended August 26, 2020. We are filing as an exhibit to this Form 10-K the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002. We expect to submit the CEO certification with respect to our fiscal year ended August 25, 2021 to the NYSE within 30 days after our annual meeting of shareholders.
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FORWARD-LOOKING STATEMENTS
This Annual Report on this "Form 10-K” 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. All statements contained in this Form 10-K, 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, expected repayment of debt and expected sources of funds for working capital requirements, and
closing existing units
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 this Form 10-K and any other cautionary language in this Form 10-K, 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 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 ability to realize property values,
collectability of accounts receivable,
the availability and cost of credit,
costs relating to legal proceedings,
fluctuations in the costs of commodities, including beef, poultry, seafood, dairy, cheese, oils and produce,
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,
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 effectiveness of our credit card controls and Payment Card Industry ("PCI") compliance,
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 report, 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 report could have material adverse effect on our business and our Plan of Liquidation.
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PART I
 
Item 1. Business
“Company”, "we", "our", "us", or "Luby's" refer to Luby’s, Inc., Luby's Fuddruckers Restaurants, LLC, a Texas Limited Liability Company ("LFR") and the consolidated subsidiaries of Luby’s, Inc. References to “Luby’s Cafeteria” refer specifically to the Luby’s Cafeteria brand restaurants.
Plan of Liquidation and Dissolution
At a special meeting of stockholders held on November 17, 2020, the Company's shareholders approved the Company’s Plan of Liquidation and Dissolution (the “Plan of Liquidation” or the “Plan”) that provides for the sale of the Company’s assets and distribution of the net proceeds to the Company’s stockholders, after which the Company will be dissolved.
The Plan of Liquidation outlines an orderly sale of the Company's businesses, operations, and real estate, and an orderly wind down of any remaining operations. The Company intends to attempt to convert all of its assets into cash, satisfy or resolve its remaining liabilities and obligations, including contingent liabilities and claims and costs associated with the liquidation of the Company, and then file a certificate of dissolution. The assets to be sold include operating divisions Luby’s Cafeterias, Fuddruckers, and the Company’s Culinary Services business, as well as the Company’s real estate. The Company has completed the sales of the Luby’s Cafeterias and Fuddruckers operating divisions and several of its real estate assets. The Company currently anticipates that its common stock will be delisted from the NYSE upon the filing of the certificate of dissolution, which is not expected to occur until the earlier of the completion of the asset sales, the Company’s disposition of its remaining assets and liabilities to a liquidating entity or November 17, 2023 (three years from the date of the approval of the Plan of Liquidation), but the delisting of its common stock may occur sooner in accordance with applicable rules of the NYSE.
The Company cannot predict the timing or amount of any distributions to stockholders, as uncertainties exist as to the value it may receive upon the sale of assets pursuant to its monetization strategy, the net value of any remaining assets after such sales are completed, the ultimate amount of expenses associated with implementing its monetization strategy, liabilities, operating costs and amounts to be set aside for claims, obligations and provisions during the liquidation and winding-up process and the related timing to complete such transactions and overall process.
The Company does not intend to comment on or disclose developments regarding the process unless it deems further disclosure appropriate or required. Please see "Risk factors" in Item 1A.
Overview
Luby’s, Inc. operated as a multi-branded company in the restaurant industry and in the contract food services industry. The Company’s core brands included Luby’s Cafeteria, Fuddruckers - World’s Greatest Hamburgers® and Luby’s Culinary Services.
The Company is headquartered in Houston, Texas with its corporate headquarters is located at 13111 Northwest Freeway, Suite 600, Houston, Texas 77040, telephone number (713) 329-6800. The Company website is www.lubysinc.com. The information on the Company website is not, and shall not be deemed to be, a part of this annual report on Form 10-K or incorporated into any of our other filings with the SEC.
As of November 19, 2021, the Company operated 18 restaurants, all of which are located in Texas. These establishments are located in close proximity to retail centers, business developments and residential areas. Of the 18 restaurants, 12 are located on Company owned property and six are located on property leased. One of our owned locations and one of our leased locations consist of a side-by-side Luby’s cafeteria and Fuddruckers restaurant, to which we refer herein as a “Combo location.” The Combo location properties are included in both the Luby's Cafeteria count and the Fuddruckers Restaurant count but only one location for each Combo location is included in the total restaurant count.
Luby’s Cafeterias
Luby’s Cafeteria’s product offerings are home-style items priced to appeal to a broad range of customers, including those customers that focus on fast wholesome choices, quality, variety, and affordability. Luby’s has had particular success among families with children, shoppers, travelers, seniors, and business people looking for a quick, freshly prepared meal at a fair price. All of our restaurants sell food-to-go orders and third party delivery orders which comprised approximately 31% of our Luby's Cafeteria restaurant sales in fiscal 2021.
On August 26, 2021, the Company sold the Luby’s Cafeteria brand and 35 operating locations to Luby’s Restaurant Corporation, an unrelated third party. The Company continues to operate 14 Luby’s locations pursuant to a licensing agreement with the buyer of the brand until the Company can complete its orderly disposition of these assets.
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Fuddruckers
Fuddruckers serves the World’s Greatest Hamburgers®. While Fuddruckers’ signature burgers and fries account for the majority of its restaurant sales, its menu also includes exotic burgers, chicken breast sandwiches, hot dogs, a variety of salads, chicken tenders, hand breaded onion rings, soft drinks, handmade milkshakes, and bakery items.
On August 6, 2021, the Company sold the Fuddruckers franchise brand to an affiliate of Black Titan Holdings, LLC, who previously acquired 13 franchise locations. The Company continues to operate four Fuddruckers locations pursuant to franchise agreements with an affiliate of Black Titan Holdings, LLC until the Company can complete its orderly disposition of these assets.
Culinary Services
The Culinary Services (“CCS”) segment consists of a business line servicing long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, retail grocery stores, behavioral hospitals, sports stadiums, senior living facilities, government, and business and industry clients, primarily in Texas. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining.
For additional information regarding our business segments, please read Notes 1 and 8 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Real Estate
During the fiscal year ended August 25, 2021, the Company sold 11 real estate assets pursuant to its Plan of Liquidation. Subsequent to August 25, 2021, the Company has sold an additional 30 real estate assets pursuant to the Plan. As of the date of filing, the Company owns the underlying land and buildings on eight of our Luby’s cafeterias and four of our Fuddruckers restaurants. Additionally, the Company owns the land and buildings at 12 locations that are non-operating.
Other Assets and Liabilities
During the fiscal year ended August 25, 2021, the Company terminated its sub-license to the Cheeseburger in Paradise brand name in return for compensation from the sub-licensor and the Company sold its rights to the Koo Koo Roo brand name to an independent third party.
The Company’s liabilities as of August 25, 2021 are disclosed in the consolidated statement of net assets in liquidation included in Item 8. of this Annual Report. They consist of accounts payable, accrued expenses and other liabilities, credit facility debt, operating lease liabilities, liability of estimated costs in excess of estimated receipts during liquidation, and other liabilities. Subsequent to August 25, 2021, the Company paid all outstanding amounts due under its credit facility and the facility was terminated, effective September 30, 2021.
Under the Plan, the Company intends to attempt to convert all of its assets into cash, satisfy or resolve its remaining liabilities and obligations, including contingent liabilities and claims and costs associated with the liquidation of the Company.
Intellectual Property
Luby’s, Inc. owns or is licensed to use valuable intellectual property including trademarks, service marks, patents, copyrights, trade secrets and other proprietary information, including the Luby’s and Fuddruckers logos, trade names and trademarks, which are of material importance to our business. Depending on the jurisdiction, trademarks, and service marks generally are valid as long as they are used and/or registered. Patents, copyrights, and licenses are of varying durations. We take prudent actions to protect our intellectual property. The Company has been selling relevant intellectual property in connection with the sale of its operating divisions. The Company continues to maintain ownership or licenses necessary to operate its remaining operating divisions.
Employees
As of November 1, 2021, we had an active workforce of 1,031 employees consisting of restaurant management employees, non-management restaurant employees, CCS management employees, CCS non-management employees, and office and facility service employees. Employee relations are considered to be good. We have never had a strike or work stoppage, and we are not subject to collective bargaining agreements.
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Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. Investors should consider carefully the risks and uncertainties described below, and all other information included in this Form 10-K, before deciding whether to invest in our common stock. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also become important factors that may harm our business, financial condition or results of operations. The occurrence of any of the following risks could harm our business, financial condition, and results of operations. The trading price of our common stock could decline due to any of these risks and uncertainties, and investors may lose part or all of their investment.
Risks Related to the Plan of Liquidation and the Liquidation
We may not be able to pay liquidating distributions to our stockholders at the times and in the amounts expected.
We cannot predict the timing or amount of any liquidating distributions, as uncertainties exist as to the value we may receive upon the sale of our assets pursuant to our monetization strategy, the net value of any remaining assets after such sales are completed, the ultimate amount of our expenses associated with completing our monetization strategy, liabilities, the operating costs and amounts to be set aside for claims, obligations and provisions during the liquidation and winding-up process, and the related timing to complete such transactions. These and other factors make it impossible to predict with certainty the actual net cash amount that will ultimately be available for distribution to stockholders or the timing of any such distributions.
The amount of cash available to distribute to stockholders depends on our ability to successfully execute our monetization strategy and dispose of all or substantially all of our assets.
Our efforts to enhance stockholder value through our monetization strategy may not be successful, which would significantly reduce the cash available for distribution to stockholders. We cannot assure you that our efforts to enhance stockholder value through the conduct of our monetization strategy will succeed. There will be risks associated with any potential divestiture transaction, including whether we will attract potential acquirers for the Company’s businesses or its assets, and whether offers made by such potential acquirers, if any, will be at valuations that we deem reasonable. Moreover, we are not able to predict how long it will take to complete our monetization strategy, the delay of which may impact the timing of the dissolution. The timing and terms of any transaction in furtherance of our monetization strategy will depend on a variety of factors, many of which are beyond our control. A delay in, or failure to complete, any such transaction could have a material effect on our stock price and the amount of any potential distributions to stockholders.
In addition, our ability to successfully complete our monetization strategy could be materially negatively affected by economic conditions generally, including public health risks related to COVID-19. We are exploring and evaluating potential transactions, the success or timing of which may be impacted by the effects of the COVID-19 pandemic. In order to successfully monetize our assets, we must identify and complete one or more additional transactions with third parties. Our businesses and assets and the availability of potential buyers of our businesses and assets may be significantly impacted by public health issues or pandemics, including COVID-19. For example, the shutdown orders across the various jurisdictions in which we operate and other effects of COVID-19 have resulted in, and may continue to cause, decreased demand, and consequently decreased revenues, from the operation of our businesses. The uncertain severity and impact of COVID-19 could result in reduced demand to purchase our businesses and assets by third parties or reduced values such parties may ascribe to our businesses and assets.
Even if we are able to identify potential transactions in furtherance of our monetization strategy, such buyers may be operationally constrained or unable to locate financing on attractive terms or at all, which risk may be heightened due to the uncertainty of COVID-19 and its impact. If financing is unavailable to potential buyers of our businesses or assets, or if potential buyers are unwilling to engage in transactions due to the uncertainty in the market, our ability to complete such transactions would be significantly impaired or we may provide further seller financing, which could cause the amounts ultimately available for distribution to stockholders to be dependent on the operational success of the buyers of our businesses or assets.
Any negative impact on such third parties due to any of the foregoing events could cause costly delays and have a material adverse effect on our ability to return value to stockholders, including our ability to realize full value from a sale or other disposition of our businesses and assets as part of our monetization strategy. Any such negative impacts could also reduce the amount of cash we are able to distribute to stockholders.
Notwithstanding stockholder approval of the Plan of Liquidation, the Board may determine not to proceed with the dissolution or may amend or modify the Plan of Liquidation without further stockholder approval.
Notwithstanding stockholder approval of the Plan of Liquidation, the Board may determine, in the exercise of its fiduciary duties, not to proceed with the dissolution or to amend or modify the Plan of Liquidation to the extent permitted by Delaware law without the necessity of further stockholder approval. If the Board elects to pursue any alternative to the Plan of Liquidation, stockholders may not receive any of the funds that might otherwise be available for distribution to stockholders. Similarly, pursuant to our monetization strategy, the Board may ultimately determine that the sale of the whole Company is advisable and in the best interests of the Company and its stockholders. We cannot assure you that the sale of the whole
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Company will result in the same amount of distributable cash proceeds to stockholders compared to the dissolution. After the effective date of the filing of the certificate of dissolution, revocation of the dissolution would require stockholder approval under Delaware law.
If we fail to retain sufficient funds to pay the liabilities actually owed to our creditors, each stockholder receiving liquidating distributions could be liable for payment to our creditors for such stockholder's pro rata share of any shortfall, up to the amount actually distributed to such stockholder in connection with the dissolution.
Under Delaware law, in the event we fail to retain sufficient funds to pay the expenses and liabilities actually owed to our creditors, each stockholder could be held liable for payment to our creditors for claims brought during the three-year period after the effective date, up to the lesser of (1) such stockholder’s pro rata share of amounts owed to creditors in excess of the contingency reserve and (2) the amounts previously received by such stockholder in dissolution from us and from any liquidating trust or trusts. Accordingly, in such event, a stockholder could be required to return part, or all, of the distributions previously made to such stockholder in the dissolution, and a stockholder could receive nothing from us under the Plan of Liquidation, but no stockholder will be liable for claims against the Company in excess of the amounts distributed to such stockholder. Moreover, in the event a stockholder has paid taxes on amounts previously received, a repayment of all or a portion of such amount could result in a stockholder incurring a net tax cost if the stockholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable.

Risks Related to our Business and Industry
General economic and business conditions as well as those specific to the restaurant industry may adversely affect our business and our net assets in liquidation.
Our business results depend on a number of industry-specific and general economic factors, many of which are beyond our control, such as the COVID-19 pandemic which affected the restaurant industry business conditions in the United States. These factors include consumer income, interest rates, inflation, consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends, and other matters that influence consumer confidence and spending. The restaurant industry is affected by changes in national, regional and local economic conditions, seasonal fluctuation of sales volumes, and consumer spending patterns. Discretionary consumer spending, which is critical to our success, is influenced by general economic conditions and the availability of discretionary income. A deterioration in the global or local economy or other economic conditions affecting disposable consumer income, such as unemployment levels, reduced home values, investment losses, inflation, business conditions, fuel and other energy costs, consumer debt levels, lack of available credit, consumer confidence, interest rates, tax rates and changes in tax laws, may reduce consumer confidence and affected consumers’ ability or desire to spend disposable income. This may adversely affect our business by reducing overall consumer spending or by causing customers to reduce the frequency with which they dine out or to shift their spending to our competitors, any of which could result in lower revenues, increased costs, reduced traffic, or limits on pricing, any of which could have a material adverse effect on our business and our net assets in liquidation.
Regional events can adversely affect our financial performance.
All of our restaurants, and most of our CCS locations, are located in Texas. Our business may be adversely affected by economic conditions in Texas or the occurrence of an event of terrorism or natural disaster in any of the communities in which we operate. Also, given our geographic concentration, negative publicity relating to our restaurants could have a pronounced adverse effect on our overall revenues. Although we generally maintain property and casualty insurance to protect against property damage caused by casualties and natural disasters, inclement weather, flooding, hurricanes, and other acts of God, these events can adversely impact our sales by discouraging potential customers from going out to eat or by rendering a restaurant or CCS location inoperable for a significant amount of time.
Failure to collect accounts receivable or amounts receivable under promissory notes provided by buyers of our businesses and assets could adversely affect our financial performance and net assets in liquidation.
A portion of our accounts receivable is concentrated in our CCS operations among several customers. Failure to collect from several of these accounts receivable could adversely affect our financial performance and net assets in liquidation.
Additionally, we have been provided promissory notes by buyers of our businesses and assets. Failure to recognize the amounts anticipated to be collectible under these notes would adversely affect our net assets in liquidation and could reduce the amount of cash we are able to distribute to stockholders.
We may not be able to fully utilize our net operating losses ("NOLs").
As of August 25, 2021, we had approximately $10.6 million of deferred tax assets related to our NOL carryforwards. The Company anticipates utilizing a portion, if not all, of its NOLs in connection with the anticipated sales of the Company’s assets and businesses pursuant to the Plan of Liquidation. If the Company is unsuccessful in completing the anticipated sales of the Company’s assets or otherwise limited in its ability to use its NOLs, the Company may be unable to utilize a portion or all of its
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NOLs and the net proceeds of the sales of our assets and businesses being available to distribute to shareholders may be less than anticipated.
The impact of inflation may adversely affect our financial performance.
The impact of inflation on food, labor and other aspects of our business can adversely affect our results of operations. Commodity inflation in food, beverages, and utilities can also impact our financial performance. Although we attempt to offset the effects of inflation through periodic menu price increases, cost controls, and incremental improvement in operating margins, we may not be able to completely eliminate such effects, which could adversely affect our financial performance and our net assets in liquidation.
We face the risk of adverse publicity and litigation, which could have a material adverse effect on our business and financial performance.
We may from, time to time, be the subject of complaints or litigation from customers alleging illness, injury or other food quality, health or operational concerns. Unfavorable publicity relating to one or more of our restaurants or to the restaurant industry in general may taint public perception of the Luby’s Cafeteria and Fuddruckers brands. Multi-unit restaurant businesses can be adversely affected by publicity resulting from poor food quality, illness, or other health concerns or operating issues stemming from one or a limited number of restaurants. Publicity resulting from these allegations may materially adversely affect our business and financial performance, regardless of whether the allegations are valid or whether we are liable. In addition, we are subject to employee claims alleging injuries, wage and hour violations, discrimination, harassment or wrongful termination. In recent years, a number of restaurant companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state law regarding workplace, employment, and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Regardless of whether any claims against us are valid or whether we are ultimately determined to be liable, claims may be expensive to defend, and may divert time and money away from our operations and hurt our financial performance. A judgment significantly in excess of our insurance coverage, if any, for any claims could materially adversely affect our business, financial performance and net assets in liquidation. 
We may be harmed by security risks we face in connection with our electronic processing and transmission of confidential customer and employee information.
We accept electronic payment cards for payment in our restaurants. A number of retailers have experienced actual or potential security breaches in which credit and debit card information may have been stolen, including a number of highly publicized incidents with well-known retailers in recent years. In March, 2021, we were the victim of a cyber attack by hackers who deployed a version of ransomware that encrypted electronic files, locking us out of many of our point-of-sale and other systems. Such attacks, while they did not provide the hackers with access to confidential customer and employee information, did adversely affect our profits due to our temporary inability to operate our restaurants and increased costs associated with further protecting and restoring our computer systems. While we have taken preventative measures, no assurances can be provided that we will not be the subject of cyber attacks again in the future.
We may in the future become subject to additional claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings in the future relating to these types of incidents. Proceedings related to theft of credit or debit card information may be brought by payment card providers, banks and credit unions that issue cards, cardholders (either individually or as part of a class action lawsuit) and federal and state regulators. Any such proceedings could distract our management from running our business and cause us to incur significant unplanned losses and expenses. Consumer perception of our brand could also be negatively affected by these events, which could further adversely affect our results and prospects.
We also are required to collect and maintain personal information about our employees, and we collect information about customers as part of some of our marketing programs as well. The collection and use of such information is regulated at the federal and state levels, and the regulatory environment related to information security and privacy is increasingly demanding. At the same time, we are relying increasingly on cloud computing and other technologies that result in third parties holding significant amounts of customer or employee information on our behalf. If the security and information systems of ours or of outsourced third party providers we use to store or process such information are compromised or if we, or such third parties, otherwise fail to comply with these laws and regulations, we could face litigation and the imposition of penalties that could adversely affect our financial performance. Our reputation as a brand or as an employer could also be adversely affected from these types of security breaches or regulatory violations, which could impair our sales or ability to attract and keep qualified employees.
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Labor shortages or increases in labor costs could adversely affect our business, financial performance and net assets in liquidation.
Our successful implementation of our monetization plan depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including regional managers, restaurant general managers and chefs, in a manner consistent with our standards and expectations. Given the announced Plan of Liquidation, we have found it difficult to recruit and retain qualified individuals. If we are unable to recruit and retain sufficient qualified individuals, our operations and reputation could be adversely affected, which may adversely affect the value of our business and ability to realize the proceeds for the sale of our assets to allow us to distribute the proceeds to stockholders. Additionally, competition for qualified employees could require us to pay higher wages, which could result in higher labor costs. Our financial condition and announcement of our process of exploring strategic alternatives may result in difficulties in retaining and attracting qualified employees. Any increase in labor costs could adversely affect our results of operations.
The success of our business is highly dependent upon our key management personnel. The loss of the services of any key management personnel could have a material adverse effect upon our business. The process of exploring strategic alternatives may impair our ability to retain and motivate key management personnel. 
If we are unable to anticipate and react to changes in food, utility and other costs, our results of operations could be materially adversely affected.
Many of the food and beverage products we purchase are affected by commodity pricing, and as such, are subject to price volatility caused by production problems, shortages, weather or other factors outside of our control. Our profitability depends, in part, on our successfully anticipating and reacting to changes in the prices of commodities. Therefore, we enter into purchase commitments with suppliers when we believe that it is advantageous for us to do so. If commodity prices were to increase, we may be forced to absorb the additional costs rather than transfer these increases to our customers in the form of menu price increases. Our success also depends, in part, on our ability to absorb increases in utility costs. Our operating results are affected by fluctuations in the price of utilities. Our inability to anticipate and respond effectively to an adverse change in any of these factors could have a material adverse effect on our financial performance.
Our property taxes could increase due to reassessment or property tax rate changes
We are required to pay real property taxes in respect of our properties and such taxes may increase as our properties are reassessed by taxing authorities or as property tax rates change. An increase in the assessed value of our properties or our property tax rates could adversely impact our financial condition and reduce the amount of future liquidating distributions to our stockholders.
Risks Related to Governmental Laws and Regulations
Our business is subject to extensive federal, state and local laws and regulations.
The restaurant industry is subject to extensive federal, state and local laws and regulations. We are also subject to licensing and regulation by state and local authorities relating to health, healthcare, employee medical plans, sanitation, safety and fire standards, building codes and liquor licenses, federal and state laws governing our relationships with employees (including the Fair Labor Standards Act and applicable minimum wage requirements, overtime, unemployment tax rates, family leave, tip credits, working conditions, safety standards, healthcare and citizenship requirements), federal and state laws which prohibit discrimination, potential healthcare benefits legislative mandates, and other laws regulating the design and operation of facilities, such as the Americans With Disabilities Act of 1990. 
As a publicly traded corporation, we are subject to various rules and regulations as mandated by the SEC and the NYSE. Failure to timely comply with these rules and regulations could result in penalties and negative publicity.
We are subject to risks related to the provision of employee healthcare benefits, worker’s compensation and employee injury claims.
We maintain a self-insured health benefit plan which provides medical and prescription drug benefits to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop-loss limits. We record expenses under the plan based on estimates of the costs of expected claims, administrative costs and stop-loss insurance premiums. Self-insurance costs are accrued based upon the aggregate of the expected liability for reported claims and the estimated liability for claims incurred but not reported, based on information on historical claims experience provided by our third party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual employee medical claims expense may differ from estimated loss provisions based on historical experience. In the event our cost estimates differ from actual costs, we could incur additional unplanned costs, which could adversely impact our financial performance and our net assets in liquidation.
Workers’ compensation coverage is provided through “self-insurance” by LFR. We record expenses under the plan based on estimates of the costs of expected claims, administrative costs, stop-loss insurance premiums, and expected trends. These
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estimates are then adjusted each year to reflect actual costs incurred. Actual costs under these plans are subject to variability that is dependent upon demographics and the actual costs of claims made. In the event our cost estimates differ from actual costs, we could incur additional unplanned costs, which could adversely impact our financial performance and our net assets in liquidation.
In March 2010, comprehensive healthcare reform legislation under the Patient Protection and Affordable Care Act (the "Affordable Care Act") and Healthcare Education and Affordability Reconciliation Act was passed and signed into law. Among other things, the healthcare reform legislation includes mandated coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new and significant taxes on health insurers and healthcare benefits. Although requirements were phased in over a period of time, the most impactful provisions began in the third quarter of fiscal 2015.
Due to the breadth and complexity of the healthcare reform legislation, the lack of implementing regulations in some cases, and interpretive guidance, and the phased-in nature of the implementation, it is difficult to predict the overall impact of the healthcare reform legislation on our business over the coming years. Possible adverse effects of the healthcare reform legislation include reduced revenues, increased costs and exposure to expanded liability and requirements for us to revise the ways in which we conduct business or risk of loss of business. It is also possible that healthcare plans offered by other companies with which we compete for employees will make us less attractive to our current or potential employees. And in any event, implementing the requirements of the Affordable Care Act has imposed some additional administrative costs on us, and those costs may increase over time. In addition, financial performance and net assets in liquidation could be materially adversely affected. Our franchisees face the potential of similar adverse effects, and many of them are small business owners who may have significant difficulty absorbing the increased costs.
An increase in the minimum wage and regulatory mandates could adversely affect our financial performance.
From time to time, the U.S. Congress and state legislatures have increased and will consider increases in the minimum wage. The restaurant industry is intensely competitive, and if the minimum wage is increased, we may not be able to transfer all of the resulting increases in operating costs to our customers in the form of price increases. In addition, because our business is labor intensive, shortages in the labor pool or other inflationary pressure could increase labor costs that could adversely affect our financial performance and net assets and liabilities in liquidation.
General Risk Factors
The price of our common stock may experience volatility.
The market price of our common stock can be volatile as we execute the Plan of Liquidation, which may continue or become more severe if and when additional transactions or business arrangements are announced.
Item 1B. Unresolved Staff Comments 
None. 
Item 2. Properties
The following table summarizes our owned properties as of November 19, 2021:
Number of Properties
Operating Restaurants:
Luby's cafeterias
Fuddruckers restaurants
Combos
   Total Operating Properties 12 
Non-operating locations 12 
   Total 24 

11


The following table summarizes our leased properties as of November 19:
Number of Properties
Operating Restaurants:
Luby's cafeterias
Combos
   Total Operating Properties 6 
Fuddruckers restaurant operated by Black Titan Holdings under a management agreement
Fuddruckers restaurant subleased to Black Titan Holdings
Luby's cafeterias operated by Luby's Restaurant Corporation under a management agreement
Abandoned restaurant property leases
Corporate office
   Total 23 

At November 19, 2021, we have leases on six restaurant properties where we have ceased operations. Although the Company remains obligated under the terms of the leases for the rent and other costs that may be associated with the leases, the Company has ceased operations and has no plans to occupy the spaces as a Company restaurant in the future.
Our corporate office lease of approximately 13,000 square feet of office space runs through June 2022.
We maintain general liability insurance and property damage insurance on all properties in amounts which management believes provide adequate coverage.
Item 3. Legal Proceedings
From time to time, we are subject to various 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 net assets or our Plan of Liquidation.
Item 4. Mine Safety Disclosures 
Not applicable.


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PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
Market Information
Our common stock is traded on the NYSE under the symbol “LUB.” As of November 1, 2021, there were 1,893 holders of record of our common stock.
Equity Compensation Plans
Securities authorized under our equity compensation plans as of August 25, 2021, were as follows:
 
  (a) (b) (c)
Plan Category
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
Weighted-
Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans Excluding
Securities
Reflected in
Column (a)
Equity compensation plans previously approved by security holders 401,690  $ 4.09  2,191,960 
Equity compensation plans not previously approved by security holders (1)
2,453  —  — 
Total 404,143  $ 4.09  2,191,960 
(1)  Represents the Luby’s, Inc. Nonemployee Director Phantom Stock Plan.
See Note 17. “Share-Based and Other Compensation,” to our Consolidated Financial Statements included in Item 8 of Part II of this report.
Stock Performance Graph
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.



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Item 6. (Reserved)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 Openings Fiscal Year 2021 Closings Fiscal Year 2021 Franchise Conversion August 25,
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


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.
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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


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.

18


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 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



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,
2021
August 26,
2020
Long-Term Debt (Liquidation Basis) (Going Concern 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


(“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. 

21


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
22


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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Item 7A. 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.


25



Item  8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Shareholders
Luby’s, Inc.
 
Opinion on the financial statements
We have audited the accompanying consolidated statement of net assets in liquidation of Luby’s, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of August 25, 2021, and the related consolidated statement of changes in net assets in liquidation for the period from November 19, 2020 through August 25, 2021, and the consolidated balance sheet as of August 26, 2020, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the 12 week period ended November 18, 2020 and the year ended August 26, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 25, 2021 and August 26, 2020, and the results of its changes in net assets for the period from November 19, 2020 through August 25, 2021, and its operations and its cash flows for the 12 week period ended November 18, 2020 and the year ended August 26, 2020, in conformity with accounting principles generally accepted in the United States of America applied on the bases described below.
Basis of accounting
As discussed in Note 1 to the consolidated financial statements, the shareholders of the Company approved the Plan of Liquidation and Dissolution on November 17, 2020, and the Company determined liquidation is imminent. As a result, the Company changed its basis of accounting on November 19, 2020 from the going concern basis to the liquidation basis. This matter is also discussed below as a critical audit matter.
Basis for opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
As described in Note 1 to the consolidated financial statements, as a result of the November 17, 2020 approval by the Company’s shareholders of the Plan of Liquidation and Dissolution, it was determined that liquidation was imminent and the Company’s basis of accounting transitioned from the going concern basis of accounting to the liquidation basis of accounting on November 19, 2020, in accordance with generally accepted accounting principles. The total effect of adoption of the liquidation basis of accounting was a $46,578 thousand increase from consolidated net equity as of November 18, 2020 to net
26


assets in liquidation as of November 19, 2020. The changes in net assets and liabilities in liquidation from November 19, 2020 to August 25, 2021 was an increase of $37,452 thousand.
We identified the measurement of property and business unit assets at net realizable value and liabilities for estimated costs in excess of estimated receipts during liquidation at the adoption date of the liquidation basis of accounting and the Company’s year-end date as a critical audit matter. This matter is also discussed above in the Basis of Accounting paragraph.
The principal considerations for our determination that performing procedures relating to the measurement of property and business unit assets at net realizable value and liabilities for estimated costs in excess of estimated receipts during liquidation at the adoption date of the liquidation basis of accounting and the Company’s year-end date is a critical audit matter are the significant judgments made by management when determining the estimated net realizable value of properties and business units and the liability for estimated costs in excess of estimated receipts during liquidation. These judgments included significant assumptions related to estimated cash proceeds or other consideration of property and business unit assets, estimated disposal and other costs, and estimated operating income or loss that the Company reasonably expects to incur during the remaining expected duration of the liquidation period. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the measurement of these assets and the liability for estimated costs in excess of estimated receipts during liquidation. Also, the audit effort involved the use of professionals with specialized skill and knowledge.
Our audit procedures related to the measurement of property and business unit assets at net realizable value and liabilities for estimated costs in excess of estimated receipts during liquidation included the following, among others:
a.We tested management’s process for developing the estimates and assumptions used in the measurement of certain property and business unit assets and the liability for estimated costs in excess of estimated receipts during liquidation on November 19, 2020 and August 25, 2021.
b.We tested the completeness and accuracy of the data used by management in the developing of the estimates.
c.We evaluated the reasonableness of the significant assumptions used by management for certain property and business unit assets related to the estimated cash proceeds or other consideration from liquidation, and the estimated operating income or loss that the Company reasonably expects to incur during the remaining expected duration of the liquidation period.
d.We utilized professionals with specialized skill and knowledge to assist in evaluating management’s assumptions related to the estimated cash proceeds or other consideration from sales of property assets. These procedures included evaluating whether the assumptions used by management and management’s specialists were reasonable considering (i) the current and past performance of the Company; (ii) the consistency with external industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.


/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2007.

Houston, Texas
November 19, 2021


27


Luby’s, Inc.
Consolidated Statement of Net Assets in Liquidation
(Liquidation Basis)

August 25, 2021
(in thousands)
ASSETS
Cash and cash equivalents $ 14,392 
Accounts and notes receivable 10,184 
Restricted cash and cash equivalents 5,492 
Properties and business units for sale 176,960 
Total Assets $ 207,028 
LIABILITIES
Accounts payable $ 2,968 
Accrued expenses and other liabilities 12,383 
Credit facility debt 17,024 
Operating lease liabilities 7,181 
Liability for estimated costs in excess of estimated receipts during liquidation 11,289 
Other liabilities 1,390 
Total Liabilities $ 52,235 
Commitments and Contingencies
Net assets in liquidation (Note 4) $ 154,793 


The accompanying notes are an integral part of these Consolidated Financial Statements.
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Luby’s, Inc.
Consolidated Statement of Changes in Net Assets in Liquidation
(Liquidation Basis)
(in thousands)
Period from November 19, 2020 through August 25, 2021
(40 weeks)
(in thousands)
Net assets in liquidation, beginning of period $ 117,341 
Changes in net assets in liquidation
   Changes in liquidation value of properties and business units for sale 18,431 
   Changes in accounts and notes receivable 3,615 
   Changes in estimated cash flows during liquidation 15,083 
Net changes in liquidation value 37,129 
   Proceeds received from exercise of stock options 323 
Changes in net assets in liquidation 37,452 
Net assets in liquidation, end of period $ 154,793 

The accompanying notes are an integral part of these Consolidated Financial Statements.
29


Luby’s, Inc.
Consolidated Balance Sheet
(Going Concern Basis)
  August 26,
2020
  (In thousands, except share data)
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 and other assets 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 - non-current 17,797 
Other liabilities 1,630 
Total liabilities 103,804 
Commitments and Contingencies
SHAREHOLDERS’ EQUITY  
Common stock, $0.32 par value;100,000,000 shares authorized; Shares issued were 31,125,470 and shares outstanding were 30,625,470 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.

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Luby’s, Inc.
Consolidated Statements of Operations
(Going Concern Basis)
 
  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 (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 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)
Loss per share from continuing operations:    
Basic and diluted $ (0.10) $ (0.97)
Loss per share from discontinued operations:    
Basic and diluted $ 0.00  $ 0.00 
Net loss per share:    
Basic and diluted $ (0.10) $ (0.97)
Weighted-average shares outstanding:    
Basic and diluted 30,662  30,294 

 The accompanying notes are an integral part of these Consolidated Financial Statements.
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Luby’s, Inc.
Consolidated Statements of Shareholders’ Equity
(Going Concern Basis)
(In thousands)
  
  Common Stock      
  Issued Treasury      
  Shares Amount Shares Amount Paid-In
Capital
Retained
Earnings
Total
Shareholders’
Equity
Balance at August 28, 2019 30,478  $ 9,753  (500) $ (4,775) $ 34,870  $ 61,182  $ 101,030 
Net loss for the year —  —  —  —  —  (29,450) (29,450)
Cumulative effect of accounting changes from the adoption of ASC Topic 842
—  —  —  —  —  1,027  1,027 
Common stock issued under nonemployee director benefit plans 64  20  —  —  (20) —  — 
Common stock issued under employee benefit plans 73  24  —  —  (66) —  (42)
Share-based compensation expense 509  163  —  —  871  —  1,034 
Balance at August 26, 2020 31,124  $ 9,960  (500) $ (4,775) $ 35,655  $ 32,759  $ 73,599 
Net loss for the period —  —  —  —  —  (3,019) (3,019)
Common stock issued under employee benefit plans —  —  (1) —  — 
Share-based compensation expense 51  16  —  —  167  —  183 
Balance at November 18, 2020 31,179  $ 9,977  (500) $ (4,775) $ 35,821  $ 29,740  $ 70,763 
 
The accompanying notes are an integral part of these Consolidated Financial Statements.
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Luby’s, Inc.
Consolidated Statements of Cash Flows
(Going Concern Basis)

  Period Ended Year Ended
  November 18, 2020 August 26, 2020
(12 weeks) (52 weeks)
  (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (3,019) $ (29,450)
Adjustments to reconcile net loss to net cash used in operating activities:    
Net provision (gain) for asset impairments and restaurant closings (85) 10,193 
Net loss (gain) on disposition of property and equipment 117  (11,557)
Depreciation and amortization 2,142  11,514 
Amortization of debt issuance cost 223  1,212 
Share-based compensation expense 183  1,034 
Provision for doubtful accounts —  1,624 
Cash used in operating activities before changes in operating assets and liabilities (439) (15,430)
Changes in operating assets and liabilities:    
Decrease in trade accounts and other receivables 679  1,206 
Decrease (increase) in food and supply inventories (950) 345 
Decrease in prepaid expenses and other assets 909  651 
Decrease in operating lease assets 1,928  5,054 
Decrease in operating lease liabilities (3,154) (10,862)
Increase (decrease) in accounts payable, accrued expenses and other liabilities 1,046  (2,561)
Net cash provided by (used) in operating activities 19  (21,597)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Proceeds from disposal of assets and property held for sale 114  24,902 
Purchases of property and equipment (433) (2,120)
Net cash provided by (used in) investing activities (319) 22,782 
CASH FLOWS FROM FINANCING ACTIVITIES:    
Revolver borrowings —  4,700 
Proceeds from term loan —  5,000 
Proceeds from PPP Loan —  10,000 
Term loan repayments —  (11,816)
Net cash provided by financing activities —  7,884 
Net increase (decrease) in cash and cash equivalents and restricted cash (300) 9,069 
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  $ 21,825 
Cash paid for:
Income taxes $ $ 446 
Interest $ 1,059  $ 5,275 


The accompanying notes are an integral part of these Consolidated Financial Statements. 
33


Luby’s, Inc.
Notes to Consolidated Financial Statements
Fiscal Years 2021 and 2020
 
Note 1. Nature of Operations and Significant Accounting Policies
Nature of Operations
Luby's, Inc. is a Delaware corporation with headquarters in Houston, TX, (collectively, with its subsidiaries, the "Company", "we", "our", "us", or "Luby's". We operated restaurants under the brands Luby's Cafeteria, Fuddruckers and Cheeseburger in Paradise. We also had royalty arrangements with Fuddruckers franchisees. Under the Plan of Liquidation and Dissolution discussed below, we terminated our sub-license to the Cheeseburger in Paradise brand name in December 2020 and we sold the Fuddruckers brand and franchise business in July 2021. Subsequent to August 25, 2021, we sold the Luby's Cafeteria brand and the operations at 35 locations (see Note 2. Subsequent Events).
As of August 25, 2021, we operated 53 Luby's cafeterias and seven Fuddruckers restaurants. Included in the counts for both Luby's cafeterias and Fuddruckers restaurants are three Combo units, where a Luby's cafeteria and a Fuddruckers restaurant occupy the same location. Also, as of August 25, 2021, our Culinary Services brand operated 27 contracts to manage food services for clients operating in primarily three lines of business: healthcare; senior living business, and schools.
The accompanying consolidated financial statements include the accounts of Luby’s, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
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 include 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 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.
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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 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.
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.
Subsequent Events
Events subsequent to the Company’s fiscal year ended August 25, 2021 through the date of issuance of the financial statements are evaluated to determine if the nature and significance of the events warrant inclusion in the Company’s consolidated financial statements. See Note 2. Subsequent Events.
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.
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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 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.
Reportable Segments
Under the going concern basis of accounting, each restaurant was considered an operating segment because operating results and cash flows could be determined for each restaurant. We aggregated our 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, similarity of store level profit margins and the nature of the regulatory environment were alike. For the 12 week period ended November 18, 2020 and the fiscal year ended August 26, 2020, we had five reportable segments: Luby’s Cafeterias, Fuddruckers Restaurants, Cheeseburger in Paradise Restaurants, Fuddruckers franchise operations, and Culinary Services (“CCS”). Under the liquidation basis of accounting, although we continued to operate our restaurant, franchise and CCS businesses, we no longer make operating decisions or assess performance by segment, as all of our assets and businesses are considered held for sale. Accordingly, effective November 19, 2020, we have only one reporting and operating segment.
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Cash and cash equivalents and restricted cash and cash equivalents include highly liquid investments such as money market funds that have a maturity of three months or less. Our bank account balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. Amounts in transit from credit card companies are also considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction.
Trade Accounts, Notes and Other Receivables
Under the going concern basis of accounting, receivables consisted principally of amounts due from franchises, CCS clients, catering customers and restaurant food sales to corporations. Receivables were recorded at the invoiced amount. The allowance for doubtful accounts was our best estimate of the amount of probable credit losses in our existing accounts receivable. We determined the allowance based on historical loss experience for CCS clients, catering customers and restaurant sales to corporations and, for CCS receivables and franchise royalty and marketing and advertising receivables. We also considered the franchisees’ and CCS clients’ unsecured default status. We periodically reviewed our allowance for doubtful accounts. Account balances were charged off against the allowance after all means of collection were exhausted and the potential for recovery was considered remote. Under the liquidation basis of accounting trade, notes and other receivables are stated at amount of their estimated cash proceeds.
Inventories
Under the going concern basis of accounting, food and supply inventories were stated at the lower of cost (first-in, first-out) or net realizable value. Under the liquidation basis of accounting, food and supply inventories have no net realizable value due to the nature of the inventory and the high turnover used in operating the remaining restaurants.  
Property Held for Sale
Under the going concern basis of accounting, we periodically reviewed long-lived assets against our plans to retain or ultimately dispose of properties. If we decided to dispose of a property, it was moved to property held for sale and actively marketed. Property held for sale was recorded at amounts not in excess of what management expected to receive upon sale, less costs of disposal. Depreciation on assets moved to property held for sale was discontinued and gains were not recognized until the properties are sold. 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.
Impairment of Long-Lived Assets
Under the going concern basis of accounting, impairment losses were recorded on long-lived assets used in operations when indicators of impairment were present and the undiscounted cash flows estimated to be generated by those assets were less than
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the carrying amount. We evaluated impairments on a restaurant-by-restaurant basis and used cash flow results and other market conditions as indicators of impairment.
Debt Issuance Costs
Under the going concern basis of accounting, debt issuance costs included costs incurred in connection with the arrangement of long-term financing agreements. The debt issuance costs associated with our term loans were presented on our consolidated balance sheet as a direct deduction from long-term debt. The debt issuance costs associated with our revolving credit facility were included in other assets on our consolidated balance sheet. These costs were amortized using the effective interest method over the respective term of the debt to which they specifically relate. Under the liquidation basis of accounting, deferred debt issuance costs are not given a value.
Fair Value of Financial Instruments
Under the going concern basis of accounting, the carrying value of cash and cash equivalents, trade accounts and other receivables, accounts payable and accrued expenses approximated fair value based on the short-term nature of these accounts. The carrying value of credit facility debt also approximated fair value based on its recent renewal.
Self-Insurance Accrued Expenses
We self-insure a significant portion of expected losses under its workers’ compensation, employee injury and general liability programs. Accrued liabilities have been recorded based on estimates of the ultimate costs to settle incurred claims, both reported and not yet reported. These recorded estimated liabilities are based on judgments and independent actuarial estimates, which include the use of claim development factors based on loss history; economic conditions; the frequency or severity of claims and claim development patterns; and claim reserve management settlement practices.
We maintain a self-insured health benefit plan which provides medical and prescription drug benefits to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop loss limits per third party insurance carriers. Under the going concern basis of accounting, we recorded expenses under the plan based on estimates of the costs of expected claims, administrative costs and stop-loss insurance premiums. Under both the going concern basis of accounting and the liquidation basis of accounting, our self-insurance liability is based on the aggregate of the expected liability for reported claims and the estimated liability for claims incurred but not reported, based on historical claims experience provided by our third party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual employee medical claims may differ from what we have accrued as our estimated loss liability based on historical experience.
Revenue Recognition
See Note 6. Revenue Recognition.
Cost of CCS
Under the going concern basis of accounting, the cost of CCS included all food, payroll and related expenses, other operating expenses, and selling, general and administrative expenses related to culinary service sales. All depreciation and amortization, property disposal, and asset impairment expenses associated with CCS were reported within those respective lines as applicable. Under the liquidation basis of accounting, estimated expenses during the liquidation period are included in liability for estimated costs in excess of estimated receipts during liquidation on our consolidated statement of net assets.
Cost of Franchise Operations
Under the going concern basis of accounting, the cost of franchise operations included all food, payroll and related expenses, other operating expenses, and selling, general and administrative expenses related to franchise operations sales. All depreciation and amortization, property disposal, and asset impairment expenses associated with franchise operations were reported within those respective lines as applicable. Under the liquidation basis of accounting, estimated expenses during the liquidation period are included in liability for estimated costs in excess of estimated receipts during liquidation on our consolidated statement of net assets.
Marketing and Advertising Expenses
Under the going concern basis of accounting, marketing and advertising costs were expensed as incurred. Total advertising expense included in other operating expenses and selling, general and administrative expense was $0.6 million and $3.9 million in the 12 weeks ended November 18, 2020 and in fiscal 2020, respectively. We recorded advertising attributable to local store marketing and local community involvement efforts in other operating expenses and we recorded advertising attributable to our brand identity, our promotional offers, and our other marketing messages intended to drive guest awareness of our brands, in selling, general, and administrative expenses.  We believed this separation of our marketing and advertising costs assisted with
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measurement of the profitability of individual restaurant locations by associating only the local store marketing efforts with the operations of each restaurant.
Marketing and advertising expense included in other operating expenses attributable to local store marketing was $0.1 million and $0.5 million in the 12 weeks ended November 18, 2020 and in fiscal 2020, respectively.
Marketing and advertising expense included in selling, general and administrative expense was $0.5 million and $3.4 million in the 12 weeks ended November 18, 2020 and in fiscal 2020, respectively.
Under the liquidation basis of accounting, estimated expenses during the liquidation period are included in liability for estimated costs in excess of estimated receipts during liquidation on our consolidated statement of net assets.
Depreciation and Amortization
Under the going concern basis of accounting, property and equipment were recorded at cost. We depreciated the cost of equipment over its estimated useful life using the straight-line method. Leasehold improvements were amortized over the lesser of their estimated useful lives or the related lease terms. Depreciation of buildings was provided on a straight-line basis over the estimated useful lives. There is no depreciation or amortization of our assets under the liquidation basis of accounting.
Other Charges
Under the going concern basis of accounting, other charges includes those expenses that we consider related to our restructuring efforts that are not part of our recurring operations.
Other charges were comprised of:
12 weeks ended Fiscal Year Ended
November 18, 2020 August 26, 2020
(in thousands)
OTHER CHARGES:
Employee Severances $ —  $ 1,332 
Restructuring Related 416  2,069 
Total Other Charges $ 416  $ 3,401 
Operating Leases
See Note 7. Leases. 
Income Taxes
Under both the going concern basis of accounting and the liquidation basis of accounting, the estimated future income tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as operating loss and tax credit carrybacks and carryforwards are recorded. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established against deferred tax assets when the Company determines, based on the weight of available evidence, that they are more likely to not be realized than realized. In the event the Company subsequently determines that it would be able to realize deferred income tax assets in excess of their net recorded amount, the Company would reduce the valuation allowance, which would reduce the provision for income taxes. See Note 11. Income Taxes for further discussion of the valuation allowance.
We make judgments regarding the interpretation of tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions as well as by the Internal Revenue Service (“IRS”). In management’s opinion, adequate provisions for income taxes have been made for all open tax years. The potential outcomes of examinations are regularly assessed in determining the adequacy of the provision for income taxes and income tax liabilities. We believe that adequate provisions have been made for reasonably possible outcomes related to uncertain tax matters.
Discontinued Operations
Under the going concern basis of accounting, we reported the disposal of a component or a group of components of the Company in discontinued operations if the disposal of the components or group of components represented a strategic shift that had or was expected to have a major effect on the Company’s operations and financial results.
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Share-Based Compensation
Under the going concern basis of accounting, share-based compensation expense was estimated for equity awards at fair value at the grant date. We determined the fair value of restricted stock awards based on the average of the high and low price of its common stock on the date awarded by the Board of Directors. We determined the fair value of stock option awards using a Black-Scholes option pricing model. The Black-Scholes option pricing model requires various judgmental assumptions including the expected dividend yield, stock price volatility, and the expected life of the award. The fair value of performance share based award liabilities were estimated based on a Monte Carlo simulation model. For further discussion, see Note 17. Share-Based and Other Compensation.
Earnings Per Share
Under the going concern basis of accounting, basic income per share is computed by dividing net income attributable to common shareholders by the weighted-average number of shares outstanding, including restricted stock units, during each period presented. 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.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Recently Accounting Pronouncements
There are no new accounting pronouncements that are applicable or relevant to the Company under the Liquidation Basis of Accounting.
Note 2. Subsequent Events
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 of the notes.
On September 30, 2021, we completed the previously announced sale of 26 real estate properties, which properties were leased to and are operated by LRC, to Store Capital Acquisitions, LLC for cash consideration of $88.0 million. We utilized approximately $17.6 million of the proceeds to repay in full all amounts due under our Credit Facility (see Note 14. Debt) with MSD PCOF Partners VI, LLC. The Credit Facility was terminated effective September 30, 2021.
Subsequent to August 25, 2021, in addition to the properties sold to Store Capital, we sold four other properties for cash consideration of approximately $13.0 million.
On November 1, 2021, we paid a cash liquidating distribution of $2.00 per share to shareholders of record as of October 25, 2021. The liquidating distribution of approximately $62.2 million was paid from the net proceeds from recent property sales.
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Note 3. Liability for 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. 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 August 25, 2021 and November 19, 2020 was comprised of (in thousands):
August 25, 2021 November 19, 2020
Total estimated receipts during remaining liquidation period $ 25,045  $ 92,017 
Total estimated costs of operations (20,763) (76,151)
Selling, general and administrative expenses (9,585) (18,745)
Interest expense (151) (2,305)
Interest component of operating lease payments (2,307) (7,064)
Capital expenditures (120) (943)
Sales costs (3,408) (4,079)
Total estimated costs during remaining liquidation period (36,334) (109,287)
Liability for estimated costs in excess of estimated receipts during liquidation $ (11,289) $ (17,270)
The change in the liability for estimated costs in excess of estimated receipts during liquidation between November 19, 2020 and August 25, 2021 is as follows (in thousands):
November 19, 2020
Net Change in Working Capital (3)
Changes in Estimated Future Cash Flows During Liquidation (4)
August 25, 2021
Assets:
Estimated net inflows from operations (1)
$ 7,859  $ (21,423) $ 15,419  $ 1,855 
7,859  (21,423) 15,419  1,855 
Liabilities:
Sales costs (4,079) 1,876  (1,205) (3,408)
Corporate expenditures (2)
(21,050) 10,445  869  (9,736)
(25,129) 12,321  (336) (13,144)
Liability for estimated costs in excess of estimated receipts during liquidation $ (17,270) $ (9,102) $ 15,083  $ (11,289)
(1) Estimated net inflows from operations consists of total estimated receipts during liquidation less the sum of total estimated (i) costs of operations, (ii) interest component of operating lease payments and (iii) capital expenditures.
(2) Corporate expenditures consists of (i) selling, general and administrative expenses and (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 period from November 19, 2020 to August 25, 2021.
(4) Changes in estimated future cash flows during liquidation includes adjustments to previous estimates and changes in estimated holding periods of our assets.

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Note 4. Net Assets in Liquidation
Initial 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 the liquidation basis of accounting, all assets are recorded at net realizable value which implicitly includes the tangible and intangible value of all 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 operations, and Culinary Services.
Current Fiscal Year Activity
Net assets in liquidation increased by $37.5 million during the period from November 19, 2020 through August 25, 2021. The increase was primarily due to a $18.4 million increase in properties and business units for sale and a $15.1 million net increase due to a remeasurement of assets and liabilities.
The increase in properties and business units for sale was due to a change in value attributable to properties that have closed, or are under contract to sell with non-refundable deposits, at prices that were different than our previous liquidation values and to the sale and conversion to franchise locations of Fuddruckers restaurants. This increase was partially offset by a change in the estimated value of our business units and some of our real estate assets.
The $15.1 million increase generated by the remeasurement of assets and liabilities was mainly due to the $10.0 million forgiveness of our PPP loan, $1.8 million increase in projected future operating results for the remainder of the holding period, and $6.5 million increase from our actual operating results for the period from November 19, 2020 to August 25, 2021. This increase was partially offset by increases in actual and projected sale closing costs of $1.2 million and an increase in corporate general and administrative costs of $2.0 million.
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. 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.
Lease Obligations
Under both the going concern basis of accounting and the liquidation basis of accounting, lease obligations are recorded at the present value of the total fixed lease payments over the reasonably certain lease term using discount rates as of the effective date of the lease and the obligation is reduced as we make lease payments. As a result of the 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 liquidation basis of accounting as of November 19, 2020.
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During the fourth quarter of fiscal 2020 and all of fiscal 2021, we were able to settle 29 leases for closed restaurant properties and negotiated an early termination date and reduced lease payment at one operating restaurant property. While the amounts paid to settle our lease liabilities varied, in the aggregate, we have settled these 29 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. We can offer no assurances that we will continue to 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.
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Note 5. 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 aggregate to the total of the same such amounts shown in the consolidated statements of cash flows:
November 18,
2020
August 26,
2020
(In thousands)
Cash and cash equivalents $ 14,874  $ 15,069 
Restricted cash and cash equivalents 6,651  6,756 
Total cash and cash equivalents shown in the statement of cash flows $ 21,525  $ 21,825 
Restricted cash and cash equivalents as of August 25, 2021 was $5.5 million. Amounts included in restricted cash represent those required to be set aside for (1) estimated amount of interest payable in the next 12 months under the Credit Agreement (see "Note 14. 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 6. 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, and fees under our 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 and individual income producing property generally varies from first quarter of fiscal 2022 through the third quarter of 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 from 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
Under the going concern basis of accounting, restaurant sales consisted of sales of food and beverage products to restaurant guests at our Luby’s cafeterias and our Fuddruckers and Cheeseburger in Paradise restaurants. Revenue from restaurant sales was recognized at the point of sale and was presented net of discounts, coupons, employee meals and complimentary meals. Sales taxes that we collected and remitted to the appropriate taxing authority related to these sales 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. While we have sold the Fuddruckers Restaurant brand in the fourth quarter of fiscal 2021 and we sold the Luby's Cafeteria brand in the first quarter of fiscal 2022 (see Note 2. Subsequent Events), we continue to own certain Luby's cafeterias and Fuddruckers restaurants that are operated under management agreements with the new owners of the brands. However, it is estimated that, as we sell the real estate or negotiate lease terminations for the properties, most of these restaurants will no longer be operating by the end of calendar year 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. Under the going concern basis of accounting, sales of gift cards to our restaurant customers were initially recorded as a contract liability, included in accrued expenses and other liabilities, at their expected redemption value. When gift cards were redeemed, we recognized revenue and reduced the contract liability. Discounts on gift cards sold by third parties were recorded as a reduction to accrued expenses and other liabilities and were recognized as a reduction to revenue over a period that approximated redemption patterns. The portion of gift cards sold to customers that are never redeemed is commonly referred to as gift card breakage. We 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.
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CCS revenue
Our 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 in our CCS business:
Fee-Based Contracts
Revenue from fee-based contracts was 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 was allocated entirely to the management services performance obligation. Under the going concern basis of accounting, we recognized revenue from our management fee and payroll cost reimbursement over time as the services were performed; and we recognized revenue from our food and third party purchases reimbursement at the point in time when the vendor delivered the goods or performed the services.
Profit and Loss Contracts
Revenue from profit and loss contracts consisted primarily of sales made to consumers, typically with little or no subsidy charged to clients. Under the going concern basis of accounting, revenue was recognized at the point of sale to the consumer. Sales taxes that we collected and remitted to the appropriate taxing authority related to these sales 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 were accounted for as operating costs when incurred.
Revenue from the sale of frozen foods included royalty fees based on a percentage of frozen food sales and was recognized at the point in time when product was 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 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 consisted 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 accounted for them as a single performance obligation, which was 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 were recognized as franchise sales occur.
Under the going concern basis of accounting, initial and renewal franchise fees and area development fees 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 were deferred and apportioned to each franchise restaurant opened by the franchisee. The pro-rata amount apportioned to each restaurant was accounted for as an initial franchise fee.
Revenue from vending machine sales was recorded at the point in time when the sale occurred.
We sold our Fuddruckers Franchise business in the fourth quarter of fiscal 2021. As such, there are no estimated cash receipts from this business included in the calculation of estimated costs in excess of estimated receipts on our consolidated statement of net assets in liquidation as of August 25, 2021.
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Contract Liabilities
Contract liabilities consisted of (1) deferred revenue resulting from initial and renewal franchise fees and upfront area development fees paid by franchisees, which, 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 third party retailers. These contract liabilities are included in accrued expenses and other liabilities in our consolidated balance sheet as of August 26, 2020. The following table reflects the change in contract 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 $ 2,880  $ 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  — 
Balance at August 26, 2020 $ 3,410  $ 1,159 
Disaggregation of Total Revenues
For the 12 week period ended November 18, 2020, total sales of $41.9 million was comprised of revenue from performance obligations satisfied at a point in time of $38.5 million and revenue from performance obligations satisfied over time of $3.4 million. For the fiscal year ended August 26, 2020, total sales of $214.0 million was comprised of revenue from performance obligations satisfied over time of $18.5 million and revenue from performance obligations satisfied at a point in time of $195.5 million.
See Note 8. Reportable Segments for disaggregation of revenue by reportable segment.
Note 7. Leases
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 zero, 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 years to 30 years with one or more options to renew or extend the lease generally from one year 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.
At the inception of a new lease, we recognized an operating lease liability and a corresponding 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”) were recognized prior to the achievement of a specified target, provided that the achievement of the target was considered probable. Most of our lease agreements include renewal periods at our option. We included the rent holiday periods and scheduled rent increases in our calculation of straight-line rent expense.
Lease cost for operating leases was recognized on a straight-line basis and included the amortization of the right-of-use asset and interest expense related to the operating lease liability. We used the reasonably certain lease term in our calculation of straight-line rent expense. We expensed rent from commencement date through restaurant open date as opening expense. Once a restaurant opened for business, we 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 was recorded to provision for asset impairments
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and store closings. Rental expense for lease properties that were subsequently subleased to franchisees or other third parties was recorded as other income.
We made judgments regarding the reasonably certain lease term for each property lease, which 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 were taken into consideration when calculating straight-line rent, and the term over which leasehold improvements for each restaurant 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 our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, we generally cannot determine the interest rate implicit in the lease.
Lessor
We have occasionally leased or subleased certain restaurant properties to our former 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 practical expedient that allows us to not separate non-lease components from lease components in regard to all property leases where we are the lessors.
Supplemental balance sheet (statement of net asset in liquidation) information related to our leases was as follows:

Operating Leases Balance Sheet Classification August 25, 2021 August 26, 2020
(Liquidation Basis) (Going Concern Basis)
(in thousands)
Right-of-use assets Operating lease right-of-use assets $ —  $ 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 $ 7,181  $ 21,700 

Weighted-average lease terms and discount rates at August 25, 2021 and August 26, 2020 were as follows:
Weighted-average remaining lease term 4.72 years 5.73 years
Weighted-average discount rate 9.55% 9.57%
Under the going concern basis of accounting, components of lease expense were as follows:
12 Weeks Ended Fiscal Year Ended
November 18, 2020 August 26, 2020
(in thousands)
Operating lease expense $ 1,120  $ 7,700 
Variable lease expense 138  933 
Short-term lease expense 92  247 
Sublease expense 18  412 
Total lease expense $ 1,368  $ 9,292 
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Under the going concern of accounting, operating lease income was included in other income on our consolidated statements of operations and was comprised of (in thousands):
12 Weeks Ended Fiscal Year Ended
November 18, 2020 August 26, 2020
(In thousands)
Operating lease income $ 62  $ 734 
Sublease income 18  412 
Variable lease income 136 
Total lease income $ 85  $ 1,282 

Supplemental disclosures of cash flow information related to leases were as follows:
12 Weeks Ended Fiscal Year Ended
November 18, 2020 August 26, 2020
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities $ 2,358  $ 9,958 
Right-of-use assets obtained in exchange for lease liabilities $ —  $ 1,868 

Operating lease obligations maturities in accordance with Topic 842 as of August 25, 2021 were as follows:
(In thousands)
Less than One Year $ 1,908 
One to Three Years 3,004 
Three to Five Years 3,301 
Thereafter 1,305 
Total lease payments 9,518 
Less: imputed interest (2,337)
Present value of operating lease obligations $ 7,181 

Note 8. Reportable Segments
As more fully described at Note 1. Nature of Operations and Significant Accounting Policies, through November 18, 2020, we had five reportable segments: Luby’s Cafeterias, Fuddruckers Restaurants, Cheeseburger in Paradise Restaurants, Fuddruckers franchise operations, and CCS. In connection with our Plan of Liquidation, we have one reportable segment as of November 19, 2020.
Company-owned restaurants
Company-owned restaurants consisted of Luby’s Cafeterias, Fuddruckers Restaurants and Cheeseburger in Paradise Restaurant reportable segments. We considered each restaurant to be an operating segment because operating results and cash flow could be determined for each restaurant. We 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 were similar. The chief operating decision maker 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 restaurants are casual dining restaurants.
The Luby’s Cafeterias segment included the results of our company-owned Luby’s cafeteria restaurants. The total number of Luby’s cafeterias operating at November 18, 2020 and August 26, 2020 were 60 and 61, respectively.
The Fuddruckers Restaurant segment included the results of our company-owned Fuddruckers restaurants. We were operating 24 Fuddruckers restaurants at both November 18, 2020 and August 26, 2020.
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Included in the restaurant counts above are five 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 Cafeterias and Fuddruckers Restaurants.
The last Cheeseburger in Paradise restaurant was permanently closed in March, 2020.
CCS
CCS, branded as Luby’s Culinary Services, consists of a business line has serviced 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 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. We were operating 26 CCS contracts at both November 18, 2020 and August 26, 2020.
Fuddruckers Franchise Operations
We only offered franchises for the Fuddruckers brand. Initial franchise agreements generally have a term of 20 years. Franchise agreements typically granted franchisees an exclusive territorial license to operate a single restaurant within a specified area.
Franchisees bore all direct costs involved in the development, construction, and operation of their restaurants. In exchange for a franchise fee, we provided 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 were required to operate their restaurants in accordance with Fuddruckers standards and specifications, including controls over menu items, food quality, and preparation. The Company required the successful completion of its training program by a minimum of three managers for each franchised restaurant. In addition, franchised restaurants were 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.
We had 71 franchised restaurants at both November 18, 2020 and August 26, 2020.


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Segment Table
The tables below show segment financial 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.
  12 Week Period Ended
Fiscal Year Ended
  November 18, 2020 August 26, 2020
  (In thousands)
Sales:    
Luby's cafeterias $ 31,949  $ 149,691 
Fuddruckers restaurants 4,550  32,428 
Cheeseburger in Paradise restaurants —  1,522 
Culinary contract services 4,918  26,747 
Fuddruckers franchise operations 530  3,634 
Total $ 41,947  $ 214,022 
Segment level profit:    
Luby's cafeterias $ 4,896  $ 12,087 
Fuddruckers restaurants (412) (2,196)
Cheeseburger in Paradise restaurants (85) (308)
Culinary contract services 451  2,529 
Fuddruckers franchise operations 236  2,093 
Total $ 5,086  $ 14,205 
Depreciation and amortization:    
Luby's cafeterias $ 1,530  $ 7,598 
Fuddruckers restaurants 167  1,507 
Cheeseburger in Paradise restaurants —  77 
Culinary contract services 34 
Fuddruckers franchise operations 298 
Corporate 436  2,000 
Total $ 2,142  $ 11,514 

  12 Week Period Ended Fiscal Year Ended
  November 18, 2020 August 26, 2020
  (In thousands)
Capital expenditures:    
Luby's cafeterias $ 416  $ 1,841 
Fuddruckers restaurants 17  148 
Cheeseburger in Paradise restaurants —  34 
Fuddruckers franchise operations — 
Corporate —  88 
Total $ 433  $ 2,120 

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12 Week Period Ended
Fiscal Year Ended
November 18, 2020 August 26, 2020
(In thousands)
Loss before income taxes and discontinued operations:    
Segment level profit $ 5,086  $ 14,205 
Opening costs —  (14)
Depreciation and amortization (2,142) (11,514)
Selling, general and administrative expenses (4,267) (24,571)
Other charges (416) (3,401)
Net provision for asset impairments and restaurant closings 85  (10,193)
Net gain on disposition of property and equipment (117) 11,557 
Interest income 60 
Interest expense (1,212) (6,388)
Other income, net 30  1,195 
Total $ (2,945) $ (29,064)

  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 $6.9 million at August 26, 2020.
(2) Includes Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles of $34 thousand at August 26, 2020.
(3) Fuddruckers franchise operations segment includes royalty intangibles of $8.4 million at August 26, 2020.
Note 9. Fair Value Measurement
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 statements require or permit 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 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.
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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.
There were no recurring fair value measurements related to assets at August 26, 2020.
There were no recurring fair value measurements related to liabilities at August 26, 2020.
Under the going concern basis of accounting, non-recurring fair value measurements related to impaired property and equipment for the fiscal year ended August 26, 2020 consisted of the following:
    Fair Value Measurement Using  
  Fiscal Year Ended August 26, 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 and equipment related to Company-owned restaurants(1)
$ 481  $ —  $ —  $ 481  $ (4,831)
Goodwill(2)
—  —  —  —  (320)
Property held for sale(3)
3,362  —  —  3,362  (14)
Operating lease right-of-use assets(4)
272  —  —  272  (5,380)
Total Nonrecurring Fair Value Measurements $ 4,115  $ —  $ —  $ 4,115  $ (10,545)
(1) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of $5.3 million were written down to their fair value of $0.5 million, resulting in an impairment charge of $4.8 million.
(2) In accordance with Subtopic 350-20, goodwill with a carrying amount of $0.3 million was written down to its implied fair value of zero resulting in an impairment charge of $0.3 million.
(3) In accordance with Subtopic 360-10, long-lived assets held for sale with carrying values of $3.4 million were written down to their fair value, less cost to sell, of $3.4 million, resulting in an impairment charge of $14 thousand.
(4) In accordance with Subtopic 360-10, operating lease right-of-use assets with a carrying value of $5.7 million were written down to their fair value of $0.3 million, resulting in an impairment charge of $5.4 million.
(5) Total impairments are included in provision for asset impairments and restaurant closings in the our consolidated statement of operations.

Note 10. Accounts and Notes Receivable
Under the going concern basis of accounting, trade and other receivables, net, consisted of the following:
  August 26,
2020
  (In thousands)
Trade and other receivables $ 4,037 
Franchise royalties and marketing and advertising receivables 957 
Unbilled revenue 1,677 
Allowance for doubtful accounts (579)
Total Trade accounts and other receivables, net $ 6,092 

CCS receivable balance at August 26, 2020 was $3.1 million, primarily the result of 28 contracts with balances of $0.1 million to $0.7 million per contract entity. These 28 contracts collectively represented 47% of the Company’s total accounts receivables. Contract payment terms for its CCS customers’ receivables are due within 30 to 45 days. Unbilled revenue, was $1.7 million at August 26, 2020. CCS contracts are billed on a calendar month end basis and represent the total balance of unbilled revenue.
The Company recorded receivables related to Fuddruckers franchise operations royalty and marketing and advertising payments from the franchisees, as required by their franchise agreements. Franchise royalty and marketing and advertising fund receivables balance at August 26, 2020 was $1.0 million. At August 26, 2020, the Company had 71 operating franchise restaurants with no significant concentration of accounts receivables.
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The change in allowances for doubtful accounts was as follows:
 
Fiscal Year Ended
  August 26,
2020
  (In thousands)
Beginning balance $ 427 
Provisions for doubtful accounts, net of reversals 1,624 
Write-offs(1)
(1,472)
Ending balance $ 579 

(1) The $1.5 million Balance Sheet write-off in fiscal 2020 is comprised of $0.3 million of CCS customer accounts, $0.4 million of receivables from franchisees and $0.8 million of other receivables (including $0.4 million of former tenant accounts) that were reserved in fiscal years 2018 through and including 2020.
The buyer of the Fuddruckers brand and franchise business has executed and delivered secured promissory notes in the aggregate amount of $15.5 million. The notes bear interest at rates ranging from 5% to 15% per annum and are scheduled to mature between December 31, 2027 and January 15, 2030.
Under the liquidation basis of accounting, the secured promissory notes have been included in the consolidated statement of net assets at a discounted rate that represents the amount we currently expect to receive upon liquidation of the notes.




Note 11. Income Taxes
The following table details the categories of total income tax assets and liabilities for both continuing and discontinued operations resulting from the cumulative tax effects of temporary differences: 

  August 25,
2021
August 26,
2020
  (In thousands)
Deferred income tax assets:    
Workers’ compensation, employee injury, and general liability claims $ 402  $ 562 
Deferred compensation 80  162 
Net operating losses 10,603  9,916 
General business and foreign tax credits 12,105  12,105 
Depreciation, amortization and impairments 2,291  3,125 
Interest expense 1,953  1,886 
Lease liabilities 1,551  4,731 
Straight-line rent, dining cards, accruals, and other 416  1,413 
Subtotal 29,401  33,900 
Valuation allowance (28,506) (29,478)
Total deferred income tax assets 895  4,422 
Deferred income tax liabilities:    
Property taxes and other 680  769 
Lease assets 924  3,653 
Total deferred income tax liabilities 1,604  4,422 
Net deferred income tax asset $ (709) $ — 

At August 25, 2021, we recognized a net deferred tax liability of $0.7 million after valuation allowance as a result of anticipated taxable gains to be generated from future property sales as part of our Plan of Liquidation and our ability to utilize our deferred
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tax assets. The most significant deferred tax asset prior to valuation allowance is our general business tax credits carryovers to future years of $12.1 million. This item may be carried forward up to twenty years for possible utilization in the future. The carryover of general business tax credits, beginning in fiscal 2002, will begin to expire at the end of fiscal 2022 through 2039, if not utilized by then.The utilization of general business credits is subject to limitations based on the federal income tax liability before applying the general business credits within a tax year. Deferred tax assets available to be utilized against state taxable gains generated on future property sales will differ per state jurisdiction. The net deferred tax liability is included in other liabilities on our consolidated statement of net assets in liquidation at August 25, 2021.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future, as well as from tax net operating losses and tax credit carryovers. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized. In evaluating our ability to recover our deferred tax assets, we consider available positive and negative evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies and existing business conditions, including the Plan of Liquidation. In the third quarter of fiscal 2018, we concluded that a full valuation allowance on our net deferred tax assets was necessary. As of August 25, 2021, we recognized a deferred tax liability due to our expectation that we will be able to utilize our deferred tax assets as a result of implementing our Plan of Liquidation.
An analysis of the provision for income taxes for continuing operations is as follows: 
12 Week Period Ended Fiscal Year Ended
  November 18,
2020
August 26,
2020
  (In thousands)
Current federal and state income tax expense $ 54  $ 327 
Current foreign income tax expense 30 
Provision for income taxes $ 58  $ 357 

Relative only to continuing operations, the reconciliation of the expense for income taxes to the expected income tax expense, computed using the statutory tax rate, was as follows: 
  12 Week Period Ended
Fiscal Year Ended
  November 18,
2020
August 26,
2020
  Amount % Amount %
  (in thousands, except percentages)
Income tax benefit from continuing operations at the federal rate $ (618) 21.0  % $ (6,104) 21.0  %
Permanent and other differences:        
Federal jobs tax credits (wage deductions) —  —  —  — 
Stock options and restricted stock (0.1) 17  (0.1)
Other permanent differences —  — 
State income tax, net of federal benefit 53  (1.8) 189  (0.7)
General Business Tax Credits —  —  —  — 
Other 70  (2.4) 580  (1.9)
Change in valuation allowance 548  (18.7) 5,672  (19.5)
Provision for income taxes from continuing operations $ 58  (2.0) % $ 357  (1.2) %
 
For the fiscal year ended August 25, 2021, including both continuing and discontinued operations, the Company is estimated to report a federal taxable loss of $3.4 million. For the fiscal year ended August 26, 2020, including both continuing and discontinued operations, the Company generated federal taxable loss of $19.3 million.
Our income tax filings are periodically examined by various federal and state jurisdictions. There are no open examinations by federal and state income tax jurisdictions. The Company's U.S. federal income tax return remains open to examination for fiscal 2018 through fiscal 2020.
There were no payments of federal income taxes in fiscal 2021 or fiscal 2020. The Company has income tax filing requirements in over 30 states. State income tax payments were $0.3 million and $0.4 million in fiscal 2021 and 2020, respectively.
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The following table is a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of fiscal 2020 and 2021 (in thousands): 
Balance as of August 28, 2019 $ 25 
Decrease based on prior year tax positions — 
Interest Expense — 
Balance as of August 26, 2020 $ 25 
Decrease based on prior year tax positions — 
Interest Expense — 
Balance as of August 25, 2021 $ 25 
The unrecognized tax benefits would favorably affect the Company’s effective tax rate in future periods if they are recognized. There is no interest associated with unrecognized benefits as of August 25, 2021. Under the going concern basis of accounting, the Company had included interest or penalties related to income tax matters as part of income tax expense. It is reasonably possible that the amount of unrecognized tax benefits with respect to our uncertain tax positions could significantly increase or decrease within 12 months. However, based on the current status of examinations, it is not possible to estimate the future impact, if any, to recorded uncertain tax positions as of August 25, 2021.
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 the financial statements.
Note 12. 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 cost, net of impairment, and accumulated depreciation of property and equipment at August 26, 2020, together with the related estimated useful lives used in computing depreciation and amortization, was as follows (in thousands): 
  August 26, 2020 Estimated
Useful Lives (years)
       
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
Goodwill $ 195       
 
Depreciation expense for the 12 week period ended November 18, 2020 and fiscal year 2020 was $1.8 million and $10.1 million, respectively.
Under the going concern basis of accounting, intangible assets, net, consisted primarily of the Fuddruckers trade name and franchise agreements that were being amortized over the 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 was being used. The trade name represented a respected brand with customer loyalty and the Company intended to cultivate and protect the use of the trade name. The franchise agreements, after considering renewal periods, had an estimated accounting life of 21 years from the date of acquisition, July 2010, and was being amortized over this period of time.
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Intangible assets, net, also 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 had an expected accounting life of 15 years from the date of acquisition December 2012.
The aggregate amortization expense related to intangible assets subject to amortization for the 12 week period ended November 18, 2020 and fiscal 2020 was $0.3 million and $1.4 million, respectively.
The following table presents intangible assets as of August 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 

Under the going concern basis of accounting, goodwill, net of accumulated impairment was approximately $0.2 million as of August 26, 2020. We recorded no goodwill impairment charges during the 12 week period ended November 18, 2020. Due to the effects of the COVID-19 pandemic on our operations, we identified a triggering event in the third quarter of fiscal 2020. We performed an impairment test of goodwill and recorded an impairment loss related to our Cheeseburger in Paradise restaurants of $0.3 million. Under the liquidation method of accounting, there is no goodwill included in our statement of net assets in liquidation. 
Note 13. Current Accrued Expenses and Other Liabilities
The following table sets forth current accrued expenses and other liabilities as of August 25, 2021 and August 26, 2020: 
  August 25,
2021
August 26,
2020
Liquidation Basis Going Concern Basis
  (In thousands)
Salaries, compensated absences, incentives, and bonuses $ 1,621  $ 1,506 
Operating expenses 708  831 
Unredeemed gift and dining cards 956  4,084 
Taxes, other than income 4,675  7,265 
Accrued claims and insurance 1,051  1,753 
Income taxes, legal and other(1)
3,371  4,130 
Total $ 12,382  $ 19,569 

(1) Income taxes, legal and other includes accrued lease termination costs. See Note 15 to our consolidated financial statements in this Form 10-K for further discussion of lease termination costs.

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Note 14. Debt
The following table summarizes our debt balances at August 25, 2021 and August 26, 2020 (in thousands):
   
  August 25,
2021
August 26,
2020
Long-Term Debt (Liquidation Basis) (Going Concern 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 matured 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 (“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 terminates on, and all amounts owing thereunder must be repaid on December 13, 2023.
On July 31, 2019, we entered into the First Amendment to the Credit Agreement (the “First Amendment”) to extend the 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 Delayed Draw Term Loan have been terminated or reduced to zero in accordance with the terms of the Credit Agreement and (b) September 13, 2020. On December 18, 2019, we entered into the Second Amendment to the 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 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. On August 25, 2021, we entered into the Fifth Amendment to the Credit Agreement where, as regards the Luby's Transaction discussed at Note 2. Subsequent Events, MSD agreed to (i) consent to the consummation of the Luby's Transaction, (ii) consent to our ownership of the Notes issued by the buyer in the Luby's Transaction, (iii) consent to our ownership of the preferred stock issued by the buyer in the Luby's Transaction, (iv) agreed to waive the prepayment requirement as regards the non-cash proceeds from the Luby's Transaction, (v) agreed to waive any
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default of event of default that may have arisen in connection with the Luby's Transaction, and (vi) agreed to waive the requirement to physically deliver the buyer's notes to MSD and clarifying that the buyer's notes and preferred stock and related warrant form part of the collateral for the Credit Agreement.
Borrowings under the Revolver, Delayed Draw Term Loan, and Term Loan 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 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.
As of August 25, 2021, the amount due under the Credit Facility of $17.0 million (including the Revolver and the Delayed Draw Term Loan outstanding balances of $5.0 million and $5.0 million, respectively) was payable on the 5th Anniversary of the Credit Facility (December 13, 2023): .
As of August 25, 2021, we had approximately no principal payments due under the Credit Facility in the next 12 months.
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 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. 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 is 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, are applied as mandatory prepayments of our Term Loan. Mandatory prepayments are not subject to the make whole premium described above.
The Credit Facility contains customary covenants and restrictions on 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, we are 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 are guaranteed by the subsidiaries of the Company.
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. See Note 2. Subsequent Events.
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.
Interest Expense
Total interest expense incurred for the 12 week period ended November 18, 2020 and the fiscal year 2020 was $1.2 million and $6.4 million, respectively. No interest expense was allocated to discontinued operations and no interest was capitalized in either period.
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Note 15. Impairment of Long-Lived Assets, Store Closings, Discontinued Operations and Property Held for Sale
Impairment of Long-Lived Assets and Store Closings
Under the going concern basis of accounting, we periodically evaluated long-lived assets held for use and held for sale whenever events or changes in circumstances indicated that the carrying amount of those assets may not be recoverable. We analyzed historical cash flows of operating locations and compared results of poorer performing locations to more profitable locations. We also 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.
We periodically evaluated our intangible assets, primarily the Fuddruckers trademarks and franchise agreements, to determine if events or changes in circumstances such as economic or market conditions indicated that the carrying amount of the assets may not be recoverable. We analyzed historical cash flows of operating locations to determine trends that would indicate a need for impairment. We also analyzed royalties and collectability from our franchisees to determine if there are trends that would indicate a need for impairment. Due to the effects of the COVID-19 pandemic on our operations, we identified a triggering event in the third quarter of fiscal 2020 and determined that no impairment provision was necessary.
For assets held for use, we estimated future cash flows using assumptions based on possible outcomes of the areas analyzed. If the estimated undiscounted future cash flows were less than the carrying value of the location’s assets, we 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, required management’s subjective judgments. Assumptions and estimates used 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 estimated was often lengthy, increasing the sensitivity to assumptions made. The time span is longer and 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 could vary within a wide range of outcomes. We considered the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss was then based on the fair value of the asset as determined by discounted cash flows.
The Company recognized the following impairment charges and gains on asset disposals to income from operations:</