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2. Adoption of ASU 2014-09, Revenue from Contracts with Customers

3 Months Ended

Sep. 23, 2018

Revenue from Contract with Customer [Abstract]

Adoption of ASU 2014-09, Revenue from Contracts with Customers

2)	Adoption of ASU 2014-09, “Revenue from Contracts with Customers”

The Company adopted ASU 2014-09 and Topic 606 using the modified retrospective transition method effective June 25, 2018. Results for reporting periods beginning after June 25, 2018 are presented in accordance with Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605, Revenue Recognition.

A cumulative effect adjustment of $1.6 million was recorded as a reduction to retained earnings as of June 25, 2018 to reflect the impact of adopting Topic 606. The impact of applying Topic 606 for the quarter ended September 23, 2018, was an increase in revenues of $450 thousand and an increase in pre-tax income of $31 thousand.

The adoption of Topic 606 did not impact the recognition and reporting of our two largest sources of revenue: franchise royalties and supplier and distributor incentives. The items impacted by the adoption include the timing of franchise and development revenue recognition and the presentation of advertising funds and supplier convention contributions.

Cumulative adjustment from adoption

As noted above, an after-tax reduction of $1.6 million was recorded to retained earnings to reflect the cumulative impact of adopting Topic 606. This is comprised of $1.3 million related to domestic franchise and renewal fees, $0.2 million related to domestic area development fees and $0.3 million related to international development and franchise master license fees partially offset by $0.2 million in deferral of contract-related expenses.

The following chart presents the specific line items impacted by the cumulative adjustment to opening retained earnings:

		As Reported								Adjusted
		June 24,				Total				Balance Sheet
(In thousands, except share amounts)		2018				Adjustment				June 25, 2018

ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,386			$	—			$	1,386
Accounts receivable, less allowance for bad debts of $158			1,518				—				1,518
Other receivable			300				—				300
Notes receivable			712				—				712
Inventories			6				—				6
Income tax receivable			5				—				5
Property held for sale			539				—				539
Deferred contract charges			—				10				10
Prepaid expenses and other			273				—				273
Total current assets			4,739				10				4,749

LONG-TERM ASSETS
Property, plant and equipment, net			1,510				—				1,510
Intangible assets definite-lived, net			212				—				212
Long-term notes receivable			803				—				803
Deferred tax asset, net			3,479				—				3,479
Long term deferred contract charges			—				182				182
Deposits and other			243				—				243
Total assets		$	10,986			$	192			$	11,178

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade		$	774			$	—			$	774
Accrued expenses			1,109				(4	)			1,105
Deferred rent			32				—				32
Deferred revenues			65				243				308
Total current liabilities			1,980				239				2,219

LONG-TERM LIABILITIES
Convertible notes			1,562				—				1,562
Deferred rent, net of current portion			433				—				433
Deferred revenues, net of current portion			670				1,575				2,245
Other long-term liabilities			42				—				42
Total liabilities			4,687				1,814				6,501

COMMITMENTS AND CONTINGENCIES (SEE NOTE 3)

SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 26,000,000
shares; issued 22,166,674 shares
outstanding 15,047,470 shares			222				—				222
Additional paid-in capital			33,206				—				33,206
Accumulated deficit			(2,493	)			(1,622	)			(4,115	)
Treasury stock at cost
Shares in treasury: 7,119,204			(24,636	)			—				(24,636	)
Total shareholders' equity			6,299				(1,622	)			4,677

Total liabilities and shareholders' equity		$	10,986			$	192			$	11,178

The following charts present the specific line items impacted by the application of Topic 606 in the first quarter of fiscal 2019.

		As Reported								Balance Sheet
		September 23,				Total				Without Adoption
(In thousands, except share amounts)		2018 *(Unaudited)*				Adjustment				of Topic 606
ASSETS

CURRENT ASSETS
Cash and cash equivalents		$	2,006			$	—			$	2,006
Accounts receivable, less allowance for bad debts of $179			1,357				—				1,357
Notes receivable			939				—				939
Inventories			6				—				6
Income tax receivable			4				—				4
Property held for sale			467				—				467
Deferred contract charges			15				15				30
Prepaid expenses and other			351				(47	)			304
Total current assets			5,145				(32	)			5,113

LONG-TERM ASSETS
Property, plant and equipment, net			1,391				—				1,391
Intangible assets definite-lived, net			202				—				202
Long-term notes receivable			791				—				791
Deferred tax asset, net			3,462				—				3,462
Long term deferred contract charges			221				221				442
Deposits and other			243				—				243
Total assets		$	11,455			$	189			$	11,644

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade		$	797			$	—			$	797
Accrued expenses			836				3				839
Deferred rent			34				—				34
Deferred revenues			428				240				668
Total current liabilities			2,095				243				2,338

LONG-TERM LIABILITIES
Convertible notes			1,567				—				1,567
Deferred rent, net of current portion			424				—				424
Deferred revenues, net of current portion			2,399				1,538				3,937
Other long-term liabilities			48				—				48
Total liabilities			6,533				1,781				8,314

COMMITMENTS AND CONTINGENCIES (SEE NOTE 3)

SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 26,000,000
shares; issued 22,190,515 shares
outstanding 15,071,311 shares			222				—				222
Additional paid-in capital			33,343				—				33,343
Accumulated deficit			(4,007	)			(1,592	)			(5,599	)
Treasury stock at cost
Shares in treasury: 7,119,204			(24,636	)			—				(24,636	)
Total shareholders' equity			4,922				(1,592	)			3,330

Total liabilities and shareholders' equity		$	11,455			$	189			$	11,644

		As Reported								Income Statement
		Three Months Ended								Without Adoption
		September 23,				Total				of
		2018				Adjustments				Topic 606


REVENUES:		$	2,991			$	(450	)		$	2,541

COSTS AND EXPENSES:
Cost of sales			159				—				159
General and administrative expenses			1,414				—				1,414
Franchise expenses			1,061				(419	)			642
Pre-opening expenses			—				—				—
Loss/(Gain) on sale of assets			(4	)			—				(4	)
Impairment of long-lived assets and other lease charges			15				—				15
Bad debt			24				—				24
Interest expense			25				—				25
Depreciation and amortization expense			139				—				139
Total costs and expenses			2,833				(419	)			2,414

INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES			158				(31	)			127
Income tax expense			50				—				50
INCOME/(LOSS) FROM CONTINUING OPERATIONS			108				(31	)			77

Loss from discontinued operations, net of taxes			—				—				—
NET INCOME / (LOSS)		$	108			$	(31	)		$	77

INCOME / (LOSS) PER SHARE OF COMMON STOCK - BASIC:
Income / (loss) from continuing operations		$	0.01			$	(0.00	)		$	0.01
Loss from discontinued operations			—				—				—
Net income / (loss)		$	0.01			$	(0.00	)		$	0.01

INCOME / (LOSS) PER SHARE OF COMMON STOCK - DILUTED:

Income / (loss) from continuing operations		$	0.01			$	(0.00	)		$	0.01
Loss from discontinued operations			—				—				—
Net income / (loss)		$	0.01			$	(0.00	)		$	0.01

Weighted average common shares outstanding - basic			15,064				15,064				15,064

Weighted average common and
potential dilutive common shares outstanding			15,897				15,897				15,897