(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 on or 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 reduction of retained earnings to reflect the cumulative impact of adopting Topic 606 was 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 impact of applying Topic 606 for the three months ended March 24, 2019, was an increase in revenues of $0.3 million and an increase in pre-tax income of $0.2 million. The impact of applying Topic 606 for the nine months ended March 24, 2019, was an increase in revenues of $1.1 million and an increase in pre-tax income of $0.4 million.

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 license and area development revenue recognition and the presentation of contributions to advertising and convention funds by franchisees and suppliers, respectively.

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

(In thousands, except share amounts)	As Reported June 24, 2018			Total Adjustment			Adjusted Balance Sheet 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	$	421		$	-		$	421
Accounts payable - lease termination impairments		353			-			353
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

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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

(In thousands, except share amounts)	As Reported March 24, 2019 (Unaudited)			Total Adjustment			Balance Sheet Without Adoption of Topic 606
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	1,932		$	-		$	1,932
Accounts receivable, less allowance for bad debts of $148		1,514			-			1,514
Other receivable		-			-			-
Notes receivable		610			-			610
Inventories		16			-			16
Income tax receivable		-			-			-
Property held for sale		271			-			271
Deferred contract charges		35			(35	)		-
Prepaid expenses and other		485			-			485
Total current assets		4,863			(35	)		4,828

LONG-TERM ASSETS
Property, plant and equipment, net		1,219			-			1,219
Intangible assets definite-lived, net		207			-			207
Long-term notes receivable		1,025			-			1,025
Deferred tax asset, net		3,328			-			3,328
Long term deferred contract charges		208			(208	)		-
Deposits and other		232			-			232
Total assets	$	11,082		$	(243	)	$	10,839

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	402		$	-		$	402
Accounts payable - lease termination impairments		566			-			566
Accrued expenses		995			4			999
Deferred rent		37			-			37
Deferred revenues		238			(238	)		-
Total current liabilities		2,238			(234	)		2,004

LONG-TERM LIABILITIES
Convertible notes		1,581			-			1,581
Deferred rent, net of current portion		406			-			406
Deferred revenues, net of current portion		1,604			(1,269	)		335
Other long-term liabilities		57			-			57
Total liabilities		5,886			(1,503	)		4,383

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		33,648			-			33,648
Accumulated deficit		(4,038	)		1,260			(2,778	)
Treasury stock at cost
Shares in treasury: 7,119,204		(24,636	)		-			(24,636	)
Total shareholders’ equity		5,196			1,260			6,456

Total liabilities and shareholders’ equity	$	11,082		$	(243	)	$	10,839

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

	As Reported Nine Months Ended March 24, 2019			Total Adjustments			Income Statement Without Adoption of Topic 606


REVENUES:	$	9,256		$	(1,119	)	$	8,137

COSTS AND EXPENSES:
Cost of sales		715			-			715
General and administrative expenses		4,623			-			4,623
Franchise expenses		2,841			(757	)		2,084
Pre-opening expenses		-			-			-
Gain on sale of assets		(250	)		-			(250	)
Impairment of long-lived assets and other lease charges		389			-			389
Bad debt		211			-			211
Interest expense		77			-			77
Depreciation and amortization expense		385			-			385
Total costs and expenses		8,991			(757	)		8,234

INCOME FROM CONTINUING OPERATIONS BEFORE TAXES		265			(362	)		(97	)
Income tax expense		188			-			188
INCOME FROM CONTINUING OPERATIONS		77			(362	)		(285	)

Loss from discontinued operations, net of taxes		-			-			-
NET INCOME	$	77		$	(362	)	$	(285	)

INCOME PER SHARE OF COMMON STOCK - BASIC:
Income from continuing operations	$	0.01		$	(0.03	)	$	(0.02	)
Loss from discontinued operations		-			-			-
Net income	$	0.01		$	(0.03	)	$	(0.02	)

INCOME PER SHARE OF COMMON STOCK - DILUTED:

Income from continuing operations	$	0.01		$	(0.03	)	$	(0.02	)
Loss from discontinued operations		-			-			-
Net income	$	0.01		$	(0.03	)	$	(0.02	)

Weighted average common shares outstanding - basic		15,069			15,069			15,069

Weighted average common and potential dilutive common shares outstanding		15,902			15,902			15,902

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.