(10) Discontinued Operations

On November 1, 2017, the Company entered into agreements to sell eight restaurants in Maryland and Virginia (the “Mid-Atlantic Restaurants”) to Commonwealth Blue Ribbon Restaurants LLC and Capital Blue Ribbon Restaurants LLC (the “Mid-Atlantic Purchasers”). Pursuant to the first agreement (“Seven Restaurants Agreement”), the contract purchase price was $2,350,000 and included a repairs and maintenance credit of $750,000, which must be exhausted within one year. Also pursuant to the Seven Restaurants Agreement, the Company and the Mid-Atlantic Purchasers entered into a line of credit agreement for a maximum of $750,000 (the “LOC Agreement”) on which the Mid-Atlantic Purchasers can draw funds to pay for necessary repairs and maintenance work. The LOC Agreement has a four-year term with interest payable at a rate of 4.25% per annum. As of July 1, 2018, the outstanding balance on the LOC Agreement was approximately $648,000.

Pursuant to the second agreement (the “Frederick Agreement”) to effect the sale of the Company’s Frederick, Maryland (“Frederick”) restaurant to Capital Blue Ribbon Restaurants, LLC, the contract purchase price for Frederick shall be an amount equal to (i) 50% of the rent, fees, charges, taxes and other amounts payable to the landlord or another third party pursuant to the lease agreement, plus (ii) 50% of that portion of Frederick’s EBITDA (as defined in the Frederick APA) attributable to Frederick that exceeds $25,000 in any 12-month period and $37,500 in any 18-month period; however, the Company has guaranteed the 12-month and 18-month EBITDA performance of Frederick. The Company expects to recognize a liability and corresponding expense related to this guarantee based on the amount that the Company would owe to the Mid-Atlantic Purchasers in the event that the restaurant was closed.

The Mid-Atlantic Purchasers also purchased the inventory and petty cash on hand of the Mid-Atlantic Restaurants as of the closing date. The transaction resulted in the Company’s complete exit from the Mid-Atlantic market. There were no assets or liabilities related to the Mid-Atlantic Restaurants remaining as of July 1, 2018 or December 31, 2017.

The following table provides certain information from the Company’s consolidated statements of operations related to the Mid-Atlantic Restaurants:


	Three Months Ended				Six Months Ended
(in thousands)	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
Restaurant sales, net	$	—	$	6,251	$	—	$	11,279
Cost of sales		—		(5,417)		—		(10,048)
General and administrative expenses		—		(51)		—		(96)
Depreciation and amortization		—		(192)		—		(384)
Operating income		—		591		—		751
Loss on disposal attributable to discontinued operations		—		—		—		(2)
Income attributable to discontinued operations, before tax		—		591		—		749
Income attributable to discontinued operations, tax effect		—		(212)		—		(188)
Income attributable to discontinued operations, net of tax	$	—	$	379	$	—	$	561