Document And Entity Information - shares |
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Sep. 29, 2019 |
Nov. 12, 2019 |
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Document and Entity Information [Abstract] | ||
Entity Registrant Name | Diversified Restaurant Holdings, Inc. | |
Document Type | 10-Q | |
Current Fiscal Year End Date | --12-29 | |
Entity Common Stock, Shares Outstanding | 33,324,160 | |
Amendment Flag | false | |
Entity Central Index Key | 0001394156 | |
Entity Filer Category | Non-accelerated Filer | |
Document Period End Date | Sep. 29, 2019 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q3 | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Current Reporting Status | Yes | |
Entity Shell Company | false |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 29, 2019 |
Dec. 30, 2018 |
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Statement of Financial Position [Abstract] | ||
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 33,327,453 | 33,200,708 |
Common stock, shares outstanding | 33,327,453 | 33,200,708 |
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Consolidated Statements of Comprehensive Income (Loss) - USD ($) |
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Sep. 29, 2019 |
Sep. 30, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
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Statement of Comprehensive Income [Abstract] | ||||
Net loss | $ (2,060,973) | $ (1,793,331) | $ (2,474,789) | $ (2,805,631) |
Other comprehensive income (loss): | ||||
Unrealized changes in fair value of interest rate swaps, net of tax of $0, ($166,380), $79,617 and ($252,619), respectively. | (38,663) | 4,241 | (611,602) | 950,425 |
Comprehensive loss | $ (2,099,636) | $ (1,789,090) | $ (3,086,391) | $ (1,855,206) |
Consolidated Statements of Operations - USD ($) |
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Sep. 29, 2019 |
Sep. 30, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
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Revenue | $ 38,229,244 | $ 37,491,751 | $ 117,717,573 | $ 114,063,781 |
Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | ||||
Compensation costs | 10,544,001 | 10,279,281 | 32,197,030 | 30,611,334 |
Occupancy costs | 2,918,060 | 2,912,508 | 8,858,598 | 8,662,718 |
Other operating costs | 8,428,577 | 8,461,334 | 25,254,856 | 24,817,359 |
General and administrative expenses | 3,546,962 | 2,033,302 | 7,709,931 | 6,456,962 |
Depreciation and amortization | 2,427,067 | 2,908,608 | 7,636,396 | 9,175,853 |
Impairment and loss on asset disposal | (5,387) | (918,399) | (28,963) | (931,196) |
Total operating expenses | 39,070,849 | 38,206,228 | 115,981,682 | 113,043,634 |
Operating (loss) profit | (841,605) | (714,477) | 1,735,891 | 1,020,147 |
Interest expense | (1,453,803) | (1,609,277) | (4,436,535) | (4,865,308) |
Other income, net | 448,450 | 24,779 | 505,689 | 77,995 |
Loss from continuing operations before income taxes | (1,846,958) | (2,298,975) | (2,194,955) | (3,767,166) |
Income tax benefit (expense) | (214,015) | 505,644 | (279,834) | 961,535 |
Net loss | (2,060,973) | (1,793,331) | $ (2,474,789) | $ (2,805,631) |
Net income | $ (2,060,973) | $ (1,793,331) | ||
Basic and diluted earnings per share (in dollars per share) | $ (0.06) | $ (0.06) | $ (0.08) | $ (0.10) |
Weighted average number of common shares outstanding: | ||||
Basic and diluted (in shares) | 32,677,823 | 30,643,240 | 32,228,351 | 27,990,420 |
Food and Beverage [Member] | ||||
Food, beverage, and packaging costs | $ 11,200,795 | $ 10,692,796 | $ 34,295,908 | $ 32,388,212 |
Consolidated Statements of Comprehensive Income (Loss) (Parentheticals) - USD ($) |
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Sep. 29, 2019 |
Sep. 30, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
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Statement of Comprehensive Income [Abstract] | ||||
Unrealized changes in fair value of interest rate swaps, tax | $ 0 | $ (166,380) | $ 79,617 | $ (252,619) |
Consolidated Statements of Stockholders' Deficit (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended |
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Sep. 30, 2018 |
Sep. 30, 2018 |
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Statement of Stockholders' Equity [Abstract] | ||
Fees and expenses | $ 0.7 | $ 0.7 |
Consolidated Statements of Cash Flows (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended |
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Sep. 30, 2018 |
Sep. 30, 2018 |
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Statement of Cash Flows [Abstract] | ||
Fees and expenses | $ 0.7 | $ 0.7 |
Nature of Business and Basis of Presentation |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NATURE OF BUSINESS AND BASIS OF PRESENTATION | Nature of Business Diversified Restaurant Holdings, Inc. (“DRH,” the "Company," "us," "our" or "we") is a restaurant company operating a single concept, Buffalo Wild Wings® (“BWW”). As one of the largest franchisees of BWW, we provide a unique guest experience in a casual and inviting environment. DRH currently operates 64 BWW restaurants (20 in Michigan, 17 in Florida, 15 in Missouri, 7 in Illinois and 5 in Indiana). Basis of Presentation The consolidated financial statements as of September 29, 2019 and December 30, 2018, and for the three and nine-month periods ended September 29, 2019 and September 30, 2018, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial information as of September 29, 2019 and for the nine-month periods ended September 29, 2019 and September 30, 2018 is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated. The consolidated financial information as of December 30, 2018 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 30, 2018, which is included in Part II Item 8 in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2018, and should be read in conjunction with such consolidated financial statements. The results of operations for the nine-month periods ended September 29, 2019 and September 30, 2018 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending December 29, 2019. Our significant accounting policies are disclosed in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 30, 2018. Since December 30, 2018, there has been one significant change in our accounting policies related to the implementation of ASU No. 2016-02, Leases, which is presented below and in Note 9. Going Concern As further discussed in Note 6, the Company has approximately $94.0 million of debt outstanding under its $155.0 million senior secured credit facility with a syndicate of lenders led by Citizens (the “Credit Facility”) with a maturity date of June 29, 2020. The debt agreement contains various customary financial covenants generally based on the earnings of the Company relative to its debt. The financial covenants consist of a quarterly minimum required debt service coverage ratio and a maximum permitted lease adjusted leverage ratio which were reset pursuant an amendment dated February 28, 2018. This amendment also changed the definition of "consolidated EBITDA" used in the calculation of these financial covenants to permit the inclusion of a maximum of $5 million of equity proceeds over the remaining term of the agreement. On July 24, 2018 the Company completed an underwritten registered public offering of 6 million shares of common stock at a public offering price of $1.00 per share, which included 700,000 shares offered by a certain selling stockholder, for total Company gross proceeds of $5.3 million. The net proceeds from the offering were approximately $4.6 million after deducting the underwriting discounts and commissions and offering expenses payable by us, and were included in "consolidated EBITDA" for purposes of computing financial covenants beginning in the third quarter of 2018 and through the second quarter of 2019. Beginning in the third quarter of 2019, the net proceeds from the registered public offering were no longer included in "consolidated EBITDA" and, as a result, the Company is currently not in compliance with these financial covenants which constitutes a default under the Credit Facility. Accordingly, at the election of lenders representing more than 50% of total credit exposure, the lenders could, among other things, charge default interest or accelerate the outstanding indebtedness, neither of which has occurred. As further discussed in Note 15, on November 6, 2019, the Company has entered into an Agreement and Plan of Merger (the “Merger Agreement”) among Patton Wings Intermediate Holdings, LLC (“Parent”), and Golden Merger Sub, Inc., a wholly owned subsidiary of Parent (“Merger Sub”), and the Company, providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. If the Merger Agreement is consummated, the Credit Facility will be repaid and discharged. The Company is in discussions with Citizens concerning a waiver and an amendment to the Credit Facility. While the Company has successfully negotiated financial covenant amendments in the past, there can be no assurance that it will be successful in obtaining a satisfactory amendment. Until such time as the Company has successfully negotiated financial covenant amendments or executed an agreement to amend, refinance or replace the Credit Facility, the Company cannot conclude that it is probable that it will do so and, accordingly, this raises substantial doubt about the Company’s ability to continue as a going concern. However, the accompanying financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying financial statements do not include adjustments that might result from the outcome of this uncertainty, including any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Revenue Recognition Policy Revenue is measured based on consideration specified in implied contracts with our customers and excludes amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation (at the time of sale) by transferring control over a product to a customer. Payment is due at the time the food or merchandise is transferred to the customer. The portion of any sale that results in loyalty rewards being issued is deferred, net of estimated breakage, until redemption. Nature of Goods Sold DRH earns revenue through sales of food, beverages and merchandise, and redemptions of gift cards by our customers. These sales occur through multiple channels, such as in-restaurant, call-in, online (web-based) and via third party delivery services. BWW offers a system-wide loyalty program (Blazin’ Rewards®) whereby enrolled customers earn points for each qualifying purchase. As a franchisee, DRH is required to participate in the program. DRH estimates the value of loyalty points earned (the value per point) by dividing the menu price of redeemable items by the loyalty reward points required to redeem that menu item. Points issued as part of the loyalty program expire after 6 months of member inactivity. DRH commissioned a study to determine a reasonable estimate of the breakage rate, which was approximately 32%. DRH has two types of sales transactions, transactions without loyalty attachment and transactions with loyalty attachment. Transactions without loyalty attachment require no allocation of the transaction price, because the price is observable and fixed based on the menu. Transactions with loyalty attachment have two performance obligations: 1) providing the purchased food, beverages and/or merchandise to the customer and, 2) redeeming awarded loyalty points for food, beverages or merchandise in the future. In loyalty related transactions the price is allocated to the products sold and the points issued. Revenue related to loyalty points that may be redeemed in the future is deferred, net of estimated breakage, until such loyalty points are redeemed. The accrued loyalty liability balance is reflected in Note 5. The Company offers gift cards for purchase through a BWW system-wide program. Gift cards sold are recorded as a liability to BWW. When redeemed, the gift card liability is offset by recording the transaction as revenue. Net gift card activity is settled with BWW weekly. At times, gift card redemptions may exceed amounts due to BWW for gift card purchases, resulting in an asset balance. Because this is a system-wide program operated by BWW, the Company is not impacted by and does not record breakage. Disaggregation of Revenue In the following table, revenue is disaggregated by product mix.
Recent Accounting Pronouncements We reviewed all significant newly-issued accounting pronouncements and concluded that they either are not applicable to our operations or that no material effect is expected on our consolidated financial statements as a result of future adoption. Recently Adopted Accounting Pronouncements In February 2016, FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires the lessee to recognize a lease asset and liability for lease arrangements longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The updated guidance is effective for interim and annual periods beginning after December 15, 2018. The Company adopted the new standard as of December 31, 2018 using the modified retrospective approach. The Company has adjusted comparative periods and has elected the package of practical expedients which allows it to not reassess whether a contract is or contains a lease, lease classification, and initial direct costs. The adoption of ASU 2016-02 materially impacted our consolidated financial statements by significantly increasing our non-current assets and liabilities on our consolidated balance sheets in order to record the right-of-use ("ROU") assets and related lease liabilities for our operating leases. We lease all of our restaurant properties under operating leases. The adoption of the standard does not have a material impact on our Consolidated Statements of Comprehensive Income (Loss) or Consolidated Statements of Cash Flows. In conjunction with our adoption of the new lease accounting standard, certain line items have been adjusted on our opening balance sheets as of January 1, 2018 and December 31, 2018 to conform to the current period presentation. As of January 1, 2018, the line items impacted and adjustments consist of: the addition of $50.0 million in ROU assets, $6.3 million in current operating lease liabilities, $46.9 million in non-current operating lease liabilities, and $1.4 million in retained earnings; and the removal of $0.1 million of intangible assets, $2.6 million in deferred rent, $0.5 million of unfavorable operating lease liabilities, and $1.5 million in deferred gains associated with prior sale leaseback transactions. As of December 31, 2018, the line items impacted and adjustments consist of: the addition of $52.3 million in ROU assets, $6.7 million in current operating lease liabilities, $49.0 million in non-current operating lease liabilities, and $1.3 million in retained earnings; and the removal of $0.1 million of intangible assets, $2.8 million in deferred rent, $0.4 million of unfavorable operating lease liabilities, and $1.4 million in deferred gains associated with prior sale leaseback transactions. Additionally, the Consolidated Statement of Operations for the three and nine months ended September 30, 2018, reflects an increase in general and administrative expense of approximately $32,000 and $96,000, respectively. Refer to Note 9 for further details. In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"). ASU 2018-02 provided financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (or portion thereof) was recorded. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018. The Company adopted ASU 2018-02 effective December 31, 2018, and elected to reclassify the income tax effects of the 2017 Tax Cuts and Jobs Act from Accumulated Other Comprehensive Income (Loss) to retained earnings. Adoption did not have a material impact on the Company's consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue with Contracts from Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 supersedes the current revenue recognition guidance, including industry-specific guidance. This ASU and subsequently issued amendments, introduce a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of ASU 2014-09 for public companies to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The requirements for these standards relating to Topic 606 were effective for interim and annual periods beginning after December 15, 2017. The Company adopted ASU 2014-09 effective as of January 1, 2018, using the modified retrospective transition method to all existing contracts that were not substantially completed at the adoption date. We finalized our analysis and the adoption of ASU 2014-09 which did not have a material impact on the timing or amount of revenue recognized as compared to the Company's previous revenue recognition practices. |
Unconsolidated Variable Interest Entities |
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Guarantees [Abstract] | |||||||||||||||||||||||||||||||||||||||||
UNCONSOLIDATED VARIABLE INTEREST ENTITIES | On December 25, 2016, the Company completed a spin-off (the "Spin-Off") of 19 Bagger Dave's entities and certain real estate entities which house the respective Bagger Dave's entities previously owned by DRH into a new independent publicly traded company, Bagger Dave's Burger Tavern, Inc. ("Bagger Dave's"). After the Spin-Off, the Company remains involved with certain activities that result in Bagger Dave’s being considered a Variable Interest Entity ("VIE"). This conclusion results primarily from the existence of guarantees by the Company of certain Bagger Dave’s leases as described below under "Lease Guarantees". While the Company holds a variable interest in Bagger Dave’s, it is not considered to be its primary beneficiary because it does not have the power to direct the activities of Bagger Dave’s. Specifically, we considered the fact that, although our Executive Chairman and acting President and Chief Executive Officer is currently also on Bagger Dave’s board, there are no agreements in place that require him to vote in the interests of the Company, as he does not represent the Company in his capacity as a Bagger Dave’s director. As a result, the Company does not consolidate the VIE. Lease Guarantees At September 29, 2019, the Company is a guarantor for 9 leases, three of which have been re-leased to unaffiliated parties. In the event the respective lessees cannot make their lease payments, the Company may become responsible for the payments under its guarantee. Upon the Spin-Off of Bagger Dave's, in accordance with ASC 460, Guarantees, the Company evaluated its liability from the lease guarantees first by estimating the non-contingent component representing the estimated fair market value of the guarantees at inception, and recorded a liability. As of September 29, 2019 and December 30, 2018, the liability is $0.2 million and $0.3 million, respectively, and it is included in other liabilities on the Consolidated Balance Sheet. Prior to the Spin-Off, no liability had been recorded as a result of the affiliate relationship between the Company and Bagger Dave’s. Secondly, the Company considered the contingent component of the guarantees and concluded that, as of September 29, 2019 and December 30, 2018, no loss under the guarantees was probable because all of the Bagger Dave's restaurants subject to the guaranteed leases are either currently operating or the site has been leased to another tenant who is responsible for, and making, the lease payments. The Company has determined that its maximum exposure resulting from the lease guarantees includes approximately $6.6 million of future minimum lease payments plus potential additional payments to satisfy maintenance, property tax and insurance requirements under the leases as of September 29, 2019. The terms and conditions of the guarantees vary, and each guarantee has an expiration date which may or may not correspond with the end of the underlying lease term. The guarantee expiration dates range from less than 5 months to 11 years as of September 29, 2019. In the event that the Company is required to perform under any of its lease guarantees, we do not believe the liability would be material because we would first seek to minimize the exposure by finding a suitable tenant to lease the space. In many cases, we expect that a replacement tenant would be found and the lessor would agree to release the Company from its future guarantee obligation. In reaching our conclusion, we also considered the following:
The following table discloses the guarantee expiration of all Bagger Dave's leases that include a guarantee by the Company as of September 29, 2019:
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Property and Equipment |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT | PROPERTY AND EQUIPMENT, NET Property and equipment are comprised of the following assets:
We are monitoring several restaurants with regard to the valuation of the property and equipment. As we periodically refine our estimated future operating results, changes in our estimates and assumptions may cause us to realize impairment charges in the future that could be material. Based on impairment indicators that existed at September 30, 2018, the Company performed an impairment analysis on certain long-lived assets subject to depreciation and recorded a fixed asset impairment of $0.9 million related to one underperforming restaurant located in Missouri. The impairment charge was recorded to the extent that the carrying amount of the assets were not considered recoverable based on the estimated discounted cash flows and the underlying fair value of the assets, which was recorded in impairment and loss on asset disposals on the Consolidated Statements of Operations. |
Intangible Assets |
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Intangible Assets, Net (Excluding Goodwill) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS | INTANGIBLE ASSETS Intangible assets are comprised of the following:
Amortization expense was $21,029 and $22,212, $63,087 and $63,822 for the three-month periods ended September 29, 2019 and September 30, 2018, and nine-month periods ended September 29, 2019 and September 30, 2018, respectively. The aggregate weighted-average amortization period for intangible assets is 7.2 years at September 29, 2019. |
Other Accrued Liabilities |
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OTHER ACCRUED LIABILITIES | OTHER ACCRUED LIABILITIES
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Debt |
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DEBT | DEBT Debt consists of the following obligations:
On June 29, 2015, the Company entered into the Credit Facility with a senior lien on all the Company’s personal property and fixtures. The Credit Facility initially consisted of a $120.0 million term loan (the “Term Loan”), a $30.0 million development line of credit (the “DLOC”) and a $5.0 million revolving line of credit (the “RLOC”). On December 23, 2016, the Company amended the Credit Facility (the "December 2016 Amendment") for purposes of, among other things, releasing the Bagger Dave’s entities as borrowers and releasing all related liens on the Bagger Dave’s assets. In addition, the amendment (a) converted the amounts then outstanding under the DLOC to a development facility term loan (the “DF Term Loan” and, together with the Term Loan, the "Term Loans"), (b) canceled $6.8 million previously available under the DLOC, and (c) extended the maturity date on the remaining $5.0 million under the DLOC to June 29, 2018. Upon the maturity of the DLOC on June 29, 2018, the amount outstanding under the DLOC was added to the existing DF Term Loan. Payments of principal are based upon a 12-year straight-line amortization schedule, with monthly principal payments of $980,906 on the Term Loans, plus accrued interest. As of September 29, 2019 and December 30, 2018, $5.0 million was outstanding under the RLOC. The entire remaining outstanding principal and accrued interest on the Credit Facility is due and payable on the maturity date of June 29, 2020. The interest rate for each of the loans, as selected by the borrower, is based upon either a LIBOR or base rate (generally Prime or Fed Funds) plus an applicable margin, which ranges from 2.25% to 3.5% for LIBOR loans and from 1.25% to 2.5% for base rate loans, depending on the lease adjusted leverage ratio as defined in the agreement. Fees related to the term debt are recorded as debt discount. Debt issuance costs represent legal, consulting and financial costs associated with debt financing. As a result of the December 2016 Amendment, the Company incurred $197,889 of debt issuance costs recorded as a part of debt discount. Debt discount related to term debt, net of accumulated amortization totaled $194,648 and $387,245 at September 29, 2019 and December 30, 2018, respectively. Debt discount and debt issuance cost are amortized over the life of the debt and are recorded in interest expense using the effective interest method. For the three-month periods ended September 29, 2019 and September 30, 2018 and nine-month periods ended September 29, 2019 and September 30, 2018 interest expense was $1.5 million and $1.6 million, $4.4 million and $4.9 million, respectively. The Credit Facility agreement contains various customary financial covenants generally based on the earnings of the Company relative to its debt. The financial covenants consist of a quarterly minimum required debt service coverage ratio ("DSCR") and a maximum permitted lease adjusted leverage ratio ("LALR") which were reset pursuant to an amendment dated February 28, 2018. This amendment also changed the definition of "consolidated EBITDA" used in the calculation of these financial covenants to permit the inclusion of a maximum of $5 million of equity proceeds over the remaining term of the Credit Facility agreement. On July 24, 2018, the Company completed an underwritten registered public offering of 6 million shares of common stock at a public offering price of $1.00 per share, which included 700,000 shares offered by a certain selling stockholder, for total Company gross proceeds of $5.3 million. The net proceeds from the offering were approximately $4.6 million after deducting the underwriting discounts and commissions and offering expenses payable by us, and were included in "consolidated EBITDA" for purposes of computing financial covenants beginning in the third quarter of 2018 and through the second quarter of 2019. Beginning in the third quarter of 2019, the net proceeds from the registered public offering were no longer included in "consolidated EBITDA" and, as a result, the Company is currently not in compliance with these financial covenants which constitutes a default under the Credit Facility. Accordingly, at the election of lenders representing more than 50% of total credit exposure, the lenders could, among other things, charge default interest or accelerate the outstanding indebtedness, neither of which has occurred. As further discussed in Note 15, on November 6, 2019, the Company entered into the Merger Agreement providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. If the Merger is consummated, the Credit Facility will be repaid and discharged. The Company is in discussions with Citizens concerning a waiver and an amendment to the Credit Facility. While the Company has successfully negotiated financial covenant amendments in the past, there can be no assurance that it will be successful in obtaining a satisfactory amendment. At September 29, 2019, the Company has two interest rate swap agreements to fix a portion of the interest rates on its variable rate debt. The swap agreements all qualify for hedge accounting. Under the swap agreements, the Company receives interest at the one-month LIBOR and pays a fixed rate. Since these swap agreements qualify for hedge accounting, the changes in fair value are recorded in other comprehensive income (loss), net of tax. The fair value of the derivative assets and liabilities are included in prepaid and other assets and other accrued liabilities on the Consolidated Balance Sheets, respectively. See Note 13 for additional information pertaining to interest rate swaps. The following tables summarize the fair value of derivative instruments designated as cash flow hedges which were outstanding:
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Share-Based Compensation |
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SHARE-BASED COMPENSATION | SHARE-BASED COMPENSATION Restricted share awards The Company's Stock Incentive Plan of 2017 authorizes a total of 2,500,000 shares of common stock for issuance as incentive awards. For the nine-months ended September 29, 2019 and September 30, 2018 restricted shares were issued to certain team members under the Stock Incentive Plan of 2017 at a weighted-average grant date fair value of $0.78 and $1.29, respectively. Based on the standard form of Stock Award Agreement, shares typically vest ratably over either a one or three year period, or on the third anniversary of the grant date, as determined by the Company's Compensation Committee. Upon vesting, the Company withholds shares to cover the minimum withholding requirement, unless the recipient opts out. Unrecognized share-based compensation expense of $0.4 million at September 29, 2019 will be recognized over the remaining weighted-average vesting period of 1.9 years. The total grant date fair value of shares vested during the nine-month periods ended September 29, 2019 and September 30, 2018, was $1.3 million and $0.6 million, respectively. The increase in 2019 is due to accelerated vesting of restricted stock, as a result of executive resignations during the third quarter of 2019. Under the Stock Incentive Plan of 2017, there were 1.0 million shares available for future awards at September 29, 2019. The following table presents the restricted stock transactions during the nine-month period ended September 29, 2019:
The following table presents the restricted stock transactions during the nine-month period ended September 30, 2018:
On July 30, 2010, prior to the adoption of the Stock Incentive Plan of 2011, DRH granted options for the purchase of 210,000 shares of common stock to the directors of the Company. These options are fully vested and had an original expiration date six years from the date of issuance. On July 28, 2016, the Stock Option Agreement of 2010 was amended to extend the expiration date of these options to July 31, 2019. The options could have been exercised at a price of $2.50 per share. The 150,000 options outstanding expired unexercised on July 31, 2019. Employee stock purchase plan The Company reserved 250,000 shares of common stock for issuance under the Employee Stock Purchase Plan (“ESPP”). The ESPP is available to team members subject to employment eligibility requirements. Participants may purchase common stock at 85.0% of the lesser of the start or end price for the offering period. The plan has four offering periods, each start/end date coincides with the fiscal quarter and are awarded on the last day of the offering period. During the nine-months ended September 29, 2019 and September 30, 2018, the Company issued 68,763 and 47,078 shares, respectively. Under the ESPP, there were 7,151 shares available for future purchase at September 29, 2019. Based on the rate of past purchases under the ESPP, we expect that there will be no shares available for issuance under the ESPP after December 29, 2019. Share-based compensation Share-based compensation of $0.4 million and $0.1 million was recognized during both three-month periods ended September 29, 2019 and September 30, 2018 and $0.7 million and $0.5 million for the nine-month periods ended September 29, 2019 and September 30, 2018, respectively as compensation costs in the Consolidated Statements of Operations and as additional paid-in capital on the Consolidated Statements of Stockholders' Deficit to reflect the grant date fair value of shares vested. The Company has authorized 10,000,000 shares of preferred stock at a par value of $0.0001. No preferred shares are issued or outstanding as of September 29, 2019. Any preferences, rights, voting powers, restrictions, dividend limitations, qualifications, and terms and conditions of redemption shall be set forth and adopted by a Board of Directors' resolution prior to issuance of any series of preferred stock. |
Income Taxes |
9 Months Ended |
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Sep. 29, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | INCOME TAXES The effective income tax provision (benefit) rate was 11.6% and (22.0)%, 12.7% and (25.5)% for the three-month periods ended September 29, 2019 and September 30, 2018, and nine-month periods ended September 29, 2019 and September 30, 2018, respectively. The change in the effective income tax rate for the nine months ended September 29, 2019 compared with the nine months ended September 30, 2018 is primarily attributable to the tax effects of indefinite-lived intangible amortization against the differences in income before taxes and the full year earnings expectation. In accordance with the provisions of ASC 740, a valuation allowance was established as of December 31, 2017, for the deferred tax assets of the Company, and remains in place as of September 29, 2019. On a quarterly basis, the Company evaluates the recoverability of the deferred tax asset by reviewing current and projected company and restaurant industry trends, and the macro economic environment. |
Leases |
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LEASES | LEASES General Lease Information As of September 29, 2019, we operated 64 Company-owned restaurants, all of which are leased properties. Our restaurants range in size from approximately 5,300 square feet to 13,500 square feet with the majority of our restaurants located in stand-alone buildings and/or end-cap positions in strip malls, with a few being in strip mall in-line positions. The Company's initial restaurant lease terms range from 10-20 years and frequently require us to pay variable lease costs, which include a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs. Typically, our restaurant operating lease renewal options allow us to extend the lease terms for periods of five to 10 years, though the options are not recognized in the ROU assets or lease liabilities. Some restaurant leases provide for contingent rental payments payable only when sales exceed certain thresholds. The sales thresholds were not met and no contingent rental payments were incurred during the three-month periods ended September 29, 2019 and September 30, 2018 and nine-month periods ended September 29, 2019 and September 30, 2018. Most of our real estate leases incorporate incremental rent increases based on the passage of time. An election was made by the Company to not account for short-term leases of 12 months or less on the balance sheet. Significant Assumptions and Judgments Allocation of consideration - The Company has non-real estate leases that contain both a service component and equipment. In most cases, the Company has obtained stand-alone pricing from our vendors for the restaurant equipment that is leased in order to allocate the contract consideration between the lease and non-lease components. Discount rate - The Company does not know the rate implicit in its leases and, as a result, we use our estimated incremental borrowing rate. The estimated rate is based on a risk free rate plus a risk-adjusted margin. We believe that this rate is indicative of a fully-collateralized borrowing rate that would have been used in the particular circumstances of our leases. Amounts Recognized in the Financial Statements
(1)Amounts for the nine months ended September 30, 2018 include the transition adjustment for the adoption of ASU 2016-02 discussed in Note 1 Scheduled future undiscounted minimum lease payments for each of the next five years and thereafter for non-cancelable operating leases with initial or remaining lease terms in excess of one year at September 29, 2019 are summarized as follows:
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Commitments and Contingencies |
9 Months Ended |
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Sep. 29, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Refer to Note 2 for a discussion of lease guarantees provided by the Company. Franchise Related The Company is required to pay BWW royalties (5.0% of net sales) and advertising fund contributions (2.90% of net sales). In addition, the Company is required to spend an additional 0.25% of regional net sales on advertising in non-cooperative markets and 0.35% of regional net sales in markets with advertising cooperatives, for the term of the individual franchise agreements. The Company incurred $1.9 million for both three-month periods ended September 29, 2019 and September 30, 2018 and $5.8 million and $5.7 million in royalty expense for the nine-month periods ended September 29, 2019 and September 30, 2018, respectively. Advertising fund contribution expenses were $1.1 million and $1.2 million, and $3.5 million and $3.7 million for the three-month periods ended September 29, 2019 and September 30, 2018 and nine-month periods ended September 29, 2019 and September 30, 2018, respectively. Amounts are recorded in Other operating costs on the Consolidated Statement of Operations. The Company is required by its various BWW franchise agreements to modernize the restaurants during the term of the agreements. The individual agreements generally require improvements between the fifth and tenth year to meet the most current design model that BWW has approved. In the past, the modernization costs for a restaurant ranged from $50,000 to $1.3 million depending on an individual restaurant's needs. Legal Proceedings The Company is subject to ordinary and routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the ordinary course of our business. These claims arise from personal injuries, contract claims, dram shop claims, employment-related claims, and claims from guests or team members alleging injury, illness, or other food quality, health, or operational concerns. The ultimate outcome of any litigation is uncertain. We have insured and continue to insure against most of these types of claims. A judgment on any claim not covered by or in excess of our insurance coverage could materially adversely affect our business, financial condition or results of operations. |
Earnings Per Share |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | EARNINGS PER SHARE The following is a reconciliation of basic and fully diluted earnings per common share for the three and nine month periods ended September 29, 2019 and September 30, 2018:
During the three and nine month periods ended September 29, 2019 and September 30, 2018, 632,719 and 675,589 shares, respectively, of unvested restricted stock were excluded from the calculation of diluted earnings per share because such shares were anti-dilutive. During the three and nine month periods ended September 30, 2018, 150,000 options were excluded from the calculation of diluted earnings per share because such options were anti-dilutive. The options expired on July 31, 2019. |
Supplemental Cash Flows Information |
9 Months Ended |
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Sep. 29, 2019 | |
Supplemental Cash Flow Elements [Abstract] | |
SUPPLEMENTAL CASH FLOWS INFORMATION | SUPPLEMENTAL CASH FLOWS INFORMATION Other Cash Flows Information Cash paid for interest was $1.4 million and $1.6 million, $4.3 million and $4.7 million, during the three-month periods ended September 29, 2019 and September 30, 2018 and nine-month periods ended September 29, 2019 and September 30, 2018, respectively. Cash paid for income taxes was $0 and $23,662, $10,582 and $23,857 during the three-month periods ended September 29, 2019 and September 30, 2018, and nine-month periods ended September 29, 2019 and September 30, 2018, respectively. Supplemental Schedule of Non-Cash Operating, Investing, and Financing Activities Non-cash investing activities for property and equipment not yet paid as of both September 29, 2019 and September 30, 2018, was $0.1 million. |
Fair Value of Financial Instruments |
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FAIR VALUE OF FINANCIAL INSTRUMENTS | FAIR VALUE OF FINANCIAL INSTRUMENTS The guidance for fair value measurements, FASB ASC 820, Fair Value Measurements and Disclosures, establishes the authoritative definition of fair value, sets out a framework for measuring fair value, and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-tier fair value hierarchy based upon observable and non-observable inputs as follows:
As of September 29, 2019 and December 30, 2018, respectively, our financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, interest rate swaps, lease guarantee liability, and debt. The fair value of cash and cash equivalents, accounts receivable, and accounts payable approximate carrying value, due to their short-term nature. The fair value of our interest rate swaps is determined based on valuation models, which utilize quoted interest rate curves to calculate the forward value and then discount the forward values to the present period. The Company measures the fair value using broker quotes, which are generally based on observable market inputs including yield curves and the value associated with counterparty credit risk. Our interest rate swaps are classified as a Level 2 measurement as these securities are not actively traded in the market, but are observable based on transactions associated with bank loans with similar terms and maturities. See Note 6 for additional information pertaining to interest rates swaps. The fair value of our lease guarantee liability was determined by calculating the present value of the difference between the estimated rate at which the Company and Bagger Dave’s could borrow money in a duration similar to the underlying lease guarantees. Our lease guarantees are classified as a Level 2 measurement as there is no actively traded market for such instruments. As of September 29, 2019 and December 30, 2018, our total debt was approximately $93.8 million and $102.4 million, respectively, which approximated fair value because the applicable interest rates are adjusted frequently based on short-term market rates (Level 2). There were no transfers between levels of the fair value hierarchy during the three and nine month period ended September 29, 2019 and the fiscal year ended December 30, 2018. The following table presents the fair values for those assets and liabilities measured on a recurring basis as of September 29, 2019:
The following table presents the fair values for those assets and liabilities measured on a recurring basis as of December 30, 2018:
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Accumulated Other Comprehensive Income (Loss) |
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Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table summarizes each component of Accumulated Other Comprehensive Income (Loss) ("AOCI"):
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Subsequent Event |
9 Months Ended |
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Sep. 29, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Event | SUBSEQUENT EVENT Merger Agreement On November 6, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) among Patton Wings Intermediate Holdings, LLC, a Delaware limited liability company (“Parent”), and Golden Merger Sub, Inc., a Nevada corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and the Company, providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of ICV Partners IV, L.P. In the Merger, our shareholders will receive $1.05 in cash for each share of common stock of the Company. The closing of the Merger is expected to occur in the fourth quarter of 2019 or the first quarter of 2020. The closing is subject to certain conditions, including, but not limited to, the approval of our stockholders, the satisfaction of other customary closing conditions, and receipt of consent to the Merger from Buffalo Wild Wings International, Inc. (the “Franchisor”). Many of these conditions are outside our control, and we cannot provide any assurance as to whether or when the Merger will be consummated or whether our shareholders will realize the anticipated benefits of completing the Merger. Also, if we do not receive the consent of the Franchisor or the closing conditions are not satisfied or if an event occurs that delays or prevents the Merger, such delay or failure to complete the Merger may cause uncertainty and other negative consequences that may materially and adversely affect our business, financial position and results of operations. The Merger Agreement contains certain termination rights for each of the Company and Parent. In addition to their respective termination rights, and subject to certain limitations, the Company or Parent may terminate the Merger Agreement if the Merger is not consummated by February 28, 2020. Upon termination of the Merger Agreement in accordance with its terms, under specified circumstances, including to accept a superior proposal (subject to compliance with certain notice and other requirements), the Company will be required to pay Parent a termination fee of $4,000,000. The Merger Agreement also provides that Parent will be required to pay the Company a reverse termination fee of $4,000,000 upon termination of the Merger Agreement in accordance with its terms, under specified circumstances, including if the Company terminates the Merger Agreement because Parent’s or Merger Sub’s uncured breach of its respective representations and warranties or the failure to perform its respective covenants and other agreements under the Merger Agreement causes the Company’s obligation to consummate the Merger to not be satisfied, or (ii) Parent, after satisfaction of the closing conditions (other than those conditions that by their terms are to be satisfied at the Closing), has not consummated the Merger within five business days of when it is otherwise required. In 2019, through the date of this filing, we have incurred an estimated amount of external legal, advisory and financial services fees and certain internal labor and associated costs related to the Merger of approximately $0.8 million. |
Nature of Business and Basis of Presentation (Policies) |
9 Months Ended |
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Sep. 29, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The consolidated financial statements as of September 29, 2019 and December 30, 2018, and for the three and nine-month periods ended September 29, 2019 and September 30, 2018, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial information as of September 29, 2019 and for the nine-month periods ended September 29, 2019 and September 30, 2018 is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated. The consolidated financial information as of December 30, 2018 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 30, 2018, which is included in Part II Item 8 in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2018, and should be read in conjunction with such consolidated financial statements. The results of operations for the nine-month periods ended September 29, 2019 and September 30, 2018 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending December 29, 2019. |
Recent Accounting Pronouncements and Recently Adopted Accounting Pronouncements | Recent Accounting Pronouncements We reviewed all significant newly-issued accounting pronouncements and concluded that they either are not applicable to our operations or that no material effect is expected on our consolidated financial statements as a result of future adoption. Recently Adopted Accounting Pronouncements In February 2016, FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires the lessee to recognize a lease asset and liability for lease arrangements longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The updated guidance is effective for interim and annual periods beginning after December 15, 2018. The Company adopted the new standard as of December 31, 2018 using the modified retrospective approach. The Company has adjusted comparative periods and has elected the package of practical expedients which allows it to not reassess whether a contract is or contains a lease, lease classification, and initial direct costs. The adoption of ASU 2016-02 materially impacted our consolidated financial statements by significantly increasing our non-current assets and liabilities on our consolidated balance sheets in order to record the right-of-use ("ROU") assets and related lease liabilities for our operating leases. We lease all of our restaurant properties under operating leases. The adoption of the standard does not have a material impact on our Consolidated Statements of Comprehensive Income (Loss) or Consolidated Statements of Cash Flows. In conjunction with our adoption of the new lease accounting standard, certain line items have been adjusted on our opening balance sheets as of January 1, 2018 and December 31, 2018 to conform to the current period presentation. As of January 1, 2018, the line items impacted and adjustments consist of: the addition of $50.0 million in ROU assets, $6.3 million in current operating lease liabilities, $46.9 million in non-current operating lease liabilities, and $1.4 million in retained earnings; and the removal of $0.1 million of intangible assets, $2.6 million in deferred rent, $0.5 million of unfavorable operating lease liabilities, and $1.5 million in deferred gains associated with prior sale leaseback transactions. As of December 31, 2018, the line items impacted and adjustments consist of: the addition of $52.3 million in ROU assets, $6.7 million in current operating lease liabilities, $49.0 million in non-current operating lease liabilities, and $1.3 million in retained earnings; and the removal of $0.1 million of intangible assets, $2.8 million in deferred rent, $0.4 million of unfavorable operating lease liabilities, and $1.4 million in deferred gains associated with prior sale leaseback transactions. Additionally, the Consolidated Statement of Operations for the three and nine months ended September 30, 2018, reflects an increase in general and administrative expense of approximately $32,000 and $96,000, respectively. Refer to Note 9 for further details. In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"). ASU 2018-02 provided financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (or portion thereof) was recorded. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018. The Company adopted ASU 2018-02 effective December 31, 2018, and elected to reclassify the income tax effects of the 2017 Tax Cuts and Jobs Act from Accumulated Other Comprehensive Income (Loss) to retained earnings. Adoption did not have a material impact on the Company's consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue with Contracts from Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 supersedes the current revenue recognition guidance, including industry-specific guidance. This ASU and subsequently issued amendments, introduce a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of ASU 2014-09 for public companies to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The requirements for these standards relating to Topic 606 were effective for interim and annual periods beginning after December 15, 2017. The Company adopted ASU 2014-09 effective as of January 1, 2018, using the modified retrospective transition method to all existing contracts that were not substantially completed at the adoption date. We finalized our analysis and the adoption of ASU 2014-09 which did not have a material impact on the timing or amount of revenue recognized as compared to the Company's previous revenue recognition practices. |
Nature of Business and Basis of Presentation (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue | In the following table, revenue is disaggregated by product mix.
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Guarantees [Abstract] | |||||||||||||||||||||||||
Schedule of Guarantor Obligations | The following table discloses the guarantee expiration of all Bagger Dave's leases that include a guarantee by the Company as of September 29, 2019:
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Property and Equipment (Tables) |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment | Property and equipment are comprised of the following assets:
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Intangible Assets (Tables) |
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Intangible Assets, Net (Excluding Goodwill) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Finite-Lived Intangible Assets | Intangible assets are comprised of the following:
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Other Accrued Liabilities (Tables) |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Accrued Liabilities |
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Debt (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt | Debt consists of the following obligations:
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Fair Values of Derivative Instruments | The following tables summarize the fair value of derivative instruments designated as cash flow hedges which were outstanding:
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Share-Based Compensation (Tables) |
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Nonvested Restricted Stock Shares Activity | The following table presents the restricted stock transactions during the nine-month period ended September 29, 2019:
The following table presents the restricted stock transactions during the nine-month period ended September 30, 2018:
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Leases (Tables) |
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Leases, Operating [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Rental Payments for Operating Leases | s located in stand-alone buildings and/or end-cap positions in strip malls, with a few being in strip mall in-line positions. The Company's initial restaurant lease terms range from 10-20 years and frequently require us to pay variable lease costs, which include a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs. Typically, our restaurant operating lease renewal options allow us to extend the lease terms for periods of five to 10 years, though the options are not recognized in the ROU assets or lease liabilities. Some restaurant leases provide for contingent rental payments payable only when sales exceed certain thresholds. The sales thresholds were not met and no contingent rental payments were incurred during the three-month periods ended September 29, 2019 and September 30, 2018 and nine-month periods ended September 29, 2019 and September 30, 2018. Most of our real estate leases incorporate incremental rent increases based on the passage of time. An election was made by the Company to not account for short-term leases of 12 months or less on the balance sheet. Significant Assumptions and Judgments Allocation of consideration - The Company has non-real estate leases that contain both a service component and equipment. In most cases, the Company has obtained stand-alone pricing from our vendors for the restaurant equipment that is leased in order to allocate the contract consideration between the lease and non-lease components. Discount rate - The Company does not know the rate implicit in its leases and, as a result, we use our estimated incremental borrowing rate. The estimated rate is based on a risk free rate plus a risk-adjusted margin. We believe that this rate is indicative of a fully-collateralized borrowing rate that would have been used in the particular circumstances of our leases. Amounts Recognized in the Financial Statements
(1)Amounts for the nine months ended September 30, 2018 include the transition adjustment for the adoption of ASU 2016-02 discussed in Note 1 Scheduled future undiscounted minimum lease payments for each of the next five years and thereafter for non-cancelable operating leases with initial or remaining lease terms in excess of one year at September 29, 2019 are summarized as follows:
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Lease, Cost [Table Text Block] | Amounts Recognized in the Financial Statements
(1)Amounts for the nine months ended September 30, 2018 include the transition adjustment for the adoption of ASU 2016-02 discussed in Note 1 |
Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted | The following is a reconciliation of basic and fully diluted earnings per common share for the three and nine month periods ended September 29, 2019 and September 30, 2018:
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Fair Value of Financial Instruments (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis | The following table presents the fair values for those assets and liabilities measured on a recurring basis as of September 29, 2019:
The following table presents the fair values for those assets and liabilities measured on a recurring basis as of December 30, 2018:
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Accumulated Other Comprehensive Income (Loss) (Tables) |
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Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) | The following table summarizes each component of Accumulated Other Comprehensive Income (Loss) ("AOCI"):
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Nature of Business and Basis of Presentation Disaggregation of Revenue (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
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Sep. 29, 2019 |
Sep. 30, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
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Segment Reporting Information [Line Items] | ||||
Revenue | $ 38,229,244 | $ 37,491,751 | $ 117,717,573 | $ 114,063,781 |
Food | ||||
Segment Reporting Information [Line Items] | ||||
Revenue | 32,135,892 | 31,394,837 | 98,885,684 | 95,404,774 |
Alcohol | ||||
Segment Reporting Information [Line Items] | ||||
Revenue | $ 6,093,352 | $ 6,096,914 | $ 18,831,889 | $ 18,659,007 |
(Details) $ in Millions |
9 Months Ended | |
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Sep. 29, 2019
USD ($)
restaurant
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Dec. 30, 2018
USD ($)
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Guarantor Obligations [Line Items] | ||
Number of restaurants re-leased to unaffiliated parties | restaurant | 3 | |
Property Lease Guarantee | ||
Guarantor Obligations [Line Items] | ||
Number of restaurants | restaurant | 9 | |
Guarantee liability | $ | $ 0.2 | $ 0.3 |
Future minimum lease payments due | $ | $ 6.6 | |
Minimum | ||
Guarantor Obligations [Line Items] | ||
Guarantee term | 5 months | |
Maximum | ||
Guarantor Obligations [Line Items] | ||
Guarantee term | 11 years |
Lease Schedule (Details) |
Sep. 29, 2019
USD ($)
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Guarantor Obligations [Line Items] | |
Total | $ 68,700,967 |
Property Lease Guarantee | |
Guarantor Obligations [Line Items] | |
Less than six years | 737,766 |
Six to eleven years | 5,894,265 |
Total | $ 6,632,031 |
Property and Equipment (Details) - USD ($) |
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Sep. 29, 2019 |
Dec. 30, 2018 |
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Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | $ 93,367,319 | $ 92,067,898 | |
Less accumulated depreciation | (64,563,764) | (57,644,553) | |
Property and equipment, net | 28,803,555 | 34,423,345 | |
Fixed asset impairment | $ 900,000 | ||
Equipment | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | 28,470,089 | 27,541,376 | |
Furniture and fixtures | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | 6,848,436 | 6,742,523 | |
Leasehold improvements | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | 57,702,781 | 57,344,678 | |
Restaurant construction in progress | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | $ 346,013 | $ 439,321 |
Intangible Assets (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 29, 2019 |
Sep. 30, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
Dec. 30, 2018 |
|
Amortized intangible assets | |||||
Franchise fees | $ 1,305,642 | $ 1,305,642 | $ 1,305,642 | ||
Trademark | 2,500 | 2,500 | 2,500 | ||
Non-compete | 76,560 | 76,560 | 76,560 | ||
Total | 1,384,702 | 1,384,702 | 1,384,702 | ||
Less accumulated amortization | (596,853) | (596,853) | (534,540) | ||
Total amortized intangible assets, net | 787,849 | 787,849 | 850,162 | ||
Unamortized intangible assets | |||||
Liquor licenses | 1,256,327 | 1,256,327 | 1,256,327 | ||
Total intangible assets, net | 2,044,176 | 2,044,176 | $ 2,106,489 | ||
Amortization expense | $ 21,029 | $ 22,212 | $ 63,087 | $ 63,822 | |
Aggregate weighted-average amortization period | 7 years 2 months |
Other Accrued Liabilities (Details) - USD ($) |
Sep. 29, 2019 |
Dec. 30, 2018 |
---|---|---|
Payables and Accruals [Abstract] | ||
Sales tax payable | $ 870,398 | $ 940,165 |
Accrued interest | 420,686 | 484,535 |
Accrued royalty fees | 732,111 | 173,189 |
Accrued property taxes | 702,151 | 224,865 |
Accrued loyalty rewards | 1,073,031 | 847,434 |
Interest rate swap liability | 312,093 | 0 |
Other | 59,499 | 151,047 |
Total other accrued liabilities | $ 4,169,969 | $ 2,821,235 |
Debt (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 29, 2019 |
Dec. 30, 2018 |
|
Debt Instrument [Line Items] | ||
Unamortized discount and debt issuance costs | $ (194,648) | $ (387,245) |
Total | 93,787,074 | 102,422,630 |
Less current portion | (93,787,074) | (11,515,093) |
Long-term debt, net of current portion | 0 | 90,907,537 |
Term Loan | June 2020 Term Loan | ||
Debt Instrument [Line Items] | ||
Notes payable | 72,198,615 | 79,698,616 |
Line of Credit | June 2020 DLOC | ||
Debt Instrument [Line Items] | ||
Notes payable | 16,783,107 | 18,111,259 |
Revolving Credit Facility | Senior Secured Credit Facility | ||
Debt Instrument [Line Items] | ||
Notes payable | $ 5,000,000 | $ 5,000,000 |
Minimum | London Interbank Offered Rate (LIBOR) | ||
Debt Instrument [Line Items] | ||
Basis spread | 2.25% | |
Minimum | Base Rate | ||
Debt Instrument [Line Items] | ||
Basis spread | 1.25% | |
Maximum | London Interbank Offered Rate (LIBOR) | ||
Debt Instrument [Line Items] | ||
Basis spread | 3.50% | |
Maximum | Base Rate | ||
Debt Instrument [Line Items] | ||
Basis spread | 2.50% |
Debt (Fair Value of derivative Instruments) (Details) - Cash Flow Hedging - USD ($) |
Sep. 29, 2019 |
Dec. 30, 2018 |
---|---|---|
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Notional amounts | $ 78,283,333 | $ 85,502,084 |
Derivative assets | 8,370 | 379,126 |
Derivative liabilities | $ 320,463 | $ 0 |
April 2019 | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Rate | 1.40% | |
Notional amounts | $ 761,905 | |
Derivative assets | 1,689 | |
Derivative liabilities | $ 0 | |
December 2019 | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Rate | 1.80% | 1.82% |
Notional amounts | $ 20,464,285 | $ 25,809,524 |
Derivative assets | 8,370 | 152,011 |
Derivative liabilities | $ 0 | $ 0 |
June 2020 | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Rate | 2.30% | 2.30% |
Notional amounts | $ 57,819,048 | $ 58,930,655 |
Derivative assets | 0 | 225,426 |
Derivative liabilities | $ 320,463 | $ 0 |
Share-Based Compensation (Restricted Shares Transactions) (Details) - Restricted Stock - shares |
9 Months Ended | |
---|---|---|
Sep. 29, 2019 |
Sep. 30, 2018 |
|
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | ||
Unvested, beginning of period (in shares) | 1,274,839 | 531,000 |
Granted (in shares) | 300,830 | 375,119 |
Vested (in shares) | (700,102) | (165,705) |
Vested shares tax portion (in shares) | (217,278) | (29,904) |
Expired/Forfeited (in shares) | (25,570) | (34,921) |
Unvested, end of period (in shares) | 632,719 |
Income Taxes (Details) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 29, 2019 |
Sep. 30, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
|
Income Tax Disclosure [Abstract] | ||||
Effective income tax rate | 11.60% | (22.00%) | 12.70% | (25.50%) |
Leases (Narrative) (Details) |
Sep. 29, 2019
ft²
|
---|---|
Lessee, Lease, Description [Line Items] | |
Lessee, Operating Lease, Lease Not yet Commenced, Term of Contract | 7 years 9 months |
Minimum | |
Lessee, Lease, Description [Line Items] | |
Lessee, Operating Lease, Term of Contract | 10 years |
Lessee, Operating Lease, Renewal Term | 5 years |
Size Of Restaurant | 5,300 |
Maximum | |
Lessee, Lease, Description [Line Items] | |
Lessee, Operating Lease, Term of Contract | 20 years |
Lessee, Operating Lease, Renewal Term | 10 years |
Size Of Restaurant | 13,500 |
Leases (Amounts Recognized in the Financial Statements (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 29, 2019 |
Sep. 30, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
|
Lease, Cost [Abstract] | ||||
Operating lease cost | $ 2,343,301 | $ 2,349,266 | $ 7,055,109 | $ 7,067,040 |
Variable lease cost | 705,245 | 664,598 | 2,186,229 | 1,915,359 |
Sublease income | (61,100) | (61,100) | (183,300) | (146,763) |
Total lease cost | 2,987,446 | 2,952,764 | 9,058,038 | 8,835,636 |
Cash paid for operating lease liabilities | 2,360,867 | 2,340,516 | 7,038,304 | 7,058,289 |
ROU assets obtained in exchange for new operating lease liabilities | $ 0 | $ 4,540,573 | $ 641,126 | $ 56,736,037 |
Weighted-average remaining lease term - operating leases | 9 years | 9 years 10 months | 9 years | 9 years 10 months |
Weighted-average discount rate - operating leases | 6.00% | 6.00% | 6.00% | 6.00% |
Leases (Future Minimum Lease Payments) (Details) |
Sep. 29, 2019
USD ($)
|
---|---|
Future Minimum Lease Payments [Abstract] | |
Lessee, Operating Lease, Liability, Payments, Remainder of Fiscal Year | $ 2,336,949 |
Lessee, Operating Lease, Liability, Payments, Due Year Two | 9,397,937 |
Lessee, Operating Lease, Liability, Payments, Due Year Three | 8,796,614 |
Lessee, Operating Lease, Liability, Payments, Due Year Four | 8,013,556 |
Lessee, Operating Lease, Liability, Payments, Due Year Five | 7,096,801 |
Lessee, Operating Lease, Liability, Payments, Due | 33,059,110 |
Total | 68,700,967 |
Less: imputed interest | (17,040,400) |
Present value of lease liabilities | $ 51,660,567 |
Commitments and Contingencies (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 29, 2019 |
Sep. 30, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
|
Loss Contingencies [Line Items] | ||||
Royalty fees, percentage | 5.00% | 5.00% | ||
Royalty fees | $ 1,900 | $ 1,900 | $ 5,800 | $ 5,700 |
Advertising Fund Contribution Expenses | ||||
Loss Contingencies [Line Items] | ||||
Advertising fund contribution expenses | $ 1,100 | $ 1,200 | $ 3,500 | $ 3,700 |
Global | ||||
Loss Contingencies [Line Items] | ||||
Advertising fund contributions | 2.90% | 2.90% | ||
Minimum | Certain Cities | ||||
Loss Contingencies [Line Items] | ||||
Advertising fund contributions | 0.25% | 0.25% | ||
Maximum | Certain Cities | ||||
Loss Contingencies [Line Items] | ||||
Advertising fund contributions | 0.35% | 0.35% | ||
Potential Penalty Per Undeveloped Restaurant | ||||
Loss Contingencies [Line Items] | ||||
Modernization costs for a restaurant, minimum | $ 50 | |||
Modernization costs for a restaurant, maximum | $ 1,300 |
Earnings Per Share (Details) - shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 29, 2019 |
Sep. 30, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
|
Restricted Stock | ||||
Class of Stock [Line Items] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 632,719 | 675,589 | 632,719 | 675,589 |
Share-based Payment Arrangement, Option [Member] | ||||
Class of Stock [Line Items] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 150,000 | 150,000 |
Earnings Per Share EPS (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Sep. 29, 2019 |
Jun. 30, 2019 |
Mar. 31, 2019 |
Sep. 30, 2018 |
Jul. 01, 2018 |
Apr. 01, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
|
Earnings Per Share [Abstract] | ||||||||
Net loss | $ (2,060,973) | $ (469,257) | $ 55,441 | $ (1,793,331) | $ (1,172,170) | $ 159,870 | $ (2,474,789) | $ (2,805,631) |
Weighted-average shares outstanding (in shares) | 32,677,823 | 30,643,240 | 32,228,351 | 27,990,420 | ||||
Effect of dilutive securities (in shares) | 0 | 0 | 0 | 0 | ||||
Weighted-average shares outstanding - assuming dilution (in shares) | 32,677,823 | 30,643,240 | 32,228,351 | 27,990,420 | ||||
Basic and diluted earnings per share (in dollars per share) | $ (0.06) | $ (0.06) | $ (0.08) | $ (0.10) | ||||
Earnings per common share - assuming dilution (in dollars per share) | $ (0.06) | $ (0.06) | $ (0.08) | $ (0.10) |
Supplemental Cash Flows Information (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 29, 2019 |
Sep. 30, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
|
Supplemental Cash Flow Elements [Abstract] | ||||
Cash paid for interest | $ 1,400,000 | $ 1,600,000 | $ 4,300,000 | $ 4,700,000 |
Cash paid for income taxes | $ 0 | $ 23,662 | 10,582 | 23,857 |
Property and Equipment | ||||
Property, Plant and Equipment [Line Items] | ||||
Property and equipment not yet paid | $ 100,000 | $ 100,000 |
Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 29, 2019 |
Sep. 30, 2018 |
Jul. 01, 2018 |
Apr. 01, 2018 |
Sep. 29, 2019 |
Sep. 30, 2018 |
|
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
Beginning balance | $ 355,293 | |||||
Total other comprehensive income (loss) | $ 4,241 | $ 237,842 | $ 708,342 | |||
Ending balance AOCI | $ (312,093) | (312,093) | ||||
Interest Rate Swaps | ||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
Beginning balance | (273,430) | 662,976 | $ (283,208) | 355,293 | $ (283,208) | |
Gain (loss) recorded | (38,663) | 170,621 | (691,219) | 1,203,044 | ||
Tax benefit (expense) | 0 | (166,380) | 79,617 | (252,619) | ||
Adoption of ASU 2018-02 (Note 1) | (55,784) | 0 | ||||
Total other comprehensive income (loss) | (38,663) | 4,241 | (667,386) | 950,425 | ||
Ending balance AOCI | $ (312,093) | $ 667,217 | $ 662,976 | $ (312,093) | $ 667,217 |
Subsequent Event (Details) - Merger Agreement - Subsequent Event - USD ($) |
10 Months Ended | |
---|---|---|
Nov. 13, 2019 |
Nov. 06, 2019 |
|
Subsequent Event [Line Items] | ||
Common stock value (in dollars per share) | $ 1.05 | |
Merger termination fee | $ 4,000,000 | |
Merger related costs | $ 800,000 | |
Patton Wings Intermediate Holdings, LLC | ||
Subsequent Event [Line Items] | ||
Merger termination fee | $ 4,000,000 |
Label | Element | Value |
---|---|---|
AOCI Attributable to Parent [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ (55,784) |