pbpb-10q_20210328.htm
false Q1 0001195734 --12-26 2022-07-31 P4Y P3Y P9M P1Y P1Y P1Y P1Y P1Y P7Y7M24D P8Y3M29D P2Y5M26D P1Y9M21D P1Y9M14D 0001195734 2020-12-28 2021-03-28 xbrli:shares 0001195734 2021-04-25 iso4217:USD 0001195734 2021-03-28 0001195734 2020-12-27 iso4217:USD xbrli:shares 0001195734 us-gaap:ProductMember 2020-12-28 2021-03-28 0001195734 us-gaap:ProductMember 2019-12-30 2020-03-29 0001195734 pbpb:FranchiseRoyaltiesAndFeesMember 2020-12-28 2021-03-28 0001195734 pbpb:FranchiseRoyaltiesAndFeesMember 2019-12-30 2020-03-29 0001195734 2019-12-30 2020-03-29 0001195734 us-gaap:CommonStockMember 2019-12-29 0001195734 us-gaap:TreasuryStockMember 2019-12-29 0001195734 us-gaap:AdditionalPaidInCapitalMember 2019-12-29 0001195734 us-gaap:RetainedEarningsMember 2019-12-29 0001195734 us-gaap:NoncontrollingInterestMember 2019-12-29 0001195734 2019-12-29 0001195734 us-gaap:RetainedEarningsMember us-gaap:AccountingStandardsUpdate201613Member srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember srt:RestatementAdjustmentMember 2019-12-29 0001195734 us-gaap:AccountingStandardsUpdate201613Member srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember srt:RestatementAdjustmentMember 2019-12-29 0001195734 us-gaap:RetainedEarningsMember 2019-12-30 2020-03-29 0001195734 us-gaap:NoncontrollingInterestMember 2019-12-30 2020-03-29 0001195734 us-gaap:CommonStockMember 2019-12-30 2020-03-29 0001195734 us-gaap:TreasuryStockMember 2019-12-30 2020-03-29 0001195734 us-gaap:AdditionalPaidInCapitalMember 2019-12-30 2020-03-29 0001195734 us-gaap:CommonStockMember 2020-03-29 0001195734 us-gaap:TreasuryStockMember 2020-03-29 0001195734 us-gaap:AdditionalPaidInCapitalMember 2020-03-29 0001195734 us-gaap:RetainedEarningsMember 2020-03-29 0001195734 us-gaap:NoncontrollingInterestMember 2020-03-29 0001195734 2020-03-29 0001195734 us-gaap:CommonStockMember 2020-12-27 0001195734 us-gaap:TreasuryStockMember 2020-12-27 0001195734 us-gaap:AdditionalPaidInCapitalMember 2020-12-27 0001195734 us-gaap:RetainedEarningsMember 2020-12-27 0001195734 us-gaap:NoncontrollingInterestMember 2020-12-27 0001195734 us-gaap:RetainedEarningsMember 2020-12-28 2021-03-28 0001195734 us-gaap:NoncontrollingInterestMember 2020-12-28 2021-03-28 0001195734 us-gaap:CommonStockMember 2020-12-28 2021-03-28 0001195734 us-gaap:AdditionalPaidInCapitalMember 2020-12-28 2021-03-28 0001195734 us-gaap:WarrantMember 2020-12-28 2021-03-28 0001195734 us-gaap:CommonStockMember 2021-03-28 0001195734 us-gaap:TreasuryStockMember 2021-03-28 0001195734 us-gaap:WarrantMember 2021-03-28 0001195734 us-gaap:AdditionalPaidInCapitalMember 2021-03-28 0001195734 us-gaap:RetainedEarningsMember 2021-03-28 0001195734 us-gaap:NoncontrollingInterestMember 2021-03-28 0001195734 us-gaap:AccountingStandardsUpdate201613Member 2019-12-30 2020-03-29 pbpb:Shop 0001195734 srt:MinimumMember 2021-03-28 pbpb:Subsidiary pbpb:JointVenture xbrli:pure 0001195734 srt:MinimumMember 2020-12-28 2021-03-28 0001195734 srt:MaximumMember 2020-12-28 2021-03-28 0001195734 us-gaap:TransferredAtPointInTimeMember 2020-12-28 2021-03-28 0001195734 us-gaap:TransferredAtPointInTimeMember 2019-12-30 2020-03-29 0001195734 us-gaap:TransferredOverTimeMember 2020-12-28 2021-03-28 0001195734 us-gaap:TransferredOverTimeMember 2019-12-30 2020-03-29 0001195734 2021-01-01 2021-03-28 0001195734 2022-01-01 2021-03-28 0001195734 2023-01-01 2021-03-28 0001195734 2024-01-01 2021-03-28 0001195734 2025-01-01 2021-03-28 0001195734 2026-01-01 2021-03-28 0001195734 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2020-12-28 2021-03-28 0001195734 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2019-12-30 2020-03-29 0001195734 us-gaap:LeaseholdImprovementsMember 2020-12-28 2021-03-28 0001195734 pbpb:CommonShareOptionsMember 2020-12-28 2021-03-28 0001195734 us-gaap:EmployeeStockOptionMember 2020-12-28 2021-03-28 0001195734 us-gaap:EmployeeStockOptionMember 2019-12-30 2020-03-29 0001195734 2019-03-31 0001195734 pbpb:COVID19Member 2020-03-27 0001195734 pbpb:COVID19Member 2019-12-30 2020-03-29 pbpb:Termination 0001195734 pbpb:OccupancyAndGeneralAndAdministrativeExpensesMember 2020-12-28 2021-03-28 0001195734 pbpb:OccupancyAndGeneralAndAdministrativeExpensesMember 2019-12-30 2020-03-29 0001195734 pbpb:OccupancyExpensesMember 2020-12-28 2021-03-28 0001195734 pbpb:OccupancyExpensesMember 2019-12-30 2020-03-29 0001195734 us-gaap:RevolvingCreditFacilityMember 2021-03-28 0001195734 us-gaap:RevolvingCreditFacilityMember 2020-12-27 0001195734 pbpb:PaycheckProtectionProgramLoanMember 2021-03-28 0001195734 pbpb:PaycheckProtectionProgramLoanMember 2020-12-27 0001195734 us-gaap:RevolvingCreditFacilityMember pbpb:JPMorganChaseBankNAMember 2019-08-07 2019-08-07 0001195734 us-gaap:RevolvingCreditFacilityMember pbpb:JPMorganChaseBankNAMember 2019-08-07 0001195734 us-gaap:RevolvingCreditFacilityMember pbpb:JPMorganChaseBankNAMember srt:MaximumMember 2019-08-07 2019-08-07 0001195734 pbpb:JPMorganChaseBankNAMember 2019-08-07 2019-08-07 0001195734 pbpb:HarvestSmallBusinessFinanceLLCMember pbpb:FifthCreditAgreementAmendmentMember pbpb:CARESActOf2020Member pbpb:PaycheckProtectionProgramLoanMember 2020-12-28 2021-03-28 0001195734 pbpb:HarvestSmallBusinessFinanceLLCMember pbpb:FifthCreditAgreementAmendmentMember pbpb:CARESActOf2020Member pbpb:PaycheckProtectionProgramLoanMember 2019-12-30 2020-03-29 0001195734 pbpb:FifthCreditAgreementAmendmentMember pbpb:CARESActOf2020Member pbpb:RevolvingCreditCommitmentMember srt:MinimumMember 2021-02-25 2021-02-26 0001195734 pbpb:FifthCreditAgreementAmendmentMember pbpb:CARESActOf2020Member pbpb:RevolvingCreditCommitmentMember srt:MaximumMember 2021-02-25 2021-02-26 0001195734 pbpb:FifthCreditAgreementAmendmentMember pbpb:CARESActOf2020Member srt:MinimumMember 2021-02-25 2021-02-26 0001195734 pbpb:FifthCreditAgreementAmendmentMember pbpb:CARESActOf2020Member srt:MaximumMember 2021-02-25 2021-02-26 0001195734 pbpb:FifthCreditAgreementAmendmentMember pbpb:CARESActOf2020Member pbpb:EurodollarLoanMember 2021-02-25 2021-02-26 0001195734 pbpb:FifthCreditAgreementAmendmentMember pbpb:CARESActOf2020Member pbpb:CBFRLoanMember 2021-02-25 2021-02-26 0001195734 pbpb:PotbellySandwichWorksLLCMember pbpb:HarvestSmallBusinessFinanceLLCMember us-gaap:CommercialLoanMember pbpb:PaycheckProtectionProgramLoanMember 2020-08-10 0001195734 pbpb:PotbellySandwichWorksLLCMember pbpb:CARESActOf2020Member pbpb:PaycheckProtectionProgramLoanMember 2020-08-09 2020-08-10 pbpb:Employee 0001195734 srt:MinimumMember 2020-10-04 2020-11-03 0001195734 srt:MaximumMember 2020-10-04 2020-11-03 0001195734 2018-05-08 0001195734 pbpb:StockRepurchaseProgramMember 2020-12-28 2021-03-28 0001195734 pbpb:SecuritiesPurchaseAgreementMember 2021-02-09 2021-02-09 0001195734 pbpb:SecuritiesPurchaseAgreementMember 2021-02-09 0001195734 us-gaap:WarrantMember pbpb:SecuritiesPurchaseAgreementMember 2021-02-09 2021-02-09 0001195734 us-gaap:WarrantMember pbpb:SecuritiesPurchaseAgreementMember 2021-02-09 0001195734 us-gaap:WarrantMember 2021-02-09 2021-02-09 0001195734 pbpb:EmployeeAndNonEmployeeDirectorMember 2020-12-28 2021-03-28 0001195734 2019-12-28 2020-12-27 0001195734 us-gaap:EmployeeStockOptionMember 2021-03-28 0001195734 us-gaap:RestrictedStockUnitsRSUMember pbpb:NonEmployeeBoardOfDirectorsMember 2020-12-28 2021-03-28 0001195734 us-gaap:RestrictedStockUnitsRSUMember pbpb:NonEmployeeBoardOfDirectorsMember 2019-12-30 2020-03-29 0001195734 us-gaap:RestrictedStockUnitsRSUMember pbpb:NonEmployeeBoardOfDirectorsMember 2021-03-28 0001195734 us-gaap:RestrictedStockUnitsRSUMember pbpb:NonEmployeeBoardOfDirectorsMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2020-12-28 2021-03-28 0001195734 us-gaap:RestrictedStockUnitsRSUMember pbpb:NonEmployeeBoardOfDirectorsMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2020-12-28 2021-03-28 0001195734 us-gaap:RestrictedStockUnitsRSUMember 2020-12-27 0001195734 us-gaap:RestrictedStockUnitsRSUMember 2020-12-28 2021-03-28 0001195734 us-gaap:RestrictedStockUnitsRSUMember 2021-03-28 0001195734 us-gaap:PerformanceSharesMember 2020-12-28 2021-03-28 0001195734 us-gaap:PerformanceSharesMember pbpb:MarketVestingConditionsMember 2020-12-28 2021-03-28 0001195734 us-gaap:PerformanceSharesMember 2020-12-27 0001195734 us-gaap:PerformanceSharesMember 2021-03-28 0001195734 us-gaap:PrivatePlacementMember srt:MinimumMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember srt:MaximumMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:OneHundredEightyDegreeCapitalCorpMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:OneHundredEightyDegreeCapitalCorpMember us-gaap:WarrantMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:BWPensionTrustMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:BWPensionTrustMember us-gaap:WarrantMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:AgmanInvestmentsLLCMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:AgmanInvestmentsLLCMember us-gaap:WarrantMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:AncoraHoldingsIncMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:AncoraHoldingsIncMember us-gaap:WarrantMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:LakesInvestmentFundLLCMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:LakesInvestmentFundLLCMember us-gaap:WarrantMember 2021-02-01 2021-02-28 0001195734 us-gaap:PrivatePlacementMember pbpb:IntrinsicInvestmentHoldingsLLCMember 2021-02-01 2021-02-28

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 28, 2021 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from           to           

Commission File Number: 001-36104

 

Potbelly Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

36-4466837

(State or Other Jurisdiction of

Incorporation)

 

(IRS Employer

Identification Number)

111 N. Canal Street, Suite 325

Chicago, Illinois

 

60606

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (312) 951-0600

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

PBPB

 

The NASDAQ Stock Market LLC

 

 

 

 

(Nasdaq Global Select Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

 

Accelerated filer

 

Non-accelerated filer

 

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes   No

As of April 25, 2021, the registrant had 27,966,488 shares of common stock, $0.01 par value per share, outstanding.

 

 


 

 

Potbelly Corporation and Subsidiaries

Table of Contents

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited)

 

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations (Unaudited)

 

4

 

 

 

 

 

 

Condensed Consolidated Statements of Equity (Unaudited)

 

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

6

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

26

 

 

 

 

Item 1A.

 

Risk Factors

 

26

 

 

 

 

Item 2.

 

Unregistered Sale of Equity Securities and Use of Proceeds

 

26

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

26

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

26

 

 

 

 

Item 5.

 

Other Information

 

26

 

 

 

 

Item 6.

 

Exhibits

 

27

 

 

 

 

 

 

Signature

 

28

 

2


 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Potbelly Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(amounts in thousands, except par value data, unaudited)

 

 

 

March 28,

 

 

December 27,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,507

 

 

$

11,126

 

Accounts receivable, net of allowances of $11 and $47 as of March 28, 2021

   and December 27, 2020, respectively

 

 

4,636

 

 

 

4,354

 

Inventories

 

 

2,683

 

 

 

2,989

 

Prepaid expenses and other current assets

 

 

4,516

 

 

 

4,839

 

Total current assets

 

 

23,342

 

 

 

23,308

 

Property and equipment, net

 

 

55,670

 

 

 

61,193

 

Right-of-use assets for operating leases

 

 

181,165

 

 

 

189,141

 

Indefinite-lived intangible assets

 

 

3,404

 

 

 

3,404

 

Goodwill

 

 

2,222

 

 

 

2,222

 

Deferred expenses, net and other assets

 

 

4,215

 

 

 

4,089

 

Total assets

 

$

270,018

 

 

$

283,357

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,499

 

 

$

6,206

 

Accrued expenses

 

 

25,574

 

 

 

23,742

 

Short-term operating lease liabilities

 

 

32,098

 

 

 

35,325

 

Current portion of long-term debt

 

 

833

 

 

 

333

 

Total current liabilities

 

 

65,004

 

 

 

65,606

 

Long-term debt, net of current portion

 

 

11,953

 

 

 

15,953

 

Long-term operating lease liabilities

 

 

181,705

 

 

 

189,146

 

Other long-term liabilities

 

 

5,066

 

 

 

7,157

 

Total liabilities

 

 

263,728

 

 

 

277,862

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value—authorized 200,000 shares; outstanding

   27,636 and 24,323 shares as of March 28, 2021 and December 27,

   2020, respectively

 

 

372

 

 

 

339

 

Warrants

 

 

2,566

 

 

 

 

Additional paid-in-capital

 

 

450,708

 

 

 

438,174

 

Treasury stock, held at cost, 9,612 and 9,612 shares as of March 28, 2021, and

   December 27, 2020, respectively

 

 

(113,266

)

 

 

(113,266

)

Accumulated deficit

 

 

(333,949

)

 

 

(319,477

)

Total stockholders’ equity

 

 

6,431

 

 

 

5,770

 

Non-controlling interest

 

 

(141

)

 

 

(275

)

Total equity

 

 

6,290

 

 

 

5,495

 

Total liabilities and equity

 

$

270,018

 

 

$

283,357

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

3


 

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(amounts in thousands, except per share data, unaudited)

 

 

 

For the 13 Weeks Ended

 

 

 

March 28,

 

 

 

 

March 29,

 

 

 

2021

 

 

 

 

2020

 

Revenues

 

 

 

 

 

 

 

 

 

 

Sandwich shop sales, net

 

$

77,501

 

 

 

 

$

86,961

 

Franchise royalties and fees

 

 

562

 

 

 

 

 

629

 

Total revenues

 

 

78,063

 

 

 

 

 

87,590

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

Sandwich shop operating expenses

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, excluding depreciation

 

 

21,469

 

 

 

 

 

24,174

 

Labor and related expenses

 

 

28,614

 

 

 

 

 

30,397

 

Occupancy expenses

 

 

13,599

 

 

 

 

 

15,028

 

Other operating expenses

 

 

13,335

 

 

 

 

 

12,765

 

Advertising

 

 

460

 

 

 

 

 

441

 

General and administrative expenses

 

 

7,423

 

 

 

 

 

9,834

 

Depreciation expense

 

 

4,174

 

 

 

 

 

5,456

 

Pre-opening costs

 

 

 

 

 

 

 

64

 

Impairment, loss on disposal of property and equipment and shop closures

 

 

3,122

 

 

 

 

 

6,416

 

Total expenses

 

 

92,196

 

 

 

 

 

104,575

 

Loss from operations

 

 

(14,133

)

 

 

 

 

(16,958

)

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

288

 

 

 

 

 

74

 

Loss before income taxes

 

 

(14,421

)

 

 

 

 

(17,059

)

Income tax expense (benefit)

 

 

53

 

 

 

 

 

(3,709

)

Net loss

 

 

(14,474

)

 

 

 

 

(13,350

)

Net loss attributable to non-controlling interest

 

 

(2

)

 

 

 

 

(14

)

Net loss attributable to Potbelly Corporation

 

$

(14,472

)

 

 

 

$

(13,336

)

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share attributable to common

   stockholders:

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.56

)

 

 

 

$

(0.56

)

Diluted

 

$

(0.56

)

 

 

 

$

(0.56

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

 

25,944

 

 

 

 

 

23,646

 

Diluted

 

 

25,944

 

 

 

 

 

23,646

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

4


 

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(amounts and shares in thousands, unaudited)

 

For the 13 weeks ended:

 

Common Stock

 

 

Treasury

 

 

 

 

 

 

Additional

Paid-In-

 

 

Accumulated

 

 

Non-

Controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Warrants

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Total Equity

 

Balance at December 29, 2019

 

 

23,638

 

 

 

331

 

 

 

(112,680

)

 

 

 

 

435,278

 

 

 

(254,081

)

 

 

321

 

 

$

69,169

 

Cumulative impact of Topic 326, net of tax of $2

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

(5

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(13,336

)

 

 

(14

)

 

 

(13,350

)

Shares issued under equity compensation plans

 

 

68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares used for stock-based plans

 

 

(22

)

 

 

 

 

(71

)

 

 

 

 

 

 

 

 

 

 

 

(71

)

Distributions to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(172

)

 

 

(172

)

Contributions from non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

143

 

 

 

143

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

490

 

 

 

 

 

 

 

490

 

Balance at March 29, 2020

 

 

23,684

 

 

$

331

 

 

$

(112,751

)

 

$

 

 

$

435,768

 

 

$

(267,422

)

 

$

278

 

 

$

56,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 27, 2020

 

 

24,323

 

 

 

339

 

 

 

(113,266

)

 

 

 

 

 

438,174

 

 

 

(319,477

)

 

 

(275

)

 

$

5,495

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,472

)

 

 

(2

)

 

 

(14,474

)

Shares issued under equity compensation plans

 

 

63

 

 

 

1

 

 

 

 

 

 

 

 

 

(1)

 

 

 

 

 

 

 

 

 

 

Issuance of common shares and warrants, net of fees

 

 

3,250

 

 

 

32

 

 

 

 

 

 

2,566

 

 

 

12,342

 

 

 

 

 

 

 

 

 

14,940

 

Contributions from non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

136

 

 

 

136

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

193

 

 

 

 

 

 

 

 

 

193

 

Balance at March 28, 2021

 

 

27,636

 

 

$

372

 

 

$

(113,266

)

 

$

2,566

 

 

$

450,708

 

 

$

(333,949

)

 

$

(141

)

 

$

6,290

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5


 

 

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(amounts in thousands, unaudited)

 

 

For the 13 Weeks Ended

 

 

 

March 28,

 

 

March 29,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(14,474

)

 

$

(13,350

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

4,174

 

 

 

5,456

 

Noncash lease expense

 

 

6,287

 

 

 

7,295

 

Deferred income tax

 

 

5

 

 

 

5

 

Stock-based compensation expense

 

 

193

 

 

 

490

 

Asset impairment, store closure and disposal of property and equipment

 

 

2,741

 

 

 

6,050

 

Other operating activities

 

 

85

 

 

 

20

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(282

)

 

 

1,620

 

Inventories

 

 

306

 

 

 

228

 

Prepaid expenses and other assets

 

 

(12

)

 

 

(3,252

)

Accounts payable

 

 

228

 

 

 

(767

)

Operating lease liabilities

 

 

(8,991

)

 

 

(7,467

)

Accrued expenses and other liabilities

 

 

40

 

 

 

(4,144

)

Net cash (used in) provided by operating activities:

 

 

(9,700

)

 

 

(7,816

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

$

(1,300

)

 

$

(4,860

)

Net cash used in investing activities:

 

 

(1,300

)

 

 

(4,860

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings under credit facility

 

$

8,000

 

 

$

39,786

 

Repayments under credit facility

 

 

(11,500

)

 

 

 

Payment of debt issuance costs

 

 

(195

)

 

 

 

Proceeds from issuance of common shares and warrants, net of fees

 

 

14,940

 

 

 

 

Employee taxes on certain stock-based payment arrangements

 

 

 

 

 

(71

)

Distributions to non-controlling interest

 

 

 

 

 

(172

)

Contributions from non-controlling interest

 

 

136

 

 

 

143

 

Net cash provided by (used in) financing activities:

 

 

11,381

 

 

 

39,686

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

381

 

 

 

27,010

 

Cash and cash equivalents at beginning of period

 

 

11,126

 

 

 

18,806

 

Cash and cash equivalents at end of period

 

$

11,507

 

 

$

45,816

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

10

 

 

$

9

 

Interest paid

 

 

238

 

 

 

25

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Unpaid liability for purchases of property and equipment

 

$

421

 

 

$

1,091

 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

 

6


 

 

Potbelly Corporation and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements (unaudited)

 

(1) Organization and Other Matters

Business

Potbelly Corporation (the “Company”, “Potbelly”, “we”, “us” or “our”), through its wholly owned subsidiaries, owns and operates 399 company-owned shops in the United States. Additionally, Potbelly franchisees operate 45 shops in the United States.

Basis of Presentation

The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Potbelly Corporation and its subsidiaries and the notes thereto included in our Annual Report on Form 10-K for the year ended December 27, 2020. The unaudited condensed consolidated financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC rules and regulations. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly our balance sheet as of March 28, 2021 and December 27, 2020, our statement of operations for the 13 weeks ended March 28, 2021 and March 29, 2020, the statement of equity for the 13 weeks ended March 28, 2021 and March 29, 2020, and our statement of cash flows for the 13 weeks ended March 28, 2021 and March 29, 2020 have been included. The condensed consolidated statements of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.

Beginning with the third quarter of 2020, shop closure and lease termination expenses are being presented within impairment, loss on disposal of property and equipment and shop closures in our condensed consolidated statements of operations. Prior to the third quarter of 2020, shop closure and lease termination expenses were presented within general and administrative expenses. Prior period amounts have been reclassified to conform to the current presentation. This reclassification had no impact on the loss from operations, balance sheets or statements of cash flows.

We do not have any components of other comprehensive income recorded within our consolidated financial statements and therefore, does not separately present a statement of comprehensive income in our condensed consolidated financial statements.

COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus ("COVID-19") and the risks to the international community as the virus spreads globally. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. In response to the pandemic, many states and jurisdictions in which we operate have issued stay-at-home orders and other measures aimed at slowing the spread of the coronavirus. We initially closed the vast majority of our dining rooms and shifted to off-premise operations only, and we experienced a sudden and drastic decrease in revenues. While the pandemic continues to have an impact on our business, the distribution of COVID-19 vaccines and a decline in positive cases and hospitalizations has resulted in a gradual improvement in our sales during the first quarter of 2021. Nearly all of our shops have reopened their dining rooms, many with continued restrictions, such as social distancing and limited capacities, to ensure the health and safety of our guests and employees. We continue to follow guidance from local authorities in determining the appropriate restrictions to put in place for each shop, including the suspension or reduction of in-shop dining if required due to changes in the pandemic response in each jurisdiction.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Due to the rapid development and fluidity of this situation, we cannot determine the ultimate impact that the COVID-19 pandemic will have on our consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate impact on our consolidated financial condition, liquidity, and future results of operations is uncertain.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Potbelly Corporation; its wholly owned subsidiary, Potbelly Illinois, Inc. (“PII”); PII’s wholly owned subsidiaries, Potbelly Franchising, LLC and Potbelly Sandwich Works, LLC (“PSW”); seven of PSW’s wholly owned subsidiaries and PSW’s seven joint ventures, collectively, the “Company.” All intercompany balances and transactions have been eliminated in consolidation. For consolidated joint ventures, non-controlling interest represents a non-controlling partner’s share of the assets, liabilities and operations related to the seven joint venture investments. Potbelly has ownership interests ranging from 51-80% in these consolidated joint ventures.

7


 

Fiscal Year

We use a 52/53-week fiscal year that ends on the last Sunday of the calendar period. Approximately every five or six years a 53rd week is added. Fiscal year 2021 and 2020 both consist of 52 weeks. The fiscal quarters ended March 28, 2021 and March 29, 2020 each consisted of 13 weeks.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates include amounts for long-lived assets and income taxes. Actual results could differ from those estimates.

 

Recent Accounting Pronouncements

On December 28, 2020, we adopted Accounting Standard Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). This pronouncement simplifies the accounting for certain financial instruments with liability and equity characteristics, including convertible instruments and contracts on an entity’s own equity. It removes certain criteria that previously had to be satisfied in order to classify a contract as equity and revises the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding a company’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other. There was no impact to our financial statement or loss per share presentation in the period of adoption due to the impact of adopting this pronouncement.

(2) Revenue

We primarily earn revenue at a point in time for sandwich shop sales which can occur in person at the shop, over our online or app platforms, or through a third-party platform. Sales taxes collected from customers are excluded from revenues and the obligation is included in accrued liabilities until the taxes are remitted to the appropriate taxing authorities. We have other revenue generating activities outlined below.

 

Franchise Revenue

We earn an initial franchise fee, a franchise development agreement fee and ongoing royalty fees under our franchise agreements. Initial franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. As such, these franchise fees are recognized over the contractual term of the franchise agreement. We record a contract liability for the unearned portion of the initial franchise fees. Franchise development agreement fees represent the exclusivity rights for a geographical area paid by a third party to develop Potbelly shops for a certain period of time. Franchise development agreement fee payments received by us are recorded as deferred revenue in the consolidated balance sheet and amortized over the life of the franchise development agreement. Royalty fees are based on a percentage of sales and are recorded as revenue as the fees are earned and become receivable from the franchisee.

 

Gift Card Redemptions / Breakage Revenue

We sell gift cards to customers, record the sale as a contract liability and recognize the associated revenue as the gift card is redeemed. A portion of these gift cards are not redeemed by the customer, which is recognized by us as revenue as a percentage of customers gift card redemptions. The expected breakage amount recognized is determined by a historical data analysis on gift card redemption patterns.

We recognized gift card breakage income of $0.1 million and $0.1 million for the 13 weeks ended March 28, 2021, and March 29, 2020, respectively, which is recorded within net sandwich shop sales in our condensed consolidated statements of operations.

 

Loyalty Program

During the second quarter of 2020, we implemented a new customer loyalty program for customers using the Potbelly Perks application at the point of sale. The customer will typically earn 10 points for every dollar spent in addition to any active promotions, and the customer will earn a free entrée after earning 1,000 points. We defer revenue associated with the estimated selling price of points earned by Potbelly Perks members towards free entrées as each point is earned, and a corresponding liability is established in deferred revenue. The deferral is based on the estimated value of the product for which the reward is expected to be redeemed, net of estimated unredeemed points. Once a customer earns a free entrée, that entrée reward will expire after 30 days. Any point in a customer’s account that does not go toward earning a full entrée will expire a year after the point is earned. When points are redeemed, we recognize revenue for the redeemed product and reduces deferred revenue.

8


 

For the 13 weeks ended March 28, 2021 revenue recognized from all revenue sources on point in time sales was $77.5 million, and revenue recognized from sales over time was $0.1 million. For the 13 weeks ended March 29, 2020, revenue recognized from all revenue sources on point in time sales was $87.5 million, and revenue recognized from sales over time was $0.1 million.

Contract Liabilities

As described above, we record current and noncurrent contract liabilities for upfront franchise fees, gift cards and the loyalty program. There are no other contract liabilities or contract assets recorded by us. The opening and closing balances of our current and noncurrent contract liabilities from contracts with customers were as follows:

 

 

 

Current Contract

Liability

 

 

Noncurrent Contract

Liability

 

 

 

(Thousands)

 

 

(Thousands)

 

Beginning balance as of December 27, 2020

 

$

(3,138

)

 

$

(1,707

)

Ending balance as of March 28, 2021

 

 

(2,846

)

 

 

(1,634

)

Decrease in contract liability

 

$

(292

)

 

$

(73

)

 

The aggregate value of remaining performance obligations on outstanding contracts was $4.5 million as of March 28, 2021. We expect to recognize revenue related to contract liabilities as follows (in thousands), which may vary based upon franchise activity as well as gift card redemption patterns:

 

Years Ending

 

Amount

 

2021

 

$

1,500

 

2022

 

 

1,313

 

2023

 

 

216

 

2024

 

 

183

 

2025

 

 

331

 

Thereafter

 

 

937

 

Total revenue recognized

 

$

4,480

 

 

For the 13 weeks ended March 28, 2021, the amount of revenue recognized related to the December 27, 2020 liability ending balance was $0.6 million. For the 13 weeks ended March 29, 2020, the amount of revenue recognized related to the December 31, 2019 liability ending balance was $0.5 million. This revenue related to the recognition of gift card redemptions and upfront franchise fees. For the 13 weeks ended March 28, 2021 and March 29, 2020, we did not recognize any revenue from obligations satisfied (or partially satisfied) in prior periods.

9


 

(3) Fair Value Measurement

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate fair values due to the short maturities of these balances.

We assess potential impairments to our long-lived assets, which includes property and equipment and lease right-of-use assets, on a quarterly basis or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Shop-level assets and right-of-use assets are grouped at the individual shop-level for the purpose of the impairment assessment. Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. The fair value of the shop assets is determined using the discounted future cash flow method of anticipated cash flows through the shop’s lease-end date using fair value measurement inputs classified as Level 3. The fair value of right-of-use assets is estimated using market comparative information for similar properties. Level 3 inputs are derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. After performing a periodic review of our shops during the 13 weeks ended March 28, 2021, it was determined that indicators of impairment were present for certain shops as a result of continued underperformance. We performed an impairment analysis related to these shops and recorded an impairment charge of $148 thousand for the 13 weeks ended March 28, 2021. The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.

The book value of the long-term debt under the Credit Agreement, subsequently amended most recently as of February 26, 2021 and further discussed in Note 7, is considered to approximate its fair value as of March 28, 2020 as the interest rates are considered in line with current market rates.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as leasehold improvements, property and equipment, operating lease assets, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired.

During the first quarter of 2021, we amended the lease for our corporate Support Center office in Chicago to relocate to a different office space within the same building. As a result of this relocation, the leasehold improvements of the original office space were disposed, resulting in a loss on disposal of $2.5 million based on the remaining net book value of those assets.

 

 

(4) Loss Per Share

Basic and diluted income per common share attributable to common stockholders are calculated using the weighted average number of common shares outstanding for the period. Diluted income per common share attributable to common stockholders is computed by dividing the income allocated to common stockholders by the weighted average number of fully diluted common shares outstanding. In periods of a net loss, no potential common shares are included in diluted shares outstanding as the effect is anti-dilutive. For the 13 weeks ended March 28, 2021, we had a loss per share, and therefore potentially dilutive shares were excluded from the calculation.

The following table summarizes the loss per share calculation:

 

 

 

For the 13 Weeks Ended

 

 

 

March 28,

 

 

March 29,

 

 

 

2021

 

 

2020

 

Net loss attributable to Potbelly Corporation

 

$

(14,472

)

 

$

(13,336

)

Weighted average common shares outstanding-basic

 

 

25,944

 

 

 

23,646

 

Plus: Effect of potential stock options exercise

 

 

 

 

 

 

Weighted average common shares outstanding-diluted

 

 

25,944

 

 

 

23,646

 

Loss per share available to common stockholders-basic

 

$

(0.56

)

 

$

(0.56

)

Loss per share available to common stockholders-diluted

 

$

(0.56

)

 

$

(0.56

)

Potentially dilutive shares that are considered anti-dilutive:

 

 

 

 

 

 

 

 

Common share options

 

 

2,544

 

 

 

2,294

 

 

10


 

 

(5) Income Taxes

 

The interim tax provision is determined using an estimated annual effective tax rate and is adjusted for discrete taxable events that occur during the quarter. We regularly assess the need for a valuation allowance related to our deferred tax assets, which includes consideration of both positive and negative evidence related to the likelihood of realization of such deferred tax assets to determine, based on the weight of the available evidence, whether it is more-likely-than-not that some or all of our deferred tax assets will not be realized. In our assessment, we consider recent financial operating results, projected future taxable income, the reversal of existing taxable differences, and tax planning strategies. We recorded a full valuation allowance against our net deferred tax assets during the first quarter of 2019, resulting in a non-cash charge to income tax expense of $13.6 million. We continue to maintain a valuation allowance against all of our deferred tax assets as of March 28, 2021. We did not provide for an income tax benefit on our pre-tax loss for the 13 weeks ended March 28, 2021 and March 29, 2020. We assess the likelihood of the realization of our deferred tax assets each quarter and the valuation allowance is adjusted accordingly.

  

On March 27, 2020, the CARES Act was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain NOLs and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years, accelerate refunds of previously generated corporate AMT credits, loosen the business interest limitation under section 163(j), and fix the qualified improvement property regulations in the 2017 Tax Cuts and Jobs Act. As a result of the CARES Act, we estimated that we will be able to obtain a tax refund of $6.7 million from the carryback of NOLs and a refund of prior AMT credits. We received the entire amount of the refund during fiscal year 2020. We recognized $3.7 million of this income tax benefit during the first quarter of 2020.

(6) Leases

We determine if a contract contains a lease at inception. We lease retail shops, warehouse and office space under operating leases. For leases with renewal periods at our option, we determine the expected lease period based on whether the renewal of any options are reasonably assured at the inception of the lease.

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. We estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment.

We recognize expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term.

Beginning in fiscal year 2020, as a result of COVID-19, we held discussions with landlords regarding restructuring of our leases in light of various contractual and legal defenses and have subsequently entered into a total of 339 amendments with our respective landlords as of March 28, 2021. Under these amendments, certain rent payments have been abated, deferred or modified without penalty for various periods, generally covering two to four months of rent payments. During the 13 weeks ended March 28, 2021, we received concessions from certain landlords in the form of rent deferrals and abatements which were not substantial, and we have elected to not account for these rent concessions as lease modifications.

During the 13 weeks ended March 28, 2021, we terminated 2 leases. We incurred $0.2 million in lease termination fees related to these leases for the 13 weeks ended March 28, 2021. Upon termination of leases during the 13 weeks ended March 28, 2021, we derecognized ROU assets of $0.6 million and lease liabilities of $0.7 million that resulted in a net gain of $0.1 million that is recorded in impairment, loss on disposal of property and equipment and shop closures.

During the first quarter of 2021, we amended the lease for our corporate Support Center office in Chicago to relocate to a different office space within the same building. We accounted for this amendment as a lease modification which resulted in a decrease in the related right-of-use asset and lease liability of $2.7 million.

11


 

Operating lease term and discount rate were as follows:

 

 

 

March 28,

 

 

March 29,

 

 

 

2021

 

 

2020

 

Weighted average remaining lease term (years)

 

 

7.65

 

 

 

8.33

 

Weighted average discount rate

 

 

7.83

%

 

 

7.90

%

 

Certain of our operating lease agreements include variable payments that are passed through by the landlord, such as common area maintenance and real estate taxes, as well as variable payments based on percentage rent for certain of our shops. Pass-through charges and payments based on percentage rent are included within variable lease cost.

The components of lease cost were as follows:

 

 

 

 

13 weeks ended

 

 

 

 

March 28,

 

March 29,

 

 

Classification

 

2021

 

2020

 

Operating lease cost

Occupancy and General and administrative expenses

 

 

10,411

 

 

11,770

 

Variable lease cost

Occupancy

 

 

3,239

 

 

3,322