NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1.
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
On
August 4, 2016, Diversified Restaurant Holdings, Inc. (“DRH” or “the Parent”) announced that its Board
of Directors unanimously approved a plan to pursue a tax-free Spin-off of its Bagger Dave’s business (the “Spin-off”).
Specifically, DRH contributed its 100.0% owned entity, AMC Burgers, LLC and certain real estate entities into Bagger Dave’s
Burger Tavern, Inc., a newly created Nevada corporation (“Bagger Dave’s” or “Bagger”), which was
then spun-off into a stand-alone, publicly-traded company on the over-the-counter exchange. In connection with the Spin-off, DRH
contributed to Bagger certain assets, liabilities, and employees related to its Bagger Dave’s businesses. Intercompany balances
due to/from DRH, which included amounts from sales, were contributed to equity. Additionally, DRH contributed $2 million in cash
to Bagger to provide working capital for its operations and is a guarantor for certain of Bagger’s lease obligations.
The
spinoff was completed on December 25, 2016 via a one-for-one distribution of common shares in Bagger Dave’s to DRH shareholders
of record on December 19, 2016.
The
consolidated balance sheet at December 25, 2016 represents the assets and liabilities that were spun off from DRH to Bagger Dave’s.
In addition, deferred tax assets were spun off, but a full valuation allowance was recorded prior to spin off.
Prior
to the Spin-off, Bagger Dave’s was a co-obligor on a joint and several basis with DRH on DRH’s $155 million senior
secured credit facility. DRH’s debt under the facility remained with DRH and Bagger Dave’s was released as a borrower.
Additionally, DRH retained substantially all of the benefits (net operating loss and tax credit carryforwards) generated by Bagger
Dave’s prior to the date of the Spin-off.
The
Company headquarters are located at 807 W. Front St., Suite B, Traverse City, MI 49684. We can also be found on the Internet at
www.baggerdaves.com.
DRH
originated the Bagger Dave’s concept with the first restaurant opening in January 2008 in Berkley, Michigan. As of September
24, 2017, there were 15 Bagger Dave’s restaurants in operation, twelve in Michigan, one in Indiana and two in Ohio. Bagger
Dave’s owns the right to the Bagger Dave’s concept and has rights to franchise the concept in Illinois, Indiana, Kentucky,
Michigan, Missouri, Ohio and Wisconsin. We do not intend to pursue franchise development at this time.
Bagger
Dave’s is a unique, full-service, ultra-casual restaurant and bar concept. We have worked to create a concept that provides
a warm, inviting and entertaining atmosphere through a friendly and memorable guest experience.
Bagger
Dave’s specializes in locally-sourced, never-frozen prime rib recipe burgers, all-natural lean turkey burgers, hand-cut
fries, locally crafted beers on draft, hand-dipped milk shakes, salads, black bean turkey chili and much more, delivered in a
warm, hip atmosphere with friendly “full” service. The concept differentiates itself from other full-service casual
dining establishments by the absence of walk-in freezers and microwaves, substantiating our fresh food offerings. The concept
focuses on local flair of the city in which the restaurant resides by showcasing historical photos. Running above the dining room
and bar, the concept features an electric train; a feature which was the genesis of Bagger Dave’s logo.
We
follow accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB sets generally accepted
accounting principles in the United States of America (“GAAP”) that we follow to ensure we consistently report our
financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the
FASB Accounting Standards Codification (“ASC”).
Basis
of Presentation
These
consolidated financial statements include the accounts of Bagger Dave’s Burger Tavern, Inc. and its wholly owned subsidiaries.
All intercompany transactions and balances have been eliminated. Prior to the Spin-off, the financial statements included AMC
Burgers, Inc. and certain real estate entities and were derived from the consolidated financial statements and accounting records
of DRH, as if Bagger Dave’s operated on a standalone basis. As a subsidiary of DRH, we did not maintain our own legal, tax,
and certain other corporate support functions. As more fully described in Note 6, the statements of operations for the three and
nine months ended September 25, 2016 include expense allocations for certain functions provided by DRH. These expenses were allocated
on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue or headcount. The Company
believes that the methods by which DRH allocated its costs are a reasonable reflection of the utilization of services by, or benefits
provided to the Company to be incurred by Bagger Dave’s. The consolidated financial statements for the three and nine months
ended September 25, 2016 contained herein may not be indicative of Bagger Dave’s financial position, operating results and
cash flows in the future, or what they would have been if it had been a stand-alone company during all periods presented.
Fiscal
Year
The
Company utilizes a 52- or 53-week accounting period that ends on the last Sunday in December. Fiscal year 2016 ended on December
25, 2016 and fiscal year 2017 will end on December 31, 2017. Fiscal year 2016 was comprised of 52 weeks, while fiscal year 2017
will be comprised of 53 weeks. The fiscal quarters ended September 24, 2017 and September 25, 2016 were each comprised of 13 weeks.
The nine month periods ended September 24, 2017 and September 25, 2016 were each comprised of 39 weeks.
Management’s
Plan Regarding Going Concern
Management reviews the trend of our operations
on a regular basis in an effort to understand and forecast future cash usage. During the most recent review, based on current
trends discussed in greater detail below, we determined that our current cash balance and the cash we expect to generate from
operations will likely not be sufficient to enable us to continue operating for the next twelve months. We will likely need an
infusion of cash, either through a sale of shares and/or issuance of debt in order to continue operating. There can be no certainty
that efforts to raise such cash will be successful. Any issuance of equity securities may dilute the holdings of current
shareholders.
Previous
plans that we implemented included:
Increasing
restaurant-level profitability by:
|
●
|
Driving
increased average weekly volumes (“AWVs”) with a new menu design, improved net-promoter scores, enhanced kitchen
processes (to ensure fast, consistent ticket times), new messaging and our first cable television advertising campaign.
|
|
●
|
Reducing
cost of sales and working closely with our vendors.
|
|
●
|
Reducing
labor costs through a comprehensive labor strategy.
|
|
●
|
Reducing
operating expenses.
|
|
●
|
Closing
unprofitable locations.
The Company closed four in the nine months ended September 24,
2017.
|
Decrease
in general and administration expense by:
|
●
|
Reducing
salary expense.
|
|
●
|
Reducing
marketing expense. Effective 2017, Bagger Dave’s marketing budget will be 3.0% or less of sales. In prior years, the
marketing spend was between 4.0%-10.0% in any given period. We believe that, with a more efficient use of marketing funds,
and higher focus on local store marketing initiatives, we can achieve a better return on our marketing investment though increased
sales.
|
Managing
of capital expenditures:
|
●
|
We
undertook only maintenance-level capital expenditures
|
All of the foregoing cost cutting steps were
implemented, resulting in $4.1 million in operating savings, net of depreciation, amortization, and losses on asset impairments.
Our projections in prior quarters were based on the assumption that same store sales would improve fourth fiscal quarter by 3%
over the fourth fiscal quarter in 2016. This was based on selected price increases and the fact that there is a 14
th
week in the fourth quarter of 2017 versus 13 weeks in the fourth quarter of 2016. However, after an 8% decline in same store sales
for the third fiscal quarter of 2017 over the same period in 2016, same store sales in the fourth quarter of 2017
have declined by 12% through the first six weeks. Our sales decline appears to be the result of a poor macro environment for fast
casual dining establishments. As a result, we are forecasting a continuing decline in sales for at least the first two fiscal
quarters of 2018. While we will continue to identify and implement cost cuts, it’s unlikely that these will enable us to
generate enough cash to sustain operations for the next twelve months.
Cash
and Cash Equivalents
Cash
and cash equivalents consist of cash on hand and demand deposits in banks. The Company considers all highly-liquid investments
purchased with original maturities of three months or less to be cash and cash equivalents. The Company, at times throughout the
year, may, in the ordinary course of business, maintain cash balances in excess of federally-insured limits. Management does not
believe the Company is exposed to any unusual risks on such deposits.
Accounts
Receivable
Accounts
receivable primarily consist of amounts owing from credit card charges. There was no allowance for doubtful accounts
necessary at September 24, 2017 and December 25, 2016.
Gift
Cards
The
Company records Bagger Dave’s gift card sales as a gift card liability when sold. When redeemed, the gift card liability
account is offset by recording the transaction as revenue. Michigan law states that gift cards cannot expire and any post-sale
fees cannot be assessed until 5 years after the date of gift card purchase by the consumer. There is no breakage attributable
to Bagger Dave’s restaurants for the Company to record as of September 24, 2017 and September 25, 2016.
The
Company’s gift card liability was $214,549 and $282,717 as of September 24, 2017 and December 25, 2016, respectively, and
is included in other accrued liabilities on the Consolidated Balance Sheets.
Inventory
Inventory
consists mainly of food and beverage products and is accounted for at the lower of cost or market using the first in, first out
method of inventory valuation. Cash flows related to inventory sales are classified in net cash used by operating activities in
the Consolidated Statements of Cash Flows.
Prepaid
Assets and Other Long-Term Assets
Prepaid
assets consist principally of prepaid rent, insurance and contracts and are recognized ratably as operating expense over the period
of future benefit. Other long-term assets consist primarily of security deposits for operating leases and utilities.
Property
and Equipment
Property
and equipment are recorded at cost. Buildings, which includes buildings on leased land, are depreciated using the straight-line
method over the shorter of the term of the lease or its estimated useful life, which ranges from 10-39 years. Equipment and furniture
and fixtures are depreciated using the straight-line method over the estimated useful lives of the assets, which range from three
to seven years. Leasehold improvements, which include the cost of improvements funded by landlord incentives or allowances, are
amortized using the straight-line method over the lesser of the term of the lease, with consideration of renewal options if renewals
are reasonably assured because failure to renew would result in an economic penalty, or the estimated useful lives of the assets,
which is typically five - 15 years. Maintenance and repairs are expensed as incurred. Upon retirement or disposal of assets, the
cost and accumulated depreciation are eliminated from the respective accounts and the related gains or losses are credited or
charged to earnings.
The
Company capitalizes items associated with construction but not yet placed into service, known as construction in progress (“CIP”).
Items capitalized include fees associated with the design, build out, furnishing of the restaurants, leasehold improvements, construction
period interest (when applicable), equipment, and furniture and fixtures. Restaurant CIP is not amortized or depreciated until
the related assets are placed into service. Items are placed into service according to their asset category when the restaurant
is open for service.
Intangible
Assets
Amortizable
intangible assets consist of trademarks and are stated at cost, less accumulated amortization. The trademarks are amortized on
a straight-line basis over the estimated useful life of 15 years.
Liquor licenses, also a component of intangible
assets, are deemed to have an indefinite life and, accordingly, are not amortized. Management reviews liquor license assets on
an annual basis (at year-end) to determine whether carrying values have been impaired. We identify potential impairments for liquor
licenses by comparing the fair value with its carrying amount. If the fair value exceeds the carrying amount, the liquor licenses
are not impaired. If the carrying amount exceeds the fair value, an impairment loss is recorded for the difference. Impairments
totaling $0.1 million and $0.0 million were recognized in the fiscal quarters ended September 24, 2017 and September 25,
2016. Impairments totaling $0.1 million were recognized in the nine months ended September 24, 2017, while no impairments were
recognized in the nine months ended September 25, 2016.
Impairment
or Disposal of Long-Lived Assets
We
review long-lived assets quarterly to determine if triggering events have occurred which would require a test to determine if
the carrying amount of these assets may not be recoverable based on estimated future cash flows. Assets are reviewed at the lowest
level for which cash flows can be identified, which is at the individual restaurant level. In the absence of extraordinary circumstances,
restaurants are included in the impairment analysis after they have been open for two years. We evaluate the recoverability of
a restaurant’s long-lived assets, including buildings, intangibles, leasehold improvements, furniture, fixtures, and equipment
over the remaining life of the primary asset in the asset group, after considering the potential impact of planned operational
improvements, marketing programs, and anticipated changes in the trade area. In determining future cash flows, significant estimates
are made by management with respect to future operating results for each restaurant over the remaining life of the primary asset
in the asset group. If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which
the asset carrying amount exceeds its fair value based on our estimate of discounted future cash flows. The determination of asset
fair value is also subject to significant judgment. Refer to Note 2 for additional information.
We
account for exit or disposal activities, including restaurant closures, in accordance with ASC Topic 420,
Exit or Disposal
Cost Obligations
. Such costs include the cost of disposing of the assets as well as other facility-related expenses from previously
closed restaurants. These costs are generally expensed as incurred. Additionally, at the date we cease using a property under
an operating lease, we record a liability for the net present value of any remaining lease obligations, net of estimated sublease
income. Any subsequent adjustments to that liability as a result of lease termination or changes in estimates of sublease income
are recorded in the period incurred. Refer to Note 2 for additional information.
Impairments
totaling $1.4 million and $0.0 million were recognized in the fiscal quarters ended September 24, 2017 and September 25, 2016.
Impairments totaling $2.6 million were recognized in the nine months ended September 24, 2017, while no impairments were recognized
in the nine months ended September 25, 2016.
Deferred
Rent
Certain
operating leases provide for minimum annual payments that increase over the life of the lease. Typically, our operating leases
contain renewal options under which we may extend the initial lease terms for periods of five to 10 years. The aggregate minimum
annual payments are expensed on a straight-line basis commencing when we gain control and extending over the term of the related
lease, including option renewals as deemed reasonably assured. The amount by which straight-line rent exceeds actual lease payment
requirements in the early years of the lease is accrued as deferred rent liability and reduced in later years when the actual
cash payment requirements exceed the straight-line expense. The Company also accounts, in its straight-line computation, for the
effect of any “rental holidays”, “free rent periods”, and “landlord incentives or allowances”.
Deferred
Gains
Deferred
gains on the sale leaseback transaction described in Note 3, are recognized as a reduction of rent expense over the life of the
related operating lease agreements.
Revenue
Recognition
Revenues
from food and beverage sales are recognized and generally collected at the point of sale. All sales taxes are presented on a net
basis and are excluded from revenue.
Advertising
Advertising
expenses of $0.1 million and $0.1 million are included in general and administrative expenses in the Consolidated Statements of
Operations for the fiscal quarters ended September 24, 2017 and September 25, 2016, respectively. Advertising expenses of $0.4
million and $0.4 million are included in general and administrative expenses in the Consolidated Statements of Operations for
the nine months ended September 24, 2017 and September 25, 2016, respectively.
Pre-opening
Costs
Pre-opening costs are those costs associated
with opening new restaurants and will vary based on the number of new locations opening and under construction. The Company also
reclassifies labor costs that exceed the historical average for the first three months of restaurant operations that are attributable
to training. These costs are expensed as incurred. Pre-opening costs of $0 and $0.01 million and $0 and $0.36 million are included
in the Consolidated Statements of Operations for the three and nine months ended September 24, 2017 and September 25, 2016, respectively.
Excess labor cost incurred after restaurant opening and included in pre-opening cost were approximately $0 and $0 million and
$0 and $0.15 million for the three and nine months ended September 24, 2017 and September 25, 2016, respectively.
Income
Taxes
Prior to the Spin-off, the Company filed a
consolidated tax return with DRH. Deferred income tax assets and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted
tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense (income)
is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
Income tax expense for the three and nine months ended September 25, 2016 was determined as if the Company were
filing a separate tax return.
The
Company applies the provisions of FASB ASC 740,
Income Taxes
, (“ASC 740”) regarding the accounting for uncertainty
in income taxes. The Company classifies all interest and penalties as income tax expense. There are no accrued interest amounts
or penalties related to uncertain tax positions as of September 24, 2017 and September 25, 2016.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results
could differ from those estimates.
Recent
Accounting Pronouncements
In
August 2016, the FASB issued ASU 2016-15, “
Statement of Cash Flows: Classification of Certain Cash Receipts and Payments
.”
ASU 2016-15 provides guidance on eight specific cash flow issues with the objective of reducing diversity in practice. The guidance
is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted for any entity in any
interim or annual period. We are currently evaluating the impact of the guidance, but do not believe it will materially impact
our consolidated financial statements.
In
February 2016, FASB issued ASU 2016-02,
Leases
, ASU 2016-02 requires that lease arrangements longer than 12 months result
in a lessee recognizing a lease asset and liability. Leases will be 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, and early adoption is permitted. We believe the adoption of ASU 2016-02 will materially
impact our consolidated financial statements by significantly increasing our non-current assets and our non-current liabilities
on our consolidated balance sheet as it will require us to record the right of use assets and the related lease liabilities for
our existing operating leases. We are currently unable to estimate the impact of the updated guidance on our consolidated financial
statements.
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 “Revenue with
Contracts from Customers (Topic 606).” ASU 2014-09 supersedes the current revenue recognition guidance, including industry-specific
guidance. The guidance introduces 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 March 2016, the FASB issued ASU 2016-04, “Liabilities - Extinguishments
of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products.” ASU 2016-04 provides specific guidance
for the de-recognition of prepaid stored-value product liabilities. In March 2016, the FASB issued ASU 2016-08, “Revenue
from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” ASU 2016-08
provides specific guidance to determine whether an entity is providing a specified good or service itself or is arranging for
the good or service to be provided by another party. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts
with Customers: Identifying Performance Obligations and Licensing.” ASU 2016-10 provides clarification on the subjects of
identifying performance obligations and licensing implementation guidance.
The requirements for these standards relating
to Topic 606 will be effective for interim and annual periods beginning after December 15, 2017. The Company expects to adopt
these standards upon their effective date. While the Company's evaluation of the standard is ongoing, our preliminary assessment
indicates that the new revenue recognition standard will not materially impact the recognition of restaurant sales, our primary
source of revenue. As we continue the evaluation, documentation, and implementation of ASU 2016-09, other areas which could be
impacted may be identified. Additionally, this guidance will require us to enhance our disclosures. With respect to the transition
method for adoption, we expect to adopt this standard using the modified retrospective approach. We expect to complete our evaluation
and documentation during the year ended December 31, 2017.
We
reviewed all other 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.
2.
IMPAIRMENTS, DISPOSALS AND EXIT COSTS
Based on impairment indicators that existed
at September 24, 2017, the Company performed an impairment analysis on its long-lived assets subject to amortization. $1.4 million
of long-lived assets were deemed to be impaired for the three month period ended September 24, 2017 for one underperforming
location. During the first fiscal quarter of 2017, the Company recorded a fixed asset impairment charge of $1.2 million related
to one underperforming Bagger Dave’s location that reached the second anniversary since opening during the first quarter
of 2017. The impairment charge was recorded to the extent that the carrying amount of the assets was not considered recoverable
based on the estimated future cash flows of the location. The impairment charges are included in impairment and loss on asset
disposals on the Consolidated Statements of Operations for the nine months ended September 24, 2017.
We are currently monitoring the valuation of
long-lived assets at several restaurants and have developed plans to improve operating results. 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.
On January 9, 2017, we closed the Grand Rapids,
Michigan Bagger Dave’s location. The assets for this location were fully impaired in the fourth quarter of fiscal 2016.
There is no store closure liability recorded at September 24, 2017 as all such liabilities had been paid on or prior to that date.
On August 1, 2017 we closed three locations in Ann Arbor, Michigan, Brighton, Michigan, and Woodhaven, Michigan. The
balance sheet dated September 24, 2017 reflect a store closure liability of $0.1 million and $0.1 million in Other accrued liabilities
and Other liabilities in the current and long term liabilities section of the balance sheet, respectively. The assets for these
locations were fully impaired in prior periods.
3.
PROPERTY AND EQUIPMENT, NET
Property
and equipment are comprised of the following:
|
|
September
24, 2017
|
|
|
December
25, 2016
|
|
Buildings
|
|
|
1,672,568
|
|
|
|
1,672,568
|
|
Equipment
|
|
|
3,876,478
|
|
|
|
4,704,891
|
|
Furniture and fixtures
|
|
|
1,111,854
|
|
|
|
1,406,772
|
|
Leasehold improvements
|
|
|
9,623,674
|
|
|
|
12,154,689
|
|
Total
|
|
|
16,284,574
|
|
|
|
19,938,920
|
|
Less accumulated
depreciation
|
|
|
(6,008,355
|
)
|
|
|
(5,556,247
|
)
|
Property and
equipment, net
|
|
$
|
10,276,219
|
|
|
$
|
14,382,673
|
|
Depreciation
expense was $0.4 million and $0.9 million during the quarters ended September 24, 2017 and September 25, 2016, respectively. Depreciation
expense was $1.5 million and $2.6 million during the nine months ended September 24, 2017 and September 25, 2016, respectively.
Sale
leaseback transactions
On
October 6, 2014, the Company entered into a sale leaseback agreement for $8.9 million with a third-party Real Estate Investment
Trust (“REIT”). The arrangement included the sale of real estate on which six Bagger Dave’s locations operate.
In the fourth quarter of 2014, we closed the sale of five of the six properties, with total proceeds of $6.9 million. We closed
the sale of the remaining property in June 2015 with total proceeds of $2.0 million. Pursuant to the terms of each sale-leaseback
transaction, we transferred title of the real property to the purchaser after final inspection and, in turn, entered into separate
leases with the purchaser having a 15-year basic operating lease term plus four separate 5-year renewal options. Certain of the
sale leaseback arrangements resulted in a gain which has been deferred. As of December 25, 2016, $0.03 million of the deferred
gain was recorded in Other accrued liabilities and $0.3 million of the deferred gain was recorded in Other liabilities on the
Consolidated Balance Sheets. As of September 24, 2017, $0.03 million of the deferred gain was recorded in Other accrued liabilities
and $0.3 million of the deferred gain was recorded in Other liabilities on the Consolidated Balance Sheets. The gains will be
recognized into income as an offset to rent expense over the life of the related lease agreements.
4.
INTANGIBLE ASSETS
Intangible
assets are comprised of the following:
|
|
September 24, 2017
|
|
|
December 25, 2016
|
|
Amortized intangible assets
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
70,576
|
|
|
$
|
70,576
|
|
Less accumulated amortization
|
|
|
(22,446
|
)
|
|
|
(18,965
|
)
|
Amortized intangible assets, net
|
|
|
48,130
|
|
|
|
51,611
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets
|
|
|
|
|
|
|
|
|
Liquor licenses
|
|
|
514,474
|
|
|
|
588,664
|
|
Total intangible assets, net
|
|
$
|
562,604
|
|
|
$
|
640,275
|
|
Amortization
expense for the quarters ended September 24, 2017 and September 25, 2016 was $1,160 and $1,160, respectively. Amortization expense
for the nine months ended September 24, 2017 and September 25, 2016 was $3,656 and $3,440, respectively.
Based
on the current intangible assets and their estimated useful lives, future intangible-related expense for the next five years and
thereafter is projected as follows:
Year
|
|
Amount
|
|
Remainder of 2017
|
|
$
|
1,140
|
|
2018
|
|
|
4,601
|
|
2019
|
|
|
4,601
|
|
2020
|
|
|
4,601
|
|
2021
|
|
|
4,601
|
|
Thereafter
|
|
|
28,586
|
|
Total
|
|
$
|
48,130
|
|
The
aggregate weighted-average amortization period for intangible assets is 10.8 years.
5.
OTHER ACCRUED LIABILITIES, CURRENT
|
|
September 24, 2017
|
|
|
December 25, 2016
|
|
Gift card liability
|
|
$
|
214,549
|
|
|
$
|
282,717
|
|
Sales tax payable
|
|
|
59,447
|
|
|
|
—
|
|
Store closure liability
|
|
|
127,480
|
|
|
|
—
|
|
Other
|
|
|
88,016
|
|
|
|
44,249
|
|
Total accrued other liabilities
|
|
$
|
489,492
|
|
|
$
|
326,966
|
|
6.
RELATED PARTY TRANSACTIONS
In connection with the Spin-Off described
in Note 1, the Company entered into a transition services agreement (the “TSA”) with DRH pursuant to which DRH will
provide certain information technology and human resource support, limited accounting support, and other administrative functions
at no charge. The TSA is intended to assist the Company in efficiently and seamlessly transitioning to operating on its own. The
TSA expires in December, 2017 at which time the parties may negotiate which services will be required on an on-going basis and
the fees that will be charged for such services. Additionally, as of the date of this filing, DRH is listed as the guarantor on
15 of the 18 Bagger Dave’s leases. The guarantees range from one month to 12 years and total approximately
$8.8 million as of September 24, 2017.
Allocation
of General Corporate Expenses
The Consolidated Statements of Operations
for the three and nine months ended September 25, 2016 include expense allocations for certain functions previously provided by
DRH. Historically, we have used the corporate functions of DRH for a variety of services including treasury, accounting, tax,
legal, marketing and other shared services, which include the costs of payroll, employee benefits and related costs. Total shared
services expense allocated to the Company was $1.1 million in the fiscal quarter ended September 25, 2016 (consisting of
$0.4 million of compensation, $0.1 million of marketing costs and $0.6 million of other expenses). Total shared services
expense allocated to the Company was $2.8 million in the nine months ended September 25, 2016 (consisting of $1.7 million
of compensation, $0.4 million of marketing costs and $0.7 million of other expenses). Compensation allocations set forth
in the financial statements are based upon estimated time spent by each individual of the DRH management team whose time was split
between the entities. These individuals’ allocations to Bagger Dave’s were based on the estimated percentage of their
time spent working with Bagger Dave’s. Marketing costs were allocated based upon actual Bagger Dave’s costs derived
from a review of each expense incurred during the period. Other expenses were allocated on an estimated percentage based upon
the service provided.
The
expense allocations were determined on a basis that both the Company and DRH consider to be a reasonable reflection of the utilization
of services provided or the benefit received during the period presented. The allocations may not, however, reflect the expense
that would have been incurred at Bagger Dave’s as an independent, publicly-traded company for the period presented. Actual
costs that may have been incurred if Bagger Dave’s had been a stand-alone company would depend on a number of factors, including
the organization structure, the functions outsourced vs. performed by employees, and other strategic decisions.
Beginning
in fiscal year 2017, no general corporate expenses were allocated from DRH because the Spin-off was completed on December 25,
2016.
Parent
Company Equity
Prior
to the Spin-off, the consolidated financial statements included an allocation of certain assets and liabilities that had historically
been held at the DRH corporate level but which were specifically identifiable or allocable to Bagger Dave’s. Cash and cash
equivalents and short-term investments held by DRH were not allocated to Bagger Dave’s unless the cash or investments were
held by an entity that was directly attributable to and held by Bagger Dave’s. All intercompany transactions between DRH
and Bagger Dave’s prior to the Spin-off were included in these consolidated financial statements and were considered to
be effectively settled for cash. The total net effect of the settlement of these intercompany transactions during the first fiscal
quarter of 2016 is reflected in the Consolidated Statements of Cash Flows as a financing activity. Upon Spin-off, the balance
in Parent Company Investment was transferred to Common Stock and Additional Paid in Capital.
7.
STOCK BASED COMPENSATION
On
January 21, 2017, the Board of Directors approved the 2017 Stock Option and Restricted Stock Plan (“the Plan”). The
persons eligible to receive awards under the Plan are the employees, directors and consultants of the Company and its affiliates.
The purpose of the Plan is to provide a means by which eligible recipients may be given an opportunity to benefit from increases
in value of the Company’s Common Stock through the granting of the following: (i) Incentive Stock Options, (ii) Nonqualified
Stock Options, (iii) Stock awards (iv) Rights to acquire restricted stock, and (v) stock appreciation rights. The Company can
reserve up to 10,000,000 shares of its Common Stock for issuance under this plan. Vesting provisions of up to three years will
apply to any and all awards.
For
the nine ended September 24, 2017, 692,500 restricted shares were issued to certain team members under the Plan at a weighted-average
grant date fair value of $.19. Based on the Plan Agreement, shares typically vest ratably over either a three year period. Unrecognized
share-based compensation expense of $73,097 at September 24, 2017 will be recognized over the remaining weighted-average vesting
period of 1.8 years. The total fair value of shares vested during the nine month periods ended June 25, 2017 and June 26, 2016,
was $58,478 and $0, respectively. Under the Plan, there were 9,307,500 shares available for future awards at September 24, 2017.
The
following table presents the restricted shares transactions during the nine-month period ended September 24, 2017:
|
|
Number of
|
|
|
|
Restricted
|
|
|
|
Stock Shares
|
|
|
|
|
|
Unvested, December 25, 2016
|
|
|
-
|
|
Granted
|
|
|
692,500
|
|
Vested
|
|
|
(230,833
|
)
|
Vested shares tax portion
|
|
|
138,500
|
|
Expired/Forfeited
|
|
|
-
|
|
Unvested, September 24, 2017
|
|
|
600,167
|
|
8.
INCOME TAXES
The effective income tax rate for the
three month periods ended September 24, 2017 and September 25, 2016 was 0.0%, and 0.0%, respectively, and, for the nine
month periods ended September 24, 2017 and September 25, 2016 was 1.4% and 0.0% respectively, primarily due to the
Company recording a full valuation allowance on its deferred tax assets. The valuation allowance was recorded due to the
negative evidence of our recent years’ history of losses.
9.
OPERATING LEASES
The
Company’s lease terms generally include renewal options, and frequently require us to pay a proportionate share of real
estate taxes, insurance, common area maintenance, and other operating costs. Some restaurant leases provide for contingent rental
payments based on sales thresholds.
Total rent expense was $0.3 million and $0.4
million for the fiscal quarters ended September 24, 2017 and September 25, 2016, respectively. Total rent expense was $1.0
million and $0.9 million for the nine months ended September 24, 2017 and September 25, 2016, respectively.
Scheduled future minimum lease payments for
each of the next five years and thereafter for non-cancelable operating leases for existing restaurants with initial or remaining
lease terms in excess of one year at September 24, 2017 are summarized as follows:
Year
|
|
Amount
|
|
2017
|
|
$
|
403,554
|
|
2018
|
|
|
1,617,122
|
|
2019
|
|
|
1,575,604
|
|
2020
|
|
|
1,530,420
|
|
2021
|
|
|
1,440,834
|
|
Thereafter
|
|
|
9,011,681
|
|
Total
|
|
$
|
15,579,215
|
|
10.
COMMITMENTS AND CONTINGENCIES
Bagger
Dave’s sponsors a defined contribution 401(k) plan whereby eligible team members can contribute pre-tax wages in accordance
with the provisions of the plan. Bagger Dave’s has the option to make an annual discretionary contribution to the 401(k)
plan. No match was made during the three and nine months ended September 24, 2017.
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 its business. 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 financial condition or results of operations.
11.
SUPPLEMENTAL CASH FLOWS INFORMATION
Other
Cash Flows Information
No
cash paid for interest during the three and nine months ended September 24, 2017 and September 25, 2016 respectively.
No
cash paid for income taxes during the three and nine months ended September 24, 2017 and September 25, 2016 respectively.