Exhibit 99.2
Twin Restaurant Holding, LLC
Consolidated Financial Statements
As of June 13, 2021 and December 27, 2020
Twin Restaurant Holding, LLC
Consolidated Financial Statements
As of June 13, 2021 and December 27, 2020

Consolidated Financial Statements
| 3 |
Consolidated Financial Statements
| 4 |
Twin Restaurant Holding, LLC
June 13, 2021 | December 27, 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 18,458,139 | $ | 18,506,066 | ||||
| Restricted cash | 5,000,000 | - | ||||||
| Receivables | 1,683,724 | 1,663,644 | ||||||
| Inventory | 1,296,168 | 947,588 | ||||||
| Prepaids and other current assets | 791,307 | 1,539,837 | ||||||
| Total current assets | 27,229,338 | 22,657,135 | ||||||
| Notes Receivable | 1,500,000 | 1,500,000 | ||||||
| Property and Equipment - net | 26,660,144 | 26,172,245 | ||||||
| Deposits | 589,913 | 562,349 | ||||||
| Restricted cash - asset | 9,493,059 | 9,493,059 | ||||||
| Goodwill | 2,633,876 | 2,633,876 | ||||||
| Intangibles - net | 88,675,434 | 89,806,034 | ||||||
| Total Assets | $ | 156,781,764 | $ | 152,824,698 | ||||
| Liabilities and Members’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 6,081,589 | $ | 4,254,996 | ||||
| Accrued liabilities | 9,360,801 | 6,838,356 | ||||||
| Current portion of long-term debt | 1,300,000 | 1,300,000 | ||||||
| Current portion of PPP Loan | - | 4,505,860 | ||||||
| Deferred revenue | 667,589 | 660,614 | ||||||
| Deferred
development and franchise fees | ||||||||
| Total current liabilities | ||||||||
| Long-term debt - net | 63,871,640 | 64,392,231 | ||||||
| PPP loan, net of current portion | - | 7,724,330 | ||||||
| Restricted cash liability | 9,493,059 | 9,493,059 | ||||||
| Interest rate swap liability | 468,793 | |||||||
| Total Liabilities | 102,163,134 | |||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Members’ Equity | ||||||||
| Additional paid-in capital | 69,867,510 | 69,867,510 | ||||||
| Retained earnings (loss) | ) | (19,205,946 | ) | |||||
| Total members’ equity | 50,661,564 | |||||||
| Total Liabilities and Members’ Equity | $ | 156,781,764 | $ | 152,824,698 | ||||
The
accompanying notes are an integral part of these
| 5 |
Twin Restaurant Holding, LLC
Twenty-four Weeks Ended June 13, 2021 | Twenty-four Weeks Ended June 14, 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenues | ||||||||
| Restaurant net sales | $ | 47,531,515 | $ | 29,427,647 | ||||
| Franchise and royalty fees | 5,912,894 | 3,217,082 | ||||||
| Marketing fees | 2,964,851 | 1,490,688 | ||||||
| Other revenue | 360,295 | 876,986 | ||||||
| Total revenues | 35,012,403 | |||||||
| Operating Expenses | ||||||||
| Restaurant operating expenses | 40,003,072 | 29,009,097 | ||||||
| General and administrative expenses | 4,063,969 | |||||||
| Advertising expenses | 3,325,146 | 2,367,674 | ||||||
| Loss on disposal of assets | - | 3,317,079 | ||||||
| Pre-Opening expenses | - | 66,940 | ||||||
| Depreciation and amortization expense | 3,788,213 | |||||||
| Total operating expenses | ||||||||
| Income (loss) from operations | 4,821,586 | ) | ||||||
| Other Income (Expense) | ||||||||
| Interest expense, net | (2,830,824 | ) | (3,094,040 | ) | ||||
| Other income (expense) | 10,399,291 | (1,637,592 | ) | |||||
| Total other income (expenses) | 7,568,467 | (4,731,632 | ) | |||||
| Net income (loss) | $ | 12,390,053 | $ | ) | ||||
The
accompanying notes are an integral part of these
| 6 |
Twin Restaurant Holding, LLC
| Parent Unit – Series A | ||||||||||||||||
| Preferred Units | Retained | |||||||||||||||
| Shares | Amount | Earnings | Total | |||||||||||||
| Balance – December 29, 2019 | 69,866 | $ | 69,867,510 | $ | (8,931,166 | ) | $ | 60,936,344 | ||||||||
| Net Loss | - | - | ) | ) | ||||||||||||
| Balance – June 14, 2020 | 69,866 | $ | 69,867,510 | $ | ) | $ | ||||||||||
| Parent Unit – Series A | ||||||||||||||||
| Preferred Units | Retained | |||||||||||||||
| Shares | Amount | Earnings | Total | |||||||||||||
Balance – December 27, 2020 | 69,866 | $ | 69,867,510 | $ | (19,205,946 | ) | $ | 50,661,564 | ||||||||
| Net Income | - | - | 12,390,053 | 12,390,053 | ||||||||||||
| Balance – June 13, 2021 | 69,866 | $ | 69,867,510 | $ | (6,815,893 | ) | $ | |||||||||
The
accompanying notes are an integral part of these
| 7 |
Twin Restaurant Holding, LLC
Twenty-four Weeks Ended June 13, 2021 (Unaudited) | Twenty-four Weeks Ended June 14, 2020 (Unaudited) | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income (loss) | $ | 12,390,053 | $ | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | 3,788,213 | |||||||
| PPP Loans Forgiven | (12,173,690 | ) | - | |||||
| Amortization of deferred financing costs | 129,409 | 208,110 | ||||||
| Loss (gain) on interest rate swap | (113,405 | ) | 415,265 | |||||
| Loss on disposal of assets | - | 3,317,079 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | (20,080 | ) | 84,051 | |||||
| Inventory | (348,580 | ) | 211,935 | |||||
| Prepaids and other current assets | 748,530 | 734,451 | ||||||
| Deposits | (27,563 | ) | 12,110 | |||||
| Accounts payable | 1,639,982 | (500,820 | ) | |||||
| Accrued expenses | 2,819,227 | ) | ||||||
| Deferred revenue | 6,975 | 54,622 | ||||||
| Deferred development and franchise fees | 75,184 | (100,337 | ) | |||||
| Deferred rent and tenant allowance | (166,360 | ) | 194,298 | |||||
| Net cash provided by (used in) operating activities | 8,747,894 | ) | ||||||
| Cash Flows from Investing Activities | ||||||||
| Proceeds on sale of property | - | 4,132,952 | ||||||
| Purchase of property and equipment | (3,145,824 | ) | ) | |||||
| Net cash provided by (used in) investing activities | (3,145,824 | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds on PPP Loans | - | 12,867,043 | ||||||
| Proceeds on Revolving Loans | - | 12,000,000 | ||||||
| Payments on Revolving Loans | - | - | ||||||
| Proceeds on long-term borrowings | - | 3,500,000 | ||||||
| Payments on long-term borrowings | (650,000 | ) | (650,000 | ) | ||||
| Net cash provided by (used in) financing activities | (650,000 | ) | 29,017,043 | |||||
| 8 |
Twin Restaurant Holding, LLC
Twenty-four Weeks
Ended June 13, 2021 (Unaudited) | Twenty-four Weeks
Ended June 14, 2020 (Unaudited) | |||||||
| Net change in cash, cash equivalents and restricted cash | 4,952,070 | |||||||
| Cash, cash equivalents and restricted cash, beginning of year | 18,506,066 | 9,931,577 | ||||||
| Cash, cash equivalents
and restricted cash, end of | $ | 23,458,136 | $ | |||||
| Supplemental disclosure | ||||||||
| Cash paid for interest | $ | $ | ||||||
The
accompanying notes are an integral part of these
| 9 |
Twin Restaurant Holding, LLC
Notes
to
1. Business
Twin Restaurant Holding, LLC (“TRH”, the “Company”, “we”), a Delaware limited liability company, is principally engaged in the ownership, operation, development, and franchising of the Twin Peaks Restaurant brands. As of June 13, 2021 and December 27, 2020, the Company operated 26 company-operated locations in Arkansas, Colorado, Illinois, Nevada, New Mexico and Texas, and franchised 54 and 53 restaurants, respectively located in Alabama, Arkansas, Arizona, California, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, North Carolina, Oklahoma, Ohio, South Carolina, Tennessee, Texas, Washington, Mexico.
COVID-19
Beginning in January 2020, there has been an outbreak of the Coronavirus Disease 2019 (“COVID-19” or “virus”), which has been declared a “pandemic” by the World Health Organization. As of the date of these financial statements, substantially all locations are no longer subject to reduced store hours or capacity limits. The length and severity of the COVID-19 pandemic, along with the financial impact from COVID-19 on the Company, if any, cannot be reasonably estimated at this time. The extent to which the COVID-19 will impact the Company’s financial condition, results of operations and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others.
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.
It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company applied for and received approximately $12.9 million for the SBA Paycheck Protection Program on April 22, 2020. See Note 7 – Note Payable for details surrounding PPP loans.
2. Significant Accounting Policies
Basis of Presentation
Fiscal Year
The Company’s fiscal year is based on a 52 - 53 week reporting period, which ends each year on the last Sunday of December. The fiscal year ended December 27, 2020 consisted of 52 weeks. The Company’s fiscal second quarter ended June 13, 2021 and June 14, 2020, respectively both consisting of 24 weeks each.
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Twin Restaurant Holding, LLC
Notes
to
Use of Estimates and Assumptions
The
preparation of
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, and accounts payable. The carrying amounts of cash and cash equivalents, and accounts payable, approximate their fair values because of the short-term maturities or expected settlement dates of these instruments.
The Company follows the provisions of ASC 820 for fair value measurements. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
In addition to the $65,000,000 variable rate loan with Comvest Capital, the Company entered into an interest rate agreement with Regions Bank, effective August 2, 2019, fixing the interest rate at 1.9%. This interest rate protection product, commonly called a swap, provides the Company with the assurance of a floating interest rate of 2.229750% during the term of the bank loan. This swap agreement is re-measured to fair value each reporting period to provide a current value of the interest rate protection product as if the loan were to be repaid at that point in time.
As
of June 13, 2021 and December 27, 2020, the Company had a liability of
There
were no investment assets or liabilities classified within level 1 or 3 at or during the
Cash and Cash Equivalents
The
Company considers all investments in highly liquid instruments, purchased with maturity of three months or less, to be cash equivalents.
The Company maintains cash deposits with federally insured financial institutions that may at times exceed federally insured limits.
The Company has not incurred any losses from such accounts, and management considers the risk to be minimal. At December 27, 2020
Restricted Cash
In conjunction with the self-insurance related letter of credit, the Company maintains a $5,000,000 cash collateral account. See note 7 – Note Payable.
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Twin Restaurant Holding, LLC
Notes
to
In
conjunction with the acquisition, the Company made a Specified Matters Payment,
Accounts Receivable
Accounts
receivable consists primarily of Franchise royalties and are analyzed for collectability periodically by management and are carried at
net realizable value. The Company continuously evaluates the creditworthiness of its customers’ financial condition and generally
does not require collateral. An allowance for doubtful accounts is estimated by management and is adjusted for those trade accounts receivable
for which collection is uncertain. Accounts
Inventories
Inventories
consist primarily of food and drink products, which are valued at the lower of cost, determined principally on the first-in, first-out
method “FIFO”, or
Investment in Joint Venture (JV)
Investment
in JV is accounted for under the Equity Method per ASC 323 Investments – Equity Method and Joint Ventures (ASC 323) which
provides guidance on the criteria for determining whether you have an investment that qualifies for the equity method of accounting and
how to account for the investment under US GAAP. Equity method investments are recorded as assets on the balance sheet at their initial
cost and adjusted each reporting period by the investor through the income statement.
Leases
The Company reviews all leases for capital or operating classification at their inception. Within the provisions of certain leases, there are rent holidays and escalations in payments over the base lease term, as well as renewal periods. The effects of the holidays and escalations have been reflected in rent expense on a straight-line basis over the expected lease term. Differences between amounts paid and amounts expensed are recorded as deferred rent. The lease term commences on the date when the Company has the right to control the use of the leased property. Certain leases also include contingent rent provisions based on sales levels, which are accrued at the point in time the Company determines that it is probable such sales levels will be achieved.
Tenant improvement allowance incentives may be available to partially offset the cost of developing and opening the related restaurants, pursuant to agreed-upon terms in the lease. Tenant improvement allowances can take the form of cash payments upon the opening of the related restaurants, full or partial credits against minimum or percentage rents otherwise payable by the Company or a combination thereof. All tenant improvement allowances received by the Company are recorded as a deferred lease incentive and amortized over the term of the lease.
| 12 |
Twin Restaurant Holding, LLC
Notes
to
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation. Depreciation on equipment is provided in amounts sufficient to relate the cost of the assets to operations over their estimated service lives as follows:
| Leasehold improvements | 15 years or lease terms | |
| Furniture and equipment | 3 years | |
| Restaurant equipment | 5 years | |
| Office equipment | 3 years |
Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments, which extend the useful lives of the existing property and equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is recognized in the consolidated statement of operations.
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its’ carrying value.
If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment loss is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The Company tests goodwill for impairment on an annual basis, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount (a triggering event). Upon the occurrence of a triggering event, a quantitative test is necessary, and the Company would perform a one-step impairment test comparing the fair value of the entity with its carrying value. The excess carrying value over fair value, if any, would represent the impairment loss.
In
testing goodwill for impairment, Management has the option first to perform a qualitative assessment to determine whether it is more-likely-than-not
that goodwill is impaired, or the reporting unit can bypass the qualitative assessment and proceed directly to the quantitative test
by comparing the carrying amount, including goodwill, of the entity with its fair value. Management
| 13 |
Twin Restaurant Holding, LLC
Notes
to
Intangible Assets
Trademarks represent the value of expected future royalty income associated with the ownership of the Company’s brand. Other non-amortizable intangible assets consist of the liquor licenses. Trademarks and the liquor licenses acquired at acquisition are not amortized. Instead, they are tested for impairment annually or upon a triggering event unless it is subsequently determined that the intangible asset has a finite useful life. At each reporting period, trademarks and other non-amortizable intangible assets are assessed to determine if any changes in facts or circumstances require a re-evaluation of the estimated value. Impairment tests for trademarks include comparing the fair value of the respective reporting unit with its carrying value. The Company uses a methodology in conducting these impairment assessments, which includes cash flow analyses that the Company believes are consistent with the assumptions hypothetical marketplace participants would use. Where applicable, an appropriate discount rate is used that is commensurate with the risk inherent in the projected cash flows.
Other intangible assets are amortized over their respective estimated useful lives to their estimated residual values and periodically reviewed for impairment should indicators of possible impairment arise. Amortizable intangible assets consist of favorable leases and franchise agreements, which are amortized on a straight-line basis over six and twenty-one years; respectively, which is representative of the economic benefits the Company expects to receive from the respective agreements.
Management’s annual impairment test for indefinite lived intangibles is performed annually in the third quarter, and Management has determined that no impairment occurred. In addition, whenever events or changes in circumstances indicate that the carrying amount for an asset may not be recoverable, the Company evaluates, for impairment, the carrying value of acquired definite lived intangible assets by comparing the carrying value to the anticipated future undiscounted cash flows expected to be generated from the use of the intangible assets. If the carrying amount is not recoverable, a loss is recorded in the amount the carrying value exceeds the fair market value of the assets.
Impairment of Long-Lived Assets
Long-lived assets, goodwill, and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company does not perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if an impairment is indicated by its carrying value not being recoverable through undiscounted cash flows. Impairment is recognized for the difference between the carrying amount and the fair value of the asset, generally estimated using discounted cash flows. There was no impairment recorded for the fiscal periods ended June 13, 2021 and December 27, 2020.
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Twin Restaurant Holding, LLC
Notes
to
Insurance
We self-insure a significant portion of expected losses under its general liability programs. Accrued liabilities have been recorded based on estimates of the ultimate costs to settle incurred claims, both reported and not yet reported. These recorded estimated liabilities, which are included in Other accruals line item in Note 5 – Accrued Liabilities, are based upon the aggregate of the expected liability for reported claims and the estimated liability for claims incurred but not reported, based on historical claims experience adjusted as necessary based upon management’s reasoned judgment.
Pre-opening Costs
Pre-opening costs include costs associated with the opening and organizing of new stores or conversion of existing stores, including the cost of feasibility studies, pre-opening rent, training, recruiting, and traveling for employees engaged in such pre-opening activities. All such costs are expensed as incurred.
Sales Tax
Sales taxes collected from guests are excluded from revenues. The obligation is included in accrued liabilities until the taxes are remitted to the appropriate taxing authorities.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were $3,325,146 and $2,367,674 for the twenty-four weeks ended June 13, 2021 and June 14, 2020.
Revenue Recognition
Adoption of New Accounting Standard
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standards update outlines
a single comprehensive model for an entity to utilize to recognize revenue when it transfers goods or services to customers in an amount
that reflects the consideration that will be received in exchange for the goods and services. The ASU and all subsequently issued clarifying
ASUs replaced most existing revenue recognition guidance in
| 15 |
Twin Restaurant Holding, LLC
Notes
to
Revenue Recognition Policy
The Company derives its revenues from area development, franchise, royalty and marketing fees from each franchise partner. The Company accounts for revenue from contracts with customers through the following steps:
| ● | Identification of the contract with a customer | |
| ● | Identification of the performance obligations in the contract | |
| ● | Determination of the transaction price | |
| ● | Allocation of the transaction price to the performance obligations in the contract | |
| ● | Recognition of revenue when, or as, the Company satisfies a performance obligation |
The Company has entered into area development agreements with its franchise partners whereby they will open varying numbers of Twin Peaks restaurants within a designated geographic area over the next one to eight years following their respective agreement dates. Area development fees required to be paid are upfront, non-refundable fees which serve as a prepayment for all or a portion of the initial franchise fee for each location to be opened under the area development agreement. The area development fees are recognized ratably over the term of the related franchise agreement beginning at the opening date of the franchise location. Additionally, the Company receives upfront, non-refundable initial franchise fees (when not fully satisfied by the fee paid under the area development agreement) that are recognized ratably over the term of the related franchise agreement beginning at the opening date of the franchise location.
The Company receives variable sales-based royalty fees from the franchisee at the rate of 5% of gross sales, payable on a weekly basis. Royalty fees are recognized in the period in which the related sales occur.
The Company receives variable sales-based marketing fees from the franchisee at the rate of 2.5% of gross sales, payable on a weekly basis. Marketing fees are recognized in the period in which the related sales occur.
The Company receives rebate income from purchases from vendors which is recorded in other revenue. Rebate income is recognized as purchases are made by franchise owners from vendors and rebates are earned.
The Company’s agreements generally do not include any significant financing components.
Performance Obligations
The Company typically satisfies its performance obligations as the franchise partner utilizes the franchise right and as services are rendered each month. Substantially all of the Company’s revenue is satisfied over time.
Royalty and marketing fees are recognized over time using the “sales-based royalty” exception, which states that revenue will be recognized at the later of when the subsequent sales occur or when the satisfaction or partial satisfaction of the performance obligation to which the royalty relates occurs.
The aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed agreements includes deferred revenue yet to be recognized from area development and initial franchise fees. The Company recognized $150 and $100 thousand in revenue for the twenty-four weeks ending June 13, 2021 and June 14, 2020, respectively. As of June 13, 2021 and December 27, 2020, the Company’s remaining performance obligations approximated $2.3 million and $2.5 million, of which approximately 6% will be recognized over the next twelve months and the remaining 94% thereafter.
In this balance, the Company does not include the value of unsatisfied performance obligations related to those agreements for which it recognizes revenue at the amount for which it has the right to invoice for services performed. Additionally, this balance does not include revenue related to performance obligations that are part of an agreement with an original expected duration of one year or less. Lastly, this balance does not include variable consideration recognized using the sales-based royalty exception.
| 16 |
Twin Restaurant Holding, LLC
Notes
to
As part of the adoption of Topic 606, the Company has elected the following practical expedients provided for in the standard.
| 1) | The Company is excluding from its transaction price all sales and similar taxes collected from its customers. | |
| 2) | The portfolio approach has been elected by the Company as it expects any effects of adoption would not be materially different in application at the portfolio level compared with the application at an individual agreement level. | |
| 3) | The Company has elected the “right to invoice” expedient which states that for performance obligations satisfied over time, if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, the entity may recognize revenue in the amount to which the entity has a right to invoice. | |
| 4) | The Company has elected not to disclose information about its remaining performance obligations for any agreement that has an original expected duration of one year or less. | |
| 5) | The Company has elected not to disclose information about its remaining performance obligations for variable consideration that is a sales-based royalty promised in exchange for a license of intellectual property. | |
| 6) | The Company has elected to disclose rebates in the “Other Revenue” line. Rebates are based on volume purchases with the specified vendors. |
The Company records food and beverage revenues from company-owned stores upon sale to the customer. Neither the type of service sold, nor the location of sale significantly impacts the nature, amount, timing, or uncertainty of revenue and cash flows.
The Company records a liability in the period in which a gift card is sold. As gift cards are redeemed, the liability is reduced. When gift cards are redeemed at a franchisee-operated restaurant, the revenue and related administrative costs are recognized by the franchisee. The Company recognizes revenue and related administrative costs when gift cards are redeemed at Company-operated restaurants. The gift card breakage approximates 20% and has been immaterial to date.
The company does not currently incur direct incremental costs to obtain new Franchise Agreements.
Deferred Development and Franchise Fees
A
performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting
within the contract. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as,
the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies performance
obligations at contract inception so that it can monitor and account for the obligations over the life of the contract. Remaining performance
obligations represent the portion of the transaction price in a contract allocated to products and services not yet transferred to the
customer. As of June 13, 2021,
| 17 |
Twin Restaurant Holding, LLC
Notes
to
The
Company expects to recognize revenue for its remaining performance obligations as of June 13, 2021
| Within one year | $ | 159,334 | ||||||
| Between one and three years | 478,002 | |||||||
| Thereafter | 1,962,743 | |||||||
| Total Value of Remaining Performance Obligations | $ | 2,600,079 | ||||||
Income Taxes
The
Company is a limited liability company and is not required to pay federal income tax. Accordingly, no federal income tax expense has
been recorded in the
The Company applies FASB ASC 740-10 - Income Taxes in establishing standards for accounting for uncertain tax positions. The Company evaluates uncertain tax positions with the presumption of audit detection and applies a “more likely than not” standard to evaluate the recognition of tax benefits or provisions. ASC 740-10 applies a two-step process to determine the amount of tax benefits or provisions to record in the financial statements. First, the Company determines whether any amount may be recognized and then determines how much of a tax benefit or provision should be recognized. As of June 13, 2021 and December 27, 2020, the Company has no uncertain tax positions.
Recent Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update ASU 2017-04, Intangibles – Goodwill and Other, which simplifies the test for goodwill impairment by removing the second step of the two-step impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. For nonpublic entities, the standard is effective for annual periods beginning after December 15, 2022 with early application permitted for tests performed after January 1, 2017. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
| 18 |
Twin Restaurant Holding, LLC
Notes
to
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (“ASU 2018-19”), which clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), which clarifies the treatment of certain credit losses. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”), which provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (“ASU 2019-11”), which provides guidance around how to report expected recoveries. ASU 2016-13, ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-11 (collectively, “ASC 326”) are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
3. Property and Equipment
Property and equipment consists of the following at June 13, 2021 and December 27, 2020:
| June 13, 2021 | December 27, 2020 | |||||||
| Leasehold improvements | 25,768,428 | 25,761,938 | ||||||
| Furniture and equipment | 8,824,636 | 8,683,524 | ||||||
| Construction in progress | 4,287,579 | 2,641,967 | ||||||
| 37,087,429 | ||||||||
| Accumulated depreciation | (13,573,108 | ) | (10,915,184 | ) | ||||
| $ | $ | 26,172,245 | ||||||
Depreciation
expense for property and equipment for the twenty-four weeks ended June 13, 2021 and
4. Sale Leaseback Transactions
During fiscal 2020, the Company executed a sale leaseback of one property for proceeds of $4,132,951. The company recognized a loss on the sale of $36,310. The lease term is 20 years and the annual base rent is $250,000.
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Twin Restaurant Holding, LLC
Notes
to
5. Accrued Liabilities
Accrued
liabilities consist of the following at
June 13, 2021 | December 27, 2020 | |||||||
| Payroll | $ | $ | 1,238,475 | |||||
| Sales and use tax | 2,081,408 | 1,741,120 | ||||||
| Real and personal property taxes | 661,527 | 1,168,169 | ||||||
| Marketing Fund Accrual | 2,967,669 | 1,065,696 | ||||||
| Other accruals | 1,624,896 | |||||||
| $ | $ | 6,838,356 | ||||||
6. Intangible Assets
Intangible
assets at
Amortization
expense was $1,130,600 and
| Years ending December 2x, | ||||
| $ | ||||
| 2022 | 2,450 | |||
| 2023 | 2,450 | |||
| 2024 | ||||
| 2025 | ||||
| Therafter | ||||
| $ | ||||
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Twin Restaurant Holding, LLC
Notes
to
7. Notes Payable
At the Date of Acquisition, the Company paid off its existing debt agreements and entered into a new debt facility (the “Credit Agreement”) to facilitate the acquisition. As of December 29, 2019 the Credit Agreement provide for, among other things, (a) a term loan with a commitment of $64,350,000 (Term Loan), (b) a revolver of $12,000,000 (Revolver), and (c) development line of credit (DLOC) of $23,000,000, all of which are due March 29, 2024.
On March 10, 2020, the Company borrowed from the DLOC in the amount of $3,500,000 consisting of LIBOR loans with an interest period of six months. The Company received the borrowing on March 13, 2020. On March 16, 2020, the Company borrowed from the revolver in the amount of $12,000,000 consisting of LIBOR loans with an interest period of six months. The Company received the borrowing on March 19,2020.
On October 8, 2020 the Company Amended the Credit Agreement to obtain a waiver of debt covenants that were unable to be maintained due to the impact of Covid-19 on operations. The amendment adjusted the leverage to EBITDA ratios, increased the interest rate, and reduced the DLOC capacity to $12,000,000. At the execution of the Amendment the Company repaid the $12,000,000 outstanding on the Revolver.
As
of
Interest on all borrowings under the Credit Agreement is paid monthly . The Credit Agreement bears interest at LIBOR plus 7.5% (amended from 5.75%, and will reduce in accordance with meeting certain leverage ratios back to 5.75%) with a LIBOR floor of 1.25%. The term loan requires quarterly principal payments of $325,000. The DLOC draw period ends on October 15, 2021 and payments commence on January 1, 2022. The revolver has no required payments.
The
Credit Agreement is secured by substantially all assets of the Company and its subsidiaries. The agreement requires, among other things,
maintenance by the Company of minimum levels of leverage to EBITDA ratio. As of
In conjunction with the Credit Agreement borrowings, $1,327,500 in transaction fees were capitalized as deferred financing costs, to be amortized over the term of the debt agreement using the effective interest method.
June 13, 2021 | December 27, 2020 | |||||||
| Term Note, | $ | $ | ||||||
| DLOC, 1% Amortization beginning 2022 | 3,500,000 | - | ||||||
| Deferred financing fees – net | ) | |||||||
| Total debt | ||||||||
| (1,300,000 | ) | (1,300,000 | ) | |||||
| $ | $ | |||||||
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Twin Restaurant Holding, LLC
Notes
to
As of December 27, 2020, future principal payment obligations on notes payable are as follows:
| For the fiscal year ending | ||||
| $ | ||||
| 2022 | 1,440,000 | |||
| 2023 | 1,370,000 | |||
| 2024 | ||||
| $ | ||||
In April of 2021, the Company obtained a $5,000,000 letter of credit from a nationally recognized bank as part the Company’s general liability self-insurance retention. In conjunction with the letter of credit, the Company maintains a $5,000,000 cash collateral account with the issuing bank which is included in cash on the balance sheet as of June 13, 2021.
Paycheck Protection Program
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.
It also appropriated funds for the SBA Paycheck Protection Program (PPP) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.
The Company applied for and received approximately $12.9 million for the SBA Paycheck Protection Program on April 22, 2020. Prior to December 27, 2020 the Company applied for forgiveness of $12.2 million of the loan and repaid $0.7 million of the loan related to a location that was permanently closed post-Covid and therefore not eligible for forgiveness. The PPP loan carries an interest rate of 1.00%. The Company accrued interest of $84,877 in fiscal year 2020 but no interest payments were required in fiscal year 2020. The PPP loan has a two-year repayment schedule for any unforgiven amounts, no principal payments were required in fiscal year 2020.
The
application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request
necessary to support the ongoing operations of the Company. The receipt of these funds, and the forgiveness of the loan attendant to
these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based
on adherence to the forgiveness criteria. The PPP loan is subject to any new guidance and new requirements released by the Department
of the Treasury who has indicated that all companies that have received funds in excess of $2.0 million will be subject to a government
(SBA) audit to further ensure PPP loans are limited to eligible borrowers in need. See subsequent events footnote for more. During the
quarter ended June 13, 2021, all remaining PPP loans totaling $12.2m were forgiven. The Company recorded the derecognition of this liability
as of the forgiveness dates. A corresponding gain on PPP loan forgiveness has been recorded in the Consolidated Statement of Operations
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Twin Restaurant Holding, LLC
Notes
to
8. Commitment and Contingencies
Operating leases
The Company leases various restaurant locations, which generally have renewal clauses of 5 to 20 years exercisable at the Company’s option, under non-cancelable operating leases expiring in June 2030.
The Company’s restaurant leases generally provide for fixed rental payments plus real estate taxes, insurance and other expenses. In addition, several of the Company’s leases provide for contingent rental payments between 2% and 6% of the restaurant’s gross sales once certain thresholds are met.
Future
minimum lease payments under non-cancelable operating leases as of
| For the fiscal year ending | ||||
| $ | ||||
| 2022 | 4,886,942 | |||
| 2023 | 4,448,801 | |||
| 2024 | 3,537,463 | |||
| 2025 | 3,322,366 | |||
| Thereafter | 16,553,049 | |||
| $ | ||||
Rent expense for the twenty-four weeks ending June 13, 2021 and June 14, 2020, respectively was $2,400,117 and $3,409,727. The Company includes rent expense associated with the construction period of its restaurants in restaurant pre-opening costs in the accompanying statements of operations.
Contingencies
The Company may be a party to routine claims brought against it in the ordinary course of business. The Company estimates whether such liabilities are probable to occur and whether reasonable estimates can be made and accrues liabilities when both conditions are met.
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Twin Restaurant Holding, LLC
Notes
to
During the fiscal year ended December 29, 2019, charges of discrimination were filed with the United States Equal Employment Opportunity Commission through the Chicago District Office, which were pending as of December 27, 2020. The majority of the charges of discrimination claim discrimination based on retaliation and sex, additionally, some claim discrimination based on race, age, disability and/or color. The Company settled with the claimants subsequent to the date of these financial statements. The settlement was fully funded by Restricted Cash on the balance sheet.
The
accompanying
9. Related Party Transactions
At
the acquisition date the Company contracted in separate transition service agreements with the former owner in which $5,000 is received
per period or $65,000 and $50,000 for Fiscal Year 2020 and 2019 for certain accounting and legal services. The Company also contracted
with the former owner for certain transportation costs in the amount of
The Company had related party payables of $270 thousand and $247 thousand at June 13, 2021 and December 27, 2020, respectively. These balances consist primarily of amounts due to Front Burner Restaurants, LP, for transaction services agreements and intercompany payables.
Certain franchise restaurant locations have investors that include key employees of the Company and follow the standard franchise agreement.
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Twin Restaurant Holding, LLC
Notes
to
11. Employee Benefit Plan
The Company has a 401(k)-defined contribution plan (“the Plan”). Participation in the Plan is available to all employees meeting certain eligibility requirements. The Plan allows employees to contribute the maximum amount allowable under IRS regulations. The Company made matching contributions to the Plan totaling $57,631 and $44,502 during the twenty-four weeks ending June 13, 2021 and June 14, 2020, respectively.
12. Subsequent Events
On October 1, 2021, FAT Brands, Inc. completed its previously announced acquisition from Twin Peaks Holdings, LLC (the “Seller”) of Twin Peaks and its subsidiaries, which franchise and operate a chain of sports lodge restaurants. FAT Brands Inc. acquired Twin Peaks Holdings, LLC. and its direct and indirect subsidiaries including Twin Restaurant Holding, LLC. FAT Brands Inc. completed the issuance and sale in a private offering through its special purpose, wholly-owned subsidiary, FAT Brands Twin Peaks I, LLC (the “Issuer”), of an aggregate principal amount of $250,000,000 of Series 2021-1 Fixed Rate Secured Notes (the “Notes”). The net proceeds from the sale of the Notes were used by the Company to finance the cash portion of the purchase price for the acquisition of Twin Peaks Buyer, LLC and its direct and indirect subsidiaries (collectively, “Twin Peaks”) in the transaction. Immediately following the closing of the acquisition, the Company contributed to the Issuer 100% of its ownership interest in Twin Peaks Buyer, LLC, including all of its subsidiaries and operations, pursuant to a Contribution Agreement dated October 1, 2021.
The
purchase price for the acquisition was
On the Closing Date, the Company and the Seller entered into a Put/Call Agreement (the “Put/Call Agreement”) pursuant to which the Company was granted the right to call from the Seller, and the Seller was granted the right to put to the Company, the Initial Put/Call Shares at any time until March 31, 2022 for a cash payment of $42,500,000, and the Secondary Put/Call Shares at any time until September 30, 2022 for a cash payment of $25,000,000, plus any accrued but unpaid dividends on such shares. If the Company does not deliver the applicable cash proceeds to the Seller when due, the amounts then due will accrue interest at the rate of 10.0% per annum.
Management
has evaluated subsequent events through October 15, 2021, the date the
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