Note 4 - Business and License Acquisitions

12 Months Ended

Jun. 03, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

4.  Business and License Acquisitions

Fiscal 2012 transactions

On April 11, 2012, we completed the acquisition of Lime Fresh, including the assets of seven Lime Fresh concept restaurants, the royalty stream from five Lime Fresh concept franchised restaurants (one of which was not yet open), and the Lime Fresh brand’s intellectual property for $24.1 million. Lime Fresh is a fast casual Mexican concept that then operated several restaurants primarily in the vicinity of Miami, Florida. The Lime Fresh concept menu features diverse menu offerings such as homemade tortilla chips, customizable nachos, salads, soups, fajitas, quesadillas, tacos, burritos, and salsa and guacamole.

Our Consolidated Financial Statements reflect the results of operations of these acquired restaurants subsequent to the date of acquisition.

The purchase price of the Lime Fresh acquisition during fiscal 2012 was allocated based on fair value estimates as follows (in thousands):

Trademarks	$	11,100
Goodwill		9,022
Acquired franchise rights		1,500
Property and equipment		2,405
Deferred income taxes		6
Other, net		(983	)
Net impact on Consolidated Balance Sheet		23,050
Write-off of previous license agreement		1,034
Net impact on Consolidated Statements of Operations and Comprehensive Loss		1,034
Aggregate cash purchase price	$	24,084

For the year ended June 5, 2012, a $1.0 million loss on the write-off of a previous license agreement, representing the balance remaining from the September 13, 2010 licensing agreement with LMFG International, LLC, was included in Other restaurant operating costs in our Consolidated Statements of Operations and Comprehensive Loss. Further discussion regarding this agreement is presented later within this footnote.

We recorded $9.0 million of goodwill due to the purchase price exceeding the estimated fair value of the net assets acquired. As further discussed in Note 9 to the Consolidated Financial Statements, we determined during fiscal 2013 that the goodwill associated with our acquisition of Lime Fresh was fully impaired and recorded a charge of $9.0 million ($5.4 million, net of tax).

We amortize the acquired trademarks over a ten year period. As further discussed in Note 9 to the Consolidated Financial Statements, we determined during the third quarter of fiscal 2014 and the fourth quarter of fiscal 2013 that the Lime Fresh trademark was partially impaired and recorded charges of $0.9 million and $5.0 million, respectively. We amortize the acquired franchise rights associated with this acquisition on a straight-line basis over the remaining term of the franchise operating agreements, which are approximately five to nine years from the date of acquisition.

The revenues and operating results from April 11, 2012, the date of acquisition, through June 5, 2012 for the seven Lime Fresh restaurants acquired in fiscal 2012 were not material to our consolidated financial statements.

License Acquisitions and Related Party Transactions

On September 13, 2010, we entered into a licensing agreement with LFMG International, LLC which allowed us to operate multiple restaurants under the Lime Fresh concept. Under the terms of the agreement, we paid an initial development fee of $1.0 million and paid a license agreement fee of $5,000 for each Lime Fresh restaurant we opened. In addition, we paid a royalty fee of 2.0%, and an advertising fee of 1.0%, of gross sales of any Lime Fresh restaurant that we opened. The license agreement terminated when we acquired certain assets of LFMG International, LLC as discussed above. We opened four Lime Fresh restaurants during fiscal 2012 under the terms of the license agreement prior to the acquisition on April 11, 2012. As previously discussed, we wrote off the $1.0 million balance remaining on this license agreement upon completion of the acquisition in fiscal 2012.

On June 7, 2012 we entered into two marketing agreements with 50 Eggs Branding Company, LLC (“50 Eggs”). John Kunkel, the Chief Executive Officer of 50 Eggs, previously was the Chief Executive Officer of LFMG International, LLC, and is a current Lime Fresh franchisee. Under the terms of the first agreement, 50 Eggs provided marketing services for our Lime Fresh concept for a monthly fee of $52,500 plus out of pocket expenses. Under the terms of the second agreement, 50 Eggs provided marketing services for our Marlin & Ray’s concept for a monthly fee of $26,250 plus out of pocket expenses. We cancelled both agreements during fiscal 2013. Included within Selling, general, and administrative, net in our Consolidated Statements of Operations and Comprehensive Loss for the year ended June 4, 2013, are payments we made to 50 Eggs in connection with these agreements of $0.8 million. Additionally, during the year ended June 5, 2012, we made payments to 50 Eggs including $30,000 for marketing services and $26,139 for training consulting for our Lime Fresh concept.

On July 22, 2010, following the approval of the Audit Committee of our Board of Directors, we entered into a licensing agreement with Gourmet Market, Inc. which is owned by our former Chief Executive Officer’s brother, Price Beall. The licensing agreement allowed us to operate multiple restaurants under the Truffles name. Under the terms of the agreement, we paid a licensing fee to Gourmet Market, Inc. of 2.0% of gross sales of the Truffles we opened. Additionally, we paid Gourmet Market, Inc. a monthly fee two years for consulting services to be provided by Price Beall to assist us in developing and opening Truffles restaurants under the terms of the licensing agreement. During the first 12 months of the agreement we paid $20,833 per month for such services. During the second 12 months of the agreement we paid $10,417 per month. The consulting services agreement expired during the first quarter of fiscal 2013. As discussed further in Notes 3 and 9 to the Consolidated Financial Statements, we closed our two Truffles restaurants during the fourth quarter of fiscal 2013. During fiscal 2013 and 2012, we paid Gourmet Market, Inc. $80,361 and $197,623, respectively, under the terms of the agreement.