(2)	Adoption of ASU 2014-09, “Revenue from Contracts with Customers”

The Company adopted ASU 2014-09 and Topic 606 using the modified retrospective transition method effective June 25, 2018. Results for reporting periods beginning on or after June 25, 2018 are presented in accordance with Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605, “Revenue Recognition.”

A cumulative effect adjustment of $1.6 million was recorded as a reduction to retained earnings as of June 25, 2018 to reflect the impact of adopting Topic 606. The reduction of retained earnings to reflect the cumulative impact of adopting Topic 606 was comprised of $1.3 million related to domestic franchise and renewal fees, $0.2 million related to domestic area development fees and $0.3 million related to international development and franchise master license fees, partially offset by $0.2 million in deferral of contract-related expenses.

The impact of applying Topic 606 for the three months ended December 23, 2018, was an increase in revenues of $321 thousand and an increase in pre-tax income of $129 thousand. The impact of applying Topic 606 for the six months ended December 23, 2018, was an increase in revenues of $771 thousand and an increase in pre-tax income of $160 thousand.

The adoption of Topic 606 did not impact the recognition and reporting of our two largest sources of revenue: franchise royalties and supplier and distributor incentives. The items impacted by the adoption include the timing of franchise and development revenue recognition and the presentation of advertising funds and supplier convention contributions.

The following chart presents the specific line items impacted by the cumulative adjustment to opening retained earnings:

(In thousands, except share amounts)	As Reported June 24, 2018			Total Adjustment			Adjusted Balance Sheet June 25, 2018

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,386		$	-		$	1,386
Accounts receivable, less allowance for bad debts of $158		1,518			-			1,518
Other receivable		300			-			300
Notes receivable		712			-			712
Inventories		6			-			6
Income tax receivable		5			-			5
Property held for sale		539			-			539
Deferred contract charges		-			10			10
Prepaid expenses and other		273			-			273
Total current assets		4,739			10			4,749

LONG-TERM ASSETS
Property, plant and equipment, net		1,510			-			1,510
Intangible assets definite-lived, net		212			-			212
Long-term notes receivable		803			-			803
Deferred tax asset, net		3,479			-			3,479
Long term deferred contract charges		-			182			182
Deposits and other		243			-			243
Total assets	$	10,986		$	192		$	11,178

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	421		$	-		$	421
Accounts payable - lease termination impairments		353			-			353
Accrued expenses		1,109			(4	)		1,105
Deferred rent		32			-			32
Deferred revenues		65			243			308
Total current liabilities		1,980			239			2,219

LONG-TERM LIABILITIES
Convertible notes		1,562			-			1,562
Deferred rent, net of current portion		433			-			433
Deferred revenues, net of current portion		670			1,575			2,245
Other long-term liabilities		42			-			42
Total liabilities		4,687			1,814			6,501

COMMITMENTS AND CONTINGENCIES (SEE NOTE 3)

SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 26,000,000 shares; issued 22,166,674 shares outstanding 15,047,470 shares		222			-			222
Additional paid-in capital		33,206			-			33,206
Accumulated deficit		(2,493	)		(1,622	)		(4,115	)
Treasury stock at cost
Shares in treasury: 7,119,204		(24,636	)		-			(24,636	)
Total shareholders' equity		6,299			(1,622	)		4,677

Total liabilities and shareholders' equity	$	10,986		$	192		$	11,178

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

The following charts present the specific line items impacted by the application of Topic 606 in the first two quarters of fiscal 2019.

(In thousands, except share amounts)	As Reported December 23, 2018 (Unaudited)			Total Adjustment			Balance Sheet Without Adoption of Topic 606
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	1,906		$	-		$	1,906
Accounts receivable, less allowance for bad debts of $179		1,520			-			1,520
Other receivable		-			-			-
Notes receivable		798			-			798
Inventories		6			-			6
Income tax receivable		-			-			-
Property held for sale		496			-			496
Deferred contract charges		28			(28	)		-
Prepaid expenses and other		410			47			457
Total current assets		5,164			19			5,183

LONG-TERM ASSETS
Property, plant and equipment, net		1,300			-			1,300
Intangible assets definite-lived, net		203			-			203
Long-term notes receivable		1,017			-			1,017
Deferred tax asset, net		3,334			-			3,334
Long term deferred contract charges		189			(189	)		-
Deposits and other		243			-			243
Total assets	$	11,450		$	(170	)	$	11,280

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	285		$	-		$	285
Accounts payable - lease termination impairments		488			-			488
Accrued expenses		914			(3	)		911
Deferred rent		37			-			37
Deferred revenues		267			(114	)		153
Total current liabilities		1,991			(117	)		1,874

LONG-TERM LIABILITIES
Convertible notes		1,574			-			1,574
Deferred rent, net of current portion		415			-			415
Deferred revenues, net of current portion		2,088			(1,515	)		573
Other long-term liabilities		51			-			51
Total liabilities		6,119			(1,632	)		4,487

COMMITMENTS AND CONTINGENCIES (SEE NOTE 3)

SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 26,000,000 shares; issued 22,190,515 shares outstanding 15,071,311 shares		222			-			222
Additional paid-in capital		33,520			-			33,520
Accumulated deficit		(3,775	)		1,462			(2,313	)
Treasury stock at cost		0			-
Shares in treasury: 7,119,204		(24,636	)		-			(24,636	)
Total shareholders' equity		5,331			1,462			6,793

Total liabilities and shareholders' equity	$	11,450		$	(170	)	$	11,280

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

	As Reported Six Months Ended December 23, 2018			Total Adjustments			Income Statement Without Adoption of Topic 606

REVENUES:	$	6,186		$	(771	)	$	5,415

COSTS AND EXPENSES:
Cost of sales		333			-			333
General and administrative expenses		3,054			-			3,054
Franchise expenses		1,953			(611	)		1,342
Pre-opening expenses		-			-			-
Gain on sale of assets		(354	)		-			(354	)
Impairment of long-lived assets and other lease charges		170			-			170
Bad debt		195			-			195
Interest expense		51			-			51
Depreciation and amortization expense		265			-			265
Total costs and expenses		5,667			(611	)		5,056

INCOME FROM CONTINUING OPERATIONS BEFORE TAXES		519			(160	)		359
Income tax expense		179			-			179
INCOME FROM CONTINUING OPERATIONS		340			(160	)		180

Loss from discontinued operations, net of taxes		-			-			-
NET INCOME	$	340		$	(160	)	$	180

INCOME PER SHARE OF COMMON STOCK - BASIC:
Income from continuing operations	$	0.02		$	(0.01	)	$	0.01
Loss from discontinued operations		-			-			-
Net income	$	0.02		$	(0.01	)	$	0.01

INCOME PER SHARE OF COMMON STOCK - DILUTED:

Income from continuing operations	$	0.02		$	(0.01	)	$	0.01
Loss from discontinued operations		-			-			-
Net income	$	0.02		$	(0.01	)	$	0.01

Weighted average common shares outstanding - basic		15,068			15,068			15,068

Weighted average common and potential dilutive common shares outstanding		15,901			15,901			15,901

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.