Company Quick10K Filing
Quick10K
Papa Murphy's Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$6.45 17 $110
10-Q 2019-04-01 Quarter: 2019-04-01
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-10-01 Quarter: 2018-10-01
10-Q 2018-07-02 Quarter: 2018-07-02
10-Q 2018-04-02 Quarter: 2018-04-02
10-K 2018-01-01 Annual: 2018-01-01
10-Q 2017-10-02 Quarter: 2017-10-02
10-Q 2017-07-03 Quarter: 2017-07-03
10-Q 2017-04-03 Quarter: 2017-04-03
10-K 2017-01-02 Annual: 2017-01-02
10-Q 2016-09-26 Quarter: 2016-09-26
10-Q 2016-06-27 Quarter: 2016-06-27
10-Q 2016-03-28 Quarter: 2016-03-28
10-K 2015-12-28 Annual: 2015-12-28
10-Q 2015-09-28 Quarter: 2015-09-28
10-Q 2015-06-29 Quarter: 2015-06-29
10-Q 2015-03-30 Quarter: 2015-03-30
10-K 2014-12-29 Annual: 2014-12-29
10-Q 2014-09-29 Quarter: 2014-09-29
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
8-K 2019-05-23 Leave Agreement, M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2019-04-10 Enter Agreement, Other Events, Exhibits
8-K 2019-03-14 Earnings, Exhibits
8-K 2019-02-04 Earnings, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-10-02 Officers, Regulation FD, Exhibits
8-K 2018-08-01 Earnings, Exhibits
8-K 2018-05-23 Shareholder Vote
8-K 2018-05-09 Earnings, Exhibits
8-K 2018-04-17 Enter Agreement, Exhibits
8-K 2018-03-27 Officers, Exhibits
8-K 2018-03-14 Earnings, Exhibits
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KODK Eastman Kodak 106
EEI Ecology & Environment 51
REPR Repro Med Systems 0
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FRSH 2019-04-01
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Description of Business and Basis of Presentation
Note 2 - Prepaid Expenses and Other Current Assets
Note 3 - Property and Equipment
Note 4 - Intangible Assets
Note 5 - Financing Arrangements
Note 6 - Fair Value Measurement
Note 7 - Accrued Expenses and Other Current Liabilities
Note 8 - Revenue
Note 9 - Leases
Note 10 - Income Taxes
Note 11 - Share-Based Compensation
Note 12 - Brand Marketing Fund
Note 13 - Earnings per Share (Eps)
Note 14 - Commitments and Contingencies
Note 15 - Segment Information
Note 16 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits.
EX-31.1 ex31120190401section302ceo.htm
EX-31.2 ex31220190401section302cfo.htm
EX-32.1 ex32120190401section906ceo.htm
EX-32.2 ex32220190401section906cfo.htm

Papa Murphy's Holdings Earnings 2019-04-01

FRSH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 frsh201910qq1.htm FORM 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
–––––––––––––––––––––––––––––––––––––
FORM 10-Q
–––––––––––––––––––––––––––––––––––––
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended April 1, 2019
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-36432
–––––––––––––––––––––––––––––––––––––
logo.jpg
Papa Murphy’s Holdings, Inc.
(Exact name of registrant as specified in its charter)
–––––––––––––––––––––––––––––––––––––
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
 
27-2349094
(IRS Employer
Identification No.)
8000 NE Parkway Drive, Suite 350
Vancouver, WA
(Address of principal executive offices)
 
98662
(Zip Code)
(360) 260-7272
(Registrant’s telephone number, including area code)
–––––––––––––––––––––––––––––––––––––
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ].
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X]. No [ ].
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer,” “large accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
 
Accelerated filer [ ]
Non-accelerated filer [X]
 
Smaller reporting company [X]
 
 
Emerging growth company [X]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]. No [X].
Securities registered pursuant to Section 12(b) of the Act:




Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
FRSH
NASDAQ Global Select Market
At May 3, 2019, there were 17,029,528 shares of the Registrant’s common stock, $0.01 par value, outstanding.




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Papa Murphy’s Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
 
Three Months Ended
(In thousands, except share and per share data)
April 1, 2019
 
April 2, 2018
Revenues
 
 
 
Franchise related
$
16,149

 
$
16,190

Company-owned stores
12,823

 
18,582

Total revenues
28,972

 
34,772

 
 
 
 
Costs and Expenses
 
 
 
Store operating costs:
 
 
 
Cost of food and packaging
4,194

 
6,126

Compensation and benefits
4,181

 
5,631

Advertising
928

 
1,252

Occupancy and other store operating costs
2,509

 
3,103

Selling, general, and administrative
11,759

 
13,013

Depreciation and amortization
1,478

 
2,141

Loss on disposal or impairment of property and equipment
21

 
2

Total costs and expenses
25,070

 
31,268

Operating Income
3,902

 
3,504

 
 
 
 
Interest expense, net
1,397

 
1,292

Other expense, net
45

 
51

Income Before Income Taxes
2,460

 
2,161

 
 
 
 
Provision for income taxes
654

 
581

Net Income
$
1,806

 
$
1,580

 
 
 
 
Earnings per share of common stock
 
 
 
Basic
$
0.11

 
$
0.09

Diluted
$
0.11

 
$
0.09

Weighted average common stock outstanding
 
 
 
Basic
16,956,044

 
16,905,738

Diluted
16,992,704

 
16,944,894

See accompanying notes.

4


Papa Murphy’s Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par value and share data)
April 1, 2019
 
December 31, 2018
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
366

 
$
5,766

Accounts receivable, net
2,790

 
3,564

Inventories
547

 
549

Prepaid expenses and other current assets
2,443

 
2,173

Total current assets
6,146

 
12,052

Property and equipment, net
4,406

 
4,866

Operating lease right of use assets
9,441

 
9,801

Goodwill
101,763

 
101,763

Trade name and trademarks
87,002

 
87,002

Definite-life intangibles, net
26,296

 
27,326

Assets held for sale
3,015

 
3,117

Other assets
926

 
797

Total assets
$
238,995

 
$
246,724

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
4,843

 
$
4,773

Accrued expenses and other current liabilities
8,418

 
12,389

Current portion of lease liabilities
2,424

 
2,510

Current portion of unearned franchise and development fees
1,602

 
1,715

Current portion of long-term debt
8,400

 
11,400

Total current liabilities
25,687

 
32,787

Long-term debt, net of current portion
68,618

 
70,644

Lease liabilities, net of current portion
8,439

 
8,806

Unearned franchise and development fees, net of current portion
8,290

 
8,546

Deferred tax liability
23,477

 
23,121

Other long-term liabilities
3,450

 
3,797

Total liabilities
137,961

 
147,701

Commitments and contingencies (Note 14)


 


 
 
 
 
Stockholders’ Equity
 
 
 
Preferred stock ($0.01 par value; 15,000,000 shares authorized; no shares issued)

 

Common stock ($0.01 par value; 200,000,000 shares authorized; 17,029,528 and 17,025,028 shares issued, respectively)
170

 
170

Additional paid-in capital
121,376

 
121,171

Accumulated deficit
(20,512
)
 
(22,318
)
Total stockholders’ equity
101,034

 
99,023

Total liabilities and stockholders’ equity
$
238,995

 
$
246,724

See accompanying notes.

5


Papa Murphy’s Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
 
Three Months Ended April 1, 2019
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Deficit
 
Total
Equity
 (In thousands)
Shares
 
Amount
 
 
 
BALANCE, December 31, 2018
17,025

 
$
170

 
$
121,171

 
$
(22,318
)
 
$
99,023

Exercise of stock options
5

 

 
18

 

 
18

Stock based compensation expense

 

 
187

 

 
187

Net income

 

 

 
1,806

 
1,806

BALANCE, April 1, 2019
17,030

 
$
170

 
$
121,376

 
$
(20,512
)
 
$
101,034

 
Three Months Ended April 2, 2018
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Deficit
 
Total
Equity
 (In thousands)
Shares
 
Amount
 
 
 
BALANCE, January 1, 2018
16,971

 
$
170

 
$
120,614

 
$
(26,642
)
 
$
94,142

Stock based compensation expense

 

 
185

 

 
185

Net income

 

 

 
1,580

 
1,580

BALANCE, April 2, 2018
16,971

 
$
170

 
$
120,799

 
$
(25,062
)
 
$
95,907


6


Papa Murphy’s Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
 
Three Months Ended
(In thousands)
April 1, 2019
 
April 2, 2018
Operating Activities
 
 
 
Net income
$
1,806

 
$
1,580

Adjustments to reconcile to cash from operating activities
 
 
 
Depreciation and amortization
1,478

 
2,141

Loss on disposal or impairment of property and equipment
21

 
2

Deferred taxes
356

 
530

Stock-based compensation
187

 
185

Other non-cash items
80

 
79

Change in operating assets and liabilities
 
 
 
Accounts receivable
773

 
(1,023
)
Prepaid expenses and other assets
494

 
444

Unearned franchise and development fees
(368
)
 
(962
)
Accounts payable
205

 
(785
)
Accrued expenses and other liabilities
(5,084
)
 
2,061

Net cash from operating activities
(52
)
 
4,252

 
 
 
 
Investing Activities
 
 
 
Acquisition of property and equipment
(307
)
 
(80
)
Acquisition of stores, less cash acquired
(11
)
 

Proceeds from sale of property and equipment
52

 
73

Net cash from investing activities
(266
)
 
(7
)
 
 
 
 
Financing Activities
 
 
 
Payments on long-term debt
(5,100
)
 
(4,900
)
Proceeds from exercise of stock options
18

 

Net cash from financing activities
(5,082
)
 
(4,900
)
 
 
 
 
Net change in cash and cash equivalents
(5,400
)
 
(655
)
Cash and Cash Equivalents, beginning of period
5,766

 
2,174

Cash and Cash Equivalents, end of period
$
366

 
$
1,519

 
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 
 
Cash paid during the period for interest
$
1,322

 
$
1,277

Cash (received) paid during the period for income taxes
$
(81
)
 
$

See accompanying notes.

7


Papa Murphy’s Holdings, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 — Description of Business and Basis of Presentation
Description of Business
Papa Murphy’s Holdings, Inc. (“Papa Murphy’s” or the “Company”), together with its subsidiaries, is a franchisor and operator of a Take ‘N’ Bake pizza chain. The Company franchises the right to operate Papa Murphy’s Take ‘N’ Bake pizza franchises and operates Papa Murphy’s Take ‘N’ Bake pizza stores owned by the Company. As of April 1, 2019, the Company had 1,422 stores consisting of 1,384 domestic stores (1,278 franchised stores and 106 Company-owned stores) across 37 states, plus 38 franchised stores in Canada and the United Arab Emirates.
Substantially all of the Company’s revenues are derived from retail sales of pizza and other food and beverage products to the general public by Company-owned stores and the collection of franchise royalties and fees associated with franchise and development rights.
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. In the Company’s opinion, all necessary adjustments, consisting of only normal recurring adjustments, have been made for the fair statement of the results of the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Principles of Consolidation
The interim unaudited condensed consolidated financial statements include the accounts of Papa Murphy’s Holdings, Inc., its subsidiaries and certain entities which the Company consolidates as variable interest entities. All significant intercompany transactions and balances have been eliminated.
Throughout the interim unaudited condensed consolidated financial statements and the related notes thereto, “Papa Murphy’s” and “the Company” refer to Papa Murphy’s Holdings, Inc. and its consolidated subsidiaries.
Fiscal Year
The Company uses a 52- or 53-week fiscal year, ending on the Monday nearest to December 31. Fiscal years 2019 and 2018 are 52-week years. All three month periods presented herein contain 13 weeks. All references to years and quarters relate to fiscal periods rather than calendar periods. References to fiscal 2019 and 2018 are references to fiscal years ending December 30, 2019 and ended December 31, 2018, respectively.
Recently Issued Accounting Standards
Recent Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The new standard simplifies how an entity measures goodwill impairment by removing the second step of the two-step quantitative goodwill impairment test. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured at the amount by which the carrying value exceeds the fair value of a reporting unit; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform a qualitative assessment of whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying amount. ASU 2017-04 requires prospective adoption and is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is still evaluating the impact of ASU 2017-04 on its financial position and results of operations.

8


Note 2 — Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
(in thousands)
April 1, 2019
 
December 31, 2018
Prepaid media production costs
$
605

 
$
724

Prepaid software and support
687

 
469

Prepaid occupancy related costs
135

 
136

Prepaid insurance
134

 
160

Taxes receivable

 
61

POS software licenses for resale
368

 
368

Assets held for sale
200

 
257

Advertising cooperative assets, restricted
46

 
(24
)
Other
268

 
22

Total prepaid expenses and other current assets
$
2,443

 
$
2,173

Note 3 — Property and Equipment
Property and equipment are net of accumulated depreciation of $19.0 million and $18.6 million at April 1, 2019, and December 31, 2018, respectively. Depreciation expense amounted to $0.4 million and $1.0 million during the three months ended April 1, 2019, and April 2, 2018, respectively.
Note 4 — Intangible Assets
Definite-lived intangible assets are net of accumulated amortization of $34.4 million and $33.3 million as of April 1, 2019, and December 31, 2018, respectively. Amortization expense amounted to $1.0 million and $1.1 million during the three months ended April 1, 2019, and April 2, 2018, respectively.
Note 5 — Financing Arrangements
Long-term debt consists of the following:
(in thousands)
April 1, 2019
 
December 31, 2018
Term loan
$
77,408

 
$
79,508

Notes payable

 
3,000

Total principal amount of long-term debt
77,408

 
82,508

Unamortized debt issuance costs
(390
)
 
(464
)
Total long-term debt
77,018

 
82,044

Less current portion
(8,400
)
 
(11,400
)
Total long-term debt, net of current portion
$
68,618

 
$
70,644

Senior secured credit facility
On August 28, 2014, PMI Holdings, Inc., a wholly-owned subsidiary of Papa Murphy’s Holdings, Inc., entered into a $132.0 million senior secured credit facility (the “Senior Credit Facility”) consisting of a $112.0 million term loan and a $20.0 million revolving credit facility, which includes a $2.5 million letter of credit subfacility and a $1.0 million swing-line loan subfacility.
On November 6, 2018, the Company extended the term of the Senior Credit Facility to August 2020 and reduced the revolving credit facility from $20.0 million to $7.5 million. The Company has shown as the current portion of long-term debt an amount equal to the minimum term loan amortization payments of $2.1 million due on the last day of each fiscal quarter.

9


As of April 1, 2019, the term loan bears interest at a rate of 6.5% per annum based on the LIBOR rate option plus the applicable margin. The weighted average interest rate for all borrowings under the Senior Credit Facility for the first quarter of 2019 was 6.5%.
Notes payable
Papa Murphy’s Company Stores, Inc., a wholly owned subsidiary of Papa Murphy’s Holdings, Inc., had a $3.0 million note payable which bore interest at a rate of 5.0% per annum and matured in January 2019. This note was subordinated to the Senior Credit Facility and was paid in full in January 2019.
Note 6 — Fair Value Measurement
The Company determines the fair value of assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. GAAP defines a fair value hierarchy that prioritizes the assumptions used to measure fair value. The three levels of the fair value hierarchy are defined as follows:
Level 1    —    Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2    —    Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.
Level 3    —    Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
The following table presents information about the fair value of the Company’s financial instruments:
 
April 1, 2019
 
December 31, 2018
 
 
(in thousands)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
Fair Value Measurement
Financial assets
 
 
 
 
 
 
 
 
 
Other receivables (1)
505

 
444

 
505

 
439

 
Level 3
(1)
The fair value of other receivables was estimated primarily using a discounted cash flow method based on a discount rate, reflecting the applicable credit spread.
Financial instruments not included in the table above consist of cash and cash equivalents, accounts receivable, accounts payable, and long-term debt. The fair values of cash and cash equivalents, accounts receivable, and accounts payable approximate carrying value because of the short-term nature of the accounts. The fair value of long-term debt approximates carrying value because the borrowings are made with variable market rates and negotiated terms and conditions that are consistent with current market rates.
Note 7 — Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
(in thousands)
April 1, 2019
 
December 31, 2018
Accrued compensation and related costs
$
2,382

 
$
4,100

Accrued legal settlement costs

 
2,363

Gift cards payable
2,206

 
2,700

Accrued interest and non-income taxes payable
328

 
318

Convention fund balance
1,428

 
1,175

Advertising cooperative liabilities
95

 
25

Income taxes payable
317

 

Lease liabilities held for sale
706

 
763

Other
956

 
945

Total accrued expenses and other current liabilities
$
8,418

 
$
12,389


10


Note 8 — Revenue
Revenue by Category
The following series of tables present revenue disaggregated by several categories for the periods reported.
Revenues by contract type were as follows:
 
Three Months Ended April 1, 2019
(in thousands)
Franchise
 
Company Stores
 
Brand Funds
 
Total
Franchise royalties
$
9,179

 
$

 
$
3,687

 
$
12,866

Franchise fees
631

 

 

 
631

Vendor payments

 

 
1,208

 
1,208

E-commerce fees
713

 

 

 
713

Other franchise and brand
38

 

 
693

 
731

Company-owned stores

 
12,823

 

 
12,823

Total revenues
10,561

 
12,823

 
5,588

 
28,972

Intersegment revenues
698

 

 
365

 
1,063

Reconciliation to business segment revenues
$
11,259

 
$
12,823

 
$
5,953

 
$
30,035

 
Three Months Ended April 2, 2018
(in thousands)
Franchise
 
Company Stores
 
Brand Funds
 
Total
Franchise royalties
$
9,461

 
$

 
$
3,840

 
$
13,301

Franchise fees
740

 

 

 
740

Vendor payments

 

 
1,117

 
1,117

E-commerce fees
546

 

 

 
546

Other franchise and brand
23

 

 
463

 
486

Company-owned stores

 
18,582

 

 
18,582

Total revenues
10,770

 
18,582

 
5,420

 
34,772

Intersegment revenues
992

 

 
465

 
1,457

Reconciliation to business segment revenues
$
11,762

 
$
18,582

 
$
5,885

 
$
36,229

Revenues by geographic location were as follows:
 
Three Months Ended April 1, 2019
(in thousands)
Franchise
 
Company Stores
 
Brand Funds
 
Total
United States
$
10,478

 
$
12,823

 
$
5,588

 
$
28,889

International
83

 

 

 
83

Total revenues
$
10,561

 
$
12,823

 
$
5,588

 
$
28,972

 
Three Months Ended April 2, 2018
(in thousands)
Franchise
 
Company Stores
 
Brand Funds
 
Total
United States
$
10,690

 
$
18,582

 
$
5,420

 
$
34,692

International
80

 

 

 
80

Total revenues
$
10,770

 
$
18,582

 
$
5,420

 
$
34,772


11


Contract Balances
Changes in the balances of contract liabilities (unearned revenue) during the periods reported were as follows:
(in thousands)
Contract Liabilities
Balance at December 31, 2018
$
9,878

Revenue recognized that was included in the balance at the beginning of the period
(619
)
Cash received, net of amounts recognized as revenue during the period
260

Balance at April 1, 2019
$
9,519

The Company had a refund liability of $0.5 million as of each of April 1, 2019 and December 31, 2018. Receivables from contracts with customers included in Accounts receivable, net were $2.7 million as of April 1, 2019 and $3.1 million as of December 31, 2018, respectively.
The following table includes estimated franchise fee revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of April 1, 2019 (in thousands):
Fiscal year
2019
$
1,214

 
2020
1,494

 
2021
1,339

 
2022
1,181

 
2023
951

 
Thereafter
3,340

 
Total
$
9,519

Note 9 — Leases
The Company leases the property for its corporate headquarters, Company-owned stores, and certain office equipment. The Company is not a party to leases for franchise locations except for two locations that operate under a sublease and a few leases assigned to franchisees when stores were refranchised wherein it remains secondarily liable (see Lease guarantees below). The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right of use assets, current portion of lease liabilities, and lease liabilities, net of current portion in the Condensed Consolidated Balance Sheets. The Company currently has no finance leases. The Company’s leases have remaining lease terms of 1.2 to 12.8 years.
Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense for the periods reported are as follows:
 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Operating lease cost
$
863

 
$
1,046

Short-term lease cost
12

 
14

Variable lease cost
3

 
1

Sublease income
(20
)
 
(18
)
Total lease cost
$
858

 
$
1,043

Supplemental cash flow information related to leases for the periods reported is as follows:
 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Cash paid for amounts included in the measurement of lease liabilities:


 


Operating cash flows from operating leases
$
1,155

 
$
1,222

Right of use assets obtained in exchange for new operating lease liabilities
448

 

Weighted-average remaining lease term of operating leases
5.1 years

 
5.7 years

Weighted-average discount rate of operating leases
6.1
%
 
6.0
%

12


Future minimum lease payments under non-cancelable leases as of April 1, 2019 are as follows (in thousands):
Fiscal year
2019
$
2,824

 
2020
3,540

 
2021
2,687

 
2022
1,946

 
2023
1,521

 
Thereafter
2,601

 
Total future minimum lease payments
15,119

 
Less imputed interest
(2,313
)
 
Less lease liabilities held for sale(1)
(1,943
)
 
Total Lease Liabilities
$
10,863

(1)
Lease liabilities held for sale includes $0.7 million reported in Accrued expenses and other current liabilities (see Note 7 — Accrued Expenses and Other Current Liabilities) and $1.2 million reported in Other long-term liabilities in the Company's Condensed Consolidated Balance Sheets.
As of April 1, 2019, the Company had no operating leases that had not yet commenced.
Lease guarantees
The Company is the guarantor for operating leases of 40 franchised stores that have terms expiring on various dates from June 2019 to August 2025. The obligations from these leases will generally continue to decrease over time as the leases expire. The applicable franchise owners continue to have primary liability for these operating leases. As of April 1, 2019, the Company does not believe it probable that it would be required to perform under any of the remaining guarantees.
Note 10 — Income Taxes
Information on the Company’s income taxes for the periods reported is as follows:
 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Provision for income taxes
$
654

 
$
581

Income before income taxes
2,460

 
2,161

Effective income tax rate
26.6
%
 
26.9
%
The effective income tax rates for the three months ended April 1, 2019 and April 2, 2018 include the effect of certain permanent differences between tax reporting purposes and financial reporting purposes and the effect of certain Federal General Business Credits confirmed during the quarter.
Note 11 — Share-based Compensation
In May 2010, the Company’s Board of Directors approved the 2010 Amended Management Incentive Plan (the “2010 Plan”). In May 2014, the Company’s Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan,” and together with the 2010 Plan, the “Incentive Plans”). The Incentive Plans reserve 2,116,747 common shares for equity incentive awards consisting of incentive stock options, non-qualified stock options, restricted stock awards, and unrestricted stock awards. Equity incentive awards may be issued from either the 2014 Plan or the 2010 Plan.
Restricted common shares
Information with respect to restricted stock awards is as follows:
 
Number of Shares of Restricted Common Stock
 
Weighted Average
Award Date
Fair Value Per Share
 
Time Vesting
 
Market Condition
 
Performance Vesting
 
Unvested, December 31, 2018
41,000

 
30,171

 

 
$
3.79

Granted

 
63,902

 
63,907

 
4.75

Unvested, April 1, 2019
41,000

 
94,073

 
63,907

 
$
4.41


13


Stock options
Information with respect to stock option activity is as follows:
 
Number of Shares
Subject to Options
 
Weighted
Average
Exercise
Price Per Share
 
Weighted
Average Remaining
Contractual Term
 
Aggregate
Intrinsic
Value
(thousands)
 
Time
Vesting
 
Market
Condition
 
 
 
Outstanding, December 31, 2018
803,344

 
111,290

 
$
7.23

 
 
 
 
Granted
384,818

 

 
4.75

 
 
 
 
Exercised
(4,500
)
 

 
3.97

 
 
 
 
Forfeited
(200,399
)
 
(4,336
)
 
9.67

 
 
 
 
Outstanding, April 1, 2019
983,263

 
106,954

 
$
5.91

 
8.6 years
 
$
371

Exercisable, April 1, 2019
241,362

 

 
$
8.20

 
6.9 years
 
$
79

Compensation cost
Stock-based compensation expense recognized in connection with the Incentive Plans for each of the three months ended April 1, 2019 and April 2, 2018 amounted to $0.2 million.
As of April 1, 2019, total unrecognized share-based compensation expense was $2.0 million, with $1.2 million associated with time vesting awards, $0.5 million associated with market condition awards, and $0.3 million associated with performance vesting awards. The remaining weighted average period for unrecognized share-based compensation expense was 2.1 years as of April 1, 2019.
Note 12 — Brand Marketing Fund
The Company manages the Brand Marketing Fund (the “BMF”) on behalf of all Papa Murphy’s stores in the United States. The Company is committed under its franchise and other agreements to spend revenues of the BMF on marketing, creative efforts, media support, or related purposes specified in the agreements. Contributions to the BMF are recognized as revenue, while expenditures are included in selling, general, and administrative expenses. Expenditures of the BMF are primarily amounts paid to third parties, but may also include personnel expenses and allocated costs. At each reporting date, to the extent contributions to the BMF exceed expenditures on a cumulative basis, the excess contributions are recorded in accrued expenses in the Company’s Condensed Consolidated Balance Sheets. While no profit is recognized on amounts received by the BMF, when expenditures exceed contributions to the BMF on a cumulative basis, income from operations and net income may be affected due to the timing of when revenues are received and expenses are incurred.
Information on the Company’s BMF balances for the periods reported is as follows:
 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Opening BMF deficit
$
(5,423
)
 
$
(5,461
)
Net activity during the period
109

 
(401
)
Ending BMF deficit
$
(5,314
)
 
$
(5,862
)
As of April 1, 2019, previously recognized expenses of $5.3 million may be recovered in future periods if subsequent BMF contributions exceed expenditures.
Note 13 — Earnings per Share (EPS)
The number of shares and earnings per share (“EPS”) data for all periods presented are based on the historical weighted-average shares of common stock outstanding. Basic EPS is calculated by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted EPS is calculated using income available to common stockholders divided by diluted weighted-average shares of common stock outstanding during each period, which includes unvested restricted common stock and outstanding stock options. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the common shares underlying such securities would have an anti-dilutive effect.

14


The following table sets forth the computations of basic and diluted EPS:
 
Three Months Ended
(in thousands, except per share data)
April 1, 2019
 
April 2, 2018
Earnings:
 
 
 
Net income
$
1,806

 
$
1,580

Shares:
 
 
 
Weighted average common shares outstanding
16,956

 
16,906

Dilutive effect of restricted equity awards
37

 
39

Diluted weighted average number of shares outstanding
16,993

 
16,945

Earnings per share:
 
 
 
Basic earnings per share
$
0.11

 
$
0.09

Diluted earnings per share
$
0.11

 
$
0.09

For the three months ended April 1, 2019, and April 2, 2018, an aggregated total of 0.4 million shares and 0.6 million shares, respectively, have been excluded from the diluted EPS calculation because their effect would have been anti-dilutive.
Note 14 — Commitments and Contingencies
Legal proceedings
The Company is from time to time involved in litigation, certain other claims and arbitration matters arising in the ordinary course of business. The Company accrues a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of the probability of a loss and the determination as to whether a loss is reasonably estimable. These accruals are reviewed at least quarterly and adjusted to reflect the effects of negotiations, settlements, rulings, advice of legal counsel and technical experts and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility (within the meaning of Accounting Standards Codification (“ASC”) 450) that losses could exceed amounts already accrued, if any, and the additional loss or range of loss is able to be estimated, the Company discloses the additional loss or range of loss.
In some instances, the Company is unable to reasonably estimate any potential loss or range of loss. The nature and progression of litigation can make it difficult to predict the impact a particular lawsuit will have on its business. There are many reasons that the Company cannot make these assessments, including, among others, one or more of the following: the early stages of a proceeding; damages sought that are unspecified, unsupportable, unexplained or uncertain; discovery not having been started or incomplete; the complexity of the facts that are in dispute; the difficulty of assessing novel claims; the parties not having engaged in any meaningful settlement discussions; the possibility that other parties may share in any ultimate liability; and/or the often slow pace of litigation.
The Company currently is subject to litigation with a group of its franchise owners. In January 2014, six franchise owner groups claimed that the Company misrepresented its sales volumes, made false representations to them and charged excess advertising fees, among other things. The Company engaged in mediation with these franchise owners, which is required under the terms of their franchise agreements, in order to address and resolve their claims, but was unable to reach a settlement agreement. On April 4, 2014, a total of twelve franchise owner groups, including those franchise owners that previously made the allegations described above, filed a lawsuit against the Company in the Superior Court in Clark County, Washington, making essentially the same allegations for violation of the Washington Franchise Investment Protection Act, fraud, negligent misrepresentation and breach of contract, and seeking declaratory and injunctive relief, as well as monetary damages. Based on motions filed by the Company in that lawsuit, the court ruled on July 9, 2014, that certain of the plaintiffs’ claims under the anti-fraud and nondisclosure provisions of the Washington Franchise Investment Protection Act should be dismissed and that certain other claims in the case would need to be more specifically alleged. The court also ruled that the six franchise owner groups who had not mediated with the Company prior to filing the lawsuit must mediate with the Company in good faith, and that their claims shall be stayed until they have done so.
On June 18, 2014, an additional 16 franchise owner groups, represented by the same counsel as the plaintiffs described above, filed a lawsuit in the Superior Court in Clark County, Washington making essentially the same allegations as made in the lawsuit described above and seeking declaratory and injunctive relief, as well as monetary damages. The court consolidated the two lawsuits into a single case and ordered that the plaintiffs in the new lawsuit, none of whom had mediated with the Company prior to filing the lawsuit, must do so, and that their claims be stayed until they have completed mediating with the Company in good faith.

15


In October 2014, the Company engaged in mediation with the 22 franchise owner groups who had not previously done so. As a result of that mediation and other efforts, the Company reached resolution with 13 of the franchise owner groups involved in the consolidated lawsuits, and their claims have either been dismissed or dismissal is pending.
In February 2015, the remaining franchise owner groups in the consolidated lawsuits filed an amended complaint, removing some claims, amending some claims, adding claims and naming some of the Company’s former and current franchise sales staff as additional individual defendants. In September 2016, the remaining 15 franchise owner groups in the consolidated lawsuits filed an amended complaint to add a claim under the Washington Consumer Protection Act based on substantially the same allegations as the prior claims, to re-plead claims under the Washington Franchise Investment Protection Act that had previously been dismissed.
In June 2017, the parties moved for summary judgment. The Company moved for summary judgment against two of the remaining franchise owner groups, the board of directors members moved for summary judgment on all claims against them, and the plaintiffs moved for summary judgment against all defendants on their Washington Consumer Protection Act and Washington Franchise Investment Protection Act claims. A hearing on the summary judgment motions was held on October 13, 2017.
In July 2017, the Company engaged in mediation with the remaining 15 franchise owner groups in the consolidated lawsuits. As a result of that mediation and other efforts, the Company reached resolutions with six of the remaining franchise owner groups, and their claims have been dismissed.
In April 2018, the Company reached resolution with four of the remaining franchise owner groups, conditioned upon dismissal of their claims.
In June 2018, the Company reached resolution with an additional franchise owner group.
On June 29, 2018, the Court granted the Company’s motion to strike the remaining franchise owner groups’ jury demand. The Court denied the Company’s motion for separate trials, because at the time of the hearing there were only two franchise owner groups remaining in the case, based on tentative settlements with two other groups.
In July 2018, the Company entered into final settlements with two of the aforementioned franchise owner groups.
In September 2018, the Company entered into a final settlement with an additional franchise owner group.
One franchise owner group remains in the case. Trial with the remaining franchise owner group has been postponed indefinitely due to pending discovery.
As before, the Company believes the allegations in this litigation lack merit and, for the remaining plaintiff, the Company will continue to vigorously defend its interests, including by asserting a number of affirmative defenses and, where appropriate, counterclaims. The Company provides no assurance that it will be successful in its defense of the remaining lawsuit; however, the Company does not currently expect the cost of resolving it to have a material adverse effect on its consolidated financial position, results of operations, or cash flows.
The Company is named the defendant in a putative collective action filed by plaintiff Amanda Cottle on January 8, 2019, in the United States District Court for the Middle District of Florida. The lawsuit alleges that the Company violated the FLSA by failing to pay proper overtime wages to the plaintiff, a store manager. Ms. Cottle asks that the court certify the putative class and that unpaid wages and liquidated damages under the FLSA, as well as interest and fees, be awarded to her and each class member. The Company believes the allegations in this litigation lack merit and will vigorously defend its interests in the matter. The Company provides no assurance that it will be successful in its defense of this lawsuit; however, the Company does not currently expect the cost of resolving it to have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
In January 2019, the United States District Court for the Western District of Washington issued the final order and mandate releasing all claims relating to the putative class action lawsuit filed against us by plaintiff John Lennartson on May 7, 2015, alleging the Company failed to comply with the requirements of the Telephone Consumer Protection Act when it sent SMS text messages to consumers.
In addition to the foregoing, the Company is subject to routine legal proceedings, claims and litigation in the ordinary course of its business. The Company may also engage in future litigation with franchise owners to enforce the terms of franchise agreements and compliance with brand standards as determined necessary to protect the Company’s brand, the consistency of products and the customer experience. Lawsuits require significant management attention and financial resources and the outcome of any litigation is inherently uncertain. The Company does not, however, currently expect that the costs to resolve these routine matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

16


Note 15 — Segment Information
The Company has the following reportable segments: (i) Franchise; (ii) Company Stores; and (iii) Brand Funds. The Franchise segment includes operations with respect to franchised stores and derives its revenues primarily from franchise and development fees and franchise royalties from franchised stores. The Company Stores segment includes operations with respect to Company-owned stores and derives its revenues from retail sales of pizza and side items to the general public. The Brand Funds segment includes the Brand Marketing Fund and the Company’s Convention Fund.
The Company measures the performance of its segments based on segment adjusted EBITDA and allocates resources based primarily on this measure. “EBITDA” is calculated as net income before interest expense, income taxes, depreciation, and amortization. Segment adjusted EBITDA excludes certain unallocated and corporate expenses. Although segment adjusted EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, the Company uses segment adjusted EBITDA to compare the operating performance of its segments on a consistent basis and to evaluate the performance and effectiveness of its operational strategies. The Company’s calculation of segment adjusted EBITDA may not be comparable to that reported by other companies.
The following tables summarize information on revenues, adjusted EBITDA and assets for each of the Company’s reportable segments and include a reconciliation of segment adjusted EBITDA to income before income taxes:
 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Revenues
 
 
 
Franchise segment
$
11,259

 
$
11,762

Brand Funds segment
5,953

 
5,885

Intersegment eliminations
(1,063
)
 
(1,457
)
Franchise related
16,149

 
16,190

Company Stores segment
12,823

 
18,582

Total
$
28,972

 
$
34,772


17


 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Segment Adjusted EBITDA
 
 
 
Franchise
$
6,083

 
$
7,287

Company Stores
(15
)
 
1,074

Brand Funds
112

 
(238
)
Total reportable segments adjusted EBITDA
6,180

 
8,123

Corporate and unallocated
(702
)
 
(987
)
Depreciation and amortization
(1,478
)
 
(2,141
)
Interest expense, net
(1,397
)
 
(1,292
)
CEO transition and restructuring costs(1)
204

 
(244
)
E-commerce transition costs(2)

 
(358
)
Strategic alternatives(3)
(188
)
 

Litigation settlement and reserves(4)
(159
)
 
(940
)
Income Before Income Taxes
$
2,460

 
$
2,161

(1)
Represents non-recurring management transition and restructuring costs in connection with the recruitment of a new Chief Executive Officer and other executive positions.
(2)
Represents non-recurring costs incurred to complete the transition of our e-commerce platform to a third party developed and hosted solution.
(3)
Reflects costs associated with the exploration of strategic alternatives and negotiation of the definitive merger agreement.
(4)
Accruals made for litigation settlements and associated legal costs.
(in thousands)
April 1, 2019
 
December 31, 2018
Total Assets
 
 
 
Franchise
$
113,793

 
$
120,611

Company Stores
37,235

 
38,177

Brand Funds
835

 
873

Other(1)
87,132

 
87,063

Total
$
238,995

 
$
246,724

(1)
Other assets which are not allocated to the individual segments primarily include trade names and trademarks and taxes receivable.
Note 16 — Subsequent Events
On April 10, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MTY Franchising USA, Inc. (“Parent”) and MTY Columbia Merger Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of Parent, providing for the acquisition of the Company by Parent in an all-cash transaction, consisting of a tender offer at a purchase price of $6.45 per share in cash (the “Offer”) for all of the Company’s outstanding shares of common stock, par value $0.01 per share (the “Common Stock”), followed by a subsequent merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent.
The foregoing description of the Merger Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, a copy of which is attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated April 11, 2019.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. To match our operating cycle, we use a 52- or 53-week fiscal year, ending on the Monday nearest to December 31. Our fiscal quarters each contain 13 operating weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains 14 operating weeks. Fiscal year 2019 is a 52-week period ending on December 30, 2019, and fiscal year 2018 was a 52-week period ended on December 31, 2018.

18


Cautionary Note Regarding Forward-Looking Statements
In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in the sections entitled “Risk Factors” in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. All statements other than statements of historical fact or relating to present facts or current conditions included in this discussion and analysis are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Examples of forward-looking statements include those regarding our future financial or operating results, cash flows, sufficiency of liquidity, financing resources, business strategies and priorities, resolution of litigation and claims, expansion and growth opportunities, our obligations with respect to lease guarantees, the risks and uncertainties associated with the Merger, adoption of new accounting standards and the estimated effect of those new standards, our qualification as an “emerging growth company,” as well as industry trends and outlooks. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.
The forward-looking statements contained in this discussion and analysis are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. As you read and consider this discussion and analysis, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from expectations based on these forward-looking statements.
Any forward-looking statement made by us in this discussion and analysis speaks only as of the date on which we make it. Factors or events that could cause our actual operating and financial performance to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
2019 Highlights
Revenue
Total revenues for the three months ended April 1, 2019, compared to the three months ended April 2, 2018, declined 16.7% from $34.8 million to $29.0 million. The decline in total revenues was due to (i) a decline in Company-owned store sales attributable to the refranchising of 29 and closure of ten Company-owned stores since April 2, 2018, and (ii) a decline in royalties and advertising fees due to negative comparable store sales, as noted below, and a net decline of 43 franchise stores since April 2, 2018 (8 stores opened, 80 stores closed, and 29 stores refranchised).
Comparable store sales in 2019 compared to 2018 for selected segments were as follows:
 
Three Months Ended
 
April 1, 2019
 
April 2, 2018
Franchise
(3.1
)%
 
(4.0
)%
Company Stores
(9.0
)%
 
(2.7
)%
Total
(3.5
)%
 
(3.9
)%
Comparable store sales for the three months ended April 1, 2019 were lower compared to the same period in the prior year primarily as a result of continued competitive headwinds and both convenience and relevance gaps.

19


Key Operating Metrics
We evaluate the performance of our business using a variety of operating and performance metrics. Set forth below is a description of our key operating metrics.
 
Three Months Ended
 
April 1, 2019
 
April 2, 2018
Store average weekly sales
$
10,790

 
$
10,874

Comparable store sales
(3.5
)%
 
(3.9
)%
Comparable stores
1,413

 
1,469

System-wide sales (in thousands)
$
200,332

 
$
213,757

System-wide stores
1,422

 
1,504

Adjusted EBITDA (in thousands)
$
5,478

 
$
7,136

Average Weekly Sales
Average Weekly Sales (“AWS”) consists of the average weekly sales of stores over a specified period of time. AWS is calculated by dividing the total net sales of our system-wide stores for the relevant time period by the number of weeks these stores were open in such time period. This measure allows management to assess changes in customer traffic and spending patterns in our stores.
Comparable Store Sales
Comparable store sales represents the change in year-over-year sales for comparable stores. A comparable store is a store open for at least 52 full weeks from the comparable date (the Tuesday following the opening date). Comparable store sales reflects changes in the number of transactions and in customer spend per transaction at existing stores. Customer spend per transaction is affected by changes in menu prices, sales mix, and the number of items sold per customer.
System-Wide Sales
System-wide sales includes net sales by all of our system-wide stores. This measure allows management to assess the health of our brand, our relative position to competitors, and changes in our royalty revenues.
Store Openings, Closures, Acquisitions, and Divestitures
We review the number of new stores, the number of closed stores, and the number of acquired and divested stores to assess growth in system-wide sales, royalty revenues, and Company-owned store sales. We operate through a footprint of 1,422 stores as of April 1, 2019, of which 92.5% are franchised, located in 37 states plus Canada and the Middle East. The following table presents the changes in the number of stores in our system for the three months ended April 1, 2019.
 
Franchise
 
 
 
 
 
 
 
Domestic
 
International
 
Total Franchise
 
Company Stores
 
Total
Store count at December 31, 2018
1,294

 
37

 
1,331

 
106

 
1,437

Openings

 
1

 
1

 

 
1

Closings
(16
)
 

 
(16
)
 

 
(16
)
Store count at April 1, 2019
1,278

 
38

 
1,316

 
106

 
1,422

EBITDA and Adjusted EBITDA
To supplement our interim unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles in the U.S. (“GAAP”), we consider certain financial measures that are not prepared in accordance with GAAP. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies.
Adjusted EBITDA is calculated as net income before interest expense, income taxes, depreciation, and amortization (“EBITDA”) as adjusted for the effects of items that we do not consider indicative of our operating performance. Adjusted EBITDA is a supplemental measure of operating performance that does not represent and should not be considered as an

20


alternative to net income, as determined by GAAP, and our calculation of Adjusted EBITDA may not be comparable to that reported by other companies.
Adjusted EBITDA is a non-GAAP financial measure. Management believes that this financial measure, when viewed with our results of operations in accordance with GAAP and our reconciliation of Adjusted EBITDA to net income, provides additional information to investors about certain material or unusual items that we do not expect to continue at the same level in the future. By providing this non-GAAP financial measure, we believe we are enhancing investors’ understanding of our business and our results of operations, and assisting investors in evaluating how well we are executing strategic initiatives. We believe Adjusted EBITDA is used by investors as a supplemental measure to evaluate the overall operating performance of companies in our industry.
Management uses Adjusted EBITDA and other similar measures:
in comparing our operating performance on a consistent basis;
to calculate incentive compensation for our employees;
for planning purposes, including the preparation of our internal annual operating budget; and
to evaluate the performance and effectiveness of our operational strategies.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:
Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect the cash requirements for such replacements; and
Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes.
To address these limitations, we reconcile Adjusted EBITDA to the most directly comparable GAAP measure, net income. Further, we also review GAAP measures and evaluate individual measures that are not included in Adjusted EBITDA.
The following table provides a reconciliation of our net income to Adjusted EBITDA for the periods presented:
 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Net Income
$
1,806

 
$
1,580

Depreciation and amortization
1,478

 
2,141

Provision for income taxes
654

 
581

Interest expense, net
1,397

 
1,292

EBITDA
$
5,335

 
$
5,594

CEO transition and restructuring costs(1)
(204
)
 
244

E-commerce transition costs(2)

 
358

Strategic alternatives(3)
188

 

Litigation settlement and reserves(4)
159

 
940

Adjusted EBITDA
$
5,478

 
$
7,136

(1)
Represents non-recurring management transition and restructuring costs in connection with the recruitment of a new Chief Executive Officer and other executive positions.
(2)
Represents non-recurring costs incurred to complete the transition of our e-commerce platform to a third party developed and hosted solution.
(3)
Reflects costs associated with the exploration of strategic alternatives and negotiation of the definitive merger agreement.
(4)
Accruals made for litigation settlements and associated legal costs.
Our Segments
We operate in three business segments: Franchise, Company Stores, and Brand Funds. Our Franchise segment consists of our franchised stores, our Company Stores segment consists of our Company-owned stores, and our Brand Funds segment consists of our BMF and our Convention Fund.
Our Chief Operating Decision Maker (“CODM”) uses segment adjusted EBITDA as the primary measure of segment performance to allocate resources. The CODM believes this measure provides an enhanced basis for consistently measuring segment performance against operational objectives and strategies. Segment adjusted EBITDA excludes certain unallocated and corporate expenses, which include costs related to our board of directors, CEO, CFO, and certain legal expenses.

21


Although segment adjusted EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, we use segment adjusted EBITDA to compare the operating performance of our segments on a consistent basis and to evaluate the performance and effectiveness of our operational strategies. Our calculation of segment adjusted EBITDA may not be comparable to that reported by other companies.
The following tables set forth our revenues and segment adjusted EBITDA for each of our segments for the periods presented: 
 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Revenues
 
 
 
Franchise segment
$
11,259

 
$
11,762

Brand Funds segment
5,953

 
5,885

Intersegment eliminations
(1,063
)
 
(1,457
)
Franchise related
16,149

 
16,190

Company Stores segment
12,823

 
18,582

Total
$
28,972

 
$
34,772

 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Segment Adjusted EBITDA
 
 
 
Franchise
$
6,083

 
$
7,287

Company Stores
(15
)
 
1,074

Brand Funds
112

 
(238
)
Total reportable segments adjusted EBITDA
6,180

 
8,123

Corporate and unallocated
(702
)
 
(987
)
Adjusted EBITDA
5,478

 
7,136

Depreciation and amortization
(1,478
)
 
(2,141
)
Interest expense, net
(1,397
)
 
(1,292
)
CEO transition and restructuring costs(1)
204

 
(244
)
E-commerce transition costs(2)

 
(358
)
Strategic alternatives(3)
(188
)
 

Litigation settlement and reserves(4)
(159
)
 
(940
)
Income Before Income Taxes
$
2,460

 
$
2,161

(1)
Represents non-recurring management transition and restructuring costs in connection with the recruitment of a new Chief Executive Officer and other executive positions.
(2)
Represents non-recurring costs incurred to complete the transition of our e-commerce platform to a third party developed and hosted solution.
(3)
Reflects costs associated with the exploration of strategic alternatives and negotiation of the definitive merger agreement.
(4)
Accruals made for litigation settlements and associated legal costs.

22


Results of Operations
The following table sets forth our results of operations in dollars and as a percentage of total revenues for the three months ended April 1, 2019, and April 2, 2018.
 
Three Months Ended
 
April 1, 2019
 
April 2, 2018
(dollars in thousands)
$
 
Total % of
Revenues
 
$
 
Total % of
Revenues
Revenues
 
 
 
 
 
 
 
Franchise related
$
16,149

 
55.7
%
 
$
16,190

 
46.6
%
Company-owned stores
12,823

 
44.3
%
 
18,582

 
53.4
%
Total revenues
28,972

 
100.0
%
 
34,772

 
100.0
%
Costs and Expenses
 
 
 
 
 
 
 
Store operating costs:
 
 
 
 
 
 
 
Cost of food and packaging (1)
4,194

 
14.5
%
 
6,126

 
17.6
%
Compensation and benefits (1)
4,181

 
14.4
%
 
5,631

 
16.2
%
Advertising (1)
928

 
3.2
%
 
1,252

 
3.6
%
Other store operating costs (1)
2,509

 
8.7
%
 
3,103

 
8.9
%
Selling, general, and administrative
11,759

 
40.5
%
 
13,013

 
37.4
%
Depreciation and amortization
1,478

 
5.1
%
 
2,141

 
6.2
%
Loss on disposal or impairment of property and equipment
21

 
0.1
%
 
2

 
0.0
%
Total costs and expenses
25,070

 
86.5
%
 
31,268

 
89.9
%
Operating Income
3,902

 
13.5
%
 
3,504

 
10.1
%
Interest expense, net
1,397

 
4.8
%
 
1,292

 
3.8
%
Other expense, net
45

 
0.2
%
 
51

 
0.1
%
Income Before Income Taxes
2,460

 
8.5
%
 
2,161

 
6.2
%
Provision for income taxes
654

 
2.3
%
 
581

 
1.7
%
Net Income
$
1,806

 
6.2
%
 
$
1,580

 
4.5
%
(1)
Please see the table presented under Costs and Expenses below, which presents Company-owned store expenses as a percentage of Company-owned store sales for the three months ended April 1, 2019, and April 2, 2018.
Revenues
Total revenues. In the three months ended April 1, 2019, total revenues decreased compared to the three months ended April 2, 2018, primarily due to a decline in the number of Company-owned and franchise stores period-over-period and a decline in comparable store sales of 3.5%, partially offset by increases in e-commerce fee revenues.
Franchise revenues. Franchise revenues decreased in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to a decline in Franchise comparable store sales of 3.1% and a net decline of 43 franchise stores period-over-period, partially offset by increases in e-commerce fee revenues.
Company-owned stores revenue. Company-owned stores revenue decreased in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to a reduction in the number of Company-owned stores period-over-period due to the refranchising of 29 and closure of ten Company-owned stores since April 2, 2018, and a decline in comparable store sales of 9.0%.
Costs and Expenses
Total costs and expenses. Total costs and expenses decreased in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to the aforementioned reduction in the number of Company-owned stores period-over-period.
Store operating costs. Store operating costs as a percentage of total revenues increased in the three months ended April 1, 2019, compared to the three months ended April 2, 2018. The following table presents the components of store operating costs as a percentage of Company-owned store sales for the periods reported:

23


 
Three Months Ended
 
April 1, 2019
 
April 2, 2018
Store operating costs as a % of Company-owned store sales:
 
 
Cost of food and packaging
32.7
%
 
33.0
%
Compensation and benefits
32.6
%
 
30.3
%
Advertising
7.2
%
 
6.7
%
Occupancy and other store operating costs
19.6
%
 
16.7
%
Total store operating costs
92.1
%
 
86.7
%
Total store operating costs as a percentage of Company-owned store sales increased by 540 basis points overall in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, due primarily to the effect of Company-owned store portfolio changes in select markets and as further explained below:
Cost of food and packaging. Food and packaging costs as a percentage of Company-owned store sales declined during the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to decreases in commodity prices and the closing of ten stores since April 2, 2018 that had lower sales and higher food costs as a percentage of store sales than the system average.
Compensation and benefits. Compensation and benefits costs as a percentage of Company-owned store sales increased during the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to minimum wage increases in markets where we have Company-owned stores.
Advertising costs. Advertising costs as a percentage of Company-owned store sales increased in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to increased levels of spending on advertising during the first quarter ended April 1, 2019.
Occupancy and other store operating costs. The increase in occupancy and other store operating costs as a percentage of Company-owned store sales during the three months ended April 1, 2019 compared to the three months ended April 2, 2018 was primarily a result of the refranchising of 29 and closure of ten Company-owned stores that had lower occupancy costs as a percentage of store sales than the remaining portfolio of Company-owned stores.
Selling, general, and administrative. Selling, general, and administrative costs decreased in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily as a result of reduced spending on compensation and benefits in the three months ended April 1, 2019, and legal settlement costs recorded in the three months ended April 2, 2018.
Depreciation and amortization. Depreciation and amortization decreased in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, due to a reduction in our depreciable asset base as a result of having fewer Company-owned stores period-over-period.
Interest expense, net. Interest expense, net increased in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, due to increased average interest rates, partially offset by a reduction in the total amount of debt outstanding period-over-period.
Income taxes. The provision for income taxes increased in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to higher income before income taxes period-over-period.
The effective tax rate for the three months ended April 1, 2019, was 26.6% compared to 26.9% for the three months ended April 2, 2018. The effective income tax rate decreased primarily due to slight changes in certain permanent tax differences.
Our income taxes have varied from what would be expected from the application of prevailing statutory rates mainly due to the effect of meal and entertainment expenses and share-based compensation expenses.
Segment Results
Franchise. Total revenues for the Franchise segment decreased $0.5 million in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to a reduction in royalty revenues and franchise fee revenues, partially offset by increases in e-commerce fee revenues.
Adjusted EBITDA for the Franchise segment decreased $1.2 million in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to the aforementioned decreases in revenues and increased legal expenditures.

24


Company Stores. Total revenues for the Domestic Company Stores segment decreased $5.8 million in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to a reduction in the number of Company-owned stores period-over-period and a decline in comparable store sales of 9.0%.
Adjusted EBITDA for the Domestic Company Stores segment decreased $1.1 million in the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily as a result of the aforementioned decline in revenues at Company-owned stores.
Brand Funds. Total revenues for the Brand Funds segment increased $0.1 million for the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily as a result of increased revenues from vendor payments, partially offset by a decline in comparable domestic store sales of 3.6% and fewer domestic stores period-over-period.
Adjusted EBITDA from the Brand Funds segment increased $0.4 million for the three months ended April 1, 2019, compared to the three months ended April 2, 2018, primarily due to decreased advertising spending period-over-period and the aforementioned increase in revenues.
The table below shows the net impact of the BMF on the Brand Funds segment’s adjusted EBITDA and the current fund deficit. The Convention Fund had EBITDA of zero for each of the three months ended April 1, 2019 and April 2, 2018, and a fund surplus of $1.4 million and $0.6 million as of April 1, 2019 and April 2, 2018, respectively.
 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Opening BMF deficit
$
(5,423
)
 
$
(5,461
)
Net activity during the period
109

 
(401
)
Ending BMF deficit
$
(5,314
)
 
$
(5,862
)
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operating activities and proceeds from the incurrence of debt, which together are sufficient to fund our operations, tax payments, capital expenditures, interest, fees, and principal payments on our debt as well as support our growth strategy. If the need arises, we may seek additional funding. Our ability to obtain additional financing will depend on many factors, including prevailing market conditions, our financial condition, and our ability to negotiate favorable terms and conditions. Financing may not be available on terms that are acceptable or favorable to us, if at all.
As of April 1, 2019, we had Cash and cash equivalents of $0.4 million and $7.5 million of available borrowings under a revolving line of credit, of which none was drawn. As of April 1, 2019, we had $77.4 million of outstanding indebtedness. Principal payments under our Senior Credit Facility are due on the last day of each fiscal quarter through the life of the Senior Credit Facility. We believe that our cash flows from operations, available cash and cash equivalents, and available borrowings under our revolving credit facility will be sufficient to meet our liquidity needs for at least the next 12 months.
As of April 1, 2019, we were in compliance with all of our covenants and other obligations under our Senior Credit Facility.
Cash Flows
The following table presents a summary of cash flows from operating, investing, and financing activities for the periods presented: 
 
Three Months Ended
(in thousands)
April 1, 2019
 
April 2, 2018
Cash flows from operating activities
$
(52
)
 
$
4,252

Cash flows from investing activities
(266
)
 
(7
)
Cash flows from financing activities
(5,082
)
 
(4,900
)
Total cash flows
$
(5,400
)
 
$
(655
)
Cash Flows from Operating Activities
Net cash used by operating activities of $0.1 million for the three months ended April 1, 2019, resulted primarily from net income of $1.8 million, adjusted for items such as settlement of accrued liabilities, depreciation and amortization, and changes in operating assets and liabilities. The $4.3 million decrease for the three months ended April 1, 2019, compared to the three months ended April 2, 2018, was primarily driven by settlement of the TCPA litigation.

25


Cash Flows from Investing Activities
Net cash used by investing activities was $0.3 million for the three months ended April 1, 2019, compared to net cash used of $7,000 for the three months ended April 2, 2018. The $0.3 million increase in cash used by investing activities was due primarily to a period-over-period increase of $0.2 million in capital expenditures for property, plant, and equipment.
Cash Flows from Financing Activities
Net cash used by financing activities was $5.1 million for the three months ended April 1, 2019, compared to net cash used of $4.9 million for the three months ended April 2, 2018. The $0.2 million increase in net cash used by financing activities was primarily due to higher mandatory principal payments on our long-term debt during the three months ended April 1, 2019.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate our judgments and estimates, including those related to revenue recognition, impairment of goodwill and intangible assets, income taxes, advertising expense, leases, and share-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The accounting policies we believe to be most critical to understanding our financial results and condition and that require complex and subjective management judgments and estimates are identified and described in our annual consolidated financial statements and the notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. For a discussion of new accounting standards that have been issued by the FASB and have been adopted during the current year, see Note 1 — Description of Business and Basis of Presentation to the interim unaudited condensed consolidated financial statements in Part I, Item 1.
JOBS Act
We qualify as an “emerging growth company” pursuant to the provisions of the Jumpstart Our Business Startup Act of 2012 (the “JOBS Act”). For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, reduced disclosure obligations relating to the presentation of financial statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation. We have availed ourselves of these reduced reporting and disclosure requirements in our existing filings and expect to continue to avail ourselves of the reduced reporting and disclosure requirements available to emerging growth companies in future filings. We could be an “emerging growth company” until the end of our 2019 fiscal year.
In addition, an emerging growth company can delay its adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we chose to “opt out” of this extended transition period, and as a result, we will comply with any new or revised accounting standards on the relevant dates on which non-emerging growth companies must adopt the standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer

26


and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

27


PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Except as set forth below, there have been no material developments in the legal proceedings described in Part I, Item 3, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
One franchise owner group remains in the franchise owner litigation case described in Part I, Item 3, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Trial with the remaining franchise owner group has been postponed indefinitely due to pending discovery.
Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 includes a detailed discussion of our risk factors under the section title “Risk Factors.” Other than the risk factor set forth below, which supersedes the risk factor previously disclosed in our Annual Report on Form 10-K entitled “--We are exploring strategic alternatives, but we do not give any assurance that our exploration of strategic alternatives will result in any transaction being completed, and speculation and uncertainty regarding the outcome of our exploration of strategic alternatives may adversely affect our business,” there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. If any of these risks, as well as other risks and uncertainties that are not yet identified or that we currently think are immaterial, actually occur, our business, results of operations or financial condition could be materially and adversely affected. In such an event, the trading price of our common stock could decline and you could lose part or all of your investment. The risk factors and other information included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2018 should be carefully considered before making an investment decision relating to our common stock.
There are a number of risks and uncertainties associated with the proposed Merger.
On April 10, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MTY Franchising USA, Inc. (“Parent”) and MTY Columbia Merger Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of Parent, providing for the acquisition of the Company by Parent in an all-cash transaction, consisting of a tender offer at a purchase price of $6.45 per share in cash (the “Offer”) for all of the Company’s outstanding shares of common stock, par value $0.01 per share (the “Common Stock”), followed by a subsequent merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. The proposed Offer and Merger are subject to various risks and uncertainties, including the following:
risks that the proposed transactions, including the Offer and the Merger, may not be completed in a timely manner or at all;
the possibility that competing offers or acquisition proposals for the Company will be made;
the possibility that any of the various conditions to the consummation of the proposed transactions may not be satisfied or waived;
the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement (such as the occurrence of a material adverse effect), including in circumstances that would require us to pay a termination fee or other expenses;
the effect of the announcement or pendency of the proposed transactions on our ability to retain and hire key personnel, our ability to maintain relationships with our customers, franchise owners, suppliers and others with whom we do business, or otherwise on our operating results and business generally;
risks related to diverting management’s attention from our ongoing and future business operations; and
the risk that stockholder litigation in connection with the proposed transactions may result in significant costs of defense, indemnification and liability.
If the Offer and the Merger are not consummated for any reason, our stockholders will not receive the consideration that Parent has agreed to pay upon the consummation of the Merger, and the price of our common stock may decline to the extent that its current market price reflects an assumption that the Merger will be consummated. Such decline could be significant.

28


An investment in our common stock involves a high degree of risk. A detailed discussion of our risk factors is included under the section title “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. If any of these risks, as well as other risks and uncertainties that are not yet identified or that we currently think are immaterial, actually occur, our business, results of operations or financial condition could be materially and adversely affected. In such an event, the trading price of our common stock could decline and you could lose part or all of your investment. The risk factors and other information included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, should be carefully considered before making an investment decision relating to our common stock.
Item 6. Exhibits.
Exhibit Number
Description of Exhibits
Form
File Number
Exhibit
Filing Date
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101.INS*
XBRL Instance Document
 
 
 
 
101.SCH*
XBRL Taxonomy Extension Schema Document
 
 
 
 
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
*    Filed herewith

29


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized

PAPA MURPHY’S HOLDINGS, INC.
 
 
 
By:
 
/s/ Nik Rupp
 
 
Name:
Nik Rupp
 
 
Title:
Chief Financial Officer

Date: May 8, 2019

30