3. Recent Accounting Pronouncements:

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which provides guidance on accounting for leases that supersedes existing lease accounting guidance. The ASU’s core principle is that a lessee should recognize lease assets and lease liabilities for those leases classified as operating leases under existing lease accounting guidance. The new standard also makes targeted changes to lessor accounting. This guidance is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The provisions of this guidance are to be applied using a modified retrospective approach, with elective reliefs, which requires application of the guidance for all periods presented. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This guidance will be effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated financial statements.

Recently Adopted Accounting Pronouncements

In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows, Restricted Cash which provides guidance on the presentation of restricted cash within an entity’s cash flow statement. The Company adopted ASU 2016-18 in the first quarter of 2018 on a retrospective basis. Restricted cash is now presented with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. As a result of this adoption, for the three months ended April 1, 2017, $10,000 that was previously reported as a cash inflow from operating activities related to a corresponding decrease in restricted cash is no longer presented within the net change in cash, cash equivalents and restricted cash.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition that supersedes existing revenue recognition guidance (but does not apply to nor supersede accounting guidance for lease contracts). The ASU’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASU 2014-09 in the first quarter of 2018, using the full retrospective method.

The adoption of this guidance did not impact the Company’s recognition of leasing revenues or revenue from royalties that are based on a percentage of franchisee sales. Upon adoption, initial franchise fees, which were previously recognized upon the opening of a franchise, are deferred and recognized over the term of the estimated life of the franchise. The effect of the required deferral of initial franchise fees received in a given year was mitigated by the recognition of revenue from fees retrospectively deferred from prior years. The Company bills and collects marketing fees from its franchisees at various times throughout the year. This amount is included in the Revenue: Other line of the Consolidated Condensed Statements of Operations. Previously, marketing fees were recognized at the time of billing. In accordance with the new guidance, the Company recognizes marketing fee revenue on a straight line basis over the franchise duration. The Company previously recognized commission fees related to franchise agreement contracts as selling expenses when they were incurred. In accordance with the new guidance, the Company capitalizes the commission fees as costs of obtaining a contract and amortizes them over the franchise duration. (See Note 4 – Revenue Recognition)

Adoption of the standard using the full retrospective method also required the Company to restate certain previously reported results, as shown in the tables below:


Consolidated Statement of Operations:	Three Months Ended April 1, 2017
	As Previously Reported		Adjustments		As Restated
Revenue:
Franchise fees	$	269,300	$	99,300	$	368,600
Other		292,600		87,800		380,400
Selling, general and administrative expenses		6,503,400		9,100		6,512,500
Provision for income taxes		(3,221,700)		(43,600)		(3,265,300)
Net income		5,416,400		134,400		5,550,800
Earnings per share - basic	$	1.30	$	0.03	$	1.33
Earnings per share - diluted	$	1.22	$	0.03	$	1.25


Consolidated Balance Sheet:		December 30, 2017
		As Previously Reported		Adjustments		As Restated
ASSETS
Prepaid expenses	$	814,800	$	86,800	$	901,600
Other assets		—		350,400		350,400

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT):
Deferred revenue-Current	$	1,736,200	$	1,276,500	$	3,012,700
Deferred revenue-Long term		1,465,500		5,832,000		7,297,500
Deferred income taxes		1,956,500		(1,636,000)		320,500
Retained earnings (accumulated deficit)		(32,154,400)		(5,035,300)		(37,189,700)