Registrant’s ~~telephone number, including area code:~~Telephone Number, Including Area Code: (312) 951-0600

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the ~~number of shares outstanding of each~~registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the ~~issuer’s classes~~Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of April 26, 2020, the registrant had 23,684,000 shares of common stock, ~~as of the latest practicable date:~~

~~Common stock,~~ $0.01 ~~Par Value – 24,804,265 shares as of September 24, 2017~~

	September 24,			December 25,			March 29,			December 29,
	2017			2016			2020			2019
Assets
Current assets
Cash and cash equivalents	$	22,178		$	23,379		$	45,816		$	18,806
Accounts receivable, net of allowances of $112 and $78 as of September 24, 2017 and December 25, 2016, respectively		5,858			3,787
Accounts receivable, net of allowances of $258 and $202 as of March 29, 2020 and December 29, 2019, respectively								2,651			4,257
Inventories		3,310			3,365			3,245			3,473
Prepaid expenses and other current assets		10,694			8,020			8,454			5,687
Total current assets		42,040			38,551			60,166			32,223

Property and equipment, net		105,379			107,074			73,006			79,032
Right-of-use assets for operating leases								208,239			211,988
Indefinite-lived intangible assets		3,404			3,404			3,404			3,404
Goodwill		2,222			2,222			2,222			2,222
Deferred income taxes, non-current		18,381			19,410
Deferred expenses, net and other assets		4,804			4,784			4,032			4,010
Total assets	$	176,230		$	175,445		$	351,069		$	332,879

Liabilities and Equity
Current liabilities
Accounts payable	$	4,569		$	3,111		$	3,375		$	3,886
Accrued expenses		24,194			23,082			15,656			20,398
Short-term operating lease liabilities								29,701			29,319
Accrued income taxes		—			1,622			171			171
Debt from revolving credit facility								39,786			-
Total current liabilities		28,763			27,815			88,689			53,774

Deferred rent and landlord allowances		23,000			21,076
Long-term operating lease liabilities								202,902			206,726
Other long-term liabilities		2,511			2,318			3,274			3,210
Total liabilities		54,274			51,209			294,865			263,710

Stockholders’ equity
Common stock, $0.01 par value—authorized 200,000,000 shares; outstanding 24,804,265 and 25,139,127 shares as of September 24, 2017 and December 25, 2016, respectively		313			309
Warrants		—			909
Commitments and contingencies (Note 10)

Equity
Common stock, $0.01 par value—authorized 200,000 shares; outstanding 23,684 and 23,638 shares as of March 29, 2020 and December 29, 2019, respectively								331			331
Additional paid-in-capital		414,943			407,622			435,768			435,278
Treasury stock, held at cost, 6,498,908 and 5,753,412 shares as of September 24, 2017, and December 25, 2016, respectively		(81,174	)		(72,321	)
Treasury stock, held at cost, 9,488 and 9,465 shares as of March 29, 2020, and December 29, 2019, respectively								(112,751	)		(112,680	)
Accumulated deficit		(212,729	)		(213,034	)		(267,422	)		(254,081	)
Total stockholders’ equity		121,353			123,485			55,926			68,848
Non-controlling interest		603			751			278			321
Total stockholders' equity		121,956			124,236
Total equity								56,204			69,169

Total liabilities and equity	$	176,230		$	175,445		$	351,069		$	332,879

See accompanying notes to the unaudited condensed consolidated financial statements.

	For the 13 Weeks Ended					For the 39 Weeks Ended				For the 13 Weeks Ended
	September 24,			September 25,		September 24,		September 25,		March 29,			March 31,
	2017			2016		2017		2016		2020			2019
Revenues
Sandwich shop sales, net	$	105,327		$	103,224	$	313,568	$	303,116	$	86,961		$	97,258
Franchise royalties and fees		800			558		2,394		1,657		629			829
Total revenues		106,127			103,782		315,962		304,773		87,590			98,087

Expenses
Sandwich shop operating expenses
Cost of goods sold, excluding depreciation		28,405			28,478		83,703		83,224		24,174			25,978
Labor and related expenses		31,187			30,163		93,213		88,260		30,397			31,973
Occupancy expenses		14,354			13,111		42,792		39,042		15,028			14,377
Other operating expenses		12,464			11,338		36,349		32,570		12,765			12,145
General and administrative expenses		12,104			9,999		33,375		30,827		10,734			12,709
Depreciation expense		6,315			5,656		18,960		16,996		5,456			5,536
Pre-opening costs		336			340		955		731		64			10
Impairment and loss on disposal of property and equipment		1,536			1,855		5,762		2,880		5,957			82
Total expenses		106,701			100,940		315,109		294,530		104,575			102,810
Income (loss) from operations		(574	)		2,842		853		10,243
Loss from operations											(16,985	)		(4,723	)

Interest expense		32			33		101		102		74			32
Income (loss) before income taxes		(606	)		2,809		752		10,141
Loss before income taxes											(17,059	)		(4,755	)
Income tax expense (benefit)		(487	)		960		252		3,732		(3,709	)		13,619
Net income (loss)		(119	)		1,849		500		6,409
Net income attributable to non-controlling interest		121			54		195		153
Net income (loss) attributable to Potbelly Corporation	$	(240	)	$	1,795	$	305	$	6,256
Net loss											(13,350	)		(18,374	)
Net income (loss) attributable to non-controlling interest											(14	)		65
Net loss attributable to Potbelly Corporation										$	(13,336	)	$	(18,439	)

Net income (loss) per common share attributable to common stockholders:
Net loss per common share attributable to common stockholders:
Basic	$	(0.01	)	$	0.07	$	0.01	$	0.24	$	(0.56	)	$	(0.76	)
Diluted	$	(0.01	)	$	0.07	$	0.01	$	0.24	$	(0.56	)	$	(0.76	)
Weighted average shares outstanding:
Basic		24,959,023			25,240,374		25,030,951		25,772,846		23,646			24,133
Diluted		24,959,023			25,829,970		25,857,083		26,341,913		23,646			24,133

See accompanying notes to the unaudited condensed consolidated financial statements.

Common Stock

Treasury

Additional
Paid-In-

Accumulated

Non-
Controlling

Shares

Amount

Stock

Warrants

Capital

Deficit

Interest

Total Equity

Balance at December 27, 2015

26,304,261

$
303

$
(50,000
)

$
909

$
399,458

$
(221,246
)

$
789

$
130,213

Net income

—

—

—

—

—

6,256

153

6,409

Stock-based compensation
   plans

511,781

5

—

—

5,414

—

—

5,419

Excess tax deficiencies
   associated with exercise
   of stock options

—

—

—

—

(605
)

—

—

(605
)
Repurchases of common
   stock

(1,574,316
)

—

(20,447
)

—

—

—

—

(20,447
)
Distributions to non-
   controlling interest

—

—

—

—

—

—

(249
)

(249
)
Contributions from non-
   controlling interest

—

—

—

—

—

—

74

74

Amortization of
   stock-based compensation

—

—

—

—

2,266

—

—

2,266

Balance at September 25, 2016

25,241,726

$
308

$
(70,447
)

$
909

$
406,533

$
(214,990
)

$
767

$
123,080

Balance at December 25, 2016

25,139,127

$
309

$
(72,321
)

$
909

$
407,622

$
(213,034
)

$
751

$
124,236

Net income

—

—

—

—

—

305

195

500

Stock-based compensation
   plans

168,930

2

—

—

1,179

—

—

1,181

Exercise of stock warrants

241,704

2

—

(909
)

2,879

—

—

1,972

Repurchases of common
   stock

(745,496
)

—

(8,853
)

—

—

—

—

(8,853
)
Distributions to non-
   controlling interest

—

—

—

—

—

—

(354
)

(354
)
Contributions from non-
   controlling interest

—

—

—

—

—

—

11

11

Amortization of
   stock-based compensation

—

—

—

—

3,263

—

—

3,263

Balance at September 24, 2017

24,804,265

$
313

$
(81,174
)

$
—

$
414,943

$
(212,729
)

$
603

$
121,956

For the 13 weeks ended:	Common Stock					Treasury			Additional Paid-In-		Accumulated			Non- Controlling
	Shares			Amount		Stock			Capital		Deficit			Interest			Total Equity
Balance at December 30, 2018		24,143			330		(108,372	)		432,771		(229,558	)		362		$	95,533
Cumulative impact of Topic 842, net of tax of $196		—			—		—			—		(531	)		—			(531	)
Net income (loss)		—			—		—			—		(18,439	)		65			(18,374	)
Stock-based compensation plans		33			—		—			170		—			—			170
Repurchases of common stock		(135	)		—		(1,144	)		—		—			—			(1,144	)
Treasury shares used for stock-based plans		(3	)		—		(25	)		—		—			—			(25	)
Stock-based compensation expense		—			—		—			459		—			—			459
Balance at March 31, 2019		24,038		$	330	$	(109,541	)	$	433,400	$	(248,528	)	$	427		$	76,088

Balance at December 29, 2019		23,638		$	331	$	(112,680	)	$	435,278	$	(254,081	)	$	321		$	69,169
Cumulative impact of Topic 326, net of tax of $2		—			—		—			—		(5	)		—			(5	)
Net income (loss)		—			—		—			—		(13,336	)		(14	)		(13,350	)
Stock-based compensation plans		68			—		—			—		—			—			—
Treasury shares used for stock-based plans		(22	)		—		(71	)		—		—			—			(71	)
Distributions to non-controlling interest		—			—		—			—		—			(172	)		(172	)
Contributions from non-controlling interest		—			—		—			—		—			143			143
Stock-based compensation expense		—			—		—			490		—			—			490
Balance at March 29, 2020		23,684		$	331	$	(112,751	)	$	435,768	$	(267,422	)	$	278		$	56,204

See accompanying notes to the unaudited condensed consolidated financial statements.

	For the 39 Weeks Ended						For the 13 Weeks Ended
	September 24,			September 25,			March 29,			March 31,
	2017			2016			2020			2019
Cash flows from operating activities:
Net income	$	500		$	6,409
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		18,960			16,996
Net loss							$	(13,350	)	$	(18,374	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense								5,456			5,536
Noncash lease expense								7,295			7,829
Deferred income tax		—			397			5			13,580
Deferred rent and landlord allowances		1,924			1,912
Amortization of stock compensation expense		3,263			2,266
Excess tax deficiency (benefit) from stock-based compensation		292			(24	)
Stock-based compensation expense								490			459
Asset impairment, store closure and disposal of property and equipment		5,922			2,897			6,236			87
Amortization of debt issuance costs		28			25
Other operating activities								20			9
Changes in operating assets and liabilities:
Accounts receivable, net		(1,422	)		(61	)		1,620			(811	)
Inventories		54			141			228			189
Prepaid expenses and other assets		(2,650	)		(457	)		(3,252	)		1,455
Accounts payable		699			(1,496	)		(767	)		(130	)
Accrued and other liabilities		798			4,566
Net cash provided by operating activities		28,368			33,571
Operating lease liabilities								(7,653	)		(7,860	)
Accrued expenses and other liabilities								(4,144	)		(4,342	)
Net cash used in operating activities:								(7,816	)		(2,373	)

Cash flows from investing activities:
Acquisition of franchise shop		—			(1,108	)
Purchases of property and equipment		(23,526	)		(19,883	)	$	(4,860	)	$	(2,572	)
Net cash used in investing activities		(23,526	)		(20,991	)
Net cash used in investing activities:								(4,860	)		(2,572	)

Cash flows from financing activities:
Borrowings under credit facility							$	39,786		$	—
Proceeds from exercise of stock options		1,181			5,746			—			170
Proceeds from exercise of stock warrants		1,972			—
Employee taxes on certain stock-based payment arrangements								(71	)		(25	)
Treasury stock repurchases		(8,853	)		(20,447	)		—			(1,144	)
Excess tax benefit from stock-based compensation		—			24
Distributions to non-controlling interest								(172	)		—
Contributions from non-controlling interest		11			74			143			—
Distributions to non-controlling interest		(354	)		(249	)
Net cash used in financing activities		(6,043	)		(14,852	)
Net cash provided by (used in) financing activities:								39,686			(999	)

Net decrease in cash and cash equivalents		(1,201	)		(2,272	)
Net increase (decrease) in cash and cash equivalents								27,010			(5,944	)
Cash and cash equivalents at beginning of period		23,379			32,006			18,806			19,775
Cash and cash equivalents at end of period	$	22,178		$	29,734		$	45,816		$	13,831

Supplemental cash flow information:
Income taxes paid	$	3,346		$	2,265		$	9		$	4
Interest paid		73			82			25			24
Supplemental non-cash investing and financing activities:
Unpaid liability for purchases of property and equipment	$	2,752		$	3,142		$	1,091		$	161

See accompanying notes to the unaudited condensed consolidated financial statements

Potbelly Corporation (the “Company” or “Potbelly”), through its ~~wholly-owned~~wholly owned subsidiaries, owns or operates or franchises Potbelly Sandwich Shops in 31 states and the District of Columbia. The Company also sells and administers franchises of Potbelly Sandwich Shops. The first domestic franchise location administered by the Company opened during February 2011. Additionally, in February 2011, the Company opened its first international franchise in the Middle East. In July 2015, the Company opened its first franchise shopmore than 400 company-owned shops in the United ~~Kingdom and~~States. Additionally, Potbelly franchisees operate over 40 shops in ~~October 2016,~~ the ~~Company opened its first franchise shop in Canada.~~ Additionally, during April 2016, the Company transitioned a franchise shop to a company-operated shop for a purchase price of $1.1 million. The Company recorded $0.8 million of goodwill related to the transaction. The Company believes this acquisition is immaterial.United States.

The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Potbelly Corporation and its subsidiaries and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December ~~25, 2016.~~29, 2019. The unaudited condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC rules and regulations. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly the Company’s ~~financial position~~balance sheet as of ~~September 24, 2017~~March 29, 2020 and December ~~25, 2016,~~29, 2019, its statement of operations for the 13 ~~and 39~~ weeks ended ~~September 24, 2017~~March 29, 2020 and ~~September 25, 2016~~March 31, 2019, the statement of equity for the 13 weeks ended March 29, 2020 and March 31, 2019, and its statement of cash flows for the 3913 weeks ended ~~September 24, 2017~~March 29, 2020 and ~~September 25, 2016~~March 31, 2019 have been included. The consolidated statements of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.

The Company does not have any components of other comprehensive income recorded within its consolidated financial statements and therefore, does not separately present a statement of comprehensive income in its condensed consolidated financial statements.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus ("COVID-19") and the risks to the international community as the virus spreads globally. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. In response to the pandemic, many states and jurisdictions in which we operate have issued stay-at-home orders and other measures aimed at slowing the spread of the coronavirus. While most of our company-owned shops remain open in accordance with guidance from local authorities, these measures resulted in us closing the vast majority our dining rooms and shifting to off-premise operations only, and we experienced a sudden and drastic decrease in revenues.

The disruption in operations and reduction in revenues have led the Company to consider the impact of the COVID-19 pandemic on the recoverability of its assets, including property and equipment, right-of-use assets for operating leases, goodwill and intangible assets, and others.

Due to the impact of the COVID-19 pandemic, the Company performed impairment analyses of its goodwill, intangible assets, and long-lived assets, which includes property and equipment and right-of-use assets for operating leases, as of March 29, 2020. The impairment assessments for both goodwill and indefinite lived intangible assets resulted in the conclusion that the fair value of these assets exceeded their carrying values. Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen weeks ended March 29, 2020. The Company recorded an impairment charge for its long-lived assets of $5.9 million for the 13 weeks ended March 29, 2020, primarily driven by the expected impact of the COVID-19 pandemic on future cash flows. The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material. See Note 3 for further details.

The Company recognized an income tax benefit of $3.7 million for the thirteen weeks ended March 29, 2020 primarily due to the impact of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The Company estimates that it will be able to obtain a tax refund of $3.7 million from the carryback of NOLs and a refund of prior AMT credits. See Note 5 for further details.

To preserve financial flexibility, the Company drew the $40.0 million of available capacity under its revolving credit facility. Due to the pandemic’s impact on revenues, the Company is in discussions with its lender regarding modifications to financial covenants related to the revolving credit facility. See Note 7 for further details.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Due to the rapid development and fluidity of this situation, the Company cannot determine the ultimate impact that the COVID-19 pandemic will have on its consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate material adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain.

Under ASC 205, Presentation of Financial Statements, the Company is required to consider and has evaluated whether there is substantial doubt that it has the ability to meet its obligations within one year from the financial statement issuance date. This assessment also includes the Company’s consideration of any management plans to alleviate such doubts. The conditions described above related to the COVID-19 pandemic have had a material adverse impact on the Company’s revenues, profitability, and cash flows. Because of these conditions, the Company has concluded that it is probable that it will not be in compliance with certain financial covenants of the Credit Agreement Amendment, which are further described in Note 7, for a period of one year from the financial statement issuance date. The probable inability of the Company to meet its current covenant requirements raises substantial doubt on the Company’s ability to meet its obligations within one year from the financial statement issuance date and to continue as a going concern. If the Company is unable to maintain compliance with the covenants contained in the current Credit Agreement, it may be unable to make additional borrowings on any undrawn amounts and may be required to repay its then outstanding borrowings. The Company is in continued negotiations with its current lender and expects further amendments to the Credit Agreement as needed to maintain compliance with future financial covenants, but we cannot make any assurances regarding the likelihood, certainty or exact timing of further amendments to the Credit Agreement. The Company is also evaluating various alternatives to improve its liquidity, including but not limited to, lease concessions and deferrals, further reductions of operating and capital expenditures, and raising additional capital.

The condensed consolidated financial statements included in this interim report on Form 10-Q do not include any adjustments that might result from the outcome of this uncertainty.

The unaudited condensed consolidated financial statements include the accounts of Potbelly Corporation; its wholly owned subsidiary, Potbelly Illinois, Inc. (“PII”); PII’s wholly owned subsidiaries, Potbelly Franchising, LLC and Potbelly Sandwich Works, LLC (“LLC”); ~~eight~~seven of LLC’s wholly owned subsidiaries and LLC’s ~~five~~seven joint ventures, collectively, the “Company.” All ~~significant~~ intercompany balances and transactions have been eliminated in consolidation. For consolidated joint ventures, non-controlling interest represents a non-controlling partner’s share of the assets, liabilities and operations related to the ~~five~~seven joint venture investments. The Company has ownership interests ranging from 51-80% in these consolidated joint ventures.

The Company uses a 52/53-week fiscal year that ends on the last Sunday of the calendar period. Approximately every five or six years a 53rd week is added. Fiscal year ~~2017 consists of 53 weeks~~2020 and ~~2016 consisted~~2019 both consist of 52 weeks. The fiscal quarters ended ~~September 24, 2017~~March 29, 2020 and ~~September 25, 2016~~March 31, 2019 each consisted of 13 weeks.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates include amounts for long-lived assets and income taxes. Actual results could differ from those estimates.

On December 30, 2019, the Company adopted Accounting Standard Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326). This pronouncement requires the measurement and recognition of expected credit losses on financial instruments. ASU 2016-13 replaces the existing incurred loss model with a forward-looking expected credit loss model that requires consideration of a broader range of information to estimate credit losses. The Company recorded a net reduction of $5 thousand to opening accumulated deficit as of December 30, 2019, due to the cumulative impact of adopting Topic 326.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers.” The pronouncement was issued to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and International Financial Reporting Standards (IFRS). The FASB approved a one-year deferral of the effective date of ASU 2014-09, such that it will become effective for the annual period beginning after December 15, 2017. In addition, the FASB issued ASU 2016-08, ASU 2016-10 and ASU 2016-12 in March 2016, April 2016 and May 2016, respectively, to help provide interpretive clarifications on the new guidance in Accounting Standards Codification (ASC) Topic 606. Potbelly will adopt the standard effective the first quarter of 2018 and apply the amendments using the modified retrospective method. The Company ~~has determined that the adoption will not have~~primarily earns revenue at a ~~material impact on~~point in time for sandwich shop sales ~~but will impact~~which can occur in person at the shop, over our web or app platform, or through a third-party platform. Revenue is recorded net of sales-related taxes collected from customers. The payment on these sales is due at the time of the customer’s purchase. The Company also receives royalties from franchisees on their respective sales, which are recognized at the point in time the sale is made and invoiced weekly. Potbelly also records revenue from sales over time related to upfront franchise ~~revenue and~~fees, gift card redemptions and breakage. For the 13 weeks ended March 29, 2020, revenue recognized from all revenue sources on point in time sales was $87.5 million, and revenue recognized from sales over time was $0.1 million. For the 13 weeks ended March 31, 2019, revenue recognized from all revenue sources on point in time sales was $97.8 million, and revenue recognized from sales over time was $0.3 million.

Potbelly licenses intellectual property and trademarks to franchisees through franchise ~~arrangements.~~agreements. As part of these franchise agreements, Potbelly receives an ~~initial~~upfront payment from the franchisee, which the Company recognizes over the term of the franchise ~~fee~~ ~~payment which is recognized as revenue~~ ~~when the shop opens. Effective~~agreement. The Company records a contract liability for the ~~annual period beginning January 1, 2018,~~ ~~initial franchise fees will generally be recognized as revenue over the life~~unearned portion of the ~~contract.~~ upfront franchise payments.

Potbelly sells gift cards to customers, ~~and~~ records the sale as a ~~liability. The~~contract liability ~~is released once~~and recognizes the associated revenue as the gift card is redeemed. ~~Historically a~~A portion of these gift ~~card sales~~cards are not redeemed by the customer, ~~(“breakage”). Potbelly recognizes breakage two years after~~which is recognized by the ~~period~~Company as revenue as a percentage of ~~sale. Effective for the annual period beginning January 1, 2018,~~customers gift card redemptions. The expected breakage amount recognized is ~~anticipated to be recognized as customers redeem~~determined by a historical data analysis on gift card redemption patterns.

As described above, the Company records current and noncurrent contract liabilities for upfront franchise fees and gift cards. There are no other contract liabilities or contract assets recorded by the Company. The opening and closing balances of the Company’s current and noncurrent contract liabilities from contracts with customers were as follows:

The aggregate value of remaining performance obligations on outstanding contracts was $3.2 million as of March 29, 2020. The Company ~~is continuing its assessment,~~expects to recognize revenue related to contract liabilities as follows (in thousands), which may ~~identify additional impacts this standard will have on its consolidated financial statements and related disclosures.~~

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which will replace the existing guidance in ASC 840, “Leases.” The pronouncement requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset and for operating leases, the lessee would recognize a straight-line total lease expense. The pronouncement is effective for fiscal years beginning after December 15, 2018, including annual and interim periods thereafter. In addition, the pronouncement requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. The Company is currently evaluating the impact ASU 2016-02 will have on its financial position, results of operations and cash flows but expects that it will result in a material increase in its long-term assets and liabilities given the Company has a significant number of leases.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718).” The pronouncement simplifies the accounting for the taxes related to stock-based compensation, including the accounting for income taxes, forfeitures and statutory tax withholding requirements,vary based upon franchise activity as well as ~~classification within~~gift card redemption patterns:

For the ~~statement~~13 weeks ended March 29, 2020, the amount of ~~cash flows. The pronouncement is effective for annual periods beginning after~~revenue recognized related to the December ~~15, 2016, including annual and interim periods thereafter. Potbelly adopted ASU 2016-09 in~~30, 2019 liability ending balance was $0.5 million. For the ~~first quarter~~13 weeks ended March 31, 2019, the amount of ~~2017. The primary impact of adoption~~revenue recognized related to the December 30, 2018 liability ending balance was $0.8 million. This revenue related to the recognition of ~~excess tax benefits~~gift card redemptions and ~~deficiencies that arise upon vesting or exercise of share-based payments in the Income Statement as income tax expense instead of a component of equity recorded to paid-in capital.~~ ~~This aspect of the new guidance, which was required to be adopted prospectively, resulted in~~ ~~an additional income tax expense of $45 thousand and $292 thousand for~~upfront franchise fees. For the 13 weeks ended March 29, 2020 and 39 weeks ended September 24, 2017, respectively. Potbelly has elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Excess income tax benefits and deficiencies from stock-based compensation arrangements are now classified as cash flow from operations, instead of as cash flow used in financing activities. The Company elected to apply this change in presentation prospectively and as such prior periods have not been adjusted. Additionally, in accordance with the new standard,March 31, 2019, the Company ~~now excludes excess tax benefits and deficiencies~~did not recognize any revenue from ~~the assumed proceeds available to repurchase shares~~obligations satisfied (or partially satisfied) in ~~the computation of the Company’s diluted earnings per share.~~prior periods.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350).” The new standard eliminates step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. Under current U.S. GAAP, to perform step 2 an entity must determine its implied fair value, which is determined in the same manner as the amount of goodwill recognized in a business combination. In addition to eliminating step 2, the new standard eliminates the requirement for a reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test. Instead, all reporting units, even those with a zero or negative amount will apply the same impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The standard will be effective for Potbelly in the fiscal year beginning after December 15, 2019. Early adoption for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 is permitted. This amendment is required to be applied on a prospective basis. Potbelly is currently assessing the impact and timing of adopting this guidance on its consolidated financial statements.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate fair values due to the short maturities of these balances.

The Company assesses potential impairments to its long-lived assets, which includes property and equipment and lease right-of-use assets, on a quarterly basis or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Shop-level assets and right-of-use assets are grouped at the individual shop-level for the purpose of the impairment assessment. Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its estimated undiscounted future cash flows expected to be generated by the ~~asset.~~asset group. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset group exceeds the fair value of the ~~asset.~~asset group. The fair value of the shop assets ~~was~~is determined using the discounted future cash flow method of anticipated cash flows through the shop’s lease-end date using fair value measurement inputs classified as Level 3. The fair value of right-of-use assets is estimated using market comparative information for similar properties. Level 3 inputs are derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. After performing a periodic review of the Company’s shops during the 13 weeks ~~and 39 weeks~~ ended ~~September 24, 2017,~~March 29, 2020, it was determined that indicators of impairment were present for certain shops as a result of continued underperformance. The Company performed an impairment analysis related to these shops and recorded an impairment charge of ~~$1.5 million and $5.8~~$5.9 million for the 13 ~~and 39~~ weeks ended ~~September 24, 2017, respectively.~~ March 29, 2020, primarily driven by the expected impact of the COVID-19 pandemic on future cash flows. ~~Included within~~The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material. After performing a periodic review of the Company’s shops during the 13 weeks ended March 31, 2019, it was determined that there were no indicators of impairment for the quarter ended March 31, 2019 and accordingly, the Company recorded no impairment charge for the 13 ~~and 39~~ weeks ended ~~September 24, 2017,~~March 31, 2019.

Assets recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as leasehold improvements, property and equipment, operating lease assets, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired.

The Company reviews indefinite-lived intangible assets, which includes goodwill and tradenames, annually at fiscal year-end for impairment ~~charges~~or more frequently if events or circumstances indicate that the carrying value may not be recoverable. Due to the recent impact of ~~$0.7 million~~the COVID-19 pandemic to the global economy, including but not limited to, the volatility of the Company's stock price as well as that of its competitors, declining sales at the Company's restaurants and the challenging environment for the restaurant industry generally, the Company determined that there were ~~recorded in relation to Hurricane Harvey, with insurance recoveries~~indicators of ~~$0.7 million also recorded within~~potential impairment of its goodwill and indefinite-lived intangible assets during the ~~same caption.~~ ~~The company recorded~~thirteen weeks ended March 29, 2020. As such, the Company performed an impairment ~~charge~~assessment for both goodwill and indefinite lived intangible assets and concluded that the fair value of ~~$1.9 million and $2.9 million for~~these assets exceeded their carrying values. Accordingly, the ~~13 and 39~~Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen weeks ended ~~September 25, 2016, respectively.~~March 29, 2020. The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.

Basic and diluted income per common share attributable to common stockholders ~~was~~are calculated using the weighted average number of common shares outstanding for the period. Diluted income per common share attributable to common stockholders is computed by dividing the income allocated to common stockholders by the weighted average number of fully diluted common shares outstanding. In periods of a net loss, no potential common shares are included in diluted shares outstanding as the effect is anti-dilutive. For the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, and March 31, 2019, the Company had a loss per share, and therefore potentially dilutive shares were excluded ~~for potential stock option exercises and warrant exercises.~~

The following table summarizes the ~~earnings (loss)~~loss per share calculation:

	For the 13 Weeks Ended					For the 39 Weeks Ended				For the 13 Weeks Ended
	September 24,			September 25,		September 24,		September 25,		March 29,			March 31,
	2017			2016		2017		2016		2020			2019
Net income (loss) attributable to Potbelly Corporation	$	(240	)	$	1,795	$	305	$	6,256
Net loss attributable to Potbelly Corporation										$	(13,336	)	$	(18,439	)
Weighted average common shares outstanding-basic		24,959,023			25,240,374		25,030,951		25,772,846		23,646			24,133
Plus: Effect of potential stock options exercise		—			533,249		770,965		514,257		—			—
Plus: Effect of potential warrant exercise		—			56,347		55,167		54,810
Weighted average common shares outstanding-diluted		24,959,023			25,829,970		25,857,083		26,341,913		23,646			24,133
Income (loss) per share available to common stockholders-basic	$	(0.01	)	$	0.07	$	0.01	$	0.24
Income (loss) per share available to common stockholders-diluted	$	(0.01	)	$	0.07	$	0.01	$	0.24
Loss per share available to common stockholders-basic										$	(0.56	)	$	(0.76	)
Loss per share available to common stockholders-diluted										$	(0.56	)	$	(0.76	)
Potentially dilutive shares that are considered anti-dilutive:
Common share options		4,012,073			1,233,294		1,151,317		1,236,599		2,294			2,387

On March 27, 2020, the CARES Act was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years, accelerate refunds of previously generated corporate alternative minimum tax (“AMT”) credits, loosen the business interest limitation under section 163(j), and fix the qualified improvement property regulations in the 2017 Tax Cuts and Jobs Act. As a result of the CARES Act, the Company estimates that it will be able to obtain a tax refund of $3.7 million from the carryback of NOLs and a refund of prior AMT credits.

The interim tax provision is determined using an estimated annual effective tax rate and is adjusted for discrete taxable events that occur during the quarter. The Company recognized an income tax benefit of ~~$0.5~~$3.7 million for the thirteen weeks ended March 29, 2020 primarily due to the impact of the Cares Act discussed above. The Company recorded a tax expense of $13.6 million for the thirteen weeks ended March 31, 2019 due to the Company recording a non-cash charge to income tax expense for the recognition of a full valuation allowance against its net deferred tax assets. The Company continues to record a valuation allowance against all of its deferred tax assets as March 29, 2020. The Company did not provide for an income tax benefit on aits pre-tax loss ~~of $0.6 million, or an effective tax rate benefit of 80.4%,~~ for the 13 weeks ended ~~September 24, 2017, compared~~March 29, 2020 and March 31, 2019.

The Company regularly assesses the need for a valuation allowance related to its deferred tax assets, which includes consideration of both positive and negative evidence related to the likelihood of realization of such deferred tax assets to determine, based on the weight of the available evidence, whether it is more-likely-than-not that some or all of its deferred tax assets will not be realized. In its assessment, the Company considers recent financial operating results, projected future taxable income, the reversal of existing taxable differences, and tax planning strategies. The Company recorded a full valuation allowance against its net deferred tax assets during the 13 weeks ended March 31, 2019. The Company recorded a non-cash charge to income tax expense of ~~$1.0~~$13.6 million ~~on pre-tax income~~related to the recognition of ~~$2.8 million, or an effective~~the valuation allowance during the first quarter of 2019 and continue to record a valuation allowance against all of our deferred tax ~~rate~~assets as of ~~34.2%, for the 13 weeks ended September 25, 2016.~~March 29, 2020. The Company will continue to assess the likelihood of the realization of its deferred tax assets and the valuation allowance will be adjusted accordingly

We determine if a contract contains a lease at inception. The Company leases retail shops, warehouse and office space under operating leases. For leases with renewal periods at the Company’s option, the Company determines the expected lease period based on whether the renewal of any options are reasonably assured at the inception of the lease.

Operating lease assets and liabilities are recognized ~~income tax~~at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. The Company estimates this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment.

We recognize expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of ~~$0.3~~expense over the lease term.

Certain of the Company’s operating lease agreements include variable payments that are passed through by the landlord, such as common area maintenance and real estate taxes, as well as variable payments based on percentage rent for certain of our shops. Pass-through charges and payments based on percentage rent are included within variable lease cost.

Supplemental disclosures of cash flow information related to leases were as follows:

As of March 29, 2020, the Company had no real estate leases entered into that had not yet commenced.

On August 7, 2019, the Company entered into a second amended and restated revolving credit facility agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A. (“JPMorgan”) that expires in July 2022. The Credit Agreement amends and restates that certain amended and restated revolving credit facility agreement, dated as of December 9, 2015, and amended on May 3, 2019 (collectively, the "Prior Credit Agreement") with JPMorgan. The Credit Agreement provides, among other things, for a revolving credit facility in a maximum principal amount $40 million, with possible future increases of up to $20 million under an expansion feature. Borrowings under the credit facility generally bear interest at the Company’s option at either (i) a eurocurrency rate determined by reference to the applicable LIBOR rate plus a margin ranging from 1.25% to 1.75% or (ii) a prime rate as announced by JP Morgan plus a margin ranging from 0.00% to 0.50%. The applicable margin is determined based upon the Company’s consolidated total leverage ratio. On the last day of each calendar quarter, the Company is required to pay a commitment fee of 0.20% per annum in respect of any unused commitments under the credit facility. So long as certain total leverage ratios, EBITDA thresholds and minimum liquidity requirements are met and no default or event of default has occurred or would result, there is no limit on ~~pre-tax income~~the “restricted payments” (primarily distributions and equity repurchases) that the Company may make, provided that proceeds of ~~$0.8~~the loans under the Credit Agreement may not be used for purposes of making restricted payments.

On March 17, 2020, the Company fully drew the available capacity of $39.8 million ~~or an effective tax rate~~under its Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of ~~33.5%, for~~current uncertainty in the 39 weeks ended September 24, 2017, compared to income tax expense of $3.7 million on pre-tax income of $10.1 million, or an effective tax rate of 36.8%, for the 39 weeks ended September 25, 2016. The effective tax rate differedglobal markets resulting from the ~~federal statutory~~COVID-19 pandemic. In accordance with the terms of its Revolving Credit Facility, the proceeds from these borrowings may in the future be used for working capital, general corporate or other permitted purposes. As of March 29, 2020, the Company had $39.8 million outstanding under the Credit Agreement. There were no borrowings outstanding as of March 31, 2019.

The Credit Agreement was subsequently amended as of May 15, 2020 (the “Credit Agreement Amendment”) to, among other things (i) change the maturity date from July 31, 2022 to March 31, 2022; (ii) eliminate the $20.0 million expansion feature; (iii) amend the interest rate ~~primarily due to a change in earnings and the adoption of ASU 2016-09, which had an unfavorable impact~~ to the Company’s ~~tax~~option at either (a) a eurocurrency rate ~~benefit~~determined by reference to the applicable LIBOR rate with a 1.00% floor plus a margin of ~~7.5%~~5.00% or (b) a prime rate as announced by JP Morgan plus 4.00%; (iv) amend the commitment fee to 1.00% per annum in respect of any unused commitments under the credit facility; (v) implement additional restrictions on restricted payments, acquisitions and other indebtedness; and (vi) implement additional financial covenants. Per the terms of the Credit Agreement Amendment, the Company repaid $15.0 million of its outstanding borrowing at the signing of the Credit Agreement Amendment, and may re-borrow this $15.0 million when its cash balances held by JP Morgan declines below $28.0 million. Lastly, the Company is required to pay an upfront fee of 1% of the outstanding loan balance within fifteen business days of the signing of the Credit Agreement Amendment.

The Credit Agreement Amendment includes financial covenants that require the Company to maintain minimum liquidity levels, minimum building adjusted EBITDA, maximum total debt to adjusted EBITDA and a minimum trailing twelve months (“TTM”) adjusted EBITDA. The Company is required to maintain (i) a minimum liquidity level of $45.0 million at April 30, 2020 and $32.5 million at May 31, 2020; (ii) a minimum building adjusted EBITDA of ($8.5) million for April 2020 and ($16.0) million for the ~~13 weeks ended~~period of April 2020 through May 2020; (iii) a maximum total debt to adjusted EBITDA ratio of 2.25 to 1.00 beginning June 30, 2020; and (iv) a minimum TTM adjusted EBITDA of $16.0 million beginning June 30, 2020, $15.0 million beginning September ~~24, 2017~~30, 2020 and ~~an unfavorable impact~~$17.0 million beginning September 30, 2021. Compliance with the financial covenants was waived for March 29, 2020 as part of ~~38.9%~~the Credit Agreement Amendment. The Company expects that it will be in compliance with the revised covenants for the ~~39 weeks ended September 24, 2017.~~ ~~See Note 1 for~~April and May 2020 reporting periods. The Company concluded that without any additional ~~information regarding~~changes, it would likely not meet the ~~adoption~~maximum total debt to adjusted EBITDA and/or the minimum TTM adjusted EBITDA requirements beginning with the month of ~~ASU 2016-09.~~June 2020, in which case the lenders would have the ability to demand repayment of the outstanding debt at such time. Accordingly, the outstanding balance is presented as a current liability as of March 29, 2020 based on the guidance in ASC 470, Debt.

On ~~September~~May 8, ~~2016,~~2018, the Company announced that its Board of Directors authorized a ~~share~~stock repurchase program offor up to ~~$30.0~~$65.0 million of ~~the Company’s~~its outstanding common stock. The ~~Company’s previous $35.0 million share repurchase program, authorized in September 2015, was completed in July 2016. The current~~ program permits the Company, from time to time, to purchase shares in the open market (including in pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Securities and Exchange Act of 1934, as amended) or in privately negotiated transactions. ~~During~~The number of common shares actually repurchased, and the 39timing and price of repurchases, will depend upon market conditions, SEC requirements and other factors. Purchases may be started or stopped at any time without prior notice depending on market conditions and other factors. For the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, the Company did not repurchase any shares of its common stock. Due to the COVID-19 pandemic, the Company does not have plans to repurchase any common stock under its share repurchase program at this time. For the 13 weeks ended March 31, 2019, the Company repurchased ~~745,496~~135,000 shares of its common stock for approximately ~~$8.9~~$1.1 million under the stock repurchase program, including cost and commission, in open market transactions. ~~As of September 24, 2017, the remaining dollar value of authorization under the share repurchase program was $18.8 million, which does not include commission.~~ Repurchased shares are included as treasury stock in the condensed consolidated balance sheets and the condensed consolidated statements of equity.

The Company has awarded ~~under~~stock options to certain employees of the ~~2013 Long-Term Incentive Plan to eligible employees.~~Company and certain non-employee members of its Board of Directors. The grants generally vest over a four-year period. The fair value of stock options is determined using the Black-Scholes option pricing model. ~~The weighted average fair value of~~There were no stock options granted during the 3913 weeks ended September 24, 2017 was $4.58 per share, as estimated using the following weighted average assumptions: expected life of options – 6.25 years; volatility – 36.37%; risk-free interest rate – 2.23%; and dividend yield – 0.0%. The Company used the simplified method for determining the expected life of the options. The expected volatility of the options was calculated using the Company’s historical data.March 29, 2020.

A summary of stock option activity for the 3913 weeks ended ~~September 24, 2017~~March 29, 2020 is as follows:

Options	Shares (Thousands)			Weighted Average Exercise Price		Aggregate Intrinsic Value (Thousands)		Weighted Average Remaining Term (Years)		Shares (Thousands)			Weighted Average Exercise Price		Aggregate Intrinsic Value (Thousands)		Weighted Average Remaining Term (Years)
Outstanding—December 25, 2016		4,013		$	10.61	$	13,455		4.78
Outstanding—December 29, 2019											1,774		$	11.34	$	—		4.33
Granted		263			11.55						—			—
Exercised		(125	)		9.48						—			—
Canceled		(68	)		15.23						(33	)		10.51
Outstanding—September 24, 2017		4,083		$	10.63	$	7,390		4.44
Exercisable—September 24, 2017		3,288		$	10.06	$	7,185		3.54
Outstanding—March 29, 2020											1,741			11.35	$	—		4.01
Exercisable—March 29, 2020											1,563		$	11.12	$	—		3.60

~~The company also awards restricted~~Stock-based compensation related to stock units (“RSUs”) to certain non-employee members of its Board of Directors and the senior leadership team. In May 2017, the Company issued 153,369 shares of RSUs with a grant-date fair value of $11.05 upon issuance. In August 2017, the Company issued 2,608 shares of RSUs to certain non-employee members of its Board of Directors. The RSUs had a grant-date fair value of $11.15 upon issuance. The Board of Director grants have a vesting schedule of 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date. The senior leadership team grants vest in one-third increments over a three-year period beginning in March 2018.

~~Stock-based compensation~~options is measured at the grant date based on the calculated fair value of the award, and is recognized as expense over the requisite employee service period, which is generally the vesting period of the grant with a corresponding increase to additional ~~paid-in-capital.~~paid-in capital. For the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, the Company recognized stock-based compensation expense ~~of $1.4 million, of which $0.6 million was~~ related to ~~Chief Executive Officer (CEO) transition costs.~~stock options of $0.2 million. For the 3913 weeks ended ~~September 24, 2017,~~March 31, 2019, the Company recognized stock-based compensation expense ~~of $3.3 million, of which $0.8 million was~~ related to ~~CEO transition costs.~~ ~~For the 13 and 39 weeks ended September 25, 2016, the Company recognized stock-based compensation~~stock options of ~~$0.8 million and $2.3 million, respectively.~~$0.3 million. As of ~~September 24, 2017,~~March 29, 2020, unrecognized stock-based compensation expense for stock options was ~~$4.9~~$0.6 million, which will be recognized through fiscal year ~~2021.~~2022. The Company records stock-based compensation expense within general and administrative expenses in the condensed consolidated statements of operations.

~~(7)~~The Company awards restricted stock units (“RSUs”) to certain employees of the Company and certain non-employee members of its Board of Directors. The Board of Director grants have a vesting schedule of 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date. The employee grants vest in one-third increments over a three-year period. For the 13 weeks ended March 29, 2020, the Company recognized stock-based compensation expense related to RSUs of $0.3 million. For the 13 weeks ended March 31, 2019, the Company recognized stock-based compensation expense related to RSUs of $0.2 million. As of March 29, 2020, unrecognized stock-based compensation expense for RSUs was $1.9 million, which will be recognized though fiscal year 2023.

The Company awards performance share units (“PSUs”) to eligible employees; the PSUs are subject to service and performance vesting conditions. In March 2019 the Company issued 188,414 PSUs with a grant date fair value of $8.46 per share. The PSUs will vest based on the Company’s achievement of certain targets related to adjusted EBITDA and same store sales goals. The PSUs will vest fully on the third anniversary of the grant date. The quantity of shares that will vest ranges from 0% to 200% of the targeted number of shares. If the defined minimum targets are not met, then no shares will vest. For the 13 weeks ended March 29, 2020 and March 31, 2019, no expense was recognized related to PSUs.

The Company is subject to legal proceedings, claims and liabilities, such as employment-related claims and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance. In the opinion of management, the amount of ultimate liability with respect to those actions should not have a material adverse impact on the Company’s financial position or results of operations and cash flows.

In ~~2016,~~October 2017, plaintiffs filed a purported collective and class action lawsuit (the “Complaint”) in the United States District Court for the Southern District of New York against the Company ~~received notice~~alleging violations of ~~a potential claim alleging that it violated~~ the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL). The plaintiffs allege that the Company violated the FLSA and NYLL by not paying overtime compensation to ~~its~~our assistant managers ~~whom~~and violated NYLL by not paying spread-of-hours pay. The Complaint was brought as a nationwide “collective action” under the ~~Company had classified~~FLSA and as ~~exempt employees. Although~~a “class action” under NYLL. Since the ~~Company believes that its assistant managers were properly classified as exempt under both federal and~~filing of the Complaint, the plaintiffs filed a proposed amended complaint removing the NYLL class claim, but adding a proposed Illinois state ~~laws, the Company agreed to mediate the matter. On February 20, 2017,~~law class action. In May 2019, the parties ~~entered into~~participated in a ~~Settlement Agreement~~mediation and ~~Release whereby participating assistant managers agreed to release~~resolved the ~~Company from all federal and/or state wage and hour~~ claims, ~~in exchange for a gross settlement amount of $1.3 million. As part of the settlement process, a complaint was filed~~which received final court approval on February ~~17, 2017~~4, 2020. All charges related to the claims are reflected in the ~~Circuit Court~~statement of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida. A motion seeking the Court’s approval of the settlement was filed on February 21, 2017, which was subsequently approved. In March 2017, the Company paid out the settlement, which was booked against the previously recorded liability.operations.

On April 10, 2020, Potbelly Sandwich Works, LLC, an indirect subsidiary of the Company, was granted a loan (the “Loan”) from JPMorgan Chase Bank, N.A. in the aggregate amount of $10.0 million, pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020. On April 28, 2020, the Company repaid the $10.0 million proceeds from the loan.

On May 15, 2020, the Company entered in to an amendment to its Credit Agreement. See Note 7 for further details.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016.~~29, 2019. This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, ~~(the “Securities Act”) and~~ Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, and involves numerous risks and uncertainties. Forward-looking statements may include, among others, statements relating to: our future financial position and results of operations, estimated costs associated with our closure of underperforming shops, and the implementation and results of strategic initiatives. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and generally contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “strives,” “goal,” “estimates,” “forecasts,” “projects” or “anticipates” and the negative of these terms or similar expressions. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied by the forward-looking ~~statement.~~statement, due to reasons including, but not limited to, the COVID-19 outbreak; compliance with covenants in our credit facility; competition; general economic conditions; our ability to successfully implement our business strategy; the success of our initiatives to increase sales and traffic; changes in commodity, energy and other costs; our ability to attract and retain management and employees; consumer reaction to industry-related public health issues and perceptions of food safety; our ability to manage our growth; reputational and brand issues; price and availability of commodities; consumer confidence and spending patterns; and weather conditions. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included in our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016,~~29, 2019, for a discussion of factors that could cause our actual results to differ from those expressed or implied by forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Potbelly Corporation ~~(the “Company” or “Potbelly”)~~ is a ~~fast-growing~~ neighborhood sandwich concept ~~offering toasty warm sandwiches, signature salads~~that has been a much-needed lunch-break escape for more than 40 years. Potbelly owns and ~~other fresh menu items served by engaging people~~operates Potbelly Sandwich Shop concepts in ~~an environment that reflects~~ the United States. The Company also has domestic franchise operations of Potbelly ~~brand.~~ Sandwich Shop concepts. Potbelly’s chief operating decision maker is our Chief Executive Officer. Based on how our Chief Executive Officer reviews financial performance and allocates resources on a recurring basis, the Company has one operating segment and one reportable segment.

Our ~~combination of product, people~~shop model is designed to generate, and ~~place is how we deliver~~has generated, strong cash flow, attractive shop-level financial results and high returns on investment. We operate our passion to be “The Best Place for Lunch.” Our sandwiches, salads and hand-dipped milkshakes are all made fresh to order and our cookies are baked fresh each day. Our employees are trained to engage with our customersshops successfully in a ~~genuine way~~wide range of geographic markets, population densities and real estate settings. We aim to ~~provide~~generate average shop-level profit margins, a ~~personalized experience.~~non-GAAP measure, that range from the high teens to above 20%. Our ~~shops feature vintage design elements~~ability to achieve such margins and ~~locally-themed décor inspired~~returns depends on a number of factors. For example, we face increasing labor and commodity costs, which we have partially offset by ~~the neighborhood~~increasing menu prices. Although there is no guarantee that we ~~believe create a lively atmosphere. Through this combination,~~will be able to maintain these returns, we believe ~~we are creating a devoted base of Potbelly fans that return again~~our attractive shop economics support our ability to profitably grow our brand in new and ~~again and that we are expanding one sandwich shop at a time.~~

~~We believe that a key to our past and future success is our culture. It is embodied in~~ ~~The Potbelly Advantage,~~ which is an expression of our Vision, Mission, Passion and Values and the foundation of everything we do. Our Vision is for our customers to feel that we are their “Neighborhood Sandwich Shop” and to tell others about their great experience. Our Mission is to make people really happy, to make more money and to improve every day. Our Passion is to be “The Best Place for Lunch.” Our Values embody both how we lead and how we behave and form the cornerstone of our culture. We use simple language that resonates from the frontline associate to the most senior levels of the organization, creating shared expectations and accountabilities in how we approach our day-to-day activities. We strive to be a fun, friendly and hardworking group of people who enjoy taking care of our customers, while at the same time taking care of each other.

The table below sets forth a rollforward of company-operated and franchise operated activities:

Company-

Franchise-Operated

Total

Operated

Domestic

International

Total

Company

Shops as of December 27, 2015

372

24

12

36

408

Shops opened

15

5

2

7

22

Shops purchased from franchisee

1

(1
)

—

(1
)

—

Shops closed

(1
)

—

(1
)

(1
)

(2
)
Shops as of September 25, 2016

387

28

13

41

428

Shops as of December 25, 2016

411

30

13

43

454

Shops opened

22

10

3

13

35

Shops closed

(7
)

—

—

—

(7
)
Shops as of September 24, 2017

426

40

16

56

482

	Company-			Franchise-Operated								Total
	Operated			Domestic		International			Total			Company
Shops as of December 30, 2018		437			41		8			49			486
Shops opened		1			2		—			2			3
Shops closed		(7	)		—		(1	)		(1	)		(8	)
Shops as of March 31, 2019		431			43		7			50			481

Shops as of December 29, 2019		428			46		—			46			474
Shops opened		3			—		—			—			3
Shops closed		(4	)		—		—			—			(4	)
Shops as of March 29, 2020		427			46		—			46			473

On January 30, 2020, the WHO announced a global health emergency because of COVID-19 and the risks to the international community as the virus spreads globally. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The COVID-19 pandemic has significantly impacted economic conditions in the United States where all our shops are located. In response to the pandemic, many states and jurisdictions in which we operate have issued stay-at-home orders and other measures aimed at slowing the spread of the coronavirus. While most of our company-owned shops remain open in accordance with guidance from local authorities, these measures resulted in us closing the vast majority our dining rooms and shifting to off-premise operations only, and we experienced a sudden and drastic decrease in revenues.

The COVID-19 pandemic has adversely affected, and will continue to adversely affect, our operations and financial results for the foreseeable future. There are many uncertainties regarding the current coronavirus COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners, and distribution channels. The Company is unable to predict the impact that COVID-19 will have on its financial position and operating results due to numerous uncertainties, however, the Company is continually assessing the evolving impact of the COVID-19 pandemic and intends to make adjustments to its responses accordingly.

As the COVID-19 pandemic emerged, the Company’s first priority was and continues to be ensuring the health and safety of our employees as we serve our customers and communities. We have provided masks, gloves, and other protective equipment to our shop employees, and we continue to adhere to our stringent food safety and quality assurance programs. We are monitoring recommendations from the CDC and will make necessary adjustments to align with emerging best practices. We have been in regular contact with our supply chain partners and we have not experienced, nor do we foresee, disruptions in our supply chain. As of May 15, 2020, 52 of the Company’s shops were closed temporarily. We have implemented a strategy to reduce costs and preserve cash. Please see the “Liquidity and Capital Resources” section below for additional details.

Revenue – Through the first ten weeks of 2020, we saw comparable same-store-sales increase 2.5% and the Company was on pace to record the first positive quarterly comparable same-store-sales since 2016. Due to the negative impact of the COVID-19 pandemic, we reported a decrease in comparable same-store-sales of 10.1% for the quarter ended March 29, 2020 compared to the prior year. As our shops have shifted to off-premise operations only, we are continuing to provide delivery, in-shop pick-up, drive-thru, or curbside pick-up services. Customers can place off-premise orders through Potbelly.com and the Potbelly app, or through DoorDash, Grubhub, and Uber Eats marketplaces nationwide. The Company launched the Potbelly Pantry program, which allows customers to purchase Potbelly products in bulk as a response to changing customer needs during the pandemic.

Operating Costs - We have implemented measures to reduce operating costs and general and administrative expenses in response to the negative impact the pandemic has had on our business. We have adjusted shop-level labor and reduced purchases of inventory to align with new levels of demand. We have reduced advertising and marketing expenditures. We enacted a hiring freeze, and all business travel has been suspended. As of the beginning of the second quarter of 2020, we temporarily reduced salaries for all corporate employees, suspended merit increases, promotions, bonuses, and certain benefits, furloughed approximately one-third of corporate employees. The Board of Directors have elected to temporarily defer compensation. We have suspended the payment of rent on the majority of our leases and are in discussions with our landlords regarding the restructuring of those leases in light of various contractual and legal defenses.

Shop Development – The Company has halted capital investment in new company-owned shops, except for shops that are substantially complete, as well as all non-essential capital expenditures. The Company does not have plans to begin construction on any company-owned shops until the impact of the pandemic is behind us.

We will continue to actively monitor the evolving situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, franchisees, stakeholders and communities.

In the third quarter of 2017 Potbelly experienced temporary shop closures in Texas due to Hurricane Harvey. In total, 22 shops were affected, with one shop being significantly damaged. Included within Potbelly’s Condensed Consolidated Statements of Operations within impairment and loss on disposal of property and equipment, impairment charges of $0.7 were million recorded in relation to this shop, with insurance recoveries of $0.7 million also recorded within the same caption.

13 Weeks Ended ~~September 24, 2017~~March 29, 2020 Compared to 13 Weeks Ended ~~September 25, 2016~~March 31, 2019

The following table presents information comparing the components of net income for the periods indicated (dollars in thousands):

	For the 13 Weeks Ended																	For the 13 Weeks Ended
	September 24, 2017			% of Revenues			September 25, 2016		% of Revenues			Increase (Decrease)			Percent Change			March 29, 2020			% of Revenues			March 31, 2019			% of Revenues			Increase (Decrease)			Percent Change
Revenues
Sandwich shop sales, net	$	105,327			99.2	%	$	103,224		99.5	%	$	2,103			2.0	%	$	86,961			99.3	%	$	97,258			99.2	%	$	(10,297	)		(10.6	)%
Franchise royalties and fees		800			0.8			558		0.5			242			43.4			629			0.7			829			0.8			(200	)		(24.1	)
Total revenues		106,127			100.0			103,782		100.0			2,345			2.3			87,590			100.0			98,087			100.0			(10,497	)		(10.7	)

Expenses
(Percentages stated as a percent of sandwich shop sales, net)
Sandwich shop operating expenses
Cost of goods sold, excluding depreciation		28,405			26.8			28,478		27.4			(73	)		(0.3	)		24,174			27.8			25,978			26.7			(1,804	)		(6.9	)
Labor and related expenses		31,187			29.4			30,163		29.1			1,024			3.4			30,397			35.0			31,973			32.9			(1,576	)		(4.9	)
Occupancy expenses		14,354			13.5			13,111		12.6			1,243			9.5			15,028			17.3			14,377			14.8			651			4.5
Other operating expenses		12,464			11.7			11,338		10.9			1,126			9.9			12,765			14.7			12,145			12.5			620			5.1

(Percentages stated as a percent of total revenues)
General and administrative expenses		12,104			11.4			9,999		9.6			2,105			21.1			10,734			12.3			12,709			13.0			(1,975	)		(15.5	)
Depreciation expense		6,315			6.0			5,656		5.4			659			11.7			5,456			6.2			5,536			5.6			(80	)		(1.4	)
Pre-opening costs		336			0.3			340		0.3			(4	)		(1.2	)		64		*				10		*				54		>100
Impairment and loss on disposal of property and equipment		1,536			1.4			1,855		1.8			(319	)		(17.2	)		5,957			6.8			82		*				5,875		>100
Total expenses		106,701			100.5			100,940		97.3			5,761			5.7			104,575		>100				102,810		>100				1,765			1.7
Income (loss) from operations		(574	)		(0.5	)		2,842		2.7			(3,416	)	>(100)
Loss from operations																			(16,985	)		(19.4	)		(4,723	)		(4.8	)		(12,262	)	>100

Interest expense		32		*				33	*				(1	)		(3.0	)		74		*				32		*				42		>100
Income (loss) before income taxes		(606	)		(0.6	)		2,809		2.7			(3,415	)	>(100)
Loss before income taxes																			(17,059	)		(19.5	)		(4,755	)		(4.8	)		(12,304	)	>100
Income tax expense (benefit)		(487	)		(0.5	)		960		0.9			(1,447	)	>(100)				(3,709	)		(4.2	)		13,619			13.9			(17,328	)	>(100)
Net income (loss)		(119	)	*				1,849		1.8			(1,968	)	>(100)
Net income attributable to non-controlling interest		121			0.1			54	*				67		>100
Net income (loss) attributable to Potbelly Corporation	$	(240	)		(0.2	)%	$	1,795		1.7	%	$	(2,035	)	>(100)%
Net loss																			(13,350	)		(15.2	)		(18,374	)		(18.7	)		5,024			(27.3	)
Net income (loss) attributable to non-controlling interest																			(14	)	*				65		*				(79	)	>(100)
Net loss attributable to Potbelly Corporation																		$	(13,336	)		(15.2	)%	$	(18,439	)		(18.8	)%	$	5,103			(27.7	)%

Total revenues ~~increased~~decreased by ~~$2.3~~$10.5 million, or ~~2.3%~~10.7%, to ~~$106.1~~$87.6 million during the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, from ~~$103.8~~$98.1 million during the 13 weeks ended ~~September 25, 2016.~~March 31, 2019. The Company’s comparable store sales increased 2.5% during the first 10 weeks of the quarter before experiencing the impact of the COVID-19 pandemic. The revenue ~~growth~~decrease for the quarter was driven by ~~an increase~~a $9.6 million, or 10.1%, decrease in sales from company-operated comparable store shops and a decrease in sales of ~~$9.5~~$0.7 million from shops that have closed and $0.4 million from shops not yet in our company-operated comparable store sales ~~base and~~base. These decreases were partially offset by an increase in sales of $0.2 million from franchise royalties and fees. These increases were partially offset by a decrease in sales of $4.7 million, or 4.8%, from company-operated comparable store shops and a decrease in sales of $2.7 million from shops that ~~have closed. The decrease~~opened in ~~company-operated comparable store sales resulted from a decrease in traffic partially offset by certain menu price increases.~~

Cost of goods sold decreased by ~~$0.1~~$1.8 million, or ~~0.3%~~6.9%, to ~~$28.4~~$24.2 million during the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, from ~~$28.5~~$26.0 million during the 13 weeks ended ~~September 25, 2016,~~March 31, 2019. This decrease was primarily ~~due to~~driven by a decrease in ~~input costs, which were partially offset by an increase in costs due to an increase in sales volume.~~shop revenue. As a percentage of ~~revenues,~~sandwich shop sales, cost of goods sold ~~decreased~~increased to ~~26.8%~~27.8% during the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, from ~~27.4%~~26.7% during the 13 weeks ended ~~September 25, 2016,~~March 31, 2019, primarily driven by cost inflation in certain ~~menu price increases~~products and reserves for inventory spoilage from the decrease in sales, partially offset by ~~inflation.~~menu price increases.

Labor and related expenses ~~increased~~decreased by ~~$1.0~~$1.6 million, or ~~3.4%~~4.9%, to ~~$31.2~~$30.4 million during the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, from ~~$30.2 million~~$32.0 for the 13 weeks ended March 31, 2019, primarily due to labor management amid a decrease in shop revenue and a decrease in expense from closed shops, partially offset by wage inflation. As a percentage of sandwich shop sales, labor and related expenses increased to 35.0% during the 13 weeks ended ~~September 25, 2016,~~March 29, 2020, from 32.9% during the 13 weeks ended March 31, 2019, primarily ~~due to new shop openings, which was~~driven by sales deleverage in certain labor related costs not directly variable with sales, partially offset by a decrease in expense from ~~company-operated comparable store~~closed shops. As a percentage of revenues, labor and related expenses increased to 29.4% during the 13 weeks ended September 24, 2017, from 29.1% during the 13 weeks ended September 25, 2016, primarily driven by a decrease in company-operated comparable store shop revenue and ~~inflationary wage increases in certain states~~.

Occupancy expenses increased by ~~$1.2~~$0.7 million, or ~~9.5%~~4.5%, to $15.0 million during the 13 weeks ended March 29, 2020, from $14.4 million during the 13 weeks ended ~~September 24, 2017, from $13.1 million during the 13 weeks ended September 25, 2016,~~March 31, 2019 primarily due to ~~new shop openings and an increase~~inflation in certain occupancy related costs, including lease renewals, real estate taxes ~~rent expense~~ and common area ~~maintenance. These increases were~~maintenance, partially offset by a decrease in ~~expenses from shops that have closed.~~expense related to closed shops. As a percentage of ~~revenues,~~sandwich shop sales, occupancy expenses increased to ~~13.5%~~17.3% during the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, from ~~12.6%~~14.8% during the 13 weeks ended ~~September 25, 2016,~~March 31, 2019, primarily due to ~~a decrease~~sales deleverage and inflation in ~~company-operated comparable store shop revenue and an increase in~~certain occupancy related costs, including lease renewals, real estate taxes ~~rent expense~~ and common area maintenance. ~~These increases in the percentage of revenue were partially offset by a decrease in expenses from shops that have closed.~~

Other operating expenses increased by ~~1.1~~$0.6 million, or ~~9.9%~~5.1%, to ~~$12.5~~$12.8 million during the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, from $11.3 million during the 13 weeks ended September 25, 2016. The increase was attributable to new shop openings as well as higher utility costs, information technology costs, credit card fees and shop repairs. As a percentage of revenues, other operating expenses increased to 11.7% during the 13 weeks ended September 24, 2017, from 10.9% during the 13 weeks ended September 25, 2016, primarily driven by a decrease in company-operated comparable store shop revenue, higher utility costs and information technology costs.

~~General and administrative expenses increased by $2.1 million, or 21.1%, to~~ $12.1 million during the 13 weeks ended ~~September 24, 2017,~~March 31, 2019. The increase was primarily attributable to higher expenses related to third-party delivery partnerships driven by increased sales in that channel, partially offset by a decrease in certain items variable with sales. As a percentage of sandwich shop sales, other operating expenses increased to 14.7% during the 13 weeks ended March 29, 2020, from ~~$10.0~~12.5% during the 13 weeks ended March 31, 2019, primarily driven by sales deleverage in operating expense items such as utilities and other expenses not directly variable with sales.

General and administrative expenses decreased by $2.0 million, or 15.5%, to $10.7 million during the 13 weeks ended ~~September 25, 2016.~~March 29, 2020, from $12.7 million during the 13 weeks ended March 31, 2019. The ~~increase~~decrease was driven primarily by ~~Chief Executive Officer (CEO) transition costs of $1.2 million, advertising~~a decrease in lease exit costs and ~~store closure expenses~~advertising costs. ~~These increases were partially offset by~~ ~~lower performance-based incentive expenses.~~ As a percentage of revenues, general and administrative expenses ~~increased~~decreased to ~~11.4%~~12.3% during the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, from ~~9.6%~~13.0% during the 13 weeks ended ~~September 25, 2016,~~March 31, 2019, primarily due to ~~CEO transition costs of $1.2 million, advertising~~a decrease in lease exit costs and ~~store closure expenses. These increase were partially offset by~~ ~~lower performance-based incentive expenses.~~advertising costs.

Depreciation expense ~~increased~~decreased by ~~0.7~~$0.1 million, or ~~11.7%~~1.4%, to ~~$6.3~~$5.5 million during the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, from ~~$5.7~~$5.5 million during the 13 weeks ended ~~September 25, 2016,~~March 31, 2019. The decrease was driven primarily ~~due to~~by a ~~higher~~lower depreciable base related to a decrease in the number of company-operated shops, as well as lower depreciation associated with longer expected useful lives for leasehold improvements at new shops and leasehold improvements at legacy shops with shorter expected useful lives being fully depreciated. These decreases were partially offset by existing shop capital investments and investments in technology such as the mobile ~~application. These increases were partially offset by impairment charges taken subsequent to the 13 weeks ended September 25, 2016,~~application, which ~~lowered~~increased the depreciable base. As a percentage of revenues, depreciation ~~increased to 6.0%~~was 6.2% during the 13 weeks ended ~~September 24, 2017, from 5.4% during~~March 29, 2020 and was 5.6% for the 13 weeks ended September 25, 2016, driven by a decrease in company-operated comparable store shop revenue and a higher depreciable base related to new shops and existing shop capital investments. These impacts were partially offset by impairment charges taken subsequent to the 13 weeks ended September 25, 2016, which lowered the depreciable base.March 31, 2019.

Pre-opening costs were ~~$0.3 million~~$64 thousand during the 13 weeks ended ~~September 24, 2017~~March 29, 2020 and ~~September 25, 2016.~~$10 thousand during the 13 weeks ended March 31, 2019. The increase was due to 3 new shop openings in the first quarter of 2020 compared to 1 shop opening in the first quarter of 2019.

Impairment and Loss on Disposal of Property and Equipment and Right-of-Use Lease Assets

Impairment and loss on disposal of property and equipment ~~decreased~~and right-of-use lease assets increased to ~~$1.5~~$6.0 million during the 13 weeks ended ~~September 24, 2017,~~March 29, 2020, from ~~$1.9~~$0.1 million during the 13 weeks ended ~~September 25, 2016.~~March 31, 2019 primarily due to the expected impact of COVID-19 on future cash flows. After performing periodic reviews of Company shops during the ~~third~~first quarter of ~~2017,~~2020, it was determined that indicators of impairment were present for certain ~~shops as a result of continued underperformance. We~~shops. The Company performed impairment analyses related to these shops and recorded an impairment charge of ~~$1.5~~$5.9 million for the excess of the carrying amount recorded on ~~our~~the balance sheet over the shops’ estimated fair value. ~~We perform~~The Company performs impairment analyses on a quarterly basis, which ~~involve~~involves significant judgment by management including estimates of future cash flows and future growth rates, among other assumptions. Based on ~~our~~the Company’s current projections, no impairment beyond what has already been recorded has been identified.

The COVID-19 outbreak has had a significant impact on the global economy, including declining sales at our restaurants and the overall challenging environment for the restaurant industry. Given the high degree of uncertainty as to whether, when or the manner in which the conditions surrounding the pandemic will change, including the timing of any lifting of restrictions on restaurant operating hours, dine-in limitations or other restrictions that largely limited restaurants to take-out and delivery sales, customer engagement with our brand, the short- and long-term impact on consumer discretionary spending and overall global economic conditions, it is possible that non-cash impairments could be identified in tangible assets in the future. However, ~~given~~ the ~~current challenges facing~~likelihood or the ~~industry and our business, future evaluations could result in additional~~amount of an impairment ~~charges.~~charge cannot be reasonably estimated at this time.

Interest expense was $74 thousand during the 13 weeks ended March 29, 2020 and $32 thousand during the 13 weeks ended ~~September 24, 2017 and $33 thousand during the 13 weeks ended September 25, 2016.~~March 31, 2019.

~~Income~~The Company recognized an income tax ~~expense decreased by $1.5 million, or 150.7%, to a~~ benefit of ~~0.5~~$3.7 million for the 13thirteen weeks ended September 24, 2017, from $1.0 million for the 13 weeks ended September 25, 2016, primarily attributable to lower pre-tax book income and certain tax benefits. The decrease was partially offset by the adoption of Accounting Standards Update (ASU) 2016-09, which resulted in the tax effects of equity-based compensation being recorded through the income statement rather than equity. For the 13 weeks ended September 24, 2017, the effective tax rate was 80.4%, compared to 34.2% for the 13 weeks ended September 25, 2016. The increase in the effective tax rate was driven by lower pre-tax book income and certain tax benefits ~~partially offset by~~ ~~the net effect of the adoption of ASU 2016-09 for stock-based compensation, which impacted our tax rate by 7.5%.~~ ~~See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding the adoption of ASU 2016-09.~~

~~39 Weeks Ended September 24, 2017 Compared to 39 Weeks Ended September 25, 2016~~

~~The following table presents information comparing the components of net income for the periods indicated (dollars in thousands):~~

For the 39 Weeks Ended

September 24, 2017

% of
Revenues

September 25, 2016

% of
Revenues

Increase
(Decrease)

Percent
Change

Revenues

Sandwich shop sales, net

$
313,568

99.2
%

$
303,116

99.5
%

$
10,452

3.4
%
Franchise royalties and fees

2,394

0.8

1,657

0.5

737

44.5

Total revenues

315,962

100.0

304,773

100.0

11,189

3.7

Expenses

Sandwich shop operating
   expenses

Cost of goods sold, excluding
   depreciation

83,703

26.5

83,224

27.3

479

0.6

Labor and related expenses

93,213

29.5

88,260

29.0

4,953

5.6

Occupancy expenses

42,792

13.5

39,042

12.8

3,750

9.6

Other operating expenses

36,349

11.5

32,570

10.7

3,779

11.6

General and administrative
   expenses

33,375

10.6

30,827

10.1

2,548

8.3

Depreciation expense

18,960

6.0

16,996

5.6

1,964

11.6

Pre-opening costs

955

0.3

731

0.2

224

30.6

Impairment and loss on disposal
   of property and equipment

5,762

1.8

2,880

0.9

2,882

>100

Total expenses

315,109

99.7

294,530

96.6

20,579

7.0

Income from operations

853

0.3

10,243

3.4

(9,390
)

(91.7
)

Interest expense

101

*

102

*

(1
)

(1.0
)
Income before income taxes

752

0.2

10,141

3.3

(9,389
)

(92.6
)
Income tax expense

252

*

3,732

1.2

(3,480
)

(93.2
)
Net income

500

0.2

6,409

2.1

(5,909
)

(92.2
)
Net income attributable to non-
   controlling interests

195

*

153

*

42

27.5

Net income attributable to
   Potbelly Corporation

$
305

*

$
6,256

2.1
%

$
(5,951
)

(95.1
)%

Total revenues increased by $11.2 million, or 3.7%, to $316.0 million during the 39 weeks ended September 24, 2017, from $304.8 million during the 39 weeks ended September 25, 2016. The revenue growth was driven by an increase in sales of $27.6 million from shops not yet in our company-operated comparable store sales base and an increase in sales of $0.7 million from franchise royalties and fees. These increases were partially offset by a decrease in sales of $12.6 million, or 4.3%, from company-operated comparable store shops and a decrease in sales of $4.6 million from shops that have closed. The decrease in company-operated comparable store sales resulted from a decrease in traffic partially offset by certain menu price increases.

Cost of goods sold increased by $0.5 million, or 0.6%, to $83.7 million during the 39 weeks ended September 24, 2017, from $83.2 million during the 39 weeks ended September 25, 2016, primarily due to an increase in sales volume. As a percentage of revenues, cost of goods sold decreased to 26.5% during the 39 weeks ended September 24, 2017, from 27.3% during the 39 weeks ended September 25, 2016, primarily driven by certain menu price increases.

Labor and related expenses increased by $5.0 million, or 5.6%, to $93.2 million during the 39 weeks ended September 24, 2017, from $88.3 million during the 39 weeks ended September 25, 2016, primarily due to new shop openings and inflationary wage increases in certain states. As a percentage of revenues, labor and related expenses increased to 29.5% during the 39 weeks ended September 24, 2017, from 29.0% during the 39 weeks ended September 25, 2016, primarily driven by inflationary wage increases in certain states and a decrease in company-operated comparable store shop revenue partially offset by certain menu price increases.

Occupancy expenses increased by $3.8 million, or 9.6%, to $42.8 million during the 39 weeks ended September 24, 2017, from $39.0 million during the 39 weeks ended September 25, 2016, primarily due to new shop openings and an increase in real estate taxes, rent expense and common area maintenance. As a percentage of revenues, occupancy expenses increased to 13.5% during the 39 weeks ended September 24, 2017, from 12.8% during the 39 weeks ended September 25, 2016,March 29, 2020 primarily due to a ~~decrease in company-operated comparable store shop revenue and an increase in real estate taxes, rent expense and common area maintenance.~~

~~Other operating expenses increased by $3.8 million, or 11.6%, to $36.3 million during~~discrete tax benefit recorded for the 39 weeks ended September 24, 2017, from $32.6 million during the 39 weeks ended September 25, 2016. The increase was attributable to new shop openings as well as higher utility costs, information technology costs and credit card fees. As a percentagecarryback of revenues, other operating expenses increased to 11.5% during the 39 weeks ended September 24, 2017, from 10.7% during the 39 weeks ended September 25, 2016, primarily driven by a decrease in company-operated comparable store shop revenue, higher utility expense, information technology costs and credit card fees.

General and administrative expenses increased by $2.6 million, or 8.3%, to $33.4 million during the 39 weeks ended September 24, 2017, from $30.8 million during the 39 weeks ended September 25, 2016. The increase was driven primarily by CEO transition costs of $2.2 million, store closure expenses and advertising costs~~. This increase was partially offset by~~ lower performance-based incentive expenses. As a percentage of revenues, general and administrative expenses increased to 10.6% during the 39 weeks ended September 24, 2017, from 10.1% during the 39 weeks ended September 25, 2016, primarily due to CEO transition costs, store closure expenses and advertising costs. ~~These increases were partially offset by lower performance-based incentive expenses.~~

Depreciation expense increased by $2.0 million, or 11.6%, to $19.0 million during the 39 weeks ended September 24, 2017, from $17.0 million during the 39 weeks ended September 25, 2016, primarily due to a higher depreciable base related to new shops, existing shop capital investments and investments in technology such as the mobile application. These increases were partially offset by impairment charges taken subsequent to the 39 weeks ended September 25, 2016, which lowered the depreciable base. As a percentage of revenues, depreciation increased to 6.0% during the 39 weeks ended September 24, 2017, from 5.6% during the 39 weeks ended September 25, 2016, driven by a decrease in company-operated comparable store shop revenueNOLs and a ~~higher depreciable base related to new shops and existing shop capital investments. These impacts were partially offset by impairment charges taken subsequent to~~refund of prior AMT credits allowed under the ~~39 weeks ended September 25, 2016,~~CARES Act, which ~~lowered~~ the ~~depreciable base.~~

~~Pre-opening costs increased by $0.2 million, or 30.6%, to $1.0 million during the 39 weeks ended September 24, 2017, from $0.7 million during the 39 weeks ended September 25, 2016.~~

~~Impairment and Loss on Disposal~~Company estimates will result in a tax refund of ~~Property and Equipment~~

~~Impairment and loss on disposal~~$3.7 million. The Company recorded a tax expense of property and equipment increased to $5.8 million during the 39 weeks ended September 24, 2017, compared to $2.9 million during the 39 weeks ended September 25, 2016. After performing periodic reviews of Company shops during the first three quarters of 2017, it was determined that indicators of impairment were present for certain shops as a result of continued underperformance. We performed impairment analyses related to these shops and recorded impairment charges of $5.8$13.6 million for the excess of the carrying amount recorded on our balance sheet over the shops’ estimated fair value. We perform impairment analyses on a quarterly basis which involve significant judgment by management including estimates of future cash flows and future growth rates, among other assumptions. Based on our current projections, no impairment, beyond what has already been recorded, has been identified. However, given the current challenges facing the industry and our business, future evaluations could result in additional impairment charges.

~~Interest expense was $101 thousand during the 39~~thirteen weeks ended ~~September 24, 2017 and $102 thousand during~~March 31, 2019 due to the ~~39 weeks ended September 25, 2016.~~

~~Income~~Company recording a non-cash charge to income tax expense ~~decreased by $3.5 million, or 93.2%, to $0.3 million~~ for the ~~39 weeks ended September 24, 2017, from $3.7 million for the 39 weeks ended September 25, 2016, primarily attributable to lower pre-tax book income and certain~~recognition of a full valuation allowance against its net deferred tax benefits. The decrease was partially offset by the adoption of ASU 2016-09, which resulted in the tax effects of equity-based compensation being recorded through the income statement rather than equity. For the 39 weeks ended September 24, 2017, the effective tax rate was 33.5%, compared to 36.8% for the 39 weeks ended September 25, 2016. The decrease in the effective tax rate was primarily driven by lower pre-tax book income and certain tax benefits ~~partially offset by~~ ~~the net effect of the adoption of ASU 2016-09 for stock-based compensation, which increased our tax rate by approximately 38.9%.~~ ~~See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding the adoption of ASU 2016-09.~~assets.

~~Our~~Historically, Potbelly’s ongoing primary sources of liquidity and capital resources are cash provided from operating activities, existing cash and cash equivalents and ~~our~~the Company’s credit facility. ~~Our~~Potbelly’s primary requirements for liquidity and capital are new shop openings, existing shop capital investments, ~~(maintenance and improvements),~~maintenance, repurchases of ~~our~~Company common stock, lease obligations, ~~purchases of existing franchise-operated shops~~working capital and general corporate needs. ~~Our~~Potbelly’s requirement for working capital is not significant since ~~our~~the Company’s customers pay for their food and beverage purchases in cash or payment cards (credit or debit) at the time of sale. ~~Therefore, we are~~Thus, Potbelly is able to sell certain inventory items before ~~we have~~the Company needs to pay ~~our suppliers. Our~~its suppliers for such items. Company shops do not require significant inventories or receivables. ~~We believe that these sources of liquidity and capital will be sufficient to finance~~

The COVID-19 pandemic’s impact on our ~~continued~~ operations and ~~expansion plans~~revenues has significantly affected our ability to generate cash from operations. To preserve financial flexibility, the Company drew the $40.0 million of available capacity under its revolving credit facility. The Company ended the quarter with a cash balance of $45.8 million compared to a balance of $18.8 million at December 29, 2019. The increase in the cash balance is primarily due to the borrowing under its Revolving Credit Facility.

Due to the dramatic impact of the pandemic on operations and sales, we suspended the payment of rent on the majority of our leases. We are in discussions with our landlords regarding the restructuring of those leases in light of various contractual and legal defenses. While we are having ongoing conversations with landlords in various markets in seeking commercially reasonable lease concessions given the current environment, we have not yet confirmed significant concessions for ~~at least~~ the ~~next twelve months.~~remainder of the year. Future lease amendments resulting from these discussions may have a material impact on our liquidity.

We are expecting to receive a $3.7 million tax refund in 2020 due to the provisions of the CARES Act regarding the carryback of NOLs and the refund of prior AMT credits. We have elected to defer the employer-paid portion of social security taxes which is expected to defer approximately $3.0 to $4.0 million of cash payments from 2020 in to 2021 and 2022.

The following table presents summary cash flow information for the periods indicated (in thousands):

	For the 39 Weeks Ended						For the 13 Weeks Ended
	September 24,			September 25,			March 29,			March 31,
	2017			2016			2020			2019
Net cash provided by (used in):
Operating activities	$	28,368		$	33,571		$	(7,816	)	$	(2,373	)
Investing activities		(23,526	)		(20,991	)		(4,860	)		(2,572	)
Financing activities		(6,043	)		(14,852	)		39,686			(999	)
Net decrease in cash	$	(1,201	)	$	(2,272	)
Net increase (decrease) in cash							$	27,010		$	(5,944	)

Net cash ~~provided by~~used in operating activities ~~decreased~~increased to ~~$28.4~~$7.8 million for the 3913 weeks ended ~~September 24, 2017,~~March 29, 2020, from ~~$33.6~~$2.4 million for the 3913 weeks ended ~~September 25, 2016.~~March 31, 2019. The ~~$5.2~~$5.4 million ~~decrease~~increase was primarily driven by ~~changes~~an increase in loss from operations, as well as timing of payment for certain ~~working capital accounts mainly due to timing. The remainder of the difference was primarily attributable to a decrease of $5.9 million in net income.~~liabilities.

Net cash used in investing activities increased to ~~$23.5~~$4.9 million for the 3913 weeks ended ~~September 24, 2017,~~March 29, 2020, from ~~$21.0~~$2.6 million for the 3913 weeks ended ~~September 25, 2016.~~March 31, 2019. The increase was primarily due to ~~construction costs for new company-operated~~more shops opened ~~for~~and under construction during the 3913 weeks ended ~~September 24, 2017,~~March 29, 2020 compared to ~~new company-operated shops opened for~~ the 3913 weeks ended ~~September 25, 2016, as well as~~March 31, 2019. Due to the COVID-19 pandemic, capital expenditures ~~for future shop openings, maintaining our existing shops~~have been reduced to essential maintenance and ~~certain other projects.~~safety.

Net cash provided by financing activities increased to $39.7 million for the 13 weeks ended March 29, 2020, from net cash used in financing activities ~~decreased to $6.0~~of $1.0 million for the 3913 weeks ended ~~September 24, 2017, from $14.9 million for the 39 weeks ended September 25, 2016.~~March 31, 2019. The ~~decrease~~change in ~~net~~financing cash ~~used~~ was primarily driven by ~~$8.9~~a borrowing under the Credit Facility of $39.8 million and a decrease in repurchases of treasury stock ~~repurchased during the 39 weeks ended September 24, 2017, compared to $20.4~~of $1.1 million during the 3913 weeks ended ~~September 25, 2016. Additionally, Potbelly received $3.2~~March 29, 2020, partially offset by a $0.2 million decrease in proceeds from the exercise of stock options ~~and warrants~~ during the 3913 weeks ended March 29, 2020.

On August 7, 2019, the Company entered into a second amended and restated revolving credit facility agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A. (“JPMorgan”) that expires in July 2022. The Credit Agreement amends and restates that certain amended and restated revolving credit facility agreement, dated as of December 9, 2015, and amended on May 3, 2019 (collectively, the "Prior Credit Agreement") with JPMorgan. The Credit Agreement provides, among other things, for a revolving credit facility in a maximum principal amount of $40 million, with possible future increases of up to $20 million under an expansion feature. Borrowings under the credit facility generally bear interest at the Company’s option at either (i) a eurocurrency rate determined by reference to the applicable LIBOR rate plus a margin ranging from 1.25% to 1.75% or (ii) a prime rate as announced by JPMorgan plus a margin ranging from 0.00% to 0.50%. The applicable margin is determined based upon the Company’s consolidated total leverage ratio. On the last day of each calendar quarter, the Company is required to pay a commitment fee of 0.20% per annum in respect of any unused commitments under the credit facility. So long as certain total leverage ratios, EBITDA thresholds and minimum liquidity requirements are met and no default or event of default has occurred or would result, there is no limit on the “restricted payments” (primarily distributions and equity repurchases) that the Company may make, provided that proceeds of the loans under the Credit Agreement may not be used for purposes of making restricted payments.

On March 17, 2020, the Company fully drew the available capacity of $39.8 million under its Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic. In accordance with the terms of its Revolving Credit Facility, the proceeds from these borrowings may in the future be used for working capital, general corporate or other permitted purposes. As of March 29, 2020, the Company had $39.8 million outstanding under the Credit Agreement. There were no borrowings outstanding as of March 31, 2019.

The Credit Agreement was subsequently amended as of May 15, 2020 (the “Credit Agreement Amendment”) to, among other things (i) change the maturity date from July 31, 2022 to March 31, 2022; (ii) eliminate the $20.0 million expansion feature; (iii) amend the interest rate to the Company’s option at either (a) a eurocurrency rate determined by reference to the applicable LIBOR rate with a 1.00% floor plus a margin of 5.00% or (b) a prime rate as announced by JP Morgan plus 4.00%; (iv) amend the commitment fee to 1.00% per annum in respect of any unused commitments under the credit facility; (v) implement additional restrictions on restricted payments, acquisitions and other indebtedness; and (vi) implement additional financial covenants. Per the terms of the Credit Agreement Amendment, the Company repaid $15.0 million of its outstanding borrowing at the signing of the Credit Agreement Amendment, and may re-borrow this $15.0 million when its cash balances held by JP Morgan declines below $28.0 million. Lastly, the Company is required to pay an upfront fee of 1% of the outstanding loan balance within fifteen business days of the signing of the Credit Agreement Amendment.

The Credit Agreement Amendment includes financial covenants that require the Company to maintain minimum liquidity levels, minimum building adjusted EBITDA, maximum total debt to adjusted EBITDA and a minimum trailing twelve months (“TTM”) adjusted EBITDA. The Company is required to maintain (i) a minimum liquidity level of $45.0 million at April 30, 2020 and $32.5 million at May 31, 2020; (ii) a minimum building adjusted EBITDA of ($8.5) million for April 2020 and ($16.0) million for the period of April 2020 through May 2020; (iii) a maximum total debt to adjusted EBITDA ratio of 2.25 to 1.00 beginning June 30, 2020; and (iv) a minimum TTM adjusted EBITDA of $16.0 million beginning June 30, 2020, $15.0 million beginning September ~~24, 2017, compared~~30, 2020 and $17.0 million beginning September 30, 2021. Compliance with the financial covenants was waived for March 29, 2020 as part of the Credit Agreement Amendment. The Company expects that it will be in compliance with the revised covenants for the April and May 2020 reporting periods. The Company concluded that without any additional changes, it would likely not meet the maximum total debt to ~~$5.7 million during~~adjusted EBITDA and/or the ~~39 weeks ended September 25, 2016.~~minimum TTM adjusted EBITDA requirements beginning with the month of June 2020, in which case the lenders would have the ability to demand repayment of the outstanding debt at such time. Accordingly, the outstanding balance is presented as a current liability as of March 29, 2020 based on the guidance in ASC 470, Debt.

The Company is in continued negotiations with its current lender and expects further amendments to the Credit Agreement as needed to maintain compliance with future financial covenants, but we cannot make any assurances regarding the likelihood, certainty or exact timing of further amendments to the Credit Agreement.

The Company is also evaluating various alternatives to improve its liquidity, including but not limited to, lease concessions and deferrals, further reductions of operating and capital expenditures, and raising additional capital.

On ~~September~~May 8, ~~2016,~~2018, the Company announced that its Board of Directors authorized a ~~share~~stock repurchase program offor up to ~~$30.0~~$65.0 million of ~~the Company’s~~its outstanding common stock. The ~~Company’s previous $35.0 million share repurchase program, authorized in September 2015, was completed in July 2016.~~ ~~The current~~ program permits the Company, from time to time, to purchase shares in the open market (including in pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Exchange ~~Act of 1934, as amended)~~Act) or in privately negotiated transactions. ~~During the 39 weeks ended September 24, 2017, the Company repurchased 745,496~~The number of shares of ~~our~~ common stock ~~for approximately $8.9 million, including cost~~repurchased in the future, and ~~commission, in open~~the timing and price of repurchases, will depend upon market ~~transactions. As of September 24, 2017, the remaining dollar value of authorization under the share repurchase program was $18.8 million, which does not include commission.~~conditions, liquidity needs and other factors. Purchases may be started or stopped at any time without prior notice depending on market conditions and other factors. Repurchased shares are included as treasury stock in the condensed consolidated balance sheets and the condensed consolidated statements of equity.

On December 9, 2015, we entered into an amended and restated five-year revolving credit facility agreement that expires in November 2020. The credit agreement provides, among other things, for a revolving credit facility in a maximum principal amountFor the 13 weeks ended March 29, 2020, the Company did not repurchase any shares of $50.0 million, with possible future increases to $75.0 million under an expansion feature. Borrowings under the credit facility generally bear interest at our option at either (i) a eurocurrency rate determined by referenceits common stock. Due to the ~~applicable London Interbank Offered Rate (LIBOR) plus a margin ranging from 1.00%~~COVID-19 pandemic, the Company does not have plans to 1.75% or (ii) a prime rate as announced by JP Morgan Chase plus a margin ranging from 0.00% to 0.50%. The applicable margin is determined based upon our consolidated total leverage ratio. On the last day of each calendar quarter, we are required to pay a commitment fee ranging from 0.125% to 0.20% per annum in respect ofrepurchase any ~~unused commitments~~common stock under the credit facility, with the specific rate determined based upon our consolidated total leverage ratio. So long as the leverage ratios are met, there is no limit on the “restricted payments” (primarily distributions and equity repurchases) that we may make. As of September 24, 2017, we had no amounts outstanding under the credit facility.its share repurchase program at this time.

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates include amounts for long-lived assets and income taxes. Actual results could differ from those estimates. Critical accounting policies are those that management believes are both most important to the portrayal of our financial condition and operating results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. ~~We base our~~The Company bases estimates on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. WePotbelly had no significant changes in our critical accounting estimates since ~~our~~the last annual report. ~~Our~~The Company’s critical accounting estimates are identified and described in our annual consolidated financial statements and related notes.

As of ~~September 24, 2017, we do~~March 29, 2020, the Company does not have any off-balance sheet arrangements, synthetic leases, investments in special purpose entities or undisclosed borrowings or debt that would be required to be disclosed pursuant to Item 303 of Regulation S-K under the Exchange Act.

See Note 1 to the Consolidated Financial Statements for a description of recently issued Financial Accounting Standards.

ITEM 3. QUANTITATIVE AND ~~QUALITATI~~VEQUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risk through fluctuations in interest rates on our debt obligations. Our Revolving Credit Facility bears interest at a floating rate. We seek to manage exposure to adverse interest rate changes through our normal operating and ~~qualitative disclosures about~~financing activities. As of March 29, 2020, the Company had $39.8 million outstanding under the Credit Agreement.

We purchase certain products that are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions, seasonality, production, availability and other factors which are not considered predictable or within our control. Although these products are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements used contain risk ~~see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,”~~management techniques designed to minimize price volatility. In many cases, we believe we will be able to address material commodity cost increases by adjusting menu pricing or making other operational adjustments that increase productivity. However, increases in commodity prices, without adjustments to menu prices, could increase restaurant operating costs as a percentage of restaurant sales. We could also experience shortages of key ingredients if our ~~Annual Report on Form 10-K for~~suppliers need to close or restrict operations due to the ~~fiscal year ended December 25, 2016. Our exposures to market risk have not changed materially since December 25, 2016.~~impact of the COVID-19 pandemic.

Our management, with the participation of our ~~interim~~ Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange ~~Act~~Act) as of ~~September 24, 2017.~~March 29, 2020. Based upon that evaluation, our ~~interim~~ Chief Executive Officer and Chief Financial Officer ~~has~~have concluded that, as of ~~September 24, 2017,~~March 29, 2020, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the ~~SEC~~Securities and Exchange Commission and is accumulated and communicated to our management, including our ~~interim~~ Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the ~~fiscal~~first quarter ended ~~September 24, 2017~~March 29, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

~~The certification required by Section 302 of the Sarbanes-Oxley Act of 2002 is filed as exhibit 31.1 to this Quarterly Report on Form 10-Q.~~

Information pertaining to legal proceedings is provided in Note 710 to the Condensed Consolidated Financial Statements and is incorporated by reference herein.

A description of the risk factors associated with our business is contained in Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016. There have been no material changes to our Risk Factors as previously reported.~~29, 2019. In light of the rapidly evolving COVID-19 pandemic, the Company filed Form 8-Ks on March 20, 2020 and May 8, 2020 for the purpose of supplementing the risk factors disclosed in Item 1A of its Annual Report on Form 10-K for the fiscal year ended December 29, 2019.

The following table contains information regarding purchases of our common stock made by or on behalf of Potbelly Corporation during the 13 weeks ended ~~September 24, 2017:~~March 29, 2020:

On May 15, 2020, the Company entered into an amendment to the Credit Agreement to, among other things (i) change the maturity date from July 31, 2022 to March 31, 2022; (ii) eliminate the $20.0 million expansion feature; (iii) amend the interest rate to the Company’s option at either (a) a eurocurrency rate determined by reference to the applicable LIBOR rate with a 1.00% floor plus a margin of 5.00% or (b) a prime rate as announced by JP Morgan plus 4.00%; (iv) amend the commitment fee to 1.00% per annum in respect of any unused commitments under the credit facility; (v) implement additional restrictions on restricted payments, acquisitions and other indebtedness; and (vi) implement additional financial covenants. Per the terms of the Credit Agreement Amendment, the Company repaid $15.0 million of its outstanding borrowing at the signing of the Credit Agreement Amendment, and may re-borrow this $15.0 million when its cash balances held by JP Morgan declines below $28.0 million. Lastly, the Company is required to pay an upfront fee of 1% of the outstanding loan balance within fifteen business days of the signing of the Credit Agreement Amendment.

adjusted EBITDA. The Company is required to maintain (i) a minimum liquidity level of $45.0 million at April 30, 2020 and $32.5 million at May 31, 2020; (ii) a minimum building adjusted EBITDA of ($8.5) million for April 2020 and ($16.0) million for the period of April 2020 through May 2020; (iii) a maximum total debt to adjusted EBITDA ratio of 2.25 to 1.00 beginning June 30, 2020; and (iv) a minimum TTM adjusted EBITDA of $16.0 million beginning June 30, 2020, $15.0 million beginning September 30, 2020 and $17.0 million beginning September 30, 2021. Compliance with the financial covenants was waived for March 29, 2020 as part of the Credit Agreement Amendment.

The following exhibits are either provided with this Quarterly Report on Form 10-Q or are incorporated herein by reference.

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 thereunto duly authorized.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	PBPB	The NASDAQ Stock Market LLC
		(Nasdaq Global Select Market)


Large accelerated filer	☐		Accelerated filer	☒

Non-accelerated filer	☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

Emerging growth company	☒☐

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated ~~Statement~~Statements of Equity	5

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1216

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2023

Item 4.	Controls and Procedures	2023

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	2124

Item 1A.	Risk Factors	2124

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	2124

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosures	24

Item 5.	Other Information	24

Item 6.	Exhibits	2226

	Signature	2327

	Current Contract Liability			Noncurrent Contract Liability
	(Thousands)			(Thousands)
Beginning balance as of December 30, 2019	$	(1,594	)	$	(2,054	)
Ending balance as of March 29, 2020		(1,264	)		(1,984	)
Decrease in contract liability	$	(330	)	$	(70	)

	March 29,			March 31,
	2020			2019
Weighted average remaining lease term (years)	8.33			8.90
Weighted average discount rate		7.90	%		8.01	%

Years Ending	Amount
2020	$	942
2021		302
2022		240
2023		206
2024		174
Thereafter		1,384
Total revenue recognized	$	3,248

		13 weeks ending		13 weeks ending
		March 29,		March 31,
	Classification	2020		2019
Operating lease cost	Occupancy and General and administrative expenses		11,770		10,995
Variable lease cost	Occupancy		3,322		3,504
Total lease cost		$	15,092	$	14,499

	Operating Leases
Remainder of 2020		34,954
2021		44,610
2022		39,071
2023		34,321
2024		31,180
2025		28,836
Thereafter		112,902
Total lease payments		325,874
Less: imputed interest		(93,271	)
Present value of lease liabilities	$	232,603

RSUs	Number of RSUs (Thousands)			Weighted Average Fair Value per Share
Non-vested as of December 29, 2019		463		$	7.59
Granted		158			3.88
Vested		(68	)		3.18
Canceled		—			—
Non-vested as of March 29, 2020		553		$	6.38

Period	Total Number of Shares Purchased		Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Program (2)		Maximum Value of Shares that May Yet be Purchased Under the Program (2)
June 26, 2017 - July 23, 2017		94,200	$	12.06		94,200		21,559,335
July 24, 2017 - August 20, 2017		117,712	$	11.30		117,712		20,229,449
August 21, 2017 - September 24, 2017		120,000	$	11.54		120,000		18,844,811
Total:		331,912				331,912


Exhibit No.		Description

10.1		~~Letter~~Amendment No. 1, dated May 15, 2020, to Second Amended and Restated Credit Agreement, ~~between~~dated as of August 7, 2019, among Potbelly ~~Corporation~~Sandwich Works, LLC, the other Loan Parties party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and ~~Michael Coyne, dated July 18, 2017 (filed~~J.P. Morgan Chase Bank, N.A., as ~~Exhibit 10.1 to Form 8-K (File No. 001-36104) filed July 18, 2017~~Sole Bookrunner and ~~incorporated herein by reference). †~~

~~10.2~~		Retention Agreement between Potbelly Corporation and Michael Coyne, dated July 17, 2017 (filed as Exhibit 10.2 to Form 8-K (File No. 001-36104) filed July 18, 2017 and incorporated herein by reference). †

~~10.3~~		Retention Agreement between Potbelly Corporation and Matthew Revord, dated July 17, 2017 (filed as Exhibit 10.3 to Form 8-K (File No. 001-36104) filed July 18, 2017 and incorporated herein by reference). †

~~10.4~~		Retention Agreement between Potbelly Corporation and Julie Younglove-Webb, dated July 17, 2017 (filed as Exhibit 10.4 to Form 8-K (File No. 001-36104) filed July 18, 2017 and incorporated herein by reference). †Sole Lead Arranger.

31.1		Certification of Chief Executive Officer ~~and~~pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

		POTBELLY CORPORATION

Date: ~~November 3, 2017~~May 18, 2020	By:	/s/ ~~Michael Coyne~~Steven Cirulis
		~~Michael Coyne~~Steven Cirulis
		~~Interim Chief Executive Officer and~~ Chief Financial Officer
		(Principal ~~Executive Officer and Principal~~ Financial Officer)