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 every Interactive Data File required to be submitted 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 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 October 27, 2019, the registrant had 23,607,518 shares of common stock, ~~as of the latest practicable date:~~

~~Common stock,~~ $0.01 ~~Par Value – 24,844,824 shares as of October 28, 2018~~

	September 30,			December 31,			September 29,			December 30,
	2018			2017			2019			2018
Assets
Current assets
Cash and cash equivalents	$	26,711		$	25,530		$	15,758		$	19,775
Accounts receivable, net of allowances of $124 and $129 as of September 30, 2018 and December 31, 2017, respectively		5,353			5,087
Accounts receivable, net of allowances of $204 and $113 as of September 29, 2019 and December 30, 2018, respectively								5,084			4,737
Inventories		3,459			3,525			3,317			3,482
Prepaid expenses and other current assets		10,980			11,061			7,934			11,426
Total current assets		46,503			45,203			32,093			39,420

Property and equipment, net		94,237			103,859			79,626			87,782
Right-of-use assets for operating leases								212,261			—
Indefinite-lived intangible assets		3,404			3,404			3,404			3,404
Goodwill		2,222			2,222			2,222			2,222
Deferred income taxes, noncurrent		12,612			11,202
Deferred income taxes								—			13,385
Deferred expenses, net and other assets		7,064			4,840			3,957			7,002
Total assets	$	166,042		$	170,730		$	333,563		$	153,215

Liabilities and Equity
Current liabilities
Accounts payable	$	3,380		$	3,903		$	4,607		$	3,835
Accrued expenses		23,597			23,273			19,421			25,029
Short-term operating lease liabilities								28,998			—
Accrued income taxes		—			176			177			162
Total current liabilities		26,977			27,352			53,203			29,026

Deferred rent and landlord allowances		22,998			22,987			—			22,905
Long-term operating lease liabilities								207,196			—
Other long-term liabilities		5,983			3,153			2,988			5,751
Total liabilities		55,958			53,492			263,387			57,682

Stockholders’ equity
Common stock, $0.01 par value—authorized 200,000,000 shares; outstanding 25,102,339 and 24,999,688 shares as of September 30, 2018 and December 31, 2017, respectively		329			318
Commitments and contingencies (Note 10)

Equity
Common stock, $0.01 par value—authorized 200,000,000 shares; outstanding 23,607,518 and 24,142,586 shares as of September 29, 2019 and December 30, 2018, respectively								331			330
Additional paid-in-capital		432,329			421,657			434,853			432,771
Treasury stock, held at cost, 7,804,519 and 6,831,508 shares as of September 30, 2018, and December 31, 2017, respectively		(97,792	)		(85,262	)
Treasury stock, held at cost, 9,453,894 and 8,801,154 shares as of September 29, 2019, and December 30, 2018, respectively								(112,624	)		(108,372	)
Accumulated deficit		(225,195	)		(219,990	)		(252,749	)		(229,558	)
Total stockholders’ equity		109,671			116,723			69,811			95,171
Non-controlling interest		413			515			365			362
Total stockholders' equity		110,084			117,238
Total equity								70,176			95,533

Total liabilities and equity	$	166,042		$	170,730		$	333,563		$	153,215

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						For the 39 Weeks Ended
	September 30,			September 24,			September 30,			September 24,		September 29,			September 30,			September 29,			September 30,
	2018			2017			2018			2017		2019			2018			2019			2018
Revenues
Sandwich shop sales, net	$	106,238		$	105,327		$	317,866		$	313,568	$	103,560		$	106,238		$	305,619		$	317,866
Franchise royalties and fees		758			800			2,394		$	2,394		678			758			2,336		$	2,394
Total revenues		106,996			106,127			320,260			315,962		104,238			106,996			307,955			320,260

Expenses
Sandwich shop operating expenses
Cost of goods sold, excluding depreciation		28,455			28,405			83,730			83,703		27,540			28,455			81,782			83,730
Labor and related expenses		32,376			31,187			96,367			93,213		32,430			32,376			96,517			96,367
Occupancy expenses		15,076			14,354			44,787			42,792		14,850			15,076			44,457			44,787
Other operating expenses		13,357			12,464			38,650			36,349		13,274			13,357			37,235			38,650
General and administrative expenses		10,087			12,104			35,715			33,375		11,256			10,087			37,808			35,715
Depreciation expense		5,847			6,315			17,531			18,960		5,365			5,847			16,486			17,531
Pre-opening costs		109			336			245			955		16			109			26			245
Impairment and loss on disposal of property and equipment		4,386			1,536			8,467			5,762		1,650			4,386			1,978			8,467
Total expenses		109,693			106,701			325,492			315,109		106,381			109,693			316,289			325,492
Income (loss) from operations		(2,697	)		(574	)		(5,232	)		853
Loss from operations													(2,143	)		(2,697	)		(8,334	)		(5,232	)

Interest expense		54			32			109			101		28			54			95			109
Income (loss) before income taxes		(2,751	)		(606	)		(5,341	)		752
Loss before income taxes													(2,171	)		(2,751	)		(8,429	)		(5,341	)
Income tax expense (benefit)		(909	)		(487	)		(1,111	)		252		66			(909	)		13,931			(1,111	)
Net income (loss)		(1,842	)		(119	)		(4,230	)		500
Net loss													(2,237	)		(1,842	)		(22,360	)		(4,230	)
Net income attributable to non-controlling interest		119			121			285			195		118			119			300			285
Net income (loss) attributable to Potbelly Corporation	$	(1,961	)	$	(240	)	$	(4,515	)	$	305
Net loss attributable to Potbelly Corporation												$	(2,355	)	$	(1,961	)	$	(22,660	)	$	(4,515	)

Net income (loss) per common share attributable to common stockholders:
Net loss per common share attributable to common stockholders:
Basic	$	(0.08	)	$	(0.01	)	$	(0.18	)	$	0.01	$	(0.10	)	$	(0.08	)	$	(0.95	)	$	(0.18	)
Diluted	$	(0.08	)	$	(0.01	)	$	(0.18	)	$	0.01	$	(0.10	)	$	(0.08	)	$	(0.95	)	$	(0.18	)
Weighted average shares outstanding:
Basic		25,369,281			24,959,023			25,355,174			25,030,951		23,740,005			25,369,281			23,927,046			25,355,174
Diluted		25,369,281			24,959,023			25,355,174			25,857,083		23,740,005			25,369,281			23,927,046			25,355,174

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 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

Balance at December 31, 2017

24,999,688

$
318

$
(85,262
)

$
—

$
421,657

$
(219,990
)

$
515

$
117,238

Cumulative impact of Topic
   606 at 1/1/2018

—

—

—

—

—

(690
)

—

(690
)
Net income (loss)

—

—

—

—

—

(4,515
)

285

(4,230
)
Stock-based compensation plans

1,075,662

11

—

—

8,156

—

—

8,167

Repurchases of common
   stock

(964,240
)

—

(12,414
)

—

—

—

—

(12,414
)
Contributions from non-
   controlling interest

—

—

—

—

—

—

20

20

Distributions to non-
   controlling interest

—

—

—

—

—

—

(407
)

(407
)
Treasury shares used for
    stock-based plans

(8,771
)

—

(116
)

—

—

—

—

(116
)
Amortization of
   stock-based compensation

—

—

—

—

2,516

—

—

2,516

Balance at September 30, 2018

25,102,339

$
329

$
(97,792
)

$
—

$
432,329

$
(225,195
)

$
413

$
110,084

For the 13 weeks ended:	Common Stock					Treasury			Additional Paid-In-		Accumulated			Non- Controlling
	Shares			Amount		Stock			Capital		Deficit			Interest			Total Equity
Balance at July 1, 2018		25,651,953			327		(88,827	)		430,643		(223,234	)		425		$	119,334
Net income (loss)		—			—		—			—		(1,961	)		119			(1,842	)
Stock-based compensation plans		150,287			2		—			1,421		—			—			1,423
Repurchases of common stock		(699,901	)		—		(8,965	)		—		—			—			(8,965	)
Distributions to non-controlling interest		—			—		—			—		—			(151	)		(151	)
Contributions from non-controlling interest		—			—		—			—		—			20			20
Stock-based compensation expense		—			—		—			265		—			—			265
Balance at September 30, 2018		25,102,339		$	329	$	(97,792	)	$	432,329	$	(225,195	)	$	413		$	110,084

Balance at June 30, 2019		23,768,375		$	331	$	(111,874	)	$	434,407	$	(250,394	)	$	406		$	72,876
Net income (loss)		—			—		—			—		(2,355	)		118			(2,237	)
Stock-based compensation plans		1,305			—		—			—		—			—			—
Repurchases of common stock		(162,162	)		—		(750	)		—		—			—			(750	)
Distributions to non-controlling interest		—			—		—			—		—			(159	)		(159	)
Stock-based compensation expense		—			—		—			446		—			—			446
Balance at September 29, 2019		23,607,518		$	331	$	(112,624	)	$	434,853	$	(252,749	)	$	365		$	70,176

See accompanying notes to the unaudited condensed consolidated financial statements.

For the 39 weeks ended:	Common Stock					Treasury			Additional Paid-In-		Accumulated			Non- Controlling
	Shares			Amount		Stock			Capital		Deficit			Interest			Total Equity
Balance at December 31, 2017		24,999,688			318		(85,262	)		421,657		(219,990	)		515		$	117,238
Cumulative impact of Topic 606, net of tax of $250		—			—		—			—		(690	)		—			(690	)
Net income (loss)		—			—		—			—		(4,515	)		285			(4,230	)
Stock-based compensation plans		1,075,662			11		—			8,156		—			—			8,167
Repurchases of common stock		(964,240	)		—		(12,414	)		—		—			—			(12,414	)
Distributions to non-controlling interest		—			—		—			—		—			(407	)		(407	)
Contributions from non-controlling interest		—			—		—			—		—			20			20
Treasury shares used for stock-based plans		(8,771	)		—		(116	)		—		—			—			(116	)
Stock-based compensation expense		—			—		—			2,516		—			—			2,516
Balance at September 30, 2018		25,102,339		$	329	$	(97,792	)	$	432,329	$	(225,195	)	$	413		$	110,084

Balance at December 30, 2018		24,142,586		$	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)		—			—		—			—		(22,660	)		300			(22,360	)
Stock-based compensation plans		117,672			1		—			172		—			—			173
Repurchases of common stock		(647,821	)		—		(4,217	)		—		—			—			(4,217	)
Distributions to non-controlling interest		—			—		—			—		—			(336	)		(336	)
Contributions from non-controlling interest		—			—		—			—		—			39			39
Treasury shares used for stock-based plans		(4,919	)		—		(35	)		—		—			—			(35	)
Stock-based compensation expense		—			—		—			1,910		—			—			1,910
Balance at September 29, 2019		23,607,518		$	331	$	(112,624	)	$	434,853	$	(252,749	)	$	365		$	70,176

See accompanying notes to the unaudited condensed consolidated financial statements.

	For the 39 Weeks Ended						For the 39 Weeks Ended
	September 30,			September 24,			September 29,			September 30,
	2018			2017			2019			2018
Cash flows from operating activities:
Net income (loss)	$	(4,230	)	$	500
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		17,531			18,960
Net loss							$	(22,360	)	$	(4,230	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense								16,486			17,531
Noncash lease expense								21,246			—
Deferred income tax		(98	)		—			13,804			(98	)
Deferred rent and landlord allowances		12			1,924
Amortization of stock compensation expense		2,516			3,263
Excess tax deficiency from stock-based compensation		651			292
Stock-based compensation expense								1,910			2,516
Asset impairment, store closure and disposal of property and equipment		8,666			5,922			2,012			8,666
Amortization of debt issuance costs		28			28
Other operating activities								33			691
Changes in operating assets and liabilities:
Accounts receivable, net		(516	)		(1,422	)		(347	)		(516	)
Inventories		65			54			165			65
Prepaid expenses and other assets		(2,015	)		(2,650	)		3,565			(2,015	)
Accounts payable		(201	)		699			763			(201	)
Accrued and other liabilities		244			798
Operating lease liabilities								(23,046	)		—
Accrued expenses and other liabilities								(4,368	)		244
Net cash provided by operating activities:		22,653			28,368			9,863			22,653

Cash flows from investing activities:
Purchases of property and equipment	$	(16,722	)	$	(23,526	)	$	(9,533	)	$	(16,722	)
Net cash used in investing activities:		(16,722	)		(23,526	)		(9,533	)		(16,722	)

Cash flows from financing activities:
Debt issuance costs							$	(40	)	$	—
Proceeds from exercise of stock options	$	8,167		$	1,181			173			8,167
Proceeds from exercise of stock warrants		—			1,972
Employee taxes on certain stock-based payment arrangements		(116	)		—			(35	)		(116	)
Treasury stock repurchases		(12,414	)		(8,853	)		(4,147	)		(12,414	)
Distributions to non-controlling interest								(337	)		(407	)
Contributions from non-controlling interest		20			11			39			20
Distributions to non-controlling interest		(407	)		(354	)
Net cash used in financing activities:		(4,750	)		(6,043	)		(4,347	)		(4,750	)

Net increase (decrease) in cash and cash equivalents		1,181			(1,201	)		(4,017	)		1,181
Cash and cash equivalents at beginning of period		25,530			23,379			19,775			25,530
Cash and cash equivalents at end of period	$	26,711		$	22,178		$	15,758		$	26,711

Supplemental cash flow information:
Income taxes paid	$	249		$	3,346		$	180		$	249
Interest paid		85			73			66			85
Supplemental non-cash investing and financing activities:
Unpaid liability for purchases of property and equipment	$	1,178		$	2,752		$	433		$	1,178

See accompanying notes to the unaudited condensed consolidated financial statements

Potbelly Corporation (the “Company” or “Potbelly”), through its wholly owned subsidiaries, owns or operates more than 400 company-owned shops in the United States. Additionally, Potbelly franchisees operate ~~more than 50~~over 40 shops ~~domestically,~~ in the ~~Middle East, Canada and India.~~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 ~~31, 2017.~~30, 2018. 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 ~~30, 2018~~29, 2019 and December ~~31, 2017,~~30, 2018, its statement of operations for the 13 and 39 weeks ended September 29, 2019 and September 30, 2018, the statement of equity for the 13 and 39 weeks ended September 29, 2019 and September ~~24, 2017~~30, 2018, and its statement of cash flows for the 39 weeks ended September ~~30, 2018~~29, 2019 and September ~~24, 2017~~30, 2018 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.

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”); seven of LLC’s wholly owned subsidiaries and LLC’s seven joint ventures, collectively, the “Company.” All 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 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 2019 and 2018 ~~consists~~both consist of 52 ~~weeks and 2017 consisted of 53~~ weeks. The fiscal quarters ended September ~~30, 2018~~29, 2019 and September ~~24, 2017~~30, 2018 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.

I~~n May 2014,~~On December 31, 2018, the ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts~~Company adopted ASU 2016-02, “Leases (Topic 842),” along with ~~Customers.” The~~related clarifications and improvements. This pronouncement ~~was issued~~requires lessees to ~~clarify~~recognize a liability for lease obligations, which represents the ~~principles for recognizing revenue~~discounted obligation to make future lease payments, and ~~to develop~~ a common revenue standard and disclosure requirements for U.S. GAAP and International Financial Reporting Standards (IFRS). 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 clarificationscorresponding right-of-use asset on the ~~new~~balance sheet. The guidance ~~in Accounting Standards Codification (ASC) Topic 606. Potbelly adopted~~requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ~~standard effective January 1, 2018 using~~ability to assess the ~~modified retrospective~~amount, timing, and potential uncertainty of cash flows related to leases. We elected the optional transition method ~~applied~~ to ~~contracts that were not completed~~apply the standard as of the effective date ~~of adoption.~~and therefore, prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under previous lease guidance, ASC Topic 840: Leases (Topic 840). The adoption ~~does not have~~of Topic 842 had a material impact on ~~sandwich shop sales, but impacted~~ the ~~recognition~~consolidated balance sheets and an immaterial impact on the consolidated statements of ~~franchise revenue~~operations, consolidated statements of equity and ~~gift card breakage. Potbelly licenses intellectual property and trademarks to franchisees through franchise arrangements. As part~~consolidated statements of ~~these agreements, Potbelly receives an initial franchise fee payment, which historically was recognized~~cash flows.

The impact on the ~~shop opened.~~ Under the new guidance, these franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. As such, these franchise fees are recognized over the contractual term of the franchise agreement. ~~Effective for the annual period beginning January 1, 2018, initial franchise fees are recognized~~consolidated balance sheet is as revenue over the contractual term. Potbelly sells gift cards to customers and records the sale as a liability. The liability is released once the card is redeemed. Historically, a portion of these gift card sales were not redeemed by the customer (“breakage”) and Potbelly would recognize breakage two years after the period of sale. Effective for the annual period beginning January 1, 2018, expected breakage is recognized as customers redeem the gift cards. Upon adoption of the standard, Potbelly’s accumulated deficit increased by $0.7 million (net of tax). The franchise revenue adjustment impacted accrued expenses, other long-term liabilities and deferred income taxes. The breakage adjustment impacted accrued expenses and deferred income taxes. For the 13 weeks ended September 30, 2018, revenue recognized was $0.1 million higher than it would have been under the previous methodology, and for the 39 weeks ended September 30, 2018, revenue recognized was $0.3 million higher than it would have been under the previous methodology.follows:

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, while 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 July 2018, the FASB issued Accounting Standards Update No. 2018-11 “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”), which permits companies to initially apply the new leases standard at the date of adoption and not restate periods prior to adoption. The Company plans to adopt ASU 2018-11. The Company is currently evaluating the impact of ASU 2016-02 and anticipates it will be able to complete its analysis of all potential impacts of the standard, implement any system and process changes that might be necessary and educate the appropriate employees with respect to the new standard in order to effectively adopt the standard beginning in the first quarter of 2019.

				Adjustments Due
	December 30,			to the Adoption of			December 31,
	2018			Topic 842			2018
Assets
Current assets
Cash and cash equivalents	$	19,775		$	—		$	19,775
Accounts receivable, net of allowances of $113 as of December 30, 2018		4,737			—			4,737
Inventories		3,482			—			3,482
Prepaid expenses and other current assets		11,426			—			11,426
Total current assets		39,420			—			39,420

Property and equipment, net		87,782			—			87,782
Right-of-use assets for operating leases		—			232,477			232,477
Indefinite-lived intangible assets		3,404			—			3,404
Goodwill		2,222			—			2,222
Deferred income taxes, noncurrent		13,385			195			13,580
Deferred expenses, net and other assets		7,002			—			7,002
Total assets	$	153,215		$	232,672		$	385,887

Liabilities and Equity
Current liabilities
Accounts payable	$	3,835		$	—		$	3,835
Accrued expenses⁽¹⁾		25,029			(1,124	)		23,905
Short-term operating lease liabilities		—			28,826			28,826
Accrued income taxes		162			—			162
Total current liabilities		29,026			27,702			56,728

Deferred rent and landlord allowances⁽¹⁾		22,905			(22,905	)		—
Long-term operating lease liabilities		—			228,406			228,406
Other long-term liabilities		5,751			—			5,751
Total liabilities		57,682			233,203			290,885

Stockholders’ equity
Common stock, $0.01 par value—authorized 200,000,000 shares; outstanding 24,142,586 shares as of December 30, 2018		330			—			330
Additional paid-in-capital		432,771			—			432,771
Treasury stock, held at cost, 8,801,154 shares as of December 30, 2018		(108,372	)		—			(108,372	)
Accumulated deficit⁽²⁾		(229,558	)		(531	)		(230,089	)
Total stockholders’ equity		95,171			(531	)		94,640
Non-controlling interest		362			—			362
Total stockholders' equity		95,533			(531	)		95,002

Total liabilities and equity	$	153,215		$	232,672		$	385,887

Potbelly primarily earns revenue at a point in time through sales at our sandwich shop locations and records such revenue 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 fees, gift card redemptions and breakage. For the 13 and 39 weeks ended September 29, 2019, revenue recognized from all revenue sources on point in time sales was $103.9 million and $307.2 million, respectively, and revenue recognized from sales over time was $0.4 million and $0.8 million, respectively. For the 13 and 39 weeks ended September 30, 2018, revenue recognized from all revenue sources on point in time sales was $106.9 million and $319.8 million, respectively, and revenue recognized from sales over time was $0.1 million and $0.5 ~~million.~~million, respectively.

Potbelly licenses intellectual property and trademarks to franchisees through franchise agreements. As part of these franchise agreements, Potbelly receives an upfront payment from the franchisee, which the Company recognizes over the term of the franchise agreement. The Company records a contract liability for the unearned portion of the upfront franchise payments.

Potbelly sells gift cards to customers, records the sale as a contract liability and recognizes the associated revenue as the gift card is redeemed. A portion of these gift cards are not redeemed by the customer, which is recognized by the Company as revenue as a percentage of customers gift card redemptions. The expected breakage amount recognized is 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 ~~as well as~~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~~$3.4 million as of September ~~30, 2018. The decrease in the liability during the 39 weeks ended September 30, 2018 was a result of gift card redemptions offset by purchases of new gift cards and recognition of franchise fees.~~29, 2019. The Company expects to recognize revenue related to contract liabilities as follows (in thousands), which may vary based upon franchise activity as well as gift card redemption patterns:

Years Ending	Amount		Amount
2018	$	692
2019		752	$	481
2020		212		581
2021		206		266
2022		199		211
2023				204
Thereafter		1,123		1,644
Total revenue recognized	$	3,184	$	3,387

For the 13 and 39 weeks ended September 29, 2019, the amount of revenue recognized related to the December 31, 2018 liability ending balance was $0.2 million and $1.7 million, respectively. For the 13 and 39 weeks ended September 30, 2018, the amount of revenue recognized related to the January 1, 2018 liability ending balance was $0.3 million and $1.8 million, respectively. This revenue related to the recognition of gift card redemptions and upfront franchise fees. For the 39 weeks ended September 29, 2019 and the 39 weeks ended September 30, 2018, the Company did not recognize any revenue from obligations satisfied (or partially satisfied) in prior periods.

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. At transition of adoption to ASC 842, the Company impaired $0.7 million of pre-tax right-of-use assets related to previously impaired shops. This amount is recorded, net of tax, as an opening reduction to retained earnings. After performing a periodic review of the Company’s shops during the 13 ~~weeks~~ and 39 weeks ended September ~~30, 2018,~~29, 2019, 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 $1.7 million for the 13 and 39 weeks ended September 29, 2019. The Company recorded an impairment charge of $4.4 million and $8.5 million for the 13 and 39 weeks ended September 30, 2018, respectively. ~~The Company recorded an impairment charge of $1.5 million~~

Assets and ~~$5.8 million for~~Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets recognized or disclosed at fair value on the 13consolidated financial statements on a nonrecurring basis include items such as leasehold improvements, property and ~~39 weeks ended September 24, 2017, respectively. Included within the impairment charge for the 13~~equipment, operating lease assets, goodwill, and ~~39 weeks ended September 24, 2017, impairment charges of $0.7 million were recorded in relation~~other intangible assets. These assets are measured at fair value if determined to ~~Hurricane Harvey, with insurance recoveries of $0.7 million also recorded within the same caption.~~be impaired.

Basic and diluted income per common share attributable to common stockholders ~~were~~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 and 39 weeks ended September 29, 2019, and September 30, 2018, the Company had a loss per share, and therefore potentially dilutive shares were excluded ~~for potential stock option exercises.~~from the calculation.

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						For the 39 Weeks Ended
	September 30,			September 24,			September 30,			September 24,		September 29,			September 30,			September 29,			September 30,
	2018			2017			2018			2017		2019			2018			2019			2018
Net income (loss) attributable to Potbelly Corporation	$	(1,961	)	$	(240	)	$	(4,515	)	$	305
Net loss attributable to Potbelly Corporation												$	(2,355	)	$	(1,961	)	$	(22,660	)	$	(4,515	)
Weighted average common shares outstanding-basic		25,369,281			24,959,023			25,355,174			25,030,951		23,740,005			25,369,281			23,927,046			25,355,174
Plus: Effect of potential stock options exercise		—			—			—			770,965		—			—			—			—
Plus: Effect of potential warrant exercise		—			—			—			55,167
Weighted average common shares outstanding-diluted		25,369,281			24,959,023			25,355,174			25,857,083		23,740,005			25,369,281			23,927,046			25,355,174
Income (loss) per share available to common stockholders-basic	$	(0.08	)	$	(0.01	)	$	(0.18	)	$	0.01
Income (loss) per share available to common stockholders-diluted	$	(0.08	)	$	(0.01	)	$	(0.18	)	$	0.01
Loss per share available to common stockholders-basic												$	(0.10	)	$	(0.08	)	$	(0.95	)	$	(0.18	)
Loss per share available to common stockholders-diluted												$	(0.10	)	$	(0.08	)	$	(0.95	)	$	(0.18	)
Potentially dilutive shares that are considered anti-dilutive:
Common share options		2,050,503			4,012,073			2,569,808			1,151,317		2,333,340			2,050,503			2,365,624			2,569,808

~~In accordance with ASC 740, each~~Our interim ~~period~~tax provision is ~~considered an integral part of the annual period and tax expense or benefit is measured~~determined using an estimated annual effective tax ~~rate. An enterprise~~rate and adjusted for discrete taxable events that occur during the quarter. The difference between the effective tax rate in 2019 and 2018 is ~~required,~~the recording of the valuation allowance in the first quarter of 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 considered recent financial operating results, the change in projected future taxable income for fiscal year 2019, the reversal of existing taxable temporary differences, and tax planning strategies. As a result of the changes in projected taxable income for 2019, the Company estimated it would be in a cumulative loss position as of December 29, 2019. Therefore, the Company determined that the negative evidence outweighed the positive evidence and, therefore, 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 $13.6 million related to the recognition of the valuation allowance during the first quarter of 2019 and continues to record a valuation allowance against all of our deferred tax assets as of September 29, 2019. The Company did not provide for an income tax benefit on the pre-tax loss recorded for the 13 weeks and 39 weeks ended September 29, 2019. This accounting treatment has no effect on the Company’s ability to utilize deferred tax assets to reduce future cash tax payments. The Company will continue to assess the likelihood of the realization of its deferred tax assets at the end of each ~~interim~~ reporting period ~~to make its best estimate~~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 ~~annual effective tax~~lease.

Operating lease assets and liabilities are recognized 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. As we have no outstanding debt nor committed credit facilities, secured or otherwise, we estimate 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 ~~full~~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 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 September 29, 2019, the Company has additional operating lease payments related to shops not yet open of $4.3 million. These operating leases will commence during the next fiscal year with an average lease term of 12 years.

As previously disclosed in our 2018 Annual Report on Form 10-K and ~~use~~under the previous lease accounting, maturities of lease liabilities were as follows as of December 30, 2018:

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 ~~provide for income taxes~~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 ~~a current year-to-date basis. However, when a reliable estimate~~the “restricted payments” (primarily distributions and equity repurchases) that the Company may make, provided that proceeds of the ~~annual effective tax rate cannot~~loans under the Credit Agreement may not be ~~made, the actual effective tax rate~~used for ~~the year-to-date period may be the best estimate~~purposes of making restricted payments. As of the ~~annual effective tax rate. For the 13 and~~ 39 weeks ended September 30, 2018, the actual year-to-date effective tax rate was used to compute the income tax benefit as a reliable estimate of the annual estimated tax rate cannot be made as nominal changes in projected income or loss result in a significant variance in our estimated effective tax rate. The effective tax rate differed from the federal statutory rate primarily due to the impact of ASU 2016-09, state income taxes, federal and state tax credits and certain discrete items.

~~On December 22, 2017,~~ ~~the Tax Cuts and Jobs Act of 2017 (the “Tax Act”)~~ ~~was enacted~~ ~~into law making significant~~ changes to the U.S. tax code, including: (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) implementing bonus depreciation that will allow for full expensing of qualified property; (3) implementing limitations on the deductibility of certain executive compensation; and (4) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

On that same date, the SEC staff also issued Staff Accounting Bulletin (SAB) 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. A company must reflect the income tax effects of those aspects of the Tax Act for which accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

~~At September 30, 2018,~~29, 2019, the Company ~~has not completed~~had no amounts outstanding under the ~~accounting for the tax effects of enactment of the Tax Act; however, the Company made a reasonable estimate of the effects and booked a provisional tax expense adjustment in the fiscal year 2017,~~ ~~the period in which the legislation was enacted. During the 13 and 39 weeks ended September 30, 2018, there have been no adjustments made to the provisional amounts previously recorded related to the enactment of the Tax Act.~~Credit Agreement.

On May 8, 2018, the Company announced that its Board of Directors authorized a stock repurchase program for up to $65.0 million of its outstanding common ~~stock, replacing the Company’s previous $30.0 million share repurchase program.~~stock. 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. The number of common shares actually repurchased, and the timing and price of repurchases, will depend upon market conditions, ~~Securities and Exchange Commission~~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 3913 weeks ended September ~~30, 2018,~~29, 2019, the Company repurchased ~~959,240~~162,162 shares of its common stock for approximately ~~$12.3~~$0.7 million under the ~~new~~ stock repurchase program, including cost and ~~had~~commission, in open market transactions. For the 39 weeks ended September 29, 2019, the Company repurchased ~~5,000~~647,821 shares of its common stock for approximately ~~$0.1~~$4.2 million under the ~~previous share~~stock repurchase program, including cost and commission, in open market transactions. Repurchased shares are included as treasury stock in the condensed consolidated balance sheets and the condensed consolidated statements of equity.

On June 14, 2018, the Company registered 1,000,000 additional shares of its common stock, par value $0.01, reserved for issuance under the Amended and Restated 2013 Long-Term Incentive Plan. As a result, the total number of shares registered under the 2013 Long-Term Incentive Plan is 3,500,000.

On May 16, 2019, the ~~2013~~Company’s stockholders approved the Potbelly Corporation 2019 Long-Term Incentive Plan ~~to eligible employees~~ (the “2019 Plan”) and, ~~certain non-employee members of~~in connection therewith, all equity awards made after that date were made under the ~~Board of Directors~~.2019 Plan. On June ~~14, 2018,~~10, 2019, the Company registered ~~an additional 1,000,000~~1,200,000 shares of its common stock reserved for issuance under the 2019 Plan. All remaining shares of common stock reserved for issuance under the previous Amended and Restated 2013 Long-Term Incentive Plan ~~and brings the total number of shares registered~~(the “2013 Plan”) are available for issuance under the ~~plan to 3,500,000.~~2019 Plan and no future awards will be made under the 2013 Plan. 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 13 weeks and 39 weeks ended September 30, 2018 was $5.24 per share, as estimated using the following weighted average assumptions: expected life of options – 6.25 years; volatility – 35.39%; risk-free interest rate – 2.85%; and dividend yield – 0.00%. 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.29, 2019.

A summary of stock option activity for the 39 weeks ended September ~~30, 2018~~29, 2019 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 31, 2017		3,309		$	10.71	$	7,699		4.90
Outstanding—December 30, 2018											2,150		$	11.49	$	378		5.13
Granted		102			13.05						—			—
Exercised		(984	)		8.30						(22	)		7.93
Canceled		(347	)		13.61						(260	)		13.15
Outstanding—September 30, 2018		2,080		$	11.60	$	3,615		5.60
Exercisable—September 30, 2018		1,573		$	11.04	$	3,533		4.62
Outstanding—September 29, 2019											1,868		$	11.30	$	—		4.78
Exercisable—September 29, 2019											1,489		$	11.03	$	—		3.89

Stock-based compensation related to stock 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. For the 13 weeks and 39 weeks ended September 29, 2019, the Company recognized stock-based compensation expense related to stock options of $0.1 million and $0.7 million, respectively. For the 13 weeks and 39 weeks ended September 30, 2018, the Company recognized stock-based compensation expense related to stock options of ~~$0.2~~$0.1 million and ~~$2.5~~$1.1 million, respectively. For the 13 weeks ended September 24, 2017, the Company recognized stock-based compensation expense of $1.4 million. For the 39 weeks ended September 24, 2017, the Company recognized stock-based compensation expense of $3.3 million. As of September ~~30, 2018,~~29, 2019, unrecognized stock-based compensation expense for stock options was ~~$2.8~~$1.1 million, which will be recognized through fiscal year 2022. The Company records stock-based compensation expense within general and administrative expenses in the condensed consolidated statements of operations.

~~(8)~~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 and 39 weeks ended September 29, 2019, the Company recognized stock-based compensation expense related to RSUs of $0.3 million and $1.2 million, respectively. For the 13 weeks and 39 weeks ended September 30, 2018, the Company recognized stock-based compensation expense related to RSUs of $0.1 million and $1.4 million, respectively. As of September 29, 2019, unrecognized stock-based compensation expense for RSUs was $1.8 million, which will be recognized though fiscal year 2022.

A summary of RSU activity for the 39 weeks ended September 29, 2019 is as follows:

The Company awards performance share units (“PSUs”) to eligible employees; the PSUs are subject to service and performance vesting conditions. In March of 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 and 39 weeks ended September 29, 2019, the expense associated with the PSUs was not material.

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 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 alleging violations of 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 our assistant managers and violated NYLL by not paying spread-of-hours pay. ~~Potbelly believes~~The Complaint was brought as a nationwide “collective action” under the ~~assistant managers were properly classified~~FLSA and as a “class action” under ~~state and federal law. The Company intends to vigorously defend this action. This case is at an early stage, and Potbelly is therefore unable to make a reasonable estimate~~NYLL. Since the filing of the ~~probable loss or range~~Complaint, the plaintiffs filed a proposed amended complaint removing the NYLL class claim, but adding a proposed Illinois state law class action. In May 2019, the parties participated in a mediation and resolved the claims, subject to court approval. All charges related to the claims are reflected in the statement of ~~losses, if any, that might arise from this matter.~~

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 ~~31, 2017.~~30, 2018. This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, 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, ~~business strategy, budgets, projected~~estimated costs associated with our closure of underperforming shops, and ~~plans~~the implementation and ~~objectives~~results of ~~management for future operations.~~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, due to reasons including, but not limited to, competition; general economic conditions; our ability to ~~manage our growth and~~ successfully implement our business strategy; ~~price~~the success of our initiatives to increase sales and ~~availability of commodities;~~traffic; changes in ~~labor~~commodity, energy and other costs; ~~consumer confidence~~our ability to attract and ~~spending patterns;~~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 ~~31, 2017,~~30, 2018, 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 neighborhood sandwich concept that has been feeding customers’ smiles with warm, toasty sandwiches, signature salads, hand-dipped shakes and other fresh menu items, customized just the way customers want them, for more than 40 years. Potbelly promises Fresh, Fast & Friendly service in an environment that reflects the local neighborhood. Our employees are trained to engage with our customers in a genuine way to provide a personalized experience. Our shops feature vintage design elements and locally-themed décor inspired by the neighborhood that we believe create a lively atmosphere. Through this combination, we believe we are creating a devoted base of Potbelly fans that return again and again.

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~~to create an experience people love to share thanks to our ~~customers to feel that we are their “Neighborhood Sandwich Shop”~~craveable food, quirky personality and ~~to tell others about their great experience.~~amazing people. Our Mission is to ~~make~~help people ~~really happy, to make more money and to improve every day. Our Passion is to be “The Best Place for Lunch.”~~love lunch again. 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			Company-			Franchise-Operated									Total
	Operated			Domestic			International			Total			Company
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
																Operated			Domestic			International			Total			Company
Shops as of December 31, 2017		437			39			16			55			492			437			39			16			55			492
Shops opened		6			2			2			4			10			6			2			2			4			10
Shops closed		(8	)		(2	)		(4	)		(6	)		(14	)		(8	)		(2	)		(4	)		(6	)		(14	)
Shops as of September 30, 2018		435			39			14			53			488			435			39			14			53			488

Shops as of December 30, 2018																	437			41			8			49			486
Shops opened																	1			6			—			6			7
Shops closed																	(11	)		(2	)		(8	)		(10	)		(21	)
Shops as of September 29, 2019																	427			45			—			45			472

13 Weeks Ended September ~~30, 2018~~29, 2019 Compared to 13 Weeks Ended September ~~24, 2017~~30, 2018

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 30, 2018			% of Revenues			September 24, 2017			% of Revenues			Increase (Decrease)			Percent Change			September 29, 2019			% of Revenues			September 30, 2018			% of Revenues			Increase (Decrease)			Percent Change
Revenues
Sandwich shop sales, net	$	106,238			99.3	%	$	105,327			99.2	%	$	911			0.9	%	$	103,560			99.3	%	$	106,238			99.3	%	$	(2,678	)		(2.5	)%
Franchise royalties and fees		758			0.7			800			0.8			(42	)		(5.3	)		678			0.7			758			0.7			(80	)		(10.6	)
Total revenues		106,996			100.0			106,127			100.0			869			0.8			104,238			100.0			106,996			100.0			(2,758	)		(2.6	)

Expenses
(Percentages stated as a percent of sandwich shop sales, net)
Sandwich shop operating expenses
Cost of goods sold, excluding depreciation		28,455			26.6			28,405			26.8			50			0.2			27,540			26.6			28,455			26.8			(915	)		(3.2	)
Labor and related expenses		32,376			30.3			31,187			29.4			1,189			3.8			32,430			31.3			32,376			30.5			54			0.2
Occupancy expenses		15,076			14.1			14,354			13.5			722			5.0			14,850			14.3			15,076			14.2			(226	)		(1.5	)
Other operating expenses		13,357			12.5			12,464			11.7			893			7.2			13,274			12.8			13,357			12.6			(83	)		(0.6	)

(Percentages stated as a percent of total revenues)
General and administrative expenses		10,087			9.4			12,104			11.4			(2,017	)		(16.7	)		11,256			10.8			10,087			9.4			1,169			11.6
Depreciation expense		5,847			5.5			6,315			6.0			(468	)		(7.4	)		5,365			5.1			5,847			5.5			(482	)		(8.2	)
Pre-opening costs		109			0.1			336			0.3			(227	)		(67.6	)		16		*				109			0.1			(93	)		(85.3	)
Impairment and loss on disposal of property and equipment		4,386			4.1			1,536			1.4			2,850		>100				1,650			1.6			4,386			4.1			(2,736	)		(62.4	)
Total expenses		109,693			102.5			106,701			100.5			2,992			2.8			106,381		>100				109,693		>100				(3,312	)		(3.0	)
Loss from operations		(2,697	)		(2.5	)		(574	)		(0.5	)		(2,123	)	>100				(2,143	)		(2.1	)		(2,697	)		(2.5	)		554			(20.5	)

Interest expense		54			0.1			32		*				22			68.8			28		*				54		*				(26	)		(48.1	)
Loss before income taxes		(2,751	)		(2.6	)		(606	)		(0.6	)		(2,145	)	>100				(2,171	)		(2.1	)		(2,751	)		(2.6	)		580			(21.1	)
Income tax benefit		(909	)		(0.8	)		(487	)		(0.5	)		(422	)		86.7
Income tax benefit (expense)																				66		*				(909	)		(0.8	)		975		>(100)
Net loss		(1,842	)		(1.7	)		(119	)		(0.1	)		(1,723	)	>100				(2,237	)		(2.1	)		(1,842	)		(1.7	)		(395	)		21.4
Net income attributable to non-controlling interest		119			0.1			121			0.1			(2	)		(1.7	)
Net income attributable to non- controlling interest																				118			0.1			119			0.1			(1	)		(0.8	)
Net loss attributable to Potbelly Corporation	$	(1,961	)		(1.8	)%	$	(240	)		(0.2	)%	$	(1,721	)	>100%			$	(2,355	)		(2.3	)%	$	(1,961	)		(1.8	)%	$	(394	)		20.1	%

Total revenues ~~increased~~decreased by ~~$0.9~~$2.8 million, or ~~0.8%~~2.6%, to ~~107.0~~$104.2 million during the 13 weeks ended September 29, 2019, from $107.0 million during the 13 weeks ended September 30, ~~2018, from $106.1 million during the 13 weeks ended September 24, 2017.~~2018. The revenue ~~growth~~decrease was driven by a $3.1 million, or 3.0%, decrease in sales from company-operated comparable store shops and a decrease in sales of $1.6 million from shops that have closed. These decreases were partially offset by an increase in sales ~~of $3.0 million~~ from shops not yet in our company-operated comparable store sales ~~base. These increases were partially offset by a decrease in sales of $0.2 million, or 0.2%, from company-operated comparable stores~~base and ~~a decrease in sales of $1.9 million from~~ shops that ~~have closed. The decrease~~opened in ~~company-operated comparable store sales resulted from a decrease in traffic, partially offset by an increase in average transaction size.~~2019.

Cost of goods sold ~~increased~~decreased by ~~$50 thousand,~~$0.9 million, or ~~0.2%~~3.2%, to $27.5 million during the 13 weeks ended September 29, 2019, from $28.5 million during the 13 weeks ended September 30, ~~2018, from $28.4 million during the 13 weeks ended September 24, 2017.~~2018. This decrease was primarily driven by a decrease in shop revenue. As a percentage of ~~revenues,~~sandwich shop sales, cost of goods sold decreased to 26.6% during the 13 weeks ended September ~~30, 2018,~~29, 2019, from 26.8% during the 13 weeks ended September ~~24 2017,~~30, 2018, primarily driven by ~~certain~~ menu price ~~increases.~~increases, partially offset by cost inflation in certain products.

Labor and related expenses ~~increased by $1.2 million, or 3.8%, to~~remained at $32.4 million during the 13 weeks ended September ~~30, 2018, from $31.2 million during~~29, 2019, compared to the 13 weeks ended September ~~24, 2017,~~30 2018, primarily due to ~~new shop openings and~~ inflationary wage increases in certain states which was ~~partially~~ offset by a decrease in expense from closed shops. As a percentage of ~~revenues,~~sandwich shop sales, labor and related expenses increased to ~~30.3%~~31.3% during the 13 weeks ended September 29, 2019, from 30.5% during the 13 weeks ended September 30, 2018, ~~from 29.4% during the 13 weeks ended September 24, 2017,~~ primarily driven by ~~new shop openings and~~ inflationary wage increases in certain states ~~which was~~and sales deleverage in certain labor related costs not directly variable with sales, partially offset by a decrease in expense from closed shops.

Occupancy expenses ~~increased~~decreased by ~~$0.7~~$0.2 million, or ~~5.0%~~1.5%, to $14.9 million during the 13 weeks ended September 29, 2019, from $15.1 million during the 13 weeks ended September 30, 2018 ~~from $14.4 million during the 13 weeks ended September 24, 2017~~ primarily due to shop closures, partially offset by inflation in certain occupancy related costs, including lease renewals, real estate taxes and common area maintenance. ~~These increases were partially offset by a decrease in occupancy expenses related to closed shops.~~ As a percentage of ~~revenues,~~sandwich shop sales, occupancy expenses increased to ~~14.1%~~14.3% during the 13 weeks ended September 29, 2019, from 14.2% during the 13 weeks ended September 30, 2018, ~~from 13.5% during the 13 weeks ended September 24, 2017,~~ primarily due to sales deleverage and inflation in certain occupancy related costs, including lease renewals, real estate taxes and common area maintenance.

Other operating expenses ~~increased~~decreased by ~~$0.9~~$0.1 million, or ~~7.2%~~0.6%, to $13.3 million during the 13 weeks ended September 29, 2019, from $13.4 million during the 13 weeks ended September 30, ~~2018, from $12.5 million~~2018. The decrease was primarily attributable to a decrease in music and certain items variable with sales, partially offset by higher expenses related to third-party delivery partnerships driven by increased sales in that channel. As a percentage of sandwich shop sales, other operating expenses increased slightly to 12.8% during the 13 weeks ended September 24, 2017. The increase was primarily attributable to items such as repairs, credit card fees, utilities and other expenses not directly variable with sales. As a percentage of revenues, other operating expenses increased to 12.5%29, 2019, from 12.6% during the 13 weeks ended September 30, 2018, ~~from 11.7% during the 13 weeks ended September 24, 2017,~~ primarily driven by sales deleverage in operating expense items such as ~~repairs, credit card fees,~~ utilities and other expenses not directly variable with sales.

General and administrative expenses ~~decreased~~increased by ~~$2.0~~$1.2 million, or ~~16.7%~~11.6%, to $11.3 million during the 13 weeks ended September 29, 2019, from $10.1 million during the 13 weeks ended September 30, ~~2018, from $12.1~~2018. The increase was driven primarily by an increase in nonrecurring professional services fees, share-based compensation expense, and lease exit costs, partially offset by a decrease in advertising expenses. Regarding the nonrecurring professional service fees, $2.3 million was incurred during the 13 weeks ended September ~~24, 2017. The decrease was driven primarily by a decrease~~29, 2019, and $0.8 million will be recognized in ~~stock-based compensation expense and performance-based incentive expenses~~.the following quarter. As a percentage of revenues, general and administrative expenses ~~decreased~~increased to 10.8% during the 13 weeks ended September 29, 2019, from 9.4% during the 13 weeks ended September 30, 2018, ~~from 11.4% during the 13 weeks ended September 24, 2017,~~ primarily due to an increase in professional services as well as sales deleverage and lease exit costs, partially offset by a decrease in ~~stock-based compensation expense and performance-based incentive~~advertising expenses.

Depreciation expense decreased by $0.5 million, or ~~7.4%~~8.2%, to $5.4 million during the 13 weeks ended September 29, 2019, from $5.8 million during the 13 weeks ended September 30, ~~2018, from $6.3 million during the 13 weeks ended September 24, 2017.~~2018. The decrease was driven primarily by a lower depreciable base related to impairment charges taken subsequent to the 13 weeks ended September ~~24, 2017,~~30, 2018, 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, which increased the depreciable base. As a percentage of revenues, depreciation ~~decreased to~~was 5.1% during the 13 weeks ended September 29, 2019 and was 5.5% for the 13 weeks ended September 30, 2018.

Pre-opening costs were $16 thousand during the 13 weeks ended September 29, 2019 and $109 thousand during the 13 weeks ended September 30, ~~2018, from 6.0% during the 13 weeks ended September 24, 2017. This~~2018. The decrease was ~~driven by a lower depreciable base related~~due to ~~impairment charges taken subsequent to~~no new company-owned shop openings in the 13 weeks ended September 24, 2017, as well as lower depreciation associated with longer expected useful lives for leasehold improvements and leasehold improvements at legacy shops with shorter expected useful lives being fully depreciated.

~~Pre-opening costs decreased by $0.2 million, or 67.6%, to $0.1 million during the 13 weeks ended September 30, 2018, from $0.3 million during the 13 weeks ended September 24, 2017. As a percentage~~third quarter of revenues, pre-opening costs decreased to 0.1% during the 13 weeks ended September 24, 2018, from 0.3% during the 13 weeks ended September 24, 2017. These decreases were driven primarily by fewer shops opened during the 13 weeks ended September 30, 2018 compared to the 13 weeks ended September 24, 2017.2019.

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

Impairment and loss on disposal of property and equipment ~~increased~~and right-of-use lease assets decreased to $1.7 million during the 13 weeks ended September 29, 2019, from $4.4 million during the 13 weeks ended September 30, ~~2018, from $1.5 million during the 13 weeks ended September 24, 2017.~~2018. After performing periodic reviews of Company shops during the third quarter of ~~2018,~~2019, it was determined that indicators of impairment were present for certain ~~shops as a result of continued underperformance.~~shops. The Company performed impairment analyses related to these shops and recorded an impairment charge of ~~$4.4~~$1.7 million for the excess of the carrying amount recorded on the balance sheet over the shops’ estimated fair value. 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 the Company’s 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 $28 thousand during the 13 weeks ended September 29, 2019 and $54 thousand during the 13 weeks ended September 30, ~~2018 and $32~~2018.

Income tax expense was $66 thousand ~~during~~for the 13 weeks ended September ~~24, 2017.~~

~~In accordance with ASC 740, each interim period is considered~~29, 2019, compared to an integral part of the annual period and tax expense or benefit is measured using an estimated annual effective tax rate. An enterprise is required, at the end of each interim reporting period, to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date-basis. However, when a reliable estimate of the annual effective tax rate cannot be made, the actual effective tax rate for the year-to-date period may be the best estimate of the annual effective tax rate. For the 13 and 39 weeks ended September 30, 2018, the actual year-to-date effective tax rate was used to compute the income tax benefit, as a reliable estimate of the annual estimated tax rate cannot be made as nominal changes in projected income or loss result in a significant variance in our estimated effective tax rate. The effective tax rate differed from the federal statutory rate primarily due to the impact of ASU 2016-09, state income taxes, federal and state tax credits and certain discrete items.

~~Income tax benefit increased by $0.4 million, or 86.7%, to a~~ benefit of $0.9 million for the 13 weeks ended September 30, 2018, from a benefit of $0.5 million for the 13 weeks ended September 24, 2017, primarily attributable to the increase in the pre-tax book loss, offset by certain discrete items. For the 13 weeks ended September 30, 2018, the effective tax rate was 33.0%, compared to 80.4% for the 13 weeks ended September 24, 2017. The change in the effective tax rate was driven by the increase in the pre-tax book loss, offset by certain discrete items.2018.

39 Weeks Ended September ~~30, 2018~~29, 2019 Compared to 39 Weeks Ended September ~~24, 2017~~30, 2018

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

	For the 39 Weeks Ended																	For the 39 Weeks Ended
	September 30, 2018			% of Revenues			September 24, 2017		% of Revenues			Increase (Decrease)			Percent Change			September 29, 2019			% of Revenues			September 30, 2018			% of Revenues			Increase (Decrease)			Percent Change
Revenues
Sandwich shop sales, net	$	317,866			99.3	%	$	313,568		99.2	%	$	4,298			1.4	%	$	305,619			99.2	%	$	317,866			99.3	%	$	(12,247	)		(3.9	)%
Franchise royalties and fees		2,394			0.7			2,394		0.8			0		*				2,336			0.8			2,394			0.7			(58	)		(2.4	)
Total revenues		320,260			100.0			315,962		100.0			4,298			1.4			307,955			100.0			320,260			100.0			(12,305	)		(3.8	)

Expenses
(Percentages stated as a percent of sandwich shop sales, net)
Sandwich shop operating expenses
Cost of goods sold, excluding depreciation		83,730			26.1			83,703		26.5			27		*				81,782			26.8			83,730			26.3			(1,948	)		(2.3	)
Labor and related expenses		96,367			30.1			93,213		29.5			3,154			3.4			96,517			31.6			96,367			30.3			150			0.2
Occupancy expenses		44,787			14.0			42,792		13.5			1,995			4.7			44,457			14.5			44,787			14.1			(330	)		(0.7	)
Other operating expenses		38,650			12.1			36,349		11.5			2,301			6.3			37,235			12.2			38,650			12.2			(1,415	)		(3.7	)

(Percentages stated as a percent of total revenues)
General and administrative expenses		35,715			11.2			33,375		10.6			2,340			7.0			37,808			12.3			35,715			11.2			2,093			5.9
Depreciation expense		17,531			5.5			18,960		6.0			(1,429	)		(7.5	)		16,486			5.4			17,531			5.5			(1,045	)		(6.0	)
Pre-opening costs		245			0.1			955		0.3			(710	)		(74.3	)		26		*				245		*				(219	)		(89.4	)
Impairment and loss on disposal of property and equipment		8,467			2.6			5,762		1.8			2,705			46.9			1,978			0.6			8,467			2.6			(6,489	)		(76.6	)
Total expenses		325,492			101.6			315,109		99.7			10,383			3.3			316,289		>100				325,492		>100				(9,203	)		(2.8	)
Income (loss) from operations		(5,232	)		(1.6	)		853		0.3			(6,085	)	>(100)
Loss from operations																			(8,334	)		(2.7	)		(5,232	)		(1.6	)		(3,102	)		59.3

Interest expense		109		*				101	*				8			7.9			95		*				109		*				(14	)		(12.8	)
Income (loss) before income taxes		(5,341	)		(1.7	)		752		0.2			(6,093	)	>(100)
Loss before income taxes																			(8,429	)		(2.7	)		(5,341	)		(1.7	)		(3,088	)		57.8
Income tax expense (benefit)		(1,111	)		(0.3	)		252		0.1			(1,363	)	>(100)				13,931			4.5			(1,111	)		(0.3	)		15,042		>(100)
Net income (loss)		(4,230	)		(1.3	)		500		0.2			(4,730	)	>(100)
Net loss																			(22,360	)		(7.3	)		(4,230	)		(1.3	)		(18,130	)	>100
Net income attributable to non- controlling interests		285			0.1			195		0.1			90			46.2			300		*				285		*				15			5.3
Net income (loss) attributable to Potbelly Corporation	$	(4,515	)		(1.4	)%	$	305		0.1	%	$	(4,820	)	>(100)%
Net loss attributable to Potbelly Corporation																		$	(22,660	)		(7.4	)%	$	(4,515	)		(1.4	)%	$	(18,145	)	>100

Total revenues ~~increased~~decreased by ~~$4.3~~$12.3 million, or ~~1.4%~~3.8%, to $308.0 million during the 39 weeks ended September 29, 2019, from $320.3 million during the 39 weeks ended September 30, ~~2018, from $316.0 million during the 39 weeks ended September 24, 2017.~~2018. The revenue ~~growth~~decrease was driven by a $12.2 million, or 3.9%, decrease in sales from company-operated comparable store shops and a decrease in sales of $5.5 million from shops that have closed. These decreases were partially offset by an increase in sales ~~of $15.5 million~~ from shops not yet in our company-operated comparable store sales ~~base. This increase was partially offset by a decrease in sales of $3.9 million, or 1.3%, from company-operated comparable stores~~base and ~~a decline of $7.3 million from~~ shops that ~~have closed. The decrease~~opened in ~~company-operated comparable store sales resulted from a decrease in traffic, partially offset by an increase in average transaction size.~~2019.

Cost of goods sold ~~increased~~decreased by ~~$27 thousand,~~$1.9 million, or ~~less than 0.1%~~2.3%, to $81.8 million during the 39 weeks ended September 29, 2019, from $83.7 million during the 39 weeks ended September 30, ~~2018, from $83.7 million~~2018. This decrease was primarily driven by a decrease in shop revenue. As a percentage of sandwich shop sales, cost of goods sold increased to 26.8% during the 39 weeks ended September ~~24, 2017. As a percentage of revenues, cost of goods sold decreased to 26.1%~~29, 2019, from 26.3% during the 39 weeks ended September 30, 2018, ~~from 26.5% during the 39 weeks ended September 24, 2017,~~ primarily driven by higher discounting and cost inflation in certain products, partially offset by certain menu price increases.

Labor and related expenses increased by ~~$3.2~~$0.2 million, or ~~3.4%~~0.2%, to $96.5 million during the 39 weeks ended September 29, 2019, from $96.4 million during the 39 weeks ended September 30, ~~2018, from $93.2 million~~2018. As a percentage of sandwich shop sales, labor and related expenses increased to 31.6% during the 39 weeks ended September ~~24, 2017,~~29, 2019, from 30.3% during the 39 weeks ended September 30, 2018. These increases were primarily ~~due to new shop openings and~~driven by inflationary wage increases in certain states and sales deleverage in certain labor related costs not directly variable with sales, which ~~was~~were partially offset by a decrease in expense from closed ~~shops. As a percentage of revenues,~~shops and labor ~~and related~~management.

Occupancy expenses ~~increased~~decreased by $0.3 million, or 0.7%, to ~~30.1%~~$44.5 million during the 39 weeks ended September ~~30, 2018,~~29, 2019, from 29.5% during the 39 weeks ended September 24, 2017, primarily driven by a decrease in company-operated comparable store revenue and inflationary wage increases in certain states, which was partially offset by a decrease in expense from closed shops.

~~Occupancy expenses increased by $2.0 million, or 4.7%, to~~ $44.8 million during the 39 weeks ended September 30, 2018, ~~from $42.8 million during the 39 weeks ended September 24, 2017,~~ primarily due to a decrease in occupancy expenses related to closed shops. This decrease was partially offset by inflation in certain occupancy related costs, including lease renewals, real estate taxes and common area maintenance. ~~These increases were partially offset by a decrease in occupancy expenses related to closed shops.~~ As a percentage of ~~revenues,~~sandwich shop sales, occupancy expenses increased to ~~14.0%~~14.5% during the 39 weeks ended September 29, 2019, from 14.1% during the 39 weeks ended September 30, 2018, ~~from 13.5% during the 39 weeks ended September 24, 2017,~~ primarily due to sales deleverage and inflation in certain occupancy related costs, including lease renewals, real estate taxes and common area maintenance.

Other operating expenses ~~increased~~decreased by ~~$2.3~~$1.4 million, or ~~6.3%~~3.7%, to $37.2 million during the 39 weeks ended September 29, 2019, from $38.7 million during the 39 weeks ended September 30, ~~2018, from $36.3 million during the 39 weeks ended September 24, 2017.~~2018. The ~~increase~~decrease was primarily attributable to items such as ~~repairs, credit card fees, utilities~~music and ~~other expenses not directly~~certain items variable with ~~sales.~~sales, partially offset by higher expenses related to third-party delivery partnerships driven by increased sales in that channel. As a percentage of ~~revenues,~~sandwich shop sales, other operating expenses ~~increased to 12.1%~~were unchanged at 12.2% during both the 39 weeks ended September 29, 2019 and the 39 weeks ended September 30, 2018, from 11.5% during the 39 weeks ended September 24, 2017. This increase was primarily driven by sales deleverage in operating expense items such as repairs, credit card fees, utilities and other expenses not directly variable with sales.2018.

General and administrative expenses increased by ~~$2.3~~$2.1 million, or ~~7.0%~~5.9%, to $37.8 million during the 39 weeks ended September 29, 2019, from $35.7 million during the 39 weeks ended September 30, 2018, from $33.4 million during the 39 weeks ended September 24, 2017. The increase was driven primarily by restructuring costs of $1.6 million, proxy related costs of $0.8 million and an increase in advertising costs. This increase was partially offset by a decrease in stock-based compensation expense.2018. As a percentage of revenues, general and administrative expenses increased to 12.3% during the 39 weeks ended September 29, 2019, from 11.2% during the 39 weeks ended September 30, ~~2018, from 10.6%~~2018. These increases were driven primarily by an increase in advertising, nonrecurring professional services fees, and lease exit costs, partially offset by a decrease in restructuring costs, stock-based compensation expense and performance-based incentive expenses. Regarding the nonrecurring professional service fees, $2.3 million was incurred during the 39 weeks ended September ~~24, 2017. The increase was driven primarily by restructuring costs of $1.6 million, proxy related costs of~~29, 2019, and $0.8 million ~~and an increase~~will be recognized in ~~advertising costs. This increase was partially offset by a decrease in stock-based compensation expense.~~the following quarter.

Depreciation expense decreased by ~~$1.4~~$1.0 million, or ~~7.5%~~6.0%, to $16.5 million during the 39 weeks ended September 29, 2019, from $17.5 million during the 39 weeks ended September 30, 2018, ~~from $19.0 million during the 39 weeks ended September 24, 2017,~~ driven primarily by a lower depreciable base related to impairment charges taken subsequent to the 39 weeks ended September ~~24, 2017,~~30, 2018, as well as lower depreciation associated with longer expected useful lives for leasehold improvements 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, which increased the depreciable base. As a percentage of revenues, depreciation was 5.4% during the 39 weeks ended September 29, 2019, and 5.5% for the 39 weeks ended September 30, 2018.

Pre-opening costs decreased to ~~5.5%~~$26 thousand during the 39 weeks ended September 29, 2019, from $245 thousand during the 39 weeks ended September 30, 2018, from 6.0% during the 39 weeks ended September 24, 2017, driven primarily by a lower depreciable base related to impairment charges taken subsequent to the 39 weeks ended September 24, 2017, as well as lower depreciation associated with all shops with longer expected useful lives for leasehold improvements and leasehold improvements at legacy shops with shorter expected useful lives being fully depreciated.

Pre-opening costs decreased by $0.7 million, or 74.3%, to $0.2 million during the 39 weeks ended September 30, 2018, from $1.0 million during the 39 weeks ended September 24, 2017. As a percentage of revenues, pre-opening costs decreased to 0.1% during the 39 weeks ended September 30, 2018, from 0.3% during the 39 weeks ended September 24, 2017. These decreases were2018. The decrease was driven primarily by fewer shops opened during the 39 weeks ended September ~~30, 2018~~29, 2019 compared to the 39 weeks ended September ~~24, 2017.~~30, 2018.

Impairment and loss on disposal of property and equipment ~~increased~~decreased to $2.0 million during the 39 weeks ended September 29, 2019, compared to $8.5 million during the 39 weeks ended September 30, ~~2018, compared to $5.8 million during the 39 weeks ended September 24, 2017.~~2018. After performing periodic reviews of Company shops during the first, second, and third quarter of ~~2018,~~2019, 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 ~~$8.5~~$2.0 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 ~~$0.1~~$95 thousand for the 39 weeks ended September 29, 2019 and $109 thousand for the 39 weeks ended September 30, 2018.

Income tax expense increased by $15.0 million to $13.9 million for the 39 weeks ended September ~~30, 2018 and September 24, 2017.~~

In accordance with ASC 740, each interim period is considered an integral part of the annual period and tax expense or benefit is measured using an estimated annual effective tax rate. An enterprise is required, at the end of each interim reporting period, to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. However, when a reliable estimate of the annual effective tax rate cannot be made, the actual effective tax rate for the year-to-date period may be the best estimate of the annual effective tax rate. For the 13 and 39 weeks ended September 30, 2018, the actual year-to-date effective tax rate was used to compute the income tax benefit, as a reliable estimate of the annual estimated tax rate cannot be made as nominal changes in projected income or loss result in a significant variance in our estimated effective tax rate. The effective tax rate differed29, 2019, from ~~the federal statutory rate primarily due to the impact of ASU 2016-09, state income taxes, federal and state tax credits and certain discrete items.~~

~~Income tax expense decreased by $1.4 million, or more than 100%, to~~ a benefit of $1.1 million for the 39 weeks ended September 30, ~~2018, from an~~2018. The change was primarily attributable to the valuation allowance on deferred tax assets recorded by the Company during the first quarter of 2019, as a result of the changes in projected taxable income for 2019. The Company estimated it would be in a cumulative loss position as of December 29, 2019. Therefore, the Company determined that the negative evidence outweighed the positive evidence and, therefore, recorded a full valuation allowance against its net deferred tax assets. The Company recorded a non-cash charge to income tax expense of ~~$0.3~~$13.6 million related to the recognition of the valuation allowance and did not provide for an income tax benefit on the pre-tax loss recorded for the 39 weeks ended September ~~24, 2017, primarily attributable~~29, 2019. This accounting treatment has no effect on the Company’s ability to ~~a pre-tax book loss~~utilize deferred tax assets to reduce future cash tax payments. The Company will continue to assess the likelihood of the realization of its deferred tax assets at the end of each reporting period and the change in the federal tax rate from 35.0 percent to 21.0 percent. For the 39 weeks ended September 30, 2018, the effective tax rate was 20.8%, compared to 33.5% for the 39 weeks ended September 24, 2017. The change in the effective tax rate was driven by a pre-tax book loss ~~and~~ ~~the change in the federal statutory tax rate from 35 percent to 21 percent, as well as certain discrete items.~~valuation allowance will be adjusted accordingly.

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

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

	For the 39 Weeks Ended						For the 39 Weeks Ended
	September 30,			September 24,			September 29,			September 30,
	2018			2017			2019			2018
Net cash provided by (used in):
Operating activities	$	22,653		$	28,368		$	9,863		$	22,653
Investing activities		(16,722	)		(23,526	)		(9,533	)		(16,722	)
Financing activities		(4,750	)		(6,043	)		(4,347	)		(4,750	)
Net increase (decrease) in cash	$	1,181		$	(1,201	)	$	(4,017	)	$	1,181

Net cash provided by operating activities decreased to $9.9 million for the 39 weeks ended September 29, 2019, from $22.7 million for the 39 weeks ended September 30, ~~2018, from $28.4 million for the 39 weeks ended September 24, 2017.~~2018. The ~~$5.7~~$12.8 million decrease was primarily driven by an increase in loss from ~~operations.~~operations, as well as timing of payment for certain liabilities.

Net cash used in investing activities decreased to $9.5 million for the 39 weeks ended September 29, 2019, from $16.7 million for the 39 weeks ended September 30, ~~2018, from $23.5 million for the 39 weeks ended September 24, 2017.~~2018. The decrease was primarily due to fewer shops opened and under construction during the 39 weeks ended September ~~30, 2018~~29, 2019 compared to the 39 weeks ended September ~~24, 2017.~~30, 2018.

Net cash used in financing activities ~~was~~decreased to $4.3 million for the 39 weeks ended September 29, 2019, from $4.8 million for the 39 weeks ended September 30, ~~2018, compared to $6.0 million net cash used in financing activities for the 39 weeks ended September 24, 2017.~~2018. The change in financing cash was primarily driven by ~~$8.2~~an $8.3 million decrease in repurchases of treasury stock offset by an $8.0 million decrease in proceeds from the exercise of stock options during the 39 weeks ended September 30, 2018, compared to $1.2 million during the 39 weeks ended September 24, 2017. Additionally, $0.1 million in employee taxes related to stock-based payment arrangements were withheld and paid during the 39 weeks ended September 30, 2018.29, 2019.

On May 8, 2018, the Company announced that its Board of Directors authorized a stock repurchase program for up to $65.0 million of its outstanding common stock. The stock repurchase program replaced the previous program, authorized in September 2016. Under the previous program, during the 39 weeks ended September 30, 2018, the Company repurchased 5,000 shares of its common stock for approximately $0.1 million, including costs and commissions, in open market transactions. 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~~Act) or in privately negotiated transactions. Under the ~~current~~ program, ~~during~~for the 39 weeks ended September ~~30, 2018,~~29, 2019, the Company repurchased ~~959,240~~647,821 shares of its common stock for approximately ~~$12.3~~$4.2 million under the stock repurchase program, including ~~costs~~cost and ~~commissions,~~commission, in open market transactions. The number of shares of common stock repurchased in the future, and the timing and price of repurchases, will depend upon market conditions, ~~Securities and Exchange Commission requirements~~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,~~August 7, 2019, the Company entered into ana second amended and restated ~~five-year~~ revolving credit facility agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A. (“JPMorgan”) that expires in ~~November 2020.~~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 ~~$50.0~~$40 million, with possible future increases of up to ~~$75.0~~$20 million under an expansion feature. Borrowings under the credit facility generally bear interest at ~~our~~the Company’s option at either (i) a eurocurrency rate determined by reference to the applicable ~~London Interbank Offered Rate (LIBOR)~~LIBOR rate plus a margin ranging from ~~1.00%~~1.25% to 1.75% or (ii) a prime rate as announced by ~~JP Morgan Chase~~JPMorgan plus a margin ranging from 0.00% to 0.50%. The applicable margin is determined based upon ~~our~~the Company’s consolidated total leverage ratio. On the last day of each calendar quarter, the Company is required to pay a commitment fee ~~ranging from 0.125% to~~of 0.20% per annum in respect of any unused commitments under the credit ~~facility, with the specific rate determined based upon our consolidated~~facility. So long as certain total leverage ~~ratio. As long as the 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.~~make, provided that proceeds of the loans under the Credit Agreement may not be used for purposes of making restricted payments. As of ~~September 30, 2018 and for~~ the 39 ~~week period~~weeks ended September ~~30, 2018,~~29, 2019, the Company had no amounts outstanding under the ~~credit facility.~~Credit Agreement.

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. 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. Potbelly had no significant changes in our critical accounting estimates since the last annual report. The Company’s critical accounting estimates are identified and described in our annual consolidated financial statements and related notes.

As of September ~~30, 2018,~~29, 2019, 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.

For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2017.~~30, 2018. Our exposures to market risk have not changed materially since December ~~31, 2017.~~30, 2018.

Our management, with the participation of our Chief Executive Officer and Principal 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 ~~30, 2018.~~29, 2019. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that, as of September ~~30, 2018,~~29, 2019, 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 Securities and Exchange Commission and is accumulated and communicated to our management, including our Chief Executive Officer and Principal 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~~third quarter ended September ~~30, 2018~~29, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Information pertaining to legal proceedings is provided in Note 810 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 ~~31, 2017.~~30, 2018. There have been no material changes to our Risk Factors as previously reported.

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 ~~30, 2018:~~29, 2019:

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)

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Equity	5

	Condensed Consolidated Statements of Cash Flows	67

	Notes to Condensed Consolidated Financial Statements	78

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1317

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2125

Item 4.	Controls and Procedures	2125

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	2226

Item 1A.	Risk Factors	2226

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	2226

Item 3.	Defaults Upon Senior Securities	26

Item 4.	Mine Safety Disclosures	26

Item 5.	Other Information	26

Item 6.	Exhibits	2327

	Signature	2428

	Implications as of December 31, 2018
Practical expedient package	We have not reassessed whether any expired or existing contracts are, or contain, leases.
	We have not reassessed the lease classification for any expired or existing leases.
	We have not reassessed initial direct costs for any expired or existing leases.
Hindsight practical expedient	We have not elected the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets.

	Current Contract Liability			Noncurrent Contract Liability
	(Thousands)			(Thousands)
Beginning balance as of January 1, 2018	$	(2,325	)	$	(2,144	)
Ending balance as of September 30, 2018		(1,375	)		(1,809	)
Decrease in contract liability	$	(950	)	$	(335	)

	Current Contract Liability			Noncurrent Contract Liability
	(Thousands)			(Thousands)
Beginning balance as of December 31, 2018	$	(2,184	)	$	(1,631	)
Ending balance as of September 29, 2019		(1,632	)		(1,755	)
Increase (decrease) in contract liability	$	(552	)	$	124


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☒☐

Separation of lease and non-lease components		We elected this expedient to account for lease and non-lease components as a single component for our entire population of operating lease assets.
Short-term policy		We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet.

		September 29,
Operating Leases	Classification	2019
Right-of-use assets	Right-of-use assets for operating leases	$	212,261
Short-term lease liabilities	Short-term operating lease liabilities		28,998
Long-term lease liabilities	Long-term operating lease liabilities		207,196
Total lease liabilities			236,194

	September 29,
	2019
Weighted average remaining lease term (years)	8.59
Weighted average discount rate		8.00	%

		13 weeks ending		39 weeks ending
		September 29,		September 29,
	Classification	2019		2019
Operating lease cost	Occupancy and General and administrative expenses		11,187		33,793
Variable lease cost	Occupancy		3,277		10,430
Total lease cost		$	14,464	$	44,223

	Operating Leases
Remainder of 2019		11,123
2020		46,672
2021		42,581
2022		37,033
2023		32,309
2024		29,207
Thereafter		137,063
Total lease payments		335,988
Less: imputed interest		(99,794	)
Present value of lease liabilities	$	236,194

	Operating Leases
2019		47,918
2020		45,828
2021		41,497
2022		36,120
2023		31,060
Thereafter		138,928
Total minimum lease payments		341,351

RSUs	Number of RSUs (Thousands)			Weighted Average Fair Value per Share
Non-vested as of December 30, 2018		247		$	11.99
Granted		331			6.80
Vested		(94	)		6.10
Canceled		(23	)		7.55
Non-vested as of September 29, 2019		461		$	8.48

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)
July 2, 2018 - July 29, 2018		245,000	$	12.76		245,000	$	58,492,804
July 30, 2018 - August 26, 2018		204,901	$	12.74		204,901	$	55,882,418
August 27, 2018 - September 30, 2018		250,000	$	12.86		250,000	$	52,667,634
Total:		699,901				699,901


Exhibit No.		Description

~~3.1~~ 10.1		Second Amended and Restated ~~By-Laws~~Credit Agreement, 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 J.P. Morgan Chase Bank, N.A., as Sole Bookrunner and Sole Lead Arranger (filed as Exhibit ~~3.1~~10.1 to Form ~~8-K (File No. 001-36104)~~10-Q filed on ~~June 12, 2018~~August 8, 2019 and incorporated by reference).

~~10.1~~		~~Amended and Restated Potbelly Corporation 2013 Long-Term Incentive Plan (filed as Exhibit 10.1 to Form 8-K (File No. 001-36104) filed on June 12, 2018 and incorporated by reference).~~

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

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

32.1		Certification of Chief Executive Officer and Principal 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 ~~9, 2018~~5, 2019	By:	/s/ ~~Christopher Carlson~~Thomas Fitzgerald
		~~Christopher Carlson~~Thomas Fitzgerald
		~~Vice President, Controller~~Chief Financial Officer
		(Principal Financial Officer)