Note 3.

Revenue

 

Revenue Recognition. Revenues consist primarily of sales from restaurant operations, which includes third-party delivery sales and franchise revenue, which includes franchise royalties and contributions to advertising funds. The Company recognizes revenue, pursuant to ASU 2014-09, Revenue from Contracts with Customers (Topic 606), when it satisfies a performance obligation by transferring control over a product or service to a customer, typically a restaurant customer or a franchisee/licensee.

 

The Company recognizes revenue from restaurant sales, including third-party delivery sales, when our performance obligation, namely the provision of food and beverage and the associated customer service, is satisfied. Restaurant sales are presented net of discounts, coupons, employee meals, complimentary meals and sales tax. Sales taxes collected from customers are included in other accrued liabilities on our consolidated balance sheets until the taxes are remitted to the taxing authorities.

 

The Company sells gift cards to customers and recognizes revenue from gift cards primarily in the form of restaurant revenue. Gift card breakage, which is recognized when the likelihood of a gift card being redeemed is remote, is determined based upon the Company’s historic redemption patterns. Breakage in the amount of $243,000 and $275,000 was included in Franchise and other revenues in the three fiscal quarters ended June 30, 2026 and July 1, 2025, respectively.

 

The Company operates a loyalty program known as GT Rewards. With each purchase, GT Rewards members earn loyalty points that can be redeemed in the future for free products. Activity related to the rewards program is immaterial to the Company’s financial statements for the periods ended June 30, 2026 and July 1, 2025.

 

Revenues we receive from our franchise and license agreements include sales-based royalties, and from our franchise agreements also may include advertising fund contributions, area development fees, and franchisee fees. We recognize sales-based royalties from franchisees and licensees according to the amounts due, calculated from the sales occurring during the relevant accounting period. We similarly recognize Advertising Fund contributions from franchisees according to the amounts due as calculated from the sales occurring during the relevant accounting period. The Company also provides its franchisees with services associated with opening new restaurants and operating them under franchise and development agreements in exchange for area development and franchise fees. The Company would capitalize these fees upon receipt from the franchisee and then would amortize those over the contracted franchise term as the services comprising the performance obligations are satisfied. We have not received material development or franchise fees in the periods presented, and the primary performance obligations under existing franchise and development agreements have been satisfied prior to the earliest period presented in our financial statements.