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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

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

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

As of April 25, 2021, the registrant had 27,966,488 shares of common stock, ~~as of the latest practicable date:~~

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

	September 24,			December 25,			March 28,			December 27,
	2017			2016			2021			2020
Assets
Current assets
Cash and cash equivalents	$	22,178		$	23,379		$	11,507		$	11,126
Accounts receivable, net of allowances of $112 and $78 as of September 24, 2017 and December 25, 2016, respectively		5,858			3,787
Accounts receivable, net of allowances of $11 and $47 as of March 28, 2021 and December 27, 2020, respectively								4,636			4,354
Inventories		3,310			3,365			2,683			2,989
Prepaid expenses and other current assets		10,694			8,020			4,516			4,839
Total current assets		42,040			38,551			23,342			23,308

Property and equipment, net		105,379			107,074			55,670			61,193
Right-of-use assets for operating leases								181,165			189,141
Indefinite-lived intangible assets		3,404			3,404			3,404			3,404
Goodwill		2,222			2,222			2,222			2,222
Deferred income taxes, non-current		18,381			19,410
Deferred expenses, net and other assets		4,804			4,784			4,215			4,089
Total assets	$	176,230		$	175,445		$	270,018		$	283,357

Liabilities and Equity
Current liabilities
Accounts payable	$	4,569		$	3,111		$	6,499		$	6,206
Accrued expenses		24,194			23,082			25,574			23,742
Accrued income taxes		—			1,622
Short-term operating lease liabilities								32,098			35,325
Current portion of long-term debt								833			333
Total current liabilities		28,763			27,815			65,004			65,606

Deferred rent and landlord allowances		23,000			21,076
Long-term debt, net of current portion								11,953			15,953
Long-term operating lease liabilities								181,705			189,146
Other long-term liabilities		2,511			2,318			5,066			7,157
Total liabilities		54,274			51,209			263,728			277,862

Stockholders’ equity
Common stock, $0.01 par value—authorized 200,000,000 shares; outstanding 24,804,265 and 25,139,127 shares as of September 24, 2017 and December 25, 2016, respectively		313			309
Commitments and contingencies (Note 10)
Equity
Common stock, $0.01 par value—authorized 200,000 shares; outstanding 27,636 and 24,323 shares as of March 28, 2021 and December 27, 2020, respectively								372			339
Warrants		—			909			2,566			—
Additional paid-in-capital		414,943			407,622			450,708			438,174
Treasury stock, held at cost, 6,498,908 and 5,753,412 shares as of September 24, 2017, and December 25, 2016, respectively		(81,174	)		(72,321	)
Treasury stock, held at cost, 9,612 and 9,612 shares as of March 28, 2021, and December 27, 2020, respectively								(113,266	)		(113,266	)
Accumulated deficit		(212,729	)		(213,034	)		(333,949	)		(319,477	)
Total stockholders’ equity		121,353			123,485			6,431			5,770
Non-controlling interest		603			751			(141	)		(275	)
Total stockholders' equity		121,956			124,236

Total equity								6,290			5,495
Total liabilities and equity	$	176,230		$	175,445		$	270,018		$	283,357

See accompanying notes to the unaudited condensed consolidated financial statements.

	For the 13 Weeks Ended
	March 28,			March 29,
	2021			2020
Revenues
Sandwich shop sales, net	$	77,501		$	86,961
Franchise royalties and fees		562			629
Total revenues		78,063			87,590

Expenses
Sandwich shop operating expenses
Cost of goods sold, excluding depreciation		21,469			24,174
Labor and related expenses		28,614			30,397
Occupancy expenses		13,599			15,028
Other operating expenses		13,335			12,765
Advertising		460			441
General and administrative expenses		7,423			9,834
Depreciation expense		4,174			5,456
Pre-opening costs		—			64
Impairment, loss on disposal of property and equipment and shop closures		3,122			6,416
Total expenses		92,196			104,575
Loss from operations		(14,133	)		(16,958	)

Interest expense, net		288			74
Loss before income taxes		(14,421	)		(17,059	)
Income tax expense (benefit)		53			(3,709	)
Net loss		(14,474	)		(13,350	)
Net loss attributable to non-controlling interest		(2	)		(14	)
Net loss attributable to Potbelly Corporation	$	(14,472	)	$	(13,336	)

Net loss per common share attributable to common stockholders:
Basic	$	(0.56	)	$	(0.56	)
Diluted	$	(0.56	)	$	(0.56	)
Weighted average shares outstanding:
Basic		25,944			23,646
Diluted		25,944			23,646

See accompanying notes to the unaudited condensed consolidated financial statements.

For the 13 weeks ended:	Common Stock					Treasury					Additional Paid-In-		Accumulated			Non- Controlling
	Shares			Amount		Stock			Warrants		Capital		Deficit			Interest			Total Equity
Balance at December 29, 2019		23,638			331		(112,680	)	—			435,278		(254,081	)		321		$	69,169
Cumulative impact of Topic 326, net of tax of $2	—			—		—			—		—			(5	)	—				(5	)
Net loss	—			—		—			—		—			(13,336	)		(14	)		(13,350	)
Shares issued under equity compensation plans		68		—		—			—		—		—			—				—
Treasury shares used for stock-based plans		(22	)	—			(71	)		—	—		—			—				(71	)
Distributions to non-controlling interest	—			—		—			—		—		—				(172	)		(172	)
Contributions from non-controlling interest	—			—		—			—		—		—				143			143
Stock-based compensation expense	—			—		—			—			490	—			—				490
Balance at March 29, 2020		23,684		$	331	$	(112,751	)	$	—	$	435,768	$	(267,422	)	$	278		$	56,204

Balance at December 27, 2020		24,323			339		(113,266	)		—		438,174		(319,477	)		(275	)	$	5,495
Net loss		—			—		—			—		—		(14,472	)		(2	)		(14,474	)
Shares issued under equity compensation plans		63			1		—			—		(1)		—			—			—
Issuance of common shares and warrants, net of fees		3,250			32		—			2,566		12,342		—			—			14,940
Contributions from non-controlling interest		—			—		—			—		—		—			136			136
Stock-based compensation expense		—			—		—			—		193		—			—			193
Balance at March 28, 2021		27,636		$	372	$	(113,266	)	$	2,566	$	450,708	$	(333,949	)	$	(141	)	$	6,290

See accompanying notes to the unaudited condensed consolidated financial statements.

For the 13 Weeks Ended

For the 39 Weeks Ended

September 24,

September 25,

September 24,

September 25,

2017

2016

2017

2016

Revenues

Sandwich shop sales, net

$
105,327

$
103,224

$
313,568

$
303,116

Franchise royalties and fees

800

558

2,394

1,657

Total revenues

106,127

103,782

315,962

304,773

Expenses

Sandwich shop operating expenses

Cost of goods sold, excluding depreciation

28,405

28,478

83,703

83,224

Labor and related expenses

31,187

30,163

93,213

88,260

Occupancy expenses

14,354

13,111

42,792

39,042

Other operating expenses

12,464

11,338

36,349

32,570

General and administrative expenses

12,104

9,999

33,375

30,827

Depreciation expense

6,315

5,656

18,960

16,996

Pre-opening costs

336

340

955

731

Impairment and loss on disposal of property and equipment

1,536

1,855

5,762

2,880

Total expenses

106,701

100,940

315,109

294,530

Income (loss) from operations

(574
)

2,842

853

10,243

Interest expense

32

33

101

102

Income (loss) before income taxes

(606
)

2,809

752

10,141

Income tax expense (benefit)

(487
)

960

252

3,732

Net income (loss)

(119
)

1,849

500

6,409

Net income attributable to non-controlling interest

121

54

195

153

Net income (loss) attributable to Potbelly Corporation

$
(240
)

$
1,795

$
305

$
6,256

Net income (loss) per common share attributable to common
stockholders:

Basic

$
(0.01
)

$
0.07

$
0.01

$
0.24

Diluted

$
(0.01
)

$
0.07

$
0.01

$
0.24

Weighted average shares outstanding:

Basic

24,959,023

25,240,374

25,030,951

25,772,846

Diluted

24,959,023

25,829,970

25,857,083

26,341,913

~~See accompanying notes to the unaudited condensed consolidated financial statements.~~

Common Stock

Treasury

Additional
Paid-In-

Accumulated

Non-
Controlling

Shares

Amount

Stock

Warrants

Capital

Deficit

Interest

Total Equity

Balance at December 27, 2015

26,304,261

$
303

$
(50,000
)

$
909

$
399,458

$
(221,246
)

$
789

$
130,213

Net income

—

—

—

—

—

6,256

153

6,409

Stock-based compensation
   plans

511,781

5

—

—

5,414

—

—

5,419

Excess tax deficiencies
   associated with exercise
   of stock options

—

—

—

—

(605
)

—

—

(605
)
Repurchases of common
   stock

(1,574,316
)

—

(20,447
)

—

—

—

—

(20,447
)
Distributions to non-
   controlling interest

—

—

—

—

—

—

(249
)

(249
)
Contributions from non-
   controlling interest

—

—

—

—

—

—

74

74

Amortization of
   stock-based compensation

—

—

—

—

2,266

—

—

2,266

Balance at September 25, 2016

25,241,726

$
308

$
(70,447
)

$
909

$
406,533

$
(214,990
)

$
767

$
123,080

Balance at December 25, 2016

25,139,127

$
309

$
(72,321
)

$
909

$
407,622

$
(213,034
)

$
751

$
124,236

Net income

—

—

—

—

—

305

195

500

Stock-based compensation
   plans

168,930

2

—

—

1,179

—

—

1,181

Exercise of stock warrants

241,704

2

—

(909
)

2,879

—

—

1,972

Repurchases of common
   stock

(745,496
)

—

(8,853
)

—

—

—

—

(8,853
)
Distributions to non-
   controlling interest

—

—

—

—

—

—

(354
)

(354
)
Contributions from non-
   controlling interest

—

—

—

—

—

—

11

11

Amortization of
   stock-based compensation

—

—

—

—

3,263

—

—

3,263

Balance at September 24, 2017

24,804,265

$
313

$
(81,174
)

$
—

$
414,943

$
(212,729
)

$
603

$
121,956

~~See accompanying notes to the unaudited condensed consolidated financial statements.~~

	For the 39 Weeks Ended						For the 13 Weeks Ended
	September 24,			September 25,			March 28,			March 29,
	2017			2016			2021			2020
Cash flows from operating activities:
Net income	$	500		$	6,409
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		18,960			16,996
Net loss							$	(14,474	)	$	(13,350	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense								4,174			5,456
Noncash lease expense								6,287			7,295
Deferred income tax		—			397			5			5
Deferred rent and landlord allowances		1,924			1,912
Amortization of stock compensation expense		3,263			2,266
Excess tax deficiency (benefit) from stock-based compensation		292			(24	)
Stock-based compensation expense								193			490
Asset impairment, store closure and disposal of property and equipment		5,922			2,897			2,741			6,050
Amortization of debt issuance costs		28			25
Other operating activities								85			20
Changes in operating assets and liabilities:
Accounts receivable, net		(1,422	)		(61	)		(282	)		1,620
Inventories		54			141			306			228
Prepaid expenses and other assets		(2,650	)		(457	)		(12	)		(3,252	)
Accounts payable		699			(1,496	)		228			(767	)
Accrued and other liabilities		798			4,566
Net cash provided by operating activities		28,368			33,571
Operating lease liabilities								(8,991	)		(7,467	)
Accrued expenses and other liabilities								40			(4,144	)
Net cash (used in) provided by operating activities:								(9,700	)		(7,816	)

Cash flows from investing activities:
Acquisition of franchise shop		—			(1,108	)
Purchases of property and equipment		(23,526	)		(19,883	)	$	(1,300	)	$	(4,860	)
Net cash used in investing activities		(23,526	)		(20,991	)
Net cash used in investing activities:								(1,300	)		(4,860	)

Cash flows from financing activities:
Proceeds from exercise of stock options		1,181			5,746
Proceeds from exercise of stock warrants		1,972			—
Treasury stock repurchases		(8,853	)		(20,447	)
Excess tax benefit from stock-based compensation		—			24
Borrowings under credit facility							$	8,000		$	39,786
Repayments under credit facility								(11,500	)		—
Payment of debt issuance costs								(195	)		—
Proceeds from issuance of common shares and warrants, net of fees								14,940			—
Employee taxes on certain stock-based payment arrangements								—			(71	)
Distributions to non-controlling interest								—			(172	)
Contributions from non-controlling interest		11			74			136			143
Distributions to non-controlling interest		(354	)		(249	)
Net cash used in financing activities		(6,043	)		(14,852	)
Net cash provided by (used in) financing activities:								11,381			39,686

Net decrease in cash and cash equivalents		(1,201	)		(2,272	)
Net increase (decrease) in cash and cash equivalents								381			27,010
Cash and cash equivalents at beginning of period		23,379			32,006			11,126			18,806
Cash and cash equivalents at end of period	$	22,178		$	29,734		$	11,507		$	45,816

Supplemental cash flow information:
Income taxes paid	$	3,346		$	2,265		$	10		$	9
Interest paid		73			82			238			25
Supplemental non-cash investing and financing activities:
Unpaid liability for purchases of property and equipment	$	2,752		$	3,142		$	421		$	1,091

See accompanying notes to the unaudited condensed consolidated financial statements

Potbelly Corporation (the “Company”, “Potbelly”, “we”, “us” or ~~“Potbelly”~~“our”), through its ~~wholly-owned~~wholly owned subsidiaries, owns and operates or franchises Potbelly Sandwich Shops in 31 states and the District of Columbia. The Company also sells and administers franchises of Potbelly Sandwich Shops. The first domestic franchise location administered by the Company opened during February 2011. Additionally, in February 2011, the Company opened its first international franchise in the Middle East. In July 2015, the Company opened its first franchise shop399 company-owned shops in the United ~~Kingdom and~~States. Additionally, Potbelly franchisees operate 45 shops in ~~October 2016,~~ the ~~Company opened its first franchise shop in Canada.~~ Additionally, during April 2016, the Company transitioned a franchise shop to a company-operated shop for a purchase price of $1.1 million. The Company recorded $0.8 million of goodwill related to the transaction. The Company believes this acquisition is immaterial.United States.

The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Potbelly Corporation and its subsidiaries and the notes thereto included in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December ~~25, 2016.~~27, 2020. The unaudited condensed consolidated financial statements included herein have been prepared by ~~the Company~~us 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~~our balance sheet as of ~~September 24, 2017~~March 28, 2021 and December ~~25, 2016, its~~27, 2020, our statement of operations for the 13 ~~and 39~~ weeks ended ~~September 24, 2017~~March 28, 2021 and ~~September 25, 2016~~March 29, 2020, the statement of equity for the 13 weeks ended March 28, 2021 and ~~its~~March 29, 2020, and our statement of cash flows for the 3913 weeks ended ~~September 24, 2017~~March 28, 2021 and ~~September 25, 2016~~March 29, 2020 have been included. The condensed 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~~Beginning with the third quarter of 2020, shop closure and lease termination expenses are being presented within impairment, loss on disposal of property and equipment and shop closures in our condensed consolidated statements of operations. Prior to the third quarter of 2020, shop closure and lease termination expenses were presented within general and administrative expenses. Prior period amounts have been reclassified to conform to the current presentation. This reclassification had no impact on the loss from operations, balance sheets or statements of cash flows.

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

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus ("COVID-19") and the risks to the international community as the virus spreads globally. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. In response to the pandemic, many states and jurisdictions in which we operate have issued stay-at-home orders and other measures aimed at slowing the spread of the coronavirus. We initially closed the vast majority of our dining rooms and shifted to off-premise operations only, and we experienced a sudden and drastic decrease in revenues. While the pandemic continues to have an impact on our business, the distribution of COVID-19 vaccines and a decline in positive cases and hospitalizations has resulted in a gradual improvement in our sales during the first quarter of 2021. Nearly all of our shops have reopened their dining rooms, many with continued restrictions, such as social distancing and limited capacities, to ensure the health and safety of our guests and employees. We continue to follow guidance from local authorities in determining the appropriate restrictions to put in place for each shop, including the suspension or reduction of in-shop dining if required due to changes in the pandemic response in each jurisdiction.

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

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”~~PSW”); ~~eight~~7 of ~~LLC’s~~PSW’s wholly owned subsidiaries and ~~LLC’s five~~PSW’s 7 joint ventures, collectively, the “Company.” All ~~significant~~ intercompany balances and transactions have been eliminated in consolidation. For consolidated joint ventures, non-controlling interest represents a non-controlling partner’s share of the assets, liabilities and operations related to the ~~five~~seven joint venture investments. ~~The Company~~Potbelly has ownership interests ranging from 51-80% in these consolidated joint ventures.

~~The Company uses~~We use a 52/53-week fiscal year that ends on the last Sunday of the calendar period. Approximately every five or six years a 53rd week is added. Fiscal year ~~2017 consists of 53 weeks~~2021 and ~~2016 consisted~~2020 both consist of 52 weeks. The fiscal quarters ended ~~September 24, 2017~~March 28, 2021 and ~~September 25, 2016~~March 29, 2020 each consisted of 13 weeks.

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

On December 28, 2020, we adopted Accounting Standard Update No. 2020-06, Debt—Debt with Conversion and ~~Revised Financial Accounting Standards~~

~~In May 2014,~~Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). This pronouncement simplifies the ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts~~accounting for certain financial instruments with ~~Customers.” The pronouncement was issued~~liability and equity characteristics, including convertible instruments and contracts on an entity’s own equity. It removes certain criteria that previously had to ~~clarify~~be satisfied in order to classify a contract as equity and revises the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and International Financial Reporting Standards (IFRS). The FASB approved a one-year deferralguidance on calculating earnings per share, requiring use of the ~~effective date~~if-converted method for all convertible instruments and rescinding a company’s ability to rebut the presumption of ~~ASU 2014-09, such~~share settlement for instruments that ~~it will become effective~~may be settled in cash or other. There was no impact to our financial statement or loss per share presentation in the period of adoption due to the impact of adopting this pronouncement.

We primarily earn revenue at a point in time for the annual period beginning after December 15, 2017. In addition, the FASB issued ASU 2016-08, ASU 2016-10 and ASU 2016-12 in March 2016, April 2016 and May 2016, respectively, to help provide interpretive clarifications on the new guidance in Accounting Standards Codification (ASC) Topic 606. Potbelly will adopt the standard effective the first quarter of 2018 and apply the amendments using the modified retrospective method. The Company has determined that the adoption will not have a material impact on sandwich shop sales ~~but will impact franchise~~which can occur in person at the shop, over our online or app platforms, or through a third-party platform. Sales taxes collected from customers are excluded from revenues and the obligation is included in accrued liabilities until the taxes are remitted to the appropriate taxing authorities. We have other revenue ~~and gift card breakage. Potbelly licenses intellectual property and trademarks to franchisees through franchise arrangements. As part of these agreements, Potbelly receives~~generating activities outlined below.

We earn an initial franchise fee, ~~payment which is~~ a franchise development agreement fee and ongoing royalty fees under our franchise agreements. Initial 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 ~~as revenue~~ ~~when~~over the ~~shop opens. Effective~~contractual term of the franchise agreement. We record a contract liability for the ~~annual period beginning January 1, 2018,~~ unearned portion of the initial franchise fees. Franchise development agreement fees represent the exclusivity rights for a geographical area paid by a third party to develop Potbelly shops for a certain period of time. Franchise development agreement fee~~s will generally be recognized~~ payments received by us are recorded as deferred revenue in the consolidated balance sheet and amortized over the life of the ~~contract. Potbelly sells~~franchise development agreement. Royalty fees are based on a percentage of sales and are recorded as revenue as the fees are earned and become receivable from the franchisee.

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

We recognized ~~as customers redeem the~~ gift ~~cards. The Company is continuing its assessment, which may identify additional impacts this standard will have on its consolidated financial statements~~card breakage income of $0.1 million and ~~related disclosures.~~

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

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718).” The pronouncement simplifies the accounting for the taxes related to stock-based compensation, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification within the statement of cash flows. The pronouncement is effective for annual periods beginning after December 15, 2016, including annual and interim periods thereafter. Potbelly adopted ASU 2016-09 in the first quarter of 2017. The primary impact of adoption was the recognition of excess tax benefits and deficiencies that arise upon vesting or exercise of share-based payments in the Income Statement as income tax expense instead of a component of equity recorded to paid-in capital. ~~This aspect of the new guidance, which was required to be adopted prospectively, resulted in~~ ~~an additional income tax expense of $45 thousand and $292 thousand~~$0.1 million for the 13 weeks ended March 28, 2021, and 39March 29, 2020, respectively, which is recorded within net sandwich shop sales in our condensed consolidated statements of operations.

During the second quarter of 2020, we implemented a new customer loyalty program for customers using the Potbelly Perks application at the point of sale. The customer will typically earn 10 points for every dollar spent in addition to any active promotions, and the customer will earn a free entrée after earning 1,000 points. We defer revenue associated with the estimated selling price of points earned by Potbelly Perks members towards free entrées as each point is earned, and a corresponding liability is established in deferred revenue. The deferral is based on the estimated value of the product for which the reward is expected to be redeemed, net of estimated unredeemed points. Once a customer earns a free entrée, that entrée reward will expire after 30 days. Any point in a customer’s account that does not go toward earning a full entrée will expire a year after the point is earned. When points are redeemed, we recognize revenue for the redeemed product and reduces deferred revenue.

For the 13 weeks ended ~~September 24, 2017, respectively. Potbelly has elected~~March 28, 2021 revenue recognized from all revenue sources on point in time sales was $77.5 million, and revenue recognized from sales over time was $0.1 million. For the 13 weeks ended March 29, 2020, revenue recognized from all revenue sources on point in time sales was $87.5 million, and revenue recognized from sales over time was $0.1 million.

As described above, we record current and noncurrent contract liabilities for upfront franchise fees, gift cards and the loyalty program. There are no other contract liabilities or contract assets recorded by us. The opening and closing balances of our current and noncurrent contract liabilities from contracts with customers were as follows:

The aggregate value of remaining performance obligations on outstanding contracts was $4.5 million as of March 28, 2021. We expect to ~~continue~~recognize revenue related to ~~estimate forfeitures expected to occur to determine~~contract liabilities as follows (in thousands), which may vary based upon franchise activity as well as gift card redemption patterns:

For the 13 weeks ended March 28, 2021, the amount of ~~compensation cost~~revenue recognized related to be recognized in each period. Excess income tax benefits and deficiencies from stock-based compensation arrangements are now classified as cash flow from operations, instead of as cash flow used in financing activities. The Company elected to apply this change in presentation prospectively and as such prior periods have not been adjusted. Additionally, in accordance with the ~~new standard,~~December 27, 2020 liability ending balance was $0.6 million. For the ~~Company now excludes excess tax benefits and deficiencies from the assumed proceeds available to repurchase shares in the computation of the Company’s diluted earnings per share.~~

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350).” The new standard eliminates step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. Under current U.S. GAAP, to perform step 2 an entity must determine its implied fair value, which is determined in the same manner as13 weeks ended March 29, 2020, the amount of ~~goodwill~~revenue recognized related to the December 31, 2019 liability ending balance was $0.5 million. This revenue related to the recognition of gift card redemptions and upfront franchise fees. For the 13 weeks ended March 28, 2021 and March 29, 2020, we did 0t recognize any revenue from obligations satisfied (or partially satisfied) in a business combination. In addition to eliminating step 2, the new standard eliminates the requirement for a reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test. Instead, all reporting units, even those with a zero or negative amount will apply the same impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The standard will be effective for Potbelly in the fiscal year beginning after December 15, 2019. Early adoption for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 is permitted. This amendment is required to be applied on a prospective basis. Potbelly is currently assessing the impact and timing of adopting this guidance on its consolidated financial statements.

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

~~The Company assesses~~We assess potential impairments to ~~its~~our long-lived assets, which includes property and equipment and lease right-of-use assets, on a quarterly basis or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Shop-level assets and right-of-use assets are grouped at the individual shop-level for the purpose of the impairment assessment. Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its estimated undiscounted future cash flows expected to be generated by the ~~asset.~~asset group. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset group exceeds the fair value of the ~~asset.~~asset group. The fair value of the shop assets ~~was~~is determined using the discounted future cash flow method of anticipated cash flows through the shop’s lease-end date using fair value measurement inputs classified as Level 3. The fair value of right-of-use assets is estimated using market comparative information for similar properties. Level 3 inputs are derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. After performing a periodic review of ~~the Company’s~~our shops during the 13 weeks ~~and 39 weeks~~ ended ~~September 24, 2017,~~March 28, 2021, it was determined that indicators of impairment were present for certain shops as a result of continued underperformance. ~~The Company~~We performed an impairment analysis related to these shops and recorded an impairment charge of ~~$1.5 million and $5.8 million~~$148 thousand for the 13 ~~and 39~~ weeks ended ~~September 24, 2017, respectively.~~ ~~Included within~~March 28, 2021. The ultimate severity and longevity of the ~~impairment charge~~COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.

The book value of the long-term debt under the Credit Agreement, subsequently amended most recently as of February 26, 2021 and further discussed in Note 7, is considered to approximate its fair value as of March 28, 2020 as the interest rates are considered in line with current market rates.

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

During the first quarter of 2021, we amended the lease for ~~the 13 and 39 weeks ended September 24, 2017, impairment charges of $0.7 million were recorded~~our corporate Support Center office in ~~relation~~Chicago to ~~Hurricane Harvey, with insurance recoveries of $0.7 million also recorded~~relocate to a different office space within the same ~~caption.~~ ~~The company recorded an impairment charge~~building. As a result of ~~$1.9~~this relocation, the leasehold improvements of the original office space were disposed, resulting in a loss on disposal of $2.5 million ~~and $2.9 million for~~based on the ~~13 and 39 weeks ended September 25, 2016, respectively.~~remaining net book value of those assets.

Basic and diluted income per common share attributable to common stockholders ~~was~~are calculated using the weighted average number of common shares outstanding for the period. Diluted income per common share attributable to common stockholders is computed by dividing the income allocated to common stockholders by the weighted average number of fully diluted common shares outstanding. In periods of a net loss, no0 potential common shares are included in diluted shares outstanding as the effect is anti-dilutive. For the 13 weeks ended ~~September 24, 2017, the Company~~March 28, 2021, we had a loss per share, and therefore potentially dilutive shares were excluded ~~for potential stock option exercises and warrant exercises.~~

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

	For the 13 Weeks Ended					For the 39 Weeks Ended				For the 13 Weeks Ended
	September 24,			September 25,		September 24,		September 25,		March 28,			March 29,
	2017			2016		2017		2016		2021			2020
Net income (loss) attributable to Potbelly Corporation	$	(240	)	$	1,795	$	305	$	6,256
Net loss attributable to Potbelly Corporation										$	(14,472	)	$	(13,336	)
Weighted average common shares outstanding-basic		24,959,023			25,240,374		25,030,951		25,772,846		25,944			23,646
Plus: Effect of potential stock options exercise		—			533,249		770,965		514,257		—			—
Plus: Effect of potential warrant exercise		—			56,347		55,167		54,810
Weighted average common shares outstanding-diluted		24,959,023			25,829,970		25,857,083		26,341,913		25,944			23,646
Income (loss) per share available to common stockholders-basic	$	(0.01	)	$	0.07	$	0.01	$	0.24
Income (loss) per share available to common stockholders-diluted	$	(0.01	)	$	0.07	$	0.01	$	0.24
Loss per share available to common stockholders-basic										$	(0.56	)	$	(0.56	)
Loss per share available to common stockholders-diluted										$	(0.56	)	$	(0.56	)
Potentially dilutive shares that are considered anti-dilutive:
Common share options		4,012,073			1,233,294		1,151,317		1,236,599		2,544			2,294

The ~~Company recognized~~interim tax provision is determined using an estimated annual effective tax rate and is adjusted for discrete taxable events that occur during the quarter. We regularly assess the need for a valuation allowance related to our 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 our deferred tax assets will not be realized. In our assessment, we consider recent financial operating results, projected future taxable income, the reversal of existing taxable differences, and tax planning strategies. We recorded a full valuation allowance against our net deferred tax assets during the first quarter of 2019, resulting in a non-cash charge to income tax expense of $13.6 million. We continue to maintain a valuation allowance against all of our deferred tax assets as of March 28, 2021. We did not provide for an income tax benefit ~~of $0.5 million~~ on aour pre-tax loss ~~of $0.6 million, or an effective tax rate benefit of 80.4%,~~ for the 13 weeks ended ~~September 24,~~March 28, 2021 and March 29, 2020. We assess the likelihood of the realization of our deferred tax assets each quarter and the valuation allowance is adjusted accordingly.

On March 27, 2020, the CARES Act was enacted into law. The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain NOLs and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years, accelerate refunds of previously generated corporate AMT credits, loosen the business interest limitation under section 163(j), and fix the qualified improvement property regulations in the 2017 ~~compared~~Tax Cuts and Jobs Act. As a result of the CARES Act, we estimated that we will be able to obtain a tax refund of $6.7 million from the carryback of NOLs and a refund of prior AMT credits. We received the entire amount of the refund during fiscal year 2020. We recognized $3.7 million of this income tax benefit during the first quarter of 2020.

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

Operating lease assets and liabilities are recognized 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. 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 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 ~~$1.0~~expense over the lease term.

Beginning in fiscal year 2020, as a result of COVID-19, we held discussions with landlords regarding restructuring of our leases in light of various contractual and legal defenses and have subsequently entered into a total of 339 amendments with our respective landlords as of March 28, 2021. Under these amendments, certain rent payments have been abated, deferred or modified without penalty for various periods, generally covering two to four months of rent payments. During the 13 weeks ended March 28, 2021, we received concessions from certain landlords in the form of rent deferrals and abatements which were not substantial, and we have elected to not account for these rent concessions as lease modifications.

During the 13 weeks ended March 28, 2021, we terminated 2 leases. We incurred $0.2 million ~~on pre-tax income of $2.8 million, or an effective tax rate of 34.2%,~~in lease termination fees related to these leases for the 13 weeks ended ~~September 25, 2016.~~ March 28, 2021. Upon termination of leases during the 13 weeks ended March 28, 2021, we derecognized ROU assets of $0.6 million and lease liabilities of $0.7 million that resulted in a net gain of $0.1 million that is recorded in impairment, loss on disposal of property and equipment and shop closures.

During the first quarter of 2021, we amended the lease for our corporate Support Center office in Chicago to relocate to a different office space within the same building. We accounted for this amendment as a lease modification which resulted in a decrease in the related right-of-use asset and lease liability of $2.7 million.

Certain of our 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.

The ~~Company recognized income tax expense~~components of ~~$0.3~~lease cost were as follows:

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

As of March 28, 2021, we had 0 real estate leases entered into that had not yet commenced.

On August 7, 2019, we 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 provided, 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 our option at either (i) a eurocurrency rate determined by reference to the applicable LIBOR rate plus a specified margin or (ii) a prime rate as announced by JP Morgan plus a specified margin. The applicable margin was determined based upon our consolidated total leverage ratio. On the last day of each calendar quarter, we were 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 was no limit on ~~pre-tax income~~the “restricted payments” (primarily distributions and equity repurchases) that we may make, provided that proceeds of ~~$0.8 million, or an effective tax rate~~the loans under the Credit Agreement may not be used for purposes of ~~33.5%,~~making restricted payments.

As disclosed in our Annual Report on Form 10-K for the ~~39 weeks~~fiscal year ended ~~September 24, 2017, compared~~December 27, 2020, we drew on the credit facility to ~~income tax expense~~increase our cash position and preserve financial flexibility in light of ~~$3.7 million on pre-tax income of $10.1 million, or an effective tax rate of 36.8%, for~~ the ~~39 weeks ended September 25, 2016. The effective tax rate differed~~uncertainty resulting from the ~~federal statutory~~COVID-19 pandemic, and we amended the Credit Agreement throughout fiscal year 2020.

Most recently, we entered into Amendment No. 5 (the “Fifth Amendment”) to the Credit Agreement on February 26, 2021. As a result of the Amendment (i) the maturity date was extended from March 31, 2022 to January 31, 2023, (ii) the revolving credit commitment decreased from $40 million to $25 million, (iii) the interest rate ~~primarily due~~margin with respect to ~~a change~~any Commercial Bank Floating Rate Loan increased to 2.75%, (iv) the interest rate margin with respect to any Eurodollar Loan increased to 5.00%, (v) the definition of EBITDA was amended to exclude non-cash charges/gains in ~~earnings and~~connection with certain equity interests of the ~~adoption of ASU 2016-09, which had an unfavorable impact~~Company, (vi) certain borrowing conditions relating to the Company’s ~~tax~~Consolidated Cash Balance were instituted, (vii) the Company is permitted to repurchase/redeem its equity interests under certain conditions and (viii) the minimum monthly EBITDA and Liquidity thresholds the Company must maintain were revised.

As of March 28, 2021, we had $2.8 million outstanding under the Credit Agreement. As of March 29, 2020, we had $39.8 million outstanding under the Credit Agreement. We are currently in compliance with all financial debt covenants.

On August 10, 2020, PSW, an indirect subsidiary of the Company, entered into a loan agreement with Harvest Small Business Finance, LLC in the aggregate amount of $10.0 million (the “Loan”), pursuant to the PPP under the CARES Act. The Loan was necessary to support our ongoing operations due to the economic uncertainty resulting from the COVID-19 pandemic and lack of access to alternative sources of liquidity.

The Loan is scheduled to mature five years from the date on which PSW applies for loan forgiveness under the CARES Act, bears interest at a rate ~~benefit~~ of ~~7.5%~~1% per annum and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. The PPP provides that the use of the Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. We have used all of the PPP proceeds toward qualifying expenses and intend to pursue forgiveness of the Loan amount, but we are not able to determine the likelihood or the amount of forgiveness that will be obtained.

We have recorded the amount of the Loan as long-term debt in our condensed consolidated balance sheet as of March 28, 2021 and related interest has been recorded to interest expense in our condensed consolidated statement of operations for the 13 weeks ended ~~September 24, 2017 and an unfavorable impact of 38.9% for the 39 weeks ended September 24, 2017.~~ ~~See Note 1 for additional information regarding the adoption of ASU 2016-09.~~

On November 3, 2020, as part of our COVID-related cost reduction efforts and to better align our general and administrative expenses with future strategy, we made the determination to reorganize and restructure our corporate team. We expect that this restructuring plan will result in annual general and administrative expense savings of $3.5 to $4.0 million. This was accomplished through corporate expense optimization, consolidating our shop support services, and through other expense and staff reductions. As a result, we reduced corporate employment levels by approximately 35 employees in the fourth quarter of 2020. We substantially completed our planned restructuring actions during 2020, but we will continue to evaluate our cost structure and seek opportunities for further efficiencies and cost savings as part of our ongoing strategy. As such, we may incur additional restructuring related charges or adjustments to previously recorded charges in the future, however, we are unable to estimate the amount of charges at this time.

The accrued restructuring balances as of March 28, 2021 represent expected future cash payments required to satisfy our remaining obligations, which are expected to be paid throughout 2021.

On ~~September~~May 8, ~~2016, the Company~~2018, we announced that ~~its~~our Board of Directors authorized a ~~share~~stock repurchase program offor up to ~~$30.0~~$65.0 million of ~~the Company’s~~our outstanding common stock. The ~~Company’s previous $35.0 million share repurchase program, authorized in September 2015, was completed in July 2016. The current~~ program permits ~~the Company,~~us, from time to time, to purchase shares in the open market (including in pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Securities and Exchange Act of 1934, as amended) or in privately negotiated transactions. ~~During~~The number of common shares actually repurchased, and the 39timing and price of repurchases, will depend upon market conditions, SEC requirements and other factors. Purchases may be started or stopped at any time without prior notice depending on market conditions and other factors. For the 13 weeks ended ~~September 24, 2017, the Company repurchased 745,496~~March 28, 2021, we did 0t repurchase any shares of its common stock. In light of the COVID-19 pandemic, we do not have plans to repurchase any common stock under our stock repurchase program at this time.

On February 9, 2021, we closed on a Securities Purchase Agreement (the “SPA”) for ~~approximately $8.9 million, including cost and commission, in open market transactions. As~~the sale by us of ~~September 24, 2017, the remaining dollar~~3,249,668 shares of our common stock at a par value of ~~authorization under the~~$0.01 per share ~~repurchase program was $18.8 million, which does not include commission. Repurchased shares are included as treasury stock in the condensed consolidated balance sheets~~ and the ~~condensed consolidated statements~~issuance of ~~equity.~~warrants to purchase 1,299,861 shares of common stock at an exercise price of $5.45 per warrant for gross proceeds of $16.0 million, before deducting placement agent fees and offering expenses of approximately $1.0 million. The warrants are initially exercisable commencing August 13, 2021 through their expiration date of August 12, 2026. The proceeds received from the SPA were allocated between shares and warrants was based on their relative fair values at closing. The warrants were valued utilizing the Black-Scholes method.

We have awarded ~~under the 2013 Long-Term Incentive Plan~~stock options to ~~eligible employees.~~certain employees and certain non-employee members on our Board of Directors. The grants generally vest over a four-year period. The fair value of stock options is determined using the Black-Scholes option pricing model. ~~The weighted average fair value of~~There were 0 stock options granted during the 3913 weeks ended September 24, 2017 was $4.58 per share, as estimated using the following weighted average assumptions: expected life of options – 6.25 years; volatility – 36.37%; risk-free interest rate – 2.23%; and dividend yield – 0.0%. The Company used the simplified method for determining the expected life of the options. The expected volatility of the options was calculated using the Company’s historical data.March 28, 2021.

A summary of stock option activity for the 3913 weeks ended ~~September 24, 2017~~March 28, 2021 is as follows:

Options	Shares (Thousands)			Weighted Average Exercise Price		Aggregate Intrinsic Value (Thousands)		Weighted Average Remaining Term (Years)		Shares (Thousands)			Weighted Average Exercise Price		Aggregate Intrinsic Value (Thousands)		Weighted Average Remaining Term (Years)
Outstanding—December 25, 2016		4,013		$	10.61	$	13,455		4.78
Outstanding—December 27, 2020											1,233		$	10.68	$	—		2.49
Granted		263			11.55						—			—
Exercised		(125	)		9.48						—			—
Canceled		(68	)		15.23						(307	)		12.61
Outstanding—September 24, 2017		4,083		$	10.63	$	7,390		4.44
Exercisable—September 24, 2017		3,288		$	10.06	$	7,185		3.54
Outstanding—March 28, 2021											926			10.04	$	—		1.81
Exercisable—March 28, 2021											922		$	10.03	$	—		1.79

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

~~Stock-based compensation~~options is measured at the grant date based on the calculated fair value of the award, and is recognized as expense over the requisite employee service period, which is generally the vesting period of the grant with a corresponding increase to additional ~~paid-in-capital.~~paid-in capital. For the 13 weeks ended ~~September 24, 2017, the Company~~March 28, 2021, we recognized stock-based compensation expense ~~of $1.4 million, of which $0.6 million was~~ related to ~~Chief Executive Officer (CEO) transition costs.~~stock options of $0.1 million. For the 3913 weeks ended ~~September 24, 2017, the Company~~March 29, 2020, we recognized stock-based compensation expense ~~of $3.3 million, of which $0.8 million was~~ related to ~~CEO transition costs.~~ ~~For the 13 and 39 weeks ended September 25, 2016, the Company recognized stock-based compensation~~stock options of ~~$0.8 million and $2.3 million, respectively.~~$0.2 million. As of ~~September 24, 2017,~~March 28, 2021, unrecognized stock-based compensation expense for stock options was ~~$4.9~~$0.1 million, which will be recognized through fiscal year ~~2021. The Company records~~2022. We record stock-based compensation expense within general and administrative expenses in the condensed consolidated statements of operations.

~~(7)~~We award restricted stock units (“RSUs”) to certain employees and certain non-employee members on our Board of Directors. The Board of Director grants have a vesting schedule of 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date. The employee grants vest in one-third increments over a three-year period. For the 13 weeks ended March 28, 2021, we recognized stock-based compensation expense related to RSUs of $0.1 million. For the 13 weeks ended March 29, 2020, we recognized stock-based compensation expense related to RSUs of $0.3 million. As of March 28, 2021, unrecognized stock-based compensation expense for RSUs was $1.9 million, which will be recognized though fiscal year 2023.

We award performance share units (“PSUs”) to certain of its employees. The PSUs have certain vesting conditions based upon our financial performance or our stock price.

We have granted PSUs that are subject to service and market vesting conditions. The fair market value was established using a Monte Carlo simulation model. Participants are entitled to receive a specified number of shares of our common stock contingent on achievement of a stock return on our common stock. The PSUs may vest during a performance period of five years. Compensation expense for these awards is being amortized over an average expected service period or earlier based on when each tranche’s vesting conditions are met. For the 13 weeks ended March 28, 2021, we recognized stock-based compensation expense for PSUs with market vesting conditions of $0.1 million.

A summary of activity for PSUs with market vesting conditions for the 13 weeks ended March 28, 2021 is as follows:

~~The Company is~~We are 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~~our financial position or results of operations and cash ~~flows.~~flows.

In ~~2016,~~connection with our sale of common stock and warrants to purchase common stock in February 2021 in a private placement, certain of our stockholders that owned greater than 5% of our outstanding shares prior to the Company received notice of a potential claim alleging that it violated the Fair Labor Standards Act by not paying overtime to its assistant managers, whom the Company had classified as exempt employees. Although the Company believes that its assistant managers were properly classified as exempt under both federal and state laws, the Company agreed to mediate the matter. On February 20, 2017, the parties entered into a Settlement Agreement and Release whereby participating assistant managers agreed to release the Company from all federal and/or state wage and hour claims in exchange for a gross settlement amount of $1.3 million. As partclosing of the ~~settlement process, a complaint was filed~~private placement purchased shares of common stock and warrants to purchase common stock on ~~February 17, 2017~~the same terms as the other shares and warrants that were offered and sold in the ~~Circuit Court~~offering. The purchasers included the following stockholders, none of which owned more than 8.5% of our outstanding common stock prior to the closing of the ~~Fifteenth Judicial Circuit in~~private placement: 201,514 shares of common stock and warrants to purchase 80,605 shares of common stock were purchased by 180 Degree Capital Corp., for ~~Palm Beach County, Florida. A motion seeking~~an aggregate purchase price of approximately $1.0 million and 164,875 shares of common stock and warrants to purchase 65,950 shares of common stock were purchased by B&W Pension Trust (of which 180 Degree Capital Corp. is the ~~Court’s approval~~investment advisor and may be deemed to be a beneficial owner of ~~the settlement was filed on February 21, 2017, which was subsequently approved. In March 2017, the Company paid out the settlement, which was booked against the previously recorded liability.~~such shares), for an aggregate purchase price of approximately $0.8 million; 223,904 shares of common stock and warrants to purchase 89,561 shares of common stock were purchased by Agman Investments LLC, for an aggregate purchase price of approximately $1.1 million; 366,389 shares of common stock and warrants to purchase 146,555 shares of common stock were purchased by funds controlled by Ancora Holdings Inc., for an aggregate purchase price of approximately $1.8 million; 193,372 shares of common stock and warrants to purchase 77,348 shares of common stock were purchased by Chain of Lakes Investment Fund, LLC, for an aggregate purchase price of approximately $0.9 million; and 407,099 shares of common stock were purchased by Intrinsic Investment Holdings, LLC, for an aggregate purchase price of approximately $2.0 million.

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

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016.~~27, 2020. This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, ~~(the “Securities Act”) and~~ Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, and involves numerous risks and uncertainties. Forward-looking statements may include, among others, statements relating to: our future financial position and results of operations, estimated costs associated with our closure of underperforming shops, and the implementation and results of strategic initiatives. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and generally contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “strives,” “goal,” “estimates,” “forecasts,” “projects” or “anticipates” and the negative of these terms or similar expressions. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied by the forward-looking ~~statement.~~statement, due to reasons including, but not limited to, the potential future impact of COVID-19 on our business and results of operations; compliance with covenants in our credit facility; competition; general economic conditions; our ability to successfully implement our business strategy; the success of our initiatives to increase sales and traffic; changes in commodity, energy and other costs; our ability to attract and retain management and employees; consumer reaction to industry-related public health issues and perceptions of food safety; our ability to manage our growth; reputational and brand issues; price and availability of commodities; consumer confidence and spending patterns; and weather conditions. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included in our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016,~~27, 2020, for a discussion of factors that could cause our actual results to differ from those expressed or implied by forward-looking statements.We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Potbelly Corporation ~~(the “Company” or “Potbelly”)~~ is a ~~fast-growing~~ neighborhood sandwich concept ~~offering~~that has been feeding customers’ smiles with warm, toasty ~~warm~~ sandwiches, signature salads, hand-dipped shakes and other fresh menu items, ~~served by engaging people~~customized just the way customers want them, for more than 40 years. Potbelly owns and operates Potbelly Sandwich Shop concepts in ~~an environment that reflects~~ the United States. We also have domestic franchise operations of Potbelly ~~brand.~~ Sandwich Shop concepts. Potbelly’s chief operating decision maker is our Chief Executive Officer. Based on how our Chief Executive Officer reviews financial performance and allocates resources on a recurring basis, we have one operating segment and one reportable segment.

Our ~~combination~~new “Traffic-Driven Profitability” 5-pillar strategic plan includes a prioritized set of product, people and place is how we deliver on our passion to be “The Best Place for Lunch.” Our sandwiches, salads and hand-dipped milkshakes are all made fresh to order and our cookies are baked fresh each day. Our employees are trained to engage with our customers in a genuine way to provide a personalized experience. Our shops feature vintage design elements and locally-themed décor inspired by the neighborhoodlow-cost strategic investments that we believe ~~create~~will deliver strong returns. The 5 pillars are:

Our shop model is designed to generate, and has generated, strong cash flow, attractive shop-level financial results and high returns on investment. We operate our shops successfully in a ~~lively atmosphere. Through this combination,~~wide range of geographic markets, population densities and real estate settings. We aim to generate average shop-level profit margins, a non-GAAP measure, that range from the high teens to above 20%. Our ability to achieve such margins and returns depends on a number of factors. For example, we face increasing labor and commodity costs, which we have partially offset by increasing menu prices. Although there is no guarantee that we will be able to maintain these returns, we believe ~~we are creating a devoted base of Potbelly fans that return again~~our attractive shop economics support our ability to profitably grow our brand in new and ~~again and that we are expanding one sandwich shop at a time.~~existing markets.

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

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

Company-

Franchise-Operated

Total

Operated

Domestic

International

Total

Company

Shops as of December 27, 2015

372

24

12

36

408

Shops opened

15

5

2

7

22

Shops purchased from franchisee

1

(1
)

—

(1
)

—

Shops closed

(1
)

—

(1
)

(1
)

(2
)
Shops as of September 25, 2016

387

28

13

41

428

Shops as of December 25, 2016

411

30

13

43

454

Shops opened

22

10

3

13

35

Shops closed

(7
)

—

—

—

(7
)
Shops as of September 24, 2017

426

40

16

56

482

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

Shops as of December 27, 2020		400			46			446
Shops opened		—			—			—
Shops closed		(1	)		(1	)		(2	)
Shops as of March 28, 2021		399			45			444

On January 30, 2020, the WHO announced a global health emergency because of COVID-19 and the risks to the international community as the virus spreads globally. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The COVID-19 pandemic has significantly impacted economic conditions in the United States where all our shops are located. In response to the pandemic, many states and jurisdictions in which we operate issued stay-at-home orders and other measures aimed at slowing the spread of the coronavirus. While most of our company-owned shops remained open in accordance with guidance from local authorities, these measures resulted in us closing the vast majority our dining rooms and shifting to off-premise operations only, and we experienced a sudden and drastic decrease in revenues. While the pandemic continues to have an impact on our business, the distribution of COVID-19 vaccines and a decline in positive cases and hospitalizations has resulted in a gradual improvement in our sales during the first quarter of 2021. Nearly all of our shops have reopened their dining rooms with some restrictions depending on local regulations, such as social distancing and limited capacities, to ensure the health and safety of our guests and employees. We continue to follow guidance from local authorities in determining the appropriate restrictions to put in place for each shop, including the suspension or reduction of in-shop dining if required due to changes in the pandemic response in each jurisdiction.

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

As the COVID-19 pandemic emerged, our first priority was and continues to be ensuring the health and safety of our employees as we serve our customers and communities. We have provided masks, gloves, and other personal protective equipment to our shop employees and implemented daily temperature checks and screening before each shift. We continue to adhere to our stringent food safety and quality assurance programs. We have implemented strict sanitation protocols for our shops including disinfecting high-touch areas and providing tamper-evident stickers on all pickup and delivery orders. We are monitoring recommendations from the Centers for Disease Control and will make necessary adjustments to align with emerging best practices. We have been in regular contact with our supply chain partners and we have not experienced, nor do we foresee, material disruptions in our supply chain. As of March 28, 2021, 15 of our shops remain temporarily closed.

Revenue – As our shops have been subject to COVID-19 restrictions on dine-in capacity, our shops have increased off-premise operations, continuing to provide delivery, in-shop pick-up, drive-thru, or curbside pick-up services. We continue to follow guidance from local authorities in determining the appropriate restrictions to put in place for each shop. The majority of our shops have reopened their dining rooms with restrictions, such as social distancing and limited capacities, to ensure the health and safety of our guests and employees. Customers can place off-premise orders through Potbelly.com and the Potbelly app, or through DoorDash, Grubhub, Postmates, Uber Eats and other marketplaces nationwide. We continue to evaluate our product offerings and service methods to ensure we are aligned with the preferences of our customers as the pandemic evolves.

Operating Costs – We have implemented measures to reduce operating costs and general and administrative expenses in response to the negative impact the pandemic has had on our business. We continually adjust shop-level labor and purchases of inventory to align with current levels of demand. At the onset of the pandemic, we implemented a strategy to reduce costs and preserve cash. We continue to be thoughtful and judicious regarding our operating expenses during the uncertainty of the pandemic. Additionally, we announced a corporate restructuring plan that was executed during the fourth quarter of 2020 that is expected to

reduce annual general and administrative expenses by $3.5 million to $4.0 million. The Plan will consist of corporate expense optimization, consolidation of shop support services, and other expense and staff reductions.

Beginning in fiscal year 2020, we suspended the payment of rent on the majority of our leases and entered into discussions with our landlords regarding the restructuring of those leases in light of various contractual and legal defenses. As of March 28, 2021, we have amended approximately 319 of the lease agreements for our shops, which include rent abatements, rent deferrals, and/or modified lease terms to reduce ongoing rent, and we have completed early terminations of leases for 29 of our shops.

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

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

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

13 Weeks Ended ~~September 24, 2017~~March 28, 2021 Compared to 13 Weeks Ended ~~September 25, 2016~~March 29, 2020

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

	For the 13 Weeks Ended																	For the 13 Weeks Ended
	September 24, 2017			% of Revenues			September 25, 2016		% of Revenues			Increase (Decrease)			Percent Change			March 28, 2021			% of Revenues			March 29, 2020			% of Revenues			Increase (Decrease)			Percent Change
Revenues
Sandwich shop sales, net	$	105,327			99.2	%	$	103,224		99.5	%	$	2,103			2.0	%	$	77,501			99.3	%	$	86,961			99.3	%	$	(9,460	)		(10.9	)%
Franchise royalties and fees		800			0.8			558		0.5			242			43.4			562			0.7			629			0.7			(67	)		(10.7	)
Total revenues		106,127			100.0			103,782		100.0			2,345			2.3			78,063			100.0			87,590			100.0			(9,527	)		(10.9	)

Expenses
(Percentages stated as a percent of sandwich shop sales, net)
Sandwich shop operating expenses
Cost of goods sold, excluding depreciation		28,405			26.8			28,478		27.4			(73	)		(0.3	)		21,469			27.7			24,174			27.8			(2,705	)		(11.2	)
Labor and related expenses		31,187			29.4			30,163		29.1			1,024			3.4			28,614			36.9			30,397			35.0			(1,783	)		(5.9	)
Occupancy expenses		14,354			13.5			13,111		12.6			1,243			9.5			13,599			17.5			15,028			17.3			(1,429	)		(9.5	)
Other operating expenses		12,464			11.7			11,338		10.9			1,126			9.9			13,335			17.2			12,765			14.7			570			4.5

(Percentages stated as a percent of total revenues)
Advertising																			460			0.6			441			0.5			19			4.3
General and administrative expenses		12,104			11.4			9,999		9.6			2,105			21.1			7,423			9.5			9,834			11.2			(2,411	)		(24.5	)
Depreciation expense		6,315			6.0			5,656		5.4			659			11.7			4,174			5.3			5,456			6.2			(1,282	)		(23.5	)
Pre-opening costs		336			0.3			340		0.3			(4	)		(1.2	)		—		*				64		*				(64	)		0.0
Impairment and loss on disposal of property and equipment		1,536			1.4			1,855		1.8			(319	)		(17.2	)
Impairment, loss on disposal of property and equipment and shop closures																			3,122			4.0			6,416			7.3			(3,294	)		(51.3	)
Total expenses		106,701			100.5			100,940		97.3			5,761			5.7			92,196		>100				104,575		>100				(12,379	)		(11.8	)
Income (loss) from operations		(574	)		(0.5	)		2,842		2.7			(3,416	)	>(100)
Loss from operations																			(14,133	)		(18.1	)		(16,985	)		(19.4	)		2,852			(16.8	)

Interest expense		32		*				33	*				(1	)		(3.0	)
Income (loss) before income taxes		(606	)		(0.6	)		2,809		2.7			(3,415	)	>(100)
Interest expense, net																			288			0.4			74		*				214		>100
Loss before income taxes																			(14,421	)		(18.5	)		(17,059	)		(19.5	)		2,638			(15.5	)
Income tax expense (benefit)		(487	)		(0.5	)		960		0.9			(1,447	)	>(100)				53			0.1			(3,709	)	*				3,762		>(100)
Net income (loss)		(119	)	*				1,849		1.8			(1,968	)	>(100)
Net income attributable to non-controlling interest		121			0.1			54	*				67		>100
Net income (loss) attributable to Potbelly Corporation	$	(240	)		(0.2	)%	$	1,795		1.7	%	$	(2,035	)	>(100)%
Net loss																			(14,474	)		(18.5	)		(13,350	)		(15.2	)		(1,124	)	>100
Net income (loss) attributable to non-controlling interest																			(2	)		(0.0	)		(14	)	*				12		>(100)
Net loss attributable to Potbelly Corporation																		$	(14,472	)		(18.5	)%	$	(13,336	)		(15.2	)%	$	(1,136	)		8.5	%

Total revenues ~~increased~~decreased by ~~$2.3~~$9.5 million, or ~~2.3%~~10.9%, to ~~$106.1~~$78.1 million during the 13 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~$103.8~~$87.6 million during the 13 weeks ended ~~September 25, 2016. The revenue growth~~March 29, 2020. This decrease was primarily driven by ~~an increase~~the COVID-19 pandemic and related government restrictions imposed by federal, state and local governments. This resulted in a decrease for the quarter of $2.5 million, or 3.1%, in company-operated comparable store sales, a decrease in sales of ~~$9.5~~$3.9 million due to shops that have permanently closed during the last year, and a decrease in sales of $3.4 million due to shops that were temporarily closed during the first quarter of 2021. These decreases were partially offset by increases in sales from recently opened shops that were not yet in our company-operated comparable store sales base and an increase in sales of $0.2 million from franchise royalties and fees. These increases were partially offset by a decrease in sales of $4.7 million, or 4.8%, from company-operated comparable store shops and a decrease in sales of $2.7 million from shops that have closed.population during 2020. The decrease in company-operated comparable store sales resulted from a decrease in traffic partially offset by an increase in average check and certain menu price increases.

Cost of goods sold decreased by ~~$0.1~~$2.7 million, or ~~0.3%~~11.2%, to ~~$28.4~~$21.5 million during the 13 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~$28.5~~$24.2 million during the 13 weeks ended ~~September 25, 2016,~~March 29, 2020. This decrease was primarily ~~due to~~driven by a decrease in ~~input costs, which were partially offset by an increase in costs due to an increase in sales volume.~~shop revenue. As a percentage of ~~revenues,~~sandwich shop sales, cost of goods sold decreased to ~~26.8%~~27.7% during the 13 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~27.4%~~27.8% during the 13 weeks ended ~~September 25, 2016, primarily driven by certain menu price increases partially offset by inflation.~~March 29, 2020.

Labor and related expenses ~~increased~~decreased by ~~$1.0~~$1.8 million, or ~~3.4%~~5.9%, to ~~$31.2~~$28.6 million during the 13 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~$30.2~~$30.4 million for the 13 weeks ended March 29, 2020, primarily due to labor management amid a decrease in shop revenue and a decrease in expense from closed shops, partially offset by wage inflation. As a percentage of sandwich shop sales, labor and related expenses increased to 36.9% during the 13 weeks ended March 28, 2021, from 35.0% for the 13 weeks ended March 29, 2020, primarily driven by sales deleverage in certain labor related costs not directly variable with sales.

Occupancy expenses decreased by $1.4 million, or 9.5%, to $13.6 million during the 13 weeks ended ~~September 25, 2016, primarily due to new shop openings, which was partially offset by a decrease in expense~~March 28, 2021, from company-operated comparable store shops. As a percentage of revenues, labor and related expenses increased to 29.4% during the 13 weeks ended September 24, 2017, from 29.1% during the 13 weeks ended September 25, 2016, primarily driven by a decrease in company-operated comparable store shop revenue and ~~inflationary wage increases in certain states~~.

~~Occupancy expenses increased by $1.2 million, or 9.5%, to $14.4~~$15.0 million during the 13 weeks ended September 24, 2017, from $13.1 million during the 13 weeks ended September 25, 2016, primarily due to new shop openings and an increase in real estate taxes, rent expense and common area maintenance. These increases were partially offset by a decrease in expenses from shops that have closed. As a percentage of revenues, occupancy expenses increased to 13.5% during the 13 weeks ended September 24, 2017, from 12.6% during the 13 weeks ended September 25, 2016,March 29, 2020 primarily due to a decrease in ~~company-operated comparable store~~expenses related to closed shops. As a percentage of sandwich shop ~~revenue~~sales, occupancy expenses increased to 17.5% for the 13 weeks ended March 28, 2021, from 17.3% for the 13 weeks ended March 29, 2020, primarily due to sales deleverage and ~~an increase~~inflation in certain occupancy related costs, including lease renewals, real estate taxes ~~rent expense~~ and common area maintenance. ~~These increases in the percentage of revenue were partially offset by a decrease in expenses from shops that have closed.~~

Other operating expenses increased by ~~1.1~~$0.5 million, or ~~9.9%~~4.5%, to ~~$12.5~~$13.3 million during the 13 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~$11.3~~$12.8 million during the 13 weeks ended ~~September 25, 2016.~~March 29, 2020. The increase was ~~attributable~~primarily related to ~~new shop openings as well as higher utility costs, information technology costs, credit card fees and shop repairs.~~third-party delivery partnerships driven by increased sales in that channel, partially offset by a decrease in certain items variable with sales. As a percentage of ~~revenues,~~sandwich shop sales, other operating expenses increased to ~~11.7%~~17.2% for the 13 weeks ended March 28, 2021, from 14.7% for the 13 weeks ended March 29, 2020, primarily driven by sales deleverage in operating expense items such as utilities, higher expenses related to third-party delivery partnerships driven by increased sales in that channel and other expenses not directly variable with sales.

Advertising expenses increased by 4.3% to $460 thousand during the 13 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~10.9%~~$441 thousand during the 13 weeks ended ~~September 25, 2016, primarily driven by a decrease in company-operated comparable store shop revenue, higher utility costs and information technology costs.~~March 29, 2020.

General and administrative expenses ~~increased~~decreased by ~~$2.1~~$2.4 million, or ~~21.1%~~24.5%, to ~~$12.1~~$7.4 million during the 13 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~$10.0~~$9.8 million during the 13 weeks ended ~~September 25, 2016.~~March 29, 2020. The ~~increase~~decrease was driven primarily by ~~Chief Executive Officer (CEO) transition~~a decrease in payroll costs as a result of ~~$1.2 million, advertising costs and store closure expenses. These increases were partially offset by~~ ~~lower performance-based incentive expenses.~~furloughs of corporate employees enacted during the second quarter of 2020 as well as the restructuring plan enacted during the fourth quarter of 2020. As a percentage of revenues, general and administrative expenses ~~increased~~decreased to ~~11.4% during~~9.5% for the 13 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~9.6% during~~11.2% for the 13 weeks ended ~~September 25, 2016,~~March 29, 2020, primarily ~~due to CEO transition~~driven by reductions in payroll costs ~~of $1.2 million, advertising costs and store closure expenses. These increase were~~noted above, partially offset by ~~lower performance-based incentive expenses.~~ a decrease in shop revenue.

Depreciation expense ~~increased~~decreased by ~~0.7~~$1.3 million, or ~~11.7%~~23.5%, to ~~$6.3~~$4.2 million during the 13 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~$5.7~~$5.5 million during the 13 weeks ended ~~September 25, 2016,~~March 29, 2020. The decrease was driven primarily ~~due to~~by a ~~higher~~lower depreciable base related to ~~new~~a decrease in the number of company-operated shops ~~existing shop capital investments~~ and ~~investments in technology such as the mobile application. These increases were partially offset by~~ impairment charges taken ~~subsequent to the 13 weeks ended September 25, 2016, which lowered the depreciable base.~~in prior periods. As a percentage of revenues, depreciation ~~increased to 6.0%~~was 5.3% during the 13 weeks ended ~~September 24, 2017, from 5.4%~~March 28, 2021 and was 6.2% for the 13 weeks ended March 29, 2020.

There were no pre-opening costs during the 13 weeks ended September 25, 2016, driven by a decrease in company-operated comparable store shop revenue and a higher depreciable base related to new shops and existing shop capital investments. These impacts were partially offset by impairment charges taken subsequent to the 13 weeks ended September 25, 2016, which lowered the depreciable base.

March 28, 2021. Pre-opening costs were ~~$0.3 million~~$64 thousand during the 13 weeks ended ~~September 24, 2017 and September 25, 2016.~~March 29, 2020.

Impairment, ~~and~~ Loss on Disposal of Property and Equipment and Shop Closures

Impairment, ~~and~~ loss on disposal of property and equipment and shop closures decreased by $3.3 million, or 51.3%, to ~~$1.5~~$3.1 million during the 13 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~$1.9~~$6.4 million during the 13 weeks ended ~~September 25, 2016.~~March 29, 2020.

We assess potential impairments to our 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 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 group. The fair value of the shop assets is determined using the discounted future cash flow method of anticipated cash flows through the shop’s lease-end date using fair value measurement inputs classified as Level 3. The fair value of right-of-use assets is estimated using market comparative information for similar properties. Level 3 inputs are derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. After performing a periodic ~~reviews~~review of ~~Company~~our shops during the ~~third quarter of 2017,~~13 weeks ended March 28, 2021, it was determined that indicators of impairment were present for certain shops as a result of continued underperformance. We performed an impairment ~~analyses~~analysis related to these shops and recorded an impairment charge of ~~$1.5 million~~$148 thousand for the ~~excess~~13 weeks ended March 28, 2021. The ultimate severity and longevity of the ~~carrying amount recorded on our balance sheet over~~COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.

During the ~~shops’ estimated fair value.~~13 weeks ended March 28, 2021, we terminated 2 leases. We ~~perform impairment analyses on a quarterly basis which involve significant judgment by management including estimates~~incurred $0.2 million in lease termination fees related to these leases for the 13 weeks ended March 28, 2021. Upon termination 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 $32 thousand~~leases during the 13 weeks ended ~~September 24, 2017~~March 28, 2021, we derecognized ROU assets of $0.6 million and ~~$33 thousand during the 13 weeks ended September 25, 2016.~~

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

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

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

For the 39 Weeks Ended

September 24, 2017

% of
Revenues

September 25, 2016

% of
Revenues

Increase
(Decrease)

Percent
Change

Revenues

Sandwich shop sales, net

$
313,568

99.2
%

$
303,116

99.5
%

$
10,452

3.4
%
Franchise royalties and fees

2,394

0.8

1,657

0.5

737

44.5

Total revenues

315,962

100.0

304,773

100.0

11,189

3.7

Expenses

Sandwich shop operating
   expenses

Cost of goods sold, excluding
   depreciation

83,703

26.5

83,224

27.3

479

0.6

Labor and related expenses

93,213

29.5

88,260

29.0

4,953

5.6

Occupancy expenses

42,792

13.5

39,042

12.8

3,750

9.6

Other operating expenses

36,349

11.5

32,570

10.7

3,779

11.6

General and administrative
   expenses

33,375

10.6

30,827

10.1

2,548

8.3

Depreciation expense

18,960

6.0

16,996

5.6

1,964

11.6

Pre-opening costs

955

0.3

731

0.2

224

30.6

Impairment and loss on disposal
   of property and equipment

5,762

1.8

2,880

0.9

2,882

>100

Total expenses

315,109

99.7

294,530

96.6

20,579

7.0

Income from operations

853

0.3

10,243

3.4

(9,390
)

(91.7
)

Interest expense

101

*

102

*

(1
)

(1.0
)
Income before income taxes

752

0.2

10,141

3.3

(9,389
)

(92.6
)
Income tax expense

252

*

3,732

1.2

(3,480
)

(93.2
)
Net income

500

0.2

6,409

2.1

(5,909
)

(92.2
)
Net income attributable to non-
   controlling interests

195

*

153

*

42

27.5

Net income attributable to
   Potbelly Corporation

$
305

*

$
6,256

2.1
%

$
(5,951
)

(95.1
)%

Total revenues increased by $11.2 million, or 3.7%, to $316.0 million during the 39 weeks ended September 24, 2017, from $304.8 million during the 39 weeks ended September 25, 2016. The revenue growth was driven by an increase in sales of $27.6 million from shops not yet in our company-operated comparable store sales base and an increase in saleslease liabilities of $0.7 million ~~from franchise royalties and fees. These increases were partially offset by~~that resulted in a ~~decrease~~net gain of $0.1 million that is recorded in sales of $12.6 million, or 4.3%, from company-operated comparable store shops and a decrease in sales of $4.6 million from shops that have closed. The decrease in company-operated comparable store sales resulted from a decrease in traffic partially offset by certain menu price increases.

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

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

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

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

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

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

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

~~Impairment and~~ loss on disposal of property and equipment ~~increased to $5.8 million during the 39 weeks ended September 24, 2017, compared to $2.9 million during the 39 weeks ended September 25, 2016. After performing periodic reviews of Company shops during~~and shop closures.

During the first ~~three quarters~~quarter of ~~2017, it was determined that indicators of impairment were present~~2021, we amended the lease for ~~certain shops as~~our corporate Support Center office in Chicago to relocate to a different office space. As a result of ~~continued underperformance. We performed impairment analyses related to these shops and recorded impairment charges of $5.8 million for~~this relocation, the ~~excess~~leasehold improvements of the ~~carrying amount recorded~~original office space were disposed, resulting in a loss 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~~disposal 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.$2.5 million.

~~Interest~~Net interest expense was ~~$101~~$288 thousand during the 3913 weeks ended ~~September 24, 2017~~March 28, 2021 and ~~$102~~$74 thousand during the 3913 weeks ended ~~September 25, 2016.~~March 29, 2020. The increase was primarily driven by an increase in average outstanding borrowings and a higher interest rate on our revolving credit facility.

~~Income~~We recognized income tax expense ~~decreased by $3.5 million, or 93.2%, to $0.3 million~~of $53 thousand for the 3913 weeks ended ~~September 24, 2017, from~~March 28, 2021. We recognized an income tax benefit of $3.7 million for the 39thirteen weeks ended ~~September 25, 2016,~~March 29, 2020 primarily ~~attributable~~due to ~~lower pre-tax book income and certain~~a discrete tax ~~benefits. The decrease was partially offset by the adoption of ASU 2016-09, which resulted in the tax effects of equity-based compensation being~~benefit recorded ~~through the income statement rather than equity. For the 39 weeks ended September 24, 2017, the effective tax rate was 33.5%, compared to 36.8%~~ for the ~~39 weeks ended September 25, 2016. The decrease in~~carryback of NOLs and a refund of prior AMT credits allowed under the ~~effective tax rate was primarily driven by lower pre-tax book income and certain tax benefits~~ ~~partially offset by~~ ~~the net effect of the adoption of ASU 2016-09 for stock-based compensation, which increased our tax rate by approximately 38.9%.~~ ~~See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding the adoption of ASU 2016-09.~~CARES Act.

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

The COVID-19 pandemic’s impact on our operations and revenues had significantly affected our ability to generate cash from operations in 2020. To preserve financial flexibility, we have utilized our revolving credit facility to fund operations.

We ended the first quarter of 2021 with a cash balance of $11.5 million and total liquidity (cash plus amounts available on our Revolving Credit Facility) of $33.5 million compared to a balance of $11.1 million and total liquidity of $44.6 million at December 27, 2020. This decrease is primarily driven by Amendment No. 5 to our Credit Agreement which decreased the revolving credit commitment from $40 million to $25 million. We believe that ~~these sources of liquidity~~cash from our operations and ~~capital~~borrowings under our revolving credit facility will be ~~sufficient~~provide liquidity through fiscal year 2021.

On February 9, 2021, we closed on a Securities Purchase Agreement (the “SPA”) for the sale of 3,249,668 shares of our common stock at a par value of $0.01 per share and the issuance of warrants to ~~finance our continued operations~~purchase 1,299,861 shares of common stock at an exercise price of $5.45 per warrant for gross proceeds of $16.0 million, before deducting placement agent fees and ~~expansion plans for at least the next twelve months.~~offering expenses of approximately $1.0 million. The warrants are initially exercisable commencing August 13, 2021 through their expiration date of August 12, 2026.

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

	For the 39 Weeks Ended						For the 13 Weeks Ended
	September 24,			September 25,			March 28,			March 29,
	2017			2016			2021			2020
Net cash provided by (used in):
Operating activities	$	28,368		$	33,571		$	(9,700	)	$	(7,816	)
Investing activities		(23,526	)		(20,991	)		(1,300	)		(4,860	)
Financing activities		(6,043	)		(14,852	)		11,381			39,686
Net decrease in cash	$	(1,201	)	$	(2,272	)
Net increase (decrease) in cash							$	381		$	27,010

Net cash used in operating activities increased to $9.7 million for the 13 weeks ended March 28, 2021, from cash provided by operating activities ~~decreased to $28.4~~of $7.8 million for the 3913 weeks ended ~~September 24, 2017, from $33.6~~March 28, 2020. The $1.9 million ~~for the 39 weeks ended September 25, 2016. The $5.2 million decrease~~change in operating cash was primarily driven by ~~changes~~an increase in ~~certain working capital accounts mainly due to timing. The remainder of the difference was primarily attributable to~~loss from operations, a decrease in depreciation and noncash lease expense and by the timing of ~~$5.9 million~~payment for certain liabilities, including the deferral of rent for many of our shops in ~~net income.~~the prior year. This was partially offset by a decrease in asset impairment, store closure and disposal of property and equipment compared to the prior year.

Net cash used in investing activities ~~increased~~decreased to ~~$23.5~~$1.3 million for the 3913 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~$21.0~~$4.9 million for the 3913 weeks ended ~~September 25, 2016.~~March 29, 2020. The ~~increase~~decrease was primarily due to ~~construction costs for new company-operated shops opened for the 39 weeks ended September 24, 2017, compared~~a reduction of capital expenditures related to new ~~company-operated shops opened for~~shop construction. Due to the ~~39 weeks ended September 25, 2016, as well as~~COVID-19 pandemic, capital expenditures ~~for future shop openings, maintaining our existing shops~~have been limited to essential maintenance and ~~certain other projects.~~safety.

Net cash ~~used in~~provided by financing activities decreased to ~~$6.0~~$11.4 million for the 3913 weeks ended ~~September 24, 2017,~~March 28, 2021, from ~~$14.9~~$39.7 million for the 3913 weeks ended ~~September 25, 2016.~~March 29, 2020. The ~~decrease~~$28.3 million change in ~~net~~financing cash ~~used~~ was primarily driven by ~~$8.9~~net borrowings under the Credit Facility, partially offset by the net proceeds from SPA.

On August 7, 2019, we 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 provided, among other things, for a revolving credit facility in a maximum principal amount $40 million, with possible future increases of ~~treasury stock repurchased during~~up to $20 million under an expansion feature. Borrowings under the 39credit facility generally bear interest at our option at either (i) a eurocurrency rate determined by reference to the applicable LIBOR rate plus a specified margin or (ii) a prime rate as announced by JP Morgan plus a specified margin. The applicable margin was determined based upon our consolidated total leverage ratio. On the last day of each calendar quarter, we were 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 was no limit on the “restricted payments” (primarily distributions and equity repurchases) that we may make, provided that proceeds of the loans under the Credit Agreement may not be used for purposes of making restricted payments.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 27, 2020, we drew on the credit facility to increase our cash position and preserve financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic, and we amended the Credit Agreement throughout fiscal year 2020.

commitment decreased from $40 million to $25 million, (iii) the interest rate margin with respect to any Commercial Bank Floating Rate Loan increased to 2.75%, (iv) the interest rate margin with respect to any Eurodollar Loan increased to 5.00%, (v) the definition of EBITDA was amended to exclude non-cash charges/gains in connection with certain equity interests of the Company, (vi) certain borrowing conditions relating to the Company’s Consolidated Cash Balance were instituted, (vii) the Company is permitted to repurchase/redeem its equity interests under certain conditions and (viii) the minimum monthly EBITDA and Liquidity thresholds the Company must maintain were revised.

The Loan is scheduled to mature five years from the date on which PSW applies for loan forgiveness under the CARES Act, bears interest at a rate of 1% per annum and is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. The PPP provides that the use of the Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. We have used all of the PPP proceeds toward qualifying expenses and intend to pursue forgiveness of the Loan amount, but we are not able to determine the likelihood or the amount of forgiveness that will be obtained.

We have recorded the amount of the Loan as long-term debt in our condensed consolidated balance sheet as of March 28, 2021 and related interest has been recorded to interest expense in our condensed consolidated statement of operations for the 13 weeks ended September 24, 2017, compared to $20.4 million during the 39 weeks ended September 25, 2016. Additionally, Potbelly received $3.2 million in proceeds from the exercise of stock options and warrants during the 39 weeks ended September 24, 2017, compared to $5.7 million during the 39 weeks ended September 25, 2016.March 28, 2021.

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

~~On December 9, 2015,~~For the 13 ended March 28, 2021, we entered into an amended and restated five-year revolving credit facility agreement that expires in November 2020. The credit agreement provides, among other things, for a revolving credit facility in a maximum principal amountdid not repurchase any shares of ~~$50.0 million, with possible future increases~~our common stock. In light of the COVID-19 pandemic, we do not have plans to ~~$75.0 million~~repurchase any common stock under ~~an expansion feature. Borrowings under the credit facility generally bear interest~~our stock repurchase program at our option at either (i) a eurocurrency rate determined by reference to the applicable London Interbank Offered Rate (LIBOR) plus a margin ranging from 1.00% to 1.75% or (ii) a prime rate as announced by JP Morgan Chase plus a margin ranging from 0.00% to 0.50%. The applicable margin is determined based upon our consolidated total leverage ratio. On the last day of each calendar quarter, we are required to pay a commitment fee ranging from 0.125% to 0.20% per annum in respect of any unused commitments under the credit facility, with the specific rate determined based upon our consolidated total leverage ratio. So long as the leverage ratios are met, there is no limit on the “restricted payments” (primarily distributions and equity repurchases) that we may make. As of September 24, 2017, we had no amounts outstanding under the credit facility.this time.

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

As of ~~September 24, 2017,~~March 28, 2021, we do not have any off-balance sheet arrangements, synthetic leases, investments in special purpose entities or undisclosed borrowings or debt that would be required to be disclosed pursuant to Item 303 of Regulation S-K under the Exchange Act.

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

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

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 ~~25, 2016.~~27, 2020. Our exposures to market risk have not changed materially since December ~~25, 2016.~~27, 2020.

Our management, with the participation of our ~~interim~~ Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange ~~Act~~Act) as of ~~September 24, 2017.~~March 28, 2021. Based upon that evaluation, our ~~interim~~ Chief Executive Officer and Chief Financial Officer ~~has~~have concluded that, as of ~~September 24, 2017,~~March 28, 2021, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the ~~SEC~~Securities and Exchange Commission and is accumulated and communicated to our management, including our ~~interim~~ Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the ~~fiscal~~third quarter ended ~~September 24, 2017~~March 28, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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

Information pertaining to legal proceedings is provided in Note 711 to the Condensed Consolidated Financial Statements and is incorporated by reference herein.

A description of the risk factors associated with our business is contained in Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December ~~25, 2016.~~27, 2020. 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 24, 2017:~~March 28, 2021:

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.


Delaware		36-4466837
(State or Other Jurisdiction of Incorporation)		(IRS Employer Identification Number)
111 N. Canal Street, Suite 325 Chicago, Illinois		60606
(Address of Principal Executive Offices)		(Zip Code)

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


Large accelerated filer	☐		Accelerated filer	☒
				☐
Non-accelerated filer	☐☒	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐
					☒
Emerging growth company	☒☐

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets (Unaudited)	3

	Condensed Consolidated Statements of Operations (Unaudited)	4

	Condensed Consolidated ~~Statement~~Statements of Equity (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1217

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2025

Item 4.	Controls and Procedures	2025

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	2126

Item 1A.	Risk Factors	2126

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	2126

Item 3.	Defaults Upon Senior Securities	26

Item 4.	Mine Safety Disclosures	26

Item 5.	Other Information	26

Item 6.	Exhibits	2227

	Signature	2328

	Current Contract Liability			Noncurrent Contract Liability
	(Thousands)			(Thousands)
Beginning balance as of December 27, 2020	$	(3,138	)	$	(1,707	)
Ending balance as of March 28, 2021		(2,846	)		(1,634	)
Decrease in contract liability	$	(292	)	$	(73	)

Years Ending	Amount
2021	$	1,500
2022		1,313
2023		216
2024		183
2025		331
Thereafter		937
Total revenue recognized	$	4,480

		13 weeks ended
		March 28,		March 29,
	Classification	2021		2020
Operating lease cost	Occupancy and General and administrative expenses		10,411		11,770
Variable lease cost	Occupancy		3,239		3,322
Total lease cost		$	13,650	$	15,092

	Operating Leases
Remainder of 2021		36,613
2022		39,353
2023		37,229
2024		34,706
2025		31,823
2026		28,224
Thereafter		82,198
Total lease payments		290,146
Less: imputed interest		(76,343	)
Present value of lease liabilities	$	213,803

	Total
	(Thousands)
Balance as of December 27, 2020	$	1,489
Charges incurred		—
Payments made		(478	)
Balance as of March 28, 2021	$	1,011

RSUs	Number of RSUs (Thousands)			Weighted Average Fair Value per Share
Non-vested as of December 27, 2020		994		$	3.35
Granted		179			5.60
Vested		(22	)		6.02
Canceled		(13	)		—
Non-vested as of March 28, 2021		1,138		$	3.59

PSUs	Number of PSUs (Thousands)			Weighted Average Fair Value per Share
Non-vested as of December 27, 2020		502			1.38
Granted		—			—
Vested		(41	)		5.66
Canceled		—			—
Non-vested as of March 28, 2021		461		$	1.37

	Company-			Franchise-Operated									Total
	Operated			Domestic			International			Total			Company
Shops as of December 27, 2015		372			24			12			36			408
Shops opened		15			5			2			7			22
Shops purchased from franchisee		1			(1	)		—			(1	)		—
Shops closed		(1	)		—			(1	)		(1	)		(2	)
Shops as of September 25, 2016		387			28			13			41			428

Shops as of December 25, 2016		411			30			13			43			454
Shops opened		22			10			3			13			35
Shops closed		(7	)		—			—			—			(7	)
Shops as of September 24, 2017		426			40			16			56			482

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


Exhibit No.		Description

10.1		~~Letter~~Amendment No. 5, dated February 26, 2021, to the Second Amended and Restated Credit Agreement, ~~between~~dated as of August 7, 2019, among Potbelly ~~Corporation~~Sandwich Works, LLC, the other Loan Parties party thereto, the Lenders party thereto, and ~~Michael Coyne, dated July 18, 2017~~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 ~~10.1~~10.5E to Form ~~8-K~~10-K (File No. 001-36104) filed ~~July 18, 2017~~on March 12, 2021 and incorporated ~~herein~~ by reference). †

10.2		~~Retention~~Form of Securities Purchase Agreement, ~~between Potbelly Corporation~~dated February 9, 2021, by and ~~Michael Coyne, dated July 17, 2017~~among the Company and the persons party thereto (filed as Exhibit ~~10.2~~10.1 to Form 8-K (File No. 001-36104) filed ~~July 18, 2017~~February 10, 2021 and incorporated herein by reference). †

10.3		~~Retention~~Form of Warrant to Purchase Common Stock to be issued pursuant to the Securities Purchase Agreement ~~between Potbelly Corporation and Matthew Revord, dated July 17, 2017~~ (filed as Exhibit ~~10.3~~10.2 to Form 8-K (File No. 001-36104) filed ~~July 18, 2017~~February 10, 2021 and incorporated herein by reference). †

10.4		~~Retention~~Form of Registration Rights Agreement ~~between Potbelly Corporation~~to be entered into by and ~~Julie Younglove-Webb, dated July 17, 2017~~among the Company and the persons party thereto (filed as Exhibit ~~10.4~~10.3 to Form 8-K (File No. 001-36104) filed ~~July 18, 2017~~February 10, 2021 and incorporated herein by reference). †

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

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

~~101.DEF~~104		Cover Page Interactive Data File (embedded within the Inline XBRL ~~Taxonomy Extension Definition Linkbase Document~~document)

		POTBELLY CORPORATION

Date: ~~November 3, 2017~~May 6, 2021	By:	/s/ ~~Michael Coyne~~Steven Cirulis
		~~Michael Coyne~~Steven Cirulis
		~~Interim Chief Executive Officer and~~ Chief Financial Officer
		(Principal ~~Executive Officer and Principal~~ Financial Officer)