Zoe's Kitchen, Inc. (Form: 10-Q, Received: 11/09/2017 16:12:17)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended October 2, 2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-36411

ZOE'S KITCHEN, INC.

(Exact name of registrant as specified in its charter)




Delaware		51-0653504
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

5760 State Highway 121, Suite 250 Plano, Texas		75024
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (214) 436-8765

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 and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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



Large accelerated filer þ		Accelerated filer o

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

		Emerging growth company o

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. o

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

On November 9, 2017 there were 19,554,830 shares of common stock outstanding.

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Part I - Financial Information		Page
Item 1. Financial Statements		2
Unaudited Condensed Consolidated Balance Sheets		2
Unaudited Condensed Consolidated Statements of Operations		3
Unaudited Condensed Consolidated Statements of Cash Flows		4
Notes to Unaudited Condensed Consolidated Financial Statements		5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3. Quantitative and Qualitative Disclosures about Market Risk		27
Item 4. Controls and Procedures		28
Part II - Other Information		29
Item 1. Legal Proceedings		29
Item 1A. Risk Factors		29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 3. Defaults Upon Senior Securities		29
Item 4. Mine Safety Disclosures		29
Item 5. Other Information		29
Item 6. Exhibits		31
Signatures		32

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Part I - Financial Information

Item 1. Financial Statements

Zoe's Kitchen, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)



	October 2, 2017			December 26, 2016
Assets
Current Assets:
Cash and cash equivalents	$	4,576		$	5,493
Trade accounts receivable, net of allowance for doubtful accounts	2,033			2,287
Other accounts receivable	3,692			3,708
Inventories	2,482			1,878
Prepaid expenses and other	4,455			1,818
Total current assets	17,238			15,184
Property and equipment, net	185,395			162,033
Goodwill	29,528			29,528
Intangibles, net	6,795			7,962
Other long-term assets, net	563			512
Total long-term assets	222,281			200,035
Total assets	$	239,519		$	215,219
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	9,946		$	7,229
Accrued expenses and other	14,414			14,260
Total current liabilities	24,360			21,489
Long-term liabilities:
Long-term debt	12,500			—
Deemed landlord financing	29,602			29,777
Deferred rent	34,492			28,375
Deferred income taxes	5,306			5,476
Other long-term liabilities, net	43			136
Total long-term liabilities	81,943			63,764
Total liabilities	106,303			85,253
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock: $0.01 par value, 135,000,000 shares authorized as of October 2, 2017 and December 26, 2016; 19,554,830 and 19,460,467 issued and outstanding as of October 2, 2017 and December 26, 2016, respectively.	$	196		$	195
Additional paid-in capital	151,146			148,482
Accumulated deficit	(18,126		)	(18,711		)
Total stockholders' equity	133,216			129,966
Total liabilities and stockholders' equity	$	239,519		$	215,219

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Zoe's Kitchen, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)



	Twelve Weeks Ended						Forty Weeks Ended
	October 2, 2017			October 3, 2016			October 2, 2017			October 3, 2016
Revenue:
Restaurant sales	$	77,808		$	67,245		$	242,573		$	213,815
Royalty fees	45			51			146			165
Total revenue	77,853			67,296			242,719			213,980
Operating expenses:
Restaurant operating costs (excluding depreciation and amortization):
Cost of sales	22,990			20,780			71,277			64,764
Labor	23,396			19,503			72,461			61,612
Store operating expenses	16,817			14,086			52,108			42,534
General and administrative expenses	7,723			6,313			24,832			23,028
Depreciation	4,495			3,489			13,708			10,773
Amortization	328			367			1,167			1,240
Pre-opening costs	583			614			1,829			1,906
Casualty loss	133			—			133			—
Loss from disposal of equipment	132			91			1,139			428
Total operating expenses	76,597			65,243			238,654			206,285
Income from operations	1,256			2,053			4,065			7,695
Other income and expenses:
Interest expense, net	1,093			916			3,479			2,899
Other income	(21		)	(20		)	(70		)	(67		)
Total other income and expenses	1,072			896			3,409			2,832
Income before provision for income taxes	184			1,157			656			4,863
Provision (benefit) for income taxes	(86		)	1,450			(212		)	2,559
Net income (loss)	$	270		$	(293	)	$	868		$	2,304
Earnings (loss) per share:
Basic	$	0.01		$	(0.02	)	$	0.04		$	0.12
Diluted	$	0.01		$	(0.02	)	$	0.04		$	0.12
Weighted average shares of common stock outstanding:
Basic	19,489,074			19,458,921			19,482,227			19,426,868
Diluted	19,489,074			19,458,921			19,506,342			19,597,894

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Zoe's Kitchen, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)



	Forty Weeks Ended
	October 2, 2017			October 3, 2016
Cash flows from operating activities:
Net income	$	868		$	2,304
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	13,708			10,773
Amortization of intangible assets	1,167			1,240
Equity-based compensation	2,381			1,669
Deferred income taxes	(170		)	2,451
Amortization of loan costs	17			17
Bad debt expense	30			43
Casualty loss	133			—
Loss from disposal of equipment	1,139			428
Accretion of deemed landlord financing	229			243
Changes in operating assets and liabilities:
Trade accounts receivable	224			(558		)
Other accounts receivable	16			(2,497		)
Inventories	(713		)	(401		)
Prepaid expenses and other	(2,702		)	(2,166		)
Accounts payable	2,172			1,633
Accrued expenses and other	739			108
Deferred rent	6,231			6,769
Net cash provided by operating activities	25,469			22,056
Cash flows from investing activities:
Purchase of property and equipment	(41,624		)	(35,070		)
Proceeds from sale-leaseback transactions	2,291			2,089
Proceeds from sale of property and equipment	—			76
Net cash used in investing activities	(39,333		)	(32,905		)
Cash flows from financing activities:
Proceeds from line of credit	12,500			—
Proceeds from deemed landlord financing	447			138
Proceeds from exercise of stock options	—			1,082
Net cash provided by financing activities	12,947			1,220
Net change in cash and cash equivalents	(917		)	(9,629		)
Cash and cash equivalents:
Beginning of period	5,493			19,131
End of period	$	4,576		$	9,502



Supplemental disclosure of cash flow information:
Cash paid for interest related to long-term debt	$	76		$	—
Cash paid for interest related to deemed landlord financing	3,403			2,897
Non-cash deemed landlord financing	(850		)	(1,100		)
Change in accrued purchases of property and equipment	(178		)	4,396

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Zoe's Kitchen, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

1. Nature of Operations and Basis of Presentation

Nature of Operations

Zoe’s Kitchen, Inc. (the "Company", "Zoës", "we" or "us") primarily develops and operates fast-casual restaurants serving a distinct menu of freshly prepared Mediterranean-inspired dishes. As of October 2, 2017 , we operated 235 Company-owned restaurants and three franchise restaurants in 20 states across the United States. We have determined that we have one operating and reportable segment. All of our revenues are derived in the United States. All of our assets are located in the United States.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices of the United States of America ("GAAP") for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included.

Certain information and footnote disclosures normally included in audited consolidated financial statements presented in accordance with GAAP have been omitted pursuant to rules and regulations of the Securities and Exchange Commission (the "SEC"). Due to the seasonality of our business, results for any interim financial period are not necessarily indicative of the results that may be achieved for a full fiscal year. In addition, quarterly results of operations may be impacted by the timing and amount of sales and costs associated with the opening of new restaurants. These interim unaudited condensed consolidated financial statements do not represent complete financial statements and should be read in conjunction with our annual financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2016 (the "2016 Form 10-K"). While the condensed consolidated balance sheet data as of December 26, 2016 was derived from audited financial statements, it does not include all disclosures required by GAAP.

Comprehensive Income (Loss)

Comprehensive income (loss) is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income (loss) is the same as net income (loss) for all periods presented. Therefore, a separate statement of comprehensive income (loss) is not included in the accompanying condensed consolidated financial statements.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Zoe’s Kitchen, Inc. and its wholly owned subsidiaries, Zoe’s Kitchen USA, LLC and Soho Franchising, LLC. All intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements presented herein reflect our financial position, results of operations and cash flows in conformity with GAAP.

Fiscal Year

We operate on a 52- or 53-week fiscal year that ends on the last Monday of the calendar year. Fiscal years ended December 25, 2017 and December 26, 2016 consist of 52 weeks. Our first fiscal quarter consists of 16 weeks, and each of our second, third and fourth fiscal quarters consists of 12 weeks, except for a 53-week year when the fourth quarter has 13 weeks.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions, such as valuation of long-lived, definite and indefinite-lived assets, estimated useful lives of assets, the reasonably assured lease terms of operating leases, the construction costs of leases where the Company is considered the owner during and after the construction period, allowance for doubtful accounts, the fair value related to equity-based compensation, the calculation of self-insurance

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reserves, and deferred tax valuation allowances, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Recently Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2016-09, “Compensation – Stock Compensation (Topic 718).” The pronouncement was issued to simplify the accounting for share-based payment transactions, including income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. This pronouncement is effective for reporting periods beginning after December 15, 2016. We adopted ASU 2016-09 effective December 27, 2016. The portion of ASU 2016-09 related to the accounting for income taxes was adopted using a modified retrospective approach and resulted in a net zero effect on our statement of financial position. As permitted under the new standard, the Company elected to recognize forfeitures as they occur rather than using an estimated forfeiture rate. Adopted using a modified retrospective approach, this election resulted in an increase to accumulated deficit of $0.3 million offset by an equal increase to additional paid-in capital.

Recently Issued Accounting Standards

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity will account for the effects of a modification unless the fair value of the modified award is the same as the original award, the vesting conditions of the modified award are the same as the original award, and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. This pronouncement is effective for reporting periods beginning after December 15, 2017 and early adoption is permitted. We do not expect the adoption of ASU 2017-09 to have a material impact on our financial position or results of operations.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment,” which eliminates Step 2 from the goodwill impairment test. Under the new standard, annual and interim goodwill impairment tests will compare the fair value of a reporting unit with its carrying amount. An impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill. The pronouncement is effective for goodwill impairments tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for goodwill impairment tests performed after January 1, 2017. We do not expect the adoption of ASU 2017-04 to have a material impact on our financial position or results of operations.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments,” which provides specific guidance regarding presentation and classification on a variety of cash payments and receipts. Among the issues addressed is the classification of proceeds from the settlement of insurance claims. This pronouncement is effective for reporting periods beginning after December 15, 2017 and early adoption is permitted. We do not expect the adoption of ASU 2016-15 to have a material impact on our financial position or results of operations.

In March 2016, the FASB issued ASU No. 2016-04, "Liabilities - Extinguishments of Liabilities (Subtopic 405-20)", which amends subtopic 405-20 to provide a scope exception that requires breakage for prepaid stored-value product liabilities to be accounted for consistent with the breakage guidance in Topic 606. The amendment is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We do not expect the adoption of ASU 2016-04 to have a material impact on our financial position or results of operations.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which requires entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. Previous lease accounting did not require certain lease types to be recognized on the balance sheet. This update is an amendment to the codification and is effective for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years applied using a modified retrospective approach. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our financial position and results of operations, but expect that it will result in a significant increase in our long-term assets and liabilities given we have a significant number of leases which are not reflected on the balance sheet under current GAAP. In

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addition, rental payments under most of our leases for which we are the accounting owner will no longer be considered debt service applied to deemed landlord financing and interest expense. Instead, these rental payments will be classified as rent expense.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This update was issued to replace the current revenue recognition guidance, creating a more comprehensive revenue model. In August 2015, the FASB issued ASU 2015-14 to defer the effective date for adoption. The update is now effective for reporting periods beginning after December 15, 2017. In March 2016, April 2016, May 2016, and December 2016 the FASB also issued ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively, to further clarify performance obligations and licensing implementation guidance and other general topics. We expect to adopt the new standard using the modified retrospective approach for the fiscal year and quarter beginning December 26, 2017. We do not expect the adoption to have an impact on revenue from Company-owned restaurants or the recognition of royalty fees from our franchise agreement. In addition, we do not expect a material impact related to recognition of gift card breakage.

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2. Supplemental Information

Property and equipment, net consisted of the following (in thousands):



	October 2, 2017			December 26, 2016
Land	$	—		$	—
Buildings under deemed landlord financing	22,980			23,830
Leasehold improvements	148,919			125,666
Machinery and equipment	38,610			32,566
Furniture and fixtures	7,777			6,604
Automobiles	4,019			4,019
Computer equipment	16,246			9,848
Construction in progress	5,475			6,256
Property and equipment, gross	244,026			208,789
Less: Accumulated depreciation	(58,631		)	(46,756		)
Total Property and equipment, net	$	185,395		$	162,033

Accrued expenses and other consisted of the following (in thousands):



	October 2, 2017		December 26, 2016
Accrued payroll and payroll taxes	$	5,128	$	5,448
Accrued capital purchases	1,647		2,347
Sales tax payable	2,094		1,218
Gift card payable	920		1,200
Other accrued expenses	4,625		4,047
Total Accrued expenses and other	$	14,414	$	14,260

3. Fair Value Measurements

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 instruments.

4. Bank Line of Credit and Term Loan

On February 6, 2015, we entered into a credit facility with Wells Fargo Bank, National Association (the "2015 Credit Facility"). The 2015 Credit Facility consisted of a revolving loan commitment in the aggregate amount of $20.0 million , and an incremental revolving credit commitment up to an aggregate amount of $30.0 million . The 2015 Credit Facility had a five year term and was to mature on February 6, 2020. As of October 2, 2017 , we had $12.5 million indebtedness under the 2015 Credit Facility. As of October 2, 2017 the amount available under the 2015 Credit Facility was $37.5 million .

Revolving credit loans under the 2015 Credit Facility bore interest, at the Company’s election, at either the base rate plus an applicable margin, or LIBOR plus an applicable margin. The base rate consisted of the highest of the prime rate, the federal funds rate plus 0.5% and LIBOR plus 1.0% . The applicable margin and associated loan commitment fee consisted of two pricing levels based on the Company’s consolidated total debt ratio. If this debt ratio was greater than or equal to 2.50 to 1, then the unused commitment fee was 0.15% per annum, and the applicable margin was LIBOR plus 1.5% or the base rate plus 0.5% . If this debt ratio was less than 2.50 to 1, then the unused commitment fee was 0.125% per annum and the applicable margin was LIBOR plus 1.0% or the base rate. The weighted-average interest rate for the 2015 Credit Facility was 2.4% for the twelve weeks ended October 2, 2017 .

The 2015 Credit Facility included specific financial covenants such as a leverage ratio and an interest coverage ratio. We were also subject to other customary covenants, including limitations on additional borrowings, dividend payments and acquisitions. As of October 2, 2017 , we were in compliance with these financial and other customary covenants.

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On November 7, 2017 we refinanced and replaced the 2015 Credit Facility with a new secured credit facility. Refer to Note 10, "Subsequent Events," for additional information.

5. Equity-based Compensation

In connection with our initial public offering in April 2014 (the "IPO"), we adopted the 2014 Omnibus Incentive Plan (the “2014 Incentive Plan”), which provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards available to directors, officers and other employees of us and our subsidiaries, as well as others performing consulting or advisory services to us. The number of shares of common stock available for issuance under the 2014 Incentive Plan may not exceed 1,905,799 .

The following table summarizes our stock option plan activity during the forty weeks ended October 2, 2017 :



	Stock Options		Weighted Average Exercise Price
Outstanding as of December 26, 2016	710,597		$	26.28
Granted	508,625		19.43
Exercised	—		—
Forfeited	(57,651	)	26.45
Expired	(51,758	)	21.96
Outstanding as of October 2, 2017	1,109,813		$	23.33

Included in the summary of stock option plan activity are 250,000 stock options outstanding as of December 26, 2016 that vested immediately upon completion of the IPO and 185,679 stock options granted that vest in five equal annual installments following the date of the grant. All other options vest in four equal annual installments following the date of the grant. All options have a contractual term of 10 years.

The following table reflects the weighted-average assumptions utilized in the Black-Scholes option-pricing model to value the stock options granted.



		Forty Weeks Ended
		October 2, 2017
Expected volatility ⁽¹⁾		31.5%
Risk-free rate of return		2.0%
Expected life (in years) ⁽²⁾		6.3
Dividend yield		0%
Weighted-average fair value per share at date of grant		$6.84

(1) Expected volatility was based on competitors within the industry.

(2) Expected life was calculated using the simplified method, which is an average of the contractual term of the option and its ordinary vesting period, as we do not have sufficient historical data for determining the expected term of our stock option awards.

The following table summarizes our restricted stock unit plan activity during the forty weeks ended October 2, 2017 :



	Restricted Stock Units		Weighted Average Grant Date Fair Value
Non-vested at December 26, 2016	83,411		$	28.13
Granted	66,136		21.36
Vested	(28,847	)	27.91
Forfeited	(8,562	)	25.80
Non-vested at October 2, 2017	112,138		$	24.37

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The fair value of the non-vested restricted stock units is based on the closing price on the date of grant. All of our outstanding restricted stock units vest in three equal annual installments following the date of the grant.

During the forty weeks ended October 2, 2017 , 65,516 shares of restricted stock were granted. All shares of restricted stock vest in five equal annual installments following the date of the grant.

We recognized equity-based compensation as a component of general and administrative expenses of $0.7 million and $0.5 million during the twelve weeks ended October 2, 2017 and October 3, 2016 , respectively, and $2.4 million and $1.7 million during the forty weeks ended October 2, 2017 and October 3, 2016 , respectively. As of October 2, 2017 , total unrecognized compensation expense related to non-vested stock awards was $7.9 million , which is expected to be recognized over a weighted-average period of 2.9 years.

6. Earnings Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding during the period, without consideration of common stock equivalents. Diluted net income (loss) per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method.

The following table presents the computation of basic and diluted net income (loss) per share for the period indicated:



	Twelve Weeks Ended					Forty Weeks Ended
	October 2, 2017		October 3, 2016			October 2, 2017		October 3, 2016
Net income (loss) (in thousands):	$	270	$	(293	)	$	868	$	2,304
Shares:
Basic weighted average shares outstanding	19,489,074		19,458,921			19,482,227		19,426,868
Diluted weighted average shares outstanding	19,489,074		19,458,921			19,506,342		19,597,894
Earnings (loss) per share:
Basic EPS	$	0.01	$	(0.02	)	$	0.04	$	0.12
Diluted EPS	$	0.01	$	(0.02	)	$	0.04	$	0.12

During the twelve weeks ended October 2, 2017 , there were 1,160,243 stock options, 117,204 restricted stock units and 52,041 restricted stock shares excluded from the diluted earnings per share calculation because their inclusion would have been anti-dilutive. During the twelve weeks ended October 3, 2016 , there were 591,546 stock options. 26,055 restricted stock units and no restricted stock shares excluded from the diluted earnings per share calculation because their inclusion would have been anti-dilutive.

During the forty weeks ended October 2, 2017 , there were 878,154 stock options, 104,131 restricted stock units and 15,612 restricted stock shares excluded from the diluted earnings per share calculation because their inclusion would have been anti-dilutive. During the forty weeks ended October 3, 2016 , there were 411,001 stock options, 2,487 restricted stock units and no restricted stock shares excluded from the diluted earnings per share calculation because their inclusion would have been anti-dilutive.

7. Income Taxes

Benefit for income taxes was $0.1 million for the twelve weeks ended October 2, 2017 compared to provision for income taxes of $1.5 million for the twelve weeks ended October 3, 2016 . Benefit for income taxes was $0.2 million for the forty weeks ended October 2, 2017 compared to provision for income taxes of $2.6 million for the forty weeks ended October 3, 2016 . The effective tax rate was (27)% and 52% for the forty weeks ended October 2, 2017 and October 3, 2016 , respectively. Our tax expense for the year typically remains relatively constant as it primarily reflects the accrual of income tax expense related to a valuation allowance in connection with the tax amortization of the Company’s goodwill that was not available to offset existing deferred tax

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assets. Due to the uncertain timing of the reversal of this temporary difference, it cannot be considered as a source of future taxable income for purposes of determining a valuation allowance; therefore the deferred tax liability cannot offset deferred tax assets. Our quarterly provision for income taxes is measured using an annual estimated effective tax rate for the full year applied to period earnings. The comparison of our effective tax rate between periods is significantly impacted by the level of pre-tax income earned and projected for the year.

We continue to monitor and evaluate the rationale for recording a full valuation allowance for the net amount of the deferred tax assets which are in excess of the indefinite-lived intangible asset deferred tax liabilities. We intend to continue maintaining a full valuation allowance on these net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility within the foreseeable future, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

8. Casualty loss

During the twelve weeks and forty weeks ended October 2, 2017, we recognized a $0.1 million casualty loss related to the write-off of assets and expenses associated with restaurants in Texas and Florida affected by extreme flooding resulting from Hurricanes Harvey and Irma, respectively.

9. Commitments and Contingencies

Franchise Agreement

Our Kentucky franchise agreement, which requires the franchisee to remit continuing royalty fees at a specified percentage of the franchisee's gross sales revenue, provides that we as franchisor, or its authorized representative, will: (a) provide franchisee with written schedules of all foods, food products, beverages, and other items for sale, and the furniture, fixtures, supplies and equipment necessary and required for the operation of the restaurant; (b) provide franchisee with a list of approved suppliers for the products and services necessary and required for the restaurant; (c) upon the reasonable written request of franchisee, render reasonable advisory services by telephone or in writing pertaining to the operation of the restaurant; (d) provide franchisee with a sample of the standard Zoës Kitchen menu, and any modifications to the menu; (e) loan franchisee a copy of the system's operating manual and any supplements to the manual that may be published by us; and, (f) provide franchisee the opportunity to participate in group purchasing programs that we may use, develop, sponsor or provide on terms and conditions determined solely by us. In addition, as a condition to the commencement of business by any of our franchises, the franchisee must attend and successfully complete our training program. The costs related to our franchise agreement are not significant.

Litigation

We are currently involved in various claims and legal actions that arise in the ordinary course of our business, including claims resulting from employment related matters. None of these claims, most of which are covered by insurance, has had a material effect on us, and as of the date of this report, we are not party to any material pending legal proceedings and are not aware of any claims that could have a material adverse effect on our business, financial condition, results of operations or cash flows. However, a significant increase in the number of these claims or an increase in amounts owing under successful claims could materially and adversely affect our business, financial condition, results of operations or cash flows.

10. Subsequent Events

New Credit Facility

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million of which was drawn at closing to prepay in full the Company’s outstanding indebtedness under the 2015 Credit Facility and to replace the 2015 Credit Facility. The 2017 Credit Facility includes the ability to increase, subject to certain conditions, the 2017 Credit Facility by up to $25.0 million . The Company expects to use future loans under the 2017 Credit Facility, if any, for working capital needs and for general corporate purposes.

Loans under the 2017 Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) the Adjusted LIBO Rate (as defined in the Credit Agreement) for the interest period in effect for such borrowing plus the "Applicable Rate" ranging from 1.5% to 1.875% per annum, based upon the total leverage ratio (as defined in the Credit Agreement), or (b) the Alternate Base Rate (as defined in the Credit Agreement), plus an "Applicable Rate" ranging from 0.5% to 0.875% per annum, based upon the total leverage ratio. The Company is required to pay a commitment fee on the unused portion of the 2017 Credit Facility at a rate ranging from 0.20% to 0.35% based upon the total leverage ratio. The obligations of the Company under the 2017 Credit Facility are currently guaranteed by the Loan Parties and may in the future be guaranteed by certain domestic subsidiaries of the Company. The obligations of the Loan Parties under the Credit Agreement and other loan documents are secured, subject to customary permitted liens and other agreed upon exceptions, by a perfected security interest in (a) all tangible and intangible assets of the Loan Parties, except for certain excluded assets, and (b) all of the equity interests of the subsidiaries of the Loan Parties held by the Loan Parties, subject to certain exclusions and limitations.

The Company is permitted to terminate or reduce the revolving commitments of the lenders and to make voluntary prepayments at any time, subject to break funding payments. The Company is not required to make mandatory prepayments of outstanding indebtedness under the Credit Agreement other than in the case that the aggregate amount of all outstanding loans and letters of credit and/or swingline loans issued under the 2017 Credit Facility exceed the aggregate commitment of all lenders under the 2017 Credit Facility.

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Loan Parties and their consolidated subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. Under the terms of the Credit Agreement, the Company is required to comply with a maximum total leverage ratio and a minimum interest coverage ratio.

Events of default under the Credit Agreement include, without limitation, the failure by the Company to timely make payments due under the Credit Agreement, the failure by any Loan Party to comply with the covenants under the Credit Agreement and other related agreements, certain defaults under a specified amount of other indebtedness of the Company or its subsidiaries, insolvency or bankruptcy-related events with respect to the Company or any of its subsidiaries, the failure by any Loan Party or any subsidiary thereto to pay its debts as they become due, and other customary events. If one or more events of default occurs and continues, the Agent may, with the consent of the lenders holding a majority of the loans and commitments under the facilities, or will, at the request of such lenders, terminate the commitments of the lenders to make further loans and declare all of the obligations of the Loan Parties under the Credit Agreement to be immediately due and payable. If any bankruptcy event of default occurs, the commitments will be terminated and the obligations of the Loan Parties under the Credit Agreement will become due and payable automatically without any action by the Agent or the lenders.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our 2016 Form 10-K.

In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations, and intentions set forth under the sections entitled "Risk Factors" and "Forward-Looking Statements" as filed in our 2016 Form 10-K.

Overview

Zoës Kitchen is a fast growing, fast-casual restaurant concept serving a distinct menu of fresh, wholesome, Mediterranean-inspired dishes delivered with Southern hospitality. Founded in 1995 in Birmingham, Alabama, Zoës Kitchen is a natural extension of Zoë Cassimus' lifetime passion for cooking Mediterranean meals for family and friends. Since opening our first restaurant, we have never wavered from our commitment to make our food fresh daily and to serve our customers in a warm and welcoming environment.

Growth Strategies and Outlook

We plan to execute the following strategies to continue to enhance our brand awareness and grow our revenue and achieve profitability:


•	grow our restaurant base;


•	increase our comparable restaurant sales; and


•	enhance our operations and leverage infrastructure.

We have expanded our restaurant base from 21 restaurants in seven states in 2008 to 238 restaurants in 20 states as of October 2, 2017 , including three franchise restaurants. We opened 34 Company-owned restaurants during the forty weeks ended October 2, 2017 . We plan to open 38 to 40 restaurants in fiscal year 2017 , including the restaurants opened in the forty weeks ended October 2, 2017 . In fiscal year 2017 we have opened 36 restaurants as of November 9, 2017 . We believe we are well positioned for future growth with a developed infrastructure capable of supporting a restaurant base that is greater than our existing footprint. Additionally, we believe we have an opportunity to optimize costs and achieve profitability as we benefit from economies of scale.

Growing sales and traffic in the restaurant sector continues to be a challenge. This challenge is due to a number of factors including increased competition, heavy discounting in the casual dining industry, and recent macroeconomic pressures such as slower wage growth, among other factors. These macroeconomic pressures can reduce the availability of our guests' discretionary spending for restaurant visits. In response to these factors we have undertaken a number of significant initiatives which we believe will help us drive profitable sales and traffic growth and improve the guest experience in our restaurants. First, we are continuing to innovate our menu including new snack boxes, appetizers, salads, sauces and entrées. Second, we are making investments in technology to advance our e-commerce, marketing and in-store operational capabilities which are designed to provide a superior guest experience. Third, we are investing in our capabilities to meet the off-premise dining demand through delivery and catering. Last, we continue to focus on improving our operational efficiencies. These strategies are intended to differentiate us from the competition, reduce the costs associated with managing our restaurants, and establish a strong presence for our brand in key markets in the United States. There can be no assurance that our strategies and initiatives will be successful solutions to the current challenges.

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Key Measures We Use to Evaluate Our Performance

In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures used by our management for determining how our business is performing are restaurant sales, comparable restaurant sales growth, number of new restaurant openings, restaurant contribution, EBITDA and Adjusted EBITDA.

Restaurant Sales

Restaurant sales represents sales of food and beverages in Company-owned restaurants. Several factors affect our restaurant sales in any given period, including the number of restaurants in operation and per restaurant sales.

Comparable Restaurant Sales Growth

Comparable restaurant sales refers to year-over-year sales comparisons for the comparable Company-owned restaurant base. We define the comparable restaurant base to include those restaurants open for eighteen fiscal periods or longer. Each fiscal period consists of 28 days. As of October 2, 2017 and October 3, 2016 , there were 178 and 143 restaurants, respectively, in our comparable Company-owned restaurant base. This measure highlights performance of existing restaurants, as the impact of new Company-owned restaurant openings is excluded.

Comparable restaurant sales growth is generated by an increase in transactions or changes in per customer spend. Per customer spend can be influenced by changes in menu prices and/or the mix and number of items sold per check.

Measuring our comparable restaurant sales allows us to evaluate the performance of our existing restaurant base. Various factors impact comparable restaurant sales, including:


•	consumer recognition of our brand and our ability to respond to changing consumer preferences;


•	overall economic trends, particularly those related to consumer spending;


•	our ability to operate restaurants effectively and efficiently to meet consumer expectations;


•	pricing;


•	customer traffic;


•	per-customer spend and average check amount;


•	marketing and promotional efforts;


•	local competition;


•	trade area dynamics;


•	introduction of new menu items; and


•	opening of new restaurants in the vicinity of existing locations.

Consistent with common industry practice, we present comparable restaurant sales on a fiscal year basis that aligns current year sales weeks with comparable periods in the prior year, regardless of whether they belong to the same calendar period or not. Since opening new Company-owned restaurants will be a significant component of our revenue growth, comparable restaurant sales is only one measure of how we evaluate our performance.

Number of New Restaurant Openings

The number of Company-owned restaurant openings reflects the number of restaurants opened during a particular reporting period. Before we open new Company-owned restaurants, we incur pre-opening costs. Some of our restaurants open with an initial start-up period of higher than normal sales volumes, which subsequently decrease to stabilized levels. Typically, our new restaurants have stabilized sales after approximately 12 to 24 weeks of operation, at which time the restaurant's sales typically begin to grow on a consistent basis. In new markets, the length of time before average sales for new restaurants stabilize is less predictable and can be longer as a result of our limited knowledge of these markets and consumers' limited awareness of our brand. New restaurants may not be profitable, and their sales performance may not follow historical patterns. The number and timing of restaurant openings has had, and is expected to continue to have, an impact on our results of operations.

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The following table shows the growth in our Company-owned and franchise restaurant base:



	Twelve Weeks Ended		Forty Weeks Ended
	October 2, 2017	October 3, 2016	October 2, 2017	October 3, 2016
Company-owned Restaurant Base
Beginning of period	224	183	201	163
Openings	11	11	34	31
Restaurants at end of period	235	194	235	194
Franchise Restaurant Base
Beginning of period	3	3	3	3
Restaurants at end of period	3	3	3	3
Total restaurants	238	197	238	197

Key Financial Definitions

Restaurant sales . Restaurant sales represent sales of food and beverages in Company-owned restaurants, net of promotional allowances and employee meals. Restaurant sales in a given period are directly impacted by the number of operating weeks in the period, the number of restaurants we operate and comparable restaurant sales growth.

Royalty fees. Royalty fees represent royalty income from the three franchised restaurants.

Cost of sales. Cost of sales consists primarily of food, beverage and packaging costs. The components of cost of sales are variable in nature, change with sales volume and are influenced by menu mix and subject to increases or decreases based on fluctuations in commodity costs.

Labor. Labor includes all restaurant-level management and hourly labor costs, including salaries, wages, benefits and bonuses, payroll taxes and other indirect labor costs.

Store operating expenses. Store operating expenses include all other restaurant-level operating expenses, such as supplies, utilities, repairs and maintenance, travel costs, credit card fees, recruiting, delivery service, restaurant-level marketing costs, security and occupancy expenses.

General and administrative expenses. General and administrative expenses include expenses associated with corporate and regional functions that support the development and operations of restaurants, including compensation and benefits, travel expenses, stock compensation costs, legal and professional fees, information systems, corporate office rent and other related corporate costs.

Depreciation. Depreciation consists of depreciation of fixed assets, including equipment and capitalized leasehold improvements.

Amortization. Amortization consists of amortization of certain intangible assets including franchise agreements, trademarks, reacquired rights and favorable leases.

Pre-opening costs. Pre-opening costs consist of expenses incurred prior to opening a new restaurant and are made up primarily of manager salaries, relocation costs, supplies, recruiting expenses, employee payroll and training costs. Pre-opening costs also include occupancy costs recorded during the period between date of possession and the restaurant's opening date.

Loss from disposal of equipment. Loss from disposal of equipment is composed of the loss on disposal of assets related to retirements and replacements of leasehold improvements or equipment. These losses are related to normal disposals in the ordinary course of business, along with disposals related to selected restaurant remodeling activities.

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Interest expense, net. Interest expense includes cash and imputed non-cash charges related to our deemed landlord financing, non-cash charges related to our residual value obligations, amortization of debt issue costs as well as cash payments and accrued charges related to our 2015 Credit Facility.

Provision for income taxes. Provision for income taxes represents federal, state and local current and deferred income tax expense.

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Consolidated Results of Operations

The following table summarizes key components of our results of operations for the periods indicated as a percentage of our total revenue, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant sales.



	Twelve Weeks Ended				Forty Weeks Ended
	October 2, 2017		October 3, 2016		October 2, 2017		October 3, 2016
Revenue:
Restaurant sales	99.9	%	99.9	%	99.9	%	99.9	%
Royalty fees	0.1	%	0.1	%	0.1	%	0.1	%
Total revenue	100.0	%	100.0	%	100.0	%	100.0	%
Operating expenses:
Restaurant operating costs (excluding depreciation and amortization) ⁽¹⁾ :
Cost of sales	29.5	%	30.9	%	29.4	%	30.3	%
Labor	30.1	%	29.0	%	29.9	%	28.8	%
Store operating expenses	21.6	%	20.9	%	21.5	%	19.9	%
General and administrative expenses	9.9	%	9.4	%	10.2	%	10.8	%
Depreciation	5.8	%	5.2	%	5.6	%	5.0	%
Amortization	0.4	%	0.5	%	0.5	%	0.6	%
Pre-opening costs	0.7	%	0.9	%	0.8	%	0.9	%
Casualty loss	0.2	%	—		0.1	%	—
Loss from disposal of equipment	0.2	%	0.1	%	0.5	%	0.2	%
Total operating expenses	98.4	%	96.9	%	98.3	%	96.4	%
Income from operations	1.6	%	3.1	%	1.7	%	3.6	%
Other income and expenses:
Interest expense, net	1.4	%	1.4	%	1.4	%	1.4	%
Other income	(0.0	)%	(0.0	)%	(0.0	)%	(0.0	)%
Total other income and expenses	1.4	%	1.3	%	1.4	%	1.3	%
Income before provision for income taxes	0.2	%	1.7	%	0.3	%	2.3	%
Provision (benefit) for income taxes	(0.1	)%	2.2	%	(0.1)	%	1.2	%
Net income (loss)	0.3	%	(0.4	)%	0.4	%	1.1	%

(1) As a percentage of restaurant sales.

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Twelve Weeks Ended October 2, 2017 compared to Twelve Weeks Ended October 3, 2016

The following table presents selected consolidated comparative results of operations from our unaudited condensed consolidated financial statements for the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 :



	Twelve Weeks Ended

	October 2, 2017			October 3, 2016			Increase / (Decrease)
	October 2, 2017			October 3, 2016			Dollars			Percentage

	(Dollars in thousands)
Consolidated Statement of Operations Data:
Revenue:
Restaurant sales	$	77,808		$	67,245		$	10,563		15.7	%
Royalty fees	45			51			(6		)	(11.8	)%
Total revenue	77,853			67,296			10,557			15.7	%
Operating expenses:
Restaurant operating costs (excluding depreciation and amortization):
Cost of sales	22,990			20,780			2,210			10.6	%
Labor	23,396			19,503			3,893			20.0	%
Store operating expenses	16,817			14,086			2,731			19.4	%
General and administrative expenses	7,723			6,313			1,410			22.3	%
Depreciation	4,495			3,489			1,006			28.8	%
Amortization	328			367			(39		)	(10.6	)%
Pre-opening costs	583			614			(31		)	(5.0	)%
Casualty loss	133			—			133			*
Loss from disposal of equipment	132			91			41			45.1	%
Total operating expenses	76,597			65,243			11,354			17.4	%
Income from operations	1,256			2,053			(797		)	(38.8	)%
Other income and expenses:
Interest expense, net	1,093			916			177			19.3	%
Other income	(21		)	(20		)	(1		)	5.0	%
Total other income and expenses	1,072			896			176			19.6	%
Income before provision for income taxes	184			1,157			(973		)	(84.1	)%
Provision (benefit) for income taxes	(86		)	1,450			(1,536		)	(105.9	)%
Net income (loss)	$	270		$	(293	)	$	563		(192.2	)%

* Not meaningful

Restaurant sales. The following table summarizes the growth in restaurant sales from the twelve weeks ended October 3, 2016 to the twelve weeks ended October 2, 2017 (dollars in thousands):



	Net Sales
Restaurant sales for twelve weeks ended October 3, 2016	$	67,245
Incremental restaurant sales increase due to:
Comparable restaurant sales	(321		)
Restaurants not in comparable restaurant base	10,884
Restaurant sales for the twelve weeks ended October 2, 2017	$	77,808

Restaurant sales increased by $10.6 million , or 15.7% , in the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 . Restaurants not in the comparable restaurant base and other sales accounted for $10.9 million of this

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increase. Comparable restaurant sales decreased $0.3 million , or 0.5% , in the twelve weeks ended October 2, 2017 , comprised primarily of a 2.3% decrease in transactions and product mix offset by a 1.8% increase in price.

Royalty fees. Royalty fees remained flat in the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 .

Cost of sales. Cost of sales increased $2.2 million in the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 , due primarily to the increase in restaurant sales. As a percentage of restaurant sales, cost of sales decreased from 30.9% in the twelve weeks ended October 3, 2016 to 29.5% in the twelve weeks ended October 2, 2017 . This decrease was primarily driven by lower costs in poultry, paper products and beef, partially offset by higher costs in seafood.

Labor. Labor increased by $3.9 million in the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 , due primarily to opening 41 new Company-owned restaurants. As a percentage of restaurant sales, labor increased from 29.0% in the twelve weeks ended October 3, 2016 to 30.1% in the twelve weeks ended October 2, 2017 . The increase was primarily driven by the dilutive effect on margins from our newest restaurants which, on average, initially operate at less than system-wide average sales volumes, as well as an increase in wage rates.

Store operating expenses. Store operating expenses increased by $2.7 million in the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 , due primarily to opening 41 new Company-owned restaurants. As a percentage of restaurant sales, store operating expense increased from 20.9% in the twelve weeks ended October 3, 2016 to 21.6% in the twelve weeks ended October 2, 2017 . This increase was primarily attributable to the dilutive effect on margins from our newest restaurants, which, on average, initially operate at less than system-wide average sales volumes as well as increased marketing costs.

General and administrative expenses. General and administrative expenses increased by $1.4 million in the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 . As a percentage of revenue, general and administrative expenses increased from 9.4% in the twelve weeks ended October 3, 2016 to 9.9% in the twelve weeks ended October 2, 2017 . The increase was primarily driven by the timing of variable incentive compensation in the prior year.

Depreciation. Depreciation increased by $1.0 million in the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 , due primarily to opening 41 new Company-owned restaurants. As a percentage of revenue, depreciation increased from 5.2% in the twelve weeks ended October 3, 2016 to 5.8% in the twelve weeks ended October 2, 2017 , primarily due to corporate and in-store technology investments which typically have shorter useful lives.

Amortization. Amortization remained flat in the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 .

Pre-opening costs. Pre-opening costs remained flat in the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 . As a percentage of revenue, pre-opening costs decreased from 0.9% in the twelve weeks ended October 3, 2016 to 0.7% in the twelve weeks ended October 2, 2017 .

Interest expense. Interest expense increased by $0.2 million in the twelve weeks ended October 2, 2017 compared to the twelve weeks ended October 3, 2016 , due primarily to increased interest from deemed landlord financing and increased borrowings on our 2015 Credit Facility.

Provision (benefit) for income taxes. Benefit for income taxes was $0.1 million for the twelve weeks ended October 2, 2017 compared to provision for income taxes of $1.5 million for the twelve weeks ended October 3, 2016 . Our tax expense for the year typically remains relatively constant as it primarily reflects the accrual of income tax expense related to a valuation allowance in connection with the tax amortization of the Company’s goodwill that was not available to offset existing deferred tax assets. Due to the uncertain timing of the reversal of this temporary difference, it cannot be considered as a source of future taxable income for purposes of determining a valuation allowance; therefore the deferred tax liability cannot offset deferred tax assets. The comparison of our effective tax rate between periods is significantly impacted by the level of pre-tax income earned and projected for the year.

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Forty Weeks Ended October 2, 2017 compared to Forty Weeks Ended October 3, 2016

The following table presents selected consolidated comparative results of operations from our unaudited condensed consolidated financial statements for the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 :



	Forty Weeks Ended

	October 2, 2017			October 3, 2016			Increase / (Decrease)
	October 2, 2017			October 3, 2016			Dollars			Percentage

	(Dollars in thousands)
Consolidated Statement of Operations Data:
Revenue:
Restaurant sales	$	242,573		$	213,815		$	28,758		13.4	%
Royalty fees	146			165			(19		)	(11.5	)%
Total revenue	242,719			213,980			28,739			13.4	%
Operating expenses:
Restaurant operating costs (excluding depreciation and amortization):
Cost of sales	71,277			64,764			6,513			10.1	%
Labor	72,461			61,612			10,849			17.6	%
Store operating expenses	52,108			42,534			9,574			22.5	%
General and administrative expenses	24,832			23,028			1,804			7.8	%
Depreciation	13,708			10,773			2,935			27.2	%
Amortization	1,167			1,240			(73		)	(5.9	)%
Pre-opening costs	1,829			1,906			(77		)	(4.0	)%
Casualty loss	133			—			133			*
Loss from disposal of equipment	1,139			428			711			166.1	%
Total operating expenses	238,654			206,285			32,369			15.7	%
Income from operations	4,065			7,695			(3,630		)	(47.2	)%
Other income and expenses:
Interest expense, net	3,479			2,899			580			20.0	%
Other income	(70		)	(67		)	(3		)	4.5	%
Total other income and expenses	3,409			2,832			577			20.4	%
Income before provision for income taxes	656			4,863			(4,207		)	(86.5	)%
Provision (benefit) for income taxes	(212		)	2,559			(2,771		)	(108.3	)%
Net income	$	868		$	2,304		$	(1,436	)	(62.3	)%

* Not meaningful

Restaurant sales. The following table summarizes the growth in restaurant sales from the forty weeks ended October 3, 2016 to the forty weeks ended October 2, 2017 (dollars in thousands):



	Net Sales
Restaurant sales for the forty weeks ended October 3, 2016	$	213,815
Incremental restaurant sales increase due to:
Comparable restaurant sales	(5,239		)
Restaurants not in comparable restaurant base	33,997
Restaurant sales for the forty weeks ended October 2, 2017	$	242,573

Restaurant sales increased by $28.8 million , or 13.4% , in the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 . Restaurants not in the comparable restaurant base and other sales accounted for $34.0 million of this

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increase. Comparable restaurant sales decreased $5.2 million , or 2.6% , in the forty weeks ended October 2, 2017 , comprised primarily of a 4.0% decrease in transactions and product mix offset by a 1.4% increase in price.

Royalty fees. Royalty fees remained flat in the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 .

Cost of sales. Cost of sales increased $6.5 million in the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 , due primarily to the increase in restaurant sales. As a percentage of restaurant sales, cost of sales decreased from 30.3% in the forty weeks ended October 3, 2016 to 29.4% in the forty weeks ended October 2, 2017 . This decrease was primarily driven by lower costs in beef, poultry, paper products and produce, partially offset by higher costs in seafood.

Labor. Labor increased by $10.8 million in the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 , due primarily to opening 41 new Company-owned restaurants. As a percentage of restaurant sales, labor increased from 28.8% in the forty weeks ended October 3, 2016 to 29.9% in the forty weeks ended October 2, 2017 . The increase was primarily driven by the dilutive effect on margins from our newest restaurants which, on average, initially operate at less than system-wide average sales volumes as well as an increase in wage rates.

Store operating expenses. Store operating expenses increased by $9.6 million in the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 , due primarily to opening 41 new Company-owned restaurants. As a percentage of restaurant sales, store operating expense increased from 19.9% in the forty weeks ended October 3, 2016 to 21.5% in the forty weeks ended October 2, 2017 . This increase was primarily attributable to the dilutive effect on margins from our newest restaurants, which, on average, initially operate at less than system-wide average sales volumes as well as increased costs related to in-store technology investments and marketing.

General and administrative expenses. General and administrative expenses increased by $1.8 million in the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 . As a percentage of revenue, general and administrative expenses decreased from 10.8% in the forty weeks ended October 3, 2016 to 10.2% in the forty weeks ended October 2, 2017 . The decrease was primarily driven by lower consulting fees related to a variety of one-time projects from the prior year and lower variable incentive compensation.

Depreciation. Depreciation increased by $2.9 million in the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 , due primarily to opening 41 new Company-owned restaurants. As a percentage of revenue, depreciation increased from 5.0% in the forty weeks ended October 3, 2016 to 5.6% in the forty weeks ended October 2, 2017 primarily due to corporate and in-store technology investments which typically have shorter useful lives.

Amortization. Amortization remained flat in the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 .

Pre-opening costs. Pre-opening costs decreased $0.1 million in the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 . As a percent of revenue, pre-opening costs decreased from 0.9% in the forty weeks ended October 3, 2016 to 0.8% in the forty weeks ended October 2, 2017 . The decrease was driven by improved project management and better control of pre-opening expenses.

Interest expense. Interest expense increased by $0.6 million in the forty weeks ended October 2, 2017 compared to the forty weeks ended October 3, 2016 , due primarily to increased interest from deemed landlord financing and increased borrowings on our 2015 Credit Facility.

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Provision (benefit) for income taxes. Benefit for income taxes was $0.2 million for the forty weeks ended October 2, 2017 compared to provision for income taxes of $2.6 million for the forty weeks ended October 3, 2016 . Our tax expense for the year typically remains relatively constant as it primarily reflects the accrual of income tax expense related to a valuation allowance in connection with the tax amortization of the Company’s goodwill that was not available to offset existing deferred tax assets. Due to the uncertain timing of the reversal of this temporary difference, it cannot be considered as a source of future taxable income for purposes of determining a valuation allowance; therefore the deferred tax liability cannot offset deferred tax assets. The comparison of our effective tax rate between periods is significantly impacted by the level of pre-tax income earned and projected for the year.

Non-GAAP Financial Measures

To supplement its unaudited condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses the following non-GAAP financial measures: restaurant contribution, EBITDA and adjusted EBITDA(collectively, the "non-GAAP financial measures"). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. The non-GAAP measures used by the Company may be different from the methods used by other companies.

Restaurant Contribution

Restaurant contribution is defined as restaurant sales less restaurant operating costs, which are cost of sales, labor and store operating expenses. Restaurant contribution margin is restaurant contribution as a percentage of restaurant sales. When used in conjunction with GAAP financial measures, restaurant contribution and restaurant contribution margin are supplemental measures that we believe are useful in evaluating operating performance and profitability of our restaurants. Additionally, restaurant contribution and restaurant contribution margin are key metrics used internally by our management to develop budgets and forecast, as well as assess the performance of our restaurants relative to budget and against prior periods. We believe the supplemental presentation of restaurant and restaurant contribution margin provides investors with a meaningful view of our operating performance as these measures depict the operating results that are directly impacted by our restaurants and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of our restaurants. It may also assist investors to evaluate our performance relative to peers of various sizes and maturities and provide greater transparency to how our management evaluates our business as well as our financial and operational decision making.

Our management does not consider restaurant contribution or restaurant contribution margin in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of restaurant contribution and restaurant contribution margin is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. Restaurant contribution excludes general and administrative expenses and pre-opening costs, which are considered normal, recurring cash operating expenses and are essential to support the operation and development of our restaurants. Therefore, this measure may not provide a complete understanding of the operating results of our Company as a whole.

We compensate for this limitation by relying primarily on our GAAP results and using restaurant contribution and restaurant contribution margin only supplementally. You should review the reconciliation of income from operations to restaurant contribution and restaurant contribution margin below and not rely on any single financial measure to evaluate our business.

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The following table reconciles income from operations, which is a GAAP financial measure, to restaurant contribution and restaurant contribution margin:



	Twelve Weeks Ended						Forty Weeks Ended
	October 2, 2017			October 3, 2016			October 2, 2017			October 3, 2016

	(Dollars in thousands)
Restaurant Contribution:
Income from operations	$	1,256		$	2,053		$	4,065		$	7,695
Less:
Royalty fees	45			51			146			165
Add:
General and administrative expenses	7,723			6,313			24,832			23,028
Depreciation and amortization	4,823			3,856			14,875			12,013
Pre-opening costs ⁽¹⁾	583			614			1,829			1,906
Casualty loss ⁽²⁾	133			—			133			—
Loss from disposal of equipment	132			91			1,139			428
Restaurant Contribution	$	14,605		$	12,876		$	46,727		$	44,905

Total revenue	$	77,853		$	67,296		$	242,719		$	213,980
Less: Royalty fees	45			51			146			165
Restaurant sales	$	77,808		$	67,245		$	242,573		$	213,815

Restaurant contribution margin	18.8		%	19.1		%	19.3		%	21.0		%

(1) Represent expenses directly associated with the opening of new restaurants that are incurred prior to opening, including pre-opening rent.
(2) Represents expenses and write off of assets associated with stores in Texas and Florida affected by Hurricanes Harvey and Irma.

EBITDA and Adjusted EBITDA

EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization.

We define Adjusted EBITDA as EBITDA plus loss from disposal of equipment, pre-opening costs and casualty loss. EBITDA and Adjusted EBITDA are intended as a supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. We believe that EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. Our management uses EBITDA and Adjusted EBITDA (i) as a factor in evaluating management's performance when determining incentive compensation and (ii) to evaluate the effectiveness of our business strategies.

We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company's financial measures with other fast casual restaurants, which may present similar non-GAAP financial measures to investors. In addition, you should be aware when evaluating EBITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted EBITDA in the same fashion.

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Our management does not consider EBITDA or Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of EBITDA and Adjusted EBITDA is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company's financial statements. Some of these limitations are:


•	Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;


•	Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;


•	Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;


•	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;


•	Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and


•	other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally. You should review the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA:



	Twelve Weeks Ended						Forty Weeks Ended
	October 2, 2017			October 3, 2016			October 2, 2017			October 3, 2016

	(Dollars in thousands)
Adjusted EBITDA:
Net income (loss), as reported	$	270		$	(293	)	$	868		$	2,304
Depreciation and amortization	4,823			3,856			14,875			12,013
Interest expense, net	1,093			916			3,479			2,899
Provision (benefit) for income taxes	(86		)	1,450			(212		)	2,559
EBITDA	6,100			5,929			19,010			19,775
Pre-opening costs ⁽¹⁾	583			614			1,829			1,906
Casualty loss ⁽²⁾	133			—			133			—
Loss from disposal of equipment	132			91			1,139			428
Adjusted EBITDA	$	6,948		$	6,634		$	22,111		$	22,109

(1) Represents expenses directly associated with the opening of new restaurants that are incurred prior to opening, including pre-opening rent.
(2) Represents expenses and write off of assets associated with stores in Texas and Florida affected by Hurricanes Harvey and Irma.

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Liquidity and Capital Resources

Summary of Cash Flows

Our primary sources of liquidity and cash flows are operating cash flows and available borrowings under our 2017 Credit Facility. We are using these sources to fund capital expenditures for new Company-owned restaurant openings, reinvest in our existing restaurants, invest in infrastructure and information technology and maintain working capital. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within several days of the related sale, and we typically have at least 20 days to pay our vendors.

We had negative working capital of $7.1 million as of October 2, 2017 compared to negative working capital of $6.3 million as of December 26, 2016 . The increase in negative working capital resulted primarily from capital expenditures related to new store openings. We believe that cash and cash equivalents, expected cash flow from operations and available borrowings on our 2017 Credit Facility are adequate to fund our operating lease obligations, capital expenditures and working capital obligations for the next 12 months. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow from operations and our ability to manage costs and working capital successfully.

The following table summarizes consolidated cash flow data for the periods indicated:



	Forty Weeks Ended
	October 2, 2017			October 3, 2016

	(Dollars in thousands)
Consolidated Statement of Cash Flows Data:
Net cash provided by operating activities	$	25,469		$	22,056
Net cash used in investing activities	(39,333		)	(32,905		)
Net cash provided by financing activities	12,947			1,220

Cash Flows Provided by Operating Activities

Net cash provided by operating activities increased to $25.5 million for the forty weeks ended October 2, 2017 from $22.1 million for the forty weeks ended October 3, 2016 . Net cash provided by operating activities consists primarily of net income, adjusted for non-cash expenses such as depreciation and amortization, and the net change in operating assets and liabilities.

Net cash provided by operating activities for the forty weeks ended October 2, 2017 consisted primarily of net income adjusted for non-cash expenses and increases in accounts payable and deferred rent offset by an increase in prepaid expenses and other. The increase in accounts payable was primarily related to seasonality at stores and timing of corporate invoices. The increase in deferred rent is related to new store openings. The increase in prepaid expenses and other is primarily related to the timing of several annual corporate invoices and prepaid rent.

Cash Flows Used in Investing Activities

Net cash used in investing activities increased to $39.3 million for the forty weeks ended October 2, 2017 from $32.9 million for the forty weeks ended October 3, 2016 . The increase was primarily due to new store openings as well as technology investments in 2017, offset by proceeds from a sale-leaseback transaction.

Cash Flows Provided by Financing Activities

Cash flows provided by financing activities increased to $12.9 million for the forty weeks ended October 2, 2017 from $1.2 million for the forty weeks ended October 3, 2016 , primarily due to borrowings on our 2015 Credit Facility.

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Credit Facility

On November 7, 2017, we entered into the 2017 Credit Facility with JPMorgan Chase Bank, N.A. as administrative agent. Refer to Note 10, Subsequent Events, of the Notes to the Unaudited Condensed Consolidated Financial Statements and Item 5 of Part II of this report for additional information.

Off-Balance Sheet Arrangements

As of October 2, 2017 , we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our discussion and analysis of operating results and financial condition are based upon our financial statements. The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that materially affect our financial statements and involve difficult, subjective or complex judgments by management. Although these estimates are based on management's best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates.

We believe our critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements and that the judgments and estimates are reasonable. Our critical accounting polices and estimates are described in our annual consolidated financial statements and the related notes in our 2016 Form 10-K. There have been no material changes affecting our critical accounting policies and estimates for the twelve weeks ended October 2, 2017 .

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are exposed to interest rate risk through fluctuations of interest rates on our investments and debt, as applicable. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations.

Commodity Price Risk

We are exposed to commodity price risks. Many of the ingredients we use to prepare our food, as well as our packaging materials, are commodities or ingredients that are affected by the price of other commodities, exchange rates, foreign demand, weather, seasonality, production, availability and other factors outside our control. We work closely with our suppliers and use a mix of forward pricing protocols under which we agree with our supplier on fixed prices for deliveries at some time in the future, fixed pricing protocols under which we agree on a fixed price with our supplier for the duration of that protocol, and formula pricing protocols under which the prices we pay are based on a specified formula related to the prices of the goods, such as spot prices. However, a majority of the dollar value of goods purchased by us is effectively at spot prices. Generally our pricing protocols with suppliers can remain in effect for periods ranging from one to 18 months, depending on the outlook for prices of the particular ingredient. We have tried to increase, where necessary, the number of suppliers for our ingredients, which we believe can help mitigate pricing volatility, and we follow industry news, trade issues, exchange rates, weather, crises and other world events that may affect our ingredient prices. Increases in ingredient prices could adversely affect our results if we choose for competitive or other reasons not to increase menu prices at the same rate at which ingredient costs increase, or if menu price increases result in customer resistance.

Inflation

The primary inflationary factors affecting our operations are food, labor costs, energy costs and materials used in the construction of new restaurants. Increases in the minimum wage directly affect our labor costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Finally, the cost of constructing our restaurants is subject to inflationary increases in the costs of labor and material. Over the past five years, inflation has not significantly affected our operating results.

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Item 4. Controls and Procedures

As of October 2, 2017 , the Company's management carried out an evaluation with the participation of Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, were effective to provide reasonable assurance that the information we are required to file under the Exchange Act is recorded and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in internal control over financial reporting during the quarter ended October 2, 2017 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings

Refer to Note 9, Commitments and Contingencies, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 26, 2016.

Item 2. Unregistered Sales of Equity and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

On November 7, 2017, we entered into a credit agreement (the “Credit Agreement”) among Zoe’s Kitchen, Inc., and Zoe’s Kitchen USA, LLC, as the “Loan Parties,” JPMorganChase Bank, N.A., as administrative agent, or “Agent,” and the lenders party thereto. The Credit Agreement provides for a five -year $50.0 million revolving credit facility (the “2017 Credit Facility”), $12.5 million of which was drawn at closing to prepay in full the Company’s outstanding indebtedness under the 2015 Credit Facility and to replace the 2015 Credit Facility. The 2017 Credit Facility includes the ability to increase, subject to certain conditions, the 2017 Credit Facility by up to $25.0 million . The Company expects to use future loans under the 2017 Credit Facility, if any, for working capital needs and for general corporate purposes.

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of the Credit Agreement, the Company is required to comply with a maximum total leverage ratio and a minimum interest coverage ratio.

The foregoing description of the Credit Agreement is not intended to be complete and is qualified in its entirety by reference to the full text of the Credit Agreement, which is being filed as Exhibit 10.1 to this report.

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Item 6. Exhibits

Exhibit Index



Exhibit Number			Description of Exhibit
10.1			Credit Agreement dated November 7, 2017, among Zoe’s Kitchen, Inc., as Borrower, The Lenders Party Hereto, and JPMorganChase Bank, N.A., as Administrative Agent.
31.1			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*			Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			XBRL Instance Document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

* This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934. the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 9, 2017

ZOE'S KITCHEN, INC.



By:	/s/ Kevin Miles
	Name: Kevin Miles
	Title: President and Chief Executive Officer



By:	/s/ Sunil Doshi
	Name: Sunil Doshi
	Title: Chief Financial Officer



Total Leverage Ratio	Revolving Commitment ABR Spread	Revolving Commitment Eurodollar Spread	Commitment Fee Rate
Category 1 > 2.0 to 1.0	0.875%	1.875%	0.35%
Category 2 < 2.0 to 1.0 but > 1.5 to 1.0	0.750%	1.750%	0.30%
Category 3 < 1.5 to 1.0 but > 1.0 to 1.0	0.625%	1.625%	0.25%
Category 4 < 1.0 to 1.0	0.500%	1.500%	0.20%



Period Effective Date through and including September 30, 2019	Total Leverage Ratio 3.00 to 1.00
December 31, 2019 through and including September 30, 2021	2.75 to 1.00
On and after December 31, 2021	2.50 to 1.00



Lender	Revolving Commitment
JPMorgan Chase Bank, N.A.	$30,000,000
First Tennessee Bank National Association	$20,000,000
Total	$50,000,000



1.	Assignor:	______________________________

2.	Assignee:	______________________________ [and is an Affiliate/Approved Fund of [identify Lender]]

3.	Borrower:	______________________________

4.	Administrative Agent:	JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement

5.	Credit Agreement:	The $50,000,000 Credit Agreement dated as of November 7, 2017 among Zoe's Kitchen, Inc., the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto

6.	Assigned Interest:



Facility Assigned	Aggregate Amount of Commitment/Loans for all Lenders	Amount of Commitment/Loans Assigned	Percentage Assigned of Commitment/Loans
	$	$	%
	$	$	%
	$	$	%


SECTION 1.05.	Pro Forma Adjustments for Acquisitions and Dispositions 28


SECTION 2.08.	Termination and Reduction of Commitments; Increase in Revolving Commitments 38


SECTION 2.09.	Repayment and Amortization of Loans; Evidence of Debt 40


SECTION 2.17.	Payments Generally; Allocation of Proceeds; Sharing of Set-offs 49


SECTION 2.18.	Mitigation Obligations; Replacement of Lenders 51


SECTION 3.04.	Financial Condition; No Material Adverse Change 55


SECTION 3.07.	Compliance with Laws and Agreements; No Default 56


SECTION 5.07.	Compliance with Laws and Material Contractual Obligations 66


SECTION 6.04.	Investments, Loans, Advances, Guarantees and Acquisitions 71


SECTION 6.08.	Restricted Payments; Certain Payments of Indebtedness 74


SECTION 8.08.	Not Partners or Co-Venturers; Administrative Agent as Representative of the Secured Parties 82


SECTION 9.06.	Counterparts; Integration; Effectiveness; Electronic Execution 94


SECTION 9.09.	Governing Law; Jurisdiction; Consent to Service of Process 95


SECTION 9.13.	Several Obligations; Nonreliance; Violation of Law 97


SECTION 9.20.	Acknowledgement and Consent to Bail-In of EEA Financial Institutions 98


SECTION 10.03.	No Discharge or Diminishment of Loan Guaranty 99


(i)	the Class of Borrowing, the aggregate amount of the requested Borrowing, and a breakdown of the separate wires comprising such Borrowing;


(ii)	the date of such Borrowing, which shall be a Business Day;


(iii)	whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and


(iv)	in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period."


1.	I am the of the Borrower and I am authorized to deliver this Certificate on behalf of the Borrower and its Subsidiaries;


2.	I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the compliance of the Borrower and its Subsidiaries with the Agreement during the accounting period covered by the attached financial statements (the " Relevant Period ");


5.	I hereby certify that, except as set forth below, no Loan Party has changed (i) its name, (ii) its chief executive office, (iii) its principal place of business, (iv) the type of entity it is or (v) its state of incorporation or organization without having given the Administrative Agent the notice required by the Security Agreement;


7.	Schedule I attached hereto sets forth financial data and computations evidencing the Borrower’s compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct; and


8.	Schedule II hereto sets forth the computations necessary to determine the Applicable Rate commencing on the Business Day this Certificate is delivered.


9.	Schedule III hereto sets forth reasonably detailed calculations demonstrating the book value of all assets (other than goodwill) of, and the EBITDA of, each Immaterial Subsidiary as compared in each case to the aggregate book value or EBITDA, as applicable, for the Borrower and its Subsidiaries.


10.	Schedule IV hereto sets forth reasonably detailed calculations showing all investments, Indebtedness, loans, advances, Restricted Payments and other transactions among (1) each Immaterial Subsidiary and (2) the Borrower and/or one or more Loan Parties during such period and in the aggregate over the term of this Agreement.



Date:	November 9, 2017	/s/ Kevin Miles
		Kevin Miles
		President and Chief Executive Officer



Dated:	November 9, 2017

		/s/ Kevin Miles
		Kevin Miles
		President and Chief Executive Officer

		/s/ Sunil Doshi
		Sunil Doshi
		Chief Financial Officer