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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

For the Quarterly Period Ended April 3, 2022

or

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

Commission File Number 001-39053

Graphic

BBQ HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

MMiMinsd

Minnesota

83-4222776

State or Other Jurisdiction of

Incorporation or Organization

I.R.S. Employer Identification No.

12701 Whitewater Drive, Suite 100

Minnetonka, MN

55343

Address of Principal Executive Offices

Zip Code

Registrant’s Telephone Number, Including Area Code (952) 294-1300

Securities registered pursuant to Section 12(b) of the Act:

DAVE

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

BBQ

The Nasdaq Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No 

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

Large Accelerated Filer 

Accelerated Filer 

Non-accelerated Filer 

Smaller Reporting Company 

Emerging Growth Company 

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

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

As of May 9, 2022, 10,755,801 shares of the registrant’s Common Stock were outstanding.

BBQ HOLDINGS, INC.

TABLE OF CONTENTS

    

Page

PART I

FINANCIAL INFORMATION

Item 1

Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of April 3, 2022 and January 2, 2022

3

Condensed Consolidated Statements of Operations for the Three Months Ended April 3, 2022 and April 4, 2021

4

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended April 3, 2022 and April 4, 2021

5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 3, 2022 and April 4, 2021

6

Notes to Condensed Consolidated Financial Statements

7

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4

Controls and Procedures

24

PART II

OTHER INFORMATION

Item 1

Legal Proceedings

24

Item 1A

Risk Factors

24

Item 6

EXHIBITS

24

SIGNATURES

26

CERTIFICATIONS

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(Unaudited)

ASSETS

Current assets:

 

April 3, 2022

    

January 2, 2022

Cash and cash equivalents

$

35,431

$

40,309

Restricted cash

 

1,677

 

1,152

Accounts receivable, net of allowance for doubtful accounts of $301,000 and $270,000, respectively

 

3,188

 

5,476

Inventories

 

3,281

 

3,316

Prepaid expenses and other current assets

 

4,313

 

3,919

Total current assets

 

47,890

 

54,172

Property, equipment and leasehold improvements, net

 

39,748

 

39,943

Other assets:

 

  

 

  

Operating lease right-of-use assets

81,248

78,843

Goodwill

5,676

3,037

Intangible assets, net

 

23,714

 

23,444

Deferred tax asset, net

 

3,922

 

3,692

Other assets

 

1,493

 

1,292

Total assets

$

203,691

$

204,423

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

6,951

$

7,661

Current portion of operating lease liabilities

12,511

11,904

Current portion of long-term debt and finance lease liabilities

1,488

1,621

Accrued compensation and benefits

 

6,157

 

7,121

Gift card liability

8,809

11,257

Other current liabilities

 

8,752

 

8,510

Total current liabilities

 

44,668

 

48,074

 

  

 

  

Long-term liabilities:

 

  

 

  

Operating lease liabilities, less current portion

79,362

77,729

Finance lease liabilities, less current portion

292

79

Long-term debt, less current portion

 

12,819

 

13,197

Other liabilities

 

1,087

 

997

Total liabilities

 

138,228

 

140,076

Shareholders’ equity:

 

  

 

  

Common stock, $.01 par value, 100,000 shares authorized, 10,750 and 10,495 shares issued and outstanding at April 3, 2022 and January 2, 2022, respectively

 

108

 

105

Additional paid-in capital

22,248

21,782

Retained earnings

 

44,158

 

43,391

Total shareholders’ equity

 

66,514

 

65,278

Non-controlling interest

(1,051)

(931)

Total equity

65,463

64,347

Total liabilities and equity

$

203,691

$

204,423

See accompanying notes to condensed consolidated financial statements.

- 3 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

APRIL 3, 2022 AND APRIL 4, 2021

(in thousands, except per share data)

(Unaudited)

Three Months Ended

April 3, 2022

    

April 4, 2021

Revenue:

  

 

  

Restaurant sales, net

$

58,731

$

33,603

Franchise royalty and fee revenue

 

3,607

 

2,374

Franchisee national advertising fund contributions

 

490

 

328

Licensing and other revenue

 

1,356

 

1,014

Total revenue

 

64,184

 

37,319

Costs and expenses:

 

  

 

  

Food and beverage costs

 

18,357

 

10,057

Labor and benefits costs

 

19,386

 

10,254

Operating expenses

 

17,239

 

10,249

Depreciation and amortization expenses

 

2,423

 

1,552

General and administrative expenses

 

5,291

 

4,038

National advertising fund expenses

490

328

Asset impairment, estimated lease termination charges and other closing costs, net

 

409

 

12

Pre-opening expenses

 

65

 

28

Loss (gain) on disposal of property, net

 

44

 

(8)

Total costs and expenses

 

63,704

 

36,510

Income from operations

 

480

 

809

Other income (expense):

 

  

 

  

Interest expense

 

(120)

 

(54)

Interest income

 

8

 

24

Gain on bargain purchase

38

Total other income (expense)

 

(74)

 

(30)

Income before income taxes

 

406

 

779

Income tax (expense) benefit

 

241

 

(82)

Net income

 

647

 

697

Net loss attributable to non-controlling interest

120

102

Net income attributable to shareholders

$

767

$

799

Income per common share:

 

  

 

  

Basic net income per share attributable to shareholders

$

0.07

$

0.09

Diluted net income per share attributable to shareholders

$

0.07

$

0.08

Weighted average shares outstanding - basic

 

10,552

 

9,208

Weighted average shares outstanding - diluted

 

10,649

 

9,501

See accompanying notes to condensed consolidated financial statements.

- 4 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED APRIL 3, 2022 AND APRIL 4, 2021

(in thousands)

(Unaudited)

Additional

Total

 

Common Stock

Paid-in

Retained

Shareholders'

Non-controlling

Total

    

Shares

    

Amount

    

Capital

Earnings

Equity

    

Interest

    

Equity

Balance - January 2, 2022

 

10,495

$

105

$

21,782

$

43,391

$

65,278

$

(931)

$

64,347

Issuance of restricted common stock, net of shares withheld for taxes

 

227

 

3

 

(22)

 

 

(19)

 

 

(19)

Issuance of common stock upon exercise of options, net of shares withheld for taxes

28

104

104

104

Stock-based compensation

 

 

 

384

 

 

384

 

 

384

Net income

 

 

 

 

767

 

767

 

(120)

 

647

Balance - April 3, 2022

 

10,750

$

108

$

22,248

$

44,158

$

66,514

$

(1,051)

$

65,463

Additional

Total

 

Common Stock

Paid-in

Retained

Shareholders'

Non-controlling

Total

    

Shares

    

Amount

    

Capital

Earnings

Equity

    

Interest

    

Equity

Balance - January 3, 2021

 

9,307

$

93

$

8,748

$

19,370

$

28,211

$

(1,278)

$

26,933

Stock-based compensation

 

 

 

318

 

 

318

 

 

318

Net income

 

 

 

 

799

 

799

 

(102)

 

697

Balance - April 4, 2021

 

9,307

$

93

$

9,066

$

20,169

$

29,328

$

(1,380)

$

27,948

See accompanying notes to condensed consolidated financial statements.

- 5 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

APRIL 3, 2022 AND APRIL 4, 2021

(in thousands)

(Unaudited)

Three Months Ended

    

April 3, 2022

    

April 4, 2021

Cash flows from operating activities:

 

  

  

Net income

$

647

$

697

Adjustments to reconcile net income to cash flows provided by operations:

 

  

 

  

Depreciation and amortization

 

2,423

 

1,552

Stock-based compensation

 

384

 

318

Net (gain) loss on disposal

 

44

 

(8)

Asset impairment, estimated lease termination charges and other closing costs, net

409

12

Gain on bargain purchase

(38)

Amortization of operating right-of-use assets

2,894

2,134

Deferred tax asset

 

(230)

 

82

Other non-cash items

(6)

186

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

 

2,296

 

598

Prepaid expenses and other assets

(114)

(1,197)

Accounts payable

 

(710)

 

1,635

Accrued compensation and benefits

(871)

1,678

Lease liabilities

(3,258)

(1,513)

Gift card liability

(2,544)

(1,563)

Accrued and other liabilities

 

62

 

(425)

Cash flows provided by operating activities

 

1,388

 

4,186

Cash flows from investing activities:

 

  

 

  

Purchases of property, equipment and leasehold improvements

 

(722)

 

(691)

Payments for acquired restaurants

(4,434)

Payments received on note receivable

6

Cash flows used for investing activities

 

(5,156)

 

(685)

Cash flows from financing activities:

 

  

 

  

Payments on long-term debt

 

(562)

 

(519)

Tax payments for restricted stock units and stock options exercised

(130)

Proceeds from exercise of stock options

 

107

 

Cash flows used for financing activities

 

(585)

 

(519)

Increase (decrease) in cash, cash equivalents and restricted cash

 

(4,353)

 

2,982

Cash, cash equivalents and restricted cash, beginning of period

 

41,461

 

19,603

Cash, cash equivalents and restricted cash, end of period

$

37,108

$

22,585

Supplemental Disclosures

Cash paid for interest, net

$

107

$

116

Non-cash investing and financing activities:

Operating right-of-use assets acquired

4,533

Lease liabilities assumed pursuant to acquisitions

4,574

Gift card liability assumed pursuant to acquisitions

96

Inventory acquired pursuant to acquisitions

85

See accompanying notes to condensed consolidated financial statements.

- 6 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)          Basis of Presentation

Basis of Presentation

In September 2019 a holding company reorganization was completed in which Famous Dave’s of America, Inc. (“FDA”) became a wholly owned subsidiary of the new parent holding company named BBQ Holdings, Inc. (“BBQ Holdings”). As used in this Form 10-Q, “Company”, “we” and “our” refer to BBQ Holdings and its wholly owned subsidiaries. BBQ Holdings was incorporated on March 29, 2019 under the laws of the State of Minnesota, while FDA was incorporated in Minnesota on March 14, 1994. The Company develops, owns and operates restaurants under the name “Famous Dave’s”, “Village Inn”, “Barrio Queen”, “Granite City”, Real Urban Barbecue”, “Clark Crew BBQ”, “Tahoe Joe’s Steakhouse”, “Bakers Square”, “Craft Republic”, and “Fox & Hound”. Additionally, the Company franchises restaurants under the name “Famous Dave’s” and “Village Inn”. As of April 3, 2022, there were 144 Famous Dave’s restaurants operating in three countries, including 40 Company-owned restaurants and 104 franchise-operated restaurants. This includes the eight Famous Dave’s ghost kitchens the Company operates out of its Granite City restaurants. The first Clark Crew BBQ restaurant opened in December 2019 in Oklahoma City, Oklahoma. BBQ Holdings has a 20% ownership in this venture. The Company owns and operates 18 Granite City Food & Brewery restaurants located throughout the Midwest and two Real Urban Barbecue restaurants located in Illinois. On July 30, 2021, the Company completed the purchase of the Village Inn family restaurant concept currently with 22 Company-owned restaurants and 103 franchised restaurants, and the Bakers Square pie and comfort food concept currently with 14 Company-owned restaurants and four locations where Bakers Square pies are licensed. On October 4, 2021, the Company opened its second Real Urban Barbecue restaurant located in Oak Brook, Illinois and on October 8, 2021 the Company acquired the Tahoe Joe's Steakhouse brand. On March 11, 2022 the Company acquired three bar-centric locations, collectively referred to as “Famous Craft Concepts”, and on April 25, 2022, the Company executed an Asset Purchase Agreement for another bar-centric restaurant. On April 11, 2022, the Company closed the purchase of Barrio Queen, a chain of seven authentic Mexican fine dining restaurants in Phoenix, Arizona.

The accompanying condensed consolidated balance sheet as of January 2, 2022, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Securities and Exchange Commission (“SEC”) Rules and Regulations. The information furnished in these condensed consolidated financial statements include normal recurring adjustments and reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited financial statements represent the condensed consolidated financial statements of the Company and its subsidiaries as of April 3, 2022 and January 2, 2022, and for the three months ended April 3, 2022 and April 4, 2021. The results for the three months ended April 3, 2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in BBQ Holdings, Inc.’s Annual Report on Form 10-K for the fiscal year ended January 2, 2022 as filed with the SEC on March 16, 2022.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic and the United States declared a National Public Health Emergency. As a result, public health measures were taken to minimize exposure to the virus. These measures, some of which are government-mandated, have been implemented globally resulting in a dramatic decrease in economic activity. During the first quarter of 2021, mandated restrictions began to ease in a number of the markets in which the Company operates. Although the Company has experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on its business remains uncertain, the duration and scope of which cannot currently be predicted. As new variants of COVID-19 are being discovered and cases continue to occur at material rates throughout the markets in which the Company does business, the Company cannot predict the severity of another surge, what additional restrictions may be enacted, to what extent it can maintain off-premise sales volumes, whether it can maintain sufficient staffing levels, or if individuals will be comfortable returning to its dining rooms during or following social distancing protocols, and what long-lasting effects the COVID-19 pandemic may have on the restaurants industry as a whole. The potential impact of the COVID-19 pandemic on consumer spending behavior, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, will determine the significance of the impact to the Company’s operating results and financial position.

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. Despite the fact that vaccines are now widely available across the country, there are widespread increases in diagnosed cases reported since the end of the second quarter of 2021 largely due to the spread of COVID-19 variants. The duration of the disruption on global, national, and local

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economies cannot be reasonably estimated at this time due to the ongoing effects of this situation. Management is continually evaluating the impact of this global crisis on its financial condition, liquidity, operations, suppliers, industry, and workforce and will take additional actions as necessary.

Income Taxes

The Company maintains a federal deferred tax asset (“DTA”) which was in the amount of $3.9 million as of April 3, 2022 and $3.7 million as of January 2, 2022. The Company evaluates the DTA on a quarterly basis to determine whether current facts and circumstances indicate that the DTA may not be fully realizable. As of April 3, 2022, the Company concluded that the DTA is fully realizable and that no further valuation allowance was necessary; however, the Company will continue to evaluate the DTA on a quarterly basis until the DTA has been fully utilized.

The following table presents the Company’s effective tax rates for the periods presented:

Three Months Ended

April 3, 2022

    

April 4, 2021

Effective tax rate

(59.4)

%

10.5

%

The Company uses the discrete method to calculate the quarterly tax provision due to its inability to reliably estimate annual ordinary income (loss). The Company provides for income taxes based on its estimate of federal and state income tax liabilities. These estimates include, among other items, effective rates for state and local income taxes, allowable tax credits for items such as taxes paid on reported tip income, estimates related to depreciation and amortization expense allowable for tax purposes, and the tax deductibility of certain other items. The Company’s estimates are based on the information available at the time that the Company prepares the income tax provision. The Company generally files its annual income tax returns several months after its fiscal year-end. Income tax returns are subject to audit by federal, state, and local governments, generally years after the tax returns are filed. These returns could be subject to material adjustments due to differing interpretations of the tax laws.

Cash and cash equivalents

Cash equivalents include all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and are not legally restricted. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000, while the remaining balances are uninsured.

Restricted cash and marketing fund

The Company has Marketing Development Funds, to which Company-owned Famous Dave’s and Village Inn restaurants, in addition to the majority of franchise-operated restaurants, contribute a percentage of net sales, for use in public relations and marketing development efforts. The funds held in this account are used in part to reimburse the Company for its marketing and digital services activities on behalf of the Famous Dave’s and Village Inn brands. The Company also receives funds from its suppliers to be used exclusively for point-of-sale equipment purchases for its own stores as well as its Famous Dave’s franchisees. As the assets held by these funds are considered to be restricted, the Company reflects the cash related to these funds within restricted cash and reflects the related liability within accrued expenses on its consolidated balance sheets. The Company had approximately $1.7 and $1.2 million in these funds as of April 3, 2022 and January 2, 2022, respectively.

Net income per common share

Basic net income per common share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the reporting period. Diluted EPS equals net income divided by the sum of the weighted average number of shares of common stock outstanding plus all additional common stock equivalents, such as stock options and restricted stock units, when dilutive.

The following table is a reconciliation of basic and diluted net income per common share:

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Three Months Ended

(in thousands, except per share data)

   

April 3, 2022

    

April 4, 2021

Net income per share – basic:

  

 

  

Net income attributable to shareholders

$

767

$

799

Weighted average shares outstanding - basic

 

10,552

 

9,208

Basic net income per share attributable to shareholders

$

0.07

$

0.09

Net income per share – diluted:

 

  

 

  

Net income attributable to shareholders

$

767

$

799

Weighted average shares outstanding - diluted

 

10,649

 

9,501

Diluted net income per share attributable to shareholders

$

0.07

$

0.08

There were approximately 20,250 and 24,000 stock options outstanding as of April 3, 2022 and April 4, 2021, respectively, that were not included in the computation of diluted EPS because they were anti-dilutive.

(2)          Restaurant Acquisitions

On February 21, 2022, the Company completed the acquisition of the assets and operations of a Famous Dave’s franchise location in La Crosse, Wisconsin. The contract purchase price of the restaurant was approximately $50,000, exclusive of closing costs plus the assumption of the lease, gift card, and certain other liabilities. The assets acquired and the liabilities assumed were considered to be immaterial and were recorded at estimated fair values based on information available, including an ROU asset and offsetting liability of approximately $682,000. Pro forma results were deemed immaterial to the Company.

On March 11, 2022, the Company completed the acquisiton of three bar-centric locations, two of which are Craft Republic locations and one of which is a Fox and Hound location (collectively, “Famous Craft Concepts” or “FCC”). The purchase price of $4.6 million was funded with cash. Due to the timing of the signing and closing of this acquisition, the initial accounting for this acquisition is incomplete as of the date of this filing. As such, complete ASC 805 “Business Combinations” disclosures could not be made. Management recorded preliminary fair values for the assets acquired and liabilities assumed based on information available as of the date of this filing and will adjust those estimates in a subsequent period once the full independent valuation and management review is finalized. The consolidated statements of operations include the results of these operations from the date of acquisition. Revenue and earnings of FCC included in the consolidated statements of operations in the quarter ended April 3, 2022 totaled approximately $603,000 and $121,000, respectively.

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The following table presents the allocation of assets acquired and liabilities assumed for the Famous Craft Concepts Transaction:

(in thousands)

Assets acquired:

Inventory

106

Property, plant, equipment and leasehold improvements, net

1,216

Lease right-of-use asset, net of unfavorable lease value

3,851

Identifiable intangible assets, net

689

Other current assets

30

Total identifiable assets acquired

5,892

Liabilities assumed:

Lease liability

(3,851)

Other current liabilities

(269)

Net assets acquired

1,772

Goodwill

2,639

Total consideration transferred

$

4,411

Unaudited pro forma results of operations for the three months ended April 3, 2022 as if the Company had acquired the operations of Famous Craft Concepts, Village Inn and Bakers Square, and Tahoe Joe’s at the beginning of each period presented is as follows. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future. For allocation of assets acquired and liabilities assumed regarding the Village Inn and Bakers Square and Tahoe Joe’s acquisitions see 10-K filed by the Company on March 16, 2022.

Three Months Ended

April 3, 2022

April 4, 2021

(in thousands)

Pro forma revenues

$

65,523

$

54,950

Pro forma net income attributable to shareholders

$

921

$

2,037

Basic pro forma net income per share attributable to shareholders

$

0.09

$

0.22

Diluted pro forma net income per share attributable to shareholders

$

0.09

$

0.21

(3)          Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following at:

(in thousands)

    

April 3, 2022

    

January 2, 2022

Prepaid expenses and deferred costs

 

$

1,891

 

$

2,241

Prepaid rent

1,368

1,384

Prepaid insurance

867

257

Other prepaid expenses

187

37

Prepaid expenses and other current assets

 

$

4,313

 

$

3,919

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(4)

Property, Equipment and Leasehold Improvements, net

Property, equipment and leasehold improvements, net, consisted of the following:

(in thousands)

April 3, 2022

January 2, 2022

Land, buildings, and improvements

$

40,622

$

39,632

Furniture, fixtures, equipment and software

 

34,125

 

33,565

Décor

 

434

 

434

Construction in progress

 

175

 

Accumulated depreciation and amortization

 

(35,608)

 

(33,688)

Property, equipment and leasehold improvements, net

$

39,748

$

39,943

(5)          Intangible Assets, net

The Company has intangible assets that consist of liquor licenses, database, trademarks and patents, and franchise rights, net. The liquor licenses and trademarks/logos are indefinite-lived assets and are not subject to amortization. Franchise rights are amortized to depreciation and amortization expense on a straight-line basis over the remaining life of the franchise agreement.

Intangible assets consisted of the following:

(in thousands)

April 3, 2022

    

January 2, 2022

Franchise rights, net

10,741

11,104

Liquor licenses

981

1,018

Trademark/Logos/Patents

11,922

11,233

Database

70

89

Intangible assets, net

$

23,714

$

23,444

(6)         Other Current Liabilities

Other current liabilities consisted of the following at:

(in thousands)

    

April 3, 2022

January 2, 2022

Sales tax payable and state income tax payable

 

1,763

 

1,657

Other accrued expense

2,319

3,613

Accrued real estate taxes

2,240

2,170

Accrued interest

 

28

 

26

Accrued utilities

568

560

Deferred revenue, other

1,716

366

Deferred franchise fees

 

118

 

118

Other current liabilities

$

8,752

$

8,510

(7)          Long-Term Debt

On November 23, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. The Credit Agreement had a five-year term and provided for up to a $5.0 million revolving line of credit and a $15.0 million term loan. The Credit Agreement also provided for the issuance of letters of credit in an aggregate amount up to $1,000,000 which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness previously owed to Choice Financial Group. The proceeds were also used for accretive capital allocation and for working capital purposes.

The Credit Agreement was amended on April 11, 2022 (the “Amended Credit Agreement”), increasing the revolving line of credit to $25.0 million and the term loan to $25.0 million. The Amended Credit Agreement has a five-year term. Proceeds of

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borrowings shall be used for accretive capital allocation and for working capital purposes. Specifically, a portion of the increased borrowings was used to fund the acquisition of Barrio Queen that closed on April 11, 2022. The Company’s obligations under the Amended Credit Agreement are secured by substantially all of its assets, excluding real property. Subject to certain conditions, borrowings under the Amended Credit Agreement bear interest in the range of 1.75% to 2.25% per annum plus SOFR. If SOFR becomes unavailable, the replacement rate will be determined pursuant to the terms of the Amended Credit Agreement. Quarterly principal payments are required with a balloon payment due at maturity.

The Amended Credit Agreement contains customary representations, warranties and covenants, including the financial covenants to maintain a rent adjusted leverage ratio not greater than 4.5 to 1.0 and a fixed charge coverage ratio of not less than 1.1 to 1.0. In addition, the Amended Credit Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, to make restricted payments such as dividends and stock repurchases, and to make capital expenditures in excess of $10.0 million in the aggregate during any fiscal year.

Debt outstanding consisted of the following as of the periods presented:

    

(in thousands)

    

April 3, 2022

January 2, 2022

Term Loan

$

14,438

  

$

15,000

Less: deferred financing costs

 

(213)

  

 

(209)

Less: current portion of long-term debt

 

(1,406)

  

 

(1,594)

Long-term debt, less current portion

$

12,819

  

$

13,197

(8)        Leases

The Company leases the property for its corporate headquarters, most of its Company-owned stores, and certain office and restaurant equipment. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities in its consolidated balance sheets.

Lease expense for lease payments is recognized on a straight-line basis over the lease term and is included in operating expenses and general and administrative expenses on the statement of operations. The components of lease expense for the period presented is as follows:

Three Months Ended

Three Months Ended

(in thousands)

April 3, 2022

April 4, 2021

Operating lease cost

$

3,742

$

2,442

Short-term lease cost

128

96

Variable lease cost

216

368

Sublease income

(54)

(44)

Total lease cost

$

4,032

$

2,862

Supplemental cash flow information related to leases for the period presented is as follows:

Three Months Ended

Three Months Ended

(in thousands)

April 3, 2022

April 4, 2021

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$

3,964

$

2,155

Right-of-use assets obtained in exchange for new operating lease liabilities

5,451

-

Weighted-average remaining lease term of operating leases (in years)

7.88

10.10

Weighted-average discount rate of operating leases

4.62

%

5.27

%

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(9)        Revenue Recognition

Deferred franchise fee revenue included in other liabilities consist primarily of franchise fees which are recognized straight-line over the life of the agreements, and area development fees which are deferred until a new restaurant is opened pursuant to the agreement. The following table illustrates estimated revenues expected to be recognized in the future related to unsatisfied performance obligations as of April 3, 2022:

(in thousands)

    

    

Fiscal Year

 

  

2022

$

90

2023

 

112

2024

 

136

2025

 

79

2026

 

167

Thereafter

 

216

Total

$

800

The following table reflects the change in contract liabilities between January 2, 2022 and April 3, 2022:

(in thousands)

April 3, 2022

Beginning Balance

$

806

Additions

25

Revenue recognized

(31)

Ending Balance

$

800

(

(10)       Stock-based Compensation

Effective May 5, 2015, the Company adopted the 2015 Equity Plan (the “2015 Plan”), pursuant to which it may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other stock and cash awards to eligible participants. The number of common stock reserved for issuance is 2,000,000. The Company also maintains an Amended and Restated 2005 Stock Incentive Plan (the “2005 Plan”). The 2005 Plan expired in 2015 and no additional options may be granted. Nonetheless, the 2005 Plan will remain in effect until all outstanding incentives granted thereunder have either been satisfied or terminated. As of April 3, 2022, there were 552,082 shares available for grant pursuant to the 2015 Plan.

Stock options granted to employees and directors generally vest over two to five years, in monthly or annual installments, as outlined in each agreement. Options generally expire ten years from the date of grant. Compensation expense equal to the grant date fair value of the options is recognized in general and administrative expense over the applicable service period.

The Company utilizes the Black-Scholes option pricing model when determining the compensation cost associated with stock options issued using the following significant assumptions:

Stock price – Published trading market values of the Company’s common stock as of the date of grant.
Exercise price – The stated exercise price of the stock option.
Expected life – The simplified method as outlined in ASC 718.
Expected dividend – The rate of dividends that the Company expects to pay over the term of the stock option.
Volatility – Actual volatility over the most recent historical period equivalent to the expected life of the option.
Risk-free interest rate – The daily United States Treasury yield curve rate.

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The Company recognized stock-based compensation expense in its consolidated statements of operations for the three months ended April 3, 2022, and April 4, 2021, respectively, as follows:

Three Months Ended

(in thousands)

    

April 3, 2022

    

April 4, 2021

Stock options

$

87

$

89

Restricted stock

 

297

 

229

$

384

$

318

Information regarding the Company’s stock options is summarized below:

    

    

Weighted

Average

Remaining

Number of 

Weighted Average 

Contractual

(number of options in thousands)

    

Options

    

Exercise Price

    

Life in Years

Options outstanding at January 2, 2022

 

388

$

7.13

7.3

Granted

 

 

Exercised

(28)

3.70

Canceled, forfeited or expired

Options outstanding at April 3, 2022

 

360

$

7.40

7.2

Three Months Ended

    

April 3, 2022

April 4, 2021

Weighted-average fair value of options granted during the period

$

$

2.74

Expected life (in years)

 

 

2.5

Expected dividend

$

$

Expected stock volatility

 

%

 

76.48

%

Risk-free interest rate

 

%

 

0.2

%

Information regarding the Company’s restricted stock is summarized below:

    

    

Weighted

Average

Remaining

Number of

Weighted Average 

Contractual

(number of awards in thousands)

    

Awards

    

Award Date Fair Value

    

Life in Years

Unvested at January 2, 2022

 

305

$

5.75

2.1

Granted

 

235

 

13.80

Exercised/Released

(6)

10.25

Canceled, forfeited or expired

(2)

13.25

Unvested at April 3, 2022

 

532

$

9.21

2.6

(11)

Shareholders’ Equity

On June 24, 2021, the Company entered into two separate Securities Purchase Agreements (each, a “Securities Purchase Agreement”) with institutional investors pursuant to which the Company raised (i) gross proceeds of $10,000,000, pursuant to an agreement to sell 800,000 shares of the Company’s common stock , and (ii) gross proceeds of $3,000,000 pursuant to an agreement to sell 200,000 shares of the Company’s common stock (such shares of common stock collectively referred to herein as the “Securities”, and the aggregate sale of 1,000,000 Securities referred to herein as the “Offering”). The Company used the net proceeds of the Offering for the VIBS Transaction described in Note 2 Restaurant Acquisitions found in our fiscal 2021 10-K filing. In connection with the closing of the Offering, the Company paid expenses of approximately of $572,000.

As part of each Securities Purchase Agreement, the Company agreed to register the Securities sold in the Offering (the “Registrable Securities”) for resale or other disposition, pursuant to a Registration Rights Agreement with each investor (each, a

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“Registration Rights Agreement”).  On August 4, 2021, the Company filed with the Securities and Exchange Commission (the “SEC”) a shelf registration statement with respect to the resale of the Registrable Securities.  The shelf registration statement was declared effective by the SEC September 3, 2021. The Company agreed to keep the shelf registration statement effective until such time as all Registrable Securities may be sold pursuant to Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) without the need for current public information or other restrictions. If the Company is unable to comply with any of the above covenants, it will be required to pay liquidated damages to the investors in the amount of 1% of the investors’ purchase price for every month until such non-compliance is cured (subject to a 6% cap), with such liquidated damages payable in cash.

(12)        Variable Interest Entities

A variable interest holder is considered to be the primary beneficiary of a variable interest entity (“VIE”) if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Once an entity is determined to be a VIE, the primary beneficiary is required to consolidate the entity. The Company has an installment agreement with one of its franchisees as a result of refranchising its Lincoln, Nebraska restaurant. This franchisee is a VIE; however, the owners of the franchise operations are the primary beneficiaries of the entities, not the Company. Therefore, the franchise operations are not required to be consolidated in the Company’s consolidated financial statements.

On July 18, 2018, the Company and Clark Championship Products LLC (“Clark”), an entity owned by Travis Clark, became members of Mercury BBQ LLC (“Mercury”) for the purposes of building out and operating the inaugural Clark Crew BBQ restaurant in Oklahoma City, Oklahoma (the “Restaurant”). Clark owns 80% of the units outstanding of Mercury and the Company owns 20% of the units outstanding of Mercury. Also in July 2019, the Company entered into a secured promissory note with Mercury which was amended in October 2019. This promissory note as amended (the “Loan”) was in the amount of $3.9 million, the proceeds of which are required to be used for the build out of the Restaurant. The Loan bears interest at a rate of 8% per annum and requires payments of 100% of the excess monthly cash flows until the Loan and all interest accrued thereon is repaid. The Loan requires a balloon payment of unpaid principal and accrued interest on July 15, 2025 and may be prepaid at any time. Also on July 18, 2018, the Company and Clark entered into an intellectual property license agreement (the “License Agreement”) pursuant to which Clark granted to the Company an exclusive license to use and sublicense the patents, trademarks, trade names, service marks, logos and designs related to Clark Crew BBQ restaurants and products. The term of the License Agreement is indefinite and may only be terminated by mutual written consent, unless the Company breached the License Agreement.

Because the Company has provided more than half of the subordinated financial support of Mercury and control Mercury via its representation on the board of managers, the Company has concluded that Mercury is a VIE, of which the Company is the primary beneficiary and must consolidate Mercury. Mercury generated net loss of approximately $150,000 during the first quarter of fiscal year 2022, of which $120,000 was recorded as non-controlling interest on our condensed consolidated financial statements.  During the first quarter of fiscal year 2021, Mercury generated a net loss of approximately $128,000, of which $102,000 was recorded as non-controlling interest on our condensed consolidated financial statements.  As of April 3, 2022, Mercury’s assets included approximately $2.4 million of property, equipment and leasehold improvements, net, a $1.7 million ROU asset and $121,000 of inventory.  The liabilities recognized as a result of consolidating Mercury BBQ’s results of operations do not represent additional claims on the general assets of BBQ Holdings, Inc.; rather, they represent claims against the specific assets of the Mercury BBQ’s. Conversely, assets recognized as a result of consolidating the Mercury BBQ’s results of operations do not represent additional assets that could be used to satisfy claims against the general assets of BBQ Holdings.

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(13)        Litigation

In the normal course of business, the Company is involved in a number of litigation matters that are incidental to the operation of the business. These matters generally include, among other things, matters with regard to employment, leases and general business-related issues. The Company currently believes that the resolution of any of these pending matters will not have a material adverse effect on its financial position or liquidity, but an adverse decision in more than one of the matters could be material to its consolidated results of operations.

(14) Related Party Transactions

Charles Davidson, a franchisee of the Company, currently serves as a director of the Company and is the beneficial owner of approximately 15.7% of the Company’s common stock as of the date that these financial statements were available to be issued, by virtue of his ownership interest in Wexford Capital.

The following table outlines amounts received from related parties during the three months ended April 3, 2022, and April 4, 2021, respectively:

Three Months Ended

(in thousands)

April 3, 2022

    

April 4, 2021

Revenues and NAF contributions - Charles Davidson

167

138

The following table outlines accounts receivable from related parties as of April 3, 2022 and January 2, 2022:

(in thousands)

April 3, 2022

    

January 2, 2022

Accounts receivable, net - Charles Davidson

71

64

(15) Subsequent Events

On March 10, 2022, the Company executed an Asset Purchase Agreement for substantially all the assets related to the Barrio Queen restaurant group, and closed the transaction on April 11, 2022. Barrio Queen is known for their authentic Mexican fine dining in Phoenix, Arizona. There are currently seven operating restaurants and a lease signed for an eighth with a target opening date in 2023. The purchase price of approximately $28.5 million was funded with cash and debt.

On April 11, 2022, the Company refinanced its debt agreement with JPM Chase bank (the “Amended Credit Agreement”), increasing the revolving line of credit to $25.0 million and the term loan to $25.0 million. The Amended Credit Agreement has a five-year term. Proceeds of borrowings shall be used for accretive capital allocation and for working capital purposes. Specifically, a portion of the increased borrowings was used to fund the acquisition of Barrio Queen that closed on April 11, 2022. The Company’s obligations under the Amended Credit Agreement are secured by substantially all of its assets, excluding real property. Subject to certain conditions, borrowings under the Amended Credit Agreement bear interest in the range of 1.75% to 2.25% per annum plus SOFR.

On April 25, 2022, the Company executed an Asset Purchase Agreement for another bar-centric restaurant, and we expect to close the transaction in Q2 2022. The purchase price of $3.4 million will be funded with cash.

On May 2, 2022, the Company completed the acquisition of the assets and operations of two Famous Dave’s franchise locations in Nebraska, for total consideration of approximately $400,000.

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

In September 2019 a holding company reorganization was completed in which Famous Dave’s of America, Inc. (“FDA”) became a wholly owned subsidiary of the new parent holding company named BBQ Holdings, Inc. (“BBQ Holdings”). As used in this Form 10-Q, “Company”, “we” and “our” refer to BBQ Holdings and its wholly owned subsidiaries. BBQ Holdings was incorporated on March 29, 2019 under the laws of the State of Minnesota, while FDA was incorporated in Minnesota on March 14, 1994. The Company develops, owns and operates restaurants under the name “Famous Dave’s”, “Village Inn”, “Barrio Queen”, “Granite City”, Real Urban Barbecue”, “Clark Crew BBQ”, “Tahoe Joe’s Steakhouse”, “Bakers Square”, “Craft Republic”, and “Fox & Hound”. Additionally, the Company franchises restaurants under the name “Famous Dave’s” and “Village Inn”. As of April 3, 2022, there were 144 Famous Dave’s restaurants operating in three countries, including 40 Company-owned restaurants and 104 franchise-operated restaurants. This includes the eight Famous Dave’s ghost kitchens the Company operates out of its Granite City restaurants. The first Clark Crew BBQ restaurant opened in December 2019 in Oklahoma City, Oklahoma. BBQ Holdings has a 20% ownership in this venture. The Company owns and operates 18 Granite City Food & Brewery restaurants located throughout the Midwest and two Real Urban Barbecue restaurants located in Illinois. On July 30, 2021, the Company completed the purchase of the Village Inn family restaurant concept currently with 22 Company-owned restaurants and 103 franchised restaurants, and the Bakers Square pie and comfort food concept currently with 14 Company-owned restaurants and four locations where Bakers Square pies are licensed. On October 4, 2021, the Company opened its second Real Urban Barbecue restaurant located in Oak Brook, Illinois and on October 8, 2021 the Company acquired the Tahoe Joe's Steakhouse brand. On March 11, 2022 the Company acquired three bar-centric locations, collectively referred to as “Famous Craft Concepts”, and on April 25, 2022, the Company executed an Asset Purchase Agreement for another bar-centric restaurant. On April 11, 2022, the Company closed the purchase of Barrio Queen, a chain of seven authentic Mexican fine dining restaurants in Phoenix, Arizona.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic and the United States declared a National Public Health Emergency. As a result, public health measures were taken to minimize exposure to the virus. These measures, some of which are government-mandated, have been implemented globally resulting in a dramatic decrease in economic activity. During the first quarter of 2021, mandated restrictions began to ease in a number of the markets in which the Company operates. Although the Company has experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on its business remains uncertain, the duration and scope of which cannot currently be predicted. As new variants of COVID-19 are being discovered and cases continue to occur at material rates throughout the markets in which the Company does business, the Company cannot predict the severity of another surge, what additional restrictions may be enacted, to what extent it can maintain off-premise sales volumes, whether it can maintain sufficient staffing levels, or if individuals will be comfortable returning to its dining rooms during or following social distancing protocols, and what long-lasting effects the COVID-19 pandemic may have on the restaurants industry as a whole. The potential impact of the COVID-19 pandemic on consumer spending behavior, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, will determine the significance of the impact to the Company’s operating results and financial position.

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

The following table includes the number of Company-owned and franchise-operated restaurants as of the dates presented:

BBQ Holdings

Three Months Ended

Three Months Ended

April 3, 2022

April 4, 2021

Company-owned restaurants:

Famous Dave's

40

27

Granite City Food & Brewery

18

18

Real Urban Barbecue

2

1

Clark Crew BBQ

1

1

Village Inn

22

Bakers Square

14

Tahoe Joe's

4

Famous Craft Concepts

3

End of period

104

47

% of system

33

%

32

%

Franchise-operated and licensed restaurants:

Famous Dave's

104

100

Village Inn

103

Bakers Square

4

End of period

211

100

% of system

67

%

68

%

System end of period total

315

147

Of the 104 franchise-operated restaurants, 19 are Famous Dave’s ghost kitchens operating out of the kitchen of another restaurant location or a shared kitchen space. Additionally, eight of our Granite City locations are operating Famous Dave’s ghost kitchens under licensing agreements.

Fiscal Year

Our fiscal year ends on the Sunday closest to December 31st. Our fiscal year is generally 52 weeks; however, it periodically consists of 53 weeks. Both fiscal year 2022, ending January 1, 2023, and fiscal year 2021, ended January 2, 2022, consist of 52 weeks.

Revenue

Our revenue consists of restaurant sales, franchise-related revenue and licensing, national advertising fund contributions and other revenue. Our franchise-related revenue is comprised of three separate and distinct earnings processes: area development fees, initial franchise fees, and continuing royalty and national advertising fund payments. Currently, our domestic area development fee consists of a one-time, non-refundable payment of approximately $15,000 per restaurant in consideration for the services we perform in preparation of executing each area development agreement. For our international area development agreements, the one-time, non-refundable payment is negotiated on a per development basis and is determined based on the costs incurred to arrange for the sale of that development area. Currently, our initial, non-refundable, franchise fee for domestic growth depends on the restaurant model and varies from $15,000 to $45,000 per location. Finally, franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales. Licensing revenue includes royalties from a retail line of business, including Famous Dave’s branded sauces, rubs, marinades and seasonings. Other revenue includes the recognition of gift card breakage, opening assistance and training we provide to our franchise partners, the sale of Real Urban Barbeque consumer packaged goods, and the sale of raw brewing products produced at the Granite City brewing facility.

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

Costs and Expenses

Restaurant costs and expenses include food, beverage and merchandise costs; labor and benefits costs; and operating expenses, which include occupancy costs, repair and maintenance costs, supplies, advertising and promotion. Certain of these costs and expenses are variable and will increase or decrease with sales volume. The primary fixed costs are restaurant management, operations, and catering support salaries, occupancy and insurance costs.

General and Administrative Expenses

General and administrative expenses include all corporate and administrative functions to support future growth. Salaries and benefits, legal fees, accounting fees, professional consulting fees, travel, rent and general insurance are major items in this category. We also provide franchise services for which the revenue is included in other revenue and the expenses are included in general and administrative expenses.

Results of Operations – the three months ended April 3, 2022 compared to the three months ended April 4, 2021.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes, and the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022.

The table below presents items in our unaudited condensed consolidated statements of operations as a percentage of net restaurant sales or total revenue, as indicated, for the periods presented.

Three Months Ended

April 3, 2022

    

April 4, 2021

    

    

Food and beverage costs(1)

31.3

%  

29.9

%  

 

Labor and benefits costs(1)

33.0

%  

30.5

%