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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☑
☐
Commission file number 001-39053
BBQ HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota
State or Other Jurisdiction of
Incorporation or Organization
12701 Whitewater Drive, Suite 290
Minnetonka, MN
Address of Principal Executive Offices
83-4222776
I.R.S. Employer Identification No.
55343
Zip Code
Registrant’s Telephone Number, Including Area Code (952) 294-1300
Securities registered pursuant to Section 12(b) of the Act:
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
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑
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 ☐
Non-accelerated Filer ☐
Emerging Growth Company ☐
Accelerated Filer ☐
Smaller Reporting 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 ☑
The aggregate market value of common stock held by non-affiliates of the registrant was approximately $17.3 million as of June 30, 2019, (the last
business day of the registrant’s most recently completed second quarter), assuming solely for the purpose of this calculation that all directors, officers,
and more than 10% shareholders of the registrant are affiliates. The determination of affiliate status for this purpose is not necessarily conclusive for any
other purpose. As of March 27, 2020, 9,272,105 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the definitive Proxy Statement for our 2020 Annual Meeting of Shareholders
which is to be filed within 120 days after the end of the fiscal year ended December 29, 2019, are incorporated by reference into Part III of this Form 10-K,
to the extent described in Part III.
Table of Contents
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
TABLE OF CONTENTS
Page
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
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Certain statements contained in this Annual Report on Form 10-K include “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are based on
information currently available to us as of the date of this Annual Report, and we assume no obligation to update any
forward-looking statements except as otherwise required by applicable law. Forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future
results, performance or achievements expressed or implied by such forward-looking statements. Such factors may include,
among others, those factors listed in Item 1A of and elsewhere in this Annual Report and our other filings with the
Securities and Exchange Commission (“SEC”). The following discussion should be read in conjunction with our financial
statements and related footnotes appearing elsewhere in this Annual Report.
PART I
ITEM 1. BUSINESS
Summary of Business Results and Plans
On September 17, 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-K, “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, operates and franchises restaurants
under the name “Famous Dave’s”, “Clark Crew BBQ”, “Granite City Food & Brewery” and “Real Urban Barbecue.” As
of December 29, 2019, there were 128 Famous Dave’s restaurants operating in 32 states, Canada, and the United Arab
Emirates, including 32 Company-owned restaurants and 96 franchise-operated restaurants. The first Clark Crew BBQ
restaurant opened in December 2019 in Oklahoma City, Oklahoma. On March 16, 2020, we purchased one Real Urban
Barbecue restaurant located in Vernon Hills, Illinois. On March 9, 2020, we purchased 18 Granite City Food & Brewery
restaurants in connection with a Chapter 11 bankruptcy filing.
Unless otherwise designated, the following description of our business relates to the Famous Dave’s restaurant
operation. The following table summarizes the changes in the number of Company-owned and franchise-operated
restaurants for the fiscal years ended December 29, 2019 and December 30, 2018:
Company-owned restaurants:
Beginning of period
New
Repurchased by the Company
Closed
End of period
% of system
Franchise-operated restaurants:
Beginning of period
New
(Repurchased) by the Company
Closed
End of period
% of system
System end of period total
Famous Dave's
Year Ended
Year Ended
December 29, 2019 December 30, 2018
17
1
18
(4)
32
25 %
127
3
(18)
(16)
96
75 %
128
16
—
2
(1)
17
12 %
134
2
(2)
(7)
127
88 %
144
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As of December 29, 2019, BBQ Holdings restaurants operated in 32 states, Canada, and the United Arab
Emirates.
In fiscal 2019, we continued our focus on increasing sales and traffic through various initiatives. These initiatives
included; New SMS text platform, Daily Deals promotion targeted at driving weekly dine-in traffic, Plant-Based menu
limited-time offering, new menu item testing, continued testing of restaurant refreshes and enhancing our online ordering
experience. Off-Premise was a key driver of our sales growth and we continued to expand on these capabilities while also
driving adoption in our franchise community.
In October of 2018, we launched our new menu including an average of 10 new menu items across our system. In
2019, we continued to focus and analyze these items while also testing new items like Pretzels and Bratwurst. We also
rolled out our Game Day Sampler, which was a “finger-food” based platter utilized as a promotion for various sporting
events throughout the year.
In the second quarter of 2019, we launched an SMS-Text program in order to increase frequency and simplify our
interaction with loyal guests. This program was a large success in driving traffic and we look to continue building on this
program in fiscal 2020.
In fiscal 2020 we will continue our focus on driving sales by expanding on 2019 initiatives along with a new
menu pricing strategy and continuing our restaurant refresh program. We are also working diligently to drive unit level
margins with a focus on managing controllable costs in our restaurants. We believe continued adoption of technology will
help offset increases in labor costs and working to streamline back-of-house operations. Some of these technology tests
include; Handheld tablets, Kitchen Display Systems, Tabletop ordering and Kiosks.
In Fiscal 2019, our Franchisees opened two small format Restaurants and Famous Dave’s opened one. We look to
continue evaluating these prototypes in fiscal 2020 for continued unit growth.
Throughout this Annual Report on Form 10-K, we refer to certain metrics of our franchise-operated restaurants;
however, franchise-operated restaurants are not owned by us and therefore are not included in our consolidated results of
operations and financial position. We believe that disclosure of certain information related to franchise-operated restaurants
provides useful information to investors as the performance of franchise-operated restaurants directly impacts royalty and
other revenues that we receive from our franchisees and has an impact on the perceived success and value of the Famous
Dave’s brand.
Financial Information about Segments
Since its inception, our revenue, operating income and assets have been attributable to the single industry segment
of the foodservice industry. Our revenue and operating results for each of the last two fiscal years, and our assets for each
of the last two fiscal years, are disclosed in Item 8. Financial Statements and Supplementary Data to this Annual Report on
Form 10-K.
Narrative Description of Business
Famous Dave’s restaurants, a majority of which offer full table service, feature wood-smoked and off-the-grill
entrée favorites that fit into the barbeque category. We differentiate ourselves by providing high-quality food in distinctive
and comfortable environments with signature décor and signage. As of December 29, 2019, 25 of our Company-owned
restaurants are full-service and 5 are counter-service. Our prototypical design includes a designated bar, a signature exterior
smokestack, a separate entrance for our To Go business and a patio. The Famous Dave’s concept can be adapted to fit
various location sizes and desired service styles such as full-service or counter-service.
In fiscal 2019, our franchisees opened a Famous Dave’s restaurant in El Centro, Texas, Tucson, Arizona, Provo,
Utah, and Abu Dhabi, United Arab Emirates. In fiscal 2019, Famous Dave’s opened a location in Minneapolis, Minnesota
to replace the Calhoun Square location, which closed in the second quarter of fiscal 2019. In fiscal 2018, our franchisees
opened a restaurant in El Paso, Texas and Fort Mill, South Carolina. In fiscal 2020 we may look to
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incentivize our franchisees to open additional restaurants. We offer conversion packages that provide our franchisees with
the flexibility to convert existing restaurants as well as existing retail footprints into a Famous Dave’s restaurant. Given the
flexibility and scalability of our concept, we believe that there are a variety of development opportunities available now
and in the future.
We pride ourselves on the following:
High Quality Food – Each restaurant features a distinctive selection of authentic hickory-smoked and off-the-grill
barbecue favorites, such as flame-grilled St. Louis-style and baby back ribs, Texas beef brisket, Georgia chopped pork,
country-roasted chicken and signature sandwiches and salads. Also, enticing side items, such as corn bread, potato salad,
coleslaw and Wilbur BeansTM, accompany the broad entrée selection. Handmade desserts, including BBQ Holdings Bread
Pudding and Banana Pudding, are another specialty. To complement our entrée and appetizer items and to suit different
customer tastes, we offer six regional barbeque sauces: Rich & Sassy®, Texas PitTM, Georgia MustardTM, Devil’s Spit®,
Sweet and ZestyTM and Wilbur’s RevengeTM. These sauces, in addition to a variety of seasonings, rubs, marinades and
other items are also distributed in retail grocery stores throughout the country under licensing agreements.
Focus on Guest Experience – We believe that a renewed focus on enhancing our Guests’ experience and listening
to their feedback is essential. In fiscal 2018, we remodeled our Coon Rapids location, including a new design, color
scheme, furniture, audio visual, fixtures & equipment and a revised menu with over 20 new items. We believe a positive
Guest experience, combined with our high-quality food, makes BBQ Holdings appealing to a diverse and broad
demographic profile. In fiscal 2019, we remodeled two additional locations in Minnetonka, MN and Westbury NY. These
remodels tested a new modern design including wall murals, lighter and more welcoming dining rooms and upgraded
lighting. We expect to continue refreshing restaurants in 2020. Throughout 2018, we implemented various guest facing
initiatives and in 2019, we worked on enhancing those items. In addition to our Mobile App, we rolled a SMS-Text
program, and enhanced our Online ordering experience.
Distinctive Environment - Décor and Music – Our original décor theme was a nostalgic roadhouse shack
(“Original Shack”), as defined by the abundant use of rustic antiques and Americana items. This format was used for both
full-service and counter-service restaurant formats. In late 1997, we introduced the “Lodge” format which featured décor
reminiscent of a comfortable “Northwoods” hunting lodge with a full-service dining room and small bar. We have evolved
our format to that of a full-service concept with several “prototypical” designs that incorporate the best attributes of the
past restaurants while providing a consistent brand image. Our Coon Rapids remodel showcases a modern, contemporary
vibe that we believe will appeal to a younger demographic while still resonating with our current core Guest. We continued
these enhancements in 2019, with Minnetonka and Westbury. Our franchise partners also remodeled 10 units across 2019
with these new elements. We have an additional eight Corporate remodels planned for 2020.
Granite City Food & Brewery – Founded in 1999 as a single store restaurant in St. Cloud, Minnesota, the Granite
City brand has built a strong reputation in the Midwest for its award-winning craft beer and made-from-scratch craft food.
Granite City’s menu is chef driven and designed to introduce guests to innovative new cuisine choices and flavor profiles.
This concept has separated itself from competition in the casual dining segment through its offering of craft beer expertise,
on-site brewing and exceptional Guest experience.
Operating Strategy
Our ability to achieve sustainable profitable growth is dependent upon delivering high-quality experiences in
terms of food and hospitality, consistently. Key elements of our strategy include the following:
Operational Excellence – During fiscal 2019, we continued to focus on operational excellence and integrity, and
on creating a consistently enjoyable Guest experience, both in terms of food and hospitality, across our system. We define
operational excellence as unyielding commitment to superior service for our Guests during every visit. We continue to
look for ways to provide convenience and value to our Guests through reducing ticket times and streamlining
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off-premise operations. Operational excellence involves daily monitoring to ensure we execute our recipes at a high level
inclusive of preparation, cooking, and handling procedures, rotation, sanitation, cleanliness and safety.
Our Famous Dave’s menu focuses on a number of popular smoked, barbequed, grilled meats, entrée items and
delicious side dishes which are prepared using proprietary seasonings, sauces and mixes. In order to enhance our appeal,
expand our audience, increase frequency, and feature our cravable products, our culinary team has developed a product
pipeline, which will allow us to offer new exciting items throughout the year. In fiscal 2019, we continued our analysis of
the new Famous Dave’s menu items launched in 2018 while also testing some new items like Pretzels, Bratwurst, and plant
based menu items.
Human Resources and Training/Development - A key ingredient to our success lies with our ability to hire, train,
engage and retain employees at all levels of our organization. We place a great deal of importance on creating an
exceptional working environment for all of our employees. Through our human resource and training and development
resources, tools and programs, we continually enhance and support superior performance within our restaurants and
support center.
We are a performance-based organization, committed to recognizing and rewarding performance at all levels of
the organization. Our performance management process includes performance calibration as a means of providing
measurable, comparative employee evaluations relative to peer contribution, taking into account specific core
competencies and goals. It is designed to provide a complete picture of performance that is consistent across the
organization. We offer a total rewards program that is benchmarked closely against the industry and includes health and
welfare coverage, 401(k) and non-qualified deferred compensation with a company match, base pay and incentive pay
programs developed to sustain our competitive position in the market. Our human resource and training teams focus on the
selection and retention of talent through programs in overall workforce planning, performance management, development,
safety and risk reduction, and continued enhancements in our organizational structures for all positions in the business.
In the training and development arena, we offer a variety of ongoing on-the-job and classroom and eLearning
training programs for the operations teams (hourly employees, restaurant managers) in an effort to create defined career
paths. Our management training program provides new restaurant managers a foundational-based training for restaurant
operations and several learning sessions focused on the basic behaviors and skills of a manager. As an enhancement to our
current management training curricula, in 2020 we are preparing to offer a series of general manager workshops for all of
our corporate and franchise general managers with the goal of increasing knowledge specific to the brand and overall skill
enhancement that will further develop and hone in on skills acquired during the original management training experience
and those specific to the role of the general manager.
Restaurant Operations
Our ability to manage multiple restaurants in geographically diverse locations is central to our overall success. In
each market, we place specific emphasis on the position of general manager, and seek talented individuals that bring a
diverse set of skills, knowledge, and experience to our company. We strive to maintain quality and consistency in each of
our restaurants through the careful training and supervision of employees and the establishment of, and adherence to, high
standards relating to performance, food and beverage preparation, and maintenance of facilities.
All managers must complete an eight-week training program, during which they are instructed in areas such as
food quality and preparation, customer service, hospitality, and employee relations. We have prepared operations manuals
relating to food and beverage quality and service standards. New employees participate in training under the supervision of
our management. We have a vice president of operations who is responsible for overseeing all Company-owned
restaurants. This individual as well as our area directors, work closely with the general managers to support day-to-day
restaurant operations. In addition, the vice president and area directors assist in the professional development of our general
managers and are instrumental in driving our vision of operational integrity and contributing to the improvement of results
achieved at our restaurants, including building sales, developing personnel and growing profits. The area directors oversee
10-12 locations and report to our vice president of operations. Our vice president of operations reports directly to our senior
vice president of operations at BBQ Holdings.
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Off-Premise Occasions - Focus on Convenience
In addition to our lively and entertaining dine-in experience, we provide our Guests with maximum convenience
by offering an expedient take-out service along with catering and delivery. We believe that Famous Dave’s entrées and side
dishes are viewed by Guests as traditional American "picnic foods" that maintain their quality and travel particularly well,
making them an attractive choice to replace a home-cooked meal. The high quality, fair prices and avoidance of preparation
time make take-out of our product particularly attractive. Our off-premise sales provide us with revenue opportunities
beyond our in-house seating capacity and we continue to seek ways to leverage these segments of our business. We see
catering and delivery as a tremendous opportunity for new consumers to access our business. Every restaurant has
dedicated vehicles to support our catering initiatives and many restaurants are served by multiple third-party delivery
providers.
Our restaurants have been designed specifically to accommodate a significant level of To Go sales, including a
separate To Go entrance with prominent and distinct signage, and, for added convenience, we separately staff the To Go
counter. To further enhance To Go sales, we offer our Guest the ability to order online to improve convenience. We believe
our focus on To Go enables Famous Dave’s to capture a greater portion of the “take-out” market by allowing consumers to
“trade within our brand,” when dining in is not always an option. We pursue efforts to increase awareness of To Go in all
Company-owned and franchise-operated restaurants by featuring signage and merchandising both inside and outside the
restaurants. Additionally, we contract with several Delivery Service Providers (“DSP”) to offer our Guests additional
methods for receiving our food.
Guest Satisfaction – We believe that we achieve a significant level of repeat business by providing high-quality
food, efficient friendly service, and warm caring hospitality in an entertaining environment at moderate prices. We strive to
maintain quality and consistency in each of our restaurants through the purposeful hiring, training and supervision of
personnel and the establishment of, and adherence to, high standards of performance, food preparation and facility
maintenance. We have also built family-friendly strategies into each restaurant’s food, service and design by providing
children’s menus, smaller-sized entrees at reduced prices and changing tables in restrooms.
Value Proposition and Guest Frequency – We offer high quality food and a distinctive atmosphere at competitive
prices to encourage frequent patronage. Lunch and dinner entrees range from $6.99 to $27.99, resulting in a per person
dine-in and To Go average of $15.63 during fiscal 2019. During fiscal 2019, the per person dine-in and To Go tickets for
lunch averaged $14.09 and for dinner averaged $16.73. We launched a “Famous Deals” program in the third quarter of
fiscal 2019 intended to drive weekday dine-in traffic. These offers ranged from $3 burgers to $2 ribs on different days of
the week. We had a great deal of success driving dine-in traffic on these days, and we intend to continue the program in
fiscal 2020 while tweaking the offers quarterly. In addition, we intend to use value priced offerings, loyalty based
incentives, new product introductions, and the convenience of connecting with Guests on their own terms, to drive new and
infrequent Guests into our restaurants for additional meal occasions.
Marketing, Promotion and Sales
We believe that by specializing in unique and distinctive smoked meats, poultry & fish, our menu specialty helps
set the brand apart from the crowded field in casual dining. To further develop the advertising and promotional materials
and programs designed to create brand awareness and increase the reach of the brand, we have a system-wide marketing
fund. All Company-owned restaurants, and those franchise-operated restaurants with agreements signed after
December 17, 2003 are generally required to contribute 1.0% of net sales to this fund, which substantially funds the
marketing and digital teams. In fiscal 2019, the Marketing Ad Fund contribution for contributing franchisees was 1.0% of
net sales and will continue to be so in fiscal 2020.
The marketing team, working with outside agencies and other resources, is responsible for the advertising,
promotion, creative development, and branding for Famous Dave’s. Franchise-operated restaurants place the advertising
and marketing programs in their local markets based on contractual requirements. Famous Dave’s uses industry standard
marketing efforts that include brand and graphic design, broadcast media, digital, online & social media platforms, public
relations and out-of-home vehicles.
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The strategic focus for marketing and promotion is to ensure that Famous Dave’s is recognized as the category–
defining brand in barbeque, to create and sustain attractive differentiation in consumer’s mind, and to continue to
strengthen the brand’s positioning and consistency. To help drive top-line sales, we have selectively tested discount based
promotional activity across various channels. Given the results in 2019 we believe there is a place for limited discounting
to increase frequency and drive traffic.
In 2019, we highlighted value and affordability in our menu along with promoting additional value offerings
through limited time offers. We also continued to promote our To Go and Catering offering while rolling out delivery on a
large-scale basis. This has allowed us to connect with Guests on their terms and offer unique and often compelling sources
of growth, and each occasion is growing at a different rate.
Location Strategy
We believe that the barbeque segment of the casual dining restaurant industry continues to offer strong growth
opportunities, and we believe we are positioned for growth on a geographical basis. Our geographical concentration, as of
December 29, 2019, was 41% Midwest, 9% Middle Atlantic, 10% South, 33% West, 4% Northeast and 4% International.
We prepare an overall market development strategy for each market. The creation of this market strategy starts
with identifying trade areas that align demographically with the target Guest profile. The identified trade areas are then
assessed for viability and vitality and prioritized by sales and unit level margin opportunity for future development. Since
markets are dynamic, the market strategy includes a continual and ongoing assessment of all existing restaurant locations.
If financially feasible, a restaurant may be relocated as the retail or residential focus in a trade area shifts.
In fiscal 2019, our franchisees opened two small format restaurant prototypes and BBQ Holdings opened one. All
three restaurants have slight variations in menu and service style so we can analyze these results. These restaurants will
help us shape our future unit growth.
These new service models will allow us to access new markets or strategically locate restaurants in existing
markets where a full-service restaurant is unlikely to be financially viable. The surrounding trade area will determine which
service style is appropriate. Site selection will focus on converting second-generation space cost effectively. We intend to
finance company restaurant development through the use of cash on hand, cash flow generated from operations, through
availability on our revolving line of credit and future additional debt.
We expect to continue to grow our Famous Dave’s franchise program. Our goal is to continue to improve the
economics of our current restaurant prototypes, while providing more cost-effective development options for our
franchisees. Our franchise system is a significant part of our brand’s success. As such, another one of our goals is to be a
valued franchisor; to enhance communication and recognition of best practices throughout the system and to continue to
expand our franchisee network domestically and internationally.
Purchasing
In order to maximize quality and operational efficiencies for our food products, we strive to obtain consistent
quality items at competitive prices from reliable sources, including identifying secondary suppliers for many of our key
products. Additionally, our secondary suppliers help us assure supply chain integrity and better logistics. Finally, to reduce
freight costs, we continually aim to optimize our distribution networks, where the products are shipped directly to the
restaurants through our foodservice distributors. Each restaurant’s management team determines the daily quantities of
food items needed and orders such quantities to be delivered to their restaurant.
Approximately 85% of our food and non-alcoholic beverage purchases are on contract, with the majority being
proteins. Pork represents approximately 37% of our total purchases, while beef, which includes hamburger and brisket, is
approximately 19%, chicken is approximately 14%, and seafood is approximately 3%.
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Our purchasing team is also responsible for managing the procurement of non-food items for our restaurants,
including restaurant equipment, smallwares and restaurant supplies. They also contract many of our restaurants repair and
maintenance services along with managing our utility costs.
Information Technology
We recognize the importance of leveraging information and technology to support and extend our competitive
position in the restaurant industry. We continue to invest in initiatives that provide secure and efficient operations, enhance
the Guest experience and provide benchmarks that allow us to evaluate our operational metrics.
We utilize industry-leading service providers and cloud services to streamline processes at both the restaurant and
support center. Interfaces between point-of-sale (“POS”), labor management, inventory management, menu management,
digital platforms and financial systems are the foundation of our enterprise analytics platform. We also continue to
implement and support solutions to capitalize on current digital market trends to drive sales and realize operational
efficiency.
Trademarks
Our company has registered various trademarks, makes use of various unregistered marks, and intends to
vigorously defend these marks. We highly value our trademarks, trade names and service marks and will defend against
any improper use of its marks to the fullest extent allowable by law.
Franchise Program
Our growth and success depends in part upon our ability to attract, contract with and retain qualified franchisees.
It also depends upon the ability of those franchisees to successfully operate their restaurants with our standards of quality
and promote and develop Famous Dave’s brand awareness.
Although we have established criteria to evaluate prospective franchisees, and our franchise agreements include
certain operating standards, each franchisee operates his or her restaurants independently. Various laws limit our ability to
influence the day-to-day operation of our franchise restaurants. We cannot assure you that the franchisees will be able to
successfully operate BBQ Holdings restaurants in a manner consistent with our standards for operational excellence,
service and food quality.
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As of December 29, 2019, we had 30 ownership groups with franchise-operated restaurants in the following
locations:
United States
Arizona
California
Delaware
Florida
Illinois
Indiana
Iowa
Kansas
Kentucky
Maine
Maryland
Michigan
Minnesota
Missouri
Montana
Nebraska
Nevada
New Jersey
North Dakota
Oregon
Ohio
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
United States Total
International
Canada
United Arab Emirates
International total
Total franchise-operated restaurants
10
2
10
1
2
8
2
2
1
1
1
4
4
3
1
4
3
5
1
3
2
2
2
1
1
3
4
3
4
4
6
90
1
5
6
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Our franchise operations department is led by our senior vice president of operations, who guides the efforts of
our director of franchise operations and two franchise business consultants. The director of franchise operations and
franchise business consultants have the responsibility of supporting our franchisees throughout the system and play a
critical role for us as well as for our franchise community. The director of franchise operations and franchise business
consultants manage the relationship between us and our franchisees and provides an understanding of the roles,
responsibilities, differences, and accountabilities of that relationship. They are active participants towards enhancing
performance, as they partner in strategic and operations planning sessions with our franchise partners and review the
individual strategies and tactics for obtaining superior performance for the franchisee. They ensure compliance with
obligations under our area development and franchise agreements. Franchisees are encouraged to utilize all available
assistance from the franchise business consultants and the support center but are not required to do so.
We have a comprehensive operations scorecard and training tool that helps us measure the operational
effectiveness of our Company-owned and franchise-operated restaurants. This scorecard is used to evaluate, monitor and
improve operations in areas such as Guest satisfaction, health and safety standards, community involvement, and local
store marketing effectiveness, among other operating metrics. Also, we generally provide support as it relates to all aspects
of franchise operations including, but not limited to, store openings and operating performance. Finally, we solicit feedback
from our franchise system by having an active dialogue with all franchisees throughout the year.
The franchisee’s investment depends primarily upon restaurant size. This investment includes the area
development fee, initial franchise fee, real estate and leasehold improvements, fixtures and equipment, POS systems,
business licenses, deposits, initial food inventory, smallwares, décor and training fees as well as working capital. In fiscal
2019, certain franchisees were required to contribute 1.0% of net sales to a marketing fund dedicated to providing digital
and creative services. Currently, franchisees are required to spend approximately 1.5% of their net sales annually on local
marketing activities.
Seasonality
Our restaurants typically generate higher revenue in the second and third quarters of our fiscal year as a result of
seasonal traffic increases and high catering sales experienced during the summer months, and lower revenue in the first and
fourth quarters of our fiscal year, due to possible adverse weather which can disrupt Guest and team member transportation
to our restaurants.
Government Regulation
Our company is subject to extensive state and local government regulation by various governmental agencies,
including state and local licensing, zoning, land use, construction and environmental regulations and various regulations
relating to the sale of food and alcoholic beverages, sanitation, disposal of refuse and waste products, public health, safety
and fire standards. Our restaurants are subject to periodic inspections by governmental agencies to ensure conformity with
such regulations. Any difficulty or failure to obtain required licensing or other regulatory approvals could delay or prevent
the opening of a new restaurant, and the suspension of, or inability to renew a license, could interrupt operations at an
existing restaurant, any of which would adversely affect our operations. Restaurant operating costs are also affected by
other government actions that are beyond our control, including increases in minimum hourly wage requirements, worker’s
compensation insurance rates, health care insurance costs, property and casualty insurance, and unemployment and other
taxes. We are also subject to “dram-shop” statutes, which generally provide a person injured by an intoxicated person the
right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. We
are also subject to extensive state and federal government regulation by various governmental agencies due to our digital
and social media footprint in the collection of customer’s or potential customer’s data. This includes data storage and
privacy laws on a state and federal basis.
As a franchisor, we are subject to federal regulation and certain state laws that govern the offer and sale of
franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on
non-competition provisions and the termination or non-renewal of a franchise. Bills have been introduced in Congress from
time to time that would provide for federal regulation of substantive aspects of the franchisor-franchisee relationship. As
proposed, such legislation would limit, among other things, the duration and scope of non-competition provisions, the
ability of a franchisor to terminate or refuse to renew a franchise, and the ability of a franchisor to designate sources of
supply.
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The 1990 Federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public
accommodations and employment. We have in the past and could in the future be required to incur costs to modify our
restaurants in order to provide service to, or make reasonable accommodations for, disabled persons. Our restaurants are
currently designed to be accessible to the disabled, and we believe we are in substantial compliance with all current
applicable regulations relating to this Act.
Team Members
As of December 29, 2019, we employed approximately 1,677 team members of which approximately 172 were
salaried full-time employees. None of our team members are covered by a collective bargaining agreement. We believe that
we have good relationships with our team members.
Available Information
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended, are available free of charge on our website (www.bbq-holdings.com) as soon as reasonably practicable after
we electronically file the material with or furnish it to the SEC. Additionally, the SEC maintains an internet site
(www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. Information on our website or linked to our website is not incorporated by reference into this
Annual Report.
ITEM 1A. RISK FACTORS
We make written and oral statements from time to time, including statements contained in this Annual Report on
Form 10-K regarding our business and prospects, such as projections of future performance, statements of management’s
plans and objectives, forecasts of market trends and other matters that are forward-looking statements within the meaning
of Sections 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Statements containing the words or phrases “will likely result,” “anticipates,” “are expected to,” “will continue,” “is
anticipated,” “estimates,” “projects,” “believes,” “expects,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or
similar expressions identify forward-looking statements which may appear in documents, reports, filings with the SEC,
news releases, written or oral presentations made by our officers or other representatives to analysts, shareholders,
investors, news organizations, and others, and discussions with our management and other representatives of our company.
For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
Our future results, including results related to forward-looking statements, involve a number of risks and
uncertainties. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any
forward-looking statements made by us or on our behalf speak only as of the date on which such statement is made. Our
forward-looking statements are based upon our management’s current estimates and projections of future results or trends.
Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are
reasonable, we may not achieve these plans or objectives. In addition, forward-looking statements may reflect assumptions
that are sometimes based upon estimates, data, communications and other information from suppliers, government
agencies and other sources that may be subject to revision. Except as otherwise required by applicable law, we do not
undertake any obligation to update or keep current either (i) any forward-looking statements to reflect events or
circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to
differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to
time in any forward-looking statement which may be made by us or on our behalf.
In addition to other matters identified or described by us from time to time in filings with the SEC, including the
risks described below and elsewhere in this Annual Report on Form 10-K, there are several important factors that could
cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or results
that are reflected from time to time in any forward-looking statement that may be made by us or on our behalf.
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Health concerns arising from the recent global coronavirus COVID-19 outbreak or other diseases have and may in the
future adversely affect our business and results of operations.
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This
contagious virus, which has continued to spread, and any related adverse public health developments, has adversely
affected workforces, customers, economies, and financial markets globally, leading to an economic downturn. It has also
disrupted the normal operations of many businesses, including ours. It is not possible for us to predict the duration or
magnitude of the adverse results of the outbreak and its effects on our business or results of operations at this time. A
health pandemic is an outbreak of a disease that occurs over a wide geographic area and affects an exceptionally high
proportion of the population. Many customers are avoiding public gathering places due to this health pandemic, and local,
regional and national governments are limiting or banning public gatherings to halt or delay the spread of this virus. These
conditions are impacting our restaurant customer traffic and may hinder our ability to adequately staff our restaurants,
receive deliveries on a timely basis or perform functions at the corporate level. Many jurisdictions in which we have
restaurants have imposed mandatory closures, recommended voluntary closures or other restrictions on operations due to
the spread of the COVID-19 virus. Even if such mandatory or voluntary measures are not implemented, the perceived risk
of infection or significant health risk may adversely affect our business.
The spread of the COVID-19 virus and the resulting restaurant closures will likely significantly reduce our sales at
Company-owned restaurants, and adversely affect the profitability of our franchisees and may inhibit their ability to pay us
franchise fees when due.
The United States and other countries have experienced, or may experience in the future, outbreaks of other
viruses, norovirus, Avian Flu or “SARS,” and H1N1 or “swine flu,” or other diseases such as bovine spongiform
encephalopathy, commonly known as “mad cow disease.” To the extent that a virus or disease is food-borne, or perceived
to be food-borne, future outbreaks may adversely affect the price and availability of certain food products.
Challenging economic conditions may have a negative effect on our business and financial results.
The restaurant industry is affected by macro-economic factors, including changes in national, regional, and local
economic conditions, employment levels and consumer spending patterns. Challenging economic conditions may
negatively impact consumer spending and thus cause a decline in our financial results. For example, international, domestic
and regional economic conditions, consumer income levels, financial market volatility, social unrest, governmental,
political and budget matters and a slow or stagnant pace of economic growth generally may have a negative effect on
consumer confidence and discretionary spending. In recent years, we believe these factors and conditions have affected
consumer traffic and comparable restaurant sales for us and throughout our industry and may continue to result in a
challenging sales environment in the casual dining sector. A decline in economic conditions or negative developments with
respect to any of the other factors mentioned above, generally or in particular markets in which we or our franchisees
operate, and our Guests’ reactions to these trends could result in increased pressure with respect to our pricing, traffic
levels, commodity and other costs and the continuation of our innovation and productivity initiatives, which could
negatively impact our business and results of operations. These factors could also cause us or our franchisees to, among
other things, reduce the number and frequency of new restaurant openings, impair the assets of or close restaurants as well
as delay remodeling of existing restaurant locations. Further, poor economic conditions may force nearby businesses to
shut down, which could cause our restaurant locations to be less attractive.
Integrating the operations of the 18 Granite City restaurants we acquired in March 2020 may prove to be more difficult,
costly and time consuming than expected, which could cause us not to realize some or all of the anticipated benefits and
synergies of the acquisition.
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The Granite City acquisition will involve substantial non-recurring costs, including significant transaction costs,
regulatory costs and integration costs, such as facilities, systems and employment-related costs, and we may incur
unanticipated costs or unknown liabilities which may be significant. Uncertainties associated with the manner in which the
combined company following the acquisition will fare in the global economic environment may adversely affect the
combined company’s business and operations. The acquisition and the operation of the Granite City concept can lead us to
incur unknown or new types of costs and liabilities, subject us to new regulatory and compliance frameworks, new market
risks, involve operations in new geographies and challenging labor, regulatory and tax regimes as well as the execution and
compliance costs and risks associated with such activities.
In connection with the Granite City acquisition, we have incurred additional debt, which could adversely affect us,
including lowering our credit ratings, increasing our interest expense and decreasing our business flexibility, particularly if
we are not able to realize some or all of the anticipated benefits and synergies of the Granite City acquisition.
Uncertainties associated with the acquisition may adversely affect Famous Dave’s and Granite City’s respective
abilities to attract and retain management and other key employees during the integration period, and may disrupt our
businesses which could impact our ability to retain customers, adversely affecting either or both concept’s respective
businesses and operations, which could cause us not to realize some or all of the anticipated benefits of the Granite City
acquisition.
A failure to maintain continued compliance with the financial covenants of our credit facility may result in termination
of the credit facility and may have a material adverse effect on our ability to accomplish our business objectives.
On June 20, 2019, we and certain of our affiliates entered into a loan arrangement with Choice Financial Corp.
(“Choice”) providing for a term loan in the principal amount of $24.0 million (the “First Note”). We are subject to various
financial and non-financial covenants under the loan agreement, including a minimum debt-service coverage ratio. As of
December 29, 2019, we were in compliance with all of our covenants; however, there can be no assurance that we will be
able to comply with all of our financial and non-financial covenants in the future. A failure to comply with these covenants
could cause us to be in default of our agreements and Choice would be within its rights to accelerate the maturity dates of
any amount owed on our existing loan. If we were unable to repay outstanding amounts, either using current cash reserves,
a replacement facility or another source of capital, our lender would have the right to foreclose on our real estate and
personal property, which serves as collateral for the loan. Replacement financing may be unavailable to us on similar terms
or at all. Termination of our existing loan without adequate replacement, either through a similar facility or other sources of
capital, would have a material and adverse impact on our ability to continue our business operations.
Our future revenue, operating income, and cash flows are dependent on consumer preference and our ability to
successfully execute our plan.
Our company’s future revenue and operating income will depend upon various factors, including continued and
additional market acceptance of the BBQ Holdings brands, the quality of our restaurant operations, our ability to grow our
brands, our ability to successfully expand into new and existing markets, our ability to successfully execute our franchise
program, our ability to raise additional financing as needed, discretionary consumer spending, the overall success of the
venues where BBQ Holdings restaurants are or will be located, economic conditions affecting disposable consumer
income, general economic conditions and the continued popularity of the BBQ Holdings brands. An adverse change in any
or all of these conditions would have a negative effect on our operations and the market value of our Common Stock.
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We may choose not to open any more Company-owned restaurants and anticipate that most future restaurant
growth will be through our franchisees. There is no guarantee that any of these franchise-operated restaurants will open
when planned, or at all, due to many factors that may affect the development and construction of our restaurants, including
landlord delays, weather interference, unforeseen engineering problems, environmental problems, construction or zoning
problems, local government regulations, modifications in design to the size and scope of the project, and other
unanticipated increases in costs, any of which could give rise to delays and cost overruns. There can be no assurance that
we will successfully implement our growth plan for our Company-owned and franchise-operated restaurants. In addition,
we also face all of the risks, expenses and difficulties frequently encountered in the development of an expanding business.
Competition may reduce our revenue, operating income, and cash flows.
Competition in the restaurant industry is intense. The restaurant industry is affected by changes in consumer
preferences, as well as by national, regional and local economic conditions, including real estate and demographic trends,
traffic patterns, the cost and availability of qualified labor and product availability. Discretionary spending priorities, traffic
patterns, tourist travel, weather conditions and the type, number and location of competing restaurants, among other
factors, will also directly affect the performance of our restaurants. Changes in any of these factors in the markets where
we currently operate our restaurants could adversely affect the results of our operations.
Increased competition by existing or future competitors may reduce our sales. Our restaurants compete with
moderately-priced restaurants primarily on the basis of quality of food and service, atmosphere, location and value. In
addition to existing barbeque restaurants, we face competition from steakhouses and other restaurants featuring protein-rich
foods. We also compete with other restaurants and retail establishments for quality sites.
Many of our competitors have substantially greater financial, marketing and other resources than we do. Regional
and national restaurant companies continue to expand their operations into our current and anticipated market areas. We
believe our ability to compete effectively depends on our ongoing ability to promote our brand and offer high quality food
and hospitality in a distinctive and comfortable environment. If we are unable to respond, or unable to respond in a timely
manner, to the various competitive factors affecting the restaurant industry, our revenue, operating income and cash flows,
as well as our growth plans, could be adversely affected.
We compete directly and indirectly for customer traffic with national and regional casual dining restaurant chains,
as well as independently-owned restaurants. In addition, we face competition for customer traffic from fast casual and
quick-service restaurants, home delivery services, mobile food service, grocery stores and meal kits that are increasing the
quality and variety of their food products in response to customer demand. This increased competition, coupled with an
oversupply of restaurants, has driven casual dining industry comparable traffic declines in recent years. This backdrop has
made it even more challenging to improve customer traffic. We believe that many consumers remain focused on value and
if our competitors, many of whom have significantly greater resources to market aggressively to customers, are able to
promote and deliver a higher degree of perceived value, our customer traffic could suffer.
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Our failure to execute our franchise program may negatively impact our revenue, operating income and cash flows.
Our growth and success depends in part upon increasing the number of our franchised restaurants through
execution of area development and franchise agreements with new and existing franchisees in new and existing markets.
Our ability to successfully franchise additional restaurants or re-franchise existing Company-owned restaurants will depend
on various factors, including our ability to attract, contract with and retain quality franchisees, the availability of suitable
sites, the negotiation of acceptable leases or purchase terms for new locations, the negotiation of acceptable terms for the
re-franchising of existing Company-owned restaurants, permitting and regulatory compliance, the ability to meet
construction schedules, the financial and other capabilities of our franchisees, our ability to manage this anticipated
expansion and general economic and business conditions. Additionally, certain of our long-term debt is subject to various
financial covenants and secured by the land and real estate of restaurant locations that we own, and we will likely have to
obtain approval from our lender and refinance this long-term debt. We may also be subject to additional impairment
charges, lease termination and other charges, and increased financial statement disclosure requirements. Many of the
foregoing factors are beyond our control or the control of our franchisees and there can be no assurance that we will be able
to successfully carry out our franchising and refranchising strategy on terms acceptable to our management and Board, or
at all.
Our growth and success also depend upon the ability of our franchisees to operate their restaurants successfully to
our standards and promote the BBQ Holdings brands. Although we have established criteria to evaluate prospective
franchisees, and our franchise agreements include certain operating standards, each franchisee operates its restaurant
independently. Various laws limit our ability to influence the day-to-day operation of our franchise restaurants. We cannot
assure you that our franchisees will be able to successfully operate BBQ Holdings restaurants in a manner consistent with
our concepts and standards, which could reduce their sales and, correspondingly, our franchise royalties, and could
adversely affect our revenue, operating income and cash flows, and our ability to leverage the BBQ Holdings brands. In
addition, there can be no assurance that our franchisees will have access to financial resources necessary to open the
restaurants required by their respective area development agreements, which would negatively impact our growth plans.
We may not be successful in maintaining or expanding our international footprint.
Our current franchise program includes one restaurant in Manitoba, Canada, and five restaurants in the United
Arab Emirates. Because there are a very limited number of international restaurants, we may not be completely aware of
the development efforts involved and barriers to entry into new foreign markets. As a result, we may incur more expenses
than originally anticipated and there is a risk that we may not be successful in expanding internationally. If we are
successful in maintaining or expanding our international footprint, our future results could be materially adversely affected
by a variety of uncontrollable and changing factors affecting international operations including, among others, regulatory,
social, political or economic conditions in a specific country or region, trade protection measures and other regulatory
requirements, government spending patterns and changes in the laws and policies. Furthermore, by maintaining or
expanding our international footprint, our brand value could be harmed by factors outside of our control, including, among
other things, difficulties in achieving the consistency of product quality and service compared to our U.S. restaurants and
an inability to obtain adequate and reliable supplies of ingredients and products.
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The restaurant industry is subject to extensive government regulation that could negatively impact our business.
The restaurant industry is subject to extensive federal, state, and local government regulation by various
government agencies, including state and local licensing, zoning, land use, construction and environmental regulations and
various regulations relating to the preparation and sale of food and alcoholic beverages, sanitation, disposal of refuse and
waste products, public health, safety and fire standards, adjustments to tip credits, minimum wage requirements, working
conditions, hiring and employment practices, workers’ compensation and citizenship requirements. Our facilities must
comply with the applicable requirements of the Americans with Disabilities Act of 1990 (“ADA”) and related state
accessibility statutes. Under the ADA and related state laws, we must provide equivalent service to disabled persons and
make reasonable accommodation for their employment, and when constructing or undertaking significant remodeling of
our restaurants, we must make those facilities accessible. Due to the fact that we offer and sell franchises, we are also
subject to federal regulation and certain state laws which govern the offer and sale of franchises. Many state franchise laws
impose substantive requirements on franchise agreements, including limitations on non-competition provisions and
termination or non-renewal of a franchise. We may also be subject in certain states to “dram-shop” statutes, which provide
a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served
alcoholic beverages to the intoxicated person. In addition, our operating results would be adversely affected in the event we
fail to maintain our food and liquor licenses.
Any change in the current status of such regulations, including an increase in team member benefits costs, any and
all insurance rates, or other costs associated with team members, could substantially increase our compliance and labor
costs. Because we pay many of our restaurant-level team members rates based on either the federal or the state minimum
wage, increases in the minimum wage would lead to increased labor costs. As a franchisor, we may be party to complaints
naming us as a joint employer of workers at our franchisees. Such complaints or similar complaints could result in legal
proceedings against us, based on the actions of our franchisees. Enactment and enforcement of various federal, state and
local laws, rules and regulations on immigration and labor organizations may adversely impact the availability and costs of
labor for our restaurants in a particular area or across the United States. Other labor shortages or increased team member
turnover could also increase labor costs. Furthermore, restaurant operating costs are affected by increases in unemployment
tax rates and similar costs over which we have no control.
We are subject to laws and regulations relating to the preparation and sale of food, including regulations regarding
product safety, nutritional content and menu labeling. We are subject to laws and regulations requiring disclosure of
calorie, fat, trans fat, salt and allergen content. There is a risk that consumers’ dining preferences may be impacted by such
menu labeling. If we elect to alter our recipes in response to such a change in dining preferences, doing so could increase
our costs and/or change the flavor profile of our menu offerings which could have an adverse impact on our results of
operations.
We are subject to laws relating to information security and privacy. As a merchant and service provider of point-
of-sale services, we are also subject to the Payment Card Industry Data Security Standard issued by the Payment Card
Industry Council (“PCI DSS”).
U.S. federal income tax reform could adversely affect us.
On December 22, 2017, President Donald Trump signed into law sweeping tax reform, which overhauls
individual, business and international taxes including, but not limited to:
● Reducing the corporate federal statutory tax rate to 21%
● Limiting net interest expense deductions to 30% of adjusted taxable income
● Limiting the net operating loss deduction to 80% of taxable income
If we fail to generate significant taxable income, we may not be able to fully deduct the interest expense on our
debt, which could result in us having to pay increased federal income taxes. We have also generated substantial taxable
losses in the past and may continue to do so in the future. Although the treatment of tax losses generated before December
31, 2017 has not changed, subsequent tax losses generated will only be able to offset 80% of taxable income,
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although the losses may be carried forward indefinitely. This could cause us to have to pay federal income taxes despite
generating a loss for federal income tax purposes in the future.
We are subject to the risks associated with the food services industry, including the risk that incidents of food-borne
illnesses or food tampering could damage our reputation and reduce our restaurant sales.
Our industry is susceptible to the risk of food-borne illnesses. As with any restaurant operation, we cannot
guarantee that our internal controls and training will be fully effective in preventing all food-borne illnesses. Furthermore,
our reliance on third-party food suppliers and distributors increases the risk that food-borne illness incidents could be
caused by third-party food suppliers and distributors outside of our control and/or multiple locations being affected rather
than a single restaurant. New illnesses resistant to any precautions may develop in the future, or diseases with long
incubation periods could arise that could give rise to claims or allegations on a retroactive basis. Reports in the media or on
social media of one or more instances of food-borne illness in one of our Company-owned restaurants, one of our
franchise-operated restaurants or in one of our competitor’s restaurants could negatively affect our restaurant sales, force
the closure of some of our restaurants and conceivably have a national impact if highly publicized. This risk exists even if
it were later determined that the illness had been wrongly attributed to the restaurant. Furthermore, other illnesses could
adversely affect the supply of some of our food products and significantly increase our costs. A decrease in customer traffic
as a result of these health concerns or negative publicity could materially harm our business, results of operations and
financial condition.
A significant negative publicity event could have an adverse impact on our business or our relationships with customers,
partners and franchisees.
Our business and reputation could be adversely affected by a negative publicity event resulting from any key
stakeholder’s statements and actions. If we were unable to rebuild the trust of our customers, franchisees, business partners
and suppliers, and if further negative publicity continued, we could experience a substantial negative impact on our
business. We could also experience additional claims or litigation as a consequence of those events.
Our ability to exploit our brand depends on our ability to protect our intellectual property, and if any third parties make
unauthorized use of our intellectual property, our competitive position and business could suffer.
We believe that our trademarks and other intellectual proprietary rights are important to our success and our
competitive position. Accordingly, we have registered various trademarks and make use of various unregistered marks.
However, the actions we have taken or may take in the future to establish and protect our trademarks and other intellectual
proprietary rights may be inadequate to prevent others from imitating our products and concept or claiming violations of
their trademarks and proprietary rights by us. Although we intend to defend against any improper use of our marks to the
fullest extent allowable by law, litigation related to such defense, regardless of the merit or resolution, may be costly and
time consuming and divert the efforts and attention of our management.
Our financial performance is affected by our ability to contract with reliable suppliers and food service distributors at
competitive prices.
In order to maximize operating efficiencies, we have entered into arrangements with food manufacturers and
distributors pursuant to which we obtain approximately 85% of the products used by our company, including, but not
limited to, pork, poultry, beef and seafood. Although we may be able to obtain competitive products and prices from
alternative suppliers, an interruption in the supply of products delivered by our food suppliers could adversely affect our
operations in the short term. Due to the rising market price environment, our food costs may increase without the desire
and/or ability to pass that price increase to our customers.
Although we do contract for utilities in all available states, the costs of these energy-related items will fluctuate
due to factors that may not be predictable, such as the economy, current political/international relations and weather
conditions. Because we cannot control these types of factors, there is a risk that prices of energy/utility items will increase
beyond our current projections and adversely affect our operations.
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We could be adversely impacted if our information technology and computer systems do not perform properly or if we
fail to protect our customers’ credit card information or our employees’ personal data.
We rely heavily on information technology to conduct our business, including point-of-sale processing in our and
our franchisees’ restaurants, online ordering and delivery, management of our supply chain, collection of cash and other
receivables, payment of obligations and various other processes and procedures, and any material failure or interruption of
service could adversely affect our operations. Our ability to effectively and efficiently manage our business depends
significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems
with maintenance, upgrades or the transition to replacement systems, inaccurate or fraudulent manipulation of sales
reporting from our restaurants resulting in loss of sales and royalty payments, or a breach in security of these systems could
be harmful and cause delays in customer service, reduce efficiency in our operations and negatively impact our business.
Significant capital investment might be required to remediate any problems. In addition, we outsource certain essential
technology-based business processes to third-party vendors and we may share sensitive financial and other information
with third party vendors which subjects us to risks, including disruptions in business, increased costs and exposure to data
breaches or privacy law compliance issues of our third-party vendors.
Recently, retailers have experienced actual or potential security breaches in which credit and debit card
information may have been compromised, including several highly-publicized incidents. Although we take it very seriously
and expend resources to ensure that our information technology operates securely and effectively, any security breaches
could result in disruptions to operations or unauthorized disclosure of confidential information. If our customers’ consumer
data or our team members’ personal data are compromised, our operations could be adversely affected, our reputation
could be harmed, and we could be subjected to litigation or the imposition of penalties and other remedial costs. In
addition, as a franchisor, we are subject to additional reputation risk associated with data breaches that could occur at one
of our franchise locations that could potentially harm the BBQ Holdings brand reputation.
Failure to achieve our projected cost savings from our efficiency initiatives could adversely affect our results of
operations and eliminate potential funding for growth opportunities.
In recent years, we have identified strategies and taken steps to reduce operating costs and free up resources to
reinvest in our business. These strategies include supply chain efficiencies, reducing food waste, implementing labor
scheduling tools and various information systems projects. We continue to evaluate and implement further cost-saving
initiatives. However, the ability to reduce our operating costs through these initiatives is subject to risks and uncertainties,
such as our ability to obtain improved supply pricing and the reliability of any new suppliers or technology, and we cannot
assure you that these activities, or any other activities that we may undertake in the future, will achieve the desired cost
savings and efficiencies. Failure to achieve such desired savings could adversely affect our results of operations and
financial condition and curtail investment in growth opportunities.
Litigation could have a material adverse impact on our business and our financial performance.
We are subject to lawsuits, administrative proceedings and claims that arise in the regular course of business.
These matters typically involve claims by consumers, employees and others regarding issues such as food borne illness,
food safety, premises liability, “dram shop” statute liability, compliance with wage and hour requirements, work-related
injuries, promotional advertising, discrimination, harassment, disability and other operational issues common to the
foodservice industry, as well as contract disputes and intellectual property infringement matters. Significant legal fees and
costs in complex class action litigation or an adverse judgment or settlement that is not insured or is in excess of insurance
coverage could have a material adverse effect on our financial position and results of operations.
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Significant adverse weather conditions and other disasters or unforeseen events could negatively impact our results of
operations.
Adverse weather conditions and natural disasters and other unforeseen events, such as winter storms, severe
temperatures, thunderstorms, floods, hurricanes and earthquakes, terror attacks, war and widespread/pandemic illness, and
the effects of such events on economic conditions and consumer spending patterns, could negatively impact our results of
operations. Temporary and prolonged restaurant closures may occur and consumer traffic may decline due to the actual or
perceived effects from these events. Severe winter weather conditions have impacted our customer traffic and results of
operations in the past.
Changes in consumer buying patterns, particularly e-commerce sites and off premise sales affect our revenues,
operating results and liquidity.
Our restaurants are primarily located near high consumer activity areas such as regional malls, lifestyle centers,
“big box” shopping centers and entertainment centers. We depend in large part on a high volume of visitors to these centers
to attract customers to our restaurants. E-commerce or online shopping continues to increase and negatively impact
consumer traffic at traditional “brick and mortar” retail sites located in regional malls, lifestyle centers, “big box” shopping
centers and entertainment centers. A decline in visitors to these centers near our restaurants may negatively affect our sales.
Additionally, e-commerce or online shopping has caused some “brick and mortar” retail sites to cease operations, and it
may continue to cause future “brick and mortar” retail sites to cease operations. These closures of traditional “brick and
mortar” retail sites may lead to reduced customer traffic and a general deterioration in the surrounding retail centers in
which our restaurants are located and may contribute to lower customer traffic at our restaurants.
In the last several years, off-premise sales, specifically delivery, have increased due to consumer demand for
convenience. While we plan to continue to invest in the growth of our off-premise sales, there can be no guarantee that we
will be able to increase our off-premise sales. Off-premise sales could also cannibalize dine in sales, or our systems and
procedures may not be sufficient to handle off-premise sales, which require additional investments in technology or people.
Additionally, a large percentage of delivery from our restaurants is through third-party delivery companies. These-third
party delivery companies require us to pay them a commission, which lowers our profit margin on those sales; however, we
believe that the majority of such sales are incremental. Any bad press, whether true or not, regarding third-party delivery
companies or their business model may negatively impact our sales. If these third-party delivery companies cease doing
business with us, or cannot make their scheduled deliveries, or do not continue their relationship with us on favorable
terms, it will have a negative impact on sales or result in increased third-party delivery fees.
New information or attitudes regarding diet, health and the consumption of alcoholic beverages may materially affect
customer demand and have an adverse impact on our results of operations.
Regulations and consumer eating habits may change as a result of new information or attitudes regarding diet and
health. Such changes may include regulations that impact the ingredients and nutritional content of the food and beverages
we offer. For example, several municipalities and states have approved restrictions on the use of trans-fats by restaurants.
The success of our restaurant operations is dependent, in part, upon our ability to effectively respond to changes in any
consumer health regulations and our ability to adapt our menu offerings to trends in food consumption. If consumer health
regulations or consumer eating habits change significantly, we may be required to modify or delete certain menu items. To
the extent we are unable to respond with appropriate changes to our menu offerings, it may materially affect customer
demand and have an adverse impact on our results of operations. The risks and costs associated with nutritional disclosures
on our menus may also impact our operations, particularly given differences among applicable legal requirements and
practices within the restaurant industry with respect to testing and disclosure, ordinary variations in food preparation
among our own restaurants, and the need to rely on the accuracy and completeness of nutritional information obtained from
third-party suppliers.
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We evaluate restaurant sites and long-lived assets for impairment and expenses recognized as a result of any
impairment would negatively affect our financial condition and consolidated results of operations.
We evaluate restaurant sites and long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and used
is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows
expected to be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is
measured by the amount by which the carrying amount of the restaurant site exceeds its fair value. Fair value is estimated
based on the best information available including estimated future cash flows, expected growth rates in comparable
restaurant sales, remaining lease terms, discount rate and other factors. If these estimates change in the future, we may be
required to take additional impairment charges for the related assets, which would negatively affect our financial condition
and consolidated results of operations. Considerable management judgment is necessary to estimate future cash flows.
Accordingly, actual results could vary significantly from such estimates.
Minnesota law and our Articles protect our directors from certain types of lawsuits, which could make it difficult for us
to recover damages from them in the event of a lawsuit.
Minnesota law provides that our directors will not be liable to our company or to our shareholders for monetary
damages for all but certain types of conduct as directors. Our Articles require us to indemnify our directors and officers
against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The
exculpation provisions may have the effect of preventing shareholders from recovering damages against our directors
caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require our
company to use its assets to defend our directors and officers against claims, including claims arising out of their
negligence, poor judgment, or other circumstances.
Pursuant to its authority to designate and issue shares of our stock as it deems appropriate, our board of directors may
assign rights and privileges to currently undesignated shares which could adversely affect the rights of existing
shareholders.
Our authorized capital consists of 100,000,000 shares of capital stock. Our Board of Directors, without any action
by the shareholders, may designate and issue shares in such classes or series (including classes or series of preferred stock)
as it deems appropriate and establish the rights, preferences and privileges of such shares, including dividends, liquidation
and voting rights. The rights of holders of preferred stock and other classes of common stock that may be issued could be
superior to the rights granted to the current holders of our common stock. Our Board’s ability to designate and issue such
undesignated shares could impede or deter an unsolicited tender offer or takeover proposal. Further, the issuance of
additional shares having preferential rights could adversely affect the voting power and other rights of holders of common
stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
We believe that our properties will be suitable for our needs and adequate for operations for the foreseeable future.
The following table sets forth certain information about our existing Company-owned restaurant locations, as of December
29, 2019:
1 Roseville
2 Maple Grove
3 Highland Park
4 Apple Valley
5 Forest Lake
6 Minnetonka
7 Plymouth
8 Des Moines (West)
9 Woodbury
10 Coon Rapids
11 May's Landing
12 Westbury
13 Mountainside
14 Janesville
15 Greenwood
16 Aurora
17 Colorado Springs
18 Grand Junction
19 Stapleton
20 Thornton
21 Madison
22 Greenfield
23 Flint
24 Saginaw
25 Toledo
26 Grandville
27 Peoria
28 Chandler
29 Mesa
30 Cedar Falls
31 Florence
32 Lake Street
Location
Square
Footage
Owned or
Date
4,800 Leased
6,132 Leased
5,200 Leased
3,800 Leased
4,875 Leased
5,500 Leased
4,094 Owned
5,370 Leased
5,900 Owned
5,693 Owned
6,500 Leased
6,930 Leased
8,674 Leased
4,100 Leased
5,700 Leased
6,727 Leased
8,461 Leased
6,800 Leased
6,000 Leased
6,500 Leased
4,298 Leased
6,700 Leased
5,626 Leased
6,157 Leased
5,533 Leased
6,651 Leased
6,500 Leased
6,500 Leased
6,500 Leased
5,400 Leased
5,693 Leased
3,000 Leased
Leased Opened/Acquired
6/10/1996
4/28/1997
6/16/1997
7/18/1997
10/13/1997
12/20/1997
12/29/1997
4/10/1998
10/27/1998
12/18/2006
9/13/2004
10/25/2005
3/25/2002
8/7/2018
10/9/2018
3/5/2019
3/5/2019
6/4/2019
3/5/2019
3/5/2019
5/15/2019
5/15/2019
5/1/2019
5/1/2019
5/1/2019
5/1/2019
7/11/2019
7/11/2019
7/11/2019
6/18/2019
7/30/2019
12/19/2019
All square footage listed is approximate. Interior seating ranges from approximately 50 at our counter service locations to
approximately 275 at our full service restaurants.
Our Minnesota executive offices are currently located in approximately 10,946 square feet in Minnetonka,
Minnesota. Our executive office lease expires in November 2025. During 2015, our 8,400-square foot office in Lombard,
IL was closed and sublet to another tenant. This office lease expires in October 2022.
ITEM 3. LEGAL PROCEEDINGS
The information contained in Note 8 “Commitments and Contingencies” of the notes to the accompanying
consolidated financial statements included in this Annual Report on Form 10-K is incorporated by reference into this
Item 3. Except as set forth therein, as of the end of the period covered by this Annual Report on Form 10-K, we are not a
party to any material pending legal proceedings.
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ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has traded on the Nasdaq Stock Market since July 24, 1997 and trades under the symbol BBQ.
Currently, our common stock trades on the Nasdaq Global Market.
Holders
As of March 10, 2020, we had approximately 80 shareholders of record and approximately 2,918 beneficial
shareholders.
Dividends
Our Board of Directors has not declared any dividends on our common stock since our inception, and does not
intend to pay out any cash dividends on our common stock in the foreseeable future. We presently intend to retain all
earnings, if any, to provide for growth and reduce our debt levels. The payment of cash dividends in the future, if any, will
be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital requirements,
loan agreement restrictions, our financial condition and other factors deemed relevant by our Board of Directors.
Securities Authorized for Issuance under Equity Compensation Plans
Effective May 5, 2015, we adopted a 2015 Equity Plan (the “2015 Plan”), pursuant to which we 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. We also maintain an Amended and Restated 2005 Stock Incentive Plan
(the “2005 Plan”). The 2005 Plan prohibits the granting of incentives after May 12, 2015, the tenth anniversary of the date
such Plan was approved by the shareholders of our company. Nonetheless, the 2005 Stock Incentive Plan will remain in
effect until all outstanding incentives granted thereunder have either been satisfied or terminated. Together, the 2015 Plan
and 2005 Plan are referred to herein as the “Plans.”
The purpose of the 2015 Plan is to increase shareholder value and to advance the interests of our company by
furnishing a variety of economic incentives designed to attract, retain and motivate team members (including officers),
certain key consultants and directors of our company. The Plans have each been approved by the shareholders of our
company. The following table sets forth certain information as of December 29, 2019, with respect to the 2005 Plan and the
2015 Plan.
Plan Category
Equity compensation plans approved by
shareholders:
2005 Stock Incentive Plan
2015 Stock Incentive Plan
TOTAL
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options
Warrants and Rights
(A)
Weighted-
Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights
(B)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (A))
(C)
450
451,694
452,144
$
$
28.53
6.28
6.71
—
237,333
237,333
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Performance Graph
Not applicable to smaller reporting companies.
Purchases of Equity Securities by the Issuer
None
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to smaller reporting companies.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
In September 2019 a holding company reorganization was completed in which FDA became a wholly owned
subsidiary of the new parent holding company named BBQ Holdings. BBQ Holdings was incorporated in March 2019
under the laws of the State of Minnesota, while FDA was incorporated in Minnesota in March 1994 and opened its first
restaurant in Minneapolis, Minnesota in June 1995. As of December 29, 2019, there were 128 Famous Dave’s restaurants
operating in 32 states, Canada, and the United Arab Emirates, including 32 Company-owned restaurants and 96 franchise-
operated restaurants. An additional 63 restaurants were committed to be developed through signed area development
agreements as of December 29, 2019. The first Clark Crew BBQ restaurant opened in December 2019 in Oklahoma City,
Oklahoma. On March 19, 2020, we purchased one Real Urban Barbecue restaurant, located in Vernon Hills, Illinois. On
March 9, 2020, we purchased 18 Granite City Food & Brewery restaurants in connection with a Chapter 11 bankruptcy
filing.
Impact of the COVID-19 Virus on our business
In March 2020 the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global
pandemic. This contagious virus, which has continued to spread, and any related adverse public health developments, has
adversely affected workforces, customers, economies, and financial markets globally, leading to an economic downturn. It
has also disrupted the normal operations of many businesses, including ours. Many customers are avoiding public
gathering places due to this health pandemic, and local, regional and national governments are limiting or banning public
gatherings to halt or delay the spread of this virus. These conditions are impacting our restaurant customer traffic and may
hinder our ability to adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the
corporate level. We have also been affected in jurisdictions in which we have restaurants operating under imposed
mandatory closures and/or restrictions on operations. Even if such mandatory or voluntary measures are not implemented,
the perceived risk of infection or significant health risk may adversely affect our business. While it is not possible for us to
predict the duration or magnitude of the adverse results of the outbreak and its effects on our business or results of
operations at this time, we do anticipate it will have an adverse effect on our revenue and profitability in fiscal 2020.
Fiscal Year
Our fiscal year ends on the Sunday nearest to December 31st of each year. Our fiscal year is generally 52 weeks;
however, it periodically consists of 53 weeks. The fiscal years ended December 29, 2019 (fiscal 2019) and December 30,
2018 (fiscal 2018) consisted of 52 weeks. Fiscal 2020, which ends on January 3, 2021, will consist of 53 weeks.
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Basis of Presentation
The financial results presented and discussed herein reflect our results and the results of our wholly-owned and
majority-owned consolidated subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation.
Application of Critical Accounting Policies and Estimates
The following discussion and analysis of our financial condition and results of operations is based upon our
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires management to make estimates and judgments that affect the
reported amount of assets, liabilities and expenses, and related disclosures. On an on-going basis, management evaluates its
estimates and judgments. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty.
Management bases its estimates and judgments on historical experience, observance of trends in the industry, information
provided by customers and other outside sources and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ materially from these estimates under different
assumptions or conditions. Our management believes the following critical accounting policies reflect its more significant
judgments and estimates used in the preparation of our consolidated financial statements. Our company’s significant
accounting policies are described in Note 1 to the consolidated financial statements included herein.
We have discussed the development and selection of the following critical accounting policies with the Audit
Committee of our Board of Directors and the Audit Committee has reviewed our disclosures relating to such policies in
this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recognition of Franchise-Related Revenue
We recognize franchise fee revenue on a straight-line basis over the life of the related franchise agreements and
any exercised renewal periods. Cash payments are due upon the opening of a new restaurant or upon the execution of a
renewal of the related franchise agreement. Our performance obligation with respect to franchise fee revenues consists of a
license to utilize our brand for a specified period of time, which is satisfied equally over the life of each franchise
agreement.
Area development fees are deferred until a new restaurant is opened pursuant to the area development agreement,
at which time revenue is recognized on a straight-line basis over the life of the franchise agreement. Cash payments for
area development agreements are typically due when an area development agreement has been executed. Gift card
breakage revenue is recognized proportionately as gift cards are redeemed utilizing an estimated breakage rate based on
our historical experience. Gift card breakage revenue is reported within the licensing and other revenue line item of the
consolidated statements of operations.
The Company reports contributions from franchisees to our company’s system-wide Public Relations and
Marketing Development Fund (the “NAF”) on a gross basis within the franchisee national advertising fund contributions
line item on the consolidated statements of operations.
Costs and Expenses
Restaurant costs and expenses include, among other items, food and beverage costs; labor and benefits costs;
operating expenses, which include occupancy costs, repair and maintenance costs, supplies and 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 salaries and occupancy costs. Our experience is that when a new restaurant opens, it incurs
higher than normal levels of labor and food costs until operations stabilize, usually during the first three to six months of
operations. As restaurant management and staff gain experience following a restaurant’s opening, labor
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scheduling, food cost management and operating expense control typically improve to levels similar to those at our more
established restaurants.
General and Administrative Expenses
General and administrative expenses include all corporate and administrative functions, other than marketing and
digital services. Salaries and benefits, legal fees, accounting fees, professional consulting fees, travel, rent and general
insurance are major items in this category. Additionally, we record expense for managers-in-training (“MITs”) in this
category.
Asset Impairment, Estimated Lease Termination and Other Closing Costs
We evaluate restaurant sites and long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and used
is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows
expected to be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is
measured by the amount by which the carrying amount of the restaurant site exceeds its fair value. Fair value is estimated
based on the best information available including estimated future cash flows, expected growth rates in comparable
restaurant sales, remaining lease terms, discount rate and other factors. If these assumptions change in the future, we may
be required to take additional impairment charges for the related assets. Considerable management judgment is necessary
to estimate future cash flows. Accordingly, actual results could vary significantly from such estimates. Restaurant sites that
are operating, but have been previously impaired, are reported at the lower of their carrying amount or fair value less
estimated costs to sell.
Lease Accounting
We lease the property for our corporate headquarters, most of our Company-owned stores, and certain office and
restaurant equipment. We determine 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. ROU assets and operating lease liabilities are recognized based on the present value of lease
payments over the lease term, including any renewal options where the renewal is reasonably assured at the
commencement date. Because most of our leases do not provide an implicit rate of return, we use our incremental
borrowing rate based on the information available at commencement date in determining the present value of lease
payments. Operating lease ROU assets also exclude lease incentives received. Where we are the lessee, at initial adoption,
we have elected to account for non-lease components associated with its leases (e.g., common area maintenance costs) and
lease components separately for substantially all of its asset classes. Subsequent to adoption we will combine lease and
non-lease components
We account for construction allowances by recording a receivable when its collectability is considered probable,
and relieve the receivable once the cash is obtained from the landlord. We depreciate the leasehold improvements over the
lesser of their useful lives or the full term of the lease, including renewal options and build-out periods. We record rent
expense during the build-out period and classify this expense in pre-opening expenses in our consolidated statements of
operations.
Liquor licenses
We own transferable liquor licenses in jurisdictions with a limited number of authorized liquor licenses. These
licenses are capitalized as indefinite-lived intangible assets and are included in intangible assets, net in our consolidated
balance sheets. We review annually these liquor licenses for impairment. Additionally, the costs of obtaining non-
transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed as incurred.
Annual liquor license renewal fees are recognized in expense over the renewal term.
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Accounts receivable, net
We provide an allowance for uncollectible accounts on accounts receivable based on historical losses and existing
economic conditions, when relevant. We provide for a general bad debt reserve for franchise receivables due to increases
in days sales outstanding for which no payment plan or other payment arrangement exists. This general reserve is based on
the aging of receivables meeting specified criteria and is adjusted each quarter based on past due receivable balances.
Additionally, we have periodically established a specific reserve on certain receivables as necessary on a case-by-case
basis. Any changes to the reserve are recorded in general and administrative expenses. Accounts receivable balances
written off have not exceeded allowances provided. We believe all accounts receivable in excess of the allowance are fully
collectible. If accounts receivable in excess of provided allowances are determined uncollectible, they are charged to
expense in the period that determination is made. In assessing recoverability of these receivables, we make judgments
regarding the financial condition of the franchisees based primarily on past and current payment trends, as well as other
variables, including annual financial information, which franchisees are required to submit to us.
Stock-based compensation
Beginning in fiscal 2019, we were required to adopt ASU 2018-17- Compensation – Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment Accounting. See Note 1 “Nature of Business and Significant
Accounting Policies” the notes to the accompanying financial statements for more information.
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We recognize compensation expense for share-based awards granted to team members based on their fair values at
the time of grant over the requisite service period. Additionally, our board members receive share-based awards for their
board service. The incentive compensation of our chief executive officer provides for grants of unrestricted, freely tradable
shares of our common stock upon the achievement of share price milestones. The expense for these grants is recorded
when earned by our chief executive officer. Our pre-tax compensation expense for stock options and other incentive awards
is included in general and administrative expenses in our consolidated statements of operations.
Income Taxes
We provide for income taxes based on our 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. Our estimates are based on the information available to us at the time that we
prepare the income tax provision. We generally file our annual income tax returns several months after our 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 or differing interpretations of the tax laws. Accounting for
uncertain tax positions requires significant judgment including estimating the amount, timing, and likelihood of ultimate
settlement. Although we believe that our estimates are reasonable, actual results could differ from these estimates.
Additionally, uncertain positions may be re-measured as warranted by changes in facts or law.
Results of Operations – Fiscal Year 2019 Compared to Fiscal Year 2018
The following table presents items in our consolidated statements of operations as a percentage of net restaurant
sales or total revenue, as indicated, for the periods presented:
Food and beverage costs(1)
Labor and benefits costs(1)
Operating expenses(1)
Restaurant level operating margin(1)(3)
Depreciation and amortization expenses(2)
General and administrative expenses(2)
(Loss) income from operations(2)
Year Ended
December 29, 2019 December 30, 2018
32.0 %
36.5 %
31.6 %
(0.1)%
2.7 %
13.4 %
(2.0)%
31.5 %
35.9 %
31.4 %
1.3 %
2.3 %
14.6 %
10.9 %
(1) As a percentage of restaurant sales, net
(2) As a percentage of total revenue
(3) Restaurant level cash operating margin is equal to restaurant sales, net, less food and beverage costs, labor and benefit
costs, and operating expenses.
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Total Revenue
Our components of and changes in revenue consisted of the following for the fiscal years ended December 29,
2019 and December 30, 2018:
(dollars in thousands)
Revenue:
December 29, 2019 December 30, 2018
$ Change % Change
Year Ended
Restaurant sales, net
Franchise royalty and fee revenue
Franchisee national advertising fund contributions
Licensing and other revenue
Total revenue
$
$
67,278 $
12,126
1,616
1,249
82,269 $
38,051
13,871
1,932
1,034
54,888
$ 29,227
(1,745)
(316)
215
$ 27,381
76.8 %
(12.6)%
(16.4)%
20.8 %
49.9 %
The increase in year-over-year restaurant sales for the year ended December 29, 2019 as compared to the year
ended December 30, 2018 was primarily a result of the net increase of 15 Company-owned restaurants during fiscal 2019.
Additionally, same store net sales for Company-owned restaurants for the year ended December 29, 2019 increased 2.0%
compared to the year ended December 30, 2018. It is our policy to include in our same store net sales base, restaurants that
are open year round and have been open at least 24 months. Reacquired and refranchised restaurants are included in the
same store net sales base after new ownership has been in place for at least 12 months. On a weighted basis, for the year
ended December 29, 2019, Dine-In sales decreased by 4.3%, while To Go and Catering sales increased 6.9% and 13.7%,
respectively. The increase in the Catering line of business for the comparable restaurant base was driven by a concentrated
effort to increase sales in this area and To-Go was driven by third-party delivery sales and marketing efforts aimed at
increasing traffic.
We have been making significant investments in programs aimed at increasing To-Go and Catering sales at BBQ
Holdings restaurants. For example, we have expanded the online ordering program in certain franchise-operated
restaurants. We have rolled out delivery programs with various third-party services, which we believe, along with online
ordering, will continue to augment our To Go and Catering sales in the future. We believe that these innovations will
provide additional avenues for our franchisees to grow their respective businesses.
The decrease in year-over-year franchise-related revenue was primarily a result of the net decrease of 31
franchise-operated restaurants in fiscal year 2019 compared to fiscal year 2018. This decrease was offset in part by an
increase of 1.0% in same-store sales at franchise-operated restaurants. The increase year over year was primarily related to
continued franchisee adoption of brand initiatives to drive traffic and awareness of the brand as well as the closures of
underperforming franchise stores. Licensing and other revenue, which is primarily derived from retail sales of Famous
Dave’s branded sauces, rubs and other consumer packaged goods, increased approximately $215,000 in fiscal 2019.
Average Weekly Net Sales and Operating Weeks
The following table shows Company-owned and franchise-operated average weekly net sales for the periods
presented:
Average Weekly Net Sales (AWS):
Franchise-Operated(1)
Company-Owned
Full-Service
Counter-Service
Operating Weeks:
Franchise-Operated
Company-Owned
December 29, 2019 December 30, 2018
Year Ended
$
$
48,440
46,510
47,934
40,042
5,505
1,441
47,011
45,918
49,098
38,959
6,910
829
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(1) AWS for franchise-operated restaurants are not our revenues and are not included in our consolidated financial
statements. We believe that disclosure of average weekly net sales and operating weeks for franchise-operated
restaurants provides useful information to investors because historical performance and trends of BBQ Holdings
franchisees relate directly to trends in franchise royalty revenues that we receive from such franchisees and have an
impact on the perceived success and value of the BBQ Holdings brand. It also provides a comparison against which
management and investors can analyze the extent to which Company-owned restaurants are realizing their revenue
potential.
Food and Beverage Costs
Our food and beverage costs consisted of the following for fiscal years ended December 29, 2019 and December
30, 2018:
(dollars in thousands)
Food and beverage costs
Year Ended
December 29, 2019 December 30, 2018
$
21,541 $
11,973
$ Change % Change
$ 9,568
79.9 %
Food and beverage costs for the fiscal years ended December 29, 2019 and December 30, 2018 represented
approximately 32.0% and 31.5% of net restaurant sales, respectively. This year-over-year increase, as a percentage of net
restaurant sales, was primarily driven by the most recently acquired 18 restaurants, which stores experienced higher food
costs than our comparable stores. We expect margins will recover to a more normalized level in the coming quarters as
management has taken action to correct the cause of these elevated costs.
Labor and Benefits Costs
Our labor and benefits costs consisted of the following for the fiscal years ended December 29, 2019 and
December 30, 2018.
(dollars in thousands)
Labor and benefits costs
Year Ended
December 29, 2019 December 30, 2018
$
24,565 $
13,663
$ Change % Change
$ 10,902
79.8 %
Labor and benefits costs for the fiscal years ended December 29, 2019 and December 30, 2018 were
approximately 36.5% and 35.9% of net restaurant sales, respectively. The year-over-year increase during the year ended
December 29, 2019, as a percentage of net restaurant sales, was primarily driven by the most recently acquired 18
restaurants, which stores experienced higher labor and benefits than our comparable stores. We expect margins will
recover to a more normalized level in the coming quarters as management has taken action to correct the cause of these
elevated costs. We believe that further training and in-restaurant initiatives will create operational efficiencies and will
decrease labor and benefits costs in fiscal 2020.
Operating Expenses
Our operating expenses consisted of the following for the fiscal years ended December 29, 2019 and December
30, 2018:
(dollars in thousands)
Operating expenses
Year Ended
December 29, 2019 December 30, 2018
$
21,269 $
11,932
$ Change % Change
$ 9,337
78.3 %
Operating expenses for the fiscal years ended December 29, 2019 and December 30, 2018 were approximately
31.6% and 31.4% of net restaurant sales, respectively.
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Depreciation and Amortization
Depreciation and amortization expense for the fiscal years ended December 29, 2019 and December 30, 2018 was
approximately $2.2 million and $1.3 million, respectively, representing approximately 2.7% and 2.3% of total revenues,
respectively. Depreciation and amortization expense increased during the year ended December 29, 2019 primarily as a
result of the addition of Company-owned restaurants.
General and Administrative Expenses
Our general and administrative expenses consisted of the following for the fiscal years ended December 29, 2019
and December 30, 2018:
Year Ended
(dollars in thousands)
General and administrative expenses
December 29, 2019 December 30, 2018
$
10,992 $
7,988
$ Change % Change
$ 3,004
37.6 %
General and administrative expenses for the years ended December 29, 2019 and December 30, 2018, represented
approximately 13.3% and 14.6% of total revenues, respectively. While as a percentage of revenues general and
administrative expense decreased year over year, we incurred additional expenditure for acquisition costs and ongoing
oversite of our new restaurants.
Asset Impairment, Estimated Lease Termination and Other Closing Costs
The following is a summary of the asset impairment, estimated lease termination and other closing costs we
incurred for the periods presented:
Year Ended
(dollars in thousands)
Asset impairments, net
Lease termination charges (income) and related costs
Restaurant closure expenses
Asset impairment, estimated lease termination charges and other closing costs
$
December 29, 2019 December 30, 2018
89
(271)
327
145
282
926
88
1,296
$
$
$
During fiscal the fiscal year ended December 29, 2019, we closed four Company-owned stores and acquired 18
formerly franchise-owned restaurants. During the fiscal year ended December 30, 2018, we closed one Company-owned
store and reacquired two franchisee-owned restaurants. These charges represented the write-offs of the net assets of closed
restaurants, lease termination charges incurred with the early termination of leases as well as ongoing costs incurred related
to closed restaurants.
Total Other Expense
Total other expense for the fiscal years ended December 29, 2019 and December 30, 2018 included interest
expense of 494,000 and $493,000. These expenses were partially offset by interest income of approximately $215,000 and
$122,000 during the fiscal years ended December 29, 2019 and December 30, 2018, respectively. The decrease in interest
expense was primarily related to a lower average outstanding debt balance partially offset by a higher interest rate on our
current debt. The increase in interest income was primarily related to interest from franchisees and interest on investments.
Income Tax Benefit
Income tax benefit for the year ended December 29, 2019 was $659,000. Income tax expense for the year ended
December 30, 2018 was $729,000, representing an effective tax rate of 52.2% and 13.0%, respectively. The
31
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increase in our effective tax rate primarily related to changes in the valuation allowance and increased credits year over
year.
Basic and Diluted Net Income (Loss) Per Common Share
Our basic and diluted net loss per common share for the year ended December 29, 2019 was $(0.07) per share.
Our basic and diluted net income per common share for the year ended December 30, 2018 was $0.57 per share and $0.56
per share, respectively. For the year ended December 29, 2019, we had basic and diluted weighted-average shares
outstanding of approximately 9,099,000. For the year ended December 30, 2018 we had basic and diluted weighted-
average shares outstanding of approximately 8,599,000 and 8,624,000, respectively.
Financial Condition, Liquidity and Capital Resources
Our balance of cash and cash equivalents was approximately $6.1 million and $12.4 million at December 29, 2019
and December 30, 2018, respectively. We expect to utilize cash on hand to reinvest in our brand and the evolution of our
company.
Our current ratio, which measures our immediate short-term liquidity, was 1.0 as of December 29, 2019 compared
with 2.15 as of December 30, 2018. The current ratio is computed by dividing total current assets by total current liabilities.
The decrease in our current ratio was primarily due to an increase in our net current liabilities and a decrease in current
assets.
Net cash provided by operating activities for the year ended December 29, 2019 was approximately $2.6 million,
which reflects net loss from continuing operations of approximately $1.2 million, increased by non-cash charges of
approximately $3.7 million primarily due to depreciation and amortization, stock-based compensation and asset
impairment/lease termination charges. Changes in operating assets and liabilities for the year ended December 29, 2019
primarily included net cash outflows related to accounts receivable and other current assets of $2.0 million offset in part by
cash inflows of $2.1 related to accounts payable and other liabilities.
Net cash provided by operating activities for the year ended December 30, 2018 was approximately $3.9 million,
which reflects net income from continuing operations of approximately $4.9 million, increased by non-cash charges of
approximately $1.6 million primarily increased by depreciation and amortization, and deferred income taxes, partially
offset by decreases related to deferred rent, asset impairment, estimated lease termination charges and reserves for bad
debts. Changes in operating assets and liabilities for the year ended December 30, 2018 primarily included net cash
outflows related to prepaid expenses and other current assets of $570,000, accounts payable of $600,000, accrued
compensation and benefits of $824,000 and other liabilities of $624,000. These cash outflows were partially offset by
inflows related to an increase in other assets of $167,000 and prepaid income taxes and income taxes receivable of
$103,000.
Net cash used by investing activities for the year ended December 29, 2019 was $13.0 million primarily related to
the acquisition of the Colorado and Arizona restaurants.
Net cash used by investing activities for the year ended December 30, 2018 was $745,000 primarily related to
proceeds from the sale of assets, partially offset by property, equipment and leasehold improvements, advances on notes
receivable and the purchase of two franchise restaurants.
Net cash provided by financing activities in fiscal year 2019 was $4.1 million primarily from the proceeds of loan
agreement with Choice Bank.
Net cash used for financing activities in fiscal year 2018 was approximately $1.1 million, which primarily
consisted of debt repayments of $6.8 million partially offset by proceeds from issuance of common stock of $5.1 million
and proceeds from the exercise of stock options of approximately $520,000.
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We are subject to various financial and non-financial covenants on our long-term debt, including a debt-service
coverage ratio. As of December 29, 2019, we were in compliance with all of our covenants.
In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This
contagious virus, which has continued to spread, and any related adverse public health developments, has adversely
affected workforces, customers, economies, and financial markets globally, leading to an economic downturn. It has also
disrupted the normal operations of many businesses, including ours (refer to our Risk Factors included in Item 1A of this
filing). While it is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its
effects on our business or results of operations at this time, we do anticipate it will have an adverse effect on our liquidity.
Contractual Obligations
The following is a summary of our contractual obligations as of December 29, 2019:
(in thousands)
Long Term Debt
Financing Leases
Operating Lease Obligations
Total
Off-Balance Sheet Arrangements
Total
$ 6,924
2020
$ 616
2021
$ 1,280
2022
$ 1,347
2023
$ 1,417
—
—
—
—
—
36,901
$ 43,825
5,194
$ 5,810
5,078
$ 6,358
4,785
$ 6,132
3,918
$ 5,335
2024
Thereafter
774
$ 1,490 $
—
—
2,856
15,070
$ 4,346 $ 15,844
Our company does not have any off-balance sheet arrangements (as such term is defined in Item 303 of regulation
S-K) that are reasonably likely to have a current or future effect on our financial condition or changes in financial
condition, operating results, or liquidity.
Income Taxes
As of December 29, 2019, we had cumulative state net operating loss carry-forwards for tax reporting purposes of
approximately $25.2 million and federal net operating loss carry-forwards for tax reporting purposes of $9.4 million which,
if not used, will begin to expire in fiscal 2020 and 2038, respectively.
Recent Accounting Guidance Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment and is expected to reduce the cost
and complexity of accounting for goodwill. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires
a hypothetical purchase price allocation. Instead, goodwill impairment will be the amount by which a reporting unit’s
carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. ASU 2017-04 is effective for
annual and interim periods for fiscal years beginning after December 15, 2019 (our 2020 fiscal year) and will be applied on
a prospective basis. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing
dates after January 1, 2017. We do not believe this standard will have a significant impact on our consolidated financial
statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –
Changes to the Disclosure Requirements for Fair Value Measurement, which changes disclosure requirements for fair value
measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 (our 2020 fiscal year) and for
interim periods within those years, with early adoption permitted. We do not believe this standard will have a significant
impact on our consolidated financial statements
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Inflation
The primary inflationary factors affecting our operations include food, beverage and labor costs. In addition, our
leases require us to pay taxes, maintenance, repairs and utilities and these costs are subject to inflationary increases. In
some cases, some of our lease commitments are tied to consumer price index (“CPI”) increases. We are also subject to
interest rate changes based on market conditions.
While overall inflation rates decreased in fiscal 2019 compared to fiscal 2018, there is no assurance that inflation
rates will continue at their current levels. An increase in inflation rates could contribute to some price instability.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of BBQ Holdings, Inc. are included herein, beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the
end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that as of such date our disclosure controls and procedures are effective in recording, processing, summarizing
and reporting, on a timely basis, information requested to be disclosed by us in our reports that we file or submit under the
Exchange Act.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended). Our management
assessed the effectiveness of our internal control over financial reporting as December 29, 2019. In making this assessment,
our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in the 2013 Internal Control-Integrated Framework. Our management has concluded that, as of December 29,
2019, our internal control over financial reporting is effective based on these criteria.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our
disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within BBQ
Holdings have been detected.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that have materially affected or are
reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE
REGISTRANT
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form
10-K.
Code of Ethics
We have adopted a Code of Ethics specifically applicable to our CEO, CFO and Key Financial & Accounting
Management. In addition, there is a more general Code of Ethics applicable to all team members. Both of these Codes of
Ethics are available on our website at www.bbq-holdings.com and copies are available free of charge to anyone requesting
them.
ITEM 11.
EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on
Form 10-K.
ITEM 12.
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 13.
INDEPENDENCE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information in response to this Item is incorporated herein by reference to our definitive proxy statement
to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on
Form 10-K.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – December 29, 2019 and December 30, 2018
Consolidated Statements of Operations – Fiscal Years ended December 29, 2019 and December 30, 2018
Consolidated Statements of Shareholders’ Equity – Fiscal Years ended December 29, 2019 and December 30,
2018
Consolidated Statements of Cash Flows – Fiscal Years ended December 29, 2019 and December 30, 2018
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II. Schedule of Valuation and Qualifying Accounts
Exhibits:
F-1
F-2
F-3
F-4
F-5
F-6
F-29
F-29
See “exhibit index” on the page following the consolidated financial statements and related footnotes and the
signature page to this Annual Report on Form 10-K.
ITEM 16.
FORM 10-K SUMMARY
Not applicable.
36
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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
BBQ Holdings, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of BBQ Holdings, Inc. (a Minnesota corporation) and
subsidiaries (the “Company”) as of December 29, 2019 and December 30, 2018, the related consolidated statements of
operations, shareholders’ equity, and cash flows for the years then ended, and the related notes and financial statement
schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 29, 2019 and
December 30, 2018, and the results of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
Change in accounting principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for
leases as of December 31, 2018 due to the adoption of ASC 842, Leases.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Grant Thornton LLP
We have served as the Company’s auditor since 2002.
Minneapolis, Minnesota
March 27, 2020
F-1
Table of Contents
BBQ HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Current assets:
ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowance for doubtful accounts of $132,000 and
$192,000, respectively
Inventories
Prepaid income taxes and income taxes receivable
Prepaid expenses and other current assets
Assets held for sale
Total current assets
Property, equipment and leasehold improvements, net
Other assets:
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Deferred tax asset, net
Other assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Current portion of lease liabilities
Current portion of long-term debt and financing lease obligations
Accrued compensation and benefits
Other current liabilities
Total current liabilities
Long-term liabilities:
Lease liabilities, less current portion
Long-term debt, less current portion
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock, $.01 par value, 100,000 shares authorized, 9,272 and 9,085 shares
issued and outstanding at December 29, 2019 and December 30, 2018, respectively
Additional paid-in capital
Retained earnings
Total shareholders’ equity
Non-controlling interest
Total equity
December 29, 2019 December 30, 2018
11,598
842
5,325
761
$
$
4,379
1,346
264
1,356
2,842
16,273
19,756
25,962
640
2,213
6,646
1,591
73,081
3,967
4,230
616
2,694
4,975
16,482
26,957
6,258
1,610
51,307
93
7,856
14,423
22,372
(598)
21,774
73,081
$
$
$
4,300
722
377
1,363
—
19,202
10,385
—
61
1,428
5,747
1,533
38,356
3,765
—
1,369
808
2,970
8,912
—
2,411
4,492
15,815
91
7,375
15,075
22,541
—
22,541
38,356
$
$
$
See accompanying notes to consolidated financial statements.
F-2
Table of Contents
BBQ HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended
December 29, 2019
December 30, 2018
Revenue:
Restaurant sales, net
Franchise royalty and fee revenue
Franchisee national advertising fund contributions
Licensing and other revenue
Total revenue
Costs and expenses:
Food and beverage costs
Labor and benefits costs
Operating expenses
Depreciation and amortization expenses
General and administrative expenses
National advertising fund expenses
Asset impairment, estimated lease termination charges and other closing
costs, net
Pre-opening expenses
(Gain) loss on disposal of property and bargain purchases, net
Total costs and expenses
(Loss) income from operations
Other income (expense):
Interest expense
Interest income
Total other expense
(Loss) income before income taxes
Income tax benefit (expense)
Net (loss) income
Less: Net loss attributable to non-controlling interest
Net (loss) income attributable to shareholders
Basic net (loss) income per share attributable to shareholders
Diluted net (loss) income per share attributable to shareholders
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
$
$
$
$
$
$
$
$
67,278
12,126
1,616
1,249
82,269
21,541
24,565
21,269
2,231
10,992
1,616
1,296
460
(74)
83,896
(1,627)
(494)
215
(279)
(1,906)
659
(1,247)
598
(649)
(0.07)
(0.07)
9,099
9,099
38,051
13,871
1,932
1,034
54,888
11,973
13,663
11,932
1,264
7,988
1,932
145
—
29
48,926
5,962
(493)
122
(371)
5,591
(729)
4,862
—
4,862
0.57
0.56
8,599
8,624
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
BBQ HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Balance - December 31, 2017
7,376
$
70
Additional
Paid-in
Shares Amount Capital
Common Stock
Retained
Earnings
$ 1,460 $ 11,951
Total
Shareholders' Non-controlling
Equity
Interest
$
13,481
$
Total
Equity
— $ 13,481
Cumulative effect of change in
accounting principle
Common stock issued pursuant to
rights offering
Exercise of stock options
Stock-based compensation
Net income
Balance - December 30, 2018
Exercise of stock options
Stock-based compensation
Other
Net loss
Balance - December 29, 2019
—
—
—
(1,738)
(1,738)
—
(1,738)
1,582
102
25
—
$
9,085
5
182
—
—
$
9,272
18
2
1
—
91
—
2
—
—
93
5,119
—
432
—
364
—
4,862
—
$ 7,375 $ 15,075
20
—
461
—
—
(3)
(649)
—
$ 7,856 $ 14,423
$
$
5,137
434
365
4,862
22,541
20
463
(3)
(649)
22,372
$
$
—
5,137
—
434
—
365
4,862
—
— $ 22,541
20
—
463
—
—
(3)
(1,247)
(598)
(598) $ 21,774
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
BBQ HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
December 29, 2019 December 30, 2018
Year Ended
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net income to cash flows provided by operations:
Depreciation and amortization
Stock-based compensation
Net (gain) loss on disposal of property and bargain purchases
Asset impairment, estimated lease termination charges and other closing costs
(gain), net
Bad debts recovery
Deferred income taxes
Other non-cash items
Changes in operating assets and liabilities:
Accounts receivable, net
Other assets
Accounts payable
Accrued and other liabilities
Cash flows provided by operating activities
Cash flows from investing activities:
Proceeds from the sale of assets
Purchases of property, equipment and leasehold improvements
Payments for acquired restaurants
Advances on notes receivable
Purchases of held to maturity securities
Maturity of held to maturity securities
Payments received on note receivable
Cash flows used for investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Payments for debt issuance costs
Payments on long-term debt and financing lease obligations
Proceeds from sale of common stock, net of offering costs
Proceeds from exercise of stock options
Cash provided by (used for) financing activities
(Decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
Supplemental Disclosures
Cash paid for interest, net
Cash paid for income taxes, net
Non-cash investing and financing activities:
(Decrease) increase in accrued property and equipment purchases
Gift card liability assumed pursuant to acquisitions
Inventory acquired pursuant to acquisitions
Accounts receivable settled through acquisitions
$
(1,247)
$
2,231
463
(74)
1,273
239
(688)
291
(1,582)
(449)
258
1,867
2,582
33
(6,755)
(6,188)
(150)
—
—
31
(13,029)
4,300
(54)
(175)
—
22
4,093
(6,354)
12,440
6,086
244
—
(39)
705
103
993
$
$
$
$
4,862
1,264
278
29
(46)
(30)
639
(515)
(225)
(389)
(600)
(1,390)
3,877
1,187
(953)
(229)
(750)
(6,995)
6,995
—
(745)
—
—
(6,758)
5,120
520
(1,118)
2,014
10,426
12,440
292
(148)
22
—
—
—
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
On September 17, 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-K, “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, operates and franchises restaurants
under the name “Famous Dave’s”, “Clark Crew BBQ”, “Granite City Food & Brewery” and “Real Urban Barbecue.” As of
December 29, 2019, there were 128 Famous Dave’s restaurants operating in 32 states, Canada, and the United Arab
Emirates, including 32 Company-owned restaurants and 96 franchise-operated restaurants. The first Clark Crew BBQ
restaurant opened in December 2019 in Oklahoma City, Oklahoma. On March 16, 2020, we purchased one Real Urban
Barbecue restaurant located in Vernon Hills, Illinois. On March 9, 2020, we purchased 18 Granite City Food & Brewery
restaurants in connection with a Chapter 11 bankruptcy filing.
Seasonality
Our restaurants typically generate higher revenue in the second and third quarters of our fiscal year as a result of
seasonal traffic increases and high catering sales experienced during the summer months, and lower revenue in the first and
fourth quarters of our fiscal year, due to possible adverse weather which can disrupt customer and team member
transportation to our restaurants.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of our company and its wholly-owned
and majority-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (“GAAP”) requires us to make estimates and assumptions 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 revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
Financial instruments
Due to their short-term nature, the carrying value of our current financial assets and liabilities approximates their
fair value. The fair value of long-term debt approximates the carrying amount based upon our expected borrowing rate for
debt with similar remaining maturities and comparable risk.
Segment reporting
We have Company-owned and franchise-operated restaurants in the United States, Canada and the United Arab
Emirates, and operate within the single industry segment of foodservice. We make operating decisions on behalf of the
BBQ Holdings brand which includes both Company-owned and franchise-operated restaurants. In addition, all operating
expenses are reported in total and are not allocated to franchising operations for either external or internal reporting. As a
result, we have concluded that we have a single reporting segment.
F-6
Table of Contents
Fiscal year
BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our fiscal year ends on the Sunday nearest to December 31 of each year. Our fiscal year is generally 52 weeks;
however, it periodically consists of 53 weeks. The fiscal years ended December 29, 2019 (fiscal 2019) and December 30,
2018 (fiscal 2018) each consisted of 52 weeks. Fiscal 2020, which ends on January 3, 2021, will consist of 53 weeks.
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. Our uninsured cash
and restricted cash balances were $4.6 million as of the end of each fiscal year 2019 and 2018. There have been no losses
of uninsured amounts.
Restricted cash and marketing fund
We have a system-wide Marketing Development Fund, to which most Company-owned restaurants, in addition to
the majority of franchise-operated restaurants, contribute a percentage of net sales, currently for use in public relations and
marketing development efforts. The assets held by this fund are considered to be restricted. Accordingly, we reflect the
cash related to this fund within restricted cash and reflect the liability within accounts payable on our consolidated balance
sheets. We had approximately $761,000 and $700,000 in this fund as of December 29, 2019 and December 30, 2018,
respectively.
In conjunction with certain lease agreements, our company was previously required to deposit amounts for
undrawn letters of credit in cash collateral accounts. We had approximately $143,000 of restricted cash as of December 30,
2018, related to these undrawn letters of credit.
Accounts receivable, net
We provide an allowance for uncollectible accounts on accounts receivable based on historical losses and existing
economic conditions, when relevant. We provide for a general bad debt reserve for franchise receivables due to increases
in days sales outstanding and deterioration in general economic market conditions. This general reserve is based on the
aging of receivables meeting specified criteria and is adjusted each quarter based on past due receivable balances.
Additionally, we have periodically established a specific reserve on certain receivables as necessary. In assessing
recoverability of these receivables, we make judgments regarding the financial condition of the franchisees based primarily
on past and current payment trends, as well as other variables, including annual financial information, which our
franchisees are required to submit to us. Any changes to the reserve are recorded in general and administrative expenses.
Accounts receivable are written off when they become uncollectible, and payments subsequently received on such
receivables are credited to the allowance for doubtful accounts. Accounts receivable balances written off have not exceeded
allowances provided and we believe all accounts receivable in excess of allowances provided are fully collectible. If
accounts receivable in excess of provided allowances are determined uncollectible, they are charged to expense in the
period that determination is made. As of December 29, 2019, we had a receivable from one franchisee in the amount of
$588,000, and from another franchisee in the amount of $476,000. A portion of these receivables was reserved.
Inventories
Inventories consist principally of small wares and supplies, food and beverages, and retail goods, and are recorded
at the lower of cost (first-in, first-out) or net realizable value.
F-7
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Assets Held for Sale
BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 29, 2019, we had assets held for sale of approximately $2.8 million related to an owned property
for which we entered into an agreement to sell the property for a contract purchase price of $3.6 million.
Property, equipment and leasehold improvements, net
Property, equipment and leasehold improvements are stated at cost, net of accumulated depreciation. We
recognize depreciation expense utilizing the straight-line method once an asset has been placed into service. The following
table outlines the useful lives of our major classes of property, equipment and leasehold improvements:
Buildings
Leasehold improvements
Furniture, fixtures, equipment and software (excluding restaurant signage)
Restaurant signage
Decor
30 years
0 - 30 years
1 - 7 years
10 - 15 years
7 years
We capitalize labor costs associated with the implementation of significant information technology infrastructure
projects based on actual labor rates per person including benefits, for all time spent on the implementation of software and
are depreciated over 5 years. We capitalize construction overhead costs until the time a building is turned over to
operations, which is approximately two weeks prior to opening and depreciate these items over the same useful life as
leasehold improvements.
We evaluate restaurant sites and other long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of restaurant sites to be
held and used is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash
flows expected to be generated on a restaurant-by-restaurant basis. If a restaurant site is determined to be impaired, the loss
is measured as the amount by which the carrying amount of the restaurant site exceeds its fair value. Fair value is estimated
based on the best information available including estimated future cash flows, expected growth rates in comparable
restaurant sales, remaining lease terms and other factors.
Intangible Assets
We have transferable liquor licenses in jurisdictions with a limited number of authorized liquor licenses. These
licenses were capitalized as indefinite-lived intangible assets and are included in intangible assets, net in our consolidated
balance sheets. We review annually the liquor licenses for impairment. The costs of obtaining non-transferable liquor
licenses that are directly issued by local government agencies for nominal fees are expensed as incurred. Annual liquor
license renewal fees are expensed over the renewal term.
Goodwill represents the excess of cost over the fair value of identified net assets of businesses acquired. Goodwill
is tested for impairment annually or on an interim basis if events or changes in circumstances between annual tests indicate
a potential impairment. Factors considered include, but are not limited to historical financial performance, a significant
decline in expected future cash flows, unanticipated competition, changes in management or key personnel,
macroeconomic and industry conditions and the legal and regulatory environment. If the qualitative assessment indicates
that it is more likely than not that an impairment exists, then a quantitative assessment is performed. The quantitative
assessment requires an analysis of several best estimates and assumptions, including future sales and operating results, and
other factors that could affect fair value or otherwise indicate potential impairment. The goodwill impairment assessment
involves valuing our reporting units that carry goodwill and considers their projected ability to generate income from
operations and positive cash flow in future periods. The fair value assessment could change materially if different estimates
and assumptions were used. No goodwill impairment charges were recognized during the years ended December 29, 2019
and December 30, 2018.
F-8
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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reacquired franchise rights are amortized over the life of the related franchise agreement. We evaluate reacquired
franchise rights in conjunction with our impairment evaluation of long-lived assets.
Advertising
Advertising costs are charged to expense as incurred. Advertising costs were approximately $2.8 million and $2.7
million for the years ended December 29, 2019 and December 30, 2018, respectively, and are included in operating
expenses for local store marketing and in national advertising fund expenses for national advertising in the consolidated
statements of operations.
Research and development costs
Research and development costs represent all expenses incurred in relation to the creation of new menu and
promotional offerings, recipe enhancements and documentation activities. Research and development costs were
approximately $489,000 and $441,000 for the years ended December 29, 2019 and December 30, 2018, respectively, and
are included in general and administrative expenses in the consolidated statements of operations.
Pre-opening expenses
All start-up and pre-opening costs are expensed as incurred. Pre-opening rent during the build-out period is
included in pre-opening expense. We incurred approximately $460,000 of pre-opening expenses during the year ended
December 29, 2019 and no such expense during the year ended December 30, 2018.
Leases
We lease the property for our corporate headquarters, most of our Company-owned stores, and certain office and
restaurant equipment. Beginning in fiscal 2019, we adopted ASU 2016-02 - Leases (Topic 842). Under this standard, we
determine 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. ROU
assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the
commencement date. Because most of our leases do not provide an implicit rate of return, we use our incremental
borrowing rate based on the information available at commencement date in determining the present value of lease
payments. Operating lease ROU assets exclude lease incentives received.
Lease terms for Company-owned stores generally range from 5-20 years with one or more five-year renewal
options and generally require us to pay a proportionate share of real estate taxes, insurance, common area, and other
operating costs in addition to a base or fixed rent. We have elected the short term lease exemption for certain qualifying
leases with lease terms of twelve months or less and, accordingly, did not record right-of-use assets and lease liabilities.
These leases with initial terms of less than 12 months are recorded directly to occupancy expense on a straight-line basis
over the term of the lease. Additionally, we have decided to utilize the package of practical expedients and the practical
expedient to not reassess certain land easements. We have decided not to utilize the practical expedient to use hindsight.
Certain of our leases also provide for variable lease payments in the form of percentage rent, in which additional rent is
calculated as a percentage of sales in excess of a base amount, and not included in the calculation of the operating lease
liability or ROU asset. Our leases have remaining lease terms of one to 20 years. For purposes of calculating operating
lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain
that we will exercise that option. We recognize rent expense on a straight-line basis for our operating leases over the entire
lease term, including lease renewal options and build-out periods where the renewal is reasonably assured and the build-out
period takes place prior to the restaurant opening or lease commencement date. Rent expense recorded during the build-out
period is reported as pre-opening expense. We account for construction allowances by recording a receivable when
collectability is considered to be probable, and relieve the receivable once the cash is obtained from the landlord for the
construction allowance. Construction allowances are included in the calculation of the ROU asset and related liability.
F-9
Table of Contents
Exit and disposal costs
BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Exit or disposal activities, including restaurant closures, include the cost of disposing of the assets and other
facility-related expenses from previously closed restaurants. These costs are generally expensed as incurred. Additionally,
at the date we cease using a property under an operating lease, we remove the remaining balance of the ROU asset. Any
subsequent adjustments to the related liability as a result of lease termination are recorded in the period incurred. Upon
disposal of the assets associated with a closed restaurant, any gain or loss is recorded in the same caption as the original
impairment within our consolidated statements of operations.
We recognize a liability for the fair value of a required asset retirement obligation (“ARO”) when such obligation
is incurred. Our AROs are primarily associated with leasehold improvements which, at the end of a lease, we are
contractually obligated to remove in order to comply with the lease agreement.
Costs incurred for restaurants that have been closed, after the date of their closure, are presented within the asset
impairment, estimated lease termination and other closing costs line item of our consolidated statements of operations.
Net income (loss) per common share
Basic net income (loss) per common share (“EPS”) is computed by dividing net income (loss) 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 (loss) income per common share:
(in thousands, except per share data)
Net (loss) income per share – basic:
Net (loss) income attributable to shareholders
Weighted average shares outstanding - basic
Basic net (loss) income per share
Net (loss) income per share – diluted:
Net (loss) income attributable to shareholders
Weighted average shares outstanding - diluted
Diluted net (loss) income per share
Year Ended
December 29, 2019
December 30, 2018
$
$
$
$
(649)
9,099
(0.07)
(649)
9,099
(0.07)
$
$
$
$
4,862
8,599
0.57
4,862
8,624
0.56
There were approximately 191,000 and 111,000 stock options as of December 29, 2019 and December 30, 2018,
respectively that were not included in the computation of diluted EPS because they were anti-dilutive.
Stock-based compensation
We recognize compensation cost for share-based awards granted to team members and board members based on
their fair values at the time of grant over the requisite service period. Stock options granted to non-employees are marked
to market as they vest. The bonus compensation of our Chief Executive Officer is issued in the form of unrestricted, freely
tradable shares of our common stock and is expensed in full when earned. Our pre-tax compensation cost for stock options
and other incentive awards is included in general and administrative expenses in our consolidated statements of operations.
See Note 9 “Stock-based compensation.”
Beginning in fiscal 2019, we adopted ASU 2018-07 – Stock Compensation, which simplifies the accounting
related to nonemployee share-based payments. The update brings the accounting for nonemployees in line with that of
F-10
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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
awards granted to employees. The standard allows for measurement at the grant date for equity awards as opposed to the
earlier of the performance commitment date or the date performance is complete. The new standard allows an entity to use
the expected term or the contractual term.
Income Taxes
We provide for income taxes based on our 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. Our estimates are based on the information available to us at the time that we
prepare the income tax provision. We generally file our annual income tax returns several months after our 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 or differing interpretations of the tax laws.
Revenue recognition
We recognize revenue at the point in time when food and services are provided to a restaurant Guest or other
customer. Revenues from restaurant operations are presented net of discounts, coupons, employee meals and
complimentary meals and recognized when food, beverage and retail products are sold. Sales tax collected from customers
is excluded from sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate
taxing authorities. Revenue from catered events are recognized in income upon satisfaction of the performance obligation
(the date the event is held). All customer payments, including nonrefundable upfront deposits, are deferred as a liability
until such time.
We recognize franchise fee revenue on a straight-line basis over the life of the related franchise agreements and
any exercised renewal periods. Cash payments are due upon the opening of a new restaurant or upon the execution of a
renewal of the related franchise agreement. Our performance obligation with respect to franchise fee revenues consists of a
license to utilize our company’s brand for a specified period of time, which is satisfied equally over the life of each
franchise agreement.
Area development fees are deferred until a new restaurant is opened pursuant to the area development agreement,
at which time revenue is recognized on a straight-line basis over the life of the franchise agreement. Cash payments for
area development agreements are typically due when an area development agreement has been executed.
Gift card breakage revenue is recognized proportionately as gift cards are redeemed utilizing an estimated
breakage rate based on our company’s historical experience. Gift card breakage revenue is reported within the licensing
and other revenue line item of the consolidated statements of operations.
Our company defers revenue associated with the estimated selling price of reward points earned pursuant to our
loyalty program and establishes a corresponding liability. This deferral is based on the estimated value of the product for
which the reward is expected to be redeemed, net of estimated unredeemed points. When a Guest redeems an earned
reward, we recognize revenue for the redeemed product and reduce the deferred revenue. Deferred revenue associated with
our loyalty program was not material as of December 29, 2019 and December 30, 2018.
Contract liabilities consist of deferred revenue resulting from franchise fees paid by franchisees. We classify these
liabilities within other current liabilities and other liabilities within our consolidated balance sheets based on the expected
timing of revenue recognition associated with these liabilities. The following table reflects the change in contract liabilities
between December 29, 2019 and December 30, 2018:
(in thousands)
Balance, December 30, 2018
$
1,998
F-11
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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue recognized
Balance, December 29, 2019
$
(680)
1,318
The following table illustrates estimated revenues expected to be recognized in the future related to unsatisfied
performance obligations as of December 29, 2019:
(in thousands)
Fiscal Year
2020
2021
2022
2023
2024
Thereafter
Total
$
$
130
114
112
105
93
764
1,318
Recent Accounting Guidance
Recently adopted accounting guidance
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for
lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset
for all leases. Lessor accounting remains largely unchanged. The amendments in this ASU were effective for fiscal years
beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption was permitted for all
entities. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), which allows entities to initially apply the new
lease standard as of the adoption date instead of at the beginning of the earliest period presented in the financial statements.
The new lease standard provides for a modified retrospective approach or current period adjustment approach for all leases
existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. We
adopted the new lease standard as of the effective date by applying the current period adjustment approach, utilizing the
package of practical expedients available and the practical expedient to not reassess land easements.
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718), which expands
the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.
Under the updated standard, an entity should apply the requirements of Topic 718 to nonemployee awards, except for
specific guidance on inputs to an option-pricing model and the attribution of cost. The amendments specify that Topic 718
applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in the
grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not
apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction
with selling or goods or services as part of a contract accounted for under Topic 606, Revenue from Contracts with
Customers. The amendments in this ASU were effective for fiscal years beginning after December 15, 2018 and interim
periods within that fiscal year. Early adoption was permitted, but no earlier than an entity’s adoption date of Topic 606. We
adopted this new standard as of the effective date with no material impact on our consolidated financial statements.
F-12
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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) INVENTORIES
Inventories consisted approximately of the following at:
(in thousands)
Food and beverage
Smallwares and supplies
(3) INTANGIBLE ASSETS
December 29, 2019 December 30, 2018
389
$
333
722
798
548
1,346
$
$
$
We have intangible assets that consist of liquor licenses, goodwill and reacquired franchise rights, net. The liquor
licenses and goodwill are indefinite-lived assets and are not subject to amortization. Reacquired franchise rights are
amortized to depreciation and amortization expense on a straight-line basis over the remaining life of the reacquired
franchise agreement. In fiscal 2018, we also included lease interest assets in intangible assets and amortized to occupancy
costs on a straight-line basis over the remaining term of each respective lease. With the adoption of ASC 842 – Leases,
these assets were included in ROU assets on the balance sheet. The amount of such reclass was approximately $768,000.
Intangible assets consisted approximately of the following at:
(in thousands)
Lease interest assets, net
Reacquired franchise rights, net
Goodwill
Liquor licenses
Intangible assets, net
December 29, 2019 December 30, 2018
768
25
61
635
1,489
-
1,788
640
425
2,853
$
$
The following table provides the projected future amortization of reacquired franchise rights, net for the next five
years, as of December 29, 2019:
(in thousands)
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Thereafter
Reacquired Franchise
Rights, net
418
418
418
253
132
149
1,788
$
$
We recognized amortization expense related to reacquired franchise rights of approximately $306,000 and $1,000
during the years ended December 29, 2019 and December 30, 2018, respectively, and expect to recognize the remaining
balance over a period of 8 years.
F-13
Table of Contents
BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements, net, consisted approximately of the following at:
(in thousands)
Land, buildings, and improvements
Furniture, fixtures, equipment and software
Décor
Construction in progress
Accumulated depreciation and amortization
Property, equipment and leasehold improvements, net
(5) OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at:
(in thousands)
Gift cards payable
Accrued expenses
Asset retirement obligations and lease reserves
Sales tax payable
State income tax payable
Deferred franchise fees
Accrued property and equipment purchases
Other current liabilities
(6) OTHER LIABILITIES
Other liabilities consisted of the following at December 29, 2019:
(in thousands)
Deferred rent
Deferred franchise fees
Miscellaneous other liabilities
Asset retirement obligations
Accrual for uncertain tax position
Long-term lease reserve
Long-term deferred compensation
Other liabilities
$
December 29, 2019 December 30, 2018
24,191
$
16,108
681
138
(30,733)
10,385
28,185
17,880
584
483
(27,376)
19,756
$
$
$
$
December 29, 2019 December 30, 2018
1,035
1,238
161
274
16
207
39
2,970
2,360
1,874
6
584
—
151
—
$
4,975
$
$
December 29, 2019 December 30, 2018
1,787
— $
1,791
441
16
10
254
193
4,492
1,165
216
3
6
—
220
1,610
$
$
(7) LONG-TERM DEBT AND FINANCING LEASE OBLIGATIONS
Long-term debt
On June 20, 2019 (the “Effective Date”), we entered into a Loan Agreement among our company and Choice
Financial Group (“Choice”). The Loan Agreement provides for a term loan from Choice to our company set forth therein in
the principal amount of up to $24.0 million and is evidenced by a promissory note (the “First Note”) executed and
delivered by our company to Choice on the Effective Date. The First Note has a maturity date of June 20, 2025. The first
year of the First Note (the “Draw Period”) provides for payments of interest only, with the remaining five years requiring
payments of interest and principal based on a 60 month amortization period. Interest shall be payable in an amount equal to
the Wall Street Journal Prime Rate, but in no circumstances shall the rate of interest be less than 5.00%. The First Note may
be prepaid, partially or in full, at any time and for no prepayment penalty.
F-14
Table of Contents
BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Proceeds from the loan were used to repay our previous real estate loan, dated December 2, 2016, which had an
outstanding balance as of the Effective Date of approximately $2.6 million. The remainder of the First Note may be drawn
upon during the Draw Period, provided that there are no uncured events of default.
The Loan Agreement is secured by a mortgage and security agreement and fixture financing statement (the “First
Mortgage”) granting to Choice a security interest in and title to certain real property in the state of Minnesota and as more
fully described therein.
The Loan Agreement contains customary representations and warranties and financial and other covenants and
conditions, including, among other things, minimum debt service coverage ratio and post-closing covenant to maintain a
complete deposit and cash management relationship with Choice. The Loan Agreement also places certain restrictions on,
among other things, our ability to incur additional indebtedness, to create liens or other encumbrances, to use funds for
purposes other than as stated therein, to sell or otherwise dispose of assets without the consent of Choice.
In addition, the Loan Agreement contains events of default (subject to certain materiality thresholds and grace
periods), including, without limitation, payment defaults; breaches of covenants; breaches of representations and
warranties; failure to perform remediation of any environmental matters on the mortgaged property, as set forth in the First
Mortgage; failure to perform or observe the covenants, conditions or terms of the First Loan Agreement and related
agreements; certain bankruptcy events of our company and failure to timely provide financial statements.
Also on the Effective Date, we also entered into a Revolving Promissory Note among our company and Choice.
The Revolving Promissory Note provided for a revolving line of credit from Choice to our company set forth therein in the
principal amount of up to $1.0 million (the “Second Note”) executed and delivered by our company to Choice on the
Effective Date. The Second Note had a maturity date of December 2, 2019. The Second Note provided for monthly
payments of interest only, with a balloon payment of the remaining outstanding balance and applicable interest due on the
maturity date. Interest was to be payable in an amount equal to the 30-day London Interbank Offer Rate (“LIBOR”) plus
325 basis points, but in no circumstances was the rate of interest be less than 3.75%. Second Note has matured and no
balance is due.
As of December 29, 2019 and December 30, 2018, the weighted average interest rate on our long-term debt was
5.0% and 4.41%, respectively. The notes pursuant to the Loan Agreements are secured by substantially all of our assets and
we are subject to various financial and non-financial covenants, including debt-service coverage ratio. As of December 29,
2019, we were in compliance with all of our covenants. In the event of a default, Choice has the right to terminate its
obligations under the Loan Agreements and to accelerate the payment on any unpaid principal amounts then outstanding.
Long-term debt consisted of approximately the following as of the periods presented:
(in thousands)
Term Loan
Real Estate Loan
Less: deferred financing costs
Less: current portion of long-term debt
Long-term debt, less current portion
$
December 29, 2019 December 30, 2018
—
2,705
(131)
(163)
2,411
6,924 $
—
(50)
(616)
6,258 $
$
Future minimum principal payments on long-term debt, as of December 29, 2019, were as follows:
(in thousands)
Fiscal Year
2020
2021
2022
$
616
1,280
1,347
F-15
Table of Contents
BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2023
2024
Thereafter
Total
Financing Lease Obligation
1,417
1,490
774
6,924
$
Pursuant to an amended sale leaseback transaction, our company had an option to repurchase two properties at the
end of the lease term. Because of our continuing involvement in the properties, the transaction was accounting for as a
financing arrangement. As of December 30, 2018, the weighted-average interest rate of such obligation was approximately
8.09%. The Company repaid its financing lease obligation during the fiscal year ended December 29, 2019.
(8) COMMITMENTS AND CONTINGENCIES
Operating Leases
We lease most of our Company-owned restaurants and office facilities under non-cancelable operating leases with
remaining minimum terms ranging from one to 20 years. Our lease agreements generally contain base rent escalations that
are either fixed pursuant to the lease agreement or based on the consumer price index. We are also required to pay
contingent rentals on certain of our leases in amounts between 5% and 8% of gross sales above a minimum threshold.
Beginning in fiscal 2019, we adopted ASC 842 – Leases. Under this standard, we determine if an arrangement is a lease at
inception. Operating leases are included in ROU assets, current portion of operating lease liabilities, and operating lease
liabilities in our consolidated balance sheets. ROU assets and operating lease liabilities are recognized based on the present
value of lease payments over the lease term at the commencement date.
The following table sets forth certain information related to our rental activities as of the periods presented:
(in thousands)
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term of operating leases (in years)
Weighted-average discount rate of operating leases
Future maturities of our lease liabilities, as of December 29, 2019, are as follows:
(in thousands)
Fiscal Year
2020
2021
F-16
$
Year Ended
December 29, 2019
4,261
123
31
(248)
4,167
Year Ended
December 29, 2019
4,424
18,458
9.56
5.56 %
$
5,194
5,078
Table of Contents
BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2022
2023
2024
Thereafter
Total operating lease obligations
Less imputed interest
Total
Litigation
4,785
3,918
2,856
15,070
36,901
(5,944)
30,957
$
In the normal course of business, we are 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 and
general business-related issues. We currently believe that the resolution of any of these pending matters will not have a
material adverse effect on our financial position or liquidity, but an adverse decision in more than one of the matters could
be material to our consolidated results of operations.
(9) STOCK-BASED COMPENSATION
Effective May 5, 2015, we adopted the 2015 Equity Plan (the “2015 Plan”), pursuant to which we 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. We also maintain an Amended and Restated 2005 Stock Incentive Plan
(the “2005 Plan”). The 2005 Plan prohibits the granting of options pursuant to the 2005 plan after May 12, 2015, the tenth
anniversary of the date the 2005 Plan was approved by our shareholders. Nonetheless, the 2005 Plan will remain in effect
until all outstanding incentives granted thereunder have either been satisfied or terminated. As of December 29, 2019, there
were 237,333 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.
Stock options granted to certain non-employees either vest immediately or monthly over a period of two years.
Options generally expire ten years from the date of grant. Compensation expense is recognized in general and
administrative expense over the applicable service period. In fiscal 2019, we adopted ASU 2018-07, which changes the
way we account for stock options granted to non-employees. See Note 1 – Nature of Business and Significant Accounting
Policies.
The incentive compensation of our Chief Executive Officer is tied to increases in our share price and calls for the
issuance of freely tradable shares of our common stock upon the achievement of certain milestones.
We utilize 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 our 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 we expect 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We recognized stock-based compensation expense in its consolidated statements of operations for the twelve
months ended December 29, 2019 and December 30, 2018, respectively, as follows:
Year Ended
(in thousands)
Stock options
Shares of common stock
Restricted stock
$
December 29, 2019 December 30, 2018
208
70
—
278
266
—
198
463
$
$
$
The following is a roll-forward of our stock option activity for the periods presented:
Options outstanding at December 31, 2017
Granted
Exercised
Canceled, forfeited or expired
Options outstanding at December 30, 2018
Granted
Exercised
Canceled, forfeited or expired
Options outstanding at December 29, 2019
Options exercisable at December 29, 2019
Number of
Options
Weighted Average
(in thousands) Exercise Price
Weighted
Average
Remaining
Contractual
Life in Years
539
90
(102)
(143)
384
212
(5)
(138)
453
280
$
$
$
$
6.60
7.67
5.28
5.74
7.43
4.37
3.90
5.22
6.71
7.54
6.6 $
6.7 $
5.7 $
5.1 $
Aggregate
Intrinsic Value
(in thousands)
598
—
273
231
29
—
6
68
28
19
The following table discloses the weighted-average values of significant assumptions that we made in valuing
option grants for the periods presented:
Year Ended
Weighted-average fair value of options granted during the period
Expected life (in years)
Expected dividend
Expected stock volatility
Risk-free interest rate
$
December 29, 2019
1.88
4.6
— $
50.55 %
1.9 %
December 30, 2018
3.73
$
6.2
—
45.94 %
2.9 %
$
approximately $408,000, which is expected to be recognized over a period of approximately 3 years.
As of December 29, 2019, the total compensation cost related to unvested stock option awards was
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) RETIREMENT SAVINGS PLANS
401(k) Plan
We have a pre-tax salary reduction/profit-sharing plan under the provisions of Section 401(k) of the Internal
Revenue Code, which covers employees meeting certain eligibility requirements. The following table outlines certain
information about our 401(k) plan:
(dollars in thousands)
Employer contribution rate, percent of employee contributions
Employee contribution rate, maximum percentage of employee earnings subject to
employer matching
Employee contributions
Employer match
Discretionary contributions
Year Ended
December 29, 2019 December 30, 2018
25.0 %
4.0 %
$
570
113
$
— $
25.0 %
4.0 %
469
76
—
$
$
$
Non-Qualified Deferred Compensation Plan
We maintain a non-qualified deferred compensation plan, effective as of February 25, 2005 (the “DCP”) for
eligible participants, as defined in the DCP. The DCP allows participating employees to defer a portion of their
compensation (salary, bonus and commissions). The assets of the DCP are maintained in an unsecured account that has no
trust fund. In the event of bankruptcy, participants entitled to future payments under the DCP would have no greater rights
than that of an unsecured general creditor and the DCP confers no legal rights for interest or claim on any of our assets.
The benefits provided by the DCP are not, nor are they required to be, insured.
The following table outlines certain information about the DCP:
(dollars in thousands)
Employer contribution rate, percent of employee contributions
Employee contribution rate, maximum percentage of employee earnings subject to
employer matching
Declared interest rate
Employee contributions
Employer match and interest
Distributions
Year Ended
December 29, 2019 December 30, 2018
25.0 %
4.0 %
6.0 %
$
47
$
6
$
32
25.0 %
4.0 %
6.0 %
36
17
30
$
$
$
(11) RESTAURANT ACQUISITIONS
On August 6, 2018, we completed the acquisition of a Famous Dave's restaurant in Janesville, Wisconsin. The
seller of the restaurant was Team R N' B Wisconsin, LLC. The contract purchase price of the restaurant was approximately
$37,000, exclusive of closing costs plus the assumption of the gift card liability.
On October 8, 2018, we completed the acquisition of a Famous Dave's restaurant in Greenwood, Indiana. The
seller of the restaurant was Greenwood Ribs, LLC. The contract purchase price of the restaurant was approximately
$191,000, exclusive of closing costs plus the assumption of the gift card liability.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquisitions were accounted for using the purchase method of accounting in accordance with ASC 805
“Business Combinations” and, accordingly, the consolidated statements of operations include the results of these operations
from the date of acquisition. The assets acquired and the liabilities assumed were recorded at estimated fair values based on
information available.
(in thousands)
Assets acquired:
Cash and cash equivalents
Inventory
Property, plant, equipment and leasehold improvements, net
Goodwill
Reacquired franchise rights, net
Total assets acquired
Gift card liability assumed
Total purchase price
$
$
4
66
91
42
25
228
(25)
203
On March 4, 2019, we completed the acquisition of the assets and operations of four Famous Dave's restaurants in
Colorado (the “Colorado Restaurants”). The sellers of the Colorado Restaurants were Legendary BBQ, Inc., Quebec
Square BBQ, Inc., Cornerstar BBQ, Inc., Razorback BBQ, Inc., and Larkridge BBQ, Inc. Pursuant to the same purchase
agreement as the acquisition of the Colorado Restaurants, on June 3, 2019, we completed the acquisition of the assets and
operations of one Famous Dave's restaurant in Grand Junction, Colorado (the “Grand Junction Restaurant”). The seller of
the Grand Junction Restaurant was Mesa Mall BBQ, Inc. The contract purchase price of the Colorado Restaurants and the
Grand Junction Restaurant was approximately $4.1 million, exclusive of acquisition costs of approximately $409,000,
which are reflected in general and administrative expenses, plus the assumption of the gift card liability associated with the
restaurants. Accounts receivable amounts owed to our company reduced the cash required to be paid for the purchase price.
We also purchased inventory on hand as of the acquisition dates. Effective as of the closing date of the acquisitions, the
franchise agreements for the Colorado Restaurants and the Grand Junction Restaurant were terminated.
The acquisition was accounted for using the purchase method of accounting in accordance with ASC 805
“Business Combinations” and, accordingly, these consolidated statements of operations include the results of these
operations from the date of acquisition.
(in thousands)
Assets acquired:
Cash and cash equivalents
Inventory
Property, plant, equipment and leasehold improvements, net
Lease right-of-use asset, net of unfavorable lease value
Identifiable intangible assets, net
Total identifiable assets acquired
Liabilities assumed:
Gift card liability
Lease liability
Net assets acquired
Goodwill
Total consideration transferred
$
$
13
176
3,139
6,729
1,368
11,425
(182)
(7,116)
4,127
373
4,500
On July 10, 2019, we completed the acquisition of the assets and operations of four Famous Dave's restaurants in
Arizona (the “Arizona Restaurants”). The sellers of the Arizona Restaurants were Desert Ribs LLC, Famous Charlie LLC,
Famous Freddie LLC, Famous Gracie LLC, and Famous George LLC, which were franchisees of the Company. The
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
acquisition of the Arizona Restaurants was pursuant to the Purchase Agreement, as filed on June 26, 2019, resulting from a
stalking horse bid in the sale process conducted under Sections 363 and 365 of Chapter 11 of the U.S. Bankruptcy Code.
The purchase price of the Arizona Restaurants was approximately $1.6 million in cash and approximately $1.4 million for
the assumption of gift card and other liabilities as specified in the Purchase Agreement, settlement of outstanding franchise
billings, and fees related to debtor-in-possession financing. We incurred acquisition costs of approximately $166,000,
which are reflected in general administrative expenses, associated with the purchase of the Arizona Restaurants. Effective
as of the closing date of the acquisition, the franchise agreements for the Arizona Restaurants were terminated and
outstanding receivables were considered additions to the purchase price.
The acquisition was accounted for using the purchase method of accounting in accordance with ASC 805
“Business Combinations” and, accordingly, these consolidated statements of operations include the results of these
operations from the date of acquisition.
(in thousands)
Assets acquired:
Cash and cash equivalents
Inventory
Property, plant, equipment and leasehold improvements, net
Lease right-of-use asset, net of unfavorable lease value
Total identifiable assets acquired
Liabilities assumed:
Gift card liability
Lease liability
Net assets acquired
Goodwill
Total consideration transferred
$
$
12
103
5,177
731
6,023
(428)
(2,992)
2,603
415
3,018
The following table presents the allocation of assets acquired and liabilities assumed for individually immaterial
acquisitions during the twelve months ended December 29, 2019:
(in thousands)
Assets acquired:
Cash and cash equivalents
Inventory
Property, plant, equipment and leasehold improvements, net
Lease right-of-use asset, net of unfavorable lease value
Identifiable intangible assets, net
Total identifiable assets acquired
Liabilities assumed:
Gift card liability
Lease liability
Net assets acquired
Gain on bargain purchase
Total consideration transferred
$
$
15
202
362
6,109
728
7,416
(71)
(6,715)
630
(178)
452
Unaudited pro forma results of operations for the fiscal years ended December 29, 2019 and December 30, 2018,
as if we had acquired majority ownership of all operations on January 1, 2018 is as follows. The pro forma results include
estimates and assumptions which our management believes are reasonable. However, pro forma results are not necessarily
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
(in thousands)
Pro forma revenues
Pro forma net income
Basic pro forma net income per share attributable to shareholders
Diluted pro forma net income per share attributable to
shareholders
(12) INCOME TAXES
Year Ended
December 29, 2019
December 30, 2018
$
$
$
$
99,053
75
0.01
0.01
$
$
$
$
102,186
7,308
0.85
0.85
For financial reporting purposes, income (loss) before income taxes consists of the following components for the
periods presented:
(in thousands)
United States
Foreign
Total
Year Ended
$
December 29, 2019 December 30, 2018
5,370
221
5,591
(2,072)
166
(1,906)
$
$
$
The following table summarizes the income tax (expense) benefit for the periods presented:
(in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Total income tax (expense) benefit
December 29, 2019 December 30, 2018
Year Ended
$
$
(10)
(48)
(25)
(83)
603
139
742
659
$
$
4
(17)
(77)
(90)
(532)
(107)
(639)
(729)
The impact of uncertain tax positions taken or expected to be taken on income tax returns must be recognized in
the financial statements at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing
authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than
not of being sustained.
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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation of the beginning and ending amounts of gross unrecognized tax benefit for the
periods presented:
(in thousands)
Balance at December 31, 2017
Decreases due to lapses of statutes of limitations
Balance at December 30, 2018
Decreases due to lapses of statutes of limitations
Balance at December 29, 2019
13
(5)
8
(4)
4
$
Substantially all of our unrecognized tax benefits, if recognized, would impact our effective tax rate.
We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The preparation of these
income tax returns requires us to interpret and apply relevant federal and state income tax laws. It is common for federal
and state taxing authorities to periodically examine filed tax returns. During these examinations, it is possible for taxing
authorities to interpret facts or tax law differently than we do. As a result, we may be required to adjust tax liabilities
affecting our effective tax rate. Tax years 2016 and forward remain subject to federal examination. Tax years 2015 and
forward remain subject to state examination. It is possible that the liability associated with the unrecognized tax benefits
will increase or decrease within the next 12 months. The expiration of statutes of limitations would decrease our
unrecognized tax benefits by approximately $4,000.
We have significant net deferred tax assets (“DTA”), which results from the net temporary timing differences
between amounts recorded within our consolidated financial statements in accordance with GAAP and such amounts
measured in accordance with the laws of various taxing jurisdictions and as reported in our tax returns. A DTA generally
represents future tax benefits to be received when temporary differences previously reported in our consolidated financial
statements become deductible for income tax purposes, when net operating loss carry forwards are applied against future
taxable income, or when tax credit carry forwards are utilized on our tax returns. As of December 29, 2019, the majority of
our DTA resulted from net operating loss and tax credit carryforwards, which will not be realized unless we generate
taxable income in the future. We evaluate our net deferred tax asset on a quarterly basis to determine whether current facts
and circumstances indicate that the DTA may not be fully realizable and we provide for valuation allowances on those
portions of the DTA that we don’t expect to realize.
Significant judgment is required in determining the realizability of our DTA. The assessment of whether valuation
allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative
losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with loss carry
forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, we first
considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax
jurisdictions in which we operate, our financial performance in recent quarters, statutory carry forward periods and tax
planning alternatives. Finally, we considered both our near and long-term financial outlook. After considering all available
evidence both positive and negative, we concluded that recognition of valuation allowances for substantially all of our
DTA was not required. We recognized a valuation allowance relating to certain state net operating losses for which we
believe that is it more likely than not that the benefit will not be realized. In recognition of this risk, we have provided a
valuation allowance of $1.3 million on the deferred tax asset related to these state net operating loss carryforwards.
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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the components of our net deferred tax assets as of the periods presented:
(in thousands)
Deferred tax asset:
Deferred rent
Federal net operating loss carry-forwards
State net operating loss carry-forwards
Intangible property basis difference
Financing lease obligation
Tax credit carryover
Accrued expenses
Stock-based compensation
Deferred revenue
Lease reserve
Accrued and deferred compensation
Contribution carryover
Transaction and organization costs
Inventories
Total deferred tax asset
Deferred tax liability:
Property and equipment basis difference
Inventories
Prepaid expenses
Right of use asset
Total deferred tax liability
Net deferred tax assets
Valuation allowance
Deferred tax asset, net
December 29, 2019 December 30, 2018
$
$
$
$
$
— $
1,980
1,993
(7)
—
2,581
168
187
693
8,060
53
50
121
10
15,889
(755)
(146)
(365)
(6,664)
(7,930)
7,959
(1,313)
6,646
$
$
$
$
411
1,812
4,130
131
299
2,164
205
103
666
107
36
46
—
5
10,115
(568)
(83)
(236)
—
(887)
9,228
(3,481)
5,747
During the year ended December 29, 2019, the net change in our DTA valuation allowance was approximately
$2,168,000.
As of December 29, 2019, we had cumulative state net operating loss carry-forwards for tax reporting purposes of
approximately $25.2 million and federal net operating loss carry-forwards for tax reporting purposes of $9.4 million which,
if not used, will begin to expire in fiscal 2020 and 2038, respectively.
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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation from our statutory tax rate to our effective tax rate for the periods presented:
Federal statutory tax rate
State taxes, net of valuation allowance and federal benefit
Deferred rate change
Foreign taxes
Tax effect of permanent differences
Tax effect of general business credits
Tax effect of foreign tax credit
Uncertain tax positions
Return to provision update
Change in valuation allowance
Other
Effective tax rate
Year Ended
December 29, 2019 December 30, 2018
21.0 %
(4.7)
11.9
(2.0)
0.5
24.3
2.0
0.3
(173.8)
171.8
0.9
52.2 %
21.0 %
2.2
(0.6)
1.4
(0.1)
(3.4)
(3.2)
(0.1)
(15.7)
11.5
—
13.0 %
(13) ASSET IMPAIRMENT, ESTIMATED LEASE TERMINATION AND OTHER CLOSING COSTS
The following is a summary of asset impairment, estimated lease termination and other closing costs for the
periods presented:
Year Ended
(dollars in thousands)
Asset impairments, net
Lease termination charges (income) and related costs
Restaurant closure expenses
Asset impairment, estimated lease termination charges and other closing costs
$
December 29, 2019 December 30, 2018
89
(271)
327
145
282
926
88
1,296
$
$
$
Below reflects the change in our reserve for lease termination costs for the periods presented:
(in thousands)
Year Ended December 29, 2019
Reserve for lease termination costs and asset retirement obligations
Year Ended December 30, 2018
Reserve for lease termination costs and asset retirement obligations
Additions
Charged to
Balance at
Beginning of Costs and
Expenses
Period
Deductions
Credits to
Costs and
Expenses
and Other
Accounts
Balance at
End of
Period
$
$
431
182
(605) $
8
1,799
511
(1,879) $
431
These amounts were recorded in other current liabilities or other liabilities depending on when we expected the
amounts to be paid.
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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement framework establishes a
three-tier hierarchy. The three levels, in order of priority, are as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 1 measurements are determined by observable inputs which include data sources and market
prices available and visible outside of the entity.
Level 2: Observable inputs other than quoted prices included within Level 1 for the asset or liability, either
directly or indirectly.
Level 3: Inputs that are used to estimate the fair value of the asset or liability. Level 3 measurements are
determined by unobservable inputs, which include data and analyses developed within the entity to
assess the fair value.
For assets and liabilities falling within Level 3 of the fair value hierarchy, a change in the input assumptions used
could result in a change in the estimated fair value of the asset or liability. Transfers in and out of levels will be based on
our judgment of the availability of unadjusted quoted prices in active markets, other observable inputs, and non-observable
inputs.
The carrying amounts of cash and cash equivalents reported in the consolidated balance sheets approximates fair
value based on current interest rates and short-term maturities. The carrying amount of accounts receivable approximates
fair value due to the short-term nature of accounts receivable. We believe that the carrying amount of long-term debt
approximates fair value due to the variable interest rates charged on long-term debt or as a result of the proximity of the
refinancing to the end of the fiscal year.
We had no assets measured at fair value in our consolidated balance sheets as of December 29, 2019 and
December 30, 2018 except for the assets recorded at fair value in conjunction with restaurant acquisitions. See Note 11 –
Restaurant Acquisition.
(15) 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. We have an
installment agreement with one of our franchisees as the result of refranchising our Lincoln, Nebraska restaurant. This
franchisee is a VIE; however, the owners of the franchise operations are the primary beneficiaries of the entities; therefore,
the franchise operations are not required to be consolidated in our consolidated financial statements.
On November 1, 2017, we sold our Frederick, Maryland restaurant. Pursuant to the terms of the Frederick
Agreement, we remained the primary obligor of the lease. As of December 29, 2019, the amount of future lease payments
for which we would be liable in the event of a default was approximately $393,000. As the amount of such payments
outweighed the amount of expected sublease income, in fiscal 2019, we recorded $200,000 as asset impairment related to
ROU asset. Of such amount $159,000 approximates the present value of future minimum lease payments net of expected
sublease receipts.
On July 18, 2018, we 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BBQ restaurant in Oklahoma City, Oklahoma (the “Restaurant”). Clark will own 80% of the units outstanding of Mercury
and we will own 20% of the units outstanding of Mercury. Mercury shall be governed by three managers, two of which
will be appointed by us and one of which will be appointed by Clark. Also in July 2019, we entered into a secured
promissory note with Mercury which we 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, we and Clark entered into an intellectual property
license agreement (the “License Agreement”) pursuant to which Clark granted to us 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 we breach the License Agreement.
Because we have provided more than half of the subordinated financial support of Mercury and control Mercury
via our representation on the board of managers, we have concluded that Mercury is a VIE, of which we are the primary
beneficiary and must consolidate Mercury. Mercury generated a net loss of approximately $748,000, of which $598,000
was recorded as non-controlling interest on our consolidated financial statements. As of December 29, 2019, Mercury had
assets of $5.8 million, which primarily consist of fixed assets. 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.
(16) RELATED PARTY TRANSACTIONS
Anand D. Gala is a franchisee and currently serves as one of our directors. Mr. Gala is the Founder, President and
Chief Executive Officer of Gala Holdings International, a diversified holding company that conducts consulting, restaurant
development and management operations.
Charles Davidson is a franchisee of ours and is the beneficial owner of approximately 18.2% of our 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 years ended December 29, 2019 and
December 30, 2018:
(in thousands)
Revenues and NAF contributions - Anand Gala
Revenues and NAF contributions - Charles Davidson
Year Ended
December 29, 2019 December 30, 2018
1,538
$
308
1,649
314
$
The following table outlines accounts receivable, net from related parties as of December 29, 2019 and December
30, 2018:
(in thousands)
Accounts receivable, net - Anand Gala
Accounts receivable, net - Charles Davidson
F-27
December 29, 2019 December 30, 2018
271
$
44
290
77
$
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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) SUBSEQUENT EVENTS
We evaluated for the occurrence of subsequent events through the issuance date of our financial statements. No
other recognized or non-recognized subsequent events occurred that require recognition or disclosure in the consolidated
financial statements except as noted below.
On February 11, 2020, we entered into an Asset Purchase Agreement with Granite City Food & Brewery Ltd.
(“Granite City”) to acquire certain assets associated with Granite City restaurants in connection with the Chapter 11 filing
of Granite City (the “Acquisition”). The Acquisition was approved by the Bankruptcy Court at a hearing on February 21,
2020. The purchase price for the assets purchased was $3,650,000. On March 9, 2020, we closed the Acquisition with
cash on hand and borrowing under its existing loan agreement with Choice.
Subsequent to December 29, 2019, we obtained funding from our agreement with Choice of $8.1 million in the
aggregate. As of March 12, 2020, the balance on such note was $15.0 million.
In March 2020 the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global
pandemic. This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies,
and financial markets globally, leading to an economic downturn. It has also disrupted the normal operations of many
businesses, including ours. There have been mandates from federal, state and local authorities requiring forced closures of
certain businesses, which could negatively impact our business. As of the date of this filing, certain Company-owned and
franchise restaurants have been temporarily closed or only able to offer to-go or delivery. While it is not possible for us to
predict the duration or magnitude of the adverse results of the outbreak of COVID-19 and its effects on our business or
results of operations at this time, we do anticipate it will have an adverse effect on our revenue and profitability in fiscal
2020.
F-28
Table of Contents
BBQ HOLDINGS, INC. AND SUBSIDIARIES
Financial Statement Schedule
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
Additions Deductions
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Credits to
Costs and
Expenses
and Other
Accounts
Balance at
End of
Period
$
$
$
$
592
1,799
355
192
431
— $
511
98
(400) $
(1,879)
(453)
192
431
—
$
74
182
(133) $
(605)
132
8
(in thousands)
Year ended December 30, 2018:
Allowance for doubtful accounts
Reserve for lease termination costs and asset retirement obligation
Reserve for corporate severance
Year ended December 29, 2019:
Allowance for doubtful accounts
Reserve for lease termination costs and asset retirement obligation
F-29
Table of Contents
Exhibit No.
EXHIBITS
Description
3.1 Articles of Incorporation, dated March 29, 2019, incorporated by reference to Exhibit 3.1 to Form 8-K12B
filed on September 17, 2019.
3.2 Bylaws, dated March 29, 2019, incorporated by reference to Exhibit 2.1 of Form 8-K12B filed on September
17, 2019.
4.1* Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of
1934.
10.1 Trademark License Agreement between BBQ Holdings, Inc. and Grand Pines Resorts, Inc., incorporated by
reference to Exhibit 10.11 to the Registration Statement on Form SB-2 (File No. 333-10675) filed on
August 23, 1996
10.2
Second Amended and Restated Non-Qualified Deferred Compensation Plan, dated January 1, 2008,
incorporated by reference to Exhibit 10.16 to Form 10-K filed March 14, 2008 †
10.3 Amended and Restated 2005 Stock Incentive Plan (as amended through January 21, 2013), incorporated by
reference to Exhibit 10.6 to Form 10-K filed March 15, 2013 †
10.4
Form of Director Restricted Stock Agreement Granted Under the Amended and Restated 2005 Stock
Incentive Plan, incorporated by reference to Exhibit 10.4 to Form 10-K filed March 13, 2015 †
10.5 BBQ Holdings, Inc. 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Form 10-Q filed
May 8, 2015 †
10.6 Amendment No. 1 to 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Form 8-K filed
July 31, 2015 †
10.7 Amendment No. 2 to 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Form 10-Q
filed November 6, 2015 †
10.8
10.9
Form of Indemnification Agreement between BBQ Holdings, Inc. and each of its directors and officers,
incorporated by reference to Exhibit 10.2 to Form 10-Q filed November 6, 2015
Schedule of directors and officers subject to Indemnification Agreements in the form of Exhibit 10.30,
incorporated by reference to Exhibit 10.3 to Form 10-Q filed November 6, 2015
10.10
Stock Purchase Agreement dated November 10, 2017 between BBQ Holdings, Inc. and PW Partners, LLC,
incorporated by reference to Exhibit 10.1 to Form 8 K filed November 13, 2017
10.11 Registration Rights Agreement dated November 10, 2017 between BBQ Holdings, Inc. and PW Partners,
LLC, incorporated by reference to Exhibit 10.2 to Form 8 K filed November 13, 2017
10.12 Employment Agreement dated November 14, 2017 between BBQ Holdings, Inc. and Jeffery Crivello,
incorporated by reference to Exhibit 10.3 to Form 8 K filed November 13, 2017 †
10.13 Asset Purchase Agreement dated November 1, 2017 among BBQ Holdings Ribs of Maryland, Inc., BBQ
Holdings Ribs, Inc., Commonwealth Blue Ribbon Restaurants, LLC and Capital Blue Ribbon Restaurants,
LLC, incorporated by reference to Exhibit 10.53 to the Registration Statement on Form S 1 filed on December
29, 2017
35
Table of Contents
Exhibit No.
Description
10.14 Asset Purchase Agreement (and supplemental letter agreement) dated November 1, 2017 between BBQ
Holdings Ribs of Maryland, Inc. and Capital Blue Ribbon Restaurants, LLC, incorporated by reference to
Exhibit 10.54 to the Registration Statement on Form S 1 filed on December 29, 2017
10.15 Amendment dated January 29, 2018 to Employment Agreement dated November 14, 2017 between BBQ
Holdings, Inc. and Jeffery Crivello, incorporated by reference to Exhibit 10.2 to Form 8-K filed January 29,
2018 †
10.16 Employment Agreement dated April 13, 2016 between BBQ Holdings, Inc. and Geovannie Concepcion,
incorporated by reference to Exhibit 10.3 to Form 8-K filed January 29, 2018 †
10.17 Amendment dated January 29, 2018 to Employment Agreement dated April 13, 2016 between BBQ Holdings,
Inc. and Geovannie Concepcion, incorporated by reference to Exhibit 10.4 to Form 8-K filed January 29, 2018
†
10.18
Standby Purchase Agreement, between BBQ Holdings, Inc. and PW Partners, LLC, dated January 29, 2018,
incorporated by reference to Exhibit 10.1 to Form 8-K filed January 29, 2018
10.19 Employment Agreement dated February 12, 2018 between BBQ Holdings, Inc. and Paul M. Malazita,
incorporated by reference to Exhibit 10.54 to the Form 10-K filed March 5, 2018 †
10.20 BBQ Holdings, Inc. Amended and Restated 2015 Equity Incentive Plan dated March 29, 2018, incorporated
by reference to Exhibit A to the Definitive Proxy Statement on Schedule 14A, filed on April 4, 2018
10.21
Secured Promissory Note, dated July 18, 2018 between Mercury BBQ LLC and BBQ Holdings, Inc.,
incorporated by reference to Exhibit 10.1 to Form 10-Q filed on August 13, 2018
10.22
Intellectual Property License Agreement, dated July 18, 2018 among Travis Clark, Clark Championship
Products LLC and BBQ Holdings, Inc., incorporated by reference to Exhibit 10.2 to Form 10-Q filed on
August 13, 2018
10.23 * Amendment dated November 12, 2018 to Employment Agreement dated February 12, 2018 between BBQ
Holdings, Inc. and Paul M. Malazita, incorporated by reference to Exhibit 10.39 to Form 10 K filed March 4,
2019 †
10.24 Asset Purchase Agreement, dated January 29, 2019, by and among BBQ Holdings Ribs, Inc., Legendary
BBQ, Inc., Cornerstar BBQ, Inc., Razorback BBQ, Inc., Larkridge BBQ, Inc., Mesa Mall BBQ, Inc., and
Quebec Square BBQ, Inc., incorporated by reference to Exhibit 10.1 to Form 8-K filed February 4, 2019
10.25 * Form of Restricted Stock Agreement Granted under the Amended and Restated 2015 Equity Incentive Plan,
incorporated by reference to Exhibit 10.41 to Form 10-K filed March 4, 2019 †
10.26 * Second Amendment, dated February 28, 2019, to employment agreement between BBQ Holdings, Inc. and
Jeffery Crivello, incorporated by reference to Exhibit 10.42 to Form 10-K filed March 4, 2019 †
10.27 * Second Amendment, dated February 28, 2019, to employment agreement between BBQ Holdings, Inc. and
Geovannie Concepcion, incorporated by reference to Exhibit 10.43 to Form 10-K filed March 4, 2019 †
10.28 Asset Purchase Agreement, dated March 13, 2019, by and among Famous Dave’s of America, Inc., and Big
Ten Ribs, Inc., incorporated by reference to Exhibit 10.1 to Form 8-K filed on March 12, 2019
36
Table of Contents
Exhibit No.
Description
10.29 Asset Purchase Agreement, dated March 13, 2019, by and among Famous Dave’s of America, Inc., and Team
R n’ B Wisconsin, LLC, incorporated by reference to Exhibit 10.2 to Form 8-K filed on March 12, 2019
10.30
Purchase Agreement, dated June 12, 2019, by and among Famous Dave’s Ribs, Inc. and General Realty CE
LLC, incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 18, 2019
10.31
Purchase Agreement, dated June 20, 2019, by and among Famous Dave’s Ribs, Inc. and Desert Ribs LLC,
Famous Charlie LLC, Famous Freddie LLC, Famous Gracie LLC, and Famous George LLC, incorporated by
reference to Exhibit 10.1 to Form 8-K filed on June 26, 2019
10.32 Loan Agreement dated June 20, 2019, by and among Famous Dave’s of America, Inc., D&D of Minnesota,
Inc., Famous Dave’s Ribs of Maryland, Inc., Famous Dave’s Ribs, Inc., Famous Dave’s Ribs-U, Inc., Lake &
Hennepin BBQ & Blues, Inc. and Choice Financial Group, incorporated by reference to Exhibit 10.2 to Form
8-K filed on June 26, 2019
10.33 Term Promissory Note dated June 20, 2019 among Famous Dave’s of America, Inc., D&D of Minnesota, Inc.,
Famous Dave’s Ribs of Maryland, Inc., Famous Dave’s Ribs, Inc., Famous Dave’s Ribs-U, Inc., Lake &
Hennepin BBQ & Blues, Inc. to Choice Financial Group, incorporated by reference to Exhibit 10.3 to Form 8-
K filed on June 26, 2019
10.34 Revolving Promissory Note, dated June 20, 2019 among Famous Dave’s of America, Inc., D&D of
Minnesota, Inc., Famous Dave’s Ribs of Maryland, Inc., Famous Dave’s Ribs, Inc., Famous Dave’s Ribs-U,
Inc., Lake & Hennepin BBQ & Blues, Inc. to Choice Financial Group, incorporated by reference to Exhibit
10.4 to Form 8-K filed on June 26, 2019
10.35 Mortgage Security Agreement and Fixture Financing Statement, dated June 20, 2019 among Famous Dave’s
of America, Inc., D&D of Minnesota, Inc., Famous Dave’s Ribs of Maryland, Inc., Famous Dave’s Ribs, Inc.,
Famous Dave’s Ribs-U, Inc., Lake & Hennepin BBQ & Blues, Inc. to Choice Financial Group, incorporated
by reference to Exhibit 10.5 to Form 8-K filed on June 26, 2019
10.36
Plan of Merger, dated September 6, 2019, among Famous Dave’s of America, Inc., BBQ Holdings, Inc., and
BBQ Merger Sub, Inc., incorporated by reference to Exhibit 2.1 to Form 8-K12B filed on September 17, 2019
10.37
Intellectual Property License Agreement, dated October 2, 2019 between Clark Championship Products LLC
and Mercury BBQ, LLC, incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 12, 2019
10.38 Amendment, dated October 2, 2019, among Travis Clark, Clark Championship Products LLC and BBQ
Oklahoma, Inc., to the Intellectual Property License Agreement, dated July 13, 2018, incorporated by
reference to Exhibit 10.2 to Form 10-Q filed November 12, 2019
10.39
Secured Promissory Note, dated October 2, 2019, between Mercury BBQ LLC and BBQ Oklahoma, Inc.,
incorporated by reference to Exhibit 10.3 to Form 10-Q filed on November 12, 2019
10.40 Offer of Employment Letter to Jim Gilbertson, dated December 17, 2019, incorporated by reference to Exhibit
10.1 to form 8-K filed January 9, 2020 †
21.0* Subsidiaries of BBQ Holdings, Inc.
23.1* Consent of Grant Thornton LLP
37
Table of Contents
Exhibit No.
Description
31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101.INS* XBRL Instance Document
101.SCH* XBRL Schema Document
101.CAL* XBRL Calculation Linkbase Document
101.LAB* XBRL Label Linkbase Document
101.PRE* XBRL Presentation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
* Filed herewith
† Management compensatory plan
38
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: March 27, 2020
BBQ HOLDINGS, INC.
(“Registrant”)
By:
/s/ Jeffery J. Crivello
Jeffery J. Crivello
Chief Executive Officer
(Principal Executive Officer)
By:
/s/ James G. Gilbertson
James G. Gilbertson
Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 27,
2020 by the following persons on behalf of the registrant, in the capacities indicated.
Signature
Title
/s/ Jeffery J. Crivello
Jeffery J. Crivello
/s/ David L. Kanen
David L. Kanen
/s/ Anand D. Gala
Anand D. Gala
/s/ Peter O. Haeg
Peter O. Haeg
/s/ Joseph M. Jacobs
Joseph M. Jacobs
/s/ Richard A. Shapiro
Richard A. Shapiro
/s/ Richard S. Welch
Richard S. Welch
/s/ Bryan L. Wolff
Bryan L. Wolff
Chief Executive Officer and Director
Non-Executive Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
39
Description of the Registrant’s Securities
Registered Pursuant to Section 12 of the
Securities Exchange Act of 1934
Exhibit 4.1
The following description sets forth certain material terms and provisions of the securities of BBQ Holdings, Inc. that are
registered under Section 12 of the Securities Exchange Act of 1934, as amended. This description also summarizes relevant provisions of
Minnesota law. Unless the context requires otherwise, references to “we,” “us,” “our” and the “Company” refer to BBQ Holdings, Inc.
This summary does not purport to be complete and is qualified by reference to our Articles of Incorporation and our Bylaws,
which are filed as exhibits to this Annual Report on Form 10-K and are incorporated by reference herein. We encourage you to read our
Articles of Incorporation and our Bylaws for additional information.
Capital Stock
As of the date hereof, the Company’s authorized capital stock consists of 100,000,000 shares, having a par value of $.0.01 per
share in the case of Common Stock, and having a par value as determined by the Board in the case of preferred stock, to be held, sold
and paid for at such times and in such manner as the Board may from time to time determine in accordance with Minnesota law. The
Board is expressly authorized to establish more than one class or series of shares, either preferred or Common, and to fix the relative
rights, restrictions and preferences of any such different classes or series, and the authority to issue shares of a class or series to another
class or series to effectuate share dividends, splits or conversion of the Company’s outstanding shares. The Board also has the authority
to issue rights to convert any of the Company’s securities into shares of stock of any class or classes, the authority to issue options to
purchase or subscribe for shares of stock of any class or classes, and the authority to issue share purchase or subscription warrants or any
other evidence of such option rights which set forth the terms, provisions and conditions thereof, including the price at which such shares
may be subscribed for or purchased. Such options, warrants and rights may be transferable or nontransferable and separable or
inseparable from the Company’s other securities.
Voting Rights
Each share of Common Stock entitles the holder to one vote with respect to each matter presented to our shareholders on which
the holders of Common Stock are entitled to vote. Our Common Stock votes as a single class on all matters relating to the election and
removal of directors on our Board and as provided by law. Holders of our Common Stock will not have cumulative voting rights. Except
as otherwise provided in our Articles, Bylaws, or required by law, the shareholders shall take action by the affirmative vote of the holders
of a majority of the voting power of the minimum number of the shares entitled to vote that would constitute a quorum for the transaction
of business at the meeting.
Dividend Rights
The holders of Common Stock are entitled to receive such dividends as are from time to time declared by the Board out of funds
legally available therefore. We have never declared or paid cash dividends on our Common Stock. We currently intend to retain all
available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our
Common Stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our Board and
will depend on such factors as earnings levels, capital requirements, loan agreement or other contractual restrictions, our financial
condition and other factors deemed relevant by our Board.
Liquidation and Other Rights
In the event of our liquidation, dissolution or winding-up, the holders of our Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The holders of
our Common Stock have no conversion, redemption, preemptive,
subscription or similar rights. There are no sinking fund provisions for or applicable to the Common Stock. The outstanding shares of
Common Stock are not liable to further call or to assessment by the Company.
Listing
The Company’s Common Stock is listed on the Nasdaq Global Market under the symbol “BBQ”.
Transfer Agent and Registrar
Broadridge Corporate Issuer Solutions, Inc. is the transfer agent and registrar for the Company’s Common Stock.
Anti-takeover Effects of Minnesota Law and Our Articles and Bylaws
Certain provisions of our Articles and Bylaws may make it less likely that our management would be changed or someone
would acquire voting control of our Company without our Board’s consent. These provisions may delay, deter or prevent tender offers or
takeover attempts that shareholders may believe are in their best interests, including tender offers or attempts that might allow
shareholders to receive premiums over the market price of their Common Stock.
Ability to Issue Capital Stock with Preferential Rights without Shareholder Approval
Our Board can at any time, under our Articles, and without shareholder approval, issue more than one class or series of shares,
either preferred or Common, and to fix the relative rights, restrictions and preferences of any such different classes or series. In some
cases, the issuance of classes or series of stock having preferential rights to the shares of common stock that are currently outstanding,
without shareholder approval, could discourage or make more difficult attempts to take control of our Company through a merger, tender
offer, proxy contest or otherwise. Such classes or series of shares having preferential or special voting rights or other features issued to
persons favoring our management could stop a takeover by preventing the person trying to take control of our Company from acquiring
enough voting shares necessary to take control.
Advance Notice Provisions for Raising Business or Nominating Directors
Sections 3.13 and 4.3 of our Bylaws contain advance-notice provisions relating to the ability of shareholders to raise business at
a shareholder meeting and make nominations for directors to serve on our Board. These advance-notice provisions generally require
shareholders to raise business within a specified period of time prior to a meeting in order for the business to be properly brought before
the meeting. Similarly, our Bylaws prescribe the timing of submissions for nominations to our Board and certain factual and background
information respecting the nominee and the shareholder making the nomination.
Unanimous Shareholder Written Consent
The Minnesota Business Corporation Act’s Section 302A.441 provides that any action required or permitted to be taken by the
shareholders of a corporation may be effected by written consent only if signed, or consented to by authenticated electronic
communication, by all of the shareholders entitled to vote on that action. The Minnesota Business Corporation Act does not permit a
publicly held company such as ours to opt-out of this unanimous written consent provision.
Special Meetings of Shareholders
Our Bylaws provide that special meetings of shareholders may be called only by the Chief Executive Officer, the Chief
Financial Officer, our Board, any two or more members of the Board, or one or more shareholders holding 10% or more of the issued
and outstanding voting shares of the Company and complying with certain procedures specified in our Bylaws. Further, business
transacted at any special meeting of shareholders is limited to matters relating to the purpose or purposes stated in the notice of the
meeting.
Anti-Takeover Effects of Certain Provisions of Minnesota Law
Several provisions of Minnesota law may deter potential changes in control of the Company that some shareholders may view
as beneficial or that may provide a premium on our stock price. These provisions, as described below, could have an anti-takeover effect.
They are intended to provide management flexibility, to enhance the likelihood of continuity and stability in the composition of our
Board and in the policies formulated by our Board and to discourage an unsolicited takeover if our Board determines that such a takeover
is not in our best interests or the best interests of our shareholders. However, these provisions could have the effect of discouraging
certain attempts to acquire us that could deprive our shareholders of opportunities to sell their shares of our stock at higher values.
Although we have amended our Bylaws to provide that Section 302A.671 (Control Share Acquisitions) of the Minnesota
Business Corporation Act does not apply to or govern us, we remain subject to Section 302A.673 (Business Combinations) of the
Minnesota Business Corporation Act. Section 302A.673 of the Minnesota Business Corporation Act generally prohibits any business
combination by us, or any of our subsidiaries, with an interested shareholder, which means any shareholder that purchases 10% or more
of our voting shares within four years following such interested shareholder’s share acquisition date, unless the business combination is
approved by a committee of disinterested members of our Board before the interested shareholder’s share acquisition date.
Section 302A.675 of the Minnesota Business Corporation Act generally prohibits an offeror from acquiring our shares within
two years following the offeror’s last purchase of our shares pursuant to a takeover offer with respect to that class, unless our
shareholders are able to sell their shares to the offeror upon substantially equivalent terms as those provided in the earlier takeover offer.
This statute will not apply if the acquisition of shares is approved by a committee of disinterested members of our board of directors
before the purchase of any shares by the offeror pursuant to the earlier takeover offer.
SUBSIDIARIES OF BBQ HOLDINGS, INC.
Exhibit 21.0
Famous Dave’s of America, Inc.
BBQ Oklahoma, Inc.
BBQ Ventures, Inc.
D&D of Minnesota, Inc.
Famous Dave’s Ribs of Maryland, Inc.
Famous Dave’s Ribs, Inc.
Famous Dave’s Ribs-U, Inc.
FDA Properties, Inc.
Lake & Hennepin BBQ and Blues, Inc.
Minwood Partners, Inc.
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We have issued our report dated March 27, 2020, with respect to the consolidated financial
statements included in the Annual Report of BBQ Holdings, Inc. on Form 10-K for the year
ended December 29, 2019. We consent to the incorporation by reference of said report in the
Registration Statements of BBQ Holdings, Inc. on Forms S-3 (File No. 333-224919,) and on
Forms S-8 (File No. 333-226816, File No. 333-208261, File No. 333-204015, File No. 333-
176278 and File No. 333-124985).
/s/ Grant Thornton LLP
Minneapolis, Minnesota
March 27, 2020
I, Jeffery Crivello, certify that:
1.
I have reviewed this Annual Report on Form 10-K of BBQ Holdings, Inc.;
CERTIFICATIONS
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Dated: March 27, 2020
By:/s/ Jeffery Crivello
Jeffery Crivello
Chief Executive Officer
Exhibit 31.2
I, James G. Gilbertson, certify that:
1.
I have reviewed this Annual Report on Form 10-K of BBQ Holdings, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Dated: March 27, 2020
By:/s/ James G. Gilbertson
James G. Gilbertson
Chief Financial Officer
Certification Pursuant to Rule 13a-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
Exhibit 32.1
In connection with the Annual Report of BBQ Holdings, Inc. (the “Registrant”) on Form 10-K for the annual period
ended December 29, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,
Jeffery Crivello, Chief Executive Officer and Director of the Registrant, certify, in accordance with Rule 13a-14(b) of
the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 that:
1. The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
Dated: March 27, 2020
By:/s/ Jeffery Crivello
Jeffery Crivello
Chief Executive Officer
Certification Pursuant to Rule 13a-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
Exhibit 32.2
In connection with the Annual Report of BBQ Holdings, Inc. (the “Registrant”) on Form 10-K for the annual period
ended December 29, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,
James G. Gilbertson, Chief Financial Officer and Secretary of the Registrant, certify, in accordance with Rule 13a-14(b)
of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 that:
1. The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
Dated: March 27, 2020
By:/s/ James G. Gilbertson
James G. Gilbertson
Chief Financial Officer