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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

For the Quarterly Period Ended March 29, 2020

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)

MMiMinsd

Minnesota

83-4222776

State or Other Jurisdiction of

Incorporation or Organization

I.R.S. Employer Identification No.

12701 Whitewater Drive, Suite 290

Minnetonka, MN

55343

Address of Principal Executive Offices

Zip Code

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

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

DAVE

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

BBQ

The Nasdaq Global Market

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

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

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

Large Accelerated Filer 

Accelerated Filer 

Non-accelerated Filer  

Smaller Reporting Company 

Emerging Growth Company 

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

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

As of May 11, 2020, 9,282,105 shares of the registrant’s Common Stock were outstanding.

BBQ HOLDINGS, INC.

TABLE OF CONTENTS

    

Page

PART I

FINANCIAL INFORMATION

Item 1

Consolidated Financial Statements (unaudited)

Consolidated Balance Sheets as of March 29, 2020 and December 29, 2019

3

Consolidated Statements of Operations for the Three Months Ended March 29, 2020 and March 31, 2019

4

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 29, 2020

5

Consolidated Statements of Cash Flows for the Three Months Ended March 29, 2020 and March 31, 2019

6

Notes to Consolidated Financial Statements

7

Item 2

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

18

Item 3

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4

Controls and Procedures

26

PART II

OTHER INFORMATION

Item 1

Legal Proceedings

26

Item 1A

Risk Factors

26

Item 5

Other Information

26

Item 6

EXHIBITS

27

SIGNATURES

28

CERTIFICATIONS

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 29, 2020 AND DECEMBER 29, 2019

(in thousands, except per share data)
(Unaudited)

ASSETS

Current assets:

 

March 29, 2020

    

December 29, 2019

Cash and cash equivalents

$

8,013

$

5,325

Restricted cash

 

971

 

761

Accounts receivable, net of allowance for doubtful accounts of $176,000 and $132,000, respectively

 

5,099

 

4,379

Inventories

 

2,434

 

1,346

Prepaid income taxes and income taxes receivable

264

264

Prepaid expenses and other current assets

 

1,210

 

1,356

Assets held for sale

 

2,842

 

2,842

Total current assets

 

20,833

 

16,273

Property, equipment and leasehold improvements, net

 

37,466

 

19,756

Other assets:

 

  

 

  

Operating lease right-of-use assets

71,930

25,962

Goodwill

690

640

Intangible assets, net

 

10,458

 

2,213

Deferred tax asset, net

 

1,610

 

6,646

Other assets

 

1,590

 

1,591

$

144,577

$

73,081

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

7,097

$

3,967

Current portion of lease liabilities

6,989

4,230

Current portion of long-term debt and financing lease obligations

2,020

616

Accrued compensation and benefits

 

1,360

 

2,694

Other current liabilities

 

8,217

 

4,975

Total current liabilities

 

25,683

 

16,482

 

  

 

  

Long-term liabilities:

 

  

 

  

Lease liabilities, less current portion

69,505

26,957

Long-term debt, less current portion

 

12,922

 

6,258

Other liabilities

 

1,245

 

1,610

Total liabilities

 

109,355

 

51,307

Shareholders’ equity:

 

  

 

  

Common stock, $.01 par value, 100,000 shares authorized, 9,282 and 9,272 shares issued and outstanding on March 29, 2020 and December 29, 2019, respectively

 

93

 

93

Additional paid-in capital

7,993

7,856

Retained earnings

 

28,130

 

14,423

Total shareholders’ equity

 

36,216

 

22,372

Non-controlling interest

(994)

(598)

Total equity

35,222

21,774

$

144,577

$

73,081

See accompanying notes to condensed consolidated financial statements.

- 3 -

Table of Contents

CONSOLIDATED STATEMENTS OF OPERATIONS

MARCH 29, 2020 AND MARCH 31, 2019

(in thousands, except per share data)

(Unaudited)

Three Months Ended

March 29, 2020

    

March 31, 2019

Revenue:

  

 

  

Restaurant sales, net

$

20,318

$

10,314

Franchise royalty and fee revenue

 

2,524

 

3,204

Franchisee national advertising fund contributions

 

282

 

409

Licensing and other revenue

 

346

 

266

Total revenue

 

23,470

 

14,193

Costs and expenses:

 

  

 

  

Food and beverage costs

 

6,754

 

3,360

Labor and benefits costs

 

7,721

 

3,957

Operating expenses

 

6,241

 

3,169

Depreciation and amortization expenses

 

1,045

 

264

General and administrative expenses

 

3,032

 

2,517

National advertising fund expenses

282

409

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

 

173

 

407

Pre-opening expenses

 

25

 

Gain on disposal of property, net

 

(477)

 

(6)

Total costs and expenses

 

24,796

 

14,077

(Loss) income from operations

 

(1,326)

 

116

Other income (expense):

 

  

 

  

Interest expense

 

(210)

 

(71)

Interest income

 

134

 

54

Gain on bargain purchase

14,364

Total other income (expense)

 

14,288

 

(17)

Income before income taxes

 

12,962

 

99

Income tax benefit (expense)

 

349

 

(17)

Net income

 

13,311

 

82

Net loss attributable to non-controlling interest

396

Net income attributable to shareholders

$

13,707

$

82

Income per common share:

 

  

 

  

Basic net income per share attributable to shareholders

$

1.50

$

0.01

Diluted net income per share attributable to shareholders

$

1.49

$

0.01

Weighted average shares outstanding - basic

 

9,121

 

9,085

Weighted average shares outstanding - diluted

 

9,202

 

9,189

See accompanying notes to condensed consolidated financial statements.

- 4 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

MARCH 29, 2020

(in thousands)

(Unaudited)

Additional

Total

 

Common Stock

Paid-in

Retained

Shareholders'

Non-controlling

Total

    

Shares

    

Amount

    

Capital

Earnings

Equity

    

Interest

    

Equity

Balance - December 29, 2019

 

9,272

$

93

$

7,856

$

14,423

$

22,372

$

(598)

$

21,774

Issuance of restricted common stock

 

10

 

0

 

 

 

0

 

 

0

Stock-based compensation

 

 

 

137

 

 

137

 

 

137

Net income (loss)

 

 

 

 

13,707

 

13,707

 

(396)

 

13,311

Balance - March 29, 2020

 

9,282

$

93

$

7,993

$

28,130

$

36,216

$

(994)

$

35,222

See accompanying notes to condensed consolidated financial statements

- 5 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

MARCH 29, 2020 AND MARCH 31, 2019

(in thousands)

(Unaudited)

Three Months Ended

    

March 29, 2020

    

March 31, 2019

Cash flows from operating activities:

 

  

  

Net income

$

13,311

$

82

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

 

  

 

  

Depreciation and amortization

 

1,045

 

264

Stock-based compensation

 

137

 

83

Net gain on disposal of property

 

(477)

 

(6)

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

386

Gain on bargain purchase

(14,364)

Deferred income taxes

 

(399)

 

Other non-cash items

(19)

33

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

 

(720)

 

764

Other assets

781

53

Accounts payable

 

3,130

 

(9)

Accrued and other liabilities

 

(2,687)

 

(24)

Cash flows (used for) provided by operating activities

 

(262)

 

1,626

Cash flows from investing activities:

 

  

 

  

Proceeds from the sale of assets

6

Purchases of property, equipment and leasehold improvements

 

(949)

 

(221)

Payments for acquired restaurants

(3,969)

(3,841)

Advances on notes receivable

 

 

(150)

Payments received on note receivable

12

Cash flows used for investing activities

 

(4,906)

 

(4,206)

Cash flows from financing activities:

 

  

 

  

Proceeds from long-term debt

 

8,101

 

Payments for debt issuance costs

 

(35)

 

(15)

Payments on long-term debt and financing lease obligations

 

 

(137)

Cash provided by (used for) financing activities

 

8,066

 

(152)

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

 

2,898

 

(2,732)

Cash, cash equivalents and restricted cash, beginning of period

 

6,086

 

12,440

Cash, cash equivalents and restricted cash, end of period

$

8,984

$

9,708

Supplemental Disclosures

Cash paid for interest, net

$

(15)

$

11

Non-cash investing and financing activities:

(Decrease) increase in accrued property and equipment purchases

(35)

Gift card liability assumed pursuant to acquisitions

3,968

See accompanying notes to condensed consolidated financial statements.

- 6 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)          Basis of Presentation

Basis of Presentation

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-Q, “Company”, “we” and “our” refer to BBQ Holdings and its wholly owned subsidiaries.  BBQ Holdings was incorporated on March 29, 2019 under the laws of the State of Minnesota, while FDA was incorporated in Minnesota on March 14, 1994.  The Company develops, owns and operates restaurants under the name “Famous Dave’s”, “Clark Crew BBQ”, “Granite City Food & Brewery” and “Real Urban Barbecue.” Additionally, we franchise restaurants under the name “Famous Dave’s”.  As of March 29, 2020, there were 124 Famous Dave’s restaurants operating in 31 states, Canada, and the United Arab Emirates, including 30 Company-owned restaurants and 94 franchise-operated restaurants.  The first Clark Crew BBQ restaurant opened in December 2019 in Oklahoma City, Oklahoma.  On March 9, 2020, we purchased 18 Granite City Food & Brewery restaurants (“Granite City Acquisition”) in connection with a Chapter 11 bankruptcy filing.  On March 16, 2020, we purchased one Real Urban Barbecue restaurant located in Vernon Hills, Illinois.  

These accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Securities and Exchange Commission (“SEC”) Rules and Regulations.  The information furnished in these condensed consolidated financial statements include normal recurring adjustments and reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited financial statements represent the condensed consolidated financial statements of the Company and its subsidiaries as of March 29, 2020 and December 29, 2019, and for the three months ended March 29, 2020 and March 31, 2019. The results for the three months ended March 29, 2020 are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period.  These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in BBQ Holding, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 29, 2019 as filed with the SEC on March 27, 2020.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic. As a result, public health measures were taken to minimize exposure to the virus. These measures, some of which are government-mandated, have been implemented globally resulting in a dramatic decrease in economic activity. “Stay-at-home” orders with the exception of conducting certain essential functions, quarantines, travel restrictions and other governmental restrictions to reduce the spread of COVID-19 have had an adverse impact on the Company’s business. All of the Company's restaurants have been operating on a take-away, mobile pick-up and delivery basis only in order to protect its employees and customers from the spread of the COVID-19 pandemic and to comply with the government mandates.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management has delayed making certain rent payments on its leased properties and is currently negotiating rent abatement and/or deferment with its landlords. For the Company's franchisees, the Company is deferring their March and April royalties. On April 30, 2020, two of the Company’s wholly-owned operating subsidiaries received funding in connection with “Small Business Loans” under the federal Paycheck Protection Program provided in Section 7(a) of the Small Business Act of 1953, as amended by the Coronavirus Aid, Relief and Economic Security Act, as amended from time to time (the “Paycheck Protection Program”). Pursuant to the terms of the Business Loan Agreements and Promissory Notes the Company borrowed approximately $13.0 million in the aggregate (see Note 17).  The duration of the disruption on global, national, and local economies cannot be reasonably estimated at this time. However, should the existence of the COVID-19 pandemic continue for an extended period, our future business operations, including the results of operations, cash flows and financial position will be significantly affected. We continue to monitor the economic impact of the COVID-19 pandemic, as well as mitigating emergency assistance programs, such as the Coronavirus Aid, Relief, and Economic Security Act, on us, our customers, and our vendors. Remote work arrangements have been established for our employees to the extent possible in order to maintain financial reporting systems.

Due to the rapid development and fluidity of this situation, the Company cannot determine the ultimate impact that the COVID-19 pandemic will have on the Company’s consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate material adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain.

- 7 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period’s presentation. These reclassifications did not have an impact on the reported net income for any of the periods presented.

Income Taxes

The Company maintains a federal deferred tax asset (“DTA”) in the amount of $1.6 million and $6.6 million as of March 29, 2020 and December 29, 2019, respectively. The primary cause of the change in the balance was due to the tax effect on the bargain purchase gain related to the Granite City Acquisition March 2020.  The Company evaluates the DTA on a quarterly basis to determine whether current facts and circumstances indicate that the DTA may not be fully realizable. As of March 29, 2020, the Company concluded that the DTA is fully realizable and that no further valuation allowance was necessary; however, the Company will continue to evaluate the DTA on a quarterly basis until the DTA has been fully utilized.

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

Three Months Ended

    

March 29, 2020

    

March 31, 2019

Effective tax rate

%

(2.7)

%

17.2

%

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

Restricted cash and marketing fund

The Company has 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 funds held in this account are used in part to reimburse the Company for its marketing and digital services activities on behalf of the Famous Dave’s brand.  As the assets held by this fund are considered to be restricted, the Company reflects the cash related to this fund within restricted cash and reflect the liability within accounts payable on its condensed consolidated balance sheets. The Company had approximately $971,000 and $761,000 in this fund as of March 29, 2020 and December 29, 2019, respectively.

Assets Held for Sale

As of March 29, 2020, the Company had assets held for sale of approximately $2.8 million related to an owned property for which the Company entered into an agreement to sell the property for a contract purchase price of $3.6 million.  

Concentrations of Credit Risk

As of March 29, 2020, the Company had a receivable from one franchisee in the amount of $653,000, and from another franchisee in the amount of $485,000.  A portion of these receivables was reserved.

Net income per common share

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

- 8 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

(in thousands, except per share data)

   

March 29, 2020

    

March 31, 2019

Net income per share – basic:

  

 

  

Net income attributable to shareholders

$

13,707

$

82

Weighted average shares outstanding - basic

 

9,121

 

9,085

Basic net income per share attributable to shareholders

$

1.50

$

0.01

Net income per share – diluted:

 

  

 

  

Net income attributable to shareholders

$

13,707

$

82

Weighted average shares outstanding - diluted

 

9,202

 

9,189

Diluted net income per share attributable to shareholders

$

1.49

$

0.01

There were approximately 228,197 and 179,000 stock options as of March 29, 2020 and March 31, 2019, respectively that were not included in the computation of diluted EPS because they were anti-dilutive.

(2)        Restaurant Acquisitions

On March 16, 2020, the Company completed the acquisition of the assets and operations of a Real Urban Barbeque restaurant in Vernon Hills, Illinois from Real Urban Barbeque VH LLC.  The contract purchase price of the restaurant was approximately $45,000, exclusive of closing costs plus the assumption of the lease, gift card and certain other liabilities. The assets acquired and the liabilities assumed were considered to be immaterial and were provisionally recorded at estimated fair values based on information available, including an ROU asset and offsetting liability of approximately $714,000.  

On February 11, 2020, the Company 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 Granite City 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 plus certain assumed liabilities including gift card liability and cure costs.  On March 9, 2020, the Company closed the Granite City Acquisition with cash on hand and borrowing under its existing loan agreement with Choice Bank.  

The Granite City Acquisition was accounted for using the purchase method of accounting in accordance with ASC 805 “Business Combinations” and, accordingly, the condensed consolidated statements of operations include the results of these operations from the date of acquisition. The assets acquired and the liabilities assumed were provisionally recorded at estimated fair values based on information available as of the end of the first quarter of fiscal 2020.

The following table presents the provisional allocation of assets acquired and liabilities assumed for the Granite City Acquisition:

(in thousands)

Assets acquired:

Cash and cash equivalents

$

128

Inventory

980

Property, plant, equipment and leasehold improvements, net

17,818

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

50,968

Identifiable intangible assets, net

8,329

Total identifiable assets acquired

78,223

Liabilities assumed:

Gift card liability

(3,923)

Lease liability

(50,968)

Deferred tax liability

(4,985)

Net assets acquired

18,346

Gain on bargain purchase

14,364

Total cash consideration

$

3,982

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited pro forma results of operations for the three months ended March 29, 2020 and March 31, 2019, as if the Company had acquired the Granite City operations at the beginning of each period presented is as follows. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future.

Three Months Ended

March 29, 2020

March 31, 2019

(in thousands)

Pro forma revenues

$

35,874

$

31,617

Pro forma net income attributable to shareholders

$

13,602

$

391

Basic pro forma net income per share attributable to shareholders

$

1.50

$

0.04

Diluted pro forma net income per share attributable to shareholders

$

1.48

$

0.04

(3)          Prepaid Expenses and Other Current Assets

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

(in thousands)

    

March 29, 2020

    

December 29, 2019

Prepaid expenses and deferred costs

 

$

495

 

$

405

Prepaid insurance

715

951

Prepaid expenses and other assets

 

$

1,210

 

$

1,356

(4)

Property, Equipment and Leasehold Improvements, net

The increase in property, equipment and leasehold improvements was primarily due to the Granite City Acquisition described in Note 2.  Property, equipment and leasehold improvements, net, consisted of the following:

(in thousands)

March 29, 2020

December 29, 2019

Land, buildings, and improvements

$

23,959

$

28,185

Furniture, fixtures, equipment and software

 

40,843

 

17,880

Décor

 

586

 

584

Construction in progress

 

351

 

483

Accumulated depreciation and amortization

 

(28,273)

 

(27,376)

Property, equipment and leasehold improvements, net

$

37,466

$

19,756

(5)          Intangible Assets, net

The Company has intangible assets that consist of liquor licenses, database, trademarks and patents, and reacquired franchise rights, net. The liquor licenses and trademarks/logos 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.  The database is amortized over three years.  

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The increase in intangible assets was due to the Granite City Acquisition described in Note 2.  Intangible assets consisted of the following:

(in thousands)

March 29, 2020

    

December 29, 2019

Reacquired franchise rights, net

1,683

1,788

Goodwill

690

640

Liquor licenses

837

425

Trademark/Logos/Patents

7,688

-

Database

250

-

Intangible assets, net

$

11,148

$

2,853

(6)         Other Current Liabilities

Other current liabilities consisted of the following at:

(in thousands)

    

March 29, 2020

December 29, 2019

Gift cards payable

$

5,828

$

2,360

Accrued expenses

 

1,321

 

1,874

Asset retirement obligations and lease reserves

6

6

Sales tax payable

 

911

 

584

Deferred franchise fees

 

151

 

151

Other current liabilities

$

8,217

$

4,975

(7)

Other Liabilities

Other liabilities consisted of the following at:

(in thousands)

    

March 29, 2020

December 29, 2019

Deferred rent

$

30

$

Deferred franchise fees

817

1,165

Miscellaneous other liabilities

 

169

 

216

Asset retirement obligations

 

3

 

3

Accrual for uncertain tax position

6

6

Long-term lease reserve

 

 

Long-term deferred compensation

 

220

 

220

Other liabilities

$

1,245

$

1,610

(8)          Long-Term Debt and Financing Lease Obligations

On June 20, 2019, the Company entered into a Loan Agreement among the Company and Choice Financial Group. The Loan Agreement provides for a term loan in the principal amount of up to $24.0 million and is evidenced by a promissory note. The note has a maturity date of June 20, 2025. The first year of the note 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

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Street Journal Prime Rate, but in no circumstances shall the rate of interest be less than 5.00%. The Note may be prepaid, partially or in full, at any time and for no prepayment penalty.

Debt outstanding under the above referenced promissory note consisted of the following as of the periods presented:

    

(in thousands)

    

March 29, 2020

December 29, 2019

Term Loan

$

15,025

  

$

6,924

Less: deferred financing costs

 

(83)

  

 

(50)

Less: current portion of long-term debt

 

(2,020)

  

 

(616)

Long-term debt, less current portion

$

12,922

  

$

6,258

The weighted-average interest rate of long-term debt outstanding as of March 29, 2020 and December 29, 2019 was 5.0%.

The Company is subject to various financial and non-financial covenants on this debt, including a debt-service coverage ratio. As of March 29, 2020, the Company was compliant with all of its covenants.

(9)        Leases

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

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense for the period presented is as follows:

Three Months Ended

(in thousands)

March 29, 2020

Operating lease cost

$

1,596

Short-term lease cost

31

Total lease cost

$

1,627

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended

(in thousands)

March 29, 2020

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

Operating cash flows from operating leases

$

1,791

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

51,682

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

11

Weighted-average discount rate of operating leases

5.26

(10)        Revenue Recognition

Deferred revenue liabilities consist primarily of franchise fees which are recognized straight-line over the life of the agreements, and area development fees which are deferred until a new restaurant is opened pursuant to the agreement.  The following table illustrates estimated revenues expected to be recognized in the future related to unsatisfied performance obligations as March 29, 2020:

(in thousands)

    

    

Fiscal Year

 

  

2020

$

83

2021

 

109

2022

 

107

2023

 

102

2024

 

93

Thereafter

 

474

Total

$

968

The following table reflects the change in contract liabilities between March 29, 2020 and December 29, 2019:

(in thousands)

Balance, December 29, 2019

$

1,318

Revenue recognized

(350)

Balance, March 29, 2020

$

968

(

(11)       Stock-based Compensation

Effective May 5, 2015, the Company adopted the 2015 Equity Plan (the “2015 Plan”), pursuant to which it may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other stock and cash awards to eligible participants. The Company also maintains 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 the Company’s shareholders. Nonetheless, the 2005 Plan will remain in effect until all outstanding incentives granted thereunder have either been satisfied or terminated. As of March 29, 2020, there were 89,661 shares available for grant pursuant to the 2015 Plan.

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

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

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

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Risk-free interest rate – The daily United States Treasury yield curve rate.

The Company recognized stock-based compensation expense in its consolidated statements of operations for the three months ended March 29, 2020 and March 31, 2019, respectively, as follows:

Three Months Ended

(in thousands)

    

March 29, 2020

    

March 31, 2019

Stock options

$

72

$

60

Restricted stock

 

65

 

23

$

137

$

83

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

    

    

Weighted

Average

Remaining

Number of 

Weighted Average 

Contractual

(number of options in thousands)

    

Options

    

Exercise Price

    

Life in Years

Options outstanding at December 29, 2019

 

452

$

6.71

Granted

 

120

 

4.27

Forfeited or expired

(22)

5.01

Options outstanding at March 29, 2020

 

550

$

6.24

5.9

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

    

    

Weighted

Average

Remaining

Number of

Weighted Average 

Contractual

(number of awards in thousands)

    

Awards

    

Award Date Fair Value

    

Life in Years

Unvested at December 29, 2019

 

143

$

5.00

Granted

 

10

 

3.40

Vested, outstanding

(14)

4.71

Unvested at March 29, 2020

 

139

$

4.91

2.9

Three Months Ended

    

March 29, 2020

March 31, 2019

Weighted-average fair value of options granted during the period

$

1.86

$

2.33

Expected life (in years)

 

4.7

 

5.5

Expected dividend

$

$

Expected stock volatility

 

51.21

%

 

50.31

%

Risk-free interest rate

 

1.6

%

 

2.5

%

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(12)        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 three months ended March 29, 2020 and March 31, 2019. These costs are included in asset impairment, estimated lease termination and other closing costs in the consolidated statements of operations.

Three Months Ended

(dollars in thousands)

    

March 29, 2020

    

March 31, 2019

Asset impairments, net

$

$

348

Lease termination charges and related costs

117

20

Restaurant closure expenses

56

39

Asset impairment, estimated lease termination charges and other closing costs

$

173

$

407

(13)        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 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. The Company believes that the carrying amount of long-term debt approximates fair value due to the variable interest rate on the Company’s long-term debt, as well as that there has been no significant change in the credit risk or credit markets since origination.

The Company had no assets measured at fair value in its condensed consolidated balance sheets as of March 29, 2020 and December 29, 2019, except for the assets recorded at fair value in conjunction with restaurant acquisitions. See Note 2 – Restaurant Acquisition.

(14)        Variable Interest Entities

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

On November 1, 2017, the Company sold its Frederick, Maryland restaurant. Pursuant to the terms of the Frederick Agreement, the Company remained the primary obligor of the lease. As of March 29, 2020, the amount of future lease payments for which the Company would be liable in the event of a default are approximately $348,000. The present value of future minimum lease payments net of expected sublease receipts was recorded as an asset impairment in fiscal year 2019.

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Because the Company has provided more than half of the subordinated financial support of Mercury and control Mercury via its representation on the board of managers, the Company has concluded that Mercury is a VIE, of which the Company is the primary beneficiary and must consolidate Mercury. Mercury generated a net loss of approximately $496,000 during the first quarter of 2020, of which $396,000 was recorded as non-controlling interest on our consolidated financial statements.  As of March 29, 2020, Mercury’s assets included approximately $3.1 million of property, equipment and leasehold improvements, a $2.0 million ROU asset and $62,000 of inventory.  The liabilities recognized as a result of consolidating Mercury BBQ’s results of operations do not represent additional claims on the general assets of BBQ Holdings, Inc.; rather, they represent claims against the specific assets of the Mercury BBQ’s. Conversely, assets recognized as a result of consolidating the Mercury BBQ’s results of operations do not represent additional assets that could be used to satisfy claims against the general assets of BBQ Holdings.

(15)        Litigation

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

(16) Related Party Transactions

Anand D. Gala is a franchisee of the Company and currently serves as a director of the Company. 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 the Company and is the beneficial owner of approximately 18.2% of the Company’s common stock as of the date that these financial statements were available to be issued, by virtue of his ownership interest in Wexford Capital.

The following table outlines amounts received from related parties during the three months ended March 29, 2020, and March 31, 2019:

Three Months Ended

(in thousands)

March 29, 2020

    

March 31, 2019

Revenues and NAF contributions - Anand Gala

$

344

$

388

Revenues and NAF contributions - Charles Davidson

166

77

The following table outlines accounts receivable from related parties as of March 29, 2020 and December 29, 2019:

(in thousands)

March 29, 2020

    

December 29, 2019

Accounts receivable, net - Anand Gala

$

344

$

290

Accounts receivable, net - Charles Davidson

111

77

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(17)        Subsequent Events

On April 30, 2020, FDA and Granite City, Inc. (“GC”), wholly-owned operating subsidiaries of the Company received funding in connection with “Small Business Loans” under the Paycheck Protection Program. Pursuant to the terms of the Promissory Notes dated as of April 30, 2020, by FDA and GC in favor of Choice Financial Group, a bank operating out of the state of North Dakota, FDA borrowed $7,225,200 original principal amount, which was funded on May 1, 2020 whereas GC borrowed $5,810,800 original principal amount, which was funded on May 1, 2020 (“PPP Loans”). The PPP Loans bear interest at 1% per annum and mature in two years from the date of disbursement of funds under the PPP Loans respectively. Interest and principal payments under the PPP Loans will be deferred for a period of six months. Under certain circumstances, all or a portion of the PPP Loans may be forgiven, however, there can be no assurance that any portion of the PPP Loans will be forgiven and that FDA or GC would not be required to repay the PPP Loans in full.

The PPP Loans contain certain covenants which, among other things, restrict the borrower’s use of the proceeds of the PPP Loans to the payment of payroll costs, interest on mortgage obligations, rent obligations and utility expenses, require compliance with all other loans or other agreements with any creditor of the borrower, to the extent that a default under any loan or other agreement would materially affect the borrower’s ability to repay the PPP Loans and limit the ability of the borrower to make certain changes to its ownership structure.

The COVID-19 pandemic has caused a disruption to our business.  The full impact of the COVID-19 outbreak continues to evolve as of the date of this report, and due to the rapid development and fluidity of the situation, we are not able to determine the ultimate impact it will have on our financial condition.  Same store sales at our Famous Dave’s restaurants decreased 29% while same store sales at our Granite City restaurants decreased 83% during the four weeks ended April 25, 2020.  While some states and municipalities have allowed restaurants to begin opening dining rooms, restrictions limiting the number of guests continues to limit the amount of revenue generated.  It is uncertain when additional locals will allow in-restaurant dining to resume and at what capacity.  We have taken measures to mitigate our downturn in sales, including reducing labor and renegotiating rents on our restaurant properties.  

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

Item 2.

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

Overview

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-Q, “Company”, “we” and “our” refer to BBQ Holdings and its wholly owned subsidiaries.  BBQ Holdings was incorporated on March 29, 2019 under the laws of the State of Minnesota, while FDA was incorporated in Minnesota on March 14, 1994.  We develop, own and operate restaurants under the name “Famous Dave’s”, “Clark Crew BBQ”, “Granite City Food & Brewery” and “Real Urban Barbecue.” Additionally, we franchise restaurants under the name “Famous Dave’s”.  As of March 29, 2020, there were 124 Famous Dave’s restaurants operating in 31 states, Canada, and the United Arab Emirates, including 30 Company-owned restaurants and 94 franchise-operated restaurants.  The first Clark Crew BBQ restaurant opened in December 2019 in Oklahoma City, Oklahoma.  On March 9, 2020, we purchased 18 Granite City Food & Brewery restaurants located in 11 states.  On March 16, 2020, we purchased one Real Urban Barbecue restaurant located in Vernon Hills, Illinois.  

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic. As a result, public health measures were taken to minimize exposure to the virus. These measures, some of which are government-mandated, have been implemented globally resulting in a dramatic decrease in economic activity. “Stay-at-home” orders with the exception of conducting certain essential functions, quarantines, travel restrictions and other governmental restrictions to reduce the spread of COVID-19 have had an adverse impact on our business. All of our restaurants have been operating on a take-away, mobile pick-up and delivery basis only in order to protect our employees and customers from the spread of the COVID-19 pandemic and to comply with the government mandates.

Due to the rapid development and fluidity of this situation, the full impact of the COVID-19 outbreak continues to evolve as of the date of this report.  As such, we cannot determine its ultimate impact.

The following table summarizes the changes in the number of Company-owned and franchise-operated restaurants for the periods presented:

BBQ Holdings

Three Months Ended

Three Months Ended

March 29, 2020

March 31, 2019

Company-owned restaurants:

Famous Dave's

30

17

Granite City Food & Brewery

18

Real Urban Barbecue

1

Clark Crew BBQ (Note 14)

1

End of period

50

17

% of system

34

%

12

%

Franchise-operated restaurants:

Famous Dave's

94

127

Real Famous BBQ

1

End of period

95

127

% of system

66

%

88

%

System end of period total

145

144

Fiscal Year

Our fiscal year ends on the Sunday closest to December 31st. Our fiscal year is generally 52 weeks; however, it periodically consists of 53 weeks. Fiscal year 2020, ending January 3, 2021, will have 53 weeks while fiscal year 2019 which ended December 29, 2019 included 52 weeks.

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

Revenue

Our revenue consists of restaurant sales, franchise-related revenue and licensing, and other revenue. Our franchise-related revenue is comprised of three separate and distinct earnings processes: area development fees, initial franchise fees, and continuing royalty and national advertising fund payments. Currently, our domestic area development fee consists of a one-time, non-refundable payment of approximately $10,000 per restaurant in consideration for the services we perform in preparation of executing each area development agreement. For our foreign area development agreements, the one-time, non-refundable payment is negotiated on a per development basis and is determined based on the costs incurred to arrange for the sale of that development area. Currently, our initial, non-refundable, franchise fee for domestic growth is $45,000 per restaurant. Finally, franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales. Licensing revenue includes royalties from a retail line of business, including sauces, rubs, marinades and seasonings. Other revenue includes opening assistance and training we provide to our franchise partners.

Costs and Expenses

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

General and Administrative Expenses

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

Results of Operations – the three months ended March 29, 2020 compared to the three months ended March 31, 2019.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes, and the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019.

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

Three Months Ended

March 29, 2020

    

March 31, 2019

    

    

Food and beverage costs(1)

33.2

%  

32.6

%  

 

Labor and benefits costs(1)

38.0

%  

38.4

%  

 

Operating expenses(1)

30.7

%  

30.7

%  

 

Restaurant level operating margin(1)(3)  

(2.0)

%  

(1.7)

%  

 

Depreciation and amortization expenses(2)

4.5

%  

1.9

%  

 

General and administrative expenses(2)

12.9

%  

17.7

%  

 

(Loss) income from operations(2)

(5.6)

%  

0.8

%  

 

(1)As a percentage of restaurant sales, net
(2)As a percentage of total revenue
(3)Restaurant level margins are equal to restaurant sales, net, less restaurant level food and beverage costs, labor and benefit costs, and operating expenses.

Same Store Net Sales

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 removed from the same store net sales base until the new ownership has been in place for at least 12 months.  Same store net sales for Company-owned restaurants for the three months ended March 29, 2020 decreased 6.8% compared to the three months ended March 31, 2019. As of March 29, 2020 and March 31, 2019, there were 14

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BBQ HOLDINGS, INC. AND SUBSIDIARIES

restaurants in the same store sales base.  Same store net sales for franchise-operated restaurants for the three months ended March 31, 2020 decreased 13.1% compared to the three months ended March 31, 2019.

The overarching cause of the decrease in same store sales relates to the effects of the outbreak of a novel coronavirus (COVID-19). As a result of this pandemic, public health measures were taken to minimize exposure to this virus. These measures, many of which are government-mandated, have virtually eliminated dine-in business at our restaurants. As a result, we have seen an increase in our To-Go business, but a disproportionate decrease in our dine-in business.

Total Revenue

Our components of and changes in revenue consisted of the following for the three months ended March 29, 2020 and March 31, 2019:

Three Months Ended

(dollars in thousands)

March 29, 2020

March 31, 2019

   

$ Change

    

% Change

Revenue:

  

 

  

  

 

  

Restaurant sales, net

$

20,318

$

10,314

$

10,004

97.0

%

Franchise royalty and fee revenue

 

2,524

 

3,204

 

(680)

 

(21.2)

%

Franchisee national advertising fund contributions

282

409

(127)

(31.1)

%

Licensing and other revenue

 

346

 

266

 

80

 

30.1

%

Total revenue

$

23,470

$

14,193

$

9,277

 

65.4

%

Restaurant Sales, net

The increase in year-over-year restaurant sales, net for the three months ended March 29, 2020 was primarily a result of the acquisition of restaurants in Colorado and Arizona and the Granite City Acquisition, offset in part of the decrease in same-store sales.

On a weighted basis, for the three months ended March 29, 2020 compared to the three months ended March 31, 2019, Dine-In same store sales at Company-owned Famous Dave’s restaurants decreased by 18.4%, while To-Go same store net sales at Company-owned Famous Dave’s restaurants increased by 8.4%, driven by third-party delivery sales and curb-side pickup due to the unavailability of dine-in options as a result of the COVID-19 pandemic.

Same store sales at our Granite City restaurants decreased 71.1% during the three weeks ended March 29, 2020 compared to the three weeks ended March 31, 2019 under prior ownership.  This decrease was due to the closure of our dining rooms as of March 15, 2020.

Franchise-Related Revenue, including national advertising fund contributions

Franchise-related same store net sales decreased by 13.1%, for the three months ended March 29, 2020 compared to the three months ended March 31, 2019.  The decrease year over year net sales was due primarily to the elimination of the dine-in option for our guests due to the COVID-19 pandemic.

Licensing and Other Revenue

For the three months ended March 29, 2020, licensing and other revenue grew 30.1% to $346,000 compared to the same period of fiscal 2019.  Licensing and other revenue is primarily related to royalties earned on the sale of Famous Dave’s branded sauces, rubs, and other consumer packaged goods.

Average Weekly Net Sales and Operating Weeks

The following table shows Famous Dave’s Company-owned and franchise-operated average weekly net sales and Famous Dave’s Company-owned and franchise-operated operating weeks for the periods presented:

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Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

Three Months Ended

    

March 29, 2020

    

March 31, 2019

Average Weekly Net Sales (AWS):

 

  

Franchise-Operated(1)

$

40,547

$

46,043

Company-Owned

42,767

43,623

Full-Service

44,297

46,054

Counter-Service

34,812

37,214

Operating Weeks:

Franchise-Operated

1,223

1,573

Company-Owned

403

236

(1)AWS for franchise-operated restaurants are not our revenues and are not included in our consolidated financial statements. We believe that disclosure of comparable restaurant net sales for franchise-operated restaurants provides useful information to investors because historical performance and trends of Famous Dave’s 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 Famous Dave’s 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.

Average weekly sales at our Granite City restaurants were $22,994 for the three weeks ended March 29, 2020 compared to $79,474 for the three weeks ended March 31, 2019 under prior ownership. We acquired these restaurant effective March 9, 2020 and closed the dining rooms one week later due to COVID-19. There were 54 operating weeks for the Granite City restaurants for each of the periods presented.

Food and Beverage Costs

Our food and beverage costs consisted of the following for the three months ended March 29, 2020 and March 31, 2019:

Three Months Ended

(dollars in thousands)

March 29, 2020

March 31, 2019

   

$ Change

    

% Change

Food and beverage costs

$

6,754

$

3,360

$

3,394

101.0

%

Food and beverage costs for the three months ended March 29, 2020 and March 31, 2019 represented approximately 33.2% and 32.6% of net restaurant sales, respectively. This year-over-year increase, as a percentage of net restaurant sales, was primarily driven by the acquisition of restaurants in Colorado and Arizona and the Granite City Acquisition.  A portion of the increase in food and beverage costs as a percentage of revenue relates to the decrease in sales and traffic due to closed dining rooms and the related waste of perishable items in inventory.  Management continues to work to address and reduce these costs as we better understand the COVID-19 related environment.  

Labor and Benefits Costs

Our labor and benefits costs consisted of the following for the three months ended March 29, 2020 and March 31, 2019:

Three Months Ended

(dollars in thousands)

March 29, 2020

March 31, 2019

   

$ Change

    

% Change