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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10‑K10-K

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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2017fiscal year ended January 3, 2021

or

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

Commission File No. 0‑21625

file number 001-39053

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FAMOUS DAVE’S of AMERICA,BBQ HOLDINGS, INC.

(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Its Charter)

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Minnesota

41‑1782300​

83-4222776

(State or other jurisdictionOther Jurisdiction of
incorporation

Incorporation or organization)Organization

(​

I.R.S. Employer
Identification No.)

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12701 Whitewater Drive, Suite 100

Minnetonka, MN

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55343

Address of Principal Executive Offices

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Zip Code

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12701 Whitewater Drive, Suite 190

Minnetonka, MN  55343

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area codeTelephone Number, Including Area Code (952) 294‑1300

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

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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 ActAct.  Yes ☐    No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes☐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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☑    No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K    ☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b‑212b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☐

Accelerated Filer ☐

Non- AcceleratedNon-accelerated Filer ☐☑

Smaller reporting company  Reporting Company ☑

Emerging Growth Company ☐

(Do not check if a smaller reporting company)

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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑212b-2 of the Act).  Yes ☐    No ☑

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The aggregate market value of common stock held by non-affiliates of the registrant was approximately $15.8$11.9 million as of June 30, 2017,29, 2020, (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 February 20, 2018, 7,391,315April 1, 2021, 9,307,442 shares of the registrant’s Common Stock were outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE: None Portions of the definitive Proxy Statement for our 2021 Annual Meeting of Shareholders which is to be filed within 120 days after the end of the fiscal year ended January 3, 2021, are incorporated by reference into Part III of this Form 10-K, to the extent described in Part III.

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Table of Contents

TABLE OF CONTENTS

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PART I

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Page

PART IItem 1.

Business

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Page3

Item 1.1A.

BusinessRisk Factors

3

Item 1A.​

Risk Factors

12

Item 1B.

Unresolved Staff Comments

19

Item 2.

Properties

20

Item 3.

Legal Proceedings

20

Item 4.

Mine Safety Disclosures

20

14

PART IIItem 1B.

Unresolved Staff Comments

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24

Item 5.2.

Properties

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25

Item 3.

Legal Proceedings

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26

Item 4.

Mine Safety Disclosures

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26

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PART II

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Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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20

26

Item 6.

Selected Financial Data

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21

27

Item 7.

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

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21

27

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

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31

37

Item 8.

Financial Statements and Supplementary Data

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31

37

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

31

Item 9A.​

Controls and Procedures

31

Item 9B.

Other Information

32

37

PART IIIItem 9A.

Controls and Procedures

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37

Item 10.9B.

Other Information

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38

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PART III

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Item 10.

Directors, Executive Officers and Corporate Governance

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32

38

Item 11.

Executive Compensation

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36

38

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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41

38

Item 13.

Certain Relationships and Related Transactions, and Director Independence

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43

38

Item 14.

Principal Accountant Fees and Services

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44

39

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PART IV

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Item 15.

Exhibits and Financial Statement Schedules

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44

39

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Item 16.

Form 10-K Summary

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44

39

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SIGNATURES

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Certain statements contained in this Annual Report on Form 10‑K10-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.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

In September 2019 a holding company reorganization was completed in which Famous Dave’s of America, Inc. (“FamousFDA”) 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. 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 “Company,” “we,” “us” or “our”name “Famous Dave’s”. As of January 3, 2021, there were 125 Famous Dave’s restaurants operating in 31 states, Canada, and the United Arab Emirates, including 27 Company-owned restaurants and 98 franchise-operated restaurants. Included in the Famous Dave’s company-owned restaurant total are four restaurants purchased in July 2019 in Arizona (“Arizona Restaurants’) was incorporatedand four restaurants purchased in March 2019 in Colorado (“Colorado Restaurants”). The first Clark Crew BBQ restaurant opened in December 2019 in Oklahoma City, Oklahoma. BBQ Holdings has a 20% ownership in this venture. 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. In October 2020, we signed a 25-unit development agreement with Bluestone Hospitality Group (“Bluestone”) whereby Bluestone will open Famous Dave’s ghost kitchens and dual restaurant concepts with the Johnny Carino’s Italian brand.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a Minnesota corporationpandemic and the United States declared a National Public Health Emergency. As a result, public health measures were taken to minimize exposure to the virus. These measures, some of which are government-mandated, were implemented globally resulting in March 1994a dramatic decrease in economic activity. “Stay-at-home” orders with the exception of conducting certain essential functions, quarantines, travel restrictions and opened its first restaurantother governmental restrictions to reduce the spread of COVID-19 have had an adverse impact on our company’s business. From mid-March through April, all of our Company-owned restaurants operated on a take-away, mobile pick-up and delivery basis only in Minneapolis, Minnesotaorder to protect our employees and customers from the spread of the COVID-19 pandemic and to comply with the government mandates. Beginning in June 1995. May, we gradually began opening our restaurants for dine-in at 25% to 50% capacity pursuant to the regulations of the jurisdictions in which we operate. While all but one of our Company-owned restaurants began operating under limited-capacity in-store dining by mid-June 2020, in late October, some locations were required to reduce or eliminate in-store dining due to new COVID restrictions through the end of 2020. Although we have experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on our business remains uncertain, the duration and scope of which cannot currently be predicted (see Note 1 Nature of Business and Significant Accounting Policies). Due to the continuous development and fluidity of this situation, we cannot determine the ultimate impact of the COVID-19 pandemic will have on our consolidated financial condition, liquidity, and future results of operations.

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The following table summarizes the changes inincludes the number of Company-owned and franchise-operated “brick and mortar” restaurants foras of the fiscal years ended December 31, 2017 and January 1, 2017:dates presented:

 

 

 

 

 

 

 

 

 

Year Ended

 

 

Year Ended

 

 

 

December 31, 2017

 

 

January 1, 2017

 

Company-owned restaurants:

 

 

 

 

 

 

Beginning of period

 

37

 

 

44

 

New

 

 —

 

 

 —

 

Refranchised

 

(8)

 

 

(7)

 

Closed

 

(13)

 

 

 —

 

End of period

 

16

 

 

37

 

% of system

 

11

%

 

21

%

Franchise-operated restaurants:

 

 

 

 

 

 

Beginning of period

 

139

 

 

135

 

New

 

 2

 

 

 4

 

Refranchised

 

 8

 

 

 7

 

Closed

 

(15)

 

 

(7)

 

End of period

 

134

 

 

139

 

% of system

 

89

%

 

79

%

System end of period total

 

150

 

 

176

 

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BBQ Holdings

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Year Ended

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Year Ended

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January 3, 2021

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December 29, 2019

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Company-owned restaurants:

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Famous Dave's

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27

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32

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Granite City Food & Brewery

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18

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—

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Real Urban Barbecue

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1

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—

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Clark Crew BBQ

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1

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1

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End of period

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47

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33

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% of system

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32

%

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26

%

Franchise-operated restaurants:

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Famous Dave's

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98

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96

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End of period

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98

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96

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% of system

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68

%

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74

%

System end of period total

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145

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129

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As of December 31, 2017,​

In addition to these locations, we opened five Company-owned Famous Dave’s restaurants operated in 32 states, the Commonwealth of Puerto Rico, Canada, and the United Arab Emirates. An additional 61 franchise restaurants were committed to be developed through signed area development agreements at December 31, 2017. Throughout fiscal 2017, we closed 13 underperforming Company-owned restaurants and our franchisees closed an additional 15 restaurants.

During the fourth quarter of fiscal 2017, we refranchised eight Company-owned restaurants located at Columbia, Maryland, Frederick, Maryland, Laurel, Maryland, Waldorf, Maryland, Alexandria, Virginia, Chantilly, Virginia, Oakton, Virginia and Woodbridge, Virginia. During the first quarter of fiscal 2016, we refranchised seven Company-owned restaurants in the Chicago area located at Addison, Algonquin, Bolingbrook, Evergreen Park, North Riverside, Orland Park and Oswego, Illinois. As a result of these transactions, we have classified theghost kitchens operating results of these restaurants as discontinued operations for all years reported and have excluded them from the results of continuing operations.

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In fiscal 2017, we rolled out several initiatives aimed at increasing sales and traffic and reducing costs in our restaurants and support center. We revitalized our beverage menu and rolled out delivery programs via third-party delivery services. The beverage menu has been implemented at all of our Company-owned restaurants that serve alcoholGranite City locations, and most of our franchise operated restaurants that serve alcohol. The delivery program is in various stages of implementation within our participating system-wide restaurants that are served by delivery service providers. As it relates to costs in our restaurants, we implemented programs aimed at reducing food waste and optimizing labor through the use of technology and training. We are also working to simplify our back of house operations to drive efficiencies in our restaurants. Additionally, in fiscal 2017, we took certain steps to realign our general and administrative expense structure. See Item 7. Management’s Discussion and Analysis for more information.

In fiscal 2018, as well as continuing to execute on the actions that we took in fiscal 2017, we intend to revitalize and streamline the coresix Famous Dave’s concept, and develop and test new BBQ concepts with attractive unit economics. We also expect to continue to leverage technology to increase operational efficiencies, facilitate more frequent training, and utilize consumer data to expand our basefranchisee ghost kitchens operating out of loyal guests (“Guests”).the kitchen of another restaurant location or a shared kitchen space.

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

We operate four casual dining concepts under the names Famous Dave’s, Clark Crew BBQ, Real Urban Barbeque and Granite City Food & Brewery. As of January 3, 2021, we operated 27 Famous Dave’s restaurants, a Clark Crew BBQ, a Real Urban Barbeque and 18 Granite City restaurants. Additionally, as of January 3, 2021, we had 98 Famous Dave’s Franchise locations.

Famous Dave’s Overview

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 broadly defined barbeque category. We seek to differentiate ourselves by providing high-quality food in distinctive and comfortable environments with signature décor and signage. As of December 31, 2017, 11 of our Company-owned restaurants were full-service and five were counter-service. Generally, ourOur prototypical design includes a designated bar, a signature exterior smokestack, a separate entrance for our To Goto-go business and a patio (where available). We have designs thatpatio. The Famous Dave’s concept can be adapted to fit various location sizes and desired service styles such as full-service, counter-service or counter-service.

In fiscal 2017, our franchisees opened two restaurants in Abu Dhabi, United Arab Emirates and Green Bay, Wisconsin. In fiscal 2016, four franchise openings were a mixture of conversions of existing full-service casual dining restaurants to our concept as well as new construction, including two restaurants opened in the United Arab Emirates. In Fiscal 2018, we may look to incentivize our franchisees to open additional restaurants, either traditional Famous Dave’s restaurants or our to-be-announced new concept. 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. Due to the flexibility and scalability of our concept, we believe that there are a variety of development opportunities available now and in the future.

line service.

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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,BeansTM, accompany the broad entrée selection. HomemadeHandmade desserts, including Famous Dave’sBBQ Holdings Bread Pudding and Hot Fudge Kahlua Brownies,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,PitTM, Georgia MustardTM,MustardTM, Devil’s Spit®, Sweet and ZestyTMZestyTM and Wilbur’s RevengeTM.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.

We believe that high quality food, a menu that is over 85% “scratch cooking” and the fact that we smoke our meats daily at each of our restaurants are principal points of differentiation between us and other casual dining competitors and are a significant contributing factor to repeat business. We also feel that our focus on barbecue being a noun, a verb and a culture allows for product innovation without diluting our brand. As a noun, barbeque refers to the art of the smoke and sauce. As a verb, barbeque refers to the act of grilling. As a culture, barbeque refers to the competitive spirit. As a result, we see few geographic impediments to scaling our concept and brand.

Focus on Guest Experience – We believe that a renewed focus on enhancing our Guests’guests’ experience and listening to their feedback is an essential pillar ofessential. Over the Company. In fiscal 2018,years, we will continue to test and further enhance our Guests’ experience by focusing on hospitality, food execution and training. We believe a positive Guest experience, combined with our high-quality food, makes Famous Dave’s appealing to families, children, teenagers and adults of all ages and socio-economic and demographic backgrounds.

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 items of Americana. 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. In addition, we developed a larger “Blues Club” format that featured authentic Chicago Blues Club décor and live music seven nights a week. 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. We believe a positive guest experience, combined with our high-quality food, makes Famous Dave’s appeal to a diverse and broad demographic profile. We expect to continue refreshing our corporate restaurants in 2021 to a format that we believe will appeal to a younger demographic while still resonating with our core guest. Given the shift in food delivery, we are working on two formats with franchisees – one with a pick-up window and another as a full drive-thru concept. Throughout 2020, we also continued to enhance the various guest facing initiatives we implemented. In addition to our mobile app, we also rolled a SMS-text program, and enhanced our online ordering experience.

Granite City Overview

The Granite City restaurant theme is upscale casual dining with a wide variety of menu items that are prepared fresh daily, including Granite City’s award-winning signature line of hand-crafted beers finished on-site. The extensive menu features moderately priced favorites served in generous portions. Granite City’s attractive price point, high service standards, and great food and beer combine for a memorable dining experience.

Our prototypical Granite City restaurant consists of an approximately 9,800 square foot facility conveniently located just off one or more interstate highways and centrally located within the respective area’s retail, lodging and transportation activity. Granite City restaurants have open atmospheres as well as floor-to-ceiling window systems creating, where designs permit, expansive views of outdoor patio areas used for dining during warm weather months. This window treatment allows activity to be viewed both inside and outside the restaurant and creates a bright, open environment. We use granite and other rock materials along with natural woods and glass to create a balanced, clean, natural interior feel. The interiors are accented with vintage photographs of the local area brewing industry, as well as historical photos of the community landscape. We believe our design creates a fun and energetic atmosphere that promotes a destination dining experience.

The core of our Granite City concept is the wide variety of items on our menu which are freshly prepared from scratch and served in generous portions. This is complemented by a wide selection of hand-crafted cocktails, wines and our own signature beers. Our menu is committed to full-flavored ingredients and is based on strict preparation of distinctive items not generally featured on restaurant chain menus. We create new menu items and monthly specials on a regular basis that are staff and guest-tested and refined before menu implementation.

In addition to operating our restaurants, we operate a centralized beer production facility which facilitates the initial stages of our brewing process. The product produced at our beer production facility is then transported to the fermentation vessels at each of our Granite City restaurants where the brewing process is completed. We believe that this brewing process improves the economics of microbrewing as it eliminates the initial stages of brewing and storage at multiple locations. Our company holds patents by the United States Patent and Trademark Office for our brewing process and for an apparatus for distributed production of beer.

Real Urban Barbeque Overview

Real Urban Barbecue built its reputation on authentic, wood fired BBQ favorites. Real Urban’s award-winning menu is served in a comfortable, casual environment built around a line service model that is efficient for operators and convenient for guests. The casual BBQ theme at Real Urban is highlighted by unique custom designed BBQ centric

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décor, roadside signage, and handwritten menus proudly displayed on oversized chalkboards. The interior is designed around corrugated metal, barn wood accents, and a warm color scheme that enhances the dining experience. We believe the casual, neighborhood environment created by the custom décor and comfortable booths creates a local hangout that guests are proud to have in their neighborhood. Guests can find all the BBQ staples including; Ribs, Brisket, Pork, Chicken, and Sausage. The sizeable menu also includes a variety of side dishes and handmade desserts. After opening in 2012, Real Urban quickly became known for its sweet and savory BBQ sauce that is proprietary to the brand. Guests crave the smooth, tomato-based sauce that is the perfect blend of savory and sweet.

Real Urban or as it is affectionately known to regulars, RUB, differentiates itself by generating revenue from several lines of business. Dine in, takeout, catering and a robust consumer packaged goods business all contribute to the success of Real Urban. A strategic partnership with Lou Malnati's Taste of Chicago catalog has allowed the concept to ship large quantities of products nationwide.

Operating out of less than 4,000 square feet, Real Urban is efficient and right sized for the current restaurant environment. Real Urban operates as a single unit in Vernon Hills, IL., and tailors their menu offerings to the community it serves. Special menu offerings are rolled out each year featuring specials for graduations, weddings, mitzvahs, corporate meetings, and many more events. Acquired in 2020 by BBQ Holdings, we believe that Real Urban Barbecue will benefit from the buying power, marketing support, and the implementation of enterprise level technology that is not readily available to single unit locations.

Clark Crew BBQ Overview

Clark Crew BBQ launched in December 2019 with great anticipation from the community in Oklahoma City. Featuring premium, slow-smoked proteins, and hand-crafted sides, Clark Crew quickly became one of the top-grossing restaurants in all of Oklahoma. The concept was built around one of the most decorated pitmasters to ever compete on the KCBS BBQ circuit, Travis Clark. Travis and his crew have competed on the biggest BBQ stages in the world and racked up over 700 Top-10 awards, along with World Championships, National Team of the Year, and Oklahoma Team of the Year before shifting their focus to opening a BBQ restaurant that would allow Travis to share his talents with the masses. In partnership with BBQ Holdings the dream to open Clark Crew BBQ was quickly realized when all parties involved had the same goal; to create an upscale BBQ concept that offers competition quality BBQ to the communities it serves. BBQ Holdings has a 20% ownership interest in this venture (see Note 15 Variable Interest Entities).

The Clark Crew restaurant theme was built around a dedicated smokehouse that would be the pride of any pitmaster. Featuring Old-Hickory and Camelback high-end smokers and ample room to produce some of the world’s best BBQ, the smokehouse provides great viewing opportunities for guests entering the restaurant while the sweet smoky smell of BBQ fills the neighboring community. Boasting over 8,000 square feet, Clark Crew is the perfect sized footprint for the flagship location of an emerging BBQ concept.

The walls at Clark Crew are lined with authentic, one of kind BBQ awards that chronicle the success Travis Clark had on the competitive BBQ circuit. A large dining room overlooks an open kitchen. Pass through the dining room and you find a full-service bar area with custom barstools featuring the initials CCB, which exemplify Travis’ attention to detail in everything that he does. Just past the bar is a well shaded patio that features a large gaming area with synthetic turf, a fire pit, and a stage that regularly hosts live music.

The menu at Clark Crew BBQ is filled with traditional BBQ favorites such as ribs, pork, chicken, sausage, and even smoked bologna. The item that differentiates Clark Crew from the rest is the Snake River Farms American Wagyu Brisket. You will not find a premium protein like this at most BBQ restaurants. These high-end cuts are typically reserved for the competition BBQ circuit where prize money and dreams of becoming a grand champion motivate the pitmaster. A wide variety of sides, signature burgers, hand-cut steaks cooked over a real wood fire, brick oven pizza, and house-made are also available on the well thought out menu. A bar menu featuring an exhaustive beer list and signature Crew Cocktails round out the menu offerings at Clark Crew.

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Growth

In fiscal 2020, we opened five Company-owned Famous Dave’s locations and our franchisees opened 10 Famous Dave’s locations. Eleven of those 15 locations were ghost kitchen locations*.

●Fairfield, CA*
●Modesto, CA *
●Downey, CA *
●Avondale, IL *
●Westline, IL*
●Provo, UT
●Franklin, TN *
●Northgate, WA*
●Colorado Springs, CO
●Creve Coeur, MO *
●Naperville, IL *
●Troy, MI*
●St Cloud, MN *
●Festival Plaza, Dubai
●Al Jimi Mall, Abu Dhabi

Ghost kitchen locations either operate out of the kitchen of another restaurant location or a shared kitchen space.

In fiscal 2021 we plan to open, with the help of our franchisees, our new line-service prototype design that we have been working on for the last 12-18 months, both with and without a drive-thru. This design will be built from the learnings we have had opening our smaller footprint locations, as well as the current model being executed at our Real Urban BBQ location. Through our new prototype and ghost kitchen locations, we expect 10-15 units to open in fiscal 2021 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.

In addition to ghost kitchens, we opened our first dual concept location in fiscal 2020 in Colorado Springs, CO. This dual concept puts two restaurant concepts (Famous Dave’s BBQ and Texas T-Bone Steakhouse) under the same roof utilizing the same staff and one menu. We are encouraged by the results and look to continue testing this dual concept prototype in 2021.

During 2020 as we faced the pandemic, we moved to a simplified menu in order to streamline our operations as we navigated traffic declines and supply chain shortages. As dining rooms have started to re-open, we have introduced some of those items back while also keeping a few locations on the simplified menu to continue this test. We will continue to evaluate the performance of these menu interations and allow us to make educated menu decisions in 2021 and beyond.

As we continue to learn from our experiences in 2020, we plan to test and innovate with technology in our back of house operations as we work to further streamline process and improve efficiencies..

Operating Strategy

We believe that ourOur ability to achieve sustainable profitable growth is dependent upon us delivering high-quality experiences in terms of both food and hospitality, to every Guest, every day, and to enhance brand awareness in our markets.consistently.  Key elements of our strategy include the following:

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During fiscal 2017,2020, we continued to focus on operational excellence and integrity, and on creating a consistently enjoyable Guestguest experience, both in terms of food, food delivery and hospitality, across our system.  While this changed throughout the year as we dealt with the pandemic, we believe our commitment to our guests remained intact as we evolved our service models.

We define operational excellence as also meaning an unyielding commitment to superior service for our Guestsguests during every visit.  InWe continue to look for ways to provide convenience and value to our restaurants, we strive to emphasize valueguests through reducing ticket times and speed of service by employing a streamlined operating system based on a focused menu and simplified food preparation techniques while remaining true to authentic barbeque.streamlining off-premise operations.  Operational excellence is also an uncompromising attentioninvolves daily monitoring to the details ofensure we execute our recipes at a high level inclusive of preparation, and cooking, procedures,and handling procedures, rotation, sanitation, cleanliness and safety.

Our menu focusesmenus focus is on a number ofseveral popular smoked, barbequed, grilled meats, entrée items, and delicious side dishes and appetizers which are prepared using easy-to-operate kitchen equipment and processes that use proprietary seasonings,seasoning ingredients, sauces and mixes. This streamlined food preparation system helps manage the cost of operation by requiring fewer staff, lowering training costs, and eliminating the need for highly compensated chefs. Additionally, barbeque has the ability to be batch cooked and held, which enables our award winning food to get to our Guests quickly, whether in the restaurant, at their homes, or at a catering event. In order to enhance our appeal, expand our audience, increase frequency, and feature our cravablecraveable products we have assembledour culinary team has developed a research and development product pipeline, designed to generate new, delicious and exciting menu items thatwhich will allow us to regularly update our menu.offer new and exciting items throughout the year.

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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 Resourcehuman resource and Training/Developmenttraining and development resources, tools and programs, we continually enhance and support superior performance within our restaurants and Support Center. Our foundational guiding principle is doing the right thing for the organization and our Guests while ensuring we have the right people in the right roles with the right resources and tools.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 at the organizational level 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 market competitive position.position in the market. Our Human Resourcehuman resource and Training organization focusestraining 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 Trainingtraining and Developmentdevelopment arena, we offer a variety of ongoing on-the-job and classroom and eLearning training programs for the operations teams (hourly employees, Restaurant Managers, and Multi-Unit Managers)restaurant managers) in an effort to create defined career paths. Our Management Traineemanagement training program provides new restaurant managers a foundational basedfoundational-based training for restaurant operations including ServSafe Food and Alcohol Certification, and several learning sessions focused on the basic behaviors and skills of a Famous Dave’s Manager. We also offer a Famous Dave’s Leadership Series program which provides a library of workshop offerings focused on building and strengthening core skills in the areas of communication, teamwork, coaching, change management and performance management. In addition, we have incorporated e-learning training tasks, skills and processes on-demand.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,the general manager and executive chef and seek talented individuals that bring a diverse set of skills, knowledge, and experience to the Company.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 Managersmanagers 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 close supervision of our Management.management. We have a Directorcomprehensive operations scorecard and training tool that helps us measure the operational effectiveness of Company Operationsour restaurants. We have a senior vice president of operations who is responsible for overseeing all Company-owned restaurants. This individual worksas well as our area directors, work closely with the General Managersstore-level management to support day-to-day restaurant operations. In addition, the Director of Company Operations assistssenior vice president and area directors assist in the professional development of our General Managersstore-level management and is alsoare instrumental in driving our vision of

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operational integrity and contributing to the improvement of results achieved at our restaurants, including building sales, developing personnel and growing profits. The Directorarea directors oversee 8-12 locations, depending upon concept, and report to our senior vice president of Company Operationsoperations. Our senior vice president of operations reports directly to our Chief Operating Officer.chief operating officer.

Off-Premise Occasions - Focus on Convenience

Inaddition to our lively and entertaining dine-in experience, we provide our Guestsguests with maximum convenience by offering an expedient take-out service along with catering and delivery. We believe thatThe level of take-out varies from concept to concept. As an example, to-go business at 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 choiceis approximately 62% of its revenue, compared to replace a home-cooked meal. Also, theGranite City where to-go business is approximately 27% of its revenue. 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 sampleaccess our product who would not otherwise have had the opportunity to visit our restaurants. Eachbusiness. Every restaurant has a dedicated vehiclevehicles to support our catering initiatives and many restaurants are served by multiple third-party delivery providers.

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OurAt Famous Dave’s, our restaurants have been designed specifically to accommodate a significant level of To Goto go sales, including a separate To Goto go entrance with prominent and distinct signage, and, for added convenience, we separately staff the To Goto go counter. To further enhance To Go sales for all our brands, we offer our Guestguests the ability to order online to improve convenience. We believe our focus on To Goto go enables Famous Dave’sus to capture a greater portion of the “take-out” market by allowing consumers to “trade within our brand,brands,” when dining in is not always an option. We pursue efforts to increase awareness of To Goto 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 – Webelieve 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 highremain competitive with our value offerings across our brands and are committed to offering consistent, quality products at a compelling everyday value. We offered Famous Deals, throughout fiscal 2020 at Famous Dave’s. The promotion is intended to drive weekday dine-in traffic. We re-evaluated the promotion at the onset of dining room closures and offered the promotion to go for the first time. Not only did the offers increase traffic, but we were also able to successfully maintain check averages and profit by requiring the purchase of a beverage when guests purchased a Famous Deal to-go. At Granite City we launched a Daily Deals promotion in June of 2020. The Daily Deals promotion featured $5 burgers and many other food and drink specials, each offered on a distinctive atmosphere at competitive pricesspecific day of the week. Granite City’s guests quickly responded to encourage frequent patronage. Lunchthe offers and dinner entrees rangeguest counts steadily increased. Daily Deals averaged well over 4,000 units per week sold and we have continued to maintain that volume into fiscal 2021. All our brands benefited from $6.99the rollout of family-style meal options. Each of these promotional offers were built around value and convenience, allowing guests to $26.99, resultingfeed a group of four for as little as $29.99. Bundled meal deals, 2 for $20 offers, free delivery, and free dessert promotions were also used across the brands in fiscal 2020 to further reinforce our value message.

Granite City launched a per person dine-innew loyalty program in October of 2020 and To Go averagequickly surpassed 25,000 downloads of $14.99 during fiscal 2017. During fiscal 2017, per person average ticketstheir new loyalty app. The loyalty program will be the primary tool for lunch averaged $13.01measuring guest frequency in 2021 and per person average ticket for dinner averaged $16.98. We intend to use value priced offerings, 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.beyond.

Marketing, Promotion and Sales

We believe that by specializingBBQ Holdings’ brands rely on digital marketing, direct marketing, social media, word of mouth and strategic partnerships to advertise to new guests. The internal marketing team is responsible for the advertising, promotion,

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creative development and branding for all BBQ Holdings concepts. Franchise operated Famous Dave’s restaurants place the advertising and marketing programs in uniquetheir local market based on contractual requirements.

Additionally, as part of our overall marketing strategy we have prioritized the acquisition of guest data across all brands to deploy retargeting messages and distinctive smoked meats, poultry & fish,digital messaging directly to a guest mobile device through email, SMS Text and mobile app push notifications. New, modern and mobile friendly websites were deployed at Famous Dave’s, Granite City and Clark Crew BBQ in fiscal 2020 with a goal to enhance each guests digital experience and improve search engine rankings with a renewed focus on Search Engine Optimization and site structure.

Each brand will continue to focus our menu specialty helps setmarketing efforts on building off-premise sales, while welcoming back dine in guests when they are ready for a full-service dining experience. Promotions with delivery services partners were leveraged during strategic times throughout the brand apart fromyear for each brand. Inclement weather and the restonset of the crowded fieldpandemic presented an opportunity to increase delivery sales through third party apps and the BBQ Holdings Brands were well positioned to take advantage of these opportunities.

We leveraged our internal marketing channels, as well as paid social media campaigns, successfully during all the major holidays in casual dining. 2020. Bundled theme meals and special occasion offers were utilized across the brands to build sales on key holidays such as Mother’s Day, Easter, Father’s Day, Labor Day and Thanksgiving. Famous Dave’s surpassed 2019 sales figures on every major holiday in 2020. Other calendar events such as National Pork Month, National Beer Month and many others are leveraged for creative marketing promotions designed to spark interest and incite trial.

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-widesystem wide marketing fund. All Company-ownedcompany owned Famous Dave’s restaurants, and those franchise-operatedfranchise operated restaurants with agreements signed after December 17, 2003 are generally required to contribute 1.0%1% of net sales to this fund, which substantially funds the marketing and digital teams. In fiscal 2017, the Marketing Ad Fund contribution for contributing franchisees was 1.0% of net sales and will continue to be so in fiscal 2018.

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.

The strategic focus for marketing and promotion is to ensure that Famous Dave’s is recognized as the category–defining brand in BBQ, 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 implemented a Guest research driven innovation process to create our rolling 12‑month marketing calendar with specific strategic goals. Additionally, a number of new initiatives were planned around enhancing the menu, the Guest experience, events marketing and social media.

In 2017, we highlighted value and affordability in our menu along with promoting additional value offerings through limited time offer’s and day of the week offerings such as “Smokin’ Deals.” 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. Leveraging this occasions matrix, we are uniquely poised to offer more immediate relevancy and sales opportunities by solving the Guest’s daily dinner dilemma and address these differences in our marketing, including menu, promotional outreach, pricing, and new product news.

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fund.

Location Strategy

We believe that the barbeque segment of the casual dining niche of the restaurant industry continues to offer strong growth opportunities, and we see few impediments to our growth on a geographical basis. Our geographical concentration, as of December 31, 2017, was 43% Midwest, 5% Middle Atlantic, 9% South, 30% West, 8% Northeast and 5% 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 Guestguest profile. The identified trade areas are then assessed for viability and vitality and prioritized as initial, second tier, orby 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.changes.

As part of our development strategy, we have engaged design firms to redesign and reimage the traditional full-service prototype. These firms have assisted in developing plans for futureThe ghost kitchen service style models such as an updated counter-service, line-service and hybrid flex-service models. The future service-style modelsmodel 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. Additionally, we may choose to build out Company-owned line service and drive-thru concepts. Site selection will focus on newly developed green-field retail developments or existing retail projects being re-developed.  Conversion opportunities will be considered on a case by case basis.converting second-generation space cost effectively. We intend to finance company restaurant development through the use ofusing cash on hand, cash flow generated from operations, through availability on our revolving line of credit and a rights offering that we expect to commence subsequent to the filing of this Annual Report on Form 10-K.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 communicationWe believe the new line service and recognition of best practices throughout the system and to continue to expand our franchisee network here and outside of the United States.drive-thru prototypes will allow for this expansion.

Purchasing

To provide the freshest ingredients and inIn 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.

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Approximately 85%90% of our food and non-alcoholic beverage purchases collectively across brands are on contract, with the majority being proteins. PorkIn the three barbecue centric brands, pork represents approximately 32% of our total purchases, while beef, which includes hamburger and brisket, is approximately 13%14%, chicken is approximately 13%14%, and seafood is approximately 2%. In our Granite City brand, beef represents 21% of total purchases, while poultry is approximately 16%, seafood 3%, various other proteins making up approximately 12%, and produce making up another large portion of our spend at approximately 8%.

We realize the volume of leveraging our spend across our various brands and where applicable align contract pricing on like items to drive down landed costs.

Our purchasing team is also responsible for managing the procurement of non-food items for our restaurants, including restaurant equipment, small waressmallwares and restaurant supplies. Also, theyThey 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 capabilitiesinitiatives that provide secure and efficient operations, maximizeenhance the Guestguest experience and provide the abilitybenchmarks that allow us to analyze data that describesevaluate our operations.operational metrics.

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We have implemented a suite of restaurantutilize industry-leading service providers and general headquarter systems which support operations by providing transactional functions (ordering, card processing, etc.) and reportingcloud services to streamline processes at both the unitrestaurant and support center level.center. Interfaces between Point-of-Sale (POS),point-of-sale, labor management, inventory management, menu management, key suppliers, and employee screening/hiringdigital platforms and financial systems all contributeare the foundation of our enterprise analytics platform. We also continue to the following operatorimplement and corporate visibility:support solutions to capitalize on current digital market trends to drive sales and realize operational efficiency.

·

Average Guest check broken down by location, by server, by day part, and by revenue center;

·

Daily reports of revenue and labor (both current and forecasted);

·

Monthly reporting of detailed revenue and expenses; and

·

Ideal vs. actual usage variance reporting for critical restaurant-level materials.

Trademarks

Our Companycompany has registered various trademarks, makes use of various unregistered marks, and intends to vigorously defend these marks. “Famous Dave’s” and the Famous Dave’s logo are registered trademarks of Famous Dave’s of America, Inc. The CompanyWe highly values itsvalue 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

We are revising our franchise disclosure document and expectOur goals include, to be authorizeda valued franchisor; to offerenhance communication and sell franchises in all states byrecognition of best practices throughout the end of the first quarter.system and to continue to expand our franchisee network domestically and internationally.  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/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 Famous Dave’s restaurants in a manner consistent with our standards for operational excellence, service and food quality.

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As of December 31, 2017,January 3, 2021, we had 3230 ownership groups with franchise operatedfranchise-operated restaurants in the following locations:

​

​

​

​

United States

​

​

United States

​

Arizona

​

 62

​

California

​

1413

​

Colorado

​

 61

​

Delaware

​

 21

​

Florida

​

 32

Idaho

 2

​

Illinois

​

8

​

Indiana

​

 32

​

Iowa

​

 32

​

Kansas

​

 21

​

Kentucky

​

 21

Maine

 1

​

Maryland

​

 43

​

Michigan

​

 74

​

Minnesota

​

 43

​

Missouri

​

 21

​

Montana

​

4

​

Nebraska

​

 43

​

Nevada

​

5

​

New Jersey

​

1

​

North Dakota

​

3

​

Oregon

​

2

​

Ohio

​

 32

​

Pennsylvania

​

 32

​

South Carolina

​

1

​

South Dakota

​

 21

​

Tennessee

​

 43

​

Texas

​

 34

​

Utah

​

3

​

Virginia

​

 43

​

Washington

​

 65

​

Wisconsin

​

106

United States Total

​

12692

​

​

​

​

International

​

​

The Commonwealth of Puerto Rico

 4

​

Canada

​

1

​

United Arab Emirates

​

 35

International total

​

 86

Total franchise-operated restaurants

​

13498

​

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Our Franchise Operations Departmentfranchise operations department is led by our Chief Operating Officer,director of franchise operations, who guides the efforts of five Franchise Business Consultants.our two franchise business consultants. The Franchise Business Consultantsdirector of franchise operations and the franchise business consultants have the responsibility of supporting our franchisees throughout the systemsystem. The director of franchise operations and play a critical role for us as well as for ourthe franchise community. The Franchise Business Consultantsbusiness consultants manage the relationship between us and our franchisees and providesprovide 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 Consultantsfranchise business consultants and the Support Centersupport center but are not required to do so. Our director of franchise operations reports directly to our senior vice president of operations.

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 Guestguest 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, POSpoint-of-sale systems, business licenses, deposits, initial food inventory, small wares,smallwares, décor and training fees as well as working capital. In fiscal 2017,2020, certain of our 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 Famous Dave’s 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 lowermonths. Our Granite City restaurants typically generate higher revenue in the firstsecond and fourth quarters of our fiscal year due to possible adverseas a result of warmer weather which can disrupt Guest and team member transportation to our restaurants.increased patio seating in the second quarter and holiday activity in the fourth quarter.

Government Regulation

Our Companycompany 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"“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 31, 2017,January 3, 2021, we employed approximately 7222,417 team members of which approximately 95238 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‑K10-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 Securities and Exchange Commission,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 Company representatives.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,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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Risks Related to Our Operations

Challenging economic conditions mayHealth concerns arising from the recent global coronavirus COVID-19 outbreak or other diseases 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 impactfuture 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 factorsconditions 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, and limitations on capacity or other restrictions on operations due to the spread of the COVID-19 virus. Even if such mandatory measures are limited or withdrawn, 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.

The complete Integration of 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 also cause us not to realize some or our franchiseesall of the anticipated benefits and synergies of the acquisition.

The Granite City acquisition has involved 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. Due to among other things, reduce the numberacquisition of Granite City immediately prior to the declaration of the COVID-19 pandemic, many steps in the full integration of Granite City had to be delayed and/or were not completed in the restaurants as we were unable to judge the extent of integration steps with full capacity seating. The operations of the Granite City concept can lead us to incur unknown or new types of costs and frequency ofliabilities, subject us to new restaurant openings, impair the assets of or close restaurantsregulatory and compliance frameworks, new market risks, involve operations in new geographies and challenging labor, regulatory and tax regimes as well as delay remodelingthe 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 existing restaurant locations. Further, poor economic conditionsthe anticipated benefits and synergies of the Granite City acquisition.

Uncertainties associated with the acquisition may force nearbyadversely 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 shut down,retain customers, adversely affecting either or both concept’s respective businesses and operations, which could cause our restaurant locationsus not to be less attractive.realize some or all of the anticipated benefits of the Granite City acquisition.

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A failure to maintain continued compliance with the financial covenants of our credit facilityfacilities may result in termination of the credit facilityfacilities and may have a material adverse effect on our ability to accomplish our business objectives.

On December 2, 2016,June 20, 2019, we and certain of our affiliates entered into a creditloan arrangement with Venture BankChoice Financial Corp. (“Choice”) providing for three separate loans with aggregate borrowingsa term loan in the principal amount of $11.0$24.0 million (the "Credit Facility"“Term Note”). We are subject to various financial and non-financial covenants under the Credit Facility,their Term Loan, including a minimum debt-service coverage ratio.

In April and May of 2020, FDA, Granite City, Inc. and BBQ Ventures, Inc., wholly-owned operating subsidiaries of the Company and Mercury BBQ, a partially owned operating subsidiary of the Company, entered into promissory notes (“PPP Loans”) with Choice under the Paycheck Protection Program (“PPP”). 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, and 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. As of December 31, 2017,January 3, 2021, we were in compliance with all of our covenants;covenants under the Term Loan and PPP Loans; 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 Venture BankChoice would be within its rights to accelerate the maturity dates of any amountsamount owed on our existing loans. 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 loans.Term Loan. Replacement financing may be unavailable to us on similar terms or at all. Termination of our existing loansloan 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 PPP loans may be subject to audit, may not be forgivable and may eventually have to be repaid.

The PPP Loans are subject to forgiveness under the PPP upon the Company’s request to the extent that the proceeds are used to pay expenses permitted by the PPP, including payroll costs, covered rent and mortgage obligations, and covered utility payments.

The U.S. Department of the Treasury has announced that it will conduct audits for loans made pursuant to the PPP that exceed $2 million. Should we be audited or reviewed by the U.S. Department of the Treasury or the Small Business Administration as a result of the PPP Loans or filing an application for forgiveness or otherwise, such audit or review could result in the diversion of management’s time and attention, generate negative publicity and cause us to incur legal and reputational costs. If we were to be audited and receive an adverse outcome in such an audit, we could be required to return the full amount of the PPP Loan and may potentially be subject to civil and criminal fines and penalties. We may not have the resources to repay the PPP Loans if required to do so by the federal government.

The Company cannot provide assurance that the principal and interest amounts under the PPP Loans will be forgiven. If all or substantially all of the PPP Loans are not forgiven or it is subsequently determined that they must be repaid, we may be required to repay the PPP Loans. Any such repayment of the PPP Loans will reduce the funds available to us for working capital and other corporate purposes and may limit our ability to obtain additional financing. Additionally, though we believe we are eligible for the PPP Loans under the PPP, our receipt of the PPP Loans could result in negative publicity, or expose us to liability under the federal False Claims Act, which prohibits the known filing of a false claim or the known use of false statements to obtain payment from the federal government, if it is determined that we were in fact not eligible to take the PPP Loans in the first instance.

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Our future revenue, operating income, and cash flows are dependent on consumer preference and our ability to successfully execute our plan.

Our Company'scompany’s future revenue and operating income will depend upon various factors, including continued and additional market acceptance of the Famous Dave's brand,BBQ Holdings brands and new operating platforms, the quality of our restaurant operations, our ability to grow our brand,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 Famous Dave'sBBQ Holdings restaurants are or will be located, economic conditions affecting disposable consumer income, general economic conditions and the continued popularity of the Famous Dave's concept.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.

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.

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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.

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. We are also pursuing a strategic "re-franchising" initiative to transition our Company-owned restaurants into franchised locations. Our ability to successfully franchise additional restaurants andor 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 the Company or 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 Famous Dave's brand.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 Famous Dave'sBBQ 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 Famous Dave's brand.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 are subject to risks associated with long-term non-cancellable leases and the costs of exiting leases at restaurants we have closed or may close in the future may be greater than we estimate or could be greater than the funds we raise to address closure costs.

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Payments under our operating leases account for a significant portion of our operating expenses and we expect the new restaurants we open in the future will similarly be leased. Our leases generally have an initial term of ten years and generally can be extended only in five-year increments (at increased rates). All of our leases require a fixed annual rent, although some require the payment of additional rent if restaurant sales exceed a negotiated amount. Generally, our leases are “net” leases, which require us to pay all of the cost of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. In connection with closing restaurants, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of our leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to pay increased occupancy costs or to close restaurants in desirable locations.

WeAs part of our business strategy, we have effected, and may continue to effect, acquisitions of and joint ventures with additional brands. Failure to find suitable candidates or successfully integrate any such brands could negatively impact our future growth.

As part of our growth strategy, we have acquired, and entered into joint ventures with, new brands. In the future, we may not be able to find other suitable acquisition and joint venture candidates at acceptable prices, and we may not be able to complete these acquisitions.

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Additionally, we may experience difficulties in integrating new brands, including coordinating and consolidating geographically separated systems and facilities, retraining and integrating the management and personnel of the acquired brands, combining financial accounting and reporting systems, establishing and maintaining effective internal control over financial reporting, and implementing operational procedures and disciplines to control costs and increase profitability. We may also be required to obtain additional financing to fund future acquisitions, but there can be no assurance that we will be able to obtain such additional financing on acceptable terms or at all.

Development initiatives outside our core business could result in adverse consequences.

Our business expansion into non-traditional restaurant formats, including restaurants with a smaller footprint, restaurants located in non-traditional locations and restaurants that operate on a delivery-only and/or ghost kitchen basis, could create new operating and reputational risks

We may not be successful in maintaining or expanding our international footprint.

Our current franchise program includes four restaurants in the Commonwealth of Puerto Rico, one restaurant in Manitoba, Canada, and threefive 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.

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, increases to minimum wage requirements, workers' compensation and citizenship requirements. 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. In 2014, the general counsel's office of the National Labor Relations Board issued complaints naming the McDonald's Corporation as a joint employer of workers at its franchisees for alleged violations of the Fair Labor Standards Act. There can be no assurance that other franchisors will not receive similar complaints in the future which may result in legal proceedings based on the actions of its 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.

The Affordable Care Act requires restaurant companies such as ours to disclose calorie information on their menus beginning in May 2018. We do not expect to incur any material costs from compliance with this provision, but 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.

U.S. federal income tax reform could adversely affect usus.

OnDue tax law changes in December 22, 2017, President Donald Trump signed into law sweeping tax reform, which overhauls individual, businessnet interest expense deductions are limited to 30% of adjusted taxable income and international taxes including, but notthe net operating loss deduction is limited to:

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Reducing the corporate federal statutory tax rate to 21%

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Limiting net interest expense deductions to 30% of adjusted taxable income

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Limiting the net operating loss deduction to 80% of taxable income

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       The reduction in tax rate causedtaxable income. With the valuationenactment of ourthe Coronavirus Aid, Relief, and Economic Security Act (“CARES”) legislation, the net deferred tax assetinterest expense limitation increased from 30% to decrease, as a result of which we recognized deferred tax expense of $1.8 million.50% for 2019 and 2020. 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

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losses generated before December 31, 2017 has not changed, subsequent tax losses generated in fiscal 2018 and beyond will only be able to offset 80% of taxable income, although the losses may be carried forward indefinitely. This could cause us toAs such, we may have to pay federal income taxes in the future despite generating ahaving significant net operating loss carryforwards for federal income tax purposes in the future. We continue to work with our tax advisors to determine the full impact that the new tax bill will have on our Company.

Staff Accounting Bulletin 118 outlines the approach that companies may take if essential information related to the new tax law is not available in reasonable detail by the time the financial statements are filed. We believe that we have reflected all of the material impacts of the New Tax Law in our consolidated financial statements as of the year ended December 31, 2017 and that there are no open items; however, our estimates will be finalized throughout fiscal 2018 as we complete our income tax returns for the fiscal year ended December 31, 2017.

We have a material weakness in our internal control over financial reporting.

Our management has identified a material weakness in our internal control over financial reporting and as a result concluded that our disclosure controls and procedures were not effective as of December 31, 2017. Specifically, management concluded that we did not maintain effective controls surrounding the preparation of our income tax provision and the use of Excel spreadsheets.While the material weakness did not result in any material or immaterial misstatements to our previously filed financial statements, the control deficiency could increase the likelihood of inaccuracies in our financial statements. Although management is in the process of developing and implementing a plan to remediate the deficiency in internal control, there is no assurance that the plan will remediate the material weakness or ensure that our internal controls over financial reporting will be effective in the future which could have a material adverse effect on our business, including, among other things, our ability to access the capital markets and our ability to provide accurate financial information.

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.

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purposes.

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 the Company,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.

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. Furthermore, we accept creditOur ability to effectively and debit cardefficiently 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 restaurants. 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'customers’ consumer data or our team members'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 Famous Dave'sBBQ Holdings brand reputation.

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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.

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We may be unable to reduce our general and administrative expenses to the previously announced intended levels.

We recently announced our goal to reduce our general and administrative expenses to $8 million in 2018. While we believe that this goal is achievable, there can be no assurance that we will be able to reduce our general and administrative expenses to this level within our intended time frame or at all. The bonus compensation of our Chief Executive Officer and Chief Operating Officer is tied to our share price, such that increases in our share price entitle them to grants of shares of our common stock or cash. These grants of our common stock are fully vested upon issuance, which will result in an immediate general and administrative expense charge when granted. While we cannot predict the future price of our shares, a significant increase in the price will result in our recognition of significant additional compensation expense.

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.

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. For example, Hurricane Harvey and Hurricane Irma forced several of our franchise-operated restaurants to close for an extended period of time. Severe winter weather conditions have also impacted our customer traffic and results of operations in the past.

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.

During fiscal 2017, we recognized aggregate losses of $10.3 million in continuing and discontinued operations related to losses on the sales of restaurants, asset impairment, estimated lease termination and other closing costs. As we continue to execute on our re-franchising initiative, we expect to incur additional impairment charges.

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 ofrestaurant 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.

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.

Risks Related to Our Industry

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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.

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.

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.

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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.

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.

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

22

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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”).

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.

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.

Risks Related to Ownership of Our Common Stock

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 Companycompany 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 Companycompany to use its assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.

Pursuant23

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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.

Anti-takeover provisions in Minnesota law might discourage or delay acquisition attempts for us that you might consider favorable.

We are subject to the provisions of Section 302A.673 of the Minnesota Business Corporation Act, which regulates business combinations. Section 302A.673 generally prohibits any business combination by an issuing public corporation, or any of its subsidiaries, with an interested shareholder, which means any shareholder that purchases 10% or more of our voting shares within four years following the date the person became an interested shareholder, unless the business combination is approved by a committee composed solely of one or more disinterested members of our Board before the date the person became an interested shareholder.

We are also subject to Section 302A.675 of the Minnesota Business Corporation Act, which 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 may sell their shares to the offeror upon substantially equivalent terms as those provided in the earlier takeover offer. This provision does not apply if the share acquisition is approved by a committee of disinterested members of our Board before the purchase of any shares by the offeror pursuant to the earlier takeover offer.

These anti-takeover provisions could discourage, delay or prevent a transaction involving a change in control of our Company, even if doing so would benefit our shareholders.

​

​

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 31, 2017:January 3, 2021:

 

 

 

 

 

 

 

 

 

 

 

Square

 

Interior

 

Owned or

 

Date

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Square

​

Owned or

​

Date

Location

Location

    

Footage

    

Seats

    

Leased

 

Opened/Acquired

Location

​

Brand

    

Footage

    

Leased

​

Opened/Acquired

1

Roseville, MN (3)

 

4,800

 

105

 

Leased

 

June 1996

Roseville, MN

​

Famous Dave's

 

4,800

 

Leased

​

6/10/1996

2

Calhoun Square (Minneapolis, MN)

 

10,500

 

380

 

Leased

 

September 1996

Maple Grove, MN

​

Famous Dave's

 

6,132

 

Leased

​

4/28/1997

3

Maple Grove, MN

 

6,100

 

146

 

Leased(1)

 

April 1997

Highland Park, MN

​

Famous Dave's

 

5,200

 

Leased

​

6/16/1997

4

Highland Park (St. Paul, MN)(3)

 

5,200

 

125

 

Leased

 

June 1997

Apple Valley, MN

​

Famous Dave's

 

3,800

 

Leased

​

7/18/1997

5

Apple Valley, MN(3)

 

3,800

 

90

 

Leased(1)

 

July 1997

Forest Lake, MN

​

Famous Dave's

 

4,875

 

Leased

​

10/13/1997

6

Forest Lake, MN(3)

 

4,500

 

100

 

Leased

 

October 1997

Minnetonka, MN

​

Famous Dave's

 

5,500

 

Leased

​

12/20/1997

7

Minnetonka, MN

 

5,500

 

140

 

Owned(2)

 

December 1997

Plymouth, MN

​

Famous Dave's

 

4,094

 

Owned

​

12/29/1997

8

Plymouth, MN(3)

 

2,100

 

49

 

Owned(2)

 

December 1997

Des Moines (West), IA

​

Famous Dave's

 

5,370

 

Leased

​

4/10/1998

9

West Des Moines, IA

 

5,700

 

150

 

Leased

 

April 1998

Woodbury, MN

​

Famous Dave's

 

5,900

 

Owned

​

10/27/1998

10

Woodbury, MN

 

5,900

 

180

 

Owned(2)

 

October 1998

Westbury, NY

​

Famous Dave's

 

6,930

 

Leased

​

10/25/2005

11

Coon Rapids, MN

 

6,300

 

160

 

Owned(2)

 

December 2006

Mountainside, NJ

​

Famous Dave's

 

8,674

 

Leased

​

3/25/2002

12

Brick, NJ

 

5,200

 

181

 

Leased

 

March 2010

Janesville, WI

​

Famous Dave's

​

4,100

​

Leased

​

8/7/2018

13

Mays Landing, NJ

 

6,400

 

237

 

Leased

 

March 2010

Greenwood, IN

​

Famous Dave's

 

5,700

 

Leased

​

10/9/2018

14

Westbury, NY

 

6,400

 

276

 

Leased

 

March 2010

Aurora, CO

​

Famous Dave's

 

6,727

 

Leased

​

3/5/2019

15

Mountainside, NJ

 

8,800

 

253

 

Leased

 

March 2010

Grand Junction, CO

​

Famous Dave's

 

6,800

 

Leased

​

6/4/2019

16

Metuchen, NJ

 

6,200

 

176

 

Leased

 

March 2010

Stapleton, CO

​

Famous Dave's

 

6,000

 

Leased

​

3/5/2019

17

Thornton, CO

​

Famous Dave's

 

6,500

 

Leased

​

3/5/2019

18

Madison, WI

​

Famous Dave's

 

4,298

 

Leased

​

5/15/2019

19

Greenfield, WI

​

Famous Dave's

 

6,700

 

Leased

​

5/15/2019

20

Flint, MI

​

Famous Dave's

 

5,626

 

Leased

​

5/1/2019

21

Saginaw, MI

​

Famous Dave's

 

6,157

 

Leased

​

5/1/2019

22

Toledo, OH

​

Famous Dave's

 

5,533

 

Leased

​

5/1/2019

23

Peoria, AZ

​

Famous Dave's

 

6,500

 

Leased

​

7/11/2019

24

Chandler, AZ

​

Famous Dave's

 

6,500

 

Leased

​

7/11/2019

25

Mesa, AZ

​

Famous Dave's

 

6,500

 

Leased

​

7/11/2019

26

Cedar Falls, IA

​

Famous Dave's

 

5,400

 

Leased

​

6/18/2019

27

Minneapolis, MN

​

Famous Dave's

​

3,000

​

Leased

​

12/19/2019

28

St. Cloud, MN

​

Granite City

​

10,000

​

Leased

​

3/9/2020

29

Sioux Falls, SD

​

Granite City

​

10,600

​

Leased

​

3/9/2020

30

Fargo, ND

​

Granite City

​

9,276

​

Leased

​

3/9/2020

31

Cedar Rapids, IA

​

Granite City

​

9,449

​

Leased

​

3/9/2020

32

Davenport, IA

​

Granite City

​

9,449

​

Leased

​

3/9/2020

33

Lincoln, NE

​

Granite City

​

9,449

​

Leased

​

3/9/2020

34

Maple Grove, MN

​

Granite City

​

9,449

​

Leased

​

3/9/2020

35

Eagan, MN

​

Granite City

​

7,600

​

Leased

​

3/9/2020

36

Kansas City, MO

​

Granite City

​

9,449

​

Leased

​

3/9/2020

37

Kansas City, KS

​

Granite City

​

9,449

​

Leased

​

3/9/2020

38

Roseville, MN

​

Granite City

​

9,531

​

Leased

​

3/9/2020

39

Ft.Wayne, IN

​

Granite City

​

8,550

​

Leased

​

3/9/2020

40

Creve Coeur, MO

​

Granite City

​

11,360

​

Leased

​

3/9/2020

41

Troy, MI

​

Granite City

​

9,830

​

Leased

​

3/9/2020

42

Franklin, TN

​

Granite City

​

9,815

​

Leased

​

3/9/2020

43

Naperville, IL

​

Granite City

​

10,803

​

Leased

​

3/9/2020

44

Northville, MI

​

Granite City

​

10,491

​

Leased

​

3/9/2020

45

Schaumburg, IL

​

Granite City

​

10,802

​

Leased

​

3/9/2020

46

Oklahoma City, OK

​

Clark Crew BBQ

​

8,500

​

Leased

​

12/9/2019

47

Vernon Hills, IL

​

Real Urban BBQ

​

3,511

​

Leased

​

3/16/2020

25

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​

All seat count and square footage amounts arelisted is approximate. Interior seating ranges from approximately 50 at our counter service locations to approximately 275 at our full service restaurants.

(1)

Restaurant is collateral in a financing lease.

(2)

Restaurant land and building are owned by the Company.

(3)

Counter service restaurant

​

Our Minnesota executive offices are currently located in approximately 7,00010,946 square feet in Minnetonka, Minnesota. Our executive office lease expires in November 2018.2025. During 2015, our 8,400‑square8,400-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 “Commitments9 Commitments and Contingencies”Contingencies of the notes to the accompanying consolidated financial statements included in this Annual Report on Form 10‑K10-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,10-K, we are not a party to any material pending legal proceedings.

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 DAVE.BBQ. Currently, our common stock trades on the Nasdaq Global Market.

20

The following table summarizes the high and low closing prices per share of our common stock for the periods indicated, as reported on the Nasdaq Global Market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

2016

Period

    

High

    

Low

    

High

    

Low

1st Quarter

 

$

6.15

 

$

3.90

 

$

7.05

 

$

5.01

2nd Quarter

 

$

4.50

 

$

3.50

 

$

6.14

 

$

4.75

3rd Quarter

 

$

4.65

 

$

3.40

 

$

6.73

 

$

4.99

4th Quarter

 

$

7.30

 

$

3.55

 

$

5.53

 

$

4.42

Holders

As of February 20, 2018,March 24, 2021, we had approximately 33687 shareholders of record and approximately 3,6063,184 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, and repurchase our common stock.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),

26

Table of Contents

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 required by Item 201(d)as of Regulation S-K is hereby incorporated by referenceJanuary 3, 2021, with respect to Item 12. Security Ownership of Certain Beneficial Ownersthe 2005 Plan and Management and Related Stockholder Matters.the 2015 Plan.

​

​

​

​

​

​

​

​

​

​

​

​

Weighted-

​

Number of Securities

​

​

​

​

Average

​

Remaining Available for

​

​

Number of Securities

​

Exercise Price

​

Future Issuance Under

​

​

to be Issued Upon

​

of Outstanding

​

Equity Compensation

​

​

Exercise of

​

Options,

​

Plans (Excluding

​

​

Outstanding Options

​

Warrants and

​

Securities Reflected in

​

​

Warrants and Rights

​

Rights

​

Column (A))

Plan Category

    

(A)

    

(B)

    

(C)

Equity compensation plans approved by shareholders:

 

  

 

​

  

 

  

2005 Stock Incentive Plan

 

250

​

$

28.53

 

—

2015 Stock Incentive Plan

 

574,750

​

​

4.48

 

169,440

TOTAL

 

575,000

​

$

4.49

 

169,440

​

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 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 as aon March 29, 2019 under the laws of the State of Minnesota, corporationwhile FDA was incorporated in Minnesota on March 199414, 1994. We develop, own and opened its first restaurant in Minneapolis in June 1995.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 December 31, 2017,January 3, 2021, there were 150125 Famous Dave’s restaurants operating in 3231 states, the Commonwealth of Puerto Rico, Canada, and the United Arab Emirates, including 1627 Company-owned restaurants and 13498 franchise-operated restaurants. An additional 61Included in the Famous Dave’s company-owned restaurant total are four restaurants were committed to be developed throughpurchased in July 2019 in Arizona (“Arizona Restaurants’) and four restaurants purchased in March 2019 in Colorado (“Colorado 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. In October 2020, we signed areaa 25-unit development agreements as of December 31, 2017.agreement with Bluestone Hospitality Group (“Bluestone”) whereby Bluestone will open Famous Dave’s ghost kitchens and dual restaurant concepts with the Johnny Carino’s Italian brand.

​

​

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Impact of the COVID-19 Virus on our business

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic and the United States declared a National Public Health Emergency. As a result, public health measures were taken to minimize exposure to the virus. These measures, some of which are government-mandated, were 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 company’s business. From mid-March through April, all of our Company-owned restaurants operated 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. Beginning in May, we gradually began opening our restaurants for dine-in at 25% to 50% capacity pursuant to the regulations of the jurisdictions in which we operate. While all but one of our Company-owned restaurants began operating under limited-capacity in-store dining by mid-June 2020, in late October, some locations were required to reduce or eliminate in-store dining due to new COVID restrictions (Note 1 Nature of Business and Significant Accounting Policies). Due to the rapid development and fluidity of this situation, we cannot determine the ultimate impact that the COVID-19 pandemic will have on our consolidated financial condition, liquidity, and future results of operations.

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 yearsyear ended January 3, 2021 (fiscal 2020) consisted of 53 weeks while the fiscal year ended December 31, 201729, 2019 (fiscal 2017) and January 1, 2017 (fiscal 2016)2019) consisted of 52 weeks. Fiscal 2018, which ends on December 30, 2018, will consist of 52 weeks.

Basis of Presentation

Thefinancial 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’scompany’s significant accounting policies are described in Note 1Nature of Business and Significant Accounting Policies 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.

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Recognition of Franchise-Related Revenue

Beginning in fiscal 2018, we will be required to adopt ASC 606 –Revenue from Contracts with Customers. See Note 1 “Nature of Business and Significant Accounting Policies” the notes to the accompanying financial statements for more information.

InitialWe recognize franchise fee revenue is recognized when we have performed substantially allon a straight-line basis over the life of our obligations as franchisor. Franchise royaltiesthe related franchise agreements and any exercised renewal periods. Cash payments are recognized when earned.

due upon the opening of a new restaurant or upon the execution of a renewal of the related franchise agreement. Our franchise-related revenue is comprised of three separate and distinct earnings processes:  area development fees, initialperformance obligation with respect to franchise fees and continuing royalty payments. Currently, our area development fee for domestic growthrevenues consists of a one-time, non-refundable paymentlicense to utilize our brand for a specified period of approximately $10,000 pertime, which is satisfied equally over the life of each franchise agreement.

Area development fees are deferred until a new 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 incurredopened pursuant to sell that development agreement. Substantially all of these services, which include, but are not limited to, a review of the potential franchisee’s current operations, conducting market and trade area analysis, a meeting with Famous Dave’s Executive Team, and performing a potential franchise background investigation, are completed prior to our execution of the area development agreement, and receiptat which time revenue is recognized on a straight-line basis over the life of the correspondingfranchise agreement. Cash payments for area development fee. As a result, we recognize this fee in full upon receipt. We recognize a portion of any franchise fees received upon signingagreements 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 agreement if we have incurred expenses. consolidated statements of operations.

The remaining non-refundable fee is included in deferred franchise feesCompany reports contributions from franchisees to our company’s system-wide Public Relations and is recognized as revenue when we have performed substantially allMarketing Development Fund (the “NAF”) on a gross basis within the franchisee national advertising fund contributions line item on the consolidated statements of our obligations, which generally occurs upon the franchise entering into a lease agreement for the restaurant(s). Finally, franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales.operations.

22

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; and restaurant depreciation and amortization.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 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-Trainingmanagers-in-training (“MITs”) 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.

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Asset Impairment, and 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 recognize lease expensethe 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 leaseslease 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 entire lease term, including leaseany renewal options where the renewal is reasonably assured andat the build-out period takes place prior to the restaurant opening or lease 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, depreciatingand 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, amortizing the construction allowance as a credit to rent expense over the full term of the lease, including renewal options and build-out periods, and relieving the receivable once the cash is obtained from the landlord for the construction allowance.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 wereare capitalized as indefinite-lived intangible assets and are included in intangible assets, net in our consolidated balance sheets as of December 31, 2017 and January 1, 2017.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.

23

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.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. AccountsIn fiscal 2020, we recorded approximately $403,000 in bad debt related to the discount we offered franchisees on deferred payments remitted prior to June 30, 2020 as described in Note 1 Nature of Business and Significant Accounting Policies to the financial statements. Exclusive of that one-time adjustment, 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

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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 the 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 to the accompanying financial statements for more information.

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. These 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 the Company believeswe believe that itsour 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 20172020 Compared to Fiscal Year 20162019

The following table presents items in our consolidated statements of operations as a percentage of net restaurant sales or to

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:

​

​

​

​

​

​

​

Year Ended

​

​

​

January 3, 2021

    

December 29, 2019

    

    

Food and beverage costs(1)

30.9

%  

31.4

%  

 

Labor and benefits costs(1)

34.0

%  

35.8

%  

 

Operating expenses(1)

33.8

%  

32.9

%  

 

Restaurant level operating margin(1)(3)  

1.3

%  

(0.1)

%  

 

Depreciation and amortization expenses(2)

4.2

%  

2.7

%  

 

General and administrative expenses(2)

11.9

%  

13.2

%  

 

(Loss) income from operations(2)

(9.2)

%  

(1.9)

%  

 

 

 

 

 

 

 

 

Year Ended

 

 

 

December 31,

 

January 1,

 

 

 

2017

 

2017

    

    

Food and beverage costs(1)

30.2

%  

31.0

%  

 

Labor and benefits costs(1)

36.1

%  

35.6

%  

 

Operating expenses(1)

30.0

%  

31.8

%  

 

Restaurant level operating margin(1)(3)  

3.6

%  

1.6

%  

 

Depreciation and amortization expenses (2)

4.3

%  

3.7

%  

 

General and administrative(2)

22.7

%  

21.6

%  

 

Loss from continuing operations(2)

(10.5)

%  

(7.2)

%  

 

(1)

(1)

As a percentage of restaurant sales, net

(2)

(2)

As a percentage of total revenue

(3)

(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 January 3, 2021 and December 31, 2017 and January 1, 2017:29, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31,

 

January 1,

 

 

 

 

 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

(dollars in thousands)

 

2017

 

2017

 

$ Change

 

% Change

 

​

January 3, 2021

​

December 29, 2019

   

​

$ Change

    

% Change

​

Revenue:

 

 

  

 

 

  

 

 

  

 

 

  

 

​

​

  

 

​

  

​

​

​

  

 

​

  

​

Restaurant sales, net

 

$

48,874

 

$

58,956

 

$

(10,082)

 

 

(17.1)

%

​

$

109,544

​

$

68,564

​

​

$

40,980

​

​

59.8

%

Franchise royalty revenue

 

 

14,767

 

 

16,665

 

 

(1,898)

 

 

(11.4)

%

Franchise royalty and fee revenue

​

 

8,919

​

 

12,126

​

​

 

(3,207)

​

 

(26.4)

%

Franchisee national advertising fund contributions

​

​

1,124

​

​

1,616

​

​

​

(492)

​

​

(30.4)

%

Licensing and other revenue

 

 

954

 

 

1,003

 

 

(49)

 

 

(4.9)

%

​

 

1,850

​

 

1,249

​

​

 

601

​

 

48.1

%

Total revenue

 

$

64,595

 

$

76,624

 

$

(12,029)

 

 

(15.7)

%

​

$

121,437

​

$

83,555

​

​

$

37,882

​

 

45.3

%

​

The declineincrease in year-over-year restaurant sales net for the year ended December 31, 2017January 3, 2021 as compared to the year ended January 1, 2017December 29, 2019 was primarily a result of the closurenet increase of 1314 full service Company-owned restaurants. The impactrestaurants during fiscal 2020, as a result of these closures was partially offset by a 2.4% increasethe acquisition of the Arizona Restaurants, Colorado Restaurants and the Granite City Acquisition. Same store net sales for Company-owned restaurants for fiscal year 2020, decreased 8.5% compared to fiscal year 2019. It is our policy to include in same-storeour same store net sales during the year ended December 31, 2017.base, restaurants that have been open for 12 months under our company’s ownership. On a weighted basis, for the year ended December 31, 2017, Dine-InJanuary 3, 2021, dine-in sales decreased by 0.6%,46.3% while To Go and Cateringto-go sales increased 2.6%by 72.6% driven by third-party delivery sales and 0.4%, respectively, highlightingcurb-side pickup due to the successunavailability of our initiativesdine-in options as a result of the COVID-19 pandemic. Catering same store sales decreased 54.6% for fiscal year 2020 compared to fiscal year 2019 as a result of group activities being eliminated or reduced in these areas. Ascapacity as a percentageresult of Dine-In sales, our adult beverage sales at Company-owned restaurants was approximately 12.0% and 11.4%, respectively, during the fiscal years ended December 31, 2017 and January 1, 2017, an increase of 5.3%.COVID-19 pandemic.

We have been making significant investments in programs aimed at increasing To-Go, Cateringto-go and Adult Beveragecatering sales at Famous Dave’sall our BBQ Holdings restaurants. For example, during the first half of fiscal 2017, we designed and implemented a signature beverage program aimed at increasing liquor sales at our Company-owned stores, which have higher margins than beer and wine. We have been training our franchise groups on the signature beverage throughout fiscal 2017 and expect to train the remainder of participating franchisees during the first quarter of fiscal 2018. We have also expanded the online ordering program in certain franchise-operated restaurants, and will continue to assist participating franchisees with implementation during early 2018. We have rolled out delivery programs with various third-party services, which we believe, along with online ordering, will continue to augment our To Goto-go and catering sales in the future. We believe our focus on to-go enables us to capture a greater portion of the “take-out” market by allowing consumers to “trade within our brands,” when dining in is not always an option. We believe that these innovations will provide additional avenues for our franchisees to grow their respective businesses.

The declinedecrease in year-over-year franchise-related revenue was primarily a resultdue to the elimination of the net closuredine-in option for our guests in much of 13 franchise-operated restaurantsfiscal year 2020 due to state regulations caused by the pandemic. Licensing and a 2.3% decrease in same-storeother revenue, which is primarily derived from retail sales duringof Famous Dave’s branded sauces, rubs, Real Urban Barbeque consumer packaged goods, and the year ended December 31, 2017. Initial franchise fee revenue also declined from $290,000sale of raw brewing products produced at the Granite City brewing facility increased approximately $601,000 in fiscal 2016 to $35,000 in2020 over fiscal 2017. These decreases were partially offset by the refranchising of eight Company-owned restaurants during the fourth quarter of fiscal 2017.

25

year 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:

​

​

​

​

​

​

​

​

​

Year Ended

​

    

January 3, 2021

    

December 29, 2019

Average Weekly Net Sales (AWS):

 

​

  

​

​

​

Franchise-Operated(1)

​

$

42,612

​

$

51,432

Company-Owned

​

​

44,093

​

​

47,642

 

 

 

 

 

 

 

 

 

Year Ended

 

    

December 31, 2017

 

January 1, 2017

Average Weekly Net Sales (AWS):

 

 

  

 

 

 

Franchise-Operated(1)

 

$

47,192

 

$

47,909

Company-Owned

 

 

44,330

 

 

42,365

Full-Service

 

 

45,865

 

 

43,348

Counter-Service

 

 

36,846

 

 

36,073

 

 

 

 

 

 

 

Operating Weeks:

 

 

 

 

 

 

Franchise-Operated

 

 

6,993

 

 

7,203

Company-Owned

 

 

1,527

 

 

1,924

(1)

(1)

AWS for franchise-operated restaurants are not ourrecognized as Company-owned 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 Famous Dave’sBBQ 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 Famous Dave’sBBQ Holdings brand. It also provides a

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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 January 3, 2021 and December 31, 2017 and January 1, 2017:29, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

December 31,

 

January 1,

 

 

 

 

 

(dollars in thousands)

 

2017

 

2017

 

$ Change

 

% Change

 

Food and beverage costs

 

$

14,782

 

$

18,299

 

$

(3,517)

 

 

(19.2)

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

(dollars in thousands)

​

January 3, 2021

​

December 29, 2019

   

​

$ Change

    

% Change

​

Food and beverage costs

​

$

33,867

​

$

21,541

​

​

$

12,326

​

​

57.2

%

Food and beverage costs for the fiscal years ended January 3, 2021 and December 31, 2017 and January 1, 201729, 2019 represented approximately 30.2%30.9% and 31.0%31.4% of net restaurant sales, respectively. This year-over-year decrease, as a percentage of net restaurant sales, primarily resulted from internal initiatives aimed at reducing food waste.was a result of the reduction of menu items offered as the restaurants reacted to the increase in to-go business and limited in-store dining due to COVID-19 restrictions.

Labor and Benefits Costs

Our labor and benefits costs consisted of the following for the fiscal years ended January 3, 2021 and December 31, 2017 and January 1, 2017.29, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31,

 

January 1,

 

 

 

 

 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

(dollars in thousands)

 

2017

 

2017

 

$ Change

 

% Change

 

​

January 3, 2021

​

December 29, 2019

   

​

$ Change

    

% Change

​

Labor and benefits costs

 

$

17,653

 

$

21,008

 

$

(3,355)

 

 

(16.0)

%

​

$

37,228

​

$

24,565

​

​

$

12,663

​

​

51.5

%

Labor and benefits costs for the fiscal years ended January 3, 2021 and December 31, 2017 and January 1, 201729, 2019 were approximately 36.1%34.0% and 35.6%35.8% of net restaurant sales, respectively. Labor and benefit costs increasedThe year-over-year decrease during the year ended January 3, 2021, as a percentage of net restaurant sales, duewas driven by in part by a concerted effort by management to increased managementincrease efficiency at the restaurants and in part by the decrease in labor wage rate inflation and benefitneeded as dining room closures were mandated as a result of COVID-19. The Company furloughted approximately 77% of its workforce as a means to control labor costs.

26

Operating Expenses

Our operating expenses consisted of the following for the fiscal years ended January 3, 2021 and December 31, 2017 and January 1, 2017:29, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31,

 

January 1,

 

 

 

 

 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

(dollars in thousands)

 

2017

 

2017

 

$ Change

 

% Change

 

​

January 3, 2021

​

December 29, 2019

   

​

$ Change

    

% Change

​

Operating expenses

 

$

14,658

 

$

18,729

 

$

(4,071)

 

 

(21.7)

%

​

$

36,984

​

$

22,555

​

​

$

14,429

​

​

64.0

%

Operating expenses for the fiscal years ended January 3, 2021 and December 31, 2017 and January 1, 201729, 2019 were approximately 30.0%33.8% and 31.8%32.9% of net restaurant sales, respectively. Operating expenses,This year over year increase in expense as a percentage of net restaurant sales were favorablewas due primarily to the prior year due to reduced occupancy costs and advertising.revenue resulting from the effects of COVID-19.

Depreciation and Amortization

Depreciation and amortization expense for the fiscal years ended January 3, 2021 and December 31, 2017 and January 1, 201729, 2019 was approximately $2.8$5.1 million and $2.9$2.2 million, respectively, representing approximately 4.3%4.2% and 3.7%2.7% of total revenues, respectively. The increaseDepreciation and amortization expense increased during the year ended December 31, 2017 isJanuary 3, 2021 primarily as a result of shortening the useful lifeaddition of certainCompany-owned restaurants.

33

Table of our restaurants that have been slated for closure significantly before the end of their previous useful lives. We incur elevated depreciation expense on these restaurants until they are fully depreciated or ultimately closed and the assets had been disposed.Contents

General and Administrative Expenses

Our general and administrative expenses consisted of the following for the fiscal years ended December 31, 2017 and January 1, 2017:presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31,

 

January 1,

 

 

 

 

 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

(dollars in thousands)

 

2017

 

2016

 

$ Change

 

% Change

 

​

January 3, 2021

​

December 29, 2019

   

​

$ Change

    

% Change

​

General and administrative expenses

 

$

14,634

 

$

16,569

 

$

(1,935)

 

 

(11.7)

%

​

$

14,395

​

$

10,992

​

​

$

3,403

​

​

31.0

%

The decrease in general​

General and administrative expenses was primarily related tofor the continued optimizationyears ended January 3, 2021 and December 29, 2019, represented approximately 11.9% and 13.2% of ourtotal revenues, respectively. While as a percentage of revenues general and administrative expense structure, reduceddecreased year over year, we incurred additional expenditure for acquisition costs incurred for the corporate office, third party services and professional fees. As a percentageongoing oversite of revenue, general and administrative expenses increased due to sales deleverage.

On November 13, 2017, we announced that we intended to take certain steps, over a 90-day period, to reduce our annual general and administrative expenses to $8.0 million. As of December 31, 2017, we have made significant progress towards this goal and intend to continue to optimize our general and administrative expense structure during the first half of the first quarter of fiscal 2018.

27

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

​

​

​

​

​

​

​

​

​

Year Ended

(dollars in thousands)

    

December 31, 2017

 

January 1, 2017

    

January 3, 2021

    

December 29, 2019

Restaurant Optimization

 

 

 

 

 

 

Asset impairments, net

 

$

3,154

 

$

4,426

​

$

5,532

​

$

282

Lease termination charges and related costs

 

 

3,403

 

 

 —

​

​

169

​

​

926

Restaurant closure expenses

 

 

259

 

 

206

​

​

(18)

​

​

88

Software

 

 

 —

 

 

156

Asset impairment, estimated lease termination and other closing costs

 

$

6,816

 

$

4,788

Asset impairment, estimated lease termination charges and other closing costs

​

$

5,683

​

$

1,296

During fiscal year 2020, we closed five Company-owned stores compared to four Company-owned stores in fiscal year 2019. In addition to the five locations we closed in fiscal years ended December 31, 2017 and January 1, 2017,year 2020, we embarked upon a restaurant optimization and refranchising initiative, which resulted inimpaired the ultimate closureassets of 13 underperforming Company-owned restaurants.four under-performing locations. These charges represented the write-offs of the impaired assets, as well as the net assets of closed restaurants, lease termination charges incurred with the early termination of leases, as well asand ongoing costs incurred related to closed restaurants. During the fiscal year ended January 1, 2017 we also incurred impairment charges related to the abandonment of a software-implementation project.

Total Other ExpenseIncome (Expense)

Total other expense for the fiscal years ended January 3, 2021 and December 31, 2017 and January 1, 201729, 2019 included of interest expense of $661,000$805,000 and $886,000,$494,000, respectively. We also incurred approximately $82,000 in other taxes not included in our income tax provision for the year ended December 31, 2017. These expenses were partially offset by interest income of approximately $22,000$154,000 and $2,000, respectively$215,000 during the fiscal years ended January 3, 2021 and December 31, 2017 and January 1, 2017.29, 2019, respectively. The decreaseincrease in interest expense was primarily related to a lower averagethe increase in outstanding debt balance partially offset byrelated to borrowings for the Granite City Acquisition and the PPP Loans obtained as a higher interest rateresult of the effects of COVID-19 on our current debt.business (Note 8 Long-term Debt). In fiscal year 2020, we recorded a gain on bargain purchase in conjunction with the Granite City acquisition in the amount of $13.2 million (Note 2 Restaurant Acquisition).

Income Tax Benefit

Income tax benefit included in continuing operations for the year ended January 3, 2021 and December 31, 201729, 2019 was $2.8 million and January 1, 2017 was $858,000 and $2.3 million, respectively, representing$659,000, respectively. This represents an effective tax rate of 11.5%(132.7)% and 35.6%52.2%, respectively. The decrease in our effective tax rate was primarily a resultrelates to the bargain purchase gain recognized on the Granite City Acquisition (Note 2 Restaurant Acquisition).

34

Table of tax reform signed into law in late 2017, which resulted in us revaluing our deferred tax assets and liabilities at a lower income tax rate, which offset the benefit of our net loss from continuing operations.Contents

(Loss) income from discontinued operations, net of taxes

During the year ended December 31, 2017, we sold eight restaurants in the Mid-Atlantic region to a franchisee. During the year ended January 1, 2017, we sold seven restaurants in the Chicago area to a franchisee. These 15 restaurants are reflected as discontinued operations throughout our consolidated financial statements. During the year ended December 31, 2017, we realized a loss of $1.5 million related to discontinued operations, net of taxes and during the year ended January 1, 2017, we realized income of approximately $1.7 million related to discontinued operations, net of taxes.

Basic and Diluted Net Income (Loss) Per Common Share

Our basic and diluted net income per common share for the year ended January 3, 2021 was $0.54 per share. Basic and diluted net loss per common share for the year ended December 31, 201729, 2019 was ($1.16)$0.07 per share, of which ($0.95) per share related to continuing operations and ($0.21) per share related to discontinued operations. Our basic and diluted net loss per share forshare. For the year ended January 1, 2017 was ($0.35) per share, of which we realized a loss of ($0.59) per share related to continuing operations and income of $0.24 per share related to discontinued operations. For the years ended December 31, 2017 and January 1, 2017,3, 2021, we had approximately 7,015,000basic and 6,950,000diluted weighted-average shares outstanding respectively.

28

approximately 9,155,000 and 9,168,000, respectively. For the year ended December 29, 2019, we had basic and diluted weighted-average shares outstanding of approximately 9,099,000.

Financial Condition, Liquidity and Capital Resources

Our balance of unrestricted cash and cash equivalents was approximately $8.8$19.6 million and $4.5$6.1 million as ofat January 3, 2021 and December 31, 201729, 2019, respectively. During fiscal year 2020, we drew approximately $8.1 million on our loan agreement with Choice Financial Group and January 1, 2017, respectively. received approximately $14.0 million in PPP Loans (Note 8 Long-Term Debt). We used cash to purchase one Real Urban Barbeque restaurant in Illinois and 18 Granite City restaurants in 11 states (Note 2 Restaurant Acquisition). We expect to utilize cash on hand and cash received from our forthcoming rights offering to reinvest in our brand and the evolution of our Company and to repay debt.company.

Our current ratio, which measures our immediate short-term liquidity, was 1.621.1 at January 3, 2021 compared with 1.0 as of December 31, 2017, compared with 1.47 as of January 1, 2017.29, 2019. The current ratio is computed by dividing total current assets by total current liabilities. The increase in our current ratio was primarily due to decreases in our net current liabilities and a slight increase in current assets.

Net cash provided by continuingoperating activities for the year ended January 3, 2021 was $2.1 million, which reflects net income of approximately $4.3 million reduced primarily by the $13.2 million non-cash bargain purchase gain on the Granite City Acquisition and increased by non-cash charges of approximately $12.3 million primarily due to depreciation and amortization, stock-based compensation, asset impairment/lease termination charges and bad debt expense. Changes in operating assets for the fiscal year ended January 3, 2021 primarily included cash outflows from a net increase in prepaids and other assets of $1.3 million, offset in part by cash inflows from the increase of accounts payable and other liabilities of $4.7 million.

Net cash provided by operating activities for the year ended December 31, 201729, 2019 was approximately $1.9$2.6 million, which reflects a net loss from continuing operations of approximately $6.7$1.2 million, increased by non-cash charges of approximately $7.2$3.7 million primarily relateddue to depreciation and amortization, stock-based compensation and asset impairment, estimated impairment/lease termination charges and reserves for bad debts.charges. Changes in operating assets and liabilities for the year ended December 31, 201729, 2019 primarily included net cash inflowsoutflows related to prepaid income taxes and income taxesaccounts receivable of $1.5 million, prepaid expenses and other current assets of $473,000, inventories$2.0 million offset in part by cash inflows of $467,000$2.1 related to accounts payable and other assets of $312,000. These cash inflows were partially offset by outflows related to a decrease in accounts payable of $946,000 and other current liabilities of $567,000. Cash flows provided by operating activities related to discontinued operations were $1.4 million.liabilities.

Net cash used by continuing operatinginvesting activities for the year ended January 1, 20173, 2021 was approximately $2.4$6.0 million which reflects a net loss of approximately $4.1 million increased by non-cash charges of $5.6 million primarily related to depreciation, amortizationpayments for acquired restaurants of $5.4 million and asset impairmentthe purchase of property, equipment and estimated lease termination charges. Changes in operating assets and liabilities primarily included a net cash outflow related to an increase in prepaid income taxes and income taxes receivableleasehold improvements of $1.9$3.5 million, other assets of $673,000, restricted cash of $627,000 and accounts receivable, net of $538,000. Cash flows provided by operating activities related to discontinued operations was $2.8 million.proceeds from the sale of our Coon Rapids, Minnesota location.

Net cash used by continuing investing activities for the year ended December 31, 201729, 2019 was $378,000$13.0 million primarily related to purchasesthe acquisition of property, equipmentthe Colorado Restaurants and leasehold improvements. Arizona Restaurants.

Net cash provided by discontinued investingfinancing activities in fiscal year 2020 was $1.6 million. $17.4 million which was related to the proceeds from our loan with Choice Bank and the proceeds from our PPP Loans, offset in part by payments on our long-term debt. Proceeds from our loan with Choice Bank were used to fund acquisitions while the funds from the PPP Loans were used to fund operations.

Net cash provided by continuing investingfinancing activities for thein fiscal year ended January 1, 20172019 was approximately $421,000, which resulted from proceeds$4.1 million primarily from the saleproceeds of assets of $1.1 million partially offset by purchases of property, equipment and leasehold improvements of $647,000. Net cash provided by discontinued investing activities was $1.0 million.loan agreement with Choice Bank.

Net cash used for financing activities was approximately $89,000, which primarily consisted of debt repayments of $1.5 million partially offset by proceeds from issuance of common stock of $1.5 million. Net cash used for financing activities during the year ended January 1, 2017 was $2.7 million, which was primarily related to the refinancing of our long-term debt obligations and overall reducing our debt outstanding.

We are subject to various financial and non-financial covenants on our long-term debt, including a debt-service coverage ratio. As of December 31, 2017,January 3, 2021, we were in compliance with all of our covenants.

35

Table of Contents

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. 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. We have taken measures to mitigate our downturn in sales, including reducing labor and renegotiating rents on our restaurant properties. Additionally, the proceeds from our PPP Loans have been used to fund operations. Although we have filed for forgivness of these loans, we have not yet heard from the Small Business Administration. There can be no assurance that any portion of the PPP Loans will be forgiven and we would not be required to repay the PPP Loans in full. Interest and principal payments under the PPP Loans will continue to be deferred until such time the amount of forgiveness is determined.

Contractual Obligations

The following is a summary of our contractual obligations as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

Total

 

2018

 

2019

 

2020

 

2021

 

2022

 

Thereafter

Long Term Debt

 

$

9,096

 

$

940

 

$

981

 

$

1,023

 

$

1,069

 

$

1,116

 

$

3,967

Financing Leases

 

 

1,712

 

 

480

 

 

1,232

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Operating Lease Obligations

 

 

11,488

 

 

1,892

 

 

1,702

 

 

1,587

 

 

1,575

 

 

1,308

 

 

3,424

Total

 

$

22,296

 

$

3,312

 

$

3,915

 

$

2,610

 

$

2,644

 

$

2,424

 

$

7,391

29

TableJanuary 3, 2021. Our PPP Loans are scheduled to be repaid in fiscal year 2022, however, we have applied for forgiveness of Contentssuch loans but have not yet heard from the Small Business Administration (Note 8 Long-Term Debt):

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(in thousands)

    

Total

    

2021

    

2022

    

2023

    

2024

    

2025

    

Thereafter

Term Loan

​

$

10,403

​

$

2,111

​

$

2,220

​

$

2,335

​

$

2,457

​

$

1,280

 

$

—

PPP Loans

​

​

13,957

​

​

—

​

​

13,957

​

​

—

​

​

—

​

​

—

​

​

—

Operating Lease Obligations

​

 

91,261

​

 

9,674

​

 

9,978

​

 

9,617

​

 

8,608

​

 

8,254

 

 

45,130

Total

​

$

115,621

​

$

11,785

​

$

26,155

​

$

11,952

​

$

11,065

​

$

9,534

 

$

45,130

Off-Balance Sheet Arrangements

Our Companycompany 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 31, 2017,January 3, 2021, we had cumulative state net operating loss carry-forwards for tax reporting purposes of approximately $53.9$26.8 million and federal net operating loss carry-forwards for tax reporting purposes of $11.8$10.9 million which, if not used, will begin to expire in fiscal 20182021 and 2037,2038, respectively.

Recent Accounting Guidance

Recent accounting guidance not yet adopted Not Yet Adopted

In May 2014,December 2019, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update (“ASU”2019-12, Income Taxes ("Topic 740") No. 2014-09, Revenue from Contracts with Customers.as part of its Simplification Initiative. This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” in March 2016, ASU 2016-10 “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligationsamendments also improve consistent application of and Licensing” in April 2016, ASU 2016-11, “Revenue Recognition (Topic 605)simplify GAAP for other areas of Topic 740 by clarifying and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014‑09 and 2014‑16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting” in May 2016 and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” in May 2016. These new standards provideamending existing guidance. This guidance is effective for a single, principles-based model for revenue recognition that replaces the existing revenue recognition guidance. In July 2015, the FASB deferred the effective date of ASU 2014-09 until annual and interim reporting periods beginning on or after December 15, 2017. It will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective. It permits the use of either a full retrospective or modified retrospective transition method2020, and early adoption is permitted. We plan to adopt this standard asduring the first quarter of the effective date utilizing the modified retrospective transition method. See Note 1 “Nature of Business2021, and Significant Accounting Policies”we expect an immaterial impact to the accompanying notes to consolidated financial statements.

In February 2016, the FASBWe reviewed all other recently issued ASU 2016‑02, Leases (Topic 842), which supersedes the existing guidance for lease accounting Leases (Topic 840). ASU 2016‑02 requires lesseespronouncements and concluded they were either not applicable or not expected to recognize a lease liability and a right-of-use asset for all leases. Lessor accounting remains largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for all entities. ASU 2016‑02 requires a modified retrospective 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 expect to adopt this new standard as of the effective date and are currently evaluating the impact of this new standard on its consolidated financial statements, but expect that it will have a material impact because of our significant leasing activity.

In May 2017, the FASB issued ASU 2017-05, Compensation – Stock Compensation (Topic 718), to provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. The updated standard clarifies when an entity should account for the effects of a modification. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company does not believe that adoption of the new standard will have a material impact on itsour consolidated financial statements.

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.

36

Table of Contents

In some cases, some of our lease commitments are tied to consumer price index (CPI)(“CPI”) increases. We are also subject to interest rate changes based on market conditions.

We believe that increasing inflation ratesWhile we have contributedtaken steps to enter into agreements for some price instability. There isof the commodities used in our restaurant operations, there can be no assurance however, that future supplies and costs for such commodities will not fluctuate due to weather or other market conditions outside of our control.  Many of our restaurant employees are paid hourly rates subject to the federal, state or local minimum wage requirements. Numerous state and local governments have their own minimum wage and other regulatory requirements for employees that are generally greater than the federal minimum wage and are subject to annual increases based on changes in their local consumer price indices. Additionally, certain operating and other costs, including health benefits in compliance with the Patient Protection and Affordable Care Act, taxes, insurance, COVID-19 pandemic related benefits, and other outside services continue to increase with the general level of inflation ratesand may also be subject to other cost and supply fluctuations outside of our control. While we have been able to partially offset inflation and other changes in the costs of key operating resources by adjusting menu prices, coupled with more efficient purchasing practices, productivity improvements and greater economies of scale, there can be no assurance that we will be able to continue to do so in the future. At times, competitive conditions and macroeconomic conditions that impact consumer discretionary spending may limit our menu pricing flexibility.  There can be no assurance that we will continue at their current levelsto generate increases in comparable restaurant sales in amounts sufficient to offset inflationary or decrease.other cost pressures.

​

30

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 Famous Dave’s of America,BBQ Holdings, Inc. are included herein, beginning on page F‑1.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)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 were notare effective because ofin 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 material weakness in internal control over financial reporting described below.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)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 31, 2017.January 3, 2021. 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 31, 2017,January 3, 2021, our internal control over financial reporting was notis effective based on these criteria due to a material weakness, as a resultcriteria.

37

Table of an audit adjustment identified during the review of our income tax provision, which was the result of a spreadsheet error.Contents

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 Famous Dave’s of AmericaBBQ Holdings have been detected.

We are in the process of improving our internal controls to remediate the material weakness identified above and intend to utilize specialized software for the preparation of our tax provision in the future, instead of Microsoft Excel. We also intend to add additional steps to the management review control that failed to detect the error in our income tax provision for the year ended December 31, 2017.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controlscontrol over financial reporting during our most recently-completed fiscal quarter ended December 31, 2017 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

31

ITEM 9B.    OTHER INFORMATION

None.

PART III

ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT

Management

The table below sets forthInformation 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 name, age and position of each of our current directors and executive officers.

Name

Age

Position

Jeffery Crivello

39

Chief Executive Officer, Director(1)

Dexter A. Newman

38

Chief Financial Officer(2)

Geovannie Concepcion

32

Chief Operating Officer

Paul M. Malazita

31

Director of Accounting and Corporate Controller(2)

Anand D. Gala

44

Director

Eric S. Hirschhorn

36

Director

Joseph M. Jacobs

65

Director

Charles W. Mooty

57

Director

Richard A. Shapiro

47

Director

Bryan L. Wolff

39

Director

__________________

(1)

Mr. Crivello began serving as a director as a result of Patrick Walsh’s resignation and become Chief Executive Officer pursuant to the terms of the Stock Purchase Agreement between the Company and PW Partners, LLC, dated November 10, 2017.

(2)

Mr. Newman has resigned as Chief Financial Officer effective March 5, 2018 and Mr. Malazita will become Interim Chief Financial Officer effective March 6, 2018.

The biographies of eachend of the above-identified individuals are set forth below:fiscal year covered by this Annual Report on Form 10-K.

Jeffery Crivello has been our chief executive officer since November 2017 and director since August 2017.  Since January 2015, Mr. Crivello served as the Chief Financial Officer of PW Partners Capital Management, LLC, a hedge fund manager with a consumer focus, where he had primary responsibility for operations and accounting. PW Partners has had board of directors’ representation with Famous Dave’s of America, Inc. since 2013, BJ’s Restaurants, Inc. since 2014, Del Taco Holdings, Inc. since 2015, and Town Sports International Holdings, Inc. since 2015. Since 2001, Mr. Crivello has served as President of TREW Capital Management, Inc., a consulting and investment firm where he had primary responsibility for operations. From 2012 to 2015, Mr. Crivello served as a Managing Member of Maize Capital Group, LLC, a commodity investment firm.  He graduated from the University of Wisconsin-Whitewater with a B.S. degree in finance.

Dexter A. Newman has served as our Chief Financial Officer since April 2016. From November 2015 until March 2016, he was an independent business consultant. From November 2013 until October 2015, Mr. Newman served as Vice President and a Division Chief Financial Officer at Bloomin’ Brands, a casual dining company with more than 1,400 restaurants in 49 states and 21 countries and territories, where he had primary responsibility for overseeing the operations, investment, and other financial decisions of the company’s Bonefish Grill business. He was formerly Bloomin’ Brands Vice President and Treasurer, and Head of Risk Management from October 2012 through October 2013 where he had primary responsibility for capital markets, financial risks management, cash management, and insurance. From February 2002 to August 2012 he was employed in numerous roles with Best Buy Co., Inc., a consumer electronics retailer, most recently serving as Senior Director and Chief Financial Officer of Best Buy’s Private Brands and Global Sourcing Group, and previously serving as Senior Director and Deputy Treasurer. Prior to his role within Treasury at Best Buy, Mr. Newman worked as Director, Strategy Development and Operations for Best Buy International and held numerous other roles within the company’s finance function. Mr. Newman holds an MBA from the University of St Thomas, Opus College of Business and a BA in management from St John’s University.

32

Geovannie Concepcion has served as our Chief Operating Officer since November 2017. Mr. Concepcion has been a member of the Famous Dave’s management team since April 2016 where he has primary responsibility for executing on the company’s store optimization and refranchising efforts. In addition, Mr. Concepcion has led the company’s national efforts with third party delivery providers and online ordering. Before joining Famous Dave’s, Mr. Concepcion served in various capacities with Greenwich, Connecticut-based Wexford Capital LP, a registered investment advisor, in both the Private Equity Group and Global Macro Hedge Funds from June 2009 until April 2016. Mr. Concepcion graduated from DePaul University with a B.S. in Accounting.

Paul M. Malazita currently serves as our Director of Accounting and Corporate Controller since October 2017 and, prior to that, he served as Senior Manager of Corporate Accounting from March 2017 to October 2017. Prior to joining our Company, from July 2016 to February 2017, Mr. Malazita served as the Manager of Financial Reporting at Digiliti Money, Inc., a provider of SaaS financial solutions, where he had primary responsibility for SEC financial reporting. From September 2014 to July 2016, Mr. Malazita served in various capacities at AR Global Investments, LLC, a sponsor of real estate investment trusts, from September 2014 to July 2016, where he had primary responsibility for SEC financial reporting and technical accounting. From July 2009 to September 2014, Mr. Malazita served in various capacities at Baker Tilly Virchow Krause, LLP (formerly ParenteBeard LLC), a public accounting firm. Mr. Malazita graduated from St. Joseph’s University in Philadelphia, Pennsylvania with a B.S. in Accounting and is a Certified Public Accountant.

Anand D. Gala has been a director of our Company since July 2015. 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. Current portfolio brands under Gala Holdings International ownership and operation include Famous Dave’s and Fresh Griller. Since 2007, Mr. Gala has also been Founder and Managing Partner of Gala Development Partners, LLC, a firm focused on the acquisition, development and management of commercial real estate comprising retail and office properties. From February 1998 until May 2014, Mr. Gala served as Founder, President and Chief Executive Officer of Golden West Restaurants, Inc., a franchise developer of Applebee’s restaurants throughout California. From 2000 until 2010, Mr. Gala served as Founder, President and Chief Executive Officer of Gala AZ Holdings, a developer of Del Taco restaurants in Arizona. Mr. Gala graduated from the University of Southern California with a B. S. in Biology.

Eric S. Hirschhorn has been a director since May 2017. Since January 2018, he has served as the Chief Marketing Officer of Fridababy, LLC, a baby products company. Mr. Hirschhorn has served as a director of Four Corners Property Trust since September 2017. Mr. Hirschhorn served in various capacities at Restaurant Brands International through March 2017. Most recently, he served as the Head of Burger King Canada. From June 2013 to May 2016, Mr. Hirschhorn served as Burger King’s Chief Marketing Officer for North America and, prior to that role, he served as Vice President of Market Intelligence and Global Innovation for Burger King. Mr. Hirschhorn first joined Burger King in November 2010. Prior to joining Burger King, Mr. Hirschhorn served as General Counsel of 3G Capital from 2008 to 2010, an investment firm based in New York where he served as key counsel in the acquisition of Burger King. Immediately upon graduating from law school, he was hired as an associate in the Technology, Media & Communications department at Thelen Reid Brown Raysman Steiner. Mr. Hirschhorn received his J.D. from the Benjamin N. Cardozo School of Law and his B.A from the University of Pennsylvania.

Joseph M. Jacobs has been a director since July 2015 and served as Chairman of the Board from July 2015 to February 2017. Mr. Jacobs co-founded Wexford Capital LP, a registered investment advisor, in 1994 and serves as its President. Mr. Jacobs has primary responsibility for overseeing the activities of Wexford Capital LP’s private equity funds. He has also served on the boards and creditors’ committees of a number of public and private companies in which Wexford has held investments. From 1982 to 1994, Mr. Jacobs was employed by Bear Stearns & Co., Inc., where he attained the position of Senior Managing Director. While at Bear Stearns, Mr. Jacobs was active in bankruptcies and restructurings and was responsible for all real estate investment banking activities, including debt and equity financing of real estate on both a private and public basis, real estate investment, and advisory services. From 1979 to 1982, he was employed as a commercial lending officer at Citibank, N.A. Mr. Jacobs holds an MBA from Harvard Business School and a BS in economics from the Wharton School of the University of Pennsylvania.

33

Charles W. Mooty has been a director since December 2016 and served as Chairman of the Board from February 2017 to October 2017. Mr. Mooty currently serves as the President and Chief Executive Officer of Jostens, Inc., a position he has held since January 2014. Prior to his work at Jostens, Inc., from June 2012 to December 2013, Mr. Mooty was employed at Fairview Health Services as the Interim President and Chief Executive Officer, as well as Chairman of the Board of Trustees until December 2016. Mr. Mooty has also served as the President and Chief Executive Officer of the Faribault Woolen Mill, starting in May 2011. For twenty-one years, Mr. Mooty was employed by International Dairy Queen, where he held many different positions; among them, the position of President and Chief Executive Officer, as well as Chairman of the Board.

Richard A. Shapiro has been a director since July 2015. Mr. Shapiro joined Wexford Capital LP, a registered investment advisor, in 2011 and became a Partner in 2014. Mr. Shapiro serves as Portfolio Manager and Co-Head of Equities and is a member of the hedge fund investment committee. From 2007 to 2011, Mr. Shapiro was a Managing Director and Portfolio Manager at Millennium Management, managing a long-short portfolio. From 2004 to 2006, Mr. Shapiro was Managing Director and Portfolio Manager in the equities division of Amaranth Advisors. From 1997 to 1999 and 2001 to 2004, Mr. Shapiro also gained investment experience at Putnam Investments, 1 to 1 Venture Partners and Lee Munder Capital. Mr. Shapiro holds an MBA from Georgetown University and a BS in Business Administration from the University of California.

Bryan L. Wolff has been a director since July 2015. Since March 2017, he has served as a Managing Director at Anthos Capital Management, a Santa Monica-based growth equity firm. From August 2015 to March 2017, he served as Chief Financial Officer of Thrive Market, Inc., a healthy and organic food ecommerce company. From September 2014 to August 2015, he served as Chief Financial Officer of DogVacay, Inc. (sold to Rover), an online service connecting pet owners with sitters across the U.S. and Canada. From January 2012 until August 2014, Mr. Wolff served as Chief Financial Officer of Bonobos, Inc. (sold to Walmart), a men’s fashion and accessories retailer. From March 2010 through December 2011, Mr. Wolff was an Analyst at Luxor Capital, LP. Mr. Wolff previously had roles at both AllianceBernstein and McKinsey & Co. Mr. Wolff earned a Masters of Business Administration from Stanford’s Graduate School of Business, and a Bachelor's of Engineering in Computer Science from Princeton University.

Committees of the Board of Directors

We have a standing Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee. Below is a summary of our board committee structure and current committee membership information:

Director

Audit Committee

Compensation Committee

Corporate Governance and Nominating Committee

Jeffery Crivello

Anand D. Gala

Eric S. Hirschhorn

Member

Chairman

Joseph M. Jacobs

Charles W. Mooty

Member

Member

Member

Richard A. Shapiro

Member

Member

Bryan L. Wolff(1)

Chairman

Member

Chairman

__________________________

(1)

Financial expert

34

Audit Committee

The Audit Committee operates under a written charter adopted by the board of directors, a copy of which is available at our website at www.famousdaves.com. The charter reflects the Audit Committee’s increased responsibilities as a result of the Sarbanes-Oxley Act of 2002, as well as the Nasdaq Stock Market corporate governance standards. As set forth in the charter, the primary responsibilities of the Audit Committee include: (i) serving as an independent and objective party to monitor the Company’s financial reporting process and internal control system; (ii) reviewing and appraising the audit performed by the Company’s independent registered public accounting firm; and (iii) providing an open avenue of communication among the independent registered public accounting firm, financial and senior management and the board of directors. The charter also requires that the Audit Committee review and pre-approve the performance of all audit and non-audit accounting services to be performed by the Company’s independent registered public accounting firm, as well as tax work performed by the Company’s tax firm, other than certain de minimis exceptions permitted by Section 202 of the Sarbanes-Oxley Act of 2002.

The board of directors has determined that at least one member of the Audit Committee, Bryan L. Wolff, qualifies as an “audit committee financial expert” as that term is defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended. In addition, each member of the Audit Committee is an “independent director,” as such term is defined in Rule 5605(a)(2) of the Nasdaq Stock Market’s Marketplace Rules, and meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended. The board of directors has also determined that each of the Audit Committee members is able to read and understand fundamental financial statements and that at least one member of the Audit Committee has past employment experience in finance or accounting.

Compensation Committee

The Compensation Committee operates under a written charter adopted by the board of directors, a copy of which is available at our website at www.famousdaves.com. The Compensation Committee reviews our remuneration policies and practices, makes recommendations to the full board of directors in connection with all compensation matters affecting the Company and administers our incentive compensation plans. The Compensation Committee of the board of directors has direct oversight and responsibility for our executive compensation policies and programs. The Compensation Committee has the authority to obtain advice and assistance from internal or external legal, accounting or other advisors, and has the authority to retain, terminate and approve the fees payable to any external compensation consultant to assist in the evaluation of director, and senior executive compensation. The Compensation Committee assesses the independence of any compensation consultant that it elects to engage.

Nominating and Corporate Governance Committee

The Corporate Governance and Nominating Committee operates under a written charter adopted by the board of directors, a copy of which is available at our website at www.famousdaves.com. The primary role of the Corporate Governance and Nominating Committee is to consider and make recommendations to the full board of directors concerning the appropriate size, function and needs of the board of directors, including establishing criteria for membership and considering, recruiting and recommending candidates (including those recommended by shareholders) to fill new board positions. The Corporate Governance and Nominating Committee also considers and advises the full board of directors on matters of corporate governance and monitors and recommends the functions of, and membership on, the various committees of the board of directors.

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.famousdaves.comwww.bbq-holdings.com and copies are available free of charge to anyone requesting them.

35

Section 16(a) Beneficial Owner Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership of such securities with the Securities and Exchange Commission and Nasdaq. Officers, directors and greater than ten percent shareholders are required by Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on review of the copies of Forms 3 and 4 and amendments thereto furnished to the Company during the fiscal year ended December 31, 2017 and Forms 5 and amendments thereto furnished to the Company with respect to such fiscal year, or written representations that no Forms 5 were required, we believe that all of our officers, directors and greater than ten percent beneficial owners complied with all applicable Section 16(a) filing requirements during the fiscal year ended December 31, 2017.

ITEM 11.EXECUTIVE COMPENSATION

Summary Compensation Table

The following summary compensation table reflects cash and non-cash compensation for the 2016 and 2017 fiscal years awardedInformation in response to or earnedthis Item is incorporated herein by (i) each individual serving as the principal executive officer of the Company during the 2017 fiscal year ended December 31, 2017; (ii) the other two highest paid individuals who served as executive officers at the end of such fiscal year; and (iii) the other individual who would have qualified as one of the two highest paid executive officers but for the fact that he was not serving as an executive officer as ofreference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year (the “named executive officers”).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name and Principal Position

 

Year

 

Salary ($)

 

Bonus ($)

 

Stock Awards ($)

 

Option Awards ($)(6)

 

All Other Compensation ($)

 

Total ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jeffery Crivello(1)

 

2017

 

$

27,884

 

$

 —

 

$

85,000

 

$

156,008

 

$

 —

 

$

268,892

Chief Executive Officer

 

2016

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dexter A. Newman(2)

 

2017

 

 

270,000

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

270,000

Chief Financial Officer

 

2016

 

 

192,115

 

 

98,654

 

 

 —

 

 

156,088

 

 

 —

 

 

446,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael W. Lister(3)

 

2017

 

 

274,239

 

 

 —

 

 

 —

 

 

 —

 

 

176,700

 

 

450,939

Former Chief Executive Officer

 

2016

 

 

62,308

 

 

18,750

 

 

 —

 

 

100,527

 

 

10,099

 

 

191,684

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Douglas Renegar(4)

 

2017

 

 

180,769

 

 

 —

 

 

 —

 

 

 —

 

 

100,000

 

 

280,769

Former Senior Vice President of Franchise Operations

 

2016

 

 

41,538

 

 

 —

 

 

 —

 

 

50,263

 

 

 —

 

 

91,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Geovannie Concepcion(5)

 

2017

 

 

180,000

 

 

42,500

 

 

 —

 

 

 —

 

 

 —

 

 

222,500

Chief Operating Officer

 

2016

 

 

126,692

 

 

65,077

 

 

 —

 

 

114,808

 

 

 —

 

 

306,577

_________________________

(1)

Mr. Crivello was appointed our Chief Executive Officer effective November 14, 2017. On that same date, Mr. Crivello was granted a ten-year option to purchase 90,000 shares of our common stock at an exercise price of $3.90. The options vest monthly over two years. Mr. Crivello earned stock awards calculated in accordance with his employment agreement, described below.

(2)

Mr. Newman became our Chief Financial Officer effective April 11, 2016. On that same date, Mr. Newman was granted a ten-year option to purchase 70,000 shares of our common stock at an exercise price of $5.67. The options vest monthly over four years.

(3)

Mr. Lister was our Chief Executive Officer from October 11, 2016 to November 13, 2017. On October 11, 2016, Mr. Lister was granted a five-year option to purchase 70,000 shares of our common stock at an exercise price of $5.67. The options vested monthly through Mr. Lister’s termination date. Upon termination, Mr. Lister became entitled to severance payments totaling $150,000 (reflected in all other compensation) to be paid in accordance with our standard payroll calendar over six months. Rent cost for Mr. Lister’s apartment of $26,700 is also reflected in all other compensation.

36

(4)

Mr. Renegar was our Senior Vice President of Franchise Operations from October 11, 2016 to November 17, 2017. On October 11, 2016, Mr. Renegar was granted a five-year option to purchase 35,000 shares of our common stock at an exercise price of $5.67. The options vested monthly through Mr. Renegar’s termination date. Upon termination, Mr. Renegar became entitled to severance payments totaling $100,000 (reflected in all other compensation) to be paid in accordance with our standard payroll calendar over six months.

(5)

Mr. Concepcion has been with our Company since April 13, 2016 and was appointed as our Chief Operating Officer effective November 14, 2017.  On April 13, 2016, Mr. Concepcion was granted a ten-year option to purchase 50,000 shares of our common stock at an exercise price of $5.82. The options vest monthly over four years. Mr. Concepcion’s bonus for 2017 was calculated in accordance with his employment agreement described below.

(6)

Amounts shown reflect the grant date fair value of stock option awards granted for the respective year pursuant to our equity incentive plans, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. See Note 9 “Stock-Based Compensation” to the accompanying consolidated financial statements.

Outstanding Equity Awards at Fiscal Year End

As of December 31, 2017, our named executive officers had outstanding the following stock options:

 

 

 

 

 

 

 

 

 

 

 

 

Option Awards

Name

 

Number of Securities Underlying Unexercised Options (# Exercisable)

 

Number of Securities Underlying Unexercised Options (# Unexercisable)

 

Option Exercise Price ($)

 

Option Expiration Date

Jeffery Crivello

 

3,750

 

86,250

 

$

3.90

 

11/14/2027

Dexter A. Newman

 

29,160

 

40,840

 

 

5.67

 

4/11/2026

Michael W. Lister

 

18,958

 

 —

 

 

5.25

 

5/11/2018

Douglas Renegar

 

9,479

 

 —

 

 

5.25

 

5/11/2018

Geovannie Concepcion

 

20,820

 

29,180

 

 

5.82

 

4/13/2026

_________________

(1)

Mr. Crivello’s options are vesting monthly over a two-year term.

(2)

Mr. Newman’s options are vesting monthly over a four-year term.

Employment and Change-In-Control Agreements

Employment Agreement with Jeffery Crivello

On November 13, 2017, we entered into an employment agreement with Jeffery Crivello. Mr. Crivello’s employment with us is governedcovered by a three-year employment agreement. Under the employment agreement, Mr. Crivello is entitled to receive an annual base salary of $250,000 and is eligible for annual bonus compensation in the form of shares of our common stock, which amount shall be determined basedthis Annual Report on the 30-day volume weighted average price (“VWAP”) of our common stock meeting or exceeding the following established targets:Form 10-K.

 

 

 

 

 

Stock Price

 

 

Shares Granted

$

5.00

 

 

5,000

 

6.00

 

 

10,000

 

7.00

 

 

10,000

 

8.00

 

 

12,500

 

9.00

 

 

12,500

 

10.00

 

 

15,000

 

11.00

 

 

15,000

 

12.00

 

 

20,000

 

13.00

 

 

20,000

 

14.00

 

 

25,000

 

15.00

 

 

25,000

37

Any Common Stock awarded pursuant to a bonus award shall be granted pursuant to and governed by the terms of the 2015 Plan. If there are no shares of common stock available pursuant to the terms of the 2015 Plan, Mr. Crivello shall be paid cash equal to the value of the number of shares of common stock he is otherwise entitled to receive.

Pursuant to the employment agreement, on November 14, 2017, we granted to Mr. Crivello a 90,000 share non-qualified stock option under the Plan that will vest in equal monthly installments over two years and has an exercise price of $3.90 per share.

Mr. Crivello may participate in our benefit plans that are currently and hereafter maintained and for which he is eligible, including, without, limitation, group medical, 401(k), life insurance and other benefit plans. Mr. Crivello is also entitled to be reimbursed for reasonable travel and other expenses.

Pursuant to the employment agreement, Mr. Crivello agreed to customary non-competition and non-solicitation provisions, including a covenant that, in the event Mr. Crivello’s relationship with PW Partners conflicts with or is inconsistent with his obligations to the Company, Mr. Crivello’s primary duty shall be to the Company and to the extent that a conflict arises, he shall promptly notify the Board of such conflict.

Employment Agreement with Dexter A. Newman

On April 7, 2016, we entered into a written employment agreement with Mr. Newman to be effective as of April 11, 2016. Under the employment agreement, Mr. Newman is entitled to receive an annual base salary of $270,000 and is eligible for annual bonus compensation in the discretion of the board of directors based upon his achievement of milestones to be determined by the board of directors prior to the commencement of each fiscal year. The targeted amount is expected to be 50% of Mr. Newman’s base salary. Mr. Newman may participate in our benefit plans that are currently and hereafter maintained by us and for which he is eligible, including, without limitation, group medical, 401(k), life insurance and other benefit plans.

Pursuant to the employment agreement, on April 11, 2016, we granted Mr. Newman a ten-year, 70,000 share non-qualified stock option that will vest in monthly installments over four years. The stock option has an exercise price of $5.67 per share.

Mr. Newman has agreed not to compete with us during the term of his employment and for a period of 12 months thereafter. Mr. Newman has also agreed not to solicit our employees during the employment term and for 18 months thereafter.

Under the employment agreement, if Mr. Newman’s employment is terminated by us for any reason other than Cause (including any termination by the Company following a “Change in Control” (as defined in the employment agreement)), death or disability, or if Mr. Newman resigns for Good Reason, so long as he has signed and has not revoked a release agreement, he will be entitled to receive severance comprised of continuing payments of his base salary for a period of 12 months following the termination date.

Employment Agreement with Michael W. Lister

Mr. Lister’s employment was governed by an employment agreement entered into on October 11, 2016, which had a four year term. Under the employment agreement, Mr. Lister was entitled to receive an annual base salary of $300,000 and was eligible for annual bonus compensation in the discretion of the board of directors in amounts expected to be 50% of his base salary.

Pursuant to the employment agreement, on October 11, 2016, we also granted to Mr. Lister a five-year, 70,000 share non-qualified stock option under the Company’s 2015 Equity Incentive Plan that was to vest in equal monthly installments over the employment term and had an exercise price of $5.25.

Mr. Lister was able to participate in our benefit plans, including, without, limitation, group medical, 401(k), life insurance and other benefit plans. Pursuant to his employment agreement, Mr. Lister agreed to customary non-competition and non-solicitation provisions; provided, however, that Mr. Lister will not be restricted from owning or operating Company franchise locations or any single location restaurants.

38

Employment Agreement with Douglas Renegar

Mr. Renegar’s employment was governed by an employment agreement entered into on October 11, 2016, which had a four year term. Under the employment agreement, Mr. Renegar was entitled to receive an annual base salary of $200,000 and was eligible for annual bonus compensation in the discretion of the board of directors.

Pursuant to the employment agreement, on October 11, 2016, we also granted to Mr. Renegar a five-year, 35,000 share non-qualified stock option under the Company’s 2015 Equity Incentive Plan that was to vest in equal monthly installments over the employment term and had an exercise price of $5.25.

Mr. Renegar was able to participate in our benefit plans, including, without, limitation, group medical, 401(k), life insurance and other benefit plans. Pursuant to his employment agreement, Mr. Renegar agreed to customary non-competition and non-solicitation provisions; provided, however, that Mr. Renegar will not be restricted from owning or operating Company franchise locations or any single location restaurants.

Employment Agreement with Geovannie Concepcion

Mr. Concepcion’s employment with us is governed by an employment agreement entered into on April 8, 2016, for an indefinite term. Mr. Concepcion is entitled to receive an annual base salary of $180,000 and is eligible for a bonus payable in cash the first time during his employment term that the VWAP over a 30 day period is equal to or exceeds the VWAP Target set forth on the first column in the table below.

 

 

 

 

 

Stock Price

 

Cash Bonus

$

5.00

 

$

12,500

 

6.00

 

 

30,000

 

7.00

 

 

35,000

 

8.00

 

 

50,000

 

9.00

 

 

56,250

 

10.00

 

 

75,000

 

11.00

 

 

82,500

 

12.00

 

 

120,000

 

13.00

 

 

130,000

 

14.00

 

 

175,000

 

15.00

 

 

187,500

Pursuant to the employment agreement, on April 11, 2016, we granted Mr. Concepcion a ten-year, 50,000 share non-qualified stock option that will vest in monthly installments over four years. The stock option has an exercise price of $5.82 per share.

Mr. Concepcion has agreed not to compete with us during the term of his employment and for a period of 12 months thereafter. Mr. Concepcion has also agreed not to solicit our employees during the employment term and for 18 months thereafter.

Under the employment agreement, if Mr. Concepcion’s employment is terminated by us for any reason other than Cause (including any termination by the Company following a “Change in Control” (as defined in the employment agreement)), death or disability, or if Mr. Concepcion resigns for Good Reason, so long as he has signed and has not revoked a release agreement, he will be entitled to receive severance comprised of continuing payments of his base salary for a period of six months following the termination date.

39

Deferred Compensation Plan

We maintain a Non-Qualified Deferred Compensation Plan in which employees who are at the “director” level and above are eligible to participate. Participants must complete a deferral election each year and submit it to us, prior to the beginning of the fiscal year for which the compensation pertains, indicating the level of compensation (salary, bonus and commissions) they wish to have deferred for the coming year. This deferral election is irrevocable except to the extent permitted by the plan’s administrator, and the applicable regulations promulgated by the Internal Revenue Service. For fiscal 2015 and 2016, the Company matched 25.0% of the first 4.0% contributed by participants and paid declared interest rates of 6.0% on balances contributed during fiscal 2016 and 2017.

Deferral periods are defined as the earlier of termination of employment or not less than three calendar years following the end of the applicable plan year. Extensions of the deferral period for a minimum of five years are allowed, provided the election is made at least one year before the first payment affected by the change. Payments can be in a lump sum or in equal payments over a two-, five- or ten-year period, plus interest from the commencement date.

The plan assets are kept in an unsecured account that has no trust fund. In the event of bankruptcy, any future payments would have no greater rights than that of an unsecured general creditor of the Company and they confer no legal rights for interest or claim on any assets of the Company. Benefits provided by the deferred compensation plan are not insured by the Pension Benefit Guaranty Corporation (PBGC) under Title IV of the Employee Retirement Income Security Act of 1974 (“ERISA”), because the pension insurance provisions of ERISA do not apply to the Deferred Compensation Plan.

Compensation of Directors

During fiscal 2017, certain of our directors received cash payments in the amount of $15,000 per quarter for their services as our director. Upon appointment, our independent directors are generally granted an option to purchase 20,000 shares of our common stock, which vests annually over a five year period.

The following table sets forth information regarding compensation of our directors during the year ended December 31, 2017:

 

 

 

 

 

 

 

 

 

 

Name

 

Fees Earned or Paid in Cash

 

Option Awards ($)(1)

 

Total ($)

Anand D. Gala(2)

 

$

60,000

 

$

 —

 

$

60,000

Eric S. Hirschhorn(2)

 

 

15,000

 

 

39,635

 

 

54,635

Joseph M. Jacobs

 

 

 —

 

 

 —

 

 

 —

Charles W. Mooty(2)(3)

 

 

81,667

 

 

41,865

 

 

123,532

Richard A. Shapiro

 

 

 —

 

 

 —

 

 

 —

Bryan L. Wolff(2)

 

 

60,000

 

 

 —

 

 

60,000

_______________

(1)

Amounts shown reflect the grant date fair value of stock option awards granted during fiscal 2017, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. See Note 9 “Stock-Based Compensation” to the accompanying notes to the consolidated financial statements.

(2)

Each of Messrs. Gala, Hirschhorn, Mooty and Wolff hold options to purchase 20,000 shares of our common stock.

(3)

Mr. Mooty received additional compensation during the time that he served as the chairman of our board of directors.

40

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance under Equity Compensation Plans

Effective May 5, 2015, we adopted a 2015 Equity Plan (the “2015 Plan”),Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed 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 prohibitsRegulation 14A within 120 days after the granting of incentives after May 12, 2015, the tenth anniversaryend of the date such Plan was approvedfiscal year covered by the Company’s shareholders. 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 the Company by furnishing a variety of economic incentives designed to attract, retain and motivate team members (including officers), certain key consultants and directors of the Company. The Plans have each been approved by the Company’s shareholders. The following table sets forth certain information as of December 31, 2017, with respect to the 2005 Plan and the 2015 Plan.

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

Number of Securities

 

 

 

 

Average

 

Remaining Available for

 

 

Number of Securities

 

Exercise Price

 

Future Issuance Under

 

 

to be Issued Upon

 

of Outstanding

 

Equity Compensation

 

 

Exercise of

 

Options,

 

Plans (Excluding

 

 

Outstanding Options

 

Warrants and

 

Securities Reflected in

 

 

Warrants and Rights

 

Rights

 

Column (A))

Plan Category

    

(A)

    

(B)

    

(C)

Equity compensation plans approved by shareholders:

 

  

 

 

  

 

  

2005 Stock Incentive Plan

 

2,700

 

$

28.53

 

 —

2015 Stock Incentive Plan

 

535,812

 

 

6.40

 

 —

TOTAL

 

538,512

 

$

6.60

 

 —

We have one class of voting securities outstanding, Common Stock, $0.01 par value, of which 7,391,315 shares were outstanding as of the close of businessthis Annual Report on February 20, 2018. Each share of Common Stock is entitled to one vote on all matters put to a vote of shareholders.Form 10-K.

The following table sets forth certain information regarding beneficial ownership of our common stock as of the February 20, 2018 by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, (ii) each of our directors director, (iii) each named executive officer and (iv) all executive officers and directors as a group.

41

Unless otherwise indicated, the address of each of the following persons is 12701 Whitewater Drive, Suite 190, Minnetonka, Minnesota 55343, and each such person has sole voting and investment power with respect to the shares of common stock set forth opposite each of their respective names.

 

 

 

 

 

Name and Address of Beneficial Owner

 

Shares Beneficially Owned

 

Percentage of Total

Executive Officers:

 

 

 

 

Jeffery Crivello (Chief Executive Officer)(1)

 

33,750

 

*

Michael W. Lister (Former Chief Executive Officer)(2)

 

18,958

 

*

Dexter A. Newman (Chief Financial Officer)(3)

 

35,476

 

*

Geovannie Concepcion (Chief Operating Officer)(4)

 

20,820

 

*

Douglas Renegar (Former Senior Vice President of Franchise Operations)(5)

 

9,479

 

*

Non-Employee Directors:

 

 

 

 

Anand D. Gala

 

8,000

 

*

Eric S. Hirschhorn

 

 —

 

*

Joseph M. Jacobs(6)

 

1,332,711

 

18.0%

Charles W. Mooty

 

87,355

 

1.2%

Richard A. Shapiro

 

10,000

 

*

Bryan L. Wolff

 

11,020

 

*

All Directors and Executive Officers as a group (11 people)

 

1,567,569

 

20.9%

Other 5% Beneficial Owners

 

 

 

 

Wexford Capital LP(7)

 

1,332,711

 

18.0%

411 West Putnam Avenue, Suite 125, Greenwich, CT 06830

 

 

 

 

Bandera Master Fund L.P.(8)

 

1,085,225

 

14.7%

Broad Street, Suite 1820, New York, NY 10004

 

 

 

 

Patrick Walsh(9)

 

755,419

 

10.2%

1325 Avenue of the Americas, New York, NY 10019

 

 

 

 

David Kanen(10)

 

482,624

 

6.5%

5850 Coral Ridge Drive, Suite 309, Coral Springs, Florida 33076

 

 

 

 

Raging Capital Management, LLC(11)

 

467,715

 

6.3%

Ten Princeton Avenue, P.O. Box 228, Rocky Hill, NJ 08553

 

 

 

 

Blue Clay Capital Management, LLC(12)

 

429,521

 

5.8%

800 Nicollet Mall, Ste. 2870, Minneapolis, MN 55402

 

 

 

 

FS Special Opportunities I, L.P.(13)

 

418,169

 

5.7%

3033 Excelsior Boulevard, Suite 560, Minneapolis, MN 55416

 

 

 

 

_____________________

*     Less than 1%

(1)

Includes 18,750 shares that Mr. Crivello has the right to acquire within 60 days.

(2)

Includes 18,958 shares that Mr. Lister has the right to acquire within 60 days.

(3)

Includes 32,076 shares that Mr. Newman has the right to acquire within 60 days.

(4)

Includes 20,820 shares that Mr. Concepcion has the right to acquire within 60 days.

(5)

Includes 9,479 shares that Mr. Renegar has the right to acquire within 60 days.

(6)

Represents 1,332,711 shares held by Debello Investors LLC, Wexford Focused Investors LLC, and Wexford Spectrum Investors LLC (collectively, the “Purchasing Entities”). Mr. Jacobs disclaims beneficial ownership of the shares held by the Purchasing Entities except to the extent of his actual pecuniary interest therein. See footnote 7 below.

42

(7)

Based upon joint statements on Schedule 13D filed with the SEC on June 22, 2015. Includes 29,785 shares that are directly owned by Debello Investors LLC (“DI”), 61,973 shares that are directly owned by Wexford Focused Investors LLC (“WFI”), and 1,240,953 shares that are directly owned by Wexford Spectrum Investors LLC (“WSI”, and together with DI and WFI, the “Purchasing Entities”). Wexford Capital LP (“Wexford Capital”) may, by reason of its status as manager of the Purchasing Entities, be deemed to own beneficially the securities of which the Purchasing Entities possess beneficial ownership. Wexford GP LLC (“Wexford GP”) may, as the General Partner of Wexford Capital, be deemed to own beneficially the securities of which the Purchasing Entities possess beneficial ownership. Each of Charles E. Davidson (“Davidson”) and Joseph M. Jacobs (“Jacobs”) may, by reason of his status as a controlling person of Wexford GP, be deemed to own beneficially the securities of which the Purchasing Entities possess beneficial ownership. Each of Wexford Capital, Wexford GP, Davidson and Jacobs shares the power to vote and to dispose of the securities beneficially owned by the Purchasing Entities. Each of Wexford Capital, Wexford GP, Davidson and Jacobs disclaims beneficial ownership of the securities owned by the Purchasing Entities and the joint statements on Schedule 13D are not an admission that they are the beneficial owners of such securities except, in the case of Davidson and Jacobs, to the extent of their personal ownership interests in any of the members of the Purchasing Entities.

(8)

Based upon a statement on Schedule 13D/A filed with the SEC on June 16, 2017. Bandera Partners LLC (“Bandera Partners”) is the investment manager of Bandera Master Fund L.P. (“Bandera Master Fund”). Bandera Master Fund has granted to Bandera Partners the sole and exclusive authority to vote and dispose of the shares held directly by Bandera Master Fund. Each of Gregory Bylinsky and Jefferson Gramm are Managing Partners, Managing Directors and Portfolio Managers of Bandera Partners. By virtue of these relationships, each of Bandera Partners and Messrs. Bylinsky and Gramm may be deemed to beneficially own the shares owned directly by Bandera Master Fund.

(9)

Based on a joint schedule 13 D/A, filed February 2, 2018. Includes 249,675 shares owned by PW Partners Atlas Fund LP, 52,575 shares owned by Mr. Walsh directly and 35,000 shares owned by PW Partners Atlas Fund II, LP. Also includes 418,169 shares that PW Partners, LLC has shared voting power.

(10)

Based upon a joint statement on Schedule 13 G filed with the SEC on February 14, 2018 by Philotimo Fund LP (“Philotimo”), Kanen Wealth Management, LLC (“KWM”) and David L. Kanen. KWM is the general partner of Philotimo and Mr. Kanen is the managing member of KWM. By virtue of these relationships KWM may be deemed to beneficially own the securities which these entities possess.

(11)

Based upon a statement on Schedule 13D/A filed with the SEC on February 14, 2018. Raging Capital Management, LLC (“Raging Capital”) is the investment manager of Raging Capital Master Fund, Ltd., a Cayman Islands exempted company (“Raging Master”) in whose name the shares are held. William C. Martin is the Chairman, Chief Investment Officer and Managing Member of Raging Capital. Raging Master has delegated to Raging Capital the sole authority to vote and dispose of the securities held by Raging Master pursuant to an investment management agreement (“IMA”). The IMA may be terminated by any party thereto effective at the close of business on the last day of any fiscal quarter by giving the other party not less than 61 days’ written notice. As a result, each of Raging Capital and William C. Martin may be deemed to beneficially own the shares held by Raging Master. Each of Raging Capital and William C. Martin disclaims beneficial ownership of the securities owned by Raging Capital and the joint statements on Schedule 13G are not an admission that they are the beneficial owners of such securities.

(12)

Based upon a statement on Schedule 13D/A filed with the SEC on December 28, 2015. Blue Clay Capital Management, LLC (“Blue Clay Capital”) is the investment manager for certain private funds (together, the “Funds”). Each of Gary Kohler and Brian Durst, through their roles at Blue Clay Capital, exercises investment discretion over the Funds and has shared power to vote and dispose of these shares.

(13)

Based upon a joint statement on Schedule 13D filed with the SEC on November 20, 2017 by FS Special Opportunities I, L.P., Farnam Street Capital, Inc., Raymond E. Cabillot and Peter O. Haeg. The reporting persons may be deemed to beneficially own the securities which these entities possess.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required byInformation in response to this Item 404(a) of Regulation S-K is hereby incorporated herein by reference to Note 16 – Related Party Transactionsour definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the accompanying consolidated financial statements. The information requiredend of the fiscal year covered by Item 407(a) of Regulation S-K is hereby incorporated by reference to Item 10. Directors, Executive Officers and Corporate Governance to this Annual Report on Form 10-K.

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Our Audit Committee is responsible for reviewing policies and procedures with respect to related party transactions required to be disclosed pursuant to Item 404(a) of the Securities and Exchange Commission’s Regulation S-K (including transactions between the Company and its officers and directors, or affiliates of such officers or directors), and approving the terms and conditions of such related party transactions. The following directors, constituting a majority of the board, are “independent directors” as such term is defined in Rule 5605(a)(2) of the Nasdaq Stock Market’s Marketplace Rules: Eric S. Hirschhorn, Joseph M. Jacobs, Charles W. Mooty, Richard A. Shapiro, and Bryan L. Wolff.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

We have selected and appointed Grant Thornton LLP (“Grant Thornton”) asInformation in response to this Item is incorporated herein by reference to our independent registered public accounting firmdefinitive proxy statement to audit our consolidated financial statements forbe filed pursuant to Regulation 14A within 120 days after the end of the fiscal year ended December 31, 2017. Our Audit Committee charter requires that the Audit Committee pre-approve all services providedcovered by our independent registered public accounting firm. All engagements of our independent registered public accounting firm for the fiscal years ended December 31, 2017 and January 1, 2017 were pre-approved by the Audit Committee. Grant Thornton billed us a total of $395,985 and $381,143 for the years ended December 31, 2017 and January 1, 2017, respectively.this Annual Report on Form 10-K.

Audit Fees – Audit fees billed by Grant Thornton were $375,705 and $361,643 for the audits of our 2017 and 2016 financial statements during the years ended December 31, 2017 and January 1, 2017, respectively.​

Audit Related Fees – Audit-related fees billed by Grant Thornton were $20,280 and $19,500 for the audits of our 2016 and 2015 401(k) financial statements during the years ended December 31, 2017 and January 1, 2017, respectively.

Tax Fees – There were no tax fees billed by Grant Thornton during the years ended December 31, 2017 and January 1, 2017.

All Other Fees –There were no other fees billed by Grant Thornton during the years ended December 31, 2017 and January 1, 2017.

PART IV

ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

​

​

​

Documents filed as part of this Annual Report on Form 10‑K:10-K:

    

​

Report of Independent Registered Public Accounting Firm

​

F-1

Consolidated Balance Sheets – January 3, 2021 and December 31, 2017 and January 1,29, 2019  2017

​

F-2F-5

Consolidated Statements of Operations – Fiscal Years ended January 3, 2021 and December 31, 2017 and January 1, 201729, 2019

​

F-3F-6

Consolidated Statements of Shareholders’ Equity – Fiscal Years ended January 3, 2021 and December 31, 2017 and January 1, 201729, 2019

​

F-4F-7

Consolidated Statements of Cash Flows – Fiscal Years ended January 3, 2021 and December 31, 2017 and January 1, 201729, 2019

​

F-5F-8

Notes to Consolidated Financial Statements

​

F-7F-9

Financial Statement Schedule:

​

F-32F-37

Schedule II. Schedule of Valuation and Qualifying Accounts

​

F-32F-37

​

Exhibits:

See "exhibit index"“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.10-K.

ITEM 16.FORM16.FORM 10-K SUMMARY

Not applicable.

​

​

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Report of Independent Registered Public Accounting Firm

​

Board of Directors and Shareholders

Famous Dave’s of America,BBQ Holdings, Inc.

​

Opinion on the financial statementsFinancial Statements

​

We have audited the accompanying consolidated balance sheetssheet of Famous Dave’s of America,BBQ Holdings, Inc. (a( a Minnesota corporation) and subsidiaries (the “Company”) as of December 31, 2017January 3, 2021, and January 1, 2017, the related consolidated statementsstatement of operations, shareholders’ equity, and cash flows for the yearsyear 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 31, 2017 and January 1, 20173, 2021, and the results of its operations and its cash flows for the yearsyear then ended in conformity with accounting principles generally accepted in the United States of America.

​

The financial statements of the Company as of December 29, 2019, were audited by other auditors whose report dated March 27, 2020, expressed an unqualified opinion on those statements.

​

Basis for opinionOpinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sthese financial statements based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”("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 auditsaudit 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 auditsaudit 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 entity’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit 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 regarding the amounts and disclosures in the financial statements. Our audit 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 audit provides a reasonable basis for our opinion.

Critical Audit Matters

​

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

​

Evaluation of long-lived assets for impairment

Operating lease –right-of-use assets were $61.6 million as of January 3, 2021. The Company evaluates 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

F-1

Table of Contents

terms, discount rate and other factors. Based upon the analyses performed and primarily resulting from several COVID-19 pandemic factors, including significant reduction in guest traffic at the restaurants, state and local government mandated restrictions including suspension of dine-in operations, and resulting changes in consumer behavior, the Company recognized pre-tax impairment charges for long-lived assets of $5.5 million in fiscal 2020.

​

We identified the evaluation of long-lived assets for impairment as a critical audit matter. Subjective auditor judgment was required to evaluate the effects of expected useful lives of the long-lived assets and the forecasted cash flows to be generated by the asset groups, specifically forecasted sales and forecasted expenses, including the effects of the COVID-19 pandemic and resulting duration of the economic downturn. Furthermore, in determining the fair value of certain long-lived assets, involvement of valuation professionals with specialized skills and knowledge was required to assess certain discount rates used in the impairment models.

​

The primary procedures we performed to address this critical audit matter included the following. We evaluated the Company’s ability to accurately forecast future sales and expenses by comparing actual results to the Company’s historical forecasts. We performed sensitivity analyses over future sales and expense assumptions and expected useful lives to evaluate the change in the impairment analysis resulting from changes in these specific assumptions. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

​

– assessing the methodology used to determine the fair value of right-of-use assets;

​

– evaluating the discount rates by comparing them to publicly available market data for comparable entities and assessing the resulting discount rates.

​

Business Combination – Granite City Acquisition

On March 9, 2020, the Company completed the acquisition of certain Granite City restaurants. The Company accounted for the acquisition using the purchase method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values at the acquisition date. As a result of the acquisition, management recorded $8.3 million of identifiable intangible assets. The most significant identifiable intangible assets acquired were Trade Names/Trademarks of $7.7 million. The Company estimated the fair value of the Trade Names/Trademarks using the relief from royalty method, which is a discounted cash flow method. The fair value determination of the Trade Names/Trademarks intangible assets required management to make significant estimates and assumptions related to forecasted future cash flows, including the selection of royalty rates, terminal growth rates, and discount rates.

​

We identified the Trade Names/Trademarks intangible assets for Granite City as a critical audit matter because of the significant estimates and assumptions management made to fair value these assets. This required a high degree of auditor judgment and an increased extent of effort, including the involvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows, including the selection of royalty rates, terminal growth rates, and discount rates.

​

Our audit procedures related to the forecasts of future cash flows and the selection of the royalty rates, terminal growth rates, and discount rates for the Trade Names/Trademarks intangible assets for Granite City included the following, among others:

​

- assessing the reasonableness of fiscal year forecasted cash flows of revenues and operating margins by comparing them to Granite City’s actual cash flows.

​

- assessing the reasonableness of the forecasted revenue growth rates and operating margins over the cash flow forecast period by comparing them to Granite City’s actual revenue growth rates and operating margins during the most recent historical periods.

​

- performing sensitivity analyses of the significant assumptions used in the valuation model to evaluate the change in fair value resulting from changes in the significant assumptions.

​

F-2

Table of Contents

- with the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodologies; (2) royalty rates by testing the source information used to compare market royalty rates associated with comparable licensing agreements; (3) terminal growth rates by comparing them to industry growth rates and the projected nominal gross domestic product (GDP) growth rate; and (4) discount rates, which included testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.

​

Allowance for deferred tax assets

The Company recognizes deferred income tax assets and liabilities for the estimated future tax effects attributable to temporary differences and carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized in the future. Future realization of deferred tax assets depends on the existence of sufficient taxable income within the carryback or carryforward period of the appropriate character under the relevant tax law. Sources of taxable income include future reversals of deferred tax assets and liabilities, future taxable income, taxable income in prior carryback year(s) if permitted under the tax law, and tax planning strategies. The Company’s valuation allowance for deferred tax assets was $1.4 million as of January 3, 2021.

​

The Company’s determination of the valuation allowance involves estimates. Management’s primary estimate in determining whether a valuation allowance should be established is the projection of future sources of taxable income. Auditing management’s estimate of future sources of taxable income, which affects the recorded valuation allowances, required a high degree of audit judgment, and included the need to involve our income tax specialists.

​

Our audit procedures related to estimated future sources of taxable income included the following, among others:

​

- with the assistance of our income tax specialists, we considered relevant tax laws and regulations in evaluating the appropriateness of management’s estimates of future sources of taxable income.

​

- evaluating management’s ability to accurately estimate future sources of taxable income by comparing actual results to management’s historical estimates. Further, we evaluated the reasonableness of management’s estimates of future sources of taxable income by comparing the estimates to historical sources of taxable income or losses and minutes of the Board of Directors.

​

With the assistance of our income tax specialists, we evaluated whether the estimated future sources of taxable income were of the appropriate character to utilize the deferred tax assets under tax law.

​

We evaluated management’s assessment that it is more likely than not that sufficient taxable income will be generated in the future to utilize the net deferred tax assets.

​

​

/s/ Schechter, Dokken, Kanter, Andrews & Selcer, Ltd.

​

We have served as the Company’s auditor since 2020.

​

Minneapolis, Minnesota

April 2, 2021

​

​

​

​

​

​

​

​

​

F-3

Table of Contents

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 sheet of BBQ Holdings Inc. (a Minnesota corporation) and subsidiaries (the “Company”) as of December 29, 2019, the related consolidated statements of operations, shareholders’ equity, and cash flows for the year 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 the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

​

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 audit. 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 audit 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 audit 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 auditsaudit 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 supportingregarding the amounts and disclosures in the financial statements. Our auditsaudit 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 provideaudit provides a reasonable basis for our opinion.

​

/s/ Grant Thornton LLP

​

We have served as the Company’s auditor since 2002.from 2002 through 2020.

​

Minneapolis, Minnesota

March 5, 201827, 2020

F-1F-4

Table of Contents

FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

December 31, 2017

    

January 1, 2017

Cash and cash equivalents

 

$

8,836

 

$

4,450

Restricted cash

 

 

1,590

 

 

1,714

Accounts receivable, net of allowance for doubtful accounts of $592,000 and $271,000, respectively

 

 

3,768

 

 

5,257

Inventories

 

 

633

 

 

1,499

Prepaid income taxes and income taxes receivable

 

 

689

 

 

2,168

Prepaid expenses and other current assets

 

 

793

 

 

1,326

Assets held for sale

 

 

475

 

 

 1

Total current assets

 

 

16,784

 

 

16,415

 

 

 

 

 

 

 

Property, equipment and leasehold improvements, net

 

 

11,442

 

 

25,912

 

 

 

 

 

 

 

Other assets:

 

 

  

 

 

  

Intangible assets, net

 

 

1,840

 

 

2,602

Deferred tax asset

 

 

5,823

 

 

4,633

Other assets

 

 

1,018

 

 

1,383

 

 

$

36,907

 

$

50,945

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

  

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

  

 

 

  

Current portion of long-term debt and financing lease obligations

 

$

1,307

 

$

1,371

Accounts payable

 

 

4,365

 

 

5,311

Accrued compensation and benefits

 

 

1,545

 

 

1,321

Other current liabilities

 

 

3,118

 

 

3,140

Total current liabilities

 

 

10,335

 

 

11,143

 

 

 

  

 

 

  

Long-term liabilities:

 

 

  

 

 

  

Long-term debt, less current portion

 

 

7,932

 

 

8,849

Financing lease obligation, less current portion

 

 

1,196

 

 

2,280

Other liabilities

 

 

3,963

 

 

8,705

Total liabilities

 

 

23,426

 

 

30,977

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

  

 

 

  

Common stock, $.01 par value, 100,000 shares authorized, 7,376 and 6,958 shares issued and outstanding at December 31, 2017 and January 1, 2017, respectively

 

 

70

 

 

66

Additional paid-in capital

 

 

1,460

 

 

 —

Retained earnings

 

 

11,951

 

 

19,902

Total shareholders’ equity

 

 

13,481

 

 

19,968

 

 

$

36,907

 

$

50,945

​

​

​

​

​

​

​

ASSETS

​

​

​

​

​

​

Current assets:

 

January 3, 2021

    

December 29, 2019

Cash and cash equivalents

​

$

18,101

​

$

5,325

Restricted cash

​

 

1,502

​

 

761

Accounts receivable, net of allowance for doubtful accounts of $277,000 and $132,000, respectively

​

 

4,823

​

 

4,379

Inventories

​

 

2,271

​

 

1,346

Prepaid income taxes and income taxes receivable

​

​

—

​

​

264

Prepaid expenses and other current assets

​

 

1,252

​

 

1,356

Assets held for sale

​

 

1,070

​

 

2,842

Total current assets

​

 

29,019

​

 

16,273

​

​

​

​

​

​

​

Property, equipment and leasehold improvements, net

​

 

32,389

​

 

19,756

​

​

​

​

​

​

​

Other assets:

​

 

  

​

 

  

Operating lease right-of-use assets

​

​

61,634

​

​

25,962

Goodwill

​

​

601

​

​

640

Intangible assets, net

​

 

9,967

​

 

2,213

Deferred tax asset, net

​

 

4,934

​

 

6,646

Other assets

​

 

1,724

​

 

1,591

​

​

$

140,268

​

$

73,081

​

​

​

​

​

​

​

LIABILITIES AND SHAREHOLDERS’ EQUITY

​

 

  

​

​

​

​

​

​

​

​

​

​

Current liabilities:

​

 

  

​

 

  

Accounts payable

​

$

6,385

​

$

3,967

Current portion of lease liabilities

​

​

6,185

​

​

4,230

Current portion of long-term debt

​

​

2,111

​

​

616

Accrued compensation and benefits

​

 

2,390

​

 

2,694

Other current liabilities

​

 

9,766

​

 

4,975

Total current liabilities

​

 

26,837

​

 

16,482

​

​

 

  

​

 

  

Long-term liabilities:

​

 

  

​

 

  

Lease liabilities, less current portion

​

​

63,105

​

​

26,957

Long-term debt, less current portion

​

 

22,169

​

 

6,258

Other liabilities

​

 

1,224

​

 

1,610

Total liabilities

​

 

113,335

​

 

51,307

​

​

​

​

​

​

​

Shareholders’ equity:

​

 

  

​

 

  

Common stock, $.01 par value, 100,000 shares authorized, 9,307 and 9,272 shares issued and outstanding at January 3, 2021 and December 29, 2019, respectively

​

 

93

​

 

93

Additional paid-in capital

​

​

8,748

​

​

7,856

Retained earnings

​

 

19,370

​

 

14,423

Total shareholders’ equity

​

 

28,211

​

 

22,372

Non-controlling interest

​

​

(1,278)

​

​

(598)

Total equity

​

​

26,933

​

​

21,774

​

​

$

140,268

​

$

73,081

See accompanying notes to consolidated financial statements.

​

F-2F-5

Table of Contents

FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

​

 

 

 

 

 

 

 

 

 

 

Year Ended

    

 

   

December 31, 2017

    

January 1, 2017

 

Revenue:

 

 

  

 

 

  

 

Restaurant sales, net

 

$

48,874

 

$

58,956

 

Franchise royalty revenue

 

 

14,732

 

 

16,375

 

Franchise fee revenue

 

 

35

 

 

290

 

Licensing and other revenue

 

 

954

 

 

1,003

 

Total revenue

 

 

64,595

 

 

76,624

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

  

 

 

  

 

Food and beverage costs

 

 

14,782

 

 

18,299

 

Labor and benefits costs

 

 

17,653

 

 

21,008

 

Operating expenses

 

 

14,658

 

 

18,729

 

Depreciation and amortization

 

 

2,785

 

 

2,873

 

General and administrative expenses

 

 

14,634

 

 

16,569

 

Asset impairment, estimated lease termination and other closing costs

 

 

6,816

 

 

4,788

 

Net loss (gain) on disposal of property

 

 

70

 

 

(149)

 

Total costs and expenses

 

 

71,398

 

 

82,117

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(6,803)

 

 

(5,493)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

  

 

 

  

 

Interest expense

 

 

(661)

 

 

(886)

 

Interest income

 

 

22

 

 

 2

 

Other expense, net

 

 

(82)

 

 

 —

 

Total other expense

 

 

(721)

 

 

(884)

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(7,524)

 

 

(6,377)

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

858

 

 

2,272

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

 

(6,666)

 

 

(4,105)

 

Net (loss) income from discontinued operations, net of tax

 

 

(1,457)

 

 

1,674

 

Net loss

 

$

(8,123)

 

$

(2,431)

 

 

 

 

 

 

 

 

 

(Loss) income per common share:

 

 

  

 

 

  

 

Basic net loss per share - continuing operations

 

$

(0.95)

 

$

(0.59)

 

Basic net (loss) income per share - discontinued operations

 

 

(0.21)

 

 

0.24

 

Basic net loss per share

 

$

(1.16)

 

$

(0.35)

 

Diluted net loss per share - continuing operations

 

$

(0.95)

 

$

(0.59)

 

Diluted net (loss) income per share - discontinued operations

 

 

(0.21)

 

 

0.24

 

Diluted net loss per share

 

$

(1.16)

 

$

(0.35)

 

Weighted average shares outstanding - basic

 

 

7,015

 

 

6,950

 

Weighted average shares outstanding - diluted

 

 

7,015

 

 

6,950

 

​

​

​

​

​

​

​

​

​

​

Year Ended

​

​

​

January 3, 2021

    

December 29, 2019

​

Revenue:

​

​

  

 

​

  

​

Restaurant sales, net

​

$

109,544

​

$

68,564

​

Franchise royalty and fee revenue

​

 

8,919

​

 

12,126

​

Franchisee national advertising fund contributions

​

 

1,124

​

 

1,616

​

Licensing and other revenue

​

 

1,850

​

 

1,249

​

Total revenue

​

 

121,437

​

 

83,555

​

​

​

​

​

​

​

​

​

Costs and expenses:

​

 

  

​

 

  

​

Food and beverage costs

​

 

33,867

​

 

21,541

​

Labor and benefits costs

​

 

37,228

​

 

24,565

​

Operating expenses

​

 

36,984

​

 

22,555

​

Depreciation and amortization expenses

​

 

5,121

​

 

2,231

​

General and administrative expenses

​

 

14,395

​

 

10,992

​

National advertising fund expenses

​

​

1,124

​

​

1,616

​

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

​

 

5,683

​

 

1,296

​

Pre-opening expenses

​

 

10

​

 

460

​

Gain on disposal of property, net

​

 

(1,810)

​

 

(74)

​

Total costs and expenses

​

 

132,602

​

 

85,182

​

​

​

​

​

​

​

​

​

Loss from operations

​

 

(11,165)

​

 

(1,627)

​

​

​

​

​

​

​

​

​

Other (expense) income :

​

 

  

​

 

  

​

Interest expense

​

 

(805)

​

 

(494)

​

Interest income

​

 

154

​

 

215

​

Gain on bargain purchase

​

​

13,246

​

​

—

​

Total other income (expense)

​

 

12,595

​

 

(279)

​

​

​

​

​

​

​

​

​

Income (loss) before income taxes

​

 

1,430

​

 

(1,906)

​

​

​

​

​

​

​

​

​

Income tax benefit

​

 

2,837

​

 

659

​

​

​

​

​

​

​

​

​

Net income (loss)

​

 

4,267

​

 

(1,247)

​

Net loss attributable to non-controlling interest

​

​

680

​

​

598

​

Net income (loss) attributable to shareholders

​

$

4,947

​

$

(649)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Income (loss) per common share:

​

 

  

​

 

  

​

Basic net income (loss) per share attributable to shareholders

​

$

0.54

​

$

(0.07)

​

Diluted net income (loss) per share attributable to shareholders

​

$

0.54

​

$

(0.07)

​

Weighted average shares outstanding - basic

​

 

9,155

​

 

9,099

​

Weighted average shares outstanding - diluted

​

 

9,168

​

 

9,099

​

​

See accompanying notes to consolidated financial statements.

​

F-3F-6

Table of Contents

FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

​

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Earnings

    

Total

Balance - January 3, 2016

 

6,958

 

$

66

 

$

 —

 

$

21,995

 

$

22,061

Exercise of stock options

 

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

(1)

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

312

 

 

312

Deferred compensation

 

 —

 

 

 —

 

 

 —

 

 

27

 

 

27

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(2,431)

 

 

(2,431)

Balance - January 1, 2017

 

6,958

 

$

66

 

$

 —

 

$

19,902

 

$

19,968

Issuance of common stock

 

418

 

 

 4

 

 

1,460

 

 

 —

 

 

1,464

Tax benefit for equity awards issued

 

 —

 

 

 —

 

 

 —

 

 

(55)

 

 

(55)

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

227

 

 

227

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(8,123)

 

 

(8,123)

Balance - December 31, 2017

 

7,376

 

$

70

 

$

1,460

 

$

11,951

 

$

13,481

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Additional

​

​

​

​

Total

​

​

​

​

 

​

​

​

Common Stock

​

Paid-in

​

Retained

​

Shareholders'

​

Non-controlling

​

Total

​

    

Shares

    

Amount

    

Capital

​

Earnings

​

Equity

    

Interest

    

Equity

Balance - December 30, 2018

 

9,085

​

$

91

​

$

7,375

​

$

15,075

​

$

22,541

​

$

—

​

$

22,541

Exercise of stock options

​

5

​

​

—

​

​

20

​

​

—

​

​

20

​

​

—

​

​

20

Stock-based compensation

​

182

​

​

2

​

​

461

​

​

—

​

​

463

​

​

—

​

​

463

Other

​

—

​

​

—

​

​

—

​

​

(3)

​

​

(3)

​

​

—

​

​

(3)

Net loss

 

—

​

 

—

​

 

—

​

 

(649)

​

 

(649)

​

 

(598)

​

 

(1,247)

Balance - December 29, 2019

 

9,272

​

$

93

​

$

7,856

​

$

14,423

​

$

22,372

​

$

(598)

​

$

21,774

Issuance of restricted common stock

 

34

​

 

0

​

 

(0)

​

 

—

​

 

—

​

 

—

​

 

—

Exercise of stock options

​

1

​

​

—

​

​

6

​

​

—

​

​

6

​

​

—

​

​

6

Stock-based compensation

 

​

​

 

​

​

 

886

​

 

—

​

 

886

​

 

—

​

 

886

Net income

 

—

​

 

—

​

 

—

​

 

4,947

​

 

4,947

​

 

(680)

​

 

4,267

Balance - January 3, 2021

 

9,307

​

$

93

​

$

8,748

​

$

19,370

​

$

28,211

​

$

(1,278)

​

$

26,933

​

See accompanying notes to consolidated financial statements.

​

F-4F-7

Table of Contents

FAMOUS DAVE'S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

​

 

 

 

 

 

 

 

 

 

Year Ended

 

    

December 31, 2017

    

January 1, 2017

Cash flows from operating activities:

 

 

  

 

 

  

Net loss from continuing operations

 

$

(6,666)

 

$

(4,105)

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

 

 

  

 

 

  

Depreciation and amortization

 

 

2,785

 

 

2,873

Asset impairment and estimated lease termination and other closing costs

 

 

4,012

 

 

1,956

Net loss (gain) on disposal of property

 

 

70

 

 

(149)

Amortization of deferred financing costs

 

 

36

 

 

115

Amortization of lease interest assets

 

 

37

 

 

45

Deferred income taxes

 

 

(1,245)

 

 

(142)

Deferred rent

 

 

48

 

 

583

Bad debts expense

 

 

1,172

 

 

24

Stock-based compensation

 

 

313

 

 

339

Changes in operating assets and liabilities:

 

 

  

 

 

  

Restricted cash

 

 

124

 

 

(627)

Accounts receivable, net

 

 

141

 

 

(538)

Inventories

 

 

467

 

 

564

Prepaid income taxes and income taxes receivable

 

 

1,479

 

 

(1,942)

Prepaid expenses and other current assets

 

 

473

 

 

125

Other assets

 

 

312

 

 

(673)

Accounts payable

 

 

(946)

 

 

(374)

Accrued compensation and benefits

 

 

(3)

 

 

(69)

Other current liabilities

 

 

(567)

 

 

(231)

Other liabilities

 

 

(139)

 

 

(190)

Cash flows provided by (used for) continuing operating activities

 

 

1,903

 

 

(2,416)

Cash flows provided by discontinued operating activities

 

 

1,350

 

 

2,760

Cash flows provided by operating activities

 

 

3,253

 

 

344

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

  

 

 

  

Proceeds from the sale of assets

 

 

 —

 

 

1,068

Purchases of property, equipment and leasehold improvements

 

 

(378)

 

 

(647)

Cash flows (used for) provided by continuing investing activities

 

 

(378)

 

 

421

Cash flows provided by discontinued investing activities

 

 

1,600

 

 

1,039

Cash flows provided by for investing activities

 

 

1,222

 

 

1,460

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

  

 

 

  

Proceeds from long-term debt

 

 

 —

 

 

103

Proceeds from line of credit

 

 

 —

 

 

1,855

Payments for debt issuance costs

 

 

(15)

 

 

(259)

Payments on long-term debt and financing lease obligations

 

 

(1,538)

 

 

(4,352)

Proceeds from sale of common stock

 

 

1,464

 

 

 —

Payments from exercise of stock options

 

 

 —

 

 

(1)

Cash flows used for financing activities

 

 

(89)

 

 

(2,654)

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

4,386

 

 

(850)

Cash and cash equivalents, beginning of period

 

 

4,450

 

 

5,300

Cash and cash equivalents, end of period

 

$

8,836

 

$

4,450

​

​

​

​

​

​

​

​

​

Year Ended

​

    

January 3, 2021

    

December 29, 2019

Cash flows from operating activities:

 

​

  

​

​

  

Net income (loss)

​

$

4,267

​

$

(1,247)

Adjustments to reconcile net income (loss) to cash flows provided by operations:

​

 

  

​

 

  

Depreciation and amortization

​

 

5,121

​

 

2,231

Stock-based compensation

​

 

886

​

 

463

Net gain on disposal

​

 

(1,783)

​

 

(74)

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

​

​

5,483

​

​

1,273

Gain on bargain purchase

​

​

(13,246)

​

​

—

Deferred income taxes

​

 

(2,837)

​

 

(688)

Bad debts expense (recovery)

​

​

567

​

​

239

Other non-cash items

​

​

229

​

​

291

Changes in operating assets and liabilities:

​

 

​

​

 

​

Accounts receivable, net

​

 

(1,011)

​

 

(1,582)

Other assets

​

​

(282)

​

​

(449)

Accounts payable

​

 

2,418

​

 

258

Accrued and other liabilities

​

 

2,276

​

 

1,867

Cash flows provided by operating activities

​

 

2,088

​

 

2,582

​

​

​

​

​

​

​

Cash flows from investing activities:

​

 

  

​

 

  

Proceeds from the sale of assets

​

​

2,869

​

​

33

Purchases of property, equipment and leasehold improvements

​

 

(3,499)

​

 

(6,755)

Payments for acquired restaurants

​

​

(5,381)

​

​

(6,188)

Advances on notes receivable

​

 

—

​

 

(150)

Payments received on note receivable

​

​

42

​

​

31

Cash flows used for investing activities

​

 

(5,969)

​

 

(13,029)

​

​

​

​

​

​

​

Cash flows from financing activities:

​

 

  

​

 

 ��

Proceeds from long-term debt

​

 

22,058

​

 

4,300

Payments for debt issuance costs

​

 

(45)

​

 

(54)

Payments on long-term debt

​

 

(4,621)

​

 

(175)

Proceeds from exercise of stock options

​

 

6

​

 

22

Cash provided by financing activities

​

 

17,398

​

 

4,093

​

​

​

​

​

​

​

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

​

 

13,517

​

 

(6,354)

Cash, cash equivalents and restricted cash, beginning of period

​

 

6,086

​

 

12,440

Cash, cash equivalents and restricted cash, end of period

​

$

19,603

​

$

6,086

​

​

​

​

​

​

​

​

Supplemental Disclosures

​

​

​

​

​

​

Cash paid for interest, net

​

$

1,055

​

$

244

​

​

​

​

​

​

​

Non-cash investing and financing activities:

​

​

​

​

​

​

(Decrease) in accrued property and equipment purchases

​

​

—

​

​

(39)

Gift card liability assumed pursuant to acquisitions

​

​

3,923

​

​

705

Accounts receivable settled through acquisitions

​

​

—

​

​

993

Inventory acquired pursuant to acquisitions

​

​

1,178

​

​

103

F-5

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31, 2017

    

January 1, 2017

Supplemental Disclosures

 

 

 

 

 

 

Cash paid for interest

 

$

617

 

$

975

Cash paid (refunds received) for income taxes, net

 

 

(1,842)

 

 

398

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Change in deferred taxes, recognized in additional paid-in capital

 

$

55

 

$

 —

Reclassification of additional paid-in capital to payroll taxes payable for performance shares issued

 

 

 —

 

 

215

Increase in accrued property and equipment purchases

 

 

14

 

 

10

​

See accompanying notes to consolidated financial statements.

​

​

F-6F-8

Table of Contents

FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)         NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of business

We,In September 2019 a holding company reorganization was completed in which Famous Dave’s of America, Inc. (“Famous Dave’s” orFDA”) 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”), were“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, operateThe Company develops, owns and franchiseoperates restaurants under the name "Famous Dave’s.“Famous Dave’s”, “Clark Crew BBQ”, “Granite City Food & Brewery” and “Real Urban Barbecue.” Additionally, the Company franchises restaurants under the name “Famous Dave’s”. As of December 31, 2017,January 3, 2021, there were 150125 Famous Dave’s restaurants operating in 3231 states, the Commonwealth of Puerto Rico, Canada, and the United Arab Emirates, including 1627 Company-owned restaurants and 13498 franchise-operated restaurants. AnIn October 2020, the Company signed a 25-unit development agreement with Bluestone Hospitality Group (“Bluestone”) whereby Bluestone will open Famous Dave’s ghost kitchens and dual restaurant concepts with the Johnny Carino’s Italian brand. The first Clark Crew BBQ restaurant opened in December 2019 in Oklahoma City, Oklahoma. BBQ Holdings has a 20% ownership in this venture. On March 9, 2020, the Company purchased 18 Granite City Food & Brewery restaurants (“Granite City Acquisition”) in connection with a Chapter 11 bankruptcy filing. On March 16, 2020, the Company purchased 1 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 and the United States declared a National Public Health Emergency. As a result, public health measures were taken to minimize exposure to the virus. These measures, some of which are government-mandated, have been implemented globally resulting in a dramatic decrease in economic activity. “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. In some areas, these restrictions have discouraged or precluded even carry-out orders. Further, the COVID-19 pandemic has precipitated significant job losses and a national economic downturn that typically impacts the demand for restaurant food service. From mid-March through April, all of the Company's restaurants operated 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. Beginning in May, the Company gradually began opening its restaurants for dine-in at 25% to 50% capacity pursuant to the regulations of the jurisdictions in which the Company operates. While all but one of the Company-owned restaurants began operating under limited-capacity in-store dining by mid-June 2020, in late October, some locations were required to reduce or eliminate in-store dining due to new COVID restrictions. Although the Company has experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on its business remains uncertain, the duration and scope of which cannot currently be predicted. The Company cannot predict what additional 61 franchiserestrictions may be enacted, to what extent it can maintain off-premise sales volumes or if individuals will be comfortable returning to its dining rooms during or following social distancing protocols, and what long-lasting effects the COVID-19 pandemic may have on the restaurants were committedindustry as a whole. The extent of the reopening process, along with the potential impact of the COVID-19 pandemic on consumer spending behavior, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, will determine the significance of the impact to the Company’s operating results and financial position.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management is continually evaluating the impact of this global crisis on its financial condition, liquidity, operations, suppliers, industry, and workforce and will take additional actions as necessary. Management delayed making certain rent payments on its leased properties and continues to negotiate with its landlords. The Company deferred the March through June royalties due from their franchisees and offered a discount on deferred payments remitted prior to June 30, 2020. On April 30, 2020, 2 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

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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. Subsequently, 2 of the Company’s subsidiaries borrowed approximately $921,000 in the aggregate under the above referenced program in May 2020 (see Note 8 Long-term Debt). The Company was very fortunate to be developed through signed areaable to utilize the program for each of its subsidiaries. As a nano-cap public restaurant organization, the Company’s access to capital differs greatly from its larger competitors. The Company requires these funds to retain, recall, and pay its loyal employees. The Covid-19 pandemic led to a government-required shut down of dining rooms, and with the Paycheck Protection Program funds, the Company has been able to continue serving customers. While each state mandates the extent of government restrictions, those restrictions continue to suppress revenues at each of the Company’s stores, thus inhibiting the Company’s ability to build upon its cash position. Should government restrictions increase, the Company’s cash position could be further diminished. After a thorough review and consultation with advisors, pursuant to the guidance provided by Small Business Administration, the Company was able to certify with a high level of confidence that it met the requirements of the loans. The Company continues 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 it, its customers, and its vendors. Remote work arrangements have been established for the Company’s employees to the extent possible in order to maintain financial reporting systems.

The duration of the disruption on global, national, and local economies cannot be reasonably estimated at this time. Due to the rapid development agreementsand 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 December 31, 2017.operations is uncertain.

Seasonality

OurThe Company’s Famous Dave’s restaurants typically generate higher revenue in the second and third quarters of ourits fiscal year as a result of seasonal traffic increases and high catering sales experienced during the summer months, and lowermonths. The Company’s Granite City restaurants typically generate higher revenue in the firstsecond and fourth quarters of ourits fiscal year as a result of warmer weather and increased patio seating in the second quarter and holiday activity in the fourth quarter. However, due to possible adverse weather which can disrupt customersafety concerns and team member transportationgovernment regulations related to our restaurants.COVID-19, in fiscal year 2020, the Company was not able to realize the higher revenue from catering sales and holiday events as it has historically.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the 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 tothe Company 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.

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Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation of discontinued operations.BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial instruments 

Due to their short-term nature, the carrying value of ourthe Company’s current financial assets and liabilities approximates their fair value. The fair value of long-term debt approximates the carrying amount based upon ourthe Company’s expected borrowing rate for debt with similar remaining maturities and comparable risk.

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FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment reporting

We haveThe Company has Company-owned and franchise-operated restaurants in the United States, the Commonwealth of Puerto Rico, Canada and the United Arab Emirates, and operate within the single industry segment of foodservice. We makeManagement makes operating decisions on behalf of the Famous Dave’sBBQ 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 havethe Company has concluded that we haveit has a single reporting segment.

Fiscal year

OurThe Company’s fiscal year ends on the Sunday nearest to December 31 of each year. OurThe Company’s fiscal year is generally 52 weeks; however, it periodically consists of 53 weeks. The fiscal yearsyear ended January 3, 2021 (fiscal 2020) consisted of 53 weeks while the fiscal year ended December 31, 201729, 2019 (fiscal 2017) and January 1, 2017 (fiscal 2016)2019) consisted of 52 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. AsIn May 2020, the Company invested $3.5 million in a certificate of December 31, 2017deposit (CD) through Choice Bank. The interest rate on this CD is 3.0% with an annual percentage yield of 3.04%. Interest is compounded every 30 days and January 1, 2017, our uninsuredthe CD automatically renews monthly. This balance is included with cash and restricted cash balances were $9.0 million and $7.1 million, respectively. There have been no losses of uninsured amounts.equivalents on the Company’s balance sheet.

​

Restricted cash and marketing fund

We haveThe Company has a system-wide Marketing Development Fund, to which most Company-owned Famous Dave’s restaurants, in addition to the majority of franchise-operated, restaurants, contribute a percentage of net sales, currently 1.0%, 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. The Company also receives funds from its suppliers to be used exclusively for point-of-sale equipment purchases for its own stores as well as its franchisees. As the assets held by this fundthese funds are considered to be restricted. Accordingly, we reflectrestricted, the Company reflects the cash related to this fundthese funds within restricted cash and reflect the liability within accounts payableaccrued expenses on ourits consolidated balance sheets. WeThe Company had approximately $1.3$1.5 million and $946,000$761,000 in this fundthese funds as of January 3, 2021 and December 31, 2017 and January 1, 2017,29, 2019, respectively.

In conjunction with our credit agreements, we have deposited amounts for undrawn letters of credit in cash collateral accounts. We had approximately $298,000 and $768,000 in restricted cash as of December 31, 2017 and January 1, 2017, respectively, related to these undrawn letters of credit.

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FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts receivable, net 

We provideThe Company provides an allowance for uncollectible accounts on accounts receivable based on historical losses and existing economic conditions, when relevant. We provideThe Company provides 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 havethe Company has periodically established a specific reserve on certain receivables as necessary. In assessing recoverability of these receivables, we makethe Company makes 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.submit. 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. AccountsIn fiscal 2020, the Company recorded approximately $403,000 in bad debt related to the discount it offered franchisees as a result of the pandemic on deferred payments remitted prior to June 30, 2020 as described above. Exclusive of that one-time adjustment, accounts receivable balances written off have not exceeded allowances provided and we believethe Company believes 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 ofThe Company’s reserve for bad debt was $277,000 and $132,000 at January 3, 2021 and December 31, 2017, we had a receivable from one franchisee in the amount of $509,000, of which a portion is reserved in accordance with our standard policies.29, 2019, respectively.

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.

Assets Held for Sale

As of January 3, 2021, the Company had assets held for sale of approximately $1.1 million related to an owned property for which it has entered into agreements to sell for a contract purchase price of $2.5 million. In September 2020, the Company sold the building and improvements at its Coon Rapids, Minnesota location, which had a carrying value of approximately $2.7 million, for a gross purchase price of $3.6 million. After standard closing costs, the Company recorded a gain of approximately $937,000 and used proceeds of approximately $3.5 million to pay down its loan with Choice Financial Group (Note 8 Long-term Debt).

Property, equipment and leasehold improvements, net

Property, equipment and leasehold improvements are stated at cost, net of accumulated depreciation. We recognizeThe Company recognizes depreciation expense utilizing the straight-line method once an asset has been placed into service. The following table outlines the useful lives of ourthe Copmpany’s major classes of property, equipment and leasehold improvements:

​

​

​

​

​

Land

​

​

N/A

Buildings

​

​

30 years

Leasehold improvements

​

​

0 - 30 years

Furniture, fixtures, equipment and equipmentsoftware (excluding restaurant signage)

​

​

3 - 7 years

Restaurant signage

​

​

10 - 15 years

Decor

​

​

7 years

We capitalize​

The Company capitalizes 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 capitalizeThe Company capitalizes construction overhead costs until the time a

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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 sitesManagement reviews property and other long-lived assetsequipment, including leasehold improvements for impairment wheneverwhen events or changes in circumstances indicate thatthese assets might be impaired pursuant to the FASB accounting guidance on impairment or disposal of long-lived assets. The Company’s management considers such factors as the Company’s history of losses and the disruptions in the overall economy in preparing an analysis of its property, including leasehold improvements, to determine if events or circumstances have caused these assets to be impaired. Management bases this assessment upon the carrying amountvalue versus the fair market value of the asset mayand whether or not bethat difference is recoverable. Recoverability of restaurant sites to be heldSuch assessment is performed on a restaurant-by-restaurant basis and used is measured by a comparisonincludes other relevant facts and circumstances including the physical condition of the asset. If management determines the carrying amountvalue of the restaurant site toassets exceeds the undiscountedprojected future netundiscounted cash flows, expectedan impairment charge would be recorded 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 whichreduce the carrying amountvalue of the restaurant site exceeds itsassets to their fair value. Fair value is estimated based on

In fiscal 2020, the best information availablefinancial performance of the Company’s restaurants in Grand Junction, Colorado, Colorado Springs, Colorado, Madison, Wisconsin, Westbury, New York and Minneapolis, Minnesota including estimated futurea history of negative cash flows, expected growth ratesflow as well as decreases in comparable restaurant sales, remaining lease terms and other factors.caused the Company to record impairment losses. The recorded impairment losses of the carrying value of each restaurant’s assets consisted of the following:

​

​

​

​

​

​

​

​

​

​

​

Location

​

​

FF&E

​

​

ROU Asset

​

​

Total

(dollars in thousands)

​

​

​

​

​

​

​

​

​

Westbury, NY

​

$

948

​

$

-

​

$

948

Colorado Springs, CO

​

​

462

​

​

97

​

​

559

Grand Junction, CO

​

​

1,032

​

​

1,187

​

​

2,219

Madison, WI

​

​

164

​

​

820

​

​

984

Minneapolis, MN

​

​

503

​

​

319

​

​

822

​

​

$

3,109

​

$

2,423

​

$

5,532

F-9

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FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

We haveThe Company has 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 reviewThe Company reviews 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.

We have lease interestGoodwill represents the excess of cost over the fair value of identified net assets thatof 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 reflected within intangible assets, net on our consolidated balance sheets.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. In fiscal year 2020, the Company adopted the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplified the accounting for goodwill impairment and reduced the cost and complexity of accounting for goodwill. ASU 2017-04 removes Step 2 of the goodwill impairment test, which required 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. The currentfair value assessment could change materially if different estimates and long-term portionassumptions were used. NaN goodwill impairment charges were recognized during the years ended January 3, 2021 and December 29, 2019. In fiscal year 2020, the Company wrote off $39,000 of lease interest liabilities are reflected withingoodwill in conjunction with the other current liabilities and other liabilities line items on our consolidated balance sheets, respectively. Lease interest assets and liabilitiesclosure of its Colorado Springs, CO location.

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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reacquired franchise rights are amortized to rent expense over the termlife of the leases to which they relate.related franchise agreement. The Company evaluates reacquired franchise rights in conjunction with its impairment evaluation of long-lived assets.

Advertising

Advertising costs are charged to expense as incurred. Advertising costs were approximately $2.2$2.7 million and $2.0$2.8 million for the years ended January 3, 2021 and December 31, 2017 and January 1, 2017,29, 2019, 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. Advertising costs incurred related to our national advertising fund are netted with contributions from our Company-owned stores and certain of our franchisees.

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 $382,000$473,000 and $510,000 $489,000 for the years ended January 3, 2021 and December 31, 2017 and January 1, 2017,29, 2019, 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 did not incur anyincurred approximately $10,000 and $460,000 of pre-opening expenses during the years ended January 3, 2021 and December 31, 201729, 2019.

Leases

The Company leases the property for its corporate headquarters, most of its Company-owned stores, and Januarycertain office and restaurant equipment. Beginning in fiscal 2019, the Company adopted ASU 2016-02 - Leases (Topic 842). Under this standard, 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. 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 the Company’s leases do not provide an implicit rate of return, the Company uses its 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 1 2017.

Leases

We recognize rentor more five-year renewal options and generally require the Company to pay a proportionate share of real estate taxes, insurance, common area, and other operating costs in addition to a base or fixed rent. The Company 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, the Company decided to utilize the package of practical expedients and the practical expedient to not reassess certain land easements. The Company decided not to utilize the practical expedient to use hindsight. Certain of its leases also provide for ourvariable 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. The Company’s 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 the Company will exercise that option. Rent expense is recognized on a straight-line basis for 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 amortized as a credit to rent expense over the full term of the lease, including reasonably assured renewal options and build-out periods.

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FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Exit and disposal costs

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 ceasethe Company ceases using a property under an operating lease, we record a liability forit removes the net present valueremaining balance of any remaining lease obligations, net of estimated sublease income.the ROU asset. Any subsequent adjustments to thatthe related liability as a result of lease termination or changes in estimates of sublease income 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.

Costsand any 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) income per common share

Basic net (loss) income per common share (“EPS”) is computed by dividing net (loss) income by the weighted average number of common shares outstanding for the reporting period. Diluted EPS equals net (loss) 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:

 

 

 

 

 

 

 

 

 

 

Year Ended

 

(in thousands, except per share data)

   

December 31, 2017

    

January 1, 2017

 

Net (loss) income per share – basic:

 

 

  

 

 

  

 

Net loss from continuing operations

 

$

(6,666)

 

$

(4,105)

 

Net (loss) income from discontinued operations, net of tax

 

 

(1,457)

 

 

1,674

 

Net loss

 

 

(8,123)

 

 

(2,431)

 

Weighted average shares outstanding - basic

 

 

7,015

 

 

6,950

 

Basic net loss per share - continuing operations

 

$

(0.95)

 

$

(0.59)

 

Basic net (loss) income per share - discontinued operations

 

 

(0.21)

 

 

0.24

 

Basic net loss per share

 

$

(1.16)

 

$

(0.35)

 

 

 

 

 

 

 

 

 

Net (loss) income per share – diluted:

 

 

  

 

 

  

 

Net loss from continuing operations

 

$

(6,666)

 

$

(4,105)

 

Net (loss) income from discontinued operations, net of tax

 

 

(1,457)

 

 

1,674

 

Net loss

 

 

(8,123)

 

 

(2,431)

 

Weighted average shares outstanding - diluted

 

 

7,015

 

 

6,950

 

Diluted net loss per share - continuing operations

 

$

(0.95)

 

$

(0.59)

 

Diluted net (loss) income per share - discontinued operations

 

 

(0.21)

 

 

0.24

 

Diluted net loss per share

 

$

(1.16)

 

$

(0.35)

 

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

(in thousands, except per share data)

   

January 3, 2021

    

December 29, 2019

​

Net income (loss) per share – basic:

​

​

  

 

​

  

​

Net income (loss) attributable to shareholders

​

$

4,947

​

$

(649)

​

Weighted average shares outstanding - basic

​

 

9,155

​

 

9,099

​

Basic net income (loss) per share attributable to shareholders

​

$

0.54

​

$

(0.07)

​

​

​

​

​

​

​

​

​

Net income (loss) per share – diluted:

​

 

  

​

 

  

​

Net income (loss) attributable to shareholders

​

$

4,947

​

$

(649)

​

Weighted average shares outstanding - diluted

​

 

9,168

​

 

9,099

​

Diluted net income (loss) per share attributable to shareholders

​

$

0.54

​

$

(0.07)

​

​

There were approximately 539,000271,176 and 683,000 191,000 stock options as of January 3, 2021 and December 31, 2017 and January 1, 2017,29, 2019, respectively that were not included in the computation of diluted EPS because they were anti-dilutive.

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FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based compensation

We recognizeThe Company recognizes 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 bonusBonus compensation of our Chief Executive Officer is issued in the form of unrestricted, freely tradable shares of ourthe Company’s common stock and is expensed in full when earned. Our pre-tax compensationCompensation cost for stock options and other incentive awards is included in general and administrative expenses in ourthe Company’s consolidated statements of operations. Seeoperations (see Note 9 “Stock-based compensation.”10 Stock-based Compensation).

Beginning in fiscal 2019, the Company 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 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.

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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

We provideThe Company provides for income taxes based on ourits 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. OurThe Company’s estimates are based on the information available to usit at the time that weit prepare the income tax provision. WeThe Company generally file ourfiles its annual income tax returns several months after ourits 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

In fiscal 2018, we will be requiredThe Company recognizes revenue at the point in time when food and services are provided to adopt ASC 606 – 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 Contracts with Customers, which will materially impactcatered events are recognized in income upon satisfaction of the way that we recognize revenue. See “Recent Accounting Guidance Not Yet Adopted” below for more information.performance obligation (the date the event is held). All customer payments, including nonrefundable upfront deposits, are deferred as a liability until such time.

We record restaurant sales at the time food and beverages are served. We record sales of merchandise items at the time items are delivered to the Guest. All sales taxes are excluded from revenue. We have detailed below our revenue recognition policies for franchise and licensing agreements.

InitialThe Company recognizes franchise fee revenue is recognized when we have performed substantially all of our obligations as franchisor. Franchise royalties are recognized when earned.

Our franchise-related revenue is comprised of three separate and distinct earnings processes:  area development fees, initial franchise fees and continuing royalty payments. Our area development fee for domestic growth consists of a one-time, non-refundable payment in consideration for the services we perform in preparation of executing each area development agreement. Area development fees are recognized in full upon receipt. We recognize a portion of franchise fees as revenue when the agreement is signed, reflecting expenses incurred related to the sale. The remaining non-refundable fee is included in deferred franchise fees and is recognized as revenue when we have performed substantially all of our obligations, which generally occurs upon the franchise entering into a lease agreement for the restaurant. Franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales.

We have a licensing agreement for our retail products, the current term of which expires in April 2020 with renewal options of five years, subject to the licensee’s attainment of identified minimum product sales levels. Licensing revenue is recorded based on royalties earned by us in accordance with our agreement.

Periodically, we provide additional services, beyond the general franchise agreement, to our franchise operations, such as new restaurant training, information technology setup and décor installation services. The cost of these services is recognized upon completion and is billed to the respective franchisee and is generally payable on net 30‑day terms.

F-12

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FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Gift cards

We record a liability in the period in which a gift card is issued and proceeds are received. As gift cards are redeemed, this liability is reduced and revenue is recognized. We recognize gift card breakage income as an offset to operating expense based on a stratified breakage rate per year. This breakage rate is based on a percentage of sales when the likelihood of the redemption of the gift card becomes remote. In fiscal 2018, we will be required to adopt ASC 606 – Revenue from Contracts with Customers, which will change the method in which we recognize breakage income in the future. See “Recent Accounting Guidance Not Yet Adopted” below for more information.

Recent Accounting Guidance

Recent accounting guidance not yet adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014‑09, Revenue from Contracts with Customers. The FASB issued ASU No. 2016‑08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” in March 2016, ASU 2016‑10 “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” in April 2016, ASU 2016‑11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014‑09 and 2014‑16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting” in May 2016 and ASU 2016‑12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” in May 2016. These new standards provide for a single, principles-based model for revenue recognition that replaces the existing revenue recognition guidance. In July 2015, the FASB deferred the effective date of ASU 2014‑09 until annual and interim periods beginning on or after December 15, 2017. It will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective. It permits the use of either a full retrospective or modified retrospective transition method and early adoption is permitted. We plan to adopt this standard as of the effective date utilizing the modified retrospective transition method.

We have reviewed a representative sample of our franchise agreements as astraight-line basis for determining the impact of the new standard on our consolidated financial statements. We have not yet finalized our conclusions; however, we believe that the new guidance will not impact the timing of revenue recognition on franchise royalty revenues, restaurant and merchandise sales or licensing and other revenue. The new guidance will require that we defer previously recognized and future revenue related to franchise fees and area development fees. Franchise fees have historically been recognized in full when a new restaurant opens, but under the new guidance, these fees will be amortized 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 extension periods,franchise agreement. The Company’s 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 generally range from 10-25 years. is satisfied equally over the life of each franchise agreement.

Area development fees have historically beenare deferred until a new restaurant is opened pursuant to the area development agreement, at which time revenue is recognized in full upon executionon 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 but under the new guidance, these fees will be recognized over the life of a future franchise agreement when each new restaurant pursuant to an area development agreement opens or upon the expiration of such agreements. We expect to report these revenues within the franchise fee revenue line item of our consolidated statements of operations. We expect to defer revenues of $2.4 million related to franchise and area development agreements and recognize additional annual revenue of approximately $224,000 on current franchise agreements. As we open new stores pursuant to area development agreements, we will recognize additional revenue of approximately $1,000 per year per store.has been executed.

Pursuant to the new guidance, the timing of revenue recognition related to giftGift card breakage will also be impacted. Historically, we haverevenue is recognized gift card breakage in full upon the sale of gift cards due to the Company’s historical experience related to gift card sales, but under the new guidance, gift card breakage will be recognized ratablyproportionately as gift cards are redeemed. The Company will reportredeemed utilizing an estimated breakage rate based on our company’s historical experience. Gift card breakage revenue related to gift card breakageis reported within the licensing and other revenue line item of itsthe consolidated statements of operations. We do not expect

The Company defers revenue associated with the estimated selling price of reward points earned pursuant to defer any previously recognized gift card breakage dueits 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 materiality.be redeemed, net of estimated unredeemed points. When a guest redeems an earned reward, the Company recognizes revenue for the redeemed product and reduces the deferred revenue. Deferred revenue associated with our loyalty program was $124,000 as of January 3, 2021.

Contract liabilities consist of deferred revenue resulting from franchise fees paid by franchisees. The Company classifies these liabilities within other current liabilities and other liabilities within the consolidated balance sheets based on the expected timing of revenue recognition associated with these liabilities.

​

​

​

​

​

​

​

​

(in thousands)

​

January 3, 2021

​

December 29, 2019

Beginning Balance

​

$

1,318

​

$

1,998

Revenue recognized

​

​

(417)

​

​

(680)

Ending Balance

​

$

901

​

$

1,318

​

F-13F-16

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FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The new revenue guidance will also impactfollowing table illustrates estimated revenues expected to be recognized in the presentationfuture related to unsatisfied performance obligations as of January 3, 2021:

​

​

​

​

​

(in thousands)

    

    

​

Fiscal Year

 

​

  

2021

​

$

95

2022

​

 

95

2023

​

 

95

2024

​

 

91

2025

​

 

84

Thereafter

​

 

441

Total

​

$

901

​

​

Revision of prior financial statements

In fiscal 2020, the Company’s consolidated statementsCompany determined that it would be more accurate to have fees charged to the Company by the various delivery service providers (“DPS”) reflected in costs of operations as it relatesrather than discounts to revenue.  These fees charged to the Company’s system-wide Public Relations and Marketing Development Fund (the “NAF”). Historically,Company do not reduce the amount of revenue but rather are additional costs incurred by the Company to allow its customers to enjoy its menu items outside of its restaurants’ dining rooms.

​

As a result, the fiscal year 2019 accounting for the DSP fees as of December 29, 2019 has netted revenues received pursuantbeen adjusted to NAF billings withreflect an increase of $1.3 million in both revenue and cost of operations. As a result, the related expenses, but underloss from operations as a percentage of revenue for fiscal year 2019 changed from (2.0)% as previously presented to (1.9)% as reported currently. The fiscal year 2019 adjustment had no effect on loss from operations, net loss, cash flow or financial position.

​

Recent Accounting Guidance

Recently adopted accounting guidance

In August 2018, the the Financial Accounting Standards Board ("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. The objective of the new guidance revenues recognized relatedis to provide additional information about assets and liabilities measured at fair value in the NAF will be presented gross as a separate line item within total revenues, withstatement of financial position or disclosed in the corresponding expense presented gross as a separate line item within operating expenses. The new guidance will not impactnotes to financial statements. New incremental disclosure requirements include the timingamount of revenue recognition as it relatesfair value hierarchy level 3 changes in unrealized gains and losses and the range and weighted average used to the NAF.

In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842), which supersedes the existing guidancedevelop significant unobservable inputs 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 are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for all entities. ASU 2016‑02 requires a modified retrospective 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.level 3 fair value measurements. The Company expects to adoptadopted this new standard asguidance during the first quarter of the effective date and is currently evaluating the impact2020. The adoption of this new standardguidance did not have a material impact on its consolidated financial statements, but expects that it will have a material impact because of the Company’s significant leasing activity.statements.

​

In MayJanuary 2017, the FASB issued ASU 2017-05, Compensation2017-04, Intangibles – Stock CompensationGoodwill and Other (Topic 718), to provide clarity and reduce both diversity in practice and cost and complexity when applying350): Simplifying the Test for Goodwill Impairment. This new guidance in Topic 718 to a change tosimplifies the terms or conditions of a share-based payment award. The updated standard clarifies when an entity should accountaccounting for goodwill impairment by eliminating step two from the effects of a modification. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted.goodwill impairment test. The Company does not believe thatadopted this amendment during the first quarter of 2020. The adoption of the new standard willthis guidance did not have a material impact on its consolidated financial statements.

​

Recent Accounting Guidance Not Yet Adopted

In December 2019, the FASB issued Update 2019-12, Income Taxes ("Topic 740") as part of its Simplification Initiative. This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for annual and interim

F-17

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

reporting periods beginning after December 15, 2020, and early adoption is permitted. The Company plans to adopt during the first quarter of 2021, and it expects an immaterial impact to the consolidated financial statements.

​

(2) RESTAURANT ACQUISITIONS

On March 4, 2019, the Company completed the acquisition of the assets and operations of 4 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, the Company completed the acquisition of the assets and operations of 1 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 the Company reduced the cash required to be paid for the purchase price. The Company 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

​

$

13

Inventory

​

​

176

Property, plant, equipment and leasehold improvements, net

​

​

3,139

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

​

​

6,729

Identifiable intangible assets, net

​

​

1,368

Total identifiable assets acquired

​

​

11,425

Liabilities assumed:

​

​

​

Gift card liability

​

​

(182)

Lease liability

​

​

(7,116)

Net assets acquired

​

​

4,127

Goodwill

​

​

373

Total consideration transferred

​

$

4,500

​

On July 10, 2019, the Company completed the acquisition of the assets and operations of 4 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 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. The Company 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.

F-18

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

​

$

12

Inventory

​

​

103

Property, plant, equipment and leasehold improvements, net

​

​

5,177

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

​

​

731

Total identifiable assets acquired

​

​

6,023

Liabilities assumed:

​

​

​

Gift card liability

​

​

(428)

Lease liability

​

​

(2,992)

Net assets acquired

​

​

2,603

Goodwill

​

​

415

Total consideration transferred

​

$

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

​

​

​

​

$

15

Inventory

​

​

​

​

​

202

Property, plant, equipment and leasehold improvements, net

​

​

​

​

​

362

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

​

​

​

​

​

6,109

Identifiable intangible assets, net

​

​

​

​

​

728

Total identifiable assets acquired

​

​

​

​

​

7,416

Liabilities assumed:

​

​

​

​

​

​

Gift card liability

​

​

​

​

​

(71)

Lease liability

​

​

​

​

​

(6,715)

Net assets acquired

​

​

​

​

​

630

Gain on bargain purchase

​

​

​

​

​

(178)

Total consideration transferred

​

​

​

​

$

452

​

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 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

F-19

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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 as of the end fiscal 2020.

The following table presents the 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

​

​

(4,752)

Net assets acquired

​

​

18,580

Gain on bargain purchase

​

​

13,246

Total cash consideration

​

$

5,334

​

Unaudited pro forma results of operations for the fiscal years ended January 3, 2021 and December 29, 2019 as if the Company had acquired the operations of the above referenced acquisitions 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.

​

​

​

​

​

​

​

​

​

​

Fiscal Years Ended

​

​

January 3, 2021

​

December 29, 2019

(in thousands)

​

​

​

​

Pro forma revenues

​

$

133,841

​

$

170,384

Pro forma net income attributable to shareholders

​

$

3,929

​

$

2,312

Basic pro forma net income per share attributable to shareholders

​

$

0.43

​

$

0.25

Diluted pro forma net income per share attributable to shareholders

​

$

0.43

​

$

0.25

​

​

​

F-20

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3)         INVENTORIES

Inventories consisted approximately of the following at:

 

 

 

 

 

 

 

(in thousands)

 

December 31, 2017

 

January 1, 2017

Food and beverage

 

$

324

 

$

711

Other

 

 

58

 

 

58

Small wares and supplies

 

 

251

 

 

730

 

 

$

633

 

$

1,499

​

​

​

​

​

​

​

​

(in thousands)

​

January 3, 2021

​

December 29, 2019

Food and beverage

​

$

1,559

​

$

798

Smallwares and supplies

​

 

712

​

 

548

​

​

$

2,271

​

$

1,346

​

​

(4)         PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS, NET

(3)The increase in property, equipment and leasehold improvements was primarily due to the Granite City Acquisition described in Note 2 Restaurant Acquision, offset in part by the impairment write down of assets as described in Note 1 Nature of Business and Significant Accounting Policies). Property, equipment and leasehold improvements, net, consisted of the following:

​

​

​

​

​

​

​

​

(in thousands)

​

January 3, 2021

​

December 29, 2019

Land, buildings, and improvements

​

$

31,731

​

$

28,185

Furniture, fixtures, equipment and software

​

 

28,373

​

 

17,880

Décor

​

 

475

​

 

584

Construction in progress

​

 

1,121

​

 

483

Accumulated depreciation and amortization

​

 

(29,311)

​

 

(27,376)

Property, equipment and leasehold improvements, net

​

$

32,389

​

$

19,756

​

​

​

(5)         INTANGIBLE ASSETS

The Company has intangible assets that consist of liquor licenses, database, trademarks and lease interest assets.patents, and reacquired franchise rights, net. The liquor licenses and trademarks/logos are indefinite-lived assets and are not subject to amortization. The lease interest assetsReacquired franchise rights are amortized to occupancy costsdepreciation and amortization expense on a straight-line basis over the remaining term of each respective lease.

A reconciliationlife of the Company’sreacquired franchise agreement. The database is amortized over three years.

The increase in intangible assets aswas due to the Granite City Acquisition described in Note 2 Restaurant Acquisition. Intangible assets consisted of December 31, 2017 and January 1, 2017, respectively, are presented in the table below:following:

 

 

 

 

 

 

 

(in thousands)

 

December 31, 2017

    

January 1, 2017

Lease interest assets, gross carrying amount

 

$

1,091

 

$

1,091

Lease interest assets, accumulated amortization

 

 

(286)

 

 

(249)

Lease interest assets, net carrying amount

 

 

805

 

 

842

Liquor licenses

 

 

1,035

 

 

1,760

Intangible assets, net

 

$

1,840

 

$

2,602

​

​

​

​

​

​

​

​

​

​

(in thousands)

​

​

​

January 3, 2021

    

December 29, 2019

Reacquired franchise rights, net

​

​

​

​

1,246

​

​

1,788

Goodwill

​

​

​

​

601

​

​

640

Liquor licenses

​

​

​

​

868

​

​

425

Trademark/Logos/Patents

​

​

​

​

7,688

​

​

-

Database

​

​

​

​

165

​

​

-

Intangible assets, net

​

​

​

$

10,568

​

$

2,853

F-14F-21

Table of Contents

FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

​

The following table provides the projected future amortization of lease interest assetsreacquired franchise rights, net for the next five years, as of December 31, 2017:

 

 

 

 

(in thousands)

 

December 31, 2017

Fiscal 2018

 

$

36

Fiscal 2019

 

 

36

Fiscal 2020

 

 

36

Fiscal 2021

 

 

36

Fiscal 2022

 

 

36

Thereafter

 

 

625

 

 

$

805

January 3, 2021:

​

​

​

​

(in thousands)

Reacquired Franchise Rights, net

Fiscal 2021

$

390

Fiscal 2022

​

390

Fiscal 2023

​

225

Fiscal 2024

​

104

Fiscal 2025

​

102

Thereafter

​

35

​

$

1,246

​

(4)         PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS, NET

As of December 31, 2017, we had assets held for sale of $475,000The Company recognized amortization expense related to onereacquired franchise rights of our stores’ liquor licenses. Duringapproximately $406,000 and $306,000 during the yearyears ended January 3, 2021 and December 31, 2017, we entered into an agreement29, 2019, respectively, and expect to sellrecognize the liquor license forremaining balance over a contract purchase priceperiod of $575,000.7 years.

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

 

 

 

 

 

 

 

(in thousands)

 

December 31, 2017

 

January 1, 2017

Land, buildings, and improvements

 

$

26,234

 

$

50,851

Furniture, fixtures, and equipment

 

 

19,884

 

 

35,609

Décor

 

 

764

 

 

1,553

Construction in progress

 

 

187

 

 

181

Accumulated depreciation and amortization

 

 

(35,627)

 

 

(62,282)

Property, equipment and leasehold improvements, net

 

$

11,442

 

$

25,912

​

​

​

(5)(6)         OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following at:

 

 

 

 

 

 

 

(in thousands)

    

December 31, 2017

 

January 1, 2017

Gift cards payable

 

$

1,000

 

$

1,448

Miscellaneous other current liabilities

 

 

668

 

 

810

Lease reserves, current

 

 

1,165

 

 

330

Sales tax payable

 

 

242

 

 

454

Accrued real estate tax

 

 

26

 

 

79

Deferred franchise fees

 

 

 —

 

 

16

Accrued property and equipment purchases

 

 

17

 

 

 3

Other current liabilities

 

$

3,118

 

$

3,140

​

​

​

​

​

​

​

​

(in thousands)

    

January 3, 2021

​

December 29, 2019

Gift cards payable

​

$

6,553

​

$

2,360

Sales tax payable

​

 

1,286

​

 

584

Other accrued expense

​

​

1,394

​

​

1,880

Accrued interest

​

 

115

​

 

—

Accrued utilities

​

​

199

​

​

—

Deferred revenue

​

​

124

​

​

—

Deferred franchise fees

​

 

95

​

 

151

Other current liabilities

​

$

9,766

​

$

4,975

​

​

F-15

Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6)(7)         OTHER LIABILITIES

Other liabilities consisted of the following at:

 

 

 

 

 

 

 

(in thousands)

    

December 31, 2017

 

January 1, 2017

Deferred rent

 

$

2,463

 

$

7,802

Miscellaneous other liabilities

 

 

730

 

 

358

Asset retirement obligations

 

 

119

 

 

119

Accrual for uncertain tax position

 

 

15

 

 

139

Long term lease reserve

 

 

514

 

 

145

Long term deferred compensation

 

 

122

 

 

142

Other liabilities

 

$

3,963

 

$

8,705

​

​

​

​

​

​

​

​

(in thousands)

    

January 3, 2021

​

December 29, 2019

Deferred rent

​

$

133

​

$

—

Deferred franchise fees

​

​

806

​

​

1,165

Miscellaneous other liabilities

​

 

26

​

 

216

Asset retirement obligations

​

 

—

​

 

3

Accrual for uncertain tax position

​

​

2

​

​

6

Long-term deferred compensation

​

 

257

​

 

220

Other liabilities

​

$

1,224

​

$

1,610

​

​

F-22

Table of Contents

(7)BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8)         LONG-TERM DEBT AND FINANCING LEASE OBLIGATIONS

Long-term debt

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 provided 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 note may be prepaid, partially or in full, at any time and for 0 prepayment penalty. The Company is subject to various financial and non-financial covenants on this debt, including a debt-service coverage ratio. The Loan Agreement is secured by a mortgage and security agreement and fixture financing statement 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, the Company’s 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.

Proceeds from the loan were used to repay the Company’s previous real estate loan, dated December 2, 2016, wewhich had an outstanding balance as of the Effective Date of approximately $2.6 million, and to purchase the assets included in the Granite City Acquisition. Pursuant to the sale of the Company’s Coon Rapids, Minnesota Famous Dave’s location on September 30, 2020, the Company paid down approximately $3.5 million in principal on this loan. As of January 3, 2021, the Company was compliant with all of its covenants.

Also on the Effective Date, the Company also entered into two loan agreements (the “Loan Agreements”) with Venture Bank (“Venture”)a Revolving Promissory Note among the Company and Choice. The Revolving Promissory Note provided for a total initial principal amount of $10.0 million as well as a revolving line of credit (the “Linefrom Choice to the Company set forth therein in the principal amount of Credit”) for up to $1.0 million.

million executed and delivered by the Company to Choice on the Effective Date. The first loan (the “Real Estate Loan”) was for a principal amount of $3.7 million and has a maturity date of December 2, 2026. The Real Estate Loan is paid in monthly installments of principal and interest, with a balloon payment at maturity. Interest is payable at a rate of 4.25% for the first five years and LIBOR plus 3.75% thereafter until maturity. The loan may be prepaid, subject to prepayment premiums as outlined in the Loan Agreements.

The second loan (the “Term Loan”) was for a principal amount of $6.3 million and has a maturity date of December 2, 2023. The Term Loan is paid in monthly installments of principal and interest with a balloon payment at maturity. Interest is payable at a rate of LIBOR plus 3.25%. The Term Loan may be prepaid at any time without penalty.

The Line of Credit hasRevolving Promissory Note had a maturity date of December 2, 2019 providesand 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 paid monthly on outstanding balances withpayable in an amount equal to the principal amount due at maturity. Interest is payable at a30-day London Interbank Offer Rate (“LIBOR”) plus 325 basis points, but in no circumstances was the rate of LIBOR plus 3.25%interest be less than 3.75%. The Revolving Promissory Note has matured and the Line of Credit may be prepaid at any time without penalty. There was no balance is due.

On April 30, 2020, FDA and Granite City, Inc. (“GC”), wholly-owned operating subsidiaries of the Company received funding of approximately $7.2 million and $5.8 million, respectively, in connection with “Small Business Loans” under the Paycheck Protection Program. Subsequently, BBQ Ventures, Inc. (“Real Urban Barbeque”) and Mercury BBQ (“Clark Crew BBQ”) received funding of approximately $121,000 and $800,000, respectively, under the above referenced program on the Line of Credit as of December 31, 2017 or January 1, 2017.

As of December 31, 2017May 6, 2020 and January 1, 2017, the weighted average interest rate on our long-term debt was 4.27% and 4.00%,May 8, 2020, respectively. The notesThese amounts were borrowed pursuant to the Loan Agreements are secured by substantially all of our assets and we are subject to various financial and non-financial covenants. As of December 31, 2017, we were in compliance with all of our covenants. In the event of a default, Venture 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 asterms of the periods presented:

 

 

 

 

 

 

 

 

    

 

 

 

(in thousands)

    

December 31, 2017

 

January 1, 2017

Real Estate Loan

 

$

3,581

  

$

3,700

Term Loan

 

 

5,515

  

 

6,300

Less: deferred financing costs

 

 

(224)

  

 

(234)

Less: current portion of long-term debt

 

 

(940)

  

 

(917)

Long-term debt, less current portion

 

$

7,932

  

$

8,849

Promissory Notes by FDA, GC, Real Urban Barbeque and Clark Crew BBQ (“PPP Loans”), in favor of Choice Financial Group, a bank operating out of the state of North Dakota. The Company was very fortunate to be able to utilize the program for each of its subsidiaries. As a nano-cap public restaurant organization, the Company’s access to capital differs greatly from its larger competitors. The Company requires these funds to retain, recall, and pay its loyal employees. The Covid-19 pandemic led to a government-required shut down of dining rooms, and with the Paycheck

F-16F-23

Table of Contents

FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Protection Program funds, the Company has been able to continue serving its customers. While each state mandates the extent of government restrictions, those restrictions continue to suppress revenues at each of the Company’s stores, thus inhibiting the Company’s ability to build upon its cash position. Should government restrictions increase, the Company’s cash position could be further diminished. After a thorough review and consultation with advisors, pursuant to the guidance provided by Small Business Administration, the Company was able to certify with a high level of confidence that it met the requirements of the loans.

The PPP Loans bear interest at 1% per annum and mature in 24 months from the date of disbursement of funds under the PPP Loans respectively. 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, GC, Real Urban Barbeque or Clark Crew BBQ would not be required to repay the PPP Loans in full. The Company has worked with its Small Business Adminstration lender and has filed the necessary paperwork with the Small Business Admiinstration for forgiveness of the PPP Loans. As of this filing, the Company has not yet heard from the Small Business Administration. If the PPP Loans are forgiven in full, no interest and principal payments will be required. Interest and principal payments under the PPP Loans will be deferred until such time the amount of forgiveness is determined.

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.

Debt outstanding under the above referenced debt agreements consisted of the following as of the periods presented:

​

​

​

​

​

​

​

​

​

    

​

​

​

(in thousands)

    

January 3, 2021

​

December 29, 2019

Term Loan

​

$

10,403

  

$

6,924

PPP Loans

​

​

13,957

​

​

—

Less: deferred financing costs

​

 

(80)

  

 

(50)

Less: current portion of long-term debt

​

 

(2,111)

  

 

(616)

Long-term debt, less current portion

​

$

22,169

  

$

6,258

​

Future minimum principal payments on long-term debt, as of December 31, 2017,January 3, 2021 were as follows:

 

 

 

 

(in thousands)

    

    

 

Fiscal Year

 

 

  

2018

 

$

940

2019

 

 

981

2020

 

 

1,023

2021

 

 

1,069

2022

 

 

1,116

Thereafter

 

 

3,967

Total

 

$

9,096

Financing Lease Obligation

On March 31, 1999, we completed a sale leaseback transaction for three properties which provides us with the option to repurchase the properties at the end of the lease term. Because of our continuing involvement in the properties, the transaction is being accounted for as a financing arrangement. In March 2017, we amended the lease agreement to remove one of the properties from the arrangement. As of December 31, 2017, the weighted-average interest rate of our financing lease obligations was approximately 7.78%.​

​

​

​

​

(in thousands)

    

    

​

Fiscal Year

 

​

  

2021

​

$

2,111

2022

​

 

16,177

2023

​

 

2,335

2024

​

 

2,457

2025

​

 

1,280

Total

​

$

24,360

Financing lease obligation consisted of approximately the following as of the periods presented:

 

 

 

 

 

 

 

(in thousands)

    

December 31, 2017

    

January 1, 2017

Financing lease obligation

 

$

1,576

 

$

2,757

Less: deferred financing costs

 

 

(13)

 

 

(23)

Less: current portion of financing lease obligation

 

 

(367)

 

 

(454)

Financing lease obligation, less current portion

 

$

1,196

 

$

2,280

Future minimum principal payments on financing lease obligations, as of December 31, 2017, were as follows:

 

 

 

 

(in thousands)

    

    

 

Fiscal Year

 

 

  

2018

 

$

480

2019

 

 

1,232

Total minimum payments

 

 

1,712

Less: amounts representing interest

 

 

(136)

Total financing lease payable

 

$

1,576

​

 ​

(8)​

(9)         COMMITMENTS AND CONTINGENCIES

Operating Leases

We lease ourThe Company leases most of its Company-owned restaurants and office facilities under non-cancelable operating leases with remaining minimum terms ranging from one month to 1420 years. OurThese lease agreements generally contain base rent escalations that are either fixed pursuant to the lease agreement or based on the consumer price index. We areThe

F-24

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company is also required to pay contingent rentals on certain of ourits leases in amounts between 5%3% and 8%8% of gross sales above a minimum threshold. Beginning in fiscal 2019, the Company adopted ASC 842 – Leases. Under this standard, the Company determined 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 the Company’s 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.

Beginning in the second quarter of 2020, the Company negotiated rent concession with several of its landlords due to the economic disruption to its business during the COVID-19 pandemic. The Company accounted for these lease concessions related to the effects of the COVID-19 pandemic in accordance with the lease modification accounting guidance in Topic 842, Leases. Pursuant to such guidance, the Company remeasured the modified leases using the revised terms as of the modification dates. Adjustments were made to reflect the remeasured liability with the offset to the ROU asset.

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

​

​

​

​

​

​

​

​

​

Year Ended

(in thousands)

​

January 3, 2021

    

December 29, 2019

Operating lease cost

​

$

9,227

​

$

4,261

Short-term lease cost

​

​

423

​

​

123

Variable lease cost

​

​

933

​

​

31

Sublease income

​

​

(177)

​

​

(248)

Total lease cost

​

​

10,406

​

​

4,167

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

Year Ended

​

(in thousands)

​

January 3, 2021

​

December 29, 2019

​

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

​

​

​

​

​

​

​

Operating cash flows from operating leases

​

$

7,589

​

$

4,424

​

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

​

​

51,682

​

​

18,458

​

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

​

​

10.25

​

​

9.56

​

Weighted-average discount rate of operating leases

​

​

5.27

%

​

5.56

%

​

Future maturities of our lease liabilities, as of January 3, 2021, are as follows:

​

​

​

​

​

(in thousands)

    

    

​

Fiscal Year

 

​

  

2021

​

$

9,674

2022

​

 

9,978

2023

​

 

9,617

2024

​

 

8,608

2025

​

 

8,254

Thereafter

​

 

45,130

Total operating lease obligations

​

 

91,261

Less imputed interest

​

 

(21,971)

Total

​

$

69,290

​

F-17F-25

Table of Contents

FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Litigation

The following table sets forth certain information related to our rental activities asAs of the periods presented:date of this filing, there are 3 potentially material litigation matters involving the Company.

 

 

 

 

 

 

 

 

 

Year Ended

(in thousands)

 

December 31, 2017

    

January 1, 2017

Rent expense

 

$

2,950

 

$

4,282

Cash rental payments

 

 

3,024

 

 

3,737

Sublease income

 

 

(264)

 

 

(386)

Future minimum​

Graham v. Famous Dave’s of America, Inc., has been ongoing since January 2019. It revolves around claims under Maryland wage and hour law and the U.S. Fair Labor Standards Act. After reviewing all the evidence during discovery, the Company believes there is some liability on its part, but is in the midst of determining that total exposure. The Company is open to settlement talks with the Plaintiff if the economics seem appropriate.

​

Zia Properties v. Famous Dave’s of America, Inc. is a breach of contract case revolving around the Colorado Springs, Co lease. The Company exited the property at the end of the lease payments under non-cancelable operating leases, as of December 31, 2017, are as follows:

 

 

 

 

(in thousands)

    

    

 

Fiscal Year

 

 

  

2018

 

$

1,892

2019

 

 

1,702

2020

 

 

1,587

2021

 

 

1,575

2022

 

 

1,308

Thereafter

 

 

3,424

Total operating lease obligations

 

 

11,488

Sublease income

 

 

(1,230)

Total

 

$

10,258

Litigationin August 2020. The Landlord claims, pursuant to the lease, that the Company was required to make certain repairs before exiting. The Company disagrees with all the claims in the complaint and will vigorously defend.

In​

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

We filed a complaint on July 14, 2015, against a group of former franchisees in California seeking injunctive relief and damages for: (1) Federal Trademark Infringement; (2) Federal Trademark Dilution; (3) Federal Unfair Competition; (4) Federal Trade Dress Dilution; (5) Trademark Infringement under California Business and Professions Code § 14200; (6) Trademark Dilution under California Business and Professions Code §14200; (7) Common Law Trademark Infringement; (8) Unfair Competition under California Business and Professions Code § 17200; (9) False Advertising; (10) Breach of Contract; (11) Breach of Implied Covenant of Good Faith and Fair Dealing; and (12) Intentional Interference with Contract. The claims stem from the former franchisees’ breaches of their franchise agreements, including the failure to pay franchise fees and their continued operation of five restaurants utilizing Famous Dave’s intellectual property without authorization. After two defendants in the case, Kurt Schneiter and M Mart 1, filed a demurrer to the Complaint, Famous Dave’s filed an Amended Complaint on October 9, 2015, reasserting the same claims. The case is captioned Famous Dave’s of America, Inc., v. SR El Centro FD, Inc., et al., Case No. BC589329, and is currently pending before the Honorable Elihu M. Berle in the Superior Court of Los Angeles. By court order, dated June 6, 2016, Famous Dave’s successfully obtained a preliminary injunction, enjoining the former franchisee defendants from using Famous Dave’s intellectual property, including its trademarks and restaurant system. The preliminary injunction was the subject of an interlocutory appeal.  The appeal was fully briefed and oral argument took place on August 10, 2017.  On October 23, 2017, the California Court of Appeal rendered its decision in the appeal in Famous Dave’s favor, affirming and upholding in full the trial court’s preliminary injunction order.  Famous Dave’s intends to vigorously pursue all remaining claims in the trial court. Trial is set for November 5, 2018.

​

F-18F-26

Table of Contents

FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On July 28, 2015, this group of former franchisees (the “Plaintiffs”) filed a complaint against Famous Dave’s in the South Judicial District of the Superior Court of the County of Los Angeles. On March 10, 2016, Plaintiffs re-filed this Complaint as a First Amended Cross-Complaint Famous Dave’s of America, Inc. v. SR El Centro, Inc., et al., Superior Court of the State of California, County of Los Angeles, Central Division, Case No. BC589329 alleging that Famous Dave’s breached the Franchise Agreements for these restaurants by failing to provide certain marketing support and access to customer contact data, vendors, internet reporting and support to Plaintiffs, and failing to provide operations and preferred practices training to Plaintiffs’ designated representative. Plaintiffs further allege that such conduct by Famous Dave’s is a breach of the covenant of good faith and fair dealing. Plaintiffs also allege that Famous Dave’s aided and abetted John and Allan Gantes in breach of their fiduciary duty to Plaintiffs. Plaintiffs are seeking compensatory damages in amount not less than $20 million, punitive damages, costs and attorneys’ fees. We have not recognized a liability with respect to the Plaintiffs’ claim because we do not believe that it is probable that we will incur a related material loss. Famous Dave’s intends to vigorously defend against these claims. Trial is set for November 5, 2018.

(9)(10)         STOCK-BASED COMPENSATION

Effective May 5, 2015, wethe Company adopted the 2015 Equity Plan (the “2015 Plan”), pursuant to which weit 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. WeAt the Company’s annual meeting of shareholders held in June 2020, its shareholders approved the amendment to the 2015 Plan to increase the number of common stock reserved for issuance from 1,000,000 to 1,500,000. The Company also maintainmaintains 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 December 31, 2017,January 3, 2021, there were no169,440 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, and is marked-to-market each period.

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 utilizeCompany 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.

·

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

Expected dividend – The rate of dividends that the Company expects to pay over the term of the stock option.

·

Volatility – Our 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.

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.

The Company recognized stock-based compensation expense in its consolidated statements of operations for the fiscal years ended January 3, 2021 and December 29, 2019, respectively, as follows:

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

(in thousands)

    

January 3, 2021

    

December 29, 2019

​

Stock options

​

$

457

​

$

266

​

Restricted stock

​

 

429

​

 

197

​

​

​

$

886

​

$

463

​

​

F-19F-27

Table of Contents

FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table outlines stock-based compensation expense, by award type, for the periods presented:

 

 

 

 

 

 

 

 

 

 

Year Ended

 

(in thousands)

    

December 31, 2017

    

January 1, 2017

 

Stock options

 

$

218

 

$

311

 

Shares of common stock

 

 

85

 

 

 —

 

Restricted stock

 

 

10

 

 

28

 

 

 

$

313

 

$

339

 

The following is a roll-forward of ourthe Company’s stock option activity for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

Number of 

 

 

 

 

Remaining

 

 

Aggregate

 

 

Options

 

Weighted Average 

 

Contractual

 

 

Intrinsic Value

 

    

(in thousands)

    

Exercise Price

    

Life in Years

 

 

(in thousands)

Options outstanding at January 3, 2016

 

507

 

 

16.66

 

5.3

 

$

 —

Granted

 

416

 

 

5.55

 

 

 

 

 —

Exercised

 

(6)

 

 

5.90

 

 

 

 

4

Canceled, forfeited or expired

 

(231)

 

 

19.44

 

 

 

 

 —

Options outstanding at January 1, 2017

 

686

 

 

9.15

 

5.7

 

 

1

Granted

 

165

 

 

4.20

 

 

 

 

 —

Exercised

 

(3)

 

 

5.42

 

 

 

 

5

Canceled, forfeited or expired

 

(309)

 

 

11.04

 

 

 

 

 —

Options outstanding at December 31, 2017

 

539

 

$

6.60

 

6.6

 

$

598

Options Exercisable at December 31, 2017

 

266

 

$

8.09

 

4.2

 

$

187

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

​

​

​

Weighted

 

​

​

​

​

​

​

​

​

​

Average

​

​

​

​

​

Number of 

​

​

​

​

Remaining

​

​

Aggregate

​

​

Options

​

Weighted Average 

​

Contractual

​

​

Intrinsic Value

​

    

(in thousands)

    

Exercise Price

    

Life in Years

 

​

(in thousands)

Options outstanding at December 30, 2018

 

384

​

$

7.43

​

6.7

​

$

29

Granted

 

212

​

 

4.37

​

​

​

​

—

Exercised

​

(5)

​

​

3.90

​

​

​

​

6

Canceled, forfeited or expired

 

(138)

​

 

5.22

​

​

​

​

68

Options outstanding at December 29, 2019

 

453

​

$

6.71

​

5.7

​

$

28

Granted

 

277

​

 

3.85

​

​

​

​

—

Exercised

 

(1)

​

 

4.18

​

​

​

​

1

Canceled, forfeited or expired

 

(154)

​

 

9.91

​

​

​

​

10

Options outstanding at January 3, 2021

 

575

​

$

4.49

​

6.9

​

$

401

Options exercisable at January 3, 2021

 

285

​

$

4.69

​

6.4

​

$

148

​

The following table discloses the weighted-average values of significant assumptions that wethe Company made in valuing option grants for the periods presented:

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

    

December 31, 2017

 

January 1, 2017

 

Weighted-average fair value of options granted during the period

 

$

1.78

 

$

1.97

 

Expected life (in years)

 

 

5.3

 

 

5.2

 

Expected dividend

 

$

 —

 

$

 —

 

Expected stock volatility

 

 

43.47

%

 

39.98

%

Risk-free interest rate

 

 

2.0

%

 

1.2

%

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

​

    

January 3, 2021

​

December 29, 2019

​

Weighted-average fair value of options granted during the period

​

$

1.79

​

$

1.88

​

Expected life (in years)

​

 

5.1

​

 

4.6

​

Expected dividend

​

$

0

​

$

0

​

Expected stock volatility

​

 

55.02

%

 

50.55

%

Risk-free interest rate

​

 

0.9

%

 

1.9

%

​

As of December 31, 2017,January 3, 2021, the total compensation cost related to unvested stock option awards was approximately $542,000,$544,000, which is expected to be recognized over a period of approximately 2.583 years.

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

 

403

​

 

4.27

​

​

Exercised/Released

​

(71)

​

​

4.85

​

​

Unvested at January 3, 2021

 

475

​

$

4.43

​

2.0

​

​

F-20F-28

Table of Contents

FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10)(11)        RETIREMENT SAVINGS PLANS

401(k) Plan

We haveThe Company has 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:

 

 

 

 

 

 

 

 

 

 

Year Ended

 

(dollars in thousands)

 

December 31, 2017

 

January 1, 2017

 

Employer contribution rate, percent of employee contributions

 

 

25.0

%

 

25.0

%

Employee contribution rate, maximum percentage of employee earnings

 

 

4.0

%

 

4.0

%

Employee contributions

 

$

529

 

$

338

 

Employer match

 

$

87

 

$

54

 

Discretionary contributions

 

$

 —

 

$

 —

 

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

(dollars in thousands)

​

January 3, 2021

​

December 29, 2019

​

Employer contribution rate, percent of employee contributions

​

​

25.0

%

 

25.0

%

Employee contribution rate, maximum percentage of employee earnings subject to employer matching

​

​

4.0

%

 

4.0

%

Employee contributions

​

$

787

​

$

570

​

Employer match

​

$

139

​

$

113

​

Discretionary contributions

​

$

—

​

$

—

​

​

Non-Qualified Deferred Compensation Plan

We maintainThe Company maintains 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 ourthe Company’s 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:

 

 

 

 

 

 

 

 

 

 

Year Ended

 

(dollars in thousands)

 

December 31, 2017

 

January 1, 2017

 

Employer contribution rate, percent of employee contributions

 

 

25.0

%

 

25.0

%

Employee contribution rate, maximum percentage of employee earnings

 

 

4.0

%

 

4.0

%

Declared interest rate

 

 

6.0

%

 

6.0

%

Employee contributions

 

$

41

 

$

64

 

Employer match and interest

 

$

 7

 

$

35

 

Distributions

 

$

43

 

$

368

 

​

​

​

​

​

​

​

​

​

​

​

Year Ended

​

(dollars in thousands)

​

January 3, 2021

​

December 29, 2019

​

Employer contribution rate, percent of employee contributions

​

​

25.0

%

 

25.0

%

Employee contribution rate, maximum percentage of employee earnings subject to employer matching

​

​

4.0

%

 

4.0

%

Declared interest rate

​

​

6.0

%

 

6.0

%

Employee contributions

​

$

53

​

$

47

​

Employer match and interest

​

$

23

​

$

6

​

Distributions

​

$

29

​

$

32

​

​

​

(11)        DISCONTINUED OPERATIONS​

On December 14, 2015, we entered into an agreement to sell seven Chicago-area restaurants (the “Chicago Restaurants”) to Windy City Restaurant Holdings LLC and its affiliate. The transaction closed on March 1, 2016 and resulted in our complete exit from the Chicago market.​

F-21

Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On November 1, 2017, we entered into agreements to sell eight restaurants in Maryland and Virginia (the “Mid-Atlantic Restaurants”) to Commonwealth Blue Ribbon Restaurants LLC and Capital Blue Ribbon Restaurants LLC (the “Mid-Atlantic Purchasers”). Pursuant to the first agreement (“Seven Restaurants Agreement”), the contract purchase price was $2,350,000 and included a repairs and maintenance credit of $750,000, which must be exhausted within one year. Also pursuant to the Seven Restaurants Agreement, we and the Mid-Atlantic Purchasers entered into a line of credit agreement in the amount of $750,000 (the “LOC Agreement”) on which the Mid-Atlantic Purchasers can draw funds to pay for necessary repairs and maintenance work. The LOC Agreement has a four year term with interest payable at a rate of 4.25% per annum.

Pursuant to the second agreement (the “Frederick Agreement”) to effect the sale of our Frederick, Maryland (“Frederick”) restaurant to Capital Blue Ribbon Restaurants, LLC, the contract purchase price for Frederick shall be an amount equal to (i) 50% of the rent, fees, charges, taxes and other amounts payable to the landlord or another third party pursuant to the lease agreement, plus (ii) 50% of that portion of Frederick’s EBITDA (as defined in the Frederick APA) attributable to Frederick that exceeds $25,000 in any 12-month period and $37,500 in any 18-month period; however, the Company has guaranteed the 12-month and 18-month EBITDA performance of Frederick. We expect to recognize a liability and corresponding expense related to this guarantee based on the amount that we would owe to the Mid-Atlantic Purchasers in the event that the restaurant was closed. As of December 31, 2017, we had reserved $21,000 related to this guarantee.

The Mid-Atlantic Purchasers also purchased the inventory and petty cash on hand of the Mid-Atlantic Restaurants as of the closing date. The transaction resulted in our complete exit from the Mid-Atlantic market.

The following table provides certain information from our consolidated statements of operations related to the Chicago Restaurants and the Mid-Atlantic Restaurants:

 

 

 

 

 

 

 

 

 

 

Year Ended

 

(in thousands)

    

December 31, 2017

    

January 1, 2017

    

Restaurant sales, net

 

$

18,831

 

$

24,920

 

Cost of sales

 

 

(16,998)

 

 

(22,662)

 

General and administrative expenses

 

 

(149)

 

 

(222)

 

Depreciation and amortization

 

 

(611)

 

 

(819)

 

Operating income

 

 

1,073

 

 

1,217

 

Gain (loss) on disposal attributable to discontinued operations

 

 

(3,419)

 

 

1,170

 

Income (loss) attributable to discontinued operations, before tax

 

 

(2,346)

 

 

2,387

 

Income (loss) attributable to discontinued operations, tax effect

 

 

889

 

 

(713)

 

Income (loss) attributable to discontinued operations, net of tax

 

$

(1,457)

 

$

1,674

 

F-22

Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides certain information from our consolidated balance sheets related to discontinued operations:

 

 

 

 

 

 

 

(in thousands)

 

December 31, 2017

 

January 1, 2017

Accounts receivable, net

 

$

 —

 

$

176

Inventories

 

 

 —

 

 

399

Prepaid expenses and other current assets

 

 

 —

 

 

60

Total current assets

 

 

 —

 

 

635

Other assets

 

 

 —

 

 

52

Property, equipment and leasehold improvements, net

 

 

 —

 

 

6,663

Total assets

 

$

 —

 

$

7,350

 

 

 

 

 

 

 

Accrued compensation and benefits (current)

 

 

 —

 

 

142

Other current liabilities

 

 

 —

 

 

139

Other liabilities (non-current)

 

 

 —

 

 

2,371

Total liabilities

 

$

 —

 

$

2,652

​

(12)        INCOME TAXES

For financial reporting purposes, lossincome (loss) before income taxes consists of the following components for the periods presented:

​

 

 

 

 

 

 

 

 

 

Year Ended

(in thousands)

    

December 31, 2017

    

January 1, 2017

United States

 

$

(7,807)

 

$

(6,699)

Foreign

 

 

283

 

 

322

Total

 

$

(7,524)

 

$

(6,377)

F-29

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

​

​

​

​

​

​

​

​

​

Year Ended

(in thousands)

    

January 3, 2021

    

December 29, 2019

United States

​

$

1,124

​

$

(2,127)

Foreign

​

 

306

​

 

221

Total

​

$

1,430

​

$

(1,906)

​

The following table summarizes the income tax (expense) benefit for the periods presented:

 

 

 

 

 

 

 

Year Ended

​

​

​

​

​

​

​

​

​

Year Ended

(in thousands)

    

December 31, 2017

    

January 1, 2017

    

January 3, 2021

    

December 29, 2019

Current:

 

 

 

 

 

 

​

​

​

​

​

​

Federal

 

$

(418)

 

$

1,178

​

$

6

​

$

(10)

State

 

 

 —

 

 

(85)

​

 

(169)

​

 

(48)

Foreign

 

 

(69)

 

 

(99)

​

 

(9)

​

 

(25)

 

 

(487)

 

 

994

 

 

 

 

 

 

​

​

 

(172)

​

 

(83)

​

​

​

​

​

​

​

Deferred:

 

 

  

 

 

  

​

 

  

​

 

  

Federal

 

 

1,228

 

 

889

​

 

2,801

​

 

603

State

 

 

117

 

 

389

​

 

208

​

 

139

 

 

1,345

 

 

1,278

Total income tax benefit

 

$

858

 

$

2,272

​

​

 

3,009

​

 

742

Total income tax (expense) benefit

​

$

2,837

​

$

659

​

F-23

Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For financial reporting purposes, total income tax benefit (expense) includes the following components for the periods presented:

 

 

 

 

 

 

 

 

 

Year Ended

(in thousands)

    

December 31, 2017

    

January 1, 2017

Continuing operations

 

$

858

 

$

2,272

Discontinued operations

 

 

889

 

 

(713)

Total income tax benefit

 

$

1,747

 

$

1,559

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.

The following is a reconciliation of the beginning and ending amounts of gross unrecognized tax benefit for the periods presented:

 

 

 

 

(in thousands)

    

 

 

Balance at January 3, 2016

 

 

47

Increases attributable to tax positions taken during prior periods

 

 

142

Audit settlements

 

 

(41)

Decreases due to lapses of statutes of limitations

 

 

(33)

Balance at January 1, 2017

 

 

115

Audit settlements

 

 

(89)

Decreases due to lapses of statutes of limitations

 

 

(13)

Balance at December 31, 2017

 

$

13

​

​

​

​

(in thousands)

    

​

​

Balance at December 30, 2018

​

 

8

Decreases due to lapses of statutes of limitations

​

 

(4)

Balance at December 29, 2019

​

 

4

Decreases due to lapses of statutes of limitations

​

 

(2)

Balance at January 3, 2021

​

$

2

We recognized interest and penalties of approximately ($22,000) and $20,000, respectively during the years ended December 31, 2017 and January 1, 2017. Substantially all of ourthe Company’s unrecognized tax benefits, if recognized, would impact ourits effective tax rate. As of December 31, 2017 and January 1, 2017, we had recorded a liability of approximately $2,000 and $25,000, respectively related to accrued interest and penalties.

We fileThe Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The preparation of these income tax returns requires usit 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.the Company does. As a result, wethe Company may be required to adjust tax liabilities affecting ourits effective tax rate. Tax years 20142017 and forward remain subject to federal examination. Tax years 20132016 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 ourthe Company’s unrecognized tax benefits by approximately $14,000.$2,000.

We haveThe Company has significant net deferred tax assets (“DTA”), which results from the net temporary timing differences between amounts recorded within ourits consolidated financial statements in accordance with GAAP and such amounts measured in accordance with the laws of various taxing jurisdictions and as reported in ourthe Company’s tax

F-30

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

returns. A DTA generally represents future tax benefits to be received when temporary differences previously reported in ourthe Company’s 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 ourother Company’s tax returns. As of December 31, 2017,January 3, 2021, the majority of our DTA resulted from net operating loss and tax credit carryforwards, which will not be realized unless we generatethe Company generates taxable income in the future. We evaluate ourThe Company evaluates its 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 provideit provides for valuation allowances on those portions of the DTA that we don’tit does not expect to realize.

F-24

Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, ourthe Company’s experience with loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, wethe Company first considered ourits history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which we operate, ourit operates, its financial performance in recent quarters, statutory carry forward periods and tax planning alternatives. Finally, wethe Company considered both ourits near and long-term financial outlook. After considering all available evidence both positive and negative, wethe Company concluded that recognition of valuation allowances for substantially all of ourits DTA was not required. The Company recognized a valuation allowance relating to certain state net operating losses for which it believes that is it more likely than not that the benefit will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $1.4 million on the deferred tax asset related to these state net operating loss carryforwards.

​

F-31

Table of Contents

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)

    

December 31, 2017

    

January 1, 2017

    

January 3, 2021

    

December 29, 2019

Deferred tax asset:

 

 

 

 

 

 

​

​

​

​

​

​

Deferred rent

 

$

567

 

$

3,184

Federal net operating loss carry-forwards

 

 

2,486

 

 

 —

​

​

2,298

​

 

1,980

State net operating loss carry-forwards

 

 

3,573

 

 

2,325

​

 

1,860

​

 

1,993

Intangible property basis difference

 

 

138

 

 

 —

​

​

—

​

 

(7)

Financing lease obligation

 

 

393

 

 

1,028

Tax credit carryover

 

 

1,761

 

 

910

​

 

3,225

​

 

2,581

Accrued expenses

 

 

74

 

 

585

​

 

241

​

 

168

Stock-based compensation

 

 

141

 

 

472

​

 

313

​

 

187

Deferred revenue

 

 

257

 

 

452

​

 

915

​

 

693

Lease reserve

 

 

449

 

 

222

​

 

18,356

​

 

8,060

Accrued and deferred compensation

 

 

38

 

 

67

​

 

59

​

 

53

Contribution carryover

 

 

36

 

 

18

​

 

49

​

 

50

Transaction and organization costs

​

​

98

​

​

121

Inventories

 

 

 5

 

 

 9

​

 

19

​

 

10

Total deferred tax asset

 

$

9,918

 

$

9,272

​

$

27,433

​

$

15,889

 

 

 

 

 

 

​

​

​

​

​

​

​

Deferred tax liability:

 

 

 

 

 

 

​

​

​

​

​

​

Property and equipment basis difference

 

$

(1,060)

 

$

(1,671)

​

$

(2,083)

​

$

(755)

Intangible property basis difference

​

​

(2,112)

​

​

—

Inventories

 

 

(60)

 

 

(295)

​

 

(178)

​

 

(146)

Prepaid expenses

 

 

(139)

 

 

(269)

​

 

(306)

​

 

(365)

Intangible property basis difference

 

 

 —

 

 

(56)

Right of use asset

​

 

(16,420)

​

 

(6,664)

Total deferred tax liability

 

$

(1,259)

 

$

(2,291)

​

$

(21,099)

​

$

(7,930)

 

 

 

 

 

 

​

​

​

​

​

​

​

Net deferred tax assets

 

 

8,659

 

 

6,981

​

 

6,334

​

 

7,959

Valuation allowance

 

 

(2,836)

 

 

(2,348)

​

 

(1,400)

​

 

(1,313)

Deferred tax asset

 

$

5,823

 

$

4,633

Deferred tax asset, net

​

$

4,934

​

$

6,646

During the year ended December 31, 2017,January 3, 2021, the net change in ourthe Company’s DTA valuation allowance was approximately $488,000.$87,000.

As of December 31, 2017, weJanuary 3, 2021, the Company had cumulative state net operating loss carry-forwards for tax reporting purposes of approximately $53.9$26.8 million and federal net operating loss carry-forwards for tax reporting purposes of $11.8$10.9 million which, if not used, will begin to expire in fiscal 20182021 and 2037,2038, respectively.

F-25F-32

Table of Contents

FAMOUS DAVE’S OF AMERICA,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:

 

 

 

 

 

 

Year Ended

 

    

December 31, 2017

    

January 1, 2017

    

​

​

​

​

​

​

​

​

Year Ended

​

​

    

January 3, 2021

    

December 29, 2019

    

Federal statutory tax rate

 

34.0

%  

34.0

%  

 

21.0

%  

21.0

%  

State taxes, net of valuation allowance and federal benefit

 

2.4

 

4.0

 

 

(9.9)

 

(4.7)

 

Federal rate change and impact on state benefit

 

(24.1)

 

 —

 

Deferred rate change

​

2.0

​

11.9

​

Foreign taxes

 

(0.9)

 

(1.6)

 

 

0.4

 

(2.0)

 

Tax effect of permanent differences

 

(2.0)

 

(4.5)

 

 

(0.4)

 

0.5

 

Tax effect of general business credits

 

3.7

 

5.0

 

 

(19.4)

 

24.3

 

Tax effect of foreign tax credit

 

0.9

 

1.6

 

 

(0.4)

 

2.0

 

Uncertain tax positions

 

1.7

 

(2.1)

 

 

(0.2)

 

0.3

 

Stock-based compensation

 

(4.4)

 

 —

 

Return to povision update

​

0.9

​

(173.8)

​

Change in valuation allowance

​

4.0

​

171.8

​

Tax effect of permanent differences - Bargain Purchase Gain

​

(129.7)

​

—

​

Other

 

0.2

 

(0.8)

 

 

(1.0)

 

0.9

 

Effective tax rate

 

11.5

%  

35.6

%  

 

(132.7)

%  

52.2

%  

​

The substantial reductionCoronavirus Aid, Relief, and Economic Security Act (the CARES Act) was enacted on March 27, 2020 and the Consolidated Appropriations Act (the Relief Act) was enacted on December 27, 2020 in our future effective tax rate was primarily a resultthe United States. The key provisions of recently signed into lawthe CARES Act and the Relief Act, as applicable to the Company, include the following:

•The ability to use net operating losses (NOLs) to offset income without the 80% taxable income limitation enacted as part of the Tax Cuts and Jobs Act (the “New Tax Law”), which will reduce our statutory tax rate from 34.0% to 21.0%. This decrease in future tax rate resulted in our recognition(TCJA) of approximately $1.8 million in deferred tax expense due to the revaluation of our DTA. Staff Accounting Bulletin 118 outlines the approach that companies may take if essential information related to the New Tax Law is not available in reasonable detail by the time the financial statements are filed. We believe that we have reflected all of the material impacts of the New Tax Law in our consolidated financial statements as of December 31, 2017, and to carry back NOLs to offset prior year income for five years. These are temporary provisions that there are no open items; however, our estimates will be finalized throughout fiscalapply to NOLs incurred in 2018, as we complete our income2019 or 2020 tax returnsyears. We did not recognize any tax benefit for the fiscal year ended December 31, 2017.2020 related to our ability to carry back prior year losses, as well as projected current year losses, under the CARES Act to years with the previous 35% tax rate.

•The ability to claim a current deduction for interest expense up to 50% of Adjusted Taxable Income (ATI) for tax years 2019 and 2020. This limitation was previously 30% of ATI pursuant to the TCJA, and will revert to 30% after 2020. The Company has no current interest expense limitation.

•The ability to defer the payment of the employer portion of social security taxes incurred between March 27, 2020 and December 31, 2020, with 50% of the deferred amount to be paid by December 31, 2021 and the remaining 50% to be paid by December 31, 2022. For the year ended December 31, 2020, the Company did not defer any social security taxes to be paid in 2021 and 2022.

•The ability to claim an Employee Retention Credit (ERC), which is a refundable payroll tax credit, for 50% of qualified wages or benefits, subject to certain limitations, that are paid to an employee when they are not providing services due to Novel Coronavirus (COVID-19). The ERC applies to qualified wages paid or incurred during the period March 13, 2020 through December 31, 2020 and is available to eligible employers whose operations were fully or partially suspended due to COVID-19, or whose gross receipts declined by more than 50%  when compared to the applicable period in the prior year. The Relief Act extended this credit to wages paid through July 1, 2021, increased the credit amounts, and now applies to businesses whose sales declined by more than 20%. The Company does not believe that the ERC will provide benefits for the Company.

•The Company received $13.9M in Paycheck Protection Program (PPP) loans and has applied for loan forgiveness in early 2021.  The CARES Act provides that the loan forgiveness is tax-exempt for federal purposes. In addition, the Relief Act provided that the expenses paid with the PPP loan proceeds are deductible for federal income tax

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BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

purposes. Based on state guidance, certain states have disallowed PPP loan related expenses. As such, the Company has reflected these state addbacks in the calculations.          

​

(13)        ASSET IMPAIRMENT, ESTIMATED LEASE TERMINATION AND OTHER CLOSING COSTS

Beginning in fiscal 2016, we initiated a restaurant optimization and refranchising initiative whereby we reviewed our restaurant portfolio for locations that were slow to respond to several initiatives to improve operating performance. We continued this initiative into fiscal 2017 and identified certain restaurants that were to be closed significantly before the end of the previously estimated useful lives. As a result of the reassessment of the useful lives of these restaurants, we recognized accelerated depreciation expense of approximately $870,000. We closed 13 restaurants during the year ended December 31, 2017 in accordance with this restaurant optimization and refranchising initiative.

The following is a summary of asset impairment, estimated lease termination and other closing costs for the periods presented:

 

 

 

 

 

 

 

 

 

Year Ended

(dollars in thousands)

    

December 31, 2017

    

January 1, 2017

Restaurant Optimization

 

 

 

 

 

 

Asset impairments, net

 

$

3,154

 

$

4,426

Lease termination charges and related costs

 

 

3,403

 

 

 —

Restaurant closure expenses

 

 

259

 

 

206

Software

 

 

 —

 

 

156

Asset impairment, estimated lease termination and other closing costs

 

$

6,816

 

$

4,788

​

​

​

​

​

​

​

​

​

​

Year Ended

(dollars in thousands)

    

January 3, 2021

    

December 29, 2019

Asset impairments, net

​

$

5,532

​

$

282

Lease termination charges and related costs

​

​

169

​

​

926

Restaurant closure expenses

​

​

(18)

​

​

88

Asset impairment, estimated lease termination charges and other closing costs

​

$

5,683

​

$

1,296

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FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

​

Below reflects the change in our reserve for lease termination costs for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

    

Deductions

    

 

 

 

 

 

 

 

 

 

Credits to

 

 

 

 

 

 

 

 

Additions

 

Costs and

 

 

 

 

 

Balance at

 

Charged to

 

Expenses

 

Balance at

 

 

Beginning of

 

Costs and

 

and Other

 

End of

(in thousands)

 

Period

 

Expenses

 

Accounts

 

Period

Year Ended December 31, 2017

 

 

  

 

  

 

  

 

 

  

Reserve for lease termination costs

 

$

594

 

3,150

 

(1,945)

 

$

1,799

 

 

 

 

 

 

 

 

 

 

 

Year Ended January 1, 2017

 

 

  

 

  

 

  

 

 

  

Reserve for lease termination costs

 

$

609

 

89

 

(104)

 

$

594

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

    

​

    

Deductions

    

​

​

​

​

​

​

​

​

​

Credits to

​

​

​

​

​

​

​

​

Additions

​

Costs and

​

​

​

​

​

Balance at

​

Charged to

​

Expenses

​

Balance at

​

​

Beginning of

​

Costs and

​

and Other

​

End of

(in thousands)

​

Period

​

Expenses

​

Accounts

​

Period

Year Ended January 3, 2021

 

​

  

 

  

 

  

 

​

  

Reserve for lease termination costs and asset retirement obligations

​

$

8

 

—

 

(8)

​

$

—

​

​

​

​

​

​

​

​

​

​

​

Year Ended December 29, 2019

​

 

  

 

  

 

  

​

 

  

Reserve for lease termination costs and asset retirement obligations

​

$

431

 

182

 

(605)

​

$

8

​

These amounts were recorded in other current liabilities or other liabilities depending on when we expected the amounts to be paid.

(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 believeThe Company believes that the carrying amount of long-term debt approximates fair value due to the variable interest rates chargedrate 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 consolidated balance sheets as a result of January 3, 2021 and December 29, 2019, except for the proximityassets recorded at fair value in conjunction with restaurant acquisitions and certain assets deemed to be impaired as of the refinancing to the end of the fiscal year.January 3, 2021 (see Notes 1 and 2).

​

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FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table (in thousands) summarizes the assets held for sale and property and equipment, net, measured at fair value in our consolidated balance sheet as of December 31, 2017 and January 1, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Balance at December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

  

 

 

  

 

 

  

 

 

  

Property and Equipment, net

 

$

 —

 

$

 —

 

$

828

 

$

828

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2017

 

 

  

 

 

  

 

 

  

 

 

  

Assets

 

 

  

 

 

  

 

 

  

 

 

  

Assets Held for Sale

 

$

 —

 

$

 1

 

$

 —

 

$

 1

Property and Equipment, net

 

$

 —

 

$

 —

 

$

1,742

 

$

1,742

Property and Equipment, net, is recorded at fair upon broker’s estimate of value or estimated discounted future cash flows (Level 3). These assets have been adjusted to net realizable value based upon the decision to dispose of the property. The Company completed its sale of assets held for sale recorded in Level 3 during fiscal 2016. The fair value of amounts disclosed as property and equipment, net, reported in the table above within Level 3 changed during fiscal 2016 as a result of the Company’s impairment analysis surrounding certain of its property and equipment assets.

(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 haveThe Company has an installment agreement with one of ourits franchisees as thea result of refranchising ourits Lincoln, Nebraska restaurant. This franchisee is a VIE; however, the owners of the franchise operations are the primary beneficiaries of the entities; therefore,entities, not the Company. Therefore, the franchise operations are not required to be consolidated in our consolidated financial statements.

On August 11, 2015, we consummated the sale of our Greenwood, Indiana restaurant. In conjunction with that agreement, we entered into a lease assignment agreement with the purchaser and landlord, releasing us of our obligations except in the event of default by the purchasers. As of December 31, 2017, the amount of the future lease payments for which we would be liable in the event of a default are approximately $106,000. An accrual related to a future obligation was not considered necessary as of December 31, 2017. 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 March 1, 2016, we consummated the sale of our Chicago, Illinois-area restaurants. In conjunction with that agreement, we entered into lease assignment agreements with the respective purchasers and two of the landlords, releasing us from our obligations except in the event of default by the purchasers. In 2017, the franchisee closed the restaurants and ceased to pay the lease payments. As of December 31, 2017, the remaining future minimum lease payments for which we are responsible totaled $1.5 million and we had recorded lease reserves totaling $1.0 million. See Note 13 “Asset Impairment, Estimated Lease Termination and Other Closing Costs.” 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 ourCompany’s consolidated financial statements.

On November 1, 2017, wethe Company sold ourits Frederick, Maryland restaurant. Pursuant to the terms of the Frederick Agreement, wethe Company remained the primary obligor of the lease. As of December 31, 2017,29, 2019, the amount of future lease payments outweighed the amount of expected sublease income, and the Company, therefore, recorded $200,000 as asset impairment related to ROU asset. As of January 3, 2021, the Company wrote off the remaining liability and related ROU asset, recognizing a gain of approximately $117,000.

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 we wouldwill be liableappointed 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 eventamount 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 default are approximately $756,000. An accrualrate 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 future lease obligationLicense 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 $849,000 during fiscal year 2020, of which $680,000 was recorded as non-controlling interest on our consolidated financial statements. During fiscal year 2019, the Company incurred expenses of $748,000 related to Mercury, of which $598,000 was allocated to non-controlling interest. As of January 3, 2021, Mercury’s assets included approximately $3.1 million of property, equipment and leasehold improvements, net, a $1.8 million ROU asset and $180,000 of inventory. The liabilities recognized as a result of consolidating Mercury BBQ’s results of operations do not considered necessaryrepresent 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 December 31, 2017. See Note 11 “Discontinued Operations.”consolidating the Mercury BBQ’s results of operations do not represent additional assets that could be used to satisfy claims against the general assets of BBQ Holdings.

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FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

​

(16)         RELATED PARTY TRANSACTIONS

Michael Lister served as our Chief Executive Officer and Chief Operating Officer from October 2016 to November 2017. Doug Renegar served as our Senior Vice President of Franchise Operations from October 2016 to November 2017. Messrs. Lister and Renegar manage Famous Five Dining, a corporation that owns four franchised Famous Dave’s restaurants.

Anand D. Gala is a franchisee of the Company and currently serves as onea director of our directors.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. Mr. Gala’s brother owns Altametrics, LLC, a software company to which we paid approximately $127,000 during the year ended January 1, 2017. In December 2017, due to significant negative cash flow and risk of restaurant closure, Mr. Gala requested and we approved a royalty abatement on two of his restaurants for three years, beginning in fiscal 2018. These restaurants will have an effective royalty rate of 2.5% for fiscal 2018, 3.5% for fiscal 2019, 4.0% for fiscal 2020 and return to 5.0% thereafter.

On November 10, 2017, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) by and between us and PW Partners, LLC (“PW Partners”).  Pursuant to the Purchase Agreement, we sold to PW Partners on behalf of its designated client, FS Special Opportunities I, L.P. (the “Purchaser’s Designee”), 418,169 shares of our common stock (the “Private Placement”). The Purchase Agreement provides further that PW Partners has assigned its rights under the Purchase Agreement to the Purchaser’s Designee; provided, however, that PW Partners retains its obligations under the Purchase Agreement.

On January 29, 2018, we entered into a Standby Purchase Agreement (the “Standby Purchase Agreement”) with PW Partners, in connection with the previously announced proposed non-transferable rights offering (the “Rights Offering”). The Standby Purchase Agreement provides that PW Partners will (a) exercise its non-transferable rights to subscribe for and purchase its pro rata amount of newly-issued shares of our common stock, at a price per share, which our board of directors has set at $3.50 per share (the “Subscription Price”), and (b) purchase in a private placement separate from the Rights Offering, at the Subscription Price and subject to the terms and conditions of the Standby Purchase Agreement, any shares of our common stock that are not subscribed for in the Rights Offering pursuant to our stockholders’ exercise of their rights. Notwithstanding the foregoing, the Standby Purchase Agreement also provides that PW Partners will not purchase shares of our common stock in an amount that would result in the Standby Purchaser beneficially owning 20% or more of the outstanding common stock after such purchase.

PW Partners is affiliated with PW Capital Management, LLC (“PW Capital”). Pursuant to the Purchase Agreement, Jeffery Crivello, the Chief Financial Officer of PW Capital, became our Chief Executive Officer, effective November 14, 2017.

On December 8, 2017, as a part of settlement of a legal dispute and distressed situation, we approved the transfer of seven franchise restaurants in Utah and Washington (the “Transferred Restaurants”) to an entity (the “Acquirer”) controlled by Charles Davidson, who is the beneficial owner of 19.2% of the Company as a result of his positions as the Co-founder, Chairman and Chief Investment Officer of Wexford Capital LP.

The previous franchisee of these seven restaurants experienced financial difficulties for more than one year and, at the time of the sale to the Acquirer, was more than one year in arrears with royalty, miscellaneous and national advertising fund payments that totaled approximately $1.4 million. The previous franchisee engaged a broker who marketed the franchise for several months, which resulted in two potential buyers, one of whom dropped out of the process. These stores were severely neglected, and this was determined to be the best path to economic recovery.

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FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with settling the dispute with the previousCharles Davidson, a franchisee of the Company, collected $350,000 in cash fromcurrently serves as a director of the previous franchisee. Pursuant toCompany and is the settlement, we wrote off accounts receivablebeneficial owner of approximately $1.0 million.

As part17.4% of the transaction, we agreed to certain concessions in order to facilitate the transferCompany’s common stock as of the Transferred Restaurantsdate that these financial statements were available to the Acquirer and to incentivize the Acquirer to invest the funds necessary to improve the operationsbe issued, by virtue of the Transferred Restaurants and to provide innovation to the Famous Dave’s concept. The economic concessions consisted of the following:his ownership interest in Wexford Capital.

·

A $500,000 repairs and maintenance credit (the “R&M Credit”), payable through a 50% reduction in required royalty payments until the credit is exhausted;

·

Royalty relief, in addition to the R&M Credit, of 2.0% in months one through 12 for an effective royalty rate of 3.0% and 1.0% in months 13 through 24 for an effective royalty rate of 4.0%, and a full royalty of 5.0% to be paid thereafter (“Royalty Relief”);

·

Development rights in the states of Utah and Washington in exchange for a commitment to open three restaurants before May 1, 2027; and,

·

Waiver of initial and future franchise fees and area development fees.

In addition to these economic concessions, we modified our standard franchise agreement to eliminate or limit certain obligations of Acquirer as a franchisee, including:

·

Waiver of reacquisition fees for two additional ten-year terms;

·

Acquirer will spend 1.0% of net sales on local marketing, as opposed to the standard 1.5%.

The following table outlines amounts received from related parties during the years ended January 3, 2021 and December 31, 2017 and January 1, 2017:29, 2019:

 

 

 

 

 

Year Ended

​

​

​

​

​

​

​

Year Ended

(in thousands)

December 31, 2017

    

January 1, 2017

January 3, 2021

    

December 29, 2019

Revenues and NAF contributions - Anand Gala

$

1,935

 

$

2,135

$

1,062

​

$

1,649

Revenues and NAF contributions - Michael Lister and Doug Renegar

 

493

 

 

500

Revenues and NAF contributions - Charles Davidson

 

54

 

 

 —

​

515

​

​

314

​

The following table outlines accounts receivable, net from related parties as of January 3, 2021 and December 31, 2017 and January 1, 2017:

 

 

 

 

 

 

 

(in thousands)

 

December 31, 2017

    

January 1, 2017

Accounts receivable, net - Anand Gala

 

$

301

 

$

370

Accounts receivable, net - Michael Lister and Doug Renegar

 

 

48

 

 

50

Accounts receivable, net - Charles Davidson

 

 

32

 

 

 —

29, 2019:

​

​

​

​

​

​

​

​

(in thousands)

​

January 3, 2021

    

December 29, 2019

Accounts receivable, net - Anand Gala

​

$

207

​

$

290

Accounts receivable, net - Charles Davidson

​

​

52

​

​

77

​

​

(17)         SUBSEQUENT EVENTS

The Company evaluated for the occurrence of subsequent events through the issuance date of the Company’sits financial statements. No other recognized or non-recognized subsequent events occurred that require recognition or disclosure in the consolidated financial statements exceptother than the item below.

In March 2021, the Company completed an agreement in the case of Hamilton Commons v. Famous Dave’s of America, Inc. related to a breach of contract of a lease of the Famous Dave’s at Mays Landing, NJ (Note 9 Commitments and Contingencies). The parties agreed to dismiss the matter as noted below.

On January 30, 2018, we entered into a purchaseresult of the Lease Modification (the “Agreement”) which was executed by all the parties. The Agreement stipulates that in consideration for $130,000, the Company will continue to make monthly payments starting in March 2021, the parties shall both market the property to find a new tenant to replace the Company before the lease term expires, and sale agreement to sell a vacant restaurant site in Glen Allen, Virginiaat the time this lease is terminates or ends, the landlord shall pay $192,994.56 for $765,000. The restaurant site was previously written down to net realizable value during the year ended December 31, 2017.

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FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Also on January 30, 2018, we completed the sale of the liquor license referencedwhich is owned by the Company, which is the amount currently in Note 4 “Property, Equipmentarrears. There are terms in the Agreement about the criteria of the new tenant the landlord can choose to accept or deny and Leasehold Improvements.that the Company must supplement the rent of the new tenant if the rent paid by the new tenant does not meet or exceed what the Company would pay through January 31, 2023.

​

​

​

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FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC. AND SUBSIDIARIES

​

Financial Statement Schedule

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Additions

    

Deductions

    

 

 

 

 

 

 

 

 

 

 

Credits to

 

 

 

 

 

    

 

 

 

 

 

Costs and

 

    

 

 

 

Balance at

 

Charged to

 

Expenses

 

Balance at

 

 

Beginning of

 

Costs and

 

and Other

 

End of

(in thousands)

 

Period

 

Expenses

 

Accounts

 

Period

Year ended January 1, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

246

 

$

87

 

$

(62)

 

$

271

Reserve for lease termination costs

 

 

609

 

 

89

 

 

(104)

 

 

594

Reserve for corporate severance

 

 

20

 

 

170

 

 

(190)

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

271

 

$

1,599

 

$

(1,278)

 

$

592

Reserve for lease termination costs

 

 

594

 

 

3,150

 

 

(1,945)

 

 

1,799

Reserve for corporate severance

 

 

 —

 

 

796

 

 

(441)

 

 

355

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

    

Additions

    

Deductions

    

​

​

​

​

​

​

​

​

​

​

Credits to

​

​

​

​

​

    

​

​

​

​

​

Costs and

​

    

​

​

​

Balance at

​

Charged to

​

Expenses

​

Balance at

​

​

Beginning of

​

Costs and

​

and Other

​

End of

(in thousands)

​

Period

​

Expenses

​

Accounts

​

Period

Year ended December 29, 2019:

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for doubtful accounts

​

$

192

​

$

74

​

$

(134)

​

$

132

Reserve for lease termination costs and asset retirement obligation

​

​

431

​

​

182

​

​

(605)

​

​

8

​

​

​

​

​

​

​

​

​

​

​

​

​

Year ended January 3, 2021:

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for doubtful accounts

​

$

132

​

$

145

​

$

—

​

$

277

Reserve for lease termination costs and asset retirement obligation

​

​

8

​

 

—

​

 

(8)

​

​

—

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

F-32F-37

Table of Contents

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EXHIBITS

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Exhibit No.

Description

3.1

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Articles of Incorporation, dated March 29, 2019, incorporated by reference to Exhibit 3.1 to Form 8-K12B filed on September 17, 2019

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3.2

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Bylaws, dated March 29, 2019, incorporated by reference to Exhibit 2.1 of Form 8-K12B filed on September 17, 2019

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4.1

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Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, incorporated by reference to Exhibit 4.1 of Form 10-K filed on March 27, 2020

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10.1

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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 †

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10.2

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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 †

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10.3

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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 †

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10.4

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Form of Indemnification Agreement between BBQ Holdings, Inc. and certain of its directors and officers, incorporated by reference to Exhibit 10.2 to Form 10-Q filed November 6, 2015

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10.5

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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

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10.6

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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

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10.7

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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

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10.8

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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 †

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10.9

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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

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10.10

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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 †

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10.11

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BBQ Holdings, Inc. Amended and Restated 2015 Equity Incentive Plan dated March 29, 2018, incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 19, 2020 †

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Table of Contents

Exhibit No.

Description

10.12

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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

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10.13

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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

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10.14

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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

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10.15

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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 †

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10.16

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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 †

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10.18

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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

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10.19

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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

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10.20

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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

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10.21

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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

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10.22

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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

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10.23

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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

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10.24

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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

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Table of Contents

Exhibit No.

Description

10.25

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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

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10.26

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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 †

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10.27

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Promissory Note dated April 30, 2020 between Granite City, Inc. and Choice Financial Group, incorporated by reference to Exhibit 10.2 of Form 8-K filed May 1, 2020

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10.28

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Promissory Note dated April 30, 2020 between Famous Dave’s of America, Inc. and Choice Financial Group, incorporated by reference to Exhibit 10.1 of Form 8-K filed May 1, 2020

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10.29

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Asset Purchase Agreement, dated February 11, 2020 among the Company and Granite City Food & Brewery Ltd. and its related entities, incorporated by reference to Exhibit 10.1 of Form 10-Q filed May 13, 2020

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10.30

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First Amendment to Asset Purchase Agreement, dated February 21, 2020 to Asset Purchase Agreement, dated Febuary 11, 2020 among the Company and Granite City Food & Brewery Ltd. and its related entities, incorporated by reference to Exhibit 10.2 of Form 10-Q filed May 13, 2020

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10.31

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Offer of Employment Letter to Albert Hank, dated January 8, 2021, incorporated by reference to Exhibit 10.1 of Form 8-K filed January 13, 2021 †

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16.1

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Letter of Grant Thornton to the Securities and Exchange Commission dated April 21, 2020, incorporated by reference to Form 8-K filed April 21, 2020

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21.1

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Subsidiaries of BBQ Holdings, Inc.

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23.1

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Consent of Grant Thornton LLP

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23.2

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Consent of Schechter, Dokken, Kanter, Andrews & Selcer, Ltd.

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31.1

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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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31.2

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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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32.1

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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

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32.2

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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

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101.INS

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XBRL Instance Document

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101.SCH

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XBRL Schema Document

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101.CAL

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XBRL Calculation Linkbase Document

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101.LAB

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XBRL Label Linkbase Document

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Table of Contents

Exhibit No.

Description

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101.PRE

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XBRL Presentation Linkbase Document

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101.DEF

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XBRL Taxonomy Extension Definition Linkbase Document

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104

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Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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*    Filed herewith

SIGNATURES†    Management compensatory plan

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Table of Contents

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SIGNATURES

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.

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FAMOUS DAVE’S OF AMERICA,BBQ HOLDINGS, INC.

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(“Registrant”)

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Dated: March 5, 2018April 2, 2021

By:

/s/Jeffery J. Crivello

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Jeffery J. Crivello

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Chief Executive Officer

(Principal Executive Officer)

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By:

/s/ Dexter A. NewmanJames G. Gilbertson

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Dexter A. NewmanJames G. Gilbertson

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Chief Financial Officer and Secretary

(Principal Financial Officer and Principal Accounting Officer)

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 5, 2018April 2, 2021 by the following persons on behalf of the registrant, in the capacities indicated.

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Signature

Title

Signature​

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Title

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/s/Jeffery J. Crivello

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Chief Executive Officer and Director

Jeffery J. Crivello

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/s/David L. Kanen

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Non-Executive Chairman of the Board of Directors

David L. Kanen

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/s/Charles Davidson

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Director

Jeffery CrivelloCharles Davidson

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/s/Anand D. Gala

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Director

Anand D. Gala

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/s/ Eric S. HirschhornPeter O. Haeg

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Director

Eric S. HirschhornPeter O. Haeg

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/s/ Joseph M. JacobsRichard S. Welch

Director

Joseph M. Jacobs

/s/ Charles W. Mooty

Director

Charles W. Mooty

/s/ Richard A. Shapiro

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Director

Richard A. ShapiroS. Welch

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/s/Bryan L. Wolff

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Director

Bryan L. Wolff

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EXHIBITS

Exhibit No.

Description

3.1

Restated Articles of Incorporation, dated December 18, 2017, incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S 1 filed on December 29, 2017.

3.2

Second Amended and Restated Bylaws, as amended by Amendment Nos. 1 and 2, incorporated by reference to Exhibit 3.3 to Form 10‑K, filed March 18, 2016.

10.1

Trademark License Agreement between Famous Dave’s of America, 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

Second Amended and Restated Credit Agreement by and between Wells Fargo Bank, National Association and Famous Dave’s of America, Inc., dated March 4, 2010, incorporated by reference to Exhibit 10.2 to Form 8‑K filed March 9, 2010

10.4

Letter amendment dated February 1, 2011, to the Second Amendment to the Amended and Restated Credit Agreement by and between Wells Fargo Bank, National Association and Famous Dave’s of America, Inc., incorporated by reference to Exhibit 10.11 to Form 10‑K filed March 18, 2011

10.5

First Amendment to the Second Amended and Restated Credit Agreement by and between Wells Fargo Bank, National Association and Famous Dave’s of America, Inc., dated July 5, 2011, incorporated by reference to Exhibit 10.1 to Form 8‑K filed July 5, 2011

10.6

Second Amendment to the Second Amended and Restated Credit Agreement by and between Wells Fargo Bank, National Association and Famous Dave’s of America, Inc., dated November 1, 2012, incorporated by reference to Exhibit 10.1 to Form 10‑Q filed November 2, 2012

10.7

Third Amendment to the Second Amended and Restated Credit Agreement by and between Wells Fargo Bank, National Association and Famous Dave’s of America, Inc., dated March 14, 2013, incorporated by reference to Exhibit 10.11 to Form 10‑K filed March 15, 2013

10.8

Fourth Amendment to the Second and Amended Restated Credit Agreement, incorporated by reference to Exhibit 10.1 to Form 10‑Q filed May 9, 2014

10.9

Third Amended and Restated Credit Agreement dated May 8, 2015 by and among Wells Fargo Bank, National Association, Famous Dave’s of America, Inc. and certain subsidiaries of Famous Dave’s of America, Inc., incorporated by reference to Exhibit 10.2 to Form 10‑Q filed May 8, 2015

10.10

Forbearance Agreement dated as of November 5, 2015 by and among Famous Dave’s of America, Inc., D&D of Minnesota, Inc., Lake & Hennepin BBQ and Blues, Inc., Famous Dave’s Ribs, Inc., Famous Dave’s Ribs-U, Inc., and Famous Dave’s Ribs of Maryland, Inc., each as borrowers, and Wells Fargo Bank, National Association, as administrative agent and lender, incorporated by reference to Exhibit 10.4 to Form 10‑Q filed November 6, 2015

10.11

First Amendment to Forbearance Agreement dated as of December 2, 2015 by and among Famous Dave’s of America, Inc., D&D of Minnesota, Inc., Lake & Hennepin BBQ and Blues, Inc., Famous Dave’s Ribs, Inc., Famous Dave’s Ribs-U, Inc., and Famous Dave’s Ribs of Maryland, Inc., each as borrowers, and Wells Fargo Bank, National Association, as administrative agent and lender, incorporated by reference to Exhibit 10.1 to Form 8‑K filed December 4, 2015

Exhibit No.

Description

10.12

First Amendment to Third Amended and Restated Credit Agreement dated as of December 11, 2015 by and among Famous Dave’s of America, Inc., D&D of Minnesota, Inc., Lake & Hennepin BBQ and Blues, Inc., Famous Dave’s RIBS, Inc., Famous Dave’s RIBS-U, Inc., and Famous Dave’s Ribs of Maryland, Inc., each as borrowers, and Wells Fargo Bank, National Association, as administrative agent and lender, incorporated by reference to Exhibit 10.1 to Form 8‑K filed December 11, 2015

10.13

Forbearance Agreement dated May 16, 2016 by and among Famous Dave’s of America, Inc., D&D of Minnesota, Inc., Lake & Hennepin BBQ and Blues, Inc., Famous Dave’s Ribs, Inc., Famous Dave’s Ribs-U, Inc., and Famous Dave’s Ribs of Maryland, Inc., each as borrowers, and Wells Fargo Bank, National Association, as administrative agent and lender, incorporated by reference to Exhibit 10.1 to Form 10‑Q filed May 18, 2016

10.14

Waiver and Second Amendment to Third Amended and Restated Credit Agreement dated as of June 10, 2016 by and among Famous Dave’s of America, Inc., D&D of Minnesota, Inc., Lake & Hennepin BBQ and Blues, Inc., Famous Dave’s RIBS, Inc., Famous Dave’s RIBS-U, Inc., and Famous Dave’s Ribs of Maryland, Inc., each as borrowers, and Wells Fargo Bank, National Association, as administrative agent and lender, incorporated by reference to Exhibit 10.1 to the Form 8‑K filed June 10, 2016

10.15

Forbearance Agreement dated November 9, 2016 by and among Famous Dave’s of America, Inc., D&D of Minnesota, Inc., Lake & Hennepin BBQ and Blues, Inc., Famous Dave’s Ribs, Inc., Famous Dave’s Ribs-U, Inc., and Famous Dave’s Ribs of Maryland, Inc., each as borrowers, and Wells Fargo Bank, National Association, as administrative agent and lender, incorporated by reference to Exhibit 10.1 to form 10‑Q filed November 16, 2016

10.16

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  †

10.17

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  †

10.18

Famous Dave’s of America, Inc. 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Form 10‑Q filed May 8, 2015  †

10.19

Amendment No. 1 to 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Form 8‑K filed July 31, 2015  †

10.20

Amendment No. 2 to 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Form 10‑Q filed November 6, 2015  †

10.21

Form 2013 – 2015 Performance Share Agreement, incorporated by reference to Exhibit 10.1 to Form 8‑K filed January 8, 2013  †

Schedule of Grants under Form of 2013 – 2015 Performance Share Agreement, incorporated by reference to Exhibit 10.2 to Form 8‑K filed January 8, 2013  †

10.22

Employment Letter dated May 19, 2014 between Famous Dave’s of America, Inc. and Richard A. Pawlowski, incorporated by reference to Exhibit 10.22 to Form 10‑K filed March 13, 2015  †

10.23

Stock Option Agreement dated June 2, 2014 between Famous Dave’s of America, Inc. and Richard A. Pawlowski, incorporated by reference to Exhibit 10.23 to Form 10‑K filed March 13, 2015 †

Exhibit No.

Description

10.24

Employment Agreement entered into on August 3, 2015 between Famous Dave’s of America, Inc. and Abelardo Ruiz, incorporated by reference to Exhibit 10.l to Form 8‑K filed August 7, 2015 †

10.25

Severance Agreement dated August 17, 2015 between Famous Dave’s of America, Inc. and Richard A. Pawlowski, incorporated by reference to Exhibit 10.l to Form 8‑K filed August 21, 2015 †

10.26

Stock Option Agreement dated August 31, 2015 between Famous Dave’s of America, Inc. and Abelardo Ruiz, incorporated by reference to Exhibit 10.29 to Form 10‑K filed March 18, 2016 †

10.27

Form of Indemnification Agreement between Famous Dave’s of America, Inc. and each of its directors and officers, incorporated by reference to Exhibit 10.2 to Form 10‑Q filed November 6, 2015

10.28

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

10.29

Employment Agreement dated effective January 1, 2016 between Famous Dave’s of America, Inc. and Adam J. Wright, incorporated by reference to Exhibit 10.1 to Form 8‑K filed January 4, 2016 †

10.30

Stock Option Agreement dated January 1, 2016 between Famous Dave’s of America, Inc. and Adam J. Wright, incorporated by reference to Exhibit 10.33 to Form 10‑K filed March 18, 2016 †

10.31

Stock Option Agreement dated February 12, 2016 between Famous Dave’s of America, Inc. and Alfredo V. Martel, incorporated by reference to Exhibit 10.34 to Form 10‑K filed March 18, 2016 †

10.32

Employment Agreement dated effective April 11, 2016 between Famous Dave’s of America, Inc. and Dexter Newman, incorporated by reference to Exhibit 10.1 to Form 8‑K filed April 13, 2016 †

10.33

Stock Option Agreement dated April 11, 2016 between Famous Dave’s of America, Inc. and Dexter Newman, incorporated by reference to Exhibit 10.2 to Form 8‑K filed April 13, 2016 †

10.34

Employment Agreement dated October 11, 2016 between Famous Dave’s of America, Inc. and Michael Lister, incorporated by reference to Exhibit 10.1 to Form 8‑K filed October 17, 2016 †

10.35

Employment Agreement dated October 11, 2016 between Famous Dave’s of America and Doug Renegar, incorporated by reference to Exhibit 10.2 to form 10‑Q filed November 16, 2016 †

10.36

Loan Agreement dated December 2, 2016 among Famous Dave’s of America, Inc., Minwood Partners, Inc. and Venture Bank, incorporated by reference to Exhibit 10.1 to form 8‑K filed December 8, 2016

10.37

Promissory Note (Note 1) dated December 2, 2016 in principal amount of $3,700,000 from Famous Dave’s of America, Inc. and Minwood Partners, Inc. to Venture Bank, incorporated by reference to Exhibit 10.2 to form 8‑K filed December 8, 2016

10.38

Mortgage and Security Agreement and Fixture Financing Statement dated December 2, 2016 by Famous Dave’s of America, Inc. and Minwood Partners, Inc. to Venture Bank (Loan 1), incorporated by reference to Exhibit 10.3 to form 8‑K filed December 8, 2016

10.39

Loan Agreement dated December 2, 2016 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 Venture Bank, incorporated by reference to Exhibit 10.4 to form 8‑K filed December 8, 2016

Exhibit No.

Description

10.40

Promissory Note (Note 2) dated December 2, 2016 in principal amount of $6,300,000 from 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. and Lake & Hennepin BBQ & Blues, Inc. to Venture Bank, incorporated by reference to Exhibit 10.5 to form 8‑K filed December 8, 2016

10.41

Promissory Note (Note 3) dated December 2, 2016 in principal amount of $1,000,000 from 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. and Lake & Hennepin BBQ & Blues, Inc. to Venture Bank, incorporated by reference to Exhibit 10.6 to form 8‑K filed December 8, 2016

10.42

Mortgage and Security Agreement and Fixture Financing Statement dated December 2, 2016 by Famous Dave’s of America, Inc. and Minwood Partners, Inc. to Venture Bank (Loan 2), incorporated by reference to Exhibit 10.7 to form 8‑K filed December 8, 2016

10.43

Security Agreement dated December 2, 2016 by 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. and Lake & Hennepin BBQ & Blues, Inc. for the benefit of Venture Bank, incorporated by reference to Exhibit 10.8 to form 8‑K filed December 8, 2016

10.44

Pledge Agreement dated December 2, 2016 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 Venture Bank, incorporated by reference to Exhibit 10.9 to form 8‑K filed December 8, 2016

10.45

Stock Purchase Agreement dated November 10, 2017 between Famous Dave’s of America, Inc. and PW Partners, LLC, incorporated by reference to Exhibit 10.1 to Form 8 K filed November 13, 2017

10.46

Registration Rights Agreement dated November 10, 2017 between Famous Dave’s of America, Inc. and PW Partners, LLC, incorporated by reference to Exhibit 10.2 to Form 8 K filed November 13, 2017

10.47

Employment Agreement dated November 14, 2017 between Famous Dave’s of America, Inc. and Jeffery Crivello, incorporated by reference to Exhibit 10.3 to Form 8 K filed November 13, 2017 †

10.48

Asset Purchase Agreement dated November 1, 2017 among Famous Dave’s Ribs of Maryland, Inc., Famous Dave’s 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

10.49

Asset Purchase Agreement (and supplemental letter agreement) dated November 1, 2017 between Famous Dave’s 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

10.50

Amendment dated January 29, 2018 to Employment Agreement dated November 14, 2017 between Famous Dave’s of America, Inc. and Jeffery Crivello, incorporated by reference to Exhibit 10.2 to Form 8 K filed January 29, 2018 †

10.51

Employment Agreement dated April 13, 2016 between Famous Dave’s of America, Inc. and Geovannie Concepcion, incorporated by reference to Exhibit 10.3 to Form 8 K filed January 29, 2018 †

10.52

Amendment dated January 29, 2018 to Employment Agreement dated April 13, 2016 between Famous Dave’s of America, Inc. and Geovannie Concepcion, incorporated by reference to Exhibit 10.4 to Form 8 K filed January 29, 2018 †

Exhibit No.

Description

10.53

Standby Purchase Agreement, between Famous Dave’s of America, Inc. and PW Partners, LLC, dated January 29, 2018, incorporated by reference to Exhibit 10.1 to Form 8-K filed January 29, 2018

10.54

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Employment Agreement dated February 12, 2018 between Famous Dave’s of America, Inc. and Paul M. Malazita †

21.0

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Subsidiaries of Famous Dave’s of America, Inc.

23.1

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Consent of Grant Thornton LLP

31.1

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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

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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

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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

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XBRL Instance Document

101.SCH

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XBRL Schema Document

101.CAL

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XBRL Calculation Linkbase Document

101.LAB

*

XBRL Label Linkbase Document

101.PRE

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XBRL Presentation Linkbase Document

101.DEF

*

XBRL Taxonomy Extension Definition Linkbase Document

*    Filed herewith

†    Management compensatory plan