UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q



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

For the quarterly period ended ~~September 27, 2020~~July 4, 2021



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

Commission File Number: 001-35373

FIESTA RESTAURANT GROUP, INC.

(Exact name of Registrant as specified in its charter)



DE		90-0712224
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
14800 Landmark Boulevard, Suite 500		75254
Dallas	TX	(Zip Code)
(Address of principal executive office)

Registrant's telephone number, including area code: (~~972~~) (972) 702-9300

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

FRGI

NASDAQ Global Select Market

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

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

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


Large Accelerated Filer		☐			Accelerated Filer		☒

~~Large Accelerated Filer~~		☐	~~Accelerated Filer~~	☒

Non-accelerated Filer	☐		Smaller Reporting Company			☐☒

					Emerging Growth Company		☐

Table of Contents

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

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

As of ~~October 29, 2020,~~August 6, 2021, Fiesta Restaurant Group, Inc. had ~~25,920,828~~26,459,570 shares of its common stock, $0.01 par value, outstanding.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED ~~SEPTEMBER 27, 2020~~JULY 4, 2021


				Page
PART I FINANCIAL INFORMATION

			~~Page~~
~~PART I FINANCIAL INFORMATION~~

Item 1	Interim Condensed Consolidated Financial Statements (Unaudited) - Fiesta Restaurant Group, Inc.:

		Condensed Consolidated Balance Sheets as of ~~September 27, 2020~~July 4, 2021 and ~~December 29, 2019~~January 3, 2021		2

		Condensed Consolidated Statements of Operations for the Three and ~~Nine~~ Six Months Ended ~~September 27,~~ July 4, 2021 and June 28 , 2020 ~~and September 29, 2019~~		3

		Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and ~~Nine~~ Six Months Ended ~~September 27,~~July 4, 2021 and June 2 8 , 2020 ~~and September 29, 2019~~		4

		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September 27,~~July 4, 2021 and June 2 8 , 2020 ~~and September 29, 2019~~		5

		Notes to Unaudited Condensed Consolidated Financial Statements		6

Item 2		Management's Discussion and Analysis of Financial Condition and Results of Operations		2123

Item 3		Quantitative and Qualitative Disclosures About Market Risk		4346

Item 4		Controls and Procedures		4346

PART II OTHER INFORMATION

Item 1		Legal Proceedings		4346

Item 1A		Risk Factors		4346

Item 2		Unregistered Sales of Equity Securities and Use of Proceeds		4446

Item 3		Defaults Upon Senior Securities		4446

Item 4		Mine Safety Disclosures		4447

Item 5		Other Information		4447

Item 6		Exhibits		4548

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	July 4, 2021		January 3, 2021
ASSETS
Current assets:
Cash	$	65,830	$	49,778
Restricted cash	3,837		3,584
Accounts receivable	4,580		4,933
Inventories	2,022		2,101
Prepaid rent	109		107
Income tax receivable	2,606		9,399
Prepaid expenses and other current assets	6,671		5,646
Current assets held for sale	159,564		8,478
Total current assets	245,219		84,026
Property and equipment, net	94,773		97,867
Operating lease right-of-use assets	157,533		164,665
Goodwill	56,307		56,307

Other assets	6,557		5,855
Non-current assets held for sale	0		160,023
Total assets	$	560,389	$	568,743
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	71,541	$	816
Accounts payable	10,264		8,325

Accrued payroll, related taxes and benefits	8,108		9,738
Accrued real estate taxes	2,775		1,735
Other current liabilities	18,795		17,070
Current liabilities held for sale	120,956		27,225
Total current liabilities	232,439		64,909
Long-term debt, net of current portion	810		71,588


Operating lease liabilities	166,793		174,116
Deferred tax liabilities	2,353		2,269
Other non-current liabilities	9,981		9,757
Non-current liabilities held for sale	0		98,323
Total liabilities	412,376		420,962
Commitments and contingencies	0		0
Stockholders' equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized, 0 shares issued	0		0
Common stock, $0.01 par value; 100,000,000 shares authorized, 28,454,149 and 28,278,320 shares issued, respectively, and 25,529,468 and 25,293,149 shares outstanding, respectively	275		273
Additional paid-in capital	179,016		176,614
Retained earnings (accumulated deficit)	(10,499)		(8,327)
Treasury stock, at cost; 1,993,495 shares	(20,779)		(20,779)
Total stockholders' equity	148,013		147,781
Total liabilities and stockholders' equity	$	560,389	$	568,743

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

September 27, 2020 December 29, 2019
ASSETS
Current assets:
Cash $ 17,997
$ 13,413
Accounts receivable 8,457
7,933
Inventories 3,281
3,394
Prepaid rent 115
117
Income tax receivable 11,121
3,821
Prepaid expenses and other current assets 13,287
10,605
Total current assets 54,258
39,283
Property and equipment, net 174,551
211,944
Operating lease right-of-use assets 258,913
251,272
Goodwill 56,307
56,307
Other assets 7,739
9,835
Total assets $ 551,768
$ 568,641
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 262
$ 212
Accounts payable 28,950
14,776
Accrued payroll, related taxes and benefits 9,599
9,866
Accrued real estate taxes 7,959
6,497
Other current liabilities 34,174
32,269
Total current liabilities 80,944
63,620
Long-term debt, net of current portion 41,586
76,823
Operating lease liabilities 265,356
256,798
Deferred tax liabilities 5,311
4,759
Other non-current liabilities 12,646
8,405
Total liabilities 405,843
410,405
Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued 0
0
Common stock, $0.01 par value; 100,000,000 shares authorized, 27,914,555 and 27,461,697 shares issued, respectively, and 25,291,941 and 25,612,597 shares outstanding, respectively 273
271
Additional paid-in capital 175,614
173,132
Retained earnings (accumulated deficit) (9,183 ) 1,884
Treasury stock, at cost; 1,993,495 and 1,493,495 shares, respectively (20,779 ) (17,051 )
Total stockholders' equity 145,925
158,236
Total liabilities and stockholders' equity $ 551,768
$ 568,641

Table of Contents

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER 27,~~JULY 4, 2021 AND JUNE 28, 2020 ~~AND SEPTEMBER 29, 2019~~

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended				Six Months Ended
	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Revenues:
Restaurant sales	$	90,764	$	63,292	$	178,604	$	149,013
Franchise royalty revenues and fees	391		146		766		550
Total revenues	91,155		63,438		179,370		149,563
Costs and expenses:
Cost of sales	27,558		20,321		54,859		48,052
Restaurant wages and related expenses (including stock-based compensation expense of $15, $27, $31, and $38, respectively)	21,901		15,108		42,240		36,145
Restaurant rent expense	5,824		5,660		11,701		11,300
Other restaurant operating expenses	14,215		10,823		27,520		23,347
Advertising expense	2,898		1,174		5,273		4,678
General and administrative (including stock-based compensation expense of $1,046, $850, $2,040, and $1,348, respectively)	11,050		9,240		21,716		19,458
Depreciation and amortization	4,875		5,455		9,963		10,948

Impairment and other lease charges	(202)		1,932		(254)		5,628

Closed restaurant rent expense, net of sublease income	966		1,258		1,716		2,381
Other expense (income), net	170		698		293		927
Total operating expenses	89,255		71,669		175,027		162,864
Income (loss) from operations	1,900		(8,231)		4,343		(13,301)
Interest expense	61		63		122		126

Income (loss) from continuing operations before income taxes	1,839		(8,294)		4,221		(13,427)
Provision for (benefit from) income taxes	(841)		(1,687)		2,236		(3,112)
Income (loss) from continuing operations	2,680		(6,607)		1,985		(10,315)



Loss from discontinued operations, net of tax	(2,763)		(1,736)		(4,157)		(5,345)
Net loss	$	(83)	$	(8,343)	$	(2,172)	$	(15,660)
Earnings (loss) per common share:
Continuing operations – basic	$	0.11	$	(0.26)	$	0.07	$	(0.41)
Discontinued operations – basic	(0.11)		(0.07)		(0.16)		(0.21)
Basic	0		(0.33)		(0.09)		(0.62)

Continuing operations – diluted	0.11		(0.26)		0.07		(0.41)
Discontinued operations – diluted	(0.11)		(0.07)		(0.16)		(0.21)
Diluted	0		(0.33)		(0.09)		(0.62)

Weighted average common shares outstanding:
Basic	25,496,038		25,267,404		25,410,123		25,393,325
Diluted	25,496,038		25,267,404		25,410,783		25,393,325

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

Three Months Ended Nine Months Ended
September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
Revenues:
Restaurant sales $ 136,819
$ 163,589
$ 404,452
$ 499,483
Franchise royalty revenues and fees 513
659
1,447
1,998
Total revenues 137,332
164,248
405,899
501,481
Costs and expenses:
Cost of sales 41,752
52,056
125,835
156,324
Restaurant wages and related expenses (including stock-based compensation expense of $47, $102, $152 and $145, respectively) 35,545
44,459
109,787
135,261
Restaurant rent expense 11,174
11,970
33,792
35,613
Other restaurant operating expenses 21,138
24,153
61,638
68,429
Advertising expense 2,033
6,385
9,959
17,789
General and administrative (including stock-based compensation expense of $597, $509, $2,332 and $1,993, respectively) 11,855
13,820
38,527
42,387
Depreciation and amortization 9,432
10,165
28,427
29,520
Pre-opening costs 0
77
69
863
Impairment and other lease charges 2,404
3,254
8,922
4,667
Goodwill impairment 0
21,424
0
67,909
Closed restaurant rent expense, net of sublease income 1,481
726
4,943
3,485
Other expense (income), net (1,304 ) 64
388
920
Total operating expenses 135,510
188,553
422,287
563,167
Income (loss) from operations 1,822
(24,305 ) (16,388 ) (61,686 )
Interest expense 1,172
823
3,370
3,024
Loss on extinguishment of debt 212
0
212
0
Income (loss) before income taxes 438
(25,128 ) (19,970 ) (64,710 )
Benefit from income taxes (4,155 ) (2,946 ) (8,903 ) (1,377 )
Net income (loss) $ 4,593
$ (22,182 ) $ (11,067 ) $ (63,333 )
Earnings (loss) per common share:
Basic $ 0.18
$ (0.84 ) $ (0.44 ) $ (2.37 )
Diluted 0.18
(0.84 ) (0.44 ) (2.37 )
Weighted average common shares outstanding:
Basic 25,290,357
26,548,116
25,359,004
26,734,822
Diluted 25,291,719
26,548,116
25,359,004
26,734,822

Table of Contents

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER 27,~~JULY 4, 2021 AND JUNE 28, 2020 ~~AND SEPTEMBER 29, 2019~~

(In thousands, except share data)

(Unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity
	Shares	Amount
Balance at December 29, 2019	25,612,597	$	271	$	173,132	$	1,884	$	(17,051)	$	158,236
Stock-based compensation	—	—		812		—		—		812
Vesting of restricted shares	73,998	0		0		—		—		0


Purchase of treasury stock	(500,000)	—		—		—		(3,728)		(3,728)
Net loss	—	—		—		(7,317)		—		(7,317)
Balance at March 29, 2020	25,186,595	271		173,944		(5,433)		(20,779)		148,003
Stock-based compensation	—	—		1,028		—		—		1,028
Vesting of restricted shares	101,661	2		(2)		—		—		0



Net loss	—	—		—		(8,343)		—		(8,343)
Balance at June 28, 2020	25,288,256	$	273	$	174,970	$	(13,776)	$	(20,779)	$	140,688
















Balance at January 3, 2021	25,293,149	$	273	$	176,614	$	(8,327)	$	(20,779)	$	147,781
Stock-based compensation	—	—		1,163		—		—		1,163
Vesting of restricted shares	109,528	1		(1)		—		—		0


Net loss	—	—		—		(2,089)		—		(2,089)
Balance at April 4, 2021	25,402,677	274		177,776		(10,416)		(20,779)		146,855
Stock-based compensation	—	—		1,241		—		—		1,241
Vesting of restricted shares	126,791	1		(1)		—		—		0


Net loss	—	—		—		(83)		—		(83)
Balance at July 4, 2021	25,529,468	$	275	$	179,016	$	(10,499)	$	(20,779)	$	148,013

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

Common Stock Additional
Paid-In
Capital Retained
Earnings
(Accumulated Deficit) Treasury
Stock Total
Stockholders'
Equity
Shares Amount
Balance at December 30, 2018 26,858,988
$ 270
$ 170,290
$ 72,268
$ (2,769 ) $ 240,059
Stock-based compensation —
—
792
—
—
792
Vesting of restricted shares 68,286
0
(1 ) —
—
(1 )
Cumulative effect of adopting a new accounting standard —
—
—
14,002
—
14,002
Purchase of treasury stock (158,269 ) —
—
—
(2,199 ) (2,199 )
Net income —
—
—
2,289
—
2,289
Balance at March 31, 2019 26,769,005
270
171,081
88,559
(4,968 ) 254,942
Stock-based compensation —
—
735
—
—
735
Vesting of restricted shares 57,547
1
(1 ) —
—
0
Net loss —
—
—
(43,440 ) —
(43,440 )
Balance at June 30, 2019 26,826,552
271
171,815
45,119
(4,968 ) 212,237
Stock-based compensation —
—
611
—
—
611
Vesting of restricted shares 6,277
0
0
—
—
0
Purchase of treasury stock (906,268 ) —
—
—
(9,158 ) (9,158 )
Net loss —
—
—
(22,182 ) —
(22,182 )
Balance at September 29, 2019 25,926,561
$ 271
$ 172,426
$ 22,937
$ (14,126 ) $ 181,508

Balance at December 29, 2019 25,612,597
$ 271
$ 173,132
$ 1,884
$ (17,051 ) $ 158,236
Stock-based compensation —
—
812
—
—
812
Vesting of restricted shares 73,998
0
0
—
—
0
Purchase of treasury stock (500,000 ) —
—
—
(3,728 ) (3,728 )
Net loss —
—
—
(7,317 ) —
(7,317 )
Balance at March 29, 2020 25,186,595
271
173,944
(5,433 ) (20,779 ) 148,003
Stock-based compensation —
—
1,028
—
—
1,028
Vesting of restricted shares 101,661
2
(2 ) —
—
0
Net loss —
—
—
(8,343 ) —
(8,343 )
Balance at June 28, 2020 25,288,256
273
174,970
(13,776 ) (20,779 ) 140,688
Stock-based compensation —
—
644
—
—
644
Vesting of restricted shares 3,685
0
0
—
—
0
Net income —
—
—
4,593
—
4,593
Balance at September 27, 2020 25,291,941
$ 273
$ 175,614
$ (9,183 ) $ (20,779 ) $ 145,925

Table of Contents

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER 27,~~JULY 4, 2021 AND JUNE 28, 2020 ~~AND SEPTEMBER 29, 2019~~

(In thousands)

(Unaudited)


	Six Months Ended
	July 4, 2021		June 28, 2020
Operating activities:
Net loss	$	(2,172)	$	(15,660)

Adjustments to reconcile net loss to net cash provided by operating activities:
Loss (gain) on disposals of property and equipment, net	(285)		571
Stock-based compensation	2,404		1,840
Impairment and other lease charges (recoveries)	40		6,518


Depreciation and amortization	17,762		18,995
Amortization of deferred financing costs	400		135

Deferred income taxes	(975)		3,107
Changes in other operating assets and liabilities	4,342		13,462


Net cash provided by operating activities	21,516		28,968
Investing activities:
Capital expenditures:
New restaurant development	0		(1,840)
Restaurant remodeling	(1,237)		(1,087)
Other restaurant capital expenditures	(6,458)		(3,741)
Corporate and restaurant information systems	(1,374)		(2,035)
Total capital expenditures	(9,069)		(8,703)

Proceeds from disposals of properties	1,307		0

Proceeds from sale-leaseback transactions	3,083		0


Net cash used in investing activities	(4,679)		(8,703)
Financing activities:

Borrowings on revolving credit facility	0		146,940
Repayments on revolving credit facility	0		(75,420)
Borrowings of unsecured debt	0		15,000
Repayments of unsecured debt	0		(15,000)

Repayment of secured debt	(375)		0
Principal payments on finance leases	(154)		(95)

Payments to purchase treasury stock	0		(3,728)


Net cash provided by (used in) financing activities	(529)		67,697
Net change in cash and restricted cash	16,308		87,962
Cash and restricted cash, beginning of period	53,362		13,089
Cash and restricted cash of discontinued operations, beginning of period	257		324
Cash and restricted cash of discontinued operations, end of period	(260)		(282)
Cash and restricted cash, end of period	$	69,667	$	101,093

Nine Months Ended
September 27, 2020 September 29, 2019
Operating activities:
Net loss $ (11,067 ) $ (63,333 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on disposals of property and equipment (1,047 ) (6 )
Stock-based compensation 2,484
2,138
Impairment and other lease charges 8,922
4,667
Goodwill impairment 0
67,909
Loss on extinguishment of debt 212
0
Depreciation and amortization 28,427
29,520
Amortization of deferred financing costs 261
203
Deferred income taxes 552
(2,112 )
Changes in other operating assets and liabilities 18,230
11,988
Net cash provided by operating activities 46,974
50,974
Investing activities:
Capital expenditures:
New restaurant development (1,846 ) (10,681 )
Restaurant remodeling (1,087 ) (368 )
Other restaurant capital expenditures (5,847 ) (15,845 )
Corporate and restaurant information systems (3,136 ) (7,179 )
Total capital expenditures (11,916 ) (34,073 )
Proceeds from disposals of properties 2,864
1,774
Proceeds from insurance recoveries 0
42
Proceeds from sale-leaseback transactions 6,284
0
Net cash used in investing activities (2,768 ) (32,257 )
Financing activities:
Borrowings on revolving credit facility 154,143
21,000
Repayments on revolving credit facility (189,225 ) (30,000 )
Borrowings of unsecured debt 15,000
0
Repayments of unsecured debt (15,000 ) 0
Principal payments on finance leases (166 ) (109 )
Financing costs associated with debt amendment (646 ) 0
Payments to purchase treasury stock (3,728 ) (11,357 )
Net cash used in financing activities (39,622 ) (20,466 )
Net change in cash 4,584
(1,749 )
Cash, beginning of period 13,413
5,258
Cash, end of period $ 17,997
$ 3,509

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

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

1. Basis of Presentation

Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises 2 restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc. and its subsidiaries, Pollo Franchise, Inc. (collectively "Pollo Tropical"), and Taco Cabana, Inc. and its subsidiaries (collectively "Taco Cabana"). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and Taco Cabana, are collectively referred to as the "Company." At ~~September 27, 2020,~~July 4, 2021, the Company owned and operated 138 Pollo Tropical^® restaurants and ~~145~~142 Taco Cabana^® restaurants. All of the Pollo Tropical restaurants are located in Florida and all of the Taco Cabana restaurants are located in Texas. At ~~September 27, 2020,~~July 4, 2021, the Company franchised a total of 3329 Pollo Tropical restaurants and 76 Taco Cabana restaurants. The franchised Pollo Tropical restaurants include 17 in Puerto Rico, 42 in Panama, 21 in Guyana, 12 in Ecuador, 1 in the Bahamas, 75 on college campuses and 1 at a hospital in Florida. The franchised Taco Cabana restaurants include 6 in New ~~Mexico and~~Mexico.

Discontinued Operations. On July 1, ~~on a college campus in Texas.~~

~~The COVID-19 pandemic has affected and is continuing to affect the restaurant industry and the economy. In response to COVID-19 and in compliance with governmental restrictions,~~2021, the Company ~~closed~~entered into a stock purchase agreement for the ~~dining room seating areas in all Pollo Tropical~~sale of Taco Cabana. The Company has classified the revenues, costs and expenses and income taxes attributable to the Taco Cabana ~~restaurants, limiting service~~business segment, together with certain costs related to ~~take-out, drive-thru, and delivery~~the transaction, within loss from discontinued operations, ~~beginning in mid-March 2020. During~~net of tax, on the second quarter of 2020, certain restrictions were lifted and the Company opened certain dining rooms on a limited basis; however, it temporarily closed all dining rooms on July 12, 2020, in response to increased COVID-19 infection rates in both Texas and Florida. The Company began re-opening certain dining rooms and patios with limited capacity and hours at both brands and the state of Florida removed restaurant capacity restrictions in late September 2020. The Company expects the COVID-19 restrictions and economic impact to result in reduced earnings. As the COVID-19 situation is dynamic, the Company does not currently know when it will resume full operations or when its resultscondensed consolidated statements of operations ~~will return~~for all periods presented. See Note 2—Dispositions. Unless otherwise noted, amounts and disclosures throughout these notes to ~~pre-COVID-19 levels.~~the condensed consolidated financial statements relate to the Company's continuing operations.

Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Fiscal Year. The Company uses a 52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended ~~December 29, 2019~~January 3, 2021 contained 5253 weeks. The three and ~~nine~~six months ended ~~September 27,~~July 4, 2021 and June 28, 2020 ~~and September 29, 2019~~ each contained thirteen ~~and thirty-nine weeks, respectively.~~weeks. The fiscal year ending January ~~3, 2021~~2, 2022 will contain 5352 weeks.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and ~~nine~~six months ended ~~September 27,~~July 4, 2021 and June 28, 2020 ~~and September 29, 2019~~ have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and ~~nine~~six months ended ~~September 27,~~July 4, 2021 and June 28, 2020 ~~and September 29, 2019~~ are not necessarily indicative of the results to be expected for the full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended ~~December 29, 2019~~January 3, 2021 included in the Company's Annual Report on Form 10-K for the fiscal year ended ~~December 29, 2019.~~January 3, 2021. The ~~December 29, 2019~~January 3, 2021 balance sheet data is derived from those audited financial statements.

Reclassification. Certain reclassifications have been made in the 2020 condensed consolidated financial statements to conform with current year presentation related to the discontinued operations of Taco Cabana. See Note 2—Dispositions.

Guidance Adopted in ~~2020.~~2021. In ~~August 2018,~~December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. ~~2018-15,~~2019-12, ~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That~~Income Taxes (Topic 740) ("ASU No. 2019-12"), which is a ~~Service Contract, which aligns~~part of the ~~requirements~~Simplification Initiative being undertaken by the FASB to reduce complexity of accounting standards. The amendments in this update simplify the accounting for ~~capitalizing implementation costs incurred~~income taxes by removing certain exceptions, the most notable for the Company being the exception to the general methodology for calculating income taxes in ~~a hosting arrangement that is a service contract with~~an interim period when the ~~requirements~~year-to-date loss exceeds the anticipated loss for ~~capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).~~the full year. The Company adopted this new accounting standard on ~~December 30, 2019~~January 4, 2021, and will apply it prospectively ~~to all implementation costs incurred~~in each period after the date of adoption. The ~~adoption~~impact of ~~this~~the standard ~~did~~is largely dependent on interim and anticipated profit or loss in a given period, however the Company does not expect ASU No. 2019-12 to have a ~~material effect~~significant impact on ~~the Company's~~its financial statements. The Company deferred and amortized application development stage costs for cloud-based computing arrangements over the life of the related service (subscription) agreement in the same line item that the fees associated with the subscription arrangement were presented prior to adoption of the new standard.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a percentage of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services.

Fair Value of Financial Instruments. 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 aton the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect management's own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:


•	~~Current Assets and Liabilities.~~ ~~The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.~~

•

~~Revolving Credit Borrowings.~~ The Company's senior credit facility was amended on July 10, 2020. The fair value of outstanding revolving credit borrowings under the Company's senior secured revolving credit facility (the "senior credit facility") and the amended senior secured revolving credit facility (the "amended senior credit facility"), which is considered Level 2, is based on current LIBOR rates. The fair value of the amended senior credit facility and senior credit facility was approximately $39.9 million at September 27, 2020 and $75.0 million at December 29, 2019, respectively. The carrying value of the amended senior credit facility and senior credit facility was $39.9 million at September 27, 2020 and $75.0 million at December 29, 2019,

•Current Assets and Liabilities. The carrying values reported on the condensed consolidated balance sheets of cash and restricted cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.

•Term Loan Borrowings. The fair value of outstanding term loan borrowings under the Company's new senior credit facility, which is considered Level 2, is based on current LIBOR rates. The fair value of the Company's senior credit facility was approximately $77.1 million at July 4, 2021 and $74.4 million at January 3, 2021, respectively. The carrying value of the Company's senior credit facility was $71.5 million at July 4, 2021 and $71.5 million at January 3, 2021, respectively.

Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets, including right-of-use ("ROU") lease assets, by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3—4—Impairment of Long-Lived Assets and Other Lease Charges.

Leases. The Company assesses whether an agreement contains a lease at inception. All leases are reviewed for finance or operating classification once control is obtained. The majority of the Company's leases are operating leases. Operating leases are included within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the condensed consolidated balance sheets. Finance leases are included within property and equipment, net, current portion of long-term debt, and long-term debt, net of current portion in the condensed consolidated balance sheets. Operating and financing leases related to discontinued operations are included within current assets held for sale and current liabilities held for sale in the condensed consolidated balance sheet as of July 4, 2021 and non-current assets held for sale, current liabilities held for sale, and non-current liabilities held for sale in the condensed consolidated balance sheet as of January 3, 2021.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably certain to be exercised when such options are required to achieve a minimum 20-year lease term for new restaurant properties and when it incurs significant leasehold improvement costs near the end of a lease term. The Company uses judgment and available data to allocate consideration in a contract when it leases land and a building. The Company also uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a synthetic credit rating determined using a valuation model. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless the related ROU asset has been adjusted for an impairment charge. The Company has real estate lease agreements with lease and non-lease components, which are accounted for as a single lease component.

As a result of the COVID-19 pandemic the Company entered into rent deferral agreements with approximately 185 landlords as of September 27, 2020. Under these agreements, certain rent payments are deferred without penalty for various periods, generally for up to three months. The Company also entered into 2 limited abatement agreements. The Company has elected to account for lease concessions and deferrals resulting directly from COVID-19 as though the enforceable rights and obligations to the

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

~~concessions and deferrals existed in the respective contracts at lease inception and did not account for the concessions and deferrals as lease modifications.~~

During the ~~third~~first quarter of ~~2020,~~2021, the Company sold 2 Taco Cabana restaurant properties for total proceeds of ~~$6.3~~$3.1 million in sale-leaseback transactions that resulted in a total gain of ~~$1.5~~$0.3 million. During the second quarter of 2021, the Company sold 1 Taco Cabana restaurant property for total proceeds of $1.3 million ~~which is~~that resulted in a gain of $0.1 million. These gains are recognized in ~~other expense (income), net~~discontinued operations, in the condensed consolidated statements of ~~operations, and a financial liability of $0.5 million, which is recognized in other current and non-current liabilities in the condensed consolidated balance sheet.~~operations.

Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: insurance liabilities, evaluation for impairment of goodwill and long-lived assets, lease accounting matters, and deferred income tax assets. Actual results could differ from those estimates. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will have on the Company's operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material.

2. Dispositions

On June 30, 2021, the Company's Board of Directors approved a stock purchase agreement, which was subsequently entered into by the Company on July 1, 2021, for the sale of all of the outstanding capital stock of Taco Cabana, Inc., including nearly all related assets and liabilities, for a cash purchase price of $85.0 million subject to reduction for (i) closing adjustments of approximately $4.6 million and (ii) certain other working capital adjustments as set forth in the stock purchase agreement. The ~~Company's~~Company expects this transaction to be completed in the third quarter of 2021, subject to the satisfaction of customary closing conditions, although there is no assurance that the transaction will be completed in the third quarter of 2021.

The assets and liabilities of Taco Cabana that are to be sold are classified as current ~~estimates assume~~assets held for sale and current liabilities held for sale, respectively, in the condensed consolidated balance sheet as of July 4, 2021 and current assets held for sale, non-current assets held for sale, current liabilities held for sale, and non-current liabilities held for sale, respectively, in the condensed consolidated balance sheet as of January 3, 2021. Taco Cabana assets and liabilities that will be retained by the Company are not classified as held for sale.

All revenues, costs and expenses and income taxes attributable to Taco Cabana, together with certain costs related to the transaction, have been aggregated within loss from discontinued operations, net of tax, in the condensed consolidated statements of operations for all periods presented. No amounts for shared general and administrative operating ~~restrictions, regulations~~support expense were allocated to discontinued operations. As required by the terms of the senior credit facility, the proceeds from the sale will be used to fully repay Fiesta's outstanding term loan borrowings. The early repayment is subject to a 103% loan prepayment premium. The interest expense and ~~directives~~the amortization of discount and debt issuance costs of the term loan portion of the senior credit facility are included within loss from discontinued operations, net of tax. As of July 4, 2021, outstanding term loan borrowings, net of unamortized discount and debt issuance costs, are included in current liabilities in the condensed consolidated balance sheet. As of July 4, 2021, the unamortized discount on the debt was $1.3 million and unamortized debt issuance costs were $1.8 million.

Upon completion of the sale of Taco Cabana, the Company will provide certain services to Taco Cabana subject to a transition service agreement which is expected to continue for ~~restaurants~~up to 120 days. The Company will retain certain closed Taco Cabana restaurant leases, including the associated operating lease right-of-use assets and operating lease liabilities. The Company will also retain liability for Taco Cabana's accrued worker's compensation and general liability claims for periods prior to the sale. These liabilities are recognized in other current liabilities and other ~~changes related to COVID-19 will continue to have a significant impact through at least the first half of 2021 with the greatest impact~~non-current liabilities in the ~~near term.~~condensed consolidated balance sheets. As there are estimates and assumptions inherent in recording these insurance liabilities, including the ability to estimate the future development of incurred claims based on historical trends or the severity of the claims, differences between actual future events and prior estimates and assumptions could result in adjustments to these liabilities.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2.(Dollars in thousands, except per share data)

A summary of assets and liabilities of the discontinued operations is as follows:


	July 4, 2021		January 3, 2021
Carrying amount of major classes of assets included as part of discontinued operations:
Accounts receivable	$	3,990	$	3,951
Inventories	1,997		2,104
Prepaid expenses and other current assets	1,929		2,423
Total current assets of the disposal group classified as held for sale			8,478
Property and equipment, net	57,469		63,214
Operating lease right-of-use assets	94,076		96,639
Other assets	103		170
Total non-current assets of the disposal group classified as held for sale			160,023
Total assets of the disposal group classified as held for sale	$	159,564	$	168,501

Carrying amount of major classes of liabilities included as part of discontinued operations:
Current portion of long-term debt	$	207	$	199
Accounts payable	6,498		5,014
Accrued liabilities	7,562		9,363
Other current liabilities	13,079		12,649
Total current liabilities of the disposal group classified as held for sale			27,225
Long-term debt, net of current portion	627		740
Operating lease liabilities	90,697		93,970
Deferred tax liabilities	781		1,840
Other non-current liabilities	1,505		1,773
Total non-current liabilities of the disposal group classified as held for sale			98,323
Total liabilities of the disposal group classified as held for sale	$	120,956	$	125,548

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

A summary of the results of the discontinued operations is as follows:


	Three Months Ended				Six Months Ended
	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Major classes of line items constituting pretax loss of discontinued operations:
Revenues:
Total revenues	$	66,352	$	58,430	$	122,876	$	119,004
Costs and expenses:
Cost of sales	18,823		17,486		34,608		36,031
Restaurant wages and related expenses (including stock-based compensation expense of $24, $42, $50, and $67, respectively)	20,640		18,639		38,345		38,097
Restaurant rent expense	5,657		5,619		11,413		11,318
Other restaurant operating expenses	10,459		8,166		19,450		17,153
General and administrative (including stock-based compensation expense of $156, $109, $283, and $387, respectively)	4,089		3,048		7,991		7,214
Depreciation and amortization	3,961		4,110		7,799		8,047
Pre-opening costs	0		0		0		69
Other income and expense items that are not major	2,658		1,980		4,381		5,984
Total operating expenses	66,287		59,048		123,987		123,913
Income (loss) from operations	65		(618)		(1,111)		(4,909)
Interest expense	1,906		1,174		3,868		2,072


Loss from discontinued operations before income taxes	(1,841)		(1,792)		(4,979)		(6,981)
Provision for (benefit from) income taxes	922		(56)		(822)		(1,636)
Loss from discontinued operations	$	(2,763)	$	(1,736)	$	(4,157)	$	(5,345)

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

A summary of significant investing activity and non-cash operating, investing, and financing activity of the discontinued operations from the condensed consolidated statements of cash flows is as follows:


	Six Months Ended
	July 4, 2021		June 28, 2020
Non-cash operating activities:
Gain on disposals of property and equipment, net	$	(290)	$	0
Stock-based compensation	333		454
Impairment and other lease charges	294		890
Depreciation and amortization	7,799		8,047


Investing activities:
Capital expenditures:
New restaurant development	$	0	$	(854)
Restaurant remodeling	(645)		(730)
Other restaurant capital expenditures	(2,708)		(1,722)
Corporate and restaurant information systems	(110)		(354)
Total capital expenditures	(3,463)		(3,660)
Proceeds from disposals of properties	1,307		0
Proceeds from sale-leaseback transactions	3,083		0
Net cash provided by (used in) investing activities – discontinued operations	$	927	$	(3,660)

Supplemental cash flow disclosures:
Interest paid on long-term debt	$	3,356	$	1,989


Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures	$	1,692	$	862
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets	5,156		8,680
Finance lease ROU assets	0		33
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets	2,194		628
Operating lease liabilities	2,795		872

3. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:


	July 4, 2021		January 3, 2021
Prepaid contract expenses	$	4,155	$	4,138

Other	2,516		1,508
	$	6,671	$	5,646

September 27, 2020 December 29, 2019
Prepaid contract expenses $ 3,591
$ 4,410
Assets held for sale⁽¹⁾
7,098
4,110
Other 2,598
2,085
$ 13,287
$ 10,605

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3.FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

4. Impairment of Long-Lived Assets and Other Lease Charges

The Company reviews its long-lived assets, principally property and equipment and lease ROU assets, for impairment at the restaurant level. The Company has elected to exclude operating lease payments and liabilities from future cash flows and carrying values, respectively, in its impairment review. In addition to considering management's plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant's cash flows, exclusive of operating lease payments, for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant's assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows, exclusive of operating lease payments, over the life of the primary asset for each restaurant is compared to that long-lived asset group's carrying value, excluding operating lease liabilities. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material.

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~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Dollars in thousands, except per share data)~~

A summary of impairment of long-lived assets and other lease charges (recoveries) ~~recorded by segment~~ is as follows:

Impairment and other lease charges for the three and ~~nine~~six months ended ~~September 27,~~July 4, 2021 include gains from lease terminations of $(0.3) million and $(0.4) million, respectively. Additionally, impairment charges for the six months ended July 4, 2021 includes charges of $0.1 million related primarily to impairment of equipment from previously impaired and closed restaurants. Impairment and other lease charges for the three and six months ended June 28, 2020 for Pollo Tropical include impairment charges of ~~$2.6~~$1.1 million and ~~$7.3~~$4.8 million, respectively, and other lease charges ~~(gains)~~ of ~~$(0.2)~~$0.9 million ~~and $0.7 million, respectively.~~for both periods. Pollo Tropical impairment charges for the three months ended ~~September 27,~~June 28, 2020 related primarily to the write-down of ~~saucing islands and self-service soda machines that are being removed from dining rooms as a result of COVID-19.~~assets held for sale to their fair value less costs to sell. For the ~~nine~~six months ended ~~September 27,~~June 28, 2020, impairment charges also include the impairment of assets from 3 underperforming Pollo Tropical restaurants, 2 of which were closed in the third quarter of 2020, for which continued sales declines coupled with the impact of expected sales declines resulted in a decrease in the estimated future cash ~~flows and the write-down of assets held for sale to their fair value less costs to sell.~~flows. For the three and six months ended ~~September 27,~~June 28, 2020, other lease charges for Pollo Tropical related primarily to ~~a gain from lease terminations of $(0.2) million. For the nine months ended September 27, 2020, other lease charges also included~~ lease termination charges of $0.9 million for restaurant locations the Company decided not to develop. Impairment and other lease charges for the nine months ended September 27, 2020 for Taco Cabana include impairment charges of $1.1 million, and a gain from a lease termination of $(0.2) million. Taco Cabana impairment charges for the nine months ended September 27, 2020, related primarily to the write-down of assets held for sale to their fair value less costs to sell and the impairment of assets for 2 underperforming Taco Cabana restaurants for which continued sales declines coupled with the impact of expected sales declines resulted in a decrease in the estimated future cash flows.

Impairment and other lease charges for the three and nine months ended September 29, 2019 for Pollo Tropical include impairment charges of $0.2 million and $0.6 million, respectively, related primarily to additional impairment of equipment from previously impaired restaurants and a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.8) million for the nine months ended September 29, 2019. Impairment and other lease charges for the three and nine months ended September 29, 2019 for Taco Cabana include impairment charges of $3.1 million and $4.9 million, respectively, related primarily to impairment of assets for 8 underperforming Taco Cabana restaurants for which continued sales declines resulted in a decrease in the estimated future cash flows and equipment from previously impaired restaurants as well as a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.1) million for the nine months ended September 29, 2019.

The Company ~~determined~~determines the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company's history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company ~~utilized~~utilizes third-party information such as a broker quoted value to determine the fair value of the ~~property.~~property, when applicable. The Company also ~~utilized~~utilizes discounted future cash flows to determine the fair value of assets for certain leased restaurants with positive discounted projected future cash flows. The Company ~~utilized~~utilizes current market lease rent and discount rates to determine the fair value of right-of-use lease assets. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. ~~The Level 3 assets measured at fair value associated with impairment~~Impairment charges ~~recorded during~~for the ~~nine~~six months ended ~~September 27, 2020 totaled $4.9 million.~~

July 4, 2021 related primarily to impairment of equipment from previously impaired restaurants.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

4.5. Other Liabilities

Other current liabilities consist of the following:


	July 4, 2021		January 3, 2021
Operating lease liabilities	$	9,963	$	9,715
Accrued workers' compensation and general liability claims	3,491		3,619
Sales and property taxes	1,143		1,209
Accrued occupancy costs(1)	210		269
Other	3,988		2,258
	$	18,795	$	17,070

September 27, 2020 December 29, 2019
Operating lease liabilities $ 23,932
$ 22,338
Accrued workers' compensation and general liability claims 4,457
4,354
Sales and property taxes 1,807
1,889
Accrued occupancy costs⁽¹⁾
365
891
Other 3,613
2,797
$ 34,174
$ 32,269
(1) Accrued occupancy costs primarily consisted of obligations pertaining to closed restaurant locations.


⁽¹⁾	~~Accrued occupancy costs primarily consisted of obligations pertaining to closed restaurant locations.~~

Other non-current liabilities consist of the following:


	July 4, 2021		January 3, 2021
Accrued workers' compensation and general liability claims	$	6,791	$	6,791
Accrued payroll taxes(1)	1,530		1,318
Deferred compensation	466		491

Other	1,194		1,157
	$	9,981	$	9,757

September 27, 2020 December 29, 2019
Accrued workers' compensation and general liability claims $ 7,348
$ 7,348
Accrued payroll taxes⁽¹⁾
3,719
0
Deferred compensation 457
424
Accrued occupancy costs⁽²⁾
78
78
Other 1,044
555
$ 12,646
$ 8,405

(1) Includes employer Social Security payroll tax deferred as a result of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").

The following table presents the activity in the closed restaurant reserve, of which ~~$0.1 million~~ is included ~~in non-current liabilities at both September 27, 2020 and December 29, 2019, with the remainder in~~within other current ~~liabilities.~~

Nine Months Ended September 27, 2020 Year Ended December 29, 2019
Balance, beginning of period $ 752
$ 8,819
Payments, net (248 ) (1,405 )
Other adjustments⁽¹⁾
(178 ) (6,662 )
Balance, end of period $ 326
$ 752

~~5. Long-Term Debt~~

~~Long-term debt consists of~~ the ~~following:~~

September 27, 2020 December 29, 2019
Revolving credit facility $ 39,918
$ 75,000
Finance/capital leases 1,930
2,035
41,848
77,035
Less: current portion of long-term debt (262 ) (212 )
$ 41,586
$ 76,823

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~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Dollars in thousands, except per share data)~~

~~Amended Senior Credit Facility.~~ Oncondensed consolidated balance sheets at July 10, 2020, the Company entered into the Second Amendment to Credit Agreement (the credit agreement as amended, the "amended senior credit facility") among the Company and a syndicate of lenders. The amended senior credit facility includes adjustments to the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio (each as amended and defined in the amended senior credit facility) that are more reflective of current sales and profit trends. For the remainder of 2020, the only applicable financial covenants under the Company's amended senior credit facility that require compliance will be a minimum liquidity covenant and a maximum capital expenditure covenant discussed below. The amended senior credit facility reduced the aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the amended senior credit facility (the "revolving commitment") by $30.0 million to $120.0 million on July 10, 2020. The amended senior credit facility further reduces the revolving commitment by (i) $15.0 million to $105.0 million on January 3, 2021 and (ii) $10.0 million to $95.0 million on April 4, 2021. On September 27, 2020, there were $39.9 million in outstanding borrowings under the amended senior credit facility.

The amended senior credit facility provides that the Company is not required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio under the amended senior credit facility from July 10, 2020 through April 3, 2021. The Company is required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio beginning with the fiscal quarter ending April 4, 2021 (the first quarter of 2021). After April 3, 2021, the Company will be permitted to exercise equity cures with respect to compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio subject to certain restrictions as set forth in the amended senior credit facility. The amended senior credit facility also provides that the Company must maintain minimum liquidity (as defined in the amended senior credit facility, generally unrestricted cash plus available borrowings under the amended senior credit facility) of (i) $40.0 million through September 27, 2020, (ii) $30.0 million from September 28, 2020 through January 3, 2021, and (iii) $25.0 million on January 4, 2021 and ~~thereafter.~~January 3, 2021.

In addition, the amended senior credit facility requires the Company to pay (i) a commitment fee of 0.50% per annum on the daily amount of the unused portion of the facility and (ii) a letter of credit participation fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit. The amended senior credit facility also provides for a benchmark replacement (as defined in the amended senior credit facility) for LIBOR, which may be a SOFR-based rate, when LIBOR becomes unavailable or an earlier date under certain circumstances.

The outstanding borrowings under the amended senior credit facility are prepayable without penalty (other than customary breakage costs). The amended senior credit facility requires that proceeds received when a prepayment event (as defined in the amended senior credit facility) occurs must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment. As of September 27, 2020, the outstanding revolving credit borrowings and revolving commitment were reduced by $9.1 million from proceeds received. The amended senior credit facility further provides that Company must prepay outstanding revolving credit borrowings if the outstanding revolving credit borrowings exceed $75.0 million and excess cash (as defined in the amended senior credit facility) of the Company exceeds $20.0 million.

The amended senior credit facility contains certain covenants, including, without limitation, those limiting Company's and its subsidiaries' ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of its business in any material respects, engage in certain transactions with related parties, make certain investments, make certain restricted payments or pay dividends, including, without limitation, (i) that capital expenditures by the Company cannot exceed an aggregate of $22.0 million for each of the fiscal years ending 2020 and 2021 and cannot exceed an aggregate of $25.0 million for the fiscal year ending 2022 (the "Capital Expenditures Covenant") and (ii) limiting the construction or development of new restaurants.

The amended senior credit facility also provides that the Company will be required to engage a financial advisor or chief restructuring officer if the Company is not in compliance with certain milestones.

The Company's obligations under the amended senior credit facility are secured by all of the assets of the Company and its subsidiaries (including a pledge of all of the capital stock and equity interests of its subsidiaries) pursuant to an amended and restated security agreement. Under the amended senior credit facility, the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during

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~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Dollars in thousands, except per share data)~~

the continuance of customary defaults which include, without limitation, payment default, covenant defaults, bankruptcy type defaults, defaults on other indebtedness, certain judgments or upon the occurrence of a change of control (as specified in the amended senior credit facility).

The amended senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of the Company's indebtedness having an outstanding principal amount of $5.0 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.


	Six Months Ended July 4, 2021		Year Ended January 3, 2021
Balance, beginning of period	$	163	$	528


Payments, net	(12)		(178)
Other adjustments	(41)		(187)
Balance, end of period	$	110	$	163

~~The amended senior credit facility matures on~~ ~~November 30, 2022~~. As of September 27, 2020, the Company was in compliance with the financial covenants under its amended senior credit facility. After reserving $3.5 million for letters of credit, $67.5 million was available for borrowing under the amended senior credit facility at September 27, 2020.

~~Senior Credit Facility.~~ In November 2017, the Company entered into a senior secured revolving credit facility with a syndicate of lenders. Prior to July 10, 2020, the senior credit facility provided for aggregate revolving credit borrowings of up to $150.0 million (including up to $15.0 million available for letters of credit) and was scheduled to mature on November 30, 2022. The senior credit facility also provided for potential incremental increases of up to $50.0 million to the revolving credit borrowings available under the senior credit facility. The senior credit facility was amended on July 10, 2020.

~~Borrowings under the senior credit facility bore interest at a per annum rate, at the Company's option, equal to either (all terms as defined in the senior credit facility agreement):~~

In addition, the senior credit facility required the Company to pay (i) a commitment fee based on the applicable Commitment Fee rate of 0.25% to 0.35%, based on the Company's Adjusted Leverage Ratio, (with a rate of 0.35% at September 27, 2020) and the unused portion of the facility and (ii) a letter of credit participation fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.

6. Stockholders' Equity

Purchase of Treasury Stock

In 2018, the Company's board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common stock. In 2019, the Company's board of directors approved increases to the share repurchase program of an additional 1,500,000 shares of the Company's common stock for an aggregate approval of 3,000,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 500,000 shares of common stock valued at approximately $3.7 million ~~and 1,064,537 shares of common stock valued at approximately $11.3 million~~ during the ~~nine~~six months ended ~~September 27, 2020 and September 29, 2019, respectively.~~June 28, 2020. The shares repurchased in 2020 were purchased on or before March 12, 2020. The repurchased shares are held as treasury stock at cost. The Company's senior credit facility ~~as amended on July 10, 2020~~ prohibits share ~~repurchases, and the Company currently does not intend to repurchase additional shares of its common stock for the foreseeable future.~~

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

Stock-Based Compensation

On April 28, 2021, the stockholders of the Company approved the Fiesta Restaurant Group, Inc. 2021 Stock Incentive Plan (the "2021 Plan"). Following a grant of a total 37,874 shares to non-employee directors under the Company's 2012 Stock Incentive Plan (the "2012 Plan") on April 28, 2021, no additional shares will be granted under the 2012 Plan. During the ~~nine~~six months ended ~~September 27, 2020,~~July 4, 2021, the Company did not grant any shares under the 2021 Plan.

During the six months ended July 4, 2021, the Company granted certain employees and non-employee directors a total of ~~501,706~~191,872 non-vested restricted shares under the ~~Fiesta Restaurant Group, Inc.~~ 2012 ~~Stock Incentive~~ Plan, ~~(the "Fiesta Plan").~~of which 37,820 non-vested restricted shares related to discontinued operations. The shares granted to employees vest and become non-forfeitable over a four-year vesting period. The shares granted to non-employee directors vest and become non-forfeitable over a one-year vesting ~~period, or for an initial grant to a new director, over a five-year vesting~~ period. The weighted average fair value at grant date for non-vested shares issued during the ~~nine~~six months ended ~~September 27,~~July 4, 2021 and June 28, 2020 was $16.83 and ~~September 29, 2019 was~~ $8.27 ~~and $13.00~~ per share, respectively.

During the six months ended July 4, 2021, the Company also granted certain employees a total of 64,089 restricted stock units under the 2012 Plan subject to performance conditions, of which 4,619 restricted stock units related to discontinued operations. The restricted stock units vest and become non-forfeitable at the end of a three-year vesting period. The number of shares into which these restricted stock units convert is based on the attainment of certain financial performance conditions and ranges from 0 shares, if the minimum performance condition is not met, to 128,178 shares if the maximum performance condition is met. The weighted average fair value at grant date for the restricted stock units ~~subject to market conditions~~ granted in the ~~nine~~six months ended ~~September 29, 2019~~July 4, 2021 was ~~$1.76~~$17.43 per share.

Stock-based compensation expense for the three and ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 was ~~$0.6~~$1.1 million and ~~$2.5~~$2.1 million, respectively, and for the three and ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 was ~~$0.6~~$0.9 million and ~~$2.1~~$1.4 million, respectively. Stock-based compensation expense from discontinued operations for the three and six months ended July 4, 2021 was $0.2 million and $0.3 million, respectively, and for the three and six months ended June 28, 2020 was $0.2 million and $0.5 million, respectively. At ~~September 27, 2020,~~July 4, 2021, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately ~~$5.0 million.~~$9.6 million, of which $1.5 million related to discontinued operations. At ~~September 27, 2020,~~July 4, 2021, the remaining weighted average vesting period for non-vested restricted shares was ~~2.8~~2.2 years and restricted stock units was ~~0.4~~2.7 years.

A summary of all non-vested restricted shares and restricted stock units activity for the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 is as follows:

Non-Vested Shares Restricted Stock Units
Shares Weighted
Average
Grant Date
Fair Value Units Weighted
Average
Grant Date
Fair Value
Outstanding at December 29, 2019 355,605
$ 15.47
176,362
$ 9.42
Granted 501,706
8.27
0
0
Vested and released (178,597 ) 15.20
(747 ) 32.44
Forfeited (49,595 ) 11.83
(25,030 ) 8.33
Outstanding at September 27, 2020 629,119
$ 10.13
150,585
$ 9.49


	Non-Vested Shares			Restricted Stock Units
	Shares	Weighted Average Grant Date Fair Value		Units	Weighted Average Grant Date Fair Value
Outstanding at January 3, 2021	991,676	$	10.26	150,585	$	9.49
Granted	191,872	16.83		64,089	17.43
Vested and released	(234,289)	10.84		(2,030)	20.75
Forfeited	(18,073)	12.78		(148,469)	9.32
Outstanding at July 4, 2021	931,186	$	11.42	64,175	$	17.45

The fair value of ~~the~~ non-vested restricted shares and ~~all other~~ restricted stock units granted during the six months ended July 4, 2021, is based on the closing stock price on the date of grant. The fair value of the restricted stock units subject to market conditions was estimated using the Monte Carlo simulation method. The assumptions used to value grant restricted stock units subject to market conditions are detailed below:

2019
Grant date stock price $ 14.66
Fair value at grant date $ 1.76
Risk free interest rate 2.53 %
Expected term (in years) 2
Dividend yield 0 %
Expected volatility 43.18 %

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

7. Business Segment Information

The Company owns, operates and franchises 2 restaurant brands, Pollo Tropical^® and Taco Cabana^®, each of which is an operating segment. Pollo Tropical restaurants feature fire-grilled and crispy citrus marinated chicken and other freshly prepared menu items, while Taco Cabana restaurants specialize in Mexican-inspired food with most items made ~~fresh by hand.~~fresh. The Taco Cabana operating segment is included in discontinued operations in the condensed consolidated financial statements for all periods presented.

Each segment's accounting policies are described in the summary of significant accounting policies in Note 1 to the Company's audited financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended ~~December 29, 2019.~~January 3, 2021. The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants as set forth in the reconciliation table below.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

The "Other" column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, lease assets, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts, and a current income tax receivable.The "Other" column also includes corporate costs that were previously allocated to Taco Cabana and are not included in discontinued operations.


Three Months Ended	Pollo Tropical		Other		Continuing Operations		Taco Cabana		Other		Discontinued Operations
July 4, 2021:
Restaurant sales	$	90,764	$	0	$	90,764	$	66,132	$	0	$	66,132
Franchise revenue	391		0		391		220		0		220
Cost of sales	27,558		0		27,558		18,823		0		18,823
Restaurant wages and related expenses(1)	21,901		0		21,901		20,640		0		20,640
Restaurant rent expense	5,824		0		5,824		5,657		0		5,657
Other restaurant operating expenses	14,100		115		14,215		10,574		(115)		10,459
Advertising expense	2,898		0		2,898		2,017		0		2,017
General and administrative expense(2)	8,335		2,715		11,050		6,804		(2,715)		4,089
Adjusted EBITDA	11,949		(2,826)		9,123		3,039		2,826		5,865
Depreciation and amortization	4,844		31		4,875		3,992		(31)		3,961
Capital expenditures	4,352		189		4,541		1,432		0		1,432
June 28, 2020:
Restaurant sales	$	63,292	$	0	$	63,292	$	58,255	$	0	$	58,255
Franchise revenue	146		0		146		175		0		175
Cost of sales	20,321		0		20,321		17,486		0		17,486
Restaurant wages and related expenses(1)	15,108		0		15,108		18,639		0		18,639
Restaurant rent expense	5,660		0		5,660		5,619		0		5,619
Other restaurant operating expenses	10,714		109		10,823		8,275		(109)		8,166
Advertising expense	1,178		(4)		1,174		965		4		969
General and administrative expense(2)	6,538		2,702		9,240		5,750		(2,702)		3,048
Adjusted EBITDA	4,993		(2,347)		2,646		2,672		2,347		5,019
Depreciation and amortization	5,233		222		5,455		4,332		(222)		4,110
Capital expenditures	763		797		1,560		1,060		0		1,060

Three Months Ended Pollo Tropical Taco Cabana Other Consolidated
September 27, 2020:
Restaurant sales $ 77,604
$ 59,215
$ 0
$ 136,819
Franchise revenue 336
177
0
513
Cost of sales 24,614
17,138
0
41,752
Restaurant wages and related expenses⁽¹⁾
18,051
17,494
0
35,545
Restaurant rent expense 5,585
5,589
0
11,174
Other restaurant operating expenses 12,125
9,013
0
21,138
Advertising expense 815
1,218
0
2,033
General and administrative expense⁽²⁾
6,604
5,251
0
11,855
Adjusted EBITDA 10,621
4,172
0
14,793
Depreciation and amortization 5,171
4,261
0
9,432
Capital expenditures 1,457
1,112
644
3,213
September 29, 2019:
Restaurant sales $ 88,309
$ 75,280

$ 163,589
Franchise revenue 432
227
0
659
Cost of sales 28,239
23,817
0
52,056
Restaurant wages and related expenses⁽¹⁾
20,944
23,515
0
44,459
Restaurant rent expense 5,477
6,493
0
11,970
Other restaurant operating expenses 12,807
11,346
0
24,153
Advertising expense 3,130
3,255
0
6,385
General and administrative expense⁽²⁾
7,521
6,299
0
13,820
Adjusted EBITDA 10,980
1,174
0
12,154
Depreciation and amortization 5,529
4,636
0
10,165
Capital expenditures 6,402
5,015
985
12,402

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

Nine Months Ended Pollo Tropical Taco Cabana Other Consolidated
September 27, 2020:
Restaurant sales $ 226,617
$ 177,835
$ 0
$ 404,452
Franchise revenue 886
561
0
1,447
Cost of sales 72,666
53,169
0
125,835
Restaurant wages and related expenses⁽¹⁾
54,196
55,591
0
109,787
Restaurant rent expense 16,885
16,907
0
33,792
Other restaurant operating expenses 35,225
26,413
0
61,638
Advertising expense 5,497
4,462
0
9,959
General and administrative expense⁽²⁾
20,630
17,897
0
38,527
Adjusted EBITDA 24,394
5,937
0
30,331
Depreciation and amortization 15,682
12,745
0
28,427
Capital expenditures 5,501
4,772
1,643
11,916
September 29, 2019:
Restaurant sales $ 271,955
$ 227,528
$ 0
$ 499,483
Franchise revenue 1,325
673
0
1,998
Cost of sales 85,855
70,469
0
156,324
Restaurant wages and related expenses⁽¹⁾
63,387
71,874
0
135,261
Restaurant rent expense 16,393
19,220
0
35,613
Other restaurant operating expenses 36,665
31,764
0
68,429
Advertising expense 9,351
8,438
0
17,789
General and administrative expense⁽²⁾
23,568
18,819
0
42,387
Adjusted EBITDA 39,943
8,189
0
48,132
Depreciation and amortization 16,118
13,402
0
29,520
Capital expenditures 18,195
14,982
896
34,073
Identifiable Assets:
September 27, 2020 $ 319,714
$ 189,266
$ 42,788
$ 551,768
December 29, 2019 340,012
195,883
32,746
568,641


Six Months Ended	Pollo Tropical		Other		Continuing Operations		Taco Cabana		Other		Discontinued Operations
July 4, 2021:
Restaurant sales	$	178,604	$	0	$	178,604	$	122,456	$	0	$	122,456
Franchise revenue	766		0		766		420		0		420
Cost of sales	54,859		0		54,859		34,608		0		34,608
Restaurant wages and related expenses(1)	42,240		0		42,240		38,345		0		38,345
Restaurant rent expense	11,701		0		11,701		11,413		0		11,413
Other restaurant operating expenses	27,284		236		27,520		19,686		(236)		19,450
Advertising expense	5,273		0		5,273		3,630		0		3,630
General and administrative expense(2)	16,215		5,501		21,716		13,492		(5,501)		7,991
Adjusted EBITDA	24,296		(5,495)		18,801		3,836		5,495		9,331
Depreciation and amortization	9,782		181		9,963		7,980		(181)		7,799
Capital expenditures	5,061		545		5,606		3,463		0		3,463
June 28, 2020:
Restaurant sales	$	149,013	$	0	$	149,013	$	118,620	$	0	$	118,620
Franchise revenue	550		0		550		384		0		384
Cost of sales	48,052		0		48,052		36,031		0		36,031
Restaurant wages and related expenses(1)	36,145		0		36,145		38,097		0		38,097
Restaurant rent expense	11,300		0		11,300		11,318		0		11,318
Other restaurant operating expenses	23,100		247		23,347		17,400		(247)		17,153
Advertising expense	4,682		(4)		4,678		3,244		4		3,248
General and administrative expense(2)	14,026		5,432		19,458		12,646		(5,432)		7,214
Adjusted EBITDA	13,773		(5,027)		8,746		1,765		5,027		6,792
Depreciation and amortization	10,511		437		10,948		8,484		(437)		8,047
Capital expenditures	4,044		999		5,043		3,660		0		3,660
Identifiable Assets:
July 4, 2021	$	305,648	$	95,177	$	400,825	$	159,564	$	0	$	159,564
January 3, 2021	311,942		88,300		400,242		168,501		0		168,501

(1) ~~Includes~~Continuing operations includes stock-based compensation expense of ~~$47~~$15 and ~~$152~~$31 for the three and ~~nine~~six months ended ~~September 27, 2020,~~July 4, 2021, respectively, and ~~$102~~$27 and ~~$145~~$38 for the three and ~~nine~~six months ended ~~September 29, 2019,~~June 28, 2020, respectively.

⁽²⁾~~Includes~~ Discontinued operations includes stock-based compensation expense of ~~$597~~$24 and~~$2,332~~ $50 for the three and ~~nine~~six months ended ~~September 27, 2020,~~July 4, 2021, respectively, and ~~$509~~$42 and ~~$1,993~~$67 for the three and ~~nine~~six months ended ~~September 29, 2019,~~June 28, 2020, respectively.

(2) Continuing operations includes stock-based compensation expense of $1,046 and $2,040 for the three and six months ended July 4, 2021, respectively, and $850 and $1,348 for the three and six months ended June 28, 2020, respectively. Discontinued operations includes stock-based compensation expense of $156 and $283 for the three and six months ended July 4, 2021, respectively, and $109 and $387 for the three and six months ended June 28, 2020, respectively.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

A reconciliation of consolidated net ~~income (loss)~~loss to Adjusted EBITDA follows:

Three Months Ended Pollo Tropical Taco Cabana Other Consolidated
September 27, 2020:
Net income $ 4,593
Benefit from income taxes (4,155 )
Income (loss) before taxes $ 3,035
$ (2,385 ) $ (212 ) $ 438
Add:
     Non-general and administrative expense adjustments:
          Depreciation and amortization 5,171
4,261
0
9,432
          Impairment and other lease charges 2,395
9
0
2,404
          Interest expense 593
579
0
1,172
          Closed restaurant rent expense, net of sublease income 356
1,125
0
1,481
          Loss on extinguishment of debt 0
0
212
212
          Other expense (income), net (1,404 ) 100
0
(1,304 )
          Stock-based compensation expense in restaurant wages 15
32
0
47
                Total non-general and administrative expense adjustments 7,126
6,106
212
13,444
     General and administrative expense adjustments:
          Stock-based compensation expense 307
290
0
597
          Restructuring costs and retention bonuses 99
117
0
216
          Digital and brand repositioning costs 54
44
0
98
               Total general and administrative expense adjustments 460
451
0
911
Adjusted EBITDA $ 10,621
$ 4,172
$ 0
$ 14,793

September 29, 2019:
Net loss $ (22,182 )
Benefit from income taxes (2,946 )
Income (loss) before taxes $ 3,857
$ (28,985 ) $ 0
$ (25,128 )
Add:
     Non-general and administrative expense adjustments:
          Depreciation and amortization 5,529
4,636
0
10,165
          Impairment and other lease charges 165
3,089
0
3,254
       Goodwill impairment 0
21,424
0
21,424
          Interest expense 398
425
0
823
          Closed restaurant rent expense, net of sublease income 601
125
0
726
          Other expense (income), net 5
59
0
64
          Stock-based compensation expense in restaurant wages 39
63
0
102
                Total non-general and administrative expense adjustments 6,737
29,821
0
36,558
     General and administrative expense adjustments:
          Stock-based compensation expense 268
241
0
509
          Digital and brand repositioning costs 118
97
0
215
               Total general and administrative expense adjustments 386
338
0
724
Adjusted EBITDA $ 10,980
$ 1,174
$ 0
$ 12,154


Three Months Ended	Pollo Tropical		Other		Continuing Operations		Taco Cabana		Other		Discontinued Operations
July 4, 2021:
Net loss					$	(83)					$	(2,763)
Loss from discontinued operations, net of tax					2,763						—
Provision for (benefit from) income taxes					(841)						922
Income (loss) before taxes	$	4,336	$	(2,497)	$	1,839	$	(4,338)	$	2,497	$	(1,841)
Add:
Non-general and administrative adjustments:
Depreciation and amortization	4,844		31		4,875		3,992		(31)		3,961
Impairment and other lease charges	(332)		130		(202)		494		(130)		364

Interest expense	994		(933)		61		973		933		1,906
Closed restaurant rent expense, net of sublease income	567		399		966		640		(399)		241

Other expense (income), net	130		40		170		76		(40)		36
Stock-based compensation expense	15		0		15		24		0		24

Total non-general and administrative adjustments	6,218		(333)		5,885		6,199		333		6,532
General and administrative adjustments:
Stock-based compensation expense	641		405		1,046		561		(405)		156


Restructuring costs and retention bonuses	18		0		18		14		0		14


Digital and brand repositioning costs	335		0		335		275		0		275
Transaction costs	401		(401)		0		328		401		729
Total general and administrative adjustments	1,395		4		1,399		1,178		(4)		1,174
Adjusted EBITDA	$	11,949	$	(2,826)	$	9,123	$	3,039	$	2,826	$	5,865
June 28, 2020:
Net loss					$	(8,343)					$	(1,736)
Loss from discontinued operations, net of tax					1,736						—
Benefit from income taxes					(1,687)						(56)
Income (loss) before taxes	$	(5,186)	$	(3,108)	$	(8,294)	$	(4,900)	$	3,108	$	(1,792)
Add:
Non-general and administrative adjustments:
Depreciation and amortization	5,233		222		5,455		4,332		(222)		4,110
Impairment and other lease charges	1,932		0		1,932		353		0		353

Interest expense	625		(562)		63		612		562		1,174
Closed restaurant rent expense, net of sublease income	671		587		1,258		1,159		(587)		572
Other expense (income), net	644		54		698		140		(54)		86
Stock-based compensation expense	27		0		27		42		0		42

Total non-general and administrative adjustments	9,132		301		9,433		6,638		(301)		6,337
General and administrative adjustments:
Stock-based compensation expense	523		327		850		436		(327)		109


Restructuring costs and retention bonuses	452		133		585		439		(133)		306


Digital and brand repositioning costs	72		0		72		59		0		59
Total general and administrative adjustments	1,047		460		1,507		934		(460)		474
Adjusted EBITDA	$	4,993	$	(2,347)	$	2,646	$	2,672	$	2,347	$	5,019

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

Nine Months Ended Pollo Tropical Taco Cabana Other Consolidated
September 27, 2020:
Net loss $ (11,067 )
Benefit from income taxes (8,903 )
Loss before taxes $ (3,978 ) $ (15,780 ) $ (212 ) $ (19,970 )
Add:
     Non-general and administrative expense adjustments:
          Depreciation and amortization 15,682
12,745
0
28,427
          Impairment and other lease charges 8,023
899
0
8,922
          Interest expense 1,701
1,669
0
3,370
          Closed restaurant rent expense, net of sublease income 1,629
3,314
0
4,943
Loss on extinguishment of debt 0
0
212
212
          Other expense (income), net (653 ) 1,041
0
388
          Stock-based compensation expense in restaurant wages 53
99
0
152
                Total non-general and administrative expense adjustments 26,435
19,767
212
46,414
     General and administrative expense adjustments:
          Stock-based compensation expense 1,140
1,192
0
2,332
          Restructuring costs and retention bonuses 551
556
0
1,107
          Digital and brand repositioning costs 246
202
0
448
               Total general and administrative expense adjustments 1,937
1,950
0
3,887
Adjusted EBITDA $ 24,394
$ 5,937
$ 0
$ 30,331

September 29, 2019:
Net loss $ (63,333 )
Benefit from income taxes (1,377 )
Income (loss) before taxes $ 16,731
$ (81,441 ) $ 0
$ (64,710 )
Add:
     Non-general and administrative expense adjustments:
          Depreciation and amortization 16,118
13,402
0
29,520
          Impairment and other lease charges (162 ) 4,829
0
4,667
       Goodwill impairment 0
67,909
0
67,909
          Interest expense 1,534
1,490
0
3,024
          Closed restaurant rent expense, net of sublease income 2,784
701
0
3,485
          Other expense (income), net 749
171
0
920
          Stock-based compensation expense in restaurant wages 48
97
0
145
                Total non-general and administrative expense adjustments 21,071
88,599
0
109,670
     General and administrative expense adjustments:
          Stock-based compensation expense 1,196
797
0
1,993
          Restructuring costs and retention bonuses 827
137
0
964
          Digital and brand repositioning costs 118
97
0
215
               Total general and administrative expense adjustments 2,141
1,031
0
3,172
Adjusted EBITDA $ 39,943
$ 8,189
$ 0
$ 48,132


Six Months Ended	Pollo Tropical		Other		Continuing Operations		Taco Cabana		Other		Discontinued Operations
July 4, 2021:
Net loss					$	(2,172)					$	(4,157)
Loss from discontinued operations, net of tax					4,157						—
Provision for (benefit from) income taxes					2,236						(822)
Income (loss) before taxes	$	9,271	$	(5,050)	$	4,221	$	(10,029)	$	5,050	$	(4,979)
Add:
Non-general and administrative adjustments:
Depreciation and amortization	9,782		181		9,963		7,980		(181)		7,799
Impairment and other lease charges	(222)		(32)		(254)		262		32		294

Interest expense	1,964		(1,842)		122		2,026		1,842		3,868
Closed restaurant rent expense, net of sublease income	807		909		1,716		1,491		(909)		582

Other expense (income), net	196		97		293		(28)		(97)		(125)
Stock-based compensation expense	31		0		31		50		0		50

Total non-general and administrative adjustments	12,558		(687)		11,871		11,781		687		12,468
General and administrative adjustments:
Stock-based compensation expense	1,242		798		2,040		1,081		(798)		283


Restructuring costs and retention bonuses	18		0		18		14		0		14


Digital and brand repositioning costs	651		0		651		534		0		534
Transaction costs	556		(556)		0		455		556		1,011
Total general and administrative adjustments	2,467		242		2,709		2,084		(242)		1,842
Adjusted EBITDA	$	24,296	$	(5,495)	$	18,801	$	3,836	$	5,495	$	9,331
June 28, 2020:
Net loss					$	(15,660)					$	(5,345)
Loss from discontinued operations, net of tax					5,345						—
Benefit from income taxes					(3,112)						(1,636)
Income (loss) before taxes	$	(7,013)	$	(6,414)	$	(13,427)	$	(13,395)	$	6,414	$	(6,981)
Add:
Non-general and administrative adjustments:
Depreciation and amortization	10,511		437		10,948		8,484		(437)		8,047
Impairment and other lease charges	5,628		0		5,628		890		0		890

Interest expense	1,108		(982)		126		1,090		982		2,072
Closed restaurant rent expense, net of sublease income	1,273		1,108		2,381		2,189		(1,108)		1,081
Other expense (income), net	751		176		927		941		(176)		765
Stock-based compensation expense	38		0		38		67		0		67

Total non-general and administrative adjustments	19,309		739		20,048		13,661		(739)		12,922
General and administrative adjustments:
Stock-based compensation expense	833		515		1,348		902		(515)		387


Restructuring costs and retention bonuses	452		133		585		439		(133)		306


Digital and brand repositioning costs	192		0		192		158		0		158
Total general and administrative adjustments	1,477		648		2,125		1,499		(648)		851
Adjusted EBITDA	$	13,773	$	(5,027)	$	8,746	$	1,765	$	5,027	$	6,792

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

8. Earnings (Loss) Per Share

Basic earnings (loss) per share ("EPS") is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic EPS pursuant to the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. EPS is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.

Diluted EPS reflects the potential dilution that could occur if the restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted EPS calculation to the extent that performance conditions have been met at the measurement date. Diluted EPS is computed by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.

~~For~~All outstanding restricted stock units in the three months ended ~~September 27, 2020,~~July 4, 2021 were performance based awards. For the six months ended July 4, 2021, no shares of outstanding restricted stock units were excluded from the computation of diluted EPS, ~~because none~~as all outstanding restricted stock units were ~~antidilutive.~~dilutive. For ~~the nine months ended September 27, 2020 and~~ the three and ~~nine~~six months ended ~~September 29, 2019,~~June 28, 2020, all shares of outstanding restricted stock units were excluded from the computation of diluted EPS because including ~~such~~these restricted stock units would have been antidilutive as a result of the ~~net~~ loss from continuing operations in ~~the nine months ended September 27, 2020 and~~ the three and ~~nine~~six months ended ~~September 29, 2019.~~June 28, 2020.

The computation of basic and diluted EPS is as follows:

Three Months Ended Nine Months Ended
September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
Basic and diluted EPS:
Net income (loss) $ 4,593
$ (22,182 ) $ (11,067 ) $ (63,333 )
Less: income allocated to participating securities 112
0
0
0
Net income (loss) available to common shareholders $ 4,481
$ (22,182 ) $ (11,067 ) $ (63,333 )
Weighted average common shares—basic 25,290,357
26,548,116
25,359,004
26,734,822
Restricted stock units 1,362
0
0
0
Weighted average common shares—diluted 25,291,719
26,548,116
25,359,004
26,734,822

Loss per common share—basic $ 0.18
$ (0.84 ) $ (0.44 ) $ (2.37 )
Loss per common share—diluted 0.18
(0.84 ) (0.44 ) (2.37 )


	Three Months Ended				Six Months Ended
	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Basic and diluted EPS:
Income (loss) from continuing operations	$	2,680	$	(6,607)	$	1,985	$	(10,315)
Income (loss) from discontinued operations	(2,763)		(1,736)		(4,157)		(5,345)
Net loss	$	(83)	$	(8,343)	$	(2,172)	$	(15,660)


Weighted average common shares—basic	25,496,038		25,267,404		25,410,123		25,393,325
Restricted stock units	0		0		660		0
Weighted average common shares—diluted	25,496,038		25,267,404		25,410,783		25,393,325

Loss from continuing operations per common share—basic	$	0.11	$	(0.26)	$	0.07	$	(0.41)
Loss from discontinued operations per common share—basic	(0.11)		(0.07)		(0.16)		(0.21)
Loss per common share—basic	0		(0.33)		(0.09)		(0.62)

Loss from continuing operations per common share—diluted	0.11		(0.26)		0.07		(0.41)
Loss from discontinued operations per common share—diluted	(0.11)		(0.07)		(0.16)		(0.21)
Loss per common share—diluted	0		(0.33)		(0.09)		(0.62)

~~Table of Contents~~

~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Dollars in thousands, except per share data)~~

9. Commitments and Contingencies

Lease Assignments. Taco Cabana assigned 1 lease to a third party on a property where it no longer operates with a lease term expiring in 2029. Although the assignee is responsible for making the payments required by the lease, the Company remains secondarily liable as a surety with respect to the lease. Pollo Tropical assigned ~~1 lease~~2 leases to a third ~~party~~parties on ~~a property~~properties where it no longer operates with a lease ~~term~~terms expiring in ~~2033.~~2033 and 2036. Although the ~~assignee is~~assignees are responsible for making the payments required by the lease, the Company is a guarantor under the ~~lease.~~leases.

The maximum potential liability for future rental payments that the Company could be required to make under these leases

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

at ~~September 27, 2020~~July 4, 2021 was ~~$3.0 million.~~$5.6 million. The Company could also be obligated to pay property taxes and other lease-related costs. The obligations under these leases will generally continue to decrease over time as the operating leases expire. The Company does not believe it is probable that it will be ultimately responsible for the obligations under these leases.

Legal Matters. The Company is a party to various litigation matters incidental to the conduct of business. The Company does not believe that the outcome of any of these matters will have a material effect on its condensed consolidated financial statements. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.

Insurance Matter. The Company filed an insurance claim for winter storm damages in Texas and will record the insurance proceeds when the claim is resolved.

10. Income Taxes

The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annualized effective tax rate for the full fiscal year to "ordinary" income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Due to the uncertainty created by the events surrounding the COVID-19 pandemic, the actual effective tax rate for the year to date period was used to calculate the income tax benefit for the three and nine months ended September 27, 2020 as permitted by Accounting Standards Codification ("ASC") 740-270-30-18.

Tax Law Changes. On March 27, 2020, the CARES Act was signed into law. The CARES Act includes provisions that allow net operating losses in 2018, 2019, and 2020 to be carried back for up to five years and eliminates the 80% taxable income limitation on net operating loss deductions for 2018 through 2020. These changes allowed the Company to record an incremental benefit of $1.8 million during the first quarter of 2020, ~~and $0.1 million during the third quarter of 2020,~~ which represents the impact of carrying net operating losses from 2018 and 2019 back to years with a higher federal corporate income tax rate.

The ~~CARES Act also includes technical amendments that are retroactive~~Company is currently under examination by the Internal Revenue Service for the tax years 2014–2017 and 2019. It is not currently under examination by any other taxing jurisdictions. The tax years 2013–2020 remain open to ~~2018~~examination by the taxing jurisdictions to which ~~permit certain assets~~the Company is subject.Although it is not reasonably possible to ~~be classified as qualified improvement property and expensed immediately. Reclassifying certain assets as qualified improvement property and other changes~~estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to ~~depreciation methods for certain assets made in conjunction with a cost segregation study conducted prior~~uncertainties regarding the timing of any examinations, the Company does not expect unrecognized tax benefits to ~~filing the Company's 2019 federal income tax return resulted in an incremental benefit of $1.9 million, which was recorded~~significantly change in the ~~third quarter of 2020.~~next twelve months.

11. Related Party Transactions

The Company ~~is exploring the potential refinancing of its amended senior credit facility, although it cannot make any assurance of the timing or certainty of completing any refinancing transactions.~~

~~The Company has~~ engaged Jefferies LLC ("Jefferies"), an affiliate of ~~two~~one of the current members of Fiesta's board of directors, and a subsidiary of Jefferies Financial Group, Inc, a holder of more than 20 percent of the total outstanding shares of Fiesta, in the third quarter of 2020 in connection with ~~advisory services and~~ a refinancing of the Company's former amended senior credit ~~facility.~~facility in 2020 and advisory services related to the sale of Taco Cabana. The engagement of Jefferies and the corresponding engagement letter was approved by the Audit Committee in accordance with the Company's Related Party Transaction Policy as disclosed in its most recent proxy statement for the ~~2020~~ Annual Meeting of Stockholders. ~~Whether or not a transaction occurs, the~~The Company ~~will reimburse~~paid fees of $1.7 million to Jefferies and reimbursed Jefferies for reasonable out of pocket and ancillary expenses of less than $0.1 million when the refinancing was completed in ~~addition to any fees that may be paid to Jefferies. For~~ the ~~three~~fourth quarter of 2020. The Company will pay Jefferies a transaction advisory fee of $2.0 million upon the sale of Taco Cabana. As of July 4, 2021 and ~~nine months ended September 27, 2020, the condensed consolidated financial statements do not include any fees or expenses or~~January 3, 2021, there were 0 amounts due to the related ~~party.~~party recognized on the condensed consolidated balance sheets.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

12. Supplemental Cash Flow Information

The following table details supplemental cash flow disclosures of non-cash investing and financing ~~activities:~~activities from continuing operations:

Nine Months Ended
September 27, 2020 September 29, 2019
Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures $ 1,826
$ 3,198
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets 28,798
8,618
Finance lease ROU assets 33
495
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets 2,387
4,058
Operating lease liabilities 2,843
4,787
Operating lease right-of-use assets obtained and lease liabilities incurred as a result of adoption of ASC 842:
Operating lease ROU assets 0
267,743
Operating lease liabilities 0
291,373
Accruals for financing costs associated with debt amendment 154
0
Supplemental cash flow disclosures:
Interest paid on long-term debt $ 3,095
$ 3,558
Income tax payments (refunds), net (2,155 ) (15,620 )


	Six Months Ended
	July 4, 2021		June 28, 2020
Supplemental cash flow disclosures:
Interest paid on long-term debt	$	115	$	116
Income tax payments (refunds), net	(6,347)		(1,041)

Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures	$	2,481	$	1,216
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets	1,490		11,090
Finance lease ROU assets	0		0
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets	2,288		55
Operating lease liabilities	2,793		55





Cash and restricted cash reconciliation:
Beginning of period
Cash	$	49,778	$	13,089
Restricted cash	3,584		0
Cash and restricted cash, beginning of period	$	53,362	$	13,089

End of period
Cash	$	65,830	$	101,093
Restricted cash	3,837		0
Cash and restricted cash, end of period	$	69,667	$	101,093

13. Recent Accounting Pronouncements

~~In December 2019, the FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740)~~, which is a part of the Simplification Initiative being undertaken by the FASB to reduce complexity of accounting standards. The amendments in this update simplify the accounting for income taxes by removing certain exceptions, the most notable for the Company being the exception to the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss for the full year. The guidance will be effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted and any adjustments should be reflected as of the beginning of the annual period of adoption. Amendments relevant to the Company should be applied on a prospective basis. The Company is still evaluating the impact the standard will have on its financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) ("ASU No. 2020-04"), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective as of March 12, 2020 through December 31, 2022. As of ~~September 27, 2020,~~July 4, 2021, the Company's only exposure to LIBOR rates was its ~~amended~~new senior credit facility. Upon cessation of the LIBOR, the ~~amended~~new senior credit facility ~~will be amended to reflect an alternative reference~~would use a benchmark replacement rate. According to ASU No. 2020-04, modifications of contracts within the scope of Topic 470 Debt should be accounted for by prospectively adjusting the effective interest rate. The Company does not expect ASU No. 2020-04 to have a significant impact on its financial statements.

~~14. Subsequent Events~~

~~Subsequent to September 27, 2020, the Company sold 3 restaurant properties in sale-leaseback transactions for total net proceeds~~

Table of $6.6 million and an additional 2 restaurant properties that were classified as held for sale as of September 27, 2020 for total net proceeds of $2.8 million. Net proceeds from the sales were used to repay outstanding revolving credit borrowings and reduced the revolving commitment under the amended senior credit facility.Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of financial condition and results of operations ("MD&A") is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying notes. Any reference to restaurants refers to Company-owned restaurants unless otherwise indicated. Throughout this MD&A, we refer to Fiesta Restaurant Group, Inc., together with its consolidated subsidiaries, as "Fiesta," "we," "our" and "us."

We use a 52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended ~~December 29, 2019~~January 3, 2021 contained 5253 weeks. The three and ~~nine~~six months ended ~~September 27,~~July 4, 2021 and June 28, 2020 ~~and September 29, 2019~~ each contained thirteen ~~and thirty-nine weeks, respectively.~~weeks. The fiscal year ending January ~~3, 2021~~2, 2022 will contain 5352 weeks.

Company Overview

We own, operate and franchise two restaurant brands, Pollo Tropical^® and Taco Cabana^®, which have over 30 and 40 years, respectively, of operating history and loyal customer bases. Our Pollo Tropical restaurants feature fire-grilled and crispy citrus marinated chicken and other freshly prepared menu items, while our Taco Cabana restaurants specialize in Mexican-inspired food with most items made ~~fresh by hand.~~fresh. We believe that both brands offer distinct and unique flavors with broad appeal at a compelling value, which differentiates them in the competitive fast-casual and quick-service restaurant segments. Nearly all of our restaurants offer the convenience of drive-thru windows. As of ~~September 27, 2020,~~July 4, 2021, we owned and operated 138 Pollo Tropical restaurants and ~~145~~142 Taco Cabana restaurants.

We franchise our Pollo Tropical restaurants primarily internationally and as of ~~September 27, 2020,~~July 4, 2021, we had 2523 franchised Pollo Tropical restaurants located in Puerto Rico, Panama, Guyana, Ecuador, and the Bahamas, and ~~seven~~five on college campuses and one at a hospital in Florida. We have agreements for the continued development of franchised Pollo Tropical restaurants in certain of our existing franchised markets.

As of ~~September 27, 2020,~~July 4, 2021, we had six franchised Taco Cabana restaurants located in New ~~Mexico and one non-traditional Taco Cabana licensed location on a college campus in Texas.~~Mexico.

Recent Events Affecting Our Results of Operations

Sale of Taco Cabana

On July 1, 2021, we entered into a stock purchase agreement for the sale of all outstanding capital stock of Taco Cabana, Inc., the parent company of the Taco Cabana business, for a cash purchase price of $85.0 million, subject to reduction for (i) closing adjustments of approximately $4.6 million related to maintenance and repair work at the Taco Cabana restaurants and landscaping replacement as a result of Winter Storm Uri, and (ii) certain other working capital adjustments as set forth in the stock purchase agreement. The transaction is expected to close in the third quarter of 2021, subject to the satisfaction of customary closing conditions, although there is no assurance that the transaction will be completed in the third quarter of 2021. See Note 2—Dispositions in our unaudited condensed consolidated financial statements.

Proceeds from the sale will be used to fully repay Fiesta's approximately $74.6 million of outstanding term loan borrowings under Fiesta's senior credit facility and to pay divestiture transaction fees and a loan prepayment premium totaling approximately $4.6 million, comprised of a loan prepayment fee of 3.0% of the principal repaid of $2.2 million and divestiture transaction fees estimated at approximately $2.4 million. As of July 4, 2021, our cash balance was $65.8 million. Subsequent to the transaction close, a portion of those funds will be used for investments to accelerate Pollo Tropical's growth.

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COVID-19 Pandemic

The novel coronavirus (COVID-19) pandemic has affected and is continuing to affect the restaurant industry and the economy. In response to COVID-19 and in compliance with governmental restrictions, we closed the dining room seating areas in all Pollo Tropical ~~and Taco Cabana~~ restaurants, limiting service to take-out, drive-thru, and delivery operations beginning in mid-March 2020. We also temporarily closed three Pollo Tropical locations due to the impact of the restrictions on sales, one of which was reopened during the second quarter of 2020 and two of which were subsequently permanently closed in August. Fiesta began opening certain dining rooms at 50% capacity with easement of municipality restrictions during the second quarter of 2020; however, it temporarily closed all dining rooms on July 12, 2020, in response to increased COVID-19 infection rates in both Texas and Florida. We began re-openingre-opened certain dining rooms and patios with limited capacity and hours ~~at both brands and~~during certain times in the ~~state~~second half of ~~Florida removed restaurant capacity restrictions at the end of September~~ 2020. ~~We have opened approximately 20~~In 2021, we re-opened substantially all remaining Pollo Tropical dining rooms with limited hours by the end of February and ~~capacity at both brands~~March, respectively. Hours of operations have been limited due to labor shortages which are affecting our brand and ~~have opened approximately 75 patios at Taco Cabana. Comparable~~the restaurant sales at both Pollo Tropical and Taco Cabana restaurants declined in the third quarter of 2020 compared to the prior year as a result of the pandemic. However, both brands experienced sequential comparable restaurant sales improvement in the third quarter of 2020 compared to the second quarter of 2020.industry.

~~As we continue to prioritize the well-being of our team members and guests during this pandemic, we believe we are also creating a better business model that is easier and safer for our consumers.~~ We currently do not expect sales trends to significantly deteriorate further, although there can be no assurance that sales trends will not deteriorate further, and we have implemented measures to control costs. ~~We have also implemented a number of changes to maximize sales, maintain service, and improve liquidity:~~

We have adjusted our operating model to better meet our customers' needs during the COVID-19 crisis. We have also adjusted staffing models to match shifting traffic and channel patterns of our guests and to improve efficiency.

We are maximizing off-premise sales opportunities. We significantly increased the number of delivery service providers that offer our brands during the first quarter of 2020, modified our menus, and worked with a third party to enhance our online ordering and mobile apps including curbside pickup features. We also launched curbside pickup for both brands in July 2020.

~~We have significantly reduced our capital expenditure budget and 2020 capital expenditures will not exceed $22.0 million.~~

In early April 2020, approximately 170 employees were terminated or furloughed, approximately 60 of which were support personnel. The majority of the furloughed support personnel were terminated in the third quarter of 2020 resulting in a total of approximately 55 eliminated support personnel positions representing annualized general and administrative savings of approximately $4.1 million. The remaining employees were restaurant employees. However, a portion of the restaurant employees were recalled during the second and third quarters and additional restaurant employees may be recalled in the future based on business needs. Additionally, the salaries for all vice-presidents and executives were reduced by 10% to 35% for the second quarter of 2020.

We sold two restaurant properties and completed two sale-leaseback transactions in the third quarter of 2020. We have completed two sales and three sale-leaseback transactions in the fourth quarter through November 2, 2020 and currently have offers or contracts in place for the sale or sale-leaseback of our seven remaining owned properties, although there can be no assurance that any such sales or sale-leaseback transactions will be consummated. Net proceeds from these sales have been and will be used to reduce the outstanding revolving credit borrowings and availability under our amended senior credit facility (as defined below).

The COVID-19 pandemic has not had a significant negative disruptive impact on our supply chain or access to labor, although there can be no assurance that there will not be a significant impact on our supply chain or access to labor in the future. We are actively monitoring our food suppliers to determine how they are managing their operations to mitigate supply flow and food safety risks. To ensure we mitigate potential supply availability risk, we are building additional inventory backstock levels when appropriate and we have also identified alternative supply sources in key product categories including but not limited to proteins and sanitation and safety supplies.

We incurred additional costs related to the COVID-19 pandemic totaling an estimated $3.4 million during the second quarter of 2020 including additional labor costs such as COVID-19 special incentive pay, quarantine pay and overtime to cover for employees in quarantine, as well as additional operating expenses for safety related supplies including masks, cleaning supplies and sanitizer. We incurred additional costs related to the COVID-19 pandemic totaling an estimated $0.4 million during the third quarter of 2020, including quarantine pay and costs related to COVID testing, masks and sanitizer. Although we discontinued COVID-19 special incentive pay in the third quarter of 2020, we expect many of the other COVID-19 related costs to continue during the pandemic.

~~Restaurant Closures~~

As a result of restaurant portfolio reviews, we closed 19 underperforming Taco Cabana restaurants in January 2020, all of which were impaired in prior years. Additionally, we closed one Pollo Tropical restaurant as a result of landlord redevelopment that was not compatible with our use in the first quarter of 2020 and two underperforming Pollo Tropical restaurants in the third quarter of 2020. In the third quarter of 2020, we also closed one owned Pollo Tropical restaurant, which was subsequently sold in the fourth quarter of 2020, and closed and sold one owned Taco Cabana restaurant to generate additional cash to reduce our outstanding borrowings under our amended senior credit facility.

~~Amendment to our Senior Credit Facility~~

As discussed in Note 1 to our unaudited condensed consolidated financial statements, we expect the COVID-19 pandemic to have a negative impact on our profitability. On July 10, 2020, we entered into the Second Amendment to Credit Agreement (the credit agreement as amended, the "amended senior credit facility") among the Company and a syndicate of lenders that includes adjustments to our covenants that are more reflective of current sales and profit trends. For the remainder of 2020, the only applicable financial covenants that require compliance under the amended senior credit facility will be a minimum liquidity target and a maximum capital expenditure covenant. Pursuant to the amended senior credit facility, the available revolving credit borrowings under the amended senior credit facility will be reduced from $150.0 million to $95.0 million in a phased reduction beginning with a $30.0 million permanent reduction that occurred on July 10, 2020, a $15.0 million reduction in the fourth quarter of 2020 and a $10.0 million reduction in the first quarter of 2021. See Note 5 to our unaudited condensed consolidated financial statements and Amended Senior Credit Facility under Liquidity and Capital Resources in this MD&A for a further discussion.

During the second quarter of 2020 we borrowed all available funds under our senior secured revolving credit facility prior to the execution of the amended senior credit facility. We repaid borrowings under our amended senior credit facility as follows: $30.0 million on July 10, 2020, pursuant to the terms of the amended senior credit facility, an additional $76.6 million through September 27, 2020, and an additional $20.4 million through November 2, 2020. On November 2, 2020, there were $19.5 million in outstanding revolving credit borrowings under our amended senior credit facility.

Executive Summary—Consolidated Operating Performance for the Three Months Ended ~~September 27, 2020~~July 4, 2021

Our ~~third~~second quarter ~~2020~~2021 results and highlights include the following:

•We recognized net ~~income~~loss of ~~$4.6~~$(0.1) million, or ~~$0.18~~$0.00 per diluted share, in the ~~third~~second quarter of ~~2020~~2021 compared to a net loss of ~~$(22.2)~~$(8.3) million, or ~~$(0.84)~~$(0.33) per diluted share, in the ~~third~~second quarter of ~~2019,~~2020 due primarily to a $21.4 million goodwill impairment charge for the Taco Cabana reporting unit in the third quarter of 2019, and an income tax benefit related to reducing our deferred tax asset valuation allowance and reclassifying certain assets as qualified improvement property and other changes to depreciation methods for certain assets in conjunction with filing our 2019 federal income tax return, and lower advertising expense in the third quarter of 2020, partially offset by the impact of ~~declines in~~increased comparable restaurant sales at ~~both brands in 2020~~Pollo Tropical and ~~additional~~Taco Cabana. In addition, lower costs related to closed restaurants, depreciation and the ~~COVID-19 pandemic. In addition, gains from the sale-leaseback and sale~~write-off of ~~property, lower general and administrative expenses, as well as favorable operating and labor efficiencies at both brands, positively~~site development costs contributed to the increase in net income in the ~~third~~second quarter of 2021 compared to the second quarter of 2020. This increase was partially offset by higher ~~delivery fee expense~~advertising costs and ~~closed restaurant rent expense, net~~repair and maintenance costs and a loss from discontinued operations of ~~sublease income~~$(2.8) million compared to a loss from discontinued operations of $(1.7) million in the ~~third quarter of 2020.~~

~~Total revenues decreased 16.4% in the third~~second quarter of 2020 due primarily to ~~$137.3~~changes in income taxes attributable to discontinued operations.

•We recognized income from continuing operations of $2.7 million, or $0.11 per diluted share, in the second quarter of 2021 compared to a loss from continuing operations of $(6.6) million, or $(0.26) per diluted share, in the second quarter of 2020 primarily as a result of the foregoing.

•Total revenues increased 43.7% in the second quarter of 2021 to $91.2 million compared to ~~$164.2~~$63.4 million in the ~~third~~second quarter of ~~2019,~~2020, driven by ~~a decrease~~an increase in comparable restaurant sales at ~~both brands (including as a result~~Pollo Tropical in part from lapping the peak impact of the ~~impact of COVID-19), and the impact of closing 19 underperforming Taco Cabana restaurants in the first quarter of~~pandemic from 2020. Comparable restaurant sales ~~decreased 11.1%~~increased 43.5% for our Pollo Tropical restaurants resulting from ~~a decrease~~an increase in comparable restaurant transactions of ~~22.1%~~29.2% and an increase in the net impact of product/channel mix and pricing of ~~11.0%~~14.3%. Comparable restaurant sales decreased 14.2% for our Taco Cabana restaurants resulting from a decrease in comparable restaurant transactions of 23.8% and an increase in the net impact of product/channel mix and pricing of 9.6%.

•Continuing Operations Consolidated Adjusted EBITDA increased $6.5 million in the second quarter of 2021 to $9.1 million compared to $2.6 million in the ~~third~~second quarter of 2020, ~~to $14.8 million compared to $12.2 million in the third quarter of 2019,~~ driven primarily by ~~lower advertising expenses, lower cost of sales and labor costs as a percentage of~~higher restaurant sales, ~~lower general and administrative expenses and the impact of the closure of unprofitable restaurants in the first quarter of 2020,~~ partially offset by ~~the impact of lower restaurant sales~~higher advertising costs, labor costs, and ~~higher delivery fee expense~~repair and ~~additional costs related to the COVID-19 pandemic.~~maintenance costs. Continuing Operations Consolidated Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Continuing Operations Consolidated Adjusted EBITDA and a reconciliation from net income to Continuing Operations Consolidated Adjusted EBITDA, see "Management's Use of Non-GAAP Financial Measures."

•Within discontinued operations, the impact of higher Taco Cabana restaurant sales was offset by higher costs related to Winter Storm Uri, higher interest costs and additional costs related to the sale of Taco Cabana.

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Results of Continuing Operations

Unless otherwise noted, this discussion of operating results relates to our continuing operations.

The following table summarizes the changes in the number and mix of Pollo Tropical ~~and Taco Cabana~~ Company-owned and franchised restaurants.


	Pollo Tropical
	Owned	Franchised	Total
January 3, 2021	138	29	167
New	—	—	—
Closed	—	—	—
April 4, 2021	138	29	167
New	—	—	—
Closed	—	—	—
July 4, 2021	138	29	167







December 29, 2019	142	32	174
New	—	1	1
Closed	(1)	—	(1)
March 29, 2020	141	33	174
New	—	—	—
Closed	—	—	—
June 28, 2020	141	33	174

Pollo Tropical Taco Cabana
Owned Franchised Total Owned Franchised Total
December 29, 2019 142
32
174
164
8
172
   New —
1
1
1
—
1
   Closed (1 ) —
(1 ) (19 ) —
(19 )
March 29, 2020 141
33
174
146
8
154
   New —
—
—
—
—
—
   Closed —
—
—
—
(1 ) (1 )
June 28, 2020 141
33
174
146
7
153
   New —
—
—
—
—
—
   Closed (3 ) —
(3 ) (1 ) —
(1 )
September 27, 2020 138
33
171
145
7
152

December 30, 2018 139
30
169
162
8
170
   New —
1
1
2
—
2
   Closed —
—
—
—
—
—
March 31, 2019 139
31
170
164
8
172
   New 1
—
1
1
—
1
   Closed —
—
—
—
—
—
June 30, 2019 140
31
171
165
8
173
   New 1
—
1
—
—
—
   Closed —
—
—
—
—
—
September 29, 2019 141
31
172
165
8
173

Three Months Ended ~~September 27, 2020~~July 4, 2021 Compared to Three Months Ended ~~September 29, 2019~~June 28, 2020 – Continuing Operations

The following table sets forth, for the three months ended ~~September 27,~~July 4, 2021 and June 28, 2020, ~~and September 29, 2019,~~ selected ~~consolidated~~ operating results of continuing operations as a percentage of ~~consolidated restaurant sales and select segment operating results as a percentage of applicable segment~~ restaurant sales.


														Three Months Ended
	Three Months Ended													July 4, 2021		June 28, 2020
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019			Pollo Tropical
	Pollo Tropical				Taco Cabana				Consolidated
Restaurant sales:
Pollo Tropical									56.7	%	54.0	%
Taco Cabana									43.3	%	46.0	%
Consolidated restaurant sales									100.0	%	100.0	%

Costs and expenses:													Costs and expenses:
Cost of sales	31.7	%	32.0	%	28.9	%	31.6	%	30.5	%	31.8	%	Cost of sales	30.4	%	32.1	%
Restaurant wages and related expenses	23.3	%	23.7	%	29.5	%	31.2	%	26.0	%	27.2	%	Restaurant wages and related expenses	24.1	%	23.9	%
Restaurant rent expense	7.2	%	6.2	%	9.4	%	8.6	%	8.2	%	7.3	%	Restaurant rent expense	6.4	%	8.9	%
Other restaurant operating expenses	15.6	%	14.5	%	15.2	%	15.1	%	15.4	%	14.8	%	Other restaurant operating expenses	15.5	%	16.9	%
Advertising expense	1.1	%	3.5	%	2.1	%	4.3	%	1.5	%	3.9	%	Advertising expense	3.2	%	1.9	%
Pre-opening costs	—	%	0.1	%	—	%	—	%	—	%	—	%

~~Consolidated~~ Revenues. Revenues include restaurant sales and franchise royalty revenues and fees. Restaurant sales consist of food and beverage sales, net of discounts, at our restaurants. Franchise royalty revenues and fees represent ongoing royalty payments that are determined based on a percentage of franchisee sales and the amortization of initial franchise fees and area development fees associated with the opening of new franchised restaurants. Restaurant sales are influenced by new restaurant openings, closures of restaurants and changes in comparable restaurant sales.

Total revenues ~~decreased 16.4%~~from continuing operations increased 43.7% to ~~$137.3~~$91.2 million in the ~~third~~second quarter of ~~2020~~2021 from ~~$164.2~~$63.4 million in the ~~third~~second quarter of ~~2019.~~2020. Restaurant sales ~~decreased 16.4%~~from continuing operations increased 43.4% to ~~$136.8~~$90.8 million in the ~~third~~second quarter of ~~2020~~2021 from ~~$163.6~~$63.3 million in the ~~third~~second quarter of ~~2019.~~2020.

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The following table presents the primary drivers of the ~~decreases~~increase in restaurant sales for ~~both~~ Pollo Tropical ~~and Taco Cabana~~ for the ~~third~~second quarter of 2021 compared to the second quarter of 2020 ~~compared to the third quarter of 2019~~ (in millions).


Pollo Tropical:
Increase in comparable restaurant sales	$	27.2
Increase in sales related to the re-opening of a store that was temporarily closed in 2020	0.3
Total increase	$	27.5

Pollo Tropical:
Decrease in comparable restaurant sales $ (9.5 )
Decrease in sales related to closed restaurants, net of new restaurants (1.2 )
Total decrease $ (10.7 )

Taco Cabana:
Decrease in comparable restaurant sales $ (9.6 )
Decrease in sales related to closed restaurants, net of new restaurants (6.5 )
Total decrease $ (16.1 )

Restaurants are included in comparable restaurant sales after they have been open for 18 months.Restaurants are excluded from comparable restaurant sales for any fiscal month in which the restaurant was closed for more than five days. Comparable restaurant sales are compared to the same period in the prior year. As a result of the 53rd week in fiscal 2020, our 2021 fiscal year began one week later than our 2020 fiscal year. Changes in comparable restaurant sales are impacted by the shift in weeks as the thirteen weeks ended July 4, 2021 are not directly comparable on a calendar basis to the thirteen weeks ended June 28, 2020.

Comparable restaurant sales ~~decreased 11.1% and 14.2%~~increased 43.5% for Pollo Tropical ~~and Taco Cabana~~ restaurants ~~respectively,~~ in the ~~third~~second quarter of 2021 compared to the second quarter of 2020. Increases or decreases in comparable restaurant sales result primarily from an increase or decrease in comparable restaurant transactions and in average check. Changes in average check are primarily driven by changes in sales channel and sales mix, and to a lesser extent, menu price increases net of discounts and promotions.

For Pollo Tropical, ~~a decrease~~an increase in comparable restaurant transactions of ~~22.1%~~29.2% was ~~partially offset by~~coupled with an increase in the net impact of product/channel mix and pricing of ~~11.0%~~14.3% in the ~~third~~second quarter of ~~2020~~2021 compared to the ~~third~~second quarter of ~~2019.~~2020. The increase in product/channel mix and pricing was driven primarily by increases in delivery and drive-thru average check and sales channel penetration, and menu price increases of ~~0.2%~~4.0%. Comparable restaurant sales in the second quarter of 2020 for Pollo Tropical were negatively impacted by governmental restrictions at the onset of the COVID-19 pandemic. Comparable restaurant sales for Pollo Tropical in the ~~third~~second quarter of 2020 benefited from the negative impact of Hurricane Dorian in 2019. After adjusting for the impact of the named storm, 2020 third quarter comparable restaurant sales would have been approximately 140 basis points lower.

~~For Taco Cabana, a decrease in comparable restaurant transactions of 23.8% was partially offset by an increase in the net impact of product/channel mix and pricing of 9.6% in the third quarter of 2020~~2021 decreased 1.8% compared to the ~~third quarter of~~same fiscal period in 2019. ~~The increase in product/channel mix and pricing was driven primarily~~We believe restaurant sales were negatively impacted by ~~increases in drive-thru and delivery sales channel penetration and growth in average check for drive-thru compared~~reduced operating hours due to ~~last year due in part to an increase in transactions that include alcohol, and menu price increases of 1.6%.~~labor shortages.

Franchise revenues ~~decreased~~increased by ~~$0.1~~$0.2 million to ~~$0.5~~$0.4 million in the ~~third~~second quarter of ~~2020~~2021 compared to the ~~third~~second quarter of ~~2019 due to lower sales at franchised restaurants in 2020 primarily as a result of COVID-19.~~2020.

Operating ~~costs~~Costs and ~~expenses.~~Expenses. Operating costs and expenses include cost of sales, restaurant wages and related expenses, other restaurant expenses and advertising expenses. Cost of sales consists of food, paper and beverage costs including packaging costs, less rebates and purchase discounts. Cost of sales is generally influenced by changes in commodity costs, the sales mix of items sold and the effectiveness of our restaurant-level controls to manage food and paper costs. Key commodities, including chicken and beef, are generally purchased under contracts for future periods of up to one year.

Restaurant wages and related expenses include all restaurant management and hourly productive labor costs, employer payroll taxes, restaurant-level bonuses and related benefits. Payroll and related taxes and benefits are subject to inflation, including minimum wage increases and ~~increased~~changes in costs for health insurance, workers' compensation insurance and state unemployment insurance.

Other restaurant operating expenses include all other restaurant-level operating costs, the major components of which are utilities, repairs and maintenance, general liability insurance, sanitation, supplies and credit card and delivery fees.

Advertising expense includes all promotional expenses including television, radio, billboards and other sponsorships and promotional activities and agency fees.

Pre-opening costs include costs incurred prior to opening a restaurant, including restaurant employee wages and related expenses, travel expenditures, recruiting, training, promotional costs associated with the restaurant opening and rent, including any non-cash rent expense recognized during the construction period. Pre-opening costs are generally incurred beginning four to six months prior to a restaurant opening.

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The following ~~tables present~~table presents the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical ~~and Taco Cabana~~ for the ~~third~~second quarter of ~~2020~~2021 compared to the ~~third~~second quarter of ~~2019.~~2020. All percentages are stated as a percentage of ~~applicable segment~~ restaurant sales:



Pollo Tropical:
Cost of sales:
~~Operating efficiency~~			~~(1.3~~	)%
Lower promotions and discounts	~~(0.6~~(1.6)		)%
Menu price increases			~~(0.1~~(0.6)		)%
Sales mix			~~0.7~~(0.3)		%
~~Lower rebates and discounts~~			~~0.5~~			%
~~Higher commodity costs~~Operating inefficiency			~~0.5~~0.9		%

Other			(0.1)		%
Net decrease in cost of sales as a percentage of restaurant sales			~~(0.3~~(1.7)		)%

Restaurant wages and related expenses:
~~Lower labor costs due to labor efficiencies~~	~~(0.9~~	)%
~~Higher incentive bonus~~⁽¹⁾	~~0.4~~	%
Higher labor costs due to ~~COVID-19~~higher wage rates and overtime⁽²⁾(1)			~~0.2~~0.8		%
~~Other~~ Higher incentive bonus(2)			~~(0.1~~0.5		)%
Impact of higher restaurant sales on other labor costs including special incentive pay			(0.7)		%
Lower medical benefits costs including the impact of higher restaurant sales			(0.5)		%




Other			0.1		%
Net ~~decrease~~increase in restaurant wages and related costs as a percentage of restaurant sales			~~(0.4~~0.2		)%

Other operating expenses:
~~Higher delivery fee expense due to increased delivery channel sales~~			~~1.6~~			%
Impact of higher restaurant sales on utilities costs			(0.7)		%
Lower insurance costs			(0.4)		%
Impact of higher restaurant sales on sanitation costs			(0.3)		%
Lower linen and uniform expense including COVID-19 masks and the impact of higher restaurant sales			(0.3)		%
Higher repair and maintenance costs			~~(0.4~~0.7		)%
~~Lower operating supplies~~			~~(0.2~~			)%
~~Other~~			~~0.1~~			%




Other(3)			(0.4)		%
Net ~~increase~~decrease in other restaurant operating expenses as a percentage of restaurant sales			~~1.1~~(1.4)		%

Advertising expense:
~~Reduced~~Increased advertising			~~(2.4~~1.3		)%
Net ~~decrease~~increase in advertising expense as a percentage of restaurant sales			~~(2.4~~1.3		)%

~~Pre-opening costs:~~
~~Decrease in the number of restaurant openings~~	~~(0.1~~	)%
~~Net decrease in pre-opening costs as a percentage of restaurant sales~~	~~(0.1~~	)%


⁽¹⁾			~~Primarily due to improved controllable operating profit margins and changes to the bonus program structure.~~


⁽²⁾			~~Primarily includes quarantine pay.~~



~~Taco Cabana:~~
~~Cost of sales:~~
~~Lower commodity costs~~	~~(1.8~~	)%
~~Operating efficiency~~	~~(1.5~~	)%
~~Lower liquor tax~~⁽¹⁾	~~(0.7~~	)%
~~Lower promotions and discounts~~	~~(0.6~~	)%
~~Menu price increases~~	~~(0.4~~	)%
~~Sales mix~~	~~1.7~~	%
~~Lower rebates and discounts~~	~~0.5~~	%
~~Other~~	~~0.1~~	%
~~Net decrease in cost of sales as a percentage of restaurant sales~~	~~(2.7~~	)%

~~Restaurant wages and related expenses:~~
~~Lower labor costs due to labor efficiencies~~	~~(2.0~~	)%
~~Lower payroll taxes~~	~~(0.2~~	)%
~~Higher incentive bonus~~⁽²⁾	~~0.6~~	%
~~Other~~	~~(0.1~~	)%
~~Net decrease in restaurant wages and related costs as a percentage of restaurant sales~~	~~(1.7~~	)%

~~Other operating expenses:~~
~~Higher delivery fee expense due to increased delivery channel sales~~	~~0.9~~	%
~~Higher insurance costs and impact of lower sales~~	~~0.2~~	%
~~Lower operating supplies~~	~~(0.4~~	)%
~~Lower repair and maintenance costs~~	~~(0.3~~	)%
~~Lower utilities costs~~	~~(0.2~~	)%
~~Lower restaurant entertainment costs~~	~~(0.2~~	)%
~~Other~~	~~0.1~~	%
~~Net increase in other restaurant operating expenses as a percentage of restaurant sales~~	~~0.1~~	%

~~Advertising expense:~~
~~Reduced advertising~~	~~(2.2~~	)%
~~Net decrease in advertising expense as a percentage of restaurant sales~~	~~(2.2~~	)%

~~Pre-opening costs:~~
~~Net change in pre-opening costs as a percentage of restaurant sales~~	—	%


⁽¹⁾	~~Includes the impact of one-time liquor tax refunds and a shift to off-premises alcohol sales.~~


⁽²⁾	~~Primarily due to improved controllable operating profit margins and changes to the bonus program structure.~~

~~Consolidated~~ (1)Higher wage rates and overtime pay due in part to labor shortages in 2021.

(2) Primarily due to guaranteed bonus payments. Guaranteed bonus payments, which were lower in 2020, are included in other labor costs above in 2020.

(3)Consists of the impact of higher restaurant sales on cleaning services, operating supplies, and other costs.

Restaurant Rent Expense. Restaurant rent expense includes base rent, contingent rent and common area maintenance and property taxes related to our leases characterized as operating leases. Restaurant rent expense, as a percentage of total restaurant sales, ~~increased~~decreased to ~~8.2%~~6.4% in the ~~third~~second quarter of ~~2020~~2021 from ~~7.3%~~8.9% in the ~~third~~second quarter of ~~2019~~2020 due primarily to the impact of ~~lower~~higher restaurant ~~sales.~~sales which were partially offset by higher rental costs related to sale-leasebacks and renewed leases.

~~Consolidated~~ General and Administrative Expenses. General and administrative expenses are comprised primarily of (1) salaries and expenses associated with the development and support of our Company and brands and the management oversight of the operation of our restaurants; and (2) legal, auditing and other professional fees, corporate system costs, and stock-based compensation expense.

General and administrative expenses were ~~$11.9~~$11.1 million for the ~~third~~second quarter of ~~2020~~2021 and ~~$13.8~~$9.2 million for the ~~third~~second quarter of ~~2019,~~2020, and as a percentage of total revenues, general and administrative expenses decreased to ~~8.6%~~12.1% in the ~~third~~second quarter of ~~2020~~

2021 compared to ~~8.4% in the third quarter of 2019, due primarily to lower management support costs primarily as a result of headcount reductions~~14.6% in the second quarter of 2020, ~~reduced travel and other cost savings initiatives,~~due primarily to the impact of higher total revenues, partially offset by higher incentive costs and continuing mobile app development and maintenance costs. General and administrative expenses include corporate overhead costs allocated to Taco Cabana that are not included in discontinued operations. General

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and administrative expenses for the ~~impact~~second quarter of ~~lower total revenues.~~2021 included $0.3 million related to digital and brand repositioning costs. General and administrative expenses for the ~~third~~second quarter of 2020 included ~~$0.2~~$0.6 million related to severance costs associated with positions eliminated in response to the COVID-19 pandemic and $0.1 million related to digital and brand repositioning costs. General and administrative expenses for the third quarter of 2019 included $0.2 million related to digital and brand repositioning costs and $0.2 million related to search fees for senior executive positions.

Adjusted EBITDA. Adjusted EBITDA is the primary measure of segment profit or loss used by our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance and is defined as earnings attributable to the applicable segment before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net and certain significant items that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants.

Adjusted EBITDA may not necessarily be comparable to other similarly titled captions of other companies due to differences in methods of calculation. Adjusted EBITDA ~~for each of our segments~~ includes an allocation of general and administrative expenses associated with administrative support for executive management, information systems and certain finance, legal, supply chain, human resources, development, and other administrative functions. Consolidated Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Adjusted EBITDA and Consolidated Adjusted EBITDA and a reconciliation from net income (loss) to Consolidated Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures."

Adjusted EBITDA from Continuing Operations. Adjusted EBITDA for Pollo Tropical ~~decreased~~increased to ~~$10.6~~$11.9 million, or ~~13.6%~~13.1% of total revenues, in the ~~third~~second quarter of ~~2020~~2021 from ~~$11.0~~$5.0 million, or ~~12.4%~~7.9% of total revenues, in the ~~third~~second quarter of ~~2019~~2020 due primarily to the impact of ~~lower~~higher restaurant sales ~~including the impact~~and improved cost of ~~COVID-19, higher delivery fee expense and additional costs related to the COVID-19 pandemic,~~sales margins, partially offset by ~~lower~~higher advertising ~~expenses, lower cost of sales and~~costs, labor costs, ~~as a percentage of restaurant sales,~~ and ~~lower general~~repair and administrative expenses. Adjusted EBITDA for Taco Cabana increased to $4.2 million, or 7.0% of total revenues, in the third quarter of 2020 from $1.2 million, or 1.6% of total revenues, in the third quarter of 2019 due primarily to lower cost of sales and labor costs as a percentage of restaurant sales, lower advertising costs and general and administrative expenses and the impact of the closure of unprofitable restaurants in the first quarter of 2020, partially offset by lower restaurant sales, higher delivery fee expense and additional costs related to the COVID-19 pandemic.maintenance costs. Continuing Operations Consolidated Adjusted EBITDA increased to ~~$14.8~~$9.1 million in the ~~third~~second quarter of ~~2020~~2021 from ~~$12.2~~$2.6 million in the ~~third~~second quarter of ~~2019.~~2020.

Restaurant-level Adjusted EBITDA. We also use Restaurant-level Adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate, which is defined as Adjusted EBITDA excluding franchise royalty revenues and fees, pre-opening costs and general and administrative expenses (including corporate-level general and administrative expenses).

Restaurant-level Adjusted EBITDA for Pollo Tropical ~~decreased~~increased to ~~$16.4~~$18.5 million, or ~~21.2%~~20.4% of restaurant sales, in the ~~third~~second quarter of ~~2020~~2021 from ~~$17.8~~$10.3 million, or ~~20.1%~~16.3% of restaurant sales, in the ~~third quarter of 2019 primarily due to the foregoing. Restaurant-level Adjusted EBITDA for Taco Cabana increased to $8.8 million, or 14.9% of restaurant sales, in the third~~second quarter of 2020 ~~from $6.9 million, or 9.2% of restaurant sales, in the third quarter of 2019~~ primarily ~~as a result of~~due to the foregoing. For a reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures."

Depreciation and Amortization. Depreciation and amortization expense decreased to ~~$9.4~~$4.9 million in the ~~third~~second quarter of ~~2020~~2021 from ~~$10.2~~$5.5 million in the ~~third~~second quarter of ~~2019~~2020 due primarily to decreased depreciation as a result of entering into sale-leaseback transactions for several owned restaurant locations and impairing closed restaurant assets, partially offset by an increase in depreciation related to ~~new restaurant openings and~~ ongoing reinvestment and enhancements to our restaurants that have been made since the ~~third~~second quarter of ~~2019.~~2020.

Impairment and Other Lease Charges. Impairment and other lease charges ~~decreased to $2.4~~was a benefit of $(0.2) million in the ~~third~~second quarter of ~~2020 from $3.3~~2021 compared to charges of $1.9 million in the ~~third~~second quarter of ~~2019.~~2020.

Impairment and other lease charges for the three months ended ~~September 27, 2020 for Pollo Tropical include impairment charges~~July 4, 2021 consist of ~~$2.6 million related primarily to the write-down of saucing islands and self-service soda machines that are being removed from dining rooms as a result of COVID-19 and a gain of $(0.2) million~~gains from lease ~~terminations.~~terminations of $(0.3) million partially offset by a lease termination charge of $0.1 million.

Impairment and other lease charges for the three months ended ~~September 29, 2019~~June 28, 2020 for Pollo Tropical include impairment charges of ~~$0.2~~$1.1 million related primarily to ~~additional impairment~~the write-down of ~~equipment from previously closed restaurants. Impairment~~assets held for sale to their fair value less costs to sell and other lease charges of $0.9 million primarily related to lease termination charges for ~~the three months ended September 29, 2019 for Taco Cabana include impairment charges of $3.1~~

~~million related primarily~~restaurant locations we decided not to ~~assets for five underperforming restaurants that we continued to operate, three of which closed in January 2020, and equipment from previously impaired restaurants.~~develop.

Each quarter we assess the potential impairment of any long-lived assets that have experienced a triggering event, including restaurants for which the related trailing twelve-month cash flows are below a certain threshold. We determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets, exclusive of operating lease payments, to their respective carrying values, excluding operating lease liabilities. In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions. If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset group's carrying amount exceeds its fair value. This process of assessing fair values requires the use of estimates and assumptions, including our ability to sell or reuse the related assets and market conditions, and for right-of-use lease assets, current market lease rent and discount rates,

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which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets and these charges could be material. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will ~~continue to~~ have on ~~restaurant~~our operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material. Our current estimates assume that operating restrictions, regulations and directives for restaurants and other changes related to COVID-19 will continue to have a significant impact through at least the first half of 2021 with the greatest impact in the near term.

For ~~four~~seven Pollo Tropical ~~restaurants and four Taco Cabana~~ restaurants with combined carrying values (excluding right-of-use lease assets) of ~~$2.8~~$4.5 million, ~~and $1.4 million, respectively,~~ projected cash flows are not substantially in excess of their carrying values. In addition, one Pollo Tropical restaurant and one Taco Cabana restaurant with carrying values (excluding right-of-use lease assets) of $1.9 million and $0.9 million, respectively, have initial sales volumes lower than expected but do not have significant operating history to form a good basis for future projections. If the performance of these restaurants does not improve as projected, an impairment charge could be recognized in future periods, and such charge could be material.

~~Goodwill Impairment.~~ ~~Goodwill impairment was $21.4 million for the third quarter of 2019 and consisted of a non-cash impairment charge to write down the value of goodwill for the Taco Cabana reporting unit.~~

Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent expense, net of sublease income was ~~$1.5~~$1.0 million for the ~~third~~second quarter of 2021 and consisted of closed restaurant rent and ancillary lease costs of $2.3 million net of sublease income of $(1.3) million, which includes closed restaurant rent and ancillary lease costs of $0.5 million net of sublease income of $(0.1) million related to Taco Cabana closed restaurant locations that we will retain. Closed restaurant rent expense, net of sublease income was $1.3 million for the second quarter of 2020 and consisted of closed restaurant rent and ancillary lease costs of ~~$1.7~~$2.3 million, ~~and $1.2~~which includes $0.6 million related to Taco Cabana closed restaurant locations that we will retain, net of sublease income of $1.4 million and $0.1 million for Pollo Tropical and Taco Cabana, respectively. Closed restaurant rent expense, net of sublease income was $0.7 million for the third quarter of 2019 and consisted of closed restaurant rent and ancillary lease costs of $1.6 million and $0.3 million net of sublease income of $1.0 million and $0.2 million for Pollo Tropical and Taco Cabana, respectively. Our sublessees are in the restaurant or retail industry and are also experiencing reduced sales volumes and/or temporary closures due to the COVID-19 pandemic. Our sublease income in future periods may be less than it has been historically if our tenants are unable to pay in a timely manner or at all. In addition, for our subleases for which collectability has historically been determined to be probable, we will be required to reverse sublease income receivables we have recognized on a straight-line basis and begin recording sublease income as payments are collected if our assessment of collectability changes and we determine that collectability over the remaining lease term is no longer probable. Straight-line rent receivables and deferred initial direct costs totaled $1.3 million at September 27, 2020.$(1.1) million.

Other Expense (Income), Net. Other expense (income), net ~~was $(1.3) million~~ for the ~~third~~second quarter of ~~2020 and~~2021 primarily consisted of ~~total gains of $(1.6) million on the sale-leaseback of two restaurant properties and the sale of two restaurant properties, partially offset by~~ costs for the removal, transfer, and storage of equipment from closed restaurants and other closed restaurant related costs of ~~$0.3~~$0.1 million. Other expense, net was ~~$0.1~~$0.7 million for the ~~third~~second quarter of ~~2019~~2020 and primarily consisted of ~~$0.1 million for~~ the write-off of site development ~~costs.~~costs of $0.6 million.

Interest Expense. Interest expense ~~increased to $1.2~~remained flat at $0.1 million in the ~~third~~second quarter of ~~2020~~2021 compared to ~~$0.8 million in~~ the ~~third~~second quarter of ~~2019 due primarily to higher interest rates under our amended senior credit facility partially offset by a lower borrowing level under our amended senior credit facility.~~2020.

~~Benefit from~~Provision for (Benefit from) Income Taxes. The effective tax rate was ~~(948.6)~~(45.7)% and ~~11.7%~~20.3% for the ~~third~~second quarter of ~~2020~~2021 and ~~2019,~~2020, respectively. The benefit from income taxes for the ~~third~~second quarter of 2021 and 2020 was derived using the actual effective tax rate for the ~~year to date~~year-to-date period, which includes ~~a $1.9 million benefit~~changes in the valuation allowance as a result of ~~reclassifying certain assets as qualified improvement property as permitted by~~originating temporary differences during the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and other changes to depreciation methods for certain assets made in conjunction with a cost segregation study conducted prior to filing our 2019 federal incomeyear. The effective tax return and a $2.5 million adjustment to reduce our deferred tax valuation allowance related to this reclassification and filing our 2019 federal income tax returns. The benefit from income taxes for the third quarter of 2019rate was derived using an estimated annual effective tax rate in the first quarter of ~~27.2%, which excludes~~2021 and the ~~discrete impact~~actual effective tax rate for the year-to-date period in the first quarter of ~~tax benefits of $(2.1) million from tax deductible goodwill~~2020.

~~impairment charges and $(0.4) million~~Income (Loss) from ~~interest on an income tax refund and a tax deficiency from the vesting of restricted shares of $0.2 million.~~

The CARES Act includes provisions that allow net operating losses arising in 2018, 2019, and 2020 to be carried back for up to five years and includes technical amendments that are retroactive to 2018 which permit certain assets to be classified as qualified improvement property and expensed immediately.

~~Net Income (Loss).~~Continuing Operations. As a result of the foregoing, we had ~~net~~ income from continuing operations of ~~$4.6~~$2.7 million in the ~~third~~second quarter of ~~2020~~2021 compared to a ~~net~~ loss from continuing operations of ~~$22.2~~$(6.6) million in the ~~third~~second quarter of ~~2019.~~2020.

~~Nine~~Six Months Ended ~~September 27, 2020~~July 4, 2021 Compared to ~~Nine~~Six Months Ended ~~September 29, 2019~~June 28, 2020 – Continuing Operations

The following table sets forth, for the ~~nine~~six months ended ~~September 27,~~July 4, 2021 and June 28, 2020, ~~and September 29, 2019,~~ selected ~~consolidated~~ operating results of continuing operations as a percentage of ~~consolidated restaurant sales and select segment operating results as a percentage of applicable segment~~ restaurant sales:


	Six Months Ended
	July 4, 2021		June 28, 2020
	Pollo Tropical




Costs and expenses:
Cost of sales	30.7	%	32.2	%
Restaurant wages and related expenses	23.7	%	24.3	%
Restaurant rent expense	6.6	%	7.6	%
Other restaurant operating expenses	15.3	%	15.5	%
Advertising expense	3.0	%	3.1	%

Nine Months Ended
September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019
Pollo Tropical Taco Cabana Consolidated
Restaurant sales:
Pollo Tropical 56.0 % 54.5 %
Taco Cabana 44.0 % 45.5 %
Consolidated restaurant sales 100.0 % 100.0 %
Costs and expenses:
Cost of sales 32.1 % 31.6 % 29.9 % 31.0 % 31.1 % 31.3 %
Restaurant wages and related expenses 23.9 % 23.3 % 31.3 % 31.6 % 27.1 % 27.1 %
Restaurant rent expense 7.5 % 6.0 % 9.5 % 8.4 % 8.4 % 7.1 %
Other restaurant operating expenses 15.5 % 13.5 % 14.9 % 14.0 % 15.2 % 13.7 %
Advertising expense 2.4 % 3.4 % 2.5 % 3.7 % 2.5 % 3.6 %
Pre-opening costs — % 0.1 % — % 0.2 % — % 0.2 %

Revenues. Total revenues ~~decreased 19.1%~~increased 19.9% to ~~$405.9~~$179.4 million in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 from ~~$501.5~~$149.6 million in the ~~nine~~six months ended ~~September 29, 2019.~~June 28, 2020. Restaurant sales ~~decreased 19.0%~~increased 19.9% to ~~$404.5~~$178.6 million in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 from ~~$499.5~~$149.0 million in the ~~nine~~six months ended ~~September~~ June 28, 2020.

29 ~~2019.~~

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The following table presents the primary drivers of the ~~decreases~~increase in restaurant sales for ~~both~~ Pollo Tropical ~~and Taco Cabana~~ for the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 compared to the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 (in millions):

Pollo Tropical:
Decrease in comparable restaurant sales $ (44.6 )
Decrease in sales related to closed restaurants, net of new restaurants (0.7 )
Total decrease $ (45.3 )

Taco Cabana:
Decrease in comparable restaurant sales $ (32.3 )
Decrease in sales related to closed restaurants, net of new restaurants (17.4 )
Total decrease $ (49.7 )


Pollo Tropical:
Increase in comparable restaurant sales	$	30.8
Decrease in sales related to closed restaurants, including a temporary closure	(1.2)
Total increase	$	29.6

Comparable restaurant sales for Pollo Tropical restaurants ~~decreased 16.8%~~increased 21.1% in the ~~nine~~six months ended ~~September 27, 2020.~~July 4, 2021. Comparable restaurant sales ~~for Taco Cabana restaurants decreased 15.7% in the nine months ended September 27, 2020. Comparable restaurant sales for both brands~~ were significantly impacted by governmental restrictions, closed dining rooms, reductions in operating hours and reduced staffing as a result of ~~COVID-19.~~COVID-19 in 2020.

For Pollo Tropical, ~~a decrease in comparable restaurant transactions of 23.0% was partially offset by~~ an increase in the net impact of product/channel mix and pricing of ~~6.2%~~14.6% was coupled with an increase in comparable restaurant transactions of 6.5% in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 compared to the ~~nine~~six months

ended ~~September 29, 2019.~~June 28, 2020. The increase in product/channel mix and pricing was driven primarily by increases in delivery and drive-thru average check and sales channel penetration, and menu price increases of ~~0.2%~~2.5%. ~~As a result of new restaurant openings, sales cannibalization of existing restaurants negatively impacted comparable~~Comparable restaurant sales for Pollo Tropical ~~by 0.2%~~ in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 decreased 2.5% compared to the ~~nine~~same fiscal period in 2019. We believe restaurant sales were negatively impacted by reduced operating hours due to labor shortages.

Franchise revenues increased by $0.2 million to $0.8 million in the six months ended ~~September 29, 2019.~~

For Taco Cabana, a decrease in comparable restaurant transactions of 22.7% was partially offset by an increase in net impact of product/channel mix and pricing of 7.0% in the nine months ended September 27, 2020July 4, 2021 compared to the ~~nine~~six months ended September 29, 2019. The increase in product/channel mix and pricing was driven primarily by increases in drive-thru and delivery sales channel penetration and growth in average check for drive-thru compared to last year due in part to an increase in transactions that include alcohol and menu price increases of 0.5%.

~~Franchise revenues decreased by $0.6 million to $1.4 million in the nine months ended September 27,~~June 28, 2020 ~~compared to the nine months ended September 29, 2019~~ due to ~~lower~~higher sales at franchised restaurants in ~~2020~~2021 primarily as a result of ~~COVID-19.~~the impact of COVID-19 in 2020.

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The following ~~tables present~~table presents the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical ~~and Taco Cabana~~ for the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 compared to the ~~nine~~six months ended ~~September 29, 2019.~~June 28, 2020. All percentages are stated as a percentage of ~~applicable segment~~ restaurant sales.



Pollo Tropical:
Cost of sales:
~~Higher commodity costs~~Lower promotions and discounts			~~0.7~~(1.0)		%
~~Sales mix~~Menu price increases			~~0.4~~(0.4)		%
Sales mix			(0.1)		%
Lower rebates and discounts			0.2		%
~~Higher packaging costs~~Other			~~0.1~~(0.2)		%
~~Operating efficiency~~			~~(0.9~~	)%
~~Menu price increases~~	~~(0.1~~	)%
~~Other~~	~~0.1~~	%
~~Net increase in cost of sales as a percentage of restaurant sales~~	~~0.5~~	%

~~Restaurant wages and related expenses:~~
~~Higher labor costs due to COVID-19~~⁽¹⁾	~~0.6~~	%
~~Lower labor costs due to labor efficiencies~~	~~(0.2~~	)%
~~Other~~	~~0.2~~	%
~~Net increase in restaurant wages and related costs as a percentage of restaurant sales~~	~~0.6~~	%

~~Other operating expenses:~~
~~Higher delivery fee expense due to increased delivery channel sales~~	~~1.4~~	%
~~Higher insurance costs~~	~~0.2~~	%
~~Impact of lower sales on utilities cost~~	~~0.2~~	%
~~Higher linen and uniform expense including COVID-19 masks and the impact of lower sales~~	~~0.1~~	%
~~Lower repair and maintenance costs~~	~~(0.2~~	)%
~~Other~~⁽²⁾	~~0.3~~	%
~~Net increase in other restaurant operating expenses as a percentage of restaurant sales~~	~~2.0~~	%

~~Advertising expense:~~
~~Reduced advertising~~	~~(1.0~~	)%
~~Net decrease in advertising expense as a percentage of restaurant sales~~	~~(1.0~~	)%

~~Pre-opening costs:~~
~~Decrease in the number of restaurant openings~~	~~(0.1~~	)%
~~Net decrease in pre-opening costs as a percentage of restaurant sales~~	~~(0.1~~	)%


⁽¹⁾	~~Primarily includes the impact of COVID-19 related special incentive pay and quarantine, which is partially offset (0.1%) by lower incentive bonus resulting from the special incentive pay.~~


⁽²⁾	~~Includes the impact of lower sales on sanitation costs and operating supplies.~~



~~Taco Cabana:~~
~~Cost of sales:~~
~~Lower commodity costs~~	~~(1.5~~	)%
~~Operating efficiency~~	~~(0.8~~	)%
~~Lower promotions and discounts~~	~~(0.2~~	)%
~~Menu price increases~~	~~(0.1~~	)%
~~Sales mix~~	~~1.3~~	%
~~Lower rebates and discounts~~	~~0.3~~	%
~~Other~~	~~(0.1~~	)%
Net decrease in cost of sales as a percentage of restaurant sales	~~(1.1~~(1.5)		)%

Restaurant wages and related expenses:

Lower medical benefits costs including the impact of higher restaurant sales			(0.5)	%
Lower labor costs due to labor efficiencies and labor shortages including the impact of higher restaurant sales			~~(1.1~~(0.4)	)%
Impact of higher restaurant sales on other labor costs including special incentive pay			(0.2)	%

Higher ~~labor costs due to COVID-19~~incentive bonus⁽¹⁾			~~0.9~~0.5	%
~~Other~~			~~(0.1~~		)%
Net decrease in restaurant wages and related costs as a percentage of restaurant sales			~~(0.3~~(0.6)	)%

Other operating expenses:
Impact of higher restaurant sales on utilities cost			(0.5)	%
Lower insurance costs			(0.3)	%

Lower sanitation costs			(0.2)	%
Higher delivery fee expense due to increased delivery channel sales			~~0.8~~0.9	%
~~Higher linen and uniform expense including COVID-19 masks and the impact of lower sales~~			~~0.1~~		%
~~Lower repairs~~Higher repair and maintenance costs			(0.2	)%
~~Other~~			~~0.2~~		%
Other(2)			(0.3)	%
Net ~~increase~~decrease in other restaurant operating expenses as a percentage of restaurant sales			~~0.9~~(0.2)	%

Advertising expense:
~~Reduced~~Impact of higher restaurant sales on advertising costs			~~(1.2~~(0.1)	)%
Net decrease in advertising expense as a percentage of restaurant sales			~~(1.2~~(0.1)	)%

~~Pre-opening costs:~~
~~Decrease in the number of restaurant openings~~	~~(0.2~~	)%
~~Net decrease in pre-opening costs as a percentage of restaurant sales~~	~~(0.2~~	)%


⁽¹⁾			~~Primarily includes the impact of COVID-19 related special incentive pay and quarantine pay, which is partially offset (0.1%) by lower incentive bonus resulting from the special incentive pay.~~

~~Consolidated~~ (1) Primarily due to guaranteed bonus payments. Guaranteed bonus payments, which were lower in 2020, are included in other labor costs in 2020.

(2)Consists of lower linen and uniform expense including masks, cleaning services and the impact of higher restaurant sales.

Restaurant Rent Expense. Restaurant rent expense, as a percentage of total restaurant sales, ~~increased~~decreased to ~~8.4%~~6.6% in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 from ~~7.1%~~7.6% in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 due primarily to the impact of lower comparable restaurant ~~sales.~~sales which were partially offset by higher rental costs related to sale-leasebacks and renewed leases.

~~Consolidated~~ General and Administrative Expenses. General and administrative expenses were ~~$38.5~~$21.7 million for the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 and ~~$42.4~~$19.5 million for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 and, as a percentage of total revenues, general and administrative expenses ~~increased~~decreased to ~~9.5%~~12.1% in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 compared to ~~8.5%~~13.0% in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 due primarily to the impact of ~~lower~~higher total revenues partially offset by ~~lower management support~~higher incentive costs ~~primarily as a result of headcount reductions for the nine months ended September 27, 2020.~~and continuing mobile app development and maintenance costs. General and administrative expenses include corporate overhead costs allocated to Taco Cabana that are not included in discontinued operations. General and administrative expense for the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 also included ~~$1.1~~$0.7 million related to digital and brand repositioning costs. General and administrative expenses for the six months ended June 28, 2020 included $0.6 million related to severance costs associated with positions eliminated in response to the COVID-19 pandemic, ~~$0.4~~$0.2 million related to digital and brand repositioning costs and $0.1 million related to search fees for senior executive positions. General and administrative expenses for the nine months ended September 29, 2019 included $1.0 million related to restructuring costs due to eliminated or relocated positions, $0.2 million related to digital and brand repositioning costs and $0.4 million related to search fees for senior executive positions.

Adjusted EBITDA. Adjusted EBITDA for Pollo Tropical ~~decreased~~increased to ~~$24.4~~$24.3 million, or ~~10.7%~~13.5% of total revenues, in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 from ~~$39.9~~$13.8 million, or ~~14.6%~~9.2% of total revenues, in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 due primarily

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to the impact of ~~lower restaurant sales, including the impact of COVID-19,~~ higher ~~delivery fee expense, higher cost~~

~~of sales as a percentage of~~ restaurant sales and ~~additional costs related to the COVID-19 pandemic,~~improved cost of sales margins, partially offset by lower advertising and general and administrative expenses. Adjusted EBITDA for Taco Cabana decreased to $5.9 million, or 3.3% of total revenues, in the nine months ended September 27, 2020 from $8.2 million, or 3.6% of total revenues, in the nine months ended September 29, 2019 due primarily to the impact of lower restaurant sales, including the impact of COVID-19, higher delivery fee expense and additional costs related to the COVID-19 pandemic, partially offset by lower cost of sales as a percentage of restaurant sales, advertising expenses, labor costs as a percentage of restaurant sales due to labor efficiencies, and general and administrative expenses and the impact of the closure of unprofitable restaurants in the first quarter of 2020.fees. Continuing Operations Consolidated Adjusted EBITDA ~~decreased~~increased to ~~$30.3~~$18.8 million in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 from ~~$48.1~~$8.7 million in the ~~nine~~six months ended ~~September 29, 2019.~~June 28, 2020.

Restaurant-level Adjusted EBITDA. Restaurant-level Adjusted EBITDA for Pollo Tropical ~~decreased~~increased to ~~$42.2~~$37.3 million, or ~~18.6%~~20.9% of restaurant sales, in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 from ~~$60.4~~$25.8 million, or ~~22.2%~~17.3% of restaurant sales, in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 due primarily to the foregoing. Restaurant-level Adjusted EBITDA for Taco Cabana decreased to $21.4 million, or 12.0% of restaurant sales, in the nine months ended September 27, 2020 from $25.9 million, or 11.4% of restaurant sales, in the nine months ended September 29, 2019 as a result of the foregoing. For a reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures."

Depreciation and Amortization. Depreciation and amortization expense decreased to ~~$28.4~~$10.0 million in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 from ~~$29.5~~$10.9 million in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 due primarily to decreased depreciation as a result of entering into sale-leaseback transactions for several owned restaurant locations and impairing closed restaurant assets, partially offset by an increase in depreciation related to ~~new restaurant openings and~~ ongoing reinvestment and enhancements to our restaurants that have been made since the ~~third~~second quarter of ~~2019.~~2020.

Impairment and Other Lease Charges. Impairment and other lease charges ~~increased~~decreased to ~~$8.9~~$(0.3) million in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 from ~~$4.7~~$5.6 million in the ~~nine~~six months ended ~~September 29, 2019.~~June 28, 2020.

Impairment and other lease charges for the ~~nine~~six months ended ~~September 27,~~July 4, 2021 include net gains from lease terminations of $(0.4) million, partially offset by impairment charges of $0.1 million related primarily to impairment of equipment from previously impaired and closed restaurants.

Impairment and other lease charges for the six months ended June 28, 2020 for Pollo Tropical include impairment charges of ~~$7.3~~$4.8 million related primarily to ~~the~~ impairment of assets from three underperforming Pollo Tropical restaurants, two of which we closed in the third quarter of 2020, the write-down of assets held for sale to their fair value less costs to sell, and ~~the write-down of saucing islands and self-service soda machines that are being removed from dining rooms as a result of COVID-19, and~~ lease termination charges of $0.9 million for restaurant locations we decided not to develop, net of a gain from lease terminations of $(0.2) million. Impairment and other lease charges for the nine months ended September 27, 2020 for Taco Cabana include impairment charges of $1.1 million related primarily to the write-down of assets held for sale to their fair value less costs to sell and the impairment of assets for two underperforming Taco Cabana restaurants that we continue to operate, and a gain of $(0.2) million from a lease termination.

Impairment and other lease charges for the nine months ended September 29, 2019 for Pollo Tropical include impairment charges of $0.6 million related primarily to additional impairment of equipment from previously closed restaurants and a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.8) million. Impairment and other lease charges for the nine months ended September 29, 2019 for Taco Cabana include impairment charges of $4.9 million related primarily to impairment of assets for eight underperforming restaurants that we continued to operate, equipment from previously impaired restaurants and a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.1) million.

~~Goodwill Impairment.~~ Goodwill impairment was $67.9 million for the nine months ended September 29, 2019 and consisted of a non-cash impairment charge to write down the value of goodwill for the Taco Cabana reporting unit.develop.

Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent expense, net of sublease income was ~~$4.9~~$1.7 million for the ~~nine~~six months ended ~~September 27,~~July 4, 2021 and consisted of closed restaurant rent and ancillary lease costs of $4.6 million net of sublease income of $(2.9) million, which includes closed restaurant rent and ancillary lease costs of $1.1 million net of sublease income of $(0.2) million related to Taco Cabana closed restaurant locations that we will retain. Closed restaurant rent expense, net of sublease income was $2.4 million for the six months ended June 28, 2020 and consisted of closed restaurant rent and ancillary lease costs of ~~$5.2~~$4.6 million, ~~and $3.7~~which includes $1.1 million related to Taco Cabana closed restaurant locations that we will retain, net of sublease income of $3.6 million and $0.3 million for Pollo Tropical and Taco Cabana, respectively. Closed restaurant rent expense, net of sublease income was $3.5 million for the nine months ended September 29, 2019 and consisted of closed restaurant rent and ancillary lease costs of $5.1 million and $1.1 million net of sublease income of $2.4 million and $0.4 million for Pollo Tropical and Taco Cabana, respectively.$(2.2) million.

Other Expense (Income), Net. Other expense, net was ~~$0.4~~$0.3 million for the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 and primarily consisted of ~~$1.4~~$0.2 million in costs for the removal, transfer, and storage of equipment from closed restaurants and other closed restaurant related costs and $0.6 million for the write-off of site development costs, partially offset by total gains of $(1.6) million on the sale-leaseback of two restaurant properties and the sale of two restaurant properties.costs. Other expense, net was $0.9 million for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 and primarily consisted of ~~$0.7~~$0.1 million in costs for the removal, transfer, and storage of equipment from closed restaurants and ~~$0.1~~$0.6 million for the write-off of site development costs.

Interest Expense. Interest expense ~~increased to $3.4~~remained flat at $0.1 million for the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 compared to ~~$3.0 million for~~ the ~~nine~~six months ended ~~September 29, 2019 due to a higher borrowing level under our amended senior credit facility and higher interest rates.~~June 28, 2020.

Benefit from Income Taxes. The effective tax rate was ~~44.6%~~53.0% and ~~2.1%~~23.2% for the ~~nine~~six months ended ~~September 27,~~July 4, 2021 and June 28, 2020, ~~and September 29, 2019,~~ respectively. The ~~benefit from~~provision for income taxes for the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 was derived using the actual effective tax rate for the year to date period, which includes changes in the valuation allowance as a result of originating temporary differences during the year and excludes an out-of-period adjustment that increased our income tax provision. The benefit from income taxes for the six months ended June 28, 2020 was derived using the actual effective tax rate for the year to date period and includes a benefit of ~~$1.9~~$1.8 million related to the carryback of net operating losses as a result of the CARES Act, a $1.9 million benefit as a result reclassifying certain assets as qualified improvement property as permitted by the CARES Act and other changes to depreciation methods for certain assets made in conjunction with a cost segregation study conducted prior to filing our 2019 federal income tax return, a $2.5 million adjustment to reduce our deferred tax valuation allowance related to this reclassification and filing our 2019 federal income tax returns, and a tax deficiency from the vesting of restricted shares of $0.5 million. The benefit from income taxes for the nine months ended September 29, 2019 was derived using an estimated effective annual income tax rate of 27.2%, which excludes the discrete impact of tax benefits of $(2.1) million from tax deductible goodwill impairment charges and $(0.4) million from interest on an income tax refund and a tax deficiency from the vesting of restricted shares of $0.2 million.Act.

The CARES Act includes provisions that eliminate the 80% of taxable income limitation for certain net operating loss carryforward deductions and allow net operating losses arising in 2018, 2019, and 2020 to be carried back for up to five years and includes technical amendments that are retroactive to 2018 which permit certain assets to be classified as qualified improvement property and expensed immediately.

~~Net Loss.~~Income (Loss) from Continuing Operations. As a result of the foregoing, we had income from continuing operations of $2.0 million for the six months ended July 4, 2021 compared to a net loss from continuing operations of $(10.3) million for the six months ended June 28, 2020.

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Results of Discontinued Operations

Unless otherwise noted, this discussion of operating results relates to our discontinued operations.

The following table summarizes the changes in the number and mix of Taco Cabana Company-owned and franchised restaurants.


	Taco Cabana
		Owned	Franchised	Total
January 3, 2021		143	6	149
New		—	—	—
Closed		—	—	—
April 4, 2021		143	6	149
New		—	—	—
Closed		(1)	—	(1)
July 4, 2021		142	6	148







December 29, 2019		164	8	172
New		1	—	1
Closed		(19)	—	(19)
March 29, 2020		146	8	154
New		—	—	—
Closed		—	(1)	(1)
June 28, 2020		146	7	153

Three Months Ended July 4, 2021 Compared to Three Months Ended June 28, 2020 – Discontinued Operations

The following table sets forth, for the three months ended July 4, 2021 and June 28, 2020, selected operating results from discontinued operations as a percentage of discontinued operations restaurant sales.


		Three Months Ended
		July 4, 2021		June 28, 2020
	Taco Cabana




Costs and expenses:
Cost of sales		28.5	%	30.0	%
Restaurant wages and related expenses		31.2	%	32.0	%
Restaurant rent expense		8.6	%	9.6	%
Other restaurant operating expenses		15.8	%	14.0	%
Advertising expense		3.0	%	1.7	%

Revenues from Discontinued Operations. Total revenues increased 13.6% to $66.4 million in the second quarter of 2021 from $58.4 million in the second quarter of 2020. Restaurant sales increased 13.5% to $66.1 million in the second quarter of 2021 from $58.3 million in the second quarter of 2020.

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The following table presents the primary drivers of the increase in restaurant sales for Taco Cabana for the second quarter of 2021 compared to the second quarter of 2020 (in millions).







Taco Cabana:
Increase in comparable restaurant sales	$	8.9
Decrease in sales related to closed restaurants, net of new restaurants	(1.0)
Total increase	$	7.9

Comparable restaurant sales increased 15.6% for Taco Cabana restaurants in the second quarter of 2021 compared to the second quarter of 2020. For Taco Cabana, an increase in comparable restaurant transactions of 13.0% was coupled with an increase in the net impact of product/channel mix and pricing of 2.6% in the second quarter of 2021 compared to the second quarter of 2020. The increase in product/channel mix and pricing was driven primarily by menu price increases of 4.3%. Comparable restaurant sales in the second quarter of 2020 for Taco Cabana were negatively impacted by governmental restrictions at the onset of the COVID-19 pandemic. Comparable restaurant sales for Taco Cabana in the second quarter of 2021 decreased 6.7% compared to the same fiscal period in 2019.

Franchise revenues remained flat at $0.2 million in the second quarter of 2021 compared to the second quarter of 2020.

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The following table presents the primary drivers of the changes in the components of restaurant operating margins for Taco Cabana for the second quarter of 2021 compared to the second quarter of 2020. All percentages are stated as a percentage of segment restaurant sales:


Taco Cabana:
Cost of sales:
Menu price increases	(1.2)	%
Operating efficiency	(0.5)	%

Lower liquor tax	(0.5)	%

Lower promotions and discounts	(0.4)	%
Higher commodity costs	0.7	%
Sales mix	0.6	%
Other	(0.2)	%
Net decrease in cost of sales as a percentage of restaurant sales	(1.5)	%

Restaurant wages and related expenses:
Lower other labor costs including the impact of higher restaurant sales(1)	(1.0)	%
Lower medical benefits costs	(0.7)	%
Impact of higher restaurant sales on labor costs	(0.5)	%
Higher incentive bonus(2)	0.8	%
Higher payroll taxes	0.4	%

Other	0.2	%
Net decrease in restaurant wages and related costs as a percentage of restaurant sales	(0.8)	%

Other operating expenses:
Higher storm costs(3)	1.4	%
Higher repair and maintenance costs	0.5	%
Higher delivery fee expense due to increased delivery channel sales	0.3	%
Higher insurance costs	0.3	%

Lower linen and uniform expense including COVID-19 masks and the impact of higher restaurant sales	(0.3)	%

Impact of higher restaurant sales on utilities costs	(0.3)	%


Other	(0.1)	%
Net increase in other restaurant operating expenses as a percentage of restaurant sales	1.8	%

Advertising expense:
Increased advertising	1.3	%
Net increase in advertising expense as a percentage of restaurant sales	1.3	%

(1) Primarily includes impact of COVID-19 related special incentive pay in 2020.

(2) Primarily due to guaranteed bonus payments. Guaranteed bonus payments, which were lower in 2020, are included in other labor costs above in 2020.

(3) Primarily repair and landscaping debris removal costs due to the impact of Winter Storm Uri.

Restaurant Rent Expense from Discontinued Operations. Restaurant rent expense, as a percentage of total restaurant sales, decreased to 8.6% in the second quarter of 2021 from 9.6% in the second quarter of 2020 due primarily to the impact of higher restaurant sales.

Adjusted EBITDA from Discontinued Operations. Adjusted EBITDA for Taco Cabana increased to $3.0 million, or 4.6% of total revenues, in the second quarter of 2021 from $2.7 million, or 4.6% of total revenues, in the second quarter of 2020 due primarily to higher restaurant sales, partially offset by higher repair and maintenance costs and winter storm costs, increased advertising and higher delivery fee expense. Discontinued Operations Consolidated Adjusted EBITDA increased to $5.9 million in the three months ended July 4, 2021 from $5.0 million in the three months ended June 28, 2020.

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Restaurant-level Adjusted EBITDA from Discontinued Operations. Restaurant-level Adjusted EBITDA for Taco Cabana increased to $8.4 million, or 12.8% of restaurant sales, in the second quarter of 2021 from $7.3 million, or 12.6% of restaurant sales, in the second quarter of 2020 primarily as a result of the foregoing. For a reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures."

Impairment and Other Lease Charges from Discontinued Operations. Impairment and other lease charges remained flat at $0.4 million in the second quarter of 2021 compared to the second quarter of 2020.

Impairment and other lease charges for the three months ended July 4, 2021 for Taco Cabana include lease termination charges of $0.5 million, slightly offset by a gain from a lease termination of $(0.1) million.

Impairment and other lease charges for the three months ended June 28, 2020 for Taco Cabana include impairment charges of $0.6 million related primarily to the write-down of assets held for sale to their fair value less costs to sell and a gain of $(0.2) million from a lease termination.

Interest Expense from Discontinued Operations. Interest expense increased to $1.9 million in the second quarter of 2021 compared to $1.2 million in the second quarter of 2020 due primarily to higher interest rates under the term loan in our new senior credit facility compared to our former senior credit facility in 2020.

Provision for (Benefit from) Income Taxes. The effective tax rate was (50.1)% and 3.1% for the second quarter of 2021 and 2020, respectively. Income taxes for the second quarter of 2021 and 2020 represent the difference between income taxes attributable to discontinued operations for the year-to-date period and income taxes attributable to discontinued operations for the first quarter. Income taxes for the first quarter of 2021 and 2020 were derived by subtracting continuing operations income taxes from total income taxes recorded for those periods.

Loss from Discontinued Operations. As a result of the foregoing, we had a loss from discontinued operations of $2.8 million in the second quarter of 2021 compared to a loss from discontinued operations of $1.7 million in the second quarter of 2020.

Six Months Ended July 4, 2021 Compared to Six Months Ended June 28, 2020 – Discontinued Operations

The following table sets forth, for the six months ended July 4, 2021 and June 28, 2020, selected operating results from discontinued operations as a percentage of discontinued operations restaurant sales:


		Six Months Ended
		July 4, 2021		June 28, 2020
	Taco Cabana




Costs and expenses:
Cost of sales		28.3	%	30.4	%
Restaurant wages and related expenses		31.3	%	32.1	%
Restaurant rent expense		9.3	%	9.5	%
Other restaurant operating expenses		15.9	%	14.5	%
Advertising expense		3.0	%	2.7	%

Revenues from Discontinued Operations. Total revenues increased 3.3% to $122.9 million in the six months ended July 4, 2021 from $119.0 million in the six months ended June 28, 2020. Restaurant sales increased 3.2% to $122.5 million in the six months ended July 4, 2021 from $118.6 million in the six months ended June 28, 2020.

The following table presents the primary drivers of the increase in restaurant sales for Taco Cabana for the six months ended July 4, 2021 compared to the six months ended June 28, 2020 (in millions):







Taco Cabana:
Increase in comparable restaurant sales	$	6.3
Decrease in sales related to closed restaurants, net of new restaurants	(2.5)
Total increase	$	3.8

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Comparable restaurant sales for Taco Cabana restaurants increased 5.5% in the six months ended July 4, 2021. Comparable restaurant sales were significantly impacted by Winter Storm Uri in 2021 and by governmental restrictions, closed dining rooms, reductions in operating hours and reduced staffing as a result of COVID-19 in 2020.

For Taco Cabana, an increase in net ~~loss~~impact of ~~$11.1~~product/channel mix and pricing of 8.0%, was partially offset by a decrease in comparable restaurant transactions of 2.5% in the six months ended July 4, 2021 compared to the six months ended June 28, 2020. The increase in product/channel mix and pricing was driven primarily by increases in drive-thru and delivery sales channel penetration and growth in average check for drive-thru compared to last year due in part to an increase in transactions that include alcohol and menu price increases of 3.2%. Comparable restaurant sales in the six months ended June 28, 2020 for Taco Cabana were negatively impacted by governmental restrictions at the onset of the COVID-19 pandemic. Comparable restaurant sales in the six months ended July 4, 2021 were negatively impacted by Winter Storm Uri. We estimate that Winter Storm Uri negatively impacted comparable restaurant sales by approximately 2.4% in the six months ended July 4, 2021. Comparable restaurant sales for Taco Cabana in the six months ended July 4, 2021 decreased 11.8% compared to the same fiscal period in 2019.

Franchise revenues remained flat at $0.4 million in the six months ended July 4, 2021 compared to the six months ended June 28, 2020.

The following table presents the primary drivers of the changes in the components of restaurant operating margins for Taco Cabana for the six months ended July 4, 2021 compared to the six months ended June 28, 2020. All percentages are stated as a percentage of segment restaurant sales.


Taco Cabana:
Cost of sales:
Menu price increases	(0.9)	%
Operating efficiency	(0.9)	%
Lower promotions and discounts	(0.6)	%
Lower liquor tax	(0.2)	%
Lower commodity costs	(0.2)	%
Sales mix	0.5	%

Other	0.2	%
Net decrease in cost of sales as a percentage of restaurant sales	(2.1)	%

Restaurant wages and related expenses:
Lower labor costs due to labor efficiencies and labor shortages	(1.8)	%
Lower other labor costs(1)	(0.2)	%
Higher incentive bonus(2)	1.0	%
Higher workers' compensation costs	0.2	%



Net decrease in restaurant wages and related costs as a percentage of restaurant sales	(0.8)	%

Other operating expenses:
Higher storm costs(3)	1.1	%
Higher delivery fee expense due to increased delivery channel sales	0.8	%
Lower linen and uniform expense including COVID-19 masks	(0.2)	%
Lower utilities costs and impact of higher restaurant sales	(0.2)	%




Other	(0.1)	%
Net increase in other restaurant operating expenses as a percentage of restaurant sales	1.4	%

Advertising expense:
Increased advertising	0.3	%
Net increase in advertising expense as a percentage of restaurant sales	0.3	%

(1) Primarily includes impact of COVID-19 related special incentive pay in 2020.

(2) Primarily due to guaranteed bonus payments. Guaranteed bonus payments, which were lower in 2020, are included in other labor costs above in 2020.

(3) Primarily repair and landscaping debris removal costs due to the impact of Winter Storm Uri.

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Restaurant Rent Expense from Discontinued Operations. Restaurant rent expense, as a percentage of total restaurant sales, decreased to 9.3% in the six months ended July 4, 2021 from 9.5% in the six months ended June 28, 2020 due primarily to the impact of higher comparable restaurant sales.

Adjusted EBITDA from Discontinued Operations. Adjusted EBITDA for Taco Cabana increased to $3.8 million, or 3.1% of total revenues, in the six months ended July 4, 2021 from $1.8 million, or 1.5% of total revenues, in the six months ended June 28, 2020 due primarily to the impact of higher restaurant sales, including the impact of COVID-19 in 2020, higher delivery fee expense and the negative impact of Winter Storm Uri, partially offset by lower cost of sales as a percentage of restaurant sales, advertising expenses, labor costs as a percentage of restaurant sales due to labor efficiencies, and general and administrative expenses and the impact of the closure of unprofitable restaurants in the first quarter of 2020. We estimate that Winter Storm Uri negatively impacted Adjusted EBITDA by approximately $3.1 million. Discontinued Operations Consolidated Adjusted EBITDA increased to $9.3 million in the six months ended July 4, 2021 from $6.8 million in the six months ended June 28, 2020.

Restaurant-level Adjusted EBITDA from Discontinued Operations. Restaurant-level Adjusted EBITDA for Taco Cabana increased to $14.8 million, or 12.1% of restaurant sales, in the six months ended July 4, 2021 from $12.6 million, or 10.6% of restaurant sales, in the six months ended June 28, 2020 as a result of the foregoing, and despite the estimated negative impact of Winter Storm Uri to Adjusted EBITDA of approximately $3.1 million. For a reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures."

Impairment and Other Lease Charges from Discontinued Operations. Impairment and other lease charges decreased to $0.3 million in the six months ended July 4, 2021 from $0.9 million in the six months ended June 28, 2020.

Impairment and other lease charges for the six months ended July 4, 2021 for Taco Cabana include lease charges of $0.4 million related to terminated leases offset by gains of $(0.1) million from lease terminations.

Impairment and other lease charges for the six months ended June 28, 2020 for Taco Cabana include impairment charges of $1.1 million related primarily to the write-down of assets held for sale to their fair value less costs to sell and the impairment of assets for two underperforming Taco Cabana restaurants that we continued to operate, and a gain of $(0.2) million from a lease termination.

Interest Expense from Discontinued Operations. Interest expense increased to $3.9 million for the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 compared to ~~a net loss of $63.3~~$2.1 million for the ~~nine~~six months ended ~~September 29, 2019.~~June 28, 2020 due primarily to higher interest rates under the term loan in our new senior credit facility compared to our former senior credit facility in 2020.

Benefit from Income Taxes. The effective tax rate was 16.5% and 23.4% for the six months ended July 4, 2021 and June 28, 2020, respectively. The benefit from income taxes for the six months ended July 4, 2021 represents the difference between income taxes derived including discontinued operations and income taxes derived excluding discontinued operations. The benefit from income taxes for six months ended June 28, 2020 was derived by subtracting continuing operations income taxes from total income taxes recorded for the period in the prior year.

Loss from Discontinued Operations. As a result of the foregoing, we had a loss from discontinued operations of $4.2 million for the six months ended July 4, 2021 compared to loss from discontinued operations of $5.3 million for the six months ended June 28, 2020.

Liquidity and Capital Resources of Continuing Operations

We do not have significant receivables or inventory and receive trade credit based upon negotiated terms in purchasing food products and other supplies. ~~We are able~~Although, as a result of our substantial cash balance, we did not have a working capital deficit at July 4, 2021, we have the ability to operate with a substantial working capital deficit (and we have historically operated with a working capital deficit) because:

•restaurant operations are primarily conducted on a cash basis;

•rapid turnover results in a limited investment in inventories; and

•cash from sales is usually received before related liabilities for ~~food,~~ supplies and payroll become due.

Capital expenditures and payments related to our lease obligations represent significant liquidity requirements for us. We believe our cash reserves and cash generated from our operations ~~and the sale of owned property (including sale-leaseback transactions) and availability of borrowings under our amended senior credit facility~~ will provide sufficient cash availability to cover our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months.

~~On July 10, 2020, we executed an amendment~~ We expect to ~~our senior credit facility that includes adjustments~~use the proceeds from the sale of Taco Cabana to ~~our covenants that are more reflective of current sales and profit trends. For~~repay the remainder of 2020, the only applicable financial covenants under our amended senior credit facility that require compliance will be a minimum liquidity target and a maximum capital expenditure covenant. During the second quarter we borrowed all available fundsoutstanding term loan under our senior credit facility. We repaid $30.0 million on July 10, 2020, an additional $76.6 million through September 27, 2020, and an additional $20.4 million through November 2, 2020. On November 2, 2020, there were $19.5 million in outstanding revolving credit borrowings under our amended senior credit facility. See Note 5 to our unaudited condensed consolidated financial statements and "Amended Senior Credit Facility" below for a further discussion.

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Operating Activities. Net cash provided by operating activities in the first ~~nine~~six months of 2021 and 2020 ~~and 2019~~ was ~~$47.0~~$21.5 million and ~~$51.0~~$29.0 million, respectively. The decrease in net cash provided by operating activities in the ~~nine~~six months ended ~~September 27, 2020~~July 4, 2021 was primarily driven ~~by a decrease in Adjusted EBITDA, partially offset~~ by the timing of payments, including the impact of vendor and landlord payment term ~~renegotiations.~~renegotiations in 2020, partially offset by an increase in Adjusted EBITDA.

Investing Activities. Net cash used in investing activities in the first ~~nine~~six months of 2021 and 2020 ~~and 2019~~ was ~~$2.8~~$4.7 million and ~~$32.3~~$8.7 million, respectively. Capital expenditures are the largest component of our investing activities and include: (1) new restaurant development, which may include the purchase of real estate; (2) restaurant remodeling/reimaging, which includes the renovation or rebuilding of the interior and exterior of our existing restaurants; (3) other restaurant capital expenditures, which include capital maintenance expenditures for the ongoing reinvestment and enhancement of our restaurants; and (4) corporate and restaurant information systems.

The following table sets forth our capital expenditures from continuing operations for the periods presented (dollars in thousands).


	Pollo Tropical		Other		Continuing Operations
Six Months Ended July 4, 2021:
New restaurant development	$	—	$	—	$	—
Restaurant remodeling	592		—		592
Other restaurant capital expenditures(1)	3,750		—		3,750
Corporate and restaurant information systems	719		545		1,264
Total capital expenditures	$	5,061	$	545	$	5,606
Number of new restaurant openings	—				—
Six Months Ended June 28, 2020:
New restaurant development	$	986	$	—	$	986
Restaurant remodeling	357		—		357
Other restaurant capital expenditures(1)	2,019		—		2,019
Corporate and restaurant information systems	682		999		1,681
Total capital expenditures	$	4,044	$	999	$	5,043
Number of new restaurant openings	—				—

(1) Excludes restaurant repair and maintenance expenses included in other restaurant operating expenses in our unaudited condensed consolidated financial statements. For the six months ended July 4, 2021 and June 28, 2020, total restaurant repair and maintenance expenses were approximately $5.4 million and $4.1 million, respectively.

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The following table sets forth our capital expenditures from discontinued operations for the periods presented (dollars in thousands).

Pollo
Tropical

Taco
Cabana
Other Consolidated
Nine Months Ended September 27, 2020:
New restaurant development $ 992
$ 854
$ —
$ 1,846
Restaurant remodeling 357
730
—
1,087
Other restaurant capital expenditures⁽¹⁾
3,226
2,621
—
5,847
Corporate and restaurant information systems 926
567
1,643
3,136
Total capital expenditures $ 5,501
$ 4,772
$ 1,643
$ 11,916
Number of new restaurant openings —
1
1
Nine Months Ended September 29, 2019:
New restaurant development $ 6,822
$ 3,859
$ —
$ 10,681
Restaurant remodeling 182
186
—
368
Other restaurant capital expenditures⁽¹⁾
8,626
7,219
—
15,845
Corporate and restaurant information systems 2,565
3,718
896
7,179
Total capital expenditures $ 18,195
$ 14,982
$ 896
$ 34,073
Number of new restaurant openings 2
3

5


	Taco Cabana
Six Months Ended July 4, 2021:
New restaurant development	$	—
Restaurant remodeling	645
^{Other restaurant capital expenditures}(1)	~~Excludes~~2,708
Corporate and restaurant ~~repair~~information systems	110
Total capital expenditures	$	3,463
Number of new restaurant openings	—
Six Months Ended June 28, 2020:
New restaurant development	$	854
Restaurant remodeling	730
Other restaurant capital expenditures(1)	1,722
Corporate and ~~maintenance expenses included in other~~ restaurant ~~operating expenses in our unaudited condensed consolidated financial statements. For the nine months ended September 27, 2020 and September 29, 2019, total~~information systems	354
Total capital expenditures	$	3,660
Number of new restaurant ~~repair and maintenance expenses were approximately $12.8 million and $16.8 million, respectively.~~openings	1

(1) Excludes restaurant repair and maintenance expenses included in discontinued operations in our unaudited condensed consolidated financial statements. For the six months ended July 4, 2021 and June 28, 2020, total restaurant repair and maintenance expenses from discontinued operations were approximately $4.2 million for each period. For the six months ended July 4, 2021, costs associated with repairs from Winter Storm Uri were approximately $1.4 million.

Cash ~~used in~~provided by investing activities from discontinued operations in the first ~~nine~~six months of ~~2020~~2021 included net proceeds of ~~$6.3~~$3.1 million from the sale-leaseback of two restaurant properties and ~~$2.9 million from the sale of an additional two restaurant properties. Cash used in investing activities in the first nine months of 2019 included~~ net proceeds of $1.3 million from the sale of one restaurant ~~property of $1.8 million.~~property.

Total capital expenditures in ~~2020 will not exceed $22.0 million.~~2021 are expected to be between $25.0 million and $30.0 million, including approximately $4.0 million related to Taco Cabana.

Financing Activities. Net cash used in financing activities in the first ~~nine~~six months of ~~2020~~2021 was ~~$39.6~~$0.5 million and included term loan borrowing repayments under our new senior credit facility of $0.4 million and $0.2 million in principal payments on finance leases. Net cash provided by financing activities in the first six months of 2020 included net revolving credit ~~borrowing repayments~~borrowings under our ~~amended~~former senior credit facility of ~~$35.1~~$71.5 million, ~~and~~partially offset by $3.7 million in payments to repurchase our common stock, as well as borrowings and subsequent repayment of funds pursuant to the Paycheck Protection Program under the CARES Act. Net cash used in financing activities in the first nine months of 2019 included net revolving credit borrowing repayments under our senior credit facility of $9.0 million combined with $11.4 million in payments to repurchase our common stock.

~~Amended~~New Senior Credit Facility. On ~~July 10,~~November 23, 2020, we terminated our former amended senior secured revolving credit facility, referred to as the "former senior credit facility," and entered into a new senior secured credit facility, which is referred to as the ~~amended~~"new senior credit facility." The ~~amended~~new senior credit facility ~~reduced aggregate maximum commitments available for~~is comprised of a term loan facility (the "term loan facility") of $75.0 million and a revolving ~~credit borrowings (including standby letters of credit) under the amended senior~~ credit facility (the "revolving ~~commitment"~~credit facility") ~~by $30.0~~of up to $10.0 million ~~to $120.0 million~~and matures on ~~July 10, 2020.~~November 23, 2025. The ~~amended~~new senior credit facility ~~further reduces~~also provides for potential incremental term loan borrowing increases of up to $37.5 million in the aggregate, subject to, among other items, compliance with a minimum Total Leverage Ratio and other terms specified in the new senior credit facility. On July 4, 2021, there were $74.6 million in outstanding borrowings, subject to an original issue discount, under the term loan facility and no outstanding borrowings under the revolving ~~commitment~~credit facility. Upon completion of the sale of Taco Cabana, and as required by ~~(i) $15.0 million~~the terms of the senior credit facility, the proceeds from the sale will be used to ~~$105.0 million~~fully repay our outstanding term loan borrowings.

Under the new senior credit facility, we must repay the unpaid principal amount of the term loan facility quarterly which commenced on ~~January 3,~~March 31, 2021, ~~and (ii) $10.0 million~~in an amount equal to ~~$95.0 million~~0.25% of the aggregate principal amount of the term loan facility on ~~April 4, 2021.~~the effective date of the new senior credit facility, resulting in annual mandatory repayments of $0.8 million.

The ~~amended~~new senior credit facility provides that ~~Fiesta is~~we must maintain minimum Liquidity (as defined in the new senior credit facility) of $20.0 million (the "Liquidity Threshold") until January 3, 2022. The new senior credit facility also provides that we are not required to be in compliance with the ~~Adjusted~~Total Leverage Ratio ~~and Fixed Charge Coverage Ratio covenants (each as amended and defined in~~under the ~~amended~~new senior credit facility ~~agreement) under~~until the ~~amended senior credit facility from July 10, 2020 through April~~earlier of January 3, ~~2021. Fiesta~~2022, or the date on which Liquidity is ~~required to be in compliance with~~less than the ~~Adjusted Leverage Ratio and Fixed Charge Coverage Ratio beginning with the fiscal quarter ending April 4, 2021 (the first quarter of 2021). After April 3, 2021, we~~Liquidity Threshold. We will be permitted to exercise equity ~~cures~~

cure rights with respect to compliance with the ~~Adjusted~~Total Leverage Ratio ~~and Fixed Charge Coverage Ratio provided that, among other items, (i)~~subject to certain restrictions as set forth in the equity raised is from the issuance of common stock of Fiesta, (ii) not less than 50% of the net proceeds received by us from the issuance of Fiesta common stock are immediately used to prepay outstanding revolving credit borrowings under the amendednew senior credit facility which will result in a corresponding reduction of the revolving commitment by such amount, (iii) the amount of the equity cure is not more than $5.0 million in any fiscal quarter, and (iv) the aggregate amount of all equity cures do not exceed $15.0 million. The amended senior secured credit facility also provides that Fiesta must maintain minimum liquidity (as defined in the amended senior credit facility, generally unrestricted cash plus available borrowings under the amended senior credit facility) of (i) $40.0 million through September 27, 2020, (ii) $30.0 million from September 28, 2020 through January 3, 2021 and (iii) $25.0 million on January 4, 2021 and thereafter (the "Liquidity Covenant").

Borrowings under the ~~amended~~new senior credit facility bear interest at a rate per annum, at our option, ~~of (a) the Alternate Base Rate (as~~equal to either (all terms as defined in the ~~amended~~new senior credit facility):

1) the Base Rate plus the Applicable ~~Rate (as defined in the amended senior credit facility)~~Margin of ~~4.0%~~6.75% with a minimum ~~Alternate~~ Base Rate of ~~2.0%~~2.00%, or ~~(b)~~

2) the ~~Adjusted~~ LIBOR (or Benchmark Replacement) Rate ~~(as defined in the amended senior credit facility)~~ plus the Applicable ~~Rate~~Margin of ~~5.0%~~7.75%, with a minimum ~~Adjusted~~ LIBOR (or Benchmark Replacement) Rate of ~~1.0%~~1.00%. ~~Pursuant to~~

In addition, the ~~amended~~new senior credit facility ~~we will be subject~~requires us to pay a commitment fee of 0.50% per annum on the daily amount of the unused portion of the revolving credit facility.

The outstanding borrowings under the ~~amended senior~~revolving credit facility are prepayable without penalty or premium (other than customary breakage costs). The ~~amended~~outstanding borrowings under the term loan facility are voluntarily prepayable by us, and the term loan facility provides that each of the following shall require a mandatory prepayment of outstanding term loan borrowings by us as follows: (i) 100% of any cash Net Proceeds (as defined in the new senior credit facility) in excess of $2.0 million individually or in the aggregate over the term of the new senior credit facility ~~provides that for~~in respect of any of the following by Fiesta, (i) the sale of certain specified real property, including pursuant to sale-leaseback transactions, (ii) the issuance of equity of Fiesta (other than under our 2012 Stock Incentive Plan, subject to the restrictions set forthCasualty Event (as defined in the ~~amended~~new senior credit facility) affecting collateral provided that we are permitted to reinvest such Net Proceeds in accordance with the new senior credit facility, (ii) 100% of any Net Proceeds of a Specified Equity Contribution (as defined in the new senior credit facility), (iii) ~~the incurrence of certain indebtedness and (iv) the receipt of insurance proceeds (each a "prepayment event"), (a) if such prepayment event occurs prior to April 4, 2021,~~ 100% of the net proceeds of such prepayment event received by us in each case must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment and (b) beginning April 4, 2021, (1) 50% of the net proceeds received by us pursuant toany cash Net Proceeds from the issuance of ~~equity of Fiesta described above and~~debt issued by us or our subsidiaries other than Permitted Debt (as defined in the ~~sale of real property pursuant to a sale-leaseback transaction in each case must be used to reduce the outstanding revolving credit borrowings under the amended~~new senior credit ~~facility which will result in a corresponding reduction of the revolving commitment and (2)~~facility), (iv) 100% of any Net Proceeds from the net proceeds received by us pursuant to prepayment event other those identified in (1) above, in each case must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment. As of September 27, 2020, the outstanding revolving credit borrowings and revolving commitment were reduced by $9.1 million from proceeds received. The amended senior credit facility further provides that we must prepay outstanding revolving credit borrowings if the outstanding revolving credit borrowings exceed $75.0 million and excess cash (definedDisposition (as defined in the ~~amended~~new senior credit facility) of ~~Fiesta exceeds $20.0 million.~~certain assets individually, or in the aggregate, in excess of $2.0 million in any fiscal year provided that we are permitted to reinvest such Net Proceeds in accordance with the new senior credit facility and (v) beginning with the fiscal year ending January 2, 2022, an amount equal to the Excess Cash Flow (as defined in the new senior credit facility) in accordance with the new senior credit facility.

Our new senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of our indebtedness having an outstanding principal amount in excess of $5.0 million which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.

The ~~amended~~new senior credit facility contains certain covenants, including, without limitation, those limiting ~~Fiesta's~~our ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of ~~its~~our business in any material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends, including, without limitation, (i) that capital expenditures by Fiesta cannot exceed an aggregate of $22.0 million for each of the fiscal years ending 2020 and 2021 and cannot exceed an aggregate of $25.0 million for the fiscal year ending 2022 (the "Capital Expenditures Covenant") and (ii) limiting the construction or development of new restaurants to one Pollo Tropical prototype restaurant in 2021 and three Pollo Tropical prototype restaurants in 2022, provided further that (a) no default shall have occurred and be continuing or would exist after giving effect to the construction or development of the new Pollo Tropical restaurant(s), (b) after giving effect to the construction or development of such new Pollo Tropical restaurant(s) on a pro forma basis Fiesta is in compliance with each of the Liquidity Covenant, the Adjusted Leverage Ratio, the Fixed Charge Coverage Ratio and the Capital Expenditures Covenant, (c) the aggregate revolving commitment is less than or equal to $95.0 million and (d) after giving effect to the construction or development of such new Pollo Tropical restaurant(s) on a pro forma basis, liquidity is greater than or equal to the sum of $5.0 million plus the amount of minimum liquidity required on such date pursuant to the Liquidity Covenant.dividends.

The amended senior credit facility also provides that we will be required to engage a financial advisor or chief restructuring officer if we are not in compliance with certain milestones, including, among other items, (i) using commercially reasonable efforts to refinance and pay in full theOur obligations under the amended senior credit facility, (ii) furnishing a written assessment and reasonable action plan for the disposition of owned real property with a targeted gross value of $30.0 million and complying with such action plan, (iii) furnishing a written plan for executing certain actions intended to improve service levels, reduce costs and increase efficiency, (iv) providing a proposed timeline for completion of a shelf registration with the Securities and Exchange Commission for the issuance of common equity interests of Fiesta, (v) maintaining $30.0 million of liquidity on October 1, 2020, (vi) on or before October 1, 2020, furnishing information demonstrating compliance with the Adjusted Leverage Ratio, the Fixed Charge Coverage Ratio, the Liquidity Covenant and the Capital Expenditures Covenant, (vii) no default shall have occurred and (viii) compliance at all times with the Adjusted Leverage Ratio, the Fixed Charge Coverage Ratio, the Liquidity Covenant and the Capital Expenditures Covenant.

~~All obligations under the amended~~new senior credit facility are secured by all of our and our subsidiaries' assets (including a pledge of all of the capital stock and equity interests of ~~all~~ our subsidiaries) ~~pursuant to an amended and restated security agreement.~~ .

Under the ~~amended~~new senior credit facility, the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during the continuance of customary defaults which include, without limitation, payment default, covenant defaults, bankruptcy type defaults, defaults on other indebtedness, certain judgments or upon the occurrence of a change of control (as specified in the ~~amended~~new senior credit facility).

~~Our amended~~As of July 4, 2021, we were in compliance with the financial covenants under our new senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of our indebtedness having an outstanding principal amount of $5.0 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.

~~Our amended senior credit facility matures on November 30, 2022.~~

~~On September 27, 2020, there were $39.9 million in outstanding revolving credit borrowings under our amended senior credit~~ facility.

~~After reserving $3.5 million for letters of credit issued under our amended senior credit facility, $67.5~~ At July 4, 2021, $10.0 million was available for borrowing ~~at September 27, 2020.~~under the revolving credit facility.

Former Senior Credit Facility. ~~Prior to~~On July 10, 2020, ~~our~~we entered into the Second Amendment to Credit Agreement (as previously defined as the "former senior credit facility") among Fiesta and a syndicate of lenders. Pursuant to the former senior credit facility, ~~provided for aggregate~~the available revolving credit borrowings of up to $150.0 million (including up to $15.0 million available for letters of credit). Prior to July 10, 2020, the senior credit facility also provided for potential incremental increases of up to $50.0 million to the revolving credit borrowings available under the ~~senior credit facility.~~

~~Prior to July 10, 2020, borrowings under the senior credit facility bore interest at a per annum rate, at our option, equal to either (all terms as defined in the senior credit facility):~~

In addition, prior to July 10, 2020, the senior credit facility required us to pay (i) a commitment fee based on the applicable Commitment Fee rate of 0.25% to 0.35%, based on our Adjusted Leverage Ratio, and the unused portion of the facility and (ii) a letter of credit fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.

~~All obligations under the~~former senior credit facility were ~~guaranteed by all of our material domestic subsidiaries. In general, prior~~reduced from $150.0 million to $95.0 million in a phased reduction beginning with a $30.0 million permanent reduction that occurred on July 10, ~~2020, our obligations under our~~2020. The former senior secured credit facility ~~and our subsidiaries' obligations under the guarantees were secured by a first priority lien and security interest~~was terminated on ~~substantially all~~November 23, 2020.

Table of our assets and the assets of our material subsidiaries (including a pledge of all of the capital stock and equity interests of our material subsidiaries), other than certain specified assets, including real property owned by us or our subsidiaries.Contents

The outstanding borrowings under the senior credit facility were prepayable subject to breakage costs as defined in the senior credit facility agreement. Prior to July 10, 2020, the senior credit facility required us to comply with customary affirmative, negative and financial covenants, including, without limitation, those limiting our and our subsidiaries' ability to (i) incur indebtedness, (ii) incur liens, (iii) loan, advance, or make acquisitions and other investments or other commitments to construct, acquire or develop new restaurants (subject to certain exceptions), (iv) pay dividends, (v) redeem and repurchase equity interests (subject to certain exceptions), (vi) conduct asset and restaurant sales and other dispositions (subject to certain exceptions), (vii) conduct transactions with affiliates and (viii) change our business. In addition, prior to July 10, 2020, the senior credit facility required us to maintain certain financial ratios, including minimum Fixed Charge Coverage and maximum Adjusted Leverage Ratios (all as defined under the senior credit facility agreement).

Off-Balance Sheet Arrangements and Contractual Obligations

We have no off-balance sheet arrangements.

There have been no significant changes outside the ordinary course of business to our contractual obligations since ~~December 29, 2019.~~January 3, 2021. Information regarding our contractual obligations is included under "Contractual Obligations" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended ~~December 29, 2019.~~January 3, 2021.

Inflation

The inflationary factors that have historically affected our results of operations include increases in food and paper costs, labor and other operating expenses and energy costs. Labor costs in our restaurants are impacted by changes in the federal and state hourly minimum wage rates as well as changes in payroll related taxes, including federal and state unemployment taxes. We typically attempt to offset the effect of inflation, at least in part, through periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will be able to fully offset such inflationary cost increases in the future.

Application of Critical Accounting Policies

Our unaudited interim condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in the "Basis of Presentation" footnote in the notes to our consolidated financial statements for the year ended ~~December 29, 2019~~January 3, 2021 included in our Annual Report on Form 10-K for the fiscal year ended ~~December 29, 2019.~~January 3, 2021. Critical accounting estimates are those that require application of management's most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. There have been no material changes affecting our critical accounting policies for the ~~nine~~six months ended ~~September 27, 2020.~~July 4, 2021.

Management's Use of Non-GAAP Financial Measures

Consolidated Adjusted EBITDA (including Continuing Operations Adjusted EBITDA and Discontinued Operations Adjusted EBITDA) is a non-GAAP financial measure. We use Consolidated Adjusted EBITDA in addition to net income and income from operations to assess our performance, and we believe it is important for investors to be able to evaluate us using the same measures used by management. We believe this measure is an important indicator of our operational strength and the performance of our ~~business.~~business and it provides a view of operations absent non-cash activity and items that are not related to the ongoing operation of our restaurants or affect comparability period over period. Consolidated Adjusted EBITDA as calculated by us is not necessarily comparable to similarly titled measures reported by other companies, and should not be considered as an alternative to net income (loss), earnings (loss) per share, cash flows from operating activities or other financial information determined under GAAP.

The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants as set forth in the reconciliation table below. Adjusted EBITDA for each of our segments includes an allocation of general and administrative expenses associated with administrative support for executive management, information systems and certain finance, legal, supply chain, human resources, construction and other administrative functions. See Note 7 to our unaudited condensed consolidated financial statements.

We also use Restaurant-level Adjusted EBITDA as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate, which is defined as Adjusted EBITDA for the applicable segment excluding franchise royalty revenues and fees, pre-opening costs, and general and administrative expenses (including corporate-level general and administrative expenses). Restaurant-level Adjusted EBITDA margin is derived by dividing Restaurant-level Adjusted EBITDA by restaurant sales. Restaurant-level Adjusted EBITDA is also a non-GAAP financial measure.

Management believes that Consolidated Adjusted EBITDA and Restaurant-level Adjusted EBITDA, when viewed with our results of operations calculated in accordance with GAAP and our reconciliation of net income (loss) to Consolidated Adjusted EBITDA and Restaurant-level Adjusted EBITDA (i) provide useful information about our operating performance and ~~period-over-period~~period-

Table of Contents

over-period changes, (ii) provide additional information that is useful for evaluating the operating performance of our business and (iii) permit investors to gain an understanding of the factors and trends affecting our ongoing earnings, from which capital investments are made and debt is serviced. However, such measures are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income or cash flow from operating activities as indicators of operating performance or liquidity. Also these measures may not be comparable to similarly titled captions of other companies.

All such financial measures have important limitations as analytical tools. These limitations include the following:

•such financial information does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments to purchase capital equipment;

•such financial information does not reflect interest expense or the cash requirements necessary to service payments on our debt;

•although depreciation and amortization are non-cash charges, the assets that we currently depreciate and amortize will likely have to be replaced in the future, and such financial information does not reflect the cash required to fund such replacements; and

•such financial information does not reflect the effect of earnings or charges resulting from matters that our management does not consider to be indicative of our ongoing operations. However, some of these charges and gains (such as impairment and other lease charges, closed restaurant rent expense, net of sublease income, other income and expense and stock-based compensation expense) have recurred and may recur.

A reconciliation from consolidated net ~~income~~loss to Continuing Operations Consolidated Adjusted EBITDA follows (in thousands):. All amounts are from continuing operations unless otherwise indicated.


	Three Months Ended						Six Months Ended
	July 4, 2021			June 28, 2020			July 4, 2021			June 28, 2020

Net loss	$	(83)		$	(8,343)		$	(2,172)		$	(15,660)
Loss from discontinued operations, net of tax	2,763			1,736			4,157			5,345
Provision for (benefit from) income taxes	(841)			(1,687)			2,236			(3,112)
Income (loss) from continuing operations before income taxes	1,839			(8,294)			4,221			(13,427)
Add:
Non-general and administrative adjustments:
Depreciation and amortization	4,875			5,455			9,963			10,948
Impairment and other lease charges	(202)			1,932			(254)			5,628

Interest expense	61			63			122			126
Closed restaurant rent expense, net of sublease income	966			1,258			1,716			2,381

Other expense (income), net	170			698			293			927
Stock-based compensation expense	15			27			31			38

Total non-general and administrative adjustments	5,885			9,433			11,871			20,048
General and administrative adjustments:
Stock-based compensation expense	1,046			850			2,040			1,348



Restructuring costs and retention bonuses(1)	18			585			18			585


Digital and brand repositioning costs(2)	335			72			651			192
Total general and administrative adjustments	1,399			1,507			2,709			2,125
Continuing Operations Consolidated Adjusted EBITDA	$	9,123		$	2,646		$	18,801		$	8,746
Total revenues	$	91,155		$	63,438		$	179,370		$	149,563
Continuing Operations Consolidated Adjusted EBITDA as a percentage of total revenues	10.0		%	4.2		%	10.5		%	5.8		%

(1) Restructuring costs and retention bonuses for the three and six months ended June 28, 2020 include severance costs related to terminations in response to the COVID-19 pandemic.

(2) Digital and brand repositioning costs for the three and six months ended July 4, 2021 and June 28, 2020 include consulting costs related to repositioning the digital experience for our customers.

Three Months Ended Nine Months Ended
September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Net income (loss) $ 4,593
$ (22,182 ) $ (11,067 ) $ (63,333 )
Benefit from income taxes (4,155 ) (2,946 ) (8,903 ) (1,377 )
Income (loss) before income taxes 438
(25,128 ) (19,970 ) (64,710 )
Add:
     Non-general and administrative expense adjustments:
          Depreciation and amortization 9,432
10,165
28,427
29,520
          Impairment and other lease charges 2,404
3,254
8,922
4,667
Goodwill impairment —
21,424
—
67,909
          Interest expense 1,172
823
3,370
3,024
          Closed restaurant rent expense, net of sublease income 1,481
726
4,943
3,485
          Loss on extinguishment of debt 212
—
212
—
          Other expense (income), net (1,304 ) 64
388
920
          Stock-based compensation expense in restaurant wages 47
102
152
145
                Total non-general and administrative expense adjustments 13,444
36,558
46,414
109,670
     General and administrative expense adjustments:
          Stock-based compensation expense 597
509
2,332
1,993
          Restructuring costs and retention bonuses⁽¹⁾
216
—
1,107
964
          Digital and brand repositioning costs⁽²⁾
98
215
448
215
               Total general and administrative expense adjustments 911
724
3,887
3,172
Consolidated Adjusted EBITDA $ 14,793
$ 12,154
$ 30,331
$ 48,132
Total revenues $ 137,332
$ 164,248
$ 405,899
$ 501,481
Adjusted EBITDA as a percentage of total revenues 10.8 % 7.4 % 7.5 % 9.6 %


⁽¹⁾Table of Contents	Restructuring costs and retention bonuses for the three and nine months ended September 27, 2020 include severance costs related to terminations in response to the COVID-19 pandemic. Restructuring costs and retention bonuses for the three and nine months ended September 29, 2019 primarily include severance costs related to eliminated positions.


⁽²⁾	Digital and brand repositioning costs for the three and nine months ended September 27, 2020 and September 29, 2019 include consulting costs related to repositioning the digital experience for our customers.

A reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA follows (in thousands):


Three Months Ended	Pollo Tropical			Taco Cabana			Three Months Ended	Pollo Tropical			Other		Continuing Operations			Taco Cabana			Other		Discontinued Operations
September 27, 2020:
Adjusted EBITDA	$	10,621		$	4,172
July 4, 2021:							July 4, 2021:
Adjusted EBITDA(1)							Adjusted EBITDA(1)	$	11,949		$	(2,826)	$	9,123		$	3,039		$	2,826	$	5,865
Restaurant-level adjustments:							Restaurant-level adjustments:
Add: Pre-opening costs	—			—
Add: Other general and administrative expense⁽¹⁾	6,145			4,799

Add: Other general and administrative expense(2)							Add: Other general and administrative expense(2)	6,940			2,711		9,651			5,626			(2,711)		2,915
Less: Franchise royalty revenue and fees	336			177			Less: Franchise royalty revenue and fees	391			—		391			220			—		220
Restaurant-level Adjusted EBITDA	$	16,430		$	8,794
Restaurant-level Adjusted EBITDA(1)							Restaurant-level Adjusted EBITDA(1)	$	18,498		$	(115)	$	18,383		$	8,445		$	115	$	8,560
Restaurant sales	$	77,604		$	59,215		Restaurant sales	$	90,764				$	90,764		$	66,132				$	66,132
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	21.2		%	14.9		%	Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	20.4		%			20.3		%	12.8		%			12.9		%

September 29, 2019:
Adjusted EBITDA	$	10,980		$	1,174
June 28, 2020:							June 28, 2020:
Adjusted EBITDA(1)							Adjusted EBITDA(1)	$	4,993		$	(2,347)	$	2,646		$	2,672		$	2,347	$	5,019
Restaurant-level adjustments:							Restaurant-level adjustments:
Add: Pre-opening costs	68			9			Add: Pre-opening costs	—			—		—			—			—		—
Add: Other general and administrative expense⁽¹⁾	7,135			5,961
Add: Other general and administrative expense(2)							Add: Other general and administrative expense(2)	5,491			2,242		7,733			4,816			(2,242)		2,574
Less: Franchise royalty revenue and fees	432			227			Less: Franchise royalty revenue and fees	146			—		146			175			—		175
Restaurant-level Adjusted EBITDA	$	17,751		$	6,917
Restaurant-level Adjusted EBITDA(1)							Restaurant-level Adjusted EBITDA(1)	$	10,338		$	(105)	$	10,233		$	7,313		$	105	$	7,418
Restaurant sales	$	88,309		$	75,280		Restaurant sales	$	63,292				$	63,292		$	58,255				$	58,255
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	20.1		%	9.2		%	Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	16.3		%			16.2		%	12.6		%			12.7		%

Nine Months Ended	Pollo Tropical			Taco Cabana
September 27, 2020:
Adjusted EBITDA	$	24,394		$	5,937
Six Months Ended							Six Months Ended	Pollo Tropical			Other		Continuing Operations			Taco Cabana			Other		Discontinued Operations
July 4, 2021:							July 4, 2021:
Adjusted EBITDA(1)(3)							Adjusted EBITDA(1)(3)	$	24,296		$	(5,495)	$	18,801		$	3,836		$	5,495	$	9,331
Restaurant-level adjustments:							Restaurant-level adjustments:
Add: Pre-opening costs	—			69			Add: Pre-opening costs	—			—		—			—			—		—
Add: Other general and administrative expense⁽¹⁾	18,694			15,946
Add: Other general and administrative expense(2)							Add: Other general and administrative expense(2)	13,748			5,259		19,007			11,408			(5,259)		6,149
Less: Franchise royalty revenue and fees	886			561			Less: Franchise royalty revenue and fees	766			—		766			420			—		420
Restaurant-level Adjusted EBITDA	$	42,202		$	21,391
Restaurant-level Adjusted EBITDA(1)(3)							Restaurant-level Adjusted EBITDA(1)(3)	$	37,278		$	(236)	$	37,042		$	14,824		$	236	$	15,060
Restaurant sales	$	226,617		$	177,835		Restaurant sales	$	178,604				$	178,604		$	122,456				$	122,456
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	18.6		%	12.0		%	Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	20.9		%			20.7		%	12.1		%			12.3		%

September 29, 2019:
Adjusted EBITDA	$	39,943		$	8,189
June 28, 2020:							June 28, 2020:
Adjusted EBITDA(1)							Adjusted EBITDA(1)	$	13,773		$	(5,027)	$	8,746		$	1,765		$	5,027	$	6,792
Restaurant-level adjustments:							Restaurant-level adjustments:
Add: Pre-opening costs	307			556			Add: Pre-opening costs	—			—		—			69			—		69
Add: Other general and administrative expense⁽¹⁾	21,427			17,788
Add: Other general and administrative expense(2)							Add: Other general and administrative expense(2)	12,549			4,784		17,333			11,147			(4,784)		6,363
Less: Franchise royalty revenue and fees	1,325			673			Less: Franchise royalty revenue and fees	550			—		550			384			—		384
Restaurant-level Adjusted EBITDA	$	60,352		$	25,860
Restaurant-level Adjusted EBITDA(1)							Restaurant-level Adjusted EBITDA(1)	$	25,772		$	(243)	$	25,529		$	12,597		$	243	$	12,840
Restaurant sales	$	271,955		$	227,528		Restaurant sales	$	149,013				$	149,013		$	118,620				$	118,620
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	22.2		%	11.4		%	Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	17.3		%			17.1		%	10.6		%			10.8		%

⁽¹⁾Corporate overhead that was previously allocated to Taco Cabana is now included within "Other" because it is not a component of discontinued operations.

(2) Excludes general and administrative adjustments included in Adjusted EBITDA.

(3) We estimate that Winter Storm Uri negatively impacted Taco Cabana Adjusted EBITDA and Taco Cabana Restaurant-level Adjusted EBITDA by approximately $3.1 million and Taco Cabana Adjusted EBITDA as a percentage of total revenues and Taco Cabana Restaurant-level Adjusted EBITDA as a percentage of restaurant sales by approximately 2.4% and 2.2%, respectively, in the six months ended July 4, 2021.

Forward Looking Statements

Matters discussed in this report and in our public disclosures, whether written or oral, relating to future events or our future performance, including any discussion, express or implied, regarding the anticipated closing of the Taco Cabana divesture transaction, our anticipated growth, operating results, future earnings per share, plans, objectives, the impact of our other business initiatives, the impact of our initiatives designed to strengthen our liquidity and cash position, including those related to working capital efficiency initiatives and sales of real property and the impact of the ~~recent~~ COVID-19 ~~outbreak~~pandemic and our initiatives designed to respond to the COVID-19 ~~outbreak~~pandemic on future sales, margins, earnings and liquidity, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). These statements are often identified by the words "believe," "positioned," "estimate," "project," "plan," "goal," "target," "assumption," "continue," "intend," "expect," "future," "anticipate," and other similar expressions, whether in the negative or the affirmative, that are not statements of historical fact. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict, and you should not place undue reliance on our forward-looking statements. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this report and in our other public filings with the United States Securities and Exchange Commission ("SEC"). All forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this report or other periodic reports represent our estimates as of the date made and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we expressly disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

We purchase certain products which are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and other factors which are not considered predictable or within our control. Although many of the products purchased are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements have been negotiated in advance to minimize price volatility. Where possible, we use these types of purchasing techniques to control costs as an alternative to using financial instruments to hedge commodity prices. In many cases, we believe we will be able to address commodity cost increases that are significant and appear to be long-term in nature by adjusting our menu pricing. However, long-term increases in commodity prices may result in lower restaurant-level operating margins.

There were no material changes from the information presented in Item 7A included in our Annual Report on Form 10-K for the year ended ~~December 29, 2019~~January 3, 2021 with respect to our market risk sensitive instruments.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. Our senior management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures. We have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our management. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September 27, 2020.~~July 4, 2021.

Changes in Internal Control over Financial Reporting. No change occurred in our internal control over financial reporting during the ~~third~~second quarter of ~~2020~~2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

We are a party to various litigation matters incidental to the conduct of business. We do not believe that the outcome of any of these matters will have a material adverse effect on our business, results of operations or financial condition.

Part 1—Item 1A of our Annual Report on Form 10-K for the fiscal year ended ~~December 29, 2019,~~January 3, 2021, describes important factors that could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-Q or presented elsewhere by management from time-to-time. ~~The Company's risk factor disclosure has~~There have been ~~updated to add the following:~~

~~Pandemics or disease outbreaks, such as the current novel coronavirus (COVID-19 virus) pandemic may disrupt our business, which could materially affect our operations and results of operations.~~

Pandemics or disease outbreaks such as the current novel coronavirus (COVID-19 virus) pandemic, have and may continue to impact customer traffic at our restaurants, may make it more difficult to staff our restaurants and, in more severe cases, may cause a temporary inability to obtain supplies, increase commodity costs or cause full and partial closures of our affected restaurants, sometimes for prolonged periods of time. We have temporarily shifted to a "to-go" only operating model at many of our Pollo Tropical and Taco Cabana restaurants in Florida and Texas, suspending sit-down dining and serving our guests through take-out, drive-thru and delivery. We have also implemented closures, modified hours or reductions in on-site staff, resulting in canceled

~~shifts for some of our employees. COVID-19 may also materially adversely affect our ability to implement our growth plans, including delays in construction of new restaurants. These~~no material changes and any additional changes may materially adversely affect our business or results of operations, and may impact our liquidity or financial condition, particularly if these changes are in place for a significant amount of time. In addition, our operations could be disrupted if any of our employees or employees of our business partners were or are suspected of having COVID-19 or other illnesses since this could require us or our business partners to quarantine some or all such employees or close and disinfect our restaurant facilities. If a significant percentage of our workforce or the workforce of our business partners are unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks (including the current COVID-19 pandemic), our operations may be negatively impacted, potentially materially adversely affecting our business, liquidity, financial condition or results of operations. Furthermore, such viruses may be transmitted through human contact, andfrom the risk ~~of contracting viruses could cause employees or guests to avoid gathering~~factors previously disclosed in ~~public places, which has had, and could further have, adverse effects~~our Annual Report on ~~our restaurant guest traffic or~~Form 10-K for the ability to adequately staff restaurants, in addition to the measures we have already taken with respect to moving to "to-go" only operations. We could also be adversely affected if government authorities continue to impose additional restrictions on public gatherings, human interactions, operations of restaurants or mandatory closures, seek voluntary closures, restrict hours of operations or impose curfews, restrict the import or export of products or if suppliers issue mass recalls of products. Currently, several states and municipalities in the U.S. and abroad have temporarily placed restrictions on the operation of dining in at restaurants in light of changing conditions and infection rates with respect to COVID-19, including in Dade and Broward Counties, Florida and various municipalities in Texas. Additional regulation or requirements with respect to the compensation of our employees could also have an adverse effect on our business. Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or health risk may adversely affect our business, liquidity, financial condition and results of operations.fiscal year ended January 3, 2021.

~~On November 3, 2020, the Compensation Committee (the "Committee")~~None.

Table of the Company awarded special one-time retention awards of restricted common stock of the Company pursuant to the Company's 2012 Stock Incentive Plan, as amended (the "Plan") to certain of its executive officers, including Richard Stockinger, the Company's Chief Executive Officer and President, Dirk Montgomery, the Company's Senior Vice President, Chief Financial Officer and Treasurer and Louis DiPietro, the Company's Senior Vice President, General Counsel, Chief Legal and People Officer and Secretary (the "Grants"). The Grants provide that each recipient shall receive restricted common stock of the Company equal to one and a half times of each recipient's annual base salary on November 11, 2020 (the "Grant Date") valued at the closing market price of the Company's common stock on the Grant Date. The Grants will vest in their entirety on the second anniversary of the Grant Date. As a condition to the issuance of the Grants, certain recipients were required to enter into an agreement to not compete with the Company for a period ending one year after such recipient's termination of employment with the Company.Contents

Item 6. Exhibits

(a) The following exhibits are filed as part of this report.



Exhibit No.











~~Exhibit~~ ~~No.~~31.1

~~31.1~~	Chief Executive Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

31.2		Chief Financial Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

32.1		Chief Executive Officer's Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

32.2		Chief Financial Officer's Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

101.INS		XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+ Compensatory plan or arrangement

Table of Contents

SIGNATURES

Pursuant to the requirements 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.


		FIESTA RESTAURANT GROUP, INC.

Date: August 12, 2021		~~FIESTA RESTAURANT GROUP, INC.~~

~~Date: November 4, 2020~~	/s/ RICHARD C. STOCKINGER
		(Signature)
		Richard C. Stockinger Chief Executive Officer

Date: ~~November 4, 2020~~August 12, 2021		/s/ DIRK MONTGOMERY
		(Signature)
		Dirk Montgomery Senior Vice President, Chief Financial Officer and Treasurer

Date: ~~November 4, 2020~~August 12, 2021		/s/ CHERI KINDER
		(Signature)
		Cheri Kinder Vice President, Corporate Controller and Chief Accounting Officer

4649


⁽¹⁾ 11	As of September 27, 2020, 2 closed Pollo Tropical restaurant properties and 1 operating and 2 closed Taco Cabana restaurant properties owned by the Company were classified as held for sale. As of December 29, 2019, 1 closed Pollo Tropical restaurant property and 2 closed Taco Cabana restaurant properties owned by the Company were classified as held for sale.


⁽¹⁾	~~Includes employer Social Security payroll tax deferred as a result of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act")~~



	Nine Months Ended September 27, 2020			Year Ended December 29, 2019
Balance, beginning of period	$	752		$	8,819
Payments, net	(248		)	(1,405		)
Other adjustments⁽¹⁾	(178		)	(6,662		)
Balance, end of period	$	326		$	752



	September 27, 2020			December 29, 2019
Revolving credit facility	$	39,918		$	75,000
Finance/capital leases	1,930			2,035
	41,848			77,035
Less: current portion of long-term debt	(262		)	(212		)
	$	41,586		$	76,823


1)	~~the Alternate Base Rate plus the Applicable Rate of 4.00% with a minimum Alternate Base Rate of 2.00%, or~~


2)	~~the Adjusted LIBOR Rate plus the Applicable Rate of 5.00% with a minimum Adjusted LIBOR Rate of 1.00%.~~


2)	~~the LIBOR Rate plus the applicable margin of 1.75% to 2.50% based on the Company's Adjusted Leverage Ratio.~~



	2019
Grant date stock price	$	14.66
Fair value at grant date	$	1.76
Risk free interest rate	2.53		%
Expected term (in years)	2
Dividend yield	0		%
Expected volatility	43.18		%



Pollo Tropical:
Decrease in comparable restaurant sales	$	(9.5	)
Decrease in sales related to closed restaurants, net of new restaurants	(1.2		)
Total decrease	$	(10.7	)

Taco Cabana:
Decrease in comparable restaurant sales	$	(9.6	)
Decrease in sales related to closed restaurants, net of new restaurants	(6.5		)
Total decrease	$	(16.1	)



Pollo Tropical:
Decrease in comparable restaurant sales	$	(44.6	)
Decrease in sales related to closed restaurants, net of new restaurants	(0.7		)
Total decrease	$	(45.3	)

Taco Cabana:
Decrease in comparable restaurant sales	$	(32.3	)
Decrease in sales related to closed restaurants, net of new restaurants	(17.4		)
Total decrease	$	(49.7	)