| Nature Of Business And Significant Accounting Policies | (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business In September 2019 a holding company reorganization was completed in which Famous Dave’s of America, Inc. (“FDA”) became a wholly owned subsidiary of the new parent holding company named BBQ Holdings, Inc. (“BBQ Holdings”). As used in this Form 10-K, “Company”, “we” and “our” refer to BBQ Holdings and its wholly owned subsidiaries. BBQ Holdings was incorporated on March 29, 2019 under the laws of the State of Minnesota, while FDA was incorporated in Minnesota on March 14, 1994. The Company develops, owns and operates restaurants under the name “Famous Dave’s”, “Village Inn”, “Granite City”, “Real Urban Barbecue”, “Clark Crew BBQ”, “Tahoe Joe’s Steakhouse”, and “Bakers Square.” Additionally, the Company franchises restaurants under the name “Famous Dave’s” and “Village Inn”. As of January 2, 2022, there were 143 Famous Dave’s restaurants operating in three countries, including 39 Company-owned restaurants and 104 franchise-operated restaurants. Additionally, the Company operates Famous Dave’s ghost kitchens out of eight of its Granite City restaurants. The first Clark Crew BBQ restaurant opened in December 2019 in Oklahoma City, Oklahoma. BBQ Holdings has a 20 % ownership in this venture. In March 2020, the Company purchased 18 Granite City Food & Brewery restaurants located throughout the Midwest and one Real Urban Barbecue restaurant located in Vernon Hills, Illinois. On July 30, 2021, the Company completed the purchase of the Village Inn family restaurant concept currently with 21 Company-owned restaurants and 108 franchised restaurants, and the Bakers Square pie and comfort food concept currently with 14 Company-owned restaurants and four locations where the Bakers Square pies are licensed. On October 4, 2021, the Company opened its second Real Urban Barbecue restaurant located in Oak Brook, Illinois and on October 8, 2021, the Company acquired the Tahoe Joe’s Steakhouse brand. In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic and the United States declared a National Public Health Emergency. As a result, public health measures were taken to minimize exposure to the virus. These measures, some of which are government-mandated, have been implemented globally resulting in a dramatic decrease in economic activity. Reopening of restaurant dining rooms resumed, generally at reduced capacity, at various points since mid-2020. While restrictions on the type of permitted service and occupancy capacity continued to change in various jurisdiction, currently nearly all of the Company’s restaurants are operating with no capacity restrictions on indoor dining. The Company cannot predict the severity of another surge, what additional restrictions may be enacted, to what extent it can maintain off-premise sales volumes, whether it can maintain sufficient staffing levels, or if individuals will be comfortable returning to dining rooms during or following social distancing protocols, and what long-lasting effects the COVID-19 pandemic may have on the restaurants industry as a whole. The potential impact of the COVID-19 pandemic on consumer spending behavior, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, will determine the significance of the impact to the Company’s operating results and financial position. Although the Company has experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 and its variants on the economy and on business remains uncertain, the duration and scope of which cannot currently be predicted. The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. Despite the fact that vaccines are now widely available across the country, there were widespread increases in diagnosed cases reported in the fourth quarter largely due to the spread of COVID-19 variants. The duration of the disruption on global, national, and local economies cannot be reasonably estimated at this time due to the ongoing effects of this situation. Management is continually evaluating the impact of this global crisis on its financial condition, liquidity, operations, suppliers, industry, and workforce and will take additional actions as necessary. Seasonality The Company’s Famous Dave’s restaurants typically generate higher revenue in the second and third quarters of its fiscal year as a result of seasonal traffic increases and high catering sales experienced during the summer months. The Company’s Granite City restaurants typically generate higher revenue in the second and fourth quarters of its fiscal year as a result of warmer weather and increased patio seating in the second quarter and holiday activity in the fourth quarter. The Company’s Village Inn and Bakers Square restaurants typically generate higher sales and revenue during the holiday season between Thanksgiving and New Year's due to the high volumes of holiday pie sales during that time. Principles of consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the Company make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. Financial instruments Due to their short-term nature, the carrying value of the Company’s current financial assets and liabilities approximates their fair value. The fair value of long-term debt approximates the carrying amount based upon the Company’s expected borrowing rate for debt with similar remaining maturities and comparable risk. Segment reporting The Company has Company-owned and franchise-operated restaurants in the United States, Canada and the United Arab Emirates, and operate within the single industry segment of foodservice. Management makes operating decisions on behalf of the BBQ Holdings brand which includes both Company-owned and franchise-operated restaurants. In addition, all operating expenses are reported in total and are not allocated to franchising operations for either external or internal reporting. As a result, the Company has concluded that it has a single reporting segment. Fiscal year The Company’s fiscal year ends on the Sunday nearest to December 31 of each year. The Company’s fiscal year is generally 52 weeks; however, it periodically consists of 53 weeks. The fiscal year ended January 2, 2022 (fiscal 2021) consisted of 52 weeks while the fiscal year ended January 3, 2021 (fiscal 2020) consisted of 53 weeks. Cash and cash equivalents Cash equivalents include all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and are not legally restricted. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000 , while the remaining balances are uninsured. In May 2020, the Company invested $3.5 million in a certificate of deposit (CD) through Choice Bank. The interest rate on this CD was 3.0% with an annual percentage yield of 3.04% with interest was compounded every 30 days . At January 3, 2021, the balance of this CD was $3.6 million and was included with cash and cash equivalents on the Company’s balance sheet. The CD matured in December 2021 and the funds are being used for working capital. Restricted cash and marketing fund The Company has Marketing Development Funds, to which Company-owned Famous Dave’s and Village Inn restaurants, in addition to the majority of franchise-operated restaurants, contribute a percentage of net sales, for use in public relations and marketing development efforts. The funds held in this account are used in part to reimburse the Company for its marketing and digital services activities on behalf of the Famous Dave’s and Village Inn brands. The Company also receives funds from its suppliers to be used exclusively for point-of-sale equipment purchases for its own stores as well as its Famous Dave’s franchisees. As the assets held by these funds are considered to be restricted, the Company reflects the cash related to these funds within restricted cash and reflects the related liability within accrued expenses on its consolidated balance sheets. The Company had approximately $1.2 million and $1.5 million in these funds as of January 2, 2022 and January 3, 2021, respectively. Accounts receivable, net The Company provides an allowance for uncollectible accounts on accounts receivable based on historical losses and existing economic conditions, when relevant. The Company provides for a general bad debt reserve for franchise receivables due to increases in days sales outstanding and deterioration in general economic market conditions. This general reserve is based on the aging of receivables and is adjusted each quarter based on past due receivable balances. Additionally, the Company has periodically established a specific reserve on certain receivables as necessary. In assessing recoverability of these receivables, the Company makes judgments regarding the financial condition of the franchisees based primarily on past and current payment trends, as well as other variables, including annual financial information, which the Company’s franchisees are required to submit. Any changes to the reserve are recorded in general and administrative expenses. Accounts receivable are written off when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The Company believes all accounts receivable in excess of allowances provided are fully collectible. If accounts receivable in excess of provided allowances are determined uncollectible, they are charged to expense in the period that determination is made. The Company’s reserve for bad debt was $270,000 and $277,000 at January 2, 2022 and January 3, 2021, respectively. Inventories Inventories consist principally of small wares, food and beverages, and retail goods, and are recorded at the lower of cost (first-in, first-out) or net realizable value. Assets Held for Sale million. After standard closing costs, the Company recorded a gain of approximately $1.4 million and used proceeds for working capital. Property, equipment and leasehold improvements, net Property, equipment and leasehold improvements are stated at cost, net of accumulated depreciation. The Company recognizes depreciation expense utilizing the straight-line method once an asset has been placed into service. The following table outlines the useful lives of the Company’s major classes of property, equipment, and leasehold improvements: Land N/A Buildings 30 years Leasehold improvements 1 - 30 years Furniture, fixtures, equipment and software (excluding restaurant signage) 3 - 7 years Restaurant signage 10 - 15 years Decor 7 years The Company capitalizes labor costs associated with the implementation of significant information technology infrastructure projects based on actual labor rates per person including benefits, for all time spent on the implementation of software and are depreciated over 5 years. The Company capitalizes construction overhead costs until the time a building is turned over to operations, which is approximately two weeks prior to opening and depreciate these items over the same useful life as leasehold improvements. Management reviews property and equipment, including leasehold improvements for impairment when events or circumstances indicate these assets might be impaired pursuant to the FASB accounting guidance on impairment or disposal of long-lived assets. The Company’s management considers such factors as the Company’s history of losses and the disruptions in the overall economy in preparing an analysis of its property, including leasehold improvements, to determine if events or circumstances have caused these assets to be impaired. Management bases this assessment upon the carrying value versus the fair market value of the assets and whether or not that difference is recoverable. Such assessment is performed on a restaurant-by-restaurant basis and includes other relevant facts and circumstances including the physical condition of the assets. If management determines the carrying value of the restaurant assets exceeds the projected future undiscounted cash flows, an impairment charge would be recorded to reduce the carrying value of the restaurant assets to their fair value. Intangible Assets The Company has intangible assets that consist of liquor licenses, database, trademarks and patents, and franchise rights, net. The liquor licenses and trademarks/logos are indefinite-lived assets and are not subject to amortization. The Company holds transferable liquor licenses in jurisdictions with a limited number of authorized liquor licenses. These licenses were capitalized as indefinite-lived intangible assets and are included in intangible assets, net on the Company’s consolidated balance sheets. The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed as incurred. Annual liquor license renewal fees are expensed over the renewal term. The Company reviews annually the liquor licenses for impairment. Franchise rights are amortized over the life of the related franchise agreement. The Company evaluates franchise rights in conjunction with its impairment evaluation of long-lived assets. Goodwill represents the excess of cost over the fair value of identified net assets of businesses acquired. Goodwill is tested for impairment annually or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment. Factors considered include, but are not limited to historical financial performance, a significant decline in expected future cash flows, unanticipated competition, changes in management or key personnel, macroeconomic and industry conditions and the legal and regulatory environment. No goodwill impairment charges were recognized during the years ended January 2, 2022 and January 3, 2021. In fiscal year 2021, goodwill increased by $2.4 million through the acquisitions of new restaurants (Note 2 Restaurant Acquisitions Advertising Advertising costs are charged to expense as incurred. Advertising costs were approximately $4.3 million and $2.7 million for the years ended January 2, 2022 and January 3, 2021, respectively, and are included in operating expenses for local store marketing and in national advertising fund expenses for national advertising in the consolidated statements of operations. Research and development costs Research and development costs represent all expenses incurred in relation to the creation of new menu and promotional offerings, recipe enhancements and documentation activities. Research and development costs were approximately $121,000 and $473,000 for the years ended January 2, 2022 and January 3, 2021, respectively, and are included in general and administrative expenses in the consolidated statements of operations. Pre-opening expenses All start-up and pre-opening costs are expensed as incurred. Pre-opening rent during the build-out period is included in pre-opening expense. The Company incurred approximately $204,000 and $10,000 of pre-opening expenses during the years ended January 2, 2022 and January 3, 2021. Leases The Company leases the property for its corporate headquarters, most of its Company-owned stores, and certain office and restaurant equipment. Operating leases are included in operating lease right-of use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities in its consolidated balance sheets. ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. Because most of the Company’s leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating lease ROU assets are reduced for lease incentives received. Lease terms for Company-owned stores generally range from 5 - 20 years with one or more five-year renewal options and generally require the Company to pay a proportionate share of real estate taxes, insurance, common area, and other operating costs in addition to a base or fixed rent. The Company elected the short-term lease exemption for certain qualifying leases with lease terms of twelve months or less and, accordingly, did not record right-of-use assets and lease liabilities. These leases with initial terms of less than 12 months are recorded directly to occupancy expense on a straight-line basis over the term of the lease. Additionally, the Company decided to utilize the package of practical expedients and the practical expedient to not reassess certain land easements . The Company decided not to utilize the practical expedient to use hindsight. Certain of its leases also provide for variable lease payments in the form of percentage rent, in which additional rent is calculated as a percentage of sales in excess of a base amount, and not included in the calculation of the operating lease liability or ROU asset. The Company’s leases have remaining lease terms of one to 20 years . For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Rent expense is recognized on a straight-line basis for operating leases over the lease term. Exit and disposal costs Exit or disposal activities, including restaurant closures, include the cost of disposing of the assets and other facility-related expenses from previously closed restaurants. These costs are generally expensed as incurred. Additionally, at the date the Company ceases using a property under an operating lease, it removes the remaining balance of the ROU asset. Any subsequent adjustments to the related liability as a result of lease termination are recorded in the period incurred. Upon disposal of the assets associated with a closed restaurant, any gain or loss and any costs incurred for restaurants that have been closed, after the date of their closure, are presented within the asset impairment, estimated lease termination and other closing costs line item of the Company’s consolidated statements of operations. Net income (loss) per common share Basic net income per common share (“EPS”) is computed by dividing net income attributable to shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted EPS equals net income attributable to shareholders divided by the sum of the weighted average number of shares of common stock outstanding plus all additional common stock equivalents, such as stock options and restricted stock units, when dilutive. The following table is a reconciliation of basic and diluted net income per common share: Year Ended (in thousands, except per share data) January 2, 2022 January 3, 2021 Net income per share – basic: Net income attributable to shareholders $ 24,021 $ 4,947 Weighted average shares outstanding - basic 9,826 9,155 Basic net income per share attributable to shareholders $ 2.44 $ 0.54 Net income per share – diluted: Net income attributable to shareholders $ 24,021 $ 4,947 Weighted average shares outstanding - diluted 9,922 9,156 Diluted net income per share attributable to shareholders $ 2.42 $ 0.54 There were approximately 8,990 and 271,176 stock options as of January 2, 2022 and January 3, 2021, respectively that were not included in the computation of diluted EPS because they were anti-dilutive. Stock-based compensation The Company recognizes compensation cost for share-based awards granted to team members and board members based on their fair values at the time of grant over the requisite service period. Bonus compensation issued in the form of unrestricted, freely tradable shares of the Company’s common stock is expensed in full when earned. Compensation cost for stock options and other incentive awards is included in general and administrative expenses in the Company’s consolidated statements of operations (see Note 10 Stock-based Compensation) Income Taxes The Company provides for income taxes based on its estimate of federal and state income tax liabilities. These estimates include, among other items, effective rates for state and local income taxes, allowable tax credits for items such as taxes paid on reported tip income, estimates related to depreciation and amortization expense allowable for tax purposes, and the tax deductibility of certain other items. The Company’s estimates are based on the information it has available at the time the income tax provision is prepared. The Company generally files its annual income tax returns several months after its fiscal year-end. Income tax returns are subject to audit by federal, state, and local governments, generally years after the tax returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws. Accounting for uncertain tax positions requires significant judgment including estimating the amount, timing, and likelihood of ultimate settlement. Although the Company believes its estimates are reasonable, actual results could differ from these estimates. Additionally, uncertain positions may be re-measured as warranted by changes in facts or law. Revenue recognition The Company recognizes revenue at the point in time when food and services are provided to a restaurant guest or other customer. Revenues from restaurant operations are presented net of discounts, coupons, employee meals and complimentary meals and recognized when food, beverage and retail products are sold. Sales tax collected from customers is excluded from sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities. Revenue from catered events are recognized in income upon satisfaction of the performance obligation (the date the event is held). All customer payments, including nonrefundable upfront deposits, are deferred as a liability until such time. The Company recognizes franchise fee revenue on a straight-line basis over the life of the related franchise agreements and any exercised renewal periods. Cash payments are due upon the opening of a new restaurant or upon the execution of a renewal of the related franchise agreement. The Company’s performance obligation with respect to franchise fee revenues consists of a license to utilize its brand for a specified period of time, which is satisfied equally over the life of each franchise agreement. Area development fees are deferred until a new restaurant is opened pursuant to the area development agreement, at which time revenue is recognized on a straight-line basis over the life of the franchise agreement. Cash payments for area development agreements are typically due when an area development agreement has been executed. Gift card breakage revenue is recognized proportionately as gift cards are redeemed utilizing an estimated breakage rate based on the Company’s historical experience. Gift card breakage revenue is reported within the licensing and other revenue line item of the consolidated statements of operations. The Company defers revenue associated with the estimated selling price of reward points earned pursuant to its loyalty programs and establishes a corresponding liability. This deferral is based on the estimated value of the product for which the reward is expected to be redeemed, net of estimated unredeemed points. When a guest redeems an earned reward, the Company recognizes revenue for the redeemed product and reduces the deferred revenue. Deferred revenue associated with the Company’s loyalty programs was Contract liabilities consist of deferred revenue resulting from franchise fees paid by franchisees. The Company classifies these liabilities within other current liabilities and other liabilities within the consolidated balance sheets based on the expected timing of revenue recognition associated with these liabilities. (in thousands) January 2, 2022 January 3, 2021 Beginning Balance $ 901 $ 1,318 Revenue recognized (95) (417) Ending Balance $ 806 $ 901 The following table illustrates estimated revenues expected to be recognized in the future related to unsatisfied performance obligations as of January 2, 2022: (in thousands) Fiscal Year 2022 $ 118 2023 109 2024 134 2025 76 2026 171 Thereafter 198 Total $ 806 Recent Accounting Guidance Recently adopted accounting guidance In December 2019, the FASB issued Update 2019-12, Income Taxes ("Topic 740") as part of its Simplification Initiative. This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for annual and interim reporting periods beginning after December 15, 2020, and early adoption is permitted. The Company adopted this guidance during the first quarter of 2021. The adoption of this guidance did not have a material impact on its consolidated financial statements. Recent Accounting Guidance Not Yet Adopted The Company reviewed all recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a significant impact on its consolidated financial statements. |
