UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended ~~October~~April 3, ~~2021~~2022

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

Commission File Number 001-39053

BBQ HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

MMiMinsd
Minnesota		83-4222776
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.

12701 Whitewater Drive, Suite 100 Minnetonka, MN		55343
Address of Principal Executive Offices		Zip Code

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

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

DAVE
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	BBQ	The Nasdaq Global Market

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

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

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

Large Accelerated Filer ☐ Accelerated Filer ☐☒ Non-accelerated Filer ☒☐ Smaller Reporting Company ☒ Emerging Growth Company ☐

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

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

As of ~~November~~May 159, ~~2021~~2022, 10,~~494~~755,~~993~~801 shares of the registrant’s Common Stock were outstanding.

BBQ HOLDINGS, INC.

TABLE OF CONTENTS

			Page
PART I	FINANCIAL INFORMATION	~~FINANCIAL INFORMATION~~

Item 1	Condensed Consolidated Financial Statements (unaudited)	~~Condensed Consolidated Financial Statements (unaudited)~~

	Condensed Consolidated Balance Sheets as of April 3, 2022 and January 2, 2022	~~Condensed Consolidated Balance Sheets as of October 3, 2021 and January 3, 2021~~	3

	Condensed Consolidated Statements of Operations for the Three Months Ended April 3, 2022 and April 4, 2021	~~Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 3, 2021 and September 27, 2020~~	4

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended April 3, 2022 and April 4, 2021	~~Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended October 3, 2021~~	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 3, 2022 and April 4, 2021	~~Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 3, 2021 and September 27, 2020~~	6

	Notes to Condensed Consolidated Financial Statements	~~Notes to Condensed Consolidated Financial Statements~~	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	1817

Item 3	Quantitative and Qualitative Disclosures About Market Risk	~~Quantitative and Qualitative Disclosures About Market Risk~~	2724

Item 4	Controls and Procedures	~~Controls and Procedures~~	2724

PART II	OTHER INFORMATION	~~OTHER INFORMATION~~

Item 1	Legal Proceedings	~~Legal Proceedings~~	2724

Item 1A		Risk Factors	2724

Item 6	EXHIBITS	~~EXHIBITS~~	2724

	SIGNATURES	~~SIGNATURES~~	2926

	CERTIFICATIONS	~~CERTIFICATIONS~~

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

~~BBQ HOLDINGS, INC. AND SUBSIDIARIES~~

~~CONDENSED~~BBQ ~~CONSOLIDATED~~HOLDINGS, INC. ~~BALANCE~~AND ~~SHEETS~~SUBSIDIARIES

~~(in~~CONDENSED ~~thousands,~~CONSOLIDATED ~~except~~BALANCE ~~per share data)~~SHEETS

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


ASSETS
Current assets:	October 3, 2021		January 3, 2021
Cash and cash equivalents	$	28,977	$	18,101
Restricted cash		1,146		1,502
Accounts receivable, net of allowance for doubtful accounts of $262,000 and $132,000, respectively		4,900		4,823
Inventories		2,949		2,271
Prepaid expenses and other current assets		2,367		1,252
Assets held for sale		1,024		1,070
Total current assets		41,363		29,019

Property, equipment and leasehold improvements, net		39,174		32,389

Other assets:
Operating lease right-of-use assets		78,581		61,634
Goodwill		1,071		601
Intangible assets, net		23,231		9,967
Deferred tax asset, net		3,382		4,934
Other assets		1,129		1,724
Total assets	$	187,931	$	140,268

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	7,092	$	6,385
Current portion of lease liabilities		10,624		6,185
Current portion of long-term debt		2,192		2,111
Accrued compensation and benefits		7,929		2,390
Other current liabilities		12,014		9,766
Total current liabilities		39,851		26,837

Long-term liabilities:
Lease liabilities, less current portion		78,470		63,105
Long-term debt, less current portion		6,578		22,169
Other liabilities		1,458		1,224
Total liabilities		126,357		113,335

Shareholders’ equity:
Common stock, $.01 par value, 100,000 shares authorized, 10,495 and 9,307 shares issued and outstanding at October 3, 2021 and January 3, 2021, respectively		105		93
Additional paid-in capital		21,464		8,748
Retained earnings		40,789		19,370
Total shareholders’ equity		62,358		28,211
Non-controlling interest		(784)		(1,278)
Total equity		61,574		26,933
Total liabilities and equity	$	187,931	$	140,268

(Unaudited)


ASSETS
Current assets:	April 3, 2022		January 2, 2022
Cash and cash equivalents	$	35,431	$	40,309
Restricted cash		1,677		1,152
Accounts receivable, net of allowance for doubtful accounts of $301,000 and $270,000, respectively		3,188		5,476
Inventories		3,281		3,316
Prepaid expenses and other current assets		4,313		3,919
Total current assets		47,890		54,172

Property, equipment and leasehold improvements, net		39,748		39,943

Other assets:
Operating lease right-of-use assets		81,248		78,843
Goodwill		5,676		3,037
Intangible assets, net		23,714		23,444
Deferred tax asset, net		3,922		3,692
Other assets		1,493		1,292
Total assets	$	203,691	$	204,423

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	6,951	$	7,661
Current portion of operating lease liabilities		12,511		11,904
Current portion of long-term debt and finance lease liabilities		1,488		1,621
Accrued compensation and benefits		6,157		7,121
Gift card liability		8,809		11,257
Other current liabilities		8,752		8,510
Total current liabilities		44,668		48,074

Long-term liabilities:
Operating lease liabilities, less current portion		79,362		77,729
Finance lease liabilities, less current portion		292		79
Long-term debt, less current portion		12,819		13,197
Other liabilities		1,087		997
Total liabilities		138,228		140,076

Shareholders’ equity:
Common stock, $.01 par value, 100,000 shares authorized, 10,750 and 10,495 shares issued and outstanding at April 3, 2022 and January 2, 2022, respectively		108		105
Additional paid-in capital		22,248		21,782
Retained earnings		44,158		43,391
Total shareholders’ equity		66,514		65,278
Non-controlling interest		(1,051)		(931)
Total equity		65,463		64,347
Total liabilities and equity	$	203,691	$	204,423

~~See accompanying notes to condensed consolidated financial statements.~~

See accompanying notes to condensed consolidated financial statements.

- 3 -

Table of Contents

~~- 3 -~~

~~Table~~BBQ ofHOLDINGS, INC. ~~Contents~~AND SUBSIDIARIES

~~BBQ~~CONDENSED ~~HOLDINGS, INC.~~CONSOLIDATED ~~AND~~STATEMENTS ~~SUBSIDIARIES~~OF OPERATIONS

~~CONDENSED~~APRIL ~~CONSOLIDATED~~3, ~~STATEMENTS~~2022 OFAND ~~OPERATIONS~~APRIL 4, 2021

~~OCTOBER~~(in 3thousands, ~~2021~~except ~~AND~~per ~~SEPTEMBER~~share ~~27, 2020~~data)

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

~~(Unaudited)~~


	Three Months Ended
	April 3, 2022		April 4, 2021
Revenue:
Restaurant sales, net	$	58,731	$	33,603
Franchise royalty and fee revenue		3,607		2,374
Franchisee national advertising fund contributions		490		328
Licensing and other revenue		1,356		1,014
Total revenue		64,184		37,319

Costs and expenses:
Food and beverage costs		18,357		10,057
Labor and benefits costs		19,386		10,254
Operating expenses		17,239		10,249
Depreciation and amortization expenses		2,423		1,552
General and administrative expenses		5,291		4,038
National advertising fund expenses		490		328
Asset impairment, estimated lease termination charges and other closing costs, net		409		12
Pre-opening expenses		65		28
Loss (gain) on disposal of property, net		44		(8)
Total costs and expenses		63,704		36,510

Income from operations		480		809

Other income (expense):
Interest expense		(120)		(54)
Interest income		8		24
Gain on bargain purchase		38		—
Total other income (expense)		(74)		(30)

Income before income taxes		406		779

Income tax (expense) benefit		241		(82)

Net income		647		697
Net loss attributable to non-controlling interest		120		102
Net income attributable to shareholders	$	767	$	799


Income per common share:
Basic net income per share attributable to shareholders	$	0.07	$	0.09
Diluted net income per share attributable to shareholders	$	0.07	$	0.08
Weighted average shares outstanding - basic		10,552		9,208
Weighted average shares outstanding - diluted		10,649		9,501


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Revenue:
Restaurant sales, net	$	50,374	$	32,559	$	125,182	$	78,251
Franchise royalty and fee revenue		3,329		2,153		8,649		6,628
Franchisee national advertising fund contributions		461		302		1,210		826
Licensing and other revenue		1,219		497		3,181		1,423
Total revenue		55,383		35,511		138,222		87,128

Costs and expenses:
Food and beverage costs		14,731		9,735		36,720		24,206
Labor and benefits costs		16,805		11,189		39,488		26,976
Operating expenses		14,512		10,521		36,355		26,251
Depreciation and amortization expenses		1,940		1,397		4,925		3,820
General and administrative expenses		5,109		3,138		13,691		9,973
National advertising fund expenses		461		302		1,210		826
Asset impairment, estimated lease termination charges and other closing costs, net		69		(138)		106		4,814
Pre-opening expenses		63		(120)		183		(93)
(Gain) loss on disposal of property, net		(1)		(530)		134		(1,107)
Total costs and expenses		53,689		35,494		132,812		95,666

Income (loss) from operations		1,694		17		5,410		(8,538)

Other income (expense):
Interest expense		(124)		(326)		(439)		(866)
Interest income		49		94		147		380
Gain on forgiveness of debt		—		—		14,109		—
Gain on bargain purchase		3,203		—		3,203		13,675
Total other income (expense)		3,128		(232)		17,020		13,189

Income (loss) before income taxes		4,822		(215)		22,430		4,651

Income tax (expense) benefit		(36)		273		(517)		2,519

Net income		4,786		58		21,913		7,170
Net (income) loss attributable to non-controlling interest		48		270		(494)		613
Net income attributable to shareholders	$	4,834	$	328	$	21,419	$	7,783


Income per common share:
Basic net income per share attributable to shareholders	$	0.47	$	0.04	$	2.23	$	0.85
Diluted net income per share attributable to shareholders	$	0.46	$	0.04	$	2.20	$	0.85
Weighted average shares outstanding - basic		10,345		9,151		9,619		9,138
Weighted average shares outstanding - diluted		10,482		9,158		9,737		9,145

See accompanying notes to condensed consolidated financial statements.

~~See accompanying notes to condensed consolidated financial statements.~~

- 4 -

-Table 4of -Contents

~~Table~~BBQ ofHOLDINGS, INC. ~~Contents~~AND SUBSIDIARIES

~~BBQ~~CONDENSED ~~HOLDINGS, INC.~~CONSOLIDATED ~~AND~~STATEMENTS ~~SUBSIDIARIES~~OF CHANGES IN SHAREHOLDERS’ EQUITY

~~CONDENSED~~FOR ~~CONSOLIDATED~~THE ~~STATEMENTS~~THREE OFMONTHS ~~CHANGES~~ENDED INAPRIL ~~SHAREHOLDERS’~~3, ~~EQUITY~~2022 AND APRIL 4, 2021

~~FOR~~(in ~~THE THREE AND NINE MONTHS ENDED OCTOBER 3, 2021 AND SEPTEMBER 27, 2020~~thousands)

(~~in thousands~~Unaudited)

~~(Unaudited)~~


				Additional				Total
	Common Stock			Paid-in		Retained		Shareholders'		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Equity		Interest		Equity
Balance - January 2, 2022	10,495	$	105	$	21,782	$	43,391	$	65,278	$	(931)	$	64,347
Issuance of restricted common stock, net of shares withheld for taxes	227		3		(22)		—		(19)		—		(19)
Issuance of common stock upon exercise of options, net of shares withheld for taxes	28		—		104		—		104		—		104
Stock-based compensation	—		—		384		—		384		—		384
Net income	—		—		—		767		767		(120)		647
Balance - April 3, 2022	10,750	$	108	$	22,248	$	44,158	$	66,514	$	(1,051)	$	65,463


				Additional				Total
	Common Stock			Paid-in		Retained		Shareholders'		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Equity		Interest		Equity
Balance - July 4, 2021	10,357	$	104	$	22,147	$	35,955	$	58,206	$	(736)	$	57,470
Issuance of restricted common stock, net of shares withheld for taxes	58		—		(773)		—		(773)		—		(773)
Issuance of common stock upon exercise of options, net of shares withheld for taxes	80		1		(188)		—		(187)		—		(187)
Stock-based compensation	—		—		294		—		294		—		294
Issuance of common stock pursuant to PIPE	—		—		(16)		—		(16)		—		(16)
Net income	—		—		—		4,834		4,834		(48)		4,786
Balance - October 3, 2021	10,495	$	105	$	21,464	$	40,789	$	62,358	$	(784)	$	61,574


				Additional				Total
	Common Stock			Paid-in		Retained		Shareholders'		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Equity		Interest		Equity
Balance - January 3, 2021	9,307	$	93	$	8,748	$	19,370	$	28,211	$	(1,278)	$	26,933
Issuance of restricted common stock, net of shares withheld for taxes	58		—		(773)		—		(773)		—		(773)
Issuance of common stock pursuant to PIPE	1,000		10		12,436		—		12,446		—		12,446
Issuance of common stock upon exercise of options, net of shares withheld for taxes	130		2		121		—		123		—		123
Stock-based compensation	—		—		932		—		932		—		932
Net income	—		—		—		21,419		21,419		494		21,913
Balance - October 3, 2021	10,495	$	105	$	21,464	$	40,789	$	62,358	$	(784)	$	61,574


				Additional				Total
	Common Stock			Paid-in		Retained		Shareholders'		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Equity		Interest		Equity
Balance - January 3, 2021	9,307	$	93	$	8,748	$	19,370	$	28,211	$	(1,278)	$	26,933
Stock-based compensation	—		—		318		—		318		—		318
Net income	—		—		—		799		799		(102)		697
Balance - April 4, 2021	9,307	$	93	$	9,066	$	20,169	$	29,328	$	(1,380)	$	27,948


				Additional				Total
	Common Stock			Paid-in		Retained		Shareholders'		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Equity		Interest		Equity
Balance - June 28, 2020	9,282	$	93	$	8,104	$	21,878	$	30,075	$	(941)	$	29,134
Issuance of restricted common stock	2		—		—		—		—		—		—
Stock-based compensation	—		—		174		—		174		—		174
Net income	—		—		—		328		328		(270)		58
Balance - September 27, 2020	9,284	$	93	$	8,278	$	22,206	$	30,577	$	(1,211)	$	29,366


				Additional				Total
	Common Stock			Paid-in		Retained		Shareholders'		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Equity		Interest		Equity
Balance - December 29, 2019	9,272	$	93	$	7,856	$	14,423	$	22,372	$	(598)	$	21,774
Issuance of restricted common stock	12		—		—		—		—		—		—
Stock-based compensation	—		—		422		—		422		—		422
Net income	—		—		—		7,783		7,783		(613)		7,170
Balance - September 27, 2020	9,284	$	93	$	8,278	$	22,206	$	30,577	$	(1,211)	$	29,366

See accompanying notes to condensed consolidated financial statements.

~~See accompanying notes to condensed consolidated financial statements.~~

- 5 -

-Table 5of -Contents

~~Table of Contents~~

BBQ HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~OCTOBER~~APRIL 3, ~~2021~~2022 AND ~~SEPTEMBER~~APRIL 274, ~~2020~~2021

(in thousands)

(Unaudited)


	~~Nine~~Three Months Ended
	~~October~~April 3, ~~2021~~2022		~~September~~April 274, ~~2020~~2021
Cash flows from operating activities:
Net income	$	~~21,913~~647	$	~~7,170~~697
Adjustments to reconcile net income to cash flows provided by operations:
Depreciation and amortization		42,~~925~~423		31,~~820~~552
Stock-based compensation		~~932~~384		~~422~~318
Net loss (gain) on disposal		134		(1,080)
Net (gain) loss on disposal		44		(8)
Asset impairment, estimated lease termination charges and other closing costs, net		—409		~~4,788~~12
Gain on forgiveness of debt		(14,109)		—
Gain on bargain purchase		(38)		—
Gain on bargain purchase		(3,203)		(13,675)
Amortization of operating right-of-use assets		2,894		2,134
Amortization of operating right-of-use assets		5,194		5,818
Deferred tax asset		(230)		82
Deferred tax asset		441		(2,569)
Other non-cash items		(6)		186
Other non-cash items		(49)		488
Changes in operating assets and liabilities:
Accounts receivable, net		~~(126)~~2,296		~~494~~598
Prepaid expenses and other assets		(~~1,368~~114)		~~102~~(1,197)
Accounts payable		~~707~~(710)		~~985~~1,635
Accrued compensation		4,445		(408)
Accrued compensation and benefits		(871)		1,678
Lease liabilities		(53,~~000~~258)		(51,~~067~~513)
Accrued and other liabilities		505		(641)
Gift card liability		(2,544)		(1,563)
Cash flows provided by operating activities		15,341		647
Accrued and other liabilities		62		(425)

Cash flows provided by operating activities		1,388		4,186
Cash flows from investing activities:
Proceeds from the sale of assets		—		27
Purchases of property, equipment and leasehold improvements		(722)		(691)
Purchases of property, equipment and leasehold improvements		(2,416)		(2,671)
Payments for acquired restaurants		(4,434)		—
Payments for acquired restaurants		(14,548)		(4,952)
Payments received on note receivable		—		6
Transfer from HFS		46		—
Cash flows used for investing activities		(5,156)		(685)
Payments received on note receivable		779		24
Cash flows used for investing activities		(16,139)		(7,572)

Cash flows from financing activities:
Proceeds from long-term debt		—		22,058
Payments on long-term debt		(562)		(519)
Payments for debt issuance costs		—		(45)
Tax payments for restricted stock units and stock options exercised		(130)		—
Payments on long-term debt		(1,572)		(664)
Proceeds from exercise of stock options		107		—
Proceeds from sale of common stock, net of offering costs		12,445		—
Cash flows used for financing activities		(585)		(519)
Proceeds from exercise of stock options		445		—
Increase (decrease) in cash, cash equivalents and restricted cash		(4,353)		2,982
Cash provided by financing activities		11,318		21,349
Cash, cash equivalents and restricted cash, beginning of period		41,461		19,603
Cash, cash equivalents and restricted cash, end of period	$	37,108	$	22,585

Increase in cash, cash equivalents and restricted cash		10,520		14,424
Cash, cash equivalents and restricted cash, beginning of period		19,603		6,086
Cash, cash equivalents and restricted cash, end of period	$	30,123	$	20,510

Supplemental Disclosures
Cash paid for interest, net	$	~~769~~107	$	~~829~~116
Cash paid for income taxes, net		—		—

Non-cash investing and financing activities:
Operating right-of-use assets acquired		194,~~339~~533		~~51,682~~—
Lease liabilities assumed pursuant to acquisitions		214,~~830~~574		~~51,682~~—
Gift card liability assumed pursuant to acquisitions		~~1,202~~96		~~3,923~~—
Inventory acquired pursuant to acquisitions		85		—

See accompanying notes to condensed consolidated financial statements.

- 6 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

Basis of Presentation

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-Q, “Company”, “we” and “our” refer to BBQ Holdings and its wholly owned subsidiaries. BBQ Holdings was incorporated on March 29, 2019 under the laws of the State of Minnesota, while FDA was incorporated in Minnesota on March 14, 1994. The Company develops, owns and operates restaurants under the name “Famous Dave’s”, “Village Inn”, “Barrio Queen”, “Granite City”, Real Urban Barbecue”, “Clark Crew BBQ”, “Tahoe Joe’s Steakhouse”, “Bakers Square”, “Craft Republic”, and “Fox ~~Bakers~~& ~~Square.~~Hound” . Additionally, the Company franchises restaurants under the name “Famous Dave’s” and “Village Inn”. As of ~~October~~April 3, ~~2021~~2022, there were ~~135~~144 Famous Dave’s restaurants operating in three countries, including 3140 Company-owned restaurants and 104 franchise-operated restaurants. ~~Additionally,~~ ~~the~~This ~~Company~~includes ~~operates~~the eight Famous Dave’s ghost kitchens ~~out~~the ofCompany ~~eight~~operates out 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. InThe ~~March~~Company ~~2020,~~owns ~~the~~and ~~Company~~operates ~~purchased~~ 18 Granite City Food & Brewery restaurants located throughout the Midwest and ~~one~~two Real Urban Barbecue ~~restaurant~~restaurants located in ~~Vernon Hills,~~ Illinois. On July 30, 2021, the Company completed the purchase of the Village Inn family restaurant concept currently with 2122 Company-owned restaurants and ~~109~~103 franchised restaurants, and the Bakers Square pie and comfort food concept currently with 1114 Company-owned restaurants and four locations where 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 ~~five~~the Tahoe Joe’'s ~~restaurants~~Steakhouse ~~and~~brand. On March 11, 2022 the IPCompany ~~related~~acquired three bar-centric locations, collectively referred to ~~four~~as ~~buffet~~“Famous ~~concepts~~Craft Concepts”, and on April 25, 2022, the Company executed an Asset Purchase Agreement for another bar-centric restaurant. On April 11, 2022, the Company closed the purchase of Barrio Queen, a chain of seven authentic Mexican fine dining restaurants in Phoenix, Arizona.

~~These~~The accompanying condensed consolidated balance sheet as of January 32, ~~2021~~2022, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Securities and Exchange Commission (“SEC”) Rules and Regulations. The information furnished in these condensed consolidated financial statements include normal recurring adjustments and reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited financial statements represent the condensed consolidated financial statements of the Company and its subsidiaries as of ~~October~~April 3, ~~2021~~2022 and January 32, ~~2021~~2022, and for the three ~~and nine~~ months ended ~~October~~April 3, ~~2021~~2022 and ~~September~~April 274, ~~2020~~2021. The results for the three ~~and nine~~ months ended ~~October~~April 3, ~~2021~~2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in BBQ Holdings, Inc.’s Annual Report on Form 10-K for the fiscal year ended January 32, ~~2021~~2022 as filed with the SEC on ~~April~~March 216, ~~2021~~2022.

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. During the first quarter of 2021, mandated restrictions began to ease in a number of the markets in which the Company operates. Although the Company has experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on its business remains uncertain, the duration and scope of which cannot currently be predicted. As new variants of COVID-19 are being discovered and cases incontinue ~~unvaccinated~~to ~~people~~occur ~~rise~~at material rates throughout the markets in which the Company does business, 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 its 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.

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 are widespread increases in diagnosed cases reported since the end of the second quarter of 2021 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.

- 7 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Income~~economies ~~Taxes~~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.

~~The~~Income Company maintains a federal deferred tax asset (“DTA”) which was in the amount of $3.4 million as of October 3, 2021 and $4.9 million as of January 3, 2021. The Company evaluates the DTA on a quarterly basis to determine whether current facts and circumstances indicate that the DTA may not be fully realizable. As of October 3, 2021, the Company concluded that the DTA is fully realizable and that no further valuation allowance was necessary; however, the Company will continue to evaluate the DTA on a quarterly basis until the DTA has been fully utilized.Taxes

The ~~following~~Company ~~table~~maintains ~~presents~~a federal deferred tax asset (“DTA”) which was in the amount of $3.9 million as of April 3, 2022 and $3.7 million as of January 2, 2022. The Company’s ~~effective~~evaluates ~~tax~~the ~~rates~~DTA ~~for~~on a quarterly basis to determine whether current facts and circumstances indicate that the ~~periods~~DTA ~~presented:~~may not be fully realizable. As of April 3, 2022, the Company concluded that the DTA is fully realizable and that no further valuation allowance was necessary; however, the Company will continue to evaluate the DTA on a quarterly basis until the DTA has been fully utilized.

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


	Three Months Ended						Nine Months Ended
	October 3, 2021			September 27, 2020			October 3, 2021			September 27, 2020
Effective tax rate		0.7	%		127.0	%		2.3	%		(54.2)	%

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

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

OnCash ~~May 14, 2020, the Company invested $3.5 million in a certificate of deposit (CD) through Choice Bank. The interest rate on this CD is 3.0%. Interest is compounded every 30 days~~ and ~~the CD automatically renews monthly. This balance is included with~~ cash ~~and cash~~ equivalents ~~on the Company’s balance sheet.~~

~~Restricted~~Cash equivalents include all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and ~~marketing~~are ~~fund~~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.

~~The~~Restricted ~~Company~~cash ~~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 reflect the liability within accrued expenses on its consolidated balance sheets. The Company had approximately $1.1 and $1.5 million in these funds as of October 3, 2021 and January 3, 2021, respectively.fund

~~Assets~~The ~~Held~~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 ~~Sale~~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 $1.7 and $1.2 million in these funds as of April 3, 2022 and January 2, 2022, respectively.

AsNet ofincome ~~October~~per 3,common ~~2021, the Company had assets held for sale of approximately $1.0 million related to an owned property for which it has entered into an agreement to sell.~~ share

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

~~Basic~~The ~~net~~following ~~income~~table ~~per common share (“EPS”)~~ is ~~computed~~a byreconciliation ~~dividing net income by the weighted average number~~ of ~~common~~basic ~~shares~~and ~~outstanding~~diluted ~~for the reporting period. Diluted EPS equals~~ net income ~~divided~~per ~~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.~~share:

- 8 -

-Table 8of -Contents

~~Table~~BBQ ofHOLDINGS, ~~Contents~~INC. AND SUBSIDIARIES

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~


	~~Three Months Ended~~	Three Months Ended					~~Nine Months Ended~~
(in thousands, except per share data)	~~October 3, 2021~~	April 3, 2022		~~September 27, 2020~~	April 4, 2021		~~October 3, 2021~~		~~September 27, 2020~~
Net income per share – basic:
Net income attributable to shareholders	$	~~4,834~~$	767	$	~~328~~$	799	$	~~21,419~~	$	~~7,783~~
Weighted average shares outstanding - basic		~~10,345~~	10,552		~~9,151~~	9,208		~~9,619~~		~~9,138~~
Basic net income per share attributable to shareholders	$	~~0.47~~$	0.07	$	~~0.04~~$	0.09	$	~~2.23~~	$	~~0.85~~

Net income per share – diluted:
Net income attributable to shareholders	$	~~4,834~~$	767	$	~~328~~$	799	$	~~21,419~~	$	~~7,783~~
Weighted average shares outstanding - diluted		~~10,482~~	10,649		~~9,158~~	9,501		~~9,737~~		~~9,145~~
Diluted net income per share attributable to shareholders	$	~~0.46~~$	0.07	$	~~0.04~~$	0.08	$	~~2.20~~	$	~~0.85~~

There were approximately 220,~~123~~250 and ~~137~~24,~~500~~000 stock options outstanding as of ~~October~~April 3, ~~2021~~2022 and ~~September~~April 274, ~~2020~~2021, respectively, that were not included in the computation of diluted EPS because they were anti-dilutive.

(2) Restaurant Acquisitions

On ~~June~~February 2421, ~~2021~~2022, the Company ~~entered~~completed ~~in to a Membership Interest Purchase Agreement (~~the ~~“MIPA”)~~acquisition ~~with~~of ~~VIBSQ Holdco, LLC, a Delaware limited liability company (~~the ~~“Seller”)~~assets and ~~Bakers~~operations ~~Square~~of ~~Holdings, LLC,~~ a ~~Delaware~~Famous ~~limited~~Dave’s ~~liability~~franchise ~~company~~location (“BSQ Holdings”), Village Inn Holdings, LLC, a Delaware limited liability company (“VI Holdings”), SVCC I, LLC, an Arizona limited liability company (“SVCC” and collectively with BSQ Holdings and VI Holdings, the “Target Companies”), and for certain limited purposes as described in ~~the~~La ~~MIPA~~Crosse, RGWisconsin. ~~Group~~The ~~Holdco,~~contract ~~LLC,~~purchase aprice ~~Delaware~~of ~~limited liability company (~~the ~~“Parent”),~~restaurant ~~pursuant~~was toapproximately ~~which the Company agreed~~$50, ~~subject to specified terms and conditions~~000, toexclusive ~~purchase from the Seller all~~ of ~~the~~closing ~~issued~~costs ~~and~~plus ~~outstanding membership interests (~~the ~~“Interests”)~~assumption ~~in each~~ of the ~~Target~~lease, ~~Companies~~gift ~~(such purchase of Interests as contemplated by the MIPA~~card, ~~the~~and ~~“VIBS~~certain ~~Transaction”)~~other liabilities. The ~~VIBS~~assets ~~Transaction~~acquired ~~closed~~and ~~on July 30, 2021. As a result of~~ the ~~VIBS~~liabilities ~~Transaction,~~assumed ~~each~~were ofconsidered ~~the~~to ~~Target~~be ~~Companies~~immaterial ~~became a wholly-owned subsidiary of the Company,~~ and ~~each~~were ofrecorded ~~the~~at ~~subsidiaries~~estimated offair ~~the~~values ~~Target~~based ~~Companies,~~on ~~which~~information ~~subsidiaries own or franchise Village Inn Restaurants and Bakers Square Restaurants~~available, ~~became~~including ~~wholly-owned~~an ~~indirect~~ROU ~~subsidiaries~~asset ~~of the Company. The purchase price of the VIBS Transaction was approximately $13.0 million~~ and ~~subject~~offsetting toliability ~~certain purchase price adjustments and exclusive~~ of ~~acquisition costs of~~ approximately $~~498~~682,000. ~~which~~Pro ~~are~~forma ~~reflected~~results inwere ~~general~~deemed ~~and~~immaterial ~~administrative~~to ~~expenses~~the Company.

The VIBS Transaction was accounted for using the acquisition method of accounting in accordance with ASC 805 “Business Combinations” and, accordingly, the consolidated statements of operations include the results of these operations from the date of acquisition. The assets acquired and the liabilities assumed were recorded at estimated fair values based on information available as of the end of the third quarter of fiscal 2021.

On March 11, 2022, the Company completed the acquisiton of three bar-centric locations, two of which are Craft Republic locations and one of which is a Fox and Hound location (collectively, “Famous Craft Concepts” or “FCC”). The purchase price of $4.6 million was funded with cash. Due to the timing of the signing and closing of this acquisition, the initial accounting for this acquisition is incomplete as of the date of this filing. As such, complete ASC 805 “Business Combinations” disclosures could not be made. Management recorded preliminary fair values for the assets acquired and liabilities assumed based on information available as of the date of this filing and will adjust those estimates in a subsequent period once the full independent valuation and management review is finalized. The consolidated statements of operations include the results of these operations from the date of acquisition. Revenue and earnings of FCC included in the consolidated statements of operations in the quarter ended April 3, 2022 totaled approximately $603,000 and $121,000, respectively.

~~- 9 -~~

~~Table~~- of9 ~~Contents~~-

~~BBQ~~Table ~~HOLDINGS,~~of ~~INC. AND SUBSIDIARIES~~Contents

~~NOTES~~BBQ TOHOLDINGS, ~~CONDENSED~~INC. ~~CONSOLIDATED~~AND ~~FINANCIAL STATEMENTS~~SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The following table presents the allocation of assets acquired and liabilities assumed for the VIBS Transaction:~~

The following table presents the allocation of assets acquired and liabilities assumed for the Famous Craft Concepts Transaction:


(in thousands)
Assets acquired:
Current assets	$	708
Property, plant, equipment and leasehold improvements, net		5,101
Owned properties		3,148
Franchise agreements		10,602
Identifiable intangible assets		2,645
Operating lease right-of-use assets		14,723
Total identifiable assets acquired		36,927
Liabilities assumed:
Deferred royalty revenue		(327)
Other current liabilities		(772)
Supply chain adjustment		(117)
Gift card and loyalty liability		(1,186)
Lease liabilities		(17,220)
Deferred tax liability		(1,111)
Net assets acquired		16,194
Gain on bargain purchase		(3,203)
Total consideration transferred	$	12,991


(in thousands)
Assets acquired:
Inventory		106
Property, plant, equipment and leasehold improvements, net		1,216
Lease right-of-use asset, net of unfavorable lease value		3,851
Identifiable intangible assets, net		689
Other current assets		30
Total identifiable assets acquired		5,892
Liabilities assumed:
Lease liability		(3,851)
Other current liabilities		(269)
Net assets acquired		1,772
Goodwill		2,639
Total consideration transferred	$	4,411

Unaudited pro forma results of operations for the three and nine months ended October 3, 2021 and September 27, 2020 as if the Company had acquired the operations of the VIBS Transaction at the beginning of each period presented is as follows. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future.

Unaudited pro forma results of operations for the three months ended April 3, 2022 as if the Company had acquired the operations of Famous Craft Concepts, Village Inn and Bakers Square, and Tahoe Joe’s at the beginning of each period presented is as follows. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future. For allocation of assets acquired and liabilities assumed regarding the Village Inn and Bakers Square and Tahoe Joe’s acquisitions see 10-K filed by the Company on March 16, 2022.


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
(in thousands)
Pro forma revenues	$	59,340	$	46,242	$	167,041	$	118,692
Pro forma net income attributable to shareholders	$	5,197	$	813	$	24,149	$	9,209
Basic pro forma net income per share attributable to shareholders	$	0.50	$	0.09	$	2.51	$	1.01
Diluted pro forma net income per share attributable to shareholders	$	0.50	$	0.09	$	2.48	$	1.01


	Three Months Ended
	April 3, 2022		April 4, 2021
(in thousands)
Pro forma revenues	$	65,523	$	54,950
Pro forma net income attributable to shareholders	$	921	$	2,037
Basic pro forma net income per share attributable to shareholders	$	0.09	$	0.22
Diluted pro forma net income per share attributable to shareholders	$	0.09	$	0.21

On July 12, 2021, the Company completed the acquisition of the assets and operations of four Famous Dave's restaurants in Kentucky and Tennessee. The sellers of the Restaurants were FFD Citadel LLC, FFD Hermitage LLC, FFD Cedar Bluff, and FFD Smryna. The contract purchase price of the Restaurants was approximately $1.1 million, exclusive of acquisition costs of approximately $52,000 which are reflected in general and administrative expenses. The assets acquired and liabilities assumed were recorded at estimated fair value based on information available. Proforma results were deemed immaterial to the Company.


(in thousands)
Assets acquired:
Property, plant, equipment and leasehold improvements, net	$	641
Operating lease right-of-use assets		4,616
Total identifiable assets acquired		5,257
Liabilities assumed:
Gift card liability		(16)
Lease liabilities		(4,610)
Net assets acquired		631
Goodwill		469
Total consideration transferred	$	1,100

(3) Prepaid Expenses and Other Current Assets

-Prepaid 10expenses -and other current assets consisted of the following at:

~~Table of Contents~~

BBQ HOLDINGS, INC. AND SUBSIDIARIES


(in thousands)	April 3, 2022		January 2, 2022
Prepaid expenses and deferred costs	$	1,891	$	2,241
Prepaid rent		1,368		1,384
Prepaid insurance		867		257
Other prepaid expenses		187		37
Prepaid expenses and other current assets	$	4,313	$	3,919

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(3) Prepaid Expenses and Other Current Assets~~

~~Prepaid~~- ~~expenses~~10 ~~and other current assets consisted of the following at:~~-

Table of Contents


(in thousands)	October 3, 2021		January 3, 2021
Prepaid expenses and deferred costs	$	1,380	$	950
Prepaid insurance		780		302
Seller obligations		207		—
Prepaid expenses and other current assets	$	2,367	$	1,252

BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(4)	Property, Equipment and Leasehold Improvements, net

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


(in thousands)	~~October~~April 3, ~~2021~~2022		January 32, ~~2021~~2022
Land, buildings, and improvements	$	3840,~~488~~622	$	3139,~~731~~632
Furniture, fixtures, equipment and software		3034,~~403~~125		2833,~~373~~565
Décor		~~425~~434		~~475~~434
Construction in progress		~~1,942~~175		~~1,121~~—
Accumulated depreciation and amortization		(3235,~~084~~608)		(2933,~~311~~688)
Property, equipment and leasehold improvements, net	$	39,~~174~~748	$	3239,~~389~~943

(5) Intangible Assets, net

The Company has intangible assets that consist of liquor licenses, database, trademarks, ~~logos~~ and patents, ~~pre-acquisition costs,~~ and franchise rights, net. The liquor licenses and trademarks/logos are indefinite-lived assets and are not subject to amortization. Franchise rights are amortized to depreciation and amortization expense on a straight-line basis over the remaining life of the franchise agreement. ~~The database is amortized over three years.~~

Intangible assets consisted of the following:


(in thousands)	~~October~~April 3, ~~2021~~2022		January 32, ~~2021~~2022
Franchise rights, net		1110,~~467~~741		111,~~246~~104
Liquor licenses		~~868~~981		~~868~~1,018
Trademark/Logos/Patents		1011,~~333~~922		711,~~688~~233
Database		~~108~~70		~~165~~89
Pre-acquisition costs		455		-
Intangible assets, net	$	23,714	$	23,444
Intangible assets, net	$	23,231	$	9,967

(6) Other Current Liabilities

Other current liabilities consisted of the following at:


(in thousands)	April 3, 2022		January 2, 2022
Sales tax payable and state income tax payable		1,763		1,657
Other accrued expense		2,319		3,613
Accrued real estate taxes		2,240		2,170
Accrued interest		28		26
Accrued utilities		568		560
Deferred revenue, other		1,716		366
Deferred franchise fees		118		118
Other current liabilities	$	8,752	$	8,510

~~- 11 -~~

~~Table of Contents~~

~~BBQ HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

(7) Long-Term Debt

On November 23, 2021, the Company, as borrower, entered into a credit agreement (6the “Credit Agreement”) ~~Other~~ ~~Current~~with ~~Liabilities~~JPMorgan Chase Bank, N.A. The Credit Agreement had a five-year term and provided for up to a $5.0 million revolving line of credit and a $15.0 million term loan. The Credit Agreement also provided for the issuance of letters of credit in an aggregate amount up to $1,000,000 which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness previously owed to Choice Financial Group. The proceeds were also used for accretive capital allocation and for working capital purposes.

~~Other~~The ~~current~~Credit ~~liabilities~~Agreement ~~consisted~~was amended on April 11, 2022 (the “Amended Credit Agreement”), increasing the revolving line of credit to $25.0 million and the ~~following~~term ~~at:~~loan to $25.0 million. The Amended Credit Agreement has a five-year term. Proceeds of

- 11 -


(in thousands)	October 3, 2021		January 3, 2021
Gift cards payable	$	6,745	$	6,553
Sales tax payable		1,436		1,286
Other accrued expense		2,038		1,394
Accrued real estate taxes		772		—
Accrued interest		—		115
Accrued utilities		437		199
Deferred revenue, other		443		124
Deferred franchise fees		143		95
Other current liabilities	$	12,014	$	9,766

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

borrowings shall be used for accretive capital allocation and for working capital purposes. Specifically, a portion of the increased borrowings was used to fund the acquisition of Barrio Queen that closed on April 11, 2022. The Company’s obligations under the Amended Credit Agreement are secured by substantially all of its assets, excluding real property. Subject to certain conditions, borrowings under the Amended Credit Agreement bear interest in the range of 1.75% to 2.25% per annum plus SOFR. If SOFR becomes unavailable, the replacement rate will be determined pursuant to the terms of the Amended Credit Agreement. Quarterly principal payments are required with a balloon payment due at maturity.

~~(7) Long-Term~~The ~~Debt~~Amended Credit Agreement contains customary representations, warranties and covenants, including the financial covenants to maintain a rent adjusted leverage ratio not greater than 4.5 to 1.0 and a fixed charge coverage ratio of not less than 1.1 to 1.0. In addition, the Amended Credit Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, to make restricted payments such as dividends and stock repurchases, and to make capital expenditures in excess of $10.0 million in the aggregate during any fiscal year.

OnDebt ~~June~~outstanding ~~20,~~consisted ~~2019, the Company entered into a Loan Agreement among the Company and Choice Financial Group. The Loan Agreement provides for a term loan in the principal amount~~ of ~~up to $24.0 million and is evidenced by a promissory note. The note has a maturity date of June 20, 2025. The first year of~~ the ~~note~~following ~~provided~~as ~~for payments~~ of ~~interest only, with~~ the ~~remaining~~periods five years requiring payments of interest and principal based on a 60 month amortization period. Interest is payable in an amount equal to the Wall Street Journal Prime Rate, but in no circumstances shall the rate of interest be less than 5.00%. The note may be prepaid, partially or in full, at any time and for no prepayment penalty. The Company is subject to various financial and non-financial covenants on this debt, including a debt-service coverage ratio. As of October 3, 2021, the note balance was $8.8 million, and the Company was compliant with all of its covenants. presented:

In fiscal year 2020, the Company received funds of approximately $14.0 million in aggregate in connection with “Small Business Loans” under the Paycheck Protection Program (“PPP Loans”). These amounts were borrowed pursuant to the terms of the PPP Loans, in favor of Choice Financial Group. On June 11, 2021, the Company received a notification from Choice Financial Group that the Small Bussiness Administration approved the Company’s loan forgiveness applications for the entire $14.0 million balance of the PPP Loans and that the remaining balance of the PPP Loans is zero. As such, the Company wrote off the debt balance and related accrued interest of $14.1 million. Such amount was included in the Company’s income statement in the second quarter of 2021.

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



(in thousands)	April 3, 2022		January 2, 2022
Term Loan	$	14,438	$	15,000
Less: deferred financing costs		(213)		(209)
Less: current portion of long-term debt		(1,406)		(1,594)
Long-term debt, less current portion	$	12,819	$	13,197



(in thousands)	October 3, 2021		January 3, 2021
Term Loan	$	8,831	$	10,403
PPP Loans		—		13,957
Less: deferred financing costs		(61)		(80)
Less: current portion of long-term debt		(2,192)		(2,111)
Long-term debt, less current portion	$	6,578	$	22,169

(8) Leases

The Company leases the property for its corporate headquarters, most of its Company-owned 12stores, and certain office and restaurant equipment. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities in its consolidated balance sheets.

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

~~BBQ HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~


	Three Months Ended		Three Months Ended
(in thousands)	April 3, 2022		April 4, 2021
Operating lease cost	$	3,742	$	2,442
Short-term lease cost		128		96
Variable lease cost		216		368
Sublease income		(54)		(44)
Total lease cost	$	4,032	$	2,862

~~(8) Leases~~

~~The~~Supplemental ~~Company~~cash ~~leases~~flow ~~the~~information ~~property~~related ~~for~~to ~~its~~leases ~~corporate~~for ~~headquarters,~~the ~~most~~period ofpresented ~~its Company-owned stores, and certain office and restaurant equipment. The Company determines if an arrangement~~ is aas ~~lease~~follows: at inception. Operating leases are included in operating lease right-of use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities in its consolidated balance sheets.

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


	Three Months Ended			Three Months Ended
(in thousands)	April 3, 2022			April 4, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,964		$	2,155
Right-of-use assets obtained in exchange for new operating lease liabilities		5,451			-
Weighted-average remaining lease term of operating leases (in years)		7.88			10.10
Weighted-average discount rate of operating leases		4.62	%		5.27	%


	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
(in thousands)	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Operating lease cost	$	3,567	$	2,709	$	8,536	$	6,657
Short-term lease cost		87		129		290		266
Variable lease cost		80		387		577		581
Sublease income		(59)		(118)		(133)		(118)
Total lease cost	$	3,675	$	3,107	$	9,270	$	7,386

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

- 12 -


	Nine Months Ended			Nine Months Ended
(in thousands)	October 3, 2021			September 27, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	7,899		$	5,715
Right-of-use assets obtained in exchange for new operating lease liabilities		23,789			51,682
Weighted-average remaining lease term of operating leases (in years)		8.95			10.00
Weighted-average discount rate of operating leases		5.24	%		5.24	%

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(9) Revenue Recognition

~~(9) Revenue~~Deferred ~~Recognition~~franchise fee revenue included in other liabilities consist primarily of franchise fees which are recognized straight-line over the life of the agreements, and area development fees which are deferred until a new restaurant is opened pursuant to the agreement. The following table illustrates estimated revenues expected to be recognized in the future related to unsatisfied performance obligations as of April 3, 2022:

Deferred franchise fee revenue included in other liabilities consist primarily of franchise fees which are recognized straight-line over the life of the agreements, and area development fees which are deferred until a new restaurant is opened pursuant to the agreement. The following table illustrates estimated revenues expected to be recognized in the future related to unsatisfied performance obligations as of October 3, 2021:


(in thousands)
Fiscal Year
2022	$	90
2023		112
2024		136
2025		79
2026		167
Thereafter		216
Total	$	800


(in thousands)
Fiscal Year
2021	$	36
2022		143
2023		143
2024		142
2025		131
Thereafter		270
Total	$	865

The following table reflects the change in contract liabilities between January 2, 2022 and April 3, 2022:

~~- 13 -~~

Table of Contents


(in thousands)	April 3, 2022
Beginning Balance	$	806
Additions		25
Revenue recognized		(31)
Ending Balance	$	800

~~BBQ HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~The following table reflects the change in contract liabilities between January 3, 2021 and October 3, 2021:~~


(in thousands)
Beginning Balance	$	901
Revenue recognized		(36)
Ending Balance	$	865

(

(10) Stock-based Compensation

Effective May 5, 2015, the Company adopted the 2015 Equity Plan (the “2015 Plan”), pursuant to which it may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other stock and cash awards to eligible participants. The number of common stock reserved for issuance is 2,000,000. The Company also maintains an Amended and Restated 2005 Stock Incentive Plan (the “2005 Plan”). The 2005 Plan expired in 2015 and no additional options may be granted. Nonetheless, the 2005 Plan will remain in effect until all outstanding incentives granted thereunder have either been satisfied or terminated. As of April 3, 2022, there were 552,082 shares available for grant pursuant to the 2015 Plan.

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

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

● Stock price – Published trading market values of the Company’s common stock as of the date of grant.

● Exercise price – The stated exercise price of the stock option.

(● Expected life – The simplified method as outlined in ASC 718.

~~(10) Stock-based~~● ~~Compensation~~Expected dividend – The rate of dividends that the Company expects to pay over the term of the stock option.

~~Effective~~● ~~May~~Volatility 5,– ~~2015,~~Actual ~~the~~volatility ~~Company~~over ~~adopted~~ the ~~2015~~most ~~Equity~~recent ~~Plan~~historical ~~(the~~period ~~“2015~~equivalent ~~Plan”), pursuant~~ to which it may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other stock and cash awards to eligible participants. The number of common stock reserved for issuance is 2,000,000. The Company also maintains an Amended and Restated 2005 Stock Incentive Plan (the ~~“2005~~expected ~~Plan”). The~~life 2005 Plan expired in 2015 and no additional options may be granted. Nonetheless, the 2005 Plan will remain in effect until all outstanding incentives granted thereunder have either been satisfied or terminated. As of ~~October 3, 2021, there were 723,690 shares available for grant pursuant to~~ the ~~2015 Plan~~option.

~~Stock~~● ~~options~~Risk-free ~~granted~~interest torate ~~employees~~– ~~and~~The ~~directors~~daily ~~generally~~United ~~vest~~States ~~over~~Treasury ~~two~~yield tocurve ~~five years, in monthly or annual installments, as outlined in each agreement~~rate. Options generally expire ten years from the date of grant. Compensation expense equal to the grant date fair value of the options is recognized in general and administrative expense over the applicable service period.

~~The Company utilizes the Black~~-~~Scholes~~ ~~option~~13 ~~pricing model when determining the compensation cost associated with stock options issued using the following significant assumptions:~~-

●Table ~~Stock price – Published trading market values~~ of ~~the Company’s common stock as of the date of grant.~~Contents

●BBQ ~~Exercise~~HOLDINGS, ~~price~~INC. –AND ~~The stated exercise price of the stock option.~~SUBSIDIARIES

●NOTES ~~Expected~~TO ~~life~~CONDENSED –CONSOLIDATED ~~The~~FINANCIAL ~~simplified method as outlined in ASC 718.~~STATEMENTS

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

●The ~~Volatility~~Company –recognized ~~Actual~~stock-based ~~volatility~~compensation ~~over~~expense ~~the~~in ~~most~~its ~~recent~~consolidated ~~historical~~statements ~~period~~of ~~equivalent~~operations tofor the ~~expected~~three ~~life~~months ofended ~~the~~April ~~option.~~3, 2022, and April 4, 2021, respectively, as follows:

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

- 14 -


	Three Months Ended
(in thousands)	April 3, 2022		April 4, 2021
Stock options	$	87	$	89
Restricted stock		297		229
	$	384	$	318

~~Table of Contents~~

~~BBQ~~Information ~~HOLDINGS,~~regarding ~~INC.~~the ~~AND~~Company’s ~~SUBSIDIARIES~~stock options is summarized below:

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~


				Weighted
				Average
				Remaining
	Number of	Weighted Average		Contractual
(number of options in thousands)	Options	Exercise Price		Life in Years
Options outstanding at January 2, 2022	388	$	7.13	7.3
Granted	—		—
Exercised	(28)		3.70
Canceled, forfeited or expired	—		—
Options outstanding at April 3, 2022	360	$	7.40	7.2

The Company recognized stock-based compensation expense in its consolidated statements of operations for the three and nine months ended October 3, 2021 and September 27, 2020, respectively, as follows:


	Three Months Ended
	April 3, 2022			April 4, 2021
Weighted-average fair value of options granted during the period	$	—		$	2.74
Expected life (in years)		—			2.5
Expected dividend	$	—		$	—
Expected stock volatility		—	%		76.48	%
Risk-free interest rate		—	%		0.2	%


	Three Months Ended				Nine Months Ended
(in thousands)	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Stock options	$	62	$	110	$	245	$	235
Restricted stock		232		64		687		187
	$	294	$	174	$	932	$	422

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

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


				Weighted
				Average
				Remaining
	Number of	Weighted Average		Contractual
(number of awards in thousands)	Awards	Award Date Fair Value		Life in Years
Unvested at January 2, 2022	305	$	5.75	2.1
Granted	235		13.80
Exercised/Released	(6)		10.25
Canceled, forfeited or expired	(2)		13.25
Unvested at April 3, 2022	532	$	9.21	2.6


				Weighted
				Average
				Remaining
	Number of	Weighted Average		Contractual
(number of options in thousands)	Options	Exercise Price		Life in Years
Options outstanding at January 3, 2021	557	$	4.53
Granted	123		12.99
Exercised	(181)		4.63
Canceled, forfeited or expired	(51)		4.21
Options outstanding at October 3, 2021	448	$	6.85	7.4


	Nine Months Ended
	October 3, 2021			September 27, 2020
Weighted-average fair value of options granted during the period	$	7.33		$	1.79
Expected life (in years)		5.6			5.1
Expected dividend	$	—		$	—
Expected stock volatility		64.02	%		55.02	%
Risk-free interest rate		0.9	%		0.9	%

~~Information~~(11) ~~regarding the Company~~Shareholders’s ~~restricted stock is summarized below:~~Equity

On June 24, 2021, the Company entered into two separate Securities Purchase Agreements (each, a “Securities Purchase Agreement”) with institutional investors pursuant to which the Company raised (i) gross proceeds of $10,000,000, pursuant to an agreement to sell 800,000 shares of the Company’s common stock , and (ii) gross proceeds of $3,000,000 pursuant to an agreement to sell 200,000 shares of the Company’s common stock (such shares of common stock collectively referred to herein as the “Securities”, and the aggregate sale of 1,000,000 Securities referred to herein as the “Offering”). The Company used the net proceeds of the Offering for the VIBS Transaction described in Note 2 Restaurant Acquisitions found in our fiscal 2021 10-K filing. In connection with the closing of the Offering, the Company paid expenses of approximately of $572,000.


				Weighted
				Average
				Remaining
	Number of	Weighted Average		Contractual
(number of awards in thousands)	Awards	Award Date Fair Value		Life in Years
Unvested at January 3, 2021	475	$	4.43
Granted	53		13.25
Exercised/Released	(168)		4.93
Canceled, forfeited or expired	(55)		4.30
Unvested at October 3, 2021	305	$	5.71	14.8

As part of each Securities Purchase Agreement, the Company agreed to register the Securities sold in the Offering (the “Registrable Securities”) for resale or other disposition, pursuant to a Registration Rights Agreement with each investor (each, a

- 14 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(11) Shareholders’ Equity~~

“Registration Rights Agreement”). On ~~June~~August 244, 2021, the Company ~~entered~~filed ~~into~~with ~~two~~the ~~separate~~ Securities ~~Purchase~~and ~~Agreements~~Exchange Commission (~~each,~~the “SEC”) a ~~“Securities~~shelf ~~Purchase~~registration ~~Agreement”)~~statement with ~~institutional~~respect ~~investors~~to ~~pursuant~~the toresale ~~which~~of the ~~Company~~Registrable ~~raised~~Securities. The ~~(i)~~shelf ~~gross~~registration ~~proceeds~~statement ofwas ~~$10~~declared effective by the SEC September 3,~~000,000,~~ ~~pursuant~~2021. toThe anCompany ~~agreement~~agreed to ~~sell~~keep ~~800,000~~the ~~shares~~shelf ofregistration ~~the~~statement ~~Company’s~~effective ~~common~~until ~~stock~~such ,time ~~and~~as ~~(ii)~~all ~~gross~~Registrable ~~proceeds~~Securities ofmay ~~$3,000,000~~be sold pursuant to anRule ~~agreement~~144 tounder ~~sell~~the ~~200,000~~Securities ~~shares~~Act of 1933, as amended (the ~~Company’s~~“Securities ~~common~~Act”) ~~stock~~without ~~(such~~the ~~shares~~need offor ~~common~~current ~~stock~~public ~~collectively~~information ~~referred~~or toother ~~herein~~restrictions. asIf the ~~“Securities”,~~Company ~~and~~is ~~the~~unable ~~aggregate~~to ~~sale~~comply with any of 1the above covenants,~~000,000~~ ~~Securities~~it ~~referred~~will tobe ~~herein~~required asto ~~the~~pay ~~“Offering”). The~~liquidated ~~Company~~damages ~~used~~to the ~~net~~investors ~~proceeds~~in of the ~~Offering~~amount ~~for~~of 1% of the ~~VIBS~~investors’ ~~Transaction~~purchase ~~described~~price infor ~~Note~~every 2month ~~Restaurant~~until ~~Acquisitions.~~such Innon-compliance ~~connection~~is ~~with~~cured ~~the~~(subject ~~closing~~to ofa ~~the~~6% ~~Offering~~cap), ~~the~~with ~~Company~~such ~~paid~~liquidated ~~expenses~~damages ofpayable ~~approximately~~in ~~of $500,000~~cash.

-(12) Variable 15Interest -Entities

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

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

~~NOTES~~Because TOthe ~~CONDENSED~~Company ~~CONSOLIDATED~~has ~~FINANCIAL~~provided ~~STATEMENTS~~more than half of the subordinated financial support of Mercury and control Mercury via its representation on the board of managers, the Company has concluded that Mercury is a VIE, of which the Company is the primary beneficiary and must consolidate Mercury. Mercury generated net loss of approximately $150,000 during the first quarter of fiscal year 2022, of which $120,000 was recorded as non-controlling interest on our condensed consolidated financial statements. During the first quarter of fiscal year 2021, Mercury generated a net loss of approximately $128,000, of which $102,000 was recorded as non-controlling interest on our condensed consolidated financial statements. As of April 3, 2022, Mercury’s assets included approximately $2.4 million of property, equipment and leasehold improvements, net, a $1.7 million ROU asset and $121,000 of inventory. The liabilities recognized as a result of consolidating Mercury BBQ’s results of operations do not represent additional claims on the general assets of BBQ Holdings, Inc.; rather, they represent claims against the specific assets of the Mercury BBQ’s. Conversely, assets recognized as a result of consolidating the Mercury BBQ’s results of operations do not represent additional assets that could be used to satisfy claims against the general assets of BBQ Holdings.

- 15 -

~~“Registration~~Table ~~Rights Agreement”). On August 4, 2021, the Company filed with the Securities and Exchange Commission (the “SEC”) a shelf registration statement with respect to the resale~~ of the Registrable Securities. The shelf registration statement was declared effective by the SEC September 3, 2021. The Company agreed to keep the shelf registration statement effective until such time as all Registrable Securities may be sold pursuant to Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) without the need for current public information or other restrictions. If the Company is unable to comply with any of the above covenants, it will be required to pay liquidated damages to the investors in the amount of 1% of the investors’ purchase price for every month until such non-compliance is cured (subject to a 6% cap), with such liquidated damages payable in cash.Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

~~(12) Variable~~NOTES ~~Interest~~TO ~~Entities~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

~~On July 18, 2018, the Company and Clark Championship Products LLC~~ (~~“Clark”~~13), an entity owned by Travis Clark, became members of Mercury BBQ LLC (“Mercury”) for the purposes of building out and operating the inaugural Clark Crew BBQ restaurant in Oklahoma City, Oklahoma (the “Restaurant”). Clark owns 80% of the units outstanding of Mercury and the Company owns 20% of the units outstanding of Mercury. Because the Company has provided more than half of the subordinated financial support of Mercury and control Mercury via its representation on the board of managers, the Company has concluded that Mercury is a VIE, of which the Company is the primary beneficiary and must consolidate Mercury. Mercury generated net income of approximately $617,000 during the first three quarters of fiscal year 2021, of which $494,000 was recorded as non-controlling interest on our condensed consolidated financial statements. During the first three quarters of fiscal year 2020, Mercury generated a net loss of $766,000, of which $613,000 was recorded as non-controlling interest on our condensed consolidated financial statements. As of October 3, 2021, Mercury’s assets included approximately $2.7 million of property, equipment and leasehold improvements, net, a $1.7 million ROU asset and $106,000 of inventory. The liabilities recognized as a result of consolidating Mercury BBQ’s results of operations do not represent additional claims on the general assets of BBQ Holdings, Inc.; rather, they represent claims against the specific assets of the Mercury BBQ’s. Conversely, assets recognized as a result of consolidating the Mercury BBQ’s results of operations do not represent additional assets that could be used to satisfy claims against the general assets of BBQ Holdings. Litigation

~~(13) Litigation~~In the normal course of business, the Company is involved in a number of litigation matters that are incidental to the operation of the business. These matters generally include, among other things, matters with regard to employment, leases and general business-related issues. The Company currently believes that the resolution of any of these pending matters will not have a material adverse effect on its financial position or liquidity, but an adverse decision in more than one of the matters could be material to its consolidated results of operations.

In(14) Related ~~the~~Party normal course of business, the Company is involved in a number of litigation matters that are incidental to the operation of the business. These matters generally include, among other things, matters with regard to employment, leases and general business-related issues. The Company currently believes that the resolution of any of these pending matters will not have a material adverse effect on its financial position or liquidity, but an adverse decision in more than one of the matters could be material to its consolidated results of operations.Transactions

~~(14) Related~~Charles ~~Party~~Davidson, ~~Transactions~~a franchisee of the Company, currently serves as a director of the Company and is the beneficial owner of approximately 15.7% of the Company’s common stock as of the date that these financial statements were available to be issued, by virtue of his ownership interest in Wexford Capital.

~~Charles~~The ~~Davidson,~~following atable ~~franchisee~~outlines ofamounts ~~the~~received ~~Company,~~from ~~currently~~related ~~serves~~parties asduring ~~a director of~~ the ~~Company~~three ~~and~~months isended ~~the~~April ~~beneficial owner of approximately 16.~~3%, of2022, ~~the~~and ~~Company’s~~April ~~common~~4, ~~stock as of the date that these financial statements were available to be issued~~2021, ~~by virtue of his ownership interest in Wexford Capital.~~respectively:

The following table outlines amounts received from related parties during the three months and nine months ended October 3, 2021 and September 27, 2020:


	Three Months Ended
(in thousands)	April 3, 2022		April 4, 2021
Revenues and NAF contributions - Charles Davidson		167		138

-The 16following -table outlines accounts receivable from related parties as of April 3, 2022 and January 2, 2022:

Table of Contents


(in thousands)	April 3, 2022		January 2, 2022
Accounts receivable, net - Charles Davidson		71		64

~~BBQ HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES~~(15) Subsequent ~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Events

Three Months Ended

Nine Months Ended

(in thousands)

October 3, 2021

September 27, 2020

October 3, 2021

September 27, 2020

Revenues and NAF contributions - Charles Davidson

166

130

482

422

On March 10, 2022, the Company executed an Asset Purchase Agreement for substantially all the assets related to the Barrio Queen restaurant group, and closed the transaction on April 11, 2022. Barrio Queen is known for their authentic Mexican fine dining in Phoenix, Arizona. There are currently seven operating restaurants and a lease signed for an eighth with a target opening date in 2023. The purchase price of approximately $28.5 million was funded with cash and debt.

~~The following table outlines accounts receivable from related parties as of October 3, 2021 and January 3, 2021:~~


(in thousands)	October 3, 2021		January 3, 2021
Accounts receivable, net - Charles Davidson		63		52

On April 11, 2022, the Company refinanced its debt agreement with JPM Chase bank (the “Amended Credit Agreement”), increasing the revolving line of credit to $25.0 million and the term loan to $25.0 million. The Amended Credit Agreement has a five-year term. Proceeds of borrowings shall be used for accretive capital allocation and for working capital purposes. Specifically, a portion of the increased borrowings was used to fund the acquisition of Barrio Queen that closed on April 11, 2022. The Company’s obligations under the Amended Credit Agreement are secured by substantially all of its assets, excluding real property. Subject to certain conditions, borrowings under the Amended Credit Agreement bear interest in the range of 1.75% to 2.25% per annum plus SOFR.

~~(15) Subsequent~~On ~~Event~~April 25, 2022, the Company executed an Asset Purchase Agreement for another bar-centric restaurant, and we expect to close the transaction in Q2 2022. The purchase price of $3.4 million will be funded with cash.

On ~~October~~May 12, ~~2021~~2022, ~~Fresh~~the ~~Acquisitions,~~Company ~~LLC~~completed ~~and its affiliates (“Fresh”) conducted a U.S. Bankruptcy Code Section 363 Auction (~~the ~~“Auction”)~~acquisition ~~and selected BBQ Growth, LLC., a California limited liability company and wholly-owned subsidiary~~ of ~~BBQ Holdings, Inc. (“BBQ Holdings”), as~~ the ~~successful bidder for the~~ assets ~~associated~~and ~~with~~operations ~~five~~of ~~Tahoe~~two ~~Joe’s~~Famous ~~restaurants (the “Tahoe Joe~~Dave’s ~~Business”)~~franchise ~~and~~locations ~~the~~in ~~IP related to Old Country Buffet~~Nebraska, ~~Hometown~~for ~~Buffet,~~total ~~Ryan’s~~consideration ~~Buffet~~of ~~and~~approximately ~~Furr’s Restaurants (the “Buffet IP”)~~$400,000.

On October 6, 2021, the Company announced the signing of an Asset Purchase Agreement, dated October 4, 2021, by and between the Company and Fresh (the “Fresh APA”) to purchase certain assets of the Fresh Business from Fresh for a purchase price of $4,212,000 in cash and up to $1,000,000 in cures and $100,000 in short term payables, subject to normal closing adjustments, assumed liabilities, and approval of the Bankruptcy Court (the “Fresh Transaction”). Pursuant to the Fresh APA, assumed liabilities include obligations related to leased real property. The Fresh Transaction was approved by the Bankruptcy Court at a hearing on October 7, 2021. The Fresh Transaction was closed on October 8, 2021. The Company funded the Fresh Transaction with cash on hand.

- 16 -

Table of Contents

-BBQ 17HOLDINGS, -INC. AND SUBSIDIARIES

~~Table of Contents~~

~~BBQ~~Item ~~HOLDINGS, INC~~2. MANAGEMENT’S DISCUSSION AND ~~SUBSIDIARIES~~ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

~~Item~~In 2September 2019 a holding company reorganization was completed in which Famous Dave’s of America, Inc. ~~MANAGEMENT~~(“FDA”) became a wholly owned subsidiary of the new parent holding company named BBQ Holdings, Inc. (“BBQ Holdings”). As used in this Form 10-Q, “Company”, “we” and “our” refer to BBQ Holdings and its wholly owned subsidiaries. BBQ Holdings was incorporated on March 29, 2019 under the laws of the State of Minnesota, while FDA was incorporated in Minnesota on March 14, 1994. The Company develops, owns and operates restaurants under the name “Famous Dave’Ss”, ~~DISCUSSION~~“Village ~~AND~~Inn”, ~~ANALYSIS~~“Barrio OFQueen”, ~~FINANCIAL~~“Granite ~~CONDITION~~City”, ~~AND~~Real ~~RESULTS~~Urban OFBarbecue”, ~~OPERATIONS~~“Clark Crew BBQ”, “Tahoe Joe’s Steakhouse”, “Bakers Square”, “Craft Republic”, and “Fox & Hound”. Additionally, the Company franchises restaurants under the name “Famous Dave’s” and “Village Inn”. As of April 3, 2022, there were 144 Famous Dave’s restaurants operating in three countries, including 40 Company-owned restaurants and 104 franchise-operated restaurants. This includes the eight Famous Dave’s ghost kitchens the Company operates out 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. The Company owns and operates 18 Granite City Food & Brewery restaurants located throughout the Midwest and two Real Urban Barbecue restaurants located in Illinois. On July 30, 2021, the Company completed the purchase of the Village Inn family restaurant concept currently with 22 Company-owned restaurants and 103 franchised restaurants, and the Bakers Square pie and comfort food concept currently with 14 Company-owned restaurants and four locations where 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. On March 11, 2022 the Company acquired three bar-centric locations, collectively referred to as “Famous Craft Concepts”, and on April 25, 2022, the Company executed an Asset Purchase Agreement for another bar-centric restaurant. On April 11, 2022, the Company closed the purchase of Barrio Queen, a chain of seven authentic Mexican fine dining restaurants in Phoenix, Arizona.

~~Overview~~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. During the first quarter of 2021, mandated restrictions began to ease in a number of the markets in which the Company operates. Although the Company has experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on its business remains uncertain, the duration and scope of which cannot currently be predicted. As new variants of COVID-19 are being discovered and cases continue to occur at material rates throughout the markets in which the Company does business, 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 its 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.

~~In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID~~-~~19”)~~ as17 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. During the first quarter of 2021, mandated restrictions began to ease in a number of the markets in which we operate. Although we have experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on our business remains uncertain, the duration and scope of which cannot currently be predicted. As new variants of COVID-19 are being discovered and cases in unvaccinated people rise throughout the markets in which we do business, we cannot predict the severity of another surge, what additional restrictions may be enacted, to what extent we can maintain off-premise sales volumes, whether we can maintain sufficient staffing levels, or if individuals will be comfortable returning to our 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 our operating results and financial position.

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES

The following table includes the number of Company-owned and franchise-operated restaurants as of the dates presented:


	BBQ Holdings
	Three Months Ended		Three Months Ended
	April 3, 2022		April 4, 2021
Company-owned restaurants:
Famous Dave's	40		27
Granite City Food & Brewery	18		18
Real Urban Barbecue	2		1
Clark Crew BBQ	1		1
Village Inn	22		—
Bakers Square	14		—
Tahoe Joe's	4		—
Famous Craft Concepts	3		—
End of period	104		47
% of system	33	%	32	%
Franchise-operated and licensed restaurants:
Famous Dave's	104		100
Village Inn	103		—
Bakers Square	4		—
End of period	211		100
% of system	67	%	68	%
System end of period total	315		147

Of the 104 franchise-operated restaurants, 19 are Famous Dave’s ghost kitchens operating out of the kitchen of another restaurant location or a shared kitchen space. Additionally, eight of our Granite City locations are operating Famous Dave’s ghost kitchens under licensing agreements.

Fiscal Year

Our fiscal year ends on the Sunday closest to December 31st. Our fiscal year is generally 52 weeks; however, it periodically consists of 53 weeks. Both fiscal year 2022, ending January 1, 2023, and fiscal year 2021, ended January 2, 2022, consist of 52 weeks.

Revenue

Our revenue consists of restaurant sales, franchise-related revenue and licensing, national advertising fund contributions and other revenue. Our franchise-related revenue is comprised of three separate and distinct earnings processes: area development fees, initial franchise fees, and continuing royalty and national advertising fund payments. Currently, our domestic area development fee consists of a one-time, non-refundable payment of approximately $15,000 per restaurant in consideration for the services we perform in preparation of executing each area development agreement. For our international area development agreements, the one-time, non-refundable payment is negotiated on a per development basis and is determined based on the costs incurred to arrange for the sale of that development area. Currently, our initial, non-refundable, franchise fee for domestic growth depends on the restaurant model and varies from $15,000 to $45,000 per location. Finally, franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales. Licensing revenue includes royalties from a retail line of business, including Famous Dave’s branded sauces, rubs, marinades and seasonings. Other revenue includes the recognition of gift card breakage, opening assistance and training we provide to our franchise partners, the sale of Real Urban Barbeque consumer packaged goods, and the sale of raw brewing products produced at the Granite City brewing facility.

- 18 -

-Table 18of -Contents

~~Table~~BBQ ofHOLDINGS, ~~Contents~~INC. AND SUBSIDIARIES

~~BBQ HOLDINGS, INC. AND SUBSIDIARIES~~

Costs and Expenses

~~The~~Restaurant ~~following~~costs ~~table~~and ~~includes~~expenses ~~the~~include ~~number~~food, ofbeverage ~~Company-owned~~and merchandise costs; labor and ~~franchise-operated~~benefits ~~restaurants~~costs; asand operating expenses, which include occupancy costs, repair and maintenance costs, supplies, advertising and promotion. Certain of ~~the~~these ~~dates~~costs ~~presented:~~and expenses are variable and will increase or decrease with sales volume. The primary fixed costs are restaurant management, operations, and catering support salaries, occupancy and insurance costs.


	BBQ Holdings
	Nine Months Ended		Nine Months Ended
	October 3, 2021		September 27, 2020
Company-owned restaurants:
Famous Dave's	31		29
Granite City Food & Brewery	18		18
Real Urban Barbecue	1		1
Clark Crew BBQ	1		1
Village Inn	21		—
Bakers Square	11		—
End of period	83		49
% of system	28	%	33	%
Franchise-operated restaurants:
Famous Dave's	104		98
Village Inn	109		—
End of period	213		98
% of system	72	%	67	%
System end of period total	296		147

General and Administrative Expenses

OfGeneral ~~the~~and ~~104~~administrative ~~franchise-operated~~expenses ~~restaurants,~~include 20all ~~are~~corporate ~~Famous~~and ~~Dave’s~~administrative ~~ghost~~functions ~~kitchens~~to ~~operating~~support ~~out~~future ofgrowth. ~~the~~Salaries ~~kitchen~~and ofbenefits, ~~another~~legal ~~restaurant~~fees, ~~location~~accounting orfees, aprofessional ~~shared~~consulting ~~kitchen~~fees, ~~space. Additionally~~travel, ~~eight~~rent ofand ~~our~~general ~~Granite~~insurance ~~City~~are ~~locations~~major ~~are~~items ~~operating~~in ~~Famous~~this ~~Dave’s~~category. ~~ghost~~We ~~kitchens~~also ~~under~~provide ~~licensing~~franchise ~~agreements~~services for which the revenue is included in other revenue and the expenses are included in general and administrative expenses.

~~Fiscal~~Results of Operations ~~Year~~– the three months ended April 3, 2022 compared to the three months ended April 4, 2021.

~~Our~~The ~~fiscal year~~following ~~ends~~discussion onand ~~the~~analysis ~~Sunday~~of ~~closest~~financial tocondition ~~December 31st.~~and ~~Our~~results ~~fiscal year~~of isoperations ~~generally~~should 52be ~~weeks;~~read ~~however,~~in itconjunction ~~periodically~~with ~~consists~~the ofaccompanying 53unaudited ~~weeks.~~condensed ~~Fiscal year~~consolidated ~~2021,~~financial ~~ending~~statements ~~January~~and 2notes, ~~2022,~~and ~~will~~the ~~have~~audited 52consolidated ~~weeks~~financial ~~while~~statements ~~fiscal~~and ~~year~~notes ~~2020~~included ~~which~~in ~~ended~~our ~~January~~Annual 3,Report ~~2021~~on ~~included~~Form 10-K 53for ~~weeks~~the fiscal year ended January 2, 2022.

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

Our revenue consists of restaurant sales, franchise-related revenue and licensing, national advertising fund contributions and other revenue. Our franchise-related revenue is comprised of three separate and distinct earnings processes: area development fees, initial franchise fees, and continuing royalty and national advertising fund payments. Currently, our domestic area development fee consists of a one-time, non-refundable payment of approximately $15,000 per restaurant in consideration for the services we perform in preparation of executing each area development agreement. For our international area development agreements, the one-time, non-refundable payment is negotiated on a per development basis and is determined based on the costs incurred to arrange for the sale of that development area. Currently, our initial, non-refundable, franchise fee for domestic growth depends on the restaurant model and varies from $15,000 to $45,000 per location. Finally, franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales. Licensing revenue includes royalties from a retail line of business, including Famous Dave’s branded sauces, rubs, marinades and seasonings. Other revenue includes opening assistance and training we provide to our franchise partners, the sale of Real Urban Barbeque consumer packaged goods, and the sale of raw brewing products produced at the Granite City brewing facility.


	Three Months Ended
	April 3, 2022		April 4, 2021
Food and beverage costs⁽¹⁾	31.3	%	29.9	%
Labor and benefits costs⁽¹⁾	33.0	%	30.5	%
Operating expenses⁽¹⁾	29.3	%	30.5	%
Restaurant-level operating margin⁽¹⁾⁽²⁾	6.4	%	9.1	%
Depreciation and amortization expenses⁽³⁾	3.8	%	4.2	%
General and administrative expenses⁽³⁾	8.2	%	10.8	%
Income (loss) from operations⁽³⁾	0.7	%	2.2	%

-(1) 19As -a percentage of restaurant sales, net

~~Table~~(2) ofRestaurant-level ~~Contents~~margins are equal to restaurant sales, net, less restaurant level food and beverage costs, labor and benefit costs, and operating expenses.

~~BBQ~~(3) ~~HOLDINGS,~~As ~~INC.~~a ~~AND~~percentage ~~SUBSIDIARIES~~of total revenue

Total Revenue

~~Costs~~Our components of and ~~Expenses~~changes in revenue consisted of the following for the three months ended April 3, 2022 and April 4, 2021:

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


	Three Months Ended
(dollars in thousands)	April 3, 2022		April 4, 2021		$ Change		% Change
Revenue:
Restaurant sales, net	$	58,731	$	33,603	$	25,128		74.8	%
Franchise royalty and fee revenue		3,607		2,374		1,233		51.9	%
Franchisee national advertising fund contributions		490		328		162		49.4	%
Licensing and other revenue		1,356		1,014		342		33.7	%
Total revenue	$	64,184	$	37,319	$	26,865		72.0	%

~~General and Administrative Expenses~~

~~General~~- ~~and~~19 administrative expenses include all corporate and administrative functions to support future growth. Salaries and benefits, legal fees, accounting fees, professional consulting fees, travel, rent and general insurance are major items in this category. We also provide franchise services for which the revenue is included in other revenue and the expenses are included in general and administrative expenses.-

~~Results~~Table of ~~Operations – the three and nine months ended October 3, 2021 compared to the three and nine months ended September 27, 2020.~~Contents

~~The~~BBQ ~~following discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes~~HOLDINGS, ~~and~~INC. ~~the~~AND ~~audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021.~~SUBSIDIARIES

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


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Food and beverage costs(1)	29.2	%	29.9	%	29.3	%	30.9	%
Labor and benefits costs(1)	33.4	%	34.4	%	31.5	%	34.5	%
Operating expenses(1)	28.8	%	32.3	%	29.0	%	33.5	%
Restaurant-level operating margin(1)(2)	8.6	%	3.4	%	10.1	%	1.0	%
Depreciation and amortization expenses(3)	3.5	%	3.9	%	3.6	%	4.4	%
General and administrative expenses(3)	9.2	%	8.8	%	9.9	%	11.4	%
Income (loss) from operations(3)	3.1	%	0.0	%	3.9	%	(9.8)	%

Restaurant Sales, net

~~(1)~~The Asincrease ain ~~percentage~~year-over-year ofnet restaurant sales for the three months ended April 3, ~~net~~2022 was primarily due to the acquisition of 32 Village Inn and Bakers Square restaurants in July 2021, the acquisiton of Tahoe Joe’s in October 2021, and the acquisition of 5 Famous Dave’s franchise locations over the past 12 months. Additionally, dining restrictions related to the COVID-19 pandemic eased throughout 2021, resulting in an increase in dine-in sales in the three months ended April 3, 2022 compared to the three months ended April 4, 2021.

~~(2)~~It ~~Restaurant-level~~is ~~margins~~our ~~are~~policy ~~equal~~ to ~~restaurant~~include ~~sales,~~in same store net sales base, ~~less~~restaurants ~~restaurant~~that ~~level~~have ~~food~~been ~~and~~open ~~beverage~~for ~~costs,~~12 ~~labor~~months ~~and~~under ~~benefit~~BBQ ~~costs~~Holdings’ ownership. In the first quarter of 2022, ~~and~~same ~~operating~~store ~~expenses~~net sales for Company-owned restaurants increased 14.5% compared to the first quarter of 2021, respectively.

~~(3)~~Franchise-Related AsRevenue, aincluding ~~percentage~~national ofadvertising ~~total~~fund ~~revenue~~contributions

~~Total~~The ~~Revenue~~increase in franchise royalty revenue and national advertising fund contributions year over year was due primarily to the acquisition of the Village Inn brand in July 2021 with over 100 franchise locations. Royalties and advertising fund contributions are based on franchisee sales, so the easing of the COVID-19 dining restrictions starting mid-2021 helped increase franchise-related revenue.

~~Our~~Licensing ~~components of~~ and ~~changes~~Other ~~in revenue consisted of the following for the three and nine months ended October 3, 2021 and September 27, 2020:~~Revenue


	Three Months Ended
(dollars in thousands)	October 3, 2021		September 27, 2020		$ Change		% Change
Revenue:
Restaurant sales, net	$	50,374	$	32,559	$	17,815		54.7	%
Franchise royalty and fee revenue		3,329		2,153		1,176		54.6	%
Franchisee national advertising fund contributions		461		302		159		52.6	%
Licensing and other revenue		1,219		497		722		145.3	%
Total revenue	$	55,383	$	35,511	$	19,872		56.0	%

For the three months ended April 3, 2022, licensing and other revenue grew 33.7% compared to the three months ended April 4, 2021. This is due primarily to the recognition of increased gift card breakage.

-Average 20Weekly -Net Sales

~~Table~~The offollowing ~~Contents~~table shows Company-owned and franchise-operated average weekly same store sales for the periods presented:

BBQ HOLDINGS, INC. AND SUBSIDIARIES


	Three Months Ended
	April 3, 2022		April 4, 2021
Average Weekly Net Sales (AWS):
Franchise-Operated Famous Dave's⁽¹⁾	$	49,585	$	45,640
Company-Owned Famous Dave's		54,022		49,661
Company-Owned Granite City		71,512		57,382
Company-Owned Clark Crew		146,851		138,782
Company-Owned Real Urban BBQ		44,086		39,459
Company-Owned Village Inn⁽²⁾		32,791		27,347
Franchise-Operated Village Inn⁽¹⁾⁽²⁾		33,519		27,940
Company-Owned Bakers Square⁽²⁾		27,573		23,200
Company-Owned Tahoe Joe's⁽²⁾		84,664		79,262

(1) AWS for franchise-operated restaurants are not our revenues and are not included in our condensed consolidated financial statements. We believe that disclosure of comparable restaurant net sales for franchise-operated restaurants provides useful information to investors because historical performance and trends of Famous Dave’s and Village Inn franchisees relate directly to trends in franchise royalty revenues that we receive from such franchisees and have an impact on the perceived success and value of the Famous Dave’s and Village Inn brands. It also provides a comparison against which management and investors can analyze the extent to which Company-owned restaurants are realizing their revenue potential.

	Nine Months Ended
(dollars in thousands)	October 3, 2021		September 27, 2020		$ Change		% Change
Revenue:
Restaurant sales, net	$	125,182	$	78,251	$	46,931		60.0	%
Franchise royalty and fee revenue		8,649		6,628		2,021		30.5	%
Franchisee national advertising fund contributions		1,210		826		384		46.5	%
Licensing and other revenue		3,181		1,423		1,758		123.5	%
Total revenue	$	138,222	$	87,128	$	51,094		58.6	%

(2)	Management notes that Village Inn, Bakers Square, and Tahoe Joe’s were not owned by the Company in Q1 of 2021, and as such the respective amounts presented above are pro forma in nature.

~~Restaurant~~- ~~Sales,~~20 ~~net~~-

~~The~~Table ~~increase in year-over-year net restaurant sales for the three and nine months ended October 3, 2021 was partially due to the acquisition~~ of the 18 Granite City restaurants and one Real Urban Barbeque restaurant in March 2020, the acquisition of four Famous Dave’s franchisees and 32 Village Inn and Bakers Square restaurants in July 2021, as well as the easing of dining restrictions put in place to attempt to control the spread of COVID-19 in the first three quarters of of 2021 compared to the first three quarters of 2020. Contents

~~It is our policy to include in same store net sales base, restaurants that have been open for 12 months under~~ BBQ ~~Holdings’ ownership. In the third quarter and first three quarters of 2021~~HOLDINGS, ~~same store net sales for Company-owned restaurants overall increased 24~~INC.0% ~~and~~AND ~~36.3% compared to the third quarter and first three quarters of 2020, respectively.~~SUBSIDIARIES

Same store net sales for Company-owned Famous Dave’s restaurants for the three and nine months ended October 3, 2021 increased 19.3% and 24.0% compared to the three and nine months ended September 27, 2020, respectively. Same store net sales for franchise-operated restaurants for the three and nine months ended October 3, 2021 increased 18.0% and 25.6% compared to the three and nine months ended September 27, 2020, respectively.

~~Same~~Food ~~store~~and ~~sales~~Beverage at our Granite City restaurants increased 31.4% during the third quarter of 2021 compared to the third quarter of 2020. Sales for the first three quarters of 2021 at our Granite City restaurants increased 45.6% compared to the first three quarters of 2020 which was under prior ownership through March 8, 2020. Costs

~~Same~~Our ~~store~~food ~~sales at Clark Crew~~ and ~~Real~~beverage ~~Urban~~costs ~~BBQ~~consisted ~~increased 14.5% and 18.4% in the third quarter~~ of ~~2021 compared to~~ the ~~third~~following ~~quarter~~for ~~of 2020, respectively. For~~ the ~~nine~~three months ended ~~October~~April 3, ~~2021 compared to the nine months ended September 27~~2022, ~~2020, same store sales at Clark Crew~~ and ~~Real~~April ~~Urban BBQ increased 17.~~4~~% and 12.8%~~, ~~respectively.~~2021:

The increases in our same store sales is primarily a result of the easing of dining restrictions put in place to attempt to control the spread of COVID-19 in the first three quarters of of 2021 compared to the first three quarters of 2020. These restrictions virtually eliminated dine-in business at our restaurants for the majority of the first three quarters of fiscal year 2020. During the first three quarters of 2021, most of our restaurants were operating at partial to full dine-in capacity.


	Three Months Ended
(dollars in thousands)	April 3, 2022		April 4, 2021		$ Change		% Change
Food and beverage costs	$	18,357	$	10,057	$	8,300		82.5	%

~~Franchise~~Food and beverage costs for the three months ended April 3, 2022, and April 4, 2021, represented approximately 31.3% and 29.9% of net restaurant sales, respectively. This year-~~Related~~over-year ~~Revenue~~increase, ~~including~~as ~~national~~a percentage ~~advertising~~of ~~fund~~net ~~contributions~~restaurant sales, was a result of increases in commodity costs, which was partially offset by a more favorable commodity mix due to 2021 acquisitions.

~~The~~Labor ~~increase in franchise royalty revenue~~ and ~~national~~Benefits advertising fund contributions year over year was due to the increase in same store sales at our Famous Dave’s franchisees, as royalties and advertising fund contributions are based on franchisee sales. The net sales increase was due to the easing of the dining restrictions related to the COVID-19 pandemic in 2021. Additional franchise-related revenue was generated from Village Inn franchisees beginning July 30, 2021.Costs

~~Licensing~~Our labor and ~~Other~~benefits ~~Revenue~~costs consisted of the following for the three months ended April 3, 2022, and April 4, 2021:

For the three and nine months ended October 3, 2021, licensing and other revenue grew 145.3% and 123.5%, compared to the three and nine months ended September 27, 2020, respectively. In addition to the recognition of gift card breakage, this increase is due to the addition of Real Urban BBQ consumer packaged goods, and the sale of raw brewing products produced at the Granite City brewing facility.


	Three Months Ended
(dollars in thousands)	April 3, 2022		April 4, 2021		$ Change		% Change
Labor and benefits costs	$	19,386	$	10,254	$	9,132		89.1	%

Labor and benefits costs for the three months ended April 3, 2022, and April 4, 2021, represented approximately 33.0% and 30.5% of net restaurant sales, respectively. The year-over-year 21increase, as a percentage of net restaurant sales, was driven in part by increased hourly and salary wage rates, as well as an increase in dine-in sales requiring a higher level of staffing.

~~Table of Contents~~

~~BBQ~~Operating ~~HOLDINGS, INC. AND SUBSIDIARIES~~Expenses

Our operating expenses consisted of the following for the three months ended April 3, 2022, and April 4, 2021:

Average Weekly Net Sales


	Three Months Ended
(dollars in thousands)	April 3, 2022		April 4, 2021		$ Change		% Change
Operating expenses	$	17,239	$	10,249	$	6,990		68.2	%

~~The~~Operating ~~following~~expenses ~~table~~for ~~shows~~the ~~Company-owned~~three months ended April 3, 2022, and ~~franchise~~April 4, 2021 represented approximately 29.3% and 30.5% of net restaurant sales, respectively. This year-~~operated~~over-year ~~average~~decrease ~~weekly~~in ~~same~~expense ~~store~~as a percentage of net restaurant sales ~~for~~was ~~the~~due ~~periods~~primarily ~~presented:~~to leverage on our fixed operating costs.


	Three Months Ended				Nine Months Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Average Weekly Net Sales (AWS):
Franchise-Operated Famous Dave's(1)	$	52,666	$	44,638	$	53,405	$	42,604
Company-Owned Famous Dave's		55,655		46,589		55,377		44,984
Company-Owned Granite City		69,994		52,976		66,220		45,758
Company-Owned Clark Crew		147,318		128,032		149,049		127,593
Company-Owned Real Urban BBQ		53,058		44,528		49,164		43,901

Depreciation and Amortization

~~(1)~~Depreciation ~~AWS~~and ~~for~~amortization ~~franchise-operated~~expense ~~restaurants~~for ~~are~~the ~~not~~three ~~our~~months ~~revenues~~ended ~~and~~April ~~are~~3, ~~not~~2022 ~~included~~was in$2.4 ~~our~~million, ~~consolidated~~compared ~~financial~~to ~~statements~~$1.6 Wemillion ~~believe that disclosure of comparable restaurant net sales~~ for ~~franchise-operated~~the ~~restaurants~~three ~~provides~~months ~~useful~~ended ~~information~~April to4, ~~investors~~2021. The ~~because~~increase ~~historical~~in ~~performance~~depreciation and ~~trends~~amortization ofexpense ~~Famous~~was ~~Dave’s~~due ~~franchisees relate directly~~ to ~~trends~~the inacquisitions ~~franchise royalty revenues~~ that weoccurred ~~receive~~in ~~from~~the ~~such~~12 ~~franchisees~~months ~~and~~following ~~have an impact on~~ the ~~perceived~~end ~~success and value~~ of the ~~Famous~~first ~~Dave’s~~quarter ~~brand.~~of ~~It also provides a comparison against which management and investors can analyze the extent to which Company-owned restaurants are realizing their revenue potential~~2021.

~~Food~~General and ~~Beverage~~Administrative ~~Costs~~Expenses

Our ~~food~~general and ~~beverage~~administrative ~~costs~~expenses consisted of the following for the three ~~and nine~~ months ended ~~October~~April 3, ~~2021~~2022, and ~~September~~April 274, ~~2020~~2021:


	Three Months Ended
(dollars in thousands)	~~October~~April 3, ~~2021~~2022		~~September~~April 274, ~~2020~~2021		$ Change	~~$ Change~~		% Change	~~% Change~~
Food and beverage costs	$	14,731	$	9,735		$	4,996			51.3	%
General and administrative expenses	$	5,291	$	4,038	$	1,253			31.0	%


	Nine Months Ended
(dollars in thousands)	October 3, 2021		September 27, 2020			$ Change			% Change
Food and beverage costs	$	36,720	$	24,206		$	12,514			51.7	%

Food and beverage costs for the three months ended October 3, 2021 and September 27, 2020, represented approximately 29.2% and 29.9% of net restaurant sales, respectively. Food and beverage costs for the nine months ended October 3, 2021 and September 27, 2020, represented approximately 29.3% and 30.9% of net restaurant sales, respectively. This year-over-year decrease, as a percentage of net restaurant sales was a result of the reduction of menu items offered as the restaurants reacted to the increase in to-go business and limited in-store dining due to COVID-19 restriction and the improvement of operating efficiencies in general. The addition of the Village Inn restaurants, which historically have run lower food cost than that of the other BBQ Holdings’ brands, reduced the the food costs as a percent of revenue in the third quarter of 2021 compared to the third quarter of 2020.

- 21 -

-Table 22of -Contents

~~Table~~BBQ ofHOLDINGS, ~~Contents~~INC. AND SUBSIDIARIES

~~BBQ HOLDINGS, INC. AND SUBSIDIARIES~~

~~Labor~~General and ~~Benefits~~administrative ~~Costs~~expenses for the three months ended April 3, 2022, and April 4, 2021 represented approximately 8.2% and 10.8% of total revenues, respectively. This year-over-year decrease in expense as a percentage of total revenues was due primarily to leverage from the increased revenue resulting from 2021 acquisitions and an increase in dine-in sales.

~~Our~~Asset ~~labor~~Impairment, ~~and~~Estimated ~~benefits~~Lease ~~costs~~Termination ~~consisted of the following for the three~~ and ~~nine~~Other ~~months~~Closing ~~ended October 3, 2021 and September 27, 2020:~~ Costs


	Three Months Ended
(dollars in thousands)	October 3, 2021		September 27, 2020		$ Change		% Change
Labor and benefits costs	$	16,805	$	11,189	$	5,616		50.2	%


	Nine Months Ended
(dollars in thousands)	October 3, 2021		September 27, 2020		$ Change		% Change
Labor and benefits costs	$	39,488	$	26,976	$	12,512		46.4	%

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


	Three Months Ended
(dollars in thousands)	April 3, 2022		April 4, 2021
Asset impairments, net	$	181	$	—
Lease termination and restaurant closure expenses		228		12
Asset impairment, estimated lease termination charges and other closing costs	$	409	$	12

~~Labor~~Income ~~and~~Tax ~~benefits~~(Expense) costs for the three months ended October 3, 2021 and September 27, 2020, represented approximately 33.4% and 34.4% of net restaurant sales, respectively. Labor and benefits costs for the nine months ended October 3, 2021 and September 27, 2020, represented approximately 31.5% and 34.5% of net restaurant sales, respectively. The year-over-year decrease as a percentage of net restaurant sales, was driven in part by a concerted effort by management to increase efficiency at the restaurants, and by the decrease in labor needed for service staff as dining room sales decreased with the closure of dining rooms in 2020 as a result of COVID-19. Benefit

Income tax benefit for the three months ended April 3, 2022 was approximately $241,000, or 59.4% of our pretax income and the income tax expense for the three months ended April 4, 2021 was $82,000, or 10.5% of our pretax income.

~~Operating~~Financial ~~Expenses~~Condition, Liquidity and Capital Resources

Our ~~operating~~balance ~~expenses~~of ~~consisted~~unrestricted ofcash ~~the~~and ~~following~~cash ~~for~~equivalents ~~the~~was ~~three~~approximately $35.4 million and ~~nine~~$40.3 ~~months~~million ~~ended~~as ~~October~~of April 3, ~~2021~~2022, and ~~September~~January 272, ~~2020:~~2022, respectively. Our current ratio, which measures our immediate short-term liquidity, was 1.1 as of April 3, 2022, and January 2, 2022, respectively. The current ratio is computed by dividing total current assets by total current liabilities.


	Three Months Ended
(dollars in thousands)	October 3, 2021		September 27, 2020		$ Change		% Change
Operating expenses	$	14,512	$	10,521	$	3,991		37.9	%


	Nine Months Ended
(dollars in thousands)	October 3, 2021		September 27, 2020		$ Change		% Change
Operating expenses	$	36,355	$	26,251	$	10,104		38.5	%

Net cash provided by operating activities was approximately $1.4 million for the first three months ended April 3, 2022, and was approximately $4.2 million for the first three months ended April 4, 2021. The $2.8 million year-over-year decrease in net cash provided by operating activities was driven by an additional $1 million in gift card liability redemptions which corresponded with higher gift card sales in the fourth quarter of 2021. Additionally, working capital changes decreased cash flow from operations by approximately $2.1 million year-over-year.

~~Operating~~Net ~~expenses~~cash used for ~~the~~investing ~~three~~activities ~~months~~was ~~ended October 3, 2021 and September 27, 2020 represented~~ approximately 28$5.8%2 ~~and~~million ~~32.3% of net restaurant sales, respectively. Operating expenses~~ for the ~~nine~~three months ended ~~October~~April 3, ~~2021~~2022 ~~and~~relating ~~September 27, 2020 represented approximately 29.0% and 33.5% of net restaurant sales, respectively. This year-over-year decrease in expense as a percentage of net restaurant sales was due~~ primarily to ~~leverage on our fixed operating costs from~~ the ~~increased~~purchase ~~revenue resulting from easing~~ of ~~dine-in~~the ~~restrictions~~Famous ~~and~~Craft ~~restrictions~~Concepts onrestaurants, ~~large~~the ~~gatherings~~acquisition of which ~~were~~we ~~put~~closed in ~~place~~March ~~in 2020 due to COVID-19 concerns~~2022.

~~Depreciation~~Net cash used for investing activities was approximately $685,000 for the three months ended April 4, 2021, relating to payments for the purchase of equipment and ~~Amortization~~leasehold improvements.

~~Depreciation~~Net ~~and~~cash ~~amortization~~used ~~expense~~for financing activities for the three ~~and nine~~ months ended ~~October~~April 3, ~~2021~~2022, was ~~$1.9~~approximately ~~million and~~ $~~4.9 million~~585,000 ~~respectively,~~which ~~compared to $1.4 million and $3.8 million for the three and nine months ended September 27, 2020, respectively. The increase in depreciation and amortization expense~~ was ~~due~~primarily ~~to improvements made to established locations and~~ the ~~acquisition~~result of ~~additional~~payments ~~locations in the first quarter~~ of ~~2020~~$562,000 ~~and~~on ~~the~~our ~~third~~long-term ~~quarter of 2021~~debt.

Net cash used for financing activities for the three months ended April 4, 2021, was approximately $519,000 which was for payments on our long-term debt.

We are subject to various financial and non-financial 23covenants on our long-term debt, including a debt-service coverage ratio. As of April 3, 2022, we were in compliance with all of our covenants.

~~Table~~Critical ofAccounting ~~Contents~~Policies

~~BBQ~~Our ~~HOLDINGS~~significant accounting policies are described in Note 1 – Nature of Business and Significant Accounting Policies to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 2, ~~INC~~2022. Except ~~AND~~as ~~SUBSIDIARIES~~disclosed in Note 1 “Basis of Presentation” to the accompanying notes to the consolidated financial statements, there have been no updates to our critical accounting policies.

- 22 -

~~General~~Table ~~and~~of ~~Administrative Expenses~~Contents

~~Our~~BBQ ~~general and administrative expenses consisted of the following for the three and nine months ended October 3~~HOLDINGS, ~~2021~~INC. ~~and~~AND ~~September 27, 2020:~~SUBSIDIARIES


	Three Months Ended
(dollars in thousands)	October 3, 2021		September 27, 2020		$ Change		% Change
General and administrative expenses	$	5,109	$	3,138	$	1,971		62.8	%


	Nine Months Ended
(dollars in thousands)	October 3, 2021		September 27, 2020		$ Change		% Change
General and administrative expenses	$	13,691	$	9,973	$	3,718		37.3	%

Forward-Looking Information

BBQ Holdings makes written and oral statements from time to time, including statements contained in this Quarterly Report on Form 10-Q regarding its business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends and other matters that are forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Statements containing the words or phrases “will likely result”, “anticipates”, “are expected to”, “will continue”, “is anticipated”, “estimates”, “projects”, “believes”, “expects”, “intends”, “target”, “goal”, “plans”, “objective”, “should” or similar expressions identify forward-looking statements which may appear in documents, reports, filings with the SEC, news releases, written or oral presentations made by our officers or other representatives to analysts, shareholders, investors, news organizations, and others, and discussions with our management and other Company representatives. For such statements, including those contained in this report, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

~~General~~Our ~~and~~future ~~administrative~~results, ~~expenses~~including ~~for~~results ~~the~~related ~~three~~to ~~months~~forward-looking ~~ended~~statements, ~~October~~involve 3,a ~~2021~~number of risks and ~~September~~uncertainties 27that are difficult to predict, ~~2020~~including ~~represented~~but ~~approximately~~not ~~9.2%~~limited ~~and~~to ~~8.8%~~those ofidentified ~~total~~herein ~~revenues~~under Part II, ~~respectively~~Item 1A. ~~General~~ “Risk Factors” and ~~administrative~~under ~~expenses~~Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the ~~nine~~fiscal year ~~months~~ ended ~~Octeober~~January 32, ~~2021~~2022. ~~and~~No ~~September~~assurance ~~27,~~can ~~2020~~be ~~represented~~given ~~approximately~~that ~~9.9%~~the ~~and~~results 11reflected in any forward-looking statements will be achieved.4% Any forward-looking statements made by us or on our behalf speak only as of ~~total~~the ~~revenues,~~date ~~respectively~~on which such statement is made. ~~While~~ ~~general~~Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and ~~administrative~~other ~~expenses~~information ~~increased~~from insuppliers, ~~the~~government ~~first~~agencies ~~three~~and ~~quarters~~other ofsources ~~2021~~that ~~compared~~may be subject to ~~the~~revision. ~~first~~We ~~three~~do ~~quarters~~not ofundertake ~~2020~~any ~~due~~obligation to ~~additional~~update ~~overhead~~or ~~related~~keep current either (i) any forward-looking statements to reflect events or circumstances arising after the ~~Granite~~date ~~City~~of such statement, ~~Real~~or ~~Urban~~(ii) the ~~BBQ~~important ~~and~~factors ~~Village~~that ~~Inn~~could ~~and~~cause ~~Bakers~~our ~~Square~~future ~~acquisitions,~~results asto adiffer ~~percentage~~materially offrom ~~revenues~~historical ~~general~~results ~~and~~or ~~administrative~~trends, ~~expense~~results ~~decreased~~anticipated ~~year~~or ~~over~~planned ~~year~~by us, ~~due~~or inwhich ~~part~~are reflected from time to atime ~~higher~~in ~~revenue~~any ~~base.~~forward-looking statement which may be made by us or on our behalf.

~~Asset~~Additional ~~Impairment,~~Information ~~Estimated~~on ~~Lease~~BBQ ~~Termination and Other Closing Costs~~Holdings

~~The~~We ~~following~~are iscurrently asubject ~~summary~~to the informational requirements of the ~~asset~~Securities ~~impairment~~Exchange Act of 1934, ~~estimated~~as ~~lease~~amended. ~~termination~~As a result, we are required to file periodic reports and other ~~closings~~information ~~costs~~with the SEC, such as annual, quarterly, and current reports, proxy and information statements. You are advised to read this Quarterly Report on Form 10-Q in conjunction with the other reports, proxy statements and other documents we ~~incurred~~file ~~for~~from time to time with the ~~periods~~SEC. ~~presented~~If you would like more information regarding BBQ Holdings, our SEC filings are also available to the public free of charge at the SEC’s website. The address of this website is http://www.sec.gov. Our most current SEC filings, such as our annual, quarterly and current reports, proxy statements and press releases are available to the public free of charge on our website.


	Three Months Ended				Nine Months Ended
(dollars in thousands)	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Asset impairments, net	$	—	$	—	$	—	$	4,710
Lease termination and restaurant closure expenses		69		(138)		106		104
Asset impairment, estimated lease termination charges and other closing costs	$	69	$	(138)	$	106	$	4,814

The address of our website is http://www.bbq-holdings.com. Our website is not intended to be, and is not, a part of this Quarterly Report on Form 10-Q. We will provide electronic or paper copies of our SEC filings (excluding exhibits) to any BBQ Holdings shareholder free of charge upon receipt of a written request for any such filing. All requests for our SEC filings should be sent to the attention of Investor Relations at BBQ Holdings, Inc., 12701 Whitewater Drive, Suite 100, Minnetonka, MN 55343.

~~Income Tax (Expense) Benefit~~

~~Financial~~- ~~Condition,~~23 ~~Liquidity and Capital Resources~~-

~~Our~~Table ~~balance~~ of unrestricted cash and cash equivalents was approximately $29.0 million and $18.1 million as of October 3, 2021 and January 3, 2021, respectively. Our current ratio, which measures our immediate short-term liquidity, was 1.0 and 1.1 as of October 3, 2021 and January 3, 2021, respectively. The current ratio is computed by dividing total current assets by total current liabilities. Contents

~~Net cash provided by operating activities increased to approximately $15.~~Item 3 ~~million in the nine months ended October 3, 2021 compared to $647, 000 in the nine months ended September 27, 2020~~.QUANTITATIVE ~~The~~AND ~~increase~~QUALITATIVE ~~was~~DISCLOSURES ~~driven~~ABOUT byMARKET ~~primarily by improved restaurant-level margins and efficiency in general and administrative expenses.~~ RISK

~~The~~Not ~~approximately~~applicable ~~$15.3 million in net cash provided by operating activities for the nine months ended October 3, 2021 reflects net income of approximately $21.9 million decreased primarily by $14.1 million related~~ to ~~the~~smaller ~~forgiveness~~reporting ~~of our PPP loans and related accrued interest, $3~~companies.~~2 million related to the bargain purchase gain resulting from the acquisition of the Village Inn and~~

-Item 4.CONTROLS 24AND -PROCEDURES

~~Table~~Under the supervision and with the participation of ~~Contents~~our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

~~BBQ~~There ~~HOLDINGS~~has been no change in our internal control over financial reporting during the quarterly period covered by this report that has materially affected, ~~INC.~~or ~~AND~~is ~~SUBSIDIARIES~~reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

~~Bakers Square restaurants, as well as payments on lease liabilities of $5.0 million, and an increase in prepaid expenses, receivables and other current assets of $~~Item 1.5LEGAL ~~million~~PROCEEDINGS. ~~Such amount was increased in part by $5.2 million of amortization of operating assets, $4.9 million of depreciation and amortization, and $4.4 million of accrued compensation.~~

The ~~approximately~~information ~~$647,000~~contained in ~~net~~Note 13 ~~cash~~– ~~provided~~Litigation byof ~~operating~~the ~~activities~~notes ~~for~~to the ~~nine~~accompanying ~~months~~consolidated ~~ended~~financial ~~September~~statements ~~27,~~included ~~2020~~in ~~reflects~~this ~~net~~Quarterly ~~income~~Report ofon ~~approximately~~Form 10-Q ~~$7.2~~is ~~million~~incorporated ~~reduced~~by ~~primarily~~reference byinto ~~the~~this ~~$13~~Item 1.7 ~~million~~Except ~~non-cash~~as ~~bargain~~set ~~purchase~~forth ~~gain~~therein, onas ~~the acquisition~~ of the ~~Granite~~end ~~City restauarants, $5.1 million~~ of ~~payments~~the onperiod ~~lease~~covered ~~liabilities and $2.6 million of deferred taxes. Such amount was increased~~ by ~~$3.7~~this ~~million~~Quarterly ~~non-cash~~Report ~~impairment expense net of gain~~ on ~~disposal of assets~~Form 10-Q, ~~$5.8~~we ~~million~~are ofnot ~~amortization~~a ofparty ~~operating~~to ~~assets,~~any ~~and~~material ~~$3.8~~pending ~~million~~legal ~~of depreciation and amortization expense~~proceedings.

Net cash used for investing activities was approximately $16.1 million for the nine months ended October 3, 2021, related primarily to payments for the purchase of the Village Inn and Bakers Square restaurants, Famous Dave’s restaurants and the initial payment for the Tahoe Joes’ restaurants, the acquisition of which we closed in October 2021 (NoteItem ~~15 – Subsequent Events)~~1A. ~~Net~~RISK ~~cash used for investing activities was approximately $7~~FACTORS.~~6 million for the nine months ended September 27, 2020, related to payments for acquired restaurants of $5.0 million and the purchase of property, equipment and leasehold improvements of $2.7 million.~~

~~Net~~The ~~cash~~most ~~provided~~significant byrisk ~~financing~~factors ~~activities~~applicable ~~for~~to the ~~nine~~Company ~~months~~are ~~ended~~described ~~October~~in 3Part I, ~~2021 was approximately $11~~Item 1A.3 ~~million~~“Risk ~~which~~Factors” ~~was primarily the result~~ of ~~the~~our ~~sale~~Annual ofReport ~~stock to accredited investors, the proceeds of which netted approximately $12.4 million, offset in part by payments of $1.6 million~~ on ~~our long~~Form 10-~~term~~K ~~debt. Net cash provided by financing activities~~ for the year ~~nine months~~ ended ~~September~~January 272, ~~2020~~2022, ~~was~~filed ~~approximately~~with ~~$21.3~~the ~~million~~SEC ~~which~~on ~~was~~March ~~related~~16, to2022, ~~the~~as ~~proceeds~~updated ~~from~~by ~~our~~this ~~loan~~Part II, ~~with~~Item 1A ~~Choice~~“Risk ~~Bank~~Factors” and ~~the proceeds from~~ our ~~PPP~~subsequent ~~Loans,~~filings ~~offset~~with inthe ~~part~~Securities byand ~~payments~~Exchange ~~on our long-term debt~~Commission. ~~Proceeds~~ ~~from~~There ~~our~~have ~~loan~~been ~~with~~no ~~Choice~~material ~~Bank~~changes ~~were~~from ~~used to fund acquisitions while~~ the ~~funds~~risk ~~from~~factors ~~the~~previously ~~PPP~~disclosed ~~Loans~~in ~~were~~our ~~used~~Annual toReport ~~fund~~on ~~operations~~Form 10-K.

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

~~Critical~~Item 6.EXHIBITS ~~Accounting Policies~~

Our significant accounting policies are described in Note 1 – Nature of Business and Significant Accounting Policies to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 3, 2021. Except as disclosed in Note 1 “Basis of Presentation” to the accompanying notes to the consolidated financial statements, there have been no updates to our critical accounting policies.


Exhibit
Number		Description

10.1		Asset Purchase Agreement, dated March 10, 2022, relating to the purchase of the assets of the Barrio Queen restaurant group, incorporated by reference to Exhibit 10.1 to Form 8-K filed on March 14, 2022.

10.2		Employment Agreement dated March 15, 2022 between BBQ Holdings, Inc. and Jeffery Crivello, incorporated by reference to Exhibit 10.29 to Form 10-K filed on March 16, 2022.

10.3		Restricted Stock Agreement for Jeffery Crivello, dated March 15, 2022, granted under the Amended and Restated 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.30 to Form 10-K filed on March 16, 2022.

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

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

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document

- 2524 -

Table of Contents

BBQ HOLDINGS, INC. AND SUBSIDIARIES


101.SCH		Inline XBRL Schema Document

101.CAL		Inline XBRL Calculation Linkbase Document

101.LAB		Inline XBRL Label Linkbase Document

101.PRE		Inline XBRL Presentation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 104		Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

~~Forward-Looking Information~~

~~Our future results, including results related to forward~~-~~looking~~ ~~statements,~~25 involve a number of risks and uncertainties that are difficult to predict, including but not limited to those identified herein under Part II, Item 1A. “Risk Factors” and under Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 3, 2021. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statements made by us or on our behalf speak only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. We do not undertake any obligation to update or keep current either (i) any forward-looking statements to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement which may be made by us or on our behalf.

~~Additional~~Table ~~Information~~of ~~on BBQ Holdings~~Contents

We are currently subject to the informational requirements of the Securities Exchange Act of 1934, as amended. As a result, we are required to file periodic reports and other information with the SEC, such as annual, quarterly, and current reports, proxy and information statements. You are advised to read this Quarterly Report on Form 10-Q in conjunction with the other reports, proxy statements and other documents we file from time to time with the SEC. If you would like more information regarding BBQ Holdings, our SEC filings are also available to the public free of charge at the SEC’s website. The address of this website is http://www.sec.gov. Our most current SEC filings, such as our annual, quarterly and current reports, proxy statements and press releases are available to the public free of charge on our website.

The address of our website is http://www.bbq-holdings.com. Our website is not intended to be, and is not, a part of this Quarterly Report on Form 10-Q. We will provide electronic or paper copies of our SEC filings (excluding exhibits) to any BBQ Holdings shareholder free of charge upon receipt of a written request for any such filing. All requests for our SEC filings should be sent to the attention of Investor Relations at BBQ Holdings, Inc., 12701 Whitewater Drive, Suite 100, Minnetonka, MN 55343.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.

BBQ HOLDINGS, INC.

~~- 26 -~~(“Registrant”)

~~Table of Contents~~

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Dated: May 12, 2022	By:	/s/Jeffery Crivello
		Jeffery Crivello
		Chief Executive Officer and Director
		(Principal Executive Officer)


Dated: May 12, 2022		/s/Jason Schanno
		Jason Schanno
		Chief Financial Officer and Secretary
		(Principal Financial Officer and Principal Accounting Officer)

~~Not applicable to smaller reporting companies.~~

~~Item 4.CONTROLS AND PROCEDURES~~

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

There has been no change in our internal control over financial reporting during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~PART II. OTHER INFORMATION~~

~~Item 1.LEGAL~~- ~~PROCEEDINGS.~~26 -

The information contained in Note 13 – Litigation of the notes to the accompanying consolidated financial statements included in this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1. Except as set forth therein, as of the end of the period covered by this Quarterly Report on Form 10-Q, we are not a party to any material pending legal proceedings.

Item 1A.RISK FACTORS.

The most significant risk factors applicable to the Company are described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended January 3, 2021, filed with the SEC on April 2, 2021, as updated by this Part II, Item 1A “Risk Factors” and our subsequent filings with the Securities and Exchange Commission. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

Item 6.EXHIBITS

Exhibit
Number		Description
10.1		Offer of Employment Letter to Jason Schanno, dated August 9, 2021, incorporated by reference to Exhibit 10.1 to Form 8-K filed August 12, 2021.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Schema Document
101.CAL		Inline XBRL Calculation Linkbase Document

- 27 -

Table of Contents

101.LAB		Inline XBRL Label Linkbase Document
101.PRE		Inline XBRL Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 104		Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

- 28 -

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.

BBQ HOLDINGS, INC.

(“Registrant”)



Dated: November 17, 2021	By:	/s/Jeffery Crivello
		Jeffery Crivello
		Chief Executive Officer and Director
		(Principal Executive Officer)


Dated: November 17, 2021		/s/Jason Schanno
		Jason Schanno
		Chief Financial Officer and Secretary
		(Principal Financial Officer and Principal Accounting Officer)

- 29 -

Three Months Ended

April 3, 2022

April 4, 2021

Effective tax rate

Filing Compare · BBQ HOLDINGS, INC.