BBQ: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

Overview

In September 2019 a holding company reorganization was completed in which Famous
Dave's of America, Inc. ("FDA") became a wholly owned subsidiary of the new
parent holding company named BBQ Holdings, Inc. ("BBQ Holdings"). As used in
this Form 10-K, "Company", "we" and "our" refer to BBQ Holdings and its wholly
owned subsidiaries. BBQ Holdings was incorporated on March 29, 2019 under the
laws of the State of Minnesota, while FDA was incorporated in Minnesota on March
14, 1994. We develop, own and operate restaurants under the name "Famous
Dave's", "Clark Crew BBQ", "Granite City Food & Brewery" and "Real Urban
Barbecue." Additionally, we franchise restaurants under the name "Famous
Dave's". As of January 3, 2021, there were 125 Famous Dave's restaurants
operating in 31 states, Canada, and the United Arab Emirates, including 27
Company-owned restaurants and 98 franchise-operated restaurants. Included in the
Famous Dave's company-owned restaurant total are four restaurants purchased in
July 2019 in Arizona ("Arizona Restaurants') and four restaurants purchased in
March 2019 in Colorado ("Colorado Restaurants"). The first Clark Crew BBQ
restaurant opened in December 2019 in Oklahoma City, Oklahoma. On March 9, 2020,
we purchased 18 Granite City Food & Brewery restaurants ("Granite City
Acquisition") in connection with a Chapter 11 bankruptcy filing. On March 16,
2020, we purchased one Real Urban Barbecue restaurant located in Vernon Hills,
Illinois. In October 2020, we signed a 25-unit development agreement with
Bluestone Hospitality Group ("Bluestone") whereby Bluestone will open Famous
Dave's ghost kitchens and dual restaurant concepts with the Johnny Carino's
Italian brand.





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Impact of the COVID-19 virus on our business

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

Fiscal year

Our fiscal year ends on the Sunday nearest to December 31st of each year. Our
fiscal year is generally 52 weeks; however, it periodically consists of 53
weeks. The fiscal year ended January 3, 2021 (fiscal 2020) consisted of 53 weeks
while the fiscal year ended December 29, 2019 (fiscal 2019) consisted of 52
weeks.

Presentation basis

The financial results presented and discussed herein reflect our results and the
results of our wholly-owned and majority-owned consolidated subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior year amounts to conform to the
current year's presentation.

Application of accounting methods and critical estimates

The following discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amount of assets, liabilities
and expenses, and related disclosures. On an on-going basis, management
evaluates its estimates and judgments. By their nature, these estimates and
judgments are subject to an inherent degree of uncertainty. Management bases its
estimates and judgments on historical experience, observance of trends in the
industry, information provided by customers and other outside sources and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates under
different assumptions or conditions. Our management believes the following
critical accounting policies reflect its more significant judgments and
estimates used in the preparation of our consolidated financial statements. Our
company's significant accounting policies are described in Note 1 Nature of
Business and Significant Accounting Policies to the consolidated financial
statements included herein.

We have discussed the development and selection of the following critical
accounting policies with the Audit Committee of our Board of Directors and the
Audit Committee has reviewed our disclosures relating to such policies in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

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Recognition of franchise-related income

We recognize franchise fee revenue on a straight-line basis over the life of the
related franchise agreements and any exercised renewal periods. Cash payments
are due upon the opening of a new restaurant or upon the execution of a renewal
of the related franchise agreement. Our performance obligation with respect to
franchise fee revenues consists of a license to utilize our brand for a
specified period of time, which is satisfied equally over the life of each
franchise agreement.

Area development fees are deferred until a new restaurant is opened pursuant to
the area development agreement, at which time revenue is recognized on a
straight-line basis over the life of the franchise agreement. Cash payments for
area development agreements are typically due when an area development agreement
has been executed. Gift card breakage revenue is recognized proportionately as
gift cards are redeemed utilizing an estimated breakage rate based on our
historical experience. Gift card breakage revenue is reported within the
licensing and other revenue line item of the consolidated statements of
operations.

The Company reports contributions from franchisees to our company's system-wide
Public Relations and Marketing Development Fund (the "NAF") on a gross basis
within the franchisee national advertising fund contributions line item on the
consolidated statements of operations.

Costs and expenses

Restaurant costs and expenses include, among other items, food and beverage
costs; labor and benefits costs; operating expenses, which include occupancy
costs, repair and maintenance costs, supplies and advertising and promotion.
Certain of these costs and expenses are variable and will increase or decrease
with sales volume. The primary fixed costs are restaurant management salaries
and occupancy costs. Our experience is that when a new restaurant opens, it
incurs higher than normal levels of labor and food costs until operations
stabilize, usually during the first three to six months of operations. As
restaurant management and staff gain experience following a restaurant's
opening, labor scheduling, food cost management and operating expense control
typically improve to levels similar to those at our more established
restaurants.

General and administrative expenses

General and administrative expenses include all corporate and administrative
functions, other than marketing and digital services. Salaries and benefits,
legal fees, accounting fees, professional consulting fees, travel, rent and
general insurance are major items in this category. Additionally, we record
expense for managers-in-training ("MITs") in this category.

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Impairment of assets, estimated lease termination and other closing costs

We evaluate restaurant sites and long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of restaurant sites to be held and used
is measured by a comparison of the carrying amount of the restaurant site to the
undiscounted future net cash flows expected to be generated on a
restaurant-by-restaurant basis. If a restaurant is determined to be impaired,
the loss is measured by the amount by which the carrying amount of the
restaurant site exceeds its fair value. Fair value is estimated based on the
best information available including estimated future cash flows, expected
growth rates in comparable restaurant sales, remaining lease terms, discount
rate and other factors. If these assumptions change in the future, we may be
required to take additional impairment charges for the related assets.
Considerable management judgment is necessary to estimate future cash flows.
Accordingly, actual results could vary significantly from such estimates.
Restaurant sites that are operating, but have been previously impaired, are
reported at the lower of their carrying amount or fair value less estimated
costs to sell.

Rental accounting

We lease the property for our corporate headquarters, most of our Company-owned
stores, and certain office and restaurant equipment. We determine if an
arrangement is a lease at inception. Operating leases are included in operating
lease right-of use ("ROU") assets, current portion of operating lease
liabilities, and operating lease liabilities in its consolidated balance sheets.
ROU assets and operating lease liabilities are recognized based on the present
value of lease payments over the lease term, including any renewal options where
the renewal is reasonably assured at the commencement date. Because most of our
leases do not provide an implicit rate of return, we use our incremental
borrowing rate based on the information available at commencement date in
determining the present value of lease payments. Operating lease ROU assets also
exclude lease incentives received. Where we are the lessee, at initial adoption,
we have elected to account for non-lease components associated with its leases
(e.g., common area maintenance costs) and lease components separately for
substantially all of its asset classes. Subsequent to adoption we will combine
lease and non-lease components.

We account for construction allowances by recording a receivable when its
collectability is considered probable, and relieve the receivable once the cash
is obtained from the landlord. We depreciate the leasehold improvements over the
lesser of their useful lives or the full term of the lease, including renewal
options and build-out periods. We record rent expense during the build-out
period and classify this expense in pre-opening expenses in our consolidated
statements of operations.

Liquor licenses
We own transferable liquor licenses in jurisdictions with a limited number of
authorized liquor licenses. These licenses are capitalized as indefinite-lived
intangible assets and are included in intangible assets, net in our consolidated
balance sheets. We review annually these liquor licenses for impairment.
Additionally, the costs of obtaining non-transferable liquor licenses that are
directly issued by local government agencies for nominal fees are expensed as
incurred. Annual liquor license renewal fees are recognized in expense over
the
renewal term.

Accounts receivable, net

We provide an allowance for uncollectible accounts on accounts receivable based
on historical losses and existing economic conditions, when relevant. We provide
for a general bad debt reserve for franchise receivables due to increases
in days sales outstanding for which no payment plan or other payment arrangement
exists. This general reserve is based on the aging of receivables meeting
specified criteria and is adjusted each quarter based on past due receivable
balances. Additionally, we have periodically established a specific reserve on
certain receivables as necessary on a case-by-case basis. Any changes to the
reserve are recorded in general and administrative expenses. In fiscal 2020, we
recorded approximately $403,000 in bad debt related to the discount we offered
franchisees on deferred payments remitted prior to June 30, 2020 as described in
Note 1 Nature of Business and Significant Accounting Policies to the financial
statements. Exclusive of that one-time adjustment, accounts receivable balances
written off have not exceeded allowances provided. We believe all accounts
receivable in excess of the allowance are fully collectible. If accounts
receivable in excess of provided allowances are determined uncollectible, they
are charged to expense in the period that

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determination is made. In assessing recoverability of these receivables, we make
judgments regarding the financial condition of the franchisees based primarily
on past and current payment trends, as well as other variables, including annual
financial information, which franchisees are required to submit to us.

Stock-based compensation

Beginning in fiscal 2019, we were required to adopt ASU 2018-17- Compensation -
Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting. See Note 1 Nature of Business and Significant Accounting Policies to
the accompanying financial statements for more information.

We recognize compensation expense for share-based awards granted to team members
based on their fair values at the time of grant over the requisite service
period. Additionally, our board members receive share-based awards for their
board service. Our pre-tax compensation expense for stock options and other
incentive awards is included in general and administrative expenses in our
consolidated statements of operations.

Income taxes

We provide for income taxes based on our estimate of federal and state income
tax liabilities. These estimates include, among other items, effective rates for
state and local income taxes, allowable tax credits for items such as taxes paid
on reported tip income, estimates related to depreciation and amortization
expense allowable for tax purposes, and the tax deductibility of certain other
items. Our estimates are based on the information available to us at the time
that we prepare the income tax provision. We generally file our annual income
tax returns several months after our fiscal year-end. Income tax returns are
subject to audit by federal, state, and local governments, generally years after
the tax returns are filed. These returns could be subject to material
adjustments or differing interpretations of the tax laws. Accounting for
uncertain tax positions requires significant judgment including estimating the
amount, timing, and likelihood of ultimate settlement. Although we believe that
our estimates are reasonable, actual results could differ from these estimates.
Additionally, uncertain positions may be re-measured as warranted by changes in
facts or law.

Operating results – Fiscal 2020 compared to 2019

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


                                                       Year Ended
                                          January 3, 2021    December 29, 2019
Food and beverage costs(1)                           30.9 %               31.4 %
Labor and benefits costs(1)                          34.0 %               35.8 %
Operating expenses(1)                                33.8 %               32.9 %
Restaurant level operating margin(1)(3)               1.3 %              (0.1) %
Depreciation and amortization expenses(2)             4.2 %                2.7 %
General and administrative expenses(2)               11.9 %               13.2 %
(Loss) income from operations(2)                    (9.2) %              

(1.9)%

(1) As a percentage of restaurant sales, net

(2) As a percentage of total sales

(3) The current operating margin at restaurant level is equal to restaurant sales, net,

    less food and beverage costs, labor and benefit costs, and operating
    expenses.


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Total Revenue

Our components and changes in our revenues included the following for the years ended January 3, 2021 and December 29, 2019:

                                                                       Year Ended
(dollars in thousands)                      January 3, 2021     December 29, 2019       $ Change     % Change
Revenue:
Restaurant sales, net                      $         109,544   $            68,564      $  40,980         59.8 %
Franchise royalty and fee revenue                      8,919                12,126        (3,207)       (26.4) %
Franchisee national advertising fund
contributions                                          1,124                 1,616          (492)       (30.4) %
Licensing and other revenue                            1,850                 1,249            601         48.1 %
Total revenue                              $         121,437   $            83,555      $  37,882         45.3 %



The increase in year-over-year restaurant sales for the year ended January 3,
2021 as compared to the year ended December 29, 2019 was primarily a result of
the net increase of 14 full service Company-owned restaurants during fiscal
2020, as a result of the acquisition of the Arizona Restaurants, Colorado
Restaurants and the Granite City Acquisition. Same store net sales for
Company-owned restaurants for fiscal year 2020, decreased 8.5% compared to
fiscal year 2019. It is our policy to include in our same store net sales base,
restaurants that have been open for 12 months under our company's ownership. On
a weighted basis, for the year ended January 3, 2021, dine-in sales decreased by
46.3% while to-go sales increased by 72.6% driven by third-party delivery sales
and curb-side pickup due to the unavailability of dine-in options as a result of
the COVID-19 pandemic. Catering same store sales decreased 54.6% for fiscal year
2020 compared to fiscal year 2019 as a result of group activities being
eliminated or reduced in capacity as a result of the COVID-19 pandemic.

We have been making significant investments in programs aimed at increasing
to-go and catering sales at all our BBQ Holdings restaurants. We have rolled out
delivery programs with various third-party services, which we believe, along
with online ordering, will continue to augment our to-go and catering sales in
the future. We believe our focus on to-go enables us to capture a greater
portion of the "take-out" market by allowing consumers to "trade within our
brands," when dining in is not always an option. We believe that these
innovations will provide additional avenues for our franchisees to grow their
respective businesses.

The decrease in year-over-year franchise-related revenue was primarily due to
the elimination of the dine-in option for our guests in much of fiscal year 2020
due to state regulations caused by the pandemic. Licensing and other revenue,
which is primarily derived from retail sales of Famous Dave's branded sauces,
rubs, Real Urban Barbeque consumer packaged goods, and the sale of raw brewing
products produced at the Granite City brewing facility increased approximately
$601,000 in fiscal 2020 over fiscal year 2019.

Weekly average Net sales and weeks of operation

The following table shows the average weekly net sales held and operated by a franchise for the periods presented:


                                                  Year Ended
                                    January 3, 2021      December 29, 2019
Average Weekly Net Sales (AWS):
Franchise-Operated(1)              $          42,612    $            51,432
Company-Owned                                 44,093                 47,642

(1) AWS for franchised restaurants is not recognized as company-owned

revenues and are not included in our consolidated financial statements. We

estimate that the disclosure of average weekly net sales and weeks of operation

franchised restaurants provide useful information to investors

because the historical performance and trends of BBQ Holdings franchisees tell

directly to the trends in franchise royalty income we receive from these

franchisees and impact the perceived success and value of the barbecue

Brand Holdings. It also provides a

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comparison against which management and investors can analyze the extent to which

which company-owned restaurants are realizing their income potential.



Food and Beverage Costs

Our food and beverage costs included the following for completed exercises
January 3, 2021 and December 29, 2019:



                                                                        Year Ended
(dollars in thousands)                      January 3, 2021     December 29, 2019       $ Change      % Change
Food and beverage costs                    $          33,867   $            21,541      $  12,326          57.2 %


Food and beverage costs for the fiscal years ended January 3, 2021 and December
29, 2019 represented approximately 30.9% and 31.4% 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 restrictions.

Labor and Benefits Costs

Our labor and benefit costs consisted of the following for the completed years January 3, 2021 and December 29, 2019.


                                                        Year Ended

(dollars in thousands) January 3, 2021 December 29, 2019 $ Change% Change Labor and benefit costs $ 37,228

            24,565      $  12,663          51.5 %


Labor and benefits costs for the fiscal years ended January 3, 2021 and December
29, 2019 were approximately 34.0% and 35.8% of net restaurant sales,
respectively. The year-over-year decrease during the year ended January 3, 2021,
as a percentage of net restaurant sales, was driven by in part by a concerted
effort by management to increase efficiency at the restaurants and in part by
the decrease in labor needed as dining room closures were mandated as a result
of COVID-19. The Company furloughted approximately 77% of its workforce as
a
means to control labor costs.

Operating Expenses

Our operating expenses consist of the following items for the years ended
January 3, 2021 and December 29, 2019:

                                                                        Year Ended
(dollars in thousands)                      January 3, 2021     December 29, 2019       $ Change      % Change
Operating expenses                         $          36,984   $            22,555      $  14,429          64.0 %

Operating expenses for the fiscal years ended January 3, 2021 and December 29,
2019 were approximately 33.8% and 32.9% of net restaurant sales, respectively.
This year over year increase in expense as a percentage of net restaurant sales
was due primarily to the reduced revenue resulting from the effects of COVID-19.

Depreciation and amortization

Depreciation and amortization expense for the fiscal years ended January 3, 2021
and December 29, 2019 was approximately $5.1 million and $2.2 million,
respectively, representing approximately 4.2% and 2.7% of total revenues,
respectively. Depreciation and amortization expense increased during the year
ended January 3, 2021 primarily as a result of the addition of Company-owned
restaurants.

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General and administrative expenses

Our general and administrative expenses consisted of the following for the
fiscal years presented:



                                                                   Year Ended
(dollars in thousands)                 January 3, 2021     December 29, 2019        $ Change      % Change
General and administrative expenses   $          14,395   $            10,992      $    3,403          31.0 %



General and administrative expenses for the years completed January 3, 2021 and
December 29, 2019, accounted for approximately 11.9% and 13.2% of total income, respectively. Although as a percentage of revenue, general and administrative expenses have decreased year over year, we have incurred additional expenses for acquisition costs and ongoing monitoring of our new restaurants.

Impairment of assets, estimated lease termination and other closing costs

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


                                                                           Year Ended
(dollars in thousands)                                       January 3, 2021      December 29, 2019
Asset impairments, net                                      $           5,532    $               282
Lease termination charges and related costs                               169                    926
Restaurant closure expenses                                              (18)                     88

Impairment of assets, estimated lease termination fees $ 5,683

             1,296

and other closing costs


During fiscal year 2020, we closed five Company-owned stores compared to four
Company-owned stores in fiscal year 2019. In addition to the five locations we
closed in fiscal year 2020, we impaired the assets of four under-performing
locations. These charges represented the write-offs of the impaired assets, as
well as the net assets of closed restaurants, lease termination charges incurred
with the early termination of leases, and ongoing costs incurred related to
closed restaurants.

Total other income (expenses)

Total other expense for the fiscal years ended January 3, 2021 and December 29,
2019 included interest expense of $805,000 and $494,000, respectively. These
expenses were partially offset by interest income of approximately $154,000 and
$215,000 during the fiscal years ended January 3, 2021 and December 29, 2019,
respectively. The increase in interest expense was primarily related to the
increase in outstanding debt related to borrowings for the Granite City
Acquisition and the PPP Loans obtained as a result of the effects of COVID-19 on
our business (Note 8 Long-term Debt). In fiscal year 2020, we recorded a gain on
bargain purchase in conjunction with the Granite City acquisition in the amount
of $13.2 million (Note 2 Restaurant Acquisition).

Tax benefit

Income tax benefit for the year ended January 3, 2021 and December 29, 2019 was
$2.8 million and $659,000, respectively. This represents an effective tax rate
of (132.7)% and 52.2%, respectively. The decrease in our effective tax rate
primarily relates to the bargain purchase gain recognized on the Granite City
Acquisition (Note 2 Restaurant Acquisition).

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Basic and diluted net earnings (loss) per common share

Our basic and diluted net income per common share for the year ended January 3,
2021 was $0.54 per share. Basic and diluted net loss per common share for the
year ended December 29, 2019 was $0.07 per share. For the year ended January 3,
2021, we had basic and diluted weighted-average shares outstanding of
approximately 9,155,000 and 9,168,000, respectively. For the year ended December
29, 2019, we had basic and diluted weighted-average shares outstanding of
approximately 9,099,000.

Financial situation, liquidity and capital resources

Our balance of cash and cash equivalents was approximately $19.6 million and
$6.1 million at January 3, 2021 and December 29, 2019, respectively. During
fiscal year 2020, we drew approximately $8.1 million on our loan agreement with
Choice Financial Group and received approximately $14.0 million in PPP Loans
(Note 8 Long-Term Debt). We used cash to purchase one Real Urban Barbeque
restaurant in Illinois and 18 Granite City restaurants in 11 states (Note 2
Restaurant Acquisition). We expect to utilize cash on hand to reinvest in our
brand and the evolution of our company.

Our current ratio, which measures our immediate short-term liquidity, was 1.1 at
January 3, 2021 compared with 1.0 as of December 29, 2019. The current ratio is
computed by dividing total current assets by total current liabilities.

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

Net cash provided by operating activities for the year ended December 29, 2019
was approximately $2.6 million, which reflects net loss from continuing
operations of approximately $1.2 million, increased by non-cash charges of
approximately $3.7 million primarily due to depreciation and amortization,
stock-based compensation and asset impairment/lease termination charges. Changes
in operating assets and liabilities for the year ended December 29, 2019
primarily included net cash outflows related to accounts receivable and other
current assets of $2.0 million offset in part by cash inflows of $2.1 related to
accounts payable and other liabilities.

Net cash used by investing activities for the year ended January 3, 2021 was
$6.0 million related to payments for acquired restaurants of $5.4 million and
the purchase of property, equipment and leasehold improvements of $3.5 million,
net of proceeds from the sale of our Coon Rapids, Minnesota location.

Net cash used by investing activities for the year ended December 29, 2019 was
$13.0 million primarily related to the acquisition of the Colorado Restaurants
and Arizona Restaurants.

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

The net cash provided by financing activities during the 2019 financial year was $ 4.1 million
mainly from the proceeds of a loan agreement with Bank of choice.

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

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In March 2020, the World Health Organization declared coronavirus COVID-19 a
global pandemic. COVID-19 pandemic has caused a disruption to our business. The
full impact of the COVID-19 outbreak continues to evolve as of the date of this
report, and due to the rapid development and fluidity of the situation, we are
not able to determine the ultimate impact it will have on our financial
condition. We have taken measures to mitigate our downturn in sales, including
reducing labor and renegotiating rents on our restaurant properties.
Additionally, the proceeds from our PPP Loans have been used to fund operations.
Although we have filed for forgivness of these loans, we have not yet heard from
the Small Business Administration. There can be no assurance that any portion of
the PPP Loans will be forgiven and we would not be required to repay the PPP
Loans in full. Interest and principal payments under the PPP Loans will continue
to be deferred until such time the amount of forgiveness is determined.

Contractual obligations

The following is a summary of our contractual obligations as of January 3, 2021.
Our PPP Loans are scheduled to be repaid in fiscal year 2022, however, we have
applied for forgiveness of such loans but have not yet heard from the Small
Business Administration (Note 8 Long-Term Debt):




(in thousands)                   Total        2021        2022        2023        2024       2025       Thereafter
Term Loan                      $  10,403    $  2,111    $  2,220    $  2,335    $  2,457    $ 1,280    $          -
PPP Loans                         13,957           -      13,957           -           -          -               -
Operating Lease Obligations       91,261       9,674       9,978       9,617       8,608      8,254          45,130
Total                          $ 115,621    $ 11,785    $ 26,155    $ 11,952    $ 11,065    $ 9,534    $     45,130

Off-balance sheet arrangements

Our company does not have any off-balance sheet arrangements (as that term is defined in point 303 of the SK Regulation) which are reasonably likely to have a current or future effect on our financial position or changes in the financial position, operating results or liquidity.

Income taxes

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

Recent accounting advice not yet adopted

In December 2019, the Financial Accounting Standards Board ("FASB") issued
Update 2019-12, Income Taxes ("Topic 740") as part of its Simplification
Initiative. This guidance provides amendments to simplify the accounting for
income taxes by removing certain exceptions to the general principles in Topic
740. The amendments also improve consistent application of and simplify GAAP for
other areas of Topic 740 by clarifying and amending existing guidance. This
guidance is effective for annual and interim reporting periods beginning after
December 15, 2020, and early adoption is permitted. We plan to adopt during the
first quarter of 2021, and we expect an immaterial impact to the consolidated
financial statements.

We reviewed all other recently issued accounting pronouncements and concluded
they were either not applicable or not expected to have a significant impact on
our consolidated financial statements.

Inflation

The primary inflationary factors affecting our operations include food, beverage
and labor costs. In addition, our leases require us to pay taxes, maintenance,
repairs and utilities and these costs are subject to inflationary increases.

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

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

© Edgar Online, source Previews


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