U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 28, 2003
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the transition period from ____________________ to _________________
Commission file number 0-21625
FAMOUS DAVE'S OF AMERICA, INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-1782300
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
8091 Wallace Road, Eden Prairie, MN 55344
(Address of Principal Executive Offices)
(952) 294-1300
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Indicate by check whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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 X No
--- ---
Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
At October 12,2003 there were 12,132,782 shares of common stock, $.01
par value, outstanding.
FAMOUS DAVE'S OF AMERICA, INC.
SEPTEMBER 28, 2003
TABLE OF CONTENTS
PAGE NO.
--------
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -- 3
September 28, 2003 and December 29, 2002
Condensed Consolidated Statements of Operations -- 4
For the thirteen and thirty-nine weeks ended September 28, 2003 and
September 29, 2002
Condensed Consolidated Statements of Cash Flows -- For the
thirty-nine weeks ended September 28, 2003 and September 29,
2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of 12
Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk 20
Item 4 Controls and Procedures 20
PART II OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 6 Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 2003 AND DECEMBER 29, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (AUDITED)
SEPTEMBER 28, DECEMBER 29,
2003 2002
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,358 $ 9,473
Accounts receivable, net 1,654 1,026
Inventories 2,131 1,775
Prepaids and other current assets 1,401 1,276
-------- --------
Total current assets 13,544 13,550
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 50,140 51,861
OTHER ASSETS:
Notes receivable, net of current portion 1,178 1,364
Deposits 313 375
Debt issuance costs, net 608 653
Deferred tax asset 8,370 7,014
-------- --------
TOTAL ASSETS $ 74,153 $ 74,817
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 438 $ 387
Current portion of capital lease obligations 503 708
Accounts payable 1,855 3,459
Accrued payroll and related taxes 1,286 1,036
Other current liabilities 1,823 2,191
-------- --------
Total current liabilities 5,905 7,781
LONG-TERM DEBT, NET OF CURRENT PORTION 13,684 12,422
FINANCING LEASE OBLIGATION 4,500 4,500
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 137 432
DEFERRED RENT 2,565 2,117
DEFERRED GAIN, NET OF CURRENT PORTION 244 273
-------- --------
Total liabilities 27,035 27,525
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000 shares authorized,
12,120 and 11,388 shares issued and outstanding 121 114
Additional paid-in capital 56,161 54,222
Accumulated deficit (9,164) (7,044)
-------- --------
Total shareholders' equity 47,118 47,292
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 74,153 $ 74,817
======== ========
See accompanying notes to condensed consolidated financial statements.
3
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SHARES OUTSTANDING)
(UNAUDITED)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------ -----------------------------
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
REVENUES $ 25,970 $ 23,868 $ 74,918 $ 69,281
COSTS AND EXPENSES:
Food and beverage costs 7,519 7,142 21,407 21,017
Labor and benefits 7,251 6,698 21,015 18,856
Operating expenses 6,233 5,160 17,491 14,898
Depreciation and amortization 1,195 1,157 3,684 3,433
Asset impairment charge 0 0 3,474 0
Pre-opening expenses 38 382 543 712
General and administrative 2,487 2,127 6,785 5,917
------------ ------------ ------------ ------------
Total costs and expenses 24,723 22,666 74,399 64,833
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,247 1,202 519 4,448
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 43 120 163 327
Interest expense (505) (333) (1,368) (1,084)
Gain (loss) on sale of property and equipment 10 (212) 30 560
Other income (expense) (12) (67) (664) 56
Equity in loss of unconsolidated affiliate 0 (4,906) (2,155) (5,454)
------------ ------------ ------------ ------------
Total other income (expense) (464) (5,398) (3,995) (5,595)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 783 (4,196) (3,476) (1,147)
INCOME TAX BENEFIT (EXPENSE) (305) 1,636 1,355 447
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 478 $ (2,560) $ (2,121) $ (700)
============ ============ ============ ============
BASIC NET INCOME (LOSS) PER COMMON SHARE $ 0.04 $ (0.22) $ (0.18) $ (0.06)
============ ============ ============ ============
DILUTED NET INCOME (LOSS) PER COMMON SHARE $ 0.04 $ (0.22) $ (0.18) $ (0.06)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 12,100,045 11,386,000 11,649,671 11,318,000
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 12,676,035 11,386,000 11,649,671 11,318,000
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THIRTY-NINE WEEKS ENDED
SEPTEMBER 28, SEPTEMBER 29,
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,121) $ (700)
Adjustments to reconcile net income (loss) to cash
flows from operating activities
Depreciation 3,680 3,433
Amortization of debt issuance costs 54 0
Loss (gain) on disposal of property 309 (646)
Asset impairment charge 3,474 0
Deferred tax asset (1,356) (448)
Deferred rent 448 514
Equity in loss of unconsolidated affiliate 2,155 5,454
Changes in operating assets and liabilities:
Accounts receivable, net (720) 200
Inventories (356) (338)
Prepaids and other current assets 37 (183)
Deposits 61 52
Accounts payable (1,604) 244
Accrued payroll and related taxes 251 (273)
Other current liabilities (370) (137)
-------- --------
Cash flows from operating activities 3,942 7,172
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, equipment, and leasehold improvements 0 3,083
Purchases of property, equipment and leasehold improvements (4,172) (10,811)
Investment in unconsolidated affiliate (2,155) (1,267)
Repayments of advances from investment in unconsolidated affiliate 0 558
Advances on notes receivable 0 (887)
Payments received on notes receivable 118 943
-------- --------
Cash flows from investing activities (6,209) (8,381)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for debt issuance costs (9) (19)
Proceeds from capital lease obligations 0 35
Net payments on line of credit 0 (100)
Proceeds from long-term debt 0 2,582
Payments on long-term debt (287) (1,108)
Payments on capital lease obligations (500) (744)
Proceeds from exercise of stock options and warrants 1,948 576
-------- --------
Cash flows from financing activities 1,152 1,222
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,115) 13
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,473 7,398
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,358 $ 7,411
======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Note receivable issued in connection with sale of assets $ 0 $ 2,187
======== ========
Stock options issued for debt issuance costs $ 0 $ 41
======== ========
Equipment purchased under capital lease obligations $ 0 $ 45
======== ========
Common stock issued in connection with property acquired $ 0 $ 206
======== ========
Property and equipment purchased with notes payable $ 1,600 $ 0
======== ========
See accompanying notes to condensed consolidated financial statements.
5
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 28, 2003
(1) GENERAL
Famous Dave's of America, Inc. ("Famous Dave's" or our "Company") owns,
operates and franchises restaurants under the name "Famous Dave's" throughout
various regions of the United States. As of September 28, 2003, there were 87
Famous Dave's restaurants including 43 company-operated and 44
franchise-operated. Our restaurants, the majority of which offer full table
service in a "northwoods" style lodge, feature hickory smoked, off-the-grill
favorites . We seek to differentiate ourselves by providing high quality food in
these distinctive and comfortable environments. At September 28, 2003 there were
seven franchised restaurants in development. As of September 29, 2002 we
operated or franchised 69 restaurants, with two additional company-owned and
four franchised units in development.
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by us following the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. Although we believe
that the disclosures are adequate to make the information presented not
misleading, it is suggested that these interim condensed consolidated financial
statements be read in conjunction with our most recent audited consolidated
financial statements and notes thereto included in our Annual Report on Form
10-K for the fiscal year ended December 29, 2002. In our opinion, all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented have been made.
(3) IMPAIRMENT OF LONG-LIVED ASSETS
Restaurant sites are reviewed 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 future net cash
flows expected to be generated on a restaurant-by-restaurant basis. If such a
restaurant site is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the restaurant site
exceeds the fair value. Restaurant sites to be disposed of are reported at the
lower of their carrying amount or fair value on a restaurant-by-restaurant
basis, less estimated costs to sell.
After evaluating revenue and cash flow projections at company-operated
restaurants, we recorded $3.5 million in impairment charges for five
under-performing restaurants during the second quarter ended June 29, 2003. Four
of these restaurants were opened within the past 12 months and have produced
revenues significantly below expectations. We are reviewing our options relative
to all of these properties, which may include the sale or closing of the
restaurants. As was stated in our second quarter 2003 10-Q report, our Company
expects to incur an additional $600,000 in lease buyout and related expenses,
which should take place over the next two quarters.
(4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires the
recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred versus the date our Company commits to
an exit plan. In addition, SFAS No. 146 states the liability should be initially
measured at fair value. The requirements of SFAS No. 146 are effective for exit
or disposal activities that are initiated after December 31, 2002. Our Company
believes the adoption of SFAS No. 146 will not have a material effect on our
Company's consolidated financial position or results of operations.
6
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 28, 2003
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 addresses the disclosure
requirements of a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. FIN 45 also
requires a guarantor to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
disclosure requirements of FIN 45 were effective for the Company for the year
ending December 31, 2002. The liability recognition requirements will be
applicable prospectively to all guarantees issued or modified after January 1,
2003. We currently do not have guarantees within the scope of this pronouncement
therefore this pronouncement is not expected to have material impact on our
Company's financial position or results of operations.
Effective for the year ended December 31, 2002, our Company adopted the
disclosure provisions of SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No. 148 amends the disclosure and
certain transition provisions of Statement 123, "Accounting for Stock-Based
Compensation." The additional disclosure requirements of this pronouncement have
not had a material impact on our Company's financial position or results of
operations.
In January 2003, the FASB issued Interpretation (FIN 46), "Consolidation of
Variable Interest Entities". FIN 46 is an interpretation of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements", and addresses
consolidation by business enterprises of variable interest entities. FIN 46
applies immediately to variable interest entities created or obtained after
January 31, 2003 and it applies for the Company for the quarter beginning
January 1, 2004, to variable interest entities in which an enterprise holds a
variable interest that is acquired before February 1, 2003. We currently do not
have variable interest entities within the scope of this pronouncement therefore
this pronouncement is not expected to have material impact on our Company's
financial position or results of operations.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". This statement amends SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities", to clarify
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. The changes in this statement improve
financial reporting by requiring that contracts with comparable characteristics
be accounted for similarly, resulting in more consistent reporting of contracts
as either derivatives or hybrid instruments. This statement is effective for
contracts entered into or modified after June 30, 2003. Because our Company does
not currently utilize derivative instruments or engage in hedging activities,
management does not believe the adoption of this statement will have any
immediate material impact on our Company.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. The changes in this statement will result
in a more complete depiction of an entity's liabilities and equity and will,
thereby, assist investors and creditors in assessing the amount, timing, and
likelihood of potential future cash outflows and equity share issuances.
Reliability of accounting information will be improved by providing a portrayal
of an entity's capital structure that is unbiased, verifiable, and more
representationally faithful than information reported prior to issuance of this
statement. This statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. We do not believe the
adoption of this statement will have any immediate material impact on our
Company.
7
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 28, 2003
(5) NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Basic net income (loss) per share is computed by dividing the net income
(loss) by the weighted average number of common shares outstanding during the
reporting period. Our Company's diluted net income (loss) per share is computed
by dividing net income (loss) by the sum of the weighted average number of
shares of common stock outstanding and common share equivalents, when dilutive,
for the reporting period. Following is a table (in thousands, except per share
data) of a reconciliation of basic and diluted net income (loss) per common
share:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------------- ------------------------------
September 28, September 29, September 28, September 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
NET INCOME (LOSS) PER SHARE -- BASIC:
Net income (loss) $ 478 $ (2,560) $ (2,121) $ (700)
Weighted average shares - outstanding 12,100 11,386 11,650 11,318
Net income (loss) per share - basic $ 0.04 $ (0.22) $ (0.18) $ (0.06)
NET INCOME (LOSS) PER SHARE -DILUTED:
Net income (loss) $ 478 $ (2,560) $ (2,121) $ (700)
Weighted average shares outstanding 12,100 11,386 11,650 11,318
Dilutive impact of common stock 576 0 0 0
equivalents outstanding
-------- -------- -------- --------
Weighted average shares and 12,676 11,386 11,650 11,318
potential dilutive shares outstanding
Net income (loss) per share - dilutive $ 0.04 $ (0.22) $ (0.18) $ (0.06)
Options and warrants to purchase approximately 348,300 and 378,000 shares of
common stock with a weighted average exercise price of $6.82 and $6.92 were
outstanding at September 28, 2003 and September 29, 2002, respectively, but were
excluded from the 13 week diluted computation because they were anti-dilutive.
Options and warrants to purchase approximately 1,335,500 and 108,000 shares
of common stock with a weighted average exercise price of $4.07 and $7.71 were
outstanding at September 28, 2003 and September 29 2002, respectively, but were
excluded from the 39 week diluted computation because they were anti-dilutive.
8
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 28, 2003
(6) STOCK-BASED COMPENSATION
In accordance with Accounting Principles Board (APB) Opinion No. 25, our
Company uses the intrinsic value-based method for measuring stock-based
compensation cost which measures compensation cost as the excess, if any, of the
quoted market price of our Company's common stock at the grant date over the
amount the employee must pay for the stock. Our Company's policy is to grant
stock options at fair value at the date of grant. The following table
illustrates the effect on net income (loss) and net income (loss) per share if
our Company had applied the fair value recognition provisions of FASB Statement
No. 123, "Accounting for Stock-Based Compensation", to stock-based employee
compensation (in thousands, except per share data).
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------- -------------------------
September September September September
28, 2003 29, 2002 28, 2003 29, 2002
--------- --------- --------- ---------
Net income (loss) as reported $ 478 $ (2,560) $ (2,121) $ (700)
Less: Compensation expense determined under
the fair value method, net of tax (271) (405) (757) (807)
--------- --------- --------- ---------
Pro forma net income (loss) $ 207 $ (2,965) $ (2,878) $ (1,507)
========= ========= ========= =========
Net income (loss) per share:
Basic - as reported $ 0.04 $ (0.22) $ (0.18) $ (0.06)
Basic - pro forma 0.02 (0.26) (0.29) (0.13)
Diluted - as reported 0.04 (0.22) (0.18) (0.06)
Diluted - pro forma 0.02 (0.26) (0.29) (0.13)
(7) INCOME FROM FRANCHISEES
As of September 28, 2003 we had 44 franchise-operated restaurants in 18
different states. All of our franchise agreements require that each restaurant
operate in accordance with our operating procedures, adhere to the menu
established by us and meet all quality, service and cleanliness standards.
(8) RELATED PARTY TRANSACTIONS
S&D LAND HOLDINGS, INC. - S&D Land Holdings, Inc. ("S&D"), is a company
wholly owned by our Company's founding shareholder and Chairman. Through May 29,
2003, we leased three real estate units from S&D. On May 30, 2003, our Company
acquired all of S&D's interest in one of these properties and negotiated a new
operating lease directly with the landlord. Our Company paid S&D $243,707 as
full consideration for the assignment of the lease and termination of the
sublease. This amount represented the unamortized balance of S&D's original
purchase price of the leasehold interest utilizing the 10% interest factor that
was assumed by S&D and our Company on January 1, 1996 at the time the sublease
was executed.
On October 28, 2003, we terminated another lease agreement with S&D. The
property was purchased by our franchisee, who had been our sub-lessee. As a
result of this transaction and pursuant to the terms of the existing agreements,
the sub-lease was also terminated. The third and final real estate lease
agreement with S&D terminated on November 5, 2003 when an unrelated party
purchased the property from S&D.
9
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 28, 2003
(9) INCOME TAXES
At September 28, 2003, our Company had federal and state net operating loss
carryforwards ("NOL's") for tax reporting purposes of approximately $15.4
million, which, if not used, will begin to expire in 2011, and tax credit carry
forwards of approximately $1.0 million which, if not used, will also begin to
expire in 2011. Future changes in ownership of our Company may place limitations
on the use of these net operating loss carry forwards. Our Company utilizes the
liability method of accounting for income taxes. Deferred tax assets and
liabilities are recognized for the expected future tax consequences attributable
to temporary differences between the financial statement and income tax
reporting bases of assets and liabilities.
(10) NOTES PAYABLE
Our company incurred a note of $1,600,000 with GE Capital Franchise Finance
Corporation which was recorded during the second and third quarters of fiscal
2003. The note requires estimated monthly payments of $14,730, which includes an
initial variable interest rate of approximately 8.75%, is secured by the real
estate and equipment at one of our new company-owned restaurants, and is due in
full in fiscal 2023. As of September 28, 2003, future principal payments on all
outstanding notes were approximately $14.1 million.
(11) FINANCING LEASE OBLIGATIONS
We did not incur any new financing lease obligations during the third quarter
ended September 28, 2003. As of September 28, 2003, future principal financing
lease obligation payments were approximately $4.5 million.
(12) CAPITAL LEASE OBLIGATIONS
We did not incur any new capital lease obligations during the third quarter
ended September 28, 2003. As of September 28, 2003, future principal capital
lease obligation payments were approximately $640,000.
(13) DEFERRED GAIN AND NOTE RECEIVABLE
During the second quarter ended July 2, 2000, our Company sold property and
equipment at two of its company-operated restaurants. These restaurants were
converted to franchises. Our Company financed part of the sale price on each
transaction with notes that bear interest at 9.6% and 12% and require monthly
payments of principal and interest. The principal balance on these note
receivables were approximately $718,000 as of September 28, 2003. They are
secured by equipment and mature July 2010. The note receivable for the sale of
one restaurant was approximately 90% of the selling price. We recorded a
deferred gain on this sale and are recognizing the gain over the term of the
note receivable. We did not incur any new notes receivable during the third
quarter ended September 28, 2003.
On October 28, 2003, our Company amended the promissory note of one of its
franchise converted restaurant's as mentioned in the preceding paragraph.
Included in the amended agreement was a reduction in the annual fixed interest
rate from 12% to 9% and an increase in maturity from July 2010 to December 2012.
As a result, monthly principal and interest payments decreased from
approximately $7,700 to $5,700. The terms of the note were amended to facilitate
the franchisee's financing related to the purchase of the underlying real estate
from S&D Land Holdings, Inc. and, thereby, terminating our lease agreement with
S&D Land Holdings, Inc. (see Note 8 -- Related Party Transactions).
Included in the notes receivable balance are several notes with franchisees
relating to the sale of assets. This information is detailed in our Company's
Form 10-K for the fiscal year ended December 29, 2002. The total notes
receivable balance as of September 28,2003 was approximately $1.4 million.
10
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 28, 2003
(14) COMMITMENTS AND CONTINGENCIES
None.
(15) INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARY
On February 26, 2003, our Company completed a transaction in which we
disposed of our 40% interest in FUMUME, LLC. As a result, our obligations under
the Operating Agreement and Management Agreement were terminated, including any
obligation to fund cash operating losses. On March 21, 2003, our Company
completed a transaction with the landlord at the Chicago location that
terminated our obligations under the lease. Under the agreement, we paid lease
termination fees of approximately $1.6 million and were responsible for rent and
property taxes through April 30, 2003. Losses related to this equity investment
including lease termination costs, which were approximately $2.2 million, were
recorded in the first quarter ended March 30, 2003. For the third quarter ended
September 28, 2003, our Company no longer had any equity interests or
obligations and incurred no losses related to this equity investment.
(16) SUBSEQUENT EVENTS
Our Company has signed a purchase agreement with our former CEO, Martin
O'Dowd, to purchase our three Atlanta area restaurants and operate them under
franchise agreements. The terms of the transaction include a purchase price
essentially equal to the net book value of the assets being sold. Upon closing
on the acquisition of these restaurants, Mr. O'Dowd will enter into an area
development agreement to develop additional franchise restaurants in defined
areas of Georgia. As part of this transaction, Mr. O'Dowd's rights to the North
Carolina market will revert back to Famous Dave's of America. The closing is
contingent upon receipt of all required landlord and liquor license approvals.
11
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The business of Famous Dave's of America, Inc. ("Famous Dave's" or our
"Company") is to develop, own, operate and franchise casual dining restaurants
under the name "Famous Dave's." As of September 28, 2003, we owned & operated or
franchised 87 restaurants, with locations shown in the table below. In addition,
we have signed development agreements representing commitments to develop an
additional 144 franchised restaurants.
SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
------------------------------------------------ ------------------------------------------------------
COMPANY OWNED FRANCHISED TOTAL COMPANY OWNED FRANCHISED TOTAL
RESTAURANTS RESTAURANTS RESTAURANTS RESTAURANTS RESTAURANTS RESTAURANTS
------------- ----------- ----------- ------------- ----------- -----------
STATE
-----
Alabama 0 1 1 0 1 1
Arkansas 1 0 1 0 0 0
Georgia 3 1 4 0 1 1
Illinois 9 4 13 9 4 13
Indiana 0 1 1 0 1 1
Iowa 3 2 5 3 1 4
Kansas 0 1 1 0 0 0
Kentucky 0 2 2 0 1 1
Maryland 5 0 5 5 0 5
Michigan 0 1 1 0 0 0
Minnesota 12 7 19 12 6 18
Montana 0 1 1 0 0 0
Nebraska 1 4 5 1 3 4
New Jersey 0 3 3 0 1 1
North Dakota 0 1 1 0 1 1
Ohio 0 1 1 0 1 1
Oklahoma 1 0 1 1 0 1
South Dakota 0 1 1 0 1 1
Tennessee 0 3 3 0 1 1
Texas 2 0 2 2 0 2
Utah 0 3 3 0 2 2
Virginia 6 0 6 5 0 5
Wisconsin 0 7 7 0 6 6
------------- ----------- ----------- ------------- ----------- -----------
43 44 87 38 31 69
Our future additional revenues and profits will depend upon various factors,
including additional market acceptance of the Famous Dave's concept, the quality
of our restaurant operations, the ability to successfully expand into new
markets, our ability to raise additional financing as required, the ability of
our franchisees to meet their development commitments and general economic
conditions. There can be no assurance that we will successfully implement our
expansion plans, in which case we will continue to be dependent on revenues from
existing operations. We also face all of the risks, expenses and difficulties
frequently encountered in the development of an expanding business. Furthermore,
to the extent that our expansion strategy is successful, we must manage the
transition to multiple-site and higher-volume operations, the control of
overhead expenses and the addition and retention of necessary personnel.
12
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Components of operating expenses include operating payroll and employee
benefits, occupancy costs, repairs and maintenance, advertising and promotion.
Certain of these costs are variable and will increase with sales volume. The
primary fixed costs are corporate and restaurant management 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 months of operation. As restaurant management and staff gain
experience after the opening of a new restaurant, improvements are seen in
expense controls such as labor scheduling, food cost management and operating
expenses, and expense levels are brought down to levels similar to those at our
more established restaurants.
General and administrative expenses include all corporate and administrative
functions that serve to support existing operations and provide an
infrastructure to support future growth. Management, supervisory and staff
salaries, employee benefits, travel, rent, depreciation, general insurance and
marketing expenses are major items in this category.
The 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, and the audited
consolidated financial statements and notes included in our Company's Form 10-K
for the fiscal year ended December 29, 2002.
RESULTS OF OPERATIONS
Our restaurant level operating profit expressed as a percentage of
restaurant revenues is as follows: (this does not include any of our franchise
royalty income, licensing royalty income, franchise fee income, general and
administrative expenses and asset impairment charges):
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------ ----------------------------
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
28, 2003 29, 2002 28, 2003 29, 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
RESTAURANT REVENUES 100.0% 100.0% 100.0% 100.0%
UNIT-LEVEL COSTS AND EXPENSES
Food and beverage costs 30.8% 31.7% 30.2% 31.9%
Labor and benefits 29.8% 29.7% 29.7% 28.6%
Operating expenses 25.6% 22.9% 24.8% 22.6%
Depreciation and amortization 4.6% 4.8% 4.9% 5.2%
----------- ----------- ----------- -----------
Total costs and expenses 90.8% 89.1% 89.6% 88.3%
----------- ----------- ----------- -----------
RESTAURANT-LEVEL OPERATING PROFIT 9.2% 10.9% 10.4% 11.7%
=========== =========== =========== ===========
13
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES:
RESTAURANT REVENUES
Restaurant revenues for the 13 weeks ended September 28, 2003 were
$24,351,000 compared to $22,554,000 for the same period in 2002, an 8.0%
increase. For the 39 weeks ended September 28, 2003, restaurant revenues were
$70,766,000 compared to $65,912,000 for the same period in 2002, a 7.4%
increase. These increases were a result of revenues generated by new
restaurants, offset by a decrease in comparable sales.
As of September 28, 2003, there were 32 company-operated restaurants that
had been open for more than 18 months and these restaurants reported decreases
in same store sales of approximately 3.5% and 2.6% for the 13 and 39 weeks ended
September 28, 2003, respectively.
OTHER REVENUE
Other revenue for our Company consists of franchise royalties, franchise
fees and licensing royalties. Franchise royalty income is based on a percent of
sales. Franchise royalties increased approximately 42% for the 13 weeks ended
September 28, 2003 as compared to the 13 weeks ended September 29, 2002. For the
39 week period ended September 28, 2003, franchise royalties increased
approximately 44% as compared to the same period in fiscal 2002. This increase
was primarily a result of 13 additional franchise-operated restaurants that
opened between September 29, 2002 and September 28, 2003.
Franchise fee income reflects initial, non-refundable fixed fees which are
recorded as revenue when an agreement is signed, and no additional material
services are required by our Company. Franchise fees decreased approximately 25%
for the 13 weeks ended September 28, 2003 as compared to the 13 weeks ended
September 29, 2002. For the 39 week period ended September 28, 2003, franchise
fee income decreased by approximately 20% as compared to the same period in
fiscal 2002. This difference was due to fewer new area development agreements
signed in the 13 and 39 week periods ended September 28, 2003, compared to the
same periods in fiscal 2002.
We also receive licensing royalty income based on sales of branded products
including sauces, seasoning and prepared meats. Licensing royalties, as a
percentage of total revenue, decreased slightly for the 13 and 39 week periods
ended September 28, 2003, as compared to the same periods ended September 29,
2002. This decrease was a result of lower branded product sales.
14
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The chart below shows a summary of revenues (in thousands) by type:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
-------------------------------- --------------------------------
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
28, 2003 29, 2002 28, 2003 29, 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
REVENUE:
Restaurant Revenues, net $24,351 $22,554 $70,766 $65,912
Franchise Royalty Income 1,317 929 3,235 2,254
Franchise Fees 256 340 755 940
Licensing Royalty Income 47 45 162 175
--------------------------------------------------------------------------------
TOTAL REVENUES $25,970 $23,868 $74,918 $69,281
================================================================================
FOOD AND BEVERAGE COSTS
For the 13 week period ended September 28, 2003, food and beverage costs
were $7,519,000 or approximately 30.8% of restaurant revenue, compared to
$7,142,000 or approximately 31.7% of restaurant revenue for the same period in
2002. For the 39 week period ended September 28, 2003, food and beverage costs
were $21,407,000 or approximately 30.2% of restaurant revenue, compared to
$21,017,000 or approximately 31.9% of restaurant revenue for the same period in
2002. The decrease in food and beverage costs as a percent of restaurant revenue
was due to lower commodity costs, primarily a reduction in the cost of ribs.
LABOR AND BENEFITS
For the 13 week period ended September 28, 2003, labor and benefits were
$7,251,000 or approximately 29.8% of restaurant revenue, compared to $6,698,000
or approximately 29.7% of restaurant revenue for the same period in 2002. For
the 39 week period ended September 28, 2003, labor and benefits were $21,015,000
or approximately 29.7% of restaurant revenue, compared to $18,856,000 or
approximately 28.6% of restaurant revenue for the same period in 2002. This
slight increase in labor and benefits as a percent of restaurant revenue was
primarily a result of a 25% increase in the cost of health benefits.
OPERATING EXPENSES
For the 13 week period ended September 28, 2003, operating expenses were
$6,233,000 or approximately 25.6% of restaurant revenue, compared to $5,160,000
or approximately 22.9% of restaurant revenue for the same period in 2002. For
the 39 week period ended September 28, 2003, operating expenses were $17,491,000
or approximately 24.8% of restaurant revenue, compared to $14,898,000 or
approximately 22.6% of restaurant revenue for the same period in 2002. The
increase in operating expenses as a percent of restaurant revenue was a result
of higher utility costs, higher property and casualty insurance premiums and the
effect of higher fixed occupancy costs against lower average revenues.
15
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ASSET IMPAIRMENT CHARGE
There were no asset impairment charges for the 13 week periods ended
September 28, 2003 and September 29, 2002. For the 39 week period ended
September 28, 2003, asset impairment charges were $3,474,000 or 4.6% of total
revenue. This impairment was a result of writing down the assets of five
company-operated restaurants to fair value (see note 3 Impairment of Long-Lived
Assets). There were no charges for impairments on assets for the same 39 week
period ended September 29, 2002.
DEPRECIATION AND AMORTIZATION
For the 13 week period ended September 28, 2003, unit-level depreciation and
amortization was $1,124,000 or approximately 4.6% of restaurant revenue,
compared to $1,082,000 or approximately 4.8% of restaurant revenue for the same
period in 2002. For the 39 week period ended September 28, 2003, unit-level
depreciation and amortization was $3,480,000 or approximately 4.9% of restaurant
revenue, compared to $3,226,000 or approximately 5.2% of restaurant revenue for
the same period in 2002. The increase in depreciation and amortization expense
was primarily a result of new company-operated restaurant openings.
PRE-OPENING EXPENSES
For the 13 week period ended September 28, 2003, pre-opening expenses were
$38,000 or approximately 0.2% of restaurant revenue, compared to $382,000 or
approximately 1.7% of restaurant revenue for the same period in 2002. For the 39
week period ended September 28, 2003, pre-opening expenses were $543,000 or
approximately 0.8% of restaurant revenue, compared to $712,000 or approximately
1.1% of restaurant revenue for the same period in 2002. The decrease in
pre-opening expenses, per restaurant, were a result of a lower number of
company-operated restaurants that were opened during the 13 and 39 week periods
of 2003, compared to the same periods in 2002.
RESTAURANT-LEVEL OPERATING PROFIT
Restaurant-level operating profit represents income from restaurant
operations before general and administrative expenses and asset impairment
charges, and excludes licensing, royalty and fee income. Restaurant-level
operating profit totaled $2,186,000 or approximately 9.0% of restaurant revenue
for the 13 week period ended September 28, 2003, compared to $2,089,000 or
approximately 9.3% of restaurant revenue for the 13 week period ended September
29, 2002. For the 39 week period ended September 28, 2003, restaurant-level
operating profit was $6,830,000 or approximately 9.7% of restaurant revenue,
compared to $7,203,000 or approximately 10.9% of restaurant revenue for the same
period in 2002. Although restaurant-level operating profit should not be
considered an alternative to income from operations as a measure of our
operating performance, such unit-level measurement is commonly used as an
additional measure of operating performance in the restaurant industry and
certain related industries. The decrease in restaurant-level operating profit
for the 13 and 39 week periods, both in amount and as a percent of restaurant
revenue from 2002 to 2003, was primarily attributable to the increase in
operating expenses as a percent of revenues, as outlined in the previous
sections.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses for the 13 week period ended
September 28, 2003 were $2,487,000 or approximately 9.6% of total revenue,
compared to $2,127,000 or approximately 8.9% of total revenue for the 13 weeks
ended September 29, 2002. For the 39 week period ended September 28, 2003, G&A
expenses were $6,785,000 or approximately 9.1% of total revenue, compared to
$5,917,000 or approximately 8.5% of total revenue for the same period in 2002.
The increase in general and administrative expenses for the 13 and 39 week
periods reflected increased expenditures in support of our franchise
development, executive recruiting and media spending in support of marketing
programs.
16
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INCOME FROM OPERATIONS
Income from operations totaled $1,247,000 or approximately 4.8% of total
revenue for the 13 weeks ended September 28, 2003, compared to $1,202,000 or
approximately 5.0% of operating revenue for the 13 weeks ended September 29,
2002. For the 39 week period ended September 28, 2003, income from operations
was $519,000 or 0.7% of total revenue, compared to $4,448,000 or 6.4% of total
revenue for the same period in 2002. The decrease in income from operations for
the 13 and 39 week periods, as a percentage of total revenue, was primarily
attributable to the asset impairment charge and an increase in operating
expenses as outlined above.
INTEREST INCOME
Interest income was $43,000 or 0.2% of total revenue for the 13 weeks ended
September 28, 2003, compared to $120,000 or 0.5% of total revenue for the 13
weeks ended September 29, 2002. For the 39 week period ended September 28, 2003,
interest income was $163,000 or 0.2% of total revenue, compared to $327,000 or
0.5% of total revenue for the same period in 2002. The decrease in interest
income was a result of the reduced balance in notes receivable.
INTEREST EXPENSE
Interest expense was $505,000 or 1.9% of total revenue for the 13 weeks
ended September 28, 2003, compared to $333,000 or 1.4% of total revenue for the
13 weeks ended September 29, 2002. For the 39 week period ended September 28,
2003, interest expense was $1,368,000 or 1.8% of total revenue, compared to
$1,084,000 or 1.6% of total revenue for the same period in 2002. The increase in
interest expense for the 13 and 39 week periods ended September 28, 2003, as
compared to the same periods ended September 29, 2002, was a result of increased
borrowings.
GAIN (LOSS) ON SALE OF ASSETS AND OTHER INCOME (EXPENSE)
During the 13 weeks ended September 28, 2003, our Company recorded a slight
loss on the sale of assets and other expenses of less than 1% of total revenue.
This compares to a net loss of $(279,000), or (1.2)% of total revenue for the 13
weeks ended September 29, 2002. For the 39 week period ended September 28, 2003,
our Company recorded a loss on the sale of assets and other expenses, net, of
$(634,000) or (0.8)% of total revenue. This compares to a net gain of $616,000
or 0.9% of total revenue for the 39 weeks ended September 29, 2002. The recorded
loss of $(634,000) in 2003 was primarily attributable to the write-off of costs
associated with a failed site, disposal of old equipment, and employment
severance payments to former company executives.
EQUITY IN LOSSES AND IMPAIRMENT OF INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Effective June 1, 2001, Famous Dave's Ribs-U, Inc., our wholly-owned
subsidiary, entered into a joint venture with Memphis-based Lifestyle Ventures,
LLC, H&H Holding Company, LLC and another investor to develop a themed
restaurant concept based on the entertainment artist Isaac Hayes. Pursuant to
the agreement governing the joint venture, the participants in the joint venture
formed a Delaware limited liability company named FUMUME, LLC. FUMUME opened its
first location in Chicago in June 2001 and its second location in Memphis,
Tennessee in October 2001.
In exchange for a 40% interest in FUMUME, our Company agreed to contribute:
(i) $825,507 in working capital, (ii) the assets comprising Famous Dave's Ribs
and Blues Club in Chicago and (iii) certain rights to use Famous Dave's various
licensed marks. In addition, our Company agreed to reimburse FUMUME for
operating losses incurred at the Memphis and Chicago clubs, and provide various
management services for the clubs. In exchange for these services, our Company
received a fee equal to 3% of gross sales per year.
17
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On February 26, 2003, our Company completed a transaction in which our
Company disposed of our 40% interest in FUMUME. As a result, our obligations
under the Operating Agreement and Management Agreement were terminated,
including any obligation to fund cash operating losses. On March 21, 2003, our
Company completed a transaction with the landlord at the Chicago location that
terminated our obligations under the lease. Under the agreement, we paid lease
termination fees of approximately $1.6 million and were responsible for rent and
property taxes through April 30, 2003.
Having disposed of our interests in the LLC, we had no recorded losses on
unconsolidated affiliate's or asset impairment charges for the 13 week period
ended September 28, 2003. We recorded an equity loss of $(4,906,000) and no
impairment charges for the same period in 2002. The decrease was a result of our
Company's discontinued 40% interest in FUMUME. For the 39 week period ended
September 28, 2003, total equity losses and asset impairment charges were
approximately $(5,629,000). This compares to total equity losses and asset
impairment charges of approximately $(5,454,000) for the same period in fiscal
2002. This increase of 3% for the 39 week period was primarily a result of a
$3.5 million impairment charge for five under-performing restaurants during the
second quarter of 2003.
INCOME TAX PROVISION
For the quarter ended September 28, 2003, our Company recorded an income tax
expense of $305,000 or approximately 39% of income before taxes. For the 39 week
period ended September 28, 2003, our Company recorded an income tax benefit of
$1,355,000 or approximately 39% of the loss before taxes.
NET INCOME (LOSS) PER COMMON SHARE
The net income (loss) for the 13 week period ended September 28, 2003 was
$478,000 or $0.04 per share on approximately 12,676,000 weighted average diluted
shares outstanding, compared to $(2,560,000) or $(0.22) per share on
approximately 11,386,000 weighted average diluted shares outstanding for the 13
weeks ended September 29, 2002. The increase in net income (loss) per share was
primarily a result of no additional equity losses from our investment in FUMUME.
The net loss for the 39 week period ended September 28, 2003 was
$(2,121,000) or $(0.18) per share on 11,650,000 weighted average diluted shares
outstanding, compared to $(700,000) or $(0.06) per share on approximately
11,318,000 weighted average diluted shares outstanding for the same period in
2002. The decrease in net loss per share was primarily a result of asset
impairment charges and a FUMUME lease termination charge.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the 39 week period ended September 28, 2003, our balance of cash and
cash equivalents decreased by $1,115,000 to approximately $8,358,000 from the
December 29, 2002 balance. The decrease in cash and cash equivalents was due
primarily to purchases of assets related to the development of new
company-operated restaurants (approximately $4.0 million), payments on long-term
debt and capital leases (approximately $582,000) and lease buyout costs related
to FUMUME (approximately $1.7 million). These payments were offset by cash from
operations and proceeds from stock option exercises (approximately $1.9
million).
For the remaining 13 weeks of fiscal 2003 and through fiscal 2004, our Company
does not plan to open any more company-operated restaurants and as a result, we
don't anticipate any new financing during this time period.
18
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note One to the
consolidated financial statements included in our annual report for the year
ended December 29, 2002. The accounting policies used in preparing our interim
2003 consolidated condensed financial statements are the same as those described
in our annual report.
Our critical accounting policies are those both having the most impact to
the reporting of our financial condition and results, and requiring significant
judgments and estimates. Our critical accounting policies include those related
to (a) property, equipment and leasehold improvement impairments; (b) initial
franchise revenues; (c) investment in unconsolidated subsidiary; and (d)
deferred tax asset valuation allowance. The evaluation of long-lived assets for
impairment involves management judgment in estimating future cash flows related
to fair values of such assets. Initial franchise revenues are recognized when
our Company has performed substantially all of its obligations as franchisor.
Management records the investment in unconsolidated subsidiary on the equity
method based on our Company's net loss obligation (100% of the cash loss). The
evaluation of our deferred tax asset involves our judgment of our company's
future utilization of loss carryforwards and tax credits.
For fiscal year 2004, which begins on December 29, 2003, our Company will be
operating under a 53 week period instead of the normal 52. Quarters one, two and
three will each consist of a 13 week period while quarter four will involve 14
weeks.
SEASONALITY
Our units typically generate higher revenues during the second and third
quarters (spring and summer months) than in the first and fourth quarters (fall
and winter months) as a result of seasonal traffic increases experienced during
the summer months, and possible adverse weather that can disrupt customer and
employee transportation to our restaurants during the winter months.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q and other materials filed or to be filed with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by us) contain statements that are
forward-looking. A number of important factors could, individually or in the
aggregate, cause actual results to differ materially from those expressed or
implied in any forward-looking statements. Such factors include, but are not
limited to, the following: our ability to expand into new markets; our ability
to execute our expansion strategy; the ability of our franchisees to execute
their restaurant development plans, changes in business strategy or development
plans; availability and terms of capital; changes in costs of food, labor, and
employee benefits; changes in government regulations; competition; availability
of locations and terms of sites for restaurant development; development and
operating costs; advertising and promotional efforts; and brand awareness. For
further information regarding these and other factors, see our Annual Report on
Form 10-K for the fiscal year ended December 29, 2002.
19
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our Company's financial instruments include cash and cash equivalents and
long-term debt. Our Company includes as cash and cash equivalents certificates
of deposits and all other investments with original maturities of 90 days or
less when purchased and which are readily convertible into known amounts of
cash. Our Company's cash and cash equivalents are not subject to significant
interest rate risk due to the short maturities of these instruments. The total
outstanding long-term debt of our Company as of September 28, 2003 was
approximately $14,122,000. Of the outstanding long-term debt, approximately
$4,344,000 consisted of a variable interest rate while the remaining $9,778,000
was subject to a fixed interest rate. Our Company does not see the variable
interest rate long-term debt as a significant interest rate risk.
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) and 15d-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 their evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective.
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced above.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Our Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business.
20
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement dated July 25, 2003 by and between our Company and David Goronkin.
32.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-15(e) and
15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act rules 13a-15(e) and
15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
During the Third Quarter, the Company filed two current reports on Form
8-K as follows:
On July 29, 2003, we filed a Current Report on Form 8-K dated July 28,
2003 under Item 5, announcing the election of David Goronkin to our
Company's Board of Directors and the appointment of Mr. Goronkin as our
Company's new Chief Executive Officer, each effective as of August 11,
2003.
On September 15 2003, we filed a Current Report on Form 8-K dated
September 12, 2003 under Item 5, announcing that President Bush intends
to nominate David W. Anderson as Assistant Secretary of the U.S.
Department of Interior, Indian Affairs.
21
SIGNATURES
In accordance with 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.
FAMOUS DAVE'S OF AMERICA, INC.
November 7, 2003 /s/ David Goronkin
---------------------------------
David Goronkin
Chief Executive Officer
November 7, 2003 /s/ Kenneth J Stanecki
---------------------------------
Kenneth J. Stanecki
Chief Financial Officer
22