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 30, 2001
[ ] 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
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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)
7657 Anagram Drive, 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
--- ----
At November 12, 2001, there were 11,142,774 shares of common stock, $.01 par
value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
FAMOUS DAVE'S OF AMERICA, INC.
September 30, 2001
TABLE OF CONTENTS
PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations -
For the thirty-nine weeks ended September 30, 2001 and October 1, 2000 4
Condensed Consolidated Statements of Cash Flows -
For the thirty-nine weeks ended September 30, 2001 and October 1, 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk 18
PART II OTHER INFORMATION
Item 1 Legal Proceedings 19
Item 6 Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2001 2000
---------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,876 $ 1,895
Accounts receivable, net 1,257 1,007
Inventories 1,409 1,394
Prepaids and other current assets 973 650
--------------- ---------------
Total current assets 6,515 4,946
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 46,522 46,052
OTHER ASSETS:
Notes receivable, net of current portion 829 832
Deposits 369 550
Debt issuance costs, net 610 583
Investment in unconsolidated affiliate 3,421 0
Deferred income tax 4,195 0
--------------- ---------------
TOTAL ASSETS $ 62,461 $ 52,963
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 200 $ 544
Current portion of long-term debt 1,077 886
Current portion of capital lease obligations 889 420
Accounts payable 3,237 3,678
Accrued payroll and related taxes 1,025 1,102
Other current liabilities 2,631 2,779
--------------- ---------------
Total current liabilities 9,059 9,409
LONG-TERM DEBT, NET OF CURRENT PORTION 7,794 8,444
FINANCING LEASE OBLIGATION 4,500 4,500
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 1,310 203
DEFERRED GAIN, NET OF CURRENT PORTION 322 346
--------------- ---------------
Total liabilities 22,985 22,902
--------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000 shares authorized,
10,182 and 9,346 shares issued and outstanding 101 93
Additional paid-in capital 47,298 44,202
Accumulated deficit (7,923) (14,234)
--------------- ---------------
Total shareholders' equity 39,476 30,061
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 62,461 $ 52,963
=============== ===============
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 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
2001 2000 2001 2000
---------------- -------------- ---------------- ----------------
REVENUES $ 23,105 $ 18,994 $ 66,421 $ 52,452
------------- ------------- ---------------- ----------------
COSTS AND EXPENSES:
Food and beverage costs 7,075 6,076 20,548 17,132
Labor and benefits 6,109 5,271 17,906 14,431
Operating expenses 4,866 4,091 14,738 11,601
Depreciation and amortization 1,120 928 3,293 2,700
Pre-opening expenses 192 326 518 680
General and administrative 1,717 1,422 4,791 3,955
------------- ------------- ---------------- ----------------
Total costs and expenses 21,079 18,114 61,794 50,499
------------- ------------- ---------------- ----------------
INCOME FROM OPERATIONS 2,026 880 4,627 1,953
------------- ------------- ---------------- ----------------
OTHER INCOME (EXPENSE):
Interest income 40 25 94 34
Interest expense (396) (322) (1,169) (903)
Gain on sale of property 8 10 112 650
Other income 28 31 51 46
Equity in loss of unconsolidated
affiliate (403) 0 (596) 0
------------- ------------- ---------------- ----------------
Total other income (expense) (723) (256) (1,508) (173)
------------- ------------- ---------------- ----------------
INCOME BEFORE BENEFIT FROM INCOME TAXES 1,303 624 3,119 1,780
BENEFIT FROM INCOME TAXES 3,192 0 3,192 0
------------- ------------- ---------------- ----------------
NET INCOME $ 4,495 $ 624 $ 6,311 $ 1,780
============= ============= ================ ================
BASIC NET INCOME PER COMMON SHARE $ 0.45 $ 0.07 $ 0.65 $ 0.20
============= ============= ================ ================
DILUTED NET INCOME PER COMMON SHARE $ 0.41 $ 0.06 $ 0.59 $ 0.18
============= ============= ================ ================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 10,020,903 9,131,590 9,724,483 9,096,949
============= ============= ================ ================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 10,922,011 9,962,304 10,696,555 9,635,386
============= ============= ================ ================
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 30, 2001 OCTOBER 1, 2000
------------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,311 $ 1,780
Adjustments to reconcile net income to
cash flows from operating activities:
Depreciation and amortization 3,293 2,715
Impairment reserve for restaurants and other assets 0 (82)
Gain on disposal of property, equipment and leasehold improvements (112) (659)
Deferred Tax Asset (3,195) 0
Equity in loss of unconsolidated affiliate 596 0
Changes in operating assets and liabilities:
Accounts receivable, net (250) 80
Inventories (15) (141)
Prepaids and other current assets (296) (6)
Deposits 181 (51)
Accounts payable (441) (1,757)
Accrued payroll and related taxes (83) 158
Other current liabilities (143) 120
---------------- --------------
Cash flows from operating activities 5,846 2,157
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold improvements (5,168) (3,645)
Cash investment in unconsolidated affiliate (1,352) 0
Proceeds from sale of property 0 530
Payments received on notes receivable 122 0
---------------- --------------
Cash flows from investing activities (6,398) (3,115)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for debt issuance costs (27) (226)
Proceeds from capital lease obligations 976 0
Net advances (payments) on line of credit (344) (1,506)
Proceeds from financing lease obligation 0 3,790
Payments on long-term debt (458) 0
Payments on capital lease obligations (718) (188)
Payments on financing lease obligations 0 (15)
Proceeds from exercise of stock options and warrants 2,104 62
---------------- --------------
Cash flows from financing activities 1,533 1,917
---------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS 981 959
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,895 1,712
---------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,876 $ 2,671
================ ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Note receivable issued in connection with sale of assets $ 145 $ 920
================ ==============
Note payable issued in connection with land acquired $ 0 $ 750
================ ==============
Common shares issued in lieu of accounts payable $ 0 $ 51
================ ==============
Equipment purchased under capital lease obligations $ 2,294 $ 0
================ ==============
Property and equipment exchanged for investment in unconsolidated affiliate $ 2,665 $ 0
================ ==============
Deferred gain on sold property and equipment $ 0 $ 394
================ ==============
See accompanying notes to condensed consolidated financial statements.
5
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
(1) GENERAL
Famous Dave's of America, Inc. ("Famous Dave's" or the "Company") currently
operates or franchises fifty-one restaurants under the name "Famous Dave's"
throughout various regions of the United States. Our restaurants, the majority
of which offer full table service, feature hickory smoked off-the-grill meat
entree favorites served in one of our three casual formats: a "Northwoods" style
lodge, a nostalgic roadhouse "Shack", or a Blues Club featuring nightly musical
entertainment. We seek to differentiate ourselves by providing high quality food
in these distinctive and comfortable environments. As of September 30, 2001 we
operated or franchised fifty restaurants with one additional company-owned and
six franchised units in development. As of October 1, 2000 we operated or
franchised thirty-seven restaurants, with an additional three company-owned and
two 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 31, 2000. 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.
Certain amounts in the fiscal 2000 financial statements have been
reclassified to conform to the 2001 presentation with no impact on previously
reported net income or shareholders' equity.
(3) IMPAIRMENT OF LONG LIVED ASSET
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
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.
(4) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, is effective for
years beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge criteria are met. Special accounting
for qualifying hedges allows a derivative's gains or losses to offset related
results on the hedged item in the statement of operations and requires that a
company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The adoption of SFAS No. 133 did not
have a material effect on the Company's financial position or results of
operations.
6
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(UNAUDITED)
In June 2001, the FASB issued SFAS No. 141 "Business Combinations." SFAS 141
eliminates the pooling-of-interests method of accounting for business
combinations except for qualifying business combinations that were initiated
prior to July 1, 2001. In addition, SFAS 141 further clarifies the criteria to
recognize intangible assets separately from goodwill. The requirements of
Statement 141 are effective for any business combination accounted for by the
purchase method that is completed after June 30, 2001. The adoption of SFAS No.
141 will not have a material effect on the Company's financial position or
results of operations.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." Under SFAS 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives (but with no maximum life). The amortization provisions of SFAS 142
apply to goodwill and intangible assets acquired after June 30, 2001. The
adoption of SFAS No. 142 will not have a material effect on the Company's
financial position or results of operations.
(5) NET INCOME PER COMMON SHARE
Basic earnings per common share is computed by dividing the net income by
the weighted average number of common shares outstanding during the reporting
period. The Company's diluted net earnings per share is computed by dividing net
income by the weighted average number of common shares 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 per common share:
Thirteen Weeks Ended Thirty Nine Weeks Ended
----------------------------- ----------------------------
September 30, October 1, September 30, October 1,
2001 2000 2001 2000
------------ ------------ ----------- -------------
NET INCOME PER SHARE -- BASIC:
Net income $ 4,495 $ 624 $ 6,311 $ 1,780
Weighted average shares Outstanding 10,021 9,132 9,724 9,097
Net income per share -- basic $ .45 $ .07 $ .65 $ .20
NET INCOME PER SHARE -- DILUTED:
Net income $ 4,495 $ 624 $ 6,311 $ 1,780
Weighted average shares outstanding 10,021 9,132 9,724 9,097
Dilutive impact of common stock
equivalents outstanding 901 830 973 538
------------ ------------ ----------- ------------
Weighted average shares and potential
dilutive shares outstanding 10,922 9,962 10,697 9,635
Net income per share -- dilutive $ .41 $ .06 $ .59 $ .18
The Company uses the treasury stock method for calculating the dilutive
effect of the stock options and warrants (using the average market price).
7
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(UNAUDITED)
Options to purchase 50,000 shares of common stock with a weighted average
exercise price of $7.54 were outstanding at September 30, 2001 and warrants to
purchase 66,667 shares of common stock with a weighted average exercise price of
$7.00 were outstanding at September 30, 2001 but were excluded from the
computation of common share equivalents because their exercise prices were
greater than the average market price of the common shares for the 39 weeks
ended September 30, 2001.
(6) INCOME FROM FRANCHISEES
As of September 30, 2001 we had thirteen franchise units in operation, four
in Minnesota, three in Wisconsin, three in Illinois and one each in Nebraska,
South Dakota, and Georgia. 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.
(7) RELATED PARTY TRANSACTIONS
S&D LAND HOLDINGS, INC. - We lease the real estate for three of our units
from S&D Land Holdings, Inc., a company wholly owned by the Company's founding
shareholder and Chairman.
(8) INCOME TAXES
At September 30, 2001, the Company had generated net operating losses of
approximately $6.8 million, which, if not used, will begin to expire in 2011,
and tax credit carryforwards of approximately $485,000, which, if not used, will
also begin to expire in 2011. Future changes in ownership of the Company may
place limitations on the use of these net operating loss carryforwards. The
Company reflected the full value of the deferred tax asset of $3.2 million
during the thirteen week period ended September 30, 2001. Previous to the
thirteen week period ended September 30, 2001, the company fully reserved the
deferred tax asset due to the uncertainty of its use in future periods.
(9) NOTES PAYABLE
On January 21, 2000 a note payable was signed with S&D Land Holdings Inc.,
a company wholly owned by the Company Chairman, for $750,000 to facilitate
mortgage financing. The note is due January 21, 2002, bears interest at 12%, and
requires monthly interest payments. As of September 30, 2001, the principal
balance on this note was $560,000.
(10) FINANCING LEASE OBLIGATIONS
In March 1999, we completed a sale-leaseback transaction involving three of
our existing units that provided proceeds of approximately $4.5 million. Under
this financing we are obligated to make monthly payments of approximately
$42,917 (which increases 4.04% every two years) for a minimum of twenty years.
(11) CAPITAL LEASE OBLIGATIONS
The Company has entered into various lease facility commitments. During the
quarter ended September 30, 2001, approximately $772,000 of additional capital
leases was added for furniture, equipment, and leasehold improvements. For the
thirty-nine weeks ended September 30, 2001, approximately $2,294,000 of
additional capital leases was added for furniture, equipment, and leasehold
improvements. The leases outstanding under the agreements entered into during
the third quarter bear interest at rates from approximately 9.4% to 13.9% and
expire through September 2004.
8
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(UNAUDITED)
(12) DEFERRED GAIN AND NOTE RECEIVABLE
During the second quarter ended July 2, 2000, the Company sold property and
equipment at two of its company-operated restaurants. These restaurants were
converted to franchises. The 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 balance on these notes receivable was
approximately $829,000 as of September 30, 2001. They are secured by equipment
and mature through July 2010. The note receivable for the sale of one restaurant
was approximately 90% of the selling price. The Company recorded a deferred gain
on this sale and will recognize the gain over the term of the note receivable.
(13) COMMITMENTS AND CONTINGENCIES
CONSTRUCTION AND DEVELOPMENT CONTRACTS
In conjunction with our expansion activity, we enter into construction
contracts from time to time. At September 30, 2001, we had commitments
outstanding under one contract for construction of a restaurant in Richmond,
Virginia. As of September 30, 2001, the balance remaining to be paid under this
contract was approximately $779,000.
OTHER
The LLC that owns the Chicago club (FUMUME, LLC) is responsible for the
payment of the rent for the Chicago club; however, the Company remains liable
under the lease with the landowner. In addition, the Company must reimburse the
LLC to the extent initial construction of the Memphis club exceeds $2.8 million.
(14) INVESTMENT IN UNCONSOLIDATED AFFILIATE
The Company owns approximately 40% of the membership interest of FUMUME,
LLC, a company that develops themed restaurants based on the blues entertainment
artist Isaac Hayes.
Pursuant to the terms of the membership agreement, the Company has recorded
100% of the loss of the LLC through September 30, 2001.
The membership interest is voting and is not publicly traded. The Company
believes the carrying amount of the investment approximates fair value of the
investment at September 30, 2001.
See the "Management's Discussion and Analysis of Financial Condition and
Operations" section for further discussion of this topic.
9
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
(UNAUDITED)
(15) SUBSEQUENT EVENT
On November 9, 2001, the Company closed on a sale of 1,000,000 shares of
the Company's common stock. The gross proceeds were $6.0 million and the
estimated net proceeds are $5.4 million. The net proceeds will be used for the
continued development of Company owned restaurants. The diluted earnings per
common share assuming the common shares were issued on January 1, 2001 and no
change in net income as a result of net proceeds received would have be $.38 and
$.54 per share for the thirteen weeks ended September 30, 2001 and the
thirty-nine weeks ended September 30, 2001, respectively.
10
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
OVERVIEW
The business of Famous Dave's of America, Inc. ("Famous Dave's" or the
"Company") is to develop, own, operate and franchise casual dining restaurants
under the name "Famous Dave's." As of September 30, 2001 we owned and operated
thirty-seven restaurants: fourteen restaurants were located in Minnesota, seven
in Illinois, four in Maryland, three each in Wisconsin, Iowa, and Virginia, two
in Utah, and one in Nebraska. In addition to these thirty-seven restaurants, we
have a unit in development in Richmond, Virginia. Our franchised units include
thirteen restaurants operating in Minnesota, Illinois, Wisconsin, Nebraska,
Georgia and South Dakota under franchise agreements. We have signed development
agreements representing commitments to develop an additional 59 franchised
restaurants. We expect four to five of these to open before the end of the
fiscal year.
Famous Dave's is also a 40% participant in a joint venture (FUMUME, LLC) to
develop a themed restaurant concept based on the blues 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 and
opened the second location in Memphis, Tennessee in October 2001. Each location
is structured as a separate Delaware limited liability company, each of which is
wholly owned by FUMUME.
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 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.
Components of operating expenses include operating payroll and employee
benefits, occupancy costs, repairs and maintenance, and 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 thereto and the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the fiscal year ended December 31, 2000.
11
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Our restaurant level operating profit expressed as a percentage of
restaurant revenues (which consists of restaurant revenue in 2001 and
restaurant, retail and ribfest revenues in 2000), is as follows (this does not
include any of our Franchise Royalty Income, Licensing Royalty Income, or
Franchise Fee Income):
THIRTEEN WEEKS ENDED THIRTY NINE WEEKS ENDED
------------------------------ --------------------------
SEPTEMBER 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
2001 2000 2001 2000
------------- ---------- ------------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
RESTAURANT REVENUES 100.0% 100.0% 100% 100%
UNIT-LEVEL COSTS AND EXPENSES
Food and beverage costs 31.6% 32.4% 31.7% 33.0%
Labor and benefits 27.3% 28.1% 27.6% 27.8%
Operating expenses 21.7% 21.8% 22.7% 22.3%
Depreciation and amortization 4.7% 4.7% 4.8% 4.9%
Pre-opening expenses 0.9% 1.7% 0.8% 1.3%
---- ---- ---- ----
Total costs and expenses 86.2% 88.9% 87.6% 89.6%
---- ---- ---- ----
RESTAURANT-LEVEL OPERATING PROFIT 13.8% 11.1% 12.4% 10.4%
==== ==== ==== ====
REVENUES:
RESTAURANT REVENUES
Restaurant revenue for the thirteen weeks ended September 30, 2001 was
$22,393,000 compared to $18,768,000 for the same period in 2000, a 19.3%
increase. The increase in revenue is primarily due to the addition of eight new
restaurants during the four quarters subsequent to October 1, 2000, and is also
due to an increase in same store sales. For the thirty-nine weeks ended
September 30, 2001, restaurant revenue was $64,889,000 compared to $51,975,000
for the same period in 2000, a 24.8% increase. Retail and Ribfest revenues are
included in the fiscal 2000 figures, and totaled $258,000 for the thirteen weeks
ended October 1, 2000, and $1,366,000 for the thirty-nine weeks ended October 1,
2000. We have since sold these two business units and, therefore, no longer
realize revenue from them.
The Company has twenty-six restaurants that have been open for more than
eighteen months and these restaurants reported increases in same store sales of
approximately 2.6% in the thirteen weeks ended September 30, 2001, and
approximately 3.0% in the thirty-nine weeks ended September 30, 2001. This is
the tenth consecutive quarter of positive same-store sales growth for our
company.
12
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER REVENUE
Other revenue for the Company consists of royalty revenues and franchise
fees. Franchise revenues for the thirteen weeks ended September 30, 2001 were
$681,000 compared to $207,000 for the thirteen weeks ended October 1, 2000, a
229% increase. For the thirty-nine week period ended September 30, 2001,
franchise revenues totaled $1,373,000 compared to $439,000 for the same period
in 2000. Franchise revenue includes both franchise royalty income and franchise
fees. Royalties are based on a percent of sales, while fee amounts reflect
initial non-refundable fixed fees and are recorded as revenue when an agreement
is signed and no additional material services are required by the Company. The
increase in royalty revenues and franchise fees is primarily due to an increase
in the number of Company franchisees. The Company currently has thirteen
franchises open compared to seven for the same period in 2000.
The Company also receives licensing revenue based on sales of branded
products including sauces, seasoning and prepared meats. For the thirteen weeks
ended September 30, 2001 the licensing royalty income was $31,000, compared to
$18,000 for the same period in 2000. For the thirty-nine week period ended
September 30, 2001 the licensing royalty income was $160,000 compared to $39,000
for the same period in 2000.
FOOD AND BEVERAGE COSTS
Food and beverage costs for the thirteen weeks ended September 30, 2001 were
$7,075,000 or 31.6% of restaurant revenue, compared to $6,076,000 or 32.4% of
restaurant revenue for the same period in 2000. For the thirty-nine week period
ended September 30, 2001, food and beverage costs were $20,548,000, or 31.7% of
restaurant revenue, compared to $17,132,000, or 33.0% of restaurant revenue, for
the same period in 2000. The decrease in food and beverage costs as a percent of
restaurant revenue was primarily due to improved operating efficiencies and an
increase in certain menu prices.
LABOR AND BENEFITS
Labor and benefits for the thirteen weeks ended September 30, 2001 were
$6,109,000 or 27.3% of restaurant revenue, compared to $5,271,000 or 28.1% of
restaurant revenue for the same period in 2000. For the thirty-nine weeks ended
September 30, 2001, labor and benefits were $17,906,000, or 27.6% of restaurant
revenue, compared to $14,431,000 or 27.8% of restaurant revenue for the same
period in 2000. The increase in dollar cost of labor for 2001 is caused by the
growth in number of restaurants compared to 2000. Labor costs as a percent of
restaurant revenue were lower in 2001 when compared to 2000 due to improved
operating efficiencies at the newer restaurants.
OPERATING EXPENSES
For the thirteen weeks ended September 30, 2001, operating costs were
$4,866,000 or 21.7% of restaurant revenue, compared to $4,091,000 or 21.8% of
restaurant revenue for the same period in 2000. For the thirty-nine weeks ended
September 30, 2001, operating costs were $14,738,000 or 22.7% of restaurant
revenue, compared to $11,601,000 or 22.3% of restaurant revenue for the same
period in 2000. The dollar increase in operating expense is related to the
growth of restaurant units. The increase in operating expense as a percent of
restaurant revenue year to date is due to an increase in utility expenses
earlier in the year, offset slightly by the impact of certain fixed costs
against a higher average unit volume.
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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEPRECIATION AND AMORTIZATION
Unit-level depreciation and amortization for the thirteen weeks ended
September 30, 2001 was $1,060,000 or 4.7% of restaurant revenue compared to
$873,000 or 4.7% of restaurant revenue during the same period in 2000. For the
thirty-nine week period ended September 30, 2001, unit-level depreciation and
amortization was $3,119,000 or 4.8% of restaurant revenue compared to $2,539,000
or 4.9% of restaurant revenue during the same period in 2000. The increased
dollar amount of depreciation expense is the result of a higher number of units
open in 2001 as compared with 2000. The slight decrease in year-to-date
depreciation expenses as a percent of restaurant revenue is due to the leverage
of increased revenues.
PRE-OPENING EXPENSES
Pre-opening expenses were $192,000 or 0.9% of restaurant revenue for the
thirteen weeks ended September 30, 2001 compared to $326,000 or 1.7% of
restaurant revenue during the same period in 2000. For the thirty-nine week
period ended September 30, 2001, pre-opening expenses were $518,000 or 0.8% of
restaurant revenue, compared to $680,000 or 1.3% of restaurant revenue during
the same period in 2000. Pre-opening expenses are charged to expense in the
month that they are incurred. The third quarter 2001 expenses reflect the
opening of two restaurants in Laurel, Maryland and Palatine, Illinois during the
quarter. This compares to the same period in 2000, which included expenses
associated with the opening of units in Vernon Hills, Illinois, and Addison,
Illinois. In addition, pre-opening costs were incurred in both periods for
restaurant openings in progress. Pre-opening costs will vary from location to
location depending on a number of factors, including (but not limited to) the
size and physical layout of each location; the cost of travel and lodging in
different metropolitan areas; and the relative difficulty of the restaurant
staffing and training process.
RESTAURANT-LEVEL OPERATING PROFIT
Restaurant-level operating profit (income from unit-level operations)
represents income from restaurant operations before general and administrative
expenses, and excludes licensing, royalty and fee income. Restaurant-level
operating profit totaled $3,090,000 or 13.8% of restaurant revenue for the
thirteen weeks ended September 30, 2001, compared to $2,131,000 or 11.4% of
restaurant revenue in the corresponding period of 2000. For the thirty-nine week
period ended September 30, 2001, restaurant-level operating profit totaled
$8,060,000 or 12.4% of restaurant revenue, compared to $5,592,000 or 10.8% of
restaurant revenue for the same period in 2000. 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 change in
restaurant-level operating profit, both in amount and as a percent of operating
revenue from 2000 to 2001, is attributable to the increase in revenue from new
and existing units and other non-restaurant revenue and the other changes in
costs and expenses as discussed previously.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses for the thirteen weeks ended
September 30, 2001 were $1,717,000 or 7.4% of operating revenue, compared to
$1,422,000 or 7.5% of operating revenue for the same period in 2000. For the
thirty-nine week period ended September 30, 2001, G&A expenses were $4,791,000
or 7.2% of operating revenue compared to $3,955,000 or 7.5% of operating revenue
for the same period in 2000. The increase in general and administrative expenses
reflects increased personnel at the corporate level to support restaurant and
franchise growth. The decrease in G&A expense as a percent of operating revenue
between 2000 and 2001 is due to increased leverage of the existing
infrastructure.
14
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 $2,026,000 or 8.8% of operating revenue for
the thirteen weeks ended September 30, 2001, compared to $880,000 or 4.6% of
operating revenue in the corresponding period in 2000. For the thirty-nine week
period ended September 30, 2001, income from operations totaled $4,627,000 or
7.0% of operating revenue, compared to $1,953,000 or 3.7% of operating revenue
for the same period in 2000. The increase in income is primarily attributable to
increased flow through restaurant operations, control of operating expenses and
increased franchise royalty revenue and fees.
OTHER INCOME (EXPENSE):
Other income (expense) represents interest income; interest expense on
capital lease obligations, a line of credit, notes payable and financing lease
obligations; gains or losses on sales of property; and equity in loss from an
unconsolidated affiliate. Total other income (expense) for the thirteen weeks
ended September 30, 2001 was ($723,000) or (3.1%) of operating revenue, compared
to ($256,000) or (1.3%) of operating revenue for the same period in 2000. For
the thirty-nine week period ended September 30, 2001, other income (expense),
was ($1,508,000), or (2.3%) of operating revenue, compared to ($173,000) or
(0.3%) of operating revenue for the same period in 2000.
INTEREST AND OTHER INCOME (EXPENSE)
Interest and other income (expense), was ($328,000) or (1.4%) of operating
revenue for the thirteen weeks ended September 30, 2001. For the same period in
2000, interest and other income (expense), was ($266,000) or (1.4%) of operating
revenue. For the thirty-nine week period ended September 30, 2001, interest and
other income (expense), was ($1,023,000) or (1.5%) of operating revenue. This
compares to the same period in 2000, where interest and other income (expense),
was ($825,000) or (1.6%) of operating revenue. The increase in expense from 2000
to 2001 was primarily due to additional borrowings for equipment at restaurants
opened during the period from October 1, 2000 to September 30, 2001 and the
corresponding interest expense on notes payable, a bank line of credit, and
various capital lease obligations. The decrease in expense as a percentage of
operating revenues is due to higher revenues in both the thirteen and
thirty-nine week periods of 2001 compared to 2000.
GAIN ON SALE OF PROPERTY
During the thirteen week period ended September 30, 2001, the net gain on
sale of property was $8,000, or 0.03% of operating revenue. This compares to
$10,000, or 0.05% of operating revenue, for the same period in 2000. For the
thirty-nine week period ended September 30, 2001, the net gain on sale of
property was $112,000, or 0.2% of operating revenue, compared to $650,000 or
1.2% of operating revenue for the same period in 2000. $640,000 of the gain in
2000 is attributable to the sale of our sauce and seasoning retail businesses
and the sale of two company-operated restaurants to franchisees.
EQUITY IN LOSS FROM UNCONSOLIDATED AFFILIATE
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 Blues 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 and its second location in Memphis,
Tennessee in October 2001. Each location is structured as a separate Delaware
limited liability company, each of which is wholly owned by FUMUME.
15
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In exchange for a 40% interest in the LLC, the Company agreed to
contribute: (i) $825,507 in working capital (which as of September 30, 2001,
has been contributed), (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. Although the joint venture that owns the Chicago club is now responsible
for the payment of the rent for the Chicago club, the company remains liable
under the lease with the landowner.
The Company has agreed to reimburse the LLC for operating losses incurred
at the Memphis and Chicago clubs. The Company can terminate our reimbursement
obligation with respect to the Chicago club if after any two-year period ending
May 31 there has been a cumulative operating loss. With respect to the Memphis
club, the Company may terminate the reimbursement obligation if the cumulative
deficit of the club (excluding management fees) exceeds $2 million or, if after
any five-year period ending May 31, there has been a cumulative operating loss.
In addition, the Company must reimburse the LLC to the extent the initial
construction of the Memphis club exceeds $2.8 million.
The Company has agreed to provide various management services for the
clubs. In exchange for these services, the Company will receive a fee equal to
3% of gross sales per year. The management agreement with respect to a
particular club terminates upon, among other things, the termination of our
loss-reimbursement obligations as described above.
In the quarter ended September 30, 2001, the Company recorded a loss of
$403,000, which represents 100% of FUMUME, LLC's operating loss between July 2,
2001 and September 30, 2001. For the thirty-nine weeks ended September 30, 2001,
the Company has recorded a loss of $596,000, or 100% of FUMUME, LLC's operating
loss year-to-date.
INCOME TAX BENEFIT
The Company reflected the full value of the deferred tax asset of $3.2
million during the thirteen week period ended September 30, 2001. Previous to
the thirteen week period ended September 30, 2001, the Company fully reserved
the deferred tax asset due to the uncertainty of its use in future periods.
NET INCOME/NET INCOME PER COMMON SHARE
The net income for the thirteen weeks ended September 30, 2001 was
$4,495,000 or $.41 per share on 10,922,000 weighted average diluted shares
outstanding, compared to $624,000 or $.06 per share on 9,962,000 weighted
average shares outstanding during the comparable period in 2000. For the
thirty-nine week period ended September 30, 2001, the net income was $6,311,000
or $.59 per share on 10,697,000 weighted average diluted shares outstanding,
compared to $1,780,000 or $.18 per share on 9,635,000 weighted average diluted
shares outstanding in the same period in 2000. A significant part of the
increase in net income and net income per share is attributable to a one-time
income entry in the third quarter that reversed the Company's reserves against
its deferred tax asset of $3.2 million.
Excluding the one-time tax asset reserve adjustment, net income for the
thirteen weeks ended September 30, 2001 was $1,303,000 or $.12 per share on
10,922,000 weighted average diluted shares outstanding, compared to $624,000 or
$.06 per share on 9,962,000 weighted average shares outstanding during the
comparable period in 2000. For the thirty-nine week period ended September 30,
2001, the net income excluding the one time tax asset reserve adjustment was
$3,119,000 or $.29 per share on 10,697,000 weighted average diluted shares
outstanding, compared to $1,780,000 or $.18 per share on 9,635,000 weighted
average diluted shares outstanding in the same period in 2000. The increase in
net income and net income per share is attributable to increased income from
restaurant and franchise operations and an emphasis on controlled expenses, but
is offset by an increase in the number of shares outstanding.
16
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the thirty-nine weeks ending September 30, 2001, our balance of cash
and cash equivalents increased by $981,000 to approximately $2,876,000 from the
December 31, 2000 balance. The primary sources of cash were additional earnings
and cash from financing activities, while the primary uses of cash were the
purchase and/or development of property, equipment and leasehold improvements
(approximately $5.2 million), and the investment in unconsolidated affiliate
(approximately $1.4 million).
We are party to a credit agreement with a financial corporation that
provides up to $4,500,000 of borrowing capability to us, of which $200,000 is
outstanding at September 30, 2001. This facility is secured by certain of our
property, and in addition is guaranteed by and partially secured by the Chairman
of the Company, David Anderson. This credit agreement provides for borrowing up
to a maximum of 50% of the value of a collateral pool that consists of our
property and certain of the property pledged to secure the credit agreement by
Mr. Anderson. Total availability on this agreement as of September 30, 2001 was
$1,680,000 due to collateral limits. The credit agreement matures in April 2002.
During the quarter ended September 30, 2001, approximately $772,000 of new
capital leases were added for furniture, equipment, and leasehold improvements,
as well as a delivery van. The leases outstanding under these new agreements
bear interest at rates ranging from approximately 9.4% to 13.9% and expire
through September 2004. Monthly payments on these new agreements are
approximately $24,300.
The Company has raised $5.4 million in net proceeds on the sale of
1,000,000 shares of common stock on November 9, 2001. These proceeds will be
used to continue development of Company owned restaurants. To continue our
expansion, we anticipate that additional financing may be required during the
next twelve months. We believe that future development and expansion will be
funded or financed primarily through cash and short-term investments currently
held, proceeds from the sale of additional equity and/or debt securities, and
proceeds from other forms of financing such as lease financing or other credit
facilities. However, there can be no assurance that additional financing
required for expansion will be available on terms acceptable or favorable to us.
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 our concentration of locations in the
Illinois, Minnesota and Wisconsin market areas.
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 expand into new markets; our ability to
execute our expansion strategy; 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; brand awareness. For
further information regarding these and other factors, see our Annual Report on
Form 10-K for the fiscal year ended December 31, 2000.
17
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3
MARKET RISK SENSITIVITY
The Company uses financial instruments, including fixed and variable rate
debt, to finance operations. The Company does not enter into contracts for
speculative purposes, nor is it a party to any leveraged instruments. There has
been no material change in the Company's market risks associated with debt
obligations during the quarter ended September 30, 2001.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 1 to Employment Agreement dated September 1, 2001
between Famous Dave's of America, Inc. and Martin J. O'Dowd
10.2 Area Development Option Agreement
99.1 Press Release dated November 12, 2001
99.2 Press Release dated November 14, 2001
(b) Reports on Form 8-K
None.
19
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.
/s/ Martin J. O'Dowd
---------------------
Martin J. O'Dowd
President and Chief Executive Officer
/s/ Kenneth J Stanecki
---------------------
Kenneth J. Stanecki
Chief Financial Officer
Date: November 14, 2001
20