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 March 31, 2002
[ ] 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)
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 May 2, 2002 there were 11,319,695 shares of common stock, $.01 par
value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
FAMOUS DAVE'S OF AMERICA, INC.
March 31, 2002
TABLE OF CONTENTS
PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -- 3
March 31, 2002 and December 30, 2001
Condensed Consolidated Statements of Operations -- 4
For the thirteen weeks ended March 31, 2002 and April 1, 2001
Condensed Consolidated Statements of Cash Flows -- 5
For the thirteen weeks ended March 31, 2002 and April 1, 2001
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of 10
Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 2 Changes in Securities and Use of Proceeds 18
Item 6 Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (AUDITED)
MARCH 31, DECEMBER 30,
2002 2001
--------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,831 $ 7,398
Accounts receivable, net 1,041 1,903
Inventories 1,404 1,441
Prepaids and other current assets 1,551 1,273
--------------- --------------
Total current assets 14,827 12,015
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 45,420 46,940
OTHER ASSETS:
Notes receivable, net of current portion 1,089 1,146
Deposits 424 410
Debt issuance costs, net 645 618
Investment in unconsolidated affiliate 4,615 4,301
Deferred tax asset 4,512 5,010
--------------- --------------
TOTAL ASSETS $ 71,532 $ 70,440
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 0 $ 100
Current portion of long-term debt 240 695
Current portion of capital lease obligations 831 865
Accounts payable 3,344 2,419
Accrued payroll and related taxes 709 1,134
Other current liabilities 1,920 2,096
--------------- --------------
Total current liabilities 7,044 7,309
LONG-TERM DEBT, NET OF CURRENT PORTION 8,834 8,886
FINANCING LEASE OBLIGATION 4,500 4,500
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 1,027 1,193
DEFERRED RENT 1,657 1,553
DEFERRED GAIN, NET OF CURRENT PORTION 301 310
--------------- --------------
Total liabilities 23,363 23,751
--------------- --------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000 shares authorized,
11,319 and 11,180 shares issued and outstanding 113 112
Additional paid-in capital 53,381 52,693
Accumulated deficit (5,325) (6,116)
--------------- --------------
Total shareholders' equity 48,169 46,689
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 71,532 $ 70,440
=============== ==============
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
----------------------------------
MARCH 31, APRIL 1,
2002 2001
--------------- ----------------
REVENUES $ 21,206 $ 20,469
--------------- ----------------
COSTS AND EXPENSES:
Food and beverage costs 6,681 6,446
Labor and benefits 5,797 5,737
Operating expenses 4,602 4,811
Depreciation and amortization 1,130 1,083
Pre-opening expenses 0 293
General and administrative 1,770 1,451
--------------- ----------------
Total costs and expenses 19,980 19,821
--------------- ----------------
INCOME FROM OPERATIONS 1,226 648
--------------- ----------------
OTHER INCOME (EXPENSE):
Interest income 70 25
Interest expense (390) (361)
Gain on sale of property 771 95
Other income 40 (11)
Equity in loss of unconsolidated affiliate (428) 0
--------------- ----------------
Total other income (expense) 63 (252)
--------------- ----------------
INCOME BEFORE INCOME TAXES 1,289 396
PROVISION FOR INCOME TAXES (498) 0
--------------- ----------------
NET INCOME $ 791 $ 396
=============== ================
BASIC NET INCOME PER COMMON SHARE $ 0.07 $ 0.04
=============== ================
DILUTED NET INCOME PER COMMON SHARE $ 0.07 $ 0.04
=============== ================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 11,219,734 9,463,897
=============== ================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 11,931,342 10,229,898
=============== ================
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)
THIRTEEN WEEKS ENDED
MARCH 31, 2002 APRIL 1, 2001
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 791 $ 396
Adjustments to reconcile net income to cash flows from operating activities
Depreciation and amortization 1,130 1,083
Gain on disposal of property (801) (95)
Deferred Tax Asset 498 0
Deferred Rent 170 0
Equity in loss of unconsolidated affiliate 428 0
Changes in operating assets and liabilities:
Accounts receivable, net 333 235
Inventories (59) (94)
Prepaids and other current assets (209) (182)
Deposits (14) 111
Accounts payable 895 (495)
Accrued payroll and related taxes (425) (594)
Other current liabilities (177) (119)
--------------- --------------
Cash flows from operating activities 2,560 246
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, equipment and leasehold improvements 2,983 0
Purchases of property, equipment and leasehold improvements (1,486) (1,543)
Investment in unconsolidated affiliate (605) 0
Repayments of advances from investment in unconsolidated affiliate 392 0
Payments received on notes receivable 820 32
Advances on notes receivable (832) 0
--------------- --------------
Cash flows from investing activities 1,272 (1,511)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for debt issuance costs 14 (10)
Proceeds from capital lease obligations 0 382
Payments on line of credit (100) 0
Payments on long-term debt (510) (171)
Payments on capital lease obligations (245) (235)
Proceeds from exercise of stock options and warrants 442 364
--------------- --------------
Cash flows from financing activities (399) 330
--------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,433 (935)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,398 1,895
--------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,831 $ 960
=============== ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Note receivable issued in connection with sale of assets $ 0 $ 145
=============== ==============
Stock options issued for debt issuance costs $ 41 $ 0
=============== ==============
Equipment purchased under capital lease obligations $ 45 $ 923
=============== ==============
Common stock issued in connection with property acquired $ 206 $ 0
=============== ==============
Equipment purchased with notes payable $ 4 $ 0
=============== ==============
See accompanying notes to condensed consolidated financial statements.
5
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
(1) GENERAL
Famous Dave's of America, Inc. ("Famous Dave's" or the "Company") currently
operates or franchises fifty-eight 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 March 31, 2002 we
operated or franchised fifty-eight restaurants with two additional company-owned
and three franchised units in development. As of April 1, 2001 we operated or
franchised forty-five restaurants, with an additional two company-owned and
three 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 30, 2001. 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 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) RECENT ACCOUNTING PRONOUNCEMENT
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121. SFAS
No. 144 primarily addresses significant issues relating to the implementation of
SFAS No. 121 and develops a single accounting model for long-lived assets to be
disposed of, whether primarily held, used or newly acquired. The provision of
SFAS No. 144 will be effective for fiscal years beginning after December 15,
2001. The provisions of SFAS No. 144 generally are to be applied prospectively.
The Company believes the adoption of SFAS No. 144 will not have a material
effect on the 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)
MARCH 31, 2002
(UNAUDITED)
(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
March 31, April 1,
2002 2001
------------ ----------
NET INCOME PER SHARE -- BASIC:
Net income $ 791 $ 396
Weighted average shares 11,220 9,463
outstanding
Net income per share - basic $ .07 $ .04
NET INCOME PER SHARE -DILUTED:
Net income $ 791 $ 396
Weighted average shares 11,220 9,464
outstanding
Dilutive impact of common stock 711 766
equivalents outstanding
----------- -----------
Weighted average shares and 11,931 10,230
potential dilutive shares
outstanding
Net income per share - $ .07 $ .04
dilutive
The Company uses the treasury stock method for calculating the dilutive
effect of the stock options and warrants (using the average market price).
Options to purchase 2,500 and 20,565 shares of common stock with a weighted
average exercise price of $8.20 and $4.04 were outstanding at March 31, 2002 and
April 1, 2001, respectively, 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 their respective periods.
(6) INCOME FROM FRANCHISEES
As of March 31, 2002 we had twenty-four franchise units in operation, five
in Minnesota, six in Wisconsin, four in Illinois, two in Nebraska, and one each
in Alabama, Indiana, South Dakota, Tennessee, Ohio, New Jersey, 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. - . S&D Land Holdings, Inc. ("S&D"), is a company
wholly owned by the Company's founding shareholder and Chairman. We lease the
real estate for three of our units from S&D. In addition, a note payable was
signed with S&D in January 2000 for $750,000 to facilitate mortgage financing.
This note was paid in full in January 2002.
7
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002
(UNAUDITED)
(8) INCOME TAXES
At March 31, 2002, the Company had generated net operating losses of
approximately $8.3 million, which, if not used, will begin to expire in 2011,
and tax credit carryforwards of approximately $719,000, 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 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. Deferred tax
assets are reduced by a valuation allowance to the extent that realization is
not assured.
(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 balance of the note payable, in the amount of $460,000,
was paid in full on January 21, 2002.
(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 March 31, 2002, approximately $45,000 of additional capital leases
was added for catering vehicles. The leases outstanding under the agreements
entered into during the first quarter bear interest at a rate of 5.9% and expire
in March 2005.
(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 $817,000 as of March 31, 2002. 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.
8
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2002
(UNAUDITED)
(13) COMMITMENTS AND CONTINGENCIES
CONSTRUCTION AND DEVELOPMENT CONTRACTS
In conjunction with our expansion activity, we enter into construction
contracts from time to time. At March 31, 2002, we had commitments outstanding
under two contracts for construction of restaurants in Richmond, Virginia and in
Gaithersburg, Maryland. As of March 31, 2002, the balance remaining to be paid
under these contracts was approximately $550,000.
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.
(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 entertainment
artist Isaac Hayes.
For the quarter ended March 31, 2002, the Company has recorded equity in
loss of unconsolidated affiliate based on the greater of 40% of the net loss
(which is accounted for on the equity method of accounting) or 100% of the cash
loss the Company is obligated to fund pursuant to the FUMUME operating
agreement. For the quarter ended March 31, 2002, the Company recorded 100% of
the cash loss of $428,000.
The Company has agreed to reimburse FUMUME for operating losses incurred at
the Memphis and Chicago clubs. The Company can terminate the 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.
The membership interest in FUMUME, LLC is voting and is not publicly traded.
The Company believes the carrying amount of the investment approximates fair
value of the investment at March 31, 2002.
See the "Management's Discussion and Analysis of Financial Condition and
Operations" section for further discussion of this topic.
(15) SUBSEQUENT EVENT
None.
9
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 March 31, 2002 we owned & operated or
franchised 58 restaurants, with locations shown in the table below. We expect to
open eight to ten additional company-owned restaurants before the end of the
fiscal year. In addition, we have signed development agreements representing
commitments to develop an additional 61 franchised restaurants. We expect ten to
thirteen of these franchised restaurants to open before the end of the fiscal
year.
FRANCHISED TOTAL
COMPANY OWNED RESTAURANTS RESTAURANTS
STATE RESTAURANTS
Alabama 0 1 1
Georgia 0 1 1
Illinois 8 4 12
Indiana 0 1 1
Iowa 3 0 3
Maryland 4 0 4
Minnesota 12 5 17
Nebraska 1 2 3
New Jersey 0 1 1
Ohio 0 1 1
South Dakota 0 1 1
Tennessee 0 1 1
Utah 2 0 2
Virginia 4 0 4
Wisconsin 0 6 6
---------------- ---------------- ---------- ------
34 24 58
Famous Dave's is also a 40% participant in a joint venture (FUMUME, LLC) to
operate theme restaurant concepts 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 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.
10
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, 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 and the audited
consolidated financial statements and notes included in the Company's Form 10-K
for the fiscal year ended December 30, 2001.
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, or Franchise Fee Income):
THIRTEEN WEEKS ENDED
MARCH 31, APRIL 1,
2002 2001
(UNAUDITED) (UNAUDITED)
RESTAURANT REVENUES 100.0% 100.0%
UNIT-LEVEL COSTS AND EXPENSES
Food and beverage costs 32.6% 32.0%
Labor and benefits 28.3% 28.5%
Operating expenses 22.4% 23.9%
Depreciation and amortization 5.2% 5.1%
----------------- ----------------
Total costs and expenses 88.5% 89.4%
----------------- ----------------
RESTAURANT-LEVEL OPERATING PROFIT 11.5% 10.6%
================= ================
11
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES:
RESTAURANT REVENUES
Restaurant revenue for the thirteen weeks ended March 31, 2002 was
$20,488,000 compared to $20,153,000 for the same period in 2001, a 1.7%
increase. This increase is due to an increase in the number of operating weeks
in 2002 over 2001, offset by a decrease in comparable same store sales.
As of March 31, 2002, the Company had twenty five restaurants that had been
open for more than eighteen months and these restaurants reported decreases in
same store sales of approximately (.4%) in the thirteen weeks ended March 31,
2002. This is the first quarterly decline in three years; sales were affected by
Easter and the Spring Break season falling earlier in the year, as well as
customer focus on the Winter Olympics.
OTHER REVENUE
Other revenue for the Company consists of royalty revenues and franchise
fees. Franchise revenues for the thirteen weeks ended March 31, 2002 were
$672,000 compared to $270,000 for the thirteen weeks ended April 1, 2001, a 149%
increase. 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 has twenty -four franchises
open at March 31, 2002, compared to ten for the same period in 2001.
The Company also receives licensing revenue based on sales of branded
products including sauces, seasoning and prepared meats. For the thirteen weeks
ended March 31, 2002 the licensing royalty income was $46,000, compared to
$46,000 for the same period in 2001.
The chart below shows a summary of revenues by type:
THIRTEEN WEEKS ENDED
MARCH 31, APRIL 1,
2002 2001
(UNAUDITED) (UNAUDITED)
REVENUE:
Restaurant Revenues $20,488 $20,153
Franchise Royalty Income 567 235
Franchise Fees 105 35
Licensing Royalty Income 46 46
------------- -------------
TOTAL REVENUES $21,206 $20,469
============= =============
12
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOOD AND BEVERAGE COSTS
Food and beverage costs for the thirteen weeks ended March 31, 2002 were
$6,681,000 or 32.6% of restaurant revenue, compared to $6,446,000 or 32.0% of
restaurant revenue for the same period in 2001. The increase in food and
beverage costs as a percent of restaurant revenue was due primarily to an
increase in rib prices, offset by menu price increases.
LABOR AND BENEFITS
Labor and benefits for the thirteen weeks ended March 31, 2002 were
$5,797,000 or 28.3% of restaurant revenue, compared to $5,737,000 or 28.5% of
restaurant revenue for the same period in 2001. This decrease in labor and
benefits as a percentage of restaurant revenue is due to an increase in
operating efficiencies, offset by higher benefit costs.
OPERATING EXPENSES
For the thirteen weeks ended March 31, 2002, operating costs were $4,602,000
or 22.5% of restaurant revenue, compared to $4,811,000 or 23.9% of restaurant
revenue for the same period in 2001. The decrease in operating expense, both in
dollar amount and as a percent of restaurant revenue, is due to the decrease in
utility costs from a high in the first quarter of 2001, as well as to continued
emphasis placed on cost reduction efforts.
DEPRECIATION AND AMORTIZATION
Unit-level depreciation and amortization for the thirteen weeks ended March
31, 2002 was $1,064,000 or 5.2% of restaurant revenue compared to $1,021,000 or
5.1% of restaurant revenue during the same period in 2001. Total company
depreciation and amortization for the thirteen weeks ended March 31, 2002 was
$1,130,000 or 5.3% of revenue compared to $1,083,000 or 5.3% of revenue during
the same period in 2001. The increased dollar amount of depreciation expense is
the result of new restaurants opened, offset by older restaurants sold during
the four quarters subsequent to April 1, 2001.
PRE-OPENING EXPENSES
There were no pre-opening expenses for the thirteen weeks ended March 31,
2002 compared to $293,000 or 1.5% of restaurant revenue during the same period
in 2001. Pre-opening expenses are charged to expense in the month that they are
incurred. There were no new restaurant openings during the first quarter of
2002, compared to two new units opened in the first quarter of 2001. 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 represents income from restaurant
operations before general and administrative expenses, and excludes licensing,
royalty and fee income. Restaurant-level operating profit totaled $2,345,000 or
11.4% of restaurant revenue for the thirteen weeks ended March 31, 2002,
compared to $1,843,000 or 9.1% of restaurant revenue in the corresponding period
of 2001. 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 restaurant revenue from 2001 to 2002, is attributable to the increase in
revenue from new units. Other changes in costs and expenses as discussed
previously also contributed to the change in restaurant-level operating profit.
13
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses for the thirteen weeks ended
March 31, 2002 were $1,770,000 or 8.3% of operating revenue, compared to
$1,451,000 or 7.1% of operating revenue for the same period in 2001. The
increase in general and administrative expenses reflects increased personnel at
the corporate level to support restaurant and franchise growth.
INCOME FROM OPERATIONS
Income from operations totaled $1,226,000 or 5.8% of operating revenue for
the thirteen weeks ended March 31, 2002, compared to $648,000 or 3.2% of
operating revenue in the corresponding period in 2001. The increase in income is
primarily attributable to increased flow through restaurant operations, control
of operating expenses and increased franchise royalty revenue and fees.
INTEREST INCOME
Interest income was $70,000 or 0.3% of operating revenue for the thirteen
weeks ended March 31, 2002. For the same period in 2001, interest income was
$25,000 or 0.1% of operating revenue. The increase in interest income from 2001
to 2002 is primarily due to increased interest earned from cash on hand, as well
as interest earned on notes receivable to the Company.
INTEREST EXPENSE
Interest expense was $390,000, or 1.8% of operating revenue for the thirteen
weeks ended March 31, 2002. For the same period in 2001, interest expense was
$361,000, or 1.8% of operating revenue. The increase dollar s of expense is
primarily due to increased borrowings.
GAIN ON SALE OF PROPERTY AND OTHER INCOME
During the thirteen week period ended March 31, 2002, the Company recorded a
gain on sale of property and other income, net, of $811,000, or 3.8% of
operating revenue. This compares to $84,000, or 0.4% of operating revenue, for
the same period in 2001. Approximately $793,000 of the gain in 2002 is
attributable to the sale of three of our restaurants to a franchisee in
Wisconsin. Other income of $40,000 is made up of our management fees and
equipment rental fees to FUMUME, LLC. These income totals are offset by losses
on disposals of various property.
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 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. Each location is structured as a separate Delaware
limited liability company, each of which is wholly owned by FUMUME.
In exchange for a 40% interest in the LLC, the 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. 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.
14
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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 March 31, 2002, the Company recorded 100% of the cash
losses of ($428,000), or (2.0%) of operating revenue. Management is focused on
additional training and cost controls to enhance profitability at these sites.
INCOME TAX PROVISION
For the quarter ended March 31, 2002, the Company recorded an income tax
provision of $498,000, or approximately 39% of income before taxes.
NET INCOME/DILUTED NET INCOME PER COMMON SHARE
The net income for the thirteen weeks ended March 31, 2002 was $791,000 or
$.07 per share on approximately 11,220,000 weighted average diluted shares
outstanding, compared to $396,000 or $.04 per share on approximately 9,464,000
weighted average shares outstanding during the comparable period in 2001. If net
income had been reported fully taxed in both years, earnings per share for the
first quarter of 2002 and 2001 would have been $.07 and $.02, respectively. 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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the thirteen weeks ending March 31, 2002, our balance of cash and
cash equivalents increased by $3,433,000 to approximately $10,831,000 from the
December 30, 2001 balance. The primary sources of cash were cash from
operations, proceeds from the sale of three restaurants to a franchisee, and
cash from financing activities, while the primary uses of cash were the
purchases of property, equipment and leasehold improvements (approximately $1.5
million), and payments on long term debt and capital leases (approximately
$755,000).
We were party to a credit agreement with a financial corporation that
provided up to $4,500,000 of borrowing capability to us. This facility was
secured by certain of our property, and in addition was guaranteed by and
partially secured by the Chairman of the Company, David Anderson. This credit
agreement was paid off in January 2002.
During the quarter ended March 31, 2002, approximately $45,000 of new
capital leases was added for new catering vans. The leases outstanding under
these new agreements bear interest at rates of 5.9% and expire in March 2005.
Monthly payments on these new agreements are approximately $1,400.
To continue our expansion, we anticipate that additional financing will
likely be required during the next twelve months. Any proceeds from financing
will be used to purchase real estate and develop company-owned restaurants. We
believe that future development and expansion will be funded or financed
primarily through cash and short-term investments currently held and proceeds
from forms of financing such as mortgages 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.
15
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 and Note Six
to the consolidated financial statements included in our annual report for the
year ended December 30, 2001. The accounting policies used in preparing our
interim 2002 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 improvements impairments; (b) initial
franchise revenues; (c) investment in unconsolidated affiliate. The evaluation
of long-lived assets for impairment involves management judgment in estimating
future cash flows related to and fair values of such assets. Initial franchise
revenues are recognized when the Company has performed substantially all of its
obligations as franchisor. Management records the investment in unconsolidated
affiliate on the equity method based on the Company's net loss obligation (100%
of the cash loss).
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 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 30, 2001.
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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3.
MARKET RISK SENSITIVITY
The Company's financial instruments include cash and cash equivalents and
long-term debt. The Company includes as cash and cash equivalents certificates
of deposits and all other investments with original maturities of three months
or less when purchased and which are readily convertible into known amounts of
cash. The Company's cash and cash equivalents are not subject to significant
interest rate risk due to the short maturities of these instruments. The
Company's long-term debt is not subject to interest rate risk because all of the
Company's long-term debt has fixed rates of interest. The Company does not enter
into contracts for speculative purposes, nor is it a party to any leveraged
instruments.
The Company's primary exposure to market risk associated with changes in
interest rates previously involved the Company's revolving line of credit with
Associated Commercial Finance, Inc. (fka BNC Financial Corporation). Advances on
this line were due on demand and accrued interest at the prime rate plus 4%,
payable monthly. This revolving line of credit was paid in full and cancelled in
January 2002.
17
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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
In March 2002, we issued 26,000 shares of our common stock to the individual
shareholder of Great Seneca Restaurant, LLC, d/b/a Hunter's Restaurant & Pub, a
Maryland limited liability company from which we purchased the assets comprising
one restaurant in Gaithersburg, Maryland. We issued these shares in reliance on
the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended, based on the belief that the transaction did not involve any
public offering. In connection with the issuance of these shares, on April 16,
2002, we filed a registration statement on Form S-3 covering the resale of the
shares with the Securities and Exchange Commission. The registration statement,
SEC File No. 333-86358, was declared effective by the SEC on April 22, 2002. We
will receive no proceeds from any sale of our common stock by the selling
shareholder under the registration statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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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: May 7, 2002
19