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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 30, 2003
[] Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the transition period from ____________________ to _________________
Commission file number 0-21625
FAMOUS DAVE'S OF AMERICA, INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-1782300
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
8091 Wallace Road, Eden Prairie, MN 55344
(Address of Principal Executive Offices)
(952) 294-1300
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
At May 7, 2003 there were $11,400,795 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 30, 2003
TABLE OF CONTENTS
Page No.
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
March 30, 2003 and December 29, 2002 3
Condensed Consolidated Statements of Operations -
For the thirteen weeks ended March 30, 2003 and March 31,
2002 4
Condensed Consolidated Statements of Cash Flows -
For the thirteen weeks ended March 30, 2003 and March 31,
2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk 17
Item 4 Controls and Procedures 17
PART II OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
CERTIFICATIONS 19
2
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 30, 2003 AND DECEMBER 29, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (AUDITED)
MARCH 30, DECEMBER 29,
2003 2002
----------------------- -----------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,901 $ 9,473
Accounts receivable, net 1,119 1,026
Inventories 1,897 1,775
Prepaids and other current assets 1,330 1,276
----------------------- -----------------------
Total current assets 9,247 13,550
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 52,969 51,861
OTHER ASSETS:
Notes receivable, net of current portion 1,305 1,364
Deposits 387 375
Debt issuance costs, net 646 653
Deferred tax asset 7,716 7,014
----------------------- -----------------------
TOTAL ASSETS $ 72,270 $ 74,817
======================= =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 393 $ 387
Current portion of capital lease obligations 657 708
Accounts payable 2,645 3,459
Accrued payroll and related taxes 978 1,036
Other current liabilities 1,719 2,191
----------------------- -----------------------
Total current liabilities 6,392 7,781
LONG-TERM DEBT, NET OF CURRENT PORTION 12,319 12,422
FINANCING LEASE OBLIGATION 4,500 4,500
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 298 432
DEFERRED RENT 2,273 2,117
DEFERRED GAIN, NET OF CURRENT PORTION 264 273
----------------------- -----------------------
Total liabilities 26,046 27,525
----------------------- -----------------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000 shares authorized,
11,401 and 11,388 shares issued and outstanding 114 114
Additional paid-in capital 54,248 54,222
Accumulated deficit (8,138) (7,044)
----------------------- -----------------------
TOTAL SHAREHOLDERS' EQUITY 46,224 47,292
----------------------- -----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 72,270 $ 74,817
======================= =======================
See accompanying notes to condensed consolidated financial statements.
3
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SHARES OUTSTANDING)
(UNAUDITED)
THIRTEEN WEEKS ENDED
--------------------------------------------
MARCH 30, MARCH 31,
2003 2002
--------------------- ---------------------
REVENUES $ 23,007 $ 21,206
--------------------- ---------------------
COSTS AND EXPENSES:
Food and beverage costs 6,562 6,681
Labor and benefits 6,665 5,797
Operating expenses 5,366 4,602
Depreciation and amortization 1,243 1,130
Pre-opening expenses 222 0
General and administrative 2,173 1,770
--------------------- ---------------------
Total costs and expenses 22,231 19,980
--------------------- ---------------------
INCOME FROM OPERATIONS 776 1,226
--------------------- ---------------------
OTHER INCOME (EXPENSE):
Interest income 62 70
Interest expense (393) (390)
Gain on sale of property and equipment 10 771
Other income (expense) (96) 40
Equity in loss of unconsolidated affiliate (2,155) (428)
--------------------- ---------------------
Total other income (expense) (2,572) 63
--------------------- ---------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,796) 1,289
INCOME TAX BENEFIT (EXPENSE) 701 (498)
--------------------- ---------------------
NET INCOME (LOSS) $ (1,095) $ 791
===================== =====================
BASIC NET INCOME (LOSS) PER COMMON SHARE $ (0.10) $ 0.07
===================== =====================
DILUTED NET INCOME (LOSS) PER COMMON SHARE $ (0.10) $ 0.07
===================== =====================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 11,391,000 11,220,000
===================== =====================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 11,391,000 11,931,000
===================== =====================
SEE accompanying notes to condensed consolidated financial statements.
4
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THIRTEEN WEEKS ENDED
MARCH 30, MARCH 31,
2003 2002
----------------------- ------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,095) $ 791
Adjustments to reconcile net income (loss) to cash flows from
operating activities
Depreciation 1,243 1,130
Gain on disposal of property (10) (771)
Deferred Tax Asset (702) 498
Deferred Rent 156 170
Equity in loss of unconsolidated affiliate 2,155 428
Changes in operating assets and liabilities:
Accounts receivable, net (93) 333
Inventories (122) (59)
Prepaids and other current assets (15) (195)
Deposits (12) (14)
Accounts payable (814) 895
Accrued payroll and related taxes (58) (425)
Other current liabilities (472) (177)
----------------------- ------------------------
Cash flows from operating activities 161 2,604
----------------------- ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, equipment, and leasehold improvements 0 2,983
Purchases of property, equipment and leasehold improvements (2,351) (1,516)
Investment in unconsolidated affiliate (2,155) (605)
Repayments of advances from investment in unconsolidated affiliate 0 392
Advances on notes receivable 0 (832)
Payments received on notes receivable 36 820
----------------------- ------------------------
Cash flows from investing activities (4,470) 1,242
----------------------- ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for debt issuance costs (9) 0
Net payments on line of credit 0 (100)
Payments on long-term debt (96) (510)
Payments on capital lease obligations (185) (245)
Proceeds from exercise of stock options and warrants 27 442
----------------------- ------------------------
Cash flows from financing activities (263) (413)
----------------------- ------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,572) 3,433
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,473 7,398
----------------------- ------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,901 $ 10,831
======================= ========================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock options issued for debt issuance costs $ 0 $ 41
======================= ========================
Equipment purchased under capital lease obligations $ 0 $ 45
======================= ========================
Common stock issued in connection with property acquired $ 0 $ 206
======================= ========================
See accompanying notes to condensed consolidated financial statements.
5
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 30, 2003
(1) GENERAL
Famous Dave's of America, Inc. ("Famous Dave's" or our "Company") currently
operates or franchises 77 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 favorites served
in one of our two casual formats: a "northwoods" style lodge, or a nostalgic
roadhouse "shack". We seek to differentiate ourselves by providing high quality
food in these distinctive and comfortable environments. At March 30, 2003, there
were two additional company-owned and four franchised restaurants in
development. As of March 31, 2002 we operated or franchised 58 restaurants, with
two additional 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 29, 2002. In our opinion, all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented have been made.
(3) IMPAIRMENT OF LONG-LIVED ASSETS
Restaurant sites are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of restaurant sites to be held and used is measured
by a comparison of the carrying amount of the restaurant site to future net cash
flows expected to be generated on a restaurant-by-restaurant basis. If such a
restaurant site is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the restaurant site
exceeds the fair value. Restaurant sites to be disposed of are reported at the
lower of their carrying amount or fair value on a restaurant-by-restaurant
basis, less estimated costs to sell.
(4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143. "Accounting for
Asset Retirement Obligations." SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. Our Company believes the adoption of SFAS No. 143
will not have a material effect on our Company's consolidated financial position
or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." Our Company believes the adoption of SFAS No. 145 will not have a
material effect on our Company's consolidated financial position or results of
operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires the
recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred versus the date our Company commits to
an exit plan. In addition, SFAS No. 146 states the liability should be initially
measured at fair value. The requirements of SFAS No. 146 are effective for exit
or disposal activities that are initiated after December 31, 2002. Our Company
believes the adoption of SFAS No. 146 will not have a material effect on our
Company's consolidated financial position or results of operations.
6
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 30, 2003
Effective for the year ended December 31, 2002, our Company adopted the
disclosure provisions of SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No. 148 amends the disclosure and
certain transition provisions of Statement 123, "Accounting for Stock-Based
Compensation." The additional disclosure requirements of this pronouncement have
not had a material impact on our Company's financial position or results of
operations.
(5) NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Basic net income (loss) per share is computed by dividing the net income
(loss) by the weighted average number of common shares outstanding during the
reporting period. Our Company's diluted net income (loss) per share is computed
by dividing net income (loss) by the sum of the weighted average number of
shares of common stock outstanding and common share equivalents, when dilutive,
for the reporting period. Following is a table (in thousands, except per share
data) of a reconciliation of basic and diluted net income (loss) per common
share:
Thirteen Weeks Ended
March 30, March 31,
2003 2002
---------------- ----------------
NET INCOME PER SHARE - BASIC:
Net income (loss) $ (1,095) $ 791
Weighted average shares
Outstanding 11,391 11,220
Net income (loss) per share - basic $ (.10) $ .07
NET INCOME PER SHARE -DILUTED:
Net income (loss) $ (1,095) $ 791
Weighted average shares
Outstanding 11,391 11,220
Dilutive impact of common stock
equivalents outstanding 0 711
---------------- ----------------
Weighted average shares and
potential dilutive shares
outstanding 11,391 11,931
Net income (loss) per share -
Dilutive $ (.10) $ .07
Options to purchase approximately 1,921,000 shares of common stock with a
weighted average exercise price of $3.56 and warrants to purchase approximately
95,000 shares of common stock with a weighted average exercise price of $6.63
were excluded from the first quarter 2003 diluted computation because they were
anti-dilutive.
Options to purchase 2,500 shares of common stock with a weighted average
exercise price of $8.20 were excluded from the first quarter 2002 diluted
computation because they were anti-dilutive.
7
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 30, 2003
(6) STOCK-BASED COMPENSATION
In accordance with Accounting Principles Board (APB) Opinion No. 25, our
Company uses the intrinsic value-based method for measuring stock-based
compensation cost which measures compensation cost as the excess, if any, of the
quoted market price of our Company's common stock at the grant date over the
amount the employee must pay for the stock. Our Company's policy is to grant
stock options at fair value at the date of grant. The following table
illustrates the effect on net income (loss) and income (loss) per share if our
Company had applied the fair value recognition provisions of FASB Statement No.
123, "Accounting for Stock-Based Compensation", to stock-based employee
compensation.
For Quarter Ended
March 30, 2003 March 31, 2002
(in thousands) (in thousands)
------------------------- --------------------
Net income (loss) as reported $ (1,095) $ 791
Less: Compensation expense determined under
the fair value method, net of tax (244) (135)
------------------------- --------------------
Pro forma net income (loss) $ (1,339) $ 656
========================= ====================
Net income (loss) per share:
Basic - as reported $ (0.10) $ 0.07
Basic - pro forma (0.12) 0.06
Diluted - as reported (0.10) 0.07
Diluted - pro forma (0.12) 0.06
(7) INCOME FROM FRANCHISEES
As of March 30, 2003 we had 36 franchise-operated restaurants in 16
different states. All of our franchise agreements require that each restaurant
operate in accordance with our operating procedures, adhere to the menu
established by us and meet all quality, service and cleanliness standards.
(8) RELATED PARTY TRANSACTIONS
S&D Land Holdings, Inc. - S&D Land Holdings, Inc. ("S&D"), is a company
wholly owned by our Company's founding shareholder and Chairman. We lease the
real estate for three of our units from S&D. These leases have been in place
since 1996.
(9) INCOME TAXES
At March 30, 2003, our Company had federal and state net operating loss
carryforwards ("NOL's") for tax reporting purposes of approximately $14.4
million, which, if not used, will begin to expire in 2011, and tax credit carry
forwards of approximately $1.0 million which, if not used, will also begin to
expire in 2011. Future changes in ownership of our Company may place limitations
on the use of these net operating loss carry forwards. Our Company utilizes the
liability method of accounting for income taxes. Deferred tax assets and
liabilities are recognized for the expected future tax consequences attributable
to temporary differences between the financial statement and income tax
reporting bases of assets and liabilities.
8
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 30, 2003
(10) NOTES PAYABLE
During the first quarter ended March 30, 2003, our Company did not incur
any new notes payable. For the 13 week period ended March 30, 2003, future
principal payments on the outstanding notes were approximately $12.7 million.
(11) FINANCING LEASE OBLIGATIONS
During the first quarter ended March 30, 2003, our Company did not incur
any new financing lease obligations. For the 13 week period ended March 30,
2003, future principal financing lease obligation payments were approximately
$4.5 million.
(12) CAPITAL LEASE OBLIGATIONS
During the first quarter ended March 30, 2003, our Company did not incur
any new capital lease obligations. For the 13 week period ended March 30, 2003,
future principal capital lease obligation payments were approximately $955,000.
(13) DEFERRED GAIN AND NOTE RECEIVABLE
During the second quarter ended July 2, 2000, our Company sold property and
equipment at two of its company-operated restaurants. These restaurants were
converted to franchises. Our Company financed part of the sale price on each
transaction with notes that bear interest at 9.6% and 12% and require monthly
payments of principal and interest. The balance on these notes receivable was
approximately $753,000 as of March 30, 2003. 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. Our Company recorded a deferred gain on
this sale and will recognize the gain over the term of the note receivable.
Included in the notes receivable balance are several notes receivable with
franchisees relating to the sale of assets. This information is detailed in our
Company's Form 10-K for the fiscal year ended December 29, 2002. Total notes
receivable as of March 30, 2003 was approximately $1.5 million.
(14) COMMITMENTS AND CONTINGENCIES
Under the lease termination agreement with the LLC that owns the Chicago
club (FUMUME, LLC), our Company is responsible for rent and property taxes
through April 30, 2003.
(15) INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARY
On February 26, 2003, our Company completed a transaction in which we
disposed of our 40% interest in FUMUME. As a result, our obligations under the
Operating Agreement and Management Agreement were terminated, including any
obligation to fund cash operating loses. On March 21, 2003, our Company
completed a transaction with the landlord at the Chicago location that will
terminate our obligations under the lease. Under the agreement, we paid lease
termination fees of approximately $1.6 million and are responsible for rent and
property taxes through April 30, 2003. Losses related to this equity investment,
including the lease termination fee, were approximately $2.2 million during the
quarter ended March 30, 2003.
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 our
"Company") is to develop, own, operate and franchise casual dining restaurants
under the name "Famous Dave's." As of March 30, 2003 we owned & operated or
franchised 77 restaurants, with locations shown in the table below. In addition,
we have signed development agreements representing commitments to develop an
additional 132 franchised restaurants.
COMPANY
OWNED FRANCHISED TOTAL
STATE RESTAURANTS RESTAURANTS RESTAURANTS
----- ----------- ----------- -----------
Alabama 0 1 1
Georgia 3 1 4
Illinois 9 4 13
Indiana 0 1 1
Iowa 3 1 4
Kentucky 0 1 1
Maryland 5 0 5
Minnesota 12 6 18
Montana 0 1 1
Nebraska 1 4 5
New Jersey 0 1 1
North Dakota 0 1 1
Ohio 0 1 1
Oklahoma 1 0 1
South Dakota 0 1 1
Tennessee 0 3 3
Texas 2 0 2
Utah 0 2 2
Virginia 5 0 5
Wisconsin 0 7 7
---------------------------------------------
41 36 77
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 our Company's Form 10-K
for the fiscal year ended December 29, 2002.
RESULTS OF OPERATIONS
Our restaurant level operating profit expressed as a percentage of
restaurant revenues is as follows: (this does not include any of our Franchise
Royalty Income, Licensing Royalty Income, or Franchise Fee Income):
THIRTEEN WEEKS ENDED
MARCH 30, MARCH 31,
2003 2002
(UNAUDITED) (UNAUDITED)
RESTAURANT REVENUES 100.0% 100.0%
UNIT-LEVEL COSTS AND EXPENSES
Food and beverage costs 30.0% 32.6%
Labor and benefits 30.4% 28.3%
Operating expenses 24.5% 22.4%
Depreciation and amortization 5.4% 5.2%
Depreciation and amortization 5.4% 5.2%
------------- --------------
Total costs and expenses 90.3% 88.5%
------------- --------------
RESTAURANT-LEVEL OPERATING PROFIT 9.7% 11.5%
============= ==============
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 revenues for the 13 weeks ended March 30, 2003 were $21,893,000
compared to $20,488,000 for the same period in 2002, a 6.9% increase. This
increase was a result of revenues generated by new restaurants, and offset by a
decrease in comparable same store sales and the sale of company-operated
restaurants to franchisees.
As of March 30, 2003, our Company had 30 restaurants that had been open for
more than 18 months and these restaurants reported decreases in same store sales
of approximately 2.7% in the 13 weeks ended March 30, 2003. The decline in sales
resulted from a difficult economic environment and severe winter weather.
OTHER REVENUE
Other revenue for our Company consists of franchise royalties, franchise
fees and licensing royalties. Franchise royalty income is based on a percent of
sales. Franchise royalties increased approximately 47% for the 13 weeks ended
March 30, 2003 as compared to the 13 weeks ended March 31, 2002. This increase
was primarily a result of 12 additional franchise-operated restaurants that
opened between March 31, 2002 and March 30, 2003.
Franchise fee income 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 our Company. Franchise fees increased approximately
128% for the 13 weeks ended March 30, 2003 as compared to the 13 weeks ended
March 31, 2002. This change was primarily a result of an increase in the number
of franchise-operated restaurant openings.
We also receive licensing royalty income based on sales of branded products
including sauces, seasoning and prepared meats. Licensing royalties decreased
approximately 9% for the 13 weeks ended March 30, 2003 as compared to the 13
weeks ended March 31, 2002. This decrease was primarily a result of lower
branded product sales.
The chart below shows a summary of revenues by type:
THIRTEEN WEEKS ENDED
MARCH 30, MARCH 31,
2003 2002
(UNAUDITED) (UNAUDITED)
REVENUE:
Restaurant Revenues $21,893 $20,488
Franchise Royalty Income 833 567
Franchise Fees 239 105
Licensing Royalty Income 42 46
------------- -------------
TOTAL REVENUES $23,007 $21,206
============= =============
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 13 weeks ended March 30, 2003 were
$6,562,000 or 30.0% of restaurant revenue, compared to $6,681,000 or 32.6% of
restaurant revenue for the 13 weeks ended March 31, 2002. The decrease in food
and beverage costs as a percent of restaurant revenue was due to lower commodity
costs, primarily a reduction in the cost of ribs.
LABOR AND BENEFITS
Labor and benefits for the 13 weeks ended March 30, 2003 were $6,665,000 or
30.4% of restaurant revenue, compared to $5,797,000 or 28.3% of restaurant
revenue for the 13 weeks ended March 31, 2002. This increase in labor and
benefits as a percentage of restaurant revenue was primarily due to increased
staffing and inefficiencies at new restaurants and the related increase in
benefits costs.
OPERATING EXPENSES
Operating expenses for the 13 weeks ended March 30, 2003, were $5,366,000 or
24.5% of restaurant revenue, compared to $4,602,000 or 22.4% of restaurant
revenue for the 13 weeks ended March 31, 2002. The increase in operating
expenses as a percent of restaurant revenue was a result of higher utility costs
and the effect of higher fixed occupancy costs against lower average revenues.
DEPRECIATION AND AMORTIZATION
Unit-level depreciation and amortization for the 13 weeks ended March 30,
2003, was $1,178,000 or 5.4% of restaurant revenue, compared to $1,064,000 or
5.2% of restaurant revenue for the 13 weeks ended March 31, 2002. Total company
depreciation and amortization for the 13 weeks ended March 30, 2003 was
$1,243,000 or 5.4% of total revenue, compared to $1,130,000 or 5.3% of total
revenue for the 13 weeks ended March 31, 2002. The increase in the depreciation
and amortization dollar amount was primarily a result of new restaurant
openings.
PRE-OPENING EXPENSES
Pre-opening expenses for the 13 weeks ended March 30, 2003, was $222,000 or
1.0% of restaurant revenue, compared to no pre-opening expenses for the 13 weeks
ended March 31, 2002. No new restaurants were opened in the first quarter of
2002.
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 $2,126,000 or
9.7% of restaurant revenue for the 13 weeks ended March 30, 2003, compared to
$2,358,000 or 11.5% of restaurant revenue for the 13 weeks ended March 31, 2002.
Although restaurant-level operating profit should not be considered an
alternative to income from operations as a measure of our operating performance,
such unit-level measurement is commonly used as an additional measure of
operating performance in the restaurant industry and certain related industries.
The decrease in restaurant-level operating profit for the quarter, both in
amount and as a percent of restaurant revenue from 2002 to 2003, was primarily
attributable to the increase in operating expenses as a percent of revenues, as
outlined in the previous sections.
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 13 weeks ended March 30,
2003 were $2,173,000 or 9.4% of total revenue, compared to $1,770,000 or 8.3% of
total revenue for the 13 weeks ended March 31, 2002. The increase in general and
administrative expenses reflected increased personnel at the corporate level and
increased recruiting and training costs to support restaurant and franchise
growth.
INCOME FROM OPERATIONS
Income from operations totaled $776,000 or 3.4% of total revenue for the 13
weeks ended March 30, 2003, compared to $1,226,000 or 5.8% of operating revenue
for the 13 weeks ended March 31, 2002. The decrease in income was primarily
attributable to an increase in operating expenses as outlined above.
INTEREST INCOME
Interest income was $62,000 or .3% of total revenue for the 13 weeks ended
March 30, 2003, compared to $70,000 or 0.3% of total revenue for the 13 weeks
ended March 31, 2002. The decrease in dollars was a result of a smaller number
of total outstanding notes receivable, payable to our Company.
INTEREST EXPENSE
Interest expense was $393,000 or 1.7% of total revenue for the 13 weeks
ended March 30, 2003, compared to $390,000 or 1.8% of total revenue for the 13
weeks ended March 31, 2002. The decrease in interest expense as a percentage of
total revenue was a result of no new debt financing.
GAIN (LOSS) ON SALE OF ASSETS AND OTHER INCOME (EXPENSE)
During the 13 weeks ended March 30, 2003, our Company recorded a loss on the
sale of assets and other expenses, net, of $(86,000), or (0.4)% of total
revenue. This compares to a net gain of $811,000, or 3.8% of total revenue for
the 13 weeks ended March 31, 2002. The recorded loss of $(86,000) in 2003 was
primarily attributable to the write-off of costs associated with a failed site.
EQUITY IN LOSSES AND IMPAIRMENT OF INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Effective June 1, 2001, Famous Dave's Ribs-U, Inc., our wholly-owned
subsidiary, entered into a joint venture with Memphis-based Lifestyle Ventures,
LLC, H&H Holding Company, LLC and another investor to develop a themed
restaurant concept based on the entertainment artist Isaac Hayes. Pursuant to
the agreement governing the joint venture, the participants in the joint venture
formed a Delaware limited liability company named FUMUME, LLC. FUMUME opened its
first location in Chicago in June 2001 and its second location in Memphis,
Tennessee in October 2001.
In exchange for a 40% interest in FUMUME, our Company agreed to contribute:
(i) $825,507 in working capital, (ii) the assets comprising Famous Dave's Ribs
and Blues Club in Chicago and (iii) certain rights to use Famous Dave's various
licensed marks. In addition, our Company agreed to reimburse FUMUME for
operating losses incurred at the Memphis and Chicago clubs, and provide various
management services for the clubs. In exchange for these services, our Company
received a fee equal to 3% of gross sales per year.
14
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On February 26, 2003, our Company completed a transaction in which our
Company disposed of our 40% interest in FUMUME. As a result, our obligations
under the Operating Agreement and Management Agreement were terminated,
including any obligation to fund cash operating losses. On March 21, 2003, our
Company completed a transaction with the landlord at the Chicago location that
will terminate our obligations under the lease. Under the agreement, we paid
lease termination fees of approximately $1.7 million and were responsible for
rent and property taxes through April 30, 2003.
In the 13 weeks ended March 30, 2003, our Company recorded a loss on
unconsolidated affiliate of $(2,155,000) or (9.4)% of total revenue, compared to
$(428,000) or (2.0)% of total revenue for the 13 weeks ended March 31, 2002.
This increase in the loss in unconsolidated affiliate was a result of lease
termination costs associated with the FUMUME investment and costs associated
with the disposal of our 40% interest.
INCOME TAX PROVISION
For the 13 weeks ended March 30, 2003, our Company recorded an income tax
benefit of $701,000, or approximately 39% of the loss before taxes.
NET INCOME (LOSS) PER COMMON SHARE
The net income (loss) for the 13 weeks ended March 30, 2003 was $(1,095,000)
or $(.10) per share on approximately 11,391,000 weighted average diluted shares
outstanding, compared to $791,000 or $.07 per share on approximately 11,931,000
weighted average diluted shares outstanding for the 13 weeks ended March 31,
2002. The decrease in net income per share was primarily a result of the FUMUME
lease termination charge.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the 13 weeks ended March 30, 2003, our balance of cash and cash
equivalents decreased by $4,572,000 to approximately $4,901,000 from the March
31, 2002 balance. The decrease in cash and cash equivalents was due primarily to
purchases of assets related to the development of new company-operated
restaurants and the lease termination costs associated with the FUMUME
investment (approximately $1.7 million).
To continue our expansion, we anticipate that additional financing will
likely be required during the next 12 months. Any proceeds from financing will
be used to purchase real estate and develop company-owned restaurants. For the
next 12 months, 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 to the
consolidated financial statements included in our annual report for the year
ended December 29, 2002. The accounting policies used in preparing our interim
2003 consolidated condensed financial statements are the same as those described
in our annual report.
Our critical accounting policies are those both having the most impact to
the reporting of our financial condition and results, and requiring significant
judgments and estimates. Our critical accounting policies include those related
to (a) property, equipment and leasehold improvements impairments; (b) initial
franchise revenues; (c) investment in unconsolidated subsidiary; and (d)
deferred tax asset valuation allowance. The evaluation of long-lived assets for
impairment involves management judgment in estimating future cash flows related
to and fair values of such assets. Initial franchise revenues are recognized
when our Company has performed substantially all of its obligations as
franchisor. Management records the investment in unconsolidated subsidiary on
the equity method based on our Company's net loss obligation (100% of the cash
loss). The evaluation of our deferred tax asset involves our judgment of our
company's future utilization of loss carryforwards and tax credits.
SEASONALITY
Our units typically generate higher revenues during the second and third
quarters (spring and summer months) than in the first and fourth quarters (fall
and winter months) as a result of seasonal traffic increases experienced during
the summer months, and possible adverse weather that can disrupt customer and
employee transportation to our restaurants during the winter months.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q and other materials filed or to be filed with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by us) contain statements that are
forward-looking. A number of important factors could, individually or in the
aggregate, cause actual results to differ materially from those expressed or
implied in any forward-looking statements. Such factors include, but are not
limited to, the following: our ability to expand into new markets; our ability
to execute our expansion strategy; changes in business strategy or development
plans; availability and terms of capital; changes in costs of food, labor, and
employee benefits; changes in government regulations; competition; availability
of locations and terms of sites for restaurant development; development and
operating costs; advertising and promotional efforts; and brand awareness. For
further information regarding these and other factors, see our Annual Report on
Form 10-K for the fiscal year ended December 29, 2002.
16
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3.
MARKET RISK SENSITIVITY
Our Company's financial instruments include cash and cash equivalents and
long-term debt. Our Company includes as cash and cash equivalents certificates
of deposits and all other investments with original maturities of 90 days or
less when purchased and which are readily convertible into known amounts of
cash. Our Company's cash and cash equivalents are not subject to significant
interest rate risk due to the short maturities of these instruments. Our
Company's long-term debt is not subject to interest rate risk because all of our
Company's long-term debt has fixed rates of interest. Our Company does not enter
into contracts for speculative purposes, nor is it a party to any leveraged
instruments.
ITEM 4.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act
of 1934, as amended, within 90 days of the filing date of this report. Based on
their evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective.
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced above.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Our Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification from Chief Executive Officer.
99.2 Certification from Chief Financial Officer.
(b) Reports on Form 8-K
None.
17
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.
May 5, 2003 /s/ Martin J. O'Dowd
---------------------
Martin J. O'Dowd
President and Chief Executive Officer
May 5, 2003 /s/ Kenneth J Stanecki
-----------------------
Kenneth J. Stanecki
Chief Financial Officer
18
CERTIFICATIONS
I, Martin J. O'Dowd, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Famous Dave's of
America, Inc. (our "Company");
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material fact
necessary to make the statement made, in light of the circumstances
under which such statements were made, not misleading with respects to
the period covered by this quarterly report.;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects, the financial condition, results of operations and
cash flows of our Company as of, and for, the periods presented in this
quarterly report.;
4. Our Company's other officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for our Company and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to our Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b. evaluated the effectiveness of our Company's disclosure
controls and procedures as of a date within 90
days prior to the filing of this quarterly report (the
"Evaluation Date") and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. Our Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to our Company's auditors and the audit
committee of Company's board of directors:
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect our Company's
ability to record, process, summarize and report financial
data and have identified for our Company's auditors any
material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in our
Company's internal controls; and
6. Our Company's other certifying officers and I have identified in this
quarterly report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: May 5, 2003 /s/ Martin J. O'Dowd
--------------------
Martin J. O'Dowd
President and Chief Executive Officer
19
CERTIFICATIONS
I, Kenneth J. Stanecki, Chief Financial Officer certify that:
1. I have reviewed this quarterly report on Form 10-Q of Famous Dave's of
America, Inc. (our "Company");
2 Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact
or omit to state a material fact necessary to make the statement made,
in light of the circumstances under which such statements were made,
not misleading with respects to the period covered by this quarterly
report.;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects, the financial condition, results of operations and
cash flows of our Company as of, and for, the periods presented in this
quarterly report.;
4. Our Company's other officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for our Company and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to our Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b. evaluated the effectiveness of our Company's disclosure
controls and procedures as of a date within 90
days prior to the filing of this quarterly report (the
"Evaluation Date") and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation
Date;
5. Our Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to our Company's auditors and the audit
committee of Company's board of directors:
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect our Company's
ability to record, process, summarize and report financial
data and have identified for our Company's auditors any
material weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant
role in our Company's internal controls; and
6. Our Company's other certifying officers and I have identified in this
quarterly report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: May 5, 2003 /s/ Kenneth J. Stanecki
-----------------------
Kenneth J. Stanecki
Chief Financial Officer
20