FAMOUS DAVES OF AMERICA INC - 10-Q Quarterly Report

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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 June 29, 2003

[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the transition period from ____________________ to _________________

Commission file number 0-21625
-------

FAMOUS DAVE'S OF AMERICA, INC.
(Exact Name of Registrant as Specified in Its Charter)

Minnesota 41-1782300
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

8091 Wallace Road, Eden Prairie, MN 55344
(Address of Principal Executive Offices)

(952) 294-1300
(Registrant's Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, If Changed
Since Last Report)

Indicate by check whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
----- -----

Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes No X
----- -----

At August 6, 2003 there were 12,119,382 shares of common stock,
$.01 par value, outstanding.

FAMOUS DAVE'S OF AMERICA, INC.
JUNE 29, 2003

TABLE OF CONTENTS

2

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 29, 2003 AND DECEMBER 29, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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)

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)

See accompanying notes to condensed consolidated financial statements.

5

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 2003

(1) GENERAL

Famous Dave's of America, Inc. ("Famous Dave's" or our "Company") owns and
operates or franchises restaurants under the name "Famous Dave's" throughout
various regions of the United States. As of June 29, 2003, there were 83 Famous
Dave's restaurants including 43 company-operated and 40 franchise-operated. 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 June 29, 2003, there were five franchised
restaurants in development. As of June 30, 2002 we operated or franchised 64
restaurants, with three additional company-owned and two franchised units in
development.

(2) BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared by us following the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. Although we believe
that the disclosures are adequate to make the information presented not
misleading, it is suggested that these interim condensed consolidated financial
statements be read in conjunction with our most recent audited consolidated
financial statements and notes thereto included in our Annual Report on Form
10-K for the fiscal year ended December 29, 2002. In our opinion, all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented have been made.

(3) IMPAIRMENT OF LONG-LIVED ASSETS

Restaurant sites are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of restaurant sites to be held and used is measured
by a comparison of the carrying amount of the restaurant site to future net cash
flows expected to be generated on a restaurant-by-restaurant basis. If such a
restaurant site is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the restaurant site
exceeds the fair value. Restaurant sites to be disposed of are reported at the
lower of their carrying amount or fair value on a restaurant-by-restaurant
basis, less estimated costs to sell.

After evaluating revenue and cash flow projections at company-operated
restaurants, we recorded $3.5 million in impairment charges for five
under-performing restaurants during the second quarter ended June 29, 2003. Four
of these restaurants were opened within the past 12 months and have produced
revenues significantly below expectations. We are reviewing our options relative
to all of these properties, which may include the sale or closing of the
restaurants. Our Company expects to incur an additional $600,000 in lease buyout
and related expenses over the next two quarters.

6

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 2003

(4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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.

Effective for the year ended December 31, 2002, our Company adopted the
disclosure provisions of SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No. 148 amends the disclosure and
certain transition provisions of Statement 123, "Accounting for Stock-Based
Compensation." The additional disclosure requirements of this pronouncement have
not had a material impact on our Company's financial position or results of
operations.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". This statement amends SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, to clarify
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. The changes in this statement improve
financial reporting by requiring that contracts with comparable characteristics
be accounted for similarly, resulting in more consistent reporting of contracts
as either derivatives or hybrid instruments. This statement is effective for
contracts entered into or modified after June 30, 2003. Because our Company does
not currently utilize derivative instruments or engage in hedging activities,
management does not believe the adoption of this statement will have any
immediate material impact on our Company.

In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. The changes in this statement will result
in a more complete depiction of an entity's liabilities and equity and will,
thereby, assist investors and creditors in assessing the amount, timing, and
likelihood of potential future cash outflows and equity share issuances.
Reliability of accounting information will be improved by providing a portrayal
of an entity's capital structure that is unbiased, verifiable, and more
representationally faithful than information reported prior to issuance of this
statement. This statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. We do not believe the
adoption of this statement will have any immediate material impact on our
Company.

7

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 2003

(5) NET INCOME (LOSS) PER SHARE OF COMMON STOCK

Basic net income (loss) per share is computed by dividing the net income
(loss) by the weighted average number of common shares outstanding during the
reporting period. Our Company's diluted net income (loss) per share is computed
by dividing net income (loss) by the sum of the weighted average number of
shares of common stock outstanding and common share equivalents, when dilutive,
for the reporting period. Following is a table (in thousands, except per share
data) of a reconciliation of basic and diluted net income (loss) per common
share:

Options and warrants to purchase approximately 1,218,000 and 22,500 shares
of common stock with a weighted average exercise price of $3.84 and $8.08 were
outstanding at June 29, 2003 and June 30, 2002, respectively, but were excluded
from the 13 week diluted computation because they were anti-dilutive.

Options and warrants to purchase approximately 1,595,000 and 58,000 shares
of common stock with a weighted average exercise price of $3.53 and $7.85 were
outstanding at June 29, 2003 and June 30, 2002, respectively, but were excluded
from the 26 week diluted computation because they were anti-dilutive.

8

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 2003

(6) STOCK-BASED COMPENSATION

In accordance with Accounting Principles Board (APB) Opinion No. 25, our
Company uses the intrinsic value-based method for measuring stock-based
compensation cost which measures compensation cost as the excess, if any, of the
quoted market price of our Company's common stock at the grant date over the
amount the employee must pay for the stock. Our Company's policy is to grant
stock options at fair value at the date of grant. The following table
illustrates the effect on net income (loss) and net income (loss) per share if
our Company had applied the fair value recognition provisions of FASB Statement
No. 123, "Accounting for Stock-Based Compensation", to stock-based employee
compensation (in thousands, except per share data).

(7) INCOME FROM FRANCHISEES

As of June 29, 2003 we had 40 franchise-operated restaurants in 18 different
states. All of our franchise agreements require that each restaurant operate in
accordance with our operating procedures, adhere to the menu established by us
and meet all quality, service and cleanliness standards.

(8) RELATED PARTY TRANSACTIONS

S&D LAND HOLDINGS, INC. - S&D Land Holdings, Inc. ("S&D"), is a company
wholly owned by our Company's founding shareholder and Chairman. Through May 29,
2003, we leased three real estate units from S&D. On May 29, 2003, our Company
acquired all of S&D's interest in one of these properties and negotiated a new
operating lease directly with the landlord. Our Company paid S&D $243,707 as
full consideration for the assignment of the lease and termination of the
sublease. This amount represented the unamortized balance of S&D's original
purchase price of the leasehold interest utilizing the 10% interest factor that
was assumed by S&D and our Company on January 1, 1996 at the time the sublease
was executed.

9

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 2003

(9) INCOME TAXES

At June 29, 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.

(10) NOTES PAYABLE

We incurred one new note payable during the second quarter ended June
29,2003, with GE Capital Franchise Finance Corporation, of approximately
$1,272,000. The note is payable in estimated monthly installments of $11,000,
which includes an initial variable interest rate of approximately 7.5%, and is
secured by the real estate and equipment at one of our new company-owned
restaurants. As of June 29, 2003, future principal payments on the outstanding
notes were approximately $13.9 million.

(11) FINANCING LEASE OBLIGATIONS

We did not incur any new financing lease obligations during the second
quarter ended June 29, 2003. As of June 29, 2003, future principal financing
lease obligation payments were approximately $4.5 million.

(12) CAPITAL LEASE OBLIGATIONS

We did not incur any new capital lease obligations during the second quarter
ended June 29, 2003. As of June 29, 2003, future principal capital lease
obligation payments were approximately $777,000.

(13) DEFERRED GAIN AND NOTE RECEIVABLE

During the second quarter ended July 2, 2000, our Company sold property and
equipment at two of its company-operated restaurants. These restaurants were
converted to franchises. Our Company financed part of the sale price on each
transaction with notes that bear interest at 9.6% and 12% and require monthly
payments of principal and interest. The principal balance on these note
receivables were approximately $736,000 as of June 29, 2003. They are secured by
equipment and mature July 2010. The note receivable for the sale of one
restaurant was approximately 90% of the selling price. We recorded a deferred
gain on this sale and are recognizing the gain over the term of the note
receivable. We did not incur any new note receivable lease obligations during
the second quarter ended June 29, 2003.

Included in the notes receivable balance are several notes with franchisees
relating to the sale of assets. This information is detailed in our Company's
Form 10-K for the fiscal year ended December 29, 2002. The total notes
receivable balance as of June 29, 2003 was approximately $1.45 million.

(14) COMMITMENTS AND CONTINGENCIES

None.

10

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 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, LLC. As a result, our obligations under
the Operating Agreement and Management Agreement were terminated, including any
obligation to fund cash operating losses. On March 21, 2003, our Company
completed a transaction with the landlord at the Chicago location that
terminated our obligations under the lease. Under the agreement, we paid lease
termination fees of approximately $1.6 million and were responsible for rent and
property taxes through April 30, 2003. Losses related to this equity investment,
including the lease termination fee, were approximately $2.2 million, which were
recorded in the first quarter ended March 30, 2003. For the quarter ended June
29, 2003, our Company no longer had any equity interests or obligations and
incurred no losses related to this equity investment.

11

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2. Management's Discussion and Analysis

OVERVIEW

The business of Famous Dave's of America, Inc. ("Famous Dave's" or our
"Company") is to develop, own, operate and franchise casual dining restaurants
under the name "Famous Dave's." As of June 29, 2003, we owned & operated or
franchised 83 restaurants, with locations shown in the table below. In addition,
we have signed development agreements representing commitments to develop an
additional 148 franchised restaurants.

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.

12

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Components of operating expenses include operating payroll and employee
benefits, occupancy costs, repairs and maintenance, advertising and promotion.
Certain of these costs are variable and will increase with sales volume. The
primary fixed costs are corporate and restaurant management and occupancy costs.
Our experience is that when a new restaurant opens, it incurs higher than normal
levels of labor and food costs until operations stabilize, usually during the
first three months of operation. As restaurant management and staff gain
experience after the opening of a new restaurant, improvements are seen in
expense controls such as labor scheduling, food cost management and operating
expenses, and expense levels are brought down to levels similar to those at our
more established restaurants.

General and administrative expenses include all corporate and administrative
functions that serve to support existing operations and provide an
infrastructure to support future growth. Management, supervisory and staff
salaries, employee benefits, travel, rent, depreciation, general insurance and
marketing expenses are major items in this category.

The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and notes, and the audited
consolidated financial statements and notes included in our Company's Form 10-K
for the fiscal year ended December 29, 2002.

RESULTS OF OPERATIONS

Our restaurant level operating profit expressed as a percentage of
restaurant revenues is as follows: (this does not include any of our franchise
royalty income, licensing royalty income, franchise fee income, general and
administrative expenses and asset impairment charges):

13

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

REVENUES:

RESTAURANT REVENUES

Restaurant revenues for the 13 weeks ended June 29, 2003 were $24,523,000
compared to $22,870,000 for the same period in 2002, a 7.2% increase. For the 26
weeks ended June 29, 2003, restaurant revenues were $46,416,000 compared to
$43,358,000 for the same period in 2002, a 7.1% increase. These increases were a
result of revenues generated by new restaurants, offset by a decrease in
comparable same store sales.

OTHER REVENUE

As of June 29, 2003, our Company had 31 restaurants that had been open for
more than 18 months and these restaurants reported decreases in same store sales
of approximately 1.7% and 2.2% for the 13 weeks and 26 weeks ended June 29,
2003, respectively. The decline in sales resulted from a difficult economic
environment.

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 43% for the 13 weeks ended
June 29, 2003 as compared to the 13 weeks ended June 30, 2002. For the 26 week
period ended June 29, 2003, franchise royalties increased approximately 45% as
compared to the same period in fiscal 2002. This increase was primarily a result
of 13 additional franchise-operated restaurants that opened between June 30,
2002 and June 29, 2003.

Franchise fee income reflects initial non-refundable fixed fees which are
recorded as revenue when an agreement is signed, and no additional material
services are required by our Company. Franchise fees decreased approximately 47%
for the 13 weeks ended June 29, 2003 as compared to the 13 weeks ended June 30,
2002. For the 26 week period ended June 29, 2003, franchise fee income decreased
by approximately 17% as compared to the the same period in fiscal 2002. This
difference was due to fewer new area development agreements signed in the 13 and
26 week periods ended June 29, 2003, compared to the same periods in fiscal
2002.

We also receive licensing royalty income based on sales of branded products
including sauces, seasoning and prepared meats. Licensing royalties decreased
approximately 14% for the 13 week period ended June 29, 2003, compared to the
same period in 2002. For the 26 week period ended June 29, 2003, licensing
royalty income decreased approximately 12% as compared to the same period in
fiscal 2002. This decrease was primarily a result of lower branded product
sales.

14

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The chart below shows a summary of revenues (in thousands) by type:

FOOD AND BEVERAGE COSTS

For the 13 week period ended June 29, 2003, food and beverage costs were
$7,326,000 or 29.9% of restaurant revenue, compared to $7,194,000 or 31.5% of
restaurant revenue for the same period in 2002. For the 26 week period ended
June 29, 2003, food and beverage costs were $13,888,000 or 29.9% of restaurant
revenue, compared to $13,875,000 or 32.0% of restaurant revenue for the same
period in 2002. The decrease in food and beverage costs as a percent of
restaurant revenue was due to lower commodity costs, primarily a reduction in
the cost of ribs. We expect similar results during the third quarter of fiscal
2003.

LABOR AND BENEFITS

For the 13 week period ended June 29, 2003, labor and benefits were
$7,099,000 or 29.0% of restaurant revenue, compared to $6,361,000 or 27.8% of
restaurant revenue for the same period in 2002. For the 26 week period ended
June 29, 2003, labor and benefits were $13,764,000 or 29.7% of restaurant
revenue, compared to $12,158,000 or 28.0% of restaurant revenue for the same
period in 2002. This increase in labor and benefits as a percent of restaurant
revenue was primarily due to the effect of fixed salaries and benefits against
lower average revenue as well as increases in the cost of benefits.

OPERATING EXPENSES

For the 13 week period ended June 29, 2003, operating expenses were
$5,892,000 or 24.0% of restaurant revenue, compared to $5,148,000 or 22.5% of
restaurant revenue for the same period in 2002. For the 26 week period ended
June 29, 2003, operating expenses were $11,258,000 or 24.2% of restaurant
revenue, compared to $9,737,000 or 22.5% of restaurant revenue for the same
period in 2002. The increase in operating expenses as a percent of restaurant
revenue was a result of higher utility costs and the effect of higher fixed
occupancy costs against lower average revenues.

15

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ASSET IMPAIRMENT CHARGE

Asset impairment charges for the 13 and 26 week period ended June 29, 2003
were $3,474,000 or 13.4% and 7.1% of total revenue, respectively. There were no
charges for impairments on assets for the same period ended June 30, 2002. The
impairment was a result of writing down the assets of five company-operated
restaurants to fair value (see note 3 Impairment of Long-Lived Assets).

DEPRECIATION AND AMORTIZATION

For the 13 week period ended June 29, 2003, unit-level depreciation and
amortization was $1,178,000 or 4.8% of restaurant revenue, compared to
$1,080,000 or 4.7% of restaurant revenue for the same period in 2002. For the 26
week period ended June 29, 2003, unit-level depreciation and amortization was
$2,356,000 or 5.1% of restaurant revenue, compared to $2,144,000 or 4.9% of
restaurant revenue for the same period in 2002. The increase in the depreciation
and amortization dollar was primarily a result of new company-operated
restaurant openings.

PRE-OPENING EXPENSES

For the 13 week period ended June 29, 2003, pre-opening expenses were
$284,000 or 1.2% of restaurant revenue, compared to $318,000 or 1.4% of
restaurant revenue for the same period in 2002. The decrease in pre-opening
expenses was primarily a result of a lower number of company-operated
restaurants that were opened during the 13 week period of 2003, compared to the
same period in 2002. For the 26 week period ended June 29, 2003, pre-opening
expenses were $506,000 or 1.1% of restaurant revenue, compared to $330,000 or
0.8% of restaurant revenue for the same period in 2002. The increase in
pre-opening expenses, per restaurant, was primarily due to larger marketing and
grand opening expenses for new restaurants.

RESTAURANT-LEVEL OPERATING PROFIT

Restaurant-level operating profit represents income from restaurant
operations before general and administrative expenses and asset impairment
charges, and excludes licensing, royalty and fee income. Restaurant-level
operating profit totaled $2,745,000 or 11.2% of restaurant revenue for the 13
week period ended June 29, 2003, compared to $2,768,000 or 12.1% of restaurant
revenue for the 13 week period ended June 30, 2002. For the 26 week period ended
June 29, 2003, restaurant-level operating profit was $4,638,000 or 10.0% of
restaurant revenue, compared to $5,113,000 or 11.8% of restaurant revenue for
the same period in 2002. Although restaurant-level operating profit should not
be considered an alternative to income from operations as a measure of our
operating performance, such unit-level measurement is commonly used as an
additional measure of operating performance in the restaurant industry and
certain related industries. The decrease in restaurant-level operating profit
for the 13 and 26 week periods, both in amount and as a percent of restaurant
revenue from 2002 to 2003, was primarily attributable to the increase in
operating expenses as a percent of revenues, as outlined in the previous
sections.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative ("G&A") expenses for the 13 week period ended
June 29, 2003 were $2,124,000 or 8.2% of total revenue, compared to $2,020,000
or 8.3% of total revenue for the 13 weeks ended June 30, 2002. For the 26 week
period ended June 29, 2003, G&A expenses were $4,298,000 or 8.8% of total
revenue, compared to $3,791,000 or 8.3% of total revenue for the same period in
2002. The increase in general and administrative expenses for the 26 week period
reflected increased personnel at the corporate level and increased recruiting
and training costs to support restaurant and franchise growth.

16

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INCOME (LOSS) FROM OPERATIONS

Income (loss) from operations totaled $(1,505,000) or 5.8% of total revenue
for the 13 weeks ended June 29, 2003, compared to $2,020,000 or 8.3% of
operating revenue for the 13 weeks ended June 30, 2002. For the 26 week period
ended June 29, 2003, income from operations was $(729,000) or 1.5% of total
revenue, compared to $3,246,000 or 7.1% of total revenue for the same period in
2002. The decrease in income (loss) from operations for the 13 and 26 week
periods was primarily attributable to the asset impairment charge and an
increase in operating expenses as outlined above.

INTEREST INCOME

Interest income was $58,000 or 0.2% of total revenue for the 13 weeks ended
June 29, 2003, compared to $137,000 or 0.6% of total revenue for the 13 weeks
ended June 30, 2003. For the 26 week period ended June 29, 2003, interest income
was $120,000 or 0.2% of total revenue, compared to $207,000 or 0.5% of total
revenue for the same period in 2002. The decrease in interest income was a
result of a smaller number of total outstanding notes receivable, payable to our
Company.

INTEREST EXPENSE

Interest expense was $471,000 or 1.8% of total revenue for the 13 weeks
ended June 29, 2003, compared to $361,000 or 1.5% of total revenue for the 13
weeks ended June 30, 2002. For the 26 week period ended June 29, 2003, interest
expense was $863,000 or 1.8% of total revenue, compared to $751,000 or 1.7% of
total revenue for the same period in 2002. The increase in interest expense for
the 13 and 26 week periods ended June 29, 2003, as compared to the same periods
ended June 30, 2002, was a result of increased borrowings.

GAIN (LOSS) ON SALE OF ASSETS AND OTHER INCOME (EXPENSE)

During the 26 weeks ended June 29, 2003, our Company recorded a loss on the
sale of assets and other expenses, net, of $(546,000) or (2.1)% of total
revenue. This compares to a net gain of $86,000, or 0.4% of total revenue for
the 13 weeks ended June 30, 2002. For the 26 week period ended June 29, 2003,
our Company recorded a loss on the sale of assets and other expenses, net, of
$(633,000) or 1.3% of total revenue. This compares to a net gain of $895,000 or
2.0% of total revenue for the 26 weeks ended June 30, 2002. The recorded loss of
$(633,000) in 2003 was primarily attributable to the write-off of costs
associated with a failed site, disposal of old equipment, and employment
severance payments to former company executives.

EQUITY IN LOSSES AND IMPAIRMENT OF INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

Effective June 1, 2001, Famous Dave's Ribs-U, Inc., our wholly-owned
subsidiary, entered into a joint venture with Memphis-based Lifestyle Ventures,
LLC, H&H Holding Company, LLC and another investor to develop a themed
restaurant concept based on the entertainment artist Isaac Hayes. Pursuant to
the agreement governing the joint venture, the participants in the joint venture
formed a Delaware limited liability company named FUMUME, LLC. FUMUME opened its
first location in Chicago in June 2001 and its second location in Memphis,
Tennessee in October 2001.

In exchange for a 40% interest in FUMUME, our Company agreed to contribute:
(i) $825,507 in working capital, (ii) the assets comprising Famous Dave's Ribs
and Blues Club in Chicago and (iii) certain rights to use Famous Dave's various
licensed marks. In addition, our Company agreed to reimburse FUMUME for
operating losses incurred at the Memphis and Chicago clubs, and provide various
management services for the clubs. In exchange for these services, our Company
received a fee equal to 3% of gross sales per year.

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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On February 26, 2003, our Company completed a transaction in which our
Company disposed of our 40% interest in FUMUME. As a result, our obligations
under the Operating Agreement and Management Agreement were terminated,
including any obligation to fund cash operating losses. On March 21, 2003, our
Company completed a transaction with the landlord at the Chicago location that
terminated our obligations under the lease. Under the agreement, we paid lease
termination fees of approximately $1.6 million and were responsible for rent and
property taxes through April 30, 2003.

Having disposed of our interests in the LLC, we had no recorded losses on
unconsolidated affiliate's for the 13 week period ended June 29, 2003. We
recorded a loss of $(120,000) for the same period in 2002. For the 26 week
period ended June 29, 2003, the equity in loss of unconsolidated affiliate
increased approximately 293% to $(2,155,000) as compared to the same period in
fiscal 2002. This increase was primarily a result of lease termination fees
associated with our 40% interest in FUMUME.

INCOME TAX PROVISION

For the 13 and 26 week periods ended June 29, 2003, our Company recorded an
income tax benefit of approximately $961,000 and $1,662,000, respectively, or
approximately 39% of the loss before taxes.

NET INCOME (LOSS) PER COMMON SHARE

The net income (loss) for the 13 week period ended June 29, 2003 was
$(1,503,000) or $(.13) per share on approximately 11,448,381 weighted average
diluted shares outstanding, compared to $1,071,000 or $.09 per share on
approximately 11,998,155 weighted average diluted shares outstanding for the 13
weeks ended June 30, 2002. The decrease in net income (loss) per share was
primarily a result of asset impairment charges.

The net income (loss) for the 26 week period ended June 29, 2003 was
$(2,598,000) or $(0.23) per share on approximately 11,419,918 weighted average
diluted shares outstanding, compared to $1,860,000 or $0.16 per share on
approximately 11,964,679 weighted average diluted shares outstanding for the
same period in 2002. The decrease in net income (loss) per share was primarily a
result of asset impairment charges and a FUMUME lease termination charge.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

During the 26 week period ended June 29, 2003, our balance of cash and cash
equivalents decreased by $3,329,000 to approximately $6,144,000 from the
December 29, 2002 balance. The decrease in cash and cash equivalents was due
primarily to purchases of assets related to the development of new
company-operated restaurants and the lease termination costs associated with the
FUMUME investment (approximately $1.7 million).

For the remaining 26 weeks of fiscal 2003, our Company does not plan to open
any more company-operated restaurants and as a result, we don't anticipate any
new financing during this time period.

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.

18

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SEASONALITY

Our units typically generate higher revenues during the second and third
quarters (spring and summer months) than in the first and fourth quarters (fall
and winter months) as a result of seasonal traffic increases experienced during
the summer months, and possible adverse weather that can disrupt customer and
employee transportation to our restaurants during the winter months.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q and other materials filed or to be filed with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by us) contain statements that are
forward-looking. A number of important factors could, individually or in the
aggregate, cause actual results to differ materially from those expressed or
implied in any forward-looking statements. Such factors include, but are not
limited to, the following: our ability to expand into new markets; our ability
to execute our expansion strategy; the ability of our franchisees to execute
their restaurant development plans, changes in business strategy or development
plans; availability and terms of capital; changes in costs of food, labor, and
employee benefits; changes in government regulations; competition; availability
of locations and terms of sites for restaurant development; development and
operating costs; advertising and promotional efforts; and brand awareness. For
further information regarding these and other factors, see our Annual Report on
Form 10-K for the fiscal year ended December 29, 2002.

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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our Company's financial instruments include cash and cash equivalents and
long-term debt. Our Company includes as cash and cash equivalents certificates
of deposits and all other investments with original maturities of 90 days or
less when purchased and which are readily convertible into known amounts of
cash. Our Company's cash and cash equivalents are not subject to significant
interest rate risk due to the short maturities of these instruments. The total
outstanding long-term debt of our Company as of June 29, 2003 was approximately
$13,890,000. Of the outstanding long-term debt, approximately $4,060,000
consisted of a variable interest rate while the remaining $9,830,000 was subject
to a fixed interest rate. Our Company does not see the variable interest rate
long-term debt as a significant interest rate risk.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act
of 1934, as amended, as of the end of the period covered by this report. Based
on their evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective.

There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced above.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Our Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Shareholders was held on June 12, 2003. At the Annual
Meeting, all of management's nominees for directors as listed in the proxy
statement for the Annual Meeting were elected with the following vote. Former
board member, Martin J. O'Dowd, declined his election.

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FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 Agreement and Assignment of Lease Rights dated May 30, 2003 by
and between S&D Land Holdings, Inc. and the Company

31.1 Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rules 13a-15(e) and 15d-15(e) as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Securities
Exchange Act rules 13a-15(e) and 15d-15(e) as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

During the Second Quarter, the Company filed two current reports on
Form 8-K as follows:

On April 9, 2003, we filed a Current Report on Form 8-K dated April 3,
2003 under Items 7, 9 and Item 12, releasing preliminary financial
information related to the First Quarter 2003.

On April 28, 2003, we filed a Current Report on Form 8-K dated April
22, 2003 under Items 7, 9 and Item 12, releasing financial information
related to the First Quarter 2003, including certain non-GAAP financial
measures.

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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.

August 8, 2003 /s/ David W. Anderson
------------------------
David W. Anderson
Chief Executive Officer

August 8, 2003 /s/ Kenneth J. Stanecki
------------------------
Kenneth J. Stanecki
Chief Financial Officer

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