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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 28, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 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
incorporation or organization) Identification No.)
8091 WALLACE ROAD
EDEN PRAIRIE, MINNESOTA 55344
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (952) 294-1300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act (the Act) of
1934 during the preceding 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 mark whether the Registrant is an accelerated filer (as
defined by Rule 12-b-2 of the Act). Yes ___ No X
The aggregate market value of the Registrant's Common Stock held by
non-affiliates on June 29, 2003 (the last business day of the Registrant's most
recently completed second quarter), based upon the last sale price of the Common
Stock as reported on the NASDAQ National Market on June 29, 2003, was
$41,898,388. As of May 11, 2004, 12,317,262 shares of the Registrant's Common
Stock were outstanding.
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FAMOUS DAVE'S OF AMERICA, INC.
TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Consolidated Balance Sheets
As of March 28, 2004 and December 28, 2003 3
Consolidated Statements of Operations
For the three months ended March 28, 2004 and March 30, 2003 4
Consolidated Statements of Cash Flows
For the three months ended March 28, 2004 and March 30, 2003 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures About Market Risk 15
Item 4 Controls and Procedures 15
PART II OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES
CERTIFICATIONS
2
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 28, 2004 AND DECEMBER 28, 2003
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 28, DECEMBER 28,
2004 2003
----------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,403 $ 9,964
Restricted cash (note 3) 287 --
Accounts receivable, net 1,140 1,661
Inventories 1,587 1,599
Prepaid expenses and other current assets 2,853 3,126
--------- ---------
TOTAL CURRENT ASSETS 17,270 16,350
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 46,380 47,147
OTHER ASSETS:
Notes receivable, less current portion 2,347 2,395
Deferred tax asset, less current portion 6,938 6,938
Other assets, net 968 937
--------- ---------
$ 73,903 $ 73,767
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 367 $ 358
Current portion of capital leases 277 388
Accounts payable 2,856 2,035
Other current liabilities 2,959 4,528
--------- ---------
TOTAL CURRENT LIABILITIES 6,459 7,309
LONG-TERM LIABILITIES:
Long-term debt, less current portion 12,252 12,349
Capital leases, less current portion 80 105
Financing leases 4,500 4,500
Other liabilities, net 2,749 2,632
--------- ---------
TOTAL LIABILITIES 26,040 26,895
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized, 12,307,182
and 12,157,782 shares issued and outstanding 123 122
Additional paid-in capital 57,155 56,692
Accumulated deficit (9,415) (9,942)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 47,863 46,872
--------- ---------
$ 73,903 $ 73,767
========= =========
See accompanying notes to consolidated financial statements.
3
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
-------------------------------------
MARCH 28, MARCH 30,
2004 2003
------------- -------------
REVENUE:
Restaurant sales, net $ 20,573 $ 21,893
Franchise royalty revenue 1,584 833
Franchise fee revenue 438 239
Licensing and other revenue 52 42
------------- -------------
TOTAL REVENUE 22,647 23,007
------------- -------------
COSTS AND EXPENSES:
Food and beverage costs 6,407 6,562
Labor and benefits 6,336 6,665
Operating expenses 5,004 5,366
Total depreciation and amortization 1,118 1,243
Pre-opening expenses -- 222
General and administrative 2,498 2,173
------------- -------------
TOTAL COSTS AND EXPENSES 21,363 22,231
------------- -------------
INCOME FROM OPERATIONS 1,284 776
------------- -------------
OTHER INCOME (EXPENSE):
Interest expense, net (406) (331)
Other expense, net (11) (86)
Equity in loss of unconsolidated affiliate -- (2,155)
------------- -------------
TOTAL OTHER EXPENSE (417) (2,572)
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 867 (1,796)
INCOME TAX (EXPENSE) BENEFIT (340) 701
------------- -------------
NET INCOME (LOSS) 527 (1,095)
============= =============
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE $ 0.04 $ (0.10)
============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 12,279,213 11,391,454
============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 12,641,063 11,391,454
============= =============
See accompanying notes to consolidated financial statements.
4
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------
MARCH 28, MARCH 30,
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 527 $ (1,095)
Adjustments to reconcile net income (loss) to cash flows provided by operations:
Depreciation and amortization 1,118 1,243
Gain (loss) on disposal of property 6 (10)
Deferred tax asset 337 (702)
Deferred rent 117 156
Equity in loss of unconsolidated affiliate -- 2,155
Other non-cash items affecting earnings 21 16
Changes in operating assets and liabilities:
Restricted cash (287) --
Accounts receivable, net 521 (93)
Inventories 12 (122)
Prepaids and other current assets (60) (31)
Deposits (42) (12)
Accounts payable 821 (814)
Other current liabilities (1,569) (530)
--------- ---------
Cash flows provided by operations 1,522 161
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold improvements (367) (2,351)
Investment and repayments of advances in unconsolidated affiliate -- (2,155)
Payments received on notes receivable 44 36
--------- ---------
Cash flows used for investing activities (323) (4,470)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for debt issuance costs -- (9)
Payments on long-term debt (88) (96)
Payments on capital lease obligations (136) (185)
Proceeds from exercise of stock options and warrants 464 27
--------- ---------
Cash flows provided by (used for) financing activities 240 (263)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,439 (4,572)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,964 9,473
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,403 $ 4,901
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the period $ 436 $ 432
========= =========
Income taxes paid during the period $ 4 $ --
========= =========
See accompanying notes to consolidated financial statements.
5
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 2004 AND MARCH 30, 2003
(1) BASIS OF PRESENTATION
We ("Famous Dave's, Inc." or the "Company") operate or franchise
restaurants under the name "Famous Dave's" throughout various regions of the
United States. As of March 28, 2004, there were 92 restaurants operating in 23
states, including 38 company-owned restaurants and 54 franchise-operated
restaurants. An additional 163 restaurants were in various stages of development
at March 28, 2004.
We prepared these consolidated financial statements in accordance with
Securities and Exchange Commission ("SEC") Rules and Regulations. These
unaudited financial statements represent the consolidated financial statements
of Famous Dave's, Inc., and its subsidiaries as of March 28, 2004 and December
28, 2003 and for the three-month periods ended March 28, 2004 and March 30,
2003. The information furnished in these financial statements includes normal
recurring adjustments and reflects all adjustments, which are, in our opinion,
necessary for a fair presentation. 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. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in our fiscal 2003 Form 10-K as filed with the SEC. The unaudited
balance sheet as of December 28, 2003 has been derived from our audited
financial statements as of that date.
Due to the seasonality of our business, revenue and operating results
for the three months ended March 28, 2004 are not necessarily indicative of the
results to be expected for the full year.
(2) NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share ("EPS") is computed by
dividing the net income (loss) by the weighted average number of common shares
outstanding for the reporting period. Diluted EPS equals net income (loss)
divided by the sum of the weighted average number of shares of common stock
outstanding plus all additional common stock equivalents relating to stock
options and warrants when dilutive. Following is a reconciliation of basic and
diluted net income (loss) per common share.
Three Months Ended
----------------------------
March 28, March 30,
($'s in 000's, except per share data) 2004 2003
--------- ---------
NET INCOME (LOSS) PER SHARE - BASIC:
Net income (loss) $ 527 $ (1,095)
Weighted average shares outstanding 12,279 11,391
Net income (loss) per share - basic $ 0.04 $ (0.10)
NET INCOME (LOSS) PER SHARE - DILUTED:
Net income (loss) $ 527 $ (1,095)
Weighted average shares outstanding 12,279 11,391
Dilutive impact of common stock equivalents outstanding 362 --
--------- ---------
Adjusted weighted average shares outstanding 12,641 11,391
Net income (loss) per share - diluted $ 0.04 $ (0.10)
6
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 2004 AND MARCH 30, 2003
(2) NET INCOME (LOSS) PER COMMON SHARE (CONTINUED)
Options and warrants to purchase approximately 209,000 shares of common
stock with a weighted average exercise price of $7.13 were outstanding at March
28, 2004, but were not included in the computation of diluted net earnings per
share because the exercise price exceeded the average market price of the common
shares during the period.
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 $6.63 were excluded from the first quarter 2003 diluted computation
because they were anti-dilutive.
(3) PUBLIC RELATIONS AND MARKETING DEVELOPMENT FUND
Beginning in fiscal 2004, we established a system-wide public relations
and marketing fund. Company-owned restaurants, in addition to franchise-operated
restaurants opened after January 1, 2004, are required to contribute a
percentage of sales, currently 1.0%, to the fund that will be used for public
relations and marketing development efforts throughout the system. Additionally,
certain payments received from various vendors are deposited into the public
relations and marketing fund. The assets held by this fund are considered
restricted. Accordingly, we reflected the cash and the liability related to this
fund in restricted cash and in other current liabilities on our consolidated
balance sheet as of March 28, 2004.
(4) STOCK-BASED COMPENSATION
In accordance with Accounting Principles Board (APB) Opinion No. 25, we
use the intrinsic value-based method for measuring stock-based compensation cost
which measures compensation cost as the excess, if any, of the quoted market
price of our stock at the date of grant over the amount the employee must pay
for the stock. Our policy is to grant stock options at fair value at the date of
grant. No compensation expense has been recognized for options issued to
employees during the three months ended March 28, 2004 or March 30, 2003. The
following table illustrates the effect on net income (loss) and income (loss)
per common share if we had applied the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", to stock-based employee compensation.
Three Months Ended
-----------------------------
March 28, March 30,
($'s in 000's, except per share data) 2004 2003
--------- ----------
Net income (loss) as reported $ 527 $ (1,095)
Less: Compensation expense determined under the fair value
method, net of tax (300) (244)
------- ---------
Pro forma net income (loss) $ 227 $ (1,339)
======= =========
Net income (loss) per common share:
Basic EPS as reported $ 0.04 $ (0.10)
Basic EPS pro forma 0.02 (0.12)
Diluted EPS as reported 0.04 (0.10)
Diluted EPS pro forma 0.02 (0.12)
7
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 2004 AND MARCH 30, 2003
(5) COMPENSATION ARRANGEMENTS
On February 18, 2004, our board of directors approved an Executive
Elective Deferred Stock Unit Plan (Deferred Stock Unit Plan); in which
executives can elect to defer all or part of their bonus compensation or stock
grant compensation for a specified period of time. The amount of compensation
that is deferred is converted into a number of stock units, as determined by the
share price of our common stock on the date of the election of the deferral.
Accordingly, we will recognize compensation expense in our consolidated
statement of operations throughout the deferral period to the extent that the
share price of our common stock increases, and will reduce compensation expense
throughout the deferral period to the extent that the share price of our common
stock decreases.
We granted our President and CEO, David Goronkin, a bonus of $93,750 in
2004 for his performance during fiscal 2003. Mr. Goronkin elected to defer this
bonus, which is subject to forfeiture based on certain fiscal 2004 performance
criteria, for a one-year timeframe in accordance with the Deferred Stock Unit
Plan discussed above. Accordingly, we recognized approximately $30,000 of
compensation expense in our consolidated statement of operations for the first
quarter ended March 28, 2004 as related to this plan.
On February 18, 2004, our board of directors also approved a
Performance Share Program. Under this program, performance share grants will be
awarded under our 1995 Stock Option and Compensation Plan, subject to certain
contingencies. Grants of shares are contingent upon the recipient remaining an
employee during all periods prior to the "vesting date", in addition to the
Company achieving the cumulative total of the earnings per share goals for the
three ensuing fiscal years, as determined by the compensation committee of the
board of directors during the first fiscal quarter of the applicable fiscal
year. Awards will be made only if the cumulative total goal for all three fiscal
years is achieved and no partial award shall be made if the goals are achieved
in any one or more fiscal year but not for the cumulative three year total. No
recipient will have any rights as a shareholder based on the performance share
grants unless and until the conditions have been satisfied and the shares have
been issued to the recipient.
In accordance with this program, we will recognize as compensation
expense, the value of these stock grants as they are earned in our consolidated
statement of operations throughout the performance period.
On February 18, 2004 our board of directors awarded 33,500 performance
share grants to eligible employees for the fiscal 2004 - fiscal 2006 timeframe.
Accordingly, we recognized approximately $23,000 of compensation expense in our
consolidated statement of operations for the first quarter ended March 28, 2004
related to this program.
(6) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) recently issued an
Exposure Draft of a proposed Statement, Share-Based Payment, an Amendment of
FASB Statements No. 123 and 95. The Exposure Draft would require companies to
recognize compensation cost for share-based awards, including options, granted
to employees and would eliminate the use of accounting for employee options
under APB Opinion No. 25, Accounting for Stock Issued to Employees. The comment
period for this Exposure Draft ends on June 30, 2004 and it is anticipated that
a final Statement will be issued later in fiscal 2004. Due to the preliminary
nature of these potential changes, we have not determined how the proposed
Statement will affect our financial statements, but will continue to monitor
these developments.
8
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
ITEM 2.
OVERVIEW
Famous Dave's of America, Inc. ("Famous Dave's" or our "Company") was
incorporated as a Minnesota corporation in March 1994 and opened its first
restaurant in Minneapolis in June 1995. As of March 28, 2004 there were 92
Famous Dave's restaurants operating in 23 states, including 38 company-owned and
54 franchise-operated restaurants. In addition, as of March 28, 2004 we had
signed development agreements representing commitments to develop an additional
163 franchised restaurants.
FISCAL YEAR
Our fiscal year ends on the Sunday closest to December 31st. Our fiscal
year is generally 52 weeks; however it periodically consists of 53 weeks. Fiscal
2004, which ends on January 2, 2005, will consist of 53 weeks.
REVENUE
Our revenue consists of restaurant sales, franchise related revenue and
licensing and other revenue. Our franchise related revenue is comprised of area
development fees, initial franchise fees, and continuing royalty payments. Our
area development fee consists of a non-refundable payment equal to $10,000 per
unit upon the signing of the area development agreement. Since the fee to secure
the territory is non-refundable, we recognize this fee upon receipt. Our initial
franchise fee is typically $40,000 per restaurant, of which $5,000 is recognized
immediately when a franchise agreement is signed and the remaining $35,000 is
recognized upon either the signing of a lease or upon receipt of a builder's
permit, and at which time we have substantially performed all of our services.
Franchise royalties are equal to a percentage of weekly net sales, currently at
5%. Licensing revenue includes royalties from a retail line of business,
including sauces and seasonings. Other revenue includes opening assistance and
training we provide to our franchise partners. Comparable sales represent net
sales for restaurants open year-round for 18 months or more.
COSTS AND EXPENSES
Components of operating expenses include food and beverage costs,
operating payroll and employee benefits, occupancy costs, repair and maintenance
costs, supplies 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 following the
opening, labor scheduling, food cost management and operating expense control
are improved to levels similar to those at our more established restaurants.
General and administrative expenses include all corporate and
administrative functions that provide an infrastructure to support existing
operations and support future growth. Salaries, employee benefits, legal fees,
consulting fees, travel, rent, depreciation, general insurance and marketing
expenses are major items in this category.
9
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
A breakdown of our restaurant and total company operating results were as
follows (amounts in $000's):
RESTAURANT OPERATIONS
---------------------------------------------------------
Three Months Ended
---------------------------------------------------------
March 28, 2004 March 30, 2003
---------------------- -----------------------
Restaurant Sales, net $ 20,573 100.0% $ 21,893 100.0%
Restaurant Costs and Expenses:
Food and Beverage Costs 6,407 31.1 6,562 30.0
Labor and Benefits 6,336 30.8 6,665 30.4
Operating Expenses 5,008 24.3 5,360 24.5
Depreciation and Amortization 1,042 5.1 1,178 5.4
-------- ----- -------- -----
Total Costs and Expenses 18,793 91.3 19,765 90.3
-------- ----- -------- -----
Income from Restaurant Operations $ 1,780 8.7% $ 2,128 9.7%
======== ===== ======== =====
TOTAL COMPANY
---------------------------------------------------------
Three Months Ended
---------------------------------------------------------
March 28, 2004 March 30, 2003
---------------------- -----------------------
Total Revenue $ 22,647 100.0% $ 23,007 100.0%
Total Costs and Expenses:
Food and Beverage Costs 6,407 28.3 6,562 28.5
Labor and Benefits 6,336 28.0 6,665 29.0
Operating Expenses 5,004 22.1 5,366 23.3
Depreciation and Amortization 1,118 4.9 1,243 5.4
Pre-opening Expenses --- --- 222 1.0
General and Administrative 2,498 11.0 2,173 9.4
-------- ----- -------- -----
Income from Total Company Operations $ 1,284 5.7% $ 776 3.4%
======== ===== ======== =====
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 Form 10-K for the
fiscal year ended December 28, 2003.
TOTAL REVENUE
Total revenue of approximately $22.6 million for the first quarter of
fiscal 2004 decreased approximately $360,000 or 1.6% from revenue of
approximately $23.0 million for the comparable quarter in fiscal 2003.
RESTAURANT SALES
Restaurant sales for the first quarter of 2004 were $20.6 million
compared to $21.9 million for the same period in 2003, reflecting a 6.0%
decrease. This decrease was a result of the closing of two restaurants in Texas
and the sale of three restaurants to a franchise partner, both occurring during
the fourth quarter of fiscal 2003. These five restaurants had sales of
approximately $2.0 million during the first quarter of fiscal year 2003.
10
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
FRANCHISE RELATED REVENUE
Franchise related revenue consists of royalty revenue and franchise
fees which include initial franchise fees and area development fees. Franchise
related revenue increased 88.6% over the same period in 2003. This increase
reflects higher royalty revenue, primarily the result of 18 franchise-operated
restaurants that opened during fiscal 2003.
SAME STORE NET SALES
It is our policy to include in our same store net sales base,
restaurants that are open year round and have been open at least 18 months. Same
store net sales for company-owned restaurants for the first quarter of fiscal
2004 decreased approximately 2.2%, compared to fiscal 2003's first quarter
decrease of approximately 2.7%. For the first quarter of 2004, there were 35
restaurants included in the company-owned base. Same store net sales for
franchise-operated restaurants for the first quarter of 2004 decreased 2.6%,
compared to a decrease of 7.3% for the first quarter of fiscal 2003. For the
first quarter of 2004, there were 28 restaurants included in the
franchise-operated base. Same store net sales are expected to continue to remain
soft, at a minimum, through the second quarter of 2004 due to the significant
level of the 2003 discounting which was discontinued late in fiscal 2003.
Although discounting had increased restaurant traffic, the majority of the
incremental sales derived had substantially lower margins.
AVERAGE WEEKLY NET SALES
Weighted average weekly net sales for our company-owned and
franchise-operated restaurants during the first three months of fiscal 2004 were
$41,633 and $49,640 respectively. During the first three months of fiscal 2003,
weighted average weekly net sales for our company-owned and franchise-operated
restaurants were $41,542 and $42,232 respectively.
FOOD AND BEVERAGE COSTS
Food and beverage costs for the first three months of fiscal 2004 were
approximately $6.4 million or 31.1% of net restaurant sales, compared to
approximately $6.6 million or 30.0% of net restaurant sales for the first three
months of fiscal 2003. The increase in food and beverage costs as a percent of
restaurant net sales was due primarily to increases in contract pricing of pork,
poultry and hamburger. Our brisket contract comes due in July and we are
watching that market closely so that we can attempt to lock in pricing at the
most favorable terms. In addition, we continually try to identify ways to
improve our margin mix, such as through the permanent addition of salmon to our
core offerings, which on average has approximately 200 basis points more margin
than our other food items.
LABOR AND BENEFITS
Labor and benefits for the three months ended March 28, 2004 were
approximately $6.3 million or 30.8% of net restaurant sales, compared to
approximately $6.7 million or 30.4% of net restaurant sales for the three months
ended March 30, 2003. The increase in labor and benefits as a percentage of net
restaurant sales reflects the addition in fiscal 2004 of a new restaurant
managers' bonus program.
11
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
OPERATING EXPENSES
Operating expenses for the first quarter of fiscal 2004, of
approximately $5.0 million or 24.3% of net restaurant sales, were approximately
$362,000 lower than operating expenses of approximately $5.4 million or 24.5% of
net restaurant sales for the first quarter of fiscal 2003. The decrease in
operating expenses reflects lower utilities and occupancy costs and a lower
level of advertising, partially offset by higher expenses associated with
repairs and maintenance and take-out supplies in support of our "to-go" program.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the first quarter of 2004 was
approximately $1.1 million or 4.9% of total revenue, compared to approximately
$1.2 million or 5.4% of total revenue for the first quarter of 2003. The
decrease in depreciation and amortization was primarily a result of the decrease
in the number of company-owned restaurants in the first quarter of 2004 compared
to the first quarter of 2003.
PRE-OPENING EXPENSES
No new restaurants opened during the first quarter of 2004. Pre-opening
expenses for the first quarter of 2003 were approximately $222,000 or 1.0% of
total revenue.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the first quarter of 2004 were
approximately $2.5 million or 11.0% of total revenue, compared to approximately
$2.2 million or 9.4% of total revenue for the first quarter of 2003. The
increase in general and administrative expenses reflects an increase in
infrastructure, primarily at the corporate office to support our growth. The
increase also reflects the capitalization of certain general and administrative
costs in the first quarter of fiscal 2003 associated with the construction of
several restaurants.
INTEREST EXPENSE, NET
Interest expense, net was approximately $406,000 or 1.8% of total
revenue for the first three months of 2004, compared to approximately $331,000
or 1.4% of total revenue for the comparable first three months of 2003. The
increase in interest expense, in dollars and as a percentage of total revenue,
was primarily as a result of the capitalization of construction interest for
company-owned restaurants under construction in 2003.
OTHER EXPENSE, NET
During the first quarter of 2004, we recorded other expenses, net, of
approximately $11,000. This compares to other expense, net, of approximately
$86,000 in the first quarter of 2003 and related primarily to costs associated
with the development of restaurants that we elected not to open.
INCOME TAX (EXPENSE) BENEFIT
For the first quarter of 2004, our Company recorded income tax expense
of approximately $340,000, or approximately 39% of income before taxes, compared
to a tax benefit of approximately $701,000 recorded during the first quarter of
2003.
12
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
NET INCOME (LOSS)/DILUTED NET INCOME (LOSS) PER SHARE
Net income for the three months ended March 28, 2004 was approximately
$527,000 or $0.04 per diluted share on approximately 12,641,000 weighted average
shares outstanding, as compared to a net loss of approximately $1.1 million or
$0.10 per diluted share on approximately 11,391,000 weighted average shares
outstanding for the three months ended March 30, 2003. The results for the first
quarter of fiscal 2003 included pre-tax charges of approximately $2.2 million,
or $0.12 per diluted share related to losses in the Isaac Hayes Blues clubs, as
well as costs associated with the divestiture of those clubs.
ANALYSIS OF FINANCIAL CONDITION
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2004, our balance of cash and cash
equivalents was approximately $11.4 million, an increase of approximately $1.4
million from the December 28, 2003 year-end balance, net of the reclassification
of approximately $287,000 to a restricted cash balance. The increase in cash and
cash equivalents was due primarily to increases in franchise royalty revenue.
Our working capital was approximately $10.8 million as of March 28,
2004 as compared to approximately $9.0 million at December 28, 2003. Our quick
ratio, which measures our immediate short-term liquidity, was 1.94 at March 28,
2004 compared to 1.59 at December 28, 2003. The quick ratio is computed by
adding cash and cash equivalents with accounts receivable, net and dividing by
total current liabilities. The change in our working capital and quick ratio was
primarily due to cash generated from operations.
Net cash provided by operations for the first quarter of 2004 was
approximately $1.5 million, compared to approximately $161,000 for the first
quarter of 2003. Cash generated in the first quarter of 2004 reflects a decrease
in accounts receivable and an increase in accounts payable, partially offset by
a decrease in other current liabilities. For the first three months of 2003,
sources of cash generation were primarily from increased accounts payable and
other current liabilities.
Net cash used for investing activities for the first quarter of 2004
was approximately $323,000, reflecting capital expenditures. In comparison,
during the first three months of 2003, we used approximately $4.5 million, with
approximately $2.2 million used to fund the losses and exit from our 40%
partnership in FUMUME, LLC and approximately $2.4 million on capital
expenditures.
Net cash provided by financing activities was approximately $240,000 in
the first three months of 2004, compared to a use of cash of approximately
($263,000) for the first quarter of 2003. During the first quarter of fiscal
2004 proceeds from stock option exercises were the primary source of cash,
partially offset by payments on long-term debt and capital lease obligations.
The use of cash during the first three months of fiscal 2003 was primarily
payments on long-term debt and capital lease obligations.
13
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The following table provides aggregate information about our remaining
contractual payment obligations and the periods in which payments are due:
Payments Due by Period
(in thousands)
Contractual
Obligations Total 2004 2005 2006 2007 2008 Thereafter
----------- --------- -------- -------- -------- -------- -------- ----------
Long Term Debt $ 12,619 $ 270 $ 392 $ 427 $ 466 $ 507 $ 10,557
Financing Leases 4,500 -- -- -- -- -- 4,500
Capital Leases 357 252 97 8 -- -- ---
Operating Leases 44,238 1,945 2,587 2,674 2,666 2,639 31,727
--------- -------- -------- -------- -------- -------- ---------
Total $ 61,714 $ 2,467 $ 3,076 $ 3,109 $ 3,132 $ 3,146 $ 46,784
========= ======== ======== ======== ======== ======== =========
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 28, 2003. The accounting policies used in preparing our interim
2004 consolidated condensed financial statements are the same as those described
in our annual report.
FORWARD-LOOKING INFORMATION
Certain statements contained in this report include "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All forward-looking statements in this document are based on
information currently available to us as of the date of this report, and we
assume no obligation to update any forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors may include, among others, those factors listed in our
2003 Form 10-K filed with the SEC on March 29, 2004 and our other filings with
the SEC.
ADDITIONAL INFORMATION ON FAMOUS DAVE'S
We are currently subject to the informational requirements of the
Exchange Act of 1934, as amended. As a result, we are required to file periodic
reports and other information with the SEC, such as annual, quarterly and
current reports and proxy and information statements. You are advised to read
this Form 10-Q in conjunction with the other reports, proxy statements and other
documents we file from time to time with the SEC. If you would like more
information regarding Famous Dave's, you may read and copy the reports, proxy
and information statements and other documents we file with the SEC, at
prescribed rates, at the SEC's public reference room at 450 Fifth Street, NW,
Washington, DC 20549. You may obtain information regarding the operation of the
SEC's public reference rooms by calling the SEC at 1-800-SEC-0330. Our SEC
filings are also available to the public free of charge at the SEC's website.
The address of this website is http://www.sec.gov.
14
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
ADDITIONAL INFORMATION ON FAMOUS DAVE'S (CONTINUED)
Our most current SEC filings, such as our annual, quarterly and current
reports, proxy statements and press releases available to the public free of
charge on our Website. The address of our Website is www.famousdaves.com. Our
Website is not intended to be, and is not, a part of this Quarterly Report on
Form 10-Q. We will provide electronic or paper copies of our SEC filings
(excluding exhibits) to any Famous Dave's shareholder free of charge upon
receipt of a written request for any such filing. All requests for our SEC
filings should be sent to the attention of Investor Relations at Famous Dave's,
Inc., 8091 Wallace Road, Eden Prairie, MN 55344.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial instruments include cash and cash equivalents and
long-term debt. We include 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. Our cash
and cash equivalents are not subject to significant interest rate risk due to
the short maturities of these instruments. We have no derivative financial
instruments or derivative commodity instruments in our cash and cash
equivalents. Our total outstanding long-term debt as of March 28, 2004 was $12.6
million. Of the outstanding long-term debt, approximately $1.3 million consists
of a variable interest rate while the remainder was subject to a fixed interest
rate. We do not see the variable interest rate long-term debt as a significant
interest rate risk. Some of the food products purchased by us are affected by
commodity pricing and are, therefore, subject to price volatility caused by
weather, production problems, delivery difficulties and other factors that are
outside our control. To control this risk in part, we have fixed-priced purchase
commitments for food from vendors. In addition, we believe that substantially
all of our food is available from several sources, which helps to control food
commodity risks. We believe we have the ability to increase menu prices, or vary
the menu options offered, if needed, in response to a food product price
increase.
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 end of the periods covered by this report.
15
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
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 5. OTHER INFORMATION
Based upon the recommendation of the Compensation Committee, the Board
of Directors adopted an overall executive compensation plan aimed at increasing
form structure and consistency to the Company's executive compensation process.
Like the Company's previous executive compensation arrangements, the new plan
continues to utilize base compensation, bonus compensation and long-term
incentive compensation in structuring compensation arrangements for executives.
Under the new plan, annual bonus compensation will be determined by the
Compensation Committee based upon the Company attaining specific and measurable
financial objectives. Long-term incentive compensation under the new plan will
consist of target awards based on the executive's experience and position with
the Company, market conditions and other factors. While the majority of these
awards will continue to take the form of stock options grants, 25% of the awards
will be in the form of performance share grants that are subject to forfeiture
if, among other things, the Company fails to achieve the cumulative earnings per
share targets during the applicable three year "vesting" period.
Under the Company Executive Elective Deferred Stock Unit Plan, which
was also adopted on February 18, 2004, senior executives can defer all or part
of their annual bonus compensation or stock grant compensation converting the
deferred amount into stock units based upon the market price of our common stock
on the date of the deferral. The Performance Share Program and the Executive
Elective Deferred Stock Unit Plan are discussed in greater detail in Note 5 of
the Company's consolidated financial statements included within this Quarterly
Report.
Contemporaneously with its adoption of the new executive compensation
plan, the board also adopted stock ownership guidelines for the Company's senior
management ranging from one to five times base compensation, depending on
position. Stock units held under the Executive Elective Deferred Stock Unit Plan
will qualify towards the stock ownership guidelines.
The Board of Directors' objective in adopting the new executive
compensation plan, the Executive Elective Deferred Stock Unit Plan, the
Performance Share Program and the stock ownership guidelines was not to change
the overall amount of executive compensation, but rather to more-closely align
the current level of executive compensation with shareholder interests and
long-term employee retention.
16
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Executive Elective Deferred Stock Unit Plan
31.1 Certification of Chief Executive Officer pursuant to
Securities Exchange Act Rule 13a-15(e)/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 Rule 13a-15(e)/15d-15(e) as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and 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
None
17
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FAMOUS DAVE'S OF AMERICA, INC.
("REGISTRANT")
Dated: May 11, 2004 By /s/ David Goronkin
-------------------------------------
David Goronkin
Chief Executive Officer and President
(Principal Executive Officer)
Dated: May 11, 2004 /s/ Diana Garvis Purcel
-------------------------------------
Diana Garvis Purcel
Vice President, Chief Financial
Officer and Secretary
(Principal Financial and Accounting
Officer)