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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended January 2, 2005 Commission File No. 0-21625   FAMOUS DAVES of AMERICA, INC.
  Minnesota
(State or other jurisdiction of
incorporation or organization)
    
    41-1782300
(I.R.S. Employer
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 Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value 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 þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12-b-2 of
the Act). Yes þ No o The aggregate market value of the Registrants Common Stock held by non-affiliates on June 25, 2004
(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 SM on June
25, 2004, was $78,768,109. As of March 3, 2005, 11,340,354 shares of the Registrants Common Stock
were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of our definitive Proxy Statement for our Annual Meeting of Shareholders to be held on May
12, 2005 (the 2005 Proxy Statement) are incorporated by reference into Part III of this Form
10-K, to the extent described in Part III. The 2005 Proxy Statement will be filed within 120 days
after the end of the fiscal year ended January 2, 2005.




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TABLE OF CONTENTS 
  
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Cautionary Statement Regarding Future Results, Forward-Looking Information and Certain Important Factors
    
    
    12Item 2.
    
    Properties
    
    
    14Item 3.
    
    Legal Proceedings
    
    
    16Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16PART IIItem 5.
    

Market
for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    16Item 6.
    
    Selected Financial Data
    
    
    17Item 7.
    

Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 8.
    
    Financial Statements and Supplementary Data
    
    
    31Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    31Item 9A.
    
    Controls and Procedures
    
    
    31Item 9B.
    
    Other Information
    
    
    32PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    32Item 11.
    
    Executive Compensation
    
    
    32Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    32Item 13.
    
    Certain Relationships and Related Transactions
    
    
    32Item 14.
    
    Principal Accountant Fees and Services
    
    
    32PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    32SIGNATURESCredit AgreementSubsidiariesConsent of Grant Thornton LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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PART I 
 ITEM 1. BUSINESS General Development of Business Famous Daves of America, Inc. (Famous Daves or the Company) was incorporated as a
Minnesota corporation in March 1994 and opened its first restaurant in Minneapolis in June 1995. As
of January 2, 2005, there were 104 Famous Daves restaurants operating in 24 states, including 38
company-owned restaurants and 66 franchise-operated restaurants, and there were an additional 159
franchise restaurants in various stages of development. Until February 26, 2003, Famous Daves was a 40% participant in a joint venture to operate
themed restaurant concepts based on the entertainment artist Isaac Hayes. Pursuant to an agreement
governing the joint venture, the participants formed a Delaware limited liability company named
FUMUME, LLC. FUMUME, LLC opened its first location in Chicago, Illinois in June 2001 and opened
its second location in Memphis, Tennessee in October 2001. On February 26, 2003, we disposed of
our 40% interest in FUMUME, LLC, and as a result, no longer participate in any revenues or expenses
of the joint venture, nor do we have any further obligations with regard to the joint venture. Financial Information about Segments Since our inception, our revenues, operating income (losses) and assets have been attributable
to the single industry segment of casual dining. Our revenues and operating income (losses) for
each of the last three fiscal years, and our assets for each of the last two fiscal years, are set
forth elsewhere in this Form 10-K under Item 8, Financial Statements and Supplementary Data. Narrative Description of Business Famous Daves restaurants, a majority of which offer full table service, feature hickory
smoked off-the-grill meat entrée favorites, served in one of our three casual decor styles: a
Northwoods style lodge, a nostalgic roadhouse Shack, or a Blues Club featuring nightly
musical entertainment. We seek to differentiate ourselves by providing high-quality food in these
distinctive and comfortable environments. As of January 2, 2005, 31 of our company-owned
restaurants were full-service and 7 were counter- service. In 2005, we plan to open our first
company-owned smokehouse prototype restaurant, which is our restaurant of the future concept.
We pride ourselves on the following: High
Quality Food -Each restaurant features a distinctive selection of authentic
hickory-smoked off-the-grill favorites such as flame-grilled St. Louis-style ribs, Texas beef
brisket, Georgia chopped pork, country-roasted chicken, and generous signature sandwiches and
salads. Enticing side items such as honey-buttered corn bread, potato salad, coleslaw, Shack
Fries and Wilbur Beans accompany the broad entrée selection. Homemade desserts, including Famous
Daves Bread Pudding and Hot Fudge Kahlua Brownies, are a specialty. To complement our smoked
meat entrée and appetizer items and to suit different customer
tastes, our barbeque sauces come in five
variations: Rich & Sassy, Texas Pit, Georgia Mustard, Devils Spit and Sweet and Zesty. These
sauces, in addition to a variety of seasonings, are also distributed in retail grocery stores
throughout the country under licensing agreements. We believe that our high quality food is a
principal point of differentiation between us and other casual dining competitors and is a
significant contributing factor to our level of repeat business. 3




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Distinctive Environment - Décor and Music -Our original décor theme, a nostalgic roadhouse
shack (Shack), is defined by the abundant use of rustic antiques and items of Americana. The
Shack promotes a very casual experience with emphasis on value and speed of delivery. In late 1997,
we introduced the Lodge format which features décor reminiscent of a comfortable Northwoods
hunting lodge with a full-service dining room and bar. In addition, we have developed a larger
Blues Club format that features authentic Chicago Blues Club décor and live music seven nights a
week. Of our 38 restaurants as of January 2, 2005, 30 were full-service restaurants with 25 having
the Lodge format and 5 having the Shack format, 7 offering counter service were Shack format
and one restaurant, located in the Minneapolis market, was a Blues Club format. During 2005, we
will be evaluating converting some of our counter-service restaurants to full-service restaurants
where there is determined to be sufficient return on our investment. During 2004, we finished the design on our smokehouse prototype, which includes a designated
bar, a signature exterior smokestack, a separate entrance for our category-leading TO-GO business
and a patio. This concept has approximately 6,300 square feet, or 7,200 square feet with the
overhang, and has 220 seats with 50 more seats on the patio. This design will enable us to
capitalize on a consistent and readily identifiable look and feel for our future locations. During
the third quarter of 2004, we opened a franchise-operated restaurant in Chandler, Arizona which
contained approximately 70% of the prototype elements, and in February 2005, opened a
franchise-operated restaurant in Manhattan, Kansas as a full prototype. We plan on utilizing the
smokehouse concept for our future restaurants and will be opening our first company-owned
smokehouse restaurant in late 2005. Broad-Based
Appeal -We believe that our concept has broad appeal because it attracts
customers of all ages, the menu offers a variety of items, and our distinctive sauces allow our
guests to customize their experience, appealing to many tastes. We believe that our distinctive
concept, combined with our high-quality food, make Famous Daves appealing to children, teenagers
and adults of all ages and socio-economic backgrounds. Operating Strategy Our journey to achieving sustainable profitable growth requires us to deliver high quality
experiences, in terms of both food and hospitality, to every guest, every day, and to enhance brand
awareness, in our markets. Key elements of our strategy include the following: Operational
Excellence-In 2004, we focused on improving our overall operational integrity
and creating a consistently great guest experience, both in terms of food and hospitality across
our system. During fiscal 2005, we intend to continue our focus on operational excellence and
operational integrity. We define operational excellence as an uncompromising attention to the
details of our recipes, preparation and cooking procedures, handling procedures, rotation,
sanitation, cleanliness and safety. It also means an unyielding commitment to our guest to provide
a famous experience with every visit through the execution of precision service. In our
restaurants, we strive to emphasize value and speed of service by employing a streamlined operating
system based on a focused menu and simplified food preparation techniques. During 2004, we completed our first major menu design change in ten years. The menu focuses
on a number of popular smoked, barbeque, meat, entrée items and delicious side dishes which are
prepared using easy-to-operate kitchen equipment and processes that use prepared proprietary
seasonings, sauces and mixes. This streamlined food preparation system helps lower the cost of
operation by requiring fewer staff, lower training costs and eliminates the need for highly
compensated chefs. In order to enhance our appeal, expand our audience, and promote our cravable
products without the hook of discounting, during 2004 we introduced limited time offerings of full
margin promotional products. 4




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During 2004, these limited time menu offerings consisted of sweet and sassy grilled salmon,
barbeque salads, distinctive sandwich offerings and a smoked pot roast entrée. We believe that
constant and exciting new product introductions, offered for a limited period of time, encourage
trial visits and build repeat traffic. In order to increase customer frequency, we have assembled a
research and development pipeline designed to generate four to six product introductions annually.
During the first quarter of 2005, in support of the Lenten period, we introduced a limited time
offering seafood promotion consisting of a shrimp PoBoy sandwich, a blackened catfish PoBoy
sandwich and a blackened catfish dinner entrée. As the menu broadens and food preparation
techniques become more focused on meals prepared to order, increased training may be necessary in
order to prepare our staff for increased levels of guest service. Human Resources and Training-We believe that a key component of the success of our concept
rests with the ability to hire, train and motivate qualified restaurant employees and managers. We
validate our performance through an industry subscription service, the People Report, which helps
us track our People P&L. This report is completed every quarter and benchmarks Famous Daves
with industry leaders in areas such as employee satisfaction and retention. In training and
development, we successfully held two area director training classes, which focused on the
positions core competencies and the challenges that our multi-unit managers face both in the
corporate and the franchise communities. Our FD101 manager training class was held four times
throughout the year and focused on compliance issues such as food safety and alcohol awareness,
along with basic management duties including food execution, human resources and restaurant
supervision. We are currently offering these classes to all existing corporate managers, and are
opening our classes to our franchise partners. We are a performance-based organization, and are committed to recognizing and rewarding
performance. In addition to our training initiatives, our managers are incentivized with a bonus
plan that rewards for profitable growth. Our Presidents Club rewards general managers for
accomplishments in many areas directly related to great restaurant operations, such as sales
growth, operating results, safety programs, turnover reduction, and increased guest satisfaction
scores. During 2004, over a third of our general managers and two area directors were successful
in attaining the top designation of Presidents Club status. All of these initiatives, along with
a strong operational focus, resulted in a decrease in management turnover from 38% in 2003 to 26%
in 2004. The Support Center bonus plan has been developed to reward all of our employees that are
not directly serving our guests. It combines Company performance with individual goal achievement.
We believe that by providing training, competitive compensation and opportunities for employee
involvement and advancement, we encourage a sense of personal commitment from all of our employees.
Looking forward to 2005, our focus will be on selection, succession, safety, organization training
and development, streamlining processes, restaurant opening procedures, and retaining top talent. Restaurant Operations Our Companys ability to manage multiple, geographically diverse units is central to our
overall success. At the unit level, we place specific emphasis on the positions of area director
and general manager, and seek employees with significant restaurant and management expertise. We
strive to maintain quality and consistency in each of our units through the careful training and
supervision of personnel and the establishment of, and adherence to, high standards relating to
personnel performance, food and beverage preparation, and maintenance of facilities. We seek to
attract high quality, experienced restaurant management and personnel with competitive
compensation, bonus programs and a defined career path. All general managers must complete a seven-week training program, during which they are
instructed in areas such as food quality and preparation, customer service, and employee relations.
We have prepared operations manuals relating to food and beverage quality and service standards.
New staff 5




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members participate in training under the close supervision of our management. Each
general manager reports up through an area director, who manages from four to nine restaurants,
depending on the region. Our area directors have all been successful general managers, either for
Famous Daves or for other casual dining concepts. Our area directors are responsible for ensuring
that operational standards are consistently applied in our restaurants and for the communication of
company focus and priorities. In addition to the training that the general managers are required
to complete, as noted above, our area directors receive additional management training through area
director workshops that focus specifically on managing multiple locations, planning and time
management. Our compliance specialists visited every restaurant in the system four times in 2004 and are
closely aligned with the training department. They complete a comprehensive audit form called our
Restaurant
Operating Review (ROR). We use compliance specialists to ensure operational integrity in
all areas of the restaurant, such as sanitation, cleanliness, food, beverage, smallwares, training,
administration, security, service, repair and maintenance, and are trained to audit each restaurant
using our standard operating procedures. Most of the visits are unannounced, but we also send our
compliance specialists into markets and restaurants that need help in elevating their ROR scores.
We follow up on all RORs to ensure lasting compliance to our famous standards. We strive to instill enthusiasm and dedication in our employees and regularly solicit employee
suggestions concerning our operations and endeavors in order to be responsive to employees
concerns. In addition, we have numerous programs designed to recognize and reward employees for
superior performance. Staffing levels at each restaurant vary according to the time of day and
size of the restaurant. However, in general, each restaurant has approximately 40 to 60 employees. Take-out
and Catering - Focus on Convenience-In addition to our lively and entertaining
sit-down experience, we provide our guests with maximum convenience by offering expedient take-out
service and catering. We believe that Famous Daves entrees and side dishes are viewed by guests as
traditional American picnic foods that maintain their quality and travel particularly well,
making them an attractive choice to replace a home-cooked meal, and the high quality, reasonable
cost and avoidance of preparation time make take-out of our product particularly attractive.
During fiscal 2004, approximately 30% of our restaurant sales were derived from catering and
take-out, and we continue to seek ways to leverage these segments of our business. Our restaurants
have been designed specifically to accommodate a significant level of take-out sales, including a
separate take-out counter. The off-premise portion of our business continues to grow as more consumers and local business
people become aware of the portability of our product. The demand for Famous Daves catering,
which accounted for approximately 7% of our sales for fiscal 2004, continues to increase, as
consumers learn just how distinctive, flavorful and easy an event can be when they let Famous
Daves bring the food. We see catering as an opportunity for new consumers to sample our product
who would not otherwise have had the opportunity to visit our restaurants. During the fourth
quarter of 2004, we purchased 15 additional catering vehicles to ensure that each restaurant had a
dedicated vehicle to fully support our catering initiative going forward. TO-GO, which accounted for approximately 23% of our restaurant sales for fiscal 2004, also
continues to grow as an integral part of our overall business plan, and our new smokehouse format
restaurants have a separate entrance for TO-GO customers convenience. This program enables
Famous Daves to capture a greater portion of the growing convenience and flexibility of the
take-out market. The Companys efforts are featured in all company-owned and franchise-operated
units and feature signage and merchandising tools both inside and outside the restaurants. From
the time a guest drives into the parking lot to the time they leave the restaurant, they will be
reminded of Famous Daves excellence in delivering the best barbeque TO-GO. 6




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Customer Satisfaction-We believe that we achieve a significant level of repeat business by
providing high-quality food and efficient friendly service, in an entertaining environment at
moderate prices. We strive to maintain quality and consistency in each of our restaurants through
the training and supervision of personnel and the establishment of, and adherence to, high
standards of personnel performance, food preparation and facility maintenance. We have also built
family-friendly strategies into each restaurants food, service and design by providing childrens
menus, smaller-sized entrees at reduced prices and changing tables in restrooms. We diligently
monitor the guest experience through the use of mystery shopper programs and an interactive voice
response (IVR) system to ensure that our training and incentive investments are producing desired
results. During 2004, we saw a steady improvement in guest satisfaction scores through these
monitoring programs. Value Proposition and Guest frequency-We offer high quality food and a distinctive
atmosphere at competitive prices to encourage frequent patronage. Lunch and dinner entrees range
from $5 to $19 resulting in an average check of approximately $13.07 during fiscal 2004. Lunch
checks averaged $11.00 during 2004 and dinner checks averaged $14.49 during 2004. We believe that
constant and exciting new product introductions, offered for a limited period of time, will help
drive new, as well as our infrequent and lapsed guests into our restaurants for additional meal
occasions. In order to increase customer frequency during 2004, we increased our research and
development efforts and have established a research and development pipeline designed to generate
many product introductions annually. Marketing and Promotion Famous Daves is on its way to becoming the category-defining brand in barbecue. Specializing
in a unique and distinctive brand of grilled, smoked, and southern style food, our menu specialty
helps to set the brand apart from the rest of the crowded field in casual dining. During fiscal
2005, we will continue to leverage the brand building position established earlier in the year. We
expect to spend approximately 3.2% of restaurant sales on marketing and advertising, with 1% of
restaurant sales dedicated to the development of advertising and promotional materials and programs
designed to create brand awareness in the markets within which we operate. Early in 2004, we hired
BBDO  Minneapolis as our first advertising agency of record to help carry the concept forward and
create a distinctive positioning and consistent creative voice for the brand. In coordination with
our marketing department, BBDO is responsible for the advertising, promotion, creative development,
branding and media buying for Famous Daves. In addition to the traditional marketing and
publicity methods embraced in the past, Famous Daves will begin to use more aggressive outreach
marketing efforts as appropriate in 2005. This will include television and radio advertising in
those markets where there is sufficient penetration of the brand to allow for media efficiencies. We are also creating awareness for the Famous Daves brand through partnerships that extend
our barbeque sauces, seasonings and rubs in retail outlets across the United States. This retail
distribution allows consumers to enrich their at-home barbecue experiences with Famous Daves bold
and zesty flavors. Early in 2004, we established a system-wide public relations and marketing fund. All
company-owned and franchise-operated restaurants with agreements signed after January 1, 2004, are
required to contribute 1% of sales to this fund. We also use payments received from certain
vendors in the form of rebates as additional funding. Advertising isnt the only vehicle we use to build awareness of the Famous Daves brand. Once
again in 2005, our Rib Team will be competing in scores of events and festivals nationwide. This
team travels the country, participating in contests and festivals to introduce people to our brand
of barbeque and build brand awareness in a segment largely defined by independents. 7




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Growth Strategy We believe that the barbecue segment of the casual dining niche of the restaurant industry
offers strong growth opportunities, and we see no impediments to our growth on a geographical
basis. Our geographical concentration currently consists of 63% Midwest, 23% South, 9% West and 5%
Northeast. During fiscal 2005, we plan to open up to 2 Company-owned restaurants and 25 to 30
franchise-operated restaurants. The key elements of our long-term growth strategy include the
following: Company-Owned Restaurant Expansion-We intend to build in our existing markets in high
profile, heavy traffic retail locations in order to continue to build brand awareness. Our plan is
focused on sustainable, controlled growth, primarily in markets where multiple restaurants can be
opened, thereby expanding consumer awareness and creating opportunities for operating, distribution
and marketing efficiencies. As previously mentioned, we have created a prototype design, called
our smokehouse concept. We will be using this design with all future restaurants to streamline
the development and expansion process. We intend to finance development through the use of cash on
hand, cash flow generated from operations, and through availability on our recently acquired $10
million, 5-year revolving line of credit. Franchise-Operated Restaurant Expansion-As of January 2, 2005, we had 159 signed franchise
area development commitments. We continue to expand our franchisee network throughout the United
States. Generally, we attempt to find franchise candidates with prior franchise restaurant
experience in the markets they will be granted. The area development agreements generally range
from a minimum of 5 to a maximum of 15 restaurants and are scheduled to be developed within 5 to 7
years. Purchasing We strive to obtain consistent quality items at competitive prices from reliable sources. In
order to maximize operating efficiencies and to provide the freshest ingredients for our food
products, each restaurants management team determines the daily quantities of food items needed
and orders such quantities to be delivered to their restaurant. The products, produced by major
manufacturers designated by us, are shipped directly to the restaurants through foodservice
distributors. Contract pricing accounts for approximately 85% of all of our total purchases. Contracts for
various items are negotiated throughout the year and typically fix prices for twelve months. Of
our total purchases, pork is approximately 30%, poultry is approximately 11%, and beef, including
hamburger and brisket, is approximately 8.5%. Given the unstable commodity markets in 2004, in
addition to 2005 futures, our recent contract negotiations resulted in less favorable pricing than
the previous year. Our pork contract renewal resulted in an 11% price increase over the prior
year. In addition, the renewal of our poultry and brisket contracts, resulted in an 8% price
increase for poultry and a 7% increase for brisket. Our brisket contract expires July 31, 2005,
and we will watch the market closely for the 2005 contract pricing. We anticipate that food costs,
as a percent of net restaurant sales, will remain relatively flat for fiscal 2005 over the prior
year, as increases in contract pricing are expected to be offset by margin opportunities. We believe we have opportunities to partially offset the increases in commodity pricing
through menu engineering such as through the use of our limited time offerings, which carry more
margin than many of our core product offerings. Additionally, we believe we have the opportunity
to leverage adult beverage sales, which are currently approximately 11% of dine-in sales, and we
will continue to evaluate taking price increases at least annually. Our food manufacturers produce our products and our distributors warehouse and ship our products.
Our primary broad line distributor accounts for approximately 85% of our total purchases. We
believe that our relationships with our food manufacturers and distributors are excellent, and
anticipate no interruption in the supply of product delivered by any of these companies. In case of
a potential supply 8




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disruption, however, we believe we have identified alternative methods to ensure that there is no
disruption of product flow. We could obtain competitive products and prices on short notice from a
number of alternative suppliers. In an effort to protect us from product disruption, we have
identified a secondary supplier for ribs and are pursuing secondary suppliers for other proprietary
product offerings as needed. Management Information Systems We believe that a strong information systems infrastructure is essential to our current
operations and is critical towards enhancing our competitive position in our industry. We have
invested significantly in building this infrastructure. We have developed restaurant-level
management information systems that include a computerized point-of-sale (POS) system which
facilitates the movement of customer orders between the customer areas and kitchen operations,
processes credit card transactions, and provides management with revenue and other key operating
and financial information. We also use a time management system which tracks the time worked by
each employee, allowing management to more effectively manage labor costs through better scheduling
of employee work hours. We utilize enterprise management software, which has provided us with
centralized control over restaurant database items such as menu changes, tax structure and price
changes. We developed reporting that allows us to track the average guest check daily, by
restaurant, by server, and by day part. This reporting is utilized by the general managers to
determine restaurant-level staffing needs in addition to supporting sales initiatives, intended to
increase the average guest check. Our unit-level POS, time management and inventory management systems provide data for posting
to our general ledger and to other accounting subsystems. Such reporting includes: (i) daily
reports of revenue, (ii) daily labor reports, (iii) weekly reports of selected controllable unit
expenses and (iv) detailed monthly reports of revenues and expenses. We continue to develop and
implement new enhancements to our systems. During fiscal 2004, we focused on a number of new
developments including gift card acceptance through the POS system, food cost and labor cost
management and unit level labor efficiency. In 2005, we will focus on continuing to improve our
network infrastructure, upgrading our restaurant POS systems, implementing a new budget and
forecasting tool and implementing a back-of-the house restaurant solution. Trademarks Our Company has received various trademarks and intends to vigorously defend these marks.
There can be no assurance, however, that we will be granted trademark registration for any new
applications or for any or all of the proposed uses in our applications. In the event we are
granted registration for additional marks, there can be no assurance that we can protect such marks
and designs against prior users in areas where we conduct operations. There is also no assurance
that we will be able to prevent competitors from using the same or similar marks, concepts or
appearance. Franchise Program We have offered franchises of our concept since June 1995 and currently file our franchise
circular in all 50 states. Our growth and success depends in part upon our ability to attract,
contract with and retain qualified franchisees. It also depends upon the ability of those
franchisees to successfully operate their restaurants with our standards of quality and promote and
develop Famous Daves brand awareness. Although we have established criteria to evaluate prospective franchisees, and our franchise
agreements include certain operating standards, each franchisee operates his/her restaurants
independently. Various laws limit our ability to influence the day-to-day operation of our
franchise 9




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restaurants. We cannot assure you that franchisees will be able to successfully operate Famous
Daves restaurants in a manner consistent with our standards for operational excellence and food
quality. At January 2, 2005, we had 30 franchise partners operating 66 Famous Daves franchise units.
Signed area development agreements, representing commitments to build an additional 159 franchise
restaurants, were in place as of January 2, 2005. There can be no assurance, however, that these
franchisees will fulfill their commitments or fulfill them within the anticipated timeframe. We
continue to pursue an aggressive franchise program for our restaurants and anticipate that 25 to 30
additional franchise restaurants will open during fiscal 2005. As of January 2, 2005, we had franchise-operated restaurants in the following locations: Number of Franchise-OperatedState
    
    RestaurantsAlabama
    
    1Arizona
    
    2Georgia
    
    4Illinois
    
    5Indiana
    
    1Iowa
    
    2Kansas
    
    2Kentucky
    
    3Michigan
    
    5Minnesota
    
    8Montana
    
    1Nebraska
    
    4Nevada
    
    1New Jersey
    
    5North Dakota
    
    2Ohio
    
    3South Dakota
    
    1Tennessee
    
    4Utah
    
    4Wisconsin
    
    8Total
    
    66
 During 2005, we plan to open restaurants in approximately eight additional states including,
but not limited to, California, Colorado, Massachusetts, New Hampshire, New York, Pennsylvania,
Texas, and Washington. We assist franchisees in the site selection and the opening of a Famous Daves restaurant.
During the pre-opening phase our support includes site evaluation, store build-out assistance,
opening advertising and marketing materials and operations training provided by our franchise
consultants. We make periodic inspections of our franchise stores to ensure that the franchisee is
complying with the same quality of service, operational excellence and food specifications that is
found at our company-owned restaurants. We generally provide company support as it relates to all
aspects of the franchise operations including, store openings, operating performance, and human
resource strategic planning. 10




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Our franchise revenues are 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 is
non-refundable to secure the territory, 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, reflecting the commission earned and expenses incurred, as related to the sale
of the franchise. When the franchise agreement is signed, since our primary obligation relates to
site selection, the remaining $35,000 is carried in deferred franchise fees and is recognized as
revenue when the lease has been signed or the purchase closing document has been executed, and at
which time we have substantially performed all of our services. Franchisees are also required to
pay us a continuing royalty equal to a percentage of their weekly net sales, which has historically
varied from 4% to 5%. Currently, new franchises pay us a continuing royalty of 5% of their net
sales. The franchisees investment depends primarily upon restaurant size. This investment includes
the area development fee, initial franchise fee, real estate and leasehold improvements, fixtures
and equipment, POS systems, business licenses, deposits, initial food inventory, smallwares, and
working capital. Beginning in 2004, all new franchisees were required to contribute 1% of sales
for new restaurants to a national public relations and marketing fund dedicated to building
system-wide brand awareness. Seasonality Our restaurants typically generate higher revenue in the second and third quarters of our
fiscal year as a result of seasonal traffic increases experienced during the summer months, and
lower revenue in the first and fourth quarters of our fiscal year, due to possible adverse weather
which can disrupt customer and employee transportation to our restaurants. Government Regulation Our Company is subject to extensive state and local government regulation by various
governmental agencies, including state and local licensing, zoning, land use, construction and
environmental regulations and various regulations relating to the sale of food and alcoholic
beverages, sanitation, disposal of refuse and waste products, public health, safety and fire
standards. Our restaurants are subject to periodic inspections by governmental agencies to ensure
conformity with such regulations. Any difficulty or failure to obtain required licensing or other
regulatory approvals could delay or prevent the opening of a new restaurant, and the suspension of,
or inability to renew a license could interrupt operations at an existing restaurant, any of which
would adversely affect our operations. Restaurant operating costs are also affected by other
government actions that are beyond our control, including increases in the minimum hourly wage
requirements, workers compensation insurance rates, health care insurance costs, property and
casualty insurance, and unemployment and other taxes. We are also subject to dram shop statutes,
which generally provide a person injured by an intoxicated person the right to recover damages from
an establishment that wrongfully served alcoholic beverages to the intoxicated person. As a franchisor, we are subject to federal regulation and certain state laws that govern the
offer and sale of franchises. Many state franchise laws impose substantive requirements on
franchise agreements, including limitations on non-competition provisions and the termination or
non-renewal of a franchise. Bills have been introduced in Congress from time to time that would
provide for federal regulation of substantive aspects of the franchisor-franchisee relationship. As
proposed, such legislation would limit, among other things, the duration and scope of
non-competition provisions, the ability of a franchisor to terminate or refuse to renew a
franchise, and the ability of a franchisor to designate sources of supply. 11




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##### Table of Contents



The Federal Americans with Disabilities Act prohibits discrimination on the basis of
disability in public accommodations and employment. We could be required to incur costs to modify
our restaurants in order to provide service to, or make reasonable accommodations for, disabled
persons. Our restaurants are currently designed to be accessible to the disabled, and we believe
we are in substantial compliance with all current applicable regulations relating to this Act. Employees As of January 2, 2005, we employed approximately 2,100 employees, of which approximately 225
were full-time. None of our employees are covered by a collective bargaining agreement. We
consider our relationships with our employees to be satisfactory. 
  ITEM 1A.
    CAUTIONARY STATEMENT REGARDING FUTURE RESULTS, FORWARD-LOOKING
INFORMATION AND CERTAIN IMPORTANT FACTORS Famous Daves makes written and oral statements from time to time, including statements
contained in this Annual Report on Form 10-K regarding its business and prospects, such as
projections of future performance, statements of managements plans and objectives, forecasts of
market trends and other matters that are forward-looking statements within the meaning of Sections
27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Statements
containing the words or phrases will likely result, anticipates, are expected to, will
continue, is anticipated, estimates, projects, believes, expects, intends, target,
goal, plans, objective, should or similar expressions identify forward-looking statements
which may appear in documents, reports, filings with the Securities and Exchange Commission, news
releases, written or oral presentations made by our officers or other representatives to analysts,
shareholders, investors, news organizations, and others, and discussions with our management and
other Company representatives. For such statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our future results, including results related to forward-looking statements, involve a number
of risks and uncertainties. No assurance can be given that the results reflected in any
forward-looking statements will be achieved. Any forward-looking statements made by us or on our
behalf speak only as of the date on which such statement is made. Our forward-looking statements
are based upon assumptions that are sometimes based upon estimates, data, communications and other
information from suppliers, government agencies and other sources that may be subject to revision.
We do not undertake any obligation to update or keep current either (i) any forward-looking
statements to reflect events or circumstances arising after the date of such statement, or (ii) the
important factors that could cause our future results to differ materially from historical results
or trends, results anticipated or planned by us, or which are reflected from time to time in any
forward-looking statement which may be made by us or on our behalf. In addition to other matters identified or described by us from time to time in filings with
the SEC, there are several important factors that could cause our future results to differ
materially from historical results or trends, results anticipated or planned by us, or results that
are reflected from time to time in any forward-looking statement that may be made by us or on our
behalf. Our Future Revenue and Profits Are Dependent on Our Ability to Successfully Execute Our Plan Our Companys future revenue and profits will depend upon various factors, including continued
and additional market acceptance of the Famous Daves concept, the quality of our restaurant
operations, our ability to grow our brand, our ability to successfully expand into new and existing
markets, our ability to successfully execute our franchise program, our ability to raise additional
financing as needed and 12




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##### Table of Contents



general economic conditions. It is our plan to resume opening
company-owned restaurants in 2005. There is no guarantee that any of our company-owned or
franchise-operated restaurants will open when planned, or at all, due to the risks associated with
the development of new units, such as governmental approvals, the availability of sites, and the
availability of capital, many of which are beyond our control. There can be no assurance that we
will successfully implement our growth plan for our company-owned and franchise-operated
restaurants. In addition, we also face all of the risks, expenses and difficulties frequently
encountered in the development of an expanding business. In the Recent Past We Have Experienced Losses and May Not be Profitable We incurred a net loss of approximately $2.9 million for fiscal 2003, or $0.25 per diluted
share, and a net loss of $928,000, or $0.08 per diluted share for fiscal 2002. Our 2003 net loss
reflects pre-tax charges of approximately $4.2 million, or $0.22 per diluted share, related to
impairment and restructuring charges on five restaurant locations, two of which were subsequently
sold and two of which were subsequently closed. In addition, fiscal 2003 results include pre-tax
charges of approximately $2.2 million, or $0.11 per diluted share, which reflects losses and
divestiture costs related to the Isaac Hayes Blues Clubs. The net loss for fiscal 2002 included
losses of approximately $6.0 million, or $0.23 per diluted share, related to the Isaac Hayes clubs.
Famous Daves has no further obligations relating to the Isaac Hayes clubs. Although we reported net income of approximately $3.5 million for fiscal 2004, or $0.29 per
diluted share, we cannot assure you that we will generate sufficient revenue or margins, or control
operating expenses, to achieve or sustain profitability in future years. In addition, we cannot
assure you that we will not take future impairment or restructuring charges on our restaurants. Competition May Reduce Our Revenue and Operating Income Competition in the restaurant industry is intense. Increased competition by existing or future
competitors may reduce our sales. Our restaurants compete with moderately priced casual dining
restaurants primarily on the basis of quality of food and service, atmosphere, location and value.
In addition to existing themed and barbecue restaurants, we expect to face competition from
steakhouses and other restaurants featuring protein-rich foods. We also compete with other
restaurants and retail establishments for quality sites. Competition in the restaurant industry is
affected by changes in consumer taste, economic and real estate conditions, demographic trends,
traffic patterns, the cost and availability of qualified labor, product availability and local
competitive factors. Many of our competitors have substantially greater financial, marketing and other resources
than we do. Regional and national restaurant companies continue to expand their operations into our
current and anticipated market areas. We believe our ability to compete effectively depends on our
ongoing ability to promote our brand and offer high quality, food and hospitality in a distinctive
and comfortable environment. Our Failure to Execute Our Franchise Program May Negatively Impact Our Revenue Our growth and success depends in part upon our ability to attract, contract with and retain
quality franchisees. It also depends upon the ability of those franchisees to successfully operate
their restaurants to our standards and promote the Famous Daves brand. Although we have
established criteria to evaluate prospective franchisees, and our franchise agreements include
certain operating standards, each franchisee operates his/her restaurant independently. Various
laws limit our ability to influence the day-to-day operation of our franchise restaurants. We
cannot assure you that our franchisees will be able to successfully operate Famous Daves
restaurants in a manner consistent with our concepts and standards, 13




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##### Table of Contents



which could reduce their gross
sales and correspondingly, our franchise royalties, and could adversely affect our operating income
and our ability to leverage the Famous Daves brand. 
 ITEM 2. PROPERTIES The development cost of our restaurants varies depending primarily on the size and style of
the restaurant, whether the property is purchased or leased, and whether it is a conversion of an
existing building or a newly constructed unit. Since fiscal 2000, most of our restaurants have
been converted from
existing restaurant properties. Average approximate size and costs of a converted leased
property and a converted purchased property have been approximately 5,900 and 5,100 square feet and
$1.1 million and $2.1 million, respectively. We opened no company-owned restaurants in 2004. Two
of the restaurants opened in 2003 were ground-up construction and one restaurant was a conversion
of a previous restaurant concept. Such development costs included land, building construction,
fixtures, furniture and equipment, and pre-opening costs. We have developed a prototype, which is
the first-ever standard format for us. The prototype is approximately 6,300 square feet in size
and will represent a consistent brand image across all markets while still allowing for new
construction and the renovations of pre-existing restaurants. Famous Daves leased restaurant facilities are occupied under agreements with terms ranging
from 10 to 36 years, including renewal options. Such leases generally provide for fixed rental
payments plus operating expenses associated with the properties. Our executive offices are
currently located in approximately 18,000 square feet in Eden Prairie, Minnesota, under a lease
expiring in July 2005. On December 30, 2004 we signed a lease agreement with Liberty Property Limited Partnership for
a new corporate office in Minnetonka, Minnesota. The lease commences in August 2005, is for
approximately 26,000 rentable square feet, and is for a term of 97 months, with two 5 year renewal
options. The minimum annual rent commitment over the lease term is approximately $4.6 million. We
believe that our current restaurant, and new corporate office leased space, will be suitable for
our needs and adequate for operations for the foreseeable future. 14




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##### Table of Contents



The following table sets forth certain information about our existing company-owned restaurant
locations, sorted by opening date, as of January 2, 2005: Square
    
    Interior
    
    OwnedLocation
    
    Footage
    
    Seats
    
    or Leased
    
    Date Opened1
    
    Roseville, MN
    
    4,800
    
    105
    
    Leased
    
    June 19962
    
    Calhoun Square (Minneapolis, MN)
    
    10,500
    
    380
    
    Leased
    
    September 19963
    
    Maple Grove, MN
    
    5,200
    
    125
    
    Owned (1)
    
    April 19974
    
    Highland Park (St. Paul, MN)
    
    5,200
    
    125
    
    Leased
    
    June 19975
    
    Stillwater, MN
    
    5,200
    
    130
    
    Owned (1)
    
    July 19976
    
    Apple Valley, MN
    
    3,800
    
    90
    
    Owned (1)
    
    July 19977
    
    Forest Lake, MN
    
    4,500
    
    100
    
    Leased
    
    October 19978
    
    Minnetonka, MN
    
    5,500
    
    140
    
    Owned(2)
    
    December 19979
    
    Plymouth, MN
    
    2,100
    
    20
    
    Leased
    
    December 199710
    
    West St. Paul, MN
    
    6,800
    
    140
    
    Leased
    
    January 199811
    
    West Des Moines, IA
    
    5,500
    
    150
    
    Leased
    
    April 199812
    
    Des Moines, IA
    
    5,800
    
    150
    
    Leased
    
    April 199813
    
    Naperville, IL
    
    5,500
    
    170
    
    Leased
    
    April 199814
    
    Cedar Falls, IA
    
    5,400
    
    130
    
    Leased
    
    September 199815
    
    Bloomington, MN
    
    5,400
    
    140
    
    Leased
    
    October 199816
    
    Woodbury, MN
    
    5,900
    
    180
    
    Owned(2)
    
    October 199817
    
    Lincoln, NE
    
    6,300
    
    190
    
    Owned(2)
    
    December 199918
    
    Columbia, MD
    
    7,200
    
    270
    
    Leased
    
    January 200019
    
    Annapolis, MD
    
    7,000
    
    210
    
    Leased
    
    January 200020
    
    Frederick, MD
    
    5,600
    
    180
    
    Leased
    
    January 200021
    
    Woodbridge, VA
    
    5,600
    
    190
    
    Leased
    
    January 200022
    
    Vernon Hills, IL
    
    6,600
    
    230
    
    Leased
    
    February 200023
    
    Addison, IL
    
    4,600
    
    140
    
    Owned(2)
    
    March 200024
    
    Lombard, IL
    
    7,200
    
    250
    
    Leased
    
    July 200025
    
    North Riverside, IL
    
    5,000
    
    160
    
    Leased
    
    August 200026
    
    Sterling, VA
    
    5,200
    
    200
    
    Leased
    
    December 200027
    
    Carpentersville, IL
    
    6,000
    
    227
    
    Leased
    
    February 200128
    
    Streamwood, IL
    
    7,200
    
    260
    
    Leased
    
    March 200129
    
    Oakton, VA
    
    4,300
    
    150
    
    Leased
    
    May 200130
    
    Laurel, MD
    
    5,200
    
    170
    
    Leased
    
    August 200131
    
    Palatine, IL
    
    7,200
    
    260
    
    Leased
    
    August 200132
    
    Richmond I (Richmond, VA)
    
    5,200
    
    165
    
    Owned(2)
    
    December 200133
    
    Gaithersburg, MD
    
    4,800
    
    170
    
    Leased
    
    May 200234
    
    Richmond II (Richmond, VA)
    
    5,100
    
    165
    
    Owned(2)
    
    June 200235
    
    Orland Park, IL
    
    5,000
    
    165
    
    Leased
    
    June 200236
    
    Tulsa, OK
    
    4,900
    
    180
    
    Owned(2)
    
    September 200237
    
    Virginia Commons, VA
    
    5,300
    
    190
    
    Owned(2)
    
    June 200338
    
    Rogers, AR
    
    5,300
    
    190
    
    Owned
    
    June 2003
   All seat count and square footage amounts are approximate(1)
    
    Restaurant is collateral in a sale-leaseback financing(2)
    
    Restaurant is subject to a mortgage 15




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##### Table of Contents



ITEM 3. LEGAL PROCEEDINGS During the fourth quarter of 2004, a subsidiary of the Company was named as a defendant in a
lawsuit filed in the Court of Common Pleas, Warren County, Ohio. The lawsuit related to, among
other things, various alleged defaults by a franchisee of the Company under its Middletown, Ohio
lease and defaults by the Companys subsidiary under a guaranty agreement pursuant to which the
subsidiary guaranteed the franchisees performance under the lease. On January 25, 2005, we entered into a settlement agreement in which the plaintiffs released
all claims asserted against us and our subsidiaries in exchange for a payment of $325,000. In
addition, the plaintiffs released and terminated the subject guaranty and all rights thereunder.
We intend to seek reimbursement for all amounts paid through the pursuit of available remedies. From time-to-time, we are involved in various legal actions arising in the ordinary course of
business. In the opinion of our management, the ultimate dispositions of these matters will not
have a material adverse effect on our consolidated financial position and results of operations.
Currently, there are no significant legal matters pending. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of our security holders during the fourth quarter of the
fiscal year ended January 2, 2005. 
 PART II 
  ITEM 5.
    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES Market Information Our Companys common stock has traded on the NASDAQ National Market SM under the
symbol DAVE since July 24, 1997. Our common stock traded on the NASDAQ Small Cap MarketSM prior to July 24, 1997 and since November 1996 under the same symbol. The following table summarizes the high and low closing sale prices per share of our common
stock for the periods indicated, as reported on the NASDAQ National Market SM: 2004
    
    
    2003Period
    
    High
    
    
    Low
    
    
    High
    
    
    Low1st Quarter
    
    $
    8.10
    
    
    $
    4.51
    
    
    $
    4.94
    
    
    $
    2.882nd Quarter
    
    $
    8.22
    
    
    $
    6.50
    
    
    $
    4.38
    
    
    $
    3.603rd Quarter
    
    $
    7.79
    
    
    $
    6.67
    
    
    $
    6.37
    
    
    $
    4.304th Quarter
    
    $
    13.28
    
    
    $
    6.90
    
    
    $
    5.63
    
    
    $
    4.75
 Holders As of March 18, 2005, we had approximately 425 shareholders of record and an estimated 5,800
beneficial shareholders. 16




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##### Table of Contents



Dividends Our Board of Directors has not declared any dividends on our common stock since our inception,
and does not intend to pay out any cash dividends on our common stock in the foreseeable future. We
presently intend to retain all earnings, if any, to provide for our growth. The payment of cash
dividends in the future, if any, will be at the discretion of the Board of Directors and will
depend upon such factors as earnings levels, capital requirements, loan agreement restrictions, our
financial condition and other factors deemed relevant by our Board of Directors. Purchases of Equity Securities On November 2, 2004, our Board of Directors authorized a program to repurchase up to an
additional 1.0 million shares of our common stock. The shares may be repurchased from time-to-time
in both the open market or through privately negotiated transactions and are intended to be funded
from the Companys available working capital. As of January 2, 2005, we had repurchased 45,100
shares at an average market price of $9.70, excluding commissions, under this plan. Except as otherwise noted below, all share repurchases were made pursuant to open-market
transactions under the publicly announced repurchase program approved by our Board of Directors.
The following table includes information about our share repurchases for the fourth quarter of our
fiscal year ended January 2, 2005. Total Number of
    
    
    
    Maximum NumberTotal
    
    
    
    
    
    
    
    
    Shares (or Units)
    
    
    
    (or Approximate DollarNumber of
    
    
    
    Average
    
    
    
    Purchased as Part
    
    
    
    Value) of SharesShares
    
    
    
    Price Paid
    
    
    
    of Publicly
    
    
    
    (or Units) that May Yet(or Units)
    
    
    
    per Share
    
    
    
    Announced Plans
    
    
    
    be Purchased Under thePeriod
    
    
    Purchased
    
    
    
    (or Unit)
    
    
    
    or Programs
    
    
    
    Plans or Programs(1)Month #10
(September 27, 2004  October 24,
2004)
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    Month #11
(October 25, 2004  November 21,
2004)
    
    
    
    15,600
    
    
    
    $
    9.62
    
    
    
    
    15,600
    
    
    
    
    984,400Month #12
(November 22, 2004  January 2, 2005)
    
    
    
    29,500
    
    
    
    $
    9.75
    
    
    
    
    45,100
    
    
    
    
    954,900
   (1)
    
    On November 2, 2004, the Company announced the approval of a repurchase program under which we may repurchase up to 1,000,000
shares of our common stock. 
 ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below should be read in conjunction with the
consolidated financial statements and notes included elsewhere in this Form 10-K, and in
conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-K. The selected financial data as of and for the fiscal years ended January 2, 2005 (fiscal year
2004), December 28, 2003 (fiscal year 2003) and December 29, 2002 (fiscal year 2002) have been
derived from our consolidated financial statements as audited by Grant Thornton LLP, independent
registered certified public accounting firm. The selected financial data for the fiscal years ended December
30, 2001 (fiscal year 2001), and December 31, 2000 (fiscal year 2000) have been derived from our
consolidated financial statements as audited by Virchow, Krause & Company, LLP, independent
registered public accounting firm. 17




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##### Table of Contents



FINANCIAL HIGHLIGHTS FISCAL YEAR
    
    2004(1)
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000($s in 000s, except per
share data, and average weekly sales )STATEMENT OF OPERATIONS DATARevenue
    
    $
    99,325
    
    
    $
    97,740
    
    
    $
    90,820
    
    
    $
    87,673
    
    
    $
    70,160Asset impairment and restructuring charges (2)
    
    $
    
    
    
    $
    (4,238
    )
    
    $
    
    
    
    $
    
    
    
    $
    Income (loss) from operations
    
    $
    7,365
    
    
    $
    (193
    )
    
    $
    4,470
    
    
    $
    6,209
    
    
    $
    2,581Equity in loss of unconsolidated affiliate (3)
    
    $
    
    
    
    $
    (2,155
    )
    
    $
    (5,994
    )
    
    $
    (1,029
    )
    
    $
    Income tax (provision) benefit
    
    $
    (1,900
    )
    
    $
    1,778
    
    

    $
    1,211
    
    
    $
    4,010
    
    
    $
    Net income (loss)
    
    $
    3,498
    
    
    $
    (2,898
    )
    
    $
    (928
    )
    
    $
    8,118
    
    
    $
    2,112Basic net income (loss) per common share
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    (0.08
    )
    
    $
    0.81
    
    
    $
    0.23Diluted net income (loss) per common share
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    (0.08
    )
    
    $
    0.75
    
    
    $
    0.22BALANCE SHEET DATA (at year end)Cash and cash equivalents
    
    $
    11,170
    
    
    $
    9,964
    
    
    $
    9,473
    
    
    $
    7,398
    
    
    $
    1,895Total assets
    
    $
    71,913
    
    
    $
    73,767
    
    
    $
    74,817
    
    
    $

    70,440
    
    
    $
    52,963Working capital
    
    $
    10,757
    
    
    $
    9,041
    
    
    $
    5,769
    
    
    $
    4,706
    
    
    $
    (3,416
    )Long-term debt less current maturities (4)
    
    $
    16,453
    
    
    $
    16,954
    
    
    $
    17,354
    
    
    $
    14,579
    
    
    $
    13,147Total shareholders equity
    
    $
    43,343
    
    
    $
    46,872
    
    
    $
    47,292
    

    
    $
    46,689
    
    
    $
    30,061OTHER DATANumber of restaurants open at year end:Company-owned restaurants
    
    
    38
    
    
    
    38
    
    
    
    40
    
    
    
    37
    
    
    
    33Franchise-operated restaurants
    
    
    66
    
    
    
    54
    
    
    
    33
    
    
    
    19
    
    
    
    9Total restaurants
    
    
    104
    
    
    
    92
    
    
    
    73
    
    
    
    56
    
    
    
    42Comparable store sales increase (decrease) (5)
    
    
    1.1
    %(6)
    
    
    (3.0
    )%
    
    
    (0.3
    )%
    
    
    2.9
    %
    
    
    5.3
    %Average weekly sales:Company-owned restaurants
    
    $
    44,164
    
    
    $
    42,491
    
    
    $
    45,783
    
    
    $
    46,429
    
    
    $
    44,698Franchise-operated restaurants
    
    $
    51,538
    
    
    $
    47,400
    
    
    $
    46,642
    
    
    $
    45,190
    
    

    $
    
    (7)
   (1)
    
    Fiscal 2004 consisted of 53 weeks. Fiscal 2003, 2002, 2001, and 2000 all consisted of 52 weeks.(2)
    
    Fiscal 2003 charges reflect impairment and restructuring costs associated with five stores: two of which were subsequently sold, two of which were subsequently closed, and one that
was fully impaired, but still operating.(3)
    
    Represents our 40% unconsolidated interest in FUMUME, LLC. Fiscal 2003 expenses represent operating losses and transaction costs related to our divestiture. We have no further
obligation regarding this joint venture.(4)
    
    Long-term debt consists of total debt, including capital lease obligations and financing leases, less current maturities.(5)
    
    Our comparable store sales base includes company-owned restaurants that are open year round and have been open more than 18 months.(6)
    
    For purposes of computing comparable store sales, this computation assumes fiscal 2004 was a 52-week year.(7)
    
    This information was not available for this fiscal year. 18




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##### Table of Contents



ITEM 7.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS Certain statements contained in this Annual Report on Form 10-K include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements in this Annual Report on Form 10-K are based on information currently
available to us as of the date of this Annual Report on Form 10-K, 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 Item 1A of this Annual
Report on Form 10-K, and elsewhere in this Annual Report on Form 10-K, and our other filings with
the Securities and Exchange Commission. The following discussion should be read in conjunction
with Selected Financial Data above (Item 6 of this Annual Report on Form 10-K) and our financial
statements and related footnotes appearing elsewhere in this Annual Report on Form 10-K. Overview Famous Daves of America, Inc. was incorporated as a Minnesota corporation in March 1994 and
opened its first restaurant in Minneapolis in June 1995. As of January 2, 2005, there were 104
Famous Daves restaurants operating in 24 states, including 38 company-owned restaurants and 66
franchise-operated restaurants. An additional 159 franchise restaurants were in various stages of
development as of January 2, 2005. 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 ended on January 2, 2005, consisted of 53 weeks. Our fiscal years ended December 28, 2003
(fiscal year 2003) and December 29, 2002 (fiscal year 2002) both consisted of 52 weeks. Fiscal
2005, which ends on January 1, 2006, will consist of 52 weeks. Basis
of Presentation -The financial results presented and discussed herein reflect our
results and the results of our wholly owned and majority owned consolidated subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation. Until February 26,
2003, we were a 40% participant in a joint venture to operate themed restaurant concepts based on
the entertainment artist Isaac Hayes. On February 26, 2003, we disposed of our 40% interest, and
as a result, we are no longer participating in any revenue or expenses of the joint venture and we
do not have any further obligations with regard to the joint venture. Our financial results for
fiscal 2003 reflect our equity in the losses of this unconsolidated affiliate up until February 26,
2003, in addition to the transaction costs related to the divestiture. Our financial results for
fiscal 2002 reflect our equity in the losses of this unconsolidated affiliate. Application of Critical
Accounting Policies and Estimates -The following discussion and
analysis of the Companys financial condition and results of operations is based upon its financial
statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amount of assets, liabilities and expenses, and
related disclosures. On an on-going basis, management evaluates its estimates and judgments. By
their nature, these estimates and judgments are subject to an inherent degree of uncertainty.
Management bases its estimates and judgments on historical experience, observance of trends in the
industry, information provided by customers and other outside sources and on various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of
assets and liabilities 19




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that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. Management believes the
following critical accounting policies, among others, affect its more significant judgments and
estimates used in the preparation of the Companys consolidated financial statements. Our Companys
significant accounting policies are described in Note One to the consolidated financial statements
included in our annual report for the year ended January 2, 2005. We have discussed the development and selection of the following critical accounting estimates
with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our
disclosures relating to such estimates in this Managements Discussion and Analysis. Recognition
of Franchise-Related Revenue-Initial franchise revenue is recognized when we
have performed substantially all of our obligations as franchisor. Franchise royalties are
recognized when earned as promulgated by Statement of Financial Accounting Standards (SFAS) No. 45,
Accounting for Franchise Fee Revenue. Franchise-related revenue consists of royalty revenue and
franchise fees, which include initial franchise fees and area development fees. Our franchise revenues are 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 is
non-refundable to secure the territory, 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, reflecting the commission earned and expenses incurred, as related to the sale
of the franchise. When the franchise agreement is signed, since our primary obligation relates to
site selection, the remaining $35,000 is carried in deferred franchise fees and is recognized as
revenue when the lease has been signed or the purchasing closing document has been obtained and, at
which time we have substantially performed all of our services. Franchisees are also required to
pay us a continuing royalty equal to a percentage of their weekly net sales, which has historically
varied from 4% to 5%. Currently, new franchises pay us a continuing royalty of 5% of their net
sales. Franchise-related revenue for fiscal 2004 was approximately $9.3 million, a 63.5% increase
compared to franchise-related revenue of approximately $5.7 million for the same period in 2003,
primarily reflecting increased royalties. Royalties, which are based on a percent of
franchise-operated restaurant net sales, increased 61.0%, reflecting the annualization of franchise
restaurants that opened in fiscal 2003 in addition to the franchise-operated restaurants that
opened during fiscal 2004. During 2004, 13 franchised-operated restaurants opened, and 1 closed.
There were 66 franchise-operated restaurants open at January 2, 2005, compared to 54 at December
28, 2003. Additionally, during fiscal 2004, we realized higher royalties from three company-owned
restaurants sold to a franchise partner in the fourth quarter of fiscal 2003. An additional 25-30
franchise restaurants are anticipated to open throughout fiscal 2005. Asset Impairment and Restructuring Charges-In accordance with SFAS No. 144 Accounting for
the Impairment or Disposal of Long-Lived Assets,we evaluate restaurant sites and long-lived
assets 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 its fair value, as
determined by the undiscounted future cash flows expected to be generated on a
restaurant-by-restaurant basis. Any impairment recognized is the amount by which the carrying
amount of the restaurant site exceeds its fair value using a discounted cash flow method.
Restaurant sites that are operating but have been previously impaired, are reported at the lower of
their carrying amount or fair value less estimated costs to sell. Our January 2, 2005 consolidated
balance sheet reflects approximately $1.3 million of assets held for sale, 20




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which includes the land and building for our Mesquite, TX location that was closed in December
2003. We had several offers for this location during 2004, and believe the land and building are
properly valued. During fiscal 2004, there were no impairment or restructuring charges recorded.
In fiscal 2003, we recorded impairment and restructuring charges of approximately $4.2 million
related to five units, two of which were subsequently closed, two of which were subsequently sold
to franchisees, and one that was fully impaired, but still operating. Deferred Tax Asset-Deferred taxes recognize the impact of temporary differences between the
amounts of assets and liabilities recorded for financial statement purposes and such amounts
measured in accordance with tax laws. Realization of net operating loss carry forwards and other
deferred tax temporary differences are contingent on future taxable earnings. During fiscal 2004,
our deferred tax asset was reviewed for expected utilization using a more likely than not
approach as required by SFAS No. 109, Accounting for Income Taxes,by assessing the available
positive and negative evidence surrounding its recoverability. We believe that the realization of
the deferred tax asset is more likely than not based on the fact that the Company generated taxable
income in fiscal 2004 and based on the expectation that our Company will generate the necessary
taxable income in future years. Lease
Accounting -In accordance with SFAS No. 13 Accounting for Leases,we recognize lease
expense for our operating leases over the entire lease term including lease renewal options and
build-out periods where the renewal is certain and the build-out period takes place prior to the
restaurant opening or lease commencement date. We account for construction allowances by recording
a receivable when its collectibility is considered certain, depreciating the leasehold improvements
over the lesser of their useful lives or the full term of the lease, including renewal options and
build-out periods, amortizing the construction allowance as a credit to rent expense over the full
term of the lease, including renewal options and build-out periods, and relieving the receivable
once the cash is obtained from the landlord for the construction allowance. Results of Operations 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, reflecting the commission earned and the expenses incurred, as
related to the sale. 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 franchise-operated
restaurant sales, currently at 4% to 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. Costs and expenses associated with the franchise program are
contained in general and administrative expense. Comparable sales represent net sales for
restaurants open year-round for 18 months or more. Costs and Expenses-Restaurant costs and expenses include food and beverage costs, operating
payroll and employee benefits, occupancy costs, repair and maintenance costs, supplies, advertising
and promotion, and restaurant depreciation and amortization. Certain of these costs and expenses
are variable and will increase or decrease with sales volume. The primary fixed costs are corporate
and restaurant management salaries 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 a restaurants 21




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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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 and general insurance are major items in this category. We also provide franchise
services, the revenue of which are included in other revenue and the expenses of which are included
in general and administrative costs. The following table presents items in our Consolidated Statements of Operations as a
percentage of total revenue or restaurant sales, as indicated, for the following fiscal years
(1): 2004
    
    
    2003
    
    
    2002Restaurant sales, net
    
    
    89.8
    %
    
    
    93.6
    %
    
    
    95.1
    %Other revenue
    
    
    10.2
    
    
    
    6.4
    
    
    
    4.9Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Restaurant costs and expenses:Food and beverage costs
(2)
    
    
    31.4
    
    
    
    30.6
    
    
    
    31.7Labor and benefits (2)
    
    
    29.7
    
    
    
    30.1
    
    
    
    29.2Operating expenses (2)
    
    
    24.7
    
    
    
    25.6
    
    
    
    23.2Depreciation and amortization
(restaurant level) (2)
    
    
    4.7
    
    
    
    5.1
    
    
    
    5.0Asset impairment and restructuring
charges (2)
    
    
    
    
    
    
    4.6
    
    
    
    Pre-opening expenses (2)
    
    
    
    
    
    
    0.6
    
    
    
    1.2Total costs and expenses
(2)
    
    
    90.5
    
    
    
    96.6
    
    
    
    90.3Income from restaurant operations(2)
    
    
    9.5
    
    
    
    3.4
    
    
    
    9.7General and administrative
(3)
    
    
    11.0
    
    
    
    9.6
    
    
    
    8.9Depreciation and amortization
(corporate) (3)
    

    
    0.4
    
    
    
    0.2
    
    
    
    0.3Income (loss) from operations
(3)
    
    
    7.4
    %
    
    
    (0.2
    )%
    
    
    4.9
    %
 (1)
    
    Data regarding our restaurant operations as presented in the table above,
includes sales, costs and expenses associated with our Rib Team, which netted
to a loss of $147,000 and $16,000 respectively, in fiscal 2004 and 2003. We
did not own the Rib Team during fiscal 2002. Our Rib Team travels the country
introducing people to our brand of barbeque and builds brand awareness.(2)
    
    As a percentage of restaurant sales, net.(3)
    
    As a percentage of total revenue.
 22




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Fiscal Year 2004 Compared to Fiscal Year 2003 Total Revenue-Total revenue of approximately $99.3 million for fiscal 2004 increased
approximately $1.6 million or 1.6% over revenue of approximately $97.7 million for fiscal 2003.
Fiscal 2004 consisted of 53 weeks as compared to 52 weeks for fiscal 2003. Revenue for the
53rd week in fiscal 2004 was approximately $1.9 million, including restaurant sales and
franchise royalties. Restaurant Sales-Restaurant sales decreased by approximately $2.3 million or 2.5% to
approximately $89.2 million for fiscal year 2004 from approximately $91.5 million for fiscal year
2003. The decrease in sales was due primarily to the sale of three Georgia restaurants to a
franchisee and the closure of two Texas restaurants that generated approximately $6.6 million in
restaurant sales in fiscal 2003. Without these restaurants in the 2003 base, sales would have been
7.4% higher in 2004 compared to 2003. The decrease in sales for 2004, related to these five
restaurants, was partially offset by approximately $1.7 million in sales attributed to the
53rd week. 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 for fiscal 2004 was approximately $9.3 million, a 63.5% increase when compared to
franchise-related revenue of approximately $5.7 million for the same period in 2003, primarily
reflecting increased royalties. Royalties, which are based on a percent of franchise-operated
restaurants net sales, increased 61.0% reflecting the annualization of franchise restaurants
that opened in fiscal 2003 in addition to the net 12 new franchise restaurants during fiscal 2004.
There were 66 franchise-operated restaurants open at January 2, 2005, compared to 54 at December
28, 2003. Licensing and Other Revenue- 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. For fiscal year 2004, the licensing royalty income
was approximately $248,000 compared to approximately $209,000 for fiscal year 2003. During fiscal
2005, we expect to see licensing revenue remain relatively flat. The amount of other revenue is
expected to grow based on the level of opening assistance we may be required to provide during the
25-30 franchise openings planned for 2005. 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 for at least 18 months. At the end of
fiscal 2004, there were 36 restaurants included in this base. Same store net sales for fiscal 2004
increased approximately 1.1%, compared to fiscal 2003s decrease of approximately 3.0% and were
calculated assuming fiscal 2004 was a 52-week year. We believe that the increase in same store net
sales reflects the combination of our advertising initiatives, the success of our limited time
offerings, a price increase of approximately 2% and a focus on operational excellence and execution
in our restaurant. Average Weekly Net Sales-Weighted average weekly net sales for our company-owned and
franchise-operated restaurants during fiscal 2004 were $44,164 and $51,538 respectively. During
fiscal 2003, weighted average weekly net sales for our company-owned and franchise-operated
restaurants were $42,491 and $47,400, respectively. The favorable trend in average weekly sales
for both company-owned and franchise-operated restaurants reflects the success of our total brand
building effort. Food and Beverage Costs-Food and beverage costs for fiscal 2004 were approximately $28.0
million or 31.4% of net restaurant sales compared to approximately $28.0 million or 30.6% of net
restaurant sales for fiscal 2003. The increase is primarily the result of higher commodity costs,
partially offset by the menu price increase implemented at the beginning of the third quarter.
Approximately 85% of our purchases are on contract and overall, contracts negotiated for 2005 have
resulted in less favorable pricing. Our pork contract renewal resulted in an 11% contracted price
increase, our poultry contract, 23




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resulted in an 8% price increase and our brisket contract resulted
in a 7% increase. Our brisket contract renews in July 2005 and we are watching the beef market
closely. We anticipate that food costs, as a percent of net restaurant sales, will remain
relatively flat as increases due to contract pricing increases are offset with margin
opportunities. We believe that we have an opportunity to mitigate the impact that the recently
renewed food contracts have on our margin through menu engineering such as with the use of our
limited time offerings, which typically have higher margin, and leveraging adult beverage sales,
which are currently at approximately 11% of our dine-in sales. Additionally, we will evaluate
taking a price increase as appropriate. Labor and Benefits-Labor and benefits at the restaurant level were approximately $26.5
million or 29.7% of net restaurant sales in fiscal 2004 compared to approximately $27.6 million or
30.1% of net restaurant sales in fiscal 2003. The decrease in labor and benefits reflects
favorable workers compensation claims experience and labor productivity, partially off-set by a
higher level of bonus payout at the restaurant level. Full-service restaurants that operate in
states without a tip credit (such as Minnesota) experience a higher wage rate for dining room
labor than do restaurants located in states where a tip credit is available to reduce wages paid to
food servers. The migration toward full-service dining in the majority of our restaurants is part
of our strategy for increasing unit-level revenue, but may result in higher labor costs. During
fiscal 2005, we are expecting labor and benefits as a percentage of net restaurant sales to remain
relatively flat to fiscal 2004. Operating
Expenses- Operating expenses for fiscal 2004 were approximately $22.0 million or
24.7% of net restaurant sales, compared to approximately $23.4 million or 25.6% of net restaurant
sales for fiscal 2003. The decrease in operating expenses reflects the reduction in company-owned
restaurants compared to 2003. In addition, repair and maintenance costs for fiscal year 2004 were
$1.9 million
compared to $2.2 million for fiscal 2003, reflecting a significant investment in the prior
year toward neglected restaurants. During fiscal 2005, operating expenses as a percentage of net
restaurant sales are expected to decrease from the percentage in fiscal 2004, primarily due to
lower levels of repairs and maintenance costs and further leveraging of fixed costs. Depreciation and Amortization-Depreciation and amortization for fiscal 2004 was
approximately $4.5 million, or 4.6% of total revenue, compared to approximately $4.8 million, or
5.0% of total revenue for fiscal 2003. The decrease in depreciation and amortization primarily
reflects fewer company-owned restaurants in 2004. During fiscal 2005, depreciation and
amortization is expected to remain relatively flat to fiscal 2004 levels as depreciation from asset
additions are offset by assets that will be fully depreciated during fiscal 2005. Asset Impairment and Restructuring Charges-During fiscal 2004, we recorded no asset
impairment and restructuring charges compared to the recording of approximately $4.2 million of
charges on five locations in 2003. As of January 2, 2005, we had approximately $1.3 million of
assets held for sale on our consolidated balance sheet representing the land and building on one of
the restaurants in Texas for which an impairment was recorded and the restaurant was subsequently
closed. Pre-opening ExpensesWe had no pre-opening expenses for fiscal 2004, compared to
approximately $543,000 or 0.6% of net restaurant sales for fiscal 2003. We plan to open up to two
company-owned restaurants during fiscal 2005 with pre-opening costs estimated at approximately
$300,000. General and Administrative Expenses-General and administrative expenses totaled
approximately $11.0 million or 11.0% of total revenue in fiscal 2004 compared to approximately $9.3
million or 9.6% of total revenue in fiscal 2003. The increase in general and administrative
expenses reflects increased legal, consulting and audit fees related to Sarbanes-Oxley 404
compliance, and higher corporate bonus and expenses related to our compensation programs. It also
includes increased payroll as 24




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we continue to build our infrastructure. During 2005, we expect
general and administrative expenses to increase approximately 150-200 basis points as a percentage
of total revenue, as a result of the increased cost of the performance share program, adoption of
SFAS No. 123r in the third quarter of fiscal 2005 and also as a result of the services we expect to
provide to the 25-30 expected 2005 franchise-operated openings. Interest (Expense) Income- Interest expense, net, totaled approximately $1.6 million or 1.6%
of total revenue for fiscal 2004 compared to approximately $1.7 million or 1.7% of total revenue
for fiscal 2003. This line item represents interest expense from capital lease obligations, notes
payable and financing lease obligations partially offset by interest income received on short-term
cash and cash equivalents balances. The decrease in interest expense from fiscal 2003 to fiscal
2004 is primarily the result of no capitalization of construction costs, due to no restaurant
openings. We are expecting interest expense to increase moderately from fiscal 2004 levels due to
the newly available $10.0 million line of credit obtained in early 2005, which carries a variable
rate as well as a non-use fee, and the increased amortization of deferred financing costs related
to this line. Other (Expense) Income, Net-Other expense, net of approximately $392,000 primarily reflects the
write-off of a restaurants remaining assets subsequent to the sale to a franchise. This compares
to $667,000 in 2003 for losses related to expenses on an unopened site and early extinguishments of
debt associated with the early payoff of a note, partially offset by gains attributable to the sale
of three units in Georgia to a franchisee. Equity in Loss from Unconsolidated Affiliate-Until February 26, 2003, we were a 40%
participant in a joint venture to operate themed restaurant concepts based on the entertainment
artist Isaac
Hayes. Pursuant to an agreement governing the joint venture, the participants in the joint
venture formed a Delaware limited liability company named FUMUME, LLC. On February 26, 2003, we
disposed of our 40% interest in FUMUME, LLC. The equity in loss from unconsolidated affiliate was
$2.2 million for fiscal 2003, reflecting losses in the Isaac Hayes Blues Clubs, in addition to
transaction costs associated with our divestiture of those clubs. We are no longer participating in
any revenue or expenses of the joint venture and we do not have any further obligations with regard
to the joint venture. (Provision) Benefit from Income Taxes-Our Company recorded a provision for income taxes
during fiscal 2004 of approximately $1.9 million which compares to a benefit of approximately $1.8
million in 2003. At January 2, 2005, we had a remaining deferred tax asset of approximately $7.8
million. Realization of the net operating loss carry forwards and other deferred tax timing
differences is contingent on future taxable earnings. Our deferred tax asset was reviewed for
expected utilization using a more likely than not approach as required by SFAS No. 109,
Accounting for Income Taxes, by assessing the available positive and negative evidence
surrounding the recoverability of the deferred tax asset. We believe that the realization of the
deferred tax asset is more likely than not based on the fact that we generated taxable income in
fiscal 2004 and based on the expectation that our Company will generate the necessary taxable
income in future years. Net Income (Loss) / Diluted Net Income (Loss) per Common Share-As a result of the factors
above, we realized net income for fiscal 2004 of approximately $3.5 million, or $0.29 per diluted
share, on 12,222,000 weighted average shares outstanding, compared to a net loss of approximately
$2.9 million, or $0.25 loss per diluted share, on 11,772,000 weighted average shares outstanding
for fiscal 2003. 25




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Fiscal Year 2003 Compared to Fiscal Year 2002 Total Revenue-Total revenue of approximately $97.7 million for fiscal 2003 increased $6.9
million or 7.6% over revenues of approximately $90.8 million for fiscal 2002. Restaurant Sales-Restaurant sales increased by approximately $5.1 million or 5.9% to
approximately $91.5 million for fiscal year 2003 from approximately $86.4 million for fiscal year
2002. The increase in sales was due primarily to the annualization of sales on restaurants that
opened late in 2002 as well as our 2003 openings. Franchise-Related Revenue-Franchise-related revenue consisted of royalty revenue and
franchise fees, which included initial franchise fees and area development fees. Franchise-related
revenue for fiscal 2003 was approximately $5.7 million, a 34.8% increase when compared to
approximately $4.2 million for the same period in 2002, primarily reflecting increased royalties.
Royalties, which are based on a percent of net sales, increased 50.9%, reflecting the annualization
of franchise restaurants that opened in fiscal 2002 in addition to the 18 franchise restaurants
opened during fiscal 2003. There were 54 franchise-operated restaurants open at December 28, 2003,
compared to 33 at December 29, 2002. Licensing and Other Revenue-Licensing revenue included royalties from a retail line of
business, including sauces, seasonings and prepared meats. Other revenue included opening
assistance and training we provide to our franchise partners. For fiscal year 2003, the licensing
royalty income was $209,000, flat to fiscal 2002. 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 for at least 18 months. At the end of
fiscal 2003, there were 33 restaurants included in this base. Same store net sales for fiscal 2003
decreased approximately 3.0%, compared to fiscal 2002s decrease of approximately 0.3%. We believe
that the decrease in same store net sales reflected in part, our decision, during the third quarter
of fiscal 2003, to eliminate routine discounting throughout our company-owned restaurants.
Although discounting during fiscal 2002 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 fiscal 2003 were $42,491 and $47,400, respectively. During
fiscal 2002, weighted average weekly net sales for our company-owned and franchise-operated
restaurants were $45,783 and $46,642, respectively. Food and Beverage Costs-Food and beverage costs for fiscal 2003 were approximately $28.0
million or 30.6% of net restaurant sales compared to approximately $27.4 million or 31.7% of net
restaurant sales for fiscal 2002. The improvement primarily reflected a favorable pork contract
and the improved pricing we received. Labor and Benefits-Labor and benefits at the restaurant level were approximately $27.3
million or 30.1% of net restaurant sales in fiscal 2003 compared to approximately $25.3 million or
29.2% of net restaurant sales in fiscal 2002. The increase in labor and benefits as a percentage
of net restaurant sales reflected a 25% increase in benefits costs, partially offset by a lower
level of bonus payout at the restaurant level. Operating Expenses-Operating expenses for fiscal 2003 were approximately $23.3 million or
25.6% of net restaurant sales, compared to approximately $20.0 million or 23.2% of net restaurant
sales for fiscal 2002. The increase in operating expenses reflected significant investments made
at the restaurant level to upgrade and repair stores that had been neglected, in addition to higher
utilities related 26




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to increased gas pricing. Repair and maintenance costs for fiscal year 2003 were
approximately $2.2 million compared to approximately $1.3 million for fiscal 2002. The increase in
operating expenses as a percentage of restaurant sales for fiscal 2003, compared to fiscal 2002,
was primarily due to lower average restaurant sales against slightly higher fixed costs. Depreciation and Amortization-Depreciation and amortization for fiscal 2003 was
approximately $4.8 million, or 5.0% of total revenue, compared to approximately $4.6 million, or
5.1% of total revenue for fiscal 2002. The increase in depreciation and amortization reflected
investments in store openings, restaurant level enhancements, and continuing investments in
information systems. Asset Impairment and Restructuring Charges-During fiscal 2003 we recorded asset impairment
and restructuring charges equal to approximately $4.2 million on five restaurant locations, two of
which were subsequently sold and two of which were subsequently closed. As of December 28, 2003,
we had approximately $1.3 million of assets held for sale on our consolidated balance sheet related
to one of the restaurants in Texas that was closed. Pre-opening Expenses- Pre-opening expenses were $543,000 or 0.6% of net restaurant sales for
fiscal 2003 compared to approximately $1.0 million or 1.2% of net restaurant sales for fiscal 2002.
These expenses reflected the opening of three restaurants during fiscal 2003 as compared with eight
in fiscal 2002. General and Administrative Expenses-General and administrative expenses totaled
approximately $9.3 million or 9.6% of total revenue in fiscal 2003 compared to approximately $8.1
million or 8.9% of total revenue in fiscal 2002. The increase in general and administrative
expenses reflected severance and recruiting costs related to changes in management and additions at
the board level, consulting expenses associated with the development of our media plan and our new
smokehouse prototype and increases in the corporate infrastructure to support system-wide
restaurant growth. Interest (Expense) Income-Interest expense, net, totaled approximately $1.7 million or 1.7%
of total revenue for fiscal 2003 compared to approximately $1.0 million or 1.1% of total revenue
for fiscal 2002. This line item represented interest expense from capital lease obligations, notes
payable and financing lease obligations. The increase in expense from fiscal 2002 to fiscal 2003
was the result of lower capitalization of construction period interest on fewer openings in 2003
than in 2002. Other (Expense) Income, Net- Other expense, net of approximately $667,000 reflected losses
related to expenses of an unopened site and early extinguishments of debt associated with the early
payoff of a note, partially offset by gains attributable to the sale of three units in Georgia to a
franchisee. In comparison, during fiscal 2002 we realized other income of approximately $423,000
related to the gains attributable to the sale of three units in Wisconsin to a franchisee. Equity in Loss from Unconsolidated Affiliate-Until February 26, 2003, we were a 40%
participant in a joint venture to operate themed restaurant concepts based on the entertainment
artist Isaac Hayes. Pursuant to an agreement governing the joint venture, the participants in the
joint venture formed a Delaware limited liability company named FUMUME, LLC. On February 26, 2003,
we disposed of our 40% interest in FUMUME, LLC. The equity in loss from unconsolidated affiliate
was approximately $2.2 million for fiscal 2003, reflecting losses in the Isaac Hayes Blues Clubs,
in addition to transaction costs associated with our divestiture of those clubs. We are no longer
participating in any revenue or expenses of the joint venture and we do not have any further
obligations with regard to the joint venture. The equity in loss for 2002 was approximately $6.0
million. 27




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Benefit from Income Taxes-Our Company realized a benefit from income taxes during fiscal
2003 of approximately $1.8 million, which included the recognition of the net operating loss carry
forwards created in the year ended December 28, 2003 that can be used to reduce future tax
liabilities. Realization of the net operating loss carry forwards and other deferred tax timing
differences is contingent on future taxable earnings. Our deferred tax asset was reviewed for
expected utilization using a more likely than not approach as required by SFAS No. 109,
Accounting for Income Taxes, by assessing the available positive and negative evidence
surrounding the recoverability of the deferred tax asset. We believed that the realization of the
deferred tax asset was more likely than not based on the expectation that our Company would
generate the necessary taxable income through fiscal 2011, beginning in fiscal 2004. Net Loss / Diluted Net Loss per Common Share-As a result of the factors above, we realized a
net loss for fiscal 2003 of approximately $2.9 million, or $0.25 per diluted share, on 11,771,584
weighted average shares outstanding, compared to a net loss of approximately $928,000, or $0.08 per
diluted share, on 11,335,000 weighted average shares outstanding for fiscal 2002. Recently Issued Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued its final statement
SFAS No. 123r, Share-Based Payment, an Amendment of FASB Statements No. 123 and 95. This
statement requires 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. We will be required to adopt this
pronouncement effective with the beginning of our third fiscal quarter of 2005. We are currently
determining the impact this pronouncement will have on our consolidated financial position and
results of operations. Financial Condition, Liquidity and Capital Resources As of January 2, 2005, our Company held cash and cash equivalents of approximately $11.2
million compared to approximately $10.0 million as of December 28, 2003. This $1.2 million
increase reflects cash generated from operations of approximately $11.4 million, partially offset
by the buyback of common stock and warrants of approximately $8.0 million and capital expenditures
of approximately $2.4 million. Our working capital was approximately $10.8 million for the year ended January 2, 2005 as
compared to approximately $9.0 million at December 28, 2003. Our quick ratio, defined as the sum
of cash and cash equivalents and receivables, divided by current liabilities, and measures our
immediate short-term liquidity, was 1.49 at January 2, 2005 compared to 1.59 at December 28, 2003.
The year over year change in our working capital was primarily due to cash generated from
operations and partially offset by an increase in accounts payable. The decline in our quick ratio
was primarily due to an increase in current liabilities. Net cash provided by operations for each of the last three fiscal years was approximately
$11.4 million in fiscal 2004, $6.4 million in fiscal 2003 and $9.5 million in fiscal 2002. Cash
generated in fiscal 2004 was primarily from net income of $3.5 million, the utilization of our
deferred tax asset of $1.9 million and an increase of $2.1 million in accounts payable, due to a
53-week fiscal year. This was partially offset by an increase of approximately $600,000 in
accounts receivable, reflecting the $325,000 legal settlement due from a franchise partner and
higher franchise receivables related to the creation of the national public relations and marketing
fund in 2004. Additionally, there was an increase of approximately $600,000 in prepaid expenses
and other current assets due to prepayment of January 2005 rent, and also a decrease in other
current liabilities of approximately $500,000 due to lower marketing 28




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accruals and deferred franchise fees. During fiscal 2003, we took advantage of cash discounts
offered by our vendors and decreased accounts payable by approximately $1.6 million. For fiscal
2002, sources of cash generation were primarily from increased accounts payable and decreases in
accounts receivable. Net cash used for investing activities for each of the last three fiscal years was
approximately $2.2 million in fiscal 2004, $5.6 million in fiscal 2003 and $5.7 million in fiscal
2002. In fiscal 2004, we used approximately $2.4 million for capital expenditures related to new
catering vehicles, kitchen equipment, development of our site-model tool, and POS and other
computer equipment for use in the restaurants and at our corporate office. This was partially
offset by payments received on notes receivable. In fiscal 2003, we used cash of approximately
$2.1 million to fund losses and exit from our 40% FUMUME, LLC, joint-venture partnership, and $4.3
million for capital expenditures on the construction of three new company-owned restaurants and to
upgrade existing facilities. The use of cash was partially offset by cash proceeds from the sale
of assets and payments on notes receivable. During fiscal 2002, we used approximately $1.3 million
to fund the losses in FUMUME, LLC, approximately $9.5 million on capital expenditures for eight
company-owned restaurants and approximately $900,000 on advances of notes receivables. These uses
of cash were partially offset by approximately $3.1 million cash proceeds from the sale of assets
and approximately $2.9 million in payments on notes receivable. Net cash used for financing activities was approximately $7.9 million in fiscal 2004, $323,000
in fiscal 2003 and approximately $1.7 million in fiscal 2002. During fiscal 2004, we bought back
approximately 1.0 million shares of our common stock and paid approximately $8.0 million, including
commissions. Other uses of cash for fiscal 2004 included payment of long-term debt and capital
leases, partially offset by proceeds received from the exercise of stock options and warrants.
During fiscal 2003 and 2002, payments on long-term debt and capital lease obligations were the
primary uses of cash partially offset by proceeds from stock option exercises. Subsequent to year-end, on January 28, 2005 we entered into a five-year credit agreement with
Wells Fargo Bank, National Association, as administrative agent and lender, which provides us with
a revolving credit facility of $10.0 million. Principal amounts outstanding under the facility
will bear interest either at an adjusted Eurodollar rate plus 3.50% or Wells Fargos prime rate
plus 2.00%. Unused portions of the facility will be subject to an unused facility fee equal to
0.5% of the unused portion. The credit agreement is available for general working capital purposes and for the repurchase
of shares under our share repurchase program. Under the credit agreement, we granted Wells Fargo a
security interest in all of our current and future personal property. The credit agreement contains customary affirmative and negative covenants including
limitations with respect to indebtedness, liens, investments, distributions, mergers and
acquisitions, dispositions of assets and transactions with affiliates of the Company among others.
The credit agreement also includes various financial covenants. We anticipate that future development and expansion will be funded primarily through currently
held cash and cash equivalents, cash flow generated from operations, and from sources such as our
recently acquired credit facility. In addition to commitments we have related to our lease obligations, we also have required
payments on our outstanding debt. The following table provides aggregate information about our
contractual payment obligations and the periods in which payments are due: 29




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Payments Due by Period(in thousands) Contractual Obligations
    
    Total
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    ThereafterLong Term Debt
    
    $
    12,361
    
    
    $
    424
    
    
    $
    426
    
    
    $
    465
    
    
    $
    505
    
    
    $
    548
    
    
    $
    9,993Financing Leases
    
    
    4,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500Capital Leases
    
    
    113
    
    
    
    97
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    57,076
    
    
    
    3,338
    
    
    
    3,408
    
    
    
    3,417
    
    
    
    3,338
    
    
    
    3,341
    
    
    
    40,234Less: Sublease rental
income
    
    
    (9,512
    )
    
    
    (502
    )
    
    
    (502
    )
    
    
    (502
    )
    
    
    (440
    )
    
    
    (441
    )
    
    
    (7,125
    )Total
    
    $
    64,538
    
    
    $
    3,357
    
    
    $
    3,348
    
    
    $
    3,380
    
    
    $
    3,403
    
    
    $
    3,448
    
    
    $
    47,602
 See Notes 6, 7 and 8 to our Consolidated Financial Statements included in this Annual
Report on Form 10-K for details of our contractual obligations. Under the agreements governing our long-term debt obligations, we are subject to two main
financial covenants. We must maintain a 1.5 to 1.0 fixed charge coverage ratio and a 3.5 to 1.0
leverage ratio during each fiscal year. As of January 2, 2005, December 28, 2003 and December 29,
2002, the Company was in compliance or had obtained waivers for all of its covenants. Off-Balance Sheet Arrangements Our Company does not have any off-balance sheet arrangements. Income Taxes At January 2, 2005, we had federal and state net operating loss carry forwards (NOLs) for
tax reporting purposes of approximately $12.2 million and $9.7 million, respectively, which if not
used will begin to expire in 2011. These will be adjusted when we file our 2004 income taxes in
2005. In addition, we had tax credit carry forwards of approximately $ 1.8 million, which if not
used, will begin to expire in 2011. Future changes in ownership, if any, may place limitations on
the use of these NOLs. Inflation The primary inflationary factors affecting our operations include food, beverage, and labor
costs. In addition, our leases require us to pay taxes, maintenance, repairs and utilities and
these costs are subject to inflationary increases. We are also subject to interest rate changes
based on market conditions. We believe that relatively low inflation rates have contributed to relatively stable costs.
There is no assurance, however, that low inflation rates will continue. 
 ITEM 7A. 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 investments with original maturities of three months
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. We have no derivative financial instruments or derivative
commodity instruments in our cash and cash equivalents. The total outstanding long-term debt of our
Company as of January 2, 2005 was approximately $16.5 million, including financing lease
obligations. 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. Subsequent to year-end, on
January 28, 2005 we entered into a five-year credit agreement 30




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with Wells Fargo Bank, National Association, as administrative agent and lender, which
provides us with a revolving credit facility of $10.0 million. Principal amounts outstanding under
the facility will bear interest either at an adjusted Eurodollar rate plus 3.50% or Wells Fargos
prime rate plus 2.00%. Unused portions of the facility will be subject to an unused facility fee
equal to 0.5% of the unused portion. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of Famous Daves of America, Inc. are included herein,
beginning at page F-1. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. 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(c) promulgated under the
Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures are effective. Managements Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as
amended). Our management assessed the effectiveness of our internal control over financial
reporting as of January 2, 2005. In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Our management has concluded that, as of January 2, 2005, our
internal control over financial reporting is effective based on these criteria. Our independent
registered certified public accounting firm, Grant Thornton LLP, has issued an audit report on our assessment
of our internal control over financial reporting, which is included herein. There were no changes in our internal controls over financial reporting during our most
recently-completed fiscal quarter, and year ended January 2, 2005 that have materially affected, or
are reasonably likely to materially affect our internal controls over financial reporting. Our management, including our Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and procedures or our internal controls will prevent all error
and all fraud. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control 31




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system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within Famous Daves of America have been detected. 
 ITEM 9B. OTHER INFORMATION None. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this Item is incorporated herein by reference to our definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal
year covered by this form 10-K. The Company has adopted a Code of Ethics applicable to its CEO,
CFO and Controller. The Code of Ethics is available on our website at www.famousdaves.com and a
copy is available free of charge to anyone requesting it. 
 ITEM 11. EXECUTIVE COMPENSATION Information in response to this Item is incorporated herein by reference to our definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal
year covered by this form 10-K. 
  ITEM 12.
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS Information in response to this Item is incorporated herein by reference to our definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal
year covered by this form 10-K. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information in response to this Item is incorporated herein by reference to our definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal
year covered by this form 10-K. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item appears in our definitive proxy statement for our 2005
annual meeting of shareholders under the caption Fees Billed to Company by Its Independent
Registered Certified Public Accounting Firm, which information is incorporated herein by reference. 
 PART IV 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Documents filed as part of this Form 10-K:Reports of Independent Registered Certified Public Accounting FirmConsolidated Balance Sheets  January 2, 2005 and December 28, 2003
 32




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Consolidated Statements of Operations  Years ended January 2, 2005, December 28, 2003
and December 29, 2002Consolidated Statements of Stockholders Equity  Years ended January 2, 2005, December
28, 2003 and December 29, 2002Consolidated Statements of Cash Flows  Years ended January 2, 2005, December 28, 2003
and December 29, 2002Notes to Consolidated Financial StatementsFinancial Statement Schedule:Schedule II. Schedule of Valuation and Qualifying AccountsExhibits:See exhibit index on the page following the consolidated financial statements and
related footnotes
 33




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Report of Independent Registered Certified Public Accounting Firm
The Board of Directors and Shareholders
Famous Daves of America, Inc.: We have audited the accompanying consolidated balance sheets of Famous Daves of America, Inc. and
subsidiaries (the Company) as of January 2, 2005 and December 28, 2003, and the related
consolidated statements of operations, changes in shareholders equity and cash flows for each of
the three years in the period ended January 2, 2005. These consolidated financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Famous Daves of America, Inc. and
subsidiaries as of January 2, 2005 and December 28, 2003 and the consolidated results of their
operations and their consolidated cash flows for each of the three years in the period ended
January 2, 2005 in conformity with accounting principles generally accepted in the United States of
America. Our audit was conducted for
the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying Schedule II is presented for purposes of additional analysis
and is not a required part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements and, in our opinion,
is fairly stated in all material respects in relation to the basic financial statements taken as a
whole. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the internal control over financial reporting of Famous
Daves of America, Inc. as of January 2, 2005, based on the criteria established in Internal
Control  Integrated Framework issue by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 9, 2005 expressed an unqualified opinion on
managements assessment of internal control over financial reporting and an unqualified opinion on
the effectiveness of Famous Daves of America, Inc.s, the effectiveness of Famous Daves of
America, Inc. and the effective operation, of internal control over financial reporting. /s/ Grant Thornton LLP Minneapolis, Minnesota
March 9, 2005 F-1




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Report of Independent Registered Certified Public Accounting Firm
The Board of Directors and Shareholders
Famous Daves of America, Inc.: We have audited managements assessment, included in the accompanying Managements Report on
Internal Control over Financial Reporting appearing under Item 9A, that Famous Daves of America,
Inc. maintained effective internal control over financial reporting as of January 2, 2005, based on
the criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Management of Famous Daves of America,
Inc. is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an opinion on the effectiveness of the
internal control over financial reporting of Famous Daves of America, Inc. based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that Famous Daves of America, Inc. maintained effective
internal control over financial reporting as of January 2, 2005, is fairly stated, in all material
respects, based on criteria established in Internal ControlIntegrated Framework issued by the
COSO. Also, in our opinion, Famous Daves of America, Inc. maintained, in all material respects,
effective internal control over financial reporting as of January 2, 2005, based on the criteria
established in Internal ControlIntegrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Famous Daves of America, Inc. and
subsidiaries as of January 2, 2005 and December 28, 2003, and the related consolidated statements
of operations, shareholders equity, and cash flows for each of the three years in the period ended
January 2, 2005 and our report dated February 4, 2005 expressed an unqualified opinion on those
consolidated financial statements. /s/ Grant Thornton LLP Minneapolis, Minnesota
March 9, 2005 F-2




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
JANUARY 2, 2005 AND DECEMBER 28, 2003  (in thousands, except share data)
 January 2,
    
    
    December 28,2005
    
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,170
    
    
    $
    9,964Restricted cash
    
    
    39
    
    
    
    Accounts receivable, net
    
    
    2,289
    
    
    
    1,661Inventories
    
    
    1,523
    
    
    
    1,599Prepaid expenses and other current assets
    
    
    4,747
    
    
    
    3,126Total current assets
    
    
    19,768
    
    
    
    16,350Property, equipment and leasehold improvements, net
    
    
    44,664
    
    
    
    47,147Other assets:Notes receivable, less current portion
    
    
    2,156
    
    
    
    2,395Deferred tax asset, less current portion
    
    
    4,458
    
    
    
    6,938Other assets
    
    
    867
    
    
    
    937$
    71,913
    
    
    $
    73,767LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    424
    
    
    $
    358Current portion of capital leases
    
    
    97
    
    
    
    388Accounts payable
    
    
    4,138
    
    
    
    2,035Other current liabilities
    
    
    4,352
    
    
    
    4,528Total current liabilities
    
    
    9,011
    
    
    
    7,309Long-term liabilities:Long-term debt, less current portion
    
    
    11,937
    
    
    
    12,349Capital leases, less current portion
    
    
    16
    
    
    
    105Financing leases
    
    
    4,500
    
    
    
    4,500Other liabilities, net
    
    
    3,106
    
    
    
    2,632Total liabilities
    
    
    28,570
    
    
    
    26,895Shareholders equity:Common stock, $.01 par value, 100,000,000
shares authorized, 11,340,000 and 12,158,000
shares issued and outstanding at January 2, 2005 and
December 28, 2003, respectively
    
    
    113
    
    
    
    122Additional paid-in capital
    
    
    49,674
    
    
    
    56,692Accumulated deficit
    
    
    (6,444
    )
    
    
    (9,942
    )Total shareholders equity
    
    
    43,343
    
    
    
    46,872$
    71,913
    
    
    $
    73,767
 See accompanying notes to consolidated financial statements. F-3




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002  (in thousands, except share and per share data)
 January 2,
    
    
    December 28,
    
    
    December 29,2005
    
    
    2003
    
    
    2002(53 weeks)
    
    
    (52 weeks)
    
    
    (52 weeks)Revenue:Restaurant sales, net
    
    $
    89,176
    
    
    $
    91,500
    
    
    $
    86,378Franchise royalty revenue
    
    
    7,353
    
    
    
    4,567
    
    
    
    3,027Franchise fee revenue
    
    
    1,977
    
    
    
    1,139
    
    
    
    1,205Licensing and other revenue
    
    
    819
    
    
    
    534
    
    
    
    210Total revenue
    
    
    99,325
    
    
    
    97,740
    
    
    
    90,820Costs and expenses:Food and beverage costs
    
    
    27,995
    
    
    
    28,014
    
    
    
    27,355Labor and benefits
    
    
    26,472
    
    
    
    27,586
    
    
    
    25,252Operating expenses
    
    
    22,005
    
    
    
    23,376
    
    
    
    20,009Depreciation and amortization
    
    
    4,549
    
    
    
    4,840
    
    
    
    4,630Asset impairment and restructuring charges
    
    
    
    
    
    
    4,238
    
    
    
    Pre-opening expenses
    
    
    
    
    
    
    543
    
    
    
    1,040General and administrative
    
    
    10,939
    
    
    
    9,336
    
    
    
    8,064Total costs and expenses
    
    
    91,960
    
    
    
    97,933
    
    
    
    86,350Income (loss) from operations
    
    
    7,365
    
    
    
    (193
    )
    
    
    4,470Other income (expense):Interest (expense)
    
    
    (1,901
    )
    
    
    (1,876
    )
    
    
    (1,400
    )Interest income
    
    
    326
    
    
    
    215
    
    
    
    362Other (expense) income, net
    
    
    (392
    )
    
    
    (667
    )
    
    
    423Equity in loss of unconsolidated affiliate
    
    
    
    
    
    
    (2,155
    )
    
    
    (5,994
    )Total other expense
    
    
    (1,967
    )
    
    
    (4,483
    )
    
    
    (6,609
    )Income (loss) before income taxes
    
    
    5,398
    
    
    
    (4,676
    )
    
    
    (2,139
    )Income tax (provision) benefit
    
    
    (1,900
    )
    
    
    1,778
    
    
    
    1,211Net income (loss)
    
    $
    3,498
    
    
    $
    (2,898
    )
    
    $
    (928
    )Basic net income (loss) per common share
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    (0.08
    )Diluted net income (loss) per common share
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    (0.08
    )Weighted average common shares
outstanding-basic
    
    
    11,858,000
    
    
    
    11,772,000
    
    
    
    11,335,000Weighted average common shares
outstanding-diluted
    
    
    12,222,000
    
    
    
    11,772,000
    
    
    
    11,335,000
 See accompanying notes to consolidated financial statements. F-4




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002  (in thousands)
 AdditionalCommon Stock
    
    
    Paid-In
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance  December 30, 2001
    
    
    11,180
    
    
    $
    112
    
    
    $
    52,693
    
    
    $
    (6,116
    )
    
    $
    46,689Issuance of common stock
    
    
    26
    
    
    
    
    
    
    
    206
    
    
    
    
    
    
    
    206Exercise of stock options
    
    
    137
    
    
    
    1
    
    
    
    305
    
    
    
    
    
    
    
    306Exercise of warrants
    
    
    45
    
    
    
    1
    
    
    
    270
    
    
    
    
    
    
    
    271Tax benefit for stock
options exercised
    
    
    
    
    
    
    
    
    
    
    707
    
    
    
    
    
    
    
    707Options issued below
market price
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    41Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (928
    )
    
    
    (928
    )Balance  December 29, 2002
    
    
    11,388
    
    
    
    114
    
    
    
    54,222
    
    
    
    (7,044
    )
    
    
    47,292Exercise of stock options
    
    
    770
    
    
    
    8
    
    
    
    2,027
    
    
    
    
    
    
    
    2,035Tax benefit for stock
options exercised
    
    
    
    
    
    
    
    
    
    
    443
    
    
    
    
    
    
    
    443Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,898
    )
    
    
    (2,898
    )Balance  December 28, 2003
    
    
    12,158
    
    
    
    122
    
    
    
    56,692
    
    
    
    (9,942
    )
    
    
    46,872Exercise of stock options
    
    
    217
    
    
    
    2
    
    
    
    708
    
    
    
    
    
    
    
    710Tax benefit for stock
options exercised
    
    
    
    
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    303Exercise of warrants
    
    
    10
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    60Purchased rights to
exercisable warrants
    
    
    
    
    
    
    
    
    
    
    (197
    )
    
    
    
    
    
    
    (197
    )Repurchase of common
stock and common stock
warrants
    
    
    (1,045
    )
    
    
    (11
    )
    
    
    (7,892
    )
    
    
    
    
    
    
    (7,903
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,498
    
    
    
    3,498Balance  January 2, 2005
    
    
    11,340
    
    
    $
    113
    
    
    $
    49,674
    
    
    $
    (6,444
    )
    
    $
    43,343
 See accompanying notes to consolidated financial statements. F-5




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002  (in thousands)
 Fiscal Year2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income (loss)
    
    $
    3,498
    
    
    $
    (2,898
    )
    
    $
    (928
    )Adjustments to reconcile net income (loss) to cash
flows provided by operations:Depreciation and amortization
    
    
    4,549
    
    
    
    4,840
    
    
    
    4,630Amortization of deferred financing costs
    
    
    38
    
    
    
    67
    
    
    
    Loss (gain) on disposal of property
    
    
    383
    
    
    
    (112
    )
    
    
    (549
    )Asset impairment charges
    
    
    
    
    
    
    3,687
    
    
    
    Deferred tax asset
    
    
    1,900
    
    
    
    (1,778
    )
    
    
    (1,211
    )Deferred rent
    
    
    474
    
    
    
    568
    
    
    
    630Equity in loss of unconsolidated affiliate
    
    
    
    
    
    
    2,155
    
    
    
    5,994Deferred compensation
    
    
    142
    
    
    
    
    
    
    
    Changes in operating assets and liabilities:Restricted cash
    
    
    (39
    )
    
    
    
    
    
    
    Accounts receivable, net
    
    
    (628
    )
    
    
    (648
    )
    
    
    440Inventories
    
    
    76
    
    
    
    (42
    )
    
    
    (506
    )Prepaid expenses and other current assets
    
    
    (566
    )
    
    
    547
    
    
    
    (70
    )Deposits
    
    
    63
    
    
    
    60
    
    
    
    36Other assets
    
    
    (138
    )
    
    
    0
    
    
    
    0Accounts payable
    
    
    2,103
    
    
    
    (1,635
    )
    
    
    1,010Other current liabilities
    
    
    (498
    )
    
    
    1,625
    
    
    
    (6
    )Cash flows provided by operations
    
    
    11,357
    
    
    
    6,436
    
    
    
    9,470Cash flows from investing activities:Purchases of property, equipment and leasehold
improvements
    
    
    (2,449
    )
    
    
    (4,321
    )
    
    
    (9,490
    )Proceeds from sale of property, equipment, and
leasehold improvements
    
    
    
    
    
    
    685
    
    
    
    3,083Investment and repayments of advances in
unconsolidated affiliate
    
    
    
    
    
    
    (2,125
    )
    
    
    (1,255
    )Advances on notes receivable
    
    
    
    
    
    
    
    
    
    
    (941
    )Payments received on notes receivable
    
    
    218
    
    
    
    139
    
    
    
    2,891Cash flows used for investing activities
    
    
    (2,231
    )
    
    
    (5,622
    )
    
    
    (5,712
    )Cash flows from financing activities:Payments for debt issuance costs
    
    
    (8
    )
    
    
    (9
    )
    
    
    (44
    )Net payments on line of credit
    
    
    
    
    
    
    
    
    
    
    (100
    )Payments on long-term debt
    
    
    (346
    )
    
    
    (1,703
    )
    
    
    (1,153
    )Payments on capital lease obligations
    
    
    (380
    )
    
    
    (646
    )
    
    
    (963
    )Proceeds from exercise of stock options and warrants
    
    
    770
    
    
    
    2,035
    
    
    
    577Repurchase of common stock and common stock warrants
    
    
    (7,956
    )
    
    
    
    
    
    
    Cash flows used for financing activities
    
    
    (7,920
    )
    
    
    (323
    )
    
    
    (1,683
    )Increase in cash and cash equivalents
    
    
    1,206
    
    
    
    491
    
    
    
    2,075Cash and cash equivalents, beginning of year
    
    
    9,964
    
    
    
    9,473
    
    
    
    7,398Cash and cash equivalents, end of year
    
    $
    11,170
    
    
    $
    9,964
    
    
    $
    9,473
 See accompanying notes to consolidated financial statements. F-6




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002
 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business We, Famous Daves of America, Inc. (Famous Daves or the Company),
were incorporated in Minnesota on March 14, 1994. We develop, own, operate and franchise
restaurants under the name Famous Daves. At January 2, 2005, we had 38 company-owned
restaurants and 66 franchise-operated restaurants in 24 states, and an additional 159 signed
franchise-operated development agreements. Principles of consolidation- The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned and majority owned subsidiaries. Any inter-company
transactions and balances have been eliminated in consolidation. Managements use of estimates- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from
those estimates. Financial instruments Due to their short-term nature, the carrying value of our current
financial assets and liabilities approximates their fair value. The fair value of long-term debt
approximates the carrying amount based upon our expected borrowing rate for debt with similar
remaining maturities and comparable risk. Segment reporting We have company-owned and franchise-operated restaurants in the United
States, and operate within the single industry segment of casual dining. Because we manage both
types of restaurants in a similar manner and allocate resources to each based upon their relative
size to the company we have aggregated our operating segments into a single reporting segment. Fiscal year Our fiscal year ends on the Sunday nearest December 31st of each year. Our
fiscal year is generally 52 weeks; however it periodically consists of 53 weeks. The fiscal year
ended January 2, 2005 (fiscal 2004) was 53 weeks. Fiscal years ending December 28, 2003 (fiscal
2003) and December 29, 2002 (fiscal 2002) were 52 weeks. Cash and cash equivalents Cash equivalents include all investments with original maturities
of three months or less or which are readily convertible into known amounts of cash. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation up to $100,000, while the
remaining balances are uninsured at January 2, 2005. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on cash and cash
equivalents. Accounts receivable We provide an allowance for uncollectible accounts on accounts
receivable. The allowance for uncollectible accounts was approximately $10,000 and $98,000 at
January 2, 2005 and December 28, 2003, respectively. We believe all accounts receivable in excess
of the allowance are fully collectible. If accounts receivable in excess of the provided allowance
are determined uncollectible, they are charged to expense in the year that determination is made.
Accounts receivable are written off when they become uncollectible, and payments subsequently
received on such receivables are credited to the allowance for doubtful accounts. Account
receivable balances written off do not exceed allowances provided. F-7




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued) Inventories- Inventories consist principally of food, beverages, retail goods and smallwares,
and are recorded at the lower of cost (first-in, first-out) or market. Property, equipment and leasehold improvements- Property, equipment and leasehold
improvements are recorded at cost. Improvements are capitalized while repair and maintenance costs
are charged to operations when incurred. Furniture, fixtures, equipment and antiques are
depreciated or amortized using the straight-line method over estimated useful lives ranging from
3-7 years, while buildings are depreciated over 30 years. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term, including renewal options, or
the estimated useful life of the assets. Debt issuance costs- Debt issuance costs are amortized to interest expense over the term of
the related financing on a straight-line basis, which approximates the interest method. Capitalized interest There was no capitalized interest in 2004. Interest costs capitalized
during the construction period of restaurants were approximately $122,000 and $441,000 for fiscal
2003 and 2002, respectively. Advertising costs- Advertising costs are charged to expense as incurred. Advertising costs
were approximately $2.7 million, $2.4 million, and $1.9 million for fiscal 2004, 2003 and 2002,
respectively, and are included in operating expenses in the consolidated statements of operations. Pre-opening expenses- All start-up and pre-opening costs are expensed as incurred. Lease Accounting In accordance with SFAS No. 13 Accounting for Leases,we recognize lease
expense for our operating leases over the entire lease term including lease renewal options and
build-out periods where the renewal is certain and the build-out period takes place prior to the
restaurant opening or lease commencement date. We account for construction allowances by recording
a receivable when its collectibility is considered certain, depreciating the leasehold improvements
over the lesser of their useful lives or the full term of the lease, including renewal options and
build-out periods, amortizing the construction allowance as a credit to rent expense over the full
term of the lease, including renewal options and build-out periods, and relieving the receivable
once the cash is obtained from the landlord for the construction allowance. Recoverability of property, equipment and leasehold improvements In accordance with
Statement of Financial Accounting Standards (SFAS) No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets we evaluate restaurant sites and long-lived assets 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 the undiscounted future net cash flows expected to
be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired the
loss is measured as the amount by which the carrying amount of the restaurant exceeds its fair
value. Fair value as determined by the discounted future net cash flows, is estimated based on the
best information available including estimated future cash flows, expected growth rates in
comparable restaurant sales, remaining lease terms and other factors. If these assumptions change
in the future, we may be required to take additional impairment charges for the related assets.
Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual
results could vary significantly from such estimates. Our January F-8




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 2, 2005 consolidated balance
sheet reflects approximately $1.3 million of assets held for sale, which includes the land and
building for our Mesquite, TX location that was closed during 2003. During fiscal 2003, we
recorded impairment charges of approximately $3.7 million on five under-performing restaurants, two
of which were subsequently closed, two of which were subsequently sold, and one that was fully
impaired, but still operating. There were no impairment charges recorded during fiscal 2004 or
2002. F-9




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued) 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 whose franchise agreements were signed 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 related
to this fund in restricted cash and the liability is included in accounts payable on our
consolidated balance sheet as of January 2, 2005. 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: (in thousands, except per share data)
    
    Fiscal Year2004
    
    
    2003
    
    
    2002Net income (loss) per common share  basic:Net income (loss)
    
    $
    3,498
    
    
    $
    (2,898
    )
    
    $
    (928
    )Weighted average shares outstanding
    
    
    11,858
    
    
    
    11,772
    
    
    
    11,335Net income (loss) per common share  basic
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    (0.08
    )Net income (loss) per common share  diluted:Net income (loss)
    
    $
    3,498
    
    
    $
    (2,898
    )
    
    $
    (928
    )Weighted average shares outstanding
    
    
    11,858
    
    
    
    11,772
    
    
    
    11,335Dilutive impact of common stock equivalents outstanding
    
    
    364
    
    
    
    
    
    
    
    Adjusted weighted average shares outstanding
    
    
    12,222
    
    
    
    11,772
    
    
    
    11,335Net income (loss) per common share  diluted
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    (0.08
    )
 Options to purchase approximately 40,000 shares of common stock with a weighted average
exercise price of $8.02 were excluded from the fiscal 2004 diluted EPS computation because the
exercise price exceeded the average market price of the common shares during the period. Options to purchase approximately 1.2 million shares of common stock with a weighted average
exercise price of $3.94 were excluded from the fiscal 2003 diluted EPS computation because they
were anti-dilutive due to a net loss. Options to purchase approximately 1.9 million 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 fiscal 2002 diluted EPS
computation because they were anti-dilutive due to a net loss. F-10




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued) 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 Famous Daves
common stock at the date of grant over the amount the employee must pay for the stock. Our policy
is to grant stock options at the quoted market price at the date of grant. No compensation expense
has been recognized for options issued to employees in fiscal years 2004, 2003 or 2002. The
following table illustrates the effect on net income (loss) and net income (loss) per common share
if we had applied the fair value recognition provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation. (in thousands, except per share data)
    
    Fiscal Year2004
    
    
    2003
    
    
    2002Net income (loss) as reported
    
    $
    3,498
    
    
    $
    (2,898
    )
    
    $
    (928
    )Less: Compensation expense determined
under the fair value method, net of tax
    
    
    (816
    )
    
    
    (1,057
    )
    
    
    (880
    )Pro forma net income (loss)
    
    $
    2,682
    
    
    $
    (3,955
    )
    
    $
    (1,808
    )Net income (loss) per common share:Basic EPS  as reported
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    (0.08
    )Basic EPS  pro forma
    
    
    0.23
    
    
    
    (0.34
    )
    
    
    (0.16
    )Diluted EPS  as reported
    
    
    0.29
    
    
    
    (0.25
    )
    
    
    (0.08
    )Diluted EPS  pro forma
    
    
    0.22
    
    
    
    (0.34
    )
    
    
    (0.16
    )
 In determining the compensation cost of the options granted during fiscal 2004, 2003 and
2002, the fair value of each option grant has been estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: Fiscal Year2004
    
    
    2003
    
    
    2002Risk free interest rate
    
    
    4.4
    %
    
    
    4.2
    %
    
    
    4.7
    %Expected life of options
    
    10 years
    
    10 years
    
    10 yearsExpected volatility
    
    
    56.7
    %
    
    
    102.3
    %
    
    
    92.9
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
 F-11




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue Recognition We record restaurant sales at the time food and liquor is served. We
record retail sales at the time items are delivered to the customer. We have detailed below our
revenue recognition policies for franchise and licensing agreements. Franchise arrangements- Individual franchise arrangements generally include initial fees, as well
as royalty fees based upon a percentage of sales. Our franchisees are granted the right to operate
a restaurant using our system for a range of 10 to 20 years. Operating results at
franchise-operated restaurants, including restaurant revenue and related expenses, are the
responsibility of the franchise owner. Franchisees pay a non-refundable initial fee for each
franchised location, and franchise fee which is recognized when we, the franchisor, have performed
substantially all of our obligations. The amount of non-refundable initial franchise fee and
franchise fee income was approximately $2.0 million, $1.1 million and $1.2 million for fiscal years
2004, 2003 and 2002 respectively. Franchising royalty fee income was approximately $7.4 million,
$4.6 million, and $3.0 million for fiscal 2004, 2003 and 2002, respectively. Licensing agreements and other incomeWe have licensing agreements for our retail products, one
which expires in April 2010 with a renewal option of five years, and the other which is indefinite.
Licensing revenue for fiscal years 2004, 2003 and 2002 was approximately $248,000, $209,000 and
$210,000, respectively. Periodically, we provide additional services, beyond the general franchise agreement, to our
franchised operations. The cost of these services are invoiced to the respective franchisee and
are generally payable on net 30-day terms. Other income related to these services for
fiscal years 2004 and 2003 was approximately $571,000 and $325,000,
respectively. Recently Issued Accounting Pronouncements In December 2004, the Financial Accounting
Standards Board (FASB) issued its final statement SFAS No. 123r, Share-Based Payment, an Amendment
of FASB Statements No. 123 and 95. This statement requires 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. We will be required to adopt this announcement effective with the beginning of our
third fiscal quarter in 2005. We are currently determining the impact this pronouncement will have
on our consolidated financial position and results of operations. (2) INVENTORIES Inventories consisted approximately of the following at: (In thousands)
    
    January 2,
    
    
    December 28,2005
    
    
    2003Food and beverage
    
    $
    531
    
    
    $
    540Retail goods
    
    
    63
    
    
    
    121Smallwares and supplies
    
    
    929
    
    
    
    938$
    1,523
    
    
    $
    1,599
 F-12




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (3) NOTES RECEIVABLE Notes receivable consisted approximately of the following at: (in thousands)
    
    January 2,
    
    
    December 28,2005
    
    
    2003Famous Ribs of Georgia, LLC Famous
Ribs of Snellville, LLC, Famous Ribs
of Marietta, LLC, Famous Ribs of
Alpharetta, LLC,  $1,300 amortized
over 9 years at 3.27% interest, due
November 2012, secured by property
and equipment and guaranteed by the
franchise owner.
    
    $
    1,300
    
    
    $
    1,300Old School BBQ, Inc.  monthly
installments of approximately $5.7
including interest at 9.0%, due
November 2012, secured by property
and equipment and guaranteed by the
franchise owners.
    
    
    384
    
    
    
    422Michaels First, LLC  monthly
installments of approximately $5
including interest at 9.6%, and due
May 2010, secured by property and
equipment and guaranteed by the
franchise owner.
    
    
    259
    
    
    
    287Utah BBQ, Inc.  monthly installments
of approximately $0.9 and $8.6
including interest at 9.5%, due July
2007, secured by property and
equipment and guaranteed by the
franchise owners.
    
    
    253
    
    
    
    345River Valley BBQ, Inc.  quarterly
interest and principal installments
of approximately $22 including
interest at prime plus 1.50% (6.75%
at January 2, 2005 and 5.50% at
December 28, 2003), due December
2006, unsecured.
    
    
    169
    
    
    
    225Line of credit for up to $50 
Rivervalley BBQ, Inc.  monthly
interest only though December 2007
with total outstanding balance due
December 2007 including interest at
prime plus 1.50% (6.75% at January
2, 2005 and 5.50% at December 28,
2003), unsecured.
    
    
    50
    
    
    
    50Competition BBQ, Inc.  monthly
installments of approximately $0.4
including interest at 7.0% due
January 2008, unsecured.
    
    
    14
    
    
    
    18Total notes receivable
    
    
    2,429
    
    
    
    2,647Current maturities
    
    
    (273
    )
    
    
    (252
    )Long-term portion of notes receivable
    
    $
    2,156
    
    
    $
    2,395
 Future principal payments to be received on notes receivable are approximately as
follows: (in
thousands)Fiscal Year2005
    
    $
    2732006
    
    
    2742007
    
    
    3422008
    
    
    2402009
    
    
    250Thereafter
    
    
    1,050Total
    
    $
    2,429
 F-13




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (4) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements consisted approximately of the following at: (in thousands)
    
    January 2,
    
    
    December 28,2005
    
    
    2003Land, buildings and improvements
    
    $
    46,187
    
    
    $
    46,167Furniture, fixtures and equipment
    
    
    20,599
    
    
    
    20,093Antiques
    
    
    2,228
    
    
    
    2,083Land and building held for sale
    
    
    1,281
    
    
    
    1,281Accumulated depreciation and amortization
    
    
    (23,606
    )
    
    
    (20,499
    )Restaurant impairment reserve (1)
    
    
    (2,025
    )
    
    
    (1,978
    )Property, equipment and leasehold improvements, net
    
    $
    44,664
    
    
    $
    47,147
 (1)
    
    An adjustment was booked in 2004 related to a 2003 impairment.
 Depreciation and amortization expense on property, equipment and leasehold improvements
was approximately $4.5 million, $4.8 million and $4.6 million for fiscal years 2004, 2003, and
2002, respectively. (5) INVESTMENT IN UNCONSOLIDATED AFFILIATE Through February 26, 2003, we held an investment in an unconsolidated affiliate which related
to our Companys 40% investment in FUMUME, LLC (FUMUME), accounted for on the equity method of
accounting. FUMUME operated two Isaac Hayes themed restaurants, one each in Chicago, Illinois and
Memphis, Tennessee. In May 2001 our Company contributed (i) $825,507 in working capital, (ii) the
assets comprising Famous Daves Ribs and Blues Club in Chicago and (iii) certain rights to use
Famous Daves various licensed marks. Although FUMUME was responsible for the payment of the rent
for the Chicago club, our Company remained contingently liable under the lease with the landowner.
Our Company had an agreement with FUMUME to manage and operate the Chicago club. In addition,
FUMUME opened a second club in Memphis in October 2001. Our Company recorded equity in loss of
unconsolidated affiliate based on the greater of 40% of the net loss for the years ended December
29, 2002 and December 30, 2001 or 100% of the cash loss our Company was obligated to fund pursuant
to the FUMUME operating agreement. For the year ended December 29, 2002, we recorded 100% of the cash losses, or approximately
$1.1 million. We also recorded an impairment reserve of approximately $4.8 million, of which
approximately $4.6 million was included in Equity in Losses and Impairment Reserve in
Unconsolidated Affiliate. The impairment charge reflected our conclusion that we would not be able
to recover the carrying value of the investment in the unconsolidated subsidiary. On February 26, 2003, we disposed of our 40% investment in FUMUME, thereby terminating our
obligations to fund cash operating losses. On March 21, 2003, we completed a transaction with the
landlord at the Chicago location that terminated our obligations under the lease. Losses of
approximately $2.2 million relating to this equity investment were recorded during the first
quarter of fiscal year 2003 and included lease termination fees, rent, property tax and legal fees
through April 30, 2003, of approximately $1.6 million. F-14




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (6) LONG-TERM DEBT Long-term debt consisted approximately of the following at: (in thousands)
    
    January 2,
    
    
    December 28,2005
    
    
    2003Notes payable  GE Capital Franchise
Finance Corporation  monthly
installments from approximately $13 to
$20 including interest between 8.75% and
10.53% due between February 2020 and
October 2023, secured by property and
equipment.
    
    $
    11,064
    
    
    $
    11,318Notes payable  GE Capital Franchise
Finance Corporation  monthly
installments from approximately $4 to $10
including interest between 3.80% and
3.89% plus the monthly LIBOR rate
(effective rate between 6.39% and 6.48%
at January 2, 2005, and between 4.92% and
5.01% at December 2, 2003) due between
October 2009 and May 2017, secured by
property and equipment.
    
    
    1,297
    
    
    
    1,389Total long  term debt
    
    
    12,361
    
    
    
    12,707Capital lease obligations
    
    
    113
    
    
    
    493Less current maturities
    
    
    (521
    )
    
    
    (746
    )Long  term debt net of current maturities
    
    $
    11,953
    
    
    $
    12,454
 Required principal payments on long-term debt over the next five years, excluding capital
lease obligations are as follows: (in thousands)Fiscal
Year2005
    
    $
    4242006
    
    
    4262007
    
    
    4652008
    
    
    5052009
    
    
    548Thereafter
    
    
    9,993Total
    
    $
    12,361
 The notes payable and financing lease obligations contain two main financial covenants.
There is a 1.5 to 1.0 fixed charge coverage ratio and a 3.5 to 1.0 leverage ratio that must be
maintained during each fiscal year. As of January 2, 2005 and December 28, 2003, the Company was
in compliance or had obtained waivers for all of its covenants. (7) FINANCING LEASE OBLIGATION We have a $4.5 million financing obligation involving three existing restaurants as a result
of a sale/leaseback transaction. Under this financing, we are obligated to make monthly interest
payments of $42,917 (which increases 4.04% every two years) for a minimum of 20 years. We have the
option to purchase the leased restaurants for the greater of $4.5 million or fair market value of
the properties at the date of purchase at any time or renew the lease for two additional five-year
terms. Based upon our continued involvement in the leased property and its purchase option, the
transaction has been accounted for as a financing arrangement. Accordingly, the three existing
restaurants are included in property, equipment and leasehold improvements and are being
depreciated, and a portion of the monthly payments are accounted for as interest expense in the
consolidated statements of operations. The principal financing lease obligation payment of $4.5
million is due in March 2019. F-15




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (8) CAPITAL AND OPERATING LEASE OBLIGATIONS Our assets under capital leases consist of agreements for furniture, equipment and leasehold
improvements. Capital leases outstanding under this agreement bear interest at an average rate of
8.1% and expire through February 2006. The obligations are secured by the property under lease.
Total cost and accumulated amortization of the capital-leased assets were approximately $4.3
million and $4.1 million at January 2, 2005 and approximately $4.3 million and $3.7 million at
December 28, 2003, respectively. We are depreciating the capital lease amounts over their useful
life as defined by our capital asset policy. We have various operating leases for existing and future restaurants and corporate office
space with lease terms ranging from 1 to 36 years, including lease options. Eight of the leases
require percentage rent of between 3% and 7% of annual gross sales, typically above a natural
breakeven point, in addition to the base rent. All of these leases contain provisions for payments
of real estate taxes, insurance and common area maintenance costs. Total occupancy lease cost for
fiscal years 2004, 2003 and 2002 including rent, common area maintenance costs, real estate taxes
and percentage rent, was approximately $4.8 million, $5.6 million and $4.6 million, respectively.
Rent expense only (excluding percentage rent) was approximately $3.0 million, $3.4 million, and
$2.0 million for fiscal years 2004, 2003, and 2002, respectively. Percentage rent was approximately
$138,000, $128,000 and $145,000 for fiscal years 2004, 2003 and 2002, respectively. On December 30, 2004 we signed a lease agreement with Liberty Property Limited Partnership for
a new corporate office in Minnetonka, Minnesota. The lease commences in August 2005, is for
approximately 26,000 rentable square feet, and is for a term of 97 months, with two-five year
renewal options. Minimum annual rent commitment over the lease term is approximately $4.6 million. Future minimum lease payments existing at January 2, 2005 including renewal options are: (in thousands)Operating
    
    
    CapitalFiscal Year
    
    Leases
    
    
    Leases2005
    
    $
    3,338
    
    
    $
    1052006
    
    
    3,408
    
    
    
    172007
    
    
    3,417
    
    
    
    2008
    
    
    3,338
    
    
    
    2009
    
    
    3,341
    
    
    
    Thereafter
    
    
    40,234
    
    
    
    Total future minimum lease
commitments
    
    $
    57,076
    
    
    $
    122Less: sublease income
    
    
    (9,512
    )
    
    
    Less: interest at 4.9% - 15.4%
    
    
    
    
    
    
    (9
    )Total operating and capital lease
obligations
    
    $
    47,564
    
    
    $
    113
 F-16




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (9) RELATED PARTY TRANSACTIONS Stock
Repurchase -In fiscal 2004, we purchased 200,000 shares of stock from our founder and
former CEO, Dave Anderson for approximately $1.6 million. Famous Ribs of Georgia, Snellville, Marietta and Alpharetta, LLC In fiscal 2004, we sublet
three restaurants to our former President and CEO, Martin ODowd, for a total of $403,000 in lease
payments for which he reimbursed us an equal amount to offset our rent expense for these three
locations. In November 2003, we executed a signed purchase agreement with Mr. ODowd to purchase
our three Atlanta area restaurants and operate them under franchise agreements. As part of the
purchase price, we executed a signed note receivable in the amount of $1.3 million, with Mr. ODowd
expected to submit periodic principal and interest payments, to us, over 9 years. In addition, Mr.
ODowd entered into an area development agreement to develop additional Famous Daves franchise
restaurants in defined areas of Georgia, and transferred his rights to the North Carolina market
back to us. S&D
Land Holdings, Inc. -S&D Land Holdings, Inc. (S&D) is a company wholly-owned by our
founder and former CEO. Through May 29, 2003, we subleased three real estate units from S&D. On
May 30, 2003, we acquired all of S&Ds leasehold interest in one of these properties and negotiated
a new operating lease directly with the landlord. We paid S&D approximately $244,000 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 us on January 1, 1996 at the time the
sublease was executed. On October 28, 2003, S&D assigned its leasehold interest in another one of the properties to
one of our franchisees who had previously been subleasing the property from us. As a result of
this transaction and pursuant to the terms of the existing agreements, our sub-lease with S&D at
that location was also terminated. The third and final real estate lease agreement with S&D
terminated on November 5, 2003 when an unrelated party purchased S&Ds leasehold interest in the
property. (10) STOCK OPTIONS, WARRANTS AND PERFORMANCE SHARES AND SHARE REPURCHASES As part of our acquisition of four restaurants during fiscal year 1999, we issued 200,000
warrants which were set to expire in December 2004. All stock warrants had been exercised or
redeemed prior to their expiration. During 2004, 10,000 of the warrants were exercised at a price
of $6.00 per share and we redeemed the remainder of the warrants for approximately $197,000 which
represents the difference between the original exercise price of the warrants and the closing
market price of the Companys stock on the date of the transactions. At December 28, 2003, there
were approximately 95,000 of these stock warrants outstanding and exercisable at an average
exercise price of $6.63 per share. We have adopted a 1995 Stock Option and Compensation Plan, a 1997 Employee Stock Option Plan
and a 1998 Director Stock Option Plan (the Plans), pursuant to which we may grant stock options,
stock appreciation rights, restricted stock, performance shares, and other stock and cash awards to
eligible participants. We have also granted stock options outside of the Plans in limited
situations. Under the plans, an aggregate of approximately 306,500 shares of our Companys common
stock remained available for issuance at January 2, 2005. In general, the stock options we have
issued under the Plans vest over a period of 5 years and expire 10 years from the date of grant. F-17




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (10) STOCK OPTIONS, WARRANTS, PERFORMANCE SHARES, AND SHARE REPURCHASES (continued) Information regarding our Companys stock options is summarized below: (number of options in thousands)
    
    Number of
    
    
    Weighted AverageOptions
    
    
    Exercise PriceOptions outstanding  December 30, 2001
    
    
    1,747
    
    
    $
    2.82Granted
    
    
    415
    
    
    
    6.82Canceled or expired
    
    
    (147
    )
    
    
    5.10Exercised
    
    
    (138
    )
    
    
    2.22Options outstanding  December 29, 2002
    
    
    1,877
    
    
    
    3.56Granted
    
    
    450
    
    
    
    4.34Canceled or expired
    
    
    (357
    )
    
    
    5.65Exercised
    
    
    (770
    )
    
    
    2.64Options outstanding  December 28, 2003
    
    
    1,200
    
    
    
    3.94Granted
    
    
    247
    
    
    
    6.32Canceled or expired
    
    
    (135
    )
    
    
    3.43Exercised
    
    
    (217
    )
    
    
    3.26Options outstanding  January 2, 2005
    
    
    1,095
    
    
    $
    4.67Options exercisable  December 29, 2002
    
    
    1,017
    
    
    $
    2.59Options exercisable  December 28, 2003
    
    
    630
    
    
    $
    3.28Options exercisable  January 2, 2005
    
    
    500
    
    
    $
    3.80Weighted average fair value of options granted
during the year ended December 29, 2002
    
    
    
    
    
    $
    5.80Weighted average fair value of options granted
during the year ended December 28, 2003
    
    
    
    
    
    $
    1.94Weighted average fair value of options granted
during the year ended January 2, 2005
    
    
    
    
    
    $
    4.44
 The following table summarizes information about stock options outstanding at January 2,
2005: (number outstanding and exercisable in thousands)
    
    
    
    
    
    
    
    
    
    OptionsTotal outstanding
    
    
    ExercisableWeighted-averageExercise
    
    Number
    
    
    remaining
    
    
    Weighted-average
    
    
    Number
    
    
    Weighted-averageprices
    
    outstanding
    
    
    contractual life
    
    
    exercise price
    
    
    exercisable
    
    
    exercise price$2.00 - $2.63
    
    
    172
    
    
    3.52 years
    
    $
    2.16
    
    
    
    170
    
    
    $
    2.16$3.09 - $4.18
    
    
    421
    
    
    7.41 years
    
    $
    3.85
    
    
    
    239
    
    
    $
    3.84$4.82 - $6.72
    
    
    457
    
    
    8.81 years
    
    $
    6.05
    
    
    
    56
    
    
    $
    5.94$7.64 - $8.07
    
    
    45
    
    
    5.16 years
    
    $
    7.98
    
    
    
    35
    
    
    $
    8.06$2.00 - $8.07
    
    
    1,095
    
    
    7.28 years
    
    $
    4.67
    
    
    
    500
    
    
    $
    3.80
 F-18




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (10) STOCK OPTIONS, WARRANTS, PERFORMANCE SHARES, AND SHARE REPURCHASES (continued) 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 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 the bonuses are approved by the Board of Directors. Accordingly, we recognize compensation
expense throughout the deferral period to the extent that the share price of our common stock
increases, and 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 that was subject to forfeiture based on certain fiscal 2004
performance criteria. Mr. Goronkin elected to defer this bonus, for a one-year timeframe in
accordance with the Deferred Stock Unit Plan discussed above. As a result of Mr. Goronkins
deferral and the increase in the share price of our common stock during the deferred period, we
recognized approximately $68,000 of compensation expense in our consolidated statement of
operations in fiscal 2004 as related to the Deferred Stock Unit Plan. On February 18, 2004, the Compensation Committee of our Board of Directors established a
program under which management and certain director-level employees may be granted performance
shares, under the Plans, subject to certain contingencies. Issuance of the shares underlying the
performance share grants are contingent upon the company achieving a specified minimum percentage
of the cumulative earnings per share goals (as determined by the Compensation Committee) for each
of the three fiscal years following the grant. Upon achieving the minimum percentage, and provided
that the recipient remains an employee during the entire three-year performance period, the Company
will issue the recipient a percentage of the performance shares that is equal to the percentage of
the cumulative earnings per share goals achieved. No portion of the shares will be issued if the
specified percentage of earnings per share goals is achieved in any one or more fiscal years but
not for the cumulative three-year period. 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 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 have recognized
approximately $142,000 of compensation expense in our consolidated statement of operations for
fiscal 2004 related to this program. On May 12, 2004, our Board of Directors authorized a stock repurchase plan that authorized the
repurchase of up to 1.0 million shares of our common stock. Under the repurchase plan, we
repurchased 1.0 million shares from time-to-time in both the open market and through privately
negotiated transactions, at an average market price of $7.44, excluding commissions. The
repurchases were funded entirely from the Companys working capital and cash flow. On September
22, 2004, we announced the completion of our stock repurchase plan. F-19




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (10) STOCK OPTIONS, WARRANTS AND PERFORMANCE SHARES (continued) On November 2, 2004, our Board of Directors authorized the repurchase of up to an additional
1.0 million shares of our common stock. The shares may be repurchased from time-to-time in both
the open market or through privately negotiated transactions and are expected to be funded from the
Companys available working capital. As of January 2, 2005, we had purchased 45,100 outstanding
shares under this program at an average market price of $9.70, excluding commissions. (11) INCOME TAXES At January 2, 2005, we had cumulative net operating loss carry-forwards of approximately $12.2
million for federal and approximately $9.7 million for state, which will begin to expire in 2011 if
not used. We also had cumulative tax credit carry-forwards of approximately $1.8 million which,
if not used, will begin to expire in 2011. The (provision for) benefit from income taxes consisted of the following: (in thousands)
    
    Fiscal Year2004
    
    
    2003
    
    
    2002Current income tax provision
    
    $
    (1,900
    )
    
    $
    
    
    
    $
    Deferred income tax benefit
    
    
    
    
    
    
    1,778
    
    
    
    1,211Total (provision for)
benefit from income taxes
    
    $
    (1,900
    )
    
    $
    1,778
    
    
    $
    1,211
 Deferred taxes, detailed below, recognize the impact of temporary differences between the
amounts of assets and liabilities recorded for financial statement purposes and such amounts
measured in accordance with tax laws. Realization of the net operating loss carry forwards and
other deferred tax temporary differences are contingent on future taxable earnings. During fiscal
2004, our deferred tax asset was reviewed for expected utilization using a more likely than not
approach as required by SFAS No. 109, Accounting for Income Taxes by assessing the available
positive and negative evidence surrounding its recoverability. We believe that the realization of
the deferred tax asset is more likely than not based on our taxable income for fiscal 2004 and
based on the expectation that our Company will generate the necessary taxable income in future
years. Our Companys deferred tax assets were as follows at: (in thousands)
    
    January 2,
    
    
    December 28,2005
    
    
    2003Net operating loss carry-forwards
    
    $
    4,658
    
    
    $
    7,151Property and equipment basis difference
    
    
    1,221
    
    
    
    1,043Tax credit carryovers
    
    
    1,772
    
    
    
    1,290Other
    
    
    149
    
    
    
    (261
    )Total deferred tax asset
    
    
    7,800
    
    
    
    9,223Less: current portion
    
    
    3,342
    
    
    
    2,285Deferred tax asset, long term
    
    $
    4,458
    
    
    $
    6,938
 F-20




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (11) INCOME TAXES (continued) Reconciliation between the statutory rate and the effective tax rate for the fiscal years is
as follows: Fiscal Year2004
    
    
    2003
    
    
    2002Federal statutory tax rate
    
    
    34.0
    %
    
    
    (34.0
    )%
    
    
    (34.0
    )%State taxes, net of federal benefit
    
    
    4.0
    
    
    
    (5.0
    )
    
    
    (5.0
    )Tax effect of permanent differences
    
    
    3.4
    
    
    
    3.6
    
    
    
    5.9Tax effect of tip credit
    
    
    (6.2
    )
    
    
    (6.1
    )
    
    
    (13.1
    )Other
    
    
    
    
    
    
    3.5
    
    
    
    (10.5
    )Effective tax rate
    
    
    35.2
    %
    
    
    (38.0
    )%
    
    
    (56.7
    )%
 (12) SUPPLEMENTAL CASH FLOWS INFORMATION: (in thousands)
    
    Fiscal Year2004
    
    
    2003
    
    
    2002Cash paid for interest
    
    $
    1,727
    
    
    $
    1,786
    
    
    $
    1,402Cash paid for taxes
    
    $
    14
    
    
    $
    6
    
    
    $
    141Non-cash investing and financing activities:Property, equipment and leasehold improvements
purchased with notes payable
    
    $
    
    
    
    $
    1,600
    
    
    $
    4,377Deferred tax asset related to tax benefit of
stock options exercised
    
    $
    303
    
    
    $
    443
    
    
    $
    707Common stock issued in connection with
restaurants acquired
    
    $
    
    
    
    $
    
    
    
    $
    206Notes receivable in connection with sale of
restaurants, net of deferred gain recorded
    
    $
    
    
    
    $
    1,300
    
    
    $
    2,187Equipment purchased under capital lease obligation
    
    $
    
    
    
    $
    
    
    
    $
    45
 (13) RETIREMENT SAVINGS PLAN We have a pre-tax salary reduction/profit-sharing plan under the provisions of Section 401(k) of
the Internal Revenue Code, which covers employees meeting certain eligibility requirements.
During 2004, we matched 30% of the employees contribution up to 9% of their earnings.
Employer matching contributions were approximately $118,000, $96,000 and $61,000 for fiscal
years 2004, 2003 and 2002, respectively. F-21




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (14) COMMITMENTS AND CONTINGENCIES Litgation
-During the fourth quarter of 2004, a subsidiary of the Company was named as a
defendant in a lawsuit filed in the Court of Common Pleas, Warren County, Ohio. The lawsuit
related to, among other things, various alleged defaults by a franchisee of the Company under its
Middletown, Ohio lease and defaults by the Companys subsidiary under a guaranty agreement pursuant
to which the subsidiary guaranteed the franchisees performance under the lease. On January 25, 2005, we entered into a settlement agreement in which the plaintiffs released
all claims asserted against us and our subsidiaries in exchange for a payment of $325,000. In
addition, the plaintiffs released and terminated the subject guaranty and all rights thereunder.
We intend to seek reimbursement for all amounts paid through the pursuit of available remedies. From time-to-time, we are involved in various legal actions arising in the ordinary course of
business. In the opinion of our management, the ultimate dispositions of these matters will not
have a material adverse effect on our consolidated financial position and results of operations.
Currently, there are no significant legal matters pending. Employment agreement- On July 25, 2003, we entered into an employment agreement with our
Chief Executive Officer. The agreement required minimum annual compensation of $450,000 and had a
term of two years from August 11, 2003. On February 25, 2005, the Company entered into a new
employment agreement with David Goronkin, its Chief Executive Officer, which replaces the previous
employment agreement that was scheduled to expire in August 2005. The new agreement is effective
January 1, 2005, has a one-year term, and will automatically renew for successive one-year terms.
See Note 16, Subsequent Events for an expanded discussion of the terms of the agreement. (15) SELECTED QUARTERLY DATA-UNAUDITED The following represents unaudited selected quarterly financial information for fiscal years
2004 and 2003: (in thousands, except per share data)
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Revenue
    
    $
    22,647
    
    
    $
    23,007
    
    
    $
    25,404
    
    
    $
    25,941
    
    
    $
    25,967
    
    
    $
    25,970
    
    
    $
    25,307
    
    
    $
    22,822Income (loss) from
operations
    
    
    1,284
    
    
    
    776
    
    
    
    2,112
    
    
    
    (1,505
    )
    
    
    2,582
    
    
    
    1,247
    
    
    
    1,387
    
    
    
    (711
    )Net income (loss)
    
    
    527
    
    
    
    (1,095
    )
    
    
    996
    
    
    
    (1,503
    )
    
    
    1,270
    
    
    
    478
    
    
    
    705
    
    
    
    (778
    )Basic Net income
(loss) per
common share
    
    
    0.04
    
    
    
    (0.10
    )
    
    
    0.08
    
    
    
    (0.13
    )
    
    
    0.11
    
    
    
    0.04
    
    
    
    0.06
    
    
    
    (0.06
    )Diluted net income
(loss) per common
share
    
    
    0.04
    
    
    
    (0.10
    )
    
    
    0.08
    
    
    
    (0.13
    )
    
    
    0.11
    
    
    
    0.04
    
    
    
    0.06
    
    
    
    (0.06
    )
 F-22




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 2005, DECEMBER 28, 2003 AND DECEMBER 29, 2002 (16) SUBSEQUENT EVENTS  UNAUDITED On October 29, 2004, the Company and one of its franchisees were named as defendants in a
lawsuit filed in the Court of Common Pleas, Warren County, Ohio. The lawsuit relates to, among
other things, various alleged defaults by the franchisee under its Middletown, Ohio lease, for
which the landlord is seeking damages. The lawsuit also alleges the failure of the franchisee to
pay for electrical work done on the leased premises, for which the electrical contractor has filed
a mechanics lien and is seeking damages. On January 25, 2005, we entered into a settlement
agreement in which the plaintiffs released all claims asserted against us and our subsidiaries in
exchange for a payment of $325,000. In addition, the plaintiffs released and terminated the
subject guaranty and all rights thereunder. We intend to seek reimbursement for all amounts paid
through the pursuit of available remedies. On January 28, 2005 we entered into a five-year credit agreement with Wells Fargo Bank,
National Association, as administrative agent and lender, which establishes a revolving credit
facility of $10.0 million. Principal amounts outstanding under the facility will bear interest
either at an adjusted Eurodollar rate plus 3.50% or Wells Fargos prime rate plus 2.00%. Unused
portions of the facility will be subject to an unused facility fee equal to 0.5% of the unused
portion. We expect to use any borrowings under the credit agreement for general working capital
purposes and for the repurchase of shares under our share repurchase program. Under the credit
agreement, we granted Wells Fargo a security interest in all of our current and future personal
property. The credit agreement contains customary affirmative and negative covenants for credit
facilities of this type, including limitations on the Company with respect to indebtedness, liens,
investments, distributions, mergers and acquisitions, dispositions of assets and transactions with
affiliates of the Company, among others. The credit agreement also includes financial covenants. On February 25, 2005, the Company entered into a new employment agreement with David Goronkin,
its Chief Executive Officer. It replaces the previous employment agreement that was scheduled to
expire in August 2005. The new agreement is effective January 1, 2005, has a one-year term, and
will automatically renew for successive one-year terms. Pursuant to the new agreement, Mr.
Goronkin receives an annualized base salary of $472,500 (subject to increase at the discretion of
the Board) and is eligible for a bonus of up to 75% of his base salary, as determined by the
Compensation Committee of the Board of Directors, based on Mr. Goronkins satisfaction of certain
performance-based criteria. The Company has filed an 8-K dated March 2, 2005 containing this
agreement as Exhibit 10.1. F-23




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##### Table of Contents



Financial Statement Schedule 
 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS Additions
    
    
    DeductionsCredits to Costsand Expenses(in thousands)
    
    Balance at
    
    
    Charged to Costs
    
    
    Charged to Other
    
    
    and other
    
    
    Balance atBeginning of Period
    
    
    and Expenses
    
    
    Accounts(1)
    
    
    accounts
    
    

End of
PeriodYear ended December 29, 2002:Allowance for doubtful accounts
    
    $
    45.3
    
    
    $
    217.5
    
    
    $
    
    
    
    $
    (137.8
    )
    
    $
    125.0Reserve for long-lived assets
    
    $
    819.0
    
    
    $
    
    
    
    $
    37.1
    
    
    $
    (52.1
    )
    
    $
    804.0Year ended December 28, 2003:Allowance for doubtful accounts
    
    $
    125.0
    
    
    $
    90.0
    
    
    $
    
    
    
    $
    (116.50
    )
    
    $
    98.5Reserve for long-lived assets
    
    $
    804.0
    
    
    $
    4,725.4
    
    
    $
    3,519.3
    
    
    $
    (7,071.0
    )
    
    $
    1,977.7Assets held for Sale
    
    $
    
    
    
    $
    
    
    
    $
    1,281.1
    
    
    $
    
    
    
    $
    1,281.1Year ended January 2, 2005:Allowance for doubtful accounts
    
    $
    98.5
    
    
    $
    
    
    
    $
    
    
    
    $
    (88.9
    )
    
    $
    9.6Reserve for long-lived assets
    
    $
    1,977.7
    
    
    $
    58.6
    
    
    $
    38.1
    
    
    $
    (49.2
    )
    
    $
    2,025.2Assets held for sale
    
    $
    1,281.1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,281.1
   (1)
    
    Additions due to a balance sheet reclassification F-24




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##### Table of Contents



EXHIBITS Exhibit No.
    
    Description3.1
    
    Articles of Incorporation, incorporated by
reference from Exhibit 3.1 to our Registration
Statement on Form SB-2 (File No. 333-10675) filed
with the Securities and Exchange Commission on
August 23, 19963.2
    
    Bylaws, incorporated by reference from Exhibit 3.2
to the Registration Statement on Form SB-2 (File
No. 333-10675) filed on August 23, 199610.1
    
    Trademark License Agreement between Famous Daves
of America, Inc. and Grand Pines Resorts, Inc.,
incorporated by reference from Exhibit 10.11 to
the Registration Statement on Form SB-2 (File No.
333-10675) filed on August 23, 199610.2
    
    Agreement, dated as of January 21, 2000, by and
between S&D Land Holdings, Inc., Grand Pines
Resorts, Inc. and Famous Daves of America, Inc.,
incorporated by reference from Exhibit 10.19 to
Form 10-Q filed May 16, 200010.3
    
    Promissory Note, dated January 21, 2000, by Famous
Daves of America, Inc. and payable to S&D Land
Holdings, Inc., in the initial principal amount of
$750,000, incorporated by reference from Exhibit
10.20 to Form 10-Q filed May 16, 200010.4
    
    Loan Agreement, dated as of January 21, 2000, by
and between FFCA Acquisition Corporation and
MinWood Partners, Inc., incorporated by reference
from Exhibit 10.21 to Form 10-Q filed May 16, 200010.5
    
    Master Lease, dated as of January 21, 2000, by and
between MinWood Partners, Inc. and Famous Daves
of America, Inc., incorporated by reference from
Exhibit 10.22 to Form 10-Q filed May 16, 200010.6
    
    Loan Agreement, dated as of August 4, 2000, by and
between FFCA Funding Corporation and FDA
Properties, Inc., incorporated by reference from
Exhibit 10.13 to Form 10-K filed March 29, 200110.7
    
    Master Lease, dated as of August 4, 2000, by and
between FDA Properties, Inc. and Famous Daves of
America, Inc., incorporated by reference from
Exhibit 10.5 to Form 10-K filed March 29, 200110.8
    
    Amendment No. 1 to Employment Agreement dated
September 1, 2001 between Famous Daves of
America, Inc. and Martin J. ODowd, incorporated
by reference from Exhibit 10.1 to Form 10-Q filed
November 14, 200110.9
    
    Agreement and Assignment of Lease Rights dated May
30, 2003 by and between S&D Land Holdings, Inc.
and the Company, incorporated by reference from
Exhibit 10.1 to Form 10-Q filed August 12, 2003




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##### Table of Contents



EXHIBITS (continued) Exhibit No.
    
    Description10.10
    
    1997 Employee Stock Option Plan (as amended through May 22,
2002), incorporated by reference from Exhibit 10.11 to Form
10-Q filed August 14, 200210.11
    
    1995 Stock Option and Compensation Plan (as amended through
May 22, 2002), incorporated by reference from Exhibit 10.2 to
Form 10-Q filed August 14, 200210.12
    
    1998 Director Stock Option Plan (as amended through May 22,
2002), incorporated by reference from Exhibit 10.3 to Form
10-Q filed August 14, 200210.13
    
    Employment Agreement dated July 25, 2003 by and between Famous
Daves of America, Inc. and David Goronkin, incorporated by
reference to Exhibit 10.1 to Form 10-Q filed November 10, 200310.14
    
    Executive Elective Deferred Stock Unit Plan, incorporated by
reference to Exhibit 10.1 to Form 10-Q filed May 11, 200410.15
    
    Credit Agreement by and between Wells Fargo Bank, National
Association and Famous Daves of America, Inc., dated January
28, 200510.16
    
    Employment Agreement dated February 25, 2005 by and between
David Goronkin, incorporated by reference to Exhibit 10.1 to
Form 8-K filed March 2, 200510.17
    
    Form of 2005-2007 Performance Share Agreement, incorporated by
reference to Exhibit 10.2 to Form 8-K filed March 2, 200510.18
    
    Schedule of grants made under the Form of 2005-2007
Performance Share Agreement, incorporated by reference to
Exhibit 10.3 to Form 8-K filed March 2, 200510.19
    
    Famous Daves of America, Inc. Non-Qualified Deferred
Compensation Plan, incorporated by reference to Exhibit 10.4
to Form 8-K filed March 2, 200521.0
    
    Subsidiaries of Famous Daves of America, Inc.23.1
    
    Consent of Grant Thornton LLP31.1
    
    Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002




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##### Table of Contents



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: March 18, 2005
    By:
    /s/ David GoronkinDavid GoronkinPresident and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed on March 18, 2005 by the following persons on behalf of the Registrant, in the capacities
indicated. Signature
    
    Title/s/ David Goronkin
    
    President, Chief Executive Officer, and Director(principal executive officer)David Goronkin/s/ Diana Garvis Purcel
    
    Vice President, Chief Financial Officer, and Secretary(principal financial and accounting officer)Diana Garvis Purcel/s/ K. Jeffrey Dahlberg
    
    DirectorK. Jeffrey Dahlberg/s/ F. Lane Cardwell, Jr.
    
    DirectorF. Lane Cardwell, Jr./s/ Mary L. Jeffries
    
    DirectorMary L. Jeffries/s/ Richard L. Monfort
    
    DirectorRichard L. Monfort/s/ Dean A. Riesen
    
    DirectorDean A. Riesen