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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 1, 2006
 Commission File No. 0-21625
 
 FAMOUS DAVES of AMERICA, INC.
  Minnesota
    
    41-1782300(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 12701 Whitewater Drive, Suite 200
Minnetonka, MN 55343
  952) 294-1300
 None
 Common Stock, $0.01 par value
 o þ
 o þ
 þ o
 o
  o þ o
 o þ
 SM
 DOCUMENTS INCORPORATED BY REFERENCE:




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TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    16Item 2. Properties
    
    
    17Item 3. Legal Proceedings
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19PART IIItem 5. Market for Registrants Common Equity and Related
Stockholder Matters and Issuer Purchases of Equity
Securities
    
    
    20Item 6. Selected Financial Data
    
    
    21Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    23Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 8. Financial Statements and Supplementary Data
    
    
    37Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    38Item 9A. Controls and Procedures
    
    
    38Item 9B. Other Information
    
    
    38PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    39Item 11. Executive Compensation
    
    
    39Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    39Item 13. Certain Relationships and Related Transactions
    
    
    39Item 14. Principal Accountant Fees and Services
    
    
    39PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    40SIGNATURES2005 Stock Incentive PlanFirst Amended and Restated Non-Qualified Deferred Compensation PlanSubsidiariesConsent 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
   Financial Information about Segments
  Narrative Description of Business
   High Quality Food
 3




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® ®
 Distinctive Environment  Décor and Music
 Broad-Based Appeal
 Operating Strategy
  Operational Excellence 
  4




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Human Resources and Training  People Report,
    5




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Restaurant Operations
     6




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TO GO and Catering  Focus on Convenience 
   Customer Satisfaction
 Value Proposition and Guest Frequency
 Marketing and Promotion
  7




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Growth Strategy
  Company-Owned Restaurant Expansion
 8




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Franchise-Operated Restaurant Expansion
 Purchasing
      Management Information Systems
  9




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Trademarks
  Franchise Program
   10




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Number of Franchise-OperatedState
    
    RestaurantsAlabama
    
    
    1Arizona
    
    
    3Colorado
    
    
    1Georgia
    
    
    4Illinois
    
    
    4Indiana
    
    
    2Iowa
    
    
    3Kansas
    
    
    4Kentucky
    
    
    3Massachusetts
    
    
    1Michigan
    
    
    8Minnesota
    
    
    7Montana
    
    
    2Nebraska
    
    
    4Nevada
    
    
    1New Hampshire
    
    
    1New Jersey
    
    
    6New York
    
    
    2North Dakota
    
    
    2Ohio
    
    
    3Pennsylvania
    
    
    3South Dakota
    
    
    1Tennessee
    
    
    4Texas
    
    
    1Utah
    
    
    4Washington
    
    
    2West Virginia
    
    
    1Wisconsin
    
    
    10Total
    
    
    88
   11




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Seasonality
  Government Regulation
  12




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Associates
  
 ITEM 1A. RISK FACTORS
   13




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Our Future Revenue and Profits Are Dependent on Consumer Preference and Our Ability to
Successfully Execute Our Plan.
   Competition May Reduce Our Revenue and Operating Income.
    14




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In the Past We Have Experienced Losses and May Not be Profitable.
   Our Failure to Execute Our Franchise Program May Negatively Impact Our Revenue.
   The Restaurant Industry is Subject to Extensive Government Regulation That Could
Negatively Impact Our Business.
  15




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We Are Subject to the Risks Associated With the Food Services Industry, Including the Risk
That Incidents of Food-borne Illnesses or Food Tampering Could Damage Our Reputation and
Reduce Our Restaurant Sales.
  Pursuant to its Authority to Designate and Issue Shares of Our Stock as it Deems Appropriate,
Our Board of Directors May Assign Rights and Privileges to Currently Undesignated Shares Which
Could Adversely Affect the Rights of Existing Shareholders.
   
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  16




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ITEM 2. PROPERTIES
    17




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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(3)
    
    
    6,100
    
    
    
    146
    
    
    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
    
    
    Owned
    
    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.(3)
    
    Restaurant was converted in October 2005 from counter-service to full-service
and its square footage and interior seat counts were increased. 18




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ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  19




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Market Information
 SM SM
 SM
 2005
    
    
    2004Period
    
    High
    
    
    Low
    
    
    High
    
    
    Low1st Quarter
    
    $
    15.00
    
    
    $
    9.62
    
    
    $
    8.10
    
    
    $
    4.512nd Quarter
    
    $
    13.96
    
    
    $
    9.43
    
    
    $
    8.22
    
    
    $
    6.503rd Quarter
    
    $
    13.08
    
    
    $
    9.39
    
    
    $
    7.79
    
    
    $
    6.674th Quarter
    
    $
    12.27
    
    
    $
    10.26
    
    
    $
    13.28
    
    
    $
    6.90
 Holders
  Dividends
  Securities Authorized for Issuance under Equity Compensation Plans
  20




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Number of SecuritiesRemaining Available forWeighted-
    
    
    Future Issuance UnderNumber of Securities
    
    
    Average
    
    
    Equity Compensationto be Issued Upon
    
    
    Exercise Price of
    
    
    Plans (ExcludingExercise of
    
    
    Outstanding
    
    
    Securities Reflected inOutstanding Options
    
    
    Options
    
    
    Column (A))Plan Category
    
    (A)
    
    
    (B)
    
    
    (C)Equity compensation plans
approved by security holders:1995 Stock Option and Compensation Plan
    
    
    411,048
    
    
    $
    4.88
    
    
    
    191,486
    (1)1998 Director Stock Option Plan
    
    
    209,667
    
    
    $
    5.90
    
    
    
    2,8332005 Stock Incentive Plan
    
    
    10,000
    
    
    $
    10.98
    
    
    
    440,000
    (1)TOTAL
    
    
    630,715
    
    
    $
    5.32
    
    
    
    634,319Equity compensation plans not approved
by stockholders:1997 Employee Stock Option Plan
    
    
    269,486
    
    
    $
    2.07
    
    
    
    135,805
    (1)TOTAL
    
    
    900,201
    
    
    $
    5.14
    
    
    
    770,124
 
 (1)
    
    Includes shares reserved for issuance pursuant to the performance shares granted
under the Companys Performance Share Programs; 191,486 under the 1995
Plan, 6,400 under the 2005 Plan and 125,527 under the 1997 Plan. 
 ITEM 6. SELECTED FINANCIAL DATA
   21




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FINANCIAL HIGHLIGHTSFISCAL YEAR
    

2005
    
    
    2004 (1)
    
    
    2003
    
    
    2002
    
    
    2001($s in 000s, except per share data, and average weekly
sales )STATEMENT OF OPERATIONS DATARevenue
    
    $
    102,354
    
    
    $
    99,325
    
    
    $
    97,740
    
    
    $
    90,820
    
    
    $
    87,673Asset impairment and restructuring charges (2)
    
    $
    
    
    
    $
    
    
    
    $
    (4,238
    )
    
    $
    
    
    
    $
    Income (loss) from operations
    
    $
    8,682
    
    
    $
    7,365
    
    
    $
    (193
    )
    
    $
    4,470
    
    
    $
    6,209Equity in loss of unconsolidated affiliate (3)
    
    $
    
    
    
    $
    
    
    
    $
    (2,155
    )
    
    $
    (5,994
    )
    
    $
    (1,029
    )Income tax (provision) benefit
    
    $
    (2,700
    )
    
    $
    (1,900
    )
    
    $
    1,778
    
    
    $
    1,211
    
    
    $
    4,010Net income (loss)
    
    $
    4,391
    
    
    $
    3,498
    
    
    $
    (2,898
    )
    
    $
    (928
    )
    
    $
    8,118Basic net income (loss) per common share
    
    $
    0.41
    
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    (0.08
    )
    
    $
    0.81Diluted net income (loss) per common share
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    (0.08
    )
    
    $
    0.75BALANCE SHEET DATA (at year end)Cash and cash equivalents
    
    $
    4,410
    
    
    $
    11,170
    
    
    $
    9,964
    
    
    $
    9,473
    
    
    $
    7,398Total assets
    
    $
    67,598
    
    
    $
    71,913
    
    
    $
    73,767
    
    
    $
    74,817
    
    
    $
    70,440Long-term debt less current maturities (4)
    
    $
    15,930
    
    
    $
    16,453
    
    
    $
    16,954
    
    
    $
    17,354
    
    
    $
    14,579Total shareholders equity
    
    $
    37,179
    
    
    $
    43,343
    
    
    $
    46,872
    
    
    $
    47,292
    
    
    $
    46,689OTHER DATANumber of restaurants open at year end:Company-owned restaurants
    
    
    38
    
    
    
    38
    
    
    
    38
    
    
    
    40
    
    
    
    37Franchise-operated restaurants
    
    
    88
    
    
    
    66
    
    
    
    54
    
    
    
    33
    
    
    
    19Total restaurants
    
    
    126
    
    
    
    104
    
    
    
    92
    
    
    
    73
    
    
    
    56Comparable store sales increase (decrease) (5)
    
    
    2.1
    %
    
    
    1.1
    %(6)
    
    
    (3.0
    )%
    
    
    (0.3
    )%
    
    
    2.9
    %Average weekly sales:Company-owned restaurants
    
    $
    45,072
    
    
    $
    44,164
    
    
    $
    42,491
    
    
    $
    45,783
    
    
    $
    46,429Franchise-operated restaurants
    
    $
    55,011
    
    
    $
    51,538
    
    
    $
    47,400
    
    
    $
    46,642
    
    
    $
    45,190
 (1)
    
    Fiscal 2004 consisted of 53 weeks. Fiscal 2005, 2003, 2002, and 2001 all consisted of 52 weeks.(2)
    
    Fiscal 2003 charges reflect impairment and restructuring costs associated with five restaurants: 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. 22




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Overview
  Fiscal Year st
 Basis of Presentation
 Application of Critical Accounting Policies and Estimates
 23




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Recognition of Franchise-Related Revenue  Accounting for Franchise Fee Revenue
   Asset Impairment and Restructuring Charges Accounting for
the Impairment or Disposal of Long-Lived Assets,
 24




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Deferred Tax Asset Accounting for Income Taxes,
 Lease Accounting  Accounting for Leases,
 Results of Operations
 Revenue
 Costs and Expenses
 25




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General and Administrative Expenses 
 (1)
 2005

    
    2004

    
    2003Restaurant sales, net
    
    
    87.2
    %
    
    
    89.8
    %
    
    
    93.6
    %Other revenue
    
    
    12.8
    
    
    
    10.2
    
    
    
    6.4Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Restaurant costs and expenses:Food and beverage costs (2)
    
    
    30.6
    
    
    
    31.4
    
    
    
    30.6Labor and benefits (2)
    
    
    29.3
    
    
    
    29.7
    
    
    
    30.1Operating expenses (2)
    
    
    25.0
    
    
    
    24.7
    
    
    
    25.6Depreciation and amortization (restaurant level)
(2)
    
    
    4.4
    
    
    
    4.7
    
    
    
    5.1Pre-opening expenses (2)
    
    
    0.1
    
    
    
    
    
    
    
    0.6Asset impairment and restructuring charges (2)
    
    
    
    
    
    
    
    
    
    
    4.6Total costs and expenses (2)
    
    
    89.4
    
    
    
    90.5
    
    
    
    96.6Income from restaurant operations (2)
    
    
    10.6
    
    
    
    9.5
    
    
    
    3.4General and administrative (3)
    
    
    13.1
    
    
    
    11.0
    
    
    
    9.6Depreciation and amortization (corporate) (3)
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.2Income (loss) from operations (3)
    
    
    8.5
    %
    
    
    7.4
    %
    
    
    (0.2
    )%
 (1)
    
    Data regarding our restaurant operations as presented in the table above, include
sales, costs and expenses associated with our Rib Team, which netted to a loss of $48,000,
$147,000 and $16,000, respectively, in fiscal years 2005, 2004 and 2003. 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. 26




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Fiscal Year 2005 Compared to Fiscal Year 2004
 Total Revenue rd
 Restaurant Sales rd
 Franchise-Related Revenue
 Licensing and Other Revenue
 Same Store Net Sales
 27




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Average Weekly Net Sales 
 Twelve Months EndedJanuary 1,
    
    January 2,2006
    
    2005Company-Owned
    
    $
    45,072
    
    
    $
    44,164Full-Service
    
    $
    46,114
    
    
    $
    45,253Counter-Service
    
    $
    40,431
    
    
    $
    39,342Franchise-Operated
    
    $
    55,011
    
    
    $
    51,538
 Food and Beverage Costs
  Labor and Benefits
 Operating Expenses
 28




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Depreciation and Amortization
 Asset Impairment and Restructuring Charges
 Pre-opening Expenses 
 General and Administrative Expenses Share-Based
Payment
 Interest Expense
 Interest Income 
 Other Income (Expense), Net 
 29




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(Provision) Benefit from Income Taxes Accounting for Income Taxes
 Basic and Diluted Net Income Per Common Share 
  Fiscal Year 2004 Compared to Fiscal Year 2003
 Total Revenue rd
 Restaurant Sales rd
 Franchise-Related Revenue
 30




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Licensing and Other Revenue
 Same Store Net Sales
 Average Weekly Net Sales 
 Twelve Months EndedJanuary 2,
    
    December 28,2005
    
    2003Company-Owned
    
    $
    44,164
    
    
    $
    42,491Full-Service
    
    $
    45,253
    
    
    $
    43,671Counter-Service
    
    $
    39,342
    
    
    $
    37,060Franchise-Operated
    
    $
    51,538
    
    
    $
    47,400
 Food and Beverage Costs
 Labor and Benefits
 Operating Expenses
 31




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Depreciation and Amortization
 General and Administrative Expenses 
 Pre-opening Expenses 
 Asset Impairment and Restructuring Charges 
 Interest Expense 
 Interest Income 
 Other Expense, Net 
 Equity in Loss from Unconsolidated Affiliate 
 (Provision) Benefit from Income Taxes 
 32




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##### Table of Contents



Accounting for Income Taxes
 Basic and Diluted Net Income (Loss) Per Common Share 
  Recently Issued Accounting Pronouncements
 Share-Based Payment, an Amendment of FASB Statements No. 123 and 95 Accounting for Stock
Issued to Employees
  Accounting for Rental Costs
Incurred During a Construction Period.
 33




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##### Table of Contents



Accounting for Rental Costs Incurred During a
Construction Period,
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting
Changes in Interim Financial Statements
 Financial Condition, Liquidity and Capital Resources
     34




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##### Table of Contents



35




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##### Table of Contents



Payments Due by Period
 (in thousands)
 Contractual Obligations
    
    Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterLong Term Debt
    
    $
    11,852
    
    
    $
    422
    
    
    $
    467
    
    
    $
    511
    
    
    $
    564
    
    
    $
    569
    
    
    $
    9,319Financing Leases
    
    
    4,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500Capital and Operating
Leases
    
    
    64,876
    
    
    
    3,643
    
    
    
    3,707
    
    
    
    3,646
    
    
    
    3,653
    
    
    
    3,690
    
    
    
    46,537Less: Sublease rental
income
    
    
    (8,812
    )
    
    
    (403
    )
    
    
    (403
    )
    
    
    (440
    )
    
    
    (441
    )
    
    
    (441
    )
    
    
    (6,684
    )Total
    
    $
    72,416
    
    
    $
    3,662
    
    
    $
    3,771
    
    
    $
    3,717
    
    
    $
    3,776
    
    
    $
    3,818
    
    
    $
    53,672
   Off-Balance Sheet Arrangements
  36




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##### Table of Contents



Income Taxes
  Inflation
   
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  37




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
  Managements Report on Internal Control over Financial Reporting
    
 ITEM 9B. OTHER INFORMATION
  38




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED
   STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  39




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Documents filed as part of this Form 10-K:Reports of Independent Registered Public Accounting FirmConsolidated Balance Sheets  January 1, 2006 and January 2, 2005Consolidated Statements of Operations  Years ended January 1, 2006, January 2, 2005 and
December 28, 2003Consolidated
Statements of Shareholders Equity  Years ended January 1, 2006, January 2,
2005 and December 28, 2003Consolidated Statements of Cash Flows  Years ended January 1, 2006, January 2, 2005 and
December 28, 2003Notes 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
 40




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
     Internal
Control  Integrated Framework
  
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework Internal ControlIntegrated Framework
   
 F-2




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2006 AND JANUARY 2, 2005
( in thousands, except share and per-share data )
 January 1,
    
    
    January 2,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,410
    
    
    $
    11,170Restricted cash
    
    
    1,221
    
    
    
    39Accounts receivable, net
    
    
    2,843
    
    
    
    2,289Inventories
    
    
    1,588
    
    
    
    1,523Deferred tax asset
    
    
    3,120
    
    
    
    3,342Prepaid expenses and other current assets
    
    
    2,312
    
    
    
    1,403Total current assets
    
    
    15,494
    
    
    
    19,766Property, equipment and leasehold improvements, net
    
    
    46,872
    
    
    
    44,664Other assets:Notes receivable, less current portion
    
    
    1,719
    
    
    
    2,156Deferred tax asset, less current portion
    
    
    2,632
    
    
    
    4,458Other assets
    
    
    881
    
    
    
    869$
    67,598
    
    
    $
    71,913LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Line of credit
    
    $
    
    
    
    $
    Current portion of long-term debt
    
    
    422
    
    
    
    424Current portion of capital leases
    
    
    16
    
    
    
    97Accounts payable
    
    
    3,811
    
    
    
    4,138Accrued compensation and benefits
    
    
    2,436
    
    
    
    1,914Other current liabilities
    
    
    3,410
    
    
    
    2,244Total current liabilities
    
    
    10,095
    
    
    
    8,817Long-term liabilities:Long-term debt and capital leases, less current portion
    
    
    11,430
    
    
    
    11,953Financing leases
    
    
    4,500
    
    
    
    4,500Other liabilities
    
    
    4,394
    
    
    
    3,300Total liabilities
    
    
    30,419
    
    
    
    28,570Shareholders equity:Common stock, $.01 par value, 100,000,000 shares
authorized, 10,599,000 and 11,340,000 shares issued
and outstanding at January 1, 2006 and January 2,
2005, respectively
    
    
    106
    
    
    
    113Additional paid-in capital
    
    
    39,126
    
    
    
    49,674Accumulated deficit
    
    
    (2,053
    )
    
    
    (6,444
    )Total shareholders equity
    
    
    37,179
    
    
    
    43,343$
    67,598
    
    
    $
    71,913
  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 1, 2006, JANUARY 2, 2005 AND DECEMBER 28, 2003
( in thousands, except share and per-share data)
 January 1,
    
    
    January 2,
    
    
    December 28,2006
    
    
    2005
    
    
    2003(52 weeks)
    
    
    (53 weeks)
    
    
    (52 weeks)Revenue:Restaurant sales, net
    
    $
    89,248
    
    
    $
    89,176
    
    
    $
    91,500Franchise royalty revenue
    
    
    10,406
    
    
    
    7,353
    
    
    
    4,567Franchise fee revenue
    
    
    1,595
    
    
    
    1,977
    
    
    
    1,139Licensing and other revenue
    
    
    1,105
    
    
    
    819
    
    
    
    534Total revenue
    
    
    102,354
    
    
    
    99,325
    
    
    
    97,740Costs and expenses:Food and beverage costs
    
    
    27,297
    
    
    
    27,995
    
    
    
    28,014Labor and benefits
    
    
    26,151
    
    
    
    26,472
    
    
    
    27,586Operating expenses
    
    
    22,339
    
    
    
    22,005
    
    
    
    23,376Depreciation and amortization
    
    
    4,359
    
    
    
    4,549
    
    
    
    4,840General and administrative
    
    
    13,430
    
    
    
    10,939
    
    
    
    9,336Pre-opening expenses
    
    
    96
    
    
    
    
    
    
    
    543Asset impairment and restructuring charges
    
    
    
    
    
    
    
    
    
    
    4,238Total costs and expenses
    
    
    93,672
    
    
    
    91,960
    
    
    
    97,933Income (loss) from operations
    
    
    8,682
    
    
    
    7,365
    
    
    
    (193
    )Other expense:Interest expense
    
    
    (1,932
    )
    
    
    (1,901
    )
    
    
    (1,876
    )Interest income
    
    
    270
    
    
    
    326
    
    
    
    215Other income (expense), net
    
    
    71
    
    
    
    (392
    )
    
    
    (667
    )Equity in loss of unconsolidated affiliate
    
    
    
    
    
    
    
    
    
    
    (2,155
    )Total other expense
    
    
    (1,591
    )
    
    
    (1,967
    )
    
    
    (4,483
    )Income (loss) before income taxes
    
    
    7,091
    
    
    
    5,398
    
    
    
    (4,676
    )Income tax (provision) benefit
    
    
    (2,700
    )
    
    
    (1,900
    )
    
    
    1,778Net income (loss)
    
    $
    4,391
    
    
    $
    3,498
    
    
    $
    (2,898
    )Basic net income (loss) per common share
    
    $
    0.41
    
    
    $
    0.29
    
    
    $
    (0.25
    )Diluted net income (loss) per common share
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    (0.25
    )Weighted average common shares
outstanding-basic
    
    
    10,825,000
    
    
    
    11,858,000
    
    
    
    11,772,000Weighted average common shares
outstanding-diluted
    
    
    11,173,000
    
    
    
    12,222,000
    
    
    
    11,772,000
  F-4




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED 
JANUARY 1, 2006, JANUARY 2, 2005 AND DECEMBER 28, 2003
( in thousands)
 AdditionalCommon Stock
    
    
    Paid-In
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance  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
    )
    
    
    43,343Exercise of stock options
    
    
    214
    
    
    
    2
    
    
    
    728
    
    
    
    
    
    
    
    730Tax benefit for stock
options exercised
    
    
    
    
    
    
    
    
    
    
    244
    
    
    
    
    
    
    
    244Repurchase of common stock
    
    
    (955
    )
    
    
    (9
    )
    
    
    (11,520
    )
    
    
    
    
    
    
    (11,529
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,391
    
    
    
    4,391Balance  January 1, 2006
    
    
    10,599
    
    
    $
    106
    
    
    $
    39,126
    
    
    $
    (2,053
    )
    
    $
    37,179
  F-5




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED 
JANUARY 1, 2006, JANUARY 2, 2005 AND DECEMBER 28, 2003  (in thousands)
 January 1,
    
    
    January 2,
    
    
    December 28,2006
    
    
    2005
    
    
    2003(52 weeks)
    
    
    (53 weeks)
    
    
    (52 weeks)Cash flows from operating activities:Net income (loss)
    
    $
    4,391
    
    
    $
    3,498
    
    
    $
    (2,898
    )Adjustments to reconcile net income (loss) to cash
flows provided by operations:Depreciation and amortization
    
    
    4,359
    
    
    
    4,549
    
    
    
    4,840Amortization of deferred financing costs
    
    
    70
    
    
    
    38
    
    
    
    67(Gain) loss on disposal of property
    
    
    (53
    )
    
    
    383
    
    
    
    (112
    )Deferred income taxes
    
    
    2,048
    
    
    
    1,423
    
    
    
    (2,209
    )Tax benefit of stock options exercised
    
    
    244
    
    
    
    303
    
    
    
    443Deferred rent
    
    
    813
    
    
    
    474
    
    
    
    568Deferred compensation
    
    
    603
    
    
    
    235
    
    
    
    94Equity in loss of unconsolidated affiliate
    
    
    
    
    
    
    
    
    
    
    2,155Asset impairment charges
    
    
    
    
    
    
    
    
    
    
    3,687Changes in operating assets and liabilities:Restricted cash
    
    
    (1,182
    )
    
    
    (39
    )
    
    
    Accounts receivable, net
    
    
    (1,062
    )
    
    
    (628
    )
    
    
    (648
    )Inventories
    
    
    (65
    )
    
    
    76
    
    
    
    (42
    )Prepaid expenses and other current assets
    
    
    (444
    )
    
    
    (566
    )
    
    
    547Deposits
    
    
    25
    
    
    
    63
    
    
    
    60Accounts payable
    
    
    (328
    )
    
    
    2,103
    
    
    
    (1,635
    )Accrued compensation and benefits
    
    
    201
    
    
    
    501
    
    
    
    68Other current liabilities
    
    
    771
    
    
    
    (1,056
    )
    
    
    1,167Cash flows provided by operations
    
    
    10,391
    
    
    
    11,357
    
    
    
    6,152Cash flows from investing activities:Purchases of property, equipment and leasehold
improvements
    
    
    (6,754
    )
    
    
    (2,449
    )
    
    
    (4,037
    )Proceeds from sale of land and building
    
    
    636
    
    
    
    
    
    
    
    685Payments received on notes receivable
    
    
    457
    
    
    
    218
    
    
    
    139Investment and repayments of advances in
unconsolidated affiliate
    
    
    
    
    
    
    
    
    
    
    (2,125
    )Cash flows used for investing activities
    
    
    (5,661
    )
    
    
    (2,231
    )
    
    
    (5,338
    )Cash flows from financing activities:Payments for debt issuance costs
    
    
    (85
    )
    
    
    (8
    )
    
    
    (9
    )Payments on long-term debt and capital lease
obligations
    
    
    (606
    )
    
    
    (726
    )
    
    
    (2,349
    )Proceeds from exercise of stock options and warrants
    
    
    730
    
    
    
    770
    
    
    
    2,035Repurchase of common stock and common stock warrants
    
    
    (11,529
    )
    
    
    (7,956
    )
    
    
    Cash flows used for financing activities
    
    
    (11,490
    )
    
    
    (7,920
    )
    
    
    (323
    )(Decrease) increase in cash and cash equivalents
    
    
    (6,760
    )
    
    
    1,206
    
    
    
    491Cash and cash equivalents, beginning of year
    
    
    11,170
    
    
    
    9,964
    
    
    
    9,473Cash and cash equivalents, end of year
    
    $
    4,410
    
    
    $
    11,170
    
    
    $
    9,964
  F-6




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 Nature of business
 Principles of consolidation
 Managements use of estimates
 Reclassifications 
 Financial instruments
 Segment reporting
 Fiscal year
 Cash and cash equivalents
 Accounts receivable
 F-7




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
  Inventories
 Property, equipment and leasehold improvements  ,
 Debt issuance costs
 Construction overhead and capitalized interest
 Advertising costs
 Research and development costs 
 Pre-opening expenses
 Lease Accounting  Accounting for Leases,
 F-8




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
 Recoverability of property, equipment and leasehold improvements Accounting for the Impairment or Disposal of Long-Lived Assets,
 Restricted Cash
 Public Relations and Marketing Development Fund 
 Gift Cards 
 Interest income 
 Net income (loss) per common share
 F-9




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
   Fiscal Year(in thousands, except per share data)
    
    2005
    
    
    2004
    
    
    2003Net income (loss) per common share  basic:Net income (loss)
    
    $
    4,391
    
    
    $
    3,498
    
    
    $
    (2,898
    )Weighted average shares outstanding
    
    
    10,825
    
    
    
    11,858
    
    
    
    11,772Net
income (loss) per common share  basic
    
    $
    0.41
    
    
    $
    0.29
    
    
    $
    (0.25
    )Net income (loss) per common share  diluted:Net income (loss)
    
    $
    4,391
    
    
    $
    3,498
    
    
    $
    (2,898
    )Weighted average shares outstanding
    
    
    10,825
    
    
    
    11,858
    
    
    
    11,772Dilutive impact of common stock equivalents outstanding
    
    
    348
    
    
    
    364
    
    
    
    Adjusted weighted average shares outstanding
    
    
    11,173
    
    
    
    12,222
    
    
    
    11,772Net income (loss) per common share  diluted
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    (0.25
    )
    Stock-based compensation  Accounting for Stock-Based
Compensation
 F-10




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (1)
    
    NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
 Fiscal Year(in thousands, except per sare data)
    
    2005
    
    
    2004
    
    
    2003Net income (loss) as reported
    
    $
    4,391
    
    
    $
    3,498
    
    
    $
    (2,898
    )Less: Compensation expense determined
under the fair value method, net of tax
    
    
    (425
    )
    
    
    (816
    )
    
    
    (1,057
    )Pro forma net income (loss)
    
    $
    3,966
    
    
    $
    2,682
    
    
    $
    (3,955
    )Net income (loss) per common share:Basic EPS as reported
    
    $
    0.41
    
    
    $
    0.29
    
    
    $
    (0.25
    )Basic EPS pro forma
    
    $
    0.37
    
    
    $
    0.23
    
    
    $
    (0.34
    )Diluted EPS as reported
    
    $
    0.39
    
    
    $
    0.29
    
    
    $
    (0.25
    )Diluted EPS pro forma
    
    $
    0.36
    
    
    $
    0.22
    
    
    $
    (0.34
    )
  Fiscal Year2005
    
    
    2004
    
    
    2003Risk free interest rate
    
    
    4.1
    %
    
    
    4.4
    %
    
    
    4.2
    %Expected life of options
    
    6.4 years
    
    10 years
    
    10 yearsExpected volatility
    
    
    65.7
    %
    
    
    56.7
    %
    
    
    102.3
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
 Share-Based Payment, an Amendment of FASB Statements No. 123 and 95 Accounting for Stock Issued to
Employees
  F-11




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
     Pro forma Compensation Expense
 Performance(in thousands)
    
    Options
    
    
    Shares
    
    
    TotalQ1 2006
    
    $
    153
    
    
    $
    213
    
    
    $
    366Q2 2006
    
    
    129
    
    
    
    213
    
    
    
    342Q3 2006
    
    
    88
    
    
    
    213
    
    
    
    301Q4 2006
    
    
    74
    
    
    
    213
    
    
    
    287$
    444
    
    
    $
    852
    
    
    $
    1,296
 Revenue Recognition
 Franchise arrangements 
 F-12




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
 Accounting for Franchise Fee Revenue.
 Licensing agreements and other income 
  Variable Interest Entities 
   Recently Issued Accounting Pronouncements Share-Based Payment, an Amendment of FASB Statements No. 123 and 95 for Stock Issued to
Employees
 F-13




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
  Accounting for Rental Costs
Incurred During a Construction Period. Accounting for Rental Costs
Incurred During a Construction Period,
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting
Changes in Interim Financial Statements
 F-14




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (2) INVENTORIES
  (in thousands)
    
    January 1,
    
    
    January 2,2006
    
    
    2005Food and beverage
    
    $
    548
    
    
    $
    531Retail goods
    
    
    25
    
    
    
    63Smallwares and supplies
    
    
    1,015
    
    
    
    929$
    1,588
    
    
    $
    1,523
 (3) NOTES RECEIVABLE
  (in thousands)
    
    January 1,
    
    
    January 2,2006
    
    
    2005Famous 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 (our former Chief
Executive Officer). Monthly interest
only until December 2006.
    
    $
    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.
    
    
    349
    
    
    
    384Michaels First, LLC  monthly
installments of approximately $5.0
including interest at 9.6%, and due May
2010, secured by property and equipment
and guaranteed by the franchise owner.
This note was repaid in full in 2005.
    
    
    
    
    
    
    259Utah 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.
    
    
    167
    
    
    
    253Rivervalley BBQ, Inc.  quarterly
interest and principal installments of
approximately $22.0 including interest
at prime plus 1.50% (8.75% at January
1, 2006 and 6.75% at January 2, 2005),
due December 2006, unsecured.
    
    
    94
    
    
    
    169Rivervalley BBQ, Inc.  Line of credit
for up to $50.0 with monthly interest
only though December 2007 with total
outstanding balance due December 2007
including interest at prime plus 1.50%
(8.75% at January 1, 2006 and 6.75% at
January 2, 2005), unsecured.
    
    
    50
    
    
    
    50Competition BBQ, Inc.  monthly
installments of approximately $0.4
including interest at 7.0% due January
2008, unsecured.
    
    
    12
    
    
    
    14Total notes receivable
    
    
    1,972
    
    
    
    2,429Current maturities
    
    
    (253
    )
    
    
    (273
    )Long-term portion of notes receivable
    
    $
    1,719
    
    
    $
    2,156
 F-15




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (3) NOTES RECEIVABLE (continued)
  (in thousands)Fiscal Year2006
    
    
    $
    2532007
    
    
    
    3052008
    
    
    
    1912009
    
    
    
    2112010
    
    
    
    199Thereafter
    
    
    813Total
    
    $
    1,972
 (4) PREPAID EXPENSES AND OTHER CURRENT ASSETS
  January 1,
    
    
    January 2,(in thousands)
    
    2006
    
    
    2005Prepaids
    
    $
    1,241
    
    
    $
    1,107Interest receivable
    
    
    33
    
    
    
    23Notes receivable  short-term
    
    
    253
    
    
    
    273Other
    
    
    785
    
    
    
    $
    2,312
    
    
    $
    1,403
  F-16




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (5)
    
    PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NETProperty, equipment and leasehold improvements, net, consisted approximately of the following
at:
 (in thousands)
    
    January 1,
    
    
    January 2,2006
    
    
    2005Land, buildings and improvements
    
    $
    46,292
    
    
    $
    44,344Furniture, fixtures and equipment
    
    
    21,488
    
    
    
    19,944Antiques
    
    
    2,149
    
    
    
    2,228Construction in progress
    
    
    2,754
    
    
    
    73Land and building held for sale
    
    
    1,281
    
    
    
    1,281Accumulated depreciation and amortization
    
    
    (27,092
    )
    
    
    (23,206
    )Property, equipment and leasehold improvements, net
    
    $
    46,872
    
    
    $
    44,664
   (6) INVESTMENT IN UNCONSOLIDATED AFFILIATE
    F-17




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (7)
    
    OTHER CURRENT LIABILITIESOther current liabilities consist of the following at:
 (in thousands)
    
    January 1,
    
    
    January 2,2006
    
    
    2005Gift cards payable
    
    $
    1,057
    
    
    $
    951Other liabilities
    
    
    775
    
    
    
    482Sales tax payable
    
    
    731
    
    
    
    585Accrued property and equipment purchases
    
    
    447
    
    
    
    Deferred franchise fees
    
    
    245
    
    
    
    70Accrued income taxes
    
    
    155
    
    
    
    156$
    3,410
    
    
    $
    2,244
 (8) LONG-TERM DEBT
   January 1,
    
    
    January 2,($s in thousands)
    
    2006
    
    
    2005Notes 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.
    
    $
    10,636
    
    
    $
    11,064Notes 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 2.59% and 4.39%
at January 1, 2006 and 6.39% and 6.48% at
January 2, 2005) due between October 2009
and May 2017, secured by property and
equipment.
    
    
    1,216
    
    
    
    1,297Total longterm debt
    
    
    11,852
    
    
    
    12,361Capital lease obligations
    
    
    16
    
    
    
    113Less current maturities
    
    
    (438
    )
    
    
    (521
    )Longterm debt net of current maturities
    
    $
    11,430
    
    
    $
    11,953
 F-18




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (8) LONG-TERM DEBT (continued)
  (in thousands)Fiscal Year2006
    
    
    $
    4222007
    
    
    
    4672008
    
    
    
    5112009
    
    
    
    5642010
    
    
    
    569Thereafter
    
    
    9,319Total
    
    $
    11,852
 (9) FINANCING LEASE OBLIGATION
  (10) CAPITAL AND OPERATING LEASE OBLIGATIONS
   F-19




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (10) CAPITAL AND OPERATING LEASE OBLIGATIONS (continued)
    Capital and(in thousands)
    
    OperatingFiscal Year
    
    Leases2006
    
    $
    3,6432007
    
    
    3,7072008
    
    
    3,6462009
    
    
    3,6532010
    
    
    3,690Thereafter
    
    
    46,537Total future minimum lease commitments
    
    $
    64,876Less: sublease income
    
    
    (8,812
    )Total operating and capital lease obligations
    
    $
    56,064
 (11) CREDIT FACILITY AND DEBT COVENANTS
   F-20




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (12) RELATED PARTY TRANSACTIONS
 Stock Repurchase 
 Famous Ribs of Georgia, Snellville, Marietta and Alpharetta, LLC
 S&D Land Holdings, Inc. 
  (13) STOCK OPTIONS, PERFORMANCE SHARES, COMMON SHARE REPURCHASES AND WARRANTS
  F-21




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (13) STOCK OPTIONS, PERFORMANCE SHARES, COMMON SHARE REPURCHASES AND WARRANTS (continued)
  Number of
    
    
    Weighted Average(number of options in thousands)
    
    Options
    
    
    Exercise PriceOptions 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 previously cancelled
    
    
    37
    
    
    
    6.03Options outstanding  January 2, 2005
    
    
    1,132
    
    
    
    4.72Granted
    
    
    28
    
    
    
    10.20Canceled or expired
    
    
    (46
    )
    
    
    5.79Exercised
    
    
    (214
    )
    
    
    3.41Options outstanding  January 1, 2006
    
    
    900
    
    
    $
    5.14Options exercisable  December 28, 2003
    
    
    630
    
    
    $
    3.28Options exercisable  January 2, 2005
    
    
    500
    
    
    $
    3.80Options exercisable  January 1, 2006
    
    
    539
    
    
    $
    4.66Weighted 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
    
    
    
    
    
    $
    4.44Weighted average fair value of options granted
during the year ended January 1, 2006
    
    
    
    
    
    $
    10.98
  (number outstanding and number exercisable in thousands)OptionsTotal outstanding
    
    
    ExercisableWeighted-average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Exercise
    
    Number
    
    
    remaining
    
    
    average
    
    
    Number
    
    
    averageprices
    
    outstanding
    
    
    contractual life
    
    
    exercise price
    
    
    exercisable
    
    
    exercise price$2.00 -
  $2.63
    
    
    70
    
    
    3.10 years
    
    $
    2.33
    
    
    
    70
    
    
    $
    2.33$3.09 -
  $4.18
    
    
    353
    
    
    6.64 years
    
    $
    3.91
    
    
    
    270
    
    
    $
    3.91$4.82 -
  $6.72
    
    
    397
    
    
    7.90 years
    
    $
    5.99
    
    
    
    147
    
    
    $
    5.99$7.54 - $10.98
    
    
    80
    
    
    5.76 years
    
    $
    8.87
    
    
    
    52
    
    
    $
    7.92$2.00 - $10.98
    
    
    900
    
    
    6.84 years
    
    $
    5.14
    
    
    
    539
    
    
    $
    4.66
 F-22




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (13) STOCK OPTIONS, PERFORMANCE SHARES, COMMON SHARE REPURCHASES AND WARRANTS (continued)
 2005 Stock Incentive Plan
  Performance Shares
     F-23




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (13) STOCK OPTIONS, PERFORMANCE SHARES, COMMON SHARE REPURCHASES AND WARRANTS (continued)
   Deferred Stock Unit Plan
    Common Share Repurchases
   F-24




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (13) STOCK OPTIONS, PERFORMANCE SHARES, COMMON SHARE REPURCHASES AND WARRANTS (continued)
 Warrants
  (14) INCOME TAXES
   (in thousands)
    
    2005
    
    
    2004
    
    
    2003Current:Federal
    
    $
    157
    
    
    $
    135
    
    
    $
    State
    
    
    495
    
    
    
    342
    
    
    
    652
    
    
    
    477
    
    
    
    Deferred:Federal
    
    
    1,797
    
    
    
    1,304
    
    
    
    (1,598
    )State
    
    
    251
    
    
    
    119
    
    
    
    (180
    )2,048
    
    
    
    1,423
    
    
    
    (1,778
    )Total tax provision
    
    $
    2,700
    
    
    $
    1,900
    
    
    $
    (1,778
    )
 Accounting for Income Taxes
 F-25




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (14) INCOME TAXES (continued)
  January 1,
    
    
    January 2,(in thousands)
    
    2006
    
    
    2005Current deferred tax assets (liabilities):Net operating loss carry-forwards
    
    $
    3,482
    
    
    $
    3,170Prepaids
    
    
    (459
    )
    
    
    (183
    )Inventory
    
    
    (348
    )
    
    
    (337
    )Other assets
    
    
    445
    
    
    
    692Total current deferred tax assets
    
    $
    3,120
    
    
    $
    3,342Long-term deferred tax assets (liabilities):Tax credit carryovers
    
    $
    2,253
    
    
    $
    1,772Net operating loss carry forwards
    
    
    
    
    
    
    1,488Property and equipment basis difference
    
    
    258
    
    
    
    1,221Other
    
    
    121
    
    
    
    (23
    )Total Long-term deferred tax assets
    
    $
    2,632
    
    
    $
    4,458
  Fiscal Year2005
    
    
    2004
    
    
    2003Federal statutory tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    (34.0
    )%State taxes, net of federal benefit
    
    
    4.3
    
    
    
    4.0
    
    
    
    (5.0
    )Tax effect of permanent differences
    
    
    2.5
    
    
    
    3.4
    
    
    
    3.6Tax effect of tip credit
    
    
    (5.2
    )
    
    
    (6.2
    )
    
    
    (6.1
    )Other
    
    
    2.4
    
    
    
    
    
    
    
    3.5Effective tax rate
    
    
    38.0
    %
    
    
    35.2
    %
    
    
    (38.0
    )%
 F-26




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##### Table of Contents



FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (15) SUPPLEMENTAL CASH FLOWS INFORMATION
 Fiscal Year(in thousands)
    
    2005
    
    
    2004
    
    
    2003Cash paid for interest
    
    $
    1,698
    
    
    $
    1,727
    
    
    $
    1,786Cash paid for taxes
    
    $
    409
    
    
    $
    14
    
    
    $
    6Non-cash investing and financing activities:Reclassification of accounts receivable to
other current assets
    
    $
    508
    
    
    $
    
    
    
    $
    Accrued property and equipment purchases
    
    $
    447
    
    
    $
    
    
    
    $
    284Deferred tax asset related to tax benefit of
stock options exercised
    
    $
    244
    
    
    $
    303
    
    
    $
    443Property, equipment and leasehold improvements
purchased with notes payable
    
    $
    
    
    
    $
    
    
    
    $
    1,600Décor inventory reserve
    
    $
    34
    
    
    $
    
    
    
    $
    Non-cash exercise of warrants
    
    $
    
    
    
    $
    144
    
    
    $
    Reduction of accounts payable related to sale of
land and building
    
    $
    16
    
    
    $
    
    
    
    $
    
 (16) RETIREMENT SAVINGS PLANS
 401(k) Plan
  Non-Qualified Deferred Compensation Plan
  F-27




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (16) RETIREMENT SAVINGS PLANS (continued)
    (17) SELECTED QUARTERLY DATA-UNAUDITED
  (in thousands, except per share data)First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    23,496
    
    
    $
    22,647
    
    
    $
    28,066
    
    
    $
    25,404
    
    
    $
    26,268
    
    
    $
    25,967
    
    
    $
    24,524
    
    
    $
    25,307Income from operations
    
    $
    1,292
    
    
    $
    1,284
    
    
    $
    3,344
    
    
    $
    2,112
    
    
    $
    2,481
    
    
    $
    2,582
    
    
    $
    1,565
    
    
    $
    1,387Net income
    
    $
    533
    
    
    $
    527
    
    
    $
    1,905
    
    
    $
    996
    
    
    $
    1,228
    
    
    $
    1,270
    
    
    $
    725
    
    
    $
    705Basic net income per
common share
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.18
    
    
    $
    0.08
    
    
    $
    0.12
    
    
    $
    0.11
    
    
    $
    0.07
    
    
    $
    0.06Diluted net income
per common share
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.17
    
    
    $
    0.08
    
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.07
    
    
    $
    0.06
 (18) LITIGATION
  F-28




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FAMOUS DAVES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
 (19) SUBSEQUENT EVENTS
 Acquisition of Florence, Kentucky Restaurant 
 F-29




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##### Table of Contents



Financial Statement Schedule
 
 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
 (In thousands)
    
    
    
    
    
    Additions
    
    
    DeductionsCredits to CostsBalance at
    
    
    Charged to
    
    
    and Expenses
    
    
    Balance atBeginning of
    
    
    Costs and
    
    
    and other
    
    
    End ofPeriod
    
    
    Expenses
    
    
    accounts
    
    
    PeriodYear ended December 28, 2003:Allowance for doubtful accounts
    
    $
    125.0
    
    
    $
    90.0
    
    
    $
    (116.50
    )
    
    $
    98.5Year ended January 2, 2005:Allowance for doubtful accounts
    
    $
    98.5
    
    
    $
    
    
    
    $
    (88.9
    )
    
    $
    9.6Year ended January 1, 2006:Allowance for doubtful accounts
    
    $
    9.6
    
    
    $
    65.8
    
    
    $
    (38.6
    )
    
    $
    36.8
 F-30




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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
    
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, 200010.3
    
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, 200010.4
    
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, 200110.5
    
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, 200110.6
    
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, 200110.7
    
1995 Employee Stock Option Plan (as amended
through May 22, 2002), incorporated by reference
from Exhibit 10.1 to Form 10-Q filed August 14,
200210.8
    
1997 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, 200210.9
    
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,
200210.10
    
2005 Stock Incentive Plan10.11
    
Executive Elective Deferred Stock Unit Plan,
incorporated by reference to Exhibit 10.1 to Form
10-Q filed May 11, 2004




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##### Table of Contents



EXHIBITS (continued)
 Exhibit No.
    
    Description10.12
    
Credit Agreement by and between Wells Fargo Bank, National
Association and Famous Daves of America, Inc., dated January
28, 2005, incorporated by reference to Exhibit 10.15 to Form
10-K filed March 18, 200510.13
    
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, 200510.14
    
Form of Amended and Restated 2004-2006 Performance Share
Agreement and schedule of grants under such form, incorporated
by reference to Exhibits 10.1 and 10.2 to Form 10-Q filed May
13, 200510.15
    
Form of Amended and Restated 2005-2007 Performance Share
Agreement and Schedule of grants under such form, incorporated
by reference to Exhibits 10.3 and 10.4 to Form 10-Q filed May
13, 200510.16
    
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, 200510.17
    
First Amended and Restated Non-Qualified Deferred Compensation
Plan, dated February 25, 200510.18
    
Form of 2006-2008 Performance Share Agreement and schedule of
grants under such form, incorporated by reference to Exhibits
10.1 and 10.2 to Form 8-K filed December 29, 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
  FAMOUS DAVES OF AMERICA, INC.(Registrant)Dated: March 17, 2006
    
    By:
    
    /s/ David GoronkinDavid GoronkinPresident and Chief Executive Officer
  Signature
    
    Title/s/ David Goronkin

David Goronkin
    
    President, Chief Executive Officer, and Director(principal executive officer)/s/ Diana Garvis Purcel

Diana Garvis Purcel
    
    Chief Financial Officer and Secretary (principal
financial and accounting officer)/s/ K. Jeffrey Dahlberg

K. Jeffrey Dahlberg
    
    Director/s/ F. Lane Cardwell, Jr.

F. Lane Cardwell, Jr.
    
    Director/s/ Mary L. Jeffries

Mary L. Jeffries
    
    Director/s/ Richard L. Monfort

Richard L. Monfort
    
    Director/s/ Dean A. Riesen
    
    DirectorDean A. Riesen