<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ---------------
                                   FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                        EXCHANGE ACT OF 1934

                FOR THE FISCAL YEAR ENDED JANUARY 3, 1999 OR

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                         EXCHANGE ACT OF 1934
    FOR THE TRANSITION PERIOD FROM                     TO                    
                                  --------------------    -----------------

                         COMMISSION FILE NUMBER: 0-21625

                         FAMOUS DAVE'S OF AMERICA, INC.
                                  (Registrant)

                    Minnesota                              41-1782300
                    (State or other jurisdiction           (IRS Employer
                    of incorporation or organization)      Identification No.)
                    7657 Anagram Dr.                       55344
                    Eden Prairie, MN                       (Zip Code)
                    (Address of principal executive
                    offices)

                    Issuer's telephone number: (612) 294-1300

 Securities to be registered pursuant to Section 12(b) of the Exchange Act: None

   Securities to be registered pursuant to Section 12(g) of the Exchange Act:
                          Common Stock, $.01 par value

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

                                  Yes [X]   No[ ]

    Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

    The issuer had total revenues of $40,761,000 for its fiscal year ended
January 3, 1999


    As of March 29, 1999, assuming as market value the price of $2.375 per share
(the last sales price of Famous Dave's of America, Inc.'s Common Stock on The
Nasdaq Stock Market(SM), the aggregate market value of shares held by
non-affiliates was $16,606,926.

    As of March 29, 1999 we had outstanding 8,837,590 shares of Common Stock,
$.01 par value.

    Transitional Small Business Disclosure Format:     Yes [ ]     No [X]

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<PAGE>   2

    Documents Incorporated by Reference: Portions of our Proxy Statement for our
Annual Meeting of Shareholders to be conducted in May, 1999 (the "1999 Proxy
Statement") are incorporated by reference into Part III of this Form 10-KSB, to
the extent described in Part III. The 1999 Proxy Statement will be filed within
120 days after the end of the fiscal year ended January 3, 1999.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                               PAGE NO.
                                                                                               --------
     PART I                                                                                        

<S>                       <C>                                                                     <C>
     Item 1.              Description of Business                                                 3
     Item 2.              Description of Property                                                 7
     Item 3.              Legal Proceedings                                                       8
     Item 4.              Submission of Matters to a Vote of Security Holders                     8

     PART II

     Item 5.              Market for Common Equity                                                 
                            And Related Stockholder Matters                                       9
     Item 6.              Management's Discussion and Analysis of Plan of Operations              9
     Item 7.              Consolidated Financial Statements                                       15
     Item 8.              Changes in and Disagreements with Accountants                           15
                            On Accounting and Financial Disclosure

     PART III

     Item 9.              Directors, Executive Officers, Promoters and Control
                            Persons; Compliance with Section 16(a) of the Exchange Act            16
     Item 10.             Executive Compensation                                                  16
     Item 11.             Security Ownership of Certain Beneficial Owners and Management          16
     Item 12.             Certain Relationships and Related Transactions                          16
     Item 13.             Exhibits and Reports on Form 8-K                                        16

     SIGNATURES                                                                                   17
</TABLE>


                                       2


<PAGE>   3


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

    Famous Dave's of America, Inc. ("Famous Dave's") was incorporated as a
Minnesota corporation in March, 1994 and opened its first restaurant in
Minneapolis in June, 1995. We currently operate twenty-two restaurants under the
name "Famous Dave's" in the Midwestern region of the United States. As of
January 3, 1999, we operated fourteen restaurants in Minnesota, four in
Wisconsin, three in Iowa and one in Illinois. An additional unit under
construction in Chicago is expected to open in May, 1999.

THE FAMOUS DAVE'S CONCEPT

    Our restaurants, a majority of which offer full table service, feature
hickory smoked off-the-grill meat entree favorites served in one of our three
casual formats: 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. In May 1997, Nation's Restaurant News, a leading restaurant
industry publication, named Famous Dave's of America, Inc. a "1997 Hot Concept".

Key elements of our concept include 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
(TM) Beans accompany the broad entree selection. Homemade desserts, including
Famous Dave's Bread Pudding and Hot Fudge Kahlua(TM) Brownies, are a specialty.
In our Lodge restaurants, we are testing additional menu items such as grilled
smoked pork chops, oven roasted chicken and regional fish dishes to expand our
audience and increase frequency of guest visits. To complement our smoked meat
entree and appetizer items and to suit different customer tastes, Famous Dave's
BBQ Sauces come in five variations: Rich & Sassy(TM), Texas Pit(TM), Georgia
Mustard(TM), Hot Stuff(TM), and Devil's Spit (TM). These sauces and a variety of
prepared meats are also distributed throughout Famous Dave's territory as retail
grocery items. In 1998, retail sales of our products contributed revenue of
about $1.8 million. We believe that our high quality food is a principal point
of differentiation between Famous Dave's and other casual dining competitors and
is a significant contributing factor to our level of repeat business.

         Distinctive Environment -- Decor and Music. In late 1997, we introduced
the "Lodge" format which features decor reminiscent of a comfortable
"Northwoods" hunting lodge with a full service dining room and bar. By the end
of 1998, we operated three units under the Lodge format, including two locations
in the Minneapolis market and one in the metropolitan Chicago area. Our original
theme, a nostalgic roadhouse shack ("Shack") is promoted by the abundant use of
rustic antiques, items of Americana from the '30s and '40s and emphasizes a very
casual experience with emphasis on value and speed of delivery. While initially
the Shack format only offered counter service, ten Shacks have been opened as or
converted to full service dining during 1998. In addition, we have developed a
larger "Blues Club" format that features authentic Chicago Blues Club decor and
live music seven nights a week. We currently operate one Blues Club in the
Minneapolis market, and are constructing a second Blues Club which is projected
to open in May, 1999 in downtown Chicago.

         Broad-Based Appeal. We believe that our concept has broader appeal than
many other restaurant concepts because it attracts customers of all ages and the
menu offers a variety of items that appeal 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.

OPERATING STRATEGY

Key elements of our operating strategy include the following:

         Operational Simplicity. In our Shacks, 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. The Shack menu focuses on a
number of popular smoked meat barbecue entree items and delicious side dishes
which are prepared using easy-to-operate kitchen



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<PAGE>   4

equipment and processes that use prepared seasonings, sauces and mixes. This
streamlined food preparation system helps lower the cost of operation by
requiring fewer staff, lower training costs and the elimination of a need for
highly compensated chefs. By controlling the number of menu items and using
simplified food preparation processes, meals can be served quickly and
consistently. In the Lodge restaurants, we seek to provide a broader menu that
will appeal to a variety of tastes and may be used on more frequent dining
occasions. To enhance our appeal and expand our audience, we have added such
items as roasted chicken, grilled pork chops and garlic mashed potatoes. As the
menu broadens and food preparation techniques become more focused on meals
prepared to order, an increased training requirement is necessary in order to
prepare our staff for increased sophistication in guest service. Additional
staff costs and training expense is justified, we believe, by the greater
revenue produced by the Lodge restaurants when compared to Shack restaurants.
During 1998, average weekly volume of Lodge locations was $62,100, compared to
$32,300 for Shack locations.

         Recruiting, Training and Retaining Employees. We believe that a key
component of the success of our concept rests with the ability to hire, train
and motivate qualified restaurant employees. We believe that by providing
training, competitive compensation and opportunities for employee involvement
and advancement, we encourage a sense of personal commitment from our employees.
In 1997, we instituted Hog Heaven University, which augments our technical
training with programs aimed at improving the personal development skills of our
managers. We believe that our competitive compensation, employee involvement and
streamlined operating system help enable us to attract and retain qualified
restaurant managers and employees.

         Take-out --- Focus on Customer Convenience. We seek to provide our
customers with maximum convenience by offering convenient take-out service in
addition to our lively and entertaining sit-down experience. 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. We believe
the high quality, reasonable cost and avoidance of preparation time make
take-out of our product particularly attractive to customers, and more than 20%
of our restaurant revenues are derived from this method. Our restaurants have
been designed specifically to accommodate a significant level of take-out sales,
including a separate take-out counter.

         Style of Service. A majority of our locations utilize a full-service
style of serving guests. Through 1997, all of our Shacks used a more limited,
counter-style of service with self-service seating and drink selection. In 1998,
four of these units were converted to full service locations, and six more
Shacks were opened as full service facilities. We continue to evaluate the
advantages of the full-service format on a location by location basis.

         Customer Satisfaction. We believe that we have achieved 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.

         Attractive Value-to-Price Relationship. Famous Dave's offers high
quality food and distinctive atmosphere at competitive prices to encourage
frequent patronage. Lunch and dinner entrees range from $5 to $18 resulting in
an average check of approximately $10.56 during fiscal 1998.

EXPANSION STRATEGY

         We believe that the casual dining niche of the restaurant industry
offers strong growth opportunities for us because this niche of the
restaurant market is highly fragmented. The key elements of our growth strategy
include the following:

         Targeted Expansion. We believe that there are significant growth
opportunities for Famous Dave's restaurants throughout the United States. We
generally intend to enter new markets with a Lodge restaurant in high-profile,
heavy traffic retail locations in order to build brand awareness. Next we would
develop the market further with additional restaurants. Certain of these
additional locations may be in less visible, less traveled neighborhood and
retail locations, and may be in smaller seating configurations with less overall
seating than a Lodge facility. We currently plan to concentrate our expansion
primarily in markets where multiple restaurants can be opened, thereby expanding
consumer awareness and creating opportunities for operating, distribution and
marketing efficiencies. In late 1997, we opened our first Lodge restaurant and
currently anticipate using this format as our primary growth vehicle. We
anticipate opening four additional Lodge units and the Chicago Blues Club in

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<PAGE>   5
fiscal 1999 and plan to target our 1999 restaurant expansion in the upper and
central Midwestern part of the United States. We intend to finance our
development through the use of cash flow, funds available under existing and
future lines of credit, and through forms of real estate related financing such
as sale-leaseback financing, build to suit arrangements, and other similar
financing. On March 31, 1999 we closed on a sale-leaseback financing transaction
that provided net proceeds of approximately $4.4 million. There can be no
assurance that any future financing will be available, nor on terms acceptable
to us.

         Flexible Unit Formats. Because of variable unit formats, we believe we
can tailor the Famous Dave's concept to a variety of markets, demographic areas
and real estate locations. Management believes the flexibility in building size,
type of construction and configuration, as well as a variable service structure,
permits locations in a variety of economic and demographic areas throughout
different markets.

FRANCHISE PROGRAM

    One franchised location opened in 1998. This unit is operated under a
limited franchise arrangement whereby one and possibly two additional units may
be opened, subject to our consent, within a very limited market area. We are
currently evaluating a strategy for pursuing a more aggressive franchise program
for our restaurants. We do not anticipate additional franchise units to open
during fiscal 1999 except possibly under the arrangement discussed above.

RESTAURANT OPERATIONS - MANAGEMENT AND EMPLOYEES

    Our ability to manage multiple, geographically diverse units will be central
to our overall success. Our management team includes experienced personnel with
extensive restaurant experience. At the unit level, we place specific emphasis
on the position of general manager ("General Manager") and seek employees with
significant restaurant experience 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 attempt to attract high quality,
experienced restaurant management and personnel with competitive compensation
and bonus programs.

    All General Managers must complete a 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 members participate in
approximately three weeks of training under the close supervision of our
management. 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 Shack or Lodge unit has between 25 and
80 employees.

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 while obtaining the lowest possible
prices for the required quality, each unit's management team determines the
daily quantities of food items needed and orders such quantities from major
suppliers designated by us which are then shipped directly to the restaurants.
Approximately 90% of the products used by Famous Dave's restaurants are obtained
under a supply arrangement with a major foodservice supplier. Included in the
distribution and supply arrangement is a provision to distribute pork and meat
products provided under a separate contract with a national meatpacking concern.
We entered into a revised contract with this supplier during 1998 which resulted
in the reduction of certain meat prices, particularly pork, for parts of the
1998 year and for a portion of 1999. During the early part of 1999, we modified
this agreement to include fixed prices on certain pork products which had fallen
in price during the contract term. We believe that our relationships with these
two food suppliers are excellent, and anticipate no interruption in the supply
of product delivered by either of these firms. In case of a supply disruption,
however, we believe we could obtain competitive products and prices on short
notice from a number of alternative suppliers.




                                       5

<PAGE>   6



MANAGEMENT INFORMATION SYSTEMS

    We have developed restaurant-level management information systems that
include a computerized point-of-sale 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.

    Our unit-level point-of-sale, time management and inventory management
systems provide data for posting to our general ledger and to other accounting
subsystems. The general ledger system provides various management reports
comparing actual and budgeted results. The results are reported to and reviewed
by management. Such reporting includes (i) daily reports of revenues, (ii)
weekly reports of selected controllable unit expenses and (iii) detailed monthly
reports of revenues and expenses. We continue to develop and implement new
enhancements to our systems, and a number of new developments in communication,
food and labor cost management and unit level efficiency are among the
enhancements we are evaluating at the present time.

MARKETING AND PROMOTION

    To date, we have relied primarily upon publicity and "word of mouth"
advertising to attract customers to our restaurants. We also use distinctive
exterior signage and off-site billboards. Recently we engaged a nationally
renowned marketing consultant to develop a comprehensive marketing plan for our
business. This plan provides for the use of mass media in selected markets to
increase brand awareness. Our 1999 business plan calls for an increase in
spending over the prior year on an advertising and media campaign, primarily in
our Minneapolis market. The full utilization of the planned program would result
in the expenditure of approximately 3.5% of revenues on all marketing and
advertising areas, compared to 2.1% spent during 1998. In addition to these
efforts in advertising and the limited public relations and billboard activity
undertaken by us during the past three fiscal years, we have also attempted to
create brand awareness in the "Famous Dave's" name by offering items such as
Famous Dave's BBQ sauces and prepared entrees for retail sale at our restaurants
and in grocery stores in many of the markets we serve.

TRADEMARKS

    We have received various trademarks and have applied for registration of
additional service marks and intend to defend these marks. However, there can be
no assurance that we will be granted trademark registration for pending
applications or any or all of the proposed uses in our applications. In the
event our additional mark(s) are granted registration, there can be no assurance
that we can protect such mark(s) and design(s) 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.

COMPETITION

    Competition in the restaurant industry is intense. Famous Dave's 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 large portions of red meat. We also
compete with other restaurants and retail establishments for quality sites.
Competition in the food service 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 are well established and have substantially greater
financial, marketing and other resources than Famous Dave's. Regional and
national restaurant companies continue to expand their operations in our current
and anticipated market areas. We believe our ability to compete effectively
depends on our ongoing ability to offer high-quality, competitively priced food
in a distinctive and comfortable environment.

GOVERNMENT REGULATION

    We are 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 



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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
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 persons.

    To the extent that Famous Dave's offers and sells franchises, we are also
subject to federal regulation and certain state laws which 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 nonrenewal of a franchise. Bills have been introduced in
Congress from time to time which would provide for federal regulation of
substantive aspects of the franchiser-franchisee relationship. As proposed, such
legislation would limit, among other things, the duration and scope of
non-competition provisions, the ability of a franchiser to terminate or refuse
to renew a franchise, and the ability of a franchiser to designate sources of
supply.

    The Federal Americans with Disabilities Act prohibits discrimination on the
basis of disability in public accommodations and employment. We could be
required to expend funds 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. We believe we are in
substantial compliance with all current applicable regulations relating to
accommodations for the disabled.

EMPLOYEES

    As of January 3, 1999, Famous Dave's had approximately 1,050 employees,
approximately 26% of which were full-time. None of our employees are covered by
a collective bargaining agreement. Management believes that our relationships
with our employees are satisfactory.

ITEM 2. DESCRIPTION OF PROPERTY

    The following table sets forth certain information about our existing
restaurant locations and locations in development as of January 3, 1999:

<TABLE>
<CAPTION>
                                                 SQUARE       INTERIOR     LAND OWNED      DATE OPENED OR
              LOCATION               FORMAT     FOOTAGE         SEATS       OR LEASED   PLANNED TO BE OPENED
  ---------------------------        ------     -------         -----       ---------   --------------------
<S>                                   <C>       <C>             <C>         <C>           <C> 
   Linden Hills, Minneapolis, MN      Shack      2,900            60         Leased           June 1995
   Roseville, MN                      Shack      4,800           105         Leased           June 1996
   Calhoun Square, Minneapolis, MN    Club      10,500           375         Leased        September 1996
   Maple Grove, MN                    Shack      5,200           125         Owned           April 1997
   Highland Park, St. Paul, MN        Shack      5,200           130         Leased           June 1997
   Stillwater, MN                     Shack      5,200           130         Owned            July 1997
   Apple Valley, MN                   Shack      3,800            80         Owned            July 1997
   Madison, WI                        Shack      4,800            90         Leased          August 1997
   Grand Chute, WI (Appleton, WI)     Shack      2,900            75         Owned          October 1997
   Forest Lake, MN                    Shack      4,500           100         Leased         October 1997
   LaCrosse, WI                       Shack      3,800           100         Owned          December 1997
   Minnetonka, MN                     Lodge      5,500           135         Leased         December 1997
   Plymouth, MN                       Shack      2,100            20         Leased         December 1997
   West St. Paul, MN                  Shack      6,800           140         Leased         January 1998
   Rochester, MN                      Shack      5,200           140         Leased         February 1998
   Janesville, WI                     Shack      5,200           130         Leased          March 1998
   West Des Moines, IA                Shack      5,500           150         Leased          April 1998
   Des Moines, IA                     Shack      5,800           170         Leased          April 1998
   Naperville, IL                     Lodge      5,500           170         Leased          April 1998
   Cedar Falls, IA                    Shack      5,400           150         Leased        September 1998
   Bloomington, MN                    Shack      5,400           145         Leased         October 1998
   Woodbury, MN                       Lodge      5,885           180         Owned          October 1998
   Chicago, IL                         Club     15,000*          500*        Leased          Fiscal 1999
</TABLE>

All seat count and square footage amounts are approximate
* Estimated



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    The development cost of our restaurants varies depending primarily on the
size and style of the restaurant and whether it is a conversion of an existing
building or a newly constructed unit. Since inception and through fiscal 1998,
the development cost of existing shack or lodge restaurants has ranged from
approximately $700,000 to $2,350,000 per restaurant for conversions ranging in
size from 2,900 square feet to 5,500 square feet and $1,670,000 to $2,400,000
per restaurant for new construction ranging in size from 4,500 square feet to
5,500 square feet. Such development cost includes construction, fixtures,
furniture and equipment, and pre-opening costs, but does not include the cost of
purchased land as it has been our general practice to lease the majority of our
sites. The development cost of our existing 10,500 square foot Blues Club was
approximately $2,800,000, including pre-opening expenses of approximately
$180,000. Development of our Chicago Blues Club will cost an estimated $6.0
million (not including costs associated with leasing the property upon which the
Club will be built) including approximately $350,000 for pre-opening expense.

    There can be no assurances that units planned for 1999 and later will open
when planned, or at all, due to the risks associated with the development of new
units, such as governmental approvals and the availability of capital, many of
which are beyond our control.

    Famous Dave's leased restaurant facilities are occupied under agreements
with terms ranging from seven to 15 years, excluding renewal options. Such
leases generally provide for fixed rental payments plus operating expenses
associated with the properties. Our executive offices are located in
approximately 12,500 square feet in Eden Prairie, Minnesota, under a lease
expiring in 2003.



ITEM 3. LEGAL PROCEEDINGS

    We are not a party to any material litigation and are not aware of any
threatened litigation that would have a material adverse effect on our business.


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 3, 1999.




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                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                           PRICE RANGE OF COMMON STOCK

    Our Common Stock is traded on the Nasdaq Stock Market(SM) under the symbol
DAVE. Our Common Stock was quoted on the Nasdaq SmallCap Market from November 5,
1996 through July 24, 1997 and the Nasdaq National Market after July 24, 1997.

    The following table summarizes the high and low sale prices per share of the
Common Stock for the periods indicated, as reported on the Nasdaq Stock
Market(SM):

<TABLE>
<CAPTION>


                                  1996          HIGH   LOW
                             --------------     ----   ---
                             <S>               <C>    <C>
                             4th Quarter        8.75   6.75

                                  1997          HIGH   LOW
                             --------------     ----   ---
                             1st Quarter        9.63   6.63
                             2nd Quarter       14.25   8.75
                             3rd Quarter       21.13  12.75
                             4th Quarter       19.88   7.94

                                  1998          HIGH   LOW
                             --------------     ----   ---
                             1st Quarter        9.00   5.50
                             2nd Quarter        7.06   4.75
                             3rd Quarter        5.13   2.50
                             4th Quarter        4.50   1.75
</TABLE>


    On March 29, 1999, the last reported sale price for the Common Stock was
$2.375 per share. As of March 29, 1999, we had 356 record holders of Common
Stock plus an estimated 6,178 additional beneficial shareholders.

    In October and November 1996, we sold 2,645,000 Units in our initial public
offering at an offering price of $6.50 per Unit and received net proceeds from
the offering of approximately $15.2 million. Each Unit consisted of one share of
Common Stock and one Redeemable Class A Warrant which entitled the holder to
purchase one share of Common Stock at $8.50 per share. During July 1997,
2,637,840 of the outstanding 2,645,000 warrants were exercised, and we issued an
additional 2,637,840 shares and received net proceeds totaling approximately
$22.3 million.

    Famous Dave's Board of Directors has not declared any dividends on our
Common Stock since its inception, and does not intend to pay out any cash
dividends on its Common Stock in the foreseeable future. The Board of Directors
presently intends to retain all earnings, if any, to finance the development and
opening of additional Units. 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, our financial condition
and other factors deemed relevant by the Board of Directors.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS

OVERVIEW

    The business of Famous Dave's of America, Inc. is to develop, own and
operate casual dining restaurants under the name "Famous Dave's". As of January
3, 1999, we owned and operated twenty-two restaurants: fourteen in Minnesota,
four in Wisconsin, three in Iowa and one in Illinois with one additional unit
under development, a "Blues Club" (scheduled to open May 1999) in Chicago. In
addition, there was one restaurant operating in Minnesota under a franchise
agreement.

    Our future additional revenues and profits will depend upon various factors,
including additional market acceptance of the Famous Dave's concept, the quality
of the restaurant operations, the ability to successfully expand into new
markets, our ability to raise additional financing as required and general
economic conditions. There can be no assurance we will successfully implement
our expansion plans, in which case we will continue to be dependent on revenues
from existing operations. We also face all of the risks, expenses and
difficulties frequently encountered in the development of an expanding business.
Furthermore,


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<PAGE>   10

to the extent that our expansion strategy is successful, we must manage the
transition to multiple-site and higher-volume operations, the control of
overhead expenses and the addition and retention of necessary personnel.

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

    General and administrative expenses include all corporate and administrative
functions that serve to support existing operations and provide an
infrastructure to support future growth. Management, supervisory and staff
salaries, employee benefits, travel, rent, depreciation, general insurance and
marketing expenses are major items in this category. In addition, general and
administrative expenses for 1998 included costs (approximately $1.1 million)
related to the reduction of certain overhead and personnel due to revised growth
and expansion plans adopted during the year.

    As of January 1, 1996, we elected a 52 or 53 week fiscal year ending on the
Sunday nearest December 31. Before January 1, 1996, we used a fiscal year ending
on December 31. Fiscal 1996 and fiscal 1997 were 52-week years. Fiscal 1998 was
a 53-week year.

    We were formed in March 1994 and opened our first restaurant in Minneapolis
in June 1995. Through January 3, 1999, we had opened a total of twenty-four
restaurants, and closed two during the first six months of 1998.


OPERATING RESULTS

    Overall results of operations for the 53 weeks ended January 3, 1999 reflect
the opening of ten new units during fiscal 1998 and charges to earnings taken in
the first quarter of 1998 as we closed two restaurants ($1,589,000) and reduced
our corporate infrastructure ($1,146,000) to reflect our more controlled plans
for expansion. Our overall operating results for fiscal 1998 and fiscal 1997,
expressed as a percentage of net revenue, were as follows:

<TABLE>
<CAPTION>
                                                                FISCAL YEARS ENDED
                                                                ------------------
                                                            JANUARY 3,      DECEMBER 28,
                                                               1999            1997
                                                               ----         ------------
<S>                                                           <C>             <C>  
                Revenue, Net.........................         100.0           100.0

                Unit-Level Costs and Expenses:
                  Food and Beverage Costs............          35.6            37.1
                  Labor and Benefits.................          26.7            25.2
                  Operating Expenses.................          21.6            20.1
                  Depreciation and Amortization......           5.4             3.7
                  Pre-opening Expenses...............           3.3             7.3
                                                               ----            ----
                     Total Costs and Expenses........          92.6            93.4
                                                               ----            ----

                Income from Unit-level Operations....           7.4             6.6

                General and Administrative Expenses..          15.8            34.6
                Reserve for Loss on Closed Sites.....           3.9             0
                Loss from Operations.................         (12.3)          (28.0)

                Interest and Other Income (Expense)..           0.7             2.9
                Net Loss Before Cumulative Effect of
                Change in Accounting Principle.......         (11.6)          (25.1)
                Cumulative Effect of Change in
                Accounting Principle.................          (0.3)            0.0

                Net Loss.............................         (11.9)          (25.1)
                                                              ======          ======
</TABLE>


                                       10

<PAGE>   11


    A breakdown of our restaurant and non-restaurant operating results is as
follows (amounts in $000's):

<TABLE>
<CAPTION>
                                                            FISCAL YEAR ENDED JANUARY 3, 1999
                                                            ---------------------------------
                                           Restaurant Operations  Non-restaurant Operations   Total Company
                                           ---------------------  -------------------------   -------------
                                                     % of Net                 % of Net                % of Net
                                           Amount     Revenue      Amount      Revenue      Amount     Revenue
                                           ------     -------      ------      -------      ------     -------
<S>                                        <C>         <C>          <C>         <C>         <C>         <C>  
Revenue, Net.........................      38,517      100.0        2,244       100.0       40,761      100.0
                                           ------      -----        -----       -----       ------      -----

Unit-Level Costs and Expenses:
  Food and Beverage Costs............      13,139       34.1        1,364        60.8       14,503       35.6
  Labor and Benefits.................      10,677       27.7          225        10.1       10,902       26.7
  Operating Expenses.................       8,172       21.2          635        28.3        8,807       21.6
  Depreciation and Amortization......       2,178        5.7            3         0.1        2,181        5.4
  Pre-opening Expenses...............       1,326        3.4            0         0.0        1,326        3.3
                                           ------       ----        -----        ----       ------       ----
     Total Costs and Expenses........      35,492       92.1        2,227        99.3       37,719       92.6
                                           ------       ----        -----        ----       ------       ----

Income from Unit-level Operations....       3,025        7.9           17         0.7        3,042        7.4
                                           ------       ----        -----        ----       ------       ----

<CAPTION>
                                                           FISCAL YEAR ENDED DECEMBER 28, 1997
                                                           -----------------------------------
                                           Restaurant Operations  Non-restaurant Operations   Total Company
                                           ---------------------  -------------------------   -------------
                                                     % of Net                 % of Net                % of Net
                                           Amount     Revenue      Amount      Revenue      Amount     Revenue
                                           ------     -------      ------      -------      ------     -------
<S>                                        <C>         <C>          <C>         <C>         <C>         <C>  
Revenue, Net.............................. 16,726      100.0        1,476       100.0       18,202      100.0
                                           ------      -----        -----       -----       ------      -----

Unit-Level Costs and Expenses:
  Food and Beverage Costs.................  5,980       35.7          770        52.2        6,750       37.1
  Labor and Benefits......................  4,267       25.5          328        22.3        4,595       25.2
  Operating Expenses......................  3,309       19.9          357        24.2        3,666       20.1
  Depreciation and Amortization...........    673        4.0            9         0.6          682        3.7
  Pre-opening Expenses....................  1,324        7.9            0         0.0        1,324        7.3
                                           ------       ----        -----       -----       ------       ----
     Total Costs and Expenses............. 15,553       93.0        1,464        99.3       17,017       93.4
                                           ------       ----        -----       -----       ------       ----

Income (Loss) from Unit-level Operations..  1,173        7.0           12         0.7        1,185        6.6
                                           ------       ----        -----       -----        -----        ---
</TABLE>

    Our non-restaurant revenues consist primarily of retail grocery, catering
and special event sales in fiscal 1997 and retail grocery and special event
sales in fiscal 1998.

FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997

    Net Revenue -- Net revenue increased by $22,559,000 or 124% to $40,761,000
for the year ended January 3, 1999 from $18,202,000 for the year ended December
28, 1997. The increase in revenue was due primarily to an additional ten
restaurants opened during fiscal 1998, adding to the base of fourteen
restaurants open as of December 28, 1997 (approximately $14,722,000 of the
increase), the contribution of a full year of revenue from restaurants which
were open for only part of 1997 (approximately $8,383,000 of the increase) and
an increase in non-restaurant revenues (approximately $767,000 of the increase)
offset by a decline in revenue from restaurants open for all of both periods of
13.8% (or approximately $1,314,000). Because of the 1998 restaurant openings,
and expected additional restaurant openings in 1999, we anticipate net revenue
and operating costs and expenses to continue to increase during fiscal 1999. We
had no material menu price increases during fiscal 1998.

    Same Store Sales -- It is our policy to include in our same store sales base
restaurants that have been open more than eighteen months. During fiscal 1998,
there were only three restaurants included in this base. Same store sales for
fiscal 1998 decreased approximately 17.5% compared to fiscal 1997. Management
believes that this decrease primarily reflects the redistribution of customer
demand because of new units opened in the Minneapolis/St. Paul market during
1998.

    Average Weekly Sales -- Average weekly sales from restaurant operations
decreased from $51,600 to $38,100. During 1997, one restaurant location (the
Calhoun Blues Club) operated at very high revenue, and thus dominated the
average weekly sales statistics. During 1998, a number of additional Shack
locations opened, operated at lower volume levels and contributed the large
majority of store weeks to the year. In addition, the redistribution of customer
demand because of the new units opened in the Minneapolis/St. Paul market during
1998 also had the effect of reducing average weekly sales. Restaurant operating
weeks during fiscal 1998 totaled 1,011 compared to 324 in fiscal 1997. Average
weekly sales at units opened in fiscal 1998 


                                       11
<PAGE>   12

outside of the Minneapolis/St. Paul market have generally been higher than sales
at units within the Minneapolis/St. Paul area which management finds encouraging
as it expands into new markets.

    Food and Beverage Costs -- Food and beverage costs for fiscal 1998 were
$14,503,000 or 35.6% of net revenue compared to $6,750,000 or 37.1% for fiscal
1997. The decrease in food and beverage costs as a percent of net revenue was
primarily due to improved purchasing economies including contract pricing of
certain pork items, partially offset by costs associated with increased sales of
lower margin retail grocery items.

    Labor and Benefits -- Labor and benefits were $10,902,000 or 26.7% of net
revenue in fiscal 1998 compared to $4,595,000 or 25.2% of net revenue in fiscal
1997. The increase in labor and benefits as a percent of net revenue was
primarily attributable to the introduction of full table service in several
restaurants that were formerly counter service shacks as well as a heightened
emphasis on training and execution in our restaurants. 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 foodservers. The
migration toward full service dining in most of our restaurants is part of our
strategy for increasing unit-level revenue, but does result in higher labor
costs where foodservers labor is utilized until the increased revenue levels can
be realized.

    Operating Expenses -- Operating expenses for fiscal 1998 were $8,807,000 or
21.6% of net revenue compared to $3,666,000 or 20.1% of net revenue for fiscal
1997. The increase in operating expenses as a percent of revenue in fiscal 1998
compared to fiscal 1997 is primarily due to increases in fixed expenses (such as
utilities) as a percentage of revenue due to larger units and lower average
revenue per unit, repairs and maintenance costs and office costs, partially
offset by a decrease in marketing expense as a percent of net revenue. The
decline in revenue for existing units due to the increased number of restaurants
operating in our major market of Minneapolis resulted in a reduced absorption of
certain fixed costs, such as rent and utility costs.

    Depreciation and Amortization -- Unit-level depreciation and amortization
for fiscal 1998 was $2,181,000 or 5.4% of net revenue compared to $682,000 or
3.7% of net revenue for fiscal 1997. The increase in unit-level depreciation and
amortization as a percent of net revenue is due primarily to higher depreciation
expense resulting from increased construction costs of new units opened in
fiscal 1998. This increase occurred due to the addition of full service to our
Shack format, and the construction of two Lodge locations during the year. Also,
the reduction in revenue per unit as discussed above resulted in higher
depreciation and amortization expense as a percentage of revenue.

    Pre-opening Expenses --Before fiscal 1998, our policy was to defer
pre-opening costs and charge them to expense in the month a new restaurant
opened. Beginning in fiscal 1998, our policy became that of expensing
pre-opening costs as incurred. In the first quarter of fiscal 1998, we took a
$120,000 one-time charge against earnings as a cumulative effect of a change in
accounting principle to reflect this policy change. Pre-opening expenses were
$1,326,000 or 3.3% of net revenue for fiscal 1998 compared to $1,324,000 or 7.3%
of net revenue for fiscal 1997. These expenses reflect the opening of ten new
restaurants in fiscal 1998 compared to the opening of eleven new restaurants in
fiscal 1997.

    Income from Unit-level Operations -- Income from unit-level operations
totaled $3,042,000 or 7.4% of net revenue for fiscal 1998 compared to $1,185,000
or 6.6% of net revenue for fiscal 1997. Income from unit-level operations
represents income from operations before general and administrative expenses.
Although income from unit-level operations should not be considered an
alternative to income/loss from operations as a measure of our operating
performance, such unit-level measurement is commonly used as an additional
measure of operating performance in the restaurant industry and certain related
industries. The change in income from unit-level operations, both in amount and
as a percent of revenue, from 1997 to 1998 is primarily attributable to the
increase in net revenue from additional units opened. Other changes in costs and
expenses discussed above also contributed to the change in income from
unit-level operations.

    General and Administrative Expenses -- General and administrative expenses
increased to $6,451,000 or 15.8% of net revenue in fiscal 1998 from $6,290,000
or 34.6% of net revenue in fiscal 1997. Included in the 1998 amount is a
provision totaling $1,146,000 for severance and restructuring costs recorded in
the first quarter of 1998. Without this charge, general and administrative
expense would have been significantly less than in the preceding year. The
reduction in general and administrative expenses as a percentage of net revenue
reflects increased revenue and our adjustment of our corporate infrastructure to
a reduced level which management believes appropriate to support our current,
more controlled plans for expansion.



                                       12
<PAGE>   13

    Loss From Operations -- Loss from operations totaled ($4,997,000) or (12.3%)
of net revenue for fiscal 1998 compared to ($5,105,000) or (28.0%) of net
revenue for fiscal 1997. The loss from operations in 1998 reflects approximately
$2.7 million in expenses associated with a provision for disposition of two
restaurants and severance and restructuring charges taken in the first quarter
of 1998. Excluding these special provisions, the comparable loss from operations
for 1998 is ($2,262,000) or (5.5%).

    Interest and Other Income (Expense), Net -- Interest and other income
(expense), net, which primarily represents interest income from short-term
investments and franchise income offset by interest expense on capital lease
obligations, totaled $288,000 for fiscal 1998 compared to $530,000 for fiscal
1997. The decrease from fiscal 1997 to fiscal 1998 was due primarily to the
reduced level of short term investments in 1998.

    Net Loss/Net Loss per Share -- Net loss for fiscal 1998 was ($4,829,000)
compared to ($4,575,000) for fiscal 1997. Basic and diluted net loss per common
share was ($0.55) for fiscal 1998 compared to ($0.64)for fiscal 1997. The
computations of basic and diluted net loss per share reflect the adoption of
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" in 1997
as well as implementation of guidance from the Securities and Exchange
Commission Staff Accounting Bulletin No. 98 issued in February 1998. The
increase in the net loss in 1998 compared to 1997 is primarily due to the
provision for disposition of two restaurants and severance and restructuring
charges taken in the first quarter of fiscal 1998. The decrease in the basic and
diluted net loss per common share in 1998 is due to an increased number of
shares outstanding.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

    As of January 3, 1999, we held cash and short-term investments of
approximately $3.6 million compared to $18.3 million as of December 28, 1997. As
reflected in the accompanying consolidated financial statements, this decrease
in cash and short-term investments during the fifty-three weeks ended January 3,
1999 primarily represents cash used for the purchase and/or development of
property, equipment and leasehold improvements (approximately $14.0 million).

    As of January 3, 1999, we had irrevocable letters of credit outstanding for
a total of approximately $1.6 million, including a letter of credit for $1.5
million related to the Blues Club under construction in Chicago. Such letters of
credit are secured in full by the pledge of short-term securities.


    At January 3, 1999, we were a party to a credit agreement with a division of
a bank which provided $4.5 million of borrowing capability to us, of which
$683,000 was outstanding at year end. This facility is secured by substantially
all of our property, and in addition is guaranteed by and secured by certain of
the assets of our Chairman, David Anderson. The credit facility carries an
interest rate of 4% above the Prime Rate, and provides for borrowing up to a
maximum of 75% of the value of a collateral pool which consists of our property
and certain of the property pledged to secure the credit facility by Mr.
Anderson. The credit facility matures in April, 2000.

    During 1998, we negotiated extended credit terms with a major supplier of
ours, which were guaranteed by our Chairman, Dave Anderson. This facility was on
a short-term basis, and we have returned to standard credit terms with this
supplier as of January, 1999.

    On March 31, 1999 we closed on a sale-leaseback financing transaction that
provided net proceeds of approximately $4.4 million.

    To continue our expansion, we anticipate that additional financing will be
required during fiscal 1999. We anticipate that future development and expansion
will be funded or financed primarily through cash and short-term investments
currently held, proceeds from the sale of additional equity and/or debt
securities, and proceeds from other forms of financing such as lease financing
or other credit facilities. However, there are no assurances that additional
financing required for expansion will be available on terms acceptable or
favorable to us.


                                       13
<PAGE>   14


INCOME TAXES

    At January 3, 1999, we had federal and state net operating loss
carryforwards ("NOL's") for tax reporting purposes of approximately $9.7
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. We have
recorded a full valuation allowance against the deferred tax asset related to
the NOL's due to the uncertainty of realizing the related benefit.

QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION

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

    The primary inflationary factors affecting our operations include food and
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 believe low inflation rates have contributed to relatively stable costs.
There is no assurance, however, that low inflation rates will continue.

YEAR 2000 COSTS

    The Year 2000 will have a broad impact on the restaurant industry in which
we operate due to the possibility that many computerized systems across all
industries will be unable to process information containing dates beginning in
the Year 2000. We have begun to prepare our computer systems and applications
for the Year 2000 and are using both internal and external resources to
identify, correct and test the systems for Year 2000 compliance.

    First, we installed a new POS system in 1998. One vendor, which is one of
the larger suppliers to the restaurant industry, supplies all of the systems.
This vendor has assured us that the new POS system is Year 2000 compliant. In
addition, the vendor supplies us with regular upgrades and enhancements to
ensure Year 2000 compliance.

    Second, we have been assured that our accounting system is Year 2000
compliant. The vendor of our accounting system is a supplier of similar systems
to other companies in the multi-unit restaurant industry. We have received
assurance from this vendor of its readiness for Year 2000 issues. In addition,
we have received correspondence from this vendor that they are the "first to be
certified for Year 2000 compliance by the Information Technology Association of
America." We are enrolled in a maintenance program sponsored by the vendor that
entitles us to regular upgrades and enhancements to remain Year 2000 compliant.

    Third, we have been informed by our banking institution that the bank was
Year 2000 compliant by the end of 1998. The banking institution collects and
consolidates all deposits made by the restaurants and transmits the deposits to
a central location each day. Therefore, it is very important that the bank is
Year 2000 compliant so that we can continue to satisfy our payable obligations.
The bank has informed us that they are on schedule to perform the SEC "Street
Wide" test in March 1999.

    Finally, we purchase food products from two large suppliers. Both suppliers
have informed us of their readiness for the Year 2000. If, however, these two
suppliers do not meet Year 2000 compliance, we can receive similar products from
other suppliers operating in the same markets on short notice. The nature of our
business is such that the business risks associated with Year 2000 can be
reduced by working closely with the vendors supplying our restaurants with food
and related products.

    We do not believe the costs related to Year 2000 compliance will be material
to our financial statements or results of operations. However, the costs of Year
2000 compliance are based on management's best estimates, which were derived
using numerous assumptions of future events including the continued availability
of certain resources, third party modification plans and other factors.
Unanticipated failures by critical vendors, as well as our failure to execute
our own remediation efforts, could have a material adverse effect on the costs
relating to Year 2000 compliance. Therefore, there can be no assurance that
these forward-looking estimates will be achieved and the actual costs and vendor
compliance could differ dramatically from those plans, resulting in material
financial risk.




                                       14
<PAGE>   15

NEW ACCOUNTING PRONOUNCEMENTS

    In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS No. 130
establishes new rules for the reporting and display of comprehensive income and
its components in the financial statements. We currently do not have any other
comprehensive income, and therefore, will measure the impact of this statement
as it becomes necessary.

    In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting of the Costs of Start-up
Activities." SOP 98-5 is effective for financial statements issued for the years
beginning after December 15, 1998 with early adoption encouraged. We elected to
adopt SOP 98-5 in fiscal 1998. Prior to the adoption of SOP 98-5, we deferred
pre-opening costs until the month the related unit opened and in certain cases
prior to March 31, 1997 deferred such costs over no longer than a 12-month
period. Under the new requirements for accounting for pre-opening costs, the
subsequent costs of start-up activities are expensed as incurred. The cumulative
effect of this change in accounting principle was $120,000 and is reflected in
the statements of operations for the year ended January 3, 1999.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    Certain Statements in this Form 10-KSB constitute "Forward-Looking
Statements" within the meaning of the private securities litigation reform act
of 1995 (the "Reform Act"). Such Forward-Looking statements involve known and
unknown risks, uncertainties, and other factors which may cause our actual
results, performance, or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
additional market acceptance of the Famous Dave's concept; our ability to
successfully expand into new markets; our ability to execute our expansion
strategy; changes in business strategy or development plans; availability and
terms of capital; changes in costs of food, labor, and employee benefits;
changes in government regulations; competition; availability of locations and
terms of sites for restaurant development; development and operating costs;
advertising and promotional efforts; brand awareness and other factors
referenced in this Form 10-KSB.

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

    The consolidated financial statements of Famous Dave's of America, Inc. are
included herein following the signatures, beginning at page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None






                                       15
<PAGE>   16


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

    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-KSB.

ITEM 10. 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-KSB.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    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-KSB.

ITEM 12. 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-KSB.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

    (a) Exhibits.

        See "exhibit index" on the page following the Consolidated Financial
Statements.

    (b) Reports on Form 8-K.

        None.








                                       16
<PAGE>   17


SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                FAMOUS DAVE'S OF AMERICA, INC.
                                ("REGISTRANT")


Dated: April 5, 1999            By  /s/ Douglas S. Lanham  
                                    ------------------------
                                    Douglas S. Lanham
                                    Chief Executive Officer, President and
                                    Chief Operating Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on April 5, 1999 by the following persons on behalf
of the Registrant, in the capacities indicated.

<TABLE>
<CAPTION>
                       SIGNATURE                          TITLE

                       <S>                                <C>
                       /s/ David W. Anderson              Chairman of the Board
                       ---------------------
                       David W. Anderson

                       /s/Douglas S. Lanham               Chief Executive Officer, President,
                       --------------------               Chief Operating Officer and Director (principal
                       Douglas S. Lanham                  executive and financial officer)               

                       /s/Steven A. Sekely                Corporate Controller
                       -------------------                (Principal Accounting Officer)
                       Steven A. Sekely                                          

                       /s/ Thomas J. Brosig               Director
                       --------------------
                       Thomas J. Brosig

                       /s/ Richard L. Monfort             Director
                       ----------------------
                       Richard L. Monfort

                       /s/ Martin J. O'Dowd               Director
                       --------------------
                       Martin J. O'Dowd
</TABLE>






                                       17
<PAGE>   18
ITEM 7.  FINANCIAL STATEMENTS








                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To Famous Dave's of America, Inc.:

We have audited the accompanying consolidated balance sheets of Famous Dave's of
America, Inc. and Subsidiaries as of January 3, 1999 and December 28, 1997, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 financial position of Famous Dave's of
America, Inc. and Subsidiaries as of January 3, 1999 and December 28, 1997, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.



                                                  LUND KOEHLER COX & ARKEMA, LLP

Minneapolis, Minnesota
February 8, 1999


                                      F-1
<PAGE>   19
              FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                   (in thousands, except per share data)

<TABLE>


                                                                             JANUARY 3,      DECEMBER 28,
                                                                               1999             1997
                                                                            ------------   --------------
                                   ASSETS
CURRENT ASSETS:
<S>                                                                         <C>            <C>
  Cash and cash equivalents                                                 $      1,951   $        7,984
  Securities available-for-sale                                                    1,624           10,328
  Inventories                                                                        908              471
  Prepaids and other current assets                                                  824              819
                                                                            ------------   --------------
     Total current assets                                                          5,307           19,602

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET                               35,576           26,179

OTHER ASSETS - DEPOSITS                                                              286              240
                                                                            ------------   --------------
                                                                            $     41,169   $       46,021
                                                                            ============   ==============
                    LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                          $      4,173   $        5,718
  Current portion of capital lease obligations                                       403              361
  Note payable                                                                       683                0
  Other current liabilities                                                        1,837            1,444
                                                                            ------------   --------------
     Total current liabilities                                                     7,096            7,523
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION                                  1,000            1,390
                                                                            ------------   --------------
     Total liabilities                                                             8,096            8,913
                                                                            ------------   --------------
COMMITMENTS AND CONTINGENCIES (NOTE 12)

SHAREHOLDERS' EQUITY:
  Common stock, $.01 par value, 100,000 shares authorized,
   8,838 and 8,667 shares issued and outstanding                                      88               87
  Additional paid-in capital                                                      42,721           41,928
  Accumulated deficit                                                             (9,736)          (4,907)
                                                                            ------------   --------------
     Total shareholders' equity                                                   33,073           37,108
                                                                            ------------   --------------

                                                                            $     41,169   $       46,021
                                                                            ============   ==============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-2
<PAGE>   20
                 FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                     FOR THE YEARS ENDED
                                                                                ------------------------------
                                                                                 JANUARY 3,      DECEMBER 28,
                                                                                    1999            1997
                                                                                ------------    --------------
<S>                                                                             <C>             <C>           
REVENUE, NET                                                                    $     40,761    $       18,202
                                                                                ------------    --------------

COSTS AND EXPENSES:
  Food and beverage costs                                                             14,503             6,750
  Labor and benefits                                                                  10,902             4,595
  Operating expenses                                                                   8,807             3,666
  Depreciation and amortization                                                        2,181               682
  Pre-opening expenses                                                                 1,326             1,324
  Reserve for restaurant closings                                                      1,588                 0
  General and administrative                                                           6,451             6,290
                                                                                ------------    --------------
     Total costs and expenses                                                         45,758            23,307
                                                                                ------------    --------------
LOSS FROM OPERATIONS                                                                  (4,997)           (5,105)
                                                                                ------------    --------------
OTHER INCOME (EXPENSE):
  Interest income                                                                        407               913
  Interest expense                                                                      (146)             (151)
  Gain on sale of property                                                                 7                 0
  Franchise income                                                                        20                 0
  Reserve for loss on systems conversion                                                   0              (232)
                                                                                ------------    --------------
     Total other income (expense)                                                        288               530
                                                                                ------------    --------------
Net loss before cumulative effect of change in accounting principle                   (4,709)           (4,575)

Cumulative effect of change in accounting principle                                     (120)                0
                                                                                ------------    --------------
Net loss                                                                        $     (4,829)   $       (4,575)
                                                                                ============    ==============
Basic and diluted net loss per common share before cumulative
effect of change in accounting principle                                        $      (0.53)   $        (0.64)
                                                                                ============    ==============
Basic and diluted net loss per common share                                     $      (0.55)   $        (0.64)
                                                                                ============    ==============
Shares used in computing basic and diluted net loss per common share                   8,813             7,165
                                                                                ============    ==============
</TABLE>




          See accompanying notes to consolidated financial statements.







                                      F-3
<PAGE>   21
                FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
           FOR THE YEARS ENDED JANUARY 3, 1999 AND DECEMBER 28, 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                           Accumulated
                                                     Common Stock         Additional          Other
                                                  ------------------       Paid-in        Comprehensive    Accumulated
                                                   Shares     Amount       Capital           Income          Deficit       Total
                                                  -------- ---------      -----------     -------------    -----------   -----------

<S>                                               <C>        <C>          <C>             <C>              <C>           <C>        
BALANCE - DECEMBER 29, 1996                         6,001    $    60      $  19,587       $   (12)         $    (332)    $  19,303

  Exercise of Class A warrants at
  $8.50 per share, net of issuance costs
  and redemption of unexercised
  Class A warrants                                  2,638         26         22,301            --                 --        22,327

  Exercise of stock options                            28          1             40            --                 --            41

  Change in unrealized loss on
  securities available-for-sale                        --         --             --            12                 --            12

  Net loss                                             --         --             --            --             (4,575)       (4,575)
                                                  -------    -------      ---------       -------          ---------     ---------

BALANCE - DECEMBER 28, 1997                         8,667         87         41,928             0             (4,907)       37,108

   Exercise of stock options                          171          1            793            --                 --           794

   Net loss                                            --         --             --            --             (4,829)       (4,829)
                                                  -------    -------      ---------       -------          ---------     ---------
BALANCE - JANUARY 3, 1999                           8,838    $    88      $  42,721       $     0          $  (9,736)    $  33,073
                                                  =======    =======      =========       =======          =========     =========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>   22
                 FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                 FOR THE YEARS ENDED
                                                                            -----------------------------
                                                                             JANUARY 3,     DECEMBER 28,
                                                                               1999            1997
                                                                            ------------  ---------------
OPERATING ACTIVITIES:
<S>                                                                         <C>           <C>
  Net loss                                                                  $     (4,829) $        (4,575)
  Adjustments to reconcile net loss to
  cash flows from operating activities:
    Depreciation and amortization                                                  2,560              902
    Reserve for restaurant closings                                                1,588                0
    Reserve for other capital items                                                  260                0
    Reserve for loss on systems conversion                                             0              232
    Loss on disposal of property and equipment                                       253                0
    Changes in working capital items:
     Inventories                                                                    (437)            (304)
     Prepaids and other current assets                                                (5)            (324)
     Other assets - deposits                                                         (46)             (81)
     Accounts payable                                                             (1,545)           5,272
     Other current liabilities                                                       393            1,249
                                                                            ------------  ---------------
      Cash flows from operating activities                                        (1,808)           2,371
                                                                            ------------  ---------------

INVESTING ACTIVITIES:
  Purchase of available-for-sale securities                                       (9,053)         (32,608)
  Proceeds from available-for-sale securities                                     17,757           31,709
  Purchases of property, equipment and leasehold improvements                    (14,058)         (20,123)
                                                                            ------------  ---------------
      Cash flows from investing activities                                        (5,354)         (21,022)
                                                                            ------------  ---------------

FINANCING ACTIVITIES:
  Proceeds from exercise of Class A warrants, net of issuance costs                    0           22,327
  Proceeds from exercise of stock options                                            794               41
  Advances on note payable                                                           683                0
  Payments on note payable                                                             0             (390)
  Payments on capital lease obligations                                             (348)            (250)
                                                                            ------------  ---------------
      Cash flows from financing activities                                         1,129           21,728
                                                                            ------------  ---------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  (6,033)           3,077

CASH AND CASH EQUIVALENTS, BEGINNING                                               7,984            4,907
                                                                            ------------  ---------------
CASH AND CASH EQUIVALENTS, ENDING                                           $      1,951  $         7,984
                                                                            ============  ===============
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       F-5
<PAGE>   23



                 FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      JANUARY 3, 1999 AND DECEMBER 28, 1997

(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS - Famous Dave's of America, Inc. (the Company) was
incorporated in Minnesota on March 14, 1994. The Company develops, owns,
operates and franchises restaurants under the name "Famous Dave's". As of
January 3, 1999, the Company had twenty-two restaurants in operation, with
additional restaurants in development. The Company closed two restaurants and
franchised one Minnesota restaurant during 1998.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Famous Dave's of America, Inc. and its wholly owned subsidiaries.
All significant intercompany transactions and balances have been eliminated in
consolidation.

FISCAL YEAR - The Company has adopted a 52/53 week accounting period ending on
the Sunday nearest December 31 of each year. Fiscal year 1998 was a 53 week year
and fiscal year 1997 was a 52 week year.

CASH AND CASH EQUIVALENTS - The Company includes as cash equivalents
certificates of deposit and all other investments with original maturities of
three months or less when purchased which are readily convertible into known
amounts of cash. The Company deposits its cash in high credit quality financial
institutions. The balances, at times, may exceed the federally insured limits.

INVENTORIES - Inventories consist principally of food, beverages and retail
goods and are recorded at the lower of cost (first-in, first-out) or market.

DEPRECIATION - 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 five to seven
years, while buildings are depreciated up to thirty years. Leasehold
improvements are amortized using the straight-line method over 20 years.

ADVERTISING COSTS - Advertising costs are charged to expense as incurred.
Advertising costs were $688,217 and $656,362 for the years ended January 3, 1999
and December 28, 1997.

PRE-OPENING EXPENSES - The Company's policy is to expense as incurred all
start-up and pre-opening costs associated with a new restaurant. Prior to fiscal
1998, the Company capitalized these costs and charged them to operations in the
month the restaurant opened and in certain cases, charged these costs to expense
over no longer than a twelve-month period following the opening of the
restaurant.



                                      F-6
<PAGE>   24


                 FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                      JANUARY 3, 1999 AND DECEMBER 28, 1997

NET LOSS PER COMMON SHARE - During 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (Statement 128) for
all periods shown. Statement 128 requires disclosures of basic earnings per
share (EPS) and diluted EPS, which replaces the existing primary EPS and fully
diluted EPS, as defined by APB No. 15. Basic EPS is computed by dividing net
loss by the weighted average number of shares of common stock outstanding during
the year. Diluted EPS is computed by dividing net loss by the weighted average
common shares outstanding and dilutive common equivalent shares assumed to be
outstanding during each period. In addition, the Company has implemented recent
guidance from the Securities and Exchange Commission issued in February 1998
regarding the implementation of Statement 128. Dilutive common equivalent shares
have not been included in the computation of diluted EPS because their inclusion
would be antidilutive. Antidilutive common equivalent shares issuable based on
future exercise of stock options or warrants could potentially dilute basic EPS
in subsequent years.

MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management 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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.

FINANCIAL INSTRUMENTS - The carrying amounts for all financial instruments
approximates fair value. The carrying amounts for cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities approximate fair
value because of the short maturity of these instruments. The fair value of
capital lease obligations approximates the current rates at which the Company
could borrow funds with similar remaining maturities.

NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting Standards
Board ("FASB") issued Statement No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components in the financial statements. The Company
currently does not have any other comprehensive income, and therefore, will
measure the impact of this statement as it becomes necessary.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting of the Costs of Start-up
Activities." SOP 98-5 is effective for financial statements issued for the years
beginning after December 15, 1998 with early adoption encouraged. The Company
elected to adopt SOP 98-5 in fiscal 1998. Prior to the adoption of SOP 98-5,
pre-opening costs were deferred until the month the related unit opened and in
certain cases prior to March 31, 1997 deferred such costs over no longer than a
12-month period. Under the new requirements for accounting for pre-opening
costs, the subsequent costs of start-up activities are expensed as incurred. The
cumulative effect of this change in accounting principle was $120,000 and is
reflected in the statements of operations for the year ended January 3, 1999.

RECLASSIFICATIONS - Certain accounts in the prior year consolidated financial
statements have been reclassified for comparative purposes to conform with the
presentation in the current year consolidated financial statements.
These reclassifications had no effect on net loss or shareholders' equity.

                                       F-7

<PAGE>   25

                 FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                      JANUARY 3, 1999 AND DECEMBER 28, 1997

(2) SECURITIES AVAILABLE-FOR-SALE

Securities available-for-sale are reported at fair value and are due within one
year of the financial statement date. At January 3, 1999 and December 28, 1997,
$1,624,300 of these securities had been pledged as collateral for outstanding
letters of credit (see note 12).

(3) INVENTORIES

Inventories consisted of the following at (in thousands):

<TABLE>
<CAPTION>
                                                      January 3,   December 28, 
                                                       1999           1997
                                                      ---------    ------------ 
<S>                                                   <C>            <C>          
              Food and beverage                       $   236        $  153
              Retail goods                                672           318
                                                      =======        ======
                                                      $   908        $  471
                                                      =======        ======
</TABLE>


(4) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements consisted of the following at (in
thousands):

<TABLE>
<CAPTION> 

                                                              January 3,   December 28, 
                                                                1999           1997
                                                              ---------    ------------ 
<S>                                                           <C>            <C>          
Land, buildings and improvements                              $ 27,446       $ 16,508
Furniture, fixtures and equipment                               10,691          7,120
Antiques                                                         1,456          1,187
Less: accumulated depreciation and amortization                  3,610          1,100
Less: reserve for restaurant closings                            1,588              0
Less: reserve for loss on system conversion                        493            232
                                                              --------       --------
                                                                33,902         23,483
Construction in progress                                         1,674          2,696
                                                              ========       ========
                                                              $ 35,576       $ 26,179
                                                              ========       ========
</TABLE>


(5) LINE OF CREDIT

The Company has a $4,500,000 revolving line of credit with BNC Financial
Corporation, of which $683,000 was outstanding at January 3, 1999. Advances are
due upon demand and accrue interest at the prime rate plus 4% (11.75% at January
3, 1999) payable monthly. The note is secured by substantially all of the
Company's assets and is personally guaranteed (and partially secured) by the
Chairman of the Company. The agreement expires on April 30, 2000. The agreement
is subject to certain covenants as described in the agreement.




                                       F-8
<PAGE>   26

                 FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                      JANUARY 3, 1999 AND DECEMBER 28, 1997

(6) RELATED PARTY TRANSACTIONS

S&D LAND HOLDINGS, INC. - S&D Land Holdings, Inc. (S&D) is a company wholly
owned by the Chairman of the Company. The Company rents four properties from
S&D. The Company paid S&D rent of $318,000 and $169,000 for the years ended
January 3, 1999 and December 28, 1997. The Company owed S&D $318,000 and
$172,000 at January 3, 1999 and December 28, 1997.

GRAND PINES RESORTS, INC. - Grand Pines Resorts, Inc. (Grand Pines), is a
company wholly owned by the Chairman of the Company. The Company charges Grand
Pines a royalty of 4% of its food sales. Royalty income was $62,000 and $56,000
for the years ended January 3, 1999 and December 28, 1997. Until July 1997, the
Company also provided certain management services to Grand Pines for 3% of its
food sales. Management fee income was $15,000 for the year ended December 28,
1997. At January 3, 1999 and December 28, 1997, Grand Pines owed the Company
$80,000 and $190,000 for royalties, management services and other expenses.

(7) CAPITAL LEASE OBLIGATIONS

The Company has a lease financing facility for furniture, equipment and
leasehold improvements, of which approximately $2.0 million has been funded.
Leases outstanding under this agreement bear interest at rates of approximately
11% to 15% and expire through August 2002. The obligations are secured by the
equipment under lease. Total cost and accumulated amortization of the leased
equipment was $2,066,000 and $572,000 at January 3, 1999 and $2,066,000 and
$271,000 at December 28, 1997.

Future minimum lease payments are as follows for the fiscal years ending (in
thousands):

<TABLE>
<S>                                                                           <C>           
              1999                                                            $         539 
              2000                                                                      531 
              2001                                                                      444 
              2002                                                                      157 
                                                                              -------------
              Total                                                                   1,671
              Less: amounts representing interest                                       268
                                                                              -------------
              Present value of future minimum lease payments                          1,403
              Less: current portion                                                     403
                                                                              =============
              Obligations under capital leases, net of current portion        $       1,000
                                                                              =============
</TABLE>

              
(8) SHAREHOLDERS' EQUITY

EXERCISE OF WARRANTS - During June 1997, the holders of 2,637,840 outstanding
Redeemable Class A Warrants (the Warrants) exercised their Warrants at an
exercise price of $8.50. A total of 7,160 warrants were not exercised and were
redeemed for $.01 per warrant. Net proceeds to the Company were approximately
$22,327,000.



                                       F-9
<PAGE>   27

                 FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                      JANUARY 3, 1999 AND DECEMBER 28, 1997

STOCK OPTION PLAN - The Company has a 1995 Stock Option and Compensation Plan,
1997 Employee Stock Option Plan and a 1998 Director Stock Option Plan (the
Plans), pursuant to which options and other awards to acquire an aggregate of
1,550,000 shares of the Company's common stock may be granted. Stock options,
stock appreciation rights, restricted stock, other stock and cash awards may be
granted under the Plans. In general, options vest over a period of five years
and expire ten years from the date of grant.

The Company applies APB Opinion 25 "Accounting for Stock Issued to Employees"
and related Interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for its stock options. Had compensation
cost for the Company's stock options been determined based on the fair value at
the grant dates consistent with the method of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock Based Compensation" (Statement 123), the
Company's net loss would have been increased to the proforma amounts indicated
below (in thousands, except per share data):

<TABLE>
                                                            Fiscal 1998          Fiscal 1997      
                                                            -----------          -----------      
         Net loss:                                                                                
<S>                                                          <C>                <C>                  
           As reported                                       $   4,829          $   4,575  
           Pro forma                                         $   6,129          $   5,646  
         Loss per share:                                                                          
           Basic and Diluted EPS as reported                 $    (.55)         $    (.64)  
           Basic and Diluted EPS pro forma                   $    (.70)         $    (.79)
</TABLE>


Information regarding the Company's stock options is summarized below:

<TABLE>
<CAPTION>
                                                               Fiscal 1998                               Fiscal 1997
                                                 -------------------------------------     -------------------------------------
                                                      Shares          Weighted Average          Shares          Weighted Average
                                                  (in thousands)       Exercise Price       (in thousands)       Exercise Price
                                                 ---------------      ----------------      --------------      ----------------    
<S>                                                <C>                  <C>                    <C>                <C>    
Options outstanding, beginning of year                  1,073           $      7.34                  515          $    3.90
  Granted                                                 381                  2.00                  609               9.76
  Canceled                                                280                  7.51                   23               1.83
  Exercised                                               170                  4.66                   28               1.45
                                                   ----------                                  ---------
Options outstanding, end of year                        1,004           $      1.81                1,073          $    7.34
                                                   ==========           ===========             ========          ========= 
Options exercisable, end of year                          198           $      1.78                  132          $    4.46
                                                   ==========           ===========             ========          ========= 
Weighted average fair value of                                                                
  Options granted during the year                                       $      5.19                               $    8.35
                                                                        ===========                               ========= 
</TABLE>


Options outstanding at January 3, 1999 have an exercise price ranging between
$1.00 and $2.00 and a weighted average remaining contractual life of 7.32 years.
The options outstanding and exercisable at January 3, 1999 reflect options
repriced in October 1998.



                                      F-10
<PAGE>   28

                 FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                      JANUARY 3, 1999 AND DECEMBER 28, 1997

In determining the compensation cost of the options granted during 1998 and
1997, as specified by Statement 123, the fair value of each option grant has
been estimated on the date of grant using the Black-Scholes option pricing model
and the weighted average assumptions used in these calculations are summarized
below:

<TABLE>
<CAPTION>
                                                           Fiscal 1998          Fiscal 1997     
                                                       -------------------  ------------------- 
<S>                                                               <C>                  <C>
          Risk free interest rate                                       7%                   7% 
          Expected life of options granted                        10 years             10 years 
          Expected volatility                                       112.4%                80.6% 
          Expected dividend yield                                       0%                   0% 
</TABLE>


(9) INCOME TAXES

The Company was an S Corporation until March 3, 1996 and incurred losses
totaling $681,000 through that date. Accordingly, these losses were recognized
by the Company's founding shareholder on his personal tax returns.
These losses were reclassified to additional paid-in capital during 1996.

From March 4, 1996 through January 3, 1999 the Company generated a net operating
loss of approximately $9,736,000 which, if not used, will begin to expire in
2011. Future changes in the ownership of the Company may place limitations on
the use of this net operating loss carryforward. The Company has recorded a full
valuation allowance against its deferred tax asset due to the uncertainty of
realizing the related benefit as follows: (in thousands).

<TABLE>
<CAPTION>
                                                          January 3,          December 28,
                                                             1999                 1997    
                                                        -------------        --------------     
<S>                                                      <C>                  <C>                   
          Net operating loss carryforward                $    3,894           $    1,986   
          Less: valuation allowance                           3,894                1,986   
                                                         ----------           ----------   
            Net deferred taxes                           $        0           $        0   
                                                         ==========           ==========
</TABLE>
   
          
(10) SUPPLEMENTAL CASH FLOWS INFORMATION (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                Fiscal 1998       Fiscal 1997
                                                                -----------       -----------    
<S>                                                               <C>               <C>             
Cash paid for interest                                            $   146           $    151
                                                                  =======           ========      

Noncash investing and financing activities:
  Equipment purchased under capital lease
   Obligations                                                    $     0           $  1,097
                                                                  =======           ========      

  Change in unrealized loss on securities
   available-for-sale                                             $     0           $     12
                                                                  =======           ========     
</TABLE>

                                      F-11
<PAGE>   29

                 FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                      JANUARY 3, 1999 AND DECEMBER 28, 1997

(11) RETIREMENT SAVINGS PLAN

In July 1997, the Company implemented 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. Profit sharing
contributions by the Company are completely discretionary. The Company made
contributions totaling $30,000 and $12,000 for the years ended January 3, 1999
and December 28, 1997.

(12) COMMITMENTS AND CONTINGENCIES

OPERATING LEASES - The Company has entered into various operating leases for its
existing and future restaurants and corporate office space with lease terms
ranging from three to thirty years including lease options. One of the leases
requires a percentage rent of 5% of annual gross sales for the restaurant in
excess of $2,813,000, in addition to the base rent. All of these leases contain
provisions for payments of real estate taxes, insurance and common area costs.
Total rent expense for the years ended January 3, 1999 and December 28,1997,
including common area costs, real estate taxes and percentage rent, was
$1,866,000 and $728,000.

Future minimum rental payments (excluding percentage rents) for the operating
leases described above are as follows for the years (in thousands):

<TABLE>
<CAPTION>
<S>                                                      <C>                 
              1999                                       $    1,555 
              2000                                            1,514 
              2001                                            1,531 
              2002                                            1,560 
              2003                                            1,539 
              Thereafter                                     18,895 
                                                         ---------- 
                  Total                                  $   26,594 
                                                         ========== 
</TABLE>
              
EMPLOYMENT AGREEMENT - At January 3, 1999, the Company had an employment
agreement with one of its officers. The agreement requires minimum annual
compensation of $225,000 and expires in 2001. The agreement requires a one year
severance payment with a resulting two-year non compete.

CONSTRUCTION AND DEVELOPMENT CONTRACTS - In conjunction with its expansion
activity, the Company enters into fixed price construction contracts from time
to time. At January 3, 1999, the Company had a commitment outstanding for
construction of a Blues Club in Chicago. As of January 3, 1999, the balance
remaining to be paid under this contract was approximately $2.8 million.

In addition, the Company has entered into a contract with a national real estate
services firm to provide real estate development and construction management
services for the development of a minimum of six restaurants in the future. The
remaining commitment under this contract was $156,000 at January 3,1999.



                                      F-12
<PAGE>   30

                 FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                      JANUARY 3, 1999 AND DECEMBER 28, 1997

LETTERS OF CREDIT - At January 3, 1999 and December 28, 1997, the Company had
irrevocable letters of credit outstanding for a total of $1,624,300, including a
letter of credit for $1.5 million related to a Blues Club under construction in
Chicago. Such letters of credit are secured in full by certificates of deposit.

(13) SUBSEQUENT EVENTS (INCLUDING UNAUDITED SUBSEQUENT EVENT)

On January 11, 1999, the Company entered into an a sublease agreement for its
corporate office space. The lease requires monthly payments of $7,621 and also
requires the Company to pay its prorata share of real estate taxes and operating
expenses. The lease expires on January 31, 2003.

In March 1999, the Company closed on a lease financing involving three of its
existing units. Net proceeds received from this financing totaled approximately
$4.4 million. Under this financing the Company is obligated to make monthly
payments of $41,250 for a minimum period of twenty years.

(14) SELECTED QUARTERLY DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                Quarters During the Year Ended January 3, 1999
                                              ----------------------------------------------------------------------------------- 
                                                   March 29              June 28           September 27         January 3
                                                 ------------         -------------      ----------------     --------------    
<S>                                              <C>                  <C>                  <C>                  <C>                 
Revenue                                          $   7,734            $   10,925           $   10,916           $  11,186
Income (loss) from operations                    $  (4,394)           $     (368)          $      101           $    (336)
Net income (loss)                                $  (4,379)           $     (310)          $      134           $    (274)
Basic and diluted net income (loss) 
      per common share                           $    (.50)           $     (.04)          $      .02           $    (.03)

<CAPTION>
                                                               Quarters During the Year Ended December 28, 1997
                                              ------------------- --------------------- -------------------- -------------------- 
                                                   March 30              June 29            September 28         December 28
                                              ---------------         -------------      ----------------      --------------- 
<S>                                              <C>                  <C>                  <C>                  <C>                 
Revenue                                          $   2,241            $    3,797           $    6,102           $   6,062
Loss from operations                             $    (758)           $   (1,041)          $   (1,063)          $  (2,243)
Net loss                                         $    (619)           $     (921)          $     (849)          $  (2,186)
Basic and diluted net loss
per common share                                 $    (.10)           $     (.15)          $     (.11)          $    (.25)
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                                      F-13


<PAGE>   31



                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

    EXHIBIT
      NO.     DESCRIPTION                                                                                  PAGE NO.
    -------   -----------                                                                                  --------
<S>           <C>                                                                                          <C> 
      3.1     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, 1996 (the "1996 SB-2")
      3.2     Bylaws, incorporated by reference from Exhibit 3.2 to the 1996
              SB-2
     10.1     Lease Agreement dated as of January 1, 1996 by and between S&D
              Land Holdings, Inc. and Famous Dave's of Minneapolis, Inc. (Linden
              Hills), incorporated by reference from Exhibit 10.1 to the 1996
              SB-2
     10.2     Lease Agreement dated as of January 1, 1996 by and between S&D
              Land Holdings, Inc. and Famous Dave's of Minneapolis, Inc.
              (Highland Park), incorporated by reference from Exhibit 10.2 to
              the 1996 SB-2
     10.3     Lease Agreement dated as of January 15, 1996 by and between S&D
              Land Holdings, Inc. and Famous Dave's of Minneapolis, Inc.
              (Minnetonka), incorporated by reference from Exhibit 10.3 to the
              1996 SB-2
     10.4     Sublease Agreement dated as of January 1, 1996 by and between S&D
              Land Holdings, Inc. and Famous Dave's of Minneapolis, Inc.
              (Roseville), incorporated by reference from Exhibit 10.4 to the
              1996 SB-2
     10.6     1995 Stock Option and Compensation Plan, incorporated by reference
              from Exhibit 10.7 to the 1996 SB-2
     10.7     Amendment dated August 12, 1996 to our 1995 Stock Option and
              Compensation Plan, incorporated by reference from Exhibit 10.13 to
              Amendment No. 1 to the 1996 SB-2
     10.8     Amendment dated February 4, 1997 to our 1995 Stock Option and
              Compensation Plan, incorporated by reference from our Form 10-KSB
              for the fiscal year ended December 29, 1996 (the "1996 10-KSB")
     10.12    Employment Agreement dated as of January 23, 1997 between Famous
              Dave's of America, Inc. and Douglas S. Lanham, incorporated by
              reference from our 1996 10-KSB
     10.13    Trademark License Agreement between Famous Dave's of America, Inc.
              and Grand Pines Resorts, Inc., incorporated by reference from
              Exhibit 10.11 to the 1996 SB-2
     10.15    1997 Employee Stock Option Plan
     10.16    Amendment, dated as of February 15, 1998, to our 1997 Stock Option
              Plan 
     21       Subsidiaries of Famous Dave's of America, Inc., Incorporated by reference from 
              Exhibit 21 to the Company's 10-KSB for the fiscal year ended December 28, 1998
     23       Consent of Lund Koehler Cox & Arkema, LLP
     27       Financial Data Schedule

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