<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended June 28, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
-------------------- --------------------
Commission file number 0-21625
FAMOUS DAVE'S OF AMERICA, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Minnesota 41-1782300
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7279 Flying Cloud Drive, Eden Prairie, MN 55344
(Address of Principal Executive Offices)
(612) 833-9300
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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
--- ---
At August 10, 1998 there were 8,827,590 shares of common stock, $.01 par value,
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
1
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FAMOUS DAVE'S OF AMERICA, INC.
Form 10-QSB Index
June 28, 1998
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
June 28, 1998 and December 28, 1997
Condensed Consolidated Statements of Operations - 4
for the thirteen weeks ended June 28, 1998 and June
29, 1997 and for the twenty-six weeks ended June
28, 1998 and June 29, 1997
Condensed Consolidated Statements of Cash Flows - 5
for the twenty-six weeks ended June 28, 1998 and
June 29, 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Items 1, 4, 5 and 6. 13
Signatures 14
2
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 28, December 28,
1998 1997
------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,024,000 $ 7,984,000
Available-for-sale securities 2,995,000 10,328,000
Inventories 696,000 471,000
Prepaids and other current assets 957,000 1,059,000
------------ ------------
Total current assets 8,672,000 19,842,000
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 30,921,000 26,179,000
------------ -------------
$ 39,593,000 $ 46,021,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,474,000 $ 5,718,000
Current portion of capital lease
obligations 382,000 361,000
Other current liabilities 1,341,000 1,444,000
------------ ------------
Total current liabilities 5,197,000 7,523,000
CAPITAL LEASE OBLIGATIONS, NET OF
CURRENT PORTION 1,194,000 1,390,000
------------ ------------
Total liabilities 6,391,000 8,913,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
100,000,000 shares authorized,
8,827,590 and 8,667,090 shares
issued and outstanding 88,000 87,000
Additional paid-in capital 42,711,000 41,928,000
Accumulated deficit (9,597,000) (4,907,000)
------------ ------------
Total shareholders' equity 33,202,000 37,108,000
------------ ------------
$ 39,593,000 $ 46,021,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------------- ----------------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES, NET $ 10,925,000 $ 3,797,000 $ 18,659,000 $ 6,038,000
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Food and beverage costs 3,955,000 1,403,000 6,687,000 2,183,000
Labor and benefits 2,909,000 847,000 5,065,000 1,419,000
Restaurant operating expenses 2,039,000 694,000 3,690,000 1,150,000
Depreciation and amortization 557,000 114,000 994,000 238,000
Pre-opening expenses 399,000 282,000 909,000 283,000
General and administrative 1,434,000 1,498,000 3,343,000 2,565,000
Severance and resturucturing expense 0 0 1,146,000 0
Provision for loss on restaurants to be disposed 0 0 1,589,000 0
------------ ------------ ------------ ------------
Total costs and expenses 11,293,000 4,838,000 23,423,000 7,838,000
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (368,000) (1,041,000) (4,764,000) (1,800,000)
Interest and other income (expense), net 58,000 120,000 194,000 259,000
------------ ------------ ------------ ------------
NET LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (310,000) (921,000) (4,570,000) (1,541,000)
------------ ------------ ------------ ------------
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 0 0 (120,000) 0
------------ ------------ ------------ ------------
NET LOSS $ (310,000) $ (921,000) $ (4,690,000) $ (1,541,000)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER COMMON
SHARE BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE $ (0.04) $ (0.15) $ (0.52) $ (0.26)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.04) $ (0.15) $ (0.53) $ (0.26)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 8,827,590 6,022,618 8,794,332 6,017,615
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
-----------------------------
June 28, June 29,
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(4,690,000) $(1,541,000)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation and amortization 1,175,000 321,000
Reserve for restaurant closings 1,589,000 0
Reserve for other capital items 679,000 0
Changes in working capital items -
Inventories (225,000) (105,000)
Prepaids and other current assets (88,000) (235,000)
Accounts payable (2,244,000) 892,000
Other current liabilities (103,000) 348,000
----------- -----------
Cash flows from operating activities (3,907,000) (320,000)
----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property, equipment
and leasehold improvements (7,995,000) (5,876,000)
Net decrease in securities available-for-sale 7,333,000 2,541,000
Purchase of intangibles 0 (17,000)
Net change in pre-opening expenses 0 63,000
----------- -----------
Cash flows from investing activities (662,000) (3,289,000)
----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Advances (payments) on notes payable 0 (473,000)
Payments on capital lease obligations (175,000) (83,000)
Prepaid equity issuance costs paid 0 (17,000)
Proceeds from exercise of stock options 784,000 23,000
----------- -----------
Cash flows from financing activities 609,000 (550,000)
----------- -----------
DECREASE IN CASH
AND CASH EQUIVALENTS (3,960,000) (4,159,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,984,000 4,907,000
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,024,000 $ 748,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1998
(UNAUDITED)
(1) GENERAL
The business of Famous Dave's of America, Inc. and subsidiaries (the
"Company") is to develop and operate American roadhouse-style barbeque
restaurants under the name "Famous Dave's." As of June 28, 1998, the Company
operated nineteen restaurants and had four additional units in development. As
of June 29, 1997, the Company operated five restaurants.
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
interim condensed financial statements be read in conjunction with the Company's
most recent audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 28,
1997. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods presented
have been made. Operating results for the thirteen and twenty-six week periods
ended June 28, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending January 3, 1999.
Certain amounts in the fiscal 1997 financial statements have been
reclassified to conform to the fiscal 1998 presentation with no impact on
previously reported net loss or shareholders' equity.
(3) INITIAL PUBLIC STOCK OFFERING/EXERCISE OF CLASS A WARRANTS
During October and November 1996, the Company sold, in an initial public
offering, 2,645,000 units consisting of one share of common stock and one
Redeemable Class A Warrant for $6.50 per unit. Net proceeds to the Company
totaled approximately $15.2 million. Each Redeemable Class A Warrant entitled
the holder to purchase one share of common stock for $8.50 per share.
In June 1997, the Company called for the redemption of its Class A
Warrants, giving warrant holders 30 days notice to exercise their warrants prior
to redemption by the Company. During July 1997, the warrant call was completed
with 2,637,000 of the outstanding 2,645,000 warrants being exercised. Net
proceeds to the Company from such exercises totaled approximately $22.3 million.
(4) INCOME (LOSS) PER COMMON SHARE
Basic earnings per share (EPS) is computed by dividing net loss by the
weighted average number of common shares outstanding during the quarter. 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. 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.
6
<PAGE> 7
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 28, 1998
(UNAUDITED)
(5) PRE-OPENING COSTS
In 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
98-5 ("SOP 98-5") entitled "Reporting on the Costs of Start-Up Activities." This
accounting standard requires entities to expense as incurred all start-up and
pre-opening costs that are not otherwise capitalizable as long-lived assets.
This new accounting standard is effective for fiscal years beginning after
December 15, 1998 with early adoption encouraged. The Company elected to adopt
SOP 98-5 in fiscal 1998. The cumulative effect of this change in accounting
principle was $120,000 and was reflected in the quarter ended March 29, 1998.
Prior to the adoption of SOP 98-5, the Company 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.
(6) SEVERANCE AND RESTRUCTURING
In March 1998, the Company recorded a provision totaling $1,146,000 for
severance and restructuring. This amount includes severance costs, real estate
costs and a provision for write-off of a discontinued point-of-sale system.
(7) PROVISION FOR LOSS ON RESTAURANTS TO BE DISPOSED OF
In March 1998, the Company implemented a plan to close two restaurants. As
part of this plan, the Company has recorded a provision of $1,589,000 to reduce
the carrying value of the assets related to these restaurants to their estimated
net realizable value.
(7) RELATED PARTY TRANSACTIONS
S&D LAND HOLDINGS, INC. - The Company leases the real estate for four of
its current or proposed units from S&D Land Holdings, Inc., a company wholly
owned by the Company's founding Shareholder.
(8) INCOME TAXES
The Company was an S Corporation through March 3, 1996. Accordingly,
losses incurred through March 3, 1996 have been recognized by the Company's
founding shareholder. From March 4, 1996 though December 28, 1997, the Company
generated a net operating loss of approximately $4,907,000 which, if not used,
will expire in 2012. During the twenty-six weeks ended June 28, 1998,
an additional net operating loss of approximately $4,690,000 was generated
which, if not used, will expire in 2013. Future changes in the ownership of the
Company may place limitations on the use of these net operating loss
carryforwards. The Company has recorded a full valuation allowance against its
deferred tax asset due to the uncertainty of realizing the related benefit.
(9) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for the reporting of comprehensive income
and its components in a full set of general-purpose financial statements. The
Company adopted SFAS 130 in fiscal 1998. Such adoption had no material effect on
the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company will adopt SFAS 131 for annual 1998 financial reporting
and has not yet evaluated the impact of such adoption on the notes to its annual
consolidated financial statements.
7
<PAGE> 8
ITEM 2.
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The business of Famous Dave's of America, Inc. and subsidiaries (the
"Company") is to develop and operate American roadhouse-style barbeque
restaurants under the name "Famous Dave's." As of June 28, 1998, the Company
operated nineteen restaurants, twelve in Minnesota, four in Wisconsin, two in
Iowa and one in Illinois with four additional units in development, two in
Minnesota, one in Iowa and a "Blues Club" (Scheduled to open in second quarter
of 1999) in Illinois.
The Company was formed in March 1994 and opened its first restaurant in the
Linden Hills neighborhood of Minneapolis in June 1995. Through June 28, 1998,
the Company had opened a total of twenty-one restaurants, and closed two during
the first six months of 1998. The Company currently operates three "Lodge"
restaurants featuring barbeque entrees, a rustic North Woods decor and big band
music. In addition the Company operates fourteen nostalgic roadhouse barbecue
shacks of which seven have been opened as, or converted to, a full service
format which resembles the Lodge concept. The Company also operates a "Blues
Club" (featuring an authentic Chicago Blues Club decor and live music seven
nights a week) and a "Take-Out and Catering" facility. All of the Company's
restaurants feature similar menu items, consistent preparation methods and
uniform kitchen layouts.
The future additional revenues and profits, if any, 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, the ability of the Company to raise additional financing as
required and general economic conditions. There can be no assurances the Company
will successfully implement its expansion plans, in which case it will continue
to be dependent on the revenues from existing operations. The Company also faces
all of the risks, expenses and difficulties frequently encountered in connection
with the expansion and development of an expanding business. Furthermore, to the
extent that the Company's expansion strategy is successful, it must manage the
transition to multiple-site and higher-volume operations, the control of
overhead expenses and the addition of necessary personnel.
Components of operating expenses include operating payroll and fringe
benefits, occupancy costs, repair and maintenance, and advertising and
promotion. Certain of these costs are variable and will fluctuate as sales
fluctuate. The primary fixed costs are corporate and restaurant management and
occupancy costs. The Company's 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. The Company
believes, however, that as restaurant management and staff gain experience,
labor scheduling, food cost management and operating expense control are
improved to levels similar to those at the Company's 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, recruiting, training, rent and office
supplies are major items in this category.
The following discussion and analysis of financial condition and results
of operations should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and notes thereto and the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-KSB for the fiscal year ended December 28, 1997.
8
<PAGE> 9
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of net sales were
as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------------- -----------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
SALES, NET 100.0% 100.0% 100.0% 100.0%
-------- --------- -------- ---------
UNIT-LEVEL COSTS AND EXPENSES:
Food and beverage costs 36.2% 37.0% 35.8% 36.2%
Labor and benefits 26.6% 22.3% 27.2% 23.5%
Operating expenses 18.6% 18.3% 19.8% 19.0%
Depreciation and amortization 5.1% 3.0% 5.3% 3.9%
Pre-opening expenses 3.7% 7.4% 4.9% 4.7%
-------- --------- -------- ---------
Total costs and expenses 90.2% 88.0% 93.0% 87.3%
-------- --------- -------- ---------
INCOME FROM UNIT-LEVEL OPERATIONS 9.8% 12.0% 7.0% 12.7%
General and administrative 13.1% 39.4% 17.9% 42.5%
Severance and restructuring 0.0% 0.0% 6.1% 0.0%
Provision for loss on restaurants to be disposed 0.0% 0.0% 8.5% 0.0%
-------- --------- -------- ---------
LOSS FROM OPERATIONS (3.3%) (27.4%) (25.5%) (29.8%)
Cumulative effect of change in accounting
principle 0.0% 0.0% (0.6%) 0.0%
Interest and other income (expense), net .5% 3.1% 1.0% 4.3%
-------- --------- -------- ---------
NET LOSS ( 2.8%) (24.3%) (25.1%) (25.5%)
======== ========= ======== =========
</TABLE>
SALES, NET
Net sales for the thirteen weeks ended June 28, 1998 were $10,925,000
compared to $3,797,000 for the same period in 1997, a 188% increase. For the
twenty-six weeks ended June 28, 1998, net sales were $18,659,000 compared to
$6,038,000 for the same period in 1997, a 209% increase. The increase in net
sales is primarily due to the addition of fourteen restaurants opened during the
four quarters subsequent to June 29, 1997, as well as an increase in
non-restaurant revenues. The restaurant openings were added to the base of five
restaurants open as of June 29, 1997. The Company has three restaurants in the
Minneapolis/St. Paul market which have been open for more than eighteen months.
The opening of additional units in the same market area has significantly
impacted each of these restaurants. The resulting redeployment of customer
demand has resulted in reductions in individual restaurant revenue of
approximately 20% as compared to the same period in 1997. These restaurants were
all originally operating at high volume levels relative to the size of the
units. All new restaurants have been opened in accordance with management's
overall development program for the market and management anticipates that
revenue levels at these locations will stabilize as development efforts move
outside of the Minneapolis/St. Paul market.
FOOD AND BEVERAGE COSTS
Food and beverage costs for the thirteen weeks ended June 28, 1998 were
$3,955,000 or 36.2% of net sales, compared to $1,403,000 or 37.0% of net sales
for the same period in 1997. For the twenty-six weeks ended June 28, 1998, food
and beverage costs were $6,687,000 or 35.8% of net sales, compared to $2,183,000
or 36.2% of net sales for the same period in 1997. The decrease in food and
beverage costs as a percent of net sales 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.
9
<PAGE> 10
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LABOR AND BENEFITS
Labor and benefits for the thirteen weeks ended June 28, 1998 were
$2,909,000 or 26.6% of net sales, compared to $847,000 or 22.3% of net sales for
the same period in 1997. For the twenty-six weeks ended June 28, 1998, labor and
benefits were $5,065,000 or 27.2% of net sales compared to $1,419,000 or 23.5%
of net sales for the same period in 1997. Labor costs have been higher in this
period due to a heightened emphasis on training and execution in company
restaurants, as well as the introduction of full table service in several
restaurants that were formerly counter service. In addition, full service
restaurants which operate in states without a "tip credit" (such as Minnesota)
experience a higher wage rate for dining room labor.
OPERATING EXPENSES
Operating expenses for the thirteen weeks ended June 28, 1998 were
$2,039,000 or 18.6% of net sales, compared to $694,000 or 18.3% of net sales for
the same period in 1997. For the twenty-six week period ended June 28, 1998,
operating expenses were $3,690,000 or 19.8% of net sales compared to $1,150,000
or 19.0% of net sales for the same period in 1997. The increase in operating
expenses as a percent of net sales is primarily attributable to increased repair
and maintenance costs and initial distribution expenses related to retail
grocery items partially offset by decreases in rent and advertising costs as a
percent of net sales.
DEPRECIATION AND AMORTIZATION
Unit-level depreciation and amortization for the thirteen weeks ended June
28, 1998 were $557,000 or 5.1% of net sales compared to $114,000 or 3.0% of net
sales during the same period in 1997. Unit-level depreciation and amortization
for the twenty-six week period ended June 28, 1998 were $994,000 or 5.3% of net
sales compared to $238,000 or 3.9% of net sales for the same period in 1997. The
increase in unit-level depreciation and amortization results from higher
construction costs associated with units opened in fiscal 1997 and 1998. Units
opened in 1996 and prior were conversions of existing structures which generally
had lower levels of investment in relation to sales and thus lower levels of
depreciation expense.
PRE-OPENING EXPENSES
Pre-opening expenses, which beginning in the first quarter of 1998 are charged
to expense as they are incurred, were $399,000 or 3.7% of net sales for the
thirteen weeks ended June 28, 1998 compared to $282,000 or 7.4% of net sales
during the same period in 1997. Pre-opening expenses for the twenty-six week
period were $909,000 or 4.9% of net sales compared to $283,000 or 4.7% of net
sales for the same period in 1997. Prior to March 31, 1997, these expenses were
deferred and charged to expense over no longer than a twelve-month period
following the opening of the Unit. These expenses reflect the opening of four
new units in the first quarter of 1998, three new units in the second quarter of
1998 and the initial development of four additional locations during the second
quarter of 1998.
INCOME FROM UNIT-LEVEL OPERATIONS
Income from unit-level operations totaled $1,066,000 or 9.8% of net sales,
for the thirteen weeks ended June 28, 1998, compared to $457,000, or 12.0% of
net sales, in the corresponding period of 1997. For the twenty-six week period
ended June 28, 1998, income from unit-level operations was $1,314,000 or 7.0% of
net sales compared to $765,000 or 12.7% of net sales for the same period in
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 the Company's 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 sales, from 1997 to
1998 is attributable to the increase in net sales from additional units opened,
the impact of pre-opening expenses, and the other changes in costs and expenses
as discussed above.
10
<PAGE> 11
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the thirteen weeks ended June
28,1998 were $1,434,000 or 13.1% of net sales, compared to $1,498,000 or 39.4%
of net sales for the same period in 1997. For the twenty-six week period ended
June 28, 1998, general and administrative expenses were $3,343,000 or 17.9% of
net sales compared to $2,565,000 or 42.5% of net sales for the same period in
1997. The reduction in general and administrative expenses as a percent of net
sales reflects increased sales and the Company's adjustment of its corporate
infrastructure to a reduced level which management believes is appropriate to
support its current, more controlled plans for expansion.
SEVERANCE AND RESTRUCTURING
In March 1998, the Company recorded a provision totaling $1,146,000 for
severance and restructuring. This amount includes severance costs, real estate
costs and a provision for write-off of a discontinued point-of-sale system.
PROVISION FOR RESTAURANT CLOSINGS
In March 1998, the Company implemented a plan to close two restaurants. As
part of this plan, the Company has recorded a provision of $1,589,000 to lower
the carrying value of the assets of these restaurants to estimated net
realizable value. The Company closed these restaurants during the second quarter
of fiscal 1998.
LOSS FROM OPERATIONS
Loss from operations totaled $368,000 or 3.3% of net sales, for the thirteen
weeks ended June 28, 1998 compared to $1,041,000, or 27.4% of net sales, in the
corresponding period of 1997. The decrease in loss from operations is primarily
attributable to increased income from unit-level operations from new units
opened and a reduction in the level of general and administrative expenses. For
the twenty-six weeks ended June 28, 1998 loss from operations totaled $4,764,000
or 25.5% of net sales compared to $1,800,000 or 29.8% of net sales for the same
period in 1997. For the twenty-six week period ended June 28, 1998, loss from
operations is impacted by a severance and restructuring charge of $1,146,000 or
6.1% of net sales and a provision for loss on restaurants to be disposed of
$1,589,000 or 8.5% of net sales, offset by increased income from unit-level
operations from new units opened and reduced general and administrative
expenses.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net, primarily represents interest
income received from short-term investments offset by interest expense on
capital lease obligations. Interest and other income (expense), net, decreased
to $58,000 and $194,000 for the thirteen and twenty-six week periods ended June
28, 1998 from $120,000 and $259,000 for the same periods in 1997, respectively.
The decrease in income in 1998 compared to 1997 was primarily due to the reduced
level of short-term investments in 1998.
NET LOSS/NET LOSS PER COMMON SHARE
Net loss for the thirteen weeks ended June 28, 1998 was $310,000, or $.04
per share on 8,827,590 weighted average shares outstanding, compared to a net
loss of $921,000, or $.15 per share on 6,022,618 weighted average shares
outstanding, during the comparable period in 1997. The decrease in net loss and
net loss per share is attributable to increased income from unit-level
operations from new units opened, a reduction in general and administrative
expenses and an increased number of shares outstanding. For the twenty-six week
period ended June 28, 1998, the net loss was $4,690,000 or $.53 per share on
8,794,332 weighted average shares outstanding, compared to $1,541,000 or $.26
per share on 6,017,615 weighted average shares outstanding, for the same
period in 1997. The increase in net loss and net loss per share for the
twenty-six week period is primarily due to severance and restructuring charges
of $1,146,000 or $.13 per share and a provision for loss on restaurants to be
disposed of $1,589,000 or $.18 per share, partially offset by increased income
from unit-level operations from new units opened, a reduction in general and
administrative expenses and an increased number of shares outstanding.
11
<PAGE> 12
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of June 28, 1998, the Company held cash and short-term investments of
approximately $7.0 million compared to $18.3 million as of December 28, 1997. As
reflected in the accompanying condensed consolidated financial statements, this
decrease in cash and short-term investments during the twenty-six weeks ended
June 28, 1998 primarily represents cash used for the purchase and/or development
of property, equipment and leasehold improvements (approximately $8.0 million)
and operating activities (approximately $3.9 million) partially offset by
proceeds of stock option exercises (approximately $800,000).
In June 1997, the Company called for redemption of its Class A Warrants,
giving warrant holders 30 days notice to exercise their warrants prior to
redemption by the Company. During July 1997, the warrant call was completed with
2,637,000 of the outstanding 2,645,000 warrants being exercised. Net proceeds to
the Company from such exercises totaled approximately $22.3 million.
To continue the Company's expansion, the Company anticipates that additional
financing will be required during fiscal 1998 and 1999. The Company anticipates
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 sale leaseback, build to suit financing or other credit
facilities. The Company has two signed letters of intent with a real estate
financing concern for sale leaseback transactions related to four
properties currently owned by the Company. These sale leaseback transactions
would result in $5,700,000 of proceeds to the Company. There can be no
assurance that these transactions will be completed or that additional
financing required will be available on terms acceptable or favorable to the
Company or its Shareholders.
SEASONALITY
The Company's units typically generate higher revenues during the second and
third quarters (which are summer months for the Company's locations) than in the
first and fourth quarters (which are winter months) as a result of its
concentration of locations in Minnesota and Wisconsin market areas.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-QSB and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking. A number of important factors
could, individually or in the aggregate, cause actual results to differ
materially from those expressed or implied in any forward-looking statements.
Such factors include, but are not limited to, the following: competition in the
casual dining restaurant market; additional market acceptance of the Company's
concept; additional financing on acceptable terms; the Company's ability to
open additional restaurants in a timely manner; consumer spending trends and
habits; weather conditions in the regions in which the Company develops and
operates restaurants; and laws and regulations affecting labor and employee
benefit costs. For further information regarding these and other factors, see
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
28, 1997.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 11, 1998, the Annual Meeting of Shareholders of the Company
(the "Annual Meeting") was held.
(b) At the Annual Meeting, all of management's nominees for
directors as listed in the proxy statement were elected with
the following vote:
<TABLE>
<CAPTION>
Shares Voted "For" Shares Voted "Withheld"
----------------- ----------------------
<S> <C> <C>
David W. Anderson 5,250,910 51,442
Thomas J. Brosig 5,249,510 52,842
Douglas S. Lanham 5,236,560 65,792
Richard L. Monfort 5,249,460 52,892
Martin J. O'Dowd 5,249,560 52,792
</TABLE>
(c) The Shareholders approved an amendment to the Company's 1995 Stock
Option and Compensation Plan to increase the number of shares of
Common Stock reserved for issuance thereunder from 900,000 shares
to 950,000 shares. 4,713,324 votes were cast in favor of the
amendment; 568,672 votes opposed and 20,356 votes abstained.
(d) The Shareholders approved the adoption of the 1998 Director Stock
Option Plan, which provides for the issuance of up to 250,000
shares of Common Stock of the Company to non-employee members of
the Board of Directors. 5,024,940 votes were cast in favor of the
adoption; 242,688 votes opposed and 34,724 votes abstained.
Item 5. Other Information
On May 21, 1998, the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act
of 1934. The amendment to 14a-4(c)(1) governs the Company's use of its
discretionary proxy voting authority with respect to a shareholder proposal
which the shareholder has not sought to include in the Company's proxy
statement. The new amendment provides that if a proponent of a proposal fails
to notify the Company at least 45 days prior to the month and day of mailing of
the prior year's proxy statement, then the management proxies will be allowed
to use their discretionary voting authority when the proposal is raised at the
meeting, without any discussion of the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of Shareholders, if
the Company is not provided notice of a shareholder proposal which the
shareholder has not previously sought to include in the Company's proxy
statement by April 28, 1999, the management proxies will be allowed to use
their discretionary authority as outlined above.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Second Amendment to 1995 Stock Option and Compensation Plan
27 Financial Data Schedule
(b) Reports on Form 8-K
None
13
<PAGE> 14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FAMOUS DAVE'S OF AMERICA, INC.
/s/ Douglas S. Lanham
Douglas S. Lanham
President, Chief Executive Officer
and Chief Operating Officer
/s/ Daniel F. Moorse
Daniel F. Moorse
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 12, 1998
14
<PAGE> 1
EXHIBIT 10.1
FAMOUS DAVE'S OF AMERICA, INC.
AMENDMENT TO
1995 STOCK OPTION AND
COMPENSATION PLAN
1. Increase in Number of Shares Subject to the Plan. Section e(i) of
the 1995 Stock Option and Compensation Plan is hereby amended to read in its
entirety as follows:
i. Number of Shares. Subject to adjustment as provided in Section
11.6, the number of shares of Common Stock which may be issued under the
Plan shall not exceed 950,000 shares of Common Stock.
2. Effective Date. This Amendment will become effective upon approval
thereof by the shareholders of the Company.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FAMOUS
DAVE'S OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED JUNE 28, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUN-28-1998
<CASH> 4,024,000
<SECURITIES> 2,995,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 696,000
<CURRENT-ASSETS> 8,672,000
<PP&E> 33,158,597
<DEPRECIATION> 2,237,597
<TOTAL-ASSETS> 39,593,000
<CURRENT-LIABILITIES> 5,197,000
<BONDS> 1,194,000
0
0
<COMMON> 42,799,000
<OTHER-SE> (9,597,000)
<TOTAL-LIABILITY-AND-EQUITY> 39,593,000
<SALES> 18,659,000
<TOTAL-REVENUES> 18,659,000
<CGS> 6,687,000
<TOTAL-COSTS> 23,423,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (194,000)
<INCOME-PRETAX> (4,570,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,570,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (120,000)
<NET-INCOME> (4,690,000)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
