| FAMOUS DAVES OF AMERICA INC ITEM 1A RISK FACTORS Famous Dave’s makes written and oral statements from time to time, including statements contained in this Annual Report on Form 10-K regarding its business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends and other matters that are forward-looking statements within the meaning of Sections 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934 |
| Statements containing the words or phrases “will likely result”, “anticipates”, “are expected to”, “will continue”, “is anticipated”, “estimates”, “projects”, “believes”, “expects”, “intends”, “target”, “goal”, “plans”, “objective”, “should” or similar expressions identify forward-looking statements which may appear in documents, reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by our officers or other representatives to analysts, shareholders, investors, news organizations, and others, and discussions with our management and other Company representatives |
| For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 |
| Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties |
| Any forward-looking statements made by us or on our behalf speak only as of the date on which such statement is made |
| Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision |
| We do not undertake any obligation to update or keep current either (i) any forward-looking statements to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement which may be made by us or on our behalf |
| 13 _________________________________________________________________ [46]Table of Contents In addition to other matters identified or described by us from time to time in filings with the SEC, including the risks described below and elsewhere in this Annual Report on Form 10-K, there are several important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or results that are reflected from time to time in any forward-looking statement that may be made by us or on our behalf |
| Our Future Revenue and Profits Are Dependent on Consumer Preference and Our Ability to Successfully Execute Our Plan |
| Our Company’s future revenue and profits will depend upon various factors, including continued and additional market acceptance of the Famous Dave’s concept, the quality of our restaurant operations, our ability to grow our brand, our ability to successfully expand into new and existing markets, our ability to successfully execute our franchise program, our ability to raise additional financing as needed, discretionary consumer spending, the overall success of the venues where Famous Dave’s restaurants are or will be located, economic conditions affecting disposable consumer income, general economic conditions and the continued popularity of the Famous Dave’s concept |
| An adverse change in any or all of these conditions would have a negative effect on our operations and the market value of our common stock |
| There is no guarantee that any of our company-owned or franchise-operated restaurants will open when planned, or at all, due to the risks associated with the development of new restaurants, such as governmental approvals, the availability of sites, and the availability of capital, many of which are beyond our control |
| There can be no assurance that we will successfully implement our growth plan for our company-owned and franchise-operated restaurants |
| In addition, we also face all of the risks, expenses and difficulties frequently encountered in the development of an expanding business |
| Competition May Reduce Our Revenue and Operating Income |
| Competition in the restaurant industry is intense |
| The restaurant industry is affected by changes in consumer preferences, as well as by national, regional and local economic conditions, and demographic trends |
| Discretionary spending priorities, traffic patterns, tourist travel, weather conditions, employee availability and the type, number and location of competing restaurants, among other factors, will also directly affect the performance of our restaurants |
| Changes in any of these factors in the markets where we currently operate our restaurants could adversely affect the results of our operations |
| Increased competition by existing or future competitors may reduce our sales |
| Our restaurants compete with moderately-priced restaurants primarily on the basis of quality of food and service, atmosphere, location and value |
| In addition to existing barbeque restaurants, we expect to face competition from steakhouses and other restaurants featuring protein-rich foods |
| We also compete with other restaurants and retail establishments for quality sites |
| Competition in the restaurant industry is affected by changes in consumer taste, economic and real estate conditions, demographic trends, traffic patterns, the cost and availability of qualified labor, product availability and local competitive factors |
| Many of our competitors have substantially greater financial, marketing and other resources than we do |
| Regional and national restaurant companies continue to expand their operations into our current and anticipated market areas |
| We believe our ability to compete effectively depends on our ongoing ability to promote our brand and offer high quality food and hospitality in a distinctive and comfortable environment |
| If we are unable to respond to the various competitive factors affecting the restaurant industry, our revenue and operating income will be adversely affected |
| Our fiscal 2003 net loss reflects pre-tax charges of approximately dlra4dtta2 million, or dlra0dtta22 per diluted share, related to impairment and restructuring charges on five restaurant locations, two of which were subsequently sold, two of which were subsequently closed and one of which was fully impaired and continues to operate |
| In addition, fiscal 2003 results include pre-tax charges of approximately dlra2dtta2 million, or dlra0dtta11 per diluted share, which reflects losses and divestiture costs related to the Isaac Hayes Blues Clubs |
| Although we reported net income of approximately dlra4dtta4 million for fiscal 2005, or dlra0dtta39 per diluted share and approximately dlra3dtta5 million for fiscal 2004, or dlra0dtta29 per diluted share, we cannot assure you that we will generate sufficient revenue or margins, or control operating expenses, to achieve or sustain profitability in future years |
| In addition, we cannot assure you that we will not take future impairment or restructuring charges on our restaurants |
| Our growth and success depends in part upon increasing the number of our franchised restaurants, through execution of area development agreements with new and existing franchisees in new and existing markets |
| Our ability to successfully franchise additional restaurants will depend on various factors, including our ability to attract, contract with and retain quality franchisees, the availability of suitable sites, the negotiation of acceptable leases or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the financial and other capabilities of our franchisees, our ability to manage this anticipated expansion, and general economic and business conditions |
| Many of the foregoing factors are beyond the control of the Company or our franchisees |
| Our growth and success also depends upon the ability of our franchisees to successfully operate their restaurants to our standards and promote the Famous Dave’s brand |
| Although we have established criteria to evaluate prospective franchisees, and our franchise agreements include certain operating standards, each franchisee operates his/her restaurant independently |
| Various laws limit our ability to influence the day-to-day operation of our franchise restaurants |
| We cannot assure you that our franchisees will be able to successfully operate Famous Dave’s restaurants in a manner consistent with our concepts and standards, which could reduce their sales and correspondingly, our franchise royalties, and could adversely affect our operating income and our ability to leverage the Famous Dave’s brand |
| In addition, there can be no assurance that our franchisees will have access to financial resources necessary to open the restaurants required by their respective area development agreements |
| The Restaurant Industry is Subject to Extensive Government Regulation That Could Negatively Impact Our Business |
| The restaurant industry is subject to extensive state and local government regulation by various government agencies, including state and local licensing, zoning, land use, construction and environmental regulations and various regulations relating to the preparation and sale of food and alcoholic beverages, sanitation, disposal of refuse and waste products, public health, safety and fire standards, minimum wage requirements, workers compensation and citizenship requirement |
| To the extent that we offer and sell 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 termination or non-renewal of a franchise |
| We may also be subject in certain states to “dram-shop” statutes, which provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person |
| 15 _________________________________________________________________ [48]Table of Contents Any change in the current status of such regulations, including an increase in employee benefits costs, workers’ compensation insurance rates, or other costs associated with employees, could substantially increase our compliance and labor costs |
| Because we pay many of our restaurant-level personnel rates based on either the federal or the state minimum wage, increases in the minimum wage would lead to increased labor costs |
| In addition, our operating results would be adversely affected in the event we fail to maintain our food and liquor licenses |
| Furthermore, restaurant operating costs are affected by increases in unemployment tax rates, sales taxes and similar costs over which we have no control |
| Our industry is susceptible to the risk of food-borne illnesses |
| As with any restaurant operator, we cannot guarantee that our internal controls and training will be fully effective in preventing all food-borne illnesses |
| Furthermore, our reliance on third-party food suppliers and distributors increases the risk that food-borne illness incidents could be caused by third-party food suppliers and distributors outside of our control and/or multiple locations being affected rather than a single restaurant |
| New illnesses resistant to any precautions may develop in the future, or diseases with long incubation periods could arise that could give rise to claims or allegations on a retroactive basis |
| Reports in the media of one or more instances of food-borne illness in one of our corporate-owned restaurants, one of our franchise-operated restaurants or in one of our competitor’s restaurants could negatively affect our restaurant sales, force the closure of some of our restaurants and conceivably have a national or international impact if highly publicized |
| This risk exists even if it were later determined that the illness had been wrongly attributed to the restaurant |
| Furthermore, other illnesses could adversely affect the supply of some of our food products and significantly increase our costs |
| A decrease in customer traffic as a result of these health concerns or negative publicity could materially harm our business, results of operations and financial condition |
| Pursuant to its Authority to Designate and Issue Shares of Our Stock as it Deems Appropriate, Our Board of Directors May Assign Rights and Privileges to Currently Undesignated Shares Which Could Adversely Affect the Rights of Existing Shareholders |
| Our authorized capital consists of 100cmam000cmam000 shares of capital stock |
| Our Board of Directors, without any action by the shareholders, may designate and issue shares in such classes or series (including classes or series of preferred stock) as it deems appropriate and establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights |
| As of March 13, 2006, we had 10cmam606cmam543 shares of common stock outstanding |
| The rights of holders of preferred stock and other classes of common stock that may be issued could be superior to the rights granted to the current holders of our common stock |
| Our Board’s ability to designate and issue such undesignated shares could impede or deter an unsolicited tender offer or takeover proposal |
| Further, the issuance of additional shares having preferential rights could adversely affect the voting power and other rights of holders of common stock |