UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended January 2, 2011

Commission File No. 0-21625

FAMOUS DAVE’S of AMERICA, INC.

(Exact name of registrant as specified in its charter)

Minnesota		41-1782300
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12701 Whitewater Drive, Suite 200
Minnetonka, MN 55343

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code (952) 294-1300

Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value

Title of each class		Name of each exchange on which registered

Common Stock, $0.01 par value		The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-seasoned issuer, as defined in Rule 405 of the Securities Exchange Act of 1934(the Act)
Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of common stock held by non-affiliates of the registrant was approximately $62.7 million as of July 2, 2010 (the last business day of the registrant’s most recently completed second quarter), assuming solely for the purpose of this calculation that all directors, officers, and more than 10% shareholders of the registrant are affiliates. The determination of affiliate status for this purpose is not necessarily conclusive for any other purpose.

As of March 11, 2011, 8,079,173 shares of the registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s definitive Proxy Statement for our Annual Meeting of Shareholders (the “2010 Proxy Statement”) are incorporated by reference into Part III of this Form 10-K, to the extent described in Part III. The 2010 Proxy Statement will be filed within 120 days after the end of the registrant’s fiscal year ended January 2, 2011.

 

 

TABLE OF CONTENTS

		Page
PART I
Item 1. Business			3
Item 1A. Risk Factors			15
Item 1B. Unresolved Staff Comments			19
Item 2. Properties			19
Item 3. Legal Proceedings			22
Item 4. [Removed and Reserved]			22
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities			22
Item 6. Selected Financial Data			25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			42
Item 8. Financial Statements and Supplementary Data			42
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			42
Item 9A. Controls and Procedures			42
Item 9B. Other Information			43
PART III
Item 10. Directors, Executive Officers and Corporate Governance			44
Item 11. Executive Compensation			44
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			44
Item 13. Certain Relationships and Related Transactions, and Director Independence			45
Item 14. Principal Accountant Fees and Services			45
PART IV
Item 15. Exhibits and Financial Statement Schedules			46
SIGNATURES
EX-10.11
EX-21.0
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

ITEM 1. BUSINESS

General Development of Business

     Famous Dave’s of America, Inc. (“Famous Dave’s”, “Company” or “we”) was incorporated as a Minnesota corporation in March 1994 and opened its first restaurant in Minneapolis, Minnesota in June 1995. As of January 2, 2011, there were 182 Famous Dave’s restaurants operating in 37 states, including 52 company-owned restaurants and 130 franchise-operated restaurants. An additional 80 franchise restaurants were committed to be developed through signed area development agreements at January 2, 2011.

     The Company committed to a plan to “Smoke It” in 2010, resulting in the achievement of the following: The Company realized a comparable sales increase for all company-owned restaurants of 0.7% compared to a comparable sales decrease of 6.3% in fiscal 2009, and saw increases in all three key sales levers: Dine-In, To Go and Catering. Franchise-operated restaurants saw improvement in their comparable sales, ending the year with a comparable sales decrease of 0.8% compared to a decrease of 8.5% in fiscal 2009. Additionally, we opened one new company-owned restaurant with record-setting volume, and nine new franchise-operated restaurants, and we signed agreements for eight new units with three new franchise partners.

     On the marketing front, we featured unique promotions, including a Louisiana Seafood feature, our second Dave’s Day, and Wing Wars — in which we highlighted bone-in and bone-less wings, and also introduced two new sauces. Additionally, we had a very popular limited time offering called Ribzilla— a bone-in beef short rib with a Dr. Pepper glaze. We also developed innovative and foundational training programs, such as those that support our “Guest Experience” initiative — an initiative that allows us to leverage our barbeque culture and create an atmosphere in our restaurants where guests feel like good friends being invited over for a backyard barbeque.

     We recently completed a 1.0 million share stock buyback and announced Board authorization for a new 1.0 million share buyback.

     We were pleased with the integration and normalization of the seven New York and New Jersey restaurants that were acquired in the first quarter of fiscal 2010. While not accretive to 2010’s earnings, these restaurants performed slightly better than originally anticipated. The overall satisfaction scores at these locations have greatly improved over the past year, indicating that the investments made in management, staffing and service, as well as in capital improvements, have resonated with our guests.

     Lastly, as a result of all the above, we also grew earnings per share year over year, from $0.62 per diluted share in fiscal 2009 to $0.82 in fiscal 2010, with fiscal 2010 earnings, reflecting a $0.15 one-time non cash net gain, primarily related to the acquisition of the New York and New Jersey restaurants.

        In 2011, the Company plans to focus on three key initiatives:

	•		Growth
	•		Concept evolution, and
	•		Enhancing core systems, processes and infrastructure

     Growth

     We expect to open ten to twelve new restaurants including one company-owned restaurant in fiscal 2011. We will also continue to invest in our base of restaurants and have several significant remodeling projects planned, that combine both exterior and interior remodeling efforts. Finally, we will continue to pursue the expansion of our geographical footprint by entering into new area development and franchise agreements, with both new and existing partners, as they take advantage of our modified growth incentive plan. This plan offers new and existing franchisees reduced levels of franchise royalties, based on a sliding scale, for new restaurants opened during 2011. If a franchise restaurant opens in the first quarter, the franchisee will pay a reduced royalty of 2.5% for the remainder of 2011. Opening in the second quarter qualifies for a reduced royalty of 3.0% for the remainder of 2011, and opening in the

third quarter qualifies for a reduced royalty of 4.0% for the remainder of 2011. Any openings in the fourth quarter and beyond would be at the 5% royalty rate.

     Concept evolution

     It is important that Famous Dave’s remains relevant, and as such, we will continue to evolve our concept as part of a long-term strategy to remain top of mind with guests. This is evident in our new menu, but also includes modifications to the layout of our restaurants, enhancements in our trade dress, music, décor, and ambiance. Also, we will continue to be actively engaged in our local communities through catering and supporting and sponsoring local charitable and community events on a regular basis.

     Enhancing core systems, processes and infrastructure

     As part of this initiative, we will launch a comprehensive operations’ scorecard and training tool that we call “FD Powers” that will help us measure our operational effectiveness across our entire system. This scorecard will be used to evaluate, monitor and improve operations in areas such as guest satisfaction, health and safety standards, community involvement, and local store marketing effectiveness, among other operating metrics. Additionally, in 2011, we are excited to roll out an initiative for To-Go orders at all of our company-owned locations that will provide the convenience of an on-line option to our guests. Also, we will launch a new and improved website with full integration of our social media channels that will allow us to build brand awareness and loyalty through our on-line community and have continuous dialog with our cyber fans.

     As a culmination of all of these efforts mentioned above, we believe we will continue to grow earnings per share in 2011.

Financial Information about Segments

     Since our inception, our revenue, operating income and assets have been attributable to the single industry segment of the foodservice industry. Our revenue and operating income for each of the last three fiscal years, and our assets for each of the last two fiscal years, are set forth elsewhere in this Form 10-K under Item 8, Financial Statements and Supplementary Data.

Narrative Description of Business

     Famous Dave’s restaurants, a majority of which offer full table service, feature hickory-smoked off-the-grill entrée favorites. We seek to differentiate ourselves by providing high-quality food in distinctive and comfortable environments with signature décor and signage. As of January 2, 2011, 47 of our company-owned restaurants were full-service and five were counter-service. Generally, our prototypical design includes the following elements: a designated bar, a signature exterior smokestack, a separate entrance for our category-leading “TO GO” business and a patio (where available). This design enables us to capitalize on a consistent trade-dress and readily identifiable look and feel for our future locations. We have a 5,000 square foot package that can be built as a free standing building, a 4,000 square foot model that most likely would be constructed as an end cap of a building, and a 2,400 square foot design which would be constructed as a counter service location in an existing building. In 2010, we and several of our franchisees successfully converted restaurants from existing casual dining chains. In Philadelphia, Pennsylvania and Orange, California, two franchise partners built counter service style restaurants, utilizing one of our smaller foot print prototypes. We did not open any restaurants in 2009, however, the restaurants that we opened in 2006, 2007, and 2008 were approximately 6,000 square feet, and had approximately 175 seats, with an additional 50 seats in the bar, and 32 additional seats on the patio. In addition to this restaurant design, which we currently offer, we have a variety of other development options. Additionally, as previously mentioned, we offer lower cost conversion packages that provide our franchisees with flexibility to build in cost effective formats, which includes opportunities to convert existing restaurants into a Famous Dave’s restaurant. Due to the flexibility and scalability of our concept, there are a variety of development opportunities available now and in the future.

     We pride ourselves on the following:

     High Quality Food — Each restaurant features a distinctive selection of authentic hickory-smoked off-the-grill barbecue favorites, such as flame-grilled St. Louis-style and baby back ribs, Texas beef brisket, Georgia chopped pork, country-roasted chicken, and generous signature sandwiches and salads. Additionally in 2011, we added our Citrus Grill family of entrée’s featuring shrimp, salmon, steak tenderloins, and naked ribs, served with grilled pineapple and a side of broccoli, at less than 600 calories. Also, enticing side items, such as honey-buttered corn bread, potato salad, coleslaw, Shack Fries^TM and Wilbur Beans^TM, accompany the broad entrée selection. Homemade desserts, including Famous Dave’s Bread Pudding, Hot Fudge Kahlua Brownies, and Key Lime Pie, are a specialty. To complement our entrée and appetizer items and to suit different customer tastes, we offer five regional tableside barbeque sauces: Rich & Sassy^®, Texas Pit^TM, Georgia Mustard^TM, Devil’s Spit^®, and Sweet and Zesty^TM. These sauces, in addition to a variety of seasonings, rubs, marinades, and other items are also distributed in retail grocery stores throughout the country under licensing agreements. Additionally, we typically introduce specialty barbeque sauces with our limited time offerings.

     We believe that high quality food, “scratch cooking” and the fact that we smoke our meats daily at each of our restaurants are principal points of differentiation between us and other casual dining competitors and are a significant contributing factor to repeat business. We also feel that our focus on barbecue being a noun, a verb and a culture allows for product innovation without diluting our brand. As a noun, barbeque refers to the art of the smoke and sauce. As a verb, barbeque refers to the act of grilling. As a culture, barbeque refers to the competitive spirit. We see no geographic impediments to scaling our concept and brand.

     Distinctive Environment — Décor and Music — Our original décor theme was a nostalgic roadhouse shack (“Shack”), as defined by the abundant use of rustic antiques and items of Americana. In late 1997, we introduced the “Lodge” format which featured décor reminiscent of a comfortable “Northwoods” hunting lodge with a full-service dining room and small bar. In addition, we developed a larger “Blues Club” format that featured authentic Chicago Blues Club décor and live music seven nights a week. We have evolved our format to that of a full-service concept with several prototypical design that incorporates the best attributes of the past restaurants while providing a consistent brand image for the future. Of our 52 restaurants as of January 2, 2011, 47 were full-service restaurants, with 26 as the “Lodge” format, 6 as the “Shack” format, 1, located in the Minneapolis market, is a “Blues Club” format and 14 as company-owned prototypical restaurants. The remaining 5 are counter-service restaurants. We will continue to evaluate converting counter-service restaurants to full-service restaurants where there is determined to be a sufficient return on our investment.

     Broad-Based Appeal — We believe that our concept has broad appeal because it attracts customers of all ages, the menu offers a variety of items, and our distinctive sauces allow our guests to customize their experience, appealing to many tastes. We believe that our distinctive barbecue concept, combined with our high-quality food, makes Famous Dave’s appeal to families, children, teenagers and adults of all ages and socio-economic backgrounds.

Operating Strategy

     We believe that our ability to achieve sustainable profitable growth is dependent upon us delivering high-quality experiences in terms of both food and hospitality to every guest, every day, and to enhance brand awareness in our markets. Key elements of our strategy include the following:

     Operational Excellence — During fiscal 2010, we continued to focus on operational excellence and integrity, and on creating a consistently enjoyable guest experience, both in terms of food and hospitality, across our system. We define operational excellence as an uncompromising attention to the details of our recipes, preparation and cooking procedures, handling procedures, rotation, sanitation, cleanliness and safety. Operational excellence also means an unyielding commitment to provide our guests with precision service during every visit. In our restaurants, we strive to emphasize value and speed of service by employing a streamlined operating system based on a focused menu and simplified food preparation techniques.

     Our menu focuses on a number of popular smoked, barbeque, grilled meat, entrée items and delicious side dishes which are prepared using easy-to-operate kitchen equipment and processes that use prepared proprietary seasonings, sauces and mixes. This streamlined food preparation system helps lower the cost of operation by requiring fewer staff,

lower training costs, and eliminates the need for highly compensated chefs. In order to enhance our appeal, expand our audience, and feature our cravable products, we promote Limited-Time Offerings (LTOs) which often provide higher margins than our regular menu items. We believe that constant and exciting new product introductions, offered for a limited period of time, encourage trial visits, build repeat traffic and increase exposure to our regular menu. Additionally, in order to increase customer frequency, we have assembled a research and development product pipeline designed to generate four to six product introductions annually.

     During 2010, we offered our guests several promotions and LTOs, which were well received. During early 2010 and in support of the Lenten season, we had a Louisiana Seafood feature which included catfish and shrimp entrees including a skewer of shrimp offered as an add-on to any entrée to help protect the check average. During the spring we highlighted our “80 Proof” promotion which featured several entrée’s with our “80 proof BBQ sauce,” as well as, appetizers, desserts and adult beverages, featuring Jack Daniel’s^® Tennessee Whiskey.

     In the summer of 2010, we had our “US of BBQ” offering, which featured San Antonio Tri-Tip, Texas beef brisket, Georgia chopped pork, and St. Louis-style ribs. Also, we celebrated our 2^nd annual “Dave’s Day” where guests named Dave, David, or Davey could receive a free entrée up to $15.00 and if a guest’s middle name was Dave, David, or Davey, they could receive ¹/2 off any entrée up to $7.50. Additionally, this summer we brought back the popular “Buck a Bone” promotion where a guest could buy up to six St. Louis style spare ribs for a $1.00 each with the purchase of an entrée.

     This past fall we featured two promotions, “Wing Wars” and “Ribzilla” which featured bone in and boneless chicken wings and our Dr. Pepper Glazed Beef Short Rib, respectively. Collectively, these LTOs successfully raised check averages during the year. As we look to 2011, we have a full pipeline of new and innovative limited time offerings.

     Human Resources and Training — We fully understand a key ingredient to our success as an employer and of our concept lies with our ability to hire, train, motivate and retain qualified team members at all levels of our organization. We continually place a great deal of importance on being an exceptional working environment for all of our team members through our Human Resource and Training/Organizational Development resources and programs, which are key to improving performance in our restaurants. Our core goal is to have Raving Internal Fans which emphasizes our commitment to doing the right thing for the organization while ensuring we have the right people in the right roles with the right resources and tools.

     We are a performance-based organization committed to recognizing and rewarding performance at all levels of the organization. Our performance management process includes performance calibration at the organizational level as a means of providing measureable, comparative team member contributions relative to peer contribution, taking into account both specific core competencies and goals, as well as, our core values, Famous PRIDE (Passion, Respect, Innovation, Diversity, Excellence). It is designed to provide a complete picture of performance that is consistent across the organization. We offer a total rewards compensation program that is benchmarked closely against the industry and includes health and welfare coverage, 401(k) and non-qualified deferred compensation with a company match, base pay and incentive pay programs developed to maintain our competitive position within the market.

     We strive to instill enthusiasm and dedication in our team members and continually solicit feedback regarding our organization. We have continued to use programs such as Guide with PRIDE, our team member suggestion program, and have now introduced our Talking PRIDE Engagement Survey this year. Through our Talking PRIDE Engagement Survey results, we will establish baseline action planning that will continually be benchmarked as we work to enhance our team member and Guest Experience. In addition, we have an online employee ethics compliance tool, which includes a bi-lingual anonymous call center, and a sophisticated issue tracking and reporting platform across all Famous Dave’s corporate locations.

     In addition, we have numerous programs designed to recognize and reward our team members for outstanding performance. These programs include the Famous PRIDE Award and our Spirit of the Flame Award. Our Famous PRIDE award encourages those within the company to submit nominations for fellow team members that live and breathe Famous PRIDE, and five individuals receive this honor each year. Our Spirit of the Flame award encourages those within the organization to nominate and recognize one winner from our Company, and one winner from our Franchise Community. The individuals receiving this award are selected based on their demonstration of continuous

exemplary FAMOUS behavior and outstanding contributions resulting in a significant and positive impact to Famous Dave’s brand and business. Our Ring of Fire Program allows us to reward and recognize the MOST FAMOUS of the FAMOUS in both company and franchise operations. This program rewards those operating practices that will help us grow strong as a system. Exceptional operational performance is defined by consistently adhering to Famous Dave’s programs and systems and also by having a high regard for guests, team members, the community and the Famous Dave’s culture.

     These initiatives are crucial towards our ability to maintain turnover levels that are below industry averages. Our management turnover for fiscal 2010 was approximately 18.5% and hourly turnover was below 50%. During fiscal 2010, our Human Resource and Training organization focused on the selection and retention of talent through programs in overall talent management, safety and risk reduction, and continued enhancements in our organizational structures for all positions in the business.

     In the Training and Development arena, we offer a variety of ongoing on-the-job and classroom training programs for hourly team members; Restaurant Managers; and Multi-Unit Managers levels in an effort to create defined career paths for our team members. Our FD101 University provides our newer managers with foundational training for restaurant operations, including ServSafe Food and Alcohol Certification; followed by our Famous Dave’s Management Certification program which provides a library of workshop offerings for our operators including the guest experience, and orientation to training. We introduced many tools to assist system-wide manager and team development including Investment Training for locations with targeted development/improvement needs. We also offer training programs for our Support Center team members and Franchise Partners. As we continue to develop resources and add tools to support our system, in 2011, we will be introducing a new multi-unit manager workshop as well as piloting an e-learning platform in our organization to enable us to continue expanding the reach of our programs through an electronically-based learning system with interactive modules and online testing and administration.

     Our system-wide Franchise Partner and operations annual workshop was held in early March 2011 and featured business sessions on Marketing, Social Media, Guest Experience, Team Member Orientation and Training, and Product Innovation. Participants include all company-owned restaurant General Managers, Area Directors, and Director’s of Operations, as well as many Franchise Partners, Franchise General Managers and Franchise Multi-Unit Operators.

Restaurant Operations

     Our ability to manage multiple restaurants in geographically diverse locations is central to our overall success. In each market, we place specific emphasis on the positions of Area Director and General Manager, and seek talented individuals that bring a diverse set of skills, knowledge, and experience to the Company. We strive to maintain quality and consistency in each of our restaurants through the careful training and supervision of team members and the establishment of, and adherence to, high standards relating to performance, food and beverage preparation, and maintenance of facilities.

     All General Managers must complete a seven-week training program, during which they are instructed in areas such as food quality and preparation, customer service, hospitality, and team member relations. We have prepared operations’ manuals relating to food and beverage quality and service standards. New team members participate in training under the close supervision of our Management. Each General Manager reports to an Area Director, who manages from five to seven restaurants, depending on the region. Our Area Directors have all served as General Managers, either for Famous Dave’s or for other restaurants, and are responsible for ensuring that operational standards are consistently applied in our restaurants, communication of company focus and priorities, and supporting the development of restaurant management teams. In addition to the training that the General Managers are required to complete as noted above, our Area Directors receive additional training through Area Director Workshops that focus specifically on managing multiple locations, planning, time management, staff and management development skills.

     We also have two Directors of Operations. Each of these individuals is responsible for approximately half of the company-owned restaurants, which allows us to have our operations’ leadership closer to the day-in and day-out business of our restaurants. The Directors of Operations assist in the professional development of our Area Directors and General Managers. They are also instrumental in driving our vision of operational integrity and contributing to the improvement of results achieved at our restaurants, including building sales, developing personnel and growing profits. These Directors report to the Vice President of Company Operations.

     Staffing levels at each restaurant vary according to the time of day and size of the restaurant. However, in general, each restaurant has approximately 40 to 60 team members.

     Off-Premise Occasions — Focus on Convenience — In addition to our lively and entertaining dine-in experience, we provide our guests with maximum convenience by offering expedient take-out service and catering. We believe that Famous Dave’s entrées 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. Also, the high quality, reasonable cost and avoidance of preparation time make take-out of our product particularly attractive. Our off-premise sales provide us with revenue opportunities beyond our in-house seating capacity and we continue to seek ways to leverage these segments of our business. During fiscal 2010, our industry-leading off-premise sales, were essentially flat to prior year at approximately 31.0% of net restaurant sales, compared to 31.1% for fiscal 2009.

     Catering grew modestly in 2010, as catering accounted for approximately 9.5% of net sales for fiscal 2010, as compared to 9.1% in 2009. We see catering as an opportunity for new consumers to sample our product who would not otherwise have had the opportunity to visit our restaurants, and each restaurant has a dedicated vehicle to fully support our catering initiatives.

     “TO GO,” which accounted for approximately 21.5% of net restaurant sales for fiscal 2010 and declined slightly from 22.0% of net restaurant sales in 2009 due to the continued pressure faced by many consumers, remains an integral part of our overall business plan. Our restaurants have been designed specifically to accommodate a significant level of “TO GO” sales, including a separate “TO GO” entrance with prominent and distinct signage, and for added convenience, we separately staff the “TO GO” counter. This option enables Famous Dave’s to capture a greater portion of the “take-out” market and allows consumers to “trade within our brand,” when dining in is not always an option. We pursue efforts to increase awareness of “TO GO” in all company-owned and franchise-operated restaurants by featuring signage and merchandising both inside and outside the restaurants. Based on our successful test during fiscal 2010 in the Minneapolis market, and to increase “TO GO” sales overall, we will be rolling out an on-line ordering system to all company-owned restaurants, during fiscal 2011.

     Customer Satisfaction — We believe that we achieve a significant level of repeat business by providing high-quality food, efficient friendly service, and warm caring hospitality in an entertaining environment at moderate prices. We strive to maintain quality and consistency in each of our restaurants through the purposeful hiring, training and supervision of personnel and the establishment of, and adherence to, high standards of performance, food preparation and facility maintenance. We have also built family-friendly strategies into each restaurant’s food, service and design by providing children’s menus, smaller-sized entrees at reduced prices and changing tables in restrooms. We diligently monitor the guest experience through the use of an interactive voice response (IVR) guest feedback system to ensure that our system is producing desired results. Through this IVR system, we obtain an OSAT score, which measures overall guest satisfaction using a rating scale of one to five. The company rating is based on the number of responses that give the highest rating of five. During 2010, we saw record levels in guest satisfaction scores through these monitoring programs.

     Value Proposition and Guest Frequency — We offer high quality food and a distinctive atmosphere at competitive prices to encourage frequent patronage. Lunch and dinner entrees range from $5.99 to $22.99 resulting in a per person average of $14.82 during fiscal 2010. During fiscal 2010, lunch checks averaged $12.81 and dinner checks averaged $16.10. We believe that value priced offerings and new product introductions, offered for a limited period of time, will help drive new, as well as infrequent guests into our restaurants for additional meal occasions. We offer an ‘All American Feast’ which serves 5-6 guests at an excellent value. At various times during the year, we featured a “$10 off on orders of $30 or more” that we ran as a coupon offering, and as an email blast. Results were positive, with an increase in traffic as compared to the periods prior to the promotion and an average check well above the $30 requirement. Our limited time offerings throughout the year were system-wide with all company-owned restaurants and approximately 80% of our franchise locations participated. We supported the promotions with radio and TV advertising.

Marketing and Promotion

     We believe that Famous Dave’s is the category-defining brand in barbecue. Specializing in a unique and distinctive brand of grilled, smoked, and southern style food, our menu specialty helps set the brand apart from the rest

of the crowded field in casual dining. During fiscal 2011, we will continue to leverage our brand position. We have a system-wide public relations and marketing fund. All company-owned, and those franchise-operated restaurants with agreements signed after December 17, 2003, are required to contribute a percentage of net sales to this fund. During fiscal 2010, company-owned restaurants spent approximately 3.2% of net restaurant sales on marketing and advertising, with 0.5% dedicated to the development of advertising and promotional materials and programs designed to create brand awareness in the markets within which we operate. During 2011, the contributions to the National Ad Fund will be increased to 0.75% system-wide. In 2011, we anticipate advertising expense will be approximately 3.5%, as a percent of net sales, including the contribution to the National Ad Fund.

     The marketing team, working with outside consultants and other resources, is responsible for the advertising, promotion, creative development, branding and media-buying for Famous Dave’s. In addition to the traditional marketing and publicity methods, Famous Dave’s uses marketing efforts that include television, internet, radio, email Club, direct mail, website marketing promotion and outdoor billboards. During 2010, we reached 1.0 million PIG Club (Pretty Important Guest Loyalty Club) members and 100,000 fans on Facebook. In 2011, we will enhance our new media strategies and tactics to include: social media marketing and viral (‘word-of-mouth’) marketing; basically, we are involving our customers in telling our story via testimonials. Famous Dave’s brand has an active presence on Facebook, YouTube and Twitter, engaging fans in conversation. Also, we will continue to integrate our founder ‘Famous’ Dave Anderson into our advertising campaigns as he continues to tell our brand’s unique story.

     Advertising is not the only vehicle we use to build awareness of the Famous Dave’s brand. Annually, our “Rib Team” competes in many events and festivals nationwide. This team travels the country, participating in contests and festivals to introduce people to our brand of barbeque and build brand awareness in a segment largely defined by independents. Since inception, Famous Dave’s has received over 500 awards. Our notable awards in 2010 included BEST BUTT — CEDAR RAPIDS, IA and “People’s Choice Best Barbecue” at the National Barbecue Battle in Washington, DC. Other awards included:

“Best BBQ” Reader’s Choice — Minneapolis City Pages ‘Best Of’ issue — Minneapolis MN
“#1 Favorite Pork Provocateur” — Minneapolis/St Paul Magazine Reader’s Poll” — Minneapolis MN
“Best Ribs” Reader’s Choice — The Press of Atlantic City — Mays Landing NJ

     Our franchisees also continue to rack up awards all over the country. In 2010, these included:

“First Place — Ribs, Pork, Brisket” — ‘Smokin’ on the Strip Barbecue Cook-off’ — Branson MO
“Best BBQ, Presentation, and Taste” — ‘BBQ, Bands and Brew — BBQ Competition’ — Ft Myers FL
“Best BBQ” — Las Vegas Review Journal — Reader’s Choice — Las Vegas NV
“Best BBQ, Best Booth” — ‘Taste of Tacoma’ — Tacoma WA
“Best of South Jersey” Reader’s Choice — Courier-Post — Cherry Hill NJ

     Additionally, Famous Dave’s was named the “Top BBQ Restaurant Franchise” from Entrepreneur Magazine.

     The strategic focus in 2011 for marketing and promotion remains the same — to be the category—defining brand in BBQ, create more competitive distinction, and continue to strengthen the perception of value in the consumer’s mind. We plan to include approximately five new limited time offerings in 2011 to introduce our customers to new flavor profiles, innovative products and provide value and margin opportunity. Also, a number of new initiatives are planned around enhancing the menu, the guest experience, events marketing and social media. Building on a successful promotion last year, Famous Dave’s will again be celebrating ‘Dave’s Day’ in the third quarter of 2011 and will be launching new initiatives to build “Famous” culture and contribute to the community.

Location Strategy

     We believe that the barbeque segment of the casual dining niche of the restaurant industry continues to offer strong growth opportunities, and we see no impediments to our growth on a geographical basis. Our geographical concentration as of January 2, 2011 was 44% Midwest, 20% South, 26% West and 10% Northeast. We were located in 37 states as of January 2, 2011.

     We prepare an overall market development strategy for each market. The creation of this market strategy starts

with identifying trade areas that align demographically with the guest profile. The trade areas are then assessed for viability and vitality and prioritized as initial, second tier, or future development. Since markets are dynamic, the market strategy includes a continual and ongoing assessment of all existing restaurant locations. If financially feasible, a restaurant may be relocated as the retail or residential focus of a trade area shifts.

     We have a real estate site selection model to assess the site quality and trade area quality of new locations. This process involves extensive consumer research in our existing restaurants captured in a guest profile, which is updated on an annual basis. Each location is evaluated based on three primary sales drivers, which include: sales potential from the residential base (home quality), employment base (work quality), and retail activity (retail quality). Locations are also evaluated on their site characteristics which include seven categories of key site attributes, including but not limited to, access, visibility, and parking.

     As part of our development strategy, we will seek conversion opportunities for future restaurants in order to streamline the development process and to minimize the up-front investment. We will also evaluate the use of our new 5,000, 4,000 and 2,400 square foot prototypes where it makes sense. We intend to finance development through the use of cash on hand, cash flow generated from operations, and through availability on our revolving line of credit.

     Company-Owned Restaurant Expansion — We are planning to open one company-owned restaurant in 2011, and in the future, we will continue to build in our existing markets in high profile, heavy traffic retail locations as part of our future operating strategy to continue to build brand awareness. Our plan is to focus on sustainable, controlled growth, primarily in markets where multiple restaurants can be opened, thereby expanding consumer awareness, and creating opportunities for operating, distribution, and marketing efficiencies.

     Franchise-Operated Restaurant Expansion — We anticipate opening 10 to 11 new franchise restaurants during 2011. Our goal is to continue to improve the economics of our current restaurant prototypes, while providing more cost-effective development options for our franchisees. As of January 2, 2011, we had commitments for 80 units in the form of signed franchise area development agreements that are expected to open over approximately the next seven years. Our franchise system is a significant part of our brand’s success. As such, another one of our goals is to be a valued franchisor; to enhance communication and recognition of best practices throughout the system and to continue to expand our franchisee network. During 2011, to incentivize growth, any of our franchisees who open during the first three quarters will receive a reduced royalty rate from the date of opening through the balance of Famous Dave’s 2011 fiscal year.

     Generally, we find franchise candidates with prior franchise casual-dining restaurant experience in the markets for which they will be granted. In the past, area development agreements generally ranged from 3 to 15 restaurants, however, due to economic and market conditions, we are willing to discuss smaller unit agreements as well. We are also looking at individual franchise restaurants in the right markets where it makes sense.

Purchasing

     We strive to obtain consistent quality items at competitive prices from reliable sources. In order to maximize operational efficiencies and to provide the freshest ingredients for our food products, each restaurant’s management team determines the daily quantities of food items needed and orders such quantities to be delivered to their restaurant. The products, produced by major manufacturers designated by us, are shipped directly to the restaurants through foodservice distributors.

     Approximately 85% of our food and non-alcoholic beverage purchases are on contract, with the majority being proteins. Pork represents approximately 31% of our total purchases, while chicken is approximately 13%, beef, which includes hamburger and brisket, is approximately 10%, and seafood is approximately 2%.

     Our Purchasing contracts, our food and beverage costs and trends associated with each are discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Information Technology

     Famous Dave’s recognizes the importance of leveraging information and technology to support and extend our competitive position in the restaurant industry. We continue to invest in capabilities that provide secure and efficient operations, maximize the guest experience, and provide the ability to analyze data that describes our operations.

     We have implemented a suite of restaurant and support center systems which support operations by providing transactional functions (ordering, card processing, etc.) and reporting at both the unit and support center level. Interfaces between Point-of-Sale (POS), labor management, inventory management, menu management, key suppliers, team member screening/hiring and financial systems all contribute to the following operator and corporate visibility:

	•		Average guest check broken down by location, by server, by day part, and by revenue center;
	•		Daily reports of revenue and labor (both current and forecasted);
	•		Weekly reports of selected controllable restaurant expenses;
	•		Monthly reporting of detailed revenue and expenses; and
	•		Ideal vs. actual usage variance reporting for critical restaurant-level materials;

     This visibility enables every level of the Famous Dave’s organization to manage the key controllable costs within our industry, including food and labor costs.

     Below are the significant information technology initiatives completed in fiscal 2010:

	•		Implementation of a Human Resource Information System (HRIS) which provides a more efficient HR management tool by facilitating strategic analysis and mitigating risk with the consolidation of all information into a single system.
	•		Selection of a web-based ordering solution based on results of a pilot market test that assessed the impact on sales and guest experience. Initial focus is on online ordering with future capabilities for mobile ordering.
	•		Continued expansion of web technology to build guest community and to drive marketing efforts including, but not limited to, an increased presence in the social media arena with a strategy and brand presence on Facebook, YouTube, and Twitter.
	•		Implementation of financial utilities to comply with XBRL reporting requirements and to optimize the process for creating and supporting the data. Upgrade of messaging infrastructure positioning us to take advantage of the latest communication capabilities and providing a platform for increased collaboration.
	•		Continued implementation of virtual machines resulting in a significant reduction in hardware maintenance.

     In 2011, the department will leverage technology to support the needs of the Company through several initiatives listed below:

	•		Expansion of the food cost/supply chain back-office solution to include predictive features for ordering and product preparation that will enhance the effectiveness of efforts to manage cost.
	•		Leverage additional capabilities available in the Human Resource Information System (HRIS) to drive further efficiencies and self-service processes.
	•		Roll-out of web-based ordering solution providing ease of ordering for our guests’ and an additional sales channel with future capabilities for mobile and Facebook ordering.
	•		Selection and implementation of a budgeting, forecasting, and strategic planning solution that will expand upon current capabilities, increase efficiencies, and integrate with the evolution of other systems.
	•		Continued enhancement of business intelligence and reporting capabilities to facilitate identification and communication of key business metrics to make more timely decisions.
	•		Replace end-of-life data storage infrastructure providing increased capacity for cost saving and multi-media initiatives along with decreased maintenance effort.
	•		Continued evaluation of options to provide technology support and strategic systems to franchise partners.
	•		Creation of a marketing portal to facilitate the ordering, distribution and customization of marketing materials for localization and for the franchise community.

Trademarks

     Our Company has registered various trademarks, makes use of various unregistered marks, and intends to vigorously defend these marks. “Famous Dave’s” and the Famous Dave’s logo are registered trademarks of Famous Dave’s of America, Inc. The Company highly values its trademarks, trade names and service marks and will defend against any improper use of its marks to the fullest extent allowable by law.

Franchise Program

     We have offered franchises of our concept since July 1998 and currently file our franchise disclosure document in all 50 states. Our growth and success depends in part upon our ability to attract, contract with and retain qualified franchisees. It also depends upon the ability of those franchisees to successfully operate their restaurants with our standards of quality and promote and develop Famous Dave’s brand awareness.

     Although we have established criteria to evaluate prospective franchisees, and our franchise agreements include certain operating standards, each franchisee operates his/her restaurants independently. Various laws limit our ability to influence the day-to-day operation of our franchise restaurants. We cannot assure you that franchisees will be able to successfully operate Famous Dave’s restaurants in a manner consistent with our standards for operational excellence, service and food quality.

     At January 2, 2011, we had 42 ownership groups operating 130 Famous Dave’s franchise restaurants. Signed area development agreements, representing commitments to open an additional 80 franchise restaurants, were in place as of January 2, 2011. There can be no assurance that these franchisees will fulfill their commitments or fulfill them within the anticipated timeframe. We continue to grow the franchise program for our restaurants and anticipate 10 to 11 additional franchise restaurants will open during fiscal 2011.

     As of January 2, 2011, we had franchise-operated restaurants in the following locations:

		Number of Franchise-Operated
State		Restaurants
Arkansas			2
Arizona			6
California			14
Colorado			6
Delaware			2
Florida			3
Hawaii			1
Idaho			2
Illinois			3
Indiana			3
Iowa			3
Kansas			4
Kentucky			1
Maine			1
Massachusetts			1
Michigan			8
Minnesota			9
Missouri			3
Montana			4
Nebraska			6
Nevada			4
New Hampshire			1
New Jersey			1
New York			3
North Dakota			2
Oregon			1
Ohio			3
Pennsylvania			4
South Dakota			1
Tennessee			5
Texas			3
Utah			3
Washington			6
Wisconsin			11
Total			130

     Our Franchise Operations Department is made up of a Vice President of Franchise Operations, who guides the efforts of Directors of Franchise Operations, supported by Territory Directors. The Directors of Franchise Operations have responsibility for supporting our franchisees geographically throughout the country. Our Directors of Franchise Operations play a critical role for us as well as for our franchise community. Directors of Franchise Operations manage the relationship between the franchisee and the franchisor and provide an understanding of the roles, responsibilities, differences, and accountabilities of that relationship. They are active participants towards enhancing performance, as they partner in strategic and operational planning sessions with our franchise partners and review the individual

strategies and tactics for obtaining superior performance for the franchisee. The Directors of Franchise Operations share best practices throughout the system and work to create a one-system mentality that benefits everyone. In addition, they ensure compliance with obligations under our area development and franchise agreements. Franchisees are encouraged to utilize all available assistance from the Directors of Franchise Operations and the Support Center but are not required to do so.

     We make periodic inspections of our franchise-operated restaurants to ensure that the franchisee is complying with the same quality of service, operational excellence and food specifications that are found at our company-owned restaurants. We generally provide support as it relates to all aspects of the franchise operations including, but not limited to, store openings, operating performance, and human resource strategic planning.

     Our franchise-related revenue consists of area development fees, initial franchise fees and continuing royalty payments. Our area development fee consists of a one-time, non-refundable payment equal to $10,000 per restaurant in consideration for the services we perform in preparation of executing each area development agreement. Substantially all of these services which include, but are not limited to, conducting market and trade area analysis, a meeting with Famous Dave’s Executive Team, and performing potential franchisee background investigation, all of which are completed prior to our execution of the area development agreement and receipt of the corresponding area development fee. As a result, we recognize this fee in full upon receipt. Our initial, non-refundable, franchise fee is typically $30,000 to $40,000 per restaurant, of which $5,000 is recognized immediately when a franchise agreement is signed, reflecting the commission earned and expenses incurred related to the sale. The remaining $25,000 to $35,000 is included in deferred franchise fees and is recognized as revenue when we have performed substantially all of our obligations. The franchise agreement represents a separate and distinct earnings process from the area development agreements. Franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales, which has historically varied from 4% to 5%. In general, new franchises pay us a monthly royalty of 5% of their net sales. We continue to be proactive in supporting our franchisees. During a time when financing is difficult to obtain, we decided to suspend franchisees’ development schedule requirements for both 2009 and 2010. However, as a growth incentive, and similar to 2009, franchisees that chose to open in 2010 got a reduced royalty rate for a 12 month timeframe from date of opening.

     Because of the continuing difficult economic environment and scarcity of capital for development, we modified and extended this growth incentive program for fiscal 2011. The modification offers new and existing franchisees reduced levels of franchise royalties, based on a sliding scale, for new restaurants opened during 2011. If a franchise restaurant opens in the first quarter, the franchisee will pay a reduced royalty of 2.5% for the remainder of 2011. Opening in the second quarter qualifies for a reduced royalty of 3.0% for the remainder of 2011, and opening in the third quarter qualifies for a reduced royalty of 4.0% for the remainder of 2011. Any openings in the fourth quarter and beyond would be at the 5% royalty rate.

     The franchisee’s investment depends primarily upon restaurant size. This investment includes the area development fee, initial franchise fee, real estate and leasehold improvements, fixtures and equipment, POS systems, business licenses, deposits, initial food inventory, small wares, décor and training fees as well as working capital. In 2011, franchisees will be required to contribute 0.75% of net sales to a national public relations and marketing fund dedicated to building system-wide brand awareness.

Seasonality

     Our restaurants typically generate higher revenue in the second and third quarters of our fiscal year as a result of seasonal traffic increases and high catering sales experienced during the summer months, and lower revenue in the first and fourth quarters of our fiscal year, due to possible adverse weather which can disrupt guest and team member transportation to our restaurants.

Government Regulation

     Our Company is subject to extensive state and local government regulation by various governmental agencies, including state and local licensing, zoning, land use, construction and environmental regulations and various regulations relating to the sale of food and alcoholic beverages, sanitation, disposal of refuse and waste products, public health, safety and fire standards. Our restaurants are subject to periodic inspections by governmental agencies to ensure conformity with such regulations. Any difficulty or failure to obtain required licensing or other regulatory

approvals could delay or prevent the opening of a new restaurant, and the suspension of, or inability to renew a license, could interrupt operations at an existing restaurant, any of which would adversely affect our operations. Restaurant operating costs are also affected by other government actions that are beyond our control, including increases in the minimum hourly wage requirements, workers compensation insurance rates, health care insurance costs, property and casualty insurance, and unemployment and other taxes. We are also subject to “dram-shop” statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.

     As a franchisor, we are subject to federal regulation and certain state laws that govern the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and the termination or non-renewal of a franchise. Bills have been introduced in Congress from time to time that would provide for federal regulation of substantive aspects of the franchisor-franchisee relationship. As proposed, such legislation would limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise, and the ability of a franchisor to designate sources of supply.

     The 1990 Federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. We could be required to incur costs to modify our restaurants in order to provide service to, or make reasonable accommodations for, disabled persons. Our restaurants are currently designed to be accessible to the disabled, and we believe we are in substantial compliance with all current applicable regulations relating to this Act.

Team Members

     As of January 2, 2011, we employed approximately 3,175 team members of which approximately 340 were full-time. None of our team members are covered by a collective bargaining agreement. We consider our relationships with our team members to be good.

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. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statements made by us or on our behalf speak only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as otherwise required by applicable law, we do not undertake any obligation to update or keep current either (i) any forward-looking statements to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement which may be made by us or on our behalf.

     In addition to other matters identified or described by us from time to time in filings with the SEC, 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.

The Recent Disruptions in the Overall Economy and the Financial Markets May Adversely Impact Our Business and Results of Operations and May Impact Our Ability to Comply with our Credit Facility’s Financial Covenants.

     The restaurant industry can be affected by macro economic factors, including changes in national, regional, and local economic conditions, employment levels and consumer spending patterns. The recent disruptions in the overall economy and financial markets have weakened consumer confidence in the economy considerably, and consequently, have reduced the amount of consumers’ dining out occasions, which has been harmful to our results of operations, and has negatively impacted our financial position. In addition, the impact of the current economic downturn has resulted in a deceleration of the number and timing of restaurant openings and, depending on its duration and severity, could adversely affect our ability to comply with financial covenants under our credit facility on a continuing basis. There can be no assurances that government responses to the disruptions in the financial markets and overall economy will restore consumer confidence, stabilize the markets or increase liquidity and the availability of credit. As of January 2, 2011, we were in compliance with all of the financial covenants under our credit facility.

     In the event we fail to comply with these or other financial covenants in the future and are unable to obtain similar waivers, our lender will have the right to demand repayment of all outstanding amounts, which totaled $13.0 million at January 2, 2011, and to terminate the existing credit facility. If we were unable to repay outstanding amounts, either using current cash reserves, a replacement facility or another source of capital, our lender would have the right to foreclose on our personal property, which serves as collateral for the credit facility. Replacement financing may be unavailable to us on similar terms or at all, especially if current credit market conditions persist. Termination of our existing credit facility without adequate replacement, either through a similar facility or other sources of capital, would have a material and adverse impact on our ability to continue our business operations.

Our Future Revenue and Operating Income Are Dependent on Consumer Preference and Our Ability to Successfully Execute Our Plan.

     Our Company’s future revenue and operating income will depend upon various factors, including continued and additional market acceptance of the Famous Dave’s brand, 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.

     It’s our plan to open one new company-owned restaurant in 2011, and we are anticipating the opening of 10 to 11 new franchise restaurants. There is no guarantee that any of the company-owned or franchise-operated restaurants will open when planned, or at all, due to the risks associated with pre-construction delays in 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, team member 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 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, or unable to respond in a timely manner, the various competitive factors affecting the restaurant industry, our revenue and operating income could be adversely affected.

Our Failure to Execute Our Franchise Program May Negatively Impact Our Revenue and Operating Income.

     Our growth and success depends in part upon increasing the number of our franchised restaurants, through execution of area development and franchise 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 operate their restaurants successfully 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 Inability to Develop and Construct Our Restaurants Within Projected Budgets and Time Periods Could Adversely Affect Our Business and Financial Condition.

     Many factors may affect the costs associated with the development and construction of our restaurants, including landlord delays, weather interference, unforeseen engineering problems, environmental problems, construction or zoning problems, local government regulations, modifications in design to the size and scope of the project, and other unanticipated increases in costs, any of which could give rise to delays or cost overruns. We have realized pre-construction permitting and zoning delays that are outside of our control. If we are not able to develop additional restaurants within anticipated budgets or time periods, our business, financial condition, results of operations and cash flows could be adversely affected.

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 requirements. Due to the fact 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.

     Any change in the current status of such regulations, including an increase in team member benefits costs, any and all insurance rates, or other costs associated with team members, could substantially increase our compliance and labor costs. Because we pay many of our restaurant-level team members 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 and similar costs over which we have no control.

     Recent health care legislation enacted by the Federal Government mandates menu labeling of certain nutritional aspects of restaurant menu items such as caloric, sugar, sodium, and fat content. Altering our recipes in response to such legislation could increase our costs and/or change the flavor profile of our menu offerings which could have an adverse impact on our results of operations. Additionally, minimum employee health care coverage mandated by state or federal legislation could have an adverse effect on our results of operations and financial condition.

We Are Subject to the Risks Associated With the Food Services Industry, Including the Risk That Incidents of Food-borne Illnesses or Food Tampering Could Damage Our Reputation and Reduce Our Restaurant Sales.

     Our industry is susceptible to the risk of food-borne illnesses. As with any restaurant operation, however, 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 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 guest traffic as a result of these health concerns or negative publicity could materially harm our business, results of operations and financial condition.

Our Ability to Exploit Our Brand Depends on Our Ability to Protect Our Intellectual Property, and If Any Third Parties Make Unauthorized Use Of Our Intellectual Property, Our Competitive Position and Business Could Suffer.

     We believe that our trademarks and other intellectual proprietary rights are important to our success and our competitive position. Accordingly, we have registered various trademarks and make use of various unregistered marks. However, the actions we have taken or may take in the future to establish and protect our trademarks and other intellectual proprietary rights may be inadequate to prevent others from imitating our products and concept or claiming violations of their trademarks and proprietary rights by us. Although we intend to defend against any improper use of our marks to the fullest extent allowable by law, litigation related to such defense, regardless of the merit or resolution, may be costly and time consuming and divert the efforts and attention of our management.

Our Financial Performance is Affected By Our Ability to Contract with Reliable Suppliers At Competitive Prices.

     In order to maximize operating efficiencies, we have entered into arrangements with food manufacturers and distributors pursuant to which we obtain approximately 85% of the products used by the Company, including, but not limited to, pork, poultry, beef, and seafood. We believe that our relationships with our food manufacturers and distributors are excellent. We anticipate no interruption in the supply of product delivered by these companies; however, we have arrangements with several secondary suppliers in the case of a supply disruption. Although we may be able to obtain competitive products and prices from alternative suppliers, an interruption in the supply of products delivered by our food suppliers could adversely affect our operations in the short term. Due to the rising market price environment, our food costs may increase without the desire and/or ability to pass that price increase to our customers.

     While we do contract for utilities in all available states, the costs of these energy-related items will fluctuate due to factors that may not be predictable, such as the economy, current political/international relations and weather

conditions. Because we cannot control these types of factors, there is a risk that prices of energy/utility items will increase beyond our current projections and adversely affect our operations.

We Could Be Adversely Impacted if our Information Technology and Computer Systems Do Not Perform Properly or if We Fail to Protect Our Customers’ Credit Card Information or Our Employees’ Personal Data.

     We rely heavily on information technology to conduct our business, and any material failure, interruption of service, or compromised data security could adversely affect our operations. While we take it very seriously and expend significant resources to ensure that our information technology operates securely and effectively, any security breaches could result in disruptions to operations or unauthorized disclosure of confidential information. Additionally, if our guests’ credit card or other personal information or our team members’ personal data are compromised our operations could be adversely affected, our reputation could be harmed, and we could be subjected to litigation or the imposition of penalties.

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 100,000,000 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 11, 2011, we had 8,079,173 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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.

ITEM 2. PROPERTIES

     The development cost of our restaurants varies depending primarily on the size and style of the restaurant, whether the property is purchased or leased, and whether it is a conversion of an existing building or a newly constructed restaurant. We have a 5,000 square foot package that can be built as a free standing building, a 4,000 square foot model that most likely would be constructed as an end cap of a building and a 2,400 square foot design which would be constructed as a counter service location in an existing building. Additionally, we offer lower cost conversion packages that provide our franchisees with the flexibility to build in cost effective formats, such as, opportunities to convert existing restaurants into a Famous Dave’s restaurant. In fiscal 2010, the company opened a 6,400 square foot restaurant that was a conversion of another restaurant concept. The restaurants we opened in 2006, 2007, 2008 were approximately 6,000 square feet, and had approximately 175 seats, with an additional 50 seats in the bar, and 32 additional seats on the patio where available. In 2010, the company and several franchisees’ successfully converted restaurants from existing casual dining concepts. Due to the flexibility and scalability of our concept, there are a variety of development opportunities available now and in the future. In 2011, we expect to open a company-owned restaurant in Falls Church, Virginia, which is a conversion of another restaurant concept, and 10 to 11 new franchise-operated restaurants.

     Our leased restaurant facilities are occupied under agreements with remaining terms ranging from 1 to 37 years, including renewal options. Such leases generally provide for fixed rental payments plus operating expenses associated with the properties. Several leases also require the payment of percentage rent based on net sales.

     Our executive offices are currently located in approximately 23,900 square feet in Minnetonka, Minnesota, under a lease that expires in August 2013, with two five-year renewal options. The minimum annual rent commitment

remaining over the base lease term is approximately $3.5 million, net of sublease income. In 2010, in an effort to reduce general and administrative expense, we entered into a sublease for 2,100 square feet, in our executive office building, through the remainder of the base lease term. We believe that our properties will be suitable for our needs and adequate for operations for the foreseeable future.

     The following table sets forth certain information about our existing company-owned restaurant locations, as of January 2, 2011, sorted by opening date:

				Square		Interior		Owned or		Date
		Location		Footage		Seats		Leased		Opened/Acquired
1		Roseville, MN (3)		4,800		105		Leased		June 1996
2		Calhoun Square (Minneapolis, MN)		10,500		380		Leased		September 1996
3		Maple Grove, MN		6,100		146		Leased(1)			April 1997
4		Highland Park (St. Paul, MN)(3)		5,200		125		Leased		June 1997
5		Stillwater, MN		5,200		130		Leased(1)		July 1997
6		Apple Valley, MN(3)		3,800		90		Leased(1)		July 1997
7		Forest Lake, MN(3)		4,500		100		Leased		October 1997
8		Minnetonka, MN		5,500		140		Owned(2)		December 1997
9		Plymouth, MN(3)		2,100		49		Owned(2)		December 1997
10		West Des Moines, IA		5,700		150		Leased		April 1998
11		Des Moines, IA		5,800		150		Leased		April 1998
12		Cedar Falls, IA		5,400		130		Leased		September 1998
13		Bloomington, MN		5,400		140		Leased		October 1998
14		Woodbury, MN		5,900		180		Owned(2)		October 1998
15		Lincoln, NE		6,200		185		Owned(2)		December 1999
16		Columbia, MD		7,200		270		Leased		January 2000
17		Annapolis, MD		6,800		219		Leased		January 2000
18		Frederick, MD		5,600		180		Leased		January 2000
19		Woodbridge, VA		6,000		219		Leased		January 2000
20		Vernon Hills, IL		6,660		222		Leased		February 2000
21		Addison, IL		5,000		135		Owned(2)		March 2000
22		Lombard, IL		6,500		233		Leased		July 2000
23		North Riverside, IL		4,700		150		Leased		August 2000
24		Sterling, VA		5,800		200		Leased		December 2000
25		Oakton, VA		4,400		184		Leased		May 2001
26		Laurel, MD		5,200		165		Leased		August 2001
27		Richmond I (Richmond, VA)		5,400		180		Owned(2)		December 2001
28		Gaithersburg, MD		5,000		170		Leased		May 2002
29		Richmond II (Richmond, VA)		5,200		158		Owned(2)		June 2002
30		Orland Park, IL		5,400		158		Leased		June 2002
31		Tulsa, OK		4,700		180		Owned(2)		September 2002
32		Virginia Commons, VA		5,600		186		Owned(2)		June 2003
33		Chantilly, VA		6,400		205		Leased		January 2006
34		Florence, KY		5,900		217		Leased		January 2006
35		Waldorf, MD		6,600		200		Leased		June 2006
36		Coon Rapids, MN		6,300		160		Owned(2)		December 2006
37		Fredericksburg, VA		6,500		219		Leased		September 2007
38		Owings Mills, MD		6,700		219		Leased		November 2007
39		Bolingbrook, IL		6,600		219		Leased		November 2007
40		Oswego, IL		6,600		219		Leased		December 2007
41		Alexandria, VA		6,600		219		Leased		February 2008
42		Algonquin, IL		6,000		219		Leased		September 2008
43		Greenwood, IN		5,700		184		Leased		October 2008
44		Salisbury, MD		5,400		192		Leased		October 2008
45		Brick, NJ		5,200		181		Leased		March 2010
46		May’s Landing, NJ		6,400		237		Leased		March 2010
47		Smithtown, NY		6,400		237		Leased		March 2010
48		Westbury, NY		6,400		276		Leased		March 2010
49		New Brunswick, NJ		7,200		255		Leased		March 2010
50		Mountainside, NJ		8,800		253		Leased		March 2010
51		Metuchen, NJ		6,200		176		Leased		March 2010
52		Bel Air, MD		6,360		199		Leased		August 2010

All seat count and square footage amounts are approximate.

ITEM 3. LEGAL PROCEEDINGS

     From time-to-time, we are involved in various legal actions arising in the ordinary course of business. In the opinion of our management, the ultimate dispositions of these matters will not have a material adverse effect on our consolidated financial position and results of operations. Currently, there are no significant legal matters pending.

ITEM 4. [REMOVED AND RESERVED]

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

     Our common stock has traded on the NASDAQ Stock Market since July 24, 1997 under the symbol DAVE. Currently, our common stock trades on the NASDAQ Global Market. The following table summarizes the high and low sale prices per share of our common stock for the periods indicated, as reported on the NASDAQ Global Market.

		2010								2009
Period		High				Low				High				Low
1st Quarter		$	8.30			$	6.00			$	4.41			$	2.00
2nd Quarter		$	9.69			$	7.77			$	7.00			$	3.02
3rd Quarter		$	9.64			$	7.50			$	7.25			$	5.20
4th Quarter		$	11.44			$	8.90			$	7.08			$	5.30

Holders

     As of March 7, 2011, we had approximately 439 shareholders of record and approximately 5,064 beneficial shareholders.

Dividends

     Our Board of Directors has not declared any dividends on our common stock since our inception, and does not intend to pay out any cash dividends on our common stock in the foreseeable future. We presently intend to retain all earnings, if any, to provide for our growth and capital needs. The payment of cash dividends in the future, if any, will be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital requirements, loan agreement restrictions, our financial condition and other factors deemed relevant by our Board of Directors.

Stock Performance Graph

     Below is a line-graph presentation that compares the cumulative, five-year return to the Company’s shareholders (based on appreciation of the market price of the Company’s common stock) on an indexed basis with (i) a broad equity market index and (ii) an appropriate published industry or line-of-business index, or Peer Group Index constructed by the Company. The following presentation compares the Company’s common stock price for the period from January 1, 2006 through January 2, 2011, to the S&P 500 Stock Index and to a Peer Group Index.

     The Company has elected to use the S&P Small Cap Restaurant Index in compiling its stock performance graph because it believes the S&P Small Cap Restaurant Index represents a comparison to competitors with similar market capitalization to the Company.

     The presentation assumes that the value of an investment in each of the Company’s common stock, the S&P 500 Index and S&P Small Cap Restaurants was $100 on January 1, 2006, and that any dividends paid were reinvested in the same security.

Purchases of Equity Securities by the Issuer

     On August 6, 2008, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to 1.0 million shares of our common stock in both the open market or through privately negotiated transactions. During fiscal 2010, we repurchased 892,988 shares under this program for approximately $6.9 million at an average market price per share of $7.76, excluding commissions. Including the amounts just mentioned, we repurchased all 1.0 million shares under this authorization, for approximately $7.8 million at an average market price per share of $7.79, excluding commissions.

     On November 4, 2010, our Board of Directors approved a further stock repurchase program that authorized the repurchase of up to an additional 1.0 million shares of our common stock in both the open market or through privately negotiated transactions. As of January 2, 2011 we had repurchased 174,100 shares under this program for approximately $1.8 million at an average market price of $10.33, excluding commissions.

     The following table includes information about our share repurchases for the fiscal year ended January 2, 2011:

														Maximum
														Number
														(or Approximate
										Total Number				Dollar Value) of
										of Shares				Shares
		Total				Average				(or Units)				(or Units)
		Number				Price				Purchased as				that May Yet be
		of Shares				Paid per				Part of Publically				Purchased
		(or Units)				Share(1)				Announced Plans				Under the Plans
Period		Purchased				(or Unit)				or Programs				or Programs
Month #1 (January 4, 2010 — January 31, 2010)			62,100	(2)		$	6.28				62,100	(2)			830,888	(3)
Month #2 (February 1, 2010 — February 28, 2010)			79,212	(2)		$	6.48				79,212	(2)			751,676	(3)
Month #3 (March 1, 2010 — April 4, 2010)			288,486	(2)		$	7.20				288,486	(2)			463,190	(3)
Month #4 (April 5, 2010 — May 2, 2010)			—			$	—				—				463,190	(3)
Month #5 (May 3, 2010 — May 30, 2010)			159,700	(2)		$	8.68				159,700	(2)			303,490	(3)
Month #6 (May 31, 2010 — July 4, 2010)			64,450	(2)		$	8.60				64,450	(2)			239,040	(3)
Month #7 (July 5, 2010 — August 1, 2010)			—			$	—				—				239,040	(3)
Month #8 (August 2, 2010 — August 29, 2010)			65,379	(2)		$	8.21				65,379	(2)			173,661	(3)
Month #9 (August 30, 2010 — October 3, 2010)			173,661	(2)		$	8.49				173,661	(2)			—
Month #10 (October 4, 2010 — October 31, 2010)			—			$	—				—				—
Month #11 (November 1, 2010 — November 28, 2010)			26,900	(4)		$	9.66				26,900	(4)			973,100	(5)
Month #12 (November 29, 2010 — January 2, 2011)			147,200	(4)		$	10.45				147,200	(4)			825,900	(5)

ITEM 6. SELECTED FINANCIAL DATA

     The selected financial data presented below should be read in conjunction with the consolidated financial statements and notes included elsewhere in this Form 10-K, and in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

     The selected financial data as of and for the fiscal years ended January 2, 2011 (fiscal 2010), January 3, 2010 (fiscal year 2009), December 28, 2008 (fiscal year 2008), and December 30, 2007 (fiscal year 2007), and December 31, 2006 (fiscal year 2006) have been derived from our consolidated financial statements as audited by Grant Thornton LLP, independent registered public accounting firm.

FINANCIAL HIGHLIGHTS

FISCAL YEAR
($’s in 000’s, except per share data and average weekly sales)		2010				2009(1)				2008				2007				2006
STATEMENTS OF OPERATIONS DATA
Revenue		$	148,268			$	136,018			$	140,382			$	125,873			$	116,621
Asset impairment and estimated lease termination and other closing costs(2)		$	(74	)		$	(218	)		$	(6,912	)		$	(596	)		$	(1,136	)
Income from operations		$	11,983			$	10,514			$	2,030			$	10,436			$	9,243
Income tax (expense) benefit		$	(3,796	)		$	(2,989	)		$	119			$	(3,100	)		$	(2,737	)
Net income		$	7,218			$	5,701			$	389			$	6,070			$	4,954
Basic net income per common share		$	0.84	(3)		$	0.63			$	0.04			$	0.61			$	0.47
Diluted net income per common share		$	0.82	(3)		$	0.62			$	0.04			$	0.59			$	0.46
BALANCE SHEET DATA (at year end)
Cash and cash equivalents		$	2,654			$	2,996			$	1,687			$	1,538			$	1,455
Total assets		$	76,129			$	68,381			$	73,401			$	73,942			$	65,859
Long-term debt less current maturities(4)		$	23,497			$	17,990			$	29,252			$	11,693			$	13,025
Total shareholders’ equity		$	32,904			$	32,994			$	26,184			$	30,400			$	36,171
OTHER DATA
Restaurant Sales:
Company-owned		$	131,154			$	117,934			$	122,016			$	107,820			$	100,026
Franchise-operated		$	340,454			$	358,696			$	355,946			$	320,750			$	282,160
Number of restaurants open at year end:
Company-owned restaurants			52				45				47				44				41
Franchise-operated restaurants			130				132				123				120				104
Total restaurants			182				177				170				164				145
Company-owned comparable store
Sales increase (decrease) (5)			0.7	%			(6.3	)%(6)			(2.0	)%			2.1	%			2.9	%
Average weekly sales:
Company-owned restaurants		$	49,187			$	48,197			$	50,685			$	50,385			$	47,894
Franchise-operated restaurants		$	52,631			$	53,016			$	56,535			$	56,727			$	58,334

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Certain statements contained in this Annual Report on Form 10-K include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are based on information currently available to us as of the date of this Annual Report, and we assume no obligation to update any forward-looking statements except as otherwise required by applicable law. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors may include, among others, those factors listed in Item 1A of and elsewhere in this Annual Report and our other filings with the Securities and Exchange Commission. The following discussion should be read in conjunction with “Selected Financial Data” above (Item 6 of this Annual Report) and our financial statements and related footnotes appearing elsewhere in this Annual Report.

OVERVIEW

     Famous Dave’s of America, Inc. was incorporated as a Minnesota corporation in March 1994 and opened its first restaurant in Minneapolis in June 1995. As of January 2, 2011, there were 182 Famous Dave’s restaurants operating in 37 states, including 52 company-owned restaurants and 130 franchise-operated restaurants. An additional 80 franchise restaurants were in various stages of development as of January 2, 2011. Fiscal 2011, which ends on January 1, 2012, will consist of 52 weeks.

     Fiscal Year

     Our fiscal year ends on the Sunday nearest December 31st of each year. Our fiscal year is generally 52 weeks; however it periodically consists of 53 weeks. The fiscal year ended January 2, 2011 (fiscal 2010) consisted of 52 weeks, the fiscal year ended January 3, 2010 (fiscal 2009) consisted of 53 weeks, and the fiscal year ended December 28, 2008 (fiscal 2008) consisted of 52 weeks.

     Basis of Presentation — The financial results presented and discussed herein reflect our results and the results of our wholly-owned and majority-owned consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

     Application of Critical Accounting Policies and Estimates — The following discussion and analysis of the Company’s financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities and expenses, and related disclosures. On an on-going basis, management evaluates its estimates and judgments. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. Management bases its estimates and judgments on historical experience, observance of trends in the industry, information provided by customers and other outside sources and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies reflect its more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. Our Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included herein.

     We have discussed the development and selection of the following critical accounting estimates with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our disclosures relating to such estimates in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     Recognition of Franchise-Related Revenue — Initial franchise revenue is recognized when we have performed substantially all of our obligations as franchisor. Franchise royalties are recognized when earned as promulgated by Financial Accounting Standards Board (FASB) Accounting Standards Codification for Franchisors.

     Our revenue consists of restaurant sales, franchise-related revenue, and licensing and other revenue. Our franchise-related revenue consists of area development fees, initial franchise fees and continuing royalty payments. Our area development fee consists of a one-time, non-refundable payment equal to $10,000 per restaurant in consideration for the services we perform in preparation of executing each area development agreement. Substantially all of these services, which include, but are not limited to, conducting market and trade area analysis, a meeting with Famous Dave’s Executive Team, and performing potential franchise background investigations, are completed prior to our execution of the area development agreement and receipt of the corresponding area development fee. As a result, we recognize this fee in full upon receipt. Our initial, non-refundable, franchise fee is typically $30,000 to $40,000 per restaurant, of which $5,000 is recognized immediately when a franchise agreement is signed, reflecting the commission earned and expenses incurred related to the sale. The remaining non-refundable fee of $25,000 to $35,000 is included in deferred franchise fees and is recognized as revenue when we have performed substantially all of our obligations, which generally occurs upon the franchise entering into a lease agreement for the restaurant(s). The franchise agreement represents a separate and distinct earnings process from the area development agreements. Franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales, which has historically varied from 4% to 5%. In general, new franchises pay us a monthly royalty of 5% of their net sales. During 2009 and 2010, we offered a reduced royalty rate for twelve months from date of opening for franchisees that opened restaurants during 2010 and 2009.

     Because of the continuing difficult economic environment and scarcity of capital for development, we modified and extended this growth incentive program for fiscal 2011. The modification offers new and existing franchisees reduced levels of franchise royalties, based on a sliding scale, for new restaurants opened during 2011. If a franchise restaurant opens in the first quarter, the franchisee will pay a reduced royalty of 2.5% for the remainder of 2011. Opening in the second quarter qualifies for a reduced royalty of 3.0% for the remainder of 2011, and opening in the third quarter qualifies for a reduced royalty of 4.0% for the remainder of 2011. Any openings in the fourth quarter and beyond would be at the 5% royalty rate.

     Asset Impairment and Estimated Lease Termination and Other Closing Costs — In accordance with FASB Accounting Standards Codification for Property, Plant, and Equipment, we evaluate restaurant sites and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and used is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows expected to be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the amount by which the carrying amount of the restaurant site exceeds its fair value. Fair value is estimated based on the best information available including estimated future cash flows, expected growth rates in comparable restaurant sales, remaining lease terms and other factors. If these assumptions change in the future, we may be required to take additional impairment charges for the related assets. Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual results could vary significantly from such estimates. Restaurant sites that are operating but have been previously impaired are reported at the lower of their carrying amount or fair value less estimated costs to sell.

     Lease Accounting — In accordance with FASB Accounting Standards Codification for Leases, we recognize lease expense for our operating leases over the entire lease term including lease renewal options where the renewal is reasonably assured and the build-out period takes place prior to the restaurant opening or lease commencement date. We account for construction allowances by recording a receivable when its collectability is considered probable, depreciating the leasehold improvements over the lesser of their useful lives or the full term of the lease, including renewal options and build-out periods, amortizing the construction allowance as a credit to rent expense over the full term of the lease, including renewal options and build-out periods, and relieving the receivable once the cash is obtained from the landlord for the construction allowance. We record rent expense during the build-out period and classify this expense as pre-opening expenses in our consolidated statements of operations.

     Accounts Receivable, Net — We provide an allowance for uncollectible accounts on accounts receivable based on historical losses and existing economic conditions, when relevant. We provide for a general bad debt reserve for franchise receivables due to increases in days’ sales outstanding and deterioration in general economic market conditions. This general reserve is based on the aging of receivables meeting specified criteria and is adjusted each quarter based on past due receivable balances. Additionally, we have periodically established a specific reserve on certain receivables as necessary. Any changes to the reserve are recorded in general and administrative expenses. The allowance for uncollectible accounts was approximately $80,000 and $67,000 at January 2, 2011 and January 3, 2010,

respectively. Accounts receivable are written off when they become uncollectible, and payments subsequently received on such receivables are credited to allowance for doubtful accounts. Accounts receivable balances written off have not exceeded allowances provided. We believe all accounts receivable in excess of the allowance are fully collectible. If accounts receivable in excess of provided allowances are determined uncollectible, they are charged to expense in the period that determination is made. Outstanding past due accounts receivable are subject to a monthly interest charge on unpaid balances which is recorded as interest income in our consolidated statements of operations. In assessing recoverability of these receivables, we make judgments regarding the financial condition of the franchisees based primarily on past and current payment trends, as well as other variables, including annual financial information, which the franchisees are required to submit to us.

     Income Taxes — We provide for income taxes based on our estimate of federal and state income tax liabilities. These estimates include, among other items, effective rates for state and local income taxes, allowable tax credits for items such as taxes paid on reported tip income, estimates related to depreciation and amortization expense allowable for tax purposes, and the tax deductibility of certain other items. Our estimates are based on the information available to us at the time that we prepare the income tax provision. We generally file our annual income tax returns several months after our fiscal year-end. Income tax returns are subject to audit by federal, state, and local governments, generally years after the tax returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws. Accrual for uncertain tax positions are accounted for under FASB Accounting Standards Codification of Income Taxes. Additionally, uncertain positions may be re-measured as warranted by changes in facts or law. Accounting for uncertain tax positions requires significant judgment including estimating the amount, timing, and likelihood of ultimate settlement. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates.

Results of Operations

     Revenue — Our revenue consists of four components: company-owned restaurant sales, franchise-related revenue from royalties and franchise fees, licensing revenue from the retail sale of our sauces and rubs, and other revenue from the opening assistance we provide to franchise partners. We record restaurant sales at the time food and beverages are served. Our revenue recognition policies for franchising are discussed under “Recognition of Franchise-Related Revenue” above. Our franchise-related revenue consists of area development fees, initial franchise fees and continuing royalty payments. We record sales of merchandise items at the time items are delivered to the customer.

     We have a licensing agreement for our retail products, with renewal options of five years, subject to the licensee’s attainment of identified minimum product sales levels. Based on achievement of the required minimum product sales, the agreement will be in force until April 2015 at which time these levels will be re-evaluated.

     Periodically, we provide additional services, beyond the general franchise agreement, to our franchise operations, such as new restaurant training and décor installation services. The cost of these services is billed to the respective franchisee, is recorded as other income when the service is provided, and is generally payable on a net 30-day terms.

     Costs and Expenses — Restaurant costs and expenses include food and beverage costs, operating payroll, team member benefits, restaurant level supervision, occupancy costs, repair and maintenance costs, supplies, advertising and promotion, and restaurant depreciation and amortization. Certain of these costs and expenses are variable and will increase or decrease with sales volume. The primary fixed costs are corporate and restaurant management salaries and occupancy costs. Our experience is that when a new restaurant opens, it incurs higher than normal levels of labor and food costs until operations stabilize, usually during the first 12-14 weeks of operation. As restaurant Management and team members gain experience following a restaurant’s opening, labor scheduling, food cost management and operating expense control are improved to levels similar to those at our more established restaurants.

     General and Administrative Expenses — General and administrative expenses include all corporate and administrative functions that provide an infrastructure to support existing operations and support future growth. Salaries, bonuses, team member benefits, legal fees, accounting fees, consulting fees, travel, rent, and general insurance are major items in this category. We record expenses for Managers in Training (“MITs”) in this category for approximately six weeks prior to a restaurant opening. We also provide franchise services, the revenue of which are included in other revenue and the expenses of which are included in general and administrative expenses.

     The following table presents items in our consolidated statements of operations as a percentage of total revenue or net restaurant sales, as indicated, for the following fiscal years ⁽⁴⁾:

		2010				2009				2008
Food and beverage costs(1)			29.5	%			30.1	%			30.8	%
Labor and benefits(1)			31.5	%			31.4	%			31.3	%
Operating expenses(1)			27.5	%			26.7	%			26.6	%
Depreciation & amortization (restaurant level)(1)			3.8	%			3.9	%			4.1	%
Depreciation & amortization (corporate level)(2)			0.4	%			0.4	%			0.4	%
General and administrative(2)			10.9	%			11.8	%			11.8	%
Pre-opening expenses and net loss on disposal of property(1)			0.2	%			—				0.9	%
Asset impairment and estimated lease termination and other closing costs(1)			0.1	%			0.2	%			5.7	%
Gain on acquisition, net of acquisition costs(1)(3)			(1.6	)%			0.1	%			—
Total costs and expenses(2)			91.9	%			92.3	%			98.6	%
Income from operations(2)			8.1	%			7.7	%			1.4	%

Fiscal Year 2010 Compared to Fiscal Year 2009

     Total Revenue

     Total revenue of approximately $148.3 million for fiscal 2010 increased approximately $12.3 million, or 9.0%, from total revenue of $136.0 million in the comparable quarter in fiscal 2009. Fiscal 2010 consisted of 52 weeks, while fiscal 2009 consisted of 53 weeks.

     Restaurant Sales, net

     Restaurant sales for fiscal 2010 were approximately $131.2 million, compared to approximately $117.9 million for fiscal 2009 reflecting an 11.2% increase. Total restaurant sales growth reflected the addition of the seven New York and New Jersey restaurants, the new company-owned restaurant that opened in Bel Air, Maryland, and a comparable sales increase of 0.7% which included a weighted average pricing impact of 1.2%. These sales increases were partially offset by the impact of the 53rd week in fiscal 2009, equal to approximately $2.4 million. Of the 0.7% comparable sales increase, dine-in sales were flat to the prior year, while To-Go accounted for 0.3%, and catering comprised 0.4% of the increase. Off-premise sales were 31.0% of total sales, with catering at 9.5% and To-Go at 21.5%. This compares to 2009’s off-premise sales of 31.1%.

     Franchise-Related Revenue

     Franchise-related revenue consists of royalty revenue and franchise fees, which includes initial franchise fees and area development fees. Franchise-related revenue was approximately $16.2 million for fiscal 2010, compared to $17.1 million for 2009. The decline in franchise royalties reflects a comparable franchise sales decrease of 0.8%, the loss of approximately $333,000 of royalties from the 53rd week of fiscal 2009 and a net decrease of two franchise restaurants year over year. Nine new franchise restaurants opened in fiscal 2010, four restaurants closed, and seven restaurants became company-owned locations. Fiscal 2010 included 6,458 franchise operating weeks, compared to 6,758 franchise operating weeks in fiscal 2009. There were 130 franchise-operated restaurants open at January 2, 2011, compared to 132 at January 3, 2010.

     Licensing and Other Revenue

     Licensing revenue includes royalties from a retail line of business, including sauces, rubs, marinades and seasonings. Other revenue includes opening assistance and training we provide to our franchise partners. Licensing royalty revenue was approximately $595,000 for fiscal 2010 as compared to $523,000 for fiscal 2009. During fiscal 2011, as a result of continued growth in our restaurant base and expanded markets, we expect to see licensing revenue increase slightly compared to fiscal 2010 levels.

     Other revenue for fiscal 2010 was approximately $272,000 compared to approximately $449,000 for the comparable period of fiscal 2009 due to fewer franchise-operated restaurants that opened during fiscal 2010 compared to fiscal 2009. The amount of other revenue is expected to be flat in fiscal 2011, versus the prior year, based on a similar number of franchise openings planned for fiscal 2011.

     Same Store Net Sales

     It is our policy to include in our same store net sales base, restaurants that are open year round and have been open at least 24 months. Same store net sales for company-owned restaurants open at least 24 months ended January 2, 2011 increased 0.7%, compared to fiscal 2009’s decrease of 6.3%. For the January 2, 2011 and January 3, 2010, there were 40 and 37 restaurants, respectively, included in the company-owned 24 month comparable sales base.

     Same store net sales on a 24 month basis for franchise-operated restaurants for fiscal 2010 and fiscal 2009 decreased 0.8% and 8.5%, respectively. For fiscal 2010 and fiscal 2009, there were 94 and 90 restaurants, respectively, included in the franchise-operated 24 month comparable sales base. Neither franchise-operated comparable sales nor company-owned comparable sales include the results of the seven franchise restaurants acquired in March of 2010. These restaurants will enter the company-owned comparable sales base in March 2011 as it will only take 12 months to stabilize operations of these restaurants.

     Average Weekly Net Sales and Operating Weeks

     The following table shows company-owned and franchise-operated average weekly net sales and company-owned and franchise-operated operating weeks for fiscal 2010 and fiscal 2009:

		Fiscal Years Ended
		January 2,				January 3,
		2011				2010
Company-Owned		$	49,187			$	48,197
Full-Service		$	50,760			$	49,840
Counter-Service		$	34,697			$	35,413
Franchise-Operated		$	52,631			$	53,016

     Food and Beverage Costs

     Food and beverage costs for fiscal 2010 were approximately $38.8 million or 29.5% of net restaurant sales compared to approximately $35.5 million or 30.1% of net restaurant sales for the comparable period of fiscal 2009. As a percentage of dine-in sales, our adult beverage sales at our company-owned restaurants were approximately 9.0% for both fiscal 2010 and 2009.

     The decrease in food and beverage costs from fiscal 2009 to fiscal 2010, was primarily due to favorable contract pricing for a majority of our key proteins such as pork and hamburger; continued visibility and optimization from our food cost management system, and the successful transition to a new distributor. These decreases were partially offset by increased costs for two of our other core proteins, chicken and brisket.

     Approximately 85% of our food and non-alcoholic beverage purchases are on contract, with the majority being proteins. Pork represents approximately 31.0% of our total purchases, while chicken is approximately 13.0%, beef, which includes hamburger and brisket, is approximately 10.0%, and seafood is approximately 2.0%.

     Our pork contract is locked in for fiscal 2011, which should result in an approximate 2.3% increase over 2010’s pricing. We will watch the pork market closely to determine if there are opportunities to blend and extend pricing later in the year, should we see significant changes on the horizon with regard to the pricing environment for 2012. A majority of our chicken contracts are firm through September of 2011, at a price increase of approximately 5.3% over fiscal 2010. We have transitioned to a new raw brisket product to obtain a better yield and to minimize the amount of prep labor; however, due to higher commodity prices for this product, we will see a net cost increase of 4.2% over fiscal 2010. In the future, as commodity prices decrease, this product should allow the company to realize additional savings compared to our former brisket product. Currently, our brisket contract is firm through July of 2011. As we look at the balance of 2011, we will watch the market closely and execute short-term contracts until we can lock in an acceptable long-term price. For hamburger, we currently anticipate an average price increase of 9.0%, compared to 2010, which is on contract through June 2011. We are continually evaluating the market to determine the best time to lock in pricing for the rest of 2011, and are willing to ride the spot market until we can lock in what we believe is our best price. Our salmon and shrimp contracts are locked in through June of 2011, and our catfish is locked in through April of 2011, all at a blended price decrease of approximately 1.1% from fiscal 2010’s pricing. Due to the limited availability of catfish, however, we are currently evaluating our options regarding the future use of this product.

     With all indications continuing to point to rising commodity prices, we plan on mitigating these price increases with the following initiatives:

	•		In the fourth quarter of fiscal 2010, we initiated a 1.0% price increase on selected menu items. Additionally, we initiated an additional 1.0% price increase, primarily related to our beverage menu, during the new menu roll out in January of 2011. We will determine whether we will effect further price increases later in 2011.
	•		We will seek opportunities for regional produce contracting.
	•		We will perform a comprehensive review of the way we source, ship, and purchase our poultry products.
	•		We will focus on continued optimization of our distribution network to reduce freight costs.
	•		We will continue to evaluate and manage our prep-time labor and product quality for our non-core and side items, to determine if it is best to completely prepare certain items in-house or partially pre-prep them at our suppliers.
	•		We will prioritize continued strategic management of limited time offerings and their potential to positively impact on our menu mix and margin.

     As a result of all of the initiatives mentioned above, and although challenging, we are striving for an approximate 40 — 45 basis point decrease in our food and beverage costs as a percent of sales year over year.

     Labor and Benefits Costs

     Labor and benefits for fiscal 2010 were approximately $41.4 million or 31.5% of net restaurant sales, compared to approximately $37.0 million or 31.4% of net restaurant sales for fiscal 2009. This percentage increase reflects higher direct labor costs, incurred to normalize operations at the new company-owned restaurant, as well as the seven acquired restaurants. The company also realized higher employee benefit costs year over year. These increases were partially offset by savings from operating below our full manager matrix.

     For 2011, we expect labor and benefits costs as a percentage of sales, to be 5 to 10 basis points higher than fiscal 2010’s percentage, primarily due to operating at our full manager matrix.

     Operating Expenses

     Operating expenses for fiscal 2010 were approximately $36.1 million or 27.5% of net restaurant sales, compared to approximately $31.5 million or 26.7% of net restaurant sales for fiscal 2009. This year over year increase was primarily related to occupancy and other fixed operating costs from our New York and New Jersey restaurants. This increase was partially offset by advertising cost savings in 2010. For fiscal 2010, advertising, as a percent of sales, was approximately 3.2% compared to 3.4% for the prior year, primarily due to savings in media placement fees.

     For 2011, the Company has increased the national ad fund contribution system-wide, to 0.75% from 0.5%, and we expect that for fiscal 2011, advertising expense will be approximately 3.5% of net sales, including the contribution to the National Ad Fund.

     We are projecting operating expenses as a percentage of net sales for fiscal 2011 to be approximately 35 — 40 basis points higher than 2010’s percentage. Of this increase, 30 basis points relates to the increase in advertising costs. While we do not anticipate a major change in our advertising strategy, we will look for ways to optimize the dollars spent without compromising our advertising objectives. Additionally, although, we are contracted for gas and electric where possible, we anticipate increased utility costs in fiscal 2011.

     Depreciation and Amortization

     Depreciation and amortization expense for fiscal 2010 and 2009 was approximately $5.5 million and $5.2 million, respectively, and was 3.7% and 3.8%, respectively, of total revenue. For 2011, we expect depreciation as a percent of total revenue to be flat to 5 basis points lower, as compared to 2010, due to revenue leverage.

     Pre-opening Expenses

     Pre-opening expenses consist of labor, food, utilities, training and rent costs incurred prior to the opening of a restaurant. Included in pre-opening costs is pre-opening rent for approximately 16 weeks prior to opening but this will vary based on lease terms. During fiscal 2010 we had $300,000 of pre-opening expenses which included pre-opening rent and other pre-opening expenses for our new company-owned location in Bel Air, Maryland. We did not open any company owned restaurants in 2009, and thus did not have any pre-opening expenses. We will be opening one company-owned restaurant in the third quarter of 2011. Additionally, we anticipate some pre-opening expenses for an undetermined company-owned restaurant opening in early 2012. Pre-opening costs are therefore estimated at approximately $340,000 for fiscal 2011, including pre-opening rent.

     General and Administrative Expenses

     General and administrative expenses for fiscal 2010 were approximately $16.2 million or 10.9% of total revenue compared to approximately $16.0 million or 11.8% of total revenue for fiscal 2009. This percentage decrease is primarily due to revenue leverage. General and administrative expenses as a percent of total revenue, excluding stock-based compensation and board of directors’ cash compensation, were 10.0% for fiscal 2010 and 11.2% for fiscal 2009.

     For fiscal 2010, stock-based compensation and board of director cash compensation expense was approximately $1.3 million compared with $832,000 in fiscal 2009. The increase in this expense category is primarily due to a higher stock price year over year. We anticipate stock-based compensation and board of directors’ cash compensation to be approximately $1.7 million for fiscal 2011, as follows (in thousands):

						Board of				Board of
Performance		Restricted				Directors				Directors Cash
Shares		Stock Units				Shares				Compensation				Total
$1,105		$	136			$	64			$	400			$	1,705

     Over the past two years, we have prudently watched our expenses and will continue to do so. However, early in 2010, as we looked to 2011 and beyond, we also knew that we needed to reinvest in our organization for continued growth, both for our restaurants and for our franchise system. During 2010, we added the necessary people and systems to support this growth and 2011 will contain the full year impact of these investments. Accordingly, for 2011, we expect general and administrative expenses as a percentage of revenue, with full accrual for bonus achievement, to be approximately 20 — 25 basis points higher than 2010’s percentage.

     Asset Impairment and Estimated Lease Termination and Other Closing Costs

     In accordance with FASB Accounting Standards Codification for Property, Plant, and Equipment, we evaluate restaurant sites and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and used is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows expected to be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the amount by which the carrying amount of the restaurant site exceeds its fair value. Fair value is estimated based on the best information available including estimated future cash flows, expected growth rates in comparable restaurant sales, remaining lease terms and other factors. If these assumptions change in the future, we may be required to take

additional impairment charges for the related assets. Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual results could vary significantly from such estimates. Restaurant sites that are operating, but have been previously impaired, are reported at the lower of their carrying amount or fair value less estimated costs to sell. Here is a summary of these events and situations for fiscal 2010 and fiscal 2009.

     2010 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):

Restaurants		Reason		Amount
Various		Costs for closed restaurants(1)		$	68
Palatine		Lease reserve(2)			88
Atlanta		Gain on lease terminations(3)			(84	)
Various		Other			2
Total for 2010				$	74

     2009 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):

Restaurants		Reason		Amount
Various		Costs for closed restaurants(1)		$	240
Various		Gain on lease terminations(2)			(162	)
Software		Asset impairment(3)			129
Various		Other			11
Total for 2009				$	218

     Gain on Acquisition, Net of Acquisition Costs

     On March 3, 2010, the Company purchased the assets of seven of nine Famous Dave’s restaurants located in New York and New Jersey previously owned and operated by a Famous Dave’s franchisee, North Country BBQ Ventures, Inc. These assets were purchased under Section 363 of Chapter 11 of the U.S. Bankruptcy Code and the acquisition was approved by the United States Bankruptcy Court for the District of New Jersey. The Company did not assume any liabilities except for the outstanding gift cards that the Company chose to honor. Famous Dave’s of America, Inc. continues to operate the restaurants. For the two restaurants that were not acquired, one was subsequently closed and the other was purchased out of bankruptcy by another buyer who assumed the existing franchise agreement.

     The purchase price for the seven restaurants of approximately $7.4 million was offset by approximately $649,000 of pre- and post-petition notes receivable of the Company due and payable from the seller, resulting in a net

cash payment of $6.8 million, which was funded by a term loan from Wells Fargo Bank, N.A. (See Financial Condition, Liquidity, and Capital Resources section for the specific terms and conditions for this term loan.) This acquisition was accounted for using the acquisition method of accounting in accordance with FASB Accounting Standards Codification for Business Combinations. The net assets acquired were recorded based on their fair values at the acquisition date as follows (in thousands):

Inventory		$	125
Property, equipment, and leasehold improvements			7,262
Other assets(1)			2,843	(2)
Gift card liability			(312	)
Lease interest liabilities			(138	) (2)
Asset disposal costs			(2	)
Fair value of the net assets acquired		$	9,778

     The excess of the aggregate fair value of the assets acquired over the purchase price was allocated to gain on acquisition of approximately $2.3 million and is reflected in the consolidated statements of operations for the fiscal year ended January 2, 2011. The Company incurred approximately $386,000 of costs associated with the acquisition, $79,000 of which were incurred in fiscal 2009, and $307,000 of which were incurred in fiscal 2010. The fiscal 2010 acquisition-related costs are reflected as a net adjustment to the gain on the acquisition in the consolidated statements of operations for the year ended January 2, 2011.

     Loss on Early Extinguishment of Debt

     During 2009, we elected to repay five notes prior to their expiration, related to two of our Minnesota restaurants and three of our Virginia restaurants. These notes had annual interest rates ranging from 8.10% to 10.53% and were originally due between February 2020 and October 2023. A total of approximately $7.1 million was paid to retire these notes early. Included in the debt retirement payment was a pre-payment penalty of approximately $350,000 reflected as a loss on early extinguishment of debt in our consolidated statements of operations. We recorded a non-cash charge of approximately $159,000 to write-off associated deferred financing fees as a result of the early repayment, also reflected as early extinguishment of debt in our consolidated statement of operations.

     Interest Expense

     Interest expense was approximately $1.1 million or 0.8% of total revenue for fiscal 2010 and approximately $1.4 million or 1.1% of total revenue for fiscal 2009. For fiscal 2010, interest expense decreased year over year due to the early payoff of five high-rate, long-term notes in 2009 partially offset by the addition of the $6.8 million term loan for the acquisition of the New York and New Jersey restaurants in early fiscal 2010. For 2011, we expect interest expense to be essentially flat as a percentage of revenue, due to leverage year over year, partially offset by expected moderate increases in interest rates.

     Interest Income

     Interest income was approximately $171,000 and $129,000 for fiscal 2010 and fiscal 2009, respectively. Interest income reflects interest received on short-term cash and cash equivalent balances and on outstanding notes and accounts receivable balances.

     Provision for Income Taxes

     For fiscal 2010, our tax provision was approximately $3.8 million, or 34.5% of income before income taxes, compared to the prior year comparable period of approximately $3.0 million, or 34.4% of income before income taxes. The slight increase in the effective tax rate for fiscal 2010 is partially due to the impact of certain tax adjustments proposed during the federal audit of the 2008 and 2009 tax years. We estimate an effective tax rate of approximately 34.4% for fiscal 2011.

     Basic and Diluted Net Income Per Common Share

     Net income for fiscal 2010 was approximately $7.2 million, or $0.84 per basic share and $0.82 per diluted share, on approximately 8,620,000 weighted average basic shares outstanding and approximately 8,784,000 weighted average diluted shares outstanding, respectively. Net income for fiscal 2009 was approximately $5.7 million, or $0.63 per basic share and $0.62 per diluted share, on approximately 9,114,000 weighted average basic shares outstanding and approximately 9,211,000 weighted average diluted shares outstanding, respectively.

Fiscal Year 2009 Compared to Fiscal Year 2008

     Total Revenue — Total revenue of approximately $136.0 million for fiscal 2009 decreased approximately $4.4 million or 3.1% from total revenue of approximately $140.4 million for fiscal 2008. Fiscal 2009 consisted of 53 weeks, while fiscal 2008 consisted of 52 weeks.

     Restaurant Sales — Restaurant sales were approximately $117.9 million for fiscal 2009 and approximately $122.0 million for fiscal 2008. Fiscal 2009 sales results included a restaurant sales decline of 3.3%, which primarily reflected a comparable sales decrease of 6.3%, partially offset by a weighted average price increase of 2.3%. The 2009 comparable sales decline reflected continued sales pressure in all three of our sales levers: dine-in, To-Go, and catering, resulting primarily from changes in consumer spending in the casual dining industry initiated largely by the recession. Of the 6.3% fiscal 2009 comparable sales decline, dine-in represented 3.4%, To-Go accounted for 1.5%, and catering comprised 1.4%. During fiscal 2009, our category leadership in off-premise sales declined due to the sluggishness in the economy, as businesses and consumers continued to be conscious of the discretionary dollars they spend. Catering and “TO GO” accounted for approximately 31.1% of sales in fiscal 2009, compared with approximately 32.4% of sales in fiscal 2008.

     Franchise-Related Revenue — Franchise-related revenue consisted of royalty revenue and franchise fees, which included initial franchise fees and area development fees. Franchise-related revenue for fiscal 2009 was approximately $17.1 million, a 2.3% decrease when compared to franchise-related revenue of approximately $17.5 million for the same period in fiscal 2008. Royalties, which are based on a percent of franchise-operated restaurants’ net sales, decreased 0.7% during fiscal 2009. This decrease reflected the full year impact of higher sales levels of franchise restaurants that opened in fiscal 2008, in addition to the net nine new franchise restaurants opened during fiscal 2009, offset by a comparable sales decrease of 8.5%. Fiscal 2009 included 6,758 franchise operating weeks, compared to 6,296 franchise operating weeks in fiscal 2008. There were 132 franchise-operated restaurants open at January 3, 2010, compared to 123 at December 28, 2008.

     Licensing and Other Revenue — Licensing revenue included royalties from a retail line of business, including sauces, rubs, marinades, seasonings, and other items. Other revenue included opening assistance and training we provide to our franchise partners. For fiscal 2009, the licensing royalty income was approximately $523,000 compared to approximately $408,000 for fiscal 2008. Other revenue for fiscal 2009 was approximately $448,000, compared to approximately $440,000 in fiscal 2008.

     Same Store Net Sales — It is our policy to include in our same store net sales base, restaurants that are open year round and have been open for at least 24 months. At the end of fiscal 2009 and fiscal 2008, there were 37 and 35 restaurants, respectively, included in this base. Same store net sales for fiscal 2009 decreased approximately 6.3%, compared to fiscal 2008’s decrease of approximately 2.0%. The decrease in same store net sales reflected slower traffic in all three of our sales drivers: dine-in, to-go, and catering.

     Same store net sales for franchise-operated restaurants decreased approximately 8.5% in 2009. The negative comparable sales trend reflected the economic challenges being faced across the country and in many of our franchise markets. Of the 8.5% fiscal 2009 decline, seven states, representing 38 franchise-operated restaurants, accounted for over half of the decline. Additionally, we saw a shift in the states with the largest declines from 2009 compared to 2008 due to changes in the geographic impact of the recession. For fiscal 2009 and fiscal 2008, there were 90 and 74 restaurants, respectively, included in franchise-operated comparable sales.

		Fiscal Years Ended
		January 3,				December 28,
		2010				2008
Average Weekly Net Sales (AWS):
Company-Owned		$	48,197			$	50,685
Full-Service		$	49,840			$	52,744
Counter-Service		$	35,413			$	36,911
Franchise-Operated		$	53,016			$	56,535

     Food and Beverage Costs — Food and beverage costs for fiscal 2009 were approximately $35.5 million or 30.1% of net restaurant sales compared to approximately $37.6 million or 30.8% of net restaurant sales for fiscal 2008. Results for fiscal 2009 reflected lower contract pricing for many of our core proteins. Our adult beverage sales at our company-owned restaurants in fiscal 2009 and fiscal 2008 were approximately 9% as a percentage of dine-in sales.

     Labor and Benefits — Labor and benefits at the restaurant level were approximately $37.0 million or 31.4% of net restaurant sales in fiscal 2009 compared to approximately $38.2 million or 31.3% of net restaurant sales in fiscal 2008. The slight increase in the percentage was a result of sales deleverage partially offset by a reduction in our labor matrix in early 2009 and the additional sales of the 53^rd week of fiscal 2009, which positively impacted our fixed labor costs.

     Operating Expenses — Operating expenses for fiscal 2009 were approximately $31.5 million or 26.7% of net restaurant sales compared to approximately $32.5 million or 26.6% of net restaurant sales for fiscal 2008. The slight increase was due to sales deleverage and increased occupancy costs due to the three restaurants added in late 2008. These were partially offset by utility and advertising cost savings in 2009. In 2009, advertising, as a percent of sales, was approximately 3.4% compared to 3.7% for the prior year.

     Depreciation and Amortization — Depreciation and amortization for fiscal 2009 was approximately $5.2 million, or 3.8% of total revenue, compared to approximately $5.5 million, or 4.0% of total revenue for fiscal 2008. For fiscal 2009, depreciation and amortization expense was approximately $331,000 less than 2008, due to 2008 impairment charges and a reduction in capital spending year over year.

     General and Administrative Expenses — General and administrative expenses totalled approximately $16.0 million or 11.8% of total revenue in fiscal 2009 compared to approximately $16.5 million or 11.8% of total revenue in fiscal 2008. In fiscal 2009, general and administrative expenses included approximately $832,000, for stock-based compensation expense related to our performance share programs, options expense from FASB Accounting Standards Codification for Compensation — Stock Compensation, and the issuance of shares to our Board of Directors for service during fiscal 2009. In fiscal 2008, general and administrative expenses included approximately $694,000 for stock-based compensation expense. Excluding bonus and stock-based compensation expense, the percentage would have been 11.2% for fiscal 2009 and 11.3% for fiscal 2008. The increase in the percentage excluding stock-based compensation compared to prior year primarily reflected the accrual for bonuses partially offset by our prudent cost control over general administrative expenses in 2009.

     Asset Impairment and Estimated Lease Termination and Other Closing Costs — In accordance with FASB Accounting Standards Codification for Property, Plant, and Equipment, we evaluate restaurant sites and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and used is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows expected to be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the amount by which the carrying

amount of the restaurant site exceeds its fair value. Fair value is estimated based on the best information available including estimated future cash flows, expected growth rates in comparable restaurant sales, remaining lease terms and other factors. If these assumptions change in the future, we may be required to take additional impairment charges for the related assets. Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual results could vary significantly from such estimates. Restaurant sites that are operating but have been previously impaired are reported at the lower of their carrying amount or fair value less estimated costs to sell. Here is a summary of these events and situations for fiscal 2009 and fiscal 2008.

     2009 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):

Restaurants		Reason		Amount
Various		Costs for closed restaurants(1)		$	240
Various		Gain on lease terminations(2)			(162	)
Software		Asset impairment(3)			129
Various		Other			11
Total for 2009				$	218

     2008 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):

Restaurant		Reason		Amount
Carpentersville		Store closure (net of deferred rent credits)(1)		$	177
Calhoun		Asset impairment(2)			1,057
Naperville		Asset impairment(2)			1,001
Atlanta		Asset impairment and lease reserve(2)(3)			4,043
Stillwater		Asset impairment(2)			188
Vernon Hills		Asset impairment(2)			332
Two Prospective Restaurants		Site costs for restaurants that were not opened(4)			105
Various		Other			9
Total for 2008				$	6,912

     Pre-opening Expenses — During fiscal 2009, we had no pre-opening expenses. During fiscal 2008, we had approximately $1.1 million in pre-opening expenses, related to the opening of four company-owned restaurants in 2008.

     Loss on Early Extinguishment of Debt — During 2009, we repaid five notes prior to their expiration, related to two of our Minnesota restaurants and three of our Virginia restaurants. These notes had annual interest rates ranging from 8.10% to 10.53% and were originally due between February 2020 and October 2023. A total of approximately $7.1 million was paid to retire these notes early. Included in the debt retirement payment was a pre-payment penalty of approximately $350,000 reflected as a loss on early extinguishment of debt in our consolidated statements of operations. We recorded a non-cash charge of approximately $159,000 to write-off associated deferred financing fees as a result of the early repayment, also reflected as early extinguishment of debt in our consolidated statement of operations.

     Interest Expense — Interest expense totaled approximately $1.4 million or 1.1% of total revenue for fiscal 2009, compared to approximately $2.0 million or 1.4% of total revenue for fiscal 2008. This category includes interest expense for notes payable, financing lease obligations and the interest for deferrals made under our non-qualified deferred compensation plan. Due to the early payoff of five high-rate, long-term notes, lower balances and lower interest rates on our line of credit year over year, our interest expense in 2009 decreased 27% from the prior year.

     Interest Income — Interest income was approximately $129,000 and $246,000 for fiscal 2009 and fiscal 2008, respectively.

     Income Tax Expense/Benefit — We recorded income tax expense during fiscal 2009 of approximately $3.0 million which compares to a benefit of approximately $119,000 in fiscal 2008. We utilized $2.6 million of federal and state net operating loss carry forwards in fiscal 2009 as compared to approximately $529,000 in fiscal 2008. Utilization of state net operating losses will be achieved through offsetting tax liabilities generated through earnings. We did not utilize any general business credit carry forwards in fiscal 2009 or fiscal 2008.

     Basic and Diluted Net Income Per Common Share — Net income for fiscal 2009 was approximately $5.7

million or $0.63 per basic common share on approximately 9,114,000 weighted average basic shares outstanding compared to net income of approximately $389,000 or $0.04 per basic common share on approximately 9,406,000 weighted average basic shares outstanding for fiscal 2008.

     Diluted net income per common share for fiscal 2009 was $0.62 per common share on approximately 9,211,000 weighted average diluted shares outstanding compared to $0.04 per common share on approximately 9,542,000 weighted average diluted shares outstanding for fiscal 2008.

Financial Condition, Liquidity and Capital Resources

     As of January 2, 2011 our Company held unrestricted cash and cash equivalents of approximately $2.7 million compared to approximately $3.0 million as of January 3, 2010. Our cash balance reflects the repurchase of common stock for $8.7 million, the acquisition of the seven restaurants for $6.8 million and $5.3 million of cash flows used for capital expenditures, all of which occurred during fiscal 2010. These costs were partially offset by the cash flows provided by fiscal 2010 operations and the $6.8 million in proceeds from a term loan.

     Our current ratio, which measures our immediate short-term liquidity, was 0.81 at January 2, 2011 compared to 1.00 at January 3, 2010. The current ratio is computed by dividing total current assets by total current liabilities. The change in our current ratio was primarily due to a decrease in our current assets resulting from the use of our deferred tax asset and increased current liabilities resulting from higher accrued income taxes at the end of the 2010 fiscal year. As is true with most restaurant companies, we often operate in a negative working capital environment due to the fact that we receive cash up front from customers and then pay our vendors on a delayed basis.

     Net cash provided by operations for each of the last three fiscal years was approximately $13.9 million in fiscal 2010, $14.5 million in fiscal 2009, and $11.2 million in fiscal 2008. Cash generated in fiscal 2010 was primarily from net income of approximately $7.2 million, depreciation and amortization of approximately $5.5 million, an increase in deferred taxes of approximately $1.2 million, stock-based compensation of $1.1 million and an increase in the use of restricted cash of $533,000. These net increases were partially offset by an approximate $2.3 million gain on the acquisition of seven restaurants and an approximate $531,000 decrease in accrued liabilities.

     Cash generated in fiscal 2009 was primarily from net income of approximately $5.7 million, depreciation and amortization of approximately $5.2 million, and increased accrued compensation and benefits of approximately $2.0 million. These increases were partially offset by a decrease in deferred taxes of approximately $1.8 million, a decrease in accounts payable of approximately $1.7 million, and a decrease in other liabilities of approximately $1.0 million.

     Cash generated in fiscal 2008 was primarily from net income of approximately $389,000, asset impairment, estimated lease termination and other closing costs of approximately $6.9 million and depreciation and amortization of approximately $5.5 million. These increases were partially offset by a decrease in accounts payable of approximately $1.7 million, a decrease in accrued compensation and benefits of approximately $909,000 and a decrease in deferred income taxes of approximately $542,000.

     Net cash used for investing activities for each of the last three fiscal years was approximately $11.8 million in fiscal 2010, $2.0 million in fiscal 2009, and $10.5 million in fiscal 2008. In fiscal 2010, we used approximately $5.3 million for capital expenditures. These expenditures were primarily for continued investment in, and remodeling projects, for our existing restaurants, including approximately $364,000 for the New York and New Jersey restaurants, as well as for the conversion of our new company-owned restaurant, and various corporate infrastructure projects. In 2009, our cash spend on fixed assets was approximately $2.0 million, we also had approximately $300,000 in accrued fixed asset charges at the end of the year for projects in process that had not been paid for. Additionally, a portion of our corporate infrastructure projects, originally planned to occur in fiscal 2009, were moved to fiscal 2010. In fiscal 2008, we used approximately $8.7 million for the construction of our Alexandria, Virginia, Salisbury, Maryland, Algonquin, Illinois, and Greenwood, Indiana restaurants and $1.8 million for continued maintenance and other infrastructure projects.

     We expect total 2011 capital expenditures to be approximately $5.5 million, primarily reflecting continued investments in our existing restaurants, including several significant remodeling projects, as well as, the conversion costs for a new company-owned restaurant, and continued investments in corporate infrastructure systems.

     Net cash used for financing activities was approximately $2.5 million in fiscal 2010, $11.3 million in fiscal 2009, and $542,000 in fiscal 2008. In fiscal 2010, we had draws on our line of credit of approximately $20.5 million and had repayments of approximately $21.0 million. The maximum balance on our line of credit during fiscal 2010 was $16.0 million. Additionally, we used approximately $8.7 million to repurchase approximately 1.1 million shares at an average price of $8.18, excluding commissions. In fiscal 2009, we had draws on our line of credit of approximately $9.0 million and had repayments of approximately $13.5 million. The maximum balance on our line of credit during fiscal 2009 was $18.0 million. Additionally, we repaid $7.0 million of high interest rate debt. In fiscal 2008, we repurchased 592,956 of our shares, representing the culmination of our fourth authorization and beginning of our fifth, for approximately $5.1 million, including commissions. We had draws of approximately $26.0 million on our line of credit and had repayments of $21.0 million. The maximum balance on our line of credit during fiscal 2008 was $20.0 million. In addition, we repaid $383,000 of debt. In 2011, we will have three main uses for our capital. We will continue to use our cash to, first and foremost, grow our system. Alternatively, we will continue to repurchase our common stock and reduce our debt levels.

     The Company and certain of its subsidiaries (collectively known as the “Borrower”) currently have a Credit Agreement with Wells Fargo Bank, National Association, as administrative agent and lender (the “Lender”). The Credit Agreement contains a $30.0 million revolving credit facility (the “Facility”) with an opportunity, subject to the Company meeting identified covenants and elections, to increase the commitment to $50.0 million.

     Principal amounts outstanding under the Facility bear interest either at an adjusted Eurodollar rate plus an applicable margin or at a Base Rate plus an applicable margin. The Base Rate is defined in the agreement as the greater of the Federal Funds Rate (0.25% at January 2, 2011) plus 0.5% or Wells Fargo’s prime rate (3.25% at January 2, 2011). The applicable margin will depend on the Company’s Adjusted Leverage Ratio, as defined, at the end of the previous quarter and will range from 1.00% to 2.00% for Eurodollar Rate Loans and from -0.50% to +0.50% for Base Rate Loans. Unused portions of the Facility will be subject to an unused Facility fee which will be equal to either 0.25% or 0.375% of the unused portion, depending on the Company’s Adjusted Leverage Ratio. Our rate for the unused portion of the Facility as of January 2, 2011, was 0.375%. An increase option exercise fee will apply to increased amounts between $30.0 and $50.0 million. Our current weighted average rate for the fiscal year ended January 2, 2011 was 2.7%.

     The Facility contains customary affirmative and negative covenants for credit facilities of this type, including limitations on the Borrower with respect to indebtedness, liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates of the Borrower, among others. The Facility also includes various financial covenants that have maximum target capital expenditures, cash flow ratios, and adjusted leverage ratios. If the Company’s Adjusted Leverage Ratio is greater than 3.00 to 1.00, an additional covenant applies that limits the maximum royalty receivable aged past 30 days. In addition, capital expenditure limits include permitted stock repurchase limits (limited to $10.0 million in aggregate during any 12 month period, and $20.0 million in aggregate during the term of the agreement).

     The Credit Agreement currently provides for up to $3.0 million in letters of credit to be used by the Company, with any amounts outstanding reducing our availability for general corporate purchases, and also allows for the termination of the Facility by the Borrower without penalty at any time. At January 2, 2011 we had $13.0 million in borrowings under this Facility, and had approximately $579,000 in letters of credit for real estate locations. We were in compliance with all covenants under the Credit Agreement as of January 2, 2011.

     If the bank were to call the line of credit prior to expiration, the Company believes there are multiple options available to obtain other sources of financing. While possibly at different terms, the Company believes there would be other lenders available and willing to finance a new credit facility.

     In 2009, we amended our credit agreement to change the definition of consolidated EBITDA to include a defined amount of impairment charges and lease termination fees in any fiscal 2008 quarter. We paid fees of approximately $45,000 related to the amendment, which were deferred during the first quarter of 2009 and are being amortized over the remaining life of the Facility.

     We expect to use any borrowings under the Credit Agreement for general working capital purchases as needed.

Under the Facility, the Borrower has granted the Lender a security interest in all current and future personal property of the Borrower.

     The Company amended its Credit Agreement on March 4, 2010 in connection with the acquisition of the seven New York and New Jersey restaurants. This amendment provided for an additional $6.8 million of long-term debt in the form of a term loan with a maturity date of March 4, 2017. Principal amounts outstanding under this term loan bear interest at an adjusted Eurodollar rate plus 225 basis points for an interest rate period of either one, two, three, or six months at the discretion of the Company. The weighted average rate for fiscal 2010 was 2.63%. There is a required minimum annual amortization of 5.0% of the principal balance. We also amended our credit agreement on February 1, 2011 in connection with a change in definition of maintenance and growth capital expenditures to allow for more flexibility in classification of major remodeling projects as “growth” capital expenditures for our cash flow covenant.

     We expect to use any borrowings under the Credit Agreement for general working capital purchases as needed. Under the Facility, the Borrower has granted the Lender a security interest in all current and future personal property of the Borrower.

Contractual Obligations

     (In thousands)

     Payments Due by Period (including interest)

		Total				2011				2012				2013				2014				2015				Thereafter
Long Term Debt(1)		$	8,040			$	543			$	573			$	599			$	620			$	638			$	5,067
Financing Leases			5,486				622				628				647				653				673				2,263
Line of Credit			13,000				—				—				13,000				—				—				—
Uncertain Tax Positions			761				761				—				—				—				—				—
Operating Lease Obligations			127,386				5,659				5,571				5,583				5,564				5,643				99,366
Sublease Income			(90	)			(33	)			(34	)			(23	)			—				—				—
Total		$	154,583			$	7,552			$	6,738			$	19,806			$	6,837			$	6,954			$	106,696

     See Notes 8 and 9 to our Consolidated Financial Statements included in this Annual Report on Form 10-K for details of our contractual obligations.

Off-Balance Sheet Arrangements

     Our Company does not have any off-balance sheet arrangements (as such term is defined in Item 303 of regulation S-K) that are reasonably likely to have a current or future effect on our financial condition or changes in financial condition, operating results, or liquidity.

Income Taxes

     At 2010, we had cumulative state net operating loss carry-forwards for tax reporting purposes of approximately $24 million for state purposes, which if not used will begin to expire in fiscal 2019. This amount will be adjusted when we file our fiscal 2010 income tax returns in 2011. In addition, we had cumulative tax credit carry forwards of approximately $653,000 which will not expire.

Inflation

     The primary inflationary factors affecting our operations include food, beverage, and labor costs. In addition, our leases require us to pay taxes, maintenance, repairs and utilities and these costs are subject to inflationary increases. In some cases, some of our lease commitments are tied to consumer price index (CPI) increases. We are also subject to interest rate changes based on market conditions.

     We believe that relatively low inflation rates have contributed to relatively stable costs. There is no assurance, however, that low inflation rates will continue.

Item 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our Company’s financial instruments include cash and cash equivalents and long-term debt. Our Company includes as unrestrictive cash and cash equivalents, investments with original maturities of three months or less when purchased and which are readily convertible into known amounts of cash. Our Company’s unrestricted cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. We have no derivative financial instruments or derivative commodity instruments in our cash and cash equivalents. The total outstanding long-term debt of all our Company as of January 2, 2011 was approximately $23.5 million, including our line of credit, our term loan with Wells Fargo and financing lease obligations. The terms of our credit facility with Wells Fargo Bank, National Association, as administrative agent and lender are discussed above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources.”

     Some of the food products purchased by us are affected by commodity pricing and are, therefore, subject to price volatility caused by weather, production problems, delivery difficulties and other factors that are outside our control. To control this risk in part, we have fixed-priced purchase commitments for food from vendors. In addition, we believe that substantially all of our food is available from several sources, which helps to control food commodity risks. We have secondary source suppliers for certain items and in 2010 we have made this a key area of focus in order to protect the supply chain and to ensure a more fair and competitive pricing environment. We believe we have the ability to increase menu prices, or vary the menu options offered, if needed, in response to a food product price increase.

ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements of Famous Dave’s of America, Inc. are included herein, beginning on page F-1.

ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

ITEM 9A.		CONTROLS AND PROCEDURES

     Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of such date our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

     Our Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended). Our Management assessed the effectiveness of our internal control over financial reporting as of January 2, 2011. In making this assessment, our Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Our Management has concluded that, as of

January 2, 2011, our internal control over financial reporting is effective based on these criteria.

     Our Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Famous Dave’s of America have been detected.

Changes in Internal Control over Financial Reporting

     There were no changes in our internal controls over financial reporting during our most recently-completed fiscal quarter ended January 2, 2011 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

ITEM 9B.		OTHER INFORMATION

     None.

PART III

ITEM 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT

     Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K.

     The Company has adopted a Code of Ethics specifically applicable to its CEO, CFO and Key Financial & Accounting Management. In addition, there is a more general Code of Ethics applicable to all Associates. The Code of Ethics is available on our website at www.famousdaves.com and a copy is available free of charge to anyone requesting it.

ITEM 11.		EXECUTIVE COMPENSATION

     Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K.

ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance under Equity Compensation Plans

     The Company maintains the 1995 Stock Option and Compensation Plan (the “Management Plan”), the 1997 Employee Stock Option Plan (the “Employee Plan”), the 1998 Director Stock Option Plan (the “Director Plan”) and the 2005 Stock Incentive Plan (the “2005 Plan”). We have also granted stock incentives outside of these equity compensation plans in limited situations. The Management Plan prohibits the granting of incentives after December 29, 2005, the tenth anniversary of the date the Management Plan was approved by the Company’s shareholders. Similarly, the Employee Plan prohibits the granting of incentives after June 24, 2007, the tenth anniversary of the date the Employee Plan was approved by the Company’s board of directors. The Director Plan prohibits the granting of incentives after June 10, 2008, the tenth anniversary of the date the Director Plan was approved by the Company’s shareholders. As such, no further grants of incentives may be made under the Management Plan, the Employee Plan or the Director Plan. Nonetheless, these plans will remain in effect until all outstanding incentives granted there under have either been satisfied or terminated.

     The purpose, of the 2005 Plan, which was approved by the Company’s shareholders at the May 2005 annual shareholders meeting, is to increase shareholder value and to advance the interests of the Company by furnishing a variety of economic incentives designed to attract, retain and motivate Associates (including officers), certain key consultants and directors of the Company. Under the 2005 Plans, an aggregate of 179,210 shares of our Company’s common stock remained unreserved and available for issuance at January 2, 2011.

     The Management Plan, the Director Plan and the 2005 Plan have each been approved by the Company’s shareholders. The Employee Plan was not submitted for approval to the Company’s shareholders. The following table sets forth certain information as of January 2, 2011 with respect to the Management Plan, the Employee Plan, the Director Plan and the 2005 Plan.

		Number of								Number of Securities
		Securities to be								Remaining Available for
		Issued Upon				Weighted-				Future Issuance Under
		Exercise of				Average				Equity Compensation
		Outstanding				Exercise Price				Plans (Excluding
		Options Warrants				of Outstanding				Securities Reflected in
		and Rights				Options				Column (A))
Plan Category		(A)				(B)				(C)
Equity compensation plans approved by shareholders:
1995 Stock Option and Compensation Plan			100,000			$	5.96				—
1998 Director Stock Option Plan			105,500			$	6.55				—
2005 Stock Incentive Plan(1)			567,932			$	10.98				179,210
TOTAL			773,432			$	6.48				179,210
Equity compensation plans not approved by shareholders:
1997 Employee Stock Option Plan			31,025			$	4.81				—
TOTAL			804,457			$	6.27				179,210

     Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K.

ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

     Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K.

ITEM 14.		PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this form 10-K.

PART IV

ITEM 15.		EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

				Documents filed as part of this Form 10-K:
				Report of Independent Registered Public Accounting Firm		F-1
				Consolidated Balance Sheets — January 2, 2011 and January 3, 2010		F-2
				Consolidated Statements of Operations — Years ended January 2, 2011, January 3, 2010 and December 28, 2008		F-3
				Consolidated Statements of Shareholders’ Equity — Years ended January 2, 2011, January 3, 2010 and December 28, 2008		F-4
				Consolidated Statements of Cash Flows — Years ended January 2, 2011, January 3, 2010 and December 28, 2008		F-5
				Notes to Consolidated Financial Statements		F-6
				Financial Statement Schedule:
				Schedule II. Schedule of Valuation and Qualifying Accounts		F-32
				Exhibits:
				See “exhibit index” on the page following the consolidated financial statements and related footnotes

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
Famous Dave’s of America, Inc.

We have audited the accompanying consolidated balance sheets of Famous Dave’s of America, Inc. (a Minnesota corporation) and subsidiaries (the “Company”) as of January 2, 2011 and January 3, 2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 2, 2011. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Famous Dave’s of America, Inc. and subsidiaries as of January 2, 2011 and January 3, 2010 and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 2, 2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Grant Thornton LLP

Minneapolis, Minnesota
March 18, 2011

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

		January 2,				January 3,
		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	2,654			$	2,996
Restricted cash			94				627
Accounts receivable, net			3,097				3,279
Inventories			2,444				2,198
Deferred tax asset			205				714
Prepaid expenses and other current assets			2,369				1,845
Current portion of notes receivable, net			384				823
Total current assets			11,247				12,482
Property, equipment and leasehold improvements, net			61,550				54,818
Other assets:
Notes receivable, net, less current portion			54				327
Deferred tax asset			—				206
Other assets			3,278				548
		$	76,129			$	68,381
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and financing lease obligations		$	538			$	162
Accounts payable			3,935				3,974
Accrued compensation and benefits			4,409				4,337
Other current liabilities			4,972				3,991
Total current liabilities			13,854				12,464
Long-term liabilities:
Line of credit			13,000				13,500
Long-term debt, less current portion			6,205				—
Financing lease obligations, less current portion			4,292				4,490
Deferred tax liability			446				—
Other liabilities			5,428				4,933
Total liabilities			43,225				35,387
Shareholders’ equity:
Common stock, $.01 par value, 100,000 shares authorized, 8,245 and 9,202 shares issued and outstanding at January 3, 2010 and December 28, 2008 respectively			82				92
Additional paid-in capital			10,238				17,536
Retained earnings			22,584				15,366
Total shareholders’ equity			32,904				32,994
		$	76,129			$	68,381

See accompanying notes to consolidated financial statements.

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

		January 2,				January 3,				December 28,
		2011				2010				2008
Revenue:
Restaurant sales, net		$	131,154			$	117,934			$	122,016
Franchise royalty revenue			15,902				16,912				17,026
Franchise fee revenue			345				200				492
Licensing and other revenue			867				972				848
Total revenue			148,268				136,018				140,382
Costs and expenses:
Food and beverage costs			38,754				35,489				37,581
Labor and benefits costs			41,352				37,016				38,185
Operating expenses			36,107				31,487				32,510
Depreciation and amortization			5,547				5,191				5,522
General and administrative expenses			16,165				16,000				16,521
Asset impairment and estimated lease termination and other closing costs			74				218				6,912
Pre-opening expenses			300				—				1,103
Gain on acquisition, net of acquisition costs			(2,036	)			79				—
Net loss on disposal of property			22				24				18
Total costs and expenses			136,285				125,504				138,352
Income from operations			11,983				10,514				2,030
Other expense:
Loss on early extinguishment of debt			—				(509	)			—
Interest expense			(1,140	)			(1,443	)			(1,977	)
Interest income			171				129				246
Other expense, net			—				(1	)			(29	)
Total other expense			(969	)			(1,824	)			(1,760	)
Income before income taxes			11,014				8,690				270
Income tax (expense) benefit			(3,796	)			(2,989	)			119
Net income		$	7,218			$	5,701			$	389
Basic net income per common share		$	0.84			$	0.63			$	0.04
Diluted net income per common share		$	0.82			$	0.62			$	0.04
Weighted average common shares outstanding — basic			8,620,000				9,114,000				9,406,000
Weighted average common shares outstanding — diluted			8,784,000				9,211,000				9,542,000

See accompanying notes to consolidated financial statements.

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

										Additional
		Common Stock								Paid-in				Retained
		Shares				Amount				Capital				Earnings				Total
Balance — December 30, 2007			9,606			$	96			$	21,028			$	9,276			$	30,400
Exercise of stock options			6				—				26				—				26
Tax shortfall for equity awards issued			—				—				(76	)			—				(76	)
Common stock issued			79				—				266				—				266
Performance shares surrendered to cover payroll taxes incurred			(19	)			—				(176	)			—				(176	)
Repurchase of common stock			(593	)			(5	)			(5,067	)			—				(5,072	)
Stock-based compensation			—				—				427				—				427
Net income			—				—				—				389				389
Balance — December 28, 2008			9,079			$	91			$	16,428			$	9,665			$	26,184
Exercise of stock options			17				—				57				—				57
Tax benefit for equity awards issued			—				—				436				—				436
Common stock issued			147				1				791				—				792
Performance shares surrendered to cover payroll taxes incurred			(10	)			—				(28	)			—				(28	)
Repurchase of common stock			(31	)			—				(188	)			—				(188	)
Stock-based compensation			—				—				492				—				492
Deferred compensation			—				—				(452	)			—				(452	)
Net income			—				—				—				5,701				5,701
Balance — January 3, 2010			9,202			$	92			$	17,536			$	15,366			$	32,994
Exercise of stock options			93				1				351				—				352
Tax benefit for equity awards issued			—				—				62				—				62
Common stock issued			26				—				—				—				—
Performance shares surrendered to cover payroll taxes incurred			(9	)			—				(68	)			—				(68	)
Repurchase of common stock			(1,067	)			(11	)			(8,735	)			—				(8,746	)
Stock-based compensation			—				—				861				—				861
Deferred compensation			—				—				231								231
Net income			—				—				—				7,218				7,218
Balance — January 2, 2011			8,245			$	82			$	10,238			$	22,584			$	32,904