UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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.)

(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 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. Yeso 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,” “accelerate 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 $44.3 million as of June 28, 2009 (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 12, 2010, 9,054,704 shares of the registrant’s Common Stock were outstanding.

Portions of the registrant’s definitive Proxy Statement for our Annual Meeting of Shareholders (the “2009 Proxy Statement”) are incorporated by reference into Part III of this Form 10-K, to the extent described in Part III. The 2009 Proxy Statement will be filed within 120 days after the end of the registrant’s fiscal year ended January 3, 2010.

 

 

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			21
Item 4. Submission of Matters To a Vote of Security Holders			21
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			24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			43
Item 8. Financial Statements and Supplementary Data			44
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			44
Item 9A. Controls and Procedures			44
Item 9B. Other Information			45
PART III
Item 10. Directors and Executive Officers of the Registrant			46
Item 11. Executive Compensation			46
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			46
Item 13. Certain Relationships and Related Transactions and Director Independence			47
Item 14. Principal Accountant Fees and Services			47
PART IV
Item 15. Exhibits and Financial Statement Schedules			48
SIGNATURES
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” or the “Company”) was incorporated as a Minnesota corporation in March 1994 and opened its first restaurant in Minneapolis, Minnesota in June 1995. As of January 3, 2010, there were 177 Famous Dave’s restaurants operating in 37 states, including 45 company-owned restaurants and 132 franchise-operated restaurants. An additional 94 franchise restaurants were committed to be developed through signed area development agreements at January 3, 2010.

     We have committed to our plan to “Smoke It” in 2010, and the organization has developed a dashboard for success with specific and supporting objectives that provide a roadmap for our success moving forward. We will strive to maintain our fanatical guest focus and operational excellence while growing our raving fan base. We will seek new and unique ways to achieve “valued-franchisor” status, achieve workplace success by providing an environment that motivates and inspires our employees, which we refer to as Associates and endeavor to be known as a valued member of the communities we serve. We expect that combining these objectives will enable us to deliver improved results for our shareholders as a sustainable public company.

     As previously announced, on March 2, 2010, the Company completed an acquisition of the assets comprising seven restaurants in New Jersey and New York. These restaurants were previously operated by a Company franchisee under the “Famous Dave’s of America” brand name and were acquired by the Company pursuant to a sale process conducted under Section 363 of Chapter 11 of the U.S. Bankruptcy Code. The net cash paid of approximately $6.8 million was funded by a loan from Wells Fargo Bank, N.A., and was net of approximately $649,000 of pre- and post-petition notes receivable repaid by the seller for a total purchase price of approximately $7.4 million. This loan has a seven year term, bears interest at LIBOR plus 225 basis points and has no prepayment penalties associated with it. In connection with this term loan, the Company has amended its existing Credit Agreement with Wells Fargo Bank, N.A. to address future covenant requirements to ensure compliance as a result of the additional indebtedness.

     The acquisition of these seven restaurants is expected to add approximately $14.5 million in revenue, net of lost royalty revenue, for the remainder of fiscal 2010. Due to acquisition costs and increased operational expenses associated with the acquisition, these restaurants are not expected to contribute to earnings during fiscal 2010. The Company will, however, record a one-time non-cash gain in the first quarter of 2010, equal to the difference between the purchase price and the fair market value of the assets acquired. The seven restaurants are expected to be additive to earnings in subsequent years.

Financial Information about Segments

     Since our inception, our revenue, operating income (losses) 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 3, 2010, 40 of our company-owned restaurants were full-service and five were counter-service. During 2009, we opened 13 franchise-operated full-service restaurants. 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. The Company did not open any restaurants in 2009,

however, the restaurants opened in 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. 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 flexibility to build in cost effective formats, which includes opportunities to convert existing restaurants into a Famous Dave’s restaurant. In 2009, several franchisees successfully converted restaurants and, in 2010, we will be converting an existing casual dining restaurant to a company-owned restaurant in Bel Air, Maryland. Due to the flexibility and scalability of our concept, there are a variety of development opportunities available now and in the future. In 2010, we expect to open one company-owned restaurant in addition to the seven acquired and up to eight franchise-operated restaurants.

     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, sassy grilled salmon, and generous signature sandwiches and salads. 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.

     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. As such, 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 a prototypical design that incorporates the best attributes of the past restaurants while providing a consistent brand image for the future. Of our 45 restaurants as of January 3, 2010, 40 were full-service restaurants, with 20 as the “Lodge” format, six as the “Shack” format, one, located in the Minneapolis market, is a “Blues Club” format and 13 as company-owned prototypical restaurants. The remaining five 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 2009, 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 promote 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 2009, we offered our guests several promotions and limited time offerings, which were well received. During the same timeframe, and in support of the Lenten season, we also offered seven smoked shrimp entrees including a skewer of shrimp offered as an add-on to any entrée to help protect the check average. These offerings were well received by our guests, and effectively boosted sales in the first quarter. Our summer promotion featured “Natcho Ordinary Nachos” offered in two sizes, and our “Sweet Dixie Mini Desserts”. Both of these were so well received that we added them to our permanent menu.

     Also, in 2009, we celebrated our Company’s 15 year anniversary which featured “A Buck a Bone” promotion in which a guest could buy up to six St. Louis style spare ribs for a $1.00 each with the purchase of an entrée. The celebration culminated in “Dave’s Day”, where guests named Dave, David, or Davey could receive a free entrée and if your middle name was Dave, David, or Davey you could receive ¹/2 off any entree.

     Our Fall promotion, Smokin’ hot meatloaf and potatoes” entrée, featured a terrific smoked meatloaf served either as a platter with mashed potatoes or as a sandwich, we also had a 12 ounce smoked rib-eye steak. As we look to 2010, we will keep the pipeline full with new and innovative limited time offerings.

     Human Resources and Training – We believe a key element of the success of our concept rests with our ability to hire, train, motivate and retain qualified team members, whom we refer to as our “Associates,” at all levels of our organization. As a result, we place a great deal of importance on our Human Resource and Training/Organizational Development programs and resources which are key to improving performance in our restaurants as we strive to achieve an exceptional working environment for all of our Associates. As we move into 2010, our core people goal is to have Raving Internal Fans, and we have identified key measures of success to help us achieve this goal. At its core, this goal 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 positioned well for success as it relates to our People and were pleased to be awarded the 2009 People Report™ Best People Practices Award for Segment B, the casual dining industry. This special award acknowledges our leadership and excellence in workforce practices as tracked and benchmarked by People Report, including management retention, associate retention, composite diversity, year over year improvements, and community involvement. This is the first time that Famous Dave’s has won this award in this very competitive segment.

     We are a performance-based organization committed to recognizing and rewarding performance at all levels of the organization. Our compensation program is a key part of our total rewards strategy and program, and is benchmarked closely against the industry. Our total rewards program provides a comprehensive offering of compensation and benefit programs including health and welfare coverage, 401(k) and non-qualified deferred compensation plans offering a company match, and base pay and incentive programs developed to maintain our competitive position. We are pleased with our progress in retention as Management and hourly Associate turnover has been maintained well below industry averages. Our Management turnover for fiscal 2009 was 10.9% and Associate turnover was 41.1% in our restaurants. During fiscal 2009, our Human Resource and Training organizations focused on the selection and retention of superior talent through programs in overall talent management, safety and risk reduction, continued enhancements in our organizational development and training offerings and resources, development and implementation of formalized compensation structures for all positions in the business, a complete revamp and overhaul of performance management programs in the business (including the development and implementation of seven company-wide core competencies designed to measure what we need from each of our Associates to keep moving us forward famously) and finally ensuring we have the right systems and processes to support the business. A new Human Resource Information System (HRIS) and online employee ethics compliance tool, which includes a bi-lingual anonymous call center, a sophisticated issue tracking and a reporting platform across all Famous Dave’s corporate locations.

     In the Training and Development arena, we offer a variety of ongoing on-the-job and classroom training programs for Hourly Associate; Restaurant Manager; and Multi-Unit Manager levels in an effort to create defined career paths for our Associates. 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 ensures a consistently high standard in Famous Food and bar product knowledge, recipe adherence, and Famous guest service and hospitality. We also offer training programs for our Support Center Associates and Franchise Partners. As we continue to develop resources and add tools to support our system, in 2010 we will be 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 leadership development program, entitled “Good to Great”, has been instrumental in assessing and training Associates with leadership potential at all levels of our organization and we continue to enhance this program. This program includes coaching in the use of employee strengths, people, sales and profit presentations, financial education, and networking opportunities with our Executive Team. In addition, our System-wide Franchise Partner and General Manager annual workshop was held in March 2010, and featured business sessions on Local Store Marketing, Social Media, Guest Experience, Hourly and Manager Training, Food Safety, Financial Fitness, and Product Innovation. Participants included all company-owned restaurant General Manager’s, Area Director’s, Director’s of Operation’s, as well as many Franchise Partners, Franchise General Manager’s and Franchise Multi-Unit Operators.

     We strive to instill enthusiasm and dedication in our Associates and regularly solicit suggestions concerning our operations and endeavors in an attempt to be responsive to their concerns through our open door policies and our company-wide suggestion program – called Guide with PRIDE. In addition, we have numerous programs designed to recognize and reward our Associates for outstanding performance. In 2009, we rolled out two new recognition programs – the FAMOUS PRIDE Award and our Spirit of the Flame Award. Our FAMOUS PRIDE award allows for all in the company to submit nominations for their fellow associates that live and breathe FAMOUS PRIDE (our core values of Passion, Respect, Innovation, Diversity, and Excellence) and five individuals received this honor. Our Spirit of the Flame award allows for all in the organization to nominate and recognize one winner from our Company, and one winner from our Franchise Communities. 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 their guests, associates, community and the Famous Dave’s culture.

     During fiscal 2010, our Human Resources team and programs will focus on excellence in service to our organization by ensuring we have the resources, tools, programs and technology to help support our managers and Associates. Our Training organization will focus on increasing hospitality and Guest service across company-owned and franchise-operated restaurants by continuing to conduct Famous Food and Famous Hospitality and Bar Workshops and orchestrating our Management Certification program. Our 2010 initiatives include a culture survey, employee relations strategy, the continued enhancements to our manager certification program, succession management, a revised associate orientation program, Manager and associate self-service for benefits enrollment through our HRIS, a new training video series to support restaurant operations, the e-learning pilot and the implementation of the Pit Master program. The Pit Master program is designed to elevate knowledge and skills around the ‘Art of BBQ’ through various development programs including culinary skills training, BBQ competition judging, and product development, to name a few. Each of our restaurants will ultimately have a certified Pit Master that can answer guest’s questions and educate all about the “Art of BBQ”.

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 Associates 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 Associate relations. We have prepared operations’ manuals relating to food and beverage quality and service standards. New Associates participate in training under the close supervision of our Management. Each General Manager reports to an Area Director, who manages from four to nine 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 Associates.

     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 2009, we saw a decline in our industry-leading off-premise sales, where approximately 31.1% of our restaurant sales in fiscal 2009 were derived from catering and “TO GO” as compared to 32.4% for fiscal 2008. We believe this decline is related to the overall economic recession that has led consumers and companies to cut back on their off-premise frequency.

     Catering slowed in 2009 as corporate caterings were reduced due to the economic downturn. The demand for Famous Dave’s catering accounted for approximately 9.1% of our sales for fiscal 2009, as compared to 9.8% in 2008. Each restaurant has a dedicated vehicle to fully support our catering initiatives. 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. In 2009, we continued to make investments in catering by hiring a catering manager and a catering director in two of our key company-owned markets. These individuals train franchise partners, conduct workshops at our company-owned restaurants in maximizing catering opportunities and perform corporate outreach efforts with targeted mailings and email blasts.

     “TO GO,” which accounted for approximately 22.0% of our restaurant sales for fiscal 2009, also declined from 22.6% in 2008 due to the economic downturn, but is still 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. Additionally, to increase “TO GO” sales, during 2009, we began testing on-line ordering at restaurants in the Minneapolis market. Based on our results, we are optimistic about on-line ordering’s future possibilities and are currently formulating our plan for a company-wide rollout.

     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 2009, 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 $14.11 during fiscal 2009. During fiscal 2009, lunch checks averaged $12.12 and dinner checks averaged $15.45. 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. As a pure tactical initiative during these tough economic times, we’ve engaged in selective promotional activities, the first quarter included a successful spring promotion of “Dave’s Que-plate specials,” an offering of seven special BBQ entrees ranging in price from $6.99 to $8.99. Also 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. These promotions were system-wide with all company-owned restaurants and approximately 80% of our franchise locations participating. We supported the promotion 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 2010, 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 2009, company-owned restaurants spent approximately 3.4% 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 2010, the contributions to the National Ad Fund will continue at the 0.5% level. 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. Also, we will integrate our founder ‘Famous’ Dave Anderson into our advertising campaigns as he continues to tell our brand’s unique story. 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. In 2010, 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 a presence on Facebook, YouTube and Twitter, engaging fans in the conversation.

     We are also creating awareness for the Famous Dave’s brand through product and brand licensing arrangements that extend our barbeque sauces, seasonings, rubs, marinades and other items in retail outlets across the United States. This retail distribution allows consumers to enrich their at-home barbeque experiences with Famous Dave’s bold and zesty flavors.

     Advertising is not the only vehicle we use to build awareness of the Famous Dave’s brand. Annually, our “Rib Team” competes in scores of 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 400 awards. Our “Rib Team’s” most notable awards in 2009 were Critic’s Choice “1^st Place Greatest Ribs in America” and “Critic’s Choice Greatest Sauce in America 3^rd Place” at Marc’s Great American Rib Cook-off in Cleveland, Ohio. Our corporate awards included Reader’s Choice “Best Barbecue Restaurant” Minneapolis-St. Paul Magazine and Minneapolis City Pages, and “Best BBQ” Chicago Daily Herald. Our franchisees also continue to rack up awards all over the country. In 2009, some of these included Reader’s Choice “Best BBQ” Phoenix Magazine, “Best Barbecue” Fresno Bee, and “Best Wings – Grand Champion”, King of the Wing Competition, Pensacola Florida.

     The strategic focus in 2010 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 will plan to include approximately five new limited time offerings in 2010 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 be celebrating ‘Dave’s Day’ in the third quarter and will be celebrating Famous Dave’s sixteenth anniversary with a ‘Sweet 16’ promotion.

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 3, 2010 was 46% Midwest, 21% South, 23% West and 10% Northeast. We are located in 37 states as of January 3, 2010. We will be opening one Company owned

restaurant in Bel Air, Maryland, a suburb of Baltimore during 2010, and anticipate opening up to eight new franchise restaurants during 2010. Our near-term goal is to improve the economics of our current prototype restaurant, while providing new and more cost-effective development options for our franchisees. The key elements of our long-term growth strategy include the following:

     Company-Owned Restaurant Expansion – We are planning to open one company-owned restaurant in addition to the 7 acquired in 2010, 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.

     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.

     Franchise-Operated Restaurant Expansion – As of January 3, 2010, we had commitments for 94 units in 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 continue to expand our franchisee network throughout the United States. During 2009 and 2010, to incentivize growth, any of our franchisees who open during these years will receive a reduced royalty rate for 12 months from date of opening.

     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 5 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 85.0% of our food and non-alcoholic beverage purchases are on contract. Pork represents approximately 31.0% of our total purchases, while chicken is approximately 13.0%, beef, which includes hamburger and brisket, is approximately 9.0%, and seafood is approximately 2.0%.

     Costs under our pork contract are protected throughout 2010, and we will benefit from an approximate 3.5% cost decrease compared to fiscal 2009. However, we will continue to watch the pork market closely to determine if there are opportunities to blend and extend pricing, should we see increases on the horizon with regard to the pricing environment for 2011. Our chicken pricing is firm through December of 2010 at a price increase of approximately 2.5% from fiscal 2009.

     Our brisket contract extends through May 2010 at a price increase of approximately 5.7% compared to the price we paid in early 2010. We will watch the market closely as we move through the rest of the year to capitalize on favorable pricing opportunities. We currently anticipate an average decrease of 1.0%, compared to 2009, in hamburger prices from our two suppliers, who are on contract through June and September, respectively. Our salmon and cod contracts are locked in through June of 2010, and our catfish and shrimp contracts are locked in through December of 2010, all at a blended price increase of approximately 4.1% over fiscal 2009. Lastly, in 2010, we currently anticipate an approximate 2.0% price decrease for our side items when compared to the prior year due to our continued focus on reducing overall food costs.

     All of the Company-owned restaurants transitioned to a new food distributor in November of 2009, and we will be completing this transition throughout our franchise system in early 2010. The new distributor will give us more flexibility to maximize freight savings and to optimize our distribution network. We anticipate that these savings will begin to be realized over the next several months and throughout 2010.

     We have continued our focus on identifying dual source suppliers for our 15 most critical items, and today, we have contracted a majority of those items. As we continue into 2010, we will expand our process of finding additional sources for items such as chicken, sauces, and seasonings when advantageous buying opportunities arise.

Information Technology

     Famous Dave’s recognizes the importance of leveraging information to support and extend our competitive position in the restaurant industry. We continue to invest in capabilities that not only provide secure and efficient operations, but also 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 secure transactional functions (ordering, card processing, etc) and reporting at both the unit and support center level. Basic interfaces between Point-of-Sale (POS), labor management, inventory management, menu management, Associate screening/hiring and accounting systems provide 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.
	•		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 were the significant application and infrastructure activities in fiscal 2009:

•

Implementation of a back office food cost and supply chain management solution.

	•		Selection of a Human Resource Information System (HRIS) which provides for a more efficient HR management tool by facilitating strategic analysis and mitigating risk with the consolidation of all information into a single system. This system is now operational in 2010.
	•		An online ordering solution focusing on To-Go orders was implemented in a pilot market to assess the impact an additional ordering channel has on sales and guest experience.
	•		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.
	•		Business intelligence efforts were begun that will leverage existing technologies and processes of our portal, and also provide long-term, flexible, enhanced reporting capabilities.
	•		Server hardware infrastructure was evaluated which resulted in additional implementation of virtual machines resulting in a significant reduction of hardware maintenance.

     The most significant technology infrastructure focus for 2010 will be product transitions for several security and management functions along with leveraging prior virtualization efforts to enhance our data backup solution increasing stability, redundancy, and recoverability of critical corporate systems.

     The department will support the needs of the Company through several application 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.
	•		Selection and implementation of an online ordering solution based on pilot analysis, opportunities for operational efficiency, and associated sales building strategies.
	•		Implementation of financial utilities to comply with XBRL reporting requirements and to optimize the process for creating and supporting the data.
	•		Continued implementation of business intelligence capabilities to facilitate identification and communication of key business metrics to make more timely decisions.
	•		Evaluation and selection process for a budgeting, forecasting, and strategic planning solution that will expand upon current capabilities, increase efficiencies, and integrate with the evolution of other systems.
	•		Evaluation of options to provide technology support and strategic systems to franchise partners.

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 3, 2010, we had 39 ownership groups operating 132 Famous Dave’s franchise restaurants. Signed area development agreements, representing commitments to open an additional 94 franchise restaurants, were in place as of January 3, 2010. 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 up to 8 additional franchise restaurants will open during fiscal 2010.

     As of January 3, 2010, we had franchise-operated restaurants in the following locations:

State		Number of Franchise-Operated Restaurants
Arkansas		2
Arizona		5
California		12
Colorado		5
Delaware		2
Florida		3
Idaho		1
Illinois		3
Indiana		3
Iowa		3
Kansas		4
Kentucky		1
Maine		1
Massachusetts		1
Michigan		8
Minnesota		9
Missouri		3
Montana		4
Nebraska		5
Nevada		4
New Hampshire		1
New Jersey		7
New York		5
North Dakota		2
Oregon		1
Ohio		3
Pennsylvania		3
South Dakota		1
Tennessee		5
Texas		3
Utah		3
Washington		6
West Virginia		2
Wisconsin		11
Total		132

     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 Operations Directors. The directors 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 franchise 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 have decided to suspend franchisees’ development schedule requirements for 2010. However, as a growth incentive, and similar to 2009, franchisees that choose to open in 2010 will get a reduced royalty rate for a 12 month timeframe from date of opening.

     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 2010, franchisees will be required to contribute 0.5% 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 Associate 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.

Associates

     As of January 3, 2010, we employed approximately 2,700 Associates, of which approximately 275 were full-time. None of our Associates are covered by a collective bargaining agreement. We consider our relationships with our Associates 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 Covenant .

     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. We believe that weakening consumer confidence in light of the current economic downturn is a factor contributing to the decrease in our same store net sales in fiscal 2009. 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 3, 2010, 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 $13.5 million at January 3, 2010, 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 2010, and are anticipating the opening of up to eight new franchise restaurants. There is no guarantee that any of the 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, Associate availability and the type, number and location of competing restaurants, among other factors, will also directly affect the performance of our restaurants. Changes in any of these factors in the markets where we currently operate our restaurants could adversely affect the results of our operations.

     Increased competition by existing or future competitors may reduce our sales. Our restaurants compete with moderately-priced restaurants primarily on the basis of quality of food and service, atmosphere, location and value. In addition to existing barbeque restaurants, we expect to face competition from steakhouses and other restaurants featuring protein-rich foods. We also compete with other restaurants and retail establishments for quality sites. Competition in the restaurant industry is affected by changes in consumer taste, economic and real estate conditions, demographic trends, traffic patterns, the cost and availability of qualified labor, product availability and local competitive factors.

     Many of our competitors have substantially greater financial, marketing and other resources than we do. Regional and national restaurant companies continue to expand their operations into our current and anticipated market areas. We believe our ability to compete effectively depends on our ongoing ability to promote our brand and offer high quality food and hospitality in a distinctive and comfortable environment. If we are unable to respond to, 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 up 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 requirement. 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 Associate benefits costs, any and all insurance rates, or other costs associated with Associates, could substantially increase our compliance and labor costs. Because we pay many of our restaurant-level Associates 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.

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 its 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 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.

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 12, 2010, we had 9,054,704 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. The company did not open any restaurants in 2009, however, the restaurants opened in 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, that we currently offer, we have a variety of other development options. 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. Finally 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 flexibility to build in cost effective formats, such as, opportunities to convert existing restaurants into a Famous Dave’s restaurant. In 2009, several franchisee’s successfully converted restaurants and in 2010, we will be converting an existing casual dining restaurant to a company-owned restaurant in Bel Air, Maryland. Due to the flexibility and scalability of our concept, there are a variety of development opportunities available now and in the future. In 2010, we expect to open this company-owned restaurant conversion, and up to eight new franchise-operated restaurants.

     Our leased restaurant facilities are occupied under agreements with remaining terms ranging from 2 to 38 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 $3.7 million net of sublease income. For 2010, in an effort to reduce general and administrative expense, we entered into a sublease for

2,100 square feet 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 3, 2010, sorted by opening date:

				Square				Interior				Owned
		Location		Footage				Seats				or Leased		Date Opened
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		Palatine, IL			9,100				249			Leased		August 2001
28		Richmond I (Richmond, VA)			5,400				180			Owned (2)		December 2001
29		Gaithersburg, MD			5,000				170			Leased		May 2002
30		Richmond II (Richmond, VA)			5,200				158			Owned (2)		June 2002
31		Orland Park, IL			5,400				158			Leased		June 2002
32		Tulsa, OK			4,700				180			Owned (2)		September 2002
33		Virginia Commons, VA			5,600				186			Owned (2)		June 2003
34		Chantilly, VA			6,400				205			Leased		January 2006
35		Florence, KY			5,900				217			Leased		January 2006
36		Waldorf, MD			6,600				200			Leased		June 2006
37		Coon Rapids, MN			6,300				160			Owned (2)		December 2006
38		Fredericksburg, VA			6,500				219			Leased		September 2007
39		Owings Mills, MD			6,700				219			Leased		November 2007
40		Bolingbrook, IL			6,600				219			Leased		November 2007
41		Oswego, IL			6,600				219			Leased		December 2007
42		Alexandria, VA			6,600				219			Leased		February 2008
43		Algonquin, IL			6,000				219			Leased		September 2008
44		Greenwood, IN			5,700				184			Leased		October 2008
45		Salisbury, MD			5,400				192			Leased		October 2008

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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

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.

		2009								2008
Period		High				Low				High				Low
1st Quarter		$	4.41			$	2.00			$	14.36			$	8.55
2nd Quarter		$	7.00			$	3.02			$	11.28			$	7.60
3rd Quarter		$	7.25			$	5.20			$	10.81			$	5.26
4th Quarter		$	7.08			$	5.30			$	6.69			$	2.39

Holders

          As of March 8, 2010, we had approximately 362 shareholders of record and approximately 4,992 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 2, 2004 through January 3, 2010, to the S&P 500 Stock Index and to a Peer Group Index.

     The Company has elected to create a Peer Group Index in compiling its stock performance graph because it believes a Peer Group Index represents a better 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 the Peer Group Index was $100 on January 2, 2005, and that any dividends paid were reinvested in the same security.

Comparison of Five-Year Cumulative Total Return
Among Famous Dave’s of America, Inc., a Peer Group
and the S&P 500 Index

Total Return Analysis

		2004				2005				2006				2007				2008				2009
Famous Dave’s of America		$	100.00			$	88.39			$	129.33			$	100.94			$	21.57			$	47.45
Peer Group*		$	100.00			$	95.57			$	99.40			$	68.84			$	39.81			$	71.70
S&P 500		$	100.00			$	103.00			$	117.03			$	122.00			$	72.02			$	92.01

PURCHASES OF EQUITY SECURITIES BY THE ISSUER

     On August 6, 2008, our Board of Directors adopted a stock repurchase plan that authorized the repurchase of up to 1.0 million shares of our common stock from time-to-time in both the open market or through privately negotiated transactions. During the remainder of fiscal 2008 and all of fiscal 2009, we repurchased 107,012 shares under this program for approximately $869,000 at an average market price per share of $6.27, excluding commissions.

     The following table includes information about our share repurchases for the fourth quarter of the fiscal year ended January 3, 2010.

														Maximum Number
														(or Approximate Dollar
										Total Number of Shares				Value) of Shares
										(or Units)				(or Units)
						Average Price Paid per				Purchased as Part of				that May Yet be
		Total Number of Shares				Share(1)				Publicly Announced				Purchased Under the
Period		(or Units) Purchased				(or Unit)				Plans or Programs				Plans or Programs
Month #10 (September 28, 2009 – October 25, 2009)			-0-			$	-0-				-0-				924,588	(3)
Month #11 (October 26, 2009 – November 22, 2009)			-0-			$	-0-				-0-				924,588	(3)
Month #12 (November 23, 2009 – January 3, 2010)			31,600	(2)		$	5.95				31,600	(2)			892,988	(3)

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 3, 2010 (fiscal year 2009), December 28, 2008 (fiscal year 2008), December 30, 2007 (fiscal year 2007), December 31, 2006 (fiscal year 2006), and January 1, 2006 (fiscal year 2005) 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)		2009(1)				2008				2007				2006				2005
STATEMENTS OF OPERATIONS DATA
Revenue		$	136,018			$	140,382			$	125,873			$	116,621			$	102,354
Asset impairment and estimated lease termination and other closing costs (2)		$	(209	)		$	(6,912	)		$	(596	)		$	(1,136	)		$	—
Income from operations		$	10,514			$	2,030			$	10,436			$	9,243			$	8,735
Income tax (expense) benefit		$	(2,989	)		$	119			$	(3,100	)		$	(2,737	)		$	(2,719	)
Net income		$	5,701			$	389			$	6,070			$	4,954			$	4,425
Basic net income per common share		$	0.63			$	0.04			$	0.61			$	0.47			$	0.41
Diluted net income per common share		$	0.62			$	0.04			$	0.59			$	0.46			$	0.40
BALANCE SHEET DATA (at year end)
Cash and cash equivalents		$	2,996			$	1,687			$	1,538			$	1,455			$	4,410
Total assets		$	68,381			$	73,401			$	73,942			$	65,859			$	67,426
Long-term debt less current maturities(3)		$	17,989			$	29,252			$	11,693			$	13,025			$	16,374
Total shareholders’ equity		$	32,994			$	26,184			$	30,400			$	36,171			$	38,194
OTHER DATA
Restaurant Sales:
Company-owned		$	117,934			$	122,016			$	107,820			$	100,026			$	89,248
Franchise-operated		$	358,696			$	355,946			$	320,750			$	282,160			$	212,950
Number of restaurants open at year end:
Company-owned restaurants			45				47				44				41				38
Franchise-operated restaurants			132				123				120				104				88
Total restaurants			177				170				164				145				126
Company-owned comparable store Sales increase (decrease) (4)			(6.3	)%(5)			(2.0	)%			2.1	%			2.9	%			2.9	%
Average weekly sales:
Company-owned restaurants		$	48,197			$	50,685			$	50,385			$	47,894			$	45,072
Franchise-operated restaurants		$	53,016			$	56,535			$	56,727			$	58,334			$	55,011

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 3, 2010, there were 177 Famous Dave’s restaurants operating in 37 states, including 45 company-owned restaurants and 132 franchise-operated restaurants. An additional 94 franchise restaurants were committed to be developed through signed area development agreements at January 3, 2010.

     Impact of the Current Economic Environment – As outlined throughout this Annual Report, the economic recession that existed and impacted our fiscal 2009 operations and plans continue into fiscal 2010. Economic downturns typically impact restaurant traffic significantly as unemployment increases and consumers decrease spending on discretionary items. In fiscal 2009, this environment led to:

	•		A 6.3% decline in same store sales for company-operated restaurants and an 8.5% decline in same store sales for franchise-operated restaurants, with decreases in all sales drivers: dine-in, catering and to-go sales.
	•		Deteriorating financial health of some franchise partners that resulted in the closure of four franchise restaurants and a slowing of our franchise partners’ development plans.

A further discussion of our strategy to address the current economic environment is contained in the sections that follow.

     Fiscal Year – Our fiscal year ends on the Sunday closest to December 31^st. Our fiscal year is generally 52 weeks; however it periodically consists of 53 weeks. Fiscal 2009, which ended on January 3, 2010, consisted of 53 weeks while fiscal 2008 and fiscal 2007 which ended on December 28, 2008 and December 30, 2007, respectively, each consisted of 52 weeks. Fiscal 2010 which ends on January 2, 2011 will consist 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 FASB Standards codification for Franchisors.

     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 investigation, all 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, we offered a reduced royalty rate for twelve months from date of opening for franchisees that opened restaurants during 2009 and will offer the same rate for franchise restaurants that open during 2010.

     Asset Impairment and Estimated Lease Termination and Other Closing Costs – In accordance with FASB 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 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 $67,000

and $457,000 at January 3, 2010 and December 28, 2008, respectively. The allowance balance decreased from the prior year primarily due to a couple of significant events in 2009. In 2008, we reserved approximately $300,000 for a franchise accounts receivable when management deemed collection of this receivable doubtful. Subsequently, in 2009, this receivable and associated reserve was written off. Additionally, in 2009, based on the final ruling of the bankruptcy courts, two of our franchisee’s accounts receivable balances were deferred. According to the rulings, each franchisee is to make payments in monthly installments and, accordingly, its receivable, along with the accompanying allowance, was reclassified to short-term or long-term, respectively based on its maturity dates. 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 the provided allowance 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, and annual financial information, which the franchisees are required to submit to us, as well as other variances.

     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 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, associate 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 Associates 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, Associate 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 ⁽³⁾:

		2009				2008				2007
Food and beverage costs (1)			30.1	%			30.8	%			30.1	%
Labor and benefits (1)			31.4	%			31.3	%			30.3	%
Operating expenses (1)			26.7	%			26.6	%			25.6	%
Depreciation & amortization (restaurant level) (1)			3.9	%			4.1	%			4.2	%
Depreciation & amortization (corporate level) (2)			0.4	%			0.4	%			0.4	%
Asset impairment and estimated lease termination and other closing costs (1)			0.2	%			5.7	%			0.6	%
General and administrative (2)			11.8	%			11.8	%			12.4	%
Pre-opening expenses & net loss on disposal of property (1)			—				0.9	%			1.5	%
Total costs and expenses (2)			92.3	%			98.6	%			91.7	%
Income from operations (2)			7.7	%			1.4	%			8.3	%

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%, primarily reflecting a comparable sales decrease of 6.3%, partially offset by a weighted average price increase of 2.3%. The 2009 comparable sales decline reflects 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 have 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 consists of royalty revenue and franchise fees, which include 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 level 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 includes royalties from a retail line of business, including sauces, rubs, marinades, seasonings, and other items. Other revenue includes 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. During fiscal 2010, as a result of continued growth in our restaurant base and expanded markets, we expect to see licensing revenue increase slightly compared to fiscal 2009 levels.

     Other revenue for fiscal 2009 was approximately $448,000, compared to approximately $440,000 in fiscal 2008. The amount of other revenue is expected to decline compared to fiscal 2009 based on the level of opening assistance we expect to provide for a lower number of franchise openings planned for fiscal 2010.

     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 reflects 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 reflects 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.

     Average Weekly Net Sales – The following table shows company-owned and franchise-operated average weekly net sales for fiscal 2009 and fiscal 2008:

		Fiscal Years Ended
		January 3,				December 28,
		2010				2008
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 reflect 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. We have determined that we are limited in our ability to “grow the bar” in the majority of our locations due to the fact that many of our locations have little to no designated bar, and some restaurants only have beer and wine licenses. During 2010, we will be evaluating various changes to our bar offerings as well as providing pairing suggestions to accompany our LTO offerings.

     Approximately 85% of our food and non-alcoholic beverage purchases are on contract. Pork represents approximately 31.0% of our total purchases, while chicken is approximately 13.0%, beef, which includes hamburger and brisket, is approximately 9.0%, and seafood is approximately 2.0%. We are protected on our pork contract throughout 2010, and will benefit from an approximate 3.5% price decrease compared to fiscal 2009. However, we will continue to watch the pork market closely to determine if there are opportunities to blend and extend pricing, should we see increases on the horizon with regard to the pricing environment for 2011. Our chicken pricing is firm through December of 2010 at a price increase of approximately 2.5% over fiscal 2009. Our brisket contract extends through May 2010 at a price increase of approximately 5.7% compared to the pricing we paid in early 2010. We will watch the market closely as we move through the rest of the year to capitalize on favorable pricing opportunities. We currently anticipate an average price decrease of 1.0%, compared to 2009, in hamburger prices from our two suppliers, who are on contract through June and September, respectively. Our salmon and cod contracts are locked in through June of 2010, and our catfish and shrimp contracts are locked in through December of 2010, all at a blended price increase of approximately 4.1% over fiscal 2009. Lastly, in 2010, we currently anticipate an approximate 2.0% price decrease for our side items when compared to the prior year due to our continued focus on reducing overall food costs.

     All of the Company-owned restaurants transitioned to a new food distributor in November of 2009, and we will be completing this transition throughout our franchise system in early 2010. The new distributor will give us more flexibility to maximize freight savings and to optimize our distribution network. We anticipate that these savings will begin to be realized over the next several months and throughout 2010.

     We have continued our focus on identifying dual source suppliers for our 15 most critical items, and today, we have contracted a majority of those items. As we continue into 2010, we will expand our process of finding additional sources for items such as chicken, sauces, and seasonings when advantageous buying opportunities arise.

     As a result of all of the initiatives just mentioned, for the fiscal 2010 timeframe, we anticipate an approximate 70 – 80 basis point decrease in our food and beverage costs as a percent of sales year over year.

     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 2010, which positively impacted our fixed labor costs. For 2010, we expect labor and benefits costs as a percentage of sales, to be essentially flat to fiscal 2009’s percentage, due to sales leverage from the recently acquired restaurants, offset by the loss of the 53^rd week.

     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.

     The Company has kept the 2010 national ad fund contribution flat to 2009, at 0.5%. We expect that in 2010, advertising expense will be approximately 3.5% of net sales, including the 0.5% contribution to the National Ad Fund.

     Primarily as a result of the recently acquired restaurants, we are projecting operating expenses as a percentage of net sales for fiscal 2010 to be approximately 80 – 90 basis points higher than 2009’s percentage. During our due diligence, we discovered that there were multiple one-time repairs requiring investments in these locations. Additionally, our guests and associates are our main focus, and as such, we anticipate allocating additional supervisory dollars for a period of time to ensure a successful transition. Lastly, the seven restaurants carry higher restaurant occupancy costs which will impact this percentage.

     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. For 2010, we expect depreciation to be 10 basis points unfavorable to flat as a percentage of total revenue, as compared to 2009, due to the increased capital spending for our existing and newly acquired restaurants.

     General and Administrative Expenses – General and administrative expenses totaled approximately $16.1 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 Standards Codification for 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 10.0% for fiscal 2009 and 11.1% for fiscal 2008. The decrease in the percentage excluding bonus and stock-based compensation compared to prior year primarily reflects our prudent cost control over general administrative expenses in 2010. This was slightly offset by approximately $79,000 of unanticipated due diligence expenses incurred in fiscal 2009 associated with the acquisition of seven franchise restaurants in New York and New Jersey, completed in March 2010. Under current accounting guidance, costs associated with acquisitions are required to be expensed as incurred.

     We intend to remain vigilant in controlling our general and administrative expenses will continue into 2010. We expect general and administrative expenses as a percentage of revenue, with full accrual for bonus achievement, will be approximately 60 — 70 basis points favorable to 2009’s percentage. This is primarily due to sales leverage from the recently acquired restaurants partially offset by the loss of revenue from the 53^rd week. Additionally, we will have approximately $255,000 of estimated acquisition costs, related to our recent acquisition included in general and administrative expenses for 2010.

     In 2010, we anticipate stock-based compensation, as it relates to performances shares, to significantly increase over the prior year due to a higher stock price and a lower anticipated forfeiture rate. For fiscal 2010, we expect stock-based compensation to be approximately $1,092,000, as follows (in thousands):

				Restricted Stock
	Performance Shares			Units				Board of Directors Shares				Total
$	724			$	136			$	232			$	1,092

     Given the limited number of shares that remain available for issuance under our 2005 Stock Incentive Plan, we will compensate the board of directors with cash, in lieu of common stock beginning in May 2010. Cash compensation for the board of directors will be approximately $218,000. We anticipate total board of director and stock-based compensation to be approximately $1.3 million in fiscal 2010.

     Asset Impairment and Estimated Lease Termination and Other Closing Costs

     In accordance with FASB 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)		$	231
Various		Gain on lease terminations (2)			(162	)
Software		Asset impairment (3)			129
Various		Other			11
Total for 2009				$	209

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. As we look to 2010, we will be opening one Company-owned restaurant in Bel Air, Maryland, a suburb of Baltimore, with estimated pre-opening costs of $290,000, including pre-opening rent of approximately $75,000.

     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 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. For 2010, we expect interest expense to be approximately 20 — 30 basis points lower, as a percentage of revenue, due to early debt repayments made in 2009 and sales leverage from the recently acquired restaurants, partially offset by estimated moderate increases in interest rates and anticipated increases in our line of credit balance during 2010. Additionally, as a result of the recent acquisition, we obtained a term loan for approximately $6.8 million that has a seven year term, a 5.0% annual amortization with a balloon payment in year 7, and bears interest at LIBOR plus 225 basis points. There is no prepayment penalty

associated with this term loan. In connection with this term loan, the Company has amended its existing Credit Agreement with Wells Fargo Bank, N.A. to address future covenant requirements to ensure compliance as a result of the additional indebtedness. We incurred approximately $25,000 for debt financing costs associated with the amended and restated credit agreement which will be deferred and amortized over the remaining term of the agreement. Our line of credit had a balance of $13.5 million as of January 3, 2010.

     Interest Income — Interest income was approximately $129,000 and $246,000 for fiscal 2009 and fiscal 2008, respectively. Interest income reflects interest received on short-term cash and cash equivalent balances. We expect fiscal 2010 interest income to be essentially flat compared to fiscal 2009.

     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 $2,599,000 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. We estimate a 34.3% effective tax provision rate for fiscal 2010 due to a lower effective state tax rate.

     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.

Fiscal Year 2008 Compared to Fiscal Year 2007

     Total Revenue — Total revenue of approximately $140.4 million for fiscal 2008 increased approximately $14.5 million or 11.5% over total revenue of approximately $125.9 million for fiscal 2007. Fiscal 2008 and fiscal 2007 both consisted of 52 weeks.

     Restaurant Sales — Restaurant sales were approximately $122.0 million for fiscal 2008 and approximately $107.8 million for fiscal 2007. Fiscal 2008 sales results included the impact of four new company-owned restaurants opened during the year, a weighted average price increase of approximately 3.8% offset by a comparable sales decrease of 2.0%. Fiscal 2007 sales reflected 2.1% comparable sales growth, primarily from an increase in our catering and “TO GO” business, and the impact of weighted-average price increases equal to approximately 1.5%. During fiscal 2008, our category leadership in off-premise sales weakened due to the sluggishness in the economy, as catering and “TO GO” accounted for approximately 32.4% of sales in fiscal 2008, compared with approximately 33.5% of sales in fiscal 2007.

     Franchise-Related Revenue — Franchise-related revenue consists of royalty revenue and franchise fees, which include initial franchise fees and area development fees. Franchise-related revenue for fiscal 2008 was approximately $17.5 million, a 2.8% increase when compared to franchise-related revenue of approximately $17.0 million for the same period in fiscal 2007, reflecting increased royalties. Royalties, which are based on a percent of franchise-operated restaurants’ net sales, increased 8.3% during fiscal 2008. This increase reflected the full year impact of higher sales levels of franchise restaurants that opened in fiscal 2007, in addition to the net three new franchise restaurants opened during fiscal 2008, offset by a comparable sales decrease of 3.6% in 2008 compared to a decrease of 3.3% in 2007. Fiscal 2008 included 6,296 franchise operating weeks, compared to 5,654 franchise operating weeks in fiscal 2007. There were 123 franchise-operated restaurants open at December 28, 2008, compared to 120 at December 30, 2007.

     Licensing and Other Revenue — Licensing revenue includes royalties from a retail line of business, including sauces, rubs, marinades, seasonings, and other items. Other revenue includes opening assistance and training we provide to our franchise partners. For fiscal 2008, the licensing royalty income was approximately $408,000 compared to approximately $334,000 for fiscal 2007.

     Other revenue for fiscal 2008 was approximately $440,000, compared to approximately $678,000 in fiscal 2007. The amount of other revenue declined due to a down turn in the economy, thus slowing franchise restaurant openings.

     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 2008 and fiscal 2007, there were 35 and 36 restaurants, respectively, included in this base. Same store net sales for fiscal 2008 decreased approximately 2.0%, compared to fiscal 2007’s increase of approximately 2.1%. 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 for fiscal 2008 decreased approximately 3.6%, compared to a decrease of approximately 4.0% for the prior year comparable period. Much of the decline in fiscal 2008 was explained by a weak national economy. Restaurants in four states accounted for almost 54% of the decline of our franchise comparable sales. For fiscal 2008 and fiscal 2007, there were 74 and 56 restaurants, respectively, included in franchise-operated comparable sales.

     Average Weekly Net Sales — The following table shows company-owned and franchise-operated average weekly net sales for fiscal 2008 and fiscal 2007:

		Fiscal Years Ended
		December 28,				December 30,
		2008				2007
Company-Owned		$	50,685			$	50,385
Full-Service		$	52,744			$	52,326
Counter-Service		$	36,911			$	39,051
Franchise-Operated		$	56,535			$	56,727

     Food and Beverage Costs — Food and beverage costs for fiscal 2008 were approximately $37.6 million or 30.8% of net restaurant sales compared to approximately $32.4 million or 30.1% of net restaurant sales for fiscal 2007. Results for fiscal 2008 reflected higher contract pricing for many of our core proteins, partially offset by the favorable impact from the realization of vendor rebates of approximately $501,000 in fiscal 2008 that had previously been given to the National Ad Fund. As a percentage of dine-in sales, our adult beverage sales at our company-owned restaurants in fiscal 2008 and fiscal 2007 were approximately 9%.

     Labor and Benefits — Labor and benefits at the restaurant level were approximately $38.2 million or 31.3% of net restaurant sales in fiscal 2008 compared to approximately $32.7 million or 30.3% of net restaurant sales in fiscal 2007. The increase in labor and benefits reflected higher labor costs, partially due to higher health insurance claims and increases in various state and federal minimum wages, slightly offset by lower workers compensation insurance costs. The takeover of the Atlanta restaurants in July 2008 had an approximate 10 basis point impact on labor costs year over year. Also, we experienced inefficiencies in the form of higher labor costs associated with opening three new company-owned restaurants late in fiscal 2008.

     Operating Expenses — Operating expenses for fiscal 2008 were approximately $32.5 million or 26.6% of net restaurant sales compared to approximately $27.5 million or 25.6% of net restaurant sales for fiscal 2007. The increase in fiscal 2008 restaurant operating expenses was due to higher utility, supplies, and repairs and maintenance costs. Additionally, sales deleverage on fixed occupancy costs also played a role, contributing approximately 30 basis points of the year over year difference.

     Depreciation and Amortization — Depreciation and amortization for fiscal 2008 was approximately $5.5 million, or 4.0% of total revenue, compared to approximately $5.0 million, or 4.0% of total revenue for fiscal 2007. Depreciation and amortization increased by $285,000 due to new capital deployed in the opening of four new company-owned restaurants in 2008.

     General and Administrative Expenses — General and administrative expenses totaled approximately $16.5 million or 11.8% of total revenue in fiscal 2008 compared to approximately $15.6 million or 12.4% of total revenue in fiscal 2007. In fiscal 2008, general and administrative expenses included approximately $694,000, for stock-based compensation expense as related to our performance share programs, options expense from FASB Standard Codification for Compensation-Stock Compensation, and the issuance of shares to our Board of Directors for service during fiscal 2008. In fiscal 2007, general and administrative expenses included approximately $820,000 for stock-based compensation expense. The departure of our prior CEO in December 2007 resulted in the recapture of approximately $920,000 in stock-based compensation. Excluding stock-based compensation expense, the percentage would have been 11.3% for fiscal 2008 and 11.7% for fiscal 2007. The decrease in the percentage excluding stock-based compensation compared to prior year, primarily reflects the recapture of bonus related to our CEO who left the company in September 2008, another position at the executive level that remained open for the entire fourth quarter of 2008, in addition to other savings.

     There was no bonus payout on 2008 earnings performance. At year end, we recorded a reserve of approximately $269,000 in corporate severance and outplacement assistance for corporate headquarters staff. The balance in the reserve at year end was $207,000, and was paid out within the first six months.

     Asset Impairment and Estimated Lease Termination and Other Closing Costs

     During fiscal 2008, there were several situations requiring the recording of charges for asset impairment, estimated lease termination and other closing costs. In accordance with FASB Standard 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. See below for a summary of these events and situations for fiscal 2008 and fiscal 2007.

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

     During fiscal 2007, we recorded an asset impairment charge of approximately $596,000 primarily for our Palatine, Illinois restaurant which included the write-down of its assets reflected in impairment and estimated lease termination and other closing costs. This impairment also resulted in a reduction in rent expense of approximately $185,000 reflected in operating expenses, for the write-off of the deferred rent balance for this location, as it was determined that lease option periods would not be executed. Additionally, we recorded a write-off of approximately $395,000 for a software development project that was determined to have no future value. This write-off was reflected in loss on disposal of property in the consolidated statements of operations.

     Pre-opening Expenses — During fiscal 2008, we had approximately $1.1 million in pre-opening expenses, including pre-opening rent, related to the opening of four company-owned restaurants in 2008. During fiscal 2007, we had approximately $1.2 million in pre-opening expenses, related to the opening of four company-owned restaurants in 2007 and pre-opening rent for a restaurant that opened in early fiscal 2008.

     Loss on Early Extinguishment of Debt — During fiscal 2007, we repaid early, approximately $1.0 million in notes payable related to our Tulsa, Oklahoma company-owned restaurant which resulted in an approximate $12,000 non-cash charge to write-off deferred financing fees.

     Interest Expense — Interest expense totaled approximately $2.0 million or 1.4% of total revenue for fiscal 2008, compared to approximately $1.6 million or 1.3% of total revenue for fiscal 2007. This category includes interest expense for notes payable, financing lease obligations and the interest for deferrals made under our non-qualified deferred compensation plan. Our line of credit had a balance of $18.0 million as of December 28, 2008.

     Interest Income — Interest income was approximately $246,000 and $293,000 for fiscal 2008 and fiscal 2007, respectively. Interest income reflects interest received on short-term cash and cash equivalent balances.

     Income Tax Benefit/Expense — We recorded a benefit for income taxes during fiscal 2008 of approximately $119,000 which compared to expense of approximately $3.1 million in fiscal 2008. We utilized $529,000 of federal and state net operating loss carry forwards in fiscal 2008 as compared to approximately $2.4 million in fiscal 2007. Utilization of state net operating losses will be achieved through offsetting tax liabilities generated through earnings. We utilized no general business credit carry forwards in fiscal 2008 and $1.3 million of general business credit carry forwards in fiscal 2007. The resulting tax benefit reflects a lower level of pre-tax income and a higher amount of business credits.

     Basic and Diluted Net Income Per Common Share — Net income for fiscal 2008 was approximately $389,000 or $0.04 per basic common share on approximately 9,406,000 weighted average basic shares outstanding compared to net income of approximately $6.1 million or $0.61 per basic common share on approximately 9,960,000 weighted average basic shares outstanding for fiscal 2007.

     Diluted net income per common share for fiscal 2008 was $0.04 per common share on approximately 9,542,000 weighted average diluted shares outstanding compared to $0.59 per common share on approximately 10,298,000 weighted average diluted shares outstanding for fiscal 2007.

Financial Condition, Liquidity and Capital Resources

     As of January 3, 2010, our Company held unrestricted cash and cash equivalents of approximately $3.0 million compared to approximately $1.7 million as of December 28, 2008. Our cash balance reflects net debt repayment of approximately $11.5 million and the purchases of property, equipment, and leasehold improvements for approximately $2.0 million during the year ended January 3, 2010.

     Our current ratio, which measures our immediate short-term liquidity, was 1.0 at January 3, 2010 compared to 1.1 at December 28, 2008. The current ratio is computed by dividing total current assets by total current liabilities. The change in our current ratio was primarily due to increased current liabilities resulting from a higher accrued bonus at the end of the 2009 fiscal year, partially offset by a lower accounts payable balance resulting from a fifty-third week in fiscal 2009. 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 $14.5 million in fiscal 2009, $11.2 million in fiscal 2008, and $13.0 million in fiscal 2007. 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.

     Cash generated in fiscal 2007 was primarily from net income of approximately $6.1 million, depreciation and amortization of approximately $5.0 million, the utilization of our deferred tax asset of approximately $1.8 million, stock-based compensation of approximately $838,000, an asset impairment of approximately $597,000 related to one company-owned location, and a loss on disposal of approximately $465,000. These increases were partially offset by an approximate $1.8 million increase in accounts receivable, and an approximate $507,000 decrease in accrued compensation and benefits.

     Net cash used for investing activities for each of the last three fiscal years was approximately $1.9 million in fiscal 2009, $10.5 million in fiscal 2008, and $12.3 million in fiscal 2007. 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. In fiscal 2007, we used approximately $14.3 million primarily for the construction of our Fredericksburg, Virginia, Oswego, Illinois, Bolingbrook, Illinois, Owings Mills, Maryland and Alexandria, Virginia restaurants and other infrastructure projects. This was partially off-set by proceeds of approximately $1.8 million from the sale of our Rogers, Arkansas company-owned restaurant to a franchisee. We expect total 2010 capital expenditures to be approximately $5.5 million, primarily reflecting continued investments in our existing restaurants, capital expenditures planned for the seven restaurants acquired in March 2010, reimaging of existing restaurants, the conversion costs of the Bel Air, Maryland restaurant, and investments in corporate infrastructure systems.

     Net cash used for financing activities was approximately $11.3 million in fiscal 2009, $542,000 in fiscal 2008, and $586,000 in fiscal 2007. 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 fiscal 2007, we repurchased 871,000 of our shares, representing the culmination of our third authorization and approximately half of the fourth, for approximately $14.2 million, including commissions. We had draws of approximately $19.5 million on our line of credit and had repayments of approximately $6.5 million. In addition, we repaid $1.4 million of debt. We also received approximately $1.4 million from the exercise of stock options upon the departure of our Chief Executive Officer in December 2007.

     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.

     During fiscal 2009, the Company reclassified the balance on its line of credit from short-term to long-term debt on its balance sheet, with a maturity date of the facility of May 1, 2013. Previously, the line of credit was classified as a current liability due to subjective acceleration provisions in the Credit Agreement. While the subjective acceleration language is still present in the credit agreement, the Company is in a strong financial position due to the recent $11.5 million debt pay down of the long-term notes, our line of credit, and five solid years of positive earnings. Additionally, the Company has had no occurrences of default for which a waiver was not obtained. Therefore, the likelihood of acceleration is deemed remote. Based on the Company’s strong financial position and for comparability purposes, the Company has reclassified the prior year’s line of credit balance to a long-term liability.

     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. Additionally, in 2009, the Company paid off approximately $7.0 million of long-term mortgage debt. As such, the Company could leverage these restaurants by entering into sale leaseback transactions to provide additional cash to the Company.

     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 3, 2010) plus 1.5% or Wells Fargo’s prime rate (3.25% at January 3, 2010). 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 Euro Dollar 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 3, 2010, was 0.375%. An increase option exercise fee will apply to increased amounts between $30.0 and $50.0 million.

     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 3, 2010 we had $13.5 million in borrowings under this Facility. We had $150,000 in Letters of Credit as required by our fiscal 2005 self-funded workers’ compensation insurance policy, and $255,000 in letters of credit for real estate locations. We were in compliance with all covenants as of January 3, 2010.

     Due to the impairment charges and lease termination fees recorded during fiscal 2008, we were not in compliance with the adjusted leverage ratio covenant under the Facility. 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. Additionally, we were also not in compliance with the franchise royalty receivable covenant as of December 28, 2008. After receipt of the waivers, we were in compliance with all covenants under the Facility as of December 28, 2008. 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.

     On March 4, 2010, the Company financed its acquisition of seven franchise locations with a $6.8 million term loan from Wells Fargo Bank, N.A. This loan has a seven year term, bears interest at LIBOR plus 225 basis points and has no prepayment penalties associated with it. In connection with this term loan, the Company has amended its existing Credit Agreement to address future covenant requirements to ensure compliance as a result of the additional indebtedness. Additionally, the Company incurred approximately $25,000 for debt financing costs associated with the amended and restated credit agreement which will be deferred and amortized over the remaining term of the agreement.

     In addition to commitments we have related to our operating lease obligations, we also have required payments on our outstanding debt and financing leases, including principal and interest. The following table provides aggregate information about our contractual payment obligations and the periods in which payments are due:

Contractual Obligations

(in thousands)
Payments Due by Period
(including interest)		Total				2010				2011				2012				2013				2014				Thereafter
Financing Leases		$	6,089			$	603			$	622			$	628			$	647			$	653			$	2,936
Line of Credit			13,500				—				—				—				13,500				—				—
Operating Lease Obligation			88,739				4,489				4,421				4,212				4,253				4,225				67,139
Sublease Income			(94	)			(20	)			(27	)			(28	)			(19	)			—				—
Total		$	108,234			$	5,072			$	5,016			$	4,812			$	18,381			$	4,878			$	70,075

     See Notes 6 and 7 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 January 3, 2010, we had cumulative state net operating loss carry-forwards for tax reporting purposes of approximately $700,000 for state purposes, which if not used will begin to expire in fiscal 2019. This amount will be adjusted when we file our fiscal 2009 income tax returns in 2010. In addition, we had cumulative tax credit carry forwards of approximately $2.2 million, which if not used, will begin to expire in fiscal 2024.

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 unrestricted 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 our Company as of January 3, 2010 was approximately $18.0 million, including financing lease obligations. Of the outstanding long-term debt, $4.5 million was subject to a fixed interest rate. 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 these risks. In 2009, we continued our focus on identifying dual source suppliers for all 15 of our most critical items and have contracted a majority of those items. As we continue into 2010, we are expanding our process of finding additional sources for other items such as our chicken, sauces, and seasonings when advantageous buying opportunities arise. Additionally, 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 3, 2010. 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 3, 2010, our internal control over financial reporting is effective based on these criteria.

     Our independent registered public accounting firm, Grant Thornton LLP, has issued an attestation report on the effectiveness of our internal control over financial reporting, which is included herein.

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 3, 2010 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

     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.

ITEM 9B.		OTHER INFORMATION

     None.

PART III

ITEM 10.		DIRECTORS AND EXECUTIVE OFFICERS 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 338,042 shares of our Company’s common stock remained unreserved and available for issuance at January 3, 2010.

     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 3, 2010 with respect to the Management Plan, the Employee Plan, the Director Plan and the 2005 Plan.

										Number of
										Securities
										Remaining Available
										for Future Issuance
										Under Equity
		Number of Securities								Compensation Plans
		to be Issued Upon								(Excluding
		Exercise of				Weighted-Average				Securities
		Outstanding Options				Exercise Price of				Reflected in Column
		Warrants and Rights				Outstanding Options				(A))
Plan Category		(A)				(B)				(C)
Equity compensation plans approved by shareholders:
1995 Stock Option and Compensation Plan			100,000	(1)		$	5.96				-0-
1998 Director Stock Option Plan			180,500			$	5.77				-0-
2005 Stock Incentive Plan			503,369	(1)		$	10.98				338,042
TOTAL			783,869			$	6.01				338,042
Equity compensation plans not approved by shareholders:
1997 Employee Stock Option Plan			98,421	(1)		$	4.10				-0-
TOTAL			882,290			$	5.69				-0-

     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:

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets — January 3, 2010 and December 28, 2008

Consolidated Statements of Operations — Years ended January 3, 2010, December 28, 2008 and December 30, 2007

Consolidated Statements of Shareholders’ Equity — Years ended January 3, 2010, December 28, 2008 and December 30, 2007

Consolidated Statements of Cash Flows — Years ended January 3, 2010, December 28, 2008 and December 30, 2007

Notes to Consolidated Financial Statements

Financial Statement Schedule:

Schedule II. Schedule of Valuation and Qualifying Accounts

     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. and subsidiaries (the “Company”) (a Minnesota Corporation) as of January 3, 2010 and December 28, 2008, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 3, 2010. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Famous Dave’s of America, Inc. and subsidiaries as of January 3, 2010 and December 28, 2008 and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 3, 2010 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.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 3, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 19, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Minneapolis, Minnesota
March 19, 2010

Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Famous Dave’s of America, Inc.

We have audited Famous Dave’s of America, Inc.’s and subsidiaries’ (the “Company”) (a Minnesota Corporation) internal control over financial reporting as of January 3, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Famous Dave’s of America, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of January 3, 2010, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of January 3, 2010 and December 28, 2008 and for each of the three years in the period ended January 3, 2010 of Famous Dave’s of America Inc., and subsidiaries and our report dated March 19, 2010 expressed an unqualified opinion on those financial statements.

Minneapolis, Minnesota
March 19, 2010

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JANUARY 3, 2010 AND DECEMBER 28, 2008

(in thousands, except share and per-share data)

		January 3,				December 28,
		2010				2008
ASSETS
Current assets:
Cash and cash equivalents		$	2,996			$	1,687
Restricted cash			627				1,170
Accounts receivable, net			3,279				4,702
Inventories			2,198				2,281
Deferred tax asset			714				1,708
Prepaid expenses and other current assets			1,845				1,689
Current portion of notes receivable, net			823				54
Total current assets			12,482				13,291
Property, equipment and leasehold improvements, net			54,818				58,129
Other assets:
Notes receivable, net, less current portion			327				170
Deferred tax asset			206				989
Other assets			548				822
		$	68,381			$	73,401
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and financing lease obligation		$	162			$	441
Accounts payable			3,974				5,208
Accrued compensation and benefits			4,337				2,279
Other current liabilities			3,991				4,132
Total current liabilities			12,464				12,060
Long-term liabilities:
Line of credit			13,500				18,000
Long-term debt, less current portion			—				6,600
Financing lease obligations less current portion			4,490				4,652
Other liabilities			4,933				5,905
Total liabilities			35,387				47,217
Shareholders’ equity:
Common stock, $.01 par value, 100,000,000 shares authorized 9,202,000 and 9,079,000 shares issued and outstanding at January 3, 2010 and December 28, 2008, respectively			92				91
Additional paid-in capital			17,536				16,428
Retained earnings			15,366				9,665
Total shareholders’ equity			32,994				26,184
		$	68,381			$	73,401

See accompanying notes to consolidated financial statements.

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
JANUARY 3, 2010, DECEMBER 28, 2008 AND DECEMBER 30, 2007
(in thousands, except share and per-share data)

		January 3,				December 28,				December 30,
		2010				2008				2007
Revenue:
Restaurant sales, net		$	117,934			$	122,016			$	107,820
Franchise royalty revenue			16,912				17,026				15,718
Franchise fee revenue			200				492				1,323
Licensing and other revenue			972				848				1,012
Total revenue			136,018				140,382				125,873
Costs and expenses:
Food and beverage costs			35,489				37,581				32,419
Labor and benefits			37,016				38,185				32,673
Operating expenses			31,487				32,510				27,547
Depreciation and amortization			5,191				5,522				4,980
General and administrative expenses			16,079				16,521				15,603
Asset impairment and estimated lease termination and other closing costs			209				6,912				596
Pre-opening expenses			—				1,103				1,154
Net loss on disposal of property			33				18				465
Total costs and expenses			125,504				138,352				115,437
Income from operations			10,514				2,030				10,436
Other expense:
Loss on early extinguishment of debt			(509	)			—				(12	)
Interest expense			(1,443	)			(1,977	)			(1,577	)
Interest income			129				246				293
Other (expense) income, net			(1	)			(29	)			30
Total other expense			(1,824	)			(1,760	)			(1,266	)
Income before income taxes			8,690				270				9,170
Income tax (expense) benefit			(2,989	)			119				(3,100	)
Net income		$	5,701			$	389			$	6,070
Basic net income per common share		$	0.63			$	0.04			$	0.61
Diluted net income per common share		$	0.62			$	0.04			$	0.59
Weighted average common shares outstanding-basic			9,114,000				9,406,000				9,960,000
Weighted average common shares outstanding-diluted			9,211,000				9,542,000				10,298,000

See accompanying notes to consolidated financial statements.

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED
JANUARY 3, 2010, DECEMBER 28, 2008, AND DECEMBER 30, 2007
(in thousands)

										Additional
		Common Stock								Paid-In				Retained
		Shares				Amount				Capital				Earnings				Total
Balance- December 31, 2006			10,130			$	101			$	32,864			$	3,206			$	36,171
Exercise of stock options			305				3				1,442				—				1,445
Tax benefit for equity awards issued			—				—				473				—				473
Common stock issued			41				—				325				—				325
Repurchase of common stock			(870	)			(8	)			(14,436	)			—				(14,444	)
Stock-based compensation			—				—				360				—				360
Net income			—				—				—				6,070				6,070
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			60				—				90				—				90
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			137				1				763				—				764
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