SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

þ	QUARTERLY REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
	FOR THE QUARTER ENDED AUGUST 1, 2004.

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
	FOR THE TRANSACTION PERIOD FROM ________ TO ________.

Commission file number: 0-25858

_________________________

DAVE & BUSTER’S, INC.

Registrant’s telephone number, including area code:
(214) 357-9588

     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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o

     The number of shares of the Issuer’s common stock, $.01 par value, outstanding as of September 7, 2004 was 13,747,949 shares.

Dave & Buster’s, Inc.

Form 10-Q

TABLE OF CONTENTS

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Part I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

DAVE & BUSTER’S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)

See accompanying notes to consolidated financial statements.

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DAVE & BUSTER’S, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
DAVE & BUSTER’S, INC.
(In thousands)

See accompanying notes to consolidated financial statements.

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DAVE & BUSTER’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

See accompanying notes to consolidated financial statements.

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DAVE & BUSTER’S, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 1, 2004

(unaudited)
(dollars in thousands, except per share amounts and number of complexes)

Note 1: Organization and Description of Business

Dave and Buster’s, Inc., a Missouri corporation, is a leading operator of large format, high-volume regional entertainment complexes. Our one industry segment is the ownership and operation of restaurant/entertainment complexes under the name “Dave and Buster’s” which are located in the United States and Canada.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation – The consolidated financial statements include the accounts of Dave & Buster’s, Inc. and all wholly-owned subsidiaries (the “Company”). All material intercompany accounts and transactions have been eliminated in consolidation. The Company’s one industry segment is the ownership and operation of restaurant/entertainment complexes (a “Complex” or “Store”) under the name “Dave & Buster’s,” which are principally located in the United States and Canada. In our opinion, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented have been included. Our quarterly financial data should be read in conjunction with our consolidated financial statements for the year ended February 1, 2004 (including the notes thereto), set forth in Dave & Buster’s, Inc.’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 14, 2004.

Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Inventories –Food, beverage and merchandise inventories are reported at the lower of cost or market determined on a first-in, first-out method. Smallware supplies inventories, consisting of china, glassware and kitchen utensils are capitalized at the store opening date, or when additions to the smallware inventory are necessary due to changes in our menu, and are reviewed periodically for valuation. Smallware replacements are expensed as incurred. Inventories consist of the following:

Preopening Costs –All start-up and preopening costs are expensed as incurred.

Property and Equipment – Property and equipment are recorded at cost. Expenditures that substantially increase the useful lives of the property and equipment are capitalized, whereas costs incurred to maintain the appearance and functionality of such assets are charged to repair and maintenance expense. Interest costs capitalized during the construction of facilities in the second quarter of 2004 and 2003 were $189 and $30, respectively. Property and equipment, excluding most games are depreciated on the straight-line method over the estimated useful life of the assets. Games are generally depreciated on the 150 percent-declining-balance method over the estimated useful life of the assets. Reviews are performed regularly to determine whether facts or circumstances exist that indicate the carrying values of our property and equipment are impaired. We assess the recoverability of our property and equipment by comparing the projected future undiscounted net cash flows associated with these assets to their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the estimated fair market value of the assets.

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Depreciable lives – Expenditures for new facilities and those that substantially increase the useful lives of the property, including interest during construction, are capitalized along with equipment purchases at cost. These costs are depreciated over various methods based on an estimate of the depreciable life, resulting in a charge to the operating results of the Company. The actual results may differ from these estimates under different assumptions or conditions. The depreciable lives are as follows:

Income Taxes – We use the liability method which recognizes the amount of current and deferred taxes payable or refundable at the date of the financial statements as a result of all events that are recognized in the financial statements and as measured by the provisions of enacted tax laws.

Stock-Based Compensation – At August 1, 2004, we had two stock-based compensation plans covering employees and directors. We have elected to follow recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), in accounting for stock-based awards to our employees and directors. Under APB No. 25, if the exercise price of an employee’s stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized.

Although SFAS No. 123, Accounting for Stock-Based Compensation, allows us to continue to follow APB No. 25 guidelines, we are required to disclose pro forma net income and net income per share as if we had adopted the fair value based method prescribed by SFAS No. 123. Our pro forma information is as follows:

Foreign Currency Translation – The financial statements related to the operations of our Toronto complex are prepared in Canadian dollars. Income statement amounts are translated at average exchange rates for each period, while the assets and liabilities are translated at period-end exchange rates. Translation adjustments are included as a component of stockholders’ equity. Total currency loss adjustments recorded for the quarter and the year ended August 1, 2004 were $2 and $10, respectively. There were none for 2003.

Revenue Recognition – Food, beverage and amusement revenues are recorded at point of service. Foreign license revenues are deferred until the Company fulfills its obligations under license agreements, which is upon the opening of the complex or upon resolution of any outstanding accounts receivable from the licensee. The license agreements provide for continuing royalty fees based on a percentage of gross revenues, which are recognized when realization is assured. Revenue from international licensees for the second quarter of 2004 and 2003 was $106 and $79, respectively. Revenue from international licensees for year-to-date 2004 and 2003 was $279 and $237, respectively.

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Note 3:Long-term Debt

Long-term debt consisted of the following:

On August 7, 2003 we closed a $30 million private placement of 5.0 percent convertible subordinated notes due 2008 and warrants to purchase 574,691 shares of our common stock at $13.46 per share. The investors may convert the notes into our common stock at any time prior to the scheduled maturity date of August 7, 2008. The conversion price is $12.92 per share, which represents a 20 percent premium over the closing price of our common stock on August 5, 2003. If fully converted, the notes will convert into 2,321,981 shares of our common stock. After August 7, 2006, we have the right to redeem the notes and we may also force the exercise of the warrants if our common stock trades above a specified price during a specific period of time. The convertible subordinated notes have a maximum leverage ratio which is significantly less restrictive than the senior bank credit facility covenant. And in the event we were to pay a cash dividend to common stockholders, the convertible subordinated notes would be included in the distribution as if converted. The fair value of the warrants of $1,276 was recorded as a discount on the notes and is being amortized over the term of the notes. As a result, the effective annual interest rate on the notes is 7.5 percent. We used the net proceeds of the offering to reduce the outstanding balances of our term and revolving loans under our senior bank credit facility.

On October 29, 2003, we amended our senior bank credit facility. The current facility includes a $45 million revolving credit facility and a $15 million term debt facility. The revolving credit facility may be used for borrowings or letters of credit. At August 1, 2004, we had $5,780 letters of credit outstanding, leaving $30,220 available for additional borrowings or letters of credit. Borrowings under the revolving credit facility and term debt facility bear interest at a floating rate based on the bank’s prime interest rate (4.25 percent at August 1, 2004) or the one-month EuroDollar (1.47 percent at August 1, 2004), plus, in each case, a margin based on financial performance. The interest rate was 3.72 percent at August 1, 2004.

The amended facility is secured by all assets of the Company. The amended facility has certain financial covenants including a minimum consolidated tangible net worth, a maximum leverage ratio and a minimum fixed charge coverage ratio. In addition, the amended facility contains a minimum fixed charge coverage ratio, which must be achieved before additional store operating leases can be executed. Any outstanding borrowings under the revolving credit facility are due at maturity on April 29, 2008. Borrowings under the term debt facility are repayable in 16 consecutive quarterly payments of $833 with the final payment due on April 29, 2008. The fair market value of our long-term debt approximates its carrying value.

In 2001, we entered into an interest rate swap agreement that expires in 2007, to change a portion of our variable rate debt to fixed-rate debt. Pursuant to the swap agreement, the interest rate on notional amounts aggregating $36,180 at August 1, 2004 is fixed at 5.44 percent. The agreement has not been designated as a hedge and adjustments are recorded to mark the instrument to its fair market value through current operations. As a result of the swap agreement, we recorded additional interest expense of $418 and $478 in the second quarter of 2004 and 2003, respectively. The recorded additional interest expense was $861 for the twenty-six weeks ended August 1, 2004 compared to $934 for the 26 weeks ended August 3, 2003.

The following table sets forth the Company’s debt payments and convertible debt commitments (excluding interest):

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Note 4: Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

Note 5: Contingencies

The Company is subject to certain legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to all actions currently pending and any potential claims of which management has received notice will not materially affect the consolidated results of operations or financial condition of the Company.

Note 6: Proposed Acquisition of Certain Assets of Jillian’s Entertainment Holdings, Inc.

On May 24, 2004, we announced that we had signed a definitive agreement with various operating subsidiaries of Jillian’s Entertainment Holdings, Inc. to acquire out of bankruptcy, the operating assets of nine of Jillian’s Holdings, Inc.’s restaurant/entertainment complexes and other related assets for approximately $27 million cash. Financing for the proposed transaction has been secured, which anticipates up to an additional $8 million being available for capital improvements to the Jillian’s locations.

The nine Jillian’s complexes are located in the metropolitan areas of: Minneapolis, Minnesota; Philadelphia, Pennsylvania: Concord, North Carolina; Farmington, New York; Nashville, Tennessee; Houston, Texas: Arundel, Maryland; Scottsdale, Arizona and Westbury, New York. These nine restaurant/entertainment complexes range in size from 46,000-68,000 sq. ft. and employ approximately 2,100 people who are expected to be added to the present Dave & Buster’s team of over 6,000. These larger Jillian’s entertainment complexes are Dave & Buster’s most similar national competition. Dave & Buster’s would acquire the brand name and all trademarks of Jillian’s allowing it to operate these complexes under the Jillian’s brand.

The selling Jillian’s Entertainment Holdings, Inc. entities have filed a Chapter 11 bankruptcy petition in Louisville, Kentucky and the sale of these assets will be subject to the bankruptcy court’s approval. Additional bidders may present qualified bids by September 14, 2004. An auction of these assets has been set for September 21, 2004 with court approval currently scheduled for September 23, 2004. If we emerge as the successful bidder and pending approval of the court, it is anticipated that the transaction would close sometime later this year.

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Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in thousands).

Overview

Our management monitors and analyzes a number of key performance indicators in order to manage our business and evaluate our financial and operating performance. Those indicators include:

Revenues – We derive revenues from food, beverage and amusement sales. Comparable store sales are a key performance indicator used within our industry and are indicative of acceptance of our initiatives as well as local economic and consumer trends.

The food component of our business represents approximately 35 percent of our revenue with a gross margin (revenues less cost of revenues) of around 75 percent. We continually monitor the market for new menu options and evaluate our ability to adjust prices where competitively appropriate. In the beverage component, we offer fully licensed facilities, which means that we have full beverage service throughout the complex. This component is approximately 17 percent of our revenue with a gross margin of around 77 percent. The promotional activity around the beverage component continues to result in positive same store beverage sales.

The amusement component offers traditional games of skill such as billiards and shuffleboard and the million dollar midway features high-energy technology games and classic redemption games that dispense tickets, which may be redeemed for prizes. This component represents approximately 46 percent of our revenue with a gross margin of around 88 percent. We invested $1.0 million in new games in the second quarter of 2004 and $4 million for 2004 year-to-date. We will continue to add the latest in new games as they become available and prove to be attractive to our guests.

Special event business is a very important component in that we believe over 30 percent of the guests attending a special event are in a Dave & Buster’s for the first time. This is a very advantageous way to introduce the concept to new guests. Accordingly, we place considerable emphasis on this segment through our in-store sales teams.

Cost of revenues – Costs of revenues includes the cost of food, beverages and Winner’s Circle amusement items currently average 18.9 percent of revenues year to date. We strive to control our cost of revenues and thereby maintain or improve our gross margins. Our cost of revenues are driven by product mix and pricing movements from third party suppliers. In the first quarter of 2004, we began purchasing a number of our Winner’s Circle items direct from Asia, which we expect to reduce our overall amusement cost of revenues in the future.

Operating payroll and benefits – Operating payroll and benefits were 28.4 percent of revenue for both the second quarter of 2004 and year-to-date 2004. Operating payroll and benefits expenses consist of wages, employer taxes and benefits for our store personnel. We continually review the opportunity for cost reductions principally through variable labor scheduling refinements.

Other store operating expenses – Other store operating expenses consist of store-related occupancy, restaurant expenses, utilities, repair and maintenance and marketing costs.

Liquidity and cash flows – Our primary source of cash flow is from net income and availability under our revolving credit facility.

Quarterly Fluctuations, Seasonality, and Inflation — As a result of the substantial revenues associated with each new complex, the timing of new complex openings will result in significant fluctuations in quarterly results. We expect seasonality to be a factor in the operation and results of our business in the future with historically anticipated lower third quarter revenues and higher fourth quarter revenues associated with the year-end holidays. The effects of supplier price increases are expected to be partially offset by selected menu price increases. We believe that low inflation rates in our market areas have

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contributed to reasonably stable food and labor costs in recent years. However, there is no assurance that low inflation rates will continue or that the Federal minimum wage rate will not increase.

Results of Operations

Revenues

The following table sets forth, for the periods indicated, a year-over-year comparison of our revenues: