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EX-32 - EX-32 - FAMOUS DAVES OF AMERICA INCdave-20171001xex32.htm
EX-31.2 - EX-31.2 - FAMOUS DAVES OF AMERICA INCdave-20171001ex31243db4f.htm
EX-31.1 - EX-31.1 - FAMOUS DAVES OF AMERICA INCdave-20171001ex3118e0d68.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended October 1, 2017

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0‑21625


Picture 1

FAMOUS DAVE’S of AMERICA, INC.

(Exact name of registrant as specified in its charter)

Minnesota

41‑1782300

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

12701 Whitewater Drive, Suite 190

Minnetonka, MN  55343

(Address of principal executive offices) (Zip code)

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

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    No ☐

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    No ☐

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

Large Accelerated Filer ☐

 

Accelerated Filer ☐

 

 

 

Non-Accelerated Filer ☐   (Do not check if a smaller reporting company)

 

Smaller Reporting Company 

 

 

 

Emerging Growth Company ☐

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of November 10, 2017, 7,375,797 shares of the registrant’s Common Stock were outstanding.

 

 

 


 

FAMOUS DAVE’S OF AMERICA, INC.

TABLE OF CONTENTS

 

    

 

Page

PART I 

 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1 

 

Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

 

Consolidated Balance Sheets as of October 1, 2017 and January 1, 2017

3

 

 

 

 

 

 

Consolidated Statements of Operations for the Three and Nine Months Ended October 1, 2017 and October 2, 2016

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended October 1, 2017 and October 2, 2016

5

 

 

 

 

 

 

Notes to Consolidated Financial Statements

6

 

 

 

 

Item 2 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

 

Item 3 

 

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

 

Item 4 

 

Controls and Procedures

27

 

 

 

 

PART II 

 

OTHER INFORMATION

 

 

 

 

 

Item 1 

 

Legal Proceedings

28

 

 

 

 

Item 1A 

 

Risk Factors

28

 

 

 

 

Item 5 

 

Other Information

28

 

 

 

 

Item 6 

 

EXHIBITS

28

 

 

 

 

 

 

SIGNATURES

29

 

 

 

 

 

 

CERTIFICATIONS

 

 

 

 

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

OCTOBER 1, 2017 AND JANUARY 1, 2017

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

October 1,

 

 

 

 

 

2017

 

January 1,

 

    

(Unaudited)

    

2017

ASSETS

 

 

 

 

 

 

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

7,412

 

$

4,450

Restricted cash

 

 

1,721

 

 

1,714

Accounts receivable, net

 

 

5,210

 

 

5,257

Inventories

 

 

1,095

 

 

1,499

Prepaid expenses and other current assets

 

 

4,608

 

 

3,494

Assets held for sale

 

 

 —

 

 

 1

Total current assets

 

 

20,046

 

 

16,415

 

 

 

 

 

 

 

Property, equipment and leasehold improvements, net

 

 

18,520

 

 

25,912

 

 

 

 

 

 

 

Other assets:

 

 

  

 

 

  

Intangible assets, net

 

 

2,574

 

 

2,602

Deferred tax asset

 

 

4,226

 

 

4,633

Other assets

 

 

1,046

 

 

1,383

 

 

$

46,412

 

$

50,945

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

  

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

  

 

 

  

Current portion of long-term debt and financing lease obligations

 

$

1,289

 

$

1,371

Accounts payable

 

 

5,660

 

 

5,311

Accrued compensation and benefits

 

 

2,333

 

 

1,321

Other current liabilities

 

 

4,205

 

 

3,140

Total current liabilities

 

 

13,487

 

 

11,143

 

 

 

  

 

 

  

Long-term liabilities:

 

 

  

 

 

  

Long-term debt, less current portion

 

 

8,164

 

 

8,849

Financing lease obligations, less current portion

 

 

1,288

 

 

2,280

Other liabilities

 

 

7,699

 

 

8,705

Total liabilities

 

 

30,638

 

 

30,977

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

  

 

 

  

Common stock, $.01 par value, 100,000 shares authorized, 6,958 shares issued and outstanding at October 1, 2017 and January 1, 2017, respectively

 

 

66

 

 

66

Retained earnings

 

 

15,708

 

 

19,902

Total shareholders’ equity

 

 

15,774

 

 

19,968

 

 

$

46,412

 

$

50,945

 

See accompanying notes to consolidated financial statements.

-  3  -


 

CONSOLIDATED STATEMENTS OF OPERATIONS

OCTOBER 1, 2017 AND OCTOBER 2, 2016

(in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

    

 

 

October 1,

    

October 2,

 

October 1,

    

October 2,

    

 

 

2017

 

2016

   

2017

    

2016

 

Revenue:

 

 

  

 

 

  

 

 

  

 

 

  

 

Restaurant sales, net

 

$

18,122

 

$

20,999

 

$

57,064

 

$

63,013

 

Franchise royalty revenue

 

 

3,591

 

 

4,164

 

 

11,377

 

 

12,654

 

Franchise fee revenue

 

 

 —

 

 

 —

 

 

35

 

 

135

 

Licensing and other revenue

 

 

182

 

 

200

 

 

696

 

 

784

 

Total revenue

 

 

21,895

 

 

25,363

 

 

69,172

 

 

76,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

Food and beverage costs

 

 

5,376

 

 

6,507

 

 

17,063

 

 

19,619

 

Labor and benefits costs

 

 

6,404

 

 

7,069

 

 

20,034

 

 

21,323

 

Operating expenses

 

 

5,077

 

 

6,618

 

 

16,492

 

 

18,681

 

Depreciation and amortization

 

 

1,380

 

 

909

 

 

2,868

 

 

2,845

 

General and administrative expenses

 

 

3,791

 

 

4,385

 

 

11,929

 

 

12,635

 

Asset impairment and estimated lease termination and other closing costs

 

 

2,405

 

 

3,620

 

 

7,011

 

 

4,684

 

Net loss (gain) on disposal of property

 

 

45

 

 

 4

 

 

63

 

 

(181)

 

Total costs and expenses

 

 

24,478

 

 

29,112

 

 

75,460

 

 

79,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(2,583)

 

 

(3,749)

 

 

(6,288)

 

 

(3,020)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

  

 

 

  

 

 

  

 

 

  

 

Interest expense

 

 

(153)

 

 

(210)

 

 

(510)

 

 

(613)

 

Interest income

 

 

20

 

 

 —

 

 

20

 

 

 2

 

Other income, net

 

 

 —

 

 

(1)

 

 

 —

 

 

 —

 

Total other expense

 

 

(133)

 

 

(211)

 

 

(490)

 

 

(611)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(2,716)

 

 

(3,960)

 

 

(6,778)

 

 

(3,631)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

900

 

 

1,582

 

 

2,455

 

 

1,515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

 

(1,816)

 

 

(2,378)

 

 

(4,323)

 

 

(2,116)

 

Net (loss) income from discontinued operations, net of tax

 

 

 —

 

 

(81)

 

 

 —

 

 

627

 

Net loss

 

$

(1,816)

 

$

(2,459)

 

$

(4,323)

 

$

(1,489)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

  

 

 

  

 

 

  

 

 

  

 

Basic net loss per share - continuing operations

 

$

(0.26)

 

$

(0.34)

 

$

(0.62)

 

$

(0.30)

 

Basic net (loss) income per share - discontinued operations

 

 

 —

 

 

(0.01)

 

 

 —

 

 

0.09

 

Basic net loss per share

 

$

(0.26)

 

$

(0.35)

 

$

(0.62)

 

$

(0.21)

 

Diluted net loss per share - continuing operations

 

$

(0.26)

 

$

(0.34)

 

$

(0.62)

 

$

(0.30)

 

Diluted net (loss) income per share - discontinued operations

 

 

 —

 

 

(0.01)

 

 

 —

 

 

0.09

 

Diluted net loss per share

 

$

(0.26)

 

$

(0.35)

 

$

(0.62)

 

$

(0.21)

 

Weighted average shares outstanding - basic

 

 

6,955

 

 

6,950

 

 

6,955

 

 

6,949

 

Weighted average shares outstanding - diluted

 

 

6,955

 

 

6,950

 

 

6,955

 

 

6,949

 

 

See accompanying notes to consolidated financial statements.

-  4  -


 

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

OCTOBER 1, 2017 AND OCTOBER 2, 2016

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

    

Nine Months Ended

 

 

 

October 1,

    

October 2,

 

 

    

2017

    

2016

 

Cash flows from operating activities:

 

 

  

 

 

  

 

Net loss from continuing operations

 

$

(4,323)

 

$

(2,116)

 

Adjustments to reconcile net loss to cash flows provided by operations:

 

 

  

 

 

  

 

Depreciation and amortization

 

 

2,868

 

 

2,845

 

Asset impairment and estimated lease termination and other closing costs

 

 

7,011

 

 

4,684

 

Net loss (gain) on disposal of property

 

 

63

 

 

(181)

 

Amortization of deferred financing costs

 

 

26

 

 

43

 

Deferred income taxes

 

 

351

 

 

(25)

 

Deferred rent

 

 

211

 

 

520

 

Stock-based compensation

 

 

183

 

 

254

 

Changes in operating assets and liabilities:

 

 

  

 

 

  

 

Restricted cash

 

 

(7)

 

 

(1,199)

 

Accounts receivable, net

 

 

372

 

 

(193)

 

Inventories

 

 

189

 

 

184

 

Prepaid expenses and other current assets

 

 

(1,280)

 

 

(1,571)

 

Deposits

 

 

 —

 

 

(277)

 

Accounts payable

 

 

(754)

 

 

(388)

 

Accrued compensation and benefits

 

 

909

 

 

39

 

Other current liabilities

 

 

(1,210)

 

 

(98)

 

Other liabilities

 

 

(125)

 

 

140

 

Cash flows provided by continuing operating activities

 

 

4,484

 

 

2,661

 

Cash flows used for discontinued operating activities

 

 

 —

 

 

(839)

 

Cash flows provided by operating activities

 

 

4,484

 

 

1,822

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

  

 

 

  

 

Proceeds from the sale of assets

 

 

 —

 

 

1,053

 

Purchases of property, equipment and leasehold improvements

 

 

(301)

 

 

(540)

 

Cash flows (used for) provided by continuing investing activities

 

 

(301)

 

 

513

 

Cash flows provided by discontinued investing activities

 

 

 —

 

 

1,150

 

Cash flows (used for) provided by for investing activities

 

 

(301)

 

 

1,663

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

  

 

 

  

 

Proceeds from line of credit

 

 

 —

 

 

1,855

 

Payments for debt issuance costs

 

 

(15)

 

 

(23)

 

Payments on long-term debt and financing lease obligations

 

 

(1,206)

 

 

(3,850)

 

Payments from exercise of stock options

 

 

 —

 

 

(1)

 

Cash flows used for financing activities

 

 

(1,221)

 

 

(2,019)

 

 

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

 

2,962

 

 

1,466

 

Cash and cash equivalents, beginning of period

 

 

4,450

 

 

5,300

 

Cash and cash equivalents, end of period

 

$

7,412

 

$

6,766

 

 

See accompanying notes to consolidated financial statements.

 

-  5  -


 

Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)          Basis of Presentation

Basis of Presentation

Famous Dave’s of America, Inc. (“Famous Dave’s” or the “Company”) was incorporated in Minnesota on March 14, 1994. The Company develops, own, operates and franchises restaurants under the name "Famous Dave’s." As of October 1, 2017, there were 154 Famous Dave’s restaurants operating in 32 states, the Commonwealth of Puerto Rico, Canada, and United Arab Emirates, including 25 Company-owned restaurants and 129 franchise-operated restaurants. An additional 61 franchise-operated restaurants were committed to be developed through signed area development agreements as of October 1, 2017.

These consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Securities and Exchange Commission (“SEC”) Rules and Regulations. These unaudited consolidated financial statements represent the consolidated financial statements of the Company and its subsidiaries as of October 1, 2017 and January 1, 2017 and for the three and nine months ended October 1, 2017 and October 2, 2016. The information furnished in these consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10‑K for the fiscal year ended January 1, 2017 as filed with the SEC on March 21, 2017.

Due to the seasonality of the Company’s business, revenue and operating results for the three and nine months ended October 1, 2017 are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period’s presentation. These reclassifications did not have an impact on the reported net loss for any of the periods presented.

Income Taxes

The Company maintains a federal deferred tax asset (“DTA”) in the amount of $4.2 million. The Company evaluates the DTA on a quarterly basis to determine whether current facts and circumstances indicate that the DTA may not be fully realizable. As of October 1, 2017, the Company concluded that the DTA is fully realizable and that a valuation allowance was not considered necessary; however, the Company will continue to evaluate the asset on a quarterly basis until the DTA has been fully utilized.

The following table presents the Company’s effective tax rates for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

    

October 1,

    

October 2,

 

October 1,

    

October 2,

 

 

 

2017

 

2016

    

2017

    

2016

 

Effective tax rate

 

 

33.1

%

 

39.9

%

 

36.2

%

 

41.7

%

The net decrease in the effective tax rate for the three and nine months ended October 1, 2017 was primarily a result of the year over year change in pretax income and the impact it had on employment related credits, as a percentage of pretax income. The Company provides for income taxes based on its 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. The Company’s estimates are based on the information available at the time that the Company prepares the income tax provision. The Company generally files its annual income tax returns several months after its 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.

-  6  -


 

Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently Adopted Accounting Pronouncements

In August 2016, the FASB issued ASU 2016‑15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016‑15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flow, and other Topics. ASU 2016‑15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. Early adoption was permitted, and the Company has adopted this ASU effective for Fiscal 2017. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014‑09, Revenue from Contracts with Customers. The FASB issued ASU No. 2016‑08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” in March 2016, ASU 2016‑10 “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” in April 2016, ASU 2016‑11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014‑09 and 2014‑16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting” in May 2016 and ASU 2016‑12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” in May 2016. These new standards provide for a single, principles-based model for revenue recognition that replaces the existing revenue recognition guidance. In July 2015, the FASB deferred the effective date of ASU 2014‑09 until annual and interim periods beginning on or after December 15, 2017. It will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective. It permits the use of either a full retrospective or modified retrospective transition method and early adoption is permitted. The Company plans to adopt this standard as of the effective date utilizing the modified retrospective transition method.

The Company has reviewed a representative sample of its franchise agreements as a basis for determining the impact of the new standard on the Company’s consolidated financial statements. The Company’s assessment has not yet been finalized; however, the Company believes that the new guidance will not impact the timing of revenue recognition on franchise royalty revenues, restaurant and merchandise sales or licensing and other revenue. The new guidance will require that the Company defer previously recognized and future revenue related to franchise fees and area development fees. Franchise fees have historically been recognized in full when a new restaurant opens, but under the new guidance, these fees will be amortized over the life of the related franchise agreements and related extension periods, which generally range from 10-25 years. Area development fees have historically been recognized in full upon execution of an area development agreement, but under the new guidance, these fees will be recognized when each new restaurant pursuant to an area development agreement opens or upon the expiration of such agreements. The Company expects to report these revenues within the franchise fee revenue line item of its consolidated statements of operations. Pursuant to the new guidance, the timing of revenue recognition related to gift card breakage will also be impacted. Historically, the Company has recognized gift card breakage in full upon the sale of gift cards due to the Company’s historical experience related to gift card sales, but under the new guidance, gift card breakage will be recognized ratably as gift cards are redeemed. The Company will report revenue related to gift card breakage within the licensing and other revenue line of its consolidated statements of operations.

The new revenue guidance will also impact the presentation of the Company’s consolidated statements of operations as it relates to the Company’s system-wide Public Relations and Marketing Development Fund (the “NAF”). Historically, the Company has netted revenues received pursuant to NAF billings with the related expenses, but under the new guidance, revenues recognized related to the NAF will be presented gross as a separate line item within total revenues, with the corresponding expense presented gross as a separate line item within operating expenses. The new guidance will not impact the timing of revenue recognition as it relates to the NAF.

In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016‑02 requires lessees to recognize a lease liability and a right-of-use asset for all leases. Lessor accounting remains largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for all entities. ASU 2016‑02 requires a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. The Company expects to adopt this new standard as of the effective date and is currently evaluating the impact of this new standard on its consolidated financial statements, but expects that it will have a material impact because of the Company’s significant leasing activity.

-  7  -


 

Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In May 2017, the FASB issued ASU 2017-05, Compensation – Stock Compensation (Topic 718), to provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. The updated standard clarifies when an entity should account for the effects of a modification. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company does not believe that adoption of the new standard will have a material impact on its consolidated financial statements.

(2)          Net Loss Per Share

Basic net loss per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the reporting period. Diluted EPS equals net income (loss) divided by the sum of the weighted average number of shares of common stock outstanding plus all additional common stock equivalents, such as stock options and restricted stock units, when dilutive.

The following is a reconciliation of basic and diluted net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 1,

 

October 2,

 

October 1,

 

October 2,

 

(in thousands, except per share data)

    

2017

    

2016

   

2017

    

2016

 

Net (loss) income per share – basic:

 

 

  

 

 

  

 

 

  

 

 

  

 

Net loss from continuing operations

 

$

(1,816)

 

$

(2,378)

 

$

(4,323)

 

$

(2,116)

 

Net (loss) income from discontinued operations, net of tax

 

 

 —

 

 

(81)

 

 

 —

 

 

627

 

Net loss

 

 

(1,816)

 

 

(2,459)

 

 

(4,323)

 

 

(1,489)

 

Weighted average shares outstanding - basic

 

 

6,955

 

 

6,950

 

 

6,955

 

 

6,949

 

Basic net loss per share - continuing operations

 

$

(0.26)

 

$

(0.34)

 

$

(0.62)

 

$

(0.30)

 

Basic net (loss) income per share - discontinued operations

 

 

 —

 

 

(0.01)

 

 

 —

 

 

0.09

 

Basic net loss per share

 

$

(0.26)

 

$

(0.35)

 

$

(0.62)

 

$

(0.21)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per share – diluted:

 

 

  

 

 

  

 

 

  

 

 

  

 

Net loss from continuing operations

 

$

(1,816)

 

$

(2,378)

 

$

(4,323)

 

$

(2,116)

 

Net (loss) income from discontinued operations, net of tax

 

 

 —

 

 

(81)

 

 

 —

 

 

627

 

Net loss

 

 

(1,816)

 

 

(2,459)

 

 

(4,323)

 

 

(1,489)

 

Weighted average shares outstanding - diluted

 

 

6,955

 

 

6,950

 

 

6,955

 

 

6,949

 

Diluted net loss per share - continuing operations

 

$

(0.26)

 

$

(0.34)

 

$

(0.62)

 

$

(0.30)

 

Diluted net (loss) income per share - discontinued operations

 

 

 —

 

 

(0.01)

 

 

 —

 

 

0.09

 

Diluted net loss per share

 

$

(0.26)

 

$

(0.35)

 

$

(0.62)

 

$

(0.21)

 

 

There were approximately 524,000 and 543,000 options outstanding for the three and nine months ended October 1, 2017 and October 2, 2016, respectively, that were not included in the computation of diluted EPS because their impact was anti-dilutive.

(3)          Restricted Cash and Marketing Fund

The Company has a system-wide Public Relations and Marketing Development Fund, to which Company-owned restaurants, in addition to the majority of franchise-operated restaurants, contribute a percentage of net sales, currently 1.0%, for use in public relations and marketing development efforts throughout the system. The assets held by this fund are considered to be restricted. Accordingly, the Company reflects the cash related to this fund within restricted cash and reflects the liability within accounts payable on the Company’s consolidated balance sheets as of October 1, 2017 and January 1, 2017. The Company had approximately $1.2 million and $946,000 in this fund as of October 1, 2017 and January 1, 2017, respectively.

In conjunction with the Company’s current and former credit agreements, the Company has deposited amounts for undrawn letters of credit in cash collateral accounts with Venture Bank and Wells Fargo. The Company had approximately $557,000 and $768,000 in restricted cash as of October 1, 2017 and January 1, 2017, respectively, related to these undrawn letters of credit.

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Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4)          Allowance for Doubtful Accounts

The Company provides for an allowance for uncollectible accounts receivable based on historical losses and existing economic conditions, when relevant. The Company provides 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, the Company has periodically established a specific reserve on certain other receivables as necessary. Any changes to the reserve are recorded within general and administrative expenses on the consolidated statements of operations. The allowance for uncollectible accounts was approximately $872,000 and $270,000 at October 1, 2017 and January 1, 2017, respectively. Accounts receivable are written off when they become uncollectible, and payments subsequently received on such receivables are credited to allowance for doubtful accounts. Accounts receivable balances written off have not exceeded allowances provided. The Company believes all accounts receivable in excess of the allowance are fully collectible. If accounts receivable in excess of provided allowances are determined uncollectible, they are charged to expense in the period that determination is made. Outstanding past due accounts receivable are subject to a monthly interest charge on unpaid balances, which is recorded as interest income in the consolidated statements of operations. In assessing recoverability of these receivables, the Company makes judgments regarding the financial condition of the franchisees based primarily on past and current payment trends, as well as other variables, including annual financial information, which the franchisees are required to submit to the Company, as well as other variables.

(5)          Intangible Assets, net

The Company has intangible assets that consist of liquor licenses and lease interest assets. The liquor licenses are indefinite-lived assets and are not subject to amortization. The lease interest assets are amortized to occupancy costs on a straight-line basis over the remaining term of each respective lease.

A reconciliation of the Company’s intangible assets as of October 1, 2017 and January 1, 2017, respectively, are presented in the table below:

 

 

 

 

 

 

 

 

 

October 1,

    

January 1,

(in thousands)

 

2017

    

2017

Lease interest assets, gross carrying amount

 

$

1,091

 

$

1,091

Lease interest assets, accumulated amortization

 

 

(277)

 

 

(249)

Lease interest assets, net carrying amount

 

 

814

 

 

842

Liquor licenses

 

 

1,760

 

 

1,760

Intangible assets, net

 

$

2,574

 

$

2,602

The following table provides the projected future amortization of lease interest assets for the next five years, as of October 1, 2017:

 

 

 

 

 

 

October 1,

(in thousands)

 

2017

Fiscal 2017

 

$

 9

Fiscal 2018

 

 

36

Fiscal 2019

 

 

36

Fiscal 2020

 

 

36

Fiscal 2021

 

 

36

Thereafter

 

 

661

 

 

$

814

 

 

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Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6)          Long-Term Debt and Financing Lease Obligations

Long-term debt

Long-term debt consisted approximately of the following at:

 

 

 

 

 

 

 

 

    

October 1,

    

January 1,

(in thousands)

    

2017

    

2017

First Note - Venture Bank - monthly installments of principal and interest until December 2, 2026

 

 

3,611

  

 

3,700

Second Note - Venture Bank - monthly payments of principal and interest until December 2, 2023

 

 

5,714

  

 

6,300

Less: deferred financing fees

 

 

(232)

  

 

(234)

Less: current maturities

 

 

(929)

  

 

(917)

Long-term debt net of current maturities

 

$

8,164

  

$

8,849

 

The weighted-average interest rate of debt outstanding as of October 1, 2017 and January 1, 2017 was 4.25% and 4.00%, respectively.

The Company is subject to various financial and non-financial covenants on its long-term debt, including a debt-service coverage ratio. As of October 1, 2017, the Company was in compliance with all of its covenants.

Financing Lease Obligation

Financing lease obligations consisted of the following at:

 

 

 

 

 

 

 

 

    

October 1,

    

January 1,

(in thousands)

    

2017

    

2017

Financing lease – Spirit Financial – monthly installments of $40 – effective interest rate of 7.87%, due in March 2019.

 

$

1,663

 

$

2,757

Less: deferred financing fees

 

 

(15)

 

 

(23)

Less: current maturities

 

 

(360)

 

 

(454)

Long-term financing lease net of current maturities

 

$

1,288

 

$

2,280

 

 

(7)          Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following at:

 

 

 

 

 

 

 

 

 

 

October 1,

 

 

January 1,

(in thousands)

    

 

2017

    

 

2017

Prepaid income taxes and income tax receivable

 

$

3,236

 

$

2,168

Prepaid insurance and other expenses

 

 

1,357

 

 

1,306

Other current assets

 

 

15

 

 

20

 

 

$

4,608

 

$

3,494

 

 

(8)         Other Current Liabilities

Other current liabilities consisted of the following at:

 

 

 

 

 

 

 

 

    

October 1,

    

January 1,

(in thousands)

    

2017

    

2017

Gift cards payable

 

$

1,220

 

$

1,448

Other liabilities

 

 

590

 

 

810

Lease reserves, current

 

 

1,732

 

 

330

Sales tax payable

 

 

361

 

 

454

Accrued real estate tax

 

 

296

 

 

79

Deferred franchise fees

 

 

 —

 

 

16

Accrued property and equipment purchases

 

 

 6

 

 

 3

 

 

$

4,205

 

$

3,140

 

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Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(9)         Other Liabilities

Other liabilities consisted of the following at:

 

 

 

 

 

 

 

 

    

October 1,

    

January 1,

(in thousands)

    

2017

    

2017

Deferred rent

 

$

6,631

 

$

7,802

Other liabilities

 

 

152

 

 

358

Asset retirement obligations

 

 

119

 

 

119

Accrual for uncertain tax position

 

 

15

 

 

139

Long term lease reserve

 

 

661

 

 

145

Long term deferred compensation

 

 

121

 

 

142

 

 

$

7,699

 

$

8,705

 

 

(10)       Stock-based Compensation

Effective May 5, 2015, the Company adopted the 2015 Equity Plan (the “2015 Plan”), pursuant to which the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other stock and cash awards to eligible participants. The Company also maintains an Amended and Restated 2005 Stock Incentive Plan (the “2005 Plan”). Together, the 2015 Plan and 2005 Plan are referred to herein as the “Plans.” Under the 2015 Plan, an aggregate of 176,000 shares of the Company’s common stock remained unreserved and available for issuance at October 1, 2017. The 2005 Plan prohibits the granting of incentives after May 12, 2015, the tenth anniversary of the date the 2005 Plan was approved by the Company’s shareholders. Nonetheless, the 2005 Plan will remain in effect until all outstanding incentives granted thereunder have either been satisfied or terminated.

The Company recognized stock-based compensation expense in its consolidated statements of operations for the three and nine months ended October 1, 2017 and October 2, 2016, respectively, as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

    

October 1,

    

October 2,

 

October 1,

    

October 2,

 

(in thousands)

 

2017

 

2016

    

2017

    

2016

 

Stock options

 

$

57

 

$

157

 

$

173

 

$

209

 

Restricted stock

 

 

(5)

 

 

15

 

 

10

 

 

45

 

 

 

$

52

 

$

172

 

$

183

 

$

254

 

During the three and nine months ended October 1, 2017, the Company recognized recapture of previously recorded stock-based compensation due to one of the Company’s former directors declining to stand for reelection to the Board in the second quarter of 2017 and one of the Company’s former director’s resignation in the third quarter of 2017. During the nine months ended October 2, 2016, the Company recognized recapture of previously recorded stock-based compensation due to the departure of the Company’s former Chief Financial Officer.

The compensation expense for stock option grants is recognized in general and administrative expense in the Company’s consolidated statements of operations through the applicable service period. Options granted to certain non-officer employees vest in equal annual installments over a period of four years and expire either five or ten years from the grant date. Compensation expense equal to the grant date fair value is generally recognized for these awards over the vesting period.

Options granted to certain non-employees in exchange for future services either vest in monthly installments over a period of approximately two years or are granted monthly and vest immediately, and expire five years from the grant date. Expense equal to the current fair value is recognized over the vesting period, with the value being marked to market in each accounting period for any unvested portions of the awards.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation method with the assumptions noted in the table below. Due to a lack of recent historical share option exercise experience, the Company uses a simplified method for estimating the expected life, as outlined in Accounting Standards Codification 718, calculated using the following formula: (vesting term + original contract term)/2. Expected volatilities are based on the movement of the Company’s common stock price over the most recent historical period equivalent to the expected life of the option. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. maturities over the expected life at the time of grant.

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Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information regarding the Company’s stock options is summarized below:

 

 

 

 

 

 

 

 

 

    

 

    

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Remaining

 

 

Number of 

 

Weighted Average 

 

Contractual

(number of options in thousands)

    

Options

    

Exercise Price

    

Life in Years

Options outstanding at January 1, 2017

 

686

 

$

9.15

 

5.7

Granted

 

55

 

 

4.29

 

 

Exercised

 

 —

 

 

 —

 

 

Forfeited or expired

 

(217)

 

 

13.26

 

 

Options outstanding at October 1, 2017

 

524

 

$

6.94

 

6.0

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

    

October 1, 2017

 

Fiscal 2016

 

Weighted-average fair value of options granted during the period

 

$

2.42

 

$

1.97

 

Expected life (in years)

 

 

6.1

 

 

5.2

 

Expected stock volatility

 

 

54.41

%

 

39.98

%

Risk-free interest rate

 

 

2.0

%

 

1.2

%

 

 

(11)        Asset Impairment and Estimated Lease Termination and Other Closing Costs

In accordance with FASB Accounting Standards Codification Topic 360 for Property, Plant, and Equipment, the Company evaluates 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’s assets 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, discount rate, anticipated sale prices and other factors. If these assumptions change in the future, the Company 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.

The Company maintains lease reserves on locations for which the Company is the primary obligor of a lease agreement but expects to incur losses after the Company ceases to use the location. During the three and nine months ended October 1, 2017, the Company recorded lease reserves and corresponding lease termination charges on Company-owned closed restaurants and franchisee-operated locations, for which the Company was the primary obligor of the lease agreement.

Restaurant Optimization - During fiscal 2016, the Company recorded asset impairment charges associated with certain restaurants which were slow to respond to several initiatives to turnaround operating performance. As a result, the Company determined that the estimated fair value of the assets was less than the carrying amount and recognized impairment charges to reduce the related assets to their estimated fair value. As the Company continues to evaluate its restaurant portfolio, the Company anticipates addressing the ongoing operation of the locations impaired by way of lease restructuring, lease assignment or subsequent closure at the end of their natural lease term. During the nine months ended October 1, 2017, the Company closed twelve restaurants as part of the Restaurant Optimization plan. Pursuant to the restaurant optimization plan, the Company reassessed the estimated useful life of its restaurants slated for closure significantly before the end of the previously estimated useful life. As a result of this reassessment, the Company is depreciating certain of its restaurant assets over a shorter period of time, which resulted in higher depreciation and amortization expense of approximately $754,000 during the nine months ended October 1, 2017.

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Table of Contents

FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of asset impairment, estimated lease termination, and other closing costs for the three and nine months ended October 1, 2017 and October 2, 2016. These costs are included in asset impairment and estimated lease termination and other closing costs in the consolidated statements of operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

Nine Months Ended

(dollars in thousands)

 

October 1, 2017

 

October 2, 2016

    

October 1, 2017

    

October 2, 2016

Restaurant Optimization

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairments, net

 

$

822

 

$

3,420

 

$

3,864

 

$

4,313

Lease termination charges

 

 

1,479

 

 

 —

 

 

3,014

 

 

 —

Restaurant closure expenses

 

 

104