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 April 1, 2012, there were 185 Famous Dave's restaurants operating in 35 states, including 53 company-owned restaurants and 132 franchise-operated restaurants. An additional 67 franchise restaurants were in various stages of development as of April 1, 2012.

Fiscal Year

Our fiscal year ends on the Sunday closest to December 31st. Our fiscal year is generally 52 weeks; however, it periodically consists of 53 weeks. The fiscal years ending December 30, 2012 (fiscal 2012) and January 1, 2012 (fiscal 2011) are both 52 week fiscal years.

Revenue

Our revenue consists of restaurant sales, franchise-related revenue, and licensing and other revenue. Our franchise-related revenue is comprised 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, 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 typically ranges from $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). During fiscal 2012, to incentivize growth, any partner who signs a franchise agreement and opens a "Shack" style counter service restaurant in fiscal 2012 will have their initial franchise fees reduced by 50% for that restaurant. 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 franchisees pay us a monthly royalty of 5% of their net sales.

Costs and Expenses

Restaurant costs and expenses include food and beverage costs, labor and benefits costs, operating expenses which include 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 three to four months of operation. As restaurant management and staff gain experience following a restaurant's opening, labor scheduling, food cost management and operating expense control typically improve to levels similar to those at our more established restaurants.

General and Administrative Expenses

General and administrative expenses include all corporate and administrative functions that provide an infrastructure to support existing operations and support future growth. Salaries, bonuses, team member benefits, legal fees, accounting fees, consulting fees, travel, rent and general insurance are major items in this category. Additionally, we record expense for Managers In Training ("MIT's") in this category for approximately six weeks prior to a restaurant opening. We also provide franchise services for which the revenue is included in other revenue and the expenses are included in general and administrative expenses.

                FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES



The following table presents items in our unaudited consolidated statements of
operations as a percentage of net restaurant sales or total revenue, as
indicated, for the following periods:



                                                                 Three Months Ended
                                                            April 1,            April 3,
                                                              2012                2011
Food and beverage costs(1)                                       31.1 %              29.5 %
Labor and benefits(1)                                            33.2 %              31.9 %
Operating expenses(1)                                            27.3 %              27.7 %
Depreciation & amortization (restaurant level)(1)                 4.0 %               3.8 %
Depreciation & amortization (corporate level)(2)                  0.4 %               0.4 %
General and administrative(2)                                    11.9 %              11.7 %
Asset impairment and estimated lease termination and
other closing costs(1)                                            0.3 %               0.5 %
Pre-opening expenses and net loss on disposal of
equipment(1)                                                      0.1 %                -

Total costs and expenses(2)                                      96.0 %              94.5 %
Income from operations(2)                                         4.0 %               5.5 %

(1) As a percentage of restaurant sales, net

(2) As a percentage of total revenue

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying unaudited consolidated financial statements and notes, and the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2012.

Results of Operations - Three months ended April 1, 2012 compared to Three months ended April 3, 2011.

Total Revenue

Total revenue of approximately $37.5 million for the first quarter of fiscal 2012 increased approximately $403,000, or 1.1%, from total revenue of $37.1 million in the comparable quarter in fiscal 2011.

Restaurant Sales, net

Restaurant sales for the first quarter of fiscal 2012 were approximately $32.7 million, essentially flat to the same period in fiscal 2011, reflecting a comparable sales decrease of 1.6% and the closure of the Tulsa, Oklahoma restaurant. This was essentially offset by the addition of two new-company owned restaurants since the first quarter of 2011, in Falls Church, Virginia and Eden Prairie, Minnesota, and a weighted average price increase of approximately 3.1%. On a weighted basis, dine-in and To-Go represented 1.5% and 0.3% of the comparable sales decrease of 1.6%, respectively. This decline was partially offset by a 0.2% increase in catering sales. For the first quarter of fiscal 2012, off-premise sales were 28.3% of total sales, with To-Go representing 23.1% and catering representing 5.2%. This compares to off-premise sales of 27.6% for the prior year's first quarter. Finally, as a percentage of dine-in sales, our adult beverage sales at our company-owned restaurants were approximately 9.7% and 9.5% for the first quarter of fiscal 2012 and 2011, respectively.

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 was approximately $4.5 million for the first quarter of fiscal 2012, compared to $4.1 million for the first quarter of 2011. The year over year increase is the result of an increase in franchise royalties and essentially flat comparable sales. The increase in franchise royalties reflect the addition of a net two restaurants, as six new franchise restaurants opened since the first quarter of fiscal 2011 at higher sales volumes than the four restaurants that closed.

Licensing and Other Revenue

Licensing revenue includes royalties from a retail line of business, including sauces, rubs, marinades and seasonings. Other revenue includes opening assistance and training we provide to our franchise partners. For the first quarter of fiscal 2012, the licensing royalty revenue was approximately $161,000 compared to approximately $174,000 for the comparable period of fiscal 2011. For the remainder of fiscal 2012, we still expect licensing revenues to increase over the prior year based on expanded markets and growth in our restaurant base.

Other revenue for the fiscal 2012 first quarter was approximately $88,000 compared to $106,000 for the comparable prior year quarter due to the timing of franchise openings. For the remainder of 2012, we still expect other revenue to increase over fiscal 2011 based on an increased number of planned franchise restaurant openings in the current fiscal year.

Same Store Net Sales

It is our policy to include in our same store net sales base, restaurants that are open year round and have been open at least 24 months. Same store net sales for company-owned restaurants for the first quarter of fiscal 2012 decreased 1.6%, compared to fiscal 2011's first quarter increase of 3.0%. At the end of the first quarter of fiscal 2012 and the first quarter of fiscal 2011, there were 50 and 44 restaurants, respectively, included in this base.

Same store net sales for franchise-operated restaurants for the first quarter of fiscal 2012 decreased 0.1%, compared to flat sales for the prior year comparable period. For the first quarter of 2012 and the first quarter of 2011, there were 112 and 103 restaurants, respectively, included in the franchise-operated comparable sales base.

Average Weekly Net Sales and Operating Weeks

The following table shows company-owned and franchise-operated average weekly net sales and company-owned and franchise-operated operating weeks for the first quarter of fiscal 2012 and fiscal 2011:

                FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES





                                                   Three Months Ended
                                                 April 1,      April 3,
                                                   2012          2011
              Average Weekly Net Sales (AWS):
              Company-Owned                     $   46,898     $  48,433
              Full-Service                      $   48,761     $  50,055
              Counter-Service                   $   32,110     $  33,183

              Franchise-Operated                $   53,350     $  52,738

              AWS 2005 and Post 2005:
              Company-Owned                     $   49,566     $  53,045
              Franchise-Operated                $   56,358     $  55,832
              AWS Pre-2005:(1)
              Company-Owned                     $   45,041     $  45,551
              Franchise-Operated                $   47,204     $  46,668
              Operating Weeks:
              Company-Owned                            697           676
              Franchise-Operated                     1,695         1,641

(1) Provides further delineation of AWS for restaurants opened during the pre-fiscal 2005, and restaurants opened during the post-fiscal 2005, timeframes.

Food and Beverage Costs

Food and beverage costs for the first quarter of fiscal 2012 were approximately $10.2 million or 31.1% of net restaurant sales, compared to approximately $9.7 million or 29.5% of net restaurant sales for the first quarter of fiscal 2011. This increase was primarily due to higher than anticipated commodity cost increases and the first quarter redemptions associated with the bounce back offers from the 2011 fourth quarter stimulus program that carried a higher level of discounting.

Recently, we have seen higher than previously anticipated price increases with our chicken, brisket and a couple of our other key commodities. Our pork contract was locked in for all of fiscal 2012 back in fiscal 2011 at an approximate 20.5% increase, year over year, and this level of contract pricing continues to be favorable to current market levels. Should we see pork prices soften, we will aggressively pursue a strategy of blending and extending our pork contracts later in fiscal 2012 into fiscal 2013. Our major chicken contracts are firm through June of 2012; however, we are seeing increased chicken costs primarily associated with chicken wing prices. To control and minimize poultry costs, we continue to seek opportunities to optimize the way we source, ship, and purchase these products. With this strategic management of our chicken products, we now anticipate a price decrease of approximately 2.7% from fiscal 2011's pricing. We are updating our guidance as it relates to our brisket contract which now extends through October of 2012 at a net cost increase of 11.7% from fiscal 2011's pricing. This increase was due to a delay in the seasonal decline of brisket prices. Like pork, this is a significant cost increase; however if we see the markets soften we will aggressively pursue a strategy of blending and extending our brisket contract. Lastly, we are updating our previous guidance due to cost increases for key items like hamburger and cooking oil. We now anticipate an approximate 6.5% year over year net decrease for the remainder of our contracts. Our key items include seafood, sauces, seasonings and produce as well as side items such as, corn, beans, apples and corn muffin mix.

With rising commodity prices and no anticipated relief in the foreseeable future, we continue to develop initiatives to mitigate these price increases. In February, we revised our menu and took a price increase on selected menu items equal to approximately 1.5%, however, we are very sensitive to taking additional price increases and the negative impact it can have on guest traffic. Later in fiscal 2012, we will cautiously and prudently determine whether or not we will take an additional price increase. Also, as part of this menu roll out, we analyzed our side items and adjusted the portion sizes of certain side items and in some case removed less popular side items. Finally, we will continue our efforts to strategically optimize our distribution networks and reduce freight costs, as well as manage limited time offerings and their potential to positively impact menu mix and margin.

We are updating our previous guidance, and due to first quarter results, as well as higher than anticipated commodity cost increases, we now anticipate food and beverage costs, as a percentage of net sales to be approximately 10 to 15 basis points higher than the prior year.

Labor and Benefits Costs

Labor and benefits costs for the three months ended April 1, 2012 were approximately $10.9 million or 33.2% of net restaurant sales, compared to approximately $10.4 million or 31.9% of net restaurant sales for the three months ended April 3, 2011. This increase was primarily due to a loss of sales leverage resulting from the decline in comparable restaurant sales attributable to the higher level of discounts previously mentioned, higher than anticipated workers compensation premiums and medical claims and, to a lesser degree, operating inefficiencies from a company-owned restaurant that opened late in 2011. These increases were partially offset by operating below our full manager matrix.

For 2012, we are updating our previous guidance and now expect labor and benefits costs as a percentage of sales, to be 35 to 40 basis points unfavorable to fiscal 2011's percentage. This is primarily due to first quarter's results, including the previously mentioned loss of sales leverage and higher than anticipated medical claims and workers compensation premiums.

Operating Expenses

Operating expenses for the first quarter of fiscal 2012 were approximately $8.9 million or 27.3% of net restaurant sales, compared to operating expenses of approximately $9.1 million or 27.7% of net restaurant sales for the first quarter of fiscal 2011. This year over year decrease was primarily related to a shift in the timing of advertising spend, lower credit card fees, and lower utility and repairs and maintenance costs, largely affected by the warmer weather. These decreases were partially offset by a loss of sale leverage due to a decline in comparable restaurant sales.

On an annual basis we are still anticipating that advertising expense will be approximately 3.0% of net sales for 2012 including a 1.0% contribution to the Marketing Fund. We are updating our previous guidance and are now projecting operating expenses as a percentage of net sales for fiscal 2012 to be approximately 70 - 75 basis points lower than 2011's percentage. This decline reflects first quarter's results as well as the expectation for continued decreases in utility expenses, credit card fees, and advertising expense year over year.

Depreciation and Amortization

Depreciation and amortization expense for the first quarter of 2012 was approximately $1.5 million or 3.9% of total revenue compared to $1.4 million, or 3.7% of total revenue for the first quarter of fiscal 2011.

Pre-opening Expenses

Pre-opening expenses consist of labor, food, utilities, training and rent costs incurred prior to the opening of a restaurant. Included in pre-opening costs is pre-opening rent for approximately 16 weeks prior to opening but this will vary based on lease terms. Fiscal 2012's first quarter had $18,000 of pre-opening expenses, whereas the first quarter of fiscal 2011 did not contain any pre-opening expenses. Since we have not identified a third company-owned location yet for 2012, we are updating our previous guidance and now anticipate pre-opening costs for 2012 to be approximately $418,000 for the opening of two company-owned restaurants.

Asset Impairment and Estimated Lease Termination and Other Closing Costs

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 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 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. Below is a summary of these events and situations during the first quarter of fiscal 2012 and fiscal 2011.

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

                                                          Three Months Ended
      Restaurants      Reason                               April  1, 2012
      Tulsa, OK        Costs for a closed restaurant(1)   $                92

      Total for 2012                                      $                92

(1) The Company incurred various costs for the closure of the Tulsa, OK restaurant.

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

                                                           Three Months Ended
     Restaurants        Reason                               April 3, 2011
     Palatine, IL       Costs for closed restaurants(1)   $                 23
     Gaithersburg, MD   Asset Impairment(2)                                148

     Total for 2011                                       $                171

(1) The Company incurred various costs for a previously closed restaurant.

(2) Based on the Company's assessment of expected cash flows, an asset impairment charge was recorded for this restaurant which we expect to relocate within its existing market in early 2013.

As part of our continued relocation strategy for legacy restaurants, on April 29, 2012 we closed a company-owned restaurant in Vernon Hills, Illinois, near the end of its lease term. As a result of this closure, the Company anticipates incurring approximately $163,000 of closure and lease termination costs in its second quarter results.

General and Administrative Expenses

General and administrative expenses for the first quarter of 2012 were approximately $4.5 million or 11.9% of total revenue, compared to approximately $4.3 million or 11.7% of total revenue for the first quarter of fiscal 2011. This increase was primarily due to higher stock-based compensation and board of director cash compensation as well as a loss of sales leverage due to a decline in comparable restaurant sales. Additionally, the first quarter of fiscal 2011 reflected the recapture of approximately $47,000 of bad debt expense related to accounts receivable that had been recovered. General and administrative expenses as a percent of total revenue, excluding stock-based compensation and board of directors' cash compensation were 10.7% for the first quarter of 2012 and 10.5% for the first quarter of 2011.

For the first quarter, stock-based compensation and board of director cash compensation expense was approximately $472,000 compared with $422,000 in the first quarter of fiscal 2011. This year over year increase was primarily due to the vesting and payout of a performance share program granted at a lower stock price three years ago being replaced by a new performance share program at the Company's more recent and higher stock price. We still anticipate stock-based compensation and board of director cash compensation to be approximately $1.9 million for fiscal 2012, as follows (in thousands):

                                                Board of Directors'
            Performance       Restricted         Shares-Based and
              Shares         Stock  Units        Cash Compensation        Total
           $       1,254     $         136     $                 502     $ 1,892

The growth of our system is essential to the future success of our brand. As such, we will prudently invest in our organization to support this growth, however, will continue to watch our expenses and look for areas to reduce costs where we can. We are updating our previous guidance, and now expect general and administrative expenses as a percentage of revenue, to be approximately 75-80 basis points unfavorable to 2011's percentage, reflecting the first quarter's results, as well as a higher stock-based and board of director cash compensation, and a year over year increase in the corporate bonus accrual.

Interest Expense

Interest expense was approximately $264,000 or 0.7% of total revenue for the first quarter of fiscal 2012, compared to approximately $279,000 or 0.8% of total revenue for the comparable time frame of fiscal 2011. Interest expense for the first quarter of fiscal 2012 was favorable in both dollars and as a percentage of revenue compared to the prior year. For full fiscal 2012, we still expect interest expense to be essentially flat, as a percentage of revenue, to fiscal 2011.

Interest Income

Interest income was approximately $2,000 and $6,000 for the first quarter of fiscal 2012 and fiscal 2011, respectively. Interest income reflects interest earned on short-term cash and cash equivalent balances and on outstanding notes and accounts receivable balances.

Provision for Income Taxes

For the first quarter of 2012, we recorded an estimated provision for income taxes of approximately $422,000 or 34.0% of income before income taxes, compared to a tax provision of approximately $608,000 million or 34.0% of income before income taxes, for the first quarter of 2011. We still expect an estimated tax rate of 34.0% effective tax rate for fiscal 2012.

Basic and Diluted Net Income Per Common Share

Net income for the three months ended April 1, 2012 was approximately $817,000 or $0.11 per basic and per diluted share on approximately 7,636,000 weighted average basic shares outstanding and 7,747,000 weighted average diluted shares outstanding, respectively. Net income for the three months ended April 3, 2011 was approximately $1.2 million or $0.15 per basic and $0.14 per diluted share on approximately 8,118,000 weighted average basic shares outstanding and 8,302,000 weighted average diluted shares outstanding, respectively.

Financial Condition, Liquidity and Capital Resources

Our balance of unrestricted cash and cash equivalents was approximately $1.7 million at April 1, 2012 and approximately $1.1 million at January 1, 2012.

Our current ratio, which measures our immediate short-term liquidity, was 1.02 at April 1, 2012 and 0.83 at January 1, 2012. The current ratio is computed by dividing total current assets by total current liabilities. The change in our ratio was primarily due to increases in our cash and cash equivalents balance, as well as our prepaid expenses relating to our payments for insurance premiums and estimated income tax payments made during the quarter. Additionally, this increase was due to a reduction in our accrued compensation and benefits due to the bonus payout in March of 2012. As is true with most restaurant companies, we often operate in a negative working capital environment due to the fact that we . . .