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 July 1, 2012, there were 187 Famous Dave's restaurants operating in 35 states, including 53 company-owned restaurants and 134 franchise-operated restaurants. An additional 67 franchise restaurants were in various stages of development as of July 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.

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                  Six Months Ended
                                              July 1,           July 3,         July 1,           July 3,
                                               2012              2011             2012             2011
Food and beverage costs (1)                       31.0 %            29.1 %          31.0 %            29.3 %
Labor and benefits costs (1)                      31.2 %            30.5 %          32.2 %            31.1 %
Operating expenses (1)                            27.3 %            27.3 %          27.3 %            27.5 %
Depreciation & amortization (restaurant
level) (1)                                         3.6 %             3.4 %           3.8 %             3.6 %
Depreciation & amortization (corporate
level) (2)                                         0.4 %             0.3 %           0.4 %             0.3 %
General and administrative expenses (2)            8.9 %            10.2 %          10.3 %            10.9 %
Asset impairment and estimated lease
termination and other closing costs (1)            0.5 %              -              0.4 %             0.3 %
Pre-opening expenses and net loss on
disposal of equipment (1)                          0.8 %             0.1 %           0.5 %             0.1 %

Total costs and expenses (2)                      92.3 %            90.5 %          94.1 %            92.4 %
Income from operations (2)                         7.7 %             9.5 %           5.9 %             7.6 %

(1) As a percentage of restaurant sales, net

(2) As a percentage of total revenue

(3) Data regarding our restaurant operations as presented in the table, includes sales, costs and expenses associated with our Rib Team, which recorded a net loss of $16,000 and $23,000 for the three months ended July 1, 2012 and July 3, 2011, respectively. The Rib Team recorded a net loss of $24,000 and $30,000 for the six months ended July 1, 2012 and July 3, 2011, respectively. Our Rib Team travels around the country introducing people to our brand of barbeque, and building brand awareness.

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 Form 10-K for the fiscal year ended January 1, 2012.

Results of Operations - Three and Six months ended July 1, 2012 compared to Three and Six months ended July 3, 2011.

Total Revenue

Total revenue for the second quarter of fiscal 2012 was approximately $41.3 million, essentially flat to the comparable quarter in fiscal 2011. For the six months ended July 1, 2012, total revenue of approximately $78.8 million increased approximately $432,000 or 0.6% over revenue of approximately $78.4 million, for the six months ended July 3, 2011.

Restaurant Sales, net

Restaurant sales were approximately $36.3 million for the second quarter of fiscal 2012 compared to approximately $36.5 million for the same period in fiscal 2011, reflecting a 0.4% decrease. As a percentage of dine-in sales, our adult beverage sales at our company-owned restaurants were 9.1% and 8.9% for the second quarter of fiscal 2012 and 2011, respectively.

Second quarter company-owned restaurant sales were unfavorable to the prior year, reflecting a comparable sales decrease of 0.6% and the closure of the Vernon Hills, Illinois and Tulsa, Oklahoma restaurants. This decrease was partially offset by the addition of three new company-owned restaurants since the second quarter of 2011, in Falls Church, Virginia, Eden Prairie, Minnesota and Gainesville, Virginia and a weighted average price increase of approximately 3.6%. On a weighted basis, dine-in represented 1.5% of the decline and was partially offset by a 0.4% and 0.5% increase in To-Go and catering sales, respectively. For the second quarter of fiscal 2012, off-premise sales were 34.0% of total sales, with To-Go representing 22.6% and catering representing 11.4%. This compares to the prior year's second quarter in which off-premise sales were 32.5% of total sales and To-Go and catering represented 21.6% and 10.9% of total sales, respectively.

Restaurant sales for the six months ended July 1, 2012 were approximately $69.0 million compared to approximately $69.2 million for the six months ended July 3, 2011, reflecting a 0.3% decrease. As a percentage of dine-in sales, our adult beverage sales at our company-owned restaurants were 9.4% and 9.2% for the first six months of fiscal 2012 and 2011, respectively.

For the first six months of fiscal 2012, company-owned restaurant sales were unfavorable to the prior year, reflecting a comparable sales decrease of 1.0% and the closure of the Vernon Hills, Illinois and Tulsa, Oklahoma restaurants. This decrease was partially offset by the addition of three new company-owned restaurants since the second quarter of 2011, in Falls Church, Virginia, Eden Prairie, Minnesota and Gainesville, Virginia and a weighted average price increase of approximately 3.4%. On a weighted basis, dine-in represented 1.5% of the decline and was partially offset by a 0.1% and 0.4% increase in To-Go and catering sales, respectively. For the first six months of fiscal 2012, off-premise sales were 31.3% of total sales, with To-Go representing 22.8% and catering representing 8.5%. This compares to the prior year's six months ended July 3, 2011 in which off-premise sales were 30.2% of total sales and To-Go and catering represented 22.1% and 8.1% of total sales, 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 $4.7 million for the second quarter of fiscal 2012, compared to $4.5 million for the second quarter of fiscal 2011. The year over year increase in franchise royalties reflects a net increase of five franchise restaurants partially offset by a 1.8% decline in comparable sales. There were 134 franchise-operated restaurants open at July 1, 2012 compared to 129 franchise-operated restaurants open at July 3, 2011.

Franchise-related revenue was approximately $9.2 million for the six months ended July 1, 2012 compared to approximately $8.6 million for the six months ended July 3, 2011, primarily reflecting a year-over-year increase in royalty revenue of 7.1% for the six month timeframe partially offset by a 1.0% comparable sales decline.

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 second quarter of fiscal 2012, the licensing royalty revenue was approximately $238,000 compared to approximately $249,000 for the comparable period of fiscal 2011. Licensing royalty revenue was approximately $399,000 for the six months ended July 1, 2012 as compared to $423,000 for the comparable period of fiscal 2011.

Other revenue for the fiscal 2012 second quarter was approximately $36,000 compared to $25,000 for the comparable prior year quarter. Other revenue for the six months ended July 1, 2012 was approximately $124,000 compared to approximately $131,000 for the comparable period of fiscal 2011.

Same Store Net Sales

It is our policy to include in our same store net sales base, restaurants that are open year round and have been open at least 24 months. Same store net sales for company-owned restaurants for the second quarter of fiscal 2012 decreased 0.6%, compared to fiscal 2011's second quarter decrease of 1.2%. At the end of the second quarter of fiscal 2012 and the second quarter of fiscal 2011, there were 49 and 51 restaurants, respectively, included in the company-owned comparable sales base.

Same store net sales for company-owned restaurants open at least 24 months for the six months ended July 1, 2012 decreased 1.0%, compared to fiscal 2011's six months ended July 3, 2011 increase of 0.9%. For the six months ended July 1, 2012 and July 3, 2011, there were 49 and 44 restaurants, respectively, included in the company-owned comparable sales base.

Same store net sales for franchise-operated restaurants for the second quarter of fiscal 2012 decreased 1.8%, compared to a decrease of 1.6% for the prior year comparable period. For the second quarter of 2012 and the second quarter of 2011, there were 113 and 107 restaurants, respectively, included in the franchise-operated comparable sales base.

Same store net sales on a 24 month basis for franchise-operated restaurants for the first six months of fiscal 2012 and fiscal 2011 decreased 1.0% and 0.6%, respectively. For the first six months of fiscal 2012 and fiscal 2011, there were 112 and 102 restaurants, respectively, included in the franchise-operated 24 month 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 second quarter of fiscal 2012 and fiscal 2011:

                FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES





                                         Three Months Ended          Six Months Ended
                                        July 1,       July 3,      July 1,      July 3,
                                          2012          2011         2012         2011
     Average Weekly Net Sales (AWS):
     Company-Owned                     $   53,331     $ 53,951     $ 50,070     $ 51,192
     Full-Service                      $   55,334     $ 55,558     $ 51,996     $ 52,807
     Counter-Service                   $   37,928     $ 38,846     $ 35,019     $ 36,014

     Franchise-Operated                $   56,394     $ 56,473     $ 54,883     $ 54,636

     AWS 2005 and Post 2005: (1)
     Company-Owned                     $   55,929     $ 59,106     $ 52,759     $ 56,075
     Franchise-Operated                $   59,476     $ 59,752     $ 57,935     $ 57,831
     AWS Pre-2005: (1)
     Company-Owned                     $   51,413     $ 50,730     $ 48,144     $ 48,140
     Franchise-Operated                $   49,913     $ 50,077     $ 48,555     $ 48,385
     Operating Weeks:
     Company-Owned                            678          676        1,375        1,352
     Franchise-Operated                     1,719        1,670        3,414        3,311

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

Food and Beverage Costs

Food and beverage costs for the second quarter of fiscal 2012 were approximately $11.3 million or 31.0% of net restaurant sales, compared to approximately $10.6 million or 29.1% of net restaurant sales for the second quarter of fiscal 2011. We continued to face pressure on our margins due to elevated commodity costs, in addition to a delay in anticipated savings from certain strategic initiatives. We have strategically slowed the progress of some initiatives to ensure their long-term success, both in terms of dollar savings, as well as delivering a value proposition to our guest. Additionally, we saw a shift in our menu mix toward lower priced-lower margin items as guests continued to look for ways to maximize value in this difficult economic environment. Food inflation is expected to be approximately 6.0% year over year, primarily due to increased pork, chicken, and brisket prices, with partial offset from a net decline in pricing for our other key items, such as hamburger, sauces and seasonings. To combat the effects of food inflation, the Company has developed some strategic initiatives which are discussed in the following paragraphs.

Food and beverage costs for the first six months of fiscal 2012 were approximately $21.4 million or 31.0% of net restaurant sales compared to approximately $20.3 million or 29.3% of net restaurant sales for the comparable period of fiscal 2011.

In 2011, our pork contract was locked in for all of 2012 at an expected increase of 20%. At this time, we do not expect to see forward looking pork prices at a level where it would be advantageous for us to blend and extend our pork contracts into fiscal 2013. Our major chicken contracts are firm through September of 2012; however, the feed component of these contracts, which is comprised of soy meal and corn, is firm through the rest of 2012. As is true with most of the industry, we have seen increased chicken costs primarily associated with chicken wing prices. We now anticipate an annual price increase of approximately 5.2% over fiscal 2011's pricing. These cost increases reflect the partial offset of savings from optimizing the way we source, ship, and

purchase our poultry products. While our brisket product is locked in through March 2013, we are transitioning to a new preparation process for this product in the restaurants, which will allow us to realize a net cost savings. Previously, we anticipated a net cost increase of 11.7% for brisket, however with this new process, we are updating our previous guidance and now anticipate a net cost increase of 8.5% over fiscal 2011's pricing. Lastly, we now anticipate an approximate 4.2% year over year net decrease for our other key items. This anticipated savings is lower than our previous guidance due to rising corn costs. Our other key items include hamburger, seafood, sauces, seasonings and produce as well as side items such as, beans, apples and corn muffin mix.

In September we plan to take a price increase of 1.0% on selected menu items, which will result in a 2.9% weighted average price increase for all of fiscal 2012. We continue to evaluate our portion sizes and the production methods of our menu items to find ways to increase product yield. Additionally, we continue to optimize our distribution networks to reduce freight costs, as well as manage limited time offerings and their potential to positively impact menu mix and margin.

Based on the results from the first six months of 2012, we are updating our previous guidance, and now anticipate food and beverage costs for all of fiscal 2012, as a percentage of net sales, to be approximately 90 to 95 basis points higher than the prior year.

Labor and Benefits Costs

Labor and benefits costs for the second quarter ended July 1, 2012 were approximately $11.3 million or 31.2% of net restaurant sales, compared to approximately $11.1 million or 30.5% of net restaurant sales for the three months ended July 3, 2011. For the second quarter of fiscal 2012, this year over year increase was primarily due to sales deleverage, as well as higher than anticipated medical claims. Labor and benefits for the six months ended July 1, 2012 were approximately $22.2 million or 32.2% of net restaurant sales, compared to approximately $21.6 million or 31.1% of net restaurant sales for the six months ended July 3, 2011.

Based on the results from the first six months of the year, we are updating our previous guidance, and now anticipate labor and benefits costs for fiscal 2012, as a percentage of sales, to be approximately 40 to 45 basis points unfavorable to fiscal 2011's percentage.

Operating Expenses

Operating expenses for the second quarter of fiscal 2012 were approximately $9.9 million or 27.3% of net restaurant sales, compared to operating expenses of approximately $10.0 million or 27.3% of net restaurant sales for the second quarter of fiscal 2011. Operating expenses as a percentage of net restaurant sales, were flat to the prior year as a result of lower advertising spend, utility costs and credit card fees. These savings were offset by higher occupancy and other restaurant operating costs, as well as a loss of sales leverage. Operating expenses for the six months ended July 1, 2012 were approximately $18.9 million or 27.3% of net restaurant sales, compared to approximately $19.0 million or 27.5% of net restaurant sales for the six months ended July 3, 2011.

We still anticipate, on an annual basis, advertising expense will be approximately 3.0% of net sales for 2012 including a 1.0% contribution to the Marketing Fund. We are projecting operating expenses, as a percentage of net sales, for fiscal 2012 to be approximately 55 - 60 basis points lower than 2011's percentage. This decline from our previous guidance reflects the results from the first six months of fiscal 2012 as well as the expectation for continued, but more moderate decreases, in utility expenses, and continued reduction in credit card fees year over year.

Depreciation and Amortization

Depreciation and amortization expense for the second quarter of 2012 was approximately $1.5 million or 3.6% of total revenue compared to $1.4 million or 3.3% for the second quarter of fiscal 2011. Depreciation and amortization expense for the six months ended July 1, 2012 and July 3, 2011 was approximately $2.9 million and $2.8 million, respectively, and was 3.7% and 3.5%, respectively, of total revenue.

Pre-opening Expenses

Pre-opening expenses consist of labor, food, utilities, training and rent costs incurred prior to the opening of a restaurant. Included in pre-opening costs is pre-opening rent for approximately 16 weeks prior to opening but this will vary based on lease terms. During the second quarter of 2012, we incurred approximately $280,000 of pre-opening expenses for the recently opened company-owned location in Gainesville, Virginia. During the second quarter of 2011, we incurred approximately $45,000 of pre-opening expenses, which included pre-opening rent. During the six months ended July 1, 2012 and July 3, 2011, we incurred pre-opening expenses of $298,000 and $45,000, respectively. For fiscal 2012, we anticipate pre-opening costs for 2012 to be approximately $498,000 for the opening of two company-owned restaurants including pre-opening rent of $95,000.

Asset Impairment and Estimated Lease Termination and Other Closing Costs

In accordance with FASB Accounting Standards Codification for Property, Plant, and Equipment, we evaluate restaurant sites and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and used is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows expected to be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the amount by which the carrying amount of the restaurants' 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. The following is a summary of these events during the second quarter of fiscal 2012 and fiscal 2011.

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

                                                                    Three Months Ended           Six Months Ended
Restaurants                 Reason                                     July 1, 2012                July 1, 2012
Vernon Hills, IL            Lease reserve(1)                       $                 77          $              77
Various                     Costs for closed restaurants(2)                         106                        198

Total for 2012                                                     $                183          $             275

(1) The lease reserve equals the net present value of the remaining lease obligations for the Vernon Hills, IL restaurant, net of expected sublease income, which is equal to zero.

(2) The Company incurred various costs for the closure of the Vernon Hills, IL and Tulsa, OK restaurants.

                FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES



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



                                                                     Three Months Ended            Six Months Ended
Restaurants                  Reason                                     July 3, 2011                 July 3, 2011
Palatine, IL                 Costs for closed restaurants(1)         $                15           $              38
Gaithersburg, MD             Asset Impairment(2)                                      -                          148

Total for 2011                                                       $                15           $             186

(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.

General and Administrative Expenses

General and administrative expenses for the second quarter of 2012 were approximately $3.7 million or 8.9% of total revenue, compared to approximately $4.2 million or 10.2% of total revenue for the second quarter of fiscal 2011. This decrease was primarily due to the recapture of six months of our corporate . . .