BBQ HOLDINGS, INC. - Annual Report: 2012 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 30, 2012

Commission File No. 0-21625

FAMOUS DAVE’S of AMERICA, INC.

(Exact name of registrant as specified in its charter)

12701 Whitewater Drive, Suite 200

Minnetonka, MN 55343

(Address of principal executive offices) (Zip code)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-seasoned issuer, as defined in Rule 405 of the Securities Act Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

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 þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K þ

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

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

The aggregate market value of common stock held by non-affiliates of the registrant was approximately $74.9 million as of June 29, 2012 (the last business day of the registrant’s most recently completed second quarter), assuming solely for the purpose of this calculation that all directors, officers, and more than 10% shareholders of the registrant are affiliates. The determination of affiliate status for this purpose is not necessarily conclusive for any other purpose.

As of March 11, 2013, 7,522,899 shares of the registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive Proxy Statement for our 2013 Annual Meeting of Shareholders which is to be filed within 120 days after the end of the fiscal year ended December 30, 2012, are incorporated by reference into Part III of this Form 10-K, to the extent described in Part III.

TABLE OF CONTENTS

2

PART I

Summary of Business Results and Plans

Famous Dave’s of America, Inc. (“Famous Dave’s”, the “Company” or “we”) was incorporated as a Minnesota corporation in March 1994 and opened its first restaurant in Minneapolis, Minnesota in June 1995. As of December 30, 2012, there were 188 Famous Dave’s restaurants operating in 34 states and 1 Canadian province, including 53 company-owned restaurants and 135 franchise-operated restaurants. An additional 62 franchise restaurants were committed to be developed through signed area development agreements at December 30, 2012.

In fiscal 2012, total revenue was $155.0 million, a slight increase from $154.8 million in fiscal 2011. This increase was primarily related to a year over year increase in franchise-related revenue partially offset by a decline in restaurant sales. The Company realized a comparable sales decrease for company-owned restaurants of 1.8% compared to a comparable sales increase of 1.5% for fiscal 2011. The franchise-operated restaurants saw a decline in their comparable sales of 2.0%, compared to 2011’s comparable sales, which were flat. During 2012, the Company opened two new company-owned restaurants, including one which was a “Current Shack” style counter-service restaurant and ten new franchise-operated restaurants, including our first international location in Winnipeg Manitoba as well as a “Current Shack” style counter-service restaurant in Beaverton, Oregon.

Fiscal 2012 earnings per diluted share were $0.57, including $0.04 of closure costs and a lease reserve for restaurants that closed in 2012. Additionally, there was a $0.07 favorable impact to earnings per share which reflected the cumulative impact from a favorable tax rate adjustment for employment tax credits, for four open tax years. This compared to earnings per diluted share of $0.68 in fiscal 2011, which included approximately $0.05 non-cash impairment charges for specific restaurant assets.

Fiscal 2012 earnings per diluted share declined year over year due to several factors; first, we entered 2012 on the heels of an industry-leading finish for the fourth quarter of 2011, a sales performance that resulted in a 3.6% comparable sales increase for our company-owned restaurants. These sales, however, were driven primarily through heavy coupon discounting that diminished profits. In 2012, we proactively pulled back on the level of consumer focused discounting in the fourth quarter in order to preserve our pricing integrity and gross margin. Famous Dave’s is not a broad-scale discount driven brand; we don’t have the media muscle or the frequency for that strategy to be effective. Consumers want great value and we believe that there are many other ways to promote value than the broad distribution of big discounts. As such, in 2013 we will continue to shift our focus to alternative consumer value propositions and away from these big discounts.

Additionally, in 2012 our gross margins were negatively impacted by a difficult commodity environment. Anticipating some of these challenges, at the beginning of 2012, we locked in some of our major protein contracts. Nevertheless, the rising commodity prices still took an undue toll on us. An example of this was pork. Despite the fact that we were able to secure product at a price that proved favorable throughout the entire year in comparison to the market, our cost was still over 20% higher than 2011’s pork costs that was secured during more favorable market conditions. Our margins were also negatively impacted by decisions, made mid-year, to delay a number of strategic initiatives for further testing. For example, we delayed the roll out of our fresh, house-smoked brisket, which had cost savings attached to it for 2012, in order to ensure quality and consistency. This delay negatively impacted gross margin in 2012 but it allowed us to further develop the product, including the creation of Famous Dave’s Burnt Ends, which will be featured in a national promotion in April 2013. Burnt Ends will allow us to use all of the parts of the brisket; it will improve yield, and thus the margin contribution for this product, and it will deliver product news to the market. Additionally, the decline in our margins year over year reflected sales deleverage on fixed cost categories such as manager labor and rent.

In 2013, the Company has the following key areas of focus and believes that if we do all successfully, we will generate shareholder value and create a long-term sustainable brand.

3

Sales and Profitability Growth

Late in 2012, the Company reorganized the marketing function to connect with consumers on their terms, whether it is a dine-in, To Go, catering or retail sales occasion. We expect this realignment strategy will create more sales opportunities through immediate relevancy with our guest. Also, it requires a strong operational, technological and financial orientation. Additionally, as part of the realignment the Company invested in a new function for the organization, the Digital Services Group that is specifically tasked with driving sales and traffic growth through the use of proven digital solutions, such as on-line ordering, and To Go and catering call centers. With approximately 33.4% of our sales in 2012 coming from To Go and Catering, Famous Dave’s has an additional opportunity to gather customer information, which this new function should be able to help leverage and provide possible opportunities for growth.

Also, the Company has engaged a pricing strategy consultancy, RMS, that will help us optimize our pricing strategies and aid the Company in optimizing the menu. The culmination of this work will be the launch of our new menu in April 2013. The Company also plans on taking advantage of both opportunistic purchasing strategies and the Company’s agility in our 2013 commodity contracting.

System Growth

We expect to open approximately 12 to 14 new restaurants in fiscal 2013, including two company-owned ground-up full-service restaurants and 10 to 12 franchise-operated restaurants, including a restaurant in Puerto Rico. We are updating our estimate due to delays in lease executions and permitting as well as complexities associated with international growth. We will also continue to invest in our existing base of restaurants and plan on a significant remodeling project that will combine both an exterior and interior focus at a restaurant in the Midwest. Finally, we will continue to pursue the expansion of our geographical footprint by entering into new area development and franchise agreements, with both new and existing partners.

Enhancing core systems, processes and infrastructure

As part of this initiative, we will continue the implementation of systems that will support our sales building efforts, such as infrastructure for the Digital Services group, as well as upgraded systems around business analytics that will support the sales building efforts and system-wide growth. Additionally, the Company will continue its Guest feedback initiatives and an e-learning pilot for our company-owned and franchise-operated restaurants. We will also continue to enhance other core systems, such as our Human Resource Information System (HRIS), financial systems, and labor scheduling tool. These infrastructure systems will help increase efficiency and will allow our team to focus their efforts on better serving our guests.

Financial Information about Segments

Since our inception, our revenue, operating income and assets have been attributable to the single industry segment of the foodservice industry. Our revenue and operating income for each of the last three fiscal years, and our assets for each of the last two fiscal years, are set forth elsewhere in this Form 10-K under Item 8, Financial Statements and Supplementary Data.

Narrative Description of Business

Famous Dave’s restaurants, a majority of which offer full table service, feature hickory-smoked off-the-grill entrée favorites. We seek to differentiate ourselves by providing high-quality food in distinctive and comfortable environments with signature décor and signage. As of December 30, 2012, 46 of our company-owned restaurants were full-service and 7 were counter-service. Generally, our prototypical design includes the following elements: a designated bar, a signature exterior smokestack, a separate entrance for our category-leading To Go business and a patio (where available). This design enables us to capitalize on a consistent trade-dress and readily identifiable look and feel for our future locations. We have 6,000 and 5,000 square foot packages that can be built as a free standing building, a 4,000 square foot model that most likely would be constructed as an end cap of a building, and a new 3,000 square foot design which would be constructed as a counter-service location in an existing building.

4

In 2012, we, and several of our franchisees, successfully converted restaurants from existing casual dining chains. In 2012, two “Current Shack” style counter-service restaurants, utilizing our new 3,000 square foot prototype were built; a franchise-operated restaurant in Beaverton, Oregon and a company-owned restaurant in Evergreen Park, Illinois. Additionally, in 2012, a full-service company-owned restaurant was converted from another restaurant concept in Gainesville, Virginia. In fiscal 2011, we built two company-owned restaurants, one a full-service restaurant and a “Current Shack” style counter service restaurant, both of these restaurants were conversions from other restaurant concepts. In fiscal 2010, we opened one full-service restaurant which was a conversion of another restaurant concept and was approximately 6,000 square feet.

We offer lower cost conversion packages that provide our franchisees with flexibility to build in cost effective formats, which includes opportunities to convert existing restaurants and other footprints into a Famous Dave’s restaurant. Due to the flexibility and scalability of our concept, we believe that there are a variety of development opportunities available now and in the future. Additionally in 2013, we will be working with a restaurant consulting firm to develop the next evolution in our full-service and counter-service prototypes.

We pride ourselves on the following:

High Quality Food — Each restaurant features a distinctive selection of authentic hickory-smoked off-the-grill barbecue favorites, such as flame-grilled St. Louis-style and baby back ribs, Texas beef brisket, Georgia chopped pork, country-roasted chicken, and generous signature sandwiches and salads. Also, enticing side items, such as honey-buttered corn bread, potato salad, coleslaw, Shack Fries^TM and Wilbur Beans^TM, accompany the broad entrée selection. Homemade desserts, including Famous Dave’s Bread Pudding, Hot Fudge Kahlua Brownies, and Key Lime Pie, are a specialty. To complement our entrée and appetizer items and to suit different customer tastes, we offer six regional tableside barbeque sauces: Rich & Sassy^®, Texas Pit^TM, Georgia Mustard^TM, Devil’s Spit^®, Sweet and Zesty^TM and Wilbur’s Revenge^TM. These sauces, in addition to a variety of seasonings, rubs, marinades, and other items are also distributed in retail grocery stores throughout the country under licensing agreements. Additionally, we often introduce specialty barbeque sauces with our limited time offerings and popular ones may get added to our menu, such as our Pineapple Rage and Southside BBQ sauces.

We believe that high quality food, “scratch cooking” and the fact that we smoke our meats daily at each of our restaurants are principal points of differentiation between us and other casual dining competitors and are a significant contributing factor to repeat business. We also feel that our focus on barbecue being a noun, a verb and a culture allows for product innovation without diluting our brand. As a noun, barbeque refers to the art of the smoke and sauce. As a verb, barbeque refers to the act of grilling. As a culture, barbeque refers to the competitive spirit. As a result, we see no geographic impediments to scaling our concept and brand.

Distinctive Environment — Décor and Music — Our original décor theme was a nostalgic roadhouse shack (“Original Shack”), as defined by the abundant use of rustic antiques and items of Americana. This format was used for both full-service and counter-service restaurant formats. In late 1997, we introduced the “Lodge” format which featured décor reminiscent of a comfortable “Northwoods” hunting lodge with a full-service dining room and small bar. In addition, we developed a larger “Blues Club” format that featured authentic Chicago Blues Club décor and live music seven nights a week. We have evolved our format to that of a full-service concept with several “Prototypical” designs that incorporate the best attributes of the past restaurants while providing a consistent brand image. In 2011, we evolved our counter-service “Original Shack” format into a new “Current Shack” counter-service, fast casual format that included a new layout for the restaurant, as well as new trade dress, music, décor, ambiance, and menu offerings. Of our 53 restaurants as of December 30, 2012, 46 were full-service restaurants and 7 were counter-service restaurants. Below is a breakdown of the various styles of full and counter-service restaurants:

Full-service:

5

Counter-service:

Broad-Based Appeal — We believe that our concept has broad appeal because it attracts customers of all ages, the menu offers a variety of items, and our distinctive sauces allow our guests to customize their experience, appealing to many tastes. We believe that our distinctive barbecue concept, combined with our high-quality food, makes Famous Dave’s appeal to families, children, teenagers and adults of all ages and socio-economic backgrounds.

Operating Strategy

We believe that our ability to achieve sustainable profitable growth is dependent upon us delivering high-quality experiences in terms of both food and hospitality to every guest, every day, and to enhance brand awareness in our markets. Key elements of our strategy include the following:

Operational Excellence — During fiscal 2012, we continued to focus on operational excellence and integrity, and on creating a consistently enjoyable guest experience, both in terms of food and hospitality, across our system. We define operational excellence as an uncompromising attention to the details of our recipes, preparation and cooking procedures, handling procedures, rotation, sanitation, cleanliness and safety. Operational excellence also means an unyielding commitment to provide our guests with precision service during every visit. In our restaurants, we strive to emphasize value and speed of service by employing a streamlined operating system based on a focused menu and simplified food preparation techniques.

Our menu focuses on a number of popular smoked, barbeque, grilled meat, entrée items and delicious side dishes which are prepared using easy-to-operate kitchen equipment and processes that use prepared proprietary seasonings, sauces and mixes. This streamlined food preparation system helps lower the cost of operation by requiring fewer staff; lower training costs, and eliminates the need for highly compensated chefs. Additionally, barbeque has the ability to be batch cooked and held, which enables our award winning food to get to our guests quickly, whether in the restaurant, at their homes, or at a catering event. In order to enhance our appeal, expand our audience, and feature our cravable products, we have product features which can provide higher margins than our regular menu items. Also, in order to increase customer frequency, we have assembled a research and development product pipeline designed to generate annual product news.

During 2012, we offered our guests several promotions and limited time offerings. Early in 2012, and in support of the Lenten season, we featured our Beer-Battered Cod, and on Fridays we offered an All-You-Can-Eat Cod fish special. During the spring, we featured brisket-stuffed into our burgers, which offered five different flavor profiles. In the summer of 2012, we had our “Southern BBQ” which offered our ribs and pork sandwich with a traditional Carolina red sauce. This promotion featured a delicious banana pudding dessert as well as line-up of “Blue Ribbon drinks”, including our signature Famous Margarita and Devil’s Spit Bloody Mary. This past fall we featured a “Beer Can Chicken” platter, as well as a chicken salad sandwich along with a grilled cob of sweet corn.

In 2013, we will discontinue the broad use of limited time offerings that temporarily introduce new products to the menu. The removal of these limited time offerings should help improve food margins by reducing waste and operating inefficiencies that are inherent with products that are added to the menu for only a limited time. In 2013, we will use opportunistic commodity purchases of high margin items that make sense to our guests and can be inserted quickly into our promotional calendar as well as promote core menu items or new items that will be added to the menu permanently after their initial launch. In our first feature of 2013, we re-introduced our Sweetwater catfish, which had been previously removed from our menu due to supply concerns. Additionally, in April we will feature Burnt Ends, which is a premium product, a ‘treat’ that authentic pitmasters would typically save for themselves and we are serving as a sandwich or an appetizer.

Human Resources and Training/Development — We know a key ingredient to our success as an employer and of our concept lies with our ability to hire, train, engage and retain FAMOUS Team Members at all levels of our organization. We place a great deal of importance on creating an exceptional working environment for all of our Team Members. Through our Human Resource, Talent Management and Training/Development resources, tools and programs, we continually enhance and support superior performance within our restaurants and Support Center. Our foundational guiding principle is to have Raving Internal Fans which emphasizes our commitment to doing the right thing for the organization while ensuring we have the right people in the right roles with the right resources and tools.

6

We are a performance-based organization, committed to recognizing and rewarding performance at all levels of the organization. Our performance management process includes performance calibration at the organizational level as a means of providing measureable, comparative Team Member evaluations relative to peer contribution, taking into account specific core competencies and goals, as well as our core values of Famous PRIDE (Passion, Respect, Innovation, Diversity, Excellence). It is designed to provide a complete picture of performance that is consistent across the organization. We offer a total rewards program that is benchmarked closely against the industry and includes health and welfare coverage, 401(k) and non-qualified deferred compensation with a company match, base pay and incentive pay programs developed to sustain our market competitive position. For 2013, we expanded our medical offering to include a high deductible health plan with a health savings account option and continue with the implementation of a strategy for promoting wellness.

We strive to instill enthusiasm and dedication in our Team Members and continually solicit feedback regarding our organization. We are in the third year of our Talking PRIDE Team Member Engagement Survey. Through our Talking PRIDE Engagement Survey results, we have established baseline action plans which are continually benchmarked to enhance our Team Member experience. We have conducted a full survey to measure our progress with effectively sharing results, establishing action plans, and implementing actions. We conduct an annual Business Conduct Survey for all Support Center and Restaurant Management Team Members. The results of this survey allow us to measure the extent to which “Do the Right Thing” exists in our organization. The results are shared within the organization and we measure and monitor progress in this area. During fiscal 2013, we will be introducing ethical workplace training for all Corporate staff and operations managers in our business to allow us to continue to strengthen our strong base as a value and ethics- based organization. In addition, we have an online employee ethics compliance tool, which includes a bi-lingual anonymous call center or web-based reporting center and a sophisticated issue tracking and reporting platform across all Famous Dave’s company locations.

We have numerous programs designed to recognize and reward our Team Members for outstanding performance and tenure. These programs include the Famous PRIDE Award, Spirit of the Flame Award, Ring of Fire Program, and service recognition. Service recognition provides acknowledgement and celebration of service milestone achievements. Our Famous PRIDE Award encourages those within the company to submit nominations for fellow Team Members who live and breathe Famous PRIDE. Five individuals receive this prestigious honor each year. Our Spirit of the Flame Award encourages those within the organization to nominate and recognize one winner from our company operations team or Support Center and one winner from our franchise community. The two individuals receiving this award are selected based on their demonstration of continuous and exemplary FAMOUS behavior and outstanding contributions resulting in a significant and positive impact to Famous Dave’s brand and business. Our Ring of Fire Program recognizes the MOST FAMOUS of the FAMOUS. This program offered to both company and franchise operations, rewards those operating practices that will help us grow strong as a system. Exceptional operational performance is defined by consistently adhering to Famous Dave’s programs and systems and also by having a high regard for guests, Team Members, the community and the Famous Dave’s culture.

These initiatives are crucial to our maintaining turnover levels that are below industry averages which we measure using several industry data sources. Our restaurant management turnover for fiscal 2012 was approximately 14% and our restaurant hourly turnover was approximately 60%. During fiscal 2012, our Human Resource and Training organization focused on the selection and retention of talent through programs in overall workforce planning, performance management, development, safety and risk reduction, and continued enhancements in our organizational structures for all positions in the business.

In the Training and Development arena, we offer a variety of ongoing on-the-job and classroom training programs for the operations teams (hourly Team Members, Restaurant Managers, and Multi-Unit Managers) in an effort to create defined career paths. Our FD101 University provides our newer restaurant managers a foundational training for restaurant operations, including ServSafe Food and Alcohol Certification; as well as a comprehensive vignette-based program, Managing with PRIDE, designed to provide managers with an easy-to-remember behavioral model that defines when and how conduct, behavior, and performance are governed by organizational policy and law. We also offer a Famous Dave’s Management Certification program which provides a library of workshop offerings for our operators including the guest experience, orientation to training, leadership, and food focus topics.

7

In 2012, we introduced new tools to assist system-wide manager and team development including an orientation and onboarding tool-kit, FLSA training, and e-learning. We also introduced our Pitmaster program which is focused on developing the intricate and artful skills of BBQ as well as the Culture Maniac role, a brand ambassador dedicated to infusing Famous Dave’s culture in the restaurants through cultural tactics and initiatives. We expanded our utilization and integration of HRIS technology by providing Team Members and Managers with self-service access to manage life events, status changes, and benefits. We also moved to an electronic pay delivery environment and connected our core HRIS system electronically to other key business systems to enhance the performance of our financial and operations systems. We will continue to develop resources and add tools to support our system. In 2013, we will continue to offer a variety of enhanced and new programs, including: ethics based training, policies, safety, and Leadership Development. We will continue maximizing the use of technology by introducing mobile access applications for self-service and expanding our e-learning platform to include compliance and annual certifications that will enable us to further expand the reach of our programs through electronic-based system capabilities with interactive modules and on-line testing and administration.

Our system-wide Brand Conference is held annually in March and features a variety of business sessions on Marketing, Guest Experience, Training, Product Innovation, among others. Participants include all company-owned restaurant General Managers, Area Directors, and Directors of Operations, as well as many Franchise Partners, Franchise General Managers and Franchise Multi-Unit Operators.

Restaurant Operations

Our ability to manage multiple restaurants in geographically diverse locations is central to our overall success. In each market, we place specific emphasis on the positions of Area Director and General Manager, and seek talented individuals that bring a diverse set of skills, knowledge, and experience to the Company. We strive to maintain quality and consistency in each of our restaurants through the careful training and supervision of team members and the establishment of, and adherence to, high standards relating to performance, food and beverage preparation, and maintenance of facilities.

All General Managers must complete a seven-week training program, during which they are instructed in areas such as food quality and preparation, customer service, hospitality, and team member relations. We have prepared operations’ manuals relating to food and beverage quality and service standards. New team members participate in training under the close supervision of our Management. Each General Manager reports to an Area Director, who manages from six to seven restaurants, depending on the region. Our Area Directors have all served as General Managers, either for Famous Dave’s or for other restaurants, and are responsible for ensuring that operational standards are consistently applied in our restaurants, communicating company focus and priorities, and supporting the development of restaurant management teams. In addition to the training that the General Managers are required to complete as noted above, our Area Directors receive additional training through Area Director Workshops that focus specifically on managing multiple locations, planning, time management, staff and management development skills.

We also have two Directors of Operations. Each of these individuals is responsible for approximately half of the company-owned restaurants, which allows us to have our operations’ leadership closer to the day-in and day-out business of our restaurants. The Directors of Operations assist in the professional development of our Area Directors and General Managers. They are also instrumental in driving our vision of operational integrity and contributing to the improvement of results achieved at our restaurants, including building sales, developing personnel and growing profits. These Directors report to the President and Chief Operating Officer.

Staffing levels at each restaurant vary according to the time of day and size of the restaurant. However, in general, each restaurant has approximately 40 to 60 team members.

Off-Premise Occasions — Focus on Convenience — In addition to our lively and entertaining dine-in experience, we provide our guests with maximum convenience by offering expedient take-out service and catering. We believe that Famous Dave’s entrées and side dishes are viewed by guests as traditional American “picnic foods” that maintain their quality and travel particularly well, making them an attractive choice to replace a home-cooked meal. Also, the high quality, reasonable cost and avoidance of preparation time make take-out of our product particularly attractive. Our off-premise sales provide us with revenue opportunities beyond our in-house seating capacity and we continue to seek ways to leverage these segments of our business. During fiscal 2012, our industry-leading off-premise sales for the casual dining sector were approximately 33.4% of net restaurant sales, compared to 32.0% for fiscal 2011.

8

Catering, which grew modestly in 2012, accounts for approximately 10.5% of our net sales for fiscal 2012, as compared to 9.9% in 2011. We see catering as an opportunity for new consumers to sample our product who would not otherwise have had the opportunity to visit our restaurants, and each restaurant has a dedicated vehicle to support our catering initiatives.

To Go accounted for approximately 22.9% of net restaurant sales for fiscal 2012 and grew slightly from 22.1% of net restaurant sales in 2011. Our restaurants have been designed specifically to accommodate a significant level of To Go sales, including a separate To Go entrance with prominent and distinct signage, and for added convenience, we separately staff the To Go counter. We believe our focus on To Go enables Famous Dave’s to capture a greater portion of the “take-out” market and allows consumers to “trade within our brand,” when dining in is not always an option. We pursue efforts to increase awareness of To Go in all company-owned and franchise-operated restaurants by featuring signage and merchandising both inside and outside the restaurants.

Customer Satisfaction — We believe that we achieve a significant level of repeat business by providing high-quality food, efficient friendly service, and warm caring hospitality in an entertaining environment at moderate prices. We strive to maintain quality and consistency in each of our restaurants through the purposeful hiring, training and supervision of personnel and the establishment of, and adherence to, high standards of performance, food preparation and facility maintenance. We have also built family-friendly strategies into each restaurant’s food, service and design by providing children’s menus, smaller-sized entrees at reduced prices and changing tables in restrooms. In 2012, we diligently monitored the guest experience through the use of an interactive voice response (IVR) guest feedback system to ensure that our system is producing the desired results. Through this IVR system, we obtained a “Raving Fan” score, which measured a combination of overall guest satisfaction, the guest’s intent to return in the next 30 days, and their intent to recommend Famous Dave’s to others. The company rating is based on the number of responses that give the highest rating of five.

In 2013, we are changing our guest feedback system to a web-based, mobile-optimized guest feedback system. This system will obtain a new “Raving Fan” score, which measures guest likelihood to recommend Famous Dave’s to friends, family or coworkers based on a 0-10 rating scale with 10 being highest. The scores are then tallied using a Net Promoter-style scoring (Promoters-Detractors=Net Promoters), with Promoters scoring 9 and 10 and Detractors scoring 6 through 0. Guests scoring 7 and 8 are considered Passives.

Value Proposition and Guest Frequency — We offer high quality food and a distinctive atmosphere at competitive prices to encourage frequent patronage. Lunch and dinner entrees range from $6.49 to $24.99, resulting in a per person average of $15.73 during fiscal 2012. During fiscal 2012, lunch checks averaged $13.84 and dinner checks averaged $16.89. We believe that value priced offerings and new product features as well as connecting with consumers on their terms, will help drive new and infrequent guests into our restaurants for additional meal occasions.

Marketing, Promotion and Sales

We believe that Famous Dave’s is the category-defining brand in barbecue. Specializing in a unique and distinctive brand of grilled, smoked, and southern style food, our menu specialty helps set the brand apart from the rest of the crowded field in casual dining. To further develop the advertising and promotional materials and programs designed to create brand awareness and increase the reach of the brand, we have a system-wide marketing fund. All company-owned restaurants, and those franchise-operated restaurants with agreements signed after December 17, 2003 are generally required to contribute 1% of net sales to this fund. In fiscal 2013, predominately due to the carryover of funds from fiscal 2012, the Company made the decision to decrease the 2013 Marketing Ad Fund contribution system-wide to 0.75% of net sales.

The marketing team, working with outside consultants and other resources, is responsible for the advertising, promotion, creative development, and branding for Famous Dave’s. Franchise-operated restaurants place the advertising and marketing in their local markets based on contractual requirements, while the Famous Dave’s marketing team plans and executes the advertising and marketing for company-owned restaurants. In addition to the traditional marketing and publicity methods, Famous Dave’s uses marketing efforts that include television, internet, radio, email Club, direct mail, website marketing promotion and outdoor billboards. During 2012, we reached 1.6 million PIG Club (Pretty Important Guest) members and approximately 339,000 fans on Facebook.

9

The strategic focus for marketing and promotion for 2012 remained the same — to be the category–defining brand in BBQ, to create a more competitive distinction, and to continue to strengthen the perception of value in the consumer’s mind. We featured four limited time offerings in 2012 that introduced our customers to new flavor profiles, innovative products and provided value and margin opportunity. Additionally, a number of new initiatives were planned around enhancing the menu, the guest experience, events marketing and social media.

Since its inception, Famous Dave’s has won over 650 awards, including some of the following prestigious awards won by our system during 2012:

Famous Dave’s is somewhat unique in casual dining having four different occasions to interact with the consumer, Dine-In, To Go, Catering, and Retail, with each of these occasions being large enough to be treated differently. The strategies for marketing in 2013 will change significantly. While we will continue to leverage our size and expertise to define the category, we will shift our emphasis to achieving growth by going deeper in connecting with consumers on their terms. Each of these dining occasions’ offers unique and often compelling sources of growth, and, each occasion is growing at a different rate. Through this differentiation, we should be able to create a more immediate relevancy and sales opportunities by solving the consumer’s daily dinner dilemma and address these differences in our marketing, including menu, promotional outreach, pricing, and new product news. As such, we added the position of Vice President of Sales, who is focused on the execution of sales building initiatives around each dining occasion. Also to further support these sales building initiatives, the Digital Services Group will expand social and digital media efforts such as the use of email promotions, online ordering, with our new webpage, as well as a catering and To Go call center.

Location Strategy

We believe that the barbeque segment of the casual dining niche of the restaurant industry continues to offer strong growth opportunities, and we see no impediments to our growth on a geographical basis. Our geographical concentration as of December 30, 2012 was 43% Midwest, 19% South, 29% West, 8% Northeast and 1% in Canada. We were located in 34 states and 1 Canadian province as of December 30, 2012.

We prepare an overall market development strategy for each market. The creation of this market strategy starts with identifying trade areas that align demographically with the guest profile. The trade areas are then assessed for viability and vitality and prioritized as initial, second tier, or future development. Since markets are dynamic, the market strategy includes a continual and ongoing assessment of all existing restaurant locations. If financially feasible, a restaurant may be relocated as the retail or residential focus in a trade area shifts.

We have a real estate site selection model to assess the site quality and trade area quality of new locations. This process involves extensive consumer research in our existing restaurants captured in a guest profile, which is updated on an annual basis. Each location is evaluated based on three primary sales drivers, which include: sales potential from the residential base (home quality), employment base (work quality), and retail activity (retail quality). Locations are also evaluated on their site characteristics which include seven categories of key site attributes, including, but not limited to, access, visibility, and parking.

10

As part of our development strategy, we will seek conversion opportunities for future restaurants in order to streamline the development process and to minimize the up-front investment. We will also evaluate the use of our 6,000, 5,000, 4,000 and 3,000 square foot prototypes where it makes sense. With the reintroduction of the “Current Shack” style counter-service restaurant, we believe this format will allow us to access new markets or strategically locate these restaurants in existing markets where a full-service restaurant could not be sustained. We intend to finance development through the use of cash on hand, cash flow generated from operations, and through availability on our revolving line of credit.

Company-Owned Restaurant Expansion — We are planning to open two company-owned restaurants in 2013. In the future, we will continue to build in our existing markets in high profile, heavy traffic retail locations as part of our future operating strategy to continue to build brand awareness. Our plan is to focus on sustainable, controlled growth, primarily in markets where multiple restaurants can be opened, thereby expanding consumer awareness, and creating opportunities for operating, distribution, and marketing efficiencies.

Franchise-Operated Restaurant Expansion — We continue to grow the franchise program and now anticipate 10 to 12 franchise restaurants will open during fiscal 2013, including our first restaurant in Puerto Rico. We are updating our estimate due to delays in lease executions and permitting as well as complexities associated with international growth. Our goal is to continue to improve the economics of our current restaurant prototypes, while providing more cost-effective development options for our franchisees. As of December 30, 2012, we had signed franchise area development agreements with aggregate commitments for 62 additional units that are expected to open over approximately the next seven years. However, there can be no assurance that these franchisees will fulfill their commitments or fulfill them within the anticipated timeframe. Our franchise system is a significant part of our brand’s success. As such, another one of our goals is to be a valued franchisor; to enhance communication and recognition of best practices throughout the system and to continue to expand our franchisee network.

Generally, we find franchise candidates with prior franchise casual-dining restaurant experience in the markets for which they will be granted. In the past, area development agreements generally ranged from 3 to 15 restaurants, however, due to economic and market conditions, we have been willing to discuss smaller unit agreements as well. We are also looking at individual franchise restaurants in the right markets where it makes sense. This encompasses an increased focus on expanding into international markets. Additionally, we believe the “Current Shack” format will allow us to bring new franchisees, with quick-service experience, into the system.

Purchasing

To provide the freshest ingredients and in order to maximize operational efficiencies for our food products, we strive to obtain consistent quality items at competitive prices from reliable sources, including identifying secondary suppliers for many of our key products. Additionally, our secondary suppliers help us assure supply chain integrity and better logistics. Finally, to reduce freight costs, we continually optimize our distribution networks. The products are then shipped directly to the restaurants through our foodservice distributors. Each restaurant’s management team determines the daily quantities of food items needed and orders such quantities to be delivered to their restaurant.

Approximately 85% of our food and non-alcoholic beverage purchases are on contract, with the majority being proteins. Pork represents approximately 34% of our total purchases, while chicken is approximately 13%, beef, which includes hamburger and brisket, is approximately 10%, and seafood is approximately 2%. Our purchasing department contracts, as well as our food and beverage costs and trends associated with each, are discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our purchasing team is also responsible for managing the procurement of the non-food items for our restaurants, including restaurant equipment, small wares and restaurant supplies. Also, they contract many of our restaurants repair and maintenance services along with strategically managing our utility costs.

11

Information Technology

Famous Dave’s recognizes the importance of leveraging information and technology to support and extend our competitive position in the restaurant industry. We continue to invest in capabilities that provide secure and efficient operations, maximize the guest experience, and provide the ability to analyze data that describes our operations.

We have implemented a suite of restaurant and support center systems which support operations by providing transactional functions (ordering, card processing, etc.) and reporting at both the unit and support center level. Interfaces between Point-of-Sale (POS), labor management, inventory management, menu management, key suppliers, and team member screening/hiring and financial systems all contribute to the following operator and corporate visibility:

This visibility enables every level of the Famous Dave’s organization to manage the key controllable costs within our industry, including food and labor costs.

Below are the significant information technology initiatives completed in fiscal 2012:

In 2013, in addition to working alongside the Digital Services Group, the department will leverage technology to support the needs of the Company through several initiatives listed below:

12

Trademarks

Our Company has registered various trademarks, makes use of various unregistered marks, and intends to vigorously defend these marks. “Famous Dave’s” and the Famous Dave’s logo are registered trademarks of Famous Dave’s of America, Inc. The Company highly values its trademarks, trade names and service marks and will defend against any improper use of its marks to the fullest extent allowable by law.

Franchise Program

We have offered franchises of our concept since July 1998 and currently file our franchise disclosure document in all 50 states. Our growth and success depends in part upon our ability to attract, contract with and retain qualified franchisees. It also depends upon the ability of those franchisees to successfully operate their restaurants with our standards of quality and promote and develop Famous Dave’s brand awareness.

Although we have established criteria to evaluate prospective franchisees, and our franchise agreements include certain operating standards, each franchisee operates his/her restaurants independently. Various laws limit our ability to influence the day-to-day operation of our franchise restaurants. We cannot assure you that franchisees will be able to successfully operate Famous Dave’s restaurants in a manner consistent with our standards for operational excellence, service and food quality.

At December 30, 2012, we had 47 ownership groups operating 135 Famous Dave’s franchise restaurants. Signed area development agreements, representing commitments to open an additional 62 franchise restaurants, were in place as of December 30, 2012. There can be no assurance that these franchisees will fulfill their commitments or fulfill them within the anticipated timeframe. We continue to grow the franchise program and now anticipate 10 to 12 franchise restaurants will open during fiscal 2013. We are updating our estimate due to delays in lease executions and permitting as well as complexities associated with international growth.

13

As of December 30, 2012, we had franchise-operated restaurants in the following locations:

14

Our Franchise Operations Department is made up of the President and Chief Operating Officer, who guides the efforts of two Directors of Franchise Operations, each supported by two Territory Directors. The Directors of Franchise Operations have responsibility for supporting our franchisees geographically throughout the country and play a critical role for us as well as for our franchise community. Directors of Franchise Operations manage the relationship between the franchisee and the franchisor and provide an understanding of the roles, responsibilities, differences, and accountabilities of that relationship. They are active participants towards enhancing performance, as they partner in strategic and operational planning sessions with our franchise partners and review the individual strategies and tactics for obtaining superior performance for the franchisee. The Directors of Franchise Operations share best practices throughout the system and work to create a one-system mentality that benefits everyone. In addition, they ensure compliance with obligations under our area development and franchise agreements. Franchisees are encouraged to utilize all available assistance from the Directors of Franchise Operations and the Support Center but are not required to do so.

The Company has a comprehensive operations’ scorecard and training tool that we call “FD Powers” that helps us measure our operational effectiveness of our company-owned and franchise-operated restaurants. This scorecard is used to evaluate, monitor and improve operations in areas such as guest satisfaction, health and safety standards, community involvement, and local store marketing effectiveness, among other operating metrics. Also, we generally provide support as it relates to all aspects of franchise operations including, but not limited to, store openings, operating performance, and human resource strategic planning. Finally, the Company solicits feedback from our franchise-system by conducting a Franchise Satisfaction Survey every year. The results of this survey are used to better support the needs of the franchise system while maintaining a one-system mindset.

Our franchise-related revenue consists of area development fees, initial franchise fees and continuing royalty payments. Our area development fee consists of a one-time, non-refundable payment equal to $10,000 per restaurant in consideration for the services we perform in preparation of executing each area development agreement. Substantially all of these services, which include, but are not limited to a meeting with the Famous Dave’s Executive Team and performing a 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 is typically $30,000 to $40,000 per restaurant, of which $5,000 is recognized immediately when a franchise agreement is signed, reflecting the commission earned and expenses incurred related to the sale. The remaining non-refundable fee of $25,000 to $35,000 is included in deferred franchise fees and is recognized as revenue when we have performed substantially all of our obligations, which generally occurs upon the franchise entering into a lease agreement for the restaurant(s). In 2013, after our Franchise Disclosure Document is filed, we will be adjusting our franchise fee to $45,000. During fiscal 2012, to incentivize growth, we reduced the initial franchise fee by 50% for any partner who signed a franchise agreement and opened a “Current Shack” style counter service restaurant 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.

Because of the continuing difficult economic environment and scarcity of capital for development, we offered a reduced royalty rate for twelve months from the date of opening for franchisees that opened restaurants during fiscal 2010. In fiscal 2011, we modified and extended this growth incentive program. The modification offered new and existing franchisees reduced levels of franchise royalties, based on a sliding scale, for new restaurants opened during 2011. All franchise restaurants opened in the first, second, and third quarters paid a reduced royalty of 2.5%, 3%, and 4%, respectively, from the date of opening through the remainder of 2011. Any openings in the fourth quarter and beyond were at the 5% royalty rate. In 2012, there were no reduced royalty rate programs, and we do not intend to offer reduced royalty rate programs in fiscal 2013.

The franchisee’s investment depends primarily upon restaurant size. This investment includes the area development fee, initial franchise fee, real estate and leasehold improvements, fixtures and equipment, POS systems, business licenses, deposits, initial food inventory, small wares, décor and training fees as well as working capital. In 2013, franchisees will be required to contribute 0.75% of net sales to a marketing fund dedicated to building system-wide brand awareness.

15

Seasonality

Our restaurants typically generate higher revenue in the second and third quarters of our fiscal year as a result of seasonal traffic increases and high catering sales experienced during the summer months, and lower revenue in the first and fourth quarters of our fiscal year, due to possible adverse weather which can disrupt guest and team member transportation to our restaurants.

Government Regulation

Our Company is subject to extensive state and local government regulation by various governmental agencies, including state and local licensing, zoning, land use, construction and environmental regulations and various regulations relating to the sale of food and alcoholic beverages, sanitation, disposal of refuse and waste products, public health, safety and fire standards. Our restaurants are subject to periodic inspections by governmental agencies to ensure conformity with such regulations. Any difficulty or failure to obtain required licensing or other regulatory approvals could delay or prevent the opening of a new restaurant, and the suspension of, or inability to renew a license, could interrupt operations at an existing restaurant, any of which would adversely affect our operations. Restaurant operating costs are also affected by other government actions that are beyond our control, including increases in minimum hourly wage requirements, workers compensation insurance rates, health care insurance costs, property and casualty insurance, and unemployment and other taxes. We are also subject to “dram-shop” statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.

As a franchisor, we are subject to federal regulation and certain state laws that govern the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and the termination or non-renewal of a franchise. Bills have been introduced in Congress from time to time that would provide for federal regulation of substantive aspects of the franchisor-franchisee relationship. As proposed, such legislation would limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise, and the ability of a franchisor to designate sources of supply.

The 1990 Federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. We could be required to incur costs to modify our restaurants in order to provide service to, or make reasonable accommodations for, disabled persons. Our restaurants are currently designed to be accessible to the disabled, and we believe we are in substantial compliance with all current applicable regulations relating to this Act.

Team Members

As of December 30, 2012, we employed approximately 3,165 team members of which approximately 309 were restaurant managers and Support Center employees. None of our team members are covered by a collective bargaining agreement. We consider our relationships with our team members to be good.

Famous Dave’s makes written and oral statements from time to time, including statements contained in this Annual Report on Form 10-K regarding its business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends and other matters that are forward-looking statements within the meaning of Sections 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases “will likely result,” “anticipates,” “are expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements which may appear in documents, reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by our officers or other representatives to analysts, shareholders, investors, news organizations, and others, and discussions with our management and other Company representatives. For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

16

Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statements made by us or on our behalf speak only as of the date on which such statement is made. Our forward-looking statements are based upon our management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. In addition, forward-looking statements may reflect assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as otherwise required by applicable law, we do not undertake any obligation to update or keep current either (i) any forward-looking statements to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement which may be made by us or on our behalf.

In addition to other matters identified or described by us from time to time in filings with the SEC, including the risks described below and elsewhere in this Annual Report on Form 10-K, there are several important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or results that are reflected from time to time in any forward-looking statement that may be made by us or on our behalf.

The state of the economy and the volatility of the financial markets may adversely impact our business and results of operations and may impact our ability to comply with our credit facility’s financial covenants.

The restaurant industry is still affected by macro-economic factors, including changes in national, regional, and local economic conditions, employment levels and consumer spending patterns. The recent economic recession, and the slow economic recovery, has kept consumer confidence low, and consequently, has affected the frequency of consumers’ dining out occasions, which has been harmful to our results of operations, and has negatively impacted our financial position. Depending on the duration and severity of the continued economic downturn and the pace of recovery, it may continue to adversely affect our ability to comply with financial covenants under our credit facility on a continuing basis. These financial covenants include, without limitation, maximum target capital expenditures, cash flow ratios, adjusted leverage ratios, and in certain circumstances, a maximum aged royalty receivable. There can be no assurances that government responses to the disruptions in the financial markets and overall economy will restore consumer confidence, stabilize the markets or increase liquidity and the availability of credit. As of December 30, 2012, we were in compliance with all of our covenants after we obtained an amendment to our credit facility on March 14, 2013.

In the event we fail to comply with these or other financial covenants in the future and are unable to obtain similar amendments or waivers, our lender will have the right to demand repayment of all principal amounts outstanding under the credit facility and term loan, which were $13.6 million and $5.4 million, respectively, at December 30, 2012, and to terminate the existing credit facility and term loan. If we were unable to repay outstanding amounts, either using current cash reserves, a replacement facility or another source of capital, our lender would have the right to foreclose on our personal property, which serves as collateral for the credit facility. Replacement financing may be unavailable to us on similar terms or at all, especially if current credit market conditions persist. Termination of our existing credit facility without adequate replacement, either through a similar facility or other sources of capital, would have a material and adverse impact on our ability to continue our business operations.

Our future revenue and operating income are dependent on consumer preference and our ability to successfully execute our plan.

Our Company’s future revenue and operating income will depend upon various factors, including continued and additional market acceptance of the Famous Dave’s brand, the quality of our restaurant operations, our ability to grow our brand, our ability to successfully expand into new and existing markets, our ability to successfully execute our franchise program, our ability to raise additional financing as needed, discretionary consumer spending, the overall success of the venues where Famous Dave’s restaurants are or will be located, economic conditions affecting disposable consumer income, general economic conditions and the continued popularity of the Famous Dave’s concept. An adverse change in any or all of these conditions would have a negative effect on our operations and the market value of our common stock.

17

It’s our plan to open two new company-owned restaurants in 2013, and we are now anticipating the opening of 10 to 12 new franchise restaurants during the course of the year. We are updating our estimate due to delays in lease executions and permitting as well as complexities associated with international growth. There is no guarantee that any of the company-owned or franchise-operated restaurants will open when planned, or at all, due to many factors that may affect the development and construction of our restaurants, including landlord delays, weather interference, unforeseen engineering problems, environmental problems, construction or zoning problems, local government regulations, modifications in design to the size and scope of the project, and other unanticipated increases in costs, any of which could give rise to delays and cost overruns. There can be no assurance that we will successfully implement our growth plan for our company-owned and franchise-operated restaurants. In addition, we also face all of the risks, expenses and difficulties frequently encountered in the development of an expanding business.

Competition may reduce our revenue and operating income.

Competition in the restaurant industry is intense. The restaurant industry is affected by changes in consumer preferences, as well as by national, regional and local economic conditions, including real estate, and demographic trends, traffic patterns, the cost and availability of qualified labor, and product availability. Discretionary spending priorities, traffic patterns, tourist travel, weather conditions, and the type, number and location of competing restaurants, among other factors, will also directly affect the performance of our restaurants. Changes in any of these factors in the markets where we currently operate our restaurants could adversely affect the results of our operations.

Increased competition by existing or future competitors may reduce our sales. Our restaurants compete with moderately-priced restaurants primarily on the basis of quality of food and service, atmosphere, location and value. In addition to existing barbeque restaurants, we face competition from steakhouses and other restaurants featuring protein-rich foods. We also compete with other restaurants and retail establishments for quality sites.

Many of our competitors have substantially greater financial, marketing and other resources than we do. Regional and national restaurant companies continue to expand their operations into our current and anticipated market areas. We believe our ability to compete effectively depends on our ongoing ability to promote our brand and offer high quality food and hospitality in a distinctive and comfortable environment. If we are unable to respond to, or unable to respond in a timely manner, to the various competitive factors affecting the restaurant industry, our revenue and operating income could be adversely affected.

Our failure to execute our franchise program may negatively impact our revenue and operating income.

Our growth and success depends in part upon increasing the number of our franchised restaurants, through execution of area development and franchise agreements with new and existing franchisees in new and existing markets. Our ability to successfully franchise additional restaurants will depend on various factors, including our ability to attract, contract with and retain quality franchisees, the availability of suitable sites, the negotiation of acceptable leases or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the financial and other capabilities of our franchisees, our ability to manage this anticipated expansion, and general economic and business conditions. Many of the foregoing factors are beyond the control of the Company or our franchisees.

Our growth and success also depends upon the ability of our franchisees to operate their restaurants successfully to our standards and promote the Famous Dave’s brand. Although we have established criteria to evaluate prospective franchisees, and our franchise agreements include certain operating standards, each franchisee operates his/her restaurant independently. Various laws limit our ability to influence the day-to-day operation of our franchise restaurants. We cannot assure you that our franchisees will be able to successfully operate Famous Dave’s restaurants in a manner consistent with our concepts and standards, which could reduce their sales and correspondingly, our franchise royalties, and could adversely affect our operating income and our ability to leverage the Famous Dave’s brand. In addition, there can be no assurance that our franchisees will have access to financial resources necessary to open the restaurants required by their respective area development agreements, which would negatively impact our growth plans.

18

The restaurant industry is subject to extensive government regulation that could negatively impact our business.

The restaurant industry is subject to extensive state and local government regulation by various government agencies, including state and local licensing, zoning, land use, construction and environmental regulations and various regulations relating to the preparation and sale of food and alcoholic beverages, sanitation, disposal of refuse and waste products, public health, safety and fire standards, minimum wage requirements, workers’ compensation and citizenship requirements. Due to the fact that we offer and sell franchises, we are also subject to federal regulation and certain state laws which govern the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and termination or non-renewal of a franchise. We may also be subject in certain states to “dram-shop” statutes, which provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.

Any change in the current status of such regulations, including an increase in team member benefits costs, any and all insurance rates, or other costs associated with team members, could substantially increase our compliance and labor costs. Because we pay many of our restaurant-level team members rates based on either the federal or the state minimum wage, increases in the minimum wage would lead to increased labor costs. In addition, our operating results would be adversely affected in the event we fail to maintain our food and liquor licenses. Furthermore, restaurant operating costs are affected by increases in unemployment tax rates and similar costs over which we have no control.

Recent health care legislation enacted by the Federal Government mandates menu labeling of certain nutritional aspects of restaurant menu items such as caloric, sugar, sodium, and fat content. Altering our recipes in response to such legislation could increase our costs and/or change the flavor profile of our menu offerings which could have an adverse impact on our results of operations. Additionally, minimum employee health care coverage mandated by state or federal legislation could have an adverse effect on our results of operations and financial condition.

Healthcare reform legislation could have a negative impact on our business.

During 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law in the United States. Certain of the provisions that have increased our healthcare costs include the removal of annual plan limits and the mandate that health plans provide 100% coverage on expanded preventative care. In addition, our healthcare costs could increase significantly as the new legislation and accompanying regulations require us to automatically enroll employees in health coverage, potentially cover more variable hour employees than we do currently or pay penalty amounts in the event that employees do not elect our offered coverage. While much of the cost of the recent healthcare legislation enacted will occur on or after 2014 due to provisions of the legislation being phased in over time, changes to our healthcare cost structure could have an impact on our business and operating costs.

We are subject to the risks associated with the food services industry, including the risk that incidents of food-borne illnesses or food tampering could damage our reputation and reduce our restaurant sales.

Our industry is susceptible to the risk of food-borne illnesses. As with any restaurant operation, however, we cannot guarantee that our internal controls and training will be fully effective in preventing all food-borne illnesses. Furthermore, our reliance on third-party food suppliers and distributors increases the risk that food-borne illness incidents could be caused by third-party food suppliers and distributors outside of our control and/or multiple locations being affected rather than a single restaurant. New illnesses resistant to any precautions may develop in the future, or diseases with long incubation periods could arise that could give rise to claims or allegations on a retroactive basis. Reports in the media or on social media of one or more instances of food-borne illness in one of our company-owned restaurants, one of our franchise-operated restaurants or in one of our competitor’s restaurants could negatively affect our restaurant sales, force the closure of some of our restaurants and conceivably have a national impact if highly publicized. This risk exists even if it were later determined that the illness had been wrongly attributed to the restaurant. Furthermore, other illnesses could adversely affect the supply of some of our food products and significantly increase our costs. A decrease in guest traffic as a result of these health concerns or negative publicity could materially harm our business, results of operations and financial condition.

19

Our ability to exploit our brand depends on our ability to protect our intellectual property, and if any third parties make unauthorized use of our intellectual property, our competitive position and business could suffer.

We believe that our trademarks and other intellectual proprietary rights are important to our success and our competitive position. Accordingly, we have registered various trademarks and make use of various unregistered marks. However, the actions we have taken or may take in the future to establish and protect our trademarks and other intellectual proprietary rights may be inadequate to prevent others from imitating our products and concept or claiming violations of their trademarks and proprietary rights by us. Although we intend to defend against any improper use of our marks to the fullest extent allowable by law, litigation related to such defense, regardless of the merit or resolution, may be costly and time consuming and divert the efforts and attention of our management.

Our financial performance is affected by our ability to contract with reliable suppliers at competitive prices.

In order to maximize operating efficiencies, we have entered into arrangements with food manufacturers and distributors pursuant to which we obtain approximately 85% of the products used by the Company, including, but not limited to, pork, poultry, beef, and seafood. We believe that our relationships with our food manufacturers and distributors are excellent. We anticipate no interruption in the supply of product delivered by these companies; however, we have arrangements with several secondary suppliers in the case of a supply disruption. Although we may be able to obtain competitive products and prices from alternative suppliers, an interruption in the supply of products delivered by our food suppliers could adversely affect our operations in the short term. Due to the rising market price environment, our food costs may increase without the desire and/or ability to pass that price increase to our customers.

While we do contract for utilities in all available states, the costs of these energy-related items will fluctuate due to factors that may not be predictable, such as the economy, current political/international relations and weather conditions. Because we cannot control these types of factors, there is a risk that prices of energy/utility items will increase beyond our current projections and adversely affect our operations.

We could be adversely impacted if our information technology and computer systems do not perform properly or if we fail to protect our customers’ credit card information or our employees’ personal data.

We rely heavily on information technology to conduct our business, and any material failure, interruption of service, or compromised data security could adversely affect our operations. While we take it very seriously and expend significant resources to ensure that our information technology operates securely and effectively, any security breaches could result in disruptions to operations or unauthorized disclosure of confidential information. Additionally, if our guests’ credit card or other personal information or our team members’ personal data are compromised, our operations could be adversely affected, our reputation could be harmed, and we could be subjected to litigation or the imposition of penalties.

Pursuant to its authority to designate and issue shares of our stock as it deems appropriate, our board of directors may assign rights and privileges to currently undesignated shares which could adversely affect the rights of existing shareholders.

Our authorized capital consists of 100,000,000 shares of capital stock. Our Board of Directors, without any action by the shareholders, may designate and issue shares in such classes or series (including classes or series of preferred stock) as it deems appropriate and establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights. As of March 11, 2013, we had 7,522,899 shares of common stock outstanding.

The rights of holders of preferred stock and other classes of common stock that may be issued could be superior to the rights granted to the current holders of our common stock. Our Board’s ability to designate and issue such undesignated shares could impede or deter an unsolicited tender offer or takeover proposal. Further, the issuance of additional shares having preferential rights could adversely affect the voting power and other rights of holders of common stock.

20

None.

The development cost of our restaurants varies depending primarily on the size and style of the restaurant, whether the property is purchased or leased, and whether it is a conversion of an existing building or a newly constructed restaurant. We have 6,000 and 5,000 square foot packages that can be built as a free standing building, a 4,000 square foot model that most likely would be constructed as an end cap of a building and a 3,000 square foot design which would be constructed as a counter service location in an existing building or as a in-line location in a shopping center. Additionally, we offer lower cost conversion packages that provide our franchisees with the flexibility to build in cost effective formats, such as, opportunities to convert existing restaurants into a Famous Dave’s restaurant.

In fiscal 2012, the company opened a 6,000 square foot full-service restaurant and a 3,600 square foot “Current Shack” style counter-service restaurant, both of which were conversions of other restaurant concepts. In 2012, several franchisees successfully converted restaurants from existing casual dining concepts. In 2011, the company opened a 5,400 square foot full-service restaurant and a 3,000 square foot “Current Shack” style counter-service restaurant, both of which were conversions of other restaurant concepts. In fiscal 2010, the company opened one 6,400 square foot restaurant that was also a conversion of another restaurant concept. We did not open any restaurants in 2009; however the restaurants we opened in 2006, 2007, and 2008 were approximately 6,000 square feet, ground up construction and had approximately 175 seats, with an additional 50 seats in the bar, and 32 additional seats on the patio, where available. Due to the flexibility and scalability of our concept, there are a variety of development opportunities available now and in the future. In 2013, we now expect to open 2 company-owned restaurants, and 10 to 12 franchise-operated restaurants. We are updating our estimate due to delays in lease executions and permitting as well as complexities associated with international growth.

Our leased restaurant facilities are occupied under agreements with remaining terms ranging from 1 to 35 years, including renewal options. Such leases generally provide for fixed rental payments plus operating expenses associated with the properties. Several leases also require the payment of percentage rent based on net sales.

Our executive offices are currently located in approximately 23,900 square feet in Minnetonka, Minnesota. In 2011, we negotiated a lease amendment for our executive offices which extends our lease to November 2018, with two five-year renewal options. The minimum annual rent commitment remaining over the lease term, including renewal options is approximately $4.8 million, net of sublease income. In 2010, in an effort to reduce general and administrative expense, we entered into a sublease for 2,100 square feet, in our executive office building, that will expire in August of 2013. Additionally, we have leased warehouse space to house our décor and recently executed a three lease extension for this property.

21

We believe that our properties will be suitable for our needs and adequate for operations for the foreseeable future. The following table sets forth certain information about our existing company-owned restaurant locations, as of December 30, 2012, sorted by opening date:

All seat count and square footage amounts are approximate.

22

From time-to-time, we are involved in various legal actions arising in the ordinary course of business. In the opinion of our management, the ultimate dispositions of these matters will not have a material adverse effect on our consolidated financial position and results of operations. Currently, there are no significant legal matters pending.

Not Applicable.

PART II

Market Information

Our common stock has traded on the NASDAQ Stock Market since July 24, 1997 under the symbol DAVE. Currently, our common stock trades on the NASDAQ Global Market. The following table summarizes the high and low sale prices per share of our common stock for the periods indicated, as reported on the NASDAQ Global Market.

Holders

As of March 5, 2013, we had approximately 345 shareholders of record and approximately 3,676 beneficial shareholders.

Dividends

Our Board of Directors has not declared any dividends on our common stock since our inception, and does not intend to pay out any cash dividends on our common stock in the foreseeable future. We presently intend to retain all earnings, if any, to provide for our growth, reduce our debt levels, and repurchase our common stock. The payment of cash dividends in the future, if any, will be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital requirements, loan agreement restrictions, our financial condition and other factors deemed relevant by our Board of Directors.

Stock Performance Graph

Below is a line-graph presentation that compares the cumulative, five-year return to the Company’s shareholders (based on appreciation of the market price of the Company’s common stock) on an indexed basis with (i) a broad equity market index and (ii) an appropriate published industry or line-of-business index, or Peer Group Index constructed by the Company. The following presentation compares the Company’s common stock price for the period from December 30, 2007 through December 30, 2012, to the S&P 500 Stock Index and to the S&P Small Cap Restaurant Index.

The Company has elected to use the S&P Small Cap Restaurant Index in compiling its stock performance graph because it believes the S&P Small Cap Restaurant Index represents a comparison to competitors with similar market capitalization to the Company.

23

The presentation assumes that the value of an investment in each of the Company’s common stock, the S&P 500 Index and S&P Small Cap Restaurants was $100 on December 30, 2007, and that any dividends paid were reinvested in the same security.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Famous Dave’s of America, Inc., the S&P 500 Index, and S&P Small Cap

Restaurants

Copyright^© 2013 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

Purchases of Equity Securities by the Issuer

On November 4, 2010, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to 1.0 million shares of our common stock in both the open market or through privately negotiated transactions. On May 1, 2012 we completed the repurchase of all shares under this program for approximately $9.9 million at an average market price per share of $9.91, excluding commissions.

On May 1, 2012, our Board of Directors approved a stock repurchase program that authorized the repurchase of up to 1.0 million shares of our common stock in both the open market or through privately negotiated transactions. As of December 30, 2012, we had repurchased 323,862 shares under this program for approximately $3.4 million at an average market price per share of $10.49, excluding commissions.

24

The following table includes information about our share repurchases for the fiscal year ended December 30, 2012:

25

The selected financial data presented below should be read in conjunction with the consolidated financial statements and notes included elsewhere in this Form 10-K, and in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

The selected financial data as of and for the fiscal years ended December 30, 2012 (fiscal 2012), January 1, 2012 (fiscal 2011), January 2, 2011, (fiscal 2010), January 3, 2010 (fiscal 2009), and December 28, 2008 (fiscal 2008) have been derived from our consolidated financial statements as audited by Grant Thornton LLP, independent registered public accounting firm.

FINANCIAL HIGHLIGHTS

26

Certain statements contained in this Annual Report on Form 10-K include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are based on information currently available to us as of the date of this Annual Report, and we assume no obligation to update any forward-looking statements except as otherwise required by applicable law. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors may include, among others, those factors listed in Item 1A of and elsewhere in this Annual Report and our other filings with the Securities and Exchange Commission. The following discussion should be read in conjunction with “Selected Financial Data” above (Item 6 of this Annual Report) and our financial statements and related footnotes appearing elsewhere in this Annual Report.

OVERVIEW

Famous Dave’s of America, Inc. was incorporated as a Minnesota corporation in March 1994 and opened its first restaurant in Minneapolis in June 1995. As of December 30, 2012, there were 188 Famous Dave’s restaurants operating in 34 states and 1 Canadian province, including 53 company-owned restaurants and 135 franchise-operated restaurants. An additional 62 franchise restaurants were committed to be developed through signed area development agreements as of December 30, 2012.

Fiscal Year

Our fiscal year ends on the Sunday nearest December 31st of each year. Our fiscal year is generally 52 weeks; however it periodically consists of 53 weeks. The fiscal years ended December 30, 2012 (fiscal 2012), January 1, 2012 (fiscal 2011), and January 2, 2011 (fiscal 2010) all consisted of 52 weeks. Fiscal 2013, which ends on December 29, 2013, will consist of 52 weeks.

Basis of Presentation — The financial results presented and discussed herein reflect our results and the results of our wholly-owned and majority-owned consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Application of Critical Accounting Policies and Estimates — The following discussion and analysis of the Company’s financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities and expenses, and related disclosures. On an on-going basis, management evaluates its estimates and judgments. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. Management bases its estimates and judgments on historical experience, observance of trends in the industry, information provided by customers and other outside sources and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies reflect its more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. Our Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included herein.

We have discussed the development and selection of the following critical accounting estimates with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our disclosures relating to such estimates in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Recognition of Franchise-Related Revenue — Initial franchise fee revenue is recognized when we have performed substantially all of our obligations as franchisor. Franchise royalties are recognized when earned.

27

Our franchise-related revenue consists of area development fees, initial franchise fees and continuing royalty payments. Our area development fee consists of a one-time, non-refundable payment equal to $10,000 per restaurant in consideration for the services we perform in preparation of executing each area development agreement. Substantially all of these services, which include, but are not limited to a meeting with the Famous Dave’s Executive Team and performing a 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 is typically $30,000 to $40,000 per restaurant, of which $5,000 is recognized immediately when a franchise agreement is signed, reflecting the commission earned and expenses incurred related to the sale. The remaining non-refundable fee of $25,000 to $35,000 is included in deferred franchise fees and is recognized as revenue when we have performed substantially all of our obligations, which generally occurs upon the franchise entering into a lease agreement for the restaurant(s). In 2013, after our Franchise Disclosure Document is filed, we will be adjusting our franchise fee to $45,000. During fiscal 2012, to incentivize growth, we reduced the initial franchise fee by 50% for any partner who signed a franchise agreement and opened a “Current Shack” style counter service restaurant 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 franchises pay us a monthly royalty of 5% of their net sales.

Because of the continuing difficult economic environment and scarcity of capital for development, we offered a reduced royalty rate for twelve months from date of opening for franchisees that opened restaurants during fiscal 2010. In fiscal 2011, we modified and extended this growth incentive program. The modification offered new and existing franchisees reduced levels of franchise royalties, based on a sliding scale, for new restaurants opened during 2011. All franchise restaurants opened in the first, second, and third quarters paid a reduced royalty of 2.5%, 3%, and 4%, respectively, from the date of opening through the remainder of 2011. Any openings in the fourth quarter and beyond were at the 5% royalty rate. In 2012, there were no reduced royalty rate programs, and there will be no reduced royalty rate programs in fiscal 2013.

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 site exceeds its fair value. Fair value is estimated based on the best information available including estimated future cash flows, expected growth rates in comparable restaurant sales, remaining lease terms and other factors. If these assumptions change in the future, we may be required to take additional impairment charges for the related assets. Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual results could vary significantly from such estimates. Restaurant sites that are operating, but have been previously impaired, are reported at the lower of their carrying amount or fair value less estimated costs to sell.

Lease Accounting — We recognize lease expense for our operating leases over the entire lease term including lease renewal options where the renewal is reasonably assured and the build-out period takes place prior to the restaurant opening or lease commencement date. We account for construction allowances by recording a receivable when its collectability is considered probable, depreciating the leasehold improvements over the lesser of their useful lives or the full term of the lease, including renewal options and build-out periods, amortizing the construction allowance as a credit to rent expense over the full term of the lease, including renewal options and build-out periods, and relieving the receivable once the cash is obtained from the landlord for the construction allowance. We record rent expense during the build-out period and classify this expense as pre-opening expenses in our consolidated statements of operations.

Liquor licenses — The Company owns transferable liquor licenses in jurisdictions with a limited number of authorized liquor licenses. These licenses were capitalized as indefinite-lived intangible assets and are included in intangible assets, net in our consolidated Balance Sheets (see note 5 to our financial statements) at December 30, 2012 and January 1, 2012. We annually review the liquor licenses for impairment and in fiscal 2012 and 2011, no impairment charges were required to be recorded. Additionally, the costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are expensed as incurred. Annual liquor license renewal fees are expensed over the renewal term.

28

Accounts Receivable, Net — We provide an allowance for uncollectible accounts on accounts receivable based on historical losses and existing economic conditions, when relevant. We provide for a general bad debt reserve for franchise receivables due to increases in days’ sales outstanding and deterioration in general economic market conditions. This general reserve is based on the aging of receivables meeting specified criteria and is adjusted each quarter based on past due receivable balances. Additionally, we have periodically established a specific reserve on certain receivables as necessary. Any changes to the reserve are recorded in general and administrative expenses. The allowance for uncollectible accounts was approximately $236,000 and $18,000, at December 30, 2012 and January 1, 2012, respectively. In 2012, the increase in the allowance for doubtful accounts was primarily due to the receivable aging for two franchise partners. Accounts receivable are written off when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Accounts receivable balances written off have not exceeded allowances provided. We believe all accounts receivable in excess of the allowance are fully collectible. If accounts receivable in excess of 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 our consolidated statements of operations. In assessing recoverability of these receivables, we make judgments regarding the financial condition of the franchisees based primarily on past and current payment trends, as well as other variables, including annual financial information, which the franchisees are required to submit to us.

Stock-based compensation — We recognize compensation cost for share-based awards granted to team members based on their fair values at the time of grant over the requisite service period. Our pre-tax compensation cost for stock options and other incentive awards is included in general and administrative expenses in our consolidated statements of operations (see Note 10 to our financial statements).

Income Taxes — We provide for income taxes based on our estimate of federal and state income tax liabilities. These estimates include, among other items, effective rates for state and local income taxes, allowable tax credits for items such as taxes paid on reported tip income, estimates related to depreciation and amortization expense allowable for tax purposes, and the tax deductibility of certain other items. Our estimates are based on the information available to us at the time that we prepare the income tax provision. We generally file our annual income tax returns several months after our fiscal year-end. Income tax returns are subject to audit by federal, state, and local governments, generally years after the tax returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws. Accounting for uncertain tax positions requires significant judgment including estimating the amount, timing, and likelihood of ultimate settlement. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates. Additionally, uncertain positions may be re-measured as warranted by changes in facts or law. During 2012, we realized the benefit from the cumulative impact of tax credits for employee reported tips for the current year as well as four previous tax years that were amended, or in the case of fiscal 2011, initially filed. This resulted from a more precise calculation methodology for this tax credit, and will continue to benefit us in the future.

Results of Operations

Revenue — Our revenue consists of four components: company-owned restaurant sales, franchise-related revenue from royalties and franchise fees, licensing revenue from the retail sale of our sauces and rubs, and other revenue from the opening assistance we provide to franchise partners. We record restaurant sales at the time food and beverages are served. Our revenue recognition policies for franchising are discussed under “Recognition of Franchise-Related Revenue” above. Our franchise-related revenue consists of area development fees, initial franchise fees and continuing royalty payments. We record sales of merchandise items at the time items are delivered to the customer.

We have a licensing agreement for our retail products, with renewal options of five years, subject to the licensee’s attainment of identified minimum product sales levels. Based on achievement of the required minimum product sales, the agreement will be in force until April 2015 at which time these levels will be re-evaluated.

Periodically, we provide additional services, beyond the general franchise agreement, to our franchise operations, such as new restaurant training and décor installation services. The cost of these services is billed to the respective franchisee, is recorded as other income when the service is provided, and is generally payable on net 30-day terms. Since 2010, the franchise agreements require a 50% deposit be paid in advance for these services.

29

Costs and Expenses — Restaurant costs and expenses include food and beverage costs, operating payroll, team member benefits, restaurant level supervision, occupancy costs, repair and maintenance costs, supplies, advertising and promotion, and restaurant depreciation and amortization. Certain of these costs and expenses are variable and will increase or decrease with sales volume. The primary fixed costs are corporate and restaurant management salaries and occupancy costs. Our experience is that when a new restaurant opens, it incurs higher than normal levels of labor and food costs until operations stabilize, usually during the first 12-14 weeks of operation. As restaurant management and team members gain experience following a restaurant’s opening, labor scheduling, food cost management and operating expense control are improved to levels similar to those at our more established restaurants.

General and Administrative Expenses — General and administrative expenses include all corporate and administrative functions that provide an infrastructure to support existing operations and support future growth. Salaries, bonuses, team member benefits, legal fees, accounting fees, consulting fees, travel, rent, and general insurance are major items in this category. We record expenses for Managers in Training (“MITs”) in this category for approximately six weeks prior to a restaurant opening. We also provide franchise services, the revenue of which are included in other revenue and the expenses of which are included in general and administrative expenses.

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

Fiscal Year 2012 Compared to Fiscal Year 2011

Total Revenue

Total revenue of approximately $155.0 million for fiscal 2012 increased approximately $200,000, or 0.1%, from total revenue of $154.8 in fiscal 2011. Fiscal 2012 and 2011 both consisted of 52 weeks.

30

Restaurant Sales, net

Restaurant sales for fiscal 2012 were approximately $135.7 million, compared to approximately $136.9 million for fiscal 2011 reflecting a 0.9% decrease. Total restaurant sales reflected a 1.8% comparable sales decrease and the closure of three company-owned restaurants. This was partially offset by the full year impact of two company-owned restaurants that opened in fiscal 2011, and the partial year impact of two company-owned restaurants that opened in fiscal 2012, as well as a weighted average price increase of approximately 2.85%. The overall 1.8% comparable sales decrease was, on a weighted basis, comprised of a 2.1% comparable sales decrease for dine-in sales which was partially offset by a comparable sales increase for catering of 0.3%, while To Go comparable sales remained flat. For fiscal 2012, off-premise sales were 33.4% of total sales, with catering at 10.5% and To Go at 22.9%. This compares to 2011’s off-premise sales of 32.0 % with catering at 9.9% and To Go at 22.1%. Finally, as a percentage of dine-in sales, our adult beverage sales at our company-owned restaurants were approximately 9.5% and 9.4% for fiscal 2012 and 2011, respectively.

Franchise-Related Revenue

Franchise-related revenue consists of royalty revenue and franchise fees, which includes initial franchise fees and area development fees. Franchise-related revenue was approximately $18.1 million for fiscal 2012, compared to $16.9 million for 2011. The increase in franchise-related revenue is primarily related to an increase in franchise fees which reflects a net increase of two franchise restaurants year over year partially offset by a comparable sales decrease of 2.0%. Ten new franchise restaurants opened in fiscal 2012 at higher sales volumes than the eight restaurants that closed. Additionally, while our committed units to be developed decreased by one unit year over year; it did reflect the execution of two significant area development agreements as well as several smaller agreements. Fiscal 2012 included 6,848 franchise operating weeks, compared to 6,691 franchise operating weeks in fiscal 2011. There were 135 franchise-operated restaurants open at December 30, 2012, compared to 133 at January 1, 2012.

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. Licensing royalty revenue was approximately $731,000 for fiscal 2012 as compared to $702,000 for fiscal 2011. During fiscal 2013, as a result of continued growth in our restaurant base and expanded markets, we expect to see licensing revenue continue to increase beyond fiscal 2012 levels.

Other revenue for fiscal 2012 was approximately $443,000 compared to approximately $282,000 for the comparable period of fiscal 2011. The increase was primarily due to an increase in the number of franchise openings and an increase in the opening assistance required.

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 open at least 24 months ended December 30, 2012 decreased 1.8%, compared to fiscal 2011’s increase of 1.5%. For fiscal 2012 and fiscal 2011, there were 49 and 44 restaurants, respectively, included in the company-owned 24 month comparable sales base.

Same store net sales on a 24 month basis for franchise-operated restaurants for fiscal 2012 decreased 2.0%, compared to fiscal 2011’s comparable sales which were flat to 2010’s sales. For fiscal 2012 and fiscal 2011, there were 107 and 102 restaurants, respectively, included in the franchise-operated 24 month comparable sales base.

31

Average Weekly Net Sales and Operating Weeks

The following table shows company-owned and franchise-operated average weekly net sales for fiscal 2012 and fiscal 2011:

Food and Beverage Costs

Food and beverage costs for fiscal 2012 were approximately $42.4 million or 31.3% of net restaurant sales compared to approximately $40.8 million or 29.8% of net restaurant sales for fiscal 2011. This increase is primarily due to expected commodity cost increases combined with a shift in higher sales of lower-priced, lower-margin items compared to fiscal 2011. Additionally, we strategically slowed the progress of certain initiatives for further testing. These initiatives were intended to positively impact food costs in 2012; however, to ensure their long-term success, both in terms of dollar savings, as well as delivering a value proposition to our guests, they were delayed until fiscal 2013.

For 2013, we currently anticipate a 2.0% year over year decline in dollars in our contracted food and beverage costs for comparable restaurants, based on what we have contracted to date and based on a projection of the remainder of the year. Late in 2012, we locked in a majority of our pork contracts for all of fiscal 2013 which positions us to capitalize on future savings should we see further opportunities in 2013 to blend and extend our contract into fiscal 2014. Additionally, we anticipate a decrease in the cost of our brisket and other items, such as hamburger, seafood, and French fries, which we expect will be partially offset by higher chicken prices year over year. Certain of our key proteins, such as chicken and brisket, have been contracted through the first quarter of 2013; and although our guidance reflects a projection of these, we are still negotiating final pricing for the remainder of 2013 on these items. With all indications pointing to a continuation of rising commodity prices across the industry, we plan on mitigating these price increases with a number of strategies. First, we anticipate taking a menu price increase of approximately 1.5% on selected menu items in April 2013, concurrent with our menu redesign. As we move through 2013, we will determine whether or not we will take an additional price increase later in the year based on greater insight obtained from our work with RMS, our menu pricing consultant.

During 2013, we will also continue our strategy of growing our supplier network, particularly in the West. These new suppliers will allow us to optimize our freight costs because our restaurants will be closer to the distribution centers, thereby lowering freight costs across the rest of the system. Additionally, in 2013, we will transition to selling some of our key proteins in the same unit of measure we receive them, protecting us from the variability of size and weight for these key items. An example of this is selling wings “by weight” as opposed to “by the piece”. Although, this will not change portion sizes or the value delivered to our guest, it will allow us to standardize food costs by reducing the weight variations of the products we sell, and will open us up to bringing additional vendors into our system. Lastly, we will strategically manage menu mix and margin through key core-item promotions as well as through opportunistic commodity purchases of high margin items that make sense to our guests and can be inserted quickly into our promotional calendar. As a result of our contracts and initiatives, we anticipate food and beverage costs for fiscal 2013, as a percentage of net sales, to be approximately 120 to 125 basis points lower than fiscal 2012’s percentage.

Labor and Benefits Costs

Labor and benefits costs for fiscal 2012 were approximately $44.3 million or 32.6% of net restaurant sales, compared to approximately $43.2 million or 31.5% of net restaurant sales for fiscal 2011. This increase was primarily due to higher direct labor costs, as well as higher medical claims, payroll taxes, and workers’ compensation premiums year over year in addition to sales deleverage. For 2013, we expect labor and benefits costs as a percentage of sales, to be 30 to 35 basis points lower than fiscal 2012’s percentage, primarily due to a lower level of discounts year over year.

32

Operating Expenses

Operating expenses for fiscal 2012 were approximately $38.4 million or 28.3% of net restaurant sales, compared to approximately $38.4 million or 28.0% of net restaurant sales for fiscal 2011. This increase was primarily due to sales deleverage partially offset by lower utility and repair and maintenance costs year over year. In fiscal 2012, advertising, as a percentage of sales, was approximately 3.4% which was flat to fiscal 2011.

For fiscal 2013, due to a carryover of funds, the Company has decreased the Marketing Fund contribution system-wide, to 0.75% from 1.0% for fiscal 2012. We expect that advertising expense for 2013 will remain at approximately 3.4% of net sales, including the contribution to the Marketing Fund, with amounts saved from a lower ad fund contribution redeployed to support sales building efforts.

We are projecting operating expenses as a percentage of net sales for fiscal 2013 to be approximately 50 to 55 basis points lower than 2012’s percentage. The majority of this decline relates to decreased supply costs from a packaging initiative and an expected decline in other direct operating costs.

Depreciation and Amortization

Depreciation and amortization expense for fiscal 2012 and 2011 was approximately $6.0 million and $5.6 million, respectively, and was 3.9% and 3.6%, respectively, of total revenue due to a year over year increase in capital expenditures. For 2013, we expect depreciation and amortization expense as a percentage of total revenue, to be 10 to 15 basis points lower than fiscal 2012’s percentage, primarily due to a lower level of discounts year over year.

General and Administrative Expenses

General and administrative expenses for fiscal 2012 were approximately $16.8 million or 10.9% of total revenue compared to approximately $16.5 million or 10.6% of total revenue for fiscal 2011. The increase is primarily due to additions and changes to our corporate infrastructure to support our lines of business strategy as well as a year over year increase in required franchise opening assistance. Additionally, 2012 did not contain a bonus accrual compared to fiscal 2011, which contained a bonus accrual of approximately $1.3 million.

For fiscal 2012 and 2011, stock-based compensation and board of director cash compensation expense was approximately $1.7 million. Due to a higher average share price for the performance share programs vesting in fiscal 2013, and due to equity grants associated with hiring our new CEO, we anticipate stock-based compensation and board of director cash compensation to be approximately $2.3 million for fiscal 2013, as follows (in thousands):

For 2013, we expect general and administrative expenses as a percentage of revenue, to be approximately 150 to 155 basis points unfavorable to 2012’s percentage, primarily due to a 145 basis point increase for the full accrual for bonus achievement, and the previously mentioned personnel investments, particularly in areas that support growth.

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

33

is measured by the amount by which the carrying amount of the restaurant site exceeds its fair value. Fair value is estimated based on the best information available including estimated future cash flows, expected growth rates in comparable restaurant sales, remaining lease terms and other factors. If these assumptions change in the future, we may be required to take additional impairment charges for the related assets. Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual results could vary significantly from such estimates. Restaurant sites that are operating, but have been previously impaired, are reported at the lower of their carrying amount or fair value less estimated costs to sell. Here is a summary of these events and situations for fiscal 2012 and fiscal 2011:

2012 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):

2011 Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):