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Buffalo Wild Wings Inc – ‘424B4’ on 11/20/03

On:  Thursday, 11/20/03, at 9:59pm ET   ·   As of:  11/21/03   ·   Accession #:  1193125-3-84778   ·   File #:  333-108695

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

11/21/03  Buffalo Wild Wings Inc            424B4                  1:5.8M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Definitive Prospectus                               HTML   1.40M 

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Filed pursuant to Rule 424(b)(4)

File No. 333-108695

PROSPECTUS

3,000,000 Shares

Common Stock

This is the initial public offering of 3,000,000 shares of common stock of Buffalo Wild Wings, Inc.

Our common stock has been approved for quotation on the Nasdaq National Market under the symbol “BWLD.”

Investing in our common stock involves risks. See “ Risk Factors” beginning on page 6.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters may also purchase up to an additional 450,000 shares from us and certain of our stockholders at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. If such shares are sold, we will not receive any of the proceeds from the sale by the selling stockholders.

The underwriters expect to deliver the shares on or about November 26, 2003.

MCDONALD INVESTMENTS INC.

The date of this prospectus is November 20, 2003.

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You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. We are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers or sales are permitted. The information in this prospectus may only be accurate on the date of this prospectus. Our business, financial condition or results of operations may have changed since that date.

ASSUMPTIONS USED IN THIS PROSPECTUS

Throughout this prospectus, our fiscal years ended December 27, 1998, December 26, 1999, December 31, 2000, December 30, 2001 and December 29, 2002 are referred to as fiscal years 1998, 1999, 2000, 2001 and 2002, respectively. Our fiscal year consists of 52 or 53 weeks and ends on the last Sunday in December in each fiscal year. Fiscal 2000 was a 53-week year. All other fiscal years shown included 52 weeks. Our nine-month periods consist of 39 weeks ended on September 29, 2002 and September 28, 2003.

Unless we indicate otherwise, all of the information in this prospectus: i) reflects a 1-for-5 reverse stock split, which became effective September 9, 2003, ii) assumes the underwriters do not exercise the option granted by us and the selling stockholders to purchase additional shares in this offering, iii) does not include options to purchase 806,697 shares of common stock outstanding and warrants to purchase 131,687 shares of common stock outstanding and exercisable as of October 15, 2003 and iv) assumes all of our outstanding mandatorily redeemable Series A Preferred Stock is converted into 1,849,415 shares of common stock upon the closing of this offering. The mandatorily redeemable Series A Preferred Stock will be automatically converted into common stock upon the closing of this offering.

We own a number of trademarks and service marks registered or pending with the U.S. Patent and Trademark Office. We have registered the following marks with the U.S. Patent and Trademark Office: Better-Be-Ready Blazin’; Buffalo Wild Wings; Buffalo Wild Wings & Weck; Buffalo Wild Wings & Weck The Real Wing; bw-3; Gotta Wing It; Home Of The Real Wing; Something Wild Has Come To Town; and Buffalo Wild Wings Grill & Bar Logo. We have filed applications to federally register the following marks, which are pending: Buffalo Wild Wings (2); Buffalo Wild Wings Grill & Bar Logo (2); Buffalo Wild Wings Trade Dress (4); Get It To Go; Buffalo Design; Wings. Beer. Sports. All the Essentials.; We Can’t Stand Bland; Blazin’; Buffarita; Buffalito; Buffalo Chips; Wild; Be Wild; BWLD; We’re on Fire; B-Dubs; and Buffalo Legs. We have also registered the Internet domain names http://www.buffalowildwings.com and http://www.bwld.com. This prospectus also contains trademarks of companies other than Buffalo Wild Wings.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before investing in our common stock. You should read the entire prospectus carefully, including the “Risk Factors” section and our consolidated financial statements and the related notes. References in this prospectus to “Buffalo Wild Wings,” “company,” “we,” “us” and “our” refer to the business of Buffalo Wild Wings, Inc. and our subsidiaries.

Our Business

We are an established and growing owner, operator and franchisor of restaurants featuring a variety of boldly flavored, made-to-order menu items including our Buffalo, New York-style chicken wings spun in one of our 12 signature sauces. In addition to fresh chicken wings, our menu also features specialty hamburgers and sandwiches, Buffalito soft tacos, finger foods and salads. Our 12 sauces, from the mildest Teriyaki to the hottest Blazin’, are designed to complement many of our menu items, allowing guests to customize their meal by adding a signature sauce. Our restaurants feature a full bar including approximately 20 domestic and imported beers on tap, a broad selection of bottled beer, wine and liquor.

Our restaurants create an inviting neighborhood atmosphere by using a flexible service model, an extensive multi-media system and an open layout. Upon entering our restaurants, guests may choose to order at the counter for dine-in or take-out service or order at the table from our servers. This option allows our guests to customize each dining experience based on their different time demands or service preferences. Each of our restaurants contains an extensive multi-media system consisting of up to five projection televisions and 40 additional televisions, National Trivia Network and a selection of video games. We believe that the layout of our restaurants is attractive to both sports fans and families, as guests may move tables together to watch sporting events, to share a family dinner or to join friends at the bar. Furthermore, by designing our restaurants with a layout that differentiates the dining and bar areas, we believe that we appeal to families while still targeting our 21- to 40-year-old demographic.

Since our first restaurant opened over 20 years ago, we have grown to 220 restaurants, comprised of 78 company-owned and 142 franchised restaurants, operating in 28 states across the United States. By the end of 2003, we expect to have 240 system-wide restaurants opened in 30 states. Over the past five fiscal years, we have increased the number of our company-owned restaurants from 10 to 70, representing a compound annual growth rate of 47.6%, and have grown company-owned restaurant sales from $12.2 million to $85.5 million, representing a compound annual growth rate of 47.6%. Over the same period, net earnings have grown from $860,000 to $3.1 million, representing a compound annual growth rate of 29.0%. We have also increased the number of our franchised restaurants from 68 to 129 over the same period, representing a compound annual growth rate of 13.7%, and have grown franchised restaurant sales at a compound annual growth rate of 22.8%. We typically receive a 5.0% royalty from our franchisees based on franchised restaurant sales.

Our Business Strategy

In order to continue our growth, we plan to execute the following strategies:

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Our Growth Strategy

We plan to grow by opening company-owned and franchised restaurants in both new and existing markets.

Our History

We were founded in 1982 and opened our first restaurant near The Ohio State University. In 1992, our first franchised restaurant opened. In 1994, with nine company-owned and 26 franchised units, we hired our current Chief Executive Officer and President and our current Chief Financial Officer to refine our business strategy and manage our operations and growth. We have further added an experienced senior management team, developed and implemented our restaurant design and décor package and established our flexible service model. Our management has also formalized our real estate and franchise expansion strategy, broadened our menu to attract a wider guest demographic and implemented best practices to develop a platform for nationwide growth.

We are a Minnesota corporation located at 1600 Utica Avenue South, Suite 700, Minneapolis, Minnesota 55416 and our telephone number is (952) 593-9943. Our website address is www.buffalowildwings.com. Information on our website is not a part of this prospectus.

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The Offering

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Summary Consolidated Financial and Operating Data

The following tables summarize consolidated financial and operating data regarding our business and should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and/or consolidated financial statements and the related notes included elsewhere in this prospectus.

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully read and consider the risks described below before deciding to invest in our common stock. If any of the following risks actually occurs, our business, financial condition, results of operation or cash flows could be materially harmed. In any such case, the trading price of our common stock could decline and you could lose all or part of your investment. When determining whether to buy our common stock, you should also refer to the other information in this prospectus, including our consolidated financial statements and the related notes.

Risks related to our growth strategy

If we are unable to successfully open new restaurants, our revenue growth rate and profits may be reduced.

To successfully expand our business, we must open new Buffalo Wild Wings restaurants on schedule and in a profitable manner. In the past, we and our franchisees have experienced delays in restaurant openings and we may experience similar delays in the future. Delays or failures in opening new restaurants could hurt our ability to meet our growth objectives, which may affect the expectations of securities analysts and others and thus our stock price. We cannot guarantee that we or our franchisees will be able to achieve our expansion goals or that new restaurants will be operated profitably. Further, any restaurants that we or our franchisees open may not obtain operating results similar to those of our existing restaurants. Our ability to expand successfully will depend on a number of factors, many of which are beyond our control. These factors include:

We must identify and obtain a sufficient number of suitable new restaurant sites for us to sustain our revenue growth rate.

We require that all proposed restaurant sites, whether for company-owned or franchised restaurants, meet site-selection criteria established by us. We and our franchisees may not be able to find sufficient new restaurant sites to support our planned expansion in future periods. We face significant competition from other restaurant companies and retailers for sites that meet our criteria and the supply of sites may be limited in some markets. As a result of these factors, our costs to obtain and lease sites may increase, or we may not be able to obtain certain sites due to unacceptable costs. Our inability to obtain suitable restaurant sites at reasonable costs may reduce our growth rate.

Our restaurants may not achieve market acceptance in the new geographic regions we enter.

Our expansion plans depend on opening restaurants in new markets where we or our franchisees have little or no operating experience. The success of these new restaurants will be affected by the different competitive

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conditions, consumer tastes and discretionary spending patterns of the new markets as well as our ability to generate market awareness of the Buffalo Wild Wings brand. Sales at restaurants opening in new markets may take longer to reach average annual restaurant sales, if at all, thereby affecting the profitability of these restaurants. We may not be successful in operating our restaurants in new markets on a profitable basis.

New restaurants added to our existing markets may take sales from existing restaurants.

We and our franchisees intend to open new restaurants in our existing markets, which may reduce sales performance and guest visits for existing restaurants in those markets. In addition, new restaurants added in existing markets may not achieve system-wide operating performance.

Implementing our expansion strategy may strain our resources.

Our expansion strategy may strain our management, financial and other resources. We must attract and retain talented operating personnel to maintain the quality and service levels at our existing and future restaurants. We must also continue to enhance our operational, financial and management systems. We may not be able to effectively manage these or other aspects of our expansion. If we fail to do so, our business, financial condition, operating results and cash flows could suffer.

Risks related to our business

If the cost of chicken wings increases, our cost of sales will increase and our operating income could be reduced.

The primary food product used by our company-owned and franchised restaurants is fresh chicken wings. Any material increase in the cost of fresh chicken wings could adversely affect our operating results. For fiscal 2002, approximately 28%, and for the nine months ended September 28, 2003, approximately 30% of the cost of sales for our company-owned restaurants were attributable to the purchase of fresh chicken wings. Our cost of sales is significantly affected by increases in the cost of chicken wings, which can result from a number of factors, including seasonality, increases in the cost of grain, disease and other factors that affect availability, and greater international demand for domestic chicken products. Because we are currently unable to secure long-term fixed-price contracts for the purchase of fresh chicken wings, a rise in the prices of chicken wings would expose us to cost increases.

We are dependent on franchisees and their success.

Currently, approximately 65% of our restaurants are franchised. Franchising royalties and fees represented approximately 11% of our revenues during fiscal 2002 and 10% for the nine months ended September 28, 2003. Our performance depends upon i) our ability to attract and retain qualified franchisees and ii) the franchisees’ ability to execute our concept and capitalize upon our brand recognition and marketing. We may not be able to recruit franchisees who have the business abilities or financial resources necessary to open restaurants on schedule, or who will conduct operations in a manner consistent with our concept and standards. Our franchisees may not be able to operate restaurants in a profitable manner.

Our franchisees may take actions that could harm our business.

Franchisees are independent contractors and are not our employees. We provide training and support to franchisees, but the quality of franchised restaurant operations may be diminished by any number of factors beyond our control. Consequently, franchisees may not operate restaurants in a manner consistent with our standards and requirements, or may not hire and train qualified managers and other restaurant personnel. If franchisees do not adequately manage their restaurants, our image and reputation, and the image and reputation of other franchisees, may suffer materially and system-wide sales could significantly decline. In addition, we

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may also face potential claims and liabilities due to the acts of our franchisees based on agency or vicarious liability theories.

We could face liability from our franchisees.

A franchisee or government agency may bring legal action against us based on the franchisee/franchisor relationships. Various state and federal laws govern our relationship with our franchisees and potential sales of our franchised restaurants. If we fail to comply with these laws, we could be liable for damages to franchisees and fines or other penalties. Expensive litigation with our franchisees or government agencies may adversely affect both our profits and our important relations with our franchisees.

We may be unable to compete effectively in the restaurant industry.

The restaurant industry is intensely competitive. We believe we compete primarily with regional and local sports bars, casual dining and quick casual establishments and wing-based take-out concepts. Many of our direct and indirect competitors are well established national, regional or local chains with a greater market presence than we have. Further, some competitors have substantially greater financial, marketing and other resources than we do. In addition, independent owners of local or regional establishments may enter the wing-based restaurant business without significant barriers to entry and such establishments may provide price competition for our restaurants. Competition in the casual dining, quick casual and quick service segments of the restaurant industry is expected to remain intense with respect to price, service, location, concept and the type and quality of food. We also face intense competition for real estate sites, qualified management personnel and hourly restaurant staff.

Our quarterly operating results may fluctuate due to the timing of special events and other factors.

Our quarterly operating results depend, in part, on special events, such as the Super Bowl and other popular sporting events, and thus are subject to fluctuations based on the dates for such events. Historically, sales in most of our restaurants have been higher during fall and winter months based on the relative popularity of national, regional and local sporting and other events. Further, our quarterly operating results may fluctuate significantly because of other factors, including:

As a result of the factors discussed above, our quarterly and annual operating results may fluctuate significantly. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year. In the future, operating results may fall below the expectations of securities analysts and investors. In that event, the price of our common stock would likely decrease.

We may not be able to attract and retain qualified personnel to operate and manage our restaurants.

Our success and the success of our individual restaurants depend on our ability to attract, motivate and retain a sufficient number of qualified restaurant employees, including restaurant managers, kitchen staff and

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wait staff. The inability to recruit and retain these individuals may delay the planned openings of new restaurants or result in high employee turnover in existing restaurants. This could inhibit our expansion plans and business performance and, to the extent that a labor shortage may force us to pay higher wages, harm our profitability. Further, the loss of any of our executive officers would likely adversely impact us.

We may not be able to obtain and maintain licenses and permits necessary to operate our restaurants.

The restaurant industry is subject to various federal, state and local government regulations, including those relating to the sale of food and alcoholic beverages. Such regulations are subject to change from time to time. The failure to obtain and maintain these licenses, permits and approvals, including food and liquor licenses, could adversely affect our operating results. Difficulties or failure to obtain the required licenses and approvals could delay or result in our decision to cancel the opening of new restaurants. Local authorities may revoke, suspend or deny renewal of our food and liquor licenses if they determine that our conduct violates applicable regulations.

Various federal and state labor laws govern our relationship with our employees and affect operating costs. These laws include minimum wage requirements, overtime pay, unemployment tax rates, workers’ compensation rates, citizenship requirements and sales taxes. A number of factors could adversely affect our operating results, including additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits, increased tax reporting and tax payment requirements for employees who receive gratuities, a reduction in the number of states that allow tips to be credited toward minimum wage requirements and increased employee litigation including claims relating to the Fair Labor Standards Act.

The Federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. Although our restaurants are designed to be accessible to the disabled, we could be required to make modifications to our restaurants to provide service to, or make reasonable accommodations for disabled persons.

A decline in visitors to any of the business districts near the locations of our restaurants could negatively affect our restaurant sales.

Some of our restaurants are located near high activity areas such as retail centers, big box shopping centers and entertainment centers. We depend on high visitor rates at these business districts to attract guests to our restaurants. If visitors to these centers decline due to economic conditions, road construction, changes in consumer preferences or shopping patterns, changes in discretionary consumer spending or otherwise, our restaurant sales could decline significantly and adversely affect our results of operations.

Changes in consumer preferences or discretionary consumer spending could harm our performance.

Our success depends, in part, upon the continued popularity of Buffalo, New York-style chicken wings, our other menu items and casual dining restaurant styles. We also depend on trends toward consumers eating away from home more often. Shifts in these consumer preferences could negatively affect our future profitability. Such shifts could be based on health concerns related to the cholesterol, carbohydrate or fat content of certain food items, including items featured on our menu. Negative publicity over the health aspects of such food items may adversely affect consumer demand for our menu items and could result in a decrease in guest traffic to our restaurants. A decrease in guest traffic could materially harm our business. Smoking bans imposed by state or local laws could also adversely impact our restaurants’ performance. In addition, our success depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. A decline in consumer spending or in economic conditions could reduce guest traffic or impose practical limits on pricing, either of which could harm our business, financial condition, operating results or cash flows.

We are susceptible to adverse trends and economic conditions in Ohio.

As of October 15, 2003, 71, or approximately 32%, of our company-owned and franchised restaurants are located in Ohio. As a result, we are susceptible to adverse trends and economic conditions in that state. In

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addition, given our geographic concentration in the Midwest, negative publicity regarding any of our restaurants could have a material effect on our business and operations throughout the region, as could other regional occurrences such as local strikes, new or revised laws or regulations, or disruptions in the supply of food products.

The acquisition of existing restaurants from our franchisees may have unanticipated consequences that could harm our business and our financial condition.

We may seek to selectively acquire existing restaurants from our franchisees. To do so, we would need to identify suitable acquisition candidates, negotiate acceptable acquisition terms and obtain appropriate financing. Any acquisition that we pursue, whether or not successfully completed, may involve risks, including:

Future acquisitions of existing restaurants from our franchisees, which may be accomplished through a cash purchase transaction, the issuance of our equity securities or a combination of both, could result in potentially dilutive issuances of our equity securities, the incurrence of debt and contingent liabilities and impairment charges related to goodwill and other intangible assets, any of which could harm our business and financial condition.

Our ability to raise capital in the future may be limited, which could adversely impact our business.

Changes in our operating plans, acceleration of our expansion plans, lower than anticipated sales, increased expenses or other events, including those described in this section, may cause us to seek additional debt or equity financing on an accelerated basis. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could negatively impact our growth and other plans as well as our financial condition and results of operations. Additional equity financing, if available, may be dilutive to the holders of our common stock and may involve significant cash payment obligations and covenants and/or financial ratios that restrict our ability to operate and grow our business.

Improper food handling may affect our business adversely.

There are health risks associated with eating improperly handled or prepared food items. Negative publicity over illness caused by improper handling or preparation of food items could harm our future revenue and profitability. While we currently maintain insurance for these types of incidents, we cannot guarantee our insurance is sufficient to cover all adverse outcomes.

Complaints or litigation may hurt us.

Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to our restaurants, or that we have problems with food quality or operations. We are also subject to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract claims, employment-related claims and claims from franchisees. The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their guests. In addition, we are subject to “dram shop” statutes. These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. We are a party to such a dram shop claim

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recently filed in Pennsylvania state court. The plaintiff in this claim has asked for unspecified damages for wrongful death and loss of life as well as punitive damages. Recent litigation against restaurant chains has resulted in significant judgments, including punitive damages, under dram shop statutes. Because the plaintiff is seeking punitive damages, which may not be covered by insurance, this action could have an adverse impact on our financial condition and results of operations. See “Litigation.” Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage for any claims could materially adversely affect our financial condition or results of operations. Further, adverse publicity resulting from these allegations may materially adversely affect us and our restaurants.

Our current insurance may not provide adequate levels of coverage against claims.

We currently maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure, such as losses due to natural disasters. Such damages could have a material adverse effect on our business and results of operations.

We may not be able to protect our trademarks, service marks or trade secrets.

We place considerable value on our trademarks, service marks and trade secrets. We intend to actively enforce and defend our marks and if violations are identified, to take appropriate action to preserve and protect our goodwill in our marks. We attempt to protect our sauce recipes as trade secrets by, among other things, requiring confidentiality agreements with our sauce suppliers and executive officers. However, we cannot be sure that we will be able to successfully enforce our rights under our marks or prevent competitors from misappropriating our sauce recipes. We can also not be sure that: i) our marks are valuable, ii) using our marks does not, or will not, violate others’ marks, iii) the registrations of our marks would be upheld if challenged, or iv) we would not be prevented from using our marks in areas of the country where others might have already established rights to them. Any of these uncertainties could have an adverse effect on us and our expansion strategy.

Risks related to our capital stock

Our stock price may be volatile and you may not be able to resell your shares at or above the initial offering price.

Prior to this offering, there has been no public market for shares of our common stock. An active trading market may not develop or be sustained following completion of this offering. The initial public offering price of the shares has been determined by negotiations between us and representatives of the underwriters. The price may bear no relationship to the price at which our common stock will trade upon completion of this offering. The stock market has experienced significant price and volume fluctuations. Fluctuations or decreases in the trading price of our common stock may adversely affect your ability to trade your shares.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert management’s attention and resources that would otherwise be used to benefit the future performance of our operations.

Future sales of shares of common stock into the public market may depress our stock price.

The 3,000,000 shares of common stock sold in this offering (and any shares sold upon exercise of the underwriters’ over-allotment option) will be freely tradable without restriction under the Securities Act of 1933, except for any shares purchased by our officers, directors and principal stockholders and shares sold under our directed share program. As of the date hereof, approximately an additional 4,452,944 shares of common stock are “restricted securities” within the meaning of Rule 144 and are currently freely tradable under Rule 144(k) under the Securities Act, unless any of such shares are held by one of our existing affiliates as that term is defined in Rule 144 under the Securities Act or are subject to lock-up agreements. Approximately 4,434,856 shares are

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subject to lock-up agreements under which the holders have agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this prospectus without the prior written consent of RBC Dain Rauscher Inc. and SG Cowen Securities Corporation.

On the effective date of this prospectus, in addition to the 3,000,000 shares sold in this offering and the 450,000 shares that could be sold pursuant to the over-allotment option, 256,710 shares of our restricted shares will be immediately available for sale in the public market. Beginning 90 days after the effective date, approximately 20,550 shares of our restricted shares will be eligible for sale subject to manner of sale and certain other limitations under Rule 144. Beginning 180 days after the effective date, approximately 4,434,856 shares of our restricted shares will be eligible for sale subject to the volume and other limitations of Rule 144 or Rule 701 under the Securities Act. After expiration of the lock-up period, some of our stockholders have the contractual right to require us to register some of their shares of common stock for future sale.

Sales of substantial amounts of common stock in the public market, or the perception that these sales may occur, could adversely affect the prevailing market price of our common stock and our ability to raise capital through a public offering of our equity securities. See “Shares Eligible for Future Sale” which describes the circumstances under which restricted shares or shares held by affiliates may be sold in the public market.

Our executive officers, directors and their affiliates will continue to control us after this offering and they may make decisions with which you disagree.

Our executive officers, directors and their affiliates, will beneficially own approximately 26.1% of the outstanding shares of our common stock after this offering. As a result of such ownership, such stockholders, as a group, have the ability to influence actions requiring stockholder approval, including the election or removal of the members of the board of directors and changes in control of the company. See “Principal and Selling Stockholders.”

Adverse effect of undesignated stock and anti-takeover provisions.

Our authorized capital includes 5,600,000 shares of undesignated stock. Our board of directors has the power to issue any or all of the shares of undesignated stock, including the authority to establish one or more series and to fix the powers, preferences, rights and limitations of such class or series, without seeking stockholder approval. Further, as a Minnesota corporation, we are subject to provisions of the Minnesota Business Corporations Act, or MBCA, regarding “control share acquisitions” and “business combinations.” We may, in the future, consider adopting additional anti-takeover measures. The authority of our board to issue undesignated stock and the anti-takeover provisions of the MBCA, as well as any future anti-takeover measures adopted by us, may, in certain circumstances, delay, deter or prevent takeover attempts and other changes in control of the company not approved by our board of directors. As a result, our stockholders may lose opportunities to dispose of their shares at favorable prices generally available in takeover attempts or that may be available under a merger proposal and the market price, voting and other rights of the holders of common stock may also be affected. See “Description of Capital Stock.”

As a new investor, you will experience immediate and substantial dilution in net tangible book value.

Investors purchasing shares of our common stock in this offering will pay more for their shares than the amount paid by existing stockholders who acquired shares prior to this offering. Accordingly, if you purchase common stock in this offering, you will incur immediate dilution in pro forma net tangible book value of approximately $7.99 per share. If the holders of outstanding options and warrants exercise these options and warrants, you will incur further dilution. See “Dilution.”

We have not and have no plans to pay cash dividends.

We have not declared or paid any cash dividends on our common stock since inception and do not anticipate declaring or paying any such cash dividends in the foreseeable future. See “Dividend Policy.”

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including those relating to:

Other risks, uncertainties and factors, including those discussed under “Risk Factors,” could cause our actual results to differ materially from those projected in any forward-looking statements we make.

We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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USE OF PROCEEDS

The net proceeds to us from the sale of 3,000,000 shares of common stock being offered by us at an initial public offering of $17.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses, are estimated to be approximately $46.5 million. We will not receive any proceeds from any shares of common stock sold by the selling stockholders.

We intend to use the net proceeds of this offering as follows:

Pending the application of the net proceeds, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional information regarding our sources and uses of capital.

DIVIDEND POLICY

We have not declared or paid cash dividends on our common stock. We currently intend to retain any earnings for use in the operation and expansion of our business and therefore do not anticipate declaring or paying any cash dividends in the foreseeable future.

Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

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CAPITALIZATION

The following table sets forth our capitalization as of September 28, 2003 on an actual and pro forma as adjusted basis. The “Actual” column reflects our capitalization as of September 28, 2003 on a historical basis, without any adjustments to reflect subsequent or anticipated events. The “Pro Forma” column reflects our capitalization as of September 28, 2003 with adjustments to reflect the conversion of all outstanding shares of our mandatorily redeemable Series A Preferred Stock into 1,849,415 shares of common stock upon the closing of the offering.

The “Pro Forma as Adjusted” column reflects our capitalization as September 28, 2003 with adjustments to reflect the receipt by us of the estimated net proceeds from the sale of 3,000,000 shares of common stock by us in the offering at an initial public offering price of $17.00 per share and the application of the net proceeds of $46.5 million therefrom, including the repayment of approximately $10 million of indebtedness under our loans, including a prepayment penalty of $300,000. See “Use of Proceeds.”

None of the columns shown below reflect the following:

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DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Pro forma net tangible book value per share represents the amount of our common stockholders’ equity, less intangible assets, divided by the number of shares of common stock outstanding. As of September 28, 2003, we had a net tangible book value of approximately $22.2 million or $4.83 per share of common stock, giving effect to the conversion of all outstanding shares of mandatorily redeemable Series A Preferred Stock into 1,849,415 shares of common stock. After giving effect to the sale of the 3,000,000 shares of common stock offered by us in this offering at an initial public offering price of $17.00 per share and the application of the estimated net proceeds therefrom, our net tangible book value as of September 28, 2003 would have been approximately $68.4 million, or approximately $9.01 per share. This represents an immediate increase in net tangible book value of $4.18 per share to existing stockholders and an immediate dilution in net tangible book value of $7.99 per share to new investors. The following table illustrates this per share dilution:

The following table sets forth on a pro forma as adjusted basis, as of September 28, 2003, the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing holders of common stock and by the new investors, before deducting the underwriting discount and estimated offering expenses payable by us.

The discussion and tables above assume no exercise of outstanding warrants or any outstanding stock options. As of September 28, 2003, there were 807,837 shares of common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $5.76 per share, and 250,705 shares available for future grant or issuance under our 2003 Equity Incentive Plan. As of September 28, 2003, there were also 131,687 shares of common stock issuable upon exercise of warrants with an exercise price of $3.70 per share. To the extent the options and warrants are exercised, there will be further dilution to new investors.

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SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statement of earnings data presented below for the fiscal years ended December 31, 2000, December 30, 2001 and December 29, 2002 and the consolidated balance sheet data as of December 30, 2001 and December 29, 2002 are derived from our consolidated financial statements included elsewhere in this prospectus, which have been audited by KPMG LLP, independent certified public accountants, and should be read in conjunction with those consolidated financial statements and notes thereto. The consolidated statement of earnings data presented below for the fiscal years ended December 27, 1998 and December 26, 1999 and the consolidated balance sheet data as December 27, 1998, December 26, 1999 and December 31, 2000 are derived from our audited consolidated financial statements not included in this prospectus. The consolidated statement of earnings data presented below for the nine months ended September 29, 2002 and September 28, 2003 and the consolidated balance sheet data as September 28, 2003, are derived from our unaudited consolidated financial statements included elsewhere in this prospectus which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information set forth therein. The consolidated results for the nine months ended September 28, 2003 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 28, 2003 or for any future period.

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