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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 27, 2004

Commission File No. 000-24743

BUFFALO WILD WINGS, INC.

(Exact name of registrant as specified in its charter)

1600 Utica Avenue South, Suite 700, Minneapolis, MN 55416

(Address of Principal Executive Offices)

Registrant’s telephone number (952) 593-9943

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 x    NO ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES ¨    NO x

The number of shares outstanding of the registrant’s common stock as of July 30, 2004: 8,253,206 shares.

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PART I. FINANCIAL INFORMATION

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except share data)

(unaudited)

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Dollar amounts in thousands except share and per share data)

(unaudited)

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(unaudited)

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 29, 2003 AND JUNE 27, 2004

(Dollar amounts in thousands except share and per share data)

The consolidated statements as of December 28, 2003 and June 27, 2004, and for the three-month and six-month periods ended June 29, 2003 and June 27, 2004, have been prepared by Buffalo Wild Wings, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The financial information for the three-month and six-month periods ended June 29, 2003 and June 27, 2004, is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods.

The financial information as of December 28, 2003, is derived from the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2003, included in item 8 in the Fiscal 2003 Annual Report on Form 10-K, and should be read in conjunction with such financial statements.

The results of operations for the three-month and six-month period ended June 27, 2004, are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 26, 2004.

Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.

The Company purchases its product from a number of suppliers and believes there are alternative suppliers. The Company has no minimum purchase commitments from its vendors. The primary food product used by Company-owned and franchised restaurants is fresh chicken wings. Fresh chicken wings are purchased by the Company based on current market conditions and are subject to fluctuation. Material increases in fresh chicken wing costs may adversely effect the Company’s operating results. For the three-month periods ended June 29, 2003 and June 27, 2004, fresh chicken wings were 30.8% and 36.8% respectively, of restaurant cost of sales. For the six-month periods ended June 29, 2003 and June 29, 2004, fresh chicken wings were 29.9% and 37.6% respectively, of restaurant cost of sales.

The Company adopted a stock performance plan in June 2004 and granted 79,527 restricted stock units. These units are subject to annual vesting upon the Company achieving performance targets established by the Board of Directors. The restricted stock units may vest one-third annually over a ten year period. However, the second third of the restricted stock units are not subject to vesting until the first one-third vests and the final one-third are not subject to vesting until the first two-thirds of the award has vested. An aggregate 26,509 restricted stock units are subject to vesting in 2004 and 53,018 restricted stock units in future periods.

The Company records compensation expense for option grants to employees under its stock option plan if the current market value of the underlying stock at the grant date exceeds the stock option exercise price. No such grants have been issued. The Company applies the intrinsic-value method in accounting for its employee stock option grants and, accordingly, no compensation cost has been recognized for its stock options in the financial statements.

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Pro forma disclosure of the net earnings impact of applying an alternative method of recognizing stock compensation expense over the vesting period is based on the fair value of all stock-based awards on the date of grant. If the Company had elected to recognize compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net earnings would have been decreased to the pro forma amounts indicated in the table below.

The impact of calculating compensation cost for stock options under SFAS No. 123 is reflected over the options’ vesting period, typically four years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Volatility was calculated based on an analysis of the Company’s industry peers and its own stock price since the initial public offering in November 2003.

The Company invests its cash in highly liquid debt instruments issued by the US. government and related agencies, municipalities and in commercial paper issued by companies with investment grade ratings. The Company’s investments have original maturities of up to 12 months with an average time to maturity of 2 months as of June 27, 2004. Investments with an original maturity of greater than 90 days are classified as marketable securities. Marketable securities with a remaining maturity of greater than one year are classified as long-term. The Company’s marketable securities are classified as held-to-maturity and are carried at amortized cost. Securities held at June 27, 2004 carried an amortized cost of $16.9 million which approximated fair value.

Property and equipment consists of the following:

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The following is a reconciliation of basic and fully diluted earnings per share for the three-month and six-month periods ended June 29, 2003 and June 27, 2004:

No shares and 79,527 shares for the three month periods ended June 29, 2003 and June 27, 2004, respectively, and 21,435 shares and 80,464 shares for the six month periods ended June 29, 2003 and June 27, 2004, respectively, have been excluded from the fully diluted calculation because the effect on net earnings per share would not have been dilutive.

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The Company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position and results of operations.

On August 8, 2003, an action captioned Ritter vs. Buffalo Wild Wings, Inc. was brought in Pennsylvania state court by the representative of the estate of a 23-year-old decedent alleging that the Company acted improperly by serving alcohol to an individual who later lost control of his vehicle and struck and killed the decedent and one other individual. The plaintiff has asked for unspecified damages for wrongful death and loss of life, as well as punitive damages. The Company believes it has meritorious defenses to the allegations made and is vigorously defending these claims. In addition, the Company believes it has sufficient insurance to cover an award of compensatory damages. The court has set a trial date of November 9, 2004 in this matter. Recent litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes. A judgment significantly in excess of its insurance coverage or involving punitive damages, which may not be covered by insurance, could materially adversely affect the Company’s financial condition or results of operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in Item 1 of Part 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003. Information included in this discussion and analysis includes information regarding restaurant unit counts, same store sales, and average weekly sales volumes. Management believes such information is an important measure of our performance and is useful in assessing consumer acceptance of the Buffalo Wild Wings^® Grill & Bar concept. Franchise information also provides an understanding of the Company’s revenues as franchise royalties and fees are based on the opening of franchised units and their sales. However, these sales measures are not prepared in accordance with GAAP, should not be considered in isolation or as a substitute for other measures of performance prepared in accordance with GAAP and may not be comparable to sales measurements as defined or used by other companies. All dollar amounts are in thousands.

Critical Accounting Policies

Our most critical accounting policies, which are those that require significant judgment, include: valuation of long-lived assets and store closing reserves, vendor allowances, and revenue recognition from franchise operations. A more in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended December 28, 2003.

Overview

As of June 27, 2004, we owned and operated 92 and franchised an additional 175 Buffalo Wild Wings Grill & Bar restaurants in 30 states. Of the 267 system-wide restaurants, 77 are located in Ohio. The restaurants have elements of both the quick casual and casual

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dining styles, both of which are part of a growing industry, with consumer spending in the quick casual segment increasing at a rate greater than in quick service or casual dining. The grill and bar segment is generally considered to be the largest restaurant segment and a growing sub-segment of the casual dining industry. Our long-term focus is to grow to a national chain of over 1,000 locations, with 20-25% annual unit growth in the next few years, continuing the strategy of developing both company-owned and franchised restaurants. Important to our success will be the continued and growing trend of consumers dining out more often and the economic trend in declining relative cost of a restaurant meal in comparison to a home-cooked meal.

Our revenue is generated by:

We generate cash from the operation of our company-owned restaurants, franchise royalties and fees and vendor allowances and support payments. We highlight the specific costs associated with operating our company-owned restaurants in the statement of earnings under “Restaurant operating costs.” Nearly all of our depreciation expense relates to assets used by our company-owned restaurants. Preopening costs are those costs associated with opening new company-owned restaurants and will vary quarterly and annually based on the number of new locations opened. Restaurant closures and impairment expense is related to company-owned restaurants and includes the writedown of poor performing locations, the costs associated with closures of locations and normal asset retirements. Certain other expenses, such as general and administrative, relate to both company-owned restaurant and franchising operations.

We focus on trends in company-owned, franchised, and system-wide same-store sales as an indicator of the continued acceptance of our concept by consumers. We also review the overall trend in average weekly sales as an indicator of our ability to increase the sales volume, and therefore cash flow, per location. We focus on the cash flow generated from our company-owned restaurants as a measure of whether we are operating effectively.

Since chicken wings are a large part of our restaurant sales, the cost of fresh chicken wings can significantly change our cost of sales and cash flow from company-owned restaurants. With the cost of fresh chicken wings continuing at historically high prices, we are focused short term on sustaining strong positive same-store sales through effective marketing promotions and controlling other operating costs and general and administrative expenses. To address issues related to these price fluctuations, we also implemented slight menu price increases in the first quarter of 2004 and in April of 2004.

As a growing company, we review our trend in general and administrative expenses and are focused on reducing this expense as a percentage of revenue.

We operate on a 52- or 53- week fiscal year ending on the last Sunday in December. Both of the second quarters of 2003 and 2004 consisted of thirteen weeks.

Quarterly Results of Operations

Our operating results for the periods indicated are expressed below as a percentage of total revenue, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant sales. The information for each quarter is unaudited and we have prepared it on the same basis as the audited financial statements. In the opinion of management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited quarterly results.

Quarterly and annual operating results may fluctuate significantly as a result of a variety of factors, including, increases or decreases in same-store sales, changes in fresh chicken wing prices, the timing and amount of new restaurant openings and related expenses, asset impairment charges, store closing charges, general economic conditions and seasonal fluctuations. As a result, our quarterly results of operations are not necessarily indicative of the results that may be achieved for any future period.

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The number of company-owned and franchised restaurants open are as follows:

The total restaurant sales for company-owned and franchised restaurants are as follows:

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The quarterly average prices paid per pound for fresh chicken wings are as follows:

Results of Operations for the Three Months Ended June 29, 2003 and June 27, 2004

Restaurant sales increased by $9.3 million, or 35.9%, to $35.3 million in 2004 from $26.0 million in 2003. The increase in restaurant sales was due to a $6.8 million increase associated with the opening of eight new company-owned restaurants in 2004 and the 15 company-owned restaurants opened in 2003 that did not meet the criteria for same-store sales and $2.5 million related to a 10.6% increase in same-store sales. The increase in same-store sales from 2.7% in 2003 to 10.6% in 2004 was due primarily to more effective marketing promotions and better economic conditions.

Franchise royalties and fees increased by $1.1 million, or 36.6%, to $4.3 million in 2004 from $3.1 million in 2003. The increase was due primarily to additional royalties collected from the 15 new franchised restaurants that opened in 2004 and the 24 franchised restaurants that opened in the last six months of 2003. Same-store sales for franchised restaurants increased 10.4% in 2004.

Cost of sales increased by $4.3 million, or 52.6%, to $12.3 million in 2004 from $8.1 million in 2003 due primarily to more restaurants being operated in 2004. Cost of sales as a percentage of restaurant sales increased to 35.0% in 2004 from 31.1% in 2003. The increase in cost of sales as a percentage of restaurant sales was primarily due to higher fresh chicken wing costs. We are susceptible to wing price fluctuations and for the second quarter of 2004, wing prices averaged $1.46 per pound, which was a 43% increase over 2003.

Labor expenses increased by $2.4 million, or 31.8%, to $10.1 million in 2004 from $7.7 million in 2003 due primarily to more restaurants being operated in 2004. Labor expenses as a percentage of restaurant sales decreased to 28.6% in 2004 from 29.5% in 2003. The decrease in labor expenses as a percentage of restaurant sales was primarily due to better scheduling of labor at the restaurant level, efficiencies as a result of higher average weekly sales volumes, and lower health insurance costs.

Operating expenses increased by $1.4 million, or 36.0%, to $5.4 million in 2004 from $3.9 million in 2003 due primarily to more restaurants being operated in 2004. Operating expenses as a percentage of restaurant sales remain steady at 15.2%.

Occupancy expenses increased by $653,000, or 33.9%, to $2.6 million in 2004 from $1.9 million in 2003 due primarily to more restaurants being operated in 2004. Occupancy expenses as a percentage of restaurant sales decreased to 7.3% in 2004 from 7.4% in 2003, primarily due to increased leverage as same store sales increased at a higher rate than occupancy expenses.

Depreciation and amortization increased by $424,000, or 24.5%, to $2.2 million in 2004 from $1.7 million in 2003. The increase was primarily due to the additional depreciation on eight new restaurants opened in 2004 and the ten new restaurants that opened in the last six months of 2003.

General and administrative expenses increased by $204,000, or 4.8%, to $4.4 million in 2004 from $4.2 million in 2003 due to higher corporate headcount and accrued incentive compensation. General and administrative expenses as a percentage of total revenue decreased to 11.2% in 2004 from 14.6% in 2003. This decrease was primarily due to a planned decrease in general and administrative expense growth relative to sales growth due to our ability to leverage existing corporate infrastructure.

Preopening costs increased by $375,000, to $451,000 in 2004 from $76,000 in 2003. We opened four new company-owned restaurants in the second quarter, had additional training and media costs for first quarter openings, and costs for two restaurants that will open in the third quarter of 2004 versus two new restaurants in 2003.

Restaurant closures and asset impairment decreased by $693,000 to $28,000 in 2004 from $721,000 in 2003. The amount expensed in 2004 represents miscellaneous asset impairments and retirements. In 2003, the Company impaired the assets of one underperforming and one closed restaurant. Additional reserves were also set-up for a restaurant closed in 2002.

Interest expense decreased by $270,000 to zero in 2004 from $270,000 in 2003. All long-term debt and capital lease obligations were repaid in early December 2003 with proceeds from the Company’s initial public offering.

Interest income increased by $134,000 to $155,000 in 2004 from $21,000 in 2003. The increase was due to interest income generated on the higher cash balances as a result of the initial public offering. Cash and marketable securities balances at the end of the quarter totaled $46.8 million in 2004 compared to $6.1 million in 2003.

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Provision for income taxes increased $649,000 to $829,000 in 2004 from $180,000 in 2003. The effective tax rate as a percentage of income before taxes remained consistent at 39.0% in both 2004 and 2003. Our effective tax rate reflects the full federal and state statutory rates on taxable income.

Results of Operations for the Six Months Ended June 27, 2004 and June 29, 2003

Restaurant sales increased by $18.7 million, or 35.5%, to $71.2 million in 2004 from $52.6 million in 2003. The increase in restaurant sales was due to a $13.6 million increase associated with the opening of eight new company-owned restaurants in 2004 and the 23 company-owned restaurants opened between October 1, 2002 and December 28, 2003 that did not meet the criteria for same-store sales and $5.1 million related to a 10.8% increase in same-store sales. The increase in same-store sales from 0.6% in 2003 to 10.8% in 2004 was due primarily to more effective marketing promotions and better economic conditions.

Franchise royalties and fees increased by $2.4 million, or 39.5%, to $8.5 million in 2004 from $6.1 million in 2003. The increase was due primarily to additional royalties collected from the 15 new franchised restaurants that opened in 2004 and the 24 franchised restaurants that opened in the last six months of 2003. Same-store sales for franchised restaurants increased 11.2% in 2004.

Cost of sales increased by $8.6 million, or 52.8%, to $24.8 million in 2004 from $16.2 million in 2003 due primarily to more restaurants being operated in 2003. Cost of sales as a percentage of restaurant sales increased to 34.8% in 2004 from 30.8% in 2003. The increase in cost of sales as a percentage of restaurant sales was primarily due to higher fresh chicken wing costs.

Labor expenses increased by $4.6 million, or 29.9%, to $20.1 million in 2004 from $15.4 million in 2003 due primarily to more restaurants being operated in 2004. Labor expenses as a percentage of restaurant sales decreased to 28.2% in 2004 from 29.4% in 2003. The decrease in labor expenses as a percentage of restaurant sales was primarily due to better scheduling of labor at the restaurant level and efficiencies as a result of higher average weekly sales volumes.

Operating expenses increased by $2.6 million, or 31.1%, to $10.8 million in 2004 from $8.2 million in 2003 due primarily to more restaurants being operated in 2003. Operating expenses as a percentage of restaurant sales decreased to 15.1% in 2004 from 15.6% in 2003. The decrease in operating expenses as a percentage of restaurant sales was primarily due to a decrease in operating expense growth relative to sales growth.

Occupancy expenses increased by $1.2 million, or 31.0%, to $4.9 million in 2004 from $3.7 million in 2003 due primarily to more restaurants being operated in 2004. Occupancy expenses as a percentage of restaurant sales decreased to 6.8% in 2004 from 7.1% in 2003, primarily due to increased leverage as average weekly sales increased at a higher rate than occupancy expenses.

Depreciation and amortization increased by $809,000, or 23.9%, to $4.2 million in 2004 from $3.4 million in 2003. The increase was primarily due to the additional depreciation on eight new restaurants opened in 2004 and the ten new restaurants that opened in the last six months of 2003.

General and administrative expenses increased by $617,000, or 7.8%, to $8.5 million in 2004 from $7.9 million in 2003 due to higher corporate headcount. General and administrative expenses as a percentage of total revenue decreased to 10.7% in 2004 from 13.4% in 2003. This decrease was primarily due to a planned decrease in general and administrative expense growth relative to sales growth due to our ability to leverage existing corporate infrastructure.

Preopening costs increased by $438,000 to $794,000 in 2004 from $356,000 in 2003. We opened eight new company-owned restaurants in 2004 versus five new restaurants in 2003.

Restaurant closures and asset impairment decreased by $683,000 to $39,000 in 2004 from $722,000 in 2003. The expense in 2004 represented miscellaneous asset impairments and retirements. In 2003, the Company impaired the assets of an under performing store and one closed store.

Interest expense decreased by $522,000 to zero in 2004 from $522,000 in 2003. All long-term debt and capital lease obligations were repaid in early December 2003 with proceeds from the Company’s initial public offering.

Interest income increased by $255,000 to $288,000 in 2004 from $33,000 in 2003. The increase was due to interest income generated on the higher cash balances as a result of the initial public offering. Cash balances at the end of the quarter were $46.8 million in 2004 compared to $6.1 million in 2003.

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Provision for income taxes increased $1.4 million to $2.3 million in 2004 from $877,000 in 2003. The effective tax rate as a percentage of income before taxes remained consistent at 39.0% in both 2004 and 2003. Our effective tax rate reflects the full federal and state statutory rates on taxable income.

Liquidity and Capital Resources

Our primary liquidity and capital requirements have been for new restaurant construction, remodeling and maintaining our existing company-owned restaurants, working capital and other general business needs. Our main sources of liquidity and capital are cash flows from operations and proceeds from the issuance of common stock through an initial public offering in November 2003. The cash and marketable securities balance at June 27, 2004 was $46.8 million. We invest our cash balances in short-term investment instruments with the focus on protection of principal, adequate liquidity and maximization of after-tax returns. These investments can include, but are not limited to, high quality money market funds, commercial paper, US government-backed instruments, repurchase agreements, municipal securities, and asset-backed securities. We repaid all long-term capital lease obligations and long-term debt in December 2003.

For the six months ended June 27, 2004, net cash provided by operating activities was $6.5 million. Net cash provided by operating activities consisted primarily of net earnings adjusted for non-cash expenses, adjusted for increases in accounts receivable and decreases in accounts payable and accrued expenses. The decrease in accounts payable is due to the timing of payments, decreased level of construction activity, and purchases due to lower seasonal sales at June 27, 2004 as compared to December 28, 2003. The increase in accounts receivable was due to higher credit card and vendor related receivables. The decrease in accrued expenses is due to the payout of incentive compensation in March.

For the six months ended June 29, 2003, net cash provided by operating activities was $5.5 million. Net cash provided by operating activities consisted primarily of net earnings adjusted for non-cash expenses and a decrease in accounts receivable and an increase in income taxes payable, partially offset by a decrease in accounts payable. The decrease in accounts receivable was due primarily to the collection of proceeds from equipment held for sale from a third party lessor. The increase in income taxes payable was due to the timing of income tax payments. The decrease in accounts payable was primarily the result of fewer restaurants under construction June 29, 2003 as compared to December 29, 2002.

For the six months ended June 27, 2004 and June 29, 2003, net cash used in investing activities was $27.8 million and $2.9 million, respectively. Investing activities consisted of purchases of property and equipment related to the opening of new company-owned restaurants and restaurants under construction and purchases of marketable securities. During the first six months of 2004 and 2003, we opened eight and five restaurants, respectively. We expect capital expenditures for the remainder of 2004 to approximate $9 million due to the addition of new company-owned restaurants and the renovation and maintenance of existing restaurants. In 2004, we plan to open a total of 20 new company-owned restaurants and 45 new franchised restaurants. In 2004, the Company began investing in marketable securities with maturities longer than 90 days. For the first six months of 2004, the Company purchased $17 million of marketable securities.

For the six months ended June 27, 2004 and June 29, 2003, net cash provided by (used in) financing activities was $1.6 million and ($1.2 million), respectively. Net cash provided by financing activities for 2004 resulted primarily from the issuance of common stock from the exercise of warrants and stock options of $976,000, and cash received from lessors related to restaurant construction of $616,000. No additional funding from the issuance of common stock (other than from the exercise of options and warrants) is anticipated for the remainder of 2004. Net cash used in financing activities for 2003 consisted primarily of payments made on capital lease obligations.

Our liquidity is impacted by minimum cash payment commitments resulting from operating lease obligations for our restaurants and our corporate offices. Lease terms are generally 10 to 15 years with renewal options and generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance and other operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds. We do not currently own any of the properties on which our restaurants operate and, therefore, do not have the ability to enter into sale-leaseback transactions as a potential source of cash.

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The following table presents a summary of our contractual operating lease obligations and commitments as of June 27, 2004:

We believe the cash flows from our operating activities and our balance of cash and marketable securities will be sufficient to fund our operations, building commitments, and meet our obligations for the foreseeable future.

Risk Factors/Forward—Looking Statements

The foregoing discussion and other statements in this report contain various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on current expectations or beliefs concerning future events. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “possible,” “plan,” “project,” “will,” “forecast” and similar words or expressions. The Company’s forward-looking statements generally relate to our capital expenditures, store openings and cash requirements. Although it is not possible to foresee all of the factors that may cause actual results to differ from the Company’s forward-looking statements, such factors include, among others, the following risk factors (each of which is discussed in greater detail in our Annual Report on Form 10-K for the fiscal year ended December 28, 2003):

Investors are cautioned that all forward-looking statements involve risks and uncertainties.

We are exposed to market risk related to our cash and cash equivalents. We invest our excess cash in highly liquid short-term investments with maturities of less than one year. These investments are not held for trading or other speculative purposes. Changes in interest rates affect the investment income we earn on our cash and cash equivalents and, therefore, impact our cash flows and results of operations.

Many of the food products purchased by us are affected by weather, production, availability and other factors outside our control. We believe that almost all of our food and supplies are available from several sources, which helps to control food product risks. We negotiate directly with independent suppliers for our supply of food and paper products. We use members of UniPro Food Services, Inc., a national cooperative of independent food distributors, to distribute these products from the suppliers to our restaurants. We have no minimum purchase commitments from our vendors. The primary food product used by company-owned and franchised restaurants is fresh chicken wings. We purchase fresh chicken wings based on current market prices which are subject to fluctuation.

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A material increase in fresh chicken wing costs may adversely affect our operating results. Fresh chicken wing prices during the second quarter of 2004 averaged nearly 43% higher than the average per pound price in the second quarter of 2003. Unless there is a reduction in the price of fresh chicken wings, or we are able to successfully adjust menu prices or menu mix or otherwise make operational adjustments to account for the high wing prices, our operating results could be adversely affected. Fresh chicken wings accounted for approximately 30.8% and 36.8% of our cost of sales in the second quarter of 2003 and 2004, respectively, with an average price per pound of $1.02 and $1.46, respectively. Fresh chicken wings accounted for approximately 29.9% and 37.6% of our cost of sales in the six month periods ended 2003 and 2004, respectively, with an average price per pound of $1.02 and $1.47 respectively. If we had experienced a 10% change in fresh chicken wing costs during the second quarter and six months ended 2004, restaurant cost of sales would have changed by approximately $450,000 and $930,000, respectively.

Inflation

The primary inflationary factors affecting our operations are food, labor, and restaurant operating costs. Substantial increases in these costs could impact operating results to the extent that such increases cannot be passed along through higher menu prices. A large number of our restaurant personnel are paid at rates based on the applicable federal and state minimum wages, and increases in the minimum wage rates could directly affect our labor costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Except as described in the paragraph above, we believe inflation has not had a material impact on our results of operations in recent years.

Financial Instruments

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments. The counterparties to the instruments consist of government agencies and various major corporations of investment grade credit standing. The Company does not believe there is significant risk of non-performance by these counterparties because of Company limitations as to acceptable investment vehicles.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures as defined in Rules 13(a)-15(e) under the Securities Exchange Act of 1934 (“the Exchange Act”). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Occasionally, we are a defendant in litigation arising in the ordinary course of our business, including claims arising from personal injuries, contract claims, franchise-related claims, dram shop claims, employment-related claims and claims from guests or employees alleging injury, illness or other food quality, health or operational concerns. To date, none of these types of litigation, most of which are typically covered by insurance, has had a material effect on us. We have insured and continue to insure against most of these types of claims. A judgment significantly in excess of our insurance coverage or involving punitive damages, which may not be covered by insurance, could materially adversely affect the Company’s financial condition or results of operations.

Refer to Item 3 (Legal Proceedings) of our Annual Report on Form 10-K for the fiscal year ended December 28, 2003 for a discussion of our current material legal proceedings.

We completed an initial public offering (“IPO”) of 3,450,000 shares of common stock, of which 3,250,000 shares were offered by us and 200,000 were offered by selling shareholders, at an aggregate offering price of $58.7 million, or $17.00 per share, pursuant to registration statement No. 333-108695, which was declared effective on November 20, 2003. The managing underwriters for the IPO were RBC Capital Markets, SG Cowen and McDonald Investments Inc.

We received net proceeds, after expenses, from the IPO of $49.7 million. Offering expenses related to the IPO included an underwriting discount of $3.9 million and other offering expenses of $1.6 million. We used $10.6 million of the net proceeds for the repayment of capital leases and bank notes. For the six months ended June 27, 2004, net cash used in investing activities, including

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purchases of property and equipment related to the opening of new company-owned restaurants of $10.8 million. During that period, net cash provided by operating activities was $6.5 million. The cash and marketable securities balance at June 27, 2004 was $46.8 million. The remaining proceeds are expected to be used for general corporate purposes, including opening new restaurants and renovation and maintenance of existing restaurants, acquiring existing restaurants from franchisees, research and development, working capital, and capital expenditures. We invest our cash and marketable securities balances in short-term investment instruments with the focus on protection of principal, adequate liquidity and maximization of after-tax returns. These investments include, but are not exclusive of, high quality money market funds, commercial paper, U.S. government-backed instruments, repurchase agreements, municipal securities, and asset-backed securities.

At the Annual Shareholders meeting held on June 10, 2004, the Company submitted to a vote of security-holders the following matters which received the indicated votes:

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See Exhibit Index following signature page of this Report.

We filed a Form 8-K dated April 22, 2004, announcing our 2004 first quarter financial results.

We filed a Form 8-K dated June 17, 2004, announcing restricted stock unit grants.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.