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EXHIBIT 99
CAUTIONARY STATEMENT
FOUNDERS FOOD & FIRKINS LTD., OR PERSONS ACTING ON OUR BEHALF, OR
OUTSIDE REVIEWERS RETAINED BY US MAKING STATEMENTS ON OUR BEHALF, OR
UNDERWRITERS OF OUR SECURITIES, FROM TIME TO TIME, MAY MAKE, IN WRITING OR
ORALLY, "FORWARD-LOOKING STATEMENTS" AS DEFINED UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "LITIGATION REFORM ACT"). THIS CAUTIONARY
STATEMENT, WHEN USED IN CONJUNCTION WITH AN IDENTIFIED FORWARD-LOOKING
STATEMENT, IS FOR THE PURPOSE OF QUALIFYING FOR THE "SAFE HARBOR" PROVISIONS OF
THE LITIGATION REFORM ACT AND IS INTENDED TO BE A READILY AVAILABLE WRITTEN
DOCUMENT THAT CONTAINS FACTORS WHICH COULD CAUSE RESULTS TO DIFFER MATERIALLY
FROM SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS ARE IN ADDITION TO ANY OTHER
CAUTIONARY STATEMENTS, WRITTEN OR ORAL, WHICH MAY BE MADE, OR REFERRED TO, IN
CONNECTION WITH ANY SUCH FORWARD-LOOKING STATEMENT.
THE FOLLOWING MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS OR
PROSPECTS, FINANCIAL OR OTHERWISE. REFERENCE TO THIS CAUTIONARY STATEMENT IN THE
CONTEXT OF A FORWARD-LOOKING STATEMENT OR STATEMENTS SHALL BE DEEMED TO BE A
STATEMENT THAT ANY ONE OR MORE OF THE FOLLOWING FACTORS MAY CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD- LOOKING STATEMENT OR
STATEMENTS.
WE HAVE A VERY SHORT OPERATING HISTORY UPON WHICH YOU CAN EVALUATE US.
We have a very limited operating history, having opened our first restaurant in
June 1999. Accordingly, there are no meaningful financial results upon which you
can evaluate the merits of an investment in our company. As of March 26, 2000,
we had an accumulated deficit of $403,696. Our operating experience has not been
long enough for us to know whether we can achieve and then sustain profitable
operations and positive cash flow. Our operating results can be affected by
changes in customer tastes, the popularity of handcrafted beers, economic
conditions in secondary markets, such as St. Cloud, and the level of competition
in our markets. We intend to continue to expend significant financial and
management resources to develop additional restaurants. We cannot predict
whether we will be able to achieve or sustain revenue growth, profitability or
positive cash flow in the future.
OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE ARE UNABLE TO
EXPAND IN A TIMELY AND PROFITABLE MANNER. To continue to grow, we must open new
restaurants on a timely and profitable basis. We plan to open two additional
restaurants over the next 12 months. We may experience delays in restaurant
openings which could materially adversely affect our business, financial
condition, operating results and cash flows. Our ability to expand successfully
depends upon a number of factors, some of which are beyond our control,
including:
- identification and availability of suitable restaurant sites
- competition for restaurant sites
- negotiation of favorable build-to-suit leases
- timely development of convenient commercial and residential
streets and highways
- management of construction and development costs of new
restaurants
- availability of financing for the lease of restaurant and brewing
equipment and leasehold improvements
- securing required governmental approvals, licenses and permits
- recruitment of qualified operating personnel, particularly
brewing staff and kitchen managers
- competition in new markets
In addition, we contemplate entering new geographic markets in which we
have no operating experience. These new markets may have demographic
characteristics, competitive conditions, consumer tastes and discretionary
spending patterns different than those present in our existing market, which may
cause our new restaurants to be less successful than our existing restaurant.
UNANTICIPATED COSTS OR DELAYS IN THE DEVELOPMENT OR CONSTRUCTION OF OUR
RESTAURANTS COULD PREVENT OUR TIMELY AND COST-EFFECTIVE OPENING OF NEW
RESTAURANTS. We lease our restaurants on a build-to-suit basis. We depend upon
contractors and real estate developers to construct our restaurants. After
developers construct
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our restaurants, we invest heavily in leasehold improvements for completion
of our restaurants. Many factors could adversely affect the cost and time
associated with our development of restaurants, including:
- labor disputes
- shortages of materials and skilled labor
- adverse weather
- unforeseen construction problems
- environmental problems
- zoning problems
- federal, state and local government regulations
- modifications in design
- other unanticipated increases in costs
Any of these factors could give rise to delays or cost overruns which
may prevent us from developing additional restaurants within anticipated budgets
and expected development schedules. Any such failure could have a material
adverse effect on our business, financial condition, operating results and cash
flows.
WE MAY NOT BE ABLE TO ACHIEVE AND MANAGE PLANNED EXPANSION. We face many
business risks associated with our proposed growth, including the risk that our
existing management, information systems and financial controls will be
inadequate to support our planned expansion. We cannot predict whether we will
be able to respond on a timely basis to all of the changing demands that our
planned expansion will impose on management and these systems and controls. If
we fail to continue to improve management, information systems and financial
controls, or if we encounter unexpected difficulties during expansion, our
business, financial condition, operating results and cash flows could be
materially adversely affected.
INTANGIBLE ASSETS, SUCH AS OUR BUSINESS CONCEPT AND DEVELOPMENT
STRATEGY, MAKE UP MOST OF OUR CURRENT VALUE. Because we do not own the real
estate or building in which our existing restaurant is located and we do not
plan to own the real estate or buildings in which our future restaurants will be
located, our tangible assets mainly consist of inventory and equipment that we
own. Until we establish a history of earnings, the value of our business that
could be realized upon liquidation is comprised of intangible assets, including
our business concept, development strategy, intellectual property, trademarks,
goodwill and employee know-how. If our business is not successful, the value of
our intangible assets could decrease significantly. The value of your investment
could decrease as a result.
WE MAY REDEEM THE CLASS A WARRANTS AT A PRICE LESS THAN MARKET VALUE. We
may redeem the Class A Warrants at $0.01 per share once they become exercisable
if the closing bid price of the shares exceeds $6.25, subject to adjustment, for
45 consecutive trading days. We must give you 20 days written notice of such
redemption. If we redeem the Class A Warrants you will lose your right to
exercise the Class A Warrants except during the 20 day redemption period.
Redemption of the Class A Warrants could force you to exercise the Class A
Warrants at a time when it may be disadvantageous for you to do so or to sell
the Class A Warrants at the then current market price or accept the redemption
price, which could be substantially less than the market value of the Class A
Warrants at the time of redemption.
IF WE DO NOT MAINTAIN OUR NASDAQ LISTING, YOU MAY HAVE DIFFICULTY
RESELLING YOUR UNITS. WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO LIST OUR
SHARES OR CLASS A WARRANTS ON NASDAQ. We will need to maintain certain financial
and corporate governance qualifications to keep our units listed and to obtain
listing for our shares and Class A Warrants. We cannot assure you that we will
at all times meet the criteria for continued or initial listing on the Nasdaq
SmallCap Market. If we fail to maintain such qualifications, including a minimum
bid price for our units of $4.00, our units may be delisted and our shares and
Class A Warrants may not become listed. In the event of delisting or failure to
list, trading, if any, would be conducted in the over-the-counter markets in the
so-called "pink sheets" or the National Association of Securities Dealers
"Electronic Bulletin Board." In addition, our securities would become subject to
the SEC's "Penny Stock Rules." The Penny Stock Rules would impose additional
requirements on broker-dealers who effect trades in our securities, other than
trades with their established customers and accredited investors. Consequently,
the delisting or failure to list our securities and the applicability of the
Penny Stock Rules may adversely affect the ability of broker-dealers to sell our
securities, which may adversely affect your ability to resell securities you
purchase. If our securities are delisted or if our shares or Class A Warrants
fail to become listed and become subject to the Penny Stock Rules, you may not
be
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able to sell as many securities as you desire, you may experience delays in the
execution of your transactions, and our securities may trade at a lower market
price than they otherwise would.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY RESULT IN DECREASES IN THE
PRICE OF OUR SECURITIES. Our operating results will fluctuate significantly
because of several factors, including the timing of new restaurant openings and
related expenses, profitability of new restaurants, increases or decreases in
comparable restaurant sales, general economic conditions, consumer confidence in
the economy, changes in consumer preferences, competitive factors and weather
conditions. Consequently, our operating results may fall below the expectations
of public market analysts and investors. In that event, the price of our
securities would likely decrease.
IF WE HAVE HIGH OPERATING LOSSES OR ARE UNABLE TO OBTAIN FINANCING FOR
RESTAURANT IMPROVEMENTS, WE MAY NOT BE ABLE TO DEVELOP OUR THIRD PLANNED
RESTAURANT. Over the next 12 months, we estimate that we will make capital
expenditures totaling approximately $4,110,000 for the construction of a
restaurant in Sioux Falls, South Dakota, and a restaurant in Fargo, North
Dakota. The net proceeds from our initial public offering were approximately
$3,348,750, which we intend to apply to the development cost of these two
restaurants. We will, however, require approximately $761,250 of additional
financing to complete development of both restaurants. We believe this financing
will be available from commercial financing sources which fund restaurant
improvements and equipment, but we have no commitment from any party to provide
such financing. The net proceeds from our initial public offering were not
intended to provide us with additional working capital; therefore, in the event
we incur significant operating losses at our existing or second planned
restaurant, or are unable to obtain the required additional financing, we may
not be able to develop our third restaurant.
WE MAY BE UNABLE TO FUND OUR SIGNIFICANT FUTURE CAPITAL NEEDS AND WE MAY
NEED ADDITIONAL FUNDS SOONER THAN ANTICIPATED. To finance our expansion plans,
we require funds for capital expenditures, pre-opening costs and negative cash
flow related to new restaurant openings. We may not be able to obtain additional
future financing on acceptable terms. If financing is not available, we will
have to curtail projected growth, which could materially adversely affect our
business, financial condition, operating results and cash flows. Moreover, if we
issue additional equity securities to fund expansion, your holdings may be
diluted. Specifically, our future expansion may be delayed or curtailed:
- if future cash flows from operations fail to meet our
expectations
- if costs and capital expenditures for new restaurant development
exceed anticipated amounts
- if we incur unanticipated expenditures related to our operations
- if we are unable to obtain acceptable lease or sale-leaseback
financing of restaurants
- if landlord contributions, financing and other incentives are
lower than expected
- if we are required to reduce prices to respond to competitive
pressures
INCREASED FOOD AND BREWING COSTS COULD MATERIALLY ADVERSELY AFFECT OUR
OPERATING RESULTS. Our profitability depends in part on our ability to
anticipate and react to changes in food and brewing costs. Various factors
beyond our control, including adverse weather conditions and government
regulation, may affect our food and brewing costs. We cannot predict whether we
will be able to anticipate and react to changing food and brewing costs by
adjusting our purchasing practices and menu prices. A failure to do so could
materially adversely affect our business, financial condition, operating results
and cash flows.
CHANGES IN CONSUMER PREFERENCES OR DISCRETIONARY CONSUMER SPENDING COULD
NEGATIVELY IMPACT OUR RESULTS. Our restaurants feature handcrafted beers brewed
and served in a casual dining atmosphere. Our continued success depends, in
part, upon the popularity of micro-brewed beers and casual, broad menu
restaurants. Shifts in consumer preferences away from these beers and this
dining style could materially adversely affect our future profitability. There
has been a decline in alcohol consumption nationally over the past decade. If
this trend continues, our sales and profitability could be adversely affected.
Also, our success depends to a significant extent on numerous factors affecting
discretionary consumer spending, including economic conditions, disposable
consumer income and consumer confidence. Adverse changes in these factors could
reduce guest traffic or impose practical limits on pricing, either of which
could materially adversely affect our business, financial condition, operating
results and cash flows.
KEY EMPLOYEES, INCLUDING WILLIAM E. BURDICK, COULD LEAVE OUR COMPANY AT
ANY TIME, IMPAIRING OUR DEVELOPMENT AND PROFITABILITY. We depend heavily on our
management team for the development and execution
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of our restaurant-microbrewery concept. In particular, we rely upon the
expertise and experience of our brewmaster, William E. Burdick, for the
establishment of our brewing operations, and brewing and training of our brewing
staff. As we expand our operations, we will have a continuing need to attract
and retain qualified people, including management personnel. We do not intend to
enter into employment agreements beyond those with Messrs. Burdick and
Wagenheim. We have obtained key-man life insurance on Mr. Wagenheim in the
amount of $1,000,000 and we have applied for key-man life insurance on Mr.
Burdick in the amount of $500,000. However, such coverage would only protect us
in the event of death. The departure of key people could adversely affect our
operations and profitability.
COMPETITION IN THE RESTAURANT INDUSTRY MAY PREVENT US FROM GETTING OR
KEEPING CUSTOMERS. The restaurant industry is highly competitive. Due to our
limited financial resources and operating history, we may be unable to compete
effectively with larger, better established restaurant operators, which have
substantially greater financial resources and operating histories than we do. We
will likely face direct competition with these competitors in each of the
markets we enter.
WE MAY BE UNABLE TO RECRUIT, MOTIVATE AND RETAIN QUALIFIED EMPLOYEES.
Our success depends, in part, upon our ability to attract, motivate and retain a
sufficient number of qualified employees, including trained brewing personnel,
restaurant managers, kitchen staff and wait staff, to keep pace with our
expansion schedule. While we have not experienced shortages of qualified people
to date, qualified individuals needed to fill these positions could be in short
supply in one or more of our markets. Our inability to recruit, motivate and
retain such individuals may delay the planned openings of new restaurants or
result in high employee turnover in existing restaurants, either of which could
have a material adverse effect on our business, financial condition, operating
results and cash flows. Additionally, competition for qualified employees could
require us to pay higher wages and provide additional benefits to attract
sufficient employees, which could result in higher labor costs.
WE MAY BE UNABLE TO OBTAIN AND MAINTAIN THE LICENSES AND PERMITS
REQUIRED FOR THE BREWING OF BEER AND THE SALE OF BEER AND LIQUOR. A significant
percentage of our revenues is derived from the sale of beer and liquor. On site
sales of alcoholic beverages accounted for approximately 22% of our revenue and
on site sales of beer accounted for 14% of our revenue for the period ended
March 26, 2000. We expect that such sales will increase in relation to our food
sales. We must comply with federal licensing requirements imposed by the United
States Department of Treasury, Bureau of Alcohol, Tobacco and Firearms, as well
as licensing requirements of states and municipalities where we operate
restaurants. Failure to comply with federal, state or local regulations could
cause our licenses to be revoked or force us to cease brewing and selling our
beer. Typically, licenses must be renewed annually and may be revoked and
suspended for cause at any time. Additionally, state liquor and brewing laws may
prevent or impede our expansion into certain markets. Although we have not
experienced, and do not anticipate, any significant problems in obtaining
required licenses, permits or approvals, any delays or failures to obtain
required licenses, permits or approvals could delay or prevent our expansion in
a particular area.
OUR OPERATIONS DEPEND UPON GOVERNMENTAL LICENSES OR PERMITS AND WE MAY
FACE LIABILITY UNDER DRAM SHOP STATUTES. Our business depends upon obtaining and
maintaining required food service, liquor and brewing licenses for each of our
restaurants. If we fail to hold all necessary licenses, we may be forced to
delay or cancel new restaurant openings and close or reduce operations at
existing locations. In addition, our sale of alcoholic beverages subjects us to
"dram shop" statutes in some states. These statutes allow an injured person to
recover damages from an establishment that served alcoholic beverages to an
intoxicated person. If we receive a judgment substantially in excess of our
insurance coverage, or if we fail to maintain our insurance coverage, our
business, financial condition, operating results and cash flows could be
materially and adversely affected.
COMPLAINTS OR LITIGATION FROM GUESTS MAY MATERIALLY ADVERSELY AFFECT US.
From time to time we could be the subject of complaints or litigation from
guests alleging illness, injury or other food quality, health or operational
concerns. Adverse publicity resulting from these allegations may materially
adversely affect us and our restaurants, regardless of whether the allegations
are valid or whether we are liable. These claims may divert our financial and
management resources that would otherwise be used to benefit the future
performance of our operations.
OUR EXISTING SHAREHOLDERS HAVE SIGNIFICANT CONTROL WHICH COULD REDUCE
YOUR ABILITY TO RECEIVE A PREMIUM FOR YOUR SHARES THROUGH A CHANGE IN CONTROL.
Our principal shareholder, Brewing Ventures LLC, owned approximately 44% of our
common stock as of the date hereof. In addition, certain affiliates of our
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company purchased an aggregate of approximately 250,000 of the units sold in our
initial public offering. As a result, they may be able to control our company
and direct our affairs, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may also
delay, defer or prevent a change in control of our company, and make some
transactions more difficult or impossible without their support. These
transactions might include proxy contests, tender offers, open market purchase
programs or other share purchases that could give our shareholders the
opportunity to realize a premium over the then prevailing market price of our
common stock. As a result, this concentration of ownership could depress our
stock price.
IF WE DO NOT MAINTAIN THE EFFECTIVENESS OF THE PROSPECTUS YOU WILL BE
UNABLE TO EXERCISE YOUR CLASS A WARRANTS. You will be able to exercise the Class
A Warrants only if a current prospectus relating to the shares underlying the
Class A Warrants is then in effect and only if such securities are qualified for
sale or exempt from qualification under the applicable securities laws of the
state in which you reside. We will use our best efforts to (a) maintain the
effectiveness of a current prospectus covering the shares underlying the Class A
Warrants and (b) maintain the registration of such shares under the securities
laws of the states in which we initially qualified the units for sale in our
initial public offering. We cannot assure you that we will actually be able to
do so. We cannot issue shares to you upon exercise of your Class A Warrants if
the prospectus covering the shares is not kept effective or if the exercise of
the Class A Warrants is not qualified or exempt from qualification in the state
where you reside.
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM OUR INITIAL PUBLIC
OFFERING FOR PURPOSES WITH WHICH YOU MAY NOT AGREE, AND WE MAY NOT BE SUCCESSFUL
IN INVESTING THE PROCEEDS. We plan to use the proceeds from our initial public
offering to develop two additional restaurants, one in Sioux Falls, South
Dakota, and another in Fargo, North Dakota. Therefore, we will have broad
discretion as to how we will spend the proceeds. Shareholders may not agree with
the ways in which we use the proceeds and our management may not make the best
use of the proceeds. We cannot predict whether our management's investment of
the proceeds will yield a favorable, or any, return.
