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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549

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FORM 10-K


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|  |                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------
|x | Annual Report Pursuant to Section 13 or 15(d) of the Securities
 Exchange Act of 1934for the fiscal year ended December 28, 2008    
|  | or                                                                                                                                  
|o | Transition Report Under Section 13 or 15(d) of the Securities
 Exchange Act of 1934for the transition period from        to        .

Commission File Number: 000-24743



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BUFFALO
WILD WINGS, INC.(Exact name of
registrant as specified in its charter)



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|                                 |                     
|-------------------------------- | --------------------
|Minnesota                        | No. 31-1455915      
|(State
 or Other Jurisdiction of | (IRS
 Employer      
|Incorporation
 or Organization)  | Identification
 No.)

5500 Wayzata Boulevard, Suite 1600, Minneapolis, MN
55416(Address
of Principal Executive Offices)

Registrants telephone number (952) 593-9943



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

|                           |                                          
|-------------------------- | -----------------------------------------
|Title of each class        | Name of each exchange on which registered
|Common Stock, no par value | Nasdaq Global Market                     

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



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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. 
YES o
NO x

Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES o NO x

Indicate
by check mark whether the registrant (1) has 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 o

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

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer,  accelerated filer, and
smaller reporting company in Rule 12b-2 of the Exchange Act.

|                          |                     |                         |                            
|------------------------- | ------------------- | ----------------------- | ---------------------------
|Large Accelerated Filer o | Accelerated Filer x | Non-Accelerated Filer o | Smaller Reporting Company o

Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2 of the Exchange Act). YES o NO x

The
aggregate market value of the voting stock held by non-affiliates was $449
million based on the closing sale price of the Companys Common Stock as
reported on the NASDAQ Stock Market on June 27, 2008.

The
number of shares outstanding of the registrants common stock as of February
19, 2009: 17,887,419 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions
of the Proxy Statement for the 2009 Annual Meeting of Shareholders are incorporated
by reference into Part III of this report.

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TABLE OF CONTENTS

|           |                                                                                                               |     
|---------- | ------------------------------------------------------------------------------------------------------------- | ----
|           |                                                                                                               | Page
|           |                                                                                                               |     
|PART I     |                                                                                                               |     
|           |                                                                                                               |     
|Item 1.    | Business                                                                                                      | 3   
|Item 1A.   | Risk Factors                                                                                                  | 9   
|Item 1B.   | Unresolved Staff Comments                                                                                     | 14  
|Item 2.    | Properties                                                                                                    | 15  
|Item 3.    | Legal Proceedings                                                                                             | 16  
|Item 4.    | Submission of Matters to a Vote of Security Holders                                                           | 16  
|           |                                                                                                               |     
|PART II    |                                                                                                               |     
|Item 5.    | Market for Registrants Common Equity, Related Stockholder Matters
 and Issuer Purchases of Equity Securities | 17  
|Item 6.    | Selected Financial Data                                                                                       | 19  
|Item 7.    | Managements Discussion and Analysis of Financial Condition and
 Results of Operations                        | 20  
|Item 7A.   | Quantitative and Qualitative Disclosures About Market Risk                                                    | 31  
|Item 8.    | Consolidated Financial Statements and Supplementary Data                                                      | 36  
|Item 9.    | Changes in and Disagreements with Accountants on Accounting and
 Financial Disclosure                         | 59  
|Item 9A.   | Controls and Procedures                                                                                       | 59  
|Item 9B.   | Other Information                                                                                             | 61  
|           |                                                                                                               |     
|PART III   |                                                                                                               |     
|Item 10.   | Directors, Executive Officers and Corporate Governance                                                        | 61  
|Item 11.   | Executive Compensation                                                                                        | 61  
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management and
 Related Stockholder Matters               | 61  
|Item 13.   | Certain Relationships and Related Transactions, and Director
 Independence                                    | 61  
|Item 14.   | Principal Accountant Fees and Services                                                                        | 61  
|           |                                                                                                               |     
|PART IV    |                                                                                                               |     
|Item 15.   | Exhibits and Financial Statement Schedules                                                                    | 62  
|           |                                                                                                               |     
|Signatures |                                                                                                               | 63  

2

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PART I

ITEM 1. BUSINESS

General

References
in this document to Buffalo Wild Wings, company, we, us and our refer
to the business of Buffalo Wild Wings, Inc. and our subsidiaries. We maintain
an Internet website address at www.buffalowildwings.com. We make
available free of charge through our website our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments
to those reports as soon as they are reasonably available after these materials
are electronically filed with or furnished to the Securities and Exchange
Commission (SEC). These materials are also accessible on the SECs web site
at www.sec.gov. The public may read and copy any materials we file with the SEC
at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549.
The public may obtain information for the Public Reference Room by calling the
SEC at 1-800-SEC-0330.

We are an established and growing owner,
operator and franchisor of restaurants featuring a variety of boldly-flavored,
cravable menu items including our Buffalo, New York-style chicken wings spun in
any of our 14 signature sauces. Our restaurants create a welcoming neighborhood
atmosphere that includes an extensive multi-media system, a full bar and an
open layout, which appeals to sports fans and families alike. We differentiate
our restaurants by the social environment we create and the connection we make
with our team members, guests and the local community. Our guests have the
option of watching sporting events or other popular programs on our projection
screens and approximately 40 additional televisions, playing Buzztime® Trivia or video games. The open layout of our
restaurants offers
dining and bar areas that provide distinct seating choices for sports fans and
families. Our unique service model, which provides the flexibility of ordering
at the counter or table, allows our guests to customize their Buffalo Wild
Wings® experience to meet their time demands,
service preferences or the experience they are seeking of a workday lunch, a
dine-in dinner, a take-out meal, an afternoon or evening enjoying a sporting
event or a late-night craving. Buffalo Wild Wings® restaurants are
the place people want to be; where any excuse to get together is a good one.

Buffalo
Wild Wings® restaurants have widespread appeal and have won dozens
of Best Wings and Best Sports Bar awards across the country. Our menu,
competitively priced between the quick casual and casual dining segments,
features chicken wings, boneless wings, and other items including chicken
tenders, Wild Flatbreads, popcorn shrimp, specialty hamburgers and sandwiches,
wraps, Buffalito® soft tacos, appetizers and salads. Our
made-to-order menu items are enhanced by the bold flavor profile of our 14
signature sauces, ranging from Sweet BBQ to Blazin®. Our restaurants offer approximately 20
domestic and imported beers on tap, including several local or regional
micro-brews and a wide selection of bottled beers, wines, and liquor. This
award-winning food and memorable experience drives guest visits and loyalty.

We
have established our brand through coordinated marketing and operational
execution that ensures brand recognition and quality and consistency throughout
our concept. These efforts include marketing programs and irreverent,
award-winning advertising to support both our company-owned and franchised
restaurants. We also prominently feature our trademark Buffalo insignia and
yellow and black colors and trade dress in our restaurants and brand our
company materials. Our concept is further strengthened by our emphasis on
operational excellence supported by stringent operating guidelines and
comprehensive employee training in both company-owned and franchised
restaurants.

Buffalo
Wild Wings was founded in 1982 at a location near The Ohio State University.
Our original name was Buffalo Wild Wings & Weck® and we became more popularly known as bw-3®. In
1991, we
began our franchising program. In 2003, we completed an initial public offering
and became a publicly-held company.

Our Concept and Business Strategy

Our
goal is to continue to grow and develop the Buffalo Wild Wings Grill & Bar®
concept into a leading national restaurant chain. To do so, we plan to execute
the following strategies:

| |   |                                                      
| | - | -----------------------------------------------------
| |  | Open
 restaurants in new and existing markets;       
| |   |                                                      
| |  | Offer
 boldly-flavored menu items with broad appeal; 
| |   |                                                      
| |  | Create
 an inviting, neighborhood atmosphere;        
| |   |                                                      
| |  | Continue
 to strengthen the Buffalo Wild Wings®brand;
| |   |                                                      
| |  | Focus on
 operational excellence;and                 
| |   |                                                      
| |  | Increase
 same-store sales and average unit volumes. 

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Growth Strategy

Our
growth strategy involves opening company-owned and franchised restaurants in
both new and existing markets. We believe that we have established the
necessary infrastructure and control systems to support our disciplined growth
strategy and that our concept can support over 1,000 restaurants in the United
States. We have developed procedures for identifying new market opportunities,
determining our expansion strategy in those markets and identifying sites for
company-owned and franchised restaurants. Our growth strategy is moving toward
a mix of approximately 40% company-owned restaurants and approximately 60%
franchised restaurants. At the end of 2009, we anticipate that approximately
36% of the restaurants will be company-owned.

We
intend to build additional company-owned restaurants in both new and existing
markets. In most of our existing markets, we plan to continue to develop new
company-owned restaurants until a market is penetrated to a point that will
enable us to gain marketing and cost efficiencies. We intend to enter new
markets by opening several restaurants within a one-year period to quickly
build our brand awareness. We intend to grow our franchise system through the
development of new restaurants by existing and new franchisees, focusing on
multiple-unit area development agreements.

The Buffalo Wild Wings® Menu

Our
restaurants feature a variety of menu items including our Buffalo, New
York-style chicken wings spun in one of our signature sauces from sweet to
screamin hot: Sweet BBQ, Teriyaki, Mild, Parmesan Garlic,
Medium, Honey BBQ, Spicy Garlic, Asian Zing®, Caribbean
Jerk, Hot BBQ, Hot, Mango Habanero, Wild® and
Blazin®. Our fresh chicken wings
can be ordered in sizes ranging from six to 100 wings, with larger orders
available for parties. Our sauces complement and distinguish our chicken wings
to create a bold flavor profile for our guests. In addition to chicken wings
and boneless wings, our menu features a wide variety of food items including
chicken tenders, Wild Flatbreads, popcorn shrimp, specialty hamburgers and
sandwiches, wraps, Buffalito® soft tacos, finger foods and salads.
We also provide a 12 & Under Menu for kids.

Our
restaurants feature a full bar which offers an extensive selection of
approximately 20 domestic and imported beers on tap as well as bottled beers,
wine and liquor. Additionally, in order to continually improve our menu, our
research and development department continuously tests and implements new menu
items. Our goal is to balance the established menu offerings that appeal to our
loyal guests with new menu items that increase guest frequency and attract new
guests.

Restaurant Atmosphere and Layout

Our
restaurants are designed to provide an inviting neighborhood atmosphere and
allow our guests the flexibility to customize their dining experience. The
inviting and energetic environment of our restaurants is created using
furnishings that can be easily rearranged to accommodate parties of various
sizes. Our restaurants also feature distinct dining and bar areas with many of
the restaurants having patio seating.

We
strategically place approximately 40 televisions and up to 13 projection screen
televisions throughout the restaurant to allow for easy viewing. These
televisions, combined with our sound system, Buzztime® Trivia and
assorted video games, provide a source of entertainment for our guests and
reinforce the energetic nature of our concept. We tailor the content and volume
of our video and audio programming to reflect our guests tastes. We believe
the design of our restaurants enhances our guests experiences, drives repeat
visits and solidifies the broad appeal of our concept.

All
of our menu items are made-to-order and are available for take-out, which
approximated 14% of restaurant sales for company-owned restaurants in 2008.
Many of our restaurants have separate parking spots for our take-out guests.

Current Restaurant Locations

As
of December 28, 2008, we owned or franchised 560 Buffalo Wild Wings restaurants
in 38 states, of which 197 were company-owned and 363 were franchised. In 2009,
our goal is to achieve 15% unit growth and open approximately 84 new
company-owned and franchised restaurants.

Our
company-owned restaurants range in size from 4,500 to 9,800 square feet, with
an average of approximately 5,700 square feet for restaurants that have opened
in the last three years. We anticipate that future restaurants will range in
size from 4,500 square feet to 6,500 square feet with an average cash
investment per restaurant of approximately $1.5 million, excluding preopening
expenses of approximately $225,000. From time to time, we expect that our
restaurants may be smaller or larger or cost more or less than our targeted
range, depending on the particular circumstances of the selected site or
market. Also, from time to time, we expect to purchase the building or the land
and building for certain restaurants, in which case the

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cash investment would be
significantly higher. In 2008, we acquired eight restaurants from Avado Brands
which are larger than our typical restaurant, ranging from 6,500 square feet to
9,800 square feet.

Our
restaurants are typically open on a daily basis from 11 a.m. to 2 a.m.,
although closing times vary depending on the day of the week and city and state
regulations governing the sale of alcoholic beverages. Our franchise agreements
require franchisees to operate their restaurants for a minimum of 12 hours a
day.

Site Selection and Development

Our
site selection process is integral to the successful execution of our growth
strategy. We have processes for identifying, analyzing and assigning
undeveloped markets for both company-owned and franchise development. Once a
market is assigned, we use a trade area and site selection evaluation system,
which has been customized for the requirements of the Buffalo Wild Wings®
system, to assist in identifying suitable trade areas within that market and
suitable sites within identified trade areas. Criteria examined to determine
appropriate trade areas include the presence of a casual dining corridor,
projected growth within the trade area, the locations of key big box retailers,
key demographics and population density, drive time and trade area analysis and
other quantitative and qualitative measures. Once a suitable trade area is
identified, we examine site-specific details including visibility, signage,
access, ability to get trade dress, and parking. Final approval by one or more
members of our executive management team is required for each company-owned
site. At least one senior franchise executive reviews each franchise site.

Marketing and Advertising

We
have created a unique marketing program designed to communicate a distinctive
and consistent brand that differentiates Buffalo Wild Wings®
restaurants from our competitors and that showcases our food and our brand in a
fun and energetic atmosphere. These efforts include national marketing
campaigns and irreverent, award-winning advertising to support both our
company-owned and franchised restaurants. The primary goal of these efforts is
to build brand awareness throughout the United States. In addition, advertising
campaigns are also designed to: i) drive positive same-store sales through
additional visits by our existing guests and visits by new guests, ii) increase
margins, iii) increase average order size, and iv) support strong restaurant
openings.

Marketing
Campaigns. Our primary marketing campaigns focus on
our experience or a particular menu item, day or daypart in an attempt to drive
traffic and build brand awareness. For example, in 2008 we promoted the rollout
of our new Slammers and Wild Flatbreads menu items as well as developed two
new TV commercials highlighting why YOU HAVE TO BE HERE®
at Buffalo Wild Wings. Our secondary
marketing campaigns focus on reaching beyond the core Buffalo Wild Wings®
guest. Given our strategy to be a neighborhood destination, community marketing
is also a key to driving sales and developing brand awareness in each market.
Our restaurants actively sponsor local sporting teams and sporting events to
drive guest traffic associated with those activities.

Advertising. Our media advertising focuses on
positioning the Buffalo Wild Wings® brand as an inviting
neighborhood dining location. Our commercials, print advertisements and radio
spots are irreverent by design and have been recognized in the restaurant and
advertising industries for their creativity.

Franchise
Involvement.
System-wide campaigns and promotions are developed and implemented with input
from the Buffalo Wild Wings National Advertising Advisory Board. This volunteer
board includes six franchisees, elected annually by their peers, and meets
regularly to review marketing strategies, provide input on advertising messages
and vendor co-op programs, and discuss marketing objectives.

Operations

Our
management team strives for operational excellence by recruiting, developing
and supporting our highly qualified management teams and employees and
implementing operational standards and best practices within our restaurants.

Restaurant
Management. Our
management structure consists of a General Manager, one Assistant General
Manager and up to four other managers depending on sales volume of the restaurant.
We utilize Regional Managers to oversee our General Managers in our
company-owned locations, ensuring that they receive the training and support
necessary to effectively operate their restaurants. Currently, we have 31
Regional Managers who oversee three to ten restaurants each. As we expand
geographically, we expect to add additional Regional Managers. Similarly, our
franchised restaurants receive operational guidance from our twelve Franchise
Consultants, who oversee 15 to 50 restaurants each. We have seven Directors of
Operations who provide leadership to the Regional Managers and Franchise
Consultants.

Kitchen
Operations. An
important aspect of our concept is the efficient design, layout and execution
of our kitchen operations. Due to the relatively simple preparation of our menu
items, the kitchen consists of fryers, grill and food prep

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stations that are arranged
assembly-line style for maximum productivity. Given our menu and kitchen
design, we are able to staff our kitchen with hourly Team Members who require
only basic training before reaching full productivity. Additionally, we do not
require the added expense of an on-site chef. The ease and simplicity of our
kitchen operations allows us to achieve our goal of preparing casual dining
quality food with minimal wait times. We also believe the ease of our kitchen
operations creates a competitive advantage for our concept.

Training. We provide thorough training for
management
and hourly Team Members, with the goal of providing an excellent guest
experience based on our service, food quality and engaging environment.

Our
managers are trained using a hands-on education process during a seven-week
period at one of our Certified Training Restaurants. During this training
period, our manager trainees work in every aspect of the business, including
both hourly and management functions. In addition, our General Managers and
high-potential Assistant General Managers attend an off-site management skills
class.

Our
hourly Team Members complete a comprehensive position certification process.
Station certification requires 16 to 20 hours of hands-on training. Team
Members must also successfully pass position validations, menu certifications,
responsible alcohol service training, and training on the safe handling of
food.

Team
Members who have demonstrated outstanding performance are provided
opportunities for career advancement. Those with a high level of knowledge in
one or more positions within the restaurant are encouraged to apply to enter
the Wing Certified Trainer (WCT) program. The WCT candidate completes a
training plan, which includes developing and evaluating his/her ability to
train and influence the performance of Team Members. Our objective is to have
at least four WCTs in each restaurant. Team Members who have performed
successfully as Wing Certified Trainers in three or more station areas can
apply to become All-Star Trainers. Our All-Star Trainers have the opportunity
to travel around the country to assist with training at new restaurant
openings.

Further,
Team Members with management potential can participate in the Shift Leader
program, which is a developmental program that provides hourly Team Members
with the opportunity to build and demonstrate leadership capabilities while
providing the restaurants with leaders who are trained to support management. The Shift Leader program helps us to identify
talent and build bench strength throughout the organization  through the
selection and training of those who have demonstrated the initiative, desire,
behaviors and competencies necessary for success in restaurant management, or
other positions of leadership.

Career
Opportunities.
Through our dynamic and progressive training programs, we are able to motivate
and retain our field operations team by providing them with opportunities for
increased responsibilities and advancement. In addition, we offer
performance-based cash incentives tied to sales, profitability and qualitative
measures such as guest and team-related metrics. We strive for a balance of
internal promotion and external hiring. This provides us with the ability to
retain and grow our Team Members and to infuse our organization with talented
individuals from outside of Buffalo Wild Wings.

Recruiting. We actively recruit and select
individuals
who demonstrate enthusiasm and dedication and who share our passion for high
quality guest service delivered through teamwork and commitment. To attract
high caliber managers, we have developed a competitive compensation plan that
includes a base salary and an attractive benefits package, including
participation in a management incentive plan that rewards managers for
achieving store performance objectives.

Food Preparation, Quality Control and Purchasing

We
strive to maintain high quality standards. Our systems are designed to protect
our food supply at all times, from procurement through the preparation process.
We provide detailed specifications to suppliers for our food ingredients,
products and supplies. Our restaurant managers are certified in a comprehensive
food safety and sanitation course, ServSafe, developed by the National
Restaurant Association Educational Foundation.

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 to our
restaurants. To maximize our purchasing efficiencies and obtain the lowest
possible prices for our ingredients, products and supplies, our purchasing team
negotiates prices based on the system-wide usage of both company-owned and
franchised restaurants. We believe that competitively priced, high quality
alternative manufacturers, suppliers, growers and distributors are available
should the need arise.

T.
Marzetti Company produces our signature sauces, and they maintain sufficient
inventory levels to ensure consistent supply to our restaurants. We have a
confidentiality agreement with Marzetti which prevents our sauces from being
supplied to, or manufactured for, anyone else.

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Fresh
chicken wings are an important component of our cost of sales. We work
to counteract the effect of the volatility of chicken wing prices, which can
significantly change our cost of sales and cash flow, with the introduction of
popular new menu items, effective marketing promotions, focused efforts on food
costs and waste, and menu price increases. We also explore purchasing
strategies to reduce the severity of cost increases and fluctuations. We
currently purchase our chicken wings at market price. If a satisfactory
long-term pricing agreement for chicken wings were to arise, we would consider
locking in prices to reduce our price volatility.

Restaurant Franchise Operations

Our
concept continues to attract a strong group of franchisees, many of whom have
substantial prior restaurant operations experience. Our franchisees execute a
separate franchise agreement for each restaurant opened, typically providing
for a 20-year initial term, with an opportunity to enter into a renewal
franchise agreement subject to certain conditions. The initial franchise fee
for a single restaurant is $42,500. If a franchisee signs an area development
agreement, the initial franchise fee is $42,500 for the first restaurant and
$30,000 for each subsequent restaurant. If the franchisee is an existing
franchisee who has operated a restaurant for a minimum of one year and is
signing an area development agreement, the initial franchise fee is $30,000 for
the first restaurant and $25,000 for each subsequent restaurant. If the
franchisee signs a franchise agreement for a restaurant whose trade area is
wholly within the designated area of another restaurant they own, the
franchisee will only reimburse the costs incurred by us in assisting with the
restaurant opening, and need not pay an initial franchise fee.

Franchisees
also pay us a royalty fee of 5.0% of their restaurant sales. Franchise
agreements typically allow us to assess franchisees an advertising fee in the
amount of 3.5% of their restaurant sales, of which 3.0% was contributed to our
Advertising Fund in 2008 and the remaining 0.5% was spent directly by the franchisee
in the applicable local market. Our current form of franchise agreement permits
us to increase the required contribution to the Advertising Fund by 0.5% once
every three years. The amount contributed to the Advertising Fund increased
from 2.5% to 3.0% on December 26, 2005 and is not expected to increase in 2009.

All
of our franchise agreements require that each franchised restaurant be operated
in accordance with our defined operating procedures, adhere to the menu
established by us, meet applicable quality, service, health and cleanliness
standards and comply with all applicable laws. We ensure these high standards
are being followed through a variety of means including mystery shoppers and
announced and unannounced quality assurance inspections by our franchise
consultants. We may terminate the franchise rights of any franchisee who does
not comply with our standards and requirements. We believe that maintaining
superior food quality, an inviting and energetic atmosphere and excellent guest
service are critical to the reputation and success of our concept; therefore,
we aggressively enforce the contractual requirements of our franchise
agreements.

The
area development agreement establishes the number of restaurants that must be developed
in a defined geographic area and the deadlines by which these restaurants must
open. For area development agreements covering three to seven restaurants,
restaurants are often required to open in approximately 12-month intervals. For
larger development agreements, the interval is typically shorter. The area
development agreement can be terminated by us if, among other reasons, the area
developer fails to open restaurants on schedule.

We
work hard to maintain positive and productive relationships with our
franchisees. In 2005, we formed the Buffalo Wild Wings Leadership Council,
which is an advisory board made up of six franchisees elected by their peers
that meets three times a year with our senior leaders.

Management Information Systems

Our
core management information systems are in place and we believe they are
scalable to support our future growth plans. We utilize a standard
point-of-sale system in all of our company-owned restaurants which helps
facilitate the operation of the restaurants by recording sales, cost of sales,
labor and other operating metrics and allows managers to create various
reports. Certain information from the point-of-sale system is transferred to
our headquarters on a daily basis and is reported daily to various levels of
management through email and our corporate intranet. Franchisees are required
to report sales on a daily basis through an on-line reporting network and
submit their restaurant-level financial statements on a quarterly and annual
basis.

Competition

The
restaurant industry is intensely competitive. We compete on the basis of the
taste, quality and price of food offered, guest service, ambience, location,
and overall dining experience. We believe that our attractive price-value
relationship, the

7

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atmosphere of our
restaurant, our flexible service model and the quality and distinctive flavor
of our food enable us to differentiate ourselves from our competitors. We
believe we compete primarily with local and regional sports bars and casual
dining and quick casual establishments, and to a lesser extent with quick
service restaurants such as wing-based take-out concepts. Many of our direct
and indirect competitors are well-established national, regional or local
chains and some have substantially greater financial and marketing resources
than we do. We also compete with other restaurant and retail establishments for
site locations and restaurant employees.

Proprietary Rights

We
own the rights to the Buffalo Wild Wings® service mark and to certain other service marks and trademarks
used
in our system. We attempt to protect our sauce recipes as trade secrets by,
among other things, requiring a confidentiality agreement with our sauce
supplier and executive officers. It is possible that competitors could develop
recipes and procedures that duplicate or closely resemble our recipes and
procedures. We believe that our trademarks, service marks and other proprietary
rights have significant value and are important to our brand-building efforts
and the marketing of our restaurant concept. We vigorously protect our
proprietary rights. We cannot predict, however, whether steps taken by us to
protect our proprietary rights will be adequate to prevent misappropriation of
these rights or the use by others of restaurant features based upon, or
otherwise similar to, our concept. It may be difficult for us to prevent others
from copying elements of our concept and any litigation to enforce our rights
will likely be costly and may not be successful. Although we believe that we
have sufficient rights to all of our trademarks and service marks, we may face
claims of infringement that could interfere with our ability to market our
restaurants and promote our brand. Any such litigation may be costly and divert
resources from our business. Moreover, if we are unable to successfully defend
against such claims, we may be prevented from using our trademarks or service
marks in the future and may be liable for damages.

Government Regulation

The
restaurant industry is subject to numerous federal, state and local
governmental regulations, including those relating to the preparation and sale
of food and alcoholic beverages, sanitation, public health, fire codes, zoning
and building requirements. Each restaurant requires appropriate licenses from
regulatory authorities allowing it to sell liquor, beer and wine, and each
restaurant requires food service licenses from local health authorities. Our
licenses to sell alcoholic beverages must be renewed annually and may be
suspended or revoked at any time for cause, including violation by us or our
employees of any law or regulation pertaining to alcoholic beverage control,
such as those regulating the minimum age of employees or patrons who may serve
or be served alcoholic beverages, the serving of alcoholic beverages to visibly
intoxicated patrons, advertising, wholesale purchasing and inventory control.
The failure of a restaurant to retain liquor or food service licenses could
have a material adverse effect on our operations. In order to reduce this risk,
restaurant employees are trained in standardized operating procedures designed
to assure compliance with all applicable codes and regulations.

We
and our franchisees are also subject to laws governing our relationships with
employees, including laws and regulations relating to benefits, wages, hours,
workers compensation insurance, unemployment and other taxes, working and
safety conditions and citizenship or immigration status. We may also be subject
in certain states to dram-shop statutes, which generally allow a person
injured by an intoxicated person to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. In addition,
we are subject to various state and federal laws relating to the offer and sale
of franchises and the franchisor-franchisee relationship. In general, these
laws and regulations impose specific disclosure and registration requirements
prior to the sale and marketing of franchises and regulate certain aspects of
the relationship between franchisor and franchisee.

Employees

As
of December 28, 2008, we employed approximately 12,000 employees. We have 1,000
full-time and 10,800 part-time employees working in our company-owned
restaurants and 200 employees based out of our home office or field support
management positions. Our employees are not covered by any collective
bargaining agreement, and we have never experienced an organized work stoppage
or strike. We believe that our working conditions and compensation packages are
competitive and consider our relations with our employees to be good.

Executive Officers

The
following sets forth certain information about our executive officers:

Sally
J. Smith, 51, has served as our Chief Executive Officer and President since
July 1996 and as a director since August 1996. She served as our Chief
Financial Officer from 1994 to 1996. Prior to joining Buffalo Wild Wings, she
was the Chief Financial Officer of Dahlberg, Inc., the manufacturer and
franchisor of Miracle-Ear hearing aids, from 1983 to 1994.

8

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Ms. Smith began her career
with KPMG LLP, an international accounting and auditing firm. Ms. Smith holds
an inactive CPA license. She serves on the boards of the National Restaurant
Association and Alerus Financial Corporation.

Mary
J. Twinem, 48, has served as our Executive Vice President, Chief Financial
Officer and Treasurer since July 1996. She served as our Controller from
January 1995 to July 1996. Ms. Twinem also served as a director on our Board
from June 2002 to September 2003. Prior to joining Buffalo Wild Wings, she
served as the Director of Finance/Controller of Dahlberg, Inc. from 1989 to
December 1994. Ms. Twinem began her career in public accounting and holds an
inactive CPA license.

Kathleen
M. Benning, 46, has served as our Senior Vice President, Marketing and Brand
Development since January 2002. She joined us in March 1997 as Vice President
of Marketing. From 1992 to 1997, Ms. Benning was employed by Nemer, Fieger
& Associates, an advertising agency, where she was a partner from 1994 to
1997.

Mounir
N. Sawda, 51, has served as our Senior Vice President, Franchise and
Development since August 2007. Prior to joining us, Mr. Sawda managed his own
consulting company from 2005 to 2007. From 1998 to 2005, Mr. Sawda served in
various executive positions at Dennys Corporation, most recently as Vice
President Development, Property Management, Construction and Facilities. From
1984 to 1993 and from 1996 to 1997, Mr. Sawda held several positions with
Burger King Corporation. From 1993 to 1996, Mr. Sawda worked with Hanna
International in Saudi Arabia.

James
M. Schmidt, 49, has served as our Executive Vice President since December 2006
and as General Counsel since April 2002. He served as either Vice President or
Senior Vice President from April 2002 until December 2006. Mr. Schmidt has also
served as our Secretary since September 2002, and he served as a director on
our Board from 1994 to September 2003. From 1985 to 2002, Mr. Schmidt was an
attorney with the law firm of Robbins, Kelly, Patterson & Tucker, which
provides legal services to us from time to time.

Judith
A. Shoulak, 49, has served as our Senior Vice President, Operations since March
2004. She served as our Senior Vice President, Human Resources from January
2003 to February 2004 and as Vice President of Human Resources from October
2001 to January 2003. From 1993 to 2001, Ms. Shoulak served as Vice President
of Field Human Resources of OfficeMax Incorporated.

Linda
G. Traylor, 57, has served as our Senior Vice President, Human Resources since
October 2006. Prior to joining us, Ms. Traylor managed her own consulting
company, LG Traylor & Associates from 2005 to 2006. From 2001 to 2005, Ms.
Traylor served as Senior Vice President, Human Resources of Dennys Corporation
and as its Vice President, Human Resources Planning and Development from 1995
to 2001. From 1979 to 1995, Ms. Traylor held various leadership positions with
Burger King Corporation.

ITEM 1A. RISK FACTORS

The
foregoing discussion and the discussion contained in Item 7 of this Form 10-K
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. Our forward-looking
statements generally relate to our growth strategy, financial results, sales
efforts, franchise expectations, store openings and related expense, and cash
requirements. Although it is not possible to foresee all of the factors that
may cause actual results to differ from our forward-looking statements, such
factors include, among others, the risk factors that follow. Investors are
cautioned that all forward-looking statements involve risks and uncertainties
and speak only as of the date on which they are made.

Fluctuations
in chicken wing prices could reduce our operating income.

The
primary food product used by our company-owned and franchised restaurants is
fresh chicken wings. We work to counteract the effect of the volatility
of chicken wing prices, which can significantly change our cost of sales and
cash flow, with the introduction of popular new menu items, effective marketing
promotions, focused efforts on food costs and waste, and menu price increases.
We also explore purchasing strategies to reduce the severity of cost increases
and fluctuations. We currently purchase our chicken wings at market price. If a
satisfactory long-term pricing agreement for chicken wings were to arise, we
would consider locking in prices to reduce our price volatility. Fresh chicken wing prices in 2008 averaged
4.7% lower than 2007 as the average price per pound dropped to $1.22 in 2008
from $1.28 in 2007. If there is a significant rise in the price of fresh
chicken wings, and we are unable to successfully adjust menu prices or menu mix
or otherwise make operational adjustments to account for the higher wing
prices, our operating results could be adversely affected. For example, fresh
chicken wings accounted for approximately 21%, 24%, and 24% of our cost of
sales in 2008, 2007, and 2006,

9

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respectively, with an annual
average price per pound of $1.22, $1.28, and $1.17, respectively. A 10%
increase in the fresh chicken wing costs for 2008 would have increased
restaurant cost of sales by approximately $2.3 million. If the avian flu were
to affect our supply of chicken wings, our operations may be negatively
impacted, as prices may rise due to limited supply. Additional information
related to chicken wing prices is included in Item 7 under Results of
Operations.

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 our results of operations, the expectations of securities analysts and
shareholders and thus our stock price. We cannot guarantee that we or our
franchisees will be able to achieve our expansion goals. Further, any
restaurants that we, or our franchisees, open may not achieve operating results
similar or better than our existing restaurants. If we are unable to generate
positive cash flow from a new restaurant, we may be required to recognize an
impairment loss with respect to the assets for that restaurant. Our ability to
expand successfully will depend on a number of factors, many of which are
beyond our control. These factors include:

| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Locating suitable
 restaurant sites in new and existing markets;                                                                                                                        
| |   |                                                                                                                                                                                         
| |  | Having adequate restaurant
 sites due to tightening credit markets;                                                                                                                     
| |   |                                                                                                                                                                                         
| |  | Negotiating acceptable
 lease or purchase terms for new restaurants;                                                                                                                    
| |   |                                                                                                                                                                                         
| |  | Recruiting, training and
 retaining qualified home office, field and restaurant personnel;                                                                                              
| |   |                                                                                                                                                                                         
| |  | Attracting and retaining
 qualified franchisees;                                                                                                                                        
| |   |                                                                                                                                                                                         
| |  | Cost effective and timely
 planning, design and build-out of restaurants;                                                                                                               
| |   |                                                                                                                                                                                         
| |  | Obtaining building
 materials and hiring satisfactory construction contractors;                                                                                                         
| |   |                                                                                                                                                                                         
| |  | Obtaining and maintaining
 required local, state and federal governmental approvals and permits related
 to the construction of the sites and the sale of food and alcoholic
 beverages;
| |   |                                                                                                                                                                                         
| |  | Creating guest awareness
 of our restaurants in new markets;                                                                                                                            
| |   |                                                                                                                                                                                         
| |  | Competition in new and
 existing markets; and                                                                                                                                           
| |   |                                                                                                                                                                                         
| |  | General economic
 conditions.                                                                                                                                                           

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 our site-selection criteria. We may make errors in
selecting these criteria or applying these criteria to a particular site, or
there may be an insignificant number of new restaurant sites meeting these
criteria that would enable us to achieve 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. Further, we may be precluded from acquiring an otherwise suitable site
due to an exclusivity restriction held by another tenant. 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. We may not be successful in
operating our restaurants in new markets on a profitable basis. The success of
these new restaurants will be affected by the different competitive 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 their profitability.

10

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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 sales and operating performance at the same level as established
restaurants in the market.

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.

We
are dependent on franchisees and their success.

Currently,
approximately 65% of our restaurants are franchised. Franchising royalties and
fees represented approximately 10.1%, 11.2% and 11.2% of our revenues during
fiscal 2008, 2007, and 2006, respectively. Our performance depends upon (i) our
ability to attract and retain qualified franchisees, (ii) the franchisees
ability to execute our concept and capitalize upon our brand recognition and
marketing, and (iii) franchisees ability to timely develop restaurants. 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. Also, our
franchisees may not be able to operate restaurants in a profitable manner.

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 if franchisees do not operate restaurants in a manner consistent
with our standards and requirements, or if they do 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 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 our potential sale of a franchise. 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 to a lesser extent, quick service 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 us. Further, some
competitors have substantially greater financial, marketing and other resources
than us. 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.

A
reduction in vendor allowances currently received could affect our costs of
goods sold.

During
fiscal 2008, 2007, and 2006, vendor allowances were recorded as a reduction in
inventoriable costs, and cost of sales was reduced by $5.2 million, $4.6
million, and $4.2 million respectively. If the amount of vendor allowances is
reduced, inventoriable costs may increase, as may the cost of sales.

Our
quarterly operating results may fluctuate due to the timing of special events
and other factors, including the recognition of impairment losses.

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

11

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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:

| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increases or decreases in
 same-store sales;                                                                                                                         
| |   |                                                                                                                                                                      
| |  | Fluctuations in food
 costs, particularly fresh chicken wings;                                                                                                       
| |   |                                                                                                                                                                      
| |  | The timing of new restaurant
 openings, which may impact margins due to the related preopening costs and
 initially higher restaurant level operating expense ratios;
| |   |                                                                                                                                                                      
| |  | Labor availability and
 costs for hourly and management personnel;                                                                                                   
| |   |                                                                                                                                                                      
| |  | Changes in competitive factors;                                                                                                                                      
| |   |                                                                                                                                                                      
| |  | Disruption in supplies;                                                                                                                                              
| |   |                                                                                                                                                                      
| |  | General economic
 conditions, consumer confidence, and fluctuations in discretionary spending;                                                                       
| |   |                                                                                                                                                                      
| |  | Claims experience for
 self-insurance programs;                                                                                                                      
| |   |                                                                                                                                                                      
| |  | Increases or decreases in
 labor or other variable expenses;                                                                                                         
| |   |                                                                                                                                                                      
| |  | The impact from natural
 disasters;                                                                                                                                  
| |   |                                                                                                                                                                      
| |  | Fluctuations in interest
 rates; and                                                                                                                                 
| |   |                                                                                                                                                                      
| |  | The timing and amount of
 asset impairment loss and restaurant closing charges.                                                                                      

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. These fluctuations may cause future operating results to 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 depends on our ability to
attract, motivate, develop and retain a sufficient number of qualified
restaurant employees, including restaurant managers, kitchen staff and wait
staff. The inability to recruit, develop and retain these individuals may delay
the planned openings of new restaurants or result in high employee turnover in
existing restaurants, thus increasing the cost to efficiently operate our
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 and
senior leaders could 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. In addition, we are subject to gaming regulations with respect to
our gaming operations within our nine company-owned stores in Las Vegas. The
failure to obtain and maintain these licenses, permits and approvals, including
food, liquor and gaming 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.

Changes
in employment laws or regulation could harm our performance.

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,
mandated training for employees, increased tax reporting and tax payment
requirements for employees who receive tips, 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.

12

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The
Americans with Disabilities Act is a federal law that 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.

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, sports bars 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, which 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
flow.

We
are susceptible to adverse trends in Ohio.

As
of December 28, 2008, 86, or approximately 15%, of our company-owned and
franchised restaurants were located in Ohio. In addition, many of our
restaurants in Ohio have been operating for at least ten years. 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
economic conditions, strikes, new or revised laws or regulations, or
disruptions in the supply of food products. As a result, we are susceptible to
adverse economic trends in that state.

Changes
in public health concerns may impact our performance.

Changes
in public health concerns may affect consumer preferences for our products. For
example, if incidents of the avian flu occur in the United States, consumer
preferences for poultry products may be negatively impacted, resulting in a
decline in demand for our products. Similarly, public health concerns over
smoking have seen a rise in smoking bans. Such smoking bans may adversely
affect our operations to the extent that such bans are imposed in specific
locations, rather than state-wide, or that exceptions to the ban are given to
bars or other establishments, giving patrons the ability to choose nearby
locations that have no such ban. Further, growing movements to change laws
relating to alcohol may result in a decline in alcohol consumption at our
stores or increase the number of dram shop claims made against us, either of
which may negatively impact operations or result in the loss of liquor
licenses. We are carefully monitoring new laws regulating the use of transfats
and requiring nutritional fact disclosures.

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 businesses to attract guests to our restaurants. If visitors to
these centers decline due to economic conditions, closure of big-box retailers,
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.

The
acquisition of existing restaurants from our franchisees or other acquisitions
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:

| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | material adverse effects
 on our operating results, particularly in the fiscal quarters immediately
 following the acquisition as the acquired restaurants are integrated into our
 operations;
| |   |                                                                                                                                                                                                
| |  | risks associated with
 entering into markets or conducting operations where we have no or limited
 prior experience; and                                                                       

13

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| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | diversion of managements
 attention from other business concerns.

Future
acquisitions of existing restaurants from our franchisees or other
acquisitions, 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.

Improper
food handling may affect our business adversely.

There
are health risks associated with eating contaminated or 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 an illness or injury they suffered at or after a visit to our
restaurants. We are also subject to a variety of other claims arising in the
ordinary course of business, including personal injury claims, contract claims,
employment-related claims, claims by franchisees, and claims arising from
incidents at franchised restaurants. 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. Recent
litigation against restaurant chains has resulted in significant judgments and
settlements under dram shop statutes. 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 or for which we do
not have insurance coverage could materially affect our financial condition or
results of operations. Further, adverse publicity resulting from these
allegations may 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.

Natural
disasters and other events could harm our performance.

A
natural disaster, such as a hurricane, a serious and widespread disease, such
as an avian flu pandemic, or other events, such as a serious terrorist attack,
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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not
applicable.

14

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ITEM 2. PROPERTIES

We
are headquartered in Minneapolis, Minnesota. Our home office has approximately
44,000 square feet of office space. We occupy this facility under a lease that
terminates on November 30, 2017, with an option to renew for one five-year
term.

As
of December 28, 2008, we owned and operated 197 restaurants. We lease the land
and building for most of these sites. The majority of our existing leases are
for 10 or 15-year terms, generally including options to extend the terms. We
typically lease our restaurant facilities under triple net leases that
require us to pay minimum rent, real estate taxes, maintenance costs and
insurance premiums and, in some instances, percentage rent based on sales in
excess of specified amounts. Most of our leases include exclusive use
provisions prohibiting our landlords from leasing space to other restaurants
that fall within certain specified criteria. Under our franchise agreements, we
have certain rights to gain control of a restaurant site in the event of
default under the lease or franchise agreement. The following table sets forth
the 38 states in which Buffalo Wild Wings restaurants are located and the
number of restaurants in each state as of December 28, 2008:

|                |  |                            |  |            |  |      
|--------------- |  | -------------------------- |  | ---------- |  | -----
|                |  | Number of Restaurants Open
|                |  | Company-owned              |  | Franchised |  | Total
|Alabama         |  | 1                          |  | 9          |  | 10   
|Arizona         |  | 1                          |  | 14         |  | 15   
|Arkansas        |  |                           |  | 4          |  | 4    
|California      |  |                           |  | 5          |  | 5    
|Colorado        |  | 11                         |  | 1          |  | 12   
|Connecticut     |  |                           |  | 3          |  | 3    
|Delaware        |  |                           |  | 5          |  | 5    
|Florida         |  |                           |  | 18         |  | 18   
|Georgia         |  | 7                          |  |           |  | 7    
|Illinois        |  | 10                         |  | 32         |  | 42   
|Indiana         |  | 3                          |  | 36         |  | 39   
|Iowa            |  | 10                         |  |           |  | 10   
|Kansas          |  | 7                          |  |           |  | 7    
|Kentucky        |  | 9                          |  | 5          |  | 14   
|Louisiana       |  |                           |  | 8          |  | 8    
|Maryland        |  |                           |  | 3          |  | 3    
|Michigan        |  |                           |  | 35         |  | 35   
|Minnesota       |  | 19                         |  | 3          |  | 22   
|Mississippi     |  | 2                          |  | 3          |  | 5    
|Missouri        |  | 6                          |  | 16         |  | 22   
|Montana         |  |                           |  | 2          |  | 2    
|Nebraska        |  | 5                          |  | 2          |  | 7    
|Nevada          |  | 9                          |  | 1          |  | 10   
|New Mexico      |  |                           |  | 1          |  | 1    
|New York        |  | 7                          |  | 6          |  | 13   
|North
 Carolina |  | 10                         |  | 3          |  | 13   
|North Dakota    |  |                           |  | 5          |  | 5    
|Ohio            |  | 25                         |  | 61         |  | 86   
|Oklahoma        |  |                           |  | 8          |  | 8    
|Oregon          |  |                           |  | 3          |  | 3    
|Pennsylvania    |  | 4                          |  | 1          |  | 5    
|South
 Carolina |  |                           |  | 4          |  | 4    
|South Dakota    |  |                           |  | 1          |  | 1    
|Tennessee       |  | 11                         |  |           |  | 11   
|Texas           |  | 25                         |  | 36         |  | 61   
|Virginia        |  | 3                          |  | 16         |  | 19   
|West
 Virginia  |  |                           |  | 6          |  | 6    
|Wisconsin       |  | 12                         |  | 7          |  | 19   
|Total           |  | 197                        |  | 363        |  | 560  

15

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ITEM 3. LEGAL PROCEEDINGS

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 on any claim not covered by or in excess of our insurance
coverage could adversely affect our financial condition or results of
operations.

ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

Not
applicable.

16

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PART II

|        |                                                                                                             
|------- | ------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES

Market Information

Our
Common Stock trades on the NASDAQ Global Market under the symbol BWLD. The
following table sets forth the high and low closing sale prices of our Common
Stock. On June 15, 2007, we effected a two-for-one stock split. All stock
prices have been adjusted for this change.

|                |  |      |       |      |   |       |  |     |       |  |   |       | 
|--------------- |  | ---- | ----- | ---- | - | ----- |  | --- | ----- |  | - | ----- | 
|                |  | 2008 |       | 2007 |  
|                |  | High |       | Low  |   | High  |  | Low |      
|First
 Quarter  |  | $    | 26.25 |      | $ | 19.41 |  | $   | 31.85 |  | $ | 23.84 | 
|Second
 Quarter |  |      | 34.61 |      |   | 23.23 |  |     | 46.64 |  |   | 31.35 | 
|Third
 Quarter  |  |      | 43.21 |      |   | 24.72 |  |     | 43.85 |  |   | 31.99 | 
|Fourth
 Quarter |  |      | 40.76 |      |   | 15.52 |  |     | 42.03 |  |   | 23.03 | 

Holders

As
of February 19, 2009, there were approximately 173 record holders of our Common
Stock, excluding shareholders whose stock is held either in nominee name and/or
street name brokerage accounts. Based on information which we have obtained
from our transfer agent, there are approximately 41,000 holders of our Common
Stock whose stock is held either in nominee name and/or street name brokerage
accounts.

Dividends

We
have never declared or paid cash dividends on our Common Stock. It is our
policy to preserve cash for development and other working capital needs and,
therefore, do not currently have plans to pay any cash dividends. Our future
dividend policy will be determined by our Board of Directors and will depend on
various factors, including our results of operations, financial condition,
anticipated cash needs and plans for expansion.

Securities Authorized for Issuance Under
Equity Compensation Plans

For
information on our equity compensation plans, refer to Item 12, Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.

Stock Performance
Chart

The
following graph compares the yearly percentage change in the cumulative total
shareholder return on our Common Stock for the five-year period ended December
28, 2008 with the cumulative total return on the Nasdaq Composite and the S&P 600 Restaurants Index. The comparison
assumes $100 was invested in Buffalo Wild Wings Common Stock on December 28,
2003, and in each of the foregoing indices on December 31, 2003 and assumes
reinvestment of dividends.

17

---



COMPARISON OF 5 YEAR CUMULATIVE
TOTAL RETURN*Among Buffalo Wild Wings, Inc., The NASDAQ Composite Index
And The S&P 600 Restaurants Index

(LINE GRAPH)


*$100 invested on 12/28/03 in stock &
12/31/03 in index-including reinvestment of dividends.

|                          |  |          |        |          |   |          |  |          |        |          |   |          |  |   |        |  |   |        | 
|------------------------- |  | -------- | ------ | -------- | - | -------- |  | -------- | ------ | -------- | - | -------- |  | - | ------ |  | - | ------ | 
|                          |  | 12/28/03 |        | 12/26/04 |   | 12/25/05 |  | 12/31/06 |        | 12/30/07 |   | 12/28/08 | 
|                          |  |          |        |          |   |          |  |          |        |          |   |          |  |   |        |  |   |        | 
|Buffalo Wild Wings, Inc.  |  | $        | 100.00 |          | $ | 146.24   |  | $        | 142.62 |          | $ | 224.47   |  | $ | 195.27 |  | $ | 208.61 | 
|                          |  |          |        |          |   |          |  |          |        |          |   |          |  |   |        |  |   |        | 
|NASDAQ Composite          |  |          | 100.00 |          |   | 110.08   |  |          | 112.88 |          |   | 126.51   |  |   | 138.13 |  |   | 80.47  | 
|                          |  |          |        |          |   |          |  |          |        |          |   |          |  |   |        |  |   |        | 
|S&P 600 Restaurants Index |  |          | 100.00 |          |   | 127.39   |  |          | 133.27 |          |   | 144.40   |  |   | 108.79 |  |   | 79.23  | 

The
preceding stock performance chart is not deemed filed with the Securities and
Exchange Commission. Notwithstanding anything to the contrary set forth in any
of our previous filings made under the Securities Act of 1933 or the Securities
Exchange Act of 1934 that incorporate future filings made by us under those
statutes, the above stock performance chart is not to be incorporated by
reference in any prior filings, nor shall it be incorporated by reference into
any future filings made by us under those statutes.

18

---



ITEM 6. SELECTED FINANCIAL
DATA

The
following summary information should be read in conjunction with the
Consolidated Financial Statements and related notes thereto set forth in Item 8
of this Form 10-K.

|                                               |  |                                                 |            |                |   |                |   |                |            |                |   |            |   |   |            |  
|---------------------------------------------- |  | ----------------------------------------------- | ---------- | -------------- | - | -------------- | - | -------------- | ---------- | -------------- | - | ---------- | - | - | ---------- | -
|                                               |  | Fiscal Years Ended(1)                           |           
|                                               |  | Dec. 28,
 2008                                  |            | Dec. 30,
 2007 |   | Dec. 31,
 2006 |   | Dec. 25,
 2005 |            | Dec. 26,
 2004 |  
|                                               |  | (in thousands, except share and per share data) |           
|Consolidated
 Statements of Earnings Data:     |  |                                                 |            |                |   |                |   |                |            |                |   |            |   |   |            |  
|Revenue:                                       |  |                                                 |            |                |   |                |   |                |            |                |   |            |   |   |            |  
|Restaurant sales                               |  | $                                               | 379,686    |                | $ | 292,824        |   | $              | 247,150    |                | $ | 185,823    |   | $ | 152,221    |  
|Franchising royalties and fees                 |  |                                                 | 42,731     |                |   | 36,828         |   |                | 31,033     |                |   | 23,877     |   |   | 18,827     |  
|Total revenue                                  |  |                                                 | 422,417    |                |   | 329,652        |   |                | 278,183    |                |   | 209,700    |   |   | 171,048    |  
|Costs and expenses:                            |  |                                                 |            |                |   |                |   |                |            |                |   |            |   |   |            |  
|Restaurant operating costs:                    |  |                                                 |            |                |   |                |   |                |            |                |   |            |   |   |            |  
|Cost of sales                                  |  |                                                 | 113,266    |                |   | 90,065         |   |                | 76,087     |                |   | 58,771     |   |   | 51,507     |  
|Labor                                          |  |                                                 | 114,609    |                |   | 87,784         |   |                | 73,030     |                |   | 55,403     |   |   | 43,853     |  
|Operating                                      |  |                                                 | 60,205     |                |   | 47,974         |   |                | 41,087     |                |   | 29,717     |   |   | 23,080     |  
|Occupancy                                      |  |                                                 | 25,157     |                |   | 19,986         |   |                | 17,529     |                |   | 14,172     |   |   | 10,259     |  
|Depreciation and amortization                  |  |                                                 | 23,622     |                |   | 16,987         |   |                | 14,492     |                |   | 11,765     |   |   | 9,717      |  
|General and administrative                     |  |                                                 | 40,151     |                |   | 35,740         |   |                | 30,374     |                |   | 22,303     |   |   | 19,372     |  
|Preopening                                     |  |                                                 | 7,930      |                |   | 4,520          |   |                | 3,077      |                |   | 2,599      |   |   | 2,042      |  
|Loss on asset disposals and impairment         |  |                                                 | 2,083      |                |   | 987            |   |                | 1,008      |                |   | 1,991      |   |   | 573        |  
|Total costs and expenses                       |  |                                                 | 387,023    |                |   | 304,043        |   |                | 256,684    |                |   | 196,721    |   |   | 160,403    |  
|Income from operations                         |  |                                                 | 35,394     |                |   | 25,609         |   |                | 21,499     |                |   | 12,979     |   |   | 10,645     |  
|Investment income                              |  |                                                 | 970        |                |   | 2,909          |   |                | 2,339      |                |   | 1,340      |   |   | 671        |  
|Earnings before income
 taxes                  |  |                                                 | 36,364     |                |   | 28,518         |   |                | 23,838     |                |   | 14,319     |   |   | 11,316     |  
|Income tax expense                             |  |                                                 | 11,929     |                |   | 8,864          |   |                | 7,565      |                |   | 5,439      |   |   | 4,115      |  
|Net earnings                                   |  | $                                               | 24,435     |                | $ | 19,654         |   | $              | 16,273     |                | $ | 8,880      |   | $ | 7,201      |  
|Earnings per common share 
 basic             |  | $                                               | 1.37       |                | $ | 1.12           |   | $              | 0.95       |                | $ | 0.53       |   | $ | 0.44       |  
|Weighted average shares
 outstanding  basic   |  |                                                 | 17,813,000 |                |   | 17,554,000     |   |                | 17,157,000 |                |   | 16,892,000 |   |   | 16,330,000 |  
|Earnings per common share 
 diluted           |  | $                                               | 1.36       |                | $ | 1.10           |   | $              | 0.92       |                | $ | 0.51       |   | $ | 0.42       |  
|Weighted average shares
 outstanding  diluted |  |                                                 | 17,995,000 |                |   | 17,833,000     |   |                | 17,629,000 |                |   | 17,417,000 |   |   | 17,208,000 |  
|                                               |  |                                                 |            |                |   |                |   |                |            |                |   |            |   |   |            |  
|Consolidated
 Statements of Cash Flow Data:    |  |                                                 |            |                |   |                |   |                |            |                |   |            |   |   |            |  
|Net cash provided by
 operating activities     |  | $                                               | 66,107     |                | $ | 43,579         |   | $              | 33,031     |                | $ | 24,618     |   | $ | 20,754     |  
|Net cash used in investing
 activities         |  |                                                 | (60,134    | )              |   | (54,687        | ) |                | (26,829    | )              |   | (33,919    | ) |   | (59,307    | )
|Net cash provided by
 financing activities     |  |                                                 | 853        |                |   | 873            |   |                | 1,568      |                |   | 730        |   |   | 1,572      |  

|                                   |  |                |         |                |   |                |  |                |         |                |   |         |  |   |         | 
|---------------------------------- |  | -------------- | ------- | -------------- | - | -------------- |  | -------------- | ------- | -------------- | - | ------- |  | - | ------- | 
|                                   |  | As of(1)       |        
|                                   |  | Dec. 28,
 2008 |         | Dec. 30,
 2007 |   | Dec. 31,
 2006 |  | Dec. 25,
 2005 |         | Dec. 26,
 2004 |  
|                                   |  | (in thousands) |        
|Consolidated
 Balance Sheets Data: |  |                |         |                |   |                |  |                |         |                |   |         |  |   |         | 
|Total current assets               |  | $              | 60,898  |                | $ | 84,506         |  | $              | 74,950  |                | $ | 61,079  |  | $ | 57,021  | 
|Total assets                       |  |                | 243,818 |                |   | 197,098        |  |                | 161,183 |                |   | 133,123 |  |   | 118,985 | 
|Total current liabilities          |  |                | 40,532  |                |   | 32,490         |  |                | 25,780  |                |   | 20,203  |  |   | 18,327  | 
|Total liabilities                  |  |                | 72,225  |                |   | 55,433         |  |                | 44,967  |                |   | 36,275  |  |   | 33,278  | 
|Retained earnings                  |  |                | 85,275  |                |   | 60,840         |  |                | 41,186  |                |   | 24,913  |  |   | 16,033  | 
|Total common stockholders
 equity |  |                | 171,593 |                |   | 141,665        |  |                | 116,216 |                |   | 96,848  |  |   | 85,707  | 

|    |                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | We utilize a 52- or 53-week
 accounting period that ends on the last Sunday in December. The fiscal years
 ended December 28, 2008, December 30, 2007, December 25, 2005, and December
 26, 2004, were comprised of 52 weeks. The fiscal year ended December 31, 2006
 was a 53-week year.

19

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|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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. This discussion and analysis contains certain
statements that are not historical facts, including, among others, those
relating to our anticipated financial performance for fiscal 2009, cash
requirements, and our expected store openings. Such statements are
forward-looking and speak only as of the date on which they are made. There are
risks and uncertainties including but not limited to those discussed in Item 1A
of this 10-K under Risk Factors/Forward-Looking Statements. Information
included in this discussion and analysis includes commentary on company-owned
and franchised restaurant units, restaurant sales, same-store sales, and
average weekly sales volumes. Management believes such sales information is an
important measure of our performance, and is useful in assessing consumer
acceptance of the Buffalo Wild Wings® Grill & Bar concept and the
overall health of the concept. Franchise information also provides an
understanding of our revenues because franchise royalties and fees are based on
the opening of franchised units and their sales. However, franchise sales and
same-store sales information does not represent sales in accordance with U. S.
Generally Accepted Accounting Principles (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 financial information as
defined or used by other companies.

Overview

As
of December 28, 2008, we owned and operated 197 and franchised an additional
363 Buffalo Wild Wings Grill & Bar® restaurants in 38 states. Of the 560
system-wide restaurants, 86 of those restaurants are located in Ohio. The
restaurants have elements of both the quick casual and casual dining styles,
both of which are part of a growing industry. Our long-term focus is to grow to
a national chain of over 1,000 locations, continuing the strategy of developing
both company-owned and franchised restaurants.

Our
growth targets for 2009 are 15% unit growth, 25% revenue growth, and 20% to 25%
net earnings growth. Our growth and success depend on several factors and
trends. First, we continue to monitor and react to changes in our cost of goods
sold. The costs of goods sold is difficult to predict, as it ranged from 29.3%
to 31.0% of restaurant sales per quarter in 2008 and 2007, mostly due to the
price fluctuation in chicken wings. We are working to counteract the volatility
of chicken wing prices with the introduction of popular new menu items,
effective marketing promotions, focused efforts on food costs and waste, and
menu price increases. We will continue to monitor the cost of fresh chicken
wings, as it can significantly change our cost of sales and cash flow from
company-owned restaurants. We are also exploring purchasing strategies to
lessen the severity of cost increases and fluctuations, and are reviewing menu
additions and other strategies that may decrease the percentage that fresh
chicken wings represent in terms of total restaurant sales. The chart below
illustrates the fluctuation in fresh chicken wing prices from quarter to
quarter in the last five years.

Average Quarterly Wing Prices2004-2008

(LINE GRAPH)

A
second factor is our success developing new markets. There are inherent risks
in opening new restaurants, especially in new markets, including the lack of
experience, logistical support, and brand awareness in a new market. These
factors may

20

---



result in
lower than anticipated sales and cash flow for restaurants in new markets. In
2009, we plan to develop company-owned restaurants primarily in markets where
we currently have either company-owned or franchised restaurants. We believe
this development focus, together with our focus on our new restaurant opening
procedures, will help to mitigate the overall risk associated with opening
restaurants in new markets.

Third,
we will continue our focus on trends in company-owned and franchised 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 remain committed to high quality operations and guest hospitality.

Our
revenue is generated by:

| |   |                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sales at our
 company-owned restaurants, which represented 90% of total revenue in 2008.
 Food and nonalcoholic beverages accounted for 74% of restaurant sales. The
 remaining 26% of restaurant sales was from alcoholic beverages. The menu item
 with the highest sales volume is chicken wings at 20% of total restaurant
 sales.
| |   |                                                                                                                                                                                                                                                                                                                                       
| |  | Royalties
 and franchise fees received from our franchisees.                                                                                                                                                                                                                                                                          

We
generate cash from the operation of our company-owned restaurants and also from
franchise royalties and fees. We highlight the specific costs associated with
the on-going operation of 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 annually based on the number of new locations opening. Loss on asset
disposals and impairment expense is related to company-owned restaurants, and
includes the write-down of underperforming 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
operate on a 52 or 53-week fiscal year ending on the last Sunday in December.
Each of the fiscal years in the five years ended December 28, 2008 were 52-week
years except for the fiscal year ended December 31, 2006, which was a 53-week
year.

Critical Accounting Policies and Use of
Estimates

Our
significant accounting policies are described in Note 1 to the Consolidated
Financial Statements, which were prepared in accordance with GAAP. Critical
accounting policies are those that we believe are both important to the
portrayal of our financial condition and results and require our most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.

We
believe that the following discussion represents our more critical accounting
policies and estimates used in the preparation of our consolidated financial
statements, although it is not inclusive.

Valuation
of Long-Lived Assets and Store Closing Reserves

We
review long-lived assets quarterly to determine if the carrying amount of these
assets may not be recoverable based on estimated future cash flows. Assets are
reviewed at the lowest level for which cash flows can be identified, which is
at the individual restaurant level. In the absence of extraordinary
circumstances, restaurants are included in the impairment analysis after they
have been open for 15 months. We evaluate the recoverability of a restaurants
long-lived assets, including leasehold improvements, equipment and fixtures
over its remaining lease term, after considering the potential impact of
planned operational improvements, marketing programs, and anticipated changes
in the trade area. In determining future cash flows, significant estimates are
made by us with respect to future operating results of each restaurant over its
remaining lease term. If assets are determined to be impaired, the impairment
charge is measured by calculating the amount by which the asset carrying amount
exceeds its fair value based on our estimate of discounted future cash flows.
The determination of asset fair value is also subject to significant judgment.
During fiscal 2008 and 2006, we recognized $549,000 and $481,000, respectively,
of asset impairment charges. No asset impairment charges were recognized during
2007.

In
addition to the valuation of long-lived assets, we also record a store closing
reserve when a restaurant is abandoned due to closure or relocation. The store
closing reserve is subject to significant judgment as accruals are made for
lease payments on abandoned leased facilities. Many factors, including the
local business environment, other available lease sites, and the willingness of
lessors to negotiate lease buyouts are considered in making the accruals. We
estimate future lease obligations based on these factors and evaluate quarterly
the adequacy of the estimated reserve based on current market conditions. During
2008, 2007, and 2006,we recorded reserves of $85,000, $85,000, and $54,000,
respectively, for restaurants that closed.

21

---



The
reconciliation of the store closing reserve for the years ended December 28,
2008, December 30, 2007, and December 31, 2006 is as follows (in thousands):

|                                          |  |                       |   |             |   |                 |  |                       |     |   |   |   | 
|----------------------------------------- |  | --------------------- | - | ----------- | - | --------------- |  | --------------------- | --- | - | - | - | 
|                                          |  | As of
 Dec. 30,
 2007 |   | 2008reserve |   | Costs
 incurred |  | As of
 Dec. 28,
 2008 |    
|Remaining
 lease obligation and utilities |  | $                     |  |             | $ | 85              |  | $                     | (85 | ) | $ |  | 
|                                          |  | $                     |  |             | $ | 85              |  | $                     | (85 | ) | $ |  | 

|                                          |  |                       |    |             |   |                 |  |                       |      |   |   |   | 
|----------------------------------------- |  | --------------------- | -- | ----------- | - | --------------- |  | --------------------- | ---- | - | - | - | 
|                                          |  | As of
 Dec. 31,
 2006 |    | 2007reserve |   | Costs
 incurred |  | As of
 Dec. 30,
 2007 |     
|Remaining
 lease obligation and utilities |  | $                     | 54 |             | $ | 85              |  | $                     | (139 | ) | $ |  | 
|                                          |  | $                     | 54 |             | $ | 85              |  | $                     | (139 | ) | $ |  | 

|                                          |  |                       |   |               |   |                 |  |                       |   |  |   |    | 
|----------------------------------------- |  | --------------------- | - | ------------- | - | --------------- |  | --------------------- | - |  | - | -- | 
|                                          |  | As of
 Dec. 25,
 2005 |   | 2006
 reserve |   | Costs
 incurred |  | As of
 Dec. 31,
 2006 |  
|Remaining
 lease obligation and utilities |  | $                     |  |               | $ | 54              |  | $                     |  |  | $ | 54 | 
|                                          |  | $                     |  |               | $ | 54              |  | $                     |  |  | $ | 54 | 

Goodwill

We
review goodwill for impairment annually, or whenever circumstances change in a
way which could indicate that impairment may have occurred. Goodwill is
associated with a reporting unit, which we define as a number of locations
within a geographic market which experience similar economic characteristics.

We
identify potential goodwill impairments by using the income approach, which
involves comparing the fair value of the reporting unit to its carrying amount,
which includes goodwill and other intangible assets. Fair value is calculated
as the present value of expected future cash flows. In determining future cash
flows, significant estimates are made by us with respect to future operating
results of each restaurant.

If
the carrying amount of the market exceeds the fair value, this is an indication
that impairment may exist. We calculate the amount of the impairment by
comparing the implied fair value of the asset with the carrying amount. The
fair value of the reporting unit in excess of the value of the assets and
liabilities is the implied fair value of the goodwill. If this amount is less
than the carrying amount of goodwill, impairment is recognized for the
difference. No goodwill impairment charges were recognized during 2008, 2007,
or 2006.

Vendor Allowances

Vendor
allowances include allowances and other funds received from vendors. Certain of
these funds are determined based on various quantitative contract terms. We
also receive vendor allowances from certain manufacturers and distributors
calculated based upon purchases made by franchisees. Amounts that represent a
reimbursement of costs incurred, such as advertising, are recorded as a
reduction of the related expense. Amounts that represent a reduction of
inventory purchase costs are recorded as a reduction of inventoriable costs. We
record an estimate of earned vendor allowances that are calculated based upon
monthly purchases. We generally receive payment from vendors approximately 30
days after the end of a month for that months purchases. During fiscal 2008,
2007, and 2006, vendor allowances were recorded as a reduction in inventoriable
costs, and cost of sales was reduced by $5.2 million, $4.6 million, and $4.2
million, respectively.

Revenue Recognition 
Franchise Operations

Our
franchise agreements have terms ranging from 10 to 20 years. These agreements
also convey extension terms of 5 or 10 years depending on contract terms and if
certain conditions are met. We provide training, preopening assistance and
restaurant operating assistance in exchange for area development fees,
franchise fees and royalties of 5% of the franchised restaurants sales.
Franchise fee revenue from individual franchise sales is recognized upon the
opening of the restaurant when we have performed all of our material
obligations and initial services. Area development fees are dependent upon the
number of restaurants granted in the agreement as are our obligations under the
area development agreement. Consequently, as our obligations are met, area
development fees are recognized in relation to the expenses incurred with the
opening of each

22

---



new restaurant
and any royalty-free periods. Royalties are accrued as earned and are
calculated each period based on reported franchisees sales.

Self-Insurance Liability

We
are self-insured for a significant portion of our risks and associated
liabilities with respect to workers compensation, general liability, and
employee health benefits. The accrued liabilities associated with these
programs are based on our estimate of the ultimate costs to settle known claims
as well as claims that may have arisen but have not yet been reported to us as
of the balance sheet date. Our estimated liabilities are not discounted and are
based on information provided by our insurance brokers and insurers, combined
with our judgments regarding a number of assumptions and factors, including the
frequency and severity of claims, and claims development history. We maintain
stop-loss coverage with third-party insurers to limit our total exposure for
each of these programs. Significant judgment is required to estimate claims
incurred but not reported as parties have yet to assert such claims. If actual
claims trends, including the frequency or severity of claims, differ from our
estimates, our financial results could be impacted.

Stock-Based
Compensation

We
account for stock-based compensation in accordance with the fair value
recognition provisions of SFAS 123R. For our stock-based compensation
valuation, we use the Black-Scholes-Merton pricing model, which requires the
input of subjective assumptions. These assumptions include the expected life of
the options, expected volatility over the expected term, the risk-free interest
rate, and the expected forfeitures.

Compensation
expense for restricted stock units is recognized for the expected number of
shares vesting at the end of each annual period. Restricted stock units granted
in 2008 are subject to cumulative one-year, two-year, and three-year net
earnings targets. The number of units that vest each year is based on
performance against those targets. The expense recognized in the first year
includes the full expense for units vesting at the end of the first year, half
of the expense for units vesting at the end of the second year, and a third of
the expense for units vesting at the end of the third year. Significant
assumptions are made to estimate the expected net earnings levels for future
years.

Results of Operations

Our
operating results for 2008, 2007, and 2006 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.

|                                       |  |                    |       |              |  |              |   |  |       |  
|-------------------------------------- |  | ------------------ | ----- | ------------ |  | ------------ | - |  | ----- | -
|                                       |  | Fiscal Years Ended |      
|                                       |  | Dec. 28,2008       |       | Dec. 30,2007 |  | Dec. 31,2006 |  
|Revenue:                               |  |                    |       |              |  |              |   |  |       |  
|Restaurant sales                       |  |                    | 89.9  | %            |  | 88.8         | % |  | 88.8  | %
|Franchising royalties and
fees         |  |                    | 10.1  |              |  | 11.2         |   |  | 11.2  |  
|Total revenue                          |  |                    | 100.0 |              |  | 100.0        |   |  | 100.0 |  
|Costs and
 expenses:                   |  |                    |       |              |  |              |   |  |       |  
|Restaurant operating
costs:            |  |                    |       |              |  |              |   |  |       |  
|Cost of sales                          |  |                    | 29.8  |              |  | 30.8         |   |  | 30.8  |  
|Labor                                  |  |                    | 30.2  |              |  | 30.0         |   |  | 29.5  |  
|Operating                              |  |                    | 15.9  |              |  | 16.4         |   |  | 16.6  |  
|Occupancy                              |  |                    | 6.6   |              |  | 6.8          |   |  | 7.1   |  
|Depreciation and
amortization          |  |                    | 5.6   |              |  | 5.2          |   |  | 5.2   |  
|General and
administrative             |  |                    | 9.5   |              |  | 10.8         |   |  | 10.9  |  
|Preopening                             |  |                    | 1.9   |              |  | 1.4          |   |  | 1.1   |  
|Loss on asset disposals and
impairment |  |                    | 0.5   |              |  | 0.3          |   |  | 0.4   |  
|Total costs and
expenses               |  |                    | 91.6  |              |  | 92.2         |   |  | 92.3  |  
|Income from
 operations                |  |                    | 8.4   |              |  | 7.8          |   |  | 7.7   |  
|Investment
 income                     |  |                    | 0.2   |              |  | 0.9          |   |  | 0.8   |  
|Earnings
 before income taxes          |  |                    | 8.6   |              |  | 8.7          |   |  | 8.6   |  
|Income tax
 expense                    |  |                    | 2.8   |              |  | 2.7          |   |  | 2.7   |  
|Net earnings                           |  |                    | 5.8   | %            |  | 6.0          | % |  | 5.8   | %

23

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

|                           |  |              |     |              |  |              |  |  |     | 
|-------------------------- |  | ------------ | --- | ------------ |  | ------------ |  |  | --- | 
|                           |  | As of        |    
|                           |  | Dec. 28,2008 |     | Dec. 30,2007 |  | Dec. 31,2006 | 
|Company-owned
 restaurants |  |              | 197 |              |  | 161          |  |  | 139 | 
|Franchised
 restaurants    |  |              | 363 |              |  | 332          |  |  | 290 | 

The restaurant
sales for company-owned and franchised restaurants are as follows (in thousands
of dollars):

|                                |  |                    |         |              |   |              |  |   |         | 
|------------------------------- |  | ------------------ | ------- | ------------ | - | ------------ |  | - | ------- | 
|                                |  | Fiscal Years Ended |        
|                                |  | Dec. 28,2008       |         | Dec. 30,2007 |   | Dec. 31,2006 | 
|Company-owned
 restaurant sales |  | $                  | 379,686 |              | $ | 292,824      |  | $ | 247,150 | 
|Franchised
 restaurant sales    |  |                    | 849,753 |              |   | 724,486      |  |   | 621,897 | 

Increases in
comparable same-store sales are as follows (based on restaurants operating at
least fifteen months):

|                                |  |                    |     |              |  |              |   |  |      |  
|------------------------------- |  | ------------------ | --- | ------------ |  | ------------ | - |  | ---- | -
|                                |  | Fiscal Years Ended |    
|                                |  | Dec. 28,2008       |     | Dec. 30,2007 |  | Dec. 31,2006 |  
|Company-owned
 same-store sales |  |                    | 5.9 | %            |  | 6.9          | % |  | 10.4 | %
|Franchised
 same-store sales    |  |                    | 2.8 |              |  | 3.9          |   |  | 6.1  |  

The annual
average price paid per pound for fresh chicken wings for company-owned
restaurants is as follows:

|                                |  |                    |      |              |   |              |  |   |      | 
|------------------------------- |  | ------------------ | ---- | ------------ | - | ------------ |  | - | ---- | 
|                                |  | Fiscal Years Ended |     
|                                |  | Dec. 28,2008       |      | Dec. 30,2007 |   | Dec. 31,2006 | 
|Annual average
 price per pound |  | $                  | 1.22 |              | $ | 1.28         |  | $ | 1.17 | 

Fiscal Year 2008 Compared to Fiscal Year 2007

Restaurant
sales increased by $86.9 million, or 29.7%, to $379.7 million in 2008 from
$292.8 million in 2007. The increase in restaurant sales was due to a $70.6
million increase associated with the opening of 40 new company-owned
restaurants in 2008, which includes eight stores acquired from Avado Brands,
Inc. and nine stores acquired from our franchisee in Nevada, and the 34
company-owned restaurants opened before 2008 that did not meet the criteria for
same-store sales for all, or part, of the year. A 5.9% increase in same-store
sales accounted for $16.3 million of the increase in restaurant sales.

Franchise
royalties and fees increased by $5.9 million, or 16.0%, to $42.7 million in
2008 from $36.8 million in 2007. The increase was due primarily to additional
royalties collected from the 46 new franchised restaurants that opened in 2008
and a full year of operations for the 46 franchised restaurants that opened in
2007. Same-store sales for franchised restaurants increased 2.8%.

Cost
of sales increased by $23.2 million, or 25.8%, to $113.3 million in 2008 from
$90.1 million in 2007 due primarily to more restaurants being operated in 2008.
Cost of sales as a percentage of restaurant sales decreased to 29.8% in 2008
from 30.8% in 2007. The decrease in cost of sales as a percentage of restaurant
sales was primarily due to the leverage of food and alcohol costs as a result
of menu price increases and lower fresh chicken wing prices. Fresh chicken wing
costs dropped to $1.22 per pound in 2008 from $1.28 per pound in 2007. Also,
boneless wings sales have increased as a part of our menu mix, providing better
margins and a corresponding lower cost of sales percentage.

Labor
expenses increased by $26.8 million, or 30.6%, to $114.6 million in 2008 from
$87.8 million in 2007 due primarily to more restaurants being operated in 2008.
Labor expenses as a percentage of restaurant sales increased to 30.2% in 2008
compared to 30.0% in 2007. Labor costs in our restaurants were higher than
prior year due to restaurants having higher management salaries which were
partially offset by lower workers compensation costs.

Operating
expenses increased by $12.2 million, or 25.5%, to $60.2 million in 2008 from
$48.0 million in 2007 due primarily to more restaurants being operated in 2008.
Operating expenses as a percentage of restaurant sales decreased to 15.9% in
2008 from 16.4% in 2007. The decrease in operating expenses as a percentage of
restaurant sales was primarily due to lower repair and maintenance costs and
general liability insurance costs offset by higher natural gas hedging cost for
future months.

24

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Occupancy
expenses increased by $5.2 million, or 25.9%, to $25.2 million in 2008 from
$20.0 million in 2007 due primarily to more restaurants being operated in 2008.
Occupancy expenses as a percentage of restaurant sales decreased to 6.6% in
2008 from 6.8% in 2007, primarily due to better leverage of rent expense with
the higher sales levels.

Depreciation
and amortization increased by $6.6 million, or 39.1%, to $23.6 million in 2008
from $17.0 million in 2007. The increase was primarily due to the additional
depreciation on 40 new restaurants in 2008 and 23 new restaurants opened in
2007 and operated for a full year in 2008. Accelerated depreciation related to
three restaurants which were relocated due to the Don Pablos site acquisitions
also contributed to the increase.

General
and administrative expenses increased by $4.4 million, or 12.3%, to $40.2
million in 2008 from $35.7 million in 2007. General and administrative expenses
as a percentage of total revenue decreased to 9.5% in 2008 from 10.8 % in 2007.
Exclusive of stock-based compensation, our general and administrative expenses
decreased to 8.3% of total revenue in 2008 from 9.7% in 2007. This decrease was
primarily due to lower professional fees, conference costs, and better leverage
of our wage-related expenses.

Preopening
costs increased by $3.4 million, or 75.4%, to $7.9 million in 2008 from $4.5
million in 2007. In 2008, we opened 31 new company-owned restaurants, incurred
costs of approximately $490,000 for restaurants opening in 2009, and incurred
$197,000 related to the acquisition of the nine franchised restaurants located
in Nevada. In 2007, we opened 23 new company-owned restaurants and incurred
cost of approximately $47,000 for restaurants opening in 2008. Average
preopening cost per restaurant in 2008 was $203,000, excluding the eight Don
Pablos conversions which averaged $316,000. Preopening costs for 2007 averaged
$195,000 per restaurant.

Loss
on asset disposals and impairment increased by $1.1 million to $2.1 million in
2008 from $987,000 in 2007. The expense in 2008 represented the asset
impairment of one relocated restaurant of $395,000 and two underperforming
restaurants of $154,000, the closure costs for three relocated restaurants of
$85,000, and $1.4 million for the write-off of miscellaneous equipment. During
2007 we closed one underperforming restaurant in North Carolina resulting in
store closing costs and a write down of equipment costs for $183,000. The
remaining 2007 expense was for write-off of miscellaneous equipment.

Investment
income decreased by $1.9 million to $970,000 in 2008 from $2.9 million in 2007.
The majority of our investments were in short-term municipal securities. The
decrease in investment income was primarily due to lower rates of return on
investments and lower overall cash and marketable securities balances. Cash and
marketable securities balances at the end of the year were $44.5 million in
2008 compared to $68.0 million in 2007.

Provision
for income taxes increased $3.1 million to $11.9 million in 2008 from $8.9
million in 2007. The effective tax rate as a percentage of income before taxes
increased to 32.8% in 2008 from 31.1% in 2007. The rate increase was primarily
due to a reduction in tax exempt interest income. For 2009, we believe our
effective tax rate will be between 33% and 34%.

Fiscal Year 2007 Compared to Fiscal Year 2006

Restaurant
sales increased by $45.7 million, or 18.5%, to $292.8 million in 2007 from
$247.2 million in 2006. The increase in restaurant sales was due to a $35.5
million increase associated with the opening of 23 new company-owned
restaurants in 2007 and the 27 company-owned restaurants opened before 2007
that did not meet the criteria for same-store sales and $15.7 million related
to a 6.9% increase in same-store sales. The 53rd week of 2006 resulted in sales
of $5.7 million and contributed approximately $0.08 of earnings per diluted
share.

Franchise
royalties and fees increased by $5.8 million, or 18.7%, to $36.8 million in
2007 from $31.0 million in 2006. The increase was due primarily to additional
royalties collected from the 48 new franchised restaurants that opened in 2007
and a full year of operations for the 45 franchised restaurants that opened in
2006. Same-store sales for franchised restaurants increased 3.9%.

Cost
of sales increased by $14.0 million, or 18.4%, to $90.1 million in 2007 from
$76.1 million in 2006 due primarily to more restaurants being operated in 2007.
Cost of sales as a percentage of restaurant sales remained steady at 30.8% in
both 2007 and 2006. Cost of sales as a percentage of restaurant sales was
steady with higher fresh chicken wing costs offsetting favorable product mix
changes. Fresh chicken wing costs rose to $1.28 per pound in 2007 from $1.17
per pound in 2006. Also, boneless wings sales have increased as a part of our
menu mix, providing better margins and a corresponding lower cost of goods
percentage.

Labor expenses
increased by $14.8 million, or 20.2%, to $87.8 million in 2007 from $73.0
million in 2006 due primarily to more restaurants being operated in 2007. Labor
expenses as a percentage of restaurant sales also increased to 30.0% in 2007
compared to 29.5% in 2006. Labor costs in our restaurants were higher than prior
year due to restaurants

25

---



having higher
hourly wages and management salaries along with slightly higher medical costs
but were partially offset by lower workers compensation costs.

Operating
expenses increased by $6.9 million, or 16.8%, to $48.0 million in 2007 from
$41.1 million in 2006 due primarily to more restaurants being operated in 2007.
Operating expenses as a percentage of restaurant sales decreased to 16.4% in
2007 from 16.6% in 2006. The decrease in operating expenses as a percentage of
restaurant sales was primarily due to lower credit card fees and utility costs
partially offset by higher cable costs.

Occupancy
expenses increased by $2.5 million, or 14.0%, to $20.0 million in 2007 from
$17.5 million in 2006 due primarily to more restaurants being operated in 2007.
Occupancy expenses as a percentage of restaurant sales decreased to 6.8% in
2007 from 7.1 % in 2006, primarily due to better leverage of rent expense with
the higher sales levels.

Depreciation
and amortization increased by $2.5 million, or 17.2%, to $17.0 million in 2007
from $14.5 million in 2006. The increase was primarily due to the additional
depreciation on 23 new restaurants in 2007 and 18 new restaurants opened in
2006 and operated for a full year in 2007. General and administrative expenses
increased by $5.4 million, or 17.7%, to $35.7 million in 2007 from $30.4
million in 2006.

General
and administrative expenses as a percentage of total revenue decreased to 10.8
% in 2007 from 10.9% in 2006. Exclusive of stock based compensation, our
general and administrative expenses decreased to 9.7% of total revenue in 2007
from 9.8% in 2006. This decrease was primarily due to lower cash incentive
compensation partially offset by higher medical costs.

Preopening
costs increased by $1.4 million, or 46.9%, to $4.5 million in 2007 from $3.1
million in 2006. In 2007, we opened 23 new company-owned restaurants and
incurred cost of approximately $47,000 for restaurants opening in 2008. In
2006, we opened 18 new company-owned restaurants, incurred costs of
approximately $29,000 for restaurants opening in 2007. Average preopening cost
per restaurant increased to $195,000 in 2007 from $170,000 in 2006.

Loss
on asset disposals and impairment decreased by $21,000, or 2.1%, to $987,000 in
2007 from $1.0 million in 2006. During the fourth quarter of 2007 we closed one
underperforming restaurant in North Carolina resulting in store closing costs
and a write down of equipment costs for $183,000. The remaining 2007 expense
was for write-offs of miscellaneous equipment. The expense in 2006 represented
the asset impairment of one underperforming restaurant in Atlanta of $481,000,
the disposal of miscellaneous equipment and the closure costs for one
restaurant.

Investment
income increased by $570,000 to $2.9 million in 2007 from $2.3 million in 2006.
The majority of our investments were in short-term municipal securities. The
increase in investment income was primarily due to higher interest rates and
higher overall cash and marketable securities balances. Cash and marketable
securities balances at the end of the year were $68.0 million in 2007 compared
to $64.6 million in 2006.

Provision
for income taxes increased $1.3 million to $8.9 million in 2007 from $7.6
million in 2006. The effective tax rate as a percentage of income before taxes
decreased to 31.1% in 2007 from 31.7% in 2006. The rate decrease was primarily
due to higher employee-related federal tax credits and a decrease in the
reserve for tax contingencies. These reductions in the effective tax rate were
partially offset by an increase in the state income tax rate.

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, acquisitions, and other general business needs. We fund these
expenses, except for acquisitions, primarily with cash from operations.
Depending on the size of the transaction, acquisitions would generally be
funded from cash and marketable securities balances. The cash and marketable
securities balance at December 28, 2008 was $44.5 million. We invest our cash
balances in debt securities with the focus on protection of principal, adequate
liquidity and return on investment based on risk. As of December 28, 2008,
nearly all excess cash was invested in high quality municipal securities.

During
fiscal 2008, 2007, and 2006, net cash provided by operating activities was
$66.1 million, $43.6 million, and $33.0 million, respectively. Net cash
provided by operating activities in 2008 consisted primarily of net earnings
adjusted for noncash expenses and an increase in accounts payable, and accrued expenses,
and a decrease in refundable income taxes. The increase in accounts payable was
primarily due to the larger number of restaurants in operation, the amount of
construction activity at the end of 2008, and the timing of payments. The
increase in accrued expenses was due primarily to higher utility accruals and
losses related to future natural gas contracts. The decrease in refundable
income taxes was due to the timing of tax payments.

26

---



Net
cash provided by operating activities in 2007 consisted primarily of net
earnings adjusted for non-cash expenses and an increase in accounts payable and
accrued expenses partially offset by an increase in accounts receivable,
prepaid expenses, and income tax receivables. The increase in accounts payable
is relative to the growth in the number of company-owned restaurants. The
increase in accrued expenses was due primarily to the growth in the number of
company-owned restaurants, and a higher gift card liability due to strong
fourth quarter gift card sales. The increase in accounts receivable was
primarily due to higher credit card receivables and landlord receivables for
tenant improvements. The increase in prepaid expense is primarily due to the
timing of payments related to our self insurance programs. The increase in
income tax receivables was due to the timing of payments.

Net
cash provided by operating activities in 2006 consisted primarily of net
earnings adjusted for non-cash expenses, an increase in accrued expenses and
income taxes payable, partially offset by an increase in accounts receivable
and a decrease in accounts payable. The increase in accrued expenses was due to
a greater number of restaurants and related payroll and operating costs, and
higher incentive and deferred compensation costs partially offset by lower
health insurance costs. The increase in income taxes payable and decrease in
accounts payable was due to timing of payments. The increase in accounts
receivable was due to higher credit card sales and tenant allowances compared
to prior year. The purchase of marketable securities in 2006 relates to trading
securities for a deferred compensation plan.

Net
cash used in investing activities for 2008, 2007, and 2006, was $60.1 million,
$54.7 million, and $26.8 million, respectively. Investing activities included
purchases of property and equipment related to the opening of new company-owned
restaurants and restaurants under construction in all periods. In 2008, we
purchased nine franchised locations in Nevada for $23.1 million and opened 31
new restaurants. In 2007 and 2006, we opened 23 and 18 new restaurants,
respectively. In 2009, we expect capital expenditures for approximately 37 new
company-owned restaurants to cost approximately $1.5 million per location, and
expenditures of approximately $20.4 million for the maintenance and remodels of
existing restaurants. In 2008, we purchased $116.3 million of marketable
securities and received proceeds of $146.6 million as investments in marketable
securities matured or were sold. In 2007, we purchased $158.2 million of
marketable securities and received proceeds of $144.8 million as investments in
marketable securities matured. In 2006, we purchased $108.3 million of
marketable securities and received proceeds of $105.3 million as investments in
marketable securities matured or were sold.

Net
cash provided by financing activities for 2008, 2007, and 2006 was $853,000,
$873,000, and $1.6 million, respectively. Net cash provided by financing
activities for 2008 resulted from the issuance of common stock for options
exercised and employee stock purchases of $1.2 million and excess tax benefits
for restricted stock unit issuances of $615,000 partially offset by tax
payments for restricted stock units of $989,000. Net cash provided by financing
activities for 2007 resulted primarily from the issuance of common stock for
options exercised and employee stock purchases of $1.4 million and excess tax
benefits for restricted stock unit issuances of $1.0 million partially offset
by tax payments for restricted stock units of $1.6 million. Net cash provided
by financing activities for 2006 resulted primarily from the issuance of common
stock for options exercised and employee stock purchases of $1.1 million and
excess tax benefits for restricted stock unit issuances of $1.2 million
partially offset by tax payments for restricted stock units of $686,000. No
additional funding from the issuance of common stock (other than from the
exercise of options and employee stock purchases) is anticipated in 2008.

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 own the buildings in
which 15 of our restaurants operate and therefore have a very limited ability
to enter into sale-leaseback transactions as a potential source of cash.

The
following table presents a summary of our contractual operating lease
obligations and commitments as of December 28, 2008:

|                                               |  |       |         |                                      |   |           |  |           |        |                |   |        |  |   |         | 
|---------------------------------------------- |  | ----- | ------- | ------------------------------------ | - | --------- |  | --------- | ------ | -------------- | - | ------ |  | - | ------- | 
|                                               |  |       |         | Payments Due By Period(in thousands) |  
|                                               |  | Total |         | Less thanone year                    |   | 1-3 years |  | 3-5 years |        | After 5
 years |  
|Operating
 lease obligations                   |  | $     | 203,612 |                                      | $ | 24,276    |  | $         | 46,071 |                | $ | 41,869 |  | $ | 91,396  | 
|Commitments for restaurants under
 development |  |       | 44,412  |                                      |   | 1,985     |  |           | 5,946  |                |   | 6,062  |  |   | 30,419  | 
|Total                                          |  | $     | 248,024 |                                      | $ | 26,261    |  | $         | 52,017 |                | $ | 47,931 |  | $ | 121,815 | 

27

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We
believe the cash flows from our operating activities and our balance of cash
and marketable securities will be sufficient to fund our operations and
building commitments and meet our obligations in the foreseeable future. Our
future cash outflows related to income tax uncertainties amounts to $442,000.
These amounts are excluded from the contractual obligations table due to the
high degree of uncertainty regarding the timing of these liabilities.

Recent Accounting Pronouncements

In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141R, Business Combinations (SFAS 141R). SFAS 141R provides companies
with principles and requirements on how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired, liabilities assumed,
and any noncontrolling interest in the acquiree as well as the recognition and
measurement of goodwill acquired in a business combination. SFAS 141R also
requires certain disclosures to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
Acquisition costs associated with the business combination will generally be
expensed as incurred. SFAS 141R is effective for business combinations
occurring in fiscal years beginning after December 15, 2008. Early adoption of
SFAS 141R is not permitted. We will be required to apply the guidance in SFAS
141R to any future business combinations.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities  an amendment of FASB Statement No. 133
(SFAS 161), which requires enhanced disclosures about an entitys derivative
and hedging activities. SFAS 161 is effective for fiscal years beginning after
December 15, 2008, and interim period within those fiscal years. We believe the
adoption of SFAS 161 will not have a significant impact on our financial
statements.

Impact of Inflation

In
the last three years we have not operated in a period of high general
inflation; however, the cost of commodities, labor and certain utilities have
generally increased or experienced price volatility. Our restaurant operations
are subject to federal and state minimum wage laws governing such matters as
working conditions, overtime and tip credits. Significant numbers of our food
service and preparation personnel are paid at rates related to the federal
and/or state minimum wage and, accordingly, increases in the minimum wage have
increased our labor costs in the last three years. In addition, costs associated
with our operating leases, such as taxes, maintenance, repairs and insurance,
are often subject to upward pressure. To the extent permitted by competition,
we have mitigated increased costs by increasing menu prices and may continue to
do so if deemed necessary in future years.

Quarterly Results of Operations

The
following table sets forth, by quarter, the unaudited quarterly results of
operations for the two most recent years, as well as the same data expressed as
a percentage of our total revenue for the periods presented. Restaurant
operating costs 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 appearing elsewhere in this document.
In the opinion of management, all necessary adjustments, consisting only of
normal recurring adjustments, have been included to present fairly the
unaudited quarterly results. All amounts, except per share amounts, are
expressed in thousands.

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 number of new restaurant openings
and their related expenses, asset impairment charges, store closing charges,
general economic conditions and seasonal fluctuations.

28

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Results of Quarterly
Operations (unaudited)

|                                               |  |               |        |               |   |                |  |                |        |                |   |                |  |                |        |                |   |        |  |   |         |  |   |         |  
|---------------------------------------------- |  | ------------- | ------ | ------------- | - | -------------- |  | -------------- | ------ | -------------- | - | -------------- |  | -------------- | ------ | -------------- | - | ------ |  | - | ------- |  | - | ------- | -
|                                               |  | Apr. 1,
 2007 |        | Jul. 1,
 2007 |   | Sep. 30,
 2007 |  | Dec. 30,
 2007 |        | Mar. 30,
 2008 |   | Jun. 29,
 2008 |  | Sep. 28,
 2008 |        | Dec. 28,
 2008 |  
|Revenue:                                       |  |               |        |               |   |                |  |                |        |                |   |                |  |                |        |                |   |        |  |   |         |  |   |         |  
|Restaurant sales                               |  | $             | 71,059 |               | $ | 67,535         |  | $              | 73,280 |                | $ | 80,950         |  | $              | 86,896 |                | $ | 87,462 |  | $ | 95,492  |  | $ | 109,836 |  
|Franchise royalties and fees                   |  |               | 8,843  |               |   | 8,464          |  |                | 9,086  |                |   | 10,435         |  |                | 10,366 |                |   | 10,406 |  |   | 10,582  |  |   | 11,377  |  
|Total
 revenue                                 |  |               | 79,902 |               |   | 75,999         |  |                | 82,366 |                |   | 91,385         |  |                | 97,262 |                |   | 97,868 |  |   | 106,074 |  |   | 121,213 |  
|Costs and
 expenses:                           |  |               |        |               |   |                |  |                |        |                |   |                |  |                |        |                |   |        |  |   |         |  |   |         |  
|Restaurant operating costs:                    |  |               |        |               |   |                |  |                |        |                |   |                |  |                |        |                |   |        |  |   |         |  |   |         |  
|Cost of sales                                  |  |               | 22,058 |               |   | 20,591         |  |                | 22,517 |                |   | 24,899         |  |                | 26,415 |                |   | 26,248 |  |   | 28,422  |  |   | 32,181  |  
|Labor                                          |  |               | 21,107 |               |   | 21,050         |  |                | 21,156 |                |   | 23,471         |  |                | 25,858 |                |   | 27,020 |  |   | 29,289  |  |   | 32,442  |  
|Operating                                      |  |               | 11,472 |               |   | 10,729         |  |                | 12,272 |                |   | 13,501         |  |                | 13,275 |                |   | 13,857 |  |   | 15,675  |  |   | 17,398  |  
|Occupancy                                      |  |               | 4,718  |               |   | 4,892          |  |                | 5,076  |                |   | 5,300          |  |                | 5,697  |                |   | 5,902  |  |   | 6,273   |  |   | 7,285   |  
|Depreciation and amortization                  |  |               | 3,892  |               |   | 4,028          |  |                | 4,284  |                |   | 4,783          |  |                | 5,239  |                |   | 5,510  |  |   | 5,971   |  |   | 6,902   |  
|General and administrative                     |  |               | 8,617  |               |   | 8,538          |  |                | 9,147  |                |   | 9,438          |  |                | 9,341  |                |   | 9,047  |  |   | 10,684  |  |   | 11,079  |  
|Preopening                                     |  |               | 318    |               |   | 987            |  |                | 988    |                |   | 2,227          |  |                | 1,185  |                |   | 1,758  |  |   | 2,476   |  |   | 2,511   |  
|Loss on asset disposals and impairment         |  |               | 79     |               |   | 153            |  |                | 306    |                |   | 449            |  |                | 753    |                |   | 385    |  |   | 930     |  |   | 15      |  
|Total costs and expenses                       |  |               | 72,261 |               |   | 70,968         |  |                | 76,746 |                |   | 84,068         |  |                | 87,763 |                |   | 89,727 |  |   | 99,720  |  |   | 109,813 |  
|Income from operations                         |  |               | 7,641  |               |   | 5,031          |  |                | 5,620  |                |   | 7,317          |  |                | 9,499  |                |   | 8,141  |  |   | 6,354   |  |   | 11,400  |  
|Investment income (loss)                       |  |               | 700    |               |   | 755            |  |                | 768    |                |   | 686            |  |                | 432    |                |   | 400    |  |   | 264     |  |   | (126    | )
|Earnings before income taxes                   |  |               | 8,341  |               |   | 5,786          |  |                | 6,388  |                |   | 8,003          |  |                | 9,931  |                |   | 8,541  |  |   | 6,618   |  |   | 11,274  |  
|Income tax expense                             |  |               | 2,800  |               |   | 1,945          |  |                | 2,121  |                |   | 1,998          |  |                | 3,406  |                |   | 2,926  |  |   | 2,050   |  |   | 3,547   |  
|Net earnings                                   |  | $             | 5,541  |               | $ | 3,841          |  | $              | 4,267  |                | $ | 6,005          |  | $              | 6,525  |                | $ | 5,615  |  | $ | 4,568   |  | $ | 7,727   |  
|                                               |  |               |        |               |   |                |  |                |        |                |   |                |  |                |        |                |   |        |  |   |         |  |   |         |  
|Earnings per common share  basic              |  | $             | 0.32   |               | $ | 0.22           |  | $              | 0.24   |                | $ | 0.34           |  | $              | 0.37   |                | $ | 0.32   |  | $ | 0.26    |  | $ | 0.43    |  
|Earnings per common share  diluted            |  | $             | 0.31   |               | $ | 0.22           |  | $              | 0.24   |                | $ | 0.34           |  | $              | 0.36   |                | $ | 0.31   |  | $ | 0.25    |  | $ | 0.43    |  
|Weighted average shares outstanding  basic    |  |               | 17,448 |               |   | 17,560         |  |                | 17,596 |                |   | 17,612         |  |                | 17,766 |                |   | 17,810 |  |   | 17,823  |  |   | 17,854  |  
|Weighted average shares outstanding 
 diluted |  |               | 17,684 |               |   | 17,744         |  |                | 17,767 |                |   | 17,860         |  |                | 17,877 |                |   | 17,906 |  |   | 17,920  |  |   | 18,011  |  

29

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Results of Quarterly
Operations (unaudited)

|                                       |  |               |       |               |  |                |  |                |       |                |  |                |  |                |       |                |  |       |  |  |       |  |  |       | 
|-------------------------------------- |  | ------------- | ----- | ------------- |  | -------------- |  | -------------- | ----- | -------------- |  | -------------- |  | -------------- | ----- | -------------- |  | ----- |  |  | ----- |  |  | ----- | 
|                                       |  | Apr. 1,
 2007 |       | Jul. 1,
 2007 |  | Sep. 30,
 2007 |  | Dec. 30,
 2007 |       | Mar. 30,
 2008 |  | Jun. 29,
 2008 |  | Sep. 28,
 2008 |       | Dec. 28,
 2008 | 
|Revenue:                               |  |               |       |               |  |                |  |                |       |                |  |                |  |                |       |                |  |       |  |  |       |  |  |       | 
|Restaurant sales                       |  |               | 88.9% |               |  | 88.9%          |  |                | 89.0% |                |  | 88.6%          |  |                | 89.3% |                |  | 89.4% |  |  | 90.0% |  |  | 90.6% | 
|Franchise royalties and fees           |  |               | 11.1  |               |  | 11.1           |  |                | 11.0  |                |  | 11.4           |  |                | 10.7  |                |  | 10.6  |  |  | 10.0  |  |  | 9.4   | 
|Total
 revenue                         |  |               | 100.0 |               |  | 100.0          |  |                | 100.0 |                |  | 100.0          |  |                | 100.0 |                |  | 100.0 |  |  | 100.0 |  |  | 100.0 | 
|                                       |  |               |       |               |  |                |  |                |       |                |  |                |  |                |       |                |  |       |  |  |       |  |  |       | 
|Costs and expenses:                    |  |               |       |               |  |                |  |                |       |                |  |                |  |                |       |                |  |       |  |  |       |  |  |       | 
|Restaurant operating costs:            |  |               |       |               |  |                |  |                |       |                |  |                |  |                |       |                |  |       |  |  |       |  |  |       | 
|Cost of sales                          |  |               | 31.0  |               |  | 30.5           |  |                | 30.7  |                |  | 30.8           |  |                | 30.4  |                |  | 30.0  |  |  | 29.8  |  |  | 29.3  | 
|Labor                                  |  |               | 29.7  |               |  | 31.2           |  |                | 30.2  |                |  | 29.0           |  |                | 29.8  |                |  | 30.9  |  |  | 30.7  |  |  | 29.5  | 
|Operating                              |  |               | 16.1  |               |  | 15.9           |  |                | 16.7  |                |  | 16.7           |  |                | 15.3  |                |  | 15.8  |  |  | 16.4  |  |  | 15.8  | 
|Occupancy                              |  |               | 6.6   |               |  | 7.2            |  |                | 6.9   |                |  | 6.5            |  |                | 6.6   |                |  | 6.7   |  |  | 6.6   |  |  | 6.6   | 
|Depreciation and amortization          |  |               | 4.9   |               |  | 5.3            |  |                | 5.2   |                |  | 5.2            |  |                | 5.4   |                |  | 5.6   |  |  | 5.6   |  |  | 5.7   | 
|General and administrative             |  |               | 10.8  |               |  | 11.2           |  |                | 11.1  |                |  | 10.3           |  |                | 9.6   |                |  | 9.2   |  |  | 10.1  |  |  | 9.1   | 
|Preopening                             |  |               | 0.4   |               |  | 1.3            |  |                | 1.2   |                |  | 2.4            |  |                | 1.2   |                |  | 1.8   |  |  | 2.3   |  |  | 2.1   | 
|Loss on asset disposals and impairment |  |               | 0.1   |               |  | 0.2            |  |                | 0.4   |                |  | 0.5            |  |                | 0.8   |                |  | 0.4   |  |  | 0.9   |  |  | 0.0   | 
|Total costs
 and expenses              |  |               | 90.4  |               |  | 93.4           |  |                | 93.2  |                |  | 92.0           |  |                | 90.2  |                |  | 91.7  |  |  | 94.0  |  |  | 90.6  | 
|Income from
 operations                |  |               | 9.6   |               |  | 6.6            |  |                | 6.8   |                |  | 8.0            |  |                | 9.8   |                |  | 8.3   |  |  | 6.0   |  |  | 9.4   | 
|Investment
 income (loss)              |  |               | 0.9   |               |  | 1.0            |  |                | 0.9   |                |  | 0.8            |  |                | 0.4   |                |  | 0.4   |  |  | 0.2   |  |  | (0.1) | 
|Earnings
 before income taxes          |  |               | 10.4  |               |  | 7.6            |  |                | 7.8   |                |  | 8.8            |  |                | 10.2  |                |  | 8.7   |  |  | 6.2   |  |  | 9.3   | 
|Income tax
 expense                    |  |               | 3.5   |               |  | 2.6            |  |                | 2.6   |                |  | 2.2            |  |                | 3.5   |                |  | 3.0   |  |  | 1.9   |  |  | 2.9   | 
|Net earnings                           |  |               | 6.9%  |               |  | 5.1%           |  |                | 5.2%  |                |  | 6.6%           |  |                | 6.7%  |                |  | 5.7%  |  |  | 4.3%  |  |  | 6.4%  | 

30

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ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We
are exposed to market risk related to our cash and cash equivalents and marketable
securities. 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 marketable
securities and, therefore, impact our cash flows and results of operations.

Financial
Instruments

Financial
instruments that potentially subject us to concentrations of credit risk
consist principally of municipal securities. We do not believe there is a
significant risk of non-performance by these municipalities because of our
investment policy restrictions as to acceptable investment vehicles.

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 and tip-credit 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.

Commodity
Price Risk

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
minimum purchase requirements with some of our vendors, but the terms of the
contracts and nature of the products are such that our purchase requirements do
not create a market risk. The primary food product used by company-owned and
franchised restaurants is fresh chicken wings. We work to counteract the effect
of the volatility of chicken wing prices, which can significantly change our
cost of sales and cash flow, with the introduction of popular new menu items,
effective marketing promotions, focused efforts on food costs and waste, and
menu price increases. We also explore purchasing strategies to reduce the
severity of cost increases and fluctuations. We currently purchase our chicken
wings at market prices. If a satisfactory long-term price agreement for chicken
wings were to arise, we would consider locking in prices to reduce our price
volatility. Fresh chicken wing prices in 2008 averaged 4.7% lower than 2007 as
the average price per pound dropped to $1.22 in 2008 from $1.28 in 2007. If
there is a significant rise in the price of fresh chicken wings, and we are
unable to successfully adjust menu prices or menu mix or otherwise make
operational adjustments to account for the higher wing prices, our operating
results could be adversely affected. Fresh chicken wings accounted for
approximately 21%, 24%, and 24% of our cost of sales in 2008, 2007, and 2006,
respectively, with an annual average price per pound of $1.22, $1.28, and
$1.17, respectively. A 10% increase in fresh chicken wing costs during 2008,
would have increased restaurant cost of sales by approximately $2.3 million for
fiscal 2008. Additional information related to chicken wing prices and our
approaches to managing the volatility thereof is included in Item 7 under
Results of Operations.

Nevada
Gaming Regulation

The
ownership and operation of our facilities with gaming in Nevada are subject to
the Nevada Gaming Control Act and the regulations promulgated thereunder
(collectively, the Nevada Act) and various local regulations. Our gaming
operations are subject to the licensing and regulatory control of the Nevada
Gaming Commission (the Nevada Commission), the Nevada State Gaming Control
Board (the Nevada Board) and various county and city licensing agencies (the
local authorities). The Nevada Commission, the Nevada Board, and the local
authorities are collectively referred to as the Nevada Gaming Authorities.

The
laws, regulations and supervisory procedures of the Nevada Gaming Authorities
are based upon declarations of public policy that are concerned with, among
other things:

| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
 prevention of unsavory or unsuitable persons from having a direct or indirect
 involvement with gaming at any time or in any capacity;                                                                   
| |   |                                                                                                                                                                                                               
| |  | the
 establishment and maintenance of responsible accounting practices;                                                                                                                                       
| |   |                                                                                                                                                                                                               
| |  | the
 maintenance of effective controls over the financial practices of licensees,
 including the establishment of minimum procedures for internal fiscal affairs
 and the safeguarding of assets and revenues;

31

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| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | providing
 reliable record keeping and requiring the filing of periodic reports with the
 Nevada Gaming Authorities;
| |   |                                                                                                                     
| |  | the
 prevention of cheating and fraudulent practices; and                                                           
| |   |                                                                                                                     
| |  | providing a
 source of state and local revenues through taxation and licensing fees.                                

Any
change in such laws, regulations and procedures could have an adverse effect on
our gaming operations.

Our
subsidiary company that owns and operates restaurants with gaming in Nevada is
required to be licensed by the Nevada Gaming Authorities. We have also been
licensed or found suitable as shareholder, as relevant, of the subsidiary
gaming licensee.

Our
licensed subsidiary may enter into an agreement with a slot route operator to
conduct the gaming activities at the Nevada restaurants the licensed subsidiary
owns and operates. The slot route operator engaged by the licensed subsidiary
must be licensed by the Nevada Gaming Authorities.

We
are required to be registered by the Nevada Commission as a publicly-traded
corporation, and as such, we are required to periodically submit detailed
financial and operating reports to the Nevada Commission and furnish any other
information that the Nevada Commission may require. No person may become a
stockholder or member of, or receive any percentage of profits from the
licensed subsidiaries without first obtaining licenses and approvals from the
Nevada Gaming Authorities. Additionally, local authorities have taken the
position that they have the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming licensee. Buffalo
Wild Wings and our subsidiary that owns and operates gaming restaurants in
Nevada have obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.

The
Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, Buffalo Wild Wings or the
licensed subsidiary to determine whether such individual is suitable or should
be licensed as a business associate of a gaming licensee. Officers, directors,
and certain key employees of the licensed subsidiary must file applications
with the Nevada Gaming Authorities and may be required to be licensed by the
Nevada Gaming Authorities. Our officers, directors, and key employees who are
actively and directly involved in the gaming activities of the licensed
subsidiary may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application for
licensing or a finding of suitability for any cause they deem reasonable. A
finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability, or the
gaming licensee by which the applicant is employed or for whom the applicant
serves, must pay all the costs of the investigation. Changes in licensed positions
must be reported to the Nevada Gaming Authorities, and in addition to their
authority to deny an application for a finding of suitability or licensure, the
Nevada Gaming Authorities have jurisdiction to disapprove a change in a
corporate position.

If
the Nevada Gaming Authorities were to find an officer, director, or key
employee unsuitable for licensing or to continue having a relationship with us
or the licensed subsidiary, Buffalo Wild Wings or the licensed subsidiary would
have to sever all relationships with that person. In addition, the Nevada
Commission may require us or the licensed subsidiary to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.

We
are required to submit detailed financial and operating reports to the Nevada
Commission. Substantially all of Buffalo Wild Wings and the licensed
subsidiarys material loans, leases, sales of securities, and similar financing
transactions must be reported to or approved by the Nevada Commission.

If
the Nevada Commission determined that we or the licensed subsidiary violated
the Nevada Act, it could limit, condition, suspend, or revoke, subject to
compliance with certain statutory and regulatory procedures, our gaming license
and those of the licensed subsidiary. In addition, we and the licensed
subsidiary and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Further, a supervisor could be appointed by the Nevada Commission
to operate the gaming establishments and, under certain circumstances, earnings
generated during the supervisors appointment (except for the reasonable rental
value of the gaming establishments) could be forfeited to the State of Nevada.
Limitation, conditioning, or suspension of any gaming license or the
appointment of a supervisor could (and revocation of any gaming license would)
materially adversely affect our gaming operations.

Any
beneficial holder of our voting securities, regardless of the number of shares
owned, may be required to file an application, be investigated, and have his or
her suitability as a beneficial holder of the voting securities determined if
the

32

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Nevada
Commission has reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the State of Nevada. The applicant
must pay all costs of investigation incurred by the Nevada Gaming Authorities
in conducting any such investigation.

The
Nevada Act requires any person who acquires more than 5% of any class of our
voting securities to report the acquisition to the Nevada Commission. The
Nevada Act requires that beneficial owners of more than 10% of any class of our
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, an institutional
investor as defined in the Nevada Act, which acquires more than 10% but not
more than 15% of any class of our voting securities, may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only.

An
institutional investor will be deemed to hold voting securities for investment
purposes if it acquires and holds the voting securities in the ordinary course
of business as an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the members of our board
of directors, any change in our corporate charter, bylaws, management, policies,
or operations or our gaming subsidiary, or any other action that the Nevada
Commission finds to be inconsistent with holding our voting securities for
investment purposes only. Activities that are not deemed to be inconsistent
with holding voting securities for investment purposes only include:

| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | voting on
 all matters voted on by stockholders;                                                                                                                                                          
| |   |                                                                                                                                                                                                           
| |  | making
 financial and other inquiries of management of the type normally made by
 securities analysts for informational purposes and not to cause a change in
 its management, policies or operations; and
| |   |                                                                                                                                                                                                           
| |  | such other
 activities as the Nevada Commission may determine to be consistent with such
 investment intent.                                                                                              

If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership, or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.

Any
person who fails or refuses to apply for a finding of suitability or a license
within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of our common stock beyond such period
of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. We will be subject to disciplinary action if, after we
receive notice that a person is unsuitable to be a stockholder or to have any
other relationship with us or our licensed subsidiary, we or the licensed
subsidiary:

| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pay that
 person any dividend or interest upon any of our voting securities;                                                                                                                                            
| |   |                                                                                                                                                                                                                         
| |  | allow that
 person to exercise, directly or indirectly, any voting right conferred
 through securities held by that person;                                                                                             
| |   |                                                                                                                                                                                                                         
| |  | pay
 remuneration in any form to that person for services rendered or otherwise;
 or                                                                                                                                    
| |   |                                                                                                                                                                                                                         
| |  | fail to
 pursue all lawful efforts to require such unsuitable person to relinquish his
 or her voting securities including if necessary, the immediate purchase of
 the voting securities for cash at fair market value.

The
Nevada Commission may, in its discretion, require the holder of any debt
security of Buffalo Wild Wings to file an application, be investigated, and be
found suitable to hold the debt security. If the Nevada Commission determines
that a person is unsuitable to own such security, then pursuant to the Nevada
Act, we can be sanctioned, including the loss of our approvals, if without the
prior approval of the Nevada Commission, we:

| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | pay to the
 unsuitable person any dividend, interest, or any distribution whatsoever;                                                 
| |   |                                                                                                                                       
| |  | recognize
 any voting right by such unsuitable person in connection with such
 securities;                                            
| |   |                                                                                                                                       
| |  | pay the
 unsuitable person remuneration in any form; or                                                                               
| |   |                                                                                                                                       
| |  | make any
 payment to the unsuitable person by way of principal, redemption, conversion,
 exchange, liquidation or similar transaction.

We
are required to maintain a current stock ledger that may be examined by the
Nevada Gaming Authorities at any time. If any securities are held in trust by
an agent or by a nominee, the record holder may be required to disclose the
identity of the beneficial owner to the Nevada Gaming Authorities. A failure to
make such disclosure may be grounds for finding the record holder unsuitable.
We are also required to render maximum assistance in determining the identity
of the beneficial owner.

33

---



The Nevada
Commission has the power to require our stock certificates to bear a legend
indicating that such securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on us.

We
may not make a public offering of any securities without the prior approval of
the Nevada Commission if the securities or the proceeds therefrom are intended
to be used to construct, acquire, or finance gaming facilities in Nevada, or to
retire or extend obligations incurred for those purposes or for similar
purposes. An approval, if given, does not constitute a finding, recommendation,
or approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities. Any
representation to the contrary is unlawful.

On
September 18, 2008, the Nevada Commission granted us prior approval to make
public offerings for a period of two years, subject to certain conditions (the
shelf approval). The shelf approval also includes approval for us to place
restrictions on the transfer of any equity security issued by the licensed
subsidiary and to enter into agreements not to encumber such securities, pursuant
to any public offering made under the shelf approval. However, the shelf
approval may be rescinded for good cause without prior notice upon the issuance
of an interlocutory stop order by the Chairman of the Nevada Board. The shelf
approval does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or other disclosure document by which securities are offered or the
investment merits of the securities offered. Any representation to the contrary
is unlawful.

Changes
in control of Buffalo Wild Wings through merger, consolidation, stock, or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby he or she obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of
Buffalo Wild Wings must satisfy the Nevada Board and the Nevada Commission
concerning a variety of stringent standards prior to assuming control of us.
The Nevada Commission may also require controlling stockholders, officers,
directors, and other persons having a material relationship or involvement with
the entity proposing to acquire control to be investigated and licensed as part
of the approval process relating to the transaction.

The
Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities, and corporate defensive tactics
affecting Nevada gaming licensees, and registered corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevadas gaming industry and to further Nevadas policy to:

| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | assure the
 financial stability of corporate gaming operators and their affiliates;
| |   |                                                                                    
| |  | preserve the
 beneficial aspects of conducting business in the corporate form; and 
| |   |                                                                                    
| |  | promote a
 neutral environment for the orderly governance of corporate affairs.    

Approvals
are, in certain circumstances, required from the Nevada Commission before we
can make exceptional repurchases of voting securities above the current market
price and before a corporate acquisition opposed by management can be
consummated. The Nevada Act also requires prior approval of a plan of
recapitalization proposed by our board of directors in response to a tender
offer made directly to our stockholders for the purpose of acquiring control of
it.

License
fees and taxes are payable to the State of Nevada and to local authorities.
Depending upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly, or annually and are based upon the number of
gaming devices operated. A live entertainment tax is also paid on charges for
admission to any facility where certain forms of live entertainment are
provided.

If
we or our licensed subsidiary were to become involved in gaming ventures
outside of Nevada (foreign gaming), a deposit with the Nevada Board would be
required and a revolving fund in the amount of $10,000 to pay the expenses of
investigation by the Nevada Board of our participation in such foreign gaming
would have to be maintained thereafter. The revolving fund is subject to
increase or decrease at the discretion of the Nevada Commission. Thereafter, we
or our licensed subsidiary would also be required to comply with certain
reporting requirements imposed by the Nevada Act. We or our licensed subsidiary
would also be subject to disciplinary action by the Nevada Commission if we or
the licensed subsidiary:

| |   |                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | knowingly
 violate any laws of the foreign jurisdiction pertaining to the foreign gaming
 operation;                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                           
| |  | fail to
 conduct the foreign gaming operation in accordance with the standards of
 honesty and integrity required of Nevada gaming operations;                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                           
| |  | engage in
 any activity or enter into any association that is unsuitable because it
 poses an unreasonable threat to the control of gaming in Nevada, reflects or
 tends to reflect discredit or disrepute upon the State of Nevada or gaming in
 Nevada, or is contrary to the gaming policies of Nevada;

34

---



| |   |                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | engage in
 any activity or enter into any association that interferes with the ability
 of the State of Nevada to collect gaming taxes and fees; or                                                                                                      
| |   |                                                                                                                                                                                                                                                          
| |  | employ,
 contract with or associate with any person in the foreign gaming operation
 who has been denied a license or a finding of suitability in Nevada on the
 ground of personal unsuitability, or who has been found guilty of cheating at
 gambling.

The
sale of alcoholic beverages by the licensed subsidiary is subject to licensing,
control, and regulation by the applicable local authorities. All licenses are
revocable and are not transferable. The agencies involved have full power to
limit, condition, suspend, or revoke any such license, and any such
disciplinary action could (and revocation would) have a material adverse effect
upon our operations.

35

---



ITEM
8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

For
supplemental information regarding quarterly results of operations, refer to
Item 7, Results of Quarterly Operations.

BUFFALO
WILD WINGS, INC.

Index
to Consolidated Financial Statements

|                                                                                                                                         |  |   
|---------------------------------------------------------------------------------------------------------------------------------------- |  | --
|Report of Independent Registered Public
 Accounting Firm                                                                                 |  | 37
|Consolidated Balance Sheets as of December
 28, 2008 and December 30, 2007                                                               |  | 38
|Consolidated Statements of Earnings for the
 Fiscal Years Ended December 28, 2008, December 30, 2007, and December 31,
 2006             |  | 39
|Consolidated Statements of Stockholders
 Equity for the Fiscal Years Ended December 28, 2008, December 30, 2007, and
 December 31, 2006 |  | 40
|Consolidated Statements of Cash Flows for
 the Fiscal Years Ended December 28, 2008, December 30, 2007, and December 31,
 2006           |  | 41
|Notes to Consolidated Financial
Statements                                                                                               |  | 42

36

---



Report of Independent Registered Public Accounting Firm

The Board of
Directors and Stockholders 
Buffalo Wild Wings, Inc.:

We
have audited the accompanying consolidated balance sheets of Buffalo Wild
Wings, Inc. and subsidiaries 
(the Company) as of December 28, 2008 and December 30, 2007, and the
related consolidated statements of earnings, stockholders equity, and cash
flows for each of the years in the three-year period ended December 28, 2008.
In connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule for each of the years in the
three-year period ended December 28, 2008, listed in schedule II of this
Form 10-K. These consolidated financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board 
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Buffalo Wild Wings,
Inc. and subsidiaries as of December 28, 2008 and December 30, 2007, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 28, 2008, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.

We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board 
(United States), Buffalo Wild Wings, Inc.s internal control over financial
reporting as of December 28, 2008, based on criteria established in Internal
Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February
27, 2009 expressed an unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.

| |             
| | ------------
| | /S/ KPMG LLP

Minneapolis, Minnesota 
February 27, 2009

37

---



BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED
BALANCE SHEETS
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands)

|                                                                                                                                                        |  |                    |         |                    |   |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------------ | - | ------- | 
|                                                                                                                                                        |  | December 28,
 2008 |         | December 30,
 2007 |  
|Assets                                                                                                                                                  |  |                    |         |                    |   |         | 
|Current
 assets:                                                                                                                                        |  |                    |         |                    |   |         | 
|Cash and cash equivalents                                                                                                                               |  | $                  | 8,347   |                    | $ | 1,521   | 
|Marketable securities                                                                                                                                   |  |                    | 36,157  |                    |   | 66,513  | 
|Accounts receivable  franchisees, net of
 allowance of $25                                                                                             |  |                    | 895     |                    |   | 885     | 
|Accounts receivable  other                                                                                                                             |  |                    | 5,759   |                    |   | 6,976   | 
|Inventory                                                                                                                                               |  |                    | 3,104   |                    |   | 2,362   | 
|Prepaid expenses                                                                                                                                        |  |                    | 3,294   |                    |   | 3,060   | 
|Refundable income taxes                                                                                                                                 |  |                    | 1,611   |                    |   | 1,886   | 
|Deferred income taxes                                                                                                                                   |  |                    | 1,731   |                    |   | 1,303   | 
|Total current assets                                                                                                                                    |  |                    | 60,898  |                    |   | 84,506  | 
|                                                                                                                                                        |  |                    |         |                    |   |         | 
|Property and
 equipment, net                                                                                                                            |  |                    | 154,432 |                    |   | 102,742 | 
|Restricted
 cash                                                                                                                                        |  |                    | 7,670   |                    |   | 7,161   | 
|Other assets                                                                                                                                            |  |                    | 9,846   |                    |   | 2,320   | 
|Goodwill                                                                                                                                                |  |                    | 10,972  |                    |   | 369     | 
|Total assets                                                                                                                                            |  | $                  | 243,818 |                    | $ | 197,098 | 
|                                                                                                                                                        |  |                    |         |                    |   |         | 
|Liabilities and Stockholders Equity                                                                                                                    |  |                    |         |                    |   |         | 
|Current
 liabilities:                                                                                                                                   |  |                    |         |                    |   |         | 
|Unearned franchise fees                                                                                                                                 |  | $                  | 2,514   |                    | $ | 2,316   | 
|Accounts payable                                                                                                                                        |  |                    | 16,691  |                    |   | 10,692  | 
|Accrued compensation and benefits                                                                                                                       |  |                    | 14,155  |                    |   | 12,615  | 
|Accrued expenses                                                                                                                                        |  |                    | 7,116   |                    |   | 6,207   | 
|Current portion of deferred lease credits                                                                                                               |  |                    | 56      |                    |   | 660     | 
|Total current liabilities                                                                                                                               |  |                    | 40,532  |                    |   | 32,490  | 
|                                                                                                                                                        |  |                    |         |                    |   |         | 
|Long-term
 liabilities:                                                                                                                                 |  |                    |         |                    |   |         | 
|Other liabilities                                                                                                                                       |  |                    | 1,270   |                    |   | 1,031   | 
|Marketing fund payables                                                                                                                                 |  |                    | 7,670   |                    |   | 7,161   | 
|Deferred income taxes                                                                                                                                   |  |                    | 8,916   |                    |   | 2,166   | 
|Deferred lease credits, net of current
 portion                                                                                                         |  |                    | 13,837  |                    |   | 12,585  | 
|Total liabilities                                                                                                                                       |  |                    | 72,225  |                    |   | 55,433  | 
|                                                                                                                                                        |  |                    |         |                    |   |         | 
|Commitments
 and contingencies (notes 5 and 15)                                                                                                         |  |                    |         |                    |   |         | 
|Stockholders equity:                                                                                                                                   |  |                    |         |                    |   |         | 
|Undesignated stock, 1,000,000 shares
 authorized                                                                                                        |  |                    |        |                    |   |        | 
|Common stock, no par value. Authorized
 44,000,000 and 20,200,000 shares, respectively; issued and outstanding
 17,887,271 and 17,657,020, respectively |  |                    | 86,318  |                    |   | 80,825  | 
|Retained earnings                                                                                                                                       |  |                    | 85,275  |                    |   | 60,840  | 
|Total stockholders equity                                                                                                                              |  |                    | 171,593 |                    |   | 141,665 | 
|Total liabilities and stockholders equity                                                                                                              |  | $                  | 243,818 |                    | $ | 197,098 | 

See accompanying notes to consolidated
financial statements.

38

---



BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF EARNINGS
Fiscal years ended December 28, 2008, December 30, 2007, and December 31, 2006
(Amounts in thousands except per share data)

|                                               |  |                    |         |                    |   |                    |  |   |         | 
|---------------------------------------------- |  | ------------------ | ------- | ------------------ | - | ------------------ |  | - | ------- | 
|                                               |  | Fiscal years ended |        
|                                               |  | December 28,
 2008 |         | December 30,
 2007 |   | December 31,
 2006 | 
|Revenue:                                       |  |                    |         |                    |   |                    |  |   |         | 
|                                               |  |                    |         |                    |   |                    |  |   |         | 
|Restaurant sales                               |  | $                  | 379,686 |                    | $ | 292,824            |  | $ | 247,150 | 
|Franchise royalties and fees                   |  |                    | 42,731  |                    |   | 36,828             |  |   | 31,033  | 
|Total revenue                                  |  |                    | 422,417 |                    |   | 329,652            |  |   | 278,183 | 
|Costs and
 expenses:                           |  |                    |         |                    |   |                    |  |   |         | 
|Restaurant operating costs:                    |  |                    |         |                    |   |                    |  |   |         | 
|Cost of sales                                  |  |                    | 113,266 |                    |   | 90,065             |  |   | 76,087  | 
|Labor                                          |  |                    | 114,609 |                    |   | 87,784             |  |   | 73,030  | 
|Operating                                      |  |                    | 60,205  |                    |   | 47,974             |  |   | 41,087  | 
|Occupancy                                      |  |                    | 25,157  |                    |   | 19,986             |  |   | 17,529  | 
|Depreciation and amortization                  |  |                    | 23,622  |                    |   | 16,987             |  |   | 14,492  | 
|General and administrative (1)                 |  |                    | 40,151  |                    |   | 35,740             |  |   | 30,374  | 
|Preopening                                     |  |                    | 7,930   |                    |   | 4,520              |  |   | 3,077   | 
|Loss on asset disposals and impairment         |  |                    | 2,083   |                    |   | 987                |  |   | 1,008   | 
|Total costs and expenses                       |  |                    | 387,023 |                    |   | 304,043            |  |   | 256,684 | 
|Income from
 operations                        |  |                    | 35,394  |                    |   | 25,609             |  |   | 21,499  | 
|Investment
 income                             |  |                    | 970     |                    |   | 2,909              |  |   | 2,339   | 
|Earnings
 before income taxes                  |  |                    | 36,364  |                    |   | 28,518             |  |   | 23,838  | 
|Income tax
 expense                            |  |                    | 11,929  |                    |   | 8,864              |  |   | 7,565   | 
|Net earnings                                   |  | $                  | 24,435  |                    | $ | 19,654             |  | $ | 16,273  | 
|                                               |  |                    |         |                    |   |                    |  |   |         | 
|                                               |  |                    |         |                    |   |                    |  |   |         | 
|Earnings per
 common share  basic             |  | $                  | 1.37    |                    | $ | 1.12               |  | $ | 0.95    | 
|Earnings per
 common share  diluted           |  | $                  | 1.36    |                    | $ | 1.10               |  | $ | 0.92    | 
|Weighted
 average shares outstanding  basic   |  |                    | 17,813  |                    |   | 17,554             |  |   | 17,157  | 
|Weighted
 average shares outstanding  diluted |  |                    | 17,995  |                    |   | 17,833             |  |   | 17,629  | 

(1)Includes
stock-based compensation of $4,900, $3,755, and $3,216, respectively

See accompanying notes to consolidated
financial statements.

39

---



BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
Fiscal years ended December 28, 2008, December 30, 2007, and December 31, 2006
(Dollar amounts in thousands)

|                                                                       |  |              |            |                        |   |                    |   |       |        |   |   |        |  |   |         |  
|---------------------------------------------------------------------- |  | ------------ | ---------- | ---------------------- | - | ------------------ | - | ----- | ------ | - | - | ------ |  | - | ------- | -
|                                                                       |  |              |            | Deferred
 Compensation |   | Retained
 Earnings |   |       |        |  
|                                                                       |  | Common Stock |            |                        |   |                    |   |      
|                                                                       |  | Shares       |            | Amount                 |   |                    |   | Total |       
|Balance at December 25, 2005                                           |  |              | 16,979,900 |                        | $ | 74,503             |   | $     | (2,568 | ) | $ | 24,913 |  | $ | 96,848  |  
|                                                                       |  |              |            |                        |   |                    |   |       |        |   |   |        |  |   |         |  
|Net earnings                                                           |  |              |           |                        |   |                   |   |       |       |   |   | 16,273 |  |   | 16,273  |  
|Shares issued under employee stock purchase
 plan                      |  |              | 36,804     |                        |   | 528                |   |       |       |   |   |       |  |   | 528     |  
|Shares issued from restricted stock units                              |  |              | 113,560    |                        |   |                   |   |       | 2,568  |   |   |       |  |   | (2,375  | )
|Units effectively repurchased for required
 employee withholding taxes |  |              | (34,226    | )                      |   | (4,943             | ) |       |       |   |   |       |  |   |        |  
|Exercise of stock options                                              |  |              | 171,978    |                        |   | 573                |   |       |       |   |   |       |  |   | 573     |  
|Tax benefit from stock issued                                          |  |              |           |                        |   | 1,153              |   |       |       |   |   |       |  |   | 1,153   |  
|Stock-based compensation                                               |  |              |           |                        |   | 3,216              |   |       |       |   |   |       |  |   | 3,216   |  
|                                                                       |  |              |            |                        |   |                    |   |       |        |   |   |        |  |   |         |  
|Balance at December 31, 2006                                           |  |              | 17,268,016 |                        | $ | 75,030             |   | $     |       |   | $ | 41,186 |  | $ | 116,216 |  
|                                                                       |  |              |            |                        |   |                    |   |       |        |   |   |        |  |   |         |  
|Net earnings                                                           |  |              |           |                        |   |                   |   |       |       |   |   | 19,654 |  |   | 19,654  |  
|Shares issued under employee stock purchase
 plan                      |  |              | 30,791     |                        |   | 685                |   |       |       |   |   |       |  |   | 685     |  
|Shares issued from restricted stock units                              |  |              | 168,952    |                        |   |                   |   |       |       |   |   |       |  |   |        |  
|Units effectively repurchased for required
 employee withholding taxes |  |              | (52,176    | )                      |   | (413               | ) |       |       |   |   |       |  |   | (413    | )
|Exercise of stock options                                              |  |              | 241,437    |                        |   | 761                |   |       |       |   |   |       |  |   | 761     |  
|Tax benefit from stock issued                                          |  |              |           |                        |   | 1,007              |   |       |       |   |   |       |  |   | 1,007   |  
|Stock-based compensation                                               |  |              |           |                        |   | 3,755              |   |       |       |   |   |       |  |   | 3,755   |  
|                                                                       |  |              |            |                        |   |                    |   |       |        |   |   |        |  |   |         |  
|Balance at December 30, 2007                                           |  |              | 17,657,020 |                        | $ | 80,825             |   | $     |       |   | $ | 60,840 |  | $ | 141,665 |  
|                                                                       |  |              |            |                        |   |                    |   |       |        |   |   |        |  |   |         |  
|Net earnings                                                           |  |              |           |                        |   |                   |   |       |       |   |   | 24,435 |  |   | 24,435  |  
|Shares issued under employee stock purchase
 plan                      |  |              | 43,948     |                        |   | 905                |   |       |       |   |   |       |  |   | 905     |  
|Shares issued from restricted stock units                              |  |              | 153,891    |                        |   |                   |   |       |       |   |   |       |  |   |        |  
|Units effectively repurchased for required
 employee withholding taxes |  |              | (45,320    | )                      |   | (1,249             | ) |       |       |   |   |       |  |   | (1,249  | )
|Exercise of stock options                                              |  |              | 77,732     |                        |   | 322                |   |       |       |   |   |       |  |   | 322     |  
|Tax benefit from stock issued                                          |  |              |           |                        |   | 615                |   |       |       |   |   |       |  |   | 615     |  
|Stock-based compensation                                               |  |              |           |                        |   | 4,900              |   |       |       |   |   |       |  |   | 4,900   |  
|                                                                       |  |              |            |                        |   |                    |   |       |        |   |   |        |  |   |         |  
|Balance at December 28, 2008                                           |  |              | 17,887,271 |                        | $ | 86,318             |   | $     |       |   | $ | 85,275 |  | $ | 171,593 |  

See accompanying notes to consolidated
financial statements.

40

---



BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
CASH FLOWS
Fiscal years ended December 28, 2008, December 30, 2007, and December 31, 2006
(Dollar amounts in thousands)

|                                                                           |  |                    |          |                    |   |                    |   |   |          |  
|-------------------------------------------------------------------------- |  | ------------------ | -------- | ------------------ | - | ------------------ | - | - | -------- | -
|                                                                           |  | Fiscal years ended |         
|                                                                           |  | December 28,
 2008 |          | December 30,
 2007 |   | December 31,
 2006 |  
|                                                                           |  |                    |          |                    |   |                    |   |   |          |  
|Cash flows from operating activities:                                      |  |                    |          |                    |   |                    |   |   |          |  
|Net earnings                                                               |  | $                  | 24,435   |                    | $ | 19,654             |   | $ | 16,273   |  
|Adjustments to reconcile net earnings to
 cash provided by operations:     |  |                    |          |                    |   |                    |   |   |          |  
|Depreciation                                                               |  |                    | 23,415   |                    |   | 16,987             |   |   | 14,492   |  
|Amortization                                                               |  |                    | 207      |                    |   | (54                | ) |   | (54      | )
|Loss on asset disposals and impairment                                     |  |                    | 2,083    |                    |   | 987                |   |   | 1,008    |  
|Deferred lease credits                                                     |  |                    | 1,955    |                    |   | 2,374              |   |   | 393      |  
|Deferred income taxes                                                      |  |                    | 6,322    |                    |   | (894               | ) |   | (2,228   | )
|Stock-based compensation                                                   |  |                    | 4,900    |                    |   | 3,755              |   |   | 3,216    |  
|Excess tax benefit from stock issuance                                     |  |                    | (615     | )                  |   | (1,007             | ) |   | (1,153   | )
|Change in operating assets and liabilities,
 net of effect of acquisition: |  |                    |          |                    |   |                    |   |   |          |  
|Trading securities                                                         |  |                    | 23       |                    |   | (302               | ) |   | (1,288   | )
|Accounts receivable                                                        |  |                    | 375      |                    |   | (1,183             | ) |   | (1,575   | )
|Inventory                                                                  |  |                    | (473     | )                  |   | (595               | ) |   | (265     | )
|Prepaid expenses                                                           |  |                    | (152     | )                  |   | (2,008             | ) |   | 920      |  
|Other assets                                                               |  |                    | (608     | )                  |   | (600               | ) |   | (853     | )
|Unearned franchise fees                                                    |  |                    | 198      |                    |   | (31                | ) |   | 153      |  
|Accounts payable                                                           |  |                    | 809      |                    |   | 3,683              |   |   | (1,884   | )
|Income taxes                                                               |  |                    | 890      |                    |   | (1,143             | ) |   | 1,315    |  
|Accrued expenses                                                           |  |                    | 2,343    |                    |   | 3,956              |   |   | 4,561    |  
|Net cash provided by operating activities                                  |  |                    | 66,107   |                    |   | 43,579             |   |   | 33,031   |  
|                                                                           |  |                    |          |                    |   |                    |   |   |          |  
|Cash flows from investing activities:                                      |  |                    |          |                    |   |                    |   |   |          |  
|Acquisition of property and equipment                                      |  |                    | (67,396  | )                  |   | (41,359            | ) |   | (23,760  | )
|Acquisition of franchised restaurants                                      |  |                    | (23,071  | )                  |   |                   |   |   |         |  
|Purchase of marketable securities                                          |  |                    | (116,259 | )                  |   | (158,170           | ) |   | (108,328 | )
|Proceeds of marketable securities                                          |  |                    | 146,592  |                    |   | 144,842            |   |   | 105,259  |  
|Net cash used in investing activities                                      |  |                    | (60,134  | )                  |   | (54,687            | ) |   | (26,829  | )
|Cash flows from financing activities:                                      |  |                    |          |                    |   |                    |   |   |          |  
|Issuance of common stock                                                   |  |                    | 1,227    |                    |   | 1,446              |   |   | 1,101    |  
|Excess tax benefit from stock issuance                                     |  |                    | 615      |                    |   | 1,007              |   |   | 1,153    |  
|Tax payments for restricted stock                                          |  |                    | (989     | )                  |   | (1,580             | ) |   | (686     | )
|Net cash provided by financing activities                                  |  |                    | 853      |                    |   | 873                |   |   | 1,568    |  
|Net increase (decrease) in cash and cash
 equivalents                      |  |                    | 6,826    |                    |   | (10,235            | ) |   | 7,770    |  
|Cash and cash equivalents at beginning of
 year                            |  |                    | 1,521    |                    |   | 11,756             |   |   | 3,986    |  
|Cash and cash equivalents at end of year                                   |  | $                  | 8,347    |                    | $ | 1,521              |   | $ | 11,756   |  

See accompanying notes to consolidated
financial statements.

41

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated
Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

(1) Nature of Business and Summary of
Significant Accounting Policies

(a)
Nature of Business

References
in these financial statement footnotes to we, us, and our refer to the
business of Buffalo Wild Wings, Inc. and our subsidiaries. We were organized
for the purpose of operating Buffalo Wild Wings® restaurants, as
well as selling Buffalo Wild Wings restaurant franchises. In exchange for the
initial and continuing franchise fees received, we give franchisees the right
to use the name Buffalo Wild Wings. We operate as a single segment for
reporting purposes.

At
December 28, 2008, December 30, 2007, and December 31, 2006, we operated 197,
161, and 139, Company-owned restaurants, respectively, and had 363, 332, and
290 franchised restaurants, respectively.

(b)
Principles of Consolidation

The
consolidated financial statements include the accounts of Buffalo Wild Wings,
Inc. and its wholly owned subsidiaries (collectively, the Company). All
significant intercompany accounts and transactions have been eliminated in
consolidation.

(c)
Fiscal Year

We
utilize a 52- or 53-week accounting period that ends on the last Sunday in
December. The fiscal years ended December 28, 2008 and December 30, 2007,
comprised 52 weeks. The fiscal year ended December 31, 2006 was a 53-week year
with the quarter ended December 31, 2006 comprising fourteen weeks. The 53rd
week of fiscal 2006 contributed $5,663 in restaurant sales and $768 in
royalties and fees.

(d)
Restaurant Sales Concentration

As
of December 28, 2008, we operated 25 Company-owned restaurants and had 61 franchised
restaurants in the state of Ohio. The Company-owned restaurants in Ohio
aggregated 13.8%, 16.3%, and 18.6%, respectively, of our restaurant sales in
fiscal 2008, 2007, and 2006. We are subject to adverse trends in that state.

(e)
Cash and Cash Equivalents

Cash
and cash equivalents include highly liquid investments with original maturities
of three months or less.

(f)
Marketable Securities

Marketable
securities consist of available-for-sale securities and trading securities that
are carried at fair value and held-to-maturity securities that are stated at
amortized cost, which approximates market.

Available-for-sale
securities are classified as current assets based upon our intent and ability
to use any and all of the securities as necessary to satisfy the operational
requirements of our business. Realized gains and losses from the sale of
available-for-sale securities were not material for fiscal 2008, 2007, and
2006. Unrealized losses are charged against net earnings when a decline in fair
value is determined to be other than temporary. The available-for-sale
investments carry short-term repricing features which generally result in these
investments having a value at or near par value (cost).

Trading
securities are stated at fair value, with gains or losses resulting from
changes in fair value recognized currently in earnings as investment income. In
2006, we funded a deferred compensation plan using trading assets in a
marketable equity portfolio. This portfolio is held to generate returns that
seek to offset changes in liabilities related to the equity market risk of
certain deferred compensation arrangements. These deferred compensation
liabilities were $1,505 and $1,579 as of December 28, 2008 and December 30,
2007, respectively, and are included in accrued compensation and benefits in
the accompanying consolidated balance sheets.

(g)
Accounts Receivable

Accounts
receivable  franchisees represents royalty receivables from our franchisees.
Accounts receivable  other consists primarily of contractually-determined
receivables for leasehold improvements, credit cards, vendor allowances, and

42

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

purchased
interest on investments. Cash flows related to accounts receivable are
classified in net cash provided by operating activities in the Consolidated
Statements of Cash Flows.

(h)
Inventories

Inventories
are stated at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method. Cash flows related in inventory sales are classified
in net cash provided by operating activities in the Consolidated Statements of
Cash Flows.

We
purchase products from a number of suppliers and believe there are alternative
suppliers. We have minimum purchase commitments from some of our vendors but
the terms of the contracts and nature of the products are such that purchase
requirements do not create a market risk. The primary food product used by
Company-owned and franchised restaurants is fresh chicken wings. Fresh chicken
wings are purchased by us at market prices. In 2007 and early 2008, we
purchased chicken wings based on a contract which fixed 80-90% of our chicken
wing purchases at $1.23 per pound. For fiscal 2008, 2007, and 2006, fresh
chicken wings were 22%, 24%, and 24% of restaurant cost of sales, respectively.

(i)
Property and Equipment

Property
and equipment are recorded at cost. Leasehold improvements, which include the
cost of improvements funded by landlord incentives or allowances, are amortized
using the straight-line method over the lesser of the term of the lease,
without consideration of renewal options, or the estimated useful lives of the
assets, which typically range from five to ten years. Buildings are depreciated
using the straight-line method over the estimated useful life, which ranges from
ten to twenty years. Furniture and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from two to eight years. Maintenance and repairs are expensed as incurred. Upon
retirement or disposal of assets, the cost and accumulated depreciation are
eliminated from the respective accounts and the related gains or losses are
credited or charged to earnings.

We
review property and equipment, along with other long-lived assets, quarterly to
determine if the carrying value of these assets may not be recoverable based on
estimated future undiscounted cash flows. Assets are reviewed at the lowest
level for which cash flows can be identified, which is the individual
restaurant level. In determining future cash flows, significant estimates are
made by us with respect to future operating results of each restaurant over its
remaining lease term. If such assets are considered impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Fair value is generally determined
by estimated discounted future cash flows.

(j)
Goodwill and Other Assets

Goodwill
represents the excess of cost over the fair value of identified net assets of
businesses acquired. Goodwill and indefinite-life purchased liquor licenses are
subject to an annual impairment analysis. We identify potential impairments of
goodwill by comparing the fair value of a reporting unit, which we define as a
geographic market, estimated using an income approach, with its carrying
amount, including goodwill. If the fair value of the reporting unit exceeds the
carrying amount, the assets are not impaired. If the carrying amount exceeds
the fair value, we calculate the possible impairment by comparing the implied
fair value of the asset with the carrying amount. If the implied value of the
asset is less than the carrying amount, a write-down is recorded. All goodwill
was considered recoverable as of December 28, 2008.

Other
assets consist primarily of reacquired franchise rights and liquor licenses.
Reacquired franchise rights are amortized over the life of the related
franchise agreement. We evaluate reacquired franchise rights in conjunction
with our impairment evaluation of long-lived assets. Liquor licenses are either
amortized over their annual renewal period or, if purchased, are carried at the
lower of fair value or cost. We identify potential impairments for liquor
licenses by comparing the fair value with its carrying amount. If the fair
value exceeds the carrying amount, the liquor licenses are not impaired. If the
carrying amount exceeds the fair value, we calculate the possible impairment by
comparing the implied fair value of the liquor licenses with the carrying
amount. If the implied value of the asset is less than the carrying amount, a
write-down is recorded. The carrying amount of the liquor licenses not subject
to amortization as of December 28, 2008 and December 30, 2007 was $482 and
$414, respectively, and is included in other assets in the accompanying
consolidated balance sheets.

43

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

(k)
Fair Values of Financial Instruments

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS
No. 157). This statement does not require any new fair value measurements, but
rather, it provides enhanced guidance to other pronouncements that require or
permit assets or liabilities to be measured at fair value. The changes to
current practice resulting from the application of this statement relate to the
definition of fair value, the methods used to estimate fair value, and the
requirement for expanded disclosures about estimates of fair value. This
statement became effective for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The effective date for this
statement for all nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial
statements on a recurring basis, has been delayed by one year. We adopted the
provisions of SFAS No. 157 related to financial assets and financial
liabilities on December 31, 2007. The partial adoption of this statement did
not have a material impact on our financial statements. It is expected that the
remaining provisions of this statement will not have a material effect on our
financial statements.

Fair
value is defined as the price at which an asset could be exchanged in a current
transaction between knowledgeable, willing parties or the amount that would be
paid to transfer a liability to a new obligor, not the amount that would be
paid to settle the liability with the creditor. Where available, fair value is
based on observable market prices or parameters or derived from such prices or
parameters. Where observable prices or inputs are not available, valuation
models are applied. These valuation techniques involve some level of management
estimation and judgment, the degree of which is dependent on the price
transparency for the instruments or market and the instruments complexity.

Assets
recorded at fair value in our consolidated balance sheets are categorized based
upon the level of judgment associated with the inputs used to measure their
fair value. Hierarchical levels, defined by SFAS No. 157 and directly related
to the amount of subjectivity associated with the inputs to fair valuation of
these assets and liabilities, are as follows:

| |                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level 1 
 Inputs were unadjusted, quoted prices in active markets for identical assets
 or liabilities at the measurement date.                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                     
| | Level 2 
 Inputs (other than quoted prices included in Level 1) were either directly or
 indirectly observable for the asset or liability through correlation with
 market data at the measurement date and for the duration of the instruments
 anticipated life.                
| |                                                                                                                                                                                                                                                                                     
| | Level 3 
 Inputs reflected managements best estimate of what market participants would
 use in pricing the asset or liability at the measurement date. Consideration
 was given to the risk inherent in the valuation technique and the risk inherent
 in the inputs to the model.

Determining
which hierarchical level an asset falls within requires significant judgment.
We will evaluate our hierarchy disclosures each quarter. The following table
summarizes the financial instruments measured at fair value in our consolidated
balance sheet as of December 28, 2008:

| |                            |  |                         |       |         |   |         |  |       |   |  |   |        | 
| | -------------------------- |  | ----------------------- | ----- | ------- | - | ------- |  | ----- | - |  | - | ------ | 
| |                            |  | Fair Value Measurements |      
| |                            |  | Level 1                 |       | Level 2 |   | Level 3 |  | Total |  
| | Assets                     |  |                         |       |         |   |         |  |       |   |  |   |        | 
| | Short-term investments (1) |  | $                       | 1,567 |         | $ | 17,336  |  | $     |  |  | $ | 18,903 | 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | We
 classified a portion of our marketable securities as available-for-sale and
 trading securities which were reported at fair market value, using the
 market approach valuation technique. The market approach valuation method
 used prices and other relevant information observable in market transactions
 involving identical or comparable assets. Our trading securities are valued
 using the Level 1 approach. Our available-for-sale marketable securities are
 valued using the Level 2 approach.

44

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

SFAS
No. 157 requires separate disclosure of assets measured at fair value on a
recurring basis, as documented above, from those measured at fair value on a
nonrecurring basis. As of December 28, 2008, no assets or liabilities were
measured at fair value on a nonrecurring basis.

(l)
Asset Retirement Obligations

An
asset retirement obligation associated with the retirement of a tangible
long-lived asset is recognized as a liability in the period incurred or when it
becomes determinable, with an associated increase in the carrying amount of the
related long-lived asset. We must recognize a liability for the fair value of a
conditional asset retirement obligation when incurred, if the liabilitys fair
value can be reasonably estimated. Conditional asset retirement obligations are
legal obligations to perform asset retirement activities when the timing and/or
method of settlement are conditional on a future event or may not be within our
control. Asset retirement costs are depreciated over the useful life of the
related asset. As of December 28, 2008 and December 30, 2007, we had asset
retirement obligations of $211 and $175, respectively.

(m)
Revenue Recognition

Franchise
agreements have terms ranging from ten to twenty years. These agreements also
convey multiple extension terms of five or ten years, depending on contract
terms and certain conditions that must be met. We provide the use of the
Buffalo Wild Wings trademarks, system, training, preopening assistance, and
restaurant operating assistance in exchange for area development fees, franchise
fees, and royalties of 5% of a restaurants sales.

Franchise
fee revenue from individual franchise sales is recognized upon the opening of
the franchised restaurant when all material obligations and initial services to
be provided by us have been performed. Area development fees are dependent upon
the number of restaurants in the territory, as are our obligations under the
area development agreement. Consequently, as obligations are met, area
development fees are recognized proportionally with expenses incurred with the
opening of each new restaurant and any royalty-free periods. Royalties are
accrued as earned and are calculated each period based on restaurant sales.

Sales
from Company-owned restaurant revenues are recognized as revenue at the point
of the delivery of meals and services. All sales taxes are presented on a net
basis and are excluded from revenue.

(n)
Franchise Operations

We
enter into franchise agreements with unrelated third parties to build and
operate restaurants using the Buffalo Wild Wings brand within a defined
geographical area. We believe that franchising is an effective and efficient
means to expand the Buffalo Wild Wings brand. The franchisee is required to
operate their restaurants in compliance with their franchise agreement that
includes adherence to operating and quality control procedures established by
us. We do not provide loans, leases, or guarantees to the franchisee or the
franchisees employees and vendors. If a franchisee becomes financially
distressed, we do not provide any financial assistance. If financial distress
leads to a franchisees noncompliance with the franchise agreement and we elect
to terminate the franchise agreement, we have the right but not the obligation
to acquire the assets of the franchisee at fair value as determined by an
independent appraiser. We receive a 5% royalty of gross sales as defined in the
franchise agreement, and in 2008 allowances directly from the franchisees
vendors were approximately 0.4% of the franchisees gross sales. We have
financial exposure for the collection of the royalty payments. Franchisees
generally remit franchise payments weekly for the prior weeks sales, which
substantially minimizes our financial exposure. Historically, we have
experienced insignificant write-offs of franchisee royalties. Franchise and
area development fees are paid upon the signing of the related agreements.

(o)
Advertising Costs

Advertising
costs for Company-owned restaurants are expensed as incurred and aggregated
$13,503, $10,548, and $9,055, in fiscal years 2008, 2007, and 2006,
respectively. Our advertising costs exclude amounts collected from franchisees
as part of the system-wide marketing and advertising fund.

(p)
Preopening Costs

Costs
associated with the opening of new Company-owned restaurants are expensed as
incurred.

45

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

(q)
Payments Received from Vendors

Vendor
allowances include allowances and other funds received from vendors. Certain of
these funds are determined based on various quantitative contract terms. We
also receive vendor allowances from certain manufacturers and distributors
calculated based upon purchases made by franchisees. Amounts that represent a
reimbursement of costs incurred, such as advertising, are recorded as a
reduction of the related expense. Amounts that represent a reduction of
inventory purchase costs are recorded as a reduction of inventoriable costs. We
recorded an estimate of earned vendor allowances that are calculated based upon
monthly purchases. We generally receive payment from vendors approximately 30
days from the end of a month for that months purchases. During fiscal 2008,
2007, and 2006, vendor allowances were recorded as a reduction in inventoriable
costs, and cost of sales was reduced by $5,192, $4,636, and $4,246,
respectively.

(r)
National Advertising Fund

We
have a system-wide marketing and advertising fund. Company-owned and franchised
restaurants are required to remit a designated portion of restaurant sales, to
a separate advertising fund that is used for marketing and advertising efforts
throughout the system. That amount was 3% of restaurant sales in all years
presented. Certain payments received from various vendors are deposited into
the National Advertising Fund. These funds are used for development and implementation
of system-wide initiatives and programs. We account for cash and receivables of
these funds as restricted cash with an offsetting marketing fund payables
on our accompanying consolidated balance sheet.

(s)
Earnings Per Common Share

Basic
earnings per common share excludes dilution and is computed by dividing the net
earnings available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings per common share
include dilutive common stock equivalents consisting of stock options
determined by the treasury stock method. Restricted stock units are
contingently issuable shares subject to vesting based on performance criteria.
Vesting typically occurs in the fourth quarter of the year when income targets
have been met. Upon vesting, the shares to be issued are included in the
diluted earnings per share calculation as of the beginning of the period in
which the vesting conditions are satisfied. Restricted stock units included in
the diluted earnings per share are net of the required employee withholding
taxes.

(t)
Income Taxes

Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the balance sheet carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected
to be recovered or settled. A valuation allowance is recorded to reduce the
carrying amounts of deferred tax assets unless it is more likely than not that
such assets will be realized.

(u)
Deferred Lease Credits

Deferred
lease credits consist of reimbursement of costs of leasehold improvements from
our lessors. These reimbursements are amortized on a straight-line basis over
the term of the applicable lease, without consideration of renewal options. In
addition, this account includes adjustments to recognize rent expense on a
straight-line basis over the term of the lease commencing at the start of our
construction period for the restaurant, without consideration of renewal
options, unless renewals are reasonably assured because failure to renew would
result in an economic penalty.

Leases
typically have an initial lease term of between 10 to 15 years and contain
renewal options under which we may extend the terms for periods of three to
five years. Certain leases contain rent escalation clauses that require higher
rental payments in later years. Leases may also contain rent holidays, or free
rent periods, during the lease term. Rent expense is recognized on a
straight-line basis over the initial lease term.

(v)
Accounting Estimates

The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of

46

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

(w)
Stock-Based Compensation

We
maintain a stock equity incentive plan under which we may grant non-qualified
stock options, incentive stock options, and restricted stock units to
employees, non-employee directors and consultants. We also have an employee
stock purchase plan (ESPP).

Effective
December 26, 2005, we adopted the fair value recognition provisions of SFAS
123R, using the modified-prospective transition method. Under this transition
method, stock-based compensation expense is recognized in the consolidated
financial statements for granted, modified, or settled stock options and for expense
related to the ESPP, since the related purchase discounts exceeded the amount
allowed under SFAS 123R for non-compensatory treatment. Compensation expense
recognized includes the estimated expense for the portion of stock options
vesting in the period for options granted prior to, but not vested as of
December 26, 2005, based on the grant date fair value estimated prior to the
adoption of SFAS 123R. Restricted stock units vesting upon the achievement of
certain performance targets are expensed based on the fair value on the date of
grant.

Total
stock-based compensation expense recognized in the consolidated statement of
earnings for fiscal year 2008 was $4,900 before income taxes and consisted of
restricted stock, stock options, and employee stock purchase plan (ESPP)
expense of $4,510, $138 and $252, respectively. The related total tax benefit
was $615 during 2008. All stock-based compensation is recognized as general and
administrative expense.

Total
stock-based compensation expense recognized in the consolidated statement of
earnings for fiscal year 2007 was $3,755 before income taxes and consisted of
restricted stock, stock options, and employee stock purchase plan (ESPP)
expense of $3,538, $37 and $180, respectively. The related total tax benefit
was $1,007 during 2007.

Total
stock-based compensation expense recognized in the consolidated statement of
earnings for fiscal year 2006 was $3,216 before income taxes and consisted of
restricted stock, stock options, and employee stock purchase plan (ESPP)
expense of $3,000, $82 and $134, respectively. The related total tax benefit
was $1,153 during 2006.

The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes-Merton (BSM) option valuation model with the following
assumptions:

|                                 |  |                    |         |                     |  |                     |  |  |     | 
|-------------------------------- |  | ------------------ | ------- | ------------------- |  | ------------------- |  |  | --- | 
|                                 |  | Stock
 Options     |        
|                                 |  | December 28,
 2008 |         | December 30,
 2007* |  | December 31,
 2006* | 
|Expected
 dividend yield         |  |                    | 0.0%    |                     |  | N/A                 |  |  | N/A | 
|Expected
 stock price volatility |  |                    | 45.6%   |                     |  | N/A                 |  |  | N/A | 
|Risk-free
 interest rate         |  |                    | 2.8%    |                     |  | N/A                 |  |  | N/A | 
|Expected
 life of options        |  |                    | 5 years |                     |  | N/A                 |  |  | N/A | 

|                                 |  |                              |            |                    |  |                    |  |  |              | 
|-------------------------------- |  | ---------------------------- | ---------- | ------------------ |  | ------------------ |  |  | ------------ | 
|                                 |  | Employee Stock Purchase Plan |           
|                                 |  | December 28,
 2008           |            | December 30,
 2007 |  | December 31,
 2006 | 
|Expected
 dividend yield         |  |                              | 0.0%       |                    |  | 0.0%               |  |  | 0.0%         | 
|Expected
 stock price volatility |  |                              | 46.7-55.7% |                    |  | 41.4  44.4%       |  |  | 39.2  41.4% | 
|Risk-free
 interest rate         |  |                              | 0.81-1.86% |                    |  | 3.6  4.9%         |  |  | 4.3  5.2%   | 
|Expected
 life of options        |  |                              | 0.5 years  |                    |  | 0.5 years          |  |  | 0.5 years    | 

* No stock
options were granted in 2007 or 2006.

47

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

The
expected term of the options represents the estimated period of time until
exercise and is based on historical experience of similar awards, giving
consideration to the contractual terms, vesting schedules and expectations of
future employee behavior. Expected stock price volatility is based on
historical volatility of our stock. The risk-free interest rate is based on the
implied yield available on U.S. Treasury zero-coupon issues with an equivalent
remaining term. We have not paid dividends in the past.

(x)
New Accounting Pronouncements

In
December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS
141R). SFAS 141R provides companies with principles and requirements on how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, liabilities assumed, and any noncontrolling interest in the
acquiree as well as the recognition and measurement of goodwill acquired in a
business combination. SFAS 141R also requires certain disclosures to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. Acquisition costs associated with the business
combination will generally be expensed as incurred. SFAS 141R is effective for
business combinations occurring in fiscal years beginning after December 15,
2008. Early adoption of SFAS 141R is not permitted. We will be required to
apply the guidance in SFAS 141R to any future business combinations.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities  an amendment of FASB Statement No. 133
(SFAS 161), which requires enhanced disclosures about an entitys derivative
and hedging activities. SFAS 161 is effective for fiscal years beginning after
December 15, 2008, and interim period within those fiscal years. We believe the
adoption of SFAS 161 will not have a significant impact on our financial
statements.

(y)
Revised Shares Outstanding

We
have revised, for all periods presented, the amount of common stock
outstanding. Unvested restricted stock units were previously included on both
the Consolidated Balance Sheets and the Consolidated Statements of
Stockholders Equity. These amounts have been revised and are properly excluded
from the amounts shown. This revision did not affect earnings per share or the
weighted average shares outstanding.

The
previously reported and revised amounts for common stock outstanding are as
follows:

|                   |  |                     |            |            |  |            | 
|------------------ |  | ------------------- | ---------- | ---------- |  | ---------- | 
|As of              |  | Previously Reported |            | As Revised | 
|December 25,
 2005 |  |                     | 17,232,444 |            |  | 16,979,900 | 
|December 31,
 2006 |  |                     | 17,591,180 |            |  | 17,268,016 | 
|December 30,
 2007 |  |                     | 17,933,497 |            |  | 17,657,020 | 

(2) Marketable Securities

Marketable
securities were comprised as follows:

| |                      |  |                    |        |                    |   |        | 
| | -------------------- |  | ------------------ | ------ | ------------------ | - | ------ | 
| |                      |  | December 28,
 2008 |        | December 30,
 2007 |  
| | Held-to-maturity     |  |                    |        |                    |   |        | 
| | Municipal securities |  | $                  | 17,254 |                    | $ | 23,718 | 
| | Available-for-sale   |  |                    |        |                    |   |        | 
| | Municipal securities |  |                    | 17,336 |                    |   | 41,206 | 
| | Trading              |  |                    |        |                    |   |        | 
| | Mutual funds         |  |                    | 1,567  |                    |   | 1,589  | 
| | Total                |  | $                  | 36,157 |                    | $ | 66,513 | 

Purchases
of available for-sale securities totaled $91,044 and sales totaled $113,684 in
2008. Purchases of held-to-maturity securities totaled $25,215 and proceeds
from maturities totaled $32,908 in 2008. All held-to-maturity debt securities
mature within one year and had an aggregate fair value of $17,278 at December
28, 2008.

48

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

Purchases
of available for-sale securities totaled $132,346 and sales totaled $109,181 in
2007. Purchases of held-to-maturity securities totaled $25,824 and proceeds
from maturities totaled $35,661 in 2007. All held-to-maturity debt securities
mature within one year and had an aggregate fair value of $23,753 at December
30, 2007.

Purchases
of available for-sale securities totaled $71,585 and sales totaled $87,205 in
2006. Purchases of held-to-maturity securities totaled $36,743 and proceeds
from maturities totaled $18,054 in 2006. All held-to-maturity debt securities
mature within one year and had an aggregate fair value of $33,512 at December
31, 2006.

Trading
securities represent investments held for future needs of a non-qualified
deferred compensation plan.

The
fair value of available-for-sale investments in debt securities by contractual
maturities at December 28, 2008, was as follows:

|                |  |            |        | 
|--------------- |  | ---------- | ------ | 
|Maturity date   |  | Fair Value |       
|1-5 years       |  | $          | 600    | 
|5-10 years      |  |            | 3,069  | 
|After 10
 years |  |            | 13,667 | 
|Total           |  | $          | 17,336 | 

(3) Property and Equipment

Property
and equipment consisted of the following:

|                                    |  |                    |         |                    |   |         |  
|----------------------------------- |  | ------------------ | ------- | ------------------ | - | ------- | -
|                                    |  | December 28,
 2008 |         | December 30,
 2007 |  
|Construction
 in process            |  | $                  | 10,703  |                    | $ | 1,851   |  
|Buildings                           |  |                    | 6,639   |                    |   | 1,601   |  
|Furniture,
 fixtures, and equipment |  |                    | 95,460  |                    |   | 69,962  |  
|Leasehold
 improvements             |  |                    | 122,796 |                    |   | 96,315  |  
|                                    |  |                    | 235,598 |                    |   | 169,729 |  
|Less
 accumulated depreciation      |  |                    | (81,166 | )                  |   | (66,987 | )
|                                    |  | $                  | 154,432 |                    | $ | 102,742 |  

(4) Goodwill and Other Intangible Assets

Goodwill
is summarized below:

|                   |  |                    |        |                    |   |     | 
|------------------ |  | ------------------ | ------ | ------------------ | - | --- | 
|                   |  | December 28,
 2008 |        | December 30,
 2007 |  
|Beginning of
 year |  | $                  | 369    |                    | $ | 369 | 
|Goodwill
 acquired |  |                    | 10,603 |                    |   |    | 
|End of year        |  | $                  | 10,972 |                    | $ | 369 | 

Goodwill
acquired during 2008 related to the acquisition of our nine franchised
restaurants in Nevada. Goodwill is not subject to amortization but is fully
deductible for tax purposes.

49

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

Reacquired
franchise rights were acquired during 2008 in connection with the acquisition
of nine franchised restaurants in Nevada and are included in other assets in
the accompanying consolidated balance sheets. As of December 28, 2008,
reacquired franchise rights were as follows:

|                             |  |                    |       |  
|---------------------------- |  | ------------------ | ----- | -
|                             |  | December 28,
 2008 |      
|Reacquired
 franchise rights |  | $                  | 7,040 |  
|Accumulated
 amortization    |  |                    | (207  | )
|                             |  | $                  | 6,833 |  

Amortization
expense related to reacquired franchise rights for 2008 was $207. The weighted
average amortization period is 19 years. Estimated future amortization expense
as of December 28, 2008 is as follows:

|                                  |  |   |       | 
|--------------------------------- |  | - | ----- | 
|Fiscal year
 ending:              |  |   |       | 
|2009                              |  | $ | 612   | 
|2010                              |  |   | 614   | 
|2011                              |  |   | 605   | 
|2012                              |  |   | 579   | 
|2013                              |  |   | 535   | 
|Thereafter                        |  |   | 3,888 | 
|Total future amortization expense |  | $ | 6,833 | 

(5) Lease Commitments

We
lease all of our restaurants and corporate offices under operating leases that
have various expiration dates. In addition to base rents, leases typically
require us to pay our share of maintenance and real estate taxes and certain
leases include provisions for contingent rentals based upon sales.

Future
minimum rental payments due under noncancelable operating leases for existing
restaurants and commitments for restaurants under development as of December
28, 2008 were as follows:

|                                    |  |                   |         |                                 |   |        | 
|----------------------------------- |  | ----------------- | ------- | ------------------------------- | - | ------ | 
|                                    |  | Operating
 leases |         | Restaurants
 under
 development |  
|Fiscal year
 ending:                |  |                   |         |                                 |   |        | 
|2009                                |  | $                 | 24,276  |                                 | $ | 1,985  | 
|2010                                |  |                   | 23,497  |                                 |   | 2,917  | 
|2011                                |  |                   | 22,574  |                                 |   | 3,029  | 
|2012                                |  |                   | 21,675  |                                 |   | 3,031  | 
|2013                                |  |                   | 20,194  |                                 |   | 3,031  | 
|Thereafter                          |  |                   | 91,396  |                                 |   | 30,419 | 
|Total future minimum lease payments |  | $                 | 203,612 |                                 | $ | 44,412 | 

50

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

In
2008, 2007, and 2006, we rented office space under operating leases which, in
addition to the minimum lease payments, require payment of a proportionate
share of the real estate taxes and building operating expenses. We also rent
restaurant space under operating leases, some of which, in addition to the
minimum lease payments and proportionate share of real estate and operating
expenses, require payment of percentage rents based upon sales levels. Rent
expense, excluding our proportionate share of real estate taxes and building
operating expenses, was as follows:

|                           |  |                    |        |                  |   |                  |  |   |        | 
|-------------------------- |  | ------------------ | ------ | ---------------- | - | ---------------- |  | - | ------ | 
|                           |  | Fiscal Years Ended |       
|                           |  | December 28,2008   |        | December 30,2007 |   | December 31,2006 | 
|Minimum
 rents             |  | $                  | 21,714 |                  | $ | 16,729           |  | $ | 14,600 | 
|Percentage
 rents          |  |                    | 308    |                  |   | 250              |  |   | 238    | 
|Total                      |  | $                  | 22,022 |                  | $ | 16,979           |  | $ | 14,838 | 
|Equipment
 and auto leases |  | $                  | 356    |                  | $ | 359              |  | $ | 273    | 

(6) Derivative Instruments

We
use commodities derivatives to manage our exposure to commodity price
fluctuations. During fiscal 2008, we entered into options and future contracts
to reduce our risk of natural gas price fluctuations. These derivatives do not
qualify for hedge accounting and changes in fair value are included in current
net income. These changes are classified as a component of restaurant operating
expenses. Net losses of $592 and $25 were recognized in fiscal 2008 and 2007,
respectively. As of December 28, 2008, the maximum length of time over which we
are hedging our exposure to the variability in future cash flows related to the
purchase of natural gas is ten months.

(7) Income Taxes

We
file a consolidated return in the United States Federal jurisdiction and in
many state jurisdictions. The Internal Revenue Service completed their
examination of our 2005 U.S. Federal Income Tax Return in 2008. No proposed
changes were made. With few exceptions, we are no longer subject to state
income tax examinations for years before 2004. We do not anticipate that total
unrecognized tax benefits will significantly change due to the settlement of
audits and the expiration of statutes of limitations prior to December 27,
2009. The provision for income taxes consisted of the following:

|                          |  |                    |        |                  |   |                  |   |   |        |  
|------------------------- |  | ------------------ | ------ | ---------------- | - | ---------------- | - | - | ------ | -
|                          |  | Fiscal Years Ended |       
|                          |  | December 28,2008   |        | December 30,2007 |   | December 31,2006 |  
|Current:                  |  |                    |        |                  |   |                  |   |   |        |  
|Federal                   |  | $                  | 4,082  |                  | $ | 8,320            |   | $ | 8,801  |  
|State                     |  |                    | 1,525  |                  |   | 1,438            |   |   | 992    |  
|Deferred:                 |  |                    |        |                  |   |                  |   |   |        |  
|Federal                   |  |                    | 6,125  |                  |   | (869             | ) |   | (1,705 | )
|State                     |  |                    | 197    |                  |   | (25              | ) |   | (523   | )
|Total income
 tax expense |  | $                  | 11,929 |                  | $ | 8,864            |   | $ | 7,565  |  

51

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

A
reconciliation of the expected federal income taxes (benefits) at the statutory
rate of 35% to the actual provision for income taxes is as follows:

|                                                 |  |                    |        |                  |   |                  |   |  |       |  
|------------------------------------------------ |  | ------------------ | ------ | ---------------- | - | ---------------- | - |  | ----- | -
|                                                 |  | Fiscal Years Ended |       
|                                                 |  | December 28,2008   |        | December 30,2007 |   | December 31,2006 |  
|Expected
 federal income tax expense             |  | $                  | 12,728 |                  | $ | 9,981            |   |  | 8,343 |  
|State income
 tax expense, net of federal effect |  |                    | 1,119  |                  |   | 919              |   |  | 305   |  
|Nondeductible
 expenses                          |  |                    | 116    |                  |   | 144              |   |  | 115   |  
|Tax exempt
 income                               |  |                    | (430   | )                |   | (824             | ) |  | (602  | )
|General
 business credits                        |  |                    | (1,752 | )                |   | (1,121           | ) |  | (772  | )
|Other, net                                       |  |                    | 148    |                  |   | (235             | ) |  | 176   |  
|Total income tax expense                         |  | $                  | 11,929 |                  | $ | 8,864            |   |  | 7,565 |  

Deferred
tax assets and liabilities are classified as current and noncurrent on the
basis of the classification of the related asset or liability for financial
reporting. Deferred income taxes are provided for temporary differences between
the basis of assets and liabilities for financial reporting purposes and income
tax purposes. Temporary differences comprising the net deferred tax assets and
liabilities on the balance sheets are as follows:

|                         |  |                    |        |                    |   |       | 
|------------------------ |  | ------------------ | ------ | ------------------ | - | ----- | 
|                         |  | Fiscal Years Ended |       
|                         |  | December 28,
 2008 |        | December 30,
 2007 |  
|Deferred tax
 assets:    |  |                    |        |                    |   |       | 
|Unearned franchise fees  |  | $                  | 974    |                    | $ | 880   | 
|Accrued vacation         |  |                    | 314    |                    |   | 264   | 
|Accrued compensation     |  |                    | 715    |                    |   | 600   | 
|Deferred lease credits   |  |                    | 1,716  |                    |   | 1,262 | 
|Restricted stock units   |  |                    | 404    |                    |   |      | 
|Other                    |  |                    | 472    |                    |   | 484   | 
|                         |  | $                  | 4,595  |                    | $ | 3,490 | 
|                         |  |                    |        |                    |   |       | 
|Deferred tax
 liability: |  |                    |        |                    |   |       | 
|Depreciation             |  | $                  | 11,780 |                    | $ | 4,353 | 
|Total                    |  | $                  | 11,780 |                    | $ | 4,353 | 

We
adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48), on January 1, 2007 and upon
adoption did not need to recognize an adjustment in the previously recorded
liability for unrecognized income tax benefits. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as follows:

|                                                              |  |   |     | 
|------------------------------------------------------------- |  | - | --- | 
|Balance at
 December 30, 2007                                 |  | $ | 241 | 
|Additions
 based on tax positions related to the current year |  |   | 133 | 
|Additions
 for tax positions of prior years                   |  |   | 68  | 
|Balance at December
 28, 2008                                 |  | $ | 442 | 

We
recognize potential accrued interest and penalties related to unrecognized tax
benefits in income tax expense. During 2008, interest and penalties of $26 were
included in income tax expense. Interest and penalties related to unrecognized
tax benefits totaled $88 at December 30, 2007 and $114 at December 28, 2008.
Included in the balance at December 30, 2007 and December 28, 2008, are
unrecognized tax benefits of $157 and $287, respectively, which if recognized,
would affect the annual effective tax rate. The difference between these
amounts and the amount reflected in the reconciliation above relates to the
deferred U.S. federal income tax benefit on unrecognized tax benefits related
to U.S. state income taxes.

52

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

(8) Stockholders Equity

(a) Stock Options

We have 3.9
million shares of common stock reserved for issuance under the Equity Incentive
Plan (the plan) for employees, officers, and directors. The option price for
shares issued under this plan is to be not less than the fair market value on
the date of grant with respect to incentive stock options, or 85% of fair
market value for nonqualified stock options. Incentive stock options become
exercisable in four equal installments from the date of the grant and have a
contractual life of seven to ten years. Nonqualified stock options issued
pursuant to the plan are all fully vested and have a contractual life of ten
years. Incentive stock options may be granted under this plan until May 15,
2018. We issue new shares of common stock upon exercise of stock options. In
2008, our shareholders approved amendments to the plan which extended the plan
to 2018. Option activity is summarized for the year ended December 28, 2008 as
follows:

|                                |  |                 |         |                               |   |                                         |  |                          |     |  |   |       | 
|------------------------------- |  | --------------- | ------- | ----------------------------- | - | --------------------------------------- |  | ------------------------ | --- |  | - | ----- | 
|                                |  | Numberof shares |         | Weightedaverageexercise price |   | Averageremainingcontractuallife (years) |  | AggregateIntrinsic Value |    
|Outstanding,
 December 30, 2007 |  |                 | 176,603 |                               | $ | 5.61                                    |  |                          | 3.9 |  | $ | 3,096 | 
|                                |  |                 |         |                               |   |                                         |  |                          |     |  |   |       | 
|Granted                         |  |                 | 58,272  |                               |   | 24.96                                   |  |                          |     |  |   |       | 
|Exercised                       |  |                 | (77,735 | )                             |   | 4.15                                    |  |                          |     |  |   |       | 
|Cancelled                       |  |                 | (10,592 | )                             |   | 10.68                                   |  |                          |     |  |   |       | 
|Outstanding,
 December 28, 2008 |  |                 | 146,548 |                               | $ | 13.71                                   |  |                          | 4.5 |  | $ | 1,627 | 
|Exercisable,
 December 28, 2008 |  |                 | 89,605  |                               |   | 6.60                                    |  |                          | 3.5 |  |   | 1,623 | 

The
aggregate intrinsic value in the table above is before applicable income taxes,
based on our closing stock price of $24.72 as of the last business day of the
year ended December 28, 2008, which would have been received by the optionees
had all options been exercised on that date. As of December 28, 2008, total
unrecognized stock-based compensation expense related to nonvested stock
options was approximately $443, which is expected to be recognized over a
weighted average period of approximately 1.5 years. During 2008, 2007, and
2006, the total intrinsic value of stock options exercised was $1,567, $5,978,
and $2,707, respectively. During 2008, 2007, and 2006, the total fair value of
options vested was $33, $201, and $587, respectively. During 2008, the weighted
average grant date fair value of options granted was $10.77. No options were
granted during 2007 or 2006.

The
following table summarizes our stock options outstanding at December 28, 2008:

|      |      |        |       |                                            |                     |                                   |                     |        |     |                                 |   |       |  |  |        |  |   |       | 
|----- | ---- | ------ | ----- | ------------------------------------------ | ------------------- | --------------------------------- | ------------------- | ------ | --- | ------------------------------- | - | ----- |  |  | ------ |  | - | ----- | 
|      |      |        |       |                                            | Options outstanding |                                   | Options exercisable |       
|Range |      | Shares |       | Average
remaining
contractual
life (years) |                     | Weighted
 average
 exercise
price |                     | Shares |     | Weighted
average
exercise
price |  
|$     | 1.95 |       | 5.63  |                                            |                     | 56,165                            |                     |        | 2.8 |                                 | $ | 4.48  |  |  | 56,165 |  | $ | 4.48  | 
|      | 6.38 |       | 14.13 |                                            |                     | 32,165                            |                     |        | 4.7 |                                 |   | 9.88  |  |  | 32,165 |  |   | 9.88  | 
|      |      |        | 17.41 |                                            |                     | 1,750                             |                     |        | 6.0 |                                 |   | 17.41 |  |  | 1,275  |  |   | 17.41 | 
|      |      |        | 24.96 |                                            |                     | 56,468                            |                     |        | 6.0 |                                 |   | 24.96 |  |  |       |  |   |      | 
|      |      |        |       |                                            |                     | 146,548                           |                     |        | 4.5 |                                 |   | 13.71 |  |  | 89,605 |  |   | 6.60  | 

The
plan has 1,338,869 shares available for grant as of December 28, 2008.

53

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements 
December 28, 2008 and December 30, 2007 
(Dollar amounts in thousands, except per-share amounts)

(b)
Restricted Stock Units

We
adopted a stock performance plan in June 2004, under which restricted stock
units are granted annually at the discretion of the Board of Directors. For
restricted stock units granted prior to 2008, units vest annually upon
achieving performance targets. The performance targets for these restricted
stock units are annual income targets set by our Board of Directors at the
beginning of the year. We record compensation expense for these restricted
stock units if vesting is expected, based on the achievement of the performance
targets. These restricted stock units may vest one-third annually over a
ten-year period as determined by meeting performance targets. However, the
second one-third of the restricted stock units is not subject to vesting until
the first one-third has vested and the final one-third is not subject to
vesting until the first two-thirds of the award have vested.

In
2008, we granted restricted stock units subject to cumulative one-year,
two-year, and three-year net earnings targets. The number of units that vest
each year is based on performance against those cumulative targets. These
restricted stock units are subject to forfeiture if they have not vested at the
end of the three-year period. Stock-based compensation is recognized for the
expected number of units vesting at the end of each annual period. Restricted
stock units expected to vest at the end of the first year are fully expensed in
the first year. Restricted stock units expected to vest at the end of the
second year are expensed during the first and second years. Restricted stock
units expected to vest at the end of the third year are expensed over all three
years. Therefore, the largest portion of stock-based compensation relating to
each grant is recognized in the first year of the grant.

Restricted
stock units meeting the performance criteria will vest as of the end of our
fiscal year. The distribution of vested restricted stock units as common stock
typically occurs in March of the following year. The common stock is issued to
participants net of the number of shares needed for the required employee
withholding taxes. We issue new shares of common stock upon the disbursement of
restricted stock units. Restricted stock units are contingently issuable
shares, and the activity for fiscal 2008 is as follows:

|                                |  |                    |          |                                            |   |       | 
|------------------------------- |  | ------------------ | -------- | ------------------------------------------ | - | ----- | 
|                                |  | Number 
 of shares |          | Weighted 
 average grant date 
 fair value |  
|                                |  |                    |          |                                            |  
|Outstanding,
 December 30, 2007 |  |                    | 140,692  |                                            | $ | 20.92 | 
|                                |  |                    |          |                                            |   |       | 
|Granted                         |  |                    | 329,688  |                                            |   | 20.42 | 
|Vested                          |  |                    | (163,109 | )                                          |   | 21.08 | 
|Cancelled                       |  |                    | (22,426  | )                                          |   | 21.70 | 
|                                |  |                    |          |                                            |   |       | 
|Outstanding,
 December 28, 2008 |  |                    | 284,845  |                                            | $ | 20.19 | 

As
of December 28, 2008, the total stock-based compensation expense related to
nonvested awards not yet recognized was $2,901, which is expected to be
recognized over a weighted average period of 1.2 years. During fiscal year
2007, the total fair value of shares vested was $3,139. The weighted average
grant date fair value of restricted stock units granted during 2007 and 2006
was $24.88 and $16.99, respectively. During 2008, we recognized $4,510 of
stock-based expense related to restricted stock units.

(c) Employee Stock
Purchase Plan

We
have reserved 600,000 shares of common stock for issuance under the Employee
Stock Purchase Plan (ESPP). The ESPP is available to substantially all
employees subject to employment eligibility requirements. Participants may
purchase our common stock at 85% of the beginning or ending closing price,
whichever is lower, for each six-month period ending in May and November.
During 2008, 2007, and 2006, we issued 43,948, 30,791, and 36,804 shares,
respectively, of common stock under the ESPP and have 389,075 shares available
for future sale.

54

---



BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements 
December 28, 2008 and December 30, 2007 
(Dollar amounts in thousands, except per-share amounts)

(9) Earnings Per Common Share

The
following is a reconciliation of basic and fully diluted earnings per common
share for fiscal 2008, 2007, and 2006:

|                                                        |  |                                     |        |                        |  |                    |  |   |      | 
|------------------------------------------------------- |  | ----------------------------------- | ------ | ---------------------- |  | ------------------ |  | - | ---- | 
|                                                        |  | Fiscal year ended December 28, 2008 |       
|                                                        |  |                                     |       
|                                                        |  | Earnings 
 (numerator)              |        | Shares 
 (denominator) |  | Per-share 
 amount | 
|                                                        |  |                                     |        |                        |  |                    | 
|Net earnings                                            |  | $                                   | 24,435 |                        |  |                    |  |   |      | 
|                                                        |  |                                     |        |                        |  |                    |  |   |      | 
|Earnings per common share                               |  |                                     | 24,435 |                        |  | 17,813,200         |  | $ | 1.37 | 
|Effect of dilutive
 securities  stock options          |  |                                     |       |                        |  | 95,351             |  |   |      | 
|Effect of
 dilutive securities  restricted stock units |  |                                     |       |                        |  | 86,975             |  |   |      | 
|                                                        |  |                                     |        |                        |  |                    |  |   |      | 
|Earnings per common shareassuming
dilution             |  | $                                   | 24,435 |                        |  | 17,995,526         |  | $ | 1.36 | 
|                                                        |  |                                     |        |                        |  |                    |  |   |      | 

|                                                        |  |                                     |        |                        |  |                    |  |   |      | 
|------------------------------------------------------- |  | ----------------------------------- | ------ | ---------------------- |  | ------------------ |  | - | ---- | 
|                                                        |  | Fiscal year ended December 30, 2007 |       
|                                                        |  |                                     |       
|                                                        |  | Earnings 
 (numerator)              |        | Shares 
 (denominator) |  | Per-share 
 amount | 
|                                                        |  |                                     |        |                        |  |                    | 
|Net earnings                                            |  | $                                   | 19,654 |                        |  |                    |  |   |      | 
|                                                        |  |                                     |        |                        |  |                    |  |   |      | 
|Earnings per common share                               |  |                                     | 19,654 |                        |  | 17,553,998         |  | $ | 1.12 | 
|Effect of
 dilutive securities  stock options          |  |                                     |       |                        |  | 189,238            |  |   |      | 
|Effect of
 dilutive securities  restricted stock units |  |                                     |       |                        |  | 89,587             |  |   |      | 
|                                                        |  |                                     |        |                        |  |                    |  |   |      | 
|Earnings per common shareassuming
dilution             |  | $                                   | 19,654 |                        |  | 17,832,825         |  | $ | 1.10 | 
|                                                        |  |                                     |        |                        |  |                    |  |   |      | 

|                                                        |  |                                     |        |                        |  |                    |  |   |      | 
|------------------------------------------------------- |  | ----------------------------------- | ------ | ---------------------- |  | ------------------ |  | - | ---- | 
|                                                        |  | Fiscal year ended December 31, 2006 |       
|                                                        |  |                                     |       
|                                                        |  | Earnings 
 (numerator)              |        | Shares 
 (denominator) |  | Per-share 
 amount | 
|                                                        |  |                                     |        |                        |  |                    | 
|Net earnings                                            |  | $                                   | 16,273 |                        |  |                    |  |   |      | 
|                                                        |  |                                     |        |                        |  |                    |  |   |      | 
|Earnings per common share                               |  |                                     | 16,273 |                        |  | 17,156,656         |  | $ | 0.95 | 
|Effect of
 dilutive securities  stock options          |  |                                     |       |                        |  | 369,748            |  |   |      | 
|Effect of
 dilutive securities  restricted stock units |  |                                     |       |                        |  | 102,270            |  |   |      | 
|                                                        |  |                                     |        |                        |  |                    |  |   |      | 
|Earnings per common shareassuming
dilution             |  | $                                   | 16,273 |                        |  | 17,628,674         |  | $ | 0.92 | 
|                                                        |  |                                     |        |                        |  |                    |  |   |      | 

The following is a summary of those
securities outstanding at the end of the respective periods, which have been
excluded from the fully diluted calculations because the effect on net earnings
per common share would have been antidilutive:

|                        |  |                    |         |                    |  |                    |  |  |         | 
|----------------------- |  | ------------------ | ------- | ------------------ |  | ------------------ |  |  | ------- | 
|                        |  | December 28,
 2008 |         | December 30,
 2007 |  | December 31,
 2006 | 
|                        |  |                    |         |                    |  |                    | 
|Stock
 options          |  |                    | 50,614  |                    |  |                   |  |  | 2,972   | 
|Restricted
 stock units |  |                    | 284,845 |                    |  | 140,692            |  |  | 168,212 | 

55

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements 
December 28, 2008 and December 30, 2007 
(Dollar amounts in thousands, except per-share amounts)

(10) Supplemental Disclosures of Cash Flow
Information

|                                                                  |  |                    |       |                    |   |                    |  |   |       | 
|----------------------------------------------------------------- |  | ------------------ | ----- | ------------------ | - | ------------------ |  | - | ----- | 
|                                                                  |  | Fiscal Years Ended |      
|                                                                  |  |                    |      
|                                                                  |  | December 28,
 2008 |       | December 30,
 2007 |   | December 31,
 2006 | 
|                                                                  |  |                    |       |                    |   |                    | 
|Cash paid
 during the period for:                                 |  |                    |       |                    |   |                    |  |   |       | 
|Income taxes                                                      |  | $                  | 4,681 |                    | $ | 10,783             |  | $ | 8,803 | 
|                                                                  |  |                    |       |                    |   |                    |  |   |       | 
|Noncash
 financing and investing transactions:                    |  |                    |       |                    |   |                    |  |   |       | 
|Property and equipment not yet paid for                           |  |                    | 5,190 |                    |   | 1,135              |  |   | 1,130 | 
|Tax withholding for restricted stock units                        |  |                    | 1,360 |                    |   | 1,100              |  |   | 2,267 | 
|Adjustment of restricted stock units to
 fair value on grant date |  |                    |      |                    |   |                   |  |   | 2,568 | 

(11) Loss on Asset Disposals and Impairment

In
2008, 2007 and 2006, we closed restaurants. As a result, a charge was taken for
remaining lease obligations, broker fees, and utilities. These charges were
recognized as a part of the loss on asset disposals and impairment and were
based on remaining lease obligations.

The rollforward of the store closing
reserve for the years ended December 28, 2008, December 30, 2007, and December
31, 2006, is as follows:

|                                          |  |                            |   |               |   |                  |  |                            |     |   |   |   | 
|----------------------------------------- |  | -------------------------- | - | ------------- | - | ---------------- |  | -------------------------- | --- | - | - | - | 
|                                          |  | As of 
 December 30,
 2007 |   | 2008
 expense |   | Costs 
 incurred |  | As of 
 December 28,
 2008 |    
|                                          |  |                            |   |               |   |                  |  |                            |    
|Remaining
 lease obligation and utilities |  | $                          |  |               | $ | 85               |  | $                          | (85 | ) | $ |  | 
|                                          |  |                            |   |               |   |                  |  |                            |     |   |   |   | 
|                                          |  | $                          |  |               | $ | 85               |  | $                          | (85 | ) | $ |  | 
|                                          |  |                            |   |               |   |                  |  |                            |     |   |   |   | 

|                                          |  |                            |    |               |   |                  |  |                            |      |   |   |   | 
|----------------------------------------- |  | -------------------------- | -- | ------------- | - | ---------------- |  | -------------------------- | ---- | - | - | - | 
|                                          |  | As of 
 December 31,
 2006 |    | 2007
 expense |   | Costs 
 incurred |  | As of 
 December 30,
 2007 |     
|                                          |  |                            |    |               |   |                  |  |                            |     
|Remaining
 lease obligation and utilities |  | $                          | 54 |               | $ | 85               |  | $                          | (139 | ) | $ |  | 
|                                          |  |                            |    |               |   |                  |  |                            |      |   |   |   | 
|                                          |  | $                          | 54 |               | $ | 85               |  | $                          | (139 | ) | $ |  | 
|                                          |  |                            |    |               |   |                  |  |                            |      |   |   |   | 

|                                          |  |                            |   |               |   |                  |  |                            |   |  |   |    | 
|----------------------------------------- |  | -------------------------- | - | ------------- | - | ---------------- |  | -------------------------- | - |  | - | -- | 
|                                          |  | As of 
 December 25,
 2005 |   | 2006
 expense |   | Costs 
 incurred |  | As of 
 December 31,
 2006 |  
|                                          |  |                            |   |               |   |                  |  |                            |  
|Remaining
 lease obligation and utilities |  | $                          |  |               | $ | 54               |  | $                          |  |  | $ | 54 | 
|                                          |  |                            |   |               |   |                  |  |                            |   |  |   |    | 
|                                          |  | $                          |  |               | $ | 54               |  | $                          |  |  | $ | 54 | 
|                                          |  |                            |   |               |   |                  |  |                            |   |  |   |    | 

During
2008, we recorded an impairment charge for the assets of two underperforming
restaurants. An impairment charge of $154 was recorded to the extent that the
carrying amount of the assets was not considered recoverable based on estimated
discounted future cash flows and the underlying fair value of the assets. We
also recorded an impairment charge of $395 for the assets of one restaurant
being relocated. No impairment charges were incurred during 2007.

During
2006, we recorded an impairment charge for the assets of one underperforming
restaurant. An impairment charge of $481 was recorded to the extent that the
carrying amount of the assets was not considered recoverable based on estimated
discounted future cash flows and the underlying fair value of the assets.

56

---



BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

A
summary of the loss on asset disposals and impairment charges recognized by us
is as follows:

|                             |  |                    |       |                    |   |                    |  |   |       | 
|---------------------------- |  | ------------------ | ----- | ------------------ | - | ------------------ |  | - | ----- | 
|                             |  | Fiscal Years Ended |      
|                             |  | December 28,
 2008 |       | December 30,
 2007 |   | December 31,
 2006 | 
|Store
 closing charges       |  | $                  | 85    |                    | $ | 85                 |  | $ | 54    | 
|Long-lived
 asset impairment |  |                    | 549   |                    |   |                   |  |   | 481   | 
|Other asset
 write-offs      |  |                    | 1,449 |                    |   | 902                |  |   | 473   | 
|                             |  |                    |       |                    |   |                    |  |   |       | 
|                             |  | $                  | 2,083 |                    | $ | 987                |  | $ | 1,008 | 

(12) Defined Contribution Plans

We
have a defined contribution 401(k) plan whereby eligible employees may
contribute pretax wages in accordance with the provisions of the plan. We match
100% of the first 3% and 50% of the next 2% of contributions made by eligible
employees. Matching contributions of approximately $702, $840, and $394 were
made by us during 2008, 2007, and 2006, respectively.

Under
our Management Deferred Compensation Plan, our executive officers and certain
other individuals are entitled to receive an amount equal to a percentage of
their base salary ranging from 5% to 12.5% which is credited on a monthly basis
to their deferred compensation account. Cash contributions of $335, $261, and
$245 were made by us during 2008, 2007, and 2006, respectively. Such amounts
are subject to certain vesting provisions, depending on length of employment
and circumstances of employment termination. In addition, individuals may elect
to defer a portion or all of their cash compensation.

(13) Related Party Transactions

It
is our policy that all related party transactions must be disclosed and
approved by the disinterested directors, and the terms and considerations for
such related party transactions are compared and evaluated to terms available
or the amounts that would have to be paid or received, as applicable, in
arms-length transactions with independent third-parties.

A
member of our board of directors, Warren Mack, is an officer at our primary law
firm.

(14) Designation of Shares and Stock Split

On
May 15, 2008, the Board of Directors authorized an increase to 45,000,000
authorized shares which consists of 44,000,000 shares of Common Stock and
1,000,000 shares of Undesignated Stock.

On
June 15, 2007, we effected a two-for-one stock split of our common stock for
holders of record on June 1, 2007. 
All applicable share and per-share data in the accompanying consolidated financial
statements and related disclosures have been retroactively adjusted to give
effect to this stock split.

On
May 17, 2007, the Board of Directors authorized 4,600,000 shares of the
5,600,000 undesignated shares be designated as additional common stock.

(15) Contingencies

We
are involved in various legal matters 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 our consolidated financial
position and results of operations.

57

---



BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)

(16) Acquisition of Franchised Restaurants in
Nevada

On
September 23, 2008, we acquired the assets of nine Buffalo Wild Wings
franchised restaurants located in Las Vegas, Nevada. The total purchase price
of $23,071, which includes direct acquisition costs of $426, was paid in cash
and was funded by cash and the sale of marketable securities. The acquisition
was accounted for as a business combination. The assets acquired were recorded
based on their fair values at the time of the acquisition as detailed below:

|                                                   |  |   |        | 
|-------------------------------------------------- |  | - | ------ | 
|Inventory,
 prepaids, and other assets             |  | $ | 436    | 
|Equipment,
 leasehold improvements, and a building |  |   | 4,517  | 
|Deferred
 lease credits                            |  |   | 475    | 
|Reacquired
 franchise rights                       |  |   | 7,040  | 
|Goodwill                                           |  |   | 10,603 | 
|                                                   |  | $ | 23,071 | 

The
excess of the purchase price over the aggregate fair value of assets acquired
was allocated to goodwill. The results of operations of these locations are
included in our consolidated statement of earnings as of the date of
acquisition.

(17) Acquisition of Don Pablos Locations

During
February 2008, we acquired certain leases and assets of eight Don Pablos
locations from Avado Brands, Inc. for approximately $1,200, which was paid in
cash. Due to this acquisition, we recorded an impairment charge for the assets
of one restaurant being relocated. The impairment charge of $395 was recorded
in the first quarter of 2008 to the extent that the carrying amount was not
considered recoverable based on estimated future discounted cash flows. Three
restaurants were relocated due to this acquisition, resulting in a charge of
$85 for remaining lease obligations and utilities.

58

---



|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH
 ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|        |                                                                                      

Not
applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and
Procedures

We
have established and maintain disclosure controls and procedures that are
designed to ensure that material information relating to us and our
subsidiaries required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized, and reported within the time periods specified in the SECs rules
and forms, and that such information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can only provide reasonable assurance of achieving the desired
control objectives, and in reaching a reasonable level of assurance, management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

We
carried out an evaluation, under the supervision and with the participation of
our management, including our chief executive officer and chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the chief executive officer and chief financial
officer concluded that our disclosure controls and procedures were effective as
of the date of such evaluation to provide reasonable assurance that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified by the Securities and Exchange Commissions rules
and forms.

Managements Report on Internal Control over
Financial Reporting

Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
a process designed by, or under the supervision of, our chief executive and
chief financial officers and effected by our board of directors, management and
other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles and
includes those policies and procedures that:

| |   |                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pertain to
 the maintenance of records that in reasonable detail accurately and fairly
 reflect the transactions and dispositions of our assets;                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                               
| |  | provide
 reasonable assurance that transactions are recorded as necessary to permit
 preparation of financial statements in accordance with generally accepted
 accounting principles, and that our receipts and expenditures are being made
 only in accordance with the authorizations of our management and directors;
 and
| |   |                                                                                                                                                                                                                                                                                                                               
| |  | provide
 reasonable assurance regarding prevention or timely detection of unauthorized
 acquisition, use or disposition of our assets that could have a material
 effect on our financial statements.                                                                                                                         

Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with
policies or procedures may deteriorate. However, these inherent limitations are
known features of the financial reporting process. It is possible to design
into the process safeguards to reduce, thought not eliminate, the risk that
misstatements are not prevented or detected on a timely basis. Management is
responsible for establishing and maintaining adequate internal control over
financial reporting for the company.

Management
assessed the effectiveness of our internal control over financial reporting as of
December 28, 2008. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control-Integrated Framework.
Based on this assessment, our management concluded that, as of December 28,
2008, our internal control over financial reporting was effective to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation and presentation of financial statements for external purposes in accordance
with generally accepted accounting principles. Our independent registered public accounting firm, KPMG LLP, has issued an audit report on the effectiveness of our internal control over financial reporting. That report appears below.

59

---



Change in Internal Control Over Financial
Reporting

There
were no changes in the our internal control over financial reporting that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

Report of Independent Registered Public
Accounting Firm

The Board of
Directors and Stockholders 
Buffalo Wild Wings, Inc.:

We
have audited Buffalo Wild Wings, Inc. and subsidiaries (the Company) internal
control over financial reporting as of December 28, 2008, based on the criteria
established in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Managements Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board 
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A
companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control
over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a
material effect on the consolidated financial statements.

Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 28, 2008, based on the
criteria established in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).

We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board 
(United States), the consolidated balance sheets of Buffalo Wild Wings, Inc.
and subsidiaries as of December 28, 2008 and December 30, 2007, and the
related consolidated statements of earnings, stockholders equity, and cash
flows for each of the years in the three-year period ended December 28,
2008, and our report dated February 27, 2009 expressed an unqualified opinion
on those consolidated financial statements.

| |             
| | ------------
| | /s/ KPMG LLP

Minneapolis,
Minnesota 
February 27, 2009

60

---



ITEM 9B. OTHER INFORMATION

Not
applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE

Information
required by this item is contained in Part I of this document under the heading
Executive Officers, and the sections entitled Election of Directors,
Compliance with Section 16(a) of the Exchange Act, and Corporate Governance
appearing in our Proxy Statement to be delivered to shareholders in connection
with the 2009 Annual Meeting of Shareholders. Such information is incorporated
herein by reference.

Our
Board of Directors has adopted a Code of Ethics & Business Conduct for all
employees and directors. A copy of this document is available on our website at
www.buffalowildwings.com, free of
charge, under the Corporate Governance Investors section. We will satisfy any
disclosure requirements under Item 10 or Form 8-K regarding an amendment to, or
waiver from, any provision of the Code with respect to our principal executive
officer, principal financial officer, principal accounting officer and persons
performing similar functions by disclosing the nature of such amendment or
waiver on our website or in a report on Form 8-K.

Our
Board of Directors has determined that Mr. J. Oliver Maggard, a member of the
Audit Committee and an independent director, is an audit committee financial
expert, as defined under 407(d) (5) of Regulation S-K. Mr. Maggard is an
independent director as that term is defined in Nasdaq Rule 4200(a)(15). The
designation of Mr. Maggard as the audit committee financial expert does not
impose on Mr. Maggard any duties, obligations or liability that are greater
than the duties, obligations and liability imposed on Mr. Maggard as a member
of the Audit Committee and the Board of Directors in the absence of such
designation or identification.

ITEM 11. EXECUTIVE COMPENSATION

The
information required by this item is contained in the section entitled
Executive Compensation appearing in our Proxy Statement to be delivered to
shareholders in connection with the 2009 Annual Meeting of Shareholders. Such
information is incorporated herein by reference.

|         |                                                                                                
|-------- | -----------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
 OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The
information required by this item relating to the security ownership of certain
holders is contained in the sections entitled Principal Shareholders and
Management Shareholdings and Equity Compensation Plan Information appearing
in our Proxy Statement to be delivered to shareholders in connection with the
2009 Annual Meeting of Shareholders. Such information is incorporated herein by
reference.

|         |                                                                           
|-------- | --------------------------------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
 AND DIRECTOR INDEPENDENCE

The
information required by this item is contained in the sections entitled
Corporate Governance and Certain Transactions appearing in our Proxy
Statement to be delivered to shareholders in connection with the 2009 Annual
Meeting of Shareholders. Such information is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

The
information required by this item is contained in the section entitled
Independent Registered Public Accounting Firm appearing in our Proxy
Statement to be delivered to shareholders in connection with the 2009 Annual
Meeting of Shareholders. Such information is incorporated herein by reference.

61

---



PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES

(a)
Financial Statements. The
following consolidated financial statements of ours are filed with this report
and can be found at Item 8 of this Form 10-K.

| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Report
 of Independent Registered Public Accounting Firm dated February 27, 2009                                                        
| |                                                                                                                                         
| | Consolidated
 Balance Sheets as of December 28, 2008 and December 30, 2007                                                              
| |                                                                                                                                         
| | Consolidated
 Statements of Earnings for the Fiscal Years Ended December 28, 2008,
 December 30, 2007, and December 31, 2006            
| |                                                                                                                                         
| | Consolidated
 Statements of Stockholders Equity for the Fiscal Years Ended December 28,
 2008, December 30, 2007, and December 31, 2006
| |                                                                                                                                         
| | Consolidated
 Statements of Cash Flows for the Fiscal Years Ended December 28, 2008,
 December 30, 2007, and December 31, 2006          
| |                                                                                                                                         
| | Notes
 to Consolidated Financial Statements                                                                                             
| |                                                                                                                                         
| | (b)Financial Statement Schedules. The
 following schedule is included following the exhibits to this Form 10-K.                         
| |                                                                                                                                         
| | Schedule
 II  Valuation and Qualifying Accounts                                                                                        

All
other schedules for which provision is made in the applicable accounting
regulations of the SEC have been omitted as not required or not applicable, or
the information required has been included elsewhere by reference in the financial
statements and related notes.

(c)
Exhibits. See Exhibit Index
following the signature page of this Form 10-K for a description of the
documents that are filed as Exhibits to this report on Form 10-K or
incorporated by reference herein.

62

---



SIGNATURES

In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|                         |                         
|------------------------ | ------------------------
|Date:
 February 27, 2009 | BUFFALO WILD WINGS, INC.
|                         |                         
|                         | By                      
|                         |                         
|                         |                         

In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated below.

Each
person whose signature appears below constitutes and appoints Sally J. Smith
and Mary J. Twinem as the undersigneds true and lawful attorneys-in fact and
agents, each acting alone, with full power of substitution and resubstitution,
for the undersigned and in the undersigneds name, place and stead, in any and
all amendments to this Annual Report on Form 10-K and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granted unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all said attorneys-in-fact
and agents, each acting alone, or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.

|                        |                                                                                                                  |       |         |     
|----------------------- | ---------------------------------------------------------------------------------------------------------------- | ----- | ------- | ----
|Name                    |                                                                                                                  | Title |         | Date
|                        |                                                                                                                  |       |         |     
|/s/ SALLY J. SMITH      | Chief Executive Officer, President 
 and Director (principal executive officer)                                  |       | 2/27/09
|Sally
 J. Smith         |                                                                                                                  |       |         |     
|                        |                                                                                                                  |       |         |     
|/s/ MARY J. TWINEM      | Executive Vice President, Chief Financial 
 Officer and Treasurer (principal financial 
 and accounting officer) |       | 2/27/09
|Mary
 J. Twinem         |                                                                                                                  |      
|                        |                                                                                                                  |       |         |     
|                        |                                                                                                                  |       |         |     
|/s/ DALE M. APPLEQUIST  | Director                                                                                                         |       | 2/27/09
|Dale
 M. Applequist     |                                                                                                                  |       |         |     
|                        |                                                                                                                  |       |         |     
|/s/ JAMES M. DAMIAN     | Director,
 Chairman of the Board                                                                                 |       | 2/27/09
|James
 M. Damian        |                                                                                                                  |       |         |     
|                        |                                                                                                                  |       |         |     
|/s/ MICHAEL P. JOHNSON  | Director                                                                                                         |       | 2/27/09
|Michael
 P. Johnson     |                                                                                                                  |       |         |     
|                        |                                                                                                                  |       |         |     
|/s/ ROBERT W. MACDONALD | Director                                                                                                         |       | 2/27/09
|Robert
 W. MacDonald    |                                                                                                                  |       |         |     
|                        |                                                                                                                  |       |         |     
|/s/ WARREN E. MACK      | Director                                                                                                         |       | 2/27/09
|Warren
 E. Mack         |                                                                                                                  |       |         |     
|                        |                                                                                                                  |       |         |     
|/s/ J. OLIVER MAGGARD   | Director                                                                                                         |       | 2/27/09
|J.
 Oliver Maggard      |                                                                                                                  |       |         |     

63

---



Buffalo Wild Wings, Inc.

SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS

|                                 |  |  |                                    |  |                                              |    |                             |  |                            |  |  |     |  |  |    | 
|-------------------------------- |  |  | ---------------------------------- |  | -------------------------------------------- | -- | --------------------------- |  | -------------------------- |  |  | --- |  |  | -- | 
|Description                      |  |  | Balance
 at
 Beginning 
 of Period |  | Additions
 Charged
 to Costs
 and 
 Expenses |    | Deductions
 From 
 Reserves |  | Balance
 at End of
 Period | 
|Allowance
 for doubtful accounts |  |  | 2008                               |  | $                                            | 25 |                             |  | 544                        |  |  | 544 |  |  | 25 | 
|                                 |  |  | 2007                               |  |                                              | 47 |                             |  |                           |  |  | 22  |  |  | 25 | 
|                                 |  |  | 2006                               |  |                                              | 25 |                             |  | 51                         |  |  | 29  |  |  | 47 | 
|                                 |  |  |                                    |  |                                              |    |                             |  |                            |  |  |     |  |  |    | 
|Store
 closing reserves          |  |  | 2008                               |  |                                              |   |                             |  | 85                         |  |  | 85  |  |  |   | 
|                                 |  |  | 2007                               |  |                                              | 54 |                             |  | 85                         |  |  | 139 |  |  |   | 
|                                 |  |  | 2006                               |  |                                              |   |                             |  | 54                         |  |  |    |  |  | 54 | 

64

---



BUFFALO WILD WINGS, INC.EXHIBIT INDEX TO FORM 10-K

|                            |                     
|--------------------------- | --------------------
|For the
 Fiscal Year Ended: | Commission
 File No.
|December 28,
 2008          | 000-24743           
|                            |                     

|                 |  |                                                                                                                                                                                                                                    
|---------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |  |                                                                                                                                                                                                                                    
|Exhibit 
 Number |  | Description                                                                                                                                                                                                                        
|3.1              |  | Restated
 Articles of Incorporation, as Amended (incorporated by reference to Exhibit
 3.1 to our Form 10-Q for the fiscal quarter ended June 29, 2008)                                                                            
|                 |  |                                                                                                                                                                                                                                    
|3.2              |  | Restated
 Bylaws, as Amended (incorporated by reference to Exhibit 3.1 to our current
 report on Form 8-K filed February 28, 2007)                                                                                                 
|                 |  |                                                                                                                                                                                                                                    
|4.1              |  | Form of
 specimen certificate representing Buffalo Wild Wings, Inc.s common stock (1)                                                                                                                                             
|                 |  |                                                                                                                                                                                                                                    
|10.1             |  | Forms of
 stock option agreements under 2003 Equity Incentive Plan (1)(2)                                                                                                                                                          
|                 |  |                                                                                                                                                                                                                                    
|10.2             |  | Employee
 Stock Purchase Plan and Amendment No. 1 (1) (2)                                                                                                                                                                          
|                 |  |                                                                                                                                                                                                                                    
|10.3             |  | Form of 2005
 Restricted Stock Unit Award Notice to Directors used under the 2003 Equity
 Incentive Plan(incorporated by reference to Exhibit 10.16 to our Form 10-K
 for the fiscal year ended December 25, 2005) (2)             
|                 |  |                                                                                                                                                                                                                                    
|10.4             |  | The
 Executive Nonqualified Excess Plan (incorporated by reference to Exhibit 10.1
 to our Form 10-Q for the fiscal quarter ended September 24, 2006) (2)                                                                          
|                 |  |                                                                                                                                                                                                                                    
|10.5             |  | The
 Executive Nonqualified Excess Plan Adoption Agreement (incorporated by
 reference to Exhibit 10.2 to our Form 10-Q for the fiscal quarter ended
 September 24, 2006) (2)                                                      
|                 |  |                                                                                                                                                                                                                                    
|10.6             |  | 2003 Equity
 Incentive Plan, as Amended Through March 17, 2007 (incorporated by reference
 to Appendix A to our Proxy Statement filed on April 20, 2007) (2)                                                                       
|                 |  |                                                                                                                                                                                                                                    
|10.7             |  | Form of
 Restricted Stock Unit Award Notice to Employees under the 2003 Equity Incentive
 Plan as of January 1, 2007 (incorporated by reference to Exhibit 10.12 to our
 Form 10-K for the fiscal year ended December 30, 2007) (2)
|                 |  |                                                                                                                                                                                                                                    
|10.8             |  | 2007
 Executive Bonus Plan (incorporated by reference to Exhibit 10.1 to our Form
 8-K filed December 13, 2006) (2)                                                                                                                
|                 |  |                                                                                                                                                                                                                                    
|10.9             |  | 2008
 Executive Cash Incentive Program (incorporated by reference to Exhibit 10.1
 to our Current Report on Form 8-K filed December 12, 2007) (2)                                                                                  
|                 |  |                                                                                                                                                                                                                                    
|10.10            |  | Cash
 Incentive Plan (incorporated by reference to Appendix B to our Proxy Statement
 filed on April 20, 2007) (2)                                                                                                                 
|                 |  |                                                                                                                                                                                                                                    
|10.11            |  | Director
 Compensation Arrangements as of December 31, 2007 (incorporated by reference
 to Exhibit 10.19 to our Form 10-K for the fiscal year ended December 30,
 2007) (2)                                                        
|                 |  |                                                                                                                                                                                                                                    
|10.12            |  | Executive
 Officer Compensation Arrangements for Fiscal Year 2008 (incorporated by
 reference to Exhibit10.20 to our Form 10-K for the fiscal year ended December
 30, 2007) (2)                                                   
|                 |  |                                                                                                                                                                                                                                    
|10.13            |  | Employment
 Agreement, dated as of September 27, 2007 with Mounir N. Sawda (incorporated
 by reference to Exhibit 10.21 to our Form 10-K for the fiscal year ended
 December 30, 2007) (2)                                         
|                 |  |                                                                                                                                                                                                                                    
|10.14            |  | Form of
 Notice of Performance-Based Restricted Stock Unit Award under the 2003 Equity
 Incentive Plan(incorporated by reference to Exhibit 10.1 to our Form 8-K
 filed on February 22, 2008) (2)                                  
|                 |  |                                                                                                                                                                                                                                    
|10.15            |  | Form of
 Notice of Incentive Stock Option Award under the 2003 Equity Incentive Plan
 (incorporated by reference to Exhibit 10.2 to our Form 8-K filed on February
 22, 2008) (2)                                                  
|                 |  |                                                                                                                                                                                                                                    
|10.16            |  | 2003 Equity
 Incentive Plan, as Amended and Restated on May 15, 2008 (incorporated by
 reference to Exhibit10.1 to our Form 8-K filed May 21, 2008)(2)                                                                             
|                 |  |                                                                                                                                                                                                                                    
|10.17            |  | The
 Executive Nonqualified Excess Plan as of May 15, 2008 (incorporated by
 reference to Exhibit 10.2 to our Form 8-K filed May 21, 2008)(2)                                                                                      

65

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|       |  |                                                                                                                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                            
|10.18  |  | The
 Executive Nonqualified Excess Plan Adoption Agreement as of May 15, 2008
 (incorporated by reference to Exhibit 10.3 to our Form 8-K filed May 21,
 2008)(2)                                                          
|       |  |                                                                                                                                                                                                                            
|10.19  |  | Employment
 Agreement dated September 16, 2008 with Sally J. Smith (incorporated by
 reference to Exhibit10.1 to our Form 8-K filed September 22, 2008)(2)                                                                 
|       |  |                                                                                                                                                                                                                            
|10.20  |  | Employment
 Agreement dated September 16, 2008 with Mary J. Twinem (incorporated by
 reference to Exhibit 10.2 to our Form 8-K filed September 22, 2008)(2)                                                                
|       |  |                                                                                                                                                                                                                            
|10.21  |  | Employment
 Agreement dated September 16, 2008 with James M. Schmidt (incorporated by
 reference to Exhibit 10.3 to our Form 8-K filed September 22, 2008)(2)                                                              
|       |  |                                                                                                                                                                                                                            
|10.22  |  | Employment
 Agreement dated September 16, 2008 with Judith A. Shoulak (incorporated by
 reference to Exhibit 10.4 to our Form 8-K filed September 22, 2008)(2)                                                             
|       |  |                                                                                                                                                                                                                            
|10.23  |  | Employment
 Agreement dated September 16, 2008 with Kathleen M. Benning (incorporated by
 reference to Exhibit 10.5 to our Form 8-K filed September 22, 2008)(2)                                                           
|       |  |                                                                                                                                                                                                                            
|10.24  |  | Employment
 Agreement dated September 16, 2008 with Linda G. Traylor (incorporated by
 reference to Exhibit 10.7 to our Form 10-Q for the fiscal quarter ended
 September 28, 2008)(2)                                     
|       |  |                                                                                                                                                                                                                            
|10.25  |  | Employment
 Agreement dated September 16, 2008 with Mounir N. Sawda (incorporated by
 reference to Exhibit 10.7 to our Form 10-Q for the fiscal quarter ended
 September 28, 2008)(2)                                      
|       |  |                                                                                                                                                                                                                            
|10.26  |  | Form of
 Amendment to Notice of Restricted Stock Unit Award Relating to Awards in
 Fiscal Years 2006 and2007 to Executive Officers (incorporated by reference to
 Exhibit 10.6 to our Form 8-K filed September 22, 2008)(2)
|       |  |                                                                                                                                                                                                                            
|10.27  |  | Amendment
 No. 1 to 2003 Equity Incentive Plan (incorporated by reference to Exhibit
 10.1 to our Form 8-K filed on December 10, 2008)(2)                                                                                  
|       |  |                                                                                                                                                                                                                            
|10.28* |  | Director
 Compensation Arrangements for Fiscal Year 2009(2)                                                                                                                                                                
|       |  |                                                                                                                                                                                                                            
|10.29* |  | Executive
 Officer Compensation Arrangements for Fiscal Year 2009(2)                                                                                                                                                       
|       |  |                                                                                                                                                                                                                            
|10.30* |  | 2009
 Executive Cash Incentive Program(2)                                                                                                                                                                                  
|       |  |                                                                                                                                                                                                                            
|21.1   |  | List of
 Subsidiaries (incorporated by reference to Exhibit 21.1 to our Form 10-K for
 the fiscal year ended December 26, 2004)                                                                                            
|       |  |                                                                                                                                                                                                                            
|23.1*  |  | Consent of
 KPMG LLP, Independent Registered Public Accounting Firm                                                                                                                                                        
|       |  |                                                                                                                                                                                                                            
|24.1*  |  | Power of
 Attorney (included on the signature page)                                                                                                                                                                        
|       |  |                                                                                                                                                                                                                            
|31.1*  |  | Certification
 of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002                                                                                                                       
|       |  |                                                                                                                                                                                                                            
|31.2*  |  | Certification
 of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002                                                                                                                       
|       |  |                                                                                                                                                                                                                            
|32.1*  |  | Certification
 of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
 of 2002                                                                                                                       
|       |  |                                                                                                                                                                                                                            
|32.2*  |  | Certification
 of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
 of 2002                                                                                                                       

|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|   
|*   | Filed
 herewith.                                                                                                               
|    |                                                                                                                                
|(1) | Incorporated
 by reference to the corresponding exhibit numbers to our Registration
 Statement on Form S-1, Reg. No. 333-108695
|    |                                                                                                                                
|(2) | Management
 agreement or compensatory plan or arrangement.                                                                     

66

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