| BUILD A BEAR WORKSHOP INC ITEM 1A RISK FACTORS We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations |
| The risks, uncertainties and other factors set forth below may cause our actual results, performances or achievements to be materially different from those expressed or implied by our forward-looking statements |
| If any of these risks or events occur, our business, financial condition or results of operations may be adversely affected |
| Risks Related to Our Business If we are not able to generate or maintain comparable store sales growth, our results of operations could be adversely affected |
| Our comparable store sales for fiscal 2005 declined by 0dtta2prca, following an increase of 18dtta1prca in fiscal 2004 |
| The increase in 2004 was principally as a result of the nationwide multi-media marketing program we initiated in February 2004 and an improved economy |
| Our comparable store sales declined 15dtta9prca in fiscal 2003 |
| We believe the principal factors that will affect comparable store results are the following: • the continuing appeal of our concept; • the effectiveness of our marketing efforts to attract new and repeat guests; • consumer confidence and general economic conditions; • our ability to anticipate and to respond, in a timely manner, to consumer trends; • the continued introduction and expansion of our merchandise offerings; • the impact of new stores that we open in existing markets; • mall traffic; • competition; • the timing and frequency of national media appearances and other public relations events; and • weather conditions |
| As a result of these and other factors, we may not be able to generate or maintain comparable stores sales growth in the future |
| If we are unable to do so, our results of operations could be significantly harmed |
| Our future growth and profitability could be adversely affected if our marketing initiatives are not effective in generating sufficient levels of brand awareness and guest traffic |
| In February 2004, after development and testing in selected markets, we introduced nationwide a multi-media marketing program targeting our core demographic guests, principally parents and children, which contributed to an increase in our comparable store sales in fiscal 2004 |
| Our future growth and profitability will depend in large part upon the effectiveness and efficiency of this marketing program and future marketing efforts that we undertake, including our ability to: • create greater awareness of our brand, interactive shopping experience and products; • identify the most effective and efficient level of spending in each market; • determine the appropriate creative message and media mix for marketing expenditures; • effectively manage marketing costs (including creative and media) in order to maintain acceptable operating margins and return on marketing investment; • select the right geographic areas in which to market; and • convert consumer awareness into actual store visits and product purchases |
| Our planned marketing expenditures may not result in increased total or comparable store sales or generate sufficient levels of product and brand name awareness |
| We may not be able to manage our marketing expenditures on a cost-effective basis |
| Our growth strategy requires us to open a significant number of new stores in the United States and Canada each year |
| If we are not able to open new stores or to effectively manage this growth, it could adversely affect our ability to grow and could significantly harm our profitability |
| Our growth will largely depend on our ability to open and operate new stores successfully in the United States and Canada |
| We plan to open approximately 30 new stores in the United States and Canada in fiscal 2006 and anticipate further store openings in subsequent years |
| Our ability to identify and open new stores 11 _________________________________________________________________ [51]Table of Contents in desirable locations and operate such new stores profitably is a key factor in our ability to grow successfully |
| We cannot assure you as to when or whether desirable locations will become available, the number of Build-A-Bear Workshop stores that we can or will ultimately open, or whether any such new stores can be profitably operated |
| We have not always succeeded in identifying desirable locations or in operating our stores successfully in those locations |
| For example, as of March 10, 2006, we have closed two stores since our inception |
| We cannot assure you that we will not have other stores in the future that we may decide to close |
| Our ability to open new stores and to manage our growth also depends on our ability to: • negotiate acceptable lease terms, including desired tenant improvement allowances; • finance the preopening costs, capital expenditures and working capital requirements of the stores; • manage inventory to meet the needs of new and existing stores on a timely basis; • hire, train and retain qualified store personnel; • develop cooperative relationships with our landlords; and • successfully integrate new stores into our existing operations |
| In July 2005, we opened our flagship store in New York City |
| This store is much larger than our typical mall-based stores and includes additional facilities, such as a restaurant, that we do not operate in our typical mall-based stores |
| Because we have little experience with this type of store, we may be unable to generate revenues from this store at a level that justifies keeping the store open |
| Closing this store could not only have an adverse impact on our profitability, as the costs of opening this store were much larger than those for a typical store, but, as our flagship store, it could also have an adverse impact on the Build-A-Bear Workshop brand and consumer perception of our brand |
| Increased demands on our operational, managerial and administrative resources as a result of our growth strategy could cause us to operate our business less effectively, which in turn could cause deterioration in our profitability |
| If we are not able to franchise new stores outside of the United States and Canada, if we are unable to effectively manage our international franchises or if the laws relating to our international franchises change, our growth and profitability could be adversely affected and we could be exposed to additional liability |
| In 2003, we began to expand the Build-A-Bear Workshop brand outside of the United States, opening our own stores in Canada and our first franchised location in the United Kingdom |
| We intend to continue expanding outside of the United States and Canada through franchising in several countries over the next several years |
| In addition, on March 3, 2006, we entered into a definitive agreement to acquire The Bear Factory Limited (The Bear Factory), a stuffed animal retailer in the UK owned by The Hamleys Group Limited |
| In a related agreement, Build-A-Bear Workshop will also acquire Amsbra Limited (Amsbra), our UK franchisee |
| These transactions, which are subject to regulatory approval in the UK, are expected to close late in the first quarter or early in the second quarter of fiscal 2006 |
| As of March 10, 2006 |
| there were 30 Build-A-Bear Workshop franchised stores located outside of the United States and Canada, of which 11 stores were owned by our UK franchisee |
| We have limited experience in franchising and we may not be successful in maintaining and implementing our international franchising strategy |
| In addition, we cannot assure you that our franchisees will be successful in identifying and securing desirable locations or in operating their stores |
| These markets frequently have different demographic characteristics, competitive conditions, consumer tastes and discretionary spending patterns than our existing United States and Canadian markets, which may cause these stores to be less successful than those in our existing markets |
| Additionally, our franchisees may experience merchandising and distribution challenges that are different from those we currently encounter in our existing markets |
| The operations and results of our franchisees could be negatively impacted by the economic or political factors in the countries in which they operate |
| These challenges, as well as others, could have a material adverse effect on our business, financial condition and results of operations |
| The success of our franchising strategy will depend upon our ability to attract qualified franchisees with sufficient financial resources to develop and grow the franchise operation and upon the ability of those franchisees to develop and operate their franchised stores |
| Franchisees may not operate stores in a manner consistent with our standards and requirements, may not hire and train qualified managers and other store personnel and may not operate their stores profitably |
| As a result, our franchising strategy may not be profitable to us |
| Moreover, our image and reputation may suffer |
| For example, our initial franchisees in South Korea and France performed below expectations and we transferred those agreements to other parties |
| Furthermore, even if our international franchising strategy is successful, the interests of franchisees might sometimes conflict with our interests |
| For example, whereas franchisees are concerned with their individual business strategies and objectives, we are responsible for ensuring the success of the Build-A-Bear Workshop brand and all of our stores |
| The laws of the various foreign countries in which our franchisees operate govern our relationships with our franchisees |
| These laws, and any new laws that may be enacted, may detrimentally affect the rights and obligations between us and our franchisees and could expose us to additional liability |
| We may not be able to successfully integrate The Bear Factory and Amsbra |
| Although we believe that our acquisitions of The Bear Factory and Amsbra will be highly complementary to and further strengthen our brand portfolio and expand our customer base, we may be unable to take advantage of these opportunities |
| We cannot 12 _________________________________________________________________ [52]Table of Contents assure you that we will be able to successfully integrate the operations of these businesses into our existing business and increase sales, in particular because they involve foreign operations |
| To acquire and integrate both of these separate organizations could divert management attention from other business activities |
| This diversion, together with other difficulties we may encounter in integrating these acquired businesses, could have a material adverse effect on our business, financial condition and results of operations |
| A business combination involves the integration of companies that previously have operated independently, which is a complex, costly and time-consuming process |
| Moreover, we will be integrating two disparate companies both with each other and with our domestic and Canadian operations |
| In particular, we will incur costs in connection with rebranding and store conversions for The Bear Factory and integration with both The Bear Factory and Amsbra |
| The difficulties of combining the companies’ operations include, among other things: • rebranding and store conversions with respect to the 29 Bear Factory stores we expect to acquire; • coordinating geographically disparate organizations, systems and facilities; • assimilating and retaining employees with diverse business backgrounds; • consolidating corporate and administrative functions; • limiting the diversion of management resources necessary to facilitate the integration; • implementing compatible information and communication systems, as well as common operating procedures; • creating compatible financial controls and comparable human resource management practices; • coordinating sales and marketing functions; • maintaining customer care services and retaining customers; • addressing the expenses of any undisclosed or potential legal liabilities; • retaining key management and employees; and • preserving the collaboration, licensing, distribution, marketing, promotion and other important relationships of each company |
| The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the combined company’s business and the loss of key personnel |
| The diversion of management’s attention, any delays or difficulties encountered in connection with the business combination and the integration of the two companies’ operations or the costs associated with these activities could harm our business, results of operations, financial condition or prospects |
| We may not be able to make the UK businesses we are acquiring profitable |
| Both The Bear Factory and Amsbra had losses in 2005 and prior fiscal years |
| Although we believe that we can make these operations profitable as part of our larger company through marketing, product, and store execution practices, we may be unable to do so |
| In particular, we may be unable to successfully leverage our purchasing power and know-how, and may be unable to raise sales levels sufficiently to generate profitable operations |
| In addition, other than Canada, we have not directly operated non-US businesses, and we will face business, regulatory and cultural differences from our domestic business, such as economic conditions in the UK, changes in foreign government policies and regulations in the UK and potential restrictions on the right to convert and repatriate currency, as well as other risks that we may not anticipate |
| If we are unable to generate interest in and demand for our interactive retail experience, including being able to identify and respond to consumer preferences in a timely manner our financial condition and profitability could be adversely affected |
| We believe that our success depends in large part upon our ability to continue to attract guests with our interactive shopping experience and our ability to anticipate, gauge and respond in a timely manner to changing consumer preferences and fashion trends |
| We cannot assure you that our past success will be sustained or there will continue to be a demand for our “make-your-own stuffed animal” interactive experience, or for our stuffed animals, animal apparel and accessories |
| A decline in demand for our interactive shopping experience, our animals, animal apparel or accessories, or a misjudgment of consumer preferences or fashion trends, could have a negative impact on our business, financial condition and results of operations |
| Furthermore, we may be unable to attract guests 13 _________________________________________________________________ [53]Table of Contents to and generate demand for our new Friends 2B Made interactive shopping experience |
| If our Friends 2B Made concept fails to be successful and we determine not to continue it, we may incur charges as a result and it may have an adverse impact on the Build-A-Bear Workshop brand |
| In addition, if we miscalculate the market for our merchandise or the purchasing preferences of our guests, we may be required to sell a significant amount of our inventory at discounted prices or even below costs, thereby adversely affecting our financial condition and profitability |
| A decrease in the customer traffic generated by the shopping malls in which we are located, which we depend upon to attract guests to our stores, could adversely affect our financial condition and profitability |
| While we invest heavily in integrated marketing efforts and believe we are more of a destination location than traditional retailers, we rely to a great extent on customer traffic in the malls in which our stores are located |
| In order to generate guest traffic, we generally attempt to locate our stores in prominent locations within high traffic shopping malls |
| We rely on the ability of the malls’ anchor tenants, generally large department stores, and on the continuing popularity of malls as shopping destinations |
| We cannot control the development of new shopping malls, the addition or loss of anchors and co-tenants, the availability or cost of appropriate locations within existing or new shopping malls or the desirability, safety or success of shopping malls |
| If we are unable to generate sufficient guest traffic, our sales and results of operations would be harmed |
| A significant decrease in shopping mall traffic could have a material adverse effect on our financial condition and profitability |
| A decline in general economic conditions could lead to reduced consumer demand for our products and have an adverse affect on our liquidity and profitability |
| Since purchases of our merchandise are dependent upon discretionary spending by our guests, our financial performance is sensitive to changes in overall economic conditions that affect consumer spending |
| Consumer spending habits are affected by, among other things, prevailing economic conditions, levels of employment, salaries and wage rates, consumer confidence and consumer perception of economic conditions |
| A general or perceived slowdown in the United States or Canadian economy or uncertainty as to the economic outlook could reduce discretionary spending or cause a shift in consumer discretionary spending to other products |
| Any of these factors would likely cause us to delay or slow our expansion plans, result in lower net sales and could also result in excess inventories, which could, in turn, lead to increased merchandise markdowns and related costs associated with higher levels of inventory and adversely affect our liquidity and profitability |
| Our market share may be adversely impacted at any time by a significant number of competitors |
| We compete against a diverse group of competitors |
| Because we are mall-based, we see our competition as those mall-based retailers that compete for prime mall locations, including various apparel, footwear and specialty retailers |
| We also compete with toy retailers, such as Wal-Mart, Toys “R” Us, Target, Kmart and Sears and other discount chains, as well as with a number of manufacturers that sell plush toys in the United States and Canada, including, but not limited to, Ty, Fisher Price, Mattel, Russ Berrie, Applause, Boyd’s, Hasbro, Commonwealth, Gund and Vermont Teddy Bear |
| Since we offer our guests an experience as well as merchandise, we also view our competition as any company that competes for our guests’ time and entertainment dollars, such as movie theaters, restaurants, amusement parks and arcades |
| In addition, there are several small companies that operate “make your own” teddy bear and stuffed animal experiences in retail stores and kiosks |
| Although we believe that currently none of these companies offers the breadth and depth of the Build-A-Bear Workshop products and experience, we cannot assure you that they will not compete directly with us in the future |
| Many of our competitors have longer operating histories, significantly greater financial, marketing and other resources, and greater name recognition |
| We cannot assure you that we will be able to compete successfully with them in the future, particularly in geographic locations that represent new markets for us |
| If we fail to compete successfully, our market share and results of operations could be materially and adversely affected |
| We may not be able to operate successfully if we lose key personnel, are unable to hire qualified additional personnel, or experience turnover of our management team |
| The success of our business depends upon our senior management closely supervising all aspects of our business, in particular the operation of our stores and the design, procurement and allocation of our merchandise |
| Also, because guest service is a defining feature of the Build-A-Bear Workshop corporate culture, we must be able to hire and train qualified managers and Bear Builder associates to succeed |
| The loss of certain key employees, including Maxine Clark, our founder and Chief Executive Bear, or other members of our senior management, our inability to attract and retain other qualified key employees or a labor shortage that reduces the pool of qualified store associates could have a material adverse effect on our business, financial condition and results of operations |
| We generally do not maintain key person insurance with respect to our executives, management or other personnel, except for limited coverage of our Chief Executive Bear which we do not believe would be sufficient to completely protect us against losses we may suffer if her services were to become unavailable to us in the future |
| We rely on a few vendors to supply substantially all of our merchandise, and any disruption in their ability to deliver merchandise 14 _________________________________________________________________ [54]Table of Contents could harm our ability to source products and supply inventory to our stores |
| We do not own or operate any manufacturing facilities |
| We purchased approximately 86prca of our merchandise in fiscal 2005, approximately 85prca in fiscal 2004, and approximately 84prca in fiscal 2003, from three vendors |
| These vendors in turn contract for our orders with multiple manufacturing facilities for the production of merchandise |
| Our relationships with our vendors generally are on a purchase order basis and do not provide a contractual obligation to provide adequate supply, quality or acceptable pricing on a long-term basis |
| Our vendors could discontinue sourcing merchandise for us at any time |
| If any of our significant vendors were to discontinue their relationship with us, or if the factories with which they contract were to suffer a disruption in their production, we may be unable to replace the vendors in a timely manner, which could result in short-term disruption to our inventory flow as we transition our orders to new vendors or factories which could, in turn, disrupt our store operations and have an adverse effect on our business, financial condition and results of operations |
| Our merchandise is manufactured by foreign manufacturers; therefore the availability and costs of our products may be negatively affected by risks associated with international manufacturing and trade |
| We purchase our merchandise from domestic vendors who contract with manufacturers in foreign countries, primarily in China |
| Any event causing a disruption of imports, including the imposition of import restrictions or labor strikes or lock-outs, could adversely affect our business |
| For example, in fiscal 2002, we experienced disruption to our import of merchandise as well as increased shipping costs associated with a dock-worker labor dispute |
| The flow of merchandise from our vendors could also be adversely affected by financial or political instability in any of the countries in which the goods we purchase are manufactured, especially China, if the instability affects the production or export of merchandise from those countries |
| Trade restrictions in the form of tariffs or quotas, or both, applicable to the products we sell could also affect the importation of those products and could increase the cost and reduce the supply of products available to us |
| In addition, decreases in the value of the US dollar against foreign currencies, particularly the Chinese renminbi, could increase the cost of products we purchase from overseas vendors |
| Our profitability could be adversely affected by high petroleum products prices |
| The profitability of our business depends to a certain degree upon the price of petroleum products, both as a component of the transportation costs for delivery of inventory from our vendors to our stores and as a raw material used in the production of our animal skins |
| Petroleum prices have recently risen to historic or near historic highs |
| For example, our results in fiscal 2005 were impacted by fuel surcharges due to higher petroleum products prices |
| We are unable to predict what the price of crude oil and the resulting petroleum products will be in the future |
| We may be unable to pass along to our customers the increased costs that would result from higher petroleum prices |
| Therefore, any such increase could have an adverse impact on our business and profitability |
| We are constructing our own warehouse and distribution center |
| If we are unable to run this facility effectively or efficiently, our business would be disrupted and our operating results would suffer |
| The efficient operation of our stores is dependent on our ability to distribute merchandise to locations throughout the United States and Canada in a timely manner |
| We entered into a construction agreement to build a 350cmam000-square-foot distribution center in Groveport, Ohio for approximately dlra14dtta4 million, excluding costs for the land and the equipment for the facility |
| Although we expect the facility to become fully operational beginning in fall 2006, we could be subject to unexpected delays in the construction or cost overruns due to factors beyond our control |
| In addition, we have in the past relied on third parties to manage the warehousing and distribution aspects of our business |
| Although we have added key personnel with experience in the management of warehouses and distribution centers, we do not have extensive experience in this area, and we may not be able to manage these functions as well as our current third party providers, which could disrupt our business |
| Even if we are able to manage this aspect of our business effectively, we may not realize all of the cost efficiencies and other benefits we currently expect from owning and operating the Groveport distribution center, which would adversely affect our results of operations |
| We currently rely on third parties to manage the warehousing and distribution aspects of our business |
| If these third parties do not adequately perform these functions, our business would be disrupted |
| We currently depend on third party distribution centers in St |
| Louis, Missouri, Los Angeles, California and Toronto, Canada to receive and warehouse substantially all of our merchandise and supplies |
| We also rely on additional third parties to ship all of our merchandise and supplies from the distribution centers to our stores |
| While we will eliminate some of these functions as a result of operating the Ohio distribution center, we will continue to rely significantly on third party service providers in this area |
| Events such as fires, tornadoes, earthquakes or other catastrophic events, malfunctions of our third party distributors’ distribution information systems, shipping problems or termination of our distribution agreements by such distributors would result in delays or disruptions in the timely distribution of merchandise and supplies to our stores, which could have a material adverse effect on our business, financial condition and results of operations |
| Fluctuations in our quarterly results of operations could cause the price of our common stock to substantially decline |
| Retailers generally are subject to fluctuations in quarterly results |
| Our operating results for one period may not be indicative of 15 _________________________________________________________________ [55]Table of Contents results for other periods, and may fluctuate significantly due to a variety of factors, including: • the timing of new store openings and related expenses; • the profitability of our stores; • increases or decreases in comparable store sales; • the timing and frequency of our marketing initiatives; • changes in general economic conditions and consumer spending patterns; • changes in consumer preferences; • the continued introduction and expansion of merchandise offerings; • the effectiveness of our inventory management; • actions of competitors or mall anchors and co-tenants; • seasonal shopping patterns, including whether the Easter holiday occurs in the first or second quarter and other vacation schedules; • the timing and frequency of national media appearances and other public relations events; and • weather conditions |
| If our future quarterly results fluctuate significantly or fail to meet the expectations of the investment community, then the market price of our common stock could decline substantially |
| Our failure to renew, register or otherwise protect our trademarks could have a negative impact on the value of our brand names and our ability to use those names in certain geographical areas |
| We believe our copyrights, service marks, trademarks, trade secrets, patents and similar intellectual property are critical to our success |
| We rely on trademark, copyright and other intellectual property laws to protect our proprietary rights |
| We also depend on trade secret protection through confidentiality and license agreements with our employees, subsidiaries, licensees, licensors and others |
| We may not have agreements containing adequate protective provisions in every case, and the contractual provisions that are in place may not provide us with adequate protection in all circumstances |
| The unauthorized reproduction or other misappropriation of our intellectual property could diminish the value of our brand, competitive advantages or goodwill and result in decreased revenues |
| Despite our efforts to protect our intellectual property rights, intellectual property laws afford us only limited protection |
| A third party could copy or otherwise obtain information from us without authorization |
| Accordingly, we may not be able to prevent misappropriation of our intellectual property or to deter others from developing similar products or services |
| Further, monitoring the unauthorized use of our intellectual property is difficult |
| Litigation has been and may continue to be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others |
| Litigation of this type has resulted in and could result in further substantial costs and diversion of resources, may result in counterclaims or other claims against us and could significantly harm our results of operations |
| In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States |
| We may have disputes with, or be sued by, third parties for infringement or misappropriation of their proprietary rights, which could have a negative impact on our business |
| Other parties have asserted in the past, and may assert in the future, trademark, patent, copyright or other intellectual property rights that are important to our business |
| We cannot assure you that others will not seek to block the use of or seek monetary damages or other remedies for the prior use of our brand names or other intellectual property or the sale of our products or services as a violation of their trademark, patent or other proprietary rights |
| Defending any claims, even claims without merit, could be time-consuming, result in costly settlements, litigation or restrictions on our business and damage our reputation |
| In addition, there may be prior registrations or use of intellectual property in the US or foreign countries for similar or competing marks or other proprietary rights of which we are not aware |
| In all such countries it may be possible for any third party owner of a national trademark registration or other proprietary right to enjoin or limit our expansion into those countries or to seek damages for our use of such intellectual property in such countries |
| In the event a claim against us were successful and we could not obtain a license to the relevant intellectual property or redesign or rename our products or operations to avoid infringement, our business, financial condition or results of operations could be harmed |
| Securing registrations does not fully insulate us against intellectual property claims, as another party may have rights superior to our registration or our registration may be vulnerable to attack on various grounds |
| If we are unable to renew or replace our store leases or enter into leases for new stores on favorable terms, or if we violate any of the terms of our current leases, our growth and profitability could be harmed |
| We lease all of our store locations |
| The majority of our store leases contain provisions for base rent plus percentage rent based on sales in excess of an agreed upon minimum annual sales level |
| A number of our leases include a termination provision which applies if we do not meet certain sales levels during a specified period, typically in the third to fourth year of the lease |
| In addition, most of our 16 _________________________________________________________________ [56]Table of Contents leases will expire within the next ten years and generally do not contain options to renew |
| Furthermore, some of these leases contain various restrictions relating to change of control of our company |
| Our leases also subject us to risks relating to compliance with changing mall rules and the exercise of discretion by our landlords on various matters within the malls |
| In addition, the lease for our store in the DOWNTOWN DISNEY^® District at the DISNEYLAND^® Resort in Anaheim, California provides that the landlord may terminate the lease at any time, subject to the payment of an early termination fee |
| We may suffer negative publicity or be sued if the manufacturers of our merchandise violate labor laws or engage in practices that our guests believe are unethical, or if our products are recalled or cause injuries |
| We rely on our sourcing personnel to select manufacturers with legal and ethical labor practices, but we cannot control the business and labor practices of our manufacturers |
| If one of these manufacturers violates labor laws or other applicable regulations or is accused of violating these laws and regulations, or if such a manufacturer engages in labor or other practices that diverge from those typically acceptable in the United States, we could in turn experience negative publicity or be sued |
| We may decide or be required to recall products or be subject to claims or lawsuits resulting from injuries |
| For example, in January 2003 we voluntarily recalled a product due to a possible safety issue, for which a vendor reimbursed us for certain related expenses |
| Negative publicity in the event of any recall or if any children are injured from our products could have a material adverse effect on sales of our products and our business, and related recalls or lawsuits with respect to such injuries could have a material adverse effect on our financial position |
| Although we currently have liability insurance, we cannot assure you that it would cover product recalls and we face the risk that claims or liabilities will exceed our insurance coverage |
| Furthermore, we may not be able to maintain adequate liability insurance in the future |
| If we improperly obtain, or are unable to protect, information from our guests, we could be subject to liability and damage to our reputation |
| In addition to serving as an online sales portal, our website, www |
| com, features children’s games, e-cards and printable party invitations and thank-you notes, and provides an opportunity for children under the age of 13 to sign up, with the consent of their parent or guardian, to receive our online newsletter |
| We currently obtain and retain personal information about our website users |
| In addition, we obtain personal information about our guests as part of their registration in our Find-A-Bear^® identification system |
| Federal, state and foreign governments have enacted or may enact laws or regulations regarding the collection and use of personal information, with particular emphasis on the collection of information regarding minors |
| Such regulations include or may include requirements that companies establish procedures to: • give adequate notice regarding information collection and disclosure practices; • allow consumers to have personal information deleted from a company’s database; • provide consumers with access to their personal information and the ability to rectify inaccurate information; • obtain express parental consent prior to collecting and using personal information from children; and • comply with the Federal Children’s Online Privacy Protection Act |
| Such regulation may also include enforcement and redress provisions |
| While we have implemented programs and procedures designed to protect the privacy of people, including children, from whom we collect information, and our website is designed to be fully compliant with the Federal Children’s Online Privacy Protection Act, there can be no assurance that such programs will conform to all applicable laws or regulations |
| We have a stringent privacy policy covering the information we collect from our guests and have established security features to protect our guest database and website |
| However, our security measures may not prevent security breaches |
| We may need to expend significant resources to protect against security breaches or to address problems caused by breaches |
| If third persons were able to penetrate our network security and gain access to, or otherwise misappropriate, our guests’ personal information, it could harm our reputation and, therefore, our business and we could be subject to liability |
| Such liability could include claims for misuse of personal information or unauthorized use of credit cards |
| These claims could result in litigation, our involvement in which, regardless of the outcome, could require us to expend significant financial resources |
| In addition, because our guest database primarily includes personal information of young children and young children frequently interact with our website, we are potentially vulnerable to charges from parents, children’s organizations, governmental entities, and the media of engaging in inappropriate collection, distribution or other use of data collected from children |
| Such charges could adversely impact guest relationships and ultimately cause a decrease in net sales and also expose us to litigation and possible liability |
| Risks Related to Owning Our Common Stock 17 _________________________________________________________________ [57]Table of Contents The market price of our common stock may be materially adversely affected by market volatility which could result in costly and time-consuming securities litigation |
| The market price of our common stock could be subject to significant fluctuations |
| Among the factors that could affect our stock price are: • actual or anticipated variations in comparable store sales or operating results; • changes in financial estimates by the investment community; • actual or anticipated changes in economic, political or market conditions, such as recessions or international currency fluctuations; • changes in the retailing environment; • changes in the market valuations of other specialty retail companies; • announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives; and • losses of key members of management |
| In addition, we cannot assure you that an active trading market for our common stock will continue which could affect our stock price and the liquidity of any investment in our common stock |
| The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies |
| These broad market fluctuations may adversely affect the trading price of our common stock |
| In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies |
| Such litigation, if instituted, could result in substantial costs and a diversion of management attention and resources, which would significantly harm our profitability and reputation |
| Our certificate of incorporation and bylaws and Delaware law contain provisions that may prevent or frustrate attempts to replace or remove our current management by our stockholders, even if such replacement or removal may be in our stockholders’ best interests |
| Our basic corporate documents and Delaware law contain provisions that might enable our management to resist a takeover |
| These provisions: • restrict various types of business combinations with significant stockholders; • provide for a classified board of directors; • limit the right of stockholders to remove directors or change the size of the board of directors; • limit the right of stockholders to fill vacancies on the board of directors; • limit the right of stockholders to act by written consent and to call a special meeting of stockholders or propose other actions; • require a higher percentage of stockholders than would otherwise be required to amend, alter, change or repeal our bylaws and certain provisions of our certificate of incorporation; and • authorize the issuance of preferred stock with any voting rights, dividend rights, conversion privileges, redemption rights and liquidation rights and other rights, preferences, privileges, powers, qualifications, limitations or restrictions as may be specified by our board of directors |
| These provisions may: • discourage, delay or prevent a change in the control of our company or a change in our management, even if such change may be in the best interests of our stockholders; • adversely affect the voting power of holders of common stock; and • limit the price that investors might be willing to pay in the future for shares of our common stock |