| PART I | |
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| Item 1. Business | 3 |
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| Item 1A. Risk Factors | 12 |
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| Item 1B. Unresolved Staff Comments | 28 |
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| Item 1C. Cybersecurity | 28 |
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| Item 2. Properties | 29 |
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| Item 3. Legal Proceedings | 30 |
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| Item 4. Mine Safety Disclosures | 30 |
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| PART II | |
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| Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 30 |
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| Item 6. [Reserved] | 32 |
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| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 |
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| Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 53 |
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| Item 8. Financial Statements and Supplementary Data | 54 |
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| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 91 |
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| Item 9A. Controls and Procedures | 91 |
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| Item 9B. Other Information | 94 |
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| Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 94 |
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| PART III | |
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| Item 10. Directors, Executive Officers and Corporate Governance | 95 |
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| Item 11. Executive Compensation | 95 |
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| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 95 |
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| Item 13. Certain Relationships and Related Transactions, and Director Independence | 95 |
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| Item 14. Principal Accountant Fees and Services | 95 |
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| PART IV | |
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| Item 15. Exhibits and Financial Statement Schedules | 96 |
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| Signatures | 100 |
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Annual Report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements because they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. They appear in a number of places throughout this Annual Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, trends, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those that we expected.
While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Annual Report in the context of the factors that could cause outcomes to differ materially from our expectations. These factors include, but are not limited to, those listed under “Summary Risk Factors” and “Item 1A. Risk Factors” of this Annual Report, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission.
We caution you that the important factors included in this Annual Report may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways that we expect. The forward-looking statements included in this Annual Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
The following is a summary of certain key risk factors for investors in our securities. You should read this summary together with the more detailed description of risks and uncertainties discussed under Item 1A. “Risk Factors” in this Annual Report before investing in our securities.
Summary Risk Factors
Risks Related to Our Operations
| ● | We may be unsuccessful in opening new company-operated or franchised restaurants or in establishing new markets, which could adversely affect our growth. |
| ● | We may not be able to compete successfully, including with other quick-service and fast casual restaurants. |
| ● | We are vulnerable to changes in political and economic conditions such as trade policies, tariff and import regulations by the United States, as well as consumer preferences. |
| ● | If we are unable to attract, develop, assimilate, and retain employees, we may not be able to grow or successfully operate our business. |
| ● | Our business could be negatively affected by regional geographic concentrations. |
| ● | Our inability or failure to execute our business continuity and response plan following a major disaster such as a natural disaster, terrorism, social unrest or a cybersecurity incident affecting our corporate facilities could materially adversely affect our business. |
| ● | Our long-term success depends in part on our ability to effectively identify and secure appropriate sites for new restaurants. |
| ● | We have incurred, and may continue to incur, significant impairment of certain of our assets, in particular in our new markets. |
| ● | Changes in food, supply costs, especially for chicken, labor, construction and utilities could adversely affect our business, financial condition, and results of operations. |
| ● | Public health crises, such as the COVID-19 pandemic have had, and may in the future have, a significant negative impact on our business, sales, results of operations and financial condition. |
| ● | Social media and negative publicity could have a material adverse impact on our business. |
| ● | We rely on our ability to continue to expand our digital business, delivery orders and catering is uncertain, and these new business lines are subject to various risks. |
| ● | Food-borne illness and other food safety and quality concerns may negatively impact our business and profitability. |
| ● | Failure to receive timely deliveries of food or other supplies could result in a loss of revenue and materially and adversely impact our operations. |
| ● | Our level of indebtedness, and restrictions under our credit facility, could materially and adversely affect our business, financial condition, and results of operations. |
| ● | Our marketing programs may not be successful, and our new menu items, advertising campaigns, and restaurant designs and remodels may not generate increased sales or profits. |
| ● | Adverse changes in the economic environment may affect our franchisees, with adverse consequences to us. |
| ● | We have limited control with respect to the operations of our franchisees, which could have a negative impact on our business. |
| ● | If our relations with existing or potential franchisees deteriorate, restaurant performance and our development pipeline could suffer. |
| ● | Our self-insurance programs may expose us to significant and unexpected costs and losses. |
| ● | We are locked into long-term and non-cancelable leases, and may be unable to renew leases at the ends of their terms. |
| ● | If we are unable to achieve our social and environmental sustainability goals, our reputation and results of operations could be adversely affected. |
Risks Related to Information Technology and Data Security
| ● | Information technology system failures or breaches of our network security could interrupt our operations and adversely affect our business. |
| ● | If we are unable to protect our customers’ payment method data or personal information, we could be exposed to data loss, litigation, liability, and reputational damage. |
Risks Related to Intellectual Property
| ● | The failure to enforce and maintain our trademarks and protect our other intellectual property could materially and adversely affect our business, including our ability to establish and maintain brand awareness. |
Risks Related to Government Regulation and Litigation
| ● | Matters relating to employment and labor law may adversely affect our business. |
| ● | We are from time to time the target of class action lawsuits and other claims proceedings, which could adversely affect our business and results of operations. |
| ● | If we or our franchisees face labor shortages or increased labor costs, our results of operations and growth could be adversely affected. |
| ● | We are subject to extensive laws, government regulation, and other legal requirements and our failure to comply with existing or new laws and regulations could adversely affect our operational efficiencies, ability to attract and retain talent and results of operations. |
| ● | Legislation and regulations regarding certain of our menu offerings, new information or attitudes regarding diet and health, or adverse opinions about the health effects of consuming our menu offerings, could affect consumer preferences and negatively impact our results of operations. |
| ● | We may become subject to liabilities arising from environmental laws that could likely increase our operating expenses and materially and adversely affect our business and results of operations. |
Risks Related to Ownership of Our Common Stock
| ● | Our quarterly operating results may fluctuate significantly due to seasonality and other factors, some of which are beyond our control, which could adversely affect the market price of our common stock. |
| ● | Future offerings of debt or equity securities by us may adversely affect the market price of our common stock. |
| ● | Delaware law, our organizational documents, our shareholder rights agreement and our existing and future debt agreements may impede or discourage a takeover, depriving our investors of the opportunity to receive a premium for their shares. |
| ● | Shareholder activism could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and impact our stock price. |
