1265572--3/17/2009--KONA_GRILL

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{financial, litigation, operation}

{competitive, industry, competition}

{acquisition, growth, future}

{cost, regulation, environmental}

{operation, natural, condition}

{cost, operation, labor}

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{capital, credit, financial}

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Recent disruptions in the capital and credit markets may adversely affect our business, including the availability and cost of funding, which could adversely affect our results of operations, cash flows, and financial condition. Our future operating results may fluctuate significantly due to our limited number of existing restaurants and the expenses required to open new restaurants. Unexpected expenses and low market acceptance of our restaurant concept could adversely affect the profitability of restaurants that we open in new markets. Our ability to open new restaurants on schedule in accordance with our projected growth rate may be adversely affected by delays or problems associated with securing suitable restaurant locations and leases and by other factors, some of which are beyond our control and the timing of which is difficult to forecast accurately. Our growth may strain our infrastructure and resources, which could slow our development of new restaurants and adversely affect our ability to manage our existing restaurants. Our restaurants are subject to natural disasters and other events which are beyond our control and for which we may not be able to obtain insurance at reasonable rates. Our expansion in existing markets may cause sales in some of our existing restaurants to decline. If our distributors or suppliers do not provide food and beverages to us in a timely fashion, we may experience short-term supply shortages and increased food and beverage costs. Our failure to protect our trademarks, service marks, or trade secrets could negatively affect our competitive position and the value of the Kona Grill brand. We are dependent upon high levels of consumer traffic at the sites where our restaurants are located and any adverse change in consumer activity could negatively affect our restaurant sales and may require us to record an impairment charge for restaurants performing below expectations. We may be required to record impairment charges in future quarters as a result of the decline in value of our investments in auction rate securities. Risks Related to the Restaurant Industry Negative publicity surrounding our restaurants or the consumption of beef, seafood, poultry, or produce generally, or shifts in consumer tastes, could negatively impact the popularity of our restaurants, our sales, and our results of operations. Increases in the prices of, or reductions in the availability of, seafood, poultry, beef, or produce could reduce our operating margins and adversely affect our operating results. Regulations affecting the operation of our restaurants could increase operating costs, restrict our growth, or require us to suspend operations. Litigation concerning our food quality, our employment practices, liquor liability, and other issues could result in significant expenses to us and could divert resources from our operations. Labor shortages or increases in labor costs could slow our growth or adversely affect our business. Risks Related to Ownership of Our Common Stock The market price for our common stock may be volatile. Our current principal stockholders own a large percentage of our voting stock, which allows them to control substantially all matters requiring stockholder approval. The large number of shares eligible for public sale and registered for resale could depress the market price of our common stock. Our stockholders rights plan may adversely affect existing stockholders.

Full 10-K form ▸

1265572--3/17/2009--KONA_GRILL_INC