##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 Amendment No. 1
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 27, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
 Commission File No. 000-53577
 DIVERSIFIED RESTAURANT HOLDINGS, INC.
  Nevada
    
    03-0606420(State or other jurisdiction 
of incorporation or 
formation)
    
    (I.R.S. employer
identification number)
 
 
 (Former name, former address and former
 Copies to:  Michael T. Raymond, Esq.
 þ o
 Yes o No o
 Yes
o No
þ
 APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
 o o
 APPLICABLE ONLY TO CORPORATE ISSUERS
   Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)




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##### Table of Contents



EXPLANATORY NOTE




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##### 



INDEX
 PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Consolidated Balance Sheets
(Unaudited)
    
    
    1Consolidated Statements Of Operations
(Unaudited)
    
    
    2Consolidated Statements Of Comprehensive Income
(Loss) (Unaudited)
    
    
    3Consolidated Statements Of Stockholders Equity
(Deficit) (Unaudited)
    
    
    4Consolidated Statements Of Cash Flows
(Unaudited)
    
    
    5Notes to Interim Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    30Item 3. Quantitative and Qualitative Disclosure About Market Risks
    
    
    37Item 4. Controls and Procedures
    
    
    37PART II. OTHER INFORMATION
    
    
    38Item 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3. Defaults Upon Senior Securities
    
    
    38Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    39Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   i




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 DIVERSIFIED
RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



(UNAUDITED)
 June 27
    
    
    December 272010
    
    

2009 (a)(Restated)
    
    
    (Restated)ASSETSCurrent assetsCash and cash equivalents
    
    $
    668,962
    
    
    $
    1,594,362Accounts receivable  related party
    
    
    
    
    
    
    376,675Inventory
    
    
    305,517
    
    
    
    307,301Prepaid assets
    
    
    161,475
    
    
    
    152,702Other current assets
    
    
    59,227
    
    
    
    42,382Total current assets
    
    
    1,195,181
    
    
    
    2,473,422Property and equipment, net (Note 3)
    
    
    15,258,823
    
    
    
    11,655,513Intangible assets, net (Note 4)
    
    
    956,570
    
    
    
    751,779Other long-term assets
    
    
    56,144
    
    
    
    49,280Deferred income taxes (Note 8)
    
    
    567,449
    
    
    
    246,754Total assets
    
    $
    18,034,167
    
    
    $
    15,176,748LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilitiesCurrent portion of long-term debt (Note 6)
    
    $
    2,233,716
    
    
    $
    2,193,057Accounts payable
    
    
    759,410
    
    
    
    527,151Accrued liabilities
    
    
    885,769
    
    
    
    674,768Deferred rent
    
    
    119,486
    
    
    
    104,940Total current liabilities
    
    
    3,998,381
    
    
    
    3,499,916Accrued rent
    
    
    741,369
    
    
    
    846,014Deferred rent
    
    
    834,272
    
    
    
    638,024Related party payable
    
    
    
    
    
    
    430,351Other liabilities  interest rate swap
    
    
    404,921
    
    
    
    213,604Long-term debt, less current portion (Note 6)
    
    
    13,054,104
    
    
    
    6,767,041Total liabilities
    
    
    19,033,047
    
    
    
    12,394,950Commitments and contingencies (Notes 5, 6, 9, 10,
and 11)Stockholders equity (deficit) (Note 7)Common stock  $0.0001 par value;
100,000,000 shares authorized, 18,876,000
and 18,626,000 shares,
respectfully, issued and
outstanding
    
    
    1,888
    
    
    
    1,863Additional paid-in capital
    
    
    2,622,286
    
    
    
    2,356,155Retained Earnings (accumulated deficit)
    
    
    (3,218,133
    )
    
    
    423,780Comprehensive income (loss)
    
    
    (404,921
    )
    
    
    Total stockholders equity (deficit)
    
    
    (998,880
    )
    
    
    2,781,798Total liabilities and stockholders equity (deficit)
    
    $
    18,034,167
    
    
    $
    15,176,748
 (a)
    
    Amounts are derived from audited financial statements as of December 27, 2009.   1




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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS



(UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedJune 27
    
    
    June 30
    
    
    June 27
    
    
    June 302010
    
    
    2009
    
    
    2010
    
    
    2009(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)RevenueFood and beverage sales
    
    $
    10,683,821
    
    
    $
    10,403,079
    
    
    $
    21,399,699
    
    
    $
    20,833,034Total revenue
    
    
    10,683,821
    
    
    
    10,403,079
    
    
    
    21,399,699
    
    
    
    20,833,034Operating expensesCompensation costs
    
    
    3,397,029
    
    
    
    2,966,668
    
    
    
    6,434,026
    
    
    
    5,765,227Food and beverage costs
    
    
    3,137,948
    
    
    
    3,295,191
    
    
    
    6,475,210
    
    
    
    6,560,295General and administrative
    
    
    2,642,782
    
    
    
    2,276,075
    
    
    
    5,083,677
    
    
    
    4,827,556Pre-opening
    
    
    111,921
    
    
    
    131,277
    
    
    
    217,179
    
    
    
    133,078Occupancy
    
    
    573,619
    
    
    
    722,175
    
    
    
    1,333,839
    
    
    
    1,445,719Depreciation and amortization
    
    
    640,715
    
    
    
    538,701
    
    
    
    1,245,604
    
    
    
    1,027,199Total operating expenses
    
    
    10,504,014
    
    
    
    9,930,087
    
    
    
    20,789,535
    
    
    
    19,759,074Operating profit
    
    
    179,807
    
    
    
    472,992
    
    
    
    610,164
    
    
    
    1,073,960Interest expense
    
    
    (518,143
    )
    
    
    (171,156
    )
    
    
    (687,876
    )
    
    
    (351,203
    )Other income (expense), net
    
    
    (15,658
    )
    
    
    97,245
    
    
    
    1,563
    
    
    
    124,187Income (loss) before income taxes
    
    
    (353,994
    )
    
    
    399,081
    
    
    
    (76,149
    )
    
    
    846,944Income tax benefit (provision)
    
    
    244,463
    
    
    
    (113,122
    )
    
    
    121,887
    
    
    
    (215,006
    )Net income (loss)
    
    $
    (109,531
    )
    
    $
    285,959
    
    
    $
    45,738
    
    
    $
    631,938Basic earnings (loss) per share  as reported
    
    $
    (0.006
    )
    
    $
    0.016
    
    
    $
    0.002
    
    
    $
    0.035Fully diluted earnings (loss) per share  as reported
    
    $
    (0.004
    )
    
    $
    0.010
    
    
    $
    0.002
    
    
    $
    0.022Weighted average number of common shares
outstanding (Notes 1 and 7)Basic
    
    
    18,876,000
    
    
    
    18,070,000
    
    
    
    18,873,253
    
    
    
    18,070,000Diluted
    
    
    29,020,000
    
    
    
    29,020,000
    
    
    
    29,020,000
    
    
    
    29,020,000
   2




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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



(LOSS) (UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedJune 27
    
    
    June 30
    
    
    June 27
    
    
    June 302010(Restated)
    
    
    2009
(Restated)
    
    
    2010
(Restated)
    
    
    2009
(Restated)Net income (loss)
    
    $
    (109,531
    )
    
    $
    285,959
    
    
    $
    45,738
    
    
    $
    631,938Comprehensive income (loss)Unrealized changes in fair value of cash flow hedges
    
    
    (404,921
    )
    
    
    
    
    
    
    (404,921
    )
    
    
    Comprehensive income (loss)
    
    $
    (514,452
    )
    
    $
    285,959
    
    
    $
    (359,183
    )
    
    $
    631,938
   3




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



(DEFICIT) (UNAUDITED) (RESTATED)
 RetainedAdditional
    
    
    Earnings
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit)
    
    
    Income (Loss)
    
    
    Equity (Deficit)Balances  December 27, 2009 (a)
    
    
    18,626,000
    
    
    $
    1,863
    
    
    $
    2,356,155
    
    
    $
    423,780
    
    
    $
    
    
    
    $
    2,781,798Shares issued for warrants exercised at $1.00
per share (Note 7)
    
    
    250,000
    
    
    
    25
    
    
    
    249,975
    
    
    
    
    
    
    
    
    
    
    
    250,000Share-based compensation (Note 7)
    
    
    
    
    
    
    
    
    
    
    16,156
    
    
    
    
    
    
    
    
    
    
    
    16,156Acquisition of BWW restaurants (Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,134,790
    )
    
    
    
    
    
    
    (3,134,790
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (552,861
    )
    
    
    
    
    
    
    (552,861
    )Unrealized changes in fair value of cash
flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (404,921
    )
    
    
    (404,921
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,738
    
    
    
    
    
    
    
    45,738Balances  June 27, 2010
    
    
    18,876,000
    
    
    $
    1,888
    
    
    $
    2,622,286
    
    
    $
    (3,218,133
    )
    
    $
    (404,921
    )
    
    $
    (998,880
    )
 (a)
    
    Amounts are derived from audited financial statements as of December 27, 2009.   4




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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS



(UNAUDITED)
 Six Months EndedJune 27
    
    
    June 302010
    
    
    2009(Restated)
    
    
    (Restated)Cash flows from operating activitiesNet income
    
    $
    45,738
    
    
    
    631,938Adjustments to reconcile net income to
net cash provided by (used in) operating activitiesDepreciation and amortization
    
    
    1,245,604
    
    
    
    1,027,199Loss on disposal of property and equipment
    
    
    217,868
    
    
    
    Share-based compensation
    
    
    16,156
    
    
    
    16,156Deferred income tax (provision) benefit
    
    
    (320,695
    )
    
    
    186,996Changes in operating assets and liabilities that
provided (used) cashAccounts receivable  related party
    
    
    376,675
    
    
    
    (93,090
    )Inventory
    
    
    1,784
    
    
    
    22,226Prepaid assets
    
    
    (8,773
    )
    
    
    (2,687
    )Other current assets
    
    
    (16,845
    )
    
    
    168,370Intangible assets
    
    
    (88,329
    )
    
    
    (1,210
    )Other assets
    
    
    (6,864
    )
    
    
    (89,802
    )Accounts payable
    
    
    (198,092
    )
    
    
    (40,030
    )Accrued liabilities
    
    
    211,001
    
    
    
    226,461Accrued rent
    
    
    (104,645
    )
    
    
    89,620Deferred rent
    
    
    210,794
    
    
    
    (56,400
    )Net cash provided by operating activities
    
    
    1,581,377
    
    
    
    2,085,747Cash flows from investing activitiesPurchases of property and equipment
    
    
    (2,500,490
    )
    
    
    (1,459,141
    )Net cash used for investing activities
    
    
    (2,500,490
    )
    
    
    (1,459,141
    )Cash flows from financing activitiesProceeds from issuance of long-term debt
    
    
    963,065
    
    
    
    867,529Repayments of long-term debt
    
    
    (666,491
    )
    
    
    (757,052
    )Proceeds from issuance of common stock
    
    
    250,000
    
    
    
    Distributions
    
    
    (552,861
    )
    
    
    (797,750
    )Net cash used for financing activities
    
    
    (6,287
    )
    
    
    (687,273
    )Net increase in cash and cash equivalents
    
    
    (925,400
    )
    
    
    (60,667
    )Cash and cash equivalents, beginning of period
    
    
    1,594,362
    
    
    
    1,029,459Cash and cash equivalents, end of period
    
    $
    668,962
    
    
    $
    968,792
   5




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##### Table of Contents



NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
   
   6




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Accounting for Leases,
 Basis of Presentation
    7




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Principles of Consolidation
   Fiscal Year
  Segment Reporting
   Cash and Cash Equivalents
  Revenue Recognition
  Accounts Receivable
   8




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##### Table of Contents



Accounting for Gift Cards
    Lease Accounting
  Inventory
  Prepaid, Intangible, and Other Assets
  Franchise fees
    
    10 to 20 yearsTrademarks
    
    15 yearsLoan fees
    
    2 to 7 years (loan term)
  Property and Equipment
    9




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##### Table of Contents



Depreciation and Amortization
  Advertising
  Pre-opening Costs
  Income Taxes
  Earnings per Share
 Earnings per Share
 Concentration Risks
  Use of Estimates
  Financial Instruments
   10




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##### Table of Contents



Recent Accounting Pronouncements
 Subsequent Events
 The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles  a
Replacement of FASB Statement No. 162.
 Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements Fair Value Measurements and Disclosures,
  11




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##### Table of Contents



Reclassifications
  2. SIGNIFICANT BUSINESS TRANSACTIONS
 Acquisition of Nine Affiliated BWW Restaurants
  Business Combinations: Transactions Between Entities Under
Common Control i.e.,
 Execution of $15 Million Comprehensive Credit Facility
    12




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Purchase of Building in Brandon, Florida
        13




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3. PROPERTY AND EQUIPMENT
  June 27
    
    
    December 272010
    
    
    2009Land
    
    $
    385,959
    
    
    $
    Building
    
    
    2,243,861
    
    
    
    Equipment
    
    
    7,312,657
    
    
    
    6,710,092Furniture and fixtures
    
    
    1,974,209
    
    
    
    1,833,347Leasehold improvements
    
    
    12,590,925
    
    
    
    11,585,978Restaurant construction in progress
    
    
    365,392
    
    
    
    126,804Total
    
    
    24,873,003
    
    
    
    20,256,221Less accumulated depreciation
    
    
    (9,614,180
    )
    
    
    (8,600,708
    )Property and equipment, net
    
    $
    15,258,823
    
    
    $
    11,655,513
  4. INTANGIBLE ASSETS
  June 27
    
    
    December 272010
    
    
    2009Amortized intangible assets:Franchise fees
    
    $
    358,750
    
    
    $
    358,750Trademark
    
    
    2,500
    
    
    
    2,500Loan fees
    
    
    149,825
    
    
    
    66,565Total
    
    
    511,075
    
    
    
    427,815Less accumulated amortization
    
    
    (96,723
    )
    
    
    (122,064
    )Amortized intangible assets, net
    
    
    414,352
    
    
    
    305,751Unamortized intangible assets:Liquor licenses
    
    
    542,218
    
    
    
    446,028Total intangible assets, net
    
    $
    956,570
    
    
    $
    751,779
  5. RELATED PARTY TRANSACTIONS
    14




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Guarantees,
    6. LONG-TERM DEBT
  June 27
    
    
    December 272010
    
    
    2009Senior Secured Term Loan to a bank
secured by a senior lien on all company
assets. Scheduled monthly principal and
interest payments are approximately
$120,000 through maturity in May 2017.
Interest is charged based on a swap
arrangement designed to yield a fixed
annual rate of 7.10%.
    
    $
    8,914,220
    
    
    
    Note payable to a bank secured by a
senior mortgage on the Brandon Property,
corporate guaranties, and a personal
guaranty. Scheduled monthly principal
and interest payments are approximately
$8,000 for the period beginning July 2010
through maturity in June 2030, at which
point a balloon payment of $413,550 is
due. Interest is charged based on a
fixed rate of 6.72%, per annum, through
June 2017, at which point the rate will
adjust to the U.S. Treasury Securities
Rate plus 4% (and every seven years
thereafter).
    
    
    1,150,000
    
    
    
    
  15




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##### Table of Contents



June 27
    
    
    December 272010
    
    
    2009Note payable to a bank secured by a
junior mortgage on the Brandon Property,
corporate guaranties, and a personal
guaranty. The agreement provides for a
short-term bridge loan (which will be
transferred to a long-term SBA loan
within 90  120 days), matures in April
2011, and requires interest-only payments
until maturity. Interest is charged at a
floating rate, adjusted daily, equal to
the Banks Prime Rate plus 3%. The rate
at June 27, 2010 was approximately 6.25%.
    
    
    920,000
    
    
    
    DLOC to a bank, secured by a senior lien
on all company assets. Scheduled
interest payments are charged at a rate
of 4% over the 30-day LIBOR (the rate at
June 27, 2010 was approximately 4.35%).
In November 2011, if the Company has not
already elected to do so (which is its
intent), the DLOC will convert into a
term loan bearing interest at 4% over the
30-day LIBOR and will mature in May 2017.
The DLOC includes a carrying cost of .25%
per year of any available but undrawn
amounts.
    
    
    657,136
    
    
    
    Unsecured note payable that matures in
August 2013 and requires monthly
principal and interest installments of
approximately $2,200, with the balance
due at maturity. Interest is 7% per
annum.
    
    
    245,754
    
    
    
    Note payable to a bank secured by the
property and equipment of Bearcat
Enterprises, Inc. as well as personal
guarantees of certain stockholders and
various related parties. Scheduled
monthly principal and interest payments
are approximately $4,600 including annual
interest charged at a variable rate of
3.70% above the 30-day LIBOR rate. The
rate at June 27, 2010 was approximately
4.05%. The note matures in September
2014.
    
    
    48,059
    
    
    
    72,975Note payable to Ford Credit secured by a
vehicle purchased by Flyer Enterprises,
Inc. to be used in the operation of the
business. This is an interest-free loan
under a promotional 0% rate. Scheduled
monthly principal payments are
approximately $430. The note matures in
April 2013.
    
    
    14,592
    
    
    
    17,167Various notes payable to a bank or
leasing company secured by property and
equipment as well as corporate and
personal guarantees of DRH; the Companys
subsidiaries; certain stockholders;
and/or various related parties. The
various agreements called for either
monthly interest only, principal, and/or
interest payments in the aggregate amount
of $117,169. Interest charges ranged
from LIBOR plus 2% to a fixed rate of
9.15% per annum. The various notes were
scheduled to mature between February 2011
and December 2015. These various notes
were paid off upon the execution of the
Credit Facility.
    
    
    
    
    
    
    7,821,912Obligations under capital leases (Note 10)
    
    
    
    
    
    
    693,196Notes payable  related parties (Note 5)
    
    
    3,338,059
    
    
    
    354,848Total long-term debt
    
    $
    15,287,820
    
    
    $
    8,960,098Less current portion
    
    
    (2,233,716
    )
    
    
    (2,193,057
    )Long-term debt, net of current portion
    
    $
    13,054,104
    
    
    $
    6,767,041
  16




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Year
    
    Amount2010
    
    $
    2,233,7162011
    
    
    1,575,5842012
    
    
    1,777,9002013
    
    
    2,099,9892014
    
    
    2,004,175Thereafter
    
    
    5,596,456Total
    
    $
    15,287,820
   7. CAPITAL STOCK (INCLUDING PURCHASE WARRANTS AND OPTIONS)
 CompensationStock Compensation
  Equity
Based Payments to Non-Employees.
  17




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8. INCOME TAXES
  Three Months Ended
    
    
    Six Months EndedJune 27
    
    
    June 30
    
    
    June 27
    
    
    June 302010
    
    
    2009
    
    
    2010
    
    
    2009FederalCurrent
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Deferred
    
    
    295,744
    
    
    
    (71,476
    )
    
    
    190,607
    
    
    
    (105,127
    )StateCurrent
    
    
    (36,502
    )
    
    
    
    
    
    
    (86,603
    )
    
    
    Deferred
    
    
    (14,779
    )
    
    
    44,808
    
    
    
    17,883
    
    
    
    36,698Income tax benefit
(provision)
    
    $
    244,463
    
    
    $
    (26,668
    )
    
    $
    121,887
    
    
    $
    (68,429
    )
  June 27
    
    
    December 272010
    
    
    2009Income tax benefit (provision) at federal statutory rate
    
    $
    25,891
    
    
    $
    (207,455
    )State income tax benefit (provision)
    
    
    (68,720
    )
    
    
    (57,585
    )Permanent differences
    
    
    22,554
    
    
    
    (32,111
    )Tax credits
    
    
    70,000
    
    
    
    93,500Other
    
    
    72,162
    
    
    
    (48,413
    )Income tax benefit (provision)
    
    $
    121,887
    
    
    $
    (252,064
    )
  18




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##### Table of Contents



June 27
    
    
    December 272010
    
    
    2009Deferred tax assets:Net operating loss carry forwards
    
    $
    757,922
    
    
    $
    954,370Deferred rent expense
    
    
    347,500
    
    
    
    78,998Start-up costs
    
    
    236,851
    
    
    
    104,327Tax credit carry forwards
    
    
    262,544
    
    
    
    164,366Swap loss recognized for book
    
    
    
    
    
    
    56,970Other  including state deferred tax assets
    
    
    425,757
    
    
    
    193,781Total deferred assets
    
    
    2,030,574
    
    
    
    1,552,812Deferred tax liabilities:Other  including state deferred tax liabilities
    
    
    240,113
    
    
    
    146,325Tax depreciation in excess of book
    
    
    1,223,012
    
    
    
    1,159,733Total deferred tax liabilities:
    
    
    1,463,125
    
    
    
    1,306,058Net deferred income tax assets
    
    $
    567,449
    
    
    $
    246,754
 Income Taxes
       19




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##### Table of Contents



9. OPERATING LEASES (INCLUDING RELATED PARTY)
               20




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##### Table of Contents



Year
    
    Amount2010
    
    $
    2,633,0672011
    
    
    2,476,7802012
    
    
    2,558,8602013
    
    
    2,624,8042014
    
    
    2,496,364Thereafter
    
    
    6,155,604Total
    
    $
    18,945,479
 10. CAPITAL LEASES
   21




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##### Table of Contents



11. COMMITMENTS AND CONTINGENCIES
      12. SUPPLEMENTAL CASH FLOWS INFORMATION
 Other Cash Flows Information
    22




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##### Table of Contents



Supplemental Schedule of Non-Cash Operating, Investing, and Financing Activities
     13. FAIR VALUE OF FINANCIAL INSTRUMENTS
  Fair Value Measurements and Disclosures ,
 
    
    Level 1: Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
 
    
    Level 2: Quoted prices in markets that are not active or inputs which are observable,
either directly or indirectly, for substantially the full term of the asset or liability.
 
    
    Level 3: Prices or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable (i.e., supported by little or no market
activity).
   23




---



##### Table of Contents



14. SUBSEQUENT EVENTS
  Director
    
    Option Vesting DatesT. Michael Ansley
    
    10,000 shares on July 31, 2011
10,000 shares on July 31, 2012
10,000 shares on July 31, 2013David G. Burke
    
    10,000 shares on July 31, 2011
10,000 shares on July 31, 2012
10,000 shares on July 31, 2013Jay A. Dusenberry
    
    10,000 shares on July 31, 2011
10,000 shares on July 31, 2012
10,000 shares on July 31, 2013David Ligotti
    
    10,000 shares on July 31, 2011
10,000 shares on July 31, 2012
10,000 shares on July 31, 2013Gregory J. Stevens
    
    10,000 shares on July 31, 2011
10,000 shares on July 31, 2012
10,000 shares on July 31, 2013Bill McClintock
    
    10,000 shares on June 3, 2011
10,000 shares on June 3, 2012
10,000 shares on June 3, 2013Joseph M. Nowicki
    
    10,000 shares on June 3, 2011
10,000 shares on June 3, 2012
10,000 shares on June 3, 2013
 Effective July 29, 2010, the Company exercised an option, with BWWI, to renew its Anker, Inc.
franchise agreement.
   15. RESTATEMENTS
  Business Combinations: Transactions Between Entities Under Common
Control
 Income
Taxes
 Lastly, the Company miscalculated the
basic and diluted weighted average number of common shares outstanding for the
three- and six-month period ended June 27, 2010.  No other financial
statement line items were affected by this miscalculation.  The
Company’s Restated Financial Statements reflect this correction.  24




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 June 27, 2010
    
    
    December 27, 2009As Previously
    
    
    
    
    
    
    As
    
    
    As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedASSETSTotal current assets
    
    
    1,195,181
    
    
    
    
    
    
    
    1,195,181
    
    
    
    1,144,061
    
    
    
    1,329,361
    
    
    
    2,473,422Deferred income taxes
    
    
    786,942
    
    
    
    (219,493
    )
    
    
    567,449
    
    
    
    246,754
    
    
    
    
    
    
    
    246,754Total other long-term assets
    
    
    16,271,537
    
    
    
    
    
    
    
    16,271,537
    
    
    
    8,327,412
    
    
    
    4,129,160
    
    
    
    12,456,572Total assets
    
    $
    18,253,660
    
    
    $
    (219,493
    )
    
    $
    18,034,167
    
    
    $
    9,718,227
    
    
    $
    5,458,521
    
    
    $
    15,176,748LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Total current liabilities
    
    
    3,998,381
    
    
    
    
    
    
    
    3,998,381
    
    
    
    2,080,354
    
    
    
    1,419,562
    
    
    
    3,499,916Total long-term liabilities
    
    
    15,034,666
    
    
    
    
    
    
    
    15,034,666
    
    
    
    5,445,161
    
    
    
    3,449,873
    
    
    
    8,895,034Total liabilities
    
    
    19,033,047
    
    
    
    
    
    
    
    19,033,047
    
    
    
    7,525,515
    
    
    
    4,869,435
    
    
    
    12,394,950Stockholders equity (deficit)Common stock
    
    
    1,888
    
    
    
    
    
    
    
    1,888
    
    
    
    1,863
    
    
    
    
    
    
    
    1,863Additional paid-in capital
    
    
    2,622,286
    
    
    
    
    
    
    
    2,622,286
    
    
    
    2,356,155
    
    
    
    
    
    
    
    2,356,155Retained earnings (accumulated deficit)
    
    
    (2,998,640
    )
    
    
    (219,493
    )
    
    
    (3,218,133
    )
    
    
    (165,306
    )
    
    
    589,086
    
    
    
    423,780Comprehensive (loss) income
    
    
    (404,921
    )
    
    
    
    
    
    
    (404,921
    )
    
    
    
    
    
    
    
    
    
    
    Total stockholders equity (deficit)
    
    
    (779,387
    )
    
    
    (219,493
    )
    
    
    (998,880
    )
    
    
    2,192,712
    
    
    
    589,086
    
    
    
    2,781,798Total liabilities and stockholders equity (deficit)
    
    $
    18,253,660
    
    
    $
    (219,493
    )
    
    $
    18,034,167
    
    
    $
    9,718,227
    
    
    $
    5,458,521
    
    
    $
    15,176,748
  25




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Months Ended June 27, 2010
    
    
    Three Months Ended June 30, 2009As Previously
    
    
    
    
    
    
    As
    
    
    As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedRevenueFood and beverage sales
    
    $
    10,683,821
    
    
    $
    
    
    
    $
    10,683,821
    
    
    $
    4,305,776
    
    
    $
    6,097,303
    
    
    $
    10,403,079Management and advertising fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    441,276
    
    
    
    (441,276
    )
    
    
    Total revenue
    
    
    10,683,821
    
    
    
    
    
    
    
    10,683,821
    
    
    
    4,747,052
    
    
    
    5,656,027
    
    
    
    10,403,079Operating expensesCompensation costs
    
    
    3,397,029
    
    
    
    
    
    
    
    3,397,029
    
    
    
    1,491,686
    
    
    
    1,474,982
    
    
    
    2,966,668Food and beverage costs
    
    
    3,137,948
    
    
    
    
    
    
    
    3,137,948
    
    
    
    1,348,406
    
    
    
    1,946,785
    
    
    
    3,295,191General and administrative
    
    
    2,642,782
    
    
    
    
    
    
    
    2,642,782
    
    
    
    1,019,158
    
    
    
    1,256,917
    
    
    
    2,276,075Pre-opening
    
    
    111,921
    
    
    
    
    
    
    
    111,921
    
    
    
    131,277
    
    
    
    
    
    
    
    131,277Occupancy
    
    
    573,619
    
    
    
    
    
    
    
    573,619
    
    
    
    275,805
    
    
    
    446,370
    
    
    
    722,175Depreciation and amortization
    
    
    640,715
    
    
    
    
    
    
    
    640,715
    
    
    
    358,439
    
    
    
    180,262
    
    
    
    538,701Total operating expenses
    
    
    10,504,014
    
    
    
    
    
    
    
    10,504,014
    
    
    
    4,624,771
    
    
    
    5,305,316
    
    
    
    9,930,087Operating profit
    
    
    179,807
    
    
    
    
    
    
    
    179,807
    
    
    
    122,281
    
    
    
    350,711
    
    
    
    472,992Interest expense
    
    
    (518,143
    )
    
    
    
    
    
    
    (518,143
    )
    
    
    (104,585
    )
    
    
    (66,571
    )
    
    
    (171,156
    )Other income (expense), net
    
    
    (15,658
    )
    
    
    
    
    
    
    (15,658
    )
    
    
    79,295
    
    
    
    17,950
    
    
    
    97,245Income (loss) before income taxes
    
    
    (353,994
    )
    
    
    
    
    
    
    (353,994
    )
    
    
    96,991
    
    
    
    302,090
    
    
    
    399,081Income tax benefit (provision)
    
    
    244,463
    
    
    
    
    
    
    
    244,463
    
    
    
    (26,668
    )
    
    
    (86,454
    )
    
    
    (113,122
    )Net income (loss)
    
    $
    (109,531
    )
    
    $
    
    
    
    $
    (109,531
    )
    
    $
    70,323
    
    
    $
    215,636
    
    
    $
    285,959Basic earnings (loss) per share  as reported
    
    $
    (0.006
    )
    
    
    0.00
    
    
    $
    (0.006
    )
    
    $
    0.004
    
    
    $
    0.012
    
    
    $
    0.016Fully diluted earnings (loss) per share  as
reported
    
    $
    (0.004
    )
    
    
    (0.00
    )
    
    $
    (0.004
    )
    
    $
    0.002
    
    
    $
    0.007
    
    
    $
    0.010Weighted average number of common shares
outstandingBasic
    
    
    18,870,505
    
    
    
    5,495
    
    
    
    18,876,000
    
    
    
    18,070,000
    
    
    
    
    
    
    
    18,070,000Diluted
    
    
    29,160,000
    
    
    
    (140,000
    )
    
    
    29,020,000
    
    
    
    29,020,000
    
    
    
    
    
    
    
    29,020,000
  26




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Six Months Ended June 27, 2010
    
    
    Six Months Ended June 30, 2009As Previously
    
    
    
    
    
    
    As
    
    
    As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedRevenueFood and beverage sales
    
    $
    19,325,822
    
    
    $
    2,073,877
    
    
    $
    21,399,699
    
    
    $
    8,440,786
    
    
    $
    12,392,248
    
    
    $
    20,833,034Management and advertising fees
    
    
    165,886
    
    
    
    (165,886
    )
    
    
    
    
    
    
    897,805
    
    
    
    (897,805
    )
    
    
    Total revenue
    
    
    19,491,708
    
    
    
    1,907,991
    
    
    
    21,399,699
    
    
    
    9,338,591
    
    
    
    11,494,443
    
    
    
    20,833,034Operating expensesCompensation costs
    
    
    5,983,841
    
    
    
    450,185
    
    
    
    6,434,026
    
    
    
    2,850,893
    
    
    
    2,914,334
    
    
    
    5,765,227Food and beverage costs
    
    
    5,810,496
    
    
    
    664,714
    
    
    
    6,475,210
    
    
    
    2,630,402
    
    
    
    3,929,893
    
    
    
    6,560,295General and administrative
    
    
    4,675,377
    
    
    
    408,300
    
    
    
    5,083,677
    
    
    
    2,125,829
    
    
    
    2,701,727
    
    
    
    4,827,556Pre-opening
    
    
    217,179
    
    
    
    
    
    
    
    217,179
    
    
    
    133,078
    
    
    
    
    
    
    
    133,078Occupancy
    
    
    1,183,785
    
    
    
    150,054
    
    
    
    1,333,839
    
    
    
    550,202
    
    
    
    895,517
    
    
    
    1,445,719Depreciation and amortization
    
    
    1,163,275
    
    
    
    82,329
    
    
    
    1,245,604
    
    
    
    704,844
    
    
    
    322,355
    
    
    
    1,027,199Total operating expenses
    
    
    19,033,953
    
    
    
    1,755,582
    
    
    
    20,789,535
    
    
    
    8,995,248
    
    
    
    10,763,826
    
    
    
    19,759,074Operating profit
    
    
    457,755
    
    
    
    152,409
    
    
    
    610,164
    
    
    
    343,343
    
    
    
    730,617
    
    
    
    1,073,960Interest expense
    
    
    (668,426
    )
    
    
    (19,450
    )
    
    
    (687,876
    )
    
    
    (215,892
    )
    
    
    (135,311
    )
    
    
    (351,203
    )Other income (expense), net
    
    
    (2,567
    )
    
    
    4,130
    
    
    
    1,563
    
    
    
    90,514
    
    
    
    33,673
    
    
    
    124,187Income (loss) before income taxes
    
    
    (213,238
    )
    
    
    137,089
    
    
    
    (76,149
    )
    
    
    217,965
    
    
    
    628,979
    
    
    
    846,944Income tax benefit (provision)
    
    
    354,979
    
    
    
    (233,092
    )
    
    
    121,887
    
    
    
    (68,429
    )
    
    
    (146,577
    )
    
    
    (215,006
    )Net income (loss)
    
    $
    141,741
    
    
    $
    (96,003
    )
    
    $
    45,738
    
    
    $
    149,536
    
    
    $
    482,402
    
    
    $
    631,938Basic earnings per share  as reported
    
    $
    0.008
    
    
    $
    (0.005
    )
    
    $
    0.002
    
    
    $
    0.008
    
    
    $
    0.027
    
    
    $
    0.035Fully diluted earnings per share  as
reported
    
    $
    0.005
    
    
    $
    (0.003
    )
    
    $
    0.002
    
    
    $
    0.005
    
    
    $
    0.017
    
    
    $
    0.022Weighted average number of common
shares
outstandingBasic
    
    
    18,870,505
    
    
    
    2,748
    
    
    
    18,873,253
    
    
    
    18,070,000
    
    
    
    
    
    
    
    18,070,000Diluted
    
    
    29,090,000
    
    
    
    (70,000
    )
    
    
    29,020,000
    
    
    
    29,020,000
    
    
    
    
    
    
    
    29,020,000
  27




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (UNAUDITED)
 Retained Earnings
    
    
    Accumulated OtherCommon Stock
    
    
    Additional
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    Total StockholdersBALANCES AS PREVIOUSLY REPORTED:
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Deficit)
    
    
    Income (Loss)
    
    
    Equity (Deficit)Balances  December 27, 2009
    
    
    18,626,000
    
    
    $
    1,863
    
    
    $
    2,356,155
    
    
    $
    (165,306
    )
    
    $
    
    
    
    $
    2,192,712Shares issued for warrants
    
    
    250,000
    
    
    
    25
    
    
    
    249,975
    
    
    
    
    
    
    
    
    
    
    
    250,000Share-based compensation
    
    
    
    
    
    
    
    
    
    
    16,156
    
    
    
    
    
    
    
    
    
    
    
    16,156Aquisition of BWW restaurants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,975,075
    )
    
    
    
    
    
    
    (2,975,075
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized changes in fair
value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (404,921
    )
    
    
    (404,921
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141,741
    
    
    
    
    
    
    
    141,741Balances  June 27, 2010
    
    
    18,876,000
    
    
    $
    1,888
    
    
    $
    2,622,286
    
    
    $
    (2,998,640
    )
    
    $
    (404,921
    )
    
    $
    (779,387
    )Retained Earnings
    
    
    Accumulated OtherCommon Stock
    
    
    Additional
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    Total StockholdersADJUSTMENTS:
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Deficit)
    
    
    Income (Loss)
    
    
    Equity (Deficit)Balances  December 27, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589,086
    
    
    
    
    
    
    
    589,086Shares issued for warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aquisition of BWW restaurants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (159,715
    )
    
    
    
    
    
    
    (159,715
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (552,861
    )
    
    
    
    
    
    
    (552,861
    )Unrealized changes in fair
value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96,003
    )
    
    
    
    
    
    
    (96,003
    )Balances  June 27, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (219,493
    )
    
    
    
    
    
    
    (219,493
    )Retained Earnings
    
    
    Accumulated OtherCommon Stock
    
    
    Additional
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    Total StockholdersBALANCES AS RESTATED:
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Deficit)
    
    
    Income (Loss)
    
    
    Equity (Deficit)Balances  December 27, 2009
    
    
    18,626,000
    
    
    $
    1,863
    
    
    $
    2,356,155
    
    
    $
    423,780
    
    
    $
    
    
    
    $
    2,781,798Shares issued for warrants
    
    
    250,000
    
    
    
    25
    
    
    
    249,975
    
    
    
    
    
    
    
    
    
    
    
    250,000Share-based compensation
    
    
    
    
    
    
    
    
    
    
    16,156
    
    
    
    
    
    
    
    
    
    
    
    16,156Aquisition of BWW restaurants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,134,790
    )
    
    
    
    
    
    
    (3,134,790
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (552,861
    )
    
    
    
    
    
    
    (552,861
    )Unrealized changes in fair
value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (404,921
    )
    
    
    (404,921
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,738
    
    
    
    
    
    
    
    45,738Balances  June 27, 2010
    
    
    18,876,000
    
    
    
    1,888
    
    
    
    2,622,286
    
    
    
    (3,218,133
    )
    
    
    (404,921
    )
    
    
    (998,880
    )
  28




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Six Months Ended June 27, 2010
    
    
    Six Months Ended June 30, 2009As Previously
    
    
    
    
    
    
    As
    
    
    As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedNet cash provided by operating activities
    
    
    1,674,856
    
    
    
    (93,479
    )
    
    
    1,581,377
    
    
    
    1,116,224
    
    
    
    969,523
    
    
    
    2,085,747Net cash used in investing activities
    
    
    (2,501,501
    )
    
    
    1,011
    
    
    
    (2,500,490
    )
    
    
    (1,127,110
    )
    
    
    (332,031
    )
    
    
    (1,459,141
    )Net cash provided by financing activities
    
    
    846,089
    
    
    
    (852,376
    )
    
    
    (6,287
    )
    
    
    301,133
    
    
    
    (988,406
    )
    
    
    (687,273
    )Net increase in cash and cash equivalents
    
    
    19,444
    
    
    
    (944,844
    )
    
    
    (925,400
    )
    
    
    290,247
    
    
    
    (350,914
    )
    
    
    (60,667
    )Cash and cash equivalents, beginning of
period
    
    
    649,518
    
    
    
    944,844
    
    
    
    1,594,362
    
    
    
    133,865
    
    
    
    895,594
    
    
    
    1,029,459Cash and cash equivalents, end of period
    
    $
    668,962
    
    
    $
    
    
    
    $
    668,962
    
    
    $
    424,112
    
    
    $
    544,680
    
    
    $
    968,792
  29




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 (The following and analysis of our financial condition and results of operations should
be read in conjunction with our consolidated interim financial statements and related notes
included in Item 1 of Part 1 of this Quarterly Report and the audited consolidated financial
statements and related notes and Managements Discussion and Analysis of Financial Condition and
Results from Operations contained in our Form 10-K for the fiscal year ended December 27, 2009.)
 INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
 Statements contained in this Quarterly Report on Form 10-Q may contain information that includes
or is based upon certain forward-looking statements relating to our business. These
forward-looking statements represent managements current judgment and assumptions, and can be
identified by the fact that they do not relate strictly to historical or current facts.
Forward-looking statements are frequently accompanied by the use of such words as anticipates,
plans, believes, expects, projects, intends, and similar expressions. Such
forward-looking statements involve known and unknown risks, uncertainties, and other factors,
including, while it is not possible to predict or identify all such risks, uncertainties, and other
factors, those relating to our ability to secure the additional financing adequate to execute our
business plan; our ability to locate and start up new restaurants; acceptance of our restaurant
concepts in new market places; the cost of food and other raw materials. Any one of these or other
risks, uncertainties, other factors, or any inaccurate assumptions may cause actual results to be
materially different from those described herein or elsewhere by us. We caution readers not to
place undue reliance on any such forward-looking statements, which speak only as of the date they
were made. Certain of these risks, uncertainties, and other factors may be described in greater
detail in our filings from time to time with the Securities and Exchange Commission, which we
strongly urge you to read and consider. Subsequent written and oral forward-looking statements
attributable to us or to persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements set forth above and elsewhere in our reports filed with the Securities
and Exchange Commission. We expressly disclaim any intent or obligation to update any
forward-looking statements.
 OVERVIEW
 ® ® ®
  30




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##### Table of Contents



ACQUISITION OF NINE AFFILIATED BWW RESTAURANTS
   EXECUTION OF $15 MILLION COMPREHENSIVE CREDIT FACILITY
  PURCHASE OF BUILDING IN BRANDON, FLORIDA
  RESULTS OF OPERATIONS
  Three Months EndedJune 27
2010
(Restated)
    
    
    June 30
2009
(Restated)
    
    
    $ Change
    
    
    % ChangeRevenueFood and beverage sales
    
    $
    10,683,821
    
    
    $
    10,403,079
    
    
    $
    280,742
    
    
    
    2.7
    %Total revenue
    
    $
    10,683,821
    
    
    $
    10,403,079
    
    
    $
    280,742
    
    
    
    2.7
    %
  Six Months EndedJune 27
    
    
    June 302010
(Restated)
    
    
    2009
(Restated)
    
    
    $Change
    
    
    %ChangeRevenueFood and beverage sales
    
    $
    21,399,699
    
    
    
    20,833,034
    
    
    
    566,665
    
    
    
    2.7
    %Total revenue
    
    $
    21,399,699
    
    
    $
    20,833,034
    
    
    $
    566,665
    
    
    
    2.7
    %
   31




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##### Table of Contents



OPERATING EXPENSES
 Three Months EndedJune 272010
    
    
    June 30
2009
    
    
    $
    
    
    %
    
    
    % Revenue
    
    
    % Revenue(Restated)
    
    
    (Restated)
    
    
    Change
    
    
    Change
    
    
    2010
    
    
    2009Operating expensesCompensation costs
    
    $
    3,397,029
    
    
    $
    2,966,668
    
    
    $
    430,361
    
    
    
    14.5
    %
    
    
    31.8
    %
    
    
    28.5
    %Food and beverage costs
    
    
    3,137,948
    
    
    
    3,295,191
    
    
    
    (157,243
    )
    
    
    (4.8
    )%
    
    
    29.4
    %
    
    
    31.7
    %General and
administrative
    
    
    2,642,782
    
    
    
    2,276,075
    
    
    
    366,707
    
    
    
    16.1
    %
    
    
    24.7
    %
    
    
    21.9
    %Pre-opening
    
    
    111,921
    
    
    
    131,277
    
    
    
    (19,356
    )
    
    
    (14.7
    )%
    
    
    1.0
    %
    
    
    1.3
    %Occupancy
    
    
    573,619
    
    
    
    722,175
    
    
    
    (148,556
    )
    
    
    (20.6
    )%
    
    
    5.4
    %
    
    
    6.9
    %Depreciation and
amortization
    
    
    640,715
    
    
    
    538,701
    
    
    
    102,014
    
    
    
    18.9
    %
    
    
    6.0
    %
    
    
    5.2
    %Total operating
expenses
    
    $
    10,504,014
    
    
    $
    9,930,087
    
    
    $
    573,927
    
    
    
    5.8
    %
    
    
    98.3
    %
    
    
    95.5
    %
       32




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##### Table of Contents



Six Months EndedJune 27
2010
    
    
    June 30
2009
    
    
    $
    
    
    %
    
    
    % Revenue
    
    
    % Revenue(Restated)
    
    
    (Restated)
    
    
    Change
    
    
    Change
    
    
    2010
    
    
    2009Operating expensesCompensation costs
    
    $
    6,434,026
    
    
    $
    5,765,227
    
    
    $
    668,799
    
    
    
    11.6
    %
    
    
    30.1
    %
    
    
    27.7
    %Food and beverage
costs
    
    
    6,475,210
    
    
    
    6,560,295
    
    
    
    (85,085
    )
    
    
    (1.3
    )%
    
    
    30.3
    %
    
    
    31.5
    %General and
administrative
    
    
    5,083,677
    
    
    
    4,827,556
    
    
    
    256,121
    
    
    
    5.3
    %
    
    
    23.8
    %
    
    
    23.2
    %Pre-opening
    
    
    217,179
    
    
    
    133,078
    
    
    
    84,1001
    
    
    
    63.2
    %
    
    
    1.0
    %
    
    
    0.6
    %Occupancy
    
    
    1,333,839
    
    
    
    1,445,719
    
    
    
    (111,880
    )
    
    
    (7.7
    )%
    
    
    6.2
    %
    
    
    6.9
    %Depreciation and
amortization
    
    
    1,245,604
    
    
    
    1,027,199
    
    
    
    218,405
    
    
    
    21.3
    %
    
    
    5.8
    %
    
    
    4.9
    %Total operating
expenses
    
    $
    20,789,535
    
    
    $
    19,759,074
    
    
    $
    1,030,461
    
    
    
    5.2
    %
    
    
    97.1
    %
    
    
    94.8
    %
       33




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##### Table of Contents



INTEREST AND TAXES
   LIQUIDITY AND CAPITAL RESOURCES; EXPANSION PLANS
   
    
    Chesterfield, Michigan  BWW  construction began in the second
quarter of 2010 with an anticipated opening date of Sunday, August 22,
2010. The estimated cost of construction is approximately $950,000.
We anticipate borrowing up to 70% of the necessary funds and paying
the remaining balance through cash from operations.
    
    Ft. Myers, FL  BWW  construction is scheduled to begin in August
2010 with an anticipated opening date in the fourth quarter of 2010.
    
    Brighton, MI  Bagger Daves  construction is scheduled to begin in
September with an anticipated opening dated in the fourth quarter of
2010.
   34




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##### Table of Contents



OFF BALANCE SHEET ARRANGEMENTS
   Guarantees,
   35




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
   FASB Codification Discussion
 Accounting for Leases.
 FASB Accounting Standards
Codification, Leases.
 Property and Equipment
    36




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##### Table of Contents



Deferred Tax Assets
  
 Item 3. Quantitative and Qualitative Disclosure About Market Risks
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control
  
    
    During the 3rd Quarter of 2010, the Company adopted an internal policy requiring written
documentation of the accounting methods applied to significant accounting transactions and
the rationale for selecting such methods.
 
    
    During the 3rd Quarter of 2010, the Company adopted an internal policy requiring the
review, by a third-party subject matter expert, of material and complex transactions, such
as the Affiliates Acquisition that we completed on February 1, 2010.
  37




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Form 10-K
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 5. Other Information
   38




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##### Table of Contents



Item 6. Exhibits
  **2.1
    
    
    Brandon Property Purchase and Sale Agreement dated March 25, 2010 between our subsidiary, MCA
Enterprises, Brandon, Inc. and Florida Wings Group, LLC.*3.1
    
    
    Certificate of Incorporation.*3.2
    
    
    By-Laws.10.1
    
    
    Real Estate Loan Agreement dated June 23, 2010 between our subsidiary, MCA Enterprises
Brandon, Inc., and Bank of America N.A. (filed with Original Filing and not refiled herewith).10.2
    
    
    Bridge Loan Agreement dated June 23, 2010 between our subsidiary, MCA Enterprises Brandon,
Inc., and Bank of America N.A. (filed with Original Filing and not refiled herewith).10.3
    
    
    Promissory Note dated June 23, 2010 between our subsidiary, MCA Enterprises Brandon, Inc.,
and Florida Wings Group, LLC (filed with Original Filing and not refiled herewith).10.4
    
    
    Buffalo Wild Wings Franchise Agreement dated June 3, 2010 between our subsidiary, AMC Ft.
Myers, Inc., and Buffalo Wild Wings International, Inc. (filed with Original Filing and not
refiled herewith).***10.5
    
    
    RBS Development Line of Credit Agreement dated May 5, 2010 between DRH and RBS.***10.6
    
    
    RBS Credit Agreement dated May 5, 2010 between DRH and RBS.31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a).31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a).32.1
    
    
    Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes Oxley Act of 2002.32.2
    
    
    Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes Oxley Act of 2002.
 *
    
    Filed as an exhibit to the Companys Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission on August 10, 2007, and incorporated herein by this reference.**
    
    Filed with the Securities and Exchange Commission as an exhibit to the Companys Form 8-K on June
30, 2010.***
    
    Filed with the Securities and Exchange Commission as an exhibit to the Companys Form 8-K on May
10, 2010.  39




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##### Table of Contents



SIGNATURES
  Dated:  December 10, 2010
    DIVERSIFIED RESTAURANT HOLDINGS, INC.By:
    /s/ T. Michael AnsleyT. Michael AnsleyPresident and Chief Executive Officer
(Principal Executive Officer)By:
    /s/ David G. BurkeDavid G. BurkeChief Financial Officer
(Principal Financial and Accounting Officer)  40