##### 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 March 28, 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
    
    (I.R.S. employerincorporation or formation)
    
    identification number)
 
 
 (Former name, former address and former
 Copies to:  Michael T. Raymond
 Yes þ No o
 o o
 Yes o No þ
 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
 Yes o No o
 APPLICABLE ONLY TO CORPORATE ISSUERS
   Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ




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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 Stockholders Equity (Deficit) (Unaudited)
    
    
    3Consolidated Statements of Cash Flows (Unaudited)
    
    
    4Notes to Interim Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosure About Market Risks
    
    
    32Item 4. Controls and Procedures
    
    
    32PART II  OTHER INFORMATION
    
    
    33Item 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    34Exhibit 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)
 March 28
    
    
    December 272010
    
    
    2009 (a)(Restated)
    
    
    (Restated)ASSETSCurrent assetsCash and cash equivalents
    
    $
    1,294,021
    
    
    $
    1,594,362Accounts receivable  related party
    
    
    
    
    
    
    376,675Inventory
    
    
    302,170
    
    
    
    307,301Prepaid assets
    
    
    101,959
    
    
    
    152,702Accounts receivable  other
    
    
    32,456
    
    
    
    42,382Total current assets
    
    
    1,730,606
    
    
    
    2,473,422Property and equipment, net (Note 3)
    
    
    11,915,555
    
    
    
    11,655,513Intangible assets, net (Note 4)
    
    
    817,843
    
    
    
    751,779Other assets
    
    
    15,592
    
    
    
    49,280Deferred income taxes (Note 8)
    
    
    286,383
    
    
    
    246,754Total assets
    
    $
    14,765,979
    
    
    $
    15,176,748LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYCurrent liabilitiesCurrent portion of long-term debt (Note 6)
    
    $
    2,786,486
    
    
    $
    2,193,057Accounts payable
    
    
    841,419
    
    
    
    527,151Accrued liabilities
    
    
    791,869
    
    
    
    674,768Deferred rent
    
    
    104,940
    
    
    
    104,940Total current liabilities
    
    
    4,524,714
    
    
    
    3,499,916Accrued rent
    
    
    904,639
    
    
    
    846,014Deferred rent
    
    
    611,789
    
    
    
    638,024Related party payable
    
    
    
    
    
    
    430,351Other liabilities  interest rate swap
    
    
    214,074
    
    
    
    213,604Long-term debt, less current portion (Note 6)
    
    
    9,023,271
    
    
    
    6,767,041Total liabilities
    
    
    15,278,487
    
    
    
    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, respectfully, issued and outstanding
    
    
    1,888
    
    
    
    1,863Additional paid-in capital
    
    
    2,614,208
    
    
    
    2,356,155Retained earnings (accumulated deficit)
    
    
    (3,128,604
    )
    
    
    423,780Total stockholders equity (deficit)
    
    
    (512,508
    )
    
    
    2,781,798Total liabilities and stockholders equity (deficit)
    
    $
    14,765,979
    
    
    $
    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 EndedMarch 28
    
    
    March 312010
    
    
    2009(Restated)
    
    
    (Restated)RevenueFood and beverage sales
    
    $
    10,715,878
    
    
    $
    10,429,955Total revenue
    
    
    10,715,878
    
    
    
    10,429,955Operating expensesCompensation costs
    
    
    3,036,997
    
    
    
    2,798,559Food and beverage costs
    
    
    3,337,262
    
    
    
    3,265,105General and administrative
    
    
    2,560,725
    
    
    
    2,553,281Occupancy
    
    
    765,650
    
    
    
    723,542Depreciation and amortization
    
    
    604,889
    
    
    
    488,498Total operating expenses
    
    
    10,305,523
    
    
    
    9,828,985Operating profit
    
    
    410,355
    
    
    
    600,970Interest expense
    
    
    (169,733
    )
    
    
    (180,048
    )Other income, net
    
    
    17,221
    
    
    
    26,942Income before income taxes
    
    
    257,843
    
    
    
    447,864Income tax benefit (provision)
    
    
    (122,576
    )
    
    
    (101,884
    )Net income
    
    $
    135,267
    
    
    $
    345,980Basic earnings per share  as reported
    
    $
    0.007
    
    
    $
    0.019Fully diluted earnings per share  as reported
    
    $
    0.005
    
    
    $
    0.012Weighted average number of common shares
outstanding (Note 1 and 7)Basic
    
    
    18,870,505
    
    
    
    18,070,000Diluted
    
    
    29,020,000
    
    
    
    29,020,000
   2




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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 (UNAUDITED) (RESTATED)
 RetainedAdditional
    
    
    Earnings
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    (Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit)
    
    
    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)
    
    
    
    
    
    
    
    
    
    
    8,078
    
    
    
    
    
    
    
    8,078Aquisition of BWW restaurants (Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,134,790
    )
    
    
    (3,134,790
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (552,861
    )
    
    
    (552,861
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,267
    
    
    
    135,267Balances  March 28, 2010
    
    
    18,876,000
    
    
    $
    1,888
    
    
    $
    2,614,208
    
    
    $
    (3,128,604
    )
    
    $
    (512,508
    )
 (a)
    
    Amounts are derived from audited financial statements as of December 27, 2009.
   3




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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months EndedMarch 28
    
    
    March 312010
    
    
    2009(Restated)
    
    
    (Restated)Cash flows from operating activitiesNet income
    
    $
    135,267
    
    
    $
    345,980Adjustments to reconcile net income to
net cash provided by operating activitiesDepreciation and amortization
    
    
    570,013
    
    
    
    488,498Loss on disposal of property and equipment
    
    
    34,875
    
    
    
    Share-based compensation
    
    
    8,078
    
    
    
    8,078Deferred income tax benefit
    
    
    (39,629
    )
    
    
    154,761Changes in operating assets and liabilities that
provided (used) cashAccounts receivable  related party
    
    
    376,675
    
    
    
    46,520Accounts payable
    
    
    (116,083
    )
    
    
    (194,106
    )Inventory
    
    
    5,131
    
    
    
    17,023Prepaid assets
    
    
    50,743
    
    
    
    20,812Accounts receivable  other
    
    
    9,926
    
    
    
    181,994Intangible assets
    
    
    (73,117
    )
    
    
    Other assets
    
    
    33,688
    
    
    
    (11,780
    )Accrued liabilities
    
    
    117,101
    
    
    
    205,126Accrued rent
    
    
    58,625
    
    
    
    55,719Deferred rent
    
    
    (26,235
    )
    
    
    (28,366
    )Net cash provided by operating activities
    
    
    1,145,058
    
    
    
    1,290,259Cash flows from investing activitiesPurchases of property and equipment
    
    
    (607,877
    )
    
    
    (182,548
    )Net cash used for investing activities
    
    
    (607,877
    )
    
    
    (182,548
    )Cash flows from financing activitiesProceeds from issuance of long-term debt
    
    
    236,198
    
    
    
    426,597Repayments of long-term debt
    
    
    (770,859
    )
    
    
    (363,382
    )Proceeds from issuance of common stock
    
    
    250,000
    
    
    
    Distributions
    
    
    (552,861
    )
    
    
    (616,581
    )Net cash used for financing activities
    
    
    (837,522
    )
    
    
    (553,366
    )Net increase (decrease) in cash and cash equivalents
    
    
    (300,341
    )
    
    
    554,345Cash and cash equivalents, beginning of period
    
    
    1,594,362
    
    
    
    900,986Cash and cash equivalents, end of period
    
    $
    1,294,021
    
    
    $
    1,455,331
   4




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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
   
   5




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##### Table of Contents



Date ofSubsidiary
    
    Restaurant OpeningFlyer Enterprises, Inc.
(Sterling Heights, MI)
    
    December 1999*Anker, Inc.
(Fenton, MI)
    
    April 2001*TMA Enterprises of Novi, Inc.
(Novi, MI)
    
    June 2002*Bearcat Enterprises, Inc.
(Clinton Township, MI)
    
    December 2003*MCA Enterprises Brandon, Inc.
(Brandon, FL)
    
    June 2004*TMA Enterprises of Ferndale, Inc.
(Ferndale, MI)
    
    March 2005*Buckeye Group, LLC
(Riverview/Fish Hawk Ranch, FL)
    
    September 2005*Buckeye Group II, LLC
(Sarasota, FL)
    
    March 2006*AMC Warren, LLC
(Warren, MI)
    
    July 2006*AMC North Port, Inc.
(North Port, FL)
    
    August 2007AMC Riverview, Inc.
(Riverview, FL)
    
    August 2007AMC Grand Blanc, Inc.
(Grand Blanc, MI)
    
    March 2008AMC Troy, Inc.
(Troy, MI)
    
    July 2008AMC Petoskey, Inc.
(Petoskey, MI)
    
    August 2008AMC Flint, Inc.
(Flint, MI)
    
    December 2008AMC Port Huron, Inc.
(Port Huron, MI)
    
    June 2009
 *
    
    Acquired as part of the Affiliates Acquisition completed on February 1, 2010 (see Note 2 for
details).
   6




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##### Table of Contents



Accounting Standards Codification Accounting for Leases
 Principles of Consolidation
   Fiscal Year
  Segment Reporting
  Cash and Cash Equivalents
  Revenue Recognition
   7




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Accounts Receivable
  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)
   8




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Property and Equipment
   Depreciation and Amortization
  Advertising
  Income Taxes
  Earnings Per Share
 Earnings per Share
 Concentration Risks
  Use of Estimates
  Financial Instruments
   9




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Recent Accounting Pronouncements
 Statement of Financial Accounting Standards Subsequent Events
 Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles  a
Replacement of FASB Statement No. 162
   Reclassifications
  2. ACQUISITION OF NINE AFFILIATED BWW RESTAURANTS
   10




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Business Combinations: Transactions Between Entities Under
Common Control i.e.,
 3. PROPERTY AND EQUIPMENT
  March 28
    
    
    December 272010
    
    
    2009Equipment
    
    $
    7,038,423
    
    
    $
    6,710,092Furniture and fixtures
    
    
    1,895,850
    
    
    
    1,833,347Leasehold improvements
    
    
    12,074,667
    
    
    
    11,585,978Restaurant construction in progress
    
    
    70,283
    
    
    
    126,804Total
    
    
    21,079,223
    
    
    
    20,256,221Less accumulated depreciation
    
    
    (9,163,668
    )
    
    
    (8,600,708
    )Property and equipment, net
    
    $
    11,915,555
    
    
    $
    11,655,513
 4. INTANGIBLE ASSETS
  March 28
    
    
    December 272010
    
    
    2009Amortized intangible assetsFranchise fees
    
    $
    376,250
    
    
    $
    358,750Trademark
    
    
    2,500
    
    
    
    2,500Loan fees
    
    
    81,393
    
    
    
    66,565Total
    
    
    460,143
    
    
    
    427,815Less accumulated amortization
    
    
    (129,117
    )
    
    
    (122,064
    )Amortized intangible assets, net
    
    
    331,026
    
    
    
    305,751Unamortized intangible assetsLiquor licenses
    
    
    486,817
    
    
    
    446,028Total intangible assets, net
    
    $
    817,843
    
    
    $
    751,779
   11




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5. RELATED PARTY TRANSACTIONS
   Guarantees
     12




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6. LONG-TERM DEBT
  March 28
    
    
    December 272010
    
    
    2009Note payable to a bank secured by the
property and equipment of AMC Grand Blanc,
Inc. as well as corporate and personal
guarantees of DRH, certain stockholders,
and various related parties. The
agreement calls for interest only payments
through February 2009 with monthly
principal and interest payments of
approximately $15,000 for the period
beginning March 2009 through maturity in
February 2011. Interest is charged based
on the one month London InterBank Offered
Rate (LIBOR) plus 2.5% (effective annual
rate of approximately 2.75% at March 28,
2010).
    
    $
    162,596
    
    
    $
    206,396Note payable to a bank secured by the
property and equipment of AMC Grand Blanc,
Inc. as well as corporate and personal
guarantees of DRH, certain stockholders,
and various related parties. Scheduled
monthly principal and interest payments
are approximately $11,800 through maturity
in February 2015. Interest is charged
based on a swap arrangement designed to
yield a fixed annual rate of approximately
6.05%.
    
    
    607,867
    
    
    
    634,081Note payable to a bank secured by the
property and equipment of AMC Petoskey,
Inc. as well as corporate and personal
guarantees of DRH, certain stockholders,
and various related parties. The
agreement calls for interest only payments
through February 2009 with monthly
principal and interest payments of
approximately $14,800 for the period
beginning March 2009 through maturity in
February 2011. Interest is charged based
on the one month LIBOR plus 2.5%
(effective annual rate of approximately
2.75% at March 28, 2010).
    
    
    158,329
    
    
    
    201,510Note payable to a bank secured by the
property and equipment of AMC Petoskey,
Inc. as well as corporate and personal
guarantees of DRH, certain stockholders,
and various related parties. The
agreement calls for payments of principal
and interest of approximately $12,200 for
the period beginning July 2008 through
maturity in June 2015. Interest is
charged based on a swap arrangement
designed to yield a fixed annual rate of
approximately 6.98%.
    
    
    636,943
    
    
    
    661,651Note payable to a bank secured by the
property and equipment of Berkley Burgers,
Inc. as well as corporate and personal
guarantees of DRH, certain stockholders,
and various related parties. Scheduled
monthly principal and interest payments
are approximately $6,900, including annual
interest charged based on a swap
arrangement designed to yield a fixed
annual rate of approximately 6.95%. The
note matures in November 2014.
    
    
    346,641
    
    
    
    361,129Note payable to a bank secured by the
property and equipment of AMC Troy, Inc.
as well as corporate and personal
guarantees of DRH, certain stockholders,
and various related parties. The
agreement calls for monthly payments of
principal and interest of approximately
$15,600 for the period beginning July 2008
through maturity in June 2015. Interest
is charged based on a swap arrangement
designed to yield a fixed annual rate of
approximately 7.28%.
    
    
    804,380
    
    
    
    835,442
  13




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March 28
    
    
    December 272010
    
    
    2009Note payable to a bank secured by the
property and equipment of AMC Troy, Inc.
as well as corporate and personal
guarantees of DRH, certain stockholders,
and various related parties. The
agreement calls for a line of credit up to
$476,348, and interest only payments
through February 2009 with monthly
principal and interest payments of
approximately $8,600 for the period
beginning March 2009 through maturity in
February 2014. Interest is charged based
on the one month LIBOR plus 2.75%
(effective annual rate of approximately
3.00% at March 28, 2010).
    
    
    373,139
    
    
    
    396,957Note payable to a bank secured by the
property and equipment of AMC North Port,
Inc. as well as corporate and personal
guarantees of DRH, certain stockholders,
and various related parties. Scheduled
monthly principal and interest payments
are approximately $12,400 with annual
interest charged at 9.15%. The note
matures in November 2014.
    
    
    580,818
    
    
    
    604,373Note payable to a bank secured by the
property and equipment of AMC Riverview,
Inc. as well as corporate and personal
guarantees of DRH, certain stockholders,
and various related parties. Scheduled
monthly principal and interest payments
are approximately $12,200 with annual
interest charged at 8.67%. The note
matures in December 2014.
    
    
    587,903
    
    
    
    611,531Note payable to a bank secured by
generally all assets of Ann Arbor Burgers,
Inc. as well as personal guarantees of
certain stockholders and various related
parties. Scheduled monthly principal and
interest payments are approximately
$7,669. Interest is charged at a fixed
annual rate of approximately 7.50%. The
note matures in December 2015.
    
    
    428,757
    
    
    
    443,537Note payable to a bank secured by the
property and equipment of Flyer
Enterprises, Inc. as well as corporate and
personal guarantees of certain
stockholders and various related parties.
The agreement calls for monthly principal
and interest payments of approximately
$10,400 for the period beginning March
2008 through maturity in July 2013.
Interest is charged based a fixed rate of
6.30% per annum.
    
    
    146,552
    
    
    
    156,375Note payable to a bank secured by the
property and equipment of TMA Enterprises
of Ferndale, LLC as well as personal
guarantees of certain stockholders and
various related parties. Scheduled
monthly principal and interest payments
are approximately $11,200 through maturity
in August 2014. Interest is charged based
on a swap arrangement designed to yield a
fixed annual rate of approximately 7.60%.
    
    
    497,418
    
    
    
    520,968Note payable to a bank secured by the
property and equipment of Anker, Inc. as
well as personal guarantees of certain
stockholders and various related parties.
The agreement calls for monthly principal
and interest payments of approximately
$6,200 for the period beginning June 2003
through maturity in May 2021. Interest is
charged based on a fixed rate of 7.61% per
annum.
    
    
    210,585
    
    
    
    224,454
  14




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##### Table of Contents



March 28
    
    
    December 272010
    
    
    2009Note payable to a bank secured by the
property and equipment of TMA Enterprises
of Novi, Inc. and personal guarantees of
certain stockholders and various related
parties. The agreement calls for payments
of principal and interest of approximately
$11,300 for the period beginning June 2007
through maturity in May 2014. Interest is
charged based on a fixed rate of 8.20% per
annum.
    
    
    480,934
    
    
    
    503,407Note 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 December 31, 2009 was
approximately 3.95%. The note matures in
September 2014.
    
    
    60,633
    
    
    
    72,975Note payable to a bank secured by the
property and equipment of AMC Warren, LLC
as well as personal guarantees of certain
members and various related parties. The
agreement calls for monthly payments of
principal and interest of approximately
$12,600 through maturity in September
2013. Interest is charged based on a
fixed annual rate of approximately 8.63%.
    
    
    458,793
    
    
    
    485,088Note payable to a bank secured by the
property and equipment of MCA Enterprises
Brandon, Inc. as well as personal
guarantees of certain stockholders and
various related parties. The agreement
calls for monthly payments of principal
and interest of approximately $11,700 for
the period beginning August 2004 through
maturity in July 2011. Interest is
charged based on a fixed annual rate of
approximately 8.10%.
    
    
    179,062
    
    
    
    209,704Note payable to a bank secured by the
property and equipment of Buckeye Group,
LLC as well as personal guarantees of
certain members and various related
parties. Scheduled monthly principal and
interest payments are approximately
$10,900 with annual interest charged at
approximately 8.27%. The note matures in
December 2012.
    
    
    323,801
    
    
    
    348,637Note payable to a bank secured by the
property and equipment of Buckeye Group
II, LLC as well as personal guarantees of
certain members and various related
parties. Scheduled monthly principal and
interest payments are approximately
$11,900 with annual interest charged at
approximately 8.46%. The note matures in
April 2013.
    
    
    390,544
    
    
    
    416,672Note 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 0.00% rate. Scheduled
monthly principal payments are
approximately $430. The note matures in
April 2013.
    
    
    15,879
    
    
    
    17,167Obligation under capital leases (Note 10)
    
    
    889,442
    
    
    
    693,196Notes payable  related parties (Note 5)
    
    
    3,468,740
    
    
    
    354,848Total long-term debt
    
    $
    11,809,757
    
    
    $
    8,960,098Less current portion
    
    
    (2,786,486
    )
    
    
    (2,193,057
    )Long-term debt, net of current portion
    
    $
    9,023,271
    
    
    $
    6,767,041
  15




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##### Table of Contents



Year
    
    Amount2010
    
    $
    2,786,4862011
    
    
    2,301,2972012
    
    
    2,379,4932013
    
    
    1,870,1622014
    
    
    1,547,243Thereafter
    
    
    925,076Total
    
    $
    11,809,757
   7. CAPITAL STOCK (INCLUDING PURCHASE WARRANTS AND OPTIONS)
 Compensation-Stock Compensation
   16




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##### Table of Contents



Equity
Based Payments to Non-Employees
  8. INCOME TAXES
  March 28
    
    
    March 312010
    
    
    2009FederalCurrent
    
    $
    
    
    
    $
    Deferred
    
    
    (105,137
    )
    
    
    (33,650
    )StateCurrent
    
    
    (50,101
    )
    
    
    Deferred
    
    
    32,662
    
    
    
    (8,111
    )Income tax benefit (provision)
    
    $
    (122,576
    )
    
    $
    (41,761
    )
  March 28
    
    
    December 272010
    
    
    2009Income tax provision at federal statutory rate
    
    $
    (87,667
    )
    
    $
    (207,455
    )State income tax benefit (provision)
    
    
    (17,439
    )
    
    
    (57,585
    )Permanent differences
    
    
    34,581
    
    
    
    (32,111
    )Tax credits
    
    
    35,000
    
    
    
    93,500Other
    
    
    (87,051
    )
    
    
    (48,413
    )Income tax benefit (provision)
    
    $
    (122,576
    )
    
    $
    (252,064
    )
  17




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##### Table of Contents



March 28
    
    
    December 272010
    
    
    2009Deferred tax assets:Net operating loss carry forwards
    
    $
    457,131
    
    
    $
    954,370Deferred rent expense
    
    
    331,772
    
    
    
    78,998Start-up costs
    
    
    216,180
    
    
    
    104,327Tax credit carry forwards
    
    
    184,222
    
    
    
    164,366Swap loss recognized for book
    
    
    72,785
    
    
    
    56,970Other  including state deferred tax assets
    
    
    401,254
    
    
    
    193,781Total deferred assets
    
    
    1,663,344
    
    
    
    1,552,812Deferred tax liabilities:Other  including state deferred tax liabilities
    
    
    191,036
    
    
    
    146,325Tax depreciation in excess of book
    
    
    1,185,925
    
    
    
    1,159,733Total deferred tax liabilities
    
    
    1,376,961
    
    
    
    1,306,058Net deferred income tax assets
    
    $
    286,383
    
    
    $
    246,754
 Income Taxes
  Income Taxes,
      18




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##### Table of Contents



9. OPERATING LEASES (INCLUDING RELATED PARTY)
               19




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##### Table of Contents



Year
    
    Amount2010
    
    $
    2,520,0602011
    
    
    2,638,2972012
    
    
    2,724,7162013
    
    
    2,790,6602014
    
    
    2,672,635Thereafter
    
    
    10,082,067Total
    
    $
    23,428,435
 10. CAPITAL LEASES
    20




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##### Table of Contents



Year
    
    Amount2010
    
    $
    268,0852011
    
    
    357,4462012
    
    
    357,4462013
    
    
    48,6442014
    
    
    Total minimum lease payments
    
    
    1,031,621Less amount representing interest
    
    
    (142,179
    )Present value of minimum lease payments
    
    $
    889,442
 11. COMMITMENTS AND CONTINGENCIES
      21




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##### Table of Contents



12. SUPPLEMENTAL CASH FLOWS INFORMATION
 Other Cash Flows Information
   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).
   22




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##### Table of Contents



14. SUBSEQUENT EVENTS
   15. RESTATEMENTS
  Business Combinations: Transactions Between Entities Under Common
Control
 Income
Taxes
  23




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 March 28, 2010
    
    
    December 27, 2009As Previously
    
    
    
    
    
    
    As
    
    
    As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedASSETSTotal current assets
    
    
    1,730,606
    
    
    
    
    
    
    
    1,730,606
    
    
    
    1,144,061
    
    
    
    1,329,361
    
    
    
    2,473,422Deferred income taxes
    
    
    505,876
    
    
    
    (219,493
    )
    
    
    286,383
    
    
    
    246,754
    
    
    
    
    
    
    
    246,754Total other long-term assets
    
    
    12,748,990
    
    
    
    
    
    
    
    12,748,990
    
    
    
    8,327,412
    
    
    
    4,129,160
    
    
    
    12,456,572Total assets
    
    $
    14,985,472
    
    
    $
    (219,493
    )
    
    $
    14,765,979
    
    
    $
    9,718,227
    
    
    $
    5,458,521
    
    
    $
    15,176,748LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Total current liabilities
    
    
    4,524,714
    
    
    
    
    
    
    
    4,524,714
    
    
    
    2,080,354
    
    
    
    1,419,562
    
    
    
    3,499,916Total long-term liabilities
    
    
    10,753,773
    
    
    
    
    
    
    
    10,753,773
    
    
    
    5,445,161
    
    
    
    3,449,873
    
    
    
    8,895,034Total liabilities
    
    
    15,278,487
    
    
    
    
    
    
    
    15,278,487
    
    
    
    7,525,515
    
    
    
    4,869,435
    
    
    
    12,394,950Stockholders equity (deficit)Common stock
    
    
    1,888
    
    
    
    
    
    
    
    1,888
    
    
    
    1,863
    
    
    
    
    
    
    
    1,863Additional paid-in capital
    
    
    2,614,208
    
    
    
    
    
    
    
    2,614,208
    
    
    
    2,356,155
    
    
    
    
    
    
    
    2,356,155Retained earnings (accumulated deficit)
    
    
    (2,909,111
    )
    
    
    (219,493
    )
    
    
    (3,128,604
    )
    
    
    (165,306
    )
    
    
    589,086
    
    
    
    423,780Total stockholders equity (deficit)
    
    
    (293,015
    )
    
    
    (219,493
    )
    
    
    (512,508
    )
    
    
    2,192,712
    
    
    
    589,086
    
    
    
    2,781,798Total liabilities and stockholders equity (deficit)
    
    $
    14,985,472
    
    
    $
    (219,493
    )
    
    $
    14,765,979
    
    
    $
    9,718,227
    
    
    $
    5,458,521
    
    
    $
    15,176,748
  24




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Months Ended March 28, 2010
    
    
    Three Months Ended March 31, 2009As Previously
    
    
    
    
    
    
    As
    
    
    As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedRevenueFood and beverage sales
    
    $
    8,642,001
    
    
    $
    2,073,877
    
    
    $
    10,715,878
    
    
    $
    4,135,010
    
    
    $
    6,294,945
    
    
    $
    10,429,955Management and advertising fees
    
    
    165,886
    
    
    
    (165,886
    )
    
    
    
    
    
    
    456,529
    
    
    
    (456,529
    )
    
    
    Total revenue
    
    
    8,807,887
    
    
    
    1,907,991
    
    
    
    10,715,878
    
    
    
    4,591,539
    
    
    
    5,838,416
    
    
    
    10,429,955Operating expensesCompensation costs
    
    
    2,586,812
    
    
    
    450,185
    
    
    
    3,036,997
    
    
    
    1,359,207
    
    
    
    1,439,352
    
    
    
    2,798,559Food and beverage costs
    
    
    2,672,548
    
    
    
    664,714
    
    
    
    3,337,262
    
    
    
    1,281,996
    
    
    
    1,983,109
    
    
    
    3,265,105General and administrative
    
    
    2,157,855
    
    
    
    402,870
    
    
    
    2,560,725
    
    
    
    1,108,472
    
    
    
    1,444,809
    
    
    
    2,553,281Occupancy
    
    
    610,166
    
    
    
    155,484
    
    
    
    765,650
    
    
    
    274,397
    
    
    
    449,145
    
    
    
    723,542Depreciation and amortization
    
    
    522,560
    
    
    
    82,329
    
    
    
    604,889
    
    
    
    346,405
    
    
    
    142,093
    
    
    
    488,498Total operating expenses
    
    
    8,549,941
    
    
    
    1,755,582
    
    
    
    10,305,523
    
    
    
    4,370,477
    
    
    
    5,458,508
    
    
    
    9,828,985Operating profit
    
    
    257,946
    
    
    
    152,409
    
    
    
    410,355
    
    
    
    221,062
    
    
    
    379,908
    
    
    
    600,970Interest expense
    
    
    (150,283
    )
    
    
    (19,450
    )
    
    
    (169,733
    )
    
    
    (111,307
    )
    
    
    (68,741
    )
    
    
    (180,048
    )Other income, net
    
    
    13,091
    
    
    
    4,130
    
    
    
    17,221
    
    
    
    11,219
    
    
    
    15,723
    
    
    
    26,942Income before income taxes
    
    
    120,754
    
    
    
    137,089
    
    
    
    257,843
    
    
    
    120,974
    
    
    
    326,890
    
    
    
    447,864Income tax benefit (provision)
    
    
    110,516
    
    
    
    (233,092
    )
    
    
    (122,576
    )
    
    
    (41,761
    )
    
    
    (60,123
    )
    
    
    (101,884
    )Net income
    
    $
    231,270
    
    
    $
    (96,003
    )
    
    $
    135,267
    
    
    $
    79,213
    
    
    $
    266,767
    
    
    $
    345,980Basic earnings per share  as reported
    
    $
    0.012
    
    
    $
    (0.005
    )
    
    $
    0.007
    
    
    $
    0.004
    
    
    $
    0.015
    
    
    $
    0.019Fully diluted earnings per share  as
reported
    
    $
    0.008
    
    
    $
    (0.003
    )
    
    $
    0.005
    
    
    $
    0.003
    
    
    $
    0.009
    
    
    $
    0.012Weighted average number of common shares
outstandingBasic
    
    
    18,870,505
    
    
    
    
    
    
    
    18,870,505
    
    
    
    18,070,000
    
    
    
    
    
    
    
    18,070,000Diluted
    
    
    29,020,000
    
    
    
    
    
    
    
    29,020,000
    
    
    
    29,020,000
    
    
    
    
    
    
    
    29,020,000
  25




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED)
 Common Stock
    
    
    Additional
    
    
    Retained Earnings
    
    
    Total StockholdersBALANCES AS PREVIOUSLY REPORTED:
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    (Accumulated Deficit)
    
    
    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
    
    
    
    
    
    
    
    
    
    
    8,078
    
    
    
    
    
    
    
    8,078Aquisition of BWW restaurants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,975,075
    )
    
    
    (2,975,075
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    231,270
    
    
    
    231,270Balances  March 28, 2010
    
    
    18,876,000
    
    
    $
    1,888
    
    
    $
    2,614,208
    
    
    $
    (2,909,111
    )
    
    $
    (293,015
    )Common Stock
    
    
    Additional
    
    
    Retained Earnings
    
    
    Total StockholdersADJUSTMENTS:
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    (Accumulated Deficit)
    
    
    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
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96,003
    )
    
    
    (96,003
    )Balances  March 28, 2010
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (219,493
    )
    
    $
    (219,493
    )Common Stock
    
    
    Additional
    
    
    Retained Earnings
    
    
    Total StockholdersBALANCES AS RESTATED:
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    (Accumulated Deficit)
    
    
    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
    
    
    
    
    
    
    
    
    
    
    8,078
    
    
    
    
    
    
    
    8,078Aquisition of BWW restaurants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,134,790
    )
    
    
    (3,134,790
    )Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (552,861
    )
    
    
    (552,861
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,267
    
    
    
    135,267Balances  March 28, 2010
    
    
    18,876,000
    
    
    $
    1,888
    
    
    $
    2,614,208
    
    
    $
    (3,128,604
    )
    
    $
    (512,508
    )
  26




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three Months Ended March 28, 2010
    
    
    Three Months Ended March 31, 2009As Previously
    
    
    
    
    
    
    As
    
    
    As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedNet cash provided by operating activities
    
    $
    1,266,154
    
    
    $
    (121,096
    )
    
    $
    1,145,058
    
    
    $
    502,561
    
    
    $
    787,698
    
    
    $
    1,290,259Net cash used in investing activities
    
    
    (636,505
    )
    
    
    28,628
    
    
    
    (607,877
    )
    
    
    (26,496
    )
    
    
    (156,052
    )
    
    
    (182,548
    )Net cash provided by financing activities
    
    
    14,854
    
    
    
    (852,376
    )
    
    
    (837,522
    )
    
    
    198,275
    
    
    
    (751,641
    )
    
    
    (553,366
    )Net increase in cash and cash equivalents
    
    
    644,503
    
    
    
    (944,844
    )
    
    
    (300,341
    )
    
    
    674,340
    
    
    
    (119,995
    )
    
    
    554,345Cash and cash equivalents, beginning of
period
    
    
    649,518
    
    
    
    944,844
    
    
    
    1,594,362
    
    
    
    133,865
    
    
    
    767,121
    
    
    
    900,986Cash and cash equivalents, end of period
    
    $
    1,294,021
    
    
    $
    
    
    
    $
    1,294,021
    
    
    $
    808,205
    
    
    $
    647,126
    
    
    $
    1,455,331
  27




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 (The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with our consolidated 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, but not limited to, 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, and the cost of food and other raw
materials. Any one of these or other risks, uncertainties, other factors, or 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
 ® ® ®
 ACQUISITION
   RESULTS OF OPERATIONS
   28




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##### Table of Contents



March 28
    
    
    March 312010
    
    
    2009
    
    
    $
    
    
    %(Restated)
    
    
    (Restated)
    
    
    Change
    
    
    ChangeRevenueFood and beverage sales
    
    $
    10,715.878
    
    
    $
    10,429,955
    
    
    $
    285,923
    
    
    
    2.7
    %
  March 28
    
    
    March 31
    
    
    
    
    
    
    
    
    
    
    %
    
    
    %2010
    
    
    2009
    
    
    $
    
    
    %
    
    
    revenue
    
    
    revenue(Restated)
    
    
    (Restated)
    
    
    Change
    
    
    Change
    
    
    2010
    
    
    2009Operating expensesCompensation costs
    
    $
    3,036,997
    
    
    $
    2,798,559
    
    
    $
    238,438
    
    
    
    8.5
    %
    
    
    28.3
    %
    
    
    26.8
    %Food and beverage costs
    
    
    3,337,262
    
    
    
    3,265,105
    
    
    
    72,157
    
    
    
    2.2
    %
    
    
    31.1
    %
    
    
    31.3
    %General and administrative
    
    
    2,560,725
    
    
    
    2,553,281
    
    
    
    7,444
    
    
    
    0.3
    %
    
    
    23.9
    %
    
    
    24.5
    %Occupancy
    
    
    765,650
    
    
    
    723,542
    
    
    
    42,108
    
    
    
    5.8
    %
    
    
    7.1
    %
    
    
    6.9
    %Depreciation and amortization
    
    
    604,889
    
    
    
    488,498
    
    
    
    116,391
    
    
    
    23.8
    %
    
    
    5.6
    %
    
    
    4.7
    %Total operating expenses
    
    $
    10,305,523
    
    
    $
    9,828,985
    
    
    $
    476,538
    
    
    
    4.9
    %
    
    
    96.2
    %
    
    
    94.2
    %
       29




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES; EXPANSION PLANS
  
    
    Marquette, Michigan  BWW  currently under construction with a target
opening date in early June 2010. The estimated cost of construction is
approximately $1,037,000. We anticipate borrowing up to 70% of the
necessary funds and paying the remaining balance through cash from
operations.
    
    Chesterfield, Michigan  BWW  construction expected to begin in the
second quarter of 2010 with an estimated opening in the third quarter
of 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.
    OFF BALANCE SHEET ARRANGEMENTS
     30




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##### Table of Contents



Guarantees
  EXERCISE OF OPTION TO PURCHASE
  Subsidiary Name
    
    Restaurant Opening DateFlyer Enterprises, Inc. (Sterling Heights, MI)
    
    December 1999Anker, Inc. (Fenton, MI)
    
    April 2001TMA Enterprises of Novi, Inc. (Novi, MI)
    
    June 2002Bearcat Enterprises, Inc. (Clinton Township, MI)
    
    December 2003MCA Enterprises Brandon, Inc. (Brandon, FL)
    
    June 2004TMA Enterprises of Ferndale, Inc. (Ferndale, MI)
    
    March 2005Buckeye Group, LLC (Riverview, FL)
    
    September 2005Buckeye Group II, LLC (Sarasota, FL)
    
    March 2006AMC Warren, LLC (Warren, MI)
    
    July 2006
   31




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
   
 Item 3. Quantitative and Qualitative Disclosure About Market Risks
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control
  
    
    The Company retained a controller with public accounting expertise, on April 22, 2010,
to strengthen our internal accounting team.
 
    
    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 an outside subject matter expert, of material and complex transactions, such as
the Affiliates Acquisition that we completed on February 1, 2010.
  32




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Shares of CommonInvestor
    
    Date of Purchase
    
    
    Stock Acquired
    
    
    Consideration PaidJohn Bowling
    
    December 30, 2009
    
    
    
    100,000
    
    
    $
    100,000 cashJohn R. Burke
    
    December 30, 2009
    
    
    
    50,000
    
    
    $
    50,000 cashKenneth Bush
    
    December 30, 2009
    
    
    
    25,000
    
    
    $
    25,000 cashJohn Eric Bush
    
    December 30, 2009
    
    
    
    25,000
    
    
    $
    25,000 cashSteve Waddle
    
    December 30, 2009
    
    
    
    25,000
    
    
    $
    25,000 cashLarry Timmons
    
    December 30, 2009
    
    
    
    25,000
    
    
    $
    25,000 cash
 
 Item 3. Defaults Upon Senior Securities
  
 Item 5. Other Information
   33




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##### Table of Contents



Item 6. Exhibits
  *3.1
    
    
    Certificate of Incorporation.*3.2
    
    
    By-Laws.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.  34




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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)  35