##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the fiscal year ended December 26, 2010
 or
 o
    
    Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from  to .
 Commission File No. 000-53577
 DIVERSIFIED RESTAURANT HOLDINGS, INC.
  Nevada
    
    03-0606420(State of other jurisdiction of Incorporation
    
    (I.R.S. Employer Identification No.)or organization)
 27680 Franklin Rd., Southfield, MI 48034
 
 (248) 223-9160
 
   Common Stock, $.0001 par value per share
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



TABLE OF CONTENTS
 PagePART I
    
    
    3Item 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    25Item 2. Properties
    
    
    25Item 3. Legal Proceedings
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27PART II
    
    
    27Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    27Item 6. Selected Financial Data
    
    
    28Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    28Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 8. Consolidated Financial Statements and Supplementary Data
    
    
    34Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    34Item 9A. Controls and Procedures
    
    
    34Item 9B. Other Information
    
    
    35PART III
    
    
    35Item 10. Directors, Executive Officers and Corporate Governance
    
    
    35Item 11. Executive Compensation
    
    
    35Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    35Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    35Item 14. Principal Accountant Fees and Services
    
    
    35PART IV
    
    
    36Item 15. Exhibits and Financial Statement Schedules
    
    
    36SIGNATURES
    
    
    39Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I
  Cautionary Statement Regarding Forward Looking Information
    3




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ITEM 1.
    
    BUSINESS
 Introduction
  ®
 TM
  
  4




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www.diversifiedrestaurantholdings.com www.baggerdaves.com
  Background
   ®
 ®
  5




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Restaurant Concepts
 Buffalo Wild Wings
 ®
 ® ®
 Bagger Daves Legendary Burger TavernTM
  ® ® ®
 ® ® ®
 ® ®
  6




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® www.baggerdaves.com ® www.baggerdaves.com
 Significant Business Transactions
 Acquisition of Nine Affiliated BWW Restaurants
  Business Combinations: Transactions Between Entities Under Common Control i.e.
 Execution of $15 Million Comprehensive Debt Facility
    7




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Purchase of Building in Brandon, Florida
      Growth Strategy
    8




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®
   Site Selection
   Restaurant Operations
  Management and Staffing
  Training, Development, and Recruiting
   9




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Restaurants
   Metrics
  Quality Control and Purchasing
     10




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Marketing and Advertising
  BWW
   Bagger Daves
   Information Technology
  Competition
   11




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Employees
  Trademarks, Service Marks, and Trade Secrets
 ® .
 TM ® ® ® ® ® ® ® ® ® ® ® ® ®
 Government Regulations
    12




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Available Information
  www.diversifiedrestaurantholdings.com www.sec.gov
  
 ITEM 1A.
    
    RISK FACTORS
   Fluctuations in the Cost of Food Products Could Impact Operating Results
   13




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We May Suffer Negative Consequences if New Restaurants Dont Open in Timely Manner
  
    
    Locating and securing quality locations in new and existing markets;
 
    
    Negotiating acceptable leases or purchase agreements;
 
    
    Securing acceptable financing for new locations;
 
    
    Cost effective and timely planning, design, and build-out of restaurants;
 
    
    Attracting, recruiting, training, and retaining qualified team members;
 
    
    Hiring reputable and satisfactory construction contractors;
 
    
    Competition in new and existing markets;
 
    
    Obtaining and maintaining required local, state, and federal government approvals and
permits related to construction of the sites and the sale of food and alcoholic beverages;
 
    
    Creating brand awareness in new markets; and
 
    
    General economic conditions.
 We May Experience Higher-Than-Anticipated
Costs Associated With the Remodeling of Existing Restaurants
  Our Inability to Renew Existing Leases on Favorable Terms May Adversely Affect Our Results of
Operations
    14




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We May Not Be Able To Manage Our Growth
  Our Restaurants May Not Achieve Market Acceptance
  Competition in the Restaurant Industry May Affect Our Ability to Compete Effectively
  New Restaurants Added to Our Existing Markets May Take Sales from Existing Restaurants
  Acquisitions May Have Unanticipated Consequences That Could Harm Our Business and Our Financial
Condition
  
    
    material adverse effects on our operating results, particularly in the fiscal quarters
immediately following the acquisition as the acquired restaurants are integrated into our
operations;
 
    
    risks associated with entering into markets or conducting operations where we have no or
limited prior experience; and
 
    
    diversion of managements attention from other business concerns.
   15




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A Decline in Visitors to Any of the Business Districts Near the Locations of Our Restaurants Could
Negatively Affect Our Restaurant Sales
  Shortages or Interruptions in the Availability and Delivery of Food and Other Supplies May Increase
Costs or Reduce Revenues
  Unfavorable Publicity Could Harm Our Business
  Failure
to Establish, Maintain, and Control Our Internal Controls Over Financial Reporting Could Harm
Our Business and Financial Results
  Economic Conditions Could Have a Material Adverse Impact on Our Landlords or Other Tenants in
Retail Centers in Which We Are Located
   16




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Our Success Depends Substantially on the Value of Our Brands and Our Reputation for Offering Guests
an Unparalleled Guest Experience
  Our Marketing and Branding Strategies May Not Be Successful
  We May Not Be Able To Attract and Retain Qualified Team Members to Operate and Manage Our
Restaurants
  The Loss of Key Executives or Difficulties Recruiting and Retaining Qualified Team Members Could
Affect Our Performance
   17




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Legal Actions Could Have an Adverse Affect on Us
   18




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We May Not Be Able to Obtain and Maintain Licenses and Permits Necessary to Operate Our
Restaurants
  The Sale of Alcoholic Beverages at Our Restaurants Subjects Us to Additional Regulations and
Potential Liability
   Our Inability to Successfully and Sufficiently Raise Menu Prices Could Result in a Decline in
Profitability
   19




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Our  Operating Results May Fluctuate Due to the Timing of Special Events and Other
Factors
 ®
 We May Not Be Able to Protect Our Trademarks, Service Marks and Trade Secrets
   20




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There Can Be No Assurance That An Active Trading Market for Shares of Our Common Stock Will Develop
  Our Current Principal Stockholder Owns a Large Percentage of Our Voting Stock, Which Allows Him to
Control Substantially All Matters Requiring Stockholder Approval
  The Large Number of Shares Eligible for Public Sale and Registered for Resale Could Depress the
Market Price of Our Common Stock
  Since We Do Not Expect to Pay Any Dividends for the Foreseeable Future, Holders of Our Common Stock
May Be Forced to Sell Their Stock in Order to Obtain a Return on Their Investment
  Adverse Effect of Undesignated Stock
   21




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No Assurance of Profitability
  Possible Issuance of Additional Shares without Stockholder Approval Could Dilute Stockholders
  Penny Stock Regulations Could Inhibit the Trading Of Our Stock in the Secondary Market
  
    
    deliver a standardized risk disclosure document prepared by the SEC that provides
information about penny stocks and the nature and level of risks in the penny stock market;
 
    
    provide the customer with current bid and offer quotations for the penny stock;
 
    
    explain the compensation of the broker-dealer and its salesperson in the transaction;
 
    
    provide monthly account statements showing the market value of each penny stock held in
the customers account; and
 
    
    make a special written acknowledgment that the penny stock is a suitable investment for
the purchaser and receive the purchasers written agreement to the transaction.
  Actions by the Franchisor Could Negatively Affect Our Business and Operating Results
  Compliance with the Sarbanes-Oxley Act May Be Costly
   22




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Changes in Consumer Preferences or Discretionary Consumer Spending Could Harm our Performance
  We Are Susceptible To Adverse Trends and Economic Conditions in Michigan and Florida
   Our Ability to Raise Capital In The Future May Be Limited, Which Could Adversely Impact Our
Business
  Risks of Continuing Losses and Financial Covenant Violations
  Our Current Insurance May Not Provide Adequate Levels of Coverage against Claims
  An Impairment in the Carrying Value of Our Fixed Assets and / or Intangible Assets Could Adversely
Affect Our Financial Condition and Consolidated Results of Operations
   23




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If We Are Unable To Maintain Our Rights to Use Key Technologies of Third Parties, Our Business May
Be Harmed
  We May Incur Costs Resulting From Security Risks We Face in Connection With Our Electronic
Processing and Transmission of Confidential Customer Information
    24




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Changes in Public Health Concerns May Impact Our Performance
  Unpredictable Catastrophic Events Could Have a Material Adverse Effect
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
     25




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Open
    
    Description of
    
    
    
    SquareTenant
    
    Date
    
    Rented Space
    
    Patio?
    
    FeetCompany
Headquarters
27680 Franklin Road
Southfield, MI 48034
    
    N/A
    
    N/A
    
    N/A
    
    
    5,340Flyer Enterprises, Inc.
44671 Mound Road
Sterling Heights, MI 48314
    
    December 1999
    
    in-line
    
    no
    
    
    6,542Anker, Inc.
3190 Silver Lake Rd.
Fenton, MI 48430
    
    April 2001
    
    end cap
    
    yes
    
    
    6,105TMA Enterprises of Novi, Inc.
44375 Twelve Mile Rd.
Novi, MI 48377
    
    June 2002
    
    in-line
    
    no
    
    
    6,815Bearcat Enterprises, Inc.
15745 15 Mile Rd.
Clinton Twp., MI 48035
    
    December 2003
    
    free standing
    
    yes
    
    
    6,600MCA Enterprises Brandon, Inc.
2055 Badlands Drive
Brandon, FL 33511
    
    June 2004
    
    free standing
    
    yes
    
    
    6,600TMA Enterprises of Ferndale, LLC
280 W. Nine Mile Rd.
Ferndale, MI 48220
    
    March 2005
    
    in-line
    
    yes
    
    
    7,400Buckeye Group, LLC
13416 Boyette Rd.
Riverview, FL 33569
    
    September 2005
    
    end cap
    
    yes
    
    
    6,400Buckeye Group II
4067 Clark Rd.
Sarasota, FL 34233
    
    March 2006
    
    end cap
    
    yes
    
    
    6,500AMC Warren, LLC
29287 Mound Rd.
Warren, MI 48092
    
    July 2006
    
    end cap
    
    yes
    
    
    6,800AMC North Port, Inc.
4301 Aiden Lane
North Port, FL 34287
    
    August 2007
    
    end cap
    
    yes
    
    
    6,395AMC Riverview, Inc.
10607 Big Bend Road
Riverview, FL 33579
    
    August 2007
    
    end cap
    
    yes
    
    
    6,400AMC Grand Blanc, Inc.
8251 Trillium Circle Ave.; Ste. 102
Grand Blanc, MI 48439
    
    March 2008
    
    free standing
    
    yes
    
    
    6,000AMC Troy, Inc.
1873 E. Big Beaver Road
Troy, MI 48083
    
    July 2008
    
    end cap
    
    yes
    
    
    7,500AMC Petoskey, Inc.
2180 Anderson Rd., Ste. 150
Petoskey, MI 49770
    
    August 2008
    
    end cap
    
    yes
    
    
    6,200AMC Flint, Inc.
G-3192 South Linden Road
Flint, MI 48507
    
    December 2008
    
    end cap
    
    yes
    
    
    6,400AMC Port Huron, Inc.
4355 24th Avenue, Suite 1
Port Huron, MI 48059
    
    July 2009
    
    end cap
    
    yes
    
    
    6,500AMC Marquette, Inc.
2500 U.S. Highway 41 West
Marquette, MI 49855
    
    June 2010
    
    free standing
    
    yes
    
    
    5,606AMC Chesterfield, Inc.
51346 Gratiot Avenue
Chesterfield, MI 48051
    
    August 2010
    
    in-line
    
    yes
    
    
    6,250AMC Ft. Myers, Inc.
9390 Dynasty Drive; Suite 101
Ft. Myers, Florida 33905
    
    November 2010
    
    end cap
    
    yes
    
    
    5,303AMC Traverse City, Inc.
3480 S. Airport Road
Traverse City, MI 49684
    
    February 2011
    
    end cap
    
    yes
    
    
    6,183AMC Lakeland, Inc.
3750 US Highway 98
Lakeland, FL 33810
    
    February 2011
    
    free standing
    
    yes
    
    
    7,437Berkley Burgers, Inc.
2972 Coolidge Road
Berkley, MI 48072
    
    January 2008
    
    free standing
    
    no
    
    
    3,472Ann Arbor Burgers, Inc.
859 W. Eisenhower Parkway
Ann Arbor, MI 48103
    
    August 2008
    
    in-line
    
    no
    
    
    3,800Troy Burgers, Inc.
26054 Novi Road
Novi, MI 48375
    
    February 2010
    
    end cap
    
    yes
    
    
    4,200Brighton Burgers, Inc.
110 East Grand River
Brighton, MI 48116
    
    February 2011
    
    in-line
    
    yes
    
    
    4,643
  26




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##### Table of Contents



ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    (REMOVED AND RESERVED)
 
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Market Information
   2010
    
    
    2009High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    5.40
    
    
    
    1.01
    
    
    $
    5.25
    
    
    
    0.05Second Quarter
    
    
    5.40
    
    
    
    0.25
    
    
    
    5.75
    
    
    
    2.65Third Quarter
    
    
    5.40
    
    
    
    5.25
    
    
    
    5.25
    
    
    
    5.25Fourth Quarter
    
    
    5.25
    
    
    
    5.25
    
    
    
    5.40
    
    
    
    4.00
  Holders
  Dividends
   27




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Securities Authorized for Issuance Under Equity Compensation Plans
  
 ITEM 6.
    
    SELECTED FINANCIAL DATA
  
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 Overview
 ® ® ®
  28




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Acquisition of Nine Affiliated BWW Restaurants
 i.e.
 Execution of $15 Million Comprehensive Credit Facility
  Purchase of Building in Brandon, Florida
  Restaurant Openings
  2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007Beginning of year
    
    
    22
    
    
    
    9
    
    
    
    8
    
    
    
    2
    
    
    
    0Acquisitions
    
    
    0
    
    
    
    9
    
    
    
    0
    
    
    
    0
    
    
    
    0Openings
    
    
    3
    
    
    
    4
    
    
    
    1
    
    
    
    6
    
    
    
    2Planned Openings
    
    
    3Closures
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total owned restaurants
    
    
    28
    
    
    
    22
    
    
    
    9
    
    
    
    8
    
    
    
    2Affiliate restaurants under common control
    
    
    0
    
    
    
    0
    
    
    
    9
    
    
    
    9
    
    
    
    9Total managed restaurants
    
    
    28
    
    
    
    22
    
    
    
    18
    
    
    
    17
    
    
    
    11
  29




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##### Table of Contents



Results of Operations
  December 26
    
    
    December 27
    
    
    December 26
    
    
    December 272010
    
    
    2009
    
    
    2010
    
    
    2009RevenueFood and beverage sales
    
    $
    45,248,018
    
    
    $
    41,754,515
    
    
    
    100.0
    %
    
    
    100.0
    %Total revenue
    
    
    45,248,018
    
    
    
    41,754,515
    
    
    
    100.0
    %
    
    
    100.0
    %Operating expensesCompensation costs
    
    
    13,293,945
    
    
    
    11,470,244
    
    
    
    29.4
    %
    
    
    27.5
    %Food and beverage costs
    
    
    13,340,619
    
    
    
    13,029,103
    
    
    
    29.5
    %
    
    
    31.2
    %General and administrative
    
    
    10,738,464
    
    
    
    9,728,455
    
    
    
    23.7
    %
    
    
    23.3
    %Pre-opening
    
    
    654,764
    
    
    
    164,114
    
    
    
    1.4
    %
    
    
    0.4
    %Occupancy
    
    
    2,957,902
    
    
    
    2,935,363
    
    
    
    6.5
    %
    
    
    7.0
    %Depreciation and amortization
    
    
    2,679,133
    
    
    
    2,363,748
    
    
    
    5.9
    %
    
    
    5.7
    %Total operating expenses
    
    
    43,664,827
    
    
    
    39,691,027
    
    
    
    96.5
    %
    
    
    95.1
    %Operating profit
    
    
    1,583,191
    
    
    
    2,063,488
    
    
    
    3.5
    %
    
    
    4.9
    %Interest expense
    
    
    (1,202,299
    )
    
    
    (778,612
    )
    
    
    -2.7
    %
    
    
    -1.9
    %Other income, net
    
    
    28,317
    
    
    
    259,413
    
    
    
    0.1
    %
    
    
    0.6
    %Income before income taxes
    
    
    409,209
    
    
    
    1,544,289
    
    
    
    0.9
    %
    
    
    3.7
    %Income tax provision
    
    
    125,826
    
    
    
    (350,051
    )
    
    
    0.3
    %
    
    
    -0.8
    %Net income
    
    $
    535,035
    
    
    $
    1,194,238
    
    
    
    1.2
    %
    
    
    2.9
    %
 FISCAL YEAR 2010 COMPARED TO FISCAL YEAR 2009
 Revenue
    30




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##### Table of Contents



Operating Expenses
 % of Total Revenue
    
    
    ChangeDec. 26, 2010
    
    
    Dec. 27, 2009
    
    
    2010
    
    
    2009
    
    
    %Operating expensesCompensation costs
    
    $
    13,293,945
    
    
    
    11,470,244
    
    
    
    29.4
    %
    
    
    27.5
    %
    
    
    15.9
    %Food and beverage costs
    
    
    13,340,619
    
    
    
    13,029,103
    
    
    
    29.5
    %
    
    
    31.2
    %
    
    
    2.4
    %General and administrative
    
    
    10,738,464
    
    
    
    9,728,455
    
    
    
    23.7
    %
    
    
    23.3
    %
    
    
    10.4
    %Pre-opening
    
    
    654,764
    
    
    
    164,114
    
    
    
    1.4
    %
    
    
    0.4
    %
    
    
    299
    %Occupancy
    
    
    2,957,902
    
    
    
    2,935,363
    
    
    
    6.5
    %
    
    
    7.0
    %
    
    
    0.8
    %Depreciation and amortization
    
    
    2,679,133
    
    
    
    2,363,748
    
    
    
    5.9
    %
    
    
    5.7
    %
    
    
    13.3
    %Total operating expenses
    
    $
    43,664,827
    
    
    
    39,691,027
    
    
    
    96.5
    %
    
    
    95.1
    %
    
    
    10.0
    %
         31




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##### Table of Contents



Interest and Taxes
  Liquidity and Capital Resources; Expansion Plans
      
    
    Novi, Michigan  Bagger Daves  opened February 22, 2010
 
    
    Marquette, Michigan  BWW  opened June 6, 2010
 
    
    Chesterfield, Michigan  BWW  opened August 22, 2010
 
    
    Ft. Myers, Florida  BWW  opened November 7, 2010
 
    
    Traverse City, Michigan  BWW  opened February 7, 2011
 
    
    Lakeland, Florida  BWW  opened February 13, 2011
 
    
    Brighton, Michigan  Bagger Daves  opened February 27, 2011
   32




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##### Table of Contents



Mandatory Upgrades
  Discretionary Upgrades
  
    
    Sterling Heights, Michigan  BWW  in June 2010, we completed a remodel of this
location funded by cash from operations in the amount of $97,000. This remodel was
discretionary and consisted primarily of audio/video equipment upgrades and a freshening up
of the interior to enhance the guest experience.
 
    
    Ferndale, Michigan  BWW  in September 2010, we completed a remodel of this location
funded by cash from operations in the amount of $250,000 dollars. This remodel was
discretionary but strategic due to increased market competition and higher expectations of
our guests. It included audio/video equipment upgrades and significant interior
architectural changes.
 
    
    In 2011, the Company anticipates investing additional capital to upgrade up to six
existing locations, all of which will be funded by cash from operations. Timing and amounts
will vary but we expect these upgrades to each range from $65,000  250,000. These
improvements will primarily consist of audio/video equipment upgrades and outdoor patio
upgrades. One upgrade may consist of a building expansion to increase the seating
capacity.
   
    
    On February 1, 2010, the Company completed the Affiliates Acquisition, issuing
promissory notes totaling $3,134,790 in favor of the sellers. We anticipate expending
approximately $626,000 in principal and interest on an annual basis until February 2016 in
payment of these notes.
 
    
    On May 5, 2010, the Company, together with its wholly-owned subsidiaries, entered into a
$15 million Credit Facility with RBS Citizens, N.A., a national banking association. The
Credit Facility consists of a $6 million development line of credit and a $9 million senior
secured term loan. During 2010, we expended approximately $1 million in principal and
interest in repayment of this facility. We anticipate the annual amount expended for
principal and interest payments to be approximately $2,700,000 until the loan matures in
May 2017.
 
    
    On June 24, 2010, MCA Enterprises Brandon, Inc., a wholly-owned subsidiary of AMC Wings,
Inc., completed the purchase of its previously-leased BWW location at 2055 Badlands Drive,
Brandon, FL 33511 pursuant to the terms of a Purchase and Sale Agreement dated March 25,
2010, between MCA Brandon Enterprises, Inc. and Florida Wings Group, LLC. We anticipate
the annual amount expended for principal and interest payments related to this purchase to
be $189,000 until the loan matures in June 2030.
  33




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##### Table of Contents



Off Balance Sheet Arrangements
  
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8.
    
    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Evaluation of Internal Control and Procedures
    34




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 ITEM 9B.
    
    OTHER INFORMATION
  
 PART III
  
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
   35




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  
    
    Report of Independent Registered Public Accounting Firm dated
March 28, 2011 
Silberstein Ungar, PLLC
 
    
    Consolidated Balance Sheets  December 26, 2010 and December 27, 2009
 
    
    Consolidated Statements of Operations
 
    
    Consolidated Statement of Stockholders Equity
 
    
    Consolidated Statements of Cash Flows
 
    
    Notes to Consolidated Financial Statements
     EXHIBIT NO.
    
    EXHIBIT DESCRIPTION2.1
    
    
    Affiliates Acquisition Purchase Agreement dated February 1, 2010
(incorporated by reference to exhibit 2.1 of our Form 8-K filed
February 5, 2010)2.2
    
    
    Brandon Property Purchase and Sale Agreement dated March 25, 2010
between our subsidiary, MCA Enterprises, Brandon, Inc. and Florida
Wings Group, LLC (incorporated by reference to exhibit 10 of our
Form 8-K filed June 30, 2010).3.1
    
    
    Articles of Incorporation (incorporated by reference to our
registration statement on Form SB-2 (SEC File Number 333-145316),
as filed with the Securities and Exchange Commission on August 10,
2007)3.2
    
    
    Amended and Restated Certificate of Incorporation (incorporated by
reference to our registration statement on Form SB-2 (SEC File
Number 333-145316), as filed with the Securities and Exchange
Commission on August 10, 2007)3.3
    
    
    By-laws (incorporated by reference to our registration statement
on Form SB-2 (SEC File Number 333-145316), as filed with the
Securities and Exchange Commission on August 10, 2007)4.0
    
    
    Specimen Stock Certificate (incorporated by reference to our
registration statement on Form SB-2 (SEC File Number 333-145316),
as filed with the Securities and Exchange Commission on August 10,
2007)10.1
    
    
    Buffalo Wild Wings Franchise Agreement dated July 29, 2010 by and
between Buffalo Wild Wings International, Inc. and Anker, Inc., a
wholly-owned subsidiary of the Company (incorporated by reference
to exhibit 10.1 of our Form 10-Q filed November 12, 2010)10.2
    
    
    Renewal Addendum to Buffalo Wild Wings Franchise Agreement dated
July 29, 2010, by and between Buffalo Wild Wings International,
Inc. and Anker, Inc., a wholly-owned subsidiary of the Company
(incorporated by reference to exhibit 10.2 of our Form 10-Q filed
November 12, 2010)10.3
    
    
    Buffalo Wild Wings Area Development Agreement dated July 18, 2003,
by and between Buffalo Wild Wings International, Inc. and MCA
Enterprises, Inc. (subsequently assigned to AMC Wings, Inc., a
wholly-owned subsidiary of the Company) (incorporated by reference
to exhibit 10.3 of our Form 10-Q filed November 12, 2010)
  36




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##### Table of Contents



EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.4
    
    
    Transfer Agreement dated March 20, 2007, by MCA Enterprises
Brandon, Inc. (formerly MCA Enterprises, Inc.), T. Michael Ansley,
Mark C. Ansley, Thomas D. Ansley, Steven Menker, Jason Curtis and
AMC Wings, Inc. and Buffalo Wild Wings International, Inc.
(incorporated by reference to exhibit 10.4 of our Form 10-Q filed
November 12, 2010)10.5
    
    
    Amendment to Buffalo Wild Wings Area Development Agreement dated
March 20, 2007 (incorporated by reference to exhibit 10.5 of our
Form 10-Q filed November 12, 2010)10.6
    
    
    Amendment to Buffalo Wild Wings Area Development Agreement dated
November 5, 2007 (incorporated by reference to exhibit 10.5 of our
Form 10-Q filed November 12, 2010)10.7
    
    
    Buffalo Wild Wings Franchise Agreement dated September 7, 2010, by
and between Buffalo Wild Wings International, Inc. and AMC
Traverse City, Inc., a wholly-owned subsidiary of the Company
(incorporated by reference to exhibit 10.1 to our Form 8-K filed
September 10, 2010)10.8
    
    
    Buffalo Wild Wings Franchise Agreement dated September 7, 2010, by
and between Buffalo Wild Wings International, Inc. and AMC
Lakeland, Inc., a wholly-owned subsidiary of the Company
(incorporated by reference to exhibit 10.2 to our Form 8-K filed
September 10, 2010)10.9
    
    
    Form of Stock Option Agreement (incorporated by reference to
exhibit 10.1 to our Form 8-K filed August 5, 2010)10.10
    
    
    Amendment to Buffalo Wild Wings Area Development Agreement dated
December 27, 2003 (incorporated by reference to exhibit 10.12 of
our Form 10-Q filed November 12, 2010)10.11
    
    
    Real Estate Loan Agreement dated June 23, 2010 between our
subsidiary, MCA Enterprises Brandon, Inc., and Bank of America
N.A. (incorporated by reference to exhibit 10.1 to our Form 10-Q
filed August 10, 2010)10.12
    
    
    Bridge Loan Agreement dated June 23, 2010 between our subsidiary,
MCA Enterprises Brandon, Inc., and Bank of America N.A.
(incorporated by reference to exhibit 10.2 to our Form 10-Q filed
August 10, 2010).10.13
    
    
    Buffalo Wild Wings Franchise Agreement dated June 3, 2010 between
our subsidiary, AMC Ft. Myers, Inc., and Buffalo Wild Wings
International, Inc. (incorporated by reference to exhibit 10.4 to
our Form 10-Q filed August 10, 2010).10.14
    
    
    RBS Credit Agreement dated May 5, 2010 between DRH and RBS (filed
with the Securities and Exchange Commission as an exhibit to the
Companys Form 8-K on May 10, 2010)10.15
    
    
    Buffalo Wild Wings Retail Center Lease dated December 7, 2009
between our subsidiary, AMC Marquette, Inc., and Centrup
Hospitality, LLC (incorporated by reference to exhibit 10 of our
Form 8-K filed December 11, 2009)10.16
    
    
    Buffalo Wild Wings Retail Center Lease dated December 2, 2009
between our subsidiary, AMC Chesterfield, Inc., and Chesterfield
Development Company, LLC (incorporated by reference to exhibit 10
for our Form 8-K filed December 7, 2009)10.17
    
    
    Buffalo Wild Wings Franchise Agreement dated October 20, 2009
between our subsidiary, AMC Marquette, Inc., and Buffalo Wild
Wings International, Inc. (incorporated by reference to exhibit
10.1 of our Form 8-K filed October 26, 2009)10.18
    
    
    Buffalo Wild Wings Franchise Agreement dated October 20, 2009
between our subsidiary, AMC Chesterfield, Inc., and Buffalo Wild
Wings International, Inc. (incorporated by reference to exhibit
10.2 of our Form 8-K filed October 26, 2009)10.19
    
    
    Master Lease Agreement dated September 9, 2009 between our
subsidiary, Troy Burgers, Inc., and Novi Town Center Investors,
LLC (incorporated by reference to exhibit 10 of our Form 8-K filed
September 10, 2009)
  37




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##### Table of Contents



EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.20
    
    
    Master Lease Agreement dated February 12, 2009 between our
subsidiary, AMC Flint, Inc., and CoActiv Capital Partners, Inc.
(incorporated by reference to exhibit 10 of our Form 8-K filed
February 17, 2009)10.21
    
    
    Buffalo Wild Wings Amendment to Area Development Agreement dated
December 10, 2008 between our subsidiary, AMC Wings, Inc., and
Buffalo Wild Wings International, Inc. (incorporated by reference
to exhibit 10.1 of our Form 8-K filed December 15, 2008)10.22
    
    
    Buffalo Wild Wings Franchise Agreement dated July 1, 2008 between
our subsidiary, AMC Port Huron, Inc., and Buffalo Wild Wings
International, Inc. (incorporated by reference to exhibit 10 of
our form 8-K filed July 8, 2008)10.23
    
    
    Buffalo Wild Wings Franchise Agreement dated July 1, 2008 between
our subsidiary, AMC Flint, Inc., and Buffalo Wild Wings
International, Inc. (incorporated by reference to exhibit 10 of
our form 8-K filed July 8, 2008)10.24
    
    
    Retail Center Lease dated June 30, 2008 between our subsidiary,
AMC Port Huron, Inc., and Port Builders, Inc., Walter Sparling and
Mary L. Sparling (incorporated by reference to exhibit 10 of our
form 8-K filed July 7, 2008)10.25
    
    
    Retail Center Lease dated June 30, 2008 between our subsidiary,
AMC Flint, Inc., and Ramco-Gershenson Properties, L.P.
(incorporated by reference to exhibit 10 of our form 8-K filed
July 7, 2008)10.26
    
    
    Form of Stock Option Agreement, dated July 30, 2007, entered into
by and between the Company and Directors Gregory Stevens, T.
Michael Ansley, Jay Alan Dusenberry, Jason T. Curtis and David
Ligotti (incorporated by reference to exhibit 10.24 of our Form 10-K filed March 26, 2010)14
    
    
    Code of Ethics (incorporated by reference to our Form 10-K for the
fiscal year ended December 31, 2008, as filed with the Securities
and Exchange Commission on March 31, 2009)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 200232.2
    
    
    Certification of Chief Financial Officer pursuant to Section 906
of Sarbanes Oxley Act of 2002
  38




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC.By:
    /s/ T. Michael AnsleyT. Michael AnsleyPresident, Chief Executive Officer, Director, 
Chairman of the Board, and Principal Executive Officer  Signatures/s/ T. Michael Ansley

T. Michael Ansley
President, Chief Executive Officer, Director,
Chairman of the Board, and Principal Executive
Officer
    
    Dated: March 28, 2011/s/ David G. Burke

David Gregory Burke
Treasurer, Chief Financial Officer, Director,
Principal Financial Officer, and Principal
Accounting Officer
    
    Dated: March 28, 2011/s/ Jason T. Curtis

Jason T. Curtis
Chief Operating Officer
    
    Dated: March 28, 2011/s/ Jay Alan Dusenberry

Jay Alan Dusenberry
Secretary, Director
    
    Dated: March 28, 2011/s/ David Ligotti

David Ligotti
Director
    
    Dated: March 28, 2011/s/ Gregory J. Stevens

Gregory J. Stevens
Director
    
    Dated: March 28, 2011/s/ Joseph M. Nowicki

Joseph M. Nowicki
Director
    
    Dated: March 28, 2011/s/ Philip Friedman

Philip Friedman
Director
    
    Dated: March 28, 2011
  39




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC.
 Index to Consolidated Financial Statements
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    F-1REPORT BY DIVERSIFIED RESTAURANT HOLDINGS, INC.S MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    
    
    F-2CONSOLIDATED FINANCIAL STATEMENTS:CONSOLIDATED BALANCE SHEETS
    
    
    F-3CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    F-4CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
    
    
    F-5CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY(DEFICIT)
    
    
    F-6CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    F-7NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-8
  40




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##### Table of Contents



Silberstein Ungar, PLLC
 CPAs and Business Advisors
 phone (248) 203-0080
fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025
 www.sucpas.com
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ Silberstein Ungar, PLLC
 
 
  F-1




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##### Table of Contents



REPORT BY DIVERSIFIED RESTAURANT HOLDINGS, INC.S MANAGEMENT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Internal Control  Integrated Framework
  Diversified Restaurant Holdings, Inc./s/ T. Michael AnsleyT. Michael AnsleyChairman of the Board, President, Chief Executive Officer,and Principal Executive Officer/s/ David G. BurkeDavid G. BurkeChief Financial Officer, Treasurer, Principal Financial Officer,and Principal Accounting Officer
  F-2




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 December 26
    
    
    December 272010
    
    
    2009ASSETSCurrent assetsCash and cash equivalents
    
    $
    1,305,031
    
    
    $
    1,594,362Accounts receivable  related party
    
    
    
    
    
    
    376,675Inventory
    
    
    339,059
    
    
    
    307,301Prepaid assets
    
    
    209,708
    
    
    
    152,702Other current assets
    
    
    43,348
    
    
    
    42,382Total current assets
    
    
    1,897,146
    
    
    
    2,473,422Property and equipment, net (Note 3)
    
    
    17,252,599
    
    
    
    11,655,513Intangible assets, net (Note 4)
    
    
    975,461
    
    
    
    789,279Other long-term assets
    
    
    63,539
    
    
    
    11,780Deferred income taxes (Note 8)
    
    
    607,744
    
    
    
    246,754Total assets
    
    $
    20,796,489
    
    
    $
    15,176,748LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYCurrent liabilitiesCurrent portion of long-term debt (Note 6)
    
    $
    1,858,262
    
    
    $
    2,443,057Accounts payable
    
    
    1,388,397
    
    
    
    527,151Accrued liabilities
    
    
    1,089,112
    
    
    
    674,768Deferred rent
    
    
    127,075
    
    
    
    104,940Total current liabilities
    
    
    4,462,846
    
    
    
    3,749,916Accrued rent
    
    
    793,774
    
    
    
    846,014Deferred rent
    
    
    928,757
    
    
    
    638,024Related party payable
    
    
    
    
    
    
    430,351Other liabilities  interest rate swap
    
    
    367,181
    
    
    
    213,604Long-term debt, less current portion (Note 6)
    
    
    14,706,756
    
    
    
    6,517,041Total liabilities
    
    
    21,259,314
    
    
    
    12,394,950Commitments and contingencies (Notes 5, 6, 9, 10, and 11)Stockholders (deficit) equity (Note 7)Common stock  $0.0001 par value; 100,000,000 shares authorized, 18,876,000
and 18,626,000 shares, respectively, issued and outstanding
    
    
    1,888
    
    
    
    1,863Additional paid-in capital
    
    
    2,631,304
    
    
    
    2,356,155Retained earnings (accumulated deficit)
    
    
    (2,728,836
    )
    
    
    423,780Comprehensive (loss) income
    
    
    (367,181
    )
    
    
    Total
stockholders (deficit) equity
    
    
    (462,825
    )
    
    
    2,781,798Total
liabilities and stockholders (deficit) equity
    
    $
    20,796,489
    
    
    $
    15,176,748
   F-3




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 December 26
    
    
    December 272010
    
    
    2009RevenueFood and beverage sales
    
    $
    45,248,018
    
    
    $
    41,754,515Total revenue
    
    
    45,248,018
    
    
    
    41,754,515Operating expensesCompensation costs
    
    
    13,293,945
    
    
    
    11,470,244Food and beverage costs
    
    
    13,340,619
    
    
    
    13,029,103General and administrative
    
    
    10,738,464
    
    
    
    9,728,455Pre-opening
    
    
    654,764
    
    
    
    164,114Occupancy
    
    
    2,957,902
    
    
    
    2,935,363Depreciation and amortization
    
    
    2,679,133
    
    
    
    2,363,748Total operating expenses
    
    
    43,664,827
    
    
    
    39,691,027Operating profit
    
    
    1,583,191
    
    
    
    2,063,488Interest expense
    
    
    (1,202,299
    )
    
    
    (778,612
    )Other income, net
    
    
    28,317
    
    
    
    259,413Income before income taxes
    
    
    409,209
    
    
    
    1,544,289Income tax
benefit (provision)
    
    
    125,826
    
    
    
    (350,051
    )Net income
    
    $
    535,035
    
    
    $
    1,194,238Basic earnings per share  as reported
    
    $
    0.03
    
    
    $
    0.07Fully diluted earnings per share  as reported
    
    $
    0.19
    
    
    $
    0.40Weighted average number of common shares outstanding (Notes 1 and 7)Basic
    
    
    18,871,879
    
    
    
    18,070,000Diluted
    
    
    29,125,000
    
    
    
    29,020,000
   F-4




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 December 26
    
    
    December 272010
    
    
    2009Net income
    
    $
    535,035
    
    
    $
    1,194,238Comprehensive incomeUnrealized
changes in fair
value of cash
flow hedges
    
    
    (367,181
    )
    
    
    Comprehensive income
    
    $
    167,854
    
    
    $
    1,194,238
   F-5




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS (DEFICIT) EQUITY
 RetainedAdditional
    
    
    Earnings
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit)
    
    
    (Loss) Income
    
    
    (Deficit) EquityBalances  December 31, 2008
    
    
    18,070,000
    
    
    $
    1,807
    
    
    $
    1,758,899
    
    
    $
    525,332
    
    
    $
    
    
    
    $
    2,286,038Share-based compensation (Note 7)
    
    
    
    
    
    
    
    
    
    
    32,312
    
    
    
    
    
    
    
    
    
    
    $
    32,312Exercise of employee stockoptions (Note 7)
    
    
    6,000
    
    
    
    1
    
    
    
    14,999
    
    
    
    
    
    
    
    
    
    
    $
    15,000Shares issued for warrants exercised at $1.00
per share (Note 7)
    
    
    550,000
    
    
    
    55
    
    
    
    549,945
    
    
    
    
    
    
    
    
    
    
    $
    550,000Dividends
paid prior to acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,295,790
    )
    
    
    
    
    
    $
    (1,295,790
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,194,238
    
    
    
    
    
    
    $
    1,194,238Balances  December 27, 2009
    
    
    18,626,000
    
    
    
    1,863
    
    
    
    2,356,155
    
    
    
    423,780
    
    
    
    0
    
    
    
    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)
    
    
    
    
    
    
    
    
    
    
    25,174
    
    
    
    
    
    
    
    
    
    
    
    25,174Acquisition of BWW restaurants (Note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,134,790
    )
    
    
    
    
    
    
    (3,134,790
    )Dividends
paid prior to acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (552,861
    )
    
    
    
    
    
    
    (552,861
    )Unrealized changes in fair value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (367,181
    )
    
    
    (367,181
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    535,035
    
    
    
    
    
    
    
    535,035Balances  December 26, 2010
    
    
    18,876,000
    
    
    $
    1,888
    
    
    $
    2,631,304
    
    
    $
    (2,728,836
    )
    
    $
    (367,181
    )
    
    $
    (462,825
    )
   F-6




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 December 26
    
    
    December 272010
    
    
    2009Cash flows from operating activitiesNet income
    
    $
    535,035
    
    
    $
    1,194,238Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    2,679,133
    
    
    
    2,363,748Loss on disposal of property and equipment
    
    
    20,966
    
    
    
    310Share-based compensation
    
    
    25,174
    
    
    
    32,312Deferred income taxes
    
    
    (360,990
    )
    
    
    353,203Decrease
(increase) in operating assets:Accounts receivable  related party
    
    
    376,675
    
    
    
    165,134Inventory
    
    
    (31,758
    )
    
    
    35,508Prepaid assets
    
    
    (57,006
    )
    
    
    (41,718
    )Other current assets
    
    
    (966
    )
    
    
    4,115Intangible assets
    
    
    (82,666
    )
    
    
    (48,710
    )Other long-term assets
    
    
    (51,759
    )
    
    
    (11,780
    )Increase
(decrease) in operating liabilities:Accounts payable
    
    
    861,246
    
    
    
    (272,129
    )Accrued liabilities
    
    
    414,344
    
    
    
    75,498Accrued rent
    
    
    (52,240
    )
    
    
    200,357Deferred rent
    
    
    312,868
    
    
    
    (112,470
    )Net cash provided by (used in) operating activities
    
    
    4,588,056
    
    
    
    3,939,406Cash flows from investing activitiesPurchases of property and equipment
    
    
    (5,827,947
    )
    
    
    (718,070
    )Net cash provided by (used in) investing activities
    
    
    (5,827,947
    )
    
    
    (718,070
    )Cash flows from financing activitiesProceeds from issuance of long-term debt and notes payable
    
    
    3,450,746
    
    
    
    694,986Repayments of long-term debt and notes payable
    
    
    (2,197,325
    )
    
    
    (2,620,629
    )Proceeds from issuance of common stock
    
    
    250,000
    
    
    
    565,000Dividends
paid prior to acquisition
    
    
    (552,861
    )
    
    
    (1,295,790
    )Net cash provided by (used in) financing activities
    
    
    950,560
    
    
    
    (2,656,433
    )Net increase (decrease) in cash and cash equivalents
    
    
    (289,331
    )
    
    
    564,903Cash and cash equivalents, beginning of period
    
    
    1,594,362
    
    
    
    1,029,459Cash and cash equivalents, end of period
    
    $
    1,305,031
    
    
    $
    1,594,362
   F-7




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##### Table of Contents



1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
 TM
  
    F-8




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##### Table of Contents



Accounting for Leases,
 Principles of Consolidation
   Fiscal Year
  Segment Reporting
   F-9




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##### Table of Contents



Cash and Cash Equivalents
  Revenue Recognition
  Accounts Receivable  Related Party
  Accounting for Gift Cards
    Lease Accounting
   F-10




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##### Table of Contents



Inventory
  Prepaid Expenses and Other Assets
  Franchise fees
    
    10 to 20 yearsTrademarks
    
    15 yearsLoan fees
    
    2 to 7 years (loan term)
  Property and Equipment
    Advertising
  Pre-opening Costs
   F-11




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##### Table of Contents



Income Taxes
  Earnings Per Common Share
 Earnings per Share
 Concentration Risks
  Use of Estimates
  Financial Instrument
      F-12




---



##### Table of Contents



Recent Accounting Pronouncements
 Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. Fair Value Measurements and Disclosures
 Amendments to Certain Recognition and Disclosure
Requirements
  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 Debt Facility
   F-13




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##### Table of Contents



Purchase of Building in Brandon, Florida
      F-14




---



##### Table of Contents



3. PROPERTY AND EQUIPMENT, NET
  December 26
    
    
    December 272010
    
    
    2009Land
    
    $
    385,959
    
    
    $
    Building
    
    
    2,255,246
    
    
    
    Equipment
    
    
    8,140,417
    
    
    
    6,710,092Furniture and fixtures
    
    
    2,216,347
    
    
    
    1,833,347Leasehold improvements
    
    
    13,925,216
    
    
    
    11,585,978Restaurant construction-in-progress
    
    
    1,247,265
    
    
    
    126,804Total
    
    
    28,170,450
    
    
    
    20,256,221Less accumulated depreciation
    
    
    (10,917,851
    )
    
    
    (8,600,708
    )Property and equipment, net
    
    $
    17,252,599
    
    
    $
    11,655,513
 4. INTANGIBLE ASSETS
  December 26
    
    
    December 272010
    
    
    2009Amortized intangiblesFranchise fees
    
    $
    373,750
    
    
    $
    358,750Trademark
    
    
    7,475
    
    
    
    2,500Loan fees
    
    
    155,100
    
    
    
    66,565Total
    
    
    536,325
    
    
    
    427,815Less accumulated amortization
    
    
    (115,246
    )
    
    
    (122,064
    )Amortized intangibles, net
    
    
    421,079
    
    
    
    305,751Unamortized intangiblesLiquor licenses
    
    
    554,382
    
    
    
    483,528Total intangibles
    
    $
    975,461
    
    
    $
    789,279
  5. RELATED PARTY TRANSACTIONS
    F-15




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##### Table of Contents



Guarantees,
    6. LONG-TERM DEBT
  December 26
    
    
    December 272010
    
    
    2009Note payable 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%.
    
    $
    8,399,538
    
    
    
    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).
    
    
    1,141,188
    
    
    
    Note payable to a bank secured by a
junior mortgage on the Brandon Property.
Matures in 2030 and requires monthly
principal and interest installments of
approximately $6,100 until maturity.
Interest is charged at a rate of 3.58%
per annum.
    
    
    915,446
    
    
    
    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 December
26, 2010 was approximately 4.26%). In
November 2011, 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.
    
    
    1,424,679
    
    
    
    
  F-16




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##### Table of Contents



December 26
    
    
    December 272010
    
    
    2009Note payable to a bank secured by a
senior lien on all company assets.
Scheduled monthly principal and interest
payments are approximately $22,000
through maturity in May 2017. Interest is
charged based on a swap arrangement
designed to yield a fixed annual rate of
5.91%.
    
    
    1,379,098Unsecured 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.
    
    
    241,832
    
    
    
    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 December 26, 2010 was
approximately 3.96%. The note was repaid
during 2010.
    
    
    
    
    
    
    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.
    
    
    12,016
    
    
    
    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
May 5, 2010 Credit Facility.
    
    
    
    
    
    
    7,821,912Obligations under capital leases (Note 10)
    
    
    
    
    
    
    693,196Notes payable  related parties (Note 5)
    
    
    3,051,221
    
    
    
    354,848Total long-term debt
    
    
    16,565,018
    
    
    
    8,960,098Less current portion
    
    
    (1,858,262
    )
    
    
    (2,443,057
    )Long-term debt, net of current portion
    
    $
    14,706,756
    
    
    $
    6,517,041
  F-17




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##### Table of Contents



Year
    
    Amount2011
    
    $
    1,858,2622012
    
    
    1,812,6242013
    
    
    2,134,7242014
    
    
    2,040,5482015
    
    
    2,175,219Thereafter
    
    
    6,543,641Total
    
    $
    16,565,018
   7. CAPITAL STOCK (INCLUDING PURCHASE WARRANTS AND OPTIONS)
   Compensation-Stock Compensation
  F-18




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##### Table of Contents



Equity Based Payments
to Non-Employees
  8. INCOME TAXES
  December 26
    
    
    December 272010
    
    
    2009FederalCurrent
    
    $
    
    
    
    $
    Deferred
    
    
    259,350
    
    
    
    (194,480
    )StateCurrent
    
    
    (36,502
    )
    
    
    (17,427
    )Deferred
    
    
    (97,022
    )
    
    
    (40,157
    )Income Tax (Provision) Benefit
    
    $
    125,826
    
    
    $
    (252,064
    )
  December 26
    
    
    December 272010
    
    
    2009Income tax (provision) benefit at federal statutory rate
    
    $
    (87,855
    )
    
    $
    (207,455
    )State income tax (provision) benefit
    
    
    (133,524
    )
    
    
    (57,585
    )Permanent differences
    
    
    (81,799
    )
    
    
    (32,111
    )Tax credits
    
    
    347,989
    
    
    
    93,500Other
    
    
    81,015
    
    
    
    (48,413
    )Income tax (provision) benefit
    
    $
    125,826
    
    
    $
    (252,064
    )
  F-19




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##### Table of Contents



December 26
    
    
    December 272010
    
    
    2009Deferred tax assets:Net operating loss carry forwards
    
    $
    1,252,609
    
    
    $
    954,370Deferred rent expense
    
    
    68,509
    
    
    
    78,998Start-up costs
    
    
    190,076
    
    
    
    104,327Tax credit carry-forwards
    
    
    540,533
    
    
    
    164,366Swap loss recognized for book
    
    

    
    
    
    56,970Other  including state deferred tax assets
    
    
    487,139
    
    
    
    193,781Total deferred assets
    
    
    2,538,866
    
    
    
    1,552,812Deferred tax liabilities:Other  including state deferred tax assets
    
    
    547,522
    
    
    
    146,325Tax depreciation in excess of book
    
    
    1,505,800
    
    
    
    1,159,733Total deferred tax liabilities:
    
    
    1,931,122
    
    
    
    1,306,058Net deferred income tax assets
    
    $
    607,744
    
    
    $
    246,754
 Income Taxes
        F-20




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##### Table of Contents



9. OPERATING LEASES (INCLUDING RELATED PARTY)
    Year
    
    Amount2011
    
    $
    2,647,4192012
    
    
    2,735,5982013
    
    
    2,803,3442014
    
    
    2,676,7172015
    
    
    2,372,943
  F-21




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##### Table of Contents



10. CAPITAL LEASES
  11. COMMITMENTS AND CONTINGENCIES
       F-22




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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  Quoted market prices in active markets for
identical assets and liabilities;
 
    
    Level 2  Inputs, other than level 1 inputs, either directly
or indirectly observable; and
 
    
    Level 3  Unobservable inputs developed using internal
estimates and assumptions (there is little or no market data) which reflect those that
market participants would use.
     F-23




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##### Table of Contents



FAIR VALUE MEASUREMENTSAsset/(Liability)Description
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    TotalInterest Rate Swaps
    
    $
    
    
    
    
    (367,181
    )
    
    
    
    
    
    
    (367,181
    )
    
    
    (367,181
    )
  FAIR VALUE MEASUREMENTSAsset/(Liability)Description
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    TotalInterest Rate Swaps
    
    $
    
    
    
    
    (213,604
    )
    
    
    
    
    
    
    (213,604
    )
    
    
    (213,604
    )
  14. SUBSEQUENT EVENTS
 th st
   F-24