##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 27, 2009
 o
    
    TRANSITION REPORT PURSUANT TO 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 
or organization)
    
    (I.R.S. Employer Identification No.)27680 Franklin Rd. 
Southfield, MI
    
    48034(Address of principal executive offices)
    
    (Zip code)
 
     
  Yes o No þ
 Yes o No þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
    APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
 o o
 (APPLICABLE ONLY TO CORPORATE REGISTRANTS)
   DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



TABLE OF CONTENTS
 PagePART I
    
    
    1Item 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    10Item 2. Properties
    
    
    16Item 3. Legal Proceedings
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17PART II
    
    
    17Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    17Item 6. Selected Financial Data
    
    
    18Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    18Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 8. Consolidated Financial Statements and Supplementary Data
    
    
    18Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    19Item 9A(T). Controls and Procedures
    
    
    19Item 9B. Other Information
    
    
    20PART III
    
    
    20Item 10. Directors, Executive Officers and Corporate Governance
    
    
    20Item 11. Executive Compensation
    
    
    20Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    20Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    20Item 14. Principal Accountant Fees and Services
    
    
    20PART IV
    
    
    21Item 15. Exhibits and Financial Statement Schedules
    
    
    21Exhibit 10.24Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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PART I
  Cautionary Statement Regarding Forward Looking Information
  
    
    Overall economic and business conditions;
    
    The success of our marketing and other initiatives to attract customers;
    
    Customer preferences;
    
    Competitive factors in the restaurant industry;
    
    Changes in tax requirements (including tax rate changes, new tax laws and revised tax
law interpretations);
    
    Fluctuations in costs of commodities;
    
    The internal and external costs of compliance with laws and regulations such as Section
404 of the Sarbanes-Oxley Act of 2002; and
    
    Litigation against the Company.
 
 ITEM 1. BUSINESS
 Introduction
 ® ® ®
   1




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www.diversifiedrestaurantholdings.com www.baggerdaves.com
  Recent Acquisition
 ®
  Background
  
    
    2000 Operator of the Year
    
    2003 Highest Annual Restaurant Sales (Novi, Michigan)
    
    2004 Jimmy Disbrow Founders Award
    
    2004 Scott Lowery Franchise Development Award
    
    2004 Highest Annual Restaurant Sales (Novi, Michigan)
    
    2005 Highest Annual Restaurant Sales (Novi, Michigan)
    
    2006 Highest Annual Restaurant Sales (Novi, Michigan)
  ®
 ®
  2




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Buffalo Wild Wings Restaurants
    
    Owned
    
    
    Managed
    
    
    Planned
    
    
    Total2006
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    92007
    
    
    2
    
    
    
    9
    
    
    
    
    
    
    
    112008
    
    
    6
    
    
    
    9
    
    
    
    
    
    
    
    152009
    
    
    7
    
    
    
    9
    
    
    
    
    
    
    
    162010
    
    
    16
    *
    
    
    0
    
    
    
    2
    
    
    
    18
 *
    
    Includes acquisition of nine affiliated stores on February 1, 2010 ®
 Bagger Daves Restaurants
    
    Owned
    
    
    Planned
    
    
    Total2008
    
    
    2
    
    
    
    
    
    
    
    22009
    
    
    2
    
    
    
    
    
    
    
    22010
    
    
    3
    *
    
    
    
    
    
    
    3
 *
    
    Includes most-recent store
opened on February 21, 2010 Restaurant Concepts
 Buffalo Wild Wings
 ®
  ® ® ®
 Bagger Daves Legendary Burgers & Fries®
   3




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®  
     ® ® www.baggerdaves.com
 Growth Strategy
  ®
 ® ®
  4




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Store Locations and Expansion Plans
 Affiliated Buffalo Wild Wings Restaurants under Management in 2009 (Purchased Effective February 1,
2010)
 Approximate
    
    
    Remodeled/Population in
    
    
    PlannedFive-mile
    
    
    RemodelingOpened
    
    Location
    
    Location Characteristics
    
    Radius
    
    
    or upgradeDecember 1999
    
    Sterling Heights, MI
    
    6,542 square feet.
Located directly in
front of an AMC 30
cinema in a shopping
center anchored by
Walmart situated along
the M-59 corridor.
    
    
    228,000
    
    
    July 2005,
freshening is
scheduled in 2010April 2001
    
    Fenton, MI
    
    6,105 square feet.
Located in growing
community off of U.S.
Highway 23, just 45
minutes from
Metropolitan Detroit.
    
    
    40,000
    
    
    July 2006, Gen. 4.1
remodel in 2011June 2002
    
    Novi, MI**Ranked number one
in sales by Buffalo
Wild Wings Inc. in
2003, 2004, 2005,
and 2006
    
    6,815 square feet.
Located in an outdoor
lifestyle entertainment
center facing 1-96,
beside a 20 screen
Emagine cinema complex
in a growing,
young-affluent suburb
northwest of Detroit in
Oakland County.
    
    
    145,000
    
    
    Gen. 4.1 remodel in
June 2007December 2003
    
    Clinton Township, MI
    
    6,600 square feet.
Stand alone restaurant
located directly across
the street from a
Meijer Super Center in
the heart of Macomb
County, just north of
Detroit.
    
    
    303,000
    
    
    Feb. 2009June 2004
    
    Brandon, FL
    
    6,600 square feet.
Stand alone location at
the end of the
Cross-town Expressway
in Brandon, Florida,
just east of Tampa.
    
    
    198,000
    
    
    June 2009March 2005
    
    Ferndale, MI****Consistently
ranks in top 25
national Buffalo
Wild Wing
system-wide sales
    
    7,400 square feet.
Located on Nine Mile
Road, just north of
Detroit in rejuvenated
downtown Ferndale near
the I-75 and I-696
interchange in the
heart of Metropolitan
Detroit.
    
    
    459,000
    
    
    June 2010September 2005
    
    Riverview (Fish
Hawk Ranch, FL
    
    6,400 square feet.
Located a mile from a
community with about
6,700 new homes. Two
potential new
developments may add up
to 6,400 more homes
over the next several
years once the economy
in Florida recovers.
    
    
    127,000
    
    
    2011 fresheningMarch 2006
    
    Sarasota, FL
    
    6,500 square feet.
Located on Clark Road
in Sarasota, the main
artery out to Siesta
Key. The location is
the anchor end cap
position in a small
shopping center that
features Moes, Atlanta
Bread and other
restaurants.
    
    
    138,000
    
    
    Feb. 2009July 2006
    
    Warren, MI******Since opening
ranks in top 25
Buffalo Wild Wing
system-wide sales
    
    6,800 square feet.
Located directly across
from the General Motors
Technology Center which
employs over 22,000
people in this northern
Detroit suburb.
    
    
    331,000
    
    
    2011 freshening
  5




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Company-Owned Buffalo Wild Wings® Restaurants Operated in 2009
 Approximate
    
    
    Remodeled/Population in
    
    
    PlannedFive-mile
    
    
    RemodelingOpened
    
    Location
    
    Location Characteristics
    
    Radius
    
    
    or UpgradeAugust 2007
    
    North Port, FL
    
    6,400 square feet.
Located in an end cap
position of a shopping
center anchored by a
Super Walmart and Home
Depot at Tamiami Trail
(U.S. Route 41) and
Sumter Road.
    
    
    63,000
    
    
    NewAugust 2007
    
    Riverview, FL
    
    6,400 square feet.
Located in an end cap
position of a shopping
center anchored by a
Sweet Bay (grocery
store) and Office Max
on Big Bend Road at
U.S. 301 just off I-75.
Other tenants include
Five Guys Famous
Burgers and Fries,
Panera Bread, Fifth
Third Bank, and Panda
Express among several
others.
    
    
    66,000
    
    
    NewMarch 2008
    
    Grand Blanc, MI
    
    6,000 square feet.
Located in an out
building directly in
front of a new 14
screen movie theater
with an IMAX theater
(NCG Trillium Cinema).
A Target, JCPenney and
many other specialty
shops are proposed for
this shopping center
which is about a mile
off of I-75 just south
of Flint, MI near
Genesys Hospital
(employs 3,000).
    
    
    56,000
    
    
    NewAugust 2008
    
    Petoskey, MI
    
    6,200 square feet.
Located in an end cap
position in a
Lowes-anchored
shopping center, near
an adjacent Walmart,
Home Depot, Cinema and
new $160 million
Victory Casino.
    
    14,000
Tourism
    
    NewJuly 2008
    
    Troy, MI
    
    7,500 square feet.
Located on Big Beaver
Road at John R Road in
a densely populated
suburb of Detroit. The
Troy Sports Complex
anchors the center with
4 NHL size hockey rinks
for recreational
activities and leagues.
Also in the center is
Starbucks, Einstein
Bagels, Olgas Kitchen,
Verizon Wireless,
Kroger and many more.
    
    
    258,000
    
    
    NewDecember 2008
    
    Flint, MI
    
    6,400 square feet.
Located in an end cap
position in a strip
mall anchored by TJ
Maxx and Hobby Lobby
and directly across the
street from the Genesee
Valley Center, a large
regional indoor mall
with Sears, Macys and
JCPenney.
    
    
    105,000
    
    
    NewJuly 2009
    
    Port Huron, MI
    
    6,500 square feet.
Located on M-25, a main
thoroughfare just North
of Port Huron, MI in an
end cap position in a
strip mall directly
across the street from
the Birchwood Mall, a
large regional indoor
mall with Sears,
Macys, Target and JC
Penny as anchors. There
is also a 10 screen
movie theater at the
mall.
    
    
    49,000
    
    
    New
  6




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BWW Restaurants under Development  Planned Opening in 2010
 ®
 Company-Owned Bagger Daves® Restaurants in 2009 and Early 2010
 ApproximatePopulation inFive-mileOpened
    
    Location
    
    Location Characteristics
    
    RadiusJanuary 2008
    
    Berkley, MI
    
    3,472 square feet.
Located on Coolidge
Highway near Twelve
Mile Rd. in a
stand-alone location.
One of the densest
areas in Metro Detroit,
with approximately
16,000 residents within
one mile. Nearby is
William Beaumont
Hospital, which employs
close to 12,000
employees.
    
    
    331,000August 2008
    
    Ann Arbor, MI
    
    3,800 square feet.
Located in shopping
center on Eisenhower
Blvd. near Ann
Arbor-Saline Rd. across
from a new Whole Foods
and an REI. One mile
from University of
Michigan stadium and 1/2
mile from large,
popular shopping mall.
High performing Panera
Bread anchors the
center.
    
    
    150,000February 2010
    
    Novi, MI
    
    4,200 square feet.
Located on an end cap
position with patio
space in the Novi Town
Center shopping complex
at the corner of Grand
River Ave. and Novi
Road. This is a high
traffic center that
includes Potbelly,
Biggby Coffee, AT&T
Cellular, Pei Wei and
Bonefish restaurant.
This restaurant also
offers a newly designed
breakfast service
option.
    
    
    150,000
 Bagger Daves® Restaurants  Future Development
  Site Selection
  ®
  7




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®
 Restaurant Operations
  Management and Staffing
 Training and Development
   Restaurants. ® ®
 ®
 Metrics.
 Purchasing and Quality
   8




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Marketing and Advertising
  Buffalo Wild Wings®
  Bagger Daves® ® ®
  Information Technology
  Competition
   9




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Employees
  Trademarks, Service Marks and Trade Secrets
 ® ® ® ®
 Buffalo Wild Wings ® .
 Available Information
  www.diversifiedrestaurantholdings.com
 
 ITEM 1A. RISK FACTORS
  We May Not Be Able To Manage Our Growth
   10




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Uncertainty of Market Acceptance
  Competition
  Government Regulations
  Unionization of the Hourly Work Force
  Certain Factors Affecting the Restaurant Industry
   11




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Need For Additional Financing
  Dependence on Key Personnel
  Trademarks, Service Marks and Trade Secrets
  Adverse Effect of Undesignated Stock and Anti-Takeover Provisions
  No Assurance of Profitability
  Possible Issuance of Additional Shares without Stockholder Approval Could Dilute Stockholders
   12




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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.
  Legal Actions Could Have an Adverse Affect on Us
  An Increase in the Cost of Our Food Products Could Adversely Affect Our Operating Results
  Failure to Gain Acceptance in Florida Could Have a Negative Impact on Our Operations
  The Bagger Daves Concept May Not Be Accepted
   13




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If We Are Unable To Open New Restaurants in a Timely Manner, We May Suffer Negative Consequences
  
    
    Locating and securing quality locations in new and existing markets;
    
    Negotiating acceptable leases or purchase agreements;
    
    Securing acceptable financing for new locations;
    
    Cost effective designs by us and franchisors;
    
    Timely planning and build-out of restaurants;
    
    Obtaining and maintaining required local, state and federal government approvals and
permits related to construction of the restaurants and the sale of food and alcoholic
beverages;
    
    Creating brand awareness in new markets; and
    
    General economic conditions.
 The Opening of Other Restaurants Close To Our Existing Restaurants May Reduce Our Operating
Performance
  Actions by the Franchisor Could Negatively Affect Our Business and Operating Results
  Compliance with the Sarbanes-Oxley Act May Be Costly
  If We Fail To Attract and Retain Qualified Employees, We Will Be Unable To Operate Effectively
   14




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Changes in Consumer Preferences or Discretionary Consumer Spending Could Negatively Impact Our
Business
  We Are Susceptible To Adverse Trends and Economic Conditions in Michigan and Florida
  We Could Be Adversely Impacted By Weather in Florida
  Our Ability to Raise Capital In The Future May Be Limited, Which Could Adversely Impact Our
Business
  Our Current Insurance May Not Provide Adequate Levels of Coverage against Claims
  Improper
Food Handling May Adversely Affect Our Business
  Risks of Continuing Losses and Financial Covenant Violations
   15




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ITEM 2. PROPERTIES
  MonthlyLocation
    
    Landlord
    
    Rent
    
    
    Lease Ends
    
    OptionsCompany Headquarters

21751 W. Eleven Mile Rd Ste 208
Southfield, MI 48076
    
    David M. Tisdale & Company
    
    $
    3,835
    
    
    4/30/2010
    
    noneAMC North Port, Inc.

4301 Aiden Lane

North Port, FL 34286
    
    North Port Gateway, LLC
    
    $
    6,129
    
    
    8/5/2017
    
    Two 5 year OptionsAMC Riverview, Inc.

10605 Big Bend Road

Riverview, FL 33569
    
    Shoppes of Southbay, LLC
    
    $
    9,600
    
    
    8/27/2017
    
    Two 5 year OptionsBerkley Burgers, Inc.

2972 Coolidge Ave.

Berkley, MI 48072
    
    TM Apple, LLC (affiliate)
    
    $
    6,306
    
    
    1/13/2023
    
    Three 5 year OptionsAMC Grand Blanc, Inc.

8251 Trillium Circle #102

Grand Blanc, MI 48439
    
    Trillium Circle, LLC
    
    $
    10,282
    
    
    3/16/2018
    
    Two 5 year OptionsAMC Troy, Inc.

1873 East Big Beaver Rd.

Troy, MI 48083
    
    Troy Sports Center, LLC
    
    $
    13,750
    
    
    9/1/2018
    
    Two 5 year OptionsAMC Petoskey, Inc.

2180 Anderson Rd. #150

Petoskey, MI 49770
    
    Terra Management Company
    
    $
    9,042
    
    
    8/9/2018
    
    Two 5 year OptionsAnn Arbor Burgers, Inc.

859 W. Eisenhower Parkway

Ann Arbor, MI 48103
    
    8600 Associates Limited Partnership
    
    $
    6,899
    
    
    6/28/2018
    
    Two 5 year OptionsAMC Flint, Inc.

3192 S. Linden Road

Flint, MI 48507
    
    Ramco Gershenson Properties Trust
    
    $
    4,800
    
    
    12/21/2018
    
    Three 5 year OptionsAMC Port Huron, Inc.

4355 24th Avenue, Suite 1

Port Huron, MI 48059
    
    Port Builders, Inc. et al
    
    $
    6,500
    
    
    6/1/2019
    
    Three 5 year Options
    16




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ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Market Information.
 Holders.
 Dividend Policy.
 Securities Authorized for Issuance Under Equity Compensation.
 Recent Sales of Unregistered Securities.
 Shares of CommonInvestor
    
    Date of Purchase
    
    Stock Acquired
    
    
    Consideration PaidEric Samuelson
    
    November 30, 2009
    
    
    150,000
    
    
    Surrender and
forgiveness of
$150,000 note
granted to Mr.
Samuelson by the
Company in exchange
for loan from Mr.
Samuleson to the
Company of $142,500David Ligotti
    
    November 30, 2009
    
    
    100,000
    
    
    Surrender and
forgiveness of
$100,000 note
granted to Mr.
Ligotti by the
Company in exchange
for loan from Mr.
Ligotti to the
Company of $95,000
  17




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Shares of CommonInvestor
    
    Date of Purchase
    
    Stock Acquired
    
    
    Consideration PaidGregory Stevens
    
    November 30, 2009
    
    
    100,000
    
    
    Surrender and
forgiveness of
$100,000 note
granted to Mr.
Stevens by the
Company in exchange
for loan from Mr.
Stevens to the
Company of $95,000John Bowling
    
    December 30, 2009
    
    
    100,000
    
    
    $100,000 cashJohn R. Burke
    
    November 27, 2009
and December 30,
2009 (50,000 ea)
    
    
    100,000
    
    
    $100,000 cashBruce Stewart
    
    November 24, 2009
    
    
    50,000
    
    
    $50,000 cashNorma Stewart
    
    November 24, 2009
    
    
    50,000
    
    
    $50,000 cashEdie Dopking
    
    December 8, 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 6. SELECTED FINANCIAL DATA
  
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
   18




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
     
 ITEM 9A(T). CONTROLS AND PROCEDURES
       19




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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
   20




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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Report of Independent Registered Public Accounting Firm dated March 25, 2010  Silberstein
Ungar, PLLCReport of Independent
Registered Public Accounting Firm dated March 30, 2009  Rehmann
Robson, P.C.Consolidated Balance Sheets  December 27, 2009 and December 31, 2008Consolidated Statements of OperationsConsolidated Statement of Stockholders EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial StatementsThe consolidated financial statements, the notes to the consolidated financial statements,
and the reports of independent registered public accounting firm listed above are
incorporated by reference in Item 8 of this report.(2)
    
    Financial Statement SchedulesNot applicable
   EXHIBIT NO.
    
    EXHIBIT DESCRIPTION3.1
    
    
    Certificate of Incorporation is 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 is
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 are 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
    
    
    Stock Certificate is 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 Retail Center Lease dated December 7, 2009
between our subsidiary, AMC Marquette, Inc., and Centrup
Hospitality, LLC is incorporated by reference to exhibit 10 of
our Form 8-K filed December 11, 2009.
  21




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EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.2
    
    
    Buffalo Wild Wings Retail Center Lease dated December 2, 2009
between our subsidiary, AMC Chesterfield, Inc., and
Chesterfield Development Company, LLC is incorporated by
reference to exhibit 10 for our Form 8-K filed December 7,
2009.10.3
    
    
    Buffalo Wild Wings Franchise Agreement dated October 20, 2009
between our subsidiary, AMC Marquette, Inc., and Buffalo Wild
Wings International, Inc. is incorporated by reference to
exhibit 10.1 of our Form 8-K filed October 26, 2009.10.4
    
    
    Buffalo Wild Wings Franchise Agreement dated October 20, 2009
between our subsidiary, AMC Chesterfield, Inc., and Buffalo
Wild Wings International, Inc. is incorporated by reference to
exhibit 10.2 of our Form 8-K filed October 26, 2009.10.5
    
    
    Master Lease Agreement dated September 9, 2009 between our
subsidiary, Troy Burgers, Inc., and Novi Town Center
Investors, LLC is incorporated by reference to exhibit 10 of
our Form 8-K filed September 10, 2009.10.6
    
    
    Master Lease Agreement dated February 12, 2009 between our
subsidiary, AMC Flint, Inc., and CoActiv Capital Partners,
Inc. is incorporated by reference to exhibit 10 of our Form
8-K filed February 17, 2009.10.7
    
    
    Buffalo Wild Wings Amendment to Area Development Agreement
dated December 10, 2008 between our subsidiary, AMC Wings,
Inc., and Buffalo Wild Wings International, Inc. is
incorporated by reference to exhibit 10.1 of our Form 8-K
filed December 15, 2008.10.8
    
    
    Loan and Security Agreement dated June 12, 2008 between our
subsidiary, AMC Troy, Inc., and Charter One Bank is
incorporated by reference to exhibit 10.1 of our Form 8-K
filed July 29, 2008.10.9
    
    
    Term Note dated June 12, 2008 between our subsidiary, AMC
Troy, Inc., and Charter One Bank is incorporated by reference
to exhibit 10.2 of our Form 8-K filed July 29, 2008.10.10
    
    
    Loan and Security Agreement dated June 25, 2008 between our
subsidiary, AMC Petoskey, Inc., and Charter One Bank is
incorporated by reference to exhibit 10.1 of our Form 8-K
filed July 29, 2008.10.11
    
    
    Term Note dated June 25, 2008 between our subsidiary, AMC
Petoskey, Inc., and Charter One Bank is incorporated by
reference to exhibit 10.2 of our Form 8-K filed July 29, 2008.10.12
    
    
    Buffalo Wild Wings Franchise Agreement dated July 1, 2008
between our subsidiary, AMC Port Huron, Inc., and Buffalo Wild
Wings International, Inc. is incorporated by reference to
exhibit 10 of our form 8-K filed July 8, 2008.10.13
    
    
    Buffalo Wild Wings Franchise Agreement dated July 1, 2008
between our subsidiary, AMC Flint, Inc., and Buffalo Wild
Wings International, Inc. is incorporated by reference to
exhibit 10 of our form 8-K filed July 8, 2008.10.14
    
    
    Commercial Security Agreement dated June 20, 2008 between our
subsidiary, Ann Arbor Burger, Inc., and Home City Federal Bank
of Springfield is incorporated by reference to exhibit 10.1 of
our form 8-K filed July 7, 2008.10.15
    
    
    Promissory Note dated June 20, 2008 between our subsidiary,
Ann Arbor Burger, Inc., and Home City Federal Bank of
Springfield is incorporated by reference to exhibit 10.2 of
our form 8-K filed July 7, 2008.10.16
    
    
    Line of Credit Agreement dated June 30, 2008 between our
subsidiary, Ann Arbor Burger, Inc., and Home City Federal Bank
of Springfield is incorporated by reference to exhibit 10.3 of
our form 8-K filed July 7, 2008.
  22




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##### Table of Contents



EXHIBIT NO.
    
    EXHIBIT DESCRIPTION10.17
    
    
    Retail Center Lease dated June 30, 2008 between our
subsidiary, AMC Port Huron, Inc., and Port Builders, Inc.,
Walter Sparling and Mary L. Sparling is incorporated by
reference to exhibit 10 of our form 8-K filed July 7, 2008.10.18
    
    
    Retail Center Lease dated June 30, 2008 between our
subsidiary, AMC Flint, Inc., and Ramco-Gershenson Properties,
L.P. is incorporated by reference to exhibit 10 of our form
8-K filed July 7, 2008.10.19
    
    
    Loan and Security Agreement dated June 25, 2008 between our
subsidiary, AMC Petoskey, Inc., and Charter One Bank is
incorporated by reference to exhibit 10.1 of our form 8-K
filed June 30, 2008.10.20
    
    
    Term Note dated June 25, 2008 between our subsidiary, AMC
Petoskey, Inc., and Charter One Bank is incorporated by
reference to exhibit 10.2 of our form 8-K filed June 30, 2008.10.21
    
    
    Loan and Security Agreement dated June 12, 2008 between our
subsidiary, AMC Troy, Inc., and Charter One Bank is
incorporated by reference to exhibit 10.1 of our form 8-K
filed June 18, 2008.10.22
    
    
    Term Note dated June 12, 2008 between our subsidiary, AMC
Troy, Inc., and Charter One Bank is incorporated by reference
to exhibit 10.2 of our form 8-K filed June 18, 2008.10.23
    
    
    Form of Offering Escrow Agreement dated November 1, 2007
between our Company and RBS Citizens, N.A. is incorporated by
reference to exhibit 10.1 of our form SB-2/A filed October 23,
2007.10.24
    
    
    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 Ligotti14
    
    
    Code of Ethics is 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, 200931.1
    
    
    Certification of the Companys Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
with respect to the registrants Annual Report on Form 10-K
for the year ended December 27, 2009.31.2
    
    
    Certification of the Companys Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
with respect to the registrants Annual Report on Form 10-K
for the year ended December 27, 2009.32.1
    
    
    Certification of the Companys Principal Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes Oxley Act of 2002.32.2
    
    
    Certification of the Companys Principal Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes Oxley Act of 2002.
  23




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC.By:
    /s/ T. Michael AnsleyT. Michael AnsleyPresident, Chief Executive Officer, Director and Chairman of the Board  Signatures/s/ T. Michael Ansley
    
    Dated: March 26, 2010T. Michael AnsleyPresident, Chief Executive Officer, Director and
Chairman of the Board/s/ David G. Burke

David Gregory Burke
    
    Dated: March 26, 2010Treasurer, Chief Financial Officer, Director/s/ Jason T. Curtis

Jason T. Curtis
    
    Dated: March 26, 2010Chief Operating Officer/s/ Jay Alan Dusenberry

Jay Alan Dusenberry
    
    Dated: March 26, 2010Secretary, Director/s/ David Ligotti

David Ligotti
    
    Dated: March 26, 2010Director/s/ Gregory J. Stevens

Gregory J. Stevens
    
    Dated: March 26, 2010Director
  24




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC.
 FINANCIAL INFORMATION




---



##### Table of Contents



CONTENTS
 MANAGEMENTS DISCUSSION AND ANALYSIS
    
    
    F-1REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM DATED MARCH 25, 2010  SILBERSTEIN UNGAR, PLLC
    
    
    F-10REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM DATED MARCH 30, 2009  REHMANN ROBSON, P.C.
    
    
    F-11REPORT BY DIVERSIFIED RESTAURANT HOLDINGS, INC.S MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    
    
    F-12CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
    
    
    F-13CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    F-14CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
    
    
    F-15CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    F-16NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-17




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
  Overview
   ®
   ®
 ®
  F-1




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##### Table of Contents



Results of Operation
  December 27
    
    
    
    
    
    
    December 31
    
    
    
    
    
    
    December 312009
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %RevenueFood and beverage sales
    
    $
    17,317,996
    
    
    
    91
    %
    
    $
    9,783,391
    
    
    
    84
    %
    
    $
    1,680,334
    
    
    
    49
    %Management and advertising fees
    
    
    1,744,505
    
    
    
    9
    %
    
    
    1,803,173
    
    
    
    16
    %
    
    
    1,726,834
    
    
    
    51
    %Total revenue
    
    
    19,062,501
    
    
    
    100
    %
    
    
    11,586,564
    
    
    
    100
    %
    
    
    3,407,168
    
    
    
    100
    %Operating expensesCompensation costs
    
    
    5,724,053
    
    
    
    30
    %
    
    
    4,007,685
    
    
    
    35
    %
    
    
    1,356,632
    
    
    
    40
    %Food and beverage costs
    
    
    5,325,825
    
    
    
    28
    %
    
    
    2,930,445
    
    
    
    25
    %
    
    
    481,651
    
    
    
    14
    %General and administrative
    
    
    4,693,219
    
    
    
    25
    %
    
    
    3,319,582
    
    
    
    29
    %
    
    
    1,545,105
    
    
    
    45
    %Occupancy
    
    
    1,132,364
    
    
    
    6
    %
    
    
    740,745
    
    
    
    6
    %
    
    
    139,590
    
    
    
    4
    %Depreciation and amortization
    
    
    1,203,337
    
    
    
    6
    %
    
    
    877,206
    
    
    
    8
    %
    
    
    112,643
    
    
    
    3
    %Total operating expenses
    
    
    18,078,798
    
    
    
    95
    %
    
    
    11,875,663
    
    
    
    102
    %
    
    
    3,635,621
    
    
    
    107
    %Income from operations
    
    
    983,703
    
    
    
    5
    %
    
    
    (289,099
    )
    
    
    -2
    %
    
    
    (228,453)
    
    
    
    -7
    %Interest expense
    
    
    445,820
    
    
    
    2
    %
    
    
    289,681
    
    
    
    3
    %
    
    
    64,722
    
    
    
    2
    %Other (income)/expense, net
    
    
    (80,706
    )
    
    
    0
    %
    
    
    264,982
    
    
    
    2
    %
    
    
    (16,932
    )
    
    
    0
    %Income (loss) before income taxes
    
    
    618,589
    
    
    
    3
    %
    
    
    (843,762
    )
    
    
    -7
    %
    
    
    (276,243)
    
    
    
    -8
    %Income tax benefit (provision)
    
    
    (252,064
    )
    
    
    -1
    %
    
    
    520,777
    
    
    
    4
    %
    
    
    79,181
    
    
    
    2
    %Net (loss) income
    
    $
    366,525
    
    
    
    2
    %
    
    $
    (322,985
    )
    
    
    -3
    %
    
    $
    (197,062
    )
    
    
    -6
    %
 Fiscal Year 2009 ended December 27, 2009 compared with Fiscal Year 2008 ended December 31,
2008
 Revenue
 December 27
    
    
    December 31
    
    
    $
    
    
    %2009
    
    
    2008
    
    
    Change
    
    
    ChangeRevenueFood and beverage sales
    
    $
    17,317,996
    
    
    $
    9,783,391
    
    
    $
    7,534,605
    
    
    
    77.0
    %Management and advertising fees
    
    
    1,744,505
    
    
    
    1,803,173
    
    
    
    (58,668
    )
    
    
    -3.3
    %Total revenue
    
    $
    19,062,501
    
    
    $
    11,586,564
    
    
    $
    7,475,937
    
    
    
    64.5
    %
    F-2




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##### Table of Contents



%
    
    
    %December 27
    
    
    December 31
    
    
    $
    
    
    %
    
    
    revenue
    
    
    revenue2009
    
    
    2008
    
    
    Change
    
    
    Change
    
    
    2009
    
    
    2008Operating expensesCompensation costs
    
    $
    5,724,053
    
    
    $
    4,007,685
    
    
    $
    1,716,368
    
    
    
    43
    %
    
    
    30
    %
    
    
    35
    %Food and beverage costs
    
    
    5,325,825
    
    
    
    2,930,445
    
    
    
    2,395,380
    
    
    
    82
    %
    
    
    28
    %
    
    
    25
    %General and administrative
    
    
    4,693,219
    
    
    
    3,319,582
    
    
    
    1,373,637
    
    
    
    41
    %
    
    
    25
    %
    
    
    29
    %Occupancy
    
    
    1,132,364
    
    
    
    740,745
    
    
    
    391,619
    
    
    
    53
    %
    
    
    6
    %
    
    
    6
    %Depreciation and
amortization
    
    
    1,203,337
    
    
    
    877,206
    
    
    
    326,131
    
    
    
    37
    %
    
    
    6
    %
    
    
    8
    %Total operating expenses
    
    $
    18,078,798
    
    
    $
    11,875,663
    
    
    $
    6,203,135
    
    
    
    52
    %
    
    
    95
    %
    
    
    102
    %
 Compensation Costs
 Food and Beverage Costs
 General and Administrative Costs
 Occupancy Costs and Depreciation and Amortization.
 Interest Expense and Other (Income)/Expense, net.
 Income Taxes.
 Year ended December 31, 2008 compared with the year ended December 31, 2007.
 December 27
    
    
    December 31
    
    
    $
    
    
    %2009
    
    
    2008
    
    
    Change
    
    
    ChangeRevenueFood and beverage sales
    
    $
    9,783,391
    
    
    $
    1,680,334
    
    
    $
    8,103,057
    
    
    
    482.2
    %Management and advertising fees
    
    
    1,803,173
    
    
    
    1,726,834
    
    
    
    76,339
    
    
    
    4.4
    %Total revenue
    
    $
    11,586,564
    
    
    $
    3,407,168
    
    
    $
    8,179,396
    
    
    
    64.5
    %
  F-3




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##### Table of Contents



Revenue
 %
    
    
    %December 31
    
    
    December 31
    
    
    $
    
    
    %
    
    
    revenue
    
    
    revenue2008
    
    
    2007
    
    
    Change
    
    
    Change
    
    
    2008
    
    
    2007Operating expensesCompensation costs
    
    
    4,007,685
    
    
    
    1,356,632
    
    
    $
    2,651,053
    
    
    
    195.4
    %
    
    
    35
    %
    
    
    40
    %Food and beverage costs
    
    
    2,930,445
    
    
    
    481,651
    
    
    $
    2,448,794
    
    
    
    508.4
    %
    
    
    25
    %
    
    
    14
    %General and administrative
    
    
    3,319,582
    
    
    
    1,545,105
    
    
    $
    1,774,477
    
    
    
    114.8
    %
    
    
    29
    %
    
    
    45
    %Occupancy
    
    
    740,745
    
    
    
    139,590
    
    
    $
    601,155
    
    
    
    430.7
    %
    
    
    6
    %
    
    
    4
    %Depreciation and
amortization
    
    
    877,206
    
    
    
    112,643
    
    
    $
    764,563
    
    
    
    678.7
    %
    
    
    8
    %
    
    
    3
    %Total operating expenses
    
    $
    11,875,663
    
    
    $
    3,635,621
    
    
    $
    8,240,042
    
    
    
    226.6
    %
    
    
    102
    %
    
    
    107
    %
 Food and Beverage Costs.
 Compensation costs
 General and Administrative Costs
 Occupancy Costs and Depreciation and Amortization.
 Interest Expense
 Other (Income) and Expense, net
 Income Taxes
  F-4




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##### Table of Contents



Fiscal 2010 Outlook
  GAAP Reported
    
    
    Pro Forma*December 27
    
    
    December 272009
    
    
    2009RevenueManagement and advertising fees
    
    $
    1,744,505
    
    
    $
    Food and beverage sales
    
    
    17,317,996
    
    
    
    41,754,515Total revenue
    
    
    19,062,501
    
    
    
    41,754,515Operating expensesCompensation costs
    
    
    5,724,053
    
    
    
    11,470,244Food and beverage costs
    
    
    5,325,825
    
    
    
    13,029,103General and administrative
    
    
    4,693,219
    
    
    
    9,892,359Occupancy
    
    
    1,132,364
    
    
    
    2,935,363Depreciation and amortization
    
    
    1,203,337
    
    
    
    2,363,748Total operating expenses
    
    
    18,078,798
    
    
    
    39,690,817Income from operations
    
    
    983,703
    
    
    
    2,063,698Interest expense
    
    
    445,820
    
    
    
    778,612Other (income)/expense, net
    
    
    80,706
    
    
    
    (161,426
    )(Loss) income before income taxes
    
    
    618,589
    
    
    
    1,446,512Income tax benefit (provision)
    
    
    (252,064
    )
    
    
    (252,064
    )Net (loss) income
    
    $
    366,525
    
    
    $
    1,194,448
 *
    
    Pro Forma presentation represents financial results
as they would be presented
if they included the nine BWW restaurants acquired on February 1, 2010 utilizing
financial information through December 31, 2009 for the acquired restaurants.      F-5




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##### Table of Contents



Liquidity and Capital Resources
 General
   Fiscal YearDecember 27
    
    
    December 31
    
    
    December 312009
    
    
    2008
    
    
    2007Net cash provided by operating activities
    
    $
    1,750,613
    
    
    $
    494,609
    
    
    $
    75,859Net cash used in investing activities
    
    
    (388,454
    )
    
    
    (5,361,403
    )
    
    
    (3,414,157
    )Net cash (used) provided by financing activities
    
    
    (855,506
    )
    
    
    4,724,931
    
    
    
    2,543,951Net (decrease) increase in cash and cash equivalents
    
    $
    515,653
    
    
    $
    141,863
    
    
    $
    (794,347
    )
   Fiscal YearDecember 27
    
    
    December 31
    
    
    December 312009
    
    
    2008
    
    
    2007Cash and investments
    
    $
    649,518
    
    
    $
    133,865
    
    
    $
    275,728Net working capital
    
    
    (887,013
    )
    
    
    (1,727,700
    )
    
    
    (75,865
    )Current Ratio
    
    
    .57:1.0
    
    
    
    .30:1.0
    
    
    
    .86:1.0
  
    
    restaurant operations are primarily conducted on a cash basis;
    
    rapid turnover results in a limited investment in inventories; and
    
    cash from sales is usually received before liabilities for food, supplies and
payroll become due.
  Debt Outstanding
   F-6




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##### Table of Contents



Off Balance Sheet Arrangements
     Contractual Obligations and Commitments
  Payments Due by PeriodLess than 1
    
    
    1-3
    
    
    3-5
    
    
    More than 5(in thousands)
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsLong-term debt obligations
    
    $
    5,298
    
    
    $
    1,307
    
    
    $
    1,956
    
    
    $
    1,789
    
    
    $
    246Capital lease obligations
    
    
    822
    
    
    
    260
    
    
    
    518
    
    
    
    43
    
    
    
    Operating lease obligations
    
    
    9,274
    
    
    
    925
    
    
    
    1,950
    
    
    
    2,121
    
    
    
    4,278Total contractual obligations
    
    $
    15,394
    
    
    $
    2,492
    
    
    $
    4,424
    
    
    $
    3,953
    
    
    $
    4,524
  Area Development Agreement
   F-7




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##### Table of Contents



Exercise of Options to Purchase Managed Restaurants
   Capital Leases
   Effect of Inflation
  Seasonality
  ®
  F-8




---



##### Table of Contents



Critical Accounting Policies and Use of Estimates
   Property and Equipment
   Deferred Tax Asset
  Impact of Recent Accounting Pronouncements
   F-9




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 Silberstein Ungar, PLLC
 CPAs and Business Advisors
 phone (248) 203-0080
fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025
 
    /s/ Silberstein Ungar, PLLC
 
 
  F-10




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Diversified Restaurant Holdings,
Inc. and Subsidiaries (the Company)
  Diversified Restaurant Holdings, Inc. and
Subsidiaries
 /s/
Rehmann Robson, P.C.
 
  F-11




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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
   /s/ T. Michael Ansley
  F-12




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 December 27
    
    
    December 312009
    
    
    2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    649,518
    
    
    $
    133,865Accounts receivable  related party
    
    
    254,540
    
    
    
    192,889Inventory
    
    
    125,332
    
    
    
    157,882Prepaid assets
    
    
    103,452
    
    
    
    52,440Accounts
receivable  other
    
    
    11,219
    
    
    
    192,000Other assets
    
    
    49,280
    
    
    
    20,000Total current assets
    
    
    1,193,341
    
    
    
    749,076Property and equipment, net (Note 2)
    
    
    7,866,149
    
    
    
    7,817,254Intangible assets, net (Note 3)
    
    
    411,983
    
    
    
    406,982Deferred income taxes
    
    
    246,754
    
    
    
    599,957Total assets
    
    $
    9,718,227
    
    
    $
    9,573,269LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    $
    1,402,742
    
    
    $
    1,454,867Accounts payable
    
    
    293,984
    
    
    
    660,353Accrued liabilities
    
    
    329,355
    
    
    
    305,302Deferred rent
    
    
    54,273
    
    
    
    56,254Total current liabilities
    
    
    2,080,354
    
    
    
    2,476,776Accrued rent
    
    
    253,625
    
    
    
    113,909Deferred rent
    
    
    422,068
    
    
    
    474,690Other liabilities  interest rate swap
    
    
    167,559
    
    
    
    253,792Long-term debt, less current portion (Notes 4 and 5)
    
    
    4,601,909
    
    
    
    5,025,227Total liabilities
    
    
    7,525,515
    
    
    
    8,344,394Commitments and contingencies (Notes 4, 5, 7, 8, 9 and 10)Stockholders equity (Note 6)Common stock  $0.0001 par value; 100,000,000 shares
authorized, 18,626,000 and 18,070,000 respectfully
shares issued and outstanding
    
    
    1,863
    
    
    
    1,807Additional paid-in capital
    
    
    2,356,155
    
    
    
    1,758,899Accumulated deficit
    
    
    (165,306
    )
    
    
    (531,831
    )Total stockholders equity
    
    
    2,192,712
    
    
    
    1,228,875Total liabilities and stockholders equity
    
    $
    9,718,227
    
    
    $
    9,573,269
   F-13




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 December 27
    
    
    December 312009
    
    
    2008RevenueFood and beverage sales
    
    $
    17,317,996
    
    
    $
    9,783,391Management and advertising fees
    
    
    1,744,505
    
    
    
    1,803,173Total revenue
    
    
    19,062,501
    
    
    
    11,586,564Operating expensesCompensation costs
    
    
    5,724,053
    
    
    
    4,007,685Food and beverage costs
    
    
    5,325,825
    
    
    
    2,930,445General and administrative
    
    
    4,693,219
    
    
    
    3,319,582Occupancy
    
    
    1,132,364
    
    
    
    740,745Depreciation and amortization
    
    
    1,203,337
    
    
    
    877,206Total operating expenses
    
    
    18,078,798
    
    
    
    11,875,663Income (loss) from operations
    
    
    983,703
    
    
    
    (289,099
    )Interest expense
    
    
    445,820
    
    
    
    289,681Other (income) expense, net
    
    
    (80,706
    )
    
    
    264,982Income (loss) before income taxes
    
    
    618,589
    
    
    
    (843,762
    )Income tax (provision) benefit
    
    
    (252,064
    )
    
    
    520,777Net income (loss)
    
    $
    366,525
    
    
    $
    (322,985
    )Basic earnings (loss) per share  as reported
    
    $
    0.020
    
    
    $
    (0.018
    )Fully
diluted earnings (loss) per share  as reported
    
    $
    0.013
    
    
    $
    (0.018
    )Weighted average number of common shares
outstandingBasic
    
    
    18,114,909
    
    
    
    17,988,525Diluted
    
    
    29,020,000
    
    
    
    N/A
   F-14




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalances  January 1, 2008
    
    
    17,930,000
    
    
    $
    1,793
    
    
    $
    991,603
    
    
    $
    (208,846
    )
    
    $
    784,550Proceeds from the issuance
of common stock
    
    
    140,000
    
    
    
    14
    
    
    
    734,984
    
    
    
    
    
    
    
    734,998Share-based compensation
(Note 6)
    
    
    
    
    
    
    
    
    
    
    32,312
    
    
    
    
    
    
    
    32,312Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (322,985
    )
    
    
    (322,985
    )Balances  December 31, 2008
    
    
    18,070,000
    
    
    
    1,807
    
    
    
    1,758,899
    
    
    
    (531,831
    )
    
    
    1,228,875Share-based compensation
(Note 6)
    
    
    
    
    
    
    
    
    
    
    32,312
    
    
    
    
    
    
    
    32,312Exercise of employee stock
options (Note 6)
    
    
    6,000
    
    
    
    1
    
    
    
    14,999
    
    
    
    
    
    
    
    15,000Shares issued for warrants
exercised at $1.00 per
share (Note 6)
    
    
    550,000
    
    
    
    55
    
    
    
    549,945
    
    
    
    
    
    
    
    550,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    366,525
    
    
    
    366,525Balances  December 27, 2009
    
    
    18,626,000
    
    
    $
    1,863
    
    
    $
    2,356,155
    
    
    $
    (165,306
    )
    
    $
    2,192,712
   F-15




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 December 27
    
    
    December 312009
    
    
    2008Cash flows from operating activitiesNet income (loss)
    
    $
    366,525
    
    
    $
    (322,985
    )Adjustments to reconcile net income (loss) to
net cash provided by operating activitiesDepreciation and amortization
    
    
    1,203,337
    
    
    
    877,206Loss on disposal of property and equipment
    
    
    1,261Share-based compensation
    
    
    32,312
    
    
    
    32,312Deferred income tax benefit
    
    
    353,203
    
    
    
    (520,777
    )Changes in operating assets and liabilities that
provided (used) cashAccounts receivable  related party
    
    
    (61,651
    )
    
    
    (62,460
    )Accounts payable
    
    
    (366,369
    )
    
    
    448,346Inventory
    
    
    32,550
    
    
    
    (122,132
    )Prepaid assets
    
    
    (51,012
    )
    
    
    (24,356
    )Accounts receivable  other
    
    
    180,781
    
    
    
    (192,000
    )Intangible assets
    
    
    (11,210
    )
    
    
    (308,537
    )Other assets
    
    
    (29,280
    )
    
    
    (16,730
    )Accrued liabilities
    
    
    24,053
    
    
    
    233,865Accrued rent
    
    
    139,716
    
    
    
    61,803Deferred rent
    
    
    (54,603
    )
    
    
    411,054Net cash provided by operating activities
    
    
    1,759,613
    
    
    
    494,609Cash flows used in investing activitiesPurchases of property and equipment
    
    
    (388,454
    )
    
    
    (5,361,403
    )Cash from financing activitiesProceeds from issuance of notes payable  related party
    
    
    14,583
    
    
    
    Proceeds from issuance of long term debt
    
    
    250,000
    
    
    
    4,404,897Repayment of notes payable  related party
    
    
    (451,513
    )
    
    
    (12,000
    )Repayments of long-term debt
    
    
    (1,233,576
    )
    
    
    (402,964
    )Proceeds from issuance of common stock
    
    
    565,000
    
    
    
    734,998Net cash (used) provided by financing activities
    
    
    (855,506
    )
    
    
    4,724,931Net increase (decrease) in cash and cash equivalents
    
    
    515,653
    
    
    
    (141,863
    )Cash and cash equivalents, beginning of year
    
    
    133,865
    
    
    
    275,728Cash and cash equivalents, end of year
    
    $
    649,518
    
    
    $
    133,865Supplemental schedule of non-cash investing and financing
activities:Capital expenditures funded by capital lease borrowings
    
    $
    858,779
    
    
    $
    
   F-16




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
   
  F-17




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
   Date ofSubsidiary
    
    Restaurant OpeningAMC North Port, Inc.
    
    August 2007AMC Riverview, Inc.
    
    August 2007AMC Grand Blanc, Inc.
    
    March 2008AMC Troy, Inc.
    
    July 2008AMC Petoskey, Inc.
    
    August 2008AMC Flint, Inc.
    
    December 2008AMC Port Huron, Inc.
    
    June 2009
   FASB Accounting
Standards Codification, Accounting for Leases,
  F-18




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
 Principles of Consolidation
   Fiscal Year
  Segment Reporting
  Cash and Cash Equivalents
  Revenue Recognition
  Accounts
Receivable  Related Party
  Accounting for Gift Cards
     F-19




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
  Lease Accounting
  Inventory
  Prepaid Expenses and Other Assets
  Franchise fees
    
    10 to 20 yearsTrademarks
    
    15 yearsLoan fees
    
    2 to 7 years (loan term)
  Property and Equipment
   Depreciation and Amortization
  Advertising
   F-20




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
 Income Taxes
  Earnings (Loss) Per Share
 Earnings per
Share
 Concentration Risks
  Use of Estimates
  Financial Instrument
   Recent Accounting Pronouncements
   F-21




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
    Reclassifications
  2. PROPERTY AND EQUIPMENT, NET
  December 27
    
    
    December 312009
    
    
    2008Equipment
    
    $
    3,008,670
    
    
    $
    2,613,488Furniture and fixtures
    
    
    831,313
    
    
    
    767,979Leasehold improvements
    
    
    6,087,233
    
    
    
    5,401,301Restaurant construction-in-progress
    
    
    126,804
    
    
    
    27,410Total
    
    
    10,054,020
    
    
    
    8,810,178Less accumulated depreciation
    
    
    2,187,871
    
    
    
    992,924Property and equipment, net
    
    $
    7,866,149
    
    
    $
    7,817,254
 3. INTANGIBLES
  December 27
    
    
    December 312009
    
    
    2008Amortized IntangiblesFranchise Fees
    
    $
    141,250
    
    
    $
    131,250Trademark
    
    
    2,500
    
    
    
    2,500Loan Fees
    
    
    15,691
    
    
    
    15,691Total
    
    
    159,441
    
    
    
    149,441Less accumulated amortization
    
    
    11,818
    
    
    
    5,609Amortized Intangibles, net
    
    
    147,623
    
    
    
    143,832Unamortized IntangiblesLiquor Licenses
    
    
    264,360
    
    
    
    263,150Total Intangibles, net
    
    $
    411,983
    
    
    $
    406,982
  F-22




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
  4. RELATED PARTY TRANSACTIONS
   Guarantees,
     F-23




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
 5. LONG TERM DEBT
  December 27
    
    
    December 312009
    
    
    2008Note 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
2.73% at December 27, 2009).
    
    $
    206,396
    
    
    $
    349,915Note 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%.
    
    
    634,081
    
    
    
    735,829Note 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 rate
plus 2.5% (effective annual rate of
approximately 2.73% at December 27, 2009).
    
    
    201,510
    
    
    
    345,445Note 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%.
    
    
    661,651
    
    
    
    757,153Note 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.
    
    
    361,129
    
    
    
    417,051
  F-24




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
 December 27
    
    
    December 312009
    
    
    2008Note 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%.
    
    
    835,442
    
    
    
    955,417Note 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
2.98% at December 27, 2009).
    
    
    396,957
    
    
    
    476,348Note 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.
    
    
    604,373
    
    
    
    696,707Note 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.
    
    
    611,531
    
    
    
    704,449Note 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.
    
    
    443,537
    
    
    
    500,000Obligation under capital leases (see note 9)
    
    
    693,196
    
    
    
    Notes payable  related parties (see note 4)
    
    
    354,848
    
    
    
    541,780Total long-term debt
    
    $
    6,004,651
    
    
    $
    6,480,094Less current portion
    
    
    1,402,742
    
    
    
    1,454,867Long-term debt, net of current portion
    
    $
    4,601,909
    
    
    $
    5,025,227
  F-25




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
  Year
    
    Amount2010
    
    $
    1,402,7422011
    
    
    1,076,9682012
    
    
    1,101,8322013
    
    
    952,9902014
    
    
    867,819Thereafter
    
    
    602,300Total
    
    $
    6,004,651
   6. CAPITAL STOCK (INCLUDING PURCHASE WARRANTS AND OPTIONS)
 CompensationStock Compensation
  Equity
Based Payments to Non-employees.
    F-26




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
  7. INCOME TAXES
  2009
    
    
    2008FederalCurrent
    
    $
    
    
    
    $
    Deferred
    
    
    (194,480
    )
    
    
    361,839StateCurrent
    
    
    (17,427
    )
    
    
    Deferred
    
    
    (40,157
    )
    
    
    158,938Income Tax (Provision) Benefit
    
    $
    (252,064
    )
    
    $
    520,777
  2009
    
    
    2008Income tax (provision) benefit at federal statutory rate
    
    $
    (207,455
    )
    
    $
    291,114State income tax (provision) benefit
    
    
    (57,585
    )
    
    
    158,938Permanent differences
    
    
    (32,111
    )
    
    
    (20,967
    )Tax credits
    
    
    93,500
    
    
    
    59,920Other
    
    
    (48,413
    )
    
    
    31,772Income tax (provision) benefit
    
    $
    (252,064
    )
    
    $
    520,777
  2009
    
    
    2008Deferred tax assets:Net operating loss carry forwards
    
    $
    954,370
    
    
    $
    1,028,689Deferred rent expense
    
    
    78,998
    
    
    
    38,699Start-up costs
    
    
    104,327
    
    
    
    77,292Tax credit carry-forwards
    
    
    164,366
    
    
    
    69,260Swap loss recognized for book
    
    
    56,970
    
    
    
    86,289Other  including state deferred tax assets
    
    
    193,781
    
    
    
    270,244Total deferred assets
    
    
    1,552,812
    
    
    
    1,570,473Deferred tax liabilities:Other  including state deferred tax assets
    
    
    146,325
    
    
    
    87,188Tax depreciation in excess of book
    
    
    1,159,733
    
    
    
    883,328Total deferred tax liabilities:
    
    
    1,306,058
    
    
    
    970,516Net deferred income tax assets
    
    $
    246,754
    
    
    $
    599,957
  F-27




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
 Income Taxes
    Income Taxes,
   8. OPERATING LEASES (INCLUDING RELATED PARTY)
     F-28




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
          Year
    
    Amount2010
    
    $
    925,1132011
    
    
    953,1152012
    
    
    997,3492013
    
    
    1,046,2092014
    
    
    1,074,534Thereafter
    
    
    4,277,584Total
    
    $
    9,273,904
 9. CAPITAL LEASES
    F-29




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
  Year
    
    Amount2010
    
    $
    259,5852011
    
    
    259,5852012
    
    
    259,5852013
    
    
    43,1122014
    
    
    Total minimum lease payments
    
    
    821,867Less amount representing interest
    
    
    128,671Present value of minimum lease payments
    
    $
    693,196
 10. COMMITMENTS AND CONTINGENCIES
        F-30




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
 11. SUPPLEMENTAL CASH FLOWS INFORMATION
 Other Cash Flows Information
   Supplemental Schedule of Non-Cash Investing and Financing Activities
  12. 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).
   F-31




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##### Table of Contents



DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2009 and DECEMBER 31, 2008
 13. SUBSEQUENT EVENTS
         F-32