DIVERSIFIED RESTAURANT HOLDINGS, INC., 10-Q filed on 11/7/2012
Quarterly Report
Document And Entity Information
9 Months Ended
Sep. 23, 2012
Nov. 7, 2012
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
Diversified Restaurant Holdings, Inc. 
 
Document Type
10-Q 
 
Current Fiscal Year End Date
--12-30 
 
Entity Common Stock, Shares Outstanding
 
18,952,700 
Amendment Flag
false 
 
Entity Central Index Key
0001394156 
 
Entity Current Reporting Status
Yes 
 
Entity Voluntary Filers
No 
 
Entity Filer Category
Smaller Reporting Company 
 
Entity Well-known Seasoned Issuer
No 
 
Document Period End Date
Sep. 23, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q3 
 
Consolidated Balance Sheets (Unaudited) (USD $)
Sep. 23, 2012
Dec. 25, 2011
Current assets
 
 
Cash and cash equivalents
$ 3,070,082 
$ 1,537,497 
Accounts receivable - other
448,008 
20,497 
Inventory
598,540 
601,765 
Prepaid assets
171,894 
207,608 
Total current assets
4,288,524 
2,367,367 
Deferred income taxes
172,770 
272,332 
Property and equipment, net - restricted assets of VIE
1,435,277 
1,457,770 
Property and equipment, net
26,289,136 
22,064,544 
Intangible assets, net
1,101,777 
1,113,997 
Other long-term assets
81,350 
74,389 
Total assets
33,368,834 
27,350,399 
Current liabilities
 
 
Accounts payable
2,841,875 
1,682,462 
Accrued compensation
1,127,665 
760,548 
Other accrued liabilities
543,758 
649,784 
Current portion of long-term debt (including VIE debt of $89,414)
2,434,048 
2,967,135 
Current portion of deferred rent
174,906 
180,480 
Total current liabilities
7,122,252 
6,240,409 
Deferred rent, less current portion
2,140,463 
1,750,017 
Other liabilities - interest rate swap
392,263 
613,999 
Long-term debt, less current portion (including VIE debt of $1,095,317 and $1,140,024, respectively)
21,044,556 
16,841,355 
Total liabilities
30,699,534 
25,445,780 
Stockholders' equity
 
 
Common stock - $0.0001 par value; 100,000,000 shares authorized; 18,952,900 and 18,936,400 shares, respectively, issued and outstanding
1,888 
1,888 
Additional paid-in capital
2,936,504 
2,771,077 
Accumulated other comprehensive loss
(258,893)
 
Retained earnings (accumulated deficit)
(450,724)
(1,253,831)
Total DRH stockholders' equity
2,228,775 
1,519,134 
Non-controlling interest in VIE
440,525 
385,485 
Total stockholders' equity
2,669,300 
1,904,619 
Total liabilities and stockholders' equity
$ 33,368,834 
$ 27,350,399 
Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)
Sep. 23, 2012
Dec. 25, 2011
VIE debt (in Dollars)
$ 89,414 
$ 89,414 
Common stock, par value (in Dollars per share)
$ 0.0001 
$ 0.0001 
Common stock, shares authorized
100,000,000 
100,000,000 
Common stock, shares issued
18,952,900 
18,936,400 
Common stock, shares outstanding
18,952,900 
18,936,400 
Current Debt [Member]
 
 
VIE debt (in Dollars)
89,414 
89,414 
Noncurrent Debt [Member]
 
 
VIE debt (in Dollars)
$ 1,095,317 
$ 1,140,024 
Consolidated Statements of Operations (Unaudited) (USD $)
3 Months Ended 9 Months Ended
Sep. 23, 2012
Sep. 25, 2011
Sep. 23, 2012
Sep. 25, 2011
Revenue
 
 
 
 
Food and beverage sales
$ 16,838,169 
$ 14,588,078 
$ 51,315,764 
$ 44,617,381 
Franchise royalties and fees
6,323 
 
7,537 
 
Total revenue
16,844,492 
14,588,078 
51,323,301 
44,617,381 
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
 
 
 
 
Food, beverage, and packaging
5,157,991 
4,236,077 
15,904,293 
12,683,404 
Labor
4,174,875 
3,628,433 
12,840,361 
11,088,641 
Occupancy
961,610 
824,538 
2,787,327 
2,388,415 
Other operating costs
3,419,716 
2,973,089 
10,198,008 
8,625,740 
General and administrative expenses
1,606,495 
1,167,456 
4,328,555 
3,476,097 
Pre-opening costs
281,390 
135,009 
547,876 
403,714 
Depreciation and amortization
1,000,191 
881,432 
2,930,606 
2,491,649 
Loss on disposal of property and equipment
23,374 
3,113 
29,977 
30,157 
Total operating expenses
16,625,642 
13,849,147 
49,567,003 
41,187,817 
Operating profit
218,850 
738,931 
1,756,298 
3,429,564 
Change in fair value of derivative instruments
 
(140,629)
(43,361)
(345,249)
Interest expense
(277,919)
(282,934)
(843,563)
(876,368)
Other income, net
314,421 
29,327 
362,160 
37,839 
Income before income taxes
255,352 
344,695 
1,231,534 
2,245,786 
Income tax (benefit) provision
(2,158)
155,176 
333,387 
816,661 
Net income
257,510 
189,519 
898,147 
1,429,125 
Less: Income attributable to non-controlling interest
(16,314)
(38,747)
(95,040)
(115,232)
Net income attributable to DRH
$ 241,196 
$ 150,772 
$ 803,107 
$ 1,313,893 
Basic earnings per share (in Dollars per share)
$ 0.01 
$ 0.01 
$ 0.04 
$ 0.07 
Fully diluted earnings per share (in Dollars per share)
$ 0.01 
$ 0.01 
$ 0.04 
$ 0.07 
Weighted average number of common shares outstanding
 
 
 
 
Basic (in Shares)
18,954,025 
18,876,000 
18,948,624 
18,876,000 
Diluted (in Shares)
19,104,577 
19,039,692 
19,088,856 
19,048,836 
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $)
3 Months Ended 9 Months Ended
Sep. 23, 2012
Sep. 25, 2011
Sep. 23, 2012
Sep. 25, 2011
Net income
$ 257,510 
$ 189,519 
$ 898,147 
$ 1,429,125 
Other comprehensive (loss) income
 
 
 
 
Unrealized changes in fair value of cash flow hedge, net of tax of $21,929 and $133,370, respectively
(43,361)
 
(258,893)
 
Comprehensive income
214,149 
189,519 
639,254 
1,429,125 
Less: Comprehensive (income) attributable to non-controlling interest
(16,314)
(38,747)
(95,040)
(115,232)
Comprehensive income attributable to DRH
$ 197,835 
$ 150,772 
$ 544,214 
$ 1,313,893 
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parentheticals) (USD $)
3 Months Ended 9 Months Ended
Sep. 23, 2012
Sep. 25, 2011
Sep. 23, 2012
Sep. 25, 2011
Unrealized changes in fair value of cash flow hedge, tax
$ 21,929 
$ 133,370 
$ 21,929 
$ 133,370 
Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) (USD $)
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Retained Earnings [Member]
Noncontrolling Interest [Member]
Total
Balance at Dec. 26, 2010
$ 1,888 
$ 2,631,304 
 
$ (3,096,017)
$ 338,640 
$ (124,185)
Balance (in Shares) at Dec. 26, 2010
18,876,000 
 
 
 
 
 
Net income
 
 
 
1,313,893 
115,232 
1,429,125 
Distributions from noncontrolling interest
 
 
 
 
(107,000)
(107,000)
Share-based compensation
 
65,944 
 
 
 
65,944 
Balances at Sep. 25, 2011
1,888 
2,697,248 
 
(1,782,124)
346,872 
1,263,884 
Balances (in Shares) at Sep. 25, 2011
18,876,000 
 
 
 
 
 
Balance at Dec. 25, 2011
1,888 
2,771,077 
 
(1,253,831)
385,485 
1,904,619 
Balance (in Shares) at Dec. 25, 2011
18,936,400 
 
 
 
 
18,936,400 
Net income
 
 
 
803,107 
95,040 
898,147 
Distributions from noncontrolling interest
 
 
 
 
(40,000)
(40,000)
Issuance of restricted shares (in Shares)
28,800 
 
 
 
 
 
Forfeitures of restricted shares (in Shares)
(12,300)
 
 
 
 
 
Share-based compensation
 
165,427 
 
 
 
165,427 
Other comprehensive loss
 
 
(258,893)
 
 
(258,893)
Balances at Sep. 23, 2012
$ 1,888 
$ 2,936,504 
$ (258,893)
$ (450,724)
$ 440,525 
$ 2,669,300 
Balances (in Shares) at Sep. 23, 2012
18,952,900 
 
 
 
 
18,952,900 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
9 Months Ended
Sep. 23, 2012
Sep. 25, 2011
Cash flows from operating activities
 
 
Net income
$ 898,147 
$ 1,429,125 
Adjustments to reconcile net income to net cash provided by operating activities
 
 
Depreciation and amortization
2,930,606 
2,491,649 
Write off of loan fees
694 
 
Loss on disposal of property and equipment
29,977 
30,157 
Share-based compensation
165,427 
65,944 
Change in fair value of derivative instruments
43,361 
345,249 
Deferred income taxes
232,932 
608,154 
Accounts receivable - other
(427,511)
(14,348)
Inventory
3,225 
(140,545)
Prepaid assets
35,714 
56,440 
Other current assets
 
43,348 
Intangible assets
62,356 
(72,822)
Other long-term assets
(6,961)
(4,575)
Accounts payable
1,159,413 
77,180 
Accrued liabilities
261,091 
452,855 
Deferred rent
384,872 
153,057 
Net cash provided by operating activities
5,773,343 
5,520,868 
Cash flows from investing activities
 
 
Purchases of property and equipment
(7,213,512)
(6,051,295)
Net cash used in investing activities
(7,213,512)
(6,051,295)
Cash flows from financing activities
 
 
Proceeds from issuance of long-term debt
20,270,332 
3,138,321 
Repayment of interest rate swap liability
(657,360)
 
Repayments of long-term debt
(16,600,218)
(1,659,353)
Distributions from non-controlling interest
(40,000)
(107,000)
Net cash provided by financing activities
2,972,754 
1,371,968 
Net increase in cash and cash equivalents
1,532,585 
841,541 
Cash and cash equivalents, beginning of period
1,537,497 
1,358,381 
Cash and cash equivalents, end of period
$ 3,070,082 
$ 2,199,922 
Note 1 - Business and Summary of Significant Accounting Policies
Significant Accounting Policies [Text Block]
1.           BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Diversified Restaurant Holdings, Inc. ("DRH") is the owner, operator, and franchisor of the unique, full-service, ultra-casual restaurant and bar Bagger Dave's Legendary Burger Tavern® ("Bagger Dave's") and a leading Buffalo Wild Wings® ("BWW") franchisee. The original company was founded by T. Michael Ansley, President and CEO, in late 2004 as an operating center for seven BWW locations that Mr. Ansley owned and operated as a franchisee. DRH was formed on September 25, 2006, to provide the framework and financial flexibility to grow as a franchisee of BWW and to develop and grow our unique Bagger Dave's restaurant concept. It became a publicly-traded company in 2008 as a result of a self-underwritten initial public offering. DRH and its wholly-owned subsidiaries, including AMC Group, Inc., ("AMC"), AMC Wings, Inc. ("WINGS"), and AMC Burgers, Inc. ("BURGERS"), develop, own, and operate Bagger Dave's and BWW restaurants located throughout Michigan and Florida.

DRH created the Bagger Dave’s concept, brand, menu, and business plan throughout 2006 and 2007 and launched its first store in January 2008. DRH received licensing approval to franchise Bagger Dave's in the states of Michigan, Ohio, Indiana, Illinois, Wisconsin, Kentucky, and Missouri in 2010. The Company doubled the number of Bagger Dave’s stores in 2011 and, as of November 7, 2012, there were 10 corporate-owned Bagger Dave’s restaurants operating in the Greater Detroit region of Michigan, with one additional corporate-owned restaurant under development and scheduled to open in 2012. In November 2011, DRH executed its first area development agreement to franchise six stores in the Midwest. The first franchised unit opened on June 10, 2012. For more information, please visit www.baggerdaves.com.

DRH is also a leading BWW franchisee and, as of November 7, 2012, operated 31 BWW restaurants, with two under construction and scheduled to open in 2012.  Mr. Ansley opened his first affiliated BWW in December 1999 and, since then, has received numerous awards from Buffalo Wild Wings, Inc. ("BWWI") including awards for the Highest Annual Restaurant Sales in 2004, 2005, and 2006, and in September 2007, Mr. Ansley was awarded Franchisee of the Year by the International Franchise Association ("IFA"). The IFA's membership consists of over 12,000 franchisee members and over 1,000 franchisor members. DRH remains on track to fulfill its Area Development Agreement, which requires a total of 32 BWW restaurants by 2017 (not all BWW locations are included in the Area Development Agreement).

The following organizational chart outlines the corporate structure of DRH and its wholly-owned subsidiaries, all of which are wholly-owned by the Company. It lists the number of restaurants in operation as of the filing date, the estimated number of restaurants that will be in operation by the end of 2012 (all of which are either operating or currently under construction), and the estimated number of restaurants that will be in operation by the end of 2013.  A brief textual description of the entities follows the organizational chart.

AMC was formed on March 28, 2007 and serves as the operational and administrative center for DRH. AMC renders management and advertising services to WINGS and its subsidiaries and BURGERS and its subsidiaries.  Services rendered by AMC include marketing, restaurant operations, restaurant management consultation, hiring and training of management and staff, and other management services reasonably required in the ordinary course of restaurant operations.

WINGS was formed on March 12, 2007 and serves as a holding company for its BWW restaurants. WINGS, through its subsidiaries, holds 31 BWW restaurants that are currently in operation.  The Company is economically dependent on retaining its franchise rights with BWWI. The franchise agreements committed to have specific initial term expiration dates ranging from January 29, 2014 through October 7, 2032, depending on the date each was executed and the duration of its initial term. The franchise agreements are renewable at the option of the franchisor and are generally renewable if the franchisee has complied with the franchise agreement. When factoring in any applicable renewals, the franchise agreements have specific expiration dates ranging from January 29, 2019 through October 7, 2047. The Company believes it is in compliance with the terms of these agreements at September 23, 2012.  The Company is under contract with BWWI to enter into 13 additional franchise agreements by 2017 (see Note 10 for details).  

BURGERS was formed on March 12, 2007 and serves as a holding company for its Bagger Dave's restaurants. Bagger Dave's Franchising Corporation, a subsidiary of BURGERS, was formed to act as the franchisor for the Bagger Dave's concept and has rights to franchise in the states of Michigan, Ohio, Indiana, Illinois, Wisconsin, Kentucky, and Missouri.  In November 2011, DRH executed its first area development agreement to franchise six stores in the Midwest; the first franchised unit opened on June 10, 2012. 

Principles of Consolidation

The consolidated financial statements include the accounts of DRH, its wholly-owned subsidiaries, and Ansley Group, LLC (collectively, the "Company"), a real estate entity under common control which is consolidated in accordance with Financial Accounting Standards Board ("FASB") guidance related to variable interest entities.  All significant intercompany accounts and transactions have been eliminated upon consolidation.

We consolidate all variable-interest entities (“VIE”) where we are the primary beneficiary.  For VIE, we assess whether we are the primary beneficiary as prescribed by the accounting guidance on the consolidation of VIE.  The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity.  We consolidated Ansley Group, LLC because we lease and maintain substantially all of its assets to operate our Clinton Township, Michigan BWW restaurant and we guarantee all of its debt.

Basis of Presentation

The consolidated financial statements as of September 23, 2012 and December 25, 2011, and for the three-month and nine-month periods ended September 23, 2012 and September 25, 2011, have been prepared by the Company pursuant to accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information as of September 23, 2012 and for the three-month and nine-month periods ended September 23, 2012 and September 25, 2011 is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods.

The financial information as of December 25, 2011 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 25, 2011, which is included in Item 8 in the Fiscal 2011 Annual Report on Form 10-K, and should be read in conjunction with such financial statements.

The results of operations for the three-month and nine-month periods ended September 23, 2012 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 30, 2012.

Fiscal Year

The Company utilizes a 52- or 53-week accounting period that ends on the last Sunday in December. This quarterly report on Form 10-Q is for the three-month period ended September 23, 2012 and September 25, 2011, each comprising 13 weeks.  The fiscal year ending December 30, 2012 will be comprised of 53 weeks; the fiscal year ended December 25, 2011 comprised of 52 weeks.

Concentration Risks

Approximately 75% and 76% of the Company's revenues during the nine months ended September 23, 2012 and September 25, 2011, respectively, are generated from food and beverage sales from restaurants located in Michigan.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.

Interest Rate Swap Agreements

The Company utilizes interest rate swap agreements with a bank to fix interest rates on a portion of the Company’s portfolio of variable rate debt, which reduces exposure to interest rate fluctuations.  The Company does not use any other types of derivative financial instruments to hedge such exposures, nor does it use derivatives for speculative purposes.

Prior to the debt restructure on April 2, 2012 (see Note 2 and Note 6 for details), the interest rate swap agreements did not qualify for hedge accounting. As such, the Company recorded the change in the fair value of the swap agreements in change in fair value of derivative instruments on the consolidated statements of operations. The interest rate swap agreement associated with the April 2012 debt restructure does qualify for hedge accounting. As such, the Company recorded the change in the fair value of the swap agreement associated with the April 2012 debt restructure as a component of accumulated other comprehensive income (loss), net of tax. The Company records the fair value of its interest rate swaps on the balance sheet in other assets or other liabilities depending on the fair value of the swaps. See Note 6 and Note 12 for additional information on the interest rate swap agreements.    

Recent Accounting Pronouncements

None.

Reclassifications

Certain reclassifications have been made to the prior year consolidated financial statements to conform to the current year's presentation.

Note 2 - Significant Business Transactions
Schedule Of Significant Business Transactions [Text Block]
2.           SIGNIFICANT BUSINESS TRANSACTIONS

On June 7, 2011, the Company entered into a First Amended and Restated Development Line of Credit Agreement with RBS, N.A. ("RBS"), which provides for an $8 million credit facility with RBS.  The credit facility consists of a new $7 million development line of credit and a $1 million revolving line of credit. The credit facility is secured by a senior lien on all Company assets.  The development line of credit is for a term of 18 months (the “Draw Period”) and amounts borrowed bear interest at between 3% - 4% over LIBOR as adjusted monthly, depending on the Lease Adjusted Leverage Ratio (as defined in the development line of credit). The development line of credit has a maturity date of June 7, 2018. The Company also secured a $1 million Revolving Line of Credit, which has a maturity date of June 7, 2012.  Advances on the Company’s Revolving Line of Credit must be repaid within ninety consecutive days.

On April 2, 2012, the Company entered into a $16 million senior secured term loan (“April 2012 Term Loan”), secured by a senior lien on all Company assets. The Company used approximately $15.7 million of the April 2012 Term Loan to repay substantially all of its outstanding senior debt and related interest rate swap liabilities and the remaining $0.3 million for working capital. The April 2012 Term Loan is for a term of seven years and bears interest at one-month LIBOR plus a LIBOR Margin (as defined in the agreement) which ranges from 2.5% to 3.4%, depending on the Company’s lease adjusted leverage ratio. Simultaneously, the Company entered into an interest rate swap agreement to fix the interest on the April 2012 Term Loan. The notional amount of the swap agreement is $16 million at inception and amortizes to $0 at maturity in March 2019. Under the swap agreement, the Company pays a fixed rate of 1.41% and receives interest at the one-month LIBOR. Principal and interest payments on the April 2012 Term Loan are amortized over seven years, with monthly principal payments of approximately $191 thousand plus accrued interest.  The April 2012 Term Loan was restructured into another term loan in the fourth quarter of 2012.

On September 25, 2012, the Company entered into a Senior Secured Credit Facility with RBS (the “Senior Secured Credit Facility”).  The Senior Secured Credit Facility consists of a $37,000,000 Term Loan (the “September 2012 Term Loan”), a $10,000,000 Development Line of Credit (the “$10M DLOC”), and a $1,000,000 Revolving Line of Credit (the “$1M LOC”).  The Company immediately used approximately $15,200,000 of the September 2012 Term Loan to refinance existing outstanding debt with RBS and used approximately $3,300,000 of the September 2012 Term Loan to refinance and term out the outstanding balance of the existing development line of credit loan between the Company and RBS.  Additionally, on September 25, 2012, approximately $14,700,000 of the September 2012 Term Loan was used to complete the acquisition of eight Buffalo Wild Wings restaurants (with rights to develop another restaurant in Indiana) and approximately $2,500,000 of the September 2012 Term Loan was used to purchase 100% of the membership interests in the Ansley Group, L.L.C. (“Ansley Group”), a Michigan limited liability company and the owner of a parcel of real estate located at 15745 15 Mile Road, Clinton Township, Michigan 48035 (the “Clinton Township Property”).  The remaining balance of the September 2012 Term Loan, approximately $1,300,000, was used to pay the fees, costs, and expenses associated with either the above acquisitions or arising in connection with the closing of the loans constituting the Senior Secured Credit Facility.  The September 2012 Term Loan is for a period of five years.  Payments of principal shall be based upon an 84-month straight-line amortization schedule, with monthly principal payments of $440,476 plus accrued interest.  The interest rate for the September 2012 Term Loan is LIBOR plus an applicable margin, which ranges from 2.5% to 3.7%, depending on the lease adjusted leverage ratio defined in the terms of the agreement.  The entire remaining outstanding principal and accrued interest on the September 2012 Term Loan is due and payable on the maturity date of September 25, 2017.

On September 25, 2012, the Company completed the acquisition of substantially all of the assets of Crown Wings, Inc., Brewsters, Inc., Valpo Wings, Inc., Buffaloville Wings, Inc., and Hammond Wings, Inc., each an Indiana corporation, and Homewood Wings, Inc., Cal City Wings, Inc., Lansing Wings, Inc., and Lincoln Park Wings, Inc., each an Illinois corporation (collectively, the “Indiana and Illinois Entities”). The acquired assets consist of four Buffalo Wild Wings restaurants operating in Indiana and four operating in Illinois along with the right to develop a fifth Buffalo Wild Wings restaurant in Indiana.  We believe that this acquisition expands the scope of our operations, adds a number of new markets to our existing footprint and strategically positions us for future expansion throughout the Midwest.  Our near-term focus will be to integrate the acquired restaurants and realize the opportunities to improve their operating and financial performance.  Longer term, we look to leverage this acquisition by expanding our Bagger Dave's concept within the same footprint, led by the anticipated opening of our first restaurant in Indiana by year's end.

On September 25, 2012, the Company also acquired 100% of the membership interests in the Ansley Group for approximately $2,500,000.  The purchase was approved by the Company's disinterested directors who determined that the purchase price was fair to the Company based upon an independent appraisal.  As a result of this acquisition, the Company has acquired full ownership rights in the Clinton Township Property.  The Ansley Group was owned by T. Michael Ansley and Thomas D. Ansley.  T. Michael Ansley is the Chairman of the Board of Directors, President, and CEO and a principal shareholder of the Company.  This transaction will allow us to unwind the Ansley Group variable interest accounting treatment and eliminate the related non-controlling interest in the fourth quarter of 2012.

Note 3 - Property and Equipment
Property, Plant and Equipment Disclosure [Text Block]
3.           PROPERTY AND EQUIPMENT

Property and equipment are comprised of the following assets:

   
September 23
2012
   
December 25
2011
 
Land
 
$
469,680
   
$
469,680
 
Land (restricted assets of VIE)
   
520,000
     
520,000
 
Building
   
2,745,296
     
2,745,296
 
Building (restricted assets of VIE)
   
1,570,967
     
1,570,967
 
Equipment
   
11,201,812
     
10,596,964
 
Furniture and fixtures
   
3,167,653
     
3,060,014
 
Leasehold improvements
   
19,777,035
     
19,148,471
 
Restaurant construction in progress
   
5,668,178
     
-
 
Total
   
45,120,621
     
38,111,392
 
Less accumulated depreciation
   
(16,740,518)
     
(13,955,881
)
Less accumulated depreciation (restricted assets of VIE)
   
(655,690)
     
(633,197
)
Property and equipment, net
 
$
27,724,413
   
$
23,522,314
 

Note 4 - Intangibles
Intangible Assets Disclosure [Text Block]
4.           INTANGIBLES

 Intangible assets are comprised of the following:

   
September 23
2012
   
December 25
2011
 
Amortized intangibles:
           
Franchise fees
 
$
308,750
   
$
303,750
 
Trademark
   
34,388
     
30,852
 
Loan fees
   
23,100
     
164,429
 
Total
   
366,238
     
499,031
 
Less accumulated amortization
   
(93,124
)
   
(112,271
)
Amortized intangibles, net
   
273,114
     
386,760
 
                 
Unamortized intangibles:
               
Liquor licenses
   
828,663
     
727,237
 
Total intangibles, net
 
$
1,101,777
   
$
1,113,997
 

Amortization expense for the three months ended September 23, 2012 and September 25, 2011 was $(1,505) and $28,968, respectively.  Amortization expense for the nine months ended September 23, 2012 and September 25, 2011 was $12,364 and $48,129, respectively.  Based on the current intangible assets and their estimated useful lives, amortization expense for fiscal years 2012, 2013, 2014, 2015, and 2016 is projected to total approximately $17,800 per year.  In conjunction with the April 2012 Term Loan (see Note 2 for additional information), loan fees written off to interest expense for both the three-month and nine-month periods ended September 23, 2012 were $103,934.

Note 6 - Long-Term Debt
Long-term Debt [Text Block]
6.           LONG-TERM DEBT

Long-term debt consists of the following obligations:

  
 
September 23
2012
   
December 25
2011
 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal payments are approximately $191,000 plus interest through maturity in April 2019. Interest is charged based on a variable rate of one-month LIBOR plus LIBOR margin (which ranges between 2.50% and 3.40%) and a 1.41% fixed-rate swap arrangement.  The rate at September 23, 2012 was approximately 4.38%.
 
$
15,047,619
   
$
-
 
                 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments were approximately $113,000 through maturity in May 2017. Interest was charged based on a swap arrangement designed to yield a fixed annual rate of 7.10%. This note was repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
7,326,128
 
                 
Note payable to a bank secured by a senior mortgage on the Brandon Property and a personal guaranty. Scheduled monthly principal and interest payments are approximately $8,000 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 will adjust every seven years thereafter).
   
1,107,737
     
1,122,413
 
                 
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 $6,300 until maturity. Interest is charged at a rate of 3.58% per annum.
   
857,483
     
882,769
 
                 
Note payable to a bank, secured by a senior lien on all company assets. Scheduled interest payments are charged at a rate of 3% over the 30-day LIBOR (the rate at September 23, 2012 was approximately 3.22%). The monthly interest payment approximates $6,500. The note will mature in May 2017. The development line of credit includes a carrying cost of .25% per year of any available but undrawn amounts.
   
5,300,384
     
1,030,052
 
                 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments were approximately $19,500 through maturity in May 2017. Interest was charged based on a swap arrangement designed to yield a fixed annual rate of 5.91%. This note was repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
1,195,853
 
                 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments were approximately $40,000 through maturity in May 2017. Interest was charged based on a swap arrangement designed to yield a fixed annual rate of 6.35%. This note was repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
2,602,375
 
                 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments were approximately $24,500 through maturity in May 2017. Interest was charged based on a swap arrangement designed to yield a fixed annual rate of 6.35%. This note was repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
1,676,000
 
                 
Unsecured note payable that originally matured in August 2013 and required monthly principal and interest installments of approximately $2,200, with the balance due at maturity. Interest was 7% per annum. This note was repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
231,940
 
                 
Note 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.
   
3,004
     
6,864
 
                 
Notes payable – variable interest entity. Note payable to a bank secured by a senior mortgage on the property located at 15745 Fifteen Mile Road, Clinton Township, Michigan 48035, a DRH corporate guaranty, and a personal guaranty. Scheduled monthly principal and interest payments are approximately $12,000 through maturity in 2025. Interest is charged at a rate of 4% over the 30-day LIBOR (the rate at September 23, 2012 was approximately 4.22%).
   
1,162,377
     
1,229,439
 
                 
Notes payable – related parties. These notes were repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
2,504,657
 
                 
Total long-term debt
   
23,478,604
     
19,808,490
 
                 
Less current portion (includes VIE debt of $89,414)
   
(2,434,048
)
   
(2,967,135
)
                 
Long-term debt, net of current portion
 
$
21,044,556
   
$
16,841,355
 

On April 2, 2012, the Company, together with its wholly-owned subsidiaries, entered into a $16 million senior secured term loan (“April 2012 Term Loan”), secured by a senior lien on all Company assets. The Company used approximately $15.7 million of the April 2012 Term Loan to repay substantially all of its outstanding senior debt and interest rate swap liabilities and the remaining $0.3 million for working capital. The April 2012 Term Loan is for a term of seven years and bears interest at one-month LIBOR plus a LIBOR Margin (as defined in the agreement) which ranges from 2.50% to 3.40%, depending on the Company’s lease adjusted leverage ratio. Simultaneously, the Company entered into an interest rate swap agreement to fix the interest on the April 2012 Term Loan. The notional amount of the swap agreement is $16 million at inception and amortizes to $0 at maturity in March 2019. Under the swap agreement, the Company pays a fixed rate of 1.41% and receives interest at the one-month LIBOR. Principal and interest payments on the April 2012 Term Loan are amortized over seven years, with monthly principal payments of approximately $191 thousand plus accrued interest.

Scheduled principal maturities of long-term debt for the next five calendar years, and thereafter, are summarized as follows (the following maturities do not take into consideration the effect of the September 2012 Term Loan):

Year
 
Amount
 
2013
 
$
2,434,048
 
2014
   
3,190,992
 
2015
   
3,193,893
 
2016
   
3,196,754
 
2017
   
3,200,169
 
Thereafter
   
8,262,748
 
Total
 
$
23,478,604
 

Interest expense was $277,919 and $282,934 (including related party interest expense of $0 and $42,131) for the three months ended September 23, 2012 and September 25, 2011, respectively. Interest expense was $843,563 and $876,368 (including related party interest expense of $52,724 and $144,502) for the nine months ended September 23, 2012 and September 25, 2011, respectively.

The above agreements contain various customary financial covenants generally based on the performance of the specific borrowing entity and other related entities.  The more significant covenants consist of a minimum debt service coverage ratio and a maximum lease adjusted leverage ratio, both of which we are in compliance with as of September 23, 2012.

The fair value liability of the swap agreements was $392,263 and $613,999 at September 23, 2012 and December 25, 2011, respectively.  The decrease in fair value liability of the swap agreements was directly related to the April 2012 Term Loan, in which three old swaps were terminated and one new swap was entered into.  The change in fair value of derivative instruments in the Consolidated Statements of Operations represents the changes in the fair value of the interest rate swap agreements that were terminated in conjunction with the April 2012 Term Loan, as these swap agreements did not qualify for hedge accounting.

Note 7 - Capital Stock (Including Purchase Warrants and Options)
Stockholders' Equity Note Disclosure [Text Block]
7.           CAPITAL STOCK (INCLUDING PURCHASE WARRANTS AND OPTIONS)

In 2011, the Company established the Stock Incentive Plan of 2011 (“Stock Incentive Plan”) to attract and retain directors, consultants, and employees and to more fully align their interests with the interests of the Company’s shareholders through the opportunity for increased stock ownership.  The plan permits the grant and award of 750,000 shares of common stock by way of stock options and/or restricted stock.  Stock options must be awarded at exercise prices at least equal to or greater than 100% of the fair market value of the shares on the date of grant.  The options will expire no later than 10 years from the date of grant, with vesting terms to be defined at grant date, ranging from a vesting schedule based on performance to a vesting schedule that extends over a period of time as selected by the Compensation Committee of the Board of Directors or other committee as determined by the Board (the “Committee”).  The Committee also determines the grant, issuance, retention, and vesting timing and conditions of awards of restricted stock.  The Committee may place limitations, such as continued employment, passage of time, and/or performance measures, on restricted stock.  Awards of restricted stock may not provide for vesting or settlement in full of restricted stock over a period of less than one year from the date the award is made.  The Stock Incentive Plan was approved by our shareholders on May 26, 2011.

During fiscal 2011 and on March 1, 2012 and June 20, 2012, restricted shares were issued to certain employees at a weighted-average grant date fair value of $5.00, $3.10 and $5.00, respectively. Restricted shares are granted with a per share purchase price at 100% of the fair market value on the date of grant. Stock-based compensation expense will be recognized over the expected vesting period in an amount equal to the fair market value of such awards on the date of grant.

The following table presents the restricted shares transactions as of September 23, 2012:

   
Number of
Restricted
Stock Shares
 
Unvested, December 25, 2011
   
60,800
 
Granted
   
28,800
 
Vested
   
-
 
Expired/Forfeited
   
(12,300
)
Unvested, September 23, 2012
   
77,300
 

The following table presents the restricted shares transactions as of September 25, 2011:

  
 
Number of
Restricted
Stock Shares
 
Unvested, December 26, 2010
   
-
 
Granted
   
60,800
 
Vested
   
-
 
Expired/Forfeited
   
(200)
 
Unvested, September 25, 2011
   
60,600
 

Under the Stock Incentive Plan, there are 672,700 shares available for future awards at September 23, 2012.

On July 30, 2007, DRH granted options for the purchase of 150,000 shares of common stock to the directors of the Company. These options vest ratably over a three-year period and expire six years from issuance. At September 23, 2012, these options are fully vested and can be exercised at a price of $2.50 per share.

On July 31, 2010, prior to the Stock Incentive Plan, DRH granted options for the purchase of 210,000 shares of common stock to the directors of the Company.  These options vest ratably over a three-year period and expire six years from issuance.  Once vested, the options can be exercised at a price of $2.50 per share.

Stock-based compensation of $58,480 and $21,981 was recognized, during the three-month period ended September 23, 2012 and September 25, 2011, respectively, as restaurant labor operating costs and general and administrative expenses in the consolidated statements of operations and as additional paid-in capital on the consolidated statement of stockholders' equity to reflect the fair value of shares vested. Stock-based compensation for the nine-months ended September 23, 2012 and September 25, 2011, respectively, was $165,427 and $65,944.  The fair value of stock options is estimated using the Black-Scholes model.  The fair value of unvested shares is $65,944 as of September 23, 2012.  The fair value of the unvested shares will be amortized ratably over the remaining vesting term.  The valuation methodology used an assumed term based upon the stated term of three years and a risk-free rate of return represented by the U.S. 5-year Treasury Bond rate and volatility factor based on guidance as defined in FASB ASC 718, Compensation–Stock Compensation.  A dividend yield of 0% was used because the Company has never paid a dividend and does not anticipate paying dividends in the reasonably foreseeable future. 

In October 2009, one member of the Board of Directors exercised 6,000 vested options at a price of $2.50 per share.  Consequently, at September 23, 2012, 354,000 shares of authorized common stock are reserved for issuance to provide for the exercise of the Company’s stock options.

The Company has authorized 10,000,000 shares of preferred stock at a par value of $0.0001.  No preferred shares are issued or outstanding as of September 23, 2012.  Any preferences, rights, voting powers, restrictions, dividend limitations, qualifications, and terms and conditions of redemption shall be set forth and adopted by a Board of Directors' resolution prior to issuance of any series of preferred stock.

Note 8 - Income Taxes
Income Tax Disclosure [Text Block]
8.           INCOME TAXES

The (benefit) provision for income taxes consists of the following components for the three-month and nine-month periods ended September 23, 2012 and September 25, 2011, respectively:

   
Three Months Ended
   
Nine months Ended
 
   
September 23
2012
   
September 25
2011
   
September 23
2012
   
September 25
2011
 
Federal:
                       
                         
Current
 
$
-
   
$
-
   
$
-
   
$
-
 
Deferred
   
4,984
     
36,390
     
251,778
   
 
463,772
 
                                 
State:
                               
Current
   
28,430
     
71,500
     
100,455
     
208,507
 
Deferred
   
(35,572)
     
47,286
     
(18,846)
     
144,382
 
                                 
Income tax (benefit) provision
 
$
(2,158
)  
$
155,176
   
$
333,387
   
$
816,661
 

The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to loss before income taxes.  The items causing this difference are as follows:

   
September 23
2012
   
September 25
2011
 
Income tax provision at federal statutory rate
 
$
418,719
   
$
766,063
 
State income tax provision
   
81,609
     
352,889
 
Permanent differences
   
144,185
     
77,139
 
Tax credits
   
(424,746
)
   
(318,643
)
Other
   
113,620
     
(60,787
)
Income tax provision
 
$
333,387
   
$
816,661
 

The Company’s income tax provision for the nine months ended September 23, 2012 varies from the provision using the statutory rate due primarily to provision to return adjustments and the generation of tax credits without regard to income.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  The Company expects the deferred tax assets to be fully realizable within the next several years. Significant components of the Company's deferred income tax assets and liabilities are summarized as follows:

   
September 23
2012
   
December 25
2011
 
Deferred tax assets:
           
Net operating loss carry forwards
 
$
660,682
   
$
1,861,906
 
Deferred rent expense
   
349,774
     
50,471
 
Start-up costs
   
110,819
     
135,535
 
Tax credit carry forwards
   
1,560,691
     
1,089,561
 
Other
   
371,088
     
393,713
 
Total deferred tax assets
   
3,053,054
     
3,531,186
 
                 
Deferred tax liabilities:
               
Tax depreciation in excess of book
   
2,880,284
     
3,258,854
 
Total deferred tax liabilities
   
2,880,284
     
3,258,854
 
                 
Net deferred income tax asset
 
$
172,770
   
$
272,332
 

If deemed necessary by management, the Company establishes valuation allowances in accordance with the provisions of FASB ASC 740 ("ASC 740"), "Income Taxes".  Management continually reviews realizability of deferred tax assets and the Company recognizes these benefits only as reassessment indicates that it is more likely than not that such tax benefits will be realized.

The Company expects to use net operating loss and general business tax credit carry forwards before its 20-year expiration.  A significant amount of net operating loss carry forwards were used when the Company purchased nine affiliated restaurants in 2010, which were previously managed by DRH.  Federal net operating loss carry forwards of $1,563,269 will expire in 2031.  General business tax credits of $424,746, $601,074, $340,519, $123,486, $59,722, and $11,144 will expire in 2032, 2031, 2030, 2029, 2028 and 2027, respectively.

The Company applies the provisions of ASC 740 regarding the accounting for uncertainty in income taxes.  There are no amounts recorded on the Company's consolidated financial statements for uncertain positions.  The Company classifies all interest and penalties as income tax expense.  There are no accrued interest amounts or penalties related to uncertain tax positions as of September 23, 2012.

The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions.

Note 10 - Commitments and Contingencies
Commitments and Contingencies Disclosure [Text Block]
10.           COMMITMENTS AND CONTINGENCIES

The Company assumed, from a related entity, an "Area Development Agreement" with BWWI in which the Company undertakes to open 23 BWW restaurants within its designated "development territory", as defined by the agreement, by October 1, 2016.  On December 12, 2008, this agreement was amended, adding nine additional restaurants and extending the date of fulfillment to March 1, 2017.  Failure to develop restaurants in accordance with the schedule detailed in the agreement could lead to potential penalties of $50,000 for each undeveloped restaurant, payment of the initial franchise fees for each undeveloped restaurant, and loss of rights to development territory.  As of September 23, 2012, of the 32 restaurants required to be opened under the Area Development Agreement, 17 of these restaurants had been opened for business.  An additional six restaurants not part of this Area Development Agreement were also opened for business as of September 23, 2012. 

The Company is required to pay BWWI royalties (5% of net sales) and advertising fund contributions (3% of net sales) for the term of the individual franchise agreements.  The Company incurred $739,398 and $667,224 in royalty expense for the three-month periods ended September 23, 2012 and September 25, 2011, respectively and $2,248,016 and $2,045,488 for the nine-month periods ended September 23, 2012 and September 25, 2011.  Advertising fund contribution expenses were $445,654 and $422,570 for the three-month periods ended September 23, 2012 and September 25, 2011, respectively, and $1,351,094 and $1,271,538 for the nine-month periods ended September 23, 2012 and September 25, 2011, respectively.

The Company is required, by its various BWWI franchise agreements, to modernize the restaurants during the term of the agreements.  The individual agreements generally require improvements between the fifth year and the tenth year to meet the most current design model that BWWI has approved.  The modernization costs can range from approximately $50,000 to approximately $500,000 depending on the individual restaurants’ needs.

The Company is subject to ordinary, routine, legal proceedings, as well as demands, claims and threatened litigation, which arise in the ordinary course of its business.  The ultimate outcome of any litigation is uncertain.  While unfavorable outcomes could have adverse effects on the Company's business, results of operations, and financial condition, management believes that the Company is adequately insured and does not believe that any pending or threatened proceedings would adversely impact the Company's results of operations, cash flows, or financial condition.  Therefore, no separate reserve has been established for these types of legal proceedings.

Note 11 - Supplemental Cash Flows Information
Cash Flow, Supplemental Disclosures [Text Block]
11.            SUPPLEMENTAL CASH FLOWS INFORMATION

Other Cash Flows Information

Cash paid for interest was $227,432 and $278,616 during the three-month periods ended September 23, 2012 and September 25, 2011, respectively, and $743,330 and $827,253 for the nine-month periods ended September 23, 2012 and September 25, 2011, respectively.

Cash paid for income taxes was $58,804 and $110,000 during the three-month periods ended September 23, 2012 and September 25, 2011, respectively, and $271,804 and $147,943 for the nine-month periods ended September 23, 2012 and September 25, 2011, respectively.

Note 12 - Fair Value of Financial Instruments
Fair Value Disclosures [Text Block]
12.           FAIR VALUE OF FINANCIAL INSTRUMENTS

The guidance for fair value measurements, ASC 820 Fair Value Measurements and Disclosures, establishes the authoritative definition of fair value, sets out a framework for measuring fair value, and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-tier fair value hierarchy based upon observable and non-observable inputs as follows:

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.

As of September 23, 2012 and December 25, 2011, respectively, our financial instruments consisted of cash equivalents, accounts payable, and debt. The fair value of cash equivalents, accounts payable and short-term debt approximate its carrying value, due to its short-term nature.

The fair value of our interest rate swaps is determined based on valuation models, which utilize quoted interest rate curves to calculate the forward value and then discount the forward values to the present period. The Company measures the fair value using broker quotes which are generally based on market observable inputs including yield curves and the value associated with counterparty credit risk. Our interest rate swaps are classified as a Level 2 measurement as these securities are not actively traded in the market, but are observable based on transactions associated with bank loans with similar terms and maturities.

There were no transfers between levels of the fair value hierarchy during the three months ended September 23, 2012 and the fiscal year ended December 25, 2011, respectively.

The following table presents the fair values for those assets and liabilities measured on a recurring basis as of September 23, 2012:

FAIR VALUE MEASUREMENTS
 
Description
 
Level 1
   
Level 2
   
Level 3
   
Total
   
Asset/(Liability)
Total
 
Interest Rate Swaps
 
$
   
$
(392,263
)
 
$
   
$
(392,263
)
 
$
(392,263
)

The following table presents the fair values for those assets and liabilities measured on a recurring basis as of December 25, 2011:

FAIR VALUE MEASUREMENTS
 
Description
 
Level 1
   
Level 2
   
Level 3
   
Total
   
Asset/(Liability)
Total
 
Interest Rate Swaps
 
$
   
$
(613,999
)
 
$
   
$
(613,999
)
 
$
(613,999
)

As of September 23, 2012, our total debt, was approximately $23.5 million and had a fair value of approximately $15.4 million. The Company did not have any related party debt as of September 23, 2012; this debt was paid in full in conjunction with the April 2012 Term Loan (see Note 6 for details).  As of December 25, 2011, our total debt, less related party debt, was approximately $17.3 million and had a fair value of approximately $15.2 million. Related party debt as of December 25, 2011 was approximately $2.5 million and had a fair value of approximately $2.6 million.  The Company estimates the fair value of its fixed-rate debt using discounted cash flow analysis based on the Company’s incremental borrowing rate.

Accounting Policies, by Policy (Policies)
Principles of Consolidation

The consolidated financial statements include the accounts of DRH, its wholly-owned subsidiaries, and Ansley Group, LLC (collectively, the "Company"), a real estate entity under common control which is consolidated in accordance with Financial Accounting Standards Board ("FASB") guidance related to variable interest entities.  All significant intercompany accounts and transactions have been eliminated upon consolidation.

We consolidate all variable-interest entities (“VIE”) where we are the primary beneficiary.  For VIE, we assess whether we are the primary beneficiary as prescribed by the accounting guidance on the consolidation of VIE.  The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity.  We consolidated Ansley Group, LLC because we lease and maintain substantially all of its assets to operate our Clinton Township, Michigan BWW restaurant and we guarantee all of its debt.
Basis of Presentation

The consolidated financial statements as of September 23, 2012 and December 25, 2011, and for the three-month and nine-month periods ended September 23, 2012 and September 25, 2011, have been prepared by the Company pursuant to accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information as of September 23, 2012 and for the three-month and nine-month periods ended September 23, 2012 and September 25, 2011 is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods.

The financial information as of December 25, 2011 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 25, 2011, which is included in Item 8 in the Fiscal 2011 Annual Report on Form 10-K, and should be read in conjunction with such financial statements.

The results of operations for the three-month and nine-month periods ended September 23, 2012 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 30, 2012.
Fiscal Year

The Company utilizes a 52- or 53-week accounting period that ends on the last Sunday in December. This quarterly report on Form 10-Q is for the three-month period ended September 23, 2012 and September 25, 2011, each comprising 13 weeks.  The fiscal year ending December 30, 2012 will be comprised of 53 weeks; the fiscal year ended December 25, 2011 comprised of 52 weeks.
Concentration Risks

Approximately 75% and 76% of the Company's revenues during the nine months ended September 23, 2012 and September 25, 2011, respectively, are generated from food and beverage sales from restaurants located in Michigan.
Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.
Interest Rate Swap Agreements

The Company utilizes interest rate swap agreements with a bank to fix interest rates on a portion of the Company’s portfolio of variable rate debt, which reduces exposure to interest rate fluctuations.  The Company does not use any other types of derivative financial instruments to hedge such exposures, nor does it use derivatives for speculative purposes.

Prior to the debt restructure on April 2, 2012 (see Note 2 and Note 6 for details), the interest rate swap agreements did not qualify for hedge accounting. As such, the Company recorded the change in the fair value of the swap agreements in change in fair value of derivative instruments on the consolidated statements of operations. The interest rate swap agreement associated with the April 2012 debt restructure does qualify for hedge accounting. As such, the Company recorded the change in the fair value of the swap agreement associated with the April 2012 debt restructure as a component of accumulated other comprehensive income (loss), net of tax. The Company records the fair value of its interest rate swaps on the balance sheet in other assets or other liabilities depending on the fair value of the swaps. See Note 6 and Note 12 for additional information on the interest rate swap agreements.
Recent Accounting Pronouncements

None.
Reclassifications

Certain reclassifications have been made to the prior year consolidated financial statements to conform to the current year's presentation.
Note 3 - Property and Equipment (Tables)
Property, Plant and Equipment [Table Text Block]
   
September 23
2012
   
December 25
2011
 
Land
 
$
469,680
   
$
469,680
 
Land (restricted assets of VIE)
   
520,000
     
520,000
 
Building
   
2,745,296
     
2,745,296
 
Building (restricted assets of VIE)
   
1,570,967
     
1,570,967
 
Equipment
   
11,201,812
     
10,596,964
 
Furniture and fixtures
   
3,167,653
     
3,060,014
 
Leasehold improvements
   
19,777,035
     
19,148,471
 
Restaurant construction in progress
   
5,668,178
     
-
 
Total
   
45,120,621
     
38,111,392
 
Less accumulated depreciation
   
(16,740,518)
     
(13,955,881
)
Less accumulated depreciation (restricted assets of VIE)
   
(655,690)
     
(633,197
)
Property and equipment, net
 
$
27,724,413
   
$
23,522,314
 
Note 4 - Intangibles (Tables)
Schedule of Finite-Lived Intangible Assets [Table Text Block]
   
September 23
2012
   
December 25
2011
 
Amortized intangibles:
           
Franchise fees
 
$
308,750
   
$
303,750
 
Trademark
   
34,388
     
30,852
 
Loan fees
   
23,100
     
164,429
 
Total
   
366,238
     
499,031
 
Less accumulated amortization
   
(93,124
)
   
(112,271
)
Amortized intangibles, net
   
273,114
     
386,760
 
                 
Unamortized intangibles:
               
Liquor licenses
   
828,663
     
727,237
 
Total intangibles, net
 
$
1,101,777
   
$
1,113,997
 
Note 6 - Long-Term Debt (Tables)
  
 
September 23
2012
   
December 25
2011
 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal payments are approximately $191,000 plus interest through maturity in April 2019. Interest is charged based on a variable rate of one-month LIBOR plus LIBOR margin (which ranges between 2.50% and 3.40%) and a 1.41% fixed-rate swap arrangement.  The rate at September 23, 2012 was approximately 4.38%.
 
$
15,047,619
   
$
-
 
                 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments were approximately $113,000 through maturity in May 2017. Interest was charged based on a swap arrangement designed to yield a fixed annual rate of 7.10%. This note was repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
7,326,128
 
                 
Note payable to a bank secured by a senior mortgage on the Brandon Property and a personal guaranty. Scheduled monthly principal and interest payments are approximately $8,000 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 will adjust every seven years thereafter).
   
1,107,737
     
1,122,413
 
                 
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 $6,300 until maturity. Interest is charged at a rate of 3.58% per annum.
   
857,483
     
882,769
 
                 
Note payable to a bank, secured by a senior lien on all company assets. Scheduled interest payments are charged at a rate of 3% over the 30-day LIBOR (the rate at September 23, 2012 was approximately 3.22%). The monthly interest payment approximates $6,500. The note will mature in May 2017. The development line of credit includes a carrying cost of .25% per year of any available but undrawn amounts.
   
5,300,384
     
1,030,052
 
                 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments were approximately $19,500 through maturity in May 2017. Interest was charged based on a swap arrangement designed to yield a fixed annual rate of 5.91%. This note was repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
1,195,853
 
                 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments were approximately $40,000 through maturity in May 2017. Interest was charged based on a swap arrangement designed to yield a fixed annual rate of 6.35%. This note was repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
2,602,375
 
                 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments were approximately $24,500 through maturity in May 2017. Interest was charged based on a swap arrangement designed to yield a fixed annual rate of 6.35%. This note was repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
1,676,000
 
                 
Unsecured note payable that originally matured in August 2013 and required monthly principal and interest installments of approximately $2,200, with the balance due at maturity. Interest was 7% per annum. This note was repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
231,940
 
                 
Note 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.
   
3,004
     
6,864
 
                 
Notes payable – variable interest entity. Note payable to a bank secured by a senior mortgage on the property located at 15745 Fifteen Mile Road, Clinton Township, Michigan 48035, a DRH corporate guaranty, and a personal guaranty. Scheduled monthly principal and interest payments are approximately $12,000 through maturity in 2025. Interest is charged at a rate of 4% over the 30-day LIBOR (the rate at September 23, 2012 was approximately 4.22%).
   
1,162,377
     
1,229,439
 
                 
Notes payable – related parties. These notes were repaid in full in conjunction with the April 2012 Term Loan; refer below for further details.
   
-
     
2,504,657
 
                 
Total long-term debt
   
23,478,604
     
19,808,490
 
                 
Less current portion (includes VIE debt of $89,414)
   
(2,434,048
)
   
(2,967,135
)
                 
Long-term debt, net of current portion
 
$
21,044,556
   
$
16,841,355
 
Year
 
Amount
 
2013
 
$
2,434,048
 
2014
   
3,190,992
 
2015
   
3,193,893
 
2016
   
3,196,754
 
2017
   
3,200,169
 
Thereafter
   
8,262,748
 
Total
 
$
23,478,604
 
Note 7 - Capital Stock (Including Purchase Warrants and Options) (Tables)
Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]
   
Number of
Restricted
Stock Shares
 
Unvested, December 25, 2011
   
60,800
 
Granted
   
28,800
 
Vested
   
-
 
Expired/Forfeited
   
(12,300
)
Unvested, September 23, 2012
   
77,300
 
  
 
Number of
Restricted
Stock Shares
 
Unvested, December 26, 2010
   
-
 
Granted
   
60,800
 
Vested
   
-
 
Expired/Forfeited
   
(200)
 
Unvested, September 25, 2011
   
60,600
 
Note 8 - Income Taxes (Tables)
   
Three Months Ended
   
Nine months Ended
 
   
September 23
2012
   
September 25
2011
   
September 23
2012
   
September 25
2011
 
Federal:
                       
                         
Current
 
$
-
   
$
-
   
$
-
   
$
-
 
Deferred
   
4,984
     
36,390
     
251,778
   
 
463,772
 
                                 
State:
                               
Current
   
28,430
     
71,500
     
100,455
     
208,507
 
Deferred
   
(35,572)
     
47,286
     
(18,846)
     
144,382
 
                                 
Income tax (benefit) provision
 
$
(2,158
)  
$
155,176
   
$
333,387
   
$
816,661
 
   
September 23
2012
   
September 25
2011
 
Income tax provision at federal statutory rate
 
$
418,719
   
$
766,063
 
State income tax provision
   
81,609
     
352,889
 
Permanent differences
   
144,185
     
77,139
 
Tax credits
   
(424,746
)
   
(318,643
)
Other
   
113,620
     
(60,787
)
Income tax provision
 
$
333,387
   
$
816,661
 
   
September 23
2012
   
December 25
2011
 
Deferred tax assets:
           
Net operating loss carry forwards
 
$
660,682
   
$
1,861,906
 
Deferred rent expense
   
349,774
     
50,471
 
Start-up costs
   
110,819
     
135,535
 
Tax credit carry forwards
   
1,560,691
     
1,089,561
 
Other
   
371,088
     
393,713
 
Total deferred tax assets
   
3,053,054
     
3,531,186
 
                 
Deferred tax liabilities:
               
Tax depreciation in excess of book
   
2,880,284
     
3,258,854
 
Total deferred tax liabilities
   
2,880,284
     
3,258,854
 
                 
Net deferred income tax asset
 
$
172,770
   
$
272,332
 
Note 12 - Fair Value of Financial Instruments (Tables)
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]
FAIR VALUE MEASUREMENTS
 
Description
 
Level 1
   
Level 2
   
Level 3
   
Total
   
Asset/(Liability)
Total
 
Interest Rate Swaps
 
$
   
$
(392,263
)
 
$
   
$
(392,263
)
 
$
(392,263
)
FAIR VALUE MEASUREMENTS
 
Description
 
Level 1
   
Level 2
   
Level 3
   
Total
   
Asset/(Liability)
Total
 
Interest Rate Swaps
 
$
   
$
(613,999
)
 
$
   
$
(613,999
)
 
$
(613,999
)
Note 1 - Business and Summary of Significant Accounting Policies (Detail)
9 Months Ended
Sep. 23, 2012
Sep. 25, 2011
Dec. 31, 2017
Nov. 7, 2012
Sep. 23, 2004
Nov. 7, 2012
IFA [Member]
Sep. 23, 2012
BWW [Member]
Dec. 27, 2012
Additional Corporate Owned [Member]
Dec. 27, 2012
Franchise Midwest [Member]
Jun. 10, 2012
Midwest [Member]
Number of Restaurants
 
 
32 
31 
 
31 
Franchise Members
 
 
 
1,000 
 
12,000 
 
 
 
 
Concentration Risk, Percentage
75.00% 
76.00% 
 
 
 
 
 
 
 
 
Note 2 - Significant Business Transactions (Detail) (USD $)
3 Months Ended 9 Months Ended 0 Months Ended 6 Months Ended 6 Months Ended 18 Months Ended 3 Months Ended
Sep. 23, 2012
Sep. 23, 2012
Dec. 31, 2017
Nov. 7, 2012
Sep. 23, 2004
Apr. 2, 2012
Working Capital [Member]
April 2012 Term Loan [Member]
Sep. 23, 2012
Development Line of Credit [Member]
Senior Secured Credit Facility [Member]
Refinancing of Debt [Member]
Sep. 23, 2012
Development Line of Credit [Member]
Senior Secured Credit Facility [Member]
Sep. 23, 2012
Revolving Line of Credit [Member]
Senior Secured Credit Facility [Member]
Sep. 23, 2012
Outstanding RBS Debt [Member]
Senior Secured Credit Facility [Member]
Refinancing of Debt [Member]
Sep. 25, 2012
Ansley Group [Member]
Sep. 23, 2012
Ansley Group [Member]
Jun. 24, 2012
Minimum [Member]
April 2012 Term Loan [Member]
Jun. 24, 2012
Maximum [Member]
April 2012 Term Loan [Member]
Jun. 7, 2011
Development Line of Credit [Member]
RBS Line of Credit [Member]
Jun. 7, 2011
Revolving Line of Credit [Member]
RBS Line of Credit [Member]
Sep. 23, 2012
Eight Buffalo Wild Wings [Member]
Senior Secured Credit Facility [Member]
Sep. 23, 2012
Acquisition Costs [Member]
Senior Secured Credit Facility [Member]
Sep. 25, 2012
Acquired in Indiana [Member]
Sep. 25, 2012
Acquired in Illinois [Member]
Jun. 7, 2011
RBS Line of Credit [Member]
Apr. 2, 2012
April 2012 Term Loan [Member]
Refinancing of Debt [Member]
Jun. 24, 2012
April 2012 Term Loan [Member]
Dec. 7, 2012
April 2012 Term Loan [Member]
Mar. 31, 2019
April 2012 Term Loan [Member]
Apr. 2, 2012
April 2012 Term Loan [Member]
Sep. 23, 2012
Senior Secured Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity
 
 
 
 
 
$ 300,000 
$ 3,300,000 
$ 10,000,000 
$ 1,000,000 
$ 15,200,000 
 
 
 
 
$ 7,000,000 
$ 1,000,000 
$ 14,700,000 
$ 1,300,000 
 
 
$ 8,000,000 
$ 15,700,000 
 
 
 
 
 
Secured Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16,000,000 
37,000,000 
Debt Instrument, Convertible, Terms of Conversion Feature
 
 
 
 
 
 
 
 
 
 
 
 
2.5% 
3.4% 
 
 
 
 
 
 
 
 
 
seven 
 
 
 
Notional Amount of Interest Rate Derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16,000,000 
 
Derivative, Swaption Interest Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.41% 
 
 
 
 
Debt Instrument, Periodic Payment
 
191,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
191,000 
 
 
 
440,476 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
 
 
 
 
 
100.00% 
100.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term Loan Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal Amortization Period Months
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
84 
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Minimum
2.50% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Maximum
3.70% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Restaurants
 
 
32 
31 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Payments to Acquire Equity Method Investments
 
 
 
 
 
 
 
 
 
 
$ 2,500,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 3 - Property and Equipment (Detail) - Property and Equipment (USD $)
Sep. 23, 2012
Dec. 25, 2011
Property and equipment
$ 45,120,621 
$ 38,111,392 
Less accumulated depreciation
(16,740,518)
(13,955,881)
Property and equipment, net
26,289,136 
22,064,544 
Land [Member]
 
 
Property and equipment
469,680 
469,680 
Land VIE [Member]
 
 
Property and equipment
520,000 
520,000 
Building [Member]
 
 
Property and equipment
2,745,296 
2,745,296 
Building VIE [Member]
 
 
Property and equipment
1,570,967 
1,570,967 
Equipment [Member]
 
 
Property and equipment
11,201,812 
10,596,964 
Furniture and Fixtures [Member]
 
 
Property and equipment
3,167,653 
3,060,014 
Leasehold Improvements [Member]
 
 
Property and equipment
19,777,035 
19,148,471 
Construction in Progress [Member]
 
 
Property and equipment
5,668,178 
 
Accumulated Depreciation VIE [Member]
 
 
Less accumulated depreciation
(655,690)
(633,197)
Total Including VIE [Member]
 
 
Property and equipment, net
$ 27,724,413 
$ 23,522,314 
Note 4 - Intangibles (Detail) (USD $)
3 Months Ended 9 Months Ended
Sep. 23, 2012
Sep. 25, 2011
Sep. 23, 2012
Sep. 25, 2011
Dec. 26, 2016
Dec. 25, 2011
Amortization of Intangible Assets
$ (1,505)
$ 28,968 
$ 12,364 
$ 48,129 
 
 
Finite-Lived Intangible Assets, Net
273,114 
 
273,114 
 
17,800 
386,760 
Amortization of Financing Costs
 
 
694 
 
 
 
April 2012 Term Loan [Member]
 
 
 
 
 
 
Amortization of Financing Costs
$ 103,934 
 
$ 103,934 
 
 
 
Note 4 - Intangibles (Detail) - Intangible Assets (USD $)
Dec. 26, 2016
Sep. 23, 2012
Dec. 25, 2011
Amortized intangibles:
 
 
 
Franchise fees
 
$ 308,750 
$ 303,750 
Trademark
 
34,388 
30,852 
Loan fees
 
23,100 
164,429 
Total
 
366,238 
499,031 
Less accumulated amortization
 
(93,124)
(112,271)
Amortized intangibles, net
17,800 
273,114 
386,760 
Unamortized intangibles:
 
 
 
Liquor licenses
 
828,663 
727,237 
Total intangibles, net
 
$ 1,101,777 
$ 1,113,997