DIVERSIFIED RESTAURANT HOLDINGS, INC., 10-Q filed on 11/7/2014
Quarterly Report
Document And Entity Information
9 Months Ended
Sep. 28, 2014
Nov. 5, 2014
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
Diversified Restaurant Holdings, Inc. 
 
Document Type
10-Q 
 
Current Fiscal Year End Date
--12-28 
 
Entity Common Stock, Shares Outstanding
 
26,185,375 
Amendment Flag
false 
 
Entity Central Index Key
0001394156 
 
Entity Current Reporting Status
Yes 
 
Entity Voluntary Filers
No 
 
Entity Filer Category
Accelerated Filer 
 
Entity Well-known Seasoned Issuer
No 
 
Document Period End Date
Sep. 28, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Consolidated Balance Sheets (Current Period Unaudited) (USD $)
Sep. 28, 2014
Dec. 29, 2013
Current assets
 
 
Cash and cash equivalents
$ 6,514,056 
$ 9,562,473 
Investments
4,911,848 
8,561,598 
Accounts receivable
231,334 
1,248,940 
Inventory
1,182,420 
1,017,626 
Prepaid assets
429,581 
555,144 
Total current assets
13,269,239 
20,945,781 
Deferred income taxes
1,353,681 
1,162,761 
Property and equipment, net
74,500,195 
58,576,734 
Intangible assets, net
3,229,487 
2,948,013 
Goodwill
10,998,630 
8,578,776 
Other long-term assets
199,500 
121,668 
Total assets
103,550,732 
92,333,733 
Current liabilities
 
 
Accounts payable
5,210,270 
4,416,092 
Accrued compensation
1,565,911 
2,060,082 
Other accrued liabilities
1,035,623 
809,104 
Current portion of long-term debt
12,327,788 
8,225,732 
Current portion of deferred rent
377,812 
306,371 
Total current liabilities
20,517,404 
15,817,381 
Deferred rent, less current portion
2,992,190 
3,420,574 
Unfavorable operating leases
712,223 
759,065 
Other long-term liabilities
410,600 
327,561 
Long-term debt, less current portion
44,528,221 
38,047,589 
Total liabilities
69,160,638 
58,372,170 
Stockholders' equity
 
 
Common stock - $0.0001 par value; 100,000,000 shares authorized; 26,147,999 and 26,049,578, respectively, issued and outstanding
2,582 
2,580 
Additional paid-in capital
35,554,165 
35,275,255 
Accumulated other comprehensive loss
(180,997)
(245,364)
Accumulated deficit
(985,656)
(1,070,908)
Total stockholders' equity
34,390,094 
33,961,563 
Total liabilities and stockholders' equity
$ 103,550,732 
$ 92,333,733 
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $)
Sep. 28, 2014
Dec. 29, 2013
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
26,147,999 
26,049,578 
Common stock, shares outstanding
26,147,999 
26,049,578 
Consolidated Statements of Operations (Unaudited) (USD $)
3 Months Ended 9 Months Ended
Sep. 28, 2014
Sep. 29, 2013
Sep. 28, 2014
Sep. 29, 2013
Revenue
$ 32,782,092 
$ 26,368,090 
$ 93,264,727 
$ 80,410,174 
Operating expenses
 
 
 
 
Food, beverage, and packaging costs
9,456,106 
7,759,146 
26,784,277 
24,336,433 
Compensation costs
8,405,116 
6,972,432 
24,170,212 
20,903,931 
Occupancy costs
1,873,693 
1,600,278 
5,052,643 
4,704,380 
Other operating costs
7,220,083 
5,436,252 
19,627,639 
16,100,223 
General and administrative expenses
2,133,564 
1,558,924 
6,345,810 
5,058,879 
Pre-opening costs
609,664 
639,498 
2,063,800 
2,036,022 
Depreciation and amortization
2,865,794 
2,070,841 
7,612,125 
5,539,874 
Loss on disposal of property and equipment
33,013 
22,970 
353,333 
83,711 
Total operating expenses
32,597,033 
26,060,341 
92,009,839 
78,763,453 
Operating profit
185,059 
307,749 
1,254,888 
1,646,721 
Interest expense
(483,057)
(320,798)
(1,436,092)
(1,375,646)
Other income, net
67,789 
68,415 
86,426 
92,958 
Income (loss) before income taxes
(230,209)
55,366 
(94,778)
364,033 
Income tax provision (benefit)
(48,100)
(14,444)
(180,030)
52,186 
Net income (loss)
$ (182,109)
$ 69,810 
$ 85,252 
$ 311,847 
Basic earnings (loss) per share (in Dollars per share)
$ (0.01)
$ 0.00 
$ 0.00 
$ 0.01 
Fully diluted earnings (loss) per share (in Dollars per share)
$ (0.01)
$ 0.00 
$ 0.00 
$ 0.01 
Weighted average number of common shares outstanding
 
 
 
 
Basic (in Shares)
26,107,627 
26,054,118 
26,074,797 
23,231,403 
Diluted (in Shares)
26,107,627 
26,186,263 
26,174,593 
23,351,128 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
3 Months Ended 9 Months Ended
Sep. 28, 2014
Sep. 29, 2013
Sep. 28, 2014
Sep. 29, 2013
Net income (loss)
$ (182,109)
$ 69,810 
$ 85,252 
$ 311,847 
Other comprehensive income (loss)
 
 
 
 
Unrealized changes in fair value of interest rate swaps, net of tax of $43,284, $77,315, $26,039 and $18,011, respectively
84,022 
(150,082)
50,841 
34,962 
Unrealized changes in fair value of invesments, net of tax of $2,232, $16,876, $6,969 and $8,423, respectively
(4,333)
32,750 
13,526 
(16,253)
Total other comprehensive income (loss)
79,689 
(117,332)
64,367 
18,709 
Comprehensive income (loss)
$ (102,420)
$ (47,522)
$ 149,619 
$ 330,556 
Consolidated Statements of Comprehensive Income (Loss) (Parentheticals) (USD $)
3 Months Ended 9 Months Ended
Sep. 28, 2014
Sep. 29, 2013
Sep. 28, 2014
Sep. 29, 2013
Unrealized changes in fair value of interest rate swaps, tax
$ 43,284 
$ 77,315 
$ 26,039 
$ 18,011 
Unrealized changes in fair value of investments, tax
$ 2,232 
$ 16,876 
$ 6,969 
$ 8,423 
Consolidated Statements of Stockholders' Equity (USD $)
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Retained Earnings [Member]
Total
Balance at Dec. 30, 2012
$ 1,888 
$ 2,991,526 
$ (284,294)
$ (1,205,216)
$ 1,503,904 
Balance (Shares) (in Shares) at Dec. 30, 2012
18,951,700 
 
 
 
 
Issuance of restricted shares (in Shares)
145,575 
 
 
 
 
Forfeitures of restricted shares (in Shares)
(48,399)
 
 
 
 
Sale of common stock from follow-on offering, net of fees and expenses
690 
31,906,989 
 
 
31,907,679 
Sale of common stock from follow-on offering, net of fees and expenses (in Shares)
6,900,000 
 
 
 
 
Stock options exercised
74,997 
 
 
74,999 
Stock options exercised (in Shares)
104,638 
 
 
 
 
Employee stock purhcase plan
 
12,145 
 
 
12,145 
Employee stock purhcase plan (in Shares)
2,061 
 
 
 
 
Share-based compensation
 
205,668 
 
 
205,668 
Other comprehensive income (loss)
 
 
18,709 
 
18,709 
Net income
 
 
 
311,847 
311,847 
Balance at Sep. 29, 2013
2,580 
35,191,325 
(265,585)
(893,369)
34,034,951 
Balance (Shares) (in Shares) at Sep. 29, 2013
26,055,575 
 
 
 
 
Balance at Dec. 29, 2013
2,580 
35,275,255 
(245,364)
(1,070,908)
33,961,563 
Balance (Shares) (in Shares) at Dec. 29, 2013
26,049,578 
 
 
 
26,049,578 
Issuance of restricted shares (in Shares)
91,966 
 
 
 
 
Forfeitures of restricted shares (in Shares)
(2,068)
 
 
 
 
Employee stock purhcase plan
41,831 
 
 
41,833 
Employee stock purhcase plan (in Shares)
8,523 
 
 
 
 
Share-based compensation
 
237,079 
 
 
237,079 
Other comprehensive income (loss)
 
 
64,367 
 
64,367 
Net income
 
 
 
85,252 
85,252 
Balance at Sep. 28, 2014
$ 2,582 
$ 35,554,165 
$ (180,997)
$ (985,656)
$ 34,390,094 
Balance (Shares) (in Shares) at Sep. 28, 2014
26,147,999 
 
 
 
26,147,999 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
9 Months Ended
Sep. 28, 2014
Sep. 29, 2013
Cash flows from operating activities
 
 
Net income
$ 85,252 
$ 311,847 
Adjustments to reconcile net income to net cash provided by operating activities
 
 
Depreciation and amortization
7,641,090 
5,539,874 
Write off of loan fees
 
76,408 
Realized loss on sales of investments
33,406 
 
Loss on disposal of property and equipment
353,333 
83,711 
Share-based compensation
237,079 
205,668 
Deferred income taxes
(223,928)
(13,248)
Changes in operating assets and liabilities that provided (used) cash
 
 
Accounts receivable
1,017,606 
(136,544)
Inventory
(110,794)
(300,064)
Prepaid assets
125,563 
(67,541)
Intangible assets
(210,937)
(546,831)
Other long-term assets
(77,832)
(299,267)
Accounts payable
1,292,321 
759,930 
Accrued liabilities
(107,580)
(458,825)
Deferred rent
(356,943)
614,182 
Net cash provided by operating activities
9,697,636 
5,769,300 
Cash flows from investing activities
 
 
Purchases of investments
(7,469,555)
(12,690,397)
Proceeds from sale of investments
11,106,241 
5,278,048 
Purchases of property and equipment
(23,685,771)
(17,297,791)
Acquisition of business, net of cash acquired
(3,202,750)
 
Net cash used in investing activities
(23,251,835)
(24,710,140)
Cash flows from financing activities
 
 
Proceeds from issuance of long-term debt
16,448,332 
55,862,559 
Repayments of long-term debt
(5,865,644)
(58,460,520)
Payment of loan fees
(118,739)
 
Proceeds from employee stock purchase plan
41,833 
 
Proceeds from sale of common stock, net of underwriter fees
 
31,994,823 
Net cash provided by financing activities
10,505,782 
29,396,862 
Net increase (decrease) in cash and cash equivalents
(3,048,417)
10,456,022 
Cash and cash equivalents, beginning of period
9,562,473 
2,700,328 
Cash and cash equivalents, end of period
$ 6,514,056 
$ 13,156,350 
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 a fast-growing restaurant company operating two complementary concepts:  Bagger Dave’s Burger Tavern® (“Bagger Dave’s”) and Buffalo Wild Wings® Grill & Bar (“BWW”).  As the creator, developer, and operator of Bagger Dave’s and as one of the largest franchisees of BWW, we provide a unique guest experience in a casual and inviting environment.  We were incorporated in 2006 and are headquartered in the Detroit metropolitan area.  As of September 28, 2014, we had 61 locations in Florida, Illinois, Indiana, and Michigan.


DRH and its wholly-owned subsidiaries (collectively, the “Company”), AMC Group, Inc. (“AMC”), AMC Wings, Inc. (“WINGS”), AMC Burgers, Inc. (“BURGERS”), and AMC Real Estate, Inc. (“REAL ESTATE”) own, operate, and manage Bagger Dave's and DRH-owned BWW restaurants located throughout Florida, Illinois, Indiana, and Michigan.


DRH originated the Bagger Dave’s concept with our first restaurant opening in January 2008 in Berkley, Michigan.  Currently, there are 22 Bagger Dave’s, 14 in Michigan and eight in Indiana. The Company expects to operate between 47 and 51 Bagger Dave’s locations by the end of 2017.


DRH is also one of the largest BWW franchisees and currently operates 40 DRH-owned BWW restaurants (18 in Michigan, 14 in Florida, four in Illinois, and four in Indiana), including the nation’s largest BWW, based on square footage, in downtown Detroit, Michigan. We remain on track to fulfill our area development agreement (“ADA”) with Buffalo Wild Wings International, Inc. (“BWLD”) and expect to operate 52 DRH-owned BWW restaurants by the end of 2017, exclusive of potential additional BWW restaurant acquisitions. 


The following organizational chart outlines the current corporate structure of DRH.  A brief textual description of the entities follows the organizational chart. DRH is incorporated in Nevada.   


AMC was formed on March 28, 2007 and serves as our operational and administrative center. AMC renders management, operational support, and advertising services to WINGS, BURGERS, REAL ESTATE and their 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.


BURGERS was formed on March 12, 2007 and serves as a holding company for our 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 Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio, and Wisconsin.  We do not intend to pursue franchise development at this time.  


WINGS was formed on March 12, 2007 and serves as a holding company for our DRH-owned BWW restaurants.  We are economically dependent on retaining our franchise rights with BWLD.  The franchise agreements have specific initial term expiration dates ranging from March 2020 through June 2034, 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 March 2035 through June 2049.  We believe we are in compliance with the terms of these agreements.  


REAL ESTATE was formed on March 18, 2013 and serves as the holding company for the real estate properties owned by DRH. REAL ESTATE’s portfolio currently includes eight properties, four of which are Bagger Dave’s restaurants and four of which are DRH-owned BWW restaurants. The restaurants at these locations are all owned and operated by DRH.


Basis of Presentation


The consolidated financial statements as of September 28, 2014 and December 29, 2013, and for the three-month and nine-month periods ended September 28, 2014 and September 29, 2013, 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. The financial information as of September 28, 2014 and for the three-month and nine-month periods ended September 28, 2014 and September 29, 2013 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 consolidated financial information as of December 29, 2013 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 29, 2013, which is included in Item 8 in the Fiscal 2013 Annual Report on Form 10-K, and should be read in conjunction with such consolidated financial statements.


The results of operations for the three-month and nine-month periods ended September 28, 2014 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 28, 2014.


Reclassifications


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


Segment Reporting


The Company has two operating segments, Bagger Dave’s and BWW. The brands operate within the ultra-casual, full-service dining industry, providing similar products to similar customers. The brands also possess similar economic characteristics, resulting in similar long-term expected financial performance. Sales from external customers are derived principally from food and beverage sales. We do not rely on any major customers as a source of sales. We believe we meet the criteria for aggregating our operating segments into a single reporting segment.


Concentration Risks


Approximately 79.8% and 80.6% of the Company's revenues are generated from food and beverage sales of restaurants located in the Midwest region during the nine-month periods ended September 28, 2014 and September 29, 2013, respectively.


Investments


The Company’s investment securities are classified as available-for-sale. Investments classified as available-for-sale are available to be sold in the future in response to the Company’s liquidity needs, changes in market interest rates, tax strategies, and asset-liability management strategies, among other reasons. Available-for-sale securities are reported at fair value, with unrealized gains and losses, net of taxes, reported in the accumulated other comprehensive income (loss) component of stockholders’ equity, and accordingly, have no effect on net income. Realized gains or losses on sale of investments are determined on the basis of specific costs of the investments. Dividend income is recognized when declared and interest income is recognized when earned. Discount or premium on debt securities purchased at other than par value are amortized using the effective yield method. See Note 3 for details. 


Goodwill


Goodwill is not amortized and represents the excess of cost over the fair value of identified net assets of businesses acquired. Goodwill is subject to an annual impairment analysis or more frequently if indicators of impairment exist. At September 28, 2014 and December 29, 2013, we had goodwill of $ 11.0 million and $8.6 million, respectively that was assigned to our BWW operating segment. See Note 2 for additional information.


The impairment analysis, if necessary, consists of a two-step process. The first step is to compare the fair value of the reporting unit to its carrying value, including goodwill. We estimate fair value using market information (market approach) and discounted cash flow projections (income approach). The income approach uses the reporting unit’s projection of estimated operating results and cash flows that is discounted using a weighted-average cost of capital that reflects market conditions. The projection uses management’s best estimates of projected revenue, costs and cash expenditures, including an estimate of new restaurant openings and related capital expenditures. Other significant estimates also include terminal growth rates and working capital requirements. We supplement our estimate of fair value under the income approach by using a market approach which estimates fair value by applying multiples to the reporting unit’s projected operating performance. The multiples are derived from comparable publicly traded companies with similar characteristics to the reporting unit. If the fair value of the reporting unit is less than its carrying value, the second step of the impairment analysis must be performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying amount of that goodwill. If the carrying amount of the goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. As of December 29, 2013, based on our quantitative analysis, goodwill was considered recoverable. At September 28, 2014, there were no impairment indicators warranting an analysis.


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 disclosure of 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 RBS Citizens, N.A. (“RBS”) 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. The Company’s interest rate swap agreements qualify for hedge accounting. As such, the Company records the change in the fair value of its swap agreements as a component of accumulated other comprehensive income (loss), net of tax. The Company records the fair value of its interest swaps on the Consolidated Balance Sheet in other long-term assets or other long-term liabilities depending on the fair value of the swaps. See Note 7 and Note 14 for additional information on the interest rate swap agreements.


Recent Accounting Pronouncements


In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP.  The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein.  We are currently evaluating the impact of our pending adoption of ASU 2014-09, although based on the nature of our business we do not expect the standard will have a significant impact on our consolidated financial statements. 


Note 2 - Significant Business Transactions
Schedule Of Significant Business Transactions [Text Block]

2.           SIGNIFICANT BUSINESS TRANSACTIONS


On April 23, 2013, the Company completed an underwritten, follow-on equity offering of 6.9 million shares of common stock at a price of $5.00 per share to the public. After deducting underwriting discounts, commissions, and other offering expenses the net proceeds to DRH were $31.9 million. The Company invested a portion of the proceeds from the follow-on offering in highly liquid short-term investments with maturities of less than one year. At September 28, 2014, the Company held available-for-sale securities with an estimated fair value of $4.9 million. See Note 3 for additional information.


On June 30, 2014, the Company completed the acquisition of substantially all of the assets of Screamin’ Hot Florida, LLC and Screamin’ Hot Trinity, LLC, each a Florida limited liability company. The assets consist of three BWW restaurants in Clearwater, Port Richey and Oldsmar, Florida (the “Restaurants”). The purchase price was $3.2 million in cash, subject to working capital adjustment, and one-half of the transfer fees imposed by BWLD under its franchise agreements for these Restaurants. After the acquisition, the Company will own the entire Tampa, FL BWW market, giving DRH control of the local Advertising Co-Op. This ownership provides DRH a unique opportunity to gain local market scale, in addition to providing greater geographic diversity to the Company’s restaurant portfolio.


The following table summarizes the estimated fair values of net assets acquired and liabilities assumed:


Working capital

  $ 57,600  

Property and equipment

    656,146  

Franchise fees

    72,750  

Goodwill

    2,419,854  

Net Cash paid for acquisition

  $ 3,206,350  

The excess of the purchase price over the aggregate fair value of assets acquired is allocated to goodwill. Goodwill will be deductible for tax purposes. The results of operations of these locations are included in our Consolidated Statements of Operations from the date of acquisition.


Note 3 - Investments
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

 3.           INVESTMENTS


Investments consist of available-for-sale securities that are carried at fair value. Available-for-sale securities are classified as current assets based upon our intent and ability to use any and all of the securities as necessary to satisfy the operational requirements of our business. Based on the call date of the investments, all securities have maturities of one year or less. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary.


The amortized cost, gross unrealized holding gains, gross unrealized holding loss, and fair value of available-for-sale securities by type are as follows: 


   

September 28, 2014

 
   

 Amortized

Cost

   

Unrealized

Gains

   

Unrealized

Loss

   

Estimated

Fair Value

 

Debt securities:

                               

Obligations of states/municipals

    2,613,309       -       (5,468

)

    2,607,841  

Corporate securities

    2,322,250       -       (18,243

)

    2,304,007  

Total debt securities

  $ 4,935,559     $ -     $ (23,711

)

  $ 4,911,848  

   

December 29, 2013

 
   

 Amortized

Cost

   

Unrealized

Gains

   

Unrealized

Loss

   

Estimated

Fair Value

 

Debt securities:

                               

U.S. government and agencies

  $ 3,497,951     $ 236     $ (52

)

  $ 3,498,135  

Corporate securities

    5,107,853       -       (44,390

)

    5,063,463  

Total debt securities

  $ 8,605,804     $ 236     $ (44,442

)

  $ 8,561,598  

As of September 28, 2014 and December 29, 2013, $4.9 million and $7.0 million of investments were in a loss position with a cumulative unrealized loss of $23,711 and $44,442, respectively. The Company may incur future impairment charges if decline in market values continue and/or worsen and the impairments are no longer considered temporary. All investments with unrealized losses have been in such position for less than 12 months.


Gross unrealized gains and losses on available-for-sale securities, recorded in accumulated other comprehensive income (loss), as of September 28, 2014 and December 29, 2013, were as follows:


   

September 28

2014

   

December 29

2013

 

Unrealized gains

  $ -     $ 236  

Unrealized loss

    (23,711

)

    (44,442

)

Net unrealized loss

    (23,711

)

    (44,206

)

Deferred federal income tax benefit

    8,061       15,030  

Net unrealized loss on investments, net of deferred income tax

  $ (15,650

)

  $ (29,176

)


Note 4 - Property and Equipment
Property, Plant and Equipment Disclosure [Text Block]

4.          PROPERTY AND EQUIPMENT


Property and equipment are comprised of the following assets:


   

September 28

2014

   

December 29

2013

 

Land

  $ 5,823,050     $ 3,610,453  

Building

    4,316,263       4,316,263  

Equipment

    26,459,185       22,212,594  

Furniture and fixtures

    6,950,744       5,822,813  

Leasehold improvements

    57,304,857       46,469,088  

Restaurant construction in progress

    4,551,171       2,434,332  

Total

    105,405,270       84,865,543  

Less accumulated depreciation

    (30,905,075

)

    (26,288,809

)

Property and equipment, net

  $ 74,500,195     $ 58,576,734  

Note 5 - Intangible Assets
Intangible Assets Disclosure [Text Block]

5.        INTANGIBLE ASSETS


Intangible assets are comprised of the following:


   

September 28

2014

   

December 29

2013

 

Amortized intangibles:

               

Franchise fees

  $ 659,863     $ 568,363  

Trademark

    64,059       59,199  

Non-compete agreement

    76,560       76,560  

Favorable lease

    239,000       239,000  

Loan fees

    465,497       346,758  

Total

    1,504,979       1,289,880  

Less accumulated amortization

    (481,961

)

    (361,009

)

Amortized intangibles, net

    1,023,018       928,871  
                 

Unamortized intangibles:

               

Liquor licenses

    2,206,469       2,019,142  

Total intangibles, net

  $ 3,229,487     $ 2,948,013  

Amortization expense for the three-month periods ended September 28, 2014 and September 29, 2013, was $15,935 and $13,989, respectively. Amortization expense for the nine-month periods ended September 28, 2014 and September 29, 2013, was $45,144 and $41,437, respectively. Amortization of favorable leases and loan fees are reflected as part of occupancy and interest expense, respectively.


Based on the current intangible assets and their estimated useful lives, future intangible-related expense for the next five years is projected as follows:


Year

 

Amount

 

Remainder of 2014

  $ 42,847  

2015

    165,794  

2016

    147,614  

2017

    146,078  

2018

    71,516  

2019 and thereafter

    449,169  

Total

  $ 1,023,018  

The aggregate weighted-average amortization period for intangible assets is 8.2 years.  


Note 7 - Long-Term Debt
Long-term Debt [Text Block]

 7.           LONG-TERM DEBT


Long-term debt consists of the following obligations:


   

September 28

2014

   

December 29

2013

 

Note payable - $46.0 million term loan; payable to RBS with a senior lien on all the Company’s personal property and fixtures. Scheduled monthly principal payments are approximately $547,619 plus accrued interest through maturity in April 2018. Interest is charged based on one-month LIBOR plus an applicable margin, which ranges from 2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of the agreement. The rate at September 28, 2014 was approximately 2.7%.

  $ 26,690,476       31,619,048  
                 

Note payable - $15.0 million development line of credit; payable to RBS with a senior lien on all the Company’s personal property and fixtures. Scheduled monthly principal payments are $178,571 plus accrued interest through maturity in April 2018. Interest is charged based on one-month LIBOR plus an applicable margin, which ranges from 2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of the agreement. The rate at September 28, 2014 was approximately 2.7%.

    14,107,143       12,759,420  
                 

Note payable - $20.0 million development line of credit II; payable to RBS with a senior lien on all the Company’s personal property and fixtures. Interest is charged based on one-month LIBOR plus an applicable margin, which ranges from 2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of the agreement. The rate at September 28, 2014 was approximately 2.7%. Once fully drawn, payments will be due monthly; the note matures in April 2018.

    14,207,752       -  
                 

Note payable to a bank secured by a senior mortgage on the Brandon Property. 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 6.7%, per annum, through June 2017, at which point the rate will adjust to the U.S. Treasury Securities Rate plus 4.0% (and every seven years thereafter).

    1,063,990       1,081,047  
                 

Note payable to a bank secured by a junior mortgage on the Brandon Property. The note matures in 2030 and requires monthly principal and interest installments of approximately $6,300 until maturity. Interest is charged at a rate of 3.6% per annum.

    786,648       813,806  
                 

Total long-term debt

    56,856,009       46,273,321  
                 

Less current portion

    (12,327,788

)

    (8,225,732

)

                 

Long-term debt, net of current portion

  $ 44,528,221     $ 38,047,589  

On April 15, 2013, the Company entered into a $63.0 million senior secured credit facility with RBS (the “April 2013 Senior Secured Credit Facility”). The April 2013 Senior Secured Credit Facility consists of a $46.0 million term loan (the “April 2013 Term Loan”), a $15.0 million development line of credit (the “April 2013 DLOC”), and a $2.0 million revolving line of credit (the “April 2013 RLOC”). The April 2013 Term Loan is for a period of five years. Payments of principal are based upon an 84-month straight-line amortization schedule, with monthly principal payments of $547,619 plus accrued interest through maturity on April 15, 2018, at which time the entire unpaid principal and interest is due. The April 2013 DLOC converted to a term loan on March 11, 2014, with monthly principal payments of $178,571 plus accrued interest beginning May 2014 through maturity on April 15, 2018, at which time the entire unpaid principal and interest is due. The April 2013 RLOC is for a term of two years. As of September 28, 2014 no amounts were outstanding under the April 2013 RLOC. Amounts borrowed under the April 2013 Senior Secured Credit Facility bear interest at a rate of one-month LIBOR plus an applicable margin.


On March 20, 2014, the Company amended the April 2013 Senior Secured Credit Facility to include a $20.0 million development line of credit II (the “March 2014 DLOC II”). The March 2014 DLOC II is for a term of two years and is convertible upon maturity into a term note. The amendment also provided a 25 basis point reduction to the April 2013 Senior Secured Credit Facility’s applicable margin rate, which reduced the range from 2.5%/3.4% to 2.25%/3.15%, which commenced April 2014. 


Based on the long-term debt terms that existed at September 28, 2014, the scheduled principal maturities for the next five years and thereafter are summarized as follows:


Year

 

Amount

 

Remainder of 2014

  $ 2,558,034  

2015

    13,148,218  

2016

    13,151,117  

2017

    13,154,578  

2018

    13,276,923  

2019 and thereafter

    1,567,139  

Total

  $ 56,856,009  

For the three-month periods ended September 28, 2014 and September 29, 2013, interest expense was $483,057 and $320,798, respectively. For both the nine-month periods ended September 28, 2014 and September 29, 2013, interest expense was $1.4 million.


The current debt agreement contains 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 28, 2014.


At September 28, 2014, the Company has four interest rate swap agreements to fix a portion of the interest rates on its variable rate debt. The swap agreements all qualify for hedge accounting. The swap agreements have a combined notional amount of $40.2 million at September 28, 2014. Under the swap agreements, the Company receives interest at the one-month LIBOR and pays a fixed rate. The April 2012 swap has a rate of 1.4% (notional amount of $10.5 million) and expires April 2019, the October 2012 swap has a rate of 0.9% (notional amount of $4.3 million) and expires October 2017, the December 2013 swap has a rate of 1.4% (notional amount of $12.5 million) and expires April 2018, and the April 2015 forward swap has a rate of 1.54% (notional amount of $12.9 million) and expires April 2018. The fair value of these swap agreements was a liability of $250,528 and $327,561 at September 28, 2014 and December 29, 2013, respectively. Since these swap agreements qualify for hedge accounting, the changes in fair value are recorded in other comprehensive income (loss), net of tax. See Note 1 and Note 14 for additional information pertaining to interest rate swaps.


Note 8 - Stock-Based Compensation
Stockholders' Equity Note Disclosure [Text Block]

8.            STOCK-BASED COMPENSATION


The Company established a Stock Incentive Plan in 2011 (“Stock Incentive Plan”) to attract and retain directors, consultants, and team members and to 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 100.0% 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 (the “Committee”) or another committee as determined by the Board of Directors. 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.


During the nine months ended September 28, 2014 and September 29, 2013, restricted shares were granted to certain team members at a weight-average fair value of $4.82 and $5.85.  Restricted shares are granted with a per share purchase price at 100.0% of the fair market value on the date of grant. Based on the Stock Award Agreement, shares vest ratably over a three year period or upon the three year anniversary of the granted shares, the vesting terms are determined by the Committee.  Unrecognized stock-based compensation expense of $700,648 at September 28, 2014 will be recognized over the remaining weighted-average vesting period of 2.1 years. The total fair value of shares vested during the nine months ended September 28, 2014 and September 29, 2013 was $193,996 and $169,593, respectively.  Under the Stock Incentive Plan, there are 543,434 shares available for future awards at September 28, 2014.


The Company also reserved 250,000 shares of common stock for issuance under the Employee Stock Purchase Plan (“ESPP”). The ESPP is available to team members subject to employment eligibility requirements. Participants may purchase common stock at 85.0% of the lesser of the start or end price for the offering period. The plan has four offering periods, each start/end dates coincide with the fiscal quarter and are awarded on the last day of the offering period. During the nine months ended September 28, 2014 and September 29 2013, we issued 8,523 and 2,061 shares, respectively. Under the ESPP, there are 236,704 shares available for future awards at September 28, 2014.


The following table presents the restricted shares transactions during the nine months ended September 28, 2014:


   

Number of

Restricted

Stock Shares

 

Unvested, December 29, 2013

    116,667  

Granted

    91,966  

Vested

    (41,031

)

Expired/Forfeited

    (2,068

)

Unvested, September 28, 2014

    165,534  

The following table presents the restricted shares transactions during the nine months ended September 29, 2013:


   

Number of

Restricted

Stock Shares

 

Unvested, December 30, 2012

    54,900  

Granted

    145,375  

Vested

    (26,500

)

Expired/Forfeited

    (48,400

)

Unvested, September 29, 2013

    125,375  

On July 30, 2007, DRH granted options for the purchase of 150,000 shares of common stock to the directors of the Company at an exercise price of $2.50 per share. These options vested ratably over a three-year period and were set to expire six years from issuance, July 30, 2013. All 150,000 options were fully vested as of July 30, 2013 and were exercised either through cash or cashless exercise at a price of $2.50 per share. The intrinsic value of options exercised in 2013 was $679,680.


On July 30, 2010, DRH granted options for the purchase of 210,000 shares of common stock to the directors of the Company.  These options are fully vested and expire six years from issuance, July 30, 2016.  Once vested, the options can be exercised at a price of $2.50 per share. At September 28, 2014, 210,000 shares of authorized common stock are reserved for issuance to provide for the exercise of these options. The intrinsic value of outstanding options is $476,700 and $852,600 as of September 28, 2014 and September 29, 2013, respectively.


Stock-based compensation of $84,072 and $70,563 was recognized, during the three-month periods ended September 28, 2014 and September 29, 2013, respectively, and $237,079, and $205,668 for the nine-month periods ended September 28, 2014 and September 29, 2013, respectively, as compensation cost 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.


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 28, 2014.  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 9 - Income Taxes
Income Tax Disclosure [Text Block]

 9.           INCOME TAXES


The (benefit) provision for income taxes consists of the following components for the three-month and nine-month periods ended September 28, 2014 and September 29, 2013, respectively:


   

Three Months Ended

   

Nine Months Ended

 
   

 

September 28

2014

   

September 29

2013

   

September 28

2014

   

September 29

2013

 

Federal:

                               

Current

  $ -     $ -     $ -     $ -  

Deferred

    (20,315

)

    (14,246

)

    (189,473

)

    23,908  
                                 

State:

                               

Current

    (24,389 )     33,568       43,898       65,434  

Deferred

    (3,396

)

    (33,766

)

    (34,455

)

    (37,156

)

                                 

Income tax provision (benefit)

  $ (48,100

)

  $ (14,444 )   $ (180,030 )   $ 52,186  

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


   

September 28

2014

   

September 29

2013

 

Income tax provision at federal statutory rate

  $ (32,235 )   $ 116,298  

State income tax provision

    6,331       18,663  

Permanent differences

    53,499       123,778  

Tax credits

    (207,625

)

    (206,553

)

Income tax provision (benefit)

  $ (180,030 )   $ 52,186  

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 28

2014

   

December 29

2013

 

Deferred tax assets:

               

Net operating loss carry forwards

  $ 494,900     $ 983,682  

Deferred rent expense

    593,237       131,249  

Start-up costs

    133,744       130,136  

Tax credit carry forwards

    2,591,009       2,427,861  

Interest rate swaps

    85,179       111,218  

Investments

    8,061       15,030  

Stock-based compensation

    275,606       129,514  

Other

    259,280       186,814  

Total deferred tax assets

    4,441,016       4,115,504  
                 

Deferred tax liabilities:

               

Tax depreciation in excess of book

    2,804,681       2,708,544  

Other

    282,654       244,199  

Total deferred tax liabilities

    3,087,335       2,952,743  
                 

Net deferred income tax asset

  $ 1,353,681     $ 1,162,761  

If deemed necessary by management, the Company establishes valuation allowances in accordance with the provisions of Accounting Standards Codification (“ASC”) 740, Income Taxes ("ASC 740") issued by FASB. Management continually reviews the likelihood that deferred tax assets will be realized 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 carryforwards before their 20-year expiration. As of September 28, 2014, the Company has available federal net operating loss carryforwards of approximately $2.1 million. Of that amount, approximately $600,000 relates to stock-based compensation tax deductions in excess of book compensation expense that will be credited to additional paid in capital in future periods when such deductions reduce taxes payable as determined based on a "with-and-without" approach.  Net operating losses relating to such benefits are not included in the table above. General business tax credits of $2.6 million will expire between 2028 and 2035. 


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 28, 2014.


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


Note 11 - Commitments and Contingencies
Commitments and Contingencies Disclosure [Text Block]

11.           COMMITMENTS AND CONTINGENCIES


The Company’s ADA requires DRH to open 32 restaurants by March 1, 2017.  Failure to develop restaurants in accordance with the schedule detailed in the agreement could lead to potential penalties of up to $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 28, 2014, we have opened 22 of the 32 restaurants required by the ADA.  With the remaining 10 restaurants, along with two additional franchise agreements, we expect the Company will operate 52 BWW restaurants by 2017, exclusive of potential additional BWW restaurant acquisitions.  


The Company is required to pay BWLD royalties (5.0% of net sales) and advertising fund contributions (3.0% of net sales globally and 0.5% of net sales for certain cities) for the term of the individual franchise agreements.  The Company incurred royalty fees of $1.4 million and $1.2 million for the three-month periods ended September 28, 2014 and September 29, 2013 and $3.9 million and $3.5 million for nine-month periods ended September 28, 2014 and September 29, 2013, respectively.  Advertising fund contribution expenses were $813,579 and $690,096 for the three-month periods ended September 28, 2014 and September 29, 2013 and $2.3 million and $2.1 million for nine-month periods ended September 28, 2014 and September 29, 2013, respectively.


The Company is required by its various BWLD franchise agreements to modernize the restaurants during the term of the agreements.  The individual agreements generally require improvements between the fifth and tenth year to meet the most current design model that BWLD has approved.  The modernization costs for a restaurant can range from approximately $50,000 to approximately $700,000 depending on an individual restaurant's needs.


The Company is subject to ordinary and 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 an unfavorable outcome of any pending or threatened proceedings is probable or reasonably possible.  Therefore, no separate reserve or disclosure has been established for these types of legal proceedings. 


Note 12 - Earnings Per Common Share
Earnings Per Share [Text Block]

12.          EARNINGS PER COMMON SHARE


The following is a reconciliation of basic and fully diluted earnings per common share for the three-month and nine-month periods ended September 28, 2014 and September 29, 2013:


   

Three months ended

 
   

 

September 28

2014

   

September 29

2013

 

Income (loss) available to common stockholders

  $ (182,109 )   $ 69,810  
                 

Weighted-average shares outstanding

    26,107,627       26,054,118  

Effect of dilutive securities

    -       132,145  

Weighted-average shares outstanding - assuming dilution

    26,107,627       26,186,263  
                 

Earnings (loss) per common share

  $ (0.01   $ 0.00  

Earnings (loss) per common share - assuming dilution

  $ (0.01   $ 0.00  

   

Nine months ended

 
   

 

September 28

2014

   

September 29

2013

 
                 

Income available to common stockholders

  $ 85,252     $ 311,847  
                 

Weighted-average shares outstanding

    26,074,797       23,231,403  

Effect of dilutive securities

    99,796       119,725  

Weighted-average shares outstanding - assuming dilution

    26,174,593       23,351,128  
                 

Earnings per common share

  $ 0.00     $ 0.01  

Earnings per common share - assuming dilution

  $ 0.00     $ 0.01  

Note 13 - Supplemental Cash Flows Information
Cash Flow, Supplemental Disclosures [Text Block]

13.            SUPPLEMENTAL CASH FLOWS INFORMATION


Other Cash Flows Information


Cash paid for interest was $438,679 and $319,689 during the three-month periods ended September 28, 2014 and September 29, 2013, and was $1.3 million and $1.4 million for the nine-month periods ended September 28, 2014 and September 29, 2013, respectively.


Cash paid for income taxes was $22,000 during the three-month periods ended September 28, 2014 and September 29, 2013, respectively, and $22,000 and $65,500 for the nine-month periods ended September 28, 2014 and September 29, 2013, respectively.


Supplemental Schedule of Non-Cash Operating, Investing, and Financing Activities


Noncash investing activities for property and equipment not yet paid during both the nine months ended September 28, 2014 and September 29, 2013, was $1.4 million.


Note 14 - Fair Value of Financial Instruments
Fair Value Disclosures [Text Block]

14.           FAIR VALUE OF FINANCIAL INSTRUMENTS


The guidance for fair value measurements, FASB 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 28, 2014 and December 29, 2013, respectively, our financial instruments consisted of cash and cash equivalents, accounts receivable, available-for-sale investments, accounts payable, and debt. The fair value of cash and cash equivalents, accounts receivable, and accounts payable approximate carrying value, due to their 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. See Note 1 and Note 7 for additional information pertaining to interest rates swaps.


The estimated fair values of the Company’s investment portfolio are based on prices provided by a third party pricing service and a third party investment manager. The prices provided by these services are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing. The third party pricing service and the third party investment manager provide a single price or quote per security and the Company has not historically adjusted security prices. The Company obtains an understanding of the methods, models and inputs used by the third party pricing service and the third party investment manager, and has controls in place to validate that amounts provided represent fair values. Our investments are classified as a Level 2 measurement as these securities are not actively traded in the market, but are observable based on the quoted prices provided by our Portfolio managers.


As of September 28, 2014 and December 29, 2013, our total debt was approximately $56.9 million and $46.3 million, respectively, which approximated fair value. The Company estimates the fair value of its fixed-rate debt using discounted cash flow analysis based on the Company’s incremental borrowing rate (Level 2).


There were no transfers between levels of the fair value hierarchy during the three and nine months ended September 28, 2014 and the fiscal year ended December 29, 2013.


The following table presents the fair values for those assets and liabilities measured on a recurring basis as of September 28, 2014:


FAIR VALUE MEASUREMENTS

 

Description

 

Level 1

   

Level 2

   

Level 3

   

Asset/(Liability)

Total

 

Interest rate swaps

  $ -     $ (250,528

)

  $ -     $ (250,528

)

                                 

Debt securities

                               

Obligations of states/municipals

    -       2,607,841       -       2,607,841  

Corporate securities

    -       2,304,007       -       2,304,007  

Total debt securities

    -       4,911,848       -       4,911,848  

Total debt securities and derivatives

  $ -     $ 4,661,320     $ -     $ 4,661,320  

The following table presents the fair values for those assets and liabilities measured on a recurring basis as of December 29, 2013:


FAIR VALUE MEASUREMENTS

 

Description

 

Level 1

   

Level 2

   

Level 3

   

Asset/(Liability)

Total

 

Interest rate swaps

  $ -     $ (327,561

)

  $ -     $ (327,561

)

                                 

Debt securities

                               

U.S. government and agencies

    -       3,498,135       -       3,498,135  

Corporate securities

    -       5,063,463       -       5,063,463  

Total debt securities

    -       8,561,598       -       8,561,598  

Total debt securities and swaps

  $ -     $ 8,234,037     $ -     $ 8,234,037  

Note 15 - Accumulated Other Comprehensive Income (Loss)
Comprehensive Income (Loss) Note [Text Block]

15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)


The following table summarizes each component of Accumulated Other Comprehensive Income (loss):


   

September 28

2014

   

December 29

2013

 

Fair value of interest rate swaps (net of tax of $85,179 and $111,218)

  $ (165,347

)

  $ (216,188

)

Fair value of investments (net of tax of $8,061 and $15,030)

    (15,650

)

    (29,176

)

Total Accumulated other comprehensive loss ending balance

  $ (180,997

)

  $ (245,364

)


Note 16 - Subsequent Events
Subsequent Events [Text Block]

16.           SUBSEQUENT EVENTS


On October 31, 2014 and November 5, 2014, the Company closed on its previously announced sale and leaseback transaction with Spirit Master Funding IX (“Purchaser”), with regard to seven of the 12 properties that are subject to the agreement. The aggregate sales price for the properties closed to date was $13.1 million. The Company plans to use $5.0 million of the proceeds to pay down debt, including $1.9 million to retire mortgages on its Brandon Buffalo Wild Wings property and $3.1 million to pay down its DLOC. The Company intends to use the remaining proceeds from the transaction to fund growth capital. Closing on the remaining properties, all of which remain under construction, is anticipated to occur upon completion of the construction, subject to customary diligence by Purchaser and satisfaction of other conditions precedent to closing. For additional information, refer the 8-K filed on November 5, 2014.


Accounting Policies, by Policy (Policies)

Basis of Presentation


The consolidated financial statements as of September 28, 2014 and December 29, 2013, and for the three-month and nine-month periods ended September 28, 2014 and September 29, 2013, 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. The financial information as of September 28, 2014 and for the three-month and nine-month periods ended September 28, 2014 and September 29, 2013 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 consolidated financial information as of December 29, 2013 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 29, 2013, which is included in Item 8 in the Fiscal 2013 Annual Report on Form 10-K, and should be read in conjunction with such consolidated financial statements.


The results of operations for the three-month and nine-month periods ended September 28, 2014 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 28, 2014.

Reclassifications


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

Segment Reporting


The Company has two operating segments, Bagger Dave’s and BWW. The brands operate within the ultra-casual, full-service dining industry, providing similar products to similar customers. The brands also possess similar economic characteristics, resulting in similar long-term expected financial performance. Sales from external customers are derived principally from food and beverage sales. We do not rely on any major customers as a source of sales. We believe we meet the criteria for aggregating our operating segments into a single reporting segment.

Concentration Risks


Approximately 79.8% and 80.6% of the Company's revenues are generated from food and beverage sales of restaurants located in the Midwest region during the nine-month periods ended September 28, 2014 and September 29, 2013, respectively.

Investments


The Company’s investment securities are classified as available-for-sale. Investments classified as available-for-sale are available to be sold in the future in response to the Company’s liquidity needs, changes in market interest rates, tax strategies, and asset-liability management strategies, among other reasons. Available-for-sale securities are reported at fair value, with unrealized gains and losses, net of taxes, reported in the accumulated other comprehensive income (loss) component of stockholders’ equity, and accordingly, have no effect on net income. Realized gains or losses on sale of investments are determined on the basis of specific costs of the investments. Dividend income is recognized when declared and interest income is recognized when earned. Discount or premium on debt securities purchased at other than par value are amortized using the effective yield method. See Note 3 for details.

Goodwill


Goodwill is not amortized and represents the excess of cost over the fair value of identified net assets of businesses acquired. Goodwill is subject to an annual impairment analysis or more frequently if indicators of impairment exist. At September 28, 2014 and December 29, 2013, we had goodwill of $ 11.0 million and $8.6 million, respectively that was assigned to our BWW operating segment. See Note 2 for additional information.


The impairment analysis, if necessary, consists of a two-step process. The first step is to compare the fair value of the reporting unit to its carrying value, including goodwill. We estimate fair value using market information (market approach) and discounted cash flow projections (income approach). The income approach uses the reporting unit’s projection of estimated operating results and cash flows that is discounted using a weighted-average cost of capital that reflects market conditions. The projection uses management’s best estimates of projected revenue, costs and cash expenditures, including an estimate of new restaurant openings and related capital expenditures. Other significant estimates also include terminal growth rates and working capital requirements. We supplement our estimate of fair value under the income approach by using a market approach which estimates fair value by applying multiples to the reporting unit’s projected operating performance. The multiples are derived from comparable publicly traded companies with similar characteristics to the reporting unit. If the fair value of the reporting unit is less than its carrying value, the second step of the impairment analysis must be performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying amount of that goodwill. If the carrying amount of the goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. As of December 29, 2013, based on our quantitative analysis, goodwill was considered recoverable. At September 28, 2014, there were no impairment indicators warranting an analysis.

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 disclosure of 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 RBS Citizens, N.A. (“RBS”) 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. The Company’s interest rate swap agreements qualify for hedge accounting. As such, the Company records the change in the fair value of its swap agreements as a component of accumulated other comprehensive income (loss), net of tax. The Company records the fair value of its interest swaps on the Consolidated Balance Sheet in other long-term assets or other long-term liabilities depending on the fair value of the swaps. See Note 7 and Note 14 for additional information on the interest rate swap agreements.

Recent Accounting Pronouncements


In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP.  The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein.  We are currently evaluating the impact of our pending adoption of ASU 2014-09, although based on the nature of our business we do not expect the standard will have a significant impact on our consolidated financial statements.

Note 2 - Significant Business Transactions (Tables)
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Working capital

  $ 57,600  

Property and equipment

    656,146  

Franchise fees

    72,750  

Goodwill

    2,419,854  

Net Cash paid for acquisition

  $ 3,206,350  
Note 3 - Investments (Tables)
   

September 28, 2014

 
   

 Amortized

Cost

   

Unrealized

Gains

   

Unrealized

Loss

   

Estimated

Fair Value

 

Debt securities:

                               

Obligations of states/municipals

    2,613,309       -       (5,468

)

    2,607,841  

Corporate securities

    2,322,250       -       (18,243

)

    2,304,007  

Total debt securities

  $ 4,935,559     $ -     $ (23,711

)

  $ 4,911,848  
   

December 29, 2013

 
   

 Amortized

Cost

   

Unrealized

Gains

   

Unrealized

Loss

   

Estimated

Fair Value

 

Debt securities:

                               

U.S. government and agencies

  $ 3,497,951     $ 236     $ (52

)

  $ 3,498,135  

Corporate securities

    5,107,853       -       (44,390

)

    5,063,463  

Total debt securities

  $ 8,605,804     $ 236     $ (44,442

)

  $ 8,561,598  
   

September 28

2014

   

December 29

2013

 

Unrealized gains

  $ -     $ 236  

Unrealized loss

    (23,711

)

    (44,442

)

Net unrealized loss

    (23,711

)

    (44,206

)

Deferred federal income tax benefit

    8,061       15,030  

Net unrealized loss on investments, net of deferred income tax

  $ (15,650

)

  $ (29,176

)

Note 4 - Property and Equipment (Tables)
Property, Plant and Equipment [Table Text Block]
   

September 28

2014

   

December 29

2013

 

Land

  $ 5,823,050     $ 3,610,453  

Building

    4,316,263       4,316,263  

Equipment

    26,459,185       22,212,594  

Furniture and fixtures

    6,950,744       5,822,813  

Leasehold improvements

    57,304,857       46,469,088  

Restaurant construction in progress

    4,551,171       2,434,332  

Total

    105,405,270       84,865,543  

Less accumulated depreciation

    (30,905,075

)

    (26,288,809

)

Property and equipment, net

  $ 74,500,195     $ 58,576,734  
Note 5 - Intangible Assets (Tables)
   

September 28

2014

   

December 29

2013

 

Amortized intangibles:

               

Franchise fees

  $ 659,863     $ 568,363  

Trademark

    64,059       59,199  

Non-compete agreement

    76,560       76,560  

Favorable lease

    239,000       239,000  

Loan fees

    465,497       346,758  

Total

    1,504,979       1,289,880  

Less accumulated amortization

    (481,961

)

    (361,009

)

Amortized intangibles, net

    1,023,018       928,871  
                 

Unamortized intangibles:

               

Liquor licenses

    2,206,469       2,019,142  

Total intangibles, net

  $ 3,229,487     $ 2,948,013  

Year

 

Amount

 

Remainder of 2014

  $ 42,847  

2015

    165,794  

2016

    147,614  

2017

    146,078  

2018

    71,516  

2019 and thereafter

    449,169  

Total

  $ 1,023,018  
Note 7 - Long-Term Debt (Tables)
   

September 28

2014

   

December 29

2013

 

Note payable - $46.0 million term loan; payable to RBS with a senior lien on all the Company’s personal property and fixtures. Scheduled monthly principal payments are approximately $547,619 plus accrued interest through maturity in April 2018. Interest is charged based on one-month LIBOR plus an applicable margin, which ranges from 2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of the agreement. The rate at September 28, 2014 was approximately 2.7%.

  $ 26,690,476       31,619,048  
                 

Note payable - $15.0 million development line of credit; payable to RBS with a senior lien on all the Company’s personal property and fixtures. Scheduled monthly principal payments are $178,571 plus accrued interest through maturity in April 2018. Interest is charged based on one-month LIBOR plus an applicable margin, which ranges from 2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of the agreement. The rate at September 28, 2014 was approximately 2.7%.

    14,107,143       12,759,420  
                 

Note payable - $20.0 million development line of credit II; payable to RBS with a senior lien on all the Company’s personal property and fixtures. Interest is charged based on one-month LIBOR plus an applicable margin, which ranges from 2.25% to 3.15%, depending on the lease adjusted leverage ratio defined in the terms of the agreement. The rate at September 28, 2014 was approximately 2.7%. Once fully drawn, payments will be due monthly; the note matures in April 2018.

    14,207,752       -  
                 

Note payable to a bank secured by a senior mortgage on the Brandon Property. 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 6.7%, per annum, through June 2017, at which point the rate will adjust to the U.S. Treasury Securities Rate plus 4.0% (and every seven years thereafter).

    1,063,990       1,081,047  
                 

Note payable to a bank secured by a junior mortgage on the Brandon Property. The note matures in 2030 and requires monthly principal and interest installments of approximately $6,300 until maturity. Interest is charged at a rate of 3.6% per annum.

    786,648       813,806  
                 

Total long-term debt

    56,856,009       46,273,321  
                 

Less current portion

    (12,327,788

)

    (8,225,732

)

                 

Long-term debt, net of current portion

  $ 44,528,221     $ 38,047,589  

Year

 

Amount

 

Remainder of 2014

  $ 2,558,034  

2015

    13,148,218  

2016

    13,151,117  

2017

    13,154,578  

2018

    13,276,923  

2019 and thereafter

    1,567,139  

Total

  $ 56,856,009  
Note 8 - Stock-Based Compensation (Tables)
Nonvested Restricted Stock Shares Activity [Table Text Block]
   

Number of

Restricted

Stock Shares

 

Unvested, December 29, 2013

    116,667  

Granted

    91,966  

Vested

    (41,031

)

Expired/Forfeited

    (2,068

)

Unvested, September 28, 2014

    165,534  
   

Number of

Restricted

Stock Shares

 

Unvested, December 30, 2012

    54,900  

Granted

    145,375  

Vested

    (26,500

)

Expired/Forfeited

    (48,400

)

Unvested, September 29, 2013

    125,375  
Note 9 - Income Taxes (Tables)
   

Three Months Ended

   

Nine Months Ended

 
   

 

September 28

2014

   

September 29

2013

   

September 28

2014

   

September 29

2013

 

Federal:

                               

Current

  $ -     $ -     $ -     $ -  

Deferred

    (20,315

)

    (14,246

)

    (189,473

)

    23,908  
                                 

State:

                               

Current

    (24,389 )     33,568       43,898       65,434  

Deferred

    (3,396

)

    (33,766

)

    (34,455

)

    (37,156

)

                                 

Income tax provision (benefit)

  $ (48,100

)

  $ (14,444 )   $ (180,030 )   $ 52,186  
   

September 28

2014

   

September 29

2013

 

Income tax provision at federal statutory rate

  $ (32,235 )   $ 116,298  

State income tax provision

    6,331       18,663  

Permanent differences

    53,499       123,778  

Tax credits

    (207,625

)

    (206,553

)

Income tax provision (benefit)

  $ (180,030 )   $ 52,186  
   

September 28

2014

   

December 29

2013

 

Deferred tax assets:

               

Net operating loss carry forwards

  $ 494,900     $ 983,682  

Deferred rent expense

    593,237       131,249  

Start-up costs

    133,744       130,136  

Tax credit carry forwards

    2,591,009       2,427,861  

Interest rate swaps

    85,179       111,218  

Investments

    8,061       15,030  

Stock-based compensation

    275,606       129,514  

Other

    259,280       186,814  

Total deferred tax assets

    4,441,016       4,115,504  
                 

Deferred tax liabilities:

               

Tax depreciation in excess of book

    2,804,681       2,708,544  

Other