DIVERSIFIED RESTAURANT HOLDINGS, INC., 10-Q filed on 11/9/2011
Quarterly Report
Document And Entity Information
9 Months Ended
Sep. 25, 2011
Nov. 9, 2011
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
Diversified Restaurant Holdings, Inc. 
 
Document Type
10-Q 
 
Current Fiscal Year End Date
--12-27 
 
Entity Common Stock, Shares Outstanding
 
18,876,000 
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. 25, 2011 
 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q3 
 
Consolidated Balance Sheets (Unaudited) (USD $)
Sep. 25, 2011
Dec. 26, 2010
Current assets
 
 
Cash and cash equivalents
$ 2,199,922 
$ 1,358,381 
Accounts receivable
14,348 
 
Inventory
479,604 
339,059 
Prepaid assets
153,268 
209,708 
Other current assets
 
43,348 
Total current assets
2,847,142 
1,950,496 
Property and equipment, net - restricted assets of VIE
1,465,326 
1,487,993 
Property and equipment, net
20,772,884 
17,252,599 
Intangible assets, net
1,080,154 
975,461 
Other long-term assets
84,674 
80,099 
Deferred income taxes
 
607,744 
Total assets
26,250,180 
22,354,392 
Current liabilities
 
 
Current portion of long-term debt (including VIE debt of $89,414)
2,884,518 
1,947,676 
Accounts payable
1,465,577 
1,388,397 
Accrued liabilities
1,541,967 
1,089,112 
Deferred rent
168,205 
127,075 
Total current liabilities
6,060,267 
4,552,260 
Deferred rent
1,734,870 
1,622,943 
Deferred income taxes
410 
 
Other liabilities - interest rate swap
712,430 
367,181 
Long-term debt, less current portion (including VIE debt of $1,162,377 and $1,229,437)
16,478,319 
15,936,193 
Total liabilities
24,986,296 
22,478,577 
Common stock - $0.0001 par value; 100,000,000 shares authorized, 18,876,000 shares issued and outstanding
1,888 
1,888 
Additional paid-in capital
2,697,248 
2,631,304 
Retained earnings (accumulated deficit)
(1,782,124)
(3,096,017)
Total DRH stockholders' equity (deficit)
917,012 
(462,825)
Noncontrolling interest in VIE
346,872 
338,640 
Total stockholders' equity (deficit)
1,263,884 
(124,185)
Total liabilities and stockholders' equity
$ 26,250,180 
$ 22,354,392 
Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)
Sep. 25, 2011
Dec. 26, 2010
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
18,876,000 
18,876,000 
Common stock, shares outstanding
18,876,000 
18,876,000 
Current Debt [Member]
 
 
VIE debt (in Dollars)
$ 89,414 
 
Noncurrent Debt [Member]
 
 
VIE debt (in Dollars)
$ 1,162,377 
$ 1,229,437 
Consolidated Statements of Operations (Unaudited) (USD $)
3 Months Ended
Sep. 25, 2011
3 Months Ended
Sep. 26, 2010
9 Months Ended
Sep. 25, 2011
9 Months Ended
Sep. 26, 2010
Revenue
 
 
 
 
Food and beverage sales
$ 14,588,078 
$ 11,423,726 
$ 44,617,381 
$ 32,823,425 
Total revenue
14,588,078 
11,423,726 
44,617,381 
32,823,425 
Operating expenses
 
 
 
 
Compensation costs
4,254,003 
3,346,237 
12,757,321 
9,780,263 
Food and beverage costs
4,236,077 
3,310,374 
12,683,404 
9,785,584 
General and administrative
3,440,926 
2,624,892 
10,310,680 
7,708,569 
Pre-opening
135,009 
66,129 
403,714 
283,308 
Occupancy
854,624 
810,969 
2,444,948 
2,144,808 
Depreciation and amortization
881,432 
698,770 
2,491,649 
1,944,374 
Total operating expenses
13,802,071 
10,857,371 
41,091,716 
31,646,906 
Operating profit
786,007 
566,355 
3,525,665 
1,176,519 
Change in fair value of derivative instruments
(140,629)
(177,707)
(345,249)
(582,628)
Interest expense
(282,934)
(349,548)
(876,368)
(1,037,424)
Other income (expense), net
(17,749)
3,508 
(58,262)
5,071 
Income (loss) before income taxes
344,695 
42,608 
2,245,786 
(438,462)
Income tax provision
(155,176)
(131,119)
(816,661)
(9,232)
Net income (loss)
189,519 
(88,511)
1,429,125 
(447,694)
Net (income) loss attributable to noncontrolling interest
(38,747)
88,446 
(115,232)
88,446 
Net income (loss) attributable to DRH
$ 150,772 
$ (65)
$ 1,313,893 
$ (359,248)
Basic earnings (loss) per share - as reported (in Dollars per share)
$ 0.01 
$ 0 
$ 0.07 
$ (0.02)
Fully diluted earnings (loss) per share - as reported (in Dollars per share)
$ 0.01 
$ 0 
$ 0.07 
$ (0.02)
Weighted average number of common shares outstanding
 
 
 
 
Basic (in Shares)
18,876,000 
18,870,505 
18,876,000 
18,870,505 
Diluted (in Shares)
19,039,692 
18,870,505 
19,048,836 
18,870,505 
Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) (USD $)
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Noncontrolling Interest [Member]
Total
Balance at Dec. 26, 2010 (Scenario, Previously Reported [Member])
$ 1,888 
$ 2,631,304 
$ (2,728,836)
$ (367,181)
 
$ (462,825)
Balance at Dec. 26, 2010
1,888 
2,631,304 
(3,096,017)
 
338,640 
(124,185)
Balance (in Shares) at Dec. 26, 2010 (Scenario, Previously Reported [Member])
18,876,000 
 
 
 
 
 
Balance (in Shares) at Dec. 26, 2010
18,876,000 
 
 
 
 
18,876,000 
Share-based compensation
 
65,944 
 
 
 
65,944 
Net income
 
 
1,313,893 
 
115,232 
1,429,125 
Dividends
 
 
 
 
(107,000)
(107,000)
Initial consolidation of VIE
 
 
 
 
 
346,872 
Balance at Sep. 25, 2011
$ 1,888 
$ 2,697,248 
$ (1,782,124)
 
$ 346,872 
$ 1,263,884 
Balance (in Shares) at Sep. 25, 2011
18,876,000 
 
 
 
 
18,876,000 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
9 Months Ended
Sep. 25, 2011
9 Months Ended
Sep. 26, 2010
Cash flows from operating activities
 
 
Net income (loss)
$ 1,429,125 
$ (447,694)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
 
 
Depreciation and amortization
2,491,649 
1,944,375 
Loss on disposal of property and equipment
30,157 
217,868 
Share-based compensation
65,944 
21,409 
Change in fair value of derivative instruments
345,249 
582,628 
Deferred income tax benefit (provision)
608,154 
(203,780)
Changes in operating assets and liabilities that provided (used) cash
 
 
Accounts receivable
(14,348)
376,675 
Inventory
(140,545)
(1,196)
Prepaid assets
56,440 
(87,328)
Other current assets
43,348 
(69,025)
Intangible assets
(72,822)
(111,198)
Other long-term assets
(4,575)
(6,864)
Accounts payable
77,180 
(68,884)
Accrued liabilities
452,855 
462,929 
Deferred rent
153,057 
209,990 
Net cash provided by operating activities
5,520,868 
2,819,905 
Cash flows from investing activities
 
 
Purchases of property and equipment
(6,051,295)
(4,176,237)
Net cash used in investing activities
(6,051,295)
(4,176,237)
Cash flows from financing activities
 
 
Proceeds from issuance of long-term debt
3,138,321 
3,086,496 
Repayments of long-term debt
(1,659,353)
(2,059,215)
Proceeds from issuance of common stock
250,000 
Dividends
(107,000)
(552,861)
Net cash provided by financing activities
1,371,968 
724,420 
Net increase (decrease) in cash and cash equivalents
841,541 
(631,912)
Cash and cash equivalents, beginning of period
1,358,381 
1,660,099 
Cash and cash equivalents, end of period
$ 2,199,922 
$ 1,028,187 
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”) was formed on September 25, 2006.  DRH and its wholly-owned subsidiaries, including AMC Group, Inc, (“AMC”), AMC Wings, Inc. (“WINGS”), and AMC Burgers, Inc.  (“BURGERS”) develop, own, and operate Buffalo Wild Wings® (“BWW”) restaurants located throughout Michigan and Florida and its own restaurant concept, Bagger Dave's Legendary Burger Tavern® (“Bagger Dave's”), as detailed below.

The following organizational chart outlines the corporate structure of DRH and its wholly-owned subsidiaries.  A brief textual description of the entities follows the organizational chart.  DRH is incorporated in the State of Nevada.  All other entities are incorporated or organized in the State of Michigan.

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 22 BWW restaurants that are currently in operation (with its most recent opening in University Park, Florida on Sunday, October 30, 2011).

WINGS is economically dependent on retaining its franchise rights with Buffalo Wild Wings, Inc. (“BWWI”).  The franchise agreements have specific initial term expiration dates ranging from January 29, 2014 through March 25, 2031, depending on the date each was executed and 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 March 25, 2046.  WINGS is in compliance with the terms of these agreements at September 25, 2011.  The Company is under contract with BWWI to enter into 16 additional franchise agreements by 2017 (see Note 11 for details).  

BURGERS was formed on March 12, 2007 to own the Bagger Dave's restaurants, a full-service, ultra-casual dining concept developed by the Company.  BURGERS, through its subsidiaries, owns five Bagger Dave’s restaurants that are currently in operation (with the sixth location scheduled to open on Sunday, November 13, 2011 in Cascade Township, Michigan).  BURGERS also has a wholly-owned subsidiary named Bagger Dave’s Franchising Corporation that was formed to act as the franchisor for the Bagger Dave’s concept.  We have filed for rights, and been approved, to franchise in Michigan, Ohio, Indiana, Illinois, Wisconsin, Kentucky, and Missouri.  No Bagger Dave's franchise agreements have been entered into to date.

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 VIEs, we assess whether we are the primary beneficiary as prescribed by the accounting guidance on the consolidation of VIEs.  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 adopted the consolidation of variable interest entities guidance issued in June 2009 effective January 1, 2011.  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 25, 2011 and December 26, 2010, and for the three-month and nine-month periods ended September 25, 2011 and September 26, 2010, 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 25, 2011 and for the three-month and nine-month periods ended September 25, 2011 and September 26, 2010 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.

Except as described in Note 2 to the consolidated financial statements, the financial information as of December 26, 2010 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 26, 2010, which is included in Item 8 in the Fiscal 2010 Annual Report on Form 10-K/A, Amendment No. 1, and should be read in conjunction with such financial statements.

The results of operations for the three-month and nine-month periods ended September 25, 2011 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 25, 2011.

Fiscal Year

The Company utilizes a 52-week accounting period that ends on the last Sunday in December. Consequently, fiscal year 2010 ended on December 26, 2010, comprising 52 weeks. This quarterly report on Form 10-Q is for the three-month period ended September 25, 2011, comprising 13 weeks.

Concentration Risks

Approximately 76% and 82% of the Company's revenues during the nine months ended September 25, 2011 and September 26, 2010, 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.

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.

On May 5, 2010, the Company entered into a $15 million dollar debt facility with RBS Citizens Bank, N.A. (“RBS”), as further described in Note 7, in which $6 million is in the form of a development line of credit (of which $1.4 million and $2.9 million were subsequently termed out and affixed to a fixed-rate swap arrangement) and $9 million is a senior secured term loan with a fixed-rate swap arrangement.

These interest rate swap agreements do not qualify for hedge accounting.  As such, the Company records 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 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.  The notional value of interest rate swap agreements in place at September 25, 2011 and December 26, 2010 was approximately $11.5 million and $9.8 million, respectively.  

Recent Accounting Pronouncements

There were no accounting standards or interpretations issued or recently adopted that are expected to have a material impact on the Company’s financial position, operations, or cash flows.

Reclassifications

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

Note 2. Staff Accounting Bulletin No. 108
Accounting Changes and Error Corrections [Text Block]
2.           STAFF ACCOUNTING BULLETIN NO. 108

During the three months ended March 27, 2011, the Company identified an error related to its 2010 accounting for its interest rate swap agreements.  The Company determined that its interest rate swap agreements, effective May 2010 and September 2010, did not qualify for hedge accounting and, as a result, the change in the fair value of the swap agreements as of December 26, 2010 of $367,181 and as of September 26, 2010 of $582,628 should have been reflected in the consolidated statement of operations as change in fair value of derivative instruments instead of in the consolidated statement of stockholders’ equity.  

In addition, during the three months ended March 27, 2011, the Company determined that, as a result of its August 2010 guarantee of the mortgage obligations of Ansley Group, LLC, the Company should have consolidated Ansley Group, LLC into its financial statements as of and for the year ended December 26, 2010 and for the three- and nine-month periods ended September 26, 2010 in accordance with FASB guidance related to consolidating variable interest entities.

The Company assessed the materiality of these errors on its December 26, 2010 financial statements in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and concluded that the errors were not material to that period.  The Company also concluded that, had the errors been adjusted within its financial statements for the three-month and nine-month periods ended September 25, 2011, the impact of such adjustments would have been material to its financial statements for the period then ended and it expects the errors may be material to its full year 2011 results.  In accordance with SAB No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements", the December 26, 2010 balance sheet and the statements of operations for the three-month and nine-month periods ended September 26, 2010 have been revised to correct these errors.

The Company will make additional adjustments as appropriate to the corresponding annual financial statements the next time it files these statements.  

The impact of the errors on the December 26, 2010 balance sheet is as follows:

   
Balances at December 26, 2010
 
   
Previously
Reported
   
Adjustment
   
As
Adjusted
 
Cash and cash equivalents
 
$
1,305,031
   
53,350
   
1,358,381
 
                         
Property and equipment, net - restricted assets of VIE
   
-
     
1,487,993
     
1,487,993
 
Other long-term assets
   
63,539
     
16,560
     
80,099
 
                         
Current portion of long-term debt
   
1,858,262
     
89,414
     
1,947,676
 
Deferred rent (long-term)
   
1,722,531
     
(99,588
)
   
1,622,943
 
Long-term debt, less current portion
   
14,706,756
     
1,229,437
     
15,936,193
 
                         
Retained earnings (accumulated deficit)
   
(2,728,836
)
   
(367,181
)
   
(3,096,017
)
Accumulated other comprehensive income (loss)
   
(367,181
)
   
367,181
     
-
 
Noncontrolling interest in VIE
   
-
     
338,640
     
338,640
 

The impact of the errors on the consolidated statements of operations for the three-month and nine-month periods ended September 26, 2010 is as follows:

           
 
Three Months Ended September 26, 2010
   
Nine Months Ended September 26, 2010
 
 
Previously
Reported
   
Adjustment
   
As
Adjusted
   
Previously
Reported
   
Adjustment
   
As
Adjusted
 
General and administrative $ 2,670,428     $ (45,536 )   $ 2,624,892     $ 7,707,679     $ 890     $ 7,708,569  
Occupancy   765,289       45,680       810,969       2,165,555       (20,747 )     2,144,808  
Depreciation and amortization   696,161       2,609       698,770       1,941,765       2,609       1,944,374  
Change in fair value of derivative instruments   -       (177,707 )     (177,707 )     -       (582,628 )     (582,628 )
Interest expense   (243,854 )     (105,694 )     (349,548 )     (931,730 )     (105,694 )     (1,037,424 )
Income (loss) before income taxes   331,587       (288,979 )     42,608       232,612       (671,074 )     (438,462 )
Net income (loss)   200,468       (288,979 )     (88,511 )     223,380       (671,074 )     (447,694 )
Net income (loss) attributable to noncontrolling interest 
  -       88,446       88,446       -       88,446       88,446  
Net income (loss) attributable to DRH   -       (65     (65 )     -       (359,248 )     (359,248
Basic earnings (loss) per share   0.01       (0.01 )     0.00       0.01       (0.03 )     (0.02 )
Fully diluted earnings (loss) per share   0.01       (0.01 )     0.00       0.01       (0.03 )     (0.02 )
                                               
    Weighted average number of common shares outstanding
                                             
Basic
  18,870,505       -       18,870,505       18,870,505       -       18,870,505  
Diluted
  29,160,000       (10,289,495 )     18,870,505       29,113,333       (10,242,828 )     18,870,505  

The Company's SAB 99 evaluation considered that the interest rate swap has no impact on the liability that was already recorded, is non-cash in nature, and is not material given the Company's overall volume of activity in 2010.  Regarding consolidation of the Ansley Group, LLC the impact on the 2010 statement of operations is not material and the 2010 balance sheet impact, disclosed in the table above, is not material given that the restaurant's operating results related to the assets that should have been consolidated were already included in operations and the potential debt obligation was previously disclosed.  In the aggregate, the Company does not believe it is probable that the view of a reasonable investor would be changed by the correction in 2010 of these items.

Note 3. Significant Business Transactions
Schedule OfSignificant Business Transactions [Text Block]
3.           SIGNIFICANT BUSINESS TRANSACTIONS

On June 7, 2011, the Company, together with its wholly-owned subsidiaries, entered into a First Amended and Restated Development Line of Credit Agreement (the "DLOC Agreement") with RBS, N.A. ("RBS").  The DLOC Agreement provides for an $8 million credit facility with RBS (the "Credit Facility").  The Credit Facility consists of a $7 million development line of credit (“DLOC”) and a $1 million revolving line of credit (“Revolving Line of Credit”). The Credit Facility is secured by a senior lien on all Company assets.

The Company plans to use the Credit Facility to increase its number of BWW franchise restaurant locations in the states of Michigan and Florida and to develop additional Bagger Dave’s restaurant locations in the Midwest. The DLOC 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 DLOC). During the Draw Period, the Company may make interest-only payments on the amounts borrowed. The Company may convert amounts borrowed during the Draw Period into one or more term loans bearing interest at 3% - 4% over LIBOR as adjusted monthly, with principal and interest amortized over seven years (20 years for real estate) and with a maturity date of June 7, 2018. Any amounts borrowed by the Company during the Draw Period that are not converted into a term loan by December 7, 2012, will automatically be converted to a term loan on the same terms as outlined above. The DLOC includes a carrying cost of .25% per year of any available but undrawn amounts, payable quarterly; however, RBS has granted a zero carrying cost on the unused DLOC through December 25, 2011.  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 September 29, 2011, the Company entered into a commitment letter with RBS, as administrator and lead arranger, with respect to senior credit facilities of up to $50 million.   The commitment letter provides that the senior credit facilities would include a term loan facility of up to $42 million to refinance the existing outstanding debt of the Company and its affiliates and to finance a potential acquisition.  The senior credit facilities would also include a renewal of the Company's development line of credit facility of up to $7 million to fund the development of BWW and Bagger Dave's restaurants and a renewal of its revolving line of credit of up to $1 million.  The senior credit facilities would be secured by a first priority lien on the Company's assets.  The commitment letter provides, among other things, that the closing of the senior credit facilities is subject to conditions customary to similar transactions, including the closing of a potential acquisition.  In the event the potential acquisition, as contemplated by the commitment letter, is not consummated, the commitment letter will be terminated or amended.

On February 1, 2010, the Company, through its WINGS subsidiary, acquired nine affiliated BWW restaurants it previously managed (“Affiliates Acquisition”).  The Affiliates Acquisition was approved by resolution of the disinterested directors of the Company, who determined that the acquisition terms were at least as favorable as those that could be obtained through arms-length negotiations with an unrelated party.  The Company paid the purchase price for each of the affiliated restaurants to each selling shareholder by issuing an unsecured promissory note for the pro-rata value of the equity interest in the affiliated restaurants.  The promissory notes bear interest at 6% per year, mature on February 1, 2016, and are payable in quarterly installments, with principal and interest fully amortized over six years.

In accordance with FASB ASC 805-50, Business Combinations: Transactions Between Entities Under Common Control, the Company accounted for the Affiliates Acquisition, a transaction between entities under common control, as if the transaction had occurred at the beginning of the period (i.e., December 28, 2009) using the historical cost basis of the acquired affiliates. Further, prior year amounts also have been retrospectively adjusted to furnish comparative information while the entities were under common control. 

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 25
2011
   
December 26
2010
 
Land
 
$
469,680
   
$
385,959
 
Land (restricted assets of VIE)
   
520,000
     
520,000
 
Building
   
2,745,296
     
2,255,246
 
Building (restricted assets of VIE)
   
1,570,967
     
1,570,967
 
Equipment
   
9,682,030
     
8,140,417
 
Furniture and fixtures
   
2,810,371
     
2,216,347
 
Leasehold improvements
   
17,332,641
     
13,925,216
 
Restaurant construction in progress
   
772,390
     
1,247,265
 
Total
   
35,903,375
     
30,261,417
 
Less accumulated depreciation
   
(13,039,524)
     
(10,917,851
)
Less accumulated depreciation attributable to restricted assets of VIE
   
(625,641)
     
(602,974
)
Property and equipment, net
 
$
22,238,210
   
$
18,740,592
 

Note 5. Intangibles
Intangible Assets Disclosure [Text Block]
5.           INTANGIBLES

 Intangible assets are comprised of the following:

   
September 25
2011
   
December 26
2010
 
Amortized intangibles:
           
Franchise fees
 
$
303,750
   
$
373,750
 
Trademark
   
22,283
     
7,475
 
Loan fees
   
164,429
     
155,100
 
Total
   
490,462
     
536,325
 
Less accumulated amortization
   
(83,375)
     
(115,246
)
Amortized intangibles, net
   
407,087
     
421,079
 
                 
Unamortized intangibles:
               
Liquor licenses
   
673,067
     
554,382
 
Total intangibles, net
 
$
1,080,154
   
$
975,461
 

Amortization expense for the three months ended September 25, 2011 and September 26, 2010 was $28,698 and $9,815, respectively.  Amortization expense for the nine months ended September 25, 2011 and September 26, 2010 was $48,129 and $27,078, respectively.  Based on the current intangible assets and their estimated useful lives, amortization expense for fiscal years 2011, 2012, 2013, 2014, and 2015 is projected to total approximately $49,275 per year.

Note 7. Long-Term Debt
Long-term Debt [Text Block]
7.           LONG-TERM DEBT

Long-term debt consists of the following obligations:

   
September 25
2011
   
December 26
2010
 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $120,000 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 7.10%.
 
$
7,602,346
   
$
8,399,538
 
                 
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 for the period beginning July 2010 through maturity in June 2030, at which point a balloon payment of $413,550 is due. Interest is charged based on a fixed rate of 6.72%, per annum, through June 2017, at which point the rate will adjust to the U.S. Treasury Securities Rate plus 4% (and every seven years thereafter).
   
1,127,278
     
1,141,188
 
                 
Note payable to a bank secured by a junior mortgage on the Brandon Property. Matures in 2030 and requires monthly principal and interest installments of approximately $6,300 until maturity. Interest is charged at a rate of 3.58% per annum.
   
891,048
     
915,446
 
                 
DLOC to a bank, secured by a senior lien on all company assets. Scheduled interest payments are charged at a rate of 3.0% over the 30-day LIBOR (the rate at September 25, 2011 was approximately 3.23%). In November 2011, the DLOC will convert into a term loan bearing interest at 4% over the 30-day LIBOR and will mature in May 2017. The DLOC includes a carrying cost of .25% per year of any available but undrawn amounts.
   
1,662,999
     
1,424,679
 
                 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $15,000 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 5.91%.
   
1,244,391
     
1,379,098
 
                 
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $33,000 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 6.35%.
   
2,701,583
     
-
 
                 
Unsecured note payable that matures in August 2013 and requires monthly principal and interest installments of approximately $2,200, with the balance due at maturity. Interest is 7% per annum.
   
234,478
     
241,832
 
                 
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.
   
8,154
     
12,016
 
                 
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 $12,500 through maturity in 2025. Interest is charged at a rate of 4% over the 30-day LIBOR (the rate at September 25, 2011 was approximately 4.23%).
   
1,251,791
     
1,318,851
 
                 
Notes payable – related parties
   
2,638,769
     
3,051,221
 
                 
Total long-term debt
   
19,362,837
     
17,883,869
 
                 
Less current portion (includes VIE debt of $89,414)
   
(2,884,518)
     
(1,947,676
)
                 
Long-term debt, net of current portion
 
$
16,478,319
   
$
15,936,193
 

Scheduled principal maturities of long-term debt are summarized as follows:

Year
 
Amount
 
September 25, 2011
 
$
2,884,518  
September 23, 2012
    3,034,050  
September 22, 2013
    2,987,327  
September 21, 2014
    3,176,477  
September 20, 2015
    2,941,824  
Thereafter
    4,338,641  
Total
 
$
19,362,837
 

Interest expense was $282,934 and $349,548 (including related party interest expense of $42,131 and $50,932) for the three months ended September 25, 2011 and September 26, 2010, respectively.  Interest expense was $876,368 and $1,037,424 (including related party interest expense of $144,502 and $111,047) for the nine months ended September 25, 2011 and September 26, 2010, respectively.

On August 30, 2010, Ansley Group, LLC entered into a $1.3 million mortgage refinance agreement with RBS. This agreement is 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.  Ansley Group, LLC was formed for the sole purpose of acting as landlord for this property.  DRH leases this property through its wholly-owned subsidiary, Bearcat Enterprises, Inc. In accordance with ASC 810, Ansley Group, LLC is considered a variable interest entity and, accordingly, its activities are consolidated into DRH’s interim consolidated financial statements.

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 25, 2011.

Note 8. Capital Stock (Including Purchase Warrants and Options)
Stockholders' Equity Note Disclosure [Text Block]
8.           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, restricted shares were issued to certain employees at a weighted-average grant date fair value of $5.00.  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 restricted shares transactions are summarized below:

   
Number of Restricted
Stock Shares
 
Unvested, June 26, 2011
    0  
Granted
    60,800  
Vested
    0  
Expired/Forfeited
    (200
Unvested, September 25, 2011
    60,600  

Under the Stock Incentive Plan, there are 689,400 shares available for future awards.

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 $21,981 and $5,253 was recognized, during the three-month period ended September 25, 2011 and September 26, 2010, 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 as of September 25, 2011.  Stock-based compensation for the nine-months ended September 25, 2011 and September 26, 2010, respectively, was $65,944 and $21,409.  The fair value of stock options is estimated using the Black-Scholes model.  The fair value of unvested shares is $153,870 as of September 25, 2011.  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 of 30% 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 25, 2011, 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 25, 2011.  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 25, 2011 and September 26, 2010, respectively:

     
Three Months Ended
     
Nine Months Ended
     
September 25
2011
     
September 26
2010
     
September 25
2011
   
September 26
2010
Federal
                           
Current
 
$
0
   
$
0
   
$
0
   
$
0
 
Deferred
   
(36,390
)
   
(69,280)
     
(463,772
   
121,327
 
                                 
State
                               
Current
   
(71,500
)
   
(36,502)
     
(208,507
)
   
(123,105)
 
Deferred
   
(47,286
)
   
(25,337)
     
(144,382
)
   
(7,454)
 
                                 
Income tax benefit (provision)
 
$
(155,176
)
 
$
(131,119)
   
$
(816,661
)
 
$
(9,232)
 

The benefit (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 25
2011
   
September 26
2010
 
             
Income tax benefit (provision) at federal statutory rate
 
$
(766,063
 
$
(78,957)
 
State income tax benefit (provision)
   
(352,889
   
(130,559)
 
Permanent differences
   
(77,139
   
9,535
 
Tax credits
   
318,643
     
105,000
 
Other
   
60,787
     
85,749
 
                 
Income tax benefit (provision)
 
$
(816,661
)
 
$
(9,232)
 

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 25
2011
   
December 26
2010
 
Deferred tax assets:
           
Net operating loss carry forwards
 
$
363,121
   
$
1,252,609
 
Deferred rent expense
   
62,762
     
68,509
 
Start-up costs
   
231,393
     
190,076
 
Tax credit carry forwards
   
846,808
     
540,533
 
Other
   
437,643
     
487,139
 
Total deferred tax assets
   
1,941,727
     
2,538,866
 
                 
Deferred tax liabilities:
               
Other
   
176,552
     
425,322
 
Tax depreciation in excess of book
   
1,765,585
     
1,505,800
 
Total deferred tax liabilities
   
1,942,137
     
1,931,122
 
Net deferred income tax (liabilities) assets
 
$
(410
 
$
607,744
 

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 carryforwards 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 $680,018 and $28,611 will expire in 2029 and 2030, respectively.  General business tax credits of $318,013, $341,156, $122,850, $59,722 and $5,067 will expire in 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 25, 2011.

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 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 25, 2011, of the 32 restaurants required to be opened under the Area Development Agreement, 15 of these restaurants had been opened for business (with the 16th restaurant opened on October 30, 2011).  An additional six restaurants not part of this Area Development Agreement were also opened for business as of September 25, 2011. 

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 $667,224 and $533,833 in royalty expense for the three-month period ended September 25, 2011 and September 26, 2010, respectively, and $2,045,488 and $1,528,560 for the nine-month period ended September 25, 2011 and September 26, 2010, respectively.  Advertising fund contribution expenses were $422,570 and $328,574 for the three-month period ended September 25, 2011 and September 26, 2010, respectively, and $1,271,538 and $941,194 for the nine-month period ended September 25, 2011 and September 26, 2010, 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 12. Supplemental Cash Flows Information
Cash Flow, Supplemental Disclosures [Text Block]
12.            SUPPLEMENTAL CASH FLOWS INFORMATION

Other Cash Flows Information

Cash paid for interest was $278,616 and $349,548 during the three-month period ended September 25, 2011 and September 26, 2010, respectively, and $827,253 and $1,037,424 for the nine-month period ended September 25, 2011 and September 26, 2010, respectively.

Cash paid for income taxes was $110,000 and $36,502 during the three-month period ended September 25, 2011 and September 26, 2010, respectively, and $147,943 and $146,937 for the nine-month period ended September 25, 2011 and September 26, 2010, respectively.

Note 13. Fair Value of Financial Instruments
Fair Value Disclosures [Text Block]
13.           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 25, 2011 and December 26, 2010, 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 25, 2011 and the fiscal year ended December 26, 2010, respectively.

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

FAIR VALUE MEASUREMENTS  
                            Asset/(Liability)  
Description
 
Level 1
   
Level 2
   
Level 3
   
Total
   
Total
 
Interest Rate Swaps
 
$
   
$
(712,430
)
 
$
   
$
(712,430
)
 
$
(712,430
)

The following table presents the fair values for those assets and liabilities measured on a recurring basis as of December 26, 2010:

FAIR VALUE MEASUREMENTS  
                            Asset/(Liability)  
Description
 
Level 1
   
Level 2
   
Level 3
   
Total
   
Total
 
Interest Rate Swaps
 
$
   
$
(367,181
)
 
$
   
$
(367,181
)
 
$
(367,181
)

As of September 25, 2011, our total debt, less related party debt, was approximately $16.7 million and had a fair value of approximately $14.0 million. As of December 26, 2010, our total debt, less related party debt, was approximately $14.8 million and had a fair value of approximately $12.7 million. Related party debt at September 25, 2011 was approximately $2.6 million and had a fair value of approximately $2.7 million.  Related party debt as of December 26, 2010 was approximately $3.1 million and had a fair value of approximately $2.8 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.