EX-99.2 3 exhibit992.htm EXHIBIT 99.2 Exhibit


EXHIBIT 99.2
A SURE WING, LLC
CONSOLIDATED FINANCAL STATEMENTS
FOR SIX MONTHS ENDED JUNE 28, 2015 AND JUNE 29, 2014


TABLE OF CONTENTS






A SURE WING, LLC
CONSOLIDATED BALANCE SHEETS
(unaudited)

 
 
June 28,
 
December 28,
ASSETS
 
2015
 
2014
Current assets
 
 
 
 
Cash and cash equivalents
 
$
2,202,440

 
$
2,640,553

Investments
 
—

 
500,000

Accounts receivable
 
29,084

 
153,375

Inventory
 
369,788

 
357,384

Prepaid assets
 
37,546

 
23,909

Notes receivable - related party
 
2,012,258

 
1,989,026

Total current assets
 
4,651,116

 
5,664,247

 
 
 
 
 
Property and equipment, net
 
9,750,501

 
10,919,288

Intangible assets, net
 
159,664

 
172,084

Other long-term assets
 
25,310

 
25,310

Total assets
 
$
14,586,591

 
$
16,780,929

 
 
 
 
 
LIABILITIES AND MEMBERS' EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
824,742

 
$
599,506

Accrued compensation
 
32,104

 
201,328

Other accrued liabilities
 
145,906

 
285,280

Current portion of long-term debt
 
945,798

 
945,798

Current portion of deferred rent
 
485,786

 
485,786

Total current liabilities
 
2,434,336

 
2,517,698

 
 
 
 
 
Deferred rent, less current portion
 
4,252,845

 
4,482,918

Long-term debt, less current portion
 
6,638,245

 
7,159,403

Total liabilities
 
13,325,426

 
14,160,019

 
 
 
 
 
Members' equity
 
1,261,165

 
2,620,910

 
 
 
 
 
Total liabilities and members' equity
 
$
14,586,591

 
$
16,780,929


















The accompanying notes are an integral part of these interim consolidated financial statements.

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A SURE WING, LLC
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
 
Six Months Ended
 
 
June 28, 2015
 
June 29, 2014
Revenue
 
$
20,995,948

 
$
19,414,905

 
 
 
 
 
Operating expenses
 
 
 
 
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
 
 
 
 
Food, beverage, and packaging costs
 
5,939,531

 
5,166,934

Compensation costs
 
5,011,365

 
4,844,346

Occupancy costs
 
1,786,664

 
1,608,457

Other operating costs
 
3,758,523

 
3,678,448

General and administrative expenses
 
1,158,231

 
1,037,207

Depreciation and amortization
 
1,185,235

 
1,110,751

Total operating expenses
 
18,839,549

 
17,446,143

 
 
 
 
 
Operating income
 
2,156,399

 
1,968,762

 
 
 
 
 
Interest expense
 
(233,335
)
 
(244,888
)
Other income, net
 
54,964

 
30,250

 
 
 
 
 
Income before income taxes
 
1,978,028

 
1,754,124

 
 
 
 
 
Income tax expense
 
82,550

 
73,242

 
 
 
 
 
Net income
 
$
1,895,478

 
$
1,680,882


























The accompanying notes are an integral part of these interim consolidated financial statements.


3


A SURE WING, LLC
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
(unaudited)

 
Members'
 
Equity
Balances - December 29, 2013
$
382,891

 
 
Distributions
(1,127,386
)
 
 
Net income
1,680,882

 
 
Balances - June 29, 2014
$
936,387

 
 
Balances - December 28, 2014
$
2,620,910

 
 
Distributions
(3,255,223
)
 
 
Net income
1,895,478

 
 
Balances - June 28, 2015
$
1,261,165


































The accompanying notes are an integral part of these interim consolidated financial statements.

4


A SURE WING, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Six Months Ended
 
 
June 28, 2015
 
June 29, 2014
Cash flows from operating activities
 
 
 
 
Net income
 
$
1,895,478

 
$
1,680,882

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
1,185,235

 
1,110,751

Changes in operating assets and liabilities that provided (used) cash
 
 
 
 
Accounts receivable
 
124,291

 
187,301

Inventory
 
(12,404
)
 
(50,440
)
Prepaid assets
 
(13,637
)
 
(25,783
)
Intangible assets
 
—

 
(19,500
)
Other long-term assets
 
—

 
(3,400
)
Accounts payable
 
225,236

 
305,675

Accrued liabilities
 
(308,598
)
 
(78,135
)
Deferred rent
 
(230,073
)
 
960,821

Net cash provided by operating activities
 
2,865,528

 
4,068,172

 
 
 
 
 
Cash flows from investing activities
 
 
 
 
Purchase of investments
 
—

 
(500,000
)
Proceeds from sale of investments
 
500,000

 
—

Collection of principal on notes receivable
 
4,086

 
3,894

Finance of notes receivable
 
(27,318
)
 
(410,745
)
Purchases of property and equipment
 
(4,028
)
 
(3,207,947
)
Net cash provided by (used in) investing activities
 
472,740

 
(4,114,798
)
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
Proceeds from issuance of long-term debt
 
—

 
1,298,316

Repayments of long-term debt
 
(521,158
)
 
(417,356
)
Capital distributions
 
(3,255,223
)
 
(1,127,386
)
Net cash used in financing activities
 
(3,776,381
)
 
(246,426
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
(438,113
)
 
(293,052
)
 
 
 
 
 
Cash and cash equivalents, beginning of period
 
2,640,553

 
2,841,640

 
 
 
 
 
Cash and cash equivalents, end of period
 
$
2,202,440

 
$
2,548,588














The accompanying notes are an integral part of these interim consolidated financial statements.

5
A SURE WING, LLC
NOTES TO CONSOLIDATED FINANCIAL STATMENTS


1.           BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Business

The interim unaudited financial statements are comprised of 18 companies that own and operate Buffalo Wild Wings (“BWW”) restaurants in Missouri and Illinois and one corporate administrative entity, A Sure Wing, LLC.   Each of the companies operated as BWW restaurants for all periods included in the consolidated financial statements, except for Lake Ozark, Inc., which opened in April 2014.  These companies, all wholly-owned by A Sure Wing, LLC, are herein referred to as “ASW.”

On June 29, 2015, substantially all the assets of ASW were acquired by Diversified Restaurant Holdings, Inc. for approximately $54.0 million.

Basis of Presentation

The consolidated financial statements as of June 28, 2015 and December 28, 2014 , and for the six-month periods ended June 28, 2015 and June 29, 2014, have been prepared by ASW 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 June 28, 2015 and for the six-month periods ended June 28, 2015 and June 29, 2014 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.

Principles of Consolidation
 
The consolidated financial statements include the consolidated accounts of A Sure Wing, LLC and each of its subsidiaries.  All significant intercompany accounts and transactions have been eliminated upon consolidation.
 
ASW follows accounting standards set by the Financial Accounting Standards Board ("FASB"). The FASB sets generally accepted accounting principles ("GAAP"), which ASW follows to ensure its financial condition, results of operations, and cash flows are consistently reported. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification ("ASC").

Revenue Recognition
 
Revenues from food and beverage sales are recognized and generally collected at the point of sale. All sales taxes are presented on a net basis and are excluded from revenue.
 
Income Taxes
 
ASW is structured as Limited Liability Company under the Internal Revenue Code.  As a result, the federal taxable income or loss of ASW will be included in the respective members’ income tax returns and the state taxable income of ASW will be paid by ASW. Accordingly, only state income taxes are reflected in the accompanying consolidated financial statements.
  
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.


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A SURE WING, LLC
NOTES TO CONSOLIDATED FINANCIAL STATMENTS

2.           PROPERTY AND EQUIPMENT, NET

Property and equipment are comprised of the following assets:

 
 
June 28, 2015
 
December 28, 2014
 
Equipment
 
7,932,310

 
7,932,310

 
Furniture and fixtures
 
749,600

 
749,600

 
Leasehold improvements
 
17,845,826

 
17,836,747

 
Vehicles
 
74,971

 
74,971

 
Total
 
26,602,707

 
26,593,628

 
Less accumulated depreciation
 
(16,852,206
)
 
(15,674,340
)
 
Property and equipment, net
 
$
9,750,501

 
$
10,919,288

 

3.               RELATED PARTY TRANSACTIONS

During the six months ended June 28, 2015 and June 29, 2014, ASW was charged management fees of $1.0 million and $1.1 million respectively, from a related entity through common ownership which represents an allocation of certain corporate expenses.

For both June 28, 2015 and December 28, 2014, ASW was owed approximately $2.0 million from related entities through common ownership for miscellaneous advances made by ASW. In conjunction with the acquisition on June 29, 2015, the note receivable was fully repaid.

In July 2012, entities related through common ownership, were issued two term loans, $1.6 million and $1.8 million, at a fixed rate of 6.29% and 6.07%, respectively.   The debt requires monthly payments equal the principal and interest required to fully amortize the original principal over an amortization period of 84 months. ASW is liable for the entire amount of the debt on a joint and several basis.  As of June 28, 2015 and December 28, 2014 the total outstanding balance of the debt was $2.1 million and $2.3 million, respectively. Such amounts are not reflected in the accompanying consolidated balance sheet because ASW has not agreed to pay nor does it expect to pay the outstanding balance on behalf of its co-obligors. In the event ASW is required to make payments on the debt, ASW could seek to recover those amounts from the affiliate; however, ASW does not hold specific recourse or collateral rights in connection with the agreement.

See Note 4 for related party operating lease transactions.

4. COMMITMENTS AND CONTINGENCIES
 
Lease terms range from 10 to 20 years, with renewal options, and generally require ASW to pay a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds.
 
Total rent expense was $1.1 million for both the six months ended June 28, 2015 and June 29, 2014, (of which $300,390 and $300,220 for the six months ended June 28, 2015 and June 29, 2014, respectively, were paid to related parties through common ownership).

ASW 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 year and the tenth year to meet the most current design model that BWLD has approved.  The modernization costs can range from approximately $50,000 to approximately $1.1 million depending on the individual restaurants’ needs.

ASW 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 ASW's business, results of operations, and financial condition, management believes that ASW is adequately insured and does not believe that any pending or threatened proceedings would adversely impact ASW's results of operations, cash flows, or financial condition.  Therefore, no separate reserve has been established for these types of legal proceedings.


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A SURE WING, LLC
NOTES TO CONSOLIDATED FINANCIAL STATMENTS

5. SUPPLEMENTAL CASH FLOWS INFORMATION
 
Other Cash Flow Information

Cash paid for interest was approximately $233,335 and $244,888 during the six months ended June 28, 2015 and June 29, 2014, respectively.

Cash paid for income taxes was $82,550 and $73,242 during the six months ended June 28, 2015 and June 29, 2014, respectively.

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

Noncash investing activities for property and equipment not yet paid during the six months ended June 28, 2015 and June 29, 2014, was $0 and $298,038, respectively.


6.  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 June 28, 2015 and  December 28, 2014 financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, and debt. Due to their short-term nature the fair value of cash and cash equivalents, accounts receivable, and accounts payable approximate carrying value. The fair value of debt approximates its carrying value as the interest rates approximate market rates.


7.  SUBSEQUENT EVENTS

Management has evaluated subsequent events through September 3, 2015, the date on which the consolidated financial statements were available to be issued.


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