10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 25, 2012

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from

Commission File No.  000-53577

DIVERSIFIED RESTAURANT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada	03-0606420
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

27680 Franklin Road

Southfield, Michigan 48034

(Address of principal executive offices)

Registrant’s telephone number: (248) 223-9160

No change

(Former name, former address and former

fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X] No [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  18,956,100 shares of $.0001 par value common stock outstanding as of May 9, 2012.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. 

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes [  ]       No [  ]

INDEX

PART I.  FINANCIAL INFORMATION	1
Item 1.  Financial Statements	1
Consolidated Balance Sheets	1
Consolidated Statements of Operations	2
Consolidated Statements of Stockholders' Equity (Deficit)	3
Consolidated Statements of Cash Flows	4
Notes to Interim Consolidated Financial Statements	5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosure About Market Risks	18
Item 4. Controls and Procedures	18
PART II. OTHER INFORMATION	19
Item 1. Legal Proceedings	19
Item 1A. Risk Factors	19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3. Defaults Upon Senior Securities	19
Item 5. Other Information	19
Item 6. Exhibits	19

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 25			December 25
ASSETS	2012			2011
Current assets
Cash and cash equivalents	$	2,150,576		$	1,537,497
Accounts receivable - other		8,809			20,497
Inventory		553,005			601,765
Prepaid assets		197,764			207,608
Total current assets		2,910,154			2,367,367
Deferred income taxes		88,530			272,332
Property and equipment, net - restricted assets of VIE		1,449,988			1,457,770
Property and equipment, net		21,804,707			22,064,544
Intangible assets, net		1,117,355			1,113,997
Other long-term assets		74,099			74,389
Total assets	$	27,444,833		$	27,350,399
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,096,288		$	1,682,462
Accrued compensation		979,734			760,548
Other accrued liabilities		690,549			649,784
Current portion of long-term debt (including VIE debt of $89,414)		2,979,397			2,967,135
Current portion of deferred rent		177,387			180,480
Total current liabilities		5,923,355			6,240,409
Deferred rent, less current portion		1,712,135			1,750,017
Other liabilities - interest rate swap		593,310			613,999
Long-term debt, less current portion (including VIE debt of $1,117,670 and $1,140,025, respectively)		16,612,084			16,841,355
Total liabilities		24,840,884			25,445,780
Commitments and contingencies (Notes 9 and 10)
Stockholders' equity
Common stock - $0.0001 par value; 100,000,000 shares authorized; 18,956,100 and 18,936,400 shares, respectively, issued and outstanding		1,888			1,888
Additional paid-in capital		2,824,209			2,771,077
Retained earnings (accumulated deficit)		(607,443	)		(1,253,831	)
Total DRH stockholders' equity		2,218,654			1,519,134
Noncontrolling interest in VIE		385,295			385,485
Total stockholders' equity		2,603,949			1,904,619
Total liabilities and stockholders' equity	$	27,444,833		$	27,350,399

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

1

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended
	March 25			March 27
	2012			2011
Revenue
Food and beverage sales	$	17,749,818		$	15,094,616
Franchise royalties and fees		-			-
Total revenue		17,749,818			15,094,616
Operating expenses
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage, and packaging		5,517,972			4,251,632
Labor		4,405,434			3,753,672
Occupancy		915,119			783,445
Other operating costs		3,422,179			2,797,944
General and administrative expenses		1,274,518			1,116,062
Pre-opening costs		47,871			254,136
Depreciation and amortization		973,058			775,361
Total operating expenses		16,556,151			13,732,252
Operating profit		1,193,667			1,362,364
Change in fair value of derivative instruments		20,689			(5,840	)
Interest expense		(312,541	)		(286,810	)
Other income (expense), net		33,773			(6,985	)
Income before income taxes		935,588			1,062,729
Income tax provision		249,390			309,988
Net income		686,198			752,741
Less:  Income attributable to noncontrolling interest		(39,810	)		(38,500	)
Net income attributable to DRH	$	646,388		$	714,241
Basic earnings per share	$	0.03		$	0.04
Fully diluted earnings per share	$	0.03		$	0.04
Weighted average number of common shares outstanding
Basic		18,941,708			18,876,000
Diluted		19,044,287			19,063,203

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

2

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)

								Retained						Total
						Additional		Earnings						Stockholders'
	Common Stock					Paid-in		(Accumulated			Noncontrolling			Equity
	Shares			Amount		Capital		Deficit)			Interest			(Deficit)
Balances - December 26, 2010		18,876,000		$	1,888	$	2,631,304	$	(3,096,017	)	$	338,640		$	(124,185	)
Issuance of restricted shares		60,400			-		-		-			-			-
Share-based compensation		-			-		139,773		-			-			139,773
Net income		-			-		-		1,842,186			153,845			1,996,031
Distributions from noncontrolling interest		-			-		-		-			(107,000	)		(107,000	)
Balances - December 25, 2011		18,936,400		$	1,888	$	2,771,077	$	(1,253,831	)	$	385,485		$	1,904,619
Issuance of restricted shares		20,000			-		-		-			-			-
Forfeitures of restricted shares		(300	)		-		-		-			-			-
Share-based compensation		-			-		53,132		-			-			53,132
Net income		-			-		-		646,388			39,810			686,198
Distributions from noncontrolling interest		-			-		-		-			(40,000	)		(40,000	)
Balances - March 25, 2012		18,956,100		$	1,888	$	2,824,209	$	(607,443	)	$	385,295		$	2,603,949

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

3

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended
	March 25			March 27
	2012			2011
Cash flows from operating activities
Net income	$	686,198		$	752,741
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		973,058			775,361
Loss on disposal of property and equipment		-			23,875
Share-based compensation		53,132			21,981
Change in fair value of derivative instruments		(20,689	)		5,840
Deferred income taxes		183,802			277,281
Changes in operating assets and liabilities that provided (used) cash
Accounts receivable - other		11,688			(57,307	)
Inventory		48,760			(40,725	)
Prepaid assets		9,844			83,002
Other current assets		-			43,348
Intangible assets		(12,949	)		(77,866	)
Other long-term assets		290			10,308
Accounts payable		(586,174	)		(172,399	)
Accrued liabilities		259,951			374,476
Deferred rent		(40,975	)		109,697
Net cash provided by operating activities		1,565,936			2,129,613
Cash flows from investing activities
Purchases of property and equipment		(695,848	)		(2,558,994	)
Net cash used in investing activities		(695,848	)		(2,558,994	)
Cash flows from financing activities
Proceeds from issuance of long-term debt		440,641			1,740,906
Repayments of long-term debt		(657,650	)		(491,013	)
Distributions		(40,000	)		(40,000	)
Net cash provided by (used in) financing activities		(257,009	)		1,209,893
Net increase in cash and cash equivalents		613,079			780,512
Cash and cash equivalents, beginning of period		1,537,497			1,358,381
Cash and cash equivalents, end of period	$	2,150,576		$	2,138,893

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

4

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1.           BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

DRH created the Bagger Dave’s concept, brand, menu, and business plan throughout 2006 and 2007 and launched its first store in January 2008. DRH received licensing approval to franchise Bagger Dave's in the states of Michigan, Ohio, Indiana, Illinois, Wisconsin, Kentucky, and Missouri in 2010. The Company doubled the number of Bagger Dave’s stores in 2011 and, as of May 9, 2012, there were six Bagger Dave’s restaurants operating in the Greater Detroit region of Michigan with three additional restaurants under development. In November 2011, DRH executed its first area development agreement to franchise six stores in the Midwest. The first franchised unit is scheduled to open in mid 2012. For more information, please visit www.baggerdaves.com.

DRH is also a leading BWW franchisee and, as of May 9, 2012, operated 22 BWW restaurants (14 in Michigan and eight in Florida), with two under construction in Detroit, Michigan and Largo, Florida. Mr. Ansley opened his first affiliated BWW in December 1999 and, since then, has received numerous awards from Buffalo Wild Wings, Inc. ("BWWI") including awards for the Highest Annual Restaurant Sales in 2004, 2005, and 2006, and in September 2007, Mr. Ansley was awarded Franchisee of the Year by the International Franchise Association ("IFA"). The IFA's membership consists of over 12,000 franchisee members and over 1,000 franchisor members. DRH remains on track to fulfill its Area Development Agreement, which requires a total of 32 BWW restaurants by 2017, or an additional 16 more restaurants over the next five years.

The following organizational chart outlines the corporate structure of DRH and its wholly-owned subsidiaries, all of which are wholly-owned by the Company.  A brief textual description of the entities follows the organizational chart.  

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

5

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.

WINGS was formed on March 12, 2007 and serves as a holding company for its BWW restaurants. The Company is economically dependent on retaining its franchise rights with 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 the duration of its initial term. The franchise agreements are renewable at the option of the franchisor and are generally renewable if the franchisee has complied with the franchise agreement. When factoring in any applicable renewals, the franchise agreements have specific expiration dates ranging from January 29, 2019 through March 25, 2046. The Company believes it is in compliance with the terms of these agreements at March 25, 2012.  The Company is under contract with BWWI to enter into 14 additional franchise agreements by 2017 (see Note 10 for details).  

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

Principles of Consolidation

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

We consolidate all variable-interest entities (VIEs) 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 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 March 25, 2012 and December 25, 2011, and for the three-month periods ended March 25, 2012 and March 27, 2011, have been prepared by the Company pursuant to accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information as of March 25, 2012 and for the three-month period ended March 25, 2012 and March 27, 2011 is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods.

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

The results of operations for the three-month period ended March 25, 2012 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 30, 2012.

Fiscal Year

The Company utilizes a 52- or 53-week accounting period that ends on the last Sunday in December. This quarterly report on Form 10-Q is for the three-month period ended March 25, 2012 and March 27, 2011, each comprising 13 weeks.

Concentration Risks

Approximately 75% and 76% of the Company's revenues during the three months ended March 25, 2012 and March 27, 2011, respectively, are generated from food and beverage sales from restaurants located in Michigan.

Use of Estimates

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

6

Interest Rate Swap Agreements

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

 The 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. See Note 6 and Note 12 for additional information on the interest rate swap agreements.  

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05 “Presentation of Comprehensive Income.” ASU 2011-05 amended ASC 220 “Comprehensive Income” to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The guidance requires entities to report the components of comprehensive income in either a single, continuous statement or two separate but consecutive statements. We adopted this guidance effective March 25, 2012 and the adoption did not have an impact to our consolidated financial statements for the period ending March 25, 2012. As a result of the Company’s April 2, 2012 debt restructure, this pronouncement will impact our financial reporting beginning with the period ending June 24, 2012.  

Reclassifications

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

2.           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 new $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 used 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 April 2, 2012, the Company, together with its wholly-owned subsidiaries, entered into a $16 million senior secured term loan (“2012 Term Loan”), secured by a senior lien on all Company assets.  The Company will use approximately $15.7 million of the 2012 Term Loan to repay substantially all of its outstanding senior debt and interest rate swap liabilities and the remaining $0.3 million for working capital.  See Note 6 for additional information on the 2012 Term Loan.

3.           PROPERTY AND EQUIPMENT

Property and equipment are comprised of the following assets:

	March 25 2012		December 25 2011
Land	$	469,680	$	469,680
Land (restricted assets of VIE)		520,000		520,000
Building		2,745,296		2,745,296
Building (restricted assets of VIE)		1,570,967		1,570,967
Equipment		10,279,686		10,596,964
Furniture and fixtures		3,577,935		3,060,014
Leasehold improvements		19,240,141		19,148,471
Restaurant construction in progress		403,244		-
Total		38,806,949		38,111,392
Less accumulated depreciation		(14,911,275)		(13,955,881	)
Less accumulated depreciation attributable to restricted assets of VIE		(640,979)		(633,197	)
Property and equipment, net	$	23,254,695	$	23,522,314

7

4.           INTANGIBLES

 Intangible assets are comprised of the following:

	March 25 2012			December 25 2011
Amortized intangibles:
Franchise fees	$	303,750		$	303,750
Trademark		49,138			30,852
Loan fees		164,429			164,429
Total		517,317			499,031
Less accumulated amortization		(121,862	)		(112,271	)
Amortized intangibles, net		395,455			386,760
Unamortized intangibles:
Liquor licenses		721,900			727,237
Total intangibles, net	$	1,117,355		$	1,113,997

Amortization expense for the three months ended March 25, 2012 and March 27, 2011 was $9,591 and $9,726, respectively.  Based on the current intangible assets and their estimated useful lives, amortization expense for fiscal years 2012, 2013, 2014, 2015, and 2016 is projected to total approximately $37,600 per year.

5.           RELATED PARTY TRANSACTIONS

The 2010 acquisition of certain affiliates was accomplished by issuing unsecured promissory notes to each selling shareholder that bear interest at 6% per year, mature on February 1, 2016, and are payable in quarterly installments of approximately $157,000, with principal and interest fully amortized over six years.  The outstanding balance on the notes is $2,118,535 and $2,254,657 at March 25, 2012 and December 25, 2011, respectively.  These notes were repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer to Note 6 for further details.

Fees for monthly accounting and financial statement compilation services are paid to an entity owned by a director and stockholder of the Company. Fees paid during the three months ended March 25, 2012 and March 27, 2011, respectively, were $92,847 and $69,355.

Current debt (see Note 6) also includes a promissory note to a DRH stockholder in the amount of $250,000 at March 25, 2012 and March 27, 2011.  The note is a demand note that does not require principal or interest payments.  Interest is accrued at 8% per annum and is compounded quarterly.  The Company has 180 days from the date of demand to pay the principal and accrued interest.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer to Note 6 for further details.

See Note 9 for related party operating lease transactions.

8

6.           LONG-TERM DEBT

Long-term debt consists of the following obligations:

	March 25 2012			December 25 2011
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $113,000 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 7.10%.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer below for further details.	$	7,049,910		$	7,326,128
Note payable to a bank secured by a senior mortgage on the Brandon Property and a personal guaranty. Scheduled monthly principal and interest payments are approximately $8,000 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).		1,117,469			1,122,413
Note payable to a bank secured by a junior mortgage on the Brandon Property. Matures in 2030 and requires monthly principal and interest installments of approximately $6,300 until maturity. Interest is charged at a rate of 3.58% per annum.		874,416			882,769
Note payable to a bank, secured by a senior lien on all company assets. Scheduled interest payments are charged at a rate of 3% over the 30-day LIBOR (the rate at March 25, 2012 was approximately 3.24%). In November 2011, a DLOC converted into this term loan. The monthly interest payment approximates $2,700. The note will mature in May 2017. The DLOC includes a carrying cost of .25% per year of any available but undrawn amounts.		1,470,692			1,030,052
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $19,500 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 5.91%.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer below for further details.		1,149,133			1,195,853
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $40,000 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 6.35%.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer below for further details.		2,503,166			2,602,375
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $24,500 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 6.35%.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer below for further details.		1,616,143			1,676,000
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.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer below for further details.		229,357			231,940
Note payable to Ford Credit secured by a vehicle purchased by Flyer Enterprises, Inc. to be used in the operation of the business. This is an interest-free loan under a promotional 0% rate. Scheduled monthly principal payments are approximately $430. The note matures in April 2013.		5,576			6,864
Notes payable – variable interest entity. Note payable to a bank secured by a senior mortgage on the property located at 15745 Fifteen Mile Road, Clinton Township, Michigan 48035, a DRH corporate guaranty, and a personal guaranty. Scheduled monthly principal and interest payments are approximately $12,500 through maturity in 2025. Interest is charged at a rate of 4% over the 30-day LIBOR (the rate at March 25, 2012 was approximately 4.24%).		1,207,084			1,229,439
Notes payable – related parties		2,368,535			2,504,657
Total long-term debt		19,591,481			19,808,490
Less current portion (includes VIE debt of $89,414)		(2,979,397	)		(2,967,135	)
Long-term debt, net of current portion	$	16,612,084		$	16,841,355

9

On April 2, 2012, the Company, together with its wholly-owned subsidiaries, entered into a $16 million senior secured term loan (“2012 Term Loan”), secured by a senior lien on all Company assets. The Company will use approximately $15.7 million of the 2012 Term Loan to repay substantially all of its outstanding senior debt and interest rate swap liabilities and the remaining $0.3 million for working capital. The 2012 Term Loan is for a term of seven years and bears interest at one-month LIBOR plus a LIBOR Margin (as defined in the agreement) which ranges from 2.50% to 3.40%, depending on the Company’s lease adjusted leverage ratio. Simultaneously, the Company entered into an interest rate swap agreement to fix the interest on the 2012 Term Loan. The notional amount of the swap agreement is $16 million at inception and amortizes to $0 at maturity in March 2019. Under the swap agreement, the Company pays a fixed rate of 1.41% and receives interest at the one-month LIBOR. Principal and interest payments on the 2012 Term Loan are amortized over seven years, with monthly principal payments of approximately $190 thousand plus accrued interest.

Scheduled principal maturities of long-term debt for each of the five years succeeding March 25, 2012, and thereafter, are summarized as follows, both based on the long-term debt terms that existed at March 25, 2012 and taking into account the 2012 Term Loan:

Year	Amount Based on March 25, 2012 Terms		Amount Revised for April 2, 2012 Term Loan
2013	$	2,979,397	$	2,434,861
2014		3,193,401		2,638,833
2015		3,139,900		2,641,228
2016		3,251,032		2,644,014
2017		2,978,215		2,647,336
Thereafter		4,049,536		7,668,962
Total	$	19,591,481	$	20,675,234

Interest expense was $312,541 and $286,810 (including related party interest expense of $42,131 and $57,080) for the three months ended March 25, 2012 and March 27, 2011, respectively.  

The above agreements contain various customary financial covenants generally based on the performance of the specific borrowing entity and other related entities.  The more significant covenants consist of a minimum debt service coverage ratio and a maximum lease adjusted leverage ratio, both of which we are in compliance with as of March 25, 2012.

At March 25, 2012, the Company had three interest rate swap agreements to fix interest rates on a portion of the Company’s portfolio of variable rate debt.  The notional amounts on the swaps combined are $10,702,209 as of March 25, 2012 and amortize down to $0 through their maturity in May 2017.  Under the swap agreements, the Company pays a fixed rate of 3.1% (notional amount of $7,049,910), 1.91% (notional amount of $1,149,133), and 2.35% (notional amount of $2,503,166), respectively.  The Company receives interest at the one-month LIBOR under all three agreements.  In conjunction with the 2012 Term Loan, these swaps were terminated and the outstanding fair value liability on April 2, 2012 of $657,359 was rolled into the 2012 Term Loan balance and is included in the above debt maturities schedule.

The fair value liabilities of the swap agreements were $593,310 and $613,999 at March 25, 2012 and December 25, 2011, respectively.  The increase in fair value liability of the swap agreements was $20,689 for the three months ended March 25, 2012 and the decrease in fair value liability of the swap was $5,840 for the three months ended March 27, 2011 and is recorded in the consolidated statements of operations.

7.           CAPITAL STOCK (INCLUDING PURCHASE WARRANTS AND OPTIONS)

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

10

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

	Number of Restricted Stock Shares
Unvested, December 25, 2011		60,400
Granted		20,000
Vested		0
Expired/Forfeited		(300	)
Unvested, March 25, 2012		80,100

Under the Stock Incentive Plan, there are 669,900 shares available for future awards.

On July 30, 2007, DRH granted options for the purchase of 150,000 shares of common stock to the directors of the Company. These options vest ratably over a three-year period and expire six years from issuance. At March 25, 2012, these options are fully vested and can be exercised at a price of $2.50 per share.

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

Stock-based compensation of $53,132 and $21,981 was recognized, during the three-month period ended March 25, 2012 and March 27, 2011, 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 March 25, 2012.  The fair value of stock options is estimated using the Black-Scholes model.  The fair value of unvested shares is $109,907 as of March 25, 2012.  The fair value of the unvested shares will be amortized ratably over the remaining vesting term.  The valuation methodology used an assumed term based upon the stated term of three years and a risk-free rate of return represented by the U.S. 5-year Treasury Bond rate and volatility factor based on guidance as defined in FASB ASC 718, Compensation–Stock Compensation.  A dividend yield of 0% was used because the Company has never paid a dividend and does not anticipate paying dividends in the reasonably foreseeable future. 

In October 2009, one member of the Board of Directors exercised 6,000 vested options at a price of $2.50 per share.  Consequently, at March 25, 2012, 354,000 shares of authorized common stock are reserved for issuance to provide for the exercise of the Company’s stock options.

The Company has authorized 10,000,000 shares of preferred stock at a par value of $0.0001.  No preferred shares are issued or outstanding as of March 25, 2012.  Any preferences, rights, voting powers, restrictions, dividend limitations, qualifications, and terms and conditions of redemption shall be set forth and adopted by a Board of Directors' resolution prior to issuance of any series of preferred stock.

8.           INCOME TAXES

The provision for income taxes consists of the following components for the three-month period ended March 25, 2012 and March 27, 2011, respectively:

	Three Months Ended
	March 25 2012			March 27 2011
Federal
Current	$	-		$	-
Deferred		217,706			223,988
State
Current		65,588			32,707
Deferred		(33,904	)		53,293
Income tax provision	$	249,390		$	309,988

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

	March 25 2012			March 27 2011
Income tax provision at federal statutory rate	$	318,095		$	350,733
State income tax provision		31,684			86,000
Permanent differences		39,201			37,707
Tax credits		(139,590	)		(105,629	)
Other		-			(58,823	)
Income tax provision	$	249,390		$	309,988

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:

	March 25 2012		December 25 2011
Deferred tax assets:
Net operating loss carry forwards	$	1,294,667	$	1,861,906
Deferred rent expense		34,010		50,471
Start-up costs		234,363		135,535
Tax credit carry forwards		1,229,151		1,089,561
Other		414,134		393,713
Total deferred tax assets		3,206,325		3,531,186
Deferred tax liabilities:
Tax depreciation in excess of book		3,117,795		3,258,854
Total deferred tax liabilities		3,117,795		3,258,854
Net deferred income tax assets	$	88,530	$	272,332

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

The Company expects to use net operating loss and general business tax credit 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 $931,552, $28,611, $1,696,500, and $544,711 will expire in 2031, 2030, 2029 and 2028, respectively.  General business tax credits of $139,590, $561,396, $335,621, $86,678, $59,722, and $46,144 will expire in 2032, 2031, 2030, 2029, 2028 and 2027, respectively.

The Company applies the provisions of ASC 740 regarding the accounting for uncertainty in income taxes.  There are no amounts recorded on the Company's consolidated financial statements for uncertain positions.  The Company classifies all interest and penalties as income tax expense.  There are no accrued interest amounts or penalties related to uncertain tax positions as of March 25, 2012.

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

9.           OPERATING LEASES (INCLUDING RELATED PARTY)

Lease terms range from four to 15 years, generally include renewal options, and frequently require us 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 $713,843 and $613,311 for the three-month period ended March 25, 2012 and March 27, 2011, respectively (of which $23,358 and $20,872, respectively, were paid to a related party).  

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Scheduled future minimum lease payments for each of the five years and thereafter for non-cancelable operating leases with initial or remaining lease terms in excess of one year at March 25, 2012 are summarized as follows:

Year	Amount
2013	$	3,063,935
2014		3,132,196
2015		2,857,526
2016		2,667,630
2017		2,321,037
Thereafter		6,418,024
Total	$	20,460,348

10.           COMMITMENTS AND CONTINGENCIES

The Company assumed, from a related entity, an "Area Development Agreement" with BWWI in which the Company undertakes to open 23 BWW restaurants within its designated "development territory", as defined by the agreement, by October 1, 2016.  On December 12, 2008, this agreement was amended, adding nine additional restaurants and extending the date of fulfillment to March 1, 2017.  Failure to develop restaurants in accordance with the schedule detailed in the agreement could lead to potential penalties of $50,000 for each undeveloped restaurant, payment of the initial franchise fees for each undeveloped restaurant, and loss of rights to development territory.  As of March 25, 2012, of the 32 restaurants required to be opened under the Area Development Agreement, 16 of these restaurants had been opened for business.  An additional six restaurants not part of this Area Development Agreement were also opened for business as of March 25, 2012. 

The Company is required to pay BWWI royalties (5% of net sales) and advertising fund contributions (3% of net sales) for the term of the individual franchise agreements.  The Company incurred $780,186 and $700,964 in royalty expense for the three-month period ended March 25, 2012 and March 27, 2011, respectively.  Advertising fund contribution expenses were $461,660 and $416,040 for the three-month period ended March 25, 2012 and March 27, 2011, respectively.

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

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

11.            SUPPLEMENTAL CASH FLOWS INFORMATION

Other Cash Flows Information

Cash paid for interest was $260,930 and $250,968 during the three-month period ended March 25, 2012 and March 27, 2011, respectively.

Cash paid for income taxes was $128,000 and $37,943 during the three-month period ended March 25, 2012 and March 27, 2011, respectively.

12.           FAIR VALUE OF FINANCIAL INSTRUMENTS

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

●	Level 1	Quoted market prices in active markets for identical assets and liabilities;
●	Level 2	Inputs, other than level 1 inputs, either directly or indirectly observable; and
●	Level 3	Unobservable inputs developed using internal estimates and assumptions (there is little or no market data) which reflect those that market participants would use.

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

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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 March 25, 2012 and the fiscal year ended December 25, 2011, respectively.

The following table presents the fair values for those assets and liabilities measured on a recurring basis as of March 25, 2012:

FAIR VALUE MEASUREMENTS
											Asset/(Liability)
Description	Level 1		Level 2			Level 3		Total			Total
Interest Rate Swaps	$	—	$	(593,310	)	$	—	$	(593,310	)	$	(593,310	)

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

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

As of March 25, 2012, our total debt, less related party debt, was approximately $17.2 million and had a fair value of approximately $14.6 million. As of December 25, 2011, our total debt, less related party debt, was approximately $17.3 million and had a fair value of approximately $15.2 million. Related party debt at March 25, 2012 was approximately $2.5 million and had a fair value of approximately $2.4 million.  Related party debt as of December 25, 2011 was approximately $2.5 million and had a fair value of approximately $2.6 million.  The Company estimates the fair value of its fixed-rate debt using discounted cash flow analysis based on the Company’s incremental borrowing rate.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

(The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated interim financial statements and related notes included in Item 1 of Part 1 of this Quarterly Report and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results from Operations contained in our Form 10-K, for the fiscal year ended December 25, 2011.)

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in this “Quarterly Report on Form 10-Q” may contain information that includes or is based upon certain “forward-looking statements” relating to our business. These forward-looking statements represent management’s current judgment and assumptions, and can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are frequently accompanied by the use of such words as “anticipates,” “plans,” “believes,” “expects,” “projects,” “intends,” and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, including, while it is not possible to predict or identify all such risks, uncertainties, and other factors, those relating to our ability to secure the additional financing adequate to execute our business plan; our ability to locate and start up new restaurants; acceptance of our restaurant concepts in new market places; the cost of food and other raw materials.  Any one of these or other risks, uncertainties, other factors, or any inaccurate assumptions may cause actual results to be materially different from those described herein or elsewhere by us. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they were made. Certain of these risks, uncertainties, and other factors may be described in greater detail in our filings from time to time with the Securities and Exchange Commission, which we strongly urge you to read and consider. Subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above and elsewhere in our reports filed with the Securities and Exchange Commission. We expressly disclaim any intent or obligation to update any forward-looking statements.

OVERVIEW

Diversified Restaurant Holdings, Inc. (“DRH” or the “Company”) is a leading Buffalo Wild Wings® ("BWW") franchisee that is rapidly expanding through organic growth and acquisitions.  WINGS, through its subsidiaries, holds 22 BWW restaurants that are currently in operation; 14 are located in Michigan and eight in Florida.  DRH also created and launched its own unique, full-service, ultra-casual restaurant concept, Bagger Dave’s Legendary Burger Tavern® (“Bagger Dave’s”), in January 2008.  As of March 25, 2012, the Company owned and operated six Bagger Dave’s restaurants in Southeast Michigan. Our seventh Bagger Dave's location is scheduled to open on May 13, 2012.  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. The first franchised unit is scheduled to open in mid 2012. 

Our organic growth strategy is dependent on three key components.  First is the continued development of our BWW concept as a franchisee.  We expect to open two to three BWW stores each year through 2017 with a combined total of 38 by the end of 2017.  Second is our continued development of our own Bagger Dave’s concept throughout the Midwest consistent with the current capabilities of our supply base.  We intend to open, depending on our ability to find real estate and fund new development, a minimum of three corporate stores in 2012.  Third is our desire to franchise our Bagger Dave’s concept throughout the Midwest.  We have made significant investments, including the hiring of a veteran in the franchise community to seek qualified multi-unit operators, support the development of new franchisee-owned stores, and ultimately manage the franchisee system. 

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RESTAURANT OPENINGS

The following table outlines the restaurant unit information for the years indicated. "Total company owned restaurants" reflects the number of restaurants owned and operated by DRH for each year. Since the Company's inception, it managed nine existing BWW restaurants and on February 1, 2010, these restaurants were acquired by the Company. Comparative results for 2009, 2008, and 2007 are a consolidation of owned and managed restaurants based on the accounting of an acquisition of entities under common control.  As a franchisor of Bagger Dave’s, we’ve also included the number of franchises that are scheduled to open in 2012.

	2012 (estimate)		2011		2010		2009		2008		2007
Beginning of year - corporate owned		28		22		9		8		2		0
Beginning of year - acquisitions / affiliate restaurants under common control		0		0		9		9		9		9
Summary of restaurants open at the beginning of year		28		22		18		17		11		9
Openings		0		6		4		1		6		2
Planned openings		5		0		0		0		0		0
Closures		0		0		0		0		0		0
Total company owned restaurants		33		28		22		18		17		11
Franchised restaurants		1		0		0		0		0		0
Total number of restaurants		34		28		22		18		17		11

RESULTS OF OPERATIONS

For the three months ended March 25, 2012 ("First Quarter 2012"), revenue was generated from the operations of 22 BWW restaurants and six Bagger Dave’s restaurants. For the three months ended March 27, 2011 ("First Quarter 2011"), revenue was generated from the operations of 21 BWW restaurants (two of which opened in February 2011) and four Bagger Dave’s restaurants (one of which opened in late February 2011).

Results of Operations for the Three Months Ended March 25, 2012 and March 27, 2011

Our operating results below are expressed as a percentage of total revenue on the basis of comparison to prior periods.

	Three Months Ended
	March 25			March 27
	2012			2011
Total revenue		100.0	%		100.0	%
Operating expenses
Restaurant operating costs:
Food, beverage, and packaging costs		31.1	%		28.2	%
Labor		24.8	%		24.9	%
Occupancy		5.2	%		5.2	%
Other operating costs		19.3	%		18.6	%
General and administrative expenses		7.2	%		7.4	%
Pre-opening costs		0.3	%		1.7	%
Depreciation and amortization		5.5	%		5.1	%
Total operating expenses		93.4	%		91.1	%
Operating profit		6.6	%		8.9	%

Total revenue for First Quarter 2012 was $17.8 million, an increase of $2.7 million or 17.6% over the $15.1 million of revenue generated during First Quarter 2011. The increase was primarily attributable to two factors. First, approximately $1.8 million of the increase was attributable to revenues generated from the opening of six restaurants in 2011 (three Bagger Dave's restaurants and three BWW restaurants) and revenues generated by one BWW restaurant that opened prior to 2011 but did not meet the criteria for same-store-sales for all or part of the three-month period. Second, the remaining $0.9 million increase was related to a 5.9% increase in same-store-sales for 18 BWW restaurants meeting our same-store-sales criteria and a 17.8% increase in same-store-sales for three Bagger Dave's restaurants meeting our same-store-sales criteria.

Our positive same-store-sales are a consequence of many factors.  Factors contributing to both our BWW and Bagger Dave's concepts include unseasonably warm weather in Michigan and price increases, which we frequently review to offset inflationary pressures.  Specific to our BWW restaurants, same-store-sales also benefited from gift card redemption and increased national advertising.  Specific to our Bagger Dave’s concept, double-digit same-store-sales was attributable to the addition of 48 seats to our Berkley, Michigan location, overall customer awareness, increased customer satisfaction due to increased market penetration, and continued improvement of the overall guest experience.

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Food, beverage, and packaging costs increased by $1.3 million or 29.8% to $5.5 million in First Quarter 2012 from $4.2 million in First Quarter 2011.  The increase was primarily due to the addition of six new restaurants.  Food, beverage, and packaging costs as a percentage of sales increased to 31.1 % in First Quarter 2012 from 28.2% in First Quarter 2011 due to the overall inflationary pressures in food costs driven by a significant increase in bone-in chicken wing costs, which contributed to approximately two-thirds of the increase as a percentage of sales.  Average cost per pound for bone-in chicken wings was $1.22 in First Quarter 2011 vs. $1.84 in First Quarter 2012.

Labor increased by $652 thousand or 17.4% to $4.4 million in First Quarter 2012 from $3.8 million in First Quarter 2011.  The increase was primarily due to the addition of six new restaurants.  Labor as a percentage of sales decreased slightly to 24.8% in First Quarter 2012 from 24.9% in First Quarter 2011.

Occupancy increased by $132 thousand or 16.8% to $915 thousand in First Quarter 2012 from $783 thousand in First Quarter 2011.  This increase was primarily due to the addition of six new stores. Occupancy as a percentage of sales remained consistent at 5.2% in the First Quarter 2012 and First Quarter 2011.

Other operating costs increased by $624 thousand or 22.3% to $3.4 million in First Quarter 2012 from $2.8 million in First Quarter 2011.  This increase was primarily due to the addition of six new stores. Other operating costs as a percentage of sales increased to 19.3% in First Quarter 2012 from 18.6% in First Quarter 2011.

General and administrative expenses increased by $158 thousand or 14.2% to $1.3 million in First Quarter 2012 from $1.1 million in First Quarter 2011.  This increase was primarily due to the addition of six new restaurants and the hiring of personnel critical to our growth.  General and administrative expenses as a percentage of sales decreased to 7.2% in First Quarter 2012 from 7.4% in First Quarter 2011 primarily due to reductions in both professional fees and targeted local-store marketing.

Pre-opening costs decreased by $206 thousand or 81.2% to $48 thousand in First Quarter 2012 from $254 thousand in First Quarter 2011.   The difference in pre-opening costs was due to the timing and overall cost to build and open new stores.  The Company did not have any new stores open in First Quarter 2012 whereas the company opened three new stores in the First Quarter 2011  Pre-opening costs as a percentage of sales decreased to 0.3% in First Quarter 2012 from 1.7% in First Quarter 2011.

Depreciation and amortization increased by $198 thousand or 25.5% to $973 thousand in First Quarter 2012 from $775 thousand in First Quarter 2011.  This increase was primarily due to the addition of six new restaurants in 2011.  Depreciation and amortization as a percentage of sales increased to 5.5% in First Quarter 2012 from 5.1% in First Quarter 2011.  The increase was attributable to the additional depreciation and amortization related to the capital assets associated with the six new restaurants opened during fiscal year 2011.

INTEREST AND TAXES

Interest expense was $312,541 and $286,810 during First Quarter 2012 and First Quarter 2011, respectively.    The increase is due to the additional borrowing for new store development since the First Quarter 2011.

For First Quarter 2012, we booked an income tax provision of $249,390 compared to First Quarter 2011 when an income tax provision of $309,988 was recorded.  The effective tax rate of income before taxes was 26.7% for First Quarter 2012 vs. 29.2% for First Quarter 2011.  

LIQUIDITY AND CAPITAL RESOURCES; EXPANSION PLANS

Our primary liquidity and capital requirements are for new restaurant construction, remodeling of existing restaurants, and other general business needs. We intend to fund up to 70% of the construction and start-up costs of future BWW and Bagger Dave’s restaurants with a $7.0 million development line of credit with RBS Charter One.  We expect to meet all remaining capital requirements from operational cash flow.  We believe that the cash flow from operations and the development line of credit will be sufficient to meet our operational funding, development and obligations for the foreseeable future. However, to provide additional certainty that our liquidity requirements will be met, we have secured a $1.0 million line of credit for working capital with RBS CharterOne.  To date, we have not drawn upon this line of credit.

Cash flow from operations for First Quarter 2012 was $1.6 million compared with $2.1 million for First Quarter 2011.

Depending on the timing of new store openings total capital expenditures for fiscal year 2012 are expected to be approximately $10.0 million, the majority of which is for new construction.  Approximately $0.4 million is for upgrading existing stores.

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Opening new restaurants is the Company’s primary use of capital and is critical to its growth.  Our completed and planned new construction for 2012 includes:

• Grandville, Michigan – Bagger Dave’s – scheduled to open in May 2012

• Bloomfield, Michigan – Bagger Dave’s – scheduled to open in August 2012

• Largo, Florida – BWW – scheduled to open in September 2012

• Holland, Michigan – Bagger Dave’s – scheduled to open in October 2012

• Detroit, Michigan – BWW – scheduled to open in December 2012

Although investments in new stores are an integral part of our strategic and capital expenditures plan, we also believe that reinvesting in existing stores is an important factor and necessary to maintain the overall positive dining experience for our guests. Depending on the age of the existing stores, upgrades range from $50 thousand on the interior to $500 thousand for a full remodel of the restaurant. Stores are typically upgraded after approximately five years of operation and fully remodeled after approximately 10 years of operation.

Mandatory Upgrades

There are no mandatory remodels for fiscal year 2012.

Discretionary Upgrades

In fiscal year 2012, the Company will invest additional capital to provide minor upgrades to a number of its existing locations, all of which will be funded by cash from operations. These improvements primarily consist of audio/visual equipment upgrades, patio upgrades and point-of-sale system upgrades.

Our Credit Facility has debt covenants that have to be met on a quarterly basis. As of March 25, 2012, we are in compliance with all of the covenants.

Item 3. Quantitative and Qualitative Disclosure About Market Risks

Not Applicable.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

We are required to maintain disclosure controls and procedures designed to ensure that material information related to us, including our consolidated subsidiaries, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

As of March 25, 2012, an evaluation was performed under the supervision of and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on that evaluation, our management, including our principal executive and principal financial officers, concluded that our disclosure controls and procedures were effective as of March 25, 2012.

(b) Changes in internal controls over financial reporting.

There were no changes in the Company’s internal control over financial reporting during the quarter ended March 25, 2012 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies that may be identified during this process.

18

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Occasionally, we are a defendant in litigation arising in the ordinary course of our business, including claims arising from personal injuries, contract claims, dram shop claims, employment-related claims, and claims from guests or employees alleging injury, illness, or other food quality, health, or operational concerns. To date, none of these types of litigation, most of which are entirely or predominantly covered by insurance, has had a material effect on our financial condition or results of operations. We have insured and continue to insure against most of these types of claims. A judgment on any claim not covered by or in excess of our insurance coverage could materially adversely affect our financial condition or results of operations.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those previously disclosed in our annual report on Form 10-K, as amended, for the year ended December 25, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits:

3.1 Certificate of Incorporation (filed as an exhibit to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on August 10, 2007, and incorporated herein by this reference).

3.2 By-Laws (filed as an exhibit to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on August 10, 2007, and incorporated herein by this reference).

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a).

31.2 Certification Chief Financial Officer pursuant to Rule 13a-14(a).

32.1 Certification Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2 Certification Chief Financial Officer pursuant to 18 U.S.C. Section 1350..

101.INS*  XBRL Instance Document

101.SCH*  XBRL Taxonomy Extension Schema Document

101.CAL*  XBRL Taxonomy Extension Calculation Document

101.DEF*  XBRL Taxonomy Extension Definition Document

101.LAB*  XBRL Taxonomy Extension Label Document

101.PRE*  XBRL Taxonomy Extension Presentation Document

* In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

19

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

	DIVERSIFIED RESTAURANT HOLDINGS, INC.
Dated:  May 9, 2012	By: /s/ T. Michael Ansley
	T. Michael Ansley President and Chief Executive Officer (Principal Executive Officer)
	By: /s/ David G. Burke
	David G. Burke Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

20

EX-31.1

Exhibit 31.1

RULE 13a-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, T. Michael Ansley, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended March 25, 2012 of Diversified Restaurant Holdings, Inc. (the "Company");

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financing reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.           The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:  May 9, 2012	DIVERSIFIED RESTAURANT HOLDINGS, INC.
	By:	/s/ T. Michael Ansley
		T. Michael Ansley Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

RULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, David G. Burke, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended March 25, 2012 of Diversified Restaurant Holdings, Inc. (the "Company");

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financing reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.           The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:  May 9, 2012	DIVERSIFIED RESTAURANT HOLDINGS, INC.
	By:	/s/ David G. Burke
		David G. Burke Treasurer and Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form Q (“Quarterly Report”) of Diversified Restaurant Holdings, Inc. (the "Company") for the fiscal quarter ended March 25, 2012, I, T. Michael Ansley, Chairman of the Board of Directors and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

1. The Quarterly Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  May 9, 2012	DIVERSIFIED RESTAURANT HOLDINGS, INC.
	By:	/s/ T. Michael Ansley
		T. Michael Ansley Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form Q (“Quarterly Report”) of Diversified Restaurant Holdings, Inc. (the "Company") for the fiscal quarter ended March 25, 2012, I, David G. Burke, Treasurer and Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

1. The Quarterly Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  May 9, 2012	DIVERSIFIED RESTAURANT HOLDINGS, INC.
	By:	/s/ David G. Burke
		David G. Burke Treasurer and Chief Financial Officer (Principal Financial Officer)

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Note 3. Property and Equipment

3 Months Ended

Mar. 25, 2012

Property, Plant and Equipment Disclosure [Text Block]

3.           PROPERTY AND EQUIPMENT

Property and equipment are comprised of the following assets:

	March 25 2012		December 25 2011
Land	$	469,680	$	469,680
Land (restricted assets of VIE)		520,000		520,000
Building		2,745,296		2,745,296
Building (restricted assets of VIE)		1,570,967		1,570,967
Equipment		10,279,686		10,596,964
Furniture and fixtures		3,577,935		3,060,014
Leasehold improvements		19,240,141		19,148,471
Restaurant construction in progress		403,244		-
Total		38,806,949		38,111,392
Less accumulated depreciation		(14,911,275)		(13,955,881	)
Less accumulated depreciation attributable to restricted assets of VIE		(640,979)		(633,197	)
Property and equipment, net	$	23,254,695	$	23,522,314

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Note 2. Significant Business Transactions

3 Months Ended

Mar. 25, 2012

Schedule Of Significant Business Transactions [Text Block]

2.           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 new $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 used 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 April 2, 2012, the Company, together with its wholly-owned subsidiaries, entered into a $16 million senior secured term loan (“2012 Term Loan”), secured by a senior lien on all Company assets.  The Company will use approximately $15.7 million of the 2012 Term Loan to repay substantially all of its outstanding senior debt and interest rate swap liabilities and the remaining $0.3 million for working capital.  See Note 6 for additional information on the 2012 Term Loan.

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Consolidated Balance Sheets (Unaudited) (USD $)	Mar. 25, 2012	Dec. 25, 2011
Current assets
Cash and cash equivalents	$ 2,150,576	$ 1,537,497
Accounts receivable - other	8,809	20,497
Inventory	553,005	601,765
Prepaid assets	197,764	207,608
Total current assets	2,910,154	2,367,367
Deferred income taxes	88,530	272,332
Property and equipment, net - restricted assets of VIE	1,449,988	1,457,770
Property and equipment, net	21,804,707	22,064,544
Intangible assets, net	1,117,355	1,113,997
Other long-term assets	74,099	74,389
Total assets	27,444,833	27,350,399
Current liabilities
Accounts payable	1,096,288	1,682,462
Accrued compensation	979,734	760,548
Other accrued liabilities	690,549	649,784
Current portion of long-term debt (including VIE debt of $89,414)	2,979,397	2,967,135
Current portion of deferred rent	177,387	180,480
Total current liabilities	5,923,355	6,240,409
Deferred rent, less current portion	1,712,135	1,750,017
Other liabilities - interest rate swap	593,310	613,999
Long-term debt, less current portion (including VIE debt of $1,117,670 and $1,140,025, respectively)	16,612,084	16,841,355
Total liabilities	24,840,884	25,445,780
Stockholders' equity
Common stock - $0.0001 par value; 100,000,000 shares authorized; 18,956,100 and 18,936,400 shares, respectively, issued and outstanding	1,888	1,888
Additional paid-in capital	2,824,209	2,771,077
Retained earnings (accumulated deficit)	(607,443)	(1,253,831)
Total DRH stockholders' equity	2,218,654	1,519,134
Noncontrolling interest in VIE	385,295	385,485
Total stockholders' equity	2,603,949	1,904,619
Total liabilities and stockholders' equity	$ 27,444,833	$ 27,350,399

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	3 Months Ended
	Mar. 25, 2012	Mar. 27, 2011
Cash flows from operating activities
Net income	$ 686,198	$ 752,741
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	973,058	775,361
Loss on disposal of property and equipment		23,875
Share-based compensation	53,132	21,981
Change in fair value of derivative instruments	(20,689)	5,840
Deferred income taxes	183,802	277,281
Changes in operating assets and liabilities that provided (used) cash
Accounts receivable - other	11,688	(57,307)
Inventory	48,760	(40,725)
Prepaid assets	9,844	83,002
Other current assets		43,348
Intangible assets	(12,949)	(77,866)
Other long-term assets	290	10,308
Accounts payable	(586,174)	(172,399)
Accrued liabilities	259,951	374,476
Deferred rent	(40,975)	109,697
Net cash provided by operating activities	1,565,936	2,129,613
Cash flows from investing activities
Purchases of property and equipment	(695,848)	(2,558,994)
Net cash used in investing activities	(695,848)	(2,558,994)
Cash flows from financing activities
Proceeds from issuance of long-term debt	440,641	1,740,906
Repayments of long-term debt	(657,650)	(491,013)
Distributions	(40,000)	(40,000)
Net cash provided by (used in) financing activities	(257,009)	1,209,893
Net increase in cash and cash equivalents	613,079	780,512
Cash and cash equivalents, beginning of period	1,537,497	1,358,381
Cash and cash equivalents, end of period	$ 2,150,576	$ 2,138,893

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Note 1. Business and Summary of Significant Accounting Policies

3 Months Ended

Mar. 25, 2012

Significant Accounting Policies [Text Block]

1.           BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

DRH created the Bagger Dave’s concept, brand, menu, and business plan throughout 2006 and 2007 and launched its first store in January 2008. DRH received licensing approval to franchise Bagger Dave's in the states of Michigan, Ohio, Indiana, Illinois, Wisconsin, Kentucky, and Missouri in 2010. The Company doubled the number of Bagger Dave’s stores in 2011 and, as of May 9, 2012, there were six Bagger Dave’s restaurants operating in the Greater Detroit region of Michigan with three additional restaurants under development. In November 2011, DRH executed its first area development agreement to franchise six stores in the Midwest. The first franchised unit is scheduled to open in mid 2012. For more information, please visit www.baggerdaves.com.

DRH is also a leading BWW franchisee and, as of May 9, 2012, operated 22 BWW restaurants (14 in Michigan and eight in Florida), with two under construction in Detroit, Michigan and Largo, Florida. Mr. Ansley opened his first affiliated BWW in December 1999 and, since then, has received numerous awards from Buffalo Wild Wings, Inc. ("BWWI") including awards for the Highest Annual Restaurant Sales in 2004, 2005, and 2006, and in September 2007, Mr. Ansley was awarded Franchisee of the Year by the International Franchise Association ("IFA"). The IFA's membership consists of over 12,000 franchisee members and over 1,000 franchisor members. DRH remains on track to fulfill its Area Development Agreement, which requires a total of 32 BWW restaurants by 2017, or an additional 16 more restaurants over the next five years.

The following organizational chart outlines the corporate structure of DRH and its wholly-owned subsidiaries, all of which are wholly-owned by the Company.  A brief textual description of the entities follows the organizational chart.  

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

WINGS was formed on March 12, 2007 and serves as a holding company for its BWW restaurants.  WINGS, through its subsidiaries, holds 22 BWW restaurants that are currently in operation.

WINGS was formed on March 12, 2007 and serves as a holding company for its BWW restaurants. The Company is economically dependent on retaining its franchise rights with 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 the duration of its initial term. The franchise agreements are renewable at the option of the franchisor and are generally renewable if the franchisee has complied with the franchise agreement. When factoring in any applicable renewals, the franchise agreements have specific expiration dates ranging from January 29, 2019 through March 25, 2046. The Company believes it is in compliance with the terms of these agreements at March 25, 2012.  The Company is under contract with BWWI to enter into 14 additional franchise agreements by 2017 (see Note 10 for details).  

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

Principles of Consolidation

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

We consolidate all variable-interest entities (VIEs) 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 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 March 25, 2012 and December 25, 2011, and for the three-month periods ended March 25, 2012 and March 27, 2011, have been prepared by the Company pursuant to accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial information as of March 25, 2012 and for the three-month period ended March 25, 2012 and March 27, 2011 is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods.

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

The results of operations for the three-month period ended March 25, 2012 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 30, 2012.

Fiscal Year

The Company utilizes a 52- or 53-week accounting period that ends on the last Sunday in December. This quarterly report on Form 10-Q is for the three-month period ended March 25, 2012 and March 27, 2011, each comprising 13 weeks.

Concentration Risks

Approximately 75% and 76% of the Company's revenues during the three months ended March 25, 2012 and March 27, 2011, respectively, are generated from food and beverage sales from restaurants located in Michigan.

Use of Estimates

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

Interest Rate Swap Agreements

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

 The 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. See Note 6 and Note 12 for additional information on the interest rate swap agreements.  

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05 “Presentation of Comprehensive Income.” ASU 2011-05 amended ASC 220 “Comprehensive Income” to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The guidance requires entities to report the components of comprehensive income in either a single, continuous statement or two separate but consecutive statements. We adopted this guidance effective March 25, 2012 and the adoption did not have an impact to our consolidated financial statements for the period ending March 25, 2012. As a result of the Company’s April 2, 2012 debt restructure, this pronouncement will impact our financial reporting beginning with the period ending June 24, 2012.  

Reclassifications

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

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Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)	Mar. 25, 2012	Dec. 25, 2011
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	18,956,100	18,936,400
Common stock, shares outstanding	18,956,100	18,936,400
Current Debt [Member]
VIE debt (in Dollars)	$ 89,414	$ 89,414
Noncurrent Debt [Member]
VIE debt (in Dollars)	$ 1,117,670	$ 1,140,025

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Note 11. Supplemental Cash Flows Information

3 Months Ended

Mar. 25, 2012

Cash Flow, Supplemental Disclosures [Text Block]

11.            SUPPLEMENTAL CASH FLOWS INFORMATION

Other Cash Flows Information

Cash paid for interest was $260,930 and $250,968 during the three-month period ended March 25, 2012 and March 27, 2011, respectively.

Cash paid for income taxes was $128,000 and $37,943 during the three-month period ended March 25, 2012 and March 27, 2011, respectively.

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Document And Entity Information	3 Months Ended
	Mar. 25, 2012	May 09, 2012
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		18,956,100
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	Mar. 25, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1

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Note 12. Fair Value of Financial Instruments

3 Months Ended

Mar. 25, 2012

Fair Value Disclosures [Text Block]

12.           FAIR VALUE OF FINANCIAL INSTRUMENTS

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

●	Level 1	Quoted market prices in active markets for identical assets and liabilities;
●	Level 2	Inputs, other than level 1 inputs, either directly or indirectly observable; and
●	Level 3	Unobservable inputs developed using internal estimates and assumptions (there is little or no market data) which reflect those that market participants would use.

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

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

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

The following table presents the fair values for those assets and liabilities measured on a recurring basis as of March 25, 2012:

FAIR VALUE MEASUREMENTS
											Asset/(Liability)
Description	Level 1		Level 2			Level 3		Total			Total
Interest Rate Swaps	$	—	$	(593,310	)	$	—	$	(593,310	)	$	(593,310	)

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

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

As of March 25, 2012, our total debt, less related party debt, was approximately $17.2 million and had a fair value of approximately $14.6 million. As of December 25, 2011, our total debt, less related party debt, was approximately $17.3 million and had a fair value of approximately $15.2 million. Related party debt at March 25, 2012 was approximately $2.5 million and had a fair value of approximately $2.4 million.  Related party debt as of December 25, 2011 was approximately $2.5 million and had a fair value of approximately $2.6 million.  The Company estimates the fair value of its fixed-rate debt using discounted cash flow analysis based on the Company’s incremental borrowing rate.

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Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended
	Mar. 25, 2012	Mar. 27, 2011
Revenue
Food and beverage sales	$ 17,749,818	$ 15,094,616
Total revenue	17,749,818	15,094,616
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage, and packaging	5,517,972	4,251,632
Labor	4,405,434	3,753,672
Occupancy	915,119	783,445
Other operating costs	3,422,179	2,797,944
General and administrative expenses	1,274,518	1,116,062
Pre-opening costs	47,871	254,136
Depreciation and amortization	973,058	775,361
Total operating expenses	16,556,151	13,732,252
Operating profit	1,193,667	1,362,364
Change in fair value of derivative instruments	20,689	(5,840)
Interest expense	(312,541)	(286,810)
Other income (expense), net	33,773	(6,985)
Income before income taxes	935,588	1,062,729
Income tax provision	249,390	309,988
Net income	686,198	752,741
Less: Income attributable to noncontrolling interest	(39,810)	(38,500)
Net income attributable to DRH	$ 646,388	$ 714,241
Basic earnings per share (in Dollars per share)	$ 0.03	$ 0.04
Fully diluted earnings per share (in Dollars per share)	$ 0.03	$ 0.04
Weighted average number of common shares outstanding
Basic (in Shares)	18,941,708	18,876,000
Diluted (in Shares)	19,044,287	19,063,203

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Note 6. Long-Term Debt

3 Months Ended

Mar. 25, 2012

Long-term Debt [Text Block]

6.           LONG-TERM DEBT

Long-term debt consists of the following obligations:

	March 25 2012			December 25 2011
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $113,000 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 7.10%.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer below for further details.	$	7,049,910		$	7,326,128
Note payable to a bank secured by a senior mortgage on the Brandon Property and a personal guaranty. Scheduled monthly principal and interest payments are approximately $8,000 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).		1,117,469			1,122,413
Note payable to a bank secured by a junior mortgage on the Brandon Property. Matures in 2030 and requires monthly principal and interest installments of approximately $6,300 until maturity. Interest is charged at a rate of 3.58% per annum.		874,416			882,769
Note payable to a bank, secured by a senior lien on all company assets. Scheduled interest payments are charged at a rate of 3% over the 30-day LIBOR (the rate at March 25, 2012 was approximately 3.24%). In November 2011, a DLOC converted into this term loan. The monthly interest payment approximates $2,700. The note will mature in May 2017. The DLOC includes a carrying cost of .25% per year of any available but undrawn amounts.		1,470,692			1,030,052
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $19,500 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 5.91%.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer below for further details.		1,149,133			1,195,853
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $40,000 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 6.35%.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer below for further details.		2,503,166			2,602,375
Note payable to a bank secured by a senior lien on all company assets. Scheduled monthly principal and interest payments are approximately $24,500 through maturity in May 2017. Interest is charged based on a swap arrangement designed to yield a fixed annual rate of 6.35%.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer below for further details.		1,616,143			1,676,000
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.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer below for further details.		229,357			231,940
Note payable to Ford Credit secured by a vehicle purchased by Flyer Enterprises, Inc. to be used in the operation of the business. This is an interest-free loan under a promotional 0% rate. Scheduled monthly principal payments are approximately $430. The note matures in April 2013.		5,576			6,864
Notes payable – variable interest entity. Note payable to a bank secured by a senior mortgage on the property located at 15745 Fifteen Mile Road, Clinton Township, Michigan 48035, a DRH corporate guaranty, and a personal guaranty. Scheduled monthly principal and interest payments are approximately $12,500 through maturity in 2025. Interest is charged at a rate of 4% over the 30-day LIBOR (the rate at March 25, 2012 was approximately 4.24%).		1,207,084			1,229,439
Notes payable – related parties		2,368,535			2,504,657
Total long-term debt		19,591,481			19,808,490
Less current portion (includes VIE debt of $89,414)		(2,979,397	)		(2,967,135	)
Long-term debt, net of current portion	$	16,612,084		$	16,841,355

On April 2, 2012, the Company, together with its wholly-owned subsidiaries, entered into a $16 million senior secured term loan (“2012 Term Loan”), secured by a senior lien on all Company assets. The Company will use approximately $15.7 million of the 2012 Term Loan to repay substantially all of its outstanding senior debt and interest rate swap liabilities and the remaining $0.3 million for working capital. The 2012 Term Loan is for a term of seven years and bears interest at one-month LIBOR plus a LIBOR Margin (as defined in the agreement) which ranges from 2.50% to 3.40%, depending on the Company’s lease adjusted leverage ratio. Simultaneously, the Company entered into an interest rate swap agreement to fix the interest on the 2012 Term Loan. The notional amount of the swap agreement is $16 million at inception and amortizes to $0 at maturity in March 2019. Under the swap agreement, the Company pays a fixed rate of 1.41% and receives interest at the one-month LIBOR. Principal and interest payments on the 2012 Term Loan are amortized over seven years, with monthly principal payments of approximately $190 thousand plus accrued interest.

Scheduled principal maturities of long-term debt for each of the five years succeeding March 25, 2012, and thereafter, are summarized as follows, both based on the long-term debt terms that existed at March 25, 2012 and taking into account the 2012 Term Loan:

Year	Amount Based on March 25, 2012 Terms		Amount Revised for April 2, 2012 Term Loan
2013	$	2,979,397	$	2,434,861
2014		3,193,401		2,638,833
2015		3,139,900		2,641,228
2016		3,251,032		2,644,014
2017		2,978,215		2,647,336
Thereafter		4,049,536		7,668,962
Total	$	19,591,481	$	20,675,234

Interest expense was $312,541 and $286,810 (including related party interest expense of $42,131 and $57,080) for the three months ended March 25, 2012 and March 27, 2011, respectively.  

The above agreements contain various customary financial covenants generally based on the performance of the specific borrowing entity and other related entities.  The more significant covenants consist of a minimum debt service coverage ratio and a maximum lease adjusted leverage ratio, both of which we are in compliance with as of March 25, 2012.

At March 25, 2012, the Company had three interest rate swap agreements to fix interest rates on a portion of the Company’s portfolio of variable rate debt.  The notional amounts on the swaps combined are $10,702,209 as of March 25, 2012 and amortize down to $0 through their maturity in May 2017.  Under the swap agreements, the Company pays a fixed rate of 3.1% (notional amount of $7,049,910), 1.91% (notional amount of $1,149,133), and 2.35% (notional amount of $2,503,166), respectively.  The Company receives interest at the one-month LIBOR under all three agreements.  In conjunction with the 2012 Term Loan, these swaps were terminated and the outstanding fair value liability on April 2, 2012 of $657,359 was rolled into the 2012 Term Loan balance and is included in the above debt maturities schedule.

The fair value liabilities of the swap agreements were $593,310 and $613,999 at March 25, 2012 and December 25, 2011, respectively.  The increase in fair value liability of the swap agreements was $20,689 for the three months ended March 25, 2012 and the decrease in fair value liability of the swap was $5,840 for the three months ended March 27, 2011 and is recorded in the consolidated statements of operations.

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Note 5. Related Party Transactions

3 Months Ended

Mar. 25, 2012

Related Party Transactions Disclosure [Text Block]

5.           RELATED PARTY TRANSACTIONS

The 2010 acquisition of certain affiliates was accomplished by issuing unsecured promissory notes to each selling shareholder that bear interest at 6% per year, mature on February 1, 2016, and are payable in quarterly installments of approximately $157,000, with principal and interest fully amortized over six years.  The outstanding balance on the notes is $2,118,535 and $2,254,657 at March 25, 2012 and December 25, 2011, respectively.  These notes were repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer to Note 6 for further details.

Fees for monthly accounting and financial statement compilation services are paid to an entity owned by a director and stockholder of the Company. Fees paid during the three months ended March 25, 2012 and March 27, 2011, respectively, were $92,847 and $69,355.

Current debt (see Note 6) also includes a promissory note to a DRH stockholder in the amount of $250,000 at March 25, 2012 and March 27, 2011.  The note is a demand note that does not require principal or interest payments.  Interest is accrued at 8% per annum and is compounded quarterly.  The Company has 180 days from the date of demand to pay the principal and accrued interest.  This note was repaid in full in conjunction with the 2012 Term Loan effective April 2, 2012; refer to Note 6 for further details.

See Note 9 for related party operating lease transactions.

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Note 9. Operating Leases (Including Related Party)

3 Months Ended

Mar. 25, 2012

Operating Leases of Lessee Disclosure [Table Text Block]

9.           OPERATING LEASES (INCLUDING RELATED PARTY)

Lease terms range from four to 15 years, generally include renewal options, and frequently require us 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 $713,843 and $613,311 for the three-month period ended March 25, 2012 and March 27, 2011, respectively (of which $23,358 and $20,872, respectively, were paid to a related party).  

Scheduled future minimum lease payments for each of the five years and thereafter for non-cancelable operating leases with initial or remaining lease terms in excess of one year at March 25, 2012 are summarized as follows:

Year	Amount
2013	$	3,063,935
2014		3,132,196
2015		2,857,526
2016		2,667,630
2017		2,321,037
Thereafter		6,418,024
Total	$	20,460,348

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Note 7. Capital Stock (Including Purchase Warrants and Options)

3 Months Ended

Mar. 25, 2012

Stockholders' Equity Note Disclosure [Text Block]

7.           CAPITAL STOCK (INCLUDING PURCHASE WARRANTS AND OPTIONS)

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

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

	Number of Restricted Stock Shares
Unvested, December 25, 2011		60,400
Granted		20,000
Vested		0
Expired/Forfeited		(300	)
Unvested, March 25, 2012		80,100

Under the Stock Incentive Plan, there are 669,900 shares available for future awards.

On July 30, 2007, DRH granted options for the purchase of 150,000 shares of common stock to the directors of the Company. These options vest ratably over a three-year period and expire six years from issuance. At March 25, 2012, these options are fully vested and can be exercised at a price of $2.50 per share.

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

Stock-based compensation of $53,132 and $21,981 was recognized, during the three-month period ended March 25, 2012 and March 27, 2011, 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 March 25, 2012.  The fair value of stock options is estimated using the Black-Scholes model.  The fair value of unvested shares is $109,907 as of March 25, 2012.  The fair value of the unvested shares will be amortized ratably over the remaining vesting term.  The valuation methodology used an assumed term based upon the stated term of three years and a risk-free rate of return represented by the U.S. 5-year Treasury Bond rate and volatility factor based on guidance as defined in FASB ASC 718, Compensation–Stock Compensation.  A dividend yield of 0% was used because the Company has never paid a dividend and does not anticipate paying dividends in the reasonably foreseeable future. 

In October 2009, one member of the Board of Directors exercised 6,000 vested options at a price of $2.50 per share.  Consequently, at March 25, 2012, 354,000 shares of authorized common stock are reserved for issuance to provide for the exercise of the Company’s stock options.

The Company has authorized 10,000,000 shares of preferred stock at a par value of $0.0001.  No preferred shares are issued or outstanding as of March 25, 2012.  Any preferences, rights, voting powers, restrictions, dividend limitations, qualifications, and terms and conditions of redemption shall be set forth and adopted by a Board of Directors' resolution prior to issuance of any series of preferred stock.

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Note 8. Income Taxes

3 Months Ended

Mar. 25, 2012

Income Tax Disclosure [Text Block]

8.           INCOME TAXES

The provision for income taxes consists of the following components for the three-month period ended March 25, 2012 and March 27, 2011, respectively:

	Three Months Ended
	March 25 2012			March 27 2011
Federal
Current	$	-		$	-
Deferred		217,706			223,988
State
Current		65,588			32,707
Deferred		(33,904	)		53,293
Income tax provision	$	249,390		$	309,988

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

	March 25 2012			March 27 2011
Income tax provision at federal statutory rate	$	318,095		$	350,733
State income tax provision		31,684			86,000
Permanent differences		39,201			37,707
Tax credits		(139,590	)		(105,629	)
Other		-			(58,823	)
Income tax provision	$	249,390		$	309,988

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:

	March 25 2012		December 25 2011
Deferred tax assets:
Net operating loss carry forwards	$	1,294,667	$	1,861,906
Deferred rent expense		34,010		50,471
Start-up costs		234,363		135,535
Tax credit carry forwards		1,229,151		1,089,561
Other		414,134		393,713
Total deferred tax assets		3,206,325		3,531,186
Deferred tax liabilities:
Tax depreciation in excess of book		3,117,795		3,258,854
Total deferred tax liabilities		3,117,795		3,258,854
Net deferred income tax assets	$	88,530	$	272,332

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

The Company expects to use net operating loss and general business tax credit 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 $931,552, $28,611, $1,696,500, and $544,711 will expire in 2031, 2030, 2029 and 2028, respectively.  General business tax credits of $139,590, $561,396, $335,621, $86,678, $59,722, and $46,144 will expire in 2032, 2031, 2030, 2029, 2028 and 2027, respectively.

The Company applies the provisions of ASC 740 regarding the accounting for uncertainty in income taxes.  There are no amounts recorded on the Company's consolidated financial statements for uncertain positions.  The Company classifies all interest and penalties as income tax expense.  There are no accrued interest amounts or penalties related to uncertain tax positions as of March 25, 2012.

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

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Note 10. Commitments and Contingencies

3 Months Ended

Mar. 25, 2012

Commitments and Contingencies Disclosure [Text Block]

10.           COMMITMENTS AND CONTINGENCIES

The Company assumed, from a related entity, an "Area Development Agreement" with BWWI in which the Company undertakes to open 23 BWW restaurants within its designated "development territory", as defined by the agreement, by October 1, 2016.  On December 12, 2008, this agreement was amended, adding nine additional restaurants and extending the date of fulfillment to March 1, 2017.  Failure to develop restaurants in accordance with the schedule detailed in the agreement could lead to potential penalties of $50,000 for each undeveloped restaurant, payment of the initial franchise fees for each undeveloped restaurant, and loss of rights to development territory.  As of March 25, 2012, of the 32 restaurants required to be opened under the Area Development Agreement, 16 of these restaurants had been opened for business.  An additional six restaurants not part of this Area Development Agreement were also opened for business as of March 25, 2012. 

The Company is required to pay BWWI royalties (5% of net sales) and advertising fund contributions (3% of net sales) for the term of the individual franchise agreements.  The Company incurred $780,186 and $700,964 in royalty expense for the three-month period ended March 25, 2012 and March 27, 2011, respectively.  Advertising fund contribution expenses were $461,660 and $416,040 for the three-month period ended March 25, 2012 and March 27, 2011, respectively.

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

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

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Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) (USD $)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Noncontrolling Interest [Member]	Total
Balances - December 26, 2010 at Dec. 26, 2010	$ 1,888	$ 2,631,304	$ (3,096,017)	$ 338,640	$ (124,185)
Balances - December 26, 2010 (in Shares) at Dec. 26, 2010	18,876,000
Issuance of restricted shares (in Shares)	60,400
Share-based compensation		139,773			139,773
Net income			1,842,186	153,845	1,996,031
Distributions from noncontrolling interest				(107,000)	(107,000)
Balance at Dec. 25, 2011	1,888	2,771,077	(1,253,831)	385,485	1,904,619
Balance (in Shares) at Dec. 25, 2011	18,936,400				18,936,400
Issuance of restricted shares (in Shares)	20,000
Forfeitures of restricted shares (in Shares)	(300)
Share-based compensation		53,132			53,132
Net income			646,388	39,810	686,198
Distributions from noncontrolling interest				(40,000)	(40,000)
Balance at Mar. 25, 2012	$ 1,888	$ 2,824,209	$ (607,443)	$ 385,295	$ 2,603,949
Balance (in Shares) at Mar. 25, 2012	18,956,100				18,956,100

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Note 4. Intangibles

3 Months Ended

Mar. 25, 2012

Intangible Assets Disclosure [Text Block]

4.           INTANGIBLES

 Intangible assets are comprised of the following:

	March 25 2012			December 25 2011
Amortized intangibles:
Franchise fees	$	303,750		$	303,750
Trademark		49,138			30,852
Loan fees		164,429			164,429
Total		517,317			499,031
Less accumulated amortization		(121,862	)		(112,271	)
Amortized intangibles, net		395,455			386,760
Unamortized intangibles:
Liquor licenses		721,900			727,237
Total intangibles, net	$	1,117,355		$	1,113,997

Amortization expense for the three months ended March 25, 2012 and March 27, 2011 was $9,591 and $9,726, respectively.  Based on the current intangible assets and their estimated useful lives, amortization expense for fiscal years 2012, 2013, 2014, 2015, and 2016 is projected to total approximately $37,600 per year.