DIVERSIFIED RESTAURANT HOLDINGS, INC., 10-Q filed on 5/9/2018
Quarterly Report
v3.8.0.1
Document And Entity Information - shares
3 Months Ended
Apr. 01, 2018
May 08, 2018
Document and Entity Information [Abstract]    
Entity Registrant Name Diversified Restaurant Holdings, Inc.  
Document Type 10-Q  
Current Fiscal Year End Date --12-30  
Entity Common Stock, Shares Outstanding   26,922,389
Amendment Flag false  
Entity Central Index Key 0001394156  
Entity Filer Category Smaller Reporting Company  
Document Period End Date Apr. 01, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
v3.8.0.1
Consolidated Balance Sheets (Unaudited) - USD ($)
Apr. 01, 2018
Dec. 31, 2017
Current assets    
Cash and cash equivalents $ 4,468,997 $ 4,371,156
Accounts receivable 294,935 653,102
Inventory 1,594,300 1,591,363
Prepaid and other assets 445,444 408,982
Total current assets 6,803,676 7,024,603
Property and equipment, net 45,314,523 48,014,043
Intangible assets, net 2,391,470 2,438,187
Goodwill 50,097,081 50,097,081
Other long-term assets 487,574 185,322
Total assets 105,094,324 107,759,236
Current liabilities    
Accounts payable 3,188,283 4,561,939
Accrued compensation 2,588,593 1,854,127
Other accrued liabilities 2,871,373 2,404,942
Current portion of long-term debt 11,505,571 11,440,433
Current portion of deferred rent 413,049 411,660
Total current liabilities 20,566,869 20,673,101
Deferred rent, less current portion 2,205,505 2,208,238
Deferred income taxes 2,481,462 2,759,870
Unfavorable operating leases 490,865 510,941
Other long-term liabilities 1,872,428 2,346,991
Long-term debt, less current portion 99,595,544 102,488,730
Total liabilities 127,212,673 130,987,871
Commitments and contingencies (Notes 3, 10 and 11)
Stockholders' deficit    
Common stock - $0.0001 par value; 100,000,000 shares authorized; 27,136,514 and 26,859,125, respectively, issued and outstanding 2,643 2,625
Additional paid-in capital 21,986,499 21,776,402
Accumulated other comprehensive income (loss) 425,134 (283,208)
Accumulated deficit (44,532,625) (44,724,454)
Total stockholders' deficit (22,118,349) (23,228,635)
Total liabilities and stockholders' deficit $ 105,094,324 $ 107,759,236
v3.8.0.1
Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares
Apr. 01, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
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 27,136,514 26,859,125
Common stock, shares outstanding 27,136,514 26,859,125
v3.8.0.1
Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($)
3 Months Ended
Apr. 01, 2018
Mar. 26, 2017
Statement of Comprehensive Income [Abstract]    
Net income $ 191,829 $ 831,120
Other comprehensive income    
Unrealized changes in fair value of interest rate swaps, net of tax of ($23,015) and ($84,714), respectively. 708,342 164,444
Total other comprehensive income 708,342 164,444
Comprehensive income $ 900,171 $ 995,564
v3.8.0.1
Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended
Apr. 01, 2018
Mar. 26, 2017
Income Statement [Abstract]    
Revenue $ 39,532,957 $ 44,337,964
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):    
Food, beverage, and packaging costs 11,132,377 13,038,426
Compensation costs 10,164,655 10,965,530
Occupancy costs 2,943,840 2,893,852
Other operating costs 8,393,955 9,029,876
General and administrative expenses 2,221,969 2,356,966
Pre-opening costs 0 31,370
Depreciation and amortization 3,166,500 3,633,254
Loss on asset disposal (5,851) (22,059)
Total operating expenses 38,029,147 41,971,333
Operating profit 1,503,810 2,366,631
Interest expense (1,646,044) (1,575,954)
Other income, net 32,640 27,167
Income (loss) from continuing operations before income taxes (109,594) 817,844
Income tax benefit (expense) of continuing operations 301,423 (22,264)
Income from continuing operations 191,829 795,580
Income from discontinued operations before income taxes 0 36,535
Income tax expense of discontinued operations 0 (995)
Income from discontinued operations 0 35,540
Net income $ 191,829 $ 831,120
Basic earnings per share from:    
Basic earnings (loss) per share from continuing operations (in dollars per share) $ 0.01 $ 0.03
Basic earnings (loss) per share from discontinued operations (in dollars per share) 0.00 0.00
Basic net earnings per share (in dollars per share) 0.01 0.03
Diluted earnings per share from:    
Diluted earnings (loss) per share from continuing operations (in dollars per share) 0.01 0.03
Diluted earnings (loss) per share from discontinued operations (in dollars per share) 0.00 0.00
Diluted net earnings per share (in dollars per share) $ 0.01 $ 0.03
Weighted average number of common shares outstanding    
Basic (in shares) 26,853,724 26,629,974
Diluted (in shares) 26,853,724 26,629,974
v3.8.0.1
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parentheticals) - USD ($)
3 Months Ended
Apr. 01, 2018
Mar. 26, 2017
Statement of Comprehensive Income [Abstract]    
Unrealized changes in fair value of interest rate swaps, tax $ (23,015) $ (84,714)
v3.8.0.1
Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)
Total
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Retained Earnings
Balance (in shares) at Dec. 25, 2016   26,632,222      
Balance at Dec. 25, 2016 $ (4,110,720) $ 2,610 $ 21,355,270 $ (934,222) $ (24,534,378)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Forfeitures of restricted shares (in shares)   (1,000)      
Employee stock purchase plan (in shares)   5,124      
Employee stock purchase plan 11,498 $ 1 11,497    
Share-based compensation 123,082   123,082    
Other comprehensive income 164,444     164,444  
Adoption of ASU 2016-09 (Note 1) 268,000       268,000
Net income from continuing operations 795,580       795,580
Net income from discontinued operations 35,540       35,540
Balance at Mar. 26, 2017 $ (2,712,576) $ 2,611 21,489,849 (769,778) (23,435,258)
Balance (in shares) at Mar. 26, 2017   26,636,346      
Balance (in shares) at Dec. 31, 2017 26,859,125 26,859,125      
Balance at Dec. 31, 2017 $ (23,228,635) $ 2,625 21,776,402 (283,208) (44,724,454)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Issuance of restricted shares (in shares)   216,500      
Forfeitures of restricted shares (in shares)   (4,585)      
Shares effectively repurchased for required employee withholding taxes (in shares)   (29,924)      
Shares effectively repurchased for required employee withholding taxes (43,617) $ (3) (43,614)    
Employee stock purchase plan (in shares)   14,374      
Employee stock purchase plan 18,974 $ 1 18,973    
Share-based compensation (in shares)   81,024      
Share-based compensation 234,758 $ 20 234,738    
Other comprehensive income 708,342     708,342  
Net income from continuing operations 191,829       191,829
Net income from discontinued operations 0        
Balance at Apr. 01, 2018 $ (22,118,349) $ 2,643 $ 21,986,499 $ 425,134 $ (44,532,625)
Balance (in shares) at Apr. 01, 2018 27,136,514 27,136,514      
v3.8.0.1
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Apr. 01, 2018
Mar. 26, 2017
Net income    
Net income $ 191,829 $ 831,120
Net income from discontinued operations 0 35,540
Net income from continuing operations 191,829 795,580
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation and amortization 3,166,500 3,633,254
Amortization of debt discount and loan fees 72,434 52,443
Amortization of gain on sale-leaseback (31,959) (34,794)
Loss on asset disposal (5,851) (22,059)
Share-based compensation 234,758 123,082
Deferred income taxes (301,423) 23,259
Changes in operating assets and liabilities that provided (used) cash    
Accounts receivable 358,167 187,782
Inventory (2,937) 69,039
Prepaid and other assets 36,462 (313,204)
Intangible assets (20,076) (18,915)
Other long-term assets 0 2,084
Accounts payable (1,325,034) (208,157)
Accrued liabilities 1,187,397 (577,438)
Deferred rent (1,344) 23,353
Net cash provided by operating activities of continuing operations 3,497,701 4,405,835
Net cash provided by operating activities of discontinued operations 0 35,540
Net cash provided by operating activities 3,497,701 4,441,375
Cash flows from investing activities    
Purchases of property and equipment (496,061) (1,430,201)
Net cash used in investing activities (496,061) (1,430,201)
Cash flows from financing activities    
Proceeds from issuance of long-term debt 0 1,217,621
Repayments of long-term debt (2,879,156) (2,879,156)
Proceeds from employee stock purchase plan 18,974 11,498
Tax withholdings for restricted stock units (43,617) 0
Net cash used in financing activities (2,903,799) (1,650,037)
Net increase in cash and cash equivalents 97,841 1,361,137
Cash and cash equivalents, beginning of period 4,371,156 4,021,126
Cash and cash equivalents, end of period $ 4,468,997 $ 5,382,263
v3.8.0.1
Business and Summary of Significant Accounting Policies
3 Months Ended
Apr. 01, 2018
Accounting Policies [Abstract]  
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION

Nature of Business

Diversified Restaurant Holdings, Inc. (“DRH” or the "Company") is a restaurant company operating a single concept, Buffalo Wild Wings® (“BWW”). As one of the largest franchisees of BWW, we provide a unique guest experience in a casual and inviting environment.

DRH currently operates 65 BWW restaurants (20 in Michigan, 18 in Florida, 15 in Missouri, 7 in Illinois and 5 in Indiana), including the nation’s largest BWW, based on square footage, in downtown Detroit, Michigan.

On December 25, 2016, the Company completed a spin-off (the "Spin-Off") of 19 Bagger Dave's entities and certain real estate entities which house the respective Bagger Dave's entities previously owned by DRH into a new independent publicly traded company, Bagger Dave's Burger Tavern, Inc. ("Bagger Dave's"). For additional details refer to Note 2

Basis of Presentation

The consolidated financial statements as of April 1, 2018 and December 31, 2017, and for the three-month periods ended April 1, 2018 and March 26, 2017, have been prepared in accordance with 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 April 1, 2018 and for the three-month periods ended April 1, 2018 and March 26, 2017 is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

The consolidated financial information as of December 31, 2017 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2017, which is included in Item 8 in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and should be read in conjunction with such consolidated financial statements.

The results of operations for the three-month periods ended April 1, 2018 and March 26, 2017 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending December 30, 2018.

Our significant accounting policies are disclosed in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Since December 31, 2017, there has been one significant change in our accounting policies related to revenue recognition, which is presented below.

Revenue Recognition Policy
Revenue is measured based on consideration specified in implied contracts with our customers and excludes amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation (at the time of sale) by transferring control over a product to a customer. Payment is due at the time the food or merchandise is transferred to the customer. The portion of any sale that results in loyalty rewards being issued is deferred, net of estimated breakage, until redemption.
Nature of Goods Sold
DRH earns revenue through sales of food, gift cards and merchandise to our customers. These sales occur through multiple channels, such as in-restaurant, call-in, online (web-based) and via third party delivery services.
Buffalo Wild Wings International, Inc. ("BWLD") offers a system-wide loyalty program (Blazin’ Rewards®) whereby enrolled customers earn points for each qualifying purchase. As a franchisee, DRH is required to participate in the program. DRH estimates the value of loyalty points earned (the value per point) by dividing the menu price of redeemable items by the loyalty reward points required to redeem that menu item. Points issued as part of the loyalty program expire after 6 months of member inactivity. DRH commissioned a study to determine a reasonable estimate of the breakage rate, which was approximately 32%.

DRH has two types of sales transactions, transactions without loyalty attachment and transactions with loyalty attachment. Transactions without loyalty attachment require no allocation of the transaction price, because the price is observable and fixed based on the menu. Transactions with loyalty attachment have two performance obligations: 1) providing the purchased food and/or merchandise to the customer and, 2) redeeming awarded loyalty points for food or merchandise in the future. In loyalty related transactions the price is allocated to the products sold and the points issued. Revenue related to loyalty points that may be redeemed in the future is deferred, net of estimated breakage, until such loyalty points are redeemed. For additional details refer to Note 6.

The Company offers gift cards for purchase through a BWLD system-wide program. Gift cards sold are recorded as a liability to BWLD. When redeemed, the gift card liability is offset by recording the transaction as revenue. Net gift card activity is settled with BWLD weekly. At times, gift card redemptions may exceed amounts due to BWLD for gift card purchases, resulting in an asset balance. Because this is a system-wide program operated by BWLD, the Company is not impacted by and does not record breakage.

Disaggregation of Revenue
In the following table, revenue is disaggregated by product mix.

Disaggregated Revenue
Product
April 1, 2018
 
March 26, 2017
Food
$
33,007,708

 
$
37,008,455

Alcohol
6,525,249

 
7,329,509

Total
$
39,532,957

 
$
44,337,964







Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815) ("ASU 2017-12"). The amendment expands an entity’s ability to hedge accounting to non-financial and financial risk components and requires changes in fair value of hedging instruments to be presented in the same income statement line as the hedged item. The ASU also amends the presentation and disclosure requirements for the effect of hedge accounting. The ASU must be adopted using a modified retrospective approach with a cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. The ASU is effective for fiscal years beginning after December 15, 2018 and interim periods therein. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.

In February 2016, FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires that lease arrangements longer than 12 months result in a lessee recognizing a lease asset and liability. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. We have analyzed the impact of the new standard and concluded that the adoption of ASU 2016-02 will materially impact our consolidated financial statements by significantly increasing our non-current assets and non-current liabilities on our consolidated balance sheets in order to record the right of use assets and related lease liabilities for our existing operating leases. Operating leases comprise the majority of our current lease portfolio. With respect to implementation, we are currently reviewing the accounting standard and are not yet able to estimate the impact on our consolidated financial statements.

We reviewed all other significant newly-issued accounting pronouncements and concluded that they either are not applicable to our operations or that no material effect is expected on our consolidated financial statements as a result of future adoption.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue with Contracts from Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 supersedes the current revenue recognition guidance, including industry-specific guidance. The guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of ASU 2014-09 for public companies to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which provides specific guidance to determine whether an entity is providing a specified good or service itself or is arranging for the good or service to be provided by another party.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: (Topic 606) Identifying Performance Obligations and Licensing, which clarifies the subjects of identifying performance obligations and licensing implementation guidance.

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients, which provides additional clarification on criteria within ASU 2014-09 as well as additional guidance for transition to the new revenue recognition criteria. ASU 2014-09 further requires new disclosures about contracts with customers, including disclosing performance obligations to customers arising from certain promotional activity, such as our customer loyalty program and the significant judgments the Company has made when applying the guidance.

The requirements for these standards relating to Topic 606 will be effective for interim and annual periods beginning after December 15, 2017. The Company adopted ASU 2014-09 effective as of January 1, 2018, using the modified retrospective transition method to all existing contracts that were not substantially completed at the adoption date. We finalized our analysis and the adoption of ASU 2014-09 which did not have, and is not expected to have, a material impact on the timing or amount of revenue recognized as compared to the Company's previous revenue recognition practices, or our internal controls over financial reporting.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplified wording and removes step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2020, with early adoption permitted for interim or annual goodwill impairment tests on testing dates after January 1, 2017. The Company adopted the standard as of the first day of the fourth quarter, September 25, 2017.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. Beginning in fiscal 2017, the tax effects of awards will be recognized in the statement of operations. In addition, the Company will account for forfeitures as they occur.

Effective December 26, 2016, the Company adopted the accounting guidance contained within ASU 2016-09. As a result, the Company recorded a deferred tax asset and retained earnings increase of $268,000 to recognize the Company's excess tax benefits that existed as of December 25, 2016, on the Consolidated Balance Sheet.
v3.8.0.1
Discontinued Operations (Notes)
3 Months Ended
Apr. 01, 2018
Discontinued Operations and Disposal Groups [Abstract]  
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS

Spin-Off of Bagger Dave's

On August 4, 2016, DRH announced that its Board of Directors unanimously approved a plan to pursue a tax-free spin-off of its Bagger Dave's business. Pursuant to this plan, DRH contributed its 100.0% owned entity, AMC Burgers, LLC and certain real estate entities, into Bagger Dave's Burger Tavern, Inc., a newly created Nevada company, which was then spun-off into a stand-alone company. AMC Burgers, Inc. owned and operated all of the Bagger Dave's Burger Tavern® restaurants and the real estate entities held certain real estate related to the restaurants before the real estate was sold in 2014 and 2015. In connection with the Spin-Off, DRH contributed certain assets, liabilities and employees related to its Bagger Dave's businesses. Intercompany balances due to/from DRH, which included amounts from sales, were contributed to equity of Bagger Dave's. The Spin-Off was effected on December 25, 2016 via a one-for-one distribution of common shares in Bagger Dave's to DRH holders of record on December 19, 2016.

As part of the Spin-Off transaction, DRH agreed to fund a one-time $2.0 million cash distribution to Bagger Dave's and agreed that, if deemed necessary within twelve months after the date of the Spin-Off, up to $1 million of additional cash funding may be considered upon approval by DRH and its lenders. As of December 31, 2017, this provision had lapsed and no additional funding was provided.

Prior to the Spin-Off, Bagger Dave’s was a co-obligor on a joint and several basis with the Company on its $155.0 million senior secured credit facility. The Company’s debt under this facility remained with the Company and Bagger Dave’s was released as a borrower. As a result, this debt was not assigned to discontinued operations. Additionally, DRH retained substantially all of the tax benefits (net operating loss and tax credit carryforwards) generated by Bagger Dave's prior to the date of the transaction.

DRH decided to spin-off Bagger Dave's after considering all reasonable strategic and structural alternatives because of the disparity between the operating models of its two brands, BWW as franchisee, and Bagger Dave's as an owned concept. The management teams of Bagger Dave's and DRH agreed that the nature of the two concepts varied greatly, and that each would be more valuable and operate more effectively independently of one another. Bagger Dave's is a concept developed by the management team of DRH. In contrast to operating a franchised concept like BWW, it has no development restrictions and the flexibility to enhance brand attributes such as logos, trade dress and restaurant design, change its menu offering and improve its operational model in an effort to better align with guest expectations. To manage these functions effectively, specific resources are required that are not necessary for a franchisee. For example, menu development, purchasing and brand marketing are critical to the success of Bagger Dave's but not necessary for a BWW franchisee since these functions are managed by the franchisor. Additionally, as a start-up brand, Bagger Dave's has both higher risk and higher growth potential while BWW, being a mature brand and as a franchisee, has more limited organic growth potential due to the status of its existing market penetration and the need to obtain development rights from the franchisor.

In conjunction with the Spin-Off, DRH entered into a transition services agreement (the "TSA") with Bagger Dave's pursuant to which DRH provided certain information technology and human resources support, limited accounting support, and other minor administrative functions at no charge. The TSA was intended to assist the discontinued component in efficiently and seamlessly transitioning to stand on its own. Certain provisions of the TSA terminated in December 2017 and the First Amendment to TSA (the "Amended TSA") was entered into effective January 1, 2018. Under the Amended TSA, DRH will provide ongoing administrative support to Bagger Dave's in certain areas, including information technology, human resources and real estate, in exchange for a fee based on a rate-per-hour of service. The amount charged to Bagger Dave’s was $13,680 and $0 during the three-month periods ended April 1, 2018 and March 26, 2017.

Information related to the Bagger Dave's Spin-Off has been reflected in the accompanying consolidated financial statements as follows:

Consolidated Statements of Operations - Bagger Dave's results of operations for the three month period ended March 26, 2017 have been presented as discontinued operations. There was no activity related to the discontinued operation at the Company for the three month period ended April 1, 2018.

Consolidated Statements of Cash Flows - The Bagger Dave's cash flows from operating and investing activities for the three-month period ended March 26, 2017 have been presented separately on the face of the cash flow statement. There was no activity related to the discontinued operation at the Company for the three month period ended April 1, 2018.


The operating results of the discontinued operations include only direct expenses incurred by Bagger Dave’s. Discontinued operations exclude certain corporate functions that were previously allocated to Bagger Dave’s. Interest expense was not allocated to discontinued operations because the Company’s debt under the $155 million secured credit facility remained with the Company.

Prior to the Spin-Off, Bagger Dave's was a reportable segment of the Company. Following the Spin-Off, there were no assets or liabilities remaining from the Bagger Dave's operations as of December 25, 2016. See Note 3 for a discussion of involvement the Company will continue to have with Bagger Dave's after the Spin-Off.
v3.8.0.1
Unconsolidated Variable Interest Entities
3 Months Ended
Apr. 01, 2018
Guarantees [Abstract]  
UNCONSOLIDATED VARIABLE INTEREST ENTITIES
UNCONSOLIDATED VARIABLE INTEREST ENTITIES

After the Spin-Off of Bagger Dave’s and the related discontinuation of its operations described in Note 2, the Company remains involved with certain activities that result in Bagger Dave’s being considered a Variable Interest Entity ("VIE"). This conclusion results primarily from the existence of guarantees by the Company of certain Bagger Dave’s leases as described below under "Lease Guarantees". While the Company holds a variable interest in Bagger Dave’s, it is not considered to be its primary beneficiary because it does not have the power to direct the activities of Bagger Dave’s. Specifically, we considered the fact that, although three of the Company’s executive officers are currently also on Bagger Dave’s board, there are no agreements in place that require these executive officers to vote in the interests of the Company, as these executive officers do not represent the Company in their capacity as Bagger Dave’s directors. Furthermore, they remain on the board of Bagger Dave’s so long as the shareholders annually elect them. At any time, these board members can be replaced by a vote of the Bagger Dave’s shareholders. As a result, the Company does not consolidate Bagger Dave's as a VIE.

Lease Guarantees

At April 1, 2018, the Company is a guarantor for 13 leases, three of which have been re-leased to an unaffiliated party. In the event the respective lessees cannot make their lease payments, the Company may become responsible for the payments under its guarantee.

Upon the Spin-Off of Bagger Dave's, in accordance with ASC 460, Guarantees, the Company evaluated its liability from the lease guarantees first by estimating the non-contingent component representing the estimated fair market value of the guarantees at inception, and recorded a liability. As of April 1, 2018 and December 31, 2017, the liability is $0.3 million, and it is included in other liabilities on the Consolidated Balance Sheet. No liability had previously been recorded as a result of the affiliate relationship between the Company and Bagger Dave’s.

Secondly, the Company considered the contingent component of the guarantees and concluded that, as of April 1, 2018 and December 31, 2017, no loss under the guarantees was probable because all but three of the Bagger Dave's restaurants subject to the leases is either currently operating or the site has been leased to another tenant who is responsible for, and making, the lease payments. With respect to the three recent closures, we expect to find a new tenant for the site and, in the meantime, Bagger Dave's is continuing to make the lease payments.

The Company has determined that its maximum exposure resulting from the lease guarantees includes approximately $8.1 million of future minimum lease payments plus potential additional payments to satisfy maintenance, property tax and insurance requirements under the leases as of April 1, 2018. The terms and conditions of the guarantees vary, and each guarantee has an expiration date which may or may not correspond with the end of the underlying lease term. The guarantee expiration dates range from less than 8 months to 12 years as of April 1, 2018. In the event that the Company is required to perform under any of its lease guarantees, we do not believe the liability would be material because we would first seek to minimize the exposure by finding a suitable tenant to lease the space. In many cases, we expect that a replacement tenant would be found and the lessor would agree to release the Company from its future guarantee obligation. In reaching our conclusion, we also considered the following:

the financial condition of Bagger Dave’s, including its ability to service the lease payments on the locations it continues to operate;
its history of incurring operating losses;
its liquidity position and the actions available to it should its liquidity deteriorate to such a degree that its ability to service required lease payments is threatened; and
the actions available to the Company to avoid or mitigate potential losses should Bagger Dave's become unable to service one or more of the leases that the Company guarantees.

The following is a detailed listing of all Bagger Dave's leases that include a guarantee by the Company as of April 1, 2018:
Location of lease
Status of location
Guarantee expiry date
Future guaranteed lease payments
Woodhaven, MI
Closed / re-leased
11/30/18
$
49,467

Traverse City, MI
Closed
01/31/19
76,667

Fort Wayne, IN
Open
01/31/19
70,333

Grand Blanc, MI
Open
01/31/20
129,667

Centerville, OH
Open
11/30/20
290,815

Chesterfield Township, MI
Open
12/31/20
178,750

E. Lansing, MI
Closed
09/10/21
75,000

Birch Run, MI
Open
12/31/24
645,613

Berkley, MI
Open
06/08/29
952,320

Cascade Township, MI
Open
06/08/29
873,984

Avon, IN
Closed / re-leased
06/30/29
1,424,384

Greenwood, IN
Closed / re-leased
06/30/29
1,474,560

Canton, MI
Closed
06/30/30
1,897,920

Total


$
8,139,480

v3.8.0.1
Property and Equipment
3 Months Ended
Apr. 01, 2018
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT, NET

Property and equipment are comprised of the following assets:
 
 
April 1, 2018
 
December 31, 2017
Equipment
 
$
30,362,871

 
$
30,252,867

Furniture and fixtures
 
7,466,589

 
7,444,792

Leasehold improvements
 
65,102,992

 
64,936,413

Restaurant construction in progress
 
199,980

 
161,942

Total
 
103,132,432

 
102,796,014

Less accumulated depreciation
 
(57,817,909
)
 
(54,781,971
)
Property and equipment, net
 
$
45,314,523

 
$
48,014,043

v3.8.0.1
Intangible Assets
3 Months Ended
Apr. 01, 2018
Intangible Assets, Net (Excluding Goodwill) [Abstract]  
INTANGIBLE ASSETS
INTANGIBLE ASSETS

Intangible assets are comprised of the following:
 
 
April 1, 2018
 
December 31, 2017
Amortized intangible assets
 
 
 
 
Franchise fees
 
$
1,290,642

 
$
1,290,642

Trademark
 
2,500

 
2,500

Non-compete
 
76,560

 
76,560

Favorable operating leases
 
351,344

 
351,344

Loan fees
 
368,083

 
368,083

Total
 
2,089,129

 
2,089,129

Less accumulated amortization
 
(953,986
)
 
(907,269
)
Amortized intangible assets, net
 
1,135,143

 
1,181,860

 
 
 
 
 
Unamortized intangible assets
 
 
 
 
Liquor licenses
 
1,256,327

 
1,256,327

Total intangible assets, net
 
$
2,391,470

 
$
2,438,187



Amortization expense was $20,805 and $21,230 for the three-month periods ended April 1, 2018 and March 26, 2017, respectively. Amortization of favorable/unfavorable leases and loan fees are reflected as part of occupancy and interest expense, respectively.

The aggregate weighted-average amortization period for intangible assets is 8.2 years at April 1, 2018.
v3.8.0.1
Other Accrued Liabilities
3 Months Ended
Apr. 01, 2018
Payables and Accruals [Abstract]  
OTHER ACCRUED LIABILITIES
OTHER ACCRUED LIABILITES
 
April 1, 2018
 
December 31, 2017
Sales tax payable
$
955,080

 
$
906,410

Accrued interest
525,184

 
481,431

Accrued royalty fees
137,611

 
179,114

Accrued property taxes
401,191

 
69,970

Accrued loyalty rewards
560,753

 
439,106

Other
291,554

 
328,911

Total other accrued liabilities
$
2,871,373

 
$
2,404,942

v3.8.0.1
Long-Term Debt
3 Months Ended
Apr. 01, 2018
Debt Disclosure [Abstract]  
LONG-TERM DEBT
LONG-TERM DEBT

Long-term debt consists of the following obligations:
 
 
April 1, 2018
 
December 31, 2017
$120.0 million term loan - the rate at April 1, 2018 and December 31, 2017 was 5.17% and 4.87%, respectively.
 
$
87,198,617

 
$
89,698,616

$30.0 million development line of credit, converted to $18.2 million facility term loan in December 2016 - the rate at April 1, 2018 and December 31, 2017 was 5.17% and 4.87%, respectively.
 
16,303,697

 
16,682,853

$5.0 million revolving line of credit - the rate at April 1, 2018 and December 31, 2017 was 5.29% and 5.11%, respectively.
 
5,000,000

 
5,000,000

$5.0 million development line of credit - the rate at April 1, 2018 and December 31, 2017 was 5.30% and 5.00%, respectively.
 
3,050,965

 
3,050,965

Unamortized discount and debt issuance costs
 
(452,164
)
 
(503,271
)
Total debt
 
111,101,115

 
113,929,163

 
 
 
 
 
Less current portion
 
(11,505,571
)
 
(11,440,433
)
Long-term debt, net of current portion
 
$
99,595,544

 
$
102,488,730



On June 29, 2015, the Company entered into a five year $155.0 million senior secured credit facility with a syndicate of lenders led by Citizens (the “Senior Secured Credit Facility”) with a senior lien on all the Company’s personal property and fixtures. The Senior Secured Credit Facility consists of a $120.0 million term loan (the “Term Loan”), a $30.0 million development line of credit (the “DLOC”) and a $5.0 million revolving line of credit (the “RLOC”).

On December 23, 2016, the Company amended the Senior Secured Credit Facility for purposes of, among other things, releasing the Bagger Dave’s entities as borrowers and releasing all related liens on the Bagger Dave’s assets. In addition, the amendment (a) converted the amounts then outstanding under the DLOC to a development facility term loan (the “DF Term Loan” and, together with the Term Loan, the "Term Loans"), (b) canceled $6.8 million previously available under the DLOC, and (c) extended the maturity date on the remaining $5.0 million under the DLOC to June 29, 2018.

Payments of principal are based upon a 12-year straight-line amortization schedule, with monthly principal payments of $959,718 on the Term Loans, plus accrued interest. As of April 1, 2018, $5.0 million and $3.1 million was outstanding under the RLOC and the DLOC, respectively. Availability under the DLOC is subject to certain limitations relative to actual development costs and access to the facility is restricted based on the Company’s leverage ratio. Outstanding balances convert into a DF Term Loan on June 29, 2018. Upon conversion, additional monthly principal will be due on the Term Loans based on the 12-year amortization period. If the DLOC is not fully drawn by the end of the two years term, the outstanding principal balance becomes due based on the 12-year amortization period. The entire remaining outstanding principal and accrued interest on the Senior Secured Credit Facility is due and payable on the maturity date of June 29, 2020.

The interest rate for each of the loans, as selected by the borrower, is based upon either a LIBOR or base rate (generally Prime or Fed Funds) plus an applicable margin, which ranges from 2.25% to 3.5% for LIBOR loans and from 1.25% to 2.5% for base rate loans, depending on the lease adjusted leverage ratio as defined in the agreement.

Fees related to the Term Loans are recorded as debt discount and fees related to the DLOC and RLOC are capitalized as intangible assets. Debt issuance costs represent legal, consulting and financial costs associated with debt financing. As a result of the December 2016 Amendment, the Company incurred $197,889 of debt issuance costs recorded as a part of debt discount. Debt discount related to term debt, net of accumulated amortization totaled $452,164 and $503,271 at April 1, 2018 and December 31, 2017, respectively. The unamortized portion of capitalized debt issuance costs related to the DLOC and RLOC totaled $137,708 and $159,033 at April 1, 2018 and December 31, 2017, respectively. Debt discount and debt issuance cost are amortized over the life of the debt and are recorded in interest expense using the effective interest method.

For the three-month periods ended April 1, 2018 and March 26, 2017 interest expense was $1.6 million, each.

The Senior Secured Credit Facility, as amended, contains various customary financial covenants generally based on the performance of the specific borrowing entity and other related entities. The more significant covenants consist of a minimum debt service coverage ratio and a maximum lease adjusted leverage ratio. On June 30, 2017 and February 28, 2018, the Company further amended the Senior Secured Credit Facility for purposes of revising the maximum lease adjusted leverage ratio and the minimum consolidated debt service coverage ratio and revising certain definitions impacting the calculation of the ratios. As of April 1, 2018, the Company is in compliance with the loan covenants.

At April 1, 2018, the Company has five interest rate swap agreements to fix a portion of the interest rates on its variable rate debt. The swap agreements all qualify for hedge accounting. Under the swap agreements, the Company receives interest at the one-month LIBOR and pays a fixed rate. Since these swap agreements qualify for hedge accounting, the changes in fair value are recorded in other comprehensive income (loss), net of tax. The fair value of the derivative assets and liabilities are included in Other long-term assets and Other long-term liabilities on the Consolidated Balance Sheets, respectively. See Note 14 for additional information pertaining to interest rate swaps.

The following summarizes the fair values of derivative instruments designated as cash flow hedges which were outstanding:

 
 
 
April 1, 2018
 
 
 
Notional amounts
 
Derivative assets
 
Derivative liabilities
Interest rate swaps
Rate
Expires
 
 
 
 
 
April 2012
1.4%
April 2019
$
2,476,191

 
$
8,560

 
$

July 2013
1.4%
April 2018
1,761,905

 
407

 

May 2014
1.5%
April 2018
6,607,143

 
764

 

January 2015
1.8%
December 2019
21,833,333

 
164,458

 

August 2015
2.3%
June 2020
60,042,262

 
128,063

 

Total
 
 
$
92,720,834

 
$
302,252


$


 
 
 
December 31, 2017
 
 
 
Notional amounts
 
Derivative assets
 
Derivative liabilities
Interest rate swaps
Rate
Expires
 
 
 
 
 
April 2012
1.4%
April 2019
$
3,047,619

 
$
6,028

 
$

July 2013
1.4%
April 2018
2,833,333

 
778

 

May 2014
1.5%
April 2018
7,142,857

 

 
408

January 2015
1.8%
December 2019
21,690,476

 
25,953

 

August 2015
2.3%
June 2020
60,412,798

 

 
461,455

Total
 
 
$
95,127,083

 
$
32,759

 
$
461,863

v3.8.0.1
Share-Based Compensation
3 Months Ended
Apr. 01, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
SHARE-BASED COMPENSATION
SHARE-BASED COMPENSATION

Restricted share awards

On July 13, 2017, the Company's shareholders approved a new stock incentive plan - the Stock Incentive Plan of 2017. No further grants will be made under the Stock Incentive Plan of 2011. The Stock Incentive Plan of 2017 authorized a total of 2,500,000 shares for issuance as incentive awards.

For the three-months ended April 1, 2018, restricted shares were issued to certain team members under the Stock Incentive Plan of 2017 at a weighted-average grant date fair value of $1.35. For the three-month period ended March 26, 2017, no restricted shares were issued. Based on the Stock Award Agreement, shares typically vest ratably over either a one or three year period, or on the third anniversary of the grant date, as determined by the Compensation Committee. Unrecognized share-based compensation expense of $0.8 million at April 1, 2018 will be recognized over the remaining weighted-average vesting period of 2.0 years. The total fair value of shares vested during the three-month periods ended April 1, 2018 and March 26, 2017, was $0.1 million and $0.0 million, respectively. Under the Stock Incentive Plan of 2017, there were 2.0 million shares available for future awards at April 1, 2018.

The following table presents the restricted stock transactions during the three-month period ended April 1, 2018:
 
Number of
Restricted
Stock Shares
Unvested, December 31, 2017
531,000

Granted
216,500

Vested
(62,332
)
Vested shares tax portion
(9,665
)
Expired/Forfeited
(4,585
)
Unvested, April 1, 2018
670,918


The following table presents the restricted stock transactions during the three-month period ended March 26, 2017:
 
Number of
Restricted
Stock Shares
Unvested, December 25, 2016
473,391

Granted

Vested

Vested shares tax portion

Expired/Forfeited
(1,000
)
Unvested, March 26, 2017
472,391



On July 30, 2010, prior to the adoption of the Stock Incentive Plan of 2011, DRH granted options for the purchase of 210,000 shares of common stock to the directors of the Company. These options are fully vested and had an original expiration date six years from the date of issuance. On July 28, 2016, the Stock Option Agreement of 2010 was amended to extend the expiration date of these options to July 31, 2019. The options can be exercised at a price of $2.50 per share. At April 1, 2018, 180,000 shares of authorized common stock are reserved for issuance to provide for the exercise of the remaining options. The intrinsic value of outstanding options was negligible as of both April 1, 2018 and March 26, 2017.

Employee stock purchase plan

The Company reserved 250,000 shares of common stock for issuance under the Employee Stock Purchase Plan (“ESPP”). The ESPP is available to team members subject to employment eligibility requirements. Participants may purchase common stock at 85.0% of the lesser of the start or end price for the offering period. The plan has four offering periods, each start/end dates coincide with the fiscal quarter and are awarded on the last day of the offering period. During the three-months ended April 1, 2018 and March 26, 2017, the Company issued 14,374 and 5,124 shares, respectively. Under the ESPP, there are 132,814 shares available for future purchase at April 1, 2018.

Share-based compensation

Share-based compensation of $0.2 million and $0.1 million, was recognized during the three-month periods ended April 1, 2018 and March 26, 2017, respectively, as compensation costs in the Consolidated Statements of Operations and as additional paid-in capital on the Consolidated Statements of Stockholders' Equity (Deficit) to reflect the fair value of shares vested.

The Company has authorized 10,000,000 shares of preferred stock at a par value of $0.0001No preferred shares are issued or outstanding as of April 1, 2018. 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.
v3.8.0.1
Income Taxes
3 Months Ended
Apr. 01, 2018
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES

The effective income tax expense (benefit) rate for continuing operations was (275.0)% and 2.7%, for the three-month periods ended April 1, 2018 and March 26, 2017, respectively. The change in the effective income tax rate for the three months ended April 1, 2018 compared with the three months ended March 26, 2017 is primarily attributable to valuation allowance against the deferred tax asset and the reduction of the deferred tax liability caused by the change in certain tax attributes.

In accordance with the provisions of ASC 740, a valuation allowance was established as of December 31, 2017, for the deferred tax assets of the Company, and remains in place as of April 1, 2018. On a quarterly basis, the Company evaluates the recoverability of the deferred tax asset by reviewing current and projected company and restaurant industry trends, and the macro economic environment.
v3.8.0.1
Operating Leases
3 Months Ended
Apr. 01, 2018
Leases, Operating [Abstract]  
OPERATING LEASES
OPERATING LEASES

The Company's lease terms 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 $2.3 million and $2.2 million for the three-month periods ended April 1, 2018 and March 26, 2017, respectively.

Scheduled future minimum lease payments for each of the five years and thereafter for non-cancelable operating leases for existing restaurants with initial or remaining lease terms in excess of one year at April 1, 2018 are summarized as follows:
Year
Amount
Remainder of 2018
$
6,670,252

2019
8,251,227

2020
8,172,611

2021
7,344,651

2022
6,568,305

Thereafter
29,830,471

Total
$
66,837,517

v3.8.0.1
Commitments and Contingencies
3 Months Ended
Apr. 01, 2018
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

Refer to Note 3 for a discussion of lease guarantees provided by the Company.

Franchise Related
The Company is required to pay BWLD royalties (5.0% of net sales) and advertising fund contributions (3.00% - 3.15% of net sales). In addition, the Company is required to spend an additional 0.25% - 0.5% of regional net sales related to advertising cooperatives for certain metropolitan markets for the term of the individual franchise agreements. The Company incurred $2.0 million and $2.2 million in royalty expense for the three-month periods ended April 1, 2018 and March 26, 2017, respectively. Advertising fund contribution expenses were $1.3 million and $1.4 million for the three-month periods ended April 1, 2018 and March 26, 2017, respectively. Amounts are recorded in Other operating costs on the Consolidated Statement of Operations.

The Company is required by its various BWLD franchise agreements to modernize the restaurants during the term of the agreements. The individual agreements generally require improvements between the fifth and tenth year to meet the most current design model that BWLD has approved. The modernization costs for a restaurant are expected to range from $250,000 to $850,000 depending on an individual restaurant's needs.

Legal Proceedings
The Company is subject to ordinary and routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the ordinary course of its business. The ultimate outcome of any litigation is uncertain. 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.
v3.8.0.1
Earnings Per Share
3 Months Ended
Apr. 01, 2018
Earnings Per Share [Abstract]  
EARNINGS PER SHARE
EARNINGS PER SHARE

The following is a reconciliation of basic and fully diluted earnings per common share for the three-month periods ended April 1, 2018 and March 26, 2017:

 
Three months ended
 
 
April 1, 2018
 
March 26, 2017
Income from continuing operations
 
$
191,829

 
$
795,580

Income from discontinued operations
 

 
35,540

Net income
 
$
191,829

 
$
831,120


 
 
 
 
Weighted-average shares outstanding
 
26,853,724

 
26,629,974

Effect of dilutive securities
 

 

Weighted-average shares outstanding - assuming dilution
 
26,853,724

 
26,629,974


 
 
 
 
Earnings per common share from continuing operations
 
$
0.01

 
$
0.03

Earnings per common share from discontinued operations
 

 

Earnings per common share
 
$
0.01

 
$
0.03


 
 
 
 
Earnings per common share - assuming dilution - from continuing operations
 
0.01

 
0.03

Earnings per common share - assuming dilution - from discontinued operations
 

 

Earnings per common share - assuming dilution
 
$
0.01

 
$
0.03


During the three month periods ended April 1, 2018 and March 26, 2017, 670,918 and 472,392 shares, respectively, of unvested restricted stock were excluded from the calculation of diluted earnings per share because such shares were anti-dilutive.
v3.8.0.1
Supplemental Cash Flows Information
3 Months Ended
Apr. 01, 2018
Supplemental Cash Flow Elements [Abstract]  
SUPPLEMENTAL CASH FLOWS INFORMATION
SUPPLEMENTAL CASH FLOWS INFORMATION

Other Cash Flows Information

Cash paid for interest was $1.5 million and $1.4 million during the three-month periods ended April 1, 2018 and March 26, 2017, respectively.

Cash paid for income taxes was $0 and $0, during the three-month periods ended April 1, 2018 and March 26, 2017, respectively.

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

Noncash investing activities for property and equipment not yet paid as of April 1, 2018 and March 26, 2017, was $0.1 million and $0.4 million, respectively.
v3.8.0.1
Fair Value of Financial Instruments
3 Months Ended
Apr. 01, 2018
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

As of April 1, 2018 and December 31, 2017, respectively, our financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, interest rate swaps, lease guarantee liability, and debt. The fair value of cash and cash equivalents, accounts receivable, and accounts payable approximate carrying value, due to their short-term nature.

The fair value of our interest rate swaps is determined based on valuation models, which utilize quoted interest rate curves to calculate the forward value and then discount the forward values to the present period. The Company measures the fair value using broker quotes, which are generally based on observable market inputs including yield curves and the value associated with counterparty credit risk. Our interest rate swaps are classified as a Level 2 measurement as these securities are not actively traded in the market, but are observable based on transactions associated with bank loans with similar terms and maturities. See Note 7 for additional information pertaining to interest rates swaps.

The fair value of our lease guarantee liability was determined by calculating the present value of the difference between the estimated rate at which the Company and Bagger Dave’s could borrow money in a duration similar to the underlying lease guarantees. Our lease guarantees are classified as a Level 2 measurement as there is no actively traded market for such instruments.

As of April 1, 2018 and December 31, 2017, our total debt was approximately $111.1 million and $113.9 million, respectively, which approximated fair value because the applicable interest rates are adjusted frequently based on short-term market rates (Level 2).

There were no transfers between levels of the fair value hierarchy during the three month period ended April 1, 2018 and the fiscal year ended December 31, 2017.

The following table presents the fair values for those assets and liabilities measured on a recurring basis as of April 1, 2018:

FAIR VALUE MEASUREMENTS
Description
 
Level 1
 
Level 2
 
Level 3
 
Asset/(Liability)
Total
Interest rate swaps
 
$

 
$
302,252

 
$

 
$
302,252

Lease guarantee liability
 

 
(294,731
)
 

 
(294,731
)
Total
 
$

 
$
7,521

 
$

 
$
7,521


 
The following table presents the fair values for those assets and liabilities measured on a recurring basis as of December 31, 2017:

FAIR VALUE MEASUREMENTS
Description
 
Level 1
 
Level 2
 
Level 3
 
Asset/(Liability)
Total
Interest rate swaps
 
$

 
$
(429,104
)
 
$

 
$
(429,104
)
Lease guarantee liability
 

 
(303,006
)
 

 
(303,006
)
Total
 
$

 
$
(732,110
)
 
$

 
$
(732,110
)
v3.8.0.1
Accumulated Other Comprehensive Income (Loss)
3 Months Ended
Apr. 01, 2018
Stockholders' Equity Note [Abstract]  
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes each component of Accumulated Other Comprehensive Income (Loss):
 
 
Three Months Ended April 1, 2018
 
Three Months Ended March 26, 2017
 
 
Interest Rate Swaps
 
Interest Rate Swaps
Beginning balance
 
$
(283,208
)
 
$
(934,222
)
 
 
 
 
 
Gain recorded to other comprehensive loss
 
731,357

 
249,158

Tax expense
 
(23,015
)
 
(84,714
)
Other comprehensive income
 
708,342

 
164,444


 
 
 
 
Accumulated other comprehensive income (loss)
 
$
425,134

 
$
(769,778
)
v3.8.0.1
Business and Summary of Significant Accounting Policies (Policies)
3 Months Ended
Apr. 01, 2018
Accounting Policies [Abstract]  
Basis of Presentation

The consolidated financial statements as of April 1, 2018 and December 31, 2017, and for the three-month periods ended April 1, 2018 and March 26, 2017, have been prepared in accordance with 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 April 1, 2018 and for the three-month periods ended April 1, 2018 and March 26, 2017 is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

The consolidated financial information as of December 31, 2017 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2017, which is included in Item 8 in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and should be read in conjunction with such consolidated financial statements.

The results of operations for the three-month periods ended April 1, 2018 and March 26, 2017 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending December 30, 2018.
Recent Accounting Pronouncements and Recently Adopted Accounting Pronouncements
Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (Topic 815) ("ASU 2017-12"). The amendment expands an entity’s ability to hedge accounting to non-financial and financial risk components and requires changes in fair value of hedging instruments to be presented in the same income statement line as the hedged item. The ASU also amends the presentation and disclosure requirements for the effect of hedge accounting. The ASU must be adopted using a modified retrospective approach with a cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. The ASU is effective for fiscal years beginning after December 15, 2018 and interim periods therein. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.

In February 2016, FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires that lease arrangements longer than 12 months result in a lessee recognizing a lease asset and liability. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. We have analyzed the impact of the new standard and concluded that the adoption of ASU 2016-02 will materially impact our consolidated financial statements by significantly increasing our non-current assets and non-current liabilities on our consolidated balance sheets in order to record the right of use assets and related lease liabilities for our existing operating leases. Operating leases comprise the majority of our current lease portfolio. With respect to implementation, we are currently reviewing the accounting standard and are not yet able to estimate the impact on our consolidated financial statements.

We reviewed all other significant newly-issued accounting pronouncements and concluded that they either are not applicable to our operations or that no material effect is expected on our consolidated financial statements as a result of future adoption.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue with Contracts from Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 supersedes the current revenue recognition guidance, including industry-specific guidance. The guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of ASU 2014-09 for public companies to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which provides specific guidance to determine whether an entity is providing a specified good or service itself or is arranging for the good or service to be provided by another party.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: (Topic 606) Identifying Performance Obligations and Licensing, which clarifies the subjects of identifying performance obligations and licensing implementation guidance.

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients, which provides additional clarification on criteria within ASU 2014-09 as well as additional guidance for transition to the new revenue recognition criteria. ASU 2014-09 further requires new disclosures about contracts with customers, including disclosing performance obligations to customers arising from certain promotional activity, such as our customer loyalty program and the significant judgments the Company has made when applying the guidance.

The requirements for these standards relating to Topic 606 will be effective for interim and annual periods beginning after December 15, 2017. The Company adopted ASU 2014-09 effective as of January 1, 2018, using the modified retrospective transition method to all existing contracts that were not substantially completed at the adoption date. We finalized our analysis and the adoption of ASU 2014-09 which did not have, and is not expected to have, a material impact on the timing or amount of revenue recognized as compared to the Company's previous revenue recognition practices, or our internal controls over financial reporting.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplified wording and removes step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2020, with early adoption permitted for interim or annual goodwill impairment tests on testing dates after January 1, 2017. The Company adopted the standard as of the first day of the fourth quarter, September 25, 2017.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. Beginning in fiscal 2017, the tax effects of awards will be recognized in the statement of operations. In addition, the Company will account for forfeitures as they occur.

Effective December 26, 2016, the Company adopted the accounting guidance contained within ASU 2016-09. As a result, the Company recorded a deferred tax asset and retained earnings increase of $268,000 to recognize the Company's excess tax benefits that existed as of December 25, 2016, on the Consolidated Balance Sheet.
v3.8.0.1
Business and Summary of Significant Accounting Policies (Tables)
3 Months Ended
Apr. 01, 2018
Accounting Policies [Abstract]  
Disaggregation of Revenue
In the following table, revenue is disaggregated by product mix.

Disaggregated Revenue
Product
April 1, 2018
 
March 26, 2017
Food
$
33,007,708

 
$
37,008,455

Alcohol
6,525,249

 
7,329,509

Total
$
39,532,957

 
$
44,337,964

v3.8.0.1
(Tables)
3 Months Ended
Apr. 01, 2018
Guarantees [Abstract]  
Schedule of Guarantor Obligations
The following is a detailed listing of all Bagger Dave's leases that include a guarantee by the Company as of April 1, 2018:
Location of lease
Status of location
Guarantee expiry date
Future guaranteed lease payments
Woodhaven, MI
Closed / re-leased
11/30/18
$
49,467

Traverse City, MI
Closed
01/31/19
76,667

Fort Wayne, IN
Open
01/31/19
70,333

Grand Blanc, MI
Open
01/31/20
129,667

Centerville, OH
Open
11/30/20
290,815

Chesterfield Township, MI
Open
12/31/20
178,750

E. Lansing, MI
Closed
09/10/21
75,000

Birch Run, MI
Open
12/31/24
645,613

Berkley, MI
Open
06/08/29
952,320

Cascade Township, MI
Open
06/08/29
873,984

Avon, IN
Closed / re-leased
06/30/29
1,424,384

Greenwood, IN
Closed / re-leased
06/30/29
1,474,560

Canton, MI
Closed
06/30/30
1,897,920

Total


$
8,139,480

v3.8.0.1
Property and Equipment (Tables)
3 Months Ended
Apr. 01, 2018
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment
Property and equipment are comprised of the following assets:
 
 
April 1, 2018
 
December 31, 2017
Equipment
 
$
30,362,871

 
$
30,252,867

Furniture and fixtures
 
7,466,589

 
7,444,792

Leasehold improvements
 
65,102,992

 
64,936,413

Restaurant construction in progress
 
199,980

 
161,942

Total
 
103,132,432

 
102,796,014

Less accumulated depreciation
 
(57,817,909
)
 
(54,781,971
)
Property and equipment, net
 
$
45,314,523

 
$
48,014,043

v3.8.0.1
Intangible Assets (Tables)
3 Months Ended
Apr. 01, 2018
Intangible Assets, Net (Excluding Goodwill) [Abstract]  
Schedule of Finite-Lived Intangible Assets
Intangible assets are comprised of the following:
 
 
April 1, 2018
 
December 31, 2017
Amortized intangible assets
 
 
 
 
Franchise fees
 
$
1,290,642

 
$
1,290,642

Trademark
 
2,500

 
2,500

Non-compete
 
76,560

 
76,560

Favorable operating leases
 
351,344

 
351,344

Loan fees
 
368,083

 
368,083

Total
 
2,089,129

 
2,089,129

Less accumulated amortization
 
(953,986
)
 
(907,269
)
Amortized intangible assets, net
 
1,135,143

 
1,181,860

 
 
 
 
 
Unamortized intangible assets
 
 
 
 
Liquor licenses
 
1,256,327

 
1,256,327

Total intangible assets, net
 
$
2,391,470

 
$
2,438,187

v3.8.0.1
Other Accrued Liabilities (Tables)
3 Months Ended
Apr. 01, 2018
Payables and Accruals [Abstract]  
Other Accrued Liabilities
OTHER ACCRUED LIABILITES
 
April 1, 2018
 
December 31, 2017
Sales tax payable
$
955,080

 
$
906,410

Accrued interest
525,184

 
481,431

Accrued royalty fees
137,611

 
179,114

Accrued property taxes
401,191

 
69,970

Accrued loyalty rewards
560,753

 
439,106

Other
291,554

 
328,911

Total other accrued liabilities
$
2,871,373

 
$
2,404,942

v3.8.0.1
Long-Term Debt (Tables)
3 Months Ended
Apr. 01, 2018
Debt Disclosure [Abstract]  
Schedule of Long-term Debt
Long-term debt consists of the following obligations:
 
 
April 1, 2018
 
December 31, 2017
$120.0 million term loan - the rate at April 1, 2018 and December 31, 2017 was 5.17% and 4.87%, respectively.
 
$
87,198,617

 
$
89,698,616

$30.0 million development line of credit, converted to $18.2 million facility term loan in December 2016 - the rate at April 1, 2018 and December 31, 2017 was 5.17% and 4.87%, respectively.
 
16,303,697

 
16,682,853

$5.0 million revolving line of credit - the rate at April 1, 2018 and December 31, 2017 was 5.29% and 5.11%, respectively.
 
5,000,000

 
5,000,000

$5.0 million development line of credit - the rate at April 1, 2018 and December 31, 2017 was 5.30% and 5.00%, respectively.
 
3,050,965

 
3,050,965

Unamortized discount and debt issuance costs
 
(452,164
)
 
(503,271
)
Total debt
 
111,101,115

 
113,929,163

 
 
 
 
 
Less current portion
 
(11,505,571
)
 
(11,440,433
)
Long-term debt, net of current portion
 
$
99,595,544

 
$
102,488,730

Fair Values of Derivative Instruments
The following summarizes the fair values of derivative instruments designated as cash flow hedges which were outstanding:

 
 
 
April 1, 2018
 
 
 
Notional amounts
 
Derivative assets
 
Derivative liabilities
Interest rate swaps
Rate
Expires
 
 
 
 
 
April 2012
1.4%
April 2019
$
2,476,191

 
$
8,560

 
$

July 2013
1.4%
April 2018
1,761,905

 
407

 

May 2014
1.5%
April 2018
6,607,143

 
764

 

January 2015
1.8%
December 2019
21,833,333

 
164,458

 

August 2015
2.3%
June 2020
60,042,262

 
128,063

 

Total
 
 
$
92,720,834

 
$
302,252


$


 
 
 
December 31, 2017
 
 
 
Notional amounts
 
Derivative assets
 
Derivative liabilities
Interest rate swaps
Rate
Expires
 
 
 
 
 
April 2012
1.4%
April 2019
$
3,047,619

 
$
6,028

 
$

July 2013
1.4%
April 2018
2,833,333

 
778

 

May 2014
1.5%
April 2018
7,142,857

 

 
408

January 2015
1.8%
December 2019
21,690,476

 
25,953

 

August 2015
2.3%
June 2020
60,412,798

 

 
461,455

Total
 
 
$
95,127,083

 
$
32,759

 
$
461,863

v3.8.0.1
Share-Based Compensation (Tables)
3 Months Ended
Apr. 01, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Nonvested Restricted Stock Shares Activity
The following table presents the restricted stock transactions during the three-month period ended April 1, 2018:
 
Number of
Restricted
Stock Shares
Unvested, December 31, 2017
531,000

Granted
216,500

Vested
(62,332
)
Vested shares tax portion
(9,665
)
Expired/Forfeited
(4,585
)
Unvested, April 1, 2018
670,918


The following table presents the restricted stock transactions during the three-month period ended March 26, 2017:
 
Number of
Restricted
Stock Shares
Unvested, December 25, 2016
473,391

Granted

Vested

Vested shares tax portion

Expired/Forfeited
(1,000
)
Unvested, March 26, 2017
472,391

v3.8.0.1
Operating Leases (Tables)
3 Months Ended
Apr. 01, 2018
Leases, Operating [Abstract]  
Schedule of Future Minimum Rental Payments for Operating Leases
Scheduled future minimum lease payments for each of the five years and thereafter for non-cancelable operating leases for existing restaurants with initial or remaining lease terms in excess of one year at April 1, 2018 are summarized as follows:
Year
Amount
Remainder of 2018
$
6,670,252

2019
8,251,227

2020
8,172,611

2021
7,344,651

2022
6,568,305

Thereafter
29,830,471

Total
$
66,837,517

v3.8.0.1
Earnings Per Share (Tables)
3 Months Ended
Apr. 01, 2018
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share, Basic and Diluted
The following is a reconciliation of basic and fully diluted earnings per common share for the three-month periods ended April 1, 2018 and March 26, 2017:

 
Three months ended
 
 
April 1, 2018
 
March 26, 2017
Income from continuing operations
 
$
191,829

 
$
795,580

Income from discontinued operations
 

 
35,540

Net income
 
$
191,829

 
$
831,120


 
 
 
 
Weighted-average shares outstanding
 
26,853,724

 
26,629,974

Effect of dilutive securities
 

 

Weighted-average shares outstanding - assuming dilution
 
26,853,724

 
26,629,974


 
 
 
 
Earnings per common share from continuing operations
 
$
0.01

 
$
0.03